[Federal Register Volume 91, Number 148 (Tuesday, August 4, 2026)]
[Rules and Regulations]
[Pages 49570-50461]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2026-15833]
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Vol. 91
Tuesday,
No. 148
August 4, 2026
Part IV
Department of Health and Human Services
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45 CFR Part 170
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Centers for Medicare & Medicaid Services
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42 CFR Parts 405, 412, 413 et al.
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Medicare Program; Hospital Inpatient Prospective Payment Systems for
Acute Care Hospitals (IPPS) and the Long-Term Care Hospital Prospective
Payment System and Policy Changes and Fiscal Year (FY) 2027 Rates;
Requirements for Quality Programs; Other Policy Changes; and Adoption
of Updated Versions of Certain Health Information Technology Standards;
Final Rule
Federal Register / Vol. 91 , No. 148 / Tuesday, August 4, 2026 /
Rules and Regulations
[[Page 49570]]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
42 CFR Parts 405, 412, 413, 415, 419, 495, and 512
Office of the Secretary
45 CFR Part 170
[CMS-1849-F and CMS-0062-F]
RINs 0938-AV79 and 0938-AV44
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; Other Policy Changes; and
Adoption of Updated Versions of Certain Health Information Technology
Standards
AGENCY: Centers for Medicare & Medicaid Services (CMS) and Office of
the National Coordinator for Health Information Technology (ONC),
Department of Health and Human Services (HHS).
ACTION: Final rule.
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SUMMARY: This final rule will 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. ONC also adopts certain health information technology
(health IT) standards and specifications on behalf of HHS.
DATES: These regulations are effective on October 1, 2026. The
incorporation by reference of certain material listed in this rule is
approved by the Director of the Federal Register as of October 1, 2026.
The incorporation of reference of certain other material listed in the
rule was approved by the Director of the Federal Register as of October
1, 2025.
FOR FURTHER INFORMATION CONTACT: Donald Thompson, and Michele Hudson,
(410) 786-4487 or [email protected], Operating Prospective Payment, MS-
DRG Relative Weights, Wage Index, Hospital Geographic
Reclassifications, Graduate Medical Education, Capital Prospective
Payment, Excluded Hospitals, Medicare Disproportionate Share Hospital
(DSH) Payment Adjustment, Sole Community Hospitals (SCHs), Medicare-
Dependent Small Rural Hospital (MDH) Program, 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 Issues.
[email protected], Transforming Episode Accountability Model
(TEAM) Issues.
[email protected], Comprehensive Care for Joint Replacement
Expanded (CJR-X) Model Issues.
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) Issues.
Alexander Baker, (202) 260-2048, for ONC Health Information
Technology Standards and Specifications Issues.
SUPPLEMENTARY INFORMATION:
Tables Available on the CMS Website
The IPPS tables for this fiscal year (FY) 2027 final rule are
available on the CMS website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html. Click on the link
on the left side of the screen titled ``FY 2027 IPPS Final Rule Home
Page'' or ``Acute Inpatient--Files for Download.'' The LTCH PPS tables
for this FY 2027 final rule are available on the CMS website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/LongTermCareHospitalPPS/index.html under the list item for Regulation
Number CMS-1849-F. For further details on the contents of the tables
referenced in this final rule, we refer readers to section VI. of the
Addendum to this FY 2027 IPPS/LTCH PPS final rule. Readers who
experience any problems accessing any of the tables that are posted on
the CMS websites, as previously identified, should contact Michael
Treitel, [email protected].
I. Executive Summary and Background
A. Executive Summary
1. Purpose and Legal Authority
This FY 2027 IPPS/LTCH PPS final rule will 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 will 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
final rule also will make policy changes to programs associated with
Medicare IPPS hospitals, IPPS-excluded hospitals, and LTCHs. We are
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also making changes relating to Medicare graduate medical education
(GME) and nursing and allied health (NAH) education payments.
We are finalizing the adoption of the Advance Care Planning
electronic clinical quality measure (eCQM) in the Hospital Inpatient
Quality Reporting and Medicare Promoting Interoperability Programs and
finalizing the adoption of the Advance Care Planning eCQM, with a
modification, in the PPS-Exempt Cancer Hospital (PCH) Quality Reporting
Program. We are finalizing the proposal to adopt five modified claims-
based, risk-standardized mortality measures in the Hospital Inpatient
Quality Reporting Program as a step towards subsequently modifying
these measures in the Hospital Value-Based Purchasing Program.
Other than these cross-program proposals, we did not propose any
updates for the Hospital Value-Based Purchasing Program or the Hospital
Acquired-Conditions Reduction Program.
In the Hospital Readmissions Reduction Program, we are finalizing
the adoption of the Hospital 30-Day, All-Cause, Risk-Standardized
Readmission Rate Following Sepsis Hospitalization measure with
modifications.
In addition to the cross-program proposals previously listed, in
the Hospital Inpatient Quality Reporting Program, we are finalizing the
adoption of two new quality measures, removal of three measures, and
modification of three current measures. We are also finalizing
modifications of 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 finalizing the adoption of an
additional new measure, with a modification, and finalizing the removal
of one measure. We are also finalizing the adoption of data reporting
and submission requirements for eCQMs.
In addition to the cross-program proposal previously listed, in the
Medicare Promoting Interoperability Program, we are finalizing the
removal of two measures and two attestations; adoption of a measure;
modification of one measure; adoption of one additional eCQM in
alignment with the Hospital Inpatient Quality Reporting Program; and
removal of three eCQMs in alignment with the Hospital Inpatient Quality
Reporting Program.
In the LTCH Quality Reporting Program (QRP), we are finalizing
removal of two measures, beginning with the FY 2028 LTCH QRP. We also
finalize a revision of the LTCH QRP Data Submission Deadlines beginning
with the FY 2029 LTCH QRP. Finally, we summarize public comments
received 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 final rule, we are finalizing
updates to TEAM that will modify policies affecting episode category
triggers, quality measure assessment, and the construction of target
prices. We also discuss the public comments received from a Request for
Information (RFI) about voluntary opt-in opportunity for hospitals with
physician ownership (POHs) and our policy intent for future rulemaking.
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 expanding the model nationally,
including U.S. Territories starting January 1, 2028. The model will
focus on improving care and reducing spending for Medicare
beneficiaries undergoing lower extremity joint replacement (LEJR)
procedures. Participating hospitals will 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.
The CJR-X Model will be mandatory for acute care hospitals, except for
those participating in TEAM, and acute care hospitals located in
Maryland. CJR-X includes 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 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 final rule. These statutory authorities include, but are not
limited to, the following:
Section 1886(d) of the Social Security Act (the Act),
which sets forth a system of payment for the operating costs of acute
care hospital inpatient stays under Medicare Part A (Hospital
Insurance) based on prospectively set rates. Section 1886(g) of the Act
requires that, instead of paying for capital-related costs of inpatient
hospital services on a reasonable cost basis, the Secretary use a
prospective payment system (PPS).
Section 1886(d)(1)(B) of the Act, which specifies that
certain hospitals and hospital units are excluded from the IPPS. These
hospitals and units are: rehabilitation hospitals and units; LTCHs;
psychiatric hospitals and units; children's hospitals; cancer
hospitals; extended neoplastic disease care hospitals; and hospitals
located outside the 50 States, the District of Columbia, and Puerto
Rico (that is, hospitals located in the U.S. Virgin Islands, Guam, the
Northern Mariana Islands, and American Samoa). Religious nonmedical
health care institutions (RNHCIs) are also excluded from the IPPS.
Sections 123(a) and (c) of the Balanced Budget Refinement
Act of 1999 (BBRA) (Public Law (Pub. L.) 106-113) and section 307(b)(1)
of the Benefits Improvement and Protection Act of 2000 (BIPA) (Pub. L.
106-554) (as codified under section 1886(m)(1) of the Act), which
provide for the development and implementation of a prospective payment
system for payment for inpatient hospital services of LTCHs described
in section 1886(d)(1)(B)(iv) of the Act.
Section 1814(l)(4) of the Act requires, beginning with FY
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
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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 (DSH
hospitals, or DSH-eligible hospitals). These payments are known as the
Medicare disproportionate share hospital (DSH) adjustment, or DSH
payment. Section 1886(d)(5)(F) of the Act specifies the methods under
which a hospital may qualify for the DSH payment.
Section 1886(r) of the Act, as added by section 3133 of
the Affordable Care Act, 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 assess a hospital's
performance relative to other hospitals with a similar proportion of
beneficiaries who are dually eligible for both Medicare and full
Medicaid benefits.
Section 1886(m)(5) of the Act, which requires the
Secretary to reduce by 2 percentage points the annual update to the
standard Federal rate for discharges for a long-term care hospital
(LTCH) during the rate year for LTCHs that do not submit data on
quality measures in the form, manner, and at a time, specified by the
Secretary.
Section 1115A of the Act authorizes the testing of
innovative payment and service delivery models that preserve or enhance
the quality of care furnished to Medicare, Medicaid, and Children's
Health Insurance Program (CHIP) beneficiaries while reducing program
expenditures.
2. Summary of the Major Provisions
The following is a summary of the major provisions in this final
rule. In general, these major provisions are being finalized as part of
the annual update to the payment policies and payment rates, consistent
with the applicable statutory provisions. A general summary of the
changes in this final rule is presented in section I.D. of the preamble
of this final rule.
a. 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 final rule, we discuss
our finalized 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 final rule, we discuss similar policies with respect to approved
nursing and allied health education programs and accreditors.
b. Modifications to the Criteria for New Residency Programs
In section V.F.3. of the preamble of this final rule, we discuss
our modifications to the criteria for identifying new residency
programs under 42 CFR 413.79(l). Under this policy, in addition to
receiving initial
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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. This 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 will 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 final rule, we are finalizing the
adoption of the Hospital 30-Day, All-Cause, Risk-Standardized
Readmission Rate Following Sepsis Hospitalization measure with
modifications beginning with 2 years of early look reports for the FY
2028 and FY 2029 program years, and use beginning with the FY 2030
program year.
d. Hospital Value-Based Purchasing (VBP) Program
In this FY 2027 IPPS/LTCH PPS final rule, we are finalizing
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 sought comments on two topics: (1) measuring
emergency room access and timeliness in the Hospital Inpatient Quality
Reporting and Value-Based Purchasing Programs; and (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 final rule, we are finalizing several
changes to the Hospital Inpatient Quality Reporting Program. We are
finalizing the adoption of 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; and (3) Hospital Harm-
Postoperative Venous Thromboembolism eCQM beginning with the FY 2030
payment determination. We are also finalizing the adoption of 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 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 COPD Hospitalization measure; and (5) Hospital 30-Day,
All-Cause, Risk-Standardized Mortality Rate Following CABG Surgery
measure. We are finalizing modifications to three claims-based measures
beginning with the FY 2028 payment determination: (1) Excess Days in
Acute Care after Hospitalization for AMI; (2) Excess Days in Acute Care
after Hospitalization for Heart Failure; and (3) Excess Days in Acute
Care after Hospitalization for Pneumonia. We are finalizing the removal
of three measures beginning with the FY 2030 payment determination: (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. We are finalizing
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
with modifications; and (3) an update to the reporting of the Maternal
Morbidity Structural measure beginning with the FY 2028 payment
determination. We sought comments on three topics: (1) measuring
emergency room access and timeliness in the 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.
f. PPS-Exempt Cancer Hospital (PCH) Quality Reporting Program
In this FY 2027 IPPS/LTCH PPS final rule, we are finalizing the
adoption of two new measures with modifications: (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 finalizing the removal of the COVID-19 Vaccination Coverage
Among Healthcare Personnel (HCP COVID-19 Vaccination) measure beginning
with the FY 2028 program year. In addition, we finalized the
establishment of reporting and submission requirements for eCQMs in
this program.
g. Long-Term Care Hospital Quality Reporting Program (LTCH QRP)
In the LTCH QRP, we finalize removal of two measures, beginning
with the FY 2028 LTCH QRP. We also finalize the revision of the LTCH
QRP Data Submission Deadlines beginning with the FY 2029 LTCH QRP. We
also summarize public comments received on one Request for Information
(RFI) on future measure concepts for the LTCH QRP.
h. Medicare Promoting Interoperability Program
We are finalizing several changes to the Medicare Promoting
Interoperability Program. Specifically, we are finalizing: (1)
revisions to the definition of certified EHR technology (CEHRT) for the
Medicare Promoting Interoperability Program based on Office of the
National Coordinator for Health Information Technology (ONC) proposals
to update the ONC Health IT Certification Program; (2) removal of
attestations related to ONC Direct Review and ONC-Authorized
Certification Body (ONC-ACB) Surveillance; (3) removal of the Support
Electronic Referral Loops by Sending Health Information measure and the
Support Electronic Referral Loops by Receiving and Reconciling Health
Information measure; (4) modification of the Electronic Prior
Authorization measure; (5) adoption of the Unique Device Identifiers
(UDIs) for Implantable Medical Devices measure within the Public Health
and Clinical Data Exchange objective; (6) adoption of two new eCQMs in
alignment with the
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Hospital Inpatient Quality Reporting Program; and (7) removal of 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 final rule, we discuss the
changes we are finalizing 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 are finalizing changes to a few
areas of the model, including: (1) adding 3 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 concurrent 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 also discuss the
public comments received from a RFI about voluntary opt-in opportunity
for hospitals with physician ownership (POHs) and our policy intent for
future rulemaking.
j. Comprehensive Care for Joint Replacement Expanded (CJR-X) Model
In section X.C. of the preamble of this final rule, we are
finalizing expansion of the CJR Model. The CJR-X Model will be a
mandatory model that will be tested under the authority of section
1115A of the Act, beginning on January 1, 2028 for acute care hospitals
paid under the IPPS and OPPS with limited exclusions. Participating
hospitals will 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 are finalizing multiple policies
for CJR-X, including: (1) a January 1, 2028 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 safety net 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 final rule.
BILLING CODE 4169-69-P
[GRAPHIC] [TIFF OMITTED] TR04AU26.023
BILLING CODE 4169-69-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
[[Page 49575]]
receives a percentage add-on payment applied to the DRG-adjusted base
payment rate. This add-on payment, the disproportionate share hospital
(DSH) adjustment discussed earlier in this section, provides for a
percentage increase in Medicare payments. 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.
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 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
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hospitals described in section 1886(d)(1)(B)(iv) of the Act, effective
for cost reporting periods beginning on or after October 1, 2002. The
LTCH PPS was established under the authority of sections 123 of the
BBRA and section 307(b) of the BIPA (as codified under section
1886(m)(1) of the Act). Section 1206(a) of the Pathway for SGR Reform
Act of 2013 (Pub. L. 113-67) established the site neutral payment rate
under the LTCH PPS, which made the LTCH PPS a dual rate payment system
beginning in FY 2016. Under this statute, effective for LTCH's cost
reporting periods beginning in FY 2016 cost reporting period, LTCHs are
generally paid for discharges at the site neutral payment rate unless
the discharge meets the patient criteria for payment at the LTCH PPS
standard Federal payment rate. The existing regulations governing
payment under the LTCH PPS are located in 42 CFR part 412, subpart O.
Beginning October 1, 2009, we issue the annual updates to the LTCH PPS
in the same documents that update the IPPS.
4. Critical Access Hospitals (CAHs)
Under sections 1814(l), 1820, and 1834(g) of the Act, payments made
to critical access hospitals (CAHs) (that is, rural hospitals or
facilities that meet certain statutory requirements) for inpatient and
outpatient services are generally based on 101 percent of reasonable
cost. Reasonable cost is determined under the provisions of section
1861(v) of the Act and existing regulations under 42 CFR part 413.
5. Payments for Graduate Medical Education (GME)
Under section 1886(a)(4) of the Act, costs of approved educational
activities are excluded from the operating costs of inpatient hospital
services. Hospitals with approved graduate medical education (GME)
programs are paid for the direct costs of GME in accordance with
section 1886(h) of the Act. The amount of payment for direct GME costs
for a cost reporting period is based on the hospital's number of
residents in that period and the hospital's costs per resident in a
base year. The existing regulations governing payments to the various
types of hospitals are located in 42 CFR part 413. Section
1886(d)(5)(B) of the Act provides that prospective payment hospitals
that have residents in an approved GME program receive an additional
payment for each Medicare discharge to reflect the higher patient care
costs of teaching hospitals relative to non-teaching hospitals. The
additional payment is based on the indirect medical education (IME)
adjustment factor, which is calculated using a hospital's ratio of
residents to beds and a multiplier, which is set by Congress. Section
1886(d)(5)(B)(ii)(XII) of the Act provides that, for discharges
occurring during FY 2008 and fiscal years thereafter, the IME formula
multiplier is 1.35. The regulations regarding the indirect medical
education (IME) adjustment are located at 42 CFR 412.105.
C. Summary of Provisions of Recent Legislation That Are Implemented in
This Final Rule--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. Issuance of a Notice of Proposed Rulemaking and Summary of the FY
2027 IPPS/LTCH PPS Proposed Provisions
The FY 2027 IPPS/LTCH PPS proposed rule appeared in the April 14,
2026 Federal Register (91 FR 19312). In the 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 proposed
to make:
1. 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 the Medicare Prescription Drug,
Improvement, and Modernization Act of 2003 (MMA) Pub. L. 108-173,
obtained in a town hall meeting for applications not submitted under an
alternative pathway) with proposals for certain FDA market authorized
technologies that applied under the traditional pathway 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 payment
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 the 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
[[Page 49577]]
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.
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 proposed
the following:
Changes to the requirements for the Hospital Inpatient
Quality Reporting Program.
Changes to the requirements for the PCH Quality Reporting
Program.
Changes to the requirements for the Long-Term Care
Hospital Quality Reporting Program.
Changes to requirements pertaining to eligible hospitals
and CAHs participating in the Medicare Promoting Interoperability
Program.
9. Other Proposals and Comment Solicitations Included in This Final
Rule
Section X.A. of the preamble of the proposed rule included changes
to TEAM that would affect episodes, quality measure assessment, and
pricing methodology. We also solicited 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, included 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 included
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.
Section X.D. of the preamble of the proposed rule, discussed the
following proposals:
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 to codify certain
longstanding
[[Page 49578]]
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 XI.A. of the preamble of the proposed rule includes our
discussion of the MedPAC Recommendations.
Section XI.B. of the preamble of the proposed rule includes a
descriptive listing of the public use files associated with the
proposed rule.
Section XII. 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 the 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 proposed 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 the 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 proposed to establish the adjustments for the wage index,
labor -related share, the cost-of-living adjustment, and high-cost
outliers, including the applicable fixed-loss amounts and the LTCH
cost-to-charge ratios (CCRs) for both payment rates.
13. Impact Analysis
In Appendix A of the proposed rule, we set forth an analysis of the
impact the proposed changes would have on affected acute care
hospitals, LTCHs, and other entities.
14. Recommendation of Update Factors for Operating Cost Rates of
Payment for Hospital Inpatient Services
In Appendix B of the proposed rule, as required by sections
1886(e)(4) and (e)(5) of the Act, we 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.
E. Public Comments Received in Response to the FY 2027 IPPS/LTCH PPS
Proposed Rule
We received approximately 979 timely pieces of correspondence
containing multiple comments on the proposed rule that appeared in the
April 14, 2026 Federal Register (91 FR 19312) titled ``Medicare
Program; Hospital Inpatient Prospective Payment Systems for Acute Care
Hospitals and the Long-Term Care Hospital Prospective Payment System
and Policy Changes and Fiscal Year 2027 Rates; Requirements for Quality
Programs; and Other Policy Changes'' (hereinafter referred to as the FY
2027 IPPS/LTCH PPS proposed rule). We note that some of these public
comments were outside of the scope of the proposed rule. These out-of-
scope public comments are not addressed with policy responses in this
final rule. Summaries of the public comments that are within the scope
of the proposed rule and our responses to those public comments are set
forth in the various sections of this final rule under the appropriate
heading.
F. Adoption of Health Information Technology Standards and
Incorporation by Reference
In section X.E. of preamble of this final rule, the Office of the
National Coordinator (ONC) is finalizing certain provisions that were
included in the proposed rule that appeared in the April 14, 2026
Federal Register (91 FR 19890) titled ``Medicare and Medicaid Programs;
Patient Protection and Affordable Care Act; Interoperability Standards
and Prior Authorization for Drugs for Medicare Advantage Organizations,
Medicaid Managed Care Plans, State Medicaid Agencies, Children's Health
Insurance Program (CHIP) Agencies and CHIP Managed Care Entities, and
Issuers of Qualified Health Plans on the Federally-Facilitated
Exchanges'' (hereinafter referred to as 2026 CMS Interoperability
Standards and Prior Authorization for Drugs proposed rule).
ONC's proposals included adoption updated versions of certain
health IT standards and specifications in 45 CFR 170.215 on behalf of
HHS and a January 1, 2028 expiration date for versions of the standards
and specifications currently in 45 CFR 170.215(j)(1) through (3),
(k)(1), (m), and (n), provided that the proposals to adopt the newer
versions of these adopted standards are finalized.
Specifically, ONC is finalizing the adoption of certain health IT
standards and specifications in 45 CFR 170.215(j) (k), (m), and (n) on
behalf of HHS. These standards are referenced in ONC Health IT
Certification criteria for electronic prior authorization as well as
CMS proposals in the 2026 CMS Interoperability Standards and Prior
Authorization for Drugs proposed rule. ONC is finalizing to replace
previously adopted versions of corresponding standards in 45 CFR
170.215(j), (k), (m), and (n) with the finalized updated versions upon
the effective date of this final rule.
[[Page 49579]]
II. Changes to Medicare Severity Diagnosis-Related Group (MS-DRG)
Classifications and Relative Weights
A. Background
Section 1886(d) of the Act specifies that the Secretary shall
establish a classification system (referred to as diagnosis-related
groups (DRGs)) for inpatient discharges and adjust payments under the
IPPS based on appropriate weighting factors assigned to each DRG.
Therefore, under the IPPS, Medicare pays for inpatient hospital
services on a rate per discharge basis that varies according to the DRG
to which a beneficiary's stay is assigned. The formula used to
calculate payment for a specific case multiplies an individual
hospital's payment rate per case by the weight of the DRG to which the
case is assigned. Each DRG weight represents the average resources
required to care for cases in that particular DRG, relative to the
average resources used to treat cases in all DRGs.
Section 1886(d)(4)(C) of the Act requires that the Secretary adjust
the DRG classifications and relative weights at least annually to
account for changes in resource consumption. These adjustments are made
to reflect changes in treatment patterns, technology, and any other
factors that may change the relative use of hospital resources.
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; and 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).
Comment: Multiple commenters summarized the statutory and
regulatory history regarding the documentation and coding recoupment
adjustments required under section (7)(b) of the TMA [Transitional
Medical Assistance], Abstinence Education, and QI [Qualifying
Individuals] Programs Extension Act of 2007 (Pub. L. 110-90), as
amended. The commenters contend that the total level of adjustments
made by CMS under this section took back more than was authorized by
Congress and stated that section 7(b)(2) of Public Law 110-90 requires
CMS to increase the standardized amount by 0.9412% to avoid carrying
over into FY 2026 the -3.9% reduction to the standardized amount that
law required between FY 2013 and FY 2017.
Response: As we have discussed in prior rulemaking, including in
response to comments in the FY 2026 IPPS/LTCH PPS final rule, as of FY
2023, CMS completed the statutory requirements of section 7(b)(1)(B) of
Public Law 110-90 as amended by section 631 of the American Taxpayer
Relief Act of 2012 (ATRA, Pub. L. 112-240), section 404 of the Medicare
Access and CHIP Reauthorization Act of 2015 (MACRA) (Pub. L. 114-10),
and section 15005 of the 21st Century Cures Act (Pub. L. 114-255). As
we discussed in the FY 2022 IPPS/LTCH PPS final rule (86 FR 44794
through 44795), the FY 2021 IPPS/LTCH PPS final rule (85 FR 58444
through 58445) and in prior rules, we believe section 414 of the MACRA
and section 15005 of the 21st Century Cures Act set forth the levels of
positive adjustments for FYs 2018 through 2023. Those adjustments added
up to +2.9488 percentage points, not +3.9 percentage points, and we see
no evidence that Congress enacted that smaller adjustment schedule with
the silent intent that CMS would later make a permanent 0.9412% payment
adjustment to reach a total +3.9 percentage point adjustment. To the
contrary, section 414 of the MACRA instructs the agency to ``not make
the adjustment (estimated to be an increase of 3.2 percent) that would
otherwise apply for discharges occurring during fiscal year 2018 by
reason of the completion of the adjustments required under clause
(ii).'' Because the adjustment ``that would otherwise apply'' in fiscal
year 2018 but for clause (1)(B)(iii) was +3.9%, the commenter's
suggestion to complete making that adjustment now is inconsistent with
the statute's text.
Subparagraph (b)(2) of Public Law 110-90 does not compel a contrary
result. As the U.S. Court of Appeals for the D.C. Circuit has
explained, that provision simply requires CMS ``to ignore recoupment
adjustments'' when ``calculat[ing] and apply[ing] the annual
`percentage increase''' to base rates provided for in the Medicare
statute to account for inflation. Fresno Community Hospital & Medical
Center v. Cochran, 987 F.3d 158, 163 (D.C. Cir. 2021). The Secretary
has complied with that instruction. Similarly, the commenters'
citations to statements the agency made in the Federal Register about
its intent to unwind the reductions to the standardized amount the
agency made between FY 2013 and FY 2017 were made before Congress
passed clause (1)(B)(iii) and have been countermanded by that
provision. We therefore decline the commenters' suggestion to read into
section 7(b) of Public Law 110-90 implied authority to increase the
standardized payment amount by 0.9412%. For the same reasons, we do not
see a basis for exercising the Secretary's exceptions and adjustments
authority under section 1886(d)(5)(I)(i) of the Act.
C. Changes to Specific MS-DRG Classifications
1. Discussion of Changes to Coding System and Basis for 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 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
[[Page 49580]]
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 January 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. We noted that 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.
Comment: A commenter (technology association) acknowledged the
process that CMS utilizes for accepting MS-DRG requests via
MEARISTM and that some types of requested changes to the MS-
DRG classifications require more extensive research to identify and
analyze all the data that are relevant to evaluating the potential
change. The commenter stated that CMS notified requestors via
MEARISTM if their MS-DRG classification change request was
not able to be considered with the FY 2027 rulemaking cycle and they
understood that several of their members received such notifications.
The commenter also stated that the agency does not publicly disclose
the number of MS-DRG applications they receive and review annually. The
commenter encouraged CMS to provide greater transparency regarding the
overall volume and the nature of the MEARISTM requests that
are submitted to CMS each year. The commenter stated their belief that
it is important for CMS to provide transparency into the number of
requests that it receives each year to provide stakeholders with an
understanding of the volume of requests and potential likelihood of not
having their application reviewed in rulemaking the same rulemaking
cycle. The commenter further stated that for those applications CMS has
stated require additional analysis, CMS should provide the applicant
with an expected timeline for review. According to the commenter,
absent a clear process for revisiting deferred requests, stakeholders
are left without clarity as to when such submissions will receive
further consideration. The commenter stated it is important for CMS to
establish a transparent timeline for re-evaluation of MS-DRG requests
that are not addressed in the year of submission.
The commenter stated they identified two circumstances in which the
public comment process could function as a necessary supplement to
MEARISTM. In the first example, the commenter stated that
when an MS-DRG classification change request has been submitted through
MEARISTM and CMS has been unable to address the request, CMS
should recognize the public comment process as an appropriate vehicle
for stakeholders to consider the request. The commenter stated they
agree that any policy change responsive to public comments, where CMS
has not separately proposed the requested change in rulemaking, is
appropriately reserved for proposal and finalization in the subsequent
rulemaking cycle. The commenter stated this option would be consistent
with the agency's general practice for off-cycle ambulatory payment
classification, transitional pass-through, and new technology add-on
payment determinations. According to the commenter, using this approach
would allow the public comment process to operate as a transparency and
queue-management mechanism, not as a substitute for proposal and
finalization. In the second example, the commenter stated that when CMS
has proposed to discontinue the new technology add-on payment for a
specific technology, by listing that technology in a designated table
within the proposed rule, the agency has put that technology's payment
treatment before the public for comment. The commenter stated that the
proposed new technology add-on payment discontinuation is itself the
proposal. According to the commenter, any public comments addressing
the adequacy of the MS-DRG payment for that technology, and a proposed
corresponding adjustment to payment when the new technology add-on
payment expires, are directly responsive to the action CMS has put
before the public; they are not free-standing reassignment requests
outside rulemaking. The commenter asserted that MS-DRG assignment is
inseparable from the new technology add-on payment action that CMS has
proposed. The commenter urged CMS to recognize that for the
technologies subject to this scenario, any public comments that include
concerns regarding payment adequacy are within the scope of rulemaking
and may be considered for action in the same final rule that finalizes
a proposed discontinuation of new technology add-on payment. The
commenter stated that recognition of these two categories of examples
would not displace MEARISTM as the agency's submission
process but could ensure that the public comments function as a
supplement because exclusive reliance on MEARISTM produces
outcomes inconsistent with payment accuracy, beneficiary access, and
administrative efficiency. The commenter urged CMS to address the
public comments submitted for either example to include the requests
received, a summary of the supporting evidence, and an explanation of
the disposition.
Response: We appreciate the commenter's feedback. In response to
the commenter's recommendation that CMS provide greater transparency
into the number of requests that it receives each year to afford
stakeholders a better understanding of the volume of requests received
and the potential likelihood of not having an application reviewed in
rulemaking during that same rulemaking cycle, we note that, until the
current FY 2027 rulemaking cycle, all prior MS-DRG classification
change requests received via MEARISTM since FY 2024
rulemaking have been reflected in the annual IPPS/LTCH PPS rulemakings;
therefore, stakeholders were provided with details regarding
[[Page 49581]]
the number and the nature of the MS-DRG classification change requests.
We no longer believe that providing an annual summary as part of the
annual rulemaking that outlines the number and nature of MS-DRG
classification change requests received and for which we are unable to
address for the upcoming fiscal year is beneficial because, as
reflected in the FY 2026 IPPS/LTCH PPS final rule (90 FR 36550 through
36552), we received public comments in response to such summaries that
were included in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18012),
urging CMS to finalize changes for requests that we had indicated we
were unable to consider for FY 2026 and for which we did not propose a
change to the logic for FY 2026. Additionally, providing an annual
summary detailing the number and nature of MS-DRG requests received may
not completely reflect the complexity of a given request.
We continue to believe that we provide sufficient transparency
through our established annual notice and comment rulemaking process.
We note that, since the implementation of MEARISTM for the
submission of MS-DRG classification change requests, we have continued
efforts towards refining our process for MS-DRG classification change
requests. For example, as stated in the FY 2026 IPPS/LTCH PPS final
rule (90 FR 36549 through 36550), and the preamble of the FY 2027 IPPS/
LTCH PPS proposed rule (91 FR 19322) and this final rule, beginning
with FY 2027 rulemaking, we inform requestors via MEARISTM
if an MS-DRG classification change request is unable to be considered
with the upcoming fiscal year's rulemaking cycle and that we will no
longer summarize in the proposed and final rules those requests that
are not able to be considered for the upcoming fiscal year. As the
commenter acknowledged in its submitted comments, several of their
members received such notifications. Specifically, we note that for
those requests that were unable to be considered for FY 2027
rulemaking, the requestors received an electronic notification that
their MS-DRG classification change request was being deferred for the
FY 2027 rulemaking cycle; therefore, requestors were made aware that
their MS-DRG classification change request was not being considered in
the FY 2027 rulemaking cycle. With respect to the commenter's
recommendation that CMS should provide the requestors who received
notification that their FY 2027 MS-DRG classification change request
was deferred with an expected timeline for review, we note that
following this FY 2027 rulemaking, we intend to provide additional
information to those requestors whose MS-DRG classification change
requests were deferred for FY 2027 regarding the status of their FY
2027 MS-DRG classification change request.
In response to the commenter's second example where they asserted
that any public comments addressing the adequacy of the MS-DRG payment
in connection with the proposed discontinuation of a new technology
add-on payment for a specific technology, with a proposed corresponding
adjustment to payment, are within the scope of rulemaking and may be
considered for action in the same final rule that finalizes a proposed
discontinuation of a new technology add-on payment technology, we
disagree. Specifically, we note that under our established process,
requests for consideration of an MS-DRG classification change must be
submitted via MEARISTM as discussed in the FY 2023 IPPS/LTCH
PPS proposed rule (87 FR 28127) and final rule (87 FR 48800 through
48801). We disagree that the use of MEARISTM produces
outcomes inconsistent with payment accuracy, beneficiary access, and
administrative efficiency. As reflected in our annual rulemakings, for
the MS-DRG classification change requests we are able to consider, we
present a summary of the requests received, the relevant MDC(s), MS-
DRG(s), ICD-10-CM diagnosis and ICD-10-PCS procedure codes that are
analyzed using the designated MedPAR claims data file and the proposals
that are set forth based on the findings from our analysis of claims
data and clinical review. In connection with our annual proposed
rulemakings, we also provide a test version of the ICD-10 MS-DRG
GROUPER software, supplemental mapping files, a draft version of the
ICD-10 MS-DRG Definitions Manual and, effective with FY 2025
rulemaking, a draft version of the Definitions of Medicare Code Edits
(MCE) Manual, and the associated proposed relative weights file so that
the public can better analyze and understand the impact of the
proposals included in the proposed rule utilizing these available
resources. Therefore, we do not believe it would be appropriate to
finalize MS-DRG classification changes in connection with the proposed
discontinuation of a new technology add-on payment for a specific
technology in the absence of providing our standard data analysis and
corresponding resources that are made publicly available under our
established rulemaking process.
To provide further transparency in connection with our MS-DRG
request process, beginning with the FY 2028 rulemaking cycle, we intend
to send notifications to requestors via MEARISTM if their
MS-DRG classification change request(s) will be considered with a
status update of ``Under Review'', and for those MS-DRG classification
change requests that are unable to be considered for the upcoming
fiscal year's rulemaking, we intend to send notifications to requestors
via MEARISTM with a status update of ``Deferred'', followed
by additional communication as to why the request is unable to be
considered for the upcoming fiscal year's rulemaking cycle. Consistent
with our process for the FY 2027 MS-DRG classification change requests,
we intend to notify requestors by mid-December if their request is or
is not able to be considered for the upcoming fiscal year.
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. As noted, we will inform requestors via
MEARIS\TM\ if the MS-DRG classification change request is or 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 the FY
2027 IPPS/LTCH PPS proposed rule we provided 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 the
proposed rule. We noted that this test software reflected the proposed
GROUPER logic for FY 2027. Therefore, it included 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 the 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 the proposed rule. Those
tables were not published in the Addendum to the 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 the FY 2027 IPPS/LTCH PPS proposed rule. Because the
[[Page 49582]]
diagnosis and procedure codes no longer valid for FY 2027 are not
reflected in the test software, we made 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 had access to the test software allowing them to build case
examples that reflect the proposals that were included in the proposed
rule. In addition, users were able to view the draft version of the
ICD-10 MS-DRG Definitions Manual, Version 44 that contains the
documentation for proposed FY 2027 ICD-10 MS-DRG GROUPER Version 44
logic changes and were also able to view a draft version of the
Definitions of Medicare Code Edits (MCE) Manual to review any changes
that will become effective October 1 for FY 2027. In the proposed rule
we also noted that, as a result of new and modified code updates
approved after the annual spring ICD-10 Coordination and Maintenance
Committee meeting, any further changes to the MCE will be reflected in
the finalized Definitions of Medicare Code Edits (MCE) Manual, made
available in association with the annual IPPS/LTCH PPS final rule. As
such, we made available the draft FY 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.
We noted in the proposed rule that the MCE manual is comprised of
two chapters: Chapter 1: Edit code lists provides a listing of each
edit, an explanation of each edit, and as applicable, the diagnosis
and/or procedure codes for each edit, and Chapter 2: Code list changes
summarizes the changes in the edit code lists (for example, additions
and deletions) from the prior release of the MCE software. We also
stated that the public may submit any questions, comments, concerns, or
recommendations regarding the MCE to the CMS mailbox at
[email protected] for our review and consideration.
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.
Comment: Commenters expressed appreciation that we provided a test
version of the ICD-10 MS-DRG GROUPER Software, Version 44, along with
mapping files to assist with analysis, however, the commenters stated
that this version essentially only allows for a case-by-case analysis
and a minimal batch analysis. The commenters stated that it would be
more beneficial to have a Batch z/OS version of the test GROUPER so
that it could be better utilized for broader and more meaningful
analysis purposes. The commenters requested that availability of a
Batch z/OS version of the test GROUPER be made publicly available for
all future rulemaking.
Response: We appreciate the commenters' feedback and will take the
suggestion into consideration for future rulemaking.
Following are the changes that we proposed to the MS-DRGs for FY
2027. We invited public comments on each of the MS-DRG classification
proposed changes, as well as our proposals to maintain certain existing
MS-DRG classifications discussed in the FY 2027 IPPS/LTCH PPS proposed
rule. In some cases, we proposed changes to the MS-DRG classifications
based on our analysis of claims data and clinical appropriateness. In
other cases, we proposed to maintain the existing MS-DRG
classifications based on our analysis of claims data and clinical
appropriateness. As discussed in the FY 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 referred to these claims data as the ``September 2025
update of the FY 2025 MedPAR file.''
As explained in previous rulemaking (76 FR 51487), in deciding
whether to propose to make further modifications to the MS-DRGs for
particular circumstances brought to our attention, we consider whether
the resource consumption and clinical characteristics of the patients
with a given set of conditions are significantly different than the
remaining patients represented in the MS-DRG. We evaluate patient care
costs using average costs and lengths of stay and rely on clinical
factors to determine whether patients are clinically distinct or
similar to other patients represented in the MS-DRG. In evaluating
resource costs, we consider both the absolute and percentage
differences in average costs between the cases we select for review and
the remainder of cases in the MS-DRG. We also consider variation in
costs within these groups; that is, whether observed average
differences are consistent across patients or attributable to cases
that are extreme in terms of costs or length of stay, or both. Further,
we consider the number of patients who will have a given set of
characteristics and generally prefer not to create a new MS-DRG unless
it would include a substantial number of cases.
In the FY 2021 IPPS/LTCH PPS final rule (85 FR 58448), we finalized
our proposal to expand our existing criteria to create a new
complication or comorbidity (CC) or major complication or comorbidity
(MCC) subgroup within a base MS-DRG. Specifically, we finalized the
expansion of the criteria to include the NonCC subgroup for a three-way
severity level split. We stated we believed that applying these
criteria to the NonCC subgroup would better reflect resource
stratification as well as promote stability in the relative weights by
avoiding low volume counts for the NonCC level MS-DRGs. We noted that
in our analysis of MS-DRG classification requests for FY 2021 that were
received by November 1, 2019, as well as any additional analyses that
were conducted in connection with those requests, we applied these
criteria to each of the MCC, CC, and NonCC subgroups.
As discussed in the FY 2024 IPPS/LTCH PPS final rule (88 FR 58661),
we continue to apply the criteria to create subgroups, including
application of the NonCC subgroup criteria, in our annual analysis of
MS-DRG classification requests, consistent with our approach since FY
2021 when we finalized the expansion of the criteria to include the
NonCC subgroup for a three-way severity level split. Accordingly, in
our analysis of the MS-DRG classification requests for FY 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 49583]]
[GRAPHIC] [TIFF OMITTED] TR04AU26.024
In general, once the decision has been made to propose to make
further modifications to the MS-DRGs as described previously, such as
creating a new base MS-DRG, or in our evaluation of a specific MS-DRG
classification request to split (or subdivide) an existing base MS-DRG
into severity levels, all five criteria must be met for the base MS-DRG
to be split (or subdivided) by a CC subgroup. We note that in our
analysis of requests to create a new MS-DRG, we typically evaluate the
most recent year of MedPAR claims data available. For example, we
stated earlier that for the FY 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.
We are making the FY 2027 ICD-10 MS-DRG GROUPER and Medicare Code
Editor (MCE) Software Version 44, the ICD-10 MS-DRG Definitions Manual
files Version 44 and the Definitions of Medicare Code Edits Manual
Version 44 available to the public on our CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps.
2. MDC 04 (Diseases and Disorders of the Respiratory System)
a. Short-term External Heart Assist Systems
In the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19324 through
19328), we discussed a request we received 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 did 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.
As discussed in the proposed rule, in reviewing this request, we
noted 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
[[Page 49584]]
cardiogenic shock.\1\ Impella[supreg] Ventricular Support Systems are
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 MBBS\a,*\; 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
---------------------------------------------------------------------------
We noted in the proposed rule that 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). We stated that 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.
[GRAPHIC] [TIFF OMITTED] TR04AU26.025
To begin our analysis, as discussed in the proposed rule, 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 stated in the proposed rule that we agreed 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] TR04AU26.307
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.
As discussed in the proposed rule, 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 a 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 higher average costs for the subset of cases that
reported a procedure code describing the insertion of a short-term
[[Page 49585]]
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] TR04AU26.026
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 stated in the proposed
rule that we could not 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. We stated that 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.
As discussed in the proposed rule, 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 a
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, we
stated 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 stated 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.
[GRAPHIC] [TIFF OMITTED] TR04AU26.027
[[Page 49586]]
As shown in the table, we identified 8,652 cases reporting a
respiratory system O.R. procedure and a principal diagnosis of
pulmonary embolism. We reviewed this issue and noted in the proposed
rule 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. We noted 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.
In the proposed rule, we stated 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] TR04AU26.028
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 stated 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 stated 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, as
discussed in the proposed rule. 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. We stated that the results of the claims analysis
demonstrate that there are 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 could not 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 stated 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, we stated in the
proposed rule our review did not support reassignment of these cases to
any other 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 final rule.
As discussed in the 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
[[Page 49587]]
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 stated 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 did not propose 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.
Comment: Many commenters expressed support for CMS' proposal to not
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. These commenters stated they support CMS' decision not to
proceed with reassignment of these cases.
Response: We thank the commenters for their support.
Comment: Another commenter stated they recognize that CMS
appropriately relies on diagnosis and procedure coding, as well as
average costs, lengths of stay, and case counts in determining whether
a cohort is sufficiently distinct to warrant a different MS-DRG
assignment or subgrouping but stated, for the rare subset of pulmonary
embolism cases requiring short-term external heart assist devices, high
early mortality may materially distort the data by shortening length of
stay and lowering total costs for some of the sickest patients. This
commenter requested that, in addition to its standard analysis of
average costs, lengths of stay (LOS), variance, and volume, CMS
evaluate cases by taking into account patient discharge status in order
to consider mortality-stratified cost analyses (for example, survivors
versus non-survivors) before concluding that cases are not sufficiently
distinct to justify further MS-DRG refinement or other payment
adjustments.
Response: We thank the commenter for sharing their view and
recommendation. As explained in previous rulemaking (76 FR 51487), in
deciding whether to propose to make further modifications to the MS-
DRGs for particular circumstances brought to our attention, we consider
whether the resource consumption and clinical characteristics of the
patients with a given set of conditions are significantly different
than the remaining patients represented in the MS-DRG. We evaluate
patient care costs using average costs and lengths of stay and rely on
clinical factors to determine whether patients are clinically distinct
or similar to other patients represented in the MS-DRG. In evaluating
resource costs, we consider both the absolute and percentage
differences in average costs between the cases we select for review and
the remainder of cases in the MS DRG. We also consider variation in
costs within these groups; that is, whether observed average
differences are consistent across patients or attributable to cases
that are extreme in terms of costs or length of stay, or both. Further,
we consider the number of patients who will have a given set of
characteristics and generally prefer not to create a new MS-DRG unless
it would include a substantial number of cases. We will take the
commenters' feedback into consideration in future policy development.
Comment: Another commenter recommended that CMS move the assignment
of the procedure codes describing the insertion of a short-term
external heart assist device from MDC 04 MS-DRGs 163, 164, 165 to MDC
05 (Diseases and Disorders of the Circulatory System) MS-DRG 215 (Other
Heart Assist System Implant) to reflect the severity of the patient's
condition and the complexity of care provided as well as the
incremental resources consumed.
Response: We thank the commenter for its recommendation.
As discussed in the proposed rule, in reviewing this request, we
identified six ICD-10-PCS procedure codes that describe the insertion
of a short-term external heart assist device. In response to the
recommendation that CMS move the assignment of the procedures codes
describing the insertion of a short-term external heart assist device
from MDC 04 MS-DRGs 163, 164, 165 to MDC 05 MS-DRG 215, we note that
these procedure codes are not assigned to MDC 04 in the ICD-10 MS-DRG
Definitions Manual Version 43.1. The six ICD-10-CM procedure codes
reviewed, as well as their current MDC assignments, are found in the
table:
[GRAPHIC] [TIFF OMITTED] TR04AU26.029
As reflected in the ICD-10 MS-DRG Definitions Manual, we note that
for the 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, the logic for case assignment to MDC 04 MS-DRGs
163, 164, 165 (Major Chest Procedures with MCC, with CC, and without
CC/MCC, respectively) is driven by also reporting a procedure code
assigned to these 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 MS-DRGs 163, 164, and 165.
We appreciate the commenters' concern regarding ensuring that these
cases are assigned to an MS-DRG that reflects the severity of the
patient's condition, the complexity of care provided, as well as the
incremental resources consumed. We acknowledge the results of the
claims analysis as summarized in the proposed rule and this final rule
indicate that the average costs of cases that reported a procedure
[[Page 49588]]
code describing the insertion of a short-term external heart assist
device and a principal diagnosis of pulmonary embolism are higher
compared to the average costs for all cases in their assigned MS-DRG.
However, considering the impact that moving the diagnoses describing
pulmonary embolism to MDC 05 from MDC 04 would have, we continue to
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.
Additionally, as discussed in the proposed rule, we examined the
MS-DRGs within MDC 04 and noted that MS-DRGs 163, 164, and 165
represent the highest surgical class in the surgical hierarchy of MDC
04. Therefore, the cases reporting procedure codes describing the
insertion of a short-term external heart assist device and a principal
diagnosis of pulmonary embolism are most suitably assigned to MS-DRGs
163, 164, and 165, where the cases are currently assigned. There is no
other alternative assignment for these procedures in MDC 04. While the
data do not support creating a new MS-DRG for cases reporting a
procedure code describing the insertion of a short-term external heart
assist device and a principal diagnosis of pulmonary embolism, we will
continue to monitor the claims data to determine if refinements may be
warranted in the future. We note that we will address any proposed
modifications in future rulemaking.
Therefore, after consideration of the public comments we received,
and for the reasons discussed, we are finalizing our proposal to not
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),
without modification, 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. In the FY 2027 IPPS/LTCH PPS proposed rule, we noted 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 final rule for a discussion
regarding the FY 2027 status of technologies approved for FY 2026 new
technology add-on payments, including CYTALUX[supreg] for the lung
indication.
As discussed in the FY 2027 IPPS/LTCH PPS proposed rule (91 FR
19328 through 19330, 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 October 1, 2023, through March, 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 percent 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 percent)
higher in cost and that 60 percent 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 percent 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.
As discussed in the proposed rule, the following ICD-10-PCS
procedure codes describe fluorescence guided surgery using
CYTALUX[supreg] (pafolacianine) for the lung indication.
[[Page 49589]]
[GRAPHIC] [TIFF OMITTED] TR04AU26.030
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.
In the proposed rule, we stated 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] TR04AU26.031
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).
In the proposed rule we noted that 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 stated in the proposed rule 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 noted 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. Moreover, we stated the
data do not indicate cases reporting procedure codes that describe
fluorescence guided surgery using CYTALUX[supreg]
[[Page 49590]]
(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 stated that 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 stated 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 proposed to
maintain the current structure of MS-DRGs 163, 164, and 165.
Comment: Several commenters agreed with the proposal to maintain
the current structure of MS-DRGs 163, 164, and 165 for FY 2027. Another
commenter (the manufacturer) disagreed with the proposal and urged CMS
to reassign cases reporting procedure codes that describe fluorescence
guided surgery using CYTALUX[supreg] (pafolacianine) that currently
group to MS-DRG 165 to MS-DRG 164 based on demonstrated differences in
resource utilization for FY 2027. The commenter noted that 64 percent
of the cases that report an ICD-10-PCS code that describes fluorescence
guided surgery using CYTALUX[supreg] (pafolacianine) for the lung
indication already group to MS-DRGs 163 or 164. The commenter asserted
that this demonstrates that CYTALUX[supreg] (pafolacianine) is
predominantly utilized in more complex thoracic oncology procedures and
that the remaining cases assigned to MS-DRG 165 represent a subset of
cases that continue to incur materially higher costs when compared to
all the cases in MS-DRG 165. In their own analysis, the commenter
stated they found that 70 percent of the cases reporting procedure
codes that describe fluorescence guided surgery using CYTALUX[supreg]
(pafolacianine) that do currently group to MS-DRG 165 trigger new
technology add-on payments, which the commenter states indicate
hospitals routinely incur costs above beyond the standard payment for
that MS-DRG. This commenter also stated that current Medicare claims
data likely understate the true resource utilization associated with
CYTALUX[supreg] (pafolacianine). The commenter stated they reviewed
inpatient billing practices and found that 42 percent of hospitals do
not consistently report the full acquisition cost of CYTALUX[supreg]
(pafolacianine) because of uncertainty regarding billing and reporting
requirements regarding the appropriate treatment of discarded products
under the IPPS and whether Medicare Part B discarded drug billing
policies apply in the inpatient setting under Medicare Part A, and
frequently fail to capture the full cost associated with utilization of
CYTALUX[supreg] (pafolacianine), which could materially affect the
assessment of resource consumption within MS-DRGs 163, 164, and 165.
The commenter further stated that maintaining cases reporting procedure
codes that describe fluorescence guided surgery using CYTALUX[supreg]
(pafolacianine) within MS-DRG 165 following new technology add-on
payment expiration on September 30, 2026, risks creating a financial
disincentive to adoption and will limit beneficiary access to a
technology that can improve intraoperative visualization and facilitate
more complete resections.
Response: We thank the commenters for their feedback.
As discussed in the proposed rule, based on our review and analysis
of the claims data, the findings appear to indicate that cases
reporting one of five procedure codes that describe fluorescence guided
surgery using CYTALUX[supreg] (pafolacianine) for the lung indication,
without a secondary diagnosis code designated as a CC or MCC, have a
shorter average length of stay and lower average costs when compared to
all the cases in MS-DRGs 163 and 164. While the data analysis reflects
that the 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 continue to 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.
In response to the commenter's assertion that maintaining cases
reporting procedure codes that describe fluorescence guided surgery
using CYTALUX[supreg] (pafolacianine) within MS-DRG 165 risks creating
a financial disincentive to adoption and will limit beneficiary access
to this technology, as we have stated in prior rulemaking, we rely on
providers to assess the needs of their patients and provide the most
appropriate treatment. It is not appropriate for facilities to deny
treatment to beneficiaries needing a specific type of therapy or
treatment that potentially involves increased costs (86 FR 44847). It
would also not be appropriate to consider modifications to the MS-DRG
assignment of cases reporting the performance of a procedure that
identifies and describes a specific technology solely as an incentive
for providers to purchase and utilize one technology over another.
Additionally, in consideration of the concerns expressed by the
manufacturer with respect to suspected facility billing and reporting
inaccuracies and therefore, the reliability of the claims data, we
believe it would be premature to finalize any MS-DRG modifications
cases that report an ICD-10-PCS code that describes fluorescence guided
surgery using CYTALUX[supreg] (pafolacianine) for the lung indication
at this time. We will continue to examine the claims data for cases
reporting the ICD-10-PCS code that describes fluorescence guided
surgery using CYTALUX[supreg] (pafolacianine) for the lung indication
to determine if refinements may be warranted in the future.
Therefore, after consideration of the public comments received, and
for the reasons previously described, we are finalizing our proposal to
maintain the current structure of MS-DRGs 163, 164, and 165 for FY
2027, without modification.
3. MDC 05 (Diseases and Disorders of the Circulatory System):
WiSE[supreg] CRT System
As discussed in the FY 2027 IPPS/LTCH PPS proposed rule (91 FR
19330 through 19334), 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 manufacturer, 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.
[[Page 49591]]
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 final rule for a discussion
regarding the 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 discussed in the proposed
rule that 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, 258, 259 and 264.
As discussed in the 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 discussed
in the proposed rule. 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), in the FY 2027
IPPS/LTCH PPS proposed rule, we stated we would not expect the codes to
be reported in the FY 2025 claims data used for the proposed rule. We
stated we examined claims data from the September 2025 update of the FY
2025 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 noted 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. As
discussed in the proposed rule, 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 stated 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 further stated 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 stated 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.
[[Page 49592]]
For these reasons, for FY 2027, we proposed 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 also proposed 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 new MDC 05 MS-DRG 210 (Cardiac Pacemaker Revision or Device
Replacement with MCC) and new MS-DRG 211 (Cardiac Pacemaker Revision or
Device Replacement without MCC), which are discussed later in this
section.
Comment: Commenters supported the proposal to reassign procedure
code X2HN37B from MS-DRG 264 to MS-DRGs 228 and 229 and the proposal to
delete the procedure code combination of X2HN37B and XHH80HB from the
GROUPER logic of MS-DRGs 242, 243, and 244 for FY 2027. Several
commenters specifically stated that they strongly support the proposed
changes and stated that they believe CMS has developed a reasonable
approach for ensuring that the MS-DRGs maintain clinical coherence and
reflect the resource intensity of procedures when performed in the
inpatient setting.
Response: We appreciate the commenters' support.
Comment: Another commenter disagreed with the proposal to reassign
procedure code X2HN37B from MS-DRG 264. The commenter noted that in the
FY 2027 IPPS/LTCH PPS proposed rule, CMS stated it found zero cases
reporting the procedure codes describing the insertion of the
WiSE[supreg] CRT System in the examination of claims data from the
September 2025 update of the FY 2025 MedPAR file, yet proposed to
reassign procedure code X2HN37B to MS-DRGs 228 and 229 without any
underlying claims data to validate if the proposed reassignment to
these MS-DRGs would be appropriate. The commenter further stated that
it is unclear whether CMS' assumption about the clinical use of this
technology will align with actual practice patterns. Therefore, the
commenter recommended that CMS defer the proposed reassignment of
procedure code X2HN37B from MS-DRG 264 to MS-DRGs 228 and 229 for FY
2027 until MedPAR claims data are available to support an evidence-
based reassignment determination and preserve clinical and resource
cohesion among these MS-DRGs. The commenter also recommended that CMS
specify that the assignment of 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) to new MS-DRGs 210 and 211 is a provisional
assignment should the proposal for FY 2027 be finalized, and encouraged
CMS to revisit this assignment in future rulemaking once more robust
claims data are available.
Response: We thank the commenter for their feedback and for sharing
their concerns.
In response to the suggestion that CMS defer the proposed
reassignment of procedure code X2HN37B from MS-DRG 264 to MS-DRGs 228
and 229, while we recognize that our analysis did not identify any
applicable cases, we continue to believe that the proposed reassignment
would improve clinical coherence as compared to the current assignment
and do not agree that a delay is necessary or appropriate. As stated
earlier, the WiSE[supreg] CRT System is an implantable cardiac pacing
system that delivers LVEP specifically for CRT without the use of wires
or leads going into the heart. Both leadless pacemakers and the
WiSE[supreg] CRT System share the goal of pacing the heart without
traditional wires. We continue to believe that procedure code X2HN37B
is more closely aligned with the procedure codes that describe the
insertion of leadless pacemakers assigned to MS-DRGs 228 and 229 as
compared to the procedure codes that describe the insertion of
conventional pacemakers assigned to MS-DRGs 242, 243, and 244. CMS will
continue to monitor and analyze the claims data with respect to
procedure codes X2HN37B and XHH80HB to determine if future revisions
are warranted.
Therefore, after consideration of the public comments we received,
and for the reasons discussed, we are finalizing our proposal 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, without modification,
effective October 1, 2026, for FY 2027. We are also finalizing our
proposal to delete the procedure code combination of X2HN37B and
XHH80HB from the GROUPER logic of MS-DRGs 242, 243, and 244, without
modification, for FY 2027. Under this finalization, 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 new MDC 05 MS-DRG 210 (Cardiac Pacemaker Revision or Device
Replacement with MCC) and new MS-DRG 211 (Cardiac Pacemaker Revision or
Device Replacement without MCC), which are discussed later in this
section.
As discussed in the FY 2027 IPPS/LTCH PPS proposed rule, 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 stated 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.
[GRAPHIC] [TIFF OMITTED] TR04AU26.032
[[Page 49593]]
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] TR04AU26.033
In the proposed rule we noted that, if, during our annual MS-DRG
analysis we identify that there are only a few patients in a respective
MS-DRG, consistent with our established process 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
stated 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. As discussed in the proposed rule,
we noted 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] TR04AU26.034
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] TR04AU26.035
[[Page 49594]]
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 a 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.
As discussed in the proposed rule, we reviewed these findings and
stated we 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 noted 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 the enactment of The Social
Security Amendments of 1983 (Pub. L. 98-21), which established a
national DRG-based hospital prospective payment system for all Medicare
patients (48 FR 39878).
We stated in the proposed rule that our analysis of claims data
from the September 2025 update of the FY 2025 MedPAR file showed 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 stated we believe it is appropriate to now restructure these MS-DRGs
accordingly. Specifically, we stated 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] TR04AU26.038
Consistent with our established process as discussed in section
II.C.1.b. of the preamble of the proposed rule and this final 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 the proposed rule and this final rule. As
shown, a three-way split of the proposed new MS-DRG failed to meet the
criterion that there be at least a 20 percent difference in average
costs between the CC and NonCC subgroup.
[GRAPHIC] [TIFF OMITTED] TR04AU26.036
As discussed in section II.C.1.b. of the preamble of the proposed
rule and this final rule, if the criteria for a three-way split fail,
the next step is to determine if the criteria are satisfied for a two-
way split. We therefore applied the criteria for a two-way split for
the ``with MCC'' and ``without MCC'' subgroups and found that all five
criteria were met. The following table illustrates our findings.
[GRAPHIC] [TIFF OMITTED] TR04AU26.037
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 proposed 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 the FY 2027 IPPS/LTCH PPS
proposed rule (which is available on the CMS website at: https://
www.cms.gov/
[[Page 49595]]
Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index) for
the list of procedure codes we proposed 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 the proposed rule.
Comment: Commenters supported the proposal 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 for FY 2027.
Response: We appreciate the commenters' support.
Comment: Other commenters expressed concern related to the proposed
two-way severity level split in the new MS-DRGs for cases reporting
procedure codes describing cardiac pacemaker revision or device
replacement. The commenters noted the proposed consolidation collapses
the existing three-way severity split in MS-DRGs 260, 261, and 262
(that is a ``with MCC'', ``with CC'', and ``without CC/MCC'' split)
into a two-way split (that is a ``with MCC'' and ``without MCC''
split). These commenters stated that the review of the claims data from
the September 2025 update of the FY 2025 MedPAR file showed that cases
reporting procedure codes describing cardiac pacemaker revision or
device replacement with a secondary diagnosis designated as a CC have
average costs of $17,167, while cases reporting procedure codes
describing cardiac pacemaker revision or device replacement without a
secondary diagnosis designated as a CC or an MCC have average costs of
$15,101, which represents a difference of approximately 13.7 percent.
The commenters acknowledged that this differential is below the 20
percent threshold required for a three-way split under CMS' established
methodology; however, they stated that this differential is meaningful
enough that hospitals that disproportionately treat Medicare
beneficiaries with secondary diagnoses designated as CCs, such as
academic medical centers and safety-net hospitals, could have to absorb
a structural payment shortfall under the proposed two-way structure.
These commenters requested that CMS commit in the final rule to
monitoring the claims data for new MS-DRGs 210 and 211 to reassess
whether a three-way severity split should be reintroduced in future
rulemaking.
Response: We appreciate the commenters' feedback and thank the
commenters for sharing their concerns.
As discussed in the FY 2008 IPPS final rule (72 FR 47169), the
objective in establishing criteria to create subgroups was to create
homogeneous subgroups that are significantly different from one another
in terms of resource use, that have enough volume to be meaningful, and
that improve our ability to explain variance in resource use. As
discussed in the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19333), we
applied the criteria for the proposed new base MS-DRG and found that
the criteria for a three-way split failed. Specifically, a three-way
split of the proposed new MS-DRG failed to meet the criterion that
there be at least a 20 percent difference in average costs between the
CC and NonCC subgroup. We then applied the criteria for a two-way split
for the ``with MCC'' and ``without MCC'' subgroups and found that all
five criteria were met. Therefore, we proposed 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.
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. It is
generally expected that as a result of the annual MS-DRG
reclassifications that are finalized, the experience of different
categories of hospitals may differ based on the population of patients
they treat and the services offered by the facility. We also provide
outlier payments to mitigate extreme loss on individual cases.
In response to the recommendation that CMS continue to closely
monitor claims to determine whether a three-way split should be
restored in future rulemaking, we note that, as stated in the preamble
of the annual IPPS rulemakings, section 1886(d)(4)(C) of the Act
requires that the Secretary adjust the DRG classifications and relative
weights at least annually to account for changes in resource
consumption. These adjustments are made to reflect changes in treatment
patterns, technology, and any other factors that may change the
relative use of hospital resources. We include these changes as part of
our annual IPPS rulemaking, which provides the public, including any
interested parties, the opportunity to review and comment on these
proposals.
Therefore, after consideration of the public comments we received,
we are finalizing our proposal to delete MS-DRGs 258, 259, 260, 261,
and 262, effective October 1, 2026, without modification, for FY 2027.
We are also finalizing our proposal to create new MS-DRG 210 (Cardiac
Pacemaker Revision or Device Replacement with MCC) and new MS-DRG 211
(Cardiac Pacemaker Revision or Device Replacement without MCC) for
cases reporting procedure codes describing cardiac pacemaker revision
or device replacement effective October 1, 2026, without modification,
for FY 2027. We refer the reader to Table 6P.2a associated with the 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
finalizing to define in the logic for each of the new MS-DRGs. We note
that discussion of the surgical hierarchy for the finalized
modification is discussed in section II.C.14. of the preamble of this
final rule.
Comment: Other commenters stated they reviewed table 6P.2a
associated with the 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) that includes the list
of procedure codes CMS proposed to define in the logic for proposed new
MS-DRGs 210 and 211 and stated they encountered inconsistencies when
grouping cases using the Version 44 test GROUPER that was made publicly
available in association with the FY 2027 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. A commenter stated that although Table 6P.2a lists the
ICD-10-PCS codes proposed for assignment to MS-DRGs 210 and 211, the
relationship between those codes and actual Version 44 GROUPER results
could not be fully validated without additional detail on the logic
interactions, including surgical hierarchy rules and the effects of
removing cluster requirements.
The commenters stated they identified six procedure codes that
should map to new MS-DRGs 210 or 211 based on their inclusion in Table
6P.2a, but when assessed with the Version 44 test GROUPER, instead
mapped to MS-DRGs 242, 243, and 244 (Permanent Cardiac Pacemaker
Implant with MCC, with CC, without MCC respectively). Specifically, the
[[Page 49596]]
commenters stated they entered ICD-10-PCS procedure codes 02PA3MZ
(Removal of cardiac lead from heart, percutaneous approach), 0JPT0PZ
(Removal of cardiac rhythm related device from trunk subcutaneous
tissue and fascia, open approach), 02H63JZ (Insertion of pacemaker lead
into right atrium, percutaneous approach), 02HK32Z (Insertion of
monitoring device into right ventricle, percutaneous approach), 02HK3MZ
(Insertion of cardiac lead into right ventricle, percutaneous approach)
and 0JH605Z (Insertion of pacemaker, single chamber rate responsive
into chest subcutaneous tissue and fascia, open approach) and said MS-
DRG 244 was assigned instead of the anticipated MS-DRG 211, which
appears to be inconsistent with both the clinical scenario and the
intended MS-DRG definitions.
Lastly, these commenters stated that they performed their own
analysis of the supplemental After Outliers Removed (AOR)/Before
Outliers Removed (BOR) file available in association with the FY 2027
IPPS/LTCH PPS proposed rule on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps and
stated it was unclear why over 40 MS-DRGs within MDC 05 demonstrate
variances in volume between the Version 43 and Version 44. The
commenters stated the magnitude and distribution of these shifts make
it difficult for hospitals to reliably model financial and operational
impacts using standard tools and the case-by-case test GROUPER. Another
commenter noted CMS indicated in its discussion that cases involving
WiSE[supreg] CRT procedures would shift into MS-DRGs 228 and 229.
However, their review of the AOR file suggested a decline in case
volumes within MS-DRGs 228 and 229.
Response: We thank the commenters for their feedback.
In table 6P.2a associated with the FY 2027 IPPS/LTCH proposed rule,
the list of procedure codes we proposed to define the logic for the
proposed new MS-DRGs 210 and 211 included 27 ICD-10-PCS codes
designated as ``operating room procedures'' and 60 ICD-10-PCS codes
designated as ``non-operating room procedures.'' Consistent with our
proposal to delete MS-DRGs 258, 259, 260, 261, and 262, and to create
new MS-DRGs 210 and 211 for cases reporting ICD-10-PCS codes describing
cardiac pacemaker revision or device replacement procedures, this list
was developed by combining the 21 ICD-10-PCS procedure codes designated
as ``non-operating room procedures'' currently in the logic for MS-DRGs
258 and 259, with the 27 ICD-10-PCS codes designated as ``operating
room procedures'' and 39 ICD-10-PCS codes designated as ``non-operating
room procedures'' currently in the logic for MS-DRGs 260, 261, and 262.
We further note that the proposal to create new MS-DRGs 210 and 211 did
not involve proposing to create procedure code combinations in the
GROUPER logic of the proposed new MS-DRGs. 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-DRGs 258, 259, 260, 261 and 262.
As discussed in the proposed rule and earlier in this section,
existing MS-DRGs 242, 243, and 244 are defined by a logic list referred
to as ``CARDIAC PACEMAKER DEVICE'' that includes 721 ICD-10-PCS
procedure code combinations that identify the insertion of cardiac
pacemakers. The code combinations are represented by two ICD-10-PCS
procedure codes; one ICD-10-PCS code for the insertion of a lead by
site along with one ICD-10-PCS code for the insertion of a generator by
site. As discussed in prior rulemaking (90 FR 36608 through 36610), it
is correct 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''). These collections of ICD-10-PCS procedure codes are
called clusters. A routine program in the GROUPER, upstream of the MS-
DRG assignment logic, searches the claim for clusters. When a cluster
is found, it is added to the list of procedures found on the claim.
Clusters may be ``restricted'' by Major Diagnostic Category (MDC), and
a restricted cluster inhibits the use of its procedure code component
attributes for the MDC's MS-DRG assignment logic. For purposes of our
analysis, and consequently our proposal, for new MS-DRGs 210 and 211,
we did not remove the restriction logic under MDC 05 for the procedure
code combinations within MS-DRGs 242, 243, and 244 to maintain the
differentiation in MS-DRG assignment between cases that report an ICD-
10-PCS code for the insertion of a lead along with an ICD-10-PCS code
for the insertion of a generator as opposed to cases that report ICD-
10-PCS codes that describe performance of standalone procedures.
Similar to case assignment for any other MS-DRG, assignment to MS-
DRGs 210 and 211 would also be dependent on the absence of other
procedure codes that could affect MS-DRG assignment on the claim. If
other procedure codes that could affect MS-DRG assignment are also
reported on the claim along with procedure codes describing cardiac
pacemaker revision or device replacement, the MS-DRG assignment can
vary depending on the procedure codes reported. We reviewed the ICD-10-
PCS codes identified by commenters and agree that MS-DRG 244 is
assigned when ICD-10-PCS procedure codes 02PA3MZ, 0JPT0PZ, 02H63JZ,
02HK32Z, 02HK3MZ and 0JH605Z are reported with a principal diagnosis
from MDC 05, without reporting a secondary diagnosis designated as a CC
or an MCC. This is an expected outcome as the procedure code
combination of ICD-10-PCS code 02H63JZ (Insertion of pacemaker lead
into right atrium, percutaneous approach) with 0JH605Z (Insertion of
pacemaker, single chamber rate responsive into chest subcutaneous
tissue and fascia, open approach) is listed in the logic list referred
to as ``CARDIAC PACEMAKER DEVICE'' in MS-DRGs 242, 243, and 244. We
further note that this assignment is consistent using both the Versions
43.1 GROUPER software and the Version 44 test GROUPER software.
We disagree that the resulting MS-DRG assignment to MS-DRG 244 in
the scenario provided by the commenters is inconsistent with the
intended MS-DRG definitions. As discussed in the FY 2027 IPPS/LTCH
proposed rule, a cardiac pacemaker device replacement (generator
change) is a procedure to change an old battery (generator) for a new
one, while a cardiac pacemaker revision is a procedure that may involve
replacing, moving, or adding leads, or fixing the pocket of the
generator. We believe that cases that involve changing an old battery,
replacing, moving or adding leads, or fixing the pocket of the
generator as standalone procedures are clinically distinct from cases
that involve the insertion of both a lead and a generator that would be
assigned to MS-DRGs 242, 243, or 244.
With respect to concerns related to the apparent MS-DRG shifts in
the Version 44 AOR/BOR file for MS-DRGs in MDC 05, we appreciate the
commenters' feedback. We note that, as stated in the 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
[[Page 49597]]
September 30, 2025. In comparison, as also stated in the proposed rule,
the AOR/BOR file, which contains data used to develop the proposed MS-
DRG relative weights for FY 2027, includes discharges occurring on and
after October 1, 2024, through September 30, 2025, based on bills
received by CMS through December 31, 2025.
We also note, that as discussed in section II.C.12.c.1 of the FY
2027 IPPS/LTCH PPS proposed rule (91 FR 19370 through 19371) and this
final rule, we proposed 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. Additionally, based on the changes that
we proposed to make for FY 2027, we proposed to modify the existing
surgical hierarchy of MDC 05 as illustrated in the tables available in
section II.C.14 of the preamble of the FY 2027 IPPS/LTCH PPS proposed
rule and this final rule. As discussed in section II.C.14, 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. Consequently, in many cases, the surgical hierarchy has an
impact on more than one MS-DRG. Therefore, although we note the AOR/BOR
file is used for a distinct but related aspect of IPPS/LTCH PPS
rulemaking, it is expected that shifts in the assignment of cases would
be reflected in the AOR/BOR file when we propose a change in the
severity level designation of any ICD-10-CM diagnosis code or to modify
the existing surgical hierarchy for an MDC.
We intend to continue to explore alternative options and additional
reports that could be made available to further facilitate modeling of
the financial and operational impacts of the MS-DRG classification
proposed changes.
As discussed in the 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
stated we applied the five criteria as described in section II.C.1.b.
of the preamble of the proposed rule and this final 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] TR04AU26.039
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 percent 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 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 the FY 2027
IPPS/LTCH PPS proposed rule and this final rule, if the criteria for a
three-way split fail, the next step is to determine if the criteria are
satisfied for a two-way split. We therefore applied the criteria for a
two-way split for the ``with MCC'' and ``without MCC'' subgroups and
found that all five criteria were met 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 discussed in the proposed rule, as the claims data support a
two-way severity level split for cases reporting other circulatory
system O.R. Procedures, for FY 2027, we proposed to delete base MS-DRG
264 and proposed 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. The 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).
We stated 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 on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software) for complete
documentation of the
[[Page 49598]]
GROUPER logic for MS-DRG 264. We note that the surgical hierarchy for
the proposed modification is discussed in section II.C.14. of the
preamble of the FY 2027 IPPS/LTCH PPS proposed rule.
Comment: Commenters supported the proposal to delete base MS-DRG
264 and 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
for FY 2027.
Response: We thank the commenters for their support.
After consideration of the public comments we received, we are
finalizing our proposal to delete base MS-DRG 264, effective October 1,
2026, without modification, for FY 2027. We are also finalizing our
proposal to create new MS-DRG 361 (Other Circulatory System O.R.
Procedures with MCC) and new MS-DRG 362 (Other Circulatory System O.R.
Procedures without MCC) in MDC 05, effective October 1, 2026, without
modification, for FY 2027. Under this finalization, we are reassigning
the 1,447 listed procedure codes in the GROUPER logic of MS-DRG 264 to
new MS-DRGs 361 and 362. We note that the surgical hierarchy for the
finalized modification is discussed in section II.C.14. of the preamble
of this final rule.
4. MDC 08 (Diseases and Disorders of the Musculoskeletal System and
Connective Tissue)
a. Spinal Fusion and Pelvic Fixation Procedures
In the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19334 through
19342), we summarized a request we received from a manufacturer that
was also previously discussed in the FY 2026 IPPS/LTCH PPS proposed
rule (90 FR 18012 through 108013) and final rule (90 FR 36550 through
36552). Specifically, in the FY 2026 IPPS/LTCH PPS final rule (90 FR
36552), we stated that we would continue to consider the request to
modify the GROUPER logic of 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); MS-DRG 447
(Multiple Level Spinal Fusion Except Cervical with MCC or Custom-Made
Anatomically Designed Interbody Fusion Device) and 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 reporting the use of
the iFuse BedrockTM Granite Implant System 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 (without CC/MCC) MS-DRG to the highest severity level (with MCC)
MS-DRG in connection with future rulemaking. We noted that the logic
for MS-DRGs 456, 457, and 458 is defined by extensive fusions, in
addition to specific diagnosis code logic, and 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.
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 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
[[Page 49599]]
fixation to provide additional stability in these challenging clinical
situations.
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\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.
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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 percent-
23 percent 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.
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\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.
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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 C.J. 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.
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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:
[GRAPHIC] [TIFF OMITTED] TR04AU26.040
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. In the proposed rule we noted 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/
[[Page 49600]]
ms-drg-classifications-and-software for complete documentation of the
GROUPER logic for the previously listed MS-DRGs.
As also discussed in the FY 2027 IPPS/LTCH PPS proposed rule (91 FR
19336), we 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 noted 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
noted 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:
[GRAPHIC] [TIFF OMITTED] TR04AU26.041
In the proposed rule we noted 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 also noted that the deadline for receipt of public
comments for the proposals included in the Spring 2026 procedure code
update was April 17, 2026; therefore, the final code decisions on these
proposals were not yet available for inclusion in Table 6B.--New
Procedure Codes associated with the 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). We noted that 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 stated in the proposed rule and previously discussed in the
preamble of this final rule, in the FY 2026 IPPS/
[[Page 49601]]
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 the 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 Manual, Version 43.1 under MS-DRGs 456, 457, and
458.
As stated in the proposed rule, 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] TR04AU26.042
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.
In the proposed rule we noted 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 noted 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
[[Page 49602]]
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.
In the proposed rule we noted 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 4169-69-P
[[Page 49603]]
[GRAPHIC] [TIFF OMITTED] TR04AU26.044
[[Page 49604]]
[GRAPHIC] [TIFF OMITTED] TR04AU26.045
BILLING CODE 4169-69-C
The findings show that the cases reporting a spinal fusion
procedure with the custom-made anatomically designed interbody fusion
device, cases reporting
[[Page 49605]]
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
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.
As discussed in the proposed rule, 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 noted 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, we
stated that 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.
We stated in the proposed rule that 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 disagreed 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 discussed in the proposed rule, 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 noted 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. We stated that 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
noted 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
[[Page 49606]]
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 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.
We stated in the proposed rule that, based on our review and
analysis, we disagreed 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 stated we
believed that each technology is indicated for use in complex spinal
fusion procedures and requires increased resource utilization. We also
stated that 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.
In the proposed rule, we stated our belief 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 proposed a new base MS-DRG.
Consistent with our established process as discussed in section
II.C.1.b. of the preamble of the FY 2027 IPPS/LTCH PPS proposed rule
and this final 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 noted that, as
shown in the table that follows, a three-way split of this proposed new
base MS-DRG was met.
[GRAPHIC] [TIFF OMITTED] TR04AU26.046
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 proposed 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
proposed 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 also proposed 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 noted that discussion of the surgical
hierarchy for the proposed modification is discussed in section
II.C.14. of the preamble of the FY 2027 IPPS/LTCH PPS proposed rule.
Comment: Several commenters (practicing spine surgeons,
neurosurgeons, and hospitals) expressed support for proposed new MS-
DRGs 523, 524, and 525 and the proposed revisions to the titles for MS-
DRGs 426, 447, and 450. The commenters stated that these cases often
involve medically complex patients in need of extensive, multi-segment
constructs and advanced pelvic fixation techniques. The commenters
stated the proposed new MS-DRGs better reflect the clinical complexity
and resource intensity of these cases. The commenters also stated the
proposed new MS-DRGs support hospitals' and surgeons' ability to
appropriately treat more complex patients. The commenters stated these
cases are clinically distinct from less extensive spinal fusion and
often require greater operative time, specialized implants, advanced
[[Page 49607]]
planning, and increased hospital resource utilization.
Response: We thank the commenters for their support.
Comment: A commenter who supported proposed MS-DRGs 523, 524, and
525 stated their belief that CMS omitted the eight Section X ICD-10-PCS
procedure codes identifying the use of the iFuse Bedrock
Granite[supreg] Implant System in the performance of spinal fusion
procedures in Table 6P.3a that was made available in association with
the proposed rule on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps. The commenter
requested that a correction be provided for Table 6P.3a in association
with the final rule. Specifically, the commenter indicated that ICD-10-
PCS procedure codes XNH6058, XNH6358, XNH7058, XNH7358, XRGE058,
XRGE358, XRGF058, and XRGF358 were omitted and should be included in
the logic for proposed MS-DRGs 523, 524, and 525 for FY 2027.
Response: We thank the commenter for their feedback. We note that
the ICD-10-PCS procedure codes listed in Table 6P.3a in association
with the FY 2027 IPPS/LTCH PPS proposed rule and made available on the
CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps describe extensive fusion
procedures only. As stated in the proposed rule (91 FR 19337), we
referred the reader to Table 6P. 3a for the list of procedure codes we
analyzed to identify an extensive fusion and noted that extensive
fusions are also reflected in the ICD-10 MS-DRG Definitions Manual,
Version 43.1 under MS-DRGs 456, 457, and 458. We further noted that
under ICD-10-PCS, an extensive fusion procedure is defined as a spinal
fusion procedure involving 8 or more thoracic vertebral joint levels
and provided specific examples of the procedure codes describing an
extensive spinal fusion procedure. We note that because the procedure
codes that may be reported to describe the iFuse BedrockTM
Granite tulip connector device were listed separately in the preamble
of the proposed rule (91 FR 19336) and the procedure codes that may be
reported to describe lumbar fusion procedures that use the
aprevo[supreg] device were also listed separately in the preamble of
the proposed rule (91 FR 19337), the purpose of Table 6P.3a was to list
the procedure codes that describe an extensive fusion procedure.
As also discussed in the proposed rule (91 FR 19336), the 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 noted 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 referred 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.
As such, the four ICD-10-PCS codes describing ``Insertion'' (ICD-10-PCS
codes XNH6058, XNH6358, XNH7058, and XNH7358), were not included in the
logic for proposed new MS-DRGs 523, 524, and 525 in association with
the proposed rule, rather, only the four procedure codes describing
``Fusion'' (ICD-10-PCS codes XRGE058, XRGE358, XRGF058, and XRGF358)
were included, as 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, that was made available in
association with the proposed rule on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software.
Comment: A commenter representing an association of device
manufacturers who supported the proposal stated that the creation of
these MS-DRGs represents a meaningful refinement to the IPPS, aligning
payment with the hospital reported costs of the most resource intensive
spinal fusion procedures furnished to Medicare beneficiaries. Another
commenter representing a specialty society stated they supported CMS'
broader efforts to modernize the spinal fusion DRG hierarchy so that
Medicare payment policy more accurately reflects the substantial
clinical, operational, and resource differences between routine
degenerative fusion procedures and highly complex spinal deformity and
reconstruction surgery; however, this commenter expressed concern that
the proposed MS-DRG descriptions may inadvertently exclude numerous
clinically comparable, high-complexity spinal reconstruction procedures
that do not involve the named devices or do not meet the current
definition of ``extensive'' or ``complex''. The commenter urged CMS to
collaborate with neurosurgical and orthopedic specialty societies to
develop clinically grounded procedure based definitions of
``extensive'' and ``complex'' spinal fusion, regardless of the specific
implant technology used or the number of vertebral levels fused.
Another commenter who also supported the proposed new spinal fusion MS-
DRGs requested that CMS monitor the claims data for impacts.
Response: We appreciate the commenters' support and feedback. In
response to the concerns expressed for the proposed MS-DRG
descriptions, we note that the definition of an ``extensive'' spinal
fusion has existed since the implementation of ICD-10-PCS in October
2015. As discussed in the preamble of the FY 2027 IPPS/LTCH PPS
proposed rule (91 FR 19337 through 19338) and this final rule, under
ICD-10-PCS, an extensive fusion is defined as a spinal fusion procedure
involving 8 or more thoracic vertebral joint levels. An extensive
fusion procedure may also be reported with a combination of codes
(cluster) that includes at least one code describing fusion of 2-7
thoracic vertebral joint levels and at least one code describing fusion
of 2 or more lumbar vertebral joint levels. We note that the proposed
logic for case assignment to proposed MS-DRGs 523, 524, and 525, as
reflected in the ICD-10 MS-DRG Definitions Manual, Version 43.1, that
was made available in association with the proposed rule includes the
lists of procedure codes that describe an extensive fusion and
separately lists the procedure codes describing complex spinal fusion
procedures performed with the use of the aprevo[supreg] custom-made
anatomically designed interbody fusion device or the iFuse Bedrock
Granite[supreg] Implant System. Based on our clinical review and the
findings from our analysis as discussed in the proposed rule, the
majority of spinal
[[Page 49608]]
fusion procedures that were reported to use either technology were
those performed on a subset of clinically complex patients with adult
spinal deformities and other conditions requiring specialized
instrumentation and treatment plans. In response to the request that we
should monitor the claims data for impacts, we note that we will
continue to monitor the claims data in consideration of any potential
modifications that may be warranted. Any discussion regarding proposed
changes will be discussed in future rulemaking.
Comment: A commenter who supported the proposal to create proposed
new MS-DRGs 523, 524, and 525 expressed appreciation for the thoughtful
analysis that was performed and urged CMS to finalize the proposal. The
commenter also stated that they supported the proposal to revise the
descriptions and create new procedure codes that describe use of the
aprevo[supreg] device as proposed in the Spring 2026 procedure code
update and discussed in the preamble of the proposed rule. The
commenter requested that CMS follow its established process to identify
any finalized procedure changes with a footnote in Table 6B.--New
Procedure Codes, and that the final ICD-10 MS-DRG GROUPER, Version 44,
also reflect the appropriate procedure code logic finalized for case
assignment.
Response: We thank the commenter for their support and feedback. As
discussed in the preamble of the proposed rule, we noted 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 may be reported to describe use of the aprevo[supreg]
device. The agenda and related meeting materials for this 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. As reflected in the FY 2027 ICD-10-PCS Code Update
files that were made publicly available on the CMS website at: https://
www.cms.gov/medicare/coding-billing/icd-10-codeshttps://www.cms.gov/medicare/coding-billing/icd-10-codes on June 5, 2026, and in Table
6B.--New Procedure Codes associated with this FY 2027 IPPS/LTCH PPS
final rule (and available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps),
consistent with our established processes, new procedure codes have
been finalized that may be reported to describe use of the
aprevo[supreg] custom-made anatomically and virtually designed
interbody fusion device that are designated with a footnote and display
the finalized operating room designation, MDC, and MS-DRG assignments
effective with discharges on and after October 1, 2026. In addition,
the FY 2027 ICD-10 MS-DRG GROUPER and Medicare Code Editor (MCE)
Software Version 44, and the ICD-10 MS-DRG Definitions Manual files
Version 44 available to the public on our CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps also reflect the finalized logic for case assignment. We
also note that the current codes that may be reported to describe use
of the aprevo[supreg] custom-made anatomically designed interbody
fusion device are invalid effective with discharges on and after
October 1, 2026, as reflected in Table 6D.--Invalid Procedure Codes,
associated with this FY 2027 IPPS/LTCH PPS final rule (and available on
the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps).
Comment: A couple of commenters who supported the proposed new
spinal fusion MS-DRGs 523, 524, and 525, stated that there have been
revisions to the spinal fusion MS-DRGs for the last three fiscal years.
Using MS-DRG 426 as an example, a commenter stated that cases grouping
to this MS-DRG for FY 2025, FY 2026, and proposed FY 2027 are all
unique and require recalibration to compare the MS-DRG with a batch
GROUPER for accurate comparison. The commenters also stated there is a
proposed relative weight difference for MS-DRG 426 in FY 2027 showing a
decrease from approximately 11.0212 to 9.9191, making it difficult to
compare current spinal fusion MS-DRGs with the V43 GROUPER due to cases
shifting out of MS-DRG 426 as a result of changes made over the last
three years. Another commenter stated that the observed shifts in MS-
DRG 426 across the two years may reflect classification dynamics rather
than true changes in patient acuity or resource use. The commenter
requested that CMS publish supplemental files to enable hospitals to
evaluate impacts using their own claims under the applicable GROUPER
logic which may help inform and clarify the logic changes affecting the
redistribution of cases among the MS-DRGs.
Response: We thank the commenters for their support of the proposed
new MS-DRGs and acknowledge there have been revisions to the logic for
case assignment to MS-DRG 426 for FY 2025 and FY 2026, with proposed
changes for FY 2027. As shown in the data analyses that have been
discussed in prior rulemakings, and more recently in the preamble of
the FY 2027 proposed rule, cases reporting use of the aprevo[supreg]
technology generally have higher average costs and either a comparable
or a longer average length of stay when compared to all the cases in
the respective MS-DRG. When higher volume and higher average cost cases
shift in and out of an MS-DRG, the relative weight of that MS-DRG will
fluctuate. It is expected that changes to the relative weight will
occur when logic changes are finalized resulting in a redistribution of
cases. As discussed elsewhere in the preamble of this final rule, we
may consider making available additional resources such as a batch
GROUPER for future rulemaking. With regard to the request that CMS
publish supplemental files to assist hospitals in their evaluation of
the potential impacts as a result of the proposed MS-DRG changes, we
intend to make available a redistribution report in association with
future proposed rulemakings to further assist stakeholders in
evaluating how proposed logic changes may affect the redistribution of
cases among the MS-DRGs.
After consideration of the public comments we received, we are
finalizing our proposal, without modification, to create new MS-DRGs
523, 524, and 525, for FY 2027. We are also finalizing our proposal 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] device or the
iFuse BedrockTM Granite Implant System from MS-DRGs 402,
426, 427, 428, 447, 448, 450, 451, 456, 457 and 458 to new MS-DRGs 523,
524, and 525. Lastly, we are finalizing our proposal 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 refer the reader to the ICD-10 MS-DRG
Definitions Manual files, Version 44 made available in association with
this final rule at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software
for complete documentation of the GROUPER logic.
We note that the surgical hierarchy for the finalized modification
is discussed
[[Page 49609]]
in section II.C.14. of the preamble of this final 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 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,
[[Page 49610]]
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 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 discussed in the preamble of the proposed rule, based on our
analysis of the September 2025 update of the FY 2025 MedPAR file for
the FY 2027 IPPS/LTCH PPS proposed rule, we continued 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. We stated in the
FY 2027 IPPS/LTCH PPS proposed rule that for purposes of our analysis,
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 were 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
the 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 could better analyze and understand the impact of the proposals
as summarized in the discussion that follows.
We stated in the FY 2027 IPPS/LTCH PPS proposed rule that, 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 noted 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 the FY 2027
IPPS/LTCH PPS proposed rule and this final 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.
As discussed in the proposed rule, 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 the FY 2027 IPPS/LTCH PPS proposed rule and
this final 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.
[[Page 49611]]
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 was
April 17, 2026; therefore, the final code decisions on these proposals
were not yet available for inclusion in Table 6B.--New Procedure Codes
associated with the 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.
We note that, after review and consideration of the public comments
from the Spring 2026 ICD-10-PCS code update, we finalized the proposal
to create a new ICD-10-PCS code to describe the administration of the
antibiotic-eluting bone void filler product, CERAMENT[supreg] V, and we
finalized the proposal to revise the existing ICD-10-PCS code XW0V0P7,
to identify the administration of CERAMENT[supreg] G, as reflected in
the FY 2027 ICD-10-PCS Code Update files that were made publicly
available on the CMS website at: https://www.cms.gov/medicare/coding-billing/icd-10-codes on June 5, 2026. The new procedure code, XW0V0BC
(Introduction of vancomycin-eluting bone void filler into bones, open
approach, new technology group 12), is reflected in Table 6B.--New
Procedure Codes, and the revised procedure code title for procedure
code XW0V0P7 (Introduction of gentamicin-eluting bone void filler into
bones, open approach, new technology group 7) is reflected in Table
6F.--Revised Procedure Code Titles, in association with this final rule
and available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps, including the
MS-DRG assignments for the new code for FY 2027.
Accordingly, to continue our analysis of cases reporting a hip or
knee procedure with a principal diagnosis of 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 the 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 4169-69-P
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BILLING CODE 4169-69-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
[[Page 49615]]
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 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.
We stated in the proposed rule that based on our review and
analysis of the data, we believed 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 noted 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 the 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 stated we
believed 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.
As discussed in the proposed rule and this final rule, 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
proposed 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 noted 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
[[Page 49616]]
previously discussed. As such, we stated that the data supported the
proposal for 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 the FY 2027 IPPS/LTCH PPS proposed rule
and this final 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
percent difference in average costs in the without CC/MCC group. The
following table illustrates our findings.
[GRAPHIC] [TIFF OMITTED] TR04AU26.050
As discussed in section II.C.1.b. of the preamble of the FY 2027
IPPS/LTCH PPS proposed rule and this final rule, if the criteria for a
three-way split fail, the next step is to determine if the criteria are
satisfied for a two-way split. We therefore applied the criteria for a
two-way split for the ``with MCC and without MCC'' subgroups and found
that all five criteria were met. The following table illustrates our
findings 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).
[GRAPHIC] [TIFF OMITTED] TR04AU26.051
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 discussed in the preamble of the FY 2027 IPPS/LTCH PPS
proposed rule and this final rule, 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 noted 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 percent difference in average cost between the CC and NonCC group.
The following table illustrates our findings.
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As discussed in section II.C.1.b. of the preamble of the FY 2027
IPPS/LTCH PPS proposed rule and this final rule, if the criteria for a
three-way split fail, the next step is to determine if the criteria are
satisfied for a two-way split. We therefore applied the criteria for a
two-way split for the ``with MCC and without MCC'' subgroups and found
that 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] TR04AU26.053
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
[[Page 49617]]
a 20 percent difference in average cost between the with CC/MCC and the
without CC/MCC group.
[GRAPHIC] [TIFF OMITTED] TR04AU26.052
We therefore proposed to delete MS-DRGs 466, 467, and 468 and
proposed to create new base MS-DRG 449 (Revision of Hip or Knee
Replacement). We also noted 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
proposed to remove the following 20 procedure codes from the logic list
as individually listed codes.
[GRAPHIC] [TIFF OMITTED] TR04AU26.055
[[Page 49618]]
The following table illustrates our simulation of proposed new MS-
DRG 449.
[GRAPHIC] [TIFF OMITTED] TR04AU26.059
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] TR04AU26.058
As discussed in section II.C.1.b. of the preamble of the FY 2027
IPPS/LTCH PPS proposed rule and this final rule, if the criteria for a
three-way split fail, the next step is to determine if the criteria are
satisfied for a two-way split. We therefore applied the criteria for a
two-way split for the ``with MCC and without MCC'' 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.
[GRAPHIC] [TIFF OMITTED] TR04AU26.056
We therefore proposed to delete MS-DRGs 485, 486, and 487 and
proposed 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] TR04AU26.057
In summary, for FY 2027, we proposed 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 the 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 the FY 2027 IPPS/LTCH PPS proposed rule
and this final 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 in association with the proposed rule, 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.
[[Page 49619]]
[GRAPHIC] [TIFF OMITTED] TR04AU26.060
We noted that the surgical hierarchy for the proposed modification
is discussed in section II.C.14. of the preamble of the FY 2027 IPPS/
LTCH PPS proposed rule.
In the proposed rule, we also noted 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 stated 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 proposed to revise the term ``and'' to ``or'' for the
titles for MS-DRGs 463, 464, and 465. These proposed title changes were
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 the 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).
Comment: Several commenters expressed support for the seven
proposals outlined in response to the request discussed for cases
reporting a principal diagnosis of a PJI with a hip or knee procedure.
A commenter stated accurately capturing infection severity and
treatment complexity in the MS-DRG groupings and relative weights is
vital. The commenter agreed with CMS' proposal for MS-DRGs 403 and 404.
However, a couple of commenters expressed concern that the proposed
removal of the restriction logic inappropriately shifts cases currently
reported with both a ``removal'' procedure code and a ``replacement''
procedure code from existing MS-DRGs 466, 467, and 468 to MS-DRGs 463,
464, and 465. The commenters stated that the ICD-10-PCS Official
Guidelines for Coding and Reporting state that if a device that is
intended to remain after the procedure is completed requires removal
before the end of the operative episode in which it was inserted, both
the insertion and removal of the device should be coded. According to
the commenters, the current restriction logic recognizes when a removal
and replacement procedure are performed together. The commenters stated
that MS-DRGs 463, 464, and 465 are not similar clinically or from a
resource perspective. The commenters requested that MS-DRGs 466, 467,
and 468 be retained.
Response: We thank the commenters for their support and feedback.
With respect to the concerns expressed about clinical coherence, we
note that under the proposal, the removal of the restriction logic and
the redistribution of a subset of the cases from MS-DRGs 466, 467, and
468 to MS-DRGs 463, 464, and 465 aligns with the existing GROUPER logic
that currently exists under Version 43.1 for MS-DRGs 463, 464, and 465.
Specifically, the ICD-10-PCS procedure codes describing removal of
synthetic substitute or removal of liner from the right or left hip or
knee joint are currently reflected in the logic for cases assignment to
MS-DRGs 463, 464, and 465 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. We note that the procedure codes
describing these removal procedures have been in the logic for MS-DRGs
463, 464, and 465 since the implementation of ICD-10-PCS. With regard
to the ICD-10-PCS Official Guidelines for Coding and Reporting that was
referenced, we note that the guideline is not applicable for this
subset of cases. This guideline is referring to operative episodes
where the intent is that an implanted device remain in the patient but
due to reasons such as an ill-fitting implant or a broken implant, the
implanted device must be removed, and no replacement device is
subsequently implanted. In addition, as the commenters noted in their
comments, the guideline is describing insertion and removal procedures,
not removal and replacement procedures. As discussed previously, we
intend to make available a redistribution report in association with
future proposed rulemakings to further assist stakeholders in
evaluating how proposed logic changes may affect the redistribution of
cases among the MS-DRGs.
Comment: A commenter who agreed with the proposed changes for
revision procedures stated that they did not agree with the grouping
methodology to MS-DRGs 463, 464, and 465 when a removal procedure was
assigned and that these procedures are not reflected in the description
of the MS-DRGs. The commenter also requested that the logic for MS-DRGs
463, 464, and 465 be further evaluated to determine a more appropriate
MS-DRG assignment for the hip and knee joint removal procedures which
are orthopedic in nature.
Response: We appreciate the commenter's support and feedback. We
acknowledge that the descriptions for MS-DRGs 463, 464, and 465 do not
currently reflect orthopedic procedures. We also note that not every
MS-DRG title reflects every type of procedure listed in the definition
of the logic for
[[Page 49620]]
case assignment. Based on the findings from our analyses and clinical
review, we believe that the proposed assignment for orthopedic
procedures resulting from removal of the restriction logic is
appropriate. We also note that, as previously discussed, the removal of
the restriction logic and the redistribution of a subset of the cases
from MS-DRGs 466, 467, and 468 to MS-DRGs 463, 464, and 465 aligns with
the existing GROUPER logic that currently exists under Version 43.1 for
MS-DRGs 463, 464, and 465; procedure codes describing removal of a
synthetic substitute or removal of a liner from the hip or knee joint
procedures are presently reflected in the logic for MS-DRGs 463, 464,
and 465. As such, we do not believe that there is a clinical coherence
issue to address. With regard to the commenter's request that the logic
for MS-DRGs 463, 464, and 465 be further evaluated to determine a more
appropriate MS-DRG assignment for the joint procedures which are
orthopedic in nature, we note that, consistent with our established
process, we will continue to analyze the data and any proposed
modifications will be discussed in future rulemaking.
For additional clarification in response to the public comments
received, we note that with removal of the restriction logic in MS-DRGs
466, 467, and 468, the resulting proposed logic for proposed new MS-DRG
449 more accurately reflects the ICD-10-PCS definition of Revision.
Under ICD-10-PCS, the root operation Revision is defined as:
Correcting, to the extent possible, a portion of a malfunctioning
device or the position of a displaced device. Revision can include
correcting a malfunctioning or displaced device by taking out or
putting in components of the device such as a screw or pin. Therefore,
we believe that the proposed new MS-DRG more accurately aligns with the
ICD-10-PCS definition of Revision. However, in response to some of the
confusion expressed by commenters, we also believe it is appropriate to
further clarify the intent of the proposed new MS-DRG by further
revising the title for proposed MS-DRG 449 (Revision of Hip or Knee
Replacement) to reflect ``Revision of Hip or Knee Prosthesis''. We
believe that this modification will better describe the types of cases
that are expected to group there.
After consideration of the public comments we received, we are
finalizing our proposals 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,
with modification of the MS-DRG title to reflect ``Revision of Hip or
Knee Prosthesis'' and new base MS-DRG 400, (5) redesignate procedure
code XW0V0P7 from non-O.R. to non-O.R. affecting specified MS-DRGs as
discussed in this section of the FY 2027 IPPS/LTCH PPS proposed rule
and this final 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), 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 previously listed MS-DRGs 463, 474, 477, 480,
and 492 to reflect the reassignment.
We are also finalizing our proposal to remove the 20 procedure
codes previously listed to appropriately reflect the logic list for new
base MS-DRG 449 and to ensure cases group correctly. Lastly, we are
finalizing our proposal to revise the term ``and'' to ``or'' for the
titles for MS-DRGs 463, 464, and 465.
These finalized changes, including the finalized logic lists for
case assignment, are also reflected in the ICD-10 MS-DRG GROUPER
Software, Version 44, and the ICD-10 MS-DRG Definitions Manual, Version
44, available in association with this final rule (available on the CMS
website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software).
