2025-14681: Medicare Program; Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals (IPPS) and the Long-Term Care Hospital Prospective Payment System and Policy Changes and Fiscal Year (FY) 2026 Rates; Changes to the FY 2025 IPPS Rates Due to Court Decision; Requirements for Quality Programs; and Other Policy Changes; Health Data, Technology, and Interoperability: Electronic Prescribing, Real-Time Prescription Benefit and Electronic Prior Authorization

1. Purpose and Legal Authority

This FY 2026 IPPS/LTCH PPS final rule will make payment and policy changes under the Medicare inpatient [[Page 36537]] prospective payment system (IPPS) for operating and capital-related costs of acute care hospitals as well as for certain hospitals and hospital units excluded from the IPPS. In addition, it makes payment and policy changes for inpatient hospital services provided by long- term care hospitals (LTCHs) under the long-term care hospital prospective payment system (LTCH PPS). This final rule also makes policy changes to programs associated with Medicare IPPS hospitals, IPPS-excluded hospitals, and LTCHs. We are also making changes relating to Medicare graduate medical education (GME) for teaching hospitals. In the Hospital Value-Based Purchasing (VBP) Program, we are finalizing modifications to the Hospital-Level Total Hip Arthroplasty/ Total Knee Arthroplasty (THA/TKA) Complications measure beginning with the FY 2033 program year. We also provide notice of the technical update to the five National Healthcare Safety Network (NHSN) Healthcare Associated Infection (HAI) measures beginning with the FY 2029 program year, and the technical update to the six measures in the Clinical Outcomes domain beginning with the FY 2027 program year. We are finalizing removal of the Health Equity Adjustment (HEA) from the program's scoring calculations in the FY 2026 program year. We provide previously and newly established performance standards for FY 2027 through FY 2031 program years for the Hospital VBP Program. In the Hospital-Acquired Condition (HAC) Reduction Program, we are also providing notice of the technical update to the five Centers for Disease Control and Prevention's (CDC) NHSN healthcare-associated infection (HAI) measures. In the Hospital Readmissions Reduction Program, we are finalizing our proposal to add Medicare Advantage (MA) beneficiaries to the six Hospital Readmissions Reduction Program (HRRP) measures beginning with the FY 2027 program year; however, we are not finalizing our proposal to include payment data for MA beneficiaries in the calculation of aggregate payments for excess readmissions. We also are finalizing our proposal to reduce the applicable period from 3-years to 2-years beginning with the FY 2027 program year. We also provide notice of the technical update to remove the COVID-19 exclusion from all six readmission measures. In the PPS-Exempt Cancer Hospital Quality Reporting Program (PCHQR), we are finalizing our proposals to modify the public reporting requirements and remove three existing measures. In the Hospital Inpatient Quality Reporting (IQR) Program, we are finalizing our proposals to modify four existing quality measures and to remove four existing measures. We also are finalizing our proposal, with modification, to update and codify the Extraordinary Circumstances Exception (ECE) policy to clarify that CMS has the discretion to grant an extension in response to an ECE request from a hospital in the Hospital IQR, Hospital Readmissions Reduction, PCHQR, HAC Reduction, and Hospital VBP Programs with a modification. In the Medicare Promoting Interoperability Program, we are finalizing our proposal to define the electronic health record (EHR) reporting period in CY 2026 and subsequent years as a minimum of any continuous 180-day period within that calendar year for eligible hospitals and CAHs participating in the Medicare Promoting Interoperability Program and to make corresponding revisions at 42 CFR 495.4. We are finalizing our proposal, with modifications, to revise the Security Risk Analysis measure beginning with the EHR reporting period in CY 2026. We are finalizing our proposal to modify the Safety Assurance Factors for EHR Resilience (SAFER) Guides measure beginning with the EHR reporting period in CY 2026. We are finalizing our proposal to add an optional bonus measure under the Public Health and Clinical Data Exchange objective for reporting data to a public health agency (PHA) using the Trusted Exchange Framework and Common Agreement (TEFCA) beginning with the EHR reporting period in CY 2026. For the LTCH Quality Reporting Program (QRP), we are finalizing our proposal to remove one item from the LTCH Continuity Assessment Record and Evaluation (CARE) Data Set (LCDS) with respect to patients who have expired in the LTCH. We also are finalizing our proposal to remove four Social Determinant of Health (SDOH) standardized patient assessment data elements from the LCDS. Next, we are finalizing our proposal to amend the reconsideration request process in the LTCH QRP. Finally, we include summaries of comments received in response to Requests for Information (RFIs) on: (1) future measure concepts for the LTCH QRP; (2) revisions to the data submission deadlines for assessment data collected for the LTCH QRP; and (3) advancing digital quality measurement (dQM) in the LTCH QRP. The Transforming Episode Accountability Model (TEAM), a mandatory alternative payment model that was finalized in the FY 2025 IPPS/LTCH PPS final rule (89 FR 68986), aims to improve beneficiary care through financial accountability for episodes categories that begin with one of the following procedures: coronary artery bypass graft (CABG), lower extremity joint replacement (LEJR), major bowel procedure, surgical hip/femur fracture treatment (SHFFT), and spinal fusion. TEAM will test whether financial accountability for these episode categories reduces Medicare expenditures while preserving or enhancing the quality of care for Medicare beneficiaries. In this final rule, we finalizing updates to TEAM that would modify policies affecting participation of new hospitals, quality measure and assessment, the construction of target prices, the removal of certain health reporting elements, the broadening of the Skilled Nursing Facility (SNF) 3-Day Rule, and the removal of the Decarbonization and Resilience Initiative (DRI). Additionally, the policies in this final rule reflect our commitment to ensuring TEAM's incentives help to drive beneficiary quality of care improvements and reductions in Medicare spending. The Secretary of Health and Human Services has delegated responsibilities to the Assistant Secretary for Technology Policy (ASTP)/Office of the National Coordinator for Health Information Technology (ONC) (collectively, ASTP/ONC \1\) for the implementation of certain provisions in Title IV of the 21st Century Cures Act (Public Law (Pub. L.)) 114-255, December 13, 2016) (Cures Act) that are designed to: advance interoperability; support the access, exchange, and use of electronic health information (EHI); and identify reasonable and necessary activities that do not constitute information blocking.\2\ ASTP/ONC is also responsible for implementation of certain provisions of the Health Information Technology for Economic and Clinical Health Act (Pub. L. 111-5, Feb. 17. 2009) (HITECH Act) including: requirements that the National Coordinator perform duties consistent with the development of a nationwide [[Page 36538]] health information technology infrastructure that allows for the electronic use and exchange of information and that promotes a more effective marketplace, greater competition, and increased consumer choice, among other goals; and requirements to keep or recognize a program or programs for the voluntary certification of health information technology. --------------------------------------------------------------------------- \1\ On July 29, 2024, notice was posted in the Federal Register that ONC would be dually titled to the Assistant Secretary for Technology Policy and Office of the National Coordinator for Health Information Technology (89 FR 60903). \2\ Reasonable and necessary activities that do not constitute information blocking, also known as information blocking exceptions, are identified in 45 CFR part 171 subparts B, C and D. ONC's official website, HealthIT.gov, offers a variety of resources on the topic of Information Blocking, including fact sheets, recorded webinars, and frequently asked questions. To learn more, please visit: https://www.healthit.gov/topic/information-blocking/. --------------------------------------------------------------------------- Under various statutory authorities, we either discuss continued program implementation or make changes to the Medicare IPPS, the LTCH PPS, other related payment methodologies and programs for FY 2026 and subsequent fiscal years, and other policies and provisions included in this final rule. These statutory authorities include, but are not limited to, the following: Section 1886(d) of the Social Security Act (the Act), which sets forth a system of payment for the operating costs of acute care hospital inpatient stays under Medicare Part A (Hospital Insurance) based on prospectively set rates. Section 1886(g) of the Act requires that, instead of paying for capital-related costs of inpatient hospital services on a reasonable cost basis, the Secretary use a prospective payment system (PPS). Section 1886(d)(1)(B) of the Act, which specifies that certain hospitals and hospital units are excluded from the IPPS. These hospitals and units are: rehabilitation hospitals and units; LTCHs; psychiatric hospitals and units; children's hospitals; cancer hospitals; extended neoplastic disease care hospitals; and hospitals located outside the 50 States, the District of Columbia, and Puerto Rico (that is, hospitals located in the U.S. Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa). Religious nonmedical health care institutions (RNHCIs) are also excluded from the IPPS. Sections 123(a) and (c) of the Balanced Budget Refinement Act of 1999 (BBRA) (Public Law (Pub. L.) 106-113) and section 307(b)(1) of the Benefits Improvement and Protection Act of 2000 (BIPA) (Pub. L. 106-554) (as codified under section 1886(m)(1) of the Act), which provide for the development and implementation of a prospective payment system for payment for inpatient hospital services of LTCHs described in section 1886(d)(1)(B)(iv) of the Act. Section 1814(l)(4) of the Act requires, beginning with FY 2017, that CAHs that do not successfully demonstrate meaningful use of certified electronic health record technology (CEHRT) for an EHR reporting period for a cost reporting period shall be paid 100 percent of reasonable costs rather than 101 percent of reasonable costs. Section 1886(a)(4) of the Act, which specifies that costs of approved educational activities are excluded from the operating costs of inpatient hospital services. Hospitals with approved graduate medical education (GME) programs are paid for the direct costs of GME in accordance with section 1886(h) of the Act. Hospitals paid under the IPPS with approved GME programs are paid for the indirect costs of training residents in accordance with section 1886(d)(5)(B) of the Act. Section 1886(d)(5)(F) of the Act provides for additional Medicare IPPS payments to subsection (d) hospitals that serve a significantly disproportionate number of low-income patients. These payments are known as the Medicare disproportionate share hospital (DSH) adjustment. Section 1886(d)(5)(F) of the Act specifies the methods under which a hospital may qualify for the DSH payment adjustment. Section 1886(b)(3)(B)(viii) of the Act, which requires the Secretary to reduce the applicable percentage increase that would otherwise apply to the standardized amount applicable to a subsection (d) hospital for discharges occurring in a fiscal year if the hospital does not submit data on measures in a form and manner, and at a time, specified by the Secretary. Section 1886(b)(3)(B)(ix) of the Act, which requires downward adjustments to the applicable percentage increase, beginning with FY 2015 (and beginning with FY 2022 for subsection (d) Puerto Rico hospitals), for eligible hospitals that do not successfully demonstrate meaningful use of CEHRT for an EHR reporting period for a payment adjustment year. Section 1866(k) of the Act, which provides for the establishment of a quality reporting program for hospitals described in section 1886(d)(1)(B)(v) of the Act, referred to as ``PPS-exempt cancer hospitals.'' Section 1886(n) of the Act, which establishes the requirements for an eligible hospital to be treated as a meaningful EHR user for an EHR reporting period for a payment year or, for purposes of subsection (b)(3)(B)(ix) of the Act, for a fiscal year. Section 1886(o) of the Act, which requires the Secretary to establish a Hospital Value-Based Purchasing (VBP) Program, under which value-based incentive payments are made in a fiscal year to hospitals based on their performance on measures established for a performance period for such fiscal year. Section 1886(p) of the Act, which establishes a Hospital- Acquired Condition (HAC) Reduction Program, under which payments to applicable hospitals are adjusted to provide an incentive to reduce hospital-acquired conditions. Section 1886(q) of the Act, as amended by section 15002 of the 21st Century Cures Act, which establishes the Hospital Readmissions Reduction Program. Under the program, payments for discharges from an applicable hospital as defined under section 1886(d) of the Act will be reduced to account for certain excess readmissions. Section 15002 of the 21st Century Cures Act directs the Secretary to assess a hospital's performance relative to other hospitals with a similar proportion of beneficiaries who are dually eligible for both Medicare and full Medicaid benefits. Section 1886(r) of the Act, as added by section 3133 of the Affordable Care Act, which provides for a reduction to disproportionate share hospital (DSH) payments under section 1886(d)(5)(F) of the Act and for an additional uncompensated care payment to eligible hospitals. Specifically, section 1886(r) of the Act requires that, for fiscal year 2014 and each subsequent fiscal year, subsection (d) hospitals that would otherwise receive a DSH payment made under section 1886(d)(5)(F) of the Act will receive two separate payments: (1) 25 percent of the amount they previously would have received under the statutory formula for Medicare DSH payments in section 1886(d)(5)(F) of the Act if subsection (r) did not apply (``the empirically justified amount''), and (2) an additional payment for the DSH hospital's proportion of uncompensated care, determined as the product of three factors. These three factors are: (1) 75 percent of the payments that would otherwise be made under section 1886(d)(5)(F) of the Act, in the absence of section 1886(r) of the Act; (2) 1 minus the percent change in the percent of individuals who are uninsured; and (3) the hospital's uncompensated care amount relative to the uncompensated care amount of all DSH hospitals expressed as a percentage. Section 1886(m)(5) of the Act, which requires the Secretary to reduce by 2 percentage points the annual update to the standard Federal rate for discharges for a long-term care hospital (LTCH) during the rate year for LTCHs that do not submit data on quality measures in the form, manner, and at a time, specified by the Secretary. Section 1886(m)(6) of the Act, as added by section 1206(a)(1) of the Pathway for Sustainable Growth Rate [[Page 36539]] (SGR) Reform Act of 2013 (Pub. L. 113-67) and amended by section 51005(a) of the Bipartisan Budget Act of 2018 (Pub. L. 115-123), which provided for the establishment of site neutral payment rate criteria under the LTCH PPS, with implementation beginning in FY 2016. Section 51005(b) of the Bipartisan Budget Act of 2018 amended section 1886(m)(6)(B) by adding new clause (iv), which specifies that the IPPS comparable amount defined in clause (ii)(I) shall be reduced by 4.6 percent for FYs 2018 through 2026. Section 1899B of the Act, which provides for the establishment of standardized data reporting for certain post-acute care providers, including LTCHs. Section 1115A of the Act authorizes the testing of innovative payment and service delivery models that preserve or enhance the quality of care furnished to Medicare, Medicaid, and Children's Health Insurance Program (CHIP) beneficiaries while reducing program expenditures.

2. Summary of the Major Provisions

The following is a summary of the major provisions in this final rule. In general, these major provisions are being finalized as part of the annual update to the payment policies and payment rates, consistent with the applicable statutory provisions. A general summary of the changes in this final rule is presented in section I.D. of the preamble of this final rule. a. Transition for the Discontinuation of the Low Wage Index Hospital Policy To help mitigate growing wage index disparities between high wage and low wage hospitals, in the FY 2020 IPPS/LTCH PPS rule (84 FR 42326 through 42332), we adopted a policy to increase the wage index values for certain hospitals with low wage index values (the low wage index hospital policy). This policy was adopted in a budget neutral manner through an adjustment applied to the standardized amounts for all hospitals. We indicated our intention that this policy would be effective for at least 4 years, beginning in FY 2020, in order to allow employee compensation increases implemented by these hospitals sufficient time to be reflected in the wage index calculation. We also stated we intended to revisit the issue of the duration of this policy in future rulemaking as we gained experience under the policy. In the FY 2025 IPPS/LTCH PPS final rule (89 FR 69301 through 69308), we adopted an extension of the low wage index hospital policy and the related budget neutrality adjustment effective for at least three more years, beginning in FY 2025, in order for sufficient wage data from after the end of the COVID-19 Public Health Emergency to become available. As discussed in section III.F.5. of the preamble of this final rule, on July 23, 2024, the Court of Appeals for the D.C. Circuit held that the Secretary lacked authority under section 1886(d)(3)(E) of the Act or under the ``adjustments'' language of section 1886(d)(5)(I)(i) of the Act to adopt the low wage index hospital policy for FY 2020, and that the policy and related budget neutrality adjustment must be vacated. Bridgeport Hosp. v. Becerra, 108 F.4th 882, 887-91 & n.6 (D.C. Cir. 2024). After considering the D.C. Circuit's decision in Bridgeport Hosp. v. Becerra, in the FY 2025 IFC (89 FR 80405 through 80421), we recalculated the FY 2025 IPPS hospital wage index to remove the low wage index hospital policy for FY 2025. We also removed the low wage index budget neutrality factor from the FY 2025 standardized amounts. In addition, we established an interim transition policy for hospitals significantly impacted by the removal of the FY 2025 low wage index hospital policy using our authority under section 1886(d)(5)(I) of the Act. We note, as discussed elsewhere, in this final rule we are finalizing the provisions of the interim final action with comment period (IFC) (89 FR 80405) (hereinafter referred to as the FY 2025 IFC), that implemented revised Medicare wage index values for FY 2025, established a transitional payment exception for low wage hospitals significantly impacted by those revisions, and made conforming changes to the hospital IPPS and LTCH PPS payment rates for FY 2025 to reflect the removal of the low wage index hospital policy following the appellate court decision in Bridgeport Hosp. v. Becerra. For FY 2026 and subsequent fiscal years, after considering the D.C. Circuit's decision in Bridgeport Hosp. v. Becerra, we are discontinuing the low wage index hospital policy and will no longer apply a low wage index budget neutrality factor to the standardized amounts. As discussed in section III.F.7. of the preamble of this final rule, we are using our authority under section 1886(d)(5)(I)(i) of the Act to adopt a narrow transitional exception to the calculation of FY 2026 IPPS payments for low wage index hospitals significantly impacted by the discontinuation of the low wage index hospital policy, that will be implemented in a budget neutral manner. This transitional exception policy will apply to hospitals that benefitted from the FY 2024 low wage index hospital policy and compares the hospital's FY 2026 wage index to the hospital's FY 2024 wage index. If the hospital's FY 2026 wage index is decreasing by more than 9.75 percent from the hospital's FY 2024 wage index, then the transitional payment exception for FY 2026 for that hospital is equal to the additional FY 2026 amount the hospital would be paid under the IPPS if its FY 2026 wage index were equal to 90.25 percent of its FY 2024 wage index. We are making this policy budget neutral through an adjustment applied to the standardized amounts for all hospitals. b. Update to the IPPS Labor-Related Share As discussed in section IV. of the preamble of this final rule, we are finalizing our proposal to rebase and revise the 2018-based IPPS market basket to reflect a 2023 base year. In addition, using the cost category weights from the 2023-based IPPS market basket, we calculated a labor-related share of 66.0 percent, which we will use for discharges occurring on or after October 1, 2025. The labor-related share of 66.0 percent is 1.6 percentage points lower than the current labor-related share of 67.6 percent. As discussed in section IV.B.3. of the preamble of this final rule, this downward revision to the labor-related share is primarily the result of incorporating the more recent 2023 Medicare cost report data for Wages and Salaries, Employee Benefits, and Contract Labor costs. This is partially offset by an increase in the Professional Fees: Labor-Related cost weight. c. Hospital Readmissions Reduction Program The Hospital Readmissions Reduction Program was established under section 1886(q) of the Act, as amended by section 15002 of the Cures Act. The Hospital Readmissions Reduction Program requires a reduction to a hospital's base operating DRG payment to account for excess readmissions of selected applicable conditions or procedures. In this final rule, we are finalizing the following proposals, beginning with the FY 2027 program year: (1) Refine all six readmission measures to add Medicare Advantage patient cohort data; (2) reduce the applicable period from 3-years to 2-years and update codified regulation language; and (4) update and codify the ECE policy to clarify that CMS has the discretion to grant an extension in response to an ECE request from a hospital with a modification. We also [[Page 36540]] provide notice of the technical update to remove the COVID-19 exclusion from all six readmission measures. We are not finalizing the proposal to include payment data for MA beneficiaries in the calculation of aggregate payments for excess readmissions.. d. Hospital Acquired Condition (HAC) Reduction Program Section 1886(p) of the Act establishes the HAC Reduction Program under which payments to applicable hospitals are adjusted to provide an incentive to reduce hospital-acquired conditions. In this final rule, we are making a technical update to the NHSN Healthcare Associated Infection (HAI) measures baseline. We are also finalizing our proposal to update and codify the ECE policy to clarify that CMS has the discretion to grant an extension in response to an ECE request from a hospital with a modification. e. Hospital Value-Based Purchasing (VBP) Program Section 1886(o) of the Act requires the Secretary to establish a Hospital VBP Program under which value-based incentive payments are made in a fiscal year to hospitals based on their performance on measures established for a performance period for such fiscal year. In this final rule, we are finalizing modifications to the THA/TKA Complications measure beginning with the FY 2033 program year. We also provide notice of the technical update to remove the COVID-19 exclusion from the six measures in the Clinical Outcomes domain beginning with the FY 2027 program year and the technical update to the five NHSN Healthcare Associated Infection (HAI) measures beginning with the FY 2029 program year. We also are finalizing our proposal to update and codify the ECE policy to clarify that CMS has the discretion to grant an extension in response to an ECE request from a hospital with a modification. We are also finalizing our proposal to remove the Program's HEA adjustment in the FY 2026 program year. Lastly, we provide previously and newly established performance standards for FY 2027 through FY 2031 program years for the Hospital VBP Program. f. Hospital Inpatient Quality Reporting (IQR) Program Under section 1886(b)(3)(B)(viii) of the Act, subsection (d) hospitals are required to report data on measures selected by the Secretary for a fiscal year in order to receive the full annual percentage increase. In this FY 2026 IPPS/LTCH PPS final rule, we are finalizing several changes to the Hospital IQR Program. We are finalizing modifications to four measures currently in the Hospital IQR Program measure set: (1) Hospital-Level, Risk-Standardized Complication Rate (RSCR) Following Elective Primary Total Hip Arthroplasty (THA) and/or Total Knee Arthroplasty (TKA) beginning with the April 1, 2023- March 30, 2025 reporting period/2027 payment determination; (2) Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate (RSMR) Following Acute Ischemic Stroke Hospitalization with Claims-Based Risk Adjustment for Stroke Severity beginning with the July 1, 2023-June 30, 2025 reporting period/2027 payment determination; (3) the Hybrid Hospital-Wide Readmission (HWR) measure beginning with the July 1, 2025, through June 30, 2026 Reporting Period/FY 2028 payment determination; and (4) the Hybrid Hospital-Wide All-Cause Risk Standardized Mortality (HWM) measure beginning with the July 1, 2025, through June 30, 2026 reporting period/FY 2028 payment determination. We are also finalizing the removal of four measures: (1) the Hospital Commitment to Health Equity measure beginning with the CY 2024 reporting period/FY 2026 payment determination; (2) the COVID-19 Vaccination Coverage among HCP measure beginning with the CY 2024 reporting period/FY 2026 payment determination; (3) the Screening for Social Drivers of Health measure beginning with the CY 2024 reporting period/FY 2026 payment determination; and (4) the Screen Positive Rate for Social Drivers of Health measure beginning with the CY 2024 reporting period/FY 2026 payment determination. We are finalizing our proposal to update and codify the ECE policy to clarify that CMS has the discretion to grant an extension in response to an ECE request from a hospital with a modification. Additionally, we sought comments regarding measure concepts related to well-being and nutrition for future consideration. We also sought comments on the path forward for digital quality measurement and use of Fast Healthcare Interoperability Resources (FHIR). g. PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) Program Section 1866(k)(1) of the Act requires, for purposes of FY 2014 and each subsequent fiscal year, that a hospital described in section 1886(d)(1)(B)(v) of the Act (a PPS-exempt cancer hospital, or a PCH) submit data in accordance with section 1866(k)(2) of the Act with respect to such fiscal year. In this final rule, we are finalizing our proposal to publicly report PCH data on both the Provider Data Catalog and on Care Compare and to make corresponding changes to regulatory text to replace references to ``Provider Data Catalog'' with ``CMS website''. We are also finalizing our proposals to remove the (1) Hospital Commitment to Health Equity, (2) the Screening for Social Drivers of Health measure; and (3) the Screen Positive Rate for Social Drivers of Health measure beginning with the CY 2024 reporting period/ FY 2026 program year. Lastly, we are finalizing our proposal to update and codify the ECE policy to clarify that CMS has the discretion to grant an extension in response to an ECE request from a hospital with a modification. h. Long-Term Care Hospital Quality Reporting Program (LTCH QRP) For the LTCH QRP, we are finalizing our proposal to remove one item from the LCDS with respect to patients who have expired in the LTCH. We also are finalizing our proposal to removal of four SDOH standardized patient assessment data elements from the LCDS. We are finalizing our proposal to amend the reconsideration request process in the LTCH QRP. Finally, we include a summary of comments received in response to Requests for Information (RFIs) on: (1) future measure concepts for the LTCH QRP; (2) revisions to the data submission deadlines for assessment data collected for the LTCH QRP; and (3) advancing digital quality measurement (dQM) in the LTCH QRP. i. Medicare Promoting Interoperability Program Under sections 1886(b)(3)(B)(ix) and 1814(l)(4) of the Act, respectively, eligible hospitals and CAHs are required to submit data in accordance with section 1886(n) to successfully demonstrate meaningful use of CEHRT for an EHR reporting period to avoid a downward payment adjustment under Medicare for the associated fiscal year. In this final rule, we are finalizing several changes to the Medicare Promoting Interoperability Program. Specifically, we are finalizing our proposals: (1) to amend the definition of ``EHR reporting period for a payment adjustment year'' at 42 CFR 495.4 for eligible hospitals and CAHs participating in the Medicare Promoting Interoperability Program to define the EHR reporting period in CY 2026 and subsequent years as a minimum of any continuous 180-day period within that calendar year; (2) to modify the Security Risk Analysis measure to require eligible hospitals and CAHs to attest [[Page 36541]] ``yes'' to having conducted security risk management in addition to the existing measure requirement to attest ``yes'' to having conducted security risk analysis, beginning with the EHR reporting period in CY 2026; (3) to modify the SAFER Guides measure by requiring eligible hospitals and CAHs to attest ``yes'' to completing an annual self- assessment using the eight SAFER Guides published in January 2025, beginning with the EHR reporting period in CY 2026; and (4) to add an optional bonus measure to the Public Health and Clinical Data Exchange objective for eligible hospitals and CAHs that submit health information to a public health agency (PHA) using the Trusted Exchange Framework and Common Agreement \TM\ (TEFCA), and consistent with other measure requirements, beginning with the EHR reporting period in CY 2026. j. Transforming Episode Accountability Model (TEAM) In section XI.A. of the preamble of this final rule, we discuss the changes we finalized and considered for the Transforming Episode Accountability Model (TEAM). TEAM is a 5-year mandatory model that will be tested under the authority of section 1115A of the Act, beginning on January 1, 2026, and ending on December 31, 2030. We finalized changes to multiple areas of the model, including: (1) a limited deferment period for certain hospitals; (2) addressing the expiration of the Medicare Dependent Hospital program; (3) excluding Indian Health Service (IHS) hospitals from TEAM participation; (4) adding the Information Transfer Patient Reported Outcome-based Performance Measure (Information Transfer PRO-PM); (5) applying a neutral quality measure score for TEAM participants with insufficient quality data; (6) a methodology to construct target prices when there are coding changes; (7) reconstructing the normalization factor and prospective trend factor; (8) replacing the Area Deprivation Index (ADI) with the Community Deprivation Index (CDI); (9) using a 180-day lookback period and Hierarchical Condition Categories (HCC) version 28 for beneficiary risk adjustment; (10) eliminating downside financial risk for low volume hospitals; (11) aligning the date range used for episode attribution; (12) removing health equity plans and health related social needs data reporting; (13) broadening the Skilled Nursing Facility (SNF) 3-day rule waiver; (14) modifying the referral to primary care services requirement; and (15) removing the Decarbonization and Resilience Initiative (DRI). k. ONC Health IT Certification Program Updates In the Health Data, Technology, and Interoperability: Patient Engagement, Information Sharing, and Public Health Interoperability proposed rule (HTI-2 Proposed Rule) (89 FR 63498), which appeared in the Federal Register on August 5, 2024, ASTP/ONC proposed a wide- ranging set of updates to the ONC Health IT Certification Program. In the Health Data, Technology, and Interoperability: Electronic Prescribing, Real-Time Prescription Benefit and Electronic Prior Authorization (HTI-4 final rule), which is being published as part of the FY 2026 IPPS/LTCH final rule, ASTP/ONC is finalizing a limited subset of the proposals in the HTI-2 proposed rule. In this section, ASTP/ONC describes the HTI-2 proposals it is finalizing in this rule. (1) New and Revised Standards and Certification Criteria (a) Minimum Standards Code Sets Updates In section III.B.5 of the preamble of the HTI-2 Proposed Rule, ASTP/ONC proposed to adopt an updated baseline version of RxNorm, identified as a minimum standard code set, in 45 CFR 170.207(d) (Medications), and to reorganize the text of the regulation in 45 CFR 170.207(d). RxNorm is referenced in the ``electronic prescribing'' and ``real-time prescription benefit'' health IT certification criteria ASTP/ONC is also finalizing in this final rule. ASTP/ONC is finalizing these proposals in section XI.B.4.b.(2) of the preamble of this final rule, with modifications. Consistent with 45 CFR 170.555, health IT developers may use newer versions of the adopted baseline version of a standard identified as a minimum standard on a voluntary basis. (b) Revised Electronic Prescribing Certification Criterion As discussed in section XI.B.4.b.(3) of the preamble of this final rule, ASTP/ONC is finalizing proposed updates in the HTI-2 Proposed Rule to the ``electronic prescribing'' criterion in 45 CFR 170.315(b)(3), with modifications. ASTP/ONC is finalizing that, for technology certified to the criterion in 45 CFR 170.315(b)(3) subsequent to June 30, 2020, health IT developers must update the Health IT Module to use the National Council for Prescription Drug Programs (NCPDP) SCRIPT standard version 2023011 and provide that update to their customers in order to maintain certification of the Health IT Module, by January 1, 2028. For the time period up to and including December 31, 2027, ASTP/ONC is finalizing that developers certifying a Health IT Module to 45 CFR 170.315(b)(3) may use either the updated NCPDP SCRIPT standard version 2023011 or the NCPDP SCRIPT standard version 2017071. ASTP/ONC is also finalizing that any Health IT Modules for which a health IT developer seeks certification to the updated criterion using NCPDP SCRIPT standard version 2023011 would need to support electronic prior authorization transactions in accordance with the standard. Finally, ASTP/ONC is finalizing a series of additional updates to 45 CFR[thinsp]170.315(b)(3)(ii), including removing transactions currently identified as optional for the certification criterion. (c) New Real-Time Prescription Benefit Criterion As discussed in section XI.B.4.b.(4) of the preamble of this final rule, ASTP/ONC is finalizing the proposal in the HTI-2 Proposed Rule to adopt a ``real-time prescription benefit'' certification criterion in 45 CFR[thinsp]170.315(b)(4), with modifications. Real-time prescription benefit tools empower providers and their patients to compare the patient-specific cost of a drug to the cost of a suitable alternative, compare prescription costs at different pharmacies, view information about out-of-pocket costs, and learn whether prior authorization for a specific drug is required. The certification criterion ASTP/ONC is finalizing is based on the NCPDP Real-Time Prescription Benefit (RTPB) standard version 13. ASTP/ONC is also finalizing a proposal to include this certification criterion in the Base EHR definition in 45 CFR[thinsp]170.102 after January 1, 2028. ASTP/ONC is finalizing these policies in order to implement section 119(b)(3) of Title I of the Consolidated Appropriations Act, 2021 (Pub. L. 116-260). (d) New Certification Criteria for Modular API Capabilities As discussed in section XI.B.4.b.(5) of the preamble of this final rule, ASTP/ONC is finalizing two health IT certification criteria for ``modular API capabilities'' proposed in the HTI-2 Proposed Rule. Specifically, ASTP/ONC is finalizing certification criteria in 45 CFR 170.315(j)(20), ``Workflow triggers for decision support interventions,'' and 45 CFR 170.315(j)(21), ``Subscriptions--client,'' both of which are cross-referenced by other certification criteria ASTP/ONC is finalizing to support electronic prior authorization. [[Page 36542]] (e) New Certification Criteria for Electronic Prior Authorization In section III.B.20 of the preamble of the HTI-2 Proposed Rule, ASTP/ONC proposed to adopt a ``prior authorization API--provider'' criterion in 45 CFR 170.315(g)(34). ASTP/ONC also proposed to adopt a set of HL7[supreg] FHIR[supreg] implementation guides (IGs) in 45 CFR 170.215 for HHS use, including IGs referenced as part of the proposed criterion for electronic prior authorization and other IGs that support interoperable exchange of information between payers, providers, and patients. In section XI.B.4.b.(5) of the preamble of this final rule, ASTP/ ONC is finalizing three certification criteria in 45 CFR 170.315(g)(31), (32), and (33) for electronic prior authorization that are based on the requirements originally proposed in 45 CFR 170.315(g)(34), with modifications. ASTP/ONC is also finalizing adoption of the IGs proposed in section III.B.20 and incorporating these specifications by reference in 45 CFR 170.299. ASTP/ONC is finalizing these criteria to make available Health IT Modules that can enable health care providers to conduct prior authorization transactions using payer APIs established by CMS in the Interoperability and Prior Authorization rule (89 FR 8758). Use of these Health IT Modules will also support providers and clinicians participating in the Promoting Interoperability programs and MIPS Promoting Interoperability performance category required to report on Electronic Prior Authorization measures.

3. Summary of Costs and Benefits

The following table provides a summary of the costs, savings, and benefits associated with the major provisions described in section I.A.2. of the preamble of this final rule. BILLING CODE 4120-01-P [[Page 36543]] [GRAPHIC] [TIFF OMITTED] TR04AU25.037 [[Page 36544]] [GRAPHIC] [TIFF OMITTED] TR04AU25.038 [[Page 36545]] BILLING CODE 4120-01-C

1. Acute Care Hospital Inpatient Prospective Payment System (IPPS)

Section 1886(d) of the Act sets forth a system of payment for the operating costs of acute care hospital inpatient stays under Medicare Part A (Hospital Insurance) based on prospectively set rates. Section 1886(g) of the Act requires the Secretary to use a prospective payment system (PPS) to pay for the capital-related costs of inpatient hospital services for these ``subsection (d) hospitals.'' Under these PPSs, Medicare payment for hospital inpatient operating and capital-related costs is made at predetermined, specific rates for each hospital discharge. Discharges are classified according to a list of diagnosis- related groups (DRGs). The base payment rate is comprised of a standardized amount that is divided into a labor-related share and a nonlabor-related share. The labor-related share is adjusted by the wage index applicable to the area where the hospital is located. If the hospital is located in Alaska or Hawaii, the nonlabor-related share is adjusted by a cost-of- living adjustment (COLA) factor. This base payment rate is multiplied by the DRG relative weight. If the hospital treats a high percentage of certain low-income patients, it receives a percentage add-on payment applied to the DRG- adjusted base payment rate. This add-on payment, known as the disproportionate share hospital (DSH) adjustment, provides for a percentage increase in Medicare payments to hospitals that qualify under either of two statutory formulas designed to identify hospitals that serve a disproportionate share of low-income patients. For qualifying hospitals, the amount of this adjustment varies based on the outcome of the statutory calculations. The Affordable Care Act revised the Medicare DSH payment methodology and provides for an additional Medicare payment beginning on October 1, 2013, that considers the amount of uncompensated care furnished by the hospital relative to all other qualifying hospitals. If the hospital is training residents in an approved residency program(s), it receives a percentage add-on payment for each case paid under the IPPS, known as the indirect medical education (IME) adjustment. This percentage varies, depending on the ratio of residents to beds. Additional payments may be made for cases that involve new technologies or medical services that have been approved for special add-on payments. In general, to qualify, a new technology or medical service must demonstrate that it is a substantial clinical improvement over technologies or services otherwise available, and that, absent an add-on payment, it would be inadequately paid under the regular DRG payment. In addition, certain transformative new devices and certain antimicrobial products may qualify under an alternative inpatient new technology add-on payment pathway by demonstrating that, absent an add- on payment, they would be inadequately paid under the regular DRG payment. The costs incurred by the hospital for a case are evaluated to determine whether the hospital is eligible for an additional payment as an outlier case. This additional payment is designed to protect the hospital from large financial losses due to unusually expensive cases. Any eligible outlier payment is added to the DRG-adjusted base payment rate, plus any DSH, IME, and new technology or medical service add-on adjustments and, beginning in FY 2023 for IHS and Tribal hospitals and hospitals located in Puerto Rico, the new supplemental payment. Although payments to most hospitals under the IPPS are made on the basis of the standardized amounts, some categories of hospitals are paid in whole or in part based on their hospital-specific rate, which is determined from their costs in a base year. For example, sole community hospitals (SCHs) receive the higher of a hospital-specific rate based on their costs in a base year (the highest of FY 1982, FY 1987, FY 1996, or FY 2006) or the IPPS Federal rate based on the standardized amount. SCHs are the sole source of care in their areas. Specifically, section 1886(d)(5)(D)(iii) of the Act defines an SCH as a hospital that is located more than 35 road miles from another hospital or that, by reason of factors such as an isolated location, weather conditions, travel conditions, or absence of other like hospitals (as determined by the Secretary), is the sole source of hospital inpatient services reasonably available to Medicare beneficiaries. In addition, certain rural hospitals previously designated by the Secretary as essential access community hospitals are considered SCHs. With the recent enactment of section 2202 of the Full-Year Continuing Appropriations and Extensions Act, 2025, under current law, the Medicare-dependent, small rural hospital (MDH) program is effective through September 30, 2025. For discharges occurring on or after October 1, 2007, but before October 1, 2025, an MDH receives the higher of the Federal rate or the Federal rate plus 75 percent of the amount by which the Federal rate is exceeded by the highest of its FY 1982, FY 1987, or FY 2002 hospital-specific rate. MDHs are a major source of care for Medicare beneficiaries in their areas. Section 1886(d)(5)(G)(iv) of the Act defines an MDH as a hospital that is located in a rural area (or, as amended by the Bipartisan Budget Act of 2018, a hospital located in a State with no rural area that meets certain statutory criteria), has not more than 100 beds, is not an SCH, and has a high percentage of Medicare discharges (not less than 60 percent of its inpatient days or discharges in its cost reporting year beginning in FY 1987 or in two of its three most recently settled Medicare cost reporting years). As section 2202 of the Full-Year Continuing Appropriations and Extensions Act, 2025 extended the MDH program through FY 2025 only, beginning on October 1, 2025, the MDH program will no longer be in effect absent a change in law. Because the MDH program is not authorized by statute beyond September 30, 2025, beginning October 1, 2025, all hospitals that previously qualified for MDH status under section 1886(d)(5)(G) of the Act will no longer have MDH status and will be paid based on the IPPS Federal rate. Section 1886(g) of the Act requires the Secretary to pay for the capital-related costs of inpatient hospital services in accordance with a prospective payment system established by the Secretary. The basic methodology for determining capital prospective payments is set forth in our regulations at 42 CFR 412.308 and 412.312. Under the capital IPPS, payments are adjusted by the same DRG for the case as they are under the operating IPPS. Capital IPPS payments are also adjusted for IME and DSH, similar to the adjustments made under the operating IPPS. In addition, hospitals may receive outlier payments for those cases that have unusually high costs. The existing regulations governing payments to hospitals under the IPPS are located in 42 CFR part 412, subparts A through M.

2. Hospitals and Hospital Units Excluded From the IPPS

Under section 1886(d)(1)(B) of the Act, as amended, certain hospitals and hospital units are excluded from the IPPS. These hospitals and units are: Inpatient rehabilitation facility (IRF) hospitals and units; long-term care hospitals (LTCHs); Inpatient psychiatric hospitals (IPF) and units; children's hospitals; cancer hospitals; extended neoplastic disease care hospitals, and hospitals located outside the 50 States, [[Page 36546]] the District of Columbia, and Puerto Rico (that is, hospitals located in the U.S. Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa). Religious nonmedical health care institutions (RNHCIs) are also excluded from the IPPS. Various sections of the Balanced Budget Act of 1997 (BBA) (Pub. L. 105-33), the Medicare, Medicaid and SCHIP [State Children's Health Insurance Program] Balanced Budget Refinement Act of 1999 (BBRA, Pub. L. 106-113), and the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (BIPA, Pub. L. 106-554) provide for the implementation of PPSs for IRF hospitals and units, LTCHs, and psychiatric hospitals and units (referred to as inpatient psychiatric facilities (IPFs)). (We note that the annual updates to the LTCH PPS are included along with the IPPS annual update in this document. Updates to the IRF PPS and IPF PPS are issued as separate documents.) Children's hospitals, cancer hospitals, hospitals located outside the 50 States, the District of Columbia, and Puerto Rico (that is, hospitals located in the U.S. Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa), and RNHCIs continue to be paid solely under a reasonable cost-based system, subject to a rate-of-increase ceiling on inpatient operating costs. Similarly, extended neoplastic disease care hospitals are paid on a reasonable cost basis, subject to a rate-of-increase ceiling on inpatient operating costs. The existing regulations governing payments to excluded hospitals and hospital units are located in 42 CFR parts 412 and 413.

3. Long-Term Care Hospital Prospective Payment System (LTCH PPS)

The Medicare prospective payment system (PPS) for LTCHs applies to hospitals described in section 1886(d)(1)(B)(iv) of the Act, effective for cost reporting periods beginning on or after October 1, 2002. The LTCH PPS was established under the authority of sections 123 of the BBRA and section 307(b) of the BIPA (as codified under section 1886(m)(1) of the Act). Section 1206(a) of the Pathway for SGR Reform Act of 2013 (Pub. L. 113-67) established the site neutral payment rate under the LTCH PPS, which made the LTCH PPS a dual rate payment system beginning in FY 2016. Under this statute, effective for LTCH's cost reporting periods beginning in FY 2016 cost reporting period, LTCHs are generally paid for discharges at the site neutral payment rate unless the discharge meets the patient criteria for payment at the LTCH PPS standard Federal payment rate. The existing regulations governing payment under the LTCH PPS are located in 42 CFR part 412, subpart O. Beginning October 1, 2009, we issue the annual updates to the LTCH PPS in the same documents that update the IPPS.

4. Critical Access Hospitals (CAHs)

Under sections 1814(l), 1820, and 1834(g) of the Act, payments made to critical access hospitals (CAHs) (that is, rural hospitals or facilities that meet certain statutory requirements) for inpatient and outpatient services are generally based on 101 percent of reasonable cost. Reasonable cost is determined under the provisions of section 1861(v) of the Act and existing regulations under 42 CFR part 413.

5. Payments for Graduate Medical Education (GME)

Under section 1886(a)(4) of the Act, costs of approved educational activities are excluded from the operating costs of inpatient hospital services. Hospitals with approved graduate medical education (GME) programs are paid for the direct costs of GME in accordance with section 1886(h) of the Act. The amount of payment for direct GME costs for a cost reporting period is based on the hospital's number of residents in that period and the hospital's costs per resident in a base year. The existing regulations governing payments to the various types of hospitals are located in 42 CFR part 413. Section 1886(d)(5)(B) of the Act provides that prospective payment hospitals that have residents in an approved GME program receive an additional payment for each Medicare discharge to reflect the higher patient care costs of teaching hospitals relative to non-teaching hospitals. The additional payment is based on the indirect medical education (IME) adjustment factor, which is calculated using a hospital's ratio of residents to beds and a multiplier, which is set by Congress. Section 1886(d)(5)(B)(ii)(XII) of the Act provides that, for discharges occurring during FY 2008 and fiscal years thereafter, the IME formula multiplier is 1.35. The regulations regarding the indirect medical education (IME) adjustment are located at 42 CFR 412.105.

1. The Full-Year Continuing Appropriations and Extensions Act, 2025

(Pub. L. 119-4) Section 2201 of the Full-Year Continuing Appropriations and Extensions Act, 2025 extended through FY 2025 the modified definition of a low-volume hospital and the methodology for calculating the payment adjustment for low-volume hospitals that had been in effect for FYs 2019 through 2024. Specifically, under section 1886(d)(12)(C)(i) of the Act, as amended, for FYs 2019 through 2025, a subsection (d) hospital qualifies as a low-volume hospital if it is more than 15 road miles from another subsection (d) hospital and has less than 3,800 total discharges during the fiscal year. Under section 1886(d)(12)(D) of the Act, as amended, for discharges occurring in FYs 2019 through September 30, 2025, the Secretary determines the applicable percentage increase using a continuous, linear sliding scale ranging from an additional 25 percent payment adjustment for low-volume hospitals with 500 or fewer discharges to a zero percent additional payment for low- volume hospitals with more than 3,800 discharges in the fiscal year. Section 2202 of the Full-Year Continuing Appropriations and Extensions Act, 2025 amended sections 1886(d)(5)(G)(i) and 1886(d)(5)(G)(ii)(II) of the Act to provide for an extension of the MDH program through FY 2025 (that is, through September 30, 2025).

D. Issuance of a Notice of Proposed Rulemaking and Summary of the

Proposed Provisions The FY 2026 IPPS/LTCH PPS proposed rule appeared in the April 30, 2025, Federal Register (90 FR 18002). In the proposed rule, we set forth proposed payment and policy changes to the Medicare IPPS for FY 2026 operating costs and capital-related costs of acute care hospitals and certain hospitals and hospital units that are excluded from IPPS. In addition, we set forth proposed changes to the payment rates, factors, and other payment and policy-related changes to programs associated with payment rate policies under the LTCH PPS for FY 2026. The following is a general summary of the changes that we proposed to make.

1. Proposed Changes to MS-DRG Classifications and Recalibrations of

Relative Weights In section II. of the preamble of the proposed rule, we included the following: Proposed changes to MS-DRG classifications based on our yearly review for FY 2026. Proposed recalibration of the MS-DRG relative weights. A discussion of the proposed FY 2026 status of new technologies approved for add-on payments for FY [[Page 36547]] 2025, a presentation of our evaluation and analysis of the FY 2026 applicants for add-on payments for high-cost new medical services and technologies (including public input, as directed by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) Public Law 108-173, obtained in a town hall meeting for applications not submitted under an alternative pathway), and a discussion of the proposed status of FY 2026 new technology applicants under the alternative pathways for certain medical devices and certain antimicrobial products.

2. Proposed Changes to the Hospital Wage Index for Acute Care Hospitals

In section III. of the preamble of the proposed rule, we proposed revisions to the wage index for acute care hospitals and the annual update of the wage data. Specific issues addressed include, but are not limited to, the following: The proposed FY 2026 wage index update using wage data from cost reporting periods beginning in FY 2022. Calculation, analysis, and implementation of the proposed occupational mix adjustment to the wage index for acute care hospitals for FY 2026 based on the 2022 Occupational Mix Survey. Proposed application of the rural, imputed and frontier State floors, and proposed transition for the discontinuation of the low wage index hospital policy. Proposed revisions to the wage index for acute care hospitals, based on hospital redesignations and reclassifications under sections 1886(d)(8)(B), (d)(8)(E), and (d)(10) of the Act. Proposed adjustment to the wage index for acute care hospitals for FY 2026 based on commuting patterns of hospital employees who reside in a county and work in a different area with a higher wage index. Proposed labor-related share for applying the FY 2026 wage index.

3. Proposed Rebasing and Revising of the IPPS Market Baskets

In section IV. of the preamble of the proposed rule, we proposed to rebase and revise the IPPS market baskets to reflect a 2023 base year. In section IV.B.3. of the preamble of the proposed rule, using the cost category weights from the proposed 2023-based IPPS market basket, we proposed to use a labor-related share of 66.0 percent for the national standardized amounts for all IPPS hospitals (including hospitals in Puerto Rico) that have a wage index value that is greater than 1.0000.

4. Payment Adjustment for Medicare Disproportionate Share Hospitals

(DSHs) for FY 2026 In section V. of the preamble of the proposed rule, we discussed the following: Proposed calculation of Factor 1 and Factor 2 of the uncompensated care payment methodology. Proposed methodological approach for determining Factor 3 of the uncompensated care payment for FY 2026, which is the same methodology that was used for FY 2025. Proposed methodological approach for determining the amount of interim uncompensated care payments, using the average of the most recent 3 years of discharge data.

5. Other Decisions and Proposed Changes to the IPPS for Operating Costs

In section VI. of the preamble of the proposed rule, we discussed proposed changes or clarifications of a number of the provisions of the regulations in 42 CFR parts 412 and 413, including the following: Proposed inpatient hospital market basket update for FY 2026. Proposed updated national and regional case-mix values and discharges for purposes of determining RRC status. Proposed conforming amendments to reflect the statutory extension of the temporary changes to the low-volume hospital payment adjustment through September 30, 2025. Proposed conforming amendments to reflect the statutory extension of the MDH program through September 30, 2025. A direct graduate medical education (GME) and indirect medical education (IME) policy proposal for calculating full-time equivalent counts and caps for cost reporting periods other than 12 months; and a notice of closure of two teaching hospitals and opportunities to apply for available slots. Proposed nursing and allied health education (NAHE) program Medicare Advantage (MA) add-on rates and direct GME MA percent reductions for CY 2024; and proposed regulatory changes regarding the calculation of net cost of NAHE. Proposed update to and revision to the payment adjustment for certain immunotherapy cases. Proposed changes to the requirements of the Hospital Readmissions Reduction Program--Updating the proposed estimate of the financial impacts for the FY 2026 Hospital Readmissions Reduction Program. Proposed changes to the requirements of the Hospital Value-Based Purchasing Program--Updating the proposed estimate of the financial impacts for the FY 2026 Hospital Value-Based Purchasing Program. Proposed changes to the requirements of the Hospital- Acquired Conditions Reduction Program--Updating the proposed estimate of the financial impacts for the FY 2026 Hospital-Acquired Conditions Reduction Program. Discussion of and proposed changes relating to the implementation of the Rural Community Hospital Demonstration Program in FY 2025.

6. Proposed FY 2026 Policy Governing the IPPS for Capital-Related Costs

In section VII. of the preamble of the proposed rule, we discussed the proposed payment policy requirements for capital-related costs and capital payments to hospitals for FY 2026.

7. Proposed Changes to the Payment Rates for Certain Excluded

Hospitals: Rate-of-Increase Percentages In section VIII. of the preamble of the proposed rule, we discussed the following: Proposed changes to payments to certain excluded hospitals for FY 2026. Proposed continued implementation of the Frontier Community Health Integration Project (FCHIP) Demonstration.

8. Proposed Changes to the LTCH PPS

In section IX. of the preamble of the proposed rule, we set forth proposed changes to the LTCH PPS Federal payment rates, factors, and other payment rate policies under the LTCH PPS for FY 2026.

9. Proposed Changes Relating to Quality Data Reporting for Specific

Providers and Suppliers In section X. of the preamble of the proposed rule, we addressed the following: Solicitation of comment on adopting measures across the hospital quality reporting and value-based purchasing programs which capture more forms of unplanned post-acute care and encourage hospitals to improve discharge processes. Proposed changes to the requirements for the Hospital IQR Program. Proposed changes to the requirements for the PCHQR Program. Proposed changes to the requirements for the LTCH QRP, and requests for information on future measure concepts, revisions to the data [[Page 36548]] submission deadlines for assessment data collection, and advancing digital quality measurement (dQM) in the LTCH QRP. Proposed changes to requirements pertaining to eligible hospitals and CAHs participating in the Medicare Promoting Interoperability Program.

10. Other Proposals and Comment Solicitations Included in the Proposed

Rule Section XI. of the preamble of the proposed rule included proposed changes to TEAM that would affect participation, quality measure and assessment, pricing methodology, health data reporting, waivers of Medicare Program requirements, and the Decarbonization and Resilience Initiative.

11. Other Provisions of the Proposed Rule

Section XII.A. of the preamble of the proposed rule includes our discussion of the MedPAC Recommendations. Section XII.B. of the preamble of the proposed rule includes a descriptive listing of the public use files associated with the proposed rule. Section XIII. of the preamble of the proposed rule includes the collection of information requirements for entities based on our proposals. Section XIV. of the preamble of the proposed rule includes information regarding our responses to public comments.

12. Determining Prospective Payment Operating and Capital Rates and

Rate-of-Increase Limits for Acute Care Hospitals In sections II. and III. of the Addendum of the proposed rule, we set forth proposed changes to the amounts and factors for determining the proposed FY 2026 prospective payment rates for operating costs and capital-related costs for acute care hospitals, including cost-of- living adjustment (COLA) factors for IPPS hospitals located in Alaska and Hawaii. We proposed to establish the threshold amounts for outlier cases. In addition, in section IV. of the Addendum of the proposed rule, we addressed the proposed update factors for determining the rate-of-increase limits for cost reporting periods beginning in FY 2026 for certain hospitals excluded from the IPPS.

13. Determining Prospective Payment Rates for LTCHs

In section V. of the Addendum of the proposed rule, we set forth proposed changes to the amounts and factors for determining the proposed FY 2026 LTCH PPS standard Federal payment rate and other factors used to determine LTCH PPS payments under both the LTCH PPS standard Federal payment rate and the site neutral payment rate in FY 2026. We proposed to establish the adjustments for the wage index, labor-related share, the cost-of-living adjustment, and high-cost outliers, including the applicable fixed-loss amounts and the LTCH cost-to-charge ratios (CCRs) for both payment rates.

14. Impact Analysis

In Appendix A of the proposed rule, we set forth an analysis of the impact the proposed changes would have on affected acute care hospitals, LTCHs, and other entities.

15. Recommendation of Update Factors for Operating Cost Rates of

Payment for Hospital Inpatient Services In Appendix B of the proposed rule, as required by sections 1886(e)(4) and (e)(5) of the Act, we provided our recommendations of the appropriate percentage changes for FY 2026 for the following: A single average standardized amount for all areas for hospital inpatient services paid under the IPPS for operating costs of acute care hospitals (and hospital-specific rates applicable to SCHs and MDHs). Target rate-of-increase limits to the allowable operating costs of hospital inpatient services furnished by certain hospitals excluded from the IPPS. The LTCH PPS standard Federal payment rate and the site neutral payment rate for hospital inpatient services provided for LTCH PPS discharges.

16. Discussion of Medicare Payment Advisory Commission Recommendations

Under section 1805(b) of the Act, MedPAC is required to submit a report to Congress, no later than March 15 of each year, in which MedPAC reviews and makes recommendations on Medicare payment policies. MedPAC's March 2025 recommendations concerning hospital inpatient payment policies address the update factor for hospital inpatient operating costs and capital-related costs for hospitals under the IPPS. We addressed these recommendations in Appendix B of the proposed rule. For further information relating specifically to the MedPAC March 2025 report or to obtain a copy of the report, contact MedPAC at (202) 220- 3700 or visit MedPAC's website at https://www.medpac.gov.

E. Public Comments Received in Response to the FY 2026 IPPS/LTCH PPS

Proposed Rule We received approximately 5,409 timely pieces of correspondence containing multiple comments on the proposed rule that appeared in the April 30, 2025 Federal Register (89 FR 18002) titled ``Medicare Program; Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals and the Long- Term Care Hospital Prospective Payment System and Policy Changes and Fiscal Year 2026 Rates; Requirements for Quality Programs; and Other Policy Changes'' (hereinafter referred to as the FY 2026 IPPS/LTCH PPS proposed rule). We note that some of these public comments were outside of the scope of the proposed rule. These out-of- scope public comments are not addressed with policy responses in this final rule. Summaries of the public comments that are within the scope of the proposed rule and our responses to those public comments are set forth in the various sections of this final rule under the appropriate heading.

A. Background

Section 1886(d) of the Act specifies that the Secretary shall establish a classification system (referred to as diagnosis-related groups (DRGs)) for inpatient discharges and adjust payments under the IPPS based on appropriate weighting factors assigned to each DRG. Therefore, under the IPPS, Medicare pays for inpatient hospital services on a rate per discharge basis that varies according to the DRG to which a beneficiary's stay is assigned. The formula used to calculate payment for a specific case multiplies an individual hospital's payment rate per case by the weight of the DRG to which the case is assigned. Each DRG weight represents the average resources required to care for cases in that particular DRG, relative to the average resources used to treat cases in all DRGs. Section 1886(d)(4)(C) of the Act requires that the Secretary adjust the DRG classifications and relative weights at least annually to account for changes in resource consumption. These adjustments are made to reflect changes in treatment patterns, technology, and any other factors that may change the relative use of hospital resources. [[Page 36549]]

B. Adoption of the MS-DRGs and MS-DRG Reclassifications

For information on the adoption of the MS-DRGs in FY 2008, we refer readers to the FY 2008 IPPS final rule with comment period (72 FR 47140 through 47189). For general information about the MS-DRG system, including yearly reviews and changes to the MS-DRGs, we refer readers to the previous discussions in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43764 through 43766) and the FYs 2011 through 2025 IPPS/LTCH PPS final rules (75 FR 50053 through 50055; 76 FR 51485 through 51487; 77 FR 53273; 78 FR 50512; 79 FR 49871; 80 FR 49342; 81 FR 56787 through 56872; 82 FR 38010 through 38085; 83 FR 41158 through 41258; 84 FR 42058 through 42165; 85 FR 58445 through 58596; 86 FR 44795 through 44961; 87 FR 48800 through 48891; 88 FR 58654 through 58787; and 89 FR 69000 through 69109, respectively). For discussion regarding our previously finalized policies (including our historical adjustments to the payment rates) relating to the effect of changes in documentation and coding that do not reflect real changes in case mix, we refer readers to the FY 2023 IPPS/LTCH PPS final rule (87 FR 48799 through 48800). Comment: A commenter summarized the statutory and regulatory history regarding the documentation and coding recoupment adjustments required under section (7)(b) of the TMA, Abstinence Education, and QI Programs Extension Act of 2007 (Pub. L. 110-90), as amended. The commenter reiterated its position that the total level of adjustments made by CMS under this section took back more than was authorized by Congress and stated that section 7(b)(2) of Public Law 110-90 requires CMS to increase the standardized amount by 0.9412% to avoid carrying over into FY 2026 the -3.9% reduction to the standardized amount that law required between FY 2013 and FY 2017. Response: As of FY 2023, CMS completed the statutory requirements of section 7(b)(1)(B) of Public Law 110-90 as amended by section 631 of the American Taxpayer Relief Act of 2012 (ATRA, Pub. L. 112-240), section 404 of the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) (Pub. L. 114-10), and section 15005 of the 21st Century Cures Act (Pub. L. 114-255). As we discussed in the FY 2022 IPPS/LTCH PPS final rule (86 FR 44794 through 44795), the FY 2021 IPPS/LTCH PPS final rule (85 FR 58444 through 58445) and in prior rules, we believe section 414 of the MACRA and section 15005 of the 21st Century Cures Act set forth the levels of positive adjustments for FYs 2018 through 2023. Those adjustments added up to +2.9488 percentage points, not +3.9 percentage points, and we see no evidence that Congress enacted that smaller adjustment schedule with the silent intent that CMS would later make a permanent 0.9412% payment adjustment to reach a total +3.9 percentage point adjustment. To the contrary, section 414 of MACRA instructs the agency to ``not make the adjustment (estimated to be an increase of 3.2 percent) that would otherwise apply for discharges occurring during fiscal year 2018 by reason of the completion of the adjustments required under clause (ii).'' Because the adjustment ``that would otherwise apply'' in fiscal year 2018 but for clause (1)(B)(iii) was +3.9%, the commenter's suggestion to complete making that adjustment now is inconsistent with the statute's text. Subparagraph (b)(2) of Public Law 110-90 does not compel a contrary result. As the U.S. Court of Appeals for the D.C. Circuit has explained, that provision simply requires CMS ``to ignore recoupment adjustments'' when ``calculat[ing] and apply[ing] the annual `percentage increase' '' to base rates provided for in the Medicare statute to account for inflation. Fresno Community Hospital & Medical Center v. Cochran, 987 F.3d 158, 163 (D.C. Cir. 2021). The Secretary has complied with that instruction. Similarly, the commenter's citations to statements the agency made in the Federal Register about its intent to unwind the reductions to the standardized amount the agency made between FY 2013 and FY 2017 were made before Congress passed clause (1)(B)(iii) and have been countermanded by that provision. We therefore decline the commenter's suggestion to read into section 7(b) of Public Law 110-90 implied authority to increase the standardized payment amount by 0.9412%.

1. Discussion of Changes to Coding System and Basis for FY 2026 MS-DRG

Updates a. International Classification of Diseases, 10th Revision (ICD-10) Providers use the International Classification of Diseases, 10th Revision (ICD-10) coding system to report diagnoses and procedures for Medicare hospital inpatient services under the MS-DRG system. The ICD- 10 coding system includes the International Classification of Diseases, 10th Revision, Clinical Modification (ICD-10-CM) for diagnosis coding and the International Classification of Diseases, 10th Revision, Procedure Coding System (ICD-10-PCS) for inpatient hospital procedure coding, as well as the ICD-10-CM and ICD-10-PCS Official Guidelines for Coding and Reporting. b. Basis for FY 2026 MS-DRG Updates The deadline for interested parties to submit MS-DRG classification change requests for FY 2026 was October 20, 2024. All requests are submitted to CMS via Medicare Electronic Application Request Information SystemTM (MEARISTM), accessed at https://mearis.cms.gov. Specifically, as indicated on the MEARISTM site, the MS-DRG classification change request process may be used for requests to create, modify, or delete MS-DRGs, change ICD-10-CM diagnosis code(s) severity level designations, change ICD-10-PCS procedure code(s) Operating Room (O.R.) designations, or to review the CC Exclusions List or the surgical hierarchy. Within MEARISTM, we have built in several resources to support users, including a ``Resources'' section available at https://mearis.cms.gov/public/resources with technical support available under ``Useful Links'' at the bottom of the MEARISTM site. Questions regarding the MEARISTM system can be submitted to CMS using the form available under ``Contact'', also at the bottom of the MEARISTM site. We note that the burden associated with this information collection requirement is the time and effort required to collect and submit the data in the request for MS-DRG classification changes to CMS. The aforementioned burden is subject to the Paperwork Reduction Act (PRA) of 1995 and approved under OMB control number 0938-1431 and has an expiration date of 09/30/2025. Interested parties should submit any MS-DRG classification change requests, including any comments and suggestions for FY 2027 consideration by October 20, 2025 via MEARISTM at: https://mearis.cms.gov/public/home. As we have discussed in prior rulemaking, we may not be able to fully consider all of the requests that we receive for the upcoming fiscal year. We have found that, with the implementation of ICD 10, some types of requested changes to the MS-DRG classifications require more extensive research to identify and analyze all of the data that are relevant to evaluating the potential change. [[Page 36550]] Beginning with the MS-DRG classification change requests that are submitted for FY 2027 consideration, we plan to inform requestors via MEARISTM if the MS-DRG classification change request is not able to be considered with the upcoming fiscal year rulemaking cycle. As in prior years, requests that may require more extensive analysis may include those involving multiple MS-DRGs, overlapping logic across multiple Major Diagnostic Categories (MDCs), special logic such as diagnosis codes combined with procedure codes, and/or complex logic including code clusters or multiple logic lists. Beginning with FY 2027 rulemaking, we will no longer summarize in the proposed and final rules those requests that are not able to be considered for the upcoming FY. As noted previously, interested parties had to submit MS-DRG classification change requests for FY 2026 by October 20, 2024. As we have discussed in prior rulemaking and as previously noted, we may not be able to fully consider all of the requests that we receive for the upcoming fiscal year. In the proposed rule, we noted those topics for which further research and analysis are required, and which we will continue to consider in connection with future rulemaking as summarized in the discussion that follows. We further noted that we also received recommendations and feedback that did not involve requests to create, modify, or delete MS-DRGs, change code designations, or to review the CC Exclusions List or the surgical hierarchy, which therefore were not summarized or addressed in the discussion of the MS-DRG classification change requests received for FY 2026. As discussed in the proposed rule, we received requests to modify the GROUPER logic in several MS-DRGs under MDC 08 (Diseases and Disorders of the Musculoskeletal System and Connective Tissue) and a request to modify the GROUPER logic for MS-DRG 794 (Neonate with Other Significant Problems) under MDC 15 (Newborns and Other Neonates with Conditions Originating in Perinatal Period). Specifically, we received requests to do the following: Modify the GROUPER logic of new MS-DRG 426 (Multiple Level Combined Anterior and Posterior Spinal Fusion Except Cervical with MCC or Custom-Made Anatomically Designed Interbody Fusion Device), new MS- DRG 427 (Multiple Level Combined Anterior and Posterior Spinal Fusion Except Cervical with CC), and new MS-DRG 428 (Multiple Level Combined Anterior and Posterior Spinal Fusion Except Cervical without CC/MCC); new MS-DRG 447 (Multiple Level Spinal Fusion Except Cervical with MCC or Custom-Made Anatomically Designed Interbody Fusion Device) and new MS-DRG 448 (Multiple Level Spinal Fusion Except Cervical without MCC); and MS-DRGs 456, 457, and 458 (Spinal Fusion Except Cervical with Spinal Curvature, Malignancy, Infection or Extensive Fusions with MCC, with CC, and without CC/MCC, respectively) by reassigning cases with an ICD-10-PCS code that describes fusion of a sacroiliac joint using an internal fixation device with tulip connector or insertion of an internal fixation device with tulip connector into a pelvic bone with another spinal fusion procedure code that currently map to the lower severity level MS-DRG to the highest severity level (with MCC) MS-DRG. Modify the GROUPER logic of MS-DRGs 463, 464, and 465 (Wound Debridement and Skin Graft Except Hand for Musculoskeletal and Connective Tissue Disorders with MCC, with CC, and without CC/MCC, respectively); MS-DRGs 466, 467, and 468 (Revision of Hip or Knee Replacement with MCC, with CC, and without CC/MCC, respectively); and MS-DRGs 492, 493, and 494 (Lower Extremity and Humerus Procedures Except Hip, Foot and Femur with MCC, with CC, and without CC/MCC, respectively) by reassigning cases with ICD-10-PCS code XW0V0P7 (Introduction of antibiotic-eluting bone void filler into bones, open approach, new technology group 7) that currently map to the lower severity level MS-DRG to the highest severity level (with MCC) MS-DRG. Modify the GROUPER logic of MS-DRG 794. The requestor recommended that ICD-10-CM diagnosis codes P09.6 (Abnormal findings on neonatal screening for neonatal hearing loss), Z13.0 (Encounter for screening for diseases of the blood and blood-forming organs and certain disorders involving the immune mechanism), Z82.5 (Family history of asthma and other chronic lower respiratory diseases) and Z82.79 (Family history of other congenital malformations, deformations and chromosomal abnormalities), be added to the MS-DRG 795 (Normal Newborn) ``only secondary diagnosis'' list so that they would result in assignment to MS-DRG 795 when coded with a principal diagnosis code from ICD-10-CM category Z38 (Liveborn infants according to place of birth and type of delivery) instead of MS-DRG 794. In the proposed rule, we stated that we appreciated the submissions and related analyses provided by the requestors for our consideration as we review MS-DRG classification change requests for FY 2026; however, we also noted the complexity of the GROUPER logic for these MS-DRGs in connection with these requests requires more extensive analyses to identify and evaluate all the data relevant to assessing these potential modifications. Specifically, we noted that MS-DRGs 426, 427, 428, 447, and 448 recently became effective October 1, 2024 (FY 2025) and as discussed in the FY 2025 IPPS/LTCH PPS proposed rule (89 FR 35982 through 35983) and final rule (89 FR 69049 through 69053) in consideration of any future modifications to the current structure of the logic for case assignment to MS-DRGs 456, 457, and 458 we noted that additional analysis would be needed because the logic is also defined by diagnosis code logic as well as extensive fusions. We also noted that, as discussed further in section II.C.5.c. of the preamble of the FY 2026 IPPS/LTCH PPS proposed rule, we identified additional inconsistencies related to the diagnosis code logic for MS-DRGs 456, 457, and 458 for which we proposed modifications. In addition, we stated that analyzing the impact of restructuring the logic in these MS-DRGs with respect to procedure codes describing fusion of a sacroiliac joint using an internal fixation device with tulip connector necessitates evaluating the impact across numerous other MS-DRGs in MDC 08, as well as MS-DRG 028 (Spinal Procedures with MCC), MS-DRG 029 (Spinal Procedures with CC or Spinal Neurostimulators), and MS-DRG 030 (Spinal Procedures without CC/MCC) under MDC 01 (Diseases and Disorders of the Nervous System) since the procedure codes describing fusion of a sacroiliac joint using an internal fixation device with tulip connector also map to these MS-DRGs. With respect to the request to reassign cases reporting procedure code XW0V0P7 from the lower severity level to the highest (with MCC) severity level in the previously listed MS-DRGs, we noted in the proposed rule that the procedure to insert a bone void filler is designated as a non-operating room (Non-O.R.) procedure and believe that the key factor that would contribute to resource utilization in these cases is the fact that the patients have an infection(s) which require additional resources. As discussed in section II.C.5.a. of the preamble of the FY 2026 IPPS/LTCH PPS proposed rule, we also noted that we received an MS-DRG request related to cases reporting a hip or knee procedure with a diagnosis of [[Page 36551]] periprosthetic joint infection (PJI) in MS-DRGs 463, 464, and 465. We stated that in our review of the claims data to address that request we noted that a subset of the cases also reported procedure code XW0V0P7. As discussed in the proposed rule, consistent with our established process, we must also consider if there are additional factors, such as the severity of illness with other secondary CC/MCC conditions reported and any other O.R. procedures or services provided, such as mechanical ventilation, that may be contributing to the consumption of resources for these cases. We stated that, for these reasons and those previously described, we believed additional time was needed to review and evaluate potential extensive modifications to the structure of these MS-DRGs. In the proposed rule, we noted that with respect to the request to modify the GROUPER logic of MS-DRG 794, as discussed in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69061 through 69065), we acknowledged that MS-DRG 794 utilizes ``fall-through'' logic, meaning if a diagnosis code is not assigned to any of the other MS-DRGs, then assignment ``falls-through'' to MS-DRG 794. As discussed in the FY 2025 IPPS/LTCH PPS rule, we stated we have started to examine the GROUPER logic that would determine the assignment of cases to the MS-DRGs in MDC 15, including MS-DRGs 794 and 795, to determine where further refinements could potentially be made to better account for differences in clinical complexity and resource utilization. However, as we have noted in prior rulemaking (72 FR 47152), we stated we cannot adopt the same approach to refine the newborn MS-DRGs because of the extremely low volume of Medicare patients there are in these MS-DRGs. We stated we believe it is appropriate to consider the request to add ICD-10-CM diagnosis codes P09.6 (Abnormal findings on neonatal screening for neonatal hearing loss), Z13.0 (Encounter for screening for diseases of the blood and blood-forming organs and certain disorders involving the immune mechanism), Z82.5 (Family history of asthma and other chronic lower respiratory diseases) and Z82.79 (Family history of other congenital malformations, deformations and chromosomal abnormalities) to the MS- DRG 795 (Normal Newborn) ``only secondary diagnosis'' list in connection with our continued examination of the GROUPER logic that would determine the assignment of cases to the MS-DRGs in MDC 15 in future rulemaking, rather than proposing to change the MS-DRG assignment of individual ICD-10-CM diagnosis codes at this time. We stated that additional time is needed to fully and accurately evaluate cases currently grouping to the MS-DRGs in MDC 15 to consider if restructuring the current MS-DRGs would better recognize the clinical distinctions of these patient populations. Comment: A commenter (the manufacturer) thanked CMS for consideration of its request to reassign cases with an ICD-10-PCS code that describes fusion of a sacroiliac joint using an internal fixation device with tulip connector or insertion of an internal fixation device with tulip connector into a pelvic bone with another spinal fusion procedure code that currently map to the lower severity level MS-DRG to the highest severity level (with MCC) MS-DRG and expressed their understanding that resources are limited such that not every request may be considered each cycle. However, the commenter stated they were hopeful that CMS would move forward with their recommendations, so that hospitals supporting these case types in FY 2026 would be compensated appropriately. The commenter provided additional information and analyses for CMS' consideration, including analyses with the proposed diagnosis code logic changes for MS-DRGs 456, 457, and 458, and stated its findings reinforce that the reassignment request for FY 2026 involving MS-DRGs 426, 427, and 428; MS-DRGs 456, 457, and 458; and MS- DRGs 447 and 448 to maintain payment accuracy and protect access to care for Medicare beneficiaries requiring advanced sacropelvic fixation is warranted, given the significant cost differences reported for these cases compared to all other cases in related MS-DRGs. Several commenters (members of an international society for spine surgery) suggested that CMS finalize the requested reassignment of cases reporting a sacroiliac joint fusion or pelvic fixation procedure with another spinal fusion procedure code from the lower severity level to the higher severity level spinal fusion MS-DRG in FY 2026 IPPS rulemaking. The commenters stated that in comparison to standard spinal fusion cases, procedures that include sacroiliac joint fusion and pelvic fixation represent a substantial increase in surgical complexity, operative time, and instrumentation cost. According to the commenters, the addition of both sacroiliac joint fusion and pelvic fixation adjunctive to spinal fusion introduces a level of surgical intensity that is not currently accounted for in the existing MS-DRG assignments. The commenters encouraged CMS to recognize the added clinical burden and cost associated with these cases and assign them to MS-DRGs that appropriately reflect their complexity. A commenter stated that CMS should reconsider its rejection of the request to reassign cases reporting procedures describing sacroiliac joint and pelvic internal fixation devices using a tulip connector. Another commenter stated that while there is an increased cost in performing pelvic fixation, its use dramatically lowers the risk of failure and reoperation, both of which lead to extraordinary cost escalation for care of these patients. The commenter also stated that long-term sustainability of the health care landscape depends on CMS incentivizing and supporting better care for these spinal patients through reassigning these higher cost cases to the higher paying MCC MS-DRG in the relevant MS-DRG grouping. In response to the discussion regarding the request to reassign cases reporting procedure code XW0V0P7 (Introduction of antibiotic- eluting bone void filler into bones, open approach, new technology group 7) from the lower severity level to the highest (with MCC) severity level MS-DRG among MS-DRGs 463, 464, and 465; MS-DRGs 466, 467, and 468; and MS-DRGs 492, 493, and 494, a commenter (the manufacturer) expressed concern that CMS did not act on its request and deferred the requested changes. The commenter stated its belief that without action on its request, the payment outlook for cases reporting procedure code XW0V0P7 for bone infection will result in underpayment and suppress hospital adoption and patient access to improved clinical outcomes. Additionally, the commenter stated that CMS' reasoning to defer decision making on claims reporting procedure code XW0V0P7 was based on the procedures non-O.R. designation and it was confusing to them as most treatments of bone infection with the antibiotic-eluting bone void filler (code XW0V0P7) are performed in the O.R. The commenter further stated that CMS should reconsider its FY 2026 decision to postpone action on the MS-DRG modification request to reassign cases reporting procedure code XW0V0P7 and clarify the criteria for how procedures are assigned O.R. versus non-O.R. status, as well as whether having O.R. status for a procedure code is essential for the code to potentially influence the MS-DRG assignment in the GROUPER. The commenter provided additional information and analyses for CMS' consideration and stated that cases [[Page 36552]] reporting procedure code XW0V0P7 show a compelling discrepancy in resource use that should not be ignored. With respect to our discussion regarding the request to modify the GROUPER logic of MS-DRG 794, a commenter specifically stated they appreciate CMS' ongoing examination of the GROUPER logic for the MS- DRGs in MDC 15 (Newborns and Other Neonates with Conditions Originating in Perinatal Period) to determine if restructuring the current MS-DRGs would better recognize the clinical distinctions of these patient populations. Response: We thank the commenters for sharing their feedback on these requests. As discussed in the proposed rule, we have found that with the implementation of ICD-10, some types of requested changes to the MS-DRG classifications require more extensive research to identify and analyze the relevant data for evaluating a potential change. With respect to the comments received in response to our proposed rule discussion of the request to modify the GROUPER logic of MS-DRGs 426, 427, and 428, MS-DRGs 456, 457, and 458, and MS-DRGs 447 and 448, while many commenters stated their belief that a modification to the logic of these MS-DRGs is warranted for FY 2026, we note that we did not propose a change to the logic for FY 2026, nor did we state the request was specifically rejected. Rather, we noted in the proposed rule that we will continue to consider this request in connection with future rulemaking. We appreciate the analysis that the commenter (the manufacturer) performed and the findings it shared, including with the proposed changes to the diagnosis code logic for MS-DRGs 456, 457, and 458; however, as discussed in the proposed rule, the proposed changes for MS-DRGs 456, 457, and 458 involving diagnosis code logic were only one of several considerations as to why additional time is needed to evaluate the reassignment request (90 FR 18012). We note that the logic for case assignment to MS-DRGs 456, 457, and 458 is also defined by extensive fusions. In addition, MS-DRGs 426, 427, 428, 447, and 448 (that is, multiple level spinal fusions) recently became effective October 1, 2024 which we are continuing to monitor. The data analysis necessary to examine the intricate logic within the spinal fusion MS- DRGs outlined in the request is complex and requires additional time for careful consideration of case redistribution and potential relative weight impacts, in connection with other related spinal fusion procedure requests that may be discussed in future rulemaking. With respect to the comment we received in response to our proposed rule discussion of the request to reassign cases with ICD-10-PCS code XW0V0P7 (Introduction of antibiotic-eluting bone void filler into bones, open approach, new technology group 7) among MS-DRGs 463, 464, and 465; MS-DRGs 466, 467, and 468; and MS-DRGs 492, 493, and 494, while the commenter stated that CMS should reconsider the decision to postpone action on the request to modify the MS-DRG logic for the aforementioned MS-DRGs for FY 2026, we note that we did not propose a change to the logic for FY 2026. Rather, we noted in the proposed rule that we will continue to consider this request in connection with future rulemaking. We appreciate the analysis that the commenter (the manufacturer) performed and the findings it shared; however, we note that in addition to assessing impacts in association with other MS-DRG requests being considered, there are various types of bone void fillers and additional data analysis would also need to be performed to assess cases reporting the procedure codes describing those alternative products for comparison. While we did not propose a change to the assignment of these cases for FY 2026, we noted in our proposed rule discussion that we will continue to consider this request in connection with future rulemaking. As previously discussed, we will continue to consider these issues in connection with future rulemaking. As we develop and refine our analysis of the claims data with respect to MS-DRGs in MDC 01, MDC 08, and MDC 15, we welcome feedback on other factors that should be considered in the potential restructuring of these MS-DRGs. Feedback and other suggestions may be directed to MEARISTM at: https://mearis.cms.gov/public/home. As noted, interested parties should submit any MS-DRG classification change requests, including any comments and suggestions for FY 2027 consideration by October 20, 2025 via MEARISTM at: https://mearis.cms.gov/public/home. As we did for the FY 2025 IPPS/LTCH PPS proposed rule, for the FY 2026 IPPS/LTCH PPS proposed rule we provided a test version of the ICD- 10 MS-DRG GROUPER Software, Version 43, so that the public can better analyze and understand the impact of the proposals included in the proposed rule. We noted that this test software reflected the proposed GROUPER logic for FY 2026. Therefore, it included the new diagnosis and procedure codes that are effective for FY 2026 as reflected in Table 6A.--New Diagnosis Codes--FY 2026 and Table 6B.--New Procedure Codes-- FY 2026 associated with the proposed rule and does not include the diagnosis codes that are invalid beginning in FY 2026 as reflected in Table 6C.--Invalid Diagnosis Codes--FY 2026 and Table 6D.--Invalid Procedure Codes--FY 2026 associated with the proposed rule. Those tables were not published in the Addendum to the FY 2026 IPPS/LTCH PPS proposed rule, but are available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html as described in section VI. of the Addendum to the FY 2026 IPPS/LTCH PPS proposed rule. Because the diagnosis and procedure codes no longer valid for FY 2026 are not reflected in the test software, we made available a supplemental file in Table 6P.1a that includes the mapped Version 43 FY 2026 ICD-10-CM codes and the deleted Version 42 FY 2025 ICD-10-CM codes and Table 6P.1b that includes the mapped Version 43 FY 2026 ICD-10-PCS codes and the deleted Version 42.1 FY 2025 ICD-10-PCS codes that should be used for testing purposes with users' available claims data. Therefore, users had access to the test software allowing them to build case examples that reflect the proposals that were included in the proposed rule. In addition, users were able to view the draft version of the ICD-10 MS-DRG Definitions Manual, Version 43 that contains the documentation for proposed FY 2026 ICD-10 MS-DRG GROUPER Version 43 logic changes and were also able to view a draft version of the Definitions of Medicare Code Edits (MCE) Manual to review any changes that will become effective October 1 for FY 2026. In the proposed rule we also noted that, as a result of new and modified code updates approved after the annual spring ICD-10 Coordination and Maintenance Committee meeting, any further changes to the MCE will be reflected in the finalized Definitions of Medicare Code Edits (MCE) Manual, made available in association with the annual IPPS/LTCH PPS final rule. As such, we made available the draft FY 2026 ICD-10 MCE Version 43 Manual file on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software. We noted in the proposed rule that the MCE manual is comprised of two chapters: Chapter 1: Edit code lists provides a listing of each edit, an [[Page 36553]] explanation of each edit, and as applicable, the diagnosis and/or procedure codes for each edit, and Chapter 2: Code list changes summarizes the changes in the edit code lists (for example, additions and deletions) from the prior release of the MCE software. We also stated that the public may submit any questions, comments, concerns, or recommendations regarding the MCE to the CMS mailbox at [email protected] for our review and consideration. In association with the proposed rule, we made available the test version of the ICD-10 MS-DRG GROUPER Software, Version 43, the draft version of the ICD-10 MS-DRG Definitions Manual, Version 43, the draft version of the Definitions of Medicare Code Edits Manual, Version 43, and the supplemental mapping files in Tables 6P.1a and 6P.1b of the FY 2025 and FY 2026 ICD-10-CM diagnosis codes and ICD-10-PCS procedure codes which are available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software. Comment: Commenters expressed appreciation that we provided a test version of the ICD-10 MS-DRG GROUPER Software, Version 43, along with mapping files to assist with analysis, however, the commenters stated that this version essentially only allows for a case-by-case analysis and a minimal batch analysis. The commenters stated that it would be more beneficial to have a Batch z/OS version of the test GROUPER so that it could be better utilized for broader and more meaningful analysis purposes. The commenters requested that availability of a Batch z/OS version of the test GROUPER be made publicly available for all future rulemaking. Response: We appreciate the commenters' feedback and will take the suggestion into consideration. Following are the changes that we proposed to the MS-DRGs for FY 2026. We invited public comments on each of the MS-DRG classification proposed changes, as well as our proposals to maintain certain existing MS-DRG classifications discussed in the FY 2026 IPPS/LTCH PPS proposed rule. In some cases, we proposed changes to the MS-DRG classifications based on our analysis of claims data and clinical appropriateness. In other cases, we proposed to maintain the existing MS-DRG classifications based on our analysis of claims data and clinical appropriateness. As discussed in the FY 2026 IPPS/LTCH PPS proposed rule, our MS-DRG analysis was based on ICD-10 claims data from the September 2024 update of the FY 2024 MedPAR file, which contains hospital bills received from October 1, 2023 through September 30, 2024. In our discussion of the proposed MS-DRG reclassification changes, we referred to these claims data as the ``September 2024 update of the FY 2024 MedPAR file.'' As explained in previous rulemaking (76 FR 51487), in deciding whether to propose to make further modifications to the MS-DRGs for particular circumstances brought to our attention, we consider whether the resource consumption and clinical characteristics of the patients with a given set of conditions are significantly different than the remaining patients represented in the MS-DRG. We evaluate patient care costs using average costs and lengths of stay and rely on clinical factors to determine whether patients are clinically distinct or similar to other patients represented in the MS-DRG. In evaluating resource costs, we consider both the absolute and percentage differences in average costs between the cases we select for review and the remainder of cases in the MS-DRG. We also consider variation in costs within these groups; that is, whether observed average differences are consistent across patients or attributable to cases that are extreme in terms of costs or length of stay, or both. Further, we consider the number of patients who will have a given set of characteristics and generally prefer not to create a new MS-DRG unless it would include a substantial number of cases. In the FY 2021 IPPS/LTCH PPS final rule (85 FR 58448), we finalized our proposal to expand our existing criteria to create a new complication or comorbidity (CC) or major complication or comorbidity (MCC) subgroup within a base MS-DRG. Specifically, we finalized the expansion of the criteria to include the NonCC subgroup for a three-way severity level split. We stated we believed that applying these criteria to the NonCC subgroup would better reflect resource stratification as well as promote stability in the relative weights by avoiding low volume counts for the NonCC level MS-DRGs. We noted that in our analysis of MS-DRG classification requests for FY 2021 that were received by November 1, 2019, as well as any additional analyses that were conducted in connection with those requests, we applied these criteria to each of the MCC, CC, and NonCC subgroups. As discussed in the FY 2024 IPPS/LTCH PPS final rule (88 FR 58661), we continue to apply the criteria to create subgroups, including application of the NonCC subgroup criteria, in our annual analysis of MS-DRG classification requests, consistent with our approach since FY 2021 when we finalized the expansion of the criteria to include the NonCC subgroup for a three-way severity level split. Accordingly, in our analysis of the MS-DRG classification requests for FY 2026 that we received by October 20, 2024, as well as any additional analyses that were conducted in connection with those requests, we applied these criteria to each of the MCC, CC, and NonCC subgroups, as described in the following table. [[Page 36554]] [GRAPHIC] [TIFF OMITTED] TR04AU25.039 In general, once the decision has been made to propose to make further modifications to the MS-DRGs as described previously, such as creating a new base MS-DRG, or in our evaluation of a specific MS-DRG classification request to split (or subdivide) an existing base MS-DRG into severity levels, all five criteria must be met for the base MS-DRG to be split (or subdivided) by a CC subgroup. We note that in our analysis of requests to create a new MS-DRG, we typically evaluate the most recent year of MedPAR claims data available. For example, we stated earlier that for the FY 2026 IPPS/LTCH PPS proposed rule, our MS-DRG analysis was based on ICD-10 claims data from the September 2024 update of the FY 2024 MedPAR file. However, in our evaluation of requests to split an existing base MS-DRG into severity levels, as noted in prior rulemaking (80 FR 49368), we typically analyze the most recent 2 years of data. This analysis includes 2 years of MedPAR claims data to compare the data results from one year to the next to avoid making determinations about whether additional severity levels are warranted based on an isolated year's data fluctuation and also, to validate that the established severity levels within a base MS-DRG are supported. The first step in our process of evaluating if the creation of a new CC subgroup within a base MS-DRG is warranted is to determine if all the criteria is satisfied for a three-way split. In applying the criteria for a three-way split, a base MS-DRG is initially subdivided into the three subgroups: MCC, CC, and NonCC. Each subgroup is then analyzed in relation to the other two subgroups using the volume (Criteria 1 and 2), average cost (Criteria 3 and 4), and reduction in variance (Criteria 5). If the criteria fail, the next step is to determine if the criteria are satisfied for a two-way split. In applying the criteria for a two-way split, a base MS-DRG is initially subdivided into two subgroups: ``with MCC'' and ``without MCC'' (1_23) or ``with CC/MCC'' and ``without CC/MCC'' (12_3). Each subgroup is then analyzed in relation to the other using the volume (Criteria 1 and 2), average cost (Criteria 3 and 4), and reduction in variance (Criteria 5). If the criteria for both of the two-way splits fail, then a split (or CC subgroup) would generally not be warranted for that base MS-DRG. If the three-way split fails on any one of the five criteria and all five criteria for both two-way splits (1_23 and 12_3) are met, we would apply the two-way split with the highest R2 value. We note that if the request to split (or subdivide) an existing base MS-DRG into severity levels specifies the request is for either one of the two-way splits (1_23 or 12_3), in response to the specific request, we will evaluate the criteria for both of the two-way splits; however, we do not also evaluate the criteria for a three-way split. We are making the FY 2026 ICD-10 MS-DRG GROUPER and Medicare Code Editor (MCE) Software Version 43, the ICD-10 MS-DRG Definitions Manual files Version 43 and the Definitions of Medicare Code Edits Manual Version 43 available to the public on our CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software.

2. Pre-MDC MS-DRG 018 Chimeric Antigen Receptor (CAR) T-Cell and Other

Immunotherapies In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18015 through 18017), we discussed a request we received to review the recent MS-DRG assignments to Pre-MDC MS-DRG 018 (Chimeric Antigen Receptor (CAR) T- cell and Other Immunotherapies) and to clarify how decisions for the assignment of cell and gene therapies will be made moving forward. According to the requestor, for FY 2025, CMS did not assign prademagene zamikeracel (PZ), an autologous genetically engineered cell-based gene therapy, to MS-DRGs that would create clinical homogeneity and therefore, the mapping of these cases to MS-DRG 018 instead implied that estimated post-approval product pricing takes precedent for cell and gene therapies over clinical homogeneity principles. The requestor acknowledged that CMS has previously clarified that therapies mapped to Pre-MDC MS-DRG 018 do not need to be CAR T-cell products or utilized in the treatment of cancer and stated it concurs with that approach. However, the requestor indicated that the mapping of PZ to Pre-MDC MS- DRG 018 for FY 2025 also raised the following questions: Why was PZ mapped to Pre-MDC MS-DRG 018 when a different product (eladocagene exuparvovec) that is also delivered via operating room administration methods was mapped to other non-pre-MDC MS-DRGs? Why did CMS indicate that Lantidra, a recently approved cellular therapy, would map to the same MS-DRGs as existing insulin delivery therapies and technologies used to treat the subset of patients with hard-to-control Type 1 diabetes complicated by severe hypoglycemia who cannot receive a whole pancreas transplant instead of to Pre-MDC MS-DRG 018? Does CMS intend a future split of Pre-MDC MS-DRG 018 between medical and surgical cell and gene therapies to recognize the clinical resource [[Page 36555]] differential between the two modalities, even if the 500 case volume threshold is not reached? Why was a product delivered via allogeneic stem cell transplant procedure (Orca-T) mapped to Pre-MDC MS-DRG 018 instead of Pre-MDC MS-DRG 014 (Allogeneic Bone Marrow Transplant)? If products delivered via stem cell transplant should be mapped to Pre-MDC MS-DRG 018 based on resource use, per the Orca-T example, why are multiple gene therapy products delivered via stem cell transplant instead mapped to Pre-MDC MS-DRGs 016 and 017 (Autologous Bone Marrow Transplant with CC/MCC and without CC/MCC, respectively)? The requestor stated the previously listed questions illustrate examples of inconsistencies with the MS-DRG mappings of cell and gene therapy products in recent years. The requestor recommended that CMS review recent MS-DRG assignments for these products and consider refinements to the approach. The requestor also urged CMS to clarify how decisions for cell and gene therapies will be made in the future. The requestor stated that if the intent of CMS is for Pre-MDC MS-DRG 018 to be a broad cell and gene therapy MS-DRG then a modification to the title of Pre-MDC MS-DRG 018 should be proposed and therapies currently assigned to other MS-DRGs should be re-mapped. The requestor also suggested that CMS clarify the process by which interested parties can submit comments on potential or proposed procedure code mappings to the MS-DRGs for code proposals discussed at the Spring ICD-10 Coordination and Maintenance (C&M) Committee meeting since, given the timing, proposed code assignments are not published in association with the annual IPPS/LTCH PPS proposed rule. Specifically, the requestor stated there is no opportunity for interested parties to provide feedback to CMS about the assignment of new codes to Pre-MDC MS-DRG 018. The requestor stated that because MS-DRG 018 is a Pre-MDC MS-DRG with a limited number of procedure codes mapping to it, it is important for interested parties to have the ability to preview potential assignments to this MS-DRG and provide feedback to CMS prior to any final mapping decisions being made. The requestor acknowledged that CMS previously responded to prior comments regarding the process of commenting on the assignment of newly created codes; however, the requestor suggested that CMS provide additional clarification. Specifically, the requestor stated that the primary comment period with respect to the Spring procedure code requests is the timeframe following the ICD-10 C&M Committee meeting and that the materials provided in association with the meeting do not contain mapping requests submitted by the code requestor. The requestor indicated that if it is to assume any new procedure code request could potentially be mapped to Pre-MDC MS-DRG 018 and submits comments accordingly, that would create an undue burden. The requestor submitted the following questions regarding the process by which interested parties may submit comments on potential procedure code mappings to MS-DRGs: Can mapping requests be submitted as part of the request for a new ICD-10-PCS procedure code or do mapping requests need to go through the MS-DRG modification process with an annual October deadline? Can CMS provide information on mapping requests as part of the ICD-10 C&M Committee meeting materials? Will comments submitted to the ICD-10 C&M Committee about potential mappings be shared with the CMS teams associated with MS-DRG mapping decisions? Should interested parties include the same comments that are submitted to the ICD-10 C&M Committee in their proposed rule comments? Will comments submitted as part of the proposed rule be considered within scope for proposed codes presented during the spring meeting that are subsequently finalized but not listed in Table 6A.-- New Diagnosis codes and Table 6B.--New Procedure Codes with proposed mappings? Do CMS' prior responses indicate that interested parties who submit comments on procedure code mappings should request code proposals presented at the spring meeting be delayed until the fall meeting? The requestor recommended that CMS address the previously listed questions and seek input on the process by which interested parties may submit comments on potential procedure code mappings. We stated in the proposed rule that we appreciated the requestor's feedback and suggestions regarding the classification of therapies to Pre-MDC MS-DRG 018 and the broader topic of MS-DRG mappings of cell and gene therapy products for the future. As discussed in the FY 2025 IPPS/ LTCH PPS final rule (89 FR 69008 through 69010), we summarized and responded to comments regarding the mapping of procedure codes describing the application of PZ and other newly established procedure codes to Pre-MDC MS-DRG 018. We noted that we previously addressed similar comments in the FY 2023 IPPS/LTCH PPS final rule (87 FR 48806 through 48807), and we also noted that we provided detailed summaries and responses to these same or similar comments in the FY 2022 IPPS/ LTCH PPS final rule (86 FR 44798 through 44806). We also referred the reader to the discussion in section II.D. of the FY 2026 IPPS/LTCH PPS proposed rule, regarding the proposed relative weight methodology for cases mapping to Pre-MDC MS-DRG 018 effective October 1, 2025, for FY 2026. As discussed in the proposed rule, with respect to the requestor's suggestion that a modification to the title of Pre-MDC MS-DRG 018 be proposed, we noted that the requestor did not provide a specific recommendation for FY 2026 consideration; however, we acknowledged that there has been discussion related to requests to revise the title to Pre-MDC MS-DRG 018 in prior rulemaking, most recently in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69008 through 69010), and we stated that we continue to be interested in obtaining input from members of the public on options to consider, recognizing there are additional types of cell and gene therapies now mapping to Pre-MDC MS-DRG 018. We stated we will continue to review additional feedback and suggestions in connection with future rulemaking. In response to the requestor's assertion that there is no opportunity for interested parties to submit feedback about MS-DRG assignments, as we have discussed in prior rulemaking (87 FR 48807 through 48808) and as noted in the proposed rule discussion, interested parties may use current coding information as shown in the ICD-10 C&M Committee meeting materials to consider the potential MS-DRG assignments for any procedure codes that may be finalized after the Spring meeting and submit public comments for consideration. As we have noted in prior rulemaking, because the diagnosis and procedure code proposals that are presented at the Spring ICD-10-CM C&M Committee meeting for an October 1 implementation (upcoming FY) are not finalized in time to include in Table 6A.--New Diagnosis Codes and Table 6B.--New Procedure Codes in association with the proposed rule, we use our established process to examine the MS-DRG assignment for the predecessor codes to determine the most appropriate MS-DRG assignment. Specifically, we review the predecessor code and MS-DRG assignment most [[Page 36556]] closely associated with the new procedure code, and in the absence of claims data, we consider other factors that may be relevant to the MS- DRG assignment, including the severity of illness, treatment difficulty, complexity of service and the resources utilized in the diagnosis and/or treatment of the condition. We have noted in prior rulemaking that this process does not automatically result in the new procedure code being assigned to the same MS-DRG or to have the same designation (O.R. versus Non-O.R.) as the predecessor code. In response to the question regarding the inclusion of information on mapping requests as part of the ICD-10 C&M Committee meeting materials, we noted in the proposed rule that, as announced at each ICD-10 C&M Committee meeting, there is no discussion of MS-DRGs, payment, coverage, or billing at the ICD-10 C&M Committee meetings; therefore, we do not include such information in the meeting materials made publicly available in association with the meeting. Rather, we state that any issues related to MS-DRGs or payment are addressed through IPPS rulemaking. We noted that the purpose of the ICD-10 C&M Committee meeting is to present code proposals based on requests received regarding coding updates (that is, additions, deletions, or revisions). Therefore, while mapping requests may be included in the submission of an ICD-10-PCS procedure code request, that information is not included in the meeting materials, nor is there any discussion about any mapping request(s) during the meeting. In response to the requestor's question regarding whether comments submitted to the ICD-10 C&M Committee about potential mappings are shared with the CMS staff associated with MS-DRG mapping decisions, we noted in the proposed rule that the comments are shared. With respect to whether interested parties should include the same comments submitted to the ICD-10 C&M Committee in the comments submitted in response to the proposed rule, we noted in the proposed rule that what comments to include and submit for each process is up to the commenter. In response to the question of whether comments submitted in response to the proposed rule would be considered within scope for proposed codes presented during the Spring meeting that are subsequently finalized but not listed in Table 6A.--New Diagnosis codes and Table 6B.--New Procedure Codes with proposed mappings, we noted in the proposed rule that the procedure code update files reflecting the newly finalized codes are made publicly available following the receipt and review of public comments received by the established deadline for the Spring coding topics, and that interested parties may choose to submit public comments on MS-DRG assignment for the agency's consideration. Lastly, in response to the question of whether interested parties considering submitting comments on procedure code mappings should request code proposals associated with the Spring meeting be delayed until the Fall meeting, we similarly noted in the proposed rule that the decision on what comments a commenter decides to include and submit in response to a code proposal is up to the commenter. We referred the reader to section II.C.11. of the preamble of the FY 2026 IPPS/LTCH PPS proposed rule for additional information regarding the ICD-10 C&M Committee meeting process. As discussed in the proposed rule, in connection with the comments and questions about how products are grouped under the IPPS MS-DRGs, specifically with respect to cell and gene therapies under Pre-MDC MS- DRG 018, for FY 2026, we also received a request to create a new neurosurgical gene therapy MS-DRG to more accurately reflect the clinical characteristics and resource intensity required for the administration of neurosurgical gene therapies, including eladocagene exuparvovec, for patients diagnosed with Aromatic L-amino acid decarboxylase (AADC) deficiency. We referred the reader to the FY 2022 IPPS/LTCH PPS final rule (86 FR 44895) and the FY 2023 IPPS/LTCH PPS final rule (87 FR 48853 through 48854) for discussion regarding eladocagene exuparvovec. We stated that the requestor (the manufacturer), expressed its appreciation for CMS' efforts to reassign cases reporting procedure code XW0Q316 (Introduction of eladocagene exuparvovec into cranial cavity and brain, percutaneous approach, new technology group 6) to a surgical MS-DRG as discussed in the FY 2022 IPPS/LTCH PPS final rule (86 FR 44895). According to the requestor, the decision appropriately reclassified cases involving eladocagene exuparvovec from a Non-O.R. procedure to an operating room (O.R.) procedure due to the requirement for intraputaminal administration via a burr hole in the skull. However, the requestor did not agree with the current assignment to MS- DRGs 628, 629, and 630 (Other Endocrine, Nutritional and Metabolic O.R. Procedures with MCC, with CC, and without CC/MCC, respectively) in MDC 10, or MS-DRGs 987, 988, and 989 (Non-Extensive O.R. Procedure Unrelated to Principal Diagnosis with MCC, with CC, and without MCC/CC, respectively). According to the requestor, the clinical characteristics and average costs of the cases currently assigned to MS-DRGs 628, 629, and 630 are significantly different from those associated with eladocagene exuparvovec neurosurgical gene therapy for rare disease. The requestor stated that CMS denied the request to create a new MS-DRG for FY 2023, stating that it would continue to explore appropriate mechanisms to address low volume MS-DRGs indicated for rare diseases; however, after receiving responses to the Request for Information (RFI), the requestor stated that there have not been any changes proposed to the IPPS. The requestor stated its belief that assigning cases for this gene therapy and the rare disease indicated to a new MS-DRG is both appropriate and warranted. According to the requestor, the current MS-DRGs that eladocagene exuparvovec cases group to do not adequately reflect the clinical characteristics or resource needs associated with treatment which may deter hospitals from providing this therapy. The requestor also stated there are approximately 68 gene therapy trials in the U.S. for central nervous system disorders for which over 30 of the 68 trials involve the gene therapy being administered directly into the brain parenchyma. According to the requestor, gene therapies administered surgically, including with neurosurgery, are extremely complicated, resource-intensive procedures for hospitals to undertake. These procedures require highly specialized surgeons, surgical equipment, and staff. Patients undergoing these procedures may also require continuous monitoring and longer hospital stays. The requestor stated the more intensive needs of these patients are not adequately captured in existing MS-DRGs and the creation of a new MS- DRG for neurosurgical gene therapy would help CMS proactively shape payment policy for this evolving class of therapies, thus allowing appropriate payment to support patient access to these treatments. We stated that our analysis of the September 2024 update of the FY 2024 MedPAR file yielded zero cases reporting the administration of eladocagene exuparvovec; therefore, we believed it would be premature to consider the creation of a new neurosurgical gene therapy MS-DRG at this time. We also stated we appreciated [[Page 36557]] the detailed clinical information that the requestor provided and acknowledged that cases involving neurosurgery are technically complex and that patients undergoing these procedures tend to be critically ill, many with rare diseases. We noted that we did receive a new procedure code request to identify and describe the Smartflow[supreg] Neuro Cannula as the delivery mechanism to administer eladocagene exuparvovec that was included as a topic in the Spring 2025 ICD-10 Coordination and Maintenance Committee Update materials. We refer the reader to the CMS website at: https://www.cms.gov/Medicare/Coding/ICD10/C-and-M-Meeting-Materials for additional detailed information regarding the request, and the related materials. We note that procedure code 00H033J (Insertion of infusion device into brain, temporary, percutaneous approach) that describes the procedure that uses the Smartflow[supreg] Neuro Cannula was approved and finalized as reflected in the FY 2026 ICD-10-PCS code update files that were made publicly available on the CMS website on June 6, 2025 at: https://www.cms.gov/medicare/coding-billing/icd-10-codes. We also noted, as discussed in prior rulemaking, that this category of therapies continues to evolve, and we are in the process of carefully considering the feedback we have previously received about ways in which we can continue to appropriately reflect resource utilization while maintaining clinical coherence and stability in the relative weights under the IPPS MS-DRGs. We appreciate the recommendations and suggestions for consideration we have received and will continue to examine these complex issues in connection with future rulemaking. We acknowledge that there may be distinctions to account for as we continue to gain more experience in the use of these therapies and have additional claims data to analyze. Comment: A commenter (the requestor) expressed appreciation for the clarification CMS provided regarding the submission of comments related to coding requests presented during the Spring ICD-10 Coordination and Maintenance Committee Meeting and that comments submitted after the Spring meeting will be shared with the groups responsible for considering MS-DRG mappings. The commenter stated that while some stakeholders may have the resources and expertise to review meeting materials, infer potential requested mappings for all therapies requesting new codes and submit mapping comments accordingly, many stakeholders will not. The commenter stated that if an applicant is requesting an MS-DRG mapping as part of the ICD-10-PCS process, this should be made explicitly public in the meeting materials, even if it is not discussed in the meeting itself. The commenter also stated that CMS should not ask or expect all stakeholders to know enough about clinical care and CMS' mapping processes to be able to suggest an alternative mapping for a code, if required. The commenter reiterated its request for CMS to introduce a process by which stakeholders can review requested MS-DRG mappings as part of, or in parallel to, the ICD-10-PCS code request process. The commenter also requested that CMS utilize its established process to review and reconsider MS-DRG assignment when stakeholders raise concerns about CMS' assignment instead of expecting stakeholders to propose alternative mappings. Response: We thank the commenter for the feedback. In response to the commenter's assertion that not all stakeholders may have the resources and expertise to review meeting materials, infer potential requested mappings for all therapies requesting new codes and submit mapping comments accordingly, we note that we have made all of the information and materials necessary to conduct those actions publicly available via the CMS website. Specifically, the ICD-10 Coordination and Maintenance Committee Meeting materials are available at: https://www.cms.gov/medicare/coding-billing/icd-10-codes/icd-10-coordination-maintenance-committee-materials, and the meeting process is summarized in the annual rulemakings available at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps. In addition, the ICD-10 MS-DRG Definitions Manual is made publicly available via the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software. In response to the commenter's statement that if an applicant is requesting an MS-DRG mapping as part of the ICD-10-PCS process it should be made public in the meeting materials even if it is not discussed in the meeting itself, we note that, as discussed in the preamble of the proposed rule (90 FR 18016) and this final rule, the purpose of the ICD-10 Coordination and Maintenance Committee meeting is to present code proposals based on requests received regarding coding updates (that is, additions, deletions, or revisions). Therefore, while mapping requests may be included in the submission of an ICD-10-PCS procedure code request, we disagree that the information should be included in the meeting materials. We underscore that the focus of the ICD-10 Coordination and Maintenance Committee meetings is on updates and maintenance to the ICD-10 code sets and not about how a potential new code may be designated or assigned under the IPPS, which is addressed through rulemaking. These are two separate and distinct processes, each with their own objectives and timelines. In response to the commenter's statement that CMS should not ask or expect all stakeholders to know enough about clinical care and CMS' mapping processes to be able to suggest an alternative mapping for a code, if required, we note that under our established process, we consider requests for MS-DRG classification changes on an annual basis that are submitted via MEARISTM at: https://mearis.cms.gov/public/home by the designated October 20 deadline for the upcoming fiscal year. If a proposal is subsequently put forth in rulemaking and members of the public submit comments expressing disagreement with that proposal (for example, proposed new MS-DRG(s), proposed reassignment of diagnosis and/or procedure codes, or their designation), the public comments routinely provide the rationale behind the disagreement as well as alternative suggestions) for our consideration, which we may be able to further evaluate. With respect to the mapping process, as discussed in the preamble of the proposed rule (90 FR 18016) and this final rule, under our established process, when a new procedure code is finalized, we review the predecessor code and MS-DRG assignment most closely associated with the new procedure code, and in the absence of claims data, we consider other factors that may be relevant to the MS- DRG assignment, including the severity of illness, treatment difficulty, complexity of service and the resources utilized in the diagnosis and/or treatment of the condition. We have noted in prior rulemaking that this process does not automatically result in the new procedure code being assigned to the same MS-DRG or to have the same designation (O.R. versus Non-O.R.) as the predecessor code. Comment: A commenter (the requestor) expressed appreciation that CMS shared the types of concerns and questions raised by stakeholders about the rationale for mapping new ICD-10-PCS codes for novel therapies into Pre-MDC MS-DRG 018; however, the commenter requested that CMS discuss [[Page 36558]] the rationale for mapping Orca-T allogeneic T-cell immunotherapy to Pre-MDC MS-DRG 018. Response: We thank the commenter for the feedback. The procedure code proposal for Orca-T allogeneic T-cell immunotherapy was discussed at the March 19-20, 2024 ICD-10 Coordination and Maintenance Committee meeting. We refer the reader to the meeting materials on the CMS website at: https://www.cms.gov/medicare/coding-billing/icd-10-codes/icd-10-coordination-maintenance-committee-materials for additional information regarding the request. ICD-10-PCS codes XW033BA (Introduction of Orca-T allogeneic T-cell immunotherapy into peripheral vein, percutaneous approach, new technology group 10) and XW043BA (Introduction of Orca-T allogeneic T-cell immunotherapy into central vein, percutaneous approach, new technology group 10) became effective October 1, 2024, for FY 2025. Under our established process, we reviewed the predecessor code assignments. The predecessor codes for Orca-T allogeneic T-cell immunotherapy (hereafter referred to as Orca- T) are procedure codes 3E033GC (Introduction of other therapeutic substance into peripheral vein, percutaneous approach) and 3E043GC (Introduction of other therapeutic substance into central vein, percutaneous approach) that are designated as non-O.R. and do not affect MS-DRG assignment. We then reviewed other factors associated with Orca-T. Notably, Orca-T is a precision-engineered allogeneic stem cell and T-cell immunotherapy biologic (that is, a combination therapy comprised of immune cells, including regulatory T-cells (Tregs) and conventional T-cells (Tcons), and stem cells) that is in clinical trials and regulated under FDA section 351 of the Public Health Service Act (PHSA) as a biologic. Allogeneic hematopoietic stem cell transplant (alloHSCT) can provide a curative therapy for many patients with advanced hematologic malignancies. Unfortunately, despite advancements in identifying matching donors and medical care, patients can experience a variety of post-transplant complications including Graft Versus Host Disease (GvHD), infection and organ failure. GvHD is a condition in which the donated cells attack the recipient's tissues which can lead to end organ damage. Orca-T is derived from an HLA matched donor and combines progenitor stem cells along with highly purified T-cells in the form of regulatory T-cells (Tregs, a specialized CD4+ T cell subset) and conventional T- cells (Tcons). Because of its purified nature, the Tregs can proliferate and exist in a patient's tissues in a fashion not normally possible. While the stem cells serve to build a long term immune system in the recipient, the Tregs act to protect the patient's tissues and organs from GvHD and other toxicities. The Tcons component is designed to accelerate the reconstitution of a patient's immune system, mediating the graft-versus-leukemic effect, graft-versus-infection and the inflammatory responses, providing protection against infection. Establishment of a successful allograft requires an approach that balances an enhancement of the graft-vs-tumor and graft-vs-infection effects while avoiding or limiting GvHD. While some immunotherapeutic agents treat an active disease process, the specialized cells in Orca-T are intended to immunologically mitigate significant post allograft complications such as GvHD and infection. We note that both CAR T-cell therapy and Orca T-cell therapy are forms of immunotherapies that are indicated for patients diagnosed with acute lymphoblastic leukemia (ALL), among other types of cancer. One of the challenges experienced to date with the treatment of ALL is GvHD, which is what Orca-T is formulated to address. We also note that there are other procedure codes describing both allogeneic CAR T-cell and non-CAR T-cell immunotherapy currently assigned to MS-DRG 018. Therefore, we believe the assignment of Orca T-cell immunotherapy to Pre-MDC MS-DRG 018 is appropriate. Comment: A commenter stated that the procedure code describing valoctocogene roxaparvovec is listed in Table 6B in association with the proposed rule and a proposed mapping to Pre-MDC MS-DRG 018, but CMS did not discuss any rationale for this proposal in the rule text. The commenter stated that the title of Pre-MDC MS-DRG 018 is Chimeric Antigen Receptor (CAR) T-Cell and Other Immunotherapies, and valoctocogene roxaparvovec is an off-the-shelf in vivo gene therapy that is neither a CAR-T nor an immunotherapy. Additionally, according to the commenter, it does not require the same types of complex and specialized clinical resources to administer as the other therapies assigned to Pre-MDC MS-DRG 018. The commenter further stated that, as a result, and without any discussion or explanation from CMS about why its medical advisors have proposed this, they assume that this proposed assignment is simply based on the manufacturer's request to assign its product to Pre-MDC MS-DRG 018 as part of the ICD-10-PCS code request application. The commenter stated that CMS' acceptance of this requested mapping is concerning as it seems that resource homogeneity is the only factor being relied upon. The commenter stated its understanding is that CMS has always discussed the importance of balancing both clinical and resource homogeneity when considering MS- DRG assignments for new therapies. The commenter provided an example stating that CMS assigned several hematopoietic stem cell gene therapies to autologous transplant MS-DRGs 016 and 017 (Autologous Bone Marrow Transplant with CC/MCC and without CC/MCC, respectively) based on the clinical similarity of the services being provided to the patient, rather than basing assignment on price point. According to the commenter, if the latter had been deemed more critical at the time of those assignments, then CMS would have assigned the therapies to Pre- MDC MS-DRG 018 as well. The commenter also stated that CMS did not propose to map eladocagene exuparvovec to MS-DRG 018 after denying its request for a new MS-DRG (as discussed later in this section), though eladocagene exuparvovec has a similar price point. The commenter stated it cannot determine any consistent logic guiding the variation in recent mapping proposals and decisions. The commenter requested that CMS not finalize the proposed mapping of valoctocogene roxaparvovec to Pre-MDC MS-DRG 018 due to differences in clinical complexity and resource use. The commenter stated that CMS should use its established mapping process and input from its clinical advisors to assign valoctocogene roxaparvovec to a more clinically appropriate MS-DRG. Response: In response to the commenter's request that CMS not finalize the proposed mapping of valoctocogene roxaparvovec to Pre-MDC MS-DRG 018 because it is neither a CAR-T nor an immunotherapy and does not require the same types of complex and specialized clinical resources to administer as the other therapies assigned to Pre-MDC MS- DRG 018, we note that, as discussed in prior rulemaking, consideration is given to the similarities and differences in resource utilization among patients in each MS-DRG and we strive to ensure that resource utilization is relatively consistent across patients in each MS-DRG. However, some variation in resource intensity will remain among the patients in each MS-DRG because [[Page 36559]] the definition of the MS-DRG is not so specific that every patient is identical, rather the average pattern of resource intensity of a group of patients in an MS-DRG can be predicted. We note that historically, in the development of the DRGs, the initial step in the determination of the DRG had been the assignment of the appropriate MDC based on the principal diagnosis, however, beginning with the eighth version of the GROUPER (CMS 8.0), the initial step in DRG assignment was based on the procedure being performed, thus the creation of the Pre-MDC DRGs, where the patient is assigned to these DRGs independent of the MDC of the principal diagnosis. Therefore, the logic for case assignment to Pre- MDC MS-DRG 018 does not preclude the assignment of other therapies indicated in the treatment of patients with different diagnoses. In our review of the MS-DRG assignment of valoctocogene roxaparvovec, we recognized that this technology is defined as a gene therapy. We also note that similar to the discussions in prior rulemaking with respect to the difficulty in predicting what the associated costs will be in the future for CAR T-cell and other immunotherapies that remain under development (87 FR 48806), it is also difficult to predict what the associated costs will be in the future for cell and gene therapies that remain under development or in clinical trials. In response to the commenter's assertion that CMS did not use its established mapping process and input from its clinical advisors to assign valoctocogene roxaparvovec to a more clinically appropriate MS- DRG, as discussed in the preamble of the proposed rule (90 FR 18016) and this final rule, and as noted in prior rulemaking, we use our established process to examine the MS-DRG assignment for the predecessor codes to determine the most appropriate MS-DRG assignment. Specifically, we review the predecessor code and MS-DRG assignment most closely associated with the new procedure code, and in the absence of claims data, we consider other factors that may be relevant to the MS- DRG assignment, including the severity of illness, treatment difficulty, complexity of service and the resources utilized in the diagnosis and/or treatment of the condition. As noted previously and in prior rulemaking, this process does not automatically result in the new procedure code being assigned to the same MS-DRG or to have the same designation (O.R. versus Non-O.R.). We note that the proposal to create new procedure codes that describe the administration of valoctocogene roxaparvovec was discussed at the September 10, 2024 ICD-10 Coordination and Maintenance Committee meeting. The predecessor codes to describe the administration of valoctocogene roxaparvovec are ICD- 10-PCS codes 3E033GC (Introduction of other therapeutic substance into peripheral vein, percutaneous approach) and 3E043GC (Introduction of other therapeutic substance into central vein, percutaneous approach) which are designated as non-O.R. and do not impact MS-DRG assignment. We refer the reader to the CMS website at: https://www.cms.gov/Medicare/Coding/ICD10/C-and-M-Meeting-Materials for additional detailed information regarding the code request, including a recording of the discussion and the related meeting materials. We also note that the procedure codes to describe the administration of valoctocogene roxaparvovec were approved and finalized as reflected in Table 6B.--New Procedure Codes associated with the proposed rule and this final rule (and available via the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps) as well as reflected in the FY 2026 ICD-10-PCS code update files that were made publicly available on the CMS website on June 6, 2025 at: https://www.cms.gov/medicare/coding-billing/icd-10-codes. As discussed in section II.C.11. of the preamble of the FY 2026 IPPS/LTCH PPS proposed rule and this final rule, the code titles are adopted as part of the ICD-10 Coordination and Maintenance Committee meeting process that have been finalized after the review of public comments. As also discussed in the preamble of the proposed rule (90 FR 18067) and this final rule, we proposed the MDC and MS-DRG assignments for the new diagnosis codes and procedure codes as set forth in Table 6A.--New Diagnosis Codes and Table 6B.--New Procedure Codes associated with the proposed rule. Therefore, the public has the opportunity to comment and provide feedback on the proposed assignments for CMS' consideration, which is subsequently included in the final rule with a summary of the comments and feedback and CMS' response, as is reflected in the discussion in this section of this final rule. In response to the commenter's statement that valoctocogene roxaparvovec does not require the same types of complex and specialized clinical resources to administer as other therapies assigned to Pre-MDC MS-DRG 018, we note that valoctocogene roxaparvovec is indicated in the treatment of Hemophilia A, an X-linked genetic disorder that results in a dysfunction in the gene encoding for Factor VIII which is essential for proper coagulation. Patients may have varying degrees of functional activity of Factor VIII with severe activity (< 1IU per deciliter) resulting in spontaneous hemorrhage. This can result in life threatening hemorrhages into the brain or lead to debilitating hemorrhages in the soft tissues or joints leading to chronic pain or arthropathy. While prophylactic regimens may improve outcomes, they do not address the underlying dysfunctional gene encoding for Factor VIII. Valoctocogene roxaparvovec is a one-time therapy that uses an adeno- associated virus (AAV5) to deliver a functional copy of the F8 gene which is responsible for the production of Factor VIII. Valoctocogene roxaparvovec is similar to other gene based therapies currently assigned to Pre-MDC MS-DRG 18 such as prademagene zamikeracel (ZevaskynTM) and CAR T-cell therapy in that these treatments involve introduction of genetic material into a patient's cells to treat a disease process. CAR T-cell therapy uses a patient's genetically modified T-cells to treat cancer while prademagene zamikeracel and valoctocogene roxaparvovec introduce functional deoxyribonucleic acid (DNA) copies into a patient's skin and liver, respectively, to correct an inherited genetic dysfunction. While they are similar in character to the hematopoietic stem cell gene therapies assigned to autologous transplant MS-DRGs 016 and 017 (Autologous Bone Marrow Transplant with CC/MCC and without CC/MCC, respectively), resource utilization differs. Prademagene zamikeracel and valoctocogene roxaparvovec involve introduction of genetic material into mature cells while hematopoietic gene therapy involves introduction of genetic material into stem cells which require a level of resource utilization more akin to other therapies in MS-DRGs 016 and 017. In response to the commenter's assumption that the manufacturer requested assignment to Pre-MDC MS-DRG 018 in association with its procedure code request, we note that it did not. We also take this opportunity to emphasize that, as has been discussed in prior rulemaking with respect to gene therapies, this category of therapies continues to evolve, and we are in the process of carefully considering the feedback we have previously received about ways in which we can continue [[Page 36560]] to appropriately reflect resource utilization while maintaining clinical coherence and stability in the relative weights under the IPPS MS-DRGs. We also note that valoctogene roxaparvovec is primarily administered in the outpatient setting (for example, hemophilia treatment centers). However, in rare instances when the therapy is administered in the inpatient setting or the patient must be transferred to the inpatient setting, providers are equipped with a specific procedure code to report its use in connection with a predictable payment mechanism under the IPPS. Comment: A commenter stated they support appropriate and ongoing refinement of the MS-DRG system and greater clarity with respect to how CMS renders decisions regarding ICD-10-PCS codes mapped to Pre-MDC MS- DRG 018. Another commenter recommended that CMS dedicate space in each IPPS proposed rule to identify relevant ICD-10-PCS codes that might be assigned to Pre-MS-DRG 018, along with preliminary rationales for these potential assignments. Response: We appreciate the commenters' feedback. We note that while the establishment of Pre-MDC MS-DRG 018 has presented unique operational considerations under the IPPS, there are also over 700 other MS-DRGs that warrant continued review for ongoing refinements. In response to how CMS renders decisions regarding the mapping of procedure codes to a Pre-MDC MS-DRG, as discussed in the preamble of the proposed rule (90 FR 18068) and in this final rule, we review the predecessor code and MS-DRG assignment most closely associated with the new diagnosis or procedure code, and in the absence of claims data, we consider other factors that may be relevant to the MS-DRG assignment, including the severity of illness, treatment difficulty, complexity of service and the resources utilized in the diagnosis or treatment of the condition. As previously noted, this process does not automatically result in the new diagnosis or procedure code being proposed for assignment to the same MS-DRG or to have the same designation as the predecessor code. Comment: A commenter stated it is unclear why discussion of the request to create a new MS-DRG to describe neurosurgical gene therapies was included under the Pre-MDC MS-DRG 018 section of the proposed rule instead of under MDC 10 (Endocrine, Nutritional and Metabolic Diseases and Disorders) where prior discussions of eladocagene exuparvovec have been included. The commenter indicated that if CMS placed this discussion in the Pre-MDC MS-DRG 018 section in an effort to seek comments about whether Pre-MDC MS-DRG 018 should be broadened to include eladocagene exuparvovec and other gene therapies that it be made explicit what information the agency is seeking from stakeholders in advance of the FY 2027 IPPS/LTCH PPS rulemaking cycle. The commenter also stated that if CMS intends for Pre-MDC MS-DRG 018 to be the primary Pre-MDC MS-DRG for all cell and gene therapies until further modifications can be made, the agency should propose to rename the MS- DRG and be consistent with mapping practices and rationale. The commenter further remarked that CMS' proposed rule analysis stated no cases reporting eladocagene exuparvovec were found, however, according to the commenter, because the product was not approved until November 2024, cases would not be expected to appear in the data. Response: As stated in the preamble of the proposed rule (90 FR 18016), in connection with the comments and questions about how products are grouped under the IPPS MS-DRGs, specifically with respect to cell and gene therapies under Pre-MDC MS-DRG 018, for FY 2026, we also received a request to create a new neurosurgical gene therapy MS- DRG, which we believe was appropriately placed and discussed in that section of the preamble of the proposed rule. As also explicitly stated in the preamble of the proposed rule (90 FR 18017), we continue to welcome additional feedback and comments on other options to consider on how to appropriately address low volume, high-cost treatments for rare diseases, therefore, we believe that our intentions were clearly stated. In response to the commenter's suggestion that a proposal to revise the title for Pre-MDC MS-DRG 018 should be put forth if CMS aims to temporarily designate Pre-MDC MS-DRG 018 as the primary Pre-MDC MS- DRG for all cell and gene therapies, we note that, as also stated in the preamble of the proposed rule, (90 FR 18016), there has been discussion related to requests to revise the title to Pre-MDC MS-DRG 018 in prior rulemaking, most recently in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69008 through 69010), and we continue to be interested in obtaining input from members of the public on options to consider, recognizing there are additional types of cell and gene therapies now mapping to Pre-MDC MS-DRG 018. We stated we will continue to review additional feedback and suggestions in connection with future rulemaking. In response to the commenter's remarks that CMS' proposed rule analysis stated no cases were found to report the administration of eladocagene exuparvovec and because the product was not approved until November 2024, cases would not be expected to appear in the data, we note that procedure code XW0Q316 (Introduction of eladocagene exuparvovec into cranial cavity and brain, percutaneous approach, new technology group 6) that describes the administration of eladocagene exuparvovec became effective October 1, 2020 (FY 2021) and a single case was previously identified in the data in MS-DRG 829 (Myeloproliferative Disorders or Poorly Differentiated Neoplasms with Other Procedures with CC/MCC) with an average length of stay of 2 days and average costs of $1,544, as discussed in the FY 2023 IPPS/LTCH PPS final rule (87 FR 48854). We further note that, as also discussed in prior rulemaking, the creation of a code to describe a technology that is utilized in the performance of a procedure or service does not require FDA approval of the technology nor is the proposed and final assignment of a procedure code to an MS-DRG dependent upon a product's FDA approval (86 FR 44806). Several commenters provided general feedback on the subject of cell and gene therapies for CMS' consideration in association with the Pre- MDC MS-DRG 018 proposed rule discussion. Notably, commenters suggested that CMS: (1) issue a Request for Information (RFI) to obtain additional insight on provider experiences, including information on the therapies under development and expected to become available in the near future, as well as features of their administration and the affected patient populations, (2) develop a payment model or long-term solution for appropriate payment that also accounts for products whose new technology add-on payment is expiring, and (3) ensure transparency in the refinement process by collaborating with stakeholders. We appreciate the commenters' recommendations and feedback as we continue to examine the complexities involved with these therapies under the IPPS. We intend to address any potential modifications to the MS-DRGs through future notice and comment rulemaking.

3. MDC 01 (Diseases and Disorders of the Nervous System)

a. Logic for MS-DRGs 023 Through 027 As discussed in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18017 [[Page 36561]] through 18025), we received three separate but related requests to review the MS-DRG assignments for a subset of procedures assigned to MS-DRGs 023 through 027. In this section of the preamble of this FY 2026 IPPS/LTCH PPS final rule, we discuss each of these separate, but related requests. The first request was to create a new MS-DRG for cases involving ``chemotherapy implants'' and cases involving ``epilepsy with neurostimulator.'' The requestor noted chemotherapy implants are used to treat patients with brain tumors. They are implanted into the brain during the craniotomy procedure at the time of tumor resection. Upon implantation, these devices immediately release radiation or chemotherapeutic agents. This approach enables treatment to be initiated at the time of tumor resection without undue delay. ``Epilepsy with neurostimulator'' cases involve devices used in the treatment of medically intractable epilepsy. The neurostimulator is implanted in the skull via a craniotomy and is connected to electrodes that are implanted on the surface of the brain or in the brain through either a craniotomy or a burr hole(s). According to the requestor, like the procedure to insert a chemotherapy implant, the craniotomy procedure to insert the neurostimulator lead is performed under general anesthesia and the procedure typically takes four hours. We noted in the proposed rule that the requestor performed their own analysis of Medicare claims data and stated they found that the average costs of cases involving chemotherapy implants and cases involving epilepsy with neurostimulators are significantly higher than the average costs of other procedures currently grouped within MS-DRG 023 (Craniotomy with Acute Complex CNS Principal Diagnosis with MCC or Antineoplastic Implant). The requestor asserted that as a result, these cases are not being adequately paid under the current MS-DRG. Therefore, given the limited options within the existing MS-DRG structure, the requestor recommended that CMS extract cases reporting the insertion of a chemotherapy implant and cases reporting a neurostimulator generator inserted into the skull with the insertion of a neurostimulator lead into the brain, and a principal diagnosis of epilepsy from MS-DRG 023 and create a new MS-DRG for these cases with a payment rate that better aligns with the resource utilization associated with these procedures. The requestor stated that this recommendation appeared to be reasonable, given that CMS has already determined that these two subsets of cases are clinically coherent by virtue of them being currently assigned to the same MS-DRG. To begin our analysis, as discussed in the proposed rule, we reviewed the GROUPER logic for MS-DRGs 023 and 024 (Craniotomy with Acute Complex CNS Principal Diagnosis without MCC). We noted in the proposed rule that the requestor is correct that currently, cases involving ``chemotherapy implants'' and cases involving ``epilepsy with neurostimulator'' are assigned to the higher severity level MS-DRG 023. MS-DRGs 023 and 024 contain a logic list referred to as ``Chemotherapy Implant.'' This logic list includes the following four ICD-10-PCS codes: [GRAPHIC] [TIFF OMITTED] TR04AU25.040 We stated that the ``Chemotherapy Implant'' logic list was created for cases reporting the implantation of a chemotherapeutic agent and devices implanted in the brain, such as implantable chemotherapeutic wafers. Additionally, we noted MS-DRGs 023 and 024 contain a logic list referred to as ``Epilepsy Principal Diagnosis'' that includes 58 ICD- 10-CM diagnosis codes that describe epilepsy, and a logic list referred to as ``Neurostimulator'' that includes the following three ICD-10-PCS procedure code combinations: 0NH00NZ (Insertion of neurostimulator generator into skull, open approach), in combination with 00H00MZ (Insertion of neurostimulator lead into brain, open approach); 0NH00NZ (Insertion of neurostimulator generator into skull, open approach), in combination with 00H03MZ (Insertion of neurostimulator lead into brain, percutaneous approach); and 0NH00NZ (Insertion of neurostimulator generator into skull, open approach), in combination with 00H04MZ (Insertion of neurostimulator lead into brain, percutaneous endoscopic approach). These two logic lists were created to capture cases involving the use of the Responsive Neurostimulation (RNS)[supreg] neurostimulator, a treatment option for persons diagnosed with medically intractable epilepsy. The RNS[supreg] neurostimulator includes a cranially implanted programmable neurostimulator connected to one or two depth and/or subdural cortical strip leads that are surgically placed in or on the brain at the seizure focus. The implanted neurostimulator continuously monitors brain electrical activity and is programmed by a physician to detect abnormal patterns of electrical activity that the physician believes may lead to seizures (epileptiform activity). We refer the reader to the ICD-10 MS-DRG Definitions Manual, Version 42.1 (available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software) for complete documentation of the GROUPER logic for MS-DRGs 023 and 024. As discussed in the preamble of the proposed rule, we then examined claims data from the September 2024 update of the FY 2024 MedPAR file for all cases in MS-DRG 023 and compared the results to cases reporting one of the four procedure codes that appear under the logic list referred to as ``Chemotherapy Implant'' in MS-DRG 023 and for all cases reporting a neurostimulator generator inserted into the skull with the insertion of a neurostimulator lead into the brain (including cases involving the use of the RNS[supreg] neurostimulator), and a principal diagnosis of epilepsy. The following table shows our findings: [[Page 36562]] [GRAPHIC] [TIFF OMITTED] TR04AU25.041 As shown in the table, for MS-DRG 023, we identified a total of 12,136 cases, with an average length of stay of 10 days and average costs of $51,132. Of the 12,136 cases in MS-DRG 023, there were 176 cases reporting the insertion of a chemotherapy implant with an average length of stay of 6.4 days and average costs of $49,743. Additionally, there were 68 cases describing a neurostimulator generator inserted into the skull with the insertion of a neurostimulator lead into the brain (including cases involving the use of the RNS[supreg] neurostimulator) that had a principal diagnosis of epilepsy with an average length of stay of 2.4 days and average costs of $66,303. As the data show, the 68 cases in MS-DRG 023 describing a neurostimulator generator inserted into the skull with the insertion of a neurostimulator lead into the brain (including cases involving the use of the RNS[supreg] neurostimulator) and a principal diagnosis of epilepsy have average costs that are higher than the average costs of all cases in MS-DRG 023 ($66,303 compared to $51,132), and they have an average length of stay that is shorter (2.4 days compared to 10 days). The 176 cases in MS-DRG 023 reporting the insertion of a chemotherapy implant have average costs that are lower than the average costs of all cases in MS-DRG 023 ($49,743 compared to $51,132), and they have an average length of stay that is shorter (6.4 days compared to 10 days). We stated we reviewed the claims data, and did not believe the data support creating a new MS-DRG for cases reporting the insertion of a chemotherapy implant and cases describing a neurostimulator generator inserted into the skull with the insertion of a neurostimulator lead into the brain (including cases involving the use of the RNS[supreg] neurostimulator) and a principal diagnosis of epilepsy. We stated that the results of the claims analysis as previously summarized indicate the cases reporting the insertion of a chemotherapy implant demonstrate comparable resource utilization with other cases in their currently assigned MS-DRG. Further, the claims data analysis indicates that these two subsets of cases, that is cases reporting the insertion of a chemotherapy implant and cases describing a neurostimulator generator inserted into the skull with the insertion of a neurostimulator lead into the brain (including cases involving the use of the RNS[supreg] neurostimulator) and a principal diagnosis of epilepsy, do not demonstrate comparable resource utilization. The cases in MS-DRG 023 reporting the insertion of a chemotherapy implant have average costs that are lower than the average costs of cases describing a neurostimulator generator inserted into the skull with the insertion of a neurostimulator lead into the brain and a principal diagnosis of epilepsy ($49,743 compared to $66,303), and they have an average length of stay that is longer (6.4 days compared to 2.4 days). Therefore, based on review of the claims data, we did not propose to create a new MS-DRG for cases reporting the insertion of a chemotherapy implant and cases describing a neurostimulator generator inserted into the skull with the insertion of a neurostimulator lead into the brain (including cases involving the use of the RNS[supreg] neurostimulator) and a principal diagnosis of epilepsy for FY 2026. However, while our analysis of the claims data did not support creating a new MS-DRG for cases reporting the insertion of a chemotherapy implant and cases describing a neurostimulator generator inserted into the skull with the insertion of a neurostimulator lead into the brain (including cases involving the use of the RNS[supreg] neurostimulator) and a principal diagnosis of epilepsy, as discussed in the proposed rule, cases describing a neurostimulator generator inserted into the skull with the insertion of a neurostimulator lead into the brain (including cases involving the use of the RNS[supreg] neurostimulator) and a principal diagnosis of epilepsy have average costs that are higher than the average costs of all cases in MS-DRG 023, with a shorter average length of stay. Accordingly, in the proposed rule we stated we determined that further analysis of cases reporting a neurostimulator generator inserted into the skull with the insertion of a neurostimulator lead into the brain (including cases involving the use of the RNS[supreg] neurostimulator), and a principal diagnosis of epilepsy was needed in conjunction with the separate but related requests we received to review the MS-DRG assignments for a subset of procedures also assigned to MS-DRGs 023 through 027 for the FY 2026 IPPS/LTCH PPS proposed rule to ensure clinical coherence between these cases and the other cases with which they would potentially be grouped, as discussed later in this section. As noted previously, MS-DRGs 023 and 024 contain a logic list referred to as ``Chemotherapy Implant'' that includes the following four ICD-10-PCS codes: [GRAPHIC] [TIFF OMITTED] TR04AU25.042 [[Page 36563]] In the proposed rule we stated that during our review of the GROUPER logic for MS-DRGs 023 and 024, we identified that the following four ICD-10-PCS procedure codes describing the insertion of a radioactive element were inadvertently excluded from the ``Chemotherapy Implant'' logic list: [GRAPHIC] [TIFF OMITTED] TR04AU25.043 In review of this finding, we stated we analyzed claims data from the September 2024 update of the FY 2024 MedPAR file for MS-DRGs 023, 024, 025, 026, and 027 for all cases and for cases reporting procedure codes 00H001Z, 00H005Z, 00H031Z, or 00H041Z. The findings from our analysis are shown in the following table. [GRAPHIC] [TIFF OMITTED] TR04AU25.044 As the data show, we found four cases reporting procedure code 00H001Z, 00H005Z, 00H031Z, or 00H041Z in MS-DRG 025, with average costs of $40,199 and an average length of stay of 3.8 days. We reviewed this issue and noted in the proposed rule radioactive elements are inserted into the brain to deliver a targeted concentrated dose of radiation directly to a brain tumor or tumor bed. They are primarily used to treat recurrent brain metastases or other aggressive brain cancers, as it allows for high-dose radiation delivery specifically to the tumor site while minimizing damage to surrounding healthy brain tissue. Although we did not identify many cases, we stated we believe the four procedure codes describing the insertion of a radioactive element into the brain are clinically aligned with the procedure codes currently included in the ``Chemotherapy Implant'' logic list in MS-DRGs 023 and 024. Therefore, for clinical consistency we proposed to add procedure codes 00H001Z, 00H005Z, 00H031Z, and 00H041Z to the ``Chemotherapy Implant'' logic list in MS-DRGs 023 and 024, effective October 1, 2025, for FY 2026. We also proposed to change the description of the logic list in MS-DRGs 023 and 024 from ``Chemotherapy Implant'' to ``Antineoplastic Implant'' to better reflect the GROUPER logic that includes ICD-10-PCS procedure codes describing antineoplastic agents implanted in the brain. Comment: Commenters supported the proposals to add procedure codes 00H001Z, 00H005Z, 00H031Z, and 00H041Z to the ``Chemotherapy Implant'' logic list in MS-DRGs 023 and 024 and to change the description of the logic list in MS-DRGs 023 and 024 from ``Chemotherapy Implant'' to ``Antineoplastic Implant'', effective October 1, 2025, for FY 2026. Response: We appreciate the commenters' support. After consideration of the public comments we received, we are finalizing our proposal to add procedure codes 00H001Z, 00H005Z, 00H031Z, and 00H041Z to the ``Chemotherapy Implant'' logic list in MS- DRGs 023 and 024, without modification, effective October 1, 2025, for FY 2026. We are also finalizing the change of the description of the logic list in MS-DRGs 023 and 024 from ``Chemotherapy Implant'' to ``Antineoplastic Implant''. As mentioned previously, and as discussed in the FY 2026 IPPS/LTCH PPS proposed rule, we received three separate but related requests to review and reconsider the MS-DRG assignments for a subset of procedures assigned to MS-DRGs 023 through 027. The second and third request involve the MS-DRG assignment of cases reporting procedure codes describing the insertion of deep brain stimulators (DBS). Deep brain stimulation is a surgical treatment that involves the implantation of a neurostimulator, used in the treatment of essential tremor, Parkinson's disease, dystonia, epilepsy, obsessive-compulsive disorder and chronic pain. A DBS system consists of one or two leads that are placed stereotactically at defined targets deep within the brain via one or two burr holes created in the skull. The lead is then connected to an extension that is tunneled under the skin, down the neck, and connected to a programmable neurostimulator generator that is placed under the skin. [[Page 36564]] The second request we received was to reassign cases reporting the implantation of a DBS system from the lower (without MCC) severity level MS-DRG 024 to the higher (MCC) severity level MS-DRG 023, even if there is no MCC reported. The requestor suggested that if finalized, the title for MS-DRG 023 should be revised to reflect ``Craniotomy with Acute Complex Central Nervous System Principal Diagnosis with MCC or Chemotherapy Implant or Major Device Implant or Epilepsy with Neurostimulator.'' We stated in the proposed rule that the requestor performed their own analysis and stated they found that the majority of cases reporting the implantation of a DBS system are assigned to the lower severity level MS-DRG 024. The requestor also stated that in their analysis, the cases reporting the implantation of a DBS system assigned to MS-DRG 024 have average costs that are 20 percent greater than all cases in MS-DRG 024. The requestor asserted that reassigning cases reporting the implantation of a DBS system from the lower (without MCC) severity level MS-DRG 024 to the higher (with MCC) severity level MS-DRG 023, even if there is no MCC reported, would better recognize hospital resource utilization when the DBS systems are inserted. We stated in the proposed rule that the requestor identified cases reporting the implantation of a DBS system by the presence of the following procedure code combinations: 0JH60DZ (Insertion of multiple array stimulator generator into chest subcutaneous tissue and fascia, open approach), in combination with 00H00MZ (Insertion of neurostimulator lead into brain, open approach); 0JH60DZ (Insertion of multiple array stimulator generator into chest subcutaneous tissue and fascia, open approach), in combination with 00H03MZ (Insertion of neurostimulator lead into brain, percutaneous approach); 0JH60EZ (Insertion of multiple array rechargeable stimulator generator into chest subcutaneous tissue and fascia, open approach), in combination with 00H00MZ (Insertion of neurostimulator lead into brain, open approach); and 0JH60EZ (Insertion of multiple array rechargeable stimulator generator into chest subcutaneous tissue and fascia, open approach), in combination with 00H03MZ (Insertion of neurostimulator lead into brain, percutaneous approach). To begin our analysis, as discussed in the proposed rule, we again reviewed the GROUPER logic for MS-DRGs 023 and 024. The GROUPER logic for MS-DRGs 023 and 024 also contains 78 procedure code combinations representing the insertion of neurostimulator generator and a neurostimulator lead that are captured under a list referred to as ``Major Device Implant.'' The procedure codes describing the insertion of a neurostimulator generator on this list describe insertion of the neurostimulator generator into the subcutaneous areas of the chest, back, or abdomen, as well as into the skull. The procedure codes describing the insertion of a neurostimulator lead describe the insertion of the lead into the brain or the cerebral ventricle. We refer the reader to the ICD-10 MS-DRG Definitions Manual, Version 42.1 (available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software) for complete documentation of the GROUPER logic for MS- DRGs 023 and 024. In our analysis of this issue, we stated that we agree that the four procedure code combinations discussed previously that were identified by this requestor are included in the ``Major Device Implant'' logic list of MS-DRGs 023 and 024, but we noted in the proposed rule that 32 additional procedure code combinations exist on the ``Major Device Implant'' logic list that also describe the implantation of a DBS system by describing the insertion of a neurostimulator generator into the subcutaneous areas of the chest, back, or abdomen in combination with a code describing the insertion of a neurostimulator lead into the brain. We refer the reader to Table 6P.2a associated with the FY 2026 IPPS/LTCH PPS proposed rule (and available at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps) for the list of the 36 ICD-10-PCS procedure code combinations in the logic of MS-DRGs 023 and 024 in the ``Major Device Implant'' logic list that we identified that describe the implantation of a DBS system and therefore were included in our analysis. We stated we then examined claims data from the September 2024 update of the FY 2024 MedPAR file for all cases in MS-DRGs 023 and 024 and compared the results to cases reporting the implantation of a DBS system by reporting a procedure code combination that describes the insertion of a neurostimulator generator into the subcutaneous areas of the chest, back, or abdomen in combination with a code describing the insertion of a neurostimulator lead into the brain. The following table shows our findings: [GRAPHIC] [TIFF OMITTED] TR04AU25.045 As shown in the table, for MS-DRG 023, we identified a total of 12,136 cases, with an average length of stay of 10 days and average costs of $51,132. Of the 12,136 cases in MS-DRG 023, there were 26 cases reporting the implantation of a DBS system with an average length of stay of 8.3 days and average costs of $81,947. For MS-DRG 024, we identified a total of 4,624 cases, with an average length of stay of 5 days and average costs of $35,516. Of the 4,624 cases in MS-DRG 024, there were 432 cases reporting the implantation of a DBS system with an average length of stay of 1.7 days and average costs of $43,032. In the proposed rule, we stated we reviewed the claims data, and the data did not support reassignment of the cases reporting the implantation of a DBS system from MS-DRG 024 to MS-DRG 023 even if there is no MCC [[Page 36565]] reported. We stated the results of the claims analysis as previously summarized indicate the cases reporting the implantation of a DBS system, without reporting a secondary diagnosis designated as an MCC, that are currently assigned to MS-DRG 024, have average costs that are lower than the average costs of all cases in MS-DRG 023 ($43,032 compared to $51,132), and they have an average length of stay that is shorter (1.7 days compared to 10 days). While the average costs of these cases are higher than the average costs of all cases in MS-DRG 024 ($43,032 compared to $35,516), we stated we believe it would not be appropriate to reassign these cases into the higher severity level MS- DRG 023, even if there is no MCC reported, because the cases would not be coherent with regard to resource utilization. The cases reporting the implantation of a DBS system, without reporting a secondary diagnosis designated as an MCC, that are currently assigned to MS-DRG 024 have average costs that are $8,100 lower than the average costs of all cases in MS-DRG 023. Therefore, we did not propose to reassign cases reporting the implantation of a DBS system from the lower (without MCC) severity level MS-DRG 024 to the higher (with MCC) severity level MS-DRG 023, even if there is no MCC reported. However, while the analysis of the claims data did not support reassigning the cases reporting the implantation of a DBS system from the lower (without MCC) severity level MS-DRG 024 to the higher (MCC) severity level MS-DRG 023 even if there is no MCC reported, as discussed, we stated our analysis of the claims data found the average costs of the cases reporting the implantation of a DBS system are higher than all cases in their respective MS-DRGs, while the average lengths of stay are shorter. Accordingly, and as discussed later in this section, we stated we determined that further analysis of cases reporting the implantation of a DBS system is needed in conjunction with the separate but related requests we received to review the MS-DRG assignments for a subset of procedures also assigned to MS-DRGs 023 through 027 for the FY 2026 IPPS/LTCH PPS proposed rule to ensure clinical coherence between these cases and the other cases with which they may potentially be grouped. The third request we received, as discussed in the proposed rule, was to have all cases reporting the concomitant insertion of a DBS generator and lead assigned to MS-DRGs 023 and 024. This requestor performed their own analysis and stated they found 76 claims reporting procedure codes describing the insertion of a DBS generator and a lead assigned to MS-DRGs 026 and 027 (Craniotomy and Endovascular Intracranial Procedures with CC, and without CC/MCC, respectively) and found that the average costs of these cases were 54% and 63% higher than the average of all cases in MS-DRGs 026 and 027, respectively. The requestor stated that placement of a complete DBS system, which requires placement of both the generator and the lead, during a single procedure, appears to be an efficacious and well-tolerated procedure. The requestor asserted that the relatively low reimbursement in MS-DRGs 026 and 027 can limit patient access to a single stage procedure. This requestor identified cases reporting the implantation of a DBS system by the presence of the following procedure code combinations: 0JH60DZ (Insertion of multiple array stimulator generator into chest subcutaneous tissue and fascia, open approach), in combination with 00H00MZ (Insertion of neurostimulator lead into brain, open approach); 0JH60DZ (Insertion of multiple array stimulator generator into chest subcutaneous tissue and fascia, open approach), in combination with 00H03MZ (Insertion of neurostimulator lead into brain, percutaneous approach); 0JH60EZ (Insertion of multiple array rechargeable stimulator generator into chest subcutaneous tissue and fascia, open approach), in combination with 00H00MZ (Insertion of neurostimulator lead into brain, open approach); and 0JH60EZ (Insertion of multiple array rechargeable stimulator generator into chest subcutaneous tissue and fascia, open approach), in combination with 00H03MZ (Insertion of neurostimulator lead into brain, percutaneous approach); 0JH60BZ (Insertion of single array stimulator generator into chest subcutaneous tissue and fascia, open approach), in combination with 00H00MZ (Insertion of neurostimulator lead into brain, open approach); and 0JH60BZ (Insertion of single array stimulator generator into chest subcutaneous tissue and fascia, open approach), in combination with 00H03MZ (Insertion of neurostimulator lead into brain, percutaneous approach). In the proposed rule, we stated to begin our analysis, we again reviewed the GROUPER logic for MS-DRG 023 and 024. As mentioned previously, the GROUPER logic for MS-DRGs 023 and 024 contains 78 procedure code combinations representing the insertion of neurostimulator generator and a neurostimulator lead that are captured under a list referred to as ``Major Device Implant.'' The procedure codes describing the insertion of a neurostimulator generator on this list describe insertion of the neurostimulator generator into the subcutaneous areas of the chest, back, or abdomen, as well as into the skull. In reviewing this request, we noted in the proposed rule that the procedure code combinations in MS-DRG 023 and 024 captured under the ``Major Device Implant'' logic list that describe the insertion of a neurostimulator generator into the subcutaneous areas of the chest, back, or abdomen, all describe the insertion of a multiple array stimulator generator or a rechargeable multiple array stimulator generator. We further noted that procedure code combinations describing the insertion of a single array stimulator generator or a rechargeable single array stimulator generator into the subcutaneous areas of the chest, back, or abdomen and a neurostimulator lead are not captured under the ``Major Device Implant'' logic list, therefore MS-DRGs 025, 026, and 027 (Craniotomy and Endovascular Intracranial Procedures with MCC, with CC, and without CC/MCC, respectively) are assigned based on the reporting of the ICD-10-PCS procedure code describing the insertion of the neurostimulator into the brain. We refer the reader to the ICD- 10 MS-DRG Definitions Manual, Version 42.1 (available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software) for complete documentation of the GROUPER logic for MS-DRGs 023, 024, 025, 026, and 027. In the proposed rule, we stated we identified 36 ICD-10-PCS procedure code combinations that would describe the implantation of a DBS system with a single array stimulator generator or a rechargeable single array stimulator generator and the insertion of a neurostimulator lead into the brain. We refer the reader to Table 6P.2b associated with the FY 2026 IPPS/LTCH PPS proposed rule and this final rule (available at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps) for the list of the 36 ICD-10-PCS procedure code combinations we identified that describe the implantation of a DBS system with a single array stimulator generator or a rechargeable single array stimulator generator and the insertion of a neurostimulator lead into the brain. [[Page 36566]] As discussed in the proposed rule, we then examined claims data from the September 2024 update of the FY 2024 MedPAR file for all cases in MS-DRGs 025, 026, and 027 and compared the results to cases reporting a procedure code combination that describes the insertion of a single array stimulator generator or a rechargeable single array stimulator generator into the subcutaneous areas of the chest, back, or abdomen in combination with a code describing the insertion of a neurostimulator lead into the brain. The following table shows our findings: [GRAPHIC] [TIFF OMITTED] TR04AU25.046 As shown in the table, for MS-DRG 025, we identified a total of 21,059 cases, with an average length of stay of 8.6 days and average costs of $40,215. Of those 21,059 cases, there were 5 cases reporting the insertion of a single array generator and insertion of neurostimulator lead into brain with average costs higher than the average costs in the FY 2024 MedPAR file for MS-DRG 025 ($73,168 compared to $40,215) and a shorter average length of stay (5 days compared to 8.6 days). In MS-DRG 026, we identified a total of 5,833 cases, with an average length of stay of 4.1 days and average costs of $28,404. Of the 5,833 cases in MS-DRG 026, there were 25 cases reporting the insertion of a single array generator and insertion of neurostimulator lead into brain with average costs higher than the average costs in the FY 2024 MedPAR file for MS-DRG 026 ($42,002 compared to $28,404) and a shorter average length of stay (2.3 days compared to 4.1 days). In MS-DRG 027, we identified a total of 7,049 cases, with an average length of stay of 1.9 days and average costs of $23,059. Of the 7,049 cases in MS-DRG 027, there were 78 cases reporting the insertion of a single array generator and insertion of neurostimulator lead into brain with average costs higher than the average costs in the FY 2024 MedPAR file for MS-DRG 027 ($39,381 compared to $23,059) and a shorter average length of stay (1.4 days compared to 1.9 days). As the data show, the cases in MS-DRGs 025, 026, and 027 reporting the insertion of a single array generator and insertion of neurostimulator lead into brain have average costs that are higher than the average costs of all cases in their respective MS- DRGs. We reviewed the clinical issues and noted in the proposed rule a deep brain stimulator typically has one or two leads implanted in the brain, depending on whether one or both sides of the brain need treatment. A single array stimulator generator has one port where one lead can be connected. A multiple array stimulator generator has two or more ports where two or more leads can be connected. We stated we believe the procedure code combinations that describe the insertion of a single array stimulator generator or a rechargeable single array stimulator generator into the subcutaneous areas of the chest, back, or abdomen in combination with a code describing the insertion of a neurostimulator lead into the brain are clinically coherent with the procedure code combinations in MS-DRG 023 and 024 captured under the ``Major Device Implant'' logic list that describe the insertion of a multiple array stimulator generator or a rechargeable multiple array stimulator generator into the subcutaneous areas of the chest, back, or abdomen in combination with a code describing the insertion of a neurostimulator lead into the brain. As discussed in the proposed rule, to determine how the resources for this subset of cases compared to cases in MS-DRGs 023 and 024 as a whole, we examined the average costs and length of stay for cases in MS-DRGs 023 and 024. Our findings are shown in this table. [GRAPHIC] [TIFF OMITTED] TR04AU25.047 We reviewed the data and noted in the proposed rule the cases in MS-DRGs 025, 026, and 027 reporting the insertion of a single array generator and insertion of neurostimulator lead into brain have average costs that are higher and the average length of stay is shorter than all cases in MS-DRGs 023 and 024. We stated we agree with the requestor that cases reporting the insertion of a single array generator and insertion of neurostimulator lead into brain are more resource intensive and are clinically distinct from other cases currently assigned to MS-DRGs 025, 026, and 027. However, we stated we did not believe proposing to reassign all cases reporting the procedure code combination describing a single array generator and insertion of neurostimulator lead into brain to MS-DRGs 023 and 024 would fully address the difference in resource utilization in these cases. To explore other mechanisms to address this request, we stated we then reexamined the separate but related requests discussed previously to review the MS-DRG assignments for a subset of procedures assigned to MS-DRGs 023 [[Page 36567]] through 027. In examining these requests, we noted in the proposed rule that the first request was to reassign cases involving ``chemotherapy implants'' and cases involving ``epilepsy with neurostimulator'' from MS-DRG 023 and to create a new MS-DRG for these cases. While analysis of the claims data did not support creating a new MS-DRG for cases reporting the insertion of a chemotherapy implant and cases describing a neurostimulator generator inserted into the skull with the insertion of a neurostimulator lead into the brain (including cases involving the use of the RNS[supreg] neurostimulator) and a principal diagnosis of epilepsy, we stated in the proposed rule that our analysis of that request found cases describing a neurostimulator generator inserted into the skull with the insertion of a neurostimulator lead into the brain (including cases involving the use of the RNS[supreg] neurostimulator) and a principal diagnosis of epilepsy have average costs that are higher than the average costs of all cases in MS-DRG 023, with a shorter average length of stay. The second request we received was to reassign cases reporting the implantation of a DBS system from the lower (without MCC) severity level MS-DRG 024 to the higher (MCC) severity level MS-DRG 023 even if there is no MCC reported. While analysis of the claims data did not support reassigning the cases reporting the implantation of a DBS system from the lower (without MCC) severity level MS-DRG 024 to the higher (MCC) severity level MS-DRG 023 even if there is no MCC reported, we stated our analysis of that request found the average costs of the cases reporting the implantation of a DBS system are higher than all cases in their respective MS-DRGs, while the average lengths of stay are shorter. Lastly, our analysis of the third request demonstrates the cases reporting the insertion of a single array generator and insertion of neurostimulator lead into brain have average costs that are higher than the average costs of all cases in their respective MS-DRGs, while the average lengths of stay are shorter. As discussed in the proposed rule, we reviewed these issues and noted intracranial neurostimulator implants, such as deep brain stimulators and RNS[supreg] neurostimulators, are similar in that these intracranial neurostimulators are implanted surgically and include placement of a neurostimulator generator and insertion of leads into specific brain regions to deliver electrical stimulation. Additionally, we stated that based on our data analysis, cases reporting the insertion of intracranial neurostimulator implants are clinically coherent in that they are similar in terms of technical complexity and hospital resource use as reflected by the similarity in average costs and average lengths of stay. We stated we explored creating a new base MS-DRG for cases reporting the insertion of an intracranial neurostimulator implant and compared the analysis discussed previously using the claims data from the September 2024 update of the FY 2024 MedPAR file. The following table illustrates our findings for all 654 cases reporting procedure codes describing the insertion of an intracranial neurostimulator implant. [GRAPHIC] [TIFF OMITTED] TR04AU25.048 In the proposed rule we stated we reviewed these data and did not believe proposing a new base MS-DRG for these cases would better reflect hospital resource use. Because there were only 654 cases identified, the analysis demonstrates both a three-way and a two-way split of a new base MS-DRG would fail the criterion that there be at least 500 cases for each subgroup. The analysis also demonstrates the cases reporting a principal diagnosis of epilepsy with neurostimulator generator inserted into the skull and insertion of a neurostimulator lead into brain, and cases reporting the insertion of a single or multiple array generator with a secondary diagnosis designated as an [[Page 36568]] MCC, would continue to have average costs that are higher when compared to all other cases reporting the insertion of an intracranial neurostimulator implant in a new MS-DRG. We therefore explored an alternative mechanism to address these requests. We noted in the proposed rule that in the FY 2018 IPPS/LTCH PPS final rule (82 FR 38015 through 38019), the FY 2021 IPPS/LTCH PPS final rule (85 FR 58459 through 58462) and the FY 2024 IPPS/LTCH PPS final rule (88 FR 58661 through 58667), we discussed requests we received to reassign cases describing the insertion of a neurostimulator generator into the skull in combination with the insertion of a neurostimulator lead into the brain from MS-DRG 023 to MS-DRG 021 (Intracranial Vascular Procedures with Principal Diagnosis Hemorrhage with CC). While acknowledging the cases in MS-DRG 023 describing a neurostimulator generator inserted into the skull with the insertion of a neurostimulator lead into the brain (including cases involving the use of the RNS[supreg] neurostimulators) and a principal diagnosis of epilepsy have average costs that are similar to the average costs of cases in MS-DRG 021, we have stated we did not support reassigning the cases describing a neurostimulator generator inserted into the skull with the insertion of a neurostimulator lead into the brain (including cases involving the use of the RNS[supreg] neurostimulators) and a principal diagnosis of epilepsy from MS-DRG 023 to MS-DRGs 020, 021, and 022 (Intracranial Vascular Procedures with Principal Diagnosis Hemorrhage, with MCC, with CC, without CC/MCC, respectively), as the cases in MS-DRGs 020, 021, and 022 are defined by a principal diagnosis of a hemorrhage. We stated that RNS[supreg] neurostimulators are not used to treat patients with diagnosis of hemorrhage and that we believe that it is inappropriate to reassign cases representing a principal diagnosis of epilepsy to a MS-DRG that contains cases that represent the treatment of intracranial hemorrhage. However, after further consideration, to explore other mechanisms to address this request, we stated in the proposed rule we examined MS- DRGs 020, 021, and 022 to reconsider the possibility of reassigning the cases reporting the insertion of an intracranial neurostimulator implant as we have been unable to identify another MS-DRG in MDC 01 that would be a more appropriate MS-DRG assignment for these cases based on the indication for and complexity of the procedures. As discussed in the proposed rule, the GROUPER logic for MS-DRGs 020, 021, and 022 contains a list of procedure codes describing intracranial vascular procedures that are captured under a logic list referred to as ``Intracranial Vascular Procedures'' and a list of diagnosis codes describing a diagnosis of a hemorrhage that are captured under a logic list referred to as ``Hemorrhage Principal Diagnosis.'' We noted in the proposed rule that during our review of MS-DRGs 020, 021, and 022, we identified 57 ICD-10-PCS procedure codes describing the intracranial vascular procedures and 66 diagnosis codes describing a diagnosis of intracranial hemorrhage that were inadvertently excluded from these logic lists. We refer the reader to Table 6P.2c and Table 6P.2d associated with the FY 2026 IPPS/LTCH PPS proposed rule (and available at: https://www.cms.gov/medicare/medicare-fee-for-service-payment/acuteinpatientpps) for the lists of the 57 ICD- 10-PCS procedure codes and 66 ICD-10-CM diagnosis codes that we identified. As these 57 procedure codes describe intracranial vascular procedures and the 66 diagnosis codes describe a diagnosis of intracranial hemorrhage, in the proposed rule we stated we believe these codes are clinically aligned with the codes currently included in the ``Intracranial Vascular Procedures'' and the ``Hemorrhage Principal Diagnosis'' logic lists, respectively in MS-DRGs 020, 021, and 022. Therefore, for clinical consistency we proposed to add the 57 procedure codes to the ``Intracranial Vascular Procedures'' logic list, and the 66 diagnosis codes to the ``Hemorrhage Principal Diagnosis'' logic list of MS-DRGs 020, 021, and 022, effective October 1, 2025, for FY 2026. As discussed in the proposed rule, in reviewing the claims data from the September 2024 update of the FY 2024 MedPAR file and examining the clinical considerations, we stated we believe that the cases reporting the insertion of an intracranial neurostimulator implant could more suitably group to MS-DRGs 020, 021, and 022 and would lead to a grouping that is more coherent and better reflects the clinical severity and resource use involved in these cases. While we previously have stated that we believe it would be inappropriate to reassign cases representing a principal diagnosis of epilepsy to a MS-DRG that contains cases that represent the treatment of intracranial hemorrhage, after further consideration, we stated we no longer believe maintaining a difference in assignment based on the indication is warranted in this subset of cases based on the fact that both treatments involve intracranial procedures and demonstrate comparable resource utilization. In the proposed rule, we stated we also believe that cases reporting the insertion of an intracranial neurostimulator implant, regardless of principal diagnosis, share similar resource utilization such that it is no longer necessary to subdivide these cases based on the diagnosis codes reported. Accordingly, we stated that we believe it is appropriate to remove the special logic defined as ``Epilepsy Principal Diagnosis'' from the definition for assignment to the proposed modified MS-DRGs, as the cases can be appropriately grouped along with cases reporting any MDC 01 diagnosis when reported with qualifying procedures, as part of the proposed restructured MS-DRGs. Therefore, we proposed to add 114 procedure code combinations to a new ``Intracranial Neurostimulator Implant'' logic list in MS-DRGs 020, 021, and 022 that describe (1) the insertion of multiple or single array neurostimulator generators with the insertion of a neurostimulator lead into the brain or the cerebral ventricle and (2) the insertion of neurostimulator generator inserted into the skull with the insertion of a neurostimulator lead into the brain. We also proposed to delete the ``Major Device Implant,'' ``Epilepsy Principal Diagnosis,'' ``Neurostimulator'' logic lists from MS-DRGs 023 and 024. We refer the reader to Table 6P.2e associated with the FY 2026 IPPS/ LTCH PPS proposed rule (and available at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps) for the list of the 114 ICD-10-PCS procedure code combinations we proposed to add to a new ``Intracranial Neurostimulator Implant'' logic list in MS-DRGs 020, 021, and 022. To compare and analyze the impact of these potential modifications, as discussed in the proposed rule, we ran a simulation using the claims data from the September 2024 update of the FY 2024 MedPAR file. The following table reflects the simulation of our proposed changes in MS- DRGs 020, 021, and 022. [[Page 36569]] [GRAPHIC] [TIFF OMITTED] TR04AU25.049 In the proposed rule, we stated we believe that this simulation supports that the resulting MS-DRG assignments would be more clinically homogeneous, coherent, and better reflect hospital resource use. As the table shows, for MS-DRG 020, there were a total of 2,322 cases with an average length of stay of 12.5 days and average costs of $71,916. For MS-DRG 021, there were a total of 642 cases with an average length of stay of 7.8 days and average costs of $48,421. For MS-DRG 022, there were a total of 385 cases with an average length of stay of 2.4 days and average costs of $28,243. We stated that a review of this simulation shows that adding a new ``Intracranial Neurostimulator Implant'' logic list, while also adding 57 procedure codes to the ``Intracranial Vascular Procedures'' logic list, and 66 diagnosis codes to the ``Hemorrhage Principal Diagnosis'' logic list in MS-DRGs 020, 021 and 022 has a limited effect on the average costs of these MS-DRGs, while leading to a grouping that is more coherent and better reflects the clinical severity and resource use involved in these cases. In summary, for FY 2026, to more appropriately reflect utilization of resources for these procedures, we proposed to add 114 procedure code combinations to a new ``Intracranial Neurostimulator Implant'' logic list in MS-DRGs 020, 021, and 022 that describe (1) the insertion of multiple or single array neurostimulator generators with the insertion of a neurostimulator lead into the brain or the cerebral ventricle and (2) the insertion of neurostimulator generator inserted into the skull with the insertion of a neurostimulator lead into the brain. We also proposed to add 57 procedure codes to the ``Intracranial Vascular Procedures'' logic list, and 66 diagnosis codes to the ``Hemorrhage Principal Diagnosis'' logic list of MS-DRGs 020, 021, and 022. Additionally, we also proposed to delete the ``Major Device Implant,'' ``Epilepsy Principal Diagnosis,'' ``Neurostimulator'' logic lists from MS-DRGs 023 and 024. Lastly, for consistency, we proposed to change the titles of MS-DRGs 020, 021, and 022 from ``Intracranial Vascular Procedures with Principal Diagnosis Hemorrhage with MCC, with CC, and without CC/MCC, respectively'' to ``Intracranial Vascular Procedures with Principal Diagnosis Hemorrhage or Intracranial Neurostimulator Implant with MCC, with CC, and without CC/MCC, respectively,'' proposed to change the title of MS-DRG 023 from ``Craniotomy with Major Device Implant or Acute Complex Central Nervous System Principal Diagnosis with MCC or Chemotherapy Implant or Epilepsy with Neurostimulator'' to ``Craniotomy with Acute Complex Central Nervous System Principal Diagnosis with MCC or Antineoplastic Implant,'' and proposed to change the title of MS-DRG 024 from ``Craniotomy with Major Device Implant or Acute Complex Central Nervous System Principal Diagnosis without MCC'' to ``Craniotomy with Acute Complex Central Nervous System Principal Diagnosis without MCC'' to better reflect the assigned procedures effective October 1, 2025, for FY 2026. Comment: Commenters supported the proposal to add the 57 procedure codes to the ``Intracranial Vascular Procedures'' logic list, and the 66 diagnosis codes to the ``Hemorrhage Principal Diagnosis'' logic list of MS-DRGs 020, 021, and 022, effective October 1, 2025, for FY 2026. Response: We appreciate the commenters' support. Comment: Several commenters supported our proposal to add 114 procedure code combinations to a new ``Intracranial Neurostimulator Implant'' logic list in MS-DRGs 020, 021, and 022 that describe (1) the insertion of multiple or single array neurostimulator generators with the insertion of a neurostimulator lead into the brain or the cerebral ventricle and (2) the insertion of neurostimulator generator inserted into the skull with the insertion of a neurostimulator lead into the brain. A few commenters expressed gratitude to CMS for its thorough analysis and fully supported the proposal, urging CMS to finalize it in its current form. A [[Page 36570]] commenter specifically stated that this proposal supports their longstanding goal of providing more appropriate payment levels for hospitals furnishing intracranial vascular procedures that are assigned to MS-DRGs 020, 021, and 022 after multiple years of payment declines. Another commenter stated that the proposal recognizes the similarities in clinical characteristics associated with deep brain stimulators for Parkinson's disease, essential tremor, epilepsy, and dystonia and stated that the proposed reassignments better represent the resource utilization associated with inserting a full deep brain stimulator system. Many other commenters expressed their concerns with the proposals. Some commenters noted that procedure code 00H004Z (Insertion of radioactive element, cesium-131 collagen implant into brain, open approach) is included in the Chemotherapy Implant logic list of MS-DRG 023 and suggested that this assignment does not accurately reflect the increased resources required to perform procedures involving the insertion of radioactive implants. Several commenters stated that with CMS' proposed reassignment of neurostimulator cases out of MS-DRG 023, these procedures involving the insertion of radioactive implants will be grouped with acute complex central nervous system (CNS) procedures, and this grouping is clinically inconsistent, as the majority of acute CNS cases describe conditions treated without implanted devices. Other commenters stated that while procedures involving the insertion of radioactive implants and procedures involving the introduction of chemotherapy both involve the delivery of either radiation or chemotherapy directly after tumor resection, the overall care pathway and resources associated with the episodes of care are dramatically different. These commenters stated that procedures involving the insertion of radioactive implants are more aligned with major device implant procedures than with the acute complex CNS cases that will remain in MS-DRG 023. Another commenter stated they performed their own analysis and stated that they found that procedures involving the insertion of radioactive implants have consistently demonstrated higher resource use than antineoplastic chemotherapy implant cases across two consecutive years of MedPAR data and are more closely aligned with cases assigned to MS-DRGs 020, 021 and 022. These commenters recommended that cases reporting procedure code 00H004Z, such as cases involving GammaTile[supreg], which is a surgically implanted brachytherapy device used to treat patients with malignant brain tumors, be assigned to MS-DRGs 020, 021, and 022. Other commenters expressed concerns with the proposal to reassign cases describing a neurostimulator generator inserted into the skull with the insertion of a neurostimulator lead into the brain (including cases involving the use of the RNS[supreg] neurostimulator) with a principal diagnosis of epilepsy from MS-DRG 023 to MS-DRGs 020, 021, and 022. These commenters stated that this proposal would have devastating impacts on hospital payment, which in turn would impact the ability of hospitals to continue to offer the RNS[supreg] neurostimulator to Medicare beneficiaries. While thanking CMS for continuing to explore solutions to better align the resource utilization of epilepsy with neurostimulator cases, some commenters stated the proposed reassignment would result in a greater misalignment of hospital costs, resulting in a significant reduction in hospital payment for the vast majority of epilepsy with neurostimulator cases. A commenter specifically stated that they performed their own analysis and found that most epilepsy with neurostimulator cases do not report a secondary diagnosis designated as an MCC, therefore reassigning these cases to MS-DRGs 020, 021, and 022 without maintaining the ``Epilepsy Principal Diagnosis,'' ``Neurostimulator'' logic lists in these MS-DRGs will have the opposite effect and will decrease hospital payments even further. Many commenters requested that CMS modify its current proposal and assign all cases describing a neurostimulator generator inserted into the skull with the insertion of a neurostimulator lead into the brain (including cases involving the use of the RNS[supreg] neurostimulator) with a principal diagnosis of epilepsy to MS-DRG 020 even if there is no MCC reported. Response: We appreciate the commenters' feedback and thank the commenters for sharing their concerns. In response to the commenters' concerns that finalizing our proposal could adversely affect cases reporting procedure code 00H004Z and cases reporting a neurostimulator generator inserted into the skull with the insertion of a neurostimulator lead into the brain (including cases involving the use of the RNS[supreg] neurostimulator) and a principal diagnosis of epilepsy, we performed additional analysis of these cases. As discussed in the preamble of the proposed rule, MS-DRGs 023 and 024 contain a logic list referred to as ``Chemotherapy Implant.'' This logic list includes four ICD-10-PCS codes: 00H004Z (Insertion of radioactive element, cesium-131 collagen implant into brain, open approach), 3E0Q005 (Introduction of other antineoplastic into cranial cavity and brain, open approach), 3E0Q305 (Introduction of other antineoplastic into cranial cavity and brain, percutaneous approach), and 3E0Q705 (Introduction of other antineoplastic into cranial cavity and brain, via natural or artificial opening). In our analysis discussed in the proposed rule, we examined claims data from the September 2024 update of the FY 2024 MedPAR file for all cases in MS-DRG 023 and compared the results to cases reporting one of the four procedure codes that appear under the ``Chemotherapy Implant'' logic list in MS-DRG 023. To evaluate the commenters' concerns regarding cases involving the insertion of radioactive implants, we further examined claims data from the September 2024 update of the FY 2024 MedPAR file for all cases in MS-DRG 023 and compared the results to cases reporting procedure code 00H004Z specifically. The following table shows our findings: [GRAPHIC] [TIFF OMITTED] TR04AU25.050 As shown in the table, for MS-DRG 023, we identified a total of 12,136 cases, with an average length of stay of 10 days and average costs of $51,132. Of the 12,136 cases in MS DRG 023, there were 111 cases reporting procedure [[Page 36571]] code 00H004Z with an average length of stay of 5.5 days and average costs of $53,666. Because all cases reporting a procedure code included in the logic list referred to as ``Chemotherapy Implant'' are assigned to the higher severity level (with MCC) MS-DRG 023 and there is a three-way split within MS-DRGs 020, 021, and 022, we next analyzed the 111 cases reporting a procedure code 00H004Z in MS-DRG 023 for the presence or absence of a secondary diagnosis designated as a complication or comorbidity (CC) or a major complication or comorbidity (MCC). [GRAPHIC] [TIFF OMITTED] TR04AU25.051 We then examined claims data from the September 2024 update of the FY 2024 MedPAR file for MS-DRGs 020, 021, and 022. Our findings are shown in the following table. [GRAPHIC] [TIFF OMITTED] TR04AU25.052 As shown in the table, the data analysis performed indicates that the 77 cases in MS-DRG 023 reporting procedure code 00H004Z with a secondary diagnosis code designated as an MCC have a shorter average length of stay (6.5 days versus 12.5 days) and lower average costs ($57,820 versus $71,916) when compared to all the cases in MS-DRG 020. The 23 cases in MS-DRG 023 reporting procedure code 00H004Z with a secondary diagnosis code designated as an CC have a shorter average length of stay (3.5 days versus 7.8 days) and lower average costs ($46,741 versus $48,421) when compared to all the cases in MS-DRG 021. The 11 cases in MS-DRG 023 reporting procedure code 00H004Z without a secondary diagnosis code designated as an CC or an MCC have a shorter average length of stay (2.1 days versus 2.4 days) and higher average costs ($39,075 versus $28,243) when compared to all the cases in MS-DRG 022. These data reflect when distributed based on the presence or absence of a secondary diagnosis designated as a CC or an MCC, the 111 cases in MS-DRG 023 reporting procedure code 00H004Z have lower average costs and shorter lengths of stay than the cases in the FY 2024 MedPAR file for MS-DRGs 020 and 021 while having higher average costs and shorter lengths of stay than the cases in MS-DRG 022. While the 111 cases reporting procedure code 00H004Z have average costs that are higher than the average costs of all cases in their currently assigned MS-DRG 023 ($53,666 versus $51,132), we do not believe it would be appropriate to reassign the cases reporting procedure code 00H004Z to MS-DRG 020, 021, and 022 as the cases are not clinically coherent with regard to resource utilization as reflected in the difference in average costs when distributed based on the presence or absence of a secondary diagnosis designated as a CC or an MCC. We then performed a similar analysis for the cases describing a neurostimulator generator inserted into the skull with the insertion of a neurostimulator lead into the brain (including cases involving the use of the RNS[supreg] neurostimulator) and a principal diagnosis of epilepsy. As discussed in the proposed rule, for MS-DRG 023, there were 68 cases describing a neurostimulator generator inserted into the skull with the insertion of a neurostimulator lead into the brain (including cases involving the use of the RNS[supreg] neurostimulator) and a principal diagnosis of epilepsy with an average length of stay of 2.4 days and average costs of $66,303. Because all cases describing a neurostimulator generator inserted into the skull with the insertion of a neurostimulator lead into the brain (including cases involving the use of the RNS[supreg] neurostimulator) and a principal diagnosis of epilepsy are assigned to the higher severity level (with MCC) MS-DRG 023 and there is a three-way split within MS-DRGs 020, 021, and 022, next we analyzed the 68 cases describing a neurostimulator generator inserted into the skull with the insertion of a neurostimulator lead into the brain (including cases involving the use of the RNS[supreg] neurostimulator) and a principal diagnosis of epilepsy in MS-DRG 023 for the presence or absence of a secondary diagnosis designated as a complication or comorbidity (CC) or a major complication or comorbidity (MCC). [[Page 36572]] [GRAPHIC] [TIFF OMITTED] TR04AU25.053 The data analysis performed indicates that the 9 cases in MS-DRG 023 reporting a principal diagnosis of epilepsy and a secondary diagnosis code designated as an MCC with a neurostimulator generator inserted into the skull and insertion of a neurostimulator lead into brain have a shorter average length of stay (4.6 days versus 12.5 days) and lower average costs ($66,945 versus $71,916) when compared to all the cases in MS-DRG 020. The 23 cases in MS-DRG 023 reporting a principal diagnosis of epilepsy and a secondary diagnosis code designated as a CC with a neurostimulator generator inserted into the skull and insertion of a neurostimulator lead into brain have a shorter average length of stay (2.6 days versus 7.8 days) and higher average costs ($76,648 versus $48,421) when compared to all the cases in MS-DRG 021. The 36 cases in MS-DRG 023 reporting a principal diagnosis of epilepsy without a secondary diagnosis code designated as a CC or an MCC with a neurostimulator generator inserted into the skull and insertion of a neurostimulator lead into brain have a shorter average length of stay (1.8 days versus 2.4 days) and higher average costs ($59,534 versus $28,243) when compared to all the cases in MS-DRG 022. As shown in the table, when distributed based on the presence or absence of a secondary diagnosis designated as a CC or an MCC, the 68 cases in MS-DRG 023 reporting a principal diagnosis of epilepsy with a neurostimulator generator inserted into the skull and insertion of a neurostimulator lead into brain have higher average costs and shorter lengths of stay than the cases in the FY 2024 MedPAR file for MS-DRGs 021 and 022 while having lower average costs and shorter lengths of stay than the cases in MS-DRG 020. We note, similar to the commenters' analysis, our analysis using the September 2024 update of the FY 2024 MedPAR file reflects that the majority of the cases (36) describing a neurostimulator generator inserted into the skull with the insertion of a neurostimulator lead into the brain (including cases involving the use of the RNS[supreg] neurostimulator) and a principal diagnosis of epilepsy do not also report secondary diagnoses designated as CCs or MCCs. While the 68 cases reporting a principal diagnosis of epilepsy with a neurostimulator generator inserted into the skull and insertion of a neurostimulator lead into brain have average costs that are higher than the average costs of all cases in their currently assigned MS-DRG 023 ($66,303 versus $51,132), the data indicate that the difference in average costs is $12,382 ($71,916-$59,534 = $12,382) for the majority of the cases which describe a neurostimulator generator inserted into the skull with the insertion of a neurostimulator lead into the brain (including cases involving the use of the RNS[supreg] neurostimulator) and a principal diagnosis of epilepsy without reporting a secondary diagnosis code designated as a CC or an MCC in MS-DRG 023 when compared to all the cases in MS-DRG 020. We do not believe it would be appropriate to reassign all cases reporting a principal diagnosis of epilepsy with a neurostimulator generator inserted into the skull and insertion of a neurostimulator lead into the brain to the highest severity level (with MCC) MS DRG 020 as the majority of the cases are not clinically coherent with regard to resource utilization as reflected in the difference in average costs. After consideration of the public comments we received, and for the reasons discussed, we believe that further analysis of cases reporting the insertion of a radioactive element into the brain and cases reporting a neurostimulator generator inserted into the skull with the insertion of a neurostimulator lead into the brain (including cases involving the use of the RNS[supreg] neurostimulator) and a principal diagnosis of epilepsy is needed prior to generally finalizing further reassignment of these cases to ensure clinical and resource coherence between these cases and the other cases with which they may potentially be grouped. Accordingly, we believe it would be appropriate to take additional time to examine the relevant clinical factors and similarities in resource consumption in order to best represent these subsets of patients within the MS-DRG classification and improve the overall accuracy of the IPPS payments. CMS appreciates the comments submitted in response to our proposal as discussed in the FY 2026 IPPS/LTCH PPS proposed rule. We continue to be attuned to the requestors' and the commenters' concerns about payment for cases reporting procedure codes describing the insertion of the RNS[supreg] neurostimulator, the implantation of a DBS system, or the insertion of antineoplastic implants and note that our work in this area is ongoing. As stated in prior rulemaking, we recognize the logic for MS-DRGs 020 through 027 has grown more complex over the years and continue to believe there is an opportunity for further refinement. As discussed in the FY 2024 IPPS/LTCH PPS final rule (88 FR 58661 through 58667), we have begun to analyze the ICD-10 coded claims data to determine if the patients' diagnoses, the objective of the procedure performed, the specific anatomical site where the procedure is performed or the surgical approach used (for example, open, percutaneous, percutaneous endoscopic, among others) demonstrates a greater severity of illness and/or increased treatment difficulty as we consider where further refinements could potentially be made to better account for differences in the technical complexity and resource utilization among the procedures that are currently assigned to MS-DRGs 020 through 027, including how to better [[Page 36573]] align the clinical indications with the performance of specific intracranial procedures. CMS will continue to monitor and analyze the claims data with respect to MS-DRGs 020 through 027 as we further examine the logic for case assignment to the craniotomy MS-DRGs and we will continue to consider these issues as we develop potential future rulemaking proposals. Feedback and other suggestions on what other factors should be considered in a potential restructuring of these MS- DRGs may continue to be directed to MEARISTM, discussed in section II.C.1.b. of the preamble of this final rule at: https://mearis.cms.gov/public/home. In summary, for FY 2026, after consideration of the public comments we received and for the reasons discussed, we are generally not finalizing our proposed changes to the assignment of the cases reporting the insertion of an intracranial neurostimulator implant, other than the changes described in more detail in the discussion that follows. For FY 2026, cases reporting a neurostimulator generator inserted into the skull with the insertion of a neurostimulator lead into the brain (including cases involving the use of the RNS[supreg] neurostimulator) and a principal diagnosis of epilepsy will be maintained in MS-DRG 023. We are not finalizing our proposal to add 114 procedure code combinations to a ``Intracranial Neurostimulator Implant'' logic list in MS-DRGs 020, 021, and 022 that describe (1) the insertion of multiple or single array neurostimulator generators with the insertion of a neurostimulator lead into the brain or the cerebral ventricle and (2) the insertion of neurostimulator generator inserted into the skull with the insertion of a neurostimulator lead into the brain. Accordingly, the ``Major Device Implant,'' ``Epilepsy Principal Diagnosis,'' ``Neurostimulator'' logic lists will be maintained in MS- DRGs 023 and 024 for FY 2026. We are also not finalizing our proposals to change the titles of MS-DRGs 020, 021, and 022 from ``Intracranial Vascular Procedures with Principal Diagnosis Hemorrhage with MCC, with CC, and without CC/MCC, respectively'' to ``Intracranial Vascular Procedures with Principal Diagnosis Hemorrhage or Intracranial Neurostimulator Implant with MCC, with CC, and without CC/MCC, respectively,'' to change the title of MS- DRG 023 from ``Craniotomy with Major Device Implant or Acute Complex Central Nervous System Principal Diagnosis with MCC or Chemotherapy Implant or Epilepsy with Neurostimulator'' to ``Craniotomy with Acute Complex Central Nervous System Principal Diagnosis with MCC or Antineoplastic Implant,'' or to change the title of MS-DRG 024 from ``Craniotomy with Major Device Implant or Acute Complex Central Nervous System Principal Diagnosis without MCC'' to ``Craniotomy with Acute Complex Central Nervous System Principal Diagnosis without MCC.'' As discussed earlier in this section, we noted that 36 procedure code combinations describing the insertion of a single array stimulator generator or a rechargeable single array stimulator generator into the subcutaneous areas of the chest, back, or abdomen and a neurostimulator lead are not captured under the ``Major Device Implant'' logic list, in MS-DRG 023 and 024, therefore MS-DRGs 025, 026, and 027 (Craniotomy and Endovascular Intracranial Procedures with MCC, with CC, and without CC/ MCC, respectively) are assigned based on the reporting of the ICD-10- PCS procedure code describing the insertion of the neurostimulator into the brain. As discussed in the proposed rule, our analysis indicated the cases in MS-DRGs 025, 026, and 027 reporting the insertion of a single array generator and insertion of neurostimulator lead into brain have average costs that are higher than the average costs of all cases in their respective MS-DRGs. We then examined the data to determine how the resources for the subset of cases reporting the insertion of a single array generator and insertion of neurostimulator lead into brain compared to cases in MS-DRGs 023 and 024, and similarly found that the cases reporting the insertion of a single array generator and insertion of neurostimulator lead into brain have average costs that are higher and an average length of stay that is shorter than all cases in MS-DRGs 023 and 024. In the FY 2026 proposed rule we stated we believe the procedure code combinations that describe the insertion of a single array stimulator generator or a rechargeable single array stimulator generator into the subcutaneous areas of the chest, back, or abdomen in combination with a code describing the insertion of a neurostimulator lead into the brain are clinically coherent with the procedure code combinations in MS-DRG 023 and 024 captured under the ``Major Device Implant'' logic list that describe the insertion of a multiple array stimulator generator or a rechargeable multiple array stimulator generator into the subcutaneous areas of the chest, back, or abdomen in combination with a code describing the insertion of a neurostimulator lead into the brain. While we continue to believe that reassigning all cases reporting the procedure code combination describing a single array generator and insertion of neurostimulator lead into brain to MS- DRGs 023 and 024 would not fully address the difference in resource utilization in these cases, we believe that adding the 36 procedure code combinations describing the insertion of a single array stimulator generator or a rechargeable single array stimulator generator into the subcutaneous areas of the chest, back, or abdomen and a neurostimulator lead to the ``Major Device Implant'' logic list under MS-DRGs 023 and 024 for FY 2026 would better reflect hospital resource utilization and appropriately group these cases describing single array stimulator generator combinations with those cases describing multiple array generator combinations consistent with our proposal. Therefore, for the reasons discussed, we are finalizing the addition of the 36 ICD-10-PCS procedure code combinations that describe the implantation of a DBS system with a single array stimulator generator or a rechargeable single array stimulator generator and the insertion of a neurostimulator lead into the brain to the ``Major Device Implant'' logic list in MS-DRGs 023 and 024. We refer the reader to Table 6P.2b associated with this FY 2026 IPPS/LTCH PPS final rule (available at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps) for the list of the 36 ICD-10-PCS procedure code combinations that describe the implantation of a DBS system with a single array stimulator generator or a rechargeable single array stimulator generator and the insertion of a neurostimulator lead into the brain that are being added to the ``Major Device Implant'' logic list in MS-DRGs 023 and 024. We also note that as discussed earlier in this section, after consideration of the public comments we received, we are finalizing our proposal to add procedure codes 00H001Z, 00H005Z, 00H031Z, and 00H041Z to the ``Chemotherapy Implant'' logic list in MS-DRGs 023 and 024, without modification, effective October 1, 2025, for FY 2026. We are also finalizing the change of the description of the logic list in MS- DRGs 023 and 024 from ``Chemotherapy Implant'' to ``Antineoplastic Implant''. Therefore, for consistency with our finalized changes to the logic list, we are finalizing a change to the title of MS-DRG 023 from ``Craniotomy with Major [[Page 36574]] Device Implant or Acute Complex Central Nervous System Principal Diagnosis with MCC or Chemotherapy Implant or Epilepsy with Neurostimulator'' to ``Craniotomy with Major Device Implant or Acute Complex Central Nervous System Principal Diagnosis with MCC or Antineoplastic Implant or Epilepsy with Neurostimulator.'' Comment: Several commenters noted that in Table 6P.2c associated with the FY 2026 IPPS/LTCH PPS proposed rule, which contains the list of the 57 ICD-10-PCS procedure codes that were inadvertently excluded from the ``Intracranial Vascular Procedures'' logic list of MS-DRGs 020, 021, and 022, ICD-10-PCS codes 057L3DZ (Dilation of intracranial vein with intraluminal device, percutaneous approach) and 057L4DZ (Dilation of intracranial vein with intraluminal device, percutaneous endoscopic approach) were included. These commenters noted that ICD-10- PCS code 057L0DZ (Dilation of intracranial vein with intraluminal device, open approach) was not also included in the list and recommended CMS consider also adding procedure code 057L0DZ to the ``Intracranial Vascular Procedures'' logic list of MS-DRGs 020, 021, and 022, as this code also describes dilation of an intracranial vein with an intraluminal device, differing only in approach. Several commenters specifically stated that they were unclear on the rationale for not including ICD-10-PCS code 057L0DZ (Dilation of Intracranial Vein with Intraluminal Device, Open Approach) to the logic list of MS- DRGs 020, 021, and 022. Response: We appreciate the commenters' feedback. In the ICD-10 MS- DRGs Version 42.1, ICD-10-PCS procedure codes 057L3DZ and 057L4DZ are currently assigned to MS-DRGs 023, 024, 025, 026, and 027. As we noted in the proposed rule, during our review of MS-DRGs 020, 021, and 022, we identified 57 ICD-10-PCS procedure codes describing intracranial vascular procedures that were inadvertently excluded from the ``Intracranial Vascular Procedures'' logic list of MS-DRGs 020, 021, and 022. We note that we identified the 57 procedure codes by comparing the logic lists in MS-DRGs 023, 024, 025, 026, and 027 to the logic list of MS-DRGs 020, 021, and 022. ICD-10-PCS procedure code 057L0DZ (Dilation of intracranial vein with intraluminal device, open approach) is currently assigned to MDC 05 (Diseases and Disorders of the Circulatory System) MS-DRGs 252, 253 and 254 (Other Vascular Procedures with MCC, with CC, without MCC respectively) and therefore was not identified in our initial review. We agree with the commenters that ICD-10-PCS code 057L0DZ describes an intracranial vascular procedure and should be added to the ``Intracranial Vascular Procedures'' logic list of MS-DRGs 020, 021, and 022, consistent with our proposal to add the ICD-10-PCS procedure codes describing intracranial vascular procedures that were inadvertently excluded from the ``Intracranial Vascular Procedures'' logic list. During our review of this issue identified by the commenters, we further examined the GROUPER logic that would determine the assignment of a case to MS-DRGs 020, 021, and 022. Specifically, we reviewed the ICD-10-PCS classification to determine if there were other ICD-10-PCS codes describing dilation of an intracranial vein that were not listed in the logic for MS-DRGs 020, 021, and 022. We identified the following three procedure codes. [GRAPHIC] [TIFF OMITTED] TR04AU25.054 ICD-10-PCS codes 057L0ZZ, 057L3ZZ, and 057L4ZZ are also currently assigned to MS-DRGs 252, 253 and 254 in the ICD-10 MS-DRGs Version 42.1. In response to the commenters that stated they were unclear on the rationale for not including ICD-10-PCS code 057L0DZ in the list of procedure codes proposed to be added to the ``Intracranial Vascular Procedures'' logic list of MS-DRGs 020, 021, and 022, we have identified that the disparate MS-DRG assignments of the six ICD-10-PCS procedure codes that describe the dilation of an intracranial vein are a result of a replication error in transitioning to ICD-10. We determined it may be helpful to provide the comparable translations under ICD-9-CM for commenters to better understand how these six procedures were initially grouped to the ICD-10 MS-DRGs as a result of replication during the conversion from ICD-9 to ICD-10 based MS-DRGs. We refer the reader to Table 6P.2f associated with this FY 2026 IPPS/ LTCH PPS final rule (which is available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index) for the findings from our analysis of the six procedure codes, which indicates how these procedures were classified under ICD-10-PCS based on the comparable translations under ICD-9-CM resulting in the current MS-DRG assignments. We reviewed ICD-10-PCS codes 057L0DZ, 057L0ZZ, 057L3ZZ, and 057L4ZZ and note these codes describe intracranial vascular procedures that are consistent with the existing procedure codes included in the logic for case assignment to MS-DRGs 020, 021, 022, 023, 024, 025, 026, and 027. Accordingly, because procedure codes 057L0DZ, 057L0ZZ, 057L3ZZ, and 057L4ZZ that describe dilation of an intracranial vein were not assigned to MS-DRGs 020, 021, 022, 023, 024, 025, 026, and 027 as a result of replication in the transition from ICD-9 to ICD-10 based MS- DRGs, and are consistent with the existing procedure codes that also describe dilation of an intracranial vein currently included in the logic for these MS-DRGs, we believe that consistent with our proposal to add the other ICD-10-PCS procedure codes describing intracranial vascular procedures that were inadvertently excluded from the ``Intracranial Vascular Procedures'' logic list, procedure codes 057L0DZ, 057L0ZZ, 057L3ZZ, and 057L4ZZ should be assigned to MS-DRGs 020, 021, 022, 023, 024, 025, 026, and 027 in MDC 01, effective FY 2026. Therefore, after consideration of the public comments we received, and for the reasons discussed, we are finalizing our proposal to add the 57 procedure codes to the ``Intracranial Vascular Procedures'' logic list, and the 66 diagnosis codes to the ``Hemorrhage [[Page 36575]] Principal Diagnosis'' logic list of MS-DRGs 020, 021, and 022, with modification, effective October 1, 2025, for FY 2026. Specifically, we are also adding ICD-10-PCS codes 057L0DZ, 057L0ZZ, 057L3ZZ, and 057L4ZZ that also describe dilation of an intracranial vein to the list of procedure codes in the ``Intracranial Vascular Procedures'' logic list of MS-DRGs 020, 021, and 022. The list of ICD-10-PCS procedure codes describing intracranial vascular procedures that we are finalizing to add to the ``Intracranial Vascular Procedures'' logic list of MS-DRGs 020, 021, and 022 are shown in Table 6P.2c associated with this final rule and available on the CMS website at https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps. In addition, we are also finalizing the assignment of ICD-10-PCS codes 057L0DZ, 057L0ZZ, 057L3ZZ, and 057L4ZZ to MS-DRGs 023, 024, 025, 026, and 027 in MDC 01 effective FY 2026. These finalizations as discussed are reflected in the final version of ICD-10 MS-DRG Definitions Manual, Version 43 that contains the complete documentation of the GROUPER logic for MS-DRGs 020 through 027 for FY 2026 and is available via the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software. b. Hypertensive Encephalopathy As discussed in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18026 through 18028, we received a request to delete MS-DRGs 077, 078, and 079 (Hypertensive Encephalopathy with MCC, with CC, and without CC/ MCC, respectively). Hypertensive encephalopathy refers to brain dysfunction that occurs when the brain's blood vessels can no longer regulate blood flow due to severe or sudden rises in blood pressure, causing brain swelling and damage. It is characterized by the insidious onset of headache, nausea, and vomiting, followed by non-localizing neurologic symptoms such as restlessness, confusion, and, if the hypertension is not treated, seizures and coma. The diagnosis is based on clinical presentation, elevated blood pressure, and neurological examination, often supported by brain imaging like CT or MRI. The treatment involves immediate and rapid lowering of blood pressure with appropriate medications administered in a controlled setting. ICD-10-CM diagnosis code I67.4 (Hypertensive encephalopathy) is used to report this diagnosis. The requestor noted that effective FY 2025, a ``use additional code'' instructional note was added under diagnosis code I16.1 (Hypertensive emergency) in the ICD-10-CM Tabular List of Diseases and Injuries. Specifically, the instructional note states, ``use additional code, if applicable, to identify specific organ dysfunction, such as:'' and lists I67.4 as well as eight other ICD-10-CM diagnosis codes. The requestor stated that the addition of this ``use additional code'' instructional note has sequencing implications and requires I67.4 to be sequenced as a secondary diagnosis when hypertensive emergency and hypertensive encephalopathy are documented. As the GROUPER logic for MS-DRGs 077, 078, and 079 is defined by only diagnosis code I67.4, the requestor stated there will no longer be cases grouping to medical MS- DRGs 077, 078, and 079 because I67.4 will only be sequenced as a secondary diagnosis and I16.1 will have to be sequenced as the principal diagnosis. Instead, these cases will group to MDC 05 (Diseases and Disorders of the Circulatory System) medical MS-DRGs 304 and 305 (Hypertension with MCC and without MCC, respectively) since I16.1 is assigned to those MS-DRGs. To begin our analysis, as discussed in the proposed rule, we reviewed the ICD-10-CM Tabular List of Diseases and Injuries. We stated that the requestor is correct a ``use additional code'' instructional note was added under diagnosis code I16.1 (Hypertensive emergency) in the ICD-10-CM Tabular List of Diseases and Injuries, effective FY 2025. According to the ICD-10-CM Official Guidelines for Coding and Reporting, ``certain conditions have both an underlying etiology and multiple body system manifestations due to the underlying etiology. For such conditions the ICD-10-CM has a coding convention that requires the underlying condition to be sequenced first followed by the manifestation. Wherever such a combination exists there is an `use additional code' note at the etiology code, and a `code first' note at the manifestation code. These instructional notes indicate the proper sequencing order of the codes, etiology followed by manifestation.'' We noted in the proposed rule that no such ``code first'' note appears at ICD-10-CM diagnosis code I67.4 (Hypertensive encephalopathy) in the ICD-10-CM Tabular List of Diseases and Injuries meaning the sequencing depends on the circumstances of the encounter when hypertensive emergency and hypertensive encephalopathy are documented. If providers have cases involving hypertensive emergency and hypertensive encephalopathy for which they need ICD-10 coding assistance, we encourage them to submit their questions to the American Hospital Association's Central Office on ICD-10 at https://www.codingclinicadvisor.com/. We then reviewed the GROUPER logic. We stated the requestor is correct that diagnosis code I67.4 is the only diagnosis code listed under the heading of ``Principal Diagnosis'' in the ICD-10 MS-DRG Definitions Manual for MS-DRGs 077, 078, and 079. We refer the reader to the ICD-10 MS-DRG Definitions Manual Version 42.1, which is available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software, for complete documentation of the GROUPER logic for MS- DRGs 077, 078, and 079. We noted in the proposed rule that a DRG for a principal diagnosis of hypertensive encephalopathy (48 FR 39876) has existed since 1983 when Congress amended the Social Security Act to include a national DRG-based hospital prospective payment system for all Medicare patients. We then examined claims data from the September 2024 update of the FY 2024 MedPAR file for all cases in MS-DRGs 077, 078, and 079 to consider the resources involved in the cases reporting a principal diagnosis of hypertensive encephalopathy. Our findings are shown in this table. [GRAPHIC] [TIFF OMITTED] TR04AU25.055 [[Page 36576]] We stated in the proposed rule the data reflect a moderately low volume of cases in MS-DRGs 077, 078, and 079, relatively. We then evaluated the reporting of hypertensive encephalopathy in the inpatient setting over the past few years in medical MS-DRGs 077, 078, and 079. We analyzed claims data for MS-DRGs 077, 078, and 079 from the FY 2020 through the FY 2024 MedPAR files, which were used in our analysis of claims data for MS-DRG reclassification requests effective for FY 2022 through FY 2026 to trend the number of cases assigned to these MS-DRGs over time. Our findings are shown in the following graph: [GRAPHIC] [TIFF OMITTED] TR04AU25.056 The data show a general decline in the number of cases reporting hypertensive encephalopathy as a principal diagnosis in medical MS-DRGs 077, 078, and 079 for the past 5 years. We noted in the proposed rule that as discussed in prior rulemaking, the MS-DRGs are a classification system intended to group together diagnoses and procedures with similar clinical characteristics and utilization of resources. We generally seek to identify sufficient sets of claims data with demonstrated clinical similarity in developing diagnosis related groups rather than subsets based on single diagnoses. After review of the findings indicating a general decline in the number of cases reporting hypertensive encephalopathy as a principal diagnosis, and consideration of the intent of the MS-DRGs, we stated we believe that there is no longer a clinical reason to maintain the MS-DRGs for hypertensive encephalopathy (MS-DRGs 077, 078, and 079) as they are defined by the reporting of one principal diagnosis code. As discussed in the proposed rule, to explore mechanisms to ensure clinical coherence between cases reporting hypertensive encephalopathy as a principal diagnosis and the other cases with which they may potentially be grouped, we then conducted an examination of all the MS- DRGs where I67.4 was also reported as principal diagnosis to determine if the diagnosis was included in any other MS-DRGs outside of MDC 01, to assess the current MS-DRG assignment of this diagnosis code. Our findings are shown in the following table. [[Page 36577]] [GRAPHIC] [TIFF OMITTED] TR04AU25.057 As shown in the table, we found 35 cases reporting hypertensive encephalopathy as the principal diagnosis in MS-DRGs other than MS-DRGs 077, 078, and 079. We noted in the proposed rule that the majority of the listed MS-DRGs are assigned to MDC 01 with one exception: Pre-MDC MS-DRG 004 (Tracheostomy with MV >96 Hours or Principal Diagnosis Except Face, Mouth and Neck without Major O.R. Procedures). Additionally, there were 11 cases that grouped to MS-DRGs 981, and 982 (Extensive O.R. Procedure Unrelated to Principal Diagnosis with MCC, and with CC, respectively) and two cases that grouped to MS-DRG 987 (Non-Extensive O.R. Procedures Unrelated to Principal Diagnosis with MCC). After review of these data, we stated we believe it would not be appropriate to reassign diagnosis code I67.4 to another MDC because it could inadvertently cause cases reporting a principal diagnosis of hypertensive encephalopathy with a nervous system procedure to be assigned to an unrelated MS-DRG. Further, we stated we believe it is clinically appropriate to maintain the assignment of I67.4 in MDC 01 as the condition is consistent with other conditions reported by diagnosis codes assigned to MDC 01. We then examined the MS-DRGs within MDC 01 to consider the possibility of reassigning the cases with a principal diagnosis of hypertensive encephalopathy to other MS-DRGs within MDC 01. In reviewing the claims data from the September 2024 update of the FY 2024 MedPAR file, and examining the clinical considerations, we stated we believe that the cases reporting a principal diagnosis of hypertensive encephalopathy could suitably group to MS-DRGs 070, 071, and 072 (Nonspecific Cerebrovascular Disorders with MCC, with CC and, without CC/MCC, respectively), which contain other cerebrovascular diagnoses under the heading of ``Principal Diagnosis'' in the GROUPER logic list, noting in the proposed rule that hypertensive encephalopathy is considered a cerebrovascular disorder, as it is a neurological condition directly caused by a sudden, severe elevation in blood pressure. We refer the reader to the ICD-10 MS-DRG Definitions Manual Version 42.1, which is available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software, for complete documentation of the GROUPER logic for MS-DRGs 070, 071, and 072. To determine how the resources for the cases in MS-DRGs 077, 078, and 079 compared to cases in MS-DRGs 070, 071, and 072, we examined the average costs and length of stay for cases in MS-DRGs 070, 071, and 072. Our findings are shown in the following table. [GRAPHIC] [TIFF OMITTED] TR04AU25.058 As reflected and discussed in the proposed rule, the average costs of the 1,488 cases reporting a principal diagnosis of I67.4 with a secondary diagnosis designated as a MCC in MS-DRG 077 are slightly lower ($13,176 compared to $14,771) and the average length of stay is shorter (5 days compared to 6.4 days) than for all cases in MS-DRGs 070. The average costs of the 1,846 cases reporting a principal diagnosis of I67.4 with a secondary diagnosis designated as a CC in MS- DRG 078 are slightly lower ($8,591 compared to $9,381) and the average length of stay is shorter (3.3 days compared to 4.5 days) than for all cases in MS-DRGs 071. The average costs of the 243 cases reporting a principal diagnosis of I67.4 without reporting a secondary diagnosis designated as a CC or a MCC in MS-DRG 079 are slightly lower ($6,729 compared to $7,047) and the average length of stay is shorter (2.4 [[Page 36578]] days compared to 2.9 days) than for all cases in MS-DRGs 072. We stated in the proposed rule our analysis demonstrates that the cases reporting a principal diagnosis of I67.4 currently grouping to medical MS-DRGs 077, 078, and 079 are generally aligned with the average costs for the cases currently grouping to MS-DRGs 070, 071, and 072. While the cases reporting a principal diagnosis code describing hypertensive encephalopathy have slightly lower costs and a shorter average length of stay than for cases in MS-DRGs 070, 071, and 072, we stated we believe reassigning diagnosis code I67.4 to MS-DRGs 070, 071, and 072 will account for the subset of patients reporting this principal diagnosis and will appropriately reflect the resources involved in evaluating and treating these patients. As discussed in the proposed rule, during our review of this issue and the examination of the MS-DRGs within MDC 01, we noted that the title of MS-DRGs 067, 068, and 069 is ``Nonspecific CVA and Precerebral Occlusion without Infarction with MCC, with CC, and without CC/MCC, respectively'' and the title of MS-DRGs 070, 071, and 072 is ``Nonspecific Cerebrovascular Disorders, with MCC, with CC, and without CC/MCC, respectively.'' In examining the GROUPER logic for these MS- DRGs and reviewing the diagnoses listed under the heading of ``Principal Diagnosis'' in the ICD-10 MS-DRG Definitions Manual, we stated we believe the titles for these MS-DRGs no longer accurately reflects the assigned diagnoses. Like MS-DRGs 077, 078, and 079, the titles of MS-DRGs 067, 068, 069, 070, 071, and 072 were established prior to the transition to ICD-10-CM. The terminology ``nonspecific'' in the titles for these MS-DRGs was appropriate to describe the ICD-9- CM diagnosis codes that were previously assigned to these DRGs, but as discussed in the HIPAA Administrative Simplification: Modification to Medical Data Code Set Standards To Adopt ICD-10-CM and ICD-10-PCS proposed rule (73 FR 49796 through 49803), in comparison to ICD-9-CM, ICD-10-CM diagnosis codes are very specific and that this specificity improves the richness of data for analysis and improves the accuracy of data used for medical research. Therefore, we stated we believe it is appropriate to propose to revise the titles of these MS-DRGs for consistency. In this final rule, we are amending our previous statement as the titles of MS-DRGs 067 and 068 are ``Nonspecific CVA and Precerebral Occlusion without Infarction with MCC and without MCC'', respectively, in the ICD-10 MS-DRG Definitions Manual Version 42.1. The title of MS- DRG 069 is ``Transient Ischemia without Thrombolytic'' and was inadvertently referenced in our proposed rule discussion in connection with MS-DRGs 067 and 068. In summary, for FY 2026, we proposed to delete MS-DRGs 077, 078, and 079. Additionally, we proposed to reassign ICD-10-CM diagnosis code I67.4 (Hypertensive encephalopathy) from MDC 01 MS-DRGs 077, 078, and 079 to MS-DRGs 070, 071, and 072. Lastly, for consistency, we also proposed to change the titles of MS-DRGs 067, 068, and 069 from ``Nonspecific CVA and Precerebral Occlusion without Infarction with MCC, with CC, and without CC/MCC, respectively'' to ``Precerebral Occlusion without Infarction with MCC, with CC, and without CC/MCC, respectively'' and to change the titles of MS-DRGs 070, 071, and 072 from ``Nonspecific Cerebrovascular Disorders, with MCC, with CC, and without CC/MCC, respectively'' to ``Other Cerebrovascular Disorders with MCC, with CC, and without CC/MCC, respectively'' to better reflect the assigned diagnoses. Comment: Commenters supported the proposals to delete MS-DRGs 077, 078, and 079, to reassign ICD-10-CM diagnosis code I67.4 (Hypertensive encephalopathy) from MDC 01 MS-DRGs 077, 078, and 079 to MS-DRGs 070, 071, and 072, to change the titles of MS-DRGs 067, 068, and 069 to ``Precerebral Occlusion without Infarction with MCC, with CC, and without CC/MCC, respectively'' and to change the titles of MS-DRGs 070, 071, and 072 to ``Other Cerebrovascular Disorders with MCC, with CC, and without CC/MCC, respectively''. Some commenters stated that they supported the proposal based on CMS' data analysis, which indicates a general decline in the number of cases reporting hypertensive encephalopathy as a principal diagnosis in these MS-DRGs over the past 5 years. Several commenters, while supporting the proposals, stated that they disagree with CMS' statement that since no ``code first'' note appears at ICD-10-CM diagnosis code I67.4 (Hypertensive encephalopathy) in the ICD-10-CM Tabular List of Diseases and Injuries, the sequencing of the diagnosis codes depends on the circumstances of the encounter when hypertensive emergency and hypertensive encephalopathy are documented. These commenters stated that they do not believe this is a correct interpretation of the ICD-10-CM instructional notes. In their interpretation, when both an etiology and manifestation are documented, and a ``use additional code'' note appears at the ICD-10-CM code for the etiology, the manifestations listed in that note must be sequenced as secondary diagnosis codes, regardless of whether a corresponding ``code first'' note appears at the codes listed in the ``use additional code'' note. A commenter stated that since they question the interpretation of the instructional notes as discussed in the proposed rule, additional data analysis should be performed based on the ICD-10- CM Tabular List instructions. Response: We appreciate the commenters' support and thank them for sharing their interpretation of the ICD-10-CM instructional notes. As noted in section II.C.11. of the preamble of this final rule, the Centers for Disease Control and Prevention's (CDC's) National Center for Health Statistics (NCHS) has lead responsibility for the diagnosis codes and CMS has lead responsibility for the ICD-10-PCS procedure codes. We note that after review of the commenters' interpretation of the ICD-10-CM Tabular List instructions, we consulted with the staff at the CDC/NCHS and NCHS confirmed that they would consider further review of the classification, including review of the Tabular List instructions for hypertensive emergency and hypertensive encephalopathy and other instances in the classification where a ``code first'' note does not appear at the manifestation code. Additionally, as we noted in the FY 2018 IPPS/LTCH PPS final rule (82 FR 38012), coding advice is issued independently from payment policy. While we collaborate with the American Hospital Association (AHA) through the Coding Clinic for ICD- 10-CM and ICD-10-PCS to promote proper coding as one of the Cooperating Parties for ICD-10, the AHA is the official U.S. clearinghouse on medical coding. We recommend that an entity seeking coding guidance on reporting hypertensive emergency and hypertensive encephalopathy submit any questions to the AHA's Central Office on ICD-10 at https://www.codingclinicadvisor.com/. In response to the suggestion that CMS perform additional analysis based on the commenters' interpretation of the ICD-10-CM Tabular List instructions, we note that as discussed in the proposed rule, the GROUPER logic for MS-DRGs 077, 078, and 079 is defined by only diagnosis code I67.4 listed under the heading of ``Principal Diagnosis'' in the ICD-10 MS-DRG Definitions Manual. As the GROUPER logic for MS-DRGs 077, 078, and 079 is [[Page 36579]] defined by only one diagnosis code, it is unclear how the interpretation of the ICD-10-CM Tabular List instructions would factor into our data analysis, as cases reporting a different principal diagnosis code would not be assigned to MS-DRGs 077, 078, and 079. We further note our proposal to delete MS-DRGs 077, 078, and 079 was based on our review of the findings indicating a general decline in the number of cases reporting hypertensive encephalopathy as a principal diagnosis in the inpatient setting over the past few years and in consideration of the intent of the MS-DRGs. Therefore, after consideration of the public comments we received, we are finalizing our proposal to delete MS-DRGs 077, 078, and 079. Additionally, we are finalizing our proposal to reassign ICD-10-CM diagnosis code I67.4 (Hypertensive encephalopathy) from MDC 01 MS-DRGs 077, 078, and 079 to MS-DRGs 070, 071, and 072. We are also finalizing our proposal to change the titles of MS-DRGs 070, 071, and 072 from ``Nonspecific Cerebrovascular Disorders, with MCC, with CC, and without CC/MCC, respectively'' to ``Other Cerebrovascular Disorders with MCC, with CC, and without CC/MCC, respectively'', without modification, effective October 1, 2025, for FY 2026. Lastly, as discussed previously, in the ICD-10 MS-DRG Definitions Manual Version 42.1, the titles of MS-DRGs 067 and 068 are ``Nonspecific CVA and Precerebral Occlusion without Infarction with MCC and without MCC'', respectively, and MS-DRG 069 was inadvertently referenced in our discussion in the proposed rule. Therefore, after consideration of the public comments we received, for the reasons discussed, we are finalizing our proposal with modification. Specifically, we are finalizing our proposal to change the titles of MS-DRGs 067 and 068 from ``Nonspecific CVA and Precerebral Occlusion without Infarction with MCC and without MCC'', respectively, to ``Precerebral Occlusion without Infarction with MCC and without MCC'', respectively, effective October 1, 2025. Under this finalization, the title of MS-DRG 069 will be maintained as ``Transient Ischemia without Thrombolytic'' for FY 2026. c. Encounter for Adjustment and Management of Implanted Devices of the Special Senses As discussed in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18028 through 18029), we identified a replication issue from the ICD-9 based MS-DRGs to the ICD-10 based MS-DRGs regarding the assignment of four ICD-10-CM diagnosis codes that describe encounters for adjustment and management of implanted devices of the special senses. Under the Version 32 ICD-9-CM based MS-DRGs, ICD-9-CM diagnosis code V53.09 (Fitting and adjustment of other devices related to nervous system and special senses), as shown in the following table, was assigned medical MS-DRGs 091, 092, and 093 (Other Disorders of Nervous System with MCC, with CC, and without CC/MCC, respectively) in MDC 01 (Diseases and Disorders of the Nervous System). The four ICD-10-CM code translations also shown in the following table, that provide more detailed and specific information, also currently group to MS-DRGs 091, 092, and 093 in the ICD-10 MS-DRGs Version 42.1. We refer the reader to the ICD-10 MS-DRG Definitions Manual Version 42.1 (available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software) for complete documentation of the GROUPER logic for MS-DRGs 091, 092, and 093. [GRAPHIC] [TIFF OMITTED] TR04AU25.059 As discussed in the proposed rule, during our review of this issue, we noted that under ICD-9-CM, diagnosis code V53.09 (Fitting and adjustment of other devices related to nervous system and special senses) did not further describe the type of device related to nervous system and special senses. This is in contrast to its four comparable ICD-10-CM code translations listed in the previous table that provide more detailed and specific information than the ICD-9-CM diagnosis code and do specify the type of device. In reviewing the four ICD-10-CM diagnosis codes listed in the previous table and the devices they describe, we stated we believe that code Z45.31 is more appropriately assigned to MDC 02 (Diseases and Disorders of the Eye) and codes Z45.320, Z45.321, and Z45.328 are more appropriately assigned to MDC 03 (Diseases and Disorders of the Ear, Nose, Mouth and Throat). We noted in the proposed rule that an ``implanted visual substitution device,'' also known as a ``visual prosthesis,'' is a medical implant designed to partially restore vision to a patient who is blind by directly stimulating the visual pathway in the retina or brain, essentially bypassing damaged photoreceptor cells in the eye and providing a basic visual perception through electrical stimulation. Bone conduction devices, also known as bone conduction hearing aids, amplify sound via bone conduction, or vibrations through the bones of the skull which directly stimulate a functioning cochlea. Cochlear devices and other implanted hearing devices are small electronic devices designed for patients with moderate to severe hearing loss caused by damage to the inner ear to help perceive sounds. We analyzed claims data from the September 2024 update of the FY 2024 MedPAR file to determine if there were any cases reported with diagnosis codes Z45.31, Z45.320, Z45.321, or Z45.328. One case was found in MS-DRG 983 (Extensive O.R. Procedures Unrelated to Principal Diagnosis without CC/MCC) reporting principal diagnosis Z45.321 and procedure code 09PE0SZ (Removal of hearing device from left inner ear, open approach) with costs of $5,530 and a length of stay of one day. In the proposed rule we stated we recognize that the volume of inpatient cases for patients with a principal diagnosis of Z45.31, Z45.320, Z45.321, [[Page 36580]] or Z45.328 is low, however we believe that for clinical consistency, it is more appropriate for these cases to be assigned to MDCs that better describe the indication of the implanted devices of the special senses the codes describe. Accordingly, because the cases reporting principal diagnoses describing encounters for adjustment and management of implanted devices of the special senses are more clinically consistent in MDC 02 or MDC 03 depending on the type of device, and the diagnosis codes were initially assigned to MDC 01 MS-DRGs 091, 092, and 093 as a result of replication in the transition from ICD-9 to ICD-10 based MS- DRGs, we proposed to reassign ICD-10-CM diagnosis code Z45.31 from MS- DRGs 091, 092, and 093 to MDC 02 MS-DRG 123 (Neurological Eye Disorders). We also proposed to reassign ICD-10-CM diagnosis codes Z45.320, Z45.321, and Z45.328 from MS-DRGs 091, 092, and 093 to MDC 03 MS-DRGs 154, 155, and 156 (Other Ear, Nose, Mouth and Throat Diagnoses with MCC, with CC, and without CC/MCC, respectively). Comment: Commenters supported the proposal to assign ICD-10-CM codes Z45.31, Z45.320, Z45.321, and Z45.328 to MDCs that better describe the indication of the implanted devices of the special senses the diagnosis codes describe. Response: We appreciate the commenters' support. After consideration of the public comments we received, we are finalizing, without modification, our proposal to reassign ICD-10-CM diagnosis code Z45.31 from MDC 01 MS-DRGs 091, 092, and 093 to MDC 02 MS-DRG 123 (Neurological Eye Disorders). We are also finalizing our proposal to reassign ICD-10-CM diagnosis codes Z45.320, Z45.321, and Z45.328 from MS-DRGs 091, 092, and 093 to MDC 03 MS-DRGs 154, 155, and 156 (Other Ear, Nose, Mouth and Throat Diagnoses with MCC, with CC, and without CC/MCC, respectively).

4. MDC 05 (Diseases and Disorders of the Circulatory System)

a. Endovascular Aneurysm Repair (EVAR) With Iliac Branch Procedures In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18029 through 18032), we discussed a request we received to create a new MS-DRG for cases reporting endovascular repair of abdominal aortic aneurysms that extend into at least one iliac artery to preserve blood flow to the external or internal iliac arteries. According to the requestor, aortic aneurysms extend into at least one of the iliac arteries in approximately 25% of patients with abdominal aortic aneurysms. The requestor (the manufacturer), stated that the GORE[supreg] EXCLUDER[supreg] Iliac Branch Endoprosthesis was approved by the Food and Drug Administration (FDA) in March of 2016 to be used exclusively with the GORE[supreg] EXCLUDER[supreg] Abdominal Aortic Aneurysm Endoprosthesis to isolate the common iliac artery from systemic blood flow and preserve blood flow in the external iliac and internal iliac arteries in patients with a common iliac or aortoiliac aneurysm, who have appropriate anatomy.\3\ According to the requestor, maintaining flow to the internal iliac artery and pelvic circulation using iliac branch devices or alternative techniques aims to decrease complications associated with artery occlusion.4 5 6 The requestor also stated that occluding the internal iliac artery can result in significant hip and/or buttock claudication, erectile dysfunction, and colonic and spinal cord ischemia. --------------------------------------------------------------------------- \3\ van der Veen D, Holewijn S, Bellosta R, van Sterkenburg SMM, Heyligers JMM, Ficarelli I, G[oacute]mez Palon[eacute]s FJ, Mangialardi N, Mosquera NJ, Holden A, Reijnen MMPJ; IceBERG Study Collaboration. One Year Outcomes of an International Multicentre Prospective Cohort Study on the Gore Excluder Iliac Branch Endoprosthesis for Aorto-Iliac Aneurysms. Eur J Vasc Endovasc Surg. 2021 Aug;62(2):177-185. doi: 10.1016/j.ejvs.2021.04.006. Epub 2021 Jun 16. PMID: 34144884. \4\ Sousa LHDG, Baptista-Silva JCC, Vasconcelos V, Flumignan RLG, Nakano LCU. Internal iliac artery revascularisation versus internal iliac artery occlusion for endovascular treatment of aorto- iliac aneurysms. Cochrane Database of Systematic Reviews 2020, Issue 7. Art. No.: CD013168. DOI: 10.1002/14651858.CD013168.pub2. \5\ Parlani G, Verzini F, De Rango P, Brambilla D, Coscarella C, Ferrer C, Cao P. Long-term results of iliac aneurysm repair with iliac branched endograft: a 5-year experience on 100 consecutive cases. Eur J Vasc Endovasc Surg. 2012 Mar;43(3):287-92. doi: 10.1016/j.ejvs.2011.12.011. Epub 2012 Jan 10. PMID: 22240335. \6\ Taudorf M, Gr[oslash]nvall J, Schroeder TV, L[ouml]nn L. Endovascular Aneurysm Repair Treatment of Aortoiliac Aneurysms: Can Iliac Branched Devices Prevent Gluteal Claudication? J Vasc Interv Radiol. 2016 Feb;27(2):174-80. doi: 10.1016/j.jvir.2015.11.031. Epub 2015 Dec 22. PMID: 26706185. --------------------------------------------------------------------------- According to the requestor, endovascular aneurysm repair (EVAR) procedures that preserve blood flow to the iliac arteries are technically more challenging than conventional EVAR of the abdominal aorta, and they require increased procedure time, fluoroscopy time, and anesthesia time. The requestor stated that tortuosity and/or stenosis in the iliac territory may increase the complexity or even prevent the deployment of devices, leading to treatment failure or causing early occlusion of the branches. In such cases, some patients may develop symptoms of pelvic ischaemia.7 8 The requestor stated that current guidelines advocate the preservation of at least one internal iliac artery in patients with common iliac artery aneurysms, and iliac branched devices were developed to preserve the perfusion in the internal iliac artery.\9\ --------------------------------------------------------------------------- \7\ Donas KP, Criado FJ, Torsello G, Veith FJ, Minion DJ; PERICLES Registry Collaborators. Classification of Chimney EVAR- Related Endoleaks: Insights From the PERICLES Registry. J Endovasc Ther. 2017 Feb 1;24(1):72-74. doi: 10.1177/1526602816678994. Epub 2016 Nov 21. PMID: 27872319. \8\ Ghosh J, Murray D, Paravastu S, Farquharson F, Walker MG, Serracino-Inglott F. Contemporary management of aorto-iliac aneurysms in the endovascular era. Eur J Vasc Endovasc Surg. 2009 Feb;37(2):182-8. doi: 10.1016/j.ejvs.2008.11.001. Epub 2008 Nov 29. PMID: 19046903. \9\ van der Veen D, Holewijn S, Bellosta R, van Sterkenburg SMM, Heyligers JMM, Ficarelli I, G[oacute]mez Palon[eacute]s FJ, Mangialardi N, Mosquera NJ, Holden A, Reijnen MMPJ; IceBERG Study Collaboration. One Year Outcomes of an International Multicentre Prospective Cohort Study on the Gore Excluder Iliac Branch Endoprosthesis for Aorto-Iliac Aneurysms. Eur J Vasc Endovasc Surg. 2021 Aug;62(2):177-185. doi: 10.1016/j.ejvs.2021.04.006. Epub 2021 Jun 16. PMID: 34144884. --------------------------------------------------------------------------- The requestor also expressed concern that hospitals who treat Medicare patients with aortoiliac and common iliac aneurysms using endovascular procedures with endoprostheses are not classified appropriately based on the current MS-DRG assignment and the resources required. The requestor performed its own data analysis and indicated it found differences in resource utilization when comparing cases reporting standard EVAR of the abdominal aorta to cases reporting EVAR of the abdominal aorta combined with procedures to preserve flow to an iliac branch. According to the requestor, the disparity in resource coherency under the current MS-DRG assignment may reduce access to Medicare beneficiaries who could benefit from these procedures. The requestor stated a new MS-DRG would enable more precise payments and better resource coherency under the MS-DRGs. The procedure codes that describe EVAR using an abdominal aortic aneurysm (AAA) endoprosthesis and the procedure codes that describe EVAR using an iliac branch endoprosthesis (IBE) that are used to treat aortoiliac and iliac artery aneurysms, respectively, are listed in the following tables. [[Page 36581]] [GRAPHIC] [TIFF OMITTED] TR04AU25.060 [GRAPHIC] [TIFF OMITTED] TR04AU25.061 Cases reporting a combination of these procedure codes (that is, any one procedure code from each list) for the endovascular treatment of aortoiliac and iliac artery aneurysms are currently assigned to MS- DRGs 268 and 269 (Aortic and Heart Assist Procedures Except Pulsation Balloon with MCC and without MCC, respectively). Based on its analysis of Medicare claims data using the previously listed codes in MS-DRGs 268 and 269, and to facilitate more precise payments for these procedures, the requestor recommended that CMS assign cases reporting a procedure code describing EVAR using an AAA endoprosthesis with a procedure code describing EVAR using an IBE to a proposed new MS-DRG titled, ``Concomitant Endovascular Abdominal Aorta and Iliac Branch Procedures''. In review of this request, as discussed in the proposed rule, we analyzed claims data from the September 2024 update of the FY 2024 MedPAR file for MS-DRGs 268 and 269 and for cases reporting standard EVAR using an AAA endoprosthesis compared to cases reporting EVAR using an AAA endoprosthesis with an IBE that are used to treat aortoiliac and iliac artery aneurysms with the previously listed procedure codes. The findings from our analysis are shown in the following table. [GRAPHIC] [TIFF OMITTED] TR04AU25.062 As shown in the table, we identified a total of 2,519 cases within MS-DRG 268 with an average length of stay of 9.1 days and average costs of $62,984. Of the 2,519 cases, we found 1,500 cases reporting standard EVAR using an AAA endoprosthesis with an average length of stay of 7.4 days and average costs of $63,877 and 193 cases reporting EVAR using an AAA endoprosthesis with an IBE with an average length of stay of 8.2 days and average costs of $68,145. The data show that the cases reporting standard EVAR using an AAA endoprosthesis have a shorter average length of stay (7.4 days versus 8.2 days) and lower average costs ($63,877 versus $68,145) compared to the average costs of the cases reporting EVAR using an AAA endoprosthesis with an IBE. The data further show that the 193 cases reporting EVAR using an AAA endoprosthesis with an IBE have a shorter average length of stay (8.2 days versus 9.1 days) and higher average costs ($68,145 versus $62,984) compared to the average length of stay and average costs of all the cases in MS-DRG 268. For MS-DRG 269, we identified a total of 10,108 cases with an average length of stay of 2.0 days and average costs of $39,165. Of the 10,108 cases, we found 8,655 cases reporting standard EVAR using an AAA endoprosthesis with an average length of stay of 1.8 days and average costs of $38,562 and 871 cases reporting EVAR using an AAA endoprosthesis with an IBE with an average length of stay of 1.8 days and average costs of $48,159. The data show that the cases reporting standard EVAR using an AAA endoprosthesis have a comparable average length of stay (1.8 days versus 1.8 days) and lower average costs ($38,562 versus $48,159) compared to the cases reporting EVAR using an AAA endoprosthesis with an IBE. The data further show that the 871 cases reporting EVAR using an AAA endoprosthesis with an IBE have a [[Page 36582]] shorter average length of stay (1.8 days versus 2.0 days) and higher average costs ($48,159 versus $39,165) compared to the average length of stay and average costs of all the cases in MS-DRG 269. We stated in the proposed rule that the findings suggest that the cases reporting EVAR using an AAA endoprosthesis with an IBE utilize greater resources compared to the cases reporting standard EVAR using an AAA endoprosthesis. We agreed that patients who have aortoiliac and iliac aneurysms are a more complex population to treat, contributing to increased resource utilization. Additionally, in the proposed rule we stated that, based on our review and analysis of the cases reporting standard EVAR using an AAA endoprosthesis compared to the cases reporting EVAR using an AAA endoprosthesis with an IBE to treat aortoiliac and iliac artery aneurysms in MS-DRGs 268 and 269, we believe new MS-DRGs are warranted to differentiate the utilization of resources between standard EVAR to treat AAA and EVAR to treat AAA extending into the iliac artery. We stated we applied the criteria to create subgroups in a base MS- DRG as discussed in section II.C.1.b. of the preamble of the FY 2026 IPPS/LTCH PPS proposed rule and this final rule. We noted that, as shown in the table that follows, a three-way split of the proposed new base MS-DRG failed to meet the criterion that at least 500 or more cases are in each subgroup. It also failed to meet the criterion that there be at least a 20 percent difference in average costs between the CC and NonCC (without CC/MCC) subgroup and at least a $2,000 difference in average costs between the CC and NonCC (without CC/MCC) subgroup. The following table illustrates our findings. [GRAPHIC] [TIFF OMITTED] TR04AU25.063 As discussed in section II.C.1.b. of the preamble of the FY 2026 IPPS/LTCH PPS proposed rule and this final rule, if the criteria for a three-way split fail, the next step is to determine if the criteria are satisfied for a two-way split. In the proposed rule we stated we applied the criteria for a two-way split for the ``with MCC'' and ``without MCC'' subgroups. We noted that, as shown in the table that follows, a two-way split of this base MS-DRG failed to meet the criterion that there be at least 500 cases in the ``with MCC'' subgroup. [GRAPHIC] [TIFF OMITTED] TR04AU25.064 We then applied the criteria for a two-way split for the ``with CC/ MCC'' and ``without CC/MCC'' subgroups. As shown in the table that follows, a two-way split of this base MS-DRG failed to meet the criterion that there be at least 500 or more cases in the ``without CC/ MCC'' subgroup and at least a 20 percent difference in average costs between the ``with CC/MCC'' and ``without CC/MCC'' subgroup. [GRAPHIC] [TIFF OMITTED] TR04AU25.065 We noted that because the criteria for both of the two-way splits failed, a split (or CC subgroup) is not warranted for the proposed new base MS-DRG. As a result, for FY 2026, we proposed to create new base MS-DRG 213 (Endovascular Abdominal Aorta and Iliac Branch Procedures). The following table reflects a simulation of the proposed new base MS- DRG. [GRAPHIC] [TIFF OMITTED] TR04AU25.066 Comment: Commenters supported the proposal to create proposed new MS-DRG 213 to differentiate resource use between standard EVAR to treat AAA and EVAR to treat AAA extending into the iliac artery. The commenters stated that they appreciated CMS' thorough analysis of the request in exploring mechanisms to address resource use of these procedures. The commenters agreed with CMS' findings that the cases reporting EVAR using an abdominal aortic aneurysm (AAA) endoprosthesis with an IBE utilize greater resources compared to the cases reporting standard EVAR using an AAA endoprosthesis and that patients who have aortoiliac and iliac aneurysms are a more complex population to treat, contributing to increased resource utilization. The commenters also acknowledged that the criteria were not met to subdivide the proposed new MS-DRG 213 further. However, the commenters stated that given that CMS' data support that patients who have EVAR procedures using an AAA endoprosthesis with an IBE are a more complex population to treat and contribute to increased resource utilization, they requested CMS reconsider the proposed relative weight of proposed new MS-DRG 213. The [[Page 36583]] commenters stated that, as reflected in Table 5.--List of Medicare Severity Diagnosis-Related Groups (MS-DRGs), Relative Weighting Factors, and Geometric and Arithmetic Mean Length of Stay--FY 2026 Proposed Rule, the proposed new MS-DRG 213 relative weight of 5.7834 is lower than the FY 2026 proposed relative weight of MS-DRG 268 (6.9027) and that MS-DRG 268 is the ``with MCC'' MS-DRG. A commenter who supported the proposal also encouraged CMS to continue to track the costs of these cases in future years to assess if CC subgroups would be supported. Response: We thank the commenters for their support and feedback. The commenters are correct that in Table 5., made publicly available in association with the proposed rule at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps, the proposed relative weight for MS-DRG 213 is shown as 5.7834 and the proposed relative weight for MS-DRG 268 is shown as 6.9027. As summarized in the analysis provided in the preamble of the proposed rule (90 FR 18031) and this final rule, a total of 2,519 cases were identified in MS-DRG 268 and a total of 10,108 cases were identified in MS-DRG 269. Among the 2,519 cases in MS-DRG 268, we found 193 cases that reported EVAR using an AAA endoprosthesis with an IBE, with an average length of stay of 8.2 days and average costs of $68,145. Of the 10,108 cases in MS-DRG 269, we found 871 cases that reported EVAR using an AAA endoprosthesis with an IBE, with an average length of stay of 1.8 days and average costs of $48,159. Because most of the cases reporting EVAR using an AAA endoprosthesis with an IBE are derived from MS-DRG 269 compared to MS- DRG 268 (871 versus 193), and the cases from MS-DRG 269 have lower average costs compared to MS-DRG 268 ($48,159 versus $68,145), the data from MS-DRG 269 have a greater influence on the structure and composition of the proposed new MS-DRG 213. Alternatively, among the 2,519 cases found in MS-DRG 268, 1,500 cases reported standard EVAR using an AAA endoprosthesis with average costs of $63,877, and among the 10,108 cases in MS-DRG 269, we found 8,655 cases that reported standard EVAR using an AAA endoprosthesis with average costs of $38,562. Since the higher volume of cases in MS-DRG 268 is reflected by the cases reporting standard EVAR using an AAA endoprosthesis compared to the cases reporting EVAR using an AAA endoprosthesis with an IBE (1,500 compared to 193), the cases reporting standard EVAR using an AAA endoprosthesis have a greater influence on the revised structure and composition of MS-DRG 268, thus, the higher proposed relative weight for MS-DRG 268 compared to the proposed relative weight for the proposed new MS-DRG 213. After consideration of the public comments we received, we are finalizing our proposal, without modification, to create new base MS- DRG 213 (Endovascular Abdominal Aorta and Iliac Branch Procedures) for FY 2026. We will continue to monitor the data for this new MS-DRG to determine if future revisions are warranted. b. Concomitant Single Valve Procedure With Open Surgical Ablation In the FY 2022 IPPS/LTCH PPS final rule (86 FR 44836 through 44848), we discussed a two-part request we received to review the MS- DRG assignments for cases involving the surgical ablation procedure for atrial fibrillation. The first part of the request was to create a new classification of surgical ablation MS-DRGs to better accommodate the costs of open concomitant surgical ablations. The second part of the request was to reassign cases describing standalone percutaneous endoscopic surgical ablation. In the part of the request relating to the costs of open concomitant surgical ablations, the requestor identified the following potential procedure combinations that would comprise an ``open concomitant surgical ablation'' procedure. Open coronary artery bypass graft (CABG) + open surgical ablation. Open mitral valve repair or mitral valve replacement (MVR) + open surgical ablation. Open aortic valve repair or mitral valve replacement (AVR) + open surgical ablation. Open MVR + open AVR + open surgical ablation. Open MVR + open CABG + open surgical ablation. Open MVR + open AVR + open CABG + open surgical ablation. Open AVR + open CABG + open surgical ablation. As discussed in the FY 2022 IPPS/LTCH PPS final rule, we examined claims data from the March 2020 update of the FY 2019 MedPAR file and the September 2020 update of the FY 2020 MedPAR file for cases reporting procedure code combinations describing open concomitant surgical ablations and stated our analysis showed while the average lengths of stay and average costs of cases reporting procedure code combinations describing open concomitant surgical ablations are higher than all cases in their respective MS-DRG, we found variation in the volume, length of stay, and average costs of the cases. In the FY 2022 IPPS/LTCH PPS final rule, for the reasons discussed, we finalized our proposal to revise the surgical hierarchy for the MS- DRGs in MDC 05 (Diseases and Disorders of the Circulatory System) to sequence MS-DRGs 231-236 (Coronary Bypass, with or without PTCA, with or without Cardiac Catheterization or Open Ablation, with and without MCC, respectively) above MS-DRGs 228 and 229 (Other Cardiothoracic Procedures with and without MCC, respectively), effective October 1, 2021. In addition, we also finalized the assignment of cases with a procedure code describing coronary bypass and a procedure code describing open ablation to MS-DRGs 233 and 234 and changed the titles of these MS-DRGs to ``Coronary Bypass with Cardiac Catheterization or Open Ablation with and without MCC, respectively'' to reflect this reassignment for FY 2022. In the FY 2023 IPPS/LTCH PPS final rule (87 FR 48845 through 48849), we discussed a request we received to again review the MS-DRG assignment of cases involving open concomitant surgical ablation procedures. The requestor stated they continue to believe that the average hospital costs for surgical ablation for atrial fibrillation demonstrates a cost disparity compared to all procedures within their respective MS-DRGs. The requestor suggested that when open surgical ablation is performed with MVR, or AVR or MVR/AVR + CABG that these procedures are either (1) assigned to a different family of MS-DRGs or (2) assigned to MS-DRGs 216 and 217 (Cardiac Valve and Other Major Cardiothoracic Procedures with Cardiac Catheterization with MCC and with CC, respectively) similar to what CMS did with CABG and open ablation procedures in the FY 2022 rulemaking to better accommodate the added cost of open concomitant surgical ablation. We stated our analysis using the September 2021 update of the FY 2021 MedPAR file reflected that the cases reporting an open concomitant surgical ablation code combination are predominately found in the higher (CC or MCC) severity level MS-DRGs of their current base MS-DRG assignment, suggesting that the patient's co-morbid conditions may also be contributing to the higher costs of these cases. Secondly, for the numerous procedure combinations that would comprise an [[Page 36584]] ``open concomitant surgical ablation'' procedure, the increase in average costs appeared to directly correlate with the number of procedures performed. For example, cases that describe ``Open MVR + Open surgical ablation'' generally demonstrated costs that were lower than cases that describe ``Open MVR + Open AVR + Open CABG + Open surgical ablation.'' Therefore, we stated we believe that additional time was needed to allow for further analysis of the claims data to determine to what extent the patient's co-morbid conditions are also contributing to higher costs and to identify other contributing factors that might exist with respect to the increased length of stay and costs of these cases in these MS-DRGs. For the reasons summarized, and after consideration of the public comments we received, we did not make any MS-DRG changes for cases involving the open concomitant surgical ablation procedures for FY 2023. As discussed in the FY 2024 IPPS/LTCH PPS final rule (88 FR 58681 through 58690), we again received a request to review the MS-DRG assignment of cases involving open concomitant surgical ablation procedures. The requestor recommended that CMS reassign open concomitant surgical ablation procedures for atrial fibrillation (AF) from MS-DRGs 219, 220, and 221 (Cardiac Valve and Other Major Cardiothoracic Procedures without Cardiac Catheterization with MCC, with CC, and without CC/MCC, respectively) to MS-DRGs 216, 217, and 218. The requestor further recommended that if CMS does not reassign cases involving open concomitant surgical ablation procedures to MS- DRGs 216, 217, and 218, in the alternative, CMS should create new MS- DRGs for all open mitral or aortic valve repair or replacement procedures with concomitant surgical ablation for AF to improve clinical coherence when three to four open heart procedures are performed in one setting. The requestor stated that cases reporting open surgical ablation procedures for AF performed during open valve repair/replacement procedures are typically assigned to MS-DRGs 216, 217, 218, 219, 220, and 221, with the majority of the cases being assigned to MS-DRGs 219, 220, and 221 because of the surgical hierarchy in MDC 05 and because there is less of a need for cardiac catheterization in these cases. We stated in the final rule that the requestor performed its own data analysis, and stated their analysis showed that the data continue to demonstrate that claims with open surgical ablation procedures for AF are not clinically similar to the remaining cases in MS-DRGs 219, 220, and 221, and there are significant differences in resource utilization that reflect those clinical differences. We noted in FY 2024 IPPS/LTCH PPS final rule that our analysis of the claims data suggested that it is the performance of an aortic valve repair or replacement procedure, a mitral valve repair or replacement procedure plus another concomitant procedure that is associated with increased hospital resource utilization, not solely the performance of open surgical ablation as suggested by the requestor, when compared to other cases in their respective MS-DRGs. Therefore, for the reasons discussed, we finalized our proposal to create MS-DRG 212 (Concomitant Aortic and Mitral Valve Procedures) in MDC 05 for cases reporting an aortic valve repair or replacement procedure, a mitral valve repair or replacement procedure, and another concomitant procedure. As discussed in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18032 through 18035), we again received a request to review the MS-DRG assignment of cases involving a single open surgical valve procedure with an open surgical ablation. The requestor recommended that CMS reassign cases involving a single open surgical valve procedure with an open surgical ablation from MS-DRGs 219, 220, and 221 (Cardiac Valve and Other Major Cardiothoracic Procedures without Cardiac Catheterization with MCC, with CC, and without CC/MCC, respectively) to MS-DRGs 216, 217, and 218 (Cardiac Valve and Other Major Cardiothoracic Procedures with Cardiac Catheterization with MCC, with CC, and without CC/MCC, respectively). The requestor also suggested that if finalized, the title for MS-DRGs 216, 217, and 218 should be revised to ``Cardiac valve and Other Major Cardiothoracic Procedures with Cardiac Catheterization or Open Ablation, with MCC, with CC or without CC/MCC, respectively.'' As discussed in the proposed rule, the requestor stated MS-DRGs primarily focus on the most resource intensive procedure, without fully accounting for the overall resource intensity and complexity of all procedures performed and stated treating AF as a secondary condition is one such example. The requestor stated that AF, if not treated early after diagnosis, continues to worsen and is associated with stroke and mortality risk, and significantly higher healthcare spending. According to the requestor, a majority of AF patients undergoing surgical ablation procedures are older and frailer than non-surgical ablation valvular patients, and these patients frequently require two or even three procedures during one hospital visit to treat multiple conditions (AF, valve disease, heart failure, blocked coronaries). The requestor further stated patients undergoing multiple cardiac procedures, including surgical ablation, typically require between two and four hours of additional time in the operating room, a longer length of stay, and are at an increased risk for adverse event in recovery and noted that much like cardiac catheterization procedures, in many instances adding surgical ablation to open valvular procedures also requires an atriotomy to better visualize the mitral valve and complete the surgical ablation, making these concomitant procedures significantly more complex than single valve procedures performed on their own. The requestor stated that the current MS-DRG assignments do not adequately pay hospitals for the resources associated with furnishing surgical ablation procedures and that therefore, it is increasingly becoming financially unviable for hospitals to perform these procedures to Medicare beneficiaries in a single admission. The requestor asserted that reassigning cases involving a single open surgical valve procedure with an open surgical ablation, which are currently assigned in MS-DRGs 219, 220, and 221, to MS-DRGs 216, 217, and 218 would accommodate the clinical complexity of performing two or more open heart procedures, would enhance clinical coherence for patients undergoing multiple procedures within MDC 05, would more accurately reflect associated costs and resource utilization, and would help minimize the need for multiple patient admissions. The requestor performed its own data analysis of the Standard Analytical File (SAF) FY 2022 Q1-Q3 report and stated they identified 1,938 cases involving a single open surgical valve procedure with an open surgical ablation that were assigned to MS-DRGs 219, 220, and 221. The requestor stated their analysis showed that the impact of reassigning the 1,938 cases would result in better resource alignment with minimal relative weight changes. Specifically, the requestor stated that their analysis showed that if the cases involving a single open surgical valve procedure with an open surgical ablation that are currently assigned to MS-DRGs 219, 220, and 221 were reassigned to MS-DRGs 216, 217, and 218, the relative weights of MS-DRGs [[Page 36585]] 216, 217, 218, 219, 220, and 221 would change by -5.35%, -4.48%, - 2.59%, +0.47%, -0.93% and -0.12% respectively. As previously noted, the requestor recommended that we consider cases involving a single open surgical valve procedure with an open surgical ablation; however, the requestor did not provide a specific list of procedure codes for our consideration. Therefore, as discussed in the proposed rule, we reviewed the ICD-10-PCS classification and identified 81 procedure codes describing open surgical valve procedures and eight procedure codes describing open surgical ablation procedures. We refer readers to Table 6P.3a associated with the FY 2026 IPPS/LTCH PPS proposed rule (which is available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps) which sets forth the list of ICD-10-PCS procedure codes describing open surgical valve procedures and open surgical ablation procedures that we examined. To address this request and to understand the resource use for the subset of cases reporting procedure codes describing a single open surgical valve procedure with an open surgical ablation, without reporting a procedure code describing the performance of a cardiac catheterization, that are currently grouping to MS-DRGs 219, 220, and 221, we examined claims data from the September 2024 update of the FY 2024 MedPAR file for the average length of stay and average costs for these cases. Our findings are shown in the following table: [GRAPHIC] [TIFF OMITTED] TR04AU25.067 As shown in the table, the data analysis performed indicates that the 1,657 cases in MS-DRG 219 reporting an open valve procedure and an open surgical ablation procedure, without a procedure code describing the performance of a cardiac catheterization, and with a secondary diagnosis code designated as an MCC have an average length of stay that is longer than the average length of stay for all the cases in MS-DRG 219 (10.1 days versus 10 days) and lower average costs when compared to all the cases in MS-DRG 219 ($67,532 versus $69,728). The difference in average costs is $2,196 ($69,728-$67,532 = $2,196) for the cases reporting an open valve procedure and an open surgical ablation procedure without a procedure code describing the performance of a cardiac catheterization, and with a secondary diagnosis code designated as a MCC in MS-DRG 219 when compared to all the cases in MS-DRG 219. In MS-DRG 220, the 999 cases reporting an open valve procedure and an open surgical ablation procedure without a procedure code describing the performance of a cardiac catheterization, and with a secondary diagnosis code designated as a CC have an average length of stay that is longer than the average length of stay for all the cases in MS-DRG 220 (6.9 days versus 6.2 days) and higher average costs when compared to all the cases in MS-DRG 220 ($53,603 versus $49,514). The difference in average costs is $4,089 ($53,603-$49,514=$4,089) for the cases reporting an open valve procedure and an open surgical ablation procedure without a procedure code describing the performance of a cardiac catheterization, and with a secondary diagnosis code designated as a CC in MS-DRG 220 when compared to all the cases in MS-DRG 220. In MS-DRG 221, the 41 cases reporting an open valve procedure and an open surgical ablation procedure without a procedure code describing the performance of a cardiac catheterization, and without a secondary diagnosis code designated as a CC or MCC have an average length of stay that is longer than the average length of stay for all the cases in MS- DRG 221 (5.6 days versus 3.6 days) and higher average costs when compared to all the cases in MS-DRG 221 ($48,353 versus $46,900). The difference in average costs is $1,453 ($48,353-$46,900=$1,453) for the cases reporting an open valve procedure and an open surgical ablation procedure without a procedure code describing the performance of a cardiac catheterization, and without a secondary diagnosis code designated as a CC or MCC in MS-DRG 221 when compared to all the cases in MS-DRG 221. As discussed in the proposed rule, we then examined the data for cases in MS-DRGs 216, 217, and 218, and our findings are shown in the following table: [[Page 36586]] [GRAPHIC] [TIFF OMITTED] TR04AU25.068 The data analysis performed indicates that the cases in MS-DRGs 219, 220, and 221 reporting an open valve procedure and an open surgical ablation procedure without a procedure code describing the performance of a cardiac catheterization have a generally longer average length of stay and lower average costs when compared to all cases in MS-DRGs 216, 217, and 218. As shown in the table, the data analysis performed indicates that the 1,657 cases in MS-DRG 219 reporting an open valve procedure and an open surgical ablation procedure without a procedure code describing the performance of a cardiac catheterization, and with a secondary diagnosis code designated as an MCC have a shorter average length of stay (10.1 days versus 13.6 days) and lower average costs ($67,532 versus $88,193) when compared to all the cases in MS-DRG 216. The difference in average costs is $20,661 ($88,193-$67,532=$20,661) for the cases reporting an open valve procedure and an open surgical ablation procedure without a procedure code describing the performance of a cardiac catheterization, and with a secondary diagnosis code designated as a MCC in MS-DRG 219 when compared to all the cases in MS-DRG 216. The 999 cases in MS-DRG 220 reporting an open valve procedure and an open surgical ablation procedure without a procedure code describing the performance of a cardiac catheterization, and with a secondary diagnosis code designated as a CC have a longer average length of stay (6.9 days versus 6.8 days) and lower average costs ($53,603 versus $59,943) when compared to all the cases in MS-DRG 217. The difference in average costs is $6,340 ($59,943-$53,603=$6,340) for the cases reporting an open valve procedure and an open surgical ablation procedure without a procedure code describing the performance of a cardiac catheterization, and with a secondary diagnosis code designated as a CC in MS-DRG 220 when compared to all the cases in MS-DRG 217. The 41 cases in MS-DRG 221 reporting an open valve procedure and an open surgical ablation procedure without a procedure code describing the performance of a cardiac catheterization, and without a secondary diagnosis code designated as a CC or MCC have a longer average length of stay (5.6 days versus 2.9 days) and lower average costs ($48,353 versus $61,733) when compared to all the cases in MS-DRG 218. The difference in average costs is $13,380 ($61,733-$48,353=$13,380) for the cases reporting an open valve procedure and an open surgical ablation procedure without a procedure code describing the performance of a cardiac catheterization, and without a secondary diagnosis code designated as a CC or MCC in MS-DRG 221 when compared to all the cases in MS-DRG 218. While the data analysis reflects that cases that report an open valve procedure and an open surgical ablation procedure without a procedure code describing the performance of a cardiac catheterization generally demonstrate slightly higher average costs in their respective MS-DRGs, we stated we believe these cases are more suitably grouped to MS-DRGs 219, 220, and 221 where they are currently assigned, based on the closer similarities in resource utilization compared to all the cases in their respective MS-DRG. As discussed in prior rulemaking (86 FR 44878), the MS-DRG system is a system of averages and it is expected that within the diagnostic related groups, some cases may demonstrate higher than average costs, while other cases may demonstrate lower than average costs. We also provide outlier payments to mitigate extreme loss on individual cases. Moreover, we stated that the data do not indicate cases reporting an open valve procedure and an open surgical ablation procedure without a procedure code describing the performance of a cardiac catheterization utilize similar resources when compared to the cases assigned to MS-DRGs 216, 217, and 218. We stated that the cases are not clinically coherent with regard to resource utilization as reflected in the greater differences in average costs. Further, in examining this request, we noted in the proposed rule that the requestor suggested that CMS reassign cases reporting an open valve procedure and an open surgical ablation procedure without a procedure code describing the performance of a cardiac catheterization from MS-DRGs 219, 220, and 221 (Cardiac Valve and Other Major Cardiothoracic Procedures without Cardiac Catheterization with MCC, with CC, and without CC/MCC, respectively) to MS-DRGs 216, 217, and 218 for FY 2026, however, as discussed in prior rulemaking (86 FR 44830, 87 FR 48847, and 88 FR 58683), MS-DRGs 216, 217, and 218 are defined by the performance of cardiac catheterization. We stated we continue to be concerned about the effect on clinical coherence of assigning cases reporting an open valve procedure and an open surgical ablation procedure that do not also have a cardiac catheterization procedure reported to MS-DRGs that are defined by the performance of that procedure. We stated our claims analysis for the FY 2026 IPPS/LTCH PPS proposed rule continues to reflect the difference in average costs demonstrated by the two cohorts, as cases reporting the performance of a cardiac catheterization in MS-DRGs 216, 217, and 218 continue to demonstrate higher average costs. We stated that our analysis of the claims data continues to reflect that cases reporting an open valve procedure and an open surgical ablation procedure without a procedure code describing the performance of a cardiac catheterization are clinically coherent in their currently assigned MS-DRGs. Therefore, we proposed to maintain the structure of MS-DRGs 216, 217, and 218 for FY 2026. We also proposed to maintain the title of MS-DRGs 216, 217, and 218 as ``Cardiac Valve and Other Major Cardiothoracic Procedures with Cardiac Catheterization with MCC, with CC, and without CC/MCC, respectively'' for FY 2026. Comment: Commenters expressed support for the proposal to maintain the structure of MS-DRGs 216, 217, and 218 in MDC 05 for FY 2026. A commenter specifically stated that they support CMS' decision and rationale for maintaining the current structure of MS-DRGs 216, 217, and 218. Another commenter stated they acknowledge CMS' assessment that current data do not support moving these cases for the upcoming fiscal year and stated they believe that updated data will continue to reflect the greater resource utilization [[Page 36587]] of cases reporting cardiac valve procedures with surgical ablation compared to other cases in the respective MS-DRGs, and respectfully requested that CMS continue to monitor the relevant data and reassess the impact of concomitant surgical ablation in future rulemaking cycles. Some commenters stated while they appreciate CMS' continued review of this issue and understand CMS' reasoning for proposing to maintain the current structure of MS-DRGs 216, 217, and 218 for FY 2026, the measures taken by CMS, such as revisions to the surgical hierarchy in FY 2022 and the creation of MS-DRG 212 (Concomitant Aortic and Mitral Valve Procedures) in FY 2024, have not effectively addressed the increased resource demands of cases involving a single open surgical valve procedure combined with open surgical ablation despite repeated analyses over the years recognizing the higher costs associated with these procedures. A few commenters suggested that CMS should consider alternative methods of addressing the increased costs associated with cases where a single open surgical valve procedure is performed with any of the other concomitant procedures, such as the creation of new MS-DRGs, to ensure clinical coherence and more accurately reflect resource utilization. A commenter suggested that CMS amend the definition of MS-DRG 212 to address cases where a single open surgical valve procedure is performed with any of the other concomitant procedures from MDC 05 that are included in the GROUPER logic of MS-DRG 212, while another commenter suggested that CMS carefully review all concomitant procedures with higher hospital resource utilization, given the important patient care benefits and efficiencies associated with performing certain procedures concomitantly in a single encounter rather than staging separate procedures. Response: We thank the commenters for their support, and we appreciate the commenters sharing their concerns and feedback on this proposal. While the data do not support creating a new MS-DRG for cases reporting an open valve procedure and an open surgical ablation procedure and instead suggest that cases are suitably grouped to MS- DRGs 216, 217, 218, 219, 220, and 221 where they are currently assigned based on the similarities in resource utilization compared to all the cases in their respective MS-DRG, we will continue to monitor the claims data for cases reporting an open valve procedure and an open surgical ablation procedure to determine if additional refinements may be warranted in the future. We note that we would address any proposed modifications to the existing logic in future rulemaking. Comment: Another commenter suggested that if CMS finalizes its proposal to maintain the structure of MS-DRGs 216, 217, and 218 for FY 2026, CMS should consider partially mitigating the impact of this finalization on advanced AF patients by designating ICD-10-CM diagnosis codes I48.11 (Longstanding persistent atrial fibrillation) and I48.21 (Permanent atrial fibrillation) as MCCs on its own initiative for FY 2026 to better align appropriate resources to treat the most complex subset of patients with atrial fibrillation. This commenter stated they performed their own analysis and found that data indicate that the presence of longstanding persistent atrial fibrillation and permanent atrial fibrillation results in significant costs differences compared to other admissions. Response: We appreciate the commenters' feedback. While we consider this comment to be outside the scope of the proposal included in the FY 2026 IPPS/LTCH PPS proposed rule as we did not examine a potential change to the severity level designations for the diagnosis codes that describe longstanding persistent atrial fibrillation and permanent atrial fibrillation, we encourage individuals with comments about the severity level designations of ICD-10-CM diagnosis codes to submit these comments no later than October 20th of each year, via MEARISTM at: https://mearis.cms.gov/public/home, so that they can be considered for possible inclusion in the annual proposed rule. We refer the commenter to section II.C.8. of the preamble of this FY 2026 IPPS/LTCH PPS final rule for discussion related to our plan to continue a comprehensive CC/MCC analysis, using a combination of mathematical analysis of claims data and the application of nine guiding principles and plan to present the findings and proposals in future rulemaking. Therefore, after consideration of the public comments we received, we are finalizing our proposal to maintain the structure of MS-DRGs 216, 217, and 218 for FY 2026, without modification. We are also finalizing our proposal to maintain the title of MS-DRGs 216, 217, and 218 as ``Cardiac Valve and Other Major Cardiothoracic Procedures with Cardiac Catheterization with MCC, with CC, and without CC/MCC, respectively'' for FY 2026. c. Transcatheter Aortic Valve Replacement Procedures for Aortic Regurgitation Transcatheter aortic valve replacement (TAVR) is a minimally invasive procedure that involves a catheter being inserted into an artery, without an incision for most cases, and then guided to the heart. The catheter delivers the new valve without the need for the chest or heart to be surgically opened. As discussed in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18035 through 18038), we received a request to reassign cases reporting TAVR procedures for aortic regurgitation (AR) from MS-DRGs 266 and 267 (Endovascular Cardiac Valve Replacement with or without MCC, respectively) to what the requester described as a more clinically and cost cohesive MS-DRG such as MS-DRG 215 (Other Heart Assist System Implant) and to revise the title of MS- DRG 215 to ``Other Heart Assist System Implant or Endovascular Cardiac Regurgitant Valve Replacement Procedures.'' According to the requestor, Medicare patients with severe, symptomatic AR often present with chronic, congestive heart failure, which equates to significantly greater diastolic heart failure, atrial fibrillation, and concomitant kidney, liver, and biventricular failure. As a result, managing this systemic damage requires a multidisciplinary care team, comprised of implanting physicians, cardiac surgeons, imaging cardiologists, and heart failure specialists, similar to the management required for cases currently assigned to MS-DRG 215. Further, the requestor stated TAVR procedures for AR prevent patients from devolving into heart failure and are clinically more comparable to short term heart assist device support. The requestor stated regurgitant valve disease, such as AR, is a whole-heart cardiac disease that has systemic manifestations that leads to biventricular heart failure and non-cardiac morbidity, while stenotic valve disease, such as aortic stenosis (AS), is less often associated with non-cardiac dysfunction. According to the requestor, managing a diagnosis of AR leads to inpatient lengths of stay that are double the duration of the length of stay of patients with AS, as management of AS only requires the involvement of the implanting physician and the cardiac surgeon. As discussed in the proposed rule, the requestor identified TAVR for AR with ICD-10-CM diagnosis code I35.1 (Nonrheumatic aortic (valve) insufficiency) and ICD-10-PCS [[Page 36588]] procedure code 02RF38Z (Replacement of aortic valve with zooplastic tissue, percutaneous approach) and performed their own analysis of the FY 2023 Final MedPAR data. The requestor stated they found the cases reporting a diagnosis of aortic regurgitation in MS-DRG 266 and 267 have 20 percent higher average costs (AR = $54,425 versus AS = $45,323), two times the length of stay (AR = 5 days versus AS = 2.5 days) and trigger outlier payments two times more often (AR = 11.43 percent versus AS = 5.82 percent) compared to the cases reporting a diagnosis of aortic stenosis in MS-DRGs 266 and 267. The requestor noted in order to perform their analysis, they excluded cases reporting procedure codes describing the insertion of a percutaneous short-term external heart assist device by removing cases that reported ICD-10-PCS procedure codes 02HA3RZ (Insertion of short-term external heart assist system into heart, percutaneous approach) and 5A0221D (Assistance with cardiac output using impeller pump, continuous) from their analyses, as the requestor asserted those procedure codes were reassigned to MS-DRGs 001 and 002 (Heart Transplant or Implant of Heart Assist System with MCC and without MCC, respectively) in FY 2024. As stated previously, the requestor identified TAVR procedures for AR with ICD-10-CM diagnosis code I35.1 (Nonrheumatic aortic (valve) insufficiency) and ICD-10-PCS procedure code 02RF38Z (Replacement of aortic valve with zooplastic tissue, percutaneous approach). As we discussed in the proposed rule, in reviewing this request, we identified five additional ICD-10-CM diagnosis codes that also describe aortic regurgitation and included these codes in our analysis. The five ICD-10-CM diagnosis codes we identified are listed in the following table. [GRAPHIC] [TIFF OMITTED] TR04AU25.069 Also, we noted in the proposed rule we identified eight additional ICD-10-PCS procedure codes that describe TAVR procedures as well, and similarly included these codes in our analysis. The eight ICD-10-PCS procedure codes we identified are listed in the following table. [GRAPHIC] [TIFF OMITTED] TR04AU25.070 To begin our analysis, we reviewed the GROUPER logic. We stated the requestor is correct that nine ICD-10-PCS codes that describe TAVR procedures mentioned previously are currently assigned to MS-DRGs 266 and 267. The requestor is also correct that in the FY 2024 IPPS/LTCH PPS final rule (88 FR 58690 through 58696), we discussed a request we received to reassign certain cases reporting procedure codes describing the insertion of a short-term external heart assist device from MS-DRG 215 to MS-DRGs 001 and 002. We stated temporary heart assist devices are intended to support blood pressure and provide increased blood flow to critical organs in patients with cardiogenic shock, by drawing blood out of the heart and pumping it into the aorta, partially or fully bypassing the left ventricle to provide adequate circulation of blood (replace or supplement left ventricle pumping) while also allowing damaged heart muscle the opportunity to rest and recover in patients who need short-term support. In the FY 2024 IPPS/LTCH PPS final rule, we stated that we examined the claims data and the data suggested that overall, cases reporting a procedure code describing the open insertion of a short-term external heart assist device may be more appropriately aligned with the average costs of the cases in MS-DRGs 001 and 002 in comparison to MS-DRG 215, even though the average length of stay is shorter. We also stated that we reviewed the clinical considerations along with this data analysis and agreed that cases reporting a procedure code that describes the open insertion of a short-term external heart assist device are generally more resource intensive and are clinically distinct from other cases reporting procedure codes describing the insertion of short-term external heart devices by other approaches currently assigned to MS-DRG 215. Therefore, for the reasons discussed and after consideration of the public comments we received, we finalized our proposal to reassign ICD-10-PCS code 02HA0RZ (Insertion of short-term external heart assist system into heart, open approach) from MS-DRG 215 in MDC 05 to Pre-MDC MS-DRGs 001 and 002 when reported as a standalone procedure for FY 2024. Under this finalization, procedure code 02HA0RZ no longer needs to be reported as part of a procedure code combination or procedure code ``cluster'' to satisfy the logic for assignment to MS-DRGs 001 and 002. We refer the reader to the ICD-10 MS-DRG Definitions Manual, Version 42.1 (available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software) for complete documentation of the [[Page 36589]] GROUPER logic for MS-DRGs 001, 002, 215, 266 and 267. While the requestor stated that procedure code 02HA3RZ (Insertion of short-term external heart assist system into heart, percutaneous approach) and procedure code 5A0221D (Assistance with cardiac output using impeller pump, continuous) were reassigned to MS-DRGs 001 and 002 (Heart Transplant or Implant of Heart Assist System with MCC and without MCC, respectively) in FY 2024, we noted in the proposed rule that our finalization in the FY 2024 IPPS/LTCH PPS final rule did not involve modifying the MS-DRG assignment of procedure code 02HA3RZ or procedure code 5A0221D. In Version 42.1, cases reporting procedure codes 02HA3RZ and 5A0221D, continue to be assigned to MS-DRG 215. We refer the reader to Appendix E of the ICD-10 MS-DRG Definitions Manual, Version 42.1 (available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software) for the MS-DRG assignments of procedure codes 02HA0RZ, 02HA3RZ, and 5A0221D. Next, we examined claims data from the September 2024 update of the FY 2024 MedPAR file for MS-DRG 266 and 267 to identify cases reporting one of the six ICD-10-CM codes listed previously that describe aortic regurgitation as a principal or a secondary diagnosis with one of the nine procedure codes that describe a TAVR procedure. Our findings are shown in the following table: [GRAPHIC] [TIFF OMITTED] TR04AU25.071 As shown in the table, in MS-DRG 266, we identified a total of 22,083 cases with an average length of stay of 4.5 days and average costs of $55,402. Of those 22,083 cases, there were 3,616 cases reporting a procedure code describing TAVR with a principal or secondary diagnosis of aortic regurgitation, with average costs higher than the average costs in the FY 2024 MedPAR file for MS-DRG 266 ($56,010 compared to $55,402) and a longer average length of stay (5.7 days compared to 4.5 days). In MS-DRG 267, we identified a total of 36,405 cases with an average length of stay of 1.5 days and average costs of $43,282. Of those 36,405 cases, there were 3,616 cases reporting a procedure code describing TAVR with a principal or secondary diagnosis of aortic regurgitation, with average costs lower than the average costs in the FY 2024 MedPAR file for MS-DRG 267 ($41,189 compared to $43,282) and a longer average length of stay (1.6 days compared to 1.5 days). As discussed in the proposed rule, we then examined claims data from the September 2024 update of the FY 2024 MedPAR for MS-DRG 215. Our findings are shown in the following table. [GRAPHIC] [TIFF OMITTED] TR04AU25.072 Our analysis indicates that the cases assigned to MS-DRG 215 have much higher average costs ($87,701 versus $56,010 or $41,189) and a much longer length of stay (8.2 days versus 5.7 days or 1.6 days) than the cases reporting a procedure code describing TAVR with a principal or secondary diagnosis of aortic regurgitation currently assigned to MS-DRGs 266 or 267, respectively. Instead, we stated the average costs and average length of stay for cases reporting a procedure code describing TAVR with a principal or secondary diagnosis of aortic regurgitation appear to be generally more aligned with the average costs and average length of stay for all cases in MS-DRGs 266 and 267, where they are currently assigned. In addition, based on our review of the clinical considerations, in the proposed rule we stated we do not believe the procedure codes describing a TAVR are clinically coherent with the procedure codes currently assigned to MS-DRG 215. Heart assist devices, such as ventricular assist devices and artificial heart systems, provide circulatory support by taking over most of the workload of the left ventricle. Blood enters the pump through an inflow conduit connected to the left ventricle and is ejected through an outflow conduit into the body's arterial system. Heart assist devices can provide temporary left, right, or biventricular support for patients whose hearts have failed and can also be used as a bridge for patients who are awaiting a heart transplant. We stated while we agree that TAVR can be a treatment option for patients with severe AR who are at high risk for mortality or complications due to advanced age and multiple comorbidities, we do not believe the procedure codes describing TAVR should be assigned to MS-DRG 215. AR is a condition where the aortic valve doesn't close properly causing blood to leak back into the heart. While we acknowledged that if not treated AR can gradually worsen and lead to left ventricular enlargement and eventually heart failure, we stated we believe that patients with indications for heart assist devices tend to be more severely ill and these inpatient admissions are associated with greater resource utilization as evidenced by the higher average costs and longer lengths of stay. Therefore, for the reasons stated previously, we proposed to maintain the GROUPER logic for MS-DRGs 266 and 267 for FY 2026. We also proposed to maintain the title of MS-DRGs 215 as ``Other Heart Assist System Implant'' for FY 2026. Comment: Commenters supported the proposal to maintain the GROUPER [[Page 36590]] logic for MS-DRGs 266 and 267 for FY 2026. A commenter stated they believe the request to reassign cases reporting TAVR procedures for aortic regurgitation from MS-DRGs 266 and 267 was premature, as valve treatments and the data associated with these procedures are limited. This commenter further stated that as more data are available, CMS will be better able to evaluate appropriate assignment of endovascular cardiac valve therapies in the future. Another commenter stated that patients requiring heart assist devices tend to present with more severe illnesses and require greater resource utilization and longer lengths of stay than those patients undergoing TAVR for aortic regurgitation, therefore reassigning cases reporting TAVR procedures for aortic regurgitation to MS-DRG 215 would not be clinically coherent. Other commenters stated that upon review of the data analysis that CMS described in the proposed rule, it appears the reassignment may not be appropriate at this time and encouraged CMS to continue to monitor the data for these cases and consider if any MS-DRG modifications may be warranted in the future. Response: We appreciate the commenters' support. Comment: Other commenters stated CMS should reconsider its proposal to maintain the GROUPER logic for MS-DRGs 266 and 267 for FY 2026 and should reassign cases reporting TAVR procedures for aortic regurgitation from MS-DRGs 266 and 267 to a more clinically and cost cohesive MS-DRG. Several commenters noted that CMS' analysis of cases reporting a procedure code describing TAVR with a principal or secondary diagnosis of aortic regurgitation included ICD-10-CM diagnosis code I35.2 (Nonrheumatic aortic (valve) stenosis with insufficiency). These commenters stated that code I35.2 inadvertently identifies patients with mixed valvular heart disease and predominant aortic stenosis and including this code in the analysis does not allow an understanding of the resource utilization required to treat patients with predominant aortic regurgitation. These commenters encouraged CMS to refine our analysis to exclude cases with aortic stenosis by analyzing the cases reporting a principal or secondary diagnosis of aortic regurgitation, without including ICD-10-CM code I35.2 and, if the data supports, assign these cases to a more clinically and cost cohesive MS-DRG. Another commenter (the requestor) stated the inclusion of ICD-10-CM code I35.2 inadvertently analyzed a very different patient population from the population they identified in their initial request, which they asserted truly identified patients who were treated with TAVR for aortic regurgitation. This commenter stated that it was impossible for more than 8,000 TAVR procedures to have been performed for patients with aortic regurgitation since there is no FDA-approved valve for this indication and noted that the ALIGN-AR trial (a single- arm, prospective, multicenter study designed to evaluate the efficacy and safety of the JenaValve Trilogy transcatheter heart valve in patients with symptomatic, greater-than-moderate native aortic regurgitation who were deemed high risk for surgery) only treated 180 patients in 2023. The commenter requested that CMS analyze the MedPAR data again using ICD-10-CM diagnosis codes I06.1 (Rheumatic aortic insufficiency) or I35.1 (Nonrheumatic aortic (valve) insufficiency) as principal or secondary diagnosis only, to accurately identify the costs and lengths of stay for patients treated for aortic regurgitation. Response: We appreciate the commenters sharing their concerns and feedback. We agree with commenters that diagnosis code I35.2 describes nonrheumatic mixed aortic valve disease (MAVD), a condition where the aortic valve is affected by both aortic stenosis and aortic regurgitation. As discussed in the proposed rule and earlier in this section, the requestor identified TAVR for aortic regurgitation with ICD-10-CM diagnosis code I35.1 (Nonrheumatic aortic (valve) insufficiency) only. In reviewing this request, we identified five additional diagnosis codes in the ICD-10-CM classification that also describe aortic regurgitation, including code I35.2, and therefore included these codes in our analysis to avoid unintended consequences or missed opportunities in most appropriately capturing the resource utilization and clinical coherence for cases reporting a procedure code describing TAVR with a principal or secondary diagnosis of aortic regurgitation. To examine the recommendations that CMS (1) analyze cases reporting a procedure code describing TAVR with a principal or secondary diagnosis of aortic regurgitation, while excluding cases reporting a principal or secondary diagnosis of ICD-10-CM code I35.2 (Nonrheumatic aortic (valve) stenosis with insufficiency), and (2) analyze cases reporting a procedure code describing TAVR with a principal or secondary diagnosis of ICD-10-CM codes I06.1 (Rheumatic aortic insufficiency) or I35.1 (Nonrheumatic aortic (valve) insufficiency) only, we further examined claims data from the September 2024 update of the FY 2024 MedPAR file for MS-DRG 266 and 267. Our findings are shown in the following table: [[Page 36591]] [GRAPHIC] [TIFF OMITTED] TR04AU25.073 As shown in the table, in MS-DRG 266, we identified a total of 22,083 cases with an average length of stay of 4.5 days and average costs of $55,402. Of those 22,083 cases, there were 2,019 cases reporting a procedure code describing TAVR with a principal or secondary diagnosis of aortic regurgitation, excluding cases reporting ICD-10-CM diagnosis code I35.2, with average costs higher than the average costs in the FY 2024 MedPAR file for MS-DRG 266 ($57,724 compared to $55,402) and a longer average length of stay (6.5 days compared to 4.5 days). Additionally, there were 264 cases reporting a procedure code describing TAVR with a principal or secondary diagnosis of aortic regurgitation by reporting ICD-10-CM diagnosis codes I06.1 or I31.1 only, with average costs higher than the average costs in the FY 2024 MedPAR file for MS-DRG 266 ($61,433 compared to $55,402) and a longer average length of stay (7.0 days compared to 4.5 days). In MS-DRG 267, we identified a total of 36,405 cases with an average length of stay of 1.5 days and average costs of $43,282. Of those 36,405 cases, there were 2,038 cases reporting a procedure code describing TAVR with a principal or secondary diagnosis of aortic regurgitation, excluding cases reporting ICD-10-CM diagnosis code I35.2, with average costs lower than the average costs in the FY 2024 MedPAR file for MS-DRG 267 ($40,153 compared to $43,282) and a longer average length of stay (1.7 days compared to 1.5 days). Additionally, there were 262 cases reporting a procedure code describing TAVR with a principal or secondary diagnosis of aortic regurgitation by reporting ICD-10-CM diagnosis codes I06.1 or I31.1 only, with average costs lower than the average costs in the FY 2024 MedPAR file for MS-DRG 267 ($40,937 compared to $43,282) and a longer average length of stay (1.6 days compared to 1.5 days). We reviewed these data and note that the original request was to reassign cases reporting TAVR procedures for aortic regurgitation from MS-DRGs 266 and 267 to what the requester described as a more clinically and cost cohesive MS-DRG such as MS-DRG 215 (Other Heart Assist System Implant). We continue to believe that patients with indications for heart assist devices tend to be more severely ill and these inpatient admissions are associated with greater resource utilization as evidenced by the higher average costs and longer lengths of stay compared to cases reporting codes describing TAVR for aortic regurgitation, even when excluding cases with a principal or secondary diagnosis of ICD-10-CM code I35.2 or when considering cases reporting a principal or secondary diagnosis of ICD-10-CM codes I06.1 or I35.1 only. We also note that the claims data reflect variance with regard to average length of stay and average costs for these cases when considering which principal or secondary ICD-10-CM diagnosis codes are reported to describe aortic regurgitation. The claims data also clearly show that the cases reporting secondary diagnoses designated as MCCs are more resource intensive compared to other cases reporting codes describing TAVR for aortic regurgitation. As such, we believe it is premature to propose changes to the MS-DRG assignment of cases reporting TAVR procedures for aortic regurgitation. Further analysis is needed, particularly focusing on the diagnosis codes reported, and also giving consideration as to whether other factors, such as the reporting of secondary MCC and CC diagnoses, may be contributing to the average costs prior to proposing any reassignment of these cases to ensure clinical coherence between these cases and the other cases with which they may potentially be grouped. Furthermore, it is also difficult to predict what the associated costs and resource utilization will be in the future for TAVR devices that remain under development or in clinical trials as research continues to refine TAVR techniques, evaluate long-term outcomes, develop new devices, and expand clinical indications. We expect in future years we will have additional data that can be used to evaluate the potential reassignment of cases reporting TAVR procedures. We will continue to monitor the claims data in consideration of any future modifications to the MS-DRGs for which TAVR procedures may be reported. Therefore, after consideration of the public comments we received, we are finalizing our proposal to maintain the GROUPER logic for MS- DRGs 266 and 267 for FY 2026, without modification. We are also finalizing our proposal to maintain the title of MS-DRGs 215 as ``Other Heart Assist System Implant'' for FY 2026. d. Percutaneous Coronary Atherectomy In the FY 2024 IPPS/LTCH PPS final rule (88 FR 58704 through 58712), we discussed a request we received to [[Page 36592]] review the MS-DRG assignment of cases describing percutaneous coronary intravascular lithotripsy (IVL). Coronary IVL is utilized in a subset of percutaneous coronary intervention (PCI) procedures when the artery is severely calcified. According to the requestor, PCIs involving coronary IVL are clinically more complex because coronary IVL is a therapy deployed exclusively in severely calcified coronary lesions, and these lesion types are associated with longer procedure times and increased utilization of hospital resources. In analyzing this request, we stated in the FY 2024 IPPS/LTCH PPS final rule that the data analysis showed that the average costs of cases reporting percutaneous coronary IVL, with or without involving the insertion of an intraluminal device, were higher than for all cases in their respective MS-DRG. Therefore, for FY 2024, taking into consideration that it clinically requires greater resources to perform coronary IVL, and after consideration of the public comments we received, we finalized our proposal to create MS-DRG 323 (Coronary Intravascular Lithotripsy with Intraluminal Device with MCC), MS-DRG 324 (Coronary Intravascular Lithotripsy with Intraluminal Device without MCC) and MS-DRG 325 (Coronary Intravascular Lithotripsy without Intraluminal Device) in MDC 05. In the FY 2025 IPPS/LTCH PPS final rule (89 FR 69000 through 69002), we discussed requests to modify the GROUPER logic in a number of cardiac MS-DRGs under MDC 05 (Diseases and Disorders of the Circulatory System) for which we stated further research and analysis were required, and which we would continue to consider in connection with future rulemaking. Specifically, we discussed requests we received to modify the GROUPER logic of MS-DRGs 323, 324, and 325. In two separate but related requests, the requestors suggested that we add procedure codes that describe additional PCI procedures, such as percutaneous coronary rotational, laser, and orbital atherectomy, to the GROUPER logic of new MS-DRGs 323, 324, and 325. In the FY 2025 IPPS/LTCH PPS final rule, we noted that as stated in prior rulemaking (88 FR 58708), atherectomy is distinct from coronary lithotripsy in that each of these procedures are defined by clinically distinct definitions and objectives. We stated additional analysis to assess for unintended consequences across the classification was needed as we have made a distinction between the root operations used to describe atherectomy (Extirpation) and the root operation used to describe lithotripsy (Fragmentation) in evaluating other requests in rulemaking. We stated we would need to consider the application of these two root operations in other scenarios where we have also specifically stated that Extirpation is not the same as Fragmentation and do not warrant similar MS-DRG assignment (85 FR 58572 through 58573). Furthermore, as MS-DRGs 323, 324, and 325 had recently become effective on October 1, 2023 (FY 2024), we stated additional time was needed to review and evaluate extensive modifications to the structure of these MS-DRGs. As discussed in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18038 through 18042), we received a request to reassign percutaneous coronary atherectomy procedures from MS-DRGs 250 and 251 (Percutaneous Cardiovascular Procedures without Intraluminal Device with MCC and without MCC, respectively) and MS-DRGs 321 and 322 (Percutaneous Cardiovascular Procedures with Intraluminal Device with MCC or 4+ Arteries/Intraluminal Devices and without MCC, respectively) to MS-DRGs 323, 324, and 325 where cases reporting percutaneous coronary IVL are assigned. Atherectomy is a procedure used to remove plaque buildup from the inside of arteries. The requestor stated that coronary atherectomy and coronary IVL target the same step of the PCI treatment process (that is, reducing the burden of calcium by preparing the vessel prior to stent delivery). The requestor further stated that coronary atherectomy is more clinically similar to coronary IVL than other routine vessel preparation techniques (such as angioplasty) in that both coronary atherectomy and coronary IVL are used to modify severe coronary calcium, treat the same patient population, and have the same intended clinical use for complex vessel preparation. Complex vessel preparation is required to increase the diameter of an artery's lumen in severely calcified lesions and improves revascularization by debulking calcification which enables better intraluminal device deployment and improved drug uptake into the vessel wall. Similar to lithotripsy, after percutaneous atherectomy is performed, the provider can implant an intraluminal device, also called a stent, to keep the vessel open. According to the requestor, removing percutaneous coronary atherectomy procedures from their current MS-DRG assignments and assigning them to MS-DRGs 323, 324, and 325 would reduce cost variance and improve clinical coherence across all PCI MS-DRGs. The requestor also stated that as atherectomy procedures involve more complex calcified lesions and require greater resources, it is not clinically or cost coherent to maintain their current MS-DRG assignments, therefore creating a new MS-DRG for all cases involving percutaneous coronary atherectomy procedures was a reasonable alternative option if CMS did not agree with the reassignment of these cases to MS-DRGs 323, 324, and 325. As discussed in the proposed rule, the requestor identified eight ICD-10-PCS codes that they state describe percutaneous coronary atherectomy. The eight codes the requestor identified are listed in the following table. [GRAPHIC] [TIFF OMITTED] TR04AU25.074 While we agree with the requestor that the eight procedure codes listed in the previous table describe percutaneous coronary atherectomy, we noted in the proposed rule there are additional ICD-10- PCS codes that [[Page 36593]] describe percutaneous coronary atherectomy in the GROUPER logic for MS- DRGs 250, 251, 321, and 322. Therefore, in reviewing this request, we stated we identified 12 additional ICD-10-PCS procedure codes that also describe percutaneous or percutaneous endoscopic coronary atherectomy procedures and included these codes in our analysis. The 12 codes we identified are listed in the following table. [GRAPHIC] [TIFF OMITTED] TR04AU25.075 We refer the reader to the ICD-10 MS-DRG Definitions Manual, Version 42.1 (available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software) for complete documentation of the GROUPER logic for MS-DRGs 250, 251, 321, and 322. To begin our analysis, we examined claims data from the September 2024 update of the FY 2024 MedPAR file for MS-DRGs 250, 251, 321, and 322 to identify cases reporting a procedure code describing percutaneous or percutaneous endoscopic coronary atherectomy and compared the results to all cases in their respective MS-DRG. Our findings are shown in the following table. [GRAPHIC] [TIFF OMITTED] TR04AU25.076 As shown by the table, in MS-DRG 250, we identified a total of 3,047 cases, with an average length of stay of 4.4 days and average costs of $21,383. Of those 3,047 cases, there were 493 cases reporting percutaneous or percutaneous endoscopic coronary atherectomy without reporting the insertion of an intraluminal device, with higher average costs as compared to all cases in MS-DRG 250 ($25,139 compared to $21,383), and a longer average length of stay (4.6 days compared to 4.4 days). In MS-DRG 251, we identified a total of 2,515 cases with an average length of stay of 2.4 days and average costs of $14,521. Of those 2,515 cases, there were 340 cases reporting percutaneous or percutaneous endoscopic coronary atherectomy without reporting the insertion of an intraluminal device, with higher average costs as compared to all cases in MS-DRG 251 ($18,121 compared to $14,521), and a longer average length of stay (2.5 days compared to 2.4 days). In MS-DRG 321, we identified a total of 32,517 cases with an average length of stay of 5.0 days and average costs of $26,309. Of those 32,517 cases, there were 3,307 cases reporting percutaneous or percutaneous endoscopic coronary atherectomy with the insertion of an intraluminal device, with higher average costs as compared to all cases in MS-DRG 321 ($31,886 compared to $26,309), and a longer average length of stay (5.1 days compared to 5.0 days). In MS-DRG 322, we identified a total of 46,600 cases with an average length of stay of 2.4 days and average costs of $16,792. Of those 46,600 cases, there were 3,134 cases reporting percutaneous or percutaneous endoscopic coronary atherectomy with the insertion of an intraluminal device, with higher average costs as compared to all cases in MS-DRG 322 ($20,889 compared to $16,792), and a longer average length of stay (2.5 days compared to 2.4 days). The data analysis shows that the average costs of cases reporting percutaneous or percutaneous endoscopic coronary atherectomy, with or without involving the insertion of an intraluminal device, are higher than for all cases in their respective MS-DRG. As discussed in the proposed rule, we then examined claims data from the September 2024 update of the FY 2024 MedPAR file for MS-DRGs 323, 324, and 325. Our findings are shown in the following table. [[Page 36594]] [GRAPHIC] [TIFF OMITTED] TR04AU25.077 In MS-DRG 323, we found a total of 4,429 cases with an average length of stay of 6.0 days and average costs of $39,047. In MS-DRG 324, we found a total of 4,877 cases with an average length of stay of 2.9 days and average costs of $28,809. In MS-DRG 325, we found a total of 646 cases with an average length of stay of 3.9 days and average costs of $29,362. The average costs of the 3,307 cases reporting percutaneous or percutaneous endoscopic coronary atherectomy with the insertion of an intraluminal device in MS-DRG 321 are $7,161 less than the average costs of all cases in MS-DRG 323 ($39,047-$31,886 = $7,161) and have an average length of stay that is less than the average length of stay of all cases in MS-DRG 323 (5.1 days versus 6.0 days). The average costs of the 3,134 cases reporting percutaneous or percutaneous endoscopic coronary atherectomy with the insertion of an intraluminal device in MS-DRG 322 are $7,920 less than the average costs of all cases in MS- DRG 324 ($28,809-$20,899 = $7,920) and have an average length of stay that is less than the average length of stay of all cases in MS-DRG 324 (2.5 days versus 2.9 days). The average costs of the 493 cases in MS- DRG 250 and the 340 cases in MS-DRG 251 reporting percutaneous or percutaneous endoscopic coronary atherectomy without reporting a procedure code describing the insertion of an intraluminal device are $4,223 and $11,241 less than the average costs of all cases in MS-DRG 325 ($29,362-$25,139 = $7,920; $29,362-$18,121 = $11,241), respectively. These 493 cases in MS-DRG 250 have an average length of stay that is more than the average length of stay of all cases in MS- DRG 325 (4.6 days versus 3.9 days) while the 340 cases in MS-DRG 251 have an average length of stay that is less than the average length of stay of all cases in MS-DRG 325 (2.5 days versus 3.9 days). Upon analysis of the claims data and our review of the request, we stated in the proposed rule we do not agree with reassigning cases reporting percutaneous or percutaneous endoscopic coronary atherectomy from MS-DRGs 250, 251, 321, and 322 to MS-DRGs 323, 324, and 325. We stated that while we agree that the performance of percutaneous or percutaneous endoscopic coronary atherectomy contributes to increased resource consumption for these PCI procedures, as previously noted, the data do not support that cases reporting percutaneous or percutaneous endoscopic coronary atherectomy, with or without involving the insertion of an intraluminal device, utilize similar resources when compared to coronary IVL procedures currently assigned to MS-DRGs 323, 324, and 325. Additionally, as stated previously and in prior rulemaking (88 FR 58708), coronary atherectomy is distinct from coronary lithotripsy in that each of these procedures are defined by clinically distinct definitions and objectives. We stated we continue to believe that the root operation Extirpation is not the same as the root operation Fragmentation and do not warrant similar MS-DRG assignment (85 FR 58572 through 58573). As discussed in the proposed rule, we then explored alternative options, as was requested. As discussed in prior rulemaking (88 FR 58706), we continue to agree that clinically, the presence of severe calcification can increase the treatment difficulty and complexity of service. We stated the data analysis clearly shows that cases reporting percutaneous or percutaneous endoscopic coronary atherectomy, with or without involving the insertion of an intraluminal device, have higher average costs and longer lengths of stay compared to all the cases in their assigned MS-DRG. For these reasons, we proposed to create new MS- DRGs for cases reporting procedure codes describing percutaneous or percutaneous endoscopic coronary atherectomy involving the insertion of an intraluminal device, as well as a new MS-DRG for cases reporting procedure codes describing percutaneous or percutaneous endoscopic coronary atherectomy without the insertion of an intraluminal device to address the differential in resource consumption. To compare and analyze the impact of our suggested modifications, as discussed in the proposed rule, we ran a simulation using the most recent claims data from the September 2024 update of the FY 2024 MedPAR file. The following table illustrates our findings for all 6,441 cases reporting procedure codes describing percutaneous or percutaneous endoscopic atherectomy involving the insertion of an intraluminal device. [GRAPHIC] [TIFF OMITTED] TR04AU25.078 We applied the criteria to create subgroups in a base MS-DRG as discussed in section II.C.1.b. of the preamble of the FY 2026 IPPS/LTCH PPS proposed rule and this final rule. As shown, a three-way split of the proposed new MS-DRG failed to meet the criterion that there be at least a 20 percent difference in average costs between the CC and NonCC subgroup. [GRAPHIC] [TIFF OMITTED] TR04AU25.079 [[Page 36595]] As discussed in section II.C.1.b. of the preamble of the FY 2026 IPPS/LTCH PPS proposed rule and this final rule, if the criteria for a three-way split fail, the next step is to determine if the criteria are satisfied for a two-way split. We therefore applied the criteria for a two-way split for the ``with MCC'' and ``without MCC'' subgroups and found that all five criteria were met. The following table illustrates our findings. [GRAPHIC] [TIFF OMITTED] TR04AU25.080 As discussed in the proposed rule, for the proposed new MS-DRGs for cases reporting procedure codes describing percutaneous or percutaneous endoscopic atherectomy involving the insertion of an intraluminal device, there is at least (1) 500 cases in the MCC subgroup and 500 cases in the without MCC subgroup; (2) 5 percent of the cases in the MCC group and 5 percent in the without MCC subgroup; (3) a 20 percent difference in average costs between the MCC group and the without MCC group; (4) a $2,000 difference in average costs between the MCC group and the without MCC group; and (5) a 3-percent reduction in cost variance, indicating that the proposed severity level splits increase the explanatory power of the base MS-DRG in capturing differences in expected cost between the proposed MS-DRG severity level splits by at least 3 percent and thus improve the overall accuracy of the IPPS payment system. We then ran a simulation using the most recent claims data from the September 2024 update of the FY 2024 MedPAR file for all 833 cases reporting procedure codes describing percutaneous or percutaneous endoscopic atherectomy without the insertion of an intraluminal device. The following table illustrates our findings. [GRAPHIC] [TIFF OMITTED] TR04AU25.081 We applied the criteria to create subgroups in a base MS-DRG as discussed in section II.C.1.b. of the preamble of the FY 2026 IPPS/LTCH PPS proposed rule and this final rule. As shown, a three-way split of the proposed new MS-DRG failed to meet the criterion that there be at least 500 cases in the MCC subgroup, CC subgroup, and NonCC subgroup. [GRAPHIC] [TIFF OMITTED] TR04AU25.082 As discussed in section II.C.1.b. of the preamble of the FY 2026 IPPS/LTCH PPS proposed rule and this final rule, if the criteria for a three-way split fail, the next step is to determine if the criteria are satisfied for a two-way split. We therefore applied the criteria for a two-way split for the ``with MCC'' and ``without MCC'' subgroups. We note that, as shown in the table that follows, a two-way split of this base MS-DRG failed to meet the criterion that there be at least 500 cases in the with MCC and the without MCC subgroups. [GRAPHIC] [TIFF OMITTED] TR04AU25.083 We then applied the criteria for a two-way split for the ``with CC/ MCC'' and ``without CC/MCC'' subgroups. As shown in the table that follows, a two-way split of this base MS-DRG also failed to meet the criterion that there be at least 500 cases in the without CC/MCC subgroup. [GRAPHIC] [TIFF OMITTED] TR04AU25.084 We noted in the proposed rule that because the criteria for both of the two-way splits failed, a split (or CC subgroup) is not warranted for the proposed new base MS-DRG. As a result, for FY 2026, we proposed to [[Page 36596]] create a base MS-DRG for cases reporting procedure codes describing percutaneous or percutaneous endoscopic atherectomy without the insertion of an intraluminal device. In summary, for FY 2026, taking into consideration that it clinically requires greater resources to perform percutaneous or percutaneous endoscopic coronary atherectomy, we proposed to create two new MS-DRGs with a two-way severity level split for cases describing percutaneous or percutaneous endoscopic coronary atherectomy involving the insertion of an intraluminal device in MDC 05. We also proposed to create a new base MS-DRG for cases describing percutaneous or percutaneous endoscopic coronary atherectomy without an intraluminal device. The proposed new MS-DRGs are proposed new MS-DRG 359 (Percutaneous Coronary Atherectomy with Intraluminal Device with MCC), proposed new MS-DRG 360 (Percutaneous Coronary Atherectomy with Intraluminal Device without MCC) and proposed new MS-DRG 318 (Percutaneous Coronary Atherectomy without Intraluminal Device). We refer the reader to Table 6P.4a and Table 6P.4b associated with the FY 2026 IPPS/LTCH PPS proposed rule (which is available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index) for the list of procedure codes we proposed to define in the logic for each of the proposed new MS-DRGs. We noted that discussion of the surgical hierarchy for the proposed modification is discussed in section II.C.10. of the preamble of the FY 2026 IPPS/LTCH PPS proposed rule. Comment: Many commenters expressed support for CMS' proposal to create new MS-DRGs for cases describing percutaneous or percutaneous endoscopic coronary atherectomy. Commenters stated they appreciate CMS' recognition of the greater resources required to perform percutaneous or percutaneous endoscopic coronary atherectomy. These commenters stated that they agree that the new MS-DRGs will appropriately reflect the higher resource use and longer hospital stays associated with these complex procedures and applauded CMS for recognizing the increased resources required and for undertaking the detailed analysis. Response: We thank the commenters for their support. After consideration of the public comments we received, we are finalizing our proposal to create new MS-DRG 359 (Percutaneous Coronary Atherectomy with Intraluminal Device with MCC), new MS-DRG 360 (Percutaneous Coronary Atherectomy with Intraluminal Device without MCC) and new MS-DRG 318 (Percutaneous Coronary Atherectomy without Intraluminal Device) for cases reporting percutaneous or percutaneous endoscopic coronary atherectomy, without modification, for FY 2026. We refer the reader to Table 6P.4a and Table 6P.4b associated with this FY 2026 IPPS/LTCH PPS final rule (which is available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index) for the list of procedure codes we are finalizing to define in the logic for each of the new MS-DRGs. We note that discussion of the surgical hierarchy for the finalized modification is discussed in section II.C.10. of the preamble of this FY 2026 IPPS/LTCH PPS final rule. e. Complex Aortic Arch Procedures As discussed in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18042 through 18047), we received two separate but related requests to review and reconsider the MS-DRG assignments for a subset of codes describing aortic arch procedures assigned to MS DRGs 216, 217, 218, 219, 220, and 221 (Cardiac Valve & Other Major Cardiothoracic Procedure with and without Cardiac Catheterization, with MCC, with CC, without CC/MCC, respectively). In this section of the preamble of this FY 2026 IPPS/LTCH PPS final rule, we discuss each of these separate, but related requests. The first request was to reassign cases reporting a procedure code describing endovascular restriction of the thoracic aorta with a branched or fenestrated intraluminal device from MS-DRGs 219, 220, and 221 (Cardiac Valve and Other Major Cardiothoracic Procedures without Cardiac Catheterization with MCC, with CC, and without CC/MCC, respectively) to MS-DRG 216 (Cardiac Valve and Other Major Cardiothoracic Procedures with Cardiac Catheterization with MCC). Alternatively, the requestor stated CMS could consider reassigning other similar complex aortic arch branch procedures to MS-DRG 216. The requestor suggested that if finalized, the title for MS-DRG 216 should be revised to reflect ``Cardiac Valve and Other Major Cardiothoracic Procedures with Cardiac Catheterization with MCC or with Aortic Arch Branch Intraluminal Device.'' According to the requestor, the manufacturer of the GORE[supreg] TAG[supreg] Thoracic Branch Endoprosthesis (TBE), reassignment of the procedure code describing endovascular restriction of the thoracic aorta with a branched or fenestrated intraluminal device to MS-DRG 216 would result in higher payment and better account for the differences in resource use of the cases reporting this procedure than other cases in their respective MS-DRGs where they are currently assigned. The GORE[supreg] TAG[supreg] TBE provides endovascular repair of pathologies of the descending thoracic aorta requiring a proximal landing zone including the left subclavian artery. It is a modular device that consists of three implantable fabric tubes supported by a nitinol framework. The GORE[supreg] TAG[supreg] TBE is indicated for endovascular repair of lesions such as aortic aneurysms, traumatic transections, and dissections of the descending thoracic aorta with treatment extending to the aortic arch, while maintaining flow into the left subclavian artery (Zone 2 of the aortic arch), in patients who are at high risk for debranching subclavian procedures and who have appropriate anatomy. According to the requestor, patients with lesions in the aortic arch are often more clinically complex and more difficult to treat than patients with lesions in lower parts of the aorta due to vascular tortuosity, proximity to the heart, involvement of arch vessels that feed into the head and brain, and risk of stroke and paraplegia or paraparesis from emboli released into arteries that provide blood flow to the left arm and head. The requestor stated that for lesions involving the left subclavian artery, the only other treatment options available today include open surgical repair with a synthetic graft or a hybrid procedure which includes a non-branched endovascular device and an open surgical bypass procedure of the head vessels. Per the requestor, for arch lesions involving the brachiocephalic and left common carotid arteries, a TBE device enables hybrid treatment with one fewer bypass procedure. The requestor identified cases reporting endovascular restriction of the thoracic aorta with a branched or fenestrated intraluminal device by the presence of ICD-10-PCS codes 02VX3EZ (Restriction of thoracic aorta, ascending/arch with branched or fenestrated intraluminal device, one or two arteries, percutaneous approach) and 02VW3DZ (Restriction of thoracic aorta, descending with intraluminal device, percutaneous approach) on the same claim and performed its own analysis of the claims data. The requestor stated they found 90 cases reporting endovascular restriction of the thoracic aorta with a branched or fenestrated intraluminal device, and [[Page 36597]] these cases are 49% (+$32,326), 60% (+$27,727), and 38% (+$15,432) more costly compared to all cases in MS-DRGs 219, 220, and 221, respectively. While acknowledging that cases reporting endovascular restriction of the thoracic aorta with a branched or fenestrated intraluminal device typically do not require a cardiac catheterization procedure, the requestor asserted that this claims analysis demonstrates cases reporting endovascular restriction of the thoracic aorta with a branched or fenestrated intraluminal device require resources similar to cases in MS-DRG 216. As mentioned previously, the requestor stated we could also consider reassigning cases reporting procedure codes describing other complex aortic arch branch procedures to MS-DRG 216. The requestor stated to be considered a similar ``complex aortic arch procedure'' the case should report an ICD-10-PCS code describing the endovascular restriction of the thoracic aorta with a branched or fenestrated intraluminal device with an ICD-10-PCS code describing a Zone 0 or a Zone 1 Bypass procedure. Zone 0 is in the ascending aorta, proximal to the brachiocephalic artery and Zone 1 covers the portion of the aortic arch between the brachiocephalic artery and the left common carotid artery. The requestor identified cases reporting these ``other complex aortic arch procedures'' as cases reporting ICD-10-PCS codes as reflected in the following table. [GRAPHIC] [TIFF OMITTED] TR04AU25.085 In analyzing this request, we noted in the proposed rule the requestor is correct that the following ICD-10-PCS codes specifically describe procedures involving the GORE[supreg] TAG[supreg] TBE: 02VX3EZ (Restriction of thoracic aorta, ascending/arch with branched or fenestrated intraluminal device, one or two arteries, percutaneous approach), in combination with 02VW3DZ (Restriction of thoracic aorta, descending with intraluminal device, percutaneous approach). The requestor is also correct that procedure codes 02VX3EZ and 02VW3DZ are assigned to MS-DRGs 216, 217, 218, 219, 220, and 221. Additionally, we stated we agree that the ICD-10-PCS codes as reflected in the previous table can describe other complex aortic arch procedures, and when reported, MS-DRGs 216, 217, 218, 219, 220, and 221 would be assigned. We refer the reader to the ICD-10 MS-DRG Definitions Manual Version 42.1, which is available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software, for complete documentation of the GROUPER logic for MS-DRGs 216, 217, 218, 219, 220, and 221. We noted in the proposed rule that the GORE[supreg] TAG[supreg] TBE was approved for new technology add-on payments for FY 2023 (87 FR 48966 through 48969), FY 2024 (88 FR 58800), and FY 2025 (89 FR 69124). We refer readers to section II.E.5 of the preamble of this FY 2026 IPPS/LTCH PPS final rule for a discussion regarding the FY 2026 status of technologies approved for FY 2025 new technology add-on payments, including the GORE[supreg] TAG[supreg] TBE. To explore mechanisms to address this request and to understand the resource use for the subset of cases reporting procedure codes 02VX3EZ and 02VW3DZ, and cases reporting ``other complex aortic arch procedures'', in the proposed rule we stated we began our analysis by examining claims data from the September 2024 update of the FY 2024 MedPAR file for cases assigned to MS-DRGs 216, 217, 218, 219, 220, and 221. Our findings are shown in the following table: [[Page 36598]] [GRAPHIC] [TIFF OMITTED] TR04AU25.086 As shown in the table, the data analysis performed indicates that the 4 cases in MS-DRG 216 reporting procedure codes 02VX3EZ and 02VW3DZ have an average length of stay that is longer than the average length of stay for all the cases in MS-DRG 216 (25.3 days versus 13.6 days) and higher average costs when compared to all the cases in MS-DRG 216 ($156,361 versus $88,193). The difference in average costs is $68,168 ($156,361-$88,193 = $68,168) for the cases reporting procedure codes 02VX3EZ and 02VW3DZ in MS-DRG 216 when compared to all the cases in MS- DRG 216. There were zero cases reporting other complex aortic arch procedures in MS-DRG 216. In MS-DRG 217, the one case reporting procedure codes 02VX3EZ and 02VW3DZ has a length of stay that is shorter than the average length of stay for all the cases in MS-DRG 217 (2 days versus 6.8 days) and lower costs when compared to all the cases in MS-DRG 217 ($46,235 versus $59,943). The difference in average costs is $13,708 ($59,943-$46,235 = $13,708) for the cases reporting procedure codes 02VX3EZ and 02VW3DZ in MS-DRG 217 when compared to all the cases in MS-DRG 217. There were zero cases reporting other complex aortic arch procedures in MS-DRG 217. In MS-DRG 218, there were zero cases reporting procedure codes 02VX3EZ and 02VW3DZ or other complex aortic arch procedures. The 81 cases in MS-DRG 219 reporting procedure codes 02VX3EZ and 02VW3DZ have an average length of stay that is longer than the average length of stay for all the cases in MS-DRG 219 (11.4 days versus 10 days) and higher average costs when compared to all the cases in MS-DRG 219 ($97,336 versus $69,728). The difference in average costs is $27,608 ($97,336-$69,728 = $27,608) for the cases reporting procedure codes 02VX3EZ and 02VW3DZ in MS-DRG 219 when compared to all the cases in MS-DRG 219. The 10 cases in MS-DRG 219 reporting procedure codes describing other complex arch procedures have an average length of stay that is longer than the average length of stay for all the cases in MS- DRG 219 (20.7 days versus 10 days) and higher average costs when compared to all the cases in MS-DRG 219 ($112,213 versus $69,728). The difference in average costs is $42,485 ($112,213-$69,728 = $42,485) for the cases reporting procedure codes describing other complex arch procedures in MS-DRG 219 when compared to all the cases in MS-DRG 219. In MS-DRG 220, the 64 cases reporting procedure codes 02VX3EZ and 02VW3DZ have an average length of stay that is shorter than the average length of stay for all the cases in MS-DRG 220 (5.2 days versus 6.2 days) and higher average costs when compared to all the cases in MS-DRG 220 ($76,700 versus $49,514). The difference in average costs is $27,186 ($76,700-$49,514 = $27,186) for the cases reporting procedure codes 02VX3EZ and 02VW3DZ in MS-DRG 220 when compared to all the cases in MS-DRG 220. The 10 cases reporting procedure codes describing other complex arch procedures have an average length of stay that is longer than the average length of stay for all the cases in MS-DRG 220 (6.9 days versus 6.2 days) and higher average costs when compared to all the cases in MS-DRG 220 ($87,003 versus $49,514). The difference in average costs is $37,489 ($87,003-$49,514 = $37,489) for the cases reporting procedure codes describing other complex arch procedures in MS-DRG 220 when compared to all the cases in MS-DRG 220. In MS-DRG 221, the 32 cases reporting procedure codes 02VX3EZ and 02VW3DZ have an average length of stay that is shorter than the average length of stay for all the cases in MS-DRG 221 (1.9 days versus 3.6 days) and higher average costs when compared to all the cases in MS-DRG 221 ($56,765 versus $46,900). The difference in average costs is $9,865 ($56,765-$46,900 = $9,865) for the cases reporting procedure codes 02VX3EZ and 02VW3DZ in MS-DRG 221 when compared to all the cases in MS- DRG 221. There were zero cases reporting other complex aortic arch procedures in MS-DRG 221. As discussed in the proposed rule, our analysis of the claims data for cases reporting procedure codes 02VX3EZ and 02VW3DZ and cases reporting procedure codes describing other complex arch procedures demonstrated a relatively low volume of cases in comparison to all the cases in their respective MS-DRGs (that is, in 216, 217, 218, 219, 220, and 221). Analysis of the claims data also demonstrates that the cases had an average length of stay [[Page 36599]] generally longer than all the cases in their respective MS-DRGs. The data analysis indicates that the average costs of the 182 cases reporting procedure codes 02VX3EZ and 02VW3DZ and the 20 cases reporting procedure codes describing other complex arch procedures are generally higher when compared to the average costs of all cases in MS- DRGs 216, 217, 218, 219, 220, and 221. Specifically, most of these cases have average costs that are considerably higher than the average costs of all cases in MS-DRG 216. We stated we reviewed these data and do not believe that proposing to reassign the cases reporting procedure codes 02VX3EZ and 02VW3DZ and the cases reporting procedure codes describing other complex arch procedures to MS-DRG 216, even if there is no cardiac catheterization procedure reported and no secondary diagnosis designated as an MCC reported, would fully address the difference in resource utilization in these cases. Accordingly, we stated we do not believe the data adequately support a potential reassignment of these cases to MS-DRG 216. Therefore, we decided to further explore alternative options to ensure clinical coherence between these cases and the other cases with which they may potentially be grouped in conjunction with the separate but related request we received to review and reconsider the MS-DRG assignments for another subset of codes describing aortic arch procedures, as discussed later in this section. The second request we received, and discussed in the proposed rule, was to reassign cases reporting thoracic aortic arch replacement combined with restriction of the descending thoracic aorta from MS-DRGs 219, 220, and 221 (Cardiac Valve and Other Major Cardiothoracic Procedures without Cardiac Catheterization with MCC, with CC, and without CC/MCC, respectively) to MS-DRGs 216, 217, and 218 (Cardiac Valve and Other Major Cardiothoracic Procedures with Cardiac Catheterization with MCC, with CC, and without CC/MCC, respectively). The requestor, the manufacturer of the ThoraflexTM Hybrid device (also known as the Terumo Aortic Hybrid device), stated that hospital resource utilization for cases involving the ThoraflexTM Hybrid device is significantly higher compared to all cases in MS-DRGs 216, 217, 218, 219, 220, and 221, creating substantial financial loss for the hospitals that offer this technology. The ThoraflexTM Hybrid device is a dual-purpose medical device that replaces the ascending aorta and aortic arch while also stabilizing and repairing the descending thoracic aorta in a single procedure. It is indicated for the open surgical repair or replacement of damaged or diseased vessels of the aortic arch and descending aorta with or without involvement of the ascending aorta in cases of aneurysm and/or dissection. According to the requestor, when the ThoraflexTM Hybrid device is implanted within the aorta, it creates a channel for the blood to bypass the damaged or diseased part of the vessel and keep flowing as the graft and stented sections of the implant replace the parts of the aorta that are not working properly. The requestor stated that aortic pathologies such as aneurysms and dissections that involve the aortic arch and descending thoracic aorta continue to present surgical challenges and carry risks such as stroke, cerebral malperfusion, paralysis, and renal malperfusion. These risks must be mitigated by intense and patient specific goal-oriented care. According to the requestor, hospitals treating aortic arch pathologies must be able to deploy rapid neurology, neurosurgery, and nephrology all within hours to ensure a good patient outcome. According to the requestor, all these attributes attest to the difficulty and complexity of thoracic aortic arch replacement combined with restriction of the descending thoracic aorta and care of the patient. The requestor identified cases reporting thoracic aortic arch replacement combined with restriction of the descending thoracic aorta by the presence of ICD-10-PCS code X2RX0N7 (Replacement of thoracic aorta, arch using branched synthetic substitute with intraluminal device, open approach, new technology group 7) in combination with X2VW0N7 (Restriction of thoracic aorta, descending using branched synthetic substitute with intraluminal device, open approach, new technology group 7) on the same claim and performed its own analysis of the claims data. The requestor stated they found that while the volume of cases reporting thoracic aortic arch replacement combined with restriction of the descending thoracic aorta is <1% of total volume in MS-DRGs 216, 217, 218, 219, 220, and 221, the average costs and average lengths of stay of these cases are significantly greater than all other cases in MS-DRG 216. As discussed in the proposed rule, in analyzing this request, we noted the requestor is correct that the following ICD-10-PCS codes specifically describe procedures involving the ThoraflexTM Hybrid device: X2RX0N7 (Replacement of thoracic aorta arch with branched synthetic substitute with intraluminal device, new technology group 7) in combination with X2VW0N7 (Restriction of thoracic descending aorta with branched synthetic substitute with intraluminal device, new technology group 7). We stated the requestor is also correct that procedure codes X2RX0N7 and X2VW0N7 are assigned to MS- DRGs 216, 217, 218, 219, 220, and 221. We refer the reader to the ICD- 10 MS-DRG Definitions Manual Version 42.1, which is available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software, for complete documentation of the GROUPER logic for MS-DRGs 216, 217, 218, 219, 220, and 221. The ThoraflexTM Hybrid device was approved for new technology add-on payments for FY 2023 (87 FR 48974 through 48976), FY 2024 (88 FR 58800), and FY 2025 (89 FR 69124). We refer readers to section II.E.5 of the preamble of this FY 2026 IPPS/LTCH PPS final rule for a discussion regarding the FY 2026 status of technologies approved for FY 2025 new technology add-on payments, including the ThoraflexTM Hybrid device. To explore mechanisms to address this request and to understand the resource use for the subset of cases reporting procedure codes X2RX0N7 and X2VW0N7, we stated in the proposed rule that we began our analysis by examining claims data from the September 2024 update of the FY 2024 MedPAR file for cases reporting the procedure code combination describing thoracic aortic arch replacement combined with restriction of the descending thoracic aorta assigned to MS-DRGs 216, 217, 218, 219, 220, and 221. Our findings are shown in the following table: [[Page 36600]] [GRAPHIC] [TIFF OMITTED] TR04AU25.087 As shown in the table, the data analysis performed indicates that the 20 cases in MS-DRG 216 reporting procedure codes X2RX0N7 and X2VW0N7 have an average length of stay that is longer than the average length of stay for all the cases in MS-DRG 216 (23 days versus 13.6 days) and higher average costs when compared to all the cases in MS-DRG 216 ($158,920 versus $88,193). The difference in average costs is $70,727 ($158,920-$88,193 = $70,727) for the cases reporting procedure codes X2RX0N7 and X2VW0N7 in MS-DRG 216 when compared to all the cases in MS-DRG 216. In MS-DRG 217, the 2 cases reporting procedure codes X2RX0N7 and X2VW0N7 have an average length of stay that is longer than the average length of stay for all the cases in MS-DRG 217 (21.5 days versus 6.8 days) and higher average costs when compared to all the cases in MS-DRG 217 ($160,014 versus $59,943). The difference in average costs is $100,071 ($160,014-$59,943 = $100,071) for the cases reporting procedure codes X2RX0N7 and X2VW0N7 in MS-DRG 217 when compared to all the cases in MS-DRG 217. In MS-DRG 218, there were zero cases reporting procedure codes X2RX0N7 and X2VW0N7. The 61 cases in MS-DRG 219 reporting procedure codes X2RX0N7 and X2VW0N7 have an average length of stay that is longer than the average length of stay for all the cases in MS-DRG 219 (16.9 days versus 10 days) and higher average costs when compared to all the cases in MS-DRG 219 ($154,134 versus $69,728). The difference in average costs is $84,406 ($154,134-$69,728 = $84,406) for the cases reporting procedure codes X2RX0N7 and X2VW0N7 in MS-DRG 219 when compared to all the cases in MS-DRG 219. In MS-DRG 220, the 14 cases reporting procedure codes X2RX0N7 and X2VW0N7 have an average length of stay that is longer than the average length of stay for all the cases in MS-DRG 220 (8.9 days versus 6.2 days) and higher average costs when compared to all the cases in MS-DRG 220 ($84,004 versus $49,514). The difference in average costs is $34,490 ($84,004-$49,514 = $34,490) for the cases reporting procedure codes X2RX0N7 and X2VW0N7 in MS-DRG 220 when compared to all the cases in MS-DRG 220. In MS-DRG 221, the one case reporting procedure codes X2RX0N7 and X2VW0N7 has a length of stay that is shorter than the average length of stay for all the cases in MS-DRG 221 (3 days versus 3.6 days) and higher average costs when compared to all the cases in MS-DRG 221 ($97,825 versus $46,900). The difference in average costs is $50,925 ($97,825-$46,900 = $50,925) for the cases reporting procedure codes X2RX0N7 and X2VW0N7 in MS-DRG 221 when compared to all the cases in MS-DRG 221. In the proposed rule, we stated we reviewed these data and noted the average costs of the 98 cases reporting the procedure code combination describing thoracic aortic arch replacement combined with restriction of the descending thoracic aorta are higher when compared to the average costs of all cases in MS-DRGs 216, 217, 218, 219, 220, and 221. The difference in average costs of the 98 cases reporting the procedure code combination describing thoracic aortic arch replacement combined with restriction of the descending thoracic aorta is $56,445 ($144,638-$88,193 = $56,445) for the cases reporting procedure codes X2RX0N7 and X2VW0N7 when compared to all the cases in MS-DRG 216, which is the highest severity level ``with MCC'' MS-DRG. We reviewed these data and stated we do not believe that proposing to reassign all cases reporting the procedure code combination describing thoracic aortic arch replacement combined with restriction of the descending thoracic aorta to MS-DRGs 216, 217, and 218, even if there is no cardiac catheterization procedure reported and no secondary diagnosis designated as an MCC reported, would fully address the difference in resource utilization in these cases as the average costs of the cases reporting procedure codes X2RX0N7 and X2VW0N7 are much higher when compared to all the cases in MS-DRG 216. Accordingly, we stated we do not believe the data adequately supports a potential reassignment of these cases to MS-DRGs 216, 217, and 218, respectively. We also stated we do not believe that the small subset cases that report the procedure code combination describing thoracic aortic arch replacement combined with restriction of the descending thoracic aorta warrants the creation of a new MS-DRG at this time. As stated in prior rulemaking, the MS-DRGs are a classification system intended to group together diagnoses and procedures with similar clinical characteristics and utilization of resources. We generally seek to identify sufficiently large sets of claims data with a resource/cost similarity and clinical similarity in developing diagnosis related groups rather than smaller subsets. Moreover, as stated in prior rulemaking (85 FR 58472), we have concerns regarding making proposed MS-DRG changes based on a specific, single technology (the ThoraflexTM Hybrid device) identified by only one unique procedure code combination versus considering proposed changes based on a group of related procedure codes that can be reported to describe the same type or class of technology, which is more consistent with the intent of the MS-DRGs. [[Page 36601]] To explore other mechanisms to address this request, we then reexamined the separate but related request discussed previously to reassign cases reporting procedure codes describing endovascular restriction of the thoracic aorta with a branched or fenestrated intraluminal device and cases reporting other complex aortic arch procedures. In examining these requests, we noted in the proposed rule that the first requestor suggested that CMS reassign cases reporting procedure codes describing endovascular restriction of the thoracic aorta with a branched or fenestrated intraluminal device from MS-DRGs 219, 220, and 221 to MS-DRG 216 and the second requestor suggested that CMS reassign cases reporting the procedure code combination describing thoracic aortic arch replacement combined with restriction of the descending thoracic aorta without a procedure code describing the performance of a cardiac catheterization from MS-DRGs 219, 220, and 221 to MS-DRGs 216, 217, and 218 for FY 2026. As discussed in prior rulemaking (86 FR 44830, 87 FR 48847, and 88 FR 58683), MS-DRGs 216, 217, and 218 are defined by the performance of cardiac catheterization. We stated we are concerned about the effect on clinical coherence of assigning cases that do not also have a cardiac catheterization procedure reported to MS-DRGs that are defined by the performance of that procedure. However, we stated that in our examination of both requests, the data analysis indicates that the average costs of these complex aortic arch procedures, such as the cases reporting procedure codes describing endovascular restriction of the thoracic aorta with a branched or fenestrated intraluminal device, the cases reporting the procedure code combination describing thoracic aortic arch replacement combined with restriction of the descending thoracic aorta, and the cases reporting other complex aortic arch procedures, are higher when compared to the average costs of all cases in MS-DRGs 216, 217, 218, 219, 220, and 221. Analysis of the claims data also suggests that these cases reporting complex aortic arch procedures are associated with increased hospital resource utilization. We reviewed these data and noted in the proposed rule that, clinically, aortic arch pathologies are serious clinical conditions associated with an increased likelihood of death but also the potential for significant functional limitations. The aortic arch is the segment of the aorta that helps distribute blood to the head and upper extremities via the brachiocephalic trunk, the left common carotid, and the left subclavian artery. The aortic arch also plays a role in blood pressure homeostasis via baroreceptors found within the walls of the aortic arch that help prevent quick, drastic changes in blood pressure. Aortic aneurysms and aortic dissection that involve the aortic arch are associated with extremely high mortality and morbidity and the data analysis clearly shows that cases reporting complex aortic arch procedures have higher average costs and generally longer lengths of stay compared to all the cases in their assigned MS-DRG. Therefore, based on our review of the clinical issues and the claims data, we proposed to create a new MS-DRG to better differentiate these complex aortic arch procedures from other cases in their respective MS-DRGs, based on treatment difficulty, clinical similarity, and resource use. To compare and analyze the impact of our suggested modifications, we ran a simulation using the claims data from the September 2024 update of the FY 2024 MedPAR file. [GRAPHIC] [TIFF OMITTED] TR04AU25.088 For the cases reporting complex aortic arch procedures, we identified a total of 300 cases using the claims data from the September 2024 update of the FY 2024 MedPAR file, so the criterion that there are at least 500 or more cases in each subgroup could not be met. Therefore, we did not propose to subdivide the proposed new MS-DRG for complex aortic arch procedures into severity levels. In summary, for FY 2026, taking into consideration that it clinically requires greater resources to perform complex aortic arch procedures, we proposed to create a new base MS-DRG for cases reporting complex aortic arch procedures in MDC 05. The proposed new MS-DRG is proposed new MS-DRG 209 (Complex Aortic Arch Procedures). We refer the reader to Table 6P.5a associated with the FY 2026 IPPS/LTCH PPS proposed rule (which is available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software) for the list of procedure codes we proposed to define in the logic for the proposed new MS-DRG. We note that the surgical hierarchy for the proposed modification is discussed in section II.C.10. of the preamble of the FY 2026 IPPS/LTCH PPS proposed rule. Comment: Many commenters expressed support for the proposal to create new base MS-DRG 209 for cases reporting complex aortic arch procedures in MDC 05. Commenters stated that the creation of MS-DRG 209 would ensure better alignment with resource use and clinical needs, allowing appropriate payment and improved access to care for patients undergoing these complex surgeries. Several commenters agreed patients undergoing complex aortic arch procedures reflect a complex patient population that require increased resource utilization associated with their care. A commenter stated that the new MS-DRG would account for new technologies, resulting in a more tailored and appropriate payment to providers, which will inevitably result in better patient care and wider access to these complex aortic arch procedures. Another commenter specifically stated they appreciate the creation of the new MS-DRG and stated the proposed placement of MS-DRG 209 in the surgical hierarchy of MDC 05 will ensure that this group of complex patients will be clinically coherent and will appropriately account for the increased resource use and complexity required to care for them. Response: We appreciate the commenters' support. Comment: Another commenter disagreed with the proposal to create new MS-DRG 209 for cases reporting complex aortic arch procedures in MDC 05 and suggested that CMS delay the creation of the new MS-DRG to allow more time to analyze cost and length of stay data. This commenter stated that the current volume of cases is too small to justify a new MS-DRG and stated that more data is needed to assess the impact of concomitant comorbidities on resource use. While acknowledging that aortic arch repair procedures can be resource-intensive, the commenter [[Page 36602]] asserted that the impact of other concomitant comorbidities in exacerbating resource use has not adequately been assessed, and these cases should be more thoroughly evaluated before establishing a new MS- DRG. This commenter performed their own analysis and stated that they found that cases reporting a diagnosis of atrial fibrillation with procedure codes describing complex aortic arch procedures have higher average costs and longer average lengths of stay. The commenter stated that the disparity of resource use for complex aortic procedures may partially be due to the presence of comorbid diagnoses, such as atrial fibrillation, and should be evaluated in further detail. Lastly, the commenter expressed concern that the new MS-DRG could negatively affect the surgical hierarchy in MDC 05, particularly with regard to MS-DRG 212 (Concomitant Aortic and Mitral Valve Procedures). Specifically, the commenter noted that for FY 2026, CMS proposed to place new MS-DRG 209 in the highest position in the proposed Version 43 surgical hierarchy for MDC 05, ahead of MS-DRG 212. The commenter stated that MS-DRG 212 is defined by the performance of three cardiac procedures and asserted the complexity of performing three cardiac procedures is significant and should be reflected in the surgical hierarchy. Response: We thank the commenter for their feedback and for sharing their concerns. In response to the suggestion that CMS delay implementation of proposed new MS-DRG 209 for complex aortic arch procedures, we reviewed the commenters' concern and do not agree that a delay is necessary or appropriate. As stated earlier, the data analysis clearly shows that when performed, complex aortic arch procedures are clinically different when compared to all cases in MS-DRGs 216, 217, 218, 219, 220, and 221 in terms of technical complexity and hospital resource use. For these reasons, we proposed to create a new MS-DRG for cases reporting complex aortic arch procedures. We continue to believe that a new base MS-DRG in MDC 05 will better differentiate these cases reporting complex aortic arch procedures from other cases in their currently assigned MS-DRGs. In response to the commenters' concern that the disparity of resource use for complex aortic procedures may partially be due to the presence of comorbid diagnoses and therefore should be evaluated in further detail, as discussed in the proposed rule and earlier in this section, our data analysis indicated that the average costs of the cases reporting procedure codes describing endovascular restriction of the thoracic aorta with a branched or fenestrated intraluminal device, the cases reporting the procedure code combination describing thoracic aortic arch replacement combined with restriction of the descending thoracic aorta, and the cases reporting other complex aortic arch procedures are generally higher when compared to the average costs of all cases in MS-DRGs 216, 217, 218, 219, 220, and 221. Specifically, most of these cases have average costs that are higher than the average costs of all cases in MS-DRG 216, which is the highest severity level ``with MCC'' MS-DRG. For the cases reporting these complex aortic arch procedures, we identified a total of 300 cases using the claims data from the September 2024 update of the FY 2024 MedPAR file, so the criterion that there are at least 500 or more cases in each subgroup could not be met. Therefore, we did not propose to subdivide the proposed new MS DRG for complex aortic arch procedures into severity levels for FY 2026. We believe that over time the volume of cases reporting complex aortic arch procedures in MS-DRG 209 may increase and we could consider subdividing the proposed new MS DRG for complex aortic arch procedures into severity levels in the future. In response to the concern regarding the surgical hierarchy for MDC 05, we continue to believe our proposed revisions to the surgical hierarchy account for the resources expended to address these complex procedures and do not believe any modifications are warranted at this time. We believe the sequencing as discussed in the proposed rule appropriately reflects resource utilization when the assigned cardiac procedures are performed and will result in the most suitable MS-DRG assignments. We will continue to review the surgical hierarchy, consistent with our annual rulemaking, to determine if other modifications are warranted in the future. Comment: A commenter (the manufacturer of the GORE[supreg] TAG[supreg] TBE) stated they reviewed the ICD-10-PCS classification for other procedure code combinations that would describe a ``complex aortic arch procedure'' by reporting a procedure code reporting the endovascular restriction of the thoracic aorta with a branched or fenestrated intraluminal device with an ICD-10-PCS code describing a Zone 0 (innominate artery), Zone 1 (left common carotid), or Zone 2 (left subclavian artery) aortic arch procedure to ensure continued access to care for Medicare beneficiaries undergoing this treatment and better alignment of resource use, costs, and clinical complexity of these aortic arch procedures. This commenter identified the following nine ICD-10-PCS codes and requested that these codes be added to definition (logic) of new MS-DRG 209 when reported with code 02VX3EZ (Restriction of thoracic aorta, ascending/arch with branched or fenestrated intraluminal device, one or two arteries, percutaneous approach). [GRAPHIC] [TIFF OMITTED] TR04AU25.089 Response: We appreciate the commenters' feedback. As discussed previously and in the proposed rule, Zone 0 of the aortic arch is in the ascending aorta, proximal to the brachiocephalic artery and Zone 1 covers the portion of the aortic arch between the brachiocephalic artery and the left common carotid artery. We note [[Page 36603]] that Zone 2 of the aortic arch refers to the segment of the aortic arch located between the left common carotid artery and the left subclavian artery. This zone is a common location for aortic tears, aneurysms, and dissections and is a critical area for surgical and endovascular interventions. We agree with the commenter that the nine ICD-10-PCS codes as reflected in the previous table describe Zone 0, Zone 1, or Zone 2 aortic arch procedures, and when reported with code 02VX3EZ (Restriction of thoracic aorta, ascending/arch with branched or fenestrated intraluminal device, one or two arteries, percutaneous approach), would describe complex aortic arch procedures and should be added to the list of ICD-10-PCS procedure codes in the logic for assignment of cases for the proposed new MS-DRG that describe complex aortic arch procedures when reported with code 02VX3EZ. During our review of this issue, we further examined the GROUPER logic that would determine assignment of a case to proposed new MS-DRG 209. Specifically, we reviewed the ICD-10-PCS classification to determine if there were other ICD-10-PCS codes describing Zone 0, Zone 1 or Zone 2 aortic arch procedures that could describe complex aortic arch procedures when reported with code 02VX3EZ that were inadvertently not listed in the proposed GROUPER logic for MS-DRG 209. We identified the following 11 procedure codes. [GRAPHIC] [TIFF OMITTED] TR04AU25.090 We reviewed the 11 ICD-10-PCS codes as reflected in the previous table and note that when reported with code 02VX3EZ (Restriction of thoracic aorta, ascending/arch with branched or fenestrated intraluminal device, one or two arteries, percutaneous approach), these procedure code combinations also describe complex aortic arch procedures. As these procedure code combinations also describe complex aortic arch procedures, we believe these 11 ICD-10-PCS procedure codes should also be added to the list of ICD-10-PCS procedure codes that describe complex aortic arch procedures when reported with code 02VX3EZ in the logic for assignment of cases for proposed new MS-DRG 209. Therefore, after consideration of the public comments received, and for the reasons discussed, we are finalizing our proposal to create new MS-DRG 209 (Complex Aortic Arch Procedures), with modification, effective October 1, 2025, for FY 2026. Specifically, we are adding the 20 ICD-10-PCS codes listed previously to the list of procedure codes that describe other complex aortic arch procedures when reported with ICD-10-PCS code 02VX3EZ in the logic for the new MS-DRG 209. Conforming changes to the GROUPER logic are also are shown in Table 6P.5a associated with this final rule and available on the CMS website at https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps and also as reflected in the final version of ICD-10 MS- DRG Definitions Manual, version 43, available in association with this final rule and available via the CMS website at https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software. We note that discussion of the surgical hierarchy for the finalized modification is discussed in section II.C.10. of the preamble of this FY 2026 IPPS/LTCH PPS final rule. Comment: A commenter noted that a code proposal requesting new procedure codes to identify bypass procedures from the innominate artery to a subclavian artery or an axillary artery was displayed in association with the Spring 2025 ICD-10 Coordination and Maintenance Committee Update. The commenter suggested that any new procedure codes finalized in association with the Spring 2025 ICD-10 Coordination and Maintenance Committee Update that identify bypass procedures from the innominate artery to a subclavian artery or an axillary artery should be assigned to the GROUPER logic of MS-DRG 209 when coded with procedure code 02VX3EZ, as these procedure code combinations would describe ``complex aortic arch procedures'' as well. Response: We thank the commenter for their feedback. We note that the proposal requesting new procedure codes to identify bypass procedures from the innominate artery to a subclavian artery or an axillary artery that was displayed in association with the Spring 2025 ICD-10 Coordination and Maintenance Committee Update was approved and five new procedure codes to identify bypass procedures from the innominate artery to a subclavian artery or an axillary artery were finalized as reflected in the FY 2026 ICD-10-PCS Code Update files that were made publicly available on the CMS website at https://www.cms.gov/Medicare/Coding/ICD10 on June 6, 2025. We note that the new procedure codes are also reflected in Table 6B.--New Procedure Codes, in association with this final rule and available on the CMS website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/ AcuteInpatientPPS, including the MS-DRG assignments for these new codes for FY 2026. We agree that when coded with procedure code 02VX3EZ, these procedure code combinations would also describe complex aortic arch procedures and therefore should be assigned to new MS-DRG 209 along with other procedure codes describing complex aortic arch procedures. As reflected in Table 6B.--New Procedure Codes in association with this final rule, we note that the five procedure codes describing bypass procedures from the innominate artery to a subclavian artery or an axillary artery are assigned to new MDC 05 MS-DRG 209 and MS-DRGs [[Page 36604]] 252, 253, and 254 (Other Vascular Procedures with MCC, with CC, and without CC/MCC, respectively) for FY 2026. This assignment is reflected in the final V43 GROUPER logic. We refer the reader to section II.C.13. of the preamble of this final rule for further information regarding the table. f. Deep Vein Thrombophlebitis In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18047), we stated that consistent with our annual review of the MS-DRGs, we consider changes in resource consumption, treatment patterns, technology, and any other factors that may change the relative use of hospital resources. We noted that in our review of the claims data from the September 2024 update of the FY 2024 MedPAR file, we identified a low volume of cases for MS-DRGs 294 and 295 (Deep Vein Thrombophlebitis with CC/MCC and without CC/MCC, respectively). Our findings are shown in the following table. [GRAPHIC] [TIFF OMITTED] TR04AU25.091 A deep vein thrombophlebitis (DVT) is a blood clot that forms in one of the deep veins of the body, most commonly occurring in the veins of the pelvis, calf, or thigh. The 35 ICD-10-CM diagnosis codes describing deep vein thrombophlebitis currently assigned to MS-DRGs 294 and 295 are shown in the following table. BILLING CODE 4120-01-P [GRAPHIC] [TIFF OMITTED] TR04AU25.147 BILLING CODE 4120-01-C In light of the initial findings of only 146 cases for MS-DRG 294 and zero cases in MS-DRG 295, we further reviewed the MedPAR claims data for cases assigned to MS-DRGs 294 and 295 for the past 5 fiscal years. As reflected in the following tables, the data indicate that the number of cases grouping to MS-DRGs 294 and 295 has declined. [[Page 36605]] [GRAPHIC] [TIFF OMITTED] TR04AU25.092 [GRAPHIC] [TIFF OMITTED] TR04AU25.093 We noted in the proposed rule that, if, during our annual MS-DRG analysis we identify that there are only a few patients in a respective MS-DRG, consistent with our established process in deciding whether to propose to make further modifications, we consider if there have been potential changes in the clinical characteristics of the patients, treatment patterns, or resource utilization. A principle of the MS-DRGs and the characteristics of a meaningful DRG classification scheme is the ability to detect such changes and accordingly, propose clinically appropriate modifications that are also consistent with resource utilization. We have noted in prior rulemaking that we prefer to have a substantial number of cases in an MS-DRG because having larger clinical cohesive groups within an MS-DRG provides greater stability for annual updates to the relative payment weights. In light of these considerations, and the low volume of cases in MS-DRGs 294 and 295, we believed it was appropriate to further analyze how to potentially reclassify these cases. Accordingly, using the September 2024 update of the FY 2024 MedPAR file, we examined whether there were other MS-DRGs to which these cases could appropriately be reassigned. As part of this analysis, we also reviewed the base DRG by severity claims data for MS-DRG 294 because the MS-DRG includes cases reporting an MCC as well as cases reporting a CC. As previously noted, there were zero cases identified in MS-DRG 295, which would only consist of NonCC cases. Therefore, we analyzed the claims data to determine the number of cases, the average length of stay, and average costs for the 146 cases in MS-DRG 294 by severity level (1=MCC and 2=CC). Our findings are shown in the following table. [GRAPHIC] [TIFF OMITTED] TR04AU25.094 We note that medical MS-DRGs 299, 300, and 301 (Peripheral Vascular Disorders with MCC, with CC, and without CC/MCC, respectively) also include diagnoses describing other types of phlebitis and thrombophlebitis in the logic for case assignment, consistent with the diagnosis codes in the logic for case assignment to MS-DRGs 294 and 295. As such, we reviewed the claims data from the September 2024 update of the FY 2024 MedPAR file for MS-DRGs 299, 300, and 301 to examine the resource utilization associated with cases assigned to these MS-DRGs. Our findings are shown in the following table. [GRAPHIC] [TIFF OMITTED] TR04AU25.095 As shown in the data, the 45 cases reporting an MCC in MS-DRG 294 have an average length of stay of 5.4 days with average costs of $14,085, which is comparable to the cases in MS-DRG 299 reporting an MCC that have an average length of stay of 5.5 days with average costs of $14,742. The 101 cases reporting a CC in MS-DRG 294 have an average length of stay of 3.5 days with average costs of $9,348, which is comparable to the cases in MS-DRG 300 reporting an CC that have an average length of stay of 3.9 days with average costs of $9,757. We stated in the proposed rule that based on our analysis and review of the cases grouping to MS-DRGs 294 and 295, we believed it is appropriate to delete these MS-DRGs and reassign the cases currently assigned to MS-DRGs 294 and 295 to MS-DRGs 299, 300, and 301, which are clinically consistent and also align with the resource utilization for these cases. Accordingly, for FY 2026, we proposed to delete MS-DRGs 294 and 295 and reassign the previously listed 35 diagnosis codes describing deep vein thrombophlebitis to MS-DRGs 299, 300, and 301. We refer the reader to the ICD-10 MS-DRG Version 42.1 Definitions Manual (which is available via the internet on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software for complete documentation of the [[Page 36606]] GROUPER logic for MS-DRGs 299, 300, and 301. Comment: Several commenters supported the proposal to delete MS- DRGs 294 and 295 and reassign the previously listed 35 diagnosis codes describing deep vein thrombophlebitis to MS-DRGs 299, 300, and 301. Response: We appreciate the commenters' support. After consideration of the public comments we received, we are finalizing, without modification, our proposal to delete MS-DRGs 294 and 295 and reassign the 35 diagnosis codes describing deep vein thrombophlebitis listed previously that are currently assigned to MS- DRGs 294 and 295 to MS-DRGs 299, 300, and 301 for FY 2026.