We note that a few commenters suggested that if a new procedure
code to describe CERAMENT[supreg] V was finalized, that the new
procedure code also be assigned to the highest severity level MS-DRG,
consistent with the proposals for cases reporting procedure code
XW0V0P7, to identify the administration of CERAMENT[supreg] G. As
previously discussed in this section of the preamble of this final
rule, and as reflected in Table 6B.--New Procedure Codes in association
with this final rule, we finalized new procedure code, XW0V0BC
(Introduction of vancomycin-eluting bone void filler into bones, open
approach, new technology group 12), and we finalized a revision to the
procedure code title for procedure code XW0V0P7 (Introduction of
gentamicin-eluting bone void filler into bones, open approach, new
technology group 7) as reflected in Table 6F.--Revised Procedure Code
Titles, in association with this final rule. As also previously
discussed in this section of the preamble of this final rule, we
finalized the proposal to redesignate procedure code XW0V0P7 from non-
O.R. to non-O.R. affecting specified MS-DRGs and we finalized the
proposal to 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. Under our established process, we have finalized
the O.R. status designation and the MS-DRG assignments for new
procedure code XW0V0BC consistent with the finalized policies for
procedure code XW0V0P7, as reflected in Tables 6B and 6F associated
with this final rule (available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps). These finalized changes, including the finalized logic
lists for case assignment, are also reflected in the ICD-10 MS-DRG
GROUPER Software, Version 44, and the ICD-10 MS-DRG Definitions Manual,
Version 44, available in association with this final 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 the 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, 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 the FY 2027
IPPS/LTCH
[[Page 49621]]
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. In the
proposed rule, we also noted 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 the 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 the FY 2027 IPPS/LTCH PPS proposed rule and
this final 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 noted in the proposed rule that the
deadline for receipt of public comments for the proposals included in
the Spring 2026 procedure code update was April 17, 2026; therefore,
the final code decisions on these proposals were not yet available for
inclusion in Table 6B.--New Procedure Codes associated with the 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.
As previously discussed in section II.C.4.b of the preamble of this
final rule, we finalized new ICD-10-PCS code XW0V0BC (Introduction of
vancomycin-eluting bone void filler into bones, open approach, new
technology group 12) to describe the administration of the antibiotic-
eluting bone void filler product, CERAMENT[supreg] V, as reflected in
Table 6B.-New Procedure Codes, and we finalized a revision to the title
for existing ICD-10-PCS code XW0V0P7 (Introduction of gentamicin-
eluting bone void filler into bones, open approach, new technology
group 7) to identify the administration of CERAMENT[supreg] G, as
reflected in Table 6F.--Revised Procedure Code Titles, in association
with this final rule and available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps. Tables 6B and 6F also include the finalized O.R.
designations and MS-DRG assignments for these new and revised procedure
codes for FY 2027.
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 percent per year, with a lifetime risk of 4 percent,
and 68 percent 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 percent
to 27 percent 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.
As discussed in the proposed rule, 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
[[Page 49622]]
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.
[GRAPHIC] [TIFF OMITTED] TR04AU26.061
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.
We stated in the proposed rule that based on our review and
analysis of the data, we agreed 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 proposed 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 stated 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 proposed 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 also proposed 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.
Comment: Commenters agreed with the proposal 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 level
MS-DRG 628. Commenters also agreed with the proposed revision to the
title of MS-DRG 616 and MS-DRG 628 to reflect the ``Insertion of
Antibiotic-eluting Bone Void Filler'' component with the reassignment
of cases reporting procedure code XW0V0P7.
[[Page 49623]]
Response: We appreciate the commenters' support.
After consideration of the public comments we received, we are
finalizing our proposal 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 (MCC) level MS-DRG 628. We are also
finalizing our proposal to revise the titles of MS-DRG 616 and MS-DRG
628 to reflect the reassignment of cases reporting procedure code
XW0V0P7 by adding the phrase ``Insertion of Antibiotic-eluting Bone
Void Filler'' as also reflected in the ICD-10 MS-DRG Definitions Manual
Version 44, available in association with this final rule on the CMS
website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps.
6. MDC 11 (Diseases and Disorders of the Kidney and Urinary Tract)
a. Prostatectomy
As discussed in the FY 2027 IPPS/LTCH PPS proposed rule (91 FR
19354 through 19355), consistent with our annual review of the MS-DRGs,
we stated 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. In this final rule, we
would like to correct the statement in the proposed rule and note that
in the ICD-10 MS-DRG Definitions Manual Version 43.1, the logic list
referred to as ``OPERATING ROOM PROCEDURES'' includes 18 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. 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:
[GRAPHIC] [TIFF OMITTED] TR04AU26.062
In the proposed rule we stated 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 noted 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 proposed 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).
Comment: Commenters supported the proposal to remove the eight ICD-
10-PCS procedure code combinations from the GROUPER logic of MDC 11 MS-
DRGs 665, 666, and 667 (Prostatectomy with MCC, with CC, and without
CC/MCC, respectively), effective October 1, 2026, for FY 2027.
Response: We appreciate the commenters' support.
[[Page 49624]]
After consideration of the public comments we received, we are
finalizing our proposal 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), without modification, effective October 1, 2026, for FY
2027.
b. Islet Cell Transplantation
As discussed in section II.C.11.b.1 of the FY 2027 IPPS/LTCH PPS
proposed rule (91 FR 19366 through 19367) and this final 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).
As discussed in the proposed rule (91 FR 19355 through 19358), 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. We
stated in the proposed rule that 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. In this final rule, we would like to correct the
statement in the proposed rule and note that in the ICD-10 MS-DRG
Definitions Manual Version 43.1, the first logic list entitled
``Operating Room Procedures'' is defined by a list of 1,765 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. As discussed in the FY 2027 IPPS/LTCH
PPS proposed rule, 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).
[GRAPHIC] [TIFF OMITTED] TR04AU26.063
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
[[Page 49625]]
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 the FY 2027 IPPS/LTCH PPS proposed rule, we stated 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 stated 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] TR04AU26.064
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 noted
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.
As discussed in the FY 2027 IPPS/LTCH PPS proposed rule, 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 stated 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/.
---------------------------------------------------------------------------
In the proposed rule, we further noted 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
[[Page 49626]]
whole organ pancreas transplant and pancreatic islet cell
transplantation, and consideration of the intent of the MS-DRGs, we
stated in the FY 2027 IPPS/LTCH PPS proposed rule 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. We stated
that 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 stated 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-DRG 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] TR04AU26.065
We stated we believe that this simulation supports that the
resulting MS-DRG assignments would be more clinically homogeneous,
coherent and better reflect hospital resource use. As the table shows,
for MS-DRG 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, 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. We stated 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 proposed 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 also proposed
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 proposed to change the title
of MS-DRG 008 from ``Simultaneous Pancreas and Kidney Transplant'' to
``Simultaneous Pancreas, Islet Cell and Kidney Transplant,'' proposed
to change the title of MS-DRG 010 from ``Pancreas Transplant'' to
``Pancreas or Islet Cell Transplant'' and proposed 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 proposed 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 the 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 proposed to define in the ``Islet Cell Transplant
Procedures'' logic list in Pre-MDC MS-DRGs 008, 010, and 019. We note
that the surgical hierarchy for the proposed modification is discussed
in section II.C.14. of the preamble of the FY 2027 IPPS/LTCH PPS
proposed rule.
Comment: Many commenters expressed support for the proposal 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. Commenters stated they
appreciate CMS' acknowledgement of the benefits of islet cell
transplantation and stated they commend CMS for conducting an analysis
and proposing to reassign the procedure codes to MS-DRGs that better
reflect the clinical severity and resource use involved. Several
commenters stated they agreed that the special logic in MS-DRGs 673,
674, and 675 did not fully reflect the indications for pancreatic islet
cell transplantation and noted that deceased donor islet cell
transplantation has been a proven and effective treatment indicated for
adults with type 1 diabetes who are unable to approach target glycated
hemoglobin levels because of current repeated episodes of severe
hypoglycemia despite intensive diabetes management and education. A
commenter specifically
[[Page 49627]]
stated that they value CMS' rigorous assessment of islet cell
transplantation to improve clinical alignment. Another commenter stated
that the proposed addition of a new ``Islet Cell Transplant
Procedures'' logic list in MS-DRGs 008, 010, and 019 leads to groupings
that are more coherent with diagnoses and procedures with similar
clinical characteristics and utilization of resources. This commenter
stated they agreed with CMS' approach in acknowledging the unique
nature of islet cell transplant procedures and appreciate CMS' efforts
to find a more suitable payment methodology for cases that report
procedure codes that describe the introduction of pancreatic islet
cells.
Response: We appreciate the commenters' support.
Comment: While expressing support for CMS' proposal to reassign the
11 ICD-10-PCS procedure codes that describe the introduction of
pancreatic islet cells from MS-DRGs 673, 674, and 675 to improve
clinical coherence, a commenter stated that they believe that assigning
these procedure codes into MS-DRG 010 (Pancreas Transplant) is
structurally unsuitable due to the fundamental clinical, operational,
and cost distinctions between a manufactured cellular biologic and a
standard whole-organ product because unlike a standard solid-organ
pancreas transplant, donislecel-jujn (LantidraTM) has a
distinct commercial product acquisition cost as a manufactured
allogeneic cellular biologic. This commenter recommended CMS create a
new, dedicated Pre-MDC MS-DRG specifically for ``Allogeneic Islet
Cellular Therapies'' that captures the commercial acquisition costs of
this FDA approved cellular biologic to align hospital payment with the
resource-intensive nature of the therapy, and ensure patients have
equitable access to a reasonable and necessary treatment that addresses
a critical unmet clinical need.
Another commenter stated they continue to believe that MS-DRG 018
(Chimeric Antigen Receptor (CAR) T-Cell and Other Immunotherapies) is a
more appropriate assignment for ICD-10-PCS code XW033DA (Introduction
of donislecel-jujn allogeneic pancreatic islet cellular suspension into
peripheral vein, percutaneous approach, new technology group 10) to
ensure strong clinical and hospital adoption. This commenter
recommended that CMS consider the totality of other relevant clinical
circumstances that differentiate (or tie together) the procedure from
other procedures assigned to the applicable MS-DRG so as not to chill
development in the still nascent but growing field of cell and gene
therapy to the detriment of patients.
Commenters recommended that CMS conduct a full and individualized
evaluation of clinical and resource coherence when evaluating other
future technologies, including future cell and gene therapies involving
islet cells. Several commenters stated that there are noteworthy islet
cell therapies under investigation that are substantially different
from both traditional donor-derived transplantation and more recent
allogeneic (deceased donor) islet cell therapies. A commenter stated
that donor-derived islet therapies such as donislecel-jujn
(LantidraTM) have limited manufacturing capacity as they use
cells isolated from deceased human organs, and act like an organ
transplant by requiring lifelong immunosuppression, while manufactured,
or stem cell-derived, islet cell therapies use lab-grown cells
engineered from pluripotent cells to provide an unlimited supply. In
light of the islet cell therapies currently in clinical trial, several
commenters recommended that CMS consider the clinical and resource
related distinctions, unique administrative requirements, clinical
outcomes, and manufacturing requirements that warrant differentiation
from currently approved islet cell therapies when these investigational
islet cell replacement technologies move to approval.
Response: We thank commenters for sharing their views and
recommendations. We will take the commenters' feedback into
consideration in future policy development. As discussed in the FY 2027
proposed rule, and 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.
As we examine these complex issues in consideration for future
rulemaking, we continue to 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 for FY 2027, after reviewing the
indications for both whole organ pancreas transplant and pancreatic
islet cell transplantation, and consideration of the intent of the MS-
DRGs. Accordingly, we continue to believe that 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-DRG 008
(Simultaneous Pancreas and Kidney Transplant), MS-DRG 010 (Pancreas
Transplant) and MS-DRG 019 (Simultaneous Pancreas and Kidney Transplant
with Hemodialysis) will improve clinical coherence in these MS-DRGs.
Comment: A commenter noted that we proposed to change of title of
MS-DRG 008 from ``Simultaneous Pancreas and Kidney Transplant'' to
``Simultaneous Pancreas, Islet Cell and Kidney Transplant,'' and that
we proposed 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. This commenter stated that they
believe that the use of the word ``and'' instead of ``or'' in the
titles for these MS-DRGs is concerning and recommended the title of MS-
DRG 008 be changed to ``Simultaneous Kidney, Pancreas and/or Islet Cell
Transplant'' and the title for MS-DRG 019 be changed to ``Simultaneous
Pancreas, Islet Cell and/or Kidney Transplant with Hemodialysis.''
Response: We thank the commenter for their feedback.
With respect to the titles of MS-DRGs 008 and 019, we will consider
this suggestion for future rulemaking. While we disagree with using the
conjunction ``and/or'' in the title of these new MS-DRGs, as we have
found the conjunction can lead to ambiguity, we acknowledge that we did
consider other alternatives to the revision of the titles of MS-DRG 008
and MS-DRG 019. After review, we found that ``Simultaneous Pancreas,
Islet Cell and Kidney Transplant,'' and ``Simultaneous Pancreas, Islet
Cell and Kidney Transplant with Hemodialysis,'' respectively, were the
most appropriate options to better reflect the assigned procedures
after our proposed modifications, given the conventions of the
classification.
To assist interested parties in understanding what conditions must
be met to satisfy the GROUPER logic for MS-DRG 008, we note that we
provided a logic table in the draft version of the ICD-10 MS-DRG
Definitions Manual, Version 44, available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software. The logic table is reflected as follows:
[[Page 49628]]
[GRAPHIC] [TIFF OMITTED] TR04AU26.066
Similarly, we provided a logic table for MS-DRG 019 in the draft
version of the ICD-10 MS-DRG Definitions Manual, Version 44. The logic
table is reflected as follows:
[GRAPHIC] [TIFF OMITTED] TR04AU26.067
These logic tables will also be reflected in the final ICD-10 MS-
DRG Definitions Manual, Version 44. We will continue to review these
MS-DRGs to determine if additional refinements to their titles may be
warranted in the future.
After consideration of the public comments received, we are
finalizing our proposal 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,
effective October 1, 2026, without modification, for FY 2027.
Additionally, we are also finalizing our proposal 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 finalizing our proposals to change the title of
MS-DRG 008 from ``Simultaneous Pancreas and Kidney Transplant'' to
``Simultaneous Pancreas, Islet Cell and Kidney Transplant,'' to change
the title of MS-DRG 010 from ``Pancreas Transplant'' to ``Pancreas or
Islet Cell Transplant'' and 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, without modification, for FY 2027. Under this
finalization, the current ``principal or secondary diagnosis'' logic in
MS-DRGs 008, 010, and 019 will be maintained. Additionally, to maintain
stability, we are finalizing our proposal 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.
7. MDC 12 (Diseases and Disorders of the Male Reproductive System):
Prostatectomy
As discussed in the FY 2027 IPPS/LTCH PPS proposed rule (91 FR
19358 through 19360), we stated 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. In this final rule, we would like to correct the statement in the
proposed rule and note that in the ICD-10 MS-DRG Definitions Manual
Version 43.1, the logic list referred to as ``OPERATING ROOM
PROCEDURES'' includes 53 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:
[[Page 49629]]
[GRAPHIC] [TIFF OMITTED] TR04AU26.068
As we examined the GROUPER logic that would determine an assignment
of a case to MDC 12 MS-DRGs 707 and 708 as discussed in the proposed
rule, 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, 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 noted 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, as discussed in the proposed rule,
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 stated 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] TR04AU26.069
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.
[[Page 49630]]
[GRAPHIC] [TIFF OMITTED] TR04AU26.070
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 in the proposed rule 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 proposed 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
resection of the bilateral seminal vesicles is not also reported.
Comment: Commenters supported the proposal 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), effective October 1, 2026,
for FY 2027.
Response: We appreciate the commenters' support.
After consideration of the public comments we received, we are
finalizing our proposal 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), without modification, effective October 1, 2026,
for FY 2027.
As discussed in the proposed rule, 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 stated 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 stated we
believe it is appropriate to propose to revise the titles of these MS-
DRGs for consistency. Therefore, we also proposed 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 the proposed
rule, we provided 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 the proposed rule. In the proposed
rule, we noted that at the time of the development of the test
software, this issue was unable to be addressed and therefore, the test
software did 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.
Comment: Commenters supported the proposal 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,
[[Page 49631]]
respectively'' effective October 1, 2026, for FY 2027.
Response: We appreciate the commenters' support.
After consideration of the public comments we received, we are
finalizing our proposal 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'', effective
October 1, 2026, for FY 2027.
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).
As discussed in the FY 2027 IPPS/LTCH PPS proposed rule (91 FR
19360 through 19364), 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 October 1, 2023, through March, 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 percent 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
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 integrity, and to prevent barriers to
hospital adoption of CYTALUX[supreg] as NIR system availability expands
nationwide.
To begin our analysis, as discussed in the proposed rule, 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.
[[Page 49632]]
[GRAPHIC] [TIFF OMITTED] TR04AU26.071
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] TR04AU26.072
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
[[Page 49633]]
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).
As discussed in the proposed rule, the data reflect 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, in the proposed rule we stated 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
noted 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.
In the proposed rule, we stated we could not 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 stated 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 noted 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 stated 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 stated 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 did not propose
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).
Comment: Commenters expressed support for the decision to not
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) for
FY 2027. A commenter stated that they understand the concerns regarding
the current volume of cases available for analysis and acknowledge that
additional claims data is needed before evaluating any potential MS-DRG
reassignment of cases reporting ICD-10-PCS codes that describes
fluorescence guided procedures of the female reproductive system using
CYTALUX[supreg] (pafolacianine).
Response: We appreciate the commenters' support.
During our review of this issue, as discussed in the proposed rule,
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
procedure 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 procedure 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
procedure 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 procedure 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
procedure with a principal diagnosis describing an ``ovarian or
adnexal'' malignancy without a CC or an 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 procedure with a principal diagnosis
describing a ``non-ovarian or non-adnexal'' malignancy
[[Page 49634]]
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 stated in the proposed rule we
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).
As discussed in the proposed rule 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 stated
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.
In the proposed rule we noted 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 stated
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 proposed 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] TR04AU26.073
Consistent with our established process as discussed in section
II.C.1.b. of the preamble of the proposed rule and this final 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 the FY
2027 IPPS/LTCH PPS proposed rule and this final 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] TR04AU26.074
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
[[Page 49635]]
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 proposed to delete MS-DRGs 736, 737,
738, 739, 740, and 741 and proposed to create new MS-DRG 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 proposed 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 the 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 proposed to define in the logic for the proposed new
MS-DRGs. We note that the surgical hierarchy for the proposed
modification is discussed in section II.C.14. of the preamble of the FY
2027 IPPS/LTCH PPS proposed rule.
Comment: Commenters expressed support for the proposal to delete
MS-DRGs 736, 737, 738, 739, 740, and 741 and to create new MS-DRGs 731,
732 and 733 in MDC 13 for FY 2027. Commenters also stated they agreed
with the proposal to include the list of 689 ICD-10-PCS procedure codes
currently in the logic for MS-DRGs 736, 737, 738, 739, 740, and 741 in
the logic for the proposed new MS-DRGs. A commenter specifically stated
they support the proposal to eliminate the current logic that
differentiates cases based on principal diagnoses describing ``ovarian
or adnexal'' versus ``non-ovarian or non-adnexal'' malignancies, as
this change will improve clinical coherence and better align MS-DRG
assignment with contemporary surgical practice patterns. This commenter
thanked CMS for its thoughtful consideration of these issues and its
ongoing efforts to ensure that MS-DRG classifications accurately
reflect resource utilization and patient care.
Response: We thank the commenters for their support.
Comment: Another commenter stated that they seek clarification on
how CMS will handle concomitant procedures in the proposed new MS-DRGs.
The commenter noted that hysterectomy procedures are commonly performed
concomitantly with procedures such as salpingectomies and
oophorectomies. The commenter stated that while concomitant MS-DRGs
exist in the classification, there are none that are representative of
common gynecologic procedures and recommended that CMS explore avenues
in which creating MS-DRGs for concomitant gynecologic procedures makes
sense to better represent the actualized resource use for these
procedures. This commenter stated that in reviewing the GROUPER logic
of the proposed new MS-DRGs, a gynecologic oncology patient having a
simple laparoscopic hysterectomy, and another gynecologic oncology
patient having a total abdominal hysterectomy, bilateral salpingo-
oophorectomy, and pelvic lymph node dissection would be assigned to the
same MS-DRG despite the cases having a large gap in complexity. The
commenter further stated that this structure could lead to many
facilities only taking lower complexity gynecologic cases and fewer
facilities taking higher complexity cases.
Response: We thank the commenter for the feedback.
In response to the request that CMS provide clarification on how
combination procedures will be handled in the proposed new MS-DRGs, we
note that we provided a test version of the ICD-10 MS-DRG GROUPER
Software, Version 44, as discussed in the FY 2027 IPPS/LTCH PPS
proposed rule and this final rule, so that the public can better
analyze and understand the impact of the proposals included in the FY
2027 IPPS/LTCH PPS proposed rule, including testing how the reporting
of multiple uterine and adnexa procedures in a single inpatient
encounter would be handled in the proposed new MS-DRGs.
We further note that the proposal to create new MS-DRGs 731, 732,
and 733 did not involve modifying the list of ICD-10-PCS procedure
codes that describe uterine and adnexa procedures or proposing to
create procedure code combinations in the GROUPER logic of the proposed
new MS-DRGs. As discussed in the proposed rule, 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) the GROUPER logic
for 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 stated we proposed to include the list of 689 ICD-10-
PCS procedure codes currently in the logic for MS-DRGs 736, 737, 738,
739, 740, and 741 in the logic for case assignment of uterine and
adnexa procedures for the proposed new MS-DRGs 731, 732, and 733.
Therefore, when multiple surgical uterine and adnexa procedures are
performed, 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, application of the surgical
hierarchy ensures that cases involving multiple surgical procedures are
assigned to the MS-DRG associated with the most resource-intensive
surgical class as discussed in section II.C.14. of the preamble of the
FY 2027 IPPS/LTCH PPS proposed rule and this final rule.
In response to the recommendation that CMS create MS-DRGs for
procedures performed concomitantly for diseases and disorders of the
female reproductive system, while we consider this recommendation to be
outside the scope of the proposal included in the FY 2027 IPPS/LTCH PPS
proposed rule, we encourage individuals with MS-DRG classification
change requests to submit these requests 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 an annual
proposed rule.
In response to the suggestion that facilities may decide which
cases to take on due to their potential MS-DRG assignment, we note that
the choice of which or how many uterine and adnexa procedures to
perform should not be based on potential facility payment. As we have
stated in prior rulemaking (83 FR 41201), it is not appropriate for
facilities to deny treatment to beneficiaries needing a specific type
of therapy or treatment that involves increased costs.
Comment: A commenter stated that in reviewing the simulation of the
proposal to create 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, they
were concerned that a non-equitable spread of cases across the three
new MS-DRGs
[[Page 49636]]
could potentially result in lower average costs and lengths of stay for
more complex cases. This commenter stated that CMS is proposing a fixed
payment rate for the MCC cases to be $33,213, for CC cases to be
$17,889, and for NonCC cases to be $13,411, and asserted that with the
majority of cases being found at the CC level, it is imperative to
ensure that the average cost is set as close to actualized resource use
as possible. This commenter further recommended an ongoing review of
usage and actualized costs of these new MS-DRGs to better understand
where the average costs should land when usage stabilizes and
recommended that CMS increase the average costs of the MCC cases to be
closer to the outlier fixed-loss cost threshold in order to maintain
financial stability within facilities working these cases and ensure
access to these services does not continue to decrease due to
potentially inadequate payment.
Response: We thank the commenter for expressing their concerns.
In response to the suggestion that CMS set the average costs of the
cases at the CC level, and increase the average costs for MCC cases, we
wish to clarify for the commenter that the average costs displayed in
the table reflecting the simulation of the proposal do not reflect
fixed payment rates for the proposed new MS-DRGs and furthermore, we
wish to note that CMS does not set or establish the average costs of
the cases in any MS-DRG.
The simulation of the proposal as described in the FY 2027 IPPS/
LTCH PPS proposed rule was based on analysis of claims data from the
September 2025 update of the FY 2025 MedPAR file. As discussed in
section II.C.1.b of the preamble of the FY 2027 IPPS/LTCH PPS proposed
rule and this final 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 fully coded diagnostic and procedure data for all
Medicare inpatient hospital bills received from October 1, 2024,
through September 30, 2025. Consequently, the values reflected in the
``number of cases'', ``average length of stay'', and ``average costs''
columns of the tables in the preamble of the proposed rule and this
final rule are driven by the underlying claims data for cases reporting
uterine and adnexa procedures and a principal diagnosis describing a
female reproductive system malignancy from the September 2025 update of
the FY 2025 MedPAR file.
Therefore, after consideration of the public comments we received,
we are finalizing our proposal to delete MS-DRGs 736, 737, 738, 739,
740, and 741 and finalizing our proposal to create new MS-DRG 731
(Uterine and Adnexa Procedures for Malignancy with MCC), new MS-DRG 732
(Uterine and Adnexa Procedures for Malignancy with CC), and new MS-DRG
733 (Uterine and Adnexa Procedures for Malignancy without CC/MCC),
effective October 1, 2026, without modification, for FY 2027. Under
this finalization, the current list of 689 ICD-10-PCS procedure codes
in the logic for MS-DRGs 736, 737, 738, 739, 740, and 741 will be
included for case assignment of uterine and adnexa procedures for the
new MS-DRGs 731, 732, and 733. We refer the reader to Table 6P.5a and
Table 6P.5b associated with the 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 diagnosis codes and the list of procedure codes,
respectively, that we are finalizing to define in the logic for each of
the new MS-DRGs. We note that the surgical hierarchy for the finalized
modification is discussed in section II.C.14. of the preamble of this
final rule.
9. MDC 25 (Human Immunodeficiency Virus Infections): Significant HIV
Related Conditions
As discussed in the proposed rule, 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). We noted in the
proposed rule that 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 stated we believe the term ``SIGNIFICANT''
should be removed from the header under MDC 25.
As also discussed in the proposed rule, we 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-DRGs 974, 975, and 976. We stated we do not believe these conditions
are clinically appropriate to be included as a significant HIV related
condition. We further stated that 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. We noted that any
discussion regarding proposed changes will be discussed in future
rulemaking.
Therefore, for FY 2027, we proposed to remove the term
``SIGNIFICANT'' under the header for MDC 25 and revise it to reflect,
``AND PRINCIPAL DIAGNOSIS OF HIV RELATED CONDITION''.
Comment: Commenters supported the proposal to remove the term
``SIGNIFICANT'' under the header for MDC 25 and revise it to reflect,
``AND
[[Page 49637]]
PRINCIPAL DIAGNOSIS OF HIV RELATED CONDITION''. A commenter who
expressed support for the proposal stated that the proposed change
maintains the underlying logic for case assignment under the MDC 25 MS-
DRGs while reducing confusion between the terms ``significant'' and
``major'' HIV-related conditions. The commenter stated that because the
proposal improves consistency and transparency in MS-DRG descriptions
they considered this proposed change to be an appropriate and
noncontroversial technical update.
Response: We appreciate the commenters' support.
After consideration of the public comments we received, we are
finalizing, without modification, our proposal 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 did not propose 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 stated 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-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. We stated that
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 stated we did not receive any
requests suggesting reassignment. Therefore, for FY 2027 we did not
propose to move any cases reporting procedure codes from MS-DRGs 981
through 983 to MS-DRGs 987 through 989 or vice versa.
Comment: Commenters expressed support for CMS' proposal to not move
any cases reporting procedure codes from MS-DRGs 981 through 983 to MS-
DRGs 987 through 989 or vice versa.
Response: We appreciate the commenters' support.
After consideration of the public comments we received, we are
finalizing, without modification, our proposal to not move any cases
reporting procedure codes from MS-DRGs 981 through 983 to MS-DRGs 987
through 989 or vice versa.
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.
[[Page 49638]]
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 final 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
believe it may be appropriate to allow additional time for the claims
data to stabilize prior to selecting the timeframe to analyze for this
review. As discussed in the FY 2027 IPPS/LTCH PPS proposed rule (91 FR
19366), we continue to believe additional time is necessary as we
continue to develop our process and methodology.
Comment: Commenters supported CMS' plan to continue to conduct a
comprehensive, systematic review of the ICD-10-PCS codes and to
evaluate their current O.R. and non-O.R. designations. These commenters
expressed that they were supportive of CMS' decision to continue to
develop our process and methodology. Commenters stated they share CMS'
interest in appropriately identifying the service complexity and
resource utilization of inpatient procedures as these distinctions can
materially affect the MS-DRG assignment and payment by determining
whether the resource demands of a procedure are appropriately
recognized. A commenter stated they appreciate CMS providing an update
on its consideration of changes to the O.R. versus non-O.R. designation
framework. Another commenter stated they agreed that the performance of
a procedure in an operating room may no longer be the most critical
differentiator between resource-intensive procedures for MS-DRG
purposes. A commenter stated they agreed that the revolution in medical
procedures in recent years may render the performance of a procedure in
an O.R. a less critical distinction in driving payment policy and
stated that because of technological advances, sophisticated, resource-
intensive procedures are no longer confined to the O.R. setting and
noted that in their observation, bi-plane radiology interventional
suites and cardiac catheterization labs used for procedures such as
mechanical thrombectomy or endovascular coiling for aneurysms can
utilize more advanced equipment and supplies than a basic operating
room with minimal installed equipment. Commenters recommended that CMS
provide opportunities for public comment regarding its methodology and
provide detailed impact files prior to the adoption of changes to MS-
DRG structures or procedure code designations in the future.
Response: We appreciate the commenters' support and thank the
commenters for sharing their views. We agree with commenters and
believe that there may be other factors to consider with regard to
resource utilization, particularly with the implementation of ICD-10.
Consistent with our established process, once we are in a position to
provide more detail on this analysis and the methodology for conducting
this comprehensive review, we will do so in future rulemaking, which
will provide the public, including any interested parties, the
opportunity to review and comment. We will also explore additional
means of eliciting feedback and will notify the public of any other
opportunities for communication and comment in the future.
Comment: As part of the broader and continuing conversation about
the designations of procedures in the ICD-10-PCS classification system,
a few commenters recommended that CMS work closely with physician
specialty societies and industry stakeholders to identify the most
important drivers of complexity and resource use in the hospital
setting to incorporate into the
[[Page 49639]]
MS-DRG hierarchy. Several commenters specifically recommended that CMS
include registered nurses when reviewing methodologies for determining
the designation of procedure codes in the ICD-10-PCS classification
system and noted that nurses are an integral part of the healthcare
team, work closely with physicians in the operating room, and have
firsthand knowledge and experience to know what hospital resources are
needed for procedures. Other commenters further stated that omitting
nurses only serves to discount their perspectives and could result in
decision making that does not fully capture the hospital resources
needed. Some commenters noted in the proposed rule we stated that
historically we developed the list of procedure codes that are
considered O.R. procedures using physician panels that classified each
procedure code based on the procedure and its effect on consumption of
hospital resources. These commenters noted in the CY 2024 Physician Fee
Schedule, CMS began using the term practitioner instead of physician to
explicitly include all practitioners involved in the delivery of health
care services, including nurses and recommended CMS change the name of
the panels to ``practitioner panels'' to be consistent in its use of
the term practitioner.
Response: We appreciate the commenters' feedback and will take the
suggestions into consideration. We note that, as discussed in the CY
2024 Physician Fee Schedule (PFS) final rule (88 FR 78820), unless
otherwise noted, the term ``practitioner'' is used throughout that
final rule to describe both physicians and nonphysician practitioners
(NPPs) who are permitted to bill Medicare under the PFS for the
services they furnish to Medicare beneficiaries. In regard to O.R. and
non-O.R. designations, we note that while historically we may have
developed the list of procedure codes that are considered O.R.
procedures using physician panels, as we continue to develop our
process and methodology to conduct a comprehensive, systematic review
of the ICD-10-PCS procedure codes, CMS has already convened an internal
team comprised of clinicians, consultants, coding specialists and other
policy analysts. We have also provided the opportunity for interested
parties to provide feedback as to what factors to consider in
evaluating O.R. versus non-O.R. designations, and we welcome further
input and feedback from interested parties, including nurses. While we
do not agree that the term ``practitioner panel'' would be fully
representative of the comprehensive expertise and varying viewpoints
that will be provided by the internal team, we will consider a
utilizing a term that better reflects the perspectives offered when
referring to the team in future rulemaking.
Comment: Other commenters noted that for several years, CMS has
expressed its intention to undertake a multi-year, comprehensive review
of its system for designating ICD-10-PCS procedure codes as either O.R.
or non-O.R. procedures to account for hospital resources. While
expressing support for CMS' continued solicitation of stakeholder
feedback, a commenter stated that they were concerned that CMS has
again deferred meaningful progress on the comprehensive, multiyear
review it has discussed in prior rulemaking and instead states that
additional time is needed to develop its process and methodology. This
commenter expressed that they believe the absence of further
methodological development in the FY 2027 IPPS/LTCH PPS proposed rule
prolongs uncertainty for hospitals and clinicians whose services may be
affected by outdated procedure code designations and encouraged CMS to
move from general statements of intent to a more transparent and
actionable framework in future rulemaking, including a clear timeline
for review, opportunities for specialty society input and explicit
criteria for evaluating procedures whose resource intensity may not be
well captured by legacy O.R. and non-O.R. designations.
Response: We thank the commenters for their feedback. We
acknowledge that CMS has indicated we plan to conduct a comprehensive,
systematic review of the ICD-10-PCS procedure codes since the FY 2018
IPPS/LTCH PPS final rule. We wish to emphasize we have consistently
indicated in prior rulemaking that this will be a multiyear project as
extensive analyses are required to identify and evaluate all of the
data relevant to assessing any potential modifications. Recognizing
sufficient time is needed to provide feedback on what factors or
criteria to consider in determining whether a procedure should be
designated as an O.R. procedure in the ICD-10-PCS classification
system, we also have provided opportunity for the public to provide
feedback and we continue to solicit input.
As discussed in the FY 2024 IPPS/LTCH PPS final rule (88 FR 58749),
we have signaled in prior rulemaking that the designation of an O.R.
procedure encompasses more than the physical location of the hospital
room in which the procedure may be performed; in other words, the
performance of a procedure in an operating room is not the sole
determining factor we will consider as we examine the designation of a
procedure in the ICD-10-PCS classification system. We stated we are
exploring alternatives on how we may restructure the current O.R. and
non-O.R. designations for procedures by leveraging the detail that is
available in the ICD-10 claims data. As part of this comprehensive
review of the procedure codes, we are considering renaming the
designations that determine whether and in what way the presence of
that procedure on a claim impacts the MS-DRG assignment (that is,
``O.R. procedures'', ``non-O.R. procedures'', or ``non O.R. affecting
the MS-DRG'') for consistency, as discussed in prior rulemaking (90 FR
36620). As part of this evaluation, we will also analyze the ICD-10
coded claims data to determine if the patients' diagnoses, the
objective of the procedure performed, the specific anatomical site
where the procedure is performed or the surgical approach used (for
example, open, percutaneous, percutaneous endoscopic, among others)
factor into the resources used and how a procedure should affect the
MS-DRG assignment. 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. 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. Once we are in a position to
provide more detail on this analysis and the methodology for conducting
this comprehensive review, we will do so in future rulemaking.
We continue to encourage the public to continue to submit comments
and feedback on any other factors to consider in our refinement efforts
to recognize and differentiate consumption of resources for procedures
within the ICD-10 MS-DRGs under the IPPS. We will also explore
additional means of eliciting feedback and will notify the public of
any other opportunities for communication and comment in the future. We
also refer readers to Appendix E of the ICD-10 MS-DRG Version 43.1
Definitions Manual (which is available on the CMS website at: https://
www.cms.gov/Medicare/
[[Page 49640]]
Medicare-Feefor-Service-Payment/AcuteInpatientPPS/MS-
DRGClassifications-and-Software) for a list of all the ICD-10-PCS
procedure codes that affect MS-DRG assignment (that is, procedure codes
designated as O.R. procedures or as non-O.R. procedures affecting the
MS-DRG), the MDCs and MS-DRGs to which they are assigned, and a
description of the surgical categories. We encourage individuals with
comments about the appropriate MDC, MS-DRG, and operating room
designation of ICD-10-PCS procedure codes to submit these comments no
later than October 20th of each year, via the Medicare Electronic
Application Request Information SystemTM
(MEARISTM) at: https://mearis.cms.gov/public/home, so that
they can be considered for possible inclusion in an annual proposed
rule.
As discussed in the 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 final rule, as we did in the proposed
rule, we summarize and respond to those requests. In this section of
the preamble of this final rule, we also discuss the proposals we made
based on our internal review and analysis and the process that was
utilized for evaluating each procedure code. For each procedure, we
considered--
Whether the procedure would typically require the
resources of an operating room;
Whether it is an extensive or a non-extensive procedure;
and
To which MS-DRGs the procedure should be assigned.
We note that many MS-DRGs require the presence of any O.R.
procedure. As a result, cases with a principal diagnosis associated
with a particular MS-DRG would, by default, be grouped to that MS-DRG.
Therefore, we do not list these MS-DRGs in our discussion in this
section of the preamble of this final rule. Instead, we only discuss
MS-DRGs that require explicitly adding the relevant procedure codes to
the GROUPER logic in order for those procedure codes to affect the MS-
DRG assignment as intended.
For procedures that would not typically require the resources of an
operating room, we determined if the procedure should affect the MS-DRG
assignment. In cases where we proposed to change the designation of
procedure codes from non-O.R. procedures to O.R. procedures, we also
proposed one or more MS-DRGs with which these procedures are clinically
aligned and to which the procedure code would be assigned.
In addition, cases that contain O.R. procedures will map to MS-DRGs
981, 982, or 983 (Extensive O.R. Procedure Unrelated to Principal
Diagnosis with MCC, with CC, and without CC/MCC, respectively) or MS-
DRGs 987, 988, or 989 (Non-Extensive O.R. Procedure Unrelated to
Principal Diagnosis with MCC, with CC, and without CC/MCC,
respectively) when they do not contain a principal diagnosis that
corresponds to one of the MDCs to which that procedure is assigned.
These procedures need not be assigned to MS-DRGs 981 through 989 in
order for this to occur. Therefore, we did not specifically address
that aspect in summarizing the request and our response to that request
or the proposals we made based on our internal review and analysis in
the proposed rule and this section of the preamble of this final rule.
b. Non-O.R. Procedures to O.R. Procedures
(1) Introduction of Allogeneic Pancreatic Islet Cellular Suspension
As discussed in the FY 2027 IPPS/LTCH PPS proposed rule (91 FR
19366 through 19367), 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 percent 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 as discussed in the proposed rule and noted
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-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
[[Page 49641]]
cases. We then extended our analysis to all MS-DRGs and again did not
find any cases. We noted that these procedures do not typically require
the resources of an operating room and are not surgical in nature. As
such, we stated we disagree with designating procedure code XW033DA,
which describes the intravenous portal vein administration of
donislecel-jujn, as an O.R. procedure.
As discussed in the proposed rule, in reviewing this request, we
noted the underlying intent of this request was 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 noted 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 stated 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 proposed to maintain the
current designation of procedure code XW033DA as ``non-O.R. affecting
the MS-DRG'' for FY 2027.
Comment: Commenters supported CMS' proposal to maintain the
designation of procedure code XW033DA as ``non-O.R. affecting the MS-
DRG'' for FY 2027.
Response: We appreciate the commenters' support.
Comment: While not taking a position on the O.R. or non-O.R.
designation of ICD-10-PCS code XW033DA, several commenters stated that
this proposal provided an opportunity to raise an ongoing, structural
concern as they believe that CMS lacks a transparent, predictable, and
clinically coherent framework for determining which cell and gene
therapies map to MS-DRG 018 (Chimeric Antigen Receptor (CAR) T-Cell and
Other Immunotherapies) versus other MS-DRGs, which makes it difficult
for manufacturers and academic medical centers to anticipate MS-DRG
mapping, complicates economic modeling, and creates payment volatility
that ultimately affects patient access. These commenters urged CMS to
develop and publish, through notice-and-comment rulemaking, prospective
criteria for assignment to MS-DRG 018 as the cell and gene therapy
product landscape continues to expand and recommended that CMS solicit
public input on the broader assignment of cell and gene therapies into
the MS-DRG system to improve Medicare inpatient payment for other
existing and future cell and gene therapies as the field evolves.
Response: We thank commenters for sharing their views and
recommendations. We will take the commenters' feedback into
consideration in future policy development. As discussed in the FY 2027
proposed rule, and 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.
After consideration of the public comments received, we are
finalizing our proposal to maintain the designation of procedure code
XW033DA (Introduction of donislecel-jujn allogeneic pancreatic islet
cellular suspension into peripheral vein, percutaneous approach, new
technology group 10) 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
final rule, regarding the finalized 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
As discussed in the FY 2027 IPPS/LTCH PPS proposed rule (91 FR
19367 through 19368), 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.
In the proposed rule we stated 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-
[[Page 49642]]
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, as discussed in the proposed
rule, 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] TR04AU26.075
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, in the proposed rule we stated 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 stated we did 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 stated 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 stated in the proposed rule that 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. We stated
that 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 proposed to maintain the
designation of procedure code XW0V3WA as non-O.R. for FY 2027.
Comment: Commenters supported CMS' proposal to maintain the
designation of procedure code XW0V3WA as a non-O.R. procedure for FY
2027.
Response: We appreciate the commenters' support.
Comment: While thanking CMS for reviewing their request to classify
ICD-10-PCS code XW0V3WA as an O.R. procedure for MS-DRG assignment, a
commenter (the requestor) stated they continue to believe that the
complexity of service, the associated resource utilization, and the
need to be performed in the operating room as a standalone surgical
procedure, supports designation of XW0V3WA as an O.R. procedure. The
commenter noted that LOEP, an investigational surgical procedure
designed to percutaneously implant AGN1 to treat diseased osteoporotic
bone to reduce the risk of fragility fractures of the hip, may be
performed as an independent standalone procedure on the unfractured hip
opposite to the site of a hip fracture repair during the same operative
session. The commenter stated when performed as a standalone procedure
in the inpatient setting, the LOEP is clinically similar to hip
fracture repair and requires similar resource utilization in the O.R.
(for example, specialized equipment and instrumentation). Further, this
commenter stated that in the four cases reporting the percutaneous
introduction of AGN1 bone void filler into bones identified by CMS,
procedure code XW0V3WA may have been inaccurately reported, given that
the AGN1 LOEP is not yet on the market and is undergoing clinical
trials.
Response: We thank the commenter for their feedback.
As we have signaled in prior rulemaking (88 FR 58750), 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 consider as we examine the
designation of a procedure in the ICD-10-PCS classification system. As
discussed in the FY 2027 IPPS/LTCH PPS proposed rule, the examination
of claims data from the September 2025 update of the FY 2025 MedPAR
file indicates that the percutaneous introduction of AGN1 bone void
filler into bones was not the underlying reason for, or main driver of,
resource utilization in the cases identified. We note that in
admissions where LOEP is performed in conjunction with surgical repair
of the contralateral hip, the MS-DRG assignment will be dependent on
the surgical repair procedure performed. Accordingly, in the cases
identified
[[Page 49643]]
where procedure code XW0V3WA was 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 in the absence of another surgical procedure to assess
whether and in what way the presence of the procedure on a claim
impacts the MS-DRG assignment.
As such we continue to believe it is premature to consider a change
in the designation of the procedure code XW0V3WA that describes the
percutaneous introduction of AGN1 bone void filler into bones. After
reviewing the commenter's feedback and appreciating the concerns
expressed by the commenter regarding the potential inaccurate reporting
of the investigational local osteo-enhancement procedure, we believe
that additional time is needed to allow for further analysis of the
claims data to determine to what extent the percutaneous introduction
of AGN1 bone void filler into bones has an effect on the hospital
resources used by a patient in an inpatient admission.
Therefore, after consideration of the public comments we received,
and for the reasons discussed, we are finalizing our proposal to
maintain the designation of ICD-10-PCS procedure code XW0V3WA
(Introduction of AGN1 bone void filler into bones, percutaneous
approach, new technology group 10) as a non-O.R. procedure, without
modification, for FY 2027.
12. 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 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
final rule (72 FR 47159) for a complete discussion of our approach.
Since the comprehensive analysis was completed for FY 2008, we have
evaluated diagnosis codes individually when assigning severity levels
to new codes and when receiving requests to change the severity level
of specific diagnosis codes.
We noted in the FY 2020 IPPS/LTCH PPS proposed rule (84 FR 19235
through 19246) that with the transition to ICD-10-CM and the
significant changes that have occurred to diagnosis codes since the FY
2008 review, we believed it was necessary to conduct a comprehensive
analysis once again. Based on this analysis, we proposed changes to the
severity level designations for 1,492 ICD-10-CM diagnosis codes and
invited public comments on those proposals. As summarized in the FY
2020 IPPS/LTCH PPS final rule, many commenters expressed concern with
the proposed severity level designation changes overall and recommended
that CMS conduct further analysis prior to finalizing any proposals.
After careful consideration of the public comments we received, as
discussed further in the FY 2020 IPPS/LTCH PPS final rule, we generally
did not finalize our proposed changes to the severity designations for
the ICD-10-CM diagnosis codes, other than the changes to the severity
level designations for the diagnosis codes in category Z16 (Resistance
to antimicrobial drugs) from a NonCC to a CC. We stated that postponing
adoption of the proposed comprehensive changes in the severity level
designations would allow further opportunity to provide additional
background to the public on the methodology utilized and clinical
rationale applied across diagnostic categories to assist the public in
its review. We refer readers to the FY 2020 IPPS/LTCH PPS final rule
(84 FR 42150 through 42152) for a complete discussion of our response
to public comments regarding the proposed severity level designation
changes for FY 2020.
As discussed in the FY 2021 IPPS/LTCH PPS proposed rule (85 FR
32550), to provide the public with more information on the CC/MCC
comprehensive analysis discussed in the FY 2020 IPPS/LTCH PPS proposed
and final rules, CMS hosted a listening session on October 8, 2019. The
listening session included a review of this methodology utilized to
mathematically measure the impact on resource use. We refer readers to
https://www.cms.gov/Outreach-and-Education/Outreach/OpenDoorForums/Downloads/10082019ListingSessionTrasncriptandQandAsandAudioFile.zip for
the transcript and audio file of the listening session. We also refer
readers to https://www.cms.gov/Medicare/MedicareFee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software.html for
the supplementary file containing the mathematical data generated using
claims from the FY 2018 MedPAR file describing the impact on resource
use of specific ICD-10-CM diagnosis codes when reported as a secondary
diagnosis that was made available for the listening session.
In the FY 2021 IPPS/LTCH PPS final rule (85 FR 58550 through
58554), we discussed our plan to continue a comprehensive CC/MCC
analysis, using a combination of mathematical analysis of claims data
as discussed in the FY 2020 IPPS/LTCH PPS proposed rule (84 FR 19235)
and the application of nine guiding principles and plan to present the
findings and proposals in future rulemaking. The nine guiding
principles are as follows:
Represents end of life/near death or has reached an
advanced stage associated with systemic physiologic decompensation and
debility.
Denotes organ system instability or failure.
Involves a chronic illness with susceptibility to
exacerbations or abrupt decline.
Serves as a marker for advanced disease states across
multiple different comorbid conditions.
[[Page 49644]]
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 final
rule for our finalized changes to the severity level designation for
the 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.
We encourage individuals with comments about the severity level
designations of ICD-10-CM diagnosis codes to submit these comments no
later than October 20th of each year, via the Medicare Electronic
Application Request Information SystemTM
(MEARISTM) at: https://mearis.cms.gov/public/home, so that
they can be considered for possible inclusion in the annual proposed
rule. When submitting requests to change the severity level designation
of an ICD-10-CM diagnosis code when reported as a secondary diagnosis,
we encourage the public to review the mathematical data for the impact
on resource use generated using claims from the FY 2019 through the FY
2025 MedPAR files as well as to provide a detailed explanation of how
applying
[[Page 49645]]
a suggested guiding principle would ensure that the severity
designation appropriately reflects resource use for any diagnosis code.
For new diagnosis codes approved for FY 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 final rule for the
discussion of the finalized changes to the ICD-10-CM and ICD-10-PCS
coding systems for FY 2027.
c. 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, as
discussed in FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19370 through
19371), 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 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] TR04AU26.076
We reviewed the findings from these data as discussed in the
proposed rule. 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 NonCC 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 in the proposed rule we noted that these SDOH Z
codes describe social circumstances and not medical conditions or
illnesses.
As previously noted, in the FY 2008 IPPS 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 noted in the
FY 2008 IPPS 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
[[Page 49646]]
increased hospital resource use based on secondary diagnoses.
We stated in the FY 2008 IPPS 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, in the proposed rule we stated 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 stated 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
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 stated 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 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 stated 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 proposed 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.
Comment: Commenters expressed support for our proposal to change
the severity level designation of the ten ICD-10-CM Z codes that
describe homelessness, inadequate housing, and housing instability from
CC to NonCC. A commenter stated that they believed that designating
these codes as CCs is an imperfect proxy for an associated increase in
acuity and resource use and further stated they believe it would be
better to address social determinants as part of other adjustments,
such as value-based purchasing, to ensure that only actions taken to
alleviate health-related social needs are rewarded with higher payments
rather than simply the presence of the need. Another commenter stated
that they agreed with CMS's rationale and stated treatment-disrupting
conditions that reliably increase hospital resource use by interrupting
or impeding the delivery of medically necessary care by delaying
treatment initiation, increasing procedural complexity, prolonging
staff time, and requiring escalation to specialized services should
instead be identified to support a more accurate measurement of
inpatient complexity, improve care planning, and inform future policy
development.
Response: We thank the commenters for their support.
Comment: Some commenters urged CMS to maintain the current SDOH
quality measures and to not lower their severity levels. Several
commenters stated that rather than lowering the severity of the SDOH-
related measures, CMS should consider incentivizing hospitals and
health systems to fully implement them to transform data into
actionable care interventions and catalyze healthcare innovations that
integrate social service partners. Other commenters stated that
lowering the severity level of the SDOH quality measures will
disincentivize providers from fully implementing the measures and using
them to improve patient care.
Response: We thank the commenters for their feedback.
In response to the suggestion that CMS maintain the severity of
SDOH-related measures, we note that our proposal specifically relates
to the severity level designation of the ICD-10-CM Z codes that
describe homelessness, inadequate housing, and housing instability when
reported as a secondary diagnosis. Our proposal does not relate to
measures in the Hospital Inpatient Quality Reporting (IQR) Program, nor
does it relate to measures in the Hospital Outpatient Quality Reporting
(OQR), Rural Emergency Hospital Quality Reporting (REHQR), and
Ambulatory Surgical Center Quality Reporting (ASCQR) Programs. Further,
we note that in the FY 2026 IPPS/LTCH PPS final rule (90 FR 37014), we
finalized our proposal to remove the Screening for Social Drivers of
Health (SDOH-1) measure and Screen Positive Rate for Social Drivers of
Health (SDOH-2) measure from the Hospital IQR Program beginning with
the FY 2026 payment determination. Additionally, we note that in the
final rule for the Medicare Hospital Outpatient Prospective Payment
System (OPPS) and the Medicare Ambulatory Surgical Center (ASC) payment
system for calendar year (CY) 2026 (90 FR 53923), we finalized our
proposal to remove the Screening for Social Drivers of Health measure
and the Screen Positive Rate for Social Drivers of Health measure from
the Hospital OQR, REHQR, and ASCQR Programs beginning with the CY 2025
reporting period.
Comment: Many other commenters opposed the proposal to change the
severity level designation of the ten ICD-10-CM Z codes that describe
homelessness, inadequate housing, and housing instability from CC to
NonCC. Commenters stated that maintaining the severity designation of
these codes as CCs is critical to ensure that hospital payment reflects
the real-world resource demands associated with caring for unhoused
individuals and reflects the realities faced by providers and community
organizations serving some of the nation's most vulnerable populations.
Some commenters stated this proposal shifts financial burden of caring
for these patients onto hospitals and ignores the stark reality of
delivering care to patients experiencing these circumstances, as
providers and care coordination teams expend significantly more
resources, time, care management, and cross-continuum planning to
safely treat, manage, and discharge these patients compared to stably
housed individuals. A commenter
[[Page 49647]]
asserted that finalizing this proposal will send a concerning message
that housing instability does not complicate clinical care and diminish
the importance of addressing SDOH in modern healthcare delivery, while
in practice, housing instability is one of the most critical factors
influencing treatment adherence, recovery, and readmission risk
resulting from lack of follow-up. Other commenters stated that this
change will disproportionately affect hospitals serving medically
underserved populations and safety net hospitals that treat patients
impacted by health-related social risk factors and stated that these
providers will face more resource and infrastructure constraints while
working to address the complex problems raised by housing homelessness,
inadequate housing, and housing instability. These commenters stated
this proposal risks widening existing disparities and will limit the
ability of hospitals to invest in the very services that improve
outcomes and reduce long-term costs.
A few commenters stated that incentives to ensure accurate coding
of these social drivers of health are needed to better understand and
address patient overall health and well-being. A commenter stated that
in their own research, they found that the finalized changes to the
severity levels of the diagnosis codes that describe homelessness to
CCs in FY 2024 was associated with an immediate increase in inpatient
documentation of homelessness and accelerated growth in documentation
of other social determinants of health over the subsequent year. This
commenter stated that these findings suggest that payment policy can
meaningfully influence whether social risk factors are recognized and
documented during hospitalization. Another commenter expressed concern
that removing the CC designation might reduce the visibility of
important social determinants of health data used for care planning,
population health initiatives, and community resource allocation.
Some commenters noted that designation of an ICD-10-CM diagnosis
code as a CC when reported as a secondary diagnosis is intended to
reflect higher expected resource consumption, and stated that the Z
codes that describe homelessness, inadequate housing, and housing
instability clearly meet this criterion, based on the analysis of the
mathematical data on the impact on resource use generated using claims
from the September 2025 update of the FY 2025 MedPAR file. Several
commenters noted that CMS used its own data-driven methodology in prior
rulemaking to conclude that these conditions warranted CC designation
because they are associated with greater hospital resource use,
including longer lengths of stay driven by discharge barriers, higher
care coordination needs, and greater clinical severity at presentation.
These commenters stated that downgrading the severity designation of
these SDOH Z-codes would represent a departure from the agency's
longstanding data-driven methodology without a clearly articulated
justification. A commenter specifically stated changing the severity
level designation of the codes that describe homelessness, inadequate
housing, and housing instability without new clinical evidence
undermines hospital investment in integrating health-related social
needs (HRSN) screening and intervention into hospital workflows. Other
commenters recommended that CMS establish an alternative payment
methodology before finalizing the proposal if CMS determines that the
severity level designation is not the appropriate mechanism for
recognizing social circumstances.
Response: We appreciate the commenters sharing their concerns.
As stated in prior rulemaking (90 FR 53923), we acknowledge that
some patients may face challenges following discharge that may be
related to SDOH and recognize that some clinicians may find value in
obtaining SDOH information as part of clinical decision making, such as
discharge planning and patient care. We also agree that healthcare
outcomes may be different for those experiencing homelessness,
inadequate housing, and housing instability. We further acknowledge
that, as noted by the commenters and discussed in the proposed rule,
CMS previously finalized changes to the severity levels for ICD-10-CM Z
codes that describe homelessness, inadequate housing, and housing
instability when reported as a secondary diagnosis based on our
analysis of the impact on resource use for these codes and after
consideration of public comments. However, as we also explained in the
FY 2027 IPPS/LTCH PPS proposed rule, these SDOH Z codes describe social
circumstances and not medical conditions or illnesses. After further
consideration 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 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
instead be accomplished by separately coding those diagnoses that
describe an acute exacerbation or deterioration of an underlying
medical condition or illness that is being treated in that inpatient
admission. We note that the purpose of the DRGs is to relate a
hospital's case mix to the resource demands and associated costs
experienced by the hospital. As such we believe that any measurable
increase in inpatient resource consumption associated with caring for
patients experiencing homelessness, inadequate housing, and housing
instability should be recognized by assigning ICD-10-CM diagnosis codes
that describe the medical conditions that were more clinically severe
at presentation, the conditions that required extended active treatment
time and higher nursing intensity, and the conditions that were managed
while the facilities navigated delays in securing clinically
appropriate discharge due to the patients' social and economic
circumstances, as documented in the medical record.
Comment: Some commenters stated that CMS did not identify any other
diagnosis codes that would be appropriate to assign to capture the
impact of homelessness, inadequate housing, and housing instability
have on hospital resource utilization. These commenters suggested that
if CMS finalizes the proposal to change the severity level designation
of the ten ICD-10-CM Z codes that describe homelessness, inadequate
housing, and housing instability, the agency should offer guidance to
providers on evaluating and separately coding diagnoses that show an
acute exacerbation or deterioration of an underlying medical condition
or illness due to additional complexity added by homelessness and
housing instability or inadequacy. Another commenter stated that
recognition of the contribution that treatment of an underlying medical
condition or illness adds to the complexity of acute hospital care can
only be accomplished as long as there are codes available in the ICD-
10-CM diagnosis code classification that allow for the acute
exacerbation or deterioration of an underlying medical condition or
illness to be coded separately.
Response: We appreciate the commenters' feedback.
In response to the assertion that CMS did not identify any other
codes that would be appropriate to assign to capture the impact of
homelessness, inadequate housing, and housing
[[Page 49648]]
instability have on hospital resource utilization, we note that
assignment of a diagnosis code is based on the provider's diagnostic
statement that the condition exists. Therefore, the assignment of
diagnosis codes that describe an underlying medical condition or
illness that a patient experiencing homelessness, inadequate housing,
and housing instability may have will depend on the specific terms used
in the medical record documentation for each inpatient admission.
In response to the suggestion that CMS offer guidance to providers
on evaluating and separately coding diagnoses that show an acute
exacerbation or deterioration of an underlying medical condition or
illness, we note that the ICD-10-CM Official Guidelines for Coding and
Reporting, which can be found on the CDC website at: https://www.cdc.gov/nchs/icd/icd-10-cm/files.html, are available and regularly
revised to provide guidance as it relates to assigning the diagnosis
codes. Additionally, the American Hospital Association (AHA)'s Coding
Clinic for ICD-10-CM/PCS publication provides further clarification on
the appropriate coding and reporting of ICD-10-CM diagnosis codes. If
providers have inpatient cases for which they need ICD-10 coding
assistance, we encourage them to submit their questions to the American
Hospital Association's Central Office on ICD-10 at https://www.codingclinicadvisor.com/.
In response to the statement that recognition of the contribution
that treatment of an underlying medical condition or illness adds to
the complexity of acute hospital care can only be accomplished as long
as there are codes available in the ICD-10-CM diagnosis code
classification that allow for the reporting of that underlying medical
condition or illness, we note that if an interested party believes that
diagnosis codes do not currently exist to describe an underlying
medical condition or illness that a patient experiencing homelessness,
inadequate housing, and housing instability may have, there is an
established process to request that diagnosis codes be added to the
classification. The ICD-10 Coordination and Maintenance Committee
addresses updates to the ICD-10-CM and ICD-10-PCS coding systems, as
discussed in section II.C.15 of the preamble of this final rule. The
ICD-10 Coordination and Maintenance Committee presents proposals for
ICD-10-CM diagnosis code changes each spring and fall to update the
codes and the applicable payment and reporting systems by October 1 or
April 1 of each year. As also discussed in section II.C.15 of the
preamble of this final rule, the CDC/NCHS has lead responsibility for
the diagnosis code classification. Proposals for updates to the
diagnosis code classification should be directed to [email protected]
for consideration at a future ICD-10 Coordination and Maintenance
Committee meeting.
Therefore, after consideration of the public comments received, and
for the reasons discussed, we are finalizing the changes to the
severity level designations for 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,
without modification. In addition, these diagnosis codes are reflected
in Table 6J.2--Deletions to the CC List--FY 2027 associated with this
final rule and available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html.
We refer the reader to section II.C.12.d of the preamble of the
proposed rule and this final rule for further information regarding
Table 6J.2.
2. Newborn Affected by Malpresentation Before Labor
As discussed in the FY 2027 IPPS/LTCH PPS proposed rule (91 FR
19371 through 19372), 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.
[GRAPHIC] [TIFF OMITTED] TR04AU26.077
As reflected in the table, we found zero instances where diagnosis
codes P01.7 or P03.0 were reported as secondary diagnoses. As discussed
in the proposed rule, 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
[[Page 49649]]
higher level of care for the mother (that is, intensive monitoring,
greater number of caregivers, additional testing, intensive care unit
care, extended length 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 stated we believe that the ICD-10-CM diagnosis codes
P01.7 and P03.0 should remain designated as NonCCs. Therefore, we
proposed to maintain the severity level designation of codes P01.7 and
P03.0 as NonCCs for FY 2027.
Comment: Commenters supported the proposal to maintain the severity
level designation of ICD-10-CM diagnosis codes P01.7 and P03.0 as
NonCCs for FY 2027.
Response: We appreciate the commenters' support.
Comment: Another commenter disagreed with the proposal to maintain
the severity level designation of ICD-10-CM diagnosis codes P01.7 and
P03.0 as NonCCs. While acknowledging that obstetric patients and
newborns would not be well represented in the MedPAR data as these
populations are not typically covered by Medicare, this commenter
stated that clinically, malpresentation before labor requires elevated
medical management, and possible procedural interventions resulting in
increased resources needed to manage this population.
Response: We thank the commenter for their feedback and for sharing
their concerns. In reviewing this feedback, we continue to believe that
the ICD-10-CM diagnosis codes P01.7 and P03.0 should remain designated
as NonCCs for FY 2027, based on the lack of claims data to evaluate to
consider a severity level change. 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.
We acknowledge in the FY 2008 IPPS final rule (72 FR 47158), when
describing our process for establishing three different levels of CC
severity into which we would subdivide the diagnosis codes, we stated
the exception to our approach was for diagnoses related to newborns,
maternity, and congenital anomalies. We stated we used the All Patient
Refined DRGs (APR-DRGs) to categorize these diagnoses. For newborn,
obstetric, and congenital anomaly diagnoses, we designated the APR-DRG
default severity level 3 (major) and 4 (extreme) diagnoses as an MCC,
the APR-DRG default severity level 2 (moderate) diagnoses as a CC, and
the APR-DRG default severity 1 (minor) diagnoses as a NonCC. Using a
combination of mathematical analysis of claims data and the application
of the nine guiding principles, we may consider reevaluating the use of
the APR-DRGs to categorize diagnoses related to newborns, maternity,
and congenital anomalies in future rulemaking.
After consideration of the public comments we received, and for the
reasons discussed, we are finalizing our proposal to maintain the
severity level designation of ICD-10-CM diagnosis codes P01.7 (Newborn
affected by malpresentation before labor) and P03.0 (Newborn affected
by breech delivery and extraction) as NonCCs without modification for
FY 2027.
3. Functional Quadriplegia
As discussed in the FY 2027 IPPS/LTCH PPS proposed rule (91 FR
19372), 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.
In the proposed rule, we stated we agree 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] TR04AU26.078
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
NonCC 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 NonCC.
The C2 findings support maintaining the code R53.2 as an MCC. We stated
that the data are clearly mixed between the C1 and C2 findings and does
not consistently support a change in the severity level.
As discussed in the proposed rule, in considering the nine guiding
principles, as summarized previously, we noted
[[Page 49650]]
that functional quadriplegia is the inability to move due to another
condition (for example, 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 stated we
believe R53.2 should remain designated as an MCC. Therefore, we
proposed to maintain the severity level designation of ICD-10-CM
diagnosis code R53.2 as an MCC for FY 2027.
Comment: Commenters supported the proposal to maintain the severity
level designation of ICD-10-CM diagnosis code R53.2 as an MCC for FY
2027.
Response: We appreciate the commenters' support.
After consideration of the public comments we received, we are
finalizing our proposal to maintain the severity level designation of
ICD-10-CM diagnosis code R53.2 (Functional quadriplegia) as an MCC
without modification for FY 2027.
4. Malnutrition
As discussed in the FY 2027 IPPS/LTCH PPS proposed rule (91 FR
19372 through 19373), 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
(that is, 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.
In the proposed rule, we stated 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 each of the diagnosis codes identified by the
requestor.
[GRAPHIC] [TIFF OMITTED] TR04AU26.079
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
NonCC 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 NonCC. The C2 findings support maintaining the
malnutrition codes identified by the requestor as MCCs. We stated that
the data are clearly mixed between the C1 and C2 findings and does not
consistently support a change in the severity level.
As discussed in the proposed rule, in considering the nine guiding
principles, as summarized previously, we noted 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.
[[Page 49651]]
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 stated we believe E40, E41, E42, and E43 should remain
designated as MCCs. Therefore, we proposed to maintain the severity
level designation of ICD-10-CM diagnosis codes E40, E41, E42, and E43
as MCCs for FY 2027.
Comment: Commenters expressed support for the proposal to maintain
the severity level designation of ICD-10-CM diagnosis codes E40, E41,
E42, and E43 as MCCs for FY 2027. Several commenters stated that a
person's nutrition status can be a key part of their diagnosis and
noted malnutrition is related to many other medical conditions
including vitamin deficiencies, scurvy, and osteoporosis. A commenter
specifically stated that they support CMS' decision and rationale for
maintaining the severity level designation of ICD-10-CM diagnosis codes
E40, E41, E42, and E43. This commenter stated that the conditions
described in these ICD-10-CM codes reflect systemic impacts, serve as
useful markers for advanced disease states across many different
comorbid conditions and stated that maintaining the severity level
designations retains adequate recognition of the significance of the
etiology and impact of malnutrition. Another commenter stated
nutritional status is a critical clinical indicator that informs
diagnosis, treatment planning, and recovery and that maintaining the
current designations supports comprehensive, high-quality patient care.
Response: We appreciate the commenters' support.
After consideration of the public comments we received, we are
finalizing our proposal to maintain the severity level designation of
ICD-10-CM diagnosis codes E40 (Kwashiorkor), E41 (Nutritional
marasmus), E42 (Marasmic kwashiorkor), and E43 (Unspecified severe
protein-calorie malnutrition) as MCCs without modification, for FY
2027.
5. Prolonged First Stage (of Labor)
As discussed in the FY 2027 IPPS/LTCH PPS proposed rule (91 FR
19373 through 19374), 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.
In the proposed rule, we stated 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.
[GRAPHIC] [TIFF OMITTED] TR04AU26.080
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 NonCC 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
NonCC. We stated 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 NonCCs. 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 NonCC. 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
[[Page 49652]]
(6) reporting this code as a secondary diagnosis.
As discussed in the proposed rule, in considering the nine guiding
principles, as summarized previously, we noted 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 stated 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 proposed to maintain the severity level
designations of ICD-10-CM diagnosis codes O63.0 and O63.9 for FY 2027.
Comment: A commenter supported the proposal to maintain the
severity level designation of ICD-10-CM diagnosis codes O63.0 and O63.9
for FY 2027.
Response: We appreciate the commenters' support.
Comment: Other commenters suggested that CMS reconsider the
proposal to maintain the severity level designation of ICD-10-CM
diagnosis code O63.0 (Prolonged first stage (of labor)) as a NonCC for
FY 2027. A few commenters stated that clinically, a prolonged first
stage labor frequently necessitates heightened medical management and
procedural intervention, including labor augmentation with oxytocin,
amniotomy, invasive uterine monitoring, prolonged nursing care, and
escalation to operative vaginal delivery or cesarean section in cases
of failed labor progression or fetal compromise.
Several commenters noted that code O63.9 (Long labor, unspecified)
is the only code in category O63 (Long labor) that is currently
designated as a CC. These commenters recommended that CMS evaluate all
of the codes in category O63 to determine if the severity level
designation of any of the more specific codes in the category should be
changed to a CC. A commenter specifically noted that diagnosis code
O63.1 (prolonged second stage (of labor)) is also designated as a NonCC
and stated recommended that CMS change the severity level designation
of both code O63.0 and code O63.1 from NonCC to CC as a prolonged
second stage of labor is associated with increased chorioamnionitis,
third-degree or fourth-degree perineal lacerations, and neonatal
morbidity.
Some commenters noted that the low volume of cases reporting ICD-
10-CM diagnosis codes O63.0 and O63.9 as secondary diagnoses is likely
attributable to the nature of the MedPAR dataset itself rather than
being a reflection of a lack of clinical or resource significance.
These commenters noted the MedPAR file captures predominantly Medicare
beneficiaries, whereas prolonged labor disproportionately affects a
younger obstetric population that is more commonly covered by
commercial insurance or Medicaid. Several commenters stated that it is
unreasonable to expect more claims data for these types of cases than
is already available for analysis and CMS should not rely on this
rationale to maintain the severity level designation of ICD-10-CM
diagnosis code O63.0.
Response: We thank the commenters for their feedback and for
sharing their concerns. We will take the commenters' feedback into
consideration in future policy development.
While we continue to believe that based on the lack of sufficient
claims data to evaluate to consider a severity level change, the
severity level designation of ICD-10-CM diagnosis codes O63.0 and O63.9
should be maintained for FY 2027, we acknowledge that in the FY 2008
IPPS final rule (72 FR 47158), when describing our process for
establishing three different levels of CC severity into which we would
subdivide the diagnosis codes, we stated the exception to our approach
was for diagnoses related to newborns, maternity, and congenital
anomalies, as discussed earlier in this section. We stated we used the
APR-DRGs to categorize these diagnoses. For newborn, obstetric, and
congenital anomaly diagnoses, we designated the APR-DRG default
severity level 3 (major) and 4 (extreme) diagnoses as an MCC, the APR-
DRG default severity level 2 (moderate) diagnoses as a CC, and the APR-
DRG default severity 1 (minor) diagnoses as a NonCC. Using a
combination of mathematical analysis of claims data and the application
of the nine guiding principles, we may consider reevaluating the use of
the APR-DRGs to categorize diagnoses related to newborns, maternity,
and congenital anomalies in future rulemaking. We will also 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.
After consideration of the public comments we received, and for the
reasons discussed, we are finalizing our proposal to maintain the
severity level designation of ICD-10-CM diagnosis code O63.0 (Prolonged
first stage (of labor)) as a NonCC and to maintain the severity level
designation of ICD-10-CM diagnosis code O63.9 (Long labor, unspecified)
as a CC without modification for FY 2027.
d. Additions and Deletions to the Diagnosis Code Severity Levels for FY
2027
In the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19374), we stated
that 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
Comment: Commenters agreed with the proposed additions to the MCC
and CC lists as shown in tables 6I.1 and 6J.1 associated with the
proposed rule. Commenters also generally agreed with the proposed
deletions to the CC list as shown in table 6J.2 associated with the
proposed rule.
Response: We appreciate the commenters' support. We refer the
reader to section II.C.12.c.1 of the preamble of this final rule for a
summary of the public comments and our responses in connection with the
diagnosis codes describing homelessness, inadequate housing, and
housing instability. As discussed, after consideration of the public
comments received, we are finalizing the proposed changes to the
severity level
[[Page 49653]]
designations for the diagnosis codes describing homelessness,
inadequate housing, and housing instability from CC to NonCC.
The following tables associated with this final rule reflect the
finalized severity levels under Version 44 of the ICD-10 MS-DRGs 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.--Complete MCC List-FY 2027; Table 6I.1--Additions to the MCC
List-FY 2027; Table 6J.--Complete CC List-FY 2027; Table 6J.1--
Additions to the CC List-FY 2027; and Table 6J.2--Deletions to the CC
List-FY 2027.
e. 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/ms-drg-classifications-and-software) and includes three lists identified as Part 1, Part 2 and
Part 3. Part 1 is the list of all diagnosis codes that are defined as a
CC or MCC when reported as a secondary diagnosis. For all diagnosis
codes on the list, a link is provided to a collection of diagnosis
codes which, when reported as the principal diagnosis, would cause the
CC or MCC diagnosis to be considered as a NonCC. Part 2 is the list of
diagnosis codes designated as an MCC only for patients discharged
alive; otherwise, they are assigned as a NonCC. Part 3 is the list of
diagnosis codes that are designated as a CC or MCC and included in the
definition of the logic for the listed MS-DRGs. When reported as a
secondary diagnosis and grouped to one of the listed MS-DRGs, the
diagnosis is excluded from acting as a CC/MCC for severity in DRG
assignment (that is, suppression logic).
In the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19375), we
proposed 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 the proposed rule and set forth in Tables 6G.1, 6G.2,
6H.1, and 6H.2 associated with the proposed rule and available on the
CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html.
We did not receive any public comments opposing the proposed CC
Exclusions List.
For this final rule, we have developed Table 6G.1.--Secondary
Diagnosis Order Additions to the CC Exclusions List-FY 2027; Table
6G.2.--Principal Diagnosis Order Additions to the CC Exclusions List-FY
2027; Table 6H.1.--Secondary Diagnosis Order Deletions to the CC
Exclusions List-FY 2027; Table 6H.2.--Principal Diagnosis Order
Deletions to the CC Exclusions List-FY 2027 and Table 6K.--Complete
List of CC Exclusions-FY 2027.
For Table 6G.1, each secondary diagnosis code finalized for
addition to the CC Exclusion List is shown with an asterisk and the
principal diagnoses that exclude the secondary diagnosis code are
provided in the indented column immediately following it. For Table
6G.2, each of the principal diagnosis codes for which there is a CC
exclusion is shown with an asterisk and the conditions finalized for
addition to the CC Exclusion List that will not count as a CC are
provided in an indented column immediately following the affected
principal diagnosis. For Table 6H.1, each secondary diagnosis code
finalized for deletion from the CC Exclusion List is shown with an
asterisk followed by the principal diagnosis codes that exclude it. For
Table 6H.2, each of the principal diagnosis codes is shown with an
asterisk and the finalized deletions to the CC Exclusions List are
provided in an indented column immediately following the affected
principal diagnosis. Table 6K contains a list of all of the codes that
are defined as either a CC or MCC when assigned as a secondary
diagnosis. Each CC or MCC secondary diagnosis code is assigned to a
principal diagnosis number that reflects a collection of diagnosis
codes which, when reported as the principal diagnosis, will cause the
CC or MCC secondary diagnosis to be considered as only a NonCC
secondary diagnosis.
The finalized CC Exclusions List as displayed in Tables 6G.1, 6G.2,
6H.1, 6H.2, and 6K associated with this final rule are available on the
CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html and reflect the additions,
deletions, and complete list of CC Exclusions under Version 44 of the
ICD-10 MS-DRGs.
13. 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, Table 6E.--Revised Diagnosis Code
Titles, and Table 6F.--Revised Procedure Code Titles for this final
rule.
These tables are not published in the Addendum to the proposed or
final rule, but are available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html as described in section VI. of the
Addendum to this final rule. As discussed in section II.C.11. of the
preamble of this final rule, the code titles are adopted as part of the
ICD-10 Coordination and Maintenance Committee meeting process.
Therefore, although we publish the code titles in association with the
IPPS proposed and
[[Page 49654]]
final rules, they are not subject to comment in the proposed or final
rules.
In the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19375), we
proposed the MDC and MS-DRG assignments for the new diagnosis codes and
procedure codes as set forth in Table 6A.--New Diagnosis Codes and
Table 6B.--New Procedure Codes. We also stated that the proposed
severity level designations for the new diagnosis codes are set forth
in Table 6A. and the proposed O.R. status for the new procedure codes
are set forth in Table 6B. Consistent with our established process, we
examined the MS-DRG assignment and the attributes (severity level and
O.R. status) of the predecessor diagnosis or procedure code, as
applicable, to inform our proposed assignments and designations.
Specifically, we reviewed the predecessor code and MS-DRG
assignment most closely associated with the new diagnosis or procedure
code, and in the absence of claims data, we considered other factors
that may be relevant to the MS-DRG assignment, including the severity
of illness, treatment difficulty, complexity of service and the
resources utilized in the diagnosis and/or treatment of the condition.
We noted that this process does not automatically result in the new
diagnosis or procedure code being proposed for assignment to the same
MS-DRG or to have the same designation as the predecessor code.
In this final rule, we present a summation of the comments we
received in response to the proposed assignments, our responses to
those comments, and our finalized policies.
Comment: Several commenters supported the proposed MDC and MS-DRG
assignments for the new diagnosis codes and procedure codes as set
forth in Table 6A.--New Diagnosis Codes and Table 6B.--New Procedure
Codes. However, a few commenters suggested that CMS should evaluate the
MS-DRG assignment for cases reporting newly established ICD-10-PCS code
X28M3DC (Division of ventricular septum using transcatheter septal
scoring technique, percutaneous approach) for the treatment of
obstructive hypertrophic cardiomyopathy (HCM) once additional claims
data becomes available to determine if MS-DRGs 228 and 229 (Other
Cardiothoracic Procedures with and without MCC, respectively) are the
most appropriate assignment from both a clinical and resource
utilization perspective. The commenters stated that this procedure,
Septal Scoring Along Mid-Line Endocardium (SESAME), is primarily
performed in a unique subset of patients who exhibit severe structural
heart disease and are frequently considered poor surgical candidates
for conventional surgery. A commenter specified that in the largest
published contemporary cohort, the average patient age was older than
75 years, more than half of the patients had chronic kidney disease,
over half the patients had prior aortic valve replacement surgery, and
the majority of patients had severe mitral valve pathology. This same
commenter acknowledged that SESAME is typically not performed as a
stand-alone procedure; however, they indicated that the published
literature also describes substantial procedural complexity. The
commenter stated that SESAME requires computed tomography based
procedural planning, transesophageal echocardiographic guidance,
advanced catheter-based electrosurgical techniques, and coordination
among structural heart specialists, imaging physicians,
anesthesiologists, and procedural staff. Another commenter stated that
the clinical presentation and hospital course of patients undergoing
SESAME can vary considerably. For example, the commenter indicated that
while some patients may experience uncomplicated recovery, other
patients may require extended monitoring and management due to
underlying disease severity or coexisting medical conditions. The
commenter stated that the treatment landscape for obstructive HCM
continues to rapidly evolve where catheter-based septal reduction
therapies now occupy an increasingly important role alongside medical
therapy, alcohol septal ablation, and surgical myectomy. Another
commenter stated that SESAME is a novel transcatheter electrosurgical
procedure designed to replicate the effects of surgical septal myotomy
without requiring open-heart surgery. According to the commenter, early
peer-reviewed clinical experience has demonstrated successful
application in patients with obstructive HCM, patients requiring septal
modification before transcatheter mitral valve replacement, and
patients with other forms of left ventricular outflow tract
obstruction. The commenter also stated that SESAME represents a
fundamentally different therapeutic approach than alcohol septal
ablation. Specifically, the commenter stated that alcohol septal
ablation depends on favorable septal coronary anatomy and achieves
septal reduction through a controlled myocardial infarction. The
commenter stated that the location and extent of myocardial injury may
be variable and the procedure is associated with clinically meaningful
rates of permanent pacemaker implantation. In contrast, the commenter
reported that SESAME directly modifies the interventricular septum
using a transcatheter electrosurgical technique intended to reproduce
the anatomic effect of surgical myotomy while preserving future
treatment options. The commenters stated that future claims data may
provide additional insight into whether cases reporting the SESAME
procedure are clinically distinct from other cases that group to MS-
DRGs 228 and 229 and it is important for CMS to monitor.
Response: We appreciate the commenters' support and feedback. We
note that, as reflected in Table 6B.--New Procedure Codes, procedure
code X28M3DC will become effective with discharges on and after October
1, 2026, for FY 2027. As claims data becomes available we intend to
monitor the reporting of ICD-10-PCS code X28M3DC consistent with our
annual rulemaking analyses to determine if MS-DRGs 228 and 229 are the
most appropriate MS-DRG assignment from both a clinical coherence and
resource utilization perspective.
Comment: A commenter stated that active mechanical clearance
represents an important clinical distinction in the postoperative
management of cardiac surgery patients. Specifically, the commenter
stated that active mechanical clearance is designed to proactively
maintain chest tube patency through internal mechanical action.
According to the commenter, the proposed ICD-10-PCS qualifier to
describe active mechanical clearance would help distinguish this
treatment from passive drainage in the claims data. The commenter also
stated that cases involving active mechanical clearance should not be
considered equivalent to passive drainage cases because it involves
incremental technology, implementation, and postoperative workflow
requirements beyond passive drainage, including staff education and
care processes intended to maintain drainage function. According to the
commenter, these additional resources may not be adequately accounted
for under the MS-DRG assignment. Another commenter stated it is a core
part of how patients are able to recover safely and deserves to be
reflected accurately in the data and payment system. The commenter also
stated that impaired drainage and retained blood can complicate
recovery and often drive additional monitoring, escalation of care, or
a return to the operating room. The commenter
[[Page 49655]]
suggested that CMS should consider whether current MS-DRG payment
reflects the real differences these cases involve, the clinical
management required, implementation and equipment they depend on, staff
education, the protocolized use they demand, and overall resource
utilization these cases generate. Another commenter stated that nursing
engagement is clinically meaningful as the nursing team plays a more
proactive role in supporting drainage function, rather than relying
solely on passive observation of output. According to the commenter,
nurses must understand the purpose of the technology, how it is used,
and incorporate it appropriately into routine postoperative care. The
commenter stated a distinct qualifier for active mechanical clearance
would provide an important mechanism for identifying cases and will
allow CMS to better evaluate the clinical, operational, and resource-
use differences associated with this approach within the MS-DRG
framework.
Response: We appreciate the commenters' feedback. As reflected in
the FY 2027 ICD-10-PCS Code Update files that were made publicly
available on the CMS website at: https://www.cms.gov/medicare/coding-billing/icd-10-codes on June 5, 2026, and in Table 6B.--New Procedure
Codes, associated with this final rule (and available on the CMS
website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps), new procedure codes describing drainage
using active mechanical clearance were finalized. As stated in section
II.C.1.b. of the preamble of this final rule, we encourage individuals
with comments about MS-DRG classifications to submit these comments no
later than October 20, 2026, via MEARISTM at: https://mearis.cms.gov/public/home, so that they can be considered for possible
inclusion in the annual proposed rule. We will consider these public
comments for possible proposals in future rulemaking as part of our
annual review process.
After consideration of the public comments received, we are
finalizing the MDC and MS-DRG assignments for the new diagnosis codes
and procedure codes as set forth in Table 6A.--New Diagnosis Codes and
Table 6B.--New Procedure Codes associated with this final rule. In
addition, the finalized severity level designations for the new
diagnosis codes are set forth in Table 6A. and the finalized O.R.
status designations for the new procedure codes are set forth in Table
6B. associated with this final rule.
In association with this final rule, we are making the following
tables available on the CMS website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html:
Table 6A.--New Diagnosis Codes-FY 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 6F.--Revised Procedure Code Titles-FY 2027;
Table 6G.1.--Secondary Diagnosis Order Additions to the CC
Exclusions List-FY 2027;
Table 6G.2.--Principal Diagnosis Order Additions to the CC
Exclusions List-FY 2027;
Table 6H.1.--Secondary Diagnosis Order Deletions to the CC
Exclusions List-FY 2027;
Table 6H.2.--Principal Diagnosis Order Deletions to the CC
Exclusions List-FY 2027;
Table 6I.--Complete MCC List-FY 2027;
Table 6I.1.--Additions to the MCC List-FY 2027;
Table 6J.--Complete CC List-FY 2027;
Table 6J.1.--Additions to the CC List-FY 2027;
Table 6J.2.--Deletions to the CC List-FY 2027; and
Table 6K.--Complete List of CC Exclusions-FY 2027.
14. 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 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 final rule.
This methodology may occasionally result in assignment of a case
involving multiple procedures to the lower-weighted MS-DRG (in the
highest, most resource-intensive surgical class) of the available
alternatives. However, given that the logic underlying the surgical
hierarchy provides that the GROUPER search for the procedure in the
most resource-intensive surgical class, in cases involving multiple
procedures, this result is sometimes unavoidable.
We note that, notwithstanding the foregoing discussion, there are a
few instances when a surgical class with a lower average cost is
ordered above a surgical class with a higher average cost. For example,
the ``other O.R. procedures'' surgical class is uniformly ordered last
in the surgical hierarchy of each MDC in which it occurs, regardless of
the fact that the average costs for the MS-DRG or MS-DRGs in that
surgical class may be higher than those for other surgical classes in
the MDC. The ``other O.R. procedures'' class is a group of procedures
that are only infrequently related to the diagnoses in the MDC but are
still occasionally performed on patients with cases assigned to the MDC
with these diagnoses. Therefore, assignment to these surgical classes
should only occur if no other surgical class more closely related to
the diagnoses in the MDC is appropriate.
A second example occurs when the difference between the average
costs for
[[Page 49656]]
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 proposed to make for FY 2027, as
discussed in section II.C. of the preamble of the FY 2027 IPPS/LTCH PPS
proposed rule and this final rule, we proposed to modify the existing
surgical hierarchy for FY 2027 as illustrated in the following tables.
We noted in the proposed rule that because the current methodology
involves weighing the average costs of each MS-DRG in the surgical
class by frequency (that is, by the number of cases in the MS-DRG) to
determine average resource consumption for the surgical class, that the
surgical hierarchy of other MS-DRGs in the MDC may need to be adjusted
based on the MS-DRG classification changes that are proposed to ensure
that the average weighted cost for each base MS-DRG in each MDC are
monotonically decreasing. We further noted that the proposed Version 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 4169-69-P
[GRAPHIC] [TIFF OMITTED] TR04AU26.081
[[Page 49657]]
[GRAPHIC] [TIFF OMITTED] TR04AU26.108
[[Page 49658]]
[GRAPHIC] [TIFF OMITTED] TR04AU26.109
[GRAPHIC] [TIFF OMITTED] TR04AU26.082
[[Page 49659]]
[GRAPHIC] [TIFF OMITTED] TR04AU26.083
[GRAPHIC] [TIFF OMITTED] TR04AU26.084
[GRAPHIC] [TIFF OMITTED] TR04AU26.085
BILLING CODE 4169-69-C
Comment: Several commenters supported the proposed surgical
hierarchy, however, a commenter expressed disagreement with the
proposed sequencing for MDC 10 MS-DRGs 616, 617, and 618 from number
one to number two, and also disagreed with the proposed surgical
hierarchy sequencing for MDC 10 MS-DRGs 622, 623, and 624 from number
four to number one. The commenter stated that ICD-10-PCS code 0JBQ0ZZ
(Excision of right foot subcutaneous tissue and fascia, open approach)
appears to drive the MS-DRG assignment when ICD-10-PCS code 0Y6M0ZF
(Detachment at right foot, partial 5th ray, open approach) is also
reported. According to the commenter, a partial foot amputation should
not be sequenced lower in the surgical hierarchy because it is
clinically more complex than a soft tissue excision.
Response: We appreciate the commenters' support and feedback. We
note that, as discussed in the preamble of the FY 2027 IPPS/LTCH PPS
proposed rule (91 FR 19375 through 19376) and this final rule, the
surgical hierarchy is based on a methodology for determining the most
resource-intensive surgical class that involves weighting the average
resources for each MS-DRG by frequency to determine the weighted
average resources for each surgical class. As such, the sequencing of
the surgical hierarchy is not based on the individual procedure codes
listed in the logic for case assignment to an MS-DRG based on the
clinical complexity of a procedure, rather, using the established
methodology, each MS-DRG within the surgical class is assessed to
calculate the weighted average resources for that surgical class. We
note that because the weighted average resources for the surgical class
comprised of MS-DRGs 622, 623, and 624 are greater than the
[[Page 49660]]
weighted average resources for the surgical class comprised of MS-DRGs
616, 617, and 618, the sequencing of the proposed surgical hierarchy
reflects that analysis.
Therefore, after consideration of the public comments we received,
and based on the changes that we are finalizing for FY 2027, as
discussed in section II.C. of the preamble of this final rule, we are
finalizing our proposals to modify the existing surgical hierarchy,
effective with the ICD-10 MS-DRGs Version 44, without modification. The
finalized changes are also reflected in Appendix D MS-DRG Surgical
Hierarchy by MDC and MS-DRG of the ICD-10 MS-DRG Definitions Manual,
Version 44 available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software.
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 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.
The official list of ICD-9-CM diagnosis and procedure codes by
fiscal year can be found on the CMS website at: https://www.cms.gov/medicare/coding-billing/icd-10-codes/icd-9-cm-diagnosis-procedure-codes-abbreviated-and-full-code-titles.
The official list of ICD-10-CM and ICD-10-PCS codes can be found on
the CMS website at: http://www.cms.gov/Medicare/Coding/ICD10/index.html.
The NCHS has lead responsibility for the ICD-10-CM and ICD-9-CM
diagnosis codes included in the Tabular List and Alphabetic Index for
Diseases, while CMS has lead responsibility for the ICD-10-PCS and ICD-
9-CM procedure codes included in the Tabular List and Alphabetic Index
for Procedures.
The Committee encourages 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 was
April 17, 2026. Any new diagnosis and procedure codes for which there
was a consensus of public support, and for which complete tabular and
indexing changes would be made by June 2026 are included 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
final rule, there are new, revised, and deleted ICD-10-CM diagnosis
codes and ICD-10-PCS procedure codes that are captured in Table 6A.--
New Diagnosis Codes, Table 6B.--New Procedure Codes, Table 6C.--Invalid
Diagnosis Codes, Table 6D.--Invalid Procedure Codes, Table 6E.--Revised
Diagnosis Code Titles, and Table 6F.--Revised Procedure Code Titles for
this final rule, which are available on the CMS website at: https://www.cms.gov/medicare/medicare-fee-for-service-payment/acuteinpatientpps.
The code titles are adopted as part of the ICD-10 Coordination and
Maintenance Committee process. As previously noted, although we make
the code titles available in association with the IPPS proposed and
final rules, they are not subject to comment in the proposed or final
rule. Because of the length of these tables, they are not published in
the Addendum to the proposed or final rule. Rather, they are available
on the CMS website as discussed in section VI. of the Addendum to the
proposed rule.
Recordings and materials for the virtual meeting discussions of the
diagnosis codes at the Committee's September 9-10, 2025 and March 17-
18, 2026 meeting can be found at: https://www.cdc.gov/nchs/icd/icd-10-maintenance/meetings.html. Materials for the Fall 2025 and Spring 2026
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,
[[Page 49661]]
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].
As discussed in the proposed rule (91 FR 19382), CMS implemented 80
new procedure codes including codes to describe the insertion of
cardiac devices, (that is, 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:
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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/
[[Page 49668]]
Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS. As with
the other new procedure codes and MS-DRG assignments included in Table
6B in association with the FY 2027 IPPS/LTCH PPS proposed rule, we
solicited public comments on the most appropriate MDC, MS-DRG, and
operating room status assignments for these codes for FY 2027, as well
as any other options for the GROUPER logic. We discuss the comments we
received on these assignments in section II.C.9. of this final rule as
well as our finalized assignments, as reflected in Table 6B.--New
Procedure Codes in association with this final rule.
In the proposed rule, we also noted that Change Request (CR) 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 final 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.
As discussed in the FY 2027 IPPS/LTCH PPS proposed rule (91 FR
19388), consistent with the process we outlined for the April 1
implementation date, we announced the new codes and provided the
updated code files in December 2025. The NCHS provided the ICD-10-CM
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
[[Page 49669]]
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.
In the proposed rule (91 FR 19389), we noted that for FY 2026,
there are currently 74,719 diagnosis codes and 79,193 procedure codes.
We also noted, as displayed in Table 6A.--New Diagnosis Codes and in
Table 6B.--New Procedure Codes associated with the 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 had been finalized at the time of the development
of the FY 2027 IPPS/LTCH PPS proposed rule, with 80 of the new
procedure codes that were effective with discharges on and after April
1, 2026. As previously noted, the code titles are adopted as part of
the ICD-10 Coordination and Maintenance Committee process. Thus,
although we publish the code titles in association with the IPPS
proposed and final rules, they are not subject to comment in the
proposed or final rules.
As discussed in section II.C.13 of the preamble of this final rule,
we are making Table 6A.--New Diagnosis Codes, Table 6B.--New Procedure
Codes, Table 6C.--Invalid Diagnosis Codes, Table 6D.--Invalid Procedure
Codes, Table 6E.--Revised Diagnosis Code Titles and Table 6F.--Revised
Procedure Code Titles available on the CMS website at: https://
www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS
in association with this final rule. As shown in Table 6A.--New
Diagnosis Codes, there were diagnosis codes proposed for the Spring
2026 ICD-10 Coordination and Maintenance Committee Update that were not
finalized in time to include in the proposed rule. As shown in Table
6B.--New Procedure Codes, there were procedure codes proposed for the
Spring 2026 ICD-10 Coordination and Maintenance Committee Update that
were not finalized in time to include in the proposed rule and are
identified with an asterisk. We refer the reader to Table 6A.--New
Diagnosis Codes and Table 6B.--New Procedure Codes associated with this
final rule and available on the CMS website at: https://www.cms.gov/
Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS for the
detailed list of these six new diagnosis codes and the detailed list of
these 101 new procedure codes finalized for FY 2027.
We also note, as reflected in Table 6C.--Invalid Diagnosis Codes,
and in Table 6D.--Invalid Procedure Codes, there are a total of 30
diagnosis codes and 38 procedure codes that will become invalid
effective October 1, 2026. Based on these code updates, effective
October 1, 2026, there are a total of 74,879 ICD-10-CM diagnosis codes
and 79,256 ICD-10-PCS procedure codes for FY 2027 as shown in the
following table.
[GRAPHIC] [TIFF OMITTED] TR04AU26.110
The public is provided the opportunity to comment on any proposals
for new diagnosis or procedure codes that are discussed during an ICD-
10 Coordination and Maintenance Committee Meeting or that are made
available for public comments. 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. Changes for FY 2027
As discussed in section II.C.3. of the preamble of the FY 2027
IPPS/LTCH PPS proposed rule and this final rule, for FY 2027, under MDC
05, we are proposed 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 were proposed for assignment to
proposed new MS-DRGs 210 and 211.
Additionally, as discussed in section II.C.4. of the preamble of
the FY 2027 IPPS/LTCH PPS proposed rule and this final rule, for FY
2027, under MDC 08, we proposed 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 were 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
[[Page 49670]]
credit as shown in the following table. Therefore, we proposed 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 proposed to continue to include the
existing MS-DRGs currently subject to the policy.
As discussed in section II.C.3. of the preamble of this final rule,
we are finalizing our proposals to delete MS-DRGs 258, 259, 260, 261,
and 262, and to create new MS-DRGs 210 and 211. Additionally, as
discussed in section II.C.4. of the preamble of this final rule, we are
finalizing our proposal to delete MS-DRGs 466, 467, and 468 and to
create new MS-DRG 449, with a modification to the proposed title. We
did not receive any public comments opposing our proposals to add
proposed new MS-DRGs 210, 211 and 449 to the list of MS-DRGs that will
be subject to the replaced devices offered without cost or with a
credit policy effective October 1, 2026. Therefore, we are finalizing
our proposal to add new MS-DRGs 210, 211, and 449 to the list of MS-
DRGs subject to the policy for payment under the IPPS for replaced
devices offered without cost or credit for FY 2027.
We did not receive any public comments opposing our proposal to
continue to include the existing MS-DRGs currently subject to the
policy. Therefore, for the reasons summarized, we are finalizing the
list of MS-DRGs in the following table that will be subject to the
replaced devices offered without cost or with a credit policy effective
October 1, 2026.
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The final list of MS-DRGs subject to the IPPS policy for replaced
devices offered without cost or with a credit will be issued to
providers in the form of a Change Request (CR).
17. Out of Scope Public Comments Received
We received public comments on MS-DRG related issues that were
outside the scope of the proposals included in the FY 2027 IPPS/LTCH
PPS proposed rule.
Because we consider these public comments to be outside the scope
of the proposed rule, we are not addressing them in this final rule. As
stated in section II.C.1.b. of the preamble of this
[[Page 49672]]
final rule, we encourage individuals with comments about MS-DRG
classifications to submit these 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. We will consider these public comments for possible
proposals in future rulemaking as part of our annual review process.
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
relative weights for FY 2027, we proposed to use two data sources:
claims data and cost report data. The claims data source is the MedPAR
file, which includes fully coded diagnostic and procedure data for all
Medicare inpatient hospital bills. The FY 2025 MedPAR data used in this
final 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 6,961,093 Medicare discharges from IPPS
providers. Discharges for Medicare beneficiaries enrolled in a Medicare
Advantage managed care plan are excluded from this analysis. These
discharges are excluded when the MedPAR ``GHO Paid'' indicator field on
the claim record is equal to ``1'' or when the MedPAR DRG payment
field, which represents the total payment for the claim, is equal to
the MedPAR ``Indirect Medical Education (IME)'' payment field,
indicating that the claim was an ``IME only'' claim submitted by a
teaching hospital on behalf of a beneficiary enrolled in a Medicare
Advantage managed care plan. In addition, the March 2026 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 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 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 final rule, we used the March 2026 update of the FY 2024 HCRIS
for calculating the FY 2027 cost-based relative weights. Consistent
with our historical practice, for this FY 2027 final rule, we are
providing the version of the HCRIS from which we calculated these 19
cost-to charge-ratios (CCRs) on the CMS website at https://www.cms.gov/
Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS. Click on
the link on the left side of the screen titled ``FY 2027 IPPS Final
Rule Home Page'' or ``Acute Inpatient Files for Download.''
2. Methodology for Calculation of the Relative Weights
a. General
We calculated the FY 2027 relative weights based on 19 CCRs. The
methodology we proposed 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 FY 2027 MS-DRG classifications discussed in sections II.B.
and II.C. of the preamble of this final rule.
The transplant cases that were used to establish the
relative weights for heart and 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 92.7 percent of the providers in the MedPAR file
had charges for 14 of the 19 cost centers. All claims of providers that
did not have charges greater than zero for at least 14 of the 19 cost
centers were deleted. In other words, a provider must have no more than
five blank cost centers. If a provider did not have charges greater
than zero in more than five cost centers, the claims for the provider
were deleted.
Statistical outliers were eliminated by removing all cases
that were beyond 3.0 standard deviations from the
[[Page 49673]]
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 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 applicable cost-of-living adjustment. Because hospital charges
include charges for both operating and capital costs, we standardized
total charges to remove the effects of differences in geographic
adjustment factors, cost-of-living adjustments, and DSH payments under
the capital IPPS as well. Charges were then summed by MS-DRG for each
of the 19 cost groups so that each MS-DRG had 19 standardized charge
totals. Statistical outliers were then removed. These charges were then
adjusted to cost by applying the national average CCRs developed from
the FY 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 final rule and available at https://www.cms.gov/Medicare/Medicare-
Fee-for-Service-Payment/AcuteInpatientPPS. The supplemental data file
shows the lines on the cost report and the corresponding revenue codes
that we used to create the 19 national cost center CCRs. In the
proposed rule, we stated that if we receive comments about the
groupings in this supplemental data file, we may consider these
comments as we finalize our policy. We did not receive any comments on
the groupings in this table and are finalizing the groupings as
proposed.