5. MDC 08 (Diseases and Disorders of the Musculoskeletal System and

Connective Tissue) a. Hip or Knee Procedures With Periprosthetic Joint Infection In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18049 through 18052), we discussed a request we received to reassign cases reporting a hip or knee procedure with a principal diagnosis of periprosthetic joint infection (PJI) from the lower severity level ``without CC/MCC'' MS-DRG to the higher severity level ``with CC'' MS-DRG when there is no major complication or comorbidity (MCC) or complication or comorbidity (CC) reported. According to the requestor, PJI is a devastating healthcare condition that occurs in one percent to two percent (1% to 2%) of primary joint replacements.\10\ PJI is also the primary cause for revision arthroplasty in most developed markets. The requestor stated that patients undergoing revision for PJI experience higher mortality rates ranging from 0.8 to 4 percent at 1 year and 12.9 to 25.9 percent at 5 years following revision surgery. --------------------------------------------------------------------------- \10\ Corvec S, Portillo ME, Pasticci BM, Borens O, Trampuz A. Epidemiology and new developments in the diagnosis of prosthetic joint infection. Int J Artif Organs 2012;35:923-934. --------------------------------------------------------------------------- According to the requestor, management of PJI requires complex treatment strategies including multiple surgical revisions and long- term antimicrobial treatment, leading to substantially higher costs versus aseptic revision arthroplasty. The requestor asserted that when missed or undertreated, PJI leads to persistence of infection and multiple surgical revisions causing poor function or disability, considerably impairing quality of life. The requestor stated that current treatment options for PJI include chronic suppressive antibiotics; debridement, antibiotics, and implant retention (DAIR); one-stage revision; two-stage revision; and amputation. According to the requestor, regardless of the treatment option selected for the knee or hip, the presence of PJI as the principal diagnosis appears to significantly increase the length of stay and the resource utilization of these cases in comparison to all other cases assigned to the respective MS-DRGs. Using the FY 2023 MedPAR file that informed FY 2025 rulemaking, the requestor stated it performed its own analysis of cases reporting PJI as the principal diagnosis. The requestor provided the following list of ICD-10-CM diagnosis codes it used to identify the presence of a PJI in the hip or knee joint. [GRAPHIC] [TIFF OMITTED] TR04AU25.096 The requestor stated that cases involving the DAIR procedure are commonly assigned to MS-DRGs 463, 464, and 465 (Wound Debridement and Skin Graft Except Hand for Musculoskeletal and Connective Tissue Disorders with MCC, with CC, and without CC/MCC, respectively), MS-DRGs 480, 481, and 482 (Hip and Femur Procedures Except Major Joint with MCC, with CC, and without CC/MCC, respectively) or MS-DRG 485, 486, and 487 (Knee Procedures with Principal Diagnosis of Infection with MCC, with CC, and without CC/MCC, respectively). According to the requestor, in each of the scenarios reviewed, the average cost and average length of stay for cases with a principal diagnosis of PJI that grouped to the ``with CC'' or ``without CC/MCC'' MS-DRG are similar or higher and longer than the other cases assigned to the same MS-DRGs. The requestor also stated that one-stage hip or knee revision procedures are typically assigned to MS-DRGs 466, 467, and 468 and the findings from their analysis showed the presence of a PJI as the principal diagnosis with a hip or knee revision procedure show a longer length of stay and a similar or higher average cost than for the other aseptic revision arthroplasties. In addition, the requestor stated that its analysis of cases reporting PJI with the last treatment option, amputation, assigned to MS-DRGs 474, 475, and 476 (Amputation for Musculoskeletal System and Connective Tissue Disorders with MCC, with CC, and without CC/MCC, respectively) also showed a longer average length of stay and higher average costs compared to all other non-PJI cases in MS-DRGs 474, 475, and 476, further supporting the request to reassign cases to the ``with CC'' severity level MS-DRG. In summary, the requestor specifically recommended the following modifications to the listed MS-DRGs for cases reporting a hip or knee procedure with a principal diagnosis of PJI: [[Page 36607]] [GRAPHIC] [TIFF OMITTED] TR04AU25.097 We reviewed claims data from the September 2024 update of the FY 2024 MedPAR file for MS-DRGs 463, 464, 465, 466, 467, 468, 474, 475, 476, 480, 481, 482, 485, 486, and 487 and for cases reporting a principal diagnosis of PJI with a hip or knee procedure. We refer the reader to Table 6P. 6a that was made publicly available in association with the proposed rule and is available at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps for the list of diagnosis codes we analyzed to identify a PJI and for the list of procedure codes we analyzed from the previously listed MS-DRGs to identify a hip or knee procedure. Findings from our analysis are shown in the following table. [GRAPHIC] [TIFF OMITTED] TR04AU25.098 The findings show that the cases reporting a PJI with a hip or knee procedure in MS-DRGs 466, 467, and 468 have a slightly longer average length of stay and lower average costs compared to the average length of stay and average costs of all the cases in their respective MS-DRGs. Therefore, because the resource utilization of these cases is generally comparable to all the cases in their respective MS-DRGs, we believe the cases reporting a PJI in MS-DRGs 466, 467, and 468 appear to be grouping appropriately in their current MS-DRG assignment. The findings show that for the cases reporting a PJI with a hip or knee procedure in MS-DRGs 463, 464, 465, 474, 475, 476, 485, 486, and 487, the average length of stay is comparable to the average length of stay of all the cases in their respective MS-DRGs, however, the average length of stay for the cases reporting a PJI with a hip or knee procedure in MS-DRGs 480, 481, and 482 are notably longer compared to the average length of stay of all the cases in their respective MS- DRGs. Findings from our analysis also show that the average costs of the cases reporting a PJI with a hip or knee procedure in MS-DRGs 463, 464, 465, 474, 475, 476, 480, 481, and 482 are higher compared to the average costs of all the cases in their respective MS-DRGs with a difference in average costs of approximately $5,459 for cases reporting a PJI with a hip or knee procedure across MS-DRGs 463, 464, and 465, a difference in average costs of approximately $5,190 for cases reporting a PJI with a hip or knee procedure across MS-DRGs 474, 475, and 476, and a difference in average costs of approximately $7,306 for cases reporting a PJI with a hip or knee procedure across MS-DRGs 480, 481 and 482. However, because MS-DRGs [[Page 36608]] 485, 486, and 487 currently include a principal diagnosis of infection in the logic for case assignment to these MS-DRGs, the difference in average costs for the cases reporting a PJI with a hip or knee procedure compared to the average costs of all the cases in their respective MS-DRG is minimal ($2,018, $1,697, and $2,001, respectively). We stated in the proposed rule that, based on our review and analysis of the data, we disagreed with the request to reassign PJI cases from the lower severity ``without CC/MCC'' level MS-DRG to the higher severity ``with CC'' level MS-DRG suggested by the requestor as the average costs of the PJI cases in the ``without CC/MCC'' level are not comparable and do not align with the average costs of all the cases at the ``with CC'' level. In addition, our findings show that other than for MS-DRGs 466, 467, and 468, the cases reporting a PJI with a hip or knee procedure at the higher ``with CC'' level and the highest ``with MCC'' level have higher average costs compared to all the cases in their respective MS-DRG. For example, as reflected in the findings of our analysis for MS-DRGs 463, 464, and 465, if we were to reassign the 237 cases reporting a PJI with a hip or knee procedure with an average length of stay of 4.3 days and average costs of $22,689 from MS-DRG 465 to MS-DRG 464 where we found a total of 5,775 cases with an average length of stay of 7.3 days and average costs of $26,757, the 1,358 cases reporting a PJI with a hip or knee procedure with an average length of stay of 7.7 days and average costs of $32,474 in MS- DRG 464 and the 804 cases reporting a PJI with a hip or knee procedure with an average length of stay of 13.9 days and average costs of $50,127 in MS-DRG 463 would continue to not be comparable from a resource perspective as compared to all the cases in their assigned MS- DRGs. We stated we believe the data support proposing a new base MS-DRG for the cases reporting a PJI with a hip or knee procedure in MS-DRGs 463, 464, 465, 474, 475, 476, 480, 481, and 482 to better reflect the complexity of services, resource utilization, and severity of illness of these patients. We stated we applied the criteria to create subgroups in a base MS- DRG as discussed in section II.C.1.b. of the preamble of the FY 2026 IPPS/LTCH PPS proposed rule and this final rule. We noted that, as shown in the table that follows, a three-way split of this proposed new base MS-DRG failed to meet the criterion that at least 500 or more cases are in the ``without CC/MCC'' subgroup. The following table illustrates our findings. [GRAPHIC] [TIFF OMITTED] TR04AU25.099 As discussed in section II.C.1.b. of the preamble of the FY 2026 IPPS/LTCH PPS proposed rule and this final rule, if the criteria for a three-way split fail, the next step is to determine if the criteria are satisfied for a two-way split. Therefore, we applied the criteria for a two-way split for the ``with MCC and without MCC'' subgroups and found that all five criteria were met. The following table illustrates our findings. [GRAPHIC] [TIFF OMITTED] TR04AU25.100 For the proposed new MS-DRGs for cases reporting a PJI with a hip or knee procedure, there is at least: (1) 500 cases in the MCC subgroup and 500 cases in the without MCC subgroup; (2) 5 percent of the cases in the MCC group and 5 percent in the without MCC subgroup; (3) a 20 percent difference in average costs between the MCC group and the without MCC group; (4) a $2,000 difference in average costs between the MCC group and the without MCC group; and (5) a 3-percent reduction in cost variance, indicating that the proposed severity level splits increase the explanatory power of the base MS-DRG in capturing differences in expected cost between the proposed MS-DRG severity level splits by at least 3 percent and thus improve the overall accuracy of the IPPS payment system. As a result, for FY 2026, we proposed to create new MS-DRGs 403 and 404 (Hip or Knee Procedures with Principal Diagnosis of Periprosthetic Joint Infection with MCC and without MCC, respectively). The following table reflects a simulation of the proposed new MS-DRGs. [GRAPHIC] [TIFF OMITTED] TR04AU25.101 Comment: Several commenters supported the proposal to create proposed new MS-DRGs 403 and 404. A commenter stated it was pleased that CMS is taking note of the resource intensiveness required to thoroughly treat periprosthetic joint infections (PJI). According to the commenter, PJIs have become more prevalent in recent years and are now the leading cause of revision surgery in both Total Knee Arthroplasty (TKA) and Total Hip Arthroplasty (THA) procedures. The commenter stated that according to the American Joint Replacement Registry, PJIs account for over 20 percent of hip revisions and 28 percent of knee revisions annually. The commenter expressed agreement with CMS' statement in the proposed rule that there are multiple MS- DRGs to which these cases are assigned dependent on treatment type. The commenter stated that given the wide variability of cost among the cases in the MS-DRGs analyzed, they appreciate that CMS proposed to assign these cases to [[Page 36609]] proposed new MS-DRGs based on a principal diagnosis of PJI. The commenter stated its belief that these proposed new MS-DRGs will provide more accurate and appropriate payment for the treatment of PJI commensurate with the complexity of these cases. The commenter also stated that as this epidemic of PJI is growing, they want to ensure that individuals facing challenges with treatment of PJI have access to a quality health care system which is primarily based on a set of organizational structures to ensure rapid diagnosis and appropriate treatment, and this proposed change is a significant positive step in that direction. Another commenter who expressed support for the proposal recommended that CMS and other stakeholders take caution and closely monitor these proposed new MS-DRGs if finalized, to observe how the proposed new structure may alter referral patterns, utilization, or site of service for unanticipated effects. This commenter also suggested that CMS identify the party requesting reassignment and stated that in the interest of transparency in public programs, when CMS addresses a reclassification request in the annual proposed rulemakings, it should be clear to the public which parties are requesting the changes so that stakeholders can take that into account when commenting to CMS. Response: We appreciate the commenters' support. In response to the commenter's recommendation that any finalized policy should continue to be closely monitored, we thank the commenter for the feedback and note that we review the MS-DRGs for changes in treatment patterns and resource utilization on an annual basis. With respect to the request that CMS identify the party requesting reassignment for transparency, we will consider this suggestion for future rulemaking. Comment: A commenter who expressed support for the creation of proposed new MS-DRGs 403 and 404 stated it encountered inconsistencies with case volumes when grouping cases using the Version 43 test GROUPER that was made publicly available in association with the FY 2026 IPPS/ LTCH PPS proposed rule on the CMS website: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software. The commenter stated it reviewed CMS' analysis findings summarized in the proposed rule and the accompanying After Outliers Removed and Before Outliers Removed (AOR/BOR) file that shows the case volume and MS-DRG shifts between the Version 42.1 GROUPER and Version 43 test GROUPER and identified differences in case volume shifts among the MS-DRGs that were analyzed for proposed new MS- DRGs 403 and 404. The commenter indicated that it was challenging to understand the rationale for some of the shifts in case volume among the MS-DRGs when comparing the AOR/BOR file to the proposed rule findings. The commenter stated it validated that the data appropriately reflected declining volume in MS-DRGs 463, 464, 465, 474, 475, 476, 480, 481, and 482 as CMS outlined in the analysis as the cases shifted to proposed new MS-DRGs 403 and 404. The commenter also validated that CMS' analysis excluded MS-DRGs 485, 486, and 487 and these MS-DRGs reflected zero cases shifting as CMS outlined in the preamble of the proposed rule (90 FR 18051) and in the AOR/BOR file that was made publicly available in association with the proposed rule at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps. However, the commenter stated that the AOR/BOR file shows a decline (that is, shift) in case volume for MS-DRG 466 (243 cases), MS-DRG 467 (406 cases), and MS-DRG 468 (48 cases), resulting in a total decline of 699 cases while the proposed rule analysis identified a total of 1,567 cases reporting a principal diagnosis of PJI with a hip or knee procedure among those MS-DRGs (MS-DRG 466 (460 cases); MS-DRG 467 (947 cases); and MS-DRG 468 (160 cases)). The commenter also stated that in the proposed rule analysis, CMS noted that it excluded MS-DRGs 466, 467, and 468 from further consideration because it believed those cases were grouping appropriately in their current MS-DRG assignment. The commenter stated that they reviewed the list of procedure codes analyzed by CMS, which was made publicly available in Table 6P.6a in connection with the proposed rule, as well as the list of procedure codes in the logic for MS-DRGs 466, 467, and 468 included in the Draft Version 43 ICD-10 MS-DRG Definitions Manual and noted an overlap of approximately 52 procedure codes. The commenter provided the example of procedure code 0SRB0EZ (Replacement of left hip joint with articulating spacer, open approach) and stated this procedure code is included in both lists. The commenter stated it recognized that logically the surgical hierarchy would result in the assignment of MS-DRG 403 or 404 versus MS-DRGs 466, 467, or 468, however, the commenter expressed concern regarding the case shift for 699 of the 1,567 cases from MS- DRGs 466, 467, and 468 into the proposed new MS-DRGs 403 and 404 and that the shift was not acknowledged nor explained in the proposed rule. The commenter stated their belief that the shifts should have been included within the proposed rule and explained for data transparency. According to the commenter, the lack of detail in the proposed rule made it unclear if the cases shifted because of the procedure code overlap or because of programming within the Version 43 test GROUPER. The commenter requested CMS provide an explanation for the decline in case volume among MS-DRGs 466, 467, and 468. The commenter stated that during its review of the shift in case volume among MS-DRGs 466, 467, and 468, it identified inconsistencies in the assignment of cases to proposed new MS-DRGs 403 and 404 utilizing the Version 43 test GROUPER. The commenter provided examples of eight different test cases that included procedure codes from the list in Table 6P.6a that was made available in association with the proposed rule. According to the commenter's review, all eight cases should have resulted in assignment to the proposed new MS-DRGs 403 and 404; however, using the Version 43 test GROUPER, only four of the test cases grouped to proposed new MS-DRGs 403 and 404 while the remaining four test cases grouped to current MS-DRGs 463 or 464. The commenter stated that proposed new MS-DRGs 403 and 404 are proposed to be sequenced higher in the surgical hierarchy than existing MS-DRGs 463 and 464, therefore, the commenter requested an explanation regarding the accuracy of the Version 43 test GROUPER and the impact on the AOR/ BOR file. The commenter requested additional transparency with regard to the MS-DRG groupings, the Version 43 test GROUPER, and the AOR/BOR file. Additionally, the commenter stated that if the findings demonstrate inaccuracies, corrected versions should be made available. The commenter suggested that for future rulemaking CMS consider including further insight, rationale and transparency regarding any shifts in volume that may result from proposed changes to MS-DRG logic. Response: We appreciate the commenter's support and feedback. The commenter is correct that there is a redistribution (or shift) in cases among the MS-DRGs that were analyzed and discussed in the proposed rule (466, 467, and 468). We note that under the [[Page 36610]] GROUPER software program some collections of ICD-10-PCS procedure codes have a different set of attributes, independent of those of the codes that make them up (that is, their ``components''). These collections of ICD-10-PCS procedure codes are called clusters. A routine program in the GROUPER, upstream of the MS-DRG assignment logic, searches the claim for clusters. When a cluster is found, it is added to the list of procedures found on the claim. Clusters may be ``restricted'' by Major Diagnostic Category (MDC) and a restricted cluster inhibits the use of its procedure code component attributes for the MDC's MS-DRG assignment logic. For example, procedure code cluster 0SPC0JZ (Removal of synthetic substitute from right knee joint, open approach) and 0SRT0JZ (Replacement of right knee joint, femoral surface with synthetic substitute, open approach) may be recognized on a claim if both codes appear (in any order). The reporting of these codes creates a new procedure code cluster ``@0045''. The cluster @0045 has a different set of attributes than either code 0SPC0JZ or 0SRT0JZ by itself and is further ``restricted'' for MDC 08. When the GROUPER logic determines that the MDC is 08, it ignores the attributes of procedure codes 0SPC0JZ and 0SRT0JZ individually, only using those of @0045. This logic results in assignment of the claim to MS-DRGs 466, 467, and 468 (Revision of Hip or Knee Replacement with MCC, with CC, and without CC/ MCC, respectively) rather than MS-DRGs 463, 464, and 465 (Wound Debridement and Skin Graft Except Hand for Musculoskeletal and Connective Tissue Disorders with MCC, with CC, and without CC/MCC, respectively). If the principal diagnosis reported is not assigned under MDC 08, the cluster would not restrict the interpretation of the component codes and their individual attributes could be relevant as well as those of @0045. Following publication of the proposed rule, we identified that the intended grouping of cases to the proposed new MS-DRGs was impacted because of these cluster restrictions under MDC 08, therefore we removed the restrictions and performed additional analysis. As a result of removing the restrictions, and due to the existing overlapping procedure code logic among a subset of the MDC 08 MS-DRGs, our analysis showed that further redistribution of the cases under MDC 08 occurs, impacting the remaining number of cases in MS-DRGs 466, 467, and 468 and MS-DRGs 485, 486, and 487, such that, those MS-DRGs no longer satisfy the criteria for a 3-way split. Under our established process for applying the criteria to create subgroups within a base MS-DRG, existing MS-DRGs 466, 467, and 468 would be deleted and a new base MS- DRG for Revision of Hip or Knee Replacement would be established. Additionally, under this established process, existing MS-DRGs 485, 486, and 487 would be deleted and new MS-DRGs (2-way split) for Knee Procedures with Principal Diagnosis of Infection with and without MCC, respectively, would be established. Because these findings were not identified until after publication of the proposed rule, we believe it is appropriate to further consider the creation of proposed new MS-DRGs 403 and 404, along with the removal of the MDC 08 restrictions on the procedure code clusters and the potential implications for existing MS- DRGs 466, 467, and 468 and MS-DRGs 485, 486, and 487, as well as the creation of new MS-DRGs, in addition to having an updated test Grouper that reflects these potential changes. We also note that any future proposed MS-DRG changes may also impact the surgical hierarchy. After consideration of the public comments we received, and for the reasons described, we are not finalizing our proposal to create new MS- DRGs 403 and 404 (Hip or Knee Procedures with Principal Diagnosis of Periprosthetic Joint Infection with MCC and without MCC, respectively) for FY 2026. As noted, we may further consider these potential MS-DRG changes for future rulemaking. b. Arthroscopy In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18052 through 18054), we stated that consistent with our annual review of the MS- DRGs, we consider changes in resource consumption, treatment patterns, technology, and any other factors that may change the relative use of hospital resources. We noted that in our review of the claims data from the September 2024 update of the FY 2024 MedPAR file, we identified an extremely low volume of cases for MS-DRG 509 (Arthroscopy). Specifically, we found 16 cases with an average length of stay of 5.2 days and average costs of $18,239. An arthroscopy is a surgical procedure that allows orthopedic surgeons to see the inside of a joint through a small incision and with specialized instruments (for example, arthroscope). The ICD-10-PCS codes describing arthroscopy and currently assigned to MS-DRG 509 are shown in the following table. BILLING CODE 4120-01-P [[Page 36611]] [GRAPHIC] [TIFF OMITTED] TR04AU25.102 BILLING CODE 4120-01-C In light of our initial findings of 16 cases for MS-DRG 509, we further reviewed the MedPAR claims data for cases assigned to MS-DRG 509 for the past 5 fiscal years. As reflected in the following table, the data indicate that the number of cases grouping to MS-DRG 509 has steadily declined. [GRAPHIC] [TIFF OMITTED] TR04AU25.103 [[Page 36612]] We noted that, if, during our annual MS-DRG analysis we identify that there are only a few patients in a respective MS-DRG, consistent with our established process, we consider if there have been potential changes in the clinical characteristics of the patients, treatment patterns, or resource utilization. A principle of the MS-DRGs and the characteristics of a meaningful DRG classification scheme is the ability to detect such changes and accordingly, propose clinically appropriate modifications that are also consistent with resource utilization. We stated we believe that the volume of cases reporting the arthroscopy procedures in the inpatient setting has shifted to the outpatient setting over the years; it is usually performed as an outpatient procedure. Of the 16 cases found to report an arthroscopy procedure in the FY 2024 MedPAR data, 13 cases also reported another procedure. For example, one case that reported procedure code 0RJK4ZZ (Inspection of left shoulder joint, percutaneous endoscopic approach) also reported procedure code 0RBK4ZZ (Excision of left shoulder joint, percutaneous endoscopic approach). Procedure code 0RBK4ZZ is assigned to MS-DRGs 510, 511, and 512 (Shoulder, Elbow or Forearm Procedures, Except Major Joint Procedures with MCC, with CC, and without CC/MCC, respectively). However, because of the surgical hierarchy, the resulting assignment is MS-DRG 509. Using the September 2024 update of the FY 2024 MedPAR file, we also reviewed the base DRG by severity claims data for MS-DRG 509 to determine the number of cases, average length of stay and average costs for the 16 cases by severity level (1=MCC, 2=CC and 3=NonCC). Our findings are shown in the following table. [GRAPHIC] [TIFF OMITTED] TR04AU25.104 Next, we reviewed the claims data from the September 2024 update of the FY 2024 MedPAR file for MS-DRGs 510, 511, and 512 (Shoulder, Elbow or Forearm Procedures, Except Major Joint Procedures with MCC, with CC, and without CC/MCC, respectively); MS-DRGs 513 and 514 (Hand or Wrist Procedures, Except Major Thumb or Joint Procedures with CC/MCC and without CC/MCC, respectively); and MS-DRGs 515, 516, and 517 (Other Musculoskeletal System and Connective Tissue O.R. Procedures with MCC, with CC, and without CC/MCC, respectively) because these MS-DRGs are considered to be clinically appropriate and consistent with the arthroscopy procedure code descriptions in MS-DRG 509 previously listed that specify the anatomic site. Our findings are shown in the following tables. [GRAPHIC] [TIFF OMITTED] TR04AU25.105 Based on our analysis and review of the cases grouping to MS-DRG 509, we stated that we believe it is appropriate to delete MS-DRG 509 and reassign the 47 procedure codes describing arthroscopy of various anatomic sites to clinically appropriate MS-DRGs that also align with the resource utilization for these cases. For example, of the 16 cases found to group to MS-DRG 509, in addition to identifying 13 cases reporting additional procedures as previously discussed, we also identified 11 cases reporting diagnosis codes designated as a CC or MCC where the average length of stay and average costs of those cases are comparable with the average length of stay and average costs of the cases in the MS-DRGs considered clinically appropriate for their reassignment. Therefore, for FY 2026, of the 47 procedure codes previously listed describing arthroscopy of various anatomic sites, we proposed to do the following: Reassign the 8 procedure codes describing arthroscopy of the shoulder or elbow joint to MS-DRGs 510, 511, and 512 (Shoulder, Elbow or Forearm Procedures, Except Major Joint Procedures with MCC, with CC, and without CC/MCC, respectively). Reassign the 10 procedure codes describing arthroscopy of the hand or wrist joint to MS-DRGs 513 and 514 (Hand or Wrist Procedures, Except Major Thumb or Joint Procedures with CC/MCC and without CC/MCC, respectively). Reassign the 29 procedure codes describing arthroscopy of various vertebral joints and other [[Page 36613]] musculoskeletal joints to MS-DRGs 515, 516, and 517 (Other Musculoskeletal System and Connective Tissue O.R. Procedures with MCC, with CC, and without CC/MCC, respectively). We refer the reader to Table 6P.7a made publicly available in association with the proposed rule and available at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps for the detailed list of procedure codes with the proposed MS-DRG reassignments. Comment: Commenters supported our proposal to delete MS-DRG 509 and to reassign the 47 procedure codes describing arthroscopy of various anatomic sites to the proposed clinically appropriate MS-DRGs. Response: We thank the commenters for their support. After consideration of the public comments we received, we are finalizing, without modification, our proposal to delete MS-DRG 509 and to reassign the 47 procedure codes describing arthroscopy of various anatomic sites to clinically appropriate MS-DRGs, as reflected in Table 6P.7a in association with this final rule and available at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps. c. MS-DRG Logic for MS-DRGs 456, 457, and 458 As discussed in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18054 through 18056), we identified an inconsistency in the GROUPER logic for MS-DRGs 456, 457, and 458 (Spinal Fusion Except Cervical with Spinal Curvature, Malignancy, Infection or Extensive Fusions with MCC, with CC, and without CC/MCC, respectively) related to the ICD-10-CM diagnosis codes describing a principal diagnosis of infection. The logic for case assignment to MS-DRGs 456, 457, and 458 as displayed in the ICD-10 MS-DRG Definitions Manual Version 42.1 (which is available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software) is comprised of four logic lists. The first logic list is titled ``Spinal Fusion Except Cervical'' and is defined by a list of procedure codes designated as O.R. procedures that describe spinal fusion procedures of the thoracic, thoracolumbar, lumbar, lumbosacral, sacrococcygeal, and sacroiliac joint. (We note that 12 procedure codes describing Fusion of coccygeal joint were deleted effective with discharges beginning April 1, 2025 in version 42.1). The second logic list is titled ``Spinal Curvature/Malignancy/Infection'' and is defined by a list of diagnosis codes describing spinal curvature, spinal malignancy, and spinal infection that are used to define the logic for case assignment when any one of the listed diagnosis codes is reported as the principal diagnosis. The third logic list is titled ``OR Secondary Diagnosis'' and is defined by a list of diagnosis codes describing curvature of the spine that are used to define the logic for case assignment when any one of the listed codes is reported as a secondary diagnosis. The fourth logic list is titled ``Extensive Fusions'' and is defined by a list of procedure codes designated as O.R. procedures that describe extensive spinal fusion procedures. We refer the reader to the ICD-10 MS-DRG Definitions Manual Version 42.1, (available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software) for complete documentation of the GROUPER logic for MS- DRGs 456, 457, and 458. In the second logic list titled ``Spinal Curvature/Malignancy/ Infection'' there are a subset of diagnosis codes describing spinal infections. We stated in the proposed rule that in our review and analysis of MS-DRGs 456, 457, and 458, we identified additional diagnosis codes within the ICD-10-CM classification describing spinal infections that are not currently listed in the logic for case assignment to MS-DRGs 456, 457, and 458. Specifically, we identified the following 47 diagnoses that we believe are clinically appropriate to add to the existing diagnosis codes describing spinal infections in MS-DRGs 456, 457, and 458. BILLING CODE 4120-01-P [[Page 36614]] [GRAPHIC] [TIFF OMITTED] TR04AU25.106 BILLING CODE 4120-01-C Therefore, for clinical consistency and because these codes describe spinal infections that could reasonably require a spinal fusion procedure, we proposed to add the previously listed diagnosis codes to the logic list titled ``Spinal Curvature/Malignancy/ Infection'' in MS-DRGs 456, 457, and 458, effective October 1, 2025 for FY 2026. We also identified eight diagnosis codes currently listed in the second logic list titled ``Spinal Curvature/Malignancy/Infection'' for case assignment to MS-DRGs 456, 457, and 458 that we believe are not clinically appropriate to maintain in the list. Specifically, we identified the following diagnoses. [[Page 36615]] [GRAPHIC] [TIFF OMITTED] TR04AU25.107 The previously listed diagnosis codes do not describe a spinal curvature, malignancy or infection, rather they describe compression fractures of various anatomic sites (for example, collapsed vertebra) and osteoporosis is a condition where the bones become weakened leading to an increased risk of bone fracture. Therefore, for clinical consistency and to ensure accuracy in the logic for case assignment, we proposed to remove the eight previously listed diagnosis codes from the logic list titled ``Spinal Curvature/Malignancy/Infection'' in MS-DRGs 456, 457, and 458, effective October 1, 2025 for FY 2026. Comment: Commenters supported our proposal to add the previously listed 47 diagnosis codes to the logic list titled ``Spinal Curvature/ Malignancy/Infection'' in MS-DRGs 456, 457, and 458, and our proposal to delete the eight previously listed diagnosis codes from the logic list titled ``Spinal Curvature/Malignancy/Infection'' in MS-DRGs 456, 457, and 458. Response: We thank the commenters for their support. After consideration of the public comments we received, we are finalizing, without modification, our proposal to add the previously listed 47 diagnosis codes to the logic list titled ``Spinal Curvature/ Malignancy/Infection'' in MS-DRGs 456, 457, and 458, effective October 1, 2025 for FY 2026. We are also finalizing, without modification, our proposal to remove the eight previously listed diagnosis codes from the logic list titled ``Spinal Curvature/Malignancy/Infection'' in MS-DRGs 456, 457, and 458, effective October 1, 2025 for FY 2026.

6. Review of Procedure Codes in MS-DRGs 981 Through 983 and 987 Through

989 We annually conduct a review of procedures producing assignment to MS-DRGs 981 through 983 (Extensive O.R. Procedure Unrelated to Principal Diagnosis with MCC, with CC, and without CC/MCC, respectively) or MS-DRGs 987 through 989 (Non-Extensive O.R. Procedure Unrelated to Principal Diagnosis with MCC, with CC, and without CC/MCC, respectively) on the basis of volume, by procedure, to see if it would be appropriate to move cases reporting these procedure codes out of these MS-DRGs into one of the surgical MS-DRGs for the MDC into which the principal diagnosis falls. The data are arrayed in two ways for comparison purposes. We look at a frequency count of each major operative procedure code. We also compare procedures across MDCs by volume of procedure codes within each MDC. We use this information to determine which procedure codes and diagnosis codes to examine. We identify those procedures occurring in conjunction with certain principal diagnoses with sufficient frequency to justify adding them to one of the surgical MS-DRGs for the MDC in which the diagnosis falls. We also consider whether it would be more appropriate to move the principal diagnosis codes into the MDC to which the procedure is currently assigned. Based on the results of our review of the claims data from the September 2024 update of the FY 2024 MedPAR file of cases found to group to MS-DRGs 981 through 983 or MS-DRGs 987 through 989, we proposed to move the cases reporting the procedures and/or principal diagnosis codes described in this section of this rule from MS-DRGs 981 through 983 or MS-DRGs 987 through 989 into one of the surgical MS-DRGs for the MDC into which the principal diagnosis or procedure is assigned. a. Control of Bleeding in the Genitourinary Tract As discussed in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18056 through 18057), during the review of the cases that group to MS- DRGs 981 through 983, we noted that when ICD-10-PCS procedure codes describing the control of bleeding in the genitourinary tract are reported in conjunction with ICD-10-CM diagnosis codes in MDC 16 (Diseases and Disorders of Blood, Blood Forming Organs, and Immunologic Disorders), the cases group to MS-DRGs 981 through 983. The five ICD- 10-CM procedure codes reviewed, as well as their current MDC assignments, are found in the table: [GRAPHIC] [TIFF OMITTED] TR04AU25.108 We refer the reader to Appendix E of the ICD-10 MS-DRG Version 42.1 Definitions Manual, which is available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps.html, for the MS-DRG assignment for each procedure code listed and further discussion of how each procedure code may be assigned to multiple MDCs and MS-DRGs under the IPPS. The principal diagnosis most frequently reported with the five ICD- 10-PCS procedure codes describing the control of bleeding in the genitourinary tract in MDC 16 is ICD-10-CM code D68.32 (Hemorrhagic disorder due to extrinsic circulating anticoagulants). Hemorrhagic disorder due to extrinsic circulating anticoagulants is a condition [[Page 36616]] that occurs when bleeding is caused by anticoagulants or antithrombotics, which are medicines commonly used to treat or prevent blood clots by decreasing the amount of clotting proteins in the blood. As noted in the proposed rule, we examined claims data from the September 2024 update of the FY 2024 MedPAR file to identify the average length of stay and average costs for cases reporting a procedure code describing the control of bleeding in the genitourinary tract with a principal diagnosis in MDC 16, which are currently grouping to MS-DRGs 981 through 983, as well as all cases in MS-DRGs 981 through 983. Our findings are shown in the following table. [GRAPHIC] [TIFF OMITTED] TR04AU25.109 We then examined the MS-DRGs within MDC 16 and determined that the cases reporting procedure codes describing the control of bleeding in the genitourinary tract with a principal diagnosis in MDC 16 would most suitably group to MS-DRGs 802, 803, and 804 (Other O.R. Procedures of the Blood and Blood Forming Organs with MCC, with CC, and without CC/ MCC, respectively), which contains a group of procedures that are only infrequently related to the diagnoses in the MDC, but are still occasionally performed on patients with cases assigned to the MDC with these diagnoses. To determine how the resources for this subset of cases compared to cases in MS-DRGs 802, 803, and 804 as a whole, we stated in the proposed rule we examined the average costs and length of stay for cases in MS-DRGs 802, 803, and 804. Our findings are shown in this table. [GRAPHIC] [TIFF OMITTED] TR04AU25.110 We reviewed the data and noted in the proposed rule that for this subset of cases, the average costs are lower and the average length of stays are generally shorter than for cases in MS-DRGs 802, 803, and 804. However, we stated we believe that when an ICD-10-PCS procedure code describing the control of bleeding in the genitourinary tract is reported with a principal diagnosis in MDC 16 (typically hemorrhagic disorder due to extrinsic circulating anticoagulants), the procedure is related to the principal diagnosis. Because a procedure code describing the control of bleeding in the genitourinary tract would be expected to be related to a principal diagnosis describing a hemorrhagic disorder due to extrinsic circulating anticoagulants, it is clinically appropriate for the procedures to group to the same MS-DRGs as the principal diagnoses. Therefore, we proposed to add the five procedure codes listed previously to MDC 16. Under this proposal, cases reporting a procedure code describing the control of bleeding in the genitourinary tract with a principal diagnosis of a hemorrhagic disorder due to extrinsic circulating anticoagulants (diagnosis code D68.32) in MDC 16 would group to MS-DRGs 802, 803, and 804. Comment: Commenters supported the proposal to add ICD-10-PCS procedure codes 0W3R0ZZ, 0W3R3ZZ, 0W3R4ZZ, 0W3R7ZZ, and 0W3R8ZZ to MDC 16 (Diseases and Disorders of Blood, Blood Forming Organs and Immunologic Disorders). Response: We appreciate the commenters' support. After consideration of the public comments we received, we are finalizing our proposal to add ICD-10-PCS procedure codes 0W3R0ZZ, 0W3R3ZZ, 0W3R4ZZ, 0W3R7ZZ, and 0W3R8ZZ to MDC 16, without modification, for FY 2026. Under this finalization, cases reporting a procedure code describing the control of bleeding in the genitourinary tract with a principal diagnosis of a hemorrhagic disorder due to extrinsic circulating anticoagulants (diagnosis code D68.32) in MDC 16 would group to MS-DRGs 802, 803, and 804. b. Removal of Infusion Device From Peritoneal Cavity As discussed in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18057 through 18058), during the review of the [[Page 36617]] cases that group to MS-DRGs 981 through 983, we noted that when ICD-10- PCS procedure codes describing the removal of an infusion device from the peritoneal cavity are reported in conjunction with ICD-10-CM diagnosis codes in MDC 21 (Injuries, Poisonings and Toxic Effects of Drugs), the cases group to MS-DRGs 981 through 983. In the proposed rule, we included the following table, listing the three ICD-10-PCS procedure codes reviewed, and indicating current assignment to MDCs 06 and 21: [GRAPHIC] [TIFF OMITTED] TR04AU25.111 In this final rule, we are correcting this display to reflect that ICD-10-PCS code 0WPG33Z is not currently assigned to MDC 21. We note that, in ICD-10 MS-DRGs Definitions Manual Version 42.1, ICD-10-PCS codes 0WPG03Z and 0WPG43Z are assigned to MDC 21 MS-DRGs 907, 908, and 909 (Other O.R. Procedures for Injuries with MCC, with CC, and without CC/MCC, respectively). ICD-10-PCS code 0WPG33Z is assigned to MDC 06 MS-DRGs 356, 357 and 358 (Other Digestive System O.R. Procedures with MCC, with CC, and without CC/MCC, respectively). We list in the following table the ICD-10-PCS procedure codes describing the removal of an infusion device from the peritoneal cavity and their corresponding MS-DRG assignments in the ICD-10 MS-DRGs Definitions Manual Version 42.1. [GRAPHIC] [TIFF OMITTED] TR04AU25.112 We refer the reader to Appendix E of the ICD-10 MS-DRG Version 42.1 Definitions Manual (which is available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps.html) for the MS-DRG assignment for each procedure code listed and further discussion of how each procedure code may be assigned to multiple MDCs and MS-DRGs under the IPPS. As discussed in the proposed rule, the principal diagnosis most frequently reported with the three ICD-10-PCS procedure codes describing the removal of an infusion device from the peritoneal cavity in MDC 21 is ICD-10-CM code T85.71XA (Infection and inflammatory reaction due to peritoneal dialysis catheter, initial encounter). We stated we examined claims data from the September 2024 update of the FY 2024 MedPAR file to identify the average length of stay and average costs for cases reporting a procedure code describing the removal of an infusion device from the peritoneal cavity with a principal diagnosis in MDC 21, which are currently grouping to MS-DRGs 981 through 983, as well as all cases in MS-DRGs 981 through 983. Our findings are shown in the following table. [[Page 36618]] [GRAPHIC] [TIFF OMITTED] TR04AU25.113 We then examined the MS-DRGs within MDC 21 and determined that the cases reporting procedure codes describing the removal of an infusion device from the peritoneal cavity with a principal diagnosis in MDC 21 would most suitably group to MS-DRGs 907, 908, and 909 (Other O.R. Procedures for Injuries with MCC, with CC, and without CC/MCC, respectively), which contains other operating room procedures performed for injuries as further detailed later in this section. To determine how the resources for this subset of cases compared to cases in MS-DRGs 907, 908, and 909 as a whole, we examined the average costs and length of stay for cases in MS-DRGs 907, 908, and 909. Our findings are shown in the following table. [GRAPHIC] [TIFF OMITTED] TR04AU25.114 As discussed in the proposed rule, we reviewed the data and noted for the subset of cases reporting procedure codes describing the removal of an infusion device from the peritoneal cavity with a principal diagnosis in MDC 21, the average costs are lower and the average lengths of stay are shorter than for cases in MS-DRGs 907, 908, and 909. However, we stated we believe that when an ICD-10-PCS procedure code describing the removal of an infusion device from the peritoneal cavity is reported with a principal diagnosis in MDC 21 (typically infection and inflammatory reaction due to peritoneal dialysis catheter), the procedure is related to the principal diagnosis. Because a procedure code describing the removal of an infusion device from the peritoneal cavity would be expected to be related to a principal diagnosis describing an infected catheter used for peritoneal dialysis causing inflammation in the surrounding tissue, we stated it is clinically appropriate for the procedures to group to the same MS-DRGs as the principal diagnoses. Therefore, we proposed to add the three procedure codes listed previously to MDC 21. We stated that under this proposal, cases reporting a procedure code describing the removal of an infusion device from the peritoneal cavity with a principal diagnosis of an infection and inflammatory reaction due to peritoneal dialysis catheter, initial encounter (diagnosis code T85.71XA) in MDC 21 would group to MS-DRGs 907, 908, and 909. Comment: Commenters supported the proposal to add procedure codes describing the removal of an infusion device from the peritoneal cavity to MDC 21 (Injuries, Poisonings and Toxic Effects of Drugs). Response: We appreciate the commenters' support. As discussed previously, in ICD-10 MS-DRGs Definitions Manual Version 42.1, ICD-10-PCS codes 0WPG03Z and 0WPG43Z are already assigned to MDC 21 MS-DRGs 907, 908, and 909 (Other O.R. Procedures for Injuries with MCC, with CC, and without CC/MCC, respectively). Therefore, after consideration of the public comments we received, for the reasons discussed, we are finalizing our proposal with modification. Specifically, we are finalizing our proposal to add ICD-10-PCS code 0WPG33Z to MDC 21 for FY 2026. Under this finalization, cases reporting procedure code 0WPG33Z (Removal of infusion device from peritoneal cavity, percutaneous approach) with a principal diagnosis of an infection and inflammatory reaction due to peritoneal dialysis catheter, initial encounter (diagnosis code T85.71XA) in MDC 21 would group to MS-DRGs 907, 908, and 909. In addition to the internal review of procedures producing assignment to MS-DRGs 981 through 983 or MS-DRGs 987 through 989, as discussed in the proposed rule, we also consider requests that we receive to examine cases found to group to MS-DRGs 981 through 983 or MS-DRGs 987 through 989 to determine if it would be appropriate to add procedure codes to one of the surgical MS-DRGs for the MDC into which the principal diagnosis falls or to move the principal diagnosis to the surgical MS-DRGs to which the procedure codes are assigned. We stated we did not receive any requests suggesting reassignment. We also review the list of ICD-10-PCS procedures that, when in combination with their principal diagnosis code, result in assignment to MS DRGs 981 through 983, or 987 through 989, to ascertain whether any of those procedures should be reassigned from one of those two groups of MS-DRGs to the other group of MS-DRGs [[Page 36619]] based on average costs and the average length of stay. We look at the data for trends such as shifts in treatment practice or reporting practice that would make the resulting MS-DRG assignment illogical. If we find these shifts, we will propose to move cases to keep the MS-DRGs clinically similar or to propose MS-DRG assignments for the cases in a similar manner. Generally, we propose to move only those procedures for which we have an adequate number of discharges to analyze the data. Additionally, we also consider requests that we receive to examine cases found to group to MS-DRGs 981 through 983 or MS-DRGs 987 through 989 to determine if it would be appropriate for the cases to be reassigned from one of the MS-DRG groups to the other. We stated we did not receive any requests suggesting reassignment. Further, based on the results of our review of the claims data from the September 2024 update of the FY 2024 MedPAR file we stated we did not identify any cases for reassignment. Therefore, for FY 2026 we did not propose to move any cases reporting procedure codes from MS-DRGs 981 through 983 to MS-DRGs 987 through 989 or vice versa. Comment: Commenters expressed support for CMS' proposal to not move any cases reporting procedure codes from MS-DRGs 981 through 983 to MS- DRGs 987 through 989 or vice versa. Response: We appreciate the commenters' support. After consideration of the public comments we received, we are finalizing, without modification, our proposal to not move any cases reporting procedure codes from MS-DRGs 981 through 983 to MS-DRGs 987 through 989 or vice versa.

7. Operating Room (O.R.) and Non-O.R. Procedures

a. Background Under the IPPS MS-DRGs (and former CMS MS-DRGs), we have a list of procedure codes that are considered operating room (O.R.) procedures. Historically, we developed this list using physician panels that classified each procedure code based on the procedure and its effect on consumption of hospital resources. For example, generally the presence of a surgical procedure which required the use of the operating room would be expected to have a significant effect on the type of hospital resources (for example, operating room, recovery room, and anesthesia) used by a patient, and therefore, these patients were considered surgical. Because the claims data generally available do not precisely indicate whether a patient was taken to the operating room, surgical patients were identified based on the procedures that were performed. Generally, if the procedure was not expected to require the use of the operating room, the patient would be considered medical (non-O.R.). Currently, each ICD-10-PCS procedure code has designations that determine whether and in what way the presence of that procedure on a claim impacts the MS-DRG assignment. First, each ICD-10-PCS procedure code is either designated as an O.R. procedure for purposes of MS-DRG assignment (``O.R. procedures'') or is not designated as an O.R. procedure for purposes of MS-DRG assignment (``non-O.R. procedures''). Second, for each procedure that is designated as an O.R. procedure, that O.R. procedure is further classified as either extensive or non- extensive. Third, for each procedure that is designated as a non-O.R. procedure, that non-O.R. procedure is further classified as either affecting the MS-DRG assignment or not affecting the MS-DRG assignment. We refer to these designations that do affect MS-DRG assignment as ``non O.R. affecting the MS-DRG.'' For new procedure codes that have been finalized through the ICD-10 Coordination and Maintenance Committee meeting process and are proposed to be classified as O.R. procedures or non-O.R. procedures affecting the MS-DRG, we recommend the MS-DRG assignment which is then made available in association with the proposed rule (Table 6B.--New Procedure Codes) and subject to public comment. These proposed assignments are generally based on the assignment of predecessor codes or the assignment of similar codes. For example, we generally examine the MS-DRG assignment for similar procedures, such as the other approaches for that procedure, to determine the most appropriate MS-DRG assignment for procedures proposed to be newly designated as O.R. procedures. As discussed in section II.C.13 of the preamble of this FY 2026 IPPS/LTCH PPS final rule, we are making Table 6B.--New Procedure Codes--FY 2026 available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps.html. We also refer readers to the ICD-10 MS-DRG Version 42.1 Definitions Manual at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software.html for detailed information regarding the designation of procedures as O.R. or non-O.R. (affecting the M-DRG) in Appendix E--Operating Room Procedures and Procedure Code/MS-DRG Index. In the FY 2020 IPPS/LTCH PPS proposed rule, we stated that, given the long period of time that has elapsed since the original O.R. (extensive and non-extensive) and non-O.R. designations were established, the incremental changes that have occurred to these O.R. and non-O.R. procedure code lists, and changes in the way inpatient care is delivered, we plan to conduct a comprehensive, systematic review of the ICD-10-PCS procedure codes. This will be a multiyear project during which we will also review the process for determining when a procedure is considered an operating room procedure. For example, we may restructure the current O.R. and non-O.R. designations for procedures by leveraging the detail that is now available in the ICD-10 claims data. We refer readers to the discussion regarding the designation of procedure codes in the FY 2018 IPPS/LTCH PPS final rule (82 FR 38066) where we stated that the determination of when a procedure code should be designated as an O.R. procedure has become a much more complex task. This is, in part, due to the number of various approaches available in the ICD-10-PCS classification, as well as changes in medical practice. While we have typically evaluated procedures on the basis of whether or not they would be performed in an operating room, we believe that there may be other factors to consider with regard to resource utilization, particularly with the implementation of ICD-10. We discussed in the FY 2020 IPPS/LTCH PPS proposed rule (84 FR 19230) that, as a result of this planned review and potential restructuring, procedures that are currently designated as O.R. procedures may no longer warrant that designation, and conversely, procedures that are currently designated as non-O.R. procedures may warrant an O.R. designation. We intend to consider the resources used and how a procedure should affect the MS-DRG assignment. We may also consider the effect of certain surgical approaches to evaluate whether to subdivide a subset of MS-DRGs based on a specific surgical approach. We stated we plan to utilize our available MedPAR claims data as a basis for this review and the input of our clinical advisors. As part of this comprehensive review of the procedure codes, we also intend to evaluate the MS-DRG assignment of the procedures and the current surgical hierarchy [[Page 36620]] because both of these factor into the process of refining the ICD-10 MS-DRGs to better recognize complexity of service and resource utilization. In the FY 2021 IPPS/LTCH PPS final rule (85 FR 58540 through 58541), we provided a summary of the comments we had received in response to our request for feedback on what factors or criteria to consider in determining whether a procedure is designated as an O.R. procedure in the ICD-10-PCS classification system for future consideration. We also stated that in consideration of the PHE, we believed it may be appropriate to allow additional time for the claims data to stabilize prior to selecting the timeframe to analyze for this review. As discussed in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18059 through 18060), we stated we continue to believe additional time is necessary as we continue to develop our process and methodology. As discussed in the FY 2024 IPPS/LTCH PPS final rule (88 FR 58749), we have signaled in prior rulemaking that the designation of an O.R. procedure encompasses more than the physical location of the hospital room in which the procedure may be performed; in other words, the performance of a procedure in an operating room is not the sole determining factor we will consider as we examine the designation of a procedure in the ICD-10-PCS classification system. We stated we are exploring alternatives on how we may restructure the current O.R. and non-O.R. designations for procedures by leveraging the detail that is available in the ICD-10 claims data. We are considering the feedback received on what factors and/or criteria to consider in determining whether a procedure is designated as an O.R. procedure in the ICD-10- PCS classification system as we continue to develop our process and methodology and will provide more detail on this analysis and the methodology for conducting this comprehensive review in future rulemaking. We encourage the public to continue to submit feedback and comments on any other factors in consideration of our refinement efforts to recognize and differentiate consumption of resources under the ICD-10 MS-DRGs. Comment: Commenters supported CMS' plan to continue to conduct the comprehensive, systematic review of the ICD-10-PCS codes and to evaluate their current O.R. and non-O.R. designations. These commenters expressed that they were supportive of CMS' decision to continue to develop our process and methodology. A commenter stated they agreed that the revolution in medical procedures in recent years may render the performance of a procedure in an O.R. a less critical distinction in driving payment policy and stated that because of technological advances, sophisticated, resource-intensive procedures are no longer confined to the O.R. setting and noted that in their observation, bi- plane radiology interventional suites and cardiac catheterization labs used for procedures such as mechanical thrombectomy or endovascular coiling for aneurysms can utilize more advanced equipment and supplies than a basic operating room with minimal installed equipment. This commenter recommended that CMS provide detailed impact files prior to the adoption of changes to the designation of procedure codes in the ICD-10-PCS classification and stated that they look forward to commenting on CMS' data analysis and methodology in the future. As part of the broader and continuing conversation about the designations of procedures in the ICD-10-PCS classification system, a commenter recommended that CMS work closely with physician specialty societies and industry stakeholders to identify the most important drivers of complexity and resource use in the hospital setting. Another commenter specifically recommended that CMS include nurse representatives when reviewing methodologies for determining the designation of procedure codes in the ICD-10-PCS classification system and noted that nurses are an integral part of the healthcare team, work closely with physicians in the operating room and have firsthand knowledge and experience to know what hospital resources are needed for procedures. This commenter further stated that omitting nurses only serves to discount their perspectives and could result in decision making that does not fully capture the hospital resources needed. Response: We thank the commenters for their support. We also thank commenters for sharing their views and their willingness to provide feedback and recommendations as to what factors to consider in evaluating O.R. versus non-O.R. designations. We agree with commenters and believe that there may be other factors to consider with regard to resource utilization, particularly with the implementation of ICD-10. While CMS has already convened an internal team comprised of clinicians, consultants, coding specialists and other policy analysts, as well as provided the opportunity for interested parties to provide feedback as to what factors to consider in evaluating O.R. versus non- O.R. designations, we look forward to further input and feedback from interested parties, including nurses. As discussed in the proposed rule, we are considering the feedback received to date on what factors and/or criteria to consider in determining whether a procedure is designated as an O.R. procedure in the ICD-10-PCS classification system as we continue to develop our process and methodology and will provide more detail on this analysis and the methodology for conducting this comprehensive review in future rulemaking. As part of this comprehensive review of the procedure codes, we are also considering renaming the designations that determine whether and in what way the presence of that procedure on a claim impacts the MS-DRG assignment (that is, ``O.R. procedures'', ``non-O.R. procedures'', or ``non O.R. affecting the MS-DRG'') for consistency. As discussed in prior rulemaking and earlier in this section of the preamble of this final rule, we have signaled that the performance of a procedure in an operating room is not the sole determining factor we will consider as we examine the designation of a procedure in the ICD-10-PCS classification system. We encourage the public to continue to submit comments and feedback on any other factors to consider in our refinement efforts to recognize and differentiate consumption of resources for procedures within the ICD-10 MS-DRGs under the IPPS. As discussed in the FY 2026 IPPS/LTCH PPS proposed rule, we received requests regarding changing the designation of specific ICD- 10-PCS procedure codes from non-O.R. to O.R. procedures. In this section of the preamble of this FY 2026 IPPS/LTCH PPS final rule, as we did in the proposed rule, we summarize and respond to those requests. In this section of the preamble of this final rule, we also discuss the proposal we made based on our internal review and analysis and the process that was utilized for evaluating each procedure code. For each procedure, we considered-- Whether the procedure would typically require the resources of an operating room; Whether it is an extensive or a non-extensive procedure; and To which MS-DRGs the procedure should be assigned. We note that many MS-DRGs require the presence of any O.R. procedure. As a result, cases with a principal diagnosis associated with a particular MS-DRG would, by default, be grouped to that MS-DRG. Therefore, we do not list these MS-DRGs in our discussion in this section of the preamble of this FY [[Page 36621]] 2026 IPPS/LTCH PPS final rule. Instead, we only discuss MS-DRGs that require explicitly adding the relevant procedure codes to the GROUPER logic in order for those procedure codes to affect the MS-DRG assignment as intended. For procedures that would not typically require the resources of an operating room, we determined if the procedure should affect the MS-DRG assignment. In cases where we proposed to change the designation of procedure codes from non-O.R. procedures to O.R. procedures, we also proposed one or more MS-DRGs with which these procedures are clinically aligned and to which the procedure code would be assigned. In addition, cases that contain O.R. procedures will map to MS-DRGs 981, 982, or 983 (Extensive O.R. Procedure Unrelated to Principal Diagnosis with MCC, with CC, and without CC/MCC, respectively) or MS- DRGs 987, 988, or 989 (Non-Extensive O.R. Procedure Unrelated to Principal Diagnosis with MCC, with CC, and without CC/MCC, respectively) when they do not contain a principal diagnosis that corresponds to one of the MDCs to which that procedure is assigned. These procedures need not be assigned to MS-DRGs 981 through 989 in order for this to occur. Therefore, we did not specifically address that aspect in summarizing the request and our response to that request or the proposal we made based on our internal review and analysis in the proposed rule and in this section of the preamble of this FY 2026 IPPS/LTCH PPS final rule. b. Non-O.R. Procedures to O.R. Procedures (1) Open Drainage of the Mandible In the FY 2022 IPPS/LTCH PPS final rule (86 FR 44895 through 44896), we discussed a request we received to change the designation of procedure codes 0N9R0ZZ (Drainage of maxilla, open approach), 0N9T0ZZ (Drainage of right mandible, open approach), and 0N9V0ZZ (Drainage of left mandible, open approach), from non-O.R. to O.R. procedures. In the FY 2022 final rule, we stated that we disagreed that the procedures describing the open drainage of the maxilla or mandible typically require the resources of an operating room. We stated that if admission is required for the treatment of a jaw infection, the admission is quite likely due to the need for IV antibiotics as opposed to the need for operating room resources in an inpatient setting. After consideration of the public comments we received, we finalized our proposal to maintain the non-O.R. designation of ICD-10-PCS procedure codes 0N9R0ZZ, 0N9T0ZZ, and 0N9V0ZZ, without modification, for FY 2022. As discussed in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18060 through 18061), we again received a request to change the designation of ICD-10-PCS codes 0N9T0ZZ (Drainage of right mandible, open approach), and 0N9V0ZZ (Drainage of left mandible, open approach), from non-O.R. to O.R. The requestor identified procedure code 0W950ZZ (Drainage of lower jaw, open approach) that is currently designated as an O.R. procedure and stated that the body part value of mandible is more specific than the body part value of lower jaw. The requestor also stated that in the ICD-10-PCS classification, other procedure codes that describe drainage procedures performed on body parts deeper than subcutaneous tissue, such as muscles, tendons, and bone, are designated as O.R. procedures. Therefore, the requestor stated that procedure codes 0N9T0ZZ and 0N9V0ZZ should also be recognized as O.R. procedures for purposes of MS-DRG assignment. The requestor did not provide a specific list of the procedure codes that describe drainage procedures performed on body parts deeper than subcutaneous tissue, such as muscles, tendons, and bone, that are currently designated as O.R. procedures for CMS to review. In the ICD-10 MS-DRGs Definitions Manual Version 42.1, procedure codes 0N9T0ZZ and 0N9V0ZZ are currently designated as non-O.R. procedures for purposes of MS-DRG assignment. We reviewed this issue and in the proposed rule, we stated we continue to disagree that the procedures describing the open drainage of the mandible are typically performed in the operating room under general anesthesia. As discussed in the FY 2022 IPPS/LTCH PPS final rule (86 FR 44896), these procedures can be done in an oral surgeon's office, or an outpatient setting and are rarely performed in the inpatient setting. Therefore, we proposed to maintain the current non-O.R. designation of ICD-10-PCS procedure codes 0N9T0ZZ and 0N9V0ZZ. Comment: A commenter opposed CMS' proposal to maintain the current non-O.R. designation of ICD-10-PCS procedure codes 0N9T0ZZ (Drainage of right mandible, open approach), and 0N9V0ZZ (Drainage of left mandible, open approach) and stated when performed in the inpatient setting, these procedures often involve complex infectious disease cases requiring significant resources. This commenter stated that their analysis and clinical experience suggest that these procedures, when performed on hospitalized patients, are substantially different and more complex when compared to routine outpatient drainage procedures and more closely align with other O.R.-designated procedures in terms of resource utilization. The commenter further stated that the infectious nature of these cases specifically requires additional resources beyond the procedure itself, including extended antimicrobial therapy, infectious diseases consultation and potential management of sepsis or other systemic complications. Response: We thank the commenter for their feedback. We reviewed the commenter's concerns and continue to support maintaining the current non-O.R. designation of the procedure codes describing open drainage of the mandible and disagree that the procedures describing the open drainage of the mandible typically require the resources of an operating room. We continue to believe if admission is required for the treatment of a jaw infection, the admission is quite likely due to the need for IV antibiotics as opposed to the need for operating room resources in an inpatient setting. In response to the issues raised by this commenter, we examined claims data from the September 2024 update of the FY 2024 MedPAR file for cases reporting 0N9T0ZZ or 0N9V0ZZ. Our findings are shown in the following table. BILLING CODE 4120-01-P [[Page 36622]] [GRAPHIC] [TIFF OMITTED] TR04AU25.115 BILLING CODE 4120-01-C As shown in the table, we found a total of 29 cases reporting procedure codes 0N9T0ZZ or 0N9V0ZZ across the MS-DRGs, demonstrating that procedures that describe open drainage of the mandible are infrequently performed in the inpatient setting. Our data findings also demonstrate, generally, the cases reporting procedures describing the open drainage of the mandible have average costs that are lower than the average costs of all cases in their respective MS-DRGs, while the average lengths of stay are shorter. Therefore, after consideration of the public comments we received, for the reasons stated, we are finalizing our proposal to maintain the current non-O.R. designation of ICD-10-PCS procedure codes 0N9T0ZZ and 0N9V0ZZ, without modification, for FY 2026. In our review of this issue, in the proposed rule, we stated we agree with the requestor that in the ICD-10 MS-DRGs Definitions Manual Version 42.1, procedure code 0W950ZZ (Drainage of lower jaw, open approach) is currently designated as an O.R. procedure for purposes of MS-DRG assignment. While we have stated in prior rulemaking that a correlation cannot be made between procedures performed in general anatomic regions and procedures performed in specific body parts because these procedures coded with the general anatomic regions body part represent a broader range of procedures that cannot be coded to a specific body part, we stated we continue to believe if admission is required for the treatment of a jaw infection, the admission is quite likely due to the need for IV antibiotics as opposed to the need for operating room resources in an inpatient setting. Like procedures that describe open drainage of the mandible, procedures to drain the lower jaw can also be done in an oral surgeon's office or an outpatient setting and are rarely performed in the inpatient setting. In the proposed rule we stated we agree that procedures that describe open drainage of the mandible consume resources comparable to the related ICD-10-PCS procedure code that describes the open drainage of the jaw. These procedures do not typically require the resources of an operating room and are not surgical in nature. Therefore, for clinical consistency, we proposed to remove procedure code 0W950ZZ (Drainage of lower jaw, open approach) from the FY 2026 ICD-10 MS-DRGs Version 43 Definitions Manual in Appendix E--Operating Room Procedures and Procedure Code/MS-DRG Index as an O.R. procedure. Under this proposal, this procedure [[Page 36623]] would no longer impact MS-DRG assignment. Comment: Commenters supported CMS' proposal to remove procedure code 0W950ZZ from the FY 2026 ICD-10 MS-DRGs Version 43 Definitions Manual in Appendix E--Operating Room Procedures and Procedure Code/MS- DRG Index as an O.R. procedure. Response: We appreciate the commenters' support. After consideration of the public comments we received, we are finalizing our proposal to change the designation of procedure code 0W950ZZ (Drainage of lower jaw, open approach) from O.R. procedure to non-O.R. procedure, without modification, effective October 1, 2025. Under this finalization, this procedure code would no longer impact MS- DRG assignment. (2) Introduction of Paclitaxel-Coated Balloon Catheter Technology In the FY 2025 IPPS/LTCH PPS final rule (89 FR 69094 through 69096), we summarized and responded to comments we received regarding the O.R. designation and MS-DRG assignment of 16 procedure codes that describe introduction of the AGENTTM Paclitaxel-Coated Balloon Catheter technology that is indicated to treat coronary in- stent restenosis (ISR) in patients with coronary artery disease. The following procedure codes describing use of the AGENTTM Paclitaxel-Coated Balloon Catheter technology were finalized following the March 19, 2024, ICD-10 Coordination and Maintenance Committee meeting and made available via the CMS website on June 5, 2024, at https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps. We refer the reader to the CMS website at: https://www.cms.gov/Medicare/Coding/ICD10/C-and-M-Meeting-Materials for additional detailed information regarding the request, including a recording of the discussion and the related meeting materials. [GRAPHIC] [TIFF OMITTED] TR04AU25.116 As discussed in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18061 through 18062), we again received a request to reconsider the designation and MS-DRG assignment of the previously listed 16 procedure codes. Specifically, the requestor (the manufacturer) requested that the procedure codes be designated as O.R. procedures and assigned to the following surgical MS-DRGs: MS-DRG 250 Percutaneous Cardiovascular Procedures without Intraluminal Device with MCC MS-DRG 251 Percutaneous Cardiovascular Procedures without Intraluminal Device without MCC MS-DRG 321 Percutaneous Cardiovascular Procedures with Intraluminal Device with MCC or 4+ Arteries/Intraluminal Devices MS-DRG 322 Percutaneous Cardiovascular Procedures with Intraluminal Device without MCC MS-DRG 323 Coronary Intravascular Lithotripsy with Intraluminal Device with MCC MS-DRG 324 Coronary Intravascular Lithotripsy with Intraluminal Device without MCC MS-DRG 325 Coronary Intravascular Lithotripsy without Intraluminal Device [[Page 36624]] According to the requestor, the root operation CMS identified as the most appropriate (that is, Introduction in the Administration section), and the predecessor code selected, (procedure code 3E073GC (Introduction of other therapeutic substance into coronary artery, percutaneous approach)), only involves a therapeutic substance being delivered via infusion or injection. The requestor stated that the procedure to administer the paclitaxel via the drug coated balloon (DCB) catheter is a surgical procedure as described in the instructions for use, with the drug delivery occurring using controlled prolonged balloon inflation during which the patient is monitored for signs of ischemia or arrythmia. The requestor stated that the procedure to deliver the paclitaxel is more appropriate as an O.R. procedure than a non-O.R. procedure. The requestor acknowledged that while the MS-DRG assignment for existing percutaneous coronary intervention (PCI) procedures is driven by vessel preparation or the use of an intraluminal device, it should not preclude the designation of the procedure codes identifying use of an AGENTTM Paclitaxel- Coated Balloon Catheter technology that describes the delivery of the paclitaxel to the coronary vessel(s) as O.R. procedures. In the FY 2025 IPPS/LTCH PPS final rule (89 FR 69095 through 69096), we stated that under our established process, we reviewed the predecessor code and MS-DRG assignment most closely associated with the new procedure codes. We noted that because the procedure codes describing the use of an AGENTTM Paclitaxel-Coated Balloon Catheter are describing delivery of the paclitaxel to the coronary vessel(s), the predecessor code is 3E073GC, which is designated as a non-O.R. procedure and does not affect MS-DRG assignment. We also stated that, as discussed at the March 19, 2024, ICD-10 Coordination and Maintenance Committee meeting and in the commenters' feedback, a preparatory step (that is, vessel preparation by either angioplasty, atherectomy, or lithotripsy) is required to be performed first, before the AGENTTM Paclitaxel-Coated Balloon Catheter is deployed. We noted that each type of vessel preparation procedure is designated as an O.R. procedure and maps to one of the previously listed surgical MS-DRGs. We also noted that based on the surgical hierarchy, the reporting of one of the vessel preparation steps (that is, angioplasty, atherectomy, or lithotripsy), or placement of a new stent in connection with the use of the AGENTTM Paclitaxel-Coated Balloon Catheter would result in assignment to one of the previously listed surgical MS-DRGs. We noted that use of the AGENTTM Paclitaxel-Coated Balloon Catheter to deliver the paclitaxel to the coronary vessel(s) cannot occur in the absence of a surgical vessel preparation and therefore, it is the vessel preparation procedure that will determine the surgical MS-DRG assignment to one of the previously listed surgical MS-DRGs. In the proposed rule, we noted that we reviewed the instructions for use submitted by the requestor regarding the procedure to insert the drug-coated balloon catheter. The instructions for use state: ``Note: For optimal DCB results, adequate lesion preparation is essential. This should include predilatation with a non-coated coronary balloon. Intravascular imaging to guide lesion preparation and to assess the adequacy of the final result is strongly recommended. Caution: Lesion preparation is necessary to prevent delamination of the balloon's drug coating while traversing patient anatomy. The TransPax coating is designed to facilitate drug transfer into the vessel wall upon contact. Do not use the AGENT Drug-Coated Balloon Catheter for lesion preparation.'' We also noted that the FDA-approved indication states, ``The AGENTTM Paclitaxel-Coated Balloon Catheter is intended to be used after appropriate vessel preparation in adult patients undergoing percutaneous coronary intervention (PCI) in coronary arteries 2.0 mm to 4.0 mm in diameter and lesions up to 26 mm in length for the purpose of improving myocardial perfusion when treating in-stent restenosis (ISR).'' We further noted that, as reflected in the March 19, 2024 ICD- 10 Coordination and Maintenance Committee meeting materials, ``The AGENTTM Drug-Coated Balloon (DCB) has been designated by the FDA as an implant for PMA purposes. Per FDA guidance, the drug component is considered a permanent implant because it remains in the body for greater than 30 days.'' As such, we stated in the proposed rule that we continue to disagree with designating the procedure to deliver paclitaxel to a coronary vessel as identified by any one of the previously listed 16 procedure codes as O.R. procedures. As stated earlier in this section, the MS-DRG assignment is dependent on the surgical vessel preparation procedure that would be reported when the AGENTTM Paclitaxel-Coated Balloon Catheter technology is used to deliver the paclitaxel to the coronary vessel(s) and result in assignment to one of the previously listed surgical MS-DRGs. We referred the reader to the ICD-10 MS-DRG Definitions Manual, Version 42.1 available in association with the FY 2026 IPPS/LTCH PPS proposed rule on the CMS website at https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps for complete documentation of the GROUPER logic for the previously listed surgical MS-DRGs under MDC 05. For the reasons discussed, we proposed to maintain the designation of the 16 procedure codes describing use of the AGENTTM Paclitaxel-Coated Balloon Catheter technology as non-O.R. for FY 2026. Comment: Some commenters agreed with the proposal to maintain the designation of the 16 procedure codes describing use of the AGENTTM Paclitaxel-Coated Balloon Catheter technology as non-O.R. for FY 2026. Response: We thank the commenters for their support. Comment: A commenter (the manufacturer) urged CMS to change the designation of the procedure codes that describe the AGENTTM Paclitaxel-Coated Balloon Catheter technology from non-O.R. to O.R. for FY 2026. The commenter stated that patients scheduled for a procedure that uses the AGENTTM Paclitaxel-Coated Balloon Catheter technology have a principal diagnosis of ISR, and introduction of the AGENTTM implant is the principal procedure to address the ISR. The commenter stated that the AGENTTM implant represents the therapeutic intent of the intervention, drives associated resource requirements, and is not performed incident to vessel preparation. The commenter stated that other services provided during the same operative session as the AGENTTM implant are for the purpose of vessel dilation or plaque modification in preparation for effective therapeutic drug delivery. According to the commenter, the specific approach and rigor to vessel preparation technique(s) are dictated by the physician's decision to treat the lesion with the AGENTTM implant and are therefore secondary to the AGENTTM implant. The commenter stated the secondary procedures may include balloon angioplasty for vessel dilation, and atherectomy, lithotripsy, and/or cutting balloon for plaque modification. In addition, the commenter stated that intravascular ultrasound (IVUS) and/or optical coherence tomography (OCT) may be used for enhanced vessel visualization. [[Page 36625]] The commenter provided a table comparing clinical functions associated with percutaneous coronary interventions as follows: [GRAPHIC] [TIFF OMITTED] TR04AU25.117 The commenter also stated that the primary role of the AGENTTM implant is supported by ICD-10-PCS Guidelines which instruct to sequence the procedure performed for definitive treatment most related to the principal diagnosis as principal procedure. The commenter included the FDA labeling language that was referenced in the preamble of the proposed rule (90 FR 18062) and stated that because patients who are admitted for a procedure to deliver the AGENTTM implant have a principal diagnosis of ISR, the AGENTTM implant is the principal procedure from a coding perspective and is the primary procedure that represents the therapeutic intent of the intervention. The commenter asserted that the AGENTTM DCB therapy is consistent with drug-eluting stent (DES) therapy in terms of diagnostic methods, intra-operative procedure steps, complexity and risk, therefore, consistent with DES and other procedure codes for percutaneous coronary interventions (PCI), the codes for the AGENTTM DCB should be designated as O.R. codes. The commenter stated that the procedure involving the AGENTTM implant is most clinically similar to a DES procedure because both are PCI procedures, performed only by physicians experienced in PCI, involve a surgical implant within the coronary artery, involve the transfer of therapeutic substances to a lesion and are targeted localized therapies as opposed to systemic treatments. The commenter added that the procedural steps to prepare a vessel for the AGENTTM implant is consistent with that required for a DES including obtaining percutaneous arterial access, positioning a guide catheter in the heart, advancing a guide wire across the coronary artery stenosis, preparing the vessel for the AGENTTM implant using specialized catheters and devices as needed (for example, angioplasty balloon, cutting balloon, lithotripsy, atherectomy), and using angiographic imaging to visualize the heart and IVUS or OCT to guide the procedure. The commenter stated that in addition to the clinical similarities between the AGENTTM DCB and a DES, the procedure codes describing use of the AGENTTM Paclitaxel-Coated Balloon Catheter technology in ICD-10-PCS Table XW0 (Introduction, Anatomical Regions) closely mirror the procedure codes describing use of a DES, in ICD-10-PCS Table 027, Dilation of Heart and Great Vessels because both sets of codes account for treatment of multiple coronary arteries and the use of multiple devices. The commenter asserted that since the procedure codes describing a DES and all other PCI procedure codes are classified as surgical, the AGENTTM Paclitaxel-Coated Balloon Catheter technology should be similarly classified as surgical. The commenter stated that the 16 procedure codes describing use of the AGENTTM Paclitaxel-Coated Balloon Catheter technology should be designated as O.R. procedures regardless of whether there is immediate impact to the MS-DRG assignment. Other commenters expressed appreciation that CMS reviewed the request to reconsider the MS-DRG assignment of the sixteen procedure codes describing use of the AGENTTM Paclitaxel-Coated Balloon Catheter technology from non-O.R. to O.R. however, the commenters disagreed with the proposal to maintain the DCB placement as a non-O.R. procedure. According to the commenters, because the vessel preparation techniques discussed to allow placement of the AGENTTM Paclitaxel-Coated Balloon Catheter are O.R. services, it would only be consistent for the AGENTTM Paclitaxel-Coated Balloon Catheter service itself to also be designated as an O.R. service. The commenters stated that, from a similar perspective, just as drug-eluting intraluminal device procedures (drug- eluting stents) are considered alongside non-drug-eluting intraluminal devices (stents); the AGENTTM Paclitaxel-Coated Balloon Catheter service should be categorized in the same manner as other dilation of coronary artery procedures (that is, angioplasty). Response: We appreciate the commenters' feedback. We disagree with the commenter's (the manufacturer) statement that the vessel preparation technique(s) are secondary to delivery of the AGENTTM implant (that is, paclitaxel). While the delivery of paclitaxel via the AGENTTM Paclitaxel-Coated Balloon Catheter is the intended therapeutic intervention to treat ISR, it cannot occur in the absence of the initial vessel preparation procedure (for example, angioplasty for vessel dilation, and atherectomy, lithotripsy, and/or cutting balloon for plaque modification). In response to the commenter's statement that the primary role of the AGENTTM implant is supported by ICD-10-PCS sequencing guidelines for the principal procedure, we note that the ICD-10-PCS Guidelines regarding sequencing of the principal procedure have no direct correlation on MS-DRG assignment or whether a procedure code is designated as O.R. or non-O.R. We also note that the sequencing of the procedure on the claim does not have an effect on MS-DRG assignment. Rather, the MS-DRG assignment is based on the O.R. or non-O.R. designation of the procedure code. While we agree that there are some procedural similarities between delivery of the AGENTTM implant and the insertion of a DES, we note that a major distinction is that the objective of the AGENTTM Paclitaxel-Coated Balloon Catheter is to deliver a targeted anti-proliferative drug dose, without introducing an extra layer of metal that is intended to remain permanently. We disagree with the commenter that the procedure involving the AGENTTM implant should be designated as an O.R. procedure. Although the FDA [[Page 36626]] designated the AGENTTM Paclitaxel-Coated Balloon as an implant for Pre-Market Approval (PMA) purposes, (that is, per FDA guidance, the drug component is considered a permanent implant because it remains in the body for greater than 30 days), delivery of a drug (or therapeutic agent) is not equivalent to the insertion of an intraluminal device (that is, stent) under the ICD-10-PCS classification. Notably, unlike a device, a drug cannot become dislodged from its location nor can it be removed. Designating a procedure code that is identified as one component of a multi-component procedure, service, or therapy as O.R. when that component would not be performed independently and is not FDA approved to be performed independently in the absence of another component (that is, two components are necessary for reporting to accurately reflect the entire procedure) would not be appropriate and is also not necessary when the other component has an existing O.R. designation. Specifically, it would not be appropriate to only report a procedure code describing the introduction of the AGENTTM Paclitaxel- Coated Balloon Catheter technology and arrive at one of the requested MS-DRG assignments in the absence of a procedure code describing an angioplasty, lithotripsy, or atherectomy procedure being reported. To encourage proper coding and reporting, as well as to ensure appropriate MS-DRG assignment, both the AGENTTM Paclitaxel-Coated Balloon Catheter technology and one of the procedure codes describing an angioplasty, lithotripsy, or atherectomy must be reported. We also note that under ICD-10-PCS, PCI procedures such as angioplasty performed for the treatment of blocked arteries with one or more intraluminal devices (that is, stents) that remain in the patient are coded to ``Dilation with intraluminal device''. The AGENTTM Paclitaxel-Coated Balloon Catheter technology does not involve a stent; rather, the drug (paclitaxel) is deployed and the balloon catheter is removed. The procedure codes describe the administration or transfer of the drug via the delivery mechanism of the balloon catheter. The intended outcomes or benefits of altering the designation of the procedure codes for the AGENTTM Paclitaxel-Coated Balloon Catheter technology from non-O.R. to O.R. remain unclear, as the MS-DRG assignment is determined by the vessel preparation procedure, which is classified as an O.R. procedure. As discussed in section II.C.7 of the preamble of the proposed rule (90 FR 18059) and this final rule, each ICD-10-PCS procedure code has a designation that determines whether and in what way the presence of that procedure on a claim impacts the MS- DRG assignment. After consideration of the public comments received and for the reasons previously described, we are finalizing our proposal to maintain the designation of the 16 procedure codes describing use of the AGENTTM Paclitaxel-Coated Balloon Catheter technology as non-O.R. for FY 2026. (3) Endoscopic Drainage of the Ureter With Drainage Device As discussed in the proposed rule (90 FR 18062 through 18063), during our internal review, we noted that procedure codes that describe drainage of the ureter with a drainage device, via a natural or artificial opening endoscopic approach, are not recognized as O.R. procedures for purposes of MS-DRG assignment. We identified the following three related codes: [GRAPHIC] [TIFF OMITTED] TR04AU25.118 Upon further review and consideration, we stated we believe that procedure codes 0T9680Z, 0T9780Z, and 0T9880Z that describe the drainage of the ureter with a drainage device via a natural or artificial opening endoscopic approach warrant designation as O.R. procedures. These procedures involve the use of a cystoscope and include the insertion of a small tube (called a ureteral stent or drainage tube) into one or both of the ureters (the tubes that carry urine from the kidneys to the bladder) to drain urine from a blocked or partially blocked ureter and must be performed by a urologist who specializes in diagnosing and treating conditions of the urinary tract, genitals, and adrenal glands through surgery. These procedures are typically performed in an operating room under anesthesia, can take about 30 minutes or more, including preparation time, and require that a patient's vital signs be monitored by the health care team for the duration of the procedure. Therefore, we proposed to add procedure codes 0T9680Z, 0T9780Z, and 0T9880Z to the FY 2026 ICD-10 MS-DRG Version 43 Definitions Manual in Appendix E--Operating Room Procedures and Procedure Code/MS-DRG Index as O.R. procedures assigned to MS-DRG 264 (Other Circulatory System O.R. Procedures) in MDC 05 (Diseases and Disorders of the Circulatory System); MS-DRGs 656, 657, and 658 (Kidney and Ureter Procedures for Neoplasm, with MCC, with CC, and without CC/MCC, respectively) and MS- DRGs 659, 660, and 661 (Kidney and Ureter Procedures for Non-Neoplasm, with MCC, with CC, and without CC/MCC, respectively) in MDC 11 (Diseases and Disorders of the Kidney and Urinary Tract); MS-DRGs 907, 908, and 909 (Other O.R. Procedures for Injuries with MCC, with CC, and without CC/MCC, respectively) in MDC 21 (Injuries, Poisonings and Toxic Effects of Drugs); and MS-DRGs 957, 958, and 959 (Other O.R. Procedures for Multiple Significant Trauma with MCC, with CC, and without CC/MCC, respectively) in MDC 24 (Multiple Significant Trauma). Comment: Commenters supported the proposal to change the designation of procedure codes 0T9680Z, 0T9780Z, and 0T9880Z from non- O.R. procedures to O.R. procedures. Response: We appreciate the commenters' support. After consideration of the public comments we received, we are finalizing our proposal to change the designation of procedure codes 0T9680Z, 0T9780Z, and 0T9880Z from non-O.R. procedures to O.R. procedures, without modification, effective October 1, 2025.

8. Changes to the MS-DRG Diagnosis Codes for FY 2026

a. Background of the CC List and the CC Exclusions List Under the IPPS MS-DRG classification system, we have developed a standard list of diagnoses that are considered CCs. Historically, we [[Page 36627]] developed this list using physician panels that classified each diagnosis code based on whether the diagnosis, when present as a secondary condition, would be considered a substantial complication or comorbidity. A substantial complication or comorbidity was defined as a condition that, because of its presence with a specific principal diagnosis, would cause an increase in the length-of-stay by at least 1 day in at least 75 percent of the patients. However, depending on the principal diagnosis of the patient, some diagnoses on the basic list of complications and comorbidities may be excluded if they are closely related to the principal diagnosis. In FY 2008, we evaluated each diagnosis code to determine its impact on resource use and to determine the most appropriate CC subclassification (NonCC, CC, or MCC) assignment. We refer readers to sections II.D.2. and 3. of the preamble of the FY 2008 IPPS final rule with comment period for a discussion of the refinement of CCs in relation to the MS DRGs we adopted for FY 2008 (72 FR 47152 through 47171). b. Overview of Comprehensive CC/MCC Analysis In the FY 2008 IPPS/LTCH PPS final rule (72 FR 47159), we described our process for establishing three different levels of CC severity into which we would subdivide the diagnosis codes. The categorization of diagnoses as an MCC, a CC, or a NonCC was accomplished using an iterative approach in which each diagnosis was evaluated to determine the extent to which its presence as a secondary diagnosis resulted in increased hospital resource use. We refer readers to the FY 2008 IPPS/ LTCH PPS final rule (72 FR 47159) for a complete discussion of our approach. Since the comprehensive analysis was completed for FY 2008, we have evaluated diagnosis codes individually when assigning severity levels to new codes and when receiving requests to change the severity level of specific diagnosis codes. We noted in the FY 2020 IPPS/LTCH PPS proposed rule (84 FR 19235 through 19246) that with the transition to ICD-10-CM and the significant changes that have occurred to diagnosis codes since the FY 2008 review, we believed it was necessary to conduct a comprehensive analysis once again. Based on this analysis, we proposed changes to the severity level designations for 1,492 ICD-10-CM diagnosis codes and invited public comments on those proposals. As summarized in the FY 2020 IPPS/LTCH PPS final rule, many commenters expressed concern with the proposed severity level designation changes overall and recommended that CMS conduct further analysis prior to finalizing any proposals. After careful consideration of the public comments we received, as discussed further in the FY 2020 IPPS/LTCH PPS final rule, we generally did not finalize our proposed changes to the severity designations for the ICD-10-CM diagnosis codes, other than the changes to the severity level designations for the diagnosis codes in category Z16 (Resistance to antimicrobial drugs) from a NonCC to a CC. We stated that postponing adoption of the proposed comprehensive changes in the severity level designations would allow further opportunity to provide additional background to the public on the methodology utilized and clinical rationale applied across diagnostic categories to assist the public in its review. We refer readers to the FY 2020 IPPS/LTCH PPS final rule (84 FR 42150 through 42152) for a complete discussion of our response to public comments regarding the proposed severity level designation changes for FY 2020. As discussed in the FY 2021 IPPS/LTCH PPS proposed rule (85 FR 32550); to provide the public with more information on the CC/MCC comprehensive analysis discussed in the FY 2020 IPPS/LTCH PPS proposed and final rules, CMS hosted a listening session on October 8, 2019. The listening session included a review of this methodology utilized to mathematically measure the impact on resource use. We refer readers to https://www.cms.gov/Outreach-and-Education/Outreach/OpenDoorForums/Downloads/10082019ListingSessionTrasncriptandQandAsandAudioFile.zip for the transcript and audio file of the listening session. We also refer readers to https://www.cms.gov/Medicare/MedicareFee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software.html for the supplementary file containing the mathematical data generated using claims from the FY 2018 MedPAR file describing the impact on resource use of specific ICD-10-CM diagnosis codes when reported as a secondary diagnosis that was made available for the listening session. In the FY 2021 IPPS/LTCH PPS final rule (85 FR 58550 through 58554), we discussed our plan to continue a comprehensive CC/MCC analysis, using a combination of mathematical analysis of claims data as discussed in the FY 2020 IPPS/LTCH PPS proposed rule (84 FR 19235) and the application of nine guiding principles and plan to present the findings and proposals in future rulemaking. The nine guiding principles are as follows: Represents end of life/near death or has reached an advanced stage associated with systemic physiologic decompensation and debility. Denotes organ system instability or failure. Involves a chronic illness with susceptibility to exacerbations or abrupt decline. Serves as a marker for advanced disease states across multiple different comorbid conditions. Reflects systemic impact. Post-operative/post-procedure condition/complication impacting recovery. Typically requires higher level of care (that is, intensive monitoring, greater number of caregivers, additional testing, intensive care unit care, extended length of stay). Impedes patient cooperation or management of care or both. Recent (last 10 years) change in best practice, or in practice guidelines and review of the extent to which these changes have led to concomitant changes in expected resource use. We refer readers to the FY 2021 IPPS/LTCH PPS final rule for a complete summation of the comments we received for each of the nine guiding principles and our responses to those comments. In the FY 2022 IPPS/LTCH PPS proposed rule (86 FR 25175 through 25180), as another interval step in our comprehensive review of the severity designations of ICD-10-CM diagnosis codes, we requested public comments on a potential change to the severity level designations for ``unspecified'' ICD-10-CM diagnosis codes that we were considering adopting for FY 2022. Specifically, we noted we were considering changing the severity level designation of ``unspecified'' diagnosis codes to a NonCC where there are other codes available in that code subcategory that further specify the anatomic site. As summarized in the FY 2022 IPPS/LTCH PPS final rule, many commenters expressed concern with the potential severity level designation changes overall and recommended that CMS delay any possible change to the designation of these codes to give hospitals and their physicians time to prepare. After careful consideration of the public comments we received, we maintained the severity level designation of the ``unspecified'' diagnosis codes currently designated as a CC or MCC where there are other codes available in that code subcategory that further specify the anatomic site for [[Page 36628]] FY 2022. We refer readers to the FY 2022 IPPS/LTCH PPS final rule (86 FR 44916 through 44926) for a complete discussion of our response to public comments regarding the potential severity level designation changes. Instead, for FY 2022, we finalized a new Medicare Code Editor (MCE) code edit for ``unspecified'' codes, effective with discharges on and after April 1, 2022. We stated we believed finalizing this new edit would provide additional time for providers to be educated while not affecting the payment the provider is eligible to receive. We refer the reader to section II.D.14.e. of the preamble of the FY 2022 IPPS/LTCH PPS final rule (86 FR 44940 through 44943) for the complete discussion. As discussed in the FY 2023 IPPS/LTCH PPS final rule (87 FR 48866), we stated that as the new unspecified edit became effective beginning with discharges on and after April 1, 2022, we believed it was appropriate to not propose to change the designation of any ICD-10-CM diagnosis codes, including the unspecified codes that are subject to the ``Unspecified Code'' edit, as we continue our comprehensive CC/MCC analysis to allow interested parties the time needed to become acclimated to the new edit. In the FY 2023 IPPS/LTCH proposed rule (87 FR 28177 through 28181), we also requested public comments on how the reporting of diagnosis codes in categories Z55-Z65 might improve our ability to recognize severity of illness, complexity of illness, and/or utilization of resources under the MS-DRGs. We stated we were also interested in receiving feedback on how we might otherwise foster the documentation and reporting of the diagnosis codes describing social and economic circumstances to more accurately reflect each health care encounter and improve the reliability and validity of the coded data. In the FY 2024 IPPS/LTCH PPS final rule (88 FR 58755 through 58759), based on our analysis of the impact on resource use for the ICD-10-CM Z codes that describe homelessness and after consideration of public comments, we finalized changes to the severity levels for diagnosis codes Z59.00 (Homelessness, unspecified), Z59.01 (Sheltered homelessness), and Z59.02 (Unsheltered homelessness), from NonCC to CC. In the FY 2025 proposed rule (89 FR 35995), we noted that since the FY 2021 IPPS/LTCH PPS final rule we have continued to solicit feedback regarding the nine guiding principles, as well as other possible ways we can incorporate meaningful indicators of clinical severity. We stated we had encouraged the public to provide a detailed explanation of how applying a suggested concept or principle would ensure that the severity designation appropriately reflects resource use for any diagnosis code when providing feedback or comments. We also noted in the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26748 through 26750) we illustrated how the nine guiding principles might be applied in evaluating changes to the severity designations of diagnosis codes in our discussion of our proposed changes to the severity level designation for certain diagnosis codes that describe homelessness. After consideration of the ongoing feedback and comments we had received, we proposed to finalize the nine guiding principles. After consideration of the public comments received, and for the reasons discussed, we finalized the nine guiding principles as listed previously in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69076 through 69078). Accordingly, we stated that our evaluations to determine the extent to which the presence of a diagnosis code as a secondary diagnosis results in increased hospital resource use will include a combination of mathematical analysis of claims data as discussed in the FY 2020 IPPS/LTCH PPS proposed rule (84 FR 19235) and the application of the nine guiding principles. Comment: A commenter stated that they applaud the inclusion of the guiding principles that recognize organ system instability or failure, chronic illness with susceptibility to exacerbations, conditions requiring higher levels of care, and systemic impact. This commenter stated that these principles appropriately capture the resource intensity associated with managing complex infectious diseases. This commenter also urged CMS to expedite the comprehensive CC/MCC analysis, paying particular attention to diagnoses that describe infectious conditions, and recommended that CMS consider additional factors specific to infectious disease management such as antimicrobial resistances, factors related to immunocompromised hosts and the role of antimicrobial stewardship when reviewing these conditions. Response: We thank the commenter for their support and appreciate their feedback. We continue to welcome feedback regarding the guiding principles, as well as other possible ways we can incorporate meaningful indicators of clinical severity. We will examine these suggestions as we continue the comprehensive CC/MCC analysis and will provide more detail in future rulemaking. Additionally, in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69079 through 69084), based on our analysis of the impact on resource use for the ICD-10-CM diagnosis codes that describe inadequate housing and housing instability, and after consideration of public comments, we finalized changes to the severity levels for seven diagnosis codes for FY 2025. As discussed in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18064), we did not receive any requests to change the severity level designations of specific ICD-10-CM diagnosis codes. We stated at this time, we believe it is appropriate to continue to formulate future next steps in our comprehensive review of the severity designations of ICD- 10-CM diagnosis codes, rather than proposing to change the designation of individual ICD-10-CM diagnosis codes. Therefore, we did not propose any severity designation changes for FY 2026. Comment: Commenters supported the decision to not propose any severity designation changes for FY 2026. A commenter stated that they appreciate CMS' commitment to refining the MS-DRG system to better reflect hospital resource use. Response: We appreciate the commenters' support. Comment: Several commenters stated that they appreciate that CMS finalized changes to the severity level designations for the diagnosis codes in category Z16 (Resistance to antimicrobial drugs) from a NonCC to a CC in the FY 2020 IPPS/LTCH PPS final rule. These commenters stated that they continue to support these designations and encouraged CMS to clarify that all current and future ICD-10-CM diagnosis codes describing antimicrobial resistance will be appropriately designated as CCs. Other commenters encouraged CMS to examine the ICD-10-CM diagnosis codes that describe longstanding persistent and permanent atrial fibrillation to determine the hospital resource utilization related to addressing these diagnoses and to analyze whether these codes should be considered for severity designation changes. These commenters stated that from a resource perspective, patients with longstanding persistent atrial fibrillation or permanent atrial fibrillation require markedly more intensive management and typically face longer operative times, higher complication rates, prolonged hospital stays, and increased readmission risk. [[Page 36629]] Response: We appreciate the feedback. In response to the request that CMS clarify that all future ICD-10- CM diagnosis codes describing antimicrobial resistance will be designated as CCs, as discussed in prior rulemaking and in section II.C.9 of this final rule, consistent with our established process for assigning new diagnosis or new procedure codes to MDCs, MS-DRGs, and the associated attributes (severity level and O.R. status), we examine the MDCs, MS-DRG assignment and severity level designation of the predecessor diagnosis codes to inform our assignments and designations. We review the predecessor code and MS-DRG assignment most closely associated with the new diagnosis or procedure code, and in the absence of claims data, we consider other factors that may be relevant to the MS-DRG assignment, including the severity of illness, treatment difficulty, complexity of service and the resources utilized in the diagnosis and/or treatment of the condition. As we have previously noted, this process does not automatically result in the new diagnosis or procedure code being assigned to the same MS-DRG or to have the same designation as the predecessor code. As we continue our comprehensive CC/MCC analysis, we may consider proposing changes for other diagnosis codes in the future based on our analysis of the impact on resource use, per our methodology, as previously described, and consideration of the guiding principles consistent with our annual process and will provide more detail in future rulemaking. We have updated the Impact on Resource Use Files on the CMS website so that the public can review the mathematical data for the impact on resource use generated using claims from the FY 2019 through the FY 2024 MedPAR files. These files are posted on the CMS website at https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software. We encourage individuals with comments about the severity level designations of ICD-10-CM diagnosis codes to submit these comments no later than October 20th of each year, via the Medicare Electronic Application Request Information SystemTM (MEARISTM) at: https://mearis.cms.gov/public/home, so that they can be considered for possible inclusion in the annual proposed rule. When submitting requests to change the severity level designation of an ICD-10-CM diagnosis code when reported as a secondary diagnosis, we encourage the public to review the mathematical data for the impact on resource use generated using claims from the FY 2019 through the FY 2024 MedPAR files as well as to provide a detailed explanation of how applying a suggested guiding principle would ensure that the severity designation appropriately reflects resource use for any diagnosis code. For new diagnosis codes approved for FY 2026, consistent with our annual process for designating a severity level (MCC, CC, or NonCC) for new diagnosis codes, we first review the predecessor code designation, followed by review and consideration of other factors that may be relevant to the severity level designation, including the severity of illness, treatment difficulty, complexity of service and the resources utilized in the diagnosis or treatment of the condition. We note that this process does not automatically result in the new diagnosis code having the same designation as the predecessor code. We refer the reader to section II.C.9 of the preamble of this FY 2026 IPPS/LTCH PPS final rule for the discussion of the finalized changes to the ICD-10-CM and ICD-10-PCS coding systems for FY 2026. c. Additions and Deletions to the Diagnosis Code Severity Levels for FY 2026 In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18065), we stated that the following tables identify the proposed additions and deletions to the diagnosis code MCC and CC severity levels list for FY 2026 and are available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html Table 6I.1--Proposed Additions to the MCC List--FY 2026; Table 6I.2--Proposed Deletions to the MCC List--FY 2026; Table 6J.1--Proposed Additions to the CC List--FY 2026; and Table 6J.2--Proposed Deletions to the CC List--FY 2026. We note that there was an inadvertent error in the listing of Table 6I.2 in the preamble of the proposed rule as there were no proposed deletions to the MCC list for FY 2026 and Table 6I.2 was not developed in association with the proposed rule. Comment: Commenters agreed with the proposed additions and deletions to the MCC and CC lists as shown in tables 6I.1, 6J.1, and 6J.2 associated with the proposed rule. Response: We appreciate the commenters' support. The following tables associated with this final rule reflect the finalized severity levels under Version 43 of the ICD-10 MS-DRGs for FY 2026 and are available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps; Table 6I.--Complete MCC List--FY 2026; Table 6I.1--Additions to the MCC List--FY 2026; Table 6J.--Complete CC List--FY 2026; Table 6J.1-- Additions to the CC List--FY 2026; and Table 6J.2--Deletions to the CC List--FY 2026. d. CC Exclusions List for FY 2026 In the September 1, 1987 final notice (52 FR 33143) concerning changes to the DRG classification system, we modified the GROUPER logic so that certain diagnoses included on the standard list of CCs would not be considered valid CCs in combination with a particular principal diagnosis. We created the CC Exclusions List for the following reasons: (1) to preclude coding of CCs for closely related conditions; (2) to preclude duplicative or inconsistent coding from being treated as CCs; and (3) to ensure that cases are appropriately classified between the complicated and uncomplicated DRGs in a pair. In the May 19, 1987 proposed notice (52 FR 18886) and the September 1, 1987 final notice (52 FR 33154), we explained that the excluded secondary diagnoses were established using the following five principles: Chronic and acute manifestations of the same condition should not be considered CCs for one another; Specific and nonspecific (that is, not otherwise specified (NOS)) diagnosis codes for the same condition should not be considered CCs for one another; Codes for the same condition that cannot coexist, such as partial/total, unilateral/bilateral, obstructed/unobstructed, and benign/malignant, should not be considered CCs for one another; Codes for the same condition in anatomically proximal sites should not be considered CCs for one another; and Closely related conditions should not be considered CCs for one another. The creation of the CC Exclusions List was a major project involving hundreds of codes. We have continued to review the remaining CCs to identify additional exclusions and to remove diagnoses from the master list that have been shown not to meet the definition of a CC. We refer readers to the FY 2014 IPPS/LTCH PPS final rule (78 FR 50541 through 50544) for detailed information regarding revisions that were made to [[Page 36630]] the CC and CC Exclusion Lists under the ICD-9-CM MS-DRGs. The ICD-10 MS-DRGs Version 42.1 CC Exclusion List is included as Appendix C in the ICD-10 MS-DRG Definitions Manual (available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software) and includes three lists identified as Part 1, Part 2 and Part 3. Part 1 is the list of all diagnosis codes that are defined as a CC or MCC when reported as a secondary diagnosis. For all diagnosis codes on the list, a link is provided to a collection of diagnosis codes which, when reported as the principal diagnosis, would cause the CC or MCC diagnosis to be considered as a NonCC. Part 2 is the list of diagnosis codes designated as an MCC only for patients discharged alive; otherwise, they are assigned as a NonCC. Part 3 is the list of diagnosis codes that are designated as a CC or MCC and included in the definition of the logic for the listed MS-DRGs. When reported as a secondary diagnosis and grouped to one of the listed MS-DRGs, the diagnosis is excluded from acting as a CC/MCC for severity in DRG assignment (that is, suppression logic). In the FY 2025 IPPS/LTCH PPS final rule (89 FR 69093), we stated that, because commenters had raised concerns regarding the principal diagnoses listed under Part 1 of Appendix C-CC Exclusions List in Principal Diagnosis Collection Lists 1379 and 1380 that exclude diagnosis codes N18.5 (Chronic kidney disease, stage 5) and N18.6 (End stage renal disease) from acting as a CC or MCC under the CC exclusion logic in accordance with the list of five principles established in 1987, we intended to perform a broad review of the conditions in these lists to determine if any modifications are warranted and to ensure they continue to be clinically appropriate. In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18065), we noted that the Principal Diagnosis Collection List numbers may change because of updates that are made to the list annually through rulemaking. Therefore, while under Version 41.1 the principal diagnoses listed in Principal Diagnosis Collection List numbers 1379 and 1380 exclude diagnosis codes N18.5 and N18.6 from acting as a CC or MCC, under Version 42.1, the principal diagnoses listed in Principal Diagnosis Collection List numbers 1330 and 1331 exclude diagnosis codes N18.5 and N18.6 from acting as a CC or MCC. Accordingly, we reviewed the list of principal diagnosis codes listed in Principal Diagnosis Collection List numbers 1330 and 1331 that exclude diagnosis codes N18.5 and N18.6 from acting as a CC or MCC to assess clinical appropriateness. As discussed in the preamble of the FY 2026 IPPS/LTCH PPS proposed rule, the findings from our review indicated several of the listed conditions, when reported as a principal diagnosis, are not applicable to exclude the designated N18.5 or N18.6 secondary CC/MCC diagnosis code under application of our five established principles finalized in the September 1, 1987 final notice (52 FR 33154) previously discussed. For example, diagnosis codes describing diabetes with other specified complications such as arthropathy, periodontal disease, or a foot ulcer, and diagnosis codes describing endometriosis, are not chronic and acute manifestations of, or closely related conditions to, chronic kidney disease, stage 5 (code N18.5) or end stage renal disease (code N18.6), nor are they describing codes for the same condition that cannot coexist. As previously described, the Principal Diagnosis Collection List numbers may change because of updates that are made to the list annually through rulemaking. We noted that, under proposed Version 43, the proposed Principal Diagnosis Collection List number to exclude diagnosis codes N18.5 and N18.6 from acting as a CC or MCC is 1335. We therefore proposed to remove the diagnosis codes listed in Table 6P.8a associated with the FY 2026 IPPS/LTCH PPS proposed rule and available via the CMS website at https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps from Principal Diagnosis Collection List number 1335 under proposed Version 43. In the proposed rule (90 FR 18065), we stated that findings from our internal review also indicated that diagnosis code I12.9 (Hypertensive chronic kidney disease with stage 1 through stage 4 chronic kidney disease, or unspecified chronic kidney disease) is currently listed in Principal Diagnosis Collection List number 1331 and excludes diagnosis code N18.6 from acting as an MCC; however, diagnosis code I12.9 is not currently listed in the Principal Diagnosis Collection List number 1330 to exclude diagnosis code N18.5. We stated we believe it is clinically appropriate to add diagnosis code I12.9 to Principal Diagnosis Collection List number 1335 under Version 43 because it would not be expected that a secondary diagnosis of N18.5 would be reported with a principal diagnosis of I12.9. As also discussed in the proposed rule, during our internal review we identified diagnosis code I13.0 (Hypertensive heart and chronic kidney disease with heart failure and stage 1 through stage 4 chronic kidney disease, or unspecified chronic kidney disease) and diagnosis code I13.10 (Hypertensive heart and chronic kidney disease without heart failure, with stage 1 through stage 4 chronic kidney disease, or unspecified chronic kidney disease) that we believe are appropriate to add to Principal Diagnosis Collection List number 1335 to exclude diagnosis codes N18.5 and N18.6 from acting as a CC/MCC when reported because the conditions describe chronic kidney disease, stage 5 and end stage renal disease (ESRD) and it would not be clinically appropriate to have a principal diagnosis describing stage 1 through stage 4 chronic kidney disease reported with chronic kidney disease, stage 5 or ESRD. In summary, we proposed to add diagnosis code I12.9 to Principal Diagnosis Collection List number 1335 to exclude diagnosis code N18.5 from acting as a CC, proposed to remove the diagnosis codes listed in Table 6P.8a associated with the FY 2026 IPPS/LTCH PPS proposed rule and available via the CMS website at https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps from Principal Diagnosis Collection List number 1335, and proposed to add diagnosis codes I13.0 and I13.10 to Principal Diagnosis Collection List number 1335 to exclude diagnosis codes N18.5 and N18.6 from acting as a CC/ MCC. Comment: Several commenters agreed with our proposals to add diagnosis code I12.9 to Principal Diagnosis Collection List number 1335 to exclude diagnosis code N18.5 from acting as a CC, remove the diagnosis codes listed in Table 6P.8a associated with the FY 2026 IPPS/ LTCH PPS proposed rule and available via the CMS website at https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps from Principal Diagnosis Collection List number 1335, and to add diagnosis codes I13.0 and I13.10 to Principal Diagnosis Collection List number 1335 to exclude diagnosis codes N18.5 and N18.6 from acting as a CC/MCC. However, a commenter disagreed with the proposed addition of diagnosis codes I13.0 and I13.10 to principal diagnosis collection list number 1335 to exclude diagnosis codes N18.5 and N18.6 from acting as a CC/MCC. According to the commenter, diagnosis codes I13.0 and I13.10 are combination codes and do not differentiate between a patient that is being admitted for congestive heart failure (CHF) or [[Page 36631]] chronic kidney disease (CKD). The commenter stated that the exclusion of codes N18.5 and N18.6 eliminates the complexity of these patients and the additional resources in management of their renal function when admitted for cardiogenic related conditions. Response: We appreciate the commenters' support and feedback. In response to the commenter who disagreed with the proposal to exclude diagnosis codes N18.5 and N18.6 from acting as a CC/MCC when diagnosis code I13.0 or I13.10 is assigned as the principal diagnosis, we note that, as discussed in the FY 2026 IPPS/LTCH PPS proposed rule, the conditions described by diagnosis codes N18.5 and N18.6 describe chronic kidney disease, stage 5 and end stage renal disease (ESRD), respectively, and it would not be clinically appropriate to have a principal diagnosis describing stage 1 through stage 4 chronic kidney disease reported with chronic kidney disease, stage 5 or ESRD. We also note that in the ICD-10-CM Tabular List of Diseases, there are instructional notes at diagnosis codes I13.0 and I13.10 that specifically direct the user to ``Use additional code to identify the stage of chronic kidney disease (N18.1-N18.4, N18.9)''. The instructional note does not list diagnosis codes N18.5 or N18.6 because they are not clinically applicable, as previously described. There is also another instructional note in the ICD-10-CM Tabular List of Diseases at diagnosis code I13.0 that specifically directs the user to ``Use additional code to identify the type of heart failure (I50.-)'' because diagnosis code I13.0 describes ``with heart failure'' (while diagnosis code I13.10 describes ``without heart failure''). With respect to the commenter's statement that the combination codes (I13.0 and I13.10) do not differentiate between a patient that is being admitted for CHF or CKD, we note that because these codes are classified as combination codes, they include both a CHF and CKD component. Therefore, the appropriate combination code (I13.0 or I13.10) is assigned on a claim to accurately reflect the conditions documented, and any additional codes would be assigned based on the Tabular instructions. After consideration of the public comments we received, we are finalizing our proposals to add diagnosis code I12.9 to Principal Diagnosis Collection List number 1335 to exclude diagnosis code N18.5 from acting as a CC, remove the diagnosis codes listed in Table 6P.8a associated with this FY 2026 IPPS/LTCH PPS final rule and available via the CMS website at https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps from Principal Diagnosis Collection List number 1335, and to add diagnosis codes I13.0 and I13.10 to Principal Diagnosis Collection List number 1335 to exclude diagnosis codes N18.5 and N18.6 from acting as a CC/MCC, effective October 1, 2025 for FY 2026. We intend to continue this type of internal review to ensure all the other Principal Diagnosis Collection lists reflect the appropriate codes in connection with the CC/MCC secondary diagnosis code that is excluded from acting as a CC/MCC. Any proposed changes to the lists will be discussed in future rulemaking. To inform future rulemaking, feedback and other suggestions may be submitted by October 20, 2025, and directed to MEARISTM at: https://mearis.cms.gov/public/home. As discussed in the proposed rule (90 FR 18066 through 18067), we also performed an internal review of the diagnoses listed in Appendix C--Part 2: Codes That are Major CC Only if Patient Discharged Alive. The diagnoses listed in Part 2 of Appendix C are assigned as an MCC only for patients discharged alive, otherwise the codes are assigned as a NonCC. The diagnoses listed in Part 2 in Version 42.1 are shown in the following table. [GRAPHIC] [TIFF OMITTED] TR04AU25.119 In developing Appendix C--Part 2: Codes That are Major CC Only if Patient Discharged Alive (72 FR 47161 through 47168), the claims data were evaluated to determine if there was a difference in resource use between cases in which the patient was discharged alive or died during the hospital stay. For most secondary diagnoses, the charges were similar for the two groups. However, there were a few diagnoses where the difference in charges and clinical considerations supported a different CC designation for patients who died before discharge. For these diagnoses, the patients who were discharged alive required significantly more hospital resources than the patients who died. Therefore, when reported as a secondary diagnosis, each of the diagnoses is designated as an MCC in cases where the patient is discharged alive and as a NonCC in cases where the patient died. As discussed in the preamble of the FY 2026 IPPS/LTCH PPS proposed rule, we analyzed claims data from the September 2024 update of the FY 2024 MedPAR file for the diagnoses currently listed in Appendix C--Part 2. Our findings are reflected in the following table: [[Page 36632]] [GRAPHIC] [TIFF OMITTED] TR04AU25.120 As shown in the table, the data reflect that most of the conditions currently listed in Appendix C--Part 2, utilize hospital resources as expected, with the patients who were discharged alive (without discharge status 20) requiring significantly more hospital resources than the patients who expired (with discharge status 20), as demonstrated by the longer lengths of stay and higher average costs of these cases. However, we noted in the proposed rule that the resource utilization for cases reporting R57.1 (Hypovolemic shock) as a secondary diagnosis appear to be comparable whether the patient was discharged alive or the patient expired. As reflected in the table, the claims data from the September 2024 update of the FY 2024 MedPAR file reflect that code R57.1 was reported as a secondary diagnosis in 32,614 cases where the patient was discharged alive. These cases had average costs of $39,051 and an average length of stay of 10.8 days. In the 6,476 cases where R57.1 was reported as a secondary diagnosis and the patient expired, the average costs were slightly lower ($38,697 versus $39,051) and the average length of stay was slightly shorter (8.3 days versus 10.8 days). We reviewed this issue and noted clinically, the recommended treatment for hypovolemic shock is immediate intervention with fluid resuscitation with intravenous (IV) fluids, blood transfusions, and vasoactive drugs. Hypovolemic shock generally has a lower mortality rate and responds to timely treatment. As the claims data no longer reflect that patients reporting hypovolemic shock as secondary diagnosis that are discharged alive require significantly more hospital resources than the patients who expire, we proposed to remove code R57.1 from the list found in Appendix C--Part 2: Codes That are Major CC Only if Patient Discharged Alive. We noted that under this proposal, when reported as a secondary diagnosis, R57.1 (Hypovolemic shock) will be assigned as an MCC when the patient is discharged alive or if the patient expires. Comment: Commenters expressed support for our proposal to remove code R57.1 from the list found in Appendix C--Part 2: Codes That are Major CC Only if Patient Discharged Alive. Response: We appreciate the commenters' support. After consideration of the public comments we received, we are finalizing our proposal to remove code R57.1 (Hypovolemic shock) from the list found in Appendix C--Part 2: Codes That are Major CC Only if Patient Discharged Alive, without modification, effective October 1, 2025. Under this finalization, when reported as a secondary diagnosis, R57.1 will be assigned as an MCC when the patient is discharged alive or if the patient expires. Based on our review, we considered if it was appropriate to add other diagnosis codes describing shock to Appendix C--Part 2. Specifically, we considered code T79.4XXA (Traumatic shock, initial encounter). ICD-10-CM diagnosis code T79.4XXA is currently designated as an MCC when reported as secondary diagnoses. Traumatic shock represents a unique pathological condition that begins with multiple, usually blunt, trauma and may conclude with acute respiratory distress syndrome, coagulopathy, sepsis, multiple organ dysfunction syndrome and death. As discussed in the proposed rule, we analyzed claims data from the September 2024 update of the FY 2024 MedPAR file for cases reporting T79.4XXA as a secondary diagnosis and our findings are reflected in the following table: [GRAPHIC] [TIFF OMITTED] TR04AU25.121 As reflected in the table, the claims data from the September 2024 update of the FY 2024 MedPAR file indicate that T79.4XXA was reported as a secondary diagnosis in 1,187 cases where the patient was discharged alive. These cases had average costs of $79,218 and an average length of stay of 16.1 days. In the 553 cases where T79.4XXA was reported as a secondary diagnosis and the patient expired, the average costs were considerably lower ($48,880 versus $79,218) and the average length of stay was much shorter (6.5 days versus 16.1 days). As the data reflect that cases reporting traumatic shock, initial encounter, as a secondary diagnosis for patients that are discharged alive require significantly more hospital resources than the patients who expire, we proposed to add code T79.4XXA to the list found in Appendix C--Part 2: Codes That are Major CC Only if Patient Discharged Alive. We noted that under this proposal, when reported as a secondary diagnosis, T79.4XXA (Traumatic shock, initial encounter) would be assigned as an MCC only when the patient is discharged alive. Comment: Commenters expressed support for our proposal to add code T79.4XXA to the list found in Appendix C--Part 2: Codes That are Major CC Only if Patient Discharged Alive. [[Page 36633]] Response: We appreciate the commenters' support. After consideration of the public comments we received, we are finalizing our proposal to add code T79.4XXA (Traumatic shock, initial encounter) to the list found in Appendix C--Part 2: Codes That are Major CC Only if Patient Discharged Alive, without modification, effective October 1, 2025. Under this finalization, when reported as a secondary diagnosis, T79.4XXA would be assigned as an MCC only when the patient is discharged alive. In summary, the proposals and related findings discussed in connection with Appendix C and finalized in this section of the preamble of this final rule are reflected in the Version 43 ICD-10 MS- DRG Definitions Manual, which is available in association with this final rule at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software. In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18067), we proposed additional changes to the ICD-10 MS-DRGs Version 43 CC Exclusion List based on the diagnosis code updates as discussed in section II.C.13. of the preamble of the proposed rule and set forth in Tables 6G.1, 6G.2, 6H.1, and 6H.2 associated with the proposed rule and available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps. We did not receive any public comments opposing the proposed CC Exclusions List. The finalized CC Exclusions List as displayed in Tables 6G.1, 6G.2, 6H.1, 6H.2, and 6K, associated with this final rule reflect the additions, deletions, and complete list of CC exclusions under Version 43 of the ICD-10 MS-DRGs. We have developed Table 6G.1.--Secondary Diagnosis Order Additions to the CC Exclusions List--FY 2026; Table 6G.2.--Principal Diagnosis Order Additions to the CC Exclusions List-- FY 2026; Table 6H.1.--Secondary Diagnosis Order Deletions to the CC Exclusions List--FY 2026; and Table 6H.2.--Principal Diagnosis Order Deletions to the CC Exclusions List--FY 2026; and Table 6K. Complete List of CC Exclusions--FY 2026. Tables 6G.1., 6G.2., 6H.1., 6H.2., and 6K associated with this FY 2026 IPPS/LTCH PPS final rule are available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html. For Table 6G.1, each secondary diagnosis code finalized for addition to the CC Exclusion List is shown with an asterisk and the principal diagnoses that exclude the secondary diagnosis code are provided in the indented column immediately following it. For Table 6G.2, each of the principal diagnosis codes for which there is a CC exclusion is shown with an asterisk and the conditions finalized for addition to the CC Exclusion List that will not count as a CC are provided in an indented column immediately following the affected principal diagnosis. For Table 6H.1, each secondary diagnosis code finalized for deletion from the CC Exclusion List is shown with an asterisk followed by the principal diagnosis codes that exclude it. For Table 6H.2, each of the principal diagnosis codes is shown with an asterisk and the finalized deletions to the CC Exclusions List are provided in an indented column immediately following the affected principal diagnosis. Table 6K contains a list of all of the codes that are defined as either a CC or MCC when assigned as a secondary diagnosis. Each CC or MCC secondary diagnosis code is assigned to a principal diagnosis number that reflects a collection of diagnosis codes which, when reported as the principal diagnosis, will cause the CC or MCC secondary diagnosis to be considered as only a non-CC secondary diagnosis.

9. Changes to the ICD-10-CM and ICD-10-PCS Coding Systems

To identify new, revised, and deleted diagnosis and procedure codes, for FY 2026, we have developed Table 6A.--New Diagnosis Codes, Table 6B.--New Procedure Codes, Table 6C.--Invalid Diagnosis Codes, Table 6D.--Invalid Procedure Codes, Table 6E.--Revised Diagnosis Code Titles, and Table 6F.--Revised Procedure Code Titles for this FY 2026 IPPS/LTCH PPS final rule. These tables are not published in the Addendum to the proposed rule or final rule, but are available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html as described in section VI. of the Addendum to this FY 2026 IPPS/LTCH PPS final rule. As discussed in section II.C.11. of the preamble of this FY 2026 IPPS/LTCH PPS final rule, the code titles are adopted as part of the ICD-10 Coordination and Maintenance Committee meeting process. Therefore, although we publish the code titles in the IPPS proposed and final rules, they are not subject to comment in the proposed or final rules. In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18067 through 18068), we proposed the MDC and MS-DRG assignments for the new diagnosis codes and procedure codes as set forth in Table 6A.--New Diagnosis Codes and Table 6B.--New Procedure Codes. We also stated that the proposed severity level designations for the new diagnosis codes are set forth in Table 6A. and the proposed O.R. status for the new procedure codes are set forth in Table 6B. Consistent with our established process, we examined the MS-DRG assignment and the attributes (severity level and O.R. status) of the predecessor diagnosis or procedure code, as applicable, to inform our proposed assignments and designations. Specifically, we reviewed the predecessor code and MS-DRG assignment most closely associated with the new diagnosis or procedure code, and in the absence of claims data, we considered other factors that may be relevant to the MS-DRG assignment, including the severity of illness, treatment difficulty, complexity of service and the resources utilized in the diagnosis and/or treatment of the condition. We noted that this process does not automatically result in the new diagnosis or procedure code being proposed for assignment to the same MS-DRG or to have the same designation as the predecessor code. In this FY 2026 IPPS/LTCH PPS final rule, we present a summation of the comments we received in response to the proposed assignments, our responses to those comments, and our finalized policies. Comment: Several commenters supported the proposed MDC and MS-DRG assignments for the new diagnosis codes and procedure codes as set forth in Table 6A.--New Diagnosis Codes and Table 6B.--New Procedure Codes. A commenter expressed appreciation for the new diagnosis codes finalized that describe ``Fontan physiology'' (I27.840, Fontan- associated liver disease [FALD]; I27.841, Fontan-associated lymphatic dysfunction; I27.848, Other Fontan-associated condition; and I27.849, Fontan related circulation, unspecified) and stated they are needed. The commenter also stated they were thankful for the work the Committee and the submitters do to keep the code set current and accurate. Another commenter expressed strong support for the new diagnosis codes finalized related to pyrophosphate metabolism (E83.82, ENPP1 deficiency causing generalized arterial calcification of infancy; E83.822, ENPP1 deficiency causing autosomal recessive hypophosphatemic rickets type 2; E83.823, ABCC6 deficiency causing generalized arterial calcification of infancy; and E83.824, ABCC6 deficiency causing pseudoxanthoma elasticum) and stated providers and medical coders [[Page 36634]] will now be better equipped to more specifically document and report, which will be very useful for tracking patients diagnosed with these rare conditions and help to improve patient outcomes. Response: We appreciate the commenters' support and feedback. Comment: A commenter (the manufacturer) requested that CMS assign procedure code X2H13XB (Insertion of temporary phrenic nerve/diaphragm stimulation electrodes into superior vena cava, percutaneous approach, new technology group 11) that can be reported to describe use of the AeroPace[supreg] System, to MS-DRG 003 (ECMO or Tracheostomy with MV >96 Hours or Principal Diagnosis Except Face, Mouth and Neck with Major O.R. Procedures), MS-DRG 004 (Tracheostomy with MV >96 Hours or Principal Diagnosis Except Face, Mouth and Neck without Major O.R. Procedures), MS-DRG 207 (Respiratory System Diagnosis with Ventilator Support >96 Hours), and MS-DRG 870 (Septicemia or Severe Sepsis with MV >96 Hours). The commenter stated that based on the predecessor code, CMS assigned this new procedure code to MS-DRG 264 (Other Circulatory System O.R. Procedures) under MDC 05 (Diseases and Disorders of the Circulatory System) and to MS-DRGs 981, 982, and 983 (Extensive O.R. Procedures Unrelated to Principal Diagnosis with MCC, with CC, and without CC/MCC, respectively) as reflected in Table 6B.--New Procedure Codes. The commenter also stated that it understands these are preliminary MS-DRG assignments and do not limit the MS-DRGs to which a case may group. According to the commenter, because the Food and Drug Administration (FDA) indication for use of the technology is in patients ages 18 years or older on mechanical ventilation 96 hours and who have not weaned, procedure code X2H13XB will be reported on claims that also report procedure code 5A1955Z (Respiratory ventilation, greater than 96 consecutive hours). The commenter stated that the data described in the new technology add-on payment application demonstrate that over 60 percent of beneficiaries who have received greater than 96 hours of mechanical ventilation are assigned to MS-DRGs 003, 004, 207, and 870. Response: We thank the commenter for their feedback. We note that procedure code X2H13XB may be reported to describe the use of the AeroPace[supreg] System and was finalized following the September 10- 11, 2024 ICD-10 Coordination and Maintenance Committee meeting. The materials for the discussion related to this topic are located on the CMS website at: https://www.cms.gov/medicare/coding-billing/icd-10-codes/icd-10-coordination-maintenance-committee-materials. Under our established process, we reviewed the predecessor code and MS-DRG assignment most closely associated with the new procedure code. We note that because the procedure code that identifies use of the AeroPace[supreg] System is describing temporary transvenous diaphragm activation via stimulation of the phrenic nerve(s), the predecessor code is 02HV3YZ (Insertion of other device into superior vena cava, percutaneous approach), which is designated as an O.R. procedure and assigned to MS-DRG 264 under MDC 05. The logic for case assignment to Pre-MDC MS-DRG 003 (ECMO or Tracheostomy with MV >96 Hours or Principal Diagnosis Except Face, Mouth and Neck with Major O.R. Procedures) requires that either a procedure code describing extracorporeal membrane oxygenation (ECMO) or a procedure code describing a tracheostomy procedure with procedure code 5A1955Z is reported with any principal diagnosis that is not assigned to MS-DRGs 011, 012, or 013 (Tracheostomy for Face, Mouth and Neck Diagnoses or Laryngectomy with MCC, with CC, and without CC/MCC, respectively) and with a procedure code that is designated as a major operating room (O.R.) procedure. Accordingly, the appropriate MS-DRG assignment to Pre-MDC MS-DRG 003 or to Pre-MDC MS-DRG 004 would be determined when procedure code X2H13XB is reported on a claim with procedure codes that satisfy the logic for case assignment to the respective Pre-MDC MS-DRG. We note that when procedure code X2H13XB is reported on a claim with procedure code 5A1955Z and a principal diagnosis from MDC 04 (Diseases and Disorders of the Respiratory System), the MS-DRG assignment will result in MS-DRG 207 (Respiratory System Diagnosis with Ventilator Support >96 Hours). Specifically, the logic for case assignment to MS-DRG 207 requires any principal diagnosis from MDC 04 with procedure code 5A1955Z. When procedure code X2H13XB is reported on a claim with procedure code 5A1955Z and a principal diagnosis describing septicemia, the MS-DRG assignment will result in MS-DRG 870 (Septicemia or Severe Sepsis with MV >96 Hours). In those scenarios, it is the respiratory ventilation procedure code and the principal diagnosis that will determine the MS-DRG assignment. We refer the reader to the ICD-10 MS-DRG Definitions Manual, Version 43 available in association with this final rule on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software for complete documentation of the GROUPER logic. Comment: Commenters expressed support for the seven new diagnosis codes describing various types of hyperoxaluria and the proposed CC severity level designation for three of the new codes as reflected in Table 6A.--New Diagnosis Codes that was made publicly available in association with the proposed rule. However, the commenters stated that the remaining four new codes were not proposed to be designated as CCs and recommended that CMS reconsider the proposed designations. A commenter stated that each hyperoxaluria type involves the excessive excretion of oxalate in urine that can lead to kidney stones and therefore, all seven codes should be considered for a CC designation. Response: We appreciate the commenters' feedback. The seven new diagnosis codes describing various types of hyperoxaluria and their proposed severity level designation are shown in the following table: [[Page 36635]] [GRAPHIC] [TIFF OMITTED] TR04AU25.122 Consistent with our established process, we identified diagnosis code E72.53 (Primary hyperoxaluria) which is designated as a CC, as the predecessor code for the three diagnosis codes describing a specified type of primary hyperoxaluria (E72.530, E72.538, and E72.539). We identified diagnosis code R82.992 (Hyperoxaluria) which is designated as a NonCC, as the predecessor code for the four diagnosis codes proposed to be designated as NonCC (E72.540, E72.541, E72.548, and E72.549). We also reviewed the FY 2024 Impact on Resource Use file available via the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software for the predecessor codes and the C1, C2, and C3 counts reflected in the following table. We refer readers to the FY 2008 IPPS/ LTCH PPS final rule (72 FR 47159) for a complete discussion of our historical approach to mathematically evaluate the extent to which the presence of an ICD-10-CM code as a secondary diagnosis resulted in increased hospital resource use, and a more detailed explanation of the columns in the table. [GRAPHIC] [TIFF OMITTED] TR04AU25.123 The table shows that for diagnosis code E72.53 the C1 finding is 1.19 and the C2 finding is 2.90, and for diagnosis code R82.992, the C1 finding is 1.06 and the C2 finding is 2.10. A higher value in the C1 (or C2 and C3) field suggests more resource usage is associated with the diagnosis and an increased likelihood that it is more like a CC or MCC than a NonCC. Thus, a value close to 2.0 suggests the condition is more like a CC than a NonCC but not as significant in resource usage as an MCC. A value close to 3.0 suggests the condition is expected to consume resources more similar to an MCC than a CC or NonCC. The data suggest that when diagnosis code E72.53 is reported as a secondary diagnosis the resources involved in caring for a patient diagnosed with primary hyperoxaluria are aligned with a CC and may also consume resources more similar to an MCC. The data suggest that when diagnosis code R82.992 is reported as a secondary diagnosis that the resources involved in caring for a patient diagnosed with hyperoxaluria are more aligned with a NonCC. Comment: Several commenters indicated their support for the initiative to refine ICD-10 coding for immune complex membranoproliferative glomerulonephritis (IC-MPGN), though they also expressed concerns regarding the finalized new diagnosis codes. Specifically, a commenter stated that historically, IC-MPGN and C3 glomerulonephritis (C3G) (code N00.A, acute nephritic syndrome with C3 glomerulonephritis) were two distinct but related conditions, and based on that understanding, the proposed codes make sense. However, the commenter reported that new evidence has emerged suggesting that IC- MPGN and C3G may actually be a spectrum of the same condition and some patients can present with IC-MPGN initially and a repeat kidney biopsy might show C3G or the opposite (that is, some patients can present with C3G initially and a repeat kidney biopsy might show IC-MPGN). According to the commenter, the true distinction between these two diagnoses is currently uncertain. The commenter suggested that new codes be developed to address circumstances where the distinction between IC- MPGN and C3G cannot be determined. Other commenters stated similar concerns and suggested that reconsideration be given to the implementation of these new codes, including postponement, until treatment pathways for these conditions become more distinctly defined. Response: We appreciate the commenters' feedback. We note that the Centers for Disease Control and Prevention's National Center for Health Statistics (CDC/NCHS) has lead responsibility for updates and maintenance to the ICD-10-CM diagnosis code set and the code proposal for Immune Complex-mediated Membranoproliferative Glomerulonephritis (IC-MPGN) was discussed at the September 10-11, 2024 ICD-10 Coordination and Maintenance Committee meeting. The materials for the discussion relating to this topic are located on the CDC website at: https://www.cdc.gov/nchs/icd/icd-10-maintenance/meetings.html. The finalized diagnosis codes describing IC-MPGN are: [[Page 36636]] [GRAPHIC] [TIFF OMITTED] TR04AU25.124 We communicated with the CDC/NCHS staff regarding the feedback and concerns expressed by the commenters with respect to the new codes and they indicated that the public comments received in response to the code proposal were all in support. Comment: A commenter stated that CMS proposed to assign ICD-10-PCS code D228DZZ (Stereotactic other photon radiosurgery of conduction mechanism) to MS-DRG 317 (Concomitant Left Atrial Appendage Closure and Cardiac Ablation). The commenter indicated that the ICD-10 meeting materials describe the code proposal as enabling the capture of procedures such as cardiac stereotactic body radiotherapy (SBRT). Additionally, the commenter stated the meeting materials reflect that cardiac SBRT, also called cardiac radioablation, is a non-invasive procedure to treat ventricular tachycardia (VT) that allows for the precise delivery of high-dose radiation to target tissue to any desired area within the body, including areas that may be inaccessible in traditional catheter ablation while also minimizing radiation exposure to adjacent anatomic structures. Alternatively, the commenter reported that intracardiac catheter ablation procedures are either percutaneous or surgical procedures, often involving femoral access and transeptal puncture to access the left atrium and ablate electrical irregularities causing atrial fibrillation. According to the commenter, because of the non-invasive nature of the cardiac SBRT procedure, its application to the treatment of VT, and the lack of identifiable current clinical concomitant performance with left atrial appendage closure (LAAC) during the same operative session, they stated their belief that the new procedure code (D228DZZ) is inappropriately proposed for assignment to MS-DRG 317. The commenter requested that CMS reconsider the appropriateness of this proposed assignment as well as the potential need for a different assignment when cardiac SBRT is performed without percutaneous LAAC. Response: We appreciate the commenter's feedback. The proposal for a new procedure code to describe SBRT was discussed at the September 10, 2024 ICD-10 Coordination and Maintenance Committee meeting. We refer the reader to the CMS website at: https://www.cms.gov/Medicare/Coding/ICD10/C-and-M-Meeting-Materials for additional detailed information regarding the code request, including a recording of the discussion and the related meeting materials. Procedure code D228DZZ was approved and finalized following the review and consideration of public comments effective with discharges on and after April 1, 2025, as reflected in Table 6B associated with the proposed rule (and available via the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps). Under our established process, we reviewed the predecessor code. The predecessor code for SBRT is 02583ZZ (Destruction of conduction mechanism, percutaneous approach) which is designated as an O.R. procedure and is assigned to MS-DRGs 273 and 274 (Percutaneous and Other Intracardiac Procedures with MCC and without MCC, respectively) in addition to MS-DRG 317. Because SBRT is not considered an intracardiac catheter ablation procedure we did not propose assignment to MS-DRGs 273 and 274. We acknowledge that SBRT and LAAC procedures may be performed for separate and distinct cardiac conditions (that is, ventricular tachycardia and atrial fibrillation, respectively) as reflected in the September 10, 2024 ICD-10 Coordination and Maintenance Committee meeting materials, however, recent studies also suggest that SBRT or stereotactic arrhythmia radioablation (STAR) may be indicated as a non- invasive treatment option for atrial fibrillation. Although studies are ongoing, we believe the assignment of SBRT to MS-DRG 317 is appropriate at this time. We note that if there is a lack of concomitant LAAC and SBRT procedures performed, there is no significant impact since, as previously stated, the designation of the procedure code that describes SBRT is designated as non-O.R. Specifically, in response to the commenter's request that CMS consider the potential need for a different assignment when cardiac SBRT is performed without percutaneous LAAC, we note that because the designation of procedure code D228DZZ is non-O.R., the reporting of procedure code D228DZZ only impacts the MS-DRG assignment when reported with a LAAC procedure as listed in the logic for case assignment to MS-DRG 317. Accordingly, when procedure code D228DZZ is reported in the absence of an LAAC procedure, the MS-DRG assignment is dependent on the reported principal diagnosis, any secondary diagnoses defined as a CC or MCC, other procedures or services performed, age, sex, and discharge status. Comment: A commenter stated that the proposed MS-DRG assignment for new diagnosis code E11.A (Type 2 diabetes mellitus without complications in remission) to MDC 10 (Endocrine, Nutritional and Metabolic Diseases and Disorders) in MS-DRGs 637, 638, and 639 (Diabetes with MCC, with CC, and without CC/MCC, respectively) as listed in Table 6A in association with the FY 2026 IPPS/LTCH PPS proposed rule is not entirely consistent with the MS-DRG assignments of the predecessor code, E11.9 (Type 2 diabetes mellitus without complications). According to the commenter, in addition to MDC 10, diagnosis code E11.9 is also currently mapped to Pre-MDC MS-DRG 008 (Simultaneous Pancreas and Kidney Transplant), Pre-MDC MS-DRG 010 (Pancreas Transplant), and Pre-MDC MS-DRG 019 (Simultaneous Pancreas and Kidney Transplant with Hemodialysis), as are diagnosis codes E08.9 (Diabetes mellitus due to underlying condition without complications), E09.9 (Drug or chemical induced diabetes mellitus without complications), E10.9 (Type 1 diabetes mellitus without complications), and E13.9 (Other specified diabetes mellitus without complications. The commenter stated that each of these five diagnoses describes a specific type of diabetes ``without complications''. However, the commenter also indicated that the five diagnosis codes do not appear to be clinically appropriate to be listed in the logic for Pre-MDC MS-DRGs 008, 010, and 019 because these MS-DRGs are defined by transplant procedures that are indicated for the treatment of diabetes ``with complications''. According to the commenter, a transplant procedure that is assigned to any one of the previously listed Pre- [[Page 36637]] MDC MS-DRGs would not be indicated for a patient diagnosed with diabetes that does not have any associated complications of the diabetes. The commenter suggested that CMS review the clinical appropriateness for assignment of these five diagnosis codes and consider removing them from the logic for Pre-MDC MS-DRGs 008, 010, and 019 and only maintaining assignment to MS-DRGs 637, 638, and 639 under MDC 10 for FY 2026. Response: We thank the commenter for the feedback. The commenter is correct that the predecessor code E11.9 (as reflected in the FY 2026 ICD-10-CM Conversion Table available via the CMS website at: https://www.cms.gov/medicare/coding-billing/icd-10-codes) for new diagnosis code E11.A currently maps to Pre-MDC MS-DRGs 008, 010, and 019, in addition to MDC 10 MS-DRGs 637, 638, and 639. The commenter is also correct that diagnosis codes E08.9, E09.9, E10.9, and E13.9 describe specific types of diabetes ``without complications''. We agree with the commenter that these codes are not clinically appropriate to be listed in the logic for case assignment to Pre-MDC MS-DRGs 008, 010, and 019 because as the commenter noted, these MS-DRGs are defined by transplant procedures that are indicated for the treatment of diabetes ``with complications''. In light of these findings, we examined claims data from the September 2024 update of the FY 2024 MedPAR file for Pre-MDC MS-DRGs 008, 010, and 019 and for cases reporting any one of the five listed diagnoses. Our analysis yielded zero cases reporting any one of the five diagnoses describing a type of diabetes ``without complications''. For clinical appropriateness and because the diagnoses are not indicated for a pancreatic or kidney transplant procedure, we are removing diagnosis codes E08.9, E09.9, E10.9, E11.9, and E13.9 from the logic lists in Pre-MDC MS-DRGs 008, 010, and 019. We are maintaining the assignment of the diagnosis codes to MDC 10 in MS-DRGs 637, 638, and 639 effective October 1, 2025, for FY 2026. After consideration of the public comments received, we are finalizing the MDC and MS-DRG assignments for the new diagnosis codes and procedure codes as set forth in Table 6A.--New Diagnosis Codes and Table 6B.--New Procedure Codes associated with this final rule. In addition, the finalized severity level designations for the new diagnosis codes are set forth in Table 6A. and the finalized O.R. status for the new procedure codes are set forth in Table 6B associated with this final rule. In association with this FY 2026 IPPS/LTCH PPS final rule, we are making the following tables available on the CMS website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html: Table 6A.--New Diagnosis Codes--FY 2026; Table 6B.--New Procedure Codes--FY 2026; Table 6C.--Invalid Diagnosis Codes--FY 2026; Table 6D.--Invalid Procedure Codes--FY 2026; Table 6E.--Revised Diagnosis Code Titles--FY 2026; Table 6F.--Revised Procedure Code Titles--FY 2026; Table 6G.1.--Secondary Diagnosis Order Additions to the CC Exclusions List--FY 2026; Table 6G.2.--Principal Diagnosis Order Additions to the CC Exclusions List--FY 2026; Table 6H.1.--Secondary Diagnosis Order Deletions to the CC Exclusions List--FY 2026; Table 6H.2.--Principal Diagnosis Order Deletions to the CC Exclusions List--FY 2026; Table 6I.--Complete MCC List--FY 2026; Table 6I.1.--Additions to the MCC List--FY 2026; Table 6J.--Complete CC List--FY 2026; Table 6J.1.--Additions to the CC List--FY 2026; Table 6J.2.--Deletions to the CC List--FY 2026; and Table 6K.--Complete List of CC Exclusions--FY 2026.

10. Changes to the Surgical Hierarchies

Some inpatient stays entail multiple surgical procedures, each one of which, occurring by itself, could result in assignment of the case to a different MS-DRG within the MDC to which the principal diagnosis is assigned. Therefore, it is necessary to have a decision rule within the GROUPER by which these cases are assigned to a single MS-DRG. The surgical hierarchy, an ordering of surgical classes from most resource- intensive to least resource-intensive, performs that function. Application of this hierarchy ensures that cases involving multiple surgical procedures are assigned to the MS-DRG associated with the most resource-intensive surgical class. A surgical class can be composed of one or more MS-DRGs. For example, in MDC 11, the surgical class ``kidney transplant'' consists of a single MS-DRG (MS-DRG 652) and the class ``major bladder procedures'' consists of three MS-DRGs (MS-DRGs 653, 654, and 655). Consequently, in many cases, the surgical hierarchy has an impact on more than one MS-DRG. The methodology for determining the most resource-intensive surgical class involves weighting the average resources for each MS-DRG by frequency to determine the weighted average resources for each surgical class. For example, assume surgical class A includes MS-DRGs 001 and 002 and surgical class B includes MS- DRGs 003, 004, and 005. Assume also that the average costs of MS-DRG 001 are higher than that of MS-DRG 003, but the average costs of MS- DRGs 004 and 005 are higher than the average costs of MS-DRG 002. To determine whether surgical class A should be higher or lower than surgical class B in the surgical hierarchy, we would weigh the average costs of each MS-DRG in the class by frequency (that is, by the number of cases in the MS-DRG) to determine average resource consumption for the surgical class. The surgical classes would then be ordered from the class with the highest average resource utilization to that with the lowest, with the exception of ``other O.R. procedures'' as discussed in this FY 2026 IPPS/LTCH PPS final rule. This methodology may occasionally result in assignment of a case involving multiple procedures to the lower-weighted MS-DRG (in the highest, most resource-intensive surgical class) of the available alternatives. However, given that the logic underlying the surgical hierarchy provides that the GROUPER search for the procedure in the most resource-intensive surgical class, in cases involving multiple procedures, this result is sometimes unavoidable. We note that, notwithstanding the foregoing discussion, there are a few instances when a surgical class with a lower average cost is ordered above a surgical class with a higher average cost. For example, the ``other O.R. procedures'' surgical class is uniformly ordered last in the surgical hierarchy of each MDC in which it occurs, regardless of the fact that the average costs for the MS-DRG or MS-DRGs in that surgical class may be higher than those for other surgical classes in the MDC. The ``other O.R. procedures'' class is a group of procedures that are only infrequently related to the diagnoses in the MDC but are still occasionally performed on patients with cases assigned to the MDC with these diagnoses. Therefore, assignment to these surgical classes should only occur if no other surgical class more closely related to the diagnoses in the MDC is appropriate. [[Page 36638]] A second example occurs when the difference between the average costs for two surgical classes is very small. We have found that small differences generally do not warrant reordering of the hierarchy because, as a result of reassigning cases on the basis of the hierarchy change, the average costs are likely to shift such that the higher- ordered surgical class has lower average costs than the class ordered below it. In the FY 2025 IPPS/LTCH PPS final rule (89 FR 69100), we stated our intent to consider if the development of evaluation criteria would be useful for future proposed modifications to the surgical hierarchy for MS-DRGs that have meaningful changes to the clinical logic. We are continuing to examine what factors should be taken into account as we consider any future proposals. We welcome feedback and other suggestions to be submitted via MEARISTM at https://mearis.cms.gov/public/home by October 20, 2025. Based on the changes that we proposed to make for FY 2026, as discussed in section II.C. of the preamble of the FY 2026 IPPS/LTCH PPS proposed rule and this final rule, we proposed to modify the existing surgical hierarchy for FY 2026 as illustrated in the following tables. We noted in the proposed rule that because the current methodology involves weighing the average costs of each MS-DRG in the surgical class by frequency (that is, by the number of cases in the MS-DRG) to determine average resource consumption for the surgical class, that the surgical hierarchy of other MS-DRGs in the MDC may need to be adjusted based on the MS-DRG classification changes that are proposed to ensure that the average weighted cost for each base MS-DRG in each MDC are monotonically decreasing. We further noted that the proposed Version 43 surgical hierarchy as illustrated in the following tables may be subject to further modifications based on the finalized changes to the MS-DRG classifications for FY 2026. BILLING CODE 4120-01-P [GRAPHIC] [TIFF OMITTED] TR04AU25.125 [[Page 36639]] [GRAPHIC] [TIFF OMITTED] TR04AU25.126 Comment: Several commenters expressed support for the proposed changes to the surgical hierarchy for MDC 05 and MDC 08. Response: We thank the commenters for their support. Therefore, after consideration of the public comments we received, and based on the changes that we are finalizing for FY 2026, as discussed in section II.C. of the preamble of this final rule, we are finalizing our proposals to modify the existing surgical hierarchy under MDC 05 and MDC 08, effective with the ICD-10 MS-DRGs Version 43, with modification. As discussed in section II.C.4., we are creating MS- DRG 209, MS-DRG 213, MS-DRG 218, and MS-DRGs 359 and 360. As discussed in section II.C.5., we are not finalizing the creation of proposed new MS-DRGs 403 and 404 for FY 2026. The finalized surgical hierarchy for MDC 05 and MDC 08 is shown in the following tables. These changes are also reflected in Appendix D MS-DRG Surgical Hierarchy by MDC and MS-DRG of the ICD-10 MS-DRG Definitions Manual, Version 43 available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software, effective October 1, 2025, for FY 2026. [[Page 36640]] [GRAPHIC] [TIFF OMITTED] TR04AU25.127 [[Page 36641]] [GRAPHIC] [TIFF OMITTED] TR04AU25.128 BILLING CODE 4120-01-C For issues pertaining to the surgical hierarchy, as with other MS- DRG related requests, we encourage interested parties to submit comments no later than October 20, 2025, via MEARISTM at https://mearis.cms.gov/public/home, so that they can be considered for possible inclusion in the annual proposed rule. We will consider these public comments for possible proposals in future rulemaking as part of our annual review process.

11. Maintenance of the ICD-10-CM and ICD-10-PCS Coding Systems

In September 1985, the ICD-9-CM Coordination and Maintenance Committee was formed. This is a Federal interdepartmental committee, co-chaired by the Centers for Disease Control and Prevention's (CDC) National Center for Health Statistics (NCHS) and CMS, charged with maintaining and updating the ICD-9-CM system. The final update to ICD- 9-CM codes was made on October 1, 2013. Thereafter, the name of the Committee was changed to the ICD-10 Coordination and Maintenance Committee, effective with the March 19-20, 2014 meeting. The ICD-10 Coordination and Maintenance Committee addresses updates to the ICD-10- CM and ICD-10-PCS coding systems. The Committee is jointly responsible for approving coding changes, and developing errata, addenda, and other modifications to the coding systems to reflect newly developed procedures and technologies and newly identified diseases. The Committee is also responsible for promoting the use of Federal and non- Federal educational programs and other communication techniques with a view toward standardizing coding applications and upgrading the quality of the classification system. The official list of ICD-9-CM diagnosis and procedure codes by fiscal year can be found on the CMS website at: https://www.cms.gov/medicare/coding-billing/icd-10-codes/icd-9-cm-diagnosis-procedure-codes-abbreviated-and-full-code-titles. The official list of ICD-10-CM and ICD-10-PCS codes can be found on the CMS website at: http://www.cms.gov/Medicare/Coding/ICD10/index.html. The NCHS has lead responsibility for the ICD-10-CM and ICD-9-CM diagnosis codes included in the Tabular List and Alphabetic Index for Diseases, while CMS has lead responsibility for the ICD-10-PCS and ICD- 9-CM procedure codes included in the Tabular List and Alphabetic Index for Procedures. The Committee encourages participation in the previously mentioned process by health-related organizations. In this regard, the Committee holds public meetings for discussion of educational issues and proposed coding changes. These meetings provide an opportunity for representatives of recognized organizations in the coding field, such as the American Health Information Management Association (AHIMA), the American Hospital Association (AHA), and various physician specialty groups, as well as individual physicians, health information management professionals, and other members of the public, to contribute ideas on coding matters. Members of the public may submit comments on the proposed procedure code topics to CMS at: [email protected] and may submit comments on the proposed diagnosis code topics to the CDC/NCHS at: [email protected]. After considering the opinions expressed during the public meetings and in writing, the Committee formulates recommendations, which then must be approved by the agencies. The Committee presented proposals for coding changes for implementation in FY 2026 at a public meeting held on September 10-11, 2024 and finalized [[Page 36642]] the coding changes after consideration of comments received at the meetings and in writing by November 15, 2024. In lieu of holding its Spring 2025 meeting, the Committee solicited comments on the Spring 2025 ICD-10-PCS procedure code topics. The deadline for submitting comments on these code proposals was April 18, 2025. Any new diagnosis and procedure codes for which there was consensus of public support, and for which complete tabular and indexing changes would be made by June 2025 are included in the October 1, 2025 update to the ICD-10-CM diagnosis and ICD-10-PCS procedure code sets. As discussed in earlier sections of the preamble of this FY 2026 IPPS/LTCH PPS final rule, there are new, revised, and deleted ICD-10-CM diagnosis codes and ICD-10-PCS procedure codes that are captured in Table 6A.--New Diagnosis Codes, Table 6B.--New Procedure Codes, Table 6C.--Invalid Diagnosis Codes, Table 6D.--Invalid Procedure Codes, Table 6E.--Revised Diagnosis Code Titles, and Table 6F.--Revised Procedure Code Titles for this FY 2026 IPPS/LTCH PPS final rule, which are available on the CMS website at: https://www.cms.gov/medicare/medicare-fee-for-service-payment/acuteinpatientpps. The code titles are adopted as part of the ICD-10 Coordination and Maintenance Committee process. Therefore, although we make the code titles available for the IPPS proposed and final rules, they are not subject to comment in the proposed or final rule. Because of the length of these tables, they are not published in the Addendum to the proposed or final rule. Rather, they are available on the CMS website as discussed in section VI. of the Addendum to the proposed rule and this final rule. Recordings for the virtual meeting discussions of the procedure codes at the Committee's September 10-11, 2024 meeting and the materials for the Spring 2025 ICD-10-PCS procedure code topics can be obtained from the CMS website at: https://www.cms.gov/Medicare/Coding/ICD10/C-and-M-Meeting-Materials. The materials for the topics relating to diagnosis codes discussed at the September 10-11, 2024 meeting can be found at: https://www.cdc.gov/nchs/icd/icd-10-maintenance/meetings.html. These websites also provide detailed information about the Committee, including information on requesting a new code, participating in a Committee meeting, timeline requirements, submitting comments, and meeting dates. Comment: A commenter stated that in March 2025, CMS decided to not present the Spring 2025 ICD-10-PCS procedure code topics during a public meeting. Instead, CMS posted the meeting materials on the CMS website and solicited public comments with a 30-day comment period. The commenter requested clarification from CMS regarding its plans for future ICD-10-PCS procedure code topics. Specifically, whether CMS intends to resume its previous practice of hosting a public meeting twice annually, in March and September, or if CMS plans to permanently discontinue these meetings. The commenter stated they do not oppose the current approach; however, appreciate any insight into CMS' intention for future code proposals. Response: CMS will share any updates to our approach for upcoming ICD-10 Coordination and Maintenance Committee meetings through the CMS website and our Subscriber List. To sign up for ICD-10 Coordination and Maintenance Committee meeting and related updates, members of the public may join the ICD-10 Coordination and Maintenance Committee Meetings Subscriber List. Instructions are located in the Downloads section on the following CMS website: https://www.cms.gov/medicare/coding-billing/icd-10-codes/icd-10-coordination-maintenance-committee-meetings. We encourage commenters to submit questions and comments on coding issues involving diagnosis codes via email to: [email protected]. Questions and comments concerning the procedure codes should be submitted via email to: [email protected]. As discussed in the proposed rule (90 FR 18071), CMS implemented 50 new procedure codes including cardiac stereotactic body radiotherapy (SBRT), transplantation of the larynx, repositioning of long bones using a ring external fixation device with automated strut adjustment, supplementing the right atrium with heterotopic bioprosthetic valve(s), the administration of emapalumab-Izsg anti-IFNy monoclonal antibody, and the administration of tarlatamab-dlle antineoplastic into the ICD- 10-PCS classification effective with discharges on and after April 1, 2025. The procedure codes are as follows: BILLING CODE 4120-01-P [[Page 36643]] [GRAPHIC] [TIFF OMITTED] TR04AU25.129 [[Page 36644]] [GRAPHIC] [TIFF OMITTED] TR04AU25.130 [[Page 36645]] [GRAPHIC] [TIFF OMITTED] TR04AU25.131 BILLING CODE 4120-01-C The 50 procedure codes are also reflected in Table 6B.--New Procedure Codes, in association with the proposed rule and available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for- Service-Payment/AcuteInpatientPPS. As with the other new procedure codes and MS-DRG assignments included in Table 6B. in association with the FY 2026 IPPS/LTCH PPS proposed rule, we solicited public comments on the most appropriate MDC, MS-DRG, and operating room status assignments for these codes for FY 2026, as well as any other options for the GROUPER logic. We discuss the comments we received on these assignments in section II.C.9. of this final rule as well as our finalized assignments, as reflected in Table 6B.--New Procedure Codes in association with this final rule. In the proposed rule, we also noted that Change Request (CR) 13917, Transmittal 12995, titled ``April 2025 Update to the Medicare Severity- Diagnosis Related Group (MS-DRG) Grouper and Medicare Code Editor (MCE) Version 42.1'' was issued on December 12, 2024 (available on the CMS website at: https://www.cms.gov/medicare/regulations-guidance/transmittals/2024-transmittals/r12995cp) regarding the release of an updated version of the ICD-10 MS-DRG GROUPER and Medicare Code Editor software, Version 42.1, effective with discharges on and after April 1, 2025, reflecting the new procedure codes. The updated software, along with the updated ICD-10 MS-DRG Version 42.1 Definitions Manual and the Definitions of Medicare Code Edits Version 42.1 manual is available at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software. In the September 7, 2001 final rule implementing the IPPS new technology add-on payments (66 FR 46906), we indicated we would attempt to include proposals for procedure codes that [[Page 36646]] would describe new technology discussed and approved at the Spring meeting as part of the code revisions effective the following October. Section 503(a) of the Medicare Modernization Act (Pub. L. 108-173) included a requirement for updating diagnosis and procedure codes twice a year instead of a single update on October 1 of each year. This requirement was included as part of the amendments to the Act relating to recognition of new technology under the IPPS. Section 503(a) of Public Law 108-173 amended section 1886(d)(5)(K) of the Act by adding a clause (vii) which states that the Secretary shall provide for the addition of new diagnosis and procedure codes on April 1 of each year, but the addition of such codes shall not require the Secretary to adjust the payment (or diagnosis-related group classification) until the fiscal year that begins after such date. This requirement improves the recognition of new technologies under the IPPS by providing information on these new technologies at an earlier date. Data will be available 6 months earlier than would be possible with updates occurring only once a year on October 1. In the FY 2005 IPPS final rule, we implemented section 1886(d)(5)(K)(vii) of the Act, as added by section 503(a) of Public Law 108-173, by developing a mechanism for approving, in time for the April update, diagnosis and procedure code revisions needed to describe new technologies and medical services for purposes of the new technology add-on payment process. We also established the following process for making these determinations. Topics considered during the Fall ICD-10 (previously ICD-9-CM) Coordination and Maintenance Committee meeting were considered for an April 1 update if a strong and convincing case was made by the requestor during the Committee's public meeting. The request needed to identify the reason why a new code was needed in April for purposes of the new technology process. Meeting participants and those reviewing the Committee meeting materials were provided the opportunity to comment on the expedited request. We refer the reader to the FY 2022 IPPS/LTCH PPS final rule (86 FR 44950) for further discussion of the implementation of this prior April 1 update for purposes of the new technology add-on payment process. However, as discussed in the FY 2022 IPPS/LTCH PPS final rule (86 FR 44950 through 44956), we adopted an April 1 implementation date, in addition to the annual October 1 update, beginning with April 1, 2022. We noted that the intent of this April 1 implementation date is to allow flexibility in the ICD-10 code update process. With this new April 1 update, CMS now uses the same process for consideration of all requests for an April 1 implementation date, including for purposes of the new technology add-on payment process (that is, the prior process for consideration of an April 1 implementation date only if a strong and convincing case was made by the requestor during the meeting no longer applies). We are continuing to use several aspects of our existing established process to implement new codes through the April 1 code update, which includes presenting proposals for April 1 consideration at the September ICD-10 Coordination and Maintenance Committee meeting, requesting public comments, reviewing the public comments, finalizing codes, and announcing the new codes with their assignments consistent with the new GROUPER release information. We note that under our established process, requestors indicate whether they are submitting their code request for consideration for an April 1 implementation date or an October 1 implementation date. The ICD-10 Coordination and Maintenance Committee makes efforts to accommodate the requested implementation date for each request submitted. However, the Committee determines which requests are to be presented for consideration for an April 1 implementation date or an October 1 implementation date. As discussed earlier in this section of the preamble of this FY 2026 IPPS/LTCH PPS final rule, there were code proposals presented for an April 1, 2025 implementation at the September 10-11, 2024 Committee meetings. Following the receipt of public comments, the code proposals were approved and finalized, therefore, there were new codes implemented April 1, 2025. As discussed in the FY 2026 IPPS/LTCH PPS proposed rule, consistent with the process we outlined for the April 1 implementation date, we announced the new codes in November 2024 and provided the updated code files in December 2024. The NCHS provided the ICD-10-CM Official Guidelines for Coding and Reporting in January 2025. By February 27, 2025, we made available the updated Version 42.1 ICD-10 MS-DRG GROUPER software and related materials on the CMS web page at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software. ICD-9-CM addendum and code title information are published on the CMS website at https://www.cms.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/addendum. ICD-10-CM and ICD-10-PCS addendum and code title information are published on the CMS website at https://www.cms.gov/Medicare/Coding/ICD10. CMS also sends electronic files containing all ICD-10-CM and ICD-10-PCS coding changes to its Medicare contractors for use in updating their systems and providing education to providers. Information on ICD-10-CM diagnosis codes, along with the Official ICD-10-CM Coding Guidelines, can be found on the CDC website at https://www.cdc.gov/nchs/icd/icd-10-cm/files.html. Additionally, information on new, revised, and deleted ICD-10-CM diagnosis and ICD- 10-PCS procedure codes is provided to the AHA for publication in the Coding Clinic for ICD-10. The AHA also distributes coding update information to publishers and software vendors. In the proposed rule (90 FR 18074), we noted that for FY 2025, there are currently 74,044 diagnosis codes and 78,986 procedure codes. We also noted as displayed in Table 6A.--New Diagnosis Codes and in Table 6B.--New Procedure Codes associated with the FY 2026 IPPS/LTCH PPS proposed rule (and available on the CMS website at https:// www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/ AcuteInpatientPPS), there are 487 new diagnosis codes and 14 new procedure codes that had been finalized for FY 2026 at the time of the development of the FY 2026 IPPS/LTCH PPS proposed rule and 50 new procedure codes that were effective with discharges on and after April 1, 2025. The code titles are adopted as part of the ICD-10 Coordination and Maintenance Committee process. Thus, although we publish the code titles in the IPPS proposed and final rules, they are not subject to comment in the proposed or final rules. As discussed in section II.C.13 of the preamble of this final rule, we are making Table 6A.--New Diagnosis Codes, Table 6B.--New Procedure Codes, Table 6C.--Invalid Diagnosis Codes, Table 6D.--Invalid Procedure Codes, Table 6E.--Revised Diagnosis Code Titles and Table 6F.--Revised Procedure Code Titles available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps in association with this final rule. As shown in Table 6B.--New Procedure [[Page 36647]] Codes, there were procedure codes proposed for the Spring 2025 ICD-10 Coordination and Maintenance Committee Update that were not finalized in time to include in the proposed rule and are identified with an asterisk. We refer the reader to Table 6B.--New Procedure Codes associated with this final rule and available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps for the detailed list of these 142 new procedure codes finalized for FY 2026. We also note, as reflected in Table 6C.--Invalid Diagnosis Codes and in Table 6D.--Invalid Procedure Codes, there are a total of 28 diagnosis codes and 27 procedure codes that will become invalid effective October 1, 2025. Based on these code updates, effective October 1, 2025, there are a total of 74,719 ICD-10-CM diagnosis codes and 79,115 ICD-10-PCS procedure codes for FY 2026 as shown in the following table. [GRAPHIC] [TIFF OMITTED] TR04AU25.132 As stated previously, the public is provided the opportunity to comment on any requests for new diagnosis or procedure codes discussed during the ICD-10 Coordination and Maintenance Committee meeting. The code titles are adopted as part of the ICD-10 Coordination and Maintenance Committee process. Thus, although we publish the code titles in the IPPS proposed and final rules, they are not subject to comment in the proposed or final rules.

12. Replaced Devices Offered Without Cost or With a Credit

a. Background In the FY 2008 IPPS final rule with comment period (72 FR 47246 through 47251), we discussed the topic of Medicare payment for devices that are replaced without cost or where credit for a replaced device is furnished to the hospital. We implemented a policy to reduce a hospital's IPPS payment for certain MS-DRGs where the implantation of a device that subsequently failed or was recalled determined the base MS- DRG assignment. At that time, we specified that we will reduce a hospital's IPPS payment for those MS-DRGs where the hospital received a credit for a replaced device equal to 50 percent or more of the cost of the device. In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51556 through 51557), we clarified this policy to state that the policy applies if the hospital received a credit equal to 50 percent or more of the cost of the replacement device and issued instructions to hospitals accordingly. b. Changes for FY 2026 As discussed in section II.C.3a. of the preamble of the FY 2026 IPPS/LTCH PPS proposed rule and this final rule, for FY 2026, under MDC 01, we proposed to add procedure code combinations that describe the insertion of multiple or single array generators and the insertion of neurostimulator lead into the brain or cerebral ventricle and the procedure code combinations that describe the insertion of a neurostimulator generator into the skull and the insertion of a neurostimulator lead into the brain to a new ``intracranial neurostimulator implant'' logic list in MS-DRGs 020, 021, and 022. A subset of the procedures currently assigned to MS-DRGs 023 and 024 were proposed for reassignment to MS-DRGs 020, 021, and 022. We also proposed to revise the title of MS-DRG 020 from ``Intracranial Vascular Procedures with Principal Diagnosis Hemorrhage with MCC'' to ``Intracranial Vascular Procedures with Principal Diagnosis Hemorrhage or Intracranial Neurostimulator Implant with MCC''; revise the title of MS-DRG 021 from ``Intracranial Vascular Procedures with Principal Diagnosis Hemorrhage with CC'' to ``Intracranial Vascular Procedures with Principal Diagnosis Hemorrhage or Intracranial Neurostimulator Implant with CC''; revise the title of MS-DRG 022 from ``Intracranial Vascular Procedures with Principal Diagnosis Hemorrhage without CC/ MCC'' to ``Intracranial Vascular Procedures with Principal Diagnosis Hemorrhage or Intracranial Neurostimulator Implant without CC/MCC''; revise the title of MS-DRG 023 from ``Craniotomy with Major Device Implant or Acute Complex CNS Principal Diagnosis with MCC or Chemotherapy Implant or Epilepsy with Neurostimulator'' to ``Craniotomy with Acute Complex CNS Principal Diagnosis with MCC or Antineoplastic Implant''; and revise the title of MS-DRG 024 from ``Craniotomy with Major Device Implant or Acute Complex CNS Principal Diagnosis without MCC'' to ``Craniotomy with Acute Complex CNS Principal Diagnosis without MCC''. Additionally, as discussed in section II.C.4. of the preamble of the FY 2026 IPPS/LTCH PPS proposed rule and this final rule, for FY 2026, under MDC 05, we proposed new MS-DRG 209 (Complex Aortic Arch Procedures) and new MS-DRG 213 (Endovascular Abdominal Aorta with Iliac Branch Procedures). A subset of the procedures currently assigned to MS-DRGs 216, 217, 218, 219, 220, and 221 were proposed for assignment to proposed new MS-DRG 209 and a subset of the procedures currently assigned to MS-DRGs 268, 269, 270, 271, and 272 were proposed for assignment to proposed new MS-DRG 213. As stated in the FY 2016 IPPS/LTCH PPS proposed rule (80 FR 24409), we generally map new MS-DRGs onto the list when they are formed from procedures previously assigned to MS-DRGs that are already on the list. Currently, MS-DRGs 023, 024, 216, 217, 218, 219, 220, 221, 268, 269, 270, 271, and 272 are on the list of MS-DRGs subject to the policy for payment under the IPPS for replaced devices offered without cost or with a credit as shown in the following table. Therefore, we proposed that if the applicable proposed MS-DRG changes are finalized, we also would add MS-DRGs 020, 021, and 022 and proposed new MS-DRGs 209 and 213 to the list of MS-DRGs subject to the policy for payment under the IPPS for replaced devices offered without cost or with a credit and make conforming changes to the titles of MS-DRGs 023 and 024 in the list of MS-DRGs subject to the policy as reflected in the following table. We also proposed to continue to include the existing MS-DRGs currently subject to the policy. As discussed in section II.C.3a of the preamble of this FY 2026 IPPS/LTCH PPS final rule, we are not finalizing our proposal to add procedure code combinations that describe the insertion of multiple or single array generators and the insertion of neurostimulator lead into the brain or cerebral ventricle and the procedure code combinations [[Page 36648]] that describe the insertion of a neurostimulator generator into the skull and the insertion of a neurostimulator lead into the brain to a new ``intracranial neurostimulator implant'' logic list in MS-DRGs 020, 021, and 022. Consequently, a subset of the procedures currently assigned to MS-DRGs 023 and 024 will not be reassigned to MS-DRGs 020, 021, and 022. Therefore, we are not finalizing our proposal to add MS- DRGs 020, 021, and 022 to the list of MS-DRGs subject to the policy for payment under the IPPS for replaced devices offered without cost or with a credit for FY 2026. We are finalizing our proposal to make conforming changes to the titles of MS-DRGs 023 and 024 in the list of MS-DRGs subject to the policy, with modification. As discussed in section II.C.3a, we are finalizing the change of the description of the logic list in MS-DRG 023 from ``Chemotherapy Implant'' to ``Antineoplastic Implant''. Therefore, for consistency, we are finalizing a change to the title of MS-DRG 023 from ``Craniotomy with Major Device Implant or Acute Complex Central Nervous System Principal Diagnosis with MCC or Chemotherapy Implant or Epilepsy with Neurostimulator'' to ``Craniotomy with Major Device Implant or Acute Complex Central Nervous System Principal Diagnosis with MCC or Antineoplastic Implant or Epilepsy with Neurostimulator'' in the list of MS-DRGs subject to the policy. We are not finalizing a change to the title of MS-DRG 024 in the list of MS-DRGs subject to the policy for payment under the IPPS for replaced devices offered without cost or with a credit for FY 2026. As discussed in section II.C.4 of the preamble of this FY 2026 IPPS/LTCH PPS final rule, we are finalizing our proposals to create new MS-DRGs 209 and 213. We did not receive any public comments opposing our proposal to add proposed new MS-DRGs 209 and 213 to the list of MS- DRGs that will be subject to the replaced devices offered without cost or with a credit policy effective October 1, 2025. Therefore, we are finalizing our proposal to add new MS-DRGs 209 and 213 to the list of MS-DRGs subject to the policy for payment under the IPPS for replaced devices offered without cost or with a credit for FY 2026. We also note that under the current MS-DRGs version 42.1, MS-DRGs 466, 467, and 468 are on the list of MS-DRGs subject to the policy for payment under the IPPS for replaced devices offered without cost or with a credit as shown in the table that was made available in association with the proposed rule (90 FR 18075 through 18076). As previously discussed in this section of this final rule, we generally map new MS-DRGs onto the list when they are formed from procedures previously assigned to MS-DRGs that are already on the list. As discussed in section II.C.5. of the preamble of the FY 2026 IPPS/LTCH PPS proposed rule and this final rule, for FY 2026, under MDC 08, we proposed to create new MS-DRGs 403 and 404 (Hip or Knee Procedures with Principal Diagnosis of Periprosthetic Joint Infection with MCC and without MCC, respectively). A subset of the procedures currently assigned to MS-DRGs 466, 467, and 468 were proposed for assignment to proposed new MS-DRGs 403 and 404, however, we inadvertently omitted listing MS-DRGs 403 and 404 in the proposed list of MS-DRGs subject to the policy for payment under the IPPS for replaced devices offered without cost or with a credit in the proposed rule. As discussed in section II.C.5. of the preamble of this final rule, we are not finalizing our proposal to create new MS-DRGs 403 and 404 for FY 2026. Therefore, MS-DRGs 403 and 404 are not reflected in the table of MS- DRGs that will be subject to the policy for FY 2026. We did not receive any public comments opposing our proposal to continue to include the existing MS-DRGs currently subject to the policy. Therefore, for the reasons summarized, we are finalizing the list of MS-DRGs in the following table that will be subject to the replaced devices offered without cost or with a credit policy effective October 1, 2025. BILLING CODE 4120-01-P [[Page 36649]] [GRAPHIC] [TIFF OMITTED] TR04AU25.133 BILLING CODE 4120-01-C The final list of MS-DRGs subject to the IPPS policy for replaced devices offered without cost or with a credit will be issued to providers in the form of a Change Request (CR).

13. Out of Scope Public Comments Received

We received public comments on MS-DRG related issues that were outside the scope of the proposals included in the FY 2026 IPPS/LTCH PPS proposed rule. Because we consider these public comments to be outside the scope of the proposed rule, we are not addressing them in this final rule. As stated in section II.C.1.b. of the preamble of this final rule, we encourage individuals with comments about MS-DRG classifications to submit these comments no later than October 20, 2025, via MEARISTM at: https://mearis.cms.gov/public/home, so that they can be considered for possible inclusion in the annual proposed rule. We will consider these public comments for possible proposals in future rulemaking as part of our annual review process. [[Page 36650]]

1. Data Sources for Developing the Relative Weights

Consistent with our established policy, in developing the MS-DRG relative weights for FY 2026, we proposed to use two data sources: claims data and cost report data. The claims data source is the MedPAR file, which includes fully coded diagnostic and procedure data for all Medicare inpatient hospital bills. The FY 2024 MedPAR data used in this final rule includes discharges occurring on October 1, 2023, through September 30, 2024, based on bills received by CMS through March 31, 2025, from all hospitals subject to the IPPS and short-term, acute care hospitals in Maryland (which at that time were under a waiver from the IPPS). The FY 2024 MedPAR file used in calculating the relative weights includes data for approximately 6,899,914 Medicare discharges from IPPS providers. Discharges for Medicare beneficiaries enrolled in a Medicare Advantage managed care plan are excluded from this analysis. These discharges are excluded when the MedPAR ``GHO Paid'' indicator field on the claim record is equal to ``1'' or when the MedPAR DRG payment field, which represents the total payment for the claim, is equal to the MedPAR ``Indirect Medical Education (IME)'' payment field, indicating that the claim was an ``IME only'' claim submitted by a teaching hospital on behalf of a beneficiary enrolled in a Medicare Advantage managed care plan. In addition, the March 2025 update of the FY 2024 MedPAR file complies with version 5010 of the X12 HIPAA Transaction and Code Set Standards, and includes a variable called ``claim type.'' Claim type ``60'' indicates that the claim was an inpatient claim paid as fee-for-service. Claim types ``61,'' ``62,'' ``63,'' and ``64'' relate to encounter claims, Medicare Advantage IME claims, and HMO no-pay claims. Therefore, the calculation of the relative weights for FY 2026 also excludes claims with claim type values not equal to ``60.'' The data exclude CAHs, including hospitals that subsequently became CAHs after the period from which the data were taken. In addition, the data exclude Rural Emergency Hospitals (REHs), including hospitals that subsequently became REHs after the period from which the data were taken. We note that the FY 2026 relative weights are based on the ICD-10-CM diagnosis codes and ICD-10-PCS procedure codes from the FY 2024 MedPAR claims data, grouped through the ICD-10 version of the FY 2026 GROUPER (Version 43). The second data source used in the cost-based relative weighting methodology is the Medicare cost report data files from the Healthcare Cost Report Information System (HCRIS). In general, we use the HCRIS dataset that is 3 years prior to the IPPS fiscal year. Specifically, for this final rule, we used the March 2025 update of the FY 2023 HCRIS for calculating the FY 2026 cost-based relative weights. Consistent with our historical practice, for this FY 2026 final rule, we are providing the version of the HCRIS from which we calculated these 19 cost-to charge-ratios (CCRs) on the CMS website at https://www.cms.gov/ Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS. Click on the link on the left side of the screen titled ``FY 2026 IPPS Final Rule Home Page'' or ``Acute Inpatient Files for Download.''

2. Methodology for Calculation of the Relative Weights

a. General We calculated the FY 2026 relative weights based on 19 CCRs. The methodology we proposed to use to calculate the FY 2026 MS-DRG cost- based relative weights based on claims data in the FY 2024 MedPAR file and data from the FY 2023 Medicare cost reports is as follows: To the extent possible, all the claims were regrouped using the FY 2026 MS-DRG classifications discussed in sections II.B. and II.C. of the preamble of this final rule. The transplant cases that were used to establish the relative weights for heart and heart-lung, liver and/or intestinal, and lung transplants (MS-DRGs 001, 002, 005, 006, and 007, respectively) were limited to those Medicare-approved transplant centers that have cases in the FY 2024 MedPAR file. (Medicare coverage for heart, heart- lung, liver and/or intestinal, and lung transplants is limited to those facilities that have received approval from CMS as transplant centers.) Organ acquisition costs for kidney, heart, heart-lung, liver, lung, pancreas, and intestinal (or multivisceral organs) transplants continue to be paid on a reasonable cost basis. Because these acquisition costs are paid separately from the prospective payment rate, it is necessary to subtract the acquisition charges from the total charges on each transplant bill that showed acquisition charges before computing the average cost for each MS-DRG and before eliminating statistical outliers. Section 108 of the Further Consolidated Appropriations Act, 2020 provides that, for cost reporting periods beginning on or after October 1, 2020, costs related to hematopoietic stem cell acquisition for the purpose of an allogeneic hematopoietic stem cell transplant shall be paid on a reasonable cost basis. We refer the reader to the FY 2021 IPPS/LTCH PPS final rule for further discussion of the reasonable cost basis payment for cost reporting periods beginning on or after October 1, 2020 (85 FR 58835 through 58842). For FY 2022 and subsequent years, we subtract the hematopoietic stem cell acquisition charges from the total charges on each transplant bill that showed hematopoietic stem cell acquisition charges before computing the average cost for each MS- DRG and before eliminating statistical outliers. Claims with total charges or total lengths of stay less than or equal to zero were deleted. Claims that had an amount in the total charge field that differed by more than $30.00 from the sum of the routine day charges, intensive care charges, pharmacy charges, implantable devices charges, supplies and equipment charges, therapy services charges, operating room charges, cardiology charges, laboratory charges, radiology charges, other service charges, labor and delivery charges, inhalation therapy charges, emergency room charges, blood and blood products charges, anesthesia charges, cardiac catheterization charges, CT scan charges, and MRI charges were also deleted. At least 92.7 percent of the providers in the MedPAR file had charges for 14 of the 19 cost centers. All claims of providers that did not have charges greater than zero for at least 14 of the 19 cost centers were deleted. In other words, a provider must have no more than five blank cost centers. If a provider did not have charges greater than zero in more than five cost centers, the claims for the provider were deleted. Statistical outliers were eliminated by removing all cases that were beyond 3.0 standard deviations from the geometric mean of the log distribution of both the total charges per case and the total charges per day for each MS-DRG. Effective October 1, 2008, because hospital inpatient claims include a Present on Admission (POA) field for each diagnosis present on the claim, only for purposes of relative weight-setting, the POA indicator field was reset to ``Y'' for ``Yes'' for all claims that otherwise have an ``N'' (No) or a ``U'' (documentation insufficient to determine if the condition was present [[Page 36651]] at the time of inpatient admission) in the POA field. Under current payment policy, the presence of specific HAC codes, as indicated by the POA field values, can generate a lower payment for the claim. Specifically, if the particular condition is present on admission (that is, a ``Y'' indicator is associated with the diagnosis on the claim), it is not a HAC, and the hospital is paid for the higher severity (and, therefore, the higher weighted MS-DRG). If the particular condition is not present on admission (that is, an ``N'' indicator is associated with the diagnosis on the claim) and there are no other complicating conditions, the DRG GROUPER assigns the claim to a lower severity (and, therefore, the lower weighted MS-DRG) as a penalty for allowing a Medicare inpatient to contract a HAC. While the POA reporting meets policy goals of encouraging quality care and generates program savings, it presents an issue for the relative weight-setting process. Because cases identified as HACs are likely to be more complex than similar cases that are not identified as HACs, the charges associated with HAC cases are likely to be higher as well. Therefore, if the higher charges of these HAC claims are grouped into lower severity MS-DRGs prior to the relative weight-setting process, the relative weights of these particular MS-DRGs would become artificially inflated, potentially skewing the relative weights. In addition, we want to protect the integrity of the budget neutrality process by ensuring that, in estimating payments, no increase to the standardized amount occurs as a result of lower overall payments in a previous year that stem from using weights and case-mix that are based on lower severity MS-DRG assignments. If this would occur, the anticipated cost savings from the HAC policy would be lost. To avoid these problems, we reset the POA indicator field to ``Y'' only for relative weight-setting purposes for all claims that otherwise have an ``N'' or a ``U'' in the POA field. This resetting ``forced'' the more costly HAC claims into the higher severity MS-DRGs as appropriate, and the relative weights calculated for each MS-DRG more closely reflect the true costs of those cases. In addition, in the FY 2013 IPPS/LTCH PPS final rule, for FY 2013 and subsequent fiscal years, we finalized a policy to treat hospitals that participate in the Bundled Payments for Care Improvement (BPCI) initiative the same as prior fiscal years for the IPPS payment modeling and ratesetting process without regard to hospitals' participation within these bundled payment models (77 FR 53341 through 53343). Specifically, because acute care hospitals participating in the BPCI Initiative still receive IPPS payments under section 1886(d) of the Act, we include all applicable data from these subsection (d) hospitals in our IPPS payment modeling and ratesetting calculations as if the hospitals were not participating in those models under the BPCI initiative. We refer readers to the FY 2013 IPPS/LTCH PPS final rule for a complete discussion on our final policy for the treatment of hospitals participating in the BPCI initiative in our ratesetting process. For additional information on the BPCI initiative, we refer readers to the CMS' Center for Medicare and Medicaid Innovation's website at https://innovation.cms.gov/initiatives/Bundled-Payments/index.html and to section IV.H.4. of the preamble of the FY 2013 IPPS/ LTCH PPS final rule (77 FR 53341 through 53343). The participation of hospitals in the BPCI initiative concluded on September 30, 2018. The participation of hospitals in the BPCI Advanced model started on October 1, 2018. The BPCI Advanced model, tested under the authority of section 1115A of the Act, is comprised of a single payment and risk track, which bundles payments for multiple services that beneficiaries receive during a Clinical Episode. Acute care hospitals may participate in BPCI Advanced in one of two capacities: as a model Participant or as a downstream Episode Initiator. Regardless of the capacity in which they participate in the BPCI Advanced model, participating acute care hospitals will continue to receive IPPS payments under section 1886(d) of the Act. Acute care hospitals that are Participants also assume financial and quality performance accountability for Clinical Episodes in the form of a reconciliation payment. For additional information on the BPCI Advanced model, we refer readers to the BPCI Advanced web page on the CMS Center for Medicare and Medicaid Innovation's website at https://innovation.cms.gov/initiatives/bpci-advanced. Consistent with our policy for FY 2025, and consistent with how we have treated hospitals that participated in the BPCI Initiative, for FY 2026, we continue to believe it is appropriate to include all applicable data from the subsection (d) hospitals participating in the BPCI Advanced model in our IPPS payment modeling and ratesetting calculations because, as noted previously, these hospitals are still receiving IPPS payments under section 1886(d) of the Act. Consistent with the FY 2025 IPPS/LTCH PPS final rule, we also proposed to include all applicable data from subsection (d) hospitals participating in the Comprehensive Care for Joint Replacement (CJR) Model in our IPPS payment modeling and ratesetting calculations. The charges for each of the 19 cost groups for each claim were standardized to remove the effects of differences in area wage levels, IME and DSH payments, and for hospitals located in Alaska and Hawaii, the applicable cost-of-living adjustment. Because hospital charges include charges for both operating and capital costs, we standardized total charges to remove the effects of differences in geographic adjustment factors, cost-of-living adjustments, and DSH payments under the capital IPPS as well. Charges were then summed by MS-DRG for each of the 19 cost groups so that each MS-DRG had 19 standardized charge totals. Statistical outliers were then removed. These charges were then adjusted to cost by applying the national average CCRs developed from the FY 2023 cost report data. The 19 cost centers that we used in the relative weight calculation are shown in a supplemental data file, Cost Center HCRIS Lines Supplemental Data File, posted via the internet on the CMS website for this final rule and available at https://www.cms.gov/Medicare/Medicare- Fee-for-Service-Payment/AcuteInpatientPPS. The supplemental data file shows the lines on the cost report and the corresponding revenue codes that we used to create the 19 national cost center CCRs. In the proposed rule, we stated that if we receive comments about the groupings in this supplemental data file, we may consider these comments as we finalize our policy. We did not receive any comments on the groupings in this table and are finalizing the groupings as proposed. Consistent with historical practice, we account for rare situations of non-monotonicity in a base MS-DRG and its severity levels, where the mean cost in the higher severity level is less than the mean cost in the lower severity level, in determining the relative weights for the different severity levels. If there are initially non-monotonic relative weights in the same base DRG and its severity levels, then we combine the cases that group to the specific non-monotonic MS-DRGs for purposes of relative weight calculations. For example, if there are two non-monotonic MS-DRGs, combining the cases across those two [[Page 36652]] MS-DRGs results in the same relative weight for both MS-DRGs. The relative weight calculated using the combined cases for those severity levels is monotonic, effectively removing any non-monotonicity with the base DRG and its severity levels. In the FY 2026 proposed rule, we stated that this calculation was applied to address non-monotonicity for cases that grouped to the following: MS-DRG 016 and MS-DRG 017, MS- DRG 095 and MS-DRG 096, MS-DRG 504 and MS-DRG 505, MS-DRG 797 and MS- DRG 798. In the supplemental file titled AOR/BOR File, we include statistics for the affected MS-DRGs both separately and with cases combined. We invited public comments on our proposals related to recalibration of the proposed FY 2026 relative weights and the changes in relative weights from FY 2025. Comment: A commenter requested that CMS clarify whether MS-DRGs 016 and 017 were non-monotonic. Response: The proposed rule inadvertently included an incorrect list of MS-DRGs where a calculation was applied to address non- monotonicity. This list should have been MS-DRG 095 and MS-DRG 096, MS- DRG 217 and MS-DRG 218. After consideration of the comments received, we are finalizing our proposals without modifications related to the recalibration of the FY 2026 relative weights. We summarize and respond to comments relating to the methodology for calculating the relative weight for MS-DRG 018 in the next section of this final rule. b. Relative Weight Calculation for MS-DRG 018 In the FY 2021 IPPS/LTCH PPS final rule (85 FR 58451 through 58453), we created MS-DRG 018 for cases that include procedures describing CAR T-cell therapies. We also finalized our proposal to modify our existing relative weight methodology to ensure that the relative weight for MS-DRG 018 appropriately reflects the relative resources required for providing CAR T-cell therapy outside of a clinical trial, while still accounting for the clinical trial cases in the overall average cost for all MS-DRGs (85 FR 58599 through 58600). Specifically, we stated that clinical trial claims that group to new MS-DRG 018 would not be included when calculating the average cost for MS-DRG 018 that is used to calculate the relative weight for this MS- DRG, so that the relative weight reflects the costs of the CAR T-cell therapy drug. We stated that we identified clinical trial claims as claims that contain ICD-10-CM diagnosis code Z00.6 or contain standardized drug charges of less than $373,000, which was the average sales price of KYMRIAH and YESCARTA, the two CAR T-cell biological products licensed to treat relapsed/refractory large B-cell lymphoma as of the time of the development of the FY 2021 final rule. In addition, we stated that (a) when the CAR T-cell therapy product is purchased in the usual manner, but the case involves a clinical trial of a different product, the claim will be included when calculating the average cost for new MS-DRG 018 to the extent such cases can be identified in the historical data, and (b) when there is expanded access use of immunotherapy, these cases will not be included when calculating the average cost for new MS-DRG 018 to the extent such cases can be identified in the historical data. We also finalized our proposal to calculate an adjustment to account for the CAR T-cell therapy cases identified as clinical trial cases in calculating the national average standardized cost per case that is used to calculate the relative weights for all MS-DRGs and for purposes of budget neutrality and outlier simulations. We calculate this adjustor by dividing the average cost for cases that we identify as clinical trial cases by the average cost for cases that we identify as non-clinical trial cases, with the additional refinements that (a) when the CAR T-cell therapy product is purchased in the usual manner, but the case involves a clinical trial of a different product, the claim will be included when calculating the average cost for cases not determined to be clinical trial cases to the extent such cases can be identified in the historical data, and (b) when there is expanded access use of immunotherapy, these cases will be included when calculating the average cost for cases determined to be clinical trial cases to the extent such cases can be identified in the historical data. We stated that to the best of our knowledge, there were no claims in the historical data used in the calculation of this adjustment for cases involving a clinical trial of a different product, and to the extent the historical data contain claims for cases involving expanded access use of immunotherapy we believe those claims would have drug charges less than $373,000. In the FY 2021 IPPS/LTCH PPS final rule (85 FR 58842), we also finalized an adjustment to the payment amount for applicable clinical trial and expanded access use immunotherapy cases that group to MS-DRG 018, and indicated that we would provide instructions for identifying these claims in separate guidance. Following the issuance of the FY 2021 IPPS/LTCH PPS final rule, we issued guidance \11\ stating that providers may enter a Billing Note NTE02 ``Expand Acc Use'' on the electronic claim 837I or a remark ``Expand Acc Use'' on a paper claim to notify the MAC of expanded access use of CAR T-cell therapy. In this case, the MAC would add payer-only condition code ``ZB'' so that Pricer will apply the payment adjustment in calculating payment for the case. In cases when the CAR T-cell therapy product is purchased in the usual manner, but the case involves a clinical trial of a different product, the provider may enter a Billing Note NTE02 ``Diff Prod Clin Trial'' on the electronic claim 837I or a remark ``Diff Prod Clin Trial'' on a paper claim. In this case, the MAC would add payer-only condition code ``ZC'' so that the Pricer will not apply the payment adjustment in calculating payment for the case. --------------------------------------------------------------------------- \11\ https://www.cms.gov/files/document/r10571cp.pdf. --------------------------------------------------------------------------- In the FY 2022 IPPS/LTCH PPS final rule, we revised MS-DRG 018 to include cases that report the procedure codes for CAR T-cell and non- CAR T-cell therapies and other immunotherapies (86 FR 44798 through 44806). We also finalized our proposal to continue to use the proxy of standardized drug charges of less than $373,000 (86 FR 44965) to identify clinical trial claims. We also finalized use of this same proxy for the FY 2023 IPPS/LTCH PPS final rule (87 FR 48894). Following the issuance of the FY 2023 IPPS/LTCH PPS final rule, we issued guidance \12\ stating where there is expanded access use of immunotherapy, the provider may submit condition code ``90'' on the claim so that Pricer will apply the payment adjustment in calculating payment for the case. We stated that MACs would no longer append Condition Code `ZB' to inpatient claims reporting Billing Note NTE02 ``Expand Acc Use'' on the electronic claim 837I or a remark ``Expand Acc Use'' on a paper claim, effective for claims for discharges that occur on or after October 1, 2022. --------------------------------------------------------------------------- \12\ https://www.cms.gov/files/document/r11727cp.pdf. --------------------------------------------------------------------------- In the FY 2024 IPPS/LTCH PPS final rule, we explained that the MedPAR claims data now includes a field that identifies whether or not the claim includes expanded access use of immunotherapy. We stated that for the FY 2022 MedPAR claims data, this field identifies whether or not the claim includes condition code ZB, and for the FY 2023 MedPAR data and subsequent [[Page 36653]] years, this field will identify whether or not the claim includes condition code 90. We further noted that the MedPAR files now also include a variable that indicates whether the claim includes the payer- only condition code ``ZC'', which identifies a case involving the clinical trial of a different product where the CAR T-cell, non-CAR T- cell, or other immunotherapy product is purchased in the usual manner. Accordingly, and as discussed further in the FY 2024 IPPS/LTCH PPS final rule, we finalized two modifications to our methodology for identifying clinical trial claims and expanded access use claims in MS- DRG 018 (88 FR 58791). First, we finalized to exclude claims with the presence of condition code ``90'' (or, for FY 2024 ratesetting, which was based on the FY 2022 MedPAR data, the presence of condition code ``ZB'') and claims that contain ICD-10-CM diagnosis code Z00.6 without payer-only code ``ZC'' to MS-DRG 018 when calculating the average cost for MS-DRG 018. Second, we finalized to no longer use the proxy of standardized drug charges of less than $373,000 to identify clinical trial claims and expanded access use cases when calculating the average cost for MS-DRG 018. Accordingly, we finalized that in calculating the relative weight for MS-DRG 018 for FY 2024, only those claims that group to MS-DRG 018 that (1) contain ICD-10-CM diagnosis code Z00.6 and do not include payer-only code ``ZC'' or (2) contain condition code ``ZB'' (or, for subsequent fiscal years, condition code ``90'') would be excluded from the calculation of the average cost for MS-DRG 018. Consistent with this, we also finalized modifications to our calculation of the adjustment to account for the CAR T-cell therapy cases identified as clinical trial cases in calculating the national average standardized cost per case that is used to calculate the relative weights for all MS-DRGs. We refer readers to the FY 2024 IPPS/ LTCH PPS final rule for further discussion of these modifications (88 FR 58791). Consistent with the FY 2025 IPPS/LTCH PPS final rule, in the proposed rule, for FY 2026 we proposed to continue to use our methodology as modified in the FY 2024 IPPS/LTCH PPS final rule for identifying clinical trial claims and expanded access use claims in MS- DRG 018, with an additional modification as discussed in this section. First, we exclude claims with the presence of condition code ``90'' and claims that contain ICD-10-CM diagnosis code Z00.6 without payer-only code ``ZC'' that group to MS-DRG 018 when calculating the average cost for MS-DRG 018. Second, we no longer use the proxy of standardized drug charges of less than $373,000 to identify clinical trial claims and expanded access use cases when calculating the average cost for MS-DRG 018. In section VI.H. of this final rule, we discuss our proposal to apply the payment adjustment for clinical trial and expanded access use immunotherapy cases to other cases where the immunotherapy product is not purchased in the usual manner, such as obtained at no cost. To mirror this proposed change within our relative weight methodology, we proposed to also exclude claims with standardized drug charges below the median standardized drug charge of claims identified as clinical trials in MS-DRG 018 when we calculate the average cost for MS-DRG 018. For the proposed rule, based on the December 2024 update of the FY 2024 MedPAR file, we estimated that the median standardized drug charge of claims identified as clinical trials in MS-DRG 018 is $29,819. We proposed to apply this policy for 2 years (that is, in our relative weight methodology for MS-DRG 018 for FYs 2026 and 2027), until the claims data reflects the addition of the condition code indicating that the immunotherapy product is not purchased in the usual manner, such as obtained at no cost, which then would be able to be used to identify these cases such that they can be identified for exclusion from the calculation of the average cost of MS-DRG 018. We also proposed, for the purpose of performing this trim, to update the median standardized drug charge of claims identified as clinical trials in MS-DRG 018 based on more recent data for the final rule. Accordingly, we proposed that in calculating the relative weight for MS-DRG 018 for FY 2026, in identifying clinical trial claims and expanded access use claims and other cases where the immunotherapy product is not purchased in the usual manner, such as obtained at no cost, only those claims that group to MS-DRG 018 that (1) contain ICD- 10-CM diagnosis code Z00.6 and do not include payer-only code ``ZC'', (2) contain condition code ``90'', or (3) contain standardized drug charges below the median standardized drug charge of clinical trial cases in MS-DRG 018 would be excluded from the calculation of the average cost for MS-DRG 018. With respect to claims that group to MS-DRG 018 and are identified as clinical trials or involve expanded access use of the CAR T-cell therapy or other immunotherapy, we noted in the proposed rule that there are some cases that appear to include drug charges similar to cases not identified as clinical trials or involving expanded access use. These charges are generally in revenue center 0891, Cell Therapy Drug Charges. We stated that we are seeking comments on potential reasons for why claims identified as clinical trials or involving expanded access use, in which the provider would typically receive the product at no cost, would have charges in revenue center 0891, Cell Therapy Drug Charges. We also proposed to continue to use the methodology as modified in the FY 2024 IPPS/LTCH PPS final rule to calculate the adjustment to account for the CAR T-cell therapy cases identified as clinical trial cases in calculating the national average standardized cost per case that is used to calculate the relative weights for all MS-DRGs, with the same proposed modification as described previously to identify other cases where the immunotherapy product is not purchased in the usual manner, such as obtained at no cost: Calculate the average cost for cases assigned to MS-DRG 018 that (a) contain ICD-10-CM diagnosis code Z00.6 and do not contain condition code ``ZC'', (b) contain condition code ``90'', or (c) contain standardized drug charges below the median standardized drug charge of clinical trial cases in MS-DRG 018. Calculate the average cost for all other cases assigned to MS-DRG 018. Calculate an adjustor by dividing the average cost calculated in step 1 by the average cost calculated in step 2. Apply the adjustor calculated in step 3 to the cases identified in step 1 as applicable clinical trial or expanded access use cases, and other cases where the immunotherapy product is not purchased in the usual manner, such as obtained at no cost, then add this adjusted case count to the non-clinical trial case count prior to calculating the average cost across all MS-DRGs. Under our proposal to continue to apply this methodology, with the proposed modification as described, based on the December 2024 update of the FY 2024 MedPAR file used for the proposed rule, we estimated that the average costs of cases assigned to MS-DRG 018 that are identified as clinical trial cases ($88,484) were 23 percent of the average costs of the cases assigned to MS-DRG 018 that are identified as non-clinical trial cases ($385,147). Accordingly, as we did for FY 2025, we proposed to adjust the transfer-adjusted case count for MS-DRG 018 by applying the proposed adjustor of 0.23 to the applicable clinical trial and expanded access use immunotherapy cases, and [[Page 36654]] other cases where the immunotherapy product is not purchased in the usual manner, such as obtained at no cost, and to use this adjusted case count for MS-DRG 018 in calculating the national average cost per case, which is used in the calculation of the relative weights. Therefore, in calculating the national average cost per case for purposes of the proposed rule, each case identified as an applicable clinical trial or expanded access use immunotherapy case, and other cases where the immunotherapy product is not purchased in the usual manner, such as obtained at no cost, was adjusted by 0.23. As we did for FY 2025, we applied the same adjustor for the applicable cases that group to MS-DRG 018 for purposes of budget neutrality and outlier simulations. We also proposed to update the value of the adjustor based on more recent data for the final rule. Comment: Commenters supported our proposal to exclude claims in MS- DRG 018 with standardized drug charges below the median standardized drug charges of cases identified as clinical trials in MS-DRG 018. Commenters stated that this proposal ensures that clinical trial and no-cost cases do not distort payment rates across the IPPS. We note a commenter mistakenly referred to our existing policy as still excluding cases that have a standardized drug charge of less than $373,000. Commenters requested clarification about whether the median standardized drug charges includes all drug revenue lines and all clinical trial claims, including expanded access claims. Some commenters expressed support for the identification of cases involving patient assistance programs, where no cost is incurred, but expressed confusion regarding the language ``product not purchased in the usual manner'', stating that is subjective, which can lead to confusion and undue administrative burden for providers and varying interpretations by the MACs. A commenter requested that CMS modify the language to reflect the request in the comment summarized in the FY 2025 IPPS/LTCH PPS final rule, which referred to cases where the immunotherapy is ``obtained at no cost''. Response: We appreciate commenters support for our proposal. While we indicated in the proposed rule that we calculate the median standardized drug charges for cases identified as clinical trial claims including cases that contain ICD-10-CM diagnosis code Z00.6 and do not include payer only code ZC, we note that in calculating the median standardized drug charges for cases identified as clinical trial claims, we included claims that (a) contain ICD-10-CM diagnosis code Z00.6 and do not contain condition code ``ZC'' or (b) contain condition code ``90''. Just as we treat cases identified as clinical trial cases and expanded access use cases in the same manner for payment purposes and in the calculation of the relative weights, we are also including both claims identified as clinical trial cases and claims identified as expanded access use cases in calculating the median drug charges. Since the provider does not incur the cost of the drug in cases identified as clinical trial cases or expanded access use cases, but still incurs costs for other drugs during the inpatient stay, we believe that using the median standardized drug charge for clinical trial and expanded access use cases would appropriately identify other cases involving products not purchased in the usual manner. The drug revenue lines are the same as those used in the relative weight calculations, which are shown in the Cost Center HCRIS Lines Supplemental Data File referenced earlier in this section. With respect to the commenters who expressed concerns about the language ``product not purchased in the usual manner'', we note that this phrasing is not new; we have used the language ``product is purchased in the usual manner'' in prior rules with respect to MS-DRG 018. Furthermore, we believe that this language is appropriately phrased to include the broad range of scenarios that may fall under it. For example, as described later in this section, commenters raised the possibility of immunotherapy products administered over multiple encounters. Given that we cannot predict all possible scenarios where the product is not purchased in the usual manner, use of a condition code that reflects a broad array of circumstances will facilitate more accurate payment and ratesetting. We further note that the ``usual manner'' in which a product is purchased may differ for products administered in one dose versus split doses. Comment: Commenters noted that some immunotherapy products may be administered over multiple encounters (including in an outpatient setting). A commenter requested that CMS confirm that a reduced payment for MS-DRG 018 does not apply when a hospital purchases an immunotherapy product (that is, incurs a cost), irrespective of whether it is administered in multiple encounters. This commenter requested that if CMS has specific requirements for how providers should handle these situations, it should clarify them or state that it is up to the individual provider to determine how to develop charges for multiple administrations of a single product obtained from a manufacturer. A commenter stated that unless manufacturers change their processes for products administered over multiple encounters, hospitals will continue to receive a single invoice and require guidance about how to report the charges. Response: CMS does not dictate a provider's charge structure or how they itemize their charges. As stated in Chapter 22, Section 2203 of the Provider Reimbursement Manual (https://www.cms.gov/regulations-and-guidance/guidance/manuals/paper-based-manuals-items/cms021929), providers ``should have an established charge structure which is applied uniformly to each patient as services are furnished to the patient and which is reasonably and consistently related to the cost of providing the services''. Providers should bill in the manner that they customarily bill for split-dose administration and the charges should be reasonably and consistently related to the cost of providing the service in a split-dose administration circumstance. A split-dose administration should not result in twice the amount of payment just by virtue of the fact it is a split-dose administration. For example, we remind hospitals that Chapter 3, Inpatient Hospital Billing, section 40.2.5 of the Medicare Claims Processing Manual (https://www.cms.gov/regulations-and-guidance/guidance/manuals/downloads/clm104c03.pdf) states that hospitals may place a patient on a leave of absence when readmission is expected and the patient does not require a hospital level of care during the interim period. Placing a patient on a leave of absence will not generate two payments. Only one bill and one DRG payment are made. Comment: A commenter stated that a potential reason why claims identified as clinical trials or involving expanded access use, in which the provider would typically receive the product at no cost, would have charges in revenue center 0891, is that the case involves a clinical trial of another product. The commenter stated that given the two-step and manual process in flagging these claims, (that is, the provider includes ``Diff Prod Clin Trial'' in the Remarks field and the MAC adds a payer-only condition code of ``ZC''), there is likely a percentage of cases where the condition code was not applied as it should be. The commenter noted that CMS' recent billing instructions that automate the application of ``ZC'' should reduce the number of claims with this profile. [[Page 36655]] Response: We appreciate the feedback on our comment solicitation and will continue to monitor CAR T-cell therapy claims for such potential anomalies. Comment: Some commenters expressed concern that CMS no longer uses the $373,000 threshold to identify clinical trial cases and requested that CMS continue to refine its methodology to also consider standardized drug charges to correctly identify clinical trial cases. Commenters expressed concern that due to incorrect coding or incorrect application of condition codes, cases below the $373,000 threshold may be identified as clinical trials when the provider incurs the cost of the drug. The commenter stated that as a result, these cases would be included in ratesetting for MS-DRG 018 and these cases could be underpaid, particularly as more hospitals administer cell and gene therapies. The commenter requested that CMS publish information on future cases that are below the $373,000 threshold given the likely impact on the payment rate for MS-DRG 018. Response: As we stated in the FY 2024 (88 FR 58791) and FY 2025 IPPS/LTCH PPS (89 FR 69112) final rules, while there continues to be a small percentage of claims that report standardized drug charges of less than $373,000 and do not report ICD-10-CM code Z00.6, we do not believe it is necessary to continue the use of the proxy until the number of cases reaches zero. In addition, our proposal to exclude claims with standardized drug charges below the median standardized drug charge of claims identified as clinical trials in MS-DRG 018 (that is, claims that (a) contain ICD-10-CM diagnosis code Z00.6 and do not include payer-only code ``ZC'' or (b) contain condition code ``90'') is expected to reduce the number of cases with low standardized drug charges that group to MS-DRG 018. We note that information on obtaining the MedPAR Limited Data Set is available on the CMS website, at https://www.cms.gov/Research-Statistics-Data-and-Systems/Files-for-Order/LimitedDataSets/MEDPARLDSHospitalNational. Comment: A few commenters expressed confusion about CMS' differentiation between clinical trial and expanded access use cases. A commenter stated that it does not believe this differentiation is CMS' intent because expanded access use of CAR T-cell or other therapies that are grouped to MS-DRG 018 must occur as part of an Investigational New Device (IND) study, which would have a National Clinical Trial number and would meet criteria for routine costs of the clinical trial NCD 310.1. This commenter cited the FDA website \13\ in support of these statements. Another commenter requested that CMS clarify that expanded access cases are a type of clinical trial. --------------------------------------------------------------------------- \13\ https://www.fda.gov/drugs/investigational-new-drug-ind-application/ind-applications-clinical-treatment-expanded-access-overview. --------------------------------------------------------------------------- A commenter requested that CMS clarify that expanded access use would also be excluded from ratesetting because facilities do not incur the cost of these products. A few commenters requested that CMS clarify that the agency would expect to see clinical trial billing indicators on expanded access claims (that is, diagnosis code Z00.6, condition code 30, value code D4, and the NCT number), in addition to condition code 90, which would help identify which clinical trial claims are expanded access claims. Response. The FDA states, at the link provided by the commenter, ``Expanded access, sometimes called ``compassionate use,'' is the use of investigational new drug products outside of clinical trials to treat patients with serious or immediately life-threatening diseases or conditions when there are no comparable or satisfactory alternative treatment options''. While we utilize separate condition codes to identify clinical trial claims and expanded access use cases, we note that they are treated the same for payment purposes and in the calculation of the relative weights for MS-DRG 018. Comment: A commenter stated that the MS-DRG payment for CAR T-cell therapy services has never been sufficient and provided various reasons for this, including problems with hospital chargemasters, CCRs, and charge compression. Commenters provided various suggestions to mitigate these concerns and increase the payment rate for MS-DRG 018. Commenters stated that the percentage of cases in MS-DRG 018 that are eligible for outlier payments has increased since FY 2021, which, the commenter stated, if left unaddressed, places a constraint on the outlier pool, which negatively impacts all hospitals. A commenter stated that hospitals should not be targeted for having high outlier payments given that it is the ``new norm'' for cell and gene therapies, and that hospitals should not be questioned if they set their charges consistent with their CCRs. This commenter stated that CMS needs to provide more clarity so that stakeholders understand that hospitals have no choice but to mark up product charges, and that patients do not bear the cost of those charges. This commenter also requested that CMS consider other methodologies to pay for immunotherapies and expand CMMI's cell and gene therapy model. Commenters requested that CMS explore the integration of Medicare Advantage claims into the ratesetting process for MS-DRG 018 to improve the sample size available for low volume products, which could improve the robustness and reliability of cost estimates. A commenter noted that as the percentage of enrollees in Medicare fee-for-service decreases, the number of claims used in the ratesetting process will decrease and become less representative for predicting resource utilization. Response: Regarding the comments that the MS-DRG relative weight for MS-DRG 018 is inadequate and does not result in payment that fully covers the hospital resource costs, as well as comments regarding hospital charging practices, we refer readers to the FY 2022 IPPS/LTCH final rule (86 FR 44965) where we responded to similar comments. With respect to the commenter's statement about hospitals being ``targeted'' for having high outlier payments, we are unaware of the issue the commenter is raising. We note our proposal, as discussed in the CY 2026 OPPS proposed rule (90 FR 33476), to collect payer-specific negotiated charge data from MA organizations by MS-DRG for use in the MS-DRG relative weight setting, would, if finalized, obviate many of the concerns that commenters raised, including challenges with hospital charging practices and the potential role of MA claims in the ratesetting process. Comment: Commenters requested that CMS revise its cost reporting instructions for cell and gene therapy products (revenue codes 0891 and 0892) to instruct providers to use cost center 78. A commenter requested that CMS also instruct providers to leave the services associated with these therapies in their original cost centers. This commenter stated that there is a precedent for CMS to define a cost center based on a revenue code, like it did for the implantable devices cost center. The commenter also requested that CMS clarify whether hospitals are allowed to use product charges and expenses as valid statistics to allocate administrative and general expenses to cost report line 78. Response: We do not believe changes to billing guidance are needed at this time but will take these comments into consideration when developing policies and program requirements for future years for CAR T-cell therapy policy. We further note that under the proposal in [[Page 36656]] the CY 2026 OPPS proposed rule to collect payer-specific negotiated charge data from MA organizations by MS-DRG for use in the MS-DRG relative weight setting, an additional cost center would not impact the relative weight for MS-DRG 018. After consideration of the public comments we received, we are finalizing our proposals without modifications regarding the calculation of the relative weight for MS-DRG 018. We note that for this final rule, based on the March 2025 update of the FY 2024 MedPAR file, we estimated that the median standardized drug charge of claims identified as clinical trials in MS-DRG 018 (that is, claims that (a) contain ICD-10-CM diagnosis code Z00.6 and do not include payer-only code ``ZC'' or (b) contain condition code ``90'') is $27,466. Applying this finalized methodology, based on the March 2025 update of the FY 2024 MedPAR file used for this final rule, we estimated that the average costs of cases assigned to MS-DRG 018 that are identified as clinical trial cases ($61,643.46) were 16 percent of the average costs of the cases assigned to MS-DRG 018 that are identified as nonclinical trial cases ($384,471.59). Accordingly, as we did for FY 2025, we are finalizing our proposal to adjust the transfer-adjusted case count for MS-DRG 018 by applying the adjustor of 0.16 to the applicable clinical trial and expanded access use immunotherapy cases, and other cases where the immunotherapy product is not purchased in the usual manner, such as obtained at no cost, and to use this adjusted case count for MS-DRG 018 in calculating the national average cost per case, which is used in the calculation of the relative weights. Therefore, in calculating the national average cost per case for purposes of this final rule, each case identified as an applicable clinical trial or expanded access use immunotherapy case, and other cases where immunotherapy product is not purchased in the usual manner, such as obtained at no cost, was adjusted by 0.16. As we did for FY 2025, we are applying this same adjustor for the applicable cases that group to MS-DRG 018 for purposes of budget neutrality and outlier simulations. d. Cap for Relative Weight Reductions In the FY 2023 IPPS/LTCH PPS final rule, we finalized a permanent 10-percent cap on the reduction in an MS-DRG's relative weight in a given fiscal year, beginning in FY 2023. We also finalized a budget neutrality adjustment to the standardized amount for all hospitals to ensure that application of the permanent 10-percent cap does not result in an increase or decrease of estimated aggregate payments. We refer the reader to the FY 2023 IPPS/LTCH PPS final rule for further discussion of this policy. In the Addendum to this IPPS/LTCH PPS final rule, we present the budget neutrality adjustment for reclassification and recalibration of the FY 2026 MS-DRG relative weights with application of this cap. We are also making available on the CMS website a supplemental file demonstrating the application of the permanent 10 percent cap for FY 2026. For a further discussion of the final budget neutrality adjustment for FY 2026, we refer readers to the Addendum of this final rule.

3. Development of National Average Cost-to-Charge Ratios (CCRs)

We developed the national average CCRs as follows: Using the FY 2023 cost report data, we removed CAHs, REHs, Indian Health Service hospitals, all-inclusive rate hospitals, and cost reports that represented time periods of less than 1 year (365 days). We included hospitals located in Maryland because we include their charges in our claims database. Then we created CCRs for each provider for each cost center (see the supplemental data file for line items used in the calculations) and removed any CCRs that were greater than 10 or less than 0.01. We normalized the departmental CCRs by dividing the CCR for each department by the total CCR for the hospital for the purpose of trimming the data. Then we took the logs of the normalized cost center CCRs and removed any cost center CCRs where the log of the cost center CCR was greater or less than the mean log plus/minus 3 times the standard deviation for the log of that cost center CCR. Once the cost report data were trimmed, we calculated a Medicare-specific CCR. The Medicare-specific CCR was determined by taking the Medicare charges for each line item from Worksheet D-3 and deriving the Medicare-specific costs by applying the hospital-specific departmental CCRs to the Medicare-specific charges for each line item from Worksheet D-3. Once each hospital's Medicare-specific costs were established, we summed the total Medicare-specific costs and divided by the sum of the total Medicare-specific charges to produce national average, charge- weighted CCRs. After we multiplied the total charges for each MS-DRG in each of the 19 cost centers by the corresponding national average CCR, we summed the 19 ``costs'' across each MS-DRG to produce a total standardized cost for the MS-DRG. The average standardized cost for each MS-DRG was then computed as the total standardized cost for the MS-DRG divided by the transfer-adjusted case count for the MS-DRG. The average cost for each MS-DRG was then divided by the national average standardized cost per case to determine the relative weight. The final FY 2026 cost-based relative weights were then normalized by an adjustment factor of 1.922881 so that the average case weight after recalibration was equal to the average case weight before recalibration. The normalization adjustment is intended to ensure that recalibration by itself neither increases nor decreases total payments under the IPPS, as required by section 1886(d)(4)(C)(iii) of the Act. We then applied the permanent 10-percent cap on the reduction in a MS- DRG's relative weight in a given fiscal year; specifically for those MS-DRGs for which the relative weight otherwise would have declined by more than 10 percent from the FY 2025 relative weight, we set the FY 2026 relative weight equal to 90 percent of the FY 2025 relative weight. The final relative weights for FY 2026 as set forth in Table 5 associated with this final rule and available on the CMS website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/ AcuteInpatientPPS reflect the application of this cap. The 19 national average CCRs for FY 2026 are as follows: [[Page 36657]] [GRAPHIC] [TIFF OMITTED] TR04AU25.134 Since FY 2009, the relative weights have been based on 100 percent cost weights based on our MS-DRG grouping system. When we recalibrated the DRG weights for previous years, we set a threshold of 10 cases as the minimum number of cases required to compute a reasonable weight. We proposed to use that same case threshold in recalibrating the proposed MS-DRG relative weights for FY 2026. In this final rule, using data from the FY 2024 MedPAR file, there are 9 MS-DRGs that contain fewer than 10 cases. For FY 2026, because we do not have sufficient MedPAR data to set accurate and stable cost relative weights for these low-volume MS-DRGs, we proposed to compute relative weights for the low-volume MS-DRGs by adjusting their final FY 2025 relative weights by the percentage change in the average weight of the cases in other MS-DRGs from FY 2025 to FY 2026. The crosswalk table is as follows. [GRAPHIC] [TIFF OMITTED] TR04AU25.135 We did not receive any public comments on this proposal and therefore are finalizing it for FY 2026 without modification.

1. Background

Effective for discharges beginning on or after October 1, 2001, section 1886(d)(5)(K)(i) of the Act requires the Secretary to establish a mechanism to recognize the costs of new medical services and technologies (sometimes collectively referred to in this section as ``new technologies'') under the IPPS. Section 1886(d)(5)(K)(vi) of the Act specifies that a medical service or technology will be considered new if it meets criteria established by the Secretary after notice and opportunity for public comment. Section 1886(d)(5)(K)(ii)(I) of the Act specifies [[Page 36658]] that a new medical service or technology may be considered for new technology add-on payment if, based on the estimated costs incurred with respect to discharges involving such service or technology, the DRG prospective payment rate otherwise applicable to such discharges under this subsection is inadequate. The regulations at 42 CFR 412.87 implement these provisions and Sec. 412.87(b) specifies three criteria for a new medical service or technology to receive the additional payment: (1) the medical service or technology must be new; (2) the medical service or technology must be costly such that the DRG rate otherwise applicable to discharges involving the medical service or technology is determined to be inadequate; and (3) the service or technology must demonstrate a substantial clinical improvement over existing services or technologies. In addition, certain transformative new devices and antimicrobial products may qualify under an alternative inpatient new technology add-on payment pathway, as set forth in the regulations at Sec. 412.87(c) and (d). We note that section 1886(d)(5)(K)(i) of the Act requires the Secretary to establish a mechanism to recognize the costs of new medical services and technologies under the payment system established under that subsection, which establishes the system for paying for the operating costs of inpatient hospital services. The system of payment for capital costs is established under section 1886(g) of the Act. Therefore, as discussed in prior rulemaking (72 FR 47307 through 47308), we do not include capital costs in the add-on payments for a new medical service or technology or make new technology add-on payments under the IPPS for capital-related costs. In the proposed rule, we highlighted some of the major statutory and regulatory provisions relevant to the new technology add-on payment criteria, as well as other information. For further discussion on the new technology add-on payment criteria, we refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51572 through 51574), the FY 2020 IPPS/ LTCH PPS final rule (84 FR 42288 through 42300), and the FY 2021 IPPS/ LTCH PPS final rule (85 FR 58736 through 58742). a. New Technology Add-On Payment Criteria (1) Newness Criterion Under the first criterion, as reflected in Sec. 412.87(b)(2), a specific medical service or technology will no longer be considered ``new'' for purposes of new medical service or technology add-on payments after CMS has recalibrated the MS-DRGs, based on available data, to reflect the cost of the technology. We note that we do not consider a service or technology to be new if it is substantially similar to one or more existing technologies. That is, even if a medical product receives a new FDA marketing authorization, it may not necessarily be considered ``new'' for purposes of new technology add-on payments if it is ``substantially similar'' to another medical product that was market authorized by FDA and has been on the market for more than 2 to 3 years. In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43813 through 43814), we established criteria for evaluating whether a new technology is substantially similar to an existing technology, specifically whether: (1) a product uses the same or a similar mechanism of action to achieve a therapeutic outcome; (2) a product is assigned to the same or a different MS-DRG; and (3) the new use of the technology involves the treatment of the same or similar type of disease and the same or similar patient population. If a technology meets all three of these criteria, it would be considered substantially similar to an existing technology and would not be considered ``new'' for purposes of new technology add-on payments. For a detailed discussion of the criteria for substantial similarity, we refer readers to the FY 2006 IPPS final rule (70 FR 47351 through 47352) and the FY 2010 IPPS/LTCH PPS final rule (74 FR 43813 through 43814). (2) Cost Criterion Under the second criterion, Sec. 412.87(b)(3) further provides that, to be eligible for the add-on payment for new medical services or technologies, the MS-DRG prospective payment rate otherwise applicable to discharges involving the new medical service or technology must be assessed for adequacy. Under the cost criterion, consistent with the formula specified in section 1886(d)(5)(K)(ii)(I) of the Act, to assess the adequacy of payment for a new technology paid under the applicable MS-DRG prospective payment rate, we evaluate whether the charges of the cases involving a new medical service or technology will exceed a threshold amount that is the lesser of 75 percent of the standardized amount (increased to reflect the difference between cost and charges) or 75 percent of one standard deviation beyond the geometric mean standardized charge for all cases in the MS-DRG to which the new medical service or technology is assigned (or the case-weighted average of all relevant MS-DRGs if the new medical service or technology occurs in many different MS-DRGs). The MS-DRG threshold amounts generally used in evaluating new technology add-on payment applications for FY 2026 are presented in a data file that is available, along with the other data files associated with the FY 2025 IPPS/LTCH PPS final rule, correction notice and interim final action with comment period, on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index. We note that, under the policy finalized in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58603 through 58605), beginning with FY 2022, we use the proposed threshold values associated with the proposed rule for that fiscal year to evaluate the cost criterion for all applications for new technology add-on payments and previously approved technologies that may continue to receive new technology add-on payments, if those technologies would be assigned to a proposed new MS-DRG for that same fiscal year. As finalized in the FY 2019 IPPS/LTCH PPS final rule (83 FR 41275), beginning with FY 2020, we include the thresholds applicable to the next fiscal year (previously included in Table 10 of the annual IPPS/ LTCH PPS proposed and final rules) in the data files associated with the prior fiscal year. Accordingly, the final thresholds for applications for new technology add-on payments for FY 2027 are presented in a data file that is available on the CMS website, along with the other data files associated with this FY 2026 final rule, by clicking on the FY 2026 IPPS Final Rule Home Page at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index. In the September 7, 2001, final rule that established the new technology add-on payment regulations (66 FR 46917), we discussed that applicants should submit a significant sample of data to demonstrate that the medical service or technology meets the high-cost threshold. Specifically, applicants should submit a sample of sufficient size to enable us to undertake an initial validation and analysis of the data. We also discussed in the September 7, 2001, final rule (66 FR 46917) the issue of whether the Health Insurance Portability and Accountability Act of 1996 (HIPAA) Privacy Rule at 45 CFR part 160 and subparts A and E of 45 CFR part 164, applies to claims information that providers submit with applications [[Page 36659]] for new medical service or technology add-on payments. We refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51573) for further information on this issue. (3) Substantial Clinical Improvement Criterion Under the third criterion at Sec. 412.87(b)(1), a medical service or technology must represent an advance that substantially improves, relative to technologies previously available, the diagnosis or treatment of Medicare beneficiaries. In the FY 2020 IPPS/LTCH PPS final rule (84 FR 42288 through 42292), we prospectively codified in our regulations at Sec. 412.87(b) the following aspects of how we evaluate substantial clinical improvement for purposes of new technology add-on payments under the IPPS: The totality of the circumstances is considered when making a determination that a new medical service or technology represents an advance that substantially improves, relative to services or technologies previously available, the diagnosis or treatment of Medicare beneficiaries. A determination that a new medical service or technology represents an advance that substantially improves, relative to services or technologies previously available, the diagnosis or treatment of Medicare beneficiaries means-- ++ The new medical service or technology offers a treatment option for a patient population unresponsive to, or ineligible for, currently available treatments; ++ The new medical service or technology offers the ability to diagnose a medical condition in a patient population where that medical condition is currently undetectable, or offers the ability to diagnose a medical condition earlier in a patient population than allowed by currently available methods, and there must also be evidence that use of the new medical service or technology to make a diagnosis affects the management of the patient; ++ The use of the new medical service or technology significantly improves clinical outcomes relative to services or technologies previously available as demonstrated by one or more of the following: a reduction in at least one clinically significant adverse event, including a reduction in mortality or a clinically significant complication; a decreased rate of at least one subsequent diagnostic or therapeutic intervention; a decreased number of future hospitalizations or physician visits; a more rapid beneficial resolution of the disease process treatment including, but not limited to, a reduced length of stay or recovery time; an improvement in one or more activities of daily living; an improved quality of life; or, a demonstrated greater medication adherence or compliance; or ++ The totality of the circumstances otherwise demonstrates that the new medical service or technology substantially improves, relative to technologies previously available, the diagnosis or treatment of Medicare beneficiaries. Evidence from the following published or unpublished information sources from within the United States or elsewhere may be sufficient to establish that a new medical service or technology represents an advance that substantially improves, relative to services or technologies previously available, the diagnosis or treatment of Medicare beneficiaries: clinical trials, peer reviewed journal articles; study results; meta-analyses; consensus statements; white papers; patient surveys; case studies; reports; systematic literature reviews; letters from major healthcare associations; editorials and letters to the editor; and public comments. Other appropriate information sources may be considered. The medical condition diagnosed or treated by the new medical service or technology may have a low prevalence among Medicare beneficiaries. The new medical service or technology may represent an advance that substantially improves, relative to services or technologies previously available, the diagnosis or treatment of a subpopulation of patients with the medical condition diagnosed or treated by the new medical service or technology. We refer the reader to the FY 2020 IPPS/LTCH PPS final rule (84 FR 42288 through 42292) for additional discussion of the evaluation of substantial clinical improvement for purposes of new technology add-on payments under the IPPS. We note, consistent with the discussion in the FY 2003 IPPS final rule (67 FR 50015), that while FDA has regulatory responsibility for decisions related to marketing authorization (for example, approval, clearance, etc.), we do not rely upon FDA criteria in our evaluation of substantial clinical improvement for purposes of determining what services and technologies qualify for new technology add-on payments under Medicare. This criterion does not depend on the standard of safety and effectiveness on which FDA relies but on a demonstration of substantial clinical improvement in the Medicare population. b. Alternative Inpatient New Technology Add-On Payment Pathway Beginning with applications for FY 2021 new technology add-on payments, under the regulations at Sec. 412.87(c), a medical device that is part of FDA's Breakthrough Devices Program may qualify for the new technology add-on payment under an alternative pathway. Additionally, under the regulations at Sec. 412.87(d) for certain antimicrobial products, beginning with FY 2021, a drug that is designated by FDA as a Qualified Infectious Disease Product (QIDP), and, beginning with FY 2022, a drug that is approved by FDA under the Limited Population Pathway for Antibacterial and Antifungal Drugs (LPAD), may also qualify for the new technology add-on payment under an alternative pathway. We refer the reader to the FY 2020 IPPS/LTCH PPS final rule (84 FR 42292 through 42297) and the FY 2021 IPPS/LTCH PPS final rule (85 FR 58737 through 58739) for further discussion on this policy. We note that CMS reviews the application based on the information provided by the applicant only under the alternative pathway specified by the applicant at the time of application submission. To receive approval for the new technology add-on payment under that alternative pathway, the technology must have the applicable FDA designation and meet all other requirements in the regulations in Sec. 412.87(c) and (d), as applicable. (1) Alternative Pathway for Certain Transformative New Devices For applications received for new technology add-on payments for FY 2021 and subsequent fiscal years, a medical device designated under FDA's Breakthrough Devices Program\14\ that has received FDA marketing authorization will be considered not substantially similar to an existing technology for purposes of the new technology add-on payment under the IPPS, and will not need to meet the requirement under Sec. 412.87(b)(1) that it represent an advance that substantially improves, relative to technologies previously available, the diagnosis or treatment of Medicare beneficiaries. Under this alternative pathway, a medical device that has received a Breakthrough Device designation, and then received FDA marketing authorization (that is, has been [[Page 36660]] approved or cleared by, or had a De Novo classification request granted by, FDA) for the indication covered by the Breakthrough Device designation, will need to meet the requirements of Sec. 412.87(c). We note that in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58734 through 58736), we clarified our policy that a new medical device under this alternative pathway must receive marketing authorization for the indication covered by the Breakthrough Devices Program designation. We refer the reader to the FY 2021 IPPS/LTCH PPS final rule (85 FR 58734 through 58736) for further discussion regarding this clarification. --------------------------------------------------------------------------- \14\ Breakthrough Devices Program https://www.fda.gov/medical-devices/how-study-and-market-your-device/breakthrough-devices-program. --------------------------------------------------------------------------- (2) Alternative Pathway for Certain Antimicrobial Products For applications received for new technology add-on payments for certain antimicrobial products, beginning with FY 2021, if a technology is designated by FDA as a QIDP and received FDA marketing authorization, and, beginning with FY 2022, if a drug is approved under FDA's LPAD pathway and used for the indication approved under the LPAD pathway, it will be considered not substantially similar to an existing technology for purposes of new technology add-on payments and will not need to meet the requirement that it represent an advance that substantially improves, relative to technologies previously available, the diagnosis or treatment of Medicare beneficiaries. Under this alternative pathway for QIDPs and LPADs, a medical product that has received FDA marketing authorization and is designated by FDA as a QIDP or approved under the LPAD pathway will need to meet the requirements of Sec. 412.87(d). We refer the reader to the FY 2020 IPPS/LTCH PPS final rule (84 FR 42292 through 42297) and FY 2021 IPPS/LTCH PPS final rule (85 FR 58737 through 58739) for further discussion on this policy. We note that, in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58737 through 58739), we clarified that a new medical product seeking approval for the new technology add-on payment under the alternative pathway for QIDPs must receive FDA marketing authorization for the indication covered by the QIDP designation. We also finalized our policy to expand our alternative new technology add-on payment pathway for certain antimicrobial products to include products approved under the LPAD pathway and used for the indication approved under the LPAD pathway. c. Additional Payment for New Medical Service or Technology The new medical service or technology add-on payment policy under the IPPS provides additional payments for cases with relatively high costs involving eligible new medical services or technologies, while preserving some of the incentives inherent under an average-based prospective payment system. The payment mechanism is based on the cost to hospitals for the new medical service or technology. As noted previously, we do not include capital costs in the add-on payments for a new medical service or technology or make new technology add-on payments under the IPPS for capital-related costs (72 FR 47307 through 47308). For discharges occurring before October 1, 2019, under Sec. 412.88, if the costs of the discharge (determined by applying operating cost-to-charge ratios (CCRs) as described in Sec. 412.84(h)) exceed the full DRG payment (including payments for IME and DSH, but excluding outlier payments), CMS made an add-on payment equal to the lesser of: (1) 50 percent of the costs of the new medical service or technology; or (2) 50 percent of the amount by which the costs of the case exceed the standard DRG payment. Beginning with discharges on or after October 1, 2019, for the reasons discussed in the FY 2020 IPPS/LTCH PPS final rule (84 FR 42297 through 42300), we finalized an increase in the new technology add-on payment percentage, as reflected at Sec. 412.88(a)(2)(ii). Specifically, for a new technology other than a medical product designated by FDA as a QIDP, beginning with discharges on or after October 1, 2019, if the costs of a discharge involving a new technology (determined by applying CCRs as described in Sec. 412.84(h)) exceed the full DRG payment (including payments for IME and DSH, but excluding outlier payments), Medicare will make an add-on payment equal to the lesser of: (1) 65 percent of the costs of the new medical service or technology; or (2) 65 percent of the amount by which the costs of the case exceed the standard DRG payment. For a new technology that is a medical product designated by FDA as a QIDP, beginning with discharges on or after October 1, 2019, if the costs of a discharge involving a new technology (determined by applying CCRs as described in Sec. 412.84(h)) exceed the full DRG payment (including payments for IME and DSH, but excluding outlier payments), Medicare will make an add-on payment equal to the lesser of: (1) 75 percent of the costs of the new medical service or technology; or (2) 75 percent of the amount by which the costs of the case exceed the standard DRG payment. For a new technology that is a medical product approved under FDA's LPAD pathway, beginning with discharges on or after October 1, 2020, if the costs of a discharge involving a new technology (determined by applying CCRs as described in Sec. 412.84(h)) exceed the full DRG payment (including payments for IME and DSH, but excluding outlier payments), Medicare will make an add-on payment equal to the lesser of: (1) 75 percent of the costs of the new medical service or technology; or (2) 75 percent of the amount by which the costs of the case exceed the standard DRG payment. As set forth in Sec. 412.88(b)(2), unless the discharge qualifies for an outlier payment, the additional Medicare payment will be limited to the full MS-DRG payment plus 65 percent (or 75 percent for certain antimicrobial products (QIDPs and LPADs)) of the estimated costs of the new technology or medical service. We refer the reader to the FY 2020 IPPS/LTCH PPS final rule (84 FR 42297 through 42300) for further discussion on the increase in the new technology add-on payment beginning with discharges on or after October 1, 2019. As discussed in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69245 through 69252), we finalized an increase in the new technology add-on payment percentage, reflected at Sec. 412.88(a)(2)(ii)(C) and (b)(2)(iv), that for certain gene therapies approved for new technology add-on payments in the FY 2025 IPPS/LTCH PPS final rule that are indicated and used specifically for the treatment of sickle cell disease (SCD), effective with discharges on or after October 1, 2024 and concluding at the end of the 2- to 3-year newness period for such therapy, if the costs of a discharge (determined by applying CCRs as described in Sec. 412.84(h)) involving the use of such therapy for the treatment of SCD exceed the full DRG payment (including payments for IME and DSH, but excluding outlier payments), Medicare will make an add-on payment equal to the lesser of: (1) 75 percent of the costs of the new medical service or technology; or (2) 75 percent of the amount by which the costs of the case exceed the standard DRG payment. We noted that these payment amounts would only apply to CasgevyTM (exagamglogene autotemcel) and LyfgeniaTM (lovotibeglogene autotemcel), when indicated and used specifically for the treatment of SCD, which were approved for new [[Page 36661]] technology add-on payments in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69128 through 69135, and 89 FR 69188 through 69196). We note that, consistent with the prospective nature of the IPPS, we finalize the new technology add on payment amount for technologies approved or conditionally approved for new technology add-on payments in the final rule for each fiscal year and do not make mid-year changes to new technology add-on payment amounts. Updated cost information may be submitted and included in rulemaking to be considered for the following fiscal year. Section 503(d)(2) of the MMA (Pub. L. 108-173) provides that there shall be no reduction or adjustment in aggregate payments under the IPPS due to add-on payments for new medical services and technologies. Therefore, in accordance with section 503(d)(2) of the MMA, add-on payments for new medical services or technologies for FY 2005 and subsequent years have not been subjected to budget neutrality. d. Evaluation of Eligibility Criteria for New Medical Service or Technology Applications In the FY 2009 IPPS final rule (73 FR 48561 through 48563), we modified our regulation at Sec. 412.87 to codify our longstanding practice of how CMS evaluates the eligibility criteria for new medical service or technology add-on payment applications. That is, we first determine whether a medical service or technology meets the newness criterion, and only if so, do we then make a determination as to whether the technology meets the cost threshold and represents a substantial clinical improvement over existing medical services or technologies. We specified that all applicants for new technology add- on payments must have FDA approval or clearance by July 1 of the year prior to the beginning of the fiscal year for which the application is being considered. In the FY 2021 IPPS/LTCH PPS final rule, to more precisely describe the various types of FDA approvals, clearances and classifications that we consider under our new technology add-on payment policy, we finalized a technical clarification to the regulation to indicate that new technologies must receive FDA marketing authorization 15 16 (such as pre-market approval (PMA); 510(k) clearance; the granting of a De Novo classification request; or approval of a New Drug Application (NDA) or Biologics License Application (BLA)) by July 1 of the year prior to the beginning of the fiscal year for which the application is being considered (85 FR 58742). Consistent with our longstanding policy, we consider FDA marketing authorization as representing that a product has received FDA approval or clearance, or has been granted a De Novo classification request when considering eligibility for the new technology add-on payment. --------------------------------------------------------------------------- \15\ How to Study and Market Your Device https://www.fda.gov/medical-devices/device-advice-comprehensive-regulatory-assistance/how-study-and-market-your-device. \16\ Types of Applications https://www.fda.gov/drugs/how-drugs-are-developed-and-approved/types-applications. --------------------------------------------------------------------------- Additionally, in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58739 through 58742), we finalized our proposal to provide conditional approval for new technology add-on payment for a technology for which an application is submitted under the alternative pathway for certain antimicrobial products at Sec. 412.87(d) that does not receive FDA marketing authorization by July 1 prior to the particular fiscal year for which the applicant applied for new technology add-on payments, provided that the technology otherwise meets the applicable add-on payment criteria. Under this policy, cases involving eligible antimicrobial products would begin receiving the new technology add-on payment sooner, effective for discharges the quarter after the date of FDA marketing authorization, provided that the technology receives FDA marketing authorization before July 1 of the fiscal year for which the applicant applied for new technology add-on payments. As discussed in the FY 2024 IPPS/LTCH PPS final rule (88 FR 58948 through 58958) and the FY 2025 IPPS/LTCH PPS final rule (89 FR 69242 through 69245), beginning with the new technology add-on payment applications for FY 2025, for technologies that are not already FDA market authorized for the indication that is the subject of the new technology add-on payment application, applicants must have a complete and active FDA market authorization request at the time of new technology add-on payment application submission and must provide documentation of FDA acceptance (for a 510k application or De Novo Classification request) or filing (for a PMA, NDA, or BLA) to CMS at the time of application submission, consistent with the type of FDA marketing authorization application the applicant has submitted to FDA. See Sec. 412.87(e) and further discussion in the FY 2024 IPPS/LTCH PPS final rule (88 FR 58948 through 58958) and the FY 2025 IPPS/LTCH PPS final rule (89 FR 69242 through 69245). As we have discussed in prior rulemaking, we consider the application to be complete when the full application has been submitted to FDA and FDA has provided documentation to the applicant indicating that FDA has determined that the application is sufficiently complete to allow for substantive review by FDA. We recognize that FDA processes and documentation may change over time, and the acceptance or filing documentation may vary depending on the type of FDA marketing authorization application the applicant has submitted to FDA. For example, we understand that FDA considers submission of a 510(k) or De Novo Classification request to be accepted for substantive review after the completion of either a refuse to accept (RTA) review or a technical screening process. 17 18 Submissions of 510(k) and De Novo Classification requests undergo a technical screening process when they are submitted to FDA using the electronic Submission Template And Resource (eSTAR) process; 510(k) and De Novo Classification requests that are not submitted via eSTAR undergo an RTA review. Accordingly, FDA provides applicants using eSTAR with a review assignment notification to indicate that FDA has completed its technical screening process and has determined that the application is sufficiently complete to allow for substantive review. Therefore, new technology add-on payment applicants that have submitted a 510(k) application or De Novo Classification request to FDA through eSTAR must submit a copy of the review assignment notification to CMS (at the time of new technology add-on payment application) to establish the application is sufficiently complete to allow for substantive review by FDA. We note that PMAs submitted using eSTAR that complete technical screening will still undergo a subsequent filing review by FDA, after which an application is determined to be sufficiently complete to allow for substantive review; therefore, we [[Page 36662]] continue to require documentation of FDA filing for these applications. --------------------------------------------------------------------------- \17\ FDA and Industry Actions on Premarket Notification (510(k)) Submissions: Effect on FDA Review Clock and Goals Guidance for Industry and Food and Drug Administration Staff Document issued on October 3, 2022. https://www.fda.gov/media/73507/download. \18\ FDA and Industry Actions on De Novo Classification Requests: Effect on FDA Review Clock and Goals Guidance for Industry and Food and Drug Administration Staff Document issued on October 3, 2022. https://www.fda.gov/media/107652/download. --------------------------------------------------------------------------- In addition, we recognize that FDA does not conduct a new filing review for NDA or BLA applications that were the subject of a Complete Response Letter (CRL) and were subsequently resubmitted to FDA, even though resubmissions are considered a new review cycle.19 20 Therefore, beginning with the new technology add-on applications submitted for FY 2027, these new technology add-on payment applicants must provide to CMS a copy of the resubmission acknowledgement letter from FDA that provides the new goal date for FDA review of the application. We further note that if there are other processes not described here, or if there are further changes to FDA's review processes, consistent with our policy, applicants must provide to CMS the most up-to-date documentation that indicates FDA has determined that the application is sufficiently complete to allow for substantive review by FDA. --------------------------------------------------------------------------- \19\ SOPP 8405.1: Procedures for Resubmissions to an Application or Supplement. Version: 8 Effective Date: November 13, 2022. https://www.fda.gov/media/84417/download. \20\ 21 CFR 314.110, Complete response letter to the applicant https://www.ecfr.gov/current/title-21/chapter-I/subchapter-D/part-314/subpart-D/section-314.110. --------------------------------------------------------------------------- Comment: A commenter expressed support for this clarification and, as FDA's review processes evolve or other challenges arise, encouraged CMS to be flexible and to consider additional opportunities to clarify documentation requirements to ensure technologies remain eligible for new technology add-on payment and reach patients who need them, without creating further delays in the availability of new technology add-on payment. Response: We appreciate the commenter's support and note that an applicant may submit to us specific questions regarding their new technology add-on payment application using the resources described on the CMS website for the electronic application intake system: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/new-medical-services-and-new-technologies. In the FY 2024 IPPS/LTCH PPS final rule (88 FR 58948 through 58958), we also finalized that, beginning with FY 2025 applications, in order to be eligible for consideration for the new technology add-on payment for the upcoming fiscal year, an applicant for new technology add-on payments must have received FDA marketing authorization by May 1 (rather than July 1) of the year prior to the beginning of the fiscal year for which the application is being considered (except for an application that is submitted under the alternative pathway for certain antimicrobial products), as reflected at Sec. 412.87(f)(2) and (3), as amended and redesignated in the FY 2024 IPPS/LTCH PPS final rule (88 FR 58948 through 58958, 88 FR 59331). e. Pharmaceutical & Technology Ombudsman (PTO) Many interested parties (including device/biologic/drug developers or manufacturers, industry consultants, others) engage with CMS for coverage, coding, and payment questions or concerns. In order to streamline engagement by centralizing the different innovation pathways within CMS including new technology add-on payments, CMS utilizes the Pharmaceutical & Technology Ombudsman as an initial resource for interested parties. This Ombudsman is available to assist with all of the following: Help to point interested parties to or provide information and resources where possible regarding process, requirements, and timelines. As necessary, coordinate and facilitate opportunities for interested parties to engage with various CMS components. Serve as a primary point of contact for interested parties and provide updates on developments where possible or appropriate. We receive many questions from parties interested in pursuing new technology add-on payments who may not be entirely familiar with working with CMS. While we encourage interested parties to first review our resources available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/newtech, we know that there may be additional questions about the application process. Interested parties with further questions regarding Medicare's coverage, coding, and payment processes, and how they can navigate these processes, whether for new technology add-on payments or otherwise, should review the updated resource guide available at: https://www.cms.gov/medicare/coding-billing/guide-medical-technology-companies-other-interested-parties. Parties that would like to further discuss questions or concerns with CMS should contact the Pharmaceutical & Technology Ombudsman at [email protected]. f. Application Information for New Medical Services or Technologies Applicants for add-on payments for new medical services or technologies for FY 2027 must submit a formal request, including a full description of the clinical applications of the medical service or technology and the results of any clinical evaluations demonstrating that the new medical service or technology represents a substantial clinical improvement (unless the application is under one of the alternative pathways as previously described), along with a significant sample of data to demonstrate that the medical service or technology meets the high-cost threshold. CMS will review the application based on the information provided by the applicant under the pathway specified by the applicant at the time of application submission. Complete application information, along with final deadlines for submitting a full application, will be posted as it becomes available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/newtech.html. To allow interested parties to identify the new medical services or technologies under review before the publication of the proposed rule for FY 2027, once the application deadline has closed, CMS will post on its website a list of the applications submitted, along with a brief description of each technology as provided by the applicant. As discussed in the FY 2023 IPPS/LTCH PPS final rule (87 FR 48986 through 48990), we finalized our proposal to publicly post online new technology add-on payment applications, including the completed application forms, certain related materials, and any additional updated application information submitted subsequent to the initial application submission (except certain volume, cost and other information identified by the applicant as confidential), beginning with the application cycle for FY 2024, at the time the proposed rule is published. We also finalized that with the exception of information included in a confidential information section of the application, cost and volume information, and materials identified by the applicant as copyrighted or not otherwise releasable to the public, the contents of the application and related materials may be posted publicly, and that we will not post applications that are withdrawn prior to publication of the proposed rule. We refer the reader to the FY 2023 IPPS/LTCH PPS final [[Page 36663]] rule (87 FR 48986 through 48990) for further information regarding this policy. In the proposed rule, we stated that beginning with the new technology add-on applications submitted for FY 2027, we intend to include certain cost criterion information in this public posting; however, consistent with our current policy, cost and volume information will not be publicly posted. Consistent with current practice, certain cost and volume information may still be summarized and discussed in the proposed rule, but we intend to provide more succinct information as part of the summaries in the proposed and final rules regarding the applicant's assertions as to how the medical service or technology meets the cost criterion. Specifically, beginning with the FY 2027 applications, the public posting will include the applicant's explanation of the cost analysis methodology, including the step-by-step explanation of the columns used in the cost analysis spreadsheet attachment, any optional comments provided by the applicant, and information about the case weighted threshold and final inflated case weighted standardized charge per case, as is currently subject to discussion in the cost criterion analysis for each eligible application in the proposed rule. The cost analysis spreadsheet attachment and other charge values provided in the applicant's responses would not be included in the public posting. We stated that we believe that including the described cost criterion information in the public posting will further improve and streamline our evaluation process, while also further supporting transparency and engagement with interested parties. Comment: Multiple commenters asked CMS to reconsider finalizing or request additional input from interested parties through rulemaking before finalizing the inclusion of certain cost criterion information in the public posting beginning with FY 2027. Commenters stated that because CMS already summarizes the relevant cost analyses in the proposed rules to allow interested parties to comment on the analyses, there is no extra benefit to additional disclosures. Some commenters stated that disclosing applicants' cost analyses raises confidentiality concerns because information about expected inpatient volume and other data incorporated within cost analyses are based on confidential commercial and financial information, including proprietary market analyses. A commenter further explained that for therapies that target small patient populations, even high-level methodological detail may be commercially sensitive or permit back-calculation of pricing strategy. Commenters explained that such information should be kept confidential, consistent with long-standing statutes recognizing the need to protect confidential commercial and financial information against public disclosure. Multiple commenters also noted that because of the single annual application period, applicants generally submit their applications before their products are approved by FDA, creating special sensitivities in disclosing pricing information. Commenters stated that public release of this information could create disincentives for small or emerging companies that may be more risk- averse with respect to transparency of confidential methods. Multiple commenters requested that CMS provide additional details on the guardrails and specific steps the Agency would employ to ensure proprietary and market sensitive cost and pricing data provided by new technology add-on payment applicants are not inadvertently publicized, either directly or indirectly, through this proposal. For example, a commenter noted that the application asks the applicant to provide the charges related to the new technology, as well as the cost-to-charge ratio used to convert the product's cost to charges, and if CMS were to publish these two data points, the public would be able to calculate the cost of the product. Another commenter further asked CMS to articulate the policy gaps this proposal would address and what stakeholder needs it would serve. A commenter recommended that CMS modify the proposal to allow applicants to redact, generalize, or submit alternate public summaries of methodology where disclosure could reasonably reveal proprietary strategy. It also asked that CMS provide clear written guidance on what components of the cost methodology are considered ``public'' versus protected from disclosure. Another commenter also stated its appreciation and support for CMS's commitment to only publishing an explanation of the applicant's cost analysis methodology without including cost or pricing data, and CMS's effort to bring additional information about new technology add- on payment applications to the public. The commenter further asked that CMS create a sub-section text box dedicated to capturing proprietary information in the cost analysis methodology section that would not be included in any publication. Finally, the commenter asked that CMS avoid use of artificial intelligence in drafting summaries of applications for public display, including in the proposed rule, or ensure human review of the summary before publication. Response: We thank the commenters for their feedback and appreciate the commenters' raising their concerns regarding balancing the need to maintain the confidentiality of commercial and financial information with our intent to further improve and streamline our evaluation process and support transparency and engagement with interested parties. As discussed in the FY 2023 IPPS/LTCH PPS final rule (87 FR 48986 through 48990), we finalized to publicly post online new technology add-on payment applications, including the completed application forms, certain related materials (for example, attachments, uploaded supportive materials), and any additional updated application information submitted subsequent to the initial application submission (except certain volume, cost and other information identified by the applicant as confidential). We also provided a mechanism for applicants to submit confidential information that would not be posted online, such as in a separate section of the application, or by identifying particular questions for which the information submitted would not be publicly posted. We also stated we would not publicly post cost and volume information; however, consistent with our current practice, we would continue to summarize and discuss certain cost and volume information for the proposed rule and will indicate as such in the application. With the exception of information included in a confidential information section of the application, cost and volume information, and materials identified by the applicant as copyrighted and/or not otherwise releasable to the public, the contents of the application and related materials may be posted publicly. While we did not initially include the cost criterion analysis and related materials in the public posting as we gained experience with the public posting process, as noted by the commenters, in the meantime, we have continued to summarize the information under the cost criterion, including the applicant's assertions and supporting data on how the technology meets the criteria under Sec. 412.87, in the annual rules. This includes information such as: the inclusion/exclusion criteria used for the cost analysis, including the data source and list of ICD-10-CM/PCS codes and MS-DRGs used by the applicant, the number of claims and [[Page 36664]] MS-DRGs identified by the applicant for the cost analysis, the indirect and direct charges removed for prior technology (including the methodology used to estimate these charges), how the applicant standardized charges, the inflation factor applied to the standardized charges, the indirect and direct charges added for the new technology (including the methodology used to convert the cost of the new technology to charges), the average case-weighted threshold amount, and the final inflated average case-weighted standardized charge per case. Under this current proposal, the processes described in the FY 2023 IPPS/LTCH PPS final rule (87 FR 48986 through 48990) remain unchanged. The information described by commenters, including high-level methodological detail or information about data incorporated within cost analyses, is already included or subject to inclusion in the proposed and final rulemaking. Under our existing practice, we generally do not consider information that is marked as confidential, proprietary, or trade secret when determining whether a technology meets the criteria for new technology add-on payments. We would continue to indicate in the application where certain information will not be posted publicly (for example, contact information, cost and volume), otherwise, applicants should expect that everything else may be posted publicly. We would continue to provide a mechanism for applicants to submit confidential information that would not be posted online in a separate section of the application. Certain cost and volume information would continue to be included in the proposed or final rulemaking. For example, for an alternative pathway application, we continue to include, as applicable, the maximum add-on payment amount, where cost information is available. In the final rule, we would continue to provide, for approved technologies, the final add-on payment amounts and volume estimates. When reviewing the public postings prior to publication, we would continue to use human review rather than review by artificial intelligence. Under this proposal, the case weighted threshold and final inflated case weighted standardized charge per case would be included in the public posting because they are currently subject to discussion in the cost criterion analysis for each eligible application in the proposed rule. The cost criterion analysis spreadsheet attachment would continue to be excluded from the public posting. Other cost or charge values, such as for charges related to the new technology, provided in the applicant's responses would not be included in the public posting. Human review would be used to identify and manually redact cost or charge values that may have been provided in the applicant's responses in the cost criterion section. We continue to believe that providing additional information to the public by publicly posting the applications and certain related materials online helps further public engagement and fosters greater public input on the various new medical services and technologies presented annually for consideration for new technology add-on payments. We also continue to believe that posting the applications online reduces the risk that we may inadvertently omit or misrepresent relevant information submitted by applicants, or are perceived as misrepresenting such information, in our summaries in the rules. We do not believe that it would be appropriate for applicants to further redact, generalize, or provide alternate public summaries that would differ from the information provided in their new technology add-on payment applications for public review. As noted, we will continue to provide a mechanism for applicants to submit confidential information that would not be posted online in a separate section of the application. Therefore, we are finalizing that, beginning with the new technology add-on payment applications submitted for FY 2027, the public posting will include the applicant's explanation of the cost analysis methodology, including the step-by-step explanation of the columns used in the cost analysis spreadsheet attachment, any optional comments provided by the applicant, and information about the case weighted threshold and final inflated case weighted standardized charge per case, as is currently subject to discussion in the cost criterion analysis for each eligible application in the proposed rule. The cost analysis spreadsheet attachment and other cost or charge values that may have been provided in the applicant's responses in the cost criterion section would not be included in the public posting. Consistent with current practice, certain cost and volume information may still be summarized and discussed in the proposed rule, but we intend to provide more succinct information as part of the summaries in the proposed and final rules regarding the applicant's assertions as to how the medical service or technology meets the cost criterion. We note that the burden associated with this information collection requirement is the time and effort required to collect and submit the data in the formal request for add-on payments for new medical services and technologies to CMS. The aforementioned burden is subject to the PRA and approved under OMB control number 0938-1347 and has an expiration date of December 31, 2026.

2. Public Input Before Publication of a Notice of Rulemaking on Add-On

Payments Section 1886(d)(5)(K)(viii) of the Act, as amended by section 503(b)(2) of the MMA, provides for a mechanism for public input before publication of a notice of proposed rulemaking regarding whether a medical service or technology represents a substantial clinical improvement. The process for evaluating new medical service and technology applications requires the Secretary to do all of the following: Provide, before publication of a proposed rule, for public input regarding whether a new service or technology represents an advance in medical technology that substantially improves the diagnosis or treatment of Medicare beneficiaries. Make public and periodically update a list of the services and technologies for which applications for add-on payments are pending. Accept comments, recommendations, and data from the public regarding whether a service or technology represents a substantial clinical improvement. Provide, before publication of a proposed rule, for a meeting at which organizations representing hospitals, physicians, manufacturers, and any other interested party may present comments, recommendations, and data regarding whether a new medical service or technology represents a substantial clinical improvement to the clinical staff of CMS. In order to provide an opportunity for public input regarding add- on payments for new medical services and technologies for FY 2026 prior to publication of the FY 2026 IPPS/LTCH PPS proposed rule, we published a notice in the September 13, 2024, Federal Register (89 FR 74962) and held a virtual town hall meeting on December 11, 2024. In the announcement notice for the meeting, we stated that the opinions and presentations provided during the meeting would assist us in our evaluations of applications by allowing public discussion of the substantial clinical improvement criterion for the FY 2026 new medical service and technology add-on payment [[Page 36665]] applications before the publication of the FY 2026 IPPS/LTCH PPS proposed rule. Approximately 200 individuals attended the virtual town hall meeting. We posted the recordings of the virtual town hall on the CMS web page at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/newtech. We considered each applicant's presentation made at the town hall meeting, as well as written comments received by the December 16, 2024, deadline, in our evaluation of the new technology add-on payment applications for FY 2026 in the development of the FY 2026 IPPS/LTCH PPS proposed rule. In response to the published notice and the December 11, 2024, New Technology Town Hall meeting, we received written comments regarding the applications for FY 2026 new technology add on payments. As explained earlier and in the Federal Register notice announcing the New Technology Town Hall meeting (89 FR 74962 through 74964), the purpose of the meeting was specifically to discuss the substantial clinical improvement criterion with regard to pending new technology add-on payment applications for FY 2026. Therefore, we did not summarize any written comments in the proposed rule that were unrelated to the substantial clinical improvement criterion. In section II.E.5. of the preamble of the proposed rule, we summarized comments regarding individual applications, or, if applicable, indicated that there were no comments received in response to the New Technology Town Hall meeting notice or New Technology Town Hall meeting, at the end of each discussion of the individual applications.