Consistent with historical practice, we account for rare situations
of non-monotonicity in a base MS-DRG and its severity levels, where the
mean cost in the higher severity level is less than the mean cost in
the lower severity level, in determining the relative weights for the
different severity levels. If there are initially non-monotonic
relative weights in the same base DRG and its severity levels, then we
combine the cases that group to the specific non-monotonic MS-DRGs for
purposes of relative weight calculations. For example, if there are two
non-monotonic MS-DRGs, combining the cases across those two 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 final 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 MS-DRG 583. In the supplemental file titled AOR/BOR
File, we include statistics for the affected MS-DRGs both separately
and with cases combined.
We invited public comments on our proposals related to
recalibration of the proposed FY 2027 relative weights and the changes
in relative weights from FY 2026.
Comment: Commenters expressed concern that the current MS-DRG
payment methodology systematically disadvantages rural hospitals
relative to urban hospitals, as recalibrations reduce payments for the
lower-acuity cases rural hospitals predominantly treat while denying
them the benefits of rising relative weights for complex cases they
rarely see. Commenters warned that this dynamic creates a self-
reinforcing downward spiral in which persistently low case-mix indexes
(CMI) constrain revenue, limiting investment in technology and
specialty capacity, which in turn prevents rural hospitals from
treating higher-acuity patients and improving their CMI--ultimately
threatening the long-term viability of these critical community
resources. A commenter urged CMS to examine whether its rate-setting
methodology contributes to these disproportionate impacts and, if
confirmed, to pursue corrective payment adjustments. Specifically,
commenters suggested a CMI-based payment adjustment modeled after the
low wage index hospital policy finalized in the FY 2020 IPPS rule,
which they stated successfully addressed a comparable cycle of
disadvantage for low-wage-index hospitals. Commenters further stated
that CMS has both the statutory authority under section
1886(d)(5)(I)(i) of the Act and established precedent in the MS-DRG
context to implement such an adjustment.
Response: We appreciate the commenters sharing their concerns
regarding the impact of recalibration on payment for rural hospitals.
We believe the relative weights determined under our recalibration
methodology and using the best available data (as described previously)
is consistent with the statutory requirement to adjust the MS-DRG
relative weights at least annually to account for changes in relative
resource consumption, reflecting changes in treatment patterns,
technology, and any other factors that
[[Page 49674]]
may change the relative use of hospital resources. In addition, we
believe the budget neutrality adjustments resulting from recalibration
are fulfilling our statutory requirement to maintain budget neutrality.
We note that in the CY 2026 OPPS final rule (90 FR 54019-54024), we
finalized a change in our methodology to incorporate market-based rate
information into our relative weight methodology. We believe that this
change to our methodology will improve the accuracy of the resulting
relative weights. To the extent that the care furnished by rural
hospitals is classified into MS-DRGs that may experience increases in
their relative weights under the market-based MS-DRG methodology then
rural hospitals would see higher payments compared to the current
methodology.
After consideration of the comments received, we are finalizing our
proposals without modifications related to the recalibration of the FY
2027 relative weights. We summarize and respond to comments relating to
the methodology for calculating the relative weight for MS-DRG 018 in
the next section of this final rule.
b. Relative Weight Calculation for MS-DRG 018
In the FY 2021 IPPS/LTCH PPS final rule (85 FR 58451 through
58453), we created MS-DRG 018 for cases that include procedures
describing CAR T-cell therapies. We also finalized our proposal to
modify our existing relative weight methodology to ensure that the
relative weight for MS-DRG 018 appropriately reflects the relative
resources required for providing CAR T-cell therapy outside of a
clinical trial, while still accounting for the clinical trial cases in
the overall average cost for all MS-DRGs (85 FR 58599 through 58600).
Specifically, we stated that clinical trial claims that group to new
MS-DRG 018 would not be included when calculating the average cost for
MS-DRG 018 that is used to calculate the relative weight for this MS-
DRG, so that the relative weight reflects the costs of the CAR T-cell
therapy drug. We stated that we identified clinical trial claims as
claims that contain ICD-10-CM diagnosis code Z00.6 or contain
standardized drug charges of less than $373,000, which was the average
sales price of KYMRIAH and YESCARTA, the two CAR T-cell biological
products licensed to treat relapsed/refractory large B-cell lymphoma as
of the time of the development of the FY 2021 final rule. In addition,
we stated that (a) when the CAR T-cell therapy product is purchased in
the usual manner, but the case involves a clinical trial of a different
product, the claim will be included when calculating the average cost
for new MS-DRG 018 to the extent such cases can be identified in the
historical data, and (b) when there is expanded access use of
immunotherapy, these cases will not be included when calculating the
average cost for new MS-DRG 018 to the extent such cases can be
identified in the historical data.
We also finalized our proposal to calculate an adjustment to
account for the CAR T-cell therapy cases identified as clinical trial
cases in calculating the national average standardized cost per case
that is used to calculate the relative weights for all MS-DRGs and for
purposes of budget neutrality and outlier simulations. We calculate
this adjustor by dividing the average cost for cases that we identify
as clinical trial cases by the average cost for cases that we identify
as non-clinical trial cases, with the additional refinements that (a)
when the CAR T-cell therapy product is purchased in the usual manner,
but the case involves a clinical trial of a different product, the
claim will be included when calculating the average cost for cases not
determined to be clinical trial cases to the extent such cases can be
identified in the historical data, and (b) when there is expanded
access use of immunotherapy, these cases will be included when
calculating the average cost for cases determined to be clinical trial
cases to the extent such cases can be identified in the historical
data. We stated that to the best of our knowledge, there were no claims
in the historical data used in the calculation of this adjustment for
cases involving a clinical trial of a different product, and to the
extent the historical data contain claims for cases involving expanded
access use of immunotherapy we believe those claims would have drug
charges less than $373,000.
In the FY 2021 IPPS/LTCH PPS final rule (85 FR 58842), we also
finalized an adjustment to the payment amount for applicable clinical
trial and expanded access use immunotherapy cases that group to MS-DRG
018, and indicated that we would provide instructions for identifying
these claims in separate guidance. Following the issuance of the FY
2021 IPPS/LTCH PPS final rule, we issued guidance \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.
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\16\ https://www.cms.gov/files/document/r10571cp.pdf.
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In the FY 2022 IPPS/LTCH PPS final rule, we revised MS-DRG 018 to
include cases that report the procedure codes for CAR T-cell and non-
CAR T-cell therapies and other immunotherapies (86 FR 44798 through
44806). We also finalized our proposal to continue to use the proxy of
standardized drug charges of less than $373,000 (86 FR 44965) to
identify clinical trial claims. We also finalized use of this same
proxy for the FY 2023 IPPS/LTCH PPS final rule (87 FR 48894).
Following the issuance of the FY 2023 IPPS/LTCH PPS final rule, we
issued guidance \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.
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\17\ https://www.cms.gov/files/document/r11727cp.pdf.
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In the FY 2024 IPPS/LTCH PPS final rule, we explained that the
MedPAR claims data now includes a field that identifies whether or not
the claim includes expanded access use of immunotherapy. We stated that
for the FY 2022 MedPAR claims data, this field identifies whether or
not the claim includes condition code ZB, and for the FY 2023 MedPAR
data and subsequent 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.
[[Page 49675]]
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 the
proposed rule, for FY 2027 we proposed to continue to use our
methodology as modified in the FY 2024 IPPS/LTCH PPS final rule for
identifying clinical trial claims and expanded access use claims in MS-
DRG 018, with an additional modification as discussed in this section.
First, we exclude claims with the presence of condition code ``90'' and
claims that contain ICD-10-CM diagnosis code Z00.6 without payer-only
code ``ZC'' that group to MS-DRG 018 when calculating the average cost
for MS-DRG 018. Second, we no longer use the proxy of standardized drug
charges of less than $373,000 to identify clinical trial claims and
expanded access use cases when calculating the average cost for MS-DRG
018.
In 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
the 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
purpose of performing this trim, we proposed to update the median
standardized drug charge of claims identified as clinical trials in MS-
DRG 018 based on more recent data for the final rule.
Accordingly, we proposed that in calculating the relative weight
for MS-DRG 018 for FY 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 also proposed to continue to use the methodology as modified in
the FY 2024 IPPS/LTCH PPS final rule to calculate the adjustment to
account for the CAR T-cell therapy cases identified as clinical trial
cases in calculating the national average standardized cost per case
that is used to calculate the relative weights for all MS-DRGs, with
the same proposed modification as described previously to identify
other cases where the immunotherapy product is not purchased in the
usual manner, such as obtained at no cost:
Calculate the average cost for cases assigned to MS-DRG
018 that (a) contain ICD-10-CM diagnosis code Z00.6 and do not contain
condition code ``ZC'', (b) contain condition code ``90'', or (c)
contain standardized drug charges below the median standardized drug
charge of clinical trial cases in MS-DRG 018.
Calculate the average cost for all other cases assigned to
MS-DRG 018.
Calculate an adjustor by dividing the average cost
calculated in step 1 by the average cost calculated in step 2.
Apply the adjustor calculated in step 3 to the cases
identified in step 1 as applicable clinical trial or expanded access
use cases, and other cases where the immunotherapy product is not
purchased in the usual manner, such as obtained at no cost, then add
this adjusted case count to the non-clinical trial case count prior to
calculating the average cost across all MS-DRGs.
Under our proposal to continue to apply this methodology, with the
proposed modification as described, based on the December 2025 update
of the FY 2025 MedPAR file used for the proposed rule, we estimated
that the average costs of cases assigned to MS-DRG 018 that are
identified as clinical trial cases ($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 proposed 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 the
proposed rule, each case identified as an applicable clinical trial or
expanded access use immunotherapy case, and other cases where the
immunotherapy product is not purchased in the usual manner, such as
obtained at no cost, was adjusted by 0.17. As we did for FY 2026, we
applied the same adjustor for the applicable cases that group to MS-DRG
018 for purposes of budget neutrality and outlier simulations. We also
proposed to update the value of the adjustor based on more recent data
for the final rule.
Comment: Commenters broadly supported the continued use of the
modified payment and rate-setting methodology for MS-DRG 018, including
the exclusion of cases involving a clinical trial, expanded
[[Page 49676]]
access, or products not purchased in the usual manner, from the
relative weight calculation. Commenters welcomed CMS's evolving use of
claims-based identifiers--such as condition codes and diagnosis codes--
to flag these cases, and urged CMS to conduct robust outreach and
education to help hospitals navigate the upcoming transition from the
drug charge threshold to condition code-based identification in FY
2028. Several commenters also called for greater transparency,
requesting that CMS publish data on cases falling below the previous
$373,000 threshold and monitor patient access and quality of care under
the new methodology. A commenter cautioned that the base payment rate
for MS-DRG 018 remains insufficient to cover the actual costs of CAR T-
cell and other cellular immunotherapies, raising concerns about long-
term Medicare beneficiary access. Additionally, commenters urged CMS to
explore improvements to the base payment rate and consider separating
cellular therapies from the broader Drugs and Cellular Therapies cost
center, given the agency's own recognition of the distinct differences
between traditional drugs and autologous cellular therapies.
Response: We appreciate commenters' support for our proposal. With
respect to the request that CMS conduct outreach and education
regarding the transition to the use of the condition codes, we note
that when condition code ZD was implemented with CR 14247, an MLN
article was published to educate providers on the requirement to report
when they do not purchase the CAR T-cell therapy or other immunotherapy
product in the usual manner. Therefore, we do not believe additional
outreach and education is necessary at this time, but we will continue
to monitor whether this might be necessary in the future. With respect
to the request that CMS publish the details regarding specific cases,
we note that information on obtaining the MedPAR Limited Data Set is
available on the CMS website, at https://www.cms.gov/Research-Statistics-Data-and-Systems/Files-for-Order/LimitedDataSets/MEDPARLDSHospitalNational. In response to comments about payment
adequacy and the request to create a separate cellular therapy cost
center, we refer the reader to the FY 2022 final rule (86 FR 44965),
where we responded to similar comments. We will take these comments
into consideration for future rulemaking as appropriate depending on
how this clinical area continues to evolve.
After consideration of the public comments we received, we are
finalizing our proposals without modifications regarding the
calculation of the relative weight for MS-DRG 018. We note that for
this final rule, based on the March 2026 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 (that is, claims that (a)
contain ICD-10-CM diagnosis code Z00.6 and do not include payer-only
code ``ZC'' or (b) contain condition code ``90'') is $24,863. Applying
this finalized methodology, based on the March 2026 update of the FY
2025 MedPAR file used for this final rule, we estimated that the
average costs of cases assigned to MS-DRG 018 that are identified as
clinical trial cases ($64,963) were 16 percent of the average costs of
the cases assigned to MS-DRG 018 that are identified as nonclinical
trial cases ($410,125).
Accordingly, as we did for FY 2026, we are finalizing our proposal
to adjust the transfer-adjusted case count for MS-DRG 018 by applying
the adjustor of 0.16 to the applicable clinical trial and expanded
access use immunotherapy cases, and other cases where the immunotherapy
product is not purchased in the usual manner, such as obtained at no
cost, and to use this adjusted case count for MS-DRG 018 in calculating
the national average cost per case, which is used in the calculation of
the relative weights. Therefore, in calculating the national average
cost per case for purposes of this final rule, each case identified as
an applicable clinical trial or expanded access use immunotherapy case,
and other cases where immunotherapy product is not purchased in the
usual manner, such as obtained at no cost, was adjusted by 0.16. As we
did for FY 2026, we are applying this same adjustor for the applicable
cases that group to MS-DRG 018 for purposes of budget neutrality and
outlier simulations.
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 final
rule, we present the 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 final rule.
3. Development of National Average Cost-To-Charge Ratios (CCRs)
We developed the 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
[[Page 49677]]
for each MS-DRG was then divided by the national average standardized
cost per case to determine the relative weight. The final FY 2027 cost-
based relative weights were then normalized by an adjustment factor of
1.945743 so that the average case weight after recalibration was equal
to the average case weight before recalibration. The normalization
adjustment is intended to ensure that recalibration by itself neither
increases nor decreases total payments under the IPPS, as required by
section 1886(d)(4)(C)(iii) of the Act. We then applied the permanent
10-percent cap on the reduction in a MS-DRG's relative weight in a
given fiscal year; specifically for those MS-DRGs for which the
relative weight otherwise would have declined by more than 10 percent
from the FY 2026 relative weight, we set the final FY 2027 relative
weight equal to 90 percent of the FY 2026 relative weight. The relative
weights for FY 2027 as set forth in Table 5 associated with this final
rule and available on the CMS website at https://www.cms.gov/Medicare/
Medicare-Fee-for-Service-Payment/AcuteInpatientPPS reflect the
application of this cap.
The 19 national average CCRs for FY 2027 are as follows:
[GRAPHIC] [TIFF OMITTED] TR04AU26.092
Since FY 2009, the relative weights have been based on 100 percent
cost weights based on our MS-DRG grouping system.
When we recalibrated the DRG weights for previous years, we set a
threshold of 10 cases as the minimum number of cases required to
compute a reasonable weight. We proposed to use that same case
threshold in recalibrating the proposed MS-DRG relative weights for FY
2027. Using data from the FY 2025 MedPAR file, there are 8 MS-DRGs 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 proposed 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] TR04AU26.093
[[Page 49678]]
We did not receive any public comments on this proposal and
therefore are finalizing it for FY 2027 without modification.
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 the proposed rule, we highlighted some of the major statutory
and regulatory provisions relevant to the new technology add-on payment
criteria, as well as other information. For further discussion on the
new technology add-on payment criteria, we refer readers to the FY 2012
IPPS/LTCH PPS final rule (76 FR 51572 through 51574), the FY 2020 IPPS/
LTCH PPS final rule (84 FR 42288 through 42300), and the FY 2021 IPPS/
LTCH PPS final rule (85 FR 58736 through 58742).
a. New Technology Add-On Payment Criteria
(1) Newness Criterion
Under the first criterion, as reflected in Sec. 412.87(b)(2), a
specific medical service or technology will no longer be considered
``new'' for purposes of new medical service or technology add-on
payments after CMS has recalibrated the MS-DRGs, based on available
data, to reflect the cost of the technology. We note that we do not
consider a service or technology to be new if it is substantially
similar to one or more existing technologies. That is, even if a
medical product receives a new FDA marketing authorization, it may not
necessarily be considered ``new'' for purposes of new technology add-on
payments if it is ``substantially similar'' to another medical product
that was market authorized by FDA and has been on the market for more
than 2 to 3 years. In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74
FR 43813 through 43814), we established criteria for evaluating whether
a new technology is substantially similar to an existing technology,
specifically whether: (1) a product uses the same or a similar
mechanism of action to achieve a therapeutic outcome; (2) a product is
assigned to the same or a different MS-DRG; and (3) the new use of the
technology involves the treatment of the same or similar type of
disease and the same or similar patient population. If a technology
meets all three of these criteria, it would be considered substantially
similar to an existing technology and would not be considered ``new''
for purposes of new technology add-on payments. For a detailed
discussion of the criteria for substantial similarity, we refer readers
to the FY 2006 IPPS final rule (70 FR 47351 through 47352) and the FY
2010 IPPS/LTCH PPS final rule (74 FR 43813 through 43814).
(2) Cost Criterion
Under the second criterion, Sec. 412.87(b)(3) further provides
that, to be eligible for the add-on payment for new medical services or
technologies, the MS-DRG prospective payment rate otherwise applicable
to discharges involving the new medical service or technology must be
assessed for adequacy. Under the cost criterion, consistent with the
formula specified in section 1886(d)(5)(K)(ii)(I) of the Act, to assess
the adequacy of payment for a new technology paid under the applicable
MS-DRG prospective payment rate, we evaluate whether the charges of the
cases involving a new medical service or technology will exceed a
threshold amount that is the lesser of 75 percent of the standardized
amount (increased to reflect the difference between cost and charges)
or 75 percent of one standard deviation beyond the geometric mean
standardized charge for all cases in the MS-DRG to which the new
medical service or technology is assigned (or the case-weighted average
of all relevant MS-DRGs if the new medical service or technology occurs
in many different MS-DRGs). The MS-DRG threshold amounts generally used
in evaluating new technology add-on payment applications for FY 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 final 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
[[Page 49679]]
associated with this FY 2027 final rule, by clicking on the FY 2027
IPPS Final Rule Home Page at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.
In the September 7, 2001, final rule that established the new
technology add-on payment regulations (66 FR 46917), we discussed that
applicants should submit a significant sample of data to demonstrate
that the medical service or technology meets the high-cost threshold.
Specifically, applicants should submit a sample of sufficient size to
enable us to undertake an initial validation and analysis of the data.
We also discussed in the September 7, 2001, final rule (66 FR 46917)
the issue of whether the Health Insurance Portability and
Accountability Act of 1996 (HIPAA) Privacy Rule at 45 CFR part 160 and
subparts A and E of 45 CFR part 164, applies to claims information that
providers submit with applications 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 final rule, we are finalizing our proposal to repeal
[[Page 49680]]
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 the technology meets all eligibility requirements to
receive add-on payments, unless specifically grandfathered under the
alternative pathway eligibility criteria. (We refer the reader to
section II.E.7. of this final rule for a complete discussion regarding
this finalized policy.)
(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.
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\18\ Breakthrough Devices Program https://www.fda.gov/medical-devices/how-study-and-market-your-device/breakthrough-devices-program.
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(2) Alternative Pathway for Certain Antimicrobial Products
For applications received for new technology add-on payments for
certain antimicrobial products, beginning with FY 2021, if a technology
is designated by FDA as a QIDP and received FDA marketing
authorization, and, beginning with FY 2022, if a drug is approved under
FDA's LPAD pathway and used for the indication approved under the LPAD
pathway, it will be considered not substantially similar to an existing
technology for purposes of new technology add-on payments and will not
need to meet the requirement that it represent an advance that
substantially improves, relative to technologies previously available,
the diagnosis or treatment of Medicare beneficiaries. Under this
alternative pathway for QIDPs and LPADs, a medical product that has
received FDA marketing authorization and is designated by FDA as a QIDP
or approved under the LPAD pathway will need to meet the requirements
of Sec. 412.87(d). We refer the reader to the FY 2020 IPPS/LTCH PPS
final rule (84 FR 42292 through 42297) and FY 2021 IPPS/LTCH PPS final
rule (85 FR 58737 through 58739) for further discussion on this policy.
We note that, in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58737
through 58739), we clarified that a new medical product seeking
approval for the new technology add-on payment under the alternative
pathway for QIDPs must receive FDA marketing authorization for the
indication covered by the QIDP designation. We also finalized our
policy to expand our alternative new technology add-on payment pathway
for certain antimicrobial products to include products approved under
the LPAD pathway and used for the indication approved under the LPAD
pathway.
c. Additional Payment for New Medical Service or Technology
The new medical service or technology add-on payment policy under
the IPPS provides additional payments for cases with relatively high
costs involving eligible new medical services or technologies, while
preserving some of the incentives inherent under an average-based
prospective payment system. The payment mechanism is based on the cost
to hospitals for the new medical service or technology. As noted
previously, we do not include capital costs in the add-on payments for
a new medical service or technology or make new technology add-on
payments under the IPPS for capital-related costs (72 FR 47307 through
47308).
For discharges occurring before October 1, 2019, under Sec.
412.88, if the costs of the discharge (determined by applying operating
cost-to-charge ratios (CCRs) as described in Sec. 412.84(h)) exceed
the full DRG payment (including payments for IME and DSH, but excluding
outlier payments), CMS made an add-on payment equal to the lesser of:
(1) 50 percent of the costs of the new medical service or technology;
or (2) 50 percent of the amount by which the costs of the case exceed
the standard DRG payment.
Beginning with discharges on or after October 1, 2019, for the
reasons discussed in the FY 2020 IPPS/LTCH PPS final rule (84 FR 42297
through 42300), we finalized an increase in the new technology add-on
payment percentage, as reflected at Sec. 412.88(a)(2)(ii).
Specifically, for a new technology other than a medical product
designated by FDA as a QIDP, beginning with discharges on or after
October 1, 2019, if the costs of a discharge involving a new technology
(determined by applying CCRs as described in Sec. 412.84(h)) exceed
the full DRG payment (including payments for IME and DSH, but excluding
outlier payments), Medicare will make an add-on payment equal to the
lesser of: (1) 65 percent of the costs of the new medical service or
technology; or (2) 65 percent of the amount by which the costs of the
case exceed the standard DRG payment. For a new technology that is a
medical product designated by FDA as a QIDP, beginning with discharges
on or after October 1, 2019, if the costs of a discharge involving a
new technology (determined by applying CCRs as described in Sec.
412.84(h)) exceed the full DRG payment (including payments for IME and
DSH, but excluding outlier payments), Medicare will make an add-on
payment equal to the lesser of: (1) 75 percent of the costs of the new
medical service or technology; or (2) 75 percent of the amount by which
the costs of the case exceed the standard DRG payment. For a new
technology that is a medical product approved under FDA's LPAD pathway,
beginning with discharges on or after October 1, 2020, if the costs of
a discharge involving a new technology (determined by applying CCRs as
described in Sec. 412.84(h)) exceed the full DRG payment (including
payments for IME and DSH, but excluding outlier payments), Medicare
will make an add-on payment equal to the lesser of: (1) 75 percent of
the costs of the new medical service or technology; or (2) 75 percent
of the amount by which the costs of the case exceed the standard DRG
payment. As set forth in Sec. 412.88(b)(2), unless the discharge
qualifies for an outlier payment, the additional Medicare payment will
be limited to the full MS-DRG payment plus 65 percent (or 75 percent
for certain antimicrobial products (QIDPs and LPADs)) of the estimated
costs of the new technology or medical service. We refer the reader to
the FY 2020 IPPS/LTCH PPS final rule
[[Page 49681]]
(84 FR 42297 through 42300) for further discussion on the increase in
the new technology add-on payment beginning with discharges on or after
October 1, 2019.
As discussed in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69245
through 69252), we finalized an increase in the new technology add-on
payment percentage, reflected at Sec. 412.88(a)(2)(ii)(C) and
(b)(2)(iv), that for certain gene therapies approved for new technology
add-on payments in the FY 2025 IPPS/LTCH PPS final rule that are
indicated and used specifically for the treatment of sickle cell
disease (SCD), effective with discharges on or after October 1, 2024
and concluding at the end of the 2- to 3-year newness period for such
therapy, if the costs of a discharge (determined by applying CCRs as
described in Sec. [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.
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\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 final rule, we are finalizing our proposal 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 will 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
[[Page 49682]]
and documentation may change over time, and the acceptance or filing
documentation may vary depending on the type of FDA marketing
authorization application the applicant has submitted to FDA. For
example, we understand that FDA considers submission of a 510(k) or De
Novo Classification request to be accepted for substantive review after
the completion of either a refuse to accept (RTA) review or a technical
screening process.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.
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\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.
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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
final rule, we are finalizing our proposal 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 will 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, along with a significant sample of data to
demonstrate that the medical service or technology meets the high-cost
threshold. Complete application information, along with final deadlines
for submitting a full application, will be posted as it becomes
available on the CMS website at: https://www.cms.gov/medicare/payment/
prospective-payment-systems/acute-inpatient-pps/
[[Page 49683]]
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 did not summarize any written
comments in the proposed rule that were unrelated to the substantial
clinical improvement criterion. In section II.E.5. of the preamble of
the proposed rule, we summarized comments regarding individual
applications, or, if applicable, indicated that there were no comments
received in response to the New Technology Town Hall meeting notice or
New Technology Town Hall meeting, at the end of each discussion of the
individual applications.
3. ICD-10-PCS Section ``X'' Codes for Certain New Medical Services and
Technologies
As discussed in the FY 2016 IPPS/LTCH PPS final rule (80 FR 49434),
the ICD-10-PCS includes a new section containing the new Section ``X''
codes, which began being used with discharges occurring on or after
October 1, 2015. Decisions regarding changes to ICD-10-PCS Section
``X'' codes will be handled in the same manner as the decisions for all
of the other ICD-10-PCS code changes. That is, proposals to create,
[[Page 49684]]
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. FY 2027 Status of Technologies Receiving New Technology Add-On
Payments for FY 2026
In this section of the final rule, we discuss the FY 2027 status of
the 54 new technology add-on payments approved for FY 2026, as set
forth in the tables that follow. In the proposed rule, we presented our
proposals to continue the new technology add-on payments for FY 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
presented 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.
In the proposed rule, we provided Table II.E-01 listing the
technologies that were first approved for new technology add-on
payments in FY 2025 or a subsequent year, for which we proposed to
continue making new technology add-on payments for FY 2027 because they
were still considered ``new'' for purposes of new technology add-on
payments because the 3-year anniversary date of the product's entry
onto the U.S. market occurs on or after October 1, 2026. The table also
presented the newness start date, new technology add-on payment start
date, 3-year anniversary date of the product's entry onto the U.S.
market, relevant final rule citations from prior fiscal years, proposed
maximum add-on payment amount, and coding assignments for each
technology. We referred readers to the cited final rules in the table
for a complete discussion of the new technology add-on payment
application, coding, and payment amount for these technologies,
including the applicable indications and discussion of the newness
start date.
We noted 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 proposed 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 available, we noted that, unlike
these other technologies, the applicant for ZEVTERA[supreg] was
asserting a date of
[[Page 49685]]
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, in the FY 2027 IPPS/LTCH PPS proposed rule,
we stated we believed that it would be most appropriate to no longer
consider commercial delays once a technology's new technology add-on
payment becomes effective. We stated 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
stated that we believed that a delay that extends to after
implementation of a new technology add-on payment should no longer be
considered. For example, we noted that, as discussed in the FY 2026
IPPS/LTCH PPS final rule (90 FR 36667), 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)
remain eligible for new technology add-on payment. We had 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), we stated that 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 stated that 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
proposed 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 the 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 the proposal, because the new technology
add-on payment for ZEVTERA[supreg] became effective on October 1, 2024,
we stated that we considered the beginning of the newness period for
ZEVTERA[supreg] to commence on September 30, 2024.
We invited 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 the proposed rule.
Comment: We received public comments regarding our proposal to
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. Several
commenters were supportive of CMS's efforts to provide greater
transparency and consistency regarding its evaluation of technologies
eligible for new technology add-on payment, specifically on the issue
of commercial availability following FDA approval or clearance. A
commenter stated that a range of factors can affect a technology's
entry into the U.S. market, and clear and consistent CMS reasoning
regarding how commercial availability is evaluated would improve
predictability for stakeholders and support appropriate patient access
to innovative technologies. Another commenter stated that it
appreciated the flexibility that CMS has shown in evaluating
circumstances in which there has been a significant gap between the
receipt of marketing authorization from the FDA and the actual market
introduction of a new medical device. Commenters stated that they
understood CMS's concern that some successful new technology add-on
payment applicants could seek to maximize their eligibility period by
intentionally and strategically delaying market introduction. For that
reason, the commenters supported the general rule that the start of the
newness period would not be delayed any longer than the beginning of
the fiscal year for which the manufacturer applied for new technology
add-on payment. However, some commenters believed that CMS should
continue to recognize a later newness start date in the limited
circumstances when the delay in market introduction was demonstrably
beyond the manufacturer's control. Commenters stated that these delays
may include post-approval regulatory conditions imposed by FDA (such as
requirements for PMA amendments, labeling revisions, or related
approvals), or other specific and identifiable constraints on
commercial availability.
Another commenter asked that CMS make clear that any request to
delay the start of the newness period must continue to satisfy CMS's
established standard for documented evidence of a delay in commercial
availability. The commenter stated that the proposed limitation should
not be understood to create a September 30 ``default'' newness start
date, nor should CMS grant an alternative start date based on ordinary
commercial launch activities in the absence of evidence of
circumstances beyond the applicant's control, such as documented
manufacturing or distribution capacity constraints or post-approval
regulatory conditions imposed by FDA. The commenter stated that even
with this
[[Page 49686]]
proposed clarification, there appeared to be inconsistencies in the way
CMS applied its criteria for applicants to prove a delay in actual
availability of a product after FDA approval or clearance. The
commenter stated that while CMS has consistently stated that it does
not consider the date of first sale of a product or first shipment of a
product to be an indicator of the entry of a product onto the U.S.
market, there has been less clarity regarding delays related to
commercialization of the technology. The commenter provided examples
for AeroPace[supreg] System, aprevo[supreg]-C cervical interbody fusion
device, SAINT Neuromodulation System, and EchoGo[supreg] Heart Failure,
where it stated that CMS previously declined to accept requests to
delay the new technology add-on payment start date in response to
ordinary commercial launch activities. The commenter stated that in
apparent contrast to these determinations, however, CMS proposes to
accept field sales training and hospital contracting as a reason to
consider commercial availability to be delayed for purposes of the new
technology add-on payment newness start date for another application
under consideration in the proposed rule. The commenter stated that CMS
should apply a uniform and transparent standard in determining which
types of manufacturer commercialization activities constitute a delay
in the actual availability of a product after FDA marketing
authorization for purposes of establishing the new technology add-on
payment newness start date. The commenter requested that CMS provide
additional details in the final rule regarding the specific criteria it
will use to identify such delays, including whether those criteria
represent a change in CMS policy, and requested that CMS apply this
standard across all applications under consideration, so that similarly
situated technologies are not subject to different determinations
absent a clear and reasoned basis.
Other commenters were not supportive of our proposal because they
believed that starting the effective eligibility window too early may
unintentionally reduce the time hospitals have to meaningfully
integrate technologies into patient care. Commenters stated that CMS
should retain its existing flexibility to account for legitimate
commercial delays, which would preserve access to new technology add-on
payment for therapies during the critical early-adoption period when an
incentive for hospital uptake of innovative therapies is most needed.
Commenters provided examples of technologies they stated frequently
undergo gradual implementation across health systems and often require
extensive physician education and procedural adoption before widespread
availability is achieved. Some commenters requested that CMS either
reconsider the proposal or create exceptions for FDA-designated
Breakthrough Devices. Commenters also requested that CMS apply any
modifications to the newness criterion prospectively, with a commenter
further requesting an implementation date no fewer than two full new
technology add-on payment application cycles following publication of
the final rule to allow manufacturers and hospitals adequate planning
time.
Commenters also believed that narrowing the newness period would
undermine CMS's ability to set accurate DRG weights. A commenter
explained that the new technology add-on payment functions as a data-
generation mechanism as hospitals that adopt a new technology report
claims that enter the MedPAR database and ultimately inform DRG
recalibration. The applicant asserted that a full three-years of new
technology add-on payment maximizes the volume, geographic diversity,
and clinical breadth of that claims data. The commenter stated that
when a technology receives FDA marketing authorization relatively close
to the relevant application cutoff, even modest adjustments to the
marketing authorization deadline or to the interpretation of the
newness window can materially reduce the effective period during which
new technology add-on payment is available, which may result in less
hospital cost data being available to CMS. The commenter also asserted
that numerous technologies have been planned and financed with the
existing new technology add-on payment newness framework as a core
assumption, and modifying the newness criterion in a manner that
shortens effective eligibility or introduces interpretive uncertainty
would harm these technologies mid-stream, after manufacturers have
already committed substantial research, development, and
commercialization resources based on an expected reimbursement pathway.
Commenters also expressed concern that this proposal taken in its
totality with other proposals in the proposed rule, as well as other
policies in prior rulemaking, reflected an increasingly restrictive
approach toward new technology add-on payment. Commenters stated this
change would further erode the incentive structure and prospective
payment system reasonableness that Congress intended new technology
add-on payment to provide. A commenter stated its concern that CMS's
proposals reflect an increasing hostility to new technology add-on
payment that it stated was at odds with both the statutory intent of
the add-on payment and sound public policy. Another commenter stated
that this proposal represented a marked departure from prior practice,
which appropriately accounted for real-world delays between FDA
marketing authorization and actual patient access. A commenter stated
that for a service involving a new technology, CMS relies on the first
year of claims data to set rates for the first fiscal year following
new technology add-on payment expiration. The commenter stated that
this first year is typically when a technology is coming to market,
with relatively few claims as utilization ramps up. Commenters asserted
that considering a product to be ``new'' when it was not commercially
available would skew the data CMS collects during the new technology
add-on payment period by injecting a period of zero claims into the
data CMS uses for rate-setting, meaning that MS-DRG payment rates may
not accurately reflect costs incurred by providers for the new
technologies. Commenters were concerned that the proposal failed to
reflect the operational and clinical realities of launching innovative
therapies and would arbitrarily shorten the newness period for certain
products, which would penalize manufacturers for circumstances that are
often outside of their control or that reflect prudent and responsible
launch planning, rather than an attempt to delay market entry. Another
commenter stated that it did not believe that a blanket policy
constricting the availability of a later newness start date based on
``commercial availability'' was the appropriate solution, particularly
because CMS has not provided any evidence that this standard is in fact
being exploited by new technology add-on payment applicants. The
commenter stated that existing guidance required applicants to document
and explain any delay between FDA marketing authorization and
commercial availability, and CMS retained discretion to scrutinize
claimed delays on a case-by-case basis. The commenter stated that
capping the recognized delay at the new technology add-on payment
effective date for the applied for fiscal year would reach legitimate
launch timelines indistinguishably from any abusive ones. The commenter
stated that the proposal effectively treats the rising number of
requests as evidence
[[Page 49687]]
that the standard is being manipulated, but stated that the agency did
not point to a single instance in which a recognized delay turned out
to be inappropriate. The commenter stated that to the extent CMS's
underlying concern is that recognizing a documented delay could push
new technology add-on payment eligibility beyond three years, the
appropriate response was a case-by-case denial.
Commenters were also specifically concerned about the effect of the
proposal on cell and gene therapies. Commenters requested that given
the unique patient timelines and manufacturing dynamics of autologous
gene and cell therapies, CMS should maximize the new technology add-on
payment effective duration by starting the clock on newness following
the first administration billed to Medicare and by adopting a three-
year new technology add-on payment and use the agency's exceptions and
adjustments authority to extend new technology add-on payment for an
additional two years for these technologies. A commenter also stated
that CMS could combine data from all three new technology add-on
payment data years in the case of low-volume data signals or examine
projections of new technology add-on payment therapy use against claims
data to assess whether additional time for data collection under new
technology add-on payment is needed. The commenter stated that, for
example, CMS listed that it expected exagamglogene autotemcel and
lovotibeglogene autotemcel to be used in 117 and 40 cases in FY 2025,
respectively; it did not know the actual number but suspected it to be
far, far lower than CMS' projections. A commenter stated that when
assuming a three-year new technology add-on payment eligibility period
and given the two-year time lag in the data that CMS uses for rate-
setting, the number of claims that will exist in the data by the second
year of new technology add-on payment will be very low and it is
unlikely that the agency will be able to recalibrate the MS-DRGs to
reflect the cost of the technology. Another commenter stated that while
the assignment of a billing code is a necessary condition for capturing
claims data, the regulation expressly recognizes that the timing of
data availability--not merely the existence of a code--is central to
determining the newness period. The commenter stated that consistent
with this structure, it is appropriate to interpret the newness period
as beginning when claims reflecting use of the technology first appear
and data begin to accumulate, rather than when a code is first assigned
but not yet used in practice. The commenter also provided additional
details regarding the structural factors contributing to delayed
initial claims for ex vivo gene therapies that result in a material
delay between code assignment and the generation of meaningful Medicare
claims data in support of its request that CMS clarify that the new
technology add-on payment newness period begins when claims data
reflecting use of the technology first become available. In addition,
the commenter requested that CMS review and share aggregate volume and
charge data for ex vivo gene therapies from the most recent year of
available claims because without this visibility, it was not possible
to assess whether the existing data are sufficient to inform the new
technology add-on payment start date or whether alternative policy
approaches are warranted. The commenter believed that sharing summary
information on the number of cases and associated charge levels for ex
vivo gene therapies in the most recent year of IPPS claims data would
promote transparency, improve the quality of stakeholder feedback, and
support more timely and accurate development of MS-DRG payment
policies.
Response: We thank commenters for their comments on our proposal.
We agree with commenters that it is important to have a consistent and
predictable approach when we consider a documented delay in a
technology's market availability in our determination of newness. We
also agree with commenters that we should maintain our flexibility to
account for commercial availability delays. However, we disagree that
our proposal narrows the effective eligibility window or introduces
interpretive uncertainty. Under the proposal, 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. We would still maintain the
flexibility to consider commercial availability delays until the
implementation date for the new technology add-on payment. We
understand that technologies often apply for new technology add-on
payments prior to receiving FDA market authorization, and must balance
responsible launch planning activities with our new technology add-on
payment timelines. These technologies, including those that may become
available shortly after the fiscal year begins, would still remain
eligible for a third year of new technology add-on payment, but would
no longer inappropriately become eligible for a fourth year or beyond.
With respect to the specific criteria that we use to identify a
documented delay of commercial availability, as noted, we believe it is
important to maintain flexibility regarding the range of circumstances
that may be identified by a new technology add-on payment applicant as
resulting in a delay in commercial availability. We make these
decisions on an individual basis and in consideration of any
communications with applicants while developing the proposed rule and
as a part of our annual notice-and-comment rulemaking. In general,
although we require sufficient information to determine a newness date
based on a documented delay in the technology's availability on the
U.S. market, we generally rely on the applicant's narrative of the
delay. As noted, we do not consider the date of first sale of a
product, or first shipment of a product, as an indicator of the entry
of a product onto the U.S. market; neither of these dates indicate when
a technology in fact became available for sale. We often request
additional information when it is unclear to us whether a technology
was not yet available for sale or was on the market but in a limited
capacity. As we have also noted, we do not believe that case volume is
a relevant consideration for making the determination as to whether a
product is considered ``new'' for purposes of new technology add-on
payments. We have generally established a later newness start date
resulting from a documented delay in commercial availability due to a
variety of commercialization activities, for example, requiring a new
capable commercial partner, acquisitions, or execution of distribution
agreements. We disagree with a commenter's assertion that we have
inconsistently declined to accept requests to delay the new technology
add-on payment start date in response to commercial launch activities.
First, as noted, we often request additional information when it is
unclear to us when a technology was available for sale, as we did in
the examples of AeroPace[supreg] System and SAINT Neuromodulation
System cited by the commenter. For both technologies, after receiving
additional information in subsequent rulemaking, we established a later
newness start date resulting from a documented delay in commercial
availability, as discussed later in this section and in the FY 2026
[[Page 49688]]
IPPS/LTCH PPS final rule (90 FR 36671), respectively. Similarly, we
requested additional information regarding the documented delay in the
commercial availability for the aprevo[supreg]-C cervical interbody
fusion device, as, at the time, its applicant had asserted a tentative
future date of commercial availability (90 FR 36783 through 36784).
However, we note that we have not received this information. Finally,
with respect to the applicant for EchoGo[supreg] Heart Failure's claim
that the device was not available for sale until the date of its first
customer contract, we had noted that the applicant's own press release
had indicated that the device was commercially available months earlier
than its stated date of first customer contract (90 FR 36672).
We do not believe that this proposal should apply only for future
new technology add-on payment applications, or create exceptions for
specific groups of technologies. We also disagree that this proposal,
taken in its totality with the policy as discussed in section II.E.7
and prior rulemaking, reflects an increasingly restrictive approach to
new technology add-on payment. For example, as finalized in the FY 2025
IPPS/LTCH PPS final rule (89 FR 69238 through 69242) to address how the
prior change in the FDA marketing authorization deadline may limit the
ability of new technology add-on payment applicants to be eligible for
a third year of new technology add-on payments under our general
practice for determining whether to extend the payment for an
additional fiscal year, we now 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. Overall, we continue to maintain a flexible approach
to our review of an applicant's documented delay of commercial
availability and generally do not require supporting documentation to
substantiate an applicant's claims. We also note that we had stated we
were considering this issue as early as the FY 2026 IPPS/LTCH PPS final
rule (90 FR 36667; 90 FR 36671). Applicants that anticipate a
significant delay in commercial availability may want to consider
whether their anticipated commercial availability date would better
align with a future rulemaking cycle. As we noted in the FY 2026 IPPS/
LTCH PPS final rule (90 FR 36667; 90 FR 36671), ZEVTERA[supreg] and
SAINT Neuromodulation System both asserted a date of commercial
availability that occurred after the new technology add-on payment for
the technology began. If we were to consider the beginning of the
newness period to commence on the date of commercial availability
requested by the applicants, 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), the
technologies would be eligible for a fourth year of new technology add-
on payment in FY 2028 and FY 2027, respectively. We believe it is
necessary to establish an approach to address the specific scenario
where a technology may have a legitimate commercial availability delay,
but its new technology add-on payment has become effective and the
technology (and other technologies reported using the same codes) have
become eligible for new technology add-on payment, such that otherwise
the technology may potentially be eligible for the new technology add-
on payment for four or more years. We believe that implementing this
proposal establishes a consistent approach, which would improve
predictability for stakeholders. For the same reasons, we also disagree
with establishing additional flexibilities specifically for cell and
gene therapies, including starting the newness date with the first
administration or extending new technology add-on payment to five
years.
With regards to a commenter's belief that the proposal effectively
treated the rising number of requests as evidence that the standard is
being manipulated, without any record support for that inference, we
note that we considered two requests in the FY 2026 IPPS/LTCH PPS final
rule (90 FR 36666 through 36667; 90 FR 36670 through 36671) where the
delays may be attributed at least partially to factors within the
applicants' control, including delays from entering into licensing and
distribution agreements and delays from changing to a third-party
manufacturer. Per the manufacturers, both decisions resulted in
significant delays to commercialization that extended for over a year
and overlapped with the start of their new technology add-on payment
periods. Both applicants subsequently requested CMS consider delays in
commercial availability that would have made these technologies
eligible for a fourth year of new technology add-on payment. Although
there may have been other related considerations that were outside of
the applicants' control, due to the increasing complexity of these
requests, it may be unclear the extent to which an applicant's asserted
commercial availability delay results from such factors rather than a
calculated business decision. We believe that due to the nature of the
described delays, there may be a mixture of factors both within and
outside of an applicant's control. Therefore, we believe the best
approach to improve predictability for applicants would be to develop a
consistent guideline across applications. We may continue to consider
this policy in light of any other considerations that may arise,
including any potential changes in the future.
We also disagree with commenters that considering a product to be
``new'' when it was not commercially available would skew the data
collected during the new technology add-on payment period. As we stated
in the FY 2024 IPPS/LTCH PPS final rule (88 FR 58955), section
1886(d)(5)(K)(ii) of the Act establishes a period of not less than 2
years and not more than 3 years for the collection of data with respect
to the costs of new services or technologies. We do not believe that 2
years' worth of data would be insufficient to inform rate-setting for
the inpatient setting. In addition, although the technology that had
applied for new technology add-on payment may not be on the market, it
is possible that other technologies reported using the same codes may
enter the market and would be eligible for the new technology add-on
payment. Our current practice is to extend new technology add-on
payments without a further application from the manufacturer of a
competing product (85 FR 58679). As we've noted, procedure codes under
the ICD-10-PCS are not manufacturer specific; rather, they are used to
describe the hospital service that was performed. If, after consulting
current official coding guidelines a hospital determines that an ICD-
10-PCS procedure code associated with a new technology add-on payment
describes the technology that it used in the performance of a
procedure, the hospital may report the code and may be eligible to
receive the associated new technology add-on payment (89 FR 69224). We
also do not believe that case volume is a relevant consideration for
making the determination as to whether a product is ``new.'' As
mentioned in previous rulemaking, consistent with the statute and our
implementing regulations, a technology is no longer considered as
``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, 85
[[Page 49689]]
FR 58610). As such, regardless of whether the use of the technology
that had applied for new technology add-on payment or other
technologies reported using the same code is frequent or infrequent in
the Medicare population, we would consider the costs of the technology
to be included in the MS-DRG relative weights. In addition, depending
on the prevalence of a disease within the Medicare beneficiary
population and the clinical factors associated with the treatments,
some technologies may inherently have a minimal claim volume.
Therefore, we are finalizing as proposed that, for a technology
that is not yet available for sale when its new technology add-on
payment becomes effective, we will consider the newness period to begin
on the date preceding the start of the new technology add-on payment
for the technology.
As such, consistent with this finalized policy, 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.
Comment: Multiple commenters supported CMS's proposed continuation
of 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.
Response: We appreciate the commenters' support.
Comment: The applicant for the AGENT\TM\ Paclitaxel-Coated Balloon
Catheter submitted a comment updating the average cost of the
technology based on updated clinical and claims data. Per the
applicant, since the AGENT\TM\ Paclitaxel-Coated Balloon Catheter
received the FDA approval on February 29, 2023, the real-world data
demonstrates that more than one device is routinely used across all
sites of care. The applicant explained that due to clinical necessity,
interventional cardiology practice frequently involves the use of
multiple devices in a single case. Per the applicant, analysis of
MedPAR data for the period between October 1, 2024, and September 30,
2025, shows 234 out of 1,539 claims (approximately 15 percent) involved
the use of more than one device during a single procedure, with an
average of 1.19 AGENT\TM\ Paclitaxel-Coated Balloon Catheters used per
case. The applicant also shared information from published clinical
studies and international real-world registries, which it stated
consistently demonstrated that clinicians use more than one AGENT\TM\
Paclitaxel-Coated Balloon Catheter per case on average. Therefore, the
applicant requested that CMS increase the FY 2027 maximum new
technology add-on payment for a case involving the use of AGENT\TM\
Paclitaxel-Coated Balloon CatheterTM to $4,776 to reflect
real-world average utilization of 1.19 devices per case.
Response: We thank the applicant for its comment and the updated
cost information. We have updated the new technology add-on payment
amount for the AGENT\TM\ Paclitaxel-Coated Balloon
CatheterTM accordingly. The current maximum new technology
add-on payment amount for the AGENT\TM\ Paclitaxel-Coated Balloon
CatheterTM is $4,013.75, which reflects the cost of one
device (that is, 65 percent of the average cost of the technology of
$6,175). For FY 2027, the maximum new technology add-on payment amount
is $4,776.36, as reflected in Table II.E.-01 in this final rule.
Comment: The applicant for CONTEPO\TM\ (fosfomycin) submitted a
comment providing updated information on its commercial availability
and to update its Wholesale Acquisition Cost (WAC). Per the applicant,
CONTEPOTM was conditionally approved, and was eligible to
receive new technology add-on payments in FY 2026 beginning with
discharges on or after January 1, 2026; however, the applicant stated
that CONTEPOTM was first made commercially available to
patients in the U.S. in March 2026. The applicant encouraged CMS to
continue to explore how products can obtain three years of new
technology add-on payment from their market availability.
The applicant stated that CONTEPOTM became commercially
available with a WAC of $182.74 per vial. Per the applicant, the
standard dosing regimen for CONTEPOTM is 6 grams
administered intravenously three times daily for 7 to 14 days, and a
10-day course is representative for inpatient cases. The applicant
stated that at the standard regimen of three vials per day, the daily
cost of therapy is $548.22, and, for an average inpatient treatment
duration of 10 days, the total average inpatient cost per case is
$5,482.20. Therefore, because CONTEPOTM holds a designation
as a QIDP, the applicant requested that CMS update the maximum new
technology add-on payment for a case involving the use of
CONTEPOTM to $4,111.65 (that is, 75 percent of the average
cost of the technology).
Response: We thank the applicant for its comment providing an
updated cost information and recommendation. We have updated the new
technology add-on payment amount for CONTEPO\TM\ accordingly. For FY
2027, the maximum new technology add-on payment amount is $4,111.65, as
reflected in Table II.E.-01 in this final rule.
Although the applicant states that CONTEPO\TM\ became available to
patients in March 2026, we did not receive information regarding a
documented delay in market availability, and absent additional
information from the applicant, we cannot determine a newness date
based on a documented delay in the technology's availability on the
U.S. market. Therefore, we continue to consider the beginning of the
newness period to commence on October 22, 2025, the date of FDA
marketing authorization for the indication covered by its QIDP
designation.
With respect to the commenter's request that CMS continue to
explore how products can obtain three years of new technology add-on
payment from their market availability, as we stated in the FY 2024
IPPS/LTCH PPS final rule (88 FR 58955), section 1886(d)(5)(K)(ii) of
the Act establishes a period of not less than 2 years and not more than
3 years for the collection of data with respect to the costs of new
services or technologies; a full 3 years is not required. We do not
believe that 2 years' worth of data would be insufficient to inform
rate-setting for the inpatient setting.
However, as discussed in greater detail earlier in this section, we
note that 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), this could lead to new technology
add-on payments being effective for greater than three years for
conditionally approved technologies. Therefore, for QIDPs that were
conditionally approved for new technology add-on payment, we are
considering whether it would also be more appropriate to discontinue
new technology add-on payment on the fiscal year quarter that results
in 3 years of new technology add-on payment from the start of the new
technology add-on payment for the technology. For example, for a
conditionally approved QIDP that became eligible to receive new
technology add-on payments in FY 2026 beginning with discharges on or
after January 1, 2026, under this approach, we would discontinue new
technology add-on payment no later
[[Page 49690]]
than December 31, 2028, after 3 years of new technology add-on payment.
Comment: The applicant for the AeroPace[supreg] System and a
commenter submitted comments providing additional information on the
technology's commercial availability delay and requested that CMS
extend the technology's newness date to align with its commercial
availability on October 16, 2025. The applicant stated that the PMA for
AeroPace[supreg] System was accepted by FDA on May 8, 2024, and that
based on the then-current average FDA PMA review time, which included a
potential FDA Advisory Panel meeting, it anticipated FDA approval would
occur in Q2 2025. The applicant stated that in October 2024, during FDA
interactive review, FDA indicated a Panel Meeting was not required, and
the applicant anticipated FDA approval between April and June of 2025.
The applicant noted that on December 4, 2024, FDA approved the
AeroPace[supreg] System based on draft labeling, subject to it
submitting a PMA Amendment with final labeling revisions. The applicant
explained that the revisions necessitated updating the Instructions for
Use and the device label that is directly imprinted on the kit lid. The
applicant stated that to mitigate manufacturing delays due to long
procurement times, it ordered the kit lids in February 2025; FDA
approved the updated labeling on March 5, 2025, which enabled the
company to initiate manufacturing of the kits; and the applicant
completed Quality Assurance/Quality Control (QA/QC) inspection of the
labeled, sterilized kits on April 7, 2025. The applicant explained that
this enabled it to initiate the UL certification process (or a similar
certification) required for hospitals to meet Joint Commission
requirements. The applicant stated that this process was completed and
UL labels were received from its supplier on October 16, 2025. Per the
applicant, the first AeroPace[supreg] System was installed on October
30, 2025, and the first commercial use was on December 9, 2025. The
commenters stated that based on the CMS proposal, they acknowledged
that CMS may consider the newness period for the AeroPace[supreg]
System to begin on September 30, 2025, establishing a three-year NTAP
anniversary date of Sept 30, 2028.
Response: We thank the applicant and commenter for the information
regarding the documented delay in the technology's availability on the
U.S. market. As discussed previously, under our finalized proposal, for
a technology that is not yet available for sale when its new technology
add-on payment becomes effective, we consider the newness period to
begin on September 30 preceding the start of the new technology add-on
payment for the technology. Therefore, we consider the beginning of the
newness period for the AeroPace[supreg] System to commence on September
30, 2025.
After consideration of the public comments we received, we are
finalizing our proposals to continue new technology add-on payments for
FY 2027 for the technologies that were approved for new technology add-
on payment for FY 2026 and would still be considered ``new'' for
purposes of new technology add-on payments for FY 2027, as listed in
the proposed rule and in the following Table II.E.-01 in this section
of this final rule.
We note that the following Table II.E.-01 is the same as Table
II.E.-01 that was presented in the proposed rule, but Table II.E.-01 in
this final rule includes the updated newness start date for the
AeroPace[supreg] System and the updated cost information for AGENT\TM\
Paclitaxel-Coated Balloon CatheterTM and CONTEPO\TM\
(fosfomycin), as discussed previously. Table II.E.-01 in this final
rule 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,
maximum add-on payment amount, and coding assignments for each
technology. We refer readers to the final rules cited in the following
tables for a complete discussion of the new technology add-on payment
application, coding, and payment amount for these technologies,
including the applicable indications and discussion of the newness
start date.
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In the proposed rule, we provided a Table II.E.-02 listing 12
technologies that were first approved for new technology add-on
payments prior to FY
[[Page 49694]]
2025, including technologies determined to be substantially similar to
such technologies, for which we were proposing to discontinue making
new technology add-on payments for FY 2027 because they were no longer
``new'' for purposes of new technology add-on payments because the 3-
year anniversary date of the product's entry onto the U.S. market
occurs before April 1, 2027. This table also listed one technology that
was first approved for new technology add-on payments in FY 2026, for
which we were proposing to discontinue making new technology add-on
payments for FY 2027 because it was 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, the table also presented the newness start date,
new technology add-on payment start date, the 3-year anniversary date
of the product's entry onto the U.S. market, and relevant final rule
citations from prior fiscal years. We referred readers to the cited
final rules in the table for a complete discussion of each new
technology add-on payment application and the coding and payment amount
for these technologies, including the applicable indications and
discussion of the newness start date.
We noted in the proposed rule that while we were proposing to
discontinue new technology add-on payments for FY 2027 for the Ceribell
Status Epilepticus Monitor, Ceribell, Inc. was 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 the 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 proposed to exclude cases that report the
ICD-10-CM diagnosis codes that we believed would identify patients with
status epilepticus in combination with the ICD-10-PCS procedure code
XX20X89. We provided Table 10.2.--Ceribell Delirium Monitor System,
associated with the proposed rule, for the list of ICD-10-CM diagnosis
codes that we stated we believe would identify patients with status
epilepticus, which we proposed to exclude from new technology add-on
payment when reported in combination with ICD-10-PCS procedure code
XX20X89. We invited 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 section II.E.6. of
the preamble of this final rule, we are approving the Ceribell Delirium
Monitor System for new technology add-on payments for FY 2027. We refer
readers to that section for further discussion regarding the
identification of cases associated with use of the Ceribell Status
Epilepticus Monitor in patients diagnosed with status epilepticus,
which would not be eligible for new technology add-on payment for FY
2027.
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.
We stated that, as discussed in greater detail previously in this
section, after further consideration, we were 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 stated 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 the proposal, because the new technology
add-on payment for SAINT Neuromodulation System became effective on
October 1, 2023, we stated that we considered 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. We stated that because we considered
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 invited 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 the proposed rule.
Comment: The applicant for the TOPSTM System requested
that CMS extend new technology add-on payment for the TOPSTM
System for an additional year. The applicant stated that its MS-DRG
reassignment request had been deferred from consideration during the
current rulemaking cycle; however, it stated that claims data supported
reassignment to a different MS-DRG, and absent MS-DRG reassignment,
hospitals would experience a substantial reimbursement reduction
following expiration of the new technology add-on payment. The
applicant stated that extending new technology add-on payment
eligibility for an additional 12 months would provide CMS with
additional time to evaluate a larger and more mature body of Medicare
claims data while avoiding disruption in patient access during the
interim period. The applicant stated that given the relative novelty of
posterior column arthroplasty technology and the continued accumulation
of utilization and cost data, it believed such an extension would be
consistent with the underlying policy objectives of the new technology
add-on payment and would support CMS's broader goals of ensuring
beneficiary access to innovative technologies while appropriate long-
term reimbursement policies are established. The applicant stated that
given the direct relationship between new technology add-on payment
expiration and beneficiary access, technologies in this circumstance
warranted particular consideration to avoid unintended disruptions in
care
[[Page 49695]]
availability for Medicare beneficiaries. The applicant requested that
CMS extend the new technology add-on payment associated with the
TOPSTM System for an additional 12 months. The applicant
noted that CMS had previously extended new technology add-on payment
eligibility during the COVID-19 Public Health Emergency, and believed
that similar consideration was appropriate to ensure continued
beneficiary access while CMS completed its review.
Similarly, the applicant for the DETOUR System requested that CMS
extend new technology add-on payment for the DETOUR System for an
additional year because its MS-DRG reassignment request had been
deferred from consideration. The applicant requested that CMS either
extend new technology add-on payment for an additional year or reassign
the procedures involving the DETOUR System to MS-DRGs that better
achieved clinical and resource coherence. The applicant stated that the
circumstances surrounding the DETOUR system warranted immediate
attention in Medicare's hospital inpatient setting to protect patient
access effective for FY 2027 because under the MS-DRG assignments
proposed for FY 2027 and without new technology add-on payment status,
the available Medicare data demonstrated that procedures involving the
DETOUR System would be substantially under-reimbursed in FY 2027 and
would jeopardize patient access. The applicant noted that CMS has
extended new technology add-on payment when warranted in the past, and
believed that extending the new technology add-on payment in lieu of
MS-DRG reassignment would ensure that the goals of the new technology
add-on payment were preserved until the Agency could evaluate the
relevant year data set to fully reflect the costs of the DETOUR
procedure.
Response: As further discussed in FY 2005 IPPS final rule (69 FR
49002), the intent of section 1886(d)(5)(K) of the Act and regulations
under Sec. 412.87(b)(2) is to pay for new medical services and
technologies for the first 2 to 3 years that a product comes on the
market, during the period when the costs of the new technology are not
yet fully reflected in the DRG weights. The costs of the new medical
service or technology, once paid for by Medicare for this 2- to 3-year
period, are accounted for in the MedPAR data that are used to
recalibrate the DRG weights on an annual basis. Therefore, we stated it
is appropriate to limit the add-on payment window for technologies that
have passed this 2- to 3-year timeframe. Both the TOPSTM
System and the DETOUR System were eligible for new technology add-on
payment for three years, from FY 2024 through FY 2026, and are
requesting an extension for a fourth year of new technology add-on
payment through FY 2027.
We disagree that an extension is warranted for these technologies.
We refer the commenters to the MS-DRG classification change request
process that is discussed in section II.C. of the preamble of this
final rule. We note that the process to request MS-DRG classification
changes is separate and distinct from the new technology add-on payment
application. We also note that the methodology for recalibration of the
relative weights is discussed in section II.D. of the preamble of this
final rule.
We note that we proposed a one-year extension of new technology
add-on payments for those technologies for which the new technology
add-on payment would otherwise be discontinued beginning with FY 2022
because of our proposal to use FY 2019 data instead of FY 2020 data to
develop the FY 2022 relative weights (86 FR 44977). As such, the costs
for a new technology for which the 3-year anniversary date of the
product's entry onto the U.S. market occurred prior to the latter half
of the upcoming fiscal year (FY 2022) may not have been fully reflected
in the MedPAR data used to recalibrate the MS-DRG relative weights for
FY 2022. As the costs of the TOPSTM System and the DETOUR
System have been paid for by Medicare for the first 2 to 3 years the
products were on the market and are accounted for in the MedPAR data
that are used to recalibrate the DRG weights on an annual basis, we are
finalizing our proposals to discontinue new technology add-on payments
for the TOPSTM System and the DETOUR System.
We did not receive any comment on our proposal to discontinue new
technology add-on payment for the SAINT Neuromodulation System.
Therefore, consistent with our policy finalized earlier in this
section, because the new technology add-on payment for the 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 is no longer be considered new for FY 2027.
After consideration of the public comments we received, we are
finalizing our proposals to discontinue new technology add-on payments
for the technologies as listed in the proposed rule and in the
following Table II.E.-02 of this final rule for FY 2027 because they
are no longer ``new'' for purposes of new technology add-on payments.
We note that Table II.E.-02 is the same as Table II.E.-02 that was
presented in the proposed rule. Table II.E.-02 presents the newness
start date, new technology add-on payment start date, the 3-year
anniversary date of the product's entry onto the U.S. market, and
relevant final rule citations from prior fiscal years. We refer readers
to the final rules cited in the following table for a complete
discussion of each new technology add-on payment application and the
coding and payment amount for these technologies, including the
applicable indications and discussion of the newness start date.
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BILLING CODE 7169-69-C
5. 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 the
proposed rule. 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 the FY 2027 IPPS/LTCH PPS
proposed rule (91 FR 19409 through 19429), for technologies that have
already received FDA marketing authorization, we proposed 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 FDA makes a determination as to whether the medical
service or technology is safe and effective (86 FR 45047). Therefore,
we did not propose to approve or disapprove applications for
technologies that had not yet received FDA marketing authorization for
new technology add-on payment.
Subsequently, prior to the issuance of this final rule, one
additional application for Orca-T was withdrawn. We are not including
in this final rule the description and discussion of applications that
were withdrawn or that are ineligible for FY 2027 consideration. We are
addressing the remaining 7 applications. We are not approving new
technology add-on payments for four technologies: COBENFYTM
(xanomeline and trospium chloride), Command Center Electronic Glycemic
Management System, RAPIBLYKTM (landiolol), and
WASKYRATM (etuvetidigene autotemcel), for the reasons
discussed in the following sections. We are approving FY 2027 new
technology add-on payments for three technologies, GAMIFANT[supreg]
(emapalumab-lzsg), YARTEMLEA[supreg] (narsoplimab-wuug), and
ZEVASKYNTM (prademagene zamikeracel). A discussion of these
applications is presented in the following sections.
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 noted 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).
In the proposed rule, we provided the following table containing 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 49698]]
[GRAPHIC] [TIFF OMITTED] TR04AU26.098
Newness Criterion
In the proposed rule, regarding substantial similarity, based on
information available at the time of the proposed rule and as
previously stated in the FY 2026 IPPS/LTCH PPS final rule (90 FR
36697), we stated we agreed 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 the proposed rule, we stated our belief 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 invited public comments on whether COBENFYTM is
substantially similar to existing technologies and whether
COBENFYTM meets the newness criterion.
Comment: The applicant submitted a public comment agreeing with
CMS's initial determination that COBENFYTM meets the newness
criterion.
Response: We thank the applicant for its comment. Based on our
review of the comment received and information submitted by the
applicant as part of its FY 2027 new technology add-on payment
application for COBENFYTM, we agree 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, compared to current
typical and atypical antipsychotics used to treat schizophrenia which
antagonize dopamine receptors. Therefore, we agree that
COBENFYTM is not substantially similar to existing treatment
options and meets the newness criterion. We consider the beginning of
the newness period to commence on October 9, 2024, the date on which
COBENFYTM became commercially available.
Cost Criterion
Regarding the cost criterion, we stated we agreed with the
applicant that the technology meets the cost criterion. We invited
public comments on whether COBENFYTM meets the cost
criterion.
Comment: The applicant submitted a public comment reiterating that
COBENFYTM meets the cost criterion.
Response: We thank the applicant for its comment. We agree with the
applicant that the technology meets the cost criterion.
Substantial Clinical Improvement Criterion
We also received a public comment in response to the New Technology
Town Hall meeting notice published in the Federal Register regarding
the substantial clinical improvement criterion for
COBENFYTM, which we summarized in the FY 2027 IPPS/LTCH PPS
proposed rule (91 FR 19410 through 19411).
In the proposed rule, after review of the information provided by
the applicant and the public comment received in response to the New
Technology Town Hall meeting, we stated we had 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.25 26 27 In its FY 2027 new
[[Page 49699]]
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.
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\25\ 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.
\26\ 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.
\27\ 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.
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In the proposed rule, after review of this information, we stated
that we continued 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
noted that this claim does not identify a patient population for which
COBENFYTM 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 questioned 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 stated we could not be sure whether
patients actually took the prescribed oral medication(s). Consequently,
we stated we were unable to determine whether all patients treated in
this study had extensive prior antipsychotic use or if the patients
actually took COBENFYTM. We also stated that the study
measured medication adherence at 60 and 90 days following
COBENFYTM treatment initiation. However, we noted 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.\28\ Therefore, we
stated we were concerned that measuring adherence at 60 and 90 days may
be inadequate to accurately assess differences between
COBENFYTM and existing schizophrenia treatments. We also
questioned long-term adherence rates since the average follow-up was
only 2.6 months. Finally, we stated we were 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.
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\28\ 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.
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We stated that 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
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. We stated that the
applicant submitted similar claims in its FY 2027 new technology add-on
payment application but did not provide additional supporting evidence.
Therefore, we stated that we continued 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, we stated that 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 noted that the poster did
not provide a comparison to typical antipsychotics or other atypical
antipsychotics, such as olanzapine/samidorphan, which includes
samidorphan to reduce weight gain. For these reasons, we questioned
whether this study demonstrates COBENFYTM improves clinical
outcomes compared to other available therapies. Additionally, we noted
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 questioned the applicant's claim that
COBENFYTM demonstrates improved persistence and adherence
compared to currently available treatments.
Finally, we noted 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 noted 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
stated we were unable to assess whether there is a long-term reduction
of symptoms and a favorable side effect profile compared to existing
schizophrenia treatments. In addition, we questioned 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 stated in
the proposed rule that we continued 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
[[Page 49700]]
meeting, we stated in the proposed rule that we were unable to
determine that COBENFYTM represents a substantial clinical
improvement over existing technologies, and therefore, we proposed to
disapprove new technology add-on payments for COBENFYTM for
FY 2027.
We invited 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.
Comment: A few commenters expressed support for approving new
technology add-on payment status for COBENFYTM. Commenters
highlighted the current societal and financial costs of schizophrenia.
In expressing support for approval of COBENFYTM, commenters
stated many patients with schizophrenia may not respond to conventional
treatment or may discontinue treatment due to side effects such as
weight gain, metabolic complications, sedation, cognitive blunting,
movement disorders, fluid retention, sexual dysfunction, and
hyperarousal. These commenters expressed their belief that patients
should have COBENFYTM as a treatment option due to its novel
mechanism of action and minimal adverse events.
A commenter stated that while patients who have not responded to or
who have discontinued a previous antipsychotic could try another
antipsychotic, they should have an additional option with
COBENFYTM, especially due to its new mechanism of action.
The commenter also stated that most Medicare enrollees who are
hospitalized with schizophrenia and psychotic symptoms are not
individuals experiencing first-episode psychosis but are usually either
adults over 65 who have lived with schizophrenia for decades or
individuals under 65 with schizophrenia who are on Medicare due to
disability status (with schizophrenia being the likely disabling
condition). This commenter added that a majority of these patients are
experiencing psychosis due to medication failure or discontinuation and
are likely to be readmitted in the future for the same reason, which is
a negative and costly outcome. The commenter noted that some
individuals respond to and adhere to both COBENFYTM and
clozapine, while others respond to and adhere to COBENFYTM
but not to clozapine. The commenter stated that for these latter
patients, the proposed CMS disapproval is condemning them to another
psychotic episode, likely rehospitalization, and maybe even death. The
commenter added that excluding a new medication that works differently
from all other pharmacological options when the current likelihood of
failure is already much too high seems like an unwise decision that
lowers the probability of individuals achieving recovery.
Another commenter stated that the side effects associated with
antipsychotics can contribute to significant nonadherence rates, which
can be as high as 65 percent in some studies.\29\ Therefore, the
commenter stated the need for new treatments and new mechanisms of
action is immense, and COBENFYTM's novel mechanism of action
provides an innovative treatment option so that patients, especially
those who respond poorly to currently available treatments, may avoid
many of these side effects. The commenter noted COBENFYTM
has been effective in reducing schizophrenia symptoms with minimal
adverse events.\30\ The commenter expressed concern that CMS's
comparisons in the proposed rule take an incomplete look at the larger
treatment landscape for schizophrenia. The commenter stated that, while
injectable antipsychotic medications might serve a role and aid in
higher rates of adherence, these types of treatments might not be
suitable for the larger patient population, and real-world evidence
shows COBENFYTM has an encouraging adherence profile for a
patient population that has historically struggled to maintain
continuity on oral treatments.\31\ The commenter also stated that
COBENFYTM's demonstrated lack of negative side effects due
to its mechanism of action is critical and COBENFYTM
provides a clear alternative to patients who otherwise would stop
pursuing treatment or were unsuccessful on previous treatments. The
commenter further stated that even when patients did show signs of
metabolic side effects, these were often mild to moderate in severity
and resolved themselves over a 52-week course of treatment \32\ and
this demonstrates a significant improvement in the current standard of
care, particularly for patients with a history of extensive
antipsychotic use, ultimately allowing for long-term symptom reduction
and improved tolerability from current options. The commenter
encouraged CMS to prioritize policies that allow and encourage new
treatment options for serious mental illness and stated that new
treatment options with novel mechanisms of action offer hope to
millions living with schizophrenia.
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\29\ Zwide GE, Dewet AT, Sokudela FB. Medication Non-Adherence
in Re-Admitted Patients at a Psychiatry Hospital: A Qualitative
Study. S Afr J Psychiatr. 2025; 31:2345. doi: 10.4102/
sajpsychiatry.v31i0.2345.
\30\ Neporent, L ``Emergent Trial Data For KarXT Shows Promise
in Schizophrenia'' Psychiatrist.com, May 30, 2023, https://www.psychiatrist.com/news/emergent-trial-data-for-karxt-shows-promise-in-schizophrenia/.
\31\ Cutler, A.J., Zhong, Y., Gillard, K., Appio, J., Gao, C.,
Laliberte [acute], 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.
\32\ Kuntz L. New Data Demonstrates KarXT's Positive Long-Term
Metabolic Profile. Psychiatrictimes.com, April 12, 2024, https://www.psychiatrictimes.com/view/new-data-demonstrates-karxt-positive-long-term-metabolic-profile.
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A commenter stated that non-adherence with schizophrenia treatments
drives relapse, rehospitalization, or traumatic interactions with the
justice system. The commenter cited the April 2026 Schizophrenia &
Psychosis Action Alliance study, which reported that 65 percent of
community respondents reported that gaps in the mental health system
had resulted in hospitalization, while 50 percent, 44 percent, and 44
percent reported these gaps resulted in job loss, housing instability,
and justice system involvement, respectively.\33\ The commenter stated
that currently available therapies are not a viable option for many of
these patients and that CMS should weigh downstream outcomes (reduced
subsequent hospitalization, reduced morbidity, and improved quality of
life). The commenter also added that the study found that 62 percent of
the public and 89 percent of schizophrenia community members reported
that hospital availability for serious mental illness is inadequate,
with only 11 percent of schizophrenia community members describing
current schizophrenia treatments as ``very effective.'' In addition,
the commenter cited a January 2026 study (Kraser et al., 2026) which
analyzed the cost of schizophrenia in the United States.\34\ Krasa et
al. (2026) estimated that schizophrenia's total societal cost in 2024
was $366.8 billion, affecting approximately 3.07 million American
adults, with a per-person annual burden of $119,436. The commenter
stated its belief that three findings from Krasa et al. (2026) are
[[Page 49701]]
directly relevant to CMS's evaluation of COBENFYTM's
substantial clinical improvement. First, the commenter stated that
Krasa et al. (2026) found that only $36.7 billion (approximately 9
percent) of schizophrenia's annual burden of $366.8 billion is
healthcare spending. The commenter stated that, while the remaining
cost is not paid by CMS, Medicare's decisions can influence lost
productivity, premature mortality, supportive housing and homelessness,
justice system involvement, and uncompensated caregiving. The commenter
stated that this is relevant because inpatient hospitalization is often
the moment at which a patient's longer-term trajectory is set, as early
and effective intervention in psychosis is associated with better
outcomes across measures like fewer relapses, reduced treatment
discontinuation, improved school and work participation, lower rates of
psychiatric hospitalization, and superior quality of life.\35\ The
commenter added that inpatient payment rules that limit access to a
different treatment option are not just a hospital cost-control factor,
they also shape what happens to the patient long after discharge,
especially in the case of schizophrenia, where the timing of a
successful early intervention can be the most critical factor in a
diagnosed person's life. Second, the commenter highlighted that Krasa
et al. (2026) estimated that schizophrenia generates $4.3 billion
annually in Social Security Disability Insurance (SSDI) payments, with
approximately 422,000 adults with schizophrenia receiving SSDI. The
commenter stated that because SSDI eligibility confers Medicare
coverage after a 24-month waiting period, a substantial share of the
adult schizophrenia population becomes Medicare-eligible well before
age 65.\36\ Further, the commenter noted SSDI eligibility on the basis
of schizophrenia commonly requires documentation that the illness has
been severe enough to prevent stable employment despite treatment,
which means the Medicare-via-disability population disproportionately
reflects patients who have tried existing therapies that did not
produce functional recovery.\37\ The commenter stated that this
population has typically cycled through multiple antipsychotic
regimens, accumulated the side-effect burden of long-term dopamine
antagonism, and is most likely to need a novel option during inpatient
stabilization. The commenter stated its belief that when CMS evaluates
whether COBENFYTM offers substantial clinical improvement,
it is evaluating that question for schizophrenia patients arriving at
hospitalization with treatment histories that already document
inadequacy of conventional options. Third, the commenter stated Krasa
et al. (2026) attributed $165 billion annually to caregiver burden
alone, including unpaid labor, caregiver health impacts, and out-of-
pocket costs, with an additional $47.5 billion attributed to premature
mortality (people with schizophrenia have a life expectancy
approximately 15 years shorter than the general population). The
commenter stated its opinion that the combination of Krasa et al.
(2026) and insights from the community of diagnosed schizophrenia
patients and caregivers demonstrates that schizophrenia is an
inadequately treated disease with an enormous cost and urged CMS to
weigh the costs to patients, families, and public systems alongside the
cost of new technology.
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\33\ Voters Agree: Serious Mental Illness Care Needs Urgent
Action--SPAN. (2026, April 30). SPAN--Schizophrenia Policy Action
Network. Available at https://span-scz.org/mental-illness-care-poll/.
\34\ Krasa, H.B., Baumgardner, J.R., Brewer, I.P., Chou, J.W.,
Flottemesch, T., Markowitz, J.T., Williams, C., & Nagendra, A.
(2026). National and State Societal Costs of Schizophrenia in the
U.S. in 2024. JAMA Psychiatry. https://doi.org/10.1001/jamapsychiatry.2025.4383.
\35\ Correll CU, Galling B, Pawar A, et al. Comparison of early
intervention services vs treatment as usual for early-phase
psychosis: a systematic review, meta-analysis, and meta-regression.
JAMA Psychiatry. 2018;75(6):555-565. doi:10.1001/
jamapsychiatry.2018.0623.
\36\ Social Security Act Sec. 226(b), 42 U.S.C. 426(b).
\37\ 20 CFR pt. 404, subpt. P, app. 1, Sec. Sec. 12.00G2,
12.03(C). See also U.S. Social Security Administration, ``Disability
Evaluation Under Social Security: 12.00 Mental Disorders--Adult,''
https://www.ssa.gov/disability/professionals/bluebook/12.00-MentalDisorders-Adult.htm.
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Response: We thank the commenters for their input and have taken it
into consideration in determining whether COBENFYTM meets
the substantial clinical improvement criterion as discussed later in
this section. While we acknowledge the burden of schizophrenia cited by
commenters and that COBENFYTM has a new mechanism of action
compared to previously available treatments, we note that we did not
receive any comments including data to support efficacy of
COBENFYTM in patients who have failed these other
treatments. We further note that whether a technology receives new
technology add-on payments or not does not affect coverage of the
technology or the ability for hospitals to provide a technology to
patients where appropriate. 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 (90 FR 36672).
Comment: The applicant for COBENFYTM submitted a public
comment regarding the substantial clinical improvement criterion and
provided responses to our concerns from the proposed rule. The
applicant asserted that COBENFYTM satisfies the substantial
clinical improvement criteria under 42 CFR 412.87(b) and stated that
CMS's determination rests solely on COBENFYTM failing to
demonstrate substantial clinical improvement.
The applicant stated that CMS established the new technology add-on
payments to ensure that the Medicare payment system does not become a
barrier to clinical innovation, enabling hospitals to provide patients
access to genuinely innovative therapies without absorbing
unsustainable financial losses. The applicant stated that
COBENFYTM fits squarely within this framework as it provides
a differentiated mechanism of action and expands treatment options for
patients who are unable to tolerate or safely use existing therapies,
addressing precisely the access and innovation concerns new technology
add-on payments were designed to remedy. Further, the applicant stated
that FDA approval of COBENFYTM was supported by clinical
data evaluating its efficacy, safety, and tolerability in adults with
schizophrenia across acute and longer-term studies. According to the
applicant, COBENFYTM therefore represents a novel and
clinically meaningful advancement in the treatment of schizophrenia
that aligns directly with new technology add-on payments' purpose of
supporting access to innovative treatments that deliver meaningful
clinical benefit. The applicant asserted that COBENFYTM
satisfies each of the three new technology add-on payment criteria, and
granting new technology add-on payments for COBENFYTM will
not only appropriately recognize its therapeutic value, mitigate access
barriers associated with its introduction, and ensure Medicare
beneficiaries can benefit from this important new treatment, but also
effectuate CMS's intended objective under the program.
The applicant also asserted that, under the governing regulatory
framework, CMS must evaluate substantial clinical improvement based on
the totality of the circumstances to determine whether a service or
technology represents an advance that substantially improves, relative
to technologies previously available, the diagnosis or treatment of
Medicare beneficiaries. The applicant added that the regulations
establish multiple independent pathways by which a technology satisfies
the substantial clinical improvement criterion, each of which is
independently sufficient to meet the criterion and must be
[[Page 49702]]
considered within the totality of the circumstances, and stated the
requirements set forth in these regulations.
The applicant stated that in assessing whether a technology meets
substantial clinical improvement, CMS must consider a broad range of
evidence, including both published and unpublished data, and that the
regulations further clarify that neither low disease prevalence among
Medicare beneficiaries nor the fact that a benefit is limited to a
subpopulation disqualifies a technology from meeting the substantial
clinical improvement criterion. The applicant further stated that, to
the contrary, the regulations expressly provide that a technology may
satisfy substantial clinical improvement by demonstrating substantial
improvement in the diagnosis or treatment of a defined subpopulation.
The applicant expressed that COBENFYTM satisfies the
substantial clinical improvement criterion under the totality of the
circumstances based on the evidentiary record which establishes that
COBENFYTM: (1) introduces a novel mechanism of action based
on M1/M4 muscarinic agonism with peripheral antagonism via trospium,
representing a fundamentally different therapeutic approach relative to
existing antipsychotics; (2) provides a treatment option for patient
populations that are unresponsive to or ineligible for currently
available therapies, satisfying 42 CFR 412.87(b)(1)(ii)(A) and the
related subpopulation provision at (b)(1)(v); and (3) yields clinically
meaningful improvements in outcomes relative to existing antipsychotics
across efficacy, safety, and real-world endpoints, satisfying 42 CFR
412.87(b)(1)(ii)(C). Further, the applicant asserted that the
regulations make clear that satisfaction of any one of these pathways
is sufficient, and COBENFYTM meets all three.
Per the applicant, the analysis of COBENFYTM in the FY
2027 IPPS/LTCH PPS proposed rule does not apply the required totality
of the circumstances standard and instead isolates individual studies
and rejects each in turn, thereby misapplying both 42 CFR
412.87(b)(1)(ii)(A) and the separate subpopulation provision at 42 CFR
412.87(b)(1)(v). The applicant stated its belief that if carried
forward into this final rule, this approach would depart from CMS's own
governing regulation, and in the absence of a legally coherent
approach, would constitute arbitrary and capricious final agency action
under the Administrative Procedure Act and undercut the new technology
add-on payment program's core purpose in promoting and ensuring access
to new and innovative technologies. The applicant also stated that by
effectively narrowing the new technology add-on payment program's
application beyond the regulatory standard to therapies that fit within
rigid, established clinical frameworks, rather than encompassing truly
novel technologies, CMS risks chilling investment in critical
innovation. The applicant also asserted that novel mechanisms, by
definition, often lack direct comparators and that imposing evidentiary
standards that exceed regulatory requirements may lead to de facto
head-to-head trials where they are often not feasible for truly novel
mechanisms like COBENFYTM.
The applicant suggested that CMS's interpretation of the
unresponsive to, or ineligible for criterion in the FY 2027 IPPS/LTCH
PPS proposed rule misapplies the substantial clinical improvement
standard and imposes a requirement that does not appear in the
regulatory text. The applicant stated CMS's assertion in the proposed
rule that COBENFYTM does not identify a patient population
for which COBENFYTM 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 and stated its belief that the governing regulation contains
no requirement that a new technology be reserved as a last-line option
after exhaustion of all existing therapies, including clozapine. The
applicant stated its belief that CMS's interpretation is inconsistent
with the regulatory standard, which instead asks whether the technology
offers a treatment option for a patient population unresponsive to, or
ineligible for, currently available treatments. The applicant stated
that the United States Department of Veterans Affairs has established
specific clinical criteria for COBENFYTM, effectively
positioning it as a last line treatment by requiring that a patient
first experience treatment failure with clozapine and demonstrate an
insufficient response or intolerance to multiple antipsychotics.\38\
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\38\ Department of Veterans Affairs. (November 2024). Trospium-
Xanomeline (COBENFYTM) Criteria for Use. Available at
https://www.va.gov/formularyadvisor/DOC_PDF/CFU_Trospium_Xanomeline_COBENFY_Criteria_Nov_2024.pdf.
---------------------------------------------------------------------------
The applicant stated that the treatment-experienced population
initiating COBENFYTM is clinically distinct and well-
defined. The applicant stated that Cutler et al. (2025) reported nearly
half (49 percent) of patients had used 3 or more antipsychotic agents
in the prior 12 months and 39 percent had used long-acting injectables,
thereby demonstrating extensive prior exposure to, and failure of,
dopamine-pathway monotherapy, the very class of treatments that CMS
suggests patients should continue trying. The applicant further stated
that for this patient population, COBENFYTM is not a
duplicative option, but instead, is a mechanistically distinct
alternative, which is precisely what makes COBENFYTM a
treatment option fitting squarely within the meaning of 42 CFR
412.87(b)(1)(ii)(A) for a patient population that, by definition, has
not responded adequately to the dopamine-pathway therapies CMS would
have them continue trying.
The applicant stated its belief that CMS's articulation of the
evidentiary standard effectively rewrites the regulatory standard by
transforming a requirement that patients be unresponsive to, or
ineligible for, currently available treatments into a demand for proof
that the treatment cannot be used in other patients. The applicant
specifically cited CMS's concern that it continues 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. The applicant stated that the
regulation defines a qualifying patient population as one that is
ineligible for currently available treatments and that the evidence
submitted in its application, including evidence from the EMERGENT
program, supports a determination of substantial clinical improvement
for this population under the regulation's plain text. The applicant
cited results from Horan et al. (2024) and stated that the effects in
the prominent-negative-symptoms subgroup remained statistically
significant after controlling for improvements in positive symptoms,
depression/anxiety, disorganization, and hostility--suggesting that the
observed negative-symptom signal is not solely an artifact of positive-
symptom improvement. The applicant stated that it submitted this
evidence as supportive, not dispositive, of a substantial clinical
improvement determination for this population. The applicant also
acknowledged that COBENFYTM's FDA-approved label does not
include a specific indication for negative-symptom predominance and
that the
[[Page 49703]]
available data are post hoc and exploratory.
The applicant stated that, compared to currently available
antipsychotics, the FDA-approved labeling for COBENFYTM
demonstrates that the technology offers a treatment option for a
defined population of adult patients with schizophrenia who are
ineligible for currently available treatments and thereby satisfies the
ineligible patient population criterion, because it identifies patient
populations for whom the risks of adverse side effects are clinically
significant. The applicant stated that currently available
antipsychotics operate through dopamine D2 receptors, a mechanism that
carries class boxed warnings and precautions inherent to dopamine
receptor antagonism with significant adverse effects, including
extrapyramidal symptoms, tardive dyskinesia, neuroleptic malignant
syndrome, metabolic changes, and QT prolongation.39 40 41
The applicant stated that in practice, these risks define patient
populations for whom continued treatment with dopamine-based therapies
is clinically inappropriate, and for certain adult patients with
schizophrenia, these considerations render these treatments
inappropriate due to pre-existing conditions or clinical histories. The
applicant added that COBENFYTM does not rely on D2 receptors
and does not carry those same warnings, thereby offering a treatment
option for patients who would otherwise lack a viable alternative due
to COBENFYTM's decreased likelihood of triggering these
burdensome side effects and its ability to address real-world
discontinuation drivers.\42\ The applicant added that
COBENFYTM significantly reduces the risk of these dopamine-
related adverse effects, with an adverse reaction profile primarily
including manageable and transient effects such as nausea and
dyspepsia,43 44 45 46 thereby representing an available
treatment option for adults with schizophrenia, who, for example, have
an active or prior history of extrapyramidal symptoms, are at high risk
of cardiometabolic morbidity, or have a history of neuroleptic
malignant syndrome.
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\39\ Lieberman, J.A., Stroup, T.S., McEvoy, J.P., Swartz, M.S.,
Rosenheck, R.A., Perkins, D., . . . & Hsiao, J.K. (2005).
Effectiveness of antipsychotic drugs in patients with chronic
schizophrenia. The New England Journal of Medicine, 353(12), 1209-
1223. https://doi.org/10.1056/NEJMoa051688.
\40\ Leucht, S., Cipriani, A., Spineli, L., Mavridis, D.,
[Ouml]rey, D., Richter, F., Samara, M., Barbui, C., Engel, R.R.,
Geddes, J.R., Kissling, W., Stapf, M.P., L[auml]ssig, B., Salanti,
G., & Davis, J.M. (2013). Comparative efficacy and tolerability of
15 antipsychotic drugs in schizophrenia: a multiple-treatments meta-
analysis. The Lancet, 382(9896), 951-962. https://doi.org/10.1016/s0140-6736(13)60733-3.
\41\ Huhn, M., Nikolakopoulou, A., Schneider-Thoma, J., Krause,
M., Samara, M., Peter, N., Arndt, T., B[auml]ckers, L., Rothe, P.,
Cipriani, A., Davis, J., Salanti, G., & Leucht, S. (2019).
Comparative Efficacy and Tolerability of 32 Oral Antipsychotics for
the Acute Treatment of Adults with multi-episode schizophrenia: a
Systematic Review and Network meta-analysis. The Lancet, 394(10202).
https://doi.org/10.1016/s0140-6736(19)31135-3.
\42\ Read J, Williams J. Positive and Negative Effects of
Antipsychotic Medication: An International Online Survey of 832
Recipients. Curr Drug Saf. 2019;14(3):173-181. doi: 10.2174/
1574886314666190301152734. PMID: 30827259; PMCID: PMC6864560.
\43\ Brannan SK, Sawchak S, Miller AC, Lieberman JA, Paul SM,
Breier A. Muscarinic Cholinergic Receptor Agonist and Peripheral
Antagonist for Schizophrenia. N Engl J Med. 2021 Feb 25;384(8):717-
726. doi: 10.1056/NEJMoa2017015. PMID: 33626254; PMCID: PMC7610870.
\44\ Kaul I, Sawchak S, Correll CU, Kakar R, Breier A, Zhu H,
Miller AC, Paul SM, Brannan SK. Efficacy and safety of the
muscarinic receptor agonist KarXT (xanomeline-trospium) in
schizophrenia (EMERGENT-2) in the USA: results from a randomised,
double-blind, placebo-controlled, flexible-dose phase 3 trial.
Lancet. 2024 Jan 13;403(10422):160-170. doi: 10.1016/S0140-
6736(23)02190-6. Epub 2023 Dec 14. Erratum in: Lancet. 2024 Jun
1;403(10442):2380. doi: 10.1016/S0140-6736(24)01041-9. PMID:
38104575.
\45\ Kaul I, Sawchak S, Walling DP, Tamminga CA, Breier A, Zhu
H, Miller AC, Paul SM, Brannan SK. Efficacy and Safety of
Xanomeline-Trospium Chloride in Schizophrenia: A Randomized Clinical
Trial. JAMA Psychiatry. 2024 Aug 1;81(8):749-756. doi: 10.1001/
jamapsychiatry.2024.0785. Erratum in: JAMA Psychiatry. 2024 Aug
1;81(8):846. doi: 10.1001/jamapsychiatry.2024.2002. PMID: 38691387;
PMCID: PMC11063924.
\46\ Amy Claxton, George Konis, Inder Kaul, Andrew C. Miller,
Steven M. Paul, Stephen K. Brannan, Ronald Marcus (2024). Long-Term
Metabolic Outcomes Associated With KarXT (Xanomeline and Trospium):
Interim Results From Pooled, Long-Term Safety Studies EMERGENT-4 and
EMERGENT-5. Presentation at the 2024 Annual Conference of the
Schizophrenia International Research Society (SIRS), April 3-7,
2024, Florence, Italy.
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The applicant suggested that Hickey et al. (2025) provides the
comparative evidence with regard to efficacy, safety, or
discontinuation rates, that CMS claims is lacking from its application,
because the study is a Bayesian random-effects analysis following
National Institute for Health and Care Excellence Technical Support
Document guidance, which draws on a connected network of 58 randomized
controlled trials and pre-specified Population, Intervention,
Comparison, Outcome, and Study Design (PICOS) criteria. The applicant
stated that Hickey et al. (2025) compare COBENFYTM directly
to eight atypical antipsychotics on efficacy, safety, and
discontinuation. The applicant cited the study's results and expressed
its belief that the base-case efficacy findings demonstrate comparative
superiority on multiple clinically meaningful endpoints and
overwhelmingly establish that COBENFYTM provides clinically
meaningful efficacy improvements relative to commonly used atypical
antipsychotics. The applicant added that Hickey et al. (2025)'s safety
findings independently and directly satisfy the regulatory criterion at
42 CFR 412.87(b)(1)(ii)(C)(1), which recognizes a reduction in at least
one clinically significant adverse event as a basis for determining
substantial clinical improvement.
In regard to CMS's concern that the poster did not provide
comparison to typical antipsychotics or other atypical antipsychotics,
such as olanzapine, the applicant stated that the regulation imposes no
requirement to compare a technology against every available therapy.
The applicant highlighted that Hickey et al. (2025)'s eight-comparator
scope captures clinically relevant agents that drive the United States
schizophrenia treatment landscape, with typical antipsychotics
appropriately excluded from the comparator set. The applicant further
stated that market data and prescribing trends demonstrate that second-
generation antipsychotics have long been preferred as a first-line
treatment over first-generation antipsychotics,\47\ and therefore, the
study's focus on atypical antipsychotics reflects current clinical
practice. The applicant noted that olanzapine/samidorphan is a fixed-
dose combination product rather than a monotherapy, and the pre-
specified PICOS criteria appropriately limited inclusion to monotherapy
oral, atypical antipsychotics. The applicant cited an independent study
(Schneider-Thoma et al., 2026), which it asserted addresses CMS's
concern and further supports COBENFYTM's differentiated
profile relative to olanzapine-samidorphan.\48\ Schneider-Thoma et al.
(2026) is a network meta-analysis of 388 randomized controlled trials
with 78,193 participants across 24 antipsychotics, including
COBENFYTM. The applicant stated that the study found that
olanzapine-samidorphan resulted in 2.44 kg of weight gain compared to
placebo (95% CI 1.48 to
[[Page 49704]]
3.39), placing it among the antipsychotics with greater weight gain
than at least 3 comparators, whereas COBENFYTM ranked first
of 23 antipsychotics on weight gain (MD -0.37 kg; 95% CI -1.27 to
0.53). The applicant stated that the Schneider-Thoma et al. (2026)
study's conclusion that samidorphan reduced olanzapine-related weight
gain only slightly (0.47 kg less) directly addresses CMS's concern and
demonstrates that COBENFYTM significantly improves at least
one clinical outcome by likely reducing at least one clinically
significant adverse event (weight gain) and supports an improved
quality of life by avoiding excessive weight gain.
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\47\ Leucht S, Corves C, Arbter D et al. Second-generation
versus first-generation antipsychotic drugs for schizophrenia: a
meta-analysis. The Lancet, 2008; 373, 31-41.
\48\ Schneider-Thoma, J., Zhu, Y., Qin, M., Dong, Y., Guan, S.,
Wang, J., Tian, J., Lin, X., Rodolico, A., Siafis, S., Bighelli, I.,
Wehner, M., Veith, C., Krayer, F., Scheuring, E., Davis, J. M.,
Priller, J., Nikolakopoulou, A., Salanti, G., & Li, C. (2026).
Comparative efficacy and tolerability of antidopaminergic and
muscarinic antipsychotics for acute schizophrenia: a network meta-
analysis of randomised controlled trials indexed in international
English and Chinese databases. The Lancet, 407 (10531), 876-891.
https://doi.org/10.1016/s0140-6736(25)02365-7.
---------------------------------------------------------------------------
Regarding CMS's statement 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, the applicant stated that the poster explains why this
finding reflects a mathematical artifact rather than a real-world
adherence problem. Specifically, the applicant highlighted that
unadjusted absolute discontinuation rates from EMERGENT-1, -2, and -3
were lower than rates from comparator trials in both intervention and
placebo arms, and a smaller absolute difference relative to a lower
placebo rate produces a larger odds ratio. The applicant further stated
that a vast majority of discontinuation was not due to adverse events
or a lack of efficacy, a pattern that is common particularly in
inpatient schizophrenia trials. Instead, the applicant stated that
real-world data show that COBENFYTM achieves clinically
meaningful adherence and persistence in practice, reinforcing that the
discontinuation finding in Hickey et al. (2025) does not translate into
a real-world adherence problem: 72 percent of patients achieved a
proportion of days covered (PDC) >= 80 percent during follow-up, and
Kaplan-Meier estimation showed 80.9 percent persistence at month 4.\49\
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\49\ Cutler AJ, Zhong Y, Gillard K, Appio J, Gao C,
Lalibert[eacute] F, Rubio JM. Real-World Use of Xanomeline-Trospium
in Schizophrenia: Patient Characteristics and Antipsychotic
Treatment Patterns. Poster presented at: Psych Congress; September
17-21, 2025; San Diego, CA.
---------------------------------------------------------------------------
The applicant stated that CMS's concerns regarding Cutler et al.
(2025) do not provide a valid basis for discounting its relevance.
Regarding CMS's concern that Cutler et al. (2025) relied upon
administrative claims data and, thus, cannot be sure whether patients
actually took the prescribed oral medication, the applicant suggested
that if such a standard is adopted, claims-based real-world evidence
would be effectively disqualified, which is inconsistent with the
regulation's express recognition of evidence from published or
unpublished information sources from within the United States or
elsewhere. The applicant stated that claims-based analyses are a well-
established and routinely accepted form of evidence in health services
research and policy evaluation and that CMS itself accepts pharmacy-
claims-based PDC as a validated adherence metric in its own Merit-based
Incentive Payment System (MIPS) quality-measure program.
Regarding CMS's concerns that Cutler et al. (2025)'s adherence
measures (reported at 60 and 90 days) are insufficient to evaluate
differences between COBENFYTM and existing therapies and
that the long-term adherence rates for COBENFYTM are
uncertain due to an average follow-up of only 2.6 months, the applicant
stated that the concern mischaracterizes the study's primary adherence
findings, as the 60- and 90-day figures are not the study's primary
adherence finding. The applicant stated that Cutler et al. (2025)'s
primary adherence outcome reports a mean PDC of 0.86 over an average
92-day observation period, with 72 percent of patients meeting the PDC
>=0.8 threshold that CMS itself recognizes as the validated adherence
definition for individuals with schizophrenia under the MIPS program.
The applicant further stated that if CMS's concern is that PDC
measurement over a relatively short window cannot capture comparator
long-acting injectables dosed at 2- to 12-week intervals, that concern
is misplaced since COBENFYTM is an oral therapy, and the
appropriate comparator class for adherence assessment is other oral
antipsychotics, for which short-window PDC measurement is the
established and accepted standard, including under MIPS Measure 383.
Lastly, the applicant stated that Cutler et al. (2025) represented the
longest-term data available at the time of the analysis, which is
typical for such a novel technology being evaluated so soon after FDA
approval.
The applicant cited a new study (Rubio et al., 2026), which the
applicant described as a refresh of Cutler et al. (2025) using the same
Komodo Research Database extended through August 31, 2025. The
applicant stated that Rubio et al. (2026) included 2,613 adults with
schizophrenia who initiated COBENFYTM (an 81 percent larger
sample than Cutler et al. (2025)) and followed them for a mean of 150.1
days (nearly twice the average follow-up period in Cutler et al.
(2025)) with 916 patients followed for at least 180 days and Kaplan-
Meier persistence estimates extending through month 6.\50\ The
applicant stated that the Rubio et al. (2026) study's 5-month follow-up
duration (with substantial numbers of patients followed for 6 months or
more) eliminates any factual basis for the agency's prior concern, and
as a result, the findings in Cutler et al. (2025), as supplemented by
Rubio et al. (2026), establish substantial clinical improvement under
42 CFR 412.87(b)(1)(ii)(C)(2) by showing a decreased rate of at least
one subsequent therapeutic intervention. The applicant further stated
that Cutler et al. (2025) found a meaningful reduction in subsequent
pharmacological interventions following COBENFYTM
initiation. The applicant cited results from Cutler et al. (2025) and
stated that Rubio et al. (2026) replicated and extended Cutler et al.'s
polypharmacy-reduction findings, confirming Cutler et al. (2025)'s
directionally identical and statistically significant reductions in
concomitant medication use. The applicant also cited the following
results from Rubio et al. (2026): post-COBENFYTM initiation,
oral antipsychotic use decreased 23 percent (rate ratio 0.77; 95
percent CI 0.74, 0.79; P<0.001), long-acting injectable antipsychotic
use decreased 20 percent (rate ratio 0.80; 95 percent CI 0.76, 0.84;
P<0.001), anticholinergic use decreased 15 percent (rate ratio 0.85; 95
percent CI 0.81, 0.90; P<0.001), and mood stabilizer use declined by 6
percent (rate ratio 0.94; 95 percent CI 0.90, 0.99; P=0.009).