3. ICD-10-PCS Section ``X'' Codes for Certain New Medical Services and

Technologies As discussed in the FY 2016 IPPS/LTCH PPS final rule (80 FR 49434), the ICD-10-PCS includes a new section containing the new Section ``X'' codes, which began being used with discharges occurring on or after October 1, 2015. Decisions regarding changes to ICD-10-PCS Section ``X'' codes will be handled in the same manner as the decisions for all of the other ICD-10-PCS code changes. That is, proposals to create, delete, or revise Section ``X'' codes under the ICD-10-PCS structure will be referred to the ICD-10 Coordination and Maintenance CommitteIn addition, several of the new medical services and technologies that have been, or may be, approved for new technology add-on payments may now, and in the future, be assigned a Section ``X'' code within the structure of the ICD-10-PCS. We posted ICD-10-PCS Guidelines on the CMS website at: https://www.cms.gov/medicare/coding-billing/icd-10-codes, including guidelines for ICD-10-PCS Section ``X'' codes. We encourage providers to view the material provided on ICD-10-PCS Section ``X'' codes.

4. FY 2026 Status of Technologies Receiving New Technology Add-On

Payments for FY 2025 In this section of the final rule, we discuss the FY 2026 status of 42 technologies approved for 39 new technology add-on payments for FY 2025, as set forth in the tables that follow. In the proposed rule, we presented our proposals to continue the new technology add-on payments for FY 2026 for those technologies that were approved for the new technology add-on payment for FY 2025, and which would still be considered ``new'' for purposes of new technology add-on payments for FY 2026. We also presented our proposals to discontinue new technology add-on payments for FY 2026 for those technologies that were approved for the new technology add-on payment for FY 2025, and which would no longer be considered ``new'' for purposes of new technology add-on payments for FY 2026. Our policy is that a medical service or technology may continue to be considered ``new'' for purposes of new technology add-on payments within 2 or 3 years after the point at which data begin to become available reflecting the inpatient hospital code assigned to the new service or technology. Our practice has been to begin and end new technology add-on payments on the basis of a fiscal year, and we have generally followed a guideline that uses a 6-month window before and after the start of the fiscal year to determine whether to extend the new technology add-on payment for an additional fiscal year, and, in general, we have extended new technology add-on payments for an additional year only if the 3-year anniversary date of the product's entry onto the U.S. market occurs in the latter half of the fiscal year (70 FR 47362). As discussed in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69238 through 69242), we finalized that, beginning with new technology add-on payments for FY 2026, in assessing whether to continue the new technology add-on payments for those technologies that are first approved for new technology add-on payments in FY 2025 or a subsequent year, we will extend new technology add-on payments for an additional fiscal year when the 3-year anniversary date of the product's entry onto the U.S. market occurs on or after October 1 of that fiscal year. This change is effective beginning with those technologies that are initially approved for new technology add-on payments in FY 2025 or a subsequent year. For technologies that were first approved for new technology add-on payments prior to FY 2025, including for technologies we determine to be substantially similar to those technologies, we continue to use the midpoint of the upcoming fiscal year (April 1) when determining whether a technology would still be considered ``new'' for purposes of new technology add-on payments. In the proposed rule, we provided Table II.E-01.A listing the technologies that were first approved for new technology add-on payments prior to FY 2025, for which we proposed to continue making new technology add-on payments for FY 2026 because they were still considered ``new'' for purposes of new technology add-on payments because the 3-year anniversary date of the product's entry onto the U.S. market occurs on or after April 1, 2026. This table also presented the newness start date, new technology add-on payment start date, 3- year anniversary date of the product's entry onto the U.S. market, relevant final rule citations from prior fiscal years, proposed maximum add-on payment amount, and coding assignments for each technology. We referred readers to the cited final rules in the table for a complete discussion of the new technology add-on payment application, coding, and payment amount for these technologies, including the applicable indications and discussion of the newness start date. In the proposed rule, we also provided Table II.E-01.B listing the technologies that were first approved for new technology add-on payments in FY 2025, for which we proposed to continue making new technology add-on payments for FY 2026 because they were still considered ``new'' for purposes of new technology add-on payments because the 3-year anniversary date of the product's entry onto the U.S. market occurs on or after October 1, 2025. This table also presented the newness start date, new technology add-on payment start date, 3-year anniversary date of the product's entry onto the U.S. market, relevant final rule citations from prior fiscal years, proposed maximum add-on payment amount, and coding assignments for each technology. We referred readers to the cited final rules in the table for a complete discussion of [[Page 36666]] the new technology add-on payment application, coding, and payment amount for these technologies, including the applicable indications and discussion of the newness start date. We invited public comments on our proposals to continue new technology add-on payments for FY 2026 for the technologies listed in Tables II.E.-01.A and II.E.-01.B of the proposed rule. Comment: Multiple commenters supported CMS's proposed continuation of new technology add-on payments for FY 2026 for those technologies that were approved for the new technology add-on payment for FY 2025, and which would still be considered ``new'' for purposes of new technology add-on payments for FY 2026. Response: We appreciate the commenters' support. Comment: Commenters, including the applicant for CYTALUX[supreg] for use in lung cancer, stated that they found that providers often do not bill for the full cost of the single-use vials when only a portion of the vial is administered during the surgical procedure. Commenters noted that this appears to be due confusion about whether Medicare Part B's discarded drug billing rules apply to inpatient billing under Medicare Part A, or uncertainty about whether the full vial cost should be reported in cases where only partial use occurs due to patient- specific dosing considerations. The applicant noted that although the non-reporting of the full vial cost does not affect the triggering of the new technology add-on payment because payment is driven by the unique ICD-10-PCS code for CYTALUX[supreg], this practice can decrease the likelihood that a hospital's reported cost for a case will exceed the payment threshold. Furthermore, commenters noted that underreporting of the full cost of CYTALUX[supreg] can distort the hospital's cost report data, which CMS relies upon for rate-setting purposes and for future MS-DRG assignments. Commenters requested that CMS clarify that because hospitals are not required to report drug wastage, they should bill for the full package size used in administration, and that hospitals should report the full acquisition cost of inpatient-administered drugs in their cost reports, regardless of the quantity administered. A commenter further suggested that CMS could instead support the reporting of waste for products within the billing process for Medicare Part A inpatient billing, similar to what is required on Medicare Part B. Response: We thank the applicant and other commenters for their comment. We note that they are correct that the drug wastage policy applies to Medicare Part B. We encourage commenters to consult the CMS Medicare discarded drug policy website at https://www.cms.gov/medicare/payment/part-b-drugs/discarded-drugs for further information. Comment: The applicant for ZEVTERA[supreg] (ceftobiprole medocaril sodium for injection) submitted a comment providing updated information on its commercial availability and to update its Wholesale Acquisition Cost (WAC). The applicant noted that ZEVTERA[supreg] received marketing approval from FDA on April 3, 2024, for the treatment of adult patients with Staphylococcus aureus bloodstream infections (bacteremia) (SAB), including those with right-sided infective endocarditis, and adult patients with acute bacterial skin and skin structure infections (ABSSSI) and for adult and pediatric patients (3 months to less than 18 years old) with community-acquired bacterial pneumonia (CABP). The applicant also noted that ZEVTERA[supreg] received new technology add- on payment approval for FY 2025, with its newness period beginning on April 3, 2024. Per the applicant, on December 14, 2024, it entered into a license and distribution agreement with Innoviva Specialty Therapeutics, LLC (ISTx) for the commercialization of ZEVTERA[supreg] in the United States. The applicant stated that transfer of ownership for the ceftobiprole Investigational New Drug (IND) Application (064407) and the ZEVTERA (ceftobiprole medocaril sodium for injection) NDA (218275) from Basilea to ISTx, LLC was submitted to FDA and was effective on March 18, 2025. ISTx, LLC announced on May 20th the commercial availability of ZEVTERA[supreg] for the US market. The applicant asserted that prior to this date, ZEVTERA[supreg] was not available to Medicare beneficiaries in the United States, and requested that CMS assign a newness date of May 20, 2025. The applicant asserted that CMS had delayed the newness dates for other products when market availability was significantly later than the FDA approval date, and provided examples from FY 2025: HEPZATOTM KIT, Annalise Enterprise CTB Triage--OH, and the LimFlowTM System. The applicant also stated that ISTx, LLC made ZEVTERA[supreg] available for use on May 20, 2025, with a WAC of $235.00 per vial. The applicant explained that, with this updated pricing information, the average inpatient cost per case is $21,620 for the indication of SAB and $7,050 for the indication of ABSSSI and CABP. Therefore, because ZEVTERA[supreg] is a Qualified Infectious Disease Product (QIDP), the applicant requested that the maximum new technology add-on payment for a case involving the use of ZEVTERA[supreg] be updated to $16,215 for the indication of SAB and $5,288 for the indications of ABSSSI and CABP for FY 2026 (that is, 75 percent of the average cost of the technology). Response: We thank the applicant for its comment and the updated cost information. We have updated the new technology add-on payment amount for ZEVTERA[supreg] accordingly. ZEVTERA[supreg]'s current new technology add-on payment amount is $8,625.00 for the indication of SAB and $2,812.50 for the indications of ABSSSI and CABP, based on a WAC of $125 per vial. As we noted in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69237), for ABSSSI and CABP, the suggested daily dose is 3 vials per day for a duration of 5-14 days, resulting in an estimated average cost of $3,750 for a 10-day therapy. For SAB, the recommended dose is every 6 hours for the first 8 days, followed by every 8 hours for up to 42 days, and the applicant had made the assumption that patients would be inpatient for 28 days and then continue the therapy as an outpatient for up to 42 days. For FY 2026, the maximum new technology add-on payment amount is $16,215.00 for the indication of SAB and $5,287.50 for the indications of ABSSSI and CABP, as reflected in Table II.E.-01.B in this final rule. With respect to the applicant's request that CMS should consider the beginning of the newness period to commence on May 20, 2025, which it states is the date on which ZEVTERA[supreg] became commercially available on the U.S. market, we note that that date occurred after new technology add-on payments for ZEVTERA[supreg] began, as it was approved for new technology add-on payment for FY 2025 (starting October 1, 2024). While we agree that per our policy, we may consider a documented delay in a technology's market availability in our determination of newness, we note that the new technology add-on payment for claims reporting ICD-10-PCS procedure codes for ZEVTERA[supreg] (XW0335A (Introduction of ceftobiprole medocaril anti- infective into peripheral vein, percutaneous approach) and XW0435A (Introduction of ceftobiprole medocaril anti-infective into central vein, percutaneous approach)) was available beginning October 1, 2024. Furthermore, as discussed in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69238 through 69242), we finalized that, [[Page 36667]] beginning with new technology add-on payments for FY 2026, in assessing whether to continue the new technology add-on payments for those technologies that are first approved for new technology add-on payments in FY 2025 or a subsequent year, we would extend new technology add-on payments for an additional fiscal year when the 3-year anniversary date of the product's entry onto the U.S. market occurs on or after October 1 of that fiscal year. If we were to consider the beginning of the newness period to commence on May 20, 2025, the date on which the applicant states ZEVTERA[supreg] became commercially available on the U.S. market, under our policy, the technology would potentially be eligible for new technology add-on payment for up to four years. Although the applicant stated that CMS had delayed the newness start dates for other technologies when market availability was significantly later than the FDA approval date, and that like these other products, ZEVTERA[supreg]'s newness period should commence on the date on which the technology became commercially available, we note that, unlike these other technologies, the applicant for ZEVTERA[supreg] is asserting a date of commercial availability that occurred after its new technology add-on payment began. We also note that applicants may assert a delay in commercial availability due to business decisions made by the applicant. We are concerned that a delay in commercial availability extending beyond the implementation date for the new technology add-on payment would potentially allow applicants to postpone commercial availability for an indefinite period of time while the technology (and other technologies reported using the same codes) remain eligible for new technology add- on payment. Therefore, we question whether, where the applicant asserts a date of commercial availability that occurred after the new technology add- on payment for the technology began, it would be appropriate to instead consider the beginning of the newness period to commence with the start of the technology's new technology add-on payment. We note that regardless of whether we consider the beginning of the newness period to commence for ZEVTERA[supreg] on May 20, 2025, April 3, 2024, or a date in between, the three-year anniversary date would occur after April 1, 2026, and, therefore, the technology would be considered new for FY 2026. After consideration of the public comments we received, we are finalizing our proposals to continue new technology add-on payments for FY 2026 for the technologies that were approved for new technology add- on payment for FY 2025 and would still be considered ``new'' for purposes of new technology add-on payments for FY 2026, as listed in the proposed rule and in the following Tables II.E.-01.A and II-E.-01.B in this section of this final rule. We note that the following Tables II.E.-01.A and II.E.-01.B are the same as Tables II.E.-01.A and II.E.-01.B that were presented in the proposed rule, but Table II.E.-01.A in this final rule includes the SAINT Neuromodulation System, as discussed later in this section, and Table II.E.-01.B in this final rule includes the updated cost information for ZEVTERA[supreg], as discussed previously. Tables II.E.- 01.A and II.E.-01.B in this final rule also present the newness start date, new technology add-on payment start date, 3-year anniversary date of the product's entry onto the U.S. market, relevant final rule citations from prior fiscal years, maximum add-on payment amount, and coding assignments for each technology. We refer readers to the final rules cited in the following tables for a complete discussion of the new technology add-on payment application, coding, and payment amount for these technologies, including the applicable indications and discussion of the newness start date. BILLING CODE 4120-01-P [[Page 36668]] [GRAPHIC] [TIFF OMITTED] TR04AU25.136 [[Page 36669]] [GRAPHIC] [TIFF OMITTED] TR04AU25.137 BILLING CODE 4120-01-C In the proposed rule, we provided a Table II.E.-02 listing the technologies that were first approved for new technology add-on payments prior to FY [[Page 36670]] 2025, including technologies determined to be substantially similar to such technologies, for which we proposed to discontinue making new technology add-on payments for FY 2026 because they were no longer ``new'' for purposes of new technology add-on payments because the 3- year anniversary date of the product's entry onto the U.S. market occurs before April 1, 2026. This table also presented the newness start date, new technology add-on payment start date, the 3-year anniversary date of the product's entry onto the U.S. market, and relevant final rule citations from prior fiscal years. We referred readers to the cited final rules in the table for a complete discussion of each new technology add-on payment application and the coding and payment amount for these technologies, including the applicable indications and discussion of the newness start date. As we discussed in section II.E.6. of the preamble of the proposed rule, BONESUPPORT, Inc. is also seeking new technology add-on payments for CERAMENT[supreg] G for FY 2026 for use in defects in the extremities of skeletally mature patients as an adjunct to systemic antibiotic therapy and surgical debridement as part of the standard treatment approach to open fractures. Additionally, as discussed in the FY 2023 IPPS/LTCH PPS final rule (87 FR 48961 through 48966), CERAMENT[supreg] G was approved for new technology add-on payments with an indication for use as a bone void filler in skeletally mature patients as an adjunct to systemic antibiotic therapy and surgical debridement (standard treatment approach to a bone infection) as part of the surgical treatment of osteomyelitis in defects in the extremities. For the proposed rule, we proposed to discontinue new technology add-on payments for FY 2026 for CERAMENT[supreg] G when used for bone infections, as the technology will no longer be considered new for this indication. We believed cases involving the use of CERAMENT[supreg] G related to bone infections, which would no longer be eligible for new technology add-on payment in FY 2026, would be identified by the ICD-10-PCS code XW0V0P7 (Introduction of antibiotic- eluting bone void filler into bones, open approach, new technology group 7) in combination with the ICD-10-CM codes in category M86 (Osteomyelitis). We invited public comments on the use of these codes to exclude the indication for use of CERAMENT[supreg] G related to bone infections, which we stated would not be eligible for the new technology add-on payment for FY 2026, if approved. Comment: Commenters expressed general support of the proposed ICD- 10-CM codes for which CMS specifically sought input. Response: We thank the commenters for their comments. As discussed in section II.E.6. of the preamble of this final rule, we are approving CERAMENT[supreg] G for new technology add-on payments for FY 2026 for use as a bone void filler intended for use in defects in the extremities of skeletally mature patients as an adjunct to systemic antibiotic therapy and surgical debridement as part of the standard treatment approach to open fractures. Therefore, cases involving the use of CERAMENT[supreg] G related to bone infections, which will no longer be eligible for new technology add-on payment in FY 2026, will be identified by the ICD-10-PCS code XW0V0P7 (Introduction of antibiotic-eluting bone void filler into bones, open approach, new technology group 7) in combination with the ICD-10-CM codes in category M86 (Osteomyelitis). We invited public comments on our proposals to discontinue new technology add-on payments for FY 2026 for the technologies listed in Table II.E.-02 of the proposed rule. Comment: Multiple commenters, including the applicant for SAINT Neuromodulation System, requested that CMS recognize a delay in commercial availability of the technology to April 5, 2024, and subsequently extend new technology add-on payment for the SAINT Neuromodulation System for FY 2026. Commenters presented the timelines for use of the device at their hospitals. A commenter stated that equipment was installed at the hospital on May 9 through 10, 2024; physicians and staff were trained by the manufacturer on May 15 through 17, 2024; and the first patient was treated on May 23, 2024. Another commenter stated that equipment was installed at its hospital on April 23, 2024; physicians and staff were trained between April 29 and May 1, 2024; and the first patients were treated on May 30, 2024. Commenters stated their hope that innovation for inpatient mental health patients would continue to be available to hospitals in 2026. The applicant also asserted that the SAINT Neuromodulation System was commercially available in the United States on April 5, 2024, and provided a timeline of the device's availability. The applicant stated that although the device received FDA clearance on September 1, 2022, there were significant product development, manufacturing design, and compliance steps that it needed to complete before the device became commercially available. Per the applicant, initially, it had planned to develop and manufacture its own hardware; however, it was determined in the second half of 2023 that the best course was to work with third- party manufacturers for the stimulator and neuronavigation hardware. The applicant stated that for compliance purposes, it followed a development plan consistent with its quality system and the commercial product could not be sold until the manufacturing processes were designed, developed, and validated according to FDA quality guidelines. Per the applicant, this process was finished on April 5, 2024, which was the earliest possible date the device could be sold in compliance with FDA regulations. The applicant further stated that in the FY2025 IPPS/LTCH PPS final rule, it was surprised to learn that there had been claims submitted with the ICD-10-PCS section X code that was created to administer the new technology add-on payment for the SAINT Neuromodulation System, before it was commercially available. The applicant stated it analyzed the claims using the Medicare Inpatient Standard Analytic Files (IPSAF) from October 2022 through March 2024 and confirmed that none of the billed cases were submitted by providers with access to the device or had discussed the device with the applicant. The applicant further looked at the primary diagnoses, all diagnoses, and MS-DRG mapping for these claims. The applicant explained that the device is intended to treat patients with major depressive disorder with claims including ICD-10-CM diagnosis codes F33.2 or F32.2 and whose cases map to MS-DRG 885 (Psychoses), yet none of the claims contained either a psychiatric diagnosis or were assigned to MS-DRG 885. The applicant asserted that these claims used the ICD-10-PCS code inappropriately, and provided additional details in a summary table. Per the applicant, in the FY 2026 final rule, CMS stated that the applicant stated the specific ICD-10-PCS code X0Z0X18 is ``used to uniquely describe procedures involving the use of SAINT Neuromodulation System,'' which the applicant stated supports its contention that the procedure code was intended to be used specifically for the device or a procedure that is virtually the same when the technology was introduced into the clinical setting. Therefore, the applicant asserted that the 5 claims should not have been accepted as qualifying claims and should not be [[Page 36671]] included in the evaluation of continued eligibility. The applicant asked that CMS establish the newness start date for the SAINT Neuromodulation System to be April 5, 2024, and noted that this would allow for the new technology add-on payment to continue in FY 2026. The applicant further asserted that this accurate newness date and continued new technology add-on payment would no longer result in premature termination of payment. The applicant stated that to fulfill the requirement for an adequate period of data collection of no less than 2 and no more than 3 years, terminating the new technology add-on payment at the end of FY 2025 would fall short of two years of active new technology add-on payment. Response: We thank the applicant and the commenters for their comments and further details regarding the claims reporting the ICD-10- PCS code X0Z0X18 (Computer-assisted transcranial magnetic stimulation of prefrontal cortex, new technology group 8). As discussed in greater detail previously in this section, we question whether, where the applicant asserts a date of commercial availability that occurred after the new technology add-on payment for the technology began, it would be appropriate to instead consider the beginning of the newness period to commence with the start of the technology's new technology add-on payment. We note that regardless of whether we consider the beginning of the newness period to commence for SAINT Neuromodulation System on April 5, 2024; a date that reflects the start of the technology's new technology add-on payment in FY 2024; or a date in between, the three- year anniversary date would occur after April 1, 2026, and, therefore, the technology would be considered new for FY 2026. Comment: Multiple commenters, including the applicant for EchoGo[supreg] Heart Failure 1.0 (referred to as EchoGo[supreg] Heart Failure), requested that CMS extend new technology add-on payment for EchoGo[supreg] Heart Failure for a third year. The commenters noted that EchoGo[supreg] Heart Failure, developed by Ultromics, is an FDA- cleared, AI-powered decision support platform designed to assist clinicians in detecting heart failure with preserved ejection fraction (HFpEF) using a single, routine echocardiogram view, and described the clinical need and clinical value of the device in identifying HFpEF from a standard echocardiogram. The applicant stated that the request to extend new technology add- on payment is consistent with CMS's longstanding policy that the newness period begins with availability of the product on the market, which is when data become available. The applicant explained that the device was not available on the market until November 2023, when it entered its first contract with a customer and invoiced a customer for the service. As such, the applicant asserted that the three-year anniversary of entry into the U.S. market would be in November of 2026. The applicant noted that CMS has recognized a later date where an applicant could prove a delay in actual availability of a product after FDA approval or clearance. Therefore, the applicant stated that consistent with this policy, CMS should not use the identified date of November 23, 2022 (date of FDA marketing authorization) as the newness start date for EchoGo[supreg] Heart Failure because that does not reflect when the product was first available. The applicant explained that the reason for the gap in time from FDA clearance to sales of EchoGo[supreg] Heart Failure was that upon FDA clearance, it had to perform considerable architectural and workflow changes to integrate the software into the product platform. Additionally, the applicant stated that it took considerable time to implement its product platform into a hospital's Picture Archiving and Communication System (PACS) and electronic health record (EHR) systems, all of which delayed it being able to have a viable and available product for which it could sign a commercial contract until 12 months after clearance. The applicant explained that it was not until late in 2023 that it could pursue contracts with customers, the first of which was signed in November of 2023, leading to a first invoice dated November 30, 2023. The applicant further stated that in light of this information, supplemented by its understanding that there are no claims for the ICD-10-PCS procedure code tied to the technology (XXE2X19) in the MedPAR database of FY 2023 claims, it asked CMS to apply its current policy and consider the starting point for the newness period for EchoGo[supreg] Heart Failure to begin in November of 2023, not November of 2022, such that EchoGo[supreg] Heart Failure would continue to receive new technology add-on payment for FY 2026. Commenters stated that that while EchoGo[supreg] Heart Failure had been available with new technology add-on payment since October 2023, the technology is still in the early stages of adoption across U.S. hospitals. Commenters explained that new technology add-on payment has been instrumental in facilitating access to the device by offsetting the additional costs associated with its use. However, commenters asserted that broader clinical integration and real-world evidence generation of novel technologies require more than two years, particularly in the context of hospital operational cycles, education, and ongoing validation in diverse patient populations. Commenters explained that extending new technology add-on payment for a third year would: ensure continued access to EchoGo[supreg] Heart Failure for Medicare beneficiaries, particularly as hospitals complete the necessary training and workflow adjustments; support ongoing data collection and outcomes research, further establishing the clinical and economic value of the technology; and encourage adoption in a wider range of hospital settings, including those serving high-risk and underserved populations disproportionately affected by HFpEF. The applicant stated that if CMS did not believe this extension is warranted under current policy, it should make changes to the new technology add-on payment policy to provide new technology add-on payment for three years for all technologies, similar to what was done under the hospital outpatient prospective payment system pass-through policy. The applicant explained that it can take a considerable period of time for a new technology to enter into the market, and that having a later year's data should provide more fulsome data set for rate setting. The applicant stated that CMS should not settle for data that would not be insufficient, but instead should strive to use as fulsome a data set as possible when making the important determination as to how to work a new technology into the MS-DRGs. Response: We thank the applicant and commenters for their comments. We note that while CMS may consider a documented delay in the technology's market availability in our determination of newness, our policy for determining whether to extend new technology add-on payments for an additional year generally applies regardless of the volume of claims for the technology after the beginning of the newness period (83 FR 41280). We do not consider the date of first sale of a product, or first shipment of a product, as an indicator of the entry of a product onto the U.S. market; neither of these dates indicate when a technology in fact became available for sale. Similarly, our policy for determining whether to extend new technology add-on payments for a third year generally [[Page 36672]] applies regardless of the claims volume for the technology after the start of the newness period (88 FR 58801 through 58802). The applicant stated the device was not available on the market until November 2023, which is when the applicant was able to enter its first contract with a customer and invoice a customer for the service; however, it is not clear to us when the technology first became available for sale. The applicant noted that it was not until late in 2023 that it had taken such steps that it could pursue contracts with customers, the first of which was signed in November of 2023, leading to a first invoice dated November 30, 2023. However, it seems that a viable product would have needed to be available for sale before the applicant would be able to pursue and enter its first contract. Furthermore, we note that according to the applicant's website, the device was available in the United States as of the press release on July 5, 2023,\21\ if not earlier. This further conflicts with the applicant's assertion that the device was not available for sale until November 2023. --------------------------------------------------------------------------- \21\ CMS Establishes HCPCS code for Ultromics EchoGo[supreg] Heart Failure, Accelerating Access to Precision HFpEF Detection: https://www.ultromics.com/press-releases/cms-establishes-hcpcs-code-for-echogo-heart-failure-accelerating-access-to-precision-hfpef-detection. --------------------------------------------------------------------------- Therefore, we cannot determine a newness date based on a documented delay in the technology's availability on the U.S. market. Accordingly, we are finalizing that we consider November 23, 2022, the date on which the technology received FDA 510(k) clearance for the indication covered by its Breakthrough Device designation, to be the date the technology became available on the market and the beginning of its newness period. We also disagree with the applicant's request that if CMS does not believe this extension is warranted under current policy, we should make changes to the new technology add-on payment policy to provide new technology add-on payment for three years for all technologies, similar to the hospital outpatient prospective payment system pass-through policy, to allow for as fulsome a data set as possible. When we had stated in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69241) that we did not believe that 2 years' worth of data would be insufficient to inform rate-setting for the inpatient setting, we also noted that, as described in the FY 2005 IPPS final rule (69 FR 49003), even if a technology does not receive new technology add-on payments, CMS continues to pay for new technologies through the regular payment mechanism established by the DRG payment methodology. In addition, the costs incurred by the hospital for a case are evaluated to determine whether the hospital is eligible for an additional payment as an outlier case. This additional payment is designed to protect the hospital from large financial losses due to unusually expensive cases. Any eligible outlier payment is added to the DRG-adjusted base payment rate (88 FR 58648). We further noted that whether a technology receives new technology add-on payments or not does not affect coverage of the technology or the ability for hospitals to provide a technology to patients where appropriate. After consideration of the public comments we received, we are finalizing our proposal to discontinue new technology add-on payments for the technologies as listed in the proposed rule and in the following Table II.E.-02 of this final rule for FY 2025 because they are no longer ``new'' for purposes of new technology add-on payments. We note that Table II.E.-02 is the same as Table II.E.-02 that was presented in the proposed rule, but Table II.E.-02 in this final rule no longer lists the SAINT Neuromodulation System, as discussed previously. This Table II.E.-02 also presents the newness start date, new technology add-on payment start date, the 3-year anniversary date of the product's entry onto the U.S. market, and relevant final rule citations from prior fiscal years. We refer readers to the final rules cited in the following table for a complete discussion of each new technology add-on payment application and the coding and payment amount for these technologies, including the applicable indications and discussion of the newness start date. BILLING CODE 4120-01-P [[Page 36673]] [GRAPHIC] [TIFF OMITTED] TR04AU25.138 [[Page 36674]] BILLING CODE 4120-01-C

5. FY 2026 Applications for New Technology Add-On Payments (Traditional

Pathway) --------------------------------------------------------------------------- \22\ As discussed in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69149 through 69155), we determined that ELREXFIOTM (elranatamab-bcmm) and TALVEYTM (talquetamab-tgvs) were substantially similar to TECVAYLI[supreg] (teclistamab-cqyv), which was first approved for new technology add-on payment in the FY 2024 IPPS/LTCH PPS final rule (88 FR 58885 through 58891). In accordance with our policy, because these technologies are substantially similar to each other, we use the earliest market availability date submitted as the beginning of the newness period for these technologies, November 9, 2022, the date TECVAYLI[supreg] became commercially available. As discussed previously in this section, for technologies that were first approved for new technology add-on payments prior to FY 2025, including for technologies we determine to be substantially similar to those technologies, we continue to use the midpoint of the upcoming fiscal year (April 1) when determining whether a technology would still be considered ``new'' for purposes of new technology add-on payments. --------------------------------------------------------------------------- As discussed previously, in the FY 2023 IPPS/LTCH PPS final rule, we finalized our policy to publicly post online applications for new technology add-on payment beginning with FY 2024 applications (87 FR 48986 through 48990). As noted in the FY 2023 IPPS/LTCH PPS final rule, we are continuing to summarize each application in this final rule. However, while we are continuing to provide discussion of the concerns or issues we identified with respect to applications submitted under the traditional pathway, we are providing more succinct information as part of the summaries in the proposed and final rules regarding the applicant's assertions as to how the medical service or technology meets the newness, cost, and substantial clinical improvement criteria. We refer readers to https://mearis.cms.gov/public/publications/ntap for the publicly posted FY 2026 new technology add-on payment applications and supporting information (with the exception of certain cost and volume information, and information or materials identified by the applicant as confidential or copyrighted), including tables listing the ICD-10-CM codes, ICD-10-PCS codes, and/or MS-DRGs related to the analyses of the cost criterion for certain technologies for the FY 2026 new technology add-on payment applications. We received 19 applications for new technology add-on payments for FY 2026 under the new technology add-on payment traditional pathway. In accordance with the regulations under Sec. 412.87(f), applicants for FY 2026 new technology add-on payments must have received FDA marketing authorization by May 1 of the year prior to the beginning of the fiscal year for which the application is being considered. As discussed in the FY 2024 IPPS/LTCH PPS final rule (88 FR 58948 through 58958) and the FY 2025 IPPS/LTCH PPS final rule (89 FR 69242 through 69245), we finalized that beginning with the new technology add-on payment applications for FY 2025, for technologies that are not already FDA market authorized for the indication that is the subject of the new technology add-on payment application, applicants must have a complete and active FDA market authorization request at the time of new technology add-on payment application submission and must provide documentation of FDA acceptance or filing to CMS at the time of application submission, consistent with the type of FDA marketing authorization application the applicant has submitted to FDA. See Sec. 412.87(e) and further discussion in the FY 2024 and FY 2025 IPPS/LTCH PPS final rules (88 FR 58948 through 58958, 89 FR 69242 through 69245). Of the 19 applications received under the traditional pathway, 2 applicants were not eligible for consideration for new technology add-on payment because they did not meet these requirements, and 3 applicants withdrew their applications prior to the issuance of the proposed rule. Subsequently, prior to the issuance of this final rule, one additional application was withdrawn for DuraGraft[supreg] (Vascular Conduit Solution). We are not including in this final rule the description and discussion of applications that were withdrawn or that are ineligible for consideration for FY 2026. We are addressing the remaining 13 applications. We are not approving new technology add-on payments for 8 technologies: AUCATZYL[supreg] (obecabtagene autoleucel), COBENFYTM (xanomeline and trospium chloride), FIBRYGA[supreg] (fibrinogen (human)), IntelliSep[supreg] Test, Neuroguard IEP[supreg] 3-in-1 Carotid Stent and Post-Dilation Balloon System with Integrated Embolic Protection, RYSTIGGO[supreg] (rozanolixizumab-noli), SYMVESSTM (acellular tissue engineered vessel-tyod), and ZIIHERA[supreg] (zanidatamab-hrii) for the reasons discussed in the following sections. We are approving new technology add-on payments for FY 2026 for the remaining 5 technologies: AURLUMYNTM (iloprost injection), BREYANZI[supreg] (lisocabtagene maraleucel), GRAFAPEXTM (treosulfan), IMDELLTRA[supreg] (tarlatamab-dlle), and TECELRA[supreg] (afamitresgene autoleucel). A discussion of these applications is presented in the following sections. a. AUCATZYL[supreg] (obecabtagene autoleucel) Autolus Therapeutics, Inc. submitted an application for new technology add-on payments for AUCATZYL[supreg] for FY 2026. According to the applicant, AUCATZYL[supreg] is a fast off-rate cluster of differentiation 19 (CD19) autologous chimeric antigen receptor (CAR) T- cell therapy with tumor burden-guided dosing designed to improve persistence and reduce immune-mediated toxicity. Per the applicant, AUCATZYL[supreg] is indicated for the treatment of adults with relapsed or refractory (R/R) B-cell precursor acute lymphoblastic leukemia (B- ALL). Please refer to the online application posting for AUCATZYL[supreg], available at https://mearis.cms.gov/public/publications/ntap/NTP241002GUJHV, for additional detail describing the technology and the disease treated by the technology. With respect to the newness criterion, according to the applicant, AUCATZYL[supreg] was granted BLA approval from FDA on November 8, 2024, for the treatment of adults with R/R B-ALL. According to the applicant, AUCATZYL[supreg] was commercially available immediately after FDA approval. The applicant stated that a single treatment of AUCATZYL[supreg] consists of two intravenous infusions (given on Day 1 and Day 10 [2]) administered via a syringe or gravity- assisted infusion through a central or peripheral venous line over a few minutes. Per the applicant, each infusion is packaged in three or more infusion bags containing a cell dispersion of the target tumor burden-guided dose of 410 x 10\6\ CD19 CAR-positive viable T cells.\23\ --------------------------------------------------------------------------- \23\ The applicant stated that the first dose, infused on Day 1, is determined by the patient's bone marrow disease burden within 7 days prior to lymphodepletion, and the second dose, infused on Day 10 [2], is tailored for a total dose of 410 x 10\6\ CAR T cells to complete the single treatment of AUCATYZL[supreg]. --------------------------------------------------------------------------- The applicant stated that, effective October 1, 2024, the following ICD-10-PCS codes may be used to uniquely describe procedures involving the use of AUCATZYL[supreg]: XW0338A (Introduction of obecabtagene autoleucel into peripheral vein, percutaneous approach, new technology group 10) or XW0438A (Introduction of obecabtagene autoleucel into central vein, percutaneous approach, new technology group 10). The applicant stated that C91.00 (Acute lymphoblastic leukemia not having achieved remission), C91.01 (Acute lymphoblastic leukemia, in remission), or C91.02 (Acute lymphoblastic leukemia, in relapse) may [[Page 36675]] be used to currently identify the R/R B-ALL indication for AUCATZYL[supreg] under the ICD-10-CM coding system. As previously discussed, if a technology meets all three of the substantial similarity criteria under the newness criterion, it would be considered substantially similar to an existing technology and would not be considered ``new'' for the purpose of new technology add-on payments. With respect to the substantial similarity criteria, the applicant asserted that AUCATZYL[supreg] is not substantially similar to other currently available technologies because it has a distinct immune- modulating mechanism of action and first-in-class tumor burden-guided dosing indicated for the treatment of adults with R/R B-ALL, and that therefore, the technology meets the newness criterion. More specifically, the applicant asserted that AUCATZYL[supreg] is the only CAR T-cell therapy constructed using the differentiated 4-1BB co- stimulatory domain with a novel, proprietary low affinity, fast off- rate CAT19 binding domain, and tumor burden-guided dosing. The following table summarizes the applicant's assertions regarding the substantial similarity criteria. Please see the online application posting for AUCATZYL[supreg] for the applicant's complete statements in support of its assertion that AUCATZYL[supreg] is not substantially similar to other currently available technologies. BILLING CODE 4120-01-P [[Page 36676]] [GRAPHIC] [TIFF OMITTED] TR04AU25.139 BILLING CODE 4120-01-C As discussed in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18092), we had the following concerns with regard to the newness criterion. We noted that the applicant asserted that AUCATZYL[supreg] does not use the same or [[Page 36677]] similar mechanism of action as existing technologies for R/R B-ALL in adults because AUCATZYL[supreg]'s co-stimulatory and binding domains differ from those of TECARTUS[supreg], which the applicant stated is the only other currently available CD19-directed CAR T-cell immunotherapy for this population. However, we noted that in the FY 2019 IPPS/LTCH PPS final rule (83 FR 41285 through 41291), with regard to the CAR T-cell therapies KYMRIAH[supreg] (tisagenlecleucel) and YESCARTA[supreg] (axicabtagene ciloleucel), we stated that although the two technologies were not completely the same in terms of manufacturing processes, co-stimulatory domains, and clinical profiles, these differences did not result in different mechanisms of action, and therefore, inferred that the technologies' mechanisms of action were the same. Similarly, we questioned whether differences in the co- stimulatory and binding domains for AUCATZYL[supreg] and TECARTUS[supreg] result in the use of a different mechanism of action. In addition, we noted that KYMRIAH[supreg] is also a CD19-directed CAR T-cell immunotherapy, and it is indicated for the treatment of patients up to 25 years of age with R/R B-ALL. We stated our belief that the mechanism of action for all three therapies is the binding to CD19 by a CAR construct, which results in T-cell activation and killing of malignant cells in the treatment of B-ALL. Furthermore, while the applicant also stated that AUCATZYL[supreg]'s personalized tumor burden-guided dosing schedule is first in class and differentiates it from other technologies' mechanisms of action, we stated we were unclear how a technology's dosing schedule is relevant to its mechanism of action. Accordingly, as it appeared that AUCATZYL[supreg], TECARTUS[supreg], and KYMRIAH[supreg] may use the same or similar mechanism of action to achieve a therapeutic outcome, are assigned to the same MS-DRG, and treat the same or similar patient population and disease, that is, adult patients with R/R B-ALL, we stated our belief that these technologies may be substantially similar to each other. We noted that, per our policy, if these technologies are substantially similar to each other, we use the earliest market availability date as the beginning of the newness period for the technologies. Therefore, if AUCATZYL[supreg] is substantially similar to TECARTUS[supreg] and KYMRIAH[supreg], we stated our belief that the newness period for this technology would begin on November 22, 2017, the date KYMRIAH[supreg] became commercially available.\24\ In addition, because the 3-year anniversary date of the KYMRIAH[supreg]'s entry onto the U.S. market (November 22, 2020) occurred in FY 2021, AUCATZYL[supreg] would no longer be considered new and would not be eligible for new technology add-on payments for FY 2026. We stated we were interested in information on how these technologies may differ from each other with respect to the substantial similarity criteria and newness criterion. --------------------------------------------------------------------------- \24\ TECARTUS[supreg] received FDA approval on October 1, 2021, for treatment of adult patients with R/R B-ALL. https://www.fda.gov/drugs/resources-information-approved-drugs/fda-approves-brexucabtagene-autoleucel-relapsed-or-refractory-b-cell-precursor-acute-lymphoblastic. --------------------------------------------------------------------------- We invited public comments on whether AUCATZYL[supreg] meets the newness criterion, including whether AUCATZYL[supreg] is substantially similar to TECARTUS[supreg] and KYMRIAH[supreg] for purposes of new technology add-on payments. Comment: Several commenters submitted comments in support of new technology add-on payments for AUCATZYL[supreg]. Some of the commenters disagreed with CMS's proposal to treat AUCATZYL[supreg] as substantially similar to other CD19-directed CAR T-cell therapies. A commenter argued that CMS's proposed approach does not take into consideration the specifics of the technological advancements that differentiate how mechanisms of action are achieved. Some commenters stated that when determining whether a CAR T-cell therapy sufficiently demonstrates substantial similarity compared to an existing technology, CMS should recognize innovations in the newer generation of therapies and how they differentiate these from previous CAR T-cell therapies. According to these commenters, those advancements should form the basis for differentiation as a distinct mechanism of action and without recognition of such advancements, continued innovation in the CAR T- cell therapy field may be discouraged and Medicare beneficiaries may be denied equitable access to such treatment advances. Some commenters argued that CMS should consider each CAR T-cell therapy application for new technology add-on payments on its own merits and not overly anchor to previous decisions to inform evaluation of the current fiscal year's applications. Per a commenter, it is especially important that CMS consider technological advancements when evaluating similarity of mechanisms of actions because they can translate directly into improved clinical outcomes. Response: We thank the commenters for their comments. We note that we have stated in prior rulemaking (73 FR 48561 through 48563) that we first determine whether a new technology meets the newness criterion, and only if so, do we make a determination as to whether the technology meets the cost threshold and represents a substantial clinical improvement over existing medical services or technologies. Further, as we have discussed in prior final rules (69 FR 49018 through 49019, and 70 FR 47344), it is our past and present practice to analyze the new medical service or technology add-on payment criteria in the following sequence: Newness, cost threshold, and finally substantial clinical improvement. Comment: The applicant and several commenters submitted public comments regarding the newness criterion for AUCATZYL[supreg]. The applicant reiterated that AUCATZYL[supreg] is a B-lymphocyte antigen CD19 CAR T-cell therapy designed to overcome the immune-related limitations in clinical activity and safety compared to current CD19 CAR T-cell therapies, with a fast target binding off-rate to minimize excessive activation of the programmed T cells, which reduces immune- mediated toxicity and is less prone to T-cell exhaustion, and that decreased T-cell exhaustion has been shown to enhance persistence. The applicant reiterated that based on the overall results from the pivotal phase 1b/2 FELIX study (N=127), the largest and most diverse patient population CAR T-cell study for adults with R/R B-ALL, a single treatment of AUCATZYL[supreg] reduces immune-mediated toxicity and results in reduced T cell exhaustion and improved persistence, leading to high levels of durable remissions. The applicant stated that AUCATZYL[supreg] is not the same or substantially similar to TECARTUS[supreg], the only other currently available CD19 CAR T-cell therapy approved for adult R/R B-ALL. The applicant reiterated that AUCATZYL[supreg] has a significantly distinct immune-modulating mechanism of action designed to model physiologic T- cell activation, and that it is constructed using the differentiated 4- 1BB co-stimulatory domain with a novel, proprietary low affinity, fast off-rate anti-CD 19 (CAT) hybridoma-derived anti-CD19 scFv (CAT19 binding domain) designed to improve potency and persistence and to reduce immune-mediated toxicity, including CRS and ICANS. The applicant provided an illustration of various components of AUCATZYL[supreg], which facilitate its immune-modulating mechanism of [[Page 36678]] action. These components included the CAT19 fast off-rate binder, the CD8-derived hinge region/transmembrane domain, the 4-1BB co-stimulatory domain, shown to enhance CAR T-cell expansion and reduce exhaustion compared with CD28 CARs in preclinical studies, and the CD3-zeta activation domain. The applicant reiterated that shorter cell-cell contact resulting from the greater than 40-fold lower affinity of CAT19 (off-rate of 3.7 minutes) compared with the FMC63 antigen-binding domain used in other currently available CAR T-cell therapy, including TECARTUS[supreg], reduces cytokine release and toxicity and CAR T-cell exhaustion, and enhances CAR T-cell persistence. The applicant also reiterated that the 4-1BB co-stimulatory domain is also highly differentiated from the CD28 co-stimulatory domain used in TECARTUS[supreg]; the 4-1BB distinct signaling pathway results in lower T-Cell activation, increased mitochrondrial biogenesis, greater oxidative metabolism, and sustained CAR T-Cell persistence. The applicant stated although it agreed that both AUCATZYL[supreg] and TECARTUS[supreg] target and kill CD19-expressing cancer cells, AUCATZYL[supreg] has a differentiated mechanism of action in how it binds CD19, with the key difference residing in the components of the respective CAR constructs. The applicant described differences in the CAR single chain variable fragments (scFv) for each technology and how they were derived, as well as the differing co-stimulatory domains, reiterating that the resulting shorter target interaction with targeT- Cells for AUCATZYL[supreg] due to its lower affinity for CD19 mimics physiologic T-cell activation, and the 4-1BB co-stimulatory domain is generally associated with longer persistence. The applicant stated that the use of these different features in AUCATZYL[supreg] leads to a unique mechanism of action characterized by differentiated binding kinetics, engraftment, persistence and immune-elicited responses. Regarding differentiated binding kinetics, the applicant stated that the CD19 (CAT) CAR binds CD19 with an above 40-fold lower affinity, resulting in faster disengagement, and >40 shorter half-life compared to the CD19 (FMC63) CAR used in currently marketed CAR-Ts, including TECARTUS[supreg] (CAT 3.73 min vs FMC63 2.8 hours). Per the applicant, both antibodies bind to an overlapping epitope of CD19 consisting of residues within loops 1 and 2 of the CD19 ectodomain and provided a chart that shows the results of the Ghorashian (2019) study. The applicant stated that, in particular, in in vitro studies, AUCATZYL[supreg] showed a higher equilibrium dissociation constant with CAT scFv (14 nM) as a result of a much faster off-rate (CAT: 3.1 x 10-3 s-1 vs FMC63: 6.8 x 10-5 s-1), whereas the on-rate was equivalent compared to FMC63 scFv (CAT: 2.2 x 10\5\ M-1s-1 vs FMC63: 2.1 x 10\5\ M-1s-1). According to the applicant, the fast off-rate and subsequent shorter cell-cell contact is advantageous by reducing cytokine release and thereby reducing toxicity, as well as reducing T-cell exhaustion, which enhances CAR T-cell persistence. The applicant stated that these features are designed to address major limitations of CAR T-cell therapy in B-ALL, namely, toxicity and lack of durable responses. Regarding engraftment and persistence, the applicant stated that owing to the differentiated binding kinetics of AUCATZYL[supreg], differenT-Cell kinetics at initial expansion and persistence compared to TECARTUS[supreg] are observed. According to the applicant, the pharmacokinetics for each patient in the Infused Set of Cohort IIA (N=94) of the FELIX study were assessed between Day 1 and Day 28, and AUCATZYL[supreg] demonstrated a rapid and high level of expansion of the cells following infusion. The overall geometric mean of Cmax was 114,982 copies/[mu]g/deoxyribonucleic acid (DNA) (range 129-600,000 copies/[mu]g DNA) with a median time to maximum (or peak) concentration (Tmax) of 14 days (range 2-55 days) and a geometric mean AUC0-28d of 1,138,188 copies/[mu]g DNA (range 179,000- 7,230,000 copies/[mu]g DNA * day). The applicant stated that expansion, measured by droplet digital PCR (ddPCR), was high regardless of whether patients achieved complete remission/complete remission with incomplete count recovery (CR/CRi) or not. Per the applicant, no biologically significant differences were seen in the geometric mean or median, interquartile range of Cmax. Per the applicant, in CR/CRi patients, approximately 68.4 percent (54.6 percent-78.7 percent 95 percent confidence interval [CI]) demonstrated persistence at 6 months with a maximum duration of 21 months. The applicant added that 75 percent (27/36) of the patients who had ongoing remission as of the data cut-off date had ongoing CAR T persistence at the last laboratory assessment as of the data cut-off date. According to the applicant, in comparison to other FMC63-based CARs approved for ALL, such as TECARTUS[supreg], the median Cmax was 38.35 cells/uL (range: 1.31-1533.4) and median AUC0-28 was 424.03 cells/uL x day (range: 14.12-19390.42) in responding patients treated with TECARTUS[supreg] (ZUMA-3 trial) compared to 0.49 cells/uL (range 0.0- 183.50) and 4.12 cells/uL x day (range 0.0-642.25) for Cmax and AUC0-28d respectively for non-responders. The applicant added that no CAR persistence was seen for TECARTUS[supreg] in the ZUMA-3 trial beyond 3 months by flow cytometry and 6 months by ddPCR. Per the applicant, not only was CAR-T expansion generally lower for TECARTUS[supreg] than that seen for AUCATZYL[supreg], an even lower expansion was observed in patients who did not respond compared to patients who responded, and CAR-T expansion of AUCATZYL[supreg] demonstrated a less than 3-fold increase in patients in CR/CRi vs patients not in CR/CRi. According to the applicant, this is strikingly different from TECARTUS[supreg] where ~80-fold increase in CAR-T expansion is seen in CR/CRi vs patients not in CR/CRi and where there is minimal CAR-T expansion in patients not in CR/CRi (0.49 cell/uL). The applicant referred to the chart that shows the comparative results of the Ghorashian (2019) study. The applicant further stated that the immune-elicited responses for AUCATZYL[supreg] are not similar to TECARTUS[supreg]. Per the applicant, at an early stage of AUCATZYL[supreg] development, it was hypothesized that the scFv of obe-cel's CAT CAR with a greatly reduced affinity for CD19 would improve the post-infusion immune-mediated cytokine release kinetics and toxicity profile common to currently marketed CAR Ts using the FMC63 CAR construct. The applicant stated that the novel 2-step fractionated tumor burden-guided dosing regimen further enhances the ability to reduce immunotoxicity, which has been linked to both disease burden and expansion of CAR T-cells. The applicant stated that supportive data from a number of different CD19 CAR T-cell trials in acute lymphoblastic leukemia indicated that higher disease burden is predictive of more severe CRS. The applicant further stated this led some groups to mitigate this toxicity by either administering a lower dose of CAR T-cells to patients with higher disease burden or splitting the total dose. Furthermore, the applicant stated that tumor burden-guided dosing provides an opportunity to tailor AUCATZYL[supreg] doses based on the patient-specific tumor burden, which may reduce the extent and rate of expansion, and thereby affect the severity of CRS. The applicant stated that spacing between the dose fractions takes into consideration the duration of IL-15 surge following lymphodepletion [[Page 36679]] (LD), which is important for CAR T-cell expansion and function as well as timing of early signals of subsequent severe toxicity. The applicant also stated that tumor burden-guided dose is also unlikely to increase the risk of immune-mediated reactions to the murine sequence present in the CD19 antigen-binding domain of AUCATZYL[supreg]. The applicant stated thaT-Cellular immune response at the time of the second dose, on Day 10, will be significantly reduced by the LD chemotherapy administered before AUCATZYL[supreg] infusion. The applicant added that the humoral immune response, which takes approximately 14 days to be generated, will be impaired by the B cell aplasia and subsequent hypogammaglobulinaemia induced by the CD19 CAR T-cells administered on Day 1. The applicant also stated that a range of serum biomarkers were evaluated in the FELIX study, and per the applicant, in accordance with AUCATZYL[supreg]'s distinct immune-modulating mechanism of action, the profiles observed for induced inflammatory soluble serum biomarkers were overall consistently and considerably lower than those reported for TECARTUS[supreg] in the ZUMA-3 trial. The applicant illustrated this finding with a table that compares selected peak inflammatory soluble serum biomarkers between the FELIX and ZUMA-3 trials. Per the applicant, the efficacy of CAR-T-cell therapy with impressive response rates in hematologic malignancies must be weighed with immune-mediated toxicities, notably CRS, a toxicity requiring urgent diagnostic and therapeutic interventions, and targeted modulation of key cytokine pathways represents the mainstay of CRS management. The applicant stated that the expected risk of developing CRS grade 3 after AUCATZYL[supreg] treatment was reduced relative to TECARTUS[supreg] (2.4 percent vs 25 percent). Per the applicant, the observed magnitude of difference in grade 3 CRS substantiates the distinct functional and biological properties of AUCATZYL[supreg]. The applicant acknowledged the limitations of unadjusted comparisons between single-arm trials and conducted a prospectively designed matching-adjusted indirect comparison (MAIC) of AUCATZYL[supreg] and TECARTUS[supreg] which, per the applicant, demonstrated that patients treated with TECARTUS[supreg] are significantly more likely to experience a grade 3 CRS event or immune-mediated neurotoxicity relative to patients treated with AUCATZYL[supreg]. The applicant concluded that AUCATZYL[supreg]'s immune-modulating mechanism of action is not the same or substantially similar to TECARTUS[supreg] because the novel CD19 (CAT) CAR in AUCATZYL[supreg] exhibits distinct functional and biological characteristics, notably lower affinity binding kinetics, prolonged persistence, and a differentiated immune-modulating mechanism of action that leads to a marked decrease in the release of inflammatory cytokines and a decrease in the incidence of grade 3 CRS and immune-mediated neurotoxicity. According to the applicant and several commenters, KYMRIAH[supreg] is not a relevant comparator for treatment of the Medicare population, as it is only approved for treatment of patients aged 25 or younger with R/R B-ALL. The applicant stated that in the pivotal AUCATZYL[supreg] Phase 2 Cohort IIA FELIX study population (n=94, infused), the median age was 50 years (range 20-81), with 88.3 percent over the age of 25. The applicant, as well as several commenters, also stated that while KYMRIAH[supreg] also uses the 4-1BB co-stimulatory domain, its scFv is FMC63-derived and therefore differences in binding kinetics described previously for TECARTUS[supreg] apply to KYMRIAH[supreg] as well. The applicant stated that therefore, AUCATZYL[supreg] is non-similar to KYMRIAH[supreg] in its mechanism of action and its intended population. In addition, the applicant stated that AUCATZYL[supreg] has a fundamentally different mechanism of action as a CAR T-cell therapy compared to immunotherapy, BLINCYTO[supreg] and BESPONSA[supreg]. The applicant stated that BLINCYTO[supreg] is a bispecific T-cell engager molecule derived from two distinct monoclonal antibodies that bind CD19 and CD3, while BESPONSA[supreg] is an antibody-drug conjugate (ADC) composed of a CD22-directed monoclonal IgG4 antibody linked to a cytotoxic agent. The applicant also explained that while immunotherapy is recommended as first-line treatment and considered superior to standard chemotherapy, CAR T-cell therapy is recommended following immunotherapy. The applicant stated that therefore, the focus of the substantial similarity test for AUCATZYL[supreg] should be TECARTUS[supreg]. Response: We appreciate the additional information from the applicant and commenters with respect to whether AUCATZYL[supreg] is substantially similar to existing technologies. We agree that AUCATZYL[supreg] has a different mechanism of action as a CD19-directed CAR T-cell therapy compared to BLINCYTO[supreg] and BESPONSA[supreg], which are bispecific T-cell engager molecule and antibody-drug conjugates. We also agree with the applicant that because KYMRIAH[supreg] is only approved for treatment of patients aged 25 or younger, representing a very small fraction of adults compared to AUCATZYL[supreg], it therefore treats a different population and is not substantially similar. However, we disagree with the applicant and commenters that AUCATZYL[supreg] has a unique mechanism of action because we do not believe there is a clear differentiation between the mechanism of action of AUCATZYL[supreg] and that of TECARTUS[supreg]. While the applicant highlights differences such as the binding domain, costimulatory/activation domains, binding kinetics, and dosing regimen, we do not believe these meaningfully differentiate the mechanism of action of AUCATZYL[supreg] from other CD19-directed CAR T-cell therapies, which are all genetically modified autologous T-cell immunotherapies that bind to CD-19 expressing cancer cells. We refer the reader to the FY 2019 and FY 2022 IPPS/LTCH PPS final rules (83 FR 41287 through 41291, and 86 FR 44999 through 45000) for further discussion of this issue, where we determined that the mechanisms of action for CAR T-cell therapies were not new based on similar factors. While the applicant stated that AUCATZYL[supreg] uses a fast-on-fast- off mechanism, we disagree that a shorter length of binding time for AUCATZYL[supreg] represents a different mechanism of action than the other CAR T-cell therapies. We also disagree that any association between AUCATZYL[supreg]'s binding and the rates of CRS and ICANS would represent the technology's mechanism of action, nor would CAR T-cell persistence and how it affects durability of response, as any differences between AUCATZYL[supreg] and existing technologies in observed outcomes would relate to an assessment of substantial clinical improvement rather than the newness criterion. Therefore, after consideration of the comments we received on AUCATZYL[supreg]'s newness, we believe that AUCATZYL[supreg] and TECARTUS[supreg] use the same mechanism of action to achieve a therapeutic outcome: the binding to CD19 by a CAR construct, which results in T-cell activation and killing of malignant cells in the treatment of B-ALL, and are assigned to the same MS-DRG. We also agree with the applicant that AUCATZYL[supreg] treats the same or similar patient population and disease as TECARTUS[supreg], which is used in treatment for adult patients with R/R B-ALL. Because AUCATZYL[supreg] meets all three of the substantial similarity criteria, we [[Page 36680]] believe AUCATZYL[supreg] is substantially similar to TECARTUS[supreg]. In accordance with our policy, because these technologies are substantially similar to each other, we use the earliest market availability date as the beginning of the newness period for AUCATZYL[supreg]. Therefore, we consider the newness period for AUCATZYL[supreg] to begin on October 1, 2021, the date TECARTUS[supreg] became commercially available. Since the 3-year anniversary date of TECARTUS[supreg]'s entry onto the market occurred prior to FY 2026, AUCATZYL[supreg] does not meet the newness criterion and is not eligible for new technology add-on payments for FY 2026. We note that we received public comments with regard to the cost and substantial clinical improvement criteria for this technology, but because we have determined that the technology does not meet the newness criterion and therefore is not eligible for approval for new technology add-on payments for FY 2026, we are not summarizing comments received or making a determination on those criteria in this final rule. b. AURLUMYNTM (iloprost injection) SERB Pharmaceuticals submitted an application for new technology add-on payments for AURLUMYNTM for FY 2026. According to the applicant, AURLUMYNTM is an intravenous form of iloprost associated with immediate generalized vasodilation, immunomodulation, and anti-inflammation indicated for the treatment of severe frostbite in adults to reduce the risk of digit amputations. Please refer to the online application posting for AURLUMYNTM, available at https://mearis.cms.gov/public/publications/ntap/NTP241007QK29V, for additional detail describing the technology and the disease treated by the technology. With respect to the newness criterion, according to the applicant, FDA granted NDA approval for AURLUMYNTM on February 13, 2024, for the treatment of severe frostbite in adults to reduce the risk of digit amputations. Per the applicant, the commercial launch of AURLUMYNTM was delayed until the NDA sponsor could secure a capable commercial partner. Per the applicant, it acquired AURLUMYNTM globally on October 18, 2024, and prepared for launch aligned with the beginning of the winter season. The applicant stated that the technology became available for sale on November 12, 2024. In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18096), we stated we were interested in additional information regarding the cause of any delay in the technology's commercial availability, including additional details about the preparation for launch that aligned with the beginning of the winter season. According to the applicant, AURLUMYNTM is administered as a continuous intravenous (IV) infusion over 6 hours per day, increased in increments up to a maximum dose of 2 ng/kg/minute, for up to a maximum of 8 consecutive days. The applicant expected that AURLUMYNTM will be dosed in the inpatient setting for 8 consecutive days using a total of eight single-use vials (one per day). The applicant submitted a request for unique ICD-10-PCS procedure codes for AURLUMYNTM beginning in FY 2026 and was granted approval for the following procedure codes effective October 1, 2025: XW033QB (Introduction of iloprost into peripheral vein, percutaneous approach, new technology group 11) and XW043QB (Introduction of iloprost into central vein, percutaneous approach, new technology group 11). The applicant provided a list of diagnosis codes that may be used to currently identify the indication for AURLUMYNTM under the ICD-10-CM coding system. Please refer to the online application posting for the complete list of ICD-10-CM codes provided by the applicant. As previously discussed, if a technology meets all three of the substantial similarity criteria under the newness criterion, it would be considered substantially similar to an existing technology and would not be considered ``new'' for the purpose of new technology add-on payments. With respect to the substantial similarity criteria, the applicant asserted that AURLUMYNTM is not substantially similar to other currently available technologies because it is the first-ever FDA-approved treatment for frostbite of any grade and is specifically indicated for the treatment of severe frostbite in adults to reduce the risk of finger or toe amputation, and therefore, the technology meets the newness criterion. The following table summarizes the applicant's assertions regarding the substantial similarity criteria. Please see the online application posting for AURLUMYNTM for the applicant's complete statements in support of its assertion that AURLUMYNTM is not substantially similar to other currently available technologies. BILLING CODE 4120-01-P [[Page 36681]] [GRAPHIC] [TIFF OMITTED] TR04AU25.140 BILLING CODE 4120-01-C In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18097), we noted that the applicant asserted that AURLUMYNTM is not assigned to the same MS-DRG as existing technologies. However, as the applicant also stated that AURLUMYNTM will map to MS-DRGs based on diagnosis/procedure codes, we stated our belief that the use of AURLUMYNTM will not change the MS-DRG assignment and will, therefore, map to the same MS-DRGs as other treatments for severe frostbite. In addition, while the applicant asserted that AURLUMYNTM does not treat the same or similar type of disease and the same or similar patient population as existing treatments because it is the first-ever FDA-approved treatment for frostbite, we noted that there are other severe frostbite treatments that are commonly used including rapid rewarming, fasciotomy, thrombolysis, and sympathectomy. We invited public comments on whether AURLUMYNTM is substantially similar to existing technologies and whether AURLUMYNTM meets the newness criterion. Comment: A few commenters, including the applicant, stated that AURLUMYNTM meets the newness criterion because it is the only FDA-approved treatment for severe frostbite and the only available intravenous formulation of iloprost, which enhances blood flow and accelerates the healing [[Page 36682]] process through preserving tissue integrity and minimizing complications. Response: We thank the applicant and other commenters for their input and have taken it into consideration in determining whether AURLUMYNTM meets the newness criterion, as discussed later in this section. Comment: The applicant reiterated that AURLUMYNTM does not use the same or substantially similar mechanisms of action as any technology or drug therapy assigned to any MS-DRG in the 2023 MedPAR data, nor of any drug currently marketed in the U.S. The applicant further stated that AURLUMYNTM is a stable synthetic analog of PGI2 and is a potent prostacyclin receptor agonist as well as the only intravenous form of iloprost available in the U.S. In response to CMS's note that use of AURLUMYNTM will not change the MS-DRG assignment and will map to the same MS-DRGs as other treatments for severe frostbite, the applicant agreed that patient cases with severe frostbite where AURLUMYNTM is administered will map to the same MS-DRGs as other frostbite cases where AURLUMYNTM is not part of the frostbite treatment regimen, but noted that there are no claims for medical therapies or procedures in the 2023 MedPAR data with the same or similar mechanism of action as AURLUMYNTM. Lastly, the applicant reiterated that patient cases where AURLUMYNTM is administered will be uniquely identified by two ICD-10-PCS codes specific to AURLUMYNTM. In response to CMS's note that there are other commonly used severe frostbite treatments, the applicant stated that prior to AURLUMYNTM's availability, frostbite treatment in the U.S. was limited to off-label use of tissue plasminogen activator (tPA) within 24 hours of injury. The applicant further stated that AURLUMYNTM extends the treatment window beyond the <24 hours recommended for off-label use of tPA, and AURLUMYN will be available to more patients with severe frostbite who, without access to AURLUMYN, would be contraindicated for the use of tPA with its associated significant bleeding risks and contraindications in trauma, recent surgery, recent stroke, and many other conditions that might pose a bleeding risk. Furthermore, the applicant stated that other non- pharmacologic post-thaw medical therapy options, such as hydrotherapy, hyperbaric oxygen therapy, sympathectomy, and fasciotomy, are part of multimodal frostbite treatment regimens; however, none of these non- pharmacologic treatments replace AURLUMYNTM or are used at the exclusion of AURLUMYNTM. In addition, a few commenters stated that AURLUMYNTM meets an unmet need for targeted, early intervention for patients with severe frostbite and represents a major advancement by uniquely promoting vasodilation and improving microcirculatory flow, thereby addressing the underlying pathophysiology of frostbite in a way that no other medication currently does. In response to CMS's request for additional information about the delay in AURLUMYNTM's commercial availability, the applicant commented that, while AURLUMYNTM received FDA approval on February 13, 2024, the BLA sponsor, EICOS, delayed market availability because it lacked the necessary commercial infrastructure and needed to search for a capable commercial partner, and that the newness period should begin on November 1, 2024. The applicant stated that it acquired AURLUMYNTM on October 18, 2024, and immediately initiated production, resulting in AURLUMYNTM becoming available for order and shipment on November 1, 2024. The applicant stated that CMS should use November 1, 2024, as the market availability date for the newness period, and therefore, allow AURLUMYNTM to receive new technology add-on payments for a full 3 years instead of a 2-year period if the FDA approval date of February 13, 2024 is used. Response: We thank the applicant and other commenters for their comments. Based on our review of comments received and information submitted by the applicant as part of its FY 2026 new technology add-on payment application for AURLUMYNTM, we agree with the applicant that AURLUMYNTM is the first synthetic analog of PGI2 that binds to prostacyclin receptors leading to vasodilation and inhibition of platelet activation approved by FDA to treat severe frostbite, and therefore uses a unique mechanism of action. Therefore, we agree with the applicant that AURLUMYNTM is not substantially similar to existing treatment options and meets the newness criterion. We consider the beginning of the newness period to commence on November 1, 2024, the date on which AURLUMYNTM became commercially available. With respect to the cost criterion, the applicant provided multiple analyses to demonstrate that AURLUMYNTM meets the cost criterion. Each analysis followed the order of operations summarized in the following table. [[Page 36683]] [GRAPHIC] [TIFF OMITTED] TR04AU25.141 Because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount in both scenarios, the applicant asserted that AURLUMYN\TM\ meets the cost criterion. We invited public comments on whether AURLUMYNTM meets the cost criterion. Comment: Multiple commenters, inclusive of the applicant, stated that AURLUMYNTM meets the cost criterion. A few commenters also asserted that the current DRG payments for an inpatient hospitalization for severe frostbite are inadequate to account for the total cost of care and suggested that, without approval of new technology add-on payments, hospitals may not be able to use AURLUMYNTM for the treatment of frostbite in Medicare patients. Response: We thank the applicant and other commenters for their comments. Based on the information submitted by the applicant as part of its FY 2026 new technology add-on payment application, as previously summarized, the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount under both scenarios. Therefore, we agree that AURLUMYNTM meets the cost criterion. With regard to the substantial clinical improvement criterion, the applicant asserted that AURLUMYN\TM\ represents a substantial clinical improvement over existing technologies because AURLUMYNTM substantially lowers the risk of digit amputation in severe frostbite cases. Additionally, the applicant claimed that, by reducing the risk of finger and toe amputations in adults with severe frostbite, AURLUMYN\TM\ mitigates debilitating, lifelong health-related, functional, and work-related impacts associated with digit amputation. The applicant provided four documents, including two studies and clinical practice guidelines to support these claims, as well as two background articles about a classification system for frostbite severity and the prevention and clinical treatment of frostbite.\25\ The following table summarizes the applicant's assertions regarding the substantial clinical improvement criterion. Please see the online posting for AURLUMYNTM for the applicant's complete statements regarding the substantial clinical improvement criterion and the supporting evidence provided. --------------------------------------------------------------------------- \25\ Background articles are not included in the following table but can be accessed via the online posting for the technology. --------------------------------------------------------------------------- [[Page 36684]] [GRAPHIC] [TIFF OMITTED] TR04AU25.142 In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18098 through 18099), after review of the information provided by the applicant, we stated we had the following concerns regarding whether AURLUMYNTM meets the substantial clinical improvement criterion. With respect to the claim that AURLUMYNTM offers a treatment option for a patient population unresponsive to, or ineligible for, currently available treatments, we noted that the applicant stated that AURLUMYNTM is the first-ever FDA- approved medical treatment for severe frostbite to reduce the risk of digit amputations, but did not identify a patient group that is unresponsive to, or ineligible for, the standard-of-care treatment, where AURLUMYNTM does offer a treatment option. We stated that the applicant provided two published studies that used AURLUMYNTM to support this claim (Cauchy et al., 2011; Crooks et al., 2022). Cauchy et al. (2011), which was published as a letter to the editor, is a single site, open-label trial which randomized 47 healthy patients (aged 18 to 55 years) with severe frostbite after mountain rescue in France to receive either buflomedil, AURLUMYNTM, or AURLUMYNTM plus recombinant tPA (rtPA), and assessed treatment efficacy based on bone scan scintigraphy to determine risk of amputation. The second study (Crooks et al., 2022) was a retrospective cohort study consisting of a medical records review in Calgary, Canada, a large city inclusive of an unhoused population. The study excluded patients due to superficial or grade 1 frostbite, resulting in 90 patients with an interquartile age range of 31 to 53 years old. For frostbite treatment, these patients received either AURLUMYNTM or the standard of care, which consisted of the local best practice without AURLUMYNTM. We noted that while these two studies compared treatment of patients with severe frostbite using AURLUMYNTM to other treatments, neither study described a patient group that is unresponsive to, or ineligible for, existing treatment options where AURLUMYNTM offers treatment. We further noted that while the applicant also cited the Wilderness Medical Society Practice Guidelines (McIntosh et al., 2024) which included a strong recommendation for iloprost as the first-line treatment for severe (grades 3 and 4) frostbite less than 48 hours after thawing, and possibly for up to 72 hours post-thawing,\26\ the full statement in the Guidelines is that intravenous iloprost should be considered first-line therapy for grade 3 and 4 frostbite <72 hours after injury, when tPA is contraindicated, and in austere environments where tPA infusion is considered risky or evacuation to a treatment facility will be delayed. Additionally, the guidelines include other recommendations for treatments such as sympathectomy, fasciotomy, and hydrotherapy. Therefore, we stated it appeared that there are other treatment options for frostbite other than AURLUMYNTM. We stated that we would appreciate any additional information regarding which patient population AURLUMYNTM can treat for severe frostbite, for which other existing treatments could not be used. --------------------------------------------------------------------------- \26\ McIntosh, S.E., Freer, L., Grissom, C.K., Rodway, G.W., Giesbrecht, G.G., McDevitt, M., Imray, C.H., Johnson, E.L., Pandey, P., Dow, J., & Hackett, P.H. (2024). Wilderness Medical Society Clinical Practice Guidelines for the Prevention and Treatment of Frostbite: 2024 Update. Wilderness & Environmental Medicine, 35(2). https://doi.org/10.1177/10806032231222359. --------------------------------------------------------------------------- With respect to the claim that AURLUMYNTM significantly improves clinical outcomes relative to services or technologies previously available, the [[Page 36685]] applicant stated that AURLUMYNTM reduces the risk of amputation of fingers and toes in adults with severe frostbite, mitigating debilitating, lifelong health-related, functional, and work- related impacts of digit amputation. To support this claim, the applicant provided the two published studies and Wilderness Medical Society Practice Guidelines previously discussed (Cauchy et al., 2011; Crooks et al., 2022; McIntosh et al., 2024). The Cauchy et al. (2011) study found that the 16 patients treated with AURLUMYNTM without rtPA resulted in no amputations, whereas the risk of amputation was greater in patients treated with buflomedil (60 percent, 9 of 15 patients) and patients treated with AURLUMYNTM plus rtPA (19 percent, 3 of 16 patients). The Crooks et al. (2022) study found that 18 percent of grade 3 frostbite injuries and 46 percent of grade 4 frostbite injuries treated with AURLUMYNTM resulted in digital amputation, compared to the standard of care groups where 44 percent of grade 3 frostbite injuries and 95 percent of grade 4 frostbite injuries resulted in amputations. However, we questioned whether the composition of the AURLUMYNTM and standard of care treatment groups in these two published studies were sufficiently comparable and, consequently, whether the outcomes demonstrated were clinically significant. Specifically, we questioned the accuracy of severity grading determinations and the resulting randomization process used to group patients in both studies due to the subjective nature of grading frostbite injuries that can evolve over time, and being that the grading of frostbite injuries in Crooks et al. (2022) was conducted using photographs and clinician health descriptions in the local electronic health record. We also noted that, in Crooks et al. (2022), no patients in the control group were treated with tPA, despite tPA and heparin being available for severe injuries during the period of treatment with standard frostbite care. The absence of tPA in the control group raised questions about the adequacy of the comparator, given that the Wilderness Medical Society Practice Guidelines recommend tPA for select severe frostbite cases where timely administration is feasible. We also questioned the extent to which the quality of frostbite care in the control group may have varied, prior to the implementation of the protocol that implemented 5-day iloprost infusion. In addition, while the utility of recommendations in establishing evidence of clinically improved outcomes is limited, we further noted that neither study provided direct comparison with therapies that are also strongly recommended by the Wilderness Medical Society, such as fasciotomy and hydrotherapy, or with other therapies that may have limited data availability, such as sympathectomy and hyperbaric oxygen therapy. We also stated concerns about the generalizability of the Cauchy et al. (2011) and Crooks et al. (2022) studies to the Medicare population. We noted that Cauchy et al. (2011) studied AURLUMYNTM treatment in patients in France, whose mean age was 33.1 years and who had no notable medical or surgical history. As noted in the Crooks et al. (2022) study, which studied patients from a large Canadian city with a substantial unhoused population, the effects may not be as dramatic as results in other studies, owing to the differences in medical and social comorbidities in the study population. Similarly, the Medicare population may have significant differences from the Cauchy et al. (2011) study population, in physical and mental health and social complexities. We also questioned whether efficacy data from Cauchy et al. (2011) is generalizable to the Medicare population due to the study's location, small patient population, and patients' age. We noted that these two published studies assessing AURLUMYNTM were both conducted outside of the U.S and primarily included patients under the age of 55 years (range: 18 to 55 and 29 to 54 years, respectively). As noted in the AURLUMYNTM prescribing information, clinical studies included insufficient numbers of patients aged 65 years and older to determine whether they respond differently than younger subjects.\27\ --------------------------------------------------------------------------- \27\ Eicos Sciences, Inc. Prescribing Information for AURLUMYNTM (iloprost) injection, for intravenous use (revised 5/2024), section 8.5 Geriatric Use. Available at: https://www.accessdata.fda.gov/drugsatfda_docs/label/2024/217933s000lbl.pdf. --------------------------------------------------------------------------- We invited public comments on whether AURLUMYNTM meets the substantial clinical improvement criterion. Comment: We received several comments in support of AURLUMYNTM's new technology add-on payment application. These commenters stated that denying AURLUMYNTM's application would leave a large gap in frostbite treatment and would be a grave disservice to the most vulnerable patients, as AURLUMYNTM offers a critical opportunity to change the trajectory of their lives. A few commenters specifically stated that AURLUMYNTM meets the substantial clinical improvement criterion because it has demonstrated a reduced risk of amputation, a clear improvement in patient quality of life, and a reduction in long- term costs associated with disability, rehabilitation, prosthetic use, and readmission. A commenter also stated that the inclusion of AURLUMYNTM into a multimodal treatment regimen has the potential to improve patient flow within healthcare systems, streamline the care of frostbite patients, decrease the burden on Q1 providers, facilitate more effective use of resources, and enhance continuity of care during critical treatment windows. Several commenters, including the applicant, expressed general support for approval of AURLUMYNTM's new technology add-on payment application. Response: We thank the commenters for their input and have taken it into consideration in determining whether AURLUMYNTM meets the substantial clinical improvement criterion as discussed later in this section. Comment: The applicant submitted a comment regarding the substantial clinical improvement criterion and provided responses to CMS's concerns from the proposed rule. In response to our concern that the applicant did not identify a patient population that is unresponsive to, or ineligible for, the standard-of-care treatment where AURLUMYNTM does offer a treatment option, the applicant reiterated that AURLUMYNTM reduces significant risk of amputation and grade 3 and grade 4 frostbite's associated long- term complications, which impact a patient's ability to cope with normal everyday routines as well as health-related and functional quality of life. The applicant also reemphasized the 2024 Wilderness Medical Society Practice Guidelines for the Prevention and Treatment of Frostbite (WMS Guidelines) strong recommendation that AURLUMYNTM be used as a first-line therapy for grade 3 and 4 frostbite up to 48 hours after thawing, and possibly up to 72 hours. The applicant stated that the WMS Guidelines underline the need to consider the risk and benefits of using a thrombolytic, such as tPA, that is contraindicated in trauma, recent surgery, recent stroke, and many other conditions that might pose a bleeding risk; that has potential risks of systemic and catheter site bleeding, compartment syndrome, and failure to salvage tissue; and in which the long-term, functional consequences of digit salvage has not been evaluated. The applicant concluded that AURLUMYN extends the treatment window for patients beyond the <24 hours recommended for off-label use of tPA, and it provides an [[Page 36686]] important treatment option for patients with severe frostbite who are contraindicated for the off-label use of tPA. In addition, a few commenters, including the applicant, asserted that AURLUMYNTM is an important component of a multimodal treatment regimen that includes pharmacologic and non-pharmacologic treatment for frostbite, such as rewarming, pain management, systemic hydration, and pharmacologic treatment. These commenters further stated that although non-pharmacologic post-thaw medical therapy, such as hydrotherapy, hyperbaric oxygen therapy (HBOT), sympathectomy, and fasciotomy, should be considered in a multimodal frostbite treatment regimen, these therapies do not replace AURLUMYNTM and instead are complementary. To demonstrate this, the applicant stated that they attached or enclosed two examples of clinical practice protocols for frostbite, which vary from institution to institution, but we note that there were no enclosures/attachments of that nature. In response to CMS's concern as to whether the Cauchy et al. (2011) and Crooks et al. (2022) studies were sufficiently comparable and demonstrated clinically significant outcomes, the applicant reiterated the results from these two studies. The applicant also stated that Cauchy et al. (2011) reported results from the largest and only randomized, controlled, open-label study of severe frostbite treatment, which included 46 patients with grade 3 or grade 4 frostbite and 1 patient with grade 2 frostbite who were treated with buflomedil, AURLUMYNTM, or recombinant tPA plus AURLUMYNTM. The applicant also stated that the results from this study played a role in the WMS Guidelines recommending AURLUMYNTM. With regard to rapid rewarming, a commenter stated that a substantial proportion of the patients in Crooks et al. (2022) presented after the frostbitten tissue was already thawed and did not undergo rapid rewarming, which may have contributed to less favorable outcomes compared to the patients in Cauchy et al. (2011) who all underwent rapid rewarming. The commenter also stated that sympathectomy has not been shown to improve outcomes in frostbite and can be performed regardless of treatment with thrombolytics or AURLUMYNTM, and fasciotomy is rarely necessary to treat frostbite but should be performed regardless of other treatments when required. In addition, the applicant cited a retrospective chart review of 22 patients and a multicenter prospective single-arm study of 28 patients. The applicant stated that the retrospective chart review of 22 patients in Whitehorse, Yukon Territory, Canada, who presented to the hospital with grade 2, 3, or 4 frostbite, found that patients treated with AURLUMYNTM, or AURLUMYNTM in addition to alteplase and heparin in the case of grade 4 frostbite, exhibited lower than expected amputation rates. Specifically, the applicant stated that no digits with grade 2 or 3 frostbite were amputated in patients treated with AURLUMYNTM, and 50 percent of the digits with grade 4 frostbite treated with AURLUMYNTM, alteplase, and heparin, required amputation. The applicant stated that overall, 29 of 142 (20.4 percent) digits were amputated, and the majority of digits amputated (N = 19) were from 1 patient who, according to direct correspondence with the author, was a very extreme case with frostbite extending beyond the carpal/tarsal region of the patient's limbs.\28\ The applicant referenced expected rates of amputation of 1 percent for grade 2 digits, 31 to 67 percent for the grade 3 digits, and 98 to 100 percent for grade 4 digits, based on the Cauchy 2001 study.\29\ The applicant also stated that a multicenter prospective single-arm study of 28 patients with grade 3 or 4 frostbite conducted in Switzerland and France compared early HBOT and AURLUMYNTM to treatment with AURLUMYNTM alone. The applicant stated that after 1 year of follow-up, 92 percent of injured digits/limbs treated with AURLUMYNTM did not require amputation, (85 percent in the AURLUMYNTM only control group and 98 percent in the AURLUMYNTM + HBOT group).\30\ The applicant stated that this study's interpretability is limited, as the study does not report the amputation outcome rate in comparable patients who did not receive AURLUMYNTM. --------------------------------------------------------------------------- \28\ Poole A, et al. Management of severe frostbite with iloprost, alteplase and heparin. A Yu-kon case series. CMAJ open 9 (2021), E585-E591. \29\ Cauchy E, et al. Retrospective study of 70 cases of severe frostbite lesions. A proposed new classification scheme. Wilderness & Environmental Medicine 2001;12, 248-255. \30\ Magnan MA, et al. Hyperbaric oxygen therapy with iloprost improves digit salvage in severe frostbite compared to iloprost alone. Medicina (Kaunas, Lathuania) 57 (2021). --------------------------------------------------------------------------- In response to CMS's concerns related to the Crooks et al. (2022) study's potentially inaccurate severity grading and the adequacy of the comparator in the absence of tPA in the control group, a commenter stated that the study authors listed both factors as limitations and that some or all of the 41 patients that presented within 24 hours had other contraindications to the use of tPA, including only grade 2 frostbite. The commenter further stated that Crooks et al. (2022) did not report which patients in the standard care group presented within 24 hours with grade 2 frostbite and noted that clinicians can sometimes have difficulty distinguishing between grade 2 and grade 3 frostbite initially, leading most clinicians to err on the side of caution and classifying the frostbite as grade 3. In response to CMS's concern that the applicant did not present evidence that directly compared AURLUMYNTM with other therapies that are also strongly recommended by the WMS, the applicant stated that it is unaware of any published literature examining frostbite injury cases following treatment with AURLUMYNTM that are described specifically referencing results of other adjunctive post-thaw treatment options described in the WMS Guidelines (hydrotherapy, sympathectomy, and fasciotomy). The applicant reiterated that iloprost is a part of the multimodal treatment protocol hospitals follow and does not replace any of these non-pharmacologic treatment approaches; nor are these options employed at the exclusion of iloprost. In response to CMS's concern about the Cauchy et al. (2011) and Crooks et al. (2022) studies' generalizability to the Medicare population, the applicant stated that, in its analysis of 2023 MedPAR data, Medicare paid 62 patient claims for severe frostbite, the majority of which (about 63 percent) were for Medicare beneficiaries under 65 years of age. The applicant stated that these findings mirror the age demographics in the cited AURLUMYNTM studies. The applicant also stated that evidence-based guidance for the prevention and treatment of frostbite does not vary by age groups nor by geographic region, which according to the applicant, aligns with the Cauchy et al. (2011) and Crooks et al. (2022) studies' results which demonstrate that regardless of age or geographic region, patients treated with AURLUMYNTM showed substantial clinical improvement. Another commenter stated that whether studies were conducted outside the U.S. is irrelevant as there is no evidence to suggest that the physiology of frostbite varies by location. The commenter also stated that it is prudent to treat older patients and patients with comorbidities using AURLUMYNTM when there are no contraindications because there is no evidence to suggest the effects of frostbite vary with age or that the response to treatment with [[Page 36687]] AURLUMYNTM differs between older and younger patients but frostbite outcomes are likely to be worse in older patients or patients with comorbidities, such as diabetes. The commenter further stated that the proposed rule incorrectly reports the age range in the Crooks et al. (2022) study to be between 29 to 54 years and that these were instead interquartile ranges (90 FR 18099). The applicant summarized adverse events reported in Cauchy et al. (2011) and Crooks et al. (2022), as well as a multicenter retrospective cohort study and the AURLUMYNTM prescribing information. The applicant also referenced the NDA sponsors clinical trial program for patients with systemic sclerosis who received either placebo or AURLUMYNTM to support the clinical safety of AURLUMYNTM in patients with severe frostbite. The applicant stated this clinical trial reported no deaths, study drug-related serious adverse events, or adverse events of special interest leading to study drug discontinuation, and all adverse events related to the study drug were expected and consistent with the established safety profile of AURLUMYNTM. Response: We thank the applicant and other commenters for their comments regarding the substantial clinical improvement criterion. Based on the additional information received, we agree with the applicant and other commenters that AURLUMYNTM represents a substantial clinical improvement over existing technologies for the treatment of severe frostbite in adults because it reduces the risk of digit amputation compared to the standard of care, especially for patients who are contraindicated for tPA or are beyond the <24 hours treatment window recommended for off-label use of tPA. After consideration of the public comments we received and the information included in the applicant's new technology add-on payment application, we have determined that AURLUMYNTM meets the criteria for approval for new technology add-on payment. Therefore, we are approving new technology add-on payments for this technology for FY 2026. Cases involving the use of AURLUMYNTM that are eligible for new technology add-on payments will be identified by ICD- 10-PCS codes: XW033QB (Introduction of iloprost into peripheral vein, percutaneous approach, new technology group 11) or XW043QB (Introduction of iloprost into central vein, percutaneous approach, new technology group 11). In its application, the applicant estimated that the cost of AURLUMYNTM is $44,000 per patient, based on eight single-use 100 mcg per mL vials (one per day over 8 days) at a cost of $5,500 per vial. Under Sec. 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS-DRG payment for the case. As a result, the maximum new technology add-on payment for a case involving the use of AURLUMYNTM is $28,600 for FY 2026. c. BREYANZI[supreg] (lisocabtagene maraleucel) Bristol Myers Squibb submitted an application for new technology add-on payments for BREYANZI[supreg] for FY 2026. According to the applicant, BREYANZI[supreg] is a CD19-directed, autologous CAR T-cell immunotherapy comprised of individually formulated CD8 and CD4 CAR T- cells and is indicated for the treatment of adult patients with relapsed/refractory (R/R) chronic lymphocytic leukemia or small lymphocytic lymphoma (CLL/SLL) who have received two or more prior lines of therapy (LOTs), including a Bruton tyrosine kinase inhibitor (BTKi) and a B-cell lymphoma 2 protein inhibitor (BCL2i). We noted that BREYANZI[supreg] is also indicated for the treatment of adult patients with R/R large B-cell lymphoma, for which the applicant submitted an application for new technology add-on payments for FY 2021 and FY 2022, as discussed in the FY 2022 IPPS/LTCH PPS final rule (86 FR 44996 through 45008). Please refer to the online application posting for BREYANZI[supreg], available at https://mearis.cms.gov/public/publications/ntap/NTP24100722KTJ, for additional detail describing the technology and the disease treated by the technology. With respect to the newness criterion, according to the applicant, BREYANZI[supreg] was granted accelerated approval for its supplemental Biologics License Application (sBLA) by FDA on March 14, 2024 for the treatment of adult patients with R/R CLL or SLL who have received two or more prior LOTs, including a BTKi and a BCL2i.\31\ According to the applicant, BREYANZI[supreg] was commercially available immediately after FDA marketing authorization for the CLL/SLL indication. Per the applicant, for this indication, patients receive a one-time intravenous infusion of BREYANZI[supreg], which contains 90 to 110 x 10\6\ CAR- positive viable T-cells consisting of 1:1 CAR-positive viable T-cells of the CD8 and CD4 components, with each component supplied separately in one or more single-dose vials. --------------------------------------------------------------------------- \31\ Breyanzi. United States Prescribing Information (USPI), (revised 5/2024). According to the applicant, FDA has also approved BREYANZI[supreg] for several other indications, including for the treatment of adults with (1) R/R follicular lymphoma (FL) who have received two or more prior LOT (approved on 5/15/2024); (2) R/R mantle cell lymphoma (MCL) who have received at least two prior LOT, including a BTKi (approved on 5/30/2024); (3) R/R large B-cell lymphoma (LBCL) after two or more LOT, including diffuse large B- cell lymphoma (DLBCL) not otherwise specified (including DLBCL arising from indolent lymphoma), high-grade B-cell lymphoma, primary mediastinal LBCL, and FL grade 3B (approved on 2/5/2021); and (4) LBCL, including DLBCL, not otherwise specified (including DLBCL arising from indolent lymphoma), high-grade B-cell lymphoma, primary mediastinal LBCL, and FL grade 3B, who have either refractory disease to first-line chemoimmunotherapy or relapse within 12 months of first-line chemoimmunotherapy or refractory disease to first-line chemoimmunotherapy or relapse after first-line chemoimmunotherapy and are not eligible for hematopoietic stem cell transplant (HSCT) due to comorbidities or age (approved on 6/24/2022). (https://www.fda.gov/vaccines-blood-biologics/cellular-gene-therapy-products/breyanzi-lisocabtagene-maraleucel, accessed 3/27/2025). --------------------------------------------------------------------------- The applicant stated that, effective October 1, 2021, the following ICD-10-PCS codes could be used to uniquely describe procedures involving the use of BREYANZI[supreg]: XW033N7 (Transfusion of lisocabtagene maraleucel immunotherapy into peripheral vein, percutaneous approach, new technology group 7) or XW043N7 (Transfusion of lisocabtagene maraleucel immunotherapy into central vein, percutaneous approach, new technology group 7). The applicant provided the following list of codes may be used to currently identify the R/R SLL/CLL indication for BREYANZI[supreg] under the ICD-10-CM coding system: [[Page 36688]] [GRAPHIC] [TIFF OMITTED] TR04AU25.143 In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18100), we invited public comments on the use of these ICD-10-CM diagnosis codes to identify the indication of R/R SLL or CLL for purposes of the new technology add-on payment, if approved. Comment: We received comments expressing general support of the use of the listed ICD-10-CM codes for which CMS specifically sought input. A few commenters, including the applicant, agreed that these ICD-10-CM codes properly identify the R/R SLL/CLL indication for BREYANZI[supreg]. One of the commenters also suggested that CMS consider four additional diagnosis codes that also identify the indication of R/R SLL/CLL, including C91.Z0 (Other lymphoid leukemia not having achieved remission), C91.Z2 (Other lymphoid leukemia, in relapse), C91.90 (Lymphoid leukemia, unspecified not having achieved remission), and C91.92 (Lymphoid leukemia, unspecified, in relapse). Response: We thank the applicant and commenters for their input. We note that the four additional ICD-10-CM codes describing ``other lymphoid leukemia'' and ``lymphoid leukemia, unspecified'' are not specific to SLL or CLL. Therefore, we do not believe those diagnosis codes are appropriate to identify the indication of R/R SLL/CLL. We agree with the applicant that the codes listed by the applicant accurately identify the indication for BREYANZI[supreg]. As previously discussed, if a technology meets all three of the substantial similarity criteria under the newness criterion, it would be considered substantially similar to an existing technology and would not be considered ``new'' for the purpose of new technology add-on payments. With respect to the substantial similarity criteria, the applicant asserted that BREYANZI[supreg] is not substantially similar to other currently available technologies because BREYANZI[supreg] does not use the same or similar mechanism of action as other therapies approved for the treatment of R/R CLL/SLL, is not assigned to the same MS-DRG as other therapies currently approved for the treatment of R/R CLL/SLL, and does not involve treatment of the same or similar type of disease and patient population as other CAR T-cell therapies, and that therefore, the technology meets the newness criterion. The following table summarizes the applicant's assertions regarding the substantial similarity criteria. Please see the online application posting for BREYANZI[supreg] for the applicant's complete statements in support of its assertion that BREYANZI[supreg] is not substantially similar to other currently available technologies. BILLING CODE 4120-01-P [[Page 36689]] [GRAPHIC] [TIFF OMITTED] TR04AU25.144 BILLING CODE 4120-01-C In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18101), we noted that the applicant asserted that because BREYANZI[supreg] is the first CAR T-cell therapy, regardless of target, indicated for the treatment of R/R CLL/SLL, it does not involve treatment of the same or similar type of disease and patient population as existing technologies. However, we noted that there are other existing (non-CAR T-cell) treatments for patients with R/R CLL/SLL who have received two or more prior LOTs, including a BTKi and a BCL2i, such as noncovalent BTKis, PI3Kis, or allogeneic HSCT, and therefore, we questioned whether BREYANZI[supreg] treats [[Page 36690]] a different type of disease or patient population than existing technologies. We invited public comments on whether BREYANZI[supreg] is substantially similar to existing technologies and whether BREYANZI[supreg] meets the newness criterion. Comment: The applicant submitted a public comment that asserted BREYANZI[supreg] meets the newness criterion because it does not use a mechanism of action that is the same or similar to other therapies currently approved for the treatment of R/R CLL/SLL, and is not assigned to the same MS-DRG as those therapies. With respect to BREYANZI[supreg]'s mechanism of action, the applicant stated that BREYANZI[supreg] remains the only cell-based immunotherapy to be successfully manufactured for patients with CLL/SLL, which is characterized by profound T-cell dysfunction, and reiterated that BREYANZI[supreg] differs from other treatments as a CAR T-cell therapy that does not require repeated dosing until progression nor incur cumulative toxicity and drug resistance. With respect to BREYANZI[supreg]'s MS-DRG assignment, the applicant stated that no other therapies indicated for the treatment of patients with R/R CLL/ SLL are assigned to MS-DRG 018. Response: We thank the applicant for its comment. Based on our review of comments received and information submitted by the applicant as part of its FY 2026 new technology add-on payment application for BREYANZI[supreg], we agree with the applicant that BREYANZI[supreg] uses a unique mechanism of action because it is a CD19-directed, autologous CAR T-cell immunotherapy that initiates proliferation of CAR T cells that result in the cytotoxic killing of target cells for the treatment of adult patients with R/R CLL/SLL who have received two or more prior LOTs, including a BTKi and a BCL2i. We also agree with the applicant that BREYANZI[supreg] is not assigned to the same MS-DRG as other therapies currently approved for the treatment of these patients. Therefore, we agree with the applicant that BREYANZI[supreg] is not substantially similar to existing treatment options and meets the newness criterion. We consider the beginning of the newness period to commence on March 14, 2024, the date on which BREYANZI[supreg] was granted accelerated approval of its sBLA from FDA. With respect to the cost criterion, the applicant provided an analysis to demonstrate that BREYANZI[supreg] meets the cost criterion. The analysis followed the order of operations summarized in the following table. [GRAPHIC] [TIFF OMITTED] TR04AU25.145 Because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount in all scenarios, the applicant asserted that BREYANZI[supreg] meets the cost criterion. We invited public comments on whether BREYANZI[supreg] meets the cost criterion. Comment: The applicant reiterated that the cost criterion analysis submitted with its application demonstrates that BREYANZI[supreg] meets the cost criterion. Response: We thank the applicant for its comment. We agree that the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount in the applicant's cost analysis. Therefore, BREYANZI[supreg] meets the cost criterion. With regard to the substantial clinical improvement criterion, the applicant asserted that BREYANZI[supreg] demonstrates a substantial clinical improvement because R/R CLL/SLL patients who have received a prior BTKi and BCL2i have limited treatment options and outcomes are extremely poor. The applicant also asserted that BREYANZI[supreg] is the first and only CAR T-cell therapy indicated for this population, and in clinical studies, 20 percent of patients treated with BREYANZI[supreg] achieved complete response or remission (CR) and remained in CR through 22.4 months of follow-up. The applicant provided one article and two conference presentations regarding one clinical trial, and the BREYANZI[supreg] package insert to support these claims, as well as 11 background articles about CLL, SLL, and current treatment options.\32\ The following table summarizes the applicant's assertions regarding the substantial clinical improvement criterion. Please see the online posting for BREYANZI[supreg] for the applicant's complete statements regarding the substantial clinical [[Page 36691]] improvement criterion and the supporting evidence provided. --------------------------------------------------------------------------- \32\ Background articles are not included in the following table but can be accessed via the online posting for the technology. --------------------------------------------------------------------------- BILLING CODE 4120-01-P [GRAPHIC] [TIFF OMITTED] TR04AU25.146 BILLING CODE 4120-01-C We also received a public comment in response to the New Technology Town Hall meeting notice published in the Federal Register regarding the substantial clinical improvement criterion for BREYANZI[supreg], which we summarized in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18103). After review of the information provided by the applicant and the public comment received in response to the New Technology Town Hall meeting, we stated in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18103) that we had the following concerns regarding whether BREYANZI[supreg] meets the substantial clinical improvement criterion. First, we questioned whether there is a particular subpopulation for which BREYANZI[supreg] offers a treatment option that is unresponsive to or ineligible for other existing therapies. While the applicant asserted that BREYANZI[supreg] is the first and only CAR T-cell therapy for this indication, it also stated that there are other treatment options for this patient population, including non-covalent BTKis, such as Jaypirca[supreg], and PI3Ks, such as COPIKTRA[supreg].\33\ We noted that being the first CAR T-cell therapy for a particular indication relates to mechanism of action and is not relevant to the demonstration of substantial clinical improvement. --------------------------------------------------------------------------- \33\ National Comprehensive Cancer Network. (2024, October 1). NCCN Clinical Practice Guidelines in Oncology (NCCN Guidelines[supreg]): Chronic Lymphocytic Leukemia/Small Lymphocytic Lymphoma. https://www.nccn.org/professionals/physician_gls/pdf/cll.pdf. --------------------------------------------------------------------------- Secondly, while the applicant stated that BREYANZI[supreg] is anticipated to significantly improve clinical outcomes in R/R CLL/SLL patients who have received prior BTKi and BCL2i therapy, we stated we had questions regarding the evidence provided in support of this claim. The applicant provided several [[Page 36692]] studies based on the results of the TRANSCEND CLL 004 trial, including one published article (Siddiqi et al., 2023a), two conference presentations (Siddiqi et al., 2023b; Siddiqi et al., 2024), and the BREYANZI[supreg] package insert (2024). We noted that the TRANSCEND CLL 004 trial was a single-arm study in which no historical controls were used to compare the effects of BREYANZI[supreg] on clinical outcomes. We also noted that the applicant acknowledged the caveats inherent with direct cross-study comparisons due to differences between patient populations, baseline comorbidities, and the number and type of prior treatment regimens that subjects have received. In addition, the applicant stated that no head-to-head studies exist comparing BREYANZI[supreg] in CLL to currently available treatments. At the same time, the applicant asserted that BREYANZI[supreg]'s median time to next therapy was considerably longer than that observed in a real-world study of patients with CLL/SLL after prior treatment with a BTKi and B- cell lymphoma 2 inhibitors (6.6 months [95 percent CI, 3.6-10.1].\34\ Also, the applicant noted that patients with prior BTKi exposure who were venetoclax-na[iuml]ve would have improved outcomes had they received BREYANZI[supreg] earlier, before other early-line treatments.\35\ We stated our concern about the validity of comparing the clinical outcomes of BREYANZI[supreg] and existing therapies to the extent those clinical outcomes were results of trials with different designs, and the patients in those studies were selected based on different inclusion/exclusion criteria and may have different baseline clinical characteristics. We stated that these differences may have an impact on clinical outcomes that was independently of BREYANZI[supreg] or the comparator treatments. Moreover, we noted the differing results between BREYANZI[supreg] and other existing therapies in terms of the clinical outcomes cited by the applicant. For example, as previously described, BREYANZI[supreg] demonstrated a CR rate of 20 percent and ORR of 44 percent for patients in the PEAS cohort. According to the applicant, in a trial in which patients with R/R CLL/SLL received Jaypirca[supreg], the CR rate and ORR was 0 percent and 70 percent respectively.\36\ Furthermore, according to the applicant, BREYANZI[supreg] resulted in PFS of 11.9 months for patients in the PEAS cohort in the TRASNCEND CLL 004 trial. However, we noted that in the trial in which patients with R/R CLL/SLL received Jaypirca[supreg], the PFS was 16.8 months.\37\ We questioned how these mixed findings support the claim that BREYANZI[supreg] represents a substantial clinical improvement, given the higher values with respect to the existing therapies for particular outcome results. --------------------------------------------------------------------------- \34\ Siddiqi (2023b), op.cit. \35\ Siddiqi (2024), op.cit. \36\ Mato (2023b), op.cit. \37\ Mato (2023b), op.cit. --------------------------------------------------------------------------- In addition, with respect to the applicant's claims that R/R CLL/ SLL patients who received prior BTKi and BCL2i therapies have limited treatment options, and that patients with R/R CLL/SLL have poor outcomes on existing therapy, we questioned whether these claims support that BREYANZI[supreg] improves clinical outcomes for this patient population. We invited public comments on whether BREYANZI[supreg] meets the substantial clinical improvement criterion. Comment: Several commenters expressed support for approval of BREYANZI[supreg] for new technology add-on payments. A few commenters stated that approval of BREYANZI[supreg]'s new technology add-on payment application will remove a potential barrier to accessing innovative treatments and tools advancing this approach to care for unmet medical needs. Another commenter stated that the new technology add-on payment program was created to eliminate the limitations on access to new therapies due to lack of reimbursement in the inpatient setting, and the use of BREYANZI[supreg] for the FDA-labeled indications would require hospitals to incur costs that, without a new technology add-on payment, would have to be fully absorbed by the treating hospital. A few commenters also emphasized that CAR T-cell therapies are a critical and important advancement in the treatment of certain cancers and for patient populations with few existing treatment options. A commenter stated that BREYANZI[supreg] is a new CAR T-cell therapy for patients with CLL and a new option for patients who have exhausted all other treatment options. The commenter further urged CMS to consider adding BREYANZI[supreg] to the set of tools available to address the significant unmet need for additional lines of therapy for CLL, regardless of whether a patient receives BREYANZI[supreg] as their first treatment after progressing on two or more lines of therapy or after a noncovalent BTKi and/or a PI3Ki. Response: We thank the commenters for their input and have taken it into consideration in determining whether BREYANZI[supreg] meets the substantial clinical improvement criterion as discussed later in this section. Comment: The applicant submitted a public comment regarding the substantial clinical improvement criterion and provided responses to CMS's concerns from the proposed rule. The applicant asserted that BREYANZI[supreg] provides a substantial clinical improvement relative to services or technologies previously available for the treatment of Medicare beneficiaries with R/R CLL/SLL who have limited therapy options, according to National Comprehensive Cancer Network (NCCN) Guidelines. The applicant further stated that BREYANZI[supreg] is the only NCCN Guidelines-preferred regimen that offers patients a treatment-free disease remission interval with improved quality of life and the potential to achieve a deep and durable response (20 percent CR) while other regimens, such as PI3Ki, have concerning benefit-risk profiles and are associated with poor outcomes characterized by high risks of fatal adverse events and the absence of complete disease remission. In response to CMS's question about the applicant's assertion that BREYANZI[supreg] offers a treatment option for patients unresponsive to or ineligible for other existing therapies, the applicant stated that BREYANZI[supreg] is a novel, promising treatment option not only for patients with R/R CLL/SLL who have received at least two prior lines of therapy, including a BTKi and a BCL-2i (double class exposed), but is also the only treatment intentionally studied and proven efficacious in patients with highly refractory and aggressive CCL/SLL who experienced disease progression while on BTKi and failed to respond to Venclexta[supreg]. Per the applicant, these highly refractory patients represent a particularly difficult-to-treat population with no existing effective treatments. The applicant also stated that BREYANZI[supreg] substantially improves treatment of the double class exposed population, that is, patients with R/R CLL/SLL who had received at least 2 prior lines of therapy, achieving a 20 percent CR rate and improvements in health-related quality of life, whereas existing therapies, including Jaypirca[supreg] (pirtobrutinib), the recently approved non-covalent BTKi, rarely achieve CR in this population. The applicant asserted that BREYANZI[supreg] addresses the critical unmet need in this patient population by offering the possibility of a durable CR following a one-time treatment. The applicant stated that in this subpopulation, BREYANZI[supreg] demonstrated a consistent rate of 20 percent CR that was durable, with median PFS and DOR not reached at [[Page 36693]] 31.4 and 31.7 months of follow up respectively. The applicant further stated that PI3Kis, such as Copiktra[supreg] and Zydelig[supreg], are not preferred treatment options for double class exposed patients due to their benefit-risk profile. The applicant noted that 31 percent of Copiktra[supreg]-treated patients and 48 percent of Zydelig[supreg]- treated patients experienced fatal/serious infections, while 18 percent and 20 percent of patients experienced fatal/serious diarrhea or colitis respectively. The applicant added that 15 percent of Copiktra[supreg]-treated patients demonstrated treatment-related mortality, and accordingly, an FDA expert panel voted on April 21, 2022 to recommend that future FDA approvals of PI3Kis be supported by randomized data, rather than single-arm data only, and further discontinuing the use of almost all PI3Kis in hematologic treatment. Another commenter stated that CMS's inquiry into whether there is a particular subpopulation that is unresponsive to or ineligible for alternatives to BREYANZI[supreg] did not recognize that a new treatment line in a chronic cancer can offer an incremental, additive survival benefit. In response to CMS's concern about the lack of historical controls in the single-arm TRANSCEND CLL 004 trial to compare the effects of BREYANZI[supreg] on clinical outcomes, the applicant stated that it conducted an external control arm analysis to compare BREYANZI[supreg] to the standard of care treatments for double case exposed patients with R/R CLL/SLL using patients from the TRANSCEND CLL 004 monotherapy cohort matched to real-world patients from U.S. oncology practice and cancer centers. Per the applicant, to ensure fair and robust comparisons, it employed an advanced causal inference methodology, Inverse Probability of Treatment Weighting combined with regression modeling, to adjust for the differences in patient and disease characteristics between the clinical trial and the real-world cohorts. The applicant stated that this analysis demonstrated that BREYANZI[supreg] significantly improved response, including higher CR rates ([95% CI] of 17.9% [9-34] for BREYANZI[supreg] vs 2.2% [1-5]) for standard of care treatments, P<0.0001) and ORR rates ([95% CI] of 52.5% [35-79] for BREYANZI[supreg] vs 19.2% [14-26] for standard of care treatments, P=0.0007), and also delayed disease progression and prolonged OS compared with standard of care treatments. According to the applicant, the median PFS [95 percent CI] was 12.0 months (10.8- 13.2) with BREYANZI[supreg] vs 4.4 months (3.2-5.5) for standard of care treatments (hazard ratio, 0.40; 95% CI, 0.24-0.68, P=0.0007). The probabilities of PFS at 24 and 36 months were 46.3 percent and 30.3 percent with BREYANZI[supreg], compared to 11.5 percent and 5.1 percent for standard of care treatments, respectively. The applicant also stated that mOS [95 percent CI] was 33.6 months (31.7-35.5) for BREYANZI[supreg] vs 14.8 months (9.4-20.1) for standard of care treatments (hazard ratio, 0.47; 95% CI 0.28-0.79, P=0.0043). The probability of OS at 24 and 36 months were 73.4 percent and 42.6 percent with BREYANZI[supreg], compared to 35.1 percent and 29.7 percent with standard of care treatments respectively. The applicant asserted that these statistically significant and clinically meaningful results confirm that treatment with BREYANZI[supreg] results in improved outcomes compared with historical controls for double class exposed patients with R/R CLL/SLL. A commenter, in response to CMS's concern about the single-arm design of the BREYANZI[supreg] pivotal trial, cited a study \38\ that asserted single-arm trials can provide substantial evidence of effectiveness and safety when randomized controlled trials are infeasible. The commenter also cited an article \39\ that assessed the use of single-arm studies and found that almost all the single-arm studies (174 out of 176) identified were for locally, advanced, or metastatic disease and that most were for second-line or later treatment (49 percent), third-line or later treatment (20 percent), fourth-line or later treatment (4 percent), or fifth-line or later treatment (1 percent). This commenter asserted that FDA's acceptance of single-arm studies reflects both the challenges research sponsors face in designing randomized controlled trials in these patient populations and FDA's interest in getting promising treatments to patients who need them. Another commenter urged CMS to recognize the inherent ethical challenges to designing randomized studies in disease states, such as R/R CLL, in which patients have few treatment options and are unlikely to survive through a study duration if the investigational treatment is withheld. The commenter stated that for many rare diseases, the underlying biology and disease progression have not reached a level of broad scientific understanding. The commenter asserted that limited natural history data makes it difficult to choose appropriate endpoints, assess whether a drug is effective, or even determine the optimal timing or duration for the intervention and the trials. The commenter agreed with the applicant that the R/R patient population has limited treatment options. Per the commenter, while a poor prognosis does not establish a case for significant improvement, it explains the applicant's decision not to incorporate historic controls. --------------------------------------------------------------------------- \38\ Sundeep Agrawal, MD, Agrawal S, Arora S, Amiri-Kordestani L, et al. Use of single-arm trials for US Food and Drug Administration drug approval in oncology, 2002-2021. JAMA Oncol. 2023; 9(2): 266-272. doi:10.1001/jamaoncol.2022.5985. \39\ Nierengarten, M.B. (2023), Single-arm trials for US Food and Drug Administration cancer drug approvals. Cancer, 129: 1626- 1626. https://doi.org/10.1002/cncr.34830. --------------------------------------------------------------------------- In response to CMS's concern about the mixed clinical outcomes of BREYANZI[supreg] compared to Jaypirca[supreg], the applicant stated it is critical to note the key differences in the two studies' patient populations. The applicant stated that the TRANSCEND CLL 004 study's patients were more heavily pretreated (a median of 5 prior lines of therapy compared to 3 in the Jaypirca[supreg] BRUIN phase \1/2\ pivotal trial cohort \40\), had significantly higher prior exposure to both BTKi and BCL-2i (80 percent versus 40.5 percent in the BRUIN trial), and experienced disease progression while on a BTKi and failed to respond to Venclexta[supreg], making it a study population with highly refractory and aggressive disease that is not represented in the Jaypirca[supreg] BRUIN study. The applicant stated that BREYANZI[supreg] resulted in a 20 percent CR rate in this double-class exposed (DCE) population, while Jaypirca[supreg] failed to induce CR. The applicant also asserted that sustained durability of response in CLL has been shown to closely correlate with achieving a complete response, underscoring the risk of disease progression over time for patients treated with Jaypirca[supreg]. Per the applicant, this was reflected in the outcomes--although Jaypirca[supreg] demonstrated an overall response rate at 70 percent, the CR rate was 0 percent, and the durability of response (DoR) was inferior compared to BREYANZI[supreg]. In the DCE population, the median DoR with BREYANZI[supreg] was 35.3 months (95% CI, 12.4-not reached [NR])32 versus 12.2 months (95% CI, 9.3-14.7) among patients treated with Jaypirca[supreg]. --------------------------------------------------------------------------- \40\ Mato AR, Woyach JA, Brown JR, et al (2023). Pirtobrutinib after a Covalent BTK Inhibitor in Chronic Lymphocytic Leukemia. N Engl J Med 2023;389:33-44. DOI: 10.1056/NEJMoa2300696. --------------------------------------------------------------------------- In addition, the applicant stated that the median PFS of 11.9 months associated with BREYANZI[supreg] that CMS referenced in the proposed rule pertains specifically to the primary efficacy analysis set in the TRANSCEND CLL [[Page 36694]] 004 study, which was the cohort of patients who experienced disease progression while on BTKi and failed to respond to Venclexta[supreg]. The applicant asserted that BREYANZI[supreg] uniquely demonstrates efficacy in an especially high-risk, refractory, and disease-aggressive population, which was not represented in the Jaypirca[supreg] study. The applicant further stated that it is inappropriate to compare the outcomes of BREYANZI[supreg]'s primary efficacy analysis set to those of the Jaypirca[supreg] study, who showed a median PFS of 16.8 months, because the patient population of the Jaypirca[supreg] study was previously treated with a BTKi and Venclexta[supreg] but not required to exhibit refractoriness to these treatments. The applicant further commented that the Jaypirca[supreg] study showed that the median PFS of double class exposed patients treated with Jaypirca[supreg] decreased to 15.9 months at a median follow-up of 27.5 months. The applicant contrasted these results to those of the TRANSCEND trial, in which 80 percent of the treated patients were double class exposed, and the median PFS for these patients remained at 18 months and among the patients who responded to BREYANZI[supreg], the median PFS was 26.2 months at a median follow-up of 31.7 months. The applicant further stated that BREYANZI[supreg] results in treatment-free disease remission, which is manifested as health-related quality of life improvements in the R/R CLL/SLL population. Per the applicant, in the TRANSCEND-CLL-004 trial, clinically meaningful improvements were achieved in the key domains of global health status/quality of life, physical function, role functioning, symptom burdens, and fatigue after BREYANZI[supreg] infusion, and exceeded the pre-defined minimum important difference thresholds. The applicant also stated that BREYANZI[supreg]'s one-time infusion eliminates the compliance and adherence challenges commonly associated with existing continuous treatment technologies. Another commenter stated that part of the clinical improvement BREYANZI[supreg] offers by virtue of being the only approved CAR T-cell therapy indicated for R/R CLL/SLL is the additional survival benefit from a new line of treatment for patients with few available options. The commenter further stated that BREYANZI[supreg] and its incremental benefit are best viewed as additions to that accrued by both prior and subsequent treatments, unlike second generation covalent BTKis, which are unlikely to be effective after progression on another treatment in its class. The commenter also stated that, during CMS's Medicare Drug Price Negotiation Program Town Hall for Initial Price Applicability Year 2027, CLL researchers and clinician experts emphasized that the treatment goal for CLL is to prolong survival without compromising quality of life. The commenter further stated that patients may remain in a ``wait and see'' period after diagnosis and may delay second and subsequent lines of treatment to delay or avoid progression through available treatments, and therefore, the ``time to next treatment'' endpoint is highly relevant to CLL. The commenter stated that median time to next therapy following treatment with BREYANZI[supreg] was considerably longer than that observed in a real-world study of patients with CLL/SLL after prior treatment with a BTKi and B-cell lymphoma 2 inhibitors (6.6 months, [95 percent CI, 3.6-10.1] \41\). The commenter stated that this improvement in time to next therapy is an important clinical improvement for patients with R/R CLL/SLL from both a patient and clinician perspective. In addition, the commenter stated that, according to clinicians and researchers, patients prefer treatment regimens of fixed duration and those that offer remission with shorter times on treatment. The commenter therefore stated it believes the option of receiving a course of therapy through a single infusion is an important benefit of BREYANZI[supreg]. In addition, the commenter stated that patients treated with BREYANZI[supreg] or Jaypirca[supreg] are not choosing between the median PFS of each therapy, but instead the decision is one of sequencing, and the incremental benefit in terms of PFS and/or overall survival is additive and significant. Moreover, the commenter argued that use of BREYANZI[supreg] for the FDA-labeled indications would require hospitals to incur costs that, without new technology add-on payments, would have to be fully absorbed by the treating hospital. The commenter asserted that the mechanism of new technology add-on payments was created to eliminate the limitations on access to new therapies due to lack of reimbursement in the inpatient setting. --------------------------------------------------------------------------- \41\ Siddiqi et al. (2023), op. cit. --------------------------------------------------------------------------- Response: We thank the applicant and other commenters for their comments regarding the substantial clinical improvement criterion. Based on the additional information received, we agree with the applicant and other commenters that BREYANZI[supreg] represents a substantial clinical improvement over existing technologies because BREYANZI[supreg] is a one-time treatment that significantly improves CR with lower risk of adverse events in R/R CLL/SLL patients who have received prior BTKi and BCL2i therapy. After consideration of the public comments we received and the information included in the applicant's new technology add-on payment application, we have determined that BREYANZI[supreg] meets the criteria for approval for new technology add-on payment. Therefore, we are approving new technology add-on payments for this technology for FY 2026. Cases involving the use of BREYANZI[supreg] that are eligible for new technology add-on payments will be identified by ICD-10-PCS codes: XW033N7 (Transfusion of lisocabtagene maraleucel immunotherapy into peripheral vein, percutaneous approach, new technology group 7) or XW043N7 (Transfusion of lisocabtagene maraleucel immunotherapy into central vein, percutaneous approach, new technology group 7) in combination with one of the following ICD-10-CM codes: [GRAPHIC] [TIFF OMITTED] TR04AU25.148 [[Page 36695]] [GRAPHIC] [TIFF OMITTED] TR04AU25.149 In its application, the applicant estimated that the cost of a one- time intravenous infusion of BREYANZI[supreg] is $487,477 per patient. Under Sec. 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS-DRG payment for the case. As a result, the maximum new technology add-on payment for a case involving the use of BREYANZI[supreg] is $316,860.05 for FY 2026. d. COBENFYTM (xanomeline and trospium chloride) Bristol Myers Squibb submitted an application for new technology add-on payments for COBENFYTM for FY 2026. According to the applicant, COBENFYTM is an oral combination drug consisting of xanomeline, a muscarinic agonist, and trospium chloride, a muscarinic antagonist, that is indicated for the treatment of schizophrenia in adults. Please refer to the online application posting for COBENFYTM, available at https://mearis.cms.gov/public/publications/ntap/NTP241007U99FM, for additional detail describing the technology and the disease treated by the technology. With respect to the newness criterion, according to the applicant, COBENFYTM was granted NDA approval from FDA on September 26, 2024, for the treatment of schizophrenia in adults. The applicant stated that COBENFYTM became commercially available on October 9, 2024, and stated the delay in availability was due to a ramp-up period associated with distribution. We stated we were interested in additional information regarding the cause of any delay in the technology's commercial availability, such as additional information about the ramp-up period for distribution. COBENFYTM has 3 approved dose strengths (50 mg/20 mg, 100 mg/20 mg, and 125 mg/30 mg) in capsule form. The recommended starting dosage is one 50 mg/20 mg capsule orally twice daily for at least 2 days. The dosage is increased to one 100 mg/20 mg capsule orally twice daily for at least 5 days and may be increased thereafter to one 125 mg/30 mg capsule orally twice daily based on patient tolerability and response. The applicant stated the per day treatment cost is the same across all dosages and the average length of stay for patients taking COBENFYTM is 7.5 days. The applicant submitted a request for approval for a unique ICD-10- PCS procedure code for COBENFYTM and was granted approval to use the following procedure code effective October 1, 2025: XW0DXVB (Introduction of xanomeline and trospium chloride into mouth and pharynx, external approach, new technology group 11). The applicant provided the following list of diagnosis codes that may be used to currently identify the indication for COBENFYTM under the ICD-10-CM coding system: F20.0 (Paranoid schizophrenia), F20.1 (Disorganized schizophrenia), F20.3 (Undifferentiated schizophrenia), F20.89 (Other schizophrenia), F20.9 (Schizophrenia, unspecified), F25.0 (Schizoaffective disorder, bipolar type), F25.1 (Schizoaffective disorder, depressive type), F25.8 (Other schizoaffective disorders), and F25.9 (Schizoaffective disorder, unspecified). As previously discussed, if a technology meets all three of the substantial similarity criteria under the newness criterion, it would be considered substantially similar to an existing technology and would not be considered ``new'' for the purpose of new technology add-on payments. With respect to the substantial similarity criteria, the applicant asserted that COBENFYTM is not substantially similar to other currently available technologies because it is the first treatment for schizophrenia to target muscarinic receptors instead of dopamine. Per the applicant, COBENFYTM combines xanomeline, a muscarinic agonist, and trospium chloride, a muscarinic antagonist, which work together to stimulate muscarinic receptors in the brain while minimizing peripheral side effects; and its efficacy, safety, and tolerability have been established in acute and long-term trials providing a new option for patients; and therefore, the technology meets the newness criterion. The following table summarizes the applicant's assertions regarding the substantial similarity criteria. Please see the online application posting for COBENFYTM for the applicant's complete statements in support of its assertion that COBENFYTM is not substantially similar to other currently available technologies. BILLING CODE 4120-01-P [[Page 36696]] [GRAPHIC] [TIFF OMITTED] TR04AU25.150 BILLING CODE 4120-01-C We invited public comments on whether COBENFYTM is substantially similar to existing technologies and whether COBENFYTM meets the newness criterion. Comment: The applicant stated that COBENFYTM meets the newness criterion because it received FDA approval on September 26, 2024, which is within the eligibility window for FY 2026 new technology add-on payment consideration. Additionally, the applicant noted that as the first antipsychotic medication for schizophrenia that specifically targets muscarinic receptors instead of dopamine receptors, COBENFYTM represents the first novel pharmacological approach to schizophrenia treatment in decades. The applicant further explained that COBENFYTM selectively targets M1 and M4 receptors in the brain without blocking D2 receptors, making it fundamentally different from all existing antipsychotics that have relied on dopamine receptor modulation for over 70 years. The applicant also stated that FDA recognized this distinction, noting that COBENFYTM ``takes the first new approach to schizophrenia treatment in decades'' and ``offers a new alternative to the antipsychotic medications people with schizophrenia have previously been prescribed.'' The applicant concluded that COBENFYTM is not substantially similar to any other product currently available to treat schizophrenia because the therapy has a unique mechanism of action, distinctive safety profile, and a recent FDA-approval date. Additional commenters also noted the unique mechanism of action for COBENFYTM since it targets [[Page 36697]] cholinergic receptors and the muscarinic pathway rather than blocking dopamine receptors, which is the target for existing treatments. The applicant asserted that the newness period for COBENFYTM should begin on October 9, 2024, to reflect the date that COBENFYTM was first commercially available for purchase. In response to CMS's request for additional information regarding the cause of any delay in commercial availability, the applicant explained that the delay between FDA approval on September 26, 2024, and market availability on October 9, 2024, was for multiple reasons. The applicant stated it allowed for complete standard launch preparation activities that typically follow regulatory approval, including finalizing the distribution network and ensuring support teams were fully prepared. The applicant stated that additional time was also needed to ensure sufficient inventory would be available across retail pharmacies nationwide to meet initial and anticipated patient demand without interruption. The applicant further stated that the delay was also needed following its acquisition of COBENFYTM from Karuna Therapeutics, since it needed additional time to properly scale up manufacturing and distribution capabilities to support a successful nationwide retail-pharmacy-based launch. The applicant urged CMS to use October 9, 2024 as the newness date, to align with new technology add-on payment statutes and to reflect the date of COBENFYTM's first commercial availability for inpatient hospital use. Response: We thank the applicant for its comment. Based on our review of the comment received and information submitted by the applicant as part of its FY 2026 new technology add-on payment application for COBENFYTM, we agree with the applicant that COBENFYTM uses a unique mechanism of action because it is the first schizophrenia treatment for adults to target muscarinic receptors in the brain by combining the muscarinic agonist, xanomeline, and the muscarinic antagonist, trospium chloride, unlike typical and atypical antipsychotics currently used to treat schizophrenia, which antagonize dopamine receptors. Therefore, we agree with the applicant that COBENFYTM is not substantially similar to existing treatment options and meets the newness criterion. We consider the beginning of the newness period to commence on October 9, 2024, the date on which COBENFYTM became commercially available. With respect to the cost criterion, the applicant provided an analysis to demonstrate that COBENFYTM meets the cost criterion. The analysis followed the order of operations summarized in the following table. [GRAPHIC] [TIFF OMITTED] TR04AU25.151 Because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount, the applicant asserted that COBENFYTM meets the cost criterion. We invited public comments on whether COBENFYTM meets the cost criterion. Comment: The applicant submitted a comment stating that its cost analysis was calculated to best represent the patients with schizophrenia who the applicant believes will be eligible for treatment with COBENFYTM, specifically patients being treated for psychosis or other mental diseases or disorders in an inpatient or outpatient setting. The applicant also reiterated the methods it used in its cost criterion analysis and that the final inflated average case-weighted standardized charge per case exceeded the average case- weighted threshold amount. Response: We thank the applicant for its comment. We agree that the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount. Therefore, COBENFYTM meets the cost criterion. With regard to the substantial clinical improvement criterion, the applicant asserted that COBENFYTM represents a substantial clinical improvement over existing technologies because it is a first- in-class muscarinic agonist offering a new approach to treating schizophrenia by selectively targeting muscarinic receptors in the brain without targeting dopamine. The applicant further asserted that COBENFYTM has the potential to improve outcomes by addressing both positive and negative symptoms, which current drugs often inadequately manage, and that its unique mechanism reduces the risk of dopamine-related side effects, such as tardive dyskinesia (TD). The applicant stated that for these reasons, COBENFYTM offers a treatment [[Page 36698]] option for adult patients with schizophrenia who are unresponsive to, or ineligible for, currently available treatments and significantly improves clinical outcomes relative to existing treatments. The applicant provided six articles regarding five studies to support these claims. We also noted that two additional articles (Cornett et al., 2017 and Lieberman et al., 2005) \42\ submitted as supporting evidence would more appropriately be characterized as background articles because they do not directly assess the use of COBENFYTM.\43\ \44\ Instead, Cornett, et al. (2017) is a literature review of medication-induced TD, and Lieberman, et al. (2005) is a study reviewing the efficacy and side effect profile of other antipsychotic drugs in chronic schizophrenia. The following table summarizes the applicant's assertions regarding the substantial clinical improvement criterion. Please see the online posting for COBENFYTM for the applicant's complete statements regarding the substantial clinical improvement criterion and the supporting evidence provided. --------------------------------------------------------------------------- \42\ Background articles are not included in the following table but can be accessed via the online posting for the technology. \43\ Cornett EM, Novitch M, Kaye AD, Kata V, Kaye AM. Medication-Induced Tardive Dyskinesia: A Review and Update. Ochsner