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\50\ Rubio J.M., Zhong Y., Gillard K., Gao C., Lalibert[eacute]
F. Real-World Use of Xanomeline and Trospium Chloride in
Schizophrenia: Patient Characteristics, Treatment Patterns, and
Outcomes. Presentation at American Psychiatric Association Annual
Meeting; May 16-20, 2026; San Francisco, CA.
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The applicant stated that Rubio et al. (2026) reports a separate
set of outcomes that independently satisfy the substantial clinical
improvement criterion through a distinct regulatory pathway not
previously included in its application and cited Sec.
412.87(b)(1)(ii)(C)(3): a decreased number of future hospitalizations
or physician visits. The applicant noted that Rubio et al. (2026) found
that, post-COBENFYTM initiation, the rate of all-cause
hospitalizations decreased 16 percent (rate ratio 0.84; 95 percent CI
0.74, 0.97; P=0.014), the rate of mental health-related
hospitalizations decreased 17 percent (rate ratio 0.83; 95 percent CI
0.72, 0.96; P=0.014), the rate of schizophrenia-related
hospitalizations decreased 23 percent
[[Page 49705]]
(rate ratio 0.77; 95 percent CI 0.63, 0.93; P=0.007), and outpatient
visit rates decreased 8 percent for all-cause visits (rate ratio 0.92;
95 percent CI 0.89, 0.95; P<0.001), 9 percent for mental health-related
visits (rate ratio 0.91; 95 percent CI 0.87, 0.95; P<0.001), and 8
percent for schizophrenia-related visits (rate ratio 0.92; 95 percent
CI 0.86, 0.97; P=0.003). The applicant stated that these
hospitalization and outpatient-visit reductions translate into
significant downstream cost reductions that further support a finding
under 42 CFR 412.87(b)(1)(ii)(C)(6) (improved quality of life) and
under the totality-of-the-information standard at 42 CFR
412.87(b)(1)(ii)(D). The applicant further cited Rubio et al. (2026)
which found that compared to pre-initiation of treatment with
COBENFYTM, post-initiation mental health-related total
medical costs declined by $2,563 per patient per year (95 percent CI -
$4,588, -$537; P=0.013), and schizophrenia-related total medical costs
declined by $2,140 per patient per year (95 percent CI -$3,973, -$307;
P=0.022). The applicant added that Rubio et al. (2026) observed that
hospitalization-specific costs declined significantly across all
categories: all-cause hospitalization costs by $1,632 per patient per
year (95 percent CI -$3,080, -$183; P=0.027), mental health-related
hospitalization costs by $1,923 per patient per year (95 percent CI -
$3,729, -$116; P=0.037), and schizophrenia-related hospitalization
costs by $1,512 per patient per year (95 percent CI -$2,820, -$204;
P=0.023). The applicant added that the study also found that non-
COBENFYTM pharmacy costs declined by $2,188 per patient per
year (95 percent CI -$3,396, -$981; P<0.001). The applicant
acknowledged that the difference in all-cause total medical costs (-
$1,488 per patient per year; 95 percent CI -$3,143, $167) did not reach
statistical significance (P=0.078) and stated that it does not rely on
that endpoint but that, taken as a whole, the broader cost picture is
consistent with the hospitalization-rate findings.
With regard to CMS's concern about Horan et al. (2024) due to lack
of comparison to other treatments, the applicant stated its belief that
CMS misapplied the new technology add-on payment regulatory framework,
which does not subordinate placebo-controlled evidence to head-to-head
trials but rather, 42 CFR 412.87(b)(1)(iii) authorizes evidence from
published or unpublished information sources without distinguishing
between trial designs. The applicant stated that placebo-controlled
randomized controlled trials remain the accepted scientific and
regulatory standard for establishing efficacy. The applicant further
stated that Horan et al. (2024) and Hickey et al. (2025) serve
complementary roles and emphasized that Horan et al. (2024) supports a
signal that COBENFYTM's negative symptoms benefit is
independent of other symptom domains, while Hickey et al. (2025)
provides the comparative evidence CMS identifies as missing. The
applicant suggested that when the two studies are considered together,
Horan et al. (2024) and Hickey et al. (2025) provide the internal
validity necessary to establish clinically meaningful effects and the
comparative context necessary to evaluate those effects against
available treatments.
In reference to CMS's concern regarding the short duration of the
5-week trials studied in Horan et al. (2024), the applicant stated its
belief that CMS's concern is inconsistent with both regulatory
expectations and accepted clinical trial design in schizophrenia, as a
5-week trial duration reflects the standard, FDA-accepted design for
establishing acute efficacy in schizophrenia 51 52 53 and
the governing regulation does not impose any minimum trial-duration
requirement for determining substantial clinical improvement. The
applicant highlighted that Horan et al. (2024)'s negative-symptom
finding is precisely the kind of preliminary signal a 5-week placebo-
controlled design is well-suited to generate, and that additional
studies are assessing COBENFYTM's long-term durability. The
applicant stated that CMS cannot reasonably expect applications to
include long-term data that do not exist at the time of submission,
particularly given that the new technology add-on payment framework is
designed to facilitate and support earlier adoption of novel
technologies.
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\51\ Horan WP, Targum SD, Claxton A, Kaul I, Yohn SE, Marder SR,
Miller AC, Brannan SK. Efficacy of KarXT on negative symptoms in
acute schizophrenia: A post hoc analysis of pooled data from 3
trials.
\52\ Schizophr Res. 2024 Dec;274:57-65. doi: 10.1016/
j.schres.2024.08.001. Epub 2024 Sep 10. PMID: 39260339.
\53\ U.S. Food and Drug Administration. Drug Trials Snapshot:
Cobenfy. U.S. Food and Drug Administration. https://www.fda.gov/drugs/drug-trials-snapshots/drug-trials-snapshot-cobenfy.
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In reference to CMS's concern about Horan et al. (2024)'s lack of
discussion on side effects, the applicant stated its belief that CMS's
concern is inaccurate. The applicant noted that Horan et al. (2024)
provided a within-trial analysis of pseudospecificity--the
methodological concern arising in trials of acutely psychotic patients
whereby apparent negative-symptom benefits may represent a secondary
artifact of positive-symptom improvement rather than an independent
treatment effect.\54\ The applicant further highlighted that in the
study's post-hoc, exploratory prominent-negative-symptoms subgroup,
COBENFYTM's effect on PANSS Marder Negative Factor remained
statistically significant at weeks 4 and 5 after accounting for changes
in positive symptoms, depression/anxiety, disorganization, and
hostility (all P<.01). The applicant suggested that while these
findings are exploratory and not part of COBENFYTM's FDA-
approved labeling, they speak to pseudo-specificity by suggesting that
the observed negative-symptoms benefit persists even after accounting
for improvements across other symptom domains.
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\54\ See Kirkpatrick B, Fenton WS, Carpenter WT Jr, Marder SR.
The NIMH-MATRICS consensus statement on negative symptoms. Schizophr
Bull. 2006 Apr;32(2):214-9. doi: 10.1093/schbul/sbj053. Epub 2006
Feb 15. PMID: 16481659; PMCID: PMC2632223.
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The applicant stated that Schneider-Thoma et al. (2026) supports
COBENFYTM's differentiated clinical profile relative to
existing therapies and situates COBENFYTM within the broader
antipsychotic evidence base to permit evaluation using a standardized
cross-trial comparative framework. The applicant stated that Schneider-
Thoma et al. (2026) places COBENFYTM among the more
effective agents on overall symptom reduction due to its findings that
COBENFYTM ranked in the top quarter of 24 antipsychotics for
the primary outcome of overall symptom reduction, with a standardized
mean difference (SMD) of -0.57 versus placebo (95 percent CI -0.76 to -
0.37). The applicant added that the study separately identified
lumateperone, brexpiprazole, iloperidone, cariprazine, and lurasidone
(each an FDA-approved atypical) as reducing symptoms less than at least
three other antipsychotics, while COBENFYTM was not so
identified. The applicant stated that Schneider-Thoma et al. (2026)'s
pairwise data connecting COBENFYTM directly to these
antipsychotics are limited (the network's xanomeline-trospium evidence
is anchored primarily to placebo), so the comparative ranking presents
evidence of COBENFYTM's competitive efficacy among atypical
antipsychotics.
The applicant further stated that regarding the analysis of
positive-symptom reduction in Schneider-Thoma et al. (2026),
COBENFYTM ranked fourth of 23 antipsychotics (after
[[Page 49706]]
clozapine, amisulpride, and risperidone) by surface under the
cumulative ranking curve, with a SMD of -0.59 versus placebo (95
percent CI -0.78 to -0.40). The applicant suggested that this ranking
reflects COBENFYTM's placebo-anchored efficacy combined with
the network position of comparator drugs, rather than by direct
pairwise comparisons. The applicant also highlighted that
COBENFYTM met the study's clinical meaningfulness threshold
for negative symptom reduction (95 percent CI excluding very small
effects) with an SMD of -0.33 versus placebo (95 percent CI -0.51 to -
0.16). The applicant stated its belief that this independent, peer-
reviewed finding helps contextualize CMS's concern that Horan et al.
(2024)'s negative-symptoms data was placebo-only and post hoc. The
applicant added that Schneider-Thoma et al. (2026) only included
studies with appropriate randomization confirmed by author contact and
placed COBENFYTM's placebo-anchored performance on negative-
symptom measures within the broader antipsychotic field. The applicant
added that this finding is based on placebo-anchored SMDs within the
network rather than direct head-to-head comparisons in a negative-
symptom-predominant population and that COBENFYTM's FDA-
approved labeling does not include a specific negative-symptom
indication.
The applicant suggested that COBENFYTM's weight-gain
profile alone is sufficient to meet the substantial clinical
improvement criterion under 412.87(b)(1)(ii)(C)(1). The applicant again
highlighted that in the study, COBENFYTM ranked first of 23
antipsychotics (MD-0.37 kg vs. placebo; 95 percent CI -1.27 to 0.53),
with a point estimate in the direction of weight loss relative to
baseline, although the 95 percent CI compared to placebo crosses zero.
The applicant stated its belief that the pairwise network findings are
more directly responsive to the substantial clinical improvement
inquiry as COBENFYTM demonstrated statistically meaningful
superiority on weight gain over 11 of 22 comparator antipsychotics (95
percent CIs excluding very small effects), the highest such count of
any antipsychotic in the network. The applicant further suggested that
these findings independently confirm and substantially extend Hickey et
al. (2025)'s weight-gain findings.
The applicant also stated that Schneider-Thoma et al. (2026)
reported favorable findings for COBENFYTM on two other well-
documented harms of dopamine-blocking antipsychotics. The applicant
explained that the study found COBENFYTM demonstrated a
statistically meaningful prolactin profile superior to five
antipsychotics (MD 0.20 ng/ml vs. placebo; 95 percent CI -12.19 to
12.59). Additionally, the applicant stated that while Schneider-Thoma
et al. (2026)'s antiparkinsonian-drug-use data for COBENFYTM
are limited (one trial reporting the outcome, odds ratio 0.33 vs.
placebo with a wide 95 percent CI of 0.01 to 8.90), it believed that
this limitation reflects that extrapyramidal symptoms were rare in the
EMERGENT program rather than evidence of concern.
Furthermore, the applicant stated that Schneider-Thoma et al.
(2026) reported expected tradeoffs that do not negate or otherwise
undermine a substantial clinical improvement determination. The
applicant added that the study identified that COBENFYTM had
higher cholinergic adverse-event rates than most other antipsychotics
(inferior to 16 of 22 antipsychotics by the article's S[verbar]I metric
requiring 95 percent CIs to exclude very small effects), a more limited
anticholinergic burden (inferior to 3 of 24), and the highest all-cause
discontinuation rate in the network (inferior to 10 of 24 comparators).
Additionally, the applicant highlighted that the study authors stated
only one COBENFYTM participant discontinued for inefficacy
across the EMERGENT trials; instead, the primary reason was withdrawn
consent, which the applicant stated is a common phenomenon in
schizophrenia clinical trials and is not indicative of treatment
failure.\55\
---------------------------------------------------------------------------
\55\ Schoemaker JH, Vingerhoets AJJM, Emsley RA. Factors
associated with poor satisfaction with treatment and trial
discontinuation in chronic schizophrenia. CNS Spectrums.
2019;24(4):380-389. doi:10.1017/S109285291700044X.
---------------------------------------------------------------------------
The applicant stated its belief that the substantial clinical
improvement standard does not require a technology to be without trade-
offs as 42 CFR 412.87(b)(1)(ii)(C)(1) expressly provides that a
reduction in at least one clinically significant adverse event is
sufficient to support a determination of substantial clinical
improvement. The applicant suggested that COBENFYTM's first-
place weight-gain ranking in Schneider-Thoma et al. (2026)
independently satisfies this standard as it demonstrates statistically
meaningful superiority versus 11 antipsychotics and directly addresses
one of the most well-documented metabolic harms of dopamine-blocking
antipsychotics. The applicant stated that the clinical significance of
antipsychotic-induced weight gain (AIWG) and the corresponding
downstream effects are well-established. The applicant cited Rotella et
al. (2020), a meta-analysis of 92 randomized controlled trials, which
confirmed that antipsychotics are associated with significant weight
gain and carry a demonstrated link to serious adverse cardiometabolic
outcomes, including increased risk of type 2 diabetes, among a patient
population that bears a higher prevalence of cardiovascular
mortality.\56\ The applicant added that Rotella et al. (2020) found
that cardiovascular disease is the most frequent cause of death in
patients with schizophrenia, with cardiovascular mortality at least
five-fold greater than mortality from suicide. The applicant also
stated that in addition to these immediate health concerns, AIWG poses
a major risk to patient adherence and treatment discontinuation. The
applicant cited De et al. (2025), a systematic review and meta-analysis
which found that overweight or obese patients who reported weight gain
in relation to antipsychotic use had more than twice the odds of
nonadherence than normal weight individuals (OR 2.37; 95 percent CI
1.51-3.73; p = 0.0002).\57\ The applicant added that De et al. (2025)
also found that olanzapine was associated with 3.32 times increased
likelihood of nonadherence or discontinuation compared to
antipsychotics that impact weight gain to a lesser degree (95 percent
CI 2.32-4.74; p <0.00001).
---------------------------------------------------------------------------
\56\ Rotella, F., Cassioli, E., Calderani, E., Lazzeretti, L.,
Ragghianti, B., Ricca, V., & Mannucci, E. (2020). Long-term
metabolic and cardiovascular effects of antipsychotic drugs. A meta-
analysis of randomized controlled trials. European
Neuropsychopharmacology. https://doi.org/10.1016/j.euroneuro.2019.12.118.
\57\ De, R., Emily, Janani Navagnanavel, Au, E., Kateryna
Maksyutynska, Papoulias, M., Singh, R., Panganiban, K. J., Humber,
B., Grimur H[oslash]gnason Mohr, Mette [Oslash]degaard Nielsen,
Ebdrup, B. H., Remington, G., Sri Mahavir Agarwal, & Hahn, M. K.
(2024). The impact of weight gain on antipsychotic nonadherence or
discontinuation: A systematic review and meta[hyphen]analysis. Acta
Psychiatrica Scandinavica. https://doi.org/10.1111/acps.13758.
---------------------------------------------------------------------------
In summary, the applicant stated its belief that CMS's analysis
departs from its own regulation in several respects, contrary to
settled law requiring agencies to adhere to their own rules, and these
departures result in a framework that differs materially from the one
that CMS must apply as set forth in regulation. The applicant further
stated that such departures are internally inconsistent with the
agency's own regulations and the intent of the new technology add-on
payment program to create meaningful access to new and innovative
therapies. Additionally, the applicant suggested that these departures
are not only technical but will have profound
[[Page 49707]]
implications on the new technology add-on payment program's governing
framework and agency action as a whole. The applicant stated its
opinion that CMS's preliminary determination, if finalized, would
constitute arbitrary and capricious agency action under the
Administrative Procedure Act, defined as when an agency entirely fails
to consider an important aspect of the problem or offers an explanation
for its decision that runs counter to the evidence before it. The
applicant asserted that CMS does both: the FY 2027 IPPS/LTCH PPS
proposed rule isolates individual studies--Cutler et al. (2025)'s
claims-based design, Hickey et al. (2025)'s discontinuation odds ratio,
and Horan et al. (2024)'s placebo-controlled comparator--and rejects
each in turn, without evaluating the integrated evidentiary record that
the regulation expressly requires it to assess under the totality of
the circumstances. The applicant stated that the regulation requires
CMS's review under this standard and it does not permit CMS to
discharge that obligation through piecemeal dismissal of individual
evidence, and that CMS's own regulation compels approval of
COBENFYTM for new technology add-on payments.
Response: We thank the applicant and commenters for their comments
regarding the substantial clinical improvement criterion. Based on the
additional information received and all data received to date, we
continue to have concerns as to whether COBENFYTM meets the
substantial clinical improvement criterion to be approved for new
technology add-on payment status. Specifically, it remains unclear
whether COBENFYTM offers a treatment option for a patient
population unresponsive to, or ineligible for, currently available
treatments for schizophrenia in adults and whether the use of
COBENFYTM significantly improves clinical outcomes over
existing technologies.
The applicant asserted that CMS must evaluate substantial clinical
improvement based on the totality of the circumstances and that CMS
misapplied its substantial clinical improvement criterion. While we
agree with the applicant that determinations of substantial clinical
improvement are based on the totality of the evidence and
circumstances, we disagree that we misapplied the regulations. We also
note that the substantial clinical improvement criterion does not
require head-to-head comparative trials and does not require a
technology not to have trade-offs. CMS is not imposing evidentiary
standards beyond those set forth in Sec. 412.87. Comparative
information may be demonstrated through any valid form of evidence, and
our evaluation of COBENFYTM is consistent with this
regulatory framework. The substantial clinical improvement criterion
does not require a technology to be last-line or to only be used in
certain patient populations, and CMS has not applied such a standard in
assessing the evidence provided by the applicant in support of
substantial clinical improvement. Under Sec. 412.87(b)(1),
demonstrating substantial clinical improvement requires sufficient
evidence to establish that a new technology represents an advance that
substantially improves, relative to services or technologies previously
available, the treatment of Medicare beneficiaries. Consistent with
Sec. 412.87(b)(1)(iii), we consider all relevant evidence, including
published and unpublished information sources such as clinical trials,
peer-reviewed journal articles, study results, meta-analyses, consensus
statements, white papers, and other listed sources. Because our
evaluation for new technology add-on payment requires a comparison
against existing technologies used for Medicare beneficiaries, for a
clinical area with a larger number of relevant comparator technologies,
more information may be needed to demonstrate that a technology meets
our criterion. In making our determination, we evaluate the merits of
each study to determine the validity of its results and consider the
totality of the circumstances and evidence to determine whether a
technology represents a substantial clinical improvement over existing
technologies consistent with Sec. 412.87(b)(1)(i) and (ii)(D). In the
FY 2027 IPPS/LTCH PPS proposed rule, we did not dismiss the individual
evidence provided by the applicant, but rather discussed our concerns
with respect to the evidence in the context of the substantial clinical
improvement criterion. The public comment period allows the applicant
and other commenters to respond to these concerns. After consideration
of the totality of the circumstances and evidence submitted, including
the public comments we received, we do not believe the evidence
provided demonstrates that COBENFYTM substantially improves
the treatment of Medicare beneficiaries relative to currently available
treatments.
The applicant and commenters asserted that COBENFYTM
offers a treatment option for schizophrenia patients with extensive
prior antipsychotic use and may be able to help patients who do not
respond to or are intolerant of other therapies. We agree with the
applicant that Sec. 412.87(b)(1)(ii)(A) does not require a technology
to be used only as a last-line therapy after failure of all existing
treatments, including clozapine. However, we disagree that
COBENFYTM meets the regulatory criterion because we did not
receive evidence demonstrating that it provides a treatment option for
a defined patient population that is unresponsive to or ineligible for
currently available therapies. CMS's application of this standard is
consistent with the regulation and with past practice. The assertions
by the applicant and commenters were based on COBENFYTM's
mechanism of action and associated lack of FDA class-wide boxed
warnings for its approved indication or other side effects in the
prescribing information. We note that warnings or potential side
effects alone do not indicate a patient population that is unresponsive
to, or ineligible for other antipsychotics, as side effect profiles
among antipsychotics vary by agent such that a patient with a given
side effect may be successful on a different antipsychotic with a lower
risk of the side effect. In addition, rare and long-term side effects
may not yet appear in 5-week clinical trials; thus, the lack of
inclusion in prescribing from short-term trials does not mean
COBENFYTM cannot cause these side effects. We also did not
receive evidence that indicated that other antipsychotics cannot manage
negative symptoms of schizophrenia. As such, we remain unclear whether
COBENFYTM is the only treatment option available for
patients unresponsive or intolerant to treatment with antipsychotics or
for those with negative symptoms. Rather, it appears
COBENFYTM is an alternative treatment option with a
different mechanism of action available to patients in addition to
these existing treatment options.
We note that the evidence for increased adherence and persistence,
as well as decreased healthcare resource utilization and healthcare
costs in Cutler et al. (2025) and Rubio et al. (2026) was inconclusive
about COBENFYTM's effect. Specifically, we did not receive a
comparison of adherence and persistence to other antipsychotics nor did
we receive data indicating that COBENFYTM was effective for
these patients in Cutler et al. (2025) or Rubio et al. (2026). While
the applicant stated that long-acting injectables are not an
appropriate comparator to COBENFYTM since it is an oral
therapy, we disagree because
[[Page 49708]]
both injectable and oral antipsychotics are indicated for the treatment
of schizophrenia in adults and thus, should be considered as
comparators to COBENFYTM. In addition, we note the
healthcare resource utilization and costs data, including a reduction
in hospitalizations and physician visits, compared 3.8 months leading
up to dispensing COBENFYTM to an average of 3.8 months of
on-treatment follow-up. This does not compare an equivalent period of
time, but rather compares the last 3.8 months of prior therapy to the
first 3.8 months of COBENFYTM. This is a short duration to
assess for future hospitalizations and office visits. In addition, we
are concerned that adherence was a confounding factor since adherence
tends to decrease over time, as exhibited in Cutler et al. (2025) and
Rubio et al. (2026), and thus, the change in healthcare resources could
be related to a decrease in adherence over time, rather than to a
change in therapy to COBENFYTM. In addition, regarding the
claim that COBENFYTM decreases the rate of at least one
subsequent therapeutic intervention by reducing subsequent
pharmacological interventions, we question whether this is due to
improved outcomes with COBENFYTM. For instance, when
starting COBENFYTM or a different antipsychotic, it is
reasonable for a patient to stop their prior therapy for schizophrenia,
and a patient may reduce use of anticholinergic drugs when starting
COBENFYTM, since it has anticholinergic side effects.
With regard to the assertion that COBENFYTM improves
clinical outcomes relative to previously available therapies, we have
concerns as to whether the comparative data received in Hickey et al.
(2025) and Schneider-Thoma et al. (2026) demonstrate improved clinical
outcomes for COBENFYTM. As previously stated in Hickey et
al. (2025), COBENFYTM was not favored compared to numerous
drugs in PANSS and CGI-S, and COBENFYTM was not favored
compared to numerous drugs with regard to sedation. We also note that
Hickey et al. (2025) did not include typical antipsychotics, and while
atypicals are the usual first-line agents, typical antipsychotics are
options for patients who either don't respond adequately to atypicals
or tolerate them poorly. In addition, while the seven percent weight
gain outcome favored COBENFYTM, another outcome comparing
weight, the change from baseline weight, did not favor
COBENFYTM compared to numerous drugs. We also note that this
analysis did not include other available options that tend to cause
less weight gain, such as ziprasidone and lurasidone, and the included
trials were 4 to 6 weeks, which are short durations for the assessment
of weight changes. Therefore, we do not believe the evidence from
Hickey et al. (2025) demonstrates a reduction in a clinically
significant adverse event that would meet the criterion at Sec.
412.87(b)(1)(ii)(C)(1). While the applicant provided an explanation for
the discontinuation findings in Hickey et al. (2025), the comparative
data for discontinuation rates did not favor COBENFYTM in
Hickey et al. (2025) or in Schneider-Thoma et al. (2026), and we
continue to question whether COBENFYTM improves adherence
relative to other therapies. Additionally, the article states that
comparisons with other antipsychotics are needed to confirm the ranking
of COBENFYTM due to the inclusion of only placebo-controlled
trials for COBENFYTM. However, even when looking at the
results in Schneider-Thoma et al. (2026), numerous drugs ranked higher
than COBENFYTM for treating overall symptoms, positive
symptoms, and negative symptoms, in addition to many having lower odds
for discontinuation, cholinergic events, anticholinergic events,
sedation, use of antiparkinsonian drugs, change in prolactin, and
change in QTc. With regard to a change in weight, while the applicant
highlighted COBENFYTM was superior to 11 antipsychotics,
ziprasidone had similar results, with the mean differences overlapping
between COBENFYTM and ziprasidone (-0.37 [95% CI -1.27 to
0.53] and -0.12 [95% CI -0.53 to 0.29], respectively), so we question
if COBENFYTM offers a clinically meaningful improvement over
ziprasidone for this outcome. We also question if weight gain could
occur for COBENFYTM after the 5-week trials included in
Schneider-Thoma et al. (2026), as weight gain may be a side effect that
may not yet appear in 5 weeks' time. While commenters noted that having
another treatment option with COBENFYTM could reduce
hospitalization and morbidity, as well as improve quality of life, data
were not provided to demonstrate this.
After consideration of all the information received from the
applicant as well as the public comments we received, we are unable to
determine that COBENFYTM represents a substantial clinical
improvement over existing technologies for the reasons discussed in the
proposed rule and in this final rule, and therefore, we are not
approving new technology add-on payments for COBENFYTM for
FY 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.
In the proposed rule, we provided the following table containing 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.
[[Page 49709]]
[GRAPHIC] [TIFF OMITTED] TR04AU26.099
Newness Criterion
We stated in the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19413)
that, 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 (K113853).\58\ Per the
applicant, Command Center was available for sale immediately after FDA
marketing authorization. Therefore, we stated 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 stated in
the proposed rule that we did not believe that the device is eligible
for new technology add on payments for FY 2027. Consistent with the
statute and our implementing regulations, we stated 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
proposed to disapprove Command Center for new technology add on
payments for FY 2027.
---------------------------------------------------------------------------
\58\ FDA, May 8, 2012, GlucommanderTM System (https://www.accessdata.fda.gov/scripts/cdrh/cfdocs/cfPMN/pmn.cfm?ID=K113853, accessed 2/9/2026).
---------------------------------------------------------------------------
In addition, regarding substantial similarity, we questioned
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
noted there are several existing software-based, EMR-integrated
glycemic management systems. For example, we stated that the 2012
GlucommanderTM System,\59\ the GlucoStabilizer Insulin
Dosing Calculator 3.0,\60\ the EndoToolTM Drug
[[Page 49710]]
Dose Calculator,\61\ and the EndoTool SubQTM \62\ are all
FDA-cleared glycemic management tools that monitor patient blood
glucose and generate personalized insulin dosing recommendations.
Therefore, we disagreed with the applicant that Command Center uses a
different mechanism of action compared to existing technologies to
achieve a therapeutic outcome. Additionally, we stated we disagreed
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
in the proposed rule, several technologies are currently available for
insulin and glycemic management for the same or similar type of disease
and patient populations. Furthermore, we noted 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 stated we agreed
with the applicant that Command Center maps to the same MS-DRG as
existing technologies. As a result, we stated we believed 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 noted that, per our policy, if
technologies are substantially similar to each other, we use the
earliest market availability date as the beginning of the newness
period for the technologies. Accordingly, we stated that if we
determined that Command Center is substantially similar to existing
glycemic management systems as described previously, because they were
all FDA-cleared prior to Command Center, the newness period for Command
Center would have commenced even earlier than its FDA clearance date in
2017. We invited 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.
---------------------------------------------------------------------------
\59\ 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).
\60\ 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).
\61\ 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).
\62\ FDA, April 24, 2015, K142918 EndoTool SubQTM
(https://www.accessdata.fda.gov/scripts/cdrh/cfdocs/cfpmn/pmn.cfm?ID=K142918, accessed 1/2/2026).
---------------------------------------------------------------------------
Comment: The applicant submitted a public comment in support of
Command Center regarding the newness criterion. The applicant asserted
that CMS's proposed denial turns largely on the newness criterion under
42 CFR 412.87(b)(2), which ties newness to when billing data begins to
reflect inpatient hospital codes, per section 1886(d)(5)(K)(iii) of the
Act. The applicant stated that no such data exists for its product, not
because the technology is old, but because it has never had a code to
generate such data. The applicant further stated this is precisely the
situation the framework was designed to address, where technologies,
like this one, are innovative enough to matter clinically but too new
to have generated the billing history CMS typically relies on. The
applicant added that its technology is a clear example that the absence
of prior billing data is not evidence that the product is not new;
rather, it is evidence that it is new.
The applicant also stated that the technology implementation for
its product is currently indirect via hospital software licensing, and
reimbursement is uncovered. The applicant added that no systematically
available patient billing data exists to enable the calculation of
newness according to prior rulemaking in FY 2005 and FY 2022.
Additionally, the applicant stated that section 1886(d)(5)(K)(iii) of
the Act defines inpatient hospital code as including ICD codes and
subsequent revisions, and hospital claims reflecting a new ICD-10-PCS
code will not become available until after the code is implemented,
which is in 2026 for this technology. The applicant asserted that per
CMS, the 2 to 3 year newness period generally begins when a technology
becomes available on the market for sale. The applicant stated that in
the case of complex software, it takes several years before a
technology can integrate commercially into standing electronic medical
record systems, such as EPIC and Cerner. The applicant stated that its
product first appeared in EPIC in 2024.
The applicant also asserted that its product today is not the
device FDA cleared in 2017. According to the applicant, the 2017 510(k)
covered Glytec Glucommander as a dosing calculator, while Command
Center as it exists today has capabilities that did not exist in 2017,
including predictive analytics, system-wide benchmarking, surveillance,
and workflow management. Per the applicant, Glucommander's predictive
analytics, system-wide Glucosurveillance, and EMR-native workflow
integration represent capabilities that do not exist in legacy glycemic
management tools, and that lumping them together as equivalent would
mischaracterize both the technology and the clinical problem it solves.
Per the applicant, the 510(k) was the regulatory vehicle, not the
product definition.
The applicant noted that FDA recently issued a new 510(k) clearance
(K254102) \63\ for this technology, and stated that this is not a minor
update, as a new FDA clearance reflects a determination by FDA that the
current product is sufficiently distinct to warrant independent review
and authorization. The applicant argued that if FDA treats this as a
new device, CMS should as well, and urged CMS to weigh this clearance
as direct, concurrent federal agency evidence that its product's
current platform meets the newness standard under 42 CFR 412.87(b)(2).
The applicant encouraged CMS to reconsider its proposed denial of new
technology add-on payment status for Command Center and reiterated its
belief that it meets the newness criterion. The applicant added that
new technology add-on payment approval rates hovering around 30 to 41
percent per cycle suggest the current framework may be filtering out
the very technologies it was designed to support. The applicant
concluded that its product is a clear example of how the absence of
prior billing data is evidence that the product is new and that
approval of Command Center would reflect both the letter and the spirit
of the new technology add-on payment program.
---------------------------------------------------------------------------
\63\ FDA, Glucommander, K254102, 5/27/2026 (https://www.accessdata.fda.gov/scripts/cdrh/cfdocs/cfpmn/pmn.cfm?ID=K254102,
accessed 6/18/2026).
---------------------------------------------------------------------------
Response: We appreciate the additional information from the
applicant with respect to whether Command Center meets the newness
criterion. However, we disagree with the applicant that Command Center
meets the newness criterion and believe it is substantially similar to
existing glycemic management systems.
We disagree with the applicant's assertion that Command Center is
new because it historically lacked a specific
[[Page 49711]]
code through which billing data could be collected and that the newness
period begins only upon assignment of a new ICD-10-PCS code. As we
explained in the FY 2005 and FY 2022 IPPS final rules (69 FR 49002
through 49003 and 86 FR 45151, respectively), using the date on which a
specific code is assigned to a technology is not an appropriate test of
newness as we noted, in many instances, a technology may have been in
use for several years, or even several decades, prior to the assignment
of a new code. As stated previously, 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). We further note that the applicant has not
provided documentation regarding a delay in commercial availability.
While the applicant asserted that its product's integration into EPIC
occurred in 2024, this does not mean that the technology was not
available for sale prior to that date. We further note that the
applicant indicated in its application that the technology was
available for sale immediately following FDA market authorization in
2017. As such, in this case, because Command Center has been available
on the U.S. market for more than 2 to 3 years, we consider the costs to
have been included in the MS-DRG relative weights.
With regard to the applicant's statement that the device is
different than that under the 2017 FDA 510(k) clearance, we disagree
that these changes affect the newness date. According to the applicant,
Command Center is a cloud-based, EMR-integrated clinical decision
support platform with capabilities that did not exist in 2017.
According to the applicant's website,\64\ Command Center is a non-
device clinical data visualization and analytics platform that displays
current and historical glycemic data, supports quality improvement, and
enables performance benchmarking. This website also noted that Command
Center does not provide patient-specific treatment recommendations,
generate alerts requiring immediate clinical action, or automate
clinical decisions. Per the website, Glucommander[supreg] is a device
that provides patient-specific dosing recommendations at the point of
care. However, we note that Medicare IPPS payments are made for
inpatient hospital services furnished to individual beneficiaries and
are based on the costs associated with patient discharges. Consistent
with this framework, the new technology add-on payment provisions rely
on claims- and patient-level utilization data involving the technology
to determine whether the costs of the new technology are adequately
reflected in the MS-DRG payment system. We note that because the
Command Center clinical data visualization and analytics platform is
not a medical device and is not developed for patient-specific clinical
treatment delivery, its costs cannot be attributed to inpatient
services in the manner contemplated under the new technology add-on
payment statutory and regulatory framework.
---------------------------------------------------------------------------
\64\ Glytec[supreg] FAQs. What is the difference between
Glucommander[supreg] and Command Center? (https://glytec.com/faqs/
#:~:text=What%20is%20the%20difference%20between%20Glucommander%C2%AE%
20and%20Command%20Center%3F, accessed 6/25/2026).
---------------------------------------------------------------------------
We also disagree that Command Center uses a different mechanism of
action than other legacy glycemic management tools, including its
predicate versions. While the applicant stated that its technology
includes predictive analytics, system-wide Glucosurveillance, and EMR-
native workflow integration, we do not consider workflow tools or
integration to be related to a technology's mechanism of action, as
they do not change the therapeutic effect of monitoring blood glucose
and recommending insulin doses for patients. Therefore, we are unable
to determine that Command Center has a new mechanism of action.
Furthermore, the recent 2026 FDA 510(k) clearance for Glucommander
is not eligible for consideration for new technology add-on payment for
FY 2027 under Sec. 412.87(e)(2) and Sec. 412.87(f)(2) because
documentation of FDA acceptance or filing of the marketing
authorization request that indicates that FDA has determined that the
application is sufficiently complete to allow for substantive review by
FDA, was not provided to CMS at the time of new technology add-on
payment application submission, and because CMS only considers, for
add-on payments for a particular fiscal year, an application for which
the new medical service or technology has received FDA marketing
authorization by May 1 prior to the particular fiscal year. In
addition, we note that the FDA 510(k) summaries for the 2012, 2017, and
2026 510(k)s all share the same intended use and indications for use.
The 2026 FDA 510(k) clearance for Glucommander describes modifications
to the 2017 predicate version as updating cybersecurity controls and
the addition of a predetermined change-control plan for dose
calculation updates, expanding alert contents, enhancing record
keeping, modernizing the user interface, and adding another data input
source. However, we note that none of these updates describe a
difference in the way the technology works for the purposes of
mechanism of action under our substantial similarity criteria.
After review of the comments and the information provided to date,
we continue to disagree that Command Center uses a new mechanism of
action and involves the treatment of a different type of disease or
patient population compared to existing glycemic management systems. As
we discussed in the proposed rule, we agree with the applicant that
Command Center maps to the same MS-DRGs as existing technologies. In
addition, we continue to disagree with the applicant's assertion that
Command Center provides a treatment option to patients who are
ineligible for or do not respond to treatments delivered by existing
glycemic management software-support systems. Accordingly, we have
determined that Command Center meets all three of the substantial
similarity criteria. Therefore, we believe Command Center is
substantially similar to existing software-based EMR-integrated
glycemic management systems, including the 2012
GlucommanderTM System. As noted in the FY 2027 IPPS/LTCH PPS
proposed rule (91 FR 19414), we consider the beginning of the newness
period for Command Center to commence on the FDA clearance date for the
previously described existing glycemic management systems, which
commenced even earlier than Glucommander's FDA clearance date in 2017.
Since these technologies have been on the U.S. market for longer than 3
years, and Command Center is substantially similar to these
technologies, the 3-year anniversary date of Command Center's entry
onto the market occurred prior to FY 2027. Therefore, Command Center
does not meet the newness criterion and is not eligible for new
technology add-on payments for FY 2027.
We note that we received public comments with regard to the cost
and substantial clinical improvement criteria for this technology, but
because we have determined that the technology does not meet the
newness criterion and therefore is not eligible for approval for new
technology add-on payments for FY 2027, we are not summarizing comments
received or making a determination on those criteria in this final
rule.
[[Page 49712]]
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 noted in
the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19415) 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.\65\
---------------------------------------------------------------------------
\65\ 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.
---------------------------------------------------------------------------
In the proposed rule, we provided the following table containing 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.
[GRAPHIC] [TIFF OMITTED] TR04AU26.100
ICD-10 Coding
In the proposed rule, after review of the information provided by
the applicant, we stated we believed 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 49713]]
[GRAPHIC] [TIFF OMITTED] TR04AU26.101
We invited 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.
We did not receive any comments on the relevant ICD-10-CM diagnosis
codes to identify the indication 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. As previously discussed, based
on the information submitted by the applicant as part of its new
technology add-on payment application, we believe the list of ICD-10-CM
diagnosis codes in the previous table identify this indication for
purposes of the new technology add-on payment.
Newness Criterion
In the proposed rule, regarding substantial similarity, we stated
that based on the information available at the time of the proposed
rule, we agreed 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 noted 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 the proposed rule, we stated our belief that
GAMIFANT[supreg] is not substantially similar to existing technology
and meets the newness criterion. We stated 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 invited public comments on whether GAMIFANT[supreg] is
substantially similar to existing technologies and whether
GAMIFANT[supreg] meets the newness criterion.
Comment: The applicant reiterated that GAMIFANT[supreg] meets the
newness criterion and stated that the technology is not the same or
substantially similar to any therapies that are currently used in the
treatment of HLH/MAS in Still's disease, nor to any included in the
2024 100% Medicare Provider Analysis and Review (MedPAR) Limited Data
Set. The applicant stated that it agrees with CMS's assessment 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. The applicant concurred with CMS that the beginning of
the newness period should commence on June 27, 2025, the date on which
GAMIFANT[supreg] received FDA marketing authorization for this
indication.
Response: We thank the applicant for its comment. Based on our
review of the comment received and information submitted by the
applicant as part of its FY 2027 new technology add-on payment
application for GAMIFANT[supreg], we agree 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.
Therefore, we agree that GAMIFANT[supreg] is not substantially similar
to existing treatment options and meets the newness criterion. We
consider the beginning of the newness period to commence on June 27,
2025, the date on which GAMIFANT[supreg] received FDA marketing
authorization for the treatment of adult and pediatric patients with
HLH/MAS in known or suspected Still's disease, including systemic sJIA,
with an inadequate response or intolerance to glucocorticoids, or with
recurrent MAS.
Cost Criterion
In the proposed rule, regarding the cost criterion, we stated we
agreed with the applicant that the technology meets the cost criterion.
We invited public comments on whether GAMIFANT[supreg] meets the cost
criterion.
Comment: The applicant agreed with CMS's assessment that
GAMIFANT[supreg] meets the cost criterion.
Response: We thank the applicant for its comment. We agree with the
applicant that the technology meets the cost criterion.
Substantial Clinical Improvement Criterion
In the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19417), after
review of the information provided by the applicant, we stated we had
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
[[Page 49714]]
response or intolerance to glucocorticoids, or with recurrent MAS.
However, we questioned 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.66 67 68 69
---------------------------------------------------------------------------
\66\ 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.
\67\ 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.
\68\ Baldo F, et al. Current treatment in MAS worldwide: a
systematic literature review to inform the METAPHOR project.
Rheumatology (Oxford). 2025, 64, 32-44.
\69\ 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 stated we were 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 questioned
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 noted 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 stated that all patients in the
studies responded inadequately to high-dose 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, we
noted 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 stated we
were unclear how these studies support the assertion of improved
outcomes relative to other available treatments.
While the applicant claimed a positive benefit:risk profile for
GAMIFANT[supreg], we stated that 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 noted
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, we noted it was 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 we noted it was unclear what these events were and which were
related to GAMIFANT[supreg].
Furthermore, we noted 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 noted that the
long-term clinical trials included up to 12 months of follow-up, and we
questioned if this is enough time to assess for MAS recurrence.
After review of the information provided by the applicant, we
stated we were unable to determine whether GAMIFANT[supreg] represents
a substantial clinical improvement over existing technologies, and
therefore, we proposed to disapprove new technology add-on payments for
GAMIFANT[supreg] for FY 2027.
We invited 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].
Comment: A few commenters submitted comments in support of new
technology add-on payment status for GAMIFANT[supreg]. Commenters
highlighted the efficacy and safety outcomes in the clinical trials.
They also stated that clinical experience reflects outcomes noted in
the clinical trial and suggest that GAMIFANT[supreg] improves survival
rates, reduces exposure to various other toxic medications (such as
corticosteroids), and decreases the need for intensive care and the
overall length of hospitalization. Some commenters also stated that,
with approval of GAMIFANT[supreg], clinicians can provide high value,
evidence-based care to patients with MAS/sHLH, and clinicians and
hospitals can be adequately reimbursed without financial concerns.
A commenter further stated that MAS is treated with high-dose
glucocorticoids with satisfactory response in one-third of the
patients, and for patients unresponsive to glucocorticoids, cyclosporin
is usually added, while other approaches, including cyclophosphamide,
etoposide, intravenous immunoglobulin, etanercept, anakinra,
tocilizumab, JAK inhibitors and plasmapheresis, have been described in
case reports or small series. According to the commenter, none of these
regimens have been prospectively investigated, and these treatments
lack selectivity and are very toxic. The commenter stated that, until
the introduction of GAMIFANT[supreg], mortality rates for patients with
MAS had been around 20 percent. Further, the commenter highlighted that
GAMIFANT[supreg] is the first targeted, prospectively studied therapy
for MAS and that the Phase 2-3 trials of GAMIFANT[supreg] in patients
who have failed to respond to high-dose glucocorticoids demonstrated
that interferon-[gamma] has a pathogenic role in MAS and that its
targeted neutralization leads to MAS remission with a safety profile
that is very reassuring.
Another commenter stated that MAS/sHLH not uncommonly occurs as a
complication of, and it is very often the presenting clinical
manifestation of, Adult-onset Still's disease (AOSD). Further, the
commenter expressed that depending upon the severity of disease at the
time of admission, patients may respond to first line therapy with high
dose corticosteroids and interleukin-1 targeted therapy such as
anakinra, but a significant minority do not, often with fatal outcomes
from progressive hyper-inflammation or significant complications from
protracted dosing with corticosteroids required to adequately manage
their disease. Further, the commenter stated that the
[[Page 49715]]
consistent improvements observed in the status of patients otherwise
destined for fatal outcomes have rendered the availability of GAMIFANT
transformative. The commenter stated that barriers to accessing
GAMIFANT[supreg] are most notable for hospitalized Medicare
beneficiaries, whereby it is the expectation that the treatment costs
for GAMIFANT[supreg] be covered in the context of MS-DRG reimbursement.
The commenter also highlighted that currently, the cost for
GAMIFANT[supreg] significantly exceeds the MS-DRG payment for this
condition, a consideration that it said gives hospitals pause for
designating GAMIFANT[supreg] as a formulary drug. This commenter also
shared a personal anecdote about treating a hospitalized Medicare
beneficiary patient with MAS/sHLH and suspected AOSD who expired before
providers could obtain patient access to GAMIFANT[supreg] due to this
reimbursement dynamic.
A commenter also stated that, while corticosteroids and other
immunosuppressive therapies remain important components of care, these
treatments can be associated with substantial side effects,
particularly when administered at high doses or for extended periods.
The commenter explained that patients and families often face difficult
tradeoffs between controlling disease activity and managing treatment-
related complications. The commenter stated that for rare diseases,
such as HLH/MAS, therapeutic innovation is critically important, and
the development of additional treatment options offers hope to patients
and healthcare providers confronting complex and severe disease
presentations. The commenter further added that expanding the
availability of therapies that address unmet medical needs may help
improve outcomes and provide clinicians with additional tools to manage
these highly challenging conditions. The commenter also stated that
mechanisms such as the new technology add-on payment play an important
role in reducing financial barriers that may otherwise limit timely
patient access to emerging treatment options during the critical
periods of care.
Response: We thank the commenters for their input and have taken it
into consideration in determining whether GAMIFANT[supreg] meets the
substantial clinical improvement criterion as discussed later in this
section. We note that whether a technology receives new technology add-
on payments or not does not affect coverage of the technology or the
ability for hospitals to provide a technology to patients where
appropriate. 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
(90 FR 36672).
Comment: The applicant submitted a public comment regarding the
substantial clinical improvement criterion and provided responses to
CMS's concerns from the proposed rule.
In response to CMS's question as to whether GAMIFANT[supreg] offers
a treatment option for patients unresponsive to, or ineligible for,
currently available treatments, the applicant stated that there has
been a critical need for a targeted therapy that can halt the cytokine
storm and control hyperinflammation in patients with HLH/MAS in Still's
disease who have an inadequate response or intolerance to
glucocorticoids, or with recurrent MAS. The applicant reiterated that
GAMIFANT[supreg] is the first and only FDA-approved treatment for 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, and that it
works by binding to soluble and receptor-bound forms of IFN[gamma],
ultimately inhibiting macrophage activation and the downstream release
of proinflammatory cytokines.
The applicant also stated that data presented in support of
GAMIFANT[supreg] confirm that treatment with GAMIFANT[supreg] reduces
disease activity in patients with MAS associated with Still's disease,
including sJIA, who have failed previous treatments, and is well-
tolerated without the medication-related toxicities associated with
conventional therapy. Specifically, the applicant highlighted that
patients studied in the phase II/III clinical trials were refractory to
HLH/MAS treatment. The applicant stated that 36 percent of patients had
previous MAS episodes and stated that 100 percent of this patient
population had previous treatment with glucocorticoids, including 80
percent who had previous treatment with anakinra, and in all, 77
percent of patients had failed additional (1 to 4) therapies for the
index MAS episode before GAMIFANT[supreg] initiation, in addition to
glucocorticoid therapy. The applicant stated that patients in the trial
had been treated with prior medications that included glucocorticoids,
intravenous immunoglobulins (IVIg), calcineurin inhibitors (CNIs)
(including cyclosporine), and interleukin inhibitors (anakinra,
tocilizumab, and canakinumab). The applicant further reiterated that
none of these therapies, including etoposide and cyclosporine, which
CMS referenced in the proposed rule, have been prospectively studied,
nor are they approved for the treatment of HLH/MAS. The applicant
explained that some of these products used off-label for MAS have
contraindications and risks that make them challenging to use in this
patient population. The applicant stated that etoposide is
contraindicated in patients with severe myelosuppression and severe
hepatic impairment, which are both commonly observed in MAS
patients,\70\ and that cyclosporine poses a risk to patients with
difficult cases of MAS. The applicant also stated that, to that end,
during its 2025 Convergence conference, the American College of
Rheumatology (ACR) announced updated guidelines for MAS/sJIA management
wherein biological disease-modifying antirheumatic drugs (DMARDs),
including emapalumab (GAMIFANT[supreg]), are recommended.\71\ The
applicant restated its belief that GAMIFANT[supreg] provides a
treatment option for patients with HLH/MAS who are not responsive to,
or ineligible for, the off-label therapies which have been used in the
absence of prospectively studied and FDA-approved therapies.
---------------------------------------------------------------------------
\70\ Etoposide prescribing information. https://labeling.pfizer.com/ShowLabeling.aspx?id=15276.
\71\ ACR Convergence 2025. Panelists explain ACR's expanding JIA
guidelines. October 2025. https://www.acrconvergencetoday.org/panelists-explain-acrs-expanding-jia-guidelines/.
---------------------------------------------------------------------------
In response to CMS's concern about being unable to assess the
applicant's assertion that GAMIFANT[supreg] significantly improves
clinical outcomes relative to other therapies for patients with an
inadequate response or intolerance to glucocorticoids or with recurrent
MAS, the applicant stated that the clinical evidence submitted reflects
GAMIFANT[supreg]'s outcomes in patients who had, in many cases,
exhausted other off-label treatment options, like cyclosporine and
anakinra. The applicant explained that because randomized clinical
trials are challenging, even unethical, in small populations with rare
and fatal complications, the inclusion of patients with long MAS
treatment courses in the phase II/III studies provides evidence similar
to a crossover study design. The applicant further stated that the high
percentage of study participants that had failed additional therapies
were enrolled in the GAMIFANT[supreg] phase II/III studies by their
physicians with the hope that patients would experience
[[Page 49716]]
substantial clinical improvement with GAMIFANT[supreg].
In response to CMS's concern that it is unclear whether
GAMIFANT[supreg] significantly reduces glucocorticoid dosing compared
to other therapies that may be used in these patients, the applicant
stated that 77 percent of patients failed to reduce their
glucocorticoid dose while taking other MAS therapies prior to enrolling
in the clinical trial and starting GAMIFANT[supreg] therapy. The
applicant added that GAMIFANT[supreg] quickly enabled glucocorticoids
to be reduced by 70 percent and 92 percent at week 2 and week 8,
respectively. The applicant stated that GAMIFANT[supreg] enabled
patients to aggressively decrease their exposure to glucocorticoids
while obtaining responses despite the significant reduction in
glucocorticoids.
In response to CMS's concern that some therapies used for MAS in
Still's disease, such as anakinra and cyclosporine, were allowed during
the two clinical studies (NI-0501-06 and NI-0501-14) and could have
affected the outcomes, the applicant stated that canakinumab, JAK
inhibitors, tumor necrosis factor (TNF)--a inhibitors, tocilizumab,
etoposide, and anakinra at doses greater than 4 mg/kg/day at the time
of GAMIFANT[supreg] initiation were excluded from the GAMIFANT[supreg]
studies. The applicant cited Shakoory et al. (2023) and explained that,
based on published expert opinion, doses of anakinra less than 4mg/kg/
day are not high enough to treat a MAS episode. The applicant explained
that because GAMIFANT[supreg] does not treat or control the underlying
Still's disease, it is important to maintain interleukin (IL)-1
inhibition to control the underlying Still's disease so that the
patient does not experience a Still's flare. The applicant further
stated that the NI-0501-06 study originally excluded all doses of
anakinra, but the protocol was later amended to allow doses less than
4mg/kg/day because patients were having flares of their underlying
Still's disease. Specifically, the applicant noted that six patients
who either were not on anakinra or discontinued anakinra had Still's
flares compared to zero flares seen in patients on dosages of anakinra
less than 4mg/kg/day. The applicant also stated that cyclosporine could
not be started after GAMIFANT[supreg] initiation but could be continued
if started at least 3 days before initiating GAMIFANT[supreg]. The
applicant explained that, despite anakinra and/or cyclosporine having
an immunosuppressive effect, patients enrolled in this study presented
with MAS, so these concomitant medications were not considered by
investigators to confound the study outcomes.
In response to CMS's 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, the applicant reiterated that
the GAMIFANT[supreg] studies included a refractory patient population
and restated various outcomes included in its application.
In response to CMS's concern that 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, the
applicant stated that a total of 16 patients (41.0 percent) experienced
41 treatment-emergent adverse events (TEAEs) assessed by the
investigator as related to GAMIFANT[supreg], with the most frequently
reported TEAE being cytomegalovirus (CMV) infection reactivation (four
patients [10.3 percent]). The applicant also stated that 13 patients
(33.3 percent) experienced 24 serious TEAEs with the most frequently
reported serious TEAEs being condition aggravation (three patients [7.7
percent]), pneumonia (two patients [5.1 percent]), and Still's disease
(two patients [5.1 percent]) with all other serious TEAEs reported in
one patient (2.6 percent) each. The applicant also stated that four
patients (10.3 percent) experienced six serious TEAEs that were
assessed by the investigator as related to GAMIFANT[supreg] treatment,
which included one patient in Study NI-0501-06 (CMV infection
reactivation) and three patients with five events in Study NI-0501-14
(CMV infection, pneumonia, pulmonary arterial hypertension, multiple
organ dysfunction syndrome, and sepsis).
In response to CMS's request for additional detail on the clinical
trials' VAS scoring system to fully assess the efficacy outcome data,
the applicant stated that for both GAMIFANT[supreg] studies,
investigators were asked to assess MAS activity based on the clinical
signs and symptoms of the patient using the 10-point VAS, where the MAS
clinical activity VAS is reported in centimeters (cm) on a scale that
ranges from 0 to 10 cm where higher values indicate greater MAS disease
activity and lower values indicate clinical improvement/remission. The
applicant explained that investigator-assessed MAS clinical activity
VAS was considered to represent an absence of MAS clinical signs and
symptoms at a score of less than or equal to 1/10 cm. The applicant
reiterated the finding that the VAS activity score of less than or
equal to 1/10 was achieved by 84.6 percent of GAMIFANT[supreg]-treated
patients within a median of 3.3 weeks.
In response to CMS's question whether a 12-month follow-up is
enough time to assess MAS recurrence, the applicant stated that
GAMIFANT[supreg] was studied to show efficacy and safety in resolving a
MAS episode, either from an initial MAS episode or in a recurrent MAS
episode in patients who have had multiple previous MAS events. The
applicant added that GAMIFANT[supreg] was not studied in preventing MAS
recurrence. The applicant also explained that in the clinical trials,
14 patients had previous MAS episodes, and in the 12 months prior to
trial enrollment, those 14 patients experienced a total of 27 MAS
events (range: 0 to 5 per patient). The applicant stated that after the
administration of GAMIFANT[supreg], only one patient had a single MAS
recurrence during first year of follow up or last visit.
The applicant reiterated that GAMIFANT[supreg] is a monoclonal
antibody that binds to and neutralizes IFN[gamma], provides a targeted
approach to controlling the hyperinflammatory surge, minimizing off-
target effects, and is the only prospectively studied and FDA-approved,
IFN[gamma]-blocking antibody indicated for treatment of patients with
MAS in Still's disease. The applicant stated that the pooled safety and
efficacy results of two interventional studies demonstrate substantial
clinical improvement for patients who were refractory to prior off-
label treatments. The applicant further stated that GAMIFANT[supreg]
addresses a critical unmet need with a novel agent that can induce
remission of MAS in Still's disease and protect patients from
detrimental effects of prolonged MAS episodes, high-dose and longer-
term glucocorticoids, and multiple escalating lines of therapy. The
applicant concluded that it demonstrated that GAMIFANT[supreg] meets
the three criteria for new technology add-on payment and urged CMS to
approve new technology add-on payments for GAMIFANT[supreg], effective
October 1, 2026, to ensure access to GAMIFANT[supreg] treatment for
Medicare beneficiaries with HLH/MAS.
Response: We thank the applicant for its comments regarding the
substantial clinical improvement criterion. After consideration of the
additional information we received from the applicant and other
commenters, and
[[Page 49717]]
the totality of the available evidence, we agree that GAMIFANT[supreg]
provides a treatment option for patients who are unresponsive to, or
ineligible for, currently available treatments. GAMIFANT[supreg] is the
first and only FDA-approved treatment option for adult and pediatric
(newborn and older) patients with HLH/MAS in known or suspected Still's
disease, including sJIA, who have an inadequate response or intolerance
to glucocorticoids, or recurrent MAS, with a study population that
consisted of heavily pretreated and treatment-refractory patients, all
of whom had previously received glucocorticoids, 80 percent of whom had
previously received anakinra, and 77 percent of whom had failed one or
more additional therapies before receiving GAMIFANT[supreg], and
resulted in a complete response in 53.8 percent of patients and an
overall response in 82.1 percent of patients before week 8 of
treatment.
After consideration of the public comments we received and the
information included in the applicant's new technology add-on payment
application, we have determined that GAMIFANT[supreg] meets the
criteria for approval for new technology add-on payments. Therefore, we
are approving GAMIFANT[supreg] for new technology add-on payments for
FY 2027. Cases involving the use of GAMIFANT[supreg] that are eligible
for new technology add-on payments will be identified by ICD-10-PCS
code XW033MA (Introduction of emapalumab-izsg anti-IFNy monoclonal
antibody into peripheral vein, percutaneous approach, new technology
group 10) or XW043MA (Introduction of emapalumab-izsg anti-IFNy
monoclonal antibody into central vein, percutaneous approach, new
technology group 10) in combination with any of the ICD-10-CM codes
listed in the following table:
[GRAPHIC] [TIFF OMITTED] TR04AU26.102
In its application, the applicant estimated that the cost of
GAMIFANT[supreg] is $1,035,010 per patient. According to the applicant,
the mean duration of days of treatment with GAMIFANT[supreg] in the
inpatient setting was 29 days with 10 infusions, including one loading
dose [6 mg/kg] ($185,212) followed by 9 treatment doses [3 mg/kg every
3 days for 5 doses, then twice per week until remission] ($94,422 per
dose). The applicant stated one treatment dose for an average adult
patient weight of 84 kg is 252 mg, which corresponds to two 100 mg/20ml
vials ($36,316 per vial), one 50 mg/10ml vial ($18,158 per vial), and
one 10 mg/2ml vial ($3,632 per vial). Under Sec. 412.88(a)(2), we
limit new technology add-on payments to the lesser of 65 percent of the
average cost of the technology, or 65 percent of the costs in excess of
the MS-DRG payment for the case. As a result, the maximum new
technology add-on payment for a case involving the use of
GAMIFANT[supreg] is $672,756.50 for FY 2027.
d. 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.\72\ The applicant stated that during an inpatient stay, the
average patient requires five RAPIBLYKTM vials.
---------------------------------------------------------------------------
\72\ 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.
---------------------------------------------------------------------------
In the proposed rule, we provided the following table containing an
overview of the new technology add-on payment
[[Page 49718]]
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.
[GRAPHIC] [TIFF OMITTED] TR04AU26.103
Newness Criterion
In the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19420 through
19421), regarding commercial availability, we noted that 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 stated we were
interested in additional information regarding the cause of the delay
in commercial availability.
Regarding substantial similarity, we stated in the proposed rule
that we disagreed 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. We stated that 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 stated we disagreed 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
noted 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
noted that the absence of a dosing regimen for cardiac impairment in
the prescribing label \73\ 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 noted 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 stated we believed this
is relevant to the assessment of substantial clinical improvement,
rather than of newness. We also noted that we did not receive evidence
identifying a new patient population or type of disease which
[[Page 49719]]
RAPIBLYKTM treats that cannot be treated with existing
technologies such as esmolol, amiodarone, or digoxin.
---------------------------------------------------------------------------
\73\ 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, we stated that 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 noted that, per our policy, if technologies are substantially
similar to each other, we use the earliest market availability date as
the beginning of the newness period for the technologies. Accordingly,
if we determine that RAPIBLYKTM is substantially similar to
esmolol, we stated 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, we stated that
RAPIBLYKTM would not be considered new and would be
ineligible for new technology add-on payments for FY 2027.
We invited public comments on whether RAPIBLYKTM is
substantially similar to existing technologies and whether
RAPIBLYKTM meets the newness criterion.
Comment: The applicant and a few commenters submitted public
comments regarding the newness criterion for RAPIBLYKTM. The
applicant asserted that RAPIBLYKTM satisfies the newness
criterion because it meets the 2- to 3-year threshold for being new to
the U.S. market under CMS regulations and is not substantially similar
to any existing technology.
In response to CMS's request for additional information regarding
the cause of delay in commercial availability, the applicant stated
that following FDA approval, it undertook a number of time-intensive
steps to facilitate the commercial launch of RAPIBLYKTM in
the U.S. The applicant explained that prior to FDA approval, it
established a new, U.S.-based entity for operations by working with a
U.S. consultancy for commercial readiness in August 2024 and that
following FDA approval in November 2024, it began medical outreach and
education to customers while building commercial infrastructure. The
applicant added that since RAPIBLYKTM was their first
product for AOP Health in the U.S., it took time to establish a U.S.
presence following FDA approval. The applicant stated that it next
identified and contracted with a third-party logistics vendor and
distributor in March 2025 and that the first shipment of
RAPIBLYKTM to this vendor occurred on May 20, 2025. The
applicant additionally stated that it identified and contracted with
wholesalers and group purchasing organizations between the months of
July and October 2025. The applicant asserted that it undertook these
essential steps as quickly and efficiently as possible following
RAPIBLYKTM's FDA approval, and they could not have been
completed prior to FDA approval. The applicant requested that,
consistent with CMS policy, RAPIBLYKTM's newness period
should begin on July 21, 2025, the date of its commercial availability.
In regards to substantial similarity, the applicant stated that
RAPIBLYKTM is not substantially similar to any existing
technology while noting that the substantially similar test for newness
is set forth only in rulemaking preamble language and is not codified
in statute or regulations. The applicant further stated that CMS had
declined to adopt rigid criteria to define substantial similarity
because such criteria would restrict unduly the Agency's ability to
make appropriate determinations regarding whether a product should
qualify for new technology add-on payments. The applicant agreed with
avoiding rigid criteria, particularly given the broad statutory and
regulatory language related to newness for new technology add-on
payment purposes, and recommended that CMS apply the newness criterion
consistently with the text and underlying purpose of the new technology
add-on payment statute and regulations, which are intended to support
timely access to innovative new therapies for Medicare beneficiaries
during the period before costs are recognized in MS-DRG weights.
The applicant asserted that RAPIBLYKTM meets newness
standards and is not substantially similar to existing technology
because it does not have the same or similar mechanism of action
compared to existing technology to achieve a therapeutic outcome, and
RAPIBLYKTM usage does not involve treatment of the same or
similar type of patient population when compared to an existing
technology. Specifically, the applicant stated that
RAPIBLYKTM's unique mechanism of action results from key
characteristics that lead to the distinct way RAPIBLYKTM is
processed by and produces an effect in the body, and, as such, how it
achieves a therapeutic outcome. The applicant suggested that the
mechanism of action includes not only blocking of [beta]1-adrenergic
receptors but also the receptor target, the molecular structure,
[beta]1 receptor interaction, how it is metabolized, its effect
duration, length of time in the body, and how these combine to be
meaningfully distinct from other available control agents. The
applicant added that three characteristics distinguish
RAPIBLYKTM from other heart rate control agents: (1) a
unique molecular structure resulting in distinct [beta]1 super-
selectivity and limited negative inotropic effect, unlike other agents
including beta blockers like esmolol and metoprolol; (2) distinct
plasma esterase-based metabolism reflecting a unique way of being
processed by the body compared to previously available heart rate
control agents that are metabolized through hepatic and renal pathways;
and (3) a uniquely short half-life, producing a distinctly short
duration of effect allowing rapid on/rapid off rate control in acute
care settings.
The applicant and a commenter stated that RAPIBLYKTM's
unique molecular structure as a pure S,S-enantiomer directly affects
how the body metabolizes and processes it. The applicant and a
commenter explained that its molecular structure is responsible for its
ultra-high cardio-selective activity and allows for rapid heart rate
reduction without compromising mean arterial blood pressure,
eliminating the negative impact of cardiac output seen with esmolol.
According to the applicant, RAPIBLYKTM has a [beta]1 to
[beta]2 ratio of 255:1, making it about 7.7 and 100 times more [beta]1-
selective than esmolol and metoprolol, respectively. The applicant
stated that RAPIBLYKTM's ultra-high [beta]1 selectivity
minimizes off-target effects on [beta]2 receptors, thereby reducing
bronchoconstriction and peripheral vasoconstriction risks and providing
effective heart rate control with minimal effects on bronchial tone or
blood pressure. The applicant and a commenter added that
RAPIBLYKTM has only limited inotropic effects, unlike
esmolol, which they stated is a racemic R- and S-enantiomeric structure
and confers negative inotropic effects that weaken heart muscle
contraction, dilate blood vessels, and can lead to heart failure
symptoms, particularly for vulnerable patients in intensive care and
acute settings where quick titration and reversal are important. The
applicant further stated that RAPIBLYKTM is characterized by
rapid metabolism via plasma esterases (pseudocholinesterases and
carboxylesterases), resulting in a short elimination half-life of
approximately 4
[[Page 49720]]
minutes and a low distribution volume. The applicant explained that
RAPIBLYKTM's metabolism by plasma esterases yields the
active metabolite M1, which has approximately 1/40th of the
pharmacological activity of esmolol. The applicant added that
RAPIBLYKTM is processed in a manner distinct from esmolol
such that the drugs differ in metabolites, with esmolol yielding the
toxic metabolite methanol. The applicant stated that
RAPIBLYKTM's esterase-based metabolism pathway avoids liver-
and kidney-reliant metabolism, fundamentally differentiating it from
metoprolol (hepatic metabolism), amiodarone (extensive hepatic
metabolism), and digoxin (renal elimination). The applicant added that,
as a result of RAPIBLYKTM's esterase-based metabolism, no
specific dose adjustment is needed for patients with renal impairment,
in direct contrast to metoprolol and digoxin. Additionally, the
applicant stated that the metabolism of RAPIBLYKTM minimizes
the potential for drug accumulation and dose-dependent adverse events,
particularly among patients with renal impairment. The applicant cited
a pharmacokinetic study that evaluated RAPIBLYKTM in adult
patients with septic shock and persistent tachycardia and demonstrated
that dialysis exerts minimal influence on RAPIBLYKTM
clearance while substantially eliminating M1. According to the
applicant, this finding aligns with current renal impairment dosing
recommendations and supports no dose adjustments are required during
renal replacement therapy with RAPIBLYKTM, unlike a number
of previously available agents used for heart rate control.
The applicant stated that RAPIBLYKTM's uniquely short
half-life produces a distinctly short effect duration with a half-life
of approximately 4 to 4.5 minutes, allowing unprecedented rapid on/
rapid off rate control in acute care settings. The applicant explained
that this pharmacokinetic profile contributes to
RAPIBLYKTM's distinct suitability for precise titration and
rapid effect cessation, as the ultra-short half-life allows titration
that is impossible with other alternatives. Additionally, the applicant
stated that RAPIBLYKTM's half-life is approximately half
that of esmolol's approximately 9-minute half-life and is exponentially
shorter than the half-life of metoprolol (3 to 7 hours), digoxin (36 to
44 hours), or amiodarone (20 to 47 days). The applicant asserted that
this key characteristic of RAPIBLYKTM's processing and
effects in the body enables real-time titration and rapid reversal if a
patient's hemodynamic status changes. The applicant concluded that no
previously available intravenous rate control agent, including but not
limited to esmolol, is processed by and produces an effect in the body
in the same way as RAPIBLYKTM, giving it a unique mechanism
of action. In addition, the applicant compared RAPIBLYKTM to
other acute rate-control therapies, noting its distinction from not
only esmolol but also metoprolol, diltiazem, amiodarone, and digoxin.
The applicant stated that antiarrhythmic agents are generally divided
into four classes and that RAPIBLYKTM is a Class II
medication that directly blocks [beta]-adrenergic receptors on cardiac
myocytes, preventing catecholamine-induced increases in heart rate and
conduction velocity. The applicant stated that this receptor-level
blockade results in immediate negative chronotropic effects that are
independent of parasympathetic pathways, allowing RAPIBLYKTM
to rapidly reduce heart rate even during heightened sympathetic
activity, such as in acute stress or perioperative settings. The
applicant cited a recent Cardiology in Review article that focuses on
RAPIBLYKTM's pharmacology, pharmacokinetics, and
pharmacodynamics and stated that the analysis underscores its unique
attributes compared to conventional beta blockers, particularly
esmolol. The applicant highlighted that the study's authors state that
although RAPIBLYKTM and esmolol are both short-acting and
cardioselective [beta]1-adrenoceptor-blocking agents, the two drugs
possess distinct characteristics and that RAPIBLYKTM's
distinctive pharmacokinetics and pharmacodynamics, including its short
half-life, high cardioselectivity, and limited impact on blood
pressure, differentiate it from other beta blockers. The applicant
stated that although certain previously available agents may share some
aspects of RAPIBLYKTM's mechanism of action, no previously
existing agent shares all aspects of RAPIBLYKTM's mechanism
of action and included a table comparing treatments' differences in
therapeutic class, rapid action onset (<20 minutes), half-life,
negative inotropic effect, incidence of hypotension, metabolization
issues, drug interactions, acute renal failure warnings, and use in
cardiac dysfunction. The applicant concluded that RAPIBLYKTM
has a unique mechanism of action because it combines specific features
of an ultra-short half-life, extreme [beta]1 selectivity, limited
negative inotropy, esterase-based metabolism, low interaction burden,
and suitability in cardiac dysfunction, which no other agents have. The
applicant further asserted that CMS has recognized on multiple
occasions that being the first FDA-approved therapy for a particular
indication or particular patient population demonstrates a unique
mechanism of action and satisfies the new technology add-on payment
newness criterion in previous final rules.
In regard to whether RAPIBLYKTM treats a same or similar
patient population or disease when compared to an existing technology,
the applicant stated that RAPIBLYKTM offers a new
antiarrhythmic treatment option for certain patients with cardiac
impairment and hypotension or risk of hypotension, where previously
available beta blockers have not been recommended due to negative
effects on hypotension and cardiac function (left ventricular ejection
fraction less than 40 percent). The applicant stated that with
RAPIBLYKTM's availability, previously available beta
blockers and other alternatives are no longer an appropriate treatment
option for a vulnerable patient sub-population due to their significant
adverse event risks and poor outcomes. The applicant stated that
RAPIBLYKTM is the only beta blocker with specific, FDA-
approved administration instructions for patients with impaired cardiac
function. The applicant stated that these instructions, which FDA
included in the technology's labeling based on the published, peer-
reviewed studies submitted with RAPIBLYKTM's New Drug
Application, provide compelling evidence of safety specifically in this
vulnerable patient population. The applicant further asserted that this
makes RAPIBLYKTM distinct from all previously existing
agents used for short-term ventricular rate reduction in patients with
SVTs. The applicant added that it revised RAPIBLYKTM's FDA-
approved labeling in February 2026 to add a specific indication for the
short-term reduction of ventricular rate in pediatric patients with
SVT, making RAPIBLYKTM the first and only FDA-approved
intravenous beta blocker for treatment of acute-onset SVTs in pediatric
patients (from birth to less than 18 years of age). The applicant
stated that this should be sufficient in demonstrating that
RAPIBLYKTM treats a new patient population or disease
compared to existing technology.
The applicant and a few commenters also stated that
RAPIBLYKTM is uniquely suited to resolve acute AF in
[[Page 49721]]
a patient population with impaired cardiac function and hypotension or
risk of hypotension. According to the applicant, CMS stated in the
proposed rule that other therapies, such as esmolol, can also be used
to treat acute AF patients with impaired cardiac function and further
stated that the absence of a dosing regimen for cardiac impairment in
the prescribing label for esmolol does not preclude the use of this
drug in this patient population. However, the applicant commented that
while a therapy could be used to treat acute AF patients with impaired
cardiac function even if the FDA-approved labeling does not include a
specific dosing regimen for such patients, it remains the case that
there is a sub-population for whom treatment with esmolol, or other
previously existing rate control agents, presents significantly
heightened clinical risks due to a combination of impaired cardiac
function and additional comorbidities, such as hypotension or risk of
hypotension or renal impairment. According to the applicant,
RAPIBLYKTM addresses an unmet clinical need for these
patients and provides a new option for effective rate control with
markedly reduced risks of serious adverse events. The applicant and a
few commenters, who are healthcare professionals, explained that as
healthcare professionals seek to navigate complex conditions for
vulnerable patients in acute and critical care settings, the clinical
reality is that, for at least some patients with impaired cardiac
function and other comorbidities like heart failure, hypotension or
risk of hypotension, treatment with esmolol or another previously
existing rate control agent may not be tolerable or clinically
appropriate, especially now that RAPIBLYKTM is available,
with a few commenters noting that RAPIBLYKTM was added to
their hospital system's formulary. The applicant and a few commenters
stated that, therefore, RAPIBLYKTM provides an option for
patients who cannot tolerate or be safely treated by esmolol or other
rate control agents, including those with hypotension, worsening heart
failure, adverse inotropic effects, renal accumulation, and organ
toxicity, and as such, RAPIBLYKTM involves treatment of a
different patient population as compared to previously existing
technologies. A commenter also stated that although the warnings,
precautions, and contraindications on formal labeling may be similar
for some of these rate control agents, they differ in fundamentally
critical respects from a clinical perspective, and clinical realities
create a subpopulation of patients who are not well served by
previously existing rate control agents and for whom
RAPIBLYKTM addresses an important unmet need.
The applicant also directly compared RAPIBLYKTM's
molecular features, outcomes, and adverse effects to those of esmolol,
metoprolol, diltiazem, amiodarone, and digoxin in acute AF patients
with impaired cardiac function and hypotension or risk of hypotension,
and, for digoxin, in pediatric patients with SVT. Additionally, the
applicant cited newly published evidence that shows
RAPIBLYKTM's clinical use in patients who received and did
not respond to other antiarrhythmic agents, including those with
hemodynamic instability and cardiogenic shock, across the full Society
for Cardiovascular Angiography and Interventions Shock Classification
spectrum. The applicant concluded that the availability of alternative
treatments does not preclude a finding that RAPIBLYKTM
uniquely serves a distinct patient population and that the fact
esmolol, other beta blockers, or heart rate control agents can be
administered to patients with reduced ejection fractions or other
comorbidities does not mean those agents are clinically appropriate,
safe, or guideline-recommended for all patients or for the distinct
population that RAPIBLYKTM serves.
Response: We appreciate the additional information from the
applicant and commenters with respect to whether RAPIBLYKTM
is substantially similar to existing technologies. However, we disagree
with the applicant and commenters that RAPIBLYKTM has a
different mechanism of action and treats a different disease and
patient population.
With respect to our flexibility to define substantial similarity,
we note that, as discussed in prior rulemaking, and as set forth in the
FY 2010 IPPS final rule (74 FR 43813 through 43814), our long-
established policy is to consider (1) whether a product uses the same
or a similar mechanism of action to achieve a therapeutic outcome, (2)
whether a product is assigned to the same or a different DRG, and (3)
whether the new use of the technology involves the treatment of the
same or similar type of disease and the same or similar patient
population to determine whether a new technology is substantially
similar to one or more existing technologies. We agree with the
applicant that we should apply these criteria consistently with the
text and underlying purpose of the new technology add-on payment
statute and regulations, as reflected in our assessment of
RAPIBLYKTM.
With respect to whether a technology uses the same or similar
mechanism of action to achieve a therapeutic outcome, we continue to
disagree that RAPIBLYKTM has a unique mechanism of action
compared to existing rate control technologies. While the applicant and
commenters asserted that RAPIBLYKTM has a new mechanism of
action due to a variety of reasons including its molecular structure,
plasma esterase-based metabolism, short half-life and low distribution
volume, and pharmacokinetic/pharmacodynamic profile, we disagree that
these represent the mechanism of action by which RAPIBLYKTM
achieves its therapeutic effect of reducing sympathetic stimulation and
ventricular rate. Further, while commenters stated these differences
lead to super-selectivity and limited negative inotropic effects for
RAPIBLYKTM compared to other beta blockers, and that these
attributes may reduce complications or side effects, we note that these
relate to an assessment of substantial clinical improvement rather than
to differentiating its mechanism of action. Similarly, we acknowledge
the applicant's assertions that RAPIBLYKTM is differentiated
from other rate control agents by its receptor target, [beta]1 receptor
interaction, metabolism, duration of effect, length of presence, and
how these characteristics combine. However, as similarly described in
the FY 2022 IPPS/LTCH PPS final rule (86 FR 45000), we do not believe
these differences constitute a different mechanism of action because,
as discussed previously, RAPIBLYKTM achieves the same
therapeutic effect by blocking [beta]1-adrenergic receptors to reduce
sympathetic stimulation and ventricular rate as other existing beta
blockers, such as esmolol.
With respect to whether a technology treats the same or similar
type of disease and patient populations, we continue to disagree that
the evidence provided demonstrates that RAPIBLYKTM treats a
different type of disease or patient population compared to existing
rate control therapies. Although the applicant asserted that
RAPIBLYKTM has FDA-approved administration instructions for
patients with impaired cardiac function, we do not believe this
establishes that RAPIBLYKTM treats a different disease or
patient population than existing technologies used for rate control in
SVT, including AF or AFL. Specifically, we note that
RAPIBLYKTM's FDA label includes the warning about the risk
of hypotension, bradycardia, and cardiac failure. Therefore, it seems
that the factors the
[[Page 49722]]
applicant described relate to treatment preferences and logistical
considerations within the same patient population (adults with SVT,
including AF and AFL) rather than identifying a different patient
population. Similarly, while commenters stated that
RAPIBLYKTM may be particularly useful in adult patients with
impaired cardiac function, hypotension or risk of hypotension, renal
impairment, or other comorbidities for whom other beta blockers are not
clinically recommended due to adverse event risks and poor outcomes, we
do not believe these factors identify a different disease or
meaningfully different patient population for purposes of the
substantial similarity analysis. Rather, these represent clinical
practice considerations, treatment tolerance and preferences, dosing
considerations, or potential clinical improvement within the same or
similar patient population, who may also be treated by esmolol, rather
than distinct patient populations. The applicant also cited evidence
regarding RAPIBLYKTM's safety and tolerability in certain
high-risk patients compared to existing beta blockers. However, we
believe that while these differences may lead to improved clinical
outcomes, they do not identify treatment of a new disease or patient
population when compared to an existing technology.
In addition, we acknowledge the applicant's comment regarding
RAPIBLYKTM's February 2026 FDA approval for the short-term
reduction of ventricular rate in pediatric patients with SVT, which is
stated makes RAPIBLYKTM the first and only FDA-approved
intravenous beta blocker for the treatment of acute onset SVTs in
pediatric patients. However, RAPIBLYKTM's new technology
add-on payment application included only the FDA indication for short-
term reduction of ventricular rate in adult patients with SVT,
including AF and AFL, and as such, only the adult indication is
eligible for consideration for FY 2027 new technology add-on payment.
We also note that many of the comments and cited studies regarding
RAPIBLYKTM's real-world evidence, as well as comparisons
with esmolol, metoprolol, amiodarone, diltiazem, or digoxin, relate to
whether RAPIBLYKTM may improve clinical outcomes relative to
existing rate control technologies. However, as discussed previously,
these issues relate to an assessment of substantial clinical
improvement, rather than to whether RAPIBLYKTM is
substantially similar to existing technologies for purposes of the
newness criterion.
After review of the information provided in the comments, we
continue to disagree that RAPIBLYKTM uses a new mechanism of
action and treats a new patient population or disease compared to
previously available technologies. Specifically, we believe
RAPIBLYKTM and esmolol use the same mechanism of action to
achieve a therapeutic outcome: [beta]1-adrenergic receptors blocker on
cardiac myocytes, which results in the reduction of sympathetic
stimulation and ventricular rate to treat adults with SVT, including AF
and AFL. We also believe RAPIBLYKTM treats the same or
similar patient population and disease as esmolol, which is also used
to treat adults with SVT, including AF and AFL. Because we agree with
the applicant that RAPIBLYKTM will be assigned to the same
MS-DRG as previously available technologies, RAPIBLYKTM
meets all three of the substantial similarity criteria. Therefore, we
believe RAPIBLYKTM is substantially similar to esmolol.
While we acknowledge the applicant's comments about the delay in
commercial availability, in accordance with our policy, because
RAPIBLYKTM is substantially similar to esmolol, we consider
the beginning of the newness period for RAPIBLYKTM to begin
on the date that esmolol became commercially available. Because esmolol
has been on the U.S. market since December 31, 1986, the 3-year
anniversary of its entry onto the market occurred prior to FY 2027, and
therefore, RAPIBLYKTM does not meet the newness criterion
and is not eligible for new technology add-on payments for FY 2027.
We note that we received public comments with regard to the cost
and substantial clinical improvement criteria for this technology, but
because we have determined that the technology does not meet the
newness criterion and therefore is not eligible for approval for new
technology add-on payments for FY 2027, we are not summarizing comments
received or making a determination on those criteria in this final
rule.
e. 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.
In the proposed rule, we provided the following table containing 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.
[[Page 49723]]
[GRAPHIC] [TIFF OMITTED] TR04AU26.104
Newness Criterion
In the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19424), we noted
that 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 stated we were 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, we stated that 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 the
proposed rule, we stated we disagreed 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 noted 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 the proposed rule, we
stated we were unclear whether WASKYRATM is substantially
similar to existing treatments.
We invited public comments on whether WASKYRATM is
substantially similar to existing technologies and whether
WASKYRATM meets the newness criterion. We did not receive
any public comments on whether WASKYRATM meets the newness
criterion.
We continue to remain unclear as summarized in the proposed rule as
to whether WASKYRATM is substantially similar to other
products that are currently available on the U.S. market. Despite the
information the applicant previously submitted with its application
describing WASKYRATM as a curative treatment designed for
patients ineligible for HCT, we disagree that WASKYRATM
treats a new disease or new patient population because there are other
therapies indicated for patients with WAS who are not eligible for HCT.
In addition, as noted, 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,
we are unable to determine that WASKYRATM meets the newness
criterion.
Cost Criterion
Regarding the cost criterion, we stated we agreed with the
applicant that the technology meets the cost criterion. We invited
public comments on whether WASKYRATM meets the cost
criterion.
We did not receive any comments on whether WASKYRATM
meets the cost criterion. Based on the information submitted by the
applicant as part of its FY 2027 new technology add-on payment
application, the final inflated average case-weighted standardized
charge per case exceeded the average case-weighted threshold amount.
Therefore, WASKYRATM meets the cost criterion.
Substantial Clinical Improvement Criterion
In the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19425), after
review of the information provided by the applicant, we stated we had
the following concerns regarding whether WASKYRATM meets the
substantial clinical improvement criterion. We noted that the applicant
did not provide
[[Page 49724]]
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 stated we were unable to
evaluate substantial clinical improvement in the absence of supporting
evidence.
Furthermore, with respect to the applicant's claims, we noted 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
noted 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
stated 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 noted 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
stated we were unable to evaluate whether WASKYRATM
represents a substantial clinical improvement over existing
technologies.
After review of the information provided by the applicant, we
stated we were unable to determine that WASKYRATM represents
a substantial clinical improvement over existing technologies, and
therefore, we proposed to disapprove new technology add-on payments for
WASKYRATM for FY 2027.
We invited 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.
Comment: A commenter encouraged CMS to assign new technology add-on
payment status for WASKYRATM and stated that doing so will
remove a potential barrier to patients accessing innovative treatments
and tools advancing a personalized medicine approach to care.
Response: We thank the commenter for their comment.
We did not receive any public comments addressing the concerns we
indicated in the proposed rule regarding whether WASKYRATM
meets the substantial clinical improvement criterion. Accordingly,
after consideration of the public comment we received, we are unable to
determine that WASKYRATM represents a substantial clinical
improvement over existing technologies.
Based on the information submitted by the applicant as part of its
FY 2027 new technology add-on payment application and the public
comment we received for WASKYRATM, we are unable to
determine that WASKYRATM meets the newness criterion and
represents a substantial clinical improvement over existing
technologies for the reasons discussed in the proposed rule and in this
final rule. Therefore, we are not approving new technology add-on
payments for WASKYRATM for FY 2027.
f. 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 noted in the FY 2027 IPPS/
LTCH PPS proposed rule (91 FR 19425) 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).
In the proposed rule, we provided the following table containing 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 49725]]
[GRAPHIC] [TIFF OMITTED] TR04AU26.105
Newness Criterion
In the proposed rule, regarding substantial similarity, based on
the information available at the time of the proposed rule, we stated
we agreed 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 noted that we disagreed 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 the proposed rule, we stated our
belief that YARTEMLEA[supreg] is not substantially similar to existing
technology and meets the newness criterion. We stated that 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 invited public comments on whether YARTEMLEA[supreg] is
substantially similar to existing technologies and whether
YARTEMLEA[supreg] meets the newness criterion.
Comment: The applicant submitted a public comment asserting that
YARTEMLEA[supreg] satisfies the newness criterion. The applicant stated
its agreement with CMS that YARTEMLEA[supreg] has a novel mechanism of
action as the only approved therapy for TA-TMA and treats a new type of
disease or patient compared to existing technologies.
Response: We thank the applicant for its comment. Based on our
review of the comment received and information submitted by the
applicant as part of its FY 2027 new technology add-on payment
application for YARTEMLEA[supreg], we agree 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. Therefore, we agree that YARTEMLEA[supreg] is not
substantially similar to existing treatment options and meets the
newness criterion. We consider the beginning of the newness period to
commence on December 23, 2025, the date on which YARTEMLEA[supreg]
received FDA market authorization for this indication.
Cost Criterion
Regarding the cost criterion, we stated we agreed with the
applicant that the technology meets the cost criterion. We invited
public comments on whether YARTEMLEA[supreg] meets the cost criterion.
Comment: The applicant stated it agreed with CMS that
YARTEMLEA[supreg] meets the cost criterion and requested that CMS
calculate the maximum new technology add-on payment based on the cost
of 12 vials per Medicare inpatient stay. The applicant noted that the
average total dosage of YARTEMLEA[supreg] per inpatient stay is 4,218
mg, as stated in the proposed rule. Further, the applicant stated that
because YARTEMLEA[supreg] is supplied in single-dose 370 mg/2 mL vials,
this average dosage requires 11.4 vials, which must be rounded up to 12
vials per inpatient stay. The applicant commented that this approach
reflects the clinical and operational realities of inpatient
administration, because hospitals must acquire and use whole single-
dose vials and cannot acquire or administer fractional vials. According
to the applicant, at a wholesale acquisition cost of $36,805 per vial,
12 vials result in an estimated average drug cost of $441,660 per
Medicare inpatient stay. The applicant stated that applying 65 percent
yields a maximum new technology add-on payment of $287,079, which it
recommended CMS establish for YARTEMLEA[supreg] in the final rule.
Response: We thank the applicant for its comment. We agree with the
applicant that YARTEMLEA[supreg] meets the cost criterion, and we have
taken this comment into consideration in calculation of the new
technology add-on payment, as discussed later in this section.
Substantial Clinical Improvement Criterion
In the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19426), after
review of the information provided by the applicant, we stated we
agreed 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
[[Page 49726]]
directed therapies with a one-year overall survival (OS) of 42.7
percent (95% CI: 19.7, 65.8) in adult patients.\74\ Therefore, we
stated we agreed 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
the proposed rule, because YARTEMLEA[supreg] appears to meet the
criteria for approval for new technology add-on payments, we proposed
to approve YARTEMLEA[supreg] for new technology add-on payments for FY
2027.
---------------------------------------------------------------------------
\74\ 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 invited 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.
Comment: The applicant reiterated that YARTEMLEA[supreg] meets the
substantial clinical improvement criterion, because YARTEMLEA[supreg]
offers a treatment option for a patient population unresponsive to, or
ineligible for, available treatments.
Response: We thank the applicant for its comment regarding the
substantial clinical improvement criterion. We agree with the applicant
that YARTEMLEA[supreg] represents a substantial clinical improvement
over existing technologies, because it 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 1-year overall survival of 42.7 percent (95
percent CI: 19.7, 65.8) in adult patients.
After consideration of the public comments we received and the
information included in the applicant's new technology add-on payment
application, we have determined that YARTEMLEA[supreg] meets the
criteria for approval for new technology add-on payment. Therefore, we
are approving new technology add-on payments for this technology for FY
2027. Cases involving the use of YARTEMLEA[supreg] that are eligible
for new technology add-on payments will be identified by ICD-10-PCS
code XW03357 (Introduction of narsoplimab monoclonal antibody into
peripheral vein, percutaneous approach, new technology group 7) or
XW04357 (Introduction of narsoplimab monoclonal antibody into central
vein, percutaneous approach, new technology group 7).
In its application and comment, the applicant estimated that the
cost of YARTEMLEA[supreg] is $441,660 per patient ($36,805 per vial *
12 vials). According to the applicant, the cost for a 370 mg/2 mL
single-dose vial is $36,805, and adults receive an average of 11.4
administrations, which corresponds to 12 vials. Under Sec.
412.88(a)(2), we limit new technology add-on payments to the lesser of
65 percent of the average cost of the technology, or 65 percent of the
costs in excess of the MS-DRG payment for the case. As a result, the
maximum new technology add-on payment for a case involving the use of
YARTEMLEA[supreg] is $287,079 for FY 2027.
g. 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).
In the proposed rule, we provided the following table containing 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
application posting at https://mearis.cms.gov/public/publications/ntap/NTP251003GPVPQ.
[[Page 49727]]
[GRAPHIC] [TIFF OMITTED] TR04AU26.106
Newness Criterion
In the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19427), we noted
that 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
stated we were 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, we stated that based on the
information available at the time of the proposed rule, we agreed 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 stated we agreed that ZEVASKYNTM maps to a new MS-
DRG as compared to VYJUVEK[supreg] and FILSUVEZ[supreg]. We noted that
we disagreed 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 the proposed rule, we stated our belief that
ZEVASKYNTM is not substantially similar to existing
technology and meets the newness criterion.
We invited public comments on whether ZEVASKYNTM is
substantially similar to existing technologies and whether
ZEVASKYNTM meets the newness criterion.
Comment: The applicant submitted a public comment agreeing with
CMS's assessment that ZEVASKYNTM meets the newness
criterion. With respect to commercial availability, the applicant
stated that, between April 28 and June 15, 2025, it took necessary
steps to identify patients eligible to receive ZEVASKYNTM,
to train Quali[filig]ed Treatment Centers (QTCs) to administer
ZEVASKYNTM, and to begin extensive payer engagement
activities, including bene[filig]ts investigations, prior authorization
submissions, and single case agreement negotiations. The applicant
further explained that following these administrative steps, QTCs could
order the product and schedule patients for biopsy.
Response: We thank the applicant for its comment. Based on the
information submitted by the applicant as part of its FY 2027 new
technology add-on payment application for ZEVASKYNTM, we
agree 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 and maps to a new MS-DRG as compared to
VYJUVEK[supreg] and FILSUVEZ[supreg]. Therefore, we agree that
ZEVASKYNTM is not substantially similar to existing
treatment options and meets the newness criterion. We consider the
beginning of the newness period to commence on June 15, 2025, the date
on which ZEVASKYNTM became commercially available for the
treatment of adult and pediatric patients with RDEB.
Cost Criterion
Regarding the cost criterion, we stated we agreed with the
applicant that the technology meets the cost criterion. We invited
public comments on whether ZEVASKYNTM meets the cost
criterion.
Comment: The applicant stated its appreciation for CMS's assessment
that ZEVASKYNTM meets the cost criterion.
Response: We thank the applicant for its comment. We agree with the
applicant that the technology meets the cost criterion.
[[Page 49728]]
Substantial Clinical Improvement Criterion
We stated in the proposed rule that 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 summarized in
the proposed rule (91 FR 19247 through 19429).
After review of the information provided by the applicant and the
public comment received in response to the New Technology Town Hall
meeting, we stated in the proposed rule that we had 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 noted 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 noted 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, we stated that 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
questioned 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 noted 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 noted that both VYJUVEK[supreg] and
FILSUVEZ[supreg] demonstrated statistically significant wound healing
in their respective clinical trials. Therefore, we questioned 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 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 noted 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-controlled phase 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.
---------------------------------------------------------------------------
We noted that 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
noted 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 we
stated limits meaningful comparisons to ZEVASKYNTM.
Additionally, although the applicant asserted that
ZEVASKYNTM provides durable wound healing following a single
treatment application, we stated we were 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 noted that given that a subset of
treated wounds achieved complete closure and a substantial proportion
demonstrated only partial healing, we were 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 noted that although the applicant asserted that
ZEVASKYNTM has a favorable safety
[[Page 49729]]
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 stated 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 stated we were unable to determine that
ZEVASKYNTM represents a substantial clinical improvement
over existing technologies, and therefore, we proposed to disapprove
new technology add-on payments for ZEVASKYNTM for FY 2027.
We invited 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.
Comment: The applicant and a commenter expressed support for
approving new technology add-on payment status for
ZEVASKYNTM. The commenter stated that doing so will remove a
potential barrier to patients accessing innovative treatments and tools
advancing a personalized medicine approach to care. The applicant
disagreed with CMS's preliminary determination that
ZEVASKYNTM does not meet the substantial clinical
improvement criterion and requested CMS reconsider its proposal and
approve ZEVASKYNTM for new technology add-on payment.
In response to our concern that the claims and supporting evidence
failed to identify a patient population treated with
ZEVASKYNTM who cannot otherwise receive existing treatments,
the applicant stated that, in clinical trials, ZEVASKYNTM
was uniquely studied in large, chronic wounds each larger than 20 cm\2\
and open for 6 months or more. The applicant asserted that all clinical
trial outcomes, including long-term follow up, were reported following
a one-time surgical application to these tough-to-treat, large, chronic
RDEB wounds. The applicant cited Tang et al. (2025) and So et al.
(2022), stating that large and chronic wounds are a common occurrence
in RDEB patients and that these wound characteristics, not simply the
underlying RDEB diagnosis, define the population for whom no adequate
alternative exists.81 82 The applicant added that the unmet
need in this context is wound-specific, not patient-specific, and CMS's
current framework does not adequately account for this distinction. The
applicant further stated that, while existing therapies, including
VYJUVEK[supreg] and FILSUVEZ[supreg], are also indicated for the
treatment of wounds in DEB patients, RDEB patients have wounds of
various sizes, shapes, and duration of chronicity. The applicant cited
Guide et al. (2022), Kern et al. (2023), and Tang et al. (2025),
asserting that VYJUVEK[supreg]'s and FILSUVEZ[supreg]'s respective
clinical trials showed clinical responses primarily in smaller wounds
(median wound size: 10.6 cm\2\ and 16.0 cm\2\, respectively) with
weekly dosing, while ZEVASKYNTM has demonstrated wound
healing and pain reduction in large (median size: 160 cm\2\) and
chronic wounds.
---------------------------------------------------------------------------
\81\ Tang et al. Prademagene zamikeracel for recessive
dystrophic epidermolysis bullosa wounds (VIITAL): a two-centre,
randomized, open-label, intrapatient-controlled phase 3 trial.
Lancet. 2025. 406(10499):163-173.
\82\ So 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.
---------------------------------------------------------------------------
In response to our concern that both VYJUVEK[supreg] and
FILSUVEZ[supreg] do not have a maximum dose that precludes the use of
either treatment in difficult-to-treat, large, and chronic RDEB wounds,
the applicant clarified that, according to VYJUVEK[supreg]'s
prescribing information, the therapy has a maximum weekly dose equal to
2 x 10\9\ plaque forming units (PFU) (1 mL) for patients younger than 3
years old and a maximum weekly dose of 4 x 10\9\ PFU (2 mL) for
patients 3 years of age or older. The applicant further explained that
the VYJUVEK[supreg] prescribing information states that a 40 to 60
cm\2\ wound requires 1.2 x 10\9\ PFU or 0.6 mL of VYJUVEK[supreg] and
that one should apply VYJUVEK[supreg] gel to wounds until they are
closed before selecting new wound(s) to treat. The applicant also
stated that based on this information, a patient may cover a maximum
wound surface area of 133 to 200 cm\2\ with one VYJUVEK[supreg] vial
(calculation: (4.0 PFU/mL/1.2 PFU/mL = 3.33) x 60 cm\2\ = 200 cm\2\))
and must continue treating the same wounds each week until those wounds
are closed.
In addition, the applicant stated that FILSUVEZ[supreg] was studied
in wounds of 10 to 50 cm\2\, and it is unaware of data that suggests
FILSUVEZ[supreg] could be used to treat wounds as large as those that
ZEVASKYNTM can treat. The applicant noted that the
FILSUVEZ[supreg] prescribing information specifies that one 25 mL tube,
containing 23.4 g of 10 percent birch triterpene gel, covers up to 250
cm\2\ per application at wound dressing changes. The applicant asserted
that while the label does not explicitly limit the number of tubes per
dressing change, the per tube body surface area ceiling of 250 cm\2\
creates a meaningful, practical, and economic constraint. The applicant
stated that FILSUVEZ[supreg], like VYJUVEK[supreg], has not
demonstrated clinical benefit in the large, chronic, non-healing
wounds. The applicant reiterated that each ZEVASKYNTM gene-
modi[filig]ed cellular sheet can cover 41.25 cm\2\ of wound area and
that up to 12 ZEVASKYNTM gene-modified cellular sheets are
delivered for a single treatment of a patient, which can cover a total
wound area of 495 cm\2\ (12 x 41.25 cm\2\). The applicant stated that
ZEVASKYNTM can treat 2.5 to 8.7 times more wound area than
VYJUVEK[supreg]. The applicant asserted that ZEVASKYNTM
provides greater body surface area coverage than other therapies, and
therefore, is a clinically meaningful advancement for this patient
population. The applicant concluded that ZEVASKYNTM
addresses a distinct and severe wound phenotype that other existing
therapies, by virtue of their mechanism, dosing limitations, and
clinical profiles, cannot address.
In response to our concerns that we did not receive sufficient
evidence comparing ZEVASKYNTM to currently available
treatments, the applicant asserted that CMS's comparison of
ZEVASKYNTM with VYJUVEK[supreg] and FILSUVEZ[supreg] is not
scientifically supportable, because these treatments have different
mechanisms of action, are categorically distinct, and achieve different
clinical outcomes and are thus not interchangeable. The applicant
stated that FILSUVEZ[supreg] is a tree-bark extract with an unknown
mechanism of action and does not correct the underlying defect in the
COL7A1 gene,\83\ while VYJUVEK[supreg] uses a non-integrating herpes
simplex viral (HSV-1) vector that expresses the COL7A1 gene in the
nucleus of treated skin cells.\84\ The applicant added that the HSV-1
genetic material does not integrate into the cellular genome of
transduced cells and thus is diluted with each cellular division of
treated skin cells, requiring repeated VYJUVEK[supreg] application for
wound healing. The applicant stated that VYJUVEK[supreg] and
FILSUVEZ[supreg] typically
[[Page 49730]]
require life-long, weekly applications to maintain their clinical
effect. In contrast, the applicant highlighted that
ZEVASKYNTM is designed to be a one-time treatment for wounds
and uses a replication incompetent gamma retroviral vector, whose
genetic material integrates into transduced cells' cellular genome,
delivering a fully functional COL7A1 gene that stably integrates into
the genome and is maintained throughout repeated cell division while
negating the requirement for repeated application.\85\ The applicant
cited So et al. (2022), Eid et al. (2026),\86\ and Gaona et al. (2026)
\87\ and stated that ZEVASKYNTM is unique among approved
RDEB treatments because it delivers a fully functional and persisting
copy of the COL7A1 gene and is thus a one-time gene therapy that
persists after treatment. The applicant concluded that because
ZEVASKYNTM is a one-time treatment and VYJUVEK[supreg] and
FILSUVEZ[supreg] require continued reapplication to wound healing,
these interventions are categorically distinct and achieve different
clinical outcomes.