J. 2017 Summer;17(2):162-174. PMID: 28638290; PMCID: PMC5472076.

\44\ Lieberman, J.A., Stroup, T.S., McEvoy, J.P., Swartz, M.S., Rosenheck, R.A., Perkins, D.O., . . . & Hsiao, J.K. (2005). Effectiveness of antipsychotic drugs in patients with chronic schizophrenia. The New England Journal of Medicine, 353(12), 1209- 1223. https://doi.org/10.1056/NEJMoa051688. --------------------------------------------------------------------------- BILLING CODE 4120-01-P [[Page 36699]] [GRAPHIC] [TIFF OMITTED] TR04AU25.152 BILLING CODE 4120-01-C We also received a public comment in response to the New Technology Town Hall meeting notice published in the Federal Register regarding the substantial clinical improvement criterion for COBENFYTM, which we summarized in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18107). After review of the information provided by the applicant and the [[Page 36700]] public comment received in response to the New Technology Town Hall meeting, we stated in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18107 through 18108) that we had the following concerns regarding whether COBENFYTM meets the substantial clinical improvement criterion. We noted that the applicant did not identify a patient population for which COBENFYTM could be used that is unresponsive to or ineligible for other available treatments. The applicant asserted that COBENFYTM's efficacy and side effect profile make it a valuable option for patients who respond inadequately to current treatments and that COBENFYTM may be an effective treatment option for patients experiencing disruptive negative symptoms. To support these assertions, we noted that the applicant provided data on COBENFYTM from three 5-week, randomized, double-blind trials (EMERGENT-1, EMERGENT-2, and EMERGENT-3) that compared COBENFYTM to placebo and from two unpublished 52- week open-label trials (EMERGENT-4 and EMERGENT-5). While the exclusion criteria are unknown for EMERGENT-5, we noted that the other trials excluded patients with a history of treatment resistance to schizophrenia medications, and we therefore questioned how the trials demonstrated that COBENFYTM can treat patients unresponsive to other therapies. In addition, we did not receive data indicating that other antipsychotics cannot manage negative symptoms. We also noted that if a patient experiences a side effect on one antipsychotic, they may not experience the same side effect on another antipsychotic. Similarly, if one antipsychotic does not work for a patient, it does not necessarily mean another typical or atypical antipsychotic would not work for that patient. Therefore, we questioned if COBENFYTM is the only treatment option for patients with inadequate response to current treatments or for those experiencing negative symptoms. The applicant also asserted that COBENFYTM significantly improves outcomes relative to previously available therapies. To support this assertion, the applicant provided data from three 5-week clinical trials (EMERGENT-1, EMERGENT-2, and EMERGENT-3) that compared COBENFYTM to placebo and a literature review on TD (Cornett et al., 2017). However, COBENFYTM was compared to placebo in these trials, and data was not provided comparing COBENFYTM to currently available therapies. We noted that, per the applicant, there are more than 20 FDA-approved therapies for schizophrenia, and we stated we were interested in additional information comparing clinical outcomes with COBENFYTM to these therapies, such as with regard to reduction in symptoms of schizophrenia and/or side effects, improved medication adherence, or other outcomes described under the regulations at Sec. 412.87(b)(1)(ii)(C), to inform an assessment of whether COBENFYTM provides a substantial clinical improvement over existing treatment options. In addition, with respect to the claim that COBENFYTM offers a side-effect profile that has the potential to enhance outcomes by improving tolerability and expanding treatment options, the applicant stated that the provided literature review on TD (Cornett et al., 2017) supports the theory that blockade of dopamine receptors by dopamine antagonists contributes to the development of TD, which COBENFYTM does not affect. We noted that the study stated that typical antipsychotics are the most likely to cause TD, while atypical antipsychotics may be associated with a decreased prevalence of TD, and we, therefore, stated we were unclear if the applicant is stating that COBENFYTM may reduce the prevalence of TD only compared to typical antipsychotics. We also noted that this literature review only discussed TD, which is one potential side effect of some schizophrenia treatments, and no other provided evidence related to rates of other potential side effects seen with existing schizophrenia treatment options, such as cardiac arrhythmias, metabolic syndrome, and tremor, were compared to the rates for COBENFYTM. We stated that we would appreciate further information comparing the overall benefit-risk profile of COBENFYTM to previously available antipsychotics in order to assess if COBENFYTM provides a substantial clinical improvement over other available therapies. We also noted that the applicant stated that the EMERGENT trials demonstrated that COBENFYTM is well-tolerated and that measures of extrapyramidal symptoms, weight gain, and somnolence were similar between groups. However, given that the trials were only 5 weeks in duration and some side effects, such as tardive dyskinesia, can take longer to occur, we questioned whether these rates of adverse events may increase over time. For these reasons, we questioned the assertion that COBENFYTM improves tolerability and side- effects relative to previously available therapies. The applicant claimed that COBENFYTM demonstrates statistically significant and clinically meaningful reductions in the severity of illness compared to placebo, as measured by the Clinical Global Impression-Severity (CGI-S) scale. According to the applicant, the CGI-S is a global assessment tool used to rate the overall severity of a patient's illness, and rather than being specific to positive, negative, or cognitive symptoms, it instead gives an overall sense of how severe schizophrenia is perceived to be at a given time. However, we questioned long-term efficacy, given that the only data submitted for this claim was from two 5-week trials (EMERGENT-1 and EMERGENT-3). We invited public comments on whether COBENFYTM meets the substantial clinical improvement criterion. Comment: A few commenters urged CMS to approve new technology add- on payments for COBENFYTM. These commenters highlighted that COBENFYTM offers a critical new option for a patient population that has seen limited innovation despite urgent unmet need, has been effective in reducing positive and negative symptoms of schizophrenia demonstrated over 1 year of use, and provides an alternative option for patients to avoid the significant side effects associated with antipsychotic medications, such as TD, significant weight gain, metabolic disturbances, sedation and fluid retention, among others. A commenter stated that by offering a temporary payment adjustment, the new technology add-on payment ensures that hospitals don't face financial penalties for making clinically-driven decisions that benefit the schizophrenic community because hospitals are reimbursed through MS-DRG rates that struggle to reflect the value of innovative therapies. In addition, the commenter stated that without the new technology add-on payment, institutions may default to outdated inpatient care models that overlook recent advances in science and patient experience, simply to remain financially viable. This commenter also stated that delays in access to novel therapeutics increase the likelihood of patient relapse, readmission, or discontinuation of medication. The commenter further highlighted that inadequate treatment of schizophrenia contributes to severe consequences, including neurological damage, worsening symptoms, and an average lifespan that is 15 years shorter than that of the general population. [[Page 36701]] Another commenter stated that CMS should ensure coverage of new therapies, such as COBENFYTM, to allow clinicians the ability to choose medications based on their expertise and patient needs, while also allowing patients to benefit from the full range of schizophrenia treatment options and to determine which therapy is an appropriate, advantageous option for them. Response: We thank the commenters for their input and have taken it into consideration in determining whether COBENFYTM meets the substantial clinical improvement criterion as discussed later in this section. We note that whether a technology receives new technology add-on payments or not does not affect coverage of the technology or the ability for hospitals to provide a technology to patients where appropriate. Comment: The applicant for COBENFYTM submitted a public comment regarding the substantial clinical improvement criterion and provided responses to CMS's concerns from the proposed rule. The applicant asserted that COBENFYTM satisfies the substantial clinical improvement criterion by introducing the first novel pharmacological approach to schizophrenia treatment in decades. The applicant reiterated that COBENFYTM fundamentally differs from all existing antipsychotics as a first-in-class muscarinic agonist that selectively targets M1 and M4 receptors without blocking dopamine receptors. The applicant also stated that COBENFYTM has the potential to break the cycle of treatment resistance progression through its innovative mechanism and that the placebo-controlled trials submitted as part of its application were scientifically appropriate for evaluating this groundbreaking medication. The applicant also noted COBENFYTM's differentiated safety profile relative to existing antipsychotics across both 5-week and 52-week trials, as well as comprehensive long-term data that confirms sustained efficacy. In response to CMS's concern that the applicant did not identify a patient population for which COBENFYTM could be used that is unresponsive to other available treatments, the applicant stated that by leveraging its novel mechanism of action, COBENFYTM offers a promising alternative that addresses multiple unmet needs in patients with schizophrenia by providing an effective and safe treatment option, particularly because all other approved antipsychotics work through varying degrees of dopamine receptor modulation. In response to CMS's concern that the clinical trials excluded patients with a history of treatment resistance to schizophrenia medications, and questioned how the trials demonstrate that COBENFYTM treats patients unresponsive to other therapies, the applicant clarified that FDA recognizes treatment-resistant schizophrenia as a distinct indication from the general treatment of schizophrenia, as evidenced by FDA granting a separate indication to clozapine for treatment-resistant patients. The applicant also stated that treatment-resistant schizophrenia is estimated to affect only about 30 percent of individuals with the disease, meaning that roughly 70 percent of patients do not meet the criteria for treatment resistance and typically respond to standard therapies. The applicant asserted that while the COBENFYTM clinical trials focused on the primary indication of schizophrenia, the trials' exclusion of patients with documented treatment resistance does not preclude potential benefits across a broad segment of the schizophrenia population, namely the 70 percent of patients who do not meet the criteria for treatment resistance. The applicant further stated that because COBENFYTM does not rely on dopamine receptor antagonism, this therapy creates the potential for broader benefit. The applicant stated that medical literature suggests that the occurrence of treatment resistance in schizophrenia may develop through successive treatment failures, a cycle perpetuated by the limited mechanistic diversity of available therapies, such that patients experiencing insufficient response or intolerable side effects with one antipsychotic often encounter similar challenges when switching to another. The applicant explained that COBENFYTM presents an opportunity to interrupt patients' progression toward treatment resistance by offering a genuinely different pharmacological option. The applicant also stated that, although COBENFYTM does not carry a specific FDA-approved indication for treatment-resistant schizophrenia, it provides clinicians with an entirely different neurobiological approach that has the potential to benefit patients across the disease spectrum, including but not limited to, those who have experienced inadequate response or intolerable side effects with traditional antipsychotics that modulate dopamine receptors. The applicant also stated that the side effects associated with conventional antipsychotics frequently lead to antipsychotic discontinuation and stem directly from dopamine receptor blockade and other associated receptor interactions, contributing to the cycle of treatment failures. The applicant asserted that COBENFYTM's fundamentally different mechanism of action significantly reduces the risk of these dopamine-related side effects, such as weight gain, diabetes, TD, extrapyramidal symptoms, sedation, and cognitive dulling, and may only result in manageable and transient effects, such as nausea and dyspepsia. The applicant also stated that there is a significant economic burden associated with managing antipsychotic-induced side effects due to the chronic nature of schizophrenia treatment and the potential need for long-term management of side effects, which can result in costs greater than $10,000 to $15,000 per patient annually. The applicant stated that COBENFYTM may reduce the need for such costly interventions, providing not only a clinically significant alternative but also a financially prudent option for healthcare systems and patients. The applicant asserted that this further highlights how COBENFYTM addresses the real unmet needs faced by patients with schizophrenia and underscores its importance in breaking the cycle of treatment failures that contribute to treatment resistance development. In response to CMS's request for additional information comparing COBENFYTM's clinical outcomes to other FDA-approved therapies, the applicant stated that it made the scientifically sound and regulatory-compliant methodological decision to conduct placebo- controlled trials. The applicant explained that it believes placebo- controlled trials represent the most rigorous and appropriate methodology for establishing the safety, tolerability, and efficacy profile of COBENFYTM. The applicant stated that placebo- controlled clinical trials are sufficient as well as the standard approach for obtaining initial FDA approval. The applicant further explained that placebo-controlled trials are particularly appropriate for psychiatric medications because FDA specifically prefers them to evaluate efficacy and safety due to the unique challenges inherent in psychiatric research and considers them essential to establish that a drug has an effect beyond nonspecific trial effects, such as expectation, rater bias, and regression to the mean--all of which are prominent in psychiatric trials. The applicant reiterated the findings from the three 5-week trials (EMERGENT-1, EMERGENT-2, and EMERGENT-3) and [[Page 36702]] 2 52-week trials (EMERGENT-4 and EMERGENT-5) submitted in its new technology add-on payment application. Additionally, the applicant noted that despite being placebo-controlled, these trials demonstrate the comparative advantages of COBENFYTM with respect to its safety profile across both the 5-week trials and 52-week trials, indicating the sustained tolerability advantage of COBENFYTM. In response to CMS's concern whether COBENFYTM improves tolerability and side-effects relative to previously available therapies, the applicant stated that COBENFYTM's unique mechanism of action suggests potential benefits over both typical and atypical antipsychotics, although the Cornett et al. (2017) review it submitted only focused on typical antipsychotics. The applicant explained that, unlike any existing antipsychotics, COBENFYTM does not target dopamine receptors, which is the fundamental mechanism implicated in TD development. The applicant, therefore, asserted that this represents a categorical distinction rather than a marginal improvement, suggesting that COBENFYTM results in potential TD risk reduction compared to all current antipsychotics, both typical and atypical. In response to CMS's concern that the clinical trials submitted in its application may be too brief in duration to observe some side effects, such as TD, the applicant summarized the safety data from the EMERGENT clinical trials. Specifically, the applicant stated there were no cases of TD reported in the three 5-week clinical trials, with the primary adverse effects being mild gastrointestinal symptoms. The applicant highlighted that the two 52-week EMERGENT trials did not show any new safety concerns compared with the 5-week trials. The applicant also stated that COBENFYTM demonstrated sustained symptom improvement through 52 weeks of treatment, and the trials only observed two cases of TD, which the primary investigator adjudicated as unrelated to treatment with COBENFYTM, as the patients had pre-existing TD histories. The applicant asserted that the EMERGENT-4 and EMERGENT-5 52-week clinical trials directly address the potential emergence of delayed adverse effects and provide compelling evidence of COBENFYTM's long-term tolerability compared to the characteristic adverse effects associated with both typical and atypical antipsychotics that the applicant notes are commonly understood to be a result of prolonged dopamine receptor blockage, which COBENFYTM avoids. The applicant provided the side effect data from COBENFYTM's package insert: nausea (19 percent), dyspepsia (18 percent), vomiting (15 percent), hypertension (11 percent), abdominal pain (8 percent), diarrhea (6 percent), dizziness (5 percent), and tachycardia (5 percent). The applicant also indicated that motor disturbances, sedation, vision impairments, seizures, weight gain, hyperlipidemia, insulin resistance/diabetes, QTc prolongation, extrapyramidal symptoms, tardive dyskinesia, and sexual dysfunction are common antipsychotic side effects. In response to CMS's concern whether the EMERGENT-1 and EMERGENT-3 clinical trials demonstrate COBENFYTM's long-term efficacy in reducing illness severity, the applicant provided additional evidence from the 52-week EMERGENT-4 trial, which showed COBENFYTM improves disease severity, as measured by the CGI- S scale, throughout a full 52-week trial period. The applicant explained that 47.4 percent of participants who remained on COBENFYTM by week 52 achieved CGI-S scores 3, compared to the mean baseline scores of 4, which reflected clinically meaningful improvement to mild disease severity or better. The applicant also stated that the EMERGENT-4 study demonstrates COBENFYTM's sustained efficacy across core schizophrenia symptoms as measured by the PANSS total score. Specifically, the applicant stated that nearly 70 percent of participants in the overall modified intent-to-treat population achieved at least a 30 percent reduction in PANSS total score from baseline to week 52, with 37.1 percent of participants achieving a 50 percent or greater reduction. The applicant asserted that the trial observed these PANSS total score improvements consistently across both positive and negative symptom domains, supporting the robust and durable therapeutic benefit of COBENFYTM beyond short-term clinical trials. Lastly, the applicant reiterated the EMERGENT-4 and EMERGENT-5 trials' pooled safety and tolerability data that it submitted in its application. The applicant asserted that these pooled data demonstrate durable effectiveness beyond dopamine receptor-based therapies, with a tolerability profile that can support improved medication adherence and reduce the risk of cumulative side effects that often complicate long- term antipsychotic use. Response: We thank the applicant and commenters for their comments regarding the substantial clinical improvement criterion. Based on the additional information received and all data received to date, we continue to have concerns as to whether COBENFYTM meets the substantial clinical improvement criterion to be approved for new technology add-on payments. Specifically, it remains unclear that COBENFYTM offers a treatment option for a patient population unresponsive to, or ineligible for, currently available treatments for schizophrenia in adults and that the use of COBENFYTM significantly improves clinical outcomes over existing technologies. While the applicant noted that COBENFYTM may be able to help patients who do not respond to or are intolerant of other therapies, the basis for this assertion was COBENFYTM's different mechanism of action rather than data supporting it. There was also no data provided indicating that other antipsychotics cannot manage negative symptoms. Therefore, we do not believe the evidence provided indicates COBENFYTM is a treatment option for patients who are unresponsive to or ineligible for other therapies. With regard to the assertion that COBENFYTM improves clinical outcomes relative to previously available therapies, we note that there was no data provided comparing COBENFYTM to other therapies for schizophrenia in adults with regard to efficacy and safety. While the potential risk of certain side effects was noted for treatments for schizophrenia, there was no data provided comparing the relative risk of these side effects for COBENFYTM versus typical and atypical antipsychotics. In addition, while the applicant stated that COBENFYTM's different mechanism of action reduces the risk of the side effects that frequently lead to antipsychotic discontinuation, there was no comparative data provided indicating a lower risk of discontinuation for COBENFYTM compared to typical and atypical antipsychotics. After consideration of all the information received from the applicant as well as the public comments we received, we are unable to determine that COBENFYTM represents a substantial clinical improvement over existing technologies for the reasons discussed in the proposed rule and in this final rule, and therefore, we are not approving new technology add-on payments for COBENFYTM for FY 2026. e. FIBRYGA[supreg] (Fibrinogen (Human)) Octapharma USA, Inc. submitted an application for new technology add-on payments for FIBRYGA[supreg] for FY 2026. According to the applicant, FIBRYGA[supreg] is a concentrated form of human fibrinogen, indicated for fibrinogen [[Page 36703]] supplementation in bleeding patients with acquired fibrinogen deficiency and the treatment of acute bleeding episodes in patients with congenital fibrinogen deficiency, including afibrinogenemia and hypofibrinogenemia. We note that the applicant is seeking new technology add-on payments for FIBRYGA[supreg] for FY 2026 specific to the 2024 supplemental Biologics License Application (sBLA) indicated for the fibrinogen supplementation in bleeding adult and pediatric patients with acquired fibrinogen deficiency. Please refer to the online application posting for FIBRYGA[supreg], available at https://mearis.cms.gov/public/publications/ntap/NTP241007YU8UR, for additional detail describing the technology and acquired fibrinogen deficiency. With respect to the newness criterion, according to the applicant, FIBRYGA[supreg] was granted supplemental BLA approval from FDA on July 31, 2024, expanding its previous BLA indication to include the fibrinogen supplementation in bleeding adult and pediatric patients with acquired fibrinogen deficiency indication and to update the U.S. prescribing information to include this indication.\45\ According to the applicant, FIBRYGA[supreg] became commercially available immediately after FDA approval for this expanded indicated use. The applicant stated that FIBRYGA[supreg] is administered intravenously with a recommended dose of 4g for adults per inpatient stay. --------------------------------------------------------------------------- \45\ Previous FDA approvals for FIBRYGA[supreg]: In 2017, FDA granted FIBRYGA[supreg] approval under a BLA application for the treatment of acute bleeding episodes in adults and adolescents >= 12 years of age with congenital fibrinogen deficiency, including afibrinogenemia and hypofibrinogenemia. On December 23, 2020, FDA granted FIBRYGA[supreg] approval under a sBLA application for on- demand treatment of acute bleeding episodes to pediatric patients <12 years of age with congenital fibrinogen deficiency. --------------------------------------------------------------------------- The applicant submitted a request for approval for unique ICD-10- PCS procedure codes for FIBRYGA[supreg] and was granted approval to use the following procedure codes effective October 1, 2025: XW133YB (Transfusion of nonautologous (human) fibrinogen concentrate, shelf- stable into peripheral vein, percutaneous approach, new technology group 11) and XW143YB (Transfusion of nonautologous (human) fibrinogen concentrate, shelf-stable into central vein, percutaneous approach, new technology group 11). The applicant stated that D68.4 (Acquired coagulation factor deficiency) and O72.3 (Postpartum coagulation defects) may be currently used to identify the indication for FIBRYGA[supreg] under the ICD-10-CM coding system. We stated the relevant ICD-10-CM code to identify the indication of fibrinogen supplementation in bleeding adult and pediatric patients with acquired fibrinogen deficiency that is relevant to this new technology add-on payment application would be D68.4 (Acquired coagulation factor deficiency). We invited public comments on the use of this ICD-10-CM diagnosis code to identify this indication for purposes of the new technology add-on payment, if approved. Comment: Commenters expressinged general support for the use of the ICD-10-CM code for which CMS specifically sought input. Response: We thank the commenters and agree that D68.4 (Acquired coagulation factor deficiency) accurately identifies the indication for FIBRYGA[supreg]. As previously discussed, if a technology meets all three of the substantial similarity criteria under the newness criterion, it would be considered substantially similar to an existing technology and would not be considered ``new'' for the purpose of new technology add-on payments. With respect to the substantial similarity criteria, the applicant asserted that FIBRYGA[supreg] is not substantially similar to other currently available technologies because it is the only FDA-approved therapy available to treat acquired fibrinogen deficiency in bleeding patients. According to the applicant, in patients experiencing a major bleeding event, acquired fibrinogen deficiency often goes untreated because cryoprecipitate cannot be delivered fast enough. The applicant further explained that FIBRYGA[supreg]'s storage and preparation characteristics allow it to be readily available, giving patients reliable access to therapy that is potentially lifesaving, and that therefore, the technology meets the newness criterion. The following table summarizes the applicant's assertions regarding the substantial similarity criteria. Please see the online application posting for FIBRYGA[supreg] for the applicant's complete statements in support of its assertion that FIBRYGA[supreg] is not substantially similar to other currently available technologies. [[Page 36704]] [GRAPHIC] [TIFF OMITTED] TR04AU25.153 As discussed in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18114), we noted the following concerns with regard to the newness criterion. While the applicant asserted that FIBRYGA[supreg] is currently the only FDA-approved therapy for treating acquired fibrinogen deficiency as a result of major bleeding, we noted that INTERCEPT[supreg] Fibrinogen Complex, which is the pathogen reduced cryoprecipitated fibrinogen complex (PRCFC) produced by the INTERCEPT[supreg] Blood System, is FDA-approved for the treatment and control of bleeding, including massive hemorrhage, associated with fibrinogen deficiency. The applicant further asserted that FIBRYGA[supreg] can be stored at room temperature, allowing it to be delivered quickly to bleeding patients and offering an FDA-approved rapid treatment option for acquired hypofibrinogenemia in emergent bleeds. However, we noted that INTERCEPT[supreg] Fibrinogen Complex has a 5-day shelf life at room temperature and is immediately available in a ready-to-transfuse form as a fibrinogen source.46 47 Therefore, we questioned whether FIBRYGA[supreg] and INTERCEPT[supreg] Fibrinogen Complex involve the treatment of the same or similar type of disease and the same or similar patient population. In addition, we noted that the applicant asserted that FIBRYGA[supreg] has the same mechanism of action as cryoprecipitate and works by providing a source of fibrinogen that the body can use to form blood clots to stop bleeding. We also noted that INTERCEPT[supreg] Fibrinogen Complex provides a source of fibrinogen, and therefore, we questioned whether FIBRYGA[supreg] and INTERCEPT[supreg] Fibrinogen Complex have the same mechanism of action. We also noted that the applicant asserted that use of FIBRYGA[supreg] is not expected to change the MS-DRG assignment for cases of acquired hypofibrinogenemia, and we therefore stated that FIBRYGA[supreg] would map to the same MS-DRGs as INTERCEPT[supreg] Fibrinogen Complex. --------------------------------------------------------------------------- \46\ Cerus Corporation. INTERCEPT[supreg] Blood System for Cryoprecipitation Package Insert For the manufacturing of Pathogen Reduced Cryoprecipitated Fibrinogen Complex. (Revised 5/2024). Available at: www.fda.gov/media/143996/download. \47\ https://intercept-usa.com/products/intercept-fibrinogen- complex/ #:~:text=INTERCEPT%C2%AE%20Fibrinogen%20Complex%20is,day%20post%2Dtha w%20shelf%20life. --------------------------------------------------------------------------- Therefore, as it appeared that FIBRYGA[supreg] and INTERCEPT[supreg] Fibrinogen Complex may use the same or similar mechanism of action to achieve a therapeutic outcome, are assigned to the same MS-DRGs, and treat the same or similar patient population and disease, we stated our belief that these technologies may be substantially similar to each other. We noted that, per our policy, if these technologies are substantially similar to each other, we use the earliest market availability date as the beginning of the newness period for the technologies. Therefore, if FIBRYGA[supreg] is substantially similar to INTERCEPT[supreg] Fibrinogen Complex, we stated that we believe the newness period for this technology would begin on May 5, 2021, the date INTERCEPT[supreg] Fibrinogen Complex became commercially available.\48\ In addition, because the 3-year anniversary date of the INTERCEPT[supreg] Fibrinogen Complex's entry in the U.S. market (May 5, 2024) occurred in FY 2024, FIBRYGA[supreg] would not be considered new and would not be eligible for new technology add-on payments for FY 2026. We stated we were interested in information on how these technologies may differ from each other with respect to the substantial similarity criteria and the newness criterion. --------------------------------------------------------------------------- \48\ INTERCEPT[supreg] Blood System received FDA approval on November 24, 2020, to produce PRCFC; however, as noted in FY 2022 IPPS/LTCH PPS final rule (86 FR 45149), the manufacturers stated that it was not available for sale until May 5, 2021. --------------------------------------------------------------------------- We invited public comments on whether FIBRYGA[supreg] meets the newness criterion, including whether FIBRYGA[supreg] is substantially similar to INTERCEPT[supreg] Fibrinogen Complex for purposes of new technology add-on payments. Comment: The applicant and another commenter submitted public comments regarding the newness criterion. In response to CMS's question of whether FIBRYGA[supreg] and INTERCEPT[supreg] [[Page 36705]] Fibrinogen Complex have the same mechanism of action, the applicant and another commenter stated that they have different mechanisms of action. The applicant agreed with CMS that FIBRYGA[supreg] and INTERCEPT[supreg] Fibrinogen Complex are both used in patients with hemorrhage and acquired hypofibrinogenemia, but asserted that the clinical behavior, regulatory oversight, and administration logistics differ substantially. The applicant stated that, despite sharing a general mechanism of restoration of fibrinogen to support clot formation, the way each product achieves this outcome is materially distinct. The applicant provided a table comparing regulatory status, pathogen inactivation, composition, dosing, administration time, and storage between FIBRYGA[supreg] and INTERCEPT[supreg] Fibrinogen Complex. Another commenter further detailed that the INTERCEPT[supreg] Fibrinogen Complex, a cryoprecipitate, is derived from pooled plasma through the INTERCEPTTM Blood System, which uses amotosalen and UVA light for pathogen reduction, but contains variable concentrations of fibrinogen and other plasma proteins, including factor VIII, vWF, factor XIII, and fibronectin. The applicant and another commenter stated that FIBRYGA[supreg]'s active component is fibrinogen. The other commenter further stated that FIBRYGA[supreg] is manufactured through a multi-step purification process including solvent/detergent treatment, ion exchange chromatography, and nanofiltration to remove viral contaminants, resulting in purity levels consistently above 96 percent and a defined fibrinogen concentration of 20 mg/mL, allowing for precise dosing based on patient weight and clinical needs. The applicant stated that the precise biochemical composition of FIBRYGA[supreg] ensures that it only works by interacting with thrombin in the last step of secondary hemostasis to promote clot formation via fibrin production from fibrinogen. The applicant and another commenter stated that, in addition to fibrinogen, cryoprecipitate and INTERCEPT[supreg] Fibrinogen Complex contain plasma proteins such as von Willebrand factor (vWF), factor VIII, factor XIII, and fibronectin. The applicant stated that this means cryoprecipitate and INTERCEPT[supreg] Fibrinogen Complex promote clotting via primary hemostasis, where vWF interacts with platelets to form a plug at the site of bleeding. The applicant further asserted that the presence of factor VIII results in the activation of factor X in the final common pathway of coagulation, resulting in the production of thrombin to promote clot formation. The applicant asserted that FIBRYGA[supreg] has a different mechanism of action because it does not work via these pathways. The applicant also stated that FIBRYGA[supreg] is FDA-approved as a biologic for the treatment of acquired and congenital fibrinogen deficiency and is manufactured under a BLA with full FDA batch release and monitoring. The applicant stated that, in contrast, INTERCEPT[supreg] Fibrinogen Complex is approved as a blood component for the treatment of acquired fibrinogen deficiency. The applicant stated that INTERCEPT[supreg] Fibrinogen Complex is pathogen- inactivated but contains other active coagulation proteins that can potentially affect coagulation and carry risk when treating a patient who is only hypofibrinogenemic. The applicant and another commenter further asserted that since it is regulated as a blood component, fibrinogen content is variable and not standardized. The commenter further stated that a study by Stanford et al. (2023) found significant variability in cryoprecipitate-based products compared to the consistent profile of fibrinogen concentrate whereas, in contrast, Schulz et al. (2018) demonstrated that FIBRYGA[supreg] contains negligible amounts of other clotting factors and plasma proteins, creating a different pharmacologic profile than cryoprecipitated plasma products. The commenter also stated that Wikkels[oslash] et al. (2013) demonstrated significant compositional differences between fibrinogen concentrates and cryoprecipitate products, affecting their mechanism of action in clinical settings. The applicant stated that FIBRYGA[supreg] is shelf-stable and ready to use immediately without the thawing wait time of INTERCEPT[supreg] Fibrinogen Complex. A commenter also expressed concerns regarding the accurate classification of products, reimbursement alignment, and recognition of meaningful clinical and operational differences within fibrinogen replacement therapies. The commenter stated that FDA classified and labeled INTERCEPT[supreg] Fibrinogen Complex as a Pathogen-Reduced Cryoprecipitated Fibrinogen Complex to distinguish it as a blood component, rather than a pharmaceutical. In response to CMS's concern that FIBRYGA\[acirc]\ would map to the same MS-DRGs as INTERCEPT[supreg] Fibrinogen Complex, the commenter stated that while cases utilizing either product may initially map to the same MS-DRGs, substantial evidence indicates FIBRYGA[supreg] can affect ultimate MS-DRG assignments through improved outcomes. The commenter further explained that multiple clinical studies demonstrate that FIBRYGA[supreg] reduces the need for allogeneic blood product transfusions compared to cryoprecipitate-based products such as INTERCEPT[supreg] Fibrinogen Complex. The commenter stated that the FIBRES trial post-hoc analysis revealed a statistically significant decrease in allogeneic blood product use in specific patient populations, particularly those with longer surgical procedures (Bartoszko et al., 2022). The commenter stated that studies demonstrated that patients receiving fibrinogen concentrate had shorter ICU stays (5.13 days) compared to those receiving cryoprecipitate (6.15 days) after cardiac surgery (Ayaganov et al., 2024), and significantly shorter in-hospital and intensive care unit LOS compared to those receiving cryoprecipitate (Joseph et al., 2022). This commenter stated that reduced LOS, combined with the established decreased need for allogeneic blood product transfusion shown in multiple studies, provides strong evidence that patients receiving FIBRYGA[supreg] may experience different clinical courses and resource utilization patterns, which could influence MS-DRG-related metrics compared to those receiving INTERCEPT[supreg] Fibrinogen Complex. In response to CMS's question about whether FIBRYGA[supreg] and INTERCEPT[supreg] Fibrinogen Complex treat the same or similar patient population and disease, the applicant and a commenter agreed with CMS that both treat bleeding associated with acquired fibrinogen deficiency but stated that FIBRYGA[supreg] and INTERCEPT[supreg] Fibrinogen Complex treat different patients. Specifically, the applicant and commenter asserted that FIBRYGA[supreg] is shelf-stable and can be stored in patient care areas such as trauma bays, operating rooms (ORs), Labor and Delivery (L&D) suites, and rural emergency settings for immediate use, and therefore treats a broader patient population than INTERCEPT[supreg] Fibrinogen Complex, which must be stored in a temperature-controlled blood bank and requires thawing and has cross- matching requirements. The applicant stated that FIBRYGA[supreg] avoids the delivery of vWF and factor VIII proteins present in INTERCEPT[supreg] Fibrinogen Complex and cryoprecipitate, which may increase thrombotic risk, especially in cardiovascular, trauma, and obstetric patients. A commenter further stated that due to the varied amounts of coagulation factors and plasma proteins [[Page 36706]] in the INTERCEPT[supreg] Fibrinogen Complex, accurate dosing is challenging in patients with coagulopathic bleeding (Stanford et al., 2023), whereas FIBRYGA[supreg] supports a more precise and timely therapeutic approach for those lacking blood type-compatible cryoprecipitate, those requiring urgent fibrinogen replacement, patients who are allergic and/or respond poorly to plasma products, and at-risk immunocompromised patients. The applicant reiterated that FIBRYGA[supreg] has been associated with a reduced need for packed red blood cells (PRBCs) and fresh frozen plasma (FFP), lowering the incidence of infections and allergic reactions. In response to CMS's statement that FIBRYGA[supreg] and INTERCEPT[supreg] Fibrinogen Complex can be stored at room temperature and are immediately available, the applicant commented that FIBRYGA[supreg] may be stored at room temperature with a 48-month shelf life, while INTERCEPT[supreg] Fibrinogen Complex may be frozen with a 1-year shelf-life but expires 5 days after thaw. A commenter noted that there are significant differences in practical availability and storage requirements. The commenter agreed with CMS that INTERCEPT[supreg] Fibrinogen Complex has a 5-day room temperature shelf life once thawed, while FIBRYGA[supreg] has a 30-month shelf life at room temperature (2- 25[deg] C) in its unreconstituted form and can be stored directly in emergency departments, operating rooms, and obstetric units. The commenter referenced several additional studies of fibrinogen concentrate as supporting evidence, including Franchini and Lippi (2012), which noted that fibrinogen concentrate is stored as a lyophilized powder at room temperature and can be reconstituted quickly with sterile water and infusion volumes are low, allowing for rapid administration without delays for thawing or cross-matching; Winearls et al. (2021), which found that fibrinogen concentrate administration in trauma patients with major hemorrhage and hypofibrinogenemia was achieved significantly faster than cryoprecipitate; and S[oslash]rensen and Bevan (2010), which emphasized the critical difference in storage and availability between fibrinogen concentrate and cryoprecipitate products, noting that the latter's requirement for blood bank processing creates significant barriers to rapid administration in emergent bleeding scenarios. Response: We appreciate the additional information from the applicant and commenter with respect to whether FIBRYGA[supreg] is substantially similar to existing technologies. However, we disagree with the applicant and commenter that FIBRYGA[supreg] has a new mechanism of action compared to cryoprecipitate and INTERCEPT[supreg] Fibrinogen Complex. We note that the applicant had originally stated in its application that FIBRYGA[supreg] works by providing a source of fibrinogen that the body can use to form blood clots to stop bleeding, which is the same mechanism used by cryoprecipitate, and we agree with this statement. We also believe that this is also the same mechanism of action as INTERCEPT[supreg] Fibrinogen Complex, a pathogen-inactivated cryoprecipitate, since all three products provide a source of fibrinogen to promote clot formation. We note that the applicant stated in its comment that FIBRYGA[supreg] only contains fibrinogen and therefore only works by interacting with thrombin in the last step of secondary hemostasis to promote clot formation and that INTERCEPT[supreg] and cryoprecipitate contain additional factors that may affect primary hemostasis. However, these products also contain fibrinogen and therefore the interaction with thrombin in secondary hemostasis remains the same across all three products. In addition, while the applicant and commenter provided differences between FIBRYGA[supreg] and INTERCEPT[supreg] Fibrinogen Complex in FDA regulatory classifications, pathogen inactivation, composition, dosing, administration time, and storage, we do not believe that the differences described in these public comments constitute a difference in the mechanism of action because, as stated previously, both treatments work by providing a source of fibrinogen the body can use to form blood clots to stop bleeding. Additionally, while the applicant stated that FIBRYGA[supreg] and INTERCEPT[supreg] Fibrinogen Complex have better safety profiles (thrombotic risk) and exposure risks (due to the need for PRBCs and FFP), we note that these differences in clinical outcomes are not evaluated as part of the mechanism of action, but rather substantial clinical improvement. Therefore, we believe that all three products have the same mechanism of action of providing exogenous fibrinogen to promote clot formation in patients with acquired fibrinogen deficiency. In regard to the second criterion, whether a technology is assigned to the same or a different MS-DRG, we agree with the applicant's assertion in its application that it is not expected that the use of FIBRYGA[supreg] will affect the MS-DRG assignment. We note that outcomes that change as a result of the technology's administration do not change the MS-DRG mapping. We further note that, as the applicant stated in its application, cases requiring this type of treatment include a broad range of clinical situations in which a diagnosis of acquired coagulation factor deficiency or postpartum afibrinogenemia is present. Therefore, we continue to agree with the applicant that the use of FIBRYGA[supreg] would not change the MS-DRG assignment. In regard to the third criterion, whether a technology treats the same or similar type of disease and patient populations, we disagree that the use of FIBRYGA[supreg] and INTERCEPT[supreg] Fibrinogen Complex involves different patient populations or disease types. Both technologies treat patients with hemorrhage and acquired hypofibrinogenemia and address fibrinogen deficiency in bleeding patients. While the applicant and a commenter commented that FIBRYGA[supreg] treats a different patient population than INTERCEPT[supreg] Fibrinogen Complex because it is shelf-stable and ready to use immediately, as we stated previously and in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45149), the 5-day shelf life post-thaw of INTERCEPT[supreg] Fibrinogen Complex makes it immediately available in a ready-to-transfuse form as a fibrinogen source. While the commenter stated that FIBRYGA[supreg] treats a different patient population because certain subsets of patients may benefit from fibrinogen concentrates such as those with plasma allergies or who are immunocompromised and for whom the risk of pathogen-reduced cryoprecipitate remains too great, these represent clinical practice considerations rather than distinct patient populations requiring different therapeutic approaches. Specifically, we note that the FDA label for FIBRYGA[supreg] also includes warning regarding risks of allergic reactions and transmission of infectious agents, noting that FIBRYGA[supreg] is made from human plasma.\49\ Therefore, it seems that the factors described by the commenter relate to treatment preferences and logistical considerations within the same patient population (those with fibrinogen deficiency) rather than identifying a different patient population. We also note that both FIBRYGA[supreg] and INTERCEPT[supreg] Fibrinogen Complex are indicated for the same disease and the same patient population for which the applicant is seeking new technology add-on payment status. We further disagree that FIBRYGA[supreg]'s standardized, [[Page 36707]] purified formulation and ease of administration results in the treatment of a different patient population compared to INTERCEPT[supreg] Fibrinogen Complex because while these differences may or may not lead to improved clinical outcomes, they do not differentiate the disease or patient population being treated by the two technologies. --------------------------------------------------------------------------- \49\ FIBRYGA[supreg]. USPI (06-19-25). Section 5: Warnings and Precautions. --------------------------------------------------------------------------- Because FIBRYGA[supreg] meets all three of the substantial similarity criteria, we believe FIBRYGA[supreg] is substantially similar to the INTERCEPT[supreg] Fibrinogen Complex. Therefore, we consider the beginning of the newness period for FIBRYGA[supreg] to begin on the date the INTERCEPT[supreg] Fibrinogen Complex became commercially available for the treatment and control of bleeding, including massive hemorrhage, associated with fibrinogen deficiency. Since INTERCEPT[supreg] Fibrinogen Complex has been on the U.S. market since May 5, 2021, the 3-year anniversary date of its entry onto the market occurred prior to FY 2026, and therefore, FIBRYGA[supreg] does not meet the newness criterion and is not eligible for new technology add-on payments for FY 2026. We note that we received public comments with regard to the cost and substantial clinical improvement criteria for this technology, but because we have determined that the technology does not meet the newness criterion and therefore is not eligible for approval for new technology add-on payments for FY 2026, we are not summarizing comments received or making a determination on those criteria in this final rule. f. GRAFAPEX\TM\ (treosulfan) Medexus Pharma, Inc. submitted an application for new technology add-on payments for GRAFAPEXTM for FY 2026. According to the applicant, GRAFAPEXTM is a novel conditioning agent for use in combination with fludarabine as a preparative regimen for allogeneic hematopoietic stem cell transplantation (alloHSCT) in adult and pediatric patients one year of age and older with acute myeloid leukemia (AML) or myelodysplastic syndrome (MDS). We note that Medexus Pharma, Inc. submitted an application for new technology add-on payments for GRAFAPEXTM for FY 2023 under the name treosulfan, as summarized in the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28296 through 28302), that it withdrew prior to the issuance of the FY 2023 IPPS/LTCH PPS final rule (87 FR 48920). Please refer to the online application posting for GRAFAPEXTM, available at https://mearis.cms.gov/public/publications/ntap/NTP241007WE8D6, for additional detail describing the technology and the disease treated by the technology. With respect to the newness criterion, according to the applicant, GRAFAPEXTM was granted NDA approval from FDA on January 21, 2025, for use in combination with fludarabine as a preparative regimen for alloHSCT in adult and pediatric patients one year of age and older with either AML or MDS. The applicant stated that GRAFAPEXTM became commercially available on February 20, 2025, because the applicant required time after FDA marketing authorization to build inventory and stock the third-party logistic wholesalers prior to commercial launch. We stated that we were interested in additional information regarding the cause of any delay in the technology's commercial availability, such as additional information about building inventory and stocking logistic wholesalers. According to the applicant, GRAFAPEXTM is administered via intravenous infusion in conjunction with fludarabine from either a 1g or 5g vial after reconstitution with a 20mL or 100mL solution. Per the package insert,\50\ the recommended dosage of GRAFAPEXTM is 10g/m\2\ body surface area per day, given as a 2-hour intravenous infusion on 3 consecutive days (day -4, -3, -2) in conjunction with fludarabine before hematopoietic stem cell infusion on day 0. Per the applicant, based on the estimated average body size for Medicare patients being treated with GRAFAPEXTM and the labeling for a 3-day treatment, the estimated average dose per inpatient stay is 54g. --------------------------------------------------------------------------- \50\ Oncotec Pharma Produktion GmbH. GRAFAPEXTM [package insert]. (Revised 2/2025). Available at: https://www.accessdata.fda.gov/drugsatfda_docs/label/2025/214759s001lbl.pdf. --------------------------------------------------------------------------- According to the applicant, effective October 1, 2022, the following ICD-10-PCS codes may be used to uniquely describe procedures involving the use of GRAFAPEXTM: XW04388 (Introduction of treosulfan into central vein, percutaneous approach, new technology group 8) and XW03388 (Introduction of treosulfan into peripheral vein, percutaneous approach, new technology group 8). The applicant provided a list of diagnosis codes that may be used to currently identify the indication for GRAFAPEXTM under the ICD-10-CM coding system. Please refer to the online application posting for the complete list of ICD-10-CM codes provided by the applicant. As previously discussed, if a technology meets all three of the substantial similarity criteria under the newness criterion, it would be considered substantially similar to an existing technology and would not be considered ``new'' for the purpose of new technology add-on payments. With respect to the substantial similarity criteria, the applicant asserted that GRAFAPEXTM is not substantially similar to other currently available technologies because GRAFAPEXTM is a new chemical entity with a unique structure and unique mechanism of action that permits it to be metabolized without the liver, resulting in reduced toxicity while still delivering effective treatment, including for older and/or more comorbid patients who are ineligible for myeloablative conditioning (MAC) and face higher relapse risk if reduced intensity conditioning (RIC) is used. The applicant stated that GRAFAPEXTM addresses the unmet need in this patient population and is the only FDA-approved alloHSCT conditioning agent for AML and MDS, and that therefore, the technology meets the newness criterion. The following table summarizes the applicant's assertions regarding the substantial similarity criteria. Please see the online application posting for GRAFAPEXTM for the applicant's complete statements in support of its assertion that GRAFAPEXTM is not substantially similar to other currently available technologies. BILLING CODE 4120-01-P [[Page 36708]] [GRAPHIC] [TIFF OMITTED] TR04AU25.154 BILLING CODE 4120-01-C With respect to the substantial similarity criteria, we noted in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18119) that GRAFAPEXTM is an alkylating agent like other drugs used in conditioning, such as busulfan and melphalan. While the applicant stated that GRAFAPEXTM has a unique mechanism of action and a unique structure that allows it to bypass liver metabolism and subsequently reduce treatment related toxicity, we questioned whether bypassing liver metabolism is the mechanism of action of a conditioning agent, or if it instead relates to clinical outcomes, such as the side effect profile of GRAFAPEXTM. In [[Page 36709]] regard to whether GRAFAPEXTM treats the same or similar type of disease and the same or similar patient population compared to existing technologies, we questioned whether GRAFAPEXTM treats a new patient population since MAC, nonmyeloablative conditioning (NMA), and RIC are all options for patients. Additionally, while MAC may not be preferred for older or more comorbid patients, RIC and NMA may still be options for these patients. We invited public comments on whether GRAFAPEXTM is substantially similar to existing technologies and whether GRAFAPEXTM meets the newness criterion. Comment: The applicant submitted a public comment reiterating that GRAFAPEXTM is not substantially similar to any existing technology because GRAFAPEXTM does not use the same or similar mechanism of action when compared to existing technologies to achieve a therapeutic outcome and does not involve treatment of the same or similar type of disease and patient population when compared to any existing technology. The applicant explained that GRAFAPEXTM is the first and only FDA-approved alloHSCT conditioning agent for AML and MDS, and that prior to FDA's approval of GRAFAPEXTM, patients with AML or MDS had no FDA-approved treatment option for an alloHSCT conditioning agent. In addition, the applicant cited the FY 2020 IPPS/LTCH PPS final rule (84 FR 42243) and asserted that CMS has repeatedly recognized that being the first FDA- approved therapy for a particular indication is relevant to the new technology add-on payment newness criterion and relates to mechanism of action. The applicant further stated that GRAFAPEXTM is the first drug with its mechanism of action approved by FDA to treat patients with AML or MDS and, therefore, GRAFAPEXTM is not substantially similar to existing technologies and meets the newness criterion. The applicant also reiterated that GRAFAPEXTM is a new chemical entity and novel prodrug of a bifunctional alkylating agent with antileukemic properties used for alloHSCT conditioning. The applicant further specified that GRAFAPEXTM is a non- enzymatically activated prodrug that targets bone marrow cells for alkylation, and the pharmacologically inactive treosulfan is converted spontaneously under physiological conditions into the active monoepoxide intermediate (2S,3S)-1,2-epoxybutane-3,4-diol-4- methanesulfonate) and finally to active L-diepoxibutane (2S,3S)- 1,2:3,4-diepoxybutane). The applicant also stated that GRAFAPEXTM has a unique chemical structure resulting from two hydroxide bonds that are not present in other alkylating agents and due to these unique hydroxide bonds, GRAFAPEXTM's mechanism of alkylation is entirely different than that of busulfan and other alkylating agents. The applicant stated that the distinct structure and unique mechanism of alkylation further distinguish GRAFAPEXTM's mechanism of action from all other alkylating agents. The applicant provided additional explanation of GRAFAPEXTM's mechanism of action and chemical properties of the medication. The applicant stated that not all alkylating agents are prodrugs, and neither busulfan or melphalan are prodrugs. The applicant contrasted the mechanism of action of GRAFAPEXTM with cyclophosphamide, the only other alkylating agent used for alloHSCT conditioning that is also a prodrug, and stated that the mechanism of action for cyclophosphamide requires enzymatic breakdown by the liver to activate the drug. The applicant then stated that GRAFAPEXTM's mechanism of action is uniquely characterized by non-enzymatic bioactivation, which allows GRAFAPEXTM to bypass the liver when activating and producing its effect in the body, unlike other alkylating agents. The applicant asserted that GRAFAPEXTM being a prodrug and an agent that is non- enzymatically activated are especially important in the bone marrow transplant (BMT) space because the act of processing a drug in the liver increases the inflammatory milieu and predisposes patients to adverse events such as veno-occlusive disease and graft-versus-host disease. Additionally, the applicant stated these aspects result in spontaneous conversion under normal physiological conditions, such that it is activated in the blood, as opposed to requiring enzymatic activity in order to activate like other alkylating agents. The applicant added that cyclophosphamide specifically requires the enzyme P450 in order to activate, which is mostly located in the liver. The applicant further explained that other alkylating agents used in alloHSCT conditioning, such as busulfan and melphalan, also require enzymatic activation just as cyclophosphamide does. The applicant asserted that GRAFAPEXTM's uniquely non-enzymatic mechanism of activation is a distinct and critical aspect of its unique mechanism of action. The applicant stated that the National Cancer Institute's definition of mechanism of action describes how a drug or other substance produces an effect in the body and, in certain cases, may help provide information about the safety of the drug and how it affects the body. The applicant stated that GRAFAPEXTM's unique mechanism of action also has the effect of reducing treatment- related toxicity compared to other alkylating agents used for alloHSCT conditioning. The applicant cited four publications to clarify GRAFAPEX's lower toxicity results from its distinct mechanism of action. The applicant stated that Romanski et al. (2018) noted the low organ toxicity of treosulfan-based conditioning compared with busulfan- based treatment and that the clinical exposure of the lungs and brain to the epoxide (the active form of GRAFAPEXTM) was lower than to busulfan while the exposure to bone marrow was similar, indicating that the distinct non-enzymatic activation of GRAFAPEXTM is connected to the clinical observations that treosulfan-based conditioning regimens demonstrate lower hepato-, pulmo-, and neurotoxicity than busulfan-based conditioning regimens, but comparable myeloablation strength.\51\ The applicant also stated Chichra et al. (2024) found that patients receiving a GRAFAPEXTM-based regimen experienced fewer acute toxicities than the patients receiving a melphalan-based regimen and that severe mucositis and diarrhoea were significantly less frequent with GRAFAPEXTM than melphalan. The applicant cited Lorenzo et al. (2021) regarding the ability for successful pregnancy or fatherhood after alloHSCT with GRAFAPEXTM related to lower gonadal toxicity compared to other alkylating agents such as busulfan.\52\ The applicant added that Scheulen et al. (2000) observed these types of differences between GRAFAPEXTM and other alkylating agents, noting that neither severe nephrotoxicity, bladder toxicity, cardiotoxicity, nor severe central nervous system toxicity that had been reported after high-dose treatments with other alkylators such as ifosfamide [[Page 36710]] or cyclophosphamide was evident after high-dose treosulfan.\53\ The applicant also stated that Scheulen at al. (2000) discussed these differences in the context of GRAFAPEXTM's mechanism of action, stating that, in contrast to busulfan, high-dose treosulfan did not induce severe hepatotoxicity or veno-occlusive disease in the nine patients treated at or above MTD of 47 g/m2, and that this might be considered a consequence of the different mode of alkylation and the reliable i.v. infusion of high-dose treosulfan. The applicant asserted that these points confirm GRAFAPEXTM's unique mechanism of action and demonstrate that bypassing liver metabolism and allowing for delivery of the alkylating agent directly to the blood is a key aspect of GRAFAPEXTM's mechanism of action by reflecting and underscoring the distinct way that GRAFAPEXTM produces an effect in the body. --------------------------------------------------------------------------- \51\ Michael Romanski et al., Treosulfan Pharmacokinetics and its Variability in Pediatric and Adult Patients Undergoing Conditioning Prior to Hematopoietic Stem Cell Transplantation: Current State of the Art, In-Depth Analysis, and Perspectives, 57 Clin. Pharmacokinet. 1255, 1255 (2018). \52\ Lorenzo Lazzari et al., Treosulfan-Based Conditioning Regimen Prior to Allogeneic Stem Cell Transplantation: Long-Term Results From a Phase 2 Clinical Trial, 11 Frontiers Oncology art. no. 731478, at 9 (2021); Rohtesh S. Mehta et al., Long-Term Outcomes and Quality of Life with Treosulfan-Based Conditioning in Hematological Malignancies, 9 Blood Advances 2691, 2693 (2025) (``Mehta et al. (2025)'') (``The 16 pregnancies observed in our cohort are encouraging, contrasting with the 4 reported pregnancies in a very large registry study following nonmyeloablative HCT.''). \53\ Max E. Scheulen et al., Clinical Phase I Dose Escalation and Pharmacokinetic Study of High-Dose Chemotherapy with Treosulfan and Autologous Peripheral Blood Stem Cell Transplantation in Patients with Advanced Malignancy, 6 Clinical Cancer Research 4209, 4209 (2000). --------------------------------------------------------------------------- In response to CMS's note that MAC, NMA, and RIC are all options for patients with AML or MDS, the applicant stated that this does not reflect the clinical realities, individual patient circumstances, and complex balancing that physicians and patients must work through in treating these conditions. The applicant further stated that while some previously available regimens could be used in older and/or more comorbid patients, not all such patients could be treated with a previously available regimen, and GRAFAPEXTM-based conditioning provides a new and critically important option for these patients. The applicant also stated that GRAFAPEXTM is the first and only FDA-approved allo-HSCT conditioning agent to treat patients with AML or MDS. The applicant further stated that, within the population of patients with AML or MDS, GRAFAPEXTM is specifically designed to be used in conditioning regimens for older and/or more comorbid patients who are ineligible for previously existing MAC regimens where RIC may be attempted, but results in compromised effectiveness. The applicant explained that, because of MAC regimens' high toxicity and RIC regimens' higher risk of relapse, and thus, lower effectiveness, many patients would be prevented from pursuing BMT. In addition, the applicant stated that in the absence of GRAFAPEXTM availability, there is a subset of patients who would be viewed as nonviable BMT candidates due to the lack of an appropriate conditioning regimen. The applicant added that many patients with MDS or AML who are older and/or have significant comorbidities are not referred to and do not undergo alloHSCT; but instead, only a highly select group of patients in this sub-population are viewed as viable candidates for this treatment. The applicant cited a review article in which the authors note that age alone was one of the most frequent barriers to BMT because of dated assumptions and bias against older patients, a lack of prospective studies in older adults, perceived higher risks versus benefits, current guidelines, higher levels of comorbidities, and a bias against HSCT as a modality in older adults among physicians.\54\ The applicant asserted that GRAFAPEXTM provides an appropriate, and therefore, a critical new conditioning regimen for this subpopulation that can help address the previously observed resistance to providing BMT for these patients. --------------------------------------------------------------------------- \54\ Colin Flannelly et al., Barriers to Hematopoietic Cell Transplantation for Adults in the United States: A Systematic Review with a Focus on Age, 26 Biol. Blood Marrow Transplant. 2335, 2341 (2020). --------------------------------------------------------------------------- The applicant cited multiple studies that discuss the unmet need among older patients and/or those with significant comorbidities for alloHSCT. The applicant stated that GRAFAPEXTM-based regimens are particularly well-suited and provide significant clinical benefits for this patient population. The applicant reiterated that Scott et al. (2017), submitted as part of its application, discusses how alloHSCT conditioning regimens available prior to FDA approval of GRAFAPEXTM, are not suitable for all patients, especially older and/or more comorbid patients. The applicant also stated that published literature recognizes the limits of conventional MAC and RIC regimens. In addition, the applicant stated that multiple peer-reviewed studies submitted in its application confirm that GRAFAPEXTM is a critical novel regimen that addresses the unmet need for older and/or comorbid AML and MDS patients. The applicant also stated GRAFAPEXTM-based conditioning uniquely provides a regimen with myeloablative-intensity combined with significantly lower toxicity, without an increase in mortality. The applicant asserted that GRAFAPEXTM-based conditioning, thereby fuses RIC regimens' lower organ toxicities with MAC regimens' potent antileukemic properties, expanding the availability of myeloablative conditioning to a new patient population. The applicant reiterated results from Beelen et al. (2022), which per the applicant, demonstrates the superiority of GRAFAPEXTM-based conditioning over busulfan-based conditioning in overall survival (OS), event-free survival (EFS), non- relapse mortality (NRM), and adverse events, such as GVHD in older and/ or more comorbid patients who were ineligible for MAC. The applicant stated that the authors of the pivotal phase 3 clinical trial, Beelen et al. (2022), concluded that the treosulfan regimen appears particularly suitable for older AML and MDS patients. In response to CMS's request for additional information regarding the cause of delay in commercial availability, the applicant reiterated that GRAFAPEXTM received FDA approval on January 21, 2025, and the first commercial sale of GRAFAPEXTM occurred on February 20, 2025. The applicant further explained that, in its new technology add-on payment application, it had estimated the amount of time (2 to 3 months) after FDA-approval required to bring GRAFAPEXTM to market, which included building inventory and stocking the third-party logistic wholesalers. The applicant stated that during the 1-month period prior to commercial availability, it undertook critical activities to ensure complete readiness across both product and services to support all stakeholders, which included: transfer of NDA ownership from Medac in Germany to the applicant in the U.S.; submission of required FDA filings; shipping the final drug product from its manufacturing site in Germany to the U.S., which required the product to be cleared by U.S. Customs and Border Protection; labeling and preparation of the product into approved packaging; conduction of batch record reviews; releasing the final product to the applicant's third-party logistics provider for distribution to the market; and ensuring that all wraparound services, such as pharmacovigilance program, medical affairs training and certification, and its patients services hub, were fully operational. The applicant asserted that the newness period for GRAFAPEXTM should begin on the date of commercial availability, February 20, 2025. Response: We thank the applicant for its comment. Based on our review of comments received and information submitted by the applicant as part of its FY 2026 new technology add-on payment application for GRAFAPEXTM, we agree with the applicant that GRAFAPEXTM has a unique mechanism [[Page 36711]] of action because it is the first and only FDA-approved allo-HSCT conditioning agent for patients with AML and MDS. Therefore, we agree with the applicant that GRAFAPEXTM is not substantially similar to existing treatment options and meets the newness criterion. With regards to the commercial availability of GRAFAPEXTM, as we have discussed in prior rulemaking (86 FR 45132; 77 FR 53348), generally, our policy is to begin the newness period on the date of FDA approval or clearance or, if later, the date of availability of the product on the U.S. market. Although the applicant stated in its public comment that GRAFAPEXTM became commercially available on February 20, 2025, the date of first sale, we note that we do not consider the date of first sale of a product, or first shipment of a product, as an indicator of the entry of a product onto the U.S. market; neither of these dates indicate when a technology in fact became available for sale (88 FR 58802). It is unclear from the information provided when the technology first became available for sale and, absent additional information from the applicant, we cannot determine a newness date based on a documented delay in the technology's availability on the U.S. market. Therefore, we consider the beginning of the newness period for GRAFAPEXTM to commence on January 21, 2025, when GRAFAPEXTM received FDA marketing authorization. With respect to the cost criterion, the applicant provided two analyses to demonstrate that GRAFAPEXTM meets the cost criterion. Each analysis followed the order of operations summarized in the following table. [GRAPHIC] [TIFF OMITTED] TR04AU25.155 Because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount in both scenarios, the applicant asserted that GRAFAPEXTM meets the cost criterion. We invited public comments on whether GRAFAPEXTM meets the cost criterion. Comment: The applicant reiterated that the two cost criterion analyses submitted with its application demonstrate that GRAFAPEXTM meets the cost criterion. Response: We thank the applicant for its comment. We agree that the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount under both of the scenarios. Therefore, GRAFAPEXTM meets the cost criterion. With regard to the substantial clinical improvement criterion, the applicant asserted that GRAFAPEXTM offers a treatment option for a patient population unresponsive to, or ineligible for, currently available treatments because GRAFAPEXTM offers a critical new treatment option and addresses an unmet need for alloHSCT conditioning for older and/or more comorbid patients who have AML or MDS and are ineligible for currently available MAC regimens and face higher relapse risk if a RIC regimen is used. Additionally, per the applicant, GRAFAPEXTM significantly improves clinical outcomes relative to existing technologies because GRAFAPEXTM-based conditioning has shown superiority in survival (in terms of overall and event-free survival) and non-relapse mortality, as well as significant reductions in adverse events, such as graft-versus-host disease (GVHD), veno-occulsive disease (VOD), and infections, compared to previously available regimens. The applicant provided 10 studies to support these claims, as well as 1 background article [[Page 36712]] that, per the applicant, indicates that many patients with AML or MDS, especially those who are older and/or have significant comorbidities, are ineligible for MAC regimens, and face higher risk of relapse with RIC regimens.\55\ The following table summarizes the applicant's assertions regarding the substantial clinical improvement criterion. Please see the online posting for GRAFAPEXTM for the applicant's complete statements regarding the substantial clinical improvement criterion and the supporting evidence provided. --------------------------------------------------------------------------- \55\ Background articles are not included in the following table but can be accessed via the online posting for the technology. --------------------------------------------------------------------------- BILLING CODE 4120-01-P [GRAPHIC] [TIFF OMITTED] TR04AU25.156 [[Page 36713]] [GRAPHIC] [TIFF OMITTED] TR04AU25.157 BILLING CODE 4120-01-C We also received a public comment in response to the New Technology Town Hall meeting notice published in the Federal Register regarding the substantial clinical improvement criterion for GRAFAPEXTM, which we summarized in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18121 through 18122). After review of the information provided by the applicant and the public comment received in response to the New Technology Town Hall meeting, we stated in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18122 through 18123) that we had the following concerns regarding whether GRAFAPEXTM meets the substantial clinical improvement criterion. The applicant stated GRAFAPEXTM offers a conditioning treatment regimen option for older and/or more comorbid patients with AML or MDS who are ineligible for currently available MAC regimens due to their high toxicity and higher relapse risk with RIC regimens. The applicant provided 11 studies which it stated show that GRAFAPEXTM-based regimens reduce the toxicity, non-relapse related mortality, and treatment related mortality associated with MAC without resulting in the increased incidence of relapse associated with RIC. However, we noted that in two studies provided by the applicant comparing a GRAFAPEXTM- based regimen to RIC, there was a higher rate of relapse with the GRAFAPEXTM-based regimen. Specifically, in Fraccaroli et al. (2024), patients treated with a GRAFAPEXTM regimen demonstrated a higher cumulative incidence of relapse compared to the melphalan treatment group (24 percent vs. 0 percent, p=0.006). Similarly, we noted that Bug et al. (2023) found that a fludarabine plus GRAFAPEXTM conditioning regimen had a higher cumulative incidence of relapse (34.7 percent) compared to a fludarabine plus fractionated total body irradiation conditioning regimen (18.3 percent, p=0.018). Additionally, we stated that as the applicant noted in its Town Hall comment, GRAFAPEXTM-based regimens are not the only intermediate-intensity or RTC regimens. Specifically, the applicant mentioned three additional RTC regimens in addition to GRAFAPEXTM-based regimens: fludarabine <160mg/m2 plus busulfan 12.8mg/kg, fludarabine 35mg/m2 x 4 plus busulfan 3.2mg/kg x 2 plus total body irradiation 2Gy, and fludarabine plus melphalan 140mg/ m2. We also noted that RIC and NMA are additional options for these patients. Therefore, we questioned if GRAFAPEXTM-based regimens are the only treatment options for patients ineligible for MAC. With respect to the assertion that GRAFAPEXTM significantly improves clinical outcomes relative to services or technologies previously available, the applicant stated that GRAFAPEXTM-based conditioning has shown superior outcomes for event-free survival, overall survival, and non-relapse mortality, as well as significant reductions in several adverse events. To support its statements, the applicant provided 1 randomized trial for GRAFAPEXTM and 9 retrospective studies, which were also cited in support of the prior claim. However, we questioned the generalizability of these studies to the Medicare population. First, none of the studies assessing GRAFAPEXTM evaluated the treatment in a U.S. population; rather, all of the studies were conducted outside the U.S, and we questioned whether differences in treatment guidelines and regimens between countries could affect generalizability to the Medicare population. Second, we noted that, of the submitted studies directly assessing GRAFAPEXTM, 7 had a majority of participants in the GRAFAPEXTM treatment arm under 65 years and 1 study (Wedge et al., 2020) did not include any participants over 66 years of age in the GRAFAPEXTM treatment group, and we therefore questioned whether outcomes seen in these studies are generalizable to the Medicare population. Third, relative to the number of Medicare patients with AML or MDS who may be eligible for alloHSCT, two studies (Chichra et al., 2023; Fraccaroli et al., 2024) included small sample sizes among the GRAFAPEXTM treatment arms. In particular, Chichra et al. (2023) only contained 11 patients in the matched sibling donor/matched unrelated (MRD/MUD) donor fludarabine plus GRAFAPEXTM group and 16 patients in the haploidentical (Haplo) donor fludarabine plus GRAFAPEXTM group. Fraccaroli et al. (2024) included only 21 patients in the melphalan group and 21 patients in the GRAFAPEXTM group. Given these small sample sizes, we questioned whether these studies would be generalizable to the Medicare population due to the potential influence of confounding variables. We also noted that in Beelen et al. (2024), about half of the data was missing for the comorbidity index and over half of the data was missing regarding the disease risk, which are characteristics that could impact efficacy, making it difficult to fully compare the treatment groups. We further noted that while some studies showed improved overall survival, a lower NRM, and reduced [[Page 36714]] adverse events with the GRAFAPEXTM-based regimen, there were some conflicting results across studies. First, while the applicant stated GRAFAPEXTM-based regimens have shown improved overall survival (OS), we noted that in Bug et al. 2023, Chichra et al. 2023, and Fraccaroli et al. 2024, OS was similar between the GRAFAPEXTM-based regimen and RIC. Specifically, 2-year OS was 67.8 percent in the GRAFAPEXTM-based regimen in Bug et al. 2023 and 66.9 percent in the fludarabine/TBI group (HR 1.08 (95 percent CI, 0.67-1.75)). In Chichra et al. 2023, 5-year OS was 53 percent in those treated with a GRAFAPEXTM-based regimen (Flu-Treo) and 62 percent in those treated with fludarabine/melphalan (Flu-Mel) in the MRD/MUD transplant group (p=0.694) and 28 percent in Flu-Treo and 41 percent in Flu-Mel in the Haplo transplant group (p=0.770). In Fraccaroli et al. (2024), the 2-year survival was 66 percent in both the fludarabine-cyclophosphamide-melphalan and fludarabine-cyclophosphamide-GRAFAPEXTM groups (p=0.8). Second, the applicant asserted superior outcomes for GRAFAPEXTM in non-relapse mortality (NRM). However, we stated that multiple studies showed that GRAFAPEXTM had a NRM rate that was higher than or similar to other technologies. Per Chichra et al. (2023), the 2-year NRM was similar between Flu-Treo and Flu-Mel in the MRD/MUD and Haplo groups, although the specific numbers were not provided in the study. In Gavriilaki et al. (2023), NRM was similar between fludarabine/GRAFAPEXTM (FT14) (20.8 percent) and fludarabine/busulfan (FB4) (22.6 percent) (p=0.46). Shimoni et al. (2021) found that 5-year NRM was statistically highest among patients who received MAC (34 percent) followed by those who received fludarabine and GRAFAPEXTM (30 percent) and lowest among those who received RIC (27 percent) (p=0.008). In Wedge et al. (2020), 3-year NRM was not statistically different (p=0.425) with a NRM of 13.6 percent for fludarabine/GRAFAPEXTM, 33.3 percent for standard myeloablative (SMA) conditioning, and 17.9 percent for nonmyeloablative (NMA) conditioning. Third, the applicant claimed a significant reduction in several clinically significant adverse events and complications that often lead to treatment-related mortality (TRM), such as graft-versus-host disease (GVHD), veno-occlusive disease (VOD), life-threatening infections, and organ toxicities. However, we stated that some studies showed similar or higher rates of adverse effects with the GRAFAPEXTM-based regimen. Specifically, Fraccaroli et al. (2024) reported a similar frequency of GVHD and renal failure, with no cases of VOD in either group and no statistical comparison of infection rates presented. Per Beelen et al. (2022), the frequencies of treatment-emergent adverse events and serious adverse events were equally distributed between the study arms. The incidence of acute GVHD and chronic GVHD was similar between treatment groups or higher with the GRAFAPEXTM-based regimen in Chichra et al. (2023), Bug et al. (2023), Gavriilaki et al. (2023), and Pasic et al. (2024). In Shimoni et al. (2021), there was no statistical difference in chronic GVHD among the treatment groups and in Wedge et al. (2020), acute GVHD was similar between FluTreo and NMA. We invited public comments on whether GRAFAPEXTM meets the substantial clinical improvement criterion. Comment: A commenter stated its support for the approval of GRAFAPEXTM's new technology add-on payment application. The commenter stated their experience as a physician using GRAFAPEXTM with patients and added that GRAFAPEXTM is the first and only FDA-approved alloHSCT preparative regimen for AML and MDS. The commenter also stated that GRAFAPEXTM uniquely combines myeloablative-level intensity with lower toxicity, making GRAFAPEXTM-based conditioning distinctly suitable for the AML or MDS patients who are older and/or have significant co-morbidities and would not be able to tolerate a higher-toxicity MAC regimen, but would have a significant risk of compromised outcomes with a lower-intensity RIC regimen. The commenter described their utilization of GRAFAPEXTM in their clinical practice and research, citing several studies 56 57 where the commenter was a lead or co-author. In addition, the commenter cited the phase II clinical trial of GRAFAPEXTM conducted by Deeg et al. (2018) \58\ and stated it found that GRAFAPEXTM results in minimal toxicity and very low NRM in a cohort of patients up to 70 years old, two-thirds with co-morbidity scores of 3 or higher, patients with a history of prior allo-HSCT, and patients previously treated with cytotoxic therapy for malignancies preceding AML or MDS/ CMML. The commenter further stated that GRAFAPEXTM is distinct among alloHSCT conditioning agents due to its unique combination of myeloablative-level intensity with notably lower toxicity, providing an important new tool for patients who are older and/or have significant comorbidities. --------------------------------------------------------------------------- \56\ Filippo Milano et al., Treosulfan-based conditioning is feasible and effective for cord blood recipients: a phase 2 multicenter study, 4 Blood Advances 3302, 3308 (2020). \57\ Mehta RS, Lee SJ, Gooley TA, Thur L, Dahlberg A, Delaney C, Gyurkocza B, Vo PT, Deeg HJ, Milano F. Long-Term Outcomes and Quality of Life with Treosulfan-Based Conditioning in Hematological. \58\ H. Joachim Deeg et al., Transplant Conditioning with Treosulfan/Fludarabine with or without Total Body Irradiation: A Randomized Phase II Trial in Patients with Myelodysplastic Syndrome and Acute Myeloid Leukemia, 24 Biology Blood & Marrow Transplantation 956, 962 (2018). --------------------------------------------------------------------------- Response: We thank the commenter for its input and have taken it into consideration in determining whether GRAFAPEXTM meets the substantial clinical improvement criterion as discussed later in this section. Comment: The applicant submitted a public comment regarding the substantial clinical improvement criterion and provided responses to CMS's concerns from the proposed rule. The applicant stated that GRAFAPEXTM represents a substantial clinical improvement over previously existing therapy options because GRAFAPEXTM offers an alloHSCT conditioning treatment option for older and/or more comorbid patients who have AML or MDS, who are ineligible for previously available MAC regimens. In addition, the applicant asserted that GRAFAPEXTM-based conditioning has shown superior outcomes for EFS, OS, NRM, and significant reductions in several adverse events. Further, the applicant stated that clinical tradeoffs in RIC regimens include compromised effectiveness, increased risk of relapse, and additional negative side effects. The applicant asserted that GRAFAPEXTM offers a conditioning regimen for older and/ or more comorbid patients with MAC-level intensity without the increased relapse risk of RIC for those that cannot tolerate MAC-level conditioning from a toxicity perspective. The applicant also asserted that its application, Town Hall presentation, and Town Hall comment discuss in detail evidence demonstrating GRAFAPEX's unique clinical benefits and significant clinical improvement for older and/or more comorbid populations with AML or MDS compared to a wide range of many previously available regimens, including conventional MAC regimens, RIC or NMA regimens, and other regimens that potentially could be described as ``reduced toxicity conditioning'' or ``RTC'' regimens. In response to CMS's note that RIC and NMA are options for older and/or more comorbid patients, the applicant [[Page 36715]] stated that is not necessarily true for all patients, and the clinical consequences of RIC regimens should be taken into account, namely that such regimens involve reduced treatment intensity leading to higher rates of relapse and other adverse effects. The applicant further stated that GRAFAPEXTM provides a critical treatment option for the set of older and/or more comorbid AML or MDS patients who otherwise would not be candidates for BMT due to the lack of a suitable conditioning regimen. The applicant stated that Scott et al. (2017) concluded that MAC is superior to RIC when patients can tolerate the regimen due to RIC's substantially higher relapse rate with only a modest decrease in transplant-related mortality (TRM). The applicant stated that prior to the availability of GRAFAPEXTM, patients would have either no option at all or, in an effort to do something to treat their life-threatening conditions, would be faced with no choice other than RIC and its significantly increased risk of relapse and additional negative side effects. The applicant added that Beelen et al (2022) concluded that the GRAFAPEXTM-based conditioning regimen led to superior outcomes after alloHSCT compared with the reference RIC busulfan regimen, thereby appearing particularly suitable for older AML and MDS transplantation candidates. In addition, the applicant stated that other studies, such as Wedge et al. (2020) and Pasic et al. (2024), that have similarly focused on patients ineligible for conventional MAC regimens, have also confirmed the Beelen et al. (2022) results. Specifically, the applicant highlighted that Wedge et al. (2020), which studied mostly MDS patients, found similar overall survival among GRAFAPEXTM, standard myeloablative conditioning (SMA), and NMA regimens with GRAFAPEXTM having lower rates of chronic GVHD and similar rates of acute GVHD compared to both SMA and NMA. The applicant also stated that Pasic et al. (2024) found significantly higher overall and event-free survival with GRAFAPEXTM compared to RIC and Nagler et al. (2017) found a relative lack of adverse effects in patients treated with a GRAFAPEXTM-based conditioning regimen. In response to CMS's concern regarding the higher rate of relapse with GRAFAPEXTM-based conditioning regimens compared to RIC in Fraccaroli et al. (2024) and Bug et al. (2023), the applicant asserted that the isolated results of overall relapse in these two studies do not reflect the totality of evidence submitted within its application or the overall weight of the data. The applicant stated that this type of isolated analysis fails to acknowledge the positive outcomes reflected in these two studies. The applicant further stated that, in terms of overall relapse, the Fraccaroli et al. (2024) and Bug et al. (2023) results are outliers compared to the multiple additional peer-reviewed, published studies that it provided in its new technology add-on payment application. The applicant asserted that the nature of clinical research is such that results are not always uniform across all studies for every single outcome measure and that they submitted multiple studies for this reason, and state that CMS has noted that it evaluates the new technology add-on payment ``substantial clinical improvement'' criterion based on a ``totality of circumstances'' analysis, and the body of literature presented in their application and their comments reflects a totality of circumstances based on more than ten peer-reviewed published studies showing strong evidence and trends of superiority in key clinical outcomes including EFS, OS, and NRM for GRAFAPEXTM-based regimens compared to many other existing conditioning regimens. In addition, the applicant reiterated the Bug et al. (2023) and Fraccaroli et al. (2024) studies' results regarding NRM and stated that NRM is an especially significant outcome measure for older patients and/or those with significant comorbidities, an important subpopulation for Medicare, who may be considered for BMT because they face particularly significant risk of treatment-related mortality. In response to CMS's questions regarding the submitted studies' generalizability to the Medicare population, the applicant stated the cited literature includes significant percentages and numbers of Medicare-eligible patients which demonstrates the extensive study of treatment with GRAFAPEX-based conditioning in patients who are older and/or have significant comorbidities or disabilities, as is typically reflective of the majority of Medicare beneficiaries. The applicant highlighted several examples of additional peer-reviewed literature which demonstrate that GRAFAPEXTM has been used and studied specifically in U.S. populations, in addition to the Canadian and European cohorts, and stated that these articles indicate positive results with GRAFAPEX-based conditioning that are consistent with the studies previously submitted.\59\ \60\ \61\ \62\ The applicant stated that the multiple studies it provided with Canadian and European patient populations are also generalizable to the Medicare population, as clinical guidelines in these countries do not vary in meaningful ways from U.S. clinical guidelines in this area, and there is no evidence indicating that patients' experiences of AML or MDS or responses to conditioning regimens vary depending on the country where they are located. Additionally, the applicant stated that clinical guidelines and treatment practices for older patients with AML or MDS are similar throughout the developed world, including Europe, Canada, and the United States, with data used across the globe to develop treatment recommendations. The applicant also stated that both European and U.S. BMT clinical guidelines include and describe GRAFAPEXTM as a myeloablative conditioning treatment option. --------------------------------------------------------------------------- \59\ Eneida R. Nemecek et al., Conditioning with treosulfan and fludarabine followed by allogeneic hematopoietic cell transplantation for high-risk hematologic malignancies, 17 Biology Blood & Marrow Transplantation 341 (2011). \60\ Deeg, 2018, op. cit. \61\ Filipino, 2020, op. cit. \62\ Mehta, 2025, op. cit. --------------------------------------------------------------------------- In response to CMS's question whether the age of patients in the studies submitted are generalizable to the Medicare population, the applicant stated that its application and this submitted comment included multiple peer-reviewed published studies that enrolled significant percentages and numbers of both older patients and patients with disabilities and significant comorbidities. The applicant asserted that the patients in its submitted studies are highly generalizable to the Medicare population, which includes not only individuals age 65 or older but also patients with significant comorbidities and disabilities. The applicant summarized the patient demographics of seven studies in its application that included those over 65 years of age and more comorbid participants.\62\ \63\ \64\ \65\ \66\ \67\ \68\ \69\ The applicant reiterated that there is a subpopulation of AML or MDS patients who are older and/or have significant comorbidities and who, prior to the availability of GRAFAPEXTM, were not considered candidates for BMT because their treatment teams concluded there was no appropriate conditioning regimen available. In addition, the [[Page 36716]] applicant stated that AML and MDS are diseases that primarily affect older patient populations, with a median age at diagnosis 69 and 70 years, respectively. The applicant concluded by noting that GRAFAPEXTM's pivotal clinical trial observed no significant differences in safety or effectiveness between subjects age 65 or older and younger subjects. --------------------------------------------------------------------------- \63\ Beelen, 2022, op. cit. \64\ Shimoni, 2021, op cit. \65\ Bug, 2023, op. cit. \66\ Pasic, 2024, op cit. \67\ Fraccaroli, 2024, op. cit. \68\ Wedge, 2020, op. cit. \69\ Gavriilaki, 2023, op. cit. --------------------------------------------------------------------------- In response to CMS's question about small sample sizes in two submitted studies and generalizability to the Medicare population, the applicant stated that it is important to place these 2 studies in the broader context of all the studies it submitted in its application and comments, including more than 10 published peer-reviewed studies in which GRAFAPEXTM was used to treat patients, representing hundreds of patients with consistent trends in key results. The applicant added that totaling the participants of all its submitted studies accounts for more than 3,000 patients, of which over 1,200 received treatment with GRAFAPEXTM. The applicant emphasized that these studies also included significant numbers of patients 65 years or older and/or patients with significant comorbidities and disabilities, who are highly generalizable to the Medicare population. In addition, the applicant stated that several of the studies provided had significantly larger patient populations, and while the Chichra et al. (2023) and Fraccaroli et al. (2024) had small sample sizes compared to other submitted studies, they provide helpful confirmatory results comparing GRAFAPEXTM-based conditioning regimens to other available regimens. The applicant also stated that these two studies focused on the specific patient population and sub-population of interest, contributing to the totality of circumstances in demonstrating GRAFAPEXTM's significant clinical value. In addition, the applicant stated that AML and MDS are life-threatening and relatively rare conditions, and that FDA granted GRAFAPEXTM orphan drug designation in April 2015. The applicant asserted that notwithstanding the realities and challenges of rare diseases, it believes that the totality of data and evidence submitted provides a robust set of peer-reviewed, published literature demonstrating GRAFAPEXTM's significant clinical benefits for AML or MDS patients. In response to CMS's concern about the Beelen et al. (2024) study's missing data, the applicant stated it is unclear what significance this missing data has to the GRAFAPEXTM results, since it was data for the comparator arms. The applicant asserted that it seems one would have to assume that all missing data was positive for the comparators in order to undermine the results with respect to GRAFAPEXTM. The applicant further stated that Beelen et al. (2022) and other submitted studies in its application do not have missing data and demonstrate that GRAFAPEXTM-based conditioning demonstrates superior EFS, OS, and NRM compared to previously available conditioning regimens. The applicant asserted that the overwhelming majority of results and prominent trends of GRAFAPEXTM reflected in the peer- reviewed published literature demonstrate superior outcomes in EFS, OS, and NRM compared to a wide range of other available conditioning regimens, despite isolated outcome measures from certain individual studies. In response to CMS's concern regarding some conflicting outcome results, the applicant stated that the nature of different studies and comparator regimens is that specific data points and outcome measures are not always fully and uniformly consistent with respect to each individual metric across all studies. The applicant further stated that it provided a large body of evidence to present a fulsome picture of GRAFAPEXTM's substantial clinical benefits compared to several other existing conditioning regimens, including conventional MAC, RIC/NMA, and other conditioning regimens that could be described as ``reduced toxicity conditioning'' or ``RTC'' regimens. The applicant stated that the proposed rule did not identify concerns regarding the provided studies that show GRAFAPEXTM's superior EFS. The applicant reiterated its belief that GRAFAPEXTM- based conditioning has shown superior outcomes for EFS, OS, and NRM as well as significant reductions in several adverse events compared to other agents and regimens used in allo-HSCT conditioning. The applicant stated that the randomized, controlled Beelen et al. (2022) clinical trial demonstrated GRAFAPEXTM's superiority in EFS, OS, and NRM compared to busulfan-based conditioning. The applicant further stated that Beelen et al. (2024) replicated these results in GRAFAPEXTM-treated patients compared to registries of melphalan- and busulfan-treated patients. The applicant asserted the overall body of evidence demonstrates that physicians and researchers consistently turn to GRAFAPEXTM for older and/or more comorbid patients, and that GRAFAPEXTM results for NRM and OS are favorable in this patient population. The applicant reiterated the Shimoni et al. (2021) study's results and highlighted that the median age for patients who received a MAC regimen was 8 years younger than those who received GRAFAPEXTM-based conditioning. The applicant stated that because clinicians often administer GRAFAPEXTM to older and/ or more comorbid patients, when a retrospective cohort demonstrates similar results for GRAFAPEXTM and other treatments, it may at least be in part due to the GRAFAPEXTM cohort's older age and increase in comorbidities. In response to CMS's concern regarding similar OS between GRAFAPEXTM-based regimens and RIC in certain studies, the applicant asserted that the selective focus on a single metric in the Bug et al. (2023), Chichra et al. (2024), and Fraccaroli et al. (2024) studies does not account for the multiple other submitted studies in its application in which GRAFAPEXTM demonstrated significantly improved, and even superior, OS compared to other conditioning regimens. The applicant further stated that this focus fails to account for GRAFAPEXTM's superior NRM results in the Fraccaroli et al. (2024) study, significantly improved NRM in the Bug et al. (2023) study, and fewer acute toxicities and infections in the Chichra et al. (2024) study. In addition, the applicant stated that the Chichra et al. (2024) study also highlighted GRAFAPEXTM's reduced hospital LOS compared to the melphalan-based regimen. In response to CMS's concern regarding GRAFAPEXTM's similar NRM rate compared to other technologies in some studies, the applicant again stated that this isolated analysis fails to account for these studies' positive results as well as other studies in which GRAFAPEXTM showed significantly improved or superior NRM compared to other conditioning regimens. The applicant reiterated results from Chichra et al. (2024), Gavriilaki et al. (2023), Shimoni et al. (2021), and Wedge et al. (2020). In response to CMS's concern that some studies showed some differences in the rate of adverse effects between the GRAFAPEXTM-based regimen and comparators, the applicant asserted that this analysis does not assess or account for the overall body of data and totality of circumstances reflected in its provided studies and fails to account for the positive results for GRAFAPEX- based conditioning in the noted studies. The applicant reiterated the results of studies submitted with its new technology add-on payment application. The applicant also stated that other peer-reviewed publications have [[Page 36717]] similarly recognized GRAFAPEXTM's low organ toxicity, which multiple publications have attributed to the technology's unique mechanism of action. Specifically, the applicant stated that GRAFAPEXTM's distinct non-enzymatic activation targets the drug to the bone marrow and blood, sparing organs like the brain, lungs, and liver and helps account for the clinically observed lower hepato-, pulmo-, and neurotoxicity compared to busulfan-based conditioning regimens. The applicant concluded by emphasizing that a one-study-at-a-time, one-metric-at-a-time type of analysis does not account for the overall thrust of the complete body of data and the significant, consistent trends it demonstrates. The applicant urged CMS to evaluate the body of peer-reviewed published literature with an eye toward the overall picture it presents, which it stated overwhelmingly demonstrates that GRAFAPEX-based conditioning has shown superior outcomes for EFS, OS, and NRM and significant reductions in several adverse events compared to other existing conditioning regimens. Response: We thank the applicant and other commenter for their comments regarding the substantial clinical improvement criterion. Based on the additional information received, we agree with the applicant and commenter that GRAFAPEXTM represents a substantial clinical improvement over existing technologies because GRAFAPEXTM improves overall survival with similar or lower frequencies of clinically significant adverse events compared to existing treatments for allo-HSCT conditioning in patients with AML or MDS who are ineligible for MAC. After consideration of the public comments we received and the information included in the applicant's new technology add-on payment application, we have determined that GRAFAPEXTM meets the criteria for approval for new technology add-on payment. Therefore, we are approving new technology add-on payments for this technology for FY 2026. Cases involving the use of GRAFAPEXTM that are eligible for new technology add-on payments will be identified by ICD- 10-PCS codes XW03388 (Introduction of treosulfan into peripheral vein, percutaneous approach, new technology group 8) or XW04388 (Introduction of treosulfan into central vein, percutaneous approach, new technology group 8). In its application, the applicant stated that the anticipated cost of GRAFAPEXTM is $610 for a 1 g vial and $3,050 for a 5 g vial. Per the applicant, based on the recommended dose (10g/m\2\) and estimated average body size for Medicare patients being treated, 18 g of GRAFAPEXTM per treatment (three 1 g vials and three 5 g vials) is required for each day of a three-day course of treatment, totaling an average dose per inpatient stay of 54 g. Therefore, the applicant estimated that the average cost for GRAFAPEXTM is $32,940 per inpatient stay. Under Sec. 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS- DRG payment for the case. As a result, the maximum new technology add- on payment for a case involving the use of GRAFAPEXTM is $21,411 for FY 2026. g. IMDELLTRA[supreg] (tarlatamab-dlle) Amgen, Inc. submitted an application for new technology add-on payments for IMDELLTRA[supreg] for FY 2026. According to the applicant, IMDELLTRA[supreg] is a novel, first-in-class bispecific T-cell engager (BiTE[supreg]) molecule for the treatment of adult patients with extensive stage small cell lung cancer (ES-SCLC) with disease progression on or after platinum-based chemotherapy. According to the applicant, IMDELLTRA[supreg] works by binding to the delta-like ligand 3 (DLL3) antigen expressed on the surface of SCLC tumor cells and the cluster of differentiation 3 (CD3) co-receptor expressed on the surface of T cells, causing T-cell activation, release of inflammatory cytokines, and lysis of DLL3-expressing cells. Please refer to the online application posting for IMDELLTRA[supreg], available at https://mearis.cms.gov/public/publications/ntap/NTP241007BQ3UB, for additional detail describing the technology and the disease treated by the technology. With respect to the newness criterion, according to the applicant, IMDELLTRA[supreg] was granted accelerated approval of its BLA from FDA on May 16, 2024, for the treatment of adult patients with ES-SCLC with disease progression on or after platinum-based chemotherapy. According to the applicant, IMDELLTRA[supreg] was commercially available immediately after FDA approval. The applicant stated that the first dose of IMDELLTRA[supreg] is 1 mg and all subsequent doses are 10 mg, with all doses administered by a healthcare provider as a 1-hour intravenous (IV) infusion. Per the applicant, the average inpatient dose is 7.3 mg based on available data. The applicant stated the only inpatient data available is for patients who experience cytokine release syndrome (CRS) or immune effector cell-associated neurotoxicity syndrome (ICANS) after IMDELLTRA[supreg] and it is unknown how many patients without these adverse events would receive IMDELLTRA[supreg] on an inpatient basis. The applicant submitted a request for unique ICD-10-PCS procedure codes for IMDELLTRA[supreg] and was granted approval for use of the following procedure codes effective October 1, 2025: XW033NA (Introduction of tarlatamab-dlle antineoplastic into peripheral vein, percutaneous approach, new technology group 10) and XW043NA (Introduction of tarlatamab-dlle antineoplastic into central vein, percutaneous approach, new technology group 10). The applicant provided a list of diagnosis codes that may be used to currently identify the indication for IMDELLTRA[supreg] under the ICD-10-CM coding system. Please refer to the online application posting for the complete list of ICD-10-CM (and PCS) codes provided by the applicant. As previously discussed, if a technology meets all three of the substantial similarity criteria under the newness criterion, it would be considered substantially similar to an existing technology and would not be considered ``new'' for the purpose of new technology add-on payments. With respect to the substantial similarity criteria, the applicant asserted that IMDELLTRA[supreg] is not substantially similar to other currently available technologies because it has a unique mechanism of action as a BiTE[supreg] that simultaneously binds DLL3 on SCLC cells and CD3 on T cells and because it is the only therapy specifically studied and shown to improve outcomes for patients who are relapsed or refractory to two or more other therapies and those with treated, stable brain metastases, and that therefore, the technology meets the newness criterion. The following table summarizes the applicant's assertions regarding the substantial similarity criteria. Please see the online application posting for IMDELLTRA[supreg] for the applicant's complete statements in support of its assertion that IMDELLTRA[supreg] is not substantially similar to other currently available technologies. BILLING CODE 4120-01-P [[Page 36718]] [GRAPHIC] [TIFF OMITTED] TR04AU25.158 BILLING CODE 4120-01-C In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18124), we noted that while the applicant asserted that IMDELLTRA[supreg] does not involve the treatment of the same or similar disease or patient population because it is the first BiTE[supreg] therapy for patients with ES-SCLC who have had disease progression on or after platinum- based chemotherapy, per the applicant, other FDA-approved therapies for the treatment of the same patient population (patients who have ES-SCLC with disease progression on or after platinum-based chemotherapy) are currently available, such as lurbinectedin and topotecan. Further, with respect to the applicant's statements that IMDELLTRA[supreg] is the only FDA-approved therapy that has been specifically studied and demonstrated improvements in the subset of ES-SCLC patients who have become R/R to two or more therapies or that have stable brain metastases, we stated our belief that these assertions may be relevant to substantial clinical improvement rather than newness and these patients may still be treated with lurbinectedin or topotecan. Therefore, we questioned the applicant's assertion that IMDELLTRA[supreg] treats a unique patient population compared to existing technology. We invited public comments on whether IMDELLTRA[supreg] is substantially similar to existing technologies and whether IMDELLTRA[supreg] meets the newness criterion. Comment: The applicant submitted a public comment reiterating that IMDELLTRA[supreg] meets the newness criterion because it is the first and only approved BiTE[supreg] molecule that binds the [[Page 36719]] antigen DLL3 expressed on the surface of SCLC cells and CD3 expressed on the surface of T cells causing T-cell activation, release of inflammatory cytokines, and lysis of DLL3-expressing cells for the treatment of 2L+ ES-SCLC, and IMDELLTRA[supreg] has a unique mechanism of action as the only BiTE[supreg] molecule approved for ES-SCLC. The applicant stated its continued belief that IMDELLTRA[supreg] treats a unique patient population and reiterated information presented in its application about limited research regarding outcomes of SCLC patients with treated, stable brain metastases treated with existing chemotherapy, like lurbinectedin and topotecan. The applicant also stated that, while some studies have been conducted on topotecan and SCLC patients with brain metastases, topotecan had an ORR of 10.5 percent in a Phase 2 trial, which is empirically lower than IMDELLTRA[supreg]'s reported 40 percent ORR in the phase 2 DeLLphi-301 trial. The applicant provided new evidence from the Phase 3 randomized controlled DeLLphi-304 study, which the applicant stated demonstrated a survival benefit in patients with brain metastases (untreated or treated, stable) treated with IMDELLTRA[supreg] as compared to standard of care chemotherapy.\70\ The applicant stated that although other existing FDA-approved treatments for ES-SCLC may be prescribed in the real world for SCLC patients with brain metastases, given the high unmet need, these existing treatments do not have a randomized controlled Phase 3 trial demonstrating efficacy over the current standard of care. The applicant further stated that IMDELLTRA[supreg] does not treat the same or similar disease and same or similar patient population because it is the only FDA-approved treatment option for ES- SCLC patients with or without brain metastases who have progressed after initial platinum-based chemotherapy that has demonstrated improved survival outcomes. --------------------------------------------------------------------------- \70\ Mountzios G, Sun L, Cho BC, et al. Tarlatamab in small-cell lung cancer after platinum-based chemotherapy. N Engl J Med (published online ahead of print June 2, 2025). DOI:10.1056/ NEJMoa2502099. --------------------------------------------------------------------------- Response: We thank the applicant for its comment. Based on our review of comments received and information submitted by the applicant as part of its FY 2026 new technology add-on payment application for IMDELLTRA[supreg], we agree with the applicant that IMDELLTRA[supreg] uses a unique mechanism of action because it is the only BiTE[supreg] therapy targeting DLL3 for the treatment of adult patients with ES-SCLC with disease progression on or after platinum-based chemotherapy. Therefore, we agree with the applicant that IMDELLTRA[supreg] is not substantially similar to existing treatment options and meets the newness criterion. We consider the beginning of the newness period to commence on May 16, 2024, the date on which IMDELLTRA[supreg] was FDA approved. With respect to the cost criterion, the applicant provided two analyses to demonstrate that IMDELLTRA[supreg] meets the cost criterion. Each analysis followed the order of operations summarized in the following table. BILLING CODE 4120-01-P [GRAPHIC] [TIFF OMITTED] TR04AU25.159 [[Page 36720]] BILLING CODE 4120-01-C Because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount in both scenarios, the applicant asserted that IMDELLTRA[supreg] meets the cost criterion. We invited public comments on whether IMDELLTRA[supreg] meets the cost criterion. Comment: The applicant reiterated that IMDELLTRA[supreg] satisfies the cost criterion because the standardized charge per case exceeds the threshold for the cost criterion. The applicant also commented that a maximum new technology add-on payment amount for IMDELLTRA[supreg] should be calculated based on an average inpatient dose of 7.3 mg. Response: We thank the applicant for its comment. We agree that the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount under both scenarios. Therefore, IMDELLTRA[supreg] meets the cost criterion. With regard to the substantial clinical improvement criterion, the applicant asserted that IMDELLTRA[supreg] represents a substantial clinical improvement over existing technologies because IMDELLTRA[supreg] offers a treatment option for a patient population unresponsive to, or ineligible for, currently available treatments and the technology significantly improves clinical outcomes relative to services or technologies previously available. Specifically, per the applicant, IMDELLTRA[supreg] is a novel treatment option that offers substantial clinical improvement through deep and durable response for patients with ES-SCLC relapsed on platinum-based chemotherapy. The applicant further stated that IMDELLTRA[supreg] is the only approved DLL3-directed-CD3 T-cell engager for the treatment of ES-SCLC, for which there is a profound unmet need in this population who suffer from devastating outcomes and suboptimal care from limited and ineffective treatment options. The applicant provided four articles regarding outcomes from the phase I DeLLphi-300 and phase II DeLLphi-301 trials and the IMDELLTRA[supreg] prescribing information to support these claims, as well as 16 background articles about SCLC and existing treatments for the disease.\71\ The following table summarizes the applicant's assertions regarding the substantial clinical improvement criterion. Please see the online posting for IMDELLTRA[supreg] for the applicant's complete statements regarding the substantial clinical improvement criterion and the supporting evidence provided. --------------------------------------------------------------------------- \71\ Background articles are not included in the following table but can be accessed via the online posting for the technology. --------------------------------------------------------------------------- BILLING CODE 4120-01-P [[Page 36721]] [GRAPHIC] [TIFF OMITTED] TR04AU25.160 BILLING CODE 4120-01-C We also received a public comment in response to the New Technology Town Hall meeting notice published in the Federal Register regarding the [[Page 36722]] substantial clinical improvement criterion for IMDELLTRA[supreg], which we summarized in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18126 through 18127). We stated in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18127 through 18128) that, after review of the information provided by the applicant and the public comment received in response to the New Technology Town Hall meeting, we had the following concerns regarding whether IMDELLTRA[supreg] meets the substantial clinical improvement criterion. The applicant stated that IMDELLTRA[supreg] offers a treatment option for patients with 2L+ ES-SCLC that are unresponsive to, or ineligible for, currently available treatments, however, we stated it was unclear that these patients are unresponsive or ineligible for existing 2L+ treatments for ES-SCLC, such as lurbinectedin and topotecan. The applicant claimed that the majority of ES-SCLC patients who are relapsed or refractory to 1L treatment are or become unresponsive to previously approved 2L treatments. For this claim, the applicant provided background articles regarding treatment of ES-SCLC, but did not indicate a patient population that IMDELLTRA[supreg] treats that is ineligible or unresponsive to other 2L treatments. The applicant also claimed that there are limited treatment options for ES-SCLC patients who have relapsed and IMDELLTRA[supreg] is a new option for these patients. However, we noted that having limited treatment options does not demonstrate that these patients are unresponsive to or ineligible for any available therapies. In addition, while the applicant provided results from the pivotal DeLLphi-301 study of IMDELLTRA[supreg] stating that it is the first therapy that has shown meaningful outcome improvements in patients who have failed two or more prior therapies, the study did not list these therapies, and we also noted that retreatment with platinum-based chemotherapy was considered an additional line of therapy per the study. Therefore, it was unclear that the study demonstrated that patients had failed existing 2L+ treatments, including lurbinectedin and topotecan. For these reasons, we questioned the assertion that IMDELLTRA[supreg] offers a treatment for a patient population unresponsive to, or ineligible for, currently available treatments. With respect to the applicant's statement that IMDELLTRA[supreg] improves clinical outcomes over existing technologies because outcomes on existing therapies for ES-SCLC continue to be very poor, particularly as all previously approved therapies have high relapse rates, and that, in the past 2 decades, relapsed ES-SCLC patients who have failed platinum-based chemotherapy have had few treatment options as only topotecan and lurbinectedin are FDA-approved and indicated for these patients, we noted that the applicant provided outcome data for topotecan and lurbinectedin, in addition to highlighting that lurbinectedin, pembrolizumab, and nivolumab failed to show a benefit in OS in the confirmatory phase 3 clinical trials. However, we stated that the applicant did not provide relapse rates for current therapies, including IMDELLTRA[supreg], and did not compare the provided outcome data to IMDELLTRA[supreg], and therefore we questioned how this demonstrates that IMDELLTRA[supreg] improves clinical outcomes relative to these therapies. To support its other statements regarding improved outcomes for IMDELLTRA[supreg], the applicant provided results from DeLLphi-301, a phase 2, single arm, open-label, international trial which evaluated antitumor activity and safety of IMDELLTRA[supreg] in patients with advanced SCLC previously treated with two or more lines of therapy.\72\ However, we noted that, of the 134 patients treated with the target dose of IMDELLTRA[supreg], only 14 were from North America (without further specification on the country), and we questioned whether differences in treatment guidelines between countries could affect generalizability to the Medicare population. We also noted that 75 percent (101/134) of the patients who took the approved dose of 10 mg in DeLLphi-301 had a previous use of a programmed death ligand 1 (PD- L1) or programmed death 1 (PD-1) inhibitor,\73\ which are recommended as part of the initial therapy for ES-SCLC, and we therefore questioned whether the results of the DeLLphi-301 study were different between the group of patients who previously received these therapies versus those who did not. We further noted that the applicant also provided the Sands et al. (2024) presentation and the Dingemans et al. (2024) abstract which are unpublished overviews that do not provide full details on the study methods; therefore, we stated that we did not have sufficient information to evaluate these studies. --------------------------------------------------------------------------- \72\ Anh, 2023, op. cit. \73\ Anh, 2023, op. cit. --------------------------------------------------------------------------- With respect to the claim that IMDELLTRA[supreg] has shown substantial clinically meaningful improvement in outcomes relative to other available therapies for ES-SCLC patients, we stated that the applicant provided outcomes for IMDELLTRA[supreg] from the DeLLphi-301 single arm, phase 2 trial and compared them to outcomes from trials for other approved treatments for patients who have relapsed on first-line chemotherapy. The applicant stated that IMDELLTRA[supreg], lurbinectedin, and topotecan are FDA-approved and no treatments are specifically FDA-approved for 3L treatment. The applicant stated chemotherapy is a 3L treatment and has a mOS of 4.4 months, ORR of 21 percent, mDOR of 2.6 months, and mPFS of 2.3 months.\74\ The applicant also noted that lurbinectedin can be used as a 3L agent, but mOS was 5.6 months according to real world data.\75\ The applicant also stated IMDELLTRA[supreg] had an ORR of 40 percent, mDOR of 9.7 months, mPFS of 4.9 months, and mOS of 14.3 months,\76\ with an mOS of 15.2 months after extended follow-up.\77\ The applicant further noted that in a subgroup analysis of 22 patients with stable, treated brain metastases, IMDELLTRA[supreg] showed similar outcomes with an ORR of 54.5 percent, mPFS of 7.1 months, and mOS of 14.3 months.\78\ The applicant stated the registrational study for topotecan included patients with brain metastases and reported a mOS of only 5.8 months,\79\ while the pivotal phase II trial for lurbinectedin excluded patients with brain metastases and in a real-world analysis among 14 patients who received 3L therapy with lurbinectedin (11 of which with CNS metastases), the mOS was 5.6 months.\80\ However, we noted that the applicant also stated in its Town Hall comment that tumor response (for example, ORR) can be adequately evaluated in a single-arm study, while OS and PFS endpoints must be interpreted with caution in single-arm trials and confirmatory phase 3 trials are needed to confirm OS and PFS results. Therefore, we questioned the applicant's use of OS and PFS to support improved clinical outcomes with IMDELLTRA[supreg] compared to previously available therapy. Additionally, the applicant stated that the trial demonstrated mOS of 14.3 months for IMDELLTRA[supreg],\81\ and compared it to lurbinectedin's mOS of 5.6 months according to real world [[Page 36723]] data,\82\ but we questioned whether it is appropriate to compare clinical trial and real-world data. We noted, for example, that the phase 2 single arm trial for lurbinectedin noted an OS of 9.3 months (Trigo et al. (2020)), and we therefore questioned how the applicant chose the historical control it used in these comparisons of outcomes. In addition, the applicant noted that ORR can be evaluated in a single- arm study and provides the ORR for IMDELLTRA[supreg] (40 percent in 3L therapy \83\ and 54.5 percent in patients with stable brain metastases \84\) but did not provide the ORR for topotecan or lurbinectedin in patients with stable brain metastases, nor in patients that are taking 3L therapy. Therefore, we questioned the applicant's assertion of improved clinical outcomes for IMDELLTRA[supreg] compared to previously available therapy. --------------------------------------------------------------------------- \74\ Coutinho, 2019, op. cit. \75\ Desai, 2023, op. cit. \76\ Ahn, 2023, op. cit. \77\ Sands, 2024, op. cit. \78\ Dingemans, 2024, op. cit. \79\ von Pawel, 1999, op. cit. \80\ Desai, 2023, op. cit. \81\ Ahn, 2023, op. cit. \82\ Desai, 2023, op. cit. \83\ Ahn, 2023, op. cit. \84\ Dingemans, 2024, op. cit. --------------------------------------------------------------------------- We stated we agreed with the applicant that head-to-head trials, while preferred, are not required for comparing currently available therapy. However, we noted that among the clinical trial and real-world data provided for alternative therapies to IMDELLTRA[supreg], there was no control for confounding variables to ensure similar patients were being compared to those who took IMDELLTRA[supreg]. Additionally, we noted that the real-world data provided for lurbinectedin as third line therapy and the data for the subset of patients from DeLLphi-301 with brain metastases were small sample sizes of 14 and 22, respectively, which may limit generalizability of these results to the Medicare population as confounding variables could affect the results. We noted that exclusion of patients with brain metastases from the pivotal phase 2 trial for lurbinectedin does not exclude use of this drug in this patient population. We further questioned the use of von Pawel et al. (1999) study of topotecan as a comparator to IMDELLTRA[supreg] since it was conducted approximately 25 years before the IMDELLTRA[supreg] phase 2 trial (Ahn et al., 2023) and included some highly varied patient outcomes (such as topotecan duration of responses ranging from 9.4-50.1 weeks). We noted that guidelines and treatment protocols for SCLC have evolved over this extended period and the resulting changes in care standards may have impacted the outcomes observed from the older study versus the more recent one. We stated that in addition, the applicant stated that clinical trials of topotecan and lurbinectedin reported higher rates of Grade 3 neutropenia than reported in the DeLLphi-301 study with IMDELLTRA[supreg] monotherapy but did not consider other serious adverse events such as cytokine release syndrome (CRS) or immune effector cell-associated neurotoxicity syndrome (ICANS), which are possible side effects for IMDELLTRA[supreg] but not for topotecan or lurbinectedin. We further noted that there was no control for potential confounding variables in the patient populations in the comparisons of neutropenia rates, and it is therefore difficult to draw conclusions regarding relative side effect profiles among these different trials. We invited public comments on whether IMDELLTRA[supreg] meets the substantial clinical improvement criterion. Comment: The applicant submitted a public comment regarding the substantial clinical improvement criterion and provided responses to CMS's concerns from the proposed rule. The applicant stated that it is clear from currently available literature that patients with ES-SCLC after failing on chemotherapy have extremely poor outcomes on existing therapies, where response and survival are measured in just a few months, and that when survival is measured in months, it is clear patients need access to new, more efficacious treatments. The applicant commented that the evidence it previously submitted support that IMDELLTRA[supreg] satisfies the substantial clinical improvement criterion, and further stated that additional evidence and publications have become available, reinforcing that IMDELLTRA[supreg] is a substantial clinical improvement compared to prior therapy, with IMDELLTRA[supreg] representing the first FDA-approved therapy to demonstrate a substantial survival advantage over chemotherapy in 2L SCLC in a Phase 3 study. The applicant stated this new evidence unequivocally shows that IMDELLTRA[supreg] is a substantial clinical improvement for 2L+ ES-SCLC patients because it demonstrates that IMDELLTRA[supreg] provides statistically significant and clinically meaningful improvement in OS compared to other 2L+ approved therapies. Per the applicant, the new evidence includes results from the DeLLphi- 304 trial, as well as an indirect treatment comparison (ITC) assessing the relative efficacy of IMDELLTRA[supreg] versus real-world U.S. physicians' choice of therapies in 3L+ ES-SCLC patients.\85\ --------------------------------------------------------------------------- \85\ Tapan U, Takundwa R, et al. (2025, March 26-29). A comparison of tarlatamab with real-world physicians' choice of therapies in patients with previously treated small cell lung cancer [Poster Presentation]. European Lung Cancer Conference, Paris, France. --------------------------------------------------------------------------- Per the applicant, the DeLLphi-304 trial was a randomized, open- label, multicenter, global, Phase 3 trial of 509 patients that compared IMDELLTRA[supreg] (n=254) to standard of care chemotherapy (n=255) in patients with relapsed SCLC after platinum-based 1L chemotherapy. The applicant stated that standard of care chemotherapy was either topotecan, amrubicin, or lurbinectedin; the primary endpoint was OS; key secondary endpoints were PFS and patient-reported outcomes (PRO); and additional secondary endpoints included ORR, disease control, DOR, and safety. Per the applicant, the median age was 65. The applicant further stated that 45 percent of patients had brain metastases (current or prior), 35 percent had liver metastases at baseline, 71 percent received prior PD-L1 inhibitor therapy, and 44 percent had platinum-resistant disease. Per the applicant, the results demonstrated a higher, more durable anticancer activity for IMDELLTRA[supreg] compared to chemotherapy. Specifically, the applicant stated that IMDELLTRA[supreg] resulted in significantly longer OS compared to chemotherapy (median, 13.6 months vs. 8.3 months; [HR 0.60, 95% CI, 0.47 to 0.77; p<0.001]), significantly improved PFS (median, 4.2 months vs. 3.7 months [piecewise weighted average HR: 0.71; 95% CI: 0.59, 0.86; P < 0.002, restricted mean survival time (RMST) for PFS), improved ORR (35% vs. 20% [OR 2.13; 95% CI 1.43-3.18]), and a positive benefit:risk profile versus chemotherapy, with chemotherapy resulting in more frequent and high-grade adverse events. The applicant noted Kaplan-Meier estimates for 6-month and 12-month PFS were 30 percent and 20 percent, respectively, in the IMDELLTRA[supreg] group, compared with 23 percent and 4 percent in the chemotherapy group. In addition, the applicant stated that approximately 47 percent of responders remained on study without progression or death in the IMDELLTRA[supreg] group as compared to 15 percent in the chemotherapy group at the interim analysis; the median DOR was 6.9 months with IMDELLTRA[supreg] and 5.5 months with chemotherapy; and the Kaplan-Meier estimate of 12-month DOR was 41 percent with IMDELLTRA[supreg] and 13 percent with chemotherapy. The applicant stated that IMDELLTRA[supreg] improved PROs with statistically significant and clinically meaningful improvements over chemotherapy in [[Page 36724]] dyspnea and cough after 18 weeks from baseline in DeLLphi-304, and that changes in chest pain were not statistically significant. The applicant stated that the ITC, which was recently conducted by Tapan et al. (2025), assessed the relative efficacy of IMDELLTRA[supreg] versus real-world physicians' choice of therapies, including lurbinectedin and topotecan, in patients with previously treated ES-SCLC. The applicant stated that the ITC analysis used data from DeLLphi-301 and comparator data from the Flatiron Health Research database, which the applicant stated is a trusted real-world evidence source known for its high-quality, longitudinal, clinical information. The applicant also stated that patients included in the external control cohort from this database were treated with a variety of chemotherapies and/or immunotherapies, including lurbinectedin (18 percent), topotecan (15 percent), nivolumab (13 percent), paclitaxel (8 percent), pembrolizumab (7 percent), nivolumab + ipilimumab (5 percent), and others (34 percent). In addition, the applicant stated that the study employed best practices to enhance the reliability of the ITC assessment of treatment effects for IMDELLTRA[supreg] versus comparator regimens. To perform the ITC between balanced patient populations, the applicant stated that the study applied the DeLLphi- 301 inclusion/exclusion criteria to the Flatiron Health data and adjusted for differences in a comprehensive list of key prognostic factors. The applicant further stated that E-values for hazard ratios (HRs) were estimated, ranging from 2.15 to 2.86, which suggested low likelihood of bias from potential unmeasured confounding variables. The applicant stated that the ITC analysis demonstrated significantly longer OS, PFS, and a higher ORR for IMDELLTRA[supreg] versus comparator therapies after propensity score (PS) weighting was applied to balance baseline patient characteristics between cohorts. Per the applicant, the mOS was 15.2 months (95% CI: [10.8, NE]) in DeLLphi-301, which the applicant noted represents more than a two-fold increase in survival versus comparator regimens that had a mOS of 6.0 months (95% CI: [5.0, 7.1]) after adjusting for prognostic factors. The applicant stated the hazard ratio (HR) [95% CI] for OS was significantly in favor of IMDELLTRA[supreg] over comparator regimens at 0.45 (95% CI: [0.30, 0.68], p<0.001). The applicant stated that patients were free of progression for an extended period in the IMDELLTRA[supreg] cohort (mPFS: 4.9 months [2.9, 6.7]) compared to the comparator regimens cohort (mPFS: 3.1 [2.3, 3.7], after weighting) with a HR of 0.61 (95% CI: [0.43, 0.90], p=0.009). Additionally, the applicant noted significantly more patients treated with IMDELLTRA achieved ORR (40 percent) compared with patients receiving comparator regimens (19 percent, after weighting) and the odds of achieving ORR were 2.80 (95% CI: [1.44, 5.83], p=0.004) times higher for IMDELLTRA[supreg] versus comparator regimens. Per the applicant, the results for the prespecified sensitivity analyses (intended to examine impact on ITCs with different approaches to define real-world progression, to adjust for imbalances on more baseline variables, and to account for globally available regimens) were consistent or near identical to the primary analysis. The applicant also stated that this consistency across the primary and sensitivity analyses reinforces the robustness of the clinical benefit that IMDELLTRA[supreg] may offer over comparator regimens. In response to CMS's concern about how IMDELLTRATM demonstrates improved clinical outcomes relative to other current therapies without providing relapse rates or comparing outcome data, the applicant stated that IMDELLTRA[supreg] improves survival outcomes compared to previously available treatments. Specifically, the applicant stated that in SCLC, PFS is generally evaluated instead of relapse free survival, which is more commonly used in hematology oncology, and the PFS for lurbinectedin and topotecan may depend on whether there are CNS metastases, although such a difference has not been observed for IMDELLTRA[supreg]'s PFS benefit in DeLLphi-301 and DeLLphi-304. The applicant restated information from its application from the Desai et al. (2023) analyses. The applicant further stated that DeLLphi-304 demonstrated a significant PFS benefit with a 4.2 months median PFS with IMDELLTRA[supreg] and a 3.7 months median PFS with chemotherapy (piecewise weighted average HR: 0.71; 95% CI: 0.59, 0.86; P < 0.002, RMST for PFS). In addition, the applicant stated the Kaplan-Meier estimates for 6-months and 12-months PFS were 31 percent and 20 percent, respectively, in the IMDELLTRA[supreg] group, compared with 23 percent and 4 percent in the chemotherapy group. The applicant also stated that the chemotherapy group included patients on topotecan and lurbinectedin and DeLLphi-304 overall included patients with treated, stable brain metastases and untreated, asymptomatic brain metastases. Per the applicant, a subgroup comparison reported hazard ratios of PFS between IMDELLTRA[supreg] versus topotecan/amrubicin of 0.76 (95% CI: 0.62, 0.94) and versus lurbinectedin of 0.56 (95% CI: 0.34, 0.90). Additionally, the applicant stated that among responders, the DOR at 12 months was 41 percent for IMDELLTRA[supreg] and 13 percent for standard of care chemotherapies, reaffirming the substantial improvements of IMDELLTRA[supreg] in delaying progression compared to chemotherapies such as topotecan and lurbinectedin. Per the applicant, IMDELLTRA[supreg] has a significantly more durable anticancer response compared to chemotherapy treatments like lurbinectedin and topotecan, supporting that IMDELLTRA[supreg] substantially improves outcomes over previously available treatments for ES-SCLC. In response to CMS's question about the use of OS and PFS to support improved clinical outcomes in a single-arm study, the applicant stated that DeLLphi-304 is the Phase 3 confirmatory trial needed to confirm superior survival benefit over previously available treatments. Per the applicant, the Phase 2 DeLLphi-301 OS and PFS data is very similar to that reported in the Phase 3 DeLLphi-304 trial with significantly improved OS and PFS, validating the claim that Phase 2 data represent an improved clinical outcome with IMDELLTRA[supreg] compared to previously available treatments. The applicant reiterated that based on this Phase 2 data, updated ASCO guidelines stated that the cross-trial comparisons suggest that both lurbinectedin and IMDELLTRA[supreg] are more effective than topotecan or other agents, although the DOR of >9 months reported with IMDELLTRA[supreg] is substantially longer than that seen with other agents. In response to CMS's questions about the generalizability of DeLLphi-301 trial data because 14 of the 134 patients treated with the target dose of IMDELLTRA[supreg] were from North America (without further specification on the country) and whether differences in treatment guidelines between countries could affect generalizability to the Medicare population, the applicant stated that IMDELLTRA[supreg]'s clinical trial data is generalizable to the Medicare population. The applicant stated it was a global multicenter trial with representation from Asia, Europe, and North America; the only trial sites in North America were in the United States; and approximately 48 percent of patients were age 65 years or older. The applicant stated that, similarly, the new DeLLphi-304 data also is generalizable to a Medicare population because the [[Page 36725]] median age is 65 years. The applicant further stated that real world survival outcomes in 2L+ ES-SCLC do not vary widely among the clinical trial regions of Asia, Europe, and North America, where the main previously available treatment options are chemotherapies like topotecan, amrubicin, irinotecan, taxanes, and lurbinectedin. The applicant also stated that standard of care therapies in these regions show consistently poor outcomes similar to the U.S. population following initiation of 2L and 3L therapy in ES-SCLC patients based on analyses of real-world treatment patterns and outcomes. In response to CMS's questions about the small sizes of the real- world data that may limit the generalizability of these results to the Medicare population, the applicant stated that Phase 2 clinical trials examine efficacy in a specific patient population and are characterized by relatively small sample sizes of generally 50 to 200 patients. Furthermore, the applicant stated that SCLC is an orphan patient population (only 30,000 to 35,000 new cases diagnosed in the U.S. each year, of which approximately two-thirds are ES-SCLC), and thus trial size is limited by necessity. Per the applicant, as discussed previously, the FDA extrapolated clinical benefit out of the IMDELLTRA[supreg] Phase 2 DeLLphi-301 clinical trial, awarded the product Breakthrough Therapy Designation, and approved the product under Accelerated Approval. The applicant further stated that, in DeLLphi-304, the OS benefit with IMDELLTRA[supreg] versus chemotherapy was consistent across prespecified patient subgroups, including the 44 percent of patients with brain metastases that received IMDELLTRA[supreg] (asymptomatic, untreated or treated). Furthermore, the applicant stated that, given that the median age of the DeLLphi-304 patients was 65 years, it believes that the Phase 3 outcomes are generalizable to the Medicare population and sufficient to determine that IMDELLTRA[supreg] represents a substantial clinical improvement in the Medicare population. In response to CMS's question about whether the results of DeLLphi- 301 were different between the group of patients who previously received PD-L1 or PD-1 inhibitors versus those who did not, the applicant stated that IMDELLTRA[supreg]'s substantial clinical improvement is consistent regardless of prior PD-L1 therapy. The applicant further stated that DeLLphi-301 reported near identical ORR between the patients with prior PD-L1 and without prior PD-L1. The applicant stated that, in the supplement of Ahn et al. (2023), IMDELLTRA[supreg]'s ORR is 39.7 percent for patients previously exposed to PD-L1 therapy versus 40.7 percent for patients without prior PD-L1 exposure. Per the applicant, consistent with the DeLLphi-301 data, DeLLphi-304 also demonstrated a comparable overall survival benefit in patients both with (HR 0.61; 95% CI 0.45-0.82) and without (HR 0.65, 95% CI 0.42-1.03) prior PD-L1 inhibitor treatment, compared to standard of care chemotherapy. In response to CMS's concern that the Sands et al. (2024) and Dingemans et al. (2024) evidence did not provide full detail on their study methods and therefore did not have sufficient information to evaluate these studies, the applicant stated that, as summarized in its application, Sands et al. (2024) presented efficacy and safety outcomes from a longer follow-up of the DeLLphi-301 study at the 2024 World Conference on Lung Cancer, while Dingemans et al. (2024) is an abstract of a post-hoc analysis of DeLLphi-301. Per the applicant, since both stem from the primary DeLLphi-301 study, the statistical methods are the same and the full protocol is available in the supplement to the New England Journal Medicine article. In response to CMS's question about whether it was appropriate to compare clinical trial and real-world data, the applicant stated that comparisons to previously available therapies are limited by available evidence. The applicant further stated that its application provided literature ranging from clinical trials, real-world analyses, guidelines, to evidence reviews as treatment advancements for ES-SCLC patients have come slowly in the decades preceding IMDELLTRA[supreg]'s FDA approval. The applicant stated that it provided the clinical trial evidence that supported the FDA approvals of topotecan, lurbinectedin and IMDELLTRA[supreg] as well as multiple real-world analyses. The applicant stated that, for example, Trigo et al. (2020) reported on the pivotal single arm Phase 2 trial that was the basis for lurbinectedin's approval in 2L ES-SCLC. The applicant further stated in response to CMS's note that lurbinectedin demonstrated an OS of 9.3 months in the single arm trial, that it also provided the randomized controlled Phase 3 ATLANTIS trial where lurbinectedin failed to reach its primary endpoint of OS. In response to CMS's question about how the applicant chose the historical control it used in comparing outcomes, the applicant stated that it recognized the challenges and limitations with comparing separate trials. Per the applicant, this is why, in addition to each therapy's pivotal clinical trial data, it provided more recent evidence in the form of real-world data since topotecan's FDA approval for SCLC was in 1998. The applicant stated that the new ITC analysis from Tapan et al. (2025) as well as the new DeLLphi-304 data confirm what prior literature suggested, which is that IMDELLTRA[supreg] provides statistically significant and clinically meaningful improvement in OS compared to other FDA 2L+ approved therapies. In response to CMS's concern about ORR data for topotecan and lurbinectedin in patients with stable brain metastases as well as in patients that are taking 3L therapy, the applicant stated that IMDELLTRA[supreg] is the only FDA-approved therapy for 2L ES-SCLC that demonstrated survival benefit compared to previously available treatments in patients with treated, stable brain metastases and untreated, asymptomatic brain metastases. The applicant stated that both the Phase 2 and 3 studies evaluating the efficacy and safety of IMDELLTRA[supreg] included patients with treated, stable brain metastases and untreated, asymptomatic brain metastases. The applicant further stated that while lurbinectedin and topotecan are also approved for 2L therapy in ES-SCLC patients, they were not extensively studied in patients with treated, stable brain metastases; therefore, the applicant stated that it could not provide ORR data for this specific patient population. For lurbinectedin, the applicant stated that patients with brain metastases were excluded from the pivotal trial. Per the applicant, while some studies have been conducted on topotecan and SCLC patients with brain metastases, low response rates were observed. The applicant stated that in a Phase 2 trial, only 2 out of 19 (10.5 percent) SCLC patients with brain metastases responded to topotecan, which did not meet the minimum response requested for study continuation. The applicant stated that, likewise, topotecan and lurbinectedin do not have registrational trial data in 3L+ ES-SCLC patients while IMDELLTRA[supreg] does. Per the applicant, while ORR data for topotecan and lurbinectedin as 3L therapy were not available in the respective registrational trials, it did provide real-world evidence of these previously available treatments being used as 3L therapy. In response to CMS's concern that, among the clinical trial and real-world data provided there was no control for confounding variables to ensure similar patients were being compared, the [[Page 36726]] applicant stated that in addition to the clinical literature provided in its application regarding outcomes of currently available treatment, the new evidence from the ITC analysis and DeLLphi-304 addresses this concern and further supports the applicant's claims of substantial clinical improvement for IMDELLTRA[supreg]. The applicant stated that, for example, the ITC analysis from Tapan et al. (2025) controlled for potential confounding factors by selecting controls based on key DeLLphi-301 inclusion/exclusion criteria and employing propensity score matching. In addition, the applicant stated that the E-value, which measures the likelihood of unmeasured confounding to bias in the ITC estimates, showed that the likelihood of bias is low in the analysis by Tapan et al. (2025). In response to CMS's concern that exclusion of patients with brain metastases from the pivotal Phase 2 trial for lurbinectedin does not exclude use of this drug in this patient population, the applicant stated that, while registrational trial data is lacking to support its use in this specific patient population, Desai et al. (2023) evaluated the safety and efficacy of lurbinectedin in a real-world setting, focusing on its use as a 2L+ treatment in SCLC patients. The applicant reiterated findings from the Desai et al. (2023) study provided in its original application to further support its statement. In response to CMS's question about the use of the von Pawel et al. (1999) study of topotecan as a comparator to IMDELLTRA[supreg] since it was conducted approximately 25 years before the IMDELLTRA[supreg] Phase 2 trial (Ahn et al., 2023), and guidelines and treatment protocols for SCLC have evolved and it included some highly varied patient outcomes, the applicant stated, given the long time periods between treatment advances in this difficult to treat cancer, it provided in its application more recent real-world evidence on previously approved treatments for 2L ES-SCLC. The applicant also reiterated that it provided an ITC analysis and new data from the DeLLphi-304 randomized controlled Phase 3 trial comparing IMDELLTRA[supreg] to standard of care chemotherapy, including topotecan, that demonstrate IMDELLTRA[supreg] provides a substantial clinical improvement compared to previously available treatments using more contemporary data than the historical literature on these treatments. In response to CMS's concern that while clinical trials of topotecan and lurbinectedin reported higher rates of >= Grade 3 neutropenia, they did not consider other serious adverse events such as CRS or ICANS, the applicant stated that, IMDELLTRA[supreg] has a positive benefit:risk safety profile and a low incidence of treatment- related neutropenia. The applicant stated this is further confirmed in the randomized controlled DeLLphi-304 trial, where IMDELLTRA[supreg] demonstrated a more favorable toxicity profile than standard chemotherapy, with chemotherapy associated with more frequent and higher-grade adverse events. Per the applicant, in DeLLphi-304, Grade >=3 TRAEs were significantly lower in the IMDELLTRA[supreg] group (27 percent) compared to the chemotherapy group (62 percent). The applicant additionally stated that TRAEs led to dose interruption and/or reduction in 19 percent of patients receiving IMDELLTRA[supreg] versus 55 percent in the chemotherapy group, and to discontinuation in 3 percent and 6 percent of patients, respectively. The applicant further stated that the most common TRAEs across both the Phase 2 and Phase 3 trial was CRS, which was mild and generally manageable with antipyretics, IV fluids and steroids with <= 1 percent of patients experiencing CRS >= Grade 3. Per the applicant, consistent with this established safety profile, in the randomized controlled DeLLphi-304 trial, CRS and ICANS were observed in 56 percent of patients and 6 percent of patients treated with IMDELLTRA[supreg], respectively, and were mostly Grade 1-2. The applicant stated that in the IMDELLTRA[supreg] group only one percent of patients experienced a Grade 3 CRS event and CRS rarely led to treatment interruption (1.6 percent) or discontinuation (0.4 percent). The applicant also stated that all ICANS events were Grade 1 or 2 in severity except for one Grade 5 event and rarely led to treatment interruption (0.8 percent) or discontinuation (0.4 percent). The applicant stated that in DeLLphi- 304, CRS and ICANS were mostly Grade 1 or 2 in severity and generally manageable for patients treated with IMDELLTRA[supreg]. Per the applicant, overall, the IMDELLTRA[supreg] group reported a 27 percent rate of TRAEs with Grade 3 or higher events while the chemotherapy group reported a 62 percent rate. In addition, the applicant stated that TRAEs led to dose interruption and/or dose reduction in 19 percent of patients in the IMDELLTRA[supreg] group and in 55 percent of those in the chemotherapy group, and to discontinuation in 3 percent and 6 percent of patients, respectively. In response to CMS's concern that there was no control for potential confounding variables in the patient populations in the comparisons of neutropenia rates, the applicant stated that while the historical comparisons are informative, the new evidence from the randomized controlled DeLLphi-304 trial provide confirmation that rates of neutropenia are higher for chemotherapy than IMDELLTRA[supreg]. The applicant further stated that in the DeLLphi-304 trial, IMDELLTRA[supreg] had a four percent rate of Grade 3 or higher neutropenia and a two percent rate of any grade febrile neutropenia. The applicant stated that, in comparison, the chemotherapy group had a rate of 22 percent along with an 11 percent rate of any grade febrile neutropenia. The applicant also stated that, given 2L+ ES-SCLC patients have been exposed to repeated chemotherapy with cumulative toxicities, the lower incidence of neutropenia is notable as this TRAE is known to delay or prevent cancer patients from initiating treatment. Per the applicant, the randomized controlled DeLLphi-304 trial demonstrates a favorable toxicity profile for IMDELLTRA[supreg] compared to chemotherapy, with chemotherapy resulting in more frequent and high- grade adverse events. The applicant stated its belief that the safety data included in its application as well as the confirming DeLLphi-304 safety data support that IMDELLTRA[supreg] represents a substantial clinical improvement in the Medicare population. The applicant stated that it is clear that IMDELLTRA[supreg] substantially improves clinical outcomes relative to previously available treatment and, therefore, meets the substantial clinical improvement criterion. Additionally, the applicant reiterated that IMDELLTRA[supreg] treats a patient population unresponsive to previously available technologies and provided responses to CMS concerns about this assertion from the proposed rule. In response to CMS's concern about whether ES-SCLC patients are unresponsive or ineligible for existing 2L+ treatments, such as lurbinectedin and topotecan, and that having limited treatment options does not demonstrate that patients are unresponsive or ineligible for any available therapies, the applicant stated that, while topotecan and lurbinectedin may have some response in relapsed SCLC, it is short-lived and modest at best. The applicant further stated that for the subpopulation of relapsed SCLC patients that have poor prognostic factors, such as brain metastases and platinum-resistance, this short-lived response is even more pronounced. The [[Page 36727]] applicant stated, for example, in the pivotal Phase 2 study for lurbinectedin, platinum-resistant patients had a low response rate of 22 percent and a DOR of 4.7 months. Thus, the applicant stated that the poor response supports that patients are largely unresponsive to available treatments. The applicant also stated that in the Phase 3 DeLLphi-304 trial, the median DOR was 6.9 months with IMDELLTRA[supreg] versus 5.5 months with chemotherapy. Per the applicant, given that IMDELLTRA[supreg] has shown significantly better and longer response, it is evident that IMDELLTRA[supreg] treats a patient population unresponsive to previously available technology. Furthermore, the applicant stated that for ES-SCLC patients with brain metastases, IMDELLTRA[supreg] is the only FDA-approved therapy for 2L that has been studied in ES-SCLC patients with treated, stable brain metastases and untreated, asymptomatic brain metastases. Per the applicant, while lurbinectedin and topotecan are also approved as 2L ES-SCLC therapies, they were not extensively studied in patients with treated, stable brain metastases. The applicant reiterated that in the case of lurbinectedin, patients with brain metastases were excluded from the pivotal trial, and in addition, lurbinectedin failed to reach its primary endpoint of OS in the confirmatory Phase 3 ATLANTIS trial. The applicant further stated that, while a Phase 2 study has been conducted on topotecan and SCLC patients with brain metastases, low response rates were observed. The applicant stated new evidence from the Phase 3 randomized controlled DeLLphi-304 study demonstrates the IMDELLTRA[supreg]-treated group of SCLC patients with treated, stable brain metastases had similar safety and efficacy outcomes as those patients without brain metastases. Further, the applicant stated that the OS benefit with IMDELLTRA[supreg] versus chemotherapy was consistent across prespecified patient subgroups, including the 44 percent of patients with brain metastases who received IMDELLTRA[supreg] (asymptomatic, untreated or treated) (HR, 0.45; 95% CI 0.31-0.65). The applicant stated that, although other existing FDA approved treatments for ES-SCLC may be prescribed in the real world for SCLC patients with brain metastases, these existing treatments do not have a randomized controlled Phase 3 trial demonstrating efficacy over the current standard of care. The applicant stated that IMDELLTRA[supreg] has demonstrated improved survival outcomes for ES- SCLC patients with or without brain metastases who have progressed after initial platinum-based chemotherapy, a patient population that is effectively unresponsive to existing treatment as demonstrated by low response rates. Response: We thank the applicant for its comments regarding the substantial clinical improvement criterion. Based on the additional information received, we agree with the applicant that IMDELLTRATM represents a substantial clinical improvement over existing technologies because it significantly improves OS and PFS with lower rates of Grade 3 or higher TRAEs, including neutropenia, compared to existing treatment options for 2L+ ES-SCLC patients. After consideration of the public comments we received and the information included in the applicant's new technology add-on payment application, we have determined that IMDELLTRA[supreg] meets the criteria for approval for new technology add-on payment. Therefore, we are approving new technology add-on payments for this technology for FY 2026. Cases involving the use of IMDELLTRA[supreg] that are eligible for new technology add-on payments will be identified by ICD-10-PCS codes XW033NA (Introduction of tarlatamab-dlle antineoplastic into peripheral vein, percutaneous approach, new technology group 10) or XW043NA (Introduction of tarlatamab-dlle antineoplastic into central vein, percutaneous approach, new technology group 10). In its application, the applicant stated that the cost of IMDELLTRA[supreg] is $1,500 for a 1 mg dose and $15,000 for a 10 mg dose. According to the applicant, the first dose of IMDELLTRA[supreg] is 1 mg and all subsequent doses are 10 mg. In its application, the applicant estimated that the weighted average dose of IMDELLTRA[supreg] for Medicare patients is 7.3 mg based on about 70 percent of inpatient Medicare administrations being for a 10 mg dose and 30 percent of inpatient Medicare administrations being for a 1 mg dose. Therefore, the average cost per patient for IMDELLTRA[supreg] is $10,950 ($1,500 per mg * 7.3 mg). Under Sec. 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS-DRG payment for the case. As a result, the maximum new technology add-on payment for a case involving the use of IMDELLTRA[supreg] is $7,117.50 for FY 2026. h. IntelliSep[supreg] Test Cytovale, Inc. submitted an application for new technology add-on payments for the IntelliSep[supreg] Test for FY 2026. According to the applicant, the IntelliSep[supreg] Test is a semi-quantitative test that assesses cellular host response via a microfluidic deformability cytometry of leukocyte biophysical properties and is intended for use in conjunction with clinical assessments and laboratory findings to aid in the early detection of sepsis with organ dysfunction for adults presenting to the Emergency Department (ED). The IntelliSep[supreg] Test generates an index value that falls within 1 of 3 discrete interpretation bands based on the probability of sepsis with organ dysfunction manifesting within the first 3 days after testing. Please refer to the online application posting for the IntelliSep[supreg] Test, available at https://mearis.cms.gov/public/publications/ntap/NTP24100553685, for additional detail describing the technology and the disease diagnosed in part by the technology. With respect to the newness criterion, according to the applicant, the IntelliSep[supreg] Test was granted 510(k) clearance from FDA on December 20, 2022, for use in adult patients with signs and symptoms of infection who present to the ED. According to the applicant, the IntelliSep[supreg] Test was commercially available immediately after FDA marketing authorization. The applicant stated that one IntelliSep[supreg] Test is used per patient per inpatient stay. The applicant stated that, effective April 1, 2025, the following ICD-10-PCS procedure code may be used to uniquely describe procedures involving the use of the IntelliSep[supreg] Test: XXE5X5A (Measurement of immune response, whole blood cellular assessment via microfluidic deformability, new technology group 10). The applicant provided a list of diagnosis codes that may be used to currently identify the indication for the IntelliSep[supreg] Test using the ICD-10-CM coding system. Please refer to the online application posting for the complete list of ICD-10-CM codes provided by the applicant. As previously discussed, if a technology meets all three of the substantial similarity criteria under the newness criterion, it would be considered substantially similar to an existing technology and would not be considered ``new'' for the purpose of new technology add-on payments. With respect to the substantial similarity criteria, the applicant asserted that the IntelliSep[supreg] Test is not substantially similar to other currently available technologies because the IntelliSep[supreg] Test is the only FDA-cleared [[Page 36728]] test that uses a microfluidic deformability cytometry technique for early detection of sepsis in the ED regardless of whether the patient is admitted to the hospital or not and that therefore, the technology meets the newness criterion. The following table summarizes the applicant's assertions regarding the substantial similarity criteria. Please see the online application posting for the IntelliSep[supreg] Test for the applicant's complete statements in support of its assertion that the IntelliSep[supreg] Test is not substantially similar to other currently available technologies. [GRAPHIC] [TIFF OMITTED] TR04AU25.161 In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18129 through 18130), we noted the following concerns regarding the substantial similarity criteria. We noted that the applicant did not compare the IntelliSep[supreg] Test's mechanism of action to those of other sepsis tests or detection tools, such as the Early Sepsis Indicator for monocyte distribution width (MDW), SeptiCyte[supreg] RAPID, and Sepsis ImmunoScoreTM. We further noted that MDW measurement involves the assessment of white blood cells to detect pathogen-induced infections. Specifically, MDW measures the variability in peripheral monocyte morphologic characteristics that increase during early phases of infection after pathogen-induced monocyte activation.\86\ Notably, monocytes (measured for MDW) are one type of leukocyte, and the IntelliSep[supreg] Test also evaluates leukocytes in its mechanism of action.\87\ While the techniques of leukocyte measurement may differ, we stated that the subject of measurement appears to be the same or similar. Therefore, we questioned whether the IntelliSep[supreg] Test's measurement of leukocytes and their deformities is a unique mechanism of action, particularly in comparison to the Early Sepsis Indicator. Further, we questioned whether the measurement of different biomarkers or gene expression to determine the risk of sepsis is different than the measurement of leukocyte properties to determine the risk of sepsis. We stated we were interested in information regarding how the IntelliSep[supreg] Test's mechanism of action differs from other such sepsis tests and detection tools. --------------------------------------------------------------------------- \86\ Malinovska, A., Hernried, B., Lin, A., Badaki-Makun, O., Fenstermacher, K., Ervin, A.M., Ehrhardt, S., Levin, S., & Hinson, J.S. (2023). Monocyte Distribution Width as a Diagnostic Marker for Infection: A Systematic Review and Meta-analysis. Chest, 164(1), 101-113. https://doi.org/10.1016/j.chest.2022.12.049. \87\ U.S. Food and Drug Administration. (2022). 510(k) approval letter for IntelliSep Test, 21 CFR 866.3215, device to detect and measure non-microbial analyte(s) in human clinical specimens to aid in assessment of patients with suspected sepsis. https://www.accessdata.fda.gov/cdrh_docs/pdf22/K220991.pdf. --------------------------------------------------------------------------- In addition, while the applicant stated that the use of the IntelliSep[supreg] Test does not involve treatment of the same or similar population and disease as existing technologies, we noted that the IntelliSep[supreg] Test is a diagnostic tool to evaluate patients with suspected infection, as are other FDA-cleared sepsis diagnostic tools, such as those that calculate Quick Sequential Organ Failure Assessment (qSOFA) scores (for example, SpassageQ \88\ or NAVOY CDS[supreg] \89\). We stated that furthermore, there are also other means of assessment, including body temperature, respiratory rate, heart rate, blood counts, and blood cultures, that are used to diagnosis sepsis. We also questioned whether a patient's location, whether in the ED, admitted to the hospital, or in the intensive care unit (ICU) constitutes a different population. Further, we noted that there are existing sepsis diagnostic technologies that are also approved for use in the ED such as the Early Sepsis Indicator and Sepsis ImmunoScoreTM, which were FDA market-authorized on March 18, 2019 and April 2, 2024, respectively.\90\ \91\ Therefore, we stated it was unclear that there are no existing technologies other than the IntelliSep[supreg] Test that are involved with the diagnosis of sepsis in adult patients who have signs and symptoms of infection. --------------------------------------------------------------------------- \88\ https://www.accessdata.fda.gov/cdrh_docs/pdf23/K230386.pdf. \89\ https://www.accessdata.fda.gov/cdrh_docs/pdf24/K240558.pdf. \90\ https://www.accessdata.fda.gov/scrIpts/cdrh/cfdocs/cfpmn/pmn.cfm?id=K181599. \91\ https://www.accessdata.fda.gov/cdrh_docs/pdf23/DEN230036.pdf. --------------------------------------------------------------------------- We invited public comments on whether the IntelliSep[supreg] Test is substantially similar to existing technologies and whether the IntelliSep[supreg] Test meets the newness criterion. [[Page 36729]] Comment: A commenter submitted a comment stating that both MDW and the IntelliSep[supreg] Test quantify biophysical changes in leukocytes to flag sepsis in emergency departments, and that it did not support new technology add-on payment designation for the IntelliSep[supreg] Test. Response: We thank the commenter for its input and have taken it into consideration in determining whether the IntelliSep[supreg] Test meets the newness criterion as discussed later in this section. Comment: The applicant also submitted a public comment regarding substantial similarity. In response to CMS's concern that the applicant did not compare the IntelliSep[supreg] Test's mechanism of action to those of other sepsis tests or detection tools, the applicant asserted that the IntelliSep[supreg] Test is novel, provides needed information that MDW, SeptiCyte[supreg] RAPID, and the Sepsis ImmunoScoreTM cannot, and supports a market segment that is underserved by these technologies. The applicant stated that in 2016, International Consensus (Sepsis-3) established a new definition of sepsis, calling the disease a life-threatening organ dysfunction caused by a dysregulated host response to infection, and stating that there is no way to measure this dysregulated host response directly. The applicant stated that, although the Sepsis-3 authors proposed proxy measures for a dysregulated host response, including the organ failure assessment scores SOFA and qSOFA, these measures reflect consequences that are not exclusive to sepsis, making them insufficient for sepsis diagnosis. The applicant further stated that MDW, SeptiCyte[supreg] RAPID, and the Sepsis ImmunoScoreTM similarly rely on indirect measures or proxy indicators of immune dysfunction, rather than directly measuring immune cells' structural changes that are the hallmark of sepsis. The applicant asserted that the most profound difference between the IntelliSep[supreg] Test and other technologies is that the IntelliSep[supreg] Test interrogates and visualizes immune cells directly rather than relying on downstream biomarkers or consequences. The applicant described the IntelliSep[supreg] Test's mechanism of action as a real-time assessment of immune dysregulation and sepsis by quantifying the structural changes in white blood cells (WBCs), specifically neutrophils and monocytes, during the formation of Neutrophil Extracellular Trap (NET) or NETosis in cells. The applicant explained that NETs are networks of extracellular fibers, primarily composed of DNA from neutrophils, which bind to pathogens. The applicant stated that the formation of NETosis in neutrophils causes specific and measurable changes in the cells' structural composition. The applicant further stated that the IntelliSep[supreg] Test, unlike other sepsis tests, has been shown to correlate strongly with NET formation markers. The applicant stated that the IntelliSep[supreg] Test examines cell morphology and immune cell activation through high- speed video imagery with automated analysis and quantification of WBC 's internal structure as they undergo hydrodynamic stress applied in a microfluidic environment, providing a direct measurement of the dysregulated immune response that underlies sepsis. The applicant asserted that, therefore, the IntelliSep[supreg] Test is unique in its capability to visualize and quantify the activation level of immune cells compared to other sepsis tests, which provide or aggregate secondary information that may correlate with sepsis. With regard to MDW and the IntelliSep[supreg] Test's subject of measurement appearing to be the same or similar, the applicant stated that both tests examine blood cell characteristics and are used to evaluate patients presenting to the ED, aiming to provide an indication of the level of immune system activation. The applicant explained that MDW measures monocytes' external size variability and is automatically reported with a routine complete blood count, whereas the IntelliSep[supreg] Test examines both monocytes and neutrophils' fluid mechanical compression and assesses the changes in cell compliance visually using high speed imagery. The applicant stated that the IntelliSep[supreg] Test evaluation of neutrophils adds critical new information, providing a broader signal that is not available from monocytes alone, and thus, not available from MDW. The applicant further stated that differences in method of action are foundational to the IntelliSep[supreg] Test's ability to directly indicate immune dysregulation, in contrast to MDW's more indirect, or limited approach. In addition, the applicant stated that Sarani et al. (2024) conducted an independent evaluation of MDW and the IntelliSep[supreg] Test and found limited correlation in overall data and especially weak correlation in high-risk groups between the two tests' results. The applicant added that Sarani et al. (2024) asserted that this lack of correlation suggests that MDW and the IntelliSep[supreg] Test are measuring different blood cell properties. The applicant compared the IntelliSep[supreg] Test to SeptiCyte[supreg] RAPID, the Sepsis ImmunoScoreTM, qSOFA, and other Systemic Inflammatory Response Syndrome (SIRS) symptoms. The applicant stated SeptiCyte[supreg] RAPID aims to indirectly assess host immune activation through proxy gene expression markers for two selected genes and compares them to a specific set of known septic and healthy patient profiles. The applicant asserted that SeptiCyte[supreg] RAPID captures only a narrow, indirect signal compared to the broader range of signals evaluated and captured by the IntelliSep[supreg] Test. The applicant added that SeptiCyte[supreg] RAPID has limitations when it comes to racial disparities and usage outside the ICU. The applicant stated that the Sepsis ImmunoScoreTM measures up to 22 other biomarkers and provides no new independent assessment of a patient's condition. The applicant further stated that Sepsis ImmunoScoreTM collates and analyzes measurements from a patient's medical record, calculating a proxy score for immune activation using machine learning algorithms applied to electronic health record data. In addition, the applicant stated that the qSOFA is based on clinical and laboratory indicators of organ dysfunction and does not provide any new information beyond what is already available as the standard of care. The applicant further stated that SIRS symptoms and the sepsis markers based upon them reflect findings from initial clinical assessments and do not offer any new information. In comparison to SeptiCyte[supreg] RAPID, the Sepsis ImmunoScoreTM, qSOFA, and SIRS symptoms, the applicant stated that the IntelliSep[supreg] Test delivers a standalone signal of the host response based on a blood sample from the patient and directly evaluates the structure of monocytes and neutrophils under mechanical stress using high-speed video. In response to CMS's question whether a patient's location, whether in the ED, admitted to the hospital, or in the ICU constitutes a different population, the applicant provided a table to summarize differences between the IntelliSep[supreg] Test, SeptiCyte[supreg] RAPID, Sepsis ImmunoScoreTM, and MDW reported by the Early Sepsis Indicator. The applicant provided comparative analyses and asserted that the IntelliSep[supreg] Test is the only test of its kind indicated for use in adult patients presenting to the ED with signs and symptoms of infection. The applicant reported the population for Sepsis ImmunoScoreTM as patients admitted to the Emergency Department or hospital [[Page 36730]] with cultures drawn, and for Early Sepsis Indicator as adult patients presenting to the ED in whom a WBC differential was ordered. The applicant elaborated on implications of differences between the IntelliSep[supreg] Test and the reported population for SeptiCyte[supreg] RAPID, adult patients with SIRS within the first day of ICU admission. The applicant stated that the suspected sepsis population that has been admitted to the ICU is significantly different than the population presenting to the ED, and therefore, the IntelliSep[supreg] Test does not involve treatment of the same or similar population and disease as existing technologies, such as SeptiCyte[supreg] RAPID. The applicant stated that previous studies found that 68 percent of the IntelliSep[supreg] Test tested population were admitted to the hospital and 16.1 percent were admitted to the ICU. The applicant asserted that these findings indicate that providers judged only a small portion of those tested with the IntelliSep[supreg] Test severe enough to warrant an ICU level of care. The applicant stated that identifying sepsis early in the ED when symptoms are subtle is challenging, while diagnosing sepsis later when severe organ dysfunction necessitates ICU care is easier. The applicant concluded the value of a test, like the IntelliSep[supreg] Test, that can provide an accurate indicator of sepsis in an ED population, is much greater because the opportunity to intervene with effective care is greater. Response: We thank the applicant and commenter for their comments. Based on our review of comments received and information submitted by the applicant as part of its FY 2026 new technology add-on payment application for the IntelliSep[supreg] Test, we agree with the applicant that the IntelliSep[supreg] Test uses a unique mechanism of action for early sepsis detection because it is the only FDA-approved test that directly assesses immune dysregulation by quantifying the changes in cell compliance for WBCs to aid in the early detection of sepsis with organ dysfunction. Therefore, we agree with the applicant that the IntelliSep[supreg] Test is not substantially similar to existing treatment options and meets the newness criterion. We consider the beginning of the newness period to commence on December 20, 2022, the date on which the IntelliSep[supreg] Test received FDA market authorization for use with adult patients with signs and symptoms of infection who present to the ED. With respect to the cost criterion, the applicant provided an analysis to demonstrate that the IntelliSep[supreg] Test meets the cost criterion. The analysis followed the order of operations summarized in the following table. [GRAPHIC] [TIFF OMITTED] TR04AU25.162 Because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount, the applicant asserted that the IntelliSep[supreg] Test meets the cost criterion. We invited public comments on whether the IntelliSep[supreg] Test meets the cost criterion. Comment: The applicant reiterated that the cost criterion analysis submitted with the application demonstrate that the IntelliSep[supreg] Test meets the cost criterion. Response: We thank the applicant for its comment. We agree that the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount. Therefore, the IntelliSep[supreg] Test meets the cost criterion. With regard to the substantial clinical improvement criterion, the applicant asserted that the IntelliSep[supreg] Test represents a substantial clinical improvement over existing technologies because the IntelliSep[supreg] Test is the only technology that is FDA-cleared for use in the ED to rapidly assess immune activation and identify sepsis risk in approximately 10 minutes, providing actionable results that significantly impact clinical decision-making and patient outcomes. The applicant provided 9 studies to support these claims,\92\ as well as 19 background articles about international sepsis guidelines, antimicrobial therapy initiation, timing of antibiotic administration, and other topics related to sepsis detection. We noted that two other articles were submitted as supporting evidence (Kraus et al., 2023; Rhee et al., 2017), which we stated we believed should be characterized as background articles because they do not directly assess the use of the IntelliSep[supreg] [[Page 36731]] Test.