---------------------------------------------------------------------------
\83\ Schwieger-Briel et al. Mechanism of Oleogel-S10--A
triterpene preparation for the treatment of EB. Dermatologic
Therapy. 2019. Jul;32(4).
\84\ Guide et al. Trial of Bermmagene Geparpavec (B-VEC) for
Dystrophic Epidermolysis Bullosa. N Engl J Med. 2022. Dec
15;387(24):2211-2219.
\85\ Tang et al. Prademagene zamikeracel for recessive
dystrophic epidermolysis bullosa wounds (VIITAL): a two-centre,
randomized, open-label, intrapatient-controlled phase 3 trial.
Lancet. 2025. 406(10499):163-173.
\86\ Eid et al. Sustained wound healing and long-term safety of
prademagene zamikeracel (pz-cel) in recessive dystrophic
epidermolysis bullosa (RDEB): Five-year results from the VIITAL
phase 3 trial [Poster presentation]. Society for Investigational
Dermatology. 2026.
\87\ Gaona et al. Long-term safety and clinical outcomes of pz-
cel gene therapy in a single patient with recessive dystrophic
epidermolysis bullosa: a 12-year case report [Poster presentation].
Society for Investigative Dermatology. 2026.
---------------------------------------------------------------------------
In response to our concern that pain and itch were not endpoints in
the VYJUVEK[supreg] or FILSUVEZ[supreg] clinical trials and that this
limits meaningful comparisons to ZEVASKYNTM, the applicant
stated that VYJUVEK[supreg]'s clinical trial data did not achieve
statistical significance for pain,\88\ and FILSUVEZ[supreg]
demonstrated improvement in pain only at Day 14 in patients of ages 4
years and older, with no statistically significant findings at
timepoints beyond 14 days.\89\ The applicant also noted that
VYJUVEK[supreg] generated no meaningful data on itch and that
FILSUVEZ[supreg] showed statistically significant improvement in itch
only at Day 60 compared to placebo, with no sustained signal beyond
that single timepoint. The applicant contrasted these findings to
ZEVASKYNTM's pivotal VIITAL trial (Tang et al., 2025) which
found a mean change in wound pain from baseline to week 24 of -3.07 for
ZEVASKYNTM and -0.90 for control wounds (mean pairwise
difference -2.23 (-3.45 to -0.66), p = 0.0002) and a mean change in
itch severity from baseline to week 24 of -2.0 for ZEVASKYN versus -
0.05 for control wounds (mean pairwise difference -1.56 (95% CI -2.95
to -0.26; p = 0.0044)).\90\ The applicant stated that Tang et al.
(2025) was powered for analyzing difference in pain, whereas difference
in itch was an exploratory endpoint. The applicant suggested that
ZEVASKYNTM's pain and itch data demonstrates greater rigor
and significance than data available for VYJUVEK[supreg] and
FILSUVEZ[supreg]. The applicant asserted that ZEVASKYNTM is
the only therapy to have studied pain and itch alongside wound healing
following treatment.
---------------------------------------------------------------------------
\88\ Guide et al. Trial of Bermmagene Geparpavec (B-VEC) for
Dystrophic Epidermolysis Bullosa. N Engl J Med. 2022. Dec
15;387(24):2211-2219.
\89\ Kern 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. Br. J. Dermatol.
2023. 188: 12-21.
\90\ Tang et al. Prademagene zamikeracel for recessive
dystrophic epidermolysis bullosa wounds (VIITAL): a two-centre,
randomized, open-label, intrapatient-controlled phase 3 trial.
Lancet. 2025. 406(10499):163-173.
---------------------------------------------------------------------------
In response to our concern that the wounds that did not achieve
full closure with ZEVASYKNTM may need additional treatment,
the applicant disagreed with CMS's characterization that these concerns
undermine ZEVASYKNTM's durability. The applicant asserted
that ZEVASKYNTM has demonstrated long-term efficacy at
treated wound sites. The applicant stated that ZEVASKYNTM is
designed as a non-systemic cell-based gene therapy, distinguishing it
from other gene therapies approved in the United States, and that this
localized approach enables the therapy to act precisely where it is
needed, supporting durable and clinically meaningful wound closure. The
applicant further asserted that not a single wound of the 144 wounds
treated across ZEVASKYNTM's clinical trials had been re-
treated, and in the cases where patients returned for subsequent
treatments, those treatments addressed wounds at new anatomic locations
and not the retreatment of wounds already treated with
ZEVSAKYNTM, asserting the crucial distinction that
retreatment in this context bears no relationship to
ZEVASKYNTM's durability. The applicant stated that
ZEVASKYNTM's durability is further supported by biological
evidence of long-term persistence, including histologic confirmation of
anchoring fibril restoration and collagen VII expression at treated
sites across 2 years follow-up, and durable wound healing up to 12
years post-application as shown by Eichstadt et al. (2019),\91\ So et
al. (2022), Eid et al. (2026), and Gaona et al. (2026). The applicant
also clarified that partial healing of a wound does not negate durable
engraftment and these are not mutually exclusive outcomes. The
applicant concluded that long-term follow-up data (up to 12 years to
date and ongoing) provides additional evidence of
ZEVASKYNTM's sustained biologic activity and that
ZEVASKYNTM is the only therapy to demonstrate durable,
single-treatment genomic correction with multi-year biologic
persistence in treated wounds.
---------------------------------------------------------------------------
\91\ Eichstadt et al. Phase 1/2a clinical trial of gene-
corrected autologous cell therapy for recessive dystrophic
epidermolysis bullosa. JCI Insight. 2019. Oct 3;4(19).
---------------------------------------------------------------------------
In response to our concern that the applicant did not compare
ZEVASKYNTM's safety profile to those of other available
treatments, the applicant asserted that requiring such comparative
evidence exceeds the evidentiary standard applicable to new technology
add-on payment determinations according to 42 CFR 412.87(b)(1)(iii)
regarding evidence for substantial clinical improvement, and suggested
that the statute and implementing regulations do not require direct,
head-to-head safety comparisons to existing therapies. The applicant
asserted that denial of new technology add-on payment status for
ZEVASKYNTM would critically impair patient access to a
therapy that represents a genuine and substantial clinical advance for
one of the most vulnerable rare disease patient populations.
Response: We thank the applicant and commenter for their comments
regarding the substantial clinical improvement criterion. After
consideration of the public comments and the information included in
the applicant's new technology add-on payment application, we agree
that ZEVASKYNTM represents a substantial clinical
improvement over existing technologies because ZEVASKYNTM is
a one-time gene therapy for the treatment of large, chronic wounds up
to 495 cm\2\ and significantly reduces pain in patients with RDEB, with
a mean change in wound pain from baseline to week 24 of -3.07 points
(mean pairwise difference -2.23 [-3.45 to -0.66]; p = 0.0002). In
contrast, the available data for VYJUVEK[supreg] and FILSUVEZ[supreg]
did not demonstrate statistically significant reductions in pain from
baseline (at
[[Page 49731]]
timepoints beyond 14 days for FILSUVEZ[supreg]).\92\
---------------------------------------------------------------------------
\92\ Tang et al. Prademagene zamikeracel for recessive
dystrophic epidermolysis bullosa wounds (VIITAL): a two-centre,
randomized, open-label, intrapatient-controlled phase 3 trial.
Lancet. 2025. 406(10499):163-173.
---------------------------------------------------------------------------
Based on the information available at the time of this final rule,
we have determined that ZEVASKYNTM meets the criteria for
approval for new technology add-on payment. Therefore, we are approving
new technology add-on payments for this technology for FY 2027. Cases
involving the use of ZEVASKYNTM that are eligible for new
technology add-on payments will be identified by any of the ICD-10-PCS
codes listed in the following table:
[GRAPHIC] [TIFF OMITTED] TR04AU26.107
In its application, the applicant estimated that the cost of
ZEVASKYNTM is $3,147,000 per patient. According to the
applicant, ZEVASKYNTM is supplied as 41.25 cm\2\ gene-
corrected keratinocyte sheets with up to 12 sheets available for
application in a single surgical session. Under Sec. 412.88(a)(2), we
limit new technology add-on payments to the lesser of 65 percent of the
average cost of the technology, or 65 percent of the costs in excess of
the MS-DRG payment for the case. As a result, the maximum new
technology add-on payment for a case involving the use of
ZEVASKYNTM is $2,045,550 for FY 2027.
6. 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) 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 final rule, we are finalizing our proposal 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 the technology meets all eligibility
requirements to receive add-on payments, unless specifically
grandfathered under the alternative pathway eligibility criteria. (We
refer readers to section II.E.7. of this final rule for a complete
discussion of this finalized policy.)
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 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
[[Page 49732]]
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, in the proposed rule, we made 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 the 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 of the proposed rule
for additional information regarding tables associated with the
proposed rule.
Table 10 associated with this final rule reflects the finalized
tables listing the ICD-10-PCS codes or ICD-10-CM codes that would be
used to identify the relevant indication, or exclude cases related to a
different technology, for these technologies for purposes of the new
technology add-on payment for FY 2027, and is available on the CMS
website at: https://www.cms.gov/medicare/medicare-fee-for-service-payment/acuteinpatientpps.
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 marketing 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
submission 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 the FY 2027 IPPS/LTCH PPS
proposed rule (91 FR 19312). Subsequently, prior to the issuance of
this final rule, 5 additional applicants (for CERAMENT[supreg] V,
MediBeacon[supreg] Transdermal GFR Measurement System [TGFR], Micro
Medical Solutions MicroStent and the MicroStent XL Peripheral Vascular
Stent System, PMCardio[supreg] STEMI AI ECG Model, and VUNO Med-
DeepCARS[supreg]) withdrew their applications or did not meet the May 1
deadline for FDA approval or clearance of the technology, and therefore
are not eligible for consideration for new technology add-on payments
for FY 2027. While we do not typically address in the final rule those
applications for which the technology has not received FDA marketing
authorization as a Breakthrough Device for the relevant indication by
the May 1 deadline, we are summarizing and responding to comments we
received regarding whether the CARA System has received the required
FDA marketing authorization for this product by May 1. We are also
addressing the remaining 16 applications, all of which received
marketing authorization as a Breakthrough Device 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 PPS final rule for a complete
discussion of this policy (85 FR 58737 through 58742). As previously
noted, in section II.E.7. of this final rule, we are finalizing our
proposal 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 will need to receive FDA marketing
authorization by May 1 prior to the particular fiscal year for which
the application is being considered.
As we did in the FY 2026 IPPS/LTCH PPS proposed rule, for
applications under the alternative new technology add-on payment
pathway, in the proposed rule we proposed to approve or disapprove each
of the 22 applications for FY 2027 new technology add-on payments.
Therefore, in this section of the preamble of this final rule, we
provide the overview table from the proposed rule of each remaining new
technology add-on payment application and CMS's preliminary assessment
for each alternative pathway application, and our determination on
whether or not each technology is eligible for the new technology add-
on payment for FY 2027.
We stated in the proposed rule that we received multiple
applications for subscription-based technologies for FY 2027. We
further noted that we 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)
that 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 stated
that 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.
Comment: A commenter raised concerns regarding new technology add-
on payment applications for software applications and electronic health
record (EHR) tools that are integrated with hospital EHR systems and
stated its belief that the new technology add-on payment program is not
designed, nor is it the most appropriate avenue, to
[[Page 49733]]
account for provider costs from investments in software and equipment
that is deployed across the enterprise through an EHR. The commenter
stated that claims for additional new technology add-on payment are on
a per-patient basis, and EHR software platforms are not deployed at the
per-patient level. The commenter stated that, because these tools may
be available across many patient populations and MS-DRGs, their costs
may resemble administrative and general information technology
operating costs that are reportable on the Medicare cost report but not
typically separately chargeable on a per-patient basis. The commenter
stated that CMS had asked for comment on the cost criterion for one of
these EHR tools and whether the technology would replace any prior
technology, and stated that for the uses described there were already
clinical criteria, decision support tools, and other rubrics in use by
providers. The commenter stated that clinical decision-making is up to
the treating provider regardless of the use of such tools.
The commenter further stated a new technology add-on payment
application for an EHR-integrated tool was for a subscription service
that is billed according to hospital size rather than on a per-patient
basis. The commenter questioned whether CMS could elaborate on how a
provider would appropriately charge a patient account and report
utilization on an individual inpatient claim, given this cost
structure. The commenter also questioned how these technologies, if
approved, would be recognized for new technology add-on payment on
inpatient claims. The commenter stated that new technology add-on
payment claims are identified through the use of ICD-10-PCS procedure
codes, which requires physician documentation of the procedure
utilizing the new technology. The commenter questioned if the procedure
identifying the use of these EHR tools would be specifically documented
by clinicians and reportable for new technology add-on payment for
individual claims, and if this would result in unnecessary
documentation burden.
The commenter recommended that CMS provide additional guidance for
technologies seeking new technology add-on payment when the technology
is an EHR-integrated software platform, and stated that CMS consider
establishing a dedicated administrative and general cost center for
clinical information technology applications or software so that such
costs could be directly assigned or stepped down to benefiting service
lines for rate setting purposes. The commenter stated that the function
of the new technology add-on payment program may be diluted if it is
utilized broadly to provide minimal supplemental payment for these
software costs to a facility.
Another commenter expressed its support for CMS's broadening
approach to evaluating emerging software, including software as a
service (SaaS) and software as a medical device (SaMD) under the new
technology add-on payment program. The commenter stated that CMS is
demonstrating flexibility in evaluating technologies that do not align
with traditional per-case reimbursement frameworks and that this
represents an important step towards ensuring that innovative, AI-
enabled solutions can be considered within the Medicare payment system.
The commenter recommended that CMS develop more standardized and
transparent methodologies for evaluating the costs of subscription-
based and artificial intelligence-driven solutions for new technology
add-on payment purposes. The commenter stated that clearer expectations
regarding cost allocation, utilization assumptions, and the definition
of technology use within an inpatient stay would reduce reliance on
varying approaches across applicants and improve predictability. The
commenter stated that a more accessible and well-defined pathway would
support appropriate hospital payment for these technologies and help
ensure beneficiary access to tools that may enhance clinical decision-
making, improve efficiency, and support better patient outcomes.
Response: We thank the commenters for their support and recognition
of the inherent complexities. We recognize that software-based,
subscription-based, EHR-integrated, and artificial intelligence-driven
technologies may present differently than technologies that are
furnished as a more discrete item or service during an inpatient stay.
We also acknowledge commenters' interest in additional clarity
regarding how hospitals may report the use of such technologies on
claims, how costs may be allocated to inpatient cases, and how
applicants may support the cost criterion for purposes of new
technology add-on payment.
As we have evaluated technologies priced through subscriptions or
other non-per-patient arrangements for new technology add-on payment
eligibility, we have reviewed estimated average costs of the technology
for eligible inpatient cases, including relevant utilization
assumptions, cost allocation methodology, and how use of the technology
would be identified and supported by documentation and coding (for
example, 85 FR 58625 through 58636, 89 FR 69205 through 69208). ICD-10-
PCS codes are typically used to identify eligible new technology add-on
payments, under the same process as other claims. The addition of ICD-
10-CM codes may be used to identify technologies for new technology
add-on payments, but only where the technology is otherwise not
uniquely identifiable. Eligible new technology add-on payments are
calculated using the methodology detailed at 42 CFR 412.88.
Regarding the request that CMS develop more standardized and
transparent methodologies for evaluating the costs of subscription-
based and artificial intelligence-driven solutions for new technology
add-on payment purposes, and that clearer expectations regarding cost
allocation, utilization assumptions, and the definition of technology
use within an inpatient stay would reduce reliance on varying
approaches across applicants and improve predictability, we note that
subscription-based approaches to pricing can vary significantly, and we
have accommodated those differences in evaluating each applicant
individually, rather than requiring a certain methodology by which
subscription-based technology providers must calculate the price to
hospitals for their services/products.
We will continue to evaluate the cost information submitted for
subscription-based technologies under the applicable new technology
add-on payment criteria. For applicants that seek new technology add-on
payment for technologies that are licensed, subscribed to, or otherwise
priced on a basis other than a discrete per-patient charge, we expect
the application to clearly describe the methodology used to estimate
the average cost of the technology for eligible inpatient cases,
including the assumptions used to identify relevant utilization,
allocate costs to inpatient cases, and distinguish the cost of the
technology from other administrative, general, or information
technology costs, which might be considered capital costs. We also
expect applicants to describe how cases involving use of the technology
would be identified for purposes of any new technology add-on payment,
including whether use of the technology can be supported by the
applicable coding and medical record documentation. We may consider
whether additional guidance would be useful for future rulemaking or
other subregulatory materials as we
[[Page 49734]]
gain experience with more of these types of technologies.
With respect to the recommendation to establish a dedicated
administrative and general cost center for clinical information
technology applications or software, we appreciate the commenter's
suggestion. We are not adopting such a cost-reporting change in this
final rule. We may consider whether further analysis of cost-reporting
treatment for clinical software or EHR-integrated tools would be
appropriate in future rulemaking and whether the cost analyses should
be updated 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 FY 2027 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.
In the proposed rule, we provided the following table containing 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/public/publications/ntap/NTP25100520EEP.
[GRAPHIC] [TIFF OMITTED] TR04AU26.112
[[Page 49735]]
Cost Criterion
In the proposed rule, we stated that after review of the
information provided by the applicant, we agreed with the applicant
that the Bayesian Health Sepsis Flagging Device meets the cost
criterion and therefore proposed 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
the proposed rule, we proposed 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 noted that the cost information for
this technology may be updated in the final rule based on revised or
additional information CMS receives prior to the final rule.
We invited 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.
Comment: Multiple commenters expressed support for the approval of
the Bayesian Health Sepsis Flagging Device to address high morbidity,
mortality and cost burden associated with sepsis and potentially allow
for earlier recognition to improve outcomes when used in conjunction
with clinician judgment and evidence-based sepsis care. In addition, a
commenter suggested that CMS closely monitor real-world performance,
including false positive and false negative rates across diverse
patient populations and care settings, and to require robust post-
implementation evaluation to ensure that algorithmic tools do not
exacerbate disparities in sepsis recognition or treatment for
historically marginalized communities.
Response: We thank the commenters for their comments.
Comment: A commenter expressed performance concerns regarding the
Bayesian Health Sepsis Flagging Device based on its FDA 510(k) summary,
asserting that the device performance would be on par with other
devices, but substantially less than what the commenter referred to as
the state-of-the-art generative AI model performance reported in the
literature.
Response: We thank the commenter for its comment. We note that
performance concerns are not within the scope of CMS's evaluation for
new technology add-on payment under the alternative pathway, as defined
in Sec. 412.87(c). As discussed previously, a technology applying
under an alternative pathway does 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. (84 FR 42296).
Comment: A commenter expressed concern regarding EHR-integrated
software tools with wide-spread use across the majority of MS-DRGs,
specifically referencing the Bayesian Health Sepsis Flagging Device.
The commenter stated that this technology's cost criterion analysis
showed that it would be applicable to 739 MS-DRGs, and further stated
this is nearly all MS-DRGs. The commenter stated that such broad
applicability suggests the technology functions more like an EHR module
or tool, which would already be baked into the MS-DRG and IPPS payment
system as a whole, as an administrative and general information
technology operating cost, reportable on hospital cost reports, but not
typically separately chargeable per patient.
Response: We thank the commenter for its comment. As discussed
previously, for technologies priced through subscriptions or other non-
per-patient arrangements, such as the Bayesian Health Sepsis Flagging
Device, we review estimated average cost of the technology for eligible
inpatient cases, including relevant utilization assumptions, cost
allocation methodology, and how use of the technology would be
identified and supported by documentation and coding.
Comment: The applicant submitted a public comment in support of
approving new technology add-on payments for the Bayesian Health Sepsis
Flagging Device for FY 2027 as proposed, stating that it meets
alternative pathway eligibility criteria, and that the Bayesian Health
Sepsis Flagging Device received FDA 510(k) clearance for the same
indication as that of the Breakthrough Device designation on April 30,
2026.
Response: We thank the applicant for its comment. Based on the
information provided in the application for new technology add-on
payments, and after consideration of the public comments we received,
we believe the Bayesian Health Sepsis Flagging Device meets the cost
criterion. The technology received 510(k) clearance from FDA as a
Breakthrough Device on April 30, 2026 with an indication for use by
Health Care Providers (HCPs) in conjunction with clinical assessments
and other laboratory data to aid in the early detection and/or risk
prediction of sepsis developing within 24 hours for adult patients
(>=18 years old) upon Emergency Department (ED) presentation or
hospital admission throughout the duration of the patient's stay in
acute care settings,\93\ which is covered by its Breakthrough Device
designation. Therefore, we are finalizing our proposal to approve new
technology add-on payments for the Bayesian Health Sepsis Flagging
Device for FY 2027. We consider the beginning of the newness period to
commence on April 30, 2026, the date on which the technology received
FDA marketing authorization for the indication covered by its
Breakthrough Device designation.
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\93\ https://www.accessdata.fda.gov/cdrh_docs/pdf25/K250680.pdf
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Based on the information available at the time of this final rule,
the cost per case of the Bayesian Health Sepsis Flagging Device is
$95.14. Under Sec. 412.88(a)(2), we limit new technology add-on
payments to the lesser of 65 percent of the average cost of the
technology, or 65 percent of the costs in excess of the MS-DRG payment
for the case. As a result, we are finalizing that the maximum new
technology add-on payment for a case involving the use of the Bayesian
Health Sepsis Flagging Device is $61.84 for FY 2027 (that is, 65
percent of the average cost of the technology).
The applicant was granted approval for a unique ICD-10-PCS
procedure code for the Bayesian Health Sepsis Flagging Device beginning
in FY 2027. Therefore, cases involving the use of the Bayesian Health
Sepsis Flagging Device that are eligible for new technology add-on
payments will be identified by ICD-10-PCS procedure code: XEZZXJC (High
dimensional mixture-of-experts computer-aided assessment of
inflammatory response and organ function, for notification and triage,
new technology group 12).
2. BriefCase-Triage: CARE (Clinical AI Reasoning Engine) Multi-Triage
CT Body
Aidoc Medical Ltd., Inc. submitted a FY 2027 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
[[Page 49736]]
and communicates suspected positive findings for a wide range of
clinically actionable, time-sensitive conditions in the abdominopelvic
region.
In the proposed rule, we provided the following table containing an
overview of the new technology add-on payment application for
BriefCase-Triage 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/NTP251004A9NVV.
BILLING CODE 4169-69-C
[[Page 49737]]
[GRAPHIC] [TIFF OMITTED] TR04AU26.113
BILLING CODE 4169-69-C
Cost Criterion
In the proposed rule, we stated that after review of the
information provided by the applicant, we agreed with the applicant
that BriefCase-Triage meets the cost criterion and therefore proposed
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 stated
[[Page 49738]]
we considered 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 the proposed rule, we proposed 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 noted that the cost information for this technology may
be updated in the final rule based on revised or additional information
CMS receives prior to the final rule.
We invited 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.
Comment: The applicant submitted a public comment in support of the
proposal to approve BriefCase-Triage for new technology add-on payment.
The applicant provided assertions regarding the technology's clinical
impact and asserted that BriefCase-Triage is not substantially similar
to existing technology. The applicant reiterated the cost analyses done
at the time of application and agreed with CMS's proposed newness date
and cost per case of $137.53.
Response: We thank the applicant for its comment. We note that
substantial similarity and substantial clinical improvement are not
within the scope of CMS's evaluation for new technology add-on payment
eligibility under the alternative pathway, as defined in Sec.
412.87(c) and as previously stated. Based on the information provided
in the application for new technology add-on payments, and after
consideration of the public comment we received, we believe BriefCase-
Triage meets the cost criterion. The technology received marketing
authorization from FDA as a Breakthrough Device on January 7, 2026 with
an indication covered by its Breakthrough Device designation.
Therefore, we are finalizing our proposal to approve new technology
add-on payments for BriefCase-Triage for FY 2027. We consider the
beginning of the newness period to commence on January 7, 2026, the
date on which the technology received FDA marketing authorization for
the indication covered by its Breakthrough Device designation.
Based on the information available at the time of this final rule,
the cost per case of BriefCase-Triage is $211.59. Under Sec.
412.88(a)(2), we limit new technology add-on payments to the lesser of
65 percent of the average cost of the technology, or 65 percent of the
costs in excess of the MS-DRG payment for the case. As a result, we are
finalizing that the maximum new technology add-on payment for a case
involving the use of BriefCase-Triage is $137.53 for FY 2027 (that is,
65 percent of the average cost of the technology).
The applicant was granted approval for a unique ICD-10-PCS
procedure code for the BriefCase-Triage beginning in FY 2027.
Therefore, cases involving the use of BriefCase-Triage that are
eligible for new technology add-on payments will be identified by ICD-
10-PCS procedure code: XEZ5XKC (Computer-aided triage and notification
for imaging abnormalities in computed tomography of chest, abdomen and
pelvis, new technology group 12).
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.
In the proposed rule, we provided the following table containing 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.
BILLING CODE 4169-69-P
[[Page 49739]]
[GRAPHIC] [TIFF OMITTED] TR04AU26.114
BILLING CODE 4169-69-C
Cost Criterion
In the proposed rule, after review of the information provided by
the applicant, we stated that we agreed 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 questioned whether a surgical procedure done in the
operating
[[Page 49740]]
room with the CARA Atlas\TM\ Navigator would correspond to the FDA
Breakthrough Device designated indication involving real-time,
intraprocedural, fluoroscopic imaging to assist in fluoroscopic-guided
interventional heart procedures. We stated that we would be interested
in information clarifying the components and process for use of the
CARA Atlas\TM\ Navigator, accounting for the difference in cost between
a surgical procedure and an interventional procedure. We also
questioned whether procedures using only the CARA Metis\TM\ 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 Metis\TM\ Simulator and CARA
Atlas\TM\ Navigator). We noted that under the eligibility criteria for
approval under the alternative pathway for certain transformative
devices, only the use of the technology for the indication that
corresponds to the technology's Breakthrough Device designation would
be eligible for the new technology add-on payment for FY 2027. We
stated that 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 the proposed rule, we
proposed 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 noted that the
cost information for this technology may be updated in the final rule
based on revised or additional information CMS receives prior to the
final rule.
We invited 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.
We note that the CARA System was market authorized for use in adult
patients (18 years of age and older) on February 20, 2026 (K252500
\94\) for preplanning and guidance of medical interventions in an area
known to contain or be adjacent to the cardiac conduction system, such
as percutaneous or surgical procedures, for example, transcatheter
aortic valve replacement (TAVR), as well as medical procedures where
the physician desires to deliver therapy to the patient's cardiac
conduction system or to a targeted location within it (CSP). However,
as of the May 1, 2026 deadline, FDA has not market authorized the CARA
System as a Breakthrough Device. Because the applicant asserts that the
CARA System qualifies for new technology add-on payments under the
alternative pathway for FY 2027, we are discussing the applicant's
related comments in this final rule.
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\94\ https://www.accessdata.fda.gov/scripts/cdrh/cfdocs/cfPMN/pmn.cfm?ID=K252500.
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Comment: The applicant submitted a comment, asserting that the CARA
System should be eligible for the alternative pathway based on its
Breakthrough Device designation and FDA-cleared indication, stating
that the cleared indication is ``covered by'' its Breakthrough Device
designation indication. The applicant stated that CMS--not FDA--
administers the eligibility criteria for the alternative pathway for
Breakthrough Devices under Sec. 412.87(c). The applicant stated that
CMS relies on different statutory and regulatory authority from FDA
when it makes its own coverage and payment determinations for Medicare,
just as a ``safe and effective'' determination by FDA is distinct from
a ``reasonable and necessary'' determination for Medicare. Accordingly,
the applicant stated that the application of CMS's own regulations and
precedent--not FDA's separate decision regarding public disclosure on
its Breakthrough Devices website--governs whether the CARA System
qualifies under the alternative pathway.
The applicant asserted that CARA System satisfies both elements of
Sec. 412.87(c)(1). The applicant stated that first, the device is
``part of'' FDA's Breakthrough Devices Program: it received FDA
Breakthrough Device designation (Q250281) and the company then engaged
with FDA through the Breakthrough Devices Program to secure marketing
authorization, ultimately obtaining 510(k) clearance (K252500). The
applicant asserted that CMS has consistently treated designation plus
the pursuit of marketing authorization as sufficient to establish that
a device is ``part of'' the program; for example, in the FY 2023 IPPS/
LTCH PPS final rule CMS determined that the GORE[supreg] TAG[supreg]
TBE device was ``part of the Breakthrough Devices Program'' based on
its designation. The applicant asserted that neither CMS regulation nor
guidance conditions this determination on a device appearing on FDA's
Breakthrough Devices website, and that CMS has made alternative pathway
eligibility determinations in the FY 2021 and FY 2022 cycles before
that website existed. The applicant stated that second, the CARA
System's FDA-cleared indication is ``covered by'' its FDA Breakthrough
Device designation indication. The applicant asserted that CMS does not
require the market-authorized indication and the designation indication
to be identical or verbatim; it asks whether the cleared indication
falls within the scope of the broader designated indication. The
applicant stated that under both indications, the CARA System is used
for preplanning and guidance of medical interventions in an area known
to contain or be adjacent to the cardiac conduction system, including
TAVR and conduction system pacing procedures. Per the applicant, CMS
has approved alternative pathway new technology add-on payment
applications on this basis even where the cleared indication was
narrower than the designation indication and removed a specific claim.
The applicant stated that in the FY 2026 IPPS/LTCH PPS final rule, CMS
approved the Emily's Care Nourish Test System for new technology add-on
payment even though its 510(k)-cleared indication both narrowed the
treated population and removed a ``treatment'' claim that had been part
of its designation indication. The applicant further asserted that CMS
concluded the cleared indication was ``covered by'' the broader
designation indication and simply limited the scope of new technology
add-on payment recognition accordingly, and that CMS reached a
comparable conclusion in the FY 2025 cycle.
The applicant and another commenter also asserted that if CMS
decided to not grant the CARA System approval under the new technology
add-on payment alternative pathway, it should be granted consideration
under the traditional pathway, and the applicant attached a separate
letter that it stated laid out the claims and supportive evidence for
how the Cara System meets the substantial clinical improvement
criterion. The applicant stated that when applying for new technology
add-on payment, applicants are required to note if they are applying
via the traditional or the alternative pathway at the time of new
technology add-on payment application submission, and that it used the
alternative pathway because it believed the device met the eligibility
criteria for the alternative
[[Page 49741]]
pathway based on the Breakthrough Device designation that the Cara
System had received.
Response: As we stated previously, 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. Because the CARA System
has not received marketing authorization as a Breakthrough Device for
the indication covered by the Breakthrough Device designation, the CARA
System does not qualify for new technology add-on payments under the
alternative pathway for FY 2027.
Although the applicant concluded that CMS has consistently treated
designation plus the pursuit of marketing authorization as sufficient
to establish that a device is ``part of'' the Breakthrough Devices
program, this has not been our approach; neither do we condition our
determination on a device appearing on FDA's Breakthrough Devices
website. As we noted in the FY 2020 IPPS/LTCH PPS final rule (84 FR
42295) to implement the alternative pathways, we were committed to
continue to work collaboratively with FDA, as FDA's expedited programs,
including the Breakthrough Devices Program, evolve. We have
continuously consulted with FDA to confirm whether devices are
designated Breakthrough devices and to establish whether FDA has market
authorized each device that applies under this pathway for an
indication consistent with its Breakthrough Device designation,
including with respect to the prior technologies as cited by the
applicant, as well as the CARA System. We do not believe it would be
appropriate for CMS to make our determination of eligibility under the
alternative pathway before or in lieu of FDA's determination that an
FDA-designated Breakthrough Device has obtained marketing authorization
as a Breakthrough Device for an indication consistent with its
Breakthrough Device designation.
With respect to public disclosure on FDA's Breakthrough Devices web
page, we note that in its 2023 guidance on the Breakthrough Devices
Program,\95\ FDA stated that once a designated Breakthrough Device
obtains marketing authorization for an indication consistent with its
Breakthrough Device designation, FDA intends to publicly disclose its
Breakthrough Device designation status for that indication for use. The
FDA guidance further notes that because Breakthrough Device designation
is granted for a device and its indication for use, if a designated
Breakthrough Device receives marketing authorization for an indication
other than the indication covered by its designation, it is not
considered a market-authorized Breakthrough Device and would not be
disclosed as such. FDA's Breakthrough Devices web page lists the
Breakthrough Devices that have obtained marketing authorization for an
indication consistent with its Breakthrough Designation.\96\ FDA's
website further states that because Breakthrough Device designation is
granted for a device and its indication for use, if a designated
Breakthrough Device receives marketing authorization for an indication
other than the indication covered by its designation, it is not
considered a market-authorized Breakthrough Device and would not be
included in this list. We note that while the CARA System received FDA
510(k) clearance on February 20, 2026 (K252500), it is not listed on
FDA's Breakthrough Devices Program web page, which includes a list of
Breakthrough Devices that have obtained marketing authorization for an
indication consistent with its Breakthrough Designation through March
31, 2026.
---------------------------------------------------------------------------
\95\ Breakthrough Devices Program--Guidance for Industry and
Food and Drug Administration Staff (September 15, 2023) https://www.fda.gov/media/162413/download.
\96\ FDA's Breakthrough Devices Program web page is available
at: https://www.fda.gov/medical-devices/how-study-and-market-your-device/breakthrough-devices-program.
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We also disagree with the applicant's understanding of CMS's
determination as to whether an FDA-cleared indication is ``covered by''
a technology's Breakthrough Device designated indication. We do not
make a determination as to whether an FDA-cleared indication is covered
by the technology's Breakthrough Device-designated indication until
after FDA has determined that the device has obtained FDA marketing
authorization as a Breakthrough Device. As an FDA marketing submission
may be broader in scope and may cover both Breakthrough Device-
designated and non-Breakthrough Device-designated indications, there
may be differences in the patient population and/or disease treated
between the FDA market authorized indication and the Breakthrough
Device-designated indication. In these situations, because 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, we
must make a determination as to which uses of the device would be
relevant for purposes of the new technology add-on payment.
With respect to the applicant and commenter's suggestion that if
CMS does not approve new technology add-on payments for the technology
under the alternative pathway, CMS should consider approving the CARA
System under the traditional pathway, we note that, as stated
previously, CMS reviews applications based on the information provided
by the applicant under the pathway specified by the applicant at the
time of application submission (90 FR 36662).
Therefore, because the CARA System has not received FDA marketing
authorization as a Breakthrough Device, it does not qualify for new
technology add-on payments for FY 2027. With respect to the comments we
received regarding the technology's value and clinical impact, the
importance of new technology add-on payments for the technology, and
the different uses of the CARA System components with regard to the
cost criterion, as noted, the technology has not received FDA marketing
authorization as a Breakthrough Device and is not eligible for new
technology add-on payments for FY 2027 under the pathway specified by
the applicant at the time of application submission.
4. 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.
In the proposed rule, we provided the following table containing 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.
[[Page 49742]]
[GRAPHIC] [TIFF OMITTED] TR04AU26.115
In the proposed rule we stated that after review of the information
provided by the applicant, we noted that under the eligibility criteria
for approval under the alternative pathway for certain transformative
devices, only the use of the technology for the indication that
corresponds to the technology's Breakthrough Device designation would
be eligible for the new technology add-on payment for FY 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, we stated that 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, we stated that 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 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 proposed 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
final rule, we are finalizing our proposal to discontinue making new
technology add-on payments for the Ceribell Status Epilepticus Monitor
for FY 2027).
Furthermore, for purposes of the new technology add-on payment, if
approved, we stated we believed 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 the proposed
[[Page 49743]]
rule, for the list of ICD-10-CM diagnosis codes that we stated we
believed would identify patients with status epilepticus, which we
proposed to exclude from new technology add-on payment when reported in
combination with ICD-10-PCS procedure code XX20X89.
We invited 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.
Comment: We received several comments, including from the
applicant, expressing support for our proposal to approve new
technology add-on payment for the Ceribell Delirium Monitor System.
Multiple commenters described their assertions regarding the potential
clinical impact of Ceribell Delirium Monitor System.
Response: We thank the commenters for their comments. As previously
noted, clinical performance is not within the scope of CMS's evaluation
for new technology add-on payment under the alternative pathway.
Comment: In response to our proposal to exclude cases reporting the
status epilepticus ICD-10-CM diagnosis codes in combination with the
ICD-10-PCS procedure code XX20X89, which was previously used for
another technology, the Ceribell Status Epilepticus Monitor, the
applicant stated that it agreed with CMS's proposed approach of
utilizing ICD-10-PCS procedure code XX20X89 and excluding the 28
diagnosis codes listed for status epilepticus. Other commenters
expressed concerns with the reliance on diagnosis code-based exclusions
to distinguish between the use of the monitor for status epilepticus
versus delirium. A commenter stated that the monitor may be utilized
where there is no diagnosis and only a symptom would be reported. The
commenter stated that it's also possible for a patient to have both
conditions and it would be inappropriate to exclude delirium from new
technology add-on payments for the system based on co-existing
conditions. Some commenters recommended that CMS reconsider its
proposal to exclude cases reporting diagnosis codes for status
epilepticus, or create a distinct ICD-10-PCS code for the Ceribell
Delirium Monitor System, or consider using ICD-10-CM signs and symptom
codes that may be clinically representative of delirium, such as codes
for altered mental status or confusion.
Response: We thank the applicant and the other commenters for their
comments. We appreciate the commenters raising their concerns regarding
the potential use of the monitoring systems in cases where there is no
diagnosis of either delirium or status epilepticus, as well as concerns
regarding cases in which both conditions may be present. We continue to
believe that the use of the ICD-10-PCS code XX20X89 in combination with
the specified status epilepticus ICD-10-CM diagnosis code exclusions
represents the most appropriate approach to identify cases associated
with use of the Ceribell Status Epilepticus Monitor, which we proposed
to exclude from new technology add-on payment. While we recognize that
there may be instances in which patients are being monitored for
delirium, but have a co-existing diagnosis of status epilepticus, we
believe that this approach would provide an appropriate mechanism to
exclude cases where the monitor is used for status epilepticus. As
previously stated, ICD-10-PCS procedure code XX20X89 (Monitoring of
brain electrical activity, computer-aided detection and notification,
new technology group 9) is also used for the Ceribell Status
Epilepticus Monitor, for which we are discontinuing new technology add-
on payments for FY 2027 because it will no longer be considered new,
and therefore coding between the two technologies must be
differentiated to the extent of current capabilities. Further, we note
that the suggested use of ICD-10-CM signs and symptoms codes that may
be clinically representative of delirium, such as codes for altered
mental status or confusion, would not be specific for delirium and may
also inappropriately include cases with status epilepticus.
However, we note that, following publication of the proposed rule,
we were notified by the ICD-10 Coordination and Maintenance Committee
that the applicant withdrew their request for new ICD-10-CM codes to
differentiate use of the Ceribell Delirium Monitor System from use of
the Ceribell Status Epilepticus Monitor. We question whether, without
such codes, we would be able to differentiate use of the Ceribell
Status Epilepticus Monitor for at-risk patients who do not ultimately
receive a diagnosis of status epilepticus, from use of the Ceribell
Delirium Monitor System for at-risk patients who do not ultimately
receive a diagnosis of delirium. Therefore, we are considering whether
it would be necessary to use ICD-10-PCS code XX20X89 in combination
with ICD-10-CM diagnosis codes for delirium to identify cases using the
Ceribell Delirium Monitor System that would be eligible for the new
technology add-on payment.
At this time, we are finalizing our proposal to use the ICD-10-PCS
code XX20X89 in combination with ICD-10-CM diagnosis codes describing
status epilepticus in Table 10.2.--Ceribell Delirium Monitor System
(associated with this final rule) to identify cases associated with use
of the Ceribell Status Epilepticus Monitor in patients diagnosed with
status epilepticus, which would not be eligible for new technology add-
on payment for FY 2027.
Cost Criterion
We stated we agreed with the applicant that the Ceribell Delirium
Monitor System meets the cost criterion and therefore proposed 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 stated we
considered 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
the proposed rule, we proposed 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 percent of the average
cost of the technology). We noted that the cost information for this
technology may be updated in the final rule based on revised or
additional information CMS receives prior to the final rule.
We invited 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.
Comment: The applicant submitted a public comment confirming that
the expected hospital per-patient cost of the Ceribell Delirium Monitor
is $3,340 and requested that CMS finalize its proposal to approve new
technology add-on payment for this technology, effective October 1,
2026.
Response: We thank the applicant for its comment.
Based on the information provided in the application for new
technology add-on payments, and after consideration of the public
comments we received, we believe the Ceribell Delirium Monitor System
meets the cost criterion. The technology received marketing
authorization from FDA as a Breakthrough Device on December 8,
[[Page 49744]]
2025, for an indication covered by its Breakthrough Device designation,
as described previously. Therefore, we are finalizing our proposal to
approve new technology add-on payments for the Ceribell Delirium
Monitor System for FY 2027. We consider the beginning of the newness
period to commence on December 8, 2025, the date on which the
technology received FDA marketing authorization for the indication
covered by its Breakthrough Device designation.
Based on the information available at the time of this final rule,
the cost per case of the Ceribell Delirium Monitor System is $3,340.
Under Sec. 412.88(a)(2), we limit new technology add-on payments to
the lesser of 65 percent of the average cost of the technology, or 65
percent of the costs in excess of the MS-DRG payment for the case. As a
result, we are finalizing that the maximum new technology add-on
payment for a case involving the use of the Ceribell Delirium Monitor
System is $2,171 for FY 2027 (that is, 65 percent of the average cost
of the technology).
As noted earlier in this section, 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, is relevant
for purposes of the new technology add-on payment application for FY
2027. For FY 2027, cases involving the use of the Ceribell Delirium
Monitor System that are eligible for new technology add-on payments
will be identified by ICD-10-PCS procedure code XX20X89 (Monitoring of
brain electrical activity, computer-aided detection and notification,
new technology group 9) without any of the ICD-10-CM diagnosis codes
listed in Table 10.2.--Ceribell Delirium Monitor System associated with
this final rule. However, as discussed earlier, we question whether it
would be appropriate to also use ICD-10-PCS code XX20X89 in combination
with ICD-10-CM diagnosis codes for delirium to identify cases using the
Ceribell Delirium Monitor System for patients with delirium that would
be eligible for the new technology add-on payment. We may revisit the
codes used to identify cases involving the use of the Ceribell Delirium
Monitor System that are eligible for new technology add-on payments in
future rulemaking.
5. 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.
In the proposed rule, we provided the following table containing 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.
[[Page 49745]]
[GRAPHIC] [TIFF OMITTED] TR04AU26.116
In the proposed rule, we noted that after review of the information
provided by the applicant, 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. We noted that the indication for use for the CMORE[supreg]
[[Page 49746]]
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, we stated that 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
the proposed rule, for the list of relevant ICD-10-PCS procedure codes
that we believed would be appropriate to report in combination with use
of the 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 invited 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.
We did not receive any comments related to the list of relevant
ICD-10-PCS for the CMORE[supreg] CT System Breakthrough Device-
designated indication.
Cost Criterion
In the proposed rule, we stated we agreed with the applicant that
the CMORE[supreg] CT System meets the cost criterion and therefore
proposed 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 considered 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
the proposed rule, we proposed 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 percent of the average cost
of the technology). We noted that the cost information for this
technology may be updated in the final rule based on revised or
additional information CMS receives prior to the final rule.
We invited 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.
We did not receive any comments related to the CMORE[supreg] CT
System.
Based on the information provided in the application for new
technology add-on payments, we believe the CMORE[supreg] CT System
meets the cost criterion. The technology received marketing
authorization from FDA as a Breakthrough Device on November 12, 2025,
as described previously. Therefore, we are finalizing our proposal to
approve new technology add-on payments for the CMORE[supreg] CT System
for FY 2027. We consider the beginning of the newness period to
commence on December 8, 2025, the date on which the technology became
commercially available for the indication covered by its Breakthrough
Device designation.
Based on the information available at the time of this final rule,
the cost per case of the CMORE[supreg] CT System is $93,700. Under
Sec. 412.88(a)(2), we limit new technology add-on payments to the
lesser of 65 percent of the average cost of the technology, or 65
percent of the costs in excess of the MS-DRG payment for the case. As a
result, we are finalizing that the maximum new technology add-on
payment for a case involving the use of the CMORE[supreg] CT System is
$60,905 for FY 2027 (that is, 65 percent of the average cost of the
technology).
As noted earlier in this section, the indication 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, only the use of the CMORE[supreg] CT System as
an adjunct to fusion of the cervical spine (C1 to C7) and the upper
thoracic spine (T1 to T3), and the FDA Breakthrough Device designation
it received for that use, are relevant for purposes of the new
technology add-on payment application for FY 2027. In addition, the
applicant was granted approval for unique ICD-10-PCS procedure codes
for the CMORE[supreg] CT System beginning in FY 2027. Therefore, cases
involving the use of the CMORE[supreg] CT System that are eligible for
new technology add-on payments will be identified by any of the
following ICD-10-PCS procedure codes in combination with any of the
ICD-10-PCS procedure codes listed in Table 10.1.--CMORE[supreg] CT
System, associated with this final rule.
[[Page 49747]]
[GRAPHIC] [TIFF OMITTED] TR04AU26.117
6. 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.
In the proposed rule, we provided the following table containing 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.
[GRAPHIC] [TIFF OMITTED] TR04AU26.118
Cost Criterion
In the proposed rule, we stated that after review of the
information provided by the applicant, we agreed with the applicant
that the GORE[supreg] VIABAHN[supreg] FORTEGRA Venous Stent meets the
cost criterion and therefore proposed to approve the GORE[supreg]
VIABAHN[supreg] FORTEGRA Venous Stent for new technology add-on
payments for FY 2027, for the FDA-approved indication
[[Page 49748]]
covered by the Breakthrough Device designation listed in the table. We
considered 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 the proposed rule, we proposed that the maximum new technology
add-on payment for a case involving the use of the GORE[supreg]
VIABAHN[supreg] FORTEGRA Venous Stent would be $7,186.40 for FY 2027
(that is, 65 percent of the average cost of the technology). We noted
that the cost information for this technology may be updated in the
final rule based on revised or additional information CMS receives
prior to the final rule.
We invited public comments on whether the GORE[supreg]
VIABAHN[supreg] FORTEGRA Venous Stent meets the cost criterion and our
proposal to approve new technology add-on payments for the GORE[supreg]
VIABAHN[supreg] FORTEGRA Venous Stent for FY 2027.
Comment: Multiple commenters, including the applicant, expressed
support for the proposal to approve the GORE[supreg] VIABAHN[supreg]
FORTEGRA Venous Stent for new technology add-on payments and agreed
that this technology meets eligibility requirements. The applicant
stated its support of a maximum payment amount of $7,186.40.
Response: We thank the applicant and other commenters for their
comments.
Based on the information provided in the application for new
technology add-on payments, and after consideration of the public
comments we received, we believe the GORE[supreg] VIABAHN[supreg]
FORTEGRA Venous Stent meets the cost criterion. The technology received
marketing authorization from FDA as a Breakthrough Device on December
19, 2025 for the indication covered by its Breakthrough Device
designation. Therefore, we are finalizing our proposal to approve new
technology add-on payments for the GORE[supreg] VIABAHN[supreg]
FORTEGRA Venous Stent for FY 2027. We consider the beginning of the
newness period to commence on December 19, 2025, the date on which the
technology received FDA marketing authorization for the indication
covered by its Breakthrough Device designation.
Based on the information available at the time of this final rule,
the cost per case of the GORE[supreg] VIABAHN[supreg] FORTEGRA Venous
Stent is $11,056. Under Sec. 412.88(a)(2), we limit new technology
add-on payments to the lesser of 65 percent of the average cost of the
technology, or 65 percent of the costs in excess of the MS-DRG payment
for the case. As a result, we are finalizing that the maximum new
technology add-on payment for a case involving the use of the
GORE[supreg] VIABAHN[supreg] FORTEGRA Venous Stent is $7,186.40 for FY
2027 (that is, 65 percent of the average cost of the technology).
The applicant was granted approval for a unique ICD-10-PCS
procedure code for the GORE[supreg] VIABAHN[supreg] FORTEGRA Venous
Stent beginning in FY 2026. Therefore, cases involving the use of the
GORE[supreg] VIABAHN[supreg] FORTEGRA Venous Stent that are eligible
for new technology add-on payments will be identified by ICD-10-PCS
procedure code: X2723CB (Dilation of inferior vena cava and iliocaval
confluence with open-structure polymer lattice intraluminal device,
percutaneous approach, new technology group 11).
7. 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.
In the proposed rule, we provided the following table containing 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.
[[Page 49749]]
[GRAPHIC] [TIFF OMITTED] TR04AU26.119
ICD-10 Coding
In the proposed rule, we stated that after review of the
information provided by the applicant, we noted that
InfuseTM Bone Graft has been granted other FDA approvals
beyond the scope of its Breakthrough Device designation. We stated we
believed 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 49750]]
[GRAPHIC] [TIFF OMITTED] TR04AU26.120
We invited 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.
Comment: The applicant submitted a public comment stating that it
agreed with CMS's assessment of the relevant ICD-10-PCS procedure codes
that would be appropriate to report in combination with the use of
Infuse Bone GraftTM to identify use of the technology for
the Breakthrough Device-designated indication in a TLIF surgical
approach for purposes of new technology add-on payments.
Response: We thank the applicant for its support.
Cost Criterion
In the proposed rule we stated we agreed with the applicant that
InfuseTM Bone Graft meets the cost criterion and therefore
proposed 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 stated we considered 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
the proposed rule, we proposed 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 percent of the average cost
of the technology). We noted that the cost information for this
technology may be updated in the final rule based on revised or
additional information CMS receives prior to the final rule.
We invited 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.
Comment: The applicant submitted a public comment supporting CMS's
proposal to approve new technology add-on payments for
InfuseTM Bone Graft for use in transforaminal lumbar
interbody fusion (TLIF) procedures for degenerative disc disease. The
applicant agreed with CMS's cost assessment and CMS's proposal to
approve the technology with the proposed maximum payment amount of
$4,396.60.
Response: We thank the applicant for its comment.
Based on the information provided in the application for new
technology add-on payments, and after consideration of the public
comments we received, we continue to believe InfuseTM Bone
Graft meets the cost criterion. The technology received marketing
authorization from FDA as a Breakthrough Device on February 13, 2026
for the indication covered by its Breakthrough Device designation.
Therefore, we are finalizing our proposal to approve new technology
add-on payments for InfuseTM Bone Graft for FY 2027. We
consider the beginning of the newness period to commence on February
13, 2026, the date on which the technology received FDA marketing
authorization for the indication covered by its Breakthrough Device
designation.
Based on the information available at the time of this final rule,
the cost per case of InfuseTM Bone Graft is $6,764. Under
Sec. 412.88(a)(2), we limit new technology add-on payments to the
lesser of 65 percent of the average cost of the technology, or 65
percent of the costs in excess of the MS-DRG payment for the case. As a
result, we are finalizing that the maximum new technology add-on
payment for a case involving the use of InfuseTM Bone Graft
is $4,396.60 for FY 2027 (that is, 65 percent of the average cost of
the technology).
As noted earlier in this section, InfuseTM Bone Graft
has received FDA marketing authorization for multiple indications, and
only the use of InfuseTM Bone Graft 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 is relevant for purposes of the new technology
add-on payment application for FY 2027. In addition, the applicant was
granted approval for a unique ICD-10-PCS procedure code for the
InfuseTM Bone Graft beginning in FY 2027. Therefore, cases
involving the use of InfuseTM Bone Graft that are eligible
for new technology add-on payments will be identified by ICD-10-PCS
procedure code XW0U0CC (Introduction of recombinant human bone
morphogenetic protein-2 with collagen scaffold into joints, open
approach, new technology group 12), in combination with any of the
following ICD-10-PCS procedure codes:
[[Page 49751]]
[GRAPHIC] [TIFF OMITTED] TR04AU26.121
8. 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.
In the proposed rule, we provided the following table containing 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.
[GRAPHIC] [TIFF OMITTED] TR04AU26.122
[[Page 49752]]
Cost Criterion
In the proposed rule, we stated that after review of the
information provided by the applicant, we agreed with the applicant
that InVision PCA meets the cost criterion and therefore proposed 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 stated we considered 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
the proposed rule, we proposed 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 noted that the cost information for this technology may
be updated in the final rule based on revised or additional information
CMS receives prior to the final rule.
We invited 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.
Comment: Multiple commenters including the applicant submitted
public comments expressing agreement that InVision PCA meets the
eligibility requirements including the cost criterion, and supporting
our proposal to approve new technology add-on payments for FY 2027. The
applicant stated that the per-patient cost of the InVision PCA has
changed since the filing of their application. The applicant stated
that, following extensive market and competitive research, the final
per-patient cost is $3,500, reflecting the rarity of the disease, the
clinical value to patients, and increased costs associated with
Graphics Processing Unit (GPU) computing infrastructure required for
the application. The applicant submitted an updated cost analysis to
CMS, and stated that the cost criterion is still met at this updated
price. The applicant requested that CMS finalize the new technology
add-on payment application at this new per-patient cost, effective
October 1, 2026.
Response: We thank the commenters and applicant for their comments.
We also thank the applicant for the updated cost and cost analysis. We
note that the updated final inflated average case-weighted standardized
charge per case ($167,579) still exceeds the average case-weighted
threshold amount ($97,126).
Based on the information provided in the application for new
technology add-on payments, and after consideration of the public
comments we received, we believe InVision PCA meets the cost criterion.
The technology received marketing authorization from FDA as a
Breakthrough Device on May 21, 2025 for the indication covered by its
Breakthrough Device designation. Therefore, we are finalizing our
proposal to approve new technology add-on payments for InVision PCA for
FY 2027. We consider the beginning of the newness period to commence on
May 21, 2025, the date on which the technology received FDA marketing
authorization for the indication covered by its Breakthrough Device
designation.
Based on the information available at the time of this final rule,
the updated cost per case of InVision PCA is $3,500. Under Sec.
412.88(a)(2), we limit new technology add-on payments to the lesser of
65 percent of the average cost of the technology, or 65 percent of the
costs in excess of the MS-DRG payment for the case. As a result, we are
finalizing that the maximum new technology add-on payment for a case
involving the use of InVision PCA is $2,275.00 for FY 2027 (that is, 65
percent of the average cost of the technology).
The applicant was granted approval for a unique ICD-10-PCS
procedure code for the InVision PCA beginning in FY 2027. Therefore,
cases involving the use of InVision PCA that are eligible for new
technology add-on payments will be identified by ICD-10-PCS procedure
code: XEZZXLC (Computer-aided detection and notification for imaging
abnormalities in echocardiography, new technology group 12).
9. 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).
In the proposed rule, we provided the following table containing 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 49753]]
[GRAPHIC] [TIFF OMITTED] TR04AU26.123
Cost Criterion
In the proposed rule, we stated that after review of the
information provided by the applicant, we agreed with the applicant
that the NelliTM Seizure Monitoring System meets the cost
criterion and therefore proposed 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 stated we considered 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, we stated it appeared that these
costs are not eligible for new technology add-on payment, and we noted
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 the
proposed rule, we proposed 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 percent of the
average cost of the technology). We noted that the cost information for
this technology may be updated in the final rule based on revised or
additional information CMS receives prior to the final rule.
We invited 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.
Comment: The applicant submitted a public comment supporting CMS's
proposal to approve new technology add-on payments for the
NelliTM Seizure Monitoring System. The applicant provided
assertions regarding the clinical impact of the technology and the
expected impact of approval for new technology add-on payments. The
applicant stated that the cost for the Nelli System remains $1,500. The
applicant also stated that ICD-10-PCS code XXE0X48 (Measurement of
brain electrical activity, computer-aided semiologic analysis, new
technology group 8), effective October 1, 2022, may be used to identify
use of the technology.
[[Page 49754]]
Response: We thank the applicant for its comment. As previously
noted, clinical performance is not within the scope of CMS's evaluation
for new technology add-on payment under the alternative pathway.
Based on the information provided in the application for new
technology add-on payments, and after consideration of the public
comment we received, we continue to believe the NelliTM
Seizure Monitoring System meets the cost criterion. The technology
received marketing authorization from FDA as a Breakthrough Device on
November 21, 2025 for the indication covered by its Breakthrough Device
designation. Therefore, we are finalizing our proposal to approve new
technology add-on payments for the NelliTM Seizure
Monitoring System for FY 2027. We consider the beginning of the newness
period to commence on January 20, 2026, the date on which the
technology became commercially available for the indication covered by
its Breakthrough Device designation.
Based on the information available at the time of this final rule,
the cost per case of the NelliTM Seizure Monitoring System
is $1,500. Under Sec. 412.88(a)(2), we limit new technology add-on
payments to the lesser of 65 percent of the average cost of the
technology, or 65 percent of the costs in excess of the MS-DRG payment
for the case. As a result, we are finalizing that the maximum new
technology add-on payment for a case involving the use of the
NelliTM Seizure Monitoring System is $975 for FY 2027 (that
is, 65 percent of the average cost of the technology).
Cases involving the use of the NelliTM Seizure
Monitoring System that are eligible for new technology add-on payments
will be identified by ICD-10-PCS procedure code: XXE0X48 (Measurement
of brain electrical activity, computer-aided semiologic analysis, new
technology group 8).
10. 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.
In the proposed rule, we provided the following table containing 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 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] TR04AU26.124
Cost Criterion
In the proposed rule, we stated that after review of the
information provided by the applicant, we agreed with the applicant
that the NEXUS[supreg] Aortic Arch Stent Graft System meets the cost
criterion and therefore proposed 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 the proposed rule, we proposed that the maximum new technology
add-on payment for a case involving the use
[[Page 49755]]
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 noted that the cost information for this technology may
be updated in the final rule based on revised or additional information
CMS receives prior to the final rule.
We invited 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.
Comment: The applicant submitted a public comment in support of the
NEXUS[supreg] Aortic Arch Stent Graft System, including a copy of the
FDA PMA approval letter. The applicant stated that FDA marketing
authorization was received prior to the May 1, 2026 deadline and
requested CMS confirm that the NEXUS[supreg] Aortic Arch Stent Graft
System satisfies the FDA marketing authorization criterion. The
applicant stated FDA approval was supported by the one-year results of
the TRIOMPHE Investigational Device Exemption (IDE) clinical study and
provided its assertions regarding the clinical outcomes demonstrated by
the trial.
Other commenters also expressed support for the approval of the
NEXUS[supreg] Aortic Arch Stent Graft System, stating that the
technology meets the new technology add-on payment requirements and
offers a minimally invasive treatment option for patients with complex
aortic arch disease--including aneurysms, chronic dissections,
penetrating ulcers, and intramural hematoma--who often face high
operative risk and limited alternatives with conventional open arch
surgery. The commenters stated that temporary add-on payment is
appropriate to facilitate access to this innovative therapy while
utilization patterns and MS-DRG relative weights for these cases
continue to evolve.
Response: We thank the applicant and other commenters for their
comments. As previously noted, clinical performance is not within the
scope of CMS's evaluation for new technology add-on payment under the
alternative pathway. We agree with the applicant that the NEXUS[supreg]
Aortic Arch Stent Graft System meets the marketing authorization
requirement because the NEXUS[supreg] Aortic Arch Stent Graft System
received PMA approval as a Breakthrough Device prior to May 1, 2026.
Comment: A commentor submitted a public comment related to the cost
criterion analysis for the NEXUS[supreg] Aortic Arch Stent Graft System
stating that MS-DRG 209 was not active until FY 2026 as it was created
to recognize the complexity and resource use for procedures utilizing
several new technologies in complex aortic arch procedures, including
the GORE[supreg] TAG[supreg] Thoracic Branch Endoprosthesis. The
commenter stated that the cost threshold is significantly higher for
MS-DRG 209 and requested CMS clarify whether the cost analysis should
rank MS-DRG 209 higher related to the payment thresholds for FY 2027
new technology add-on payment applications. The commenter also stated
that if the applicant's cost analysis were used as submitted, the new
ICD-10-PCS section X codes for this technology (which it referred to as
X2VJ3HC and X2VJ3JC) should be included in MS-DRGs 219-221 only, which
the commenter stated appeared to be the dominant MS-DRGs per the
analysis.
Response: We thank the commenter for its comment. We are unclear on
the commenter's suggestion that the cost analysis should be
reconfigured to rank MS-DRG 209 higher, as MS-DRGs in a cost analysis
are not ranked. We note that even if only the FY 2027 new technology
add-on payment threshold for MS-DRG 209 was used for all identified
cases in the cost criterion analysis, the NEXUS[supreg] Aortic Arch
Stent Graft System would still meet the cost criterion because the
final inflated average case-weighted standardized charge per case
($513,444) would exceed the threshold amount for MS-DRG 209 ($402,058).
We also note that the process to request MS-DRG classification changes
is separate and distinct from the new technology add-on payment
application process. We refer the commenter to the MS-DRG
classification change request process that is discussed in section
II.C.1.b of the preamble of this final rule for further information.
We further note that the applicant was granted approval for unique
ICD-10-PCS procedure codes that are different from one of the codes
discussed in the comment, and which are discussed later in this
section.
Based on the information provided in the application for new
technology add-on payments, and after consideration of the public
comments we received, we believe the NEXUS[supreg] Aortic Arch Stent
Graft System meets the cost criterion. The technology received PMA
approval from FDA as a Breakthrough Device on April 2, 2026 with an
indication for the endovascular treatment of chronic dissections
involving the aortic arch in patients who are at high risk for open
surgical repair and who have appropriate anatomy,\97\ which is covered
by its Breakthrough Device designation. Therefore, we are finalizing
our proposal to approve new technology add-on payments for the
NEXUS[supreg] Aortic Arch Stent Graft System for FY 2027. We consider
the beginning of the newness period to commence on April 2, 2026, the
date on which the technology received FDA marketing authorization for
the indication covered by its Breakthrough Device designation.
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\97\ https://www.accessdata.fda.gov/cdrh_docs/pdf25/P250033A.pdf.
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Based on the information available at the time of this final rule,
the cost per case of the NEXUS[supreg] Aortic Arch Stent Graft System
is $55,200. Under Sec. 412.88(a)(2), we limit new technology add-on
payments to the lesser of 65 percent of the average cost of the
technology, or 65 percent of the costs in excess of the MS-DRG payment
for the case. As a result, we are finalizing that the maximum new
technology add-on payment for a case involving the use of the
NEXUS[supreg] Aortic Arch Stent Graft System is $35,880 for FY 2027
(that is, 65 percent of the average cost of the technology).
The applicant was granted approval for unique ICD-10-PCS procedure
codes for the NEXUS[supreg] Aortic Arch Stent Graft System beginning in
FY 2027. Therefore, cases involving the use of the NEXUS[supreg] Aortic
Arch Stent Graft System that are eligible for new technology add-on
payments will be identified by either ICD-10-PCS procedure code X2VJ3HC
(Restriction of thoracic aorta, ascending and arch using branched
intraluminal device, integrated system with innominate branch,
percutaneous approach, new technology group 12), or X2VJ3HC in
combination with X2VW3JC (Restriction of thoracic aorta, descending
using branched intraluminal device, integrated system extension,
percutaneous approach, new technology group 12).
11. 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
[[Page 49756]]
for patients at risk of life-threatening ventricular arrhythmias.
In the proposed rule, we provided the following table containing 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.
[GRAPHIC] [TIFF OMITTED] TR04AU26.125
Cost Criterion
In the proposed rule, we stated that after review of the
information provided by the applicant, we agreed with the applicant
that the OmniaSecureTM defibrillation lead meets the cost
criterion and therefore proposed 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 stated we
considered 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
the proposed rule, we proposed 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 percent
of the average cost of the technology). We noted that the cost
information for this technology may be updated in the final rule based
on revised or additional information CMS receives prior to the final
rule.
We invited 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.
Comment: A few commenters, including the applicant expressed
support for our proposal to approve new technology add-on payment for
the OmniaSecureTM MRI SureScanTM Lead Model
3930M. The applicant stated that it agreed with the assessment provided
in the proposed rule and stated that two new ICD-10-PCS codes, X2HV3GB
(Insertion of lumenless small-diameter defibrillator lead into right
ventricle, percutaneous approach, new technology group 11) and X2HM3GB
(Insertion of lumenless small-diameter defibrillator lead into
ventricular septum, percutaneous approach, new technology group 11)
became effective April 1, 2026, to describe procedures involving
insertion of the OmniaSecureTM defibrillation lead. The
applicant requested that CMS finalize approval at the proposed maximum
payment amount of $7,796.75 per case.
Response: We thank the commenters for their comments and support.
Based on the information provided in the application for new
technology add-on payments, and after consideration of the public
comments we received, we believe the OmniaSecureTM
defibrillation lead meets the cost criterion. The technology received
marketing authorization from FDA as a Breakthrough Device on April 22,
2025 for the indication covered by its Breakthrough Device designation.
Therefore, we are finalizing our proposal to approve new technology
add-on payments for the OmniaSecureTM defibrillation lead
for FY 2027 for single use in the right ventricle for pacing, sensing,
cardioversion, and defibrillation when a cardiac implantable electronic
device is indicated to treat patients who have experienced, or are at
significant risk of
[[Page 49757]]
developing, life-threatening ventricular tachyarrhythmias. We consider
the beginning of the newness period to commence on January 7, 2026, the
date on which the technology became commercially available for the
indication covered by its Breakthrough Device designation.
Based on the information available at the time of this final rule,
the cost per case of the OmniaSecureTM defibrillation lead
is $11,995. Under Sec. 412.88(a)(2), we limit new technology add-on
payments to the lesser of 65 percent of the average cost of the
technology, or 65 percent of the costs in excess of the MS-DRG payment
for the case. As a result, we are finalizing that the maximum new
technology add-on payment for a case involving the use of the
OmniaSecureTM defibrillation lead is $7,796.75 for FY 2027
(that is, 65 percent of the average cost of the technology).
The applicant was granted approval for unique ICD-10-PCS procedure
codes for the OmniaSecureTM defibrillation lead beginning in
FY 2026. However, we disagree that cases involving the use of
OmniaSecureTM defibrillation lead that are identified by
X2HM3GB (Insertion of lumenless small-diameter defibrillator lead into
ventricular septum, percutaneous approach, new technology group 11)
should be eligible for new technology add-on payment as the FDA
Breakthrough Device-designated indication only covers the
OmniaSecureTM defibrillation lead when intended for use in
the right ventricle. The use of the OmniaSecureTM
defibrillation lead for placement at the left bundle branch area in the
ventricular septum is not covered by its Breakthrough Device-designated
indication. Therefore, cases involving the use of the
OmniaSecureTM defibrillation lead that are eligible for new
technology add-on payments will be identified by ICD-10-PCS procedure
code X2HV3GB (Insertion of lumenless small-diameter defibrillator lead
into right ventricle, percutaneous approach, new technology group 11).
12. 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).
In the proposed rule, we provided the following table containing 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 49758]]
[GRAPHIC] [TIFF OMITTED] TR04AU26.126
ICD-10-CM Coding:
In the proposed rule, we stated that after review of the
information provided by the applicant, we noted 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,\98\ expanding the indication to allow
implantation of the product using additional surgical approaches. We
noted 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.
Therefore, we stated it appeared 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. We noted
that 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 stated
we believed 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:
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[[Page 49759]]
[GRAPHIC] [TIFF OMITTED] TR04AU26.127
We invited 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, and did not receive any comments.
Cost Criterion
In the proposed rule we stated we agreed with the applicant that
PearlMatrixTM P-15 Peptide Enhanced Bone Graft meets the
cost criterion and therefore proposed 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 stated we considered 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 the proposed rule, we stated that 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. We noted that the applicant stated there were capital
costs of $1,300 for the bone graft peptide, porcine anorganic bone
mineral, and fibrous collagen matrix, and that, as we had 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, we stated it appeared that the $1,300 capital costs were not
eligible for new technology add-on payment, and we noted 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 proposed 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 noted that the cost
information for this technology may be updated in the final rule based
on revised or additional information CMS receives prior to the final
rule.
We invited 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.
We did not receive any comments related to PearlMatrixTM
P-15 Peptide Enhanced Bone Graft.
Based on the information provided in the application for new
technology add-on payments, we believe PearlMatrixTM P-15
Peptide Enhanced Bone Graft meets the cost criterion. The technology
received marketing authorization from FDA as a Breakthrough Device on
June 18, 2025 for the indication covered by its Breakthrough Device
designation, as described previously. Therefore, we are finalizing our
proposal to approve new technology add-on payments for
PearlMatrixTM P-15 Peptide Enhanced Bone Graft for FY 2027.
We consider the beginning of the newness period to commence on June 18,
2025, the date on which the technology received FDA marketing
authorization for the indication covered by its Breakthrough Device
designation.
Based on the information available at the time of this final rule,
the cost per case of PearlMatrixTM P-15 Peptide Enhanced
Bone Graft meets is $5,200. Under Sec. 412.88(a)(2), we limit new
technology add-on payments to the lesser of 65 percent of the average
cost of the technology, or 65 percent of the costs in excess of the MS-
DRG payment for the case. As a result, we are finalizing that the
maximum new technology add-on payment for a case involving the use of
PearlMatrixTM P-15 Peptide Enhanced Bone Graft is $3,380 for
FY 2027 (that is, 65 percent of the average cost of the technology).
As noted earlier in this section, PearlMatrixTM P-15
Peptide Enhanced Bone Graft has received FDA marketing authorization
for multiple indications, and 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, are relevant for purposes of the
new technology add-on payment application for FY 2027. Therefore, cases
involving the use of PearlMatrixTM P-15 Peptide Enhanced
Bone Graft that are eligible for new technology add-on payments will be
identified by ICD-10-PCS procedure codes 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), in
combination with any of the following ICD-10-PCS procedure codes:
[[Page 49760]]
[GRAPHIC] [TIFF OMITTED] TR04AU26.128
13. 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.
In the proposed rule, we provided the following table containing 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 49761]]
[GRAPHIC] [TIFF OMITTED] TR04AU26.129
Cost Criterion
In the proposed rule, we stated that after review of the
information provided by the applicant, we agreed with the applicant
that the SAPIEN M3 TMVR System meets the cost criterion and therefore
proposed 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 stated we
considered 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
the proposed rule, we proposed 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 percent of the average cost of the
technology). We noted that the cost information for this technology may
be updated in the final rule based on revised or additional information
CMS receives prior to the final rule.
We invited 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.
Comment: Multiple commenters, including the applicant, expressed
support for our proposal to approve new technology add-on payment for
the SAPIEN M3 TMVR System. The applicant stated that the cost criterion
is met and urged CMS to finalize the proposal.
Response: We thank the applicant and commenters for their comments
and support.
Based on the information provided in the application for new
technology add-on payments, and after consideration of the public
comments we received, we believe the SAPIEN M3 TMVR System meets the
cost criterion. The technology received marketing authorization from
FDA as a Breakthrough Device on December 22, 2025 for the indication
covered by its Breakthrough Device designation. Therefore, we are
finalizing our proposal to approve new technology add-on payments for
the SAPIEN M3 TMVR System for FY 2027. We consider the beginning of the
newness period to commence on December 22, 2025, the date on which the
technology received
[[Page 49762]]
FDA marketing authorization for the indication covered by its
Breakthrough Device designation.
Based on the information available at the time of this final rule,
the cost per case of the SAPIEN M3 TMVR System is $54,000. Under Sec.
412.88(a)(2), we limit new technology add-on payments to the lesser of
65 percent of the average cost of the technology, or 65 percent of the
costs in excess of the MS-DRG payment for the case. As a result, we are
finalizing that the maximum new technology add-on payment for a case
involving the use of the SAPIEN M3 TMVR System is $35,100 for FY 2027
(that is, 65 percent of the average cost of the technology).
The applicant was granted approval for a unique ICD-10-PCS
procedure code for the SAPIEN M3 TMVR System beginning in FY 2027.
Therefore, cases involving the use of the SAPIEN M3 TMVR System that
are eligible for new technology add-on payments will be identified by
ICD-10-PCS procedure code: X2RG3FC (Replacement of mitral valve with
balloon-expandable bioprosthetic valve with dock, percutaneous
approach, new technology group 12).
14. 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).
In the proposed rule, we provided the following table containing 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.
[GRAPHIC] [TIFF OMITTED] TR04AU26.130
Cost Criterion
In the proposed rule, we stated that after review of the
information provided by the applicant, we agreed with the applicant
that the SetPoint System[supreg] meets the cost criterion and therefore
proposed 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 stated we
considered 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
the proposed rule, we proposed 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 percent of the average cost
of the technology). We noted that the cost information for this
technology may be updated in the final rule based on revised or
additional information CMS receives prior to the final rule.
We invited 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.
Comment: A few commenters, including the applicant, submitted
public comments that expressed support for our proposal to approve the
SetPoint System[supreg] with a maximum payment amount of $38,675. The
applicant described its assertions regarding the clinical impact of the
technology and
[[Page 49763]]
the importance of approving it for new technology add-on payments.
Response: We thank the applicant and commenters for their comments
and support.
We note that clinical performance is not within the scope of CMS's
evaluation for new technology add-on payment under the alternative
pathway, as previously stated.
Based on the information provided in the application for new
technology add-on payments, and after consideration of the public
comments we received, we believe the SetPoint System[supreg] meets the
cost criterion. The technology received marketing authorization from
FDA as a Breakthrough Device on July 30, 2025 for the indication
covered by its Breakthrough Device designation. Therefore, we are
finalizing our proposal to approve new technology add-on payments for
the SetPoint System[supreg] for FY 2027. We consider the beginning of
the newness period to commence on August 21, 2025, the date on which
the technology became commercially available for the indication covered
by its Breakthrough Device designation.
Based on the information available at the time of this final rule,
the cost per case of the SetPoint System[supreg] is $59,500. Under
Sec. 412.88(a)(2), we limit new technology add-on payments to the
lesser of 65 percent of the average cost of the technology, or 65
percent of the costs in excess of the MS-DRG payment for the case. As a
result, we are finalizing that the maximum new technology add-on
payment for a case involving the use of the SetPoint System[supreg] is
$38,675 for FY 2027 (that is, 65 percent of the average cost of the
technology).
The applicant was granted approval for a unique ICD-10-PCS
procedure code for the SetPoint System[supreg] beginning in FY 2027.
Therefore, cases involving the use of the SetPoint System[supreg] that
are eligible for new technology add-on payments will be identified by
ICD-10-PCS procedure code: X0HQ05C (Insertion of leadless
neurostimulator generator into vagus nerve, open approach, new
technology group 12).
15. 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).
In the proposed rule, we provided the following table containing 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.
[GRAPHIC] [TIFF OMITTED] TR04AU26.131
Cost Criterion
In the proposed rule, we stated that after review of the
information provided by the applicant, we agreed with the applicant
that the Spur[supreg] Peripheral Retrievable Stent System meets the
cost criterion and therefore proposed to approve the Spur[supreg]
Peripheral Retrievable Stent System for new technology add-on payments
for FY 2027, for the FDA-approved indication
[[Page 49764]]
covered by the Breakthrough Device designation listed in the table. We
stated we considered 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 the proposed rule, we proposed 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 noted
that the cost information for this technology may be updated in the
final rule based on revised or additional information CMS receives
prior to the final rule.
We invited 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.
Comment: The applicant and other commenters submitted comments in
support of new technology add-on payments for the Spur[supreg]
Peripheral Retrievable Stent System. The applicant's comment confirmed
that the final per-patient price of the technology is $3,995, and
agreed with the proposed maximum new technology add-on payment of
$2,596.75 for FY 2027. The applicant requested that CMS finalize the
proposal to approve new technology add-on payments.
Response: We thank the applicant and other commenters for their
comments.
Based on the information provided in the application for new
technology add-on payments, and after consideration of the public
comments we received, we continue to believe the Spur[supreg]
Peripheral Retrievable Stent System meets the cost criterion. The
technology received marketing authorization from FDA as a Breakthrough
Device on May 29, 2025 for the indication covered by its Breakthrough
Device designation. Therefore, we are finalizing our proposal to
approve new technology add-on payments for the Spur[supreg] Peripheral
Retrievable Stent System for FY 2027. We consider the beginning of the
newness period to commence on May 29, 2025, the date on which the
technology received FDA marketing authorization for the indication
covered by its Breakthrough Device designation.
Based on the information available at the time of this final rule,
the cost per case of the Spur[supreg] Peripheral Retrievable Stent
System is $3,995. Under Sec. 412.88(a)(2), we limit new technology
add-on payments to the lesser of 65 percent of the average cost of the
technology, or 65 percent of the costs in excess of the MS-DRG payment
for the case. As a result, we are finalizing that the maximum new
technology add-on payment for a case involving the use of the
Spur[supreg] Peripheral Retrievable Stent System is $2,596.75 for FY
2027 (that is, 65 percent of the average cost of the technology).
Cases involving the use of the Spur[supreg] Peripheral Retrievable
Stent System that are eligible for new technology add-on payments will
be identified by any of the following ICD-10-PCS procedure codes:
[GRAPHIC] [TIFF OMITTED] TR04AU26.132
16. 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.
In the proposed rule, we provided the following table containing 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 49765]]
[GRAPHIC] [TIFF OMITTED] TR04AU26.133
Cost Criterion
In the proposed rule, we stated that after review of the
information provided by the applicant, we agreed with the applicant
that the TrilogyTM Transcatheter Aortic Valve Regurgitation
System meets the cost criterion and therefore proposed 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 stated we considered 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
the proposed rule, we proposed 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 percent of the average cost of the technology). We
noted that the cost information for this technology may be updated in
the final rule based on revised or additional information CMS receives
prior to the final rule.
We invited 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.
Comment: We received several comments that expressed support for
our proposal to approve new technology add-on payment for the
TrilogyTM Transcatheter Aortic Valve Regurgitation System.
The commenters stated that without an add-on payment, the standard MS-
DRG payment will not adequately compensate hospitals for the cost of
the device during this early adoption period, and speculated on the
potential for slow adoption of the technology and resulting issues with
Medicare beneficiary access. Multiple commenters described their
assertions regarding the clinical need for this technology for Medicare
beneficiaries. Several commenters also asserted that the
TrilogyTM Transcatheter Aortic Valve Regurgitation System is
different from conventional TAVR systems. The applicant and other
commenters stated that the technology meets eligibility requirements
and requested that CMS finalize its proposal to approve the new
technology add-on payments for FY 2027 at the proposed maximum add-on
payment of $25,675 per case, with the applicant confirming the cost
analysis values reflected in the proposed rule. Another commenter
expressed concerns about the high cost of the technology when
considering shelf life and lack of consignment options, within a
broader context of concern about new technology add-on payments
creating incentivization for higher costs and charges.
Response: We thank the commenters for their comments. We agree that
the final inflated average case-weighted standardized charge per case
exceeded the average case-weighted threshold amount. Therefore, the
TrilogyTM Transcatheter Aortic Valve Regurgitation System
meets the cost criterion. We note that assessment of clinical
improvement and substantial similarity is not within the scope of CMS's
evaluation for new technology add-on payment under the alternative
pathway as previously described.
Based on the information provided in the application for new
technology add-on payments, and after consideration of the public
comments we received, we
[[Page 49766]]
believe the TrilogyTM Transcatheter Aortic Valve
Regurgitation System meets the cost criterion. The technology received
marketing authorization from FDA as a Breakthrough Device on March 17,
2026 for the indication covered by its Breakthrough Device designation.
Therefore, we are finalizing our proposal to approve new technology
add-on payments for the TrilogyTM Transcatheter Aortic Valve
Regurgitation System for FY 2027. We consider the beginning of the
newness period to commence on March 17, 2026, the date on which the
technology received FDA marketing authorization for the indication
covered by its Breakthrough Device designation.
Based on the information available at the time of this final rule,
the cost per case of the TrilogyTM Transcatheter Aortic
Valve Regurgitation System is $39,500. Under Sec. 412.88(a)(2), we
limit new technology add-on payments to the lesser of 65 percent of the
average cost of the technology, or 65 percent of the costs in excess of
the MS-DRG payment for the case. As a result, we are finalizing that
the maximum new technology add-on payment for a case involving the use
of the TrilogyTM Transcatheter Aortic Valve Regurgitation
System is $25,675 for FY 2027 (that is, 65 percent of the average cost
of the technology).
The applicant was granted approval for a unique ICD-10-PCS
procedure code for the TrilogyTM Transcatheter Aortic Valve
Regurgitation System beginning in FY 2027. Therefore, cases involving
the use of the TrilogyTM Transcatheter Aortic Valve
Regurgitation System that are eligible for new technology add-on
payments will be identified by ICD-10-PCS procedure code: X2RF3LC
(Replacement of aortic valve using zooplastic tissue, with integrated
native leaflet clipping locators, percutaneous approach, new technology
group 12).
17. 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.
In the proposed rule, we provided the following table containing 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.
[GRAPHIC] [TIFF OMITTED] TR04AU26.134
Newness Period
In the proposed rule, we stated that after review of the
information provided by the applicant, regarding commercial
availability, we noted that the applicant stated that the technology
would not be available for sale until April 27, 2026. We noted that 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. We
noted that 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 stated we were 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).
Comment: In response to CMS's request for additional information
regarding the technology's market availability, the applicant submitted
a public comment reiterating that its manufacturing partner permanently
ceased operations unexpectedly, requiring the applicant to restart the
process of identifying and qualifying a new manufacturing partner that
met all
[[Page 49767]]
FDA requirements. The applicant further reiterated that it experienced
substantial delays in aviation and international shipping caused by
regional security developments, which significantly delayed product
shipment and commercial availability. The applicant stated that these
circumstances were outside its control and that the product is expected
to be available for purchase in June 2026. The applicant requested that
CMS use June 2026 as the beginning of the newness period for the
ViaOneTM Epicardial Access System, rather than the initial
expected commercial date of April 27, 2026. The applicant stated its
recognition that if further delays in market availability were to
occur, the newness period would begin no later than September 30, 2026,
consistent with CMS's proposed policy to ensure the newness period
begins prior to the new technology add-on payment effective date.
Response: We thank the applicant for its comment, including the
additional information regarding the commercial availability of
ViaOneTM. Because the applicant stated that it anticipates
first commercial use and launch beginning June 2026, but the exact date
has yet to be established at this time, there is not sufficient
information to determine a specific newness date based on the
documented delay in the technology's availability on the U.S. market.
Absent additional information, we therefore consider the newness date
for this technology to be March 20, 2025, the date on which the
technology received 510(k) clearance. We welcome updates from the
applicant once the technology becomes commercially available for future
rulemaking.
Cost Criterion
In the proposed rule, we stated we agreed with the applicant that
ViaOneTM meets the cost criterion and therefore proposed 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
the proposed rule, we proposed 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 percent of the average cost of the
technology). We noted that the cost information for this technology may
be updated in the final rule based on revised or additional information
CMS receives prior to the final rule.
We invited 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.
Comment: Multiple commenters, including the applicant, expressed
support for approval of new technology add-on payments for
ViaOneTM. The applicant stated ViaOneTM met the
new technology add-on payment requirements for Breakthrough-designated
devices under the alternative pathway having received Breakthrough
Device designation from FDA on August 2, 2022, and FDA market
authorization on March 30, 2025, prior to May 1, 2026. The applicant
confirmed that the per-patient hospital operating cost of
ViaOneTM is $2,000, consistent with the amount provided in
its application.
Response: We thank the commenters for their comments. We note that
while the applicant stated in its comment that FDA market authorization
was received on March 30, 2025, the application for new technology add-
on payment and the supporting documentation provided by the applicant
indicate an FDA market authorization date of March 20, 2025.
Based on the information provided in the application for new
technology add-on payments, and after consideration of the public
comments we received, we believe ViaOneTM meets the cost
criterion. The technology received marketing authorization from FDA as
a Breakthrough Device on March 20, 2025 for the indication covered by
its Breakthrough Device designation. Therefore, we are finalizing our
proposal to approve new technology add-on payments for
ViaOneTM for FY 2027. We consider the beginning of the
newness period to commence on March 20, 2025, the date on which the
technology received FDA marketing authorization for the indication
covered by its Breakthrough Device designation.
Based on the information available at the time of this final rule,
the cost per case of ViaOneTM is $2,000. Under Sec.
412.88(a)(2), we limit new technology add-on payments to the lesser of
65 percent of the average cost of the technology, or 65 percent of the
costs in excess of the MS-DRG payment for the case. As a result, we are
finalizing that the maximum new technology add-on payment for a case
involving the use of ViaOneTM is $1,300 for FY 2027 (that
is, 65 percent of the average cost of the technology).
The applicant was granted approval for a unique ICD-10-PCS
procedure code for ViaOneTM beginning in FY 2027. Therefore,
cases involving the use of ViaOneTM that are eligible for
new technology add-on payments will be identified by ICD-10-PCS
procedure code: XEZD3QC (Pericardial cavity access using blunt-tip
concealed needle with mechanical gripping mechanism, percutaneous
approach, new technology group 12).
7. 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.
In the proposed rule, we noted 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.\99\ The Breakthrough Device designation criteria are
defined in section 515B(b) of
[[Page 49768]]
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.'' \100\ 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.\101\ 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.\102\ 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.\103\
---------------------------------------------------------------------------
\99\ Breakthrough Devices Program Guidance for Industry and Food
and Drug Administration Staff (September 15, 2023) https://www.fda.gov/media/162413/download.
\100\ Ibid.
\101\ Ibid.
\102\ Qualified Infectious Disease Product Designation Questions
and Answers Guidance for Industry (May 2021) https://www.fda.gov/media/148480/download.
\103\ 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.
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We noted in the proposed rule that, 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).
We further stated that as we have gained experience, we had
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 believed it would be 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 thought it 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, the devices substantially improved the
diagnosis or treatment of an illness or injury or improved 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 proposed 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
met the same eligibility requirements to receive add-on payments and/or
pass-through payments. We stated our belief that this proposed
requirement would better align spending and value and ultimately
support providers in delivering the best, data-driven care possible. We
also stated that by requiring all technologies to demonstrate that they
offered a substantial clinical improvement as part of our evaluation
process, we would be better able to make evidence-based decisions on
which technologies should receive these additional payments. We also
stated that holding all applicants to the same standards and requiring
all applicants to demonstrate that their technologies meet the same
criteria would maintain 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 proposed 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, we proposed that 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. We stated that
technologies that are currently under review for FY 2027 new technology
add-on payments under the alternative pathway would remain eligible for
consideration for add-on payment under the alternative pathway.
Technologies that have previously been approved for add-on payments
under
[[Page 49769]]
the alternative pathway would 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 also proposed removal of 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, we
stated 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, as reflected at Sec. 412.87(f)(2).
We proposed 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 also proposed related revisions
to the title of paragraph (f) and subparagraphs (1) and (2) of
paragraph (f) to reflect the proposed policy. We also proposed 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
also proposed 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 proposed 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 be required to demonstrate
that the technology met the requirements currently reflected at Sec.
419.66(c)(2)(i). We stated that OPPS device pass-through payment
applications submitted as of September 30, 2026, for devices that were
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 had 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 proposed to revise
paragraph Sec. 419.66(c)(2)(ii) to reflect the proposed policy,
effective October 1, 2026.
We stated that we believed 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 stated that we believe holding all applicants to
the same standards by 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, we noted that because the application and
approval timelines for new technology add-on payments are the same for
traditional and alternative application pathways, the 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). We stated that
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. We noted that the 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 stated 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 invited 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.
[[Page 49770]]
We received numerous comments, which we summarize and address in
this section.
Comment: Commenters stated their support of CMS's proposal to
rescind the alternative pathways and agreed that all technologies
seeking additional payment should be required to meet the same
statutory and regulatory eligibility criteria. Commenters agreed that
this approach would better align spending and value for Medicare and
its beneficiaries. A commenter appreciated CMS's clarification that
this change will not affect coverage of the technology or the ability
for Medicare providers to choose a technology where appropriate. The
commenter stated that holding all technologies to comparable
evidentiary standards is critical to ensuring consistent and equitable
determinations of whether existing diagnosis-related group or
ambulatory payment classification rates are inadequate and warrant
additional payment. The commenter stated that absent uniform
requirements, the alternative pathways risk undermining payment
accuracy and creating inequitable incentives across technologies. The
commenter also stated that ensuring that all applicants demonstrate
comparable clinical benefit and resource impact supports the integrity
of both the IPPS and the OPPS.
Another commenter, MedPAC, stated that it recognized the need to
maintain financial rewards for innovation while preserving the
incentives within the IPPS and OPPS for efficiency. MedPAC stated that
including the substantial clinical improvement requirement in the
evaluation ensures that additional Medicare payments are used to
support Medicare beneficiaries' access to innovations that are
demonstrated to improve outcomes compared to the currently available
treatment. MedPAC further stated that CMS's proposal is consistent with
its comment letter submitted in response to the IPPS proposed rule for
FY 2020, in which it indicated its lack of support for the use of the
FDA's Breakthrough Device Program for qualification for new technology
add-on payment unless the drug or device in question also meets the
current substantial clinical improvement criterion--that is, unless
there is evidence that the new technology results in improved care for
beneficiaries. Specifically, MedPAC pointed to language in its comment
letter that stated that it maintained that the Medicare program, not
FDA, should adjudicate spending determinations based on the specific
needs of the Medicare population.\104\ In addition, MedPAC highlighted
that, it had also noted that it has long held that Medicare should pay
similar rates for similar care, and that to protect the well-being of
beneficiaries and ensure good value for the Medicare program and thus
the taxpayers, Medicare should not pay more for technologies that have
not yet been proven to provide better outcomes for beneficiaries.
Therefore, drugs or devices should not qualify for new technology add-
on payment if there is no evidence that the drug or device is an
improvement relative to existing care.\105\ Likewise, MedPAC noted that
it did not support CMS's proposal to use the FDA's Breakthrough Device
Program for qualification for OPPS device pass-through payment, or
FDA's LPAD for qualification for new technology add-on payment, unless
the technologies in question also meet the substantial clinical
improvement requirement, as MedPAC stated in its comment letters on the
CY 2020 OPPS and FY 2021 IPPS proposed rules,
respectively.106 107 MedPAC further noted that it has also
supported a clinical superiority requirement being included in two
other contexts, including its June 2021 report to the Congress where
MedPAC recommended that the Secretary modify the pass-through drug
policy in the OPPS so that it applies only to drugs and biologics that
are clinically superior to their packaged analogs and in its comment
letters on the CY 2022 and 2025 ESRD proposed rules stating that CMS
should use a clinical superiority requirement for transitional drug
add-on payment adjustment (TDAPA) and post-TDAPA for end-stage renal
disease drugs.108 109 110 Finally, MedPAC further noted that
it continued to have general concerns about how Medicare pays for new
costly technology, including drugs and biologicals, and had previously
commented that the cost criteria used to determine payment for new
technology provide an incentive for manufacturers and hospitals to
increase their prices and charges.\111\
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\104\ https://www.medpac.gov/wp-content/uploads/import_data/scrape_files/docs/default-source/comment-letters/06212019_medpac_2020_ipps_ltch_comment_v3_sec.pdf.
\105\ Ibid.
\106\ https://www.medpac.gov/wp-content/uploads/import_data/scrape_files/docs/default-source/comment-letters/09132019_opps_asc_2020_medpac_comment_v2_sec.pdf.
\107\ https://www.medpac.gov/wp-content/uploads/import_data/scrape_files/docs/default-source/comment-letters/07072020_fy2021_ipps_medpac_comment_v2_sec.pdf.
\108\ https://www.medpac.gov/wp-content/uploads/import_data/scrape_files/docs/default-source/default-document-library/jun21_ch8_medpac_report_to_congress_sec.pdf.
\109\ Ibid.
\110\ https://www.medpac.gov/wp-content/uploads/2022/08/08192022_ESRD_CY2023_MedPAC_COMMENT_SEC.pdf.
\111\ https://www.medpac.gov/wp-content/uploads/import_data/scrape_files/docs/default-source/comment-letters/06252021_fy_2022_ipps_ltch_medpac_comment_sec.pdf.
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Another commenter stated that it strongly agreed that the
qualifications for new technology add-on payment and OPPS device pass-
through payments should be demonstrated, and not assumed, for FDA-
designated Breakthrough Devices. The commenter stated that the FDA
Breakthrough Device designation does not necessarily ensure that a
device is ``not substantially similar to existing technology.'' The
commenter stated that while the first three of the four elements of the
designation's second criterion are related to the device's novelty, the
fourth element is that the device's availability ``is in the best
interest of patients,'' and only one of the elements of the second
criterion must be met. The commenter asserted that as the designation's
first criterion is concerned with the potential for more effective
treatment, not necessarily the device's novelty, FDA-designated
Breakthrough Device technologies that meet the second criterion based
only on its fourth element may not be sufficiently evaluated for
similarity to existing alternatives. The commenter also noted that
receiving an FDA Breakthrough Device designation and earning
authorization from the FDA does not mean that a device demonstrates
substantial clinical improvement, as the commenter stated was required
for both new technology add-on payment and OPPS pass-through payment.
The commenter stated that FDA Breakthrough Device designation is based
on ``a reasonable expectation that a device could provide for more
effective treatment or diagnosis,'' and FDA market authorization does
not require that this expectation is sufficiently substantiated.
Instead, the commenter stated that when considering whether to
authorize an FDA-designated Breakthrough Device, the FDA ``may accept a
greater extent of uncertainty of the benefit-risk profile'' and allow
for more flexibility in the design of the study supporting
authorization, including the use of surrogate endpoints, shorter
duration of follow-up, and increased reliance on postmarket data.\112\
The commenter referenced an analysis of the data
[[Page 49771]]
supporting FDA-designated Breakthrough Devices, which found that about
half of primary effectiveness endpoints were surrogate measures and
almost 20 percent were not evaluated with statistical tests.\113\
Similarly, the commenter stated that in an examination of the studies
supporting FDA-designated Breakthrough Devices approved for OPPS device
pass-through payments between 2017 and 2023, less than two-thirds of
the studies met any primary effectiveness endpoint and half of the
primary effectiveness endpoints were surrogate measures.\114\
Furthermore, the commenter asserted the evidence supporting FDA-
designated Breakthrough Devices may not be generalizable to Medicare
beneficiaries, as this is not required for FDA authorization. As an
example, the commenter shared an examination of three cardiovascular
FDA-designated Breakthrough Devices, which found that the study
participants were younger and more likely to be male than would be
expected for a Medicare beneficiary population.\115\ The commenter
stated that while the repeal of the alternative pathways is an
important step, analyses of devices receiving new technology add-on
payment and pass-through payments that are not FDA-designated
Breakthrough Devices have found that these devices may not be supported
by high-quality data and may not have been studied sufficiently in the
Medicare population.\116\ The commenter suggested that to strengthen
the new technology add-on payment and OPPS device pass-through payment,
CMS should consider specifying data quality requirements for the
demonstration of substantial improvement, such as the use of
randomized, controlled trials with blinding, when possible, that
evaluate clinical benefit and have participant populations
representative of the Medicare beneficiary population.\117\
---------------------------------------------------------------------------
\112\ Breakthrough Devices Program: Guidance for Industry and
Food and Drug Administration Staff. U.S. Food and Drug
Administration; 2023. Accessed June 8, 2026. https://www.fda.gov/media/162413/download.
\113\ Kadakia KT, Dhruva SS, Ross JS, et al. FDA Authorization
of Therapeutic Devices Under the Breakthrough Devices Program. JAMA
Intern Med. 2025;185(8):996. doi:10.1001/jamainternmed.2025.2235.
\114\ Moneer O, Johnston JL, Rathi VK, Ross JS, Dhruva SS.
Medical Devices Applying for Outpatient Medicare Supplemental
Payments. JAMA Health Forum. 2024;5(11):e244016. doi:10.1001/
jamahealthforum.2024.4016.
\115\ Moneer O, Rathi VK, Johnston JL, Ross JS, Dhruva SS.
Aligning US Agency Policies for Cardiovascular Devices Through the
Breakthrough Devices Program. JAMA Cardiol. 2023;8(12):1174.
doi:10.1001/jamacardio.2023.3819.
\116\ Moneer O, Johnston JL, Rathi VK, Ross JS, Dhruva SS.
Medical Devices Applying for Outpatient Medicare Supplemental
Payments. JAMA Health Forum. 2024;5(11):e244016. doi:10.1001/
jamahealthforum.2024.4016.
\117\ Judson TJ, Dhruva SS, Redberg RF. Evaluation of
technologies approved for supplemental payments in the United
States. BMJ. Published online June 17, 2019:l2190. doi:10.1136/
bmj.l2190.
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Another commenter stated that the new technology add-on payment
alternative pathway for FDA-designated Breakthrough Devices may result
in unintended consequences that misalign Medicare spending with value.
The commenter stated that first, as Breakthrough Device designation is
often issued before product development and clinical trial protocols
are finalized, the alternative pathway may create a disincentive to
generate evidence of improved outcomes for Medicare beneficiaries,
which could lead to safety concerns, as well as unjustified excess
spending. Second, the commenter stated that the alternative pathway may
create a disincentive for providers to adopt FDA-designated
Breakthrough Devices that receive new technology add-on payment because
they have not been evaluated for substantial clinical improvement, as
providers may be less willing to adopt costly new FDA-designated
Breakthrough Devices without an assurance of substantial clinical
improvement relative to existing treatments. The commenter asserted
that the substantial clinical improvement criterion is an indicator of
the benefit of an FDA-designated Breakthrough Device to the Medicare
population and ensures the intended effect of the new technology add-on
payment program by promoting uptake of novel products that can ensure
better alignment between Medicare spending and value.
The commenter also stated its belief that new technology add-on
payment is critical to promote uptake and evidence generation that
supports other determinants of patient access like Medicare coverage.
This commenter stated that this was particularly relevant for FDA-
designated Breakthrough Devices that may not have sufficient evidence
to meet the ``reasonable and necessary'' threshold for Medicare
coverage but do have evidence to demonstrate substantial clinical
improvement. For example, the commenter stated that of the 13 eligible
devices with active Coverage with Evidence Development (CED) policies,
six have received new technology add-on payment. The commenter asserted
that new technology add-on payment thus supports evidence generation
for ``reasonable and necessary'' Medicare coverage. The commenter also
stated that there was an opportunity to consider how the new technology
add-on payment supports efforts to streamline Medicare coverage for
FDA-designated Breakthrough Devices. The commenter stated that
premarket evidence generation under the Regulatory Alignment for
Predictable and Immediate Device (RAPID) coverage pathway would inform
both FDA authorization and CMS coverage assessments. The commenter
believed that although this premarket evidence generation may not
always meet the ``reasonable and necessary''' standard for Medicare
coverage, meeting the new technology add-on payment criteria,
particularly the substantial clinical improvement criterion, would be a
very effective indicator of not just the potential value of the
product, but the effectiveness of the RAPID coverage pathway in
evidence generation relevant to Medicare beneficiaries. The commenter
stated that when critical postmarket evidence gaps remain, CMS could
consider employing key elements of the Transitional Coverage of
Emerging Technologies (TCET) pathway such as the Evidence Development
Plan (EDP), and CED policy to ensure predictable and robust evidence
generation. The commenter also recommended that CMS preserve the
technology add-on payment alternative pathway for antimicrobials as the
commenter believed that greater use of these products could drastically
reduce Medicare costs, thereby aligning spending with value.
Response: We appreciate the commenters' feedback and their support
of the proposal. We agree with the commenters that requiring all
technologies seeking additional payment under IPPS or OPPS meet the
same statutory and regulatory eligibility criteria for each pathway
would better align spending and value for Medicare and its
beneficiaries and would ensure consistent and equitable determinations
while maintaining the integrity of both the IPPS and the OPPS. Further,
we agree with the commenter that the qualifications for new technology
add-on payment and OPPS device pass-through payments should be
demonstrated, and not assumed, for FDA-designated technologies seeking
add-on payments. With respect to comments on the RAPID coverage
pathway, we refer commenters to the CMS press release which notes that
a proposed procedural notice regarding the RAPID coverage pathway is
expected to be issued for additional information.\118\
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\118\ CMS and FDA Announce RAPID Coverage Pathway to Accelerate
Patient Access to Life-Changing Medical Devices https://www.cms.gov/newsroom/press-releases/cms-fda-announce-rapid-coverage-pathway-accelerate-patient-access-life-changing-medical-devices.
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[[Page 49772]]
We agree that absent uniform requirements, continuing the
alternative pathways may create challenges for payment accuracy or
inequitable incentives across technologies. We agree with MedPAC that
including the substantial clinical improvement requirement in the
evaluation ensures that additional Medicare payments are used to
support Medicare beneficiaries' access to innovations that are
demonstrated to improve outcomes compared to the currently available
treatment. Further, we agree with the commenter that receiving an FDA
designation and earning FDA market authorization does not mean that a
device demonstrates substantial clinical improvement, as required under
the traditional pathway for both new technology add-on payment and OPPS
pass-through payment. As we noted in the proposed rule, FDA
Breakthrough Device designation is based on ``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,'' and FDA market authorization does not evaluate whether this
expectation is substantiated. Moreover, FDA guidance \119\ provides
that a complete set of clinical data is not required for Breakthrough
Device designation, and mechanisms for demonstrating a reasonable
expectation of technical and clinical success could include literature
or preliminary data (bench, animal, or clinical). The guidance provides
examples, where a sponsor might provide preliminary bench data to
support the potential for technical success and literature to support
that a given principle of operation could more effectively treat or
diagnose the identified disease or condition. We believe that the FDA
Breakthrough Device and QIDP designation criteria are distinct from the
CMS new technology add-on payment and OPPS device pass-through payment
status program requirements. New technology add-on payment and OPPS
device pass-through payment status criteria require that the technology
demonstrate a substantial clinical improvement for Medicare
beneficiaries, which is not a requirement for the FDA designations. As
approvals under the alternative pathway do not require the assessment
of available data or comparison to other technologies used by Medicare
patients, CMS would not be able to ensure that technologies receiving
add-on payments under this pathway truly add value. CMS has
continuously stated that FDA and CMS act under different statutes that
have different standards, and has noted in recent years that FDA
marketing authorization alone is often insufficient to support Medicare
decision making.120 121 We also believe it may be relevant
to consider whether, as stated by another commenter, that as
Breakthrough Device designation is often issued before product
development and clinical trial protocols are finalized, the alternative
pathway may reduce incentives to generate evidence of improved outcomes
for Medicare beneficiaries.
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\119\ https://www.fda.gov/regulatory-information/search-fda-guidance-documents/breakthrough-devices-program.
\120\ Final rule to repeal the ``Medicare Coverage of Innovative
Technology (MCIT) and Definition of ``Reasonable and Necessary''
final rule (86 FR 62945-62946).
\121\ Transitional Coverage for Emerging Technologies (TCET)
pathway final notice (89 FR 65725, 65727).
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Our concerns are exacerbated by the timing gap between FDA
Breakthrough Device and QIDP designation and marketing authorization,
or when technologies begin to be eligible to apply for add-on payments.
As mentioned by a commenter, these FDA designations are early
designations that generally occur years before the manufacturer applies
for marketing authorization. Therefore, even the expectation of benefit
under these designations is generally assessed years before CMS would
evaluate technologies for the purposes of new technology add-on payment
and OPPS device pass-through payment status, in many cases more than
four years prior. During the time between when a technology receives
FDA Breakthrough Device or QIDP designation and when the technology may
apply for new technology add-on payment and OPPS device pass-through
payment status, other meaningful comparator technologies may receive
FDA market authorization such that a technology with a FDA designation
that may have had the potential to demonstrate substantial clinical
improvement over technologies existing at the time of FDA designation
may no longer offer substantial clinical improvements over the
currently available treatments. New developments in the treatment
landscape in the years following the FDA designations remain an
important consideration for CMS under our statute and regulations.
We also agree with the commenter that FDA designation does not
necessarily ensure that a device is not substantially similar to
existing technology. For a Breakthrough Device designation, FDA does
not necessarily have to consider whether the device represents a novel
technology. We also note that before issuing a marketing authorization,
FDA generally cannot publicly disclose whether FDA has granted a
Breakthrough Device designation request, unless the sponsor decides to
make that information available to the public, and that while FDA's
website includes a list of Breakthrough Devices that have obtained
marketing authorization for an indication consistent with its
Breakthrough Designation, FDA does not identify there the particular
criteria under which the Breakthrough Device designation was granted.
We further note that even when the device represents a novel
technology, as previously stated, FDA considers whether there is a
reasonable expectation that a device could provide for more effective
treatment or diagnosis, but FDA market authorization does not provide a
determination that this expectation was substantiated, and with a time
lag between this assessment and eligibility for add-on payment, the
treatment landscape may have changed. Finally, FDA may grant
Breakthrough Device designation to multiple devices with the same
intended use, and a Breakthrough Device designation will not be revoked
solely on the basis of another FDA-designated Breakthrough device
obtaining marketing authorization.\122\ Similarly, FDA may grant QIDP
designation to multiple products with the same active ingredient with
the same use, because the designation applies to a specific drug
product from a specific sponsor for a specific use for which it is
being studied.\123\ As such, we do not believe that FDA Breakthrough
Device or QIDP designations ensure that a technology is not
substantially similar nor a substantial clinical improvement relative
to existing technology, especially when the time lag is considered.
Accordingly, we do not believe a technology should be considered to
have demonstrated that it is not substantially similar to existing
technology or to have met the substantial clinical improvement
criterion strictly on the basis of having FDA Breakthrough Device or
QIDP designation.
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\122\ Breakthrough Devices Program--Guidance for Industry and
Food and Drug Administration Staff--Document issued on September 15,
2023. https://www.fda.gov/files/guidance%20documents/published/Breakthrough-Devices-Program.pdf.
\123\ Qualified Infectious Disease Product Designation--
Questions and Answers Guidance for Industry--May 2021 https://www.fda.gov/media/148480/download.
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[[Page 49773]]
Regarding the commenter's concern that the alternative pathway may
create a disincentive for providers to adopt FDA-designated
Breakthrough Devices that receive new technology add-on payment because
they have not been evaluated for substantial clinical improvement, we
agree that CMS's determination that a technology demonstrates
substantial clinical improvement may be a factor for providers when
they are faced with the decision to adopt a new technology. In
addition, we are concerned that providers may assume that CMS's
approval of a technology indicates that the technology has demonstrated
that it offers a substantial clinical improvement over other products
or treatments on the market, when in fact, no such demonstration has
been made. In fact, we are aware of instances where manufacturers
suggest that technologies approved for the alternative pathway can be
said to have met the substantial clinical improvement criterion by
virtue of being approved for add-on payments through the alternative
pathways. We believe it would be beneficial to providers to require
that all technologies that receive add-on payments have demonstrated
that they have met all of the CMS criteria, as this may further support
providers in making informed decisions regarding the technologies
available to them and their beneficiaries. We concur with MedPAC's
statement that Medicare should not pay more for these technologies when
they have not yet been proven to provide better outcomes for
beneficiaries. As such, we continue to believe it is in the best
interest of Medicare patients to refine our approach to ensure that all
applicants for new technology add-on payment or OPPS device pass-
through payment status have demonstrated that they meet the same
eligibility requirements, including that they improve the diagnosis or
treatment of Medicare beneficiaries. We further agree that CMS, not
FDA, should adjudicate spending determinations based on the specific
needs of the Medicare population, as these add-on payments are governed
by CMS's statutory and regulatory authority.
For these reasons, we continue to believe that ensuring that all
applicants for new technology add-on payment or OPPS device pass-
through payment status have demonstrated that they meet the same
eligibility requirements is the better policy.
With respect to a commenter's belief that new technology add-on
payment supports other determinants of patient access like Medicare
coverage, as discussed further in this section, and as stated in the
September 7, 2001 final rule and CY 2003 OPPS final rule (66 FR 46914,
67 FR 66783), the criteria for determining whether a technology is
eligible for new technology add-on payment and OPPS device pass-through
payments are not intended for use in making coverage decisions under
section 1862(a)(1)(A) of the Act.
Regarding the commenter who described concerns that even devices
applying under the traditional pathway and which have been determined
to have met the substantial clinical improvement criterion may not be
supported by the highest-quality data, and they may not necessarily
have been studied in the Medicare population, we agree that higher
quality data with generalizability to Medicare beneficiaries is ideal.
However, the regulations at Sec. 412.87 are intentionally broad in
order to provide flexibility for applicants in what they can provide to
demonstrate substantial clinical improvement, and we have aimed to
strike a balance in accepting a broad range of available evidence for
consideration. In addition, we do not agree that CMS should preserve
the alternative pathway for antimicrobials, which we discuss in greater
detail later in this section.
Comment: Many commenters stated they shared CMS's commitment to
ensuring that Medicare beneficiaries receive the best, evidence-based
care; however, they opposed the proposal to repeal the alternative
pathways for new technology add-on payment and OPPS device pass-
through. Commenters who were non-supportive of the proposal stated that
the alternative pathways facilitate the early adoption of promising
technologies while additional evidence is developed, and that removing
the alternative pathways may limit the generation of clinically
meaningful data and real-world evidence to inform future coverage and
payment policy. Commenters believed that the alternative pathways have
played a critical role in supporting early adoption of breakthrough
technologies in both the inpatient and outpatient setting by mitigating
the payment lag that often follows FDA market authorization, improving
the timeliness of Medicare beneficiary access to FDA-designated
Breakthrough Devices, and easing the burden on innovators to meet the
Agency's evidentiary requirements. Some of the commenters stated their
belief that devices that have received FDA Breakthrough Device
designation have cleared a meaningful, evidence-based, and rigorous
threshold, as FDA has determined the technologies address an unmet need
and warrant expedited development and review. A commenter stated that
by aligning new technology add-on payment and OPPS device pass-through
eligibility with FDA's Breakthrough Device designation, CMS had created
a more predictable and efficient route for technologies that meet a
high evidentiary bar. Some commenters stated that in CMS's rationale
from prior rulemaking to establish the alternative pathways, CMS had
recognized that FDA provides marketing authorization under the FDA
Breakthrough Devices Program to technologies that are still developing
their evidence base and had concluded that FDA's assessment could serve
as a reasonable proxy for the substantial clinical improvement
criterion, which reduced duplicative evidentiary burdens. A commenter
stated that CMS and stakeholders had accumulated meaningful experience
with FDA Breakthrough Device-related OPPS device pass-through payments
and that the alternative pathway had functioned as intended. The
commenter provided a cross-sectional analysis of 43 OPPS device pass-
through applications (2017-2023) and found that CMS approved 17 (40
percent) overall, including all 8 (100 percent) applications submitted
under the alternative pathway for FDA-designated Breakthrough Devices,
with most denials due to failure to demonstrate substantial clinical
improvement, highlighting that this was the principal access barrier.
The commenter further stated that CMS had also increased transparency
by publicly posting OPPS device pass-through public application
summaries, illustrating continued reliance on the OPPS device pass-
through framework by innovators. Commenters provided examples from
prior rulemaking, including applications for FY 2027, stating that 32
of 47 (68 percent) new technology add-on payment applicants utilized
the alternative pathway, reflecting that the pathway is a central
mechanism by which genuinely novel, high-need technologies access the
add-on payment, and that overall, total new technology add-on payment
applications have increased 161 percent from FY 2020 to FY 2027,
reflecting the pathway working as intended.
Commenters stated their belief that requiring proof of substantial
clinical improvement at the time of new technology add-on payment
application imposes a standard that does not fully account for the
different FDA and CMS evidence timelines. Commenters further stated
that demonstration of substantial clinical improvement at the time of
new
[[Page 49774]]
technology add-on payment application may be difficult for many
technologies to meet or may be constrained by ethical, methodological,
or practical considerations. A commenter explained that when a device
treats a population for whom no comparable standard of care exists, or
for whom the counterfactual is high-risk surgery or no treatment at
all, randomized comparative trials are frequently ethically and
practically impossible within the new technology add-on payment
timeframe. Another commenter asserted that for patients without a
single, defined comparable therapy against which improvement can be
measured, such as patients with drug-resistant epilepsy that have
failed multiple antiseizure medications and have varying comorbidities
and prior treatment history, technologies may offer profound clinical
value that is not captured by the framework that CMS has historically
applied in the substantial clinical improvement criterion evaluation
process. Some commenters asserted that the traditional pathway is not
available to pre-commercial FDA-designated Breakthrough Devices by
nature of the designation, not by choice or for lack of clinical merit,
and that the alternative pathway fills a genuine structural gap in the
new technology add-on payment evaluation. Other commenters noted that
devices cleared through the FDA 510(k) clearance pathway, such as those
used in spine surgery, do not require pre-market clinical trial data as
they are only required to be substantially equivalent to a predicate
device. A commenter stated that for technologies cleared through the
510(k) pathway, the window available to accumulate the peer-reviewed,
comparative outcome literature CMS expects under the substantial
clinical improvement criterion often overlaps the technology's same
three-year new technology add-on payment eligibility window, and
usually cannot be satisfied simultaneously. Another commenter stated
that evidence of substantial clinical improvement is not typically
available during the initial period of commercialization of a novel
technology because the evidence is beyond the scope of FDA's
determination of safety and effectiveness, which would
disproportionately affect FDA 510(k) cleared devices that require
limited or no clinical evidence for marketing authorization, but would
also impact devices reviewed through the Premarket Approval (PMA)
process. Other commenters stated that for FDA PMA products in
particular, the FDA Breakthrough Device designation reflects
technologies that address serious or life-threatening conditions and
meet rigorous FDA criteria. A commenter stated its agreement that
Breakthrough Device designation alone is not a sufficient proxy for
robust clinical evidence demonstrating safety, effectiveness, and
meaningful clinical benefit because the designation is granted early in
development, typically before such evidence has been fully generated.
The commenter cited a recent peer-reviewed analysis \124\ that examined
the 26 FDA-designated Breakthrough Devices cleared through the 510(k)
pathway as of July 2023 and found that, among the 16 therapeutic
devices, 6 (37.5 percent) had no clinical studies referenced in their
FDA decision letters. However, the commenter believed that the
appropriate response was targeted reform, as it stated that
technologies FDA market authorized through FDA De Novo and PMA pathways
based on completed IDE studies are already required to have the
clinical evidence sought by CMS.
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\124\ FDA Breakthrough Device Designation: Clinical Evidence And
Medicare Payment Policies https://www.healthaffairs.org/content/forefront/fda-breakthrough-device-designation-clinical-evidence-and-medicare-payment-policies.
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Commenters also shared their concerns that CMS was increasingly
holding applicants to excessively stringent standards, particularly
with respect to the substantial clinical improvement criterion. A few
commenters further believed this stringency disproportionately impacted
certain classes of technologies, including cell and gene therapies,
particularly those that treat rare or ultra-rare conditions. The
commenter stated that these therapies often serve very small patient
populations, making traditional clinical trial designs and data
accumulation challenging, despite profound clinical benefit, and that
without new technology add-on payment, hospitals may delay or
altogether forgo adopting technologies that could improve outcomes for
patients with limited or no existing treatment options. Another
commenter stated its concerns about CMS inappropriately considering
newer generation CAR T-cell therapies as ``substantially similar'' to
first generation therapies despite differences in their methods of
action. The commenter urged CMS to recognize innovations in the newer
generation of CAR T-cell therapies and how they differentiate these
from previous generations, including recognizing when the CAR construct
of a CAR T-cell therapy is differentiated in a manner that leads to
improvements in treatment that are supported by clinical evidence.
Other commenters also asserted that the evidentiary standard CMS
applies to substantial clinical improvement for medical devices raises
concerns about alignment with the Agency's position that new technology
add-on payment and OPPS device pass-through determinations are payment
decisions, not coverage determinations. Commenters stated that in
practice, the substantial clinical improvement threshold increasingly
requires comparative, peer-reviewed evidence demonstrating improved
outcomes in the Medicare population, a level of rigor similar to, or
exceeding, that typically used for Medicare coverage under the
``reasonable and necessary'' standard. Commenters stated that once CMS
determines a technology meets this threshold, it becomes difficult to
reconcile how coverage could subsequently be denied for clinically
appropriate patients. A commenter further stated that such an illogical
result demonstrates the unreasonably high burden of the evidentiary
showing required to demonstrate substantial clinical improvement. The
commenter stated that CMS's escalating substantial clinical improvement
evidence demands have, in practice, converted what the Agency
characterizes as a circumscribed payment inquiry into a de facto
coverage adjudication. The commenter stated that the substantial
clinical improvement standard was never intended for this purpose, but
current evidence requirements created what it described as a clear
contradiction--either (i) new technology add-on payment and OPPS device
pass-through determinations are genuinely ``only payment decisions,''
with evidentiary standards that reflect that limited scope, or (ii) CMS
should recognize that the substantial clinical improvement criterion as
applied is expansive such that it encompasses and exceeds the bar for a
``reasonable and necessary'' coverage determination and treat it as
such. A commenter stated that the statutory text reflects that Congress
intended new technology add-on payment to be available for innovative
new technologies with costs not yet reflected in applicable MS-DRG
rates, not that Congress intended technology add-on payment to have
such strict evidentiary requirements that it would be only very rarely
available.
Response: We appreciate commenters' feedback on our proposal to
require all applicants for new technology add-on payments and OPPS
device pass-
[[Page 49775]]
through payments to meet the same eligibility criteria. We recognize
the role of the alternative pathways in supporting early adoption of
technologies in both the inpatient and outpatient setting by mitigating
the payment lag that often follows FDA market authorization. However,
both new technology add-on payment and OPPS device pass-through payment
are intended to collect cost data for the purposes of payment, not to
facilitate the collection of clinical data. For new technology add-on
payment, this is reflected in the general provisions at Sec.
412.87(a). OPPS device pass-through payment, as implemented at Sec.
419.66, is intended to facilitate access for beneficiaries to the
advantages of new, innovative devices by allowing for adequate payment
for these new devices while the necessary cost data is collected to
incorporate the costs for these devices into the procedure APC rate (66
FR 55861).
With respect to comments arguing that devices that have received
FDA Breakthrough Device designation have cleared a rigorous, evidence-
based threshold, we note, as we have before, that FDA Breakthrough
Device designation is based on, among other things, a reasonable
expectation that a device could provide for more effective treatment or
diagnosis.\125\ FDA market authorization does not provide a
determination that this expectation was substantiated, and mechanisms
for demonstrating a reasonable expectation of technical and clinical
success could include literature or preliminary data (bench, animal, or
clinical). We further note that FDA-designated Breakthrough Devices
that have obtained premarket authorization through the 510(k) pathway
are sometimes cleared without evaluation of clinical safety or
effectiveness data and instead are authorized on the basis of
substantial equivalence to a legally marketed predicate device.
Accordingly, we do not believe a device should be considered to have
met CMS's substantial clinical improvement criterion strictly on the
basis of having FDA Breakthrough Device designation. We further note
with respect to the comments regarding therapies that serve small
patient populations and provide profound clinical benefit, or improve
outcomes for patients without existing treatment options, if they in
fact do have evidence to support improved outcomes, we do not believe
these therapies would be negatively impacted as the regulations
describing requirements for substantial clinical improvement
specifically describe these scenarios as potentially representative of
substantial clinical improvement. In fact, many of these types of
technologies have been approved for new technology add-on payments
after providing evidence that meets the requirements for approval.
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\125\ https://www.fda.gov/media/162413/download.
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Regarding the commenters who stated that we had previously
believed, at the time of implementation of the alternative pathway,
that it was appropriate to facilitate beneficiary access to
transformative new medical devices without requiring substantial
clinical improvement, we note that we have continued to accumulate
experience with this pathway and worked collaboratively with the FDA
and FDA's expedited programs, including the Breakthrough Devices
Program, over the past years. We believe it may be relevant to consider
whether the pathways may unintentionally reduce incentives to generate
evidence of improved outcomes for Medicare beneficiaries because
evidence submission became unnecessary to receive these additional
payments under the alternative pathway, as suggested by a commenter.
Furthermore, we disagree that requiring a demonstration of substantial
clinical improvement for new technology add-on payment and OPPS device
pass-through payment would systematically disadvantage novel and
innovative technologies. Rather, these technologies would instead be
subject to the same criteria as all other novel and innovative
technologies that apply under the traditional pathways. We believe CMS
should incentivize the use of technologies that have demonstrated
evidence of substantial clinical improvement. 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. Following our continued experience with the
alternative pathway and for the reasons discussed in this final rule,
we believe it is most appropriate for CMS to return to providing
additional payment and facilitating beneficiary access under these
special payment programs for those technologies that have demonstrated
a substantial improvement for Medicare beneficiaries.
We disagree that our evaluations of substantial similarity and
substantial clinical improvement have gotten increasingly stringent. We
note, as previously summarized, that other commenters have suggested
that we are not stringent enough, as they asserted recent approvals for
new technology add-on payments and OPPS device pass-through payment are
not based on high-quality data. We believe that commenters who assert
our evaluations have become increasingly stringent may instead be
seeing a positive reflection of the improvement in treatment landscapes
for a diversity of patient populations and diseases since the inception
of new technology add-on payment and OPPS device pass-through payment,
which has increased the standard-of-care options available to patients.
Because our evaluations for the additional payments compare against
existing technologies used for Medicare beneficiaries, an increase in
relevant comparator technologies may have the appearance of stricter
standards because more information may be necessary to demonstrate that
a technology meets our criteria. We believe that this inherent scaling
relative to the availability of treatment options in a particular
clinical area also appropriately supports innovation in areas with true
unmet needs where there are little to no meaningful standard-of-care
options. We also believe there is a misunderstanding of what CMS
requires to establish substantial clinical improvement. In fact, we
discussed in the FY 2020 IPPS/LTCH PPS final rule (84 FR 42288 through
42292) how we may evaluate substantial clinical improvement for
purposes of new technology add-on payments and OPPS device pass-through
payments to allow for greater clarity and predictability. The
regulations under Sec. 412.87(b)(1)(iii), as codified in the FY 2020
IPPS/LTCH PPS final rule, provide a non-exhaustive list of published or
unpublished information sources from within the United States or
elsewhere that may be sufficient to establish substantial clinical
improvement. Direct comparative, peer-reviewed evidence is not a
requirement under the regulations. As previously stated, the
regulations are intentionally broad to provide flexibility for
applicants in the evidence required to demonstrate substantial clinical
improvement.
We also disagree with commenters asserting that the evidentiary
standard CMS applies to substantial clinical improvement raises
concerns about alignment with the Agency's position that new technology
add-on payment and OPPS device pass-through payment determinations are
payment decisions, not coverage determinations. As stated
[[Page 49776]]
in the September 7, 2001 final rule (66 FR 46914) and the CY 2003 OPPS
final rule (67 FR 66783), the criteria for determining whether a
technology is eligible for new technology add-on payment and OPPS
device pass-through payments are not intended for use in making
coverage decisions under section 1862(a)(1)(A) of the Act. While a
technology can be covered under Medicare and not receive new technology
add-on payment or OPPS device pass-through payment, the reverse is
generally not true. When a new technology add-on or pass-through
payment is established for a technology, it would not be covered and no
payment would be made if it is furnished to a patient for which it is
not reasonable and necessary. Moreover, we note that the substantial
clinical improvement criterion requires that new technologies
demonstrate that the technology represents an advance that
substantially improves, relative to technologies previously available,
the diagnosis or treatment of Medicare beneficiaries. Section
1862(a)(1)(A) of the Act, the standard for Medicare coverage, requires
(absent a specific statutory exception) a determination that items and
services are ``reasonable and necessary for the diagnosis or treatment
of illness or injury or to improve the functioning of a malformed body
member.'' This does not establish that to be reasonable and necessary
that an item or service offer substantial clinical improvement over
other appropriate options. These two determinations serve different
purposes, as one allows for payment under Medicare, while the other
provides extra payment for specific technologies that meet additional
criteria. Setting a standard for substantial clinical improvement for
additional payments exceeds what is required for Medicare coverage and
standardized payment; therefore, there is no misalignment.
We also disagree that our evaluation of substantial clinical
improvement conflicts with statutory text. Sections 1886(d)(5)(K)(vi)
and Section 1833(t)(6) of the Act specify 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).
When we subsequently established the substantial clinical improvement
criterion in the September 7, 2001 final rule (66 FR 46913), we
explained that we had proposed the ``substantial improvement''
criterion to limit these special payments for those technologies that
afford clear improvements over the use of previously available
technologies. Similarly, when we finalized the substantial clinical
improvement criterion in the November 2, 2001, OPPS interim final rule
with comment period (66 FR 55852 to 55853), we explained that we
believed it is important for hospitals to receive pass-through payments
for devices that offer substantial clinical improvement in the
treatment of Medicare beneficiaries to facilitate access by
beneficiaries to the advantages of the new technology. Conversely, the
need for additional payments for devices that offer little or no
clinical improvement over a previously existing device is less
apparent.
Comment: Commenters expressed concern that this proposal may limit
hospital willingness to adopt newer technologies and slow the
availability of innovative technologies, including those intended to
address serious or life-threatening conditions for Medicare
beneficiaries, which would particularly affect underserved patient
populations or those with unmet needs. A commenter stated that CMS has
historically played an important role in supporting responsible
adoption of breakthrough technologies that improve patient outcomes.
Commenters stated that the alternative pathways have allowed providers
to gain earlier access to innovative therapies during the period before
payment systems fully reflect the costs associated with new
technologies. Commenters provided examples of technologies that they
each believed would not have been offered or will not be available to
Medicare beneficiaries in the absence of the alternative pathways.
Commenters spoke to their experiences with hospital decisions to adopt
new technologies while facing thin to nonexistent hospital margins. The
commenters stated that financial considerations were a prerequisite to
bringing a new device into the formulary, and a technology that was not
adequately reimbursed would be a financial liability and would not be
adopted by the hospital. Commenters believed that this would have a
significant impact on patients, listing different groups such as those
treated by safety-net institutions, community hospitals, health systems
serving rural and underserved populations, or academic medical centers.
Commenters asserted that rather than creating better stewardship of
CMS/Medicare dollars, this would instead exacerbate disparities between
the care available in well-resourced settings and the care available
elsewhere. Commenters also shared examples of patients they each
believed would be particularly affected by the proposal, such as those
requiring dialysis access, with drug-resistant epilepsy, or with severe
therapy-refractory diabetic foot ulcers. Commenters stated that
predictability matters as much as the payment itself, and that what
they described as the abrupt proposal would make responsible
institutions more hesitant to invest in the next generation of tools. A
commenter also stated from the provider's perspective, an add-on
payment never dictates care, and that whether a given technology is
used for a given patient remains a clinical judgment made by physicians
and care teams at the point of care, and that they took seriously their
dual responsibility for both patient care and the prudent use of
resources. Commenters stated that as new technology add-on payment
eligibility is determined post-claim, it is unknown at the point of
patient admission whether the case will ultimately receive an add-on
payment. Commenters noted that although CMS stated technologies may
still be paid through the regular MS-DRG or APC payment mechanisms, the
current MS-DRG or APC payment rates would not yet account for the costs
of the new technologies. Another commenter stated that many FDA-
designated Breakthrough Devices are adjunctive technologies used within
existing inpatient procedures already reimbursed under existing coding
and payment frameworks, and do not seek a separate inpatient procedure
payment.
Commenters emphasized the uncertainty for device manufacturers if
the pathway is repealed because investment, clinical, and
commercialization decisions for devices currently in development
typically span 5 to 7 years or longer, with antimicrobial resistance
product development spanning 10 to 15 years, and which they stated were
made based on the existing alternative pathways. Another commenter
stated that the new technology add-on payment alternative pathway was
specifically designed to address the period between FDA approval and
sustainable reimbursement. Commenters stated their belief that the
proposed, abrupt changes to the requirements could disrupt development
and reimbursement planning, ultimately limiting Medicare beneficiary
access to promising, innovative technologies. Commenters stated that
the inadequate transition time would be particularly damaging for
startups, small, emerging, or mid-size manufacturers across the
country, who lacked the resources to absorb a sudden shift in the
[[Page 49777]]
reimbursement landscape. Some commenters shared the negative impacts
that the proposed repeal would have on their technologies in
development, and explained the difficulties they would face pivoting to
or starting over clinical trials to potentially meet the substantial
clinical improvement criterion. Another commenter stated that the
repeal would disproportionately disadvantage novel technologies that,
for example, address rare diseases or small patient populations or rely
on non-traditional or adaptive evidence generation approaches, as well
as undermining FDA programs expressly designed to accelerate patient
access to novel therapies. A commenter further stated that it would be
fundamentally unfair, and contrary to the settled expectations CMS
created, to foreclose technologies already in the commercialization
pipeline because of a change in program timing that manufacturers could
not have anticipated or controlled. In addition, commenters stated that
the proposal introduced regulatory unpredictability that risks
deterring future investment in these technologies. A commenter noted
that over time, this could shift investment away from complex inpatient
technologies and toward areas with more predictable reimbursement,
impacting Medicare beneficiaries that require the most complex care.
Commenters stated that the early-market uncertainty would be
particularly acute for technologies that depend on newly established
CPT codes or ICD-10-PCS procedure codes and lack viable legacy coding
alternatives to achieve meaningful hospital adoption. A commenter
further asserted that in such cases, absence of timely OPPS device
pass-through payment would not merely slow adoption, it could
effectively prevent hospitals from offering the technology at launch,
irrespective of clinical need. Another commenter asserted that without
a strong national payment anchor, Medicare Administrative Contractor-
level coverage variability will create inequitable access for Medicare
beneficiaries whose hospitals fall into lower-reimbursement
jurisdictions, effectively stratifying access to a technology designed
to benefit a broader Medicare population.
Commenters also described the impact the proposed repeal would have
on technologies under specific FDA marketing authorization pathways. A
commenter provided its analysis on the FY 2026 new technology add-on
payment applications, stating that CMS received more than twice as many
applications through the alternative pathway for devices as through the
traditional pathway (34, compared to 13), at least 10 of which were
based on FDA 510(k)-cleared technologies, suggesting that the
alternative pathway has become the primary route through which
innovative technologies, including those following a FDA 510(k)
pathway, access new technology add-on payment since its inception.
Another commenter asserted that the unstated implication of the
proposal is that, if finalized, no FDA-designated Breakthrough Device
would qualify for new technology add-on payment or OPPS device pass-
through ever again, and as a result, developers may choose not to
develop these devices at all. A commenter further asserted that
repealing the pathway would not reduce the pipeline of innovative
technologies seeking Medicare payment recognition; it simply would
foreclose the pathway best suited to evaluate them, returning the
burden of demonstrating substantial clinical improvement to
technologies cleared via the 510(k) FDA regulatory pathway, for which
it asserted that standard was previously structurally inaccessible.
Commenters stated that the practical consequences for Medicare
beneficiaries are predictable as manufacturers of 510(k)-cleared FDA-
designated Breakthrough Devices may deliberately slow their path to
market to preserve newness eligibility under the traditional pathway
once sufficient post-market clinical data can be assembled; or
hospitals may be unable to support the premium price of these new
technologies introduced without add-on payment support.
Other commenters expressed their concerns about the impact of the
proposed repeal of the alternative pathway specifically on QIDPs and
LPAD products, due to the impact of antimicrobial resistance on
Medicare beneficiaries along with the challenges presented by the
current antibiotic development landscape. Commenters stated the
proposed repeal was inconsistent with the Administration's stated
commitments on antimicrobial resistance. Commenters also asserted that
the proposal contradicted CMS's rationale from FY 2020 IPPS rulemaking,
where CMS stated its belief that Medicare beneficiaries may be
disproportionately impacted by antimicrobial resistance and that the
alternative pathway for QIDPs would be a means of addressing some of
the regulatory barriers and disincentives for manufacturers to invest
in innovation. The commenter noted that stewardship programs
appropriately encourage the restricted use of novel antibiotics to
preserve their effectiveness and slow the emergence of resistance, but
that this necessary public health practice simultaneously limits
commercial utilization and undermines the economic viability of
antibiotic innovation. However, commenters stated that antibiotic
registration programs are typically conducted using non-inferiority
trial designs, which are considered the ethical and regulatory standard
for serious bacterial infections where placebo-controlled studies are
not feasible, and requiring demonstration of significant clinical
improvement creates a substantial disconnect between the realities of
antimicrobial development under established FDA regulatory pathways and
CMS reimbursement policy. Commenters stated that these trial designs
cannot generate the head-to-head superiority data required for a
substantial clinical improvement criterion determination under the new
technology add-on payment. A commenter further stated that the new
technology add-on payment substantial similarity criterion may also not
adequately capture the nature of antimicrobial innovation, where
products may share similar classes or mechanisms of action but still
provide clinically meaningful benefits through improved activity
against resistant pathogens. Therefore, commenters asserted that
antimicrobial drugs are uniquely disadvantaged from qualifying for new
technology add-on payment in the absence of the alternative pathway.
Another commenter asserted that CMS failed to confront the fact that
these technologies have already essentially proven that they represent
a substantial clinical improvement and are not ``substantially
similar'' to existing products, and cited Sec. 506(h)(1) of the FD&C
Act, stating that specifically, to be approved under the LPAD, a drug
must be intended for use by patients with unmet needs. The commenter,
citing FDA guidance issued in 2014, stated that an unmet need means ``a
condition whose treatment or diagnosis is not addressed adequately by
available therapy,'' including ``an immediate need for a defined
population . . . or a longer-term need for society (e.g., to address
the development of resistance to antibacterial drugs).'' \126\
Commenters believed that the proposed policy change would further
weaken incentives for antibiotic research and development at a time
when antimicrobial resistance
[[Page 49778]]
remains a national security and growing global threat and the
antibiotic pipeline is already fragile, which would negatively impact
patients, public health, and innovation. Commenters believed it was
also important to recognize that relatively few QIDP products utilize
the new technology add-on payment pathway. A commenter further stated
that the overall cost to Medicare associated with new technology add-on
payment for QIDPs was limited due to the small number of products that
seek (and therefore get approved for) add-on payment and the limited
payment period. The commenter also provided an analysis of claims data
from FY 2021 to FY 2025 that showed that actual new technology add-on
payment utilization for QIDP and LPAD products was only 1.3 percent of
CMS estimates in rulemaking (about $9.4 million versus $721.2 million).
Therefore, the commenter asserted that the impact to CMS and on the
Medicare budget associated with this pathway for QIDPs was simply not
considerable enough to supersede the importance of maintaining
innovation in this space. The commenter also further urged CMS not to
finalize the proposal to remove the conditional approval process for
QIDPs because it would impose further hurdles on manufacturers that
worsen delays in availability that are driven by these external
dynamics, which would negatively impact utilization and market access.
Another commenter stated that new technology add-on payment remains one
of the few practical and functioning policy tools available to help
mitigate the distinctive economic challenges associated with anti-
infective development, while broader reimbursement reform, such as
establishing a subscription-based reimbursement model for qualifying
antibiotics, has not been enacted. A commenter stated that between 2020
and 2024, only four systemic antibacterial new molecular entities were
approved by FDA, and global assessments by the World Health
Organization have found that few candidates in development represent
meaningful advances against priority pathogens.\127\
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\126\ FDA. (May 2014). Guidance for Industry Expedited Programs
for Serious Conditions--Drugs and Biologics, at 4. Available at:
https://www.fda.gov/media/86377/download.
\127\ World Health Organization. (June 2022). Lack of innovation
set to undermine antibiotic performance and health gains. Available
at: https://www.who.int/news/item/22-06-2022-22-06-2022-lack-of-innovation-set-to-undermine-antibiotic-performance-and-health-gains.
World Health Organization. (October 2025). Analysis of
Antibacterial Agents in Clinical and Preclinical Development:
Overview and Analysis 2025. Available at: https://www.who.int/publications/i/item/9789240113091.
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Response: We share commenters' interest in ensuring that new and
innovative technologies, including those intended to address serious or
life-threatening conditions, remain available to Medicare
beneficiaries. We also appreciate commenters' perspectives based on
their experiences as manufacturers and investors developing these new
technologies and as providers and hospitals caring for these
beneficiaries.
Applicants retain the ability to pursue new technology add-on
payment and OPPS device pass-through payment under the traditional
pathway. In addition, as we have previously noted, there are existing
mechanisms to pay for new technologies under the IPPS and OPPS. As we
stated in the proposed rule (91 FR 19458), and 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 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. Although commenters have
noted that the MS-DRG or APC payment rates would not yet account for
the costs of these new technologies, we continue to believe that the
existing payment mechanisms provide a useful balance to the
introduction of new technologies, especially when substantial clinical
improvement is not demonstrated. We continue to believe it is in the
best interest of Medicare beneficiaries to proceed very carefully with
respect to the incentives created to quickly adopt new technology. As
also discussed in the September 7, 2001 final rule, in deciding which
treatment is most appropriate for any particular patient, it is
expected that physicians would balance the clinical needs of patients
with the efficacy and costliness of particular treatments (66 FR
46919). We also note that there are other mechanisms, beyond additional
payments from Medicare, that hospitals may be able to consider to
support any premium price of new technologies, including negotiation
with manufacturers, or taking advantage of rebates offered by
manufacturers.
We also disagree that this proposal is an abrupt shift that
disrupts settled expectations. When we initially finalized the policy
that established the alternative pathways in the FY 2020 IPPS/LTCH PPS
final rule, we indicated that we would be evaluating the benefits of
the alternative pathways and any considerations that may come to light.
Specifically, we 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). CMS has
continually emphasized FDA and CMS act under different statutes that
have different standards and has noted in recent years that FDA
designation or marketing authorization alone is often insufficient to
support Medicare decision making.128 129 For example, FDA
and CMS must consider different legal authorities and apply different
statutory standards when making marketing authorization and payment
decisions, respectively. We believe that requiring all applicants to
demonstrate that they meet the same eligibility requirements to receive
add-on payments and/or pass-through payments is consistent with the
determinations that CMS has continued to make over the past few years
and is a regulatory change to align with Agency understanding and
ongoing experience with these technologies, rather than a drastic,
unexpected reversal. We also disagree with commenter assertions that
there was a settled expectation that their technologies would be
approved for new technology add-on payment or OPPS device pass-through
payment because CMS must review all applications and make an approval
determination through annual notice-and-comment rulemaking, regardless
of a technology's eligibility under the alternative pathways. With
respect to commenters' belief that the lack of legacy coding options
could effectively prevent hospitals from offering the technology at
launch, we note that new CPT codes or ICD-10-PCS codes may be
established in advance of FDA market
[[Page 49779]]
authorization, and that, in general OPPS and IPPS are bundled payment
systems, so while it may be not be possible to actually identify when a
particular product was used when there is no unique code to identify it
amongst other products in the category, the product is nonetheless used
and paid for. We also disagree that new technology add-on payment or
OPPS device pass-through payments would be considered a strong national
payment anchor, as these are additional payments provided for a limited
period of time for certain new technologies that meet the criteria.
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\128\ Final rule to repeal the ``Medicare Coverage of Innovative
Technology (MCIT) and Definition of ``Reasonable and Necessary''
final rule (86 FR 62944-62958).
\129\ Transitional Coverage for Emerging Technologies (TCET)
pathway final notice (89 FR 65724-65754).
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We recognize that changes to the alternative pathways for new
technology add-on payment and OPPS device pass-through payment may have
implications for manufacturers' launch planning and evidence
development strategies, particularly for technologies that anticipated
additional payment to support early adoption. We also recognize that
the implications may change depending on the availability of clinical
evidence required under the type of FDA marketing authorization pathway
relevant to a technology. However, we believe that these additional
payments are appropriately reserved for technologies that demonstrate
substantial clinical improvement for Medicare beneficiaries. The
proposed repeal reflects our interest in maintaining a consistent,
evidence-based standard for additional payment eligibility, rather than
reliance on external designations that may be based on different
evidentiary thresholds or policy objectives. CMS continues to support
timely beneficiary access to innovative technologies, and we believe
that aligning payment with demonstrated clinical value is essential to
ensuring appropriate resource use. Importantly, manufacturers retain
the ability to pursue new technology add-on payment and OPPS device
pass-through payment under the traditional pathway and may consider how
their evidence development strategies can best address CMS's criteria,
including generating data relevant to the Medicare population and
demonstrating meaningful clinical improvement over existing
alternatives. We also disagree that an implication of this proposal was
that FDA-designated Breakthrough Devices would no longer qualify for
new technology add-on payment or OPPS device pass-through payment,
because we have approved devices through the traditional pathway,
including those without an FDA Breakthrough Device designation, who
also receive marketing authorization under FDA's standard 510(k), De
Novo, or PMA pathways.
With respect to commenters' concerns about the impact of the
proposed repeal specifically on QIDPs and LPAD products, we note that
commenters primarily focused on the need to support the development of
these products. While we continue to recognize the concerns related to
antimicrobial resistance and its impact on Medicare beneficiaries, it
is unclear to us whether new technology add-on payment is the
appropriate vehicle to support these goals in lieu of broader
reimbursement reforms. For example, a commenter highlighted that some
products may share similar classes or mechanisms of action but still
provide clinically meaningful benefits through improved activity
against resistant pathogens. However, we note that having additional
options to choose from related to public health concerns would not
necessarily indicate that those options are dissimilar from existing
technologies that have already been incorporated into the MS-DRG
payment rates. In addition, although commenters describe the
difficulties of demonstrating substantial clinical improvement through
placebo-controlled studies and head-to-head superiority data, as
discussed earlier, such evidence is not required under the regulations
at Sec. 412.87(b)(1)(iii). We encourage applicants for QIDPs and LPAD
products to review the available options for demonstrating substantial
clinical improvement to determine which approach would best align with
the outcomes demonstrated by their technology. We also disagree with
commenters that these products have already proven that they represent
a substantial clinical improvement and are not ``substantially
similar'' to existing products. Although a commenter stated that to be
approved under the LPAD, a drug must be intended for use by patients
with unmet needs, we note that under the FDA guidance shared by the
commenter, FDA provides additional definitions of unmet needs that do
not align with the new technology add-on payment criteria. For example,
FDA states: ``When available therapy exists for a condition, a new
treatment generally would be considered to address an unmet medical
need if the treatment [. . .] addresses an emerging or anticipated
public health need, such as a drug shortage.'' Or ``where the only
available therapy was approved under the accelerated approval program
based on a surrogate endpoint or an intermediate clinical endpoint and
clinical benefit has not yet been verified.'' \130\ We also note that
FDA's requirement to address an unmet need does not apply to QIDPs. In
addition, with respect to commenters' request to maintain conditional
approval, we note that it is procedurally infeasible to maintain
conditional approval under the traditional pathway because, as
discussed previously in this rule and in prior rulemaking, 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 FDA makes a determination as to
whether the medical service or technology is safe and effective (86 FR
45047).
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\130\ https://www.fda.gov/media/86377/download.
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Comment: Commenters asserted that this proposal contradicted with
the Administration's views on reducing regulatory burdens, ensuring
American leadership in healthcare and life sciences, innovation, or the
power of the private sector to drive meaningful clinical change.
Commenters further stated that the proposed changes appear incongruent
with FDA and CMS's goals as proposed under the RAPID coverage pathway
to accelerate patient access to certain innovative technologies. A
commenter quoted CMS's stated objectives in the recent RAPID
announcement that noted the Agency's goal of, ``cutting red tape for
innovators, and helping beneficiaries access new, life-changing health
technology faster.'' \131\ Commenters stated that manufacturers would
need to demonstrate substantial clinical improvement even after they
provided sufficient evidence for FDA market authorization and Medicare
national coverage. Commenters asserted that the proposed repeal may
undermine the broader Agency objectives by creating additional barriers
to hospital adoption of new therapies, and risks creating a situation
where technologies are technically covered but practically unavailable
at many hospitals.
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\131\ CMS and FDA Announce RAPID Coverage Pathway to Accelerate
Patient Access to Life-Changing Medical Devices https://www.cms.gov/newsroom/press-releases/cms-fda-announce-rapid-coverage-pathway-accelerate-patient-access-life-changing-medical-devices.
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Commenters also stated their belief that the proposed repeal did
not align with congressional intent for the Breakthrough Device Program
or QIDP pathway, with a commenter further asserting that CMS may be
exceeding its statutory authority. A commenter stated that requiring
that a 510(k)-cleared FDA-designated Breakthrough Device also satisfy
the CMS substantial clinical improvement criterion at the time of
[[Page 49780]]
new technology add-on payment application imposes a third evidentiary
requirement that neither FDA nor Congress designed for FDA 510(k)
devices. The commenter also stated that any suggestion that FDA 510(k)
clearance, by virtue of its predicate-comparison framework, is
inherently inconsistent with newness for new technology add-on payment
eligibility conflates two standards that Congress and the agencies
themselves have kept separate. Commenters stated their concern that the
proposed repeal would create a structural bias, as the FDA 510(k)
pathway exists because Congress and FDA determined that lower-risk
devices do not require clinical trials as a condition of market
clearance. Commenters believed that the proposal could reduce Medicare
beneficiary access to the types of innovative breakthrough devices the
program was designed to reach, including technologies that FDA has
authorized to enter the commercial market, which, by FDA's own
regulatory design, do not require pre-market clinical trial data.
Commenters stated that such devices have no clinical trial data because
their risk profile and substantial equivalence to a predicate device
satisfy FDA's clearance standard under the 510(k) pathway. Commenters
believed that recognition by FDA's Breakthrough Device designation
indicated the potential for more effective treatment or diagnosis of
life-threatening or irreversibly debilitating disease or conditions.
The commenter further stated that the proposed repeal was inconsistent
with the aims of the 21st Century Cures Act, as it stated Congress
enacted the 21st Century Cures Act specifically to reduce barriers to
patient access to breakthrough medical innovations by accelerating FDA
review timelines. The commenter asserted that CMS's proposed repeal
effectively offsets that acceleration by reinstating what it described
as the most significant payment-side barrier to early adoption of FDA
510(k) technologies: the requirement to demonstrate substantial
clinical review through post-market literature, before MS-DRG rates
have adjusted to reflect a technology's cost. Other commenters stated
their belief that eliminating the alternative pathways tells
researchers, hospitals, and innovators that the FDA's scientific
judgment and Breakthrough Device designation no longer translates into
a meaningful reimbursement advantage. Commenters believed that this
messaging would be contrary to congressional intent, would deter
investment in these technologies, and would undermine United States's
global competitiveness in medical innovation.
A commenter expressed its concern that current proposals and policy
changes from prior rulemaking, taken in their totality, reflect an
increasingly restrictive approach toward new technology add-on
payments. The commenter stated that new technology add-on payments were
created in response to an express directive by Congress for CMS to
``establish a mechanism to recognize the costs of new medical services
and technologies,'' that ``adequately reflects the estimated average
cost of such service or technology'' during a statutorily prescribed
newness period. The commenter stated that in enacting the new
technology add-on payments statute, Congress recognized the need for
CMS to address an inherent limitation in the IPPS's rate-setting
methodology: due to the time-lag inherent in the retrospective claims
data used to set rates under the IPPS, truly novel technologies are not
adequately reimbursed under the MS-DRG system unless a special
additional payment mechanism is available to account for the costs of
such new technologies. The commenter stated it did not believe Congress
intended improper restrictions on new technology add-on payment that
could either prevent its availability or unreasonably limit its
effective duration, thereby undermining the purpose of the statutorily-
mandated mechanism. The commenter stated its concern that CMS's
proposals reflect an increasing hostility to new technology add-on
payment that is at odds with both its statutory intent and sound public
policy.
Response: We disagree that requiring all applicants for new
technology add-on payments and OPPS device pass-through payments to
meet the same eligibility criteria would be contrary to the
Administration's views on reducing federal regulatory burden. We
believe that this proposal would create more homogeneity and
consistency in the administration of the new technology add-on payment
process, and result in the removal of certain regulations related to
the alternative pathway and associated costs that do not necessarily
deliver value to Medicare beneficiaries.
We also do not agree that this proposal is incongruent with FDA and
CMS's stated goals under the RAPID coverage pathway to accelerate
patient access to certain innovative technologies. Requiring all
applicants for new technology add-on payments and OPPS device pass-
through payments to meet the same eligibility criteria is not
indicative of any change in CMS's goals for the RAPID coverage pathway.
We remind commenters that coverage and additional payments for new
technologies are separate processes with different standards and
purposes, as previously discussed. The traditional pathway for new
technology add-on payment applications will continue. We do not believe
that Medicare should financially incentivize new technologies for
hospitals and manufacturers without evidence of substantial clinical
improvement over existing services or technologies, to benefit Medicare
beneficiaries.
We further disagree that CMS is exceeding its statutory authority
or is implementing these programs in a way that is contrary to
congressional intent for the FDA Breakthrough Device Program and QIDP
pathway. We note that FDA and CMS must consider different legal
authorities and apply different statutory standards in implementing
their respective programs. While FDA must consider the applicable
authorities for the Breakthrough Device Program under the FD&C Act, as
created by the 21st Century Cures Act, among other statutes, QIDP
pathway, and FDA marketing authorization pathways as outlined in its
statute, CMS is not bound by the same statutory authorities. Instead,
CMS implements its payment programs in accordance with section
1886(d)(5)(K)(i) of the Act, which required the Secretary to establish
a mechanism to recognize the costs of new medical services and
technologies, and section 1833(t)(6), which establishes transitional
pass-through payment. As previously noted, sections 1886(d)(5)(K)(vi)
and section 1833(t)(6) of the Act further specify 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). In addition, we disagree with the concerns that our proposal
represented a structural bias against the FDA 510(k) clearance pathway
or suggests it is inherently inconsistent with newness, as such
technologies may also demonstrate that they meet the newness and
substantial clinical improvement criteria, as applicable.\132\
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\132\ For example, the following FDA 510(k) devices have
received new technology add-on payment and/or OPPS device pass-
through payments: T2Bacteria[supreg] Panel (84 FR 42278 through
42288); SpineJack[supreg] Expansion Kit (85 FR 58689 through 58701;
85 FR 86003 through 86011); FLEX Vessel PrepTM System (88
FR 81749 through 81755).
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We also disagree that our proposals reflect an increasing hostility
toward new technology add-on payment and that they are at odds with
both its
[[Page 49781]]
statutory intent and sound public policy. Although the commenter stated
that it did not believe Congress intended what it described as improper
restrictions on new technology add-on payments that could either
prevent its availability or unreasonably limit its effective duration,
we note that section 1886(d)(5)(K)(i) and section 1833(t)(6) of the Act
authorized the Secretary to establish a mechanism to recognize the
costs of new medical services and technologies, after notice and
opportunity for public comment. When CMS first established this
mechanism in the September 7, 2001 final rule (66 FR 46912 to 46921)
and in the November 2, 2001, OPPS interim final rule with comment
period (66 FR 55852 to 55853), we finalized the requirement that a new
technology must represent a substantial improvement. In these final
rules, we explained our belief that the special payments for new
technology established by the final rule 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. As previously discussed, we
subsequently adopted the alternative pathway for certain transformative
medical devices and antimicrobials. However, at this time, following
our further experience with and consideration of the application of
this alternative pathway, we believe it is most appropriate to return
to applying this standard consistently across all applications.
Comment: Commenters stated that CMS had not presented data
demonstrating that the alternative pathways have failed to deliver
clinical benefit to Medicare beneficiaries, or resulted in
inappropriate approvals, excess spending, adverse outcomes, program
integrity concerns, or systematic abuse that would warrant a repeal.
Commenters also stated that CMS did not explain why the proposed repeal
serves Medicare patients' best interests nor analyze how it would
impact Medicare patients' timely access to these technologies.
Commenters stated that CMS did not appear to analyze the cost to
industry related to practice development and evidence-generation
associated with transitioning to the traditional pathway, which may
particularly affect small single-product companies. Commenters
requested that CMS provide data behind its proposal to eliminate the
alternative pathways and stated that without this information, the
proposal was premature and stakeholders would be unable to offer
meaningful input on alternative options.
Commenters stated that CMS did not explain how FDA's determinations
are now insufficient to demonstrate that a new technology confers a
substantial clinical advantage despite the alignment between the FDA
statute and CMS regulations, and that CMS should transparently identify
exactly why FDA's evaluation is (or has become) insufficient.
Commenters further stated that if CMS feels FDA's Breakthrough Device
evaluation is in fact sufficient, CMS should provide its basis for
proposing to repeal the policy that allowed the Agency to waive the
`substantial clinical improvement' requirement under 42 CFR
412.87(b)(1). Another commenter believed that CMS's statements in the
proposed rule contradicted statements in prior rulemaking about working
towards a broader alternative pathway over time and that it was prudent
to gain experience under this new alternative pathway before expanding
it to other special designations, and which the commenter stated had
resulted in reliance interests (84 FR 42044, 42296). Another commenter
stated that the Agency's own actions in this rulemaking are difficult
to reconcile with its position that the alternative pathways produce
insufficiently justified spending, as in the same proposed rule, CMS
proposed to approve a substantial number of FDA-designated Breakthrough
Devices under the alternative pathways.
A commenter stated that CMS failed to adequately consider less
drastic reform alternatives. Commenters also asserted that CMS failed
to address reliance interest of stakeholders during every stage of the
product lifecycle, including early-stage clinical development, multi-
year planning cycles and pipelines, and post-market evidence
collection. A commenter provided examples of multicenter randomized
controlled trials, large-scale claims analyses, and prospective
registries collected during the early commercialization period.
Commenters asserted that under the Administrative Procedure Act, a
change in agency position requires a more detailed justification when
prior policy has engendered serious reliance interests. Commenters
provided prior Supreme Court case law, including Encino Motorcars, LLC
v. Navarro \133\ and Department of Homeland Security v. Regents of the
University of California,\134\ stating when an agency is not writing on
a blank slate, it must identify whether reliance interests exist,
determine their significance, and weigh them against competing policy
concerns. Another commenter further stated that under Motor Vehicle
Manufacturers Ass'n v. State Farm Mutual Automobile Insurance Co.,\135\
an Agency acts arbitrarily and capriciously when it fails to consider
an important aspect of the problem. Commenters stated that the Supreme
Court held in FCC v. Fox Television Stations, Inc.\136\ that an agency
must give a ``reasoned explanation'' when it changes a policy. The
commenters stated that the decision stated that the agency must have
``good reasons'' for the new policy, and in certain situations, must
``provide a more detailed justification than what would suffice for a
new policy created on a blank slate,'' which includes situations where
``its new policy rests upon factual findings that contradict those
which underlay its prior policy.'' Commenters argued that the reasoning
provided by CMS to support the proposal failed to meet the standard set
forth by the Supreme Court. Commenters asserted that, therefore, for
procedural reasons alone, the proposal must not be finalized.
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\133\ 579 U.S. 211 (2016).
\134\ 591 U.S. 1 (2020).
\135\ 463 U.S. 29 (1983)12.
\136\ 556 U.S. 502, 514 (2009).
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A commenter also disagreed that the proposed repeal would achieve
CMS's goal to better align spending and value and ultimately support
providers in delivering the best, data-driven care possible. The
commenter asserted that a hospital's receipt of incremental payments
for the adoption of new technologies does not mandate the use of the
technology and would not lead to less than optimal care. The commenter
stated that decisions on the appropriate care pathway belong with
providers and established coverage determination processes and that the
new technology add-on payment eliminates the financial disincentive
that hospitals have for adopting new and innovative technologies that
may benefit patient care.
A commenter stated that CMS has expressed concern with the
increasing volume and complexity of new technology add-on payment
applications and finalized policies intended to reduce agency burden
associated with evaluating them, and stated it was not clear why these
challenges would warrant repealing a pathway that, by design, reduced
CMS's evaluative burden. Commenters believed that evaluating FY 2028
[[Page 49782]]
applications under the traditional pathways would likely consume more
time and resources for CMS. Commenters stated their belief that the
alternative pathways had also reduced administrative burden at the
Agency by streamlining aspects of the new technology add-on payment and
OPPS device pass-through review process without lowering standards.
Commenters stated that eliminating the alternative pathways risked
duplicative review and longer timelines without a clear policy benefit.
A commenter stated that CMS retained multiple safeguards that already
provided the flexibility to ensure that new technology add-on payment
and OPPS device pass-through payments remain targeted, time-limited,
and value-conscious, including: the newness criterion, with a defined 2
to 3 year newness window and policies clarifying how commercial
availability delays are treated; a rigorous cost criterion to ensure
that new technology add-on payment is reserved for cases where IPPS
payment is demonstrably inadequate; and caps on new technology add-on
payment percentage, which preserves financial risk under the
prospective payment system and prevents full cost-shifting to Medicare.
The commenter further stated that recent CMS rulemaking demonstrates
that the Agency is willing to use new technology add-on payment policy
to support access to transformative, high-cost therapies while at the
same time refining financial safeguards, such as when CMS increased the
new technology add-on payment percentage to 75 percent for certain gene
therapies for sickle cell disease, or when CMS clarified how delays in
commercial availability should affect the newness period to emphasize
that new technology add-on payments remain focused on the true
introductory period of a technology. The commenter stated that the
examples suggest that targeted refinements, rather than repeal, are the
appropriate policy tool if CMS believes additional guardrails are
needed.
Commenters stated that the proposed changes appear to be focused on
cost reductions, and stated their belief that CMS needed to provide an
evidentiary basis to repeal the alternative pathways, such as a cost-
benefit analysis demonstrating that costs of the alternative pathways
outweigh the patient benefits. A few commenters described their
analyses of CMS spending on new technology add-on payment. The
commenters stated that their claims analyses for technologies approved
for new technology add-on payment under the alternative pathway found
that actual utilization was significantly lower than CMS estimates. A
commenter shared its empirical analysis of new technology add-on
payment utilization and payment data spanning FY 2011 through FY 2024
and compared actual new technology add-on payment expenditures to CMS
estimates provided during annual rulemaking. The commenter stated that
the data showed that actual new technology add-on payment expenditures
under the alternative pathway represented only 13.3 percent of CMS's
estimates across all product types, compared to 45.2 percent for the
traditional pathway, which it stated suggested that CMS's methodology
for projecting new technology add-on payment expenditures may not
adequately account for the utilization dynamics of alternative pathway
technologies. The commenter also found that new technology add-on
payments for devices under the alternative pathway represented a small
fraction of both estimated expenditures and overall inpatient hospital
spending. The commenter also reviewed year-by-year patterns for new
technology add-on payments for devices under the alternative pathway
and found that actual expenditures had declined since FY 2022. A few
commenters stated that a claims analysis for FY 2021 to FY 2024 found
that 38 percent of eligible claims under the alternative pathway
triggered new technology add-on payment (22 percent of the estimated
expenditure), and under the traditional pathway, those values were 46
percent and 28 percent respectively. The commenters noted that
critically, add-on payments are not automatic; they are triggered only
when a hospital's costs for a particular case exceed the applicable
payment threshold, and, as a result, lower hospital acquisition costs
reduce both the likelihood and magnitude of any add-on payment.
Additional commenters stated an analysis of FY 2021 to FY 2025 claims
data showed that hospitals only received less than 20 percent (17.3
percent) of an estimated spend of $1.5 billion over the five-year
period. Commenters stated that new technology add-on payments and OPPS
device pass-through payments are temporary and limited in scope and
help support appropriate reimbursement and incentivize technology
adoption for a short time before the costs of new technologies are
incorporated into the applicable payment rates. A commenter stated that
deferring a final decision on the proposed repeal would carry
comparatively low fiscal risk for several reasons: (1) actual
expenditures have consistently been a fraction of estimated
expenditures and have declined; (2) the new technology add-on payment
is time-limited by statute and does not capture the full incremental
cost of a new device; and (3) the total new technology add-on payment
for devices was only a small fraction of overall Medicare inpatient
spending.
Response: We disagree with commenters' assertions that the repeal
would be arbitrary and capricious, or that the proposal should not be
finalized because we failed to consider less drastic alternatives or
reliance interests or provide data to demonstrate the proposal is
warranted. We believe we have adequately assessed whether there were
reliance interests, determined whether those interests were
significant, and weighed any such interests against competing policy
concerns in accordance with requirements under law, including court
decisions cited by the commenters. We further believe that our new
policy is permissible under the statute, that there are good reasons
for it, and--for the reasons set forth in this preamble--we believe it
to be better than continuing the existing alternative pathways policy.
For example, we recognize that there may be potential reliance
interests of industry, including manufacturers and investors,
throughout the product lifecycle when considering evidence development
and commercialization strategies for their technologies, and providers
and facilities that may be interested in using these technologies.
However, we do not believe that the existence of the alternative
pathways would have given rise to serious or significant reliance
interests that would be affected by our proposal. At the time of FY
2020 IPPS/LTCH PPS and CY 2020 OPPS/ASC final rules, the FDA's
Breakthrough Device program was still relatively new. We indicated in
the FY 2020 IPPS/LTCH PPS final rule that we believed it was prudent to
gain experience under the new alternative pathway, in order 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. As previously described, since then,
CMS has indicated our concern with relying solely on an FDA designation
to support Medicare decision-making as FDA and CMS operate under
different statutory authorities.\137\ We believe that
[[Page 49783]]
any reliance on the availability of the alternative pathways would have
been neither significant nor reasonable in light of CMS's stated
openness to reassess the alternative pathways as it gained more
information, and our continued concern that FDA and CMS must consider
different legal authorities and apply different statutory standards. We
also believe that any asserted reliance interests that may have stemmed
from an expectation that technologies would be eligible to apply under
the alternative pathways and would all be approved for new technology
add-on payment or OPPS device pass-through payment would be unjustified
because CMS reviews all applications and makes determinations through
annual notice-and-comment rulemaking. While, as noted, we recognize
that there may be potential reliance interests of industry, providers,
and facilities, even taking those interests into account, we do not
believe those interests outweigh CMS's obligations to American
taxpayers and Medicare beneficiaries, including the obligation to make
sure that in creating a payment incentive for the use of new
technology, such technology represents a substantial improvement in
care provided for Medicare beneficiaries. With respect to commenters'
statements that CMS did not explain how FDA's determinations are now
insufficient, as discussed in greater detail earlier, we do not
consider technologies applying under the alternative pathways to have
demonstrated that they are not substantially similar to existing
technology or to have met the substantial clinical improvement
criterion strictly on the basis of having an FDA Breakthrough Device or
QIDP designation, or being approved under the LPAD pathway, and we
refer readers to our prior discussion regarding the differences between
the FDA and CMS criteria. Moreover, as noted, in recent years, CMS has
continually emphasized that FDA marketing authorization alone is often
insufficient to support Medicare decision making. As we explained in
the proposed rule, 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. With
respect to the commenter stating that our actions in this rulemaking
are difficult to reconcile because CMS proposed to approve applications
under the alternative pathway, we clarify that while we had proposed to
continue to make available the alternative pathway for those
technologies for which an application had previously been submitted
under the alternative pathway for FY 2027, we continue to believe that
it is appropriate to change our policy going forward for the reasons
discussed.
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\137\ Final rule to repeal the ``Medicare Coverage of Innovative
Technology (MCIT) and Definition of ``Reasonable and Necessary''
final rule (86 FR 62945).
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While evaluation of applications under the traditional pathway
would not necessarily reduce agency review, we believe that any change
in agency burden associated with reviewing all applications under the
same criteria would also be outweighed by CMS's obligations to ensure
value for current and future beneficiaries of the Medicare Trust Fund.
With respect to the analyses shared by commenters showing that the
overall utilization of all new technology add-on payments including
technologies approved under the alternative pathways were lower than
CMS estimates, we note that this both aligns with our experience and
was not a relevant consideration in our development of this proposal.
As mentioned by commenters, our cost estimates are based on the
applicant's estimated cases at the time they submitted their original
application and the increase in new technology add-on payments as if
every claim that would qualify for a new technology add-on payment
would receive the maximum add-on payment, which would typically result
in an overestimation. The estimated financial impact of a technology
does not influence our evaluation of new technology add-on payment
applications. We believe that any payment incentive that may be made
for the use of new technologies should be limited to those technologies
that improve outcomes for Medicare beneficiaries, regardless of whether
actual Medicare expenditures reach estimated spending. Although
commenters pointed out these additional payments are temporary and
limited in scope, this would not mitigate the limitations in evaluation
of technologies under the alternative pathways that we are addressing.
Comment: Many commenters requested that CMS consider alternatives
to the proposal to preserve predictable reimbursement pathways that
support early hospital adoption of transformative technologies.
Commenters provided suggestions that CMS withdraw the proposal or spend
additional time to evaluate its impact and explore modifications.
Commenters requested that CMS evaluate the access implications for
rural, safety-net, teaching, and specialty hospitals before finalizing
any changes that could slow adoption. A commenter recommended that CMS
conduct and publish a comprehensive evaluation of the alternative
pathways' impact on FDA-designated Breakthrough Devices, including: the
number and type of FDA-designated Breakthrough Devices that have
received new technology add-on payment or OPPS device pass-through
under the alternative pathway; the aggregate spending associated with
these devices relative to total IPPS and OPPS expenditures; and
patterns of adoption and affordability challenges across hospital types
(rural vs. urban, teaching vs. non-teaching, safety-net vs. non-safety-
net), and corresponding changes in access for Medicare beneficiaries.
Commenters suggested that CMS improve cross-agency coordination (with
CDC and FDA) and pursue additional stakeholder engagement through a
Request for Information (RFI), such as to understand how the
alternative pathways influenced clinical practice, patient outcomes,
and investment decisions in healthcare. A commenter further requested
that CMS directly conduct outreach to affected companies before
finalizing any changes. Commenters believed that subsequent refinements
should be proposed through future notice-and-comment rulemaking before
finalizing any changes. Commenters stated their belief that this was
especially important given ongoing changes to CMS coverage programs,
including the recently announced RAPID coverage pathway.
Some commenters requested additional clarity and details on the new
RAPID coverage program and how it would interact with new technology
add-on payment eligibility. Commenters further asked that CMS
explicitly clarify that participation in the RAPID coverage pathway
does not increase the evidentiary burden for simultaneous or subsequent
new technology add-on payment participation, and that RAPID coverage
determinations are independent of and do not substitute for new
technology add-on payment eligibility determinations. A commenter urged
CMS to delay finalization of the proposed alternative pathways repeal
until the RAPID coverage program has published its final Federal
Register procedural notice and has demonstrably completed at least
three national coverage determinations within the
[[Page 49784]]
Agency's target timelines. The commenter believed that finalizing the
proposed alternative pathways repeal would be defensible once the RAPID
coverage program was demonstrably operational. Another commented
believed that the RAPID coverage pathway could not substitute for the
alternative pathways, as its eligibility requirements, including an
Investigational Device Exemption (``IDE'') study enrolling Medicare
beneficiaries and, for Class II devices, enrollment in FDA's Total
Product Lifecycle Advisory Program (``TAP'') pilot, may render the
program structurally unavailable to many 510(k)-cleared FDA-designated
Breakthrough Devices.
Some commenters also requested that CMS provide additional clarity
on the substantial clinical improvement criterion, including methods,
standards, or evidentiary expectations for assessing whether a new
technology meets the substantial clinical improvement criterion.
Commenters were interested in additional published guidance on the
types of evidence necessary to prove that the substantial clinical
improvement is met, taking into consideration the differing types of
evidence used to support FDA market authorization and the time-based
restrictions for the additional payments. Commenters requested formal
guidance clarifying how substantial clinical improvement would be
evaluated for epilepsy-specific indications, including for implantable
monitoring, neuromodulation, and precision therapeutics. A commenter
requested that for computer-aided triage and notification software, CMS
adopt evidentiary endpoints appropriate to that class of technology,
such as demonstrated reductions in time-to-notification and in missed
or delayed identification of target findings, rather than therapeutic-
outcome endpoints designed for drugs and therapeutic devices.
Commenters recommended that CMS treat an FDA Breakthrough Device
designation, together with subsequent FDA marketing authorization, as
establishing a rebuttable presumption that the substantial clinical
improvement criterion is satisfied, and expressly recognize real-world
evidence, patient registry data, and peer-reviewed clinical studies as
acceptable forms of evidence. A commenter believed that CMS should
confirm that pre-market single-arm trial data and real-world evidence
may satisfy the substantial clinical improvement criterion where
comparative head-to-head data against existing alternatives is
unavailable at the time of application, and that the absence of
published peer-reviewed comparative data does not constitute a failure
per se. Another commenter stated that CMS could enhance evidence
requirements by requiring alternative pathway applicants to submit:
human factors or real-world performance data from clinical deployments;
a cost-benefit analysis demonstrating that the incremental cost of the
technology is offset by downstream savings; and a structured data
collection plan that would generate utilization and outcomes data
usable for future MS-DRG recalibration. A commenter encouraged CMS to
consider National Comprehensive Cancer Network Guidelines as a resource
in determining clinical appropriateness. Commenters requested that CMS
continue to enable engagement and build on opportunities for applicants
to meet with CMS throughout the application cycle, including prior to
submission of applications. The commenter believed that as
manufacturers are contemplating evidence generation to support
determination of substantial clinical improvement, both CMS and
applicants would benefit from earlier engagement to discuss
availability of evidence and anticipated outcomes to support new
technology add-on payment and OPPS device pass-through. Commenters
believed that CMS should work with stakeholders to establish
substantial clinical improvement evidentiary standards that meet the
Agency's pledge to consider the totality of the circumstances,
including reasonable expectations regarding the type and extent of
comparative effectiveness data that may be available at the time of FDA
marketing authorization, and that reflect the objectives of new
technology add-on payment and OPPS device pass-through as well as the
limited ``payment only'' scope of positive determinations. Another
commenter further stated that until then, it would be inappropriate and
damaging to both beneficiary access and the U.S. medical innovation
ecosystem for CMS to proceed with eliminating the alternative pathways.
Commenters also requested that CMS delay or provide a transition
period of up to a few years before any potential repeal of the
alternative pathways to allow companies to adjust their technology
development to potentially meet the eligibility requirements under the
traditional pathways, and provide clear guidance and protection for
technologies already in the application pipeline. Other commenters
requested that CMS grandfather technologies that have received FDA
Breakthrough Device or QIDP designations and allow them continued
access to the existing alternative pathways, with a commenter further
suggesting that to ensure the program does not remain open-ended, there
could be a defined window, such as 7 to 10 years from the date of the
FDA Breakthrough Device designation, for applicants to apply for
additional payments for their technology. A commenter stated that it
was confident that its FY 2028 new technology add-on payment
application would meet the traditional pathway criteria, but would
appreciate being grandfathered into the alternative pathway. Other
commenters provided targeted suggestions that select technologies could
be grandfathered into existing policy if they: had previously applied
for new technology add-on payment under the alternative pathways; were
developed in reliance on the existing policy framework; were far along
the development and/or clinical validation cycle; had established
clinical performance profiles, or were in the process of establishing
such performance profiles through Category A and B IDE pivotal trials
with endpoints reviewed and approved by both FDA and CMS; were class II
or III technology that were actively enrolling Medicare beneficiaries
and/or Medicare-aged subjects in an IDE study generating relevant
clinical evidence for Medicare beneficiaries; or had data demonstrating
a reasonable likelihood of substantial clinical improvement in a
Medicare beneficiary population. A commenter suggested that any new
restrictions or eliminations would apply only to designations granted
after the policy change takes effect.
A commenter stated that although the proposed repeal is described
as applying to FY 2028 applications and beyond, in practical effect,
this proposal would be retroactive for any Breakthrough Device company
currently in an IDE trial. A commenter stated that when CMS finalized
the new technology add-on payment FDA marketing authorization deadline
change from July 1 to May 1, it applied the new deadline prospectively
beginning with FY 2025 applications, allowing manufacturers a full year
to adjust, and that applying the same principle here (at a minimum,
delaying the effective date of any repeal) would preserve both the
integrity of CMS's regulatory framework and the confidence of future
innovators that Breakthrough Device development has stable and
predictable reimbursement, without representing new obligations for CMS
staff reviewing applications. A
[[Page 49785]]
commenter stated its belief that the proposed September 30, 2026,
eligibility cutoff for the alternative pathway under the new technology
add-on payment created a practical problem, as applications for the
upcoming fiscal year were historically not available until August, and
therefore may not open before the cutoff date. The commenter requested
that CMS either open the FY 2028 new technology add-on payment
application before September 30, 2026, or extend the alternative
pathway eligibility to the actual application deadline, so that
manufacturers currently in the pipeline can complete the process under
the existing framework.
Commenters also provided alternate methods that they believed 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. Alternatives suggested by commenters included:
requiring applicants to provide outcomes through post-market evaluation
before consideration for future ratesetting changes; requiring
structured continued evidence development and reporting; requiring
transparency guardrails; setting defined points for reassessment;
focusing on a subset of FDA-designated Breakthrough Devices addressing
the most serious conditions with the highest unmet need; incorporating
claims-based tracking; including FDA-designated Regenerative Medicine
Advanced Therapies (RMATs) and Breakthrough Therapies in the
alternative pathways; establishing an enhanced new technology add-on
payment pathway specific to gene therapies that would pay 100 percent
of the cost of the therapy for greater than three years; or
establishing a MS-DRG for each FDA-approved gene therapy, which would
also be budget neutral. A commenter believed that CMS should work with
stakeholders to establish clearer, more consistent, and more
predictable evidentiary standards that appropriately reflect the types
of evidence used to support FDA market authorization, including data
generated through investigational device exemption (IDE) studies and
other FDA-reviewed evidence development pathways. Another commenter
believed that CMS could address concerns through targeted refinements,
such as enhanced documentation standards or additional cost
substantiation requirements. A commenter recommended that CMS consider
the FDA National Evaluation System for Health Technology (NEST)
initiative, which it stated had facilitated FDA's acceptance of real-
world evidence to demonstrate safety, effectiveness and improvement
through industry partnerships. Commenters encouraged CMS to establish a
provisional substantial clinical improvement standard for alternative
pathway applicants, accepting observational studies, registry data,
surgeon expert testimony, or published case series as sufficient to
demonstrate substantial clinical improvement for OPPS device pass-
through and under the totality-of-circumstances standard for new
technology add-on payment. A commenter asked that CMS recognize that
early payment is often essential to evidence development itself, and
that developing a modernized transitional payment pathway could support
both patient access and evidence generation. A few commenters asked CMS
to state that FDA Breakthrough Device or QIDP designation remained a
relevant factor in coverage and quality framework decisions. Commenters
suggested that retaining the alternative pathways could serve as
safeguard to help ensure that hospitals and Medicare beneficiaries
continue to have timely access to breakthrough technologies during
periods of regulatory transition or uncertainty, with one stating that
federal policy surrounding FDA accelerated review pathways continues to
evolve. A commenter encouraged CMS to simplify operational and
documentation requirements, and explore supplemental pathways that
improve equitable access to innovative therapies and technologies. An
additional commenter suggested that CMS could implement tiered or cost-
adjusted payment structures that preserve innovation incentives while
addressing fiscal considerations.
Commenters recommended that CMS establish a phased approach or a
conditional pathway that would permit evidence generation where
substantial clinical improvement could not yet be demonstrated. A
commenter explained that an applicant with a CMS-approved study
protocol designed to produce the evidence necessary to demonstrate
substantial clinical improvement could be eligible to receive new
technology add-on payment while that evidence was collected, with
continued payment subject to a final, up-or-down determination by CMS
on the substantial clinical improvement criterion at the conclusion of
the study. The commenter stated that this mechanism reflects the same
evidence development principles embodied in CMS's existing Coverage
with Evidence Development framework: it allows clinically promising
technologies to reach Medicare beneficiaries while ensuring that
payment remained tied to the timely production of robust clinical
evidence and that add-on payment would cease if the technology
ultimately failed to demonstrate substantial clinical improvement.
Another commenter recommended that CMS establish an explicit evidence
maturity framework that would account for differences in evidence
development at the time of application, where technologies would be
evaluated based on the level of clinical evidence available, with
payment aligned accordingly. A commenter also provided another
consideration that CMS decouple the duration of the add-on payment from
the newness window, as a technology that requires additional time to
generate the evidence necessary to demonstrate substantial clinical
improvement may exhaust much of its newness window before it is able to
qualify. The commenter recommended that CMS retain the newness period
for eligibility, but provide approved technologies three years of
payment as measured from the date of new technology add-on payment
approval. The commenter asserted that where a technology saw limited
adoption during the early portion of its newness window precisely
because it lacked adequate reimbursement, the corresponding claims data
will not reflect the technology's cost, and the rationale for
terminating payment at the original newness date--that the MS-DRG
weights have been recalibrated to capture that cost--does not hold.
Another commenter suggested that CMS could extend new technology add-on
payment eligibility windows commensurate with the evidence generation
timelines that early-stage clearance necessitates.
A commenter stated that stakeholders have disagreed over whether a
new device category is merited or if the mechanism of action and/or
composition of the underlying materials demonstrates ``newness.'' A few
commenters suggested that CMS should instead require that FDA-
designated Breakthrough Device applicants demonstrate that their
devices meet the newness criterion in rulemaking, with a commenter
further suggesting that applicants could present on this requirement
during the new technology add-on payment Town Hall.
Commenters also recommended limiting eligibility to the alternative
pathways for specific categories of technologies. For example, a
commenter
[[Page 49786]]
believed that the alternative pathways should be maintained for FDA-
designated Breakthrough Devices in high-acuity areas such as stroke and
neurovascular disease. Some commenters believed that the alternative
pathways should be maintained for FDA 510(k) cleared technologies
because these devices reach the market without pre-market clinical
trial data by regulatory design, and the alternative pathways allowed
early hospital adoption to generate post-market evidence. Other
commenters asserted that the alternative pathways should be maintained
for technologies that have received FDA Premarket Approval (PMA)
because PMA-approved technologies have undergone FDA's rigorous review
process and are supported by substantial clinical evidence
demonstrating safety and effectiveness. These commenters believed that
prioritizing FDA PMA products would support truly innovative
technologies that provide meaningful clinical benefit to create a more
clinically grounded and sustainable alternative pathway framework while
continuing to support meaningful medical innovation. Another commenter
further believed that devices granted an FDA De Novo classification
request based on completed IDE studies generating Medicare-relevant
clinical evidence of safety and effectiveness, including clinical
health outcomes agreed upon by CMS and FDA and relevant to Medicare
coverage decision-making, should remain eligible under the alternative
pathways. The commenter stated that such considerations would also
align with the eligibility criteria CMS and FDA articulated for the
RAPID coverage pathway. Some commenters stated that FDA-designated
Breakthrough Devices authorized through pathways not commonly supported
by Medicare-relevant clinical evidence of safety and effectiveness,
most notably the FDA 510(k) pathway, should be required to demonstrate
substantial clinical improvement through a controlled clinical study,
consistent with CMS's criterion. Another commenter supported CMS's
proposal to repeal the alternative pathway for FDA 510(k)-cleared
devices and device-led combination products, which it stated are often
authorized without clinical evaluations of safety or effectiveness and
instead rely on predicate devices. The commenter stated that it was not
appropriate to use Medicare funds to provide additional reimbursement
for therapies that lack robust evidence of clinical benefit.
Commenters requested that CMS not move forward with the proposal to
repeal the alternative pathway and conditional approvals for QIDP and
LPAD products. Commenters stated that conditional approvals expedited
patient access to new products and would address the access gaps
created by the Agency's prior decision to move the FDA marketing
authorization deadline from July 1 to May 1 of the new technology add-
on payment application year. A commenter stated that the case for
expanding the conditional approval policy to FDA-designated
Breakthrough Devices has garnered bipartisan support in Congress. A
commenter cautioned that eliminating the alternative pathway could
create additional barriers and timing misalignments for urgently needed
antibacterial and antifungal agents that target multidrug resistant
organisms and other high consequence infections, as well as for other
high priority infectious diseases technologies. The commenter urged CMS
to either maintain an appropriately structured alternative pathway for
infectious diseases products or, at minimum, develop a modified
framework that preserves an expedited, conditional approval process for
qualifying infectious diseases technologies, allowing them to receive
time-limited new technology add-on payments while additional evidence
is generated, with the expectation that these products ultimately meet
the criteria for the traditional pathway through annual notice-and-
comment-rulemaking. The commenter believed this approach would preserve
streamlined access to high priority infectious diseases diagnostics,
therapeutics, and devices while still incorporating safeguards to
ensure clinical benefit and prudent use of Medicare resources, and
would avoid inadvertently slowing access to important FDA-designated
QIDP, LPAD, and other critical infectious disease products that
previously relied on the alternative pathway for timely support. A
commenter suggested that CMS could refine eligibility criteria to
maintain alternative pathways for multidrug-resistant organisms where
clinical need is unquestionable, create tiered review processes with
expedited pathways for designated priority pathogens identified by CDC,
and establish clear clinical criteria that define specific infectious
disease scenarios while maintaining rigorous scientific standards. The
commenter stated that value-based innovation approaches could implement
outcome-based payment adjustments that link new technology add-on
payments to demonstrated resistance prevention benefits, establish
shared savings programs for antimicrobials that demonstrate stewardship
benefits and reduced healthcare utilization, and create population
health incentives that significantly reduce healthcare-associated
infections or improve antimicrobial stewardship outcomes.
Response: We thank commenters for sharing their recommendations and
alternatives to our proposal for our consideration. With respect to
comments regarding the potential impact of our proposal, it appears
that commenters' concerns may be predicated on the assumption that
interested parties would no longer have access to apply for additional
payments for these technologies. However, technologies that meet the
traditional new technology add-on payment application pathway or OPPS
device pass-through payment requirements will still be appropriately
considered and approved for additional payments under these pathways.
Comments requesting additional details and clarification on the
RAPID coverage pathway are outside of scope of the proposed rule, as a
separate proposed procedural notice outlining the RAPID coverage
pathway will be published in the Federal Register. We refer commenters
to the CMS press release announcing the RAPID coverage pathway for
additional information.\138\
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\138\ CMS and FDA Announce RAPID Coverage Pathway to Accelerate
Patient Access to Life-Changing Medical Devices https://www.cms.gov/newsroom/press-releases/cms-fda-announce-rapid-coverage-pathway-accelerate-patient-access-life-changing-medical-devices.
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With respect to comments requesting additional clarity and guidance
on the substantial clinical improvement criterion, as previously
discussed, we currently make determinations on an application-by-
application basis based on clinical factors relevant to a specific
technology. As previously stated, the regulations are intentionally
broad to provide flexibility for applicants in the evidence required to
demonstrate substantial clinical improvement. Commenters have described
unique challenges specific to certain categories of technologies, which
are taken into consideration during our reviews and during the public
notice-and-comment rulemaking. The regulations under Sec.
412.87(b)(1)(iii) provide a non-exhaustive list of published or
unpublished information sources from within the United States or
elsewhere that may be sufficient to establish substantial clinical
improvement. In practice, this has included the various information
sources that commenters
[[Page 49787]]
have requested we take into consideration, including clinical
guidelines, single-arm trial data, case studies, and real-world
evidence. As discussed in greater detail earlier in this section, we
disagree with commenter recommendations that CMS treat the FDA
designations with subsequent FDA marketing authorization as a
presumption that the technologies meet the substantial clinical
improvement criterion. FDA and CMS reviews are separate and are
conducted independently by the two agencies under different statutory
and regulatory standards. While earlier engagement with manufacturers
may be beneficial, we note that any determinations as to whether the
criteria for additional payment are met for any particular technology
continue to be subject to CMS's evaluation of the application and the
rulemaking process. As discussed earlier, 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].
We also appreciate the alternate methods shared by commenters that
they believed 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. Commenters provided a variety of
suggestions as to how the new technology add-on payment and OPPS device
pass-through payment programs could be modified to allow for the
generation of evidence to support improved outcomes for Medicare
beneficiaries through a conditional evidence generation pathway.
However, we believe 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. In addition, we are concerned that providing these
additional payments during a conditional evidence generation period
could result in Medicare having incentivized the use of technology for
which later evidence generated demonstrates that the technology had
been less effective than initially thought, or even potentially
harmful. There are also practical limitations to developing a
conditional evidence generation pathway, as for example, applicable
rulemaking for a second year of payment would commence during the first
year of additional payment for a technology. As commenters have noted,
both new technology add-on payment and OPPS device pass-through
payments are time limited, which is required under statute. In
addition, consistent with the prospective nature of the IPPS and OPPS,
we do not make mid-year changes to payment amounts, and any changes to
payment amounts are considered in future rulemaking. We note that
commenters also suggested alternatives that were either outside the
scope of the statute or our proposal, such as decoupling the newness
period from payment for new technology add-on payment, further
expanding the alternative pathways, increasing new technology add-on
payment percentages, or establishing new MS-DRGs.
While we agree with commenters that suggested that CMS evaluate the
substantial similarity criteria under the newness criterion, we do not
believe that implementing this suggestion alone as an alternative to
our proposal addresses our concerns about the lack of evaluation of the
substantial clinical improvement criterion.
Regarding the suggestions to limit eligibility to the alternative
pathways for specific categories of technologies, such as those
addressing specific conditions or those under specific FDA marketing
authorization pathways, we note that while commenters were supportive
of their technology of interest, they raised concerns about other
technologies that they believed should not be eligible. Taken in their
entirety, we believe that these concerns further support that repealing
the alternative pathways is the appropriate policy to ensure that CMS
is only providing an additional payment for technologies that have
evidence of clinical benefit. Furthermore, as we discussed in greater
detail earlier, while we understand the importance of facilitating
innovation in antimicrobial products, we do not believe that CMS should
continue to provide an additional payment for technologies that may not
offer substantial clinical improvement over currently available
treatments.
We also disagree with commenters that have asserted that a
substantial blanket delay is needed to allow companies to adjust their
technology development, or that the effect of the proposal would be
retroactive. As previously described, when we initially finalized the
alternative pathways, we indicated that we would be evaluating the
benefits of the alternative pathways and any considerations that may
come to light. Since that time, as previously discussed, CMS has also
described our concerns with the use of FDA Breakthrough Device
designation alone to support Medicare decision-
making.139 140 We would hope that manufacturers would have
been considering the clinical impacts of their technologies with
respect to Medicare beneficiaries regardless of the available pathways
for additional Medicare payment. However, while we continue to believe
that it is appropriate to finalize our policy in this final rule for
the reasons discussed, after consideration of the public comments
received, we also agree that it would be appropriate to adopt a
transitional approach to support the technologies already in advanced
stages of commercial development or that may already be commercially
available. Therefore, we are finalizing our proposal, with
modifications, to grandfather eligibility under the alternative pathway
for certain technologies for a limited period of time. Specifically, a
new technology that is (1) designated by FDA as a Breakthrough Device
or QIDP as of September 30, 2026, and has received marketing
authorization for the indication covered by the Breakthrough Device or
QIDP designation by May 1, 2028, or (2) approved under FDA's LPAD
pathway and used for the indication approved under the LPAD pathway by
May 1, 2028, will remain eligible to apply for new technology add-on
payment under the alternative pathways for FY 2028 and FY 2029. In
addition, a new device that is part of FDA's Breakthrough Devices
Program and has received Breakthrough Device designation as of
September 30, 2026, and has received marketing authorization as a
Breakthrough Device for the indication covered by the Breakthrough
Device designation, will remain eligible to apply for OPPS device pass-
through payment under the
[[Page 49788]]
alternative pathway for CY 2028 and CY 2029.
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\139\ Final rule to repeal the ``Medicare Coverage of Innovative
Technology (MCIT) and Definition of ``Reasonable and Necessary''
final rule (86 FR 62944-62958).
\140\ Transitional Coverage for Emerging Technologies (TCET)
pathway final notice (89 FR 65724-65754).
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Similar to other policy changes made to the new technology add-on
payment in prior rulemaking (for example, to move the deadline for FDA
marketing authorization from July 1 to May 1 (88 FR 58948 through
58958)), this finalized policy applies prospectively as described. With
respect to the commenter that requested that CMS open the FY 2028 new
technology add-on payment application before September 30, 2026, we
note that regardless of the duration of the application window, any
application for FY 2028 new technology add-on payment will be
considered under the policy finalized in this final rule.
After consideration of the public comments received, for the
reasons discussed previously and in the FY 2027 IPPS/LTCH PPS proposed
rule, we are finalizing our proposed policy, with modification to
grandfather eligibility under the alternative pathway for certain
technologies for a limited period of time.
Specifically, we are finalizing a policy that, unless specifically
excepted as described in this section, 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 will 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 will
need to demonstrate that the technology meets 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. In addition, we are finalizing a limited exception such
that the following technologies will remain eligible to apply for new
technology add-on payment under the alternative pathway through FY
2029: (1) a new medical device that is part of FDA's Breakthrough
Devices Program and has received Breakthrough Device designation as of
September 30, 2026, and has received marketing authorization as a
Breakthrough Device for the indication covered by the Breakthrough
Device designation by May 1, 2028; (2) new medical product that is
designated by FDA as a QIDP as of September 30, 2026, and has received
marketing authorization for the indication covered by the QIDP
designation by May 1, 2028; and (3) a new medical product that is
approved under FDA's LPAD pathway and used for the indication approved
under the LPAD pathway by May 1, 2028.
Technologies that have previously been approved for new technology
add-on payments under the alternative pathway, as well as technologies
that have been approved for FY 2027 new technology add-on payments
under the alternative pathway in this final rule, will remain eligible
for add-on payment under the alternative pathway, subject to the
requirements for continued payment, as previously discussed in section
II.E.4. of the preamble of this final rule. Consistent with our
finalized policy to remove the alternative pathway for certain
antimicrobial products currently at Sec. 412.87(d), we are also
finalizing the removal of 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 will 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). This includes QIDPs and LPADs that
meet the criteria for exception and are eligible to apply under the
alternative pathway through FY 2029 as described above.
We are finalizing our amendments to Sec. 412.87, with
modifications, to reflect the finalized policy by revising paragraphs
Sec. 412.87(c) and (d) and removing subparagraph 412.87(f)(3). We are
also finalizing the proposed revisions to the title of paragraph (f) to
reflect the modified policy. In connection with these changes, we are
also making a technical correction to subparagraph (c)(1) for clarity
and consistent with our existing policy, to reflect that the new
medical device must receive marketing authorization as a Breakthrough
Device for the indication covered by the Breakthrough Device
designation by May 1, 2028. We are not finalizing our proposed
revisions to subparagraphs (1) and (2) of paragraph (f) due to the
modified policy. We are also finalizing the proposed technical
correction to the introductory text at Sec. 412.87(d) to restore
language that was previously removed in error, with additional
revisions to reflect the finalized policy. We are also finalizing as
proposed the 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). We note that we did not receive any public
comments with respect to these technical corrections.
Similarly, we are finalizing our policy, with modification, that,
unless specifically exempted, 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 will 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 will be
evaluated and could be approved under the alternative pathway, provided
that all other criteria have been met. In addition, we are finalizing a
limited exception such that the following devices will remain eligible
to apply for OPPS device pass-through payment under the alternative
pathway through CY 2029: a new device that is part of FDA's
Breakthrough Devices Program and has received Breakthrough Device
designation as of September 30, 2026, and has received marketing
authorization as a Breakthrough Device for the indication covered by
the Breakthrough Device designation.
Existing device category codes established based on the approval,
either preliminary or via a final determination made in an OPPS/ASC
[[Page 49789]]
final rule, including any device category codes established for
approved alternative pathway applications received as of September 30,
2026, will continue to be eligible for OPPS 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 OPPS device
pass-through payment status would remain unchanged.
We are finalizing revisions, with modifications, to paragraph Sec.
419.66(c)(2)(ii) to reflect the finalized policy, effective October 1,
2026. We note that we are making these modifications to address the
many comments we received regarding the need for support for
technologies already in advanced stages of commercial development or
that may already be commercially available.
8. Other Comments
We received several public comments requesting changes to the new
technology add-on payment policies such as, but not limited to:
changing the payment length or payment methodology, rescinding the
requirement for a complete and active FDA marketing authorization
request, providing a remedy for technologies impacted by the
requirement for a complete and active FDA marketing authorization
request, developing a more frequent application cycle, adding guidance
regarding the reporting of inpatient drug acquisition costs for
products furnished from single-use vials, and creating a new pathway
for FDA 510(k)-exempt Class I products to be eligible for new
technology add-on payment. We also received comments on technologies
that are not under consideration for new technology add-on payments for
FY 2027. These comments were outside the scope of the proposals
included in the FY 2027 IPPS/LTCH PPS proposed rule and we are
therefore not addressing them in this final rule.
III. Changes to the Hospital Wage Index for Acute Care Hospitals
A. Background
1. Legislative Authority
Section 1886(d)(3)(E) of the Act requires that, as part of the
methodology for determining prospective payments to hospitals, the
Secretary adjust the standardized amounts for area differences in
hospital wage levels by a factor (established by the Secretary)
reflecting the relative hospital wage level in the geographic area of
the hospital compared to the national average hospital wage level. We
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 FY 2027 hospital wage index based on the statistical areas
appears under section III.B of the preamble of this final rule.
Section 1886(d)(3)(E) of the Act requires the Secretary to update
the wage index annually and to base the update on a survey of wages and
wage-related costs of short-term, acute care hospitals. CMS collects
these data on the Medicare cost report 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 generally
requires that updates or adjustments to the wage index be made in a
manner that ensures that aggregate payments to hospitals are not
affected by the change in the wage index. The adjustment for FY 2027 is
discussed in section II.B of the Addendum to this final rule.
As discussed in section III.I of the preamble of this final rule,
we also take into account the geographic reclassification of hospitals
in accordance with sections 1886(d)(8)(B) and 1886(d)(10) of the Act
when calculating IPPS payment amounts. Under section 1886(d)(8)(D) of
the Act, the Secretary is required to adjust the standardized amounts
so as to ensure that aggregate payments under the IPPS after
implementation of the provisions of sections 1886(d)(8)(B),
1886(d)(8)(C), and 1886(d)(10) of the Act are equal to the aggregate
prospective payments that would have been made absent these provisions.
The budget neutrality adjustment for FY 2027 is discussed in section
II.A.4.b of the Addendum to this final rule.
Section 1886(d)(3)(E) of the Act also provides for the collection
of data every 3 years on the occupational mix of employees for short-
term, acute care hospitals participating in the Medicare program to
construct an occupational mix adjustment to the wage index. The
information collection 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 applying to the FY 2027 wage
index appears under section III.E of the preamble of this final 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 final
rule). A copy of OMB Bulletin No. 23-01 may be obtained at https://www.whitehouse.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 adoption of the new OMB
delineations for the FY 2025 wage index. For FY 2027, we are continuing
to use the new OMB delineations that we adopted beginning with FY 2025
to calculate the area wage indexes and the transition periods, as we
discuss below.
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
[[Page 49790]]
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 continuing to use the FIPS county codes for
purposes of crosswalking counties to CBSAs. For FY 2027, Tables 2 and 3
associated with this final rule and the County to CBSA Crosswalk File
and Urban CBSAs and Constituent Counties for Acute Care Hospitals File
posted on the CMS website reflect the latest FIPS county code updates.
B. Worksheet S-3 Wage Data for the FY 2027 Wage Index
1. Cost Reporting Periods Beginning in FY 2023 for FY 2027 Wage Index
The 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 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 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 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 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 66
providers with aberrant data that should not be included in the wage
index. (We note, in the proposed rule we inadvertently stated that 68
hospitals were identified and excluded with aberrant data instead of 66
hospitals). However, we stated that if data elements for some of these
providers are corrected, we intended 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
[[Page 49791]]
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. After we issued
the proposed rule, for the final FY 2027 wage index, we restored the
data of 8 hospitals to the wage index, because their data was either
verified or improved, and removed the data of 1 hospital with aberrant
data. Thus, 59 hospitals with aberrant data remain excluded from the FY
2027 wage index.
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 stated in the proposed rule (91 FR 19461)
that we believe that including the wage data for these hospitals is, in
general, appropriate to reflect the economic conditions in the various
labor market areas during the relevant past period and to ensure that
the current wage index represents the labor market area's current wages
as compared to the national average of wages.
As discussed in the FY 2004 IPPS final rule (68 FR 45397 through
45398) and FY 2025 IPPS/LTCH final rule (89 FR 69268), any hospital
that is designated as a CAH or REH by 7 days prior to the publication
of the preliminary wage index public use file (PUF) is excluded from
the calculation of the wage index.
For the proposed FY 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 did not receive any comments with regard to this proposal,
and we are finalizing as proposed to exclude hospitals that converted
to CAH and/or REH on or after January 24, 2025 and through and
including January 23, 2026 from the wage index calculation. Since we
issued the proposed rule, we learned of 7 more hospitals that converted
to CAH and/or REH status on or after January 24, 2025, and through and
including January 23, 2026. We removed these additional hospitals from
the FY 2027 wage index due to their conversion to CAH and/or REH
status. In summary, we calculated the FY 2027 wage index using the
Worksheet S-3, Parts II and III wage data of 3,006 hospitals.
For the 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 final 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:
[GRAPHIC] [TIFF OMITTED] TR04AU26.135
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
[[Page 49792]]
different CBSA then the main campus and its other sub campus(es).
Therefore, to uniquely identify a second sub campus, we place a ``C''
in the third position of the CCN.