\93\ Instead, Kraus et al. (2023) focused on evaluating key attributes of rapid host response sepsis tests via an expert review panel, and Rhee et al. (2017) estimated the U.S. incidence of sepsis and sepsis trends using electronic health records. The following table summarizes the applicant's assertions regarding the substantial clinical improvement criterion. Please see the online posting for the IntelliSep[supreg] Test for the applicant's complete statements regarding the substantial clinical improvement criterion and the supporting evidence provided. --------------------------------------------------------------------------- \92\ One of these studies (Sheybani et al., 2024) is a published abstract that was retracted. \93\ Kraus, C.K., Nguyen, H.B., Jacobsen, R.C., Ledeboer, N.A., May, L.S., O'Neal, H.R., Jr., Puskarich, M.A., Rice, T.W., Self, W.H., & Rothman, R.E. (2023). Rapid identification of sepsis in the emergency department. Journal of the American College of Emergency Physicians Open, 4, e12984. https://doi.org/10.1002/emp2.12984. --------------------------------------------------------------------------- BILLING CODE 4120-01-P [GRAPHIC] [TIFF OMITTED] TR04AU25.163 [[Page 36732]] [GRAPHIC] [TIFF OMITTED] TR04AU25.164 [[Page 36733]] [GRAPHIC] [TIFF OMITTED] TR04AU25.165 BILLING CODE 4120-01-C We also received a public comment in response to the New Technology Town Hall meeting notice published in the Federal Register regarding the substantial clinical improvement criterion for the IntelliSep[supreg] Test, which we summarized in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18132). After review of the information provided by the applicant and the public comment received in response to the New Technology Town Hall meeting, we stated in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18132 through 18133) that we had the following concerns regarding whether the IntelliSep[supreg] Test meets the substantial clinical improvement criterion. Regarding the new study provided by the applicant in the Town Hall comment, we noted that Sarani et al. (2024) does not compare the IntelliSep[supreg] Test and MDW with respect to the ability to diagnose sepsis earlier or resulting clinical outcomes (for example, length of stay or mortality). We stated that the applicant made six claims in regard to the substantial clinical improvement assertion that the IntelliSep[supreg] Test offers the ability to diagnose sepsis in a patient population where the condition is currently undetectable or offers the ability to diagnose sepsis earlier in a patient population than allowed by currently available methods; however, we noted that a number of these claims did not address this criterion. Specifically, the applicant stated that the IntelliSep[supreg] Test (1) allows clinicians to make early, appropriate antibiotic decisions in patients with suspected sepsis while pursuing antimicrobial stewardship targets; (2) outperforms current sepsis diagnostic tools available for use in the ED; (3) effectively differentiates sepsis from non-specific biomarker elevations in various clinical conditions; (4) is the only FDA-cleared test to assess dysregulated immune response to infection (sepsis) in patients presenting to the ED; and (5) has demonstrated a high NPV for sepsis and therefore allows for it to be ruled out where sepsis is unlikely. We stated that these claims discuss the reliability of the IntelliSep[supreg] Test outcomes or the potential benefits of sepsis risk stratification, or relate to not diagnosing sepsis, and do not address the ability of the IntelliSep[supreg] Test to diagnose a patient population where sepsis is currently undetectable or offer the ability to diagnose sepsis earlier than other technologies. We further noted that none of the claims made by the applicant under this assertion provided a comparison of time to diagnosis to currently available sepsis diagnostics in order to demonstrate that the IntelliSep[supreg] Test can diagnose sepsis earlier than currently available methods. While the applicant provided O'Neal et al. (2024b), which established the 7.2 minute testing turnaround time for the IntelliSep[supreg] Test to support the claim that it provides clinicians with actionable results sooner than pathogen-based detection systems, the only other testing time provided as a comparison was from a study comparing time to positivity between the BacT/Alert and BACTEC blood culture systems (Butler-Laporte et al., 2020). We stated we would appreciate evidence comparing time to diagnosis for the IntelliSep[supreg] Test and other existing sepsis detection tools also developed to address the length of time to definite sepsis diagnosis with blood cultures, such as Early Sepsis Indicator or Sepsis ImmunoScore, in order to demonstrate the applicant's assertion that the IntelliSep[supreg] Test allows for faster detection of sepsis compared to existing technologies. We further noted that we did not receive any information demonstrating that clinicians changed the management of patients due to the use of the IntelliSep[supreg] Test. The Jagneaux et al. (2024) study measured time-to-bed assignment (TTB) when nurses at one medical center triaged patients in the ED waiting room, tested patients using the IntelliSep[supreg] Test, and placed patients with IntelliSep[supreg] Band 3 results in ED beds. The study showed that TTB for Band 3 was shorter than TTB for Band 1, but we questioned whether TTB between risk-stratified bands should be considered a change in management. The study did not include a control group or comparison to other sepsis tests or diagnostic tools to demonstrate differences in patient management between the use of the IntelliSep[supreg] Test and other standards of care. We further noted that Jagneaux et al. (2024), which is an unpublished abstract, lacked details regarding the patient population, study protocol, and statistical analyses, and is only representative of a single medical center. We stated that we were therefore unclear whether the results may be influenced by potential confounding factors, and we questioned whether they are generalizable to other EDs or geographic regions as well as to the Medicare population. We stated that the applicant also made seven claims in regard to the substantial clinical improvement assertion that the IntelliSep[supreg] Test significantly improves clinical outcomes relative to services or technologies previously available. However, we noted that a number of these claims do not address this criterion. In particular, the applicant stated that the IntelliSep[supreg] Test (1) reduces door-to-bed time for patients presenting with occult sepsis who appear clinically stable by triage staff; (2) allows for prompt attention to infection source identification and control through its rapid turnaround time; (3) aids improved compliance with the CMS SEP-1 and Surviving Sepsis Campaign 3-hour bundle compliance; and (4) aids sepsis antibiotic initiation consistent with current consensus guidelines. First, we questioned whether the claim that the IntelliSep[supreg] Test reduces door-to-bed time is an appropriate proxy for timely antibiotic administration and the [[Page 36734]] potential for subsequent clinical outcomes (such as mortality). We stated that the strength of the direct association between time from door-to-bed and clinical outcome improvement or whether any outcomes are inferred from surrogate endpoints was unclear. We also noted that the provided evidence did not demonstrate whether the IntelliSep[supreg] Test is the driving factor, among all other tests and clinical practices, that allows timely infection source identification and control and, therefore, decreases mortality. Additionally, we stated we were unclear about the direct association between the IntelliSep[supreg] Test and antibiotic initiation for sepsis consistent with current guidelines as this was also only inferred, and the IntelliSep[supreg] Test is one tool among others used to diagnose sepsis. We also questioned whether compliance with the CMS SEP-1 and Surviving Sepsis Campaign 3-hour bundles is intended as a proxy for decreased mortality that may occur from reducing the time to antibiotic administration. We noted that a decrease in mortality is only inferred, and the provided evidence does not demonstrate that the IntelliSep[supreg] Test decreases mortality. We stated we were unclear how these claims relate to a demonstration of substantial clinical improvement over existing technologies because these claims do not pertain to clinical outcomes described at Sec. 412.87(b)(1)(ii)(C), such as a reduction in mortality or a decreased rate of at least one subsequent diagnostic or therapeutic intervention. We also noted that the claims and the provided evidence regarding the IntelliSep[supreg] Test's ability to significantly improve clinical outcomes relative to services or technologies previously available lack a comparison of the IntelliSep[supreg] Test to existing technologies used to diagnose sepsis, such as the previously discussed Early Sepsis Indicator, SeptiCyte[supreg] RAPID, and Sepsis ImmunoScoreTM. While the applicant stated in its Town Hall comment that a comparison between the IntelliSep[supreg] Test and SeptiCyte[supreg] RAPID is inappropriate due to the differences in indicated location, we questioned whether the impact of testing different patients in different environments within a hospital would be relevant to clinical outcomes such as timely antibiotic administration and mortality. In addition, we noted that both Early Sepsis Indicator and Sepsis ImmunoScoreTM are indicated for use in the ED. We stated we were interested in comparative evidence for other sepsis diagnostic technologies in order to evaluate the IntelliSep[supreg] Test's clinical outcomes relative to other technologies. We also noted that since much of the evidence provided across claims (Thomas et al. (2025); Thomas et al. (2024a); Thomas et al. (2024b)) is unpublished, the details provided do not include study protocols or statistical methods and measures. As such, we stated we were unable to account for differences in the outcome measures or determine if the results are statistically significant. Further, because these study results are from one academic medical center, we questioned whether the results are generalizable to other hospitals and more broadly to the Medicare population. Where the Jagneaux et al. (2024) study was used to support claims regarding the IntelliSep[supreg] Test's ability to significantly improve clinical outcomes relative to services or technologies previously available, we also stated we had the same concerns as previously discussed, including lack of details regarding the patient population, study protocol, and statistical analyses. In addition, with respect to the claim that IntelliSep[supreg] Test results enable ED providers to decrease the use of diagnostic images and testing, resulting in decreased exposure and associated risks, while Thomas et al. (2024a) evaluated the impact of the IntelliSep[supreg] Test on blood culture orders, antibiotic usage, and patients' LOS for 1,275 patients who presented to an ED with signs or symptoms of infection, we noted that the study did not determine whether a decrease in these measures resulted in patients experiencing decreased exposure and associated risks or a significant improvement in clinical outcomes relative to technologies previously available. We stated that while the Jagneaux et al. (2024) study provided by the applicant did not measure mortality, the applicant provided the O'Neal, et al. (2024a) study, which did measure all-cause cumulative hospital mortality stratified by IntelliSep[supreg] bands; however, the study only compared the IntelliSep[supreg] Test to common traditional sepsis tests or detection tools, such as white blood cell count, procalcitonin, lactate, blood cultures, and the Sequential Organ Failure Assessment (SOFA). O'Neal et al. (2024a) did not provide hospital mortality data to demonstrate the IntelliSep[supreg] Test's improved clinical outcomes relative to other technologies that are available, such as Early Sepsis Indicator, SeptiCyte[supreg] RAPID, and Sepsis ImmunoScoreTM. Regarding the claim that the IntelliSep[supreg] Test aids in reducing average LOS among tested patients, the Thomas et al. (2024b) study submitted by the applicant found that incorporating the IntelliSep[supreg] Test and releasing its results to clinicians for 413 patients of a large U.S. academic medical center led to a reduction of 1.28 days for inpatients and 2.42 days for ICU patients, when compared to 196 patients in the control group for which the IntelliSep[supreg] Test was performed but not released to clinicians. We noted that the study used control and intervention cohorts that were not concurrent, and we questioned the impact from varying confounders, such as changes in clinical policy. We noted that the applicant also included background studies to demonstrate a positive association between longer hospital LOS and the probability of acquiring an infection, readmission, negative emotions, and increased hospital costs.\94\ However, these studies did not assess the IntelliSep[supreg] Test's ability to affect LOS, rates of infection, readmission, or other clinical outcomes. --------------------------------------------------------------------------- \94\ Hassan, M., Tuckman, H. P., Patrick, R. H., Kountz, D. S., & Kohn, J. L. (2010). Hospital length of stay and probability of acquiring infection. International Journal of Pharmaceutical and Healthcare Marketing, 4(4), 324-338. https://doi.org/10.1108/17506121011095182. --------------------------------------------------------------------------- Lastly, we questioned how much capability should be attributed to the IntelliSep[supreg] Test when making clinical judgments and improving clinical outcomes, and we welcomed additional information. We invited public comments on whether the IntelliSep[supreg] Test meets the substantial clinical improvement criterion. Comment: A few commenters expressed support for approval of the IntelliSep[supreg] Test's new technology add-on payment, inclusive of emphasis on the importance of early sepsis recognition and rapid treatment. Another commenter did not support approval for the IntelliSep[supreg] Test, stating that O'Neal et al. (2024) found that the IntelliSep[supreg] Test's area under the receiver operating characteristic curve (AUROC) is indistinguishable from procalcitonin. The commenter also stated that head-to-head evidence of the IntelliSep[supreg] Test and MDW is even thinner, stating that the Sarani 2025 series reports IntelliSep[supreg] Test results only, leaving MDW unmeasured. The commenter also stated that for Sepsis-3 identification, FDA clearance assigned the IntelliSep[supreg] Test likelihood ratios of 0.35 (Band 1) and 2.69 (Band 3), but 28 percent of patients fall into the indeterminate Band 2. The commenter further stated MDW delivers comparable discriminatory power (<=20: LR 0.36; >20: LR 0.265) with 100 percent of patients classified, meaning it still [[Page 36735]] reports when the IntelliSep[supreg] Test cannot. According to the commenter, MDW results are available in roughly 2 minutes, widely deployed as part of complete blood counts, and reimbursed at $4.48, unlike the dedicated IntelliSep[supreg] Test instrument. The commenter added that the IntelliSep[supreg] Test's utility claims hinge on abstracts and single-center slide decks from the site that co-developed the test. The commenter stated that the applicant for the IntelliSep[supreg] Test did not offer peer-reviewed publications with robust outcome benefits and that unpublished data from one institution does not establish utility. The commenter stated that MDW, in contrast, has a substantial, peer-reviewed record of both clinical validity and real-world benefit, whereas the IntelliSep[supreg] Test shows similar or poorer analytic performance, lacks peer-reviewed utility data, and requires proprietary hardware at higher cost. The commenter, therefore, recommended that the IntelliSep[supreg] Test's new technology add-on payment application be denied. Response: We thank the commenters for their input and have taken it into consideration in determining whether IntelliSep[supreg] meets the substantial clinical improvement criterion, discussed later in this section. Comment: The applicant submitted a public comment regarding the substantial clinical improvement criterion and provided responses to CMS's concerns from the proposed rule. The applicant included a recently published paper by Thomas et al. (2025),\95\ which the applicant asserted further demonstrates how the IntelliSep[supreg] Test provides a substantial clinical improvement in detecting and diagnosing sepsis compared to all other available tests. The applicant explained the article discusses a sepsis quality improvement initiative at a large academic medical center with a high-volume ED that incorporated the IntelliSep[supreg] Test into its protocol, enabling rapid diagnostic support for patients flagged by an electronic health record- based alert. The applicant asserted that, per the authors, over the course of 1 year, implementation of the IntelliSep[supreg] Test significantly reduced mortality, hospital LOS, and blood culture utilization, demonstrating improved patient outcomes and resource efficiency compared to the pre-implementation period. The applicant further stated that while the study does not have the rigor of some other study designs, it overcomes limitations related to a control population by leveraging protocolized screening, which defines a broad, consistent, and pre-specified analysis group including more than 12,000 diverse patients (median age: 66 years) with no inclusion or exclusion criteria. In addition, the applicant asserted that the article shows that the use of the IntelliSep[supreg] Test in an ED triage process enabled the care delivery in a way that was superior to the standard of care in a large population of patients. --------------------------------------------------------------------------- \95\ Thomas, C. B., Wyler, B., D'Antonio, C. M., Laperouse, M., Alwood, S., Richard, K., Grantham, A., Sheybani, R., Sorrells, M. G., Tan, W.-J., Teague, J. W., O'Neal, H., & Jagneaux, T. (2025). Impact of a Sepsis Quality Improvement Initiative on Clinical and Operational Outcomes. Healthcare, 13, 1273. https://doi.org/10.3390/healthcare13111273. --------------------------------------------------------------------------- The applicant also asserted that the article provides additional documentation regarding multiple concerns that CMS stated in the proposed rule, including those related to reductions in hospital LOS, blood culture utilization, and mortality. First, the applicant stated that it addressed CMS's concerns regarding the Thomas et al. (2024b) study, including the impact from varying confounders and several questions from CMS, specifically providing additional documentation related to reductions in hospital length of stay, blood culture utilization, and mortality. The applicant stated that, in the Thomas et al. (2025) study, the IntelliSep[supreg] Test's implementation resulted in a reduction in hospital LOS for sepsis patients of 0.64 days (9.5 percent) for the full cohort and 0.76 days (11.3 percent) for the temporally matched cohort. The applicant stated that this reduction meets the standard provided in 42 CFR 412.87(b), which states: A more rapid beneficial resolution of the disease process treatment including, but not limited to, a reduced length of stay or recovery time. Second, the applicant asserted that the Thomas et al. (2025) study addresses the IntelliSep[supreg] Test's ability to reduce diagnostic exposure, because the study showed application of the IntelliSep[supreg] Test resulted in a relative reduction in blood culture utilization, from usage in 50.8 to 45.7 percent of patients. The applicant stated that this reduction in cultures meets the standard in 42 CFR 412.87(b) which describes a decreased rate of at least one subsequent diagnostic or therapeutic intervention. In addition, the applicant stated that the Thomas et al. (2025) study demonstrates that, in the temporally matched cohort, application of the IntelliSep[supreg] Test produced an absolute reduction in sepsis mortality risk by 4.2 percent (from 10.7 percent to 6.5 percent). The applicant added that this reduction is a significant improvement over the standard of care, which included SIRS symptoms, lactate measurement, and the use of cultures, that no other sepsis test has demonstrated. In response to CMS's concern that its application lacked a comparison of the IntelliSep[supreg] Test to existing technologies used to diagnose sepsis, the applicant stated that the Sepsis ImmunoScoreTM, SeptiCyte[supreg] RAPID, and the Early Sepsis Indicator are not in widespread use, preventing comparative data between these sepsis diagnostic tests and the IntelliSep[supreg] Test. The applicant further stated that a 2024 New England Journal of Medicine review article confirmed that no sepsis test is in widespread use. The applicant asserted that, as such, there is no practical way to construct a comparison in sepsis diagnostic tests. The applicant additionally asserted that no other technology has conducted a comparative study documenting improvements in hospital LOS, blood culture utilization, and mortality risk relative to the standard of care as the Thomas et al. (2025) study provides. In response to CMS's concern that the IntelliSep[supreg] Test application did not address its ability to diagnose a patient population where sepsis is currently undetectable or the ability to diagnose sepsis earlier than other technologies, the applicant stated that other sepsis diagnostic tests, including SIRS symptoms, lactate, and blood cultures, assess the symptoms or effects of sepsis, rather than sepsis's immune dysregulation, and are therefore insufficient. The applicant asserted that the IntelliSep[supreg] Test provides the novel capability to assess immune activation, which can allow for a sepsis diagnosis based on underlying cell physiology. The applicant further stated that the IntelliSep[supreg] Test shows superior performance in sepsis diagnosis (as adjudicated by a physician panel) against the current sepsis detection standards of care for sepsis detection. Regarding the IntelliSep[supreg] Test's ability to diagnose sepsis earlier than other technologies, the applicant stated that the IntelliSep[supreg] Test's turnaround time is comparable to some other sepsis tests, such as MDW and the Sepsis ImmunoScoreTM. The applicant asserted that the IntelliSep[supreg] Test's ability to rapidly assess immune dysregulation allows it to identify sepsis across the range of the disease's progression continuum based on ED presentation, where patients may present early in sepsis progression with limited symptoms. In addition, the applicant asserted that, as such, the IntelliSep[supreg] Test's sensitivity allows it to identify sepsis patients at an earlier point in the disease's course than other available [[Page 36736]] tests. The applicant stated that Sarani et al. (2024) showed that the IntelliSep[supreg] Test demonstrated improved sepsis detection capability relative to MDW. In response to CMS's concerns about the Jagneaux et al. (2024) study, the applicant reiterated that the study showed that patients in the waiting room with a Band 3 score from the IntelliSep[supreg] Test were immediately put into an ED bed for treatment, which improved time to bed (TTB) relative to the overall mean. The applicant stated that this study did not document patient outcomes but added it demonstrated that patients with Band 3 scores had a 94 percent rate of infection and a 54 percent rate of sepsis based upon discharge, while patients with Band 1 scores had a 1.6 percent rate of sepsis. The applicant asserted that because the IntelliSep[supreg] Test results led to faster TTB for patients with Band 3 scores, the test resulted in faster treatment times for high-risk patients. The applicant also stated that while Jagneaux et al. (2024) did not document patient outcomes, Thomas et al. (2025) included these same patients and observed significant decreases in sepsis-associated mortality. The applicant further asserted that given the known association between care timeliness and mortality as well as the known waiting time decrease, it follows that some of the IntelliSep[supreg] Test's documented mortality improvement is likely attributable to the advancement in sepsis care it enabled. The applicant concluded that the application of the IntelliSep[supreg] Test in clinical practice provides evidence for its substantial clinical improvement and the approval of its new technology add-on payment application. A commenter who employed the IntelliSep[supreg] Test at several facilities submitted a comment and an unpublished abstract to show how the test's adoption impacted patient outcomes at the facilities. The commenter stated that it tracked patient discharge and return rates following the introduction of the IntelliSep[supreg] Test, and documented a significant increase (from 14 percent to 24.9 percent) in the patient discharge rate from EDs in the first 4 months following the IntelliSep[supreg] Test's implementation. The commenter further stated that the EDs achieved this increase without an increase in the rate of patient returns. The commenter asserted that, taken together with other admission and clinical data, it observed a significant increase (26 days to 27 days) in the return-adjusted hospital free days experienced by patients. The commenter stated that the IntelliSep[supreg] Test adoption resulted in a significant clinical impact for its patients. The commenter provided an abstract describing the impact of the IntelliSep[supreg] Test use in the ED within their submission. Response: We thank the applicant and other commenters for their comments regarding the substantial clinical improvement criterion. Based on the additional information received and all data received to date, we continue to have concerns as to whether the IntelliSep[supreg] Test represents a substantial clinical improvement over existing technologies. Specifically, we disagree with the applicant that the evidence provided is sufficient to establish that the IntelliSep[supreg] Test offers the ability to diagnose a medical condition in a patient population where the medical condition is currently undetectable or offers the ability to diagnose a medical condition earlier in a patient population than allowed by currently available methods. Additionally, it remains unclear that the IntelliSep[supreg] Test significantly improves clinical outcomes relative to services or technologies previously available. Regarding the applicant's assertion that the IntelliSep[supreg] Test provides a substantial clinical improvement in detecting and diagnosing sepsis compared to all other available tests, we note the recently published and submitted Thomas et al. (2025) study did not compare the IntelliSep[supreg] Test to other available sepsis diagnostic technologies, such as the Early Sepsis Indicator and Sepsis ImmunoScoreTM. Furthermore, the applicant stated that Sarani et al. (2024) showed that the IntelliSep[supreg] Test demonstrated improved sepsis detection capability relative to MDW. However, the Sarani et al. (2024) study was conducted in a single medical center with a small sample size (n = 44), and we therefore question the generalizability of the results. We maintain our concern that Sarani et al. (2024) does not compare the IntelliSep[supreg] Test and MDW with respect to the ability to diagnose sepsis earlier, and the study does not define a patient population where sepsis is currently undetectable in which the IntelliSep[supreg] Test can detect sepsis. The applicant asserted that the O'Neal et al. (2024) study demonstrates that the IntelliSep[supreg] Test shows faster time to diagnosis against current standards of care including SIRS, lactate, and blood cultures. However, the applicant stated that the turnaround time of the IntelliSep[supreg] Test is comparable with that of MDW (that is, Early Sepsis Indicator) and Sepsis ImmunoScore,TM which both may also have the capability to provide a faster diagnosis of sepsis compared to SIRS, lactate, and blood cultures. Although the applicant stated that the Sepsis ImmunoScoreTM, SeptiCyte[supreg] RAPID, and the Early Sepsis Indicator are not in widespread use, the substantial clinical improvement criterion requires that a technology demonstrate its diagnostic ability relative to currently available methods or technology. The applicant also stated that the sensitivity of the IntelliSep[supreg] Test allows it to identify these patients at an earlier point in the patient's course of sepsis than other available tests, but the applicant did not provide evidence demonstrating sepsis identification earlier in the disease process than other diagnostic tools. In addition, the applicant cited the Jagneaux et al. (2024) study, stating that the test led to faster treatment for patients who were ultimately shown to have been at high risk, based on the rate of higher infection in the high risk band. We continue to be concerned that the Jagneaux, et al. (2024) study does not demonstrate how the IntelliSep[supreg] Test compares to other currently available diagnostic methods in TTB. Also, while the applicant concluded that because the patients from the Jagneaux, et al. (2024) study were included in the Thomas et al. (2025) patient cohort, some of the mortality improvement documented with the IntelliSep[supreg] Test in the Thomas et al. (2025) study is likely attributable to the advancement in sepsis care enabled by the IntelliSep[supreg] Test, neither the applicant nor the Jagneaux, et al. (2024) study identify or measure the asserted advancements. It is unclear if TTB resulted in changes in patient management, and if so what those changes were. Our concerns for evidence of differences in the management of patients remain. We also continue to be concerned with the lack of data comparing the IntelliSep[supreg] Test to other available sepsis diagnostics, or evidence of a patient population where sepsis is currently undetectable, in which the IntelliSep[supreg] Test can detect sepsis. We remain unclear how the IntelliSep[supreg] Test compares to other available sepsis diagnostic technology in detecting and diagnosing sepsis. Regarding the applicant's assertion that the IntelliSep[supreg] Test significantly improves clinical outcomes relative to services or technologies previously available, we remain unclear how the IntelliSep[supreg] Test compares to other sepsis diagnostic technologies. While the applicant submitted the Thomas et al. (2025) study to show that the IntelliSep[supreg] Test demonstrated a significant reduction in mortality, LOS, and blood culture utilization, we remain concerned about the continued lack of [[Page 36737]] comparative data. We remain unclear how the IntelliSep[supreg] Test's clinical outcomes compare to those of other existing sepsis detection tests. After consideration of all the information received from the applicant as well as the public comments, we are unable to determine that the IntelliSep[supreg] Test represents a substantial clinical improvement over existing technologies for the reasons discussed in the proposed rule and in this final rule, and therefore, we are not approving new technology add-on payments for the IntelliSep[supreg] Test for FY 2026. i. Neuroguard IEP[supreg] 3-in-1 Carotid Stent and Post-Dilation Balloon System With Integrated Embolic Protection Contego Medical, Inc. submitted an application for new technology add-on payments for the Neuroguard IEP[supreg] 3-in-1 Carotid Stent and Post-Dilation Balloon System with Integrated Embolic Protection (Neuroguard IEP[supreg] System) for FY 2026. According to the applicant, the Neuroguard IEP[supreg] System combines a carotid stent with an integrated 40 [mu]m embolic protection filter and post-dilation balloon. Per the applicant, the Neuroguard IEP[supreg] System restores and maintains vessel patency while stabilizing plaque, and by capturing small emboli during critical phases, it reduces the risk of stroke during the procedure and helps prevent future stroke. Please refer to the online application posting for the Neuroguard IEP[supreg] System, available at https://mearis.cms.gov/public/publications/ntap/NTP241004CNKB9, for additional detail describing the technology and carotid artery disease. With respect to the newness criterion, according to the applicant, the Neuroguard IEP[supreg] System was granted premarket approval (PMA) from FDA on October 11, 2024 for improving the carotid luminal diameter in subjects at high risk for adverse events from a carotid endarterectomy who require carotid revascularization and meet the criteria outlined: patients with symptomatic stenosis of the common or internal carotid artery with 50 percent as determined by angiography using North American Symptomatic Carotid Endarterectomy Trial (NASCET) methodology or patients with asymptomatic stenosis of the common or internal carotid artery with 80 percent as determined by angiography using NASCET methodology; and patients with reference vessel diameters 4.0 mm to 8.0 mm. The applicant and FDA approval letter stated that this technology is also indicated for post-dilation of the stent component with simultaneous capture and removal of embolic material. According to the applicant, the Neuroguard IEP[supreg] System is used in conjunction with an available primary distal embolic protection device as described in the Instructions for Use. According to the applicant, the Neuroguard IEP[supreg] System was commercially available immediately after its FDA approval. Per the applicant, one Neuroguard IEP[supreg] System typically is used per inpatient stay. The applicant submitted a request for approval for unique ICD-10- PCS procedure codes for the Neuroguard IEP[supreg] System and was granted approval to use the following procedure codes effective October 1, 2025: X2AH34B (Right common carotid artery cerebral embolic filtration, single integrated distal filter, percutaneous approach, new technology group 11), X2AJ34B (Left common carotid artery cerebral embolic filtration, single integrated distal filter, percutaneous approach, new technology group 11), X2AK34B (Right internal carotid artery cerebral embolic filtration, single integrated distal filter, percutaneous approach, new technology group 11), and X2AL34B (Left internal carotid artery cerebral embolic filtration, single integrated distal filter, percutaneous approach, new technology group 11). The applicant stated that codes I65.21 (Occlusion and stenosis of right carotid artery), I65.22 (Occlusion and stenosis of left carotid artery), I65.23 (Occlusion and stenosis of bilateral carotid arteries), or I65.29 (Occlusion and stenosis of unspecified carotid artery) may be used to currently identify the indication for the Neuroguard IEP[supreg] System under the ICD-10-CM coding system. As previously discussed, if a technology meets all three of the substantial similarity criteria under the newness criterion, it would be considered substantially similar to an existing technology and would not be considered ``new'' for the purpose of new technology add-on payments. With respect to the substantial similarity criteria, the applicant asserted that the Neuroguard IEP[supreg] System is not substantially similar to other currently available technologies because it is a first-in-class, novel device that uses a different mechanism of action compared to existing technologies by integrating a stent with a 40 [mu]m (3 to 4 times smaller than pores of traditional filters) embolic protection filter and a post-dilation balloon, aiming to streamline the procedure and increase the effectiveness of embolic protection during carotid stenting, and that no other similar device is currently available in the U.S., and therefore, the technology meets the newness criterion. The following table summarizes the applicant's assertions regarding the substantial similarity criteria. Please see the online application posting for the Neuroguard IEP[supreg] System for the applicant's complete statements in support of its assertion that the Neuroguard IEP[supreg] System is not substantially similar to other currently available technologies. [[Page 36738]] [GRAPHIC] [TIFF OMITTED] TR04AU25.166 In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18135), we stated we had the following concerns with regard to the newness criterion. While the applicant asserted that the Neuroguard IEP[supreg] System is novel in that it uses a new mechanism of action because its 40 [mu]m embolic protection filter has pores 3-4 times smaller than traditional filters used in CAS, we questioned whether this represents a new mechanism of action as both Neuroguard's filter and existing filters use a porous membrane to capture and remove embolic material while performing angioplasty and stenting procedures in carotid arteries. We noted that the applicant asserted that this change in filter size may impact clinical outcomes, however, this is not relevant to mechanism of action. Furthermore, the Neuroguard IEP[supreg] System should always be used in conjunction with an available primary distal embolic protection device as described in the IFU,\96\ which suggests that its filter would not impact the mechanism of action of the device. We also noted that there are other existing embolic protection filters used during CAS procedures that have the same 40-micron pore size, such as the Paladin[supreg] Carotid Post-Dilation Balloon System with Integrated Embolic Protection (Paladin[supreg] System with IEP) from the same manufacturer, which received FDA 510(k) clearance on September 6, 2018.\97\ --------------------------------------------------------------------------- \96\ Neuroguard IEP[supreg] 3-in-1 Carotid Stent, Post-Dilation Balloon System with Integrated Embolic Protection (https://www.accessdata.fda.gov/cdrh_docs/pdf24/P240009A.pdf). \97\ FDA. Section 510(k) premarket notification. Paladin Carotid Post-Dilation Balloon System with Integrated Embolic Protection. K181128. September 6, 2018 (https://www.accessdata.fda.gov/scripts/cdrh/cfdocs/cfpmn/pmn.cfm?id=K181128, accessed 2/5/2025). --------------------------------------------------------------------------- In addition, while the applicant asserted that the Neuroguard IEP[supreg] System has a new mechanism of action because it integrates a stent with an embolic protection filter that opens during stent deployment and balloon [[Page 36739]] dilation to streamline the procedure and increase the effectiveness of embolic protection during CAS, we questioned how integrating existing procedural devices into one device to eliminate the need for multiple devices results in a different mechanism of action, as this appears to describe an ease-of-use feature rather than having an impact on the technology's therapeutic outcome of improving carotid luminal diameter for patients with stenosis of the carotid artery.\98\ We stated it was unclear how the way in which the Neuroguard IEP[supreg] System treats carotid artery stenosis is different from the way in which the many existing carotid artery stents, filters, and post-dilation balloons available on the market, used together or as part of a system, treat carotid artery stenosis. Therefore, we stated that it appears these technologies may have the same or a similar mechanism of action as the Neuroguard IEP[supreg] System. We further noted that the applicant stated that the Neuroguard IEP[supreg] System treats the same disease, carotid artery stenosis, in the same patient population as existing carotid stent technologies, and that it maps to the same MS-DRGs for carotid artery stenting procedures. --------------------------------------------------------------------------- \98\ FDA. Neuroguard IEP[supreg] 3-in-1 Carotid Stent, Post- Dilation Balloon System with Integrated Embolic Protection. Pre- market approval. October 11, 2024. --------------------------------------------------------------------------- Accordingly, as we stated that it appears that the Neuroguard IEP[supreg] System and existing carotid stents or stent systems, such as the GORE[supreg] Carotid Stent, RX AcculinkTM Carotid Stent System, or Carotid WALLSTENT[supreg] Monorail[supreg] Endoprosthesis, or the Paladin[supreg] System with IEP used with any available carotid artery stent, may use the same or similar mechanism of action to achieve a therapeutic outcome, would be assigned to the same MS-DRG, and would treat the same or similar patient population and disease, we questioned whether these technologies may be substantially similar to one another. We noted that, per our policy, if technologies are substantially similar to each other, we use the earliest market availability date as the beginning of the newness period for the technologies. Accordingly, we stated if we determine that the Neuroguard IEP[supreg] System is substantially similar to existing carotid stents or systems as described previously, because the 3-year anniversary of the FDA clearance of all these current technologies occurred prior to FY 2026,99 100 101 the Neuroguard IEP[supreg] System would not be considered new. --------------------------------------------------------------------------- \99\ The 3-year anniversary of FDA PMA approval for the RX AcculinkTM Carotid Stent System was August 30, 2007. https://www.accessdata.fda.gov/scripts/cdrh/cfdocs/cfpma/pma.cfm?id=P040012. \100\ The 3-year anniversary of FDA PMA approval for Carotid WALLSTENT[supreg] Monorail[supreg] Endoprosthesis was October 23, 2011. https://www.accessdata.fda.gov/scripts/cdrh/cfdocs/cfpma/pma.cfm?id=P050019. \101\ The 3-year anniversary of FDA PMA approval for GORE Carotid Stent was November 1, 2021. https://www.accessdata.fda.gov/scripts/cdrh/cfdocs/cfpma/pma.cfm?ID=P180010. --------------------------------------------------------------------------- We invited public comments on whether the Neuroguard IEP[supreg] System is substantially similar to existing technologies and whether the Neuroguard IEP[supreg] System meets the newness criterion. Comment: Several commenters expressed support for the Neuroguard IEP[supreg] System. The commenters stated that the 3-in-1 design is new, often based on their clinical experience. A few of the commenters stated that the integrated design streamlines the procedure, shortens the procedure time, and eliminates multiple device exchanges, each of which represents a discrete embolic risk in and of itself. A commenter stated that the Neuroguard IEP System is a paradigm shift in the field of carotid intervention by introducing a new mechanism of action, combining targeted microembolus capture at the most vulnerable stages of the procedure with improved procedural efficiency through reduced device exchanges. A commenter stated that the Neuroguard IEP[supreg] System is a true advancement that directly addresses an unmet need posed by traditional or legacy EPDs, which are unable to capture microemboli materials less than 100 microns. Some commenters stated that these smaller particles account for more than 80 percent of the debris generated during carotid stenting and that by functioning in tandem with standard embolic protection, the Neuroguard IEP[supreg] System offers dual protection. Another commenter stated that the Neuroguard IEP[supreg] System eliminates the need to maneuver through the cervical loop to capture additional filters, thereby reducing the risks to patients and decreasing the overall procedure time. A commenter stated that the Neuroguard IEP[supreg] System introduces a novel dual embolic protection mechanism while maintaining required primary protection throughout the procedure. Per the commenter, this integrated approach creates therapeutic capabilities not available with existing technologies. A commenter stated that this technology has broader implications, particularly in the treatment of tandem occlusions during anterior circulation stroke, since these are complex cases involving both an intracranial large vessel occlusion and a proximal cervical internal carotid artery lesion, often of atherosclerotic origin. Some commenters stated that the closed-cell design of the stent enhances plaque coverage without reducing vessel conformability. Response: We thank the commenters for their input and have taken it into consideration in determining whether the Neuroguard IEP[supreg] meets the newness criterion as discussed later in this section. Comment: The applicant submitted a public comment asserting that the Neuroguard IEP[supreg] System represents a groundbreaking advancement in CAS with a novel 3-in-1 design combining a carotid stent, post-dilation balloon, and 40-micron pore integrated embolic filter in 1 device. The applicant reiterated that the technology's design distinctions enable a novel mechanism of action that directly addresses the root cause of procedure-related embolic events, microemboli generated during stent deployment and post-dilation, when perioperative stroke risk is highest.102 103 104 The applicant reiterated that the Neuroguard IEP[supreg] System enables the placement of a 40-micron pore filter, deployment of the stent, and post-dilation ballooning all through a single catheter. Per the applicant, the Neuroguard IEP[supreg] System's revolutionary mechanism of action directly addresses the primary limitation of traditional carotid stenting technologies and offers advantages not achievable through any combination of existing devices, including (1) smaller filter size and selective deployment combined with standard embolic protection offers dual protection; and (2) integration enables usage of 40-micron pore protection and real-time filter control with no catheter exchanges. --------------------------------------------------------------------------- \102\ Kastrup A, Gr[ouml]schel K, Krapf H, et al (2003) Early outcome of carotid angioplasty and stenting with and without cerebral protection devices: A systematic review of the literature. Stroke 34(3) https://doi.org/10.1161/01.STR.0000058160.53040.5F. \103\ M[uuml]ller-H[uuml]lsbeck SM, Jahnke T, Stolzmann P, et al (2003) A new concept for covered stent protected carotid angioplasty: An ex vivo study R[ouml]fo 175(12): 1634-1638 DOI: 10.1055/s-2003-45342. \104\ Schnaudigel S, Gr[ouml]schel K, Pilgram S, et al (2008) New brain lesions after carotid stenting versus carotid endarterectomy: A systematic review of the literature. Stroke 39(6) https://doi.org/10.1161/STROKEAHA.107.500603. --------------------------------------------------------------------------- The applicant also referred to CMS's determination in the FY 2021 IPPS/LTCH PPS final rule that the EluviaTM Drug Eluting Stent (EluviaTM) had a unique mechanism of action (85 FR 58648) and discussed how the same approach can be applied to the determination of the Neuroguard IEP[supreg] [[Page 36740]] System's mechanism of action. According to the applicant, because CMS recognized that EluviaTM's long-term drug release profile constituted a unique mechanism of action although the device used paclitaxel like other peripheral drug-eluting stents, it asserted that CMS was stating that integrating a novel distinction to existing technology to address a critical treatment limitation such as sustained drug delivery constituted a novel mechanism of action. The applicant stated that similarly, the Neuroguard IEP[supreg] System integrates a critical function that fundamentally alters treatment for carotid stenting because it uniquely addresses the lack of micro-embolic protection during stent deployment and post-dilation. In response to CMS's question about whether the requirement that the Neuroguard IEP[supreg] System must always be used in conjunction with an available primary distal embolic protection device suggests that its filter would not impact the mechanism of action of the device, the applicant stated that this requirement does not diminish its novel mechanism of action, but rather underscores its innovative complementary approach to solving a critical clinical limitation in carotid stenting procedures. The applicant explained that the Neuroguard IEP[supreg] System offers complementary, not redundant, protection by pairing a standard filter that protects against large emboli (>100 microns) throughout the procedure with its integrated 40- micron pore filter, which captures microemboli during the highest-risk phases of the procedure. Per the applicant, traditional filters must maintain minimum pore sizes of 100 microns to avoid filter thrombosis during prolonged use throughout the carotid stenting procedure, but that approximately 69 percent to 90 percent of embolic particles released during carotid artery stenting procedures are less than 100 microns in size, and thus may reach the cerebral circulation despite the use of these large pore distal filters. The applicant stated that the Neuroguard IEP[supreg] System's unique mechanism of action is not possible with other commercially available technologies, including first-generation embolic protection devices and FDA-approved dual-layer stents. The applicant asserted that the Neuroguard IEP[supreg] System's clinical outcomes reflect a distinct function that cannot be explained by simply combining existing technologies. In response to CMS's question about similarity to other existing embolic protection filters used during CAS procedures that have the same 40-micron pore size, such as the Paladin[supreg] System with IEP from the same manufacturer, the applicant stated that the Neuroguard IEP[supreg] System fundamentally differs from the Paladin[supreg] System with IEP in mechanism of action and clinical utility, despite both featuring a 40-micron pore filter. The applicant explained that the key differences are related to procedural coverage and device integration, both of which set the two technologies apart and are critical for understanding why the Neuroguard IEP[supreg] System represents a novel therapeutic approach. In terms of procedural coverage differences, the applicant stated that the Paladin[supreg] System with IEP's balloon is a separate balloon catheter with integrated embolic protection (without a stent) that can provide small- pore coverage only during balloon dilation before or after a traditional carotid stent placement. According to the applicant, the Paladin[supreg] System with IEP's 2018 and 2022 510(k) clearances were limited to balloon angioplasty and post-dilation of a deployed self- expanding stent. Thus, per the applicant, the Paladin[supreg] System with IEP cannot be used with a stent during stent deployment, leaving patients unprotected during the high-risk stent deployment phase of the procedure. The applicant stated that the Neuroguard IEP[supreg] System's integrated design, in contrast, provides 40-micron pore protection during both the stent deployment and post-dilation phases. In terms of device integration and impact, the applicant stated that the Paladin[supreg] System with IEP's balloon must be used with separate stenting systems, which requires additional catheter exchanges and therefore increases embolic risk, whereas the Neuroguard IEP[supreg] System consists of a stent, balloon, and filter on a single platform, providing comprehensive protection and eliminating exchanges that increase the risk of microemboli. The applicant also stated that the Neuroguard IEP[supreg] System received FDA PMA approval as a novel device with no predicate, and that its comprehensive integrated solution not only enhances protection but also improves procedural efficiency, which was validated by the more rigorous PMA process. The applicant also added that the Paladin[supreg] System with IEP's balloon was not widely commercialized in the U.S., as company records show no to minimal sales from 2021 to 2024. Response: We appreciate the additional information from the applicant and commenters with respect to whether the Neuroguard IEP[supreg] System is substantially similar to existing technologies. However, we remain unclear that the Neuroguard IEP[supreg] System does not use the same or a similar mechanism of action as existing technologies. While the applicant and commenters describe differences between the Neuroguard IEP[supreg] System and other technologies that require a separate EPD, stent, and post-dilation balloon, we believe that the mechanisms of action for the Neuroguard IEP[supreg] System to perform individual tasks, like capturing debris, dilating a vessel, and expanding a stent against vessel walls, remain similar to that of existing EPDs, carotid stents, and post-dilation balloons. The applicant asserted that the Neuroguard IEP[supreg] System's integrated design, which allows for simultaneous deployment, is absent in other technologies, and that this design in addition to the smaller pore size captures more microemboli. However, the amount of microembolic material captured between EPD types refers to how well each technology performs that task. Thus, the difference in pore size between the EPD of Neuroguard IEP[supreg] System and other EPDs, their differential capabilities in capturing microemboli, and the potential impact on clinical outcomes are related to performance differences rather than differences in mechanism of action. Similarly, while the applicant states that by capturing more microemboli, the Neuroguard IEP[supreg] System will likely protect patients from strokes post-procedure, this relates to the assessment of substantial clinical improvement rather than the newness criterion. We also note that while, according to the applicant, the Neuroguard IEP[supreg] System's integrated design enables the EPD to be deployed during both the stenting and post- dilation phases, reducing the risks for thrombosis, this also relates to assessment of substantial clinical improvement rather than the newness criterion. In addition, while commenters described potential benefits in terms of the Neuroguard IEP[supreg] System's closed-cell design, vessel conformability, potential applications for treating complex patients, ease of use, or improving workflow efficiency, these do not describe a new mechanism of action. Since the stent of the Neuroguard IEP[supreg] System expands the carotid luminal diameter by propping open a narrow blood vessel physically and providing structural support to the vessel walls, its mechanism of action is similar to that of existing carotid stents. By the same token, the mechanism of action by which existing EPDs and the EPD in the Neuroguard IEP[supreg] System capture debris is fundamentally similar. Similarly, regarding the Paladin[supreg] [[Page 36741]] System with IEP, the mechanism of action by which the EPD of the Paladin[supreg] System with IEP captures and removes microemboli appears to be the same as that of the EPD of the Neuroguard IEP[supreg] System, as well as existing stents and EPDs. We note that we do not believe that the volume of sales is a relevant consideration for making the determination as to whether a product is considered ``new'' for the purposes of new technology add-on payments. Consistent with the statute and our implementing regulations, a technology is no longer considered ``new'' once it is more than 2 to 3 years old, and the costs of the procedures are considered to be included in the relative weights irrespective of how frequently the technology has been used in the Medicare population (89 FR 69126). With regard to the applicant's comment about EluviaTM, we determined in the FY 2021 IPPS/LTCH PPS final rule that the EluviaTM Drug-Eluting Stent uses a unique mechanism of action because the sustained release of paclitaxel combats restenosis for 12 to 15 months as compared to other drug-coated balloons or drug- coated stents that deliver drug to the artery for about two months (85 FR 58649). We disagree with the applicant's conclusions that our determination of a new mechanism of action for EluviaTM means that addressing a treatment limitation constitutes a new mechanism of action. We note that EluviaTM allowed for gradual degradation of the polymer to control the release of paclitaxel into the bloodstream, while stents that were commercially available before EluviaTM lacked any mechanism of sustained and controlled release of paclitaxel. Like all EPDs in the market, the EPD of the Neuroguard IEP[supreg] System is designed with a filter basket that captures and traps microembolic materials. In this way, its mechanism of action is the same as that of existing EPDs. While existing EPDs are deployed alone and remain open during the entire procedure, and the EPD of the Neuroguard IEP[supreg] System is deployed selectively, they all use a basket-like component to catch microembolic materials. Similarly, despite the differences in the pore size of this basket-like component in the Neuroguard IEP[supreg] System and existing EPDs, they use the same method to stop microembolic materials from escaping into the bloodstream. Thus, the Neuroguard IEP[supreg] System's mechanism of action is the same as that of existing technologies because the mechanism by which each of its components performs a specific task is the same as that of existing technologies. After consideration of the comments received, and for the reasons discussed, we believe that that the Neuroguard IEP[supreg] System uses a similar mechanism of action as existing technologies by using a balloon to dilate blood vessels physically, using a stent to support the vessel wall and keep the vessels open, and using an EPD to capture embolic materials. Furthermore, as discussed previously, the Neuroguard IEP[supreg] System and existing technologies map to the same MS-DRGs and treat the same disease, carotid artery stenosis, in the same patient population as existing carotid stent technologies and EPDs. Accordingly, because the Neuroguard IEP[supreg] System meets all three of the substantial similarity criteria, we believe that the Neuroguard IEP[supreg] System is substantially similar to existing carotid artery stents. In accordance with our policy, because these technologies are substantially similar to each other, we use the earliest market availability date as the beginning of the newness period. Because carotid artery stents and EPDs have been on the market for many years, the 3-year anniversary for the Neuroguard IEP[supreg] System occurred prior to FY 2026. Therefore, the Neuroguard IEP[supreg] System does not meet the newness criterion and is not eligible for new technology add- on payments for FY 2026. We note that we received public comments with regard to the cost and substantial clinical improvement criteria for this technology, but because we have determined that the technology does not meet the newness criterion and therefore is not eligible for approval for new technology add-on payments for FY 2026, we are not summarizing comments received or making a determination on those criteria in this final rule. j. RYSTIGGO[supreg] (Rozanolixizumab-Noli) UCB, Inc. submitted an application for new technology add-on payments for RYSTIGGO[supreg] for FY 2026. According to the applicant, RYSTIGGO[supreg] is a neonatal Fc receptor (FcRn) blocker indicated for the treatment of generalized myasthenia gravis (gMG) in adult patients who are anti-acetylcholine receptor (AChR) or anti-muscle-specific tyrosine kinase (MuSK) antibody positive (ab+). The applicant stated that gMG is a rare chronic autoimmune disorder in which antibodies destroy the communication between nerves and muscle, resulting in weakness of the skeletal muscles, particularly the eyes, mouth, throat, and limbs. Per the applicant, some gMG patients have MuSK ab+, a subtype of gMG that may lead to more severe symptoms and limited treatment options. Please refer to the online application posting for RYSTIGGO[supreg], available at https://mearis.cms.gov/public/publications/ntap/NTP2410073H0PQ, for additional detail describing the technology and the disease treated by the technology. With respect to the newness criterion, according to the applicant, RYSTIGGO[supreg] was granted BLA approval from FDA on June 26, 2023, for the treatment of gMG in adult patients who are AChR ab+ or MuSK ab+. According to the applicant, RYSTIGGO[supreg] was not available for sale until July 20, 2023, the date on which the product was released from U.S. Customs after being shipped from an overseas manufacturing facility. Per the applicant, RYSTIGGO[supreg] is administered as a subcutaneous infusion once each week for 6 weeks. Per the applicant, RYSTIGGO[supreg] is available in single-dose vials that contain 280 mg, 420 mg, 560 mg, or 840 mg of RYSTIGGO[supreg] at a concentration of 140 mg/mL. The applicant noted it used the following equation to calculate the weighted average cost per inpatient stay: [(percent of patients whose weight aligns to the 3mL vial x cost of the 3mL vial) + (percent of patients whose weight aligns to the 4mL vial x cost of the 4mL vial) + (percent of patients whose weight aligns to the 6mL vial x cost of the 6mL vial/100%] x 2 doses. The applicant stated that the typical inpatient stay for patients with gMG is 11 to 13 days, and thus, 2 doses would usually be administered during a typical inpatient stay. The applicant submitted a request for approval for a unique ICD-10- PCS procedure code for RYSTIGGO[supreg] and was granted approval to use the following procedure code effective October 1, 2025: XW013TB (Introduction of rozanolixizumab-noli monoclonal antibody into subcutaneous tissue, percutaneous approach, new technology group 11). The applicant stated that G70.00 (Myasthenia gravis without (acute) exacerbation) and G70.01 (Myasthenia gravis with (acute) exacerbation) may be used to currently identify the indication for RYSTIGGO[supreg] under the ICD-10-CM coding system. As previously discussed, if a technology meets all three of the substantial similarity criteria under the newness criterion, it would be considered substantially similar to an existing technology and would not be considered ``new'' for the purpose of new technology add-on payments. With respect to the substantial similarity criteria, the applicant asserted [[Page 36742]] that RYSTIGGO[supreg] is not substantially similar to other currently available technologies because, while other treatments are available for gMG, about 40 percent of patients continue to experience exacerbations, and that RYSTIGGO[supreg] is the only treatment for patients with gMG who are AChR or MuSK ab+, and that therefore, the technology meets the newness criterion. The following table summarizes the applicant's assertions regarding the substantial similarity criteria. Please see the online application posting for RYSTIGGO[supreg] for the applicant's complete statements in support of its assertion that RYSTIGGO[supreg] is not substantially similar to other currently available technologies. [GRAPHIC] [TIFF OMITTED] TR04AU25.168 In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18139), with respect to the substantial similarity criteria, while the applicant stated that RYSTIGGO[supreg] does not use the same or a similar mechanism of action as compared to existing technologies because there are specific differences in FcRn affinities between RYSTIGGO[supreg] and other FcRn inhibitors, we stated that we were unclear as to what the specific differences are and whether they rise to the level of a new mechanism of action. We noted that VYVGART[supreg] is also an FcRn inhibitor approved for use in patients with gMG, and per FDA prescribing information, both technologies bind to the FcRn resulting in the reduction of circulating IgG.105 106 We welcomed additional information about how the mechanism of action for RYSTIGGO[supreg] differs from other existing FDA-approved therapies, including FcRn inhibitors such as VYVGART[supreg]. We noted that the applicant also stated that RYSTIGGO[supreg] does not involve the treatment of the same or similar type of disease and the same or similar patient population when compared to an existing technology because, while there are other treatments for gMG, about 40 percent of patients continue to experience gMG exacerbation, suggesting an inadequate response to existing treatment and RYSTIGGO[supreg] is the only FDA-approved treatment for patients with gMG that are MuSK ab+. However, we noted there are other standard of care treatment options for patients with AChR ab+ and MuSK ab+ gMG, such as pyridostigmine, glucocorticoid therapy, and plasmapheresis. In addition, VYVGART[supreg], ULTOMIRIS[supreg], ZILBRYSQ[supreg], and SOLIRIS[supreg] are also treatment options for patients with AChR ab+ gMG. Therefore, we questioned the assertion that RYSTIGGO[supreg] does not involve the treatment of the same or similar type of disease and the same or similar patient population when compared to existing technology. --------------------------------------------------------------------------- \105\ argenx US, Inc. VYVGART[supreg] (efgartigimod alfa-fcab) injection [Package Insert]. (Revised 8/2024). Available at: https://www.accessdata.fda.gov/drugsatfda_docs/label/2024/761195s004,761304s003lbl.pdf. \106\ UCB, Inc. RYSTIGGO[supreg] (rozanolixizumab-noli) injection, for subcutaneous use [Package Insert]. (Revised 6/2024). Available at: https://www.accessdata.fda.gov/spl/data/c6e71126-50c1-4ae2-9d82-b053d605b9cb/c6e71126-50c1-4ae2-9d82-b053d605b9cb.xml. --------------------------------------------------------------------------- We invited public comments on whether RYSTIGGO[supreg] is substantially similar to existing technologies and whether RYSTIGGO[supreg] meets the newness criterion. Comment: The applicant submitted a public comment regarding the newness criterion. The applicant stated that RYSTIGGO[supreg] meets the newness criterion for new technology add-on payment status because it was just recently approved by FDA on June 26, 2023, and was not available for sale until July 20, 2023 and there are no other treatments for the disease or condition that RYSTIGGO[supreg] treats or diagnoses. The applicant noted that RYSTIGGO[supreg] is the first treatment approved by FDA specifically for patients with either AChR ab+ or MuSK ab+ gMG. The applicant also reiterated information from its application regarding its claim that RYSTIGGO[supreg] does not use the same or a similar mechanism of action compared to existing technologies to achieve a therapeutic outcome and does not treat the same or similar type of disease or patient population compared to existing therapies. In response to CMS's request for additional information about how the mechanism of action for RYSTIGGO[supreg] differs from existing FDA- approved therapies, including FcRn inhibitors such as VYVGART[supreg], the applicant stated that while technically, both RYSTIGGO[supreg] and VYVGART[supreg] are FcRn blockers, RYSTIGGO[supreg] was specifically studied for the MuSK ab+ patient population, and FDA granted an expedited review of the product for this subset of gMG patients, for which there was previously no other indicated product. The applicant also commented that RYSTIGGO[supreg] differs from IMAAVY[supreg] in that IMAAVY[supreg] is [[Page 36743]] immuno-selective, only targeting IgG1 levels, while RYSTIGGO[supreg] targets IgG1, IgG2, IgG3, and IgG4 levels. The applicant commented that while several treatments have been approved by FDA for gMG, including SOLIRIS[supreg], ULTOMIRIS[supreg], and VYVGART[supreg], these treatments do not adequately assist those gMG patients with anti-muscle specific tyrosine kinase antibodies. In response to CMS's concern with regards to the applicant's assertion that RYSTIGGO[supreg] does not involve the treatment of the same or similar type of disease and the same or similar patient population because there are other standard of care treatment options, the applicant stated that RYSTIGGO[supreg] is a targeted therapy with a safety and efficacy profile established in a randomized clinical trial, as well as real world evidence. The applicant further stated that at the time RYSTIGGO[supreg] was approved, there were no other available approved treatments for gMG in adult patients who are MuSK ab+, and all other treatments for gMG cited by CMS have been used off-label. According to the applicant, RYSTIGGO[supreg] is now able to meet this patient population's need and as such, it is effectively the new standard of care for the MuSK ab+ patient population. Response: We appreciate the additional information from the applicant. Based on our review of comments received and information submitted by the applicant as part of its FY 2026 new technology add-on payment application for RYSTIGGO[supreg], we agree with the applicant that RYSTIGGO[supreg] uses a unique mechanism of action for the treatment of MuSK ab+ gMG because at the time the new technology add-on application was submitted, it was the only FcRn inhibitor FDA-approved for the treatment of adult patients with gMG who are MuSK ab+. Therefore, we agree that RYSTIGGO[supreg] is not substantially similar to existing treatment options and meets the newness criterion, specifically for the MuSK ab+ gMG indication. We consider the beginning of the newness period to commence on July 20, 2023, the date on which RYSTIGGO[supreg] became commercially available. However, we have concerns with regard to the substantial similarity criteria for RYSTIGGO[supreg] for the treatment of AChR ab+ gMG in adults. We note that the applicant has not provided any information to differentiate RYSTIGGO[supreg]'s mechanism of action from that of VYVGART[supreg], and we therefore believe that the two technologies have the same or a similar mechanism of action as FcRn inhibitors approved for use in patients with AChR ab+ gMG. As there are many other treatment options for patients with AChR ab+ gMG, including VYVGART[supreg], ULTOMIRIS[supreg], ZILBRYSQ[supreg], and SOLIRIS[supreg], we also believe that RYSTIGGO[supreg] does not treat a new patient population or disease with respect to AChR ab+ gMG. In addition, we agree with the applicant that RYSTIGGO[supreg] would be assigned to the same MS-DRG as existing technologies. Because RYSTIGGO[supreg] for the treatment of adults with AChR ab+ gMG meets all three of the substantial similarity criteria, we believe that RYSTIGGO[supreg] is substantially similar to VYVGART[supreg] for this indication. Therefore, in accordance with our policy, we consider the beginning of the newness period for RYSTIGGO[supreg] to begin on December 17, 2021, the date on which VYVGART[supreg] received FDA marketing authorization for the treatment of adults with AChR ab+ gMG. Since the 3-year anniversary date of VYVGART[supreg]'s entry onto the market occurred prior to FY 2026, RYSTIGGO[supreg] for the treatment of adults with AChR ab+ gMG does not meet the newness criterion and is not eligible for new technology add-on payments for FY 2026. We note that because we have determined that the technology does not meet the newness criterion for the treatment of adults with AChR ab+ gMG and therefore is not eligible for approval for new technology add-on payments for FY 2026 for this indication, we are not summarizing comments received or making a determination on the cost or substantial clinical improvement criteria for the AChR ab+ gMG indication in this final rule. With respect to the cost criterion, the applicant provided an analysis to demonstrate that RYSTIGGO[supreg] meets the cost criterion. The analysis followed the order of operations summarized in the following table. [GRAPHIC] [TIFF OMITTED] TR04AU25.169 [[Page 36744]] Because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount, the applicant asserted that RYSTIGGO[supreg] meets the cost criterion. We invited public comments on whether RYSTIGGO[supreg] meets the cost criterion. Comment: The applicant reiterated that the cost criterion analysis submitted with the application demonstrates that RYSTIGGO[supreg] meets the cost criterion. Response: We thank the applicant for its comment. We agree that the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount. Therefore, RYSTIGGO[supreg] meets the cost criterion. With regard to the substantial clinical improvement criterion, the applicant asserted that RYSTIGGO[supreg] represents a substantial clinical improvement over existing technologies because RYSTIGGO[supreg] is the only FDA-approved product for anti-MuSK ab+ gMG in adult patients, and is an option for patients unresponsive to, and not treated by, conventional therapies. The applicant also asserted that RYSTIGGO[supreg] significantly improves clinical outcomes relative to services or technologies previously available. The applicant provided seven articles regarding the MycarinG study and its open-label extension studies, as well as a meta-analysis regarding efficacy of newer therapies for MG, to support these claims. The following table summarizes the applicant's assertions regarding the substantial clinical improvement criterion. Please see the online posting for RYSTIGGO[supreg] for the applicant's complete statements regarding the substantial clinical improvement criterion and the supporting evidence provided. [GRAPHIC] [TIFF OMITTED] TR04AU25.170 [[Page 36745]] We also received written public comments in response to the New Technology Town Hall meeting notice published in the Federal Register regarding the substantial clinical improvement criterion for RYSTIGGO[supreg], which we summarized in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18140 through 18141). After review of the information provided by the applicant and the public comments received in response to the New Technology Town Hall meeting, we stated in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18141 through 18142) that we had the following concerns regarding whether RYSTIGGO[supreg] meets the substantial clinical improvement criterion. While the applicant stated that RYSTIGGO[supreg] is the only FDA-approved therapy for gMG in adult patients who are MuSK ab+, and that this subtype is challenging to treat, as patients are usually unresponsive and often intolerant of pyridostigmine (a standard first- line MG therapy), we noted that the applicant also stated that 3,4- diaminopyridine treatments may have a mild to moderate effect. We further noted that, as mentioned previously, other therapies such as pyridostigmine, glucocorticoid therapy, and plasmapheresis are also available options for these patients, and we therefore questioned whether RYSTIGGO[supreg] offers a treatment option for patients with MuSK ab+ gMG who have no other treatment options. The applicant also stated that RYSTIGGO[supreg] provides a treatment option for the approximately 10 to 20 percent of patients with gMG whose disease is not responsive to, and not treated by, conventional therapies due to inadequate response or intolerable side effects, however, we questioned whether the evidence provided demonstrates that there is a population of patients with gMG with no other treatment options. To support this claim, the applicant provided the double-blind, placebo-controlled, phase 3 MycarinG study, which randomized 200 patients (1:1:1) to receive RYSTIGGO[supreg] 7 mg/kg, RYSTIGGO[supreg] 10 mg/kg, or placebo in addition to their current gMG treatment (where permitted by the study inclusion criteria) for 6 weeks, as well as an abstract of a post hoc subgroup analysis of this study (Vu et al., 2023) which stratified trial results based on the number of prior therapies.\107\ The applicant stated that the MycarinG study demonstrated RYSTIGGO[supreg], in addition to standard of care, significantly improved clinical outcomes by reducing MG-ADL, QMG, and MG Composite (MGC) scores in adult patients with gMG, including those with prior standard of care treatments such as corticosteroids, parasympathomimetics, and non- steroidal immunosuppressants. We noted that permitted concomitant medications were cholinesterase inhibitors, oral corticosteroids, azathioprine, ciclosporin, methotrexate, mycophenolate mofetil, and tacrolimus. All of these medications, except for cholinesterase inhibitors, required a stable dose. We questioned if the cholinesterase inhibitor dose may have affected the results of the study since the dose may not have been stable throughout the trial. In addition, other standard of care treatment options for patients were excluded, including rituximab products, VYVGART[supreg], ULTOMIRIS[supreg], ZILBRYSQ[supreg], and SOLIRIS[supreg], and we therefore questioned if RYSTIGGO[supreg] is the only treatment option for patients with gMG who have failed conventional therapy. --------------------------------------------------------------------------- \107\ Bril, 2023a, op. cit. --------------------------------------------------------------------------- We stated that the applicant also provided an abstract of a subgroup analysis (Vu et al., 2023) of the MycarinG study and stated the subgroup analysis demonstrated that RYSTIGGO[supreg] significantly improved outcomes based on a reduction in MG-ADL in patients who had previously undergone myasthenia gravis standard treatments based on stratification on a number of prior therapies, excluding acetylcholinesterase inhibitors, but including corticosteroids, non- steroidal immunosuppressants, IVIg, and plasma exchange. However, we stated that it was unclear how a subgroup analysis on the number of prior therapies provides evidence that RYSTIGGO[supreg] is the only treatment option for patients unresponsive to conventional therapies. We also noted that acetylcholinesterase inhibitors were excluded from this subgroup analysis, but these are part of the standard of care for MG. With respect to the applicant's assertion that RYSTIGGO[supreg] improves clinical outcomes over existing therapies, the applicant submitted three presentation posters (Bril et al., 2023b; Sacconi et al., 2023; Habib et al., 2024b) that provided efficacy and safety results from the MycarinG study and 2 open-label extension studies (MG0004 and MG007) which we noted are not published or peer-reviewed. We noted that two of the poster presentations (Bril et al., 2023b and Habib et al., 2024b) do not report the statistical significance of results and, therefore, we were uncertain as to how significant the results are. We stated that with regards to the MycarinG study, per the applicant's Town Hall comment, patients were allowed to remain on standard of care therapies such as non-steroidal immunosuppressive therapy, steroids, and pyridostigmine. However, we noted that various other standard of care therapies were excluded such as rituximab products, VYVGART[supreg], ULTOMIRIS[supreg], ZILBRYSQ[supreg], and SOLIRIS[supreg]. Without a comparison to these therapies, we questioned whether RYSTIGGO[supreg] improves clinical outcomes relative to all previously available therapies. Given the 6-week duration of the trial, we also questioned how natural changes in symptoms were accounted for since symptoms can wax and wane in patients with gMG. We further noted that the MycarinG and the open-label extension studies involved only 8 weeks (MycarinG and MG0004) or 16 weeks (MG0007) of observation, which makes it more difficult to assess the frequency of prolonged remission rates and how the adverse event rates, such as for cancer and infection, compare with existing therapies. We stated that we were also interested in more information on the lack of a dose-response effect with RYSTIGGO[supreg]. For instance, there was a least squares mean (LSM) in MG-ADL of -7.28 in the rozanolixizumab (RLZ) 7 mg/kg group and -4.16 in the RLZ 10 mg/kg group within the MuSK ab+ population and an LSM of -3.03 in the RLZ 7 mg/kg group and a similar LSM of -3.36 in the RLZ 10 mg/kg group within the AChR ab+ population. We also noted there is only about a 2 to 2.5-point difference between RYSTIGGO[supreg] and placebo for MG-ADL in the AChR ab+ subpopulation and the overall population. Specifically, for the AChR ab+ population, the LSM difference versus placebo in the RLZ 7 mg/kg group was -1.94 and in the RLZ 10 mg/kg group was -2.26 and for the overall population, the LSM difference versus placebo was -2.59 in the RLZ 7 mg/kg group and -2.62 in the RLZ 10 mg/kg group. The applicant stated that these findings were statistically significant. We noted that the study considered a 2- point difference in MG-ADL as a clinically meaningful improvement. We stated that we would appreciate clarification on how the study defined clinically meaningful improvement. In addition, with respect to the MuSK ab+ population in the MycarinG trial, we noted there were 21 MuSK ab+ patients in the studies submitted by the applicant. We further noted that the FDA Integrated Review for RYSTIGGO[supreg] indicated that 16 patients tested positive for the MuSK ab+ and we stated that we would appreciate clarification regarding this discrepancy in numbers. We noted [[Page 36746]] that in its Town Hall comment, the applicant emphasized that gMG, particularly MuSK positive gMG, is a rare disease and the number of patients in the study is consistent with other rare disease treatment clinical trials and was acceptable to FDA. However, we questioned if the results are generalizable to the Medicare population since only 2 patients treated with RYSTIGGO[supreg] were from the U.S. and only 1 patient treated was 65 years or older.\108\ We also noted that not all efficacy outcomes were statistically significant within the MuSK ab+ population. Specifically, the LSM difference in QMG between RYSTIGGO[supreg] and placebo was not statistically significant for either the RLZ 7 mg/kg group (97.5 percent confidence interval -14.24, 0.41) nor the RLZ 10 mg/kg group (97.5 percent confidence interval - 9.73, 3.45). Further, we noted there appears to be a difference in the disease severity between the MuSK ab+ patients in the placebo and treatment arms. For example, results from Habib et al. (2024a) indicated that among the MuSK ab+ population of the MycarinG study, all patients with severe (Class IV) disease at baseline, per the Myasthenia Gravis Foundation of America (MGFA) classification system, were in the placebo arm (\3/8\), while individuals in the treatment groups all had mild or moderate (Class II or Class III) disease at baseline. We questioned how this difference may have impacted the placebo group's outcomes relative to those of the treatment groups. Additionally, a higher percentage of patients were taking corticosteroids in the RYSTIGGO[supreg] groups (80 percent in 7 mg/kg group and 87.5 percent in 10 mg/kg group) compared to placebo (62.5 percent) and we questioned if this difference in background therapy could have affected the outcomes, since oral corticosteroids were a permitted concomitant medication in the trial. We also noted that the trial excluded individuals with severe oropharyngeal or respiratory weakness, and we questioned whether this exclusion would affect the generalizability of the results for this MuSK ab+ subpopulation, as the applicant indicated that patients with MuSK ab+ gMG tend to have more severe disease with a potential unmet need for treatment options. --------------------------------------------------------------------------- \108\ U.S. FDA CDER, 2023, op. cit. --------------------------------------------------------------------------- We stated that the applicant also provided a meta-analysis comparing innovative therapies in MG, stating that it demonstrated that anti-FcRn treatments such as RYSTIGGO[supreg] showed greater effects on QMG, MGC, and MG-QoL15 compared to complement inhibitors, with VYVGART[supreg] and RYSTIGGO[supreg] having the highest probabilities of being the most effective treatment for MG-ADL and QMG. However, we noted that the same article indicated no significant difference in MG- ADL between complement inhibitors and anti-FcRn treatments. Additionally, we noted that the analysis found that VYVGART[supreg] had the highest probability of being the best treatment, followed by RYSTIGGO[supreg].\109\ We noted that we did not receive any other evidence comparing complement inhibitors or anti-FcRn treatments with RYSTIGGO[supreg] to demonstrate improved outcomes. Therefore, we requested additional information comparing RYSTIGGO[supreg] to these other therapies in order to inform our assessment of whether RYSTIGGO[supreg] demonstrates a substantial clinical improvement over existing technologies. In addition, we noted that the meta-analysis included seven clinical trials, only two of which included patients positive for MuSK ab+, MycarinG and ADAPT, a trial studying VYVGART[supreg]. The meta-analysis did not include trials studying other standard of care therapies in patients with MuSK ab+ gMG. Since the meta-analysis did not include a comparison of current therapies in patients with MuSK ab+ gMG, we questioned how this analysis demonstrates RYSTIGGO[supreg] improves clinical outcomes relative to previously available therapy for patients with MuSK ab+ gMG. --------------------------------------------------------------------------- \109\ Sacc[agrave], 2023, op. cit. --------------------------------------------------------------------------- We also noted that, while the applicant stated that RYSTIGGO[supreg] meets patient preferences for convenience by its ability to be administered via a subcutaneous infusion by a healthcare provider, either at an infusion clinic or at home with nurse assistance, the applicant did not provide a comparison of administration to other available therapies. We stated that we would further appreciate additional information on how the administration method for RYSTIGGO[supreg] demonstrates that the technology significantly improves one or more of the clinical outcomes described under the regulations at Sec. 412.87(b)(1)(ii)(C). We invited public comments on whether RYSTIGGO[supreg] meets the substantial clinical improvement criterion. Comment: A few commenters expressed general support for RYSTIGGO[supreg]'s eligibility for new technology add-on payments. A commenter stated its belief that use of RYSTIGGO[supreg] for the FDA- labeled indications would require hospitals to incur costs that, without a new technology add-on payment, would have to be fully absorbed by the treating hospital. The commenter stated that the new technology add-on payment mechanism was created to eliminate the limitations in access to new therapies due to lack of reimbursement in the inpatient setting. Response: We thank the commenters for their input. Comment: The applicant submitted a public comment regarding the substantial clinical improvement criterion and provided responses to CMS's concerns from the proposed rule. The applicant also reiterated information from its application regarding the claim that RYSTIGGO[supreg] meets the substantial clinical improvement criterion because it offers a treatment option for gMG patients unresponsive to, or ineligible for, currently available treatments, and that, RYSTIGGO[supreg] offers further clinical improvement in addition to standard of care therapies for adult patients with gMG. In response to CMS's note that there are other therapy options for patients with MuSK ab+ gMG, the applicant reiterated RYSTIGGO[supreg] is the first approved treatment for gMG in adult patients who are MuSK ab+, and all other treatments are used off-label. In addition, the applicant discussed a case report of an adult patient with MuSK ab+ gMG that illustrated that the patient was responsive to and tolerant of 3,4-diaminopyridine (DAP). According to the applicant, the case report qualifies as Class IV evidence and is a single observational study without controls. The applicant further stated that, while in the abstract it would be ideal if the safety and efficacy of 3,4-DAP in patients with MuSK ab+ gMG were confirmed in randomized trials, the evidence to-date, along with real world data and patient reports, supports the conclusion that RYSTIGGO[supreg] is unique in being the first drug to treat the gMG MuSK ab+ population. In response to CMS's question whether the evidence provided demonstrates that there is a population of patients with gMG with no other treatment options, which refers to the 10 to 20 percent of patients with gMG whose disease was not responsive to and not treated by conventional therapies due to inadequate response or intolerable side effects, the applicant stated that the 10 to 20 percent of patients with gMG referenced are those patients who are MuSK ab+, and thus did not have effective treatments [[Page 36747]] available until the approval of RYSTIGGO[supreg]. In response to CMS's question if RYSTIGGO[supreg] is the only treatment option for patients with gMG who have failed conventional therapy, given that some standard of care treatment options for patients were excluded from the MycarinG study, including rituximab products, VYVGART[supreg], ULTOMIRIS[supreg], ZILBRYSQ[supreg], and SOLIRIS[supreg], the applicant restated that RYSTIGGO[supreg] was the first treatment option approved for the MuSK ab+ patient population and noted rituximab is not indicated for the treatment of MG even if it is sometimes used off-label in the MuSK ab+ patient population. According to the applicant, rituximab, an anti-CD20 mAb, is reserved for patients who are refractory to conventional oral immunosuppressants and used as part of an escalation therapy, which is supported in the International Consensus guidance. The applicant stated that safety concerns related to the risk of virus-related progressive multifocal leukoencephalopathy remain. Per the applicant, biologics have added to the more targeted treatment options for gMG, with SOLIRIS[supreg] being a first-in-class humanized mAb targeting the terminal complement complex, blocking the enzymatic cleaving of complement 5 (C5), and thereby preventing the activation of the complement complex. The applicant further stated that due to lack of complement involvement in the pathophysiology of MuSK ab+ patients with gMG, this difficult-to-treat subgroup of patients does not benefit from C5 inhibitor treatment. The applicant commented that immunosuppressive treatment of gMG is dominated by untargeted treatments, such as steroids and nonsteroidal immunosuppressants, and that both steroids and nonsteroidal immunosuppressants target the immune system non-specifically with the goal of reducing autoimmune reactivity in MG. The applicant stated that the treatments with these agents are associated with well-documented short-term as well as long- term toxicities, and that the delayed beneficial effect combined with early onset of tolerability issues frequently discourages patients from continuing therapy. The applicant further commented that both plasma exchange (PLEX) and IVIg are considered for patients with gMG who have exhausted all of their other treatment options, and whose clinical status is deteriorating despite ongoing immunosuppressive and acetylcholinesterase inhibitors (AChEI) therapies. According to the applicant, although treatment with PLEX or IVIg is mentioned in the International Consensus guidance for management of MG, neither treatment is approved in the U.S. for gMG. The applicant stated that the availability of IVIg (including shortages and increasing demand over supply) and repetitive cycles of IVIg and PLEX administered in a hospital setting are burdensome and time consuming for patients, caregivers, and healthcare professionals, and are not considered a viable long-term treatment option for the majority of patients with MG. In response to CMS's question on how a subgroup analysis of the MycarinG study, in the Vu et al. (2023) abstract, provides evidence that RYSTIGGO[supreg] is the only treatment option for patients unresponsive to the prior standard of care, the applicant stated that MycarinG is a pivotal Phase III trial that led to the approval of RYSTIGGO[supreg], and Phase III trials typically don't include head-to- head analyses. The applicant stated that the MycarinG study demonstrates that RLZ is a possible option for patients who have had or have not had prior therapies. In response to CMS's further concern about why AChEIs were excluded from this subgroup analysis even though they are part of the standard of care for MG, the applicant stated that ``prior therapies (0 1, 2 prior MG therapies excluding AChEI)'' refers to patients who had been on two therapies that did not include AChEIs, not that the patient had not received AChEIs. The applicant clarified that this includes patients who might have received three prior therapies (for example AChEI, corticosteroids, and non-steroidal immunosuppressive therapies). According to the applicant, patients in the zero prior therapy group could have received AChEI but no other treatment and 86 percent of patients in MycarinG were on AChEIs. With regards to the concern that two poster presentations (Bril et al., 2023b and Habib et al., 2024b) do not report statistically significant results, the applicant stated that the Bril et al. (2023b) poster did not report statistical significance because the poster included pooled extension data, so there was no placebo group to compare against, and therefore, no statistical test. Similarly, the applicant stated that the Habib et al. (2024b) poster did not report statistical significance given the reported significant change from baseline at day 43 in muscle weakness fatigability and physical fatigue, confirming the Bril et al. (2023b) study. Per the applicant, the Habib et al. (2024b) poster further shows the clinical meaningfulness for those data by applying the meaningful change thresholds that were determined post hoc. However, according to the applicant, because of the novel nature of the Myasthenia Gravis Symptoms Patient Reported Outcome (MGSPRO), the threshold of responder is a range, as described in the poster. The applicant stated that because both ends of the range of the threshold were applied, statistical significance does not apply here. The applicant stated that CMS posed several questions about the MycarinG study, which allowed trial participants to remain on standard of care therapies such as non- steroidal immunosuppressive therapy, steroids, and pyridostigmine, but not on other treatments, such as rituximab products, VYVGART[supreg], ULTOMIRIS[supreg], ZILBRYSQ[supreg], and SOLIRIS[supreg]. In response to CMS's questions about the lack of comparison to other treatments, the applicant stated it appreciates that it would be ideal if all study designs were identical, allowing for both head-to-head comparative results between different therapies and dose-response results in tests of identical duration. Per the applicant, there was a clearing out period for some of these therapies because, while no head-to-head studies have been conducted, continued use would potentially lead to immunosuppression that would be more severe and lead to other major side effects. In response to CMS's questions about the 6-week trial duration given patient symptom variability, the applicant stated that the reason the study included 6 weeks of administration was that IgG levels were tracked and showed a 70 percent reduction at 6 weeks. In response to CMS's questions about the difficulty in comparing results with 8-week studies (such as MycarinG and MG0004) or 16-week studies (MG0007), the applicant stated that the reason for the 8 weeks of observation in the pivotal trial and then 16 weeks in the open-label extension study is that patients were only reinitiated with therapy based on emerging symptoms, which speaks to the long-lasting durability of the product. In response to CMS's question about whether there is a dose- response effect and the definition of a clinically meaningful improvement, the applicant stated the study considered a two-point difference in MG-ADL as a clinically meaningful improvement. The applicant reiterated that more patients achieved meaningful symptom expression (MSE) in both rozanolixizumab groups than in the placebo group, and the change from baseline to day 43 in MGII was greater in both rozanolixizumab groups than in the placebo group. [[Page 36748]] A commenter provided a response to CMS's concern on the validity of the endpoints used in the RYSTIGGO[supreg] study, including the rationale for using MG-ADL as the primary endpoint. The commenter stated that the choice of endpoints is largely driven by FDA preferences, and while sponsors may choose to select endpoints other than those outlined as acceptable within a review toward approval, few would assume the risk in doing so. The commenter stated that it is aware that FDA's preferences on specific endpoints evolves over time and could change while a study incorporating an older endpoint is in progress. The commenter asserted that, while it believes there are often flaws in FDA's determination on endpoints for specific rare and ultra-rare conditions, once a study has started (and certainly after FDA has granted approval based on that endpoint), CMS should not make an independent decision impacting access based on choice of endpoints. The commenter further stated that CMS's analyses related to RYSTIGGO[supreg] focused primarily on whether there is a particular subpopulation for which the treatment under review offers a significant improvement over other treatments. The commenter stated that these inquiries appeared to examine whether other products existed and the extent to which there was a direct comparison between those therapies and the product under review. The commenter stated the time from approval to expiration of any new technology add-on payment period is 3 years, far too short for any comparative effectiveness study. The commenter stated its belief that the expectation of data that unequivocally demonstrates superiority of a newly approved treatment over existing branded therapies is simply not realistic. In response to CMS's question with respect to the discrepancy in numbers between 21 MuSK ab+ patients included in the MycarinG study submitted by the applicant and 16 patients tested positive for the MuSK ab+ in the FDA Integrated Review for RYSTIGGO[supreg], the applicant clarified that the 21 MuSK ab+ patients is the number of historical MG- specific autoantibody status patients, and the baseline MG-specific autoantibody status was 16 patients. In response to CMS's question if the results of the MycarinG study are generalizable to the Medicare population due to the small sample size,\110\ the applicant commented that MuSK ab+ gMG is a rare disease, and limited U.S. enrollment is not unusual in global trials for rare conditions. The applicant commented that FDA's acceptance of the sample size and international enrollment is consistent with rare disease norms. Additionally, a commenter stated that it urges CMS to accept the manufacturers assertion that small study samples are not only common to rare disease studies but that they are accepted by FDA to support approval. The commenter stated that with respect to generalizability to the Medicare population, it urges CMS to recognize that recruitment of patients over age 65 has been a challenge for researchers regardless of patient population size, and additionally, Medicare's beneficiary population extends beyond those over age 65 to include disabled individuals. Per the commenter, approximately 10 percent of individuals qualifying for SSDI payments (and subsequently eligible for Medicare benefits) are disabled due to a condition of nervous system and sense organs such as MG. --------------------------------------------------------------------------- \110\ U.S. FDA CDER, 2023, op. cit. --------------------------------------------------------------------------- In response to CMS's concern that in the MycarinG study not all efficacy outcomes were statistically significant within the MuSK ab+ population, the applicant stated that as a rare disease with a small patient population in the pivotal study, it is not unusual that some endpoints may not demonstrate statistical significance. The applicant acknowledged that the QMG score difference between RYSTIGGO[supreg] and placebo in the MuSK ab+ subgroup did not reach statistical significance, as the 97.5 percent CIs crossed zero. The applicant stated that the MG-ADL and MGC endpoints were statistically significant or numerically favored RYSTIGGO[supreg]. According to the applicant, the small size of the MuSK ab+ subgroup (n=21) results in limited power, but multiple endpoints consistently showed improvement. The applicant stated that this trend across endpoints supports clinical benefit, notwithstanding the absence of ideal statistical uncertainty. The applicant reiterated that as with many rare disease indications, the limited power of the studies necessarily will constrain the nature of the data, and FDA was comfortable approving the biologic and found the available statistical evidence sufficient. In response to CMS's concern that in the MycarinG study there was a difference in the disease severity between the MuSK ab+ patients in the placebo and treatment arms, the applicant stated that patients were randomized. The applicant also stated that consistent improvements across MG-ADL, QMG, and MGC (in the context of randomization) suggest efficacy notwithstanding baseline severity differences. In response to CMS's question on whether the difference in corticosteroid use between treatment and placebo groups in the clinical trial could have impacted the trial results, the applicant commented that this variability is inevitable in rare disease clinical trials that necessarily involve relatively small numbers of patients. The applicant further stated that the extensive data analysis that followed the trial did not produce any suggestion that corticosteroid use influenced trial results. The applicant commented that, whether or not corticosteroids could enhance response and amplify the treatment effect, RYSTIGGO[supreg] still demonstrated a benefit over placebo despite corticosteroids being allowed across arms. In response to CMS's question on the choice of the clinical study design to exclude individuals with severe oropharyngeal or respiratory weakness, and whether the trial results would apply to such patients, the applicant commented that while additional data or trials including this subgroup would enhance relevance for the Medicare population with more severe disease, the clinical trial design that was accepted by FDA did not require the inclusion of these patients to demonstrate efficacy. The applicant commented in response to CMS's concerns about a meta- analysis comparing innovative therapies in MG. In response to CMS's question why there was no significant difference in MG-ADL between complement inhibitors and anti-FcRn treatments, the applicant stated that the meta-analysis suggests that anti-FcRn therapies, including RYSTIGGO[supreg], are among the most promising emerging treatments for gMG based on multiple outcome measures, with statistically superior results to complement inhibitors in QMG, MG-QoL15, and a trend toward improved MGC. In response to CMS's requested additional information comparing RYSTIGGO[supreg] to other therapies, the applicant stated that, notwithstanding the conclusions of the meta-analysis, the totality of available evidence for RYSTIGGO[supreg]--the meta-analysis by Sacc[agrave] et al. (2023), differentiation in patient populations treated (particularly MuSK ab+), subcutaneous route with home administration, rapid onset of effect, and favorable safety profile without the need for complement blockade monitoring--supports the conclusion that RYSTIGGO[supreg] represents a substantial clinical improvement over existing therapies for appropriate patients with gMG. In response to [[Page 36749]] CMS's question of how the meta-analysis demonstrates improved clinical outcomes without a comparison to current therapies in patients with MuSK ab+ gMG, the applicant stated its view that the clinical trial data in both the pivotal studies and from the meta-analysis contain sufficient evidence to conclude that RYSTIGGO[supreg] offers clinical superiority over the existing standard of care for the MuSK ab+ patients at the time of approval. Further, the applicant commented that the meta-analysis included two clinical trials with MusK ab+ patient data, MycarinG and ADAPT, while the remaining five trials primarily enrolled patients with AChR ab+ gMG. The applicant stated that it agrees that the meta-analysis, as published, does not allow for a subgroup-level indirect comparison of RYSTIGGO[supreg] with standard of care therapies specifically in the MuSK ab+ population. According to the applicant, the meta-analysis did not include trials assessing standard of care therapies (for example, corticosteroids, cholinesterase inhibitors, or non-steroidal immunosuppressants) in MuSK ab+ gMG. The applicant stated that this gap reflects a broader evidence limitation in the field but does not detract from the conclusions of the literature and clinical results demonstrating that RYSTIGGO[supreg] was the first FDA-approved treatment specifically indicated for MuSK ab+ gMG in adult patients. The applicant also stated that the evidence demonstrates that patients with MuSK Ab+ gMG often do not respond to cholinesterase inhibitors and may have intolerances or inadequate responses to corticosteroids and immunosuppressants. The applicant further stated the MycarinG study included a subgroup of 21 patients with MuSK ab+ gMG, representing a rare disease cohort. The applicant noted that these patients demonstrated rapid onset of clinical improvement in MG-ADL and MGC scores by Day 8, numerically greater improvements versus placebo across multiple endpoints (MG-ADL, MGC, QMG, PRO measures), and an MG-ADL responder rate of 100 percent in both RYSTIGGO[supreg] treatment arms compared to 14 percent in placebo. Per the applicant, these results were achieved in the context of a randomized, placebo-controlled, double-blind phase 3 trial, representing the highest level of evidence currently available for this subgroup. The applicant stated that in summary, the clinical trials reflect the clinical benefits of RYSTIGGO[supreg] for the MuSK ab+ rare disease population notwithstanding the absence of standard of care- controlled RCTs. In response to CMS's request for additional information comparing RYSTIGGO[supreg]'s administration method to other therapies and regarding how the administration method for RYSTIGGO[supreg] demonstrates that the technology significantly improves one or more of the clinical outcomes described under the regulations at Sec. 412.87(b)(1)(ii)(C), the applicant commented that patient preference is directly related to an improvement in the quality of the patient's life when on therapy, Sec. 412.87(b)(1)(ii)(C)(6), and patient preference is directly related to greater medication adherence. The applicant stated that patient preference is implicated by the regulatory factors that CMS must consider in evaluating clinical superiority. The applicant commented that RYSTIGGO[supreg]'s subcutaneous delivery with optional home administration offers potential convenience over IV therapies like IVIg or PLEX, which require clinic settings. Response: We thank the applicant and the commenters for their comments regarding the substantial clinical improvement criterion. Based on the additional information received, we continue to have concerns as to whether RYSTIGGO[supreg] for the treatment of MuSK ab+ gMG meets the substantial clinical improvement criterion to be approved for new technology add-on payments. We note that whether a particular treatment improves outcomes does not demonstrate that the treatment offers an option for patients with no other options. We also note that being the first treatment with a specific (narrower) indication, does not singularly demonstrate substantial clinical improvement, particularly when there are other treatments available which are considered the standard of care, and which have broader indications. Therefore, we continue to question that the evidence provided demonstrates both that there is a population of patients with MuSK ab+ gMG with no other treatment options, and that RYSTIGGO[supreg] offers further clinical improvement over currently available standard of care therapies for adult patients with MuSK ab+ gMG. We also did not receive data to indicate that potential confounders such as differences in disease severity and other therapies received among the treatment groups in MycarinG could not have impacted the study results. We also continue to question the assertion of improved clinical outcomes with RYSTIGGO[supreg] compared to other therapies without adequate comparison data to other therapies in the MuSK ab+ patient population. In addition, we question whether the clinical outcome results provided by the applicant adequately distinguish the effect of RYSTIGGO[supreg] from natural changes in symptoms. The applicant and another commenter highlighted that the study design, including endpoints, sample size, and international enrollment, was accepted by FDA. As previously stated, while FDA has regulatory responsibility for decisions related to marketing authorization, we do not rely upon FDA criteria in our evaluation of substantial clinical improvement for purposes of determining what services and technologies qualify for new technology add-on payments under Medicare. This criterion does not depend on the standard of safety and efficacy on which FDA relies but on a demonstration of substantial clinical improvement in the Medicare population. In addition, with regard to the generalizability of the MycarinG study results to the Medicare population, while we acknowledge that Medicare does include beneficiaries under the age of 65 years who are disabled, we are unclear that the MycarinG study included any patients generalizable to disabled Medicare patients since it excluded patients with more severe disease (severe oropharyngeal or respiratory weakness). Also, as stated previously, all MuSK ab+ patients in the treatment arms of the MycarinG study had mild or moderate disease. Given this, and that only one patient who received RYSTIGGO[supreg] was 65 years or older, the age of the majority of the Medicare population, we remain unclear that the patient population of the MycarinG trial represented the Medicare population that is eligible for this technology. Finally, we note the applicant did not provide any evidence linking patient preference to greater medication adherence or greater quality of life for patients treated with RYSTIGGO[supreg], nor any comparison of these outcomes to other treatment options. Therefore, we disagree that the administration method for RYSTIGGO[supreg] for patients with MuSK ab+ gMG demonstrates that the technology significantly improves clinical outcomes over other available treatments. After consideration of all the information received from the applicant, as well as the public comments we received, we are unable to determine that RYSTIGGO[supreg] for patients with MuSK ab+ gMG represents a substantial clinical improvement over existing technologies for the reasons discussed in the proposed rule and in this final rule, and therefore, we are not [[Page 36750]] approving new technology add-on payments for RYSTIGGO[supreg] for FY 2026. k. SYMVESSTM (Acellular Tissue Engineered Vessel-Tyod) Humacyte, Inc. submitted an application for new technology add-on payments for SYMVESSTM for FY 2026. According to the applicant, SYMVESSTM is a bioengineered, implantable blood vessel indicated for use in adults as a vascular conduit for extremity arterial injury when urgent revascularization is needed to avoid imminent limb loss and when autologous vein grafting is not feasible. The applicant stated that SYMVESSTM is composed of organized extracellular matrix proteins in the tubular form of a blood vessel and is used to repair, bypass, or replace arteries that have sustained traumatic injuries. Please refer to the online application posting for SYMVESSTM, available at https://mearis.cms.gov/public/publications/ntap/NTP24100639G2M, for additional detail describing the technology and the disease treated by the technology. With respect to the newness criterion, according to the applicant, SYMVESSTM was granted BLA approval from FDA on December 19, 2024, for use in adults as a vascular conduit for extremity arterial repair when urgent revascularization is needed to avoid imminent limb loss, and when autologous vein grafting is not feasible. The applicant stated that FDA required a lot release that shows results of all applicable tests prior to distribution of SYMVESSTM and that it submitted the required paperwork to FDA on December 26, 2024. The applicant stated that on February 26, 2025, FDA notified the applicant that the required review of commercial batch information was completed and authorized the applicant to commence commercial shipment; therefore, per the applicant, SYMVESSTM became commercially available as of February 26, 2025. Per the applicant, the average number of units of SYMVESSTM anticipated to be used per inpatient stay is 1 unit. The applicant stated that, effective October 1, 2024, the following ICD-10-PCS codes may be used to uniquely describe procedures involving the use of SYMVESSTM: X2R50WA (Replacement of right upper extremity artery using bioengineered human acellular vessel, open approach, new technology group 10), X2R60WA (Replacement of left upper extremity artery using bioengineered human acellular vessel, open approach, new technology group 10), X2R70WA (Replacement of right lower extremity artery using bioengineered human acellular vessel, open approach, new technology group 10), and X2R80WA (Replacement of left lower extremity artery using bioengineered human acellular vessel, open approach, new technology group 10). As previously discussed, if a technology meets all three of the substantial similarity criteria under the newness criterion, it would be considered substantially similar to an existing technology and would not be considered ``new'' for the purpose of new technology add-on payments. With respect to the substantial similarity criteria, the applicant asserted that SYMVESSTM is not substantially similar to other currently available technologies because it does not use the same or a similar mechanism of action compared to existing technologies, and that therefore, the technology meets the newness criterion. The following table summarizes the applicant's assertions regarding the substantial similarity criteria. Please see the online application posting for SYMVESSTM for the applicant's complete statements in support of its assertion that SYMVESSTM is not substantially similar to other currently available technologies. BILLING CODE 4120-01-P [[Page 36751]] [GRAPHIC] [TIFF OMITTED] TR04AU25.171 BILLING CODE 4120-01-C In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18144), we stated we had the following concerns with regard to the newness criterion. The applicant stated that SYMVESSTM has a novel mechanism of action based on its manufacturing, composition, and post-operative regenerative properties. However, we stated we were interested in more information about how the composition of SYMVESSTM is associated with its post-operative regenerative properties, and specifically how these regenerative properties are associated with its mechanism of action to achieve a therapeutic outcome, as well as how the association between SYMVESSTM's regenerative properties and mechanism of therapeutic action differs from that of autologous vein grafts. In addition, we questioned whether physiological changes, such as arterialization, cellular repopulation, and fibrosis, that occur after a conduit is implanted, should be considered part of the mechanism of action. We also noted that the applicant stated that the mechanism of action of synthetic grafts is immediate revascularization, and we questioned whether that is not also the mechanism of action of SYMVESSTM and/or autologous vein grafts. We invited public comments on whether SYMVESSTM is substantially similar to existing technologies, including whether post- implantation physiological changes should be considered as part of a technology's mechanism of action, and whether SYMVESSTM meets the newness criterion. [[Page 36752]] Comment: The applicant submitted a public comment regarding the newness criterion. The applicant reiterated that SYMVESSTM is not substantially similar to other currently available technologies because it does not use the same or a similar mechanism of action compared to existing technologies, and therefore, the technology meets the newness criterion. In response to CMS's question about how SYMVESSTM' composition is associated with regenerative properties and how these properties are associated with its mechanism of action, the applicant asserted that the composition of SYMVESSTM is unique amongst vascular conduits, which leads to its regenerative properties and new mechanism of action. Specifically, the applicant stated that unlike native veins and arteries, SYMVESSTM is a unique vascular conduit that lacks living cells and elastin. The applicant explained that SYMVESSTM' absence of living cells prevents cellular injury and inflammatory responses upon implantation, reducing risks like fibrosis, neointimal hyperplasia, and vessel occlusion. The applicant added that the lack of elastin contributes to SYMVESSTM' resistance to calcification, as calcification in native vessels often occurs near elastin proteins. The applicant further stated that SYMVESSTM contains over 40 extracellular matrix molecules typically found in the human aorta, including fibronectin, vitronectin, and collagens (types I and III), which support vascular cell adhesion, survival, migration, and integration. The applicant explained that these human extracellular matrix proteins in SYMVESSTM interact with vascular cells through specific binding motifs, facilitating cellular adhesion, migration, differentiation, and repopulation and transforming the conduit into a living blood vessel capable of consistent blood flow, long-term durability, and self- repair. The applicant further asserted that SYMVESSTM' composition, which does not contain synthetic materials or xenogeneic proteins, facilitates cellular ingrowth, remodeling, and integration without triggering foreign body reactions or fibrosis. The applicant explained that because SYMVESSTM transforms into tissue resembling the patient's native vascular structure post-implantation, critical cellular repopulation occurs, as proteins like collagen have a finite half-life in vivo, and the conduit does not then mechanically fail due to foreign proteins. The applicant emphasized that this cellular integration and matrix upkeep are key to SYMVESSTM' therapeutic effectiveness and mechanical resilience over time. The applicant stated that long-term follow-up from the V005 clinical study demonstrate SYMVESSTM' mechanical durability and stability in treating extremity vascular trauma, with excellent limb salvage rates, low infection incidence, and no spontaneous rupture over 3 years of follow-up, across a high-risk population with many severe injuries and contaminated wounds. The applicant further stated that duplex ultrasound assessments through 36 months demonstrated stable conduit dimensions without trends toward dilation or stenosis. In response to CMS's question as to how the association between SYMVESSTM' regenerative properties and mechanism of therapeutic action differs from that of autologous vein grafts, the applicant asserted that there are important differences between SYMVESSTM and autologous vein grafts related to composition, mechanism of action, and regenerative properties after implantation. The applicant stated that SYMVESSTM has greater mechanical strength than autologous vein grafts, making it a more effective option for arterial implantation. The applicant further explained that, while autologous vein grafts have a rupture strength of approximately 1,600 mmHg, SYMVESSTM has a rupture strength exceeding 3,000 mmHg, comparable to native arteries. The applicant asserted that SYMVESSTM' mechanical strength prevents over-distension and maintains its original diameter post-implantation, whereas autologous vein grafts become distended under arterial pressure, leading to cellular damage and death, which triggers inflammatory and pro-fibrotic responses, neo-intimal hyperplasia, and eventual graft occlusion. The applicant further explained SYMVESSTM avoids over- proliferation in the vascular wall due to its acellular structure, absence of an intima, and non-inflammatory protein matrix, which collectively prevent cellular over-proliferation and neo-intimal hyperplasia, ensuring long-term functionality without the need for additional interventions. In response to CMS's question about whether physiological changes, such as arterialization, cellular repopulation, and fibrosis, that occur after a conduit is implanted should be considered part of SYMVESSTM' mechanism of action, the applicant stated that these physiological changes are directly part of SYMVESSTM' mechanism of action and support its ability to provide durable blood flow to injured extremities. The applicant stated that SYMVESSTM' composition of human proteins drives cellular responses post-implantation and is central to its mechanism of action. The applicant also stated that multiple publications have not observed fibrosis, which can be triggered by synthetic materials and the production of foreign-body giant cells, after SYMVESSTM implantation. In addition, the applicant stated that SYMVESSTM conduits' physiological transformation after implantation closely mimics native vascular tissue, which cannot be achieved with synthetic grafts which remain inert and foreign to the body. In response to CMS's question whether immediate revascularization is not also the mechanism of action of SYMVESSTM and/or autologous vein grafts, the applicant asserted that SYMVESSTM' mechanism of action is the sustained and durable blood flow after implantation made possible by its unique human protein composition and resultant mechanical and biological properties. Per the applicant, this is inherently different from that of synthetic grafts, which cannot interact with human cells in the way that SYMVESSTM does, and from autologous vein grafts, which create extensive cellular damage and death after implantation which impairs the ability of the vein to maintain patency due to endothelial and smooth muscle damage. The applicant stated that SYMVESSTM' immediate physiological effect of implantation for revascularization is restoration of blood flow, which would be similar to the effect of implanting any tubular conduit, regardless of material or composition, into arterial circulation. The applicant further explained that immediate restoration of blood flow is not the important mechanism of action and associated clinical benefit of an arterial conduit, since it may not be a durable benefit for the patient. The applicant asserted that any conduit's true therapeutic effect, and hence its mechanism of action, lies in its long-term functionality and maintained post-implantation blood perfusion within the body. The applicant reiterated that SYMVESSTM' composition (both what it contains in terms of proteins that interact with cells, and what it lacks in terms of cellular content) contributes to its mechanism of action as a durable conduit that supports cellular repopulation and sustained mechanical function while avoiding cellular damage and inflammation at the time of implantation. The applicant also reiterated long-term outcomes from the V005 study regarding SYMVESSTM' durability. [[Page 36753]] Several commenters also voiced support for SYMVESSTM and asserted that SYMVESSTM has a different mechanism of action than synthetic grafts. A commenter asserted that SYMVESSTM operates through a targeted mechanism of action designed to improve blood flow, vessel wall stabilization, capacity for remodeling, and long-term viability. Other commenters described its immediate availability similar to that of synthetic grafts but stated it has a unique mechanism of action which enables integration into native vasculature. Another commenter provided its personal experience that imaging of patients post-SYMVESSTM repair often reveals no visible graft. Per the commenter, this suggests natural tissue integration and effective healing, which the commenter has not seen with other conduits. Other commenters stated that due to its acellular nature, SYMVESSTM' unique composition avoids cellular damage post-implantation, enabling better interaction with human cells, and maintaining patency, which drives its distinct regenerative properties compared to other vascular conduits. Response: We appreciate the additional information from the applicant and commenters with respect to whether SYMVESSTM is substantially similar to existing technologies. However, we disagree with the applicant and commenters that SYMVESSTM has a unique mechanism of action compared to currently available synthetic grafts. While the applicant asserted that SYMVESSTM has a novel composition, we note that, as stated in the FY 2024 IPPS/LTCH PPS final rule (88 FR 58847), the composition of a technology does not represent the mechanism of action. Further, we note the applicant's assertions that SYMVESSTM's mechanism of action is the restoration and maintenance of durable blood flow through the conduit post-implantation, achieved through a combination of immediate revascularization and long-term cellular repopulation and remodeling, and that SYMVESSTM's regenerative properties, including cellular repopulation, matrix remodeling and tissue integration are central to SYMVESSTM's mechanism of action and therapeutic effectiveness. However, we note that, per FDA, definitive studies that characterize the behavior of SYMVESSTM and how long it would take for cells to migrate and repopulate the graft have not been conducted, and that the exact mechanism of action has not been established.111 112 We remain unclear that these potential downstream effects are critical to the way SYMVESSTM provides for urgent arterial repair following extremity vascular trauma to avoid limb loss. Furthermore, we disagree with the applicant that SYMVESSTM's avoidance of cellular damage and inflammatory responses represents a novel mechanism of action. While these attributes may reduce complications such as fibrosis and neointimal hyperplasia, they do not change the fact that SYMVESSTM functions as a vascular conduit by facilitating blood flow, similar to other vascular grafts. Similarly, the long-term clinical results described by the applicant to demonstrate mechanical durability, patency, and low rates of complications relate to SYMVESSTM's clinical outcome and not mechanism of action. Similarly, with respect to the comments by several commenters that the absence of visible grafts in imaging studies post-SYMVESSTM implantation suggest natural tissue integration and effective healing, we note that this observation may reflect SYMVESSTM's biocompatibility and regenerative properties, but it does not, on its own, establish a novel mechanism of action. Tissue integration and remodeling are expected outcomes for many vascular conduits, as stated previously, and are influenced by the material and design of the graft rather than representing a new therapeutic mechanism. --------------------------------------------------------------------------- \111\ SYMVESS. USPI Section 12: Clinical Pharmacology, p. 10. \112\ December 18, 2024 Clinical Review Memo--SYMVESS, https://www.fda.gov/media/185229. --------------------------------------------------------------------------- After review of the information provided in the comments, including the applicant's assertions regarding SYMVESSTM's composition, post-implantation healing characteristics, and mechanism of action, we disagree with the applicant that the evidence provided demonstrates that SYMVESSTM has a unique mechanism of action compared to previously available technologies. Because we agree with applicant that SYMVESSTM will be assigned to the same MS- DRGs and used to treat the same type of disease in a similar patient population as existing technologies for treating significantly damaged arteries due to traumatic injuries, SYMVESSTM meets all three of the substantial similarity criteria. Therefore, we believe SYMVESSTM is substantially similar to currently approved or cleared synthetic grafts, and we consider the beginning of the newness period for SYMVESSTM to begin on the date on which those existing synthetic grafts received FDA marketing authorization. Since those technologies have been on the U.S. market for longer than 3 years, SYMVESSTM does not meet the newness criterion and is not eligible for new technology add-on payments for FY 2026. We note that we received public comments with regard to the cost and substantial clinical improvement criteria for this technology, but because we have determined that the technology does not meet the newness criterion and, therefore is not eligible for approval for new technology add-on payments for FY 2026, we are not summarizing comments received or making a determination on those criteria in this final rule. l. TECELRA[supreg] (Afamitresgene Autoleucel) Adaptimmune, LLC submitted an application for new technology add-on payments for TECELRA[supreg] for FY 2026. According to the applicant, TECELRA[supreg] is a melanoma-associated antigen A4 (MAGE-A4)-directed genetically modified autologous T-cell immunotherapy (also referred to as an autologous T-cell receptor (TCR) therapy) indicated for the treatment of adults with unresectable or metastatic synovial sarcoma who have received prior chemotherapy, are HLA-A*02 subtype positive, and whose tumor expresses the MAGE-A4 antigen. Per the applicant, TECELRA[supreg] is composed of T cells genetically modified to express affinity-enhanced TCRs specific to the MAGE-A4 protein, which is expressed by synovial sarcoma tumor cells at varying frequencies. Please refer to the online application posting for TECELRA[supreg], available at https://mearis.cms.gov/public/publications/ntap/NTP241004LTDY2, for additional detail describing the technology and the disease treated by the technology. With respect to the newness criterion, according to the applicant, TECELRA[supreg] was granted BLA accelerated approval from FDA on August 1, 2024 for treatment of adults with unresectable or metastatic synovial sarcoma who have received prior chemotherapy; are HLA- A*02:01P, HLA-A*02:02P, HLA-A*02:03P, or HLA-A*02:06P positive; and whose tumor expresses the MAGE-A4 antigen as determined by FDA-approved or cleared companion diagnostic devices. Per the applicant, TECELRA[supreg] was commercially available immediately after receiving FDA marketing authorization. The applicant stated that TECELRA[supreg] is a single, one-time, patient-specific treatment delivered as an intravenous infusion containing 2.68 x 10\9\ to 10 x 10\9\ [[Page 36754]] MAGE-A4 TCR positive T-cells, in one or more infusion bag(s). The applicant stated that, effective October 1, 2022, the following ICD-10-PCS codes may be used to uniquely describe procedures involving the use of TECELRA[supreg]: XW03368 (Introduction of afamitresgene autoleucel immunotherapy into peripheral vein, percutaneous approach, new technology group 8) or XW04368 (Introduction of afamitresgene autoleucel immunotherapy into central vein, percutaneous approach, new technology group 8). As previously discussed, if a technology meets all three of the substantial similarity criteria under the newness criterion, it would be considered substantially similar to an existing technology and would not be considered ``new'' for the purpose of new technology add-on payments. With respect to the substantial similarity criteria, the applicant asserted that TECELRA[supreg] is not substantially similar to other currently available technologies because TECELRA[supreg] is the first FDA-approved engineered TCR T-cell therapy with a unique mechanism of action that is distinct from that of other marketed therapeutic products, the only therapy approved for synovial sarcoma assigned to MS-DRG 018 (Chimeric Antigen Receptor (CAR) T-Cell and Other Immunotherapies), and the only therapy studied specifically in the synovial sarcoma patient population and FDA-approved specifically for the treatment of synovial sarcoma. Therefore, according to the applicant, the technology meets the newness criterion. The following table summarizes the applicant's assertions regarding the substantial similarity criteria. Please see the online application posting for TECELRA[supreg] for the applicant's complete statements in support of its assertion that TECELRA[supreg] is not substantially similar to other currently available technologies. BILLING CODE 4120-01-P [[Page 36755]] [GRAPHIC] [TIFF OMITTED] TR04AU25.172 BILLING CODE 4120-01-C In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18150), we noted that the applicant stated that TECELRA[supreg] is the only FDA-approved therapy specifically studied and approved for patients with synovial sarcoma, therefore, it does not involve the treatment of a similar type of disease or patient population as existing technologies. While the applicant stated that other therapies in the National Comprehensive Cancer Network Clinical Practice Guidelines (NCCN Guidelines[supreg]), such as pazopanib, are indicated for use in the broader STS population rather than specifically for synovial sarcoma, we noted that synovial sarcoma is a type of STS. Consequently, we questioned whether existing treatments indicated for STS, which can be used for the treatment of specific subtypes of STS, such as synovial sarcoma, would treat the same or similar patient population as TECELRA[supreg]. We invited public comments on whether TECELRA[supreg] is substantially similar to existing technologies and whether TECELRA[supreg] meets the newness criterion. Comment: The applicant submitted a public comment reiterating that [[Page 36756]] TECELRA[supreg] meets the newness criterion because it is the first FDA-approved engineered TCR T-cell therapy with a unique mechanism of action that is distinct from that of other marketed therapeutic products, the only therapy approved for synovial sarcoma assigned to MS-DRG 018, and the only therapy studied specifically in the synovial sarcoma patient population and FDA-approved for the treatment of synovial sarcoma. In response to CMS's question about whether existing treatment indicated for STS, which can be used for the treatment of specific subtypes of STS, such as synovial sarcoma, would treat the same or similar patient population as TECELRA[supreg], the applicant stated that existing treatments used for STS do not treat the same, or similar, patient population as TECELRA[supreg]. The applicant explained that STS is a broad and heterogeneous group of solid tumors with more than 50 different histologic subtypes of STS identified, differing widely in morphology, genetic aberrations, and expression of tumor antigens. The applicant submitted a review article by Beck et al. (2009),\113\ which stated that synovial sarcoma is a distinct subtype of STS with a pattern of dysregulated gene expression and a cluster that separates it from other STS. Specifically, the applicant stated that Beck et al. (2009) explained that synovial sarcoma has a unique gene expression that includes increased expression of genes associated with neural differentiation, the retinoic acid pathway, and epidermal and fibroblast growth factor receptor signaling pathways. The applicant further explained that, given the lack of data and FDA-approved synovial sarcoma-specific therapies, the NCCN Guidelines recommend systemic therapies for patients with unresectable recurrent or metastatic disease while acknowledging that the benefits of systemic therapy are very limited. The applicant stated that the SPEARHEAD-1 trial studied TECELRA[supreg] in a targeted population, of which the majority (44 out of 52) of patients had synovial sarcoma. The applicant added that the SPEARHEAD-1 trial was unique in the STS field because it was designed to utilize the specific tumor antigen (MAGE-A4) expression expressed in 70 percent of the synovial sarcoma patient population. Given the results of the SPEARHEAD-1 trial, the applicant asserted that TECELRA[supreg] is the only product in the recently updated NCCN Guidelines specifically recommended for synovial sarcoma. --------------------------------------------------------------------------- \113\ Beck, A.H., West, R.B., & van de Rijn, M. (2009). Gene expression profiling for the investigation of soft tissue sarcoma pathogenesis and the identification of diagnostic, prognostic, and predictive biomarkers. Virchows Arch 456(1): 141-151. https://doi.org/10.1007/s00428-009-0774-2. --------------------------------------------------------------------------- Response: We thank the applicant for its comment. Based on our review of comments received and information submitted by the applicant as part of its FY 2026 new technology add-on payment application for TECELRA[supreg], we agree with the applicant that TECELRA[supreg] uses a unique mechanism of action because its modified T-cells target and destroy MAGE-A4 expressing cancer cells in adults with unresectable or metastatic synovial sarcoma who have received prior chemotherapy, are HLA-A*02 subtype positive, and whose tumor expresses the MAGE-A4 antigen. We also agree with the applicant that TECELRA[supreg] is the only synovial sarcoma therapy assigned to MS-DRG 018 (Chimeric Antigen Receptor (CAR) T-Cell and Other Immunotherapies). Therefore, we agree with the applicant that TECELRA[supreg] is not substantially similar to existing treatment options and meets the newness criterion. We consider the beginning of the newness period to commence on August 1, 2024, the date on which TECELRA[supreg] received FDA market authorization for treatment of adults with unresectable or metastatic synovial sarcoma who have received prior chemotherapy; are HLA-A*02:01P, HLA-A*02:02P, HLA-A*02:03P, or HLA-A*02:06P positive; and whose tumor expresses the MAGE-A4 antigen as determined by FDA-approved or cleared companion diagnostic devices. With respect to the cost criterion, the applicant provided four analyses to demonstrate that TECELRA[supreg] meets the cost criterion. Each analysis followed the order of operations summarized in the following table. BILLING CODE 4120-01-P [[Page 36757]] [GRAPHIC] [TIFF OMITTED] TR04AU25.173 BILLING CODE 4120-01-C Because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount in all four scenarios, the applicant asserted that TECELRA[supreg] meets the cost criterion. We invited public comments on whether TECELRA[supreg] meets the cost criterion. Comment: The applicant reiterated that the four cost criterion analyses submitted with its application demonstrated that the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount, and therefore, TECELRA[supreg] meets the cost criterion. Response: We thank the applicant for its comment. We agree that the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount under all scenarios. Therefore, TECELRA[supreg] meets the cost criterion. With regard to the substantial clinical improvement criterion, the applicant asserted that TECELRA[supreg] represents a substantial clinical improvement over existing technologies because TECELRA[supreg] is the first and only FDA-approved therapy for eligible patients with unresectable or metastatic synovial sarcoma; is a new treatment option for eligible patients with unresectable or metastatic synovial sarcoma, who are unresponsive to existing systemic therapies after first-line (1L) progression; offers significant clinical improvement in overall response rate (ORR) and overall survival (OS) compared to existing therapies; and is well-tolerated with a manageable safety profile. The applicant provided 1 published study, TECELRA[supreg]'s prescribing information, and an FDA press release to support these claims, as well as 15 background articles about TCR T-cell therapies, expression of MAGE-A4 in tumors, the prevalence of HLA-A subtypes, other 2L synovial sarcoma treatments, and the burden of illness for patients with synovial sarcoma and myxoid/round cell liposarcoma (MRCLS).\114\ The following table summarizes the applicant's assertions regarding the substantial clinical improvement criterion. Please see the online posting for TECELRA[supreg] for the applicant's complete statements regarding the substantial clinical improvement criterion and the supporting evidence provided. --------------------------------------------------------------------------- \114\ Background articles are not included in the following table but can be accessed via the online posting for the technology. --------------------------------------------------------------------------- BILLING CODE 4120-01-P [[Page 36758]] [GRAPHIC] [TIFF OMITTED] TR04AU25.174 BILLING CODE 4120-01-C In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18152), after review of the supporting evidence provided by the applicant, we stated we had the following concerns regarding whether TECELRA[supreg] meets the substantial clinical improvement criterion. With respect to the assertion that TECELRA[supreg] offers a treatment option for a patient population unresponsive to, or ineligible for, currently available treatments, we noted that TECELRA[supreg], being the first approved TCR therapy, may relate to mechanism of action under the newness criterion, but is not relevant to the demonstration of substantial clinical improvement. Further, while the applicant stated that TECELRA[supreg] is the first and only therapy approved specifically for patients with unresectable or metastatic synovial sarcoma, we noted that synovial sarcoma is a subtype of the broader STS group. According to the applicant, there were no therapies approved by FDA specifically for synovial sarcoma, and pazopanib and trabectedin are two therapies that may be used to manage synovial sarcoma in subsequent-line settings. However, according to the NCCN Clinical Guidelines[supreg] for STS, there are other available treatments that treat advanced and metastatic STS, including synovial sarcoma, which include pazopanib and trabectedin. Therefore, we questioned whether the applicant's claim supports that TECELRA[supreg] offers a treatment option for a patient population unresponsive to, or ineligible for, currently available treatments given there are other available treatments for patients with STS that would also treat patients with unresectable or metastatic synovial sarcoma. In addition, while the applicant stated that TECELRA[supreg] is a new treatment option for patients with unresectable or metastatic synovial sarcoma unresponsive to existing systemic therapies after previous 1L treatments such as anthracycline- based or ifosfamide-based therapy due to limited effectiveness, ORR, and OS, it is unclear whether this patient population is unresponsive to or ineligible for other existing treatments such as trabectedin, in which higher response rates of 27-51 percent have been reported.\115\ We noted that while patients in the SPEARHEAD-1 study received multiple [[Page 36759]] previous lines of systemic therapy, the study did not list these therapies while noting that bridging therapy, including pazopanib, trabectedin, ifosfamide, or doxorubicin, was permissible between leukapheresis and lymphodepletion at the investigators' discretion. Therefore, we questioned whether TECELRA[supreg] offers a treatment for a patient population unresponsive to, or ineligible for, currently available treatments. --------------------------------------------------------------------------- \115\ Takahashi M, Takahashi S, Araki N, et al. Efficacy of trabectedin in patients with advanced translocation-related sarcomas: pooled analysis of two phase II studies. Oncologist 2017; 22: 979-88. --------------------------------------------------------------------------- With regard to the claim that TECELRA[supreg] offers a significant clinical improvement in ORR and OS compared to existing therapies, we stated that the applicant provided the SPEARHEAD-1 phase II clinical trial (D'Angelo et al., 2024), which assessed TECELRA[supreg]'s efficacy in 44 patients (aged 16 to 75 years) with metastatic or unresectable synovial sarcoma who previously received at least 1 prior line of anthracycline-containing or ifosfamide-containing chemotherapy. The SPEARHEAD-1 study found that synovial sarcoma patients treated with TECELRA[supreg] had an ORR of 39 percent and a median OS (mOS) of 16.9 months. According to the applicant, the study demonstrated a higher ORR and longer mOS than those from historical studies with pazopanib (18.9 percent, 10.3 months), trabectedin (12.3 percent, 10.4 months), gemcitabine/docetaxel (4.5-5.0 percent, 8.4-14 months), and regorafenib (8 percent, 13.4 months).116 117 118 119 The applicant also stated that, although listed in the NCCN Clinical Guidelines[supreg] for STS, eribulin, dacarbazine, temozolomide, and vinorelbine have not been adequately studied in previously treated unresectable or metastatic synovial sarcoma patients, and therefore, their effectiveness for this patient population cannot be determined (NCCN, 2024). However, we noted that patients with unresectable or metastatic synovial sarcoma treated with TECELRA[supreg] demonstrated a mOS of 16.9 months, which is similar to the historical benchmark results from patients treated with gemcitabine/docetaxel (8.4 to 14 months) and regorafenib (13.4 months). In addition, we noted that the mOS for SPEARHEAD-1 non-responders was comparable to existing therapies, and we questioned whether the baseline characteristics of the study population, such as biomarkers of resistance to TECELRA[supreg] rather than the treatment itself, may account for the observed survival outcomes. Furthermore, we noted that TECELRA[supreg] is indicated for patients with tumors expressing the MAGE-A4 tumor antigen, and we questioned whether the provided historical benchmark results for other treatments in which study participants were not tested for biomarkers, such as MAGE-A4, may represent different target populations from that of TECELRA[supreg]. Finally, we noted that the applicant compared the clinical outcomes from the SPEARHEAD-1 study to historical controls without appropriate statistical adjustments to account for differences in study designs. We questioned whether these differences may introduce confounders which could reduce the validity of the results of the comparison. --------------------------------------------------------------------------- \116\ Carroll, C., Patel, N., Gunsoy, N.B., Stirnadel-Farrant, H.A., & Pokras, S. (2022). Meta-analysis of pazopanib and trabectedin effectiveness in previously treated metastatic synovial sarcoma (second-line setting and beyond). Future Oncology, 18(32), 3651-3665. https://doi.org/10.2217/fon-2022-0348. \117\ Pender, A., Davis, E.J., Chauhan, D., Messiou, C., Al- Muderis, O., Thway, K., . . . & Jones, R.L. (2018). Poor treatment outcomes with palliative gemcitabine and docetaxel chemotherapy in advanced and metastatic synovial sarcoma. Medical Oncology, 35, 1-5. https://doi.org/10.1007/s12032-018-1193-5. \118\ Tansir, G., Rastogi, S., Kumar, A., Barwad, A., Mridha, A.R., Dhamija, E., . . . & Bhoriwal, S. (2023). A phase II study of gemcitabine and docetaxel combination in relapsed metastatic or unresectable locally advanced synovial sarcoma. BMC Cancer, 23(1), 639. https://doi.org/10.1186/s12885-023-11099-4. \119\ Mir, O., Brodowicz, T., Italiano, A., Wallet, J., Blay, J.Y., Bertucci, F., . . . & Penel, N. (2016). Safety and efficacy of regorafenib in patients with advanced soft tissue sarcoma (REGOSARC): a randomised, double-blind, placebo-controlled, phase 2 trial. The Lancet Oncology, 17(12), 1732-1742. https://doi.org/10.1016/S1470-2045(16)30507-1. --------------------------------------------------------------------------- With respect to the claim that TECELRA[supreg] is well-tolerated and has a manageable safety profile, we stated that the applicant stated that the SPEARHEAD-1 clinical trial found that 75 percent of patients experienced cytokine release syndrome (CRS), with only one patient experiencing grade >=3 CRS, and one patient experienced symptoms consistent with grade 1 immune effector cell-associated neurotoxicity syndrome (ICANS). The applicant stated that, compared to CAR T-cell therapies, the CRS associated with TECELRA[supreg] is modest (Tsimberidou et al., 2021). However, we stated we were unclear why the applicant compared the safety profile of TECELRA[supreg] to CAR T-cell therapies (which are not approved for use in STS) rather than other available therapies that treat unresectable or metastatic synovial sarcoma. Therefore, we stated we were interested in evidence comparing TECELRA[supreg]'s safety profile to other, non-CAR T-cell treatments for unresectable or metastatic synovial sarcoma. The applicant also stated that because TECELRA[supreg] is a single administration, recipients are less likely to experience repeated adverse events from the infusion compared to treatments requiring multiple/regular continuous or cyclical administrations; however, we questioned the basis for this claim as the applicant did not provide any supporting evidence. We invited public comments on whether TECELRA[supreg] meets the substantial clinical improvement criterion. Comment: Several commenters stated support for the approval of TECELRA[supreg] for the new technology add-on payment program. A few commenters further stated that approval would allow for increased patient access to this new therapy. A few commenters also underlined their support for approval by stating TECELRA[supreg] is an innovative, significantly advanced and meaningful therapy that addresses an unmet need in the treatment of synovial sarcoma, an ultrarare cancer accounting for <10 percent of all STS, and asserted that new technology add-on payments for TECELRA[supreg] would make it financially feasible for hospitals to provide innovative care that improves patient outcomes. Response: We thank the commenters for their input and have taken it into consideration in determining whether TECELRA[supreg] meets the substantial clinical improvement criterion as discussed later in this section. Comment: The applicant submitted a public comment regarding the substantial clinical improvement criterion and provided responses to CMS's concerns from the proposed rule. The applicant reiterated that TECELRA[supreg] meets the substantial clinical improvement criterion because it offers a treatment option for a patient population unresponsive to, or ineligible for, currently available treatments and significantly improves clinical outcomes relative to previously available services or technologies. In response to CMS's concern whether TECELRA[supreg] offers a treatment option for a patient population unresponsive to, or ineligible for, currently available treatments given there are other available treatments for patients with STS that would also treat patients with unresectable or metastatic synovial sarcoma, the applicant stated that advanced synovial sarcoma patients have limited treatment options because, as they experience disease progression, patients develop resistance, or in some cases intolerance, to treatment. The applicant also reiterated that the current treatment options listed in the NCCN Guidelines were not studied or approved specifically for the treatment [[Page 36760]] of synovial sarcoma. The applicant asserted that other current treatment options have a minimal impact on ORR and OS in this patient population. The applicant further explained that due to the broad and heterogenous subtypes of STS, clinical studies face challenges in enrolling patients for only one subtype due to limited numbers. The applicant stated that studies like PALETTE (44 out of 369 patients had SyS) and REGOSARC (27 out of 182 patients had SyS) provide limited data for synovial sarcoma, leaving clinicians reliant on limited results applicable to synovial sarcoma for treatment decisions. The applicant reiterated that the SPEARHEAD-1 clinical trial studied TECELRA[supreg] in heavily pretreated patients, many of whom had failed multiple prior therapies. The applicant asserted that, given that the SPEARHEAD-1 participants failed multiple prior lines of treatment and were no longer eligible for other treatment options due to toxicity, it is reasonable to conclude that this patient population is unresponsive to or ineligible for other currently available treatment options. In response to CMS's concern that it was unclear whether patients with unresectable or metastatic synovial sarcoma who are unresponsive to existing systemic therapies after previous 1L treatments are unresponsive to or ineligible for other existing treatments, such as trabectedin, in which higher response rates have been reported, the applicant stated that higher response rates for other existing treatment options have not been reported. The applicant asserted that TECELRA[supreg] demonstrated a significant clinical improvement for synovial sarcoma patients by achieving a 43.2 percent ORR compared to historical controls, such as trabectedin (up to 12.3 percent) and pazopanib (up to 18.9 percent). The applicant further stated that the higher ORR rates (27 to 51 percent) referenced by CMS were not specific to synovial sarcoma, but rather pooled analyses of other sarcoma subtypes, with synovial sarcoma showing much lower response rates (5.9 percent for trabectedin). The applicant stated that a meta-analysis of trabectedin and pazopanib reported similar results in patients with metastatic synovial sarcoma, with trabectedin and pazopanib producing an ORR of 7 and 13.2 percent in clinical trials and 12.3 and 18.9 percent in real-world studies, respectively. The applicant reiterated that the SPEARHEAD-1 trial for TECELRA[supreg] used a benchmark ORR of 18 percent based on historical second-line therapies and agreed upon by FDA, and TECELRA[supreg]'s ORR significantly exceeded this benchmark, underscoring its efficacy in treating heavily pretreated synovial sarcoma patients. In response to CMS's concern that the SPEARHEAD-1 study allowed bridging therapy including pazopanib, trabectedin, ifosfamide, or doxorubicin, between leukapheresis and lymphodepletion at the investigators' discretion putting into question whether the results can solely be attributable to TECELRA[supreg], the applicant reiterated that TECELRA[supreg] provides a treatment option for synovial sarcoma patients who are unresponsive to or ineligible for existing therapies, which have limited efficacy and are not specifically approved for synovial sarcoma. The applicant further explained that patients in the SPEARHEAD-1 study were heavily pretreated with a median of three prior lines of therapy, including standard agents like ifosfamide, doxorubicin, and pazopanib. The applicant stated that some patients received bridging therapy to control disease progression temporarily, but these strategies required a washout period before TECELRA[supreg] treatment. The applicant also stated that patients who received bridging therapy notably had a lower ORR of 25 percent compared to 46 percent for those who did not, indicating that bridging therapies did not contribute to improved outcomes. In response to CMS's concern that patients with unresectable or metastatic synovial sarcoma treated with TECELRA[supreg] demonstrated a similar mOS to historical benchmark results of gemcitabine/docetaxel and regorafenib, the applicant reiterated that TECELRA[supreg] offers a significant clinical improvement in OS compared to existing therapies. The applicant stated that patients with advanced synovial sarcoma who were treated with TECELRA[supreg] demonstrated a mOS of 16.9 months (95 percent CI 10.9-not estimable) in the SPEARHEAD-1 phase II clinical trial conducted at 23 sites in Canada, the U.S., and Europe. The applicant stated that the data referenced in its application for other therapies comes from studies of various designs and scientific rigor, conducted at limited treatment sites, and showed limited efficacy and no statistical benefit over placebo in trials. In contrast, the applicant stated that the SPEARHEAD-1 trial for TECELRA[supreg] was an open-label, single arm, phase II trial specifically designed to evaluate efficacy and safety outcomes in populations of advanced synovial sarcoma and MRCLS patients, with a primary endpoint of ORR, a secondary endpoint of OS, and a prespecified statistical analysis plan. The applicant highlighted that Carroll et al. (2022) conducted a meta- analysis that evaluated clinical trials and real-world studies of pazopanib and trabectedin in previously treated metastatic synovial sarcoma patients and found: an mOS of 10.3 months (95 percent CI 8.4- 12.6) for 4 pazopanib studies that included 4 to 38 patients; an mOS of 10.5 months (95 percent CI 8.2-13.4) when restricted to pazopanib studies with greater than or equal to ten participants; a mOS of 10.4 months (95 percent CI 7.3-14.8) when using 4 trabectedin studies with 3 to 101 patients; and 10.8 months (95 percent CI 8.4-13.9) when restricted to 3 trabectedin studies with 10 or more participants. As for the data supporting gemcitabine and docetaxel in synovial sarcoma, the applicant stated the data are limited and come from analyses of various designs and two studies that show partial response in only one patient. In contrast, the applicant reiterated that the SPEARHEAD-1 study demonstrated an ORR of 39 percent in patients with synovial sarcoma and a mOS of 16.9 months (95 percent CI 10.9-NE). The applicant further stated that the OS among patients who responded to TECELRA[supreg] (mOS not reached; 95 percent CI 15.4-NE) was significantly improved versus non-responders (10.9 months; 95 percent CI 5.2-20.9; p<0.0001). The applicant stated that, when FDA re- evaluated the efficacy information during its review of the TECELRA[supreg] BLA, the ORR was revised to 43.2 percent (19 of 44 patients) including 2 incomplete responses (4.5 percent) and 17 partial responses (38.6 percent). The applicant stated that, given the study design, it is confident that the ORR of 39 to 43.2 percent is accurate. Lastly, the applicant stated that, even though mOS was not the primary endpoint of the SPEARHEAD-1 study, the strengths of the study provide confidence that the mOS of 16.9 months represent real improvement in patients with synovial sarcoma. In response to CMS's concern that TECELRA[supreg] is indicated for patients with tumors expressing the MAGE-A4 tumor antigen and, therefore, the provided historical benchmark results from other studies may represent different target populations from that of TECELRA[supreg], the applicant stated that the baseline characteristics of the SPEARHEAD-1 study population, including non-responders, are consistent with those of the broader synovial sarcoma population. The applicant stated that TECELRA[supreg] targets [[Page 36761]] a novel antigen with a unique mechanism of action and biomarkers of resistance have not been observed. The applicant stated that the patient population in Carroll et al. (2022) had similar baseline characteristics to the patient population in the SPEARHEAD-1 study. The applicant explained that, although cancer-testis antigen expression in solid tumors, such as MAGE-A4 in synovial sarcoma, was not used to select patients in past studies, current evidence by immunohistochemistry shows that 70 to 82 percent of synovial sarcoma tumors express MAGE-A4. The applicant stated that, therefore, it expects to see the same prevalence of antigen expression as in prior studies. The applicant further stated that a retrospective study of adult patients with metastatic synovial sarcoma from the French Sarcoma Group NetSARC database found that expression of MAGE-A4 and HLA-A genotype did not affect prognosis in synovial sarcoma. The applicant asserted that patients with metastatic synovial sarcoma who are MAGE-A4 positive/HLA-A*02 eligible exhibited similar prognosis as the rest of the population, strengthening the absence of selection bias in TECELRA[supreg] trials. Similarly, a commenter stated that there are no biomarkers for synovial sarcoma prognosis and that MAGE-A4 positive synovial sarcoma is not a different disease than MAGE-A4 negative synovial sarcoma. According to this commenter, there is no evidence that MAGE-A4 tumor expression is associated with synovial sarcoma prognosis, and there is no biological reason to suspect that it could be the case. In response to CMS's question whether the applicant had compared clinical outcomes from the SPEARHEAD-1 study to historical controls without appropriate statistical adjustment to account for differences in the study designs, the applicant submitted two analyses containing indirect treatment comparisons to assess the relative efficacy of TECELRA[supreg] versus relevant comparators (pazopanib, trabectedin, gemcitabine/docetaxel, and regorafenib) in patients with advanced or metastatic synovial sarcoma. The applicant stated that, since most trials that included patients with synovial sarcoma were single-arm trials, it conducted unanchored matching-adjusted indicated comparisons (MAICs) to assess ORR and OS and a simulated treatment comparison analysis for these endpoints to serve as a sensitivity analysis to the MAICs. The applicant asserted that the point estimates from these analyses were either statistically significant or trended in favor of TECELRA[supreg] for both ORR and OS. The applicant further stated that, in those instances where point estimate results were not statistically significant, interpretation of the 95 percent CI demonstrated clinical meaningfulness in favor of TECELRA[supreg] (lower limits of CI for ORR and upper limits of CI on the HRs for OS). In response to CMS's question as to why the applicant compared the safety profile of TECELRA[supreg] to CAR T-cell therapies (which are not approved for use in STS) rather than other available therapies that treat unresectable or metastatic synovial sarcoma, the applicant stated that it made the comparison to CAR T-cell therapies because of the unique hematological aspects of cellular therapy for any indication. The applicant also provided a side-by-side adverse event list comparing TECELRA[supreg] to other treatments for STS (pazopanib, trabectedin, and regorafenib). In response to CMS's question about the support for the applicant's statement that, because TECELRA[supreg] is a single administration, recipients are less likely to experience repeated adverse events from the infusion, compared to treatments requiring multiple or regular continuous or cyclical administrations, the applicant stated that the most common adverse events for TECELRA[supreg] were expected, reversible, and manageable with supportive care. The applicant further stated that, unlike TECELRA[supreg]'s one-time administration, other therapies currently used for STS involve continuous or cyclical dosing with repeated or long-term AEs. The applicant noted that for trabectedin, repeated dosing may lead to rhabdomyolysis, hepatotoxicity, and cardiomyopathy; for pazopanib, continuous dosing is associated with hepatotoxicity and hypertension within 18 weeks; and for regorafenib, cyclical administration can lead to liver dysfunction due to hepatocellular injury within 2 months. The applicant asserted that TECELRA[supreg] offers a favorable benefit-risk profile with a single-dose regimen and manageable adverse events, making it a viable option for patients with contraindications to or risks associated with toxicities from other current treatments used for STS. Similarly, a few commenters stated that TECELRA[supreg] provides a safe and more tolerable treatment option for patients with synovial sarcoma. Lastly, a commenter stated that, compared to traditional therapies that require multiple cycles and prolonged exposure to toxic side effects, synovial sarcoma patients treated with TECELRA[supreg] have reported improved quality of life due to the convenience of a single treatment administration and the reduced exposure to ongoing toxicities associated with traditional therapies, representing a significant step forward in the treatment of synovial sarcoma. Response: We thank the applicant and other commenters for their comments regarding the substantial clinical improvement criterion. Based on the additional information received, we agree with the applicant and other commenters that TECELRA[supreg] represents a substantial clinical improvement over existing technologies because it offers an improvement in ORR of 43.2 percent compared to up to 18.9 percent for existing treatments with a single treatment for adults with unresectable or metastatic synovial sarcoma who have received prior chemotherapy, are HLA-A*02 subtype positive, and whose tumor expresses the MAGE-A4 antigen. After consideration of the public comments we received and the information included in the applicant's new technology add-on payment application, we have determined that TECELRA[supreg] meets the criteria for approval for new technology add-on payment. Therefore, we are approving new technology add-on payments for this technology for FY 2026. Cases involving the use of TECELRA[supreg] that are eligible for new technology add-on payments will be identified by ICD-10-PCS code XW03368 (Introduction of afamitresgene autoleucel immunotherapy into peripheral vein, percutaneous approach, new technology group 8) or XW04368 (Introduction of afamitresgene autoleucel immunotherapy into central vein, percutaneous approach, new technology group 8). In its application, the applicant estimated that the cost of the one-time TECELRA[supreg] infusion is $727,000 per patient based on a single, one-time, patient-specific treatment delivered as a cell suspension for intravenous infusion containing 2.68 x 10\9\ to 10 x 10\9\ MAGE-A4 TCR positive T-cells. Under Sec. 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS-DRG payment for the case. As a result, the maximum new technology add-on payment for a case involving the use of TECELRA[supreg] is $472,550 for FY 2026. m. ZIIHERA[supreg] (Zanidatamab-hrii) Jazz Pharmaceuticals, Inc. submitted an application for new technology add-on payments for ZIIHERA[supreg] for FY 2026. According to the applicant, ZIIHERA[supreg] is [[Page 36762]] a bispecific human epidermal growth factor receptor 2 (HER2)-directed antibody for the treatment of adults with previously treated, unresectable or metastatic HER2-positive (IHC 3+) biliary tract cancer (BTC). Please refer to the online application posting for ZIIHERA[supreg], available at https://mearis.cms.gov/public/publications/ntap/NTP240925MW5YD, for additional detail describing the technology and the disease treated by the technology. With respect to the newness criterion, according to the applicant, ZIIHERA[supreg] was granted BLA approval from FDA on November 20, 2024, for the treatment of adults with previously treated, unresectable or metastatic HER2-positive (IHC 3+) BTC as detected by an FDA-approved test. According to the applicant, ZIIHERA[supreg]'s market availability was delayed to allow for final packaging with FDA approved labels and package inserts as well as to allow time for shipment to channel distribution points, therefore, ZIIHERA[supreg] became commercially available as of December 2, 2024. We stated we were interested in additional information regarding the cause of any delay in the technology's commercial availability, such as related to packaging and shipment to channel distribution points. According to the applicant, ZIIHERA[supreg] is administered intravenously in doses of 20 mg/kg once every 2 weeks until disease progression or unacceptable toxicity; therefore, the dose per inpatient stay is 1,400 mg. The applicant stated that effective October 1, 2024, the following ICD-10-PCS codes may be used to uniquely describe procedures involving the use of ZIIHERA[supreg]: XW033CA (Introduction of zanidatamab antineoplastic into peripheral vein, percutaneous approach, new technology group 10) or XW043CA (Introduction of zanidatamab antineoplastic into central vein, percutaneous approach, new technology group 10). The applicant stated that C22.1 (Intrahepatic bile duct carcinoma), C23 (Malignant neoplasm of gallbladder), C24.0 (Malignant neoplasm of extrahepatic bile duct), C24.8 (Malignant neoplasm of overlapping sites of biliary tract), C24.9 (Malignant neoplasm of biliary tract, unspecified); or Z51.11 (Encounter for antineoplastic chemotherapy) may be used to currently identify the indication for ZIIHERA[supreg] under the ICD-10-CM coding system. As previously discussed, if a technology meets all three of the substantial similarity criteria under the newness criterion, it would be considered substantially similar to an existing technology and would not be considered ``new'' for the purpose of new technology add-on payments. With respect to the substantial similarity criteria, the applicant asserted that ZIIHERA[supreg] is not substantially similar to other currently available technologies because ZIIHERA[supreg]'s novel and distinct mechanisms of action are not the same or substantially similar to those of other currently available therapies used for the treatment of adults with previously treated, unresectable/metastatic HER2+ (IHC 3+) BTC. In addition, the applicant asserted that ZIIHERA[supreg] is the first and only bispecific HER2-directed antibody indicated for this population, and that therefore, the technology meets the newness criterion. The following table summarizes the applicant's assertions regarding the substantial similarity criteria. Please see the online application posting for ZIIHERA[supreg] for the applicant's complete statements in support of its assertion that ZIIHERA[supreg] is not substantially similar to other currently available technologies. BILLING CODE 4120-01-P [[Page 36763]] [GRAPHIC] [TIFF OMITTED] TR04AU25.175 BILLING CODE 4120-01-C In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18154), after review of the information provided by the applicant, we noted that while the applicant stated that ZIIHERA[supreg] is the first and only bispecific HER2-directed, biparatopic antibody approved by FDA for the treatment of adults with previously treated, unresectable/metastatic HER2+ (IHC 3+) BTC, there are several existing treatment options for patients with unresectable/metastatic HER2+ (IHC 3+) BTC such as FOLFOX, FOLFIRI, STIVARGA[supreg], or [[Page 36764]] ENHERTU[supreg].\120\ Therefore, we stated it was unclear how ZIIHERA[supreg] treats a new patient population or disease as compared to these existing treatments. --------------------------------------------------------------------------- \120\ National Comprehensive Care Network (NCCN). (2024, November 27). NCCN Guidelines Version 5.2024 Biliary Tract Cancers. Retrieved on January 8, 2025, from https://www.nccn.org. --------------------------------------------------------------------------- We invited public comments on whether ZIIHERA[supreg] is substantially similar to existing technologies and whether ZIIHERA[supreg] meets the newness criterion. Comment: A commenter submitted a public comment stating that ZIIHERA[supreg]'s bispecific design targets two non-overlapping HER2 epitopes, enhancing receptor clustering, internalization, and immune- mediated cytotoxicity. The commenter stated that this dual engagement mechanism distinguishes it from other HER2-directed agents used in BTC, such as trastuzumab deruxtecan (T-DXd), which relies on a cytotoxic payload, or trastuzumab-based combinations, which may provide less potent HER2 blockade in this disease context. Response: We thank the commenter for its comment. Comment: The applicant submitted a public comment regarding the newness criterion. The applicant reiterated its statements from its new technology add-on payment application in support of its assertion that ZIIHERA[supreg] meets the newness criterion, including that it is the first and only FDA-approved, HER2-directed bispecific antibody indicated for the treatment of adults with previously treated, unresectable/metastatic HER2+ (IHC3+) BTC, and that it has a unique mechanism of action. The applicant reiterated that ZIIHERA[supreg]'s unique asymmetric antibody design, its biparatopic bispecific binding, and its ability to induce HER2 receptor crosslinking and internalization is hypothesized to drive multiple mechanisms of action that lead to a reduction of HER2 from the cell surface and reduction in downstream signaling as well as complement-dependent cytotoxicity (CDC), antibody-dependent cellular cytotoxicity (ADCC), and antibody- dependent cellular phagocytosis (ADCP) to destroy and eliminate HER2- express tumor cells, all of which may support its clinical activity as a single agent. The applicant provided additional information, including figures detailing its study of ZIIHERA[supreg]'s mechanism of action observed in pre-clinical trials. The applicant stated that ZIIHERA[supreg] provides an opportunity to circumvent potential resistance mechanisms from single site HER2 agents. In response to CMS's concern about whether ZIIHERA[supreg] treats a new patient population or disease as compared to existing treatments, such as FOLFOX, FOLFIRI, STIVARGA[supreg], or ENHERTU[supreg], the applicant reiterated that ZIIHERA[supreg] is the first and only FDA- approved, HER2-directed bispecific antibody indicated for the treatment of adults with previously treated, unresectable/metastatic HER2+ (IHC3+) BTC. The applicant stated that prior to the FDA approval of ZIIHERA[supreg] and its NCCN addition as a Category 2A treatment option for BTC, the preferred subsequent-line therapy option for patients with advanced BTC who progress was FOLFOX (fluorouracil, leucovorin, and oxaliplatin) chemotherapy, as well as other systemic therapy options recommended for 2L therapy in BTC, such as FOLFIRI (fluorouracil, leucovorin, and irinotecan) and, with Category 2B evidence, STIVARGA[supreg] (regorafenib) and liposomal irinotecan plus 5- fluorouracil plus leucovorin. The applicant reiterated that, overall, these and other regimens used in the 2L or later setting are associated with response rates of approximately 3 percent to 15 percent, median PFS of approximately 3 to 7 months, and median OS of approximately 6 to 9 months, and that historically, chemotherapies have shown modest clinical benefit in the 2L or later setting and are associated with significant toxicity burden for the patients, with up to a third reported to discontinue chemotherapy because of the toxicities. The applicant also stated that chemotherapy-related toxicity may be cumulative by the time patients make it to 2L since treatment guidelines recommend the use of cisplatin and gemcitabine with or without immunotherapy as 1L treatment for patients with metastatic BTC. The applicant stated that there is a need for a chemotherapy-free option in the 2L+ setting. The applicant further stated that HER2 is an important targetable alteration, accounting for ~20 percent of BTC and provided a study that included 122 previously treated patients with HER2-amplified solid tumors including BTC that demonstrated patients who received HER2-targeted therapy had numerical improvement in mOS compared to those who did not (18.6 vs 10.9 months; hazard ratio [HR], 0.60; 95% CI, 0.34 to 1.06; P=.07), highlighting ZIIHERA[supreg]'s potential to address the serious unmet treatment need and further provide a chemotherapy-free option. In regards to ENHERTU[supreg], the applicant commented that the FDA approval and NCCN recommendation were based on the DESTINY-PanTumor2 basket trial including 41 patients with BTC who had received a median of 2 lines of prior therapy (range, 1-5), 16 of which were HER2+ (IHC3+) BTC, stating that ENHERTU[supreg] had a cORR of 56.3 percent (95% CI 29.9, 80.2), an observed mOS of 12.4 (2.8, NR) months, and a mDOR of 10.9 months (5.5, NE) while emphasizing that ENHERTU[supreg]'s FDA-approved indication is for the treatment of adult patients with unresectable or metastatic HER2-positive (IHC3+) solid tumors who have received prior systemic treatment and have no satisfactory alternative treatment options. With respect to assignment to the same MS-DRG as existing technologies, the applicant stated that it agrees with CMS that ZIIHERA[supreg] will not map to MS-DRGs distinct from other treatments administered to patients with BTC. In response to CMS's request for additional information regarding the cause of any delay in commercial availability, the applicant stated that the newness period for ZIIHERA[supreg] should begin on the date of its first market availability, December 2, 2024, and not the FDA approval date of November 20, 2024. Specifically, the applicant explained that the gap in time from FDA approval to commercial availability was to allow for final packaging with FDA-approved labels and package inserts as well as to allow time for shipment to all critical distribution points. ZIIHERA[supreg] inventory was received by specialty distributors on December 3, 2024, and was able to be ordered by end users on that date. The applicant stated its understanding that CMS's use of either date will result in the 3-year anniversary of ZIIHERA[supreg]'s entry onto the U.S. market occurring after October 1, 2027, and so long as this understanding is correct, it does not object to CMS using November 20, 2024, as the date of ZIIHERA[supreg] market availability. Response: We thank the applicant and other commenters for their comments. Based on our review of comments received and information submitted by the applicant as part of its FY 2026 new technology add-on payment application for ZIIHERA[supreg], we agree with the applicant that ZIIHERA[supreg] uses a unique mechanism of action because it is a bispecific HER2-directed, biparatopic antibody approved by FDA for the treatment of adults with previously treated, unresectable/metastatic HER2+ (IHC 3+) BTC. Therefore, we agree with the applicant that ZIIHERA[supreg] is not substantially similar to existing treatment options and meets the newness criterion. We consider the [[Page 36765]] beginning of the newness period to commence on December 2, 2024, the date on which ZIIHERA[supreg] became commercially available. With respect to the cost criterion, the applicant provided multiple analyses to demonstrate that ZIIHERA[supreg] meets the cost criterion. Each analysis followed the order of operations summarized in the following table. [GRAPHIC] [TIFF OMITTED] TR04AU25.176 [GRAPHIC] [TIFF OMITTED] TR04AU25.177 Because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount in both scenarios, the applicant asserted that ZIIHERA[supreg] meets the cost criterion. We invited public comments on whether ZIIHERA[supreg] meets the cost criterion. Comment: The applicant stated that the final inflated average case- weighted standardized charge per case exceeded the average case- weighted threshold amount for both the primary cohort and the sensitivity cohort, and thus ZIIHERA[supreg] meets the cost criterion. Response: We thank the applicant for its comments. We agree that the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount under all scenarios. Therefore, ZIIHERA[supreg] meets the cost criterion. With regard to the substantial clinical improvement criterion, the applicant asserted that ZIIHERA[supreg] represents a substantial clinical improvement over existing technologies because it is a bispecific HER2-directed antibody with multiple, distinct mechanisms of action and a differentiated clinical profile, and it is the first and only FDA-approved treatment for HER2+ (IHC 3+) BTC. In addition, the applicant asserted that ZIIHERA[supreg] fulfills an unmet need for this patient population by providing an optimal chemotherapy-free treatment option, where patients also have the potential to achieve meaningfully improved clinical benefits. The applicant provided 1 study and 2 poster presentations of the same study to support these claims, as well as 3 background articles on other treatments for advanced BTC.