Comment: A commenter urged CMS to consider policies to mitigate
abrupt year-to-year wage index reductions when they are driven by
historical wage data that may not reflect current labor market
conditions. The commenter suggested that such policies could include
additional transition protections, smoothing methodologies, or other
approaches that better align Medicare payment adjustments with
contemporary labor costs. The commenter expressed concern that the FY
2027 wage index methodology does not adequately reflect current labor
market conditions and could result in significant payment reductions
despite continued growth in hospital workforce costs. Although the
commenter acknowledged that CMS's existing 5-percent cap on annual
hospital-level wage index decreases provides important protection
against abrupt payment disruptions, the commenter asserted that
additional refinements are warranted to ensure that Medicare payments
more accurately reflect hospitals' actual labor expenses and workforce
challenges. Specifically, the commenter recommended that CMS do all of
the following:
Adopt a multi-year rolling average of wage data to reduce
year-to-year volatility.
Incorporate more current wage data into the wage index
calculation.
Provide additional transition relief for states
experiencing unusually large aggregate wage index declines.
Evaluate whether rapid population growth and resulting
workforce demand should be reflected in the wage index methodology.
Review the effects of occupational mix adjustments and
other wage index policies to ensure they accurately reflect regional
labor costs.
The commenter stated that these changes would improve the
stability, predictability, and accuracy of the wage index while
preserving budget neutrality and better aligning Medicare payments with
hospitals' actual workforce costs.
Response: We thank the commenter for their comments. Under the
current annual wage index timeline, consistent with the IPPS rate-
setting processes, our policy has generally been to use the most
current data and information available, which typically reflects a 4-
year lag (for example, the FY 2027 wage index is based on FY 2023 cost
report data). Since the inception of the IPPS, the wage index has been
subject to this annual review process. As noted above, for development
of the FY 2027 wage index, the wage data were not subject to a desk
review by the MACs. However, CMS conducted its own review of the data
for the development of the FY 2027 wage index.
With regard to the use a multi year rolling average and states
experiencing unusually large aggregate wage index declines, as
discussed in the FY 2023 IPPS/LTCH PPS Final Rule discussion (87 FR
49018 through 49019), we believe a 5 percent annual cap on wage index
decreases effectively addresses instability.
With regard to the use of more recent wage data and to evaluate
whether rapid population growth and resulting workforce demand should
be reflected in the wage index methodology, as discussed below, we have
a multistep, 15-month process for the review and correction of the
hospital wage data used to develop the IPPS wage index for the upcoming
fiscal year. We will consider, through future rulemaking, modifications
to the 15-month process that may allow for the use of more recent wage
data. We also note that the commenter did not provide any data or
evaluation of potential effects of rapid population growth and
resulting workforce demand on the wage index methodology or how such
factors could be reflected in the wage index methodology.
With regard to the effects of the occupational mix data and other
wage index policies, the commenter did not provide any evidence or data
to demonstrate the effects of these adjustments and their effect on
year-to-year changes to the wage index. We welcome additional data from
the commenter to demonstrate the effects of these adjustments and their
effect on year to year changes to the wage index.
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-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,
[[Page 49793]]
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) was 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, was 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 the proposed rule, which is listed in section VI of the Addendum
to the proposed rule and available via the internet on the CMS website
at https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/wage-index-files/fy-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 noted in the proposed rule
that the proposed hospital average hourly wages shown in Table 2 only
reflected changes made to a hospital's data that were transmitted to
CMS by late January 2026.
We posted 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 was required to send its
request to CMS and to the MAC so that it was received no later than May
29, 2026. May 29, 2026, was also the deadline for hospitals to dispute
data corrections made by CMS of which the hospital was notified on or
after 13 calendar days prior to April 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 were 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 were 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 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
[[Page 49794]]
provides hospitals with sufficient opportunity to bring errors in their
wage and occupational mix data to the MAC's attention. Moreover,
because hospitals had access to the final wage index data PUFs by late
April 2026, they had 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.B.4 of the preamble of this final rule allows hospitals to
request corrections to their wage index data within prescribed
timeframes. In addition to hospitals' opportunity to request
corrections of wage index data errors or MACs' mishandling of data, CMS
has the authority under section 1886(d)(3)(E) of the Act to make
corrections to hospital wage index and occupational mix data to ensure
the accuracy of the wage index. As we explained in the FY 2016 IPPS/
LTCH PPS final rule (80 FR 49490 through 49491) and the FY 2017 IPPS/
LTCH PPS final rule (81 FR 56914), section 1886(d)(3)(E) of the Act
requires the Secretary to adjust the proportion of hospitals' costs
attributable to wages and wage-related costs for area differences
reflecting the relative hospital wage level in the geographic areas of
the hospital compared to the national average hospital wage level. We
believe that, under section 1886(d)(3)(E) of the Act, we have
discretion to make corrections to hospitals' data to help 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
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
[[Page 49795]]
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 FY 2027 Unadjusted Wage Index
The method used to compute the 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 did not propose any changes to this methodology. We have
restated our methodology in this preamble section of this final rule.
Step 1.--We gathered data from each of the non-Federal, short-term,
acute care hospitals for which data were reported on the Worksheet S-3,
Parts II and III of the Medicare cost report for the hospital's cost
reporting period relevant to the wage index (in this case, for FY 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 employees
(Line 22) are excluded if no corresponding salaries are reported for
those employees on Line 4.
As noted above, the 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
[[Page 49796]]
proposed to include 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 proposed to use Line 15 in the wage index calculation in
addition to lines 15.01 and 15.02. We stated in the proposed rule that
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. We further proposed to
use Lines 15.01 and 15.02 instead of Line 15 for future fiscal years.
We did not receive any comments on these proposals, and we are
finalizing as proposed for FY 2027 to use Line 15 in the wage index
calculation in addition to lines 15.01 and 15.02. We also are
finalizing as proposed to use Lines 15.01 and 15.02 instead of Line 15
for future fiscal years.
The formula for Total Salaries plus Wage-Related Costs (from
Worksheet S-3, Part II) for FY 2027 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 + Line 14.02 + Line 15 + Line 15.01 + Line
15.02) + (Line 17 + Line 22 + Line 25.50 + Line 25.51 + Line 25.52).
Step 3.--Hours.--With the exception of wage-related costs, for
which there are no associated hours, we compute total hours using the
same methods as described for salaries in Step 2. As noted above, for
FY 2027 we are finalizing as proposed to include Lines 15, 15.01 and
Line 15.02 in this calculation. We also are finalizing as proposed to
use Lines 15.01 and 15.02 instead of Line 15 for future fiscal years.
The formula for Total Hours (from Worksheet S-3, Part II) for FY
2027 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).
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 did not propose 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 final rule.
Step 6.--Each hospital is assigned to its appropriate urban or
rural labor market area before any reclassifications under section
1886(d)(8)(B), 1886(d)(8)(E), or 1886(d)(10) of the Act. Within each
urban or rural labor market area, we add the total adjusted salaries
plus wage-related costs obtained in Step 5 for all hospitals in that
area to determine the total adjusted salaries plus wage-related costs
for the labor market area.
Step 7.--We divide the total adjusted salaries plus wage-related
costs obtained under Step 6 by the sum of the corresponding total hours
(from Step 4) for all hospitals in each labor market area to determine
an average hourly wage for the area.
Step 8.--We add the total adjusted salaries plus wage-related costs
obtained in Step 5 for all hospitals in the Nation and then divide the
sum by the national sum of total hours from Step 4 to arrive at a
national average hourly wage.
Step 9.--For each urban or rural labor market area, we calculate
the hospital wage index value, unadjusted for occupational mix, by
dividing the area average hourly wage obtained in Step 7 by the
national average hourly wage computed in Step 8.
Step 10.--For each urban labor market area for which we do not have
any hospital wage data (either because there are no IPPS hospitals in
that labor market area, or there are IPPS hospitals in that area but
their data are either too new to be reflected in the current year's
wage index calculation, or their data are aberrant and are deleted from
the wage
[[Page 49797]]
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 final rule for
the policy regarding rural areas that do not have IPPS hospitals.
Step 11.--Section 4410 of Public Law 105-33 provides that, for
discharges on or after October 1, 1997, the area wage index applicable
to any hospital that is located in an urban area of a State may not be
less than the area wage index applicable to hospitals located in rural
areas in that State. The areas affected by this provision are
identified in Table 2 listed in section VI of the Addendum to this
final rule and available via the internet on the CMS website.
The following is our policy with regard to rounding of the wage
data (dollar amounts, hours, and other numerical values) in the
calculation of the unadjusted and adjusted wage index, as finalized in
the FY 2020 IPPS/LTCH final rule (84 FR 42306). For data that we
consider to be ``raw data,'' such as the cost report data on Worksheets
S-3, Parts II and III, and the occupational mix survey data, we use
such data ``as is,'' and do not round any of the individual line items
or fields. However, for any dollar amounts within the wage index
calculations, including any type of summed wage amount, average hourly
wages, and the national average hourly wage (both the unadjusted and
adjusted for occupational mix), we round the dollar amounts to 2
decimals. For any hour amounts within the wage index calculations, we
round such hour amounts to the nearest whole number. For any numbers
not expressed as dollars or hours within the wage index calculations,
which could include ratios, percentages, or inflation factors, we round
such numbers to 5 decimals. However, we continue rounding the actual
unadjusted and adjusted wage indexes to 4 decimals, as we have done
historically.
As discussed in the FY 2012 IPPS/LTCH PPS final rule, in ``Step
5,'' for each hospital, we adjust the total salaries plus wage-related
costs to a common period to determine total adjusted salaries plus
wage-related costs. To make the wage adjustment, we estimate the
percentage change in the ECI for compensation for each 30-day increment
from October 14, 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 did not propose to make 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.
[GRAPHIC] [TIFF OMITTED] TR04AU26.136
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
[[Page 49798]]
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 final FY 2027
unadjusted national average hourly wage is the following:
[GRAPHIC] [TIFF OMITTED] TR04AU26.137
D. 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 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 proposed to calculate the occupational mix
adjustment factor using the same methodology that we have used since
the FY 2012 wage index (76 FR 51582 through 51586) and to apply the
occupational mix adjustment to 100 percent of the FY 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 final rule (which is
available via the internet on the CMS website), which contains the 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 final rule for a chart listing the
multicampus hospitals and the FTE percentages used to allot their
occupational mix data.
Because the statute requires that the Secretary measure the
earnings and paid hours of employment by occupational category not less
than once every 3 years, all hospitals that are subject to payments
under the IPPS, or any hospital that 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 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
[[Page 49799]]
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 was $58.82.
We did not receive any comments on our proposed calculation of the
occupational mix adjustment to the FY 2027 wage index. Thus, for the
reasons discussed in this final rule and in the FY 2027 IPPS/LTCH PPS
proposed rule, we are finalizing our proposal without modification to
calculate the occupational mix adjustment factor using the same
methodology that we have used since the FY 2012 wage index and to apply
the occupational mix adjustment to 100 percent of the FY 2027 wage
index.
For the final FY 2027 wage index, we are using the Worksheet S-3,
Parts II and III wage data of 3,006 hospitals and the occupational mix
surveys of 2,921 hospitals of those hospitals for which we also had
Worksheet S-3 wage data, or 97 percent (2,921/3,006). For the final FY
2027 wage index, we are applying proxy data for noncompliant hospitals,
new hospitals, or hospitals that submitted erroneous or aberrant data
in the same manner that we applied proxy data for such hospitals in the
FY 2012 wage index occupational mix adjustment (76 FR 51586). As a
result of applying this methodology, the final FY 2027 occupational mix
adjusted national average hourly wage is the following:
[GRAPHIC] [TIFF OMITTED] TR04AU26.138
3. Occupational Mix Adjustment and the FY 2027 Occupational Mix
Adjusted Wage Index
As discussed in section III.E of the preamble of this final 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 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] TR04AU26.139
The national average hourly wage for the entire nurse category is
computed in Step 5 of the occupational mix calculation. Hospitals with
a nurse category average hourly wage (as calculated in Step 4) of
greater than the national nurse category average hourly wage receive an
occupational mix adjustment factor (as calculated in Step 6) of less
than 1.0. Hospitals with a nurse category average hourly wage (as
calculated in Step 4) of less than the national nurse category average
hourly wage receive an occupational mix adjustment factor (as
calculated in Step 6) of greater than 1.0.
Based on the 2022 occupational mix survey data, we determined (in
Step 7 of the occupational mix calculation) the following:
[GRAPHIC] [TIFF OMITTED] TR04AU26.140
4. 2025 Medicare Wage Index Occupational Mix Survey Data for Use
Beginning With the FY 2028 Wage Index
A new measurement of occupational mix is required for FY 2028. As
such, the FY 2028 occupational mix adjustment is 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 were
required to submit their completed 2025 surveys to their MACs by June
30, 2026. The preliminary, unaudited CY 2025 survey data was 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.
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
[[Page 49800]]
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
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. 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/
[[Page 49801]]
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 Sec.
412.280. There are 501 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 284 hospitals approved for wage index reclassifications in
FY 2025 that will continue for FY 2027, and 333 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, 1,118 hospitals (approximately 35 percent of IPPS
hospitals) are in a MGCRB reclassification status for FY 2027 (with 302
of these hospitals reclassified back to their urban geographic
location). We refer readers to section III.F.3.b of the preamble of
this final rule for information on the effects of adopting 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 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 final
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 FY 2028.
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.
Comment: Several commenters stated that reclassification was
intended to ensure fair reimbursement for hospitals in CBSAs that
exhibited the characteristics of another CBSA but now serves as a tool
to manipulate wage indexes, leading to uncertainty. They requested CMS
revise its termination, cancellation, and withdrawal rules and restrict
hospitals' ability to reclassify annually or between the proposed and
final rule, to stabilize reclassification changes and improve the
predictability
[[Page 49802]]
of final wage indexes based on the proposed rule.
Response: We acknowledge that hospitals' reclassification decisions
can create wage index fluctuations annually or between the proposed and
final rules. However, we note that we did not propose any changes to
the regulations at Sec. 412.273 for withdrawing an application,
terminating an approved 3-year reclassification, or cancelling a
previous termination in the FY 2027 IPPS/LTCH PPS proposed rule.
b. Revisions to Sec. 412.230(c)(1) To Address Ferry Routes
The regulation at Sec. 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 proposed to modify Sec. 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 stated that 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.\141\ 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.
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\141\ MGCRB Rules 5.2(A)(1), available at https://www.cms.gov/medicare/regulations-guidance/geographic-classification-review-board/mgcrb-rules.
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We proposed to revise the regulations at Sec. 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 sought comment on
this proposal.
Comment: A commenter supported CMS's proposal to recognize ferry
routes for MGCRB proximity requirements, stating that this revision
will ease administrative burden for hospitals with unique
transportation circumstances.
Response: After consideration of the comment we received in support
of our proposal, we are finalizing this policy and corresponding
revision of the regulation at 412.230(c)(1) as proposed without
modification.
c. Clarification Regarding the Data Used for Reclassifying to an Area
With a Lower Wage Index (Sec. 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.\142\ 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.
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\142\ https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/wage-index-files.
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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 therefore proposed 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 did not receive any comments on this proposal, and we are
finalizing the revision to Sec. 412.230(a)(5)(i) to clarify the
appropriate wage data to be used by hospitals seeking reclassification
as proposed.
d. Revisions to Sec. 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 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
[[Page 49803]]
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 proposed to waive the application of Sec.
412.230(d)(1)(iv) for a hospital requesting reclassification to its
geographic home area. Specifically, we proposed to add an exception at
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 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 sought comment on
this proposal.
We did not receive any comments on this proposal, and we are
finalizing as proposed 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 seeking MGCRB
reclassification to their geographic labor market area.
Comment: Many commenters asked CMS to waive the wage data
comparison requirement for low wage index hospitals seeking any MGCRB
reclassification, similar to the exception for hospitals reclassifying
to home proposed at Sec. 412.230(d)(6). In addition, commenters
requested regulatory changes to Sec. 412.230(d) to permit low wage
hospitals to reclassify to an area within 50 miles and to receive the
unblended wage index that is paid to hospitals in that area. Several
commenters requested a common 50-mile standard for proximity criteria
for all hospitals, to better account for current commuting patterns.
Response: We note that we did not propose any changes to Sec.
412.230 in the FY 2027 IPPS/LTCH PPS proposed rule beyond the narrow
exception for hospitals reclassifying to their geographic labor market,
and as such, are not finalizing other changes to Sec. 412.230 in this
final rule.
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
[[Page 49804]]
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-
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.
We did not receive any requests from hospitals to waive or
reinstate its Lugar redesignation this cycle.
F. 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 final rule
(which is available on the CMS website), and based on the calculation
of the rural floor including the wage data of hospitals that have
reclassified as rural under Sec. 412.103, we estimate that 991
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 final rule.
In the FY 2023 IPPS/LTCH PPS final rule (87 FR 48784), CMS
finalized a policy change to calculate the rural floor in the same
manner as we did prior to the FY 2020 IPPS/LTCH PPS final rule, in
which the rural wage index sets the rural floor. We stated that for FY
2023 and subsequent years, we would include the wage data of Sec.
412.103 hospitals that have no Medicare Geographic Classification
Review Board (MGCRB) 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
[[Page 49805]]
relevant statutory language, we agreed that the best reading of section
1886(d)(8)(E)'s text that CMS ``shall treat the [Sec. 412.103]
hospital as being located in the rural area'' is that it instructs CMS
to treat Sec. 412.103 hospitals the same as geographically rural
hospitals for the wage index calculation.
Accordingly, in the FY 2024 IPPS/LTCH PPS final rule, we finalized
a policy to include hospitals with Sec. 412.103 reclassification along
with geographically rural hospitals in all rural wage index
calculations, and to exclude ``dual reclass'' hospitals (hospitals with
simultaneous Sec. 412.103 and MGCRB reclassifications) that are
implicated by the hold harmless provision at section 1886(d)(8)(C)(ii)
of the Act. For additional information on these changes, we refer
readers to the FY 2024 IPPS/LTCH PPS final rule (88 FR 58971 through
58977).
Comment: A commenter expressed continued support for treating urban
hospitals reclassified as rural under Sec. 412.103 the same as
geographically rural hospitals for wage index purposes.
Response: We appreciate the commenter's support of our current
policy. We note that we did not propose any changes to the treatment of
hospitals with Sec. 412.103 urban to rural reclassifications for wage
index purposes in the FY 2027 IPPS/LTCH PPS proposed rule.
Comment: Several commenters asked CMS not to apply the rural floor
budget neutrality adjustment to hospitals receiving the rural floor.
The commenters asserted that Section 4410(b) of the Balanced Budget Act
of 1997 exempts urban and reclassified rural hospitals receiving the
rural floor from wage index reductions due to application of the budget
neutrality factor.
Response: We disagree with the commenters' argument that hospitals
receiving the rural floor should be excluded from the application of
the rural floor budget neutrality factor. We direct the reader to
responses to similar comments in the FY 2025 IPPS/LTCH PPS final rule
(89 FR 69299) and the FY 2026 IPPS/LTCH PPS final rule (90 FR 36850
through 36851) for a full explanation of why we disagree with the
commenters' approach. We believe we have applied the rural floor budget
neutrality adjustment in a manner consistent with the statute.
Comment: Several commenters expressed concern over rural floor
manipulation, particularly by large urban hospitals reclassifying as
rural to raise their state's rural floor. Commenters encouraged CMS to
evaluate the redistributive impacts of the rural floor and other wage
index policies, with some commenters specifically noting the impact on
Medicare Advantage reimbursement. Commenters asked CMS to increase
predictability by changing the methodology for including wage data of
reclassified hospitals and by limiting wage index changes annually and
between the proposed and final rules.
Response: While we note that we did not propose any changes to the
rural floor policy in the FY 2027 IPPS/LTCH PPS proposed rule, we
understand the commenters' concerns regarding hospitals taking
advantage of the rural floor policy and the effect on all hospitals due
to the budget neutrality adjustment. As we have noted in previous rules
in response to similar comments (88 FR 58975 through 58976, 89 FR
69299, and 90 FR 36850), we expect this trend to continue such that the
majority of hospitals (if not all) will be assigned identical wage
index values within their states. We also understand that the IPPS wage
index has effects beyond the IPPS, including on Medicare Advantage
reimbursement. However, as we stated in the previous rules, we believe
this result would be unavoidable given the requirement of section
1886(d)(8)(E) of the Act to treat Sec. 412.103 hospitals ``as being
located in the rural area'' of the State, as well as the requirement at
sections 4410(b) of the BBA 1997 and 3141 of the Patient Protection and
Affordable Care Act (Pub. L. 111-148) that a uniform, national budget
neutrality adjustment be applied in implementing the rural floor. While
we note that we did not propose any limits on reclassification
decisions hospitals can make annually or between the proposed and final
rules, we believe that our 5% cap policy helps increase predictability
by limiting annual wage index decreases.
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 final 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
[[Page 49806]]
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 final rule. States
with a value in the column titled ``State Imputed Floor'' are eligible
for the imputed floor.
The regulations at Sec. 412.64(e)(1) and (4) and (h)(4) and (5)
implement the imputed floor required by section 1886(d)(3)(E)(iv) of
the Act for discharges occurring on or after October 1, 2021. The
imputed floor 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).
Comment: We received comments supporting the application of the
imputed floor.
Response: We thank the commenters for their input. As discussed
earlier, the imputed floor is a statutory requirement under section
9831 of the American Rescue Plan Act of 2021 (Pub. L. 117-2) which
requires the Secretary to establish a minimum area wage index for
hospitals in all-urban States for discharges occurring on or after
October 1, 2021. We note that we did not propose any changes to the
methodology for calculating the imputed floor as set forth in Sec.
412.64(e)(1) and (4) and (h)(4) and (5). Therefore, in accordance with
the statute and existing regulations, we are applying the imputed floor
for hospitals in all-urban States for FY 2027.
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 note that
in the FY 2027 IPPS/LTCH PPS proposed rule, we did not propose any
changes to the frontier floor policy for FY 2027. In the proposed rule,
we stated 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 did not receive any public comments on the application of the
State frontier floor for FY 2027. In this final rule, 31 hospitals will
receive the frontier floor value of 1.00 for their FY 2027 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
FY 2027 wage index are identified in Table 3 associated with this final
rule, which is available via the internet on the CMS website.
4. Out-Migration Adjustment Based on Commuting Patterns of Hospital
Employees
In accordance with section 1886(d)(13) of the Act, as added by
section 505 of Public Law 108-173, beginning with FY 2005, we
established 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 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
No. 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
[[Page 49807]]
resident addresses per year.\143\ 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.
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\143\ According to the Census Bureau, the effects of the public
health emergency (PHE) on ACS activities in 2020 resulted in a lower
number of addresses (~2.9 million) in the sample, as well as fewer
interviews than a typical year.
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In the FY 2025 IPPS/LTCH PPS final rule (89 FR 69301), we finalized
that for FY 2025 and subsequent years, the out-migration adjustment
will be based on the data derived from the previously discussed custom
tabulation of the ACS utilizing 2016 through 2020 (5-year) Microdata.
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 proposed 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.
Comment: We received a comment stating that Middlesex County, NJ
narrowly missed the eligibility thresholds required to qualify for the
out-migration adjustment despite having previously qualified in prior
years. Given that the underlying data used to calculate these
thresholds is not fully audited, the commenter argues that such a
marginal shortfall should not be sufficient grounds for withholding the
adjustment.
The commenter also raised a broader policy concern, arguing that
the current eligibility structure is inequitable, as counties with
nearly identical labor market conditions can receive different
treatment based on negligible differences. The commenter suggested that
CMS should reassess whether the current OMA eligibility criteria
reflect labor market realities; and to consider refining the standards
in future rulemaking, specifically by eliminating the average hourly
wage comparison requirement.
Response: Section 1886(d)(13)(B)(iii) of the Act requires that, to
qualify for the out-migration adjustment, the average hourly wage for
all hospitals in the county must be equal to or exceed the average
hourly wage for all hospitals in its labor market area. We believe we
have implemented this policy consistent with the statute (69 FR 49061-
49067). With regard to the commenter stating that a marginal shortfall
should not be sufficient grounds for not qualifying for the adjustment
when the underlying data used to calculate the qualifying thresholds is
not fully audited, as stated earlier, CMS uses actual wage data
submitted by the hospitals to calculate the wage index. Specifically,
the wage data for the 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. Hospitals submit wage data to CMS through
the Medicare cost report and should ensure accuracy when submitting
their own wage data. In addition, as noted above, for the development
of the FY 2027 wage index, CMS conducted its own review of the data.
For these reasons, we disagree with the commenter that the adjustments
be provided when the eligibility thresholds are narrowly missed based
on the data used for the FY 2027 rulemaking.
After consideration of the comments, we are finalizing as proposed
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
final rule (which is available on the CMS website) lists the out-
migration adjustments for the FY 2027 wage index. In addition, Table 4A
associated with this final rule, ``List of Counties Eligible for the
Out Migration Adjustment under Section 1886(d)(13) of the Act'' (also
available on the CMS website), consists of the following: A list of
counties that are eligible for the outmigration adjustment for FY 2027
identified by FIPS county code, the 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 final rule for
instructions on accessing IPPS tables that are posted on the CMS
websites identified in this final 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 proposed 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 will 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
final rule for further information regarding the budget neutrality
calculations.
Comment: We received many comments in support of our proposed cap
on wage index decreases for FY 2027. Some of these commenters urged CMS
to apply this policy in a non-budget neutral manner. A commenter asked
CMS to consider a smaller percentage point cap, stating that even a 5
percent decrease could impact the financial stability of hospitals
operating on narrow margins.
Response: We thank the commenters for their support. With regard to
the commenters requesting that CMS apply this policy in a non-budget
neutral
[[Page 49808]]
manner, we refer readers to our response to similar comments in the FY
2024 IPPS/LTCH PPS final rule (88 FR 58981). In response to the
commenter asking for a smaller percentage point cap, we refer readers
to the FY 2023 IPPS/LTCH PPS Final Rule discussion (87 FR 49018 through
49019) explaining why we believe a 5 percent annual cap on wage index
decreases effectively addresses instability.
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
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.\144\ 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.
---------------------------------------------------------------------------
\144\ 90.25 percent = 95 percent for FY 2025 * 95 percent for FY
2026. This can also be expressed as .95[supcaret]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 proposed 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 proposed 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 \145\ 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 \146\ of its FY 2024 wage
index.\147\ 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).
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\145\ Under the wage index cap policy at 42 CFR 412.64(h)(7), a
hospital's wage index for a FY cannot be lower than 0.95 * its wage
index from the prior FY. Over a 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 proposed 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.
\146\ 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[supcaret]3.
\147\ 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[supcaret]4) of its FY 2024 wage index of 0.7600.
Similar to the FY 2026 transition, we proposed 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,
[[Page 49809]]
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 proposed to
use our authority under section 1886(d)(5)(I)(i) of the Act twice.
First, we proposed to adopt a narrow transitional exception to the
calculation of FY 2027 IPPS for low wage index hospitals significantly
impacted by the discontinuation of the low wage index hospital policy.
Second, we proposed to exercise our authority again to do so in a
budget neutral manner.148 149 We refer the reader to section
II.A.4.g of the Addendum of this final rule for complete details
regarding the application of the transition for the discontinuation of
the low wage index hospital policy budget neutrality factor.
---------------------------------------------------------------------------
\148\ 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 final 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 final
rule, as proposed, we applied a budget neutrality factor to the
standardized amount.
\149\ 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 also proposed 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 proposed for FY 2027
to make a budget neutral equivalent exception under the capital IPPS.
Comment: Many commenters supported the proposed transition but
urged CMS not to budget neutralize the policy. Several challenged CMS's
authority under subsection (d)(5)(I)(i) to budget neutralize the
policy, and a commenter urged CMS to allow the policy to sunset to end
the associated budget neutrality adjustment.
Conversely, some commenters asked CMS to extend the transition
beyond FY 2027 to provide payment stability to affected hospitals,
particularly in Puerto Rico. Many commenters encouraged CMS to continue
developing policies to support low wage hospitals that do not adversely
affect other hospitals. These commenters expressed that a temporary
transition is inadequate, since the need for the discontinued low wage
policy remains. Suggested alternatives included: working with Congress
on permanent wage index reform or legislation to assist low wage
hospitals; a Cost of Living Adjustment (COLA) for Puerto Rico; and a
more permissive reclassification mechanism for low wage hospitals.
Response: We thank the commenters for their support for the policy
in general. In response to the commenters opposing the budget
neutrality adjustment, we believe that the reasons we stated in the
proposed rule for budget neutralizing the transition continue to apply.
Consistent with our response to similar comments about the authority
for budget neutrality in the FY 2021 IPPS/LTCH PPS final rule (85 FR
58767), we believe that we have authority under section
1886(d)(5)(I)(i) of the Act to promulgate a budget neutrality
adjustment to the national standardized amount and that this authority
is not limited to transfer cases. We disagree with the commenters that
we are not permitted to make budget neutral exceptions under section
1886(d)(5)(I)(i) of the Act.
With regard to extending the transition for additional years, we
may consider this in future rulemaking. We thank the commenters for the
suggested alternatives to assist low wage hospitals in the absence of
the low wage hospital policy, some of which would require legislation.
Finally, regarding the suggested reclassification changes for low wage
hospitals, we have addressed those comments in Section IV.E.III.d. of
this final rule.
After consideration of the public comments we received, we are
finalizing as proposed without modification to use our authority under
section 1886(d)(5)(I)(i) of the Act twice. First, to adopt a narrow
transitional exception to the calculation of FY 2027 IPPS payments for
low wage index hospitals that benefitted from the FY 2024 low wage
index hospital policy and are significantly impacted by the
discontinuation of the low wage index hospital policy. Second, we are
exercising our authority again to do so in a budget neutral manner
through an adjustment applied to the standardized amount for all
hospitals. We are also finalizing our proposal to make a budget neutral
equivalent exception under the capital IPPS.
G. FY 2027 Wage Index Tables
In this FY 2027 IPPS/LTCH PPS final rule, we have included the
following wage index tables: Table 2 titled ``Case-Mix Index and Wage
Index Table by CCN''; Table 3 titled ``Wage Index Table by CBSA'';
Table 4A titled ``List of Counties Eligible for the Out-Migration
Adjustment under Section 1886(d)(13) of the Act''; and Table 4B titled
``Counties redesignated under section 1886(d)(8)(B) of the Act (Lugar
Counties).'' We refer readers to section VI of the Addendum to this
final rule for a discussion of the wage index tables for FY 2027.
H. 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.
[[Page 49810]]
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. We
note that in the proposed rule for FY 2027, we did not propose to make
any further changes to the labor-related share. For FY 2027, we are
finalizing the policy 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 final rule,
prior to January 1, 2016, Puerto Rico hospitals were paid based on 75
percent of the national standardized amount and 25 percent of the
Puerto Rico-specific standardized amount. As a result, we applied the
Puerto Rico-specific labor-related share percentage and nonlabor-
related share percentage to the Puerto Rico-specific standardized
amount. Section 601 of the Consolidated Appropriations Act, 2016 (Pub.
L. 114-113) amended section 1886(d)(9)(E) of the Act to specify that
the payment calculation with respect to operating costs of inpatient
hospital services of a subsection (d) Puerto Rico hospital for
inpatient hospital discharges on or after January 1, 2016, shall use
100 percent of the national standardized amount. Because Puerto Rico
hospitals are no longer paid with a Puerto Rico-specific standardized
amount as of January 1, 2016, under section 1886(d)(9)(E) of the Act as
amended by section 601 of the Consolidated Appropriations Act, 2016,
there is no longer a need for us to calculate a Puerto Rico-specific
labor-related share percentage and nonlabor-related share percentage
for application to the Puerto Rico-specific standardized amount.
Hospitals in Puerto Rico are now paid 100 percent of the national
standardized amount and, therefore, are subject to the national labor-
related share and nonlabor-related share percentages that are applied
to the national standardized amount. Accordingly, for FY 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 final rule and available via the internet
on the CMS website, reflect the national labor-related share. Table 1C,
in section VI of the Addendum to this FY 2027 IPPS/LTCH PPS final rule
and available via the internet on the CMS website, reflects the
national labor-related share for hospitals located in Puerto Rico. For
FY 2027, for all IPPS hospitals (including Puerto Rico hospitals) whose
wage indexes are less than or equal to 1.0000, we are applying 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 applying the wage index to a labor-related share of 66.0 percent of
the national standardized amount.
Comment: A commenter stated that CMS's labor-related share
methodology understates the labor-related share by excluding the
``universe'' of labor-related costs, regardless of whether those costs
vary by the local market. The commenter urged CMS to include these
costs in the labor-related share.
Response: We note that we did not propose to make any further
changes to the labor-related share for FY 2027. As discussed earlier,
for FY 2027, we are continuing to use a labor-related share of 66.0
percent for discharges occurring on or after October 1, 2026.
We also disagree with the commenter's claim that the labor-related
share should include the universe of labor-related costs, including
those costs that do not vary with the local labor market. The labor-
related share of the IPPS standardized amount is adjusted to account
for geographic differences in area wage levels by applying the
applicable IPPS wage index. The purpose of the labor-related share is
to reflect the proportion of the national IPPS standardized amount that
is adjusted by the hospital's wage index (representing the relative
costs of their local labor market to the national average). Therefore,
we include a cost category in the labor-related share if the costs are
labor intensive and vary with the local labor market. Currently this
would include all wages and salaries and employee benefits for any
worker employed by the hospital, and any contract worker providing
direct patient care. Additionally, it includes a proportion of costs
for professional services (such as legal and accounting) and home
office/related organization costs based on Medicare cost report data
submitted by IPPS hospitals, and purchased costs associated with
services that would generally be conducted in the location of the
hospital (such as maintenance and repair, etc.). We note that for the
2023-based IPPS market basket (90 FR 36869 through 36873), we finalized
the use of the Medicare cost report data for IPPS hospitals to
determine the proportion of expenses classified as professional fees
that meet our definition of labor-related services while the 2018-based
IPPS market basket (86 FR 45204 through 45205) used a survey of
hospitals conducted by CMS in 2008. Both the Medicare cost report data
and survey indicated that only a portion of these costs are purchased
in the local labor market.
[[Page 49811]]
IV. Payment Adjustment for Medicare Disproportionate Share Hospitals
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 \150\ that serve a significantly
disproportionate number of low-income patients. The Act specifies two
methods by which a hospital may qualify for the Medicare
disproportionate share hospital (DSH) adjustment. Under the first
method, hospitals that are located in an urban area and have 100 or
more beds may receive a Medicare DSH payment adjustment if the hospital
can demonstrate that, during its cost reporting period, more than 30
percent of its net inpatient care revenues are derived from State and
local government payments for care furnished to patients with low
incomes. This method is commonly referred to as the ``Pickle method.''
The second method for qualifying for the DSH payment adjustment, 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.
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\150\ See section 1886(d)(1)(B) of the Act for the definition of
a ``subsection (d) hospital''.
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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] TR04AU26.141
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 and 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) (ACA), as amended by section 10316 of the ACA 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 ACA. 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:
[GRAPHIC] [TIFF OMITTED] TR04AU26.142
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
[[Page 49812]]
in its March 2007 Report to Congress.\151\ We refer to this payment as
the ``empirically justified Medicare DSH payment.''
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\151\ https://www.medpac.gov/document/march-2007-report-to-the-congress-medicare-payment-policy/.
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In addition to this empirically justified Medicare DSH payment,
section 1886(r)(2) of the Act provides that, for FY 2014 and each
subsequent fiscal year, the Secretary shall pay to such subsection (d)
hospitals an additional amount equal to the product of three factors.
The first factor is the difference between the aggregate amount of
payments that would be made to subsection (d) hospitals under section
1886(d)(5)(F) of the Act if subsection (r) did not apply and the
aggregate amount of payments that are made to subsection (d) hospitals
under section 1886(r)(1) of the Act for such fiscal year. In other
words, the first factor of the uncompensated care payment calculation
is 75 percent of the payments that would otherwise be made as Medicare
DSH payments under section 1886(d)(5)(F) of the Act.
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 for 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] TR04AU26.143
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 ACA 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 ACA 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 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, a hospital's eligibility to receive empirically
justified Medicare DSH payments) for the applicable fiscal year (using
the most recent data available). For this final 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
[[Page 49813]]
available SSI ratios at the time of developing this final rule.\152\ 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.
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\152\ https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/dsh.
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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 FY
2015 IPPS/LTCH PPS final rule (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 final rule for further discussion of the
MDH program. We will continue to make a determination concerning an
MDH's eligibility for interim empirically justified Medicare DSH and
uncompensated care payments based on the hospital's estimated DSH
status for the applicable fiscal year.
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 Comprehensive Care
for Joint Replacement Expanded (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 readers to section X.C. of this final rule for further discussion
on the CJR-X Model.
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).\153\ 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 empirically justified Medicare DSH payments, and they are
excluded from receiving interim and final uncompensated care payments.
At the time of development of this final rule, we believe 22 hospitals
may participate in the demonstration program at the start of FY 2027.
In the FY2027 IPPS/LTCH PPS proposed rule (91 FR 19482), we noted that
if at the time of developing the final rule there is a different number
of hospitals projected to participate in the demonstration program
during FY 2027, we would use updated information in the FY 2027 final
rule.
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\153\ The Rural Community Hospital Demonstration Program was
extended for a subsequent 5-year period by sections 3123 and 10313
of the ACA. 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
ACA), 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.
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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
[[Page 49814]]
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.
Comment: We received several comments outside the scope of the
proposed rule.
Response: While the comments were outside the scope of this
rulemaking, we will consider issues and concerns raised by the
commenters for future rulemaking.
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 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 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 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 did not propose 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 finalized 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. The MAC will make a final determination
with respect to a hospital's eligibility to receive the supplemental
payment for a fiscal year, in conjunction with its final determination
of the hospital's eligibility for DSH payments and uncompensated care
payments for that fiscal year.
Comment: Several commenters discussed the supplemental payment for
Puerto Rico hospitals. A commenter thanked CMS for continuing to
recognize that Puerto Rico hospitals face unique challenges with
respect to Medicare DSH payments. However, this commenter stated that
Puerto Rico hospitals' delivery system is operating on margins that
cannot absorb further payment reductions. Another commenter thanked CMS
for continuing to recognize that Worksheet S-10 data alone does not
fully reflect the level of uncompensated care provided by Puerto Rico
hospitals.
Several commenters expressed concern that the supplemental payment
for Puerto Rico hospitals has declined in recent years and remains
vulnerable to year-to-year fluctuations. The commenters requested that
CMS confirm the FY 2027 supplemental payment at a level no lower than
the FY 2026 level and disclose the data and methodology used to
calculate the supplemental payment in the final rule. The commenters
also recommended that CMS commit to a stable, transparent, multi-year
DSH supplemental payment methodology, rather than deriving the payment
amount annually, to support hospital financial planning. Additionally,
both commenters requested that CMS evaluate whether the Worksheet S-10
can be refined to reflect Puerto Rico's distinct payer mix and
disproportionate share of uncompensated and undercompensated care.
A commenter reiterated similar recommendations that they submitted
in response to the proposal to establish these supplemental payments in
the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 49049). The commenter
recommended that CMS calculate the supplemental payment for Puerto Rico
hospitals using a base year amount determined using a Medicare SSI days
proxy of at least 43 percent of the hospital's Medicaid days, to
reflect the local poverty level instead of the current base year
amount, which incorporates the proxy that was applied from FYs 2017
through 2022 of 14 percent of the hospital's Medicaid days and that was
based on national data on the relationship between Medicare SSI days
and Medicaid days.
Response: We thank the commenters for their input. We refer
commenters to the FY 2023 IPPS/LTCH PPS final rule (87 FR 49047 through
49051) for a detailed discussion of the methodology for calculating the
supplemental payment for Puerto Rico hospitals. In response to
commenters suggesting other approaches to calculating the supplemental
payment for Puerto Rico hospitals, we note that we did not propose any
changes to our methodology in the proposed rule and therefore consider
these comments to be outside the scope. However, we refer readers to
our responses to substantially similar comments in the FY 2023 IPPS/
LTCH PPS final rule (87 FR 49047 through 49051, FY 2024 IPPS/LTCH PPS
final rule (88 FR 58992 and 58993), and FY 2025 IPPS/LTCH PPS final
rule (89 FR 69313 through 69315) for fulsome discussion on these
issues.
E. Uncompensated Care Payments
As we discussed earlier, section 1886(r)(2) of the Act provides
that, for each eligible hospital in FY 2014 and subsequent years, the
uncompensated care payment is the product of three factors, which are
discussed in the next sections.
1. Calculation of Factor 1 for FY 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
[[Page 49815]]
the precise aggregate Medicare DSH payment amounts that would be paid
for a fiscal year until cost report settlement for all IPPS hospitals
is completed, which occurs several years after the end of the fiscal
year. Therefore, section 1886(r)(2)(A)(i) of the Act provides authority
to estimate this amount by specifying that, for each fiscal year to
which the provision applies, such amount is to be estimated by the
Secretary. Similarly, we would not know the precise aggregate
empirically justified Medicare DSH payment amounts that would be paid
for a fiscal year until cost report settlement for all IPPS hospitals
is completed. Thus, section 1886(r)(2)(A)(ii) of the Act provides
authority to estimate this amount. In brief, Factor 1 is the difference
between the Secretary's estimates of: (1) the amount that would have
been paid in Medicare DSH payments for the fiscal year, in the absence
of section 1886(r) of the Act; and (2) the amount of empirically
justified Medicare DSH payments that are made for the fiscal year,
which takes into account the requirement to pay 25 percent of what
would have otherwise been paid under section 1886(d)(5)(F) of the Act.
In the FY 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 determined 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). We stated that 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.
In the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19482 through
19484), to calculate both estimates, we used the most recently
available projections of Medicare DSH payments for the fiscal year, as
calculated by OACT using the most recently filed Medicare hospital cost
reports with 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 the
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.
In the FY 2027 IPPS/LTCH proposed rule, using the data sources
previously discussed, OACT's January 2026 estimate 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 the FY 2027
IPPS/LTCH PPS proposed rule, we determined 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 noted that consistent with our approach in
previous rulemakings, OACT intended to use more recent data that may
become available for purposes of projecting the final Factor 1
estimates for the FY 2027 IPPS/LTCH PPS final rule.
In the FY 2027 IPPS/LTCH proposed rule (91 FR 19483), we stated
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. We explained that consistent with historical practice, we
expected the Midsession Review would have updated economic assumptions
and actuarial analysis, which would 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 the FY 2027 IPPS/LTCH proposed rule (91 FR 19482 through 19484),
we included information regarding the data sources, methods, and
assumptions employed by OACT's actuaries in determining our estimate of
Factor 1. In summary, we indicated the historical HCRIS data update
OACT used to estimate Medicare DSH payments. We also explained that the
most recent Medicare DSH payment adjustments provided in the IPPS
Impact File were used, and we provided the components of all the update
factors that were applied to the historical data to estimate the
Medicare DSH payments for the upcoming fiscal year, along with the
[[Page 49816]]
associated rationale and assumptions. The discussion also includes
descriptions of the ``Other'' and ``Discharges'' assumptions.
We invited public comments on our proposed Factor 1 for FY 2027.
Comment: A few commenters expressed concern regarding CMS' proposed
reduction to the Factor 1 amount for FY 2027 while others requested
that CMS ensure that the proposed Factor 1 amount accurately reflects
DSH payments. As in prior years, commenters encouraged CMS to provide
greater transparency regarding the assumptions and data used by CMS
OACT to estimate Factor 1. A few commenters asserted that hospitals'
lack of opportunity to review the data used in rulemaking is
inconsistent with the Administrative Procedure Act. These commenters
expressed concern regarding the lack of transparency in the Factor 1
calculation and asserted that hospitals cannot meaningfully comment on
the methodology without additional detail. Specifically, these
commenters stated that the proposed rule provided neither sufficient
detail nor an explanation regarding the treatment of Medicaid
expansions in the Factor 1 calculation.
Several commenters urged CMS to provide additional detail regarding
how the ``Other'' factor is calculated, including the assumptions and
adjustments reflected in the estimate. Specifically, a commenter stated
the FY 2027 IPPS/LTCH PPS proposed rule omitted a statement included in
prior rulemaking explaining that the ``Other'' factor accounts for
estimated changes in Medicaid enrollment through FY 2023. Another
commenter stated that CMS did not clearly explain how it used Medicaid
expansion levels in calculating Factors 1 and 2, whether it considered
those levels consistently across both factors, or how it adjusted
Factor 1 for the assumed Medicaid expansion level in FY 2027. Several
commenters stated that CMS estimates a $900 million, or 9 percent,
decrease in Factor 1 attributable to the ``Other'' factor for FY 2027
and requested additional explanation on CMS' assumptions and data that
resulted in the decline. A commenter requested that CMS publish a
detailed methodology for its ``Other'' calculation, including how each
component contributes to changes in the estimate from year to year,
while a couple of commenters also requested that CMS clarify why the
``Other'' factor frequently varies across successive rulemaking cycles.
Response: We thank the commenters for their input.
Regarding the commenters that express concern with the proposed
decrease in Factor 1, as discussed further in this section, we have
used the best available data to estimate DSH payments for this final
rule, consistent with the statutory requirements for Factor 1.
We disagree with commenters' assertions regarding a lack of
transparency with respect to the methodology and assumptions used in
the calculation of Factor 1. As explained in the FY 2027 IPPS/LTCH PPS
proposed rule (91 FR 19312) and in this section of this final rule, we
have been and continue to be transparent about the methodology and data
used to estimate Factor 1. Regarding the commenters who reference the
Administrative Procedure Act, we note that under the Administrative
Procedure Act, a proposed rule is required to include either the terms
or substance of the proposed rule or a description of the subjects and
issues involved. In this case, the FY 2027 IPPS/LTCH PPS proposed rule
(91 FR 19482 through 19484) included a detailed discussion of our
proposed Factor 1 methodology and the data sources that would be used
in making our final estimate. Accordingly, we believe commenters were
able to meaningfully comment on our proposed estimate of Factor 1.
To provide additional context, and as we have explained in prior
rulemakings (see example, 90 FR 36536), Factor 1 is not estimated in
isolation from other projections made by OACT. As stated in the FY 2027
IPPS/LTCH proposed rule (91 FR 19483) the Factor 1 estimates for the
proposed rules are generally consistent with the economic assumptions
and actuarial analyses used to develop the President's Budget estimates
under current law, and the Factor 1 estimates for this final rule are
the latest estimates from OACT at the time of development of this final
rule. We recognize that our reliance on the economic assumptions and
actuarial analyses used to develop the President's Budget in estimating
Factor 1 has an impact on hospitals, health systems, and other impacted
parties that wish to replicate the Factor 1 calculation by, for
example, modeling the relevant Medicare Part A portion of the
President's Budget. Yet, we continue to believe commenters are able to
meaningfully comment on our proposed estimate of Factor 1 without
replicating the budget.
For a general overview of the principal steps involved in
projecting future inpatient costs and utilization, we refer readers to
the ``2026 Annual Report of the Boards of Trustees of the Federal
Hospital Insurance and Federal Supplementary Medical Insurance Trust
Funds,'' available under ``Downloads'' on the CMS website at: https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/index.html. The annual reports of the
Medicare Boards of Trustees to Congress represent the Federal
Government's official evaluation of the financial status of the
Medicare Program. The actuarial projections contained in these reports
are based on numerous assumptions regarding future trends in program
enrollment, utilization, and costs of health care services covered by
Medicare, as well as other factors affecting program expenditures. In
addition, given that the methods used to estimate future costs based on
these assumptions are complex, they are subject to periodic review by
independent experts to ensure their validity and reasonableness.
Additionally, in the FY 2027 IPPS/LTCH PPS proposed rule (91 FR
19482 through19484) and described in more detail later in this section,
we included information regarding the data sources, methods, and
assumptions employed by the actuaries to determine the OACT's estimate
of Factor 1. We explained that the most recent Medicare DSH payment
adjustments provided in the IPPS Impact File were used to calculate
Factor 1, and we provided the components of all update factors that
were applied to historical data to estimate the Medicare DSH payments
for the upcoming fiscal year, along with the associated rationale and
assumptions. This discussion also included a description of the
``Other,'' ``Discharges,'' and ``Case-Mix'' factors and their
underlying assumptions.
Regarding the commenter's concern that the FY 2027 proposed rule
did not include a prior statement that the ``Other'' factor accounts
for estimated changes in Medicaid enrollment through FY 2023, we refer
readers to OACT's FY 2027 Memorandum ``Estimate of Medicare DSH
Payments Used in Development of Factor 1.'' (Available on the CMS
website at: https://www.cms.gov/files/document/fy-2027-final-rule-oact-memo-dsh-factor-1.pdf).
In that memorandum, OACT explains that the ``Other'' factor
includes an adjustment for the change in Medicaid enrollment in 2023
and that, after examining estimated changes in Medicaid enrollment over
the past few years, OACT is making no further explicit adjustments for
Medicaid enrollment beyond 2023. As we described in the proposed rule
(91 FR
[[Page 49817]]
19483), OACT's estimates for FY 2027 for the proposed rule began with
baseline Medicare DSH expenditures for FY 2023 and as such make no
further adjustments for Medicaid enrollment.
Comment: Commenters requested that CMS provide additional detail
regarding the calculations and assumptions associated with the
``Discharge'' component used in the Factor 1 formula, with some urging
CMS to publish discharge estimates annually in the IPPS proposed rule.
These commenters stated that the additional detail would allow
commenters to evaluate whether CMS is accurately capturing the impact
of Medicare Advantage (MA) enrollment growth on Medicare Fee for
Service (FFS) inpatient hospital payments. One of the commenters stated
that the continued expansion of MA has raised concerns, especially
around prior authorization requirements imposed by plans, which often
create burdens for both patients and providers, prompting broader
conversations about the sustainability of MA growth and its
implications for inpatient hospital payments, especially for hospitals
serving a disproportionate share of low-income beneficiaries. The same
commenter welcomed the opportunity to work with CMS in examining the
impacts of MA enrollment on FFS inpatient hospital payments--
particularly with respect to this impact on the ``Discharge'' component
of Factor 1. Another commenter urged CMS to clarify how it uses MA data
to inform Factor 1 and stated that MA penetration varies significantly
by state, community, and provider, and that DSH status meaningfully
affects hospitals' relationships with MA plans, as some hospitals
report that MA plans frequently exclude essential hospitals with higher
DSH adjustments from their networks.
Several other commenters stated that CMS' discharge projections for
FY 2026 and FY 2027 are based on assumptions rather than actual data.
Another commenter requested that CMS establish a formal process, such
as a technical workgroup or a dedicated public comment period on DSH
methodology, through which these issues could be examined in a
structured and transparent manner.
Further, a commenter urged CMS to update its proposed ``Case-Mix''
update factor to more accurately reflect the increasing acuity and
resource intensity of inpatient encounters. The commenter stated that
the shift of healthcare services from inpatient to outpatient settings,
as further reflected by the elimination of the inpatient-only list for
the Outpatient Prospective Payment System, has resulted in increasingly
complex care being furnished in the inpatient setting. The commenter
also cited CMS projections that Medicare Part A per capita spending
will grow at an average annual rate of 4.5 percent between 2020 and
2030, while CMS proposes a 13 percent decline in the proposed ``Case-
Mix'' factor from 1.0075 in FY 2026 to 1.0050 in FY 2027.
Another commenter stated that CMS had not adequately explained why
assumptions from a 2012 Technical Review Panel report remain
appropriate for estimating the FY 2027 Case-Mix update factor, given
changes in Medicare beneficiary demographics, MA enrollment trends, and
post-COVID-19 PHE utilization patterns since 2012.
Response: We thank the commenters for their input. We continue to
disagree with commenters' assertions regarding a lack of transparency
with respect to the methodology and assumptions used in the calculation
of Factor 1. Regarding commenters' requests for additional detail on
the calculations and assumptions underlying the ``Discharges'' and
``Case-Mix'' factors, we refer the commenters to the discussion
elsewhere in this section of this final rule and the relevant
discussion in the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19483-
19484), which detail the calculations and assumptions we used to
calculate the FY 2027 ``Discharges'' and ``Case-Mix'' factors. We also
note that in updating our estimate of Factor 1 for this final rule, we
considered, as appropriate, the same set of factors that we used in the
FY 2026 IPPS/LTCH PPS proposed rule and in prior rulemakings (for
example, FY 2026 IPPS/LTCH final rule 90 FR 36536, 36880 through
36894). As we stated we would do in the FY 2027 IPPS/LTCH PPS proposed
rule, we then updated our estimates for the FY 2027 ``Discharges,''
``Case-Mix'' component, and other Factor 1 components, to incorporate
the latest available data based on more recent economic assumptions and
actuarial analyses. Regarding the comment on the changes to the
inpatient only procedures list, we refer readers to the CY2026 OPPS
final rule. (90 FR 53450).
Regarding the comments on the impacts of MA enrollment on the
Medicare FFS discharge volume and the ``Discharges'' component of
Factor 1, we refer commenters to the actuarial projections and
assumptions regarding future trends in Medicare FFS and MA program
enrollment, utilization, and costs of health care services covered by
Medicare, as well as other factors affecting Medicare FFS and MA
program expenditures, contained in the ``2026 Annual Report of the
Boards of Trustees of the Federal Hospital Insurance and Federal
Supplementary Medical Insurance Trust Funds,'' available under
``Downloads'' on the CMS website at: https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/index.html. We considered these projections,
assumptions, and other factors when developing our estimate of the
``Discharges'' factor for FY 2027. We also note that in this final
rule, consistent with prior years (see example, 90 FR 36536), our
estimate of the ``Discharges'' component for FY 2027 incorporates only
claims from the Medicare FFS program rather than claims from the MA
program. Accordingly, we believe that the FY 2027 ``Discharges'' factor
in this final rule accurately reflects trends in Medicare FFS
discharges. We welcome input from commenters on the MA program and the
Factor 1 methodology during the comment period.
Regarding the comments about CMS discharge projections, we note
that we believe the use of discharge trend assumptions and projections
for Factor 1 is consistent with the statute and long-standing
methodology of Factor 1. OACT's Factor 1 estimate is based on the most
recent available data and uses reasonable assumptions for recent
discharge trends.
Regarding the commenter's comparison of the projected growth in
Medicare Part A per capita spending and the case-mix changes in FY
2027, we refer the commenters to the actuarial projections and
assumptions regarding future trends outlined in the ``2026 Annual
Report of the Boards of Trustees of the Federal Hospital Insurance and
Federal Supplementary Medical Insurance Trust Funds''. We considered
those projections and assumptions in calculating the Case-Mix factor
component of Factor 1. As discussed later in this section, we continue
to believe it is a reasonable assumption that the growth in case-mix
will slow gradually until reaching 0.5 percent annually in fiscal year
2027. The projections for case-mix growth are discussed later in this
section.
After consideration of the public comments received, we are
finalizing, as proposed, the methodology for calculating Factor 1 for
FY 2027. Consistent with prior rulemakings, for this final rule, OACT
used the most recently submitted Medicare cost report data from the
March 31, 2026, update of HCRIS to identify Medicare DSH payments and
the most recent Medicare
[[Page 49818]]
DSH payment adjustments provided in the Impact File and applied update
factors and assumptions for projected changes in utilization and case-
mix to estimate Medicare DSH payments for the upcoming fiscal year.
The June 2026 OACT estimate for Medicare DSH payments for FY 2027,
without regard to application of section 1886(r)(1) of the Act, is
approximately $15.767 billion. This estimate excluded Maryland
hospitals, which participate in the Maryland Total Cost of Care Model
and are not paid under the IPPS, hospitals participating in the Rural
Community Hospital Demonstration, and SCHs paid under their hospital-
specific payment rate. Therefore, based on this June 2026 estimate, the
estimate of empirically justified Medicare DSH payments for FY 2027,
with application of section 1886(r)(1) of the Act, is approximately
$3.94 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, the final
Factor 1 for FY 2027 is $11,825,250,000, which is equal to 75 percent
of the total amount of estimated Medicare DSH payments for FY 2027
($15,767,000,000 minus $3,941,750,000). OACT's estimates for FY 2027
for this final rule began with a baseline of $12.898 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] TR04AU26.144
In this table, the discharges factor 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 factorcolumn 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 reflects an
expected transition to the case-mix figure for FY 2027. In other words,
the FY 2026 factor value of 1.0075 is a midpoint transition to the
expected ultimate trend of 1.005. The FY 2026 and the FY 2027 case-mix
figures are 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.\154\
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\154\ https://www.cms.gov/research-statistics-data-and-systems/statistics-trends-and-reports/reportstrustfunds/downloads/technicalpanelreport2010-2011.pdf.
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The ``Other'' column reflects the change in other factors that
contribute to the Medicare DSH estimates. These factors include the
difference between the total inpatient hospital discharges and IPPS
discharges and various adjustments (e.g., budget neutrality
adjustments) to the IPPS payment rates that have been finalized and
applied 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] TR04AU26.145
Note: All figures in this table are the final inpatient hospital
updates for the applicable fiscal year. The FY 2027 figures reflect the
inpatient hospital market basket percentage increase and productivity
adjustment and are based on the 2nd quarter 2026 IGI forecast, the most
recent forecast available at the time of development of this final
rule. We refer to section VI.B. of the preamble of this final rule for
a complete discussion of the inpatient hospital market basket update
for FY 2027.
2. Calculation of 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
[[Page 49819]]
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 2025 through 2034 and were published on June
24, 2026. Those projections used the latest NHEA historical data that
were available at the time of their construction (that is, all NHEA
historical data through 2024). 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. Factor 2 for FY 2027
Using these data sources and the previously described
methodologies, at the time of developing the proposed rule, OACT had
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 were projected to be 9.0 and 9.1 percent, respectively (FY 2027
IPPS/LTCH PPS proposed rule (91 FR 19484)). As required by section
1886(r)(2)(B)(ii) of the Act, the Chief Actuary of CMS certified these
estimates. We refer readers to OACT's Memorandum on Certification of
Rates of Uninsured prepared for the FY 2027 IPPS/LTCH PPS proposed rule
for further details on the methodology and assumptions that were used
in the projection of these rates of uninsurance.\155\
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\155\ See https://www.cms.gov/files/document/certification-rates-uninsured-fy-2027-proposed-rule.pdf.
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As with the CBO estimates on which we based Factor 2 for fiscal
years before FY 2018, the NHEA estimates are for a calendar year. Under
the approach originally adopted in the FY 2014 IPPS/LTCH PPS final rule
(79 FR 50014), we have used a weighted average approach to project the
rate of uninsurance for each fiscal year. We continue to believe that,
in order to estimate the rate of uninsurance during a fiscal year
accurately, Factor 2 should reflect the estimated rate of uninsurance
that hospitals will experience during the fiscal year, rather than the
rate of uninsurance during only one of the calendar years the fiscal
year spans. Accordingly, in the FY 2027 IPPS/LTCH PPS proposed rule, we
proposed to continue to apply the weighted average approach used in
past fiscal years to estimate this final rule's rate of uninsurance for
FY 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\ In
the proposed rule (91 FR 19485), we noted 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.
In the proposed rule, we outlined the calculation of the proposed
Factor 2 for FY 2027 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 proposed that Factor 2 for FY 2027 would be 65.00 percent.
The proposed FY 2027 uncompensated care amount was equivalent to
proposed Factor 1 multiplied by proposed Factor 2, which was
$7,460,212,500.
We invited public comments on our proposed Factor 2 for FY 2027.
Comment: Most commenters that discussed Factor 2 expressed concern
that the proposed rule's FY 2027 uninsured rate is underestimated.
Commenters stated that the proposed Factor 2 amount does not account
for several finalized and proposed federal policy changes that could
dramatically increase the uninsured rate in FY 2027. These commenters
referenced policy changes such as the expiration of the American Rescue
Plan's Marketplace enhanced premium tax credits, the implementation of
Medicaid work requirements, the projected impact of the One Big
Beautiful Bill Act (H.R.1), the Working Families Tax Cut legislation,
and other pending or proposed federal policy changes that may restrict
Medicaid enrollment and impact the uninsured population in FY 2027.
Other commenters voiced concerns that the proposed reduction to Factor
2 coincides with increased operating costs for hospitals that provide
uncompensated care.
[[Page 49820]]
Several commenters also referenced data sources and analyses
estimating the impact of proposed federal policies on the uninsured
rate. Some commenters cited the Congressional Budget Office (CBO)
projection of the uninsured rate, which estimates that the number of
uninsured individuals will increase by 5.2 million in 2027, and 10
million by 2034, due to the passage of the One Big Beautiful Bill Act.
Other commenters cited the CBO projection that 2.2 million individuals
will lose their health insurance in 2026 and that 16 million will
become uninsured from 2027 to 2034 due to the expiration of the
American Rescue Plan's Marketplace enhanced premium tax credits. A few
commenters referenced the CBO estimate that by 2034, about 4.8 to 5.3
million individuals will lose their insurance due to the Medicaid work
requirements, and 10 million individuals will become uninsured. A
commenter also referred to the CMS Marketplace Integrity and
Affordability Final Rule regarding estimates that Marketplace
enrollment would decrease by 725,000, to 1.8 million enrollees in 2026
(90 FR 27213). A commenter referenced a Kaiser Family Foundation
analysis, which showed that 28 percent of enrollees in Louisiana were
disenrolled from Medicaid and the Children's Health Insurance Program
(CHIP) between 2023 and 2026. Another commenter referenced a Robert
Wood Johnson Foundation report, which showed that 4.9 to 10.1 million
individuals, and 25 to 50 percent of enrollees in Ohio, are at risk of
losing their Medicaid coverage by 2028 because of the new Medicaid work
requirements.
Citing CMS' statement in the proposed rule that the agency could
consider more recent data that may become available for the calculation
of final Factor 2 for FY 2027, many commenters urged CMS to use more
recent and ``accurate'' data sources to account for the anticipated
increase in the uninsured rate for FY 2027. Some commenters urged CMS
to consider utilizing alternative, more comprehensive, and real-world
data sources and calculations from interested parties and researchers
or supplementing the NHEA data with other data sources to ensure that
the Factor 2 estimate appropriately reflects the current coverage
landscape and accurately estimates uninsured projections.
Additionally, a few commenters stated that the current Factor 2
methodology may have been appropriate during periods of stable
insurance coverage but may no longer be adequate given the above-
referenced recent and proposed federal policy shifts that may impact
the uninsured rate. As such, these commenters urged CMS to reevaluate
the current data sources and methodologies used to estimate Factor 2.
Another commenter requested that CMS update the proposed rule's
estimate of the uninsured rate for the upcoming fiscal year earlier in
each rulemaking cycle to enhance the reliability of the proposed rule
in projecting changes to uncompensated care payments for upcoming
fiscal years. Other commenters urged CMS to ensure that the NHEA
estimates are accurate and up to date, while others questioned the
NHEA's conclusion that Medicaid enrollment will continue to grow in
2026 and 2027, given CBO estimates of an increase in the uninsured
rate. A couple of commenters also questioned the reliability of the
NHEA projections, noting that they were published in June 2025, rely on
historical data through 2023, and do not fully account for recent
changes in the coverage landscape due to the above-referenced, recently
enacted and proposed federal policy changes.
Response: We thank the commenters for their input regarding the
estimate of Factor 2 included in the proposed rule. In response to
comments concerning the NHEA data source used for calculating Factor 2
for FY 2027, we refer readers to the FY 2018 IPPS/LTCH PPS final rule
(82 FR 38197 through 38198) for a complete discussion of why we
continue to believe the NHEA remains the data source that best meets
all considerations for ensuring reasonable estimates of the uninsured
rate throughout the IPPS rulemaking cycle. Importantly, the NHEA's
projected estimates of the rate of uninsurance are based on an
established methodology, they account for expected enrollment changes
across all coverage categories (including public and private coverage),
and they incorporate the latest available data for use in the
respective proposed and final rules. Regarding the comments requesting
that CMS update the Factor 2 methodology and data sources and increase
Factor 2, we continue to believe that estimating Factor 2 based on the
best available data is appropriate and consistent with the requirements
of Section 1886(r)(2)(B)(ii) of the Act, as discussed in prior
rulemaking (see, e.g., 82 FR 38197 and 38198).
In the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19484 and 19485),
we explained that we used the most recent available estimates from the
NHEA at that time, and we refer readers to the relevant discussion in
the proposed rule and OACT's memorandum on ``Certification of Rates of
Uninsured'' prepared for the proposed rule for further details on the
methodology and assumptions used in the proposed rule's calculation of
the projected uninsured rate.\[1]\ In brief, we indicated that our
projection of the rates of uninsurance for CYs 2026 and 2027 were from
the latest NHEA historical data available and accounted for expected
changes in enrollment across all categories of insurance coverage. We
remind readers that OACT's estimates in the proposed rule considered
the expiration of the American Rescue Plan's Marketplace enhanced
premium tax credits and the latest Medicaid projections publicly
available at that time (90 FR 36889).
In response to commenters who requested that we update the Factor 2
estimates in the FY 2027 IPPS/LTCH PPS proposed rule to account for any
anticipated changes in the uninsured rate using more recent or
alternative data sources, we stated in the proposed rule that we may
consider the use of more recent data that may become available for
purposes of estimating the rates of uninsurance used in the calculation
of the final Factor 2 for FY 2027. This final rule uses the most recent
NHEA estimates, available as of June 24, 2026. These projections were
finalized in April 2026 and reflect current law (including the
expiration of the Inflation Reduction Act's temporary extension of
enhanced premium tax credits and the enactment of the One Big Beautiful
Bill Act). Consistent with the FY 2026 IPPS/LTCH PPS final rule (90 FR
36887), and for the reasons stated earlier in this section of this
final rule, we are using the updated NHEA data for the final Factor 2
calculation as we believe that it is the most appropriate measure of
changes in the rate of uninsurance.
Regarding the request that CMS issue an earlier estimate of the
uninsured rate for the upcoming FY during each annual IPPS rulemaking
cycle, we believe the proposed rule and final rule's estimates are
appropriate and timely as they reflect projections that are developed
in each calendar year and released in June of each calendar year. We
will continue to use the most recently available data during the
development of the proposed and final rule.
Comment: Several commenters urged CMS to provide additional details
on how Factor 2 is calculated and how it accounts for the current
coverage landscape, while others urged CMS to be more transparent
regarding the data sources used for calculating Factor 2, the
assumptions behind the uninsured
[[Page 49821]]
rate, and the ``hospital-specific uncompensated care factors.'' A
couple of commenters asserted that the proposed rule did not provide
sufficient details, nor an explanation of the treatment of Medicaid
expansions in the calculation for Factor 2. A few commenters requested
that CMS publish a detailed methodology on the calculation of Factor 2
and how the NHEA projections are incorporated into the estimate.
Finally, a commenter requested that CMS publish the relevant OACT
information involved in the calculation of Factor 2 in advance of the
final rule publication and in the IPPS proposed rule each year going
forward to ensure that hospitals can verify the underlying data and
understand the fluctuations in DSH payments before the end of the
proposed rule's comment period.
Response: In response to the comments concerning transparency, we
note that OACT's updated memorandum, ``Certification of Rates of
Uninsured,'' contains additional methodological detail describing the
methods used to derive the FY 2027 rate of uninsured for this final
rule. Section 1886(r)(2)(B)(ii) of the Act permits us to use a data
source other than CBO estimates to determine the percent change in the
rate of uninsurance beginning in FY 2018. (Available on the CMS website
at: https://www.cms.gov/files/document/certification-rates-uninsured-2027-final-rule.pdf.) As explained elsewhere in this section of this
final rule, the NHEA data and methodology that were used to estimate
Factor 2 for this final rule are transparent and best meet all our
considerations for ensuring reasonable estimates for the rate of
uninsurance that are available for each IPPS rulemaking cycle. We
continue to believe it is appropriate to update the projection of the
FY 2027 rate of uninsurance using the most recent NHEA data, as it
properly accounts for all recent, relevant legislative actions. For
additional information on the NHEA's projection of the uninsured rate,
see the projection's methodology documentation. (Available on the CMS
website at: https://www.cms.gov/research-statistics-data-and-systems/statistics-trends-and-reports/nationalhealthexpenddata/downloads/projectionsmethodology.pdf.)
While we appreciate the commenter's request for earlier publication
of the OACT data used to calculate Factor 2, the publication timeframe
of that NHEA data is beyond the scope of this rulemaking's Factor 2
calculation. The projected national uninsured rates and underlying
methodologies were available for public review by the display and
publication dates of the IPPS proposed rule, and we stated that if more
timely estimates became available, they would be used for the final
rule. Updated projections became publicly available in June 2026 and
included supporting methodology material. (Available on the CMS website
at: https://www.cms.gov/data-research/statistics-trends-and-reports/national-health-expenditure-data/projected). We believe our established
process allows hospitals adequate opportunity to analyze the proposed
rule's estimate and supporting methodology material (see, e.g., 90 FR
36888 and 36889).
After consideration of the public comments we received, we are
updating the calculation of Factor 2 for FY 2027 to incorporate the
most recent NHEA data. The final estimates of the percentage of
uninsured individuals have been certified by the Chief Actuary of CMS.
The calculation of the final Factor 2 for FY 2027 using a weighted
average of OACT's updated projections for CY 2026 and CY 2027 is as
follows:
Percent of individuals without insurance for CY 2013: 14.0
percent.
Percent of individuals without insurance for CY 2026: 9.2
percent.
Percent of individuals without insurance for CY 2027: 9.5
percent.
Percent of individuals without insurance for FY 2027:
(0.25 times 0.092) + (0.75 times 0.095) = 9.4 percent.
FY 2027's Factor 2 is calculated as 1 minus the percent
change in the percent of individuals without insurance between CY 2013
and FY 2027.
Factor 2 is as follows: 1-[verbar]((0.14-0.094)/0.14)
[verbar] = 1-0.3286 = 0.6714
Therefore, Factor 2 for FY 2027 is 67.14 percent.
The final FY 2027 uncompensated care amount is equivalent to Factor
1 multiplied by Factor 2, which is $7,939,472,850.
3. Calculation of 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
[[Page 49822]]
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 (86 FR 45237),
commenters expressed concerns that the use of only 1 year of data to
determine Factor 3 would lead to significant variations in year-to-year
uncompensated care payments. Some stakeholders recommended the use of 2
years of historical data from Worksheet S-10 data of the Medicare cost
report. In the FY 2022 IPPS/LTCH PPS final rule (86 FR 45237), 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.\156\
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\156\ For example, in determining Factor 3 for FY 2023, we did
not use the same cost report to determine a hospital's uncompensated
care costs for both FY 2018 and FY 2019. Rather, we used the cost
report that spanned the entirety of FY 2019 to determine
uncompensated care costs for FY 2019 and used the hospital's most
recent prior cost report to determine its uncompensated care costs
for FY 2018, provided that cost report spanned some portion of FY
2018.
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(1) Scaling Factor
In the FY 2025 IPPS/LTCH PPS final rule (89 FR 69323), we continued
the policy finalized in the FY 2023 IPPS/LTCH PPS final rule (87 FR
49042) to address the effects of calculating Factor 3 using data from
multiple fiscal years by applying a scaling factor to the Factor 3
values calculated for all DSH-eligible hospitals. As a result, the
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, 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.
[[Page 49823]]
Under our modified new hospital policy, if a new hospital has a
preliminary projection of being DSH-eligible based on its most recent
available disproportionate patient percentage, it may receive interim
empirically justified DSH payments. However, new hospitals will not
receive interim uncompensated care payments because we would have no
uncompensated care data on which to determine what those interim
payments should be. The MAC will make a final determination concerning
whether the hospital is eligible to receive Medicare DSH payments at
cost report settlement. In FY 2025, while we continued to determine the
numerator of the Factor 3 calculation using the new hospital's
uncompensated care costs reported on Worksheet S-10 of the hospital's
cost report for the current fiscal year, we determined Factor 3 for new
hospitals using a denominator based solely on uncompensated care costs
from cost reports for the most recent fiscal year for which audits have
been conducted. In addition, we applied a scaling factor to the Factor
3 calculation for a new hospital.\157\
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\157\ In the FY 2023 IPPS/LTCH PPS final rule (87 FR 49042), we
explained our belief that applying the scaling factor is appropriate
for purposes of calculating Factor 3 for all hospitals, including
new hospitals and hospitals that are treated as new hospitals, to
improve consistency and predictability across all hospitals.
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(3) Newly Merged Hospital Policy
In the FY 2025 IPPS/LTCH PPS final rule (89 FR 690323 through
690324), we continued our policy of treating hospitals that merge after
the development of the final rule for the applicable fiscal year
similar to new hospitals. As explained in the FY 2015 IPPS/LTCH PPS
final rule (79 FR 50021), for these newly merged hospitals, we do not
have data currently available to calculate a Factor 3 amount that
accounts for the merged hospital's uncompensated care burden. In the FY
2015 IPPS/LTCH PPS final rule (79 FR 50021 and 50022), we finalized a
policy under which Factor 3 for hospitals that we do not identify as
undergoing a merger until after the public comment period and
additional review period following the publication of the final rule or
that undergo a merger during the fiscal year will be recalculated
similar to new hospitals.
Consistent with the policy adopted in the FY 2015 IPPS/LTCH PPS
final rule, in the FY 2025 IPPS/LTCH PPS final rule (89 FR 690323
through 690324), we stated that we would continue to treat newly merged
hospitals in a similar manner to new hospitals, such that the newly
merged hospital's final uncompensated care payment will be determined
at cost report settlement where the numerator of the newly merged
hospital's Factor 3 will be based on the cost report of only the
surviving hospital (that is, the newly merged hospital's cost report)
for the current fiscal year. However, if the hospital's cost reporting
period includes less than 12 months of data, the data from the newly
merged hospital's cost report will be annualized for purposes of the
Factor 3 calculation. Consistent with the methodology used to determine
Factor 3 for new hospitals described in section IV.E.3. of the preamble
of this final rule, we continued our policy for determining Factor 3
for newly merged hospitals using a denominator that is the sum of the
uncompensated care costs for all DSH-eligible hospitals, as reported on
Worksheet S-10 of their cost reports for the most recent fiscal year
for which audits have been conducted. In addition, we apply a scaling
factor, as discussed in section IV.E.3. of the preamble of this final
rule, to the Factor 3 calculation for a newly merged hospital. In the
FY 2025 IPPS/LTCH PPS final rule, we explained that consistent with
past policy, interim uncompensated care payments for the newly merged
hospital would be based only on the data for the surviving hospital's
CCN available at the time of the development of the final rule.
Comment: A commenter supported for the policy currently in place
for newly merged and new hospitals, while another commenter suggested
that CMS verify the proper attribution of merger data to a surviving
hospital's CCN to avoid any potential underpayment to hospitals that
will not be resolved until cost report settlement.
Response: We thank commenters for their input. We refer commenters
to the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19312), where we
state that each year, along with the proposed rule, we publish a
supplemental data file containing a list of the mergers of which we are
aware and the computed uncompensated care payment for each merged
hospital. We generally believe that publishing the supplemental data
file in conjunction with the proposed rule and the 60-day window from
the proposed rule date of public display allows hospitals adequate time
to review the data and notify CMS of any discrepancies. We note that we
do not include pending mergers for purposes of the final rule's
calculations.
(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)).
[[Page 49824]]
(5) Uncompensated Care Data Trim Methodology
After applying the CCR trim methodology, there are rare situations
where a hospital has potentially aberrant uncompensated care data for a
fiscal year that are unrelated to its CCR. Therefore, under the trim
methodology for potentially aberrant uncompensated care costs (UCC)
that was included as part of the methodology for purposes of
determining Factor 3 in the FY 2021 IPPS/LTCH PPS final rule (85 FR
58832), if the hospital's uncompensated care costs for any fiscal year
that is included as a part of the multi-year average are an extremely
high ratio (greater than 50 percent) of its total operating costs in
the applicable fiscal year, we will determine the ratio of
uncompensated care costs to the hospital's total operating costs from
another available cost report, and apply that ratio to the total
operating expenses for the potentially aberrant fiscal year to
determine an adjusted amount of uncompensated care costs for the
applicable fiscal year.\158\
---------------------------------------------------------------------------
\158\ For example, if a hospital's FY 2018 cost report is
determined to include potentially aberrant data, data from its FY
2019 cost report would be used for the ratio calculation.
---------------------------------------------------------------------------
However, we note that we have audited the Worksheet S-10 data that
will be used in the Factor 3 calculation for a number of hospitals.
Because the UCC data for these hospitals have been subject to audit, we
believe that there is increased confidence that if high uncompensated
care costs are reported by these audited hospitals, the information is
accurate. Therefore, as we explained in the FY 2021 IPPS/LTCH PPS final
rule (85 FR 58832), we determined it is unnecessary to apply the UCC
trim methodology for a fiscal year for which a hospital's UCC data have
been audited.
In rare cases, hospitals that are not currently projected to be
DSH-eligible and that do not have audited Worksheet S-10 data may have
a potentially aberrant amount of insured patients' charity care costs
(line 23 column 2). In the FY 2025 IPPS/LTCH PPS final rule (89 FR
69324 through 69325), we stated that in addition to the UCC trim
methodology, we will continue to apply an alternative trim specific to
certain hospitals that do not have audited Worksheet S-10 data for one
or more of the fiscal years that are used in the Factor 3 calculation.
For FY 2023 and subsequent fiscal years, in the rare case that a
hospital's insured patients' charity care costs for a fiscal year are
greater than $7 million and the ratio of the hospital's cost of insured
patient charity care (line 23 column 2) to total uncompensated care
costs (line 30) is greater than 60 percent, we will not calculate a
Factor 3 for the hospital at the time of proposed or final rulemaking.
This trim will only impact hospitals that are not currently projected
to be DSH-eligible; and therefore, are not part of the calculation of
the denominator of Factor 3, which includes only uncompensated care
costs for hospitals projected to be DSH-eligible. Consistent with the
approach adopted in the FY 2022 IPPS/LTCH PPS final rule, if a hospital
would be trimmed under both the UCC trim methodology and this
alternative trim, we 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 final 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 final rule. For purposes of the proposed rule,
we used reports from the December 2025 Healthcare Provider Cost
Reporting Information System (HCRIS) extract to calculate Factor 3. In
the proposed rule, we noted that we intended 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.\159\ In general, we note that, for purposes of
the Factor 3 methodology, references to a fiscal year cost report are
to the cost report that spans the relevant fiscal year.
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\159\ 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
[[Page 49825]]
report is more than or less than 12 months. (If applicable, use the
statewide average CCR (urban or rural) to calculate uncompensated care
costs.)
Step 3: Combine adjusted and/or annualized uncompensated care costs
for hospitals that merged using the merger policy.
Step 4: Calculate Factor 3 for all DSH-eligible hospitals using
annualized uncompensated care costs (Worksheet S-10, Part I, Line 30)
based on cost report data from the most recent 3 years of audited cost
reports (from Step 1, 2 or 3). New hospitals and other hospitals that
are treated as if they are new hospitals for purposes of Factor 3 are
excluded from this calculation.
Step 5: Average the Factor 3 values from Step 4; that is, add the
Factor 3 values, and divide that amount by the number of cost reporting
periods with data to compute an average Factor 3 for the hospital.
Multiply by a scaling factor, as discussed in the previous section of
the preamble of this final rule.
We received comments regarding the Factor 3 calculation, including
Worksheet S-10 cost report audits and uncompensated care cost report
instructions.
Comment: Several commenters expressed their support for CMS's
proposal to calculate Factor 3 for FY 2027 based on a three-year
average of audited FYs 2021, 2022, and 2023 Worksheet S-10 data.
Commenters who supported this proposal specified that the use of a
multi-year average of Worksheet S-10 data minimizes year-to-year
volatility in uncompensated care payments and provides greater
transparency.
Response: We are grateful to the commenters who expressed their
support for our policy of using a three-year average of audited FYs
2021, 2022, and 2023 Worksheet S-10 data to determine each hospital's
share of uncompensated care costs in FY 2027. As explained in the FY
2023 IPPS/LTCH PPS final rule (87 FR 49037), we believe that using a
multi-year average of Worksheet S-10 data will provide assurance that
hospitals' uncompensated care payments remain stable and predictable,
while mitigating unpredictable swings and anomalies in a hospital's
uncompensated care costs.
Comment: Other commenters expressed opposition to using a three-
year average of Worksheet S-10 data to calculate uncompensated care
payments for FY 2027. Commenters raised concerns that CMS's reliance on
an average of three years of dated Medicare cost report Worksheet S-10
data does not adequately account for recent and expected changes in
insurance coverage. Specifically, they stated that CMS estimates of the
FY2027 uninsured rate projections from the FY 2027 IPPS/LTCH PPS
proposed rule show an increase from FY 2026 uninsured rate to FY 2027
uninsured rate. Commenters stated that the agency's approach may not
reflect the current coverage landscape or the substantial coverage
losses that occurred following the end of the COVID-19 PHE continuous
enrollment protections and impacts from recent legislation, such as
H.R.1. Other commenters expressed their concern that the multi-year
averaging approach does not adequately acknowledge emerging
uncompensated care pressures, particularly those faced by rural
hospitals, and may understate rural providers' uncompensated care
burden.
Response: For the reasons explained in the FY 2023 IPPS/LTCH PPS
final rule (87 FR 49038), we continue to believe that using a multi-
year average of Worksheet S-10 data will provide assurance that
hospitals' uncompensated care payments remain stable and predictable,
while mitigating unpredictable swings and anomalies in a hospital's
uncompensated care costs. For those commenters who expressed concern
regarding the three-year average due to the significant policy changes
introduced by H.R.1, we continue to believe the three-year average
methodology will smooth data fluctuations over time.
Comment: We received comments recommending alternative approaches
to consider when distributing uncompensated care (UC) payments, the
vast majority of which we consider outside the scope of methodological
concepts concerning the blending of historical Worksheet S-10 data to
calculate Factor 3 discussed in the proposed rule (91 FR 19486) and
earlier in this section of this final rule. These recommendations
included maintaining the same uncompensated care pool in FY 2027 as in
FY 2026, incorporating alternative or additional data sources to more
accurately estimate total uncompensated care costs and each hospital's
share, publishing interim Factor 3 calculations earlier in each IPPS
rulemaking cycle, creating temporary adjustments for states with
significant coverage losses, and establishing a supplemental
uncompensated care payment for hospitals with large increases in the
number of uninsured patients or uncompensated care costs. Another
commenter recommended that CMS distribute existing DSH and UC payments
based on each hospital's share of the Medicare Safety-Net Index (MSNI)
and add $4 billion to the MSNI pool. The commenter also recommended
that CMS make similar MSNI payments to hospitals for services furnished
to Medicare Advantage (MA) enrollees and exclude those payments from MA
benchmarks.
Response: We thank commenters for their feedback, concerns, and
suggestions related to incorporating alternative and additional data
sources to validate total uncompensated care costs. However, for the
reasons stated earlier in this section of this final rule and in
earlier rulemaking (see also 83 FR 41144; 84 FR 42044; 85 FR 58432; 86
FR 44774; 87 FR 48780; 88 FR 58640; 89 FR 68986; and 90 FR 36536), we
continue to believe that utilizing Worksheet S-10 data to generate the
best estimates of the uncompensated care payments is most conducive to
administrative efficiency, finality, and predictability in payments.
In response to the commenter who suggested we publish interim
Factor 3 calculations earlier in the rulemaking cycle, we made public
the best data available at the time of the proposed rule to allow
hospitals to understand the anticipated impact of the proposed
methodology and submit comments. In particular, the proposed Factor 3
data files were available concurrently with the publication of the IPPS
proposed rule (Available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/fy-2027-ipps-proposed-rule-home-page). This provided stakeholders with a
robust public comment window to review the methodology and calculations
of the proposed uncompensated care payment amounts. We consider
commenters' other comments to be outside of the scope of the proposed
rule and we do not address them here, though we appreciate commenters'
input.
Comment: Some commenters expressed concerns regarding the accuracy
and consistency of Worksheet S-10 data. A commenter urged CMS to
continue refining its Worksheet S-10 policies to reduce volatility and
improve accuracy. Another commenter urged CMS to use more recent cost
report and utilization data to better reflect ``post-pandemic
realities'' (i.e., current uncompensated care cost conditions)
following the COVID-19 PHE.
Response: We appreciate commenters' concerns regarding the accuracy
and consistency of Worksheet S-10 data and their recommendations to
continue refining our policies to reduce volatility and improve
accuracy. Our use of the three-year average of the most recently
[[Page 49826]]
audited cost report data for FY 2027 and subsequent years is intended
to smooth the variation in year-to-year uncompensated care payments and
lessen the impacts of unforeseen events, such as the COVID-19 PHE. For
the reasons stated earlier in this section of this final rule and in
prior rulemakings (see, e.g. (87 FR 49038)), we continue to believe
this methodology promotes stability in uncompensated care payments
while continuing to rely on audited data that are the most appropriate
data available for determining Factor 3.
Regarding the request to use more recent cost report and
utilization data to better reflect uncompensated care cost conditions
following the COVID-19 PHE, for reasons stated earlier in this section
of this final rule, we believe that the three-year average methodology
will mitigate fluctuations. We will continue to evaluate the data
available for purposes of determining uncompensated care payments and
to consider whether refinements to the methodology are warranted in
future rulemaking. We also note that the audit process for Worksheet S-
10 cost reports will continue to be an important part of promoting
accuracy and consistency and identifying potential irregularities in
the data.
Comment: Commenters expressed a range of views on the Worksheet S-
10 audit process--supporting improvements to Worksheet S-10 audits
while urging clearer guidance, standardized and targeted procedures,
reduced burden for hospitals, and updates to the procedures to better
capture full uncompensated care costs. A commenter acknowledged CMS's
continued efforts to improve the consistency and reliability of
uncompensated care reporting, while encouraging CMS to continue
evaluating whether Worksheet S-10 accurately reflects hospitals'
uncompensated care burden in an evolving coverage environment. The
commenter recommended that CMS focus audits on key uncompensated care
elements, including charity care determinations, bad debt, and
subsequent adjustments.
A commenter urged CMS to revise the audit exhibits and procedures
to focus on verifying charity care and bad debt write-offs, rather than
reviewing entire account balances. Another commenter raised concerns
regarding recent changes to the Worksheet S-10 audit templates,
including expanded information requests such as patient insurance data,
without sufficient explanation of how such information affects
reimbursement determinations. The commenter requested standardized
templates across MACs, advance notice of template changes, a
comprehensive audit policy established through notice-and-comment
rulemaking, and a workable appeal or review process to address
Worksheet S-10 errors and inconsistent audit disallowances.
Response: We thank commenters for their feedback on the audits of
the Worksheet S-10 data and their recommendations for future audits, as
well as their acknowledgement of CMS's continued efforts to improve the
consistency and reliability of uncompensated care reporting. As we have
explained in previous rulemakings (see, for example, 90 FR 36536),
audit protocols are provided to MACs in advance of the audit to ensure
consistency and timeliness in the audit process.
We appreciate commenters' input and recommendations on how to
improve the audit process and reiterate our commitment to continue
working with MACs and providers on audit improvements, including making
changes to increase the efficiency of the audit process and building on
the lessons learned in previous audit years. We will take these
recommendations into consideration for future rulemaking.
Regarding commenters' requests for standardized templates across
MACs, advance notice of template changes, a comprehensive audit policy
established through notice-and-comment rulemaking, and public
disclosure of audit policies and protocols, as we previously explained,
most recently in the FY 2024 IPPS/LTCH PPS final rule (88 FR 58640), we
do not make our protocols public because CMS desk review and audit
protocols are confidential and are for CMS and MAC use only. In
addition, there is no requirement under either the Administrative
Procedure Act or the Act that CMS adopt audit policies or protocols
through notice-and-comment rulemaking. With respect to concerns about
expanded information requests, including patient health insurance data,
that information requested during the audit process is intended to
assist CMS and the MACs in validating Worksheet S-10 data and
identifying potential irregularities in the data. Finally, as noted in
the FY 2024 IPPS/LTCH PPS final rule (88 FR 58640), to most efficiently
and appropriately utilize our limited audit resources, we do not plan
to introduce an audit appeal process at this time.
Comment: Commenters recommended that CMS provide additional
clarification of the Worksheet S-10 instructions and related guidance
and reconsider certain methodological approaches to improve consistency
and accuracy. Specifically, a commenter requested that CMS clarify the
Worksheet S-10 instructions for line 29 so that non-Medicare bad debt
is not multiplied by the hospital's CCR. Another commenter suggested
that CMS reduce reliance on financial assistance policies (FAPs) across
uncompensated care categories, citing concerns regarding the complexity
and variability associated with coverage denials, non-covered services,
medical necessity determinations, out-of-network care, and compliance
with state and federal requirements.
Response: We appreciate commenters' concerns regarding the need for
clarification of the Worksheet S-10 instructions and guidance,
including commenters' recommendations related to line 29 and FAPs. We
reiterate our commitment to continuing to work with impacted parties to
address their concerns regarding Worksheet S-10 instructions and
reporting through provider education and further refinement of the
instructions, as appropriate. We also encourage providers to share with
their respective MAC any questions regarding clarifications of
instructions, reporting, and submission deadlines.
We continue to believe that our past efforts to refine the
Worksheet S-10 instructions and related guidance have improved provider
understanding of Worksheet S-10 and have made the instructions clearer.
We also recognize that there are continuing opportunities to further
improve the accuracy and consistency of the information that is
reported on Worksheet S-10, and to the extent commenters have raised
questions and concerns regarding the reporting requirements, including
concerns related to reliance on FAPs across uncompensated care
categories, we do not mandate eligibility criteria that hospitals use
under the hospital's FAPs, because we note that hospitals establish
their own policies (see Form CMS-2552-10. Available on the CMS website
at: https://www.cms.gov/regulations-and-guidance/guidance/manuals/downloads/p152_40.zip). We will also attempt to address commenters'
concerns as may be appropriate through future rulemaking and/or sub-
regulatory guidance and subsequent outreach to MACs and providers.
However, as stated in previous rules (see, e.g., (91 FR 19488)), we
continue to believe that the Worksheet S-10 instructions are
sufficiently clear and allow hospitals to accurately complete Worksheet
S-10.
[[Page 49827]]
Regarding the commenter's request that CMS clarify the instructions
for line 29 with respect to whether non-Medicare bad debt is multiplied
by the CCR, we believe that the Worksheet S-10 instructions are clear
and indicate that the CCR will not be applied to the deductible and
coinsurance amounts for insured patients approved for charity care and
non-reimbursed Medicare bad debt.
Comment: Two commenters recommended that CMS use the traditional
payment reconciliation process to calculate final payments for
uncompensated care costs pursuant to section 1886(r)(2) of the Act.
These commenters did not object to CMS using prospective estimates,
derived from the best data available, to calculate interim payments for
uncompensated care costs. However, the commenters stated that interim
payments should be subject to later reconciliation based on estimates
derived from actual data from the federal fiscal year. The commenters
also stated that CMS's current IPPS/LTCH PPS rulemaking process is
flawed because CMS may use data and calculations in the final rules
that were not included in the relevant proposed rules without providing
advance notice to hospitals. The commenters claim that this limits
hospitals' ability to provide informed comments. These same commenters
stated that CMS's failures to provide meaningful explanations of its
uncompensated care payment calculations violates the Administrative
Procedure Act. These commenters recommended that CMS provide hospitals
with the opportunity to review and comment on the more recent data used
to calculate Factors 1, 2, and 3 in each final rulemaking cycle before
the agency publishes the final rule.
Similarly, a commenter stated that a reconciliation process based
on contemporaneous cost report data would be consistent with the
payment reconciliation process for other Medicare payments and would
avoid CMS updating the uncompensated care payment amounts based on
inaccurate estimates.
Response: As we have explained in past rulemakings, we continue to
believe that applying our best estimates of the three factors used in
the calculation of uncompensated care payments to determine payments
prospectively is most conducive to administrative efficiency, finality,
and predictability in payments (see, e.g., 83 FR 41144; 84 FR 42044; 85
FR 58432; 86 FR 44774; 87 FR 48780; 88 FR 58640; 89 FR 68986; and 90 FR
36536). We continue to believe that, in affording the Secretary the
discretion of estimating the three factors used to determine
uncompensated care payments and by including a prohibition against
administrative and judicial review of those estimates in section
1886(r)(3) of the Act, Congress recognized the importance of finality
and predictability under a prospective payment system. As a result, we
do not agree with commenters' suggestions that we should establish a
process for reconciling our estimates of uncompensated care payments,
which would be contrary to the notion of prospectivity in a payment
system.
Further, we note that this rulemaking has been conducted consistent
with the requirements of the Administrative Procedure Act and Title
XVIII of the Act. Under the Administrative Procedure Act, a proposed
rule is required to include either the terms or substance of the
proposed rule or a description of the subjects and issues involved. In
this case, the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19479 through
19490) included a detailed discussion of our proposed methodology for
calculating Factors 1 through 3 and noted that more recent data would
be available for the final rule's development. We made public the best
data available at the time of the proposed rule to allow hospitals to
understand the anticipated impact of the proposed methodology and
submit comments, and we have considered those comments in determining
our final policies for FY 2027.
Comment: Several commenters requested that CMS reconsider our DSH
uncompensated care policy to better reflect current hospital costs and
protect access to care. In particular, a commenter recommended that CMS
approach Congress regarding any statutory changes needed to realign DSH
and UC payments with the current healthcare environment. Another urged
CMS to ensure that DSH UC payment methodologies align with the current
administration's priorities to support working families, make
healthcare more affordable, and support hospitals serving Medicaid and
safety-net populations.
Commenters also objected to the proposed 3.3 percent reduction in
uncompensated care payments, particularly in light of CMS's projected
increase in the uninsured rate and hospitals' rising uncompensated care
costs. The commenters emphasized the potential impact on safety-net
providers and access to care for vulnerable populations, including
Medicaid beneficiaries, uninsured and underinsured patients, medically
complex patients, and rural or low-income communities. Commenters urged
CMS to ensure that DSH policy does not weaken access to care or
destabilize providers serving these populations.
Response: CMS appreciates the feedback from commenters regarding
the financial pressures faced by safety-net providers and the potential
impact of UC payment adjustments on vulnerable patient populations. We
understand the critical role these institutions play in maintaining
access to care within rural and low-income communities. However, under
Section 1886(r) of the Act, the calculation of hospitals' uncompensated
care payments is governed by a three-factor statutory formula. and for
the reasons stated earlier in this section of this final rule, we
believe that our estimates of Factors 1 through 3 in the proposed rule
adhere to those statutory requirements.
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
final rule. For a hospital that is subject to either of the trims for
potentially aberrant data (the UCC trim and alternative trim
methodology explained in the previous section of the preamble of this
final rule) and is ultimately determined to be DSH-eligible at cost
report settlement, its uncompensated care payment will be calculated
only after the hospital's reporting of insured charity care costs on
its FY 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's Worksheet
S-10 Part 1, line 30, while the denominator will reflect the sum of the
uncompensated care costs reported on Worksheet S-10 Part 1, line 30 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 the FY 2027 IPPS/
LTCH PPS proposed and this final 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
[[Page 49828]]
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.
Comment: A commenter supported our use of statistical trimming
methodology, while another commenter suggested that CMS use caution
when applying CCR, UCC, and alternative trim methodologies on hospital
audited Worksheet S-10 data, noting that these trims may penalize
hospitals with legitimately high uncompensated care burdens. The
commenter requested that CMS ensure these trims do not override
verified Worksheet S-10 cost report data.
Response: We appreciate the feedback regarding the use of
statistical trimming methodologies. We recognize the critical
importance of ensuring that these statistical trims do not
disproportionately penalize or financially disadvantage hospitals that
serve vulnerable communities and carry legitimately high uncompensated
care burdens. The objective of CMS's auditing and trim methodologies is
to identify extreme anomalies, reporting errors, or data outliers to
ensure accurate and equitable distribution of uncompensated care
payments. Trims are intended as an administrative safeguard rather than
a mechanism to discount valid, verifiable data. We refer commenters to
the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19487 through 19489),
where we describe the CCR, UCC, and alternative trim methodologies. For
the reasons explained in the proposed rule (91 FR 19488) and earlier in
this section of this final rule, we continue to believe that these
trims are appropriate for hospitals with potentially aberrant data. We
also note that the UCC and alternative trims are not applicable to
hospitals with audited Worksheet S-10 data.
In the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19489), we stated
that 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 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.
Comment: A commenter expressed concern regarding the reductions in
uncompensated care payments and urged CMS to use more recent cost
report and utilization data to better reflect post-COVID-19 PHE
conditions.
Response: We appreciate the commenter's concern regarding
reductions in uncompensated care payments and the recommendation that
CMS use more recent cost report and utilization data to better reflect
post-COVID-19 PHE conditions. We are finalizing the use of the March
HCRIS extract to calculate Factor 3 for this FY 2027 IPPS/LTCH PPS
final rule. For the reasons stated earlier in this final rule and in
the proposed rule (91 FR 19485), we believe this is the best available
data for the purposes of calculating Factor 3 for FY 2027. Consistent
with prior IPPS/LTCH PPS rules (see, e.g. (91 FR 19488 and 19489), we
also intend to continue utilizing the most recent data available for
each rulemaking, which generally means the December HCRIS extract for
each proposed rule for purposes of Factor 3 calculations. Furthe, as
noted in the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19489), we
intend to continue using the respective March HCRIS for future final
rules. CMS will continue to monitor the availability and quality of
updated cost report and utilization data and will consider the use of
more recent data in future rulemaking, as appropriate and consistent
with applicable law.
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. In the proposed rule, we noted
that the March HCRIS data extract would be available during the comment
period for the proposed rule if providers wanted to verify that their
amended and/or reopened data is reflected in the March HCRIS extract in
advance of this final rule.
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 and 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.
[[Page 49829]]
Under the policy we finalized in the FY 2021 IPPS/LTCH PPS final
rule (85 FR 58833 and 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
and 49432). No change will 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 final rule, we will publish on the CMS
website a table listing Factor 3 for hospitals that we estimate will
receive empirically justified Medicare DSH payments for 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 22 hospitals that
will be subject to the alternative trim for hospitals with potentially
aberrant data that are not projected to be DSH-eligible, with a N/A in
the Factor 3 column.
Hospitals had 60 days from the date of public display of the FY
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 the proposed rule and to notify CMS in writing of
issues related to mergers and/or to report potential upload
discrepancies due to MAC mishandling of Worksheet S-10 data during the
report submission process.\160\ In the proposed rule, we stated
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
stated that we would address comments related to mergers and/or
reporting upload discrepancies submitted to the CMS DSH inbox as
appropriate in the table and the supplemental data file that we publish
on the CMS website in conjunction with the publication of the FY 2027
IPPS/LTCH PPS final rule. We also stated that 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 the proposed
rule before the close of the comment period in order to be assured
consideration. In addition, we noted that the CMS DSH inbox is not
intended for Worksheet S-10 audit process related emails, which should
be directed to the MACs.
---------------------------------------------------------------------------
\160\ For example, a potential upload discrepancy related to MAC
mishandling may exist 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 invited 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. 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
[[Page 49830]]
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.
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) includes a special payment methodology that adjusts the
per diem payment. 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, as described in section 1886(d)(1)(B) of the Act .
A skilled nursing facility.
Related home health services provided by a home health
agency provided within a timeframe established by the Secretary
(beginning within 3 days after the date of discharge).
Section 53109 of the Bipartisan Budget Act of 2018 amended section
1886(d)(5)(J)(ii) of the Act to also include discharges to hospice care
provided by a hospice program as a qualified discharge, effective for
discharges occurring on or after October 1, 2018. In the FY 2019 IPPS/
LTCH PPS final rule (83 FR 41394), we made conforming amendments to
Sec. 412.4(c) of the regulation to include discharges to hospice care
occurring on or after October 1, 2018, as qualified discharges. We
specified that hospital bills with a Patient Discharge Status code of
50 (Discharged/Transferred to Hospice--Routine or Continuous Home Care)
or 51 (Discharged/Transferred to Hospice, General Inpatient Care or
Inpatient Respite) are subject to the postacute care transfer policy in
accordance with this statutory amendment.
2. Changes for FY 2027
As discussed in the proposed rule and section II.C of the preamble
of this final 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 proposed 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).
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 stated in the proposed rule that we continue to
believe it is necessary to evaluate the affected MS-DRGs to determine
whether they should be subject to the postacute care transfer policy.
Considering the proposed changes to the MS-DRGs for FY 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
[[Page 49831]]
(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 noted that for all other proposed changes, the
relative volume of cases shifting to or from current MS-DRGs did not
exceed the 5 percent threshold.
If an MS-DRG qualified for the postacute care transfer policy, we
also evaluated that MS-DRG under the special payment methodology
criteria according to regulations at Sec. 412.4(f)(6).
In the proposed rule, we noted that proposed new 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 proposed 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 also noted 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 revised MS-DRGs would
continue to qualify to be included on the list of MS-DRGs that are
subject to the postacute care transfer policy.
As discussed in section II.C of this proposed rule, we are
finalizing these proposed changes to the MS-DRGs, with modification to
the proposed title for new MS-DRG 449 (Revision of Hip or Knee
Replacement) to ``Revision of Hip or Knee Prosthesis''. This finalized
policy is reflected in the table that follows. Using the March 2026
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 final rule with respect to
each of these finalized new or revised MS-DRGs. We note that these
updated results confirm the previous analysis based on the December
2025 update of the FY 2025 MedPAR file, described in the proposed rule.
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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 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
proposed 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. In the proposed
rule, we also noted that MS-DRGs 426, 427, and 428 are currently
subject to the special payment methodology. As a result of our review,
these revised MS-DRGs would continue to qualify to be included on the
list of MS-DRGs that are subject to the special payment methodology. As
discussed in the proposed rule, we updated this analysis using the
March 2026 update of the FY 2025 MedPAR. We note that these updated
results confirm the previous analysis based on the December 2025 update
of the FY 2025 MedPAR file, described in the proposed rule.
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Comment: Multiple commenters raised concerns about CMS's proposal
to add 13 new or revised MS-DRGs to the post-acute care transfer
policy. Commenters stated that the policy creates a financial
disincentive for short-term acute care hospitals to transfer patients
to post-acute settings, such as LTCHs and IRFs, before the geometric
mean length of stay is reached in order to avoid payment reductions.
Commenters warned this would delay patient access to specialized
services; undermining the principle of providing care in the most
clinically appropriate setting. Some commenters emphasized that a
disproportionately high percentage of Medicaid beneficiaries and
uninsured individuals with greater clinical complexity incur front-
loaded costs in the earliest days of admission that are not eliminated
by early transfer, leaving these hospitals with inadequate
reimbursement for care already delivered. Additionally, a commenter
stated that the policy may infringe on Medicare beneficiaries' freedom
to choose their post-acute care provider. Commenters recommended CMS to
either reconsider the expansion entirely or, at minimum, adopt explicit
safeguards such as targeted exceptions or payment protections for
safety-net hospitals serving complex patients.
Response: We appreciate the commenters sharing their concerns
regarding the addition of new or revised MS-DRGs to the post-acute care
transfer policy and the potential impact on patient access to LTCHs or
IRFs and other post-acute care services.
The post-acute care transfer policy was established to ensure that
Medicare payments to transferring hospitals more accurately reflect the
actual costs incurred during a patient's stay. When a patient is
discharged to a post-acute care setting before the geometric mean
length of stay for the assigned MS-DRG has been reached, the full MS-
DRG payment may result in payment to the transferring hospital that is
disproportionate to the resources expended during that shortened stay.
Regarding the addition of new or revised MS-DRGs to the policy,
CMS's analysis of MedPAR data identified these MS-DRGs as having a
significant proportion of cases resulting in transfers to post-acute
care settings. The criteria for adding MS-DRGs to the post-acute care
transfer policy are applied uniformly and are based on objective data,
and we believe it is appropriate to evaluate new or significantly
revised MS-DRGs when they are proposed to ensure annual consistency in
payments. The policy does not prohibit or discourage clinically
appropriate transfers; rather, it adjusts the payment to the
transferring hospital to reflect the shorter length of stay. However,
CMS intends to monitor any potential unintended adverse implications of
the policy on appropriate transfer of patients to post-acute settings.
With respect to commenters' concerns about patient access to post-
acute care settings, we note that the post-acute care
[[Page 49835]]
transfer policy is a payment adjustment applicable to the transferring
IPPS hospital and does not affect a patient's right to receive care in
the most clinically appropriate setting. Decisions regarding the timing
and destination of patient transfers should be driven by clinical need,
not by payment considerations. We encourage hospitals to continue
making transfer decisions based on the best interests of the patient,
consistent with their obligations under the Medicare Conditions of
Participation, including transfer protocols described at 42 CFR
482.43(c). Beneficiaries retain the right to choose among Medicare-
participating post-acute care providers, consistent with CMS's
longstanding policy. The payment adjustment applies solely to the
transferring hospital and has no bearing on the beneficiary's ability
to select a preferred post-acute care setting.
Regarding concerns regarding patient populations with greater
clinical complexity and higher front-loaded costs, we note that of the
13 new or revised MS-DRGs that were proposed to be added to the post-
acute care transfer policy, 8 were also proposed to be added to the
special payment policy. For special payment 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. We believe this modification to the transfer
adjusted payment mitigates negative financial implications for cases
with higher-than-average up-front costs. Additionally, for cases with
exceptionally high costs, the outlier payment policy could also provide
additional payments to these hospitals.
After consideration of the comments received, CMS is finalizing the
addition of the new or revised MS-DRGs to the post-acute care transfer
policy and special payment policy as proposed. We believe this action
is consistent with the policy's longstanding goal of aligning Medicare
payments with the actual costs of care furnished during an acute care
admission.
B. Changes in the Inpatient Hospital Update for FY 2027 (Sec.
412.64(d))
1. 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 proposed 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 was estimated to be 3.2 percent. We also proposed
that if more recent data subsequently became available (for example, a
more recent estimate of the market basket update), we would use such
data, if appropriate, to determine the FY 2027 market basket update in
the final rule.
Comment: Several commenters expressed concern that the Employment
Cost Index (ECI) may not be adequately capturing employment and labor
cost growth in the market basket. They stated that they continue to
stand ready to work with CMS to examine the market basket compensation
indices and proxies to improve the accuracy of these measures and to
ensure labor costs, inclusive of contract labor, are adequately
reflected in the Medicare hospital payment.
Response: As we discussed in response to similar comments in the FY
2026 IPPS/LTCH PPS final rule (90 FR 36865), we believe that the ECI
for Wages and Salaries for All Civilian Workers in Hospitals and the
ECI for Total Benefits for All Civilian Workers in Hospitals are
accurately reflecting the price change associated with the labor used
to provide hospital care in IPPS hospitals. The ECI appropriately does
not reflect other factors that might affect the annual rate of price
changes associated with labor costs, such as a shift in the occupations
that may occur due to increases in case-mix or shifts in hospital
purchasing decisions (for instance, to hire or to use contract labor).
We believe that the prices of employed staff and contract labor are
influenced by the same factors and as the Medicare cost report data
show these measures have grown at similar rates over the last 10 years.
Comment: A commenter requested CMS provide additional publicly
available data on the assumptions and inputs that go into developing a
market basket update. A commenter stated it is imperative that CMS
clarify how it is accounting for tariffs in payment policy,
particularly the market basket update, for FY 2027.
Response: As discussed in the FY 2025 IPPS/LTCH PPS final rule (89
FR 69450) and the FY 2026 IPPS/LTCH PPS final rule (90 FR 36987),
information on the CMS market baskets can be found at the CMS website:
https://www.cms.gov/data-research/statistics-trends-and-reports/medicare-program-rates-statistics/market-basket-research-and-information. This website provides information including but not
limited to how a top-line market basket level is
[[Page 49836]]
derived from the detailed cost categories, how a four-quarter percent
change moving average is calculated, and a link to a spreadsheet
containing the calculation of the detailed market basket cost weights
for the 2023-based IPPS market basket. In addition, the latest,
publicly available CMS market baskets are available at the CMS website:
https://www.cms.gov/data-research/statistics-trends-and-reports/medicare-program-rates-statistics/market-basket-data. We note that
publicly available market baskets on the CMS website would reflect an
updated forecast only after a proposed or final rule is published.
Using these spreadsheets, stakeholders are able to replicate the top-
line market basket index levels in the historical time period by
multiplying the detailed index level for each cost category by the
associated cost weight. These products (weight multiplied by index
level) can then be summed up to derive the aggregate market basket
index level.
In response to the commenter's request for specific assumptions and
inputs, in this final rule, we are also providing the projected
increase for FY 2027 for some of the aggregated cost categories that
underlie the most recent forecast of the FY 2027 IPPS market basket
increase (3.2 percent). This detail is consistent with the level of
information that is published on the CMS website on a quarterly basis
as described above. We note that forecasted FY 2027 prices for
compensation costs, which account for about 51 percent of the market
basket, are projected to increase 3.2 percent; and prices for All Other
Products and Services, which account for about 46 percent of the market
basket, are projected to increase 3.1 percent. While the projected
market basket increase is calculated using the aggregation of the
detailed price forecasts multiplied by their respective cost weights
for each of the 22 individual cost categories, we want to provide an
estimate of how the broader cost categories are contributing to the
overall increase. As stated previously, the detailed price proxy
forecasts that underlie the IPPS market basket percentage increase (and
all CMS market baskets) are forecasted by IGI (a nationally recognized
economic and financial forecasting firm). We also note that when
developing its forecast for the various price indexes used in the IPPS
market basket, IGI considers all macroeconomic factors that influence
pricing trends, which would include factors that would affect supply
prices such as tariffs. We strive for transparency regarding our
methods and regularly respond to questions from the public regarding
the market baskets via email at [email protected].
Comment: A commenter requested CMS rebase the market baskets more
frequently and at least every three years to ensure the market basket
reflects the appropriate mix of services provided to Medicare
beneficiaries.
Response: We appreciate the commenter's request. As discussed in
the FY 2026 IPPS/LTCH PPS final rule (90 FR 36868 through 36869), we
discussed our frequency for rebasing and revising the IPPS market
basket every four years. We note that we rebased and revised the market
basket to reflect a 2023 base year in the FY 2026 IPPS/LTCH PPS final
rule (90 FR 36859 through 36873). Therefore, we believe that the 2023-
based IPPS market basket is reflective of the cost structure and input
price pressures facing hospitals. As noted in the FY 2026 IPPS/LTCH PPS
final rule, we will continue to monitor the major cost weights (derived
from the hospital Medicare cost reports) to determine whether a
rebasing is warranted. A rebasing of the IPPS market basket would be
subject to public comments through proposed and final rulemaking.
Comment: Several commenters expressed concern regarding the
proposed net increase in operating payment rates for hospitals. They
stated that the proposed 2.4 percent increase is too low and fails to
account for the enduring impacts of high price inflation and cost
increases. Commenters expressed specific concerns regarding
compensation costs (highlighting increased contract labor utilization
and workforce shortages), administrative costs (including what they
described as unnecessary administrative costs for prior authorizations,
claims appeals and denials from large commercial health insurers,
including Medicare Advantage and Medicaid managed care plans),
pharmaceuticals and supply costs. The commenters also referred to other
economic headwinds creating uncertainty such as tariffs, which
commenters stated would impact the prices of pharmaceuticals, medical
equipment/supplies, and construction materials. They also expressed
concern that recent actions, such as changes to federal student loan
limits that exclude nurses and other clinicians from enhanced borrowing
limits, will exacerbate workforce shortages, which contribute to higher
costs for labor. They stated that their concerns are further compounded
by the likelihood of additional funding reductions resulting from One
Big Beautiful Bill Act (OBBBA) (affecting health insurance coverage and
Medicaid funding).
Several commenters noted that the proposed update was below overall
inflation, as measured by the Consumer Price Index (CPI). A commenter
further stated that even though the CPI measures a different set of
goods and services than the IPPS market basket, it is suggestive that
later economic information on which the inflation updates are based
shows prices growing more rapidly than reflected in the data used to
forecast the FY 2027 IPPS updates.
In addition, commenters cited MedPAC's March 2026 report, which
showed continuing negative Medicare fee-for-service operating margins
of about -12 percent for 2022-2024. A commenter referenced AHA's
analysis of their own Annual Survey data to indicate Medicare
underpayments in 2024 (https://www.aha.org/costsofcaring). A commenter
stated that according to the Kaiser Family Foundation, Medicare
payments have not accommodated market increases for at least the last
10 years.
Several commenters urged CMS to focus on appropriately accounting
for recent and future trends in inflationary pressures and cost
increases in the hospital payment update, which they stated is
essential to ensure that Medicare payments for acute care services more
accurately reflect the cost of providing hospital care.
Several commenters stated CMS calculates the market basket based on
forecasts rather than actual labor and supply cost increases, thus
failing to incorporate the challenging circumstances brought on by
unprecedented labor, supply, and drug cost increases. They recommended
CMS look to alternative data sources (such as the Medicare cost
reports) that they claim better reflect true labor and input cost
increases in a timelier manner.
Commenters stated CMS must ensure and clarify that its final market
basket update for FY 2027 appropriately includes the cost increases
attributable to tariffs. A commenter requested CMS continue monitoring
the impact of exogenous factors such as tariffs or geopolitical
instability on supply chain costs so that, if necessary, CMS may invoke
its full statutory authority to make appropriate adjustments to the
market basket. Many commenters requested CMS use its special exceptions
and adjustments authority to increase the market basket update from the
proposed growth rate of 2.4 percent.
Commenters urged CMS to revisit both its market basket forecasts
and the magnitude of the productivity
[[Page 49837]]
adjustment, and to consider their combined effect on provider
reimbursements. A commenter encouraged CMS to update the market basket
by at least 5 percent and to use its statutory adjustment authority to
waive the productivity adjustment in FY 2027. Another commenter
strongly urged CMS to use the later data on the market basket increase
for FY 2027 as it has in past years.
Response: Section 1886(b)(3)(B)(iii) of the Act states the
Secretary shall update IPPS payments based on a market basket
percentage increase estimated by the Secretary before the beginning of
the period or fiscal year, by which the cost of the mix of goods and
services (including personnel costs but excluding nonoperating costs)
comprising routine, ancillary, and special care unit inpatient hospital
services, based on an index of appropriately weighted indicators of
changes in wages and prices which are representative of the mix of
goods and services included in such inpatient hospital services, for
the period or fiscal year will exceed the cost of such mix of goods and
services for the preceding 12-month cost reporting period or fiscal
year. For the FY 2026 IPPS/LTCH PPS final rule (90 FR 36859 through
36873), we rebased and revised the market basket to reflect a 2023 base
year. We believe that the 2023-based IPPS market basket is consistent
with the statute as it is a fixed-weight, Laspeyres-type price index
that measures the change in price, over time, while maintaining a mix
of goods and services purchased by hospitals consistent with a base
period. Therefore, the market basket is designed to measure price
inflation for IPPS hospitals and would not reflect increases in costs
associated with changes in the volume or intensity of input goods and
services.
As stated in the FY 2026 IPPS/LTCH PPS final rule (90 FR 36901),
CMS understands that the market basket updates may differ from other
overall inflation indexes such as the topline CPI; however, we note
that these topline indexes are not comparable since they measure
different mixes of products, services, or wages than the legislatively
defined CMS IPPS hospital market basket.
CMS welcomes feedback on alternative data sources for the market
basket price proxies that appropriately measure price inflation and not
costs. We note that suggestions can be emailed to [email protected].
We appreciate the commenters' request for CMS to provide additional
publicly available data on the assumptions and inputs that go into
developing a market basket update. As noted, the detailed market basket
cost weights (including the methodology) and price proxies used in the
market baskets were set forth in the FY 2026 IPPS/LTCH PPS final rule
(90 FR 36859 through 36873). Additionally, shortly after the
publication of the FY 2027 IPPS/LTCH PPS proposed rule, we made
available on the CMS website (https://www.cms.gov/data-research/statistics-trends-and-reports/medicare-program-rates-statistics/market-basket-data) the detailed historical growth rates for the market
baskets as well as price forecasts for the aggregated cost weights
(such as compensation, utilities). As stated previously, the detailed
price proxies used in the market basket are forecasted by IGI (a
nationally recognized economic and financial forecasting firm). We also
note that general inquiries on the forecasting methodology can be
emailed to [email protected], as is also noted in the market basket
spreadsheets on the CMS website.
We would highlight that the market basket percentage increase is a
forecast of the price pressures that hospitals are expected to face in
FY 2027. We also note that when developing its forecast for the various
price indexes used in the IPPS market basket, IGI considers industry-
specific and overall economic conditions. More specifically for the ECI
for hospital workers, IGI considers overall labor market conditions
(including the impact of wage pressures on skill mix) as well as trends
in contract labor wages, which both have an impact on wage pressures
for workers employed directly by the hospital.
As stated in the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19496)
we proposed a FY 2027 applicable percentage increase of 2.4 percent,
reflecting the 2023-based IPPS market basket rate-of-increase of 3.2
percent and productivity adjustment of 0.8 percentage point, consistent
with current law. We also proposed that if more recent data became
available, we would use such data, if appropriate, to derive the final
FY 2027 IPPS market basket update for the final rule. We appreciate the
commenter's concern regarding inflationary pressure and the request to
use more recent data to determine the FY 2027 IPPS market basket
update. For this final rule (as proposed), we are using an updated
forecast of the price proxies underlying the market basket that
incorporates more recent historical data and reflects a revised outlook
regarding the U.S. economy. Based on more recent data available for
this FY 2027 IPPS/LTCH PPS final rule (that is, IGI's second quarter
2026 forecast of the 2023-based IPPS market basket rate-of-increase
with historical data through the first quarter of 2026), we estimate
that the FY 2027 market basket increase used to determine the
applicable percentage increase for the IPPS is 3.2 percent. As
discussed later in this section, based on more recent data available
for this FY 2027 IPPS/LTCH PPS final rule (that is, IGI's second
quarter 2026 forecast of the productivity adjustment), the current
estimate of the productivity adjustment for FY 2026 is 0.9 percentage
point. Therefore, the applicable percentage increase applied to the
standardized amount for hospitals that are considered to be a
meaningful EHR user under section 1886(b)(3)(B)(ix) of the Act and
submit quality information under rules established by the Secretary in
accordance with section 1886(b)(3)(B)(viii) of the Act is 2.3 percent.
For these reasons, we believe that the 2023-based IPPS market
basket appropriately reflects IPPS cost structures and we believe the
price proxies used (such as those from BLS that reflect wage and
benefit price growth) are an appropriate representation of price
changes for the inputs used by hospitals in providing services.
We also note, as discussed previously, that section
1886(b)(3)(B)(i) of the Act establishes the statutory update for the
national standardized amount for inpatient hospital operating costs
through the ``applicable percentage increase'' (subject to the
additional reductions prescribed in sections 1886(b)(3)(B)(viii) and
1886(b)(3)(B)(ix) of the Act). As discussed previously, and in the FY
2026 IPPS/LTCH PPS final rule (90 FR 36902), given that we believe the
2023-based IPPS market basket reflects an index of appropriately
weighted indicators of changes in wages and prices that are
representative of the mix of goods and services included in such
inpatient hospital services and the percentage change of the 2023-based
IPPS market basket is based on IGI's more recent forecast of the
expected input price pressures facing hospitals for FY 2027, we do not
believe it is appropriate to use our exceptions and adjustments
authority to create a separate payment that would have the effect of
modifying the current law update.
Comment: Some commenters stated that CMS has consistently
underestimated the market basket updates in recent years. Several
commenters recommended that CMS consider adopting a prospective
forecast
[[Page 49838]]
error correction policy for FY 2027 in the event that CMS again
underestimates hospital inflation in a period of economic uncertainty
and instability. In considering this request, the commenter requested
that CMS consider that the productivity adjustment reduces the payment
update below what the commenter claimed that OACT says is reasonable
for hospitals to achieve.
Some commenters urged CMS to use its special exceptions and
adjustments authority under section 1886(d)(5)(I)(i) of the Act to
update the final payment rate to reflect the difference between prior
years' actual and forecasted market basket increases. A commenter
stated that the combined 4.3 percentage point understatement of the FY
2021 through FY 2023 market basket results in a permanent reduction in
IPPS payments below the rate of inflation. The commenter stated that
CMS should make an adjustment for forecast error consistent with the
policy it has adopted under the SNF PPS, and use its special exceptions
and adjustments authority to make a one-time retrospective adjustment.
Response: We responded to similar comments in the FY 2026 IPPS/LTCH
PPS final rule (90 FR 36903). In general, while projected IPPS hospital
market basket updates can be underforecast (actual increases less
forecasted increases were positive), over longer periods the forecasts
have generally averaged close to the historical measures. CMS will
continue to monitor the methods associated with the market basket
forecasts to ensure there are not underlying systematic issues in the
forecasting approach.
We note that the under forecast of the IPPS market basket increase
in the recent time period (FY 2014 through FY 2025) was largely due to
unanticipated inflationary and labor market pressures as the economy
emerged from the COVID-19 PHE. However, an analysis of the forecast
error of the IPPS market basket over a longer period of time shows the
forecast error has been both positive and negative. Only considering
the forecast error for years when the final hospital market basket
update was lower than the actual market basket update does not consider
the full experience and impact of forecast error, in particular the
numerous years that providers benefited from the forecast error.
Relatedly, as we discussed in the FY 2024 IPPS/LTCH PPS final rule in
response to similar comments (88 FR 59034), the SNF PPS forecast error
adjustment was adopted very early in the payment system and, unlike
what commenters are requesting here for the IPPS, forecast errors over
many years have been consistently addressed within the SNF PPS.
For these reasons, we continue to believe it is not appropriate to
include adjustments to the market basket update for future years based
on the difference between the actual and forecasted market basket
increase in prior years. After consideration of the comments received
and consistent with our proposal, we are finalizing to use more recent
data to determine the FY 2027 market basket update for the final rule.
Specifically, based on more recent data available, we determined final
applicable percentage increases to the standardized amount for FY 2027,
as specified in the table that appears later in this section.
In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51689 through
51692), we finalized our methodology for calculating and applying the
productivity adjustment. As we explained in that rule, section
1886(b)(3)(B)(xi)(II) of the Act, as added by section 3401(a) of the
Affordable Care Act, defines this productivity adjustment as equal to
the 10-year moving average of changes in annual economy-wide, private
nonfarm business 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).\161\ 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.
---------------------------------------------------------------------------
\161\ https://www.bls.gov/productivity/notices/2021/mfp-to-tfp-term-change.htm.
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For FY 2027, we proposed a productivity adjustment of 0.8 percent.
Similar to the proposed market basket rate-of-increase, for the
proposed rule, the estimate of the proposed FY 2027 productivity
adjustment was based on IGI's fourth quarter 2025 forecast. As noted
previously, we proposed that if more recent data subsequently became
available, we would use such data, if appropriate, to determine the FY
2027 productivity adjustment for the final rule.
Comment: Commenters expressed concerns about the application of the
productivity adjustment, stating it is flawed because it is based on a
measure for the private nonfarm business sector. Several commenters
stated that the use of private nonfarm business total factor
productivity effectively assumes the hospital field can mirror
productivity gains achieved by private nonfarm businesses. Other
commenters stated that private-sector productivity trends do not
reflect the complex operational realities of hospital care (which they
described as operating under fixed payment systems, extensive
regulatory obligations, maintaining 24/7 operations, unpredictable
patient volumes, and increasingly complex clinical demands),
particularly during a time of sustained labor shortages and wage
inflation and without regard to the unique impacts of COVID, and, more
recently, the increase in targeting of cyberattacks to healthcare
providers. Several commenters also claimed that it is well proven by
the economic literature that the hospital and health care field cannot
achieve the same productivity gains as the total economy. The
commenters stated that an Office of the Actuary memo indicated that
hospitals are unable to achieve the same productivity gains as the
general economy over the long run. Specifically, some commenters
requested CMS consider its own findings that hospitals historically
have not achieved the same level of productivity as the general
economy, referencing the June 2, 2022 memorandum where CMS's Office of
the Actuary stated hospital TFP ranged from 0.2 percent to 0.5 percent
compared to the average growth of private nonfarm business TFP of 0.8
percent. Commenters also referred to the BLS publication on a TFP
measure for the combined Hospitals and Nursing and Residential Care
Facilities industry, which indicated average TFP growth from 1990-2019
of -0.5 percent, even lower than either of OACT's estimates. Therefore,
commenters stated that using the private nonfarm business sector TFP to
adjust the market basket inappropriately exacerbates Medicare's chronic
underpayments to hospitals.
Other commenters expressed concern regarding the increase in the
productivity adjustment for FY 2027 relative to prior years. Commenters
requested that CMS explain the magnitude of the proposed productivity
adjustment, stating it is the largest CMS has used since FY 2019 and is
the second largest in the 15 years for which
[[Page 49839]]
CMS has published data. A commenter stated CMS should evaluate how the
rolling average experienced such a significant increase when compared
with the productivity adjustments of 0.5 percentage point or less in
three of the last five years. Given the increase in the productivity
adjustment, the commenter stated that it is likely that one or two
years of significantly high outlier values contributed to the 10-year
rolling average being 0.8 percentage points. Several commenters stated
there was limited information available in the proposed rule regarding
how the productivity adjustment was reached, including the underlying
assumptions.
A commenter stated that the productivity adjustments have been in
place for more than a decade now and it is hard to believe that
hospital productivity has increased enough to warrant a reduction in
cumulative payments of over 8.5 percent. They further stated that these
same pressures also amplify the negative impact of the productivity
adjustment on providers' ability to fund the very investments that can
drive operational efficiencies. Given their concerns about the
productivity adjustment, commenters requested CMS use its discretion
under section 1886(d)(5)(I)(i) of the Act or to work with Congress to
reduce or eliminate the productivity adjustment of 0.8 percentage point
for FY 2027. Another commenter requested a FY 2027 productivity
adjustment of 0.2 percentage point.
Several commenters expressed concern that the productivity
adjustment appears to be applied only when it reduces Medicare
payments. They stated that in the one year (FY 2021) where productivity
in the non-farm business sector did not improve and measured TFP
declined, CMS set the productivity adjustment to 0.0 rather than
increasing payments. A commenter stated that while section
1886(b)(3)(B)(xi)(I) of the Act states that ``such percentage increase
shall be reduced by the productivity adjustment'' it does not follow
that the statute necessarily requires that the productivity adjustment
be a subtraction from the otherwise applicable update. The commenter
believes that CMS should make this issue subject to public notice and
comment rulemaking.
A commenter also requested that CMS provide more transparency about
how the productivity adjustment is calculated.
Response: We appreciate commenters' sharing their concerns and
suggestions including working with Congress; however, section
1886(b)(3)(B)(xi) of the Act requires the application of the
productivity adjustment. As required by statute, the FY 2027
productivity adjustment is derived based on the 10-year moving average
growth in economy-wide private nonfarm business total factor
productivity for the period ending FY 2027.
In the FY 2026 IPPS/LTCH PPS final rule (90 FR 36904), in response
to similar comments regarding the methodology for calculating the
productivity adjustment, we provided information on how the
productivity adjustment is calculated using the TFP index levels
(historical and projected). In addition, as stated in the FY 2026 IPPS/
LTCH final rule, we have always made available on the CMS website the
general method for calculating the productivity adjustment at (https://www.cms.gov/research-statistics-data-and-systems/statistics-trends-and-reports/medicareprogramratesstats/downloads/tfp_methodology.pdf). In
this same TFP methodology document, we also provide a link to the most
recent BLS historical TFP data (http://www.bls.gov/productivity), which
currently allows interested parties to obtain historical TFP annual
index levels for 1987 through 2025 and we provide the IGI projection
model which is currently used to derive annual TFP growth rates for
2026 and 2027. The annual index level derived from this method is then
interpolated to quarterly levels, and the FY 2027 productivity
adjustment is equal to the percent change in the 40-quarter moving
average projected level for the period ending September 30, 2027
relative to the 40-quarter moving average projected level for the
period ending September 30, 2026. We believe our methodology for the
productivity adjustment is consistent with section
1886(b)(3)(B)(xi)(II) of the Act, which states that the productivity
adjustment is equal to the 10-year moving average of changes in annual
economy-wide private nonfarm business multi-factor productivity (as
projected by the Secretary for the 10-year period ending with the
applicable fiscal year, year, cost reporting period, or other annual
period).
At the time of this final rule, the FY 2027 productivity adjustment
reflects BLS historical TFP data through 2025 (released on March 19,
2026) and IGI's forecasted TFP growth for 2026 and 2027. The average
annual growth rate of historical TFP published by BLS for 2018 through
2025 is currently 1.0 percent and IGI is projecting average TFP growth
of about 0.7 percent for 2026 and 2027 based on IGI's second-quarter
2026 forecast. Combining the historical and projected TFP data over the
entire 10-year time period and interpolating into quarterly index
levels results in a 10-year moving average growth rate of TFP of 0.9
percent for FY 2027. The productivity adjustment (based on the 10-year
period ending with FY 2027) for the FY 2027 IPPS/LTCH PPS final rule is
0.1 percentage point higher than for the FY 2027 IPPS/LTCH PPS proposed
rule mainly due to the incorporation of updated BLS historical data.
In response to commenters' concerns about the productivity
adjustment only being applied if it reduces the payment update, we note
that the statutory language in section 1886(b)(3)(B)(xi)(I) of the Act
requires that the Secretary reduce (not increase) the market basket
percentage increase by changes in economy-wide productivity.
We thank the commenters for their comments. After consideration of
the comments received and consistent with our proposal, we are
finalizing as proposed to use more recent data to determine the FY 2027
productivity adjustment for the final rule.
In summary, based on more recent data available for this FY 2027
IPPS/LTCH PPS final rule (that is, IGI's second quarter 2026 forecast
of the 2023-based IPPS market basket rate-of- increase with historical
data through the first quarter of 2026), we estimate that the FY 2027
market basket update used to determine the applicable percentage
increase for the IPPS is 3.2 percent. Based on more recent data
available for this FY 2027 IPPS/LTCH PPS final rule (that is, IGI's
second quarter 2026 forecast of productivity adjustment), the current
estimate of the productivity adjustment for FY 2027 is 0.9 percentage
point. Based on these more recent data, for this final rule, we have
determined four applicable percentage increases to the standardized
amount for FY 2027, as specified in the following table:
[[Page 49840]]
[GRAPHIC] [TIFF OMITTED] TR04AU26.149
In the FY 2020 IPPS/LTCH PPS final rule (84 FR 42344), we revised
our regulations at42 CFR 412.64(d) to reflect the current law for the
update for FY 2020 and subsequent fiscal years. Specifically, in
accordance with section 1886(b)(3)(B) of the Act, we added paragraph
(d)(1)(viii) to Sec. 412.64 to set forth the applicable percentage
increase to the operating standardized amount for FY 2020 and
subsequent fiscal years as the percentage increase in the market basket
index, subject to the reductions specified under Sec. 412.64(d)(2) for
a hospital that does not submit quality data and Sec. 412.64(d)(3) for
a hospital that is not a meaningful EHR user, reduced by a productivity
adjustment.
Section 1886(b)(3)(B)(iv) of the Act provides that the applicable
percentage increase to the hospital-specific rates for SCHs and MDHs
equals the applicable percentage increase set forth in section
1886(b)(3)(B)(i) of the Act (that is, the same update factor as for all
other hospitals subject to the IPPS). Therefore, the update to the
hospital-specific rates for SCHs and MDHs is also subject to section
1886(b)(3)(B)(i) of the Act, as amended by sections 3401(a) and
10319(a) of the Affordable Care Act.
As discussed in section V.F. of the preamble of this final rule,
section 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 final rule for further discussion
of the MDH program.
For FY 2027, we proposed 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 proposed that if more recent data subsequently became
available (for example, a more recent estimate of the market basket
update and the productivity adjustment), we would use such data, if
appropriate, to determine the market basket update and the productivity
adjustment in the final rule.
We did not receive any public comments on our proposed updates to
hospital-specific rates applicable to SCHs and MDHs. The general
comments we received on the proposed FY 2027 update (including the
proposed market basket update and productivity adjustment) are
discussed earlier in this section. For FY 2027, we are finalizing the
proposal to determine the update to the hospital specific rates for
SCHs and MDHs in this final rule using the more recent available data,
as previously discussed.
For this final rule, based on more recent available data, we are
finalizing the following updates to the hospital specific rates
applicable to SCHs and MDHs: An update of 2.3 percent for a hospital
that submits quality data and is a meaningful EHR user; an update of
1.5 percent for a hospital that fails to submit quality data and is a
meaningful EHR user; an update of -0.1 percent for a hospital that
submits quality data and is not a meaningful EHR user; and an update of
-0.9 percent for a hospital that fails to submit quality data and is
not a meaningful EHR user.
2. 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
[[Page 49841]]
the IPPS for Puerto Rico hospitals will be equal to the rate of-
increase in the hospital market basket for IPPS hospitals in all areas,
subject to a reduction of three-quarters of the applicable percentage
increase (prior to the application of other statutory adjustments; also
referred to as the market basket update or rate-of-increase (with no
adjustments)) for Puerto Rico hospitals not considered to be meaningful
EHR users in accordance with section 1886(b)(3)(B)(ix) of the Act, and
then subject to the productivity adjustment at section
1886(b)(3)(B)(xi) of the Act. As noted previously, section
1886(b)(3)(B)(xi) of the Act states that application of the
productivity adjustment may result in the applicable percentage
increase being less than zero.
In the FY2027 IPPS/LTCH PPS proposed rule, based on IGI's fourth
quarter 2025 forecast of the 2023-based IPPS market basket update with
historical data through third quarter 2025, in accordance with section
1886(b)(3)(B) of the Act, as discussed previously, for Puerto Rico
hospitals we proposed a market basket update of 3.2 percent reduced by
a productivity adjustment of 0.8 percentage point. Therefore, for FY
2027, depending on whether a Puerto Rico hospital is a meaningful EHR
user, we stated that 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 proposed 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 proposed 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 proposed that if more recent data
subsequently became 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.
We did not receive any public comments on our proposed updates to
the standardized amount for FY 2027 for Puerto Rico hospitals. The
general comments we received on the proposed FY 2027 update (including
the proposed market basket update and productivity adjustment) are
discussed in greater detail earlier in this section. For FY 2027, we
are finalizing the proposal to determine the update to the standardized
amount for FY 2027 for Puerto Rico hospitals in this final rule using
the more recent available data, as previously discussed.
As previously discussed in section VI.B. of the preamble of this
final rule, based on more recent data available for this final rule
(that is, IGI's second quarter 2026 forecast of the 2023-based IPPS
market basket rate-of-increase with historical data through the first
quarter of 2026), we estimate that the FY 2027 market basket update
used to determine the applicable percentage increase for the IPPS is
3.2 percent and a productivity adjustment of 0.9 percent. For FY 2027,
depending on whether a Puerto Rico hospital is a meaningful EHR user,
there are two possible applicable percentage increases that can be
applied to the standardized amount. Based on these data, in accordance
with section 1886(b)(3)(B) of the Act, we determined the following
applicable percentage increases to the standardized amount for FY 2027
for Puerto Rico hospitals:
For a Puerto Rico hospital that is a meaningful EHR user,
an applicable percentage increase to the operating standardized amount
of 2.3 percent (that is, the FY 2027 estimate of the market basket
rate-of-increase of 3.2 percent reduced by 0.9 percentage point for the
productivity adjustment).
For a Puerto Rico hospital that is not a meaningful EHR
user, an applicable percentage increase to the operating standardized
amount of -0.1 percent (that is, the FY 2027 estimate of the market
basket rate-of-increase of 3.2 percent, less an adjustment of 2.4
percentage point (the market basket rate- of-increase of 3.2 percent x
0.75 for failure to be a meaningful EHR user), and reduced by a
productivity adjustment of 0.9 percentage point).
[GRAPHIC] [TIFF OMITTED] TR04AU26.150
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
[[Page 49842]]
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 national median CMI
value for FY 2027 is based on the CMI values of all urban hospitals
nationwide, and the 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 values are based on discharges
occurring during FY 2025 (October 1, 2024, through September 30, 2025),
and include bills posted to CMS' records through March 2026. We believe
that this is the best available data for use in calculating the
national and regional median CMI values and is consistent with our use
of the FY 2025 MedPAR claims data for FY 2027 ratesetting.
In the FY 2027 IPPS/LTCH PPS proposed rule, we proposed that, in
addition to meeting other criteria, if rural hospitals with fewer than
275 beds are to qualify for initial RRC status for cost reporting
periods beginning on or after October 1, 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. (We refer readers to the table set forth
in the FY 2027 IPPS/LTCH PPS proposed rule at 91 FR 19499). In the
proposed rule, we stated that we intended 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.
Comment: Commenters supported our proposal to use FY 2025 data to
calculate the national and regional median CMI values for FY 2027.
Response: We appreciate the commenters' support.
Therefore, based on the best available data (FY 2025 bills received
through March 2026), 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:
1.778 (national--all urban); or
The median CMI value (not transfer-adjusted) for urban
hospitals (excluding hospitals with approved teaching programs as
identified in Sec. 413.75) calculated by CMS for the census region in
which the hospital is located. The final CMI values by region are set
forth in the following table.
[GRAPHIC] [TIFF OMITTED] TR04AU26.151
[[Page 49843]]
A hospital seeking to qualify as an RRC should obtain its hospital-
specific CMI value (not transfer-adjusted) from its MAC. Data is
available on the Provider Statistical and Reimbursement (PS&R) System.
In keeping with our policy on discharges, the CMI values are computed
based on all Medicare patient discharges subject to the IPPS MS-DRG-
based payment.
2. Discharges
Section 412.96(c)(2)(i) provides that CMS set forth the national
and regional numbers of discharges criteria in each year's annual
notice of prospective payment rates for purposes of determining RRC
status. As specified in section 1886(d)(5)(C)(ii) of the Act, the
national standard is set at 5,000 discharges. In the FY 2027 IPPS/LTCH
PPS proposed rule, we proposed 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 final
rule was developed. We believe that this is the best available data for
use in calculating the median number of discharges by region and is
consistent with our finalized data proposal to use cost report data
from cost reporting periods beginning during FY 2024 for FY 2027
ratesetting. In the FY 2027 IPPS/LTCH PPS proposed rule, we proposed
that, in addition to meeting other criteria, a hospital, if it is to
qualify for initial RRC status for cost reporting periods beginning on
or after October 1, 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 table set forth in the FY 2027 IPPS/LTCH PPS
proposed rule at 91 FR 19499). In the proposed rule, we stated that we
intended to update these numbers in the FY 2027 final rule based on the
latest available cost report data.
Comment: Commenters supported our proposal to use FY 2024 data to
calculate median number of discharges by region for FY 2027.
Response: We appreciate the commenters' support.
Therefore, based on the best available discharge data at this time,
that is, for cost reporting periods that began during FY 2024, the
final median number of discharges for urban hospitals by census region
are set forth in the following table.
[GRAPHIC] [TIFF OMITTED] TR04AU26.152
We note that because the median number of discharges for hospitals
in each census region is greater than the national standard of 5,000
discharges, under this final rule, 5,000 discharges is the minimum
criterion for all hospitals, except for osteopathic hospitals for which
the minimum criterion is 3,000 discharges.
D. Payment Adjustment for Low-Volume Hospitals (Sec. 412.101)
1. Background
Section 1886(d)(12) of the Act provides for an additional payment
to each qualifying low-volume hospital under the IPPS beginning in FY
2005. The low-volume hospital payment adjustment is implemented in the
regulations at 42 CFR 412.101. The additional payment adjustment to a
low-volume hospital provided for under section 1886(d)(12) of the Act
is in addition to any payment calculated under section 1886 of the Act
and is based on the per discharge amount paid to the qualifying
hospital. In other words, the low-volume hospital payment adjustment is
based on total per discharge payments made under section 1886 of the
Act, including capital, DSH, IME, and outlier payments. For SCHs and
MDHs, the low-volume hospital payment adjustment is based in part on
either the Federal rate or the hospital-specific rate, whichever
results in a greater operating IPPS payment. The payment adjustment for
low-volume hospitals is not budget neutral.
As discussed in the FY 2027 IPPS/LTCH PPS proposed rule (91 FR
19499 through 19503), 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
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 final rule.
[[Page 49844]]
[GRAPHIC] [TIFF OMITTED] TR04AU26.153
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 13735),
issued April 14, 2026. For additional information, please refer to the
transmittal R13564OTN and R13735OTN.
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 the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19499), we
proposed 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 proposed to make conforming
changes to paragraphs (b)(2)(iii) and (c)(3) introductory text of Sec.
412.101 to reflect that the low-volume hospital payment adjustment
policy in effect through FY 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 36908 through 36912)). In addition, in accordance with the
provisions of the Consolidated Appropriations Act, 2026, we proposed 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 final rule. We
further proposed 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.
We received no comments on our proposed conforming changes to the
regulations to codify this extension and we are finalizing the proposed
changes to the regulations text in Sec. 412.101 without modification.
[[Page 49845]]
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 proposed 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.
Comment: Similar to previous extensions, many commenters supported
the legislative extension of the temporary changes to the definition
and payment adjustment for low-volume hospitals through December 31,
2026, and expressed support for additional legislative extensions. Many
commenters continued to request that CMS work with Congress to extend
or make permanent the temporary modifications to the low-volume
hospital payment policy. Several commenters expressed financial
instability concerns, particularly those in rural areas or that serve
primarily Medicare patients, in the absence of a further extension of
the temporary modifications to the low-volume hospital payment policy.
A commenter stated that the proposed changes to the mileage and
discharge criteria do not account for the business decisions that
hospitals have made in reliance on the low-volume adjustment since
current criteria took effect in FY 2019. A commenter urged CMS to use
its legal authority to make low-volume hospital payments to all current
low-volume hospitals in the absence of an extension of the temporary
modifications. A few commenters requested CMS provide a transition
payment to hospitals impacted by the expiration of the temporary
modifications to the low-volume hospital payment policy.
Several commenters again sought clarification on how CMS would
handle any legislation that would further extend the modified low-
volume hospital payment policy beyond the end of the year. Other
commenters urged CMS to expeditiously process claims and provide
instructions to MACs for any subsequent extensions, especially in
instances when extensions are made retroactively to avoid significant
financial strain to affected hospitals and potential lower Medicare
reimbursement from MA plans (as they stated many MA plans do not make
retrospective payments for extensions that occur retrospectively until
after CMS issues instructions to the MACs).
Response: We appreciate the commenters sharing their support for
legislative action and the commenters' concerns about the expiration of
the temporary changes to the low-volume hospital policy and the
corresponding financial impact. As previously discussed, section
1886(d)(12) of the Act sets forth the applicable low-volume hospital
policy beginning January 1, 2027, and the statute mandates that the
Secretary develop an empirically justifiable adjustment based on the
[[Page 49846]]
relationship between costs and discharges for low volume hospitals. As
described previously, a 25 percent low-volume adjustment for qualifying
hospitals with less than 200 discharges was found to be most consistent
with the statutory requirement. We understand commenters' concerns with
the financial impact of the expiration of the temporary modifications
to the low-volume hospital policy, however, we note that since the
current criteria under the expanded low-volume hospital adjustment took
effect in FY 2019, those modifications have been temporary.
As we have said in the past, we make every effort to implement any
extension of the low-volume hospital payment policy as expeditiously as
possible. As with past extensions, CMS will evaluate enacted
legislation to determine the most appropriate approach to implement
changes to the law, including issuing instructions to the MACs and to
communicate with affected hospitals. However, we believe it would be
premature to opine on exactly how any subsequent extension would be
implemented. As with past extensions, we would continue to work to
implement any subsequent extensions as quickly and seamlessly as
possible based on the specific legislative requirements of the
particular extension.
Comment: As in past years, several commenters stated that it is not
the intent of Congress for the low-volume hospital payment policy to
revert to the historical statutory requirements. Some of these
commenters believe that CMS is ignoring the congressional intent of
this policy and denying a group of IPPS providers low-volume hospital
payments with the reversion to the policy that was originally
established for FY 2005. A few commenters also stated that CMS did not
explain why limiting the low-volume hospital payment adjustment to
hospitals with fewer than 200 discharges is ``most consistent'' with
statute. These commenters requested expanding eligibility for the
discharge criteria to match the statutory requirement to include IPPS
hospitals with 200-799 discharges. A commenter requested that CMS
evaluate whether hospitals with greater than 200 discharges continue to
experience the financial vulnerabilities that the low-volume adjustment
was designed to address.
Response: We continue to disagree that it is contrary to the
congressional intent for the low-volume hospital policy to revert to
the policy established under the original historical statutory
requirements. As previously discussed, the extension of the temporary
changes to the qualifying criteria and payment adjustment methodology
for certain low-volume hospitals provided by section 6201 of the
Consolidated Appropriations Act, 2026 is through December 31, 2026,
only. Consistent with the discussion in the FY 2005 IPPS final rule (69
FR 49100), despite the statutory definition of a low-volume hospital as
a subsection (d) hospital that has less than 800 discharges, the
statutory provision mandating this adjustment also requires the
Secretary to determine the empirical relationship between the
standardized cost-per-case, the total number of discharges, and the
amount of incremental costs (if any) associated with the number of
discharges (emphasis added). The statute requires that the applicable
percentage increase shall be based upon such relationship in a manner
that reflects such incremental costs. We continue to believe that the
statutory language thus gives the Secretary the flexibility to set the
percentage increase at zero for a given number of discharges if the
empirical evidence shows that hospitals experience no higher
incremental costs when they reach that number of discharges. In other
words, the statute does not require the Secretary to provide an
adjustment in the absence of empirical evidence that an adjustment is
warranted by higher incremental costs.
As discussed in response to public comments in the FY 2013 IPPS/
LTCH PPS final rule (77 FR 53408 through 53409), the FY 2014 IPPS/LTCH
PPS final rule (78 FR 50612 through 50613), the FY 2018 IPPS/LTCH PPS
final rule (82 FR 38184 through 38189), and the FY 2026 IPPS/LTCH PPS
final rule (90 FR 36910 through 36911), to implement the original low-
volume hospital payment adjustment provision, and as mandated by
statute, we developed an empirically justified adjustment based on the
relationship between costs and total discharges of hospitals with less
than 800 total (Medicare and non-Medicare) discharges. Specifically, we
performed several regression analyses to evaluate the relationship
between hospitals' costs per case and discharges, and found that an
adjustment for hospitals with less than 200 total discharges is most
consistent with the statutory requirement to provide for additional
payments to low-volume hospitals where there is empirical evidence that
higher incremental costs are associated with lower numbers of
discharges (69 FR 49101 through 49102). Based on these analyses, we
established a low-volume hospital policy under which qualifying
hospitals with less than 200 total discharges receive a payment
adjustment of an additional 25 percent. (Section 1886(d)(12)(B)(iii) of
the Act limits the applicable percentage increase adjustment to no more
than 25 percent.) At this time, we are not aware of any analysis or
empirical evidence that would support expanding the originally
established low-volume hospital adjustment policy and we did not make
any proposals regarding the low-volume hospital payment adjustment for
FY 2027. For these reasons, we are not making any changes to the low-
volume hospital payment adjustment policy in this final rule.
Comment: A few commenters expressed support for the methodology for
calculating the low-volume payment adjustment using a single, non-
sliding scale adjustment of 25 percent for qualifying hospital
discharges beginning January 1, 2027, when the temporary changes expire
under current law.
Response: We appreciate commenters' support for the single, non-
sliding scale payment adjustment for qualifying hospitals beginning
January 1, 2027.
After consideration of the public comments we received regarding
the changes to the qualifying criteria and the payment adjustment
methodology for low-volume hospitals for FY 2027, we are finalizing our
proposals without modification.
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 2027
IPPS/LTCH PPS proposed rule (91 FR 19501 through 19503), 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
[[Page 49847]]
low-volume hospital status, to determine whether or not the hospital
meets the qualifying criteria. (For additional information on our
existing process for requesting the low-volume hospital payment
adjustment, we refer readers to the FY 2019 IPPS/LTCH PPS final rule
(83 FR 41399 through 41401).)
As explained earlier, for FY 2019 and subsequent fiscal years, the
discharge determination is made based on the hospital's number of total
discharges, that is, Medicare and non-Medicare discharges, as was the
case for FYs 2005 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.
[thinsp]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 revised Sec.
[thinsp]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. [thinsp]412.101(a) the
term ``road miles'' to mean ``miles'' as defined in Sec.
[thinsp]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 proposed that a hospital must submit a written request for low-
volume hospital status to its MAC that includes sufficient
documentation to establish that the hospital meets the applicable
mileage and discharge criteria (as described earlier). Specifically,
for 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 proposed 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
[[Page 49848]]
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 FY 2011, and
to the preexisting low-volume hospital qualifying criteria, as
implemented in FY 2005 and specified in the existing regulations at
Sec. [thinsp]412.101(b)(2)(i). As in previous years, we proposed 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 proposed 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.
We received no comments on our proposed process for requesting and
obtaining the low-volume hospital payment adjustment for FY 2027 and
therefore are finalizing this proposal without modification.
E. Changes in the Medicare-Dependent, Small Rural Hospital (MDH)
Program (Sec. 412.108)
1. Background for the MDH Program
Section 1886(d)(5)(G) of the Act provides special non-budget
neutral payment protections, under the IPPS, to a Medicare-dependent,
small rural hospital (MDH). MDHs are paid for their hospital inpatient
services based on the higher of the Federal rate or a blended rate
based in part on the Federal rate and in part on the MDH's hospital
specific rate. (For additional information on the MDH program and the
payment methodology, we refer readers to the FY 2012 IPPS/LTCH PPS
final rule (76 FR 51683 through 51684).) 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, in the FY
2027 IPPS/LTCH PPS proposed rule (91 FR 19503) we proposed to make
conforming changes to the regulations governing the MDH program at
Sec. 412.108(a)(1) and (c)(2)(iii) and the general payment rules at
Sec. 412.90(j) to reflect the extension of the MDH program through
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
[[Page 49849]]
meet the classification criteria at 42 CFR 412.108(a) in the event that
the MDH program is further extended, and the provider wishes to return
to its classification as a MDH.
As noted, in the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19503),
we proposed to make conforming changes to the regulations governing the
MDH program at Sec. 412.108(a)(1) and (c)(2)(iii) and the general
payment rules at Sec. 412.90(j) to reflect the extension of the MDH
program through December 31, 2026. We also proposed that if the MDH
program were to be extended by law beyond December 31, 2026, similar to
how it was extended by prior legislation as described previously, we
would, depending on timing of such legislation in relation to the final
rule, modify our proposed conforming changes to the regulations
governing the MDH program at Sec. 412.108(a)(1) and (c)(2)(iii) and
the general payment rules at Sec. 412.90(j) to reflect any such
further extension of the MDH program. We also noted that these
modifications to our proposed conforming changes would only be made if
the MDH program were to be extended by statute beyond December 31,
2026.
Comment: Many commenters expressed support for extending the MDH
program or making the MDH program permanent and noted that they would
continue supporting congressional action to protect the MDH program and
develop long term solutions to the financial challenges facing rural
hospitals. They noted the uncertainty that these hospitals face and the
resulting inability to make long-term capital and infrastructure
investments or expansion of patient services.
A few commenters urged CMS to continue to communicate to Congress
the importance of extending the MDH program. Several State hospital
associations and hospital chains expressed their concern that their
hospitals would experience significant payment decreases as a result of
the expiration of the MDH program. Commenters underscored the critical
nature of the MDH program in supporting hospital solvency and
preserving access to care in rural communities. A commenter requested
that CMS consider additional transition protections for vulnerable
providers. Another commenter urged CMS to include regulatory or policy
clarification that supports continuity of MDH payment methodologies
during any transition period.
Other commenters supported an additional base rate for calculating
MDH payments.
Response: We understand the commenters' concerns about the
expiration of the MDH program and the financial impact to affected
providers if the MDH program is not extended beyond December 31, 2026.
CMS does not have the authority under current law to extend the MDH
program beyond the statutory expiration date. Similarly, section
1886(b)(3)(D) of the Act specifies the applicable base years or
``target amounts'' for hospitals classified as MDHs. These comments are
similar to comments we received previously, prior to the most recent
statutory extensions of the MDH program for FY 2026 and the portion of
FY 2027 beginning October 1, 2026 through December 31, 2026. We refer
commenters to our discussion in the FY 2026 IPPS/LTCH PPS final rule
(90 FR 36912). In response to the comment requesting a regulatory or
policy clarification that supports continuity of MDH payment
methodologies during any transition period, as discussed previously,
under current law, the MDH program is not authorized by statute beyond
December 31, 2026. Absent further Congressional action, CMS may
consider this for future rulemaking.
Comment: Commenters requested that CMS clearly communicate how it
will implement program extensions and prepare systems to facilitate
expedited retroactive payments in the event that the MDH program
lapses. Commenters urged CMS to implement any potential retroactive
restoration and/or extensions of the MDH program more expeditiously to
avoid significant financial strain to affected hospitals and potential
lower Medicare reimbursement from MA plans. They requested that CMS
engage stakeholders early to establish lines of communication, minimize
confusion, and mitigate any potential delays in reimbursement and
signal readiness to support impacted hospitals with technical guidance
and financial planning resources. Another commenter requested that CMS
issue guidance outlining how claims would be processed for discharges
occurring after December 31, 2026 if the program expires.
A commenter requested that CMS evaluate the projected impact of
expiration on rural hospital margins and access to care and analyze the
relationship between payment instability and service line reductions in
rural communities. Another commenter requested that CMS publish
hospital-specific modeling or impact data to allow affected providers
to properly understand and prepare for potential financial risk.
Response: We appreciate the commenters' sharing their concerns
relating to a retroactive restoration of the MDH program. As with past
extensions, CMS will evaluate enacted legislation to determine the most
appropriate approach to implement changes to the law, including issuing
instructions to the MACs to reinstate MDH status to eligible hospitals
and to communicate with affected hospitals. As in the past, we will
make every effort to implement any extension of the MDH program as
expeditiously as possible. In response to the comment requesting that
CMS issue guidance outlining how claims would be processed for
discharges occurring after the MDH program expires, as noted
previously, beginning with discharges occurring on or after January 1,
2027, absent further Congressional action, all hospitals that
previously qualified for MDH status under section 1886(d)(5)(G) of the
Act will no longer have MDH status and claims will be processed and
will be paid based on the Federal rate.
Following the issuance of the IPPS/LTCH PPS final rule each year,
if the MDH program is set to expire, as part of the associated annual
CR, CMS includes instructions to the Medicare contractors on how to
modify the provider type for MDH providers in the Provider Specific
File (PSF). The provider type is used by the claims processing system
to apply the special payment provisions for eligible MDHs. For example,
for the FY 2026 IPPS/LTCH PPS final rule, CMS issued Change Request
14203 (Transmittal 13398) on September 22, 2025, which is available
online at https://www.cms.gov/files/document/r13398otn.pdf.
In response to the comments requesting that CMS evaluate the
projected impact of expiration on rural hospital margins and access and
hospital-specific modeling or impact data, we refer the commenter to
the provider data used in creating Table I--Impact Analysis of Changes
to the IPPS for Operating Costs for FY 2027, in Appendix A of this
final rule and posted on the web which can be used to estimate
individual hospital's payments for FY 2027. The data can be found on
the CMS website at https://www.cms.gov/medicare/payment/prospective-payment-systems/acuteinpatient-pps. In addition, we note in Table I in
Appendix A of this final rule, the line for MDHs under ``Special
Hospital Types'' reflects the expected impact for hospitals classified
as MDH prior to the expiration on January 1, 2027, under current law.
In summary, under current law, beginning January 1, 2027, all
hospitals
[[Page 49850]]
that previously qualified for MDH status will no longer have MDH
status. After consideration of the public comments we received, we are
adopting as final the proposed conforming changes to the regulations
text at Sec. Sec. 412.90 and 412.108 to reflect the extension of the
MDH program through December 31, 2026 in accordance with section 6202
of the Consolidated Appropriations Act, 2026 (Pub. L. 119-75). We are
finalizing the proposed changes in paragraphs (a)(1) and (c)(2)(iii) of
Sec. 412.108 and paragraph (j) of Sec. 412.90 without modification.
F. Payment for Indirect and Direct Graduate Medical Education Costs
(Sec. Sec. 412.105 and 413.75 Through 413.83
1. Background
Section 1886(h) of the Social Security Act (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, 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. 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 the
FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19504), we proposed a
similar policy that would apply to approved medical residency programs
themselves. Specifically, we proposed 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 indicated that 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.
To streamline the regulations text and ensure consistent
application of the requirements to approved medical residency programs
and GME accrediting organizations, we also proposed to consolidate the
majority of our existing and proposed non-discrimination requirements
under proposed new 42 CFR 413.84. We proposed to cross-reference this
new
[[Page 49851]]
section as necessary in the regulations at Sec. Sec. 412.105(f)(1)(i),
413.75(b), and 415.152. In section V.G.3. of the proposed rule (91 FR
19520), we proposed conforming policies with respect to approved
nursing and allied health (NAH) education programs and accrediting
bodies under 42 CFR 413.85.
In this section of the final rule, we are combining our summary of
and responses to the comments we received on the proposed requirements
to prohibit unlawful discrimination by approved medical residency
programs, approved NAH education programs, and NAH accrediting bodies.
(As noted previously, we finalized requirements applicable to
accreditors of graduate medical education programs in the CY 2026 OPPS
final rule.) We refer readers to section V.G.3. of this final rule for
discussion of comments that address concerns specific to payments for
nursing and allied health education.
Comment: We received several comments in support of our proposals
to consolidate the existing GME-related antidiscrimination requirements
under new 42 CFR 413.84 and to extend the requirements to individual
graduate medical education programs, as well as to nursing and allied
health education programs and accreditors. The commenters discussed
instances in which they or others believed they experienced
discriminatory treatment because of their religious or moral objections
to certain training requirements and stated that, as a result of such
reportedly hostile training environments, clinicians who object to
performing abortions may be disincentivized from pursuing OB/GYN
training, thus exacerbating workforce shortages in maternity care. A
commenter stated that diversity, equity and inclusion criteria in
admissions and employment are often a guise for unlawful discrimination
and stated that the proposed requirements are necessary in light of the
Accreditation Council for Graduate Medical Education's (ACGME)
historical inclusion of DEI-related initiatives in its Common Program
Requirements.
A commenter that supported the proposal further urged CMS to
require that abortion training be offered under an opt-in only model,
as opposed to the opt-out model currently required by the ACGME,
stating that the opt-out model creates a coercive environment both for
residents with conscientious objections to training in induced
abortions and for faith-based programs that are required to incorporate
such training into their curricula. The commenter also expressed
concern that Medicare GME funding may be used to pay for abortions, in
violation of the Hyde Amendment, which generally prohibits the use of
Federal funding for abortion except under limited circumstances.
Another commenter encouraged CMS to expand the scope of the
proposed regulations to include procedures besides abortion that are
frequently implicated in discussions over conscience protections and
religious freedom. Specifically, the commenter recommended adding an
additional paragraph to the regulations under proposed Sec. 413.84(c)
recognizing approved programs that would be accredited except for the
accrediting agency's reliance upon an accreditation standard the
requires an entity to ``[p]rescribe or provide procedures for
contraception, sterilization, assisted suicide, euthanasia, or sex-
rejecting interventions (what advocates call `gender affirmative
care'), or require, provide, or refer for training in the performance
of such procedures, or make arrangements for such training, regardless
of whether the standard provides exceptions or exemptions.'' The
commenter stated that this modification would further help enforce
compliance with Federal conscience statutes, which extend to procedures
in addition to abortion.
Response: We thank the commenters for their support of our
proposals. While we note that the most recent revisions to the ACGME's
Common Program Requirements no longer include the diversity, equity and
inclusion requirements cited by a commenter, we continue to believe our
proposed policies are 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. Therefore, we are finalizing, without modification, our
proposal that approved medical residency training programs, as well as
approved nursing and allied health education programs and 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. In addition, we are finalizing
our proposal to consolidate various GME- and NAH-related
antidiscrimination requirements under new 42 CFR 413.84.
In response to comments recommending further expansion of the
proposed policies, we may take these comments into consideration for
future rulemaking. We emphasize that regardless of the inclusion of
explicit language in the GME regulations, no entity or individual may
be forced to act contrary to objections protected by Federal conscience
and nondiscrimination statutes. We also note with regard to the Hyde
Amendment that both direct GME and IME payments are made only with
respect to services otherwise payable under Medicare, and that abortion
services are not payable under Medicare except under the limited
circumstances specified in the Hyde Amendment (as codified most
recently at Sec. Sec. 506-507 of Division B, Title V, of the
Consolidated Appropriations Act, 2026, Pub. L. 119-75).
Comment: Many commenters supported the overall goal of prohibiting
unlawful discrimination but expressed concern about our proposal to
codify these requirements as part of the definition of ``approved''
programs for purposes of Medicare GME and NAH payments. If CMS
implements the proposed requirements, commenters stated that we should
do so in a manner that is transparent and administratively feasible,
and requested clarification on the following points:
How hospitals would be evaluated for compliance with the
proposed antidiscrimination requirements, including what constitutes an
``intentional proxy'' for protected characteristics under the proposed
regulations text;
How the proposed requirements would align with existing
accreditation standards and Federal civil rights laws;
The role that Medicare contractors, accrediting bodies,
regulated institutions and other parties would assume in enforcing the
proposed requirements; and
What due process protections would be afforded to
hospitals, including notice and response opportunities, appeal rights,
and the postponement of any adverse payment consequence until a final
determination of noncompliance has been reached by the appropriate
body.
Commenters warned that the absence of objective and administrable
standards, duplication of established accreditation and civil rights
requirements, lack of clearly delineated responsibilities, and
unresolved questions about due process would increase compliance risks
and create payment uncertainty for hospitals, potentially hampering
development of the physician, nursing and allied health workforce
pipelines. In addition, some
[[Page 49852]]
commenters urged CMS to delay implementation of the proposed
requirements to give hospitals time to demonstrate compliance with the
proposed regulations.
A couple of commenters, while expressing support for compliance
with Federal antidiscrimination laws, objected to the proposed
prohibition on the use of identity characteristics or intentional
proxies for those characteristics as selection criteria for residency
programs. The commenters emphasized the importance of a diverse
physician workforce in achieving positive health outcomes, especially
among vulnerable groups, and stated that ignoring identity-based
characteristics in the selection process could disadvantage qualified
applicants from marginalized backgrounds.
Response: While we appreciate commenters' concerns regarding the
operationalization and enforcement of the antidiscrimination policies
that we are finalizing in this final rule, we do not believe that
prohibiting unlawful discrimination on the part of approved GME and NAH
education programs would impose a significant administrative burden or
create compliance risk or payment uncertainty for hospitals. Under the
policy that we are codifying at 42 CFR 413.84, effective October 1,
2026, approved GME and NAH programs, 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. For a
non-exhaustive list of unlawful policies and practices that are
prohibited under these regulations, we refer readers to the Attorney
General's Guidance for Recipients of Federal Funding Regarding Unlawful
Discrimination (June 29, 2025). We note that section B.1 of this
guidance includes discussion of the prohibited use of proxies for
protected characteristics, including examples of potentially unlawful
proxies.
We also disagree with commenters who advocated for the use of
identity-based characteristics, or proxies for such characteristics, as
selection criteria in residency training programs. As we stated in the
CY 2026 OPPS/ASC final rule (90 FR 54027, November 25, 2025), we
believe that race-conscious elements of diversity, equity and inclusion
policies are generally impermissible under Federal law, as strongly
suggested by the Supreme Court's ruling in Students for Fair Admissions
v. President Fellows of Harvard College (2023). In addition, we remain
unpersuaded by commenters' arguments that such policies are necessary
for achieving positive health outcomes and reiterate our position that
patients and society at large have a compelling need for medical
education to be focused primarily on excellence and delivering the best
possible care to patients. Accordingly, emphasize that GME and NAH
education programs should review their selection criteria to ensure
that such criteria do not unlawfully discriminate on the basis of race
or other protected characteristics or intentional proxies for those
characteristics.
Comment: Several commenters urged us to withdraw the proposal to
prohibit unlawful discrimination in approved GME and NAH education
programs. Instead, commenters stated that CMS should rely on existing
Federal civil rights laws to address concerns related to unlawful
discrimination and defer to the medical community and accrediting
organizations to develop evidence-based standards that safeguard
patient safety and promote an effective learning environment. A
commenter argued that CMS has failed to explain why the proposed
requirements are necessary or how they would advance the objectives of
the Medicare GME program. Another commenter emphasized the importance
of physician self-governance and expressed concern that additional
restrictions could set a precedent for further government interference
in residency training.
Response: We respectfully disagree with the commenters' objections.
As we stated in the proposed rule, we believe that the policy we are
finalizing is necessary to ensure that, even in the absence of
discriminatory accreditation standards, individual residency programs
do not implement policies that constitute unlawful discrimination under
Federal law. In addition, we continue to believe that similar concerns
about unlawful discrimination apply in the context of nursing and
allied health education.
After consideration of public comments, we are finalizing, without
modification, our proposal 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 are also finalizing, without modification, our proposal 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. We are also finalizing our proposal to
consolidate various GME- and NAH-related antidiscrimination
requirements under 42 CFR 413.84 and 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. The effective date of these policies is October
1, 2026.
3. 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 (DGME) 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 FY
1998 IPPS Final Rule (62 FR 46005) and in the May 12, 1998 ``Changes to
the Hospital Inpatient Prospective Payment Systems and Fiscal Year 1998
Rates'' final rule (63 FR 26333); the calculation of both the
[[Page 49853]]
DGME cap and IME cap for new programs is discussed in the August 31,
2012 FY 2013 IPPS Final Rule (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 ``Changes to the Hospital
Inpatient Prospective Payment Systems for Acute Care Hospitals'' final
rule (74 FR 43908 through 43917), CMS clarified the definition of a
``new'' residency program and adopted supporting criteria regarding
whether 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 if 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 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).
Regarding the newness of residents, we proposed 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 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. 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 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 same
specialty as the new program. We explained that, given the lack of
consensus on this issue, we would not finalize our proposal in that
rule. Instead, we initiated another comment solicitation particularly
focused on the criterion regarding newness of residents. As part of
that request, we asked commenters to consider the broad statutory
authority provided to the Secretary in this area, our prior rulemaking
on this issue, and 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,
most 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
[[Page 49854]]
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, most 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 due to various extenuating circumstances. (We
discuss feedback pertaining specifically to exceptions for small and/or
rural programs separately later in this 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, several 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 (NRMP, or the ``Match'') or other
GME matching programs. Commenters noted that the results of the Match
are binding on hospitals, and that not selecting 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. A 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 based upon 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, if 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, a 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. Most commenters also
agreed that a ``small'' program 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 a
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.
[[Page 49855]]
e. Proposal
We thanked 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
believed there was sufficient consensus on the major issues for us to
propose certain modifications to our existing policy in the FY 2027
IPPS LTCH proposed rule.
(1) Initial Accreditation
First, we acknowledged that 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. While we conceded that this approach would
be simple administratively, we reiterated the concerns that we
originally discussed in the August 27, 2009 ``Changes to the Hospital
Inpatient Prospective Payment Systems for Acute Care Hospitals'' final
rule (74 FR 43754). In that final rule, 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). We emphasized 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 continued to believe that we cannot
rely solely on the characterization of an accrediting body in making
this determination.
(2) Removal of Restrictions on Experienced Faculty and Staff
Nevertheless, we were persuaded by commenters' arguments that some
of the supporting factors promulgated in the August 27, 2009 ``Changes
to the Hospital Inpatient Prospective Payment Systems for Acute Care
Hospitals'' final rule may be overly restrictive. We were 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
believed 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 proposed 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 noted 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 ``Changes to
the Hospital Inpatient Prospective Payment Systems for Acute Care
Hospitals'' final rule.
(3) Requirement for New Residents
While we proposed 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, most 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.'' 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 proposed that, effective for programs
starting on or after October 1, 2026, 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, this proposal regarding the newness of residents
is substantially the same as the policy we 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 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
[[Page 49856]]
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
proposed 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 proposed that, after the end of the five-year cap building
period, the Medicare administrative contractor (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) Exceptions for Certain Categories of Residents
As noted previously, we proposed 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 (SOAP), 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 proposed 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 first year
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 proposed 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. To prevent the inappropriate duplication of cap slots
associated with a closed program or closed hospital, we proposed 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 applies
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
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 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.
[[Page 49857]]
Comment: Comments were overwhelmingly supportive and appreciative
of our proposals to 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. Many
commenters also were supportive of our proposal to require that at
least 90 percent of the individual resident trainees (not FTEs) must
not have previous training in the same specialty, in addition to
receiving initial accreditation from the appropriate accrediting body.
Response: We appreciate the commenters' support for our proposals.
Comment: A commenter requested that CMS consider reducing the
threshold for residents without previous training in the program's
specialty from 90 percent to 80 percent. The commenter believed that
the lower threshold would provide greater flexibility to accommodate
residents with prior training. The commenter alternatively suggested
that CMS could refine the proposal to ``temporally weight'' the
calculation of residents that do not have prior training in the
specialty or subspecialty (i.e., counting resident years rather than
residents), so that new programs are not unduly constrained when
replacing residents that do not complete the program.
Another commenter asked that CMS reduce the 90 percent threshold to
51 percent, allowing for up to 49 percent of individual residents
during the cap building period to have received previous training in
the same specialty. This commenter suggested that to safeguard against
the inappropriate transfer of existing programs, CMS could impose a
requirement that individual residents who had received previous
training in the same specialty as the new program must have received
such training at a program that continues to train residents throughout
the completion of each resident's training. If the other programs
continue to train residents, the new program cannot also be the progeny
of one of those programs.
Other commenters requested that CMS add exceptions for resident
hardship situations where a resident needs to relocate due to reasons
beyond his or her control, for residents who join a program
specifically to replace residents who left unexpectedly, or in general,
where ``it is clear'' that the program was not transferred.
Response: As discussed previously in the summary of responses to
our second comment solicitation, most 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 not accepting these commenters'
suggestions to reduce to 90 percent threshold to 80 percent or 51
percent. We also believe that alternative measures such as weighting
the residents that do not have prior training experience in the same
specialty would add unnecessary complexity to the determination of
program newness.
Regarding the comment that suggested CMS impose a requirement that
individual residents who received previous training in the same
specialty as the new program must have received such training at a
program that continues to train residents throughout the completion of
each resident's training, we addressed this scenario in the August 27,
2009 ``Changes to the Hospital Inpatient Prospective Payment Systems
for Acute Care Hospitals'' final rule (74 FR 43914). We stated that
because it was (and still is) our intent to ensure that no duplicative
FTE resident slots are created by virtue of an inappropriate ``new
program'' adjustment, a hospital considering starting a new program
should ask several questions, one of which is, ``is this program part
of any existing hospital's FTE cap determination (74 FR 43914)?'' The
point of asking such a question is to assess whether the slots continue
to be incorporated into the national aggregate FTE caps.
We stated that we do not believe it would be appropriate to
consider a program that is substantially the same as a previous program
at another hospital that remains open to be a new program. We
reiterated our primary concern that there should be no duplicative FTE
resident cap slots, thereby we would ensure to the extent possible that
no FTE cap increases are granted when there is another ``active'' FTE
cap of which the transferred program was a part. Accordingly, we do not
agree with the commenter that an appropriate safeguard against the
transfer of existing programs would be that individual residents who
had received previous training in the same specialty as the new program
must have received such training at a program that continues to train
residents throughout the completion of each resident's training.
We also do not believe that it is necessary to create an explicit
exception to the 90 percent rule for resident hardship, meaning for
residents who have prior experience in the same specialty, but who join
a program specifically to replace residents who depart unexpectedly
from the program, or for other reasons. If a resident needs to transfer
to a different program in the same specialty due to circumstances
outside of his or her control, or if a resident needs to be replaced,
the 10 percent exception is sufficient to provide the opportunity for
such residents to still transfer into a program that is within its cap
building, while not immediately jeopardizing the newness of the
program.
Comment: A commenter asked that in light of a national projected
shortage of physicians, CMS should consider establishing an exception
to the 90 percent new resident threshold if a community need for
additional physicians practicing in the program's specialty within the
community can be established, and any other program in the same
specialty operating within the community continues to train residents
during the five year cap building period of the new program.
Response: Granting a larger exception to the 90 percent rule would
not meaningfully address an impending physician shortage, as such an
exception would only serve to permit residents already training in
their specialty of choice to move from one existing program to another,
rather than adding actual new medical school graduates into newly
created residency programs. Therefore, we are not adopting the
commenter's request.
Comment: Several commenters who supported the proposals also asked
CMS to apply the revised criteria to programs still in their five-year
cap-building period as of October 1, 2026, rather than the proposed
effective date of new programs that start on or after October 1, 2026.
Commenters stated that it is necessary to apply the effective date for
new programs still within their 5-year cap building period to ease the
physician shortage pipeline and to provide a consistent effective date
for hospitals that are simultaneously within the cap-building period
for new programs and are also planning to start new programs after
October 1, 2026.
A commenter argued that CMS's existing standard of ``overwhelming
majority'' was not adopted in notice-
[[Page 49858]]
and-comment rulemaking as required under section 1871 of the Social
Security Act and cannot be applied; therefore, CMS should provide
instructions to its MACs confirming that a program established before
October 1, 2026 will still be treated as new as of the date it receives
accreditation or begins training if the program was not moved in its
entirety from one hospital to another.
Response: We have considered the commenters' requests to revise the
effective date of the proposal, and we agree that to more quickly
reduce regulatory burden, we should revise our proposed effective date
for the definition of a new program to be effective for new programs
still within their 5-year cap building period as of October 1, 2026.
That is, in this final rule, the effective date for the definition of
what constitutes a new program for cap building purposes (i.e., meeting
the 90 percent threshold) is for programs still within their 5-year cap
building period as of October 1, 2026. However, we note that one
important reason for the proposal to redefine the criteria for what
constitutes a new program for cap building purposes is to provide a
prospective, clear, standard for hospitals to utilize when planning and
developing new residency programs. Accordingly, hospitals still within
their 5-year cap building periods as of October 1, 2026 are on notice
to abide by the new definition (i.e., that at least 90 percent of the
individual residents that participate in the program during the 5-year
cap building period must not have previous experience training in
another program in the same specialty), and provide the complete
training history to their MACs for each resident that entered the
program over the 5-year period, even if the hospitals' 5-year cap
building period ends shortly after October 1, 2026.
We disagree with the commenter that argued that because CMS's
existing standard of ``overwhelming majority'' was not adopted in
notice-and-comment rulemaking, CMS should provide instructions to its
MACs confirming that a program established before October 1, 2026 will
still be treated as new as of the date it receives accreditation or
begins training if the program was not moved in its entirety from one
hospital to another. This commenter is overlooking what was established
in notice and comment rulemaking in the August 27, 2009 ``Changes to
the Hospital Inpatient Prospective Payment Systems for Acute Care
Hospitals'' final rule, which was that, 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.
These criteria do not include the commenter's request that a
program is to be treated as new if the program was not moved in its
entirety from one hospital to another. Therefore, we cannot provide
such instructions to the MACs for programs established prior to October
1, 2026.
Comment: A commenter stated that the proposal to wait until after
the 5-year cap building closes and then to tally all individual
residents who enter a program during the five-year cap building period
is an excessive administrative burden. In addition, the commenter
stated that by the time the hospital with the new program files its
cost report in which the newness and cap calculation would be
determined, there are already five or six previous cost reporting
periods where the hospital had claimed FTE counts for residents in the
new programs and for which the final settlements have been issued. If
there is an adverse finding on the ``newness'' of a program, the
earliest of these cost reporting periods may no longer be subject to
reopening. The commenter recommended that the determination of newness
should be made at the time of the review of the first cost reporting
period where the hospital is claiming FTE residents in the new program,
and that the assessment of the newness should generally not need to be
continually made in the second through the fifth years of a new
program's existence. However, the issue should be addressed if there is
any evidence of there being a transfer of an existing program from one
hospital to another. Another commenter urged CMS to provide clear
implementation guidance on the documentation hospitals will be expected
to maintain to demonstrate compliance.
Response: Under the proposed policy, we would determine whether a
program has satisfied the 90 percent threshold by tallying all
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.
We proposed 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.
We stated that, 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.
We understand that particularly with larger programs, reviewing the
training history of all residents that enter a program over the course
of 5 years can be a significant amount of work for the MAC.
Simultaneously, the hospital is responsible for maintaining and
providing the training history of each of those residents and to
provide that documentation to the MAC in an orderly and auditable
format at the end of the 5-year period. We do note, however, that much
of this information should be the same or similar to documentation
needed to establish and record the resident's Initial Residency Period
(IRP) under 42 CFR 413.79(a) in the Intern and Resident Information
System (IRIS). In both situations, it is necessary for the hospitals
involved and the MAC to know when and in what specialty did the
resident first begin training, and to verify where and in what
specialty the resident subsequently trained to know whether a hospital
can claim the FTE training time of each resident.
The proposal and finalizing of clearer rules regarding what
constitutes a new program should assist hospitals in planning and
developing new programs that will be eligible for additional cap slots
at the end of the 5-year cap building period. We are hopeful that
hospitals can avoid unfortunate determinations that their programs do
not comply with CMS's definition of a new program, and that reopenings
and recoupments of overpayments from earlier cost reports within the 5-
year cap building period would be minimal or avoided altogether.
In addition, we do not agree with the commenter that the
determination of whether a program is new can be done after the
hospital's first cost reporting period in training the new residents
and should generally not need to be reviewed again during the second
through fifth years of the program, unless there is evidence that a
program was transferred. Unless the MAC reviews the history of each
resident accepted into the program in years 2 through 5, the MAC may
not learn about residents that enter the program via a
[[Page 49859]]
program transfer. That is, if only year 1 of the new program is
reviewed, there would be no additional guardrails preventing the
hospital from accepting a significant number of residents with previous
training in the same specialty in program years 2 through 5.
Therefore, we believe it is most appropriate for the MAC to wait
until after the end of the five-year cap building period to 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. The MAC would not be required to
provide an initial assessment of ``newness'' prior to the end of the
five-year cap building period. A determination of newness and attending
IME and DGME cap increases cannot be provided to a hospital that does
not provide sufficient, auditable documentation (e.g., curricula vitae
or other detailed documentation showing full training history)
regarding each resident's training history it wishes to include in its
FTE cap calculation.
Comment: A comment expressed significant concern over our proposal
that for purposes of determining compliance with the 90 percent
requirement, we would exclude from the count of trainees any
individuals with previous experience training in another program in the
same specialty who enter the new program through the NRMP (the Match)
or another binding third-party resident matching program. The commenter
stated that with most residency positions being filled through the
NRMP, it seems this aspect of the proposal renders the 90 percent
threshold meaningless.
Response: We appreciate the concern raised by the commenter, as we
would agree that an exception that excludes all residents that enter
through the NRMP would render the 90 percent threshold meaningless.
However, we did not propose that all residents that enter through the
NRMP would be excluded from the determination of the 90 percent
threshold. Rather, we proposed that, for purposes of determining
compliance with the 90 percent requirement, we would 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 NRMP or another binding third-party
resident matching program (91 FR 19508).
The key is that to be excluded from the 90 percent threshold
calculation, the trainee with previous experience in that same
specialty would have to enter the new program as a first-year resident,
thereby starting his/her training over again from the beginning of the
PGY-1 year. We understand that, generally, if an individual already has
previous training in a specialty, he/she would try to avoid repeating
training in the same specialty for a variety of reasons (such as not
wanting to unnecessarily extend training time, facing a reduced DGME
weighting factor due to expiration of the Initial Residency Period
toward the end of his/her training, etc.). Accordingly, we believe that
the proposed exception to the 90 percent threshold for individuals with
previous experience in the same specialty that enter the new program as
first year residents via the NRMP or similar binding matching program
will be invoked relatively infrequently.
Comment: Several commenters opposed the proposed exclusion of
displaced residents accepted into new small or rural programs from cap-
building, asserting that not infrequently, rural hospitals, unlike
urban counterparts, rely on displaced residents to fill positions that
were not filled through the NRMP or SOAP. Another commenter objected to
excluding displaced residents from cap-building, arguing it could
disincentivize new programs from accepting them. The commenter also
expressed concern about CMS's specification of the clause ``in the same
specialty,'' noting that if the displaced resident would be
transferring from a different specialty, concerns about duplicating cap
would still be present. This commenter suggested CMS instead require
the displaced resident's original hospital to relinquish the associated
FTE from its permanent cap.
Response: In the FY 2027 IPPS/LTCH proposed rule (91 FR 19508), we
proposed to exclude 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) both from the
numerator and from the denominator of the calculation used to determine
the proportion of new vs. experienced residents). We made this proposal
in order to prevent the inappropriate duplication of cap slots
associated with a closed program or closed hospital, and stated that
such displaced individuals would not count toward the new program's cap
calculation, but instead must 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 also noted 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 applies
for a permanent cap adjustment under the provisions of section 5506 of
the Affordable Care Act.
We continue to believe that individuals that meet the definition of
``displaced resident'' (under 42 CFR 413.79(h)(1)(iii)) should not
count toward the new program cap calculation as a necessary guardrail
to prevent the inappropriate duplication of cap slots associated with a
closed program or closed hospital. To the extent that this guardrail
may serve as a disincentive for some new programs to accept displaced
residents, we note that hospitals closing or closing their programs may
opt to lend FTE cap slots to receiving hospitals under 42 CFR
413.79(h).
Regarding the comment questioning why CMS specified ``in the same
specialty,'' the commenter is correct in pointing out that if the
displaced resident would be transferring from a different specialty,
concerns about duplicating cap would still be present, and it would be
irrelevant if the displaced resident is coming from the same specialty
as the new program or coming from a different specialty. Therefore, in
this final rule, we are removing the words ``in the same specialty,''
and instead stating that we would exclude any residents admitted into
the new program from another program who meet the definition of a
``displaced resident'' (under 42 CFR 413.79(h)(1)(iii)) both from the
numerator and from the denominator of the calculation used to determine
the proportion of new vs. experienced residents. However, we cannot, as
a commenter suggests, require the displaced resident's original
hospital to relinquish the associated FTE from its permanent cap. In
the instance of hospital closure (i.e., the hospital terminates its
Medicare provider agreement), CMS has the authority to permanently
remove a hospital's IME and DGME FTE caps, per section 5506
[[Page 49860]]
of the ACA as implemented at 42 CFR 413.79(o); section 5506 does not
apply in the instance of program closure where the provider agreement
remains active.\162\
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\162\ In the instance where the originating teaching hospital
closes, and a hospital that is within its 5 year cap building period
takes in a resident or some residents displaced by a teaching
hospital's closure, the host hospital might be able to receive FTE
cap slots permanently associated with the displaced residents, if it
meets certain criteria and applies under the section 5506 of the ACA
application process initiated by CMS subsequent to the closure of
the originating teaching hospital. In the November 24, 2010 OPPS
final rule (75 FR 72229), we stated that if a nonteaching hospital
assumes an entire program(s) from the closed teaching hospital, this
hospital would not have the opportunity to receive a further cap
increase as a new teaching hospital under 42 CFR 413.79(e).
Nonteaching hospitals that take in a portion of a program(s) from
the closed teaching hospital (i.e., just one or a few displaced
residents) could still qualify to start new programs and receive a
cap increase under 42 CFR 413.79(e). Thus, even though we are
finalizing our proposal to exclude from the FTE cap calculation any
displaced residents the host hospital trains under 42 CFR 413.79(h),
the host hospital that is also within its 5 year cap building period
might be able to receive FTE cap slots permanently under section
5506 of the ACA for training those displaced FTEs in the instance
where it is not assuming an entire program(s) from the closed
teaching hospital.
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(5) Exception for Small Programs
In addition, we proposed to create an exception to the 90 percent
requirement for small residency programs. We proposed 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 are at the greatest risk of
failing to meet the 90 percent threshold for reasons beyond their
control. Accordingly, we proposed to exempt small residency programs
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 did not propose any minimum proportion of new residents
that a small program must achieve 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 did not propose 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 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. We wish to avoid scenarios in which CMS or the MACs would need
to review individual hospitals' circumstances on a case-by-case basis
and introduce greater uncertainty into the process for hospitals.
Additionally, we note that we did not propose any distinct policies
with respect to the commingling of residents. Rather, we proposed that
program newness should be determined consistently based upon initial
accreditation and the 90 percent new resident threshold. That is, we
proposed 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 previously noted exceptions), 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, we proposed one hospital operating two or more programs
in the same specialty would be permissible for cap-building purposes,
if the second or subsequent program 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 previously noted exceptions). 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
``Changes to the Hospital Inpatient Prospective Payment Systems for
Acute Care Hospitals'' final rule at 74 FR 43913).
Comment: A commenter requested that the CMS Administrator ``simply
abandon this proposal in its entirety,'' as the proposal is
insufficient to blunt the significant increases in Medicare IME
spending that result from the ability of urban hospitals to reclassify
as rural under 42 CFR 412.103 for IME payment purposes, and in order to
receive additional IME cap slots for any new program started. This
commenter stated that the proposed definition of and exception for
small programs will allow for the inappropriate transfer of existing
programs or the duplication of FTE cap slots for ``small'' programs by
exempting them from meeting any ``newness'' requirement beyond the
receipt of an initial accreditation from the ACGME, particularly in the
case of fellowship programs at urban hospitals, which typically are not
more than 16 residents.
Another commenter warned that the small-program exception may allow
urban hospitals to be reclassified as rural to ``skirt'' cap
limitations but acknowledged that without clearer statutory guidance in
the statute, CMS faces challenges addressing this issue. The commenter
recommended that in determining the 16-resident limit for a small
program, CMS should distinguish between CMS-funded hospital slots from
accredited resident positions. The commenter recommended clarifying
that the 16-resident small-program exception should be based on the
size of the accredited residency program itself, not on the number of
residents reported by any individual participating hospital. The
commenter recommended that CMS add language saying: ``Cost reported and
CMS-funded slots are not the same as resident positions in an
accredited program. Therefore the 16-resident exception for small
programs is in reference to the program and its accreditation, not any
single participating hospital and the number of residents claimed in
its cost report.''
Response: We proposed 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. We also
proposed that programs accredited for 16 or fewer positions must still
obtain initial accreditation from the appropriate accrediting body. The
commenter is correct that if a program is accredited for 16 or fewer
positions, and receives initial accreditation, this program would not
need to meet the 90 percent threshold.
We share the commenters' concerns regarding urban hospitals'
possible use of rural reclassifications to obtain increased cap limits.
However, the proposal regarding the exception to the 90 percent
threshold for small programs does not exclude urban hospitals
reclassified as rural under 42 CFR 412.103 because, as a commenter
alludes, of the statutory requirement at section 1886(d)(8)(E)(i) of
the Act to treat Sec. 412.103 hospitals `as being located in the rural
area' of the state'' (88 FR 58976). Thus, urban hospitals that
reclassify as rural under 42 CFR 412.103 and start new programs are
[[Page 49861]]
included in the exemption for small (rural) programs.
We also agree that the 16-resident exemption is based on the
accredited size of the program, not based on FTEs, as we proposed that
a ``small'' program is one that is accredited for 16 or fewer
positions. We agree that the 16-resident exception for small programs
is in reference to the program and its accreditation, not any single
participating hospital and the number of FTE residents claimed in its
cost report.
Comment: A commenter requested that small programs still in their
cap building period as of October 1, 2026, be permitted to opt in to
application of the Small Program Exception back to May 2, 2024, the
date of publication of the FY 2025 IPPS proposed rule (89 FR 35934),
when CMS first acknowledged that small or rural residencies face unique
challenges in satisfying historically implemented criteria for
determining program newness. In the alternative, the commenter
requested that CMS interpret the ``start'' date of a program as the
date on which it begins training residents, rather than the date of
initial accreditation. Such an interpretation would allow new small
programs which were initially accredited prior to October 1, 2026, but
have not commenced training residents by that date, to fall within the
Small Program Exception.
Response: As noted in response to other comments, we are revising
the effective date in this final rule to state that for programs still
within their 5-year cap building period as of October 1, 2026, or for
programs started on or after October 1, 2026, at least 90 percent of
the individual residents that participate in the program during the 5-
year cap building period must not have previous experience training in
another program in the same specialty. The 90 percent requirement does
not apply to a program accredited for 16 or fewer resident positions.
This final effective date extends earlier than the commenter's
requested effective date of May 2, 2024, as there may be programs
accredited for 16 or less residents that are still within their 5-year
cap building period as of October 1, 2026, that started even prior to
May 2, 2024. In this final rule, while receipt of initial accreditation
for the program is still required, the date of that initial
accreditation is not relevant, as the effective date applies to when
residents start training in the new program. Thus, even if a program
received initial accreditation prior to October 1, 2026, but residents
first start training in the program on or after October 1, 2026, this
program would be subject to the effective date, definitions, and
exclusions we are adopting in this final rule.
Comment: A commenter requested that CMS define a small program as a
program that is accredited for five or fewer residents per program
year, where a 3-year residency program is approved for up to sixteen
residents, a four-year program is approved for up to twenty residents,
and a five-year program is approved for up to twenty-five residents;
each of which would all fall within the Small Program Exception. The
commenter believed this modification would not favor certain, shorter
programs and inadvertently incentivize formations of three-year
programs over programs that require more years of training.
Response: In the May 2, 2024 IPPS/LTCH PPS proposed rule (89 FR
36222), we stated that we are soliciting comments on whether a small
residency program should be defined as a program accredited for 16 or
fewer resident positions, because 16 positions would encompass the
minimum number of resident positions required for accredited programs
in certain specialties, such as primary care and general surgery, that
have historically experienced physician shortages, and therefore have
been prioritized by Congress and CMS for receipt of slots under
sections 5503 and 5506 of the Affordable Care Act. While primary care
programs are typically accredited for 3 years and general surgery is
accredited for 5 years, yet both can be accredited for 16 positions.
Therefore, we do not believe it is necessary to adopt the commenter's
suggestion where 3, 4, and 5-year programs would have their own ``small
program'' exception amount, as 16 seems to sufficiently apply to 3, 4,
and 5-year programs.
Comment: A commenter suggested the following revisions to the
regulatory text to more closely align with the proposed policy and
avoid ambiguities (added/edited text in italics):
Sec. 413.79(l) For purposes of this section, 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, in the case of a medical
residency training program that receives such initial accreditation or
begins training residents on or after October 1, 2026, that meets the
following additional conditions:
(1) Subject to the provisions of paragraphs (l)(2) and (l)(3) of
this section, effective for programs started on or after October 1,
2026, . . . .
Response: We agree that the commenter's edits add clarity to the
regulations text, and we accept them, with modification to the
effective date that we are finalizing in this rule, as follows:
413.79(l) For purposes of this section, 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 in the case of a medical residency training
program that receives initial accreditation by the appropriate
accrediting body and is still within its 5-year cap building period as
of October 1, 2026, or starts training residents on or after October 1,
2026, that meets the following conditions:
(1) Subject to the provisions of paragraphs (l)(2) and (l)(3) of
this section, at least 90 percent of the individual residents that
participate in the program during the 5-year cap building period . . .
In summary, we are finalizing our proposal 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. However, programs accredited for
16 or fewer positions must still receive initial accreditation from the
ACGME. We are adopting commenters' requests
[[Page 49862]]
regarding modifying the proposed effective date and in this final rule,
we are stating that these policies will be effective for programs still
within their 5-year cap building period as of October 1, 2026, or for
programs started on or after October 1, 2026.
To ensure that the regulations text appropriately reflects our
final policy, we are revising 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 in the case
of a medical residency training program that receives initial
accreditation by the appropriate accrediting body and is still within
its 5-year cap building period as of October 1, 2026, or starts
training residents on or after October 1, 2026, that meets the
following conditions:
Subject to the following provisions, 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 whether a program satisfies
the preceding requirement of this section, the count of individual
residents excludes an individual--
++ With previous experience training in another program in the same
specialty who enters the program as a first-year resident through the
National Resident Matching Program or another binding third-party
resident matching program; or
++ Who meets the definition of a ``displaced resident'' under
paragraph (h)(1)(iii).
The 90 percent 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 did not propose 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 FY 2007 IPPS final rule and interim final
rule with comment period (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 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 based upon 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 FY 2026
IPPS final rule (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-
[[Page 49863]]
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.\163\
---------------------------------------------------------------------------
\163\ 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 FY
2026 IPPS Final Rule (90 FR 36917). If any of the merged hospitals have
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) (MMA), 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
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 FY 2026 IPPS final rule (90
FR 36917).\164\ 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.
---------------------------------------------------------------------------
\164\ 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 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 non-primary 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 non-primary care PRAs, or
merged single PRA, as applicable, determined according to the procedure
finalized in the August 18, 2006 FY 2007 IPPS Final rule/Interim Final
Rule with Comment Period (71 FR 48075-76); 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 of the MMA, 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.\165\
---------------------------------------------------------------------------
\165\ 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 FY 2026 IPPS Final Rule (90 FR
36915).
The following table summarizes the data that will be used to
calculate Hospital A's pre- and post-merger
[[Page 49864]]
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:
[GRAPHIC] [TIFF OMITTED] TR04AU26.154
Since the hospitals are merged effective November 1, 2023,
Hospital B 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 fiscal year end (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 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.
---------------------------------------------------------------------------
\166\ From the providers' most recently settled cost reports, as
explained below under Notes.
---------------------------------------------------------------------------
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 non-primary 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 end on June 30, 2023, and June 30, 2022, respectively; Hospital
B's cost reporting periods end 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 this example, we
assume that neither hospital received additional residency slots under
section 422.
Consistent with the policy finalized in the August 18,
2006 FY 2007 IPPS Final Rule/Interim Final Rule with Comment Period (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 FY 2026 IPPS Final Rule
(90 FR 36915).
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 \167\:
---------------------------------------------------------------------------
\167\ 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 \168\ + 13.48 + 13.14)
/ 3 = 13.35 FTEs.
---------------------------------------------------------------------------
\168\ From FTE resident limit.
---------------------------------------------------------------------------
Per resident amount: Hospital A's updated single PRA for
its most recently
[[Page 49865]]
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 = $157,812. (The
calculation of the inflation factor itself is omitted for the sake of
brevity; contact a MAC for additional guidance.)
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: \169\
---------------------------------------------------------------------------
\169\ 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.
Per resident amount: The merged per resident amount for
the post-merger period is determined according to the procedure
finalized in the August 18, 2006 FY 2007 IPPS Final rule/Interim Final
Rule with Comment Period:
[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
(that is, from December 30, 2022) to the midpoint of the period 11/01/
23-06/30/24, (that is, 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,
[[Page 49866]]
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 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,\170\ while Hospital B's
individual FTE count (subject to the cap) during FYE 10/31/23 is 16.55
FTEs.\171\
---------------------------------------------------------------------------
\170\ 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.)
\171\ 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
FY 2026 IPPS Final Rule (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 end 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 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 FY 2026 IPPS Final Rule (90 FR 36915).
To facilitate the calculation of the IME payment amounts, the MAC
determines separate IRB 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 the 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.\172\
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\172\ 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 FY 2026 IPPS Final Rule (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
[[Page 49867]]
caps are applied to the partial year FTE resident counts according to
the usual procedure as described in the August 4, 2025 FY 2026 IPPS
Final Rule (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, 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 even if 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 FY 2026 IPPS Final Rule (90 FR 36917).
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.\173\ 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.
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\173\ 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.
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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 due to
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 FY 2026 IPPS Final Rule (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 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:
[[Page 49868]]
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.
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 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 together 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.\174\
---------------------------------------------------------------------------
\174\ 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 outlined
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 FY 2026 IPPS Final Rule.
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] TR04AU26.155
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 end on June 30, 2023, and June 30, 2022, respectively; Hospital
B's cost reporting periods end 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 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 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 FY 2026 IPPS Final Rule.
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.
[[Page 49869]]
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.)
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
shortened 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.\175\ Accordingly, the combined prior year numerator is equal to
40 + 20 = 60.00 FTEs.
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\175\ 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
[[Page 49870]]
FYE 06/30/2027 cost report, the rolling average would be calculated in
accordance with normal procedure.
Comment: Commenters supported and appreciated the transparency
regarding CMS's clarification of the payment methodology following
hospital mergers.
Response: We appreciate the commenters' support and are finalizing
our clarified policy.
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. These
changes instruct the Secretary to establish a process to increase the
FTE resident caps at other hospitals based upon the FTE resident caps
at teaching hospitals that closed on or after 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 to teaching hospitals that closed between March 23,
2008, and August 3, 2010, and to teaching hospitals that close after
August 3, 2010 (75 FR 72215).
b. Notice of Closure of Insight Hospital and Medical Center Trumbull
Located in Warren, OH, and the Application Process--Round 30
CMS learned of the closure of Insight Hospital and Medical Center
Trumbull, located in Warren, OH (CCN 360055). Accordingly, we are
providing notice of the closure of this teaching hospital and
initiating another round of the application and selection process to
redistribute the closed hospital's FTE resident caps. This round will
be the 30th round (``Round 30'') of the application and selection
process. Table V.F.01 contains the identifying information for the
closed teaching hospital and its IME and direct GME FTE resident caps,
which are part of the Round 30 application process under section 5506
of the Affordable Care Act.
[GRAPHIC] [TIFF OMITTED] TR04AU26.156
c. Notice of Closure of M Health Fairview St. Joseph's Hospital Located
in Saint Paul, MN, and the Application Process--Round 31
CMS learned of the closure of M Health Fairview St. Joseph's
Hospital, located in Saint Paul, MN (CCN 240063). Accordingly, we are
providing notice of the closure of this teaching hospital and
initiating another round of the application and selection process to
redistribute the closed hospital's FTE resident slots. This round will
be the 31st round (``Round 31'') of the application and selection
process. Table V.F.02 contains the identifying information for the
closed teaching hospital and its IME and direct GME FTE resident caps,
which are part of the Round 31 application process under section 5506
of the Affordable Care Act.
[GRAPHIC] [TIFF OMITTED] TR04AU26.157
[[Page 49871]]
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 Round 30 and 31 applications
using the electronic application intake system, Medicare Electronic
Application Request Information System