\121\ The following table summarizes the applicant's assertions regarding the substantial clinical improvement criterion. Please see the online posting for ZIIHERA[supreg] for the applicant's complete statements regarding the substantial clinical improvement criterion and the supporting evidence provided. --------------------------------------------------------------------------- \121\ Background articles and supplemental material are not included in the following table but can be accessed via the online posting for the technology. --------------------------------------------------------------------------- BILLING CODE 4120-01-P [[Page 36766]] [GRAPHIC] [TIFF OMITTED] TR04AU25.178 BILLING CODE 4120-01-C In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18156), after review of the information provided by the applicant, we stated we had the following concerns regarding whether ZIIHERA[supreg] meets the substantial clinical improvement criterion. With respect to the assertion that ZIIHERA[supreg] offers a treatment option for a patient population unresponsive to or ineligible for existing therapies, the applicant stated that ZIIHERA[supreg] is the first and only FDA- approved bispecific HER2-directed antibody for the treatment of adults with previously treated, unresectable/metastatic HER2+ (IHC 3+) BTC. However, we noted that while the target (HER2+) and type of therapy (bispecific antibody) for a particular indication may relate to mechanism of action under the newness criterion, it is not relevant to the demonstration of substantial clinical improvement. Further, we noted that the applicant stated that FOLFOX is the preferred subsequent line therapy option for these patients, and we also noted that NCCN guidelines list additional available therapies including: FOLFIRI, ENHERTU[supreg], and HERCEPTIN[supreg] plus TUKYSA[supreg]. We further noted that while the applicant provided studies describing outcomes from the HERIZON-BTC-01 trial of ZIIHERA[supreg] as well as background studies describing outcomes for other treatment options in 2L advanced BTC, the studies did not demonstrate that patients eligible for treatment with ZIIHERA[supreg] are unable to receive other existing therapies. Therefore, we questioned whether ZIIHERA[supreg] offers a treatment option for a patient population unresponsive to, or ineligible for other existing therapies. With respect to the assertion that ZIIHERA[supreg] significantly improves clinical outcomes relative to services or technologies previously available, the applicant provided 1 published peer-reviewed study of HERIZON-BTC-01 [[Page 36767]] (Harding et al., 2023) and 2 poster presentations that are analyses of HERIZON-BTC-01 (Pant et al., 2024; Wasan et al., 2023) in support of its claims. Harding et al. (2023) and Pant et al. (2024) provided results of the phase IIB HERIZON-BTC-01, a global, multicenter, single arm, cohort study assessing ZIIHERA[supreg] treatment in 87 patients with HER2+ BTC, which were grouped into cohorts based on immunohistochemistry (IHC): cohort 1, n=80 (HER2+ (IHC 2+ or IHC 3+)) and cohort 2, n=7 (IHC 0 or IHC 1+). We noted that the HERIZON-BTC-01 study did not compare ZIIHERA[supreg] outcomes to outcomes for other existing treatments, and therefore we questioned the extent to which this can be relied upon for a finding of substantial clinical improvement. We noted that 63 percent of the study's patients were enrolled at clinical trial sites in Asia, and we questioned whether the location of the clinical trial sites being outside of the US could affect the generalizability of the findings to the U.S. Medicare patient population. We also questioned whether the study's sample size may have impacted the ability to perform or interpret comparative analyses within and between the two different patient cohorts. With respect to the applicant's claim that, in HERIZON-BTC-01 study (Harding et al., 2023), ZIIHERA[supreg] demonstrated a clinical benefit of sustained/durable response rates, longer OS, and a significantly higher response rate compared to previously reported outcomes of 2L advanced BTC therapies, we noted that while the applicant provided background studies comparing FOLFOX and FOLFIRI to ZIIHERA[supreg], the supporting evidence provided did not compare ZIIHERA[supreg] to other FDA-approved therapies used for unresectable/metastatic BTC such as ENHERTU[supreg]. The applicant stated that ZIIHERA[supreg]'s median confirmed objective response rate (cORR) of 51.6 percent represents a marked clinical benefit for the target population, which is approximately 10-fold higher than the previously reported median ORR for FOLFOX and significantly more than the historical response rate of 7.7 percent for 2L chemotherapy regimens, noting the highest historical rate reported of 14.8 percent was seen in the FOLFIRI regimen. However, we questioned whether the differences in the studies' reported responses are comparable given that the studies are different in design, protocol, and methodology, which may limit the ability to interpret the outcomes. While the applicant stated that FOLFOX chemotherapy regimen remains the preferred 2L treatment of advanced BTC, as there are other treatments used in the 2L+ treatment of advanced BTC, we stated we would appreciate additional information on the comparison of outcomes with ZIIHERA[supreg] to those with other FDA-approved therapies used for advanced/metastatic BTC. With respect to the claim that ZIIHERA[supreg] has a manageable safety profile with favorable tolerability in adults with previously treated, unresectable/metastatic HER2+ (IHC 3+) BTC, the applicant stated that, in contrast to chemotherapy regimens used as 2L or later therapies, ZIIHERA[supreg] as a single agent is well tolerated in the pretreated BTC patient population and the resulting adverse events are manageable. In support of this claim, the applicant provided results of the HERIZON-BTC-01 study (Harding et al., 2023, Wasan et al., 2023, and Pant et al., 2024), which measured safety and quality of life in 87 patients. We stated we were concerned that the safety and quality of life data were combined in both the Harding et al. (2023) and Pant et al. (2024) studies for cohort 1 (n=80) (HER2+ (IHC 3+ or IHC 2+)) and cohort 2 (n=7) (IHC 1+ or IHC 0), and the Wasan paper reported from cohort 1 (HER2+ (IHC 3+ or IHC 2+)). Therefore, these studies did not provide data on safety and treatment-related adverse events for IHC 3+ BTC patients separately. We noted that since ZIIHERA[supreg] is indicated for use in patients with HER2+ (IHC 3+) BTC only, we questioned whether the inclusion of patients with HER2+ (IHC 2+) BTC and patients with IHC 1+ or IHC 0 BTC is appropriate to demonstrate outcomes for HER2+ (IHC 3+) BTC patients specifically. We questioned whether this analysis provides sufficient evidence as to ZIIHERA[supreg]'s overall benefit-risk profile and how it compares to other treatments given that Wasan et al. and Pant et al., which are unpublished and non-peer-reviewed conference posters, do not include full details of the study and methodology, which therefore may limit our ability to interpret the results. We further noted that HERIZON- BTC-01 was a single arm study and that the clinical outcome and HRQoL data are not specific to IHC 3+ BTC patients, in accordance with ZIIHERA[supreg]'s FDA indication. We invited public comments on whether ZIIHERA[supreg] meets the substantial clinical improvement criterion. Comment: We received several comments that expressed general support for new technology add-on payment approval for ZIIHERA[supreg]. Some of the commenters stated that ZIIHERA[supreg] addresses a critical unmet need in this patient population by offering a targeted, chemotherapy-free treatment option that has demonstrated meaningful and durable responses in a setting where conventional therapies have limited efficacy, and that the ability to initiate or continue ZIIHERA[supreg] in the inpatient setting may help stabilize disease, reduce symptom burden, and facilitate discharge planning, offering both clinical and health system benefits. A commenter expressed support for ZIIHERA[supreg] as a chemotherapy-free treatment option for patients with biliary obstruction, poor performance status, and comorbidities that limit chemotherapy tolerance. Many commenters also stated that in the HERIZON-BTC-01 trial, ZIIHERA[supreg] demonstrated meaningful results with an ORR of 52 percent with a mDOR of 14.9 months. One of the commenters stated that a small but clinically relevant subset of BTCs have HER2-amplification for which HER2-targeted therapy is vastly superior to traditional chemotherapy. Another commenter stated that for patients with HER2 overexpression after progression on first-line therapy, ZIIHERA[supreg] offers a singularly advantageous profile based upon a host of parameters including the lack of myelosuppression which is important in a population at high risk for cholangitis or biliary sepsis and that because ZIIHERA[supreg] does not require significant hepatic metabolism, it is also a preferred choice in patients with biliary obstruction and risk for fluctuating hepatic function. The commenter stated that alternate HER2-targeted therapies, such as trastuzumab deruxtecan or tucatinib-based regiments, are not options in these settings due to risk for hepatic toxicity or worsening infection. A commenter further stated that currently available options for patients with HER2+ (IHC3+) BTC, such as chemotherapy or ENHERTU[supreg], have important limitations, especially in 2L where patients may already be fragile and chemotherapy-intolerant, and that ZIIHERA[supreg] represents an important option because it offers a chemotherapy-free, HER2-targeted approach. The commenter stated the availability of a well-tolerated, targeted 2L regimen such as ZIIHERA[supreg] could expand access especially for patients who might otherwise forgo treatment due to poor performance status or inability to tolerate the toxicity of current standard regimens. Additionally, another commenter stated that traditionally, [[Page 36768]] antineoplastic therapies have not been given in the inpatient setting due to them being unsafe for people that are acutely ill because they have cytotoxic mechanisms of action that can cause infection, cytopenias, bleeding and other complications and that having inpatient access to ZIIHERA[supreg] would allow patients to start it sooner or to continue treatment on schedule, rather than missing doses. Response: We thank the commenters for their input and have taken it into consideration in determining whether ZIIHERA[supreg] meets the substantial clinical improvement criterion as discussed later in this section. Comment: The applicant submitted a public comment regarding the substantial clinical improvement criterion and provided responses to CMS's concerns from the proposed rule. In response to CMS's questions regarding the applicant's assertion that ZIIHERA[supreg] offers a treatment option for a patient population unresponsive to, or ineligible for, other existing therapies, the applicant stated that prior to FDA approval of ZIIHERA[supreg] and its addition as a Category 2A treatment option for BTC, the preferred subsequent-line therapy option for patients with advanced BTC was FOLFOX chemotherapy, although survival rates remain poor (6.2 months OS and 4.0 months mPFS) and response rates are low (5 percent). The applicant asserted that among patients receiving FOLFOX, Grade 3 to 5 adverse events occurred in 69 percent of patients, and 3 chemotherapy-related deaths were reported. The applicant explained that additional treatment options recommended for 2L therapy in BTC were FOLFIRI, STIVARGA[supreg], and liposomal irinotecan plus 5-fluorouracil plus leucovorin, and provided two tables displaying the efficacy, and safety and tolerability of select 2L therapies in BTC. The applicant commented that historically, there were no HER2-targeted therapies that were specifically studied in a trial dedicated to patients with BTC as most of these trials were basket trials. Per the applicant, with the addition of ZIIHERA[supreg], four HER2-targeted therapies are now recommended in the NCCN guidelines. The applicant stated that ZIIHERA[supreg] was studied in the largest phase 2b clinical trial dedicated to BTC with 80 patients with HER2+ disease, 62 of which were IHC3+ and that aside from ZIIHERA[supreg], only ENHERTU[supreg] has reported efficacy data in centrally confirmed HER2+ (IHC3+) BTC (n=16). The applicant further stated that two of the guideline-recommended HER2-targeted agents, trastuzumab + pertuzumab, which was investigated in a phase 2 basket trial (SGNTUC-019) in patients with HER2+ solid tumors, including 30 patients with HER2+ advanced BTC, and trastuzumab + tucatinib, which was investigated for the treatment of patients with previously treated, locally advance/ metastatic HER2+ BTC in phase 2 multiple-basket study (MyPathway), are not FDA-approved for use in patients with HER2+ BTC. The applicant provided two figures that describe the efficacy outcomes in previously treated HER2+ BTC for fam-trastuzumab-deruxtecan, tucatinib + trastuzumab, and trastuzumab + pertuzumab, as well as the TEAEs with HER2-targeted subsequent-line therapies for treatment of BTC. The applicant reiterated that a significant and urgent unmet medical need exists for optimal and tolerable treatment options for patients with unresectable/metastatic HER2+ (IHC3+) BTC who have progressed on prior systemic therapy or for those who are ineligible for chemotherapy, and that the outcomes demonstrated by ZIIHERA[supreg] support the potential for a new standard of care for patients who progress on 1L options. The applicant further stated that ZIIHERA[supreg] offers the only FDA- approved chemotherapy-free treatment option and noted that ENHERTU[supreg] has a chemotherapeutic payload and is approved for use when no satisfactory alternative treatment option remains. With respect to the assertion that ZIIHERA[supreg] significantly improves clinical outcomes relative to service or technologies previously available, the applicant reiterated findings from the HERIZON-BTC-01 trial and stated that the data continue to demonstrate rapid, sustained, and durable responses in comparison to FOLFOX and FOLFIRI while highlighting the clinical benefit of continued treatment with chemotherapy-free, single-agent ZIIHERA[supreg]. The applicant further commented that given the aggressive and rare nature of advanced HER2+ BTC (affecting about 4.4 per 100,000 in the U.S.), the conduct of randomized studies can be challenging in this biomarker-selected population and that HERIZON-BTC-01 is a single-arm study without comparator arm as there is no approved standard of care in this setting. The applicant stated that, acknowledging the hazards of cross- trial indirect comparison, the anti-tumor activity observed for ZIIHERA[supreg] in patients with HER2+ BTC compares favorably to historic controls from clinical studies in similar and relevant populations. The applicant provided several figures that describe the efficacy outcomes (ORR, mDOR in months, mPFS in months, and mOS in months) in previously treated HER2+ BTC for fam-trastuzumab-deruxtecan, tucatinib + trastuzumab, and trastuzumab + pertuzumab, noting that the table is for illustrative purposes only and is not intended as a direct comparison across trials. The applicant further stated that with the rarity of BTC and a further reduced subset of patients with HER2- expressing tumors, the sample size of HERIZON-BTC-01 (n=80, Cohort 1; median age 64 years [IQR 58-70]) is representative of the small BTC population, and that a sample size of approximately 75 patients in Cohort 1 was informed by Clopper-Pearson exact binomial 95 percent CIs using a historical response rate of 10 percent. The applicant reiterated that the HERIZON-BTC-01 study population represented the largest study in the 2L setting conducted in this rare disease. The applicant also stated that a conscious effort was made to target a broad range of clinical sites in wide geographic locations for the HERIZON-BTC-01 study, with study participants enrolled at sites in the U.S., Canada, Spain, France, U.K., Italy, Chile, China, and Korea. The applicant reiterated that the largest components of participants in Cohort 1 (IHC3+) were Asian (61.3 percent) and White (30.6 percent) but asserted that these demographic characteristics are representative of the target indication population of patients with BTC, which has a higher prevalence in Asian populations. The applicant stated that Harding et al. (2023) concluded that the ORRs were similar in patients enrolled in Asia compared with those enrolled in the rest of the world, indicating that geographical variation is unlikely to affect the therapeutic use of ZIIHERA[supreg]. The applicant stated these data demonstrate that HERIZON-BTC-01 results are generalizable to the U.S. BTC population, including the Medicare-age patient population. Furthermore, the applicant stated that prespecified subgroup analysis of cORR based on age (<65 or 65 or <75 or 75), sex (female or male), race (Asian or non-Asian), geographical region (North America, Asia, or other), HER2+ IHC score (2+ or 3+), anatomic site (gallbladder cancer, intrahepatic cholangiocarcinoma, and extrahepatic cholangiocarcinoma), number of previous therapies for advanced disease (<2 or 2), disease stage at baseline (stage III or stage IV), intolerance to most recent previous treatment (yes or no), and baseline ECOG performance status (0 or 1) were also examined. The applicant stated that [[Page 36769]] ZIIHERA[supreg] provided treatment benefit regardless of the anatomic subtype, geographical region, and lines of previous treatment and that the ORR results were similar across age groups (<65; 65; <75). In regard to the claim that the overall benefit:risk assessment of ZIIHERA[supreg] is favorable and ZIIHERA[supreg] fulfills an unmet medical need and provides an option for patients to receive clinical benefit with a low risk of harm, the applicant reiterated that in contrast to chemotherapy regimens used in the 2L or later setting, ZIIHERA[supreg] as a single agent is well tolerated in the pretreated BTC patient population with AEs that are manageable and that ZIIHERA[supreg], a HER2-directed, non-chemotherapy treatment approach, provides a clear clinical benefit, fulfills an unmet medical need for the intended patient population, and provides an option for patients to receive clinical benefit with a low risk of harm. The applicant further stated that the BLA safety analysis for ZIIHERA[supreg] was based on cohort 1 (n=80) of the pivotal, single arm Phase 2b HERIZON-BTC-01, and that for the cohort 1 subgroup of IHC3+ patients (n=62), 80.6 percent of patients experienced any TRAEs, with 59.7 percent of patients having a Grade 1 or 2 TRAE, 19.4 percent having a Grade 3 TRAE, 1.6 percent having a Grade 4 TRAE, none having a Grade 5 TRAE, and 2.3 percent having a TRAE leading to discontinuation. The applicant provided a figure with a summary of TRAEs. Furthermore, the applicant stated that the subgroup analysis by IHC status indicates that patients with IHC3+ had an ORR of 51.6 percent (32 of 62 patients) and those with IHC2+ had a response rate of 5.6 percent (one of 18 patients). The applicant stated that substantial improvements in quality of life were seen in patients who had a response, which was primarily in patients with HER2+ IHC3+ BTC (32/33 responders). The applicant also stated that the present analysis of quality of life was based on cohort 1: HER2+ patients defined as IHC3+ or IHC2+. The applicant stated that there were no responders in cohort 2 (IHC1+ or IHC0), and therefore, Cohort 2 was not included in any of the analysis. The applicant also explained that a Phase 3 clinical trial is underway investigating the use of ZIIHERA[supreg] in combination with standard of care versus standard of care alone as 1L therapy in advanced HER2+ BTC and will serve as the confirmatory trial. Response: We thank the applicant for its comment regarding the substantial clinical improvement criterion. Based on the additional information received, we continue to have concerns as to whether ZIIHERA[supreg] meets the substantial clinical improvement criterion to be approved for new technology add-on payments. Regarding the applicant's assertion that ZIIHERA[supreg] offers a treatment option for a patient population unresponsive to or ineligible for other existing therapies, since the information provided in the application for this assertion as well as the updated NCCN guidelines note that there are additional therapy options, we disagree that the material presented adequately supports that patients treated with ZIIHERA[supreg] have no other treatment options. Specifically, we note that the NCCN guidelines recommend other treatment options for patients with unresectable or metastatic BTC, including FOLFOX, FOLFIRI, liposomal irinotecan plus 5-fluorouracil plus leucovorin, and STIVARGA[supreg], or targeted therapy for patients with HER2+ unresectable or metastatic BTC, including ENHERTU[supreg], PERJETA[supreg] plus HERCEPTIN[supreg], and TUKYSA[supreg] plus HERCEPTIN[supreg], as well as ZIIHERA[supreg]. In addition, while ZIIHERA[supreg] may provide a treatment option for patients unable to tolerate the toxicity of current standard chemotherapy regimens as described by the applicant and commenters, it is unclear that patients who are unable to tolerate these chemotherapy regimens are also ineligible for other targeted therapies such as ENHERTU[supreg]. We also continue to question that ZIIHERA[supreg] improves outcomes over existing targeted therapies like ENHERTU[supreg]. While the applicant provided outcomes for ZIIHERA[supreg] and ENHERTU[supreg] from their respective trials, we note the similarity of the clinical outcomes data in the information provided. For example, while the applicant stated ZIIHERA[supreg] demonstrated a cORR of 51.6 percent (95 percent CI: 38.6, 64.5) in the HERIZON-BTC-01 which the applicant stated was significantly more than the historical response rate of 7.7 percent, we note that ENHERTU[supreg] demonstrated a cORR of 56.3 percent in the DESTINY-PanTumor02 trial. We also question whether the data provided by the applicant comparing outcomes and TRAEs for the HER2-targeted therapies allows for direct comparison given there are differences in the sample size and differences in the number of prior treatments between the two studies. Therefore, we remain unclear that ZIIHERA[supreg] improves outcomes or TRAEs compared to other HER2- targeted therapies such as ENHERTU[supreg] for patients with 2L unresectable or metastatic HER2+ (IHC 3+) BTC. After consideration of all the information received from the applicant, as well as the public comments we received, we are unable to determine that ZIIHERA[supreg] represents a substantial clinical improvement over existing technologies for the reasons discussed in the proposed rule and in this final rule, and therefore, we are not approving new technology add-on payments for ZIIHERA[supreg] for FY 2026. 6. FY 2026 Applications for New Technology Add-On Payments (Alternative Pathways) As discussed previously, beginning with applications for FY 2021, a medical device designated under FDA's Breakthrough Devices Program that has received marketing authorization for the indication covered by the Breakthrough Device designation, may qualify for the new technology add-on payment under an alternative pathway. Additionally, beginning with FY 2021, a medical product that is designated by FDA as a Qualified Infectious Disease Product (QIDP) and has received marketing authorization for the indication covered by the QIDP designation, and, beginning with FY 2022, a medical product that is a new medical product approved under FDA's Limited Population Pathway for Antibacterial and Antifungal Drugs (LPAD) and used for the indication approved under the LPAD pathway, may also qualify for the new technology add-on payment under an alternative pathway. Under an alternative pathway, a technology will be considered not substantially similar to an existing technology for purposes of the new technology add-on payment under the IPPS and will not need to meet the requirement that it represents an advance that substantially improves, relative to technologies previously available, the diagnosis or treatment of Medicare beneficiaries. These technologies must still be within the 2-to-3-year newness period to be considered ``new,'' and must also still meet the cost criterion. As discussed previously, in the FY 2023 IPPS/LTCH PPS final rule, we finalized our proposal to publicly post online applications for new technology add-on payment beginning with FY 2024 applications (87 FR 48986 through 48990). As noted in the FY 2023 IPPS/LTCH PPS final rule, we are continuing to summarize each application in this final rule. However, while we are continuing to provide discussion of the concerns or issues we identified with respect to applications submitted under the alternative pathway, we are providing more succinct information as part of the summaries in the proposed [[Page 36770]] and final rules regarding the applicant's assertions as to how the medical service or technology meets the applicable new technology add- on payment criteria. We refer readers to https://mearis.cms.gov/public/publications/ntap for the publicly posted FY 2026 new technology add-on payment applications and supporting information (with the exception of certain cost and volume information, and information or materials identified by the applicant as confidential or copyrighted), including tables listing the ICD-10-CM codes, ICD-10-PCS codes, and/or MS-DRGs related to the analyses of the cost criterion for certain technologies for the FY 2026 new technology add-on payment applications. In addition, for certain FY 2026 new technology add-on payment applications, in the FY 2026 IPPS/LTCH PPS proposed rule, we noted we made available separate tables listing the ICD-10-CM codes and/or ICD- 10-PCS codes that we believed would be used to identify cases relevant to the Breakthrough Device-designated indications, or would be appropriate to exclude for cases related to FDA market authorized indications that are not covered by the Breakthrough Device designation indications, for purposes of the new technology add-on payment, if approved, in Table 10 associated with the proposed rule, available via the internet on the CMS website at https://www.cms.gov/medicare/medicare-fee-for-service-payment/acuteinpatientpps. Click on the link on the left side of the screen titled ``FY 2026 IPPS Proposed Rule Home Page'' or ``Acute Inpatient--Files for Download''. Please see section VI of the Addendum of the proposed rule for additional information regarding tables associated with the proposed rule. Table 10 associated with this final rule reflects the finalized lists of ICD-10-CM codes or ICD-10-PCS codes that would be used to identify cases relevant to the Breakthrough Device-designated indication for the RECELL[supreg] Autologous Cell Harvesting Device for purposes of the new technology add-on payment for FY 2026, and is available on the CMS website at: https://www.cms.gov/medicare/medicare-fee-for-service-payment/acuteinpatientpps. We received 34 applications for new technology add-on payments for FY 2026 under the new technology add-on payment alternative pathway. As discussed in the FY 2024 IPPS/LTCH PPS final rule (88 FR 58948 through 58958) and the FY 2025 IPPS/LTCH PPS final rule (89 FR 69242 through 69245), we finalized that beginning with the new technology add-on payment applications for FY 2025, for technologies that are not already FDA market authorized for the indication that is the subject of the new technology add-on payment application, applicants must have a complete and active FDA market authorization request at the time of new technology add-on payment application submission and must provide documentation of FDA acceptance or filing to CMS at the time of application submission, consistent with the type of FDA marketing authorization application the applicant has submitted to FDA. See Sec. 412.87(e) and further discussion in the FY 2024 and the FY 2025 IPPS/ LTCH PPS final rules (88 FR 58948 through 58958; 89 FR 69242 through 69245). Of the 34 applications received under the alternative pathway, 1 application was not eligible for consideration for new technology add-on payment because it did not meet these requirements; and 4 applicants withdrew their applications prior to the issuance of the proposed rule. Subsequently, prior to the issuance of this final rule, 7 additional applicants (for the Dexcom G7 Hospital Continuous Glucose Monitoring System, DrugSorb-ATR Device, Nelli Seizure Monitoring System, PearlMatrix P-15 Peptide Enhanced Bone Graft, Provizio[supreg] SEM Scanner, Spur Peripheral Retrievable Stent System, and the Ventura[supreg] Interatrial Shunt System) withdrew their applications, or did not meet the May 1 deadline for FDA approval or clearance of the technology and therefore are not eligible for consideration for new technology add-on payments for FY 2026. We are not including in this final rule the description and discussion of applications that were withdrawn or that are ineligible for consideration for FY 2026. We are addressing the remaining 22 applications. Of the remaining 22 applications, 20 of the technologies received a Breakthrough Device designation from FDA. The remaining two applications were designated as a QIDP by FDA. We did not receive any applications for technologies approved through the LPAD pathway. In accordance with the regulations under Sec. 412.87(f)(2), applicants for new technology add-on payments for FY 2026 for Breakthrough Devices must have FDA marketing authorization by May 1 of the year prior to the beginning of the fiscal year for which the application is being considered. Under Sec. 412.87(f)(3), applicants for new technology add-on payments for FY 2026 for QIDPs and technologies approved under the LPAD pathway must have FDA marketing authorization by July 1 of the year prior to the beginning of the fiscal year for which the application is being considered. The policy finalized in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58742) provides for conditional approval for a technology for which an application is submitted under the alternative pathway for certain antimicrobial products (QIDPs and LPADs) at Sec. 412.87(d) that does not receive FDA marketing authorization by July 1 prior to the particular fiscal year for which the applicant applied for new technology add-on payments, provided that the technology receives FDA marketing authorization before July 1 of the fiscal year for which the applicant applied for new technology add-on payments. We refer the reader to the FY 2021 IPPS/LTCH final rule for a complete discussion of this policy (85 FR 58737 through 58742). As we did in the FY 2025 IPPS/LTCH PPS proposed rule, for applications under the alternative new technology add-on payment pathway, in the FY 2026 IPPS/LTCH PPS proposed rule we made a proposal to approve or disapprove each of these 22 applications for FY 2026 new technology add-on payments. Therefore, in this section of the preamble of this final rule, we provide a table summarizing background information and the cost analysis for each of the remaining alternative pathway applications and our determination on whether or not each technology is eligible for the new technology add-on payment for FY 2026. We refer readers to section II.H.8. of the preamble of the FY 2020 IPPS/LTCH PPS final rule (84 FR 42292 through 42297) and FY 2021 IPPS/LTCH PPS final rule (85 FR 58715 through 58733) for further discussion of the alternative new technology add-on payment pathways for these technologies. a. Alternative Pathway for Breakthrough Devices (1) 4WEB Medical Ankle Truss System The following table summarizes the information provided in the new technology add-on payment application for the 4WEB Medical Ankle Truss System. We note that 4WEB Medical, Inc. submitted an application for new technology add-on payments for the 4WEB Medical Ankle Truss System for FY 2024, as summarized in the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26924 through 26926), which the applicant withdrew prior to the issuance of the FY 2024 IPPS/LTCH PPS final rule (88 FR 58919). BILLING CODE 4120-01-P [[Page 36771]] [GRAPHIC] [TIFF OMITTED] TR04AU25.179 [[Page 36772]] [GRAPHIC] [TIFF OMITTED] TR04AU25.180 BILLING CODE 4120-01-C In the proposed rule, we noted that after review of the information provided by the applicant, since the indication for which the applicant received 510(k) clearance is included within the scope of the Breakthrough Device designation indication, it appears that the FDA- cleared indication is appropriate for consideration for new technology add-on payment under the alternative pathway criteria. We agreed with the applicant that the 4WEB Medical ATS meets the cost criterion and therefore proposed to approve the 4WEB Medical ATS for new technology add-on payments for FY 2026 for use as an accessory to the Stryker T2 Ankle Arthrodesis Nail or the Stryker Valor Hindfoot Fusion Nail as part of a TCC fusion construct in a salvage procedure following failed ankle arthrodesis or failed ankle arthroplasty for patients at risk for loss of limb. Based on preliminary information from the applicant at the time of the proposed rule, the applicant anticipated the total cost of the 4WEB Medical ATS to the hospital to be $23,500 per patient. Per the applicant, one 4WEB Medical ATS is used per patient per hospital discharge. We noted that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. Under Sec. 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS-DRG payment for the case. As a result, we proposed that the maximum new technology add-on payment for a case involving the use of the 4WEB Medical ATS would be $15,275 for FY 2026 (that is, 65 percent of the average cost of the technology). We invited public comments on whether the 4WEB Medical ATS meets the cost criterion and our proposal to approve new technology add-on payments for the 4WEB Medical ATS for FY 2026. Comment: A few commenters, including the applicant, expressed support for our proposal to approve new technology add-on payment for the 4WEB Medical ATS. Commenters stated that the technology meets all the eligibility requirements and requested that CMS finalize the proposal to approve the new technology add-on payments for FY 2026. The applicant also confirmed that the per-patient cost to the hospital of the device of $23,500 provided in the new technology add-on payments application has not changed. The applicant submitted a summary of relevant dates related to commercial availability, noting that 510(k) clearance was received from FDA on March 21, 2024, and a third- party distribution agreement between the applicant and Stryker Corporation (Stryker) was executed on July 26, 2024, to give [[Page 36773]] Stryker exclusive rights to distribute and sell the device. The applicant stated that there was a delay between July 26, 2024, and January 8, 2025, because manufacturing could not begin until the distribution agreement was executed, and the first batch of implants for commercial use were received on January 8, 2025. Per the applicant, it completed its inspection of the device and shipped the first batch to Stryker on January 28, 2025, and Stryker completed its processes on January 31, 2025 and made the device available for sale. The applicant noted that this date represents the date the device was commercially available and does not represent the date of first implant. The applicant stated that the first 4WEB Medical ATS implantation occurred on February 7, 2025. Given the timeline of events, the applicant requested that CMS utilize January 31, 2025, as the date of first commercial availability. Response: We thank the commenters for their comments and support. Based on the information provided in the application for new technology add-on payments, and after consideration of the public comments we received, we believe 4WEB Medical ATS meets the cost criterion. The technology received 510(k) clearance on March 21, 2024, with an indication for use as an accessory to the Stryker T2 Ankle Arthrodesis Nail or the Stryker Valor Hindfoot Fusion Nail as part of a TCC fusion construct in a salvage procedure following failed ankle arthrodesis or failed ankle arthroplasty for patients at risk for loss of limb, which is covered by its Breakthrough Device designation. Therefore, we are finalizing our proposal to approve new technology add-on payments for 4WEB Medical ATS for FY 2026. We consider the beginning of the newness period to commence on January 31, 2025, the date on which the technology became commercially available for the indication covered by its Breakthrough Device designation. Based on the information available at the time of this final rule, the cost per case of 4WEB Medical ATS to the hospital is $23,500 per patient. Per the applicant, one 4WEB Medical ATS is used per patient per hospital discharge. Under Sec. 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS- DRG payment for the case. As a result, we are finalizing that the maximum new technology add-on payment for a case involving the use of 4WEB Medical ATS is $15,275 for FY 2026 (that is, 65 percent of the average cost of the technology). Cases involving the use of 4WEB Medical ATS that are eligible for new technology add-on payments will be identified by ICD-10-PCS procedure codes: XRGJ0B9 (Fusion of right ankle joint using open-truss design internal fixation device, open approach, new technology group 9), XRGK0B9 (Fusion of left ankle joint using open-truss design internal fixation device, open approach, new technology group 9), XRGL0B9 (Fusion of right tarsal joint using open- truss design internal fixation device, open approach, new technology group 9), or XRGM0B9 (Fusion of left tarsal joint using open-truss design internal fixation device, open approach, new technology group 9). (2) AeroPace[supreg] System The following table summarizes the information provided in the new technology add-on payment application for the AeroPace[supreg] System. BILLING CODE 4120-01-P [[Page 36774]] [GRAPHIC] [TIFF OMITTED] TR04AU25.181 BILLING CODE 4120-01-C In the proposed rule, we noted that after review of the information provided by the applicant, since the indication for which the applicant received PMA [[Page 36775]] approval from FDA is included within the scope of the Breakthrough Device designation indication, it appears that the FDA-approved indication is appropriate for consideration for new technology add-on payment under the alternative pathway criteria. We noted that the applicant stated that the technology is not yet available for sale because it would take time following FDA approval to finalize its commercial operations and market materials to include the final labeling and regulatory information. We stated in the proposed rule that we were interested in additional information regarding the cause for any delay in the technology's market availability, as it received FDA approval on December 4, 2024, and the applicant stated that it is not expected to be commercially available until October 1, 2025. We agreed with the applicant that the AeroPace[supreg] System meets the cost criterion and therefore proposed to approve the AeroPace[supreg] System for new technology add-on payments for FY 2026, for use to improve weaning success--increase weaning, reduce ventilator days, and reduce reintubation--in patients ages 18 years or older on MV >=96 hours and who have not weaned. The applicant had not provided an estimate for the cost of the AeroPace[supreg] System at the time of the proposed rule. The applicant stated that the operating components include the AeroPace[supreg] Catheter and the Airway Sensor. The applicant also noted the capital components of the AeroPace[supreg] Neurostimulation Console, Catheter Cable, Handheld Controller, and Airway Sensor Cable. Because section 1886(d)(5)(K)(i) of the Act requires that the Secretary establish a mechanism to recognize the costs of new medical services or technologies under the payment system established under that subsection, which establishes the system for payment of the operating costs of inpatient hospital services, we stated that we do not include capital costs in the add-on payments for a new medical service or technology or make new technology add-on payments under the IPPS for capital-related costs (86 FR 45145). As noted, the applicant stated that the cost of the AeroPace[supreg] Neurostimulation Console, Catheter Cable, Handheld Controller, and Airway Sensor Cable are capital costs. Therefore, we stated that it appears that these components are not eligible for new technology add-on payment because, as discussed in prior rulemaking and as noted, we only make new technology add-on payments for operating costs (72 FR 47307 through 47308). We stated that we expected the applicant to submit cost information prior to the final rule, and that we would provide an update regarding the new technology add-on payment amount for the technology, if approved, in the final rule. Any new technology add-on payment for the AeroPace[supreg] System would be subject to our policy under Sec. 412.88(a)(2) where we limit new technology add-on payment to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS-DRG payment for the case. We invited public comments on whether the AeroPace[supreg] System meets the cost criterion and our proposal to approve new technology add-on payments for the AeroPace[supreg] System for FY 2026. Comment: A few commenters, including the applicant, submitted public comments expressing support for our proposal to approve new technology add-on payment for the AeroPace[supreg] System for FY 2026. In response to CMS's request for additional information regarding the delay in the technology's market availability, the applicant stated that the company is currently manufacturing devices and anticipates first commercial use and launch beginning October 1, 2025. Regarding the delay, the applicant stated that based on average FDA PMA review times, the applicant targeted its preparation of commercial operations for manufacturing, and its fundraising to support manufacturing and hiring of sales personnel based on the anticipated FDA approval timeline of early Q2 2025. Per the applicant, the FDA review process occurred in less time than anticipated and given the lead time for manufacturing, building inventory, establishing its commercial operation, and costs, there was not sufficient time to accelerate commercialization sooner than planned. The applicant also provided the costs for the single-patient use components that are eligible for new technology add-on payment, the AeroPace[supreg] Neurostimulation Catheter and the Airway Sensor. The applicant noted that the total per-patient cost of the AeroPace[supreg] System single-patient use components to the hospital is $36,386. Per the applicant, each AeroPace[supreg] Neurostimulation Catheter is $24,995 and each Airway Control Sensor is $995, and based on the clinical trial data, patients will use 1.4 AeroPace[supreg] Neurostimulation Catheters and Airway Sensors on average. Response: We thank the commenters for their comments and the updated cost information. As we have discussed in prior rulemaking (86 FR 45132; 77 FR 53348), generally, our policy is to begin the newness period on the date of FDA approval or clearance or, if later, the date of availability of the product on the U.S. market. The applicant states that it anticipates first commercial use and launch beginning October 1, 2025, but it is unclear whether the technology would be available for sale prior to that date. In addition, we note that we do not consider the date of first sale of a product, or first shipment of a product, as an indicator of the entry of a product onto the U.S. market; neither of these dates indicate when a technology in fact became available for sale (88 FR 58802). At this time, there is not sufficient information to determine a newness date based on a documented delay in the technology's availability on the U.S. market. Absent additional information, we therefore consider the newness date for this technology to be December 4, 2024. Based on the information provided in the application for new technology add-on payments, and after consideration of the public comments we received, we believe AeroPace[supreg] System meets the cost criterion. The technology received FDA premarket approval on December 4, 2024, with an indication for use to improve weaning success-- increase weaning, reduce ventilator days, and reduce reintubation--in patients ages 18 years or older on MV 96 hours and who have not weaned, which is covered by its Breakthrough Device designation. Therefore, we are finalizing our proposal to approve new technology add-on payments for AeroPace[supreg] System for FY 2026. Absent additional information from the applicant, we consider the beginning of the newness period to commence on December 4, 2024, the date of FDA marketing authorization for the indication covered by its Breakthrough Device designation. Based on the information available at the time of this final rule, the cost per case of AeroPace[supreg] System is $36,386. Under Sec. 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS-DRG payment for the case. As a result, we are finalizing that the maximum new technology add-on payment for a case involving the use of AeroPace[supreg] System is $23,650.90 for FY 2026 (that is, 65 percent of the average cost of the technology). The applicant submitted a request and was granted approval for a unique ICD-10-PCS procedure code for the AeroPace[supreg] System beginning in FY [[Page 36776]] 2026. Therefore, cases involving the use of AeroPace[supreg] System that are eligible for new technology add-on payments will be identified by ICD-10-PCS procedure code X2H13XB (Insertion of temporary phrenic nerve/diaphragm stimulation electrodes into superior vena cava, percutaneous approach, new technology group 11). (3) AGENTTM Paclitaxel-Coated Balloon Catheter The following table summarizes the information provided in the new technology add-on payment application for the AGENTTM Paclitaxel-Coated Balloon Catheter. BILLING CODE 4120-01-P [[Page 36777]] [GRAPHIC] [TIFF OMITTED] TR04AU25.182 BILLING CODE 4120-01-C In the proposed rule, we noted that after review of the information provided by the applicant, since the indication for which the applicant received PMA [[Page 36778]] approval from FDA is included within the scope of the Breakthrough Device designation indication, it appears that the FDA-approved indication is appropriate for consideration for new technology add-on payment under the alternative pathway criteria.\122\ --------------------------------------------------------------------------- \122\ Breakthrough Devices Program https://www.fda.gov/medical-devices/how-study-and-market-your-device/breakthrough-devices-program. --------------------------------------------------------------------------- We agreed with the applicant that the AGENTTM Paclitaxel-Coated Balloon Catheter meets the cost criterion and therefore proposed to approve the AGENTTM Paclitaxel-Coated Balloon Catheter for new technology add-on payments for FY 2026 for use after appropriate vessel preparation in adult patients undergoing PCI in coronary arteries 2.0 mm to 4.0 mm in diameter and lesions up to 26 mm in length for the purpose of improving myocardial perfusion when treating ISR. Based on preliminary information from the applicant at the time of the proposed rule, the applicant anticipated the total cost of the AGENTTM Paclitaxel-Coated Balloon Catheter to the hospital to be $6,175 per patient. We noted that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. Under Sec. 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS-DRG payment for the case. As a result, we proposed that the maximum new technology add-on payment for a case involving the use of the AGENTTM Paclitaxel-Coated Balloon Catheter would be $4,013.75 for FY 2026 (that is, 65 percent of the average cost of the technology). We invited public comments on whether the AGENTTM Paclitaxel-Coated Balloon Catheter meets the cost criterion and our proposal to approve new technology add-on payments for the AGENTTM Paclitaxel-Coated Balloon Catheter for FY 2026. Comment: A few commenters, including the applicant, expressed support for our proposal to approve new technology add-on payment for the AGENTTM Paclitaxel-Coated Balloon Catheter. Commenters stated that the device meets all requirements for approval and requested that CMS finalize its proposal for new technology add-on payments for FY 2026. The applicant requested that CMS finalize the approval of new technology add-on payments with a maximum payment of $4,013.75 starting October 1, 2025. Response: We thank the commenters for their comments. Based on the information provided in the application for new technology add-on payments, and after consideration of the public comments we received, we believe AGENTTM Paclitaxel-Coated Balloon Catheter meets the cost criterion. The technology received FDA premarket approval on February 29, 2024, with an indication for use after appropriate vessel preparation in adult patients undergoing PCI in coronary arteries 2.0 mm to 4.0 mm in diameter and lesions up to 26 mm in length for the purpose of improving myocardial perfusion when treating ISR, which is covered by its Breakthrough Device designation. Therefore, we are finalizing our proposal to approve new technology add-on payments for AGENTTM Paclitaxel-Coated Balloon Catheter for FY 2026. We consider the beginning of the newness period to commence on February 29, 2024, the date on which technology received its premarket authorization for the indication covered by its Breakthrough Device designation. Based on the information available at the time of this final rule, the cost per case of AGENTTM Paclitaxel-Coated Balloon Catheter is $6,175. Under Sec. 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS-DRG payment for the case. As a result, we are finalizing that the maximum new technology add-on payment for a case involving the use of AGENTTM Paclitaxel-Coated Balloon Catheter is $4,013.75 for FY 2026 (that is, 65 percent of the average cost of the technology). Cases involving the use of AGENTTM Paclitaxel-Coated Balloon Catheter that are eligible for new technology add-on payments will be identified by one of the following ICD-10-PCS procedure codes: BILLING CODE 4120-01-P [[Page 36779]] [GRAPHIC] [TIFF OMITTED] TR04AU25.183 (4) alfapump[supreg] system The following table summarizes the information provided in the new technology add-on payment application for the alfapump[supreg] system. [[Page 36780]] [GRAPHIC] [TIFF OMITTED] TR04AU25.184 [[Page 36781]] [GRAPHIC] [TIFF OMITTED] TR04AU25.185 BILLING CODE 4120-01-C In the proposed rule, we noted that the applicant stated that the technology is not expected to be commercially available until July 2025 due to its internal production capacity and the phased roll out plan into Liver Transplant centers. We stated in the proposed rule that we were interested in additional information regarding any delay, such as whether the technology would be available for sale during its phased roll out plan. We agreed with the applicant that the alfapump[supreg] system meets the cost criterion and therefore proposed to approve the alfapump[supreg] system for new technology add-on payments for FY 2026, in adult patients with refractory or recurrent ascites due to liver cirrhosis for the removal of excess peritoneal fluid from the peritoneal cavity into the bladder. Based on preliminary information from the applicant at the time of the proposed rule, the applicant anticipated the total cost of the alfapump[supreg] system to the hospital to be $30,000 per patient. Per the applicant, the alfapump[supreg] system is a single patient use implantable device, and one device is used per hospital stay. We noted that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. Under Sec. 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS- DRG payment for the case. As a result, we proposed that the maximum new technology add-on payment for a case involving the use of the alfapump[supreg] system would be $19,500 for FY 2026 (that is, 65 percent of the average cost of the technology). We invited public comments on whether the alfapump[supreg] system meets the cost criterion and our proposal to approve new technology add-on payments for the alfapump[supreg] system. Comment: A few commenters, including the applicant, expressed support for our proposal to approve new technology add-on payment for the alfapump[supreg] system. In response to CMS's request for additional information regarding the delay in the technology's market availability the applicant stated that the alfapump[supreg] was not available for sale as of June 2025 and that it anticipates that the first cases and sales will now occur during the month of August 2025. The applicant also provided updated cost information and stated that the price of the alfapump[supreg] kit will be revised from the original cost of $30,000 to a new cost of $33,000, given various commercial factors. Per the applicant, this results in a revised final average case weighted standardized charge per case of $271,692, as compared to the prior figure of $260,109, against the case weighted threshold of $130,906. The applicant requested a revised calculation using the revised cost of $33,000 for a maximum allowable new technology add-on payment of $21,450. Response: We thank the applicant and commenters for their comments and support. As we have discussed in prior rulemaking (86 FR 45132; 77 FR 53348), generally, our policy is to begin the newness period on the date of FDA approval or clearance or, if later, the date of availability of the product on the U.S. market. The applicant states that it anticipates first commercial use and launch beginning August 2025, but it is unclear whether the technology would be available for sale prior to that date. At this time, there is not sufficient information to determine a newness date based on a documented delay in the technology's availability on the U.S. market. Absent additional information, we therefore consider the newness date for this technology to be December 20, 2024. Based on the information provided in the application for new technology add-on payments, and after consideration of the public comment we received, we believe the alfapump[supreg] system meets the cost criterion. The technology received FDA marketing authorization on December 20, 2024, with an indication for use in adult patients with refractory or recurrent ascites due to liver cirrhosis for the removal of excess peritoneal fluid from the peritoneal cavity into the bladder, which is covered by its Breakthrough Device designation. Therefore, we are finalizing our proposal to approve new technology add-on payments for the alfapump[supreg] system for FY 2026. Absent additional information from the applicant, we consider the beginning of the newness period to commence on December 20, 2024, the date of FDA marketing authorization for the indication covered by its Breakthrough Device designation. Based on the information available at the time of this final rule, the cost per case of the alfapump[supreg] system is $33,000. Under Sec. 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS-DRG payment for the case. As a result, we are finalizing that the maximum new technology add-on payment for a case involving the use of the alfapump[supreg] system is $21,450 for FY 2026 (that is, 65 percent of the average cost of the technology). Cases involving the use of the alfapump[supreg] system that are eligible for new technology add-on payments will be identified by ICD-10-PCS procedure code 0W1G3J6 (Bypass peritoneal cavity to bladder with synthetic substitute, percutaneous approach) in combination with 0JH80YZ (Insertion of other device into abdomen subcutaneous tissue and fascia, open approach). (5) Aprevo[supreg]-C Cervical Interbody Fusion Device The following table summarizes the information provided in the new technology add-on payment application for the aprevo[supreg]-C cervical interbody fusion device. BILLING CODE 4120-01-P [[Page 36782]] [GRAPHIC] [TIFF OMITTED] TR04AU25.186 [[Page 36783]] [GRAPHIC] [TIFF OMITTED] TR04AU25.187 BILLING CODE 4120-01-C In the proposed rule, we noted that after review of the information provided by the applicant, since the indication for which the applicant received 510(k) clearance from FDA is included within the scope of the Breakthrough Device designation, it appears that the FDA 510(k) clearance indication is appropriate for consideration for new technology add-on payment under the alternative pathway criteria. We noted that the applicant stated that the technology is expected to be commercially available starting October 1, 2025, to align with the start of the new technology add-on payment. We were interested in additional information regarding the cause for any delay in the technology's market availability as the technology received FDA clearance on November 15, 2024. We agreed with the applicant that the aprevo[supreg]-C cervical interbody fusion device meets the cost criterion and therefore proposed to approve the aprevo[supreg]-C cervical interbody fusion device for new technology add-on payments for FY 2026, as interbody fusion devices indicated at one or more levels of the cervical spine (C2-T1) in patients with the following degenerative cervical conditions: cervical disc disease, instability, trauma including fractures, deformity defined as kyphosis, lordosis, or scoliosis, cervical spondylotic myelopathy, spinal stenosis, and failed previous fusion. Based on preliminary information from the applicant at the time of the proposed rule, the applicant anticipated the total cost of the aprevo[supreg]-C cervical interbody fusion device to the hospital to be $32,500 per patient. The applicant stated that the average number of cervical interbody fusion (CIBF) devices per procedure is 4.42 if the patient has a deformity and 1.7 if the patient has a degenerative condition. Per the applicant, based on the projected mix between these diagnoses, the average number of aprevo[supreg]-C CIBF per procedure is expected to be 3.25. The applicant stated that the selling price will be $19,000 for the first level, and $6,000 for each additional level. We noted that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. Under Sec. 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS-DRG payment for the case. As a result, we proposed that the maximum new technology add-on payment for a case involving the use of the aprevo[supreg]-C cervical interbody fusion device would be $21,125 for FY 2026 (that is, 65 percent of the average cost of the technology). We invited public comments on whether the aprevo[supreg]-C cervical interbody fusion device meets the cost criterion and our proposal to approve new technology add-on payments for the aprevo[supreg]-C cervical interbody fusion device for FY 2026. Comment: A few commenters, including the applicant, expressed support for our proposal to approve new technology add-on payment for the aprevo[supreg]-C cervical interbody fusion device. The applicant stated that the aprevo[supreg]-C cervical interbody fusion device meets the cost criterion. In response to CMS's request for additional information regarding the delay in the technology's market availability, the applicant stated that the commercial availability of the product is scheduled for October 1, 2025, to align with the new technology add-on payment start date because the higher hospital acquisition cost of the technology must be mitigated by the new technology add-on payment to secure the hospital value analysis committee approval. Response: We thank the commenters for their comments. As we have discussed in prior rulemaking (86 FR 45132 and 77 FR 53348), generally, our policy is to begin the newness period on the date of FDA approval or clearance or, if later, the date of availability of the product on the U.S. market. The applicant states that it anticipates commercial availability beginning October 1, 2025, but it is unclear whether the technology would be available for sale prior to that date. At this time, there is not sufficient [[Page 36784]] information to determine a newness date based on a documented delay in the technology's availability on the U.S. market. Absent additional information, we therefore consider the newness date for this technology to be November 15, 2024. Based on the information provided in the application for new technology add-on payments, and after consideration of the public comments we received, we believe the aprevo[supreg]-C cervical interbody fusion device meets the cost criterion. The technology received 510(k) clearance from FDA on November 15, 2024, with an indication for use as interbody fusion devices indicated at one or more levels of the cervical spine (C2-T1) in patients with the following degenerative cervical conditions: cervical disc disease, instability, trauma including fractures, deformity defined as kyphosis, lordosis, or scoliosis, cervical spondylotic myelopathy, spinal stenosis, and failed previous fusion, which is covered by its Breakthrough Device designation. Therefore, we are finalizing our proposal to approve new technology add-on payments for the aprevo[supreg]-C cervical interbody fusion device for FY 2026. We consider the beginning of the newness period to commence on November 15, 2024, the date on which the technology received FDA marketing authorization for the indication covered by its Breakthrough Device designation. Based on the information available at the time of this final rule, the cost per case of the aprevo[supreg]-C cervical interbody fusion device is $32,500. Under Sec. 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS-DRG payment for the case. As a result, we are finalizing that the maximum new technology add-on payment for a case involving the use of the aprevo[supreg]-C cervical interbody fusion device is $21,125 for FY 2026 (that is, 65 percent of the average cost of the technology). The applicant submitted a request and was granted approval for unique ICD- 10-PCS procedure codes for the aprevo[supreg]-C cervical interbody fusion device beginning in FY 2026. Therefore, cases involving the use of the aprevo[supreg]-C cervical interbody fusion device that are eligible for new technology add-on payments will be identified by one of the following ICD-10-PCS procedure codes: BILLING CODE 4120-01-P [GRAPHIC] [TIFF OMITTED] TR04AU25.188 (6) CERAMENT[supreg] G The following table summarizes the information provided in the new technology add-on payment application for CERAMENT[supreg] G. [[Page 36785]] [GRAPHIC] [TIFF OMITTED] TR04AU25.189 BILLING CODE 4120-01-C In the proposed rule, we noted that under the eligibility criteria for approval under the alternative pathway for certain transformative devices, only the [[Page 36786]] use of the technology for the indication that corresponds to the technology's Breakthrough Device designation would be eligible for the new technology add-on payment. Therefore, we noted that only the use of CERAMENT[supreg] G for open fractures, and the FDA Breakthrough Device designation it received for that use, were relevant for purposes of the new technology add-on payment application for FY 2026. We noted that CERAMENT[supreg] G is also indicated for use for bone infections and was approved for new technology add-on payment for that indication in the FY 2023 IPPS/LTCH PPS final rule (87 FR 48961 through 48966). As discussed in section II.E.4. of the preamble of the proposed rule, we proposed to discontinue making new technology add-on payments for FY 2026 for use of CERAMENT[supreg] G for bone infections. We believed cases involving the use of CERAMENT[supreg] G related to bone infections, which would no longer be eligible for new technology add-on payment in FY 2026, would be identified by the ICD-10-PCS code XW0V0P7 (Introduction of antibiotic-eluting bone void filler into bones, open approach, new technology group 7) in combination with the ICD-10-CM codes in category M86 (Osteomyelitis). We invited public comments on the use of these codes to exclude the indication for use of CERAMENT[supreg] G related to bone infections, which would not be eligible for the new technology add-on payment for FY 2026, if approved. We agreed with the applicant that CERAMENT[supreg] G meets the cost criterion and therefore proposed to approve CERAMENT[supreg] G for new technology add-on payments for FY 2026 for use as a bone void filler intended for use in defects in the extremities of skeletally mature patients as an adjunct to systemic antibiotic therapy and surgical debridement as part of the standard treatment approach to open fractures. Based on preliminary information from the applicant at the time of the proposed rule, the applicant anticipated the total cost to the hospital to be $8,750 per patient. The applicant stated that the cost of 10 cc of CERAMENT[supreg] G would be $8,750, and expected that 10 cc of CERAMENT[supreg] G would be used per patient as indicated in a long- term study of 81 patients with open fractures.\123\ We noted that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. Under Sec. 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS-DRG payment for the case. As a result, we proposed that the maximum new technology add-on payment for a case involving the use of CERAMENT[supreg] G would be $5,687.50 for FY 2026 (that is, 65 percent of the average cost of the technology). --------------------------------------------------------------------------- \123\ Henry, J, Ali, A., and Elkhidir, I et al. (2023). Long- term follow-up of open Gustilo-Anderson IIIB fractures treated with an adjuvant local antibiotic hydroxyapatite bio-composite. Cureus 15(5): e39103. DOI 10.7759/cureus.39103. --------------------------------------------------------------------------- We invited public comments on whether CERAMENT[supreg] G meets the cost criterion and our proposal to approve new technology add-on payments for CERAMENT[supreg] G for FY 2026. Comment: We received comments expressing support for technologies under consideration for new technology add-on payments for FY 2026. We also received comments expressing general support of the proposed ICD- 10-CM codes for which CMS specifically sought input. Response: We thank the commenters for their comments. Based on the information provided in the application for new technology add-on payments, we believe CERAMENT[supreg] G meets the cost criterion. The technology received FDA 510(k) clearance on March 13, 2024, with an indication for use in defects in the extremities of skeletally mature patients as an adjunct to systemic antibiotic therapy and surgical debridement as part of the standard treatment approach to open fractures. Therefore, we are finalizing our proposal to approve new technology add-on payments for CERAMENT[supreg] G for FY 2026. As noted earlier in this section, only the use of CERAMENT[supreg] G for open fractures, and the FDA Breakthrough Device designation it received for that use, are relevant for purposes of the new technology add-on payment application for FY 2026. We consider the beginning of the newness period to commence on March 13, 2024, the date on which technology received its 510(k) clearance for the indication of open fractures covered by its Breakthrough Device designation. Based on the information available at the time of this final rule, the cost per case of CERAMENT[supreg] G is $8,750. Under Sec. 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS-DRG payment for the case. As a result, we are finalizing that the maximum new technology add-on payment for a case involving the use of CERAMENT[supreg] G is $5,687.50 for FY 2026 (that is, 65 percent of the average cost of the technology). As noted, CERAMENT[supreg] G is also indicated for use for bone infections and was approved for new technology add-on payment for that indication in the FY 2023 IPPS/LTCH PPS final rule (87 FR 48961 through 48966). As discussed in section II.E.4. of the preamble of this final rule, we are finalizing our proposal to discontinue making new technology add-on payments for FY 2026 for use of CERAMENT[supreg] G for bone infections. Therefore, cases involving the use of CERAMENT[supreg] G that are eligible for new technology add-on payments in FY 2026 will be identified by ICD-10-PCS procedure code XW0V0P7 (Introduction of antibiotic-eluting bone void filler into bones, open approach, new technology group 7) without any of the ICD-10-CM diagnosis codes in category M86 (Osteomyelitis). (7) Emily's Care Nourish Test System (Model 1) The following table summarizes the information provided in the new technology add-on payment application for the Emily's Care Nourish Test System (Model 1). BILLING CODE 4120-01-P [[Page 36787]] [GRAPHIC] [TIFF OMITTED] TR04AU25.190 BILLING CODE 4120-01-C In the proposed rule, after review of the information provided by the applicant, we noted that under the eligibility criteria for approval under the alternative pathway for certain transformative devices, only the use of the technology for the indication that corresponds to the technology's Breakthrough Device designation would be eligible for the new technology add-on payment for FY 2026. Therefore, we noted that only the use of the Emily's Care Nourish Test System (Model 1) for VLBW neonates and infants in the NICU, and the FDA Breakthrough [[Page 36788]] Device designation it received for that use, were relevant for purposes of the new technology add-on payment application for FY 2026. We noted the following concerns with respect to the cost criterion. We were unclear how the applicant identified the 25,000 claims used in its cost analysis, including the type of source data and the data year that were used to identify cases. The applicant did not provide a completed cost criterion codes and MS-DRGs worksheet and we were unclear how ICD-10-PCS and/or -CM codes were used to identify potential cases representing patients that may be eligible for use of the Emily's Care Nourish Test System (Model 1). We noted that MS-DRGs 790 and 791 identified by the applicant may represent a patient population broader than those cases that would be included within the scope of the Breakthrough Device designation indication that is appropriate for consideration for new technology add-on payment under the alternative pathway criteria (VLBW neonates and infants less than 6 months of age in the NICU), and we questioned whether using these MS-DRGs without additional inclusion and/or exclusion criteria would be representative of cases eligible for new technology add-on payment. Furthermore, we noted that it appeared that the applicant did not identify relevant cases from a claims database such as the MedPAR file for its cost analysis, but instead calculated a case volume based on assumptions using the number of total live births in the United States. In addition, we questioned the assumptions used in the cost analysis regarding the potential Medicare volume for the technology. As we noted, in the FDA clearance letter for this device,\124\ its intended patient population is newborns, including preterm, and infants. We stated that the applicant asserted that after a premature infant is delivered, the infant may be eligible for Medicare coverage if it qualifies under specific criteria, such as disability or end-stage renal disease (ESRD). Although we agreed that infants may be eligible for Medicare if they have ESRD and need regular dialysis or have had a kidney transplant,\125\ we noted that Medicare Part A entitlement--for inpatient hospital services--based on child disability benefit entitlement can never begin before the month the person attains age 20 (or age 18 if the individual's disability is Amyotrophic Lateral Sclerosis).\126\ --------------------------------------------------------------------------- \124\ https://www.accessdata.fda.gov/cdrh_docs/pdf23/K234088.pdf. \125\ Centers for Medicare & Medicaid Services. End-stage renal disease (https://www.medicare.gov/basics/end-stage-renal-disease, accessed 1/16/2024). \126\ Centers for Medicare & Medicaid Services. Original Medicare (Part A and B) Eligibility and Enrollment (https://www.cms.gov/medicare/enrollment-renewal/health-plans/original-part-a-b, accessed 1/16/2024). --------------------------------------------------------------------------- Furthermore, we were unclear how the average charge per case (unstandardized with no case weight) was calculated as it is unclear what claims data was used to determine the average charges for MS-DRG 790 and MS-DRG 791. We were also unclear as to the applicant's methodology for calculating the average charge per case (unstandardized with case weight), as it appeared the applicant multiplied the average charge per case (unstandardized with no case weight) by 5.6671 for the charges in MS-DRG 790, and by 3.8704 for the charges in MS-DRG 791. Although the applicant did not remove charges related to the technology being replaced, we noted that the applicant stated that targeted fortification leads to a decreased length of stay (LOS) by 2.5 days, and we questioned if charges should be removed to account for the decreased LOS for patients using this technology. We were also unclear as to the applicant's methodology for calculating the average standardized charge per case as the applicant used the same values from the average charge per case (unstandardized with case weight), which were the average charge per case (unstandardized with no case weight) multiplied by 5.6671 for the charges in MS-DRG 790, and by 3.8704 for the charges in MS-DRG 791. To calculate the inflated average standardized charge per case, the applicant applied an inflation factor of 1.04118 percent. We stated in the proposed rule that we were interested in additional information regarding the basis for using this inflation factor and how it corresponded to the source data and year used for the cost analysis. We noted the applicant added direct and indirect charges related to the new technology. However, although the applicant identified a cost- to-charge ratio of 0.36 for intensive inpatient admission days, we stated it was unclear how this cost-to-charge ratio was used to convert costs for the technology and indirect costs to charges, and how these charges were calculated using the costs of the device itself or costs related to additional time for training or measuring milk. Therefore, because the applicant had not provided sufficient information as part of its cost analysis to demonstrate that the Emily's Care Nourish Test System (Model 1) meets the cost criterion, we proposed to disapprove new technology add-on payments for the Emily's Care Nourish Test System (Model 1) for FY 2026. However, in the event we were to receive updated information to establish that the Emily's Care Nourish Test System (Model 1) meets the cost criterion, we provided the following information regarding the new technology add-on payment. We noted the applicant stated that the technology, which received FDA clearance on May 3, 2024, was expected to be commercially available May 1, 2025, and we stated that we would appreciate more information about the cause for any delay in the commercial availability of the device following FDA clearance. We believed the relevant ICD-10-CM codes to identify the Breakthrough Device-designated indication for use of the technology in VLBW neonates and infants would be the following codes: [[Page 36789]] [GRAPHIC] [TIFF OMITTED] TR04AU25.191 We invited public comments on the use of these ICD-10-CM diagnosis codes to identify the Breakthrough Device-designated indication for purposes of the new technology add-on payment, if approved. Based on preliminary information from the applicant at the time of the proposed rule, the applicant anticipated the total cost to the hospital for the Emily's Care Nourish Test System (Model 1) to be $3,000 per patient before discounts and $1,800 after discounts, based on the contents of the kit, which provides enough supplies for testing over a typical NICU stay (36 tests). The applicant stated the contents of the kit include: 36 test strips, pipettes, reference cards, 2 control solutions, and a reusable lightbox (iPhone not included). The applicant also provided additional information on the costs for the annual use of the technology to the hospital of $25,000, consisting of $10,000 for the kit including the lease of the lightbox and iPhone, and $15,000 for the device's operation (labor, testing milk, analysis interpretation, adjustment of feeding protocols). However, we noted that the costs to the hospital, per patient, per inpatient stay remains unclear, and that the provided costs also include additional costs related to use of the device as well as capital costs for the lease of the lightbox and iPhone. We stated that, as we had discussed in prior rulemaking, when determining a new technology add-on payment, we provide payment based on the cost of the actual technology (such as the drug or device itself) and not for additional costs related to the use of the device (86 FR 45146). Therefore, we would not include costs of staff labor for the device's operation in the relevant costs for purposes of determining the new technology add-on payment amount. In addition, because section 1886(d)(5)(K)(i) of the Act requires that the Secretary establish a mechanism to recognize the costs of new medical services or technologies under the payment system established under that subsection, which establishes the system for payment of the operating costs of inpatient hospital services, we stated that we do not include capital costs in the add-on payments for a new medical service or technology or make new technology add-on payments under the IPPS for capital-related costs (86 FR 45145). We stated that the costs to lease the lightbox and iPhone are capital costs. As such, we noted that these components would not be eligible for new technology add-on payment because, as discussed in prior rulemaking and as noted, we only make new technology add-on payments for operating costs (72 FR 47307 through 47308). Without a breakdown of the costs of this technology to the hospital, per patient, per inpatient stay, for the operating components of the kit, we stated we were unable to identify the relevant costs for purposes of determining the new technology add-on payment amount. In addition, the applicant had indicated that the cost of the device would be discounted to hospitals, and the Medicare program expects providers to take advantage of available discounts.\127\ We stated it was unclear how potential discounts would affect the relevant estimated operating costs of the device. We also stated we would be interested in additional information regarding the current or anticipated average cost of the technology to the hospital per inpatient stay. --------------------------------------------------------------------------- \127\ Medicare Department of Health & Human Services (DHHS) Provider Reimbursement Manual Part 1--Chapter 8, Purchase Discounts; Allowances; Refunds of Expenses (Date: March 8, 2013) https://www.cms.gov/regulations-and-guidance/guidance/transmittals/downloads/r456pr1.pdf. --------------------------------------------------------------------------- We invited public comments on whether the Emily's Care Nourish Test System (Model 1) meets the cost criterion and our proposal to disapprove new technology add-on payments for the Emily's Care Nourish Test System (Model 1) for FY 2026. We also invited public comments on the operating costs for the device, in the event we received updated information to establish that the Emily's Care Nourish Test System (Model 1) meets the cost criterion. Comment: We received a comment from Prolacta Biosciences stating that subsequent to submission of the new technology add-on payment application for Emily's Care Nourish Test System (Model 1), Prolacta Bioscience acquired Lactation Lab Inc. and that Prolacta Bioscience should now officially be considered the applicant, and asked that all correspondence regarding the new technology add-on payments for FY 2026 application and any questions be directed to Prolacta Biosciences. Response: We thank the commenter for its comment and note that for this final rule Prolacta Biosciences is identified as the applicant in the following section. Comment: Multiple commenters, including the applicant, expressed support for approving new technology add-on payment for the Emily's Care Nourish Test System (Model 1). Some commenters shared their personal experiences as practicing clinicians or as mothers who had infants in the NICU. A few commenters submitted citations and studies that emphasized the importance of human milk and targeted fortification for VLBW infants in the NICU. Other commenters stated that Medicare- eligible mothers may have disabilities which raise the risk of [[Page 36790]] preterm birth, low birth weight, and NICU admission. Several commenters stated that during these admissions, Emily's Care Nourish Test System (Model 1) may be used by the hospital at the point of care to test the mother's milk. In response to CMS's concerns regarding the potential Medicare volume for this technology and the eligible Medicare patient population, the applicant stated that testing with the device impacts both maternity-related admissions (as the subject of the nutritional analysis is the mother's breast milk) and neonatal care (as the results of the nutritional analysis guide treatment for the infant). The applicant and other commenters referenced maternal testing, measures such as the Maternal Morbidity Structural Measure in the Hospital Inpatient Quality Reporting (IQR) Program and the Exclusive Breast Milk Feeding electronic clinical quality measure, and Medicare designation of Birthing-Friendly hospitals as evidence for CMS's role in maternal and infant care. A few commenters urged CMS to approve the application for infants regardless of the insurance they hold. The applicant stated that it agrees with the proposed rule analysis that there is an extremely low volume of Medicare claims for MDC 15 (Newborns & Other Neonates with Conditions Originating in Perinatal Period). However, the applicant maintained that since extremely low- volume MS-DRGs are active, Medicare payment for newborn and neonatal services should accurately reflect resource utilization, regardless of claims volume. Based on these examples cited, the applicant stated that new technology add-on payment eligibility for Emily's Care Nourish Test System is consistent with prior CMS policy with regard to Medicare IPPS reimbursement for maternal services and neonatal care. Response: We thank the applicant and other commenters for their comments. While we share commenters' interests in improving maternal and infant outcomes, we do not believe that maternal care is relevant to this technology, which received a Breakthrough Device designation to measure the concentration of fat, carbohydrate, and protein in human milk to aid in the nutritional management and treatment of VLBW in the NICU, for both neonates and infants less than 6 months of age. We note that after the infant is delivered, items and services furnished to the infant cannot be covered and reimbursed under Medicare on the basis of the mother's eligibility.\128\ Therefore, an infant would need to meet Medicare eligibility criteria, regardless of the mother's Medicare eligibility. As we noted in the proposed rule, infants may be eligible for Medicare if they have ESRD and need regular dialysis or have had a kidney transplant.\129\ Therefore, we believe the relevant patient population for the purpose of the new technology add-on payment are VLBW neonates and infants less than 6 months of age with ESRD that need regular dialysis or have had a kidney transplant. Furthermore, the Breakthrough Device designation does not limit the sample source of the device to human milk from the mother. For example, donor human milk may be used in the NICU, as noted by a commenter. --------------------------------------------------------------------------- \128\ Medicare Benefit Policy Manual Chapter 1--Inpatient Hospital Services Covered Under Part A (Rev. 10892, 08-06-21) https://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/downloads/bp102c01.pdf. \129\ Centers for Medicare & Medicaid Services. End-stage renal disease (https://www.medicare.gov/basics/end-stage-renal-disease, accessed 1/16/2024). --------------------------------------------------------------------------- Comment: In response to CMS's concerns with respect to the cost criterion, the applicant submitted a revised cost analysis, updated cost criterion codes, and a calculation narrative. The applicant stated that it conducted three different cost calculations. Per the applicant, the first, and most restrictive, calculation used the diagnosis codes suggested by CMS in the proposed rule discussion and MS-DRGs identified by the applicant related to childbirth or potential maternal nutritional issues. The applicant then identified cases that contained at least one code from the diagnosis code list and were also on the list of MS-DRGs. In this analysis, the applicant identified less than 11 claims mapping to each of two MS-DRGs: 641 (Miscellaneous Disorders of Nutrition, Metabolism, Fluids and Electrolytes without MCC) and 807 (Vaginal Delivery without Sterilization/D&C without CC/MCC), and therefore imputed a value of 11 cases for its cost analysis. The applicant calculated a final inflated average case-weighted standardized charge per case of $39,225, which exceeded the average case-weighted threshold amount of $32,060. The applicant stated that the second analysis used a diagnosis code list with four additional diagnosis codes that it had identified could be appropriate. These codes are P07.21 (Extreme immaturity of newborn, gestational age less than 23 completed weeks), P07.24 (Extreme immaturity of newborn, gestational age less than 25 completed weeks), P07.25 (Extreme immaturity of newborn, gestational age less than 26 completed weeks) and P07.26 (Extreme immaturity of newborn, gestational age less than 27 completed weeks). The applicant stated that these diagnosis codes for extreme immaturity may be used in place for birthweight diagnosis. The applicant further stated these additional diagnosis codes expanded the number of claims and produced a selection of MS-DRGs unrelated to childbirth. Per the applicant, one hypothesis for the additional MS-DRGs present is that early childbirth may have been induced as the result of the mother's illness. The applicant provided rationale that medical coders and billers preferentially use gestational age over birth weight for coding and reimbursement due to clinical, regulatory, and practical considerations. Per the applicant, the claims data provides some merit for this hypothesis as it contained several claims which appeared to be outliers. The applicant stated the presence of likely outliers for non-neonate patients implies the mother was quite ill, and standardized charges for these outlier cases far exceeded CMS's MS-DRG thresholds. Therefore, the applicant calculated the second analysis two ways: with and without the apparent outlier claims. For the scenario with outlier claims, the applicant calculated a final inflated average case-weighted standardized charge per case of $175,383, which exceeded the average case-weighted threshold amount of $53,328. For the scenario without outlier claims, the applicant calculated a final inflated average case-weighted standardized charge per case of $49,284, which exceeded the average case-weighted threshold amount of $46,604. Because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount in all scenarios, the applicant asserted that the Emily's Care Nourish Test System (Model 1) meets the cost criterion. Response: We thank the applicant for its comments and updated cost analysis. We disagree that the additional ICD-10-CM diagnosis codes proposed by the applicant are relevant because gestational age is preferentially used over birthweight for coding and reimbursement due to clinical, regulatory, and practical considerations. We note that, under the eligibility criteria for approval under the alternative pathway for certain transformative new devices, only the indication for use of the Emily's Care Nourish Test System (Model 1) that is covered by the FDA Breakthrough Device designation is relevant for [[Page 36791]] purposes of the new technology add-on payment application. Therefore, we continue to believe that the birthweight-related ICD-10-CM diagnosis codes are most appropriate to identify the use of the technology for VLBW neonates and infants that is relevant to the Breakthrough Device designation for the purposes of new technology add-on payment. However, we note that the analyses using these additional gestational age-related diagnosis codes were provided as additional analyses. We agree that the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount in the most restrictive scenario. Therefore, the Emily's Care Nourish Test System (Model 1) meets the cost criterion. Comment: In response to CMS's requests for information about discounts to hospitals, length of stay, and cost breakdown, the applicant stated it does not anticipate providing routine discounts off the cost of the device and any discounts would be a volume discount and should not impact the calculation of new technology add-on payment. The applicant stated that the reference to expected reductions in length of stay was included in error, as it was not included in the labeled claims and resulted from the applicant's misunderstanding of the factors that are relevant to the device cost calculations. The applicant stated the length of stay for maternal cases is not expected to be materially impacted by testing via the Emily's Care Nourish Test System (Model 1). The applicant provided a revised cost of $5,150 per patient, per inpatient stay. The applicant stated that the costs for consumables and single-use disposables is due to an increase in the cost of raw materials and increased cost of control solutions. In response to CMS's request for additional information regarding the delay in the technology's market availability the applicant stated that as a startup in the maternal and child health sector, Lactation Lab encountered typical early-stage funding obstacles. The applicant stated there was a delay due to restricted access to capital and establishment of the essential infrastructure for achieving scalable manufacturing. Per the applicant, it consequently acquired Lactation Lab and will be manufacturing the device. The applicant expected to be fully commercial by Q4 of 2025. Response: We thank the applicant for its comment. As we have discussed in prior rulemaking (86 FR 45132 and 77 FR 53348), generally, our policy is to begin the newness period on the date of FDA approval or clearance or, if later, the date of availability of the product on the U.S. market. The applicant states that it anticipates that the device will be fully commercial by Q4 of 2025, but it is unclear whether the technology would be available for sale earlier, in limited quantities. At this time, there is not sufficient information to determine a newness date based on a documented delay in the technology's availability on the U.S. market. Absent additional information, we therefore consider the newness date for this technology to be May 3, 2024. Based on the information provided in the application for new technology add-on payments, and after consideration of the public comments we received, we believe the Emily's Care Nourish Test System (Model 1) meets the cost criterion. The technology received FDA clearance on May 3, 2024, with an indication for use to aid in the nutritional management of newborns, including preterm, and infants. As noted earlier in this section, Emily's Care Nourish Test System (Model 1) has received FDA clearance for multiple indications, and only the use of the Emily's Care Nourish System (Model 1) for VLBW neonates and infants in the NICU, and the FDA Breakthrough Device designation it received for that use, are relevant for purposes of the new technology add-on payment application for FY 2026. Therefore, we are finalizing to approve new technology add-on payments for the Emily's Care Nourish Test System (Model 1) for FY 2026. Absent additional information from the applicant, we consider the beginning of the newness period to commence on May 3, 2024, the date of FDA marketing authorization for the indication covered by its Breakthrough Device designation. Based on the information available at the time of this final rule, the cost per case of Emily's Care Nourish Test System (Model 1) is $5,150 per patient, per inpatient stay. Under Sec. 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS- DRG payment for the case. As a result, we are finalizing that the maximum new technology add-on payment for a case involving the use of Emily's Care Nourish Test System (Model 1) is $3,347.50 for FY 2026 (that is, 65 percent of the average cost of the technology). The applicant submitted a request and was granted approval for a unique ICD-10-PCS procedure code for the Emily's Care Nourish Test System (Model 1) beginning in FY 2026. Therefore, cases involving the use of Emily's Care Nourish Test System (Model 1) that are eligible for new technology add-on payments will be identified by ICD-10-PCS procedure code XXEZXAB (Measurement of macronutrient content, computer- aided assessment for nutrition management, new technology group 11) in combination with one of the following ICD-10-CM diagnosis codes: [[Page 36792]] [GRAPHIC] [TIFF OMITTED] TR04AU25.192 (8) Esprit\TM\ BTK Everolimus Eluting Resorbable Scaffold System The following table summarizes the information provided in the new technology add-on payment application for the Esprit\TM\ BTK Everolimus Eluting Resorbable Scaffold System BILLING CODE 4120-01-P [[Page 36793]] [GRAPHIC] [TIFF OMITTED] TR04AU25.193 BILLING CODE 4120-01-C In the proposed rule, we noted that after review of the information provided by the applicant, since the indication for which the applicant has received FDA [[Page 36794]] marketing authorization is included within the scope of the Breakthrough Device designation indication, it appears that the FDA marketing authorization is appropriate for consideration for new technology add-on payment under the alternative pathway criteria.\130\ --------------------------------------------------------------------------- \130\ Breakthrough Devices Program https://www.fda.gov/medical-devices/how-study-and-market-your-device/breakthrough-devices-program. --------------------------------------------------------------------------- We agreed with the applicant that the Esprit\TM\ BTK Everolimus Eluting Resorbable Scaffold meets the cost criterion and therefore proposed to approve the Esprit\TM\ BTK Everolimus Eluting Resorbable Scaffold for new technology add-on payments for FY 2026 for the indication of improving luminal diameter in infrapopliteal lesions in patients with CLTI and total scaffolding length up to 170 mm with a reference vessel diameter of 2.5 mm and 4 mm. Based on preliminary information from the applicant at the time of the proposed rule, the applicant anticipated the total cost of the Esprit\TM\ BTK Everolimus Eluting Resorbable Scaffold to the hospital to be $6,000 per patient. According to the applicant, the costs of the technology include the Esprit\TM\ BTK Scaffold ($2,750) and the Esprit\TM\ BTK Delivery System ($250). The applicant stated that per the IDE Clinical Study, on average two Esprit\TM\ BTK Everolimus Eluting Resorbable Scaffolds were used per patient. We noted that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. Under Sec. 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS-DRG payment for the case. As a result, we proposed that the maximum new technology add-on payment for a case involving the use of the Esprit\TM\ BTK Everolimus Eluting Resorbable Scaffold would be $3,900 for FY 2026 (that is, 65 percent of the average cost of the technology). We invited public comments on whether the Esprit\TM\ BTK Everolimus Eluting Resorbable Scaffold meets the cost criterion and our proposal to approve new technology add-on payments for the Esprit\TM\ BTK Everolimus Eluting Resorbable Scaffold for FY 2026. Comment: Multiple commenters, including the applicant, expressed support for our proposal to approve new technology add-on payment for the Esprit\TM\ BTK Everolimus Eluting Resorbable Scaffold. The applicant also requested that CMS increase the maximum new technology add-on payments for FY 2026. To support this request, the applicant described two-year data from its randomized controlled trial,\131\ stating that among trial subjects, the clinical success of the treatment was not based on a specific number of scaffolds used, but rather on the clinical treatment protocol, which required scaffolds to be placed along the entire length of the diseased artery, also known as ``healthy-to-healthy'' vessel treatment. The applicant stated that while two scaffolds per case were implanted on average to treat the average lesion length of 44 mm, as indicated in its application, a range of one to six scaffolds were implanted depending on the length of the lesion being treated and the corresponding healthy-to-healthy clinical need of the patient. The applicant stated that it also summarized 16 recent studies evaluating infrapopliteal lesions in patients with chronic limb-threatening ischemia, and that lesion lengths ranged from 41 mm to 244.7 mm, with a calculated weighted average of 135.1 mm based on the analyses reflecting real-world clinical practice. In addition, the applicant stated that data in the RECCORD registry showed 40.4 percent of lesions were <10 cm (100 mm), 40.4 percent were 10-20 cm (100-200 mm), and 19.2 percent were >20 cm (200 mm) in length, among patients treated solely for infrapoliteal lesions. --------------------------------------------------------------------------- \131\ DeRubertis, Brian (2024, November 3-6) Two-Year Outcomes of the LIFE-BTK Randomized Controlled Trial Evaluating the Esprit BTK Drug-eluting Resorbable Scaffold for Treatment of Infrapopliteal Lesions. VIVA 2024 Conference, Las Vegas, NV, United States. --------------------------------------------------------------------------- Therefore, the applicant requested that CMS revise the maximum new technology add-on payment to $6,933 to reflect a conservative average of 3.55 scaffolds needed to cover the real-world average lesion length of 135.1 mm (65 percent of 3.55 scaffolds, priced at $3,000 each). Response: We thank the commenters for their comments and for the additional cost and trial information. We note that, based on the information provided by the applicant about the estimated average cost of the technology, the maximum new technology add-on payment for a case would be $6,922.50. Specifically, the applicant stated that an average of 3.55 scaffolds would be used, priced at $3,000 each. Therefore, the estimated average cost per case would be $10,650 and 65 percent of the average cost of the technology ($10,650) is $6,922.50. Based on the information provided in the application for new technology add-on payments, and after consideration of the public comments we received, we believe EspritTM BTK Everolimus Eluting Resorbable Scaffold meets the cost criterion. The technology received FDA marketing authorization on April 26, 2024, with an indication of improving luminal diameter in infrapopliteal lesions in patients with CLTI and total scaffolding length up to 170 mm with a reference vessel diameter of 2.5 mm and 4 mm, which is covered by its Breakthrough Device designation. Therefore, we are finalizing our proposal to approve new technology add-on payments for EspritTM BTK Everolimus Eluting Resorbable Scaffold for FY 2026. We consider the beginning of the newness period to commence on April 26, 2024, the date on which the technology received its FDA marketing authorization for the indication covered by its Breakthrough Device designation. Based on the information available at the time of this final rule, the cost per case of EspritTM BTK Everolimus Eluting Resorbable Scaffold is $10,650.00. Under Sec. 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS-DRG payment for the case. As a result, we are finalizing that the maximum new technology add-on payment for a case involving the use of EspritTM BTK Everolimus Eluting Resorbable Scaffold is $6,922.50 for FY 2026 (that is, 65 percent of the average cost of the technology). Cases involving the use of EspritTM BTK Everolimus Eluting Resorbable Scaffold that are eligible for new technology add-on payments will be identified by one of the following ICD-10-PCS procedure codes: [[Page 36795]] [GRAPHIC] [TIFF OMITTED] TR04AU25.195 (9) EUROPATM Posterior Cervical Fusion System The following table summarizes the information provided in the new technology add-on payment application for the EUROPATM Posterior Cervical Fusion System. BILLING CODE 4120-01-P [[Page 36796]] [GRAPHIC] [TIFF OMITTED] TR04AU25.196 BILLING CODE 4120-01-C In the proposed rule, we noted that after review of the information provided by the applicant, since the indication for which the applicant has received FDA marketing authorization is included within the scope of the Breakthrough Device designation indication, it appears that the FDA marketing authorization is appropriate for consideration for new technology add-on payment under the alternative pathway criteria. We noted in the proposed rule that according to the applicant, the technology, which received FDA clearance on November 19, 2024, is not yet available for sale due to project timelines. The applicant stated that the technology is not expected to be [[Page 36797]] commercially available until the fourth quarter of 2025. We stated in the proposed rule that we were interested in additional information regarding the cause of any delay in the technology's market availability. We agreed with the applicant that the EUROPATM Posterior Cervical Fusion System meets the cost criterion and therefore proposed to approve the EUROPATM Posterior Cervical Fusion System for new technology add-on payments for FY 2026, to provide immobilization and stabilization of spinal segments as an adjunct to fusion for the acute and chronic instabilities of the cervical spine (Cl to C7) and the upper thoracic spine (T1 to T3) listed in both the Breakthrough Device designation and FDA clearance letter. Based on preliminary information from the applicant at the time of the proposed rule, the applicant anticipated the total cost of the EUROPATM Posterior Cervical Fusion System to the hospital to be $123,920 per patient. According to the applicant, there are approximately 374 different components associated with the technology, including Pedicle Screws, Set Screws, Rods, and Connectors, all of which are operating costs and new components. The applicant stated that the majority of posterior cervical fusion procedures are inpatient Medicare procedures in most hospitals, but there may be exceptions based on individual clinical practice. Per the applicant, most of these procedures are C1-T3 or C2-T3 with some exceptions being 2-3 levels. The applicant calculated the total cost based on the unit prices of the implants used in a construct (Rod $9,000.00; Pedicle Screw $5,000.00; Smooth Shank Screw $5,000.00; Set Screw $500.00; Connector $4,000.00), weighted by the length of the construct (1- through 9-level), and the percentage of those procedures across different levels of fusion (10 percent for 2- through 4-level; 90 percent for 5 or more levels). We noted that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. Under Sec. 412.88(a)(2)(ii)(B), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS- DRG payment for the case. As a result, we proposed that the maximum new technology add-on payment for a case involving the use of the EUROPATM Posterior Cervical Fusion System would be $80,548 for FY 2026 (that is, 65 percent of the average cost of the technology). We invited public comments on whether the EUROPATM Posterior Cervical Fusion System meets the cost criterion and our proposal to approve new technology add-on payments for the EUROPATM Posterior Cervical Fusion System for FY 2026. Comment: We received comments, including from the applicant, expressing support for our proposal to approve new technology add-on payment for the EUROPATM Posterior Cervical Fusion System. In response to CMS's request for additional information regarding the delay in the technology's market availability, the applicant stated that following FDA clearance of the EUROPATM Posterior Cervical Fusion System on November 19, 2024, the company initiated final steps toward market release, with product availability anticipated around August 2025. The applicant stated that the EUROPATM Posterior Cervical Fusion System is manufactured using its proprietary MoRe alloy, which requires a different manufacturing process compared to conventional spinal implant materials. Per the applicant, the raw materials have a long lead time and are further complicated by the current macro-economic conditions, and the MoRe alloy is 3 to 4 times more expensive to produce and requires specialized tooling, extended machining time, and rigorous quality processes. Per the applicant, scaling up production while maintaining consistency and compliance with FDA cleared specifications also contributes to the extended timeline. The applicant stated that finalizing the production capabilities has taken additional time with current market considerations including supplier reliability, global tariff impacts, affecting increased demand on local manufacturing companies and delays in timeline. Per the applicant, additional time is needed to finalize regulatory labeling, sterilization, and transportation validation requirements. The applicant stated that all documentation must undergo internal review, printing, and packaging verification processes. To support commercialization, the applicant stated that it has begun conversations with large hospitals and other organizations to add the products to contracts, and that approvals have taken longer than expected. The applicant stated that it will continue communicating with CMS regarding any additional delays or updates in this timeline as the launch date approaches. The applicant stated that this timing ensures appropriate product training, manufacturing capacity, packaging readiness, and hospital system and facility approvals are in place to support a safe and successful launch. Response: We thank the commenters for their comments and the applicant for its detailed explanation for delay in commercial market availability. As we have discussed in prior rulemaking (86 FR 45132 and 77 FR 53348), generally, our policy is to begin the newness period on the date of FDA approval or clearance or, if later, the date of availability of the product on the U.S. market. The applicant states that it anticipates first commercial use and launch beginning around August 2025, but it is unclear whether the technology would be available for sale prior to that date. At this time, there is not sufficient information to determine a newness date based on a documented delay in the technology's availability on the U.S. market. Absent additional information, we therefore consider the newness date for this technology to be November 19, 2024. Based on the information provided in the application for new technology add-on payments, and after consideration of the public comment we received, we believe the EUROPATM Posterior Cervical Fusion System meets the cost criterion. The technology received FDA clearance on November 19, 2024, with an indication to provide immobilization and stabilization of spinal segments as an adjunct to fusion for the acute and chronic instabilities of the cervical spine (Cl to C7) and the upper thoracic spine (T1 to T3), which is covered by its Breakthrough Device designation. Therefore, we are finalizing our proposal to approve new technology add-on payments for the EUROPATM Posterior Cervical Fusion System for FY 2026. Absent additional information from the applicant, we consider the beginning of the newness period to commence on November 19, 2024, the date of FDA marketing authorization for the indication covered by its Breakthrough Device designation. Based on the information available at the time of this final rule, the average cost per case of the EUROPATM Posterior Cervical Fusion System is $123,920, based on the unit prices of the implants used in a construct (Rod $9,000.00; Pedicle Screw $5,000.00; Smooth Shank Screw $5,000.00; Set Screw $500.00; Connector $4,000.00), weighted by the length of the construct (1- through 9-level), and the percentage of those procedures across different levels of fusion (10 percent for 2- through 4-level; 90 percent for 5 or more levels). Under Sec. 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost [[Page 36798]] of the technology, or 65 percent of the costs in excess of the MS-DRG payment for the case. As a result, we are finalizing that the maximum new technology add-on payment for a case involving the use of the EUROPATM Posterior Cervical Fusion System is $80,548 for FY 2026 (that is, 65 percent of the average cost of the technology). The applicant submitted a request and was granted approval for unique ICD-10-PCS procedure codes for the EUROPATM Posterior Cervical Fusion System beginning in FY 2026. Therefore, cases involving the use of the EUROPATM Posterior Cervical Fusion System that are eligible for new technology add-on payments will be identified by one of the following ICD-10-PCS procedure codes: [GRAPHIC] [TIFF OMITTED] TR04AU25.197 (10) iFuse TORQ TNTTM Implant System The following table summarizes the information provided in the new technology add-on payment application for the iFuse TORQ TNTTM Implant System. BILLING CODE 4120-01-P [[Page 36799]] [GRAPHIC] [TIFF OMITTED] TR04AU25.198 [[Page 36800]] [GRAPHIC] [TIFF OMITTED] TR04AU25.199 BILLING CODE 4120-01-C In the proposed rule, after review of the information provided by the applicant, we noted that under the eligibility criteria for approval under the [[Page 36801]] alternative pathway for certain transformative devices, only the use of the technology for the indication that corresponds to the technology's Breakthrough Device designation would be eligible for the new technology add-on payment for FY 2026. As noted by the applicant, the FDA clearance describes an additional indication for sacroiliac joint fusion for augmenting immobilization and stabilization of the sacroiliac joint in skeletally mature patients undergoing sacropelvic fixation as part of a lumbar or thoracolumbar fusion, which is not included in the Breakthrough Device designation. Therefore, we noted that it appeared that this indication was not relevant for purposes of the new technology add-on payment application for FY 2026. Please see Table 10.2.-iFuse TORQ TNTTM Implant System associated with the proposed rule for the list of ICD-10-PCS procedure codes that we believed would be appropriate to exclude when reported in combination with use of the iFuse TORQ TNTTM Implant System. We invited public comments on the exclusion of cases reporting these ICD-10-PCS procedure codes in combination with the procedure codes that identify use of the iFuse TORQ TNTTM Implant System for augmenting immobilization and stabilization of the sacroiliac joint in skeletally mature patients undergoing sacropelvic fixation as part of a lumbar or thoracolumbar fusion, which we stated would not be eligible for new technology add-on payment, if approved. We agreed with the applicant that the iFuse TORQ TNTTM Implant System meets the cost criterion and therefore proposed to approve the iFuse TORQ TNTTM Implant System for new technology add-on payments for FY 2026 when used for fracture fixation of the pelvis, including acute, non-acute and nontraumatic fractures and sacroiliac joint fusion for sacroiliac joint dysfunction including sacroiliac joint disruption and degenerative sacroiliitis. Based on preliminary information from the applicant at the time of the proposed rule, the applicant anticipated the total cost of the iFuse TORQ TNTTM Implant System to the hospital to be $6,573 per patient. The applicant stated that the iFuse TORQ TNTTM Implant System includes the operating unit costs of the TNT Implant ($3,150), Drill Bit ($200), Guide Pin ($100), Blunt Pin ($100), and Washer ($50). The applicant estimated the average number of each component used per case for pelvic fixation and sacroiliac joint fusion cases separately, and calculated the costs of the new technology by multiplying the component costs by the average number of components used per case. The applicant used internal sales data to estimate the percentages of pelvic fixation (80 percent) and sacroiliac joint (20 percent) fusion cases in an average hospital. The applicant then calculated the total cost of the iFuse TORQ TNTTM Implant System to the hospital by taking the weighted average of the cost per pelvic fixation case and cost per sacroiliac joint fusion case. We noted that it appeared that the TNT Implant and Washers are components of the Breakthrough device. However, we noted that the Drill Bit, Guide Pin, and Blunt Pin are instrumentation used for the implantation of the TNT Implant. We stated that as we have discussed in prior rulemaking, when determining a new technology add-on payment, we provide payment based on the cost of the actual technology (such as the drug or device itself) and not for additional costs related to the use of the device (86 FR 45146). We noted it appeared that the cost of the instrumentation (the Drill Bit, Guide Pin, and Blunt Pin) are costs related to the use of the technology, rather than a cost of the technology itself. In addition, we stated it was not clear if the Drill Bit, Guide Pin, and Blunt Pin are new and unique components for this technology, or if they may be reused and/or may be purchased separately in support of other technologies. Therefore, we noted it appeared any add-on payment for the iFuse TORQ TNTTM Implant System would include only the weighted average cost per pelvic fixation case and cost per sacroiliac joint fusion case of the TNT Implant and Washers ($6,093). We noted that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. Under Sec. 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS-DRG payment for the case. As a result, we proposed that the maximum new technology add-on payment for a case involving the use of the iFuse TORQ TNTTM Implant System would be $3,960.45 for FY 2026 (that is, 65 percent of the average cost of the technology). We invited public comments on whether the iFuse TORQ TNTTM Implant System meets the cost criterion and our proposal to approve new technology add-on payments for the iFuse TORQ TNTTM Implant System for FY 2026. Comment: Multiple commenters, including the applicant, expressed support for our proposal to approve new technology add-on payment for the iFuse TORQ TNTTM Implant System for FY 2026. Several commenters described their positive experience with the technology in their clinical practice and in enabling their elderly patients to return home instead of being discharged to skilled nursing facilities. Commenters stated that the technology enhances patient quality of life, reduces the need for revision surgeries, and facilitates earlier mobilization. A few commenters stated that the initial cost of the iFuse TORQ TNTTM Implant System may present a barrier to broader adoption, but that new technology add-on payment designation would help address this challenge, encourage wider use among surgeons, and enable quicker adoption in hospitals to care for Medicare patients. Response: We thank the commenters for their comments. Comment: We received comments expressing general support of the proposed ICD-10-PCS codes for which CMS specifically sought input. Some commenters, including the applicant, submitted public comments regarding the exclusion of new technology add-on payment for cases reporting iFuse TORQ TNTTM Implant System in combination with certain ICD-10-PCS codes noted in Table 10.2 of the proposed rule describing lumbar or thoracolumbar fusion procedures. The applicant stated that the iFuse TORQ TNTTM Implant System has marketing authorization by FDA for placing the implant in a specific trajectory (sacro-alar iliac, or SAI) when adjacent to pelvic fixation screws during the thoracolumbar fusion procedures extending to the pelvis. Per the applicant, this authorization is a ``pre-clearance'' function of a Predetermined Change Control Plan (PCCP) as part of the iFuse TORQ TNTTM Implant System 510(k) application, so that the applicant may conduct future work in this trajectory without the need for submitting another 510(k). The applicant stated that it would be inappropriate to exclude new technology add-on payment for a case using iFuse TORQ TNTTM Implant System as part of a lumbar or thoracolumbar fusion procedure in the same encounter because it is part of iFuse TORQ TNTTM Implant System's approved use and is in- line with its BDD application and pre-cleared indications. Another commenter also questioned whether there was the potential for a multiple level fusion that would involve the sacroiliac fusion using the iFuse TORQ TNTTM Implant System simultaneously with lumbar or thoracolumbar fusion and that it would be inappropriate to exclude cases [[Page 36802]] simply because the patient is receiving two levels of fusion in the same surgical encounter. The applicant encouraged CMS not to finalize its proposal to exclude ICD-10-PCS procedure codes noted in Table 10.2 in the proposed rule. Response: We thank the applicant and other commenters for their comments. We agree with the commenters that there may be cases in which a lumbar or thoracolumbar fusion procedure may occur in the same encounter as sacroiliac joint fusion using the iFuse TORQ TNTTM Implant System. We agree that the use of the device for sacroiliac joint fusion is covered by its Breakthrough Device designation, whether it is used to treat sacroiliac joint dysfunction as a standalone procedure or when it is used for sacroiliac joint fusion that also occurs in the setting of other simultaneous procedures (such as lumbar or thoracolumbar fusions). Therefore, we are not finalizing to exclude cases reporting the ICD-10-PCS procedure codes listed in Table 10.2.-iFuse TORQ TNTTM Implant System associated with the proposed rule in combination with use of the iFuse TORQ TNTTM Implant System. Comment: In response to CMS's proposed maximum new technology add- on payment, the applicant requested that CMS increase the per-case maximum amount. Per the applicant, while some of the instruments within the iFuse TORQ TNTTM Implant System may not be unique or part of the Breakthrough Device (that is, Blunt Pin and Drill Bit), the TNT Guide Pins are single-use instruments that were noted in the Breakthrough Device designation application with FDA as new and unique, as they were developed specifically for the iFuse TORQ TNTTM Implant System to support navigation compatibility. The applicant stated that the TNT Guide Pins used in both Pelvic Fixation cases (2.5 units) and SI Joint Fusion cases (3.5 units) are a part of the Breakthrough Device technology, as they are navigational aids, enabling surgeons to accurately position implants, drills, or other tools while minimizing risks to surrounding tissues. Per the applicant, taking into consideration the costs of the new and unique TNT Implant, Washers, and Guide Pins, the weighted average cost per pelvic fixation case (80 percent of mix) and cost per sacroiliac joint fusion case (20 percent of mix), the new technology cost increases to $6,363. The applicant proposed an updated maximum new technology add-on payment for a case of $4,135.95 for FY 2026 (65 percent of the average cost of the technology). Response: We thank the applicant for its comment and cost information. We agree that the TNT Guide Pins are also a new and unique component of the iFuse TORQ TNTTM Implant System and should be included in the maximum new technology add-on payment. Based on the information provided in the application for new technology add-on payments, and after consideration of the public comment we received, we believe the iFuse TORQ TNTTM Implant System meets the cost criterion. The technology received FDA clearance on August 12, 2024, with an indication for fracture fixation of the pelvis, including acute, non-acute and nontraumatic fractures and sacroiliac joint fusion for sacroiliac joint dysfunction including sacroiliac joint disruption and degenerative sacroiliitis. Therefore, we are finalizing our proposal to approve new technology add-on payments for the iFuse TORQ TNTTM Implant System for FY 2026. We consider the beginning of the newness period to commence on August 19, 2024, the date on which technology received its FDA clearance for the indication covered by its Breakthrough Device designation. Based on the information available at the time of this final rule, the average cost per case of the iFuse TORQ TNTTM Implant System is $6,363, based on the weighted average cost per pelvic fixation case and cost per sacroiliac joint fusion case of the TNT Implant, Washers, and Guide Pins. Under Sec. 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS-DRG payment for the case. As a result, we are finalizing that the maximum new technology add-on payment for a case involving the use of the iFuse TORQ TNTTM Implant System is $4,135.95 for FY 2026 (that is, 65 percent of the average cost of the technology). The applicant submitted a request and was granted approval for unique ICD-10-PCS procedure codes for the iFuse TORQ TNTTM Implant System beginning in FY 2026. Therefore, cases involving the use of the iFuse TORQ TNTTM Implant System that are eligible for new technology add-on payments will be identified by one of the following ICD-10-PCS procedure codes: [[Page 36803]] [GRAPHIC] [TIFF OMITTED] TR04AU25.200 (11) Merit Wrapsody[supreg] Cell Impermeable Endoprosthesis (CIE) The following table summarizes the information provided in the new technology add-on payment application for the Merit Wrapsody[supreg] Cell Impermeable Endoprosthesis (CIE). BILLING CODE 4120-01-P [[Page 36804]] [GRAPHIC] [TIFF OMITTED] TR04AU25.201 BILLING CODE 4120-01-C In the proposed rule, we noted that after review of the information provided by the applicant, since the indication for which the applicant received PMA [[Page 36805]] approval from FDA is included within the scope of the Breakthrough Device designation indication, it appears that the FDA-approved indication is appropriate for consideration for new technology add-on payment under the alternative pathway criteria. We noted that the application stated that commercialization of the device was initiated on January 2, 2025, with 3 purchase orders in 3 days. We were interested in additional information regarding any delay in commercial availability between its FDA approval on December 19, 2024, and the date commercialization was initiated, including if the device was available for sale prior to January 2, 2025. We agreed with the applicant that the Merit Wrapsody[supreg] CIE meets the cost criterion and therefore proposed to approve the Merit Wrapsody[supreg] CIE for new technology add-on payments for FY 2026, for use in hemodialysis patients for the treatment of stenosis or occlusion within the dialysis access outflow circuit, including stenosis or occlusion in the peripheral veins of individuals with an AV fistula or at the venous anastomosis of a synthetic AV graft. Based on preliminary information from the applicant at the time of the proposed rule, the applicant anticipated the cost of the Merit Wrapsody[supreg] CIE to the hospital to be $5,800 per patient, inclusive of all components and accessories. The applicant also provided an additional cost for operating room time because the facility operation room time may be 8-12 minutes greater than similar current procedures. However, as discussed in prior rulemaking, when determining a new technology add-on payment, we provide payment based on the cost of the actual technology (such as the drug or device itself) and not for additional costs related to the use of the device, such as the ongoing use of the device including maintenance and processing fees. For example, if a technology required an extra hour of operating room time, or reduced the amount of procedure time, we would neither add nor deduct costs based on this, and would only consider the actual cost of the technology at the time of purchase in our determination of the add-on payment (86 FR 45146). We noted that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. Under Sec. 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS-DRG payment for the case. As a result, we proposed that the maximum new technology add-on payment for a case involving the use of the Merit Wrapsody[supreg] CIE would be $3,770 for FY 2026 (that is, 65 percent of the average cost of the technology). We invited public comments on whether the Merit Wrapsody[supreg] CIE meets the cost criterion and our proposal to approve new technology add-on payments for the Merit Wrapsody[supreg] CIE for FY 2026. Comment: A few commenters, including the applicant, expressed support for our proposal to approve new technology add-on payment for the Merit Wrapsody[supreg] CIE and agreed with the proposed maximum new technology add-on payment. In response to CMS's request for additional information regarding the delay in the technology's market availability, commenters stated that the date of the first sale was January 2, 2025, and that sales were delayed due to the holiday season. Per the commenters, the date of FDA clearance on December 19, 2024, occurred before the holiday week and the sales team had completed product training based off the approved indication for use. Per the commenters, in compliance with FDA marketing rules, sales communication about the Merit Wrapsody[supreg] CIE did not commence until PMA FDA approval. The commenters stated that manufacturing and production time was needed to assemble finished goods to fulfill customer purchasing. Per the applicant, approval within customers facilities and meetings were scheduled after the Christmas holiday, which led to a delay in purchasing decision until January 2, 2025. Response: We thank the commenters for their comments and for the additional information. Based on the information provided in the application for new technology add-on payments, and after consideration of the public comments we received, we believe the Merit Wrapsody[supreg] CIE meets the cost criterion. The technology received PMA approval on December 19, 2024, with an indication for use in hemodialysis patients for the treatment of stenosis or occlusion within the dialysis access outflow circuit, including stenosis or occlusion in the peripheral veins of individuals with an AV fistula or at the venous anastomosis of a synthetic AV graft, which is covered by its Breakthrough Device designation. Therefore, we are finalizing our proposal to approve new technology add-on payments for the Merit Wrapsody[supreg] CIE for FY 2026. We consider the beginning of the newness period to commence on January 2, 2025, the date on which the technology became commercially available for the indication covered by its Breakthrough Device designation. Based on the information available at the time of this final rule, the cost per case of the Merit Wrapsody[supreg] CIE is $5,800. Under Sec. 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS-DRG payment for the case. As a result, we are finalizing that the maximum new technology add-on payment for a case involving the use of the Merit Wrapsody[supreg] CIE is $3,770 for FY 2026 (that is, 65 percent of the average cost of the technology). The applicant submitted a request and was granted approval for unique ICD-10-PCS procedure codes for the Merit Wrapsody[supreg] CIE beginning in FY 2026. Therefore, cases involving the use of the Merit Wrapsody[supreg] CIE that are eligible for new technology add-on payments will be identified by one of the following ICD-10-PCS procedure codes: [[Page 36806]] [GRAPHIC] [TIFF OMITTED] TR04AU25.202 12. Minima Stent System The following table summarizes the information provided in the new technology add-on payment application for the Minima Stent System. [[Page 36807]] [GRAPHIC] [TIFF OMITTED] TR04AU25.203 In the proposed rule, we noted that after review of the information provided by the applicant, since the indication for which the applicant received PMA approval from FDA is included within the scope of the Breakthrough Device designation indication, it appears that the FDA- approved indication is appropriate for consideration for new technology add-on payment under the alternative pathway criteria.\132\ --------------------------------------------------------------------------- \132\ Breakthrough Devices Program https://www.fda.gov/medical-devices/how-study-and-market-your-device/breakthrough-devices-program. --------------------------------------------------------------------------- With respect to the cost criterion, we noted that the applicant identified 6 relevant MS-DRGs using 8 ICD-10-PCS codes that most closely resemble the procedure to insert and/or dilate the great vessels using the Minima Stent System. We noted that, per the applicant, the Minima Stent System is used in the pediatric population and no cases appear in Medicare data; therefore, the applicant used CY 2022 and CY 2023 Medicare charge and discharge data accessed via Definitive Healthcare as well as data from the AOR/BOR File published as part of the FY 2025 IPPS/LTCH PPS final rule, correction notice and interim final action with comment period Data and Supplemental Files and FY 2023 IPPS/LTCH PPS final rule and correcting amendment files. However, we questioned whether using the total charges for the Medicare claims within the 6 identified MS-DRGs would provide an accurate estimate for eligible cases in a pediatric patient population where the Minima Stent System would be used. Subject to the applicant adequately addressing this concern, we agreed that the technology meets the cost criterion and proposed to approve the Minima Stent System for new technology add-on payments for FY 2026 for use in the treatment of native or acquired pulmonary artery stenoses or coarctation of the aorta in neonates, infants, and children at least 1.5 kg in weight. Based on preliminary information from the applicant at the time of the proposed rule, the applicant anticipated the total cost of the Minima Stent [[Page 36808]] System to the hospital to be $34,900 per patient. Per the applicant, total cost per inpatient stay was calculated based on the assumption that only one unit will be used per patient for each inpatient stay. We noted that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. Under Sec. 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS- DRG payment for the case. As a result, we proposed that the maximum new technology add-on payment for a case involving the use of the Minima Stent System would be $22,685 for FY 2026 (that is, 65 percent of the average cost of the technology). We invited public comments on whether the Minima Stent System meets the cost criterion and our proposal to approve new technology add-on payments for the Minima Stent System for FY 2026. Comment: A few commenters, including the applicant expressed support for our proposal to approve new technology add-on payment for the Minima Stent System. In response to CMS's concern about using the total charges for the Medicare claims within the six identified MS-DRGs to estimate eligible cases in a pediatric patient population, the applicant stated that the Minima Stent System was FDA-approved ten months ago and that given the newness of the procedure and absence of pediatric cases in Medicare data and other available claims data, its approach of using Medicare claims within six identified MS-DRGs was reasonable. The applicant stated that while Medicare coverage is expected to be rare with fewer than 10 cases during the new technology add-on payment period, there are circumstances where medically complex children will be covered under Medicare, citing precedent with the new technology add-on payment approval for the MAGEC[supreg] Spinal Bracing Distraction system for pediatric use in FY 2017. The applicant stated that in its original cost analysis, using Medicare cases, the new charge per case of $135,000 for the device alone surpassed the case-weighted threshold of $128,762 without including other inpatient stay charges, and that since the Minima Stent device is not replacing an existing technology, it would meet the cost criterion regardless of the applicability of Medicare charges to eligible pediatric cases. To verify if the Medicare threshold might be too low, the applicant also reviewed data from the Healthcare Cost and Utilization Project (HCUP) Kids' Inpatient Database (KID) and HCUP National Inpatient Sample (NIS) to evaluate case distribution threshold. The applicant identified 6,855 HCUP KID cases compared to 75,638 cases Medicare cases across the six MS-DRGs used in its cost analysis. The applicant noted that pediatric cases were distributed differently compared to Medicare cases, resulting in a higher case-weighted threshold of $141,341. The applicant also stated that pediatric inpatient stays had a higher average length of stay, higher average charges, and higher average costs per stay. Based on the distribution of pediatric cases, the applicant conducted an additional cost analysis and calculated a final inflated average case-weighted standardized charge per case of $281,314, which exceeded the average case-weighted threshold amount of $141,341. Per the applicant, data from HCUP NIS and HCUP KID suggest that for the six identified MS-DRGs, pediatric inpatient stays have higher average length of stay, higher average charges and higher average costs per stay compared to inpatient stays across all ages. Per the applicant, this suggests that using total Medicare charges in the cost criterion analysis likely resulted in an underestimated inflated case- weighted standardized charge per case for the Minima stent and that while Medicare charges are not a perfect estimate, they are a reasonable and conservative substitute. Response: We thank the applicant and other commenters for their comments. We acknowledge the challenges of estimating charges related to use of a pediatric device using Medicare data and agree that the Medicare charges used in this analysis are reasonable based on the additional information provided by the applicant. Based on the information provided in the application for new technology add-on payments, and after consideration of the public comments we received, we believe the Minima Stent System meets the cost criterion. The technology received PMA approval on August 28, 2024, with an indication for use in the treatment of native or acquired pulmonary artery stenoses or coarctation of the aorta in neonates, infants, and children at least 1.5 kg in weight, which is covered by its Breakthrough Device designation. Therefore, we are finalizing our proposal to approve new technology add-on payments for the Minima Stent System for FY 2026. We consider the beginning of the newness period to commence on August 28, 2024, the date on which the technology received its premarket approval for the indication covered by its Breakthrough Device designation. Based on the information available at the time of this final rule, the cost per case of the Minima Stent System is $34,900. Under Sec. 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS-DRG payment for the case. As a result, we are finalizing that the maximum new technology add-on payment for a case involving the use of the Minima Stent System is $22,685 for FY 2026 (that is, 65 percent of the average cost of the technology). The applicant submitted a request and was granted approval for unique ICD-10-PCS procedure codes for the Minima Stent System beginning in FY 2026. Therefore, cases involving the use of the Minima Stent System that are eligible for new technology add-on payments will be identified by ICD-10-PCS procedure codes: X27339B (Dilation of right pulmonary artery with expandable intraluminal device, percutaneous approach, new technology group 11), X27439B (Dilation of left pulmonary artery with expandable intraluminal device, percutaneous approach, new technology group 11), X27W39B (Dilation of thoracic aorta, descending with expandable intraluminal device, percutaneous approach, new technology group 11), or X27X39B (Dilation of thoracic aorta, ascending/arch with expandable intraluminal device, percutaneous approach, new technology group 11). (12) MY01 Continuous Compartmental Pressure Monitor The following table summarizes the information provided in the new technology add-on payment application for the MY01 Continuous Compartmental Pressure Monitor. BILLING CODE 4120-01-P [[Page 36809]] [GRAPHIC] [TIFF OMITTED] TR04AU25.204 BILLING CODE 4120-01-C In the proposed rule, we noted that after review of the information provided by the applicant, since the indication for which the applicant has received FDA [[Page 36810]] marketing authorization is included within the scope of the Breakthrough Device designation indication, it appears that the FDA marketing authorization is appropriate for consideration for new technology add-on payment under the alternative pathway criteria.\133\ --------------------------------------------------------------------------- \133\ Breakthrough Devices Program https://www.fda.gov/medical-devices/how-study-and-market-your-device/breakthrough-devices-program. --------------------------------------------------------------------------- We noted in the proposed rule that according to the applicant, the MY01 Mobile Application was not yet available for use because the applicant was completing final testing of the application before it is available for download. We stated that we were interested in additional information on when the MY01 Continuous Compartmental Pressure Monitor, which is the subject of this new technology add-on payment application, became available for sale. We agreed with the applicant that the MY01 Continuous Compartmental Pressure Monitor meets the cost criterion and therefore proposed to approve the MY01 Continuous Compartmental Pressure Monitor for new technology add-on payments for FY 2026, for real-time and continuous measurement of the muscle compartment pressure. Based on preliminary information from the applicant at the time of the proposed rule, the applicant anticipated the total cost of the MY01 Continuous Compartmental Pressure Monitor to the hospital to be $3,250 per patient. Per the applicant, only one device is used per inpatient stay, and the companion MY01 Mobile Application is provided at no additional cost for any physician registered to use the device. We noted that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. Under Sec. 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS- DRG payment for the case. As a result, we proposed that the maximum new technology add-on payment for a case involving the use of the MY01 Continuous Compartmental Pressure Monitor would be $2,112.50 for FY 2026 (that is, 65 percent of the average cost of the technology). We invited public comments on whether the MY01 Continuous Compartmental Pressure Monitor meets the cost criterion and our proposal to approve new technology add-on payments for the MY01 Continuous Compartmental Pressure Monitor for FY 2026. Comment: We received comments expressing support for technologies under consideration for new technology add-on payments for FY 2026. The applicant submitted a public comment in response to CMS's request for additional information regarding the delay in the technology's market availability. The applicant stated that there was a slight market availability delay for the MY01 Mobile App due to launch and distribution orchestration and post approval compliance documentation. Per the applicant, the MY01 Mobile App was available on the Apple App Store and the Google Play Store on April 29, 2025. Response: We thank the commenters for their comments. Based on the information provided in the application for new technology add-on payments, and after consideration of the public comments we received, we believe MY01 Continuous Compartmental Pressure Monitor meets the cost criterion. The technology received FDA marketing authorization on March 13, 2025, with an indication for real-time and continuous measurement of the muscle compartment pressure, which is covered by its Breakthrough Device designation. Therefore, we are finalizing our proposal to approve new technology add-on payments for MY01 Continuous Compartmental Pressure Monitor for FY 2026. We consider the beginning of the newness period to commence on April 29, 2025, the date on which the technology became commercially available for the indication covered by its Breakthrough Device designation. Based on the information available at the time of this final rule, the cost per case of MY01 Continuous Compartmental Pressure Monitor is $3,250. Under Sec. 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS-DRG payment for the case. As a result, we are finalizing that the maximum new technology add-on payment for a case involving the use of MY01 Continuous Compartmental Pressure Monitor is $2,112.50 for FY 2026 (that is, 65 percent of the average cost of the technology). Cases involving the use of MY01 Continuous Compartmental Pressure Monitor that are eligible for new technology add-on payments will be identified by ICD-10-PCS procedure code XX2F3W9 (Monitoring of musculoskeletal muscle compartment pressure, micro-electro-mechanical system, percutaneous approach, new technology group 9). (13) Positive Blood Culture (PBC) Separator With Selux AST System The following table summarizes the information provided in the new technology add-on payment application for the PBC Separator with Selux AST System. We note that Selux Diagnostics, Inc. submitted an application for new technology add-on payments for the PBC Separator with Selux AST System for FY 2024 under the name Selux NGP System, as summarized in the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26946 through 26949), that it withdrew prior to the issuance of the FY 2024 IPPS/LTCH PPS final rule (88 FR 58919). BILLING CODE 4120-01-P [[Page 36811]] [GRAPHIC] [TIFF OMITTED] TR04AU25.205 [[Page 36812]] [GRAPHIC] [TIFF OMITTED] TR04AU25.206 BILLING CODE 4120-01-C In the proposed rule, we noted that after review of the information provided by the applicant, since the indication for which the applicant received 510(k) [[Page 36813]] clearance from FDA is included within the scope of the Breakthrough Device designation indication, it appears that the FDA-cleared indication is appropriate for consideration for new technology add-on payment under the alternative pathway criteria. We agreed with the applicant that the PBC Separator with Selux AST System meets the cost criterion and therefore proposed to approve the PBC Separator with Selux AST System for new technology add-on payments for FY 2026 for use as an automated inoculum preparation system that uses lysis, centrifugation and sequential optical density measurements to generate a McFarland equivalent suspension from positive blood culture samples that can be used for quantitative in vitro AST by the Selux AST System. Based on preliminary information from the applicant at the time of the proposed rule, the applicant anticipated the total cost of the PBC Separator with Selux AST System to the hospital to be $135.04 per patient. Per the applicant, the cost per patient includes $80 for the Selux AST Gram Negative and Selux AST Gram Positive AST Kit, $50 for the Selux AST Positive Blood Culture Kit, $4.79 for the Selux AST Analyzer Reagent Kit, and $0.25 for the Selux AST Waste Kit. We noted that according to the applicant, the Selux AST System has been granted multiple previous FDA clearances for a different indication and sample type.\134\ However, we stated that per the applicant, the Breakthrough Device designation is for the Selux Positive Blood Culture Separator and Selux [AST] System. We stated that the previous FDA clearances for the Selux AST System were not considered Breakthrough Devices. Therefore, we noted that it appeared that the components of the Selux AST System, including the Selux AST Gram Negative and Selux AST Gram Positive AST Kit, Selux AST Analyzer Reagent Kit, and Selux AST Waste Kit are eligible for new technology add-on payment only when used in conjunction with the PBC Separator on positive blood culture samples. We further noted that the Selux AST System first received FDA 510(k) clearance on January 18, 2023, and therefore the components of the Selux AST System would still be new for FY 2026. --------------------------------------------------------------------------- \134\ https://www.accessdata.fda.gov/cdrh_docs/pdf21/K211759.pdf and https://www.accessdata.fda.gov/cdrh_docs/pdf21/K211748.pdf. --------------------------------------------------------------------------- We noted that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. Under Sec. 412.88(a)(2) we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS-DRG payment for the case. As a result, we proposed that the maximum new technology add-on payment for a case involving the use of the PBC Separator with Selux AST System would be $87.78 for FY 2026 (that is, 65 percent of the average cost of the technology). We invited public comments on whether the PBC Separator with Selux AST System meets the cost criterion and our proposal to approve new technology add-on payments for the PBC Separator with Selux AST System for FY 2026. Comment: We received comments expressing support for technologies under consideration for new technology add-on payments for FY 2026. Response: We thank the commenters for their comments. Based on the information provided in the application for new technology add-on payments, we believe the PBC Separator with Selux AST System meets the cost criterion. The technology received 510(k) clearance on February 15, 2024, with an indication for use as an automated inoculum preparation system that uses lysis, centrifugation and sequential optical density measurements to generate a McFarland equivalent suspension from positive blood culture samples that can be used for quantitative in vitro AST by the Selux AST System, which is covered by its Breakthrough Device designation. Therefore, we are finalizing our proposal to approve new technology add-on payments for the PBC Separator with Selux AST System for FY 2026. We consider the beginning of the newness period to commence on February 15, 2024, the date on which technology received its premarket approval for the indication covered by its Breakthrough Device designation. Based on the information available at the time of this final rule, the cost per case of the PBC Separator with Selux AST System is $135.04. As noted earlier in this section, the Selux AST System has been granted multiple previous FDA clearances for a different indication and sample type.\135\ However, per the applicant, the Breakthrough Device designation is for the Selux Positive Blood Culture Separator and Selux [AST] System. The previous FDA clearances for the Selux AST System were not considered Breakthrough Devices. Therefore, it appears that the components of the Selux AST System, including the Selux AST Gram Negative and Selux AST Gram Positive AST Kit, Selux AST Analyzer Reagent Kit, and Selux AST Waste Kit are eligible for new technology add-on payment only when used in conjunction with the PBC Separator on positive blood culture samples. Under Sec. 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS-DRG payment for the case. As a result, we are finalizing that the maximum new technology add-on payment for a case involving the use of the PBC Separator with Selux AST System is $87.78 for FY 2026 (that is, 65 percent of the average cost of the technology). Cases involving the use of the PBC Separator with Selux AST System that are eligible for new technology add-on payments will be identified by ICD-10-PCS procedure code XXE5XY9 (Measurement of infection, other positive blood/isolated colonies bimodal phenotypic susceptibility technology, new technology group 9). --------------------------------------------------------------------------- \135\ https://www.accessdata.fda.gov/cdrh_docs/pdf21/K211759.pdf and https://www.accessdata.fda.gov/cdrh_docs/pdf21/K211748.pdf. --------------------------------------------------------------------------- (14) RECELL[supreg] Autologous Cell Harvesting Device The following table summarizes the information provided in the new technology add-on payment application for the RECELL[supreg] Autologous Cell Harvesting Device. BILLING CODE 4120-01-P [[Page 36814]] [GRAPHIC] [TIFF OMITTED] TR04AU25.207 [[Page 36815]] [GRAPHIC] [TIFF OMITTED] TR04AU25.208 BILLING CODE 4120-01-C In the proposed rule, after review of the information provided by the applicant, we noted that the RECELL[supreg] Autologous Cell Harvesting Device is also indicated for acute partial-thickness thermal burn wounds and acute full-thickness thermal burn wounds. However, we noted that under the eligibility criteria for approval under the alternative pathway for certain transformative devices, only the use of the technology for the indication that corresponds to the technology's Breakthrough Device designation would be eligible for the new technology add-on payment for FY 2026. Therefore, we noted that only the use of the RECELL[supreg] Autologous Cell Harvesting Device for acute nonthermal full thickness skin wounds after traumatic avulsion, surgical excision (for example, necrotizing soft tissue infection), or resection (for example, skin cancer), and the FDA Breakthrough Device designation it received for those uses, were relevant for purposes of the new technology add-on payment application for FY 2026. Please see Table 10.1.A.-RECELL[supreg] Autologous Cell Harvesting Device associated with the proposed rule for the list of relevant ICD- 10-CM diagnosis codes that we believed would identify the Breakthrough Device-designated indication of acute nonthermal full thickness skin wounds after traumatic avulsion. Please see Table 10.1.B.- RECELL[supreg] Autologous Cell Harvesting Device associated with the proposed rule for the list of relevant ICD-10-PCS procedure codes that we believed would be appropriate to report in combination with use of the RECELL[supreg] Autologous Cell Harvesting Device to identify use of the technology for the Breakthrough Device-designated indication of acute nonthermal full thickness skin wounds after surgical excision (for example, necrotizing soft tissue infection) or resection (for example, skin cancer). We invited public comments on the use of these ICD-10-CM diagnosis and ICD-10-PCS procedure codes to identify use of the technology for the Breakthrough Device-designated indications for purposes of the new technology add-on payment, if approved. We agreed with the applicant that the RECELL[supreg] Autologous Cell Harvesting Device meets the cost criterion and therefore proposed to approve the RECELL[supreg] Autologous Cell Harvesting Device for new technology add-on payments for FY 2026, when used in combination with meshed autografting for acute full-thickness thermal burn wounds in pediatric and adult patients and full-thickness skin defects after traumatic avulsion (for example, degloving) or surgical excision (for example, necrotizing soft tissue infection) or resection (for example, skin cancer). Based on preliminary information from the applicant at the time of the proposed rule, the applicant anticipated the total cost of the RECELL[supreg] Autologous Cell Harvesting Device to the hospital to be $7,500 per device. The applicant estimated that, on average, one device is used per inpatient stay for patients with a full-thickness skin defect. We noted that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. Under Sec. 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS-DRG payment for the case. As a result, proposed that the maximum new technology add-on payment for a case involving the use of the RECELL[supreg] Autologous Cell Harvesting Device would be $4,875 for FY 2026 (that is, 65 percent of the average cost of the technology). We invited public comments on whether the RECELL[supreg] Autologous Cell Harvesting Device meets the cost criterion and our proposal to approve new technology add-on payments for the RECELL[supreg] Autologous Cell Harvesting Device for FY 2026. Comment: A few commenters, including the applicant, expressed support for our proposal to approve new technology add-on payment for the RECELL[supreg] Autologous Cell Harvesting Device. We received comments expressing general support of the proposed ICD-10-CM/PCS codes for which CMS specifically sought input. The applicant further stated its support for the use of the ICD-10-CM diagnosis codes listed in Table 10.1.A and the ICD-10-PCS procedure codes listed in Table 10.1.B to identify cases eligible for new technology add-on payments for FY 2026, and agreed that new technology [[Page 36816]] add-on payment eligibility is limited to the Breakthrough-designated indication for nonthermal full-thickness wounds. The applicant also supported CMS's proposal to establish a maximum payment of $4,875 per case, based on the cost of $7,500 per device. A commenter requested more clarity regarding the circumstances in which a hospital is eligible to receive new technology add-on payments for the RECELL[supreg] Autologous Cell Harvesting Device. Per the commenter, the technology's use in combination with another procedure (meshed autografting) is atypical and stated that it would expect that such a claim must include: (i) an ICD-10-PCS code for the use of the RECELL[supreg] Autologous Cell Harvesting Device; (ii) an ICD-10-PCS code for meshed autografting; and (iii) an ICD-10-CM code to reflect use for patients with acute nonthermal full thickness skin wounds. The commenter stated that the need for the latter two seemed to be implicit in CMS's development of Table 10.1.B and Table 10.1.A, respectively, in connection with the proposed rule. However, the commenter stated that the messaging should not be implicit, but that CMS should issue a clear statement in the final rule, or consider communicating it in an implementing transmittal, or in a Medicare Learning Network (MLN) issuance. The commenter also recommended that CMS reassess the scope of the new technology add-on payments for FY 2026 to ensure that we had identified the appropriate ICD-10-PCS and ICD-10-CM codes to capture what would be appropriate to report in combination with the use of the RECELL[supreg] Autologous Cell Harvesting Device and that would identify the pertinent Breakthrough Device indication. Per the commenter, the listed ICD-10-PCS codes in Table 10.1.B are all for excision procedures and should be removed so that CMS can populate the table with procedures for meshed autografting. The commenter also stated its concern with the listed ICD-10-CM codes in Table 10.1.A as it stated many of the listed codes are for lacerations and lacerations typically do not correlate to full thickness wound. Accordingly, the commenter stated that it is important for CMS to ensure that Table 10.1.A be populated with diagnosis codes that capture nonthermal, full thickness wounds. Response: We thank the applicant and other commenters for their comments. We disagree that the procedure codes for meshed autografting should be included in Tables 10.1.A or 10.1.B. Table 10.1.A.-RECELL[supreg] Autologous Cell Harvesting Device associated with the proposed rule provided the list of relevant ICD-10-CM diagnosis codes that we believed would identify the Breakthrough Device-designated indication of acute nonthermal full thickness skin wounds after traumatic avulsion. Table 10.1.B.-RECELL[supreg] Autologous Cell Harvesting Device associated with the proposed rule provided the list of relevant ICD-10-PCS procedure codes that we believed would be appropriate to report in combination with use of the RECELL[supreg] Autologous Cell Harvesting Device to identify use of the technology for the Breakthrough Device-designated indication of acute nonthermal full thickness skin wounds after surgical excision (for example, necrotizing soft tissue infection) or resection (for example, skin cancer). We had listed ICD-10-PCS procedure codes in Table 10.1.B.-RECELL[supreg] Autologous Cell Harvesting Device to identify use of the technology after surgical excision or resection because these describe procedures, not diagnoses. Either a code from Table 10.1.A or Table 10.1.B. associated with the proposed rule may be used to identify the Breakthrough Device-designated indication for the RECELL[supreg] Autologous Cell Harvesting Device. As we noted in the proposed rule, although the RECELL[supreg] Autologous Cell Harvesting Device is also indicated for acute partial- thickness thermal burn wounds and acute full-thickness thermal burn wounds, only the use of the device for acute nonthermal full thickness skin wounds after traumatic avulsion, surgical excision (for example, necrotizing soft tissue infection), or resection (for example, skin cancer), and the FDA Breakthrough Device designation it received for those uses, were relevant for purposes of the new technology add-on payment application for FY 2026. According to its FDA indication for use, the RECELL[supreg] Autologous Cell Harvesting Device is used for application in combination with meshed autografting for both acute full-thickness thermal burn wounds and full-thickness skin defects. Therefore, it is not possible to differentiate between use of the device for acute full-thickness thermal burn wounds and full-thickness skin defects using the procedure codes for meshed autografting, and these codes are not relevant to our proposal. Although we agree with the commenter that some of the listed diagnosis codes in Table 10.1.A associated with the proposed rule may not correlate to full thickness skin wounds after traumatic avulsion in all instances, we note that these diagnosis codes must be reported in combination with use of the RECELL[supreg] Autologous Cell Harvesting Device to be eligible for new technology add-on payment. The RECELL[supreg] Autologous Cell Harvesting Device is FDA market authorized for use in full-thickness skin defects. Therefore, we believe that when these diagnosis codes are used in combination with the list of procedure codes that uniquely identify procedures involving the use of the RECELL[supreg] Autologous Cell Harvesting Device, they would describe full thickness skin defects. Therefore, we are finalizing the lists of codes in Tables 10.1.A.- and 10.1.B.- RECELL[supreg] Autologous Cell Harvesting Device associated with the proposed rule as proposed. We note that Tables 10.A.- and 10.B.- RECELL[supreg] Autologous Cell Harvesting Device associated with this final rule are the same as Tables 10.1.A.- and 10.1.B.-RECELL[supreg] Autologous Cell Harvesting Device associated with the proposed rule, respectively, but the names of the tables were updated for this final rule. Based on the information provided in the application for new technology add-on payments, and after consideration of the public comments we received, we believe the RECELL[supreg] Autologous Cell Harvesting Device meets the cost criterion. The technology received FDA marketing authorization on June 7, 2023, with an indication for use in combination with meshed autografting for acute full-thickness thermal burn wounds in pediatric and adult patients and full-thickness skin defects after traumatic avulsion (for example, degloving) or surgical excision (for example, necrotizing soft tissue infection) or resection (for example, skin cancer), which is covered by its Breakthrough Device designation. Therefore, we are finalizing our proposal to approve new technology add-on payments for the RECELL[supreg] Autologous Cell Harvesting Device for FY 2026. We consider the beginning of the newness period to commence on June 7, 2023, the date on which the technology received its FDA marketing authorization for the indication covered by its Breakthrough Device designation. Based on the information available at the time of this final rule, the cost per case of the RECELL[supreg] Autologous Cell Harvesting Device is $7,500. Under Sec. 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS-DRG payment for the case. As a result, we are finalizing that the maximum new technology add-on payment for a case involving the use of the RECELL[supreg] Autologous Cell [[Page 36817]] Harvesting Device is $4,875 for FY 2026 (that is, 65 percent of the average cost of the technology). As noted earlier in this section, the RECELL[supreg] Autologous Cell Harvesting Device is also indicated for acute partial-thickness thermal burn wounds and acute full-thickness thermal burn wounds. However, we note that under the eligibility criteria for approval under the alternative pathway for certain transformative devices, only the use of the technology for the indication that corresponds to the technology's Breakthrough Device designation would be eligible for the new technology add-on payment for FY 2026. Therefore, only the use of the RECELL[supreg] Autologous Cell Harvesting Device for acute nonthermal full thickness skin wounds after traumatic avulsion, surgical excision (for example, necrotizing soft tissue infection), or resection (for example, skin cancer), and the FDA Breakthrough Device designation it received for those uses, are relevant for purposes of the new technology add-on payment for FY 2026. Therefore, cases involving the use of the RECELL[supreg] Autologous Cell Harvesting Device that are eligible for new technology add-on payments will be identified by one of the following ICD-10-PCS procedure codes, in combination with any of the ICD-10-CM diagnosis codes listed in Table 10.A.-RECELL[supreg] Autologous Cell Harvesting Device or ICD-10-PCS procedure codes listed in Table 10.B.- RECELL[supreg] Autologous Cell Harvesting Device associated with this final rule. [GRAPHIC] [TIFF OMITTED] TR04AU25.209 (15) restor3d TIDALTM Fusion Cage The following table summarizes the information provided in the new technology add-on payment application for the restor3d TIDALTM Fusion Cage. We note that restor3d submitted an application for new technology add-on payments for the restor3d TIDALTM Fusion Cage for FY 2025, as summarized in the FY 2025 IPPS/LTCH PPS proposed rule (89 FR 36124 through 36125), that it withdrew prior to the issuance of the FY 2025 IPPS/LTCH PPS final rule (89 FR 69204). BILLING CODE 4120-01-P [[Page 36818]] [GRAPHIC] [TIFF OMITTED] TR04AU25.210 BILLING CODE 4120-01-C In the proposed rule, we noted that after review of the information provided by the applicant, we agreed with the applicant that the restor3d TIDALTM Fusion Cage meets the cost criterion and therefore proposed to approve the [[Page 36819]] restor3d TIDALTM Fusion Cage for new technology add-on payments for FY 2026 subject to the technology receiving FDA marketing authorization for the indication corresponding to the Breakthrough Device designation by May 1, 2025. Based on preliminary information from the applicant at the time of the proposed rule, the applicant anticipated the cost of the restor3d TIDALTM Fusion Cage to the hospital to be $27,995 per patient. In addition, the applicant noted the costs related to the technology for required supporting instruments and materials consist of one unit each of the Instrument Kit ($6,995), TTC Fusion Nail ($7,500), and Graft Material ($1,500). The applicant estimated the total cost to the hospital to be $43,990 for each procedure per patient, including the related cost of the technology. As we discussed in the FY 2025 IPPS/LTCH PPS proposed rule (89 FR 36125) and in prior rulemaking, when determining a new technology add-on payment, we provide payment based on the cost of the actual technology (such as the drug or device itself) and not for additional costs related to the use of the device (86 FR 45146). We noted that based on the information provided by the applicant, the cost of the Instrument Kit was included in the costs of the supporting instruments and materials for each procedure related to the use of the technology, rather than the cost of the technology itself. In addition, we noted it appeared that the TTC Fusion Nail and Bone Graft were not new and unique components for this technology and could be purchased separately in support of other technologies. Furthermore, we noted that the Instrument Kit was not included in the Breakthrough Device designation, and it therefore appeared that only the restor3d TIDALTM Fusion Cage would be designated as the Breakthrough Device once market authorized and would be eligible for new technology add-on payments under the alternative pathway. Therefore, we stated it appeared any add-on payment for the restor3d TIDALTM Fusion Cage would include only the cost of the restor3d TIDALTM Fusion Cage ($27,995). We noted that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. Under Sec. 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS-DRG payment for the case. As a result, we proposed that the maximum new technology add-on payment for a case involving the use of the restor3d TIDALTM Fusion Cage would be $18,196.75 for FY 2026 (that is, 65 percent of the average cost of the technology). We invited public comments on whether the restor3d TIDALTM Fusion Cage meets the cost criterion and our proposal to approve new technology add-on payments for the restor3d TIDALTM Fusion Cage for FY 2026, subject to the technology receiving FDA marketing authorization for the indication corresponding to the Breakthrough Device designation by May 1, 2025. Comment: We received comments expressing support for technologies under consideration for new technology add-on payments for FY 2026. The applicant submitted a public comment noting that the restor3d TIDAL Fusion Cage received FDA 510(k) clearance (K242356) effective March 24, 2025, and that the Indications for Use are a subset of the Breakthrough Device designation indications. Response: We thank the commenters for their comments. Based on the information provided in the application for new technology add-on payments, and after consideration of the public comments we received, we believe restor3d TIDALTM Fusion Cage meets the cost criterion. The technology received 510(k) clearance from FDA on March 24, 2025, with an indication for use as part of a tibiotalocalcaneal fusion construct in a salvage procedure following failed ankle arthrodesis or failed ankle arthroplasty for patients at risk of limb loss, which is covered by its Breakthrough Device designation. Therefore, we are finalizing our proposal to approve new technology add-on payments for restor3d TIDALTM Fusion Cage for FY 2026. We consider the beginning of the newness period to commence on March 24, 2025, the date on which technology received its 510(k) clearance for the indication covered by its Breakthrough Device designation. Based on the information available at the time of this final rule, the cost per case of TIDAL Fusion Cage System is $27,995. Under Sec. 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS-DRG payment for the case. As a result, we are finalizing that the maximum new technology add-on payment for a case involving the use of TIDAL Fusion Cage System is $18,196.75 for FY 2026 (that is, 65 percent of the average cost of the technology). Cases involving the use of TIDAL Fusion Cage System that are eligible for new technology add-on payments will be identified by ICD-10-PCS procedure codes: XRGK0CA (Fusion of left ankle joint using gyroid-sheet lattice design internal fixation device, open approach), XRGM0CA (Fusion of left tarsal joint using gyroid-sheet lattice design internal fixation device, open approach), XRGJ0CA (Fusion of right ankle joint using gyroid-sheet lattice design internal fixation device, open approach), or XRGL0CA (Fusion of right tarsal joint using gyroid-sheet lattice design internal fixation device, open approach). (16) ShortCutTM The following table summarizes the information provided in the new technology add-on payment application for the ShortCutTM. [[Page 36820]] [GRAPHIC] [TIFF OMITTED] TR04AU25.211 After review of the information provided by the applicant, we agreed with the applicant that the ShortCutTM meets the cost criterion and therefore proposed to approve the ShortCutTM for new technology add-on payments for FY 2026 for use as a splitting device of bioprosthetic aortic valve leaflets to facilitate valve-in- valve procedures for patients at risk for coronary obstruction. Based on preliminary information from the applicant at the time of the proposed rule, the applicant anticipated the total cost of the ShortCutTM to the hospital to be $15,000 per patient. We noted that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. Under Sec. 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS- DRG payment for the case. As a result, we proposed that the maximum new technology add-on payment for a case involving the use of the ShortCutTM would be $9,750 for FY 2026 (that is, 65 percent of the average cost of the technology). We invited public comments on whether the ShortCutTM meets the cost criterion and our proposal to approve new technology add-on payments for the ShortCutTM for FY 2026. Comment: Multiple commenters, including the applicant, expressed support for our proposal to approve new technology add-on payment for the ShortCutTM device for FY 2026. Some commenters provided their perspectives regarding the clinical need for the device. Several commenters, including the applicant, noted that the device enabled splitting of pre-existing valve leaflets after insertion of the transcatheter heart valve to allow blood flow into the adjacent or ``at risk'' coronary artery. Per commenters, approving new technology add-on payments for ShortCutTM would make it economically feasible for hospitals to offer this breakthrough technology to Medicare patients without incurring steep losses The applicant further reiterated that the ShortCutTM device received FDA [[Page 36821]] Breakthrough Device Designation on January 18, 2024, and FDA market clearance on September 27, 2024. The applicant also noted that CMS created a new ICD-10-PCS procedure code (X28F3VA) effective October 1, 2024, responding to the growing need for leaflet splitting in patients undergoing valve-in-valve transcatheter aortic valve replacement. Response: We thank the commenters for their comments. Based on the information provided in the application for new technology add-on payments, we believe the ShortCutTM meets the cost criterion. The technology received FDA marketing authorization on September 27, 2024, with an indication for use as a splitting device of bioprosthetic aortic valve leaflets to facilitate valve-in-valve procedures for patients at risk of coronary obstruction, which is covered by its Breakthrough Device designation. Therefore, we are finalizing our proposal to approve new technology add-on payments for the ShortCutTM for FY 2026. We consider the beginning of the newness period to commence on September 27, 2024, the date on which technology received its FDA marketing authorization for the indication covered by its Breakthrough Device designation. Based on the information available at the time of this final rule, the cost per case of the ShortCutTM is $15,000. Under Sec. 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS-DRG payment for the case. As a result, we are finalizing that the maximum new technology add-on payment for a case involving the use of the ShortCutTM is $9,750 for FY 2026 (that is, 65 percent of the average cost of the technology). Cases involving the use of the ShortCutTM that are eligible for new technology add-on payments will be identified by ICD-10-PCS procedure code X28F3VA (Division of aortic valve using intraluminal bioprosthetic valve leaflet splitting technology in existing valve, percutaneous approach, new technology group 10). (17) The WiSE CRT System The following table summarizes the information provided in the new technology add-on payment application for The WiSE CRT System. [[Page 36822]] [GRAPHIC] [TIFF OMITTED] TR04AU25.212 In the proposed rule, we noted that after review of the information provided by the applicant, we agreed with the applicant that the WiSE CRT System meets the cost criterion and therefore proposed to approve the WiSE CRT System for new technology add-on payments for FY 2026, subject to the technology receiving FDA marketing authorization for the indication corresponding to the Breakthrough Device designation by May 1, 2025. Based on preliminary information from the applicant at the time of the proposed rule, the applicant anticipated the total cost of the WiSE CRT System to the hospital to be $63,300 per patient. The components included the electrode [[Page 36823]] and catheter ($21,970), the delivery sheath ($2,590), the battery ($12,870), and the transmitter ($25,870). We noted that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. Under Sec. 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS-DRG payment for the case. As a result, we proposed that the maximum new technology add-on payment for a case involving the use of the WiSE CRT System would be $41,145 for FY 2026 (that is, 65 percent of the average cost of the technology). We invited public comments on whether the WiSE CRT System meets the cost criterion and our proposal to approve new technology add-on payments for the WiSE CRT System for FY 2026, subject to the technology receiving FDA marketing authorization for the indication corresponding to the Breakthrough Device designation by May 1, 2025. Comment: A few commenters, including the applicant, expressed support for our proposal to approve new technology add-on payment for the WiSE CRT System. The applicant further stated that the WiSE CRT System received FDA approval on April 11, 2025, and that the approved indications are consistent with the Breakthrough Device designation indications. The applicant also noted that the total price of the technology is unchanged. Response: We thank the commenters for their comments. Based on the information provided in the application for new technology add-on payments, and after consideration of the public comments we received, we believe the WiSE CRT System meets the cost criterion. The technology received premarket approval from FDA on April 11, 2025, with an indication for adult patients who are at least 22 years of age, are indicated for CRT, have an existing or are eligible for an implanted right ventricular pacing system, and are in one of the following two categories: Patients in whom previous coronary sinus (CS) lead implantation was unsuccessful, or where an implanted lead has been turned off, referred to as ``previously untreatable''; Patients with previously implanted pacemakers or Implantable Cardioverter-Defibrillators (ICDs) in whom standard CRT upgrade is not advisable due to known relative contraindications for CS lead or CRT device implantation, referred to as ``high risk upgrades,'' which is covered by its Breakthrough Device designation. Therefore, we are finalizing our proposal to approve new technology add-on payments for the WiSE CRT System for FY 2026. We consider the beginning of the newness period to commence on April 11, 2025, the date on which the technology received premarket approval for the indication covered by its Breakthrough Device designation. Based on the information available at the time of this final rule, the cost per case of the WiSE CRT System is $63,300. Under Sec. 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS-DRG payment for the case. As a result, we are finalizing that the maximum new technology add-on payment for a case involving the use of the WiSE CRT System is $41,145 for FY 2026 (that is, 65 percent of the average cost of the technology). The applicant submitted a request and was granted approval for unique ICD-10-PCS procedure codes for the WiSE CRT System beginning in FY 2026. Therefore, cases involving the use of the WiSE CRT System that are eligible for new technology add-on payments will be identified by ICD- 10-PCS procedure code X2HN37B (Insertion of endocardiac pacing electrode into left ventricle, percutaneous approach, new technology group 11) in combination with XHH80HB (Insertion of ultrasound transmitter and battery for endocardiac pacing electrode into chest subcutaneous tissue and fascia, open approach, new technology group 11). (18) TriVerity Test The following table summarizes the information provided in the new technology add-on payment application for the TriVerity Test. [[Page 36824]] [GRAPHIC] [TIFF OMITTED] TR04AU25.213 [[Page 36825]] [GRAPHIC] [TIFF OMITTED] TR04AU25.214 In the proposed rule, after review of the information provided by the applicant, we noted the applicant stated that the technology was not commercially available immediately after FDA clearance. We stated in the proposed rule that we were interested in additional information regarding the cause of any delay in the technology's commercial availability, including the significance of building up TriVerity cartridge inventory on its availability for routine clinical use. With regard to the cost criterion, we stated that the applicant stated the technology is used as an aid to differentiate bacterial infections, viral infections, and non-infectious illness, as well as the likelihood of disease progression in adult patients. However, we noted that the applicant included diagnosis codes related to sepsis of newborn in the second cost criterion analysis. We questioned whether diagnosis codes related to newborns were applicable to this technology because it is indicated for use in adult patients, and whether the applicant should have removed these diagnosis codes to identify eligible cases more accurately. Subject to the applicant adequately addressing this concern, we agreed that the technology meets the cost criterion and proposed to approve the TriVerity Test for new technology add-on payments for FY 2026, for use in conjunction with clinical assessments and other laboratory findings as an aid to differentiate bacterial infections, viral infections, and non-infectious illness, as well as to determine the likelihood of 7-day need for mechanical ventilation, vasopressors, and/or renal replacement therapy in adult patients with suspected acute infection or suspected sepsis presenting to the emergency department. Based on preliminary information from the applicant at the time of the proposed rule, the applicant anticipated the total cost of the TriVerity Test to the hospital to be $388 per patient. The applicant stated that there would be two components for the operating cost of the technology: the TriVerity Cartridge ($375) and the PAXgene Blood RNA Tube ($13). We noted that per the applicant, the PAXgene Blood RNA Tube is an FDA-cleared tube distributed by BD and is a necessary component for hospitals to use the TriVerity Test. The applicant stated that hospitals can purchase the PAXgene Blood RNA Tubes directly from BD or from the applicant. Although the applicant stated that the PAXgene Blood RNA Tube is a new component of the device, we noted that the PAXgene Blood RNA Tube is also commercially available for other uses as a standalone sample collection device, and received FDA marketing authorization as early as April 18, 2005.\136\ Therefore, we stated that it appeared that only the cost of the TriVerity Cartridge was appropriate for consideration for new technology add-on payment. We noted that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. Under Sec. 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS- DRG payment for the case. As a result, we proposed that the maximum new technology add-on payment for a case involving the use of the TriVerity Test would be $243.75 for FY 2026 (that is, 65 percent of the average cost of the technology). --------------------------------------------------------------------------- \136\ https://www.accessdata.fda.gov/scripts/cdrh/cfdocs/cfpmn/denovo.cfm?id=DEN050003. --------------------------------------------------------------------------- We invited public comments on whether the TriVerity Test meets the cost criterion and our proposal to approve new technology add-on payments for the TriVerity Test for FY 2026. Comment: A few commenters, including the applicant, expressed support for our proposal to approve new technology add-on payment for the TriVerity Test for FY 2026. In response to CMS's request for additional information regarding the delay in the technology's market availability, the applicant stated that the TriVerity Test was cleared by FDA on January 10, 2025, and commercial product inventory became available for hospital customers on March 13, 2025. The applicant stated that Inflammatix manufactures TriVerity cartridges at their headquarters in Sunnyvale, CA and has both an active cartridge production line and storage facilities of TriVerity cartridge inventory. The applicant stated that it affirms it has built up cartridge inventory to meet hospital customer demand for routine use of the TriVerity test. In response to CMS's question about including diagnosis codes related to sepsis of newborn in the second cost criterion analysis, the applicant stated that while these codes were included in the algorithm to select cases for the analysis, it did not actually identify any cases with the newborn sepsis ICD-10-CM diagnosis codes. Per the applicant, removal of those codes from the case selection algorithm does not affect the results of the cost criterion analysis and the final inflated case weighted [[Page 36826]] standardized charge per case of $81,393 exceeded the case weighted threshold of $73,258 by $8,135. The applicant reiterated that the other cost criterion analysis scenario had a final inflated case weighted standardized charge per case of $70,025, which exceeded the case weighted threshold of $67,984 by $2,041 and that the TriVerity Test meets the cost criterion under both scenarios. The applicant also agreed with CMS's statement that only the cost of the TriVerity Cartridge should be included in the new technology add-on payment calculation. Response: We thank the applicant and other commenters for their comments. We agree that the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount. Therefore, the TriVerity Test meets the cost criterion. We stated in the proposed rule that we were interested in additional information regarding the cause of any delay in the technology's commercial availability, including the significance of building up TriVerity cartridge inventory on its availability for routine clinical use. Although the applicant affirmed that it has built up cartridge inventory to meet demand for routine use of the TriVerity Test, we note that we did not receive any information regarding the cause of any delay in the technology's commercial availability. Therefore, at this time, there is not sufficient information to determine a newness date based on a documented delay in the technology's availability on the U.S. market. Absent additional information, we consider the beginning of the newness period to commence on January 10, 2025, the date of FDA marketing authorization for the indication covered by its Breakthrough Device designation. Based on the information provided in the application for new technology add-on payments, and after consideration of the public comments we received, we believe the TriVerity Test meets the cost criterion. The technology received FDA marketing authorization on January 10, 2025, with an indication for use in conjunction with clinical assessments and other laboratory findings as an aid to differentiate bacterial infections, viral infections, and non- infectious illness, as well as to determine the likelihood of 7-day need for mechanical ventilation, vasopressors, and/or renal replacement therapy in adult patients with suspected acute infection or suspected sepsis presenting to the emergency department. Therefore, we are finalizing our proposal to approve new technology add-on payments for the TriVerity Test for FY 2026. We consider the beginning of the newness period to commence on January 10, 2025, the date of FDA marketing authorization for the indication covered by its Breakthrough Device designation. Based on the information available at the time of this final rule, the cost per case of the TriVerity Test for the TriVerity Cartridge component is $375. Under Sec. 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS-DRG payment for the case. As a result, we are finalizing that the maximum new technology add-on payment for a case involving the use of the TriVerity Test is $243.75 for FY 2026 (that is, 65 percent of the average cost of the technology). Cases involving the use of the TriVerity Test that are eligible for new technology add-on payments will be identified by ICD- 10-PCS procedure code XXE5XBB (Measurement of infection and immune response, gene expression testing system, new technology group 11). (19) VITEK[supreg] REVEALTM AST System The following table summarizes the information provided in the new technology add-on payment application for the VITEK[supreg] REVEALTM AST System. BILLING CODE 4120-01-P [[Page 36827]] [GRAPHIC] [TIFF OMITTED] TR04AU25.215 [[Page 36828]] [GRAPHIC] [TIFF OMITTED] TR04AU25.216 BILLING CODE 4120-01-C In the proposed rule, we noted that after review of the information provided by the applicant, since the indication for which the applicant received 510(k) clearance is included within the scope of the Breakthrough Device designation indication, it appears that the FDA- cleared indication is appropriate for consideration for new technology add-on payment under the alternative pathway criteria.\137\ --------------------------------------------------------------------------- \137\ Breakthrough Devices Program https://www.fda.gov/medical-devices/how-study-and-market-your-device/breakthrough-devices-program. --------------------------------------------------------------------------- We noted the applicant stated the device was not commercially available until October 21, 2024, due to lead times in the supply chain and implementation of system modifications due to FDA requirements. We stated that we were interested in additional information regarding the cause for any delay in the technology's commercial availability, as it received FDA clearance on June 20, 2024, and it was not clear how lead times in the supply chain affected its availability on the market and what system modifications were required. We agreed with the applicant that the VITEK[supreg] REVEALTM AST System meets the cost criterion and therefore proposed to approve the VITEK[supreg] REVEALTM AST System for new technology add-on payments for FY 2026, indicated for susceptibility testing direct from positive blood culture samples signaled positive by a continuous monitoring blood culture system and confirmed to contain gram-negative bacilli by Gram stain. Based on preliminary information from the applicant at the time of the proposed rule, the applicant anticipated the total cost of the VITEK[supreg] REVEALTM AST System to the hospital to be $125 per patient for the VITEK[supreg] REVEALTM Sensor Array. Per the applicant, while there are additional capital costs for the technology, these costs were not included in the device's cost to the hospital per patient per inpatient stay. We noted that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. Under Sec. 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS-DRG payment for the case. As a result, we proposed that the maximum new technology add-on payment for a case involving the use of the VITEK[supreg] REVEALTM AST System would be $81.25 for FY 2026 (that is, 65 percent of the average cost of the technology). We invited public comments on whether the VITEK[supreg] REVEALTM AST System meets the cost criterion and our proposal to approve new technology add-on payments for the VITEK[supreg] REVEALTM AST System for FY 2026. Comment: A few commenters, including the applicant, submitted public comments expressing support for our proposal to approve new technology add-on payment for the VITEK[supreg] REVEALTM AST System for FY 2026. The applicant also stated that the technology meets the newness criterion for FY 2026, does not have to demonstrate substantial clinical improvement in order to qualify for new technology add-on payments, reiterated that it met the cost criterion, and agreed [[Page 36829]] with the proposed maximum new technology add-on payment of $81.25. In response to CMS's request for additional information regarding the delay in the technology's market availability, the applicant stated the VITEK[supreg] REVEALTM received FDA clearance in June 2024, but the technology was not commercially available until October 21, 2024. Per the applicant, the basis for the delay was due to the implementation of a software requirement from FDA that could not be validated until a validation panel was available. The applicant stated that an external entity was not able to provide the aforementioned panel until September 2024, and that validation was initiated upon receipt of the panel and completed in October. Per the applicant, it had to delay commercial availability until this step was completed. Response: We thank the commenters for their comments. Based on the information provided in the application for new technology add-on payments, and after consideration of the public comments we received, we believe the VITEK[supreg] REVEALTM AST System meets the cost criterion. The technology received 510(k) clearance on June 20, 2024, with an indication for susceptibility testing direct from positive blood culture samples signaled positive by a continuous monitoring blood culture system and confirmed to contain gram-negative bacilli by Gram stain, which is covered by its Breakthrough Device designation. Therefore, we are finalizing our proposal to approve new technology add-on payments for the VITEK[supreg] REVEALTM AST System for FY 2026. We consider the beginning of the newness period to commence on October 21, 2024, the date on which the technology became commercially available for the indication covered by its Breakthrough Device designation. Based on the information available at the time of this final rule, the cost per case of the VITEK[supreg] REVEALTM AST System is $125. Under Sec. 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS-DRG payment for the case. As a result, we are finalizing that the maximum new technology add-on payment for a case involving the use of the VITEK[supreg] REVEALTM AST System is $81.25 for FY 2026 (that is, 65 percent of the average cost of the technology). Cases involving the use of the VITEK[supreg] REVEALTM AST System that are eligible for new technology add-on payments will be identified by ICD-10-PCS procedure code XXE5X4A (Measurement of infection, positive blood culture small molecule sensor array technology, new technology group 10). b. Alternative Pathways for Qualified Infectious Disease Products (QIDPs) (1) EMBLAVEOTM (aztreonam-avibactam) The following table summarizes the information provided in the new technology add-on payment application for EMBLAVEOTM (also referred to as ATM-AVI). [[Page 36830]] [GRAPHIC] [TIFF OMITTED] TR04AU25.217 [GRAPHIC] [TIFF OMITTED] TR04AU25.218 In the proposed rule, we noted that after review of the information provided by the applicant, since the indication for which the applicant received NDA approval is included within the scope of the QIDP designation indication, it appears that the FDA-approved indication is appropriate for consideration for new technology add-on payment under the alternative pathway criteria. We noted that the applicant stated that the technology is expected to be commercially available by Q3 of CY 2025 due to product availability. We stated we were interested in additional information regarding the cause for any delay in the technology's market availability as the technology received FDA approval on February 7, 2025. We agreed with the applicant that EMBLAVEOTM meets the cost criterion and therefore proposed to approve EMBLAVEOTM for new technology add-on payments for FY 2026 for use in patients 18 years and older who have limited or no alternative options for the treatment of cIAI. The applicant had not provided an estimate for the cost of EMBLAVEOTM at the time of the proposed rule. We stated that we expected the applicant to submit cost information prior to the final rule, and that we would provide an update regarding the new technology add-on payment amount for the technology, if approved, in the final rule. We stated that any new technology add-on payment for EMBLAVEOTM would be subject to our policy under Sec. 412.88(a)(2)(ii)(B) where we limit new technology add-on payment for QIDPs to the lesser of 75 percent of the average cost of the technology, or 75 percent of the costs in excess of the MS-DRG payment for the case. We invited public comments on whether EMBLAVEOTM meets the cost criterion and our proposal to approve new technology add-on payments for EMBLAVEOTM for FY 2026. [[Page 36831]] Comment: A few commenters, including the applicant submitted public comments expressing support for our proposal to approve new technology add-on payment for EMBLAVEOTM for FY 2026, with the applicant further reiterating that the product meets the cost criterion. In response to CMS's request regarding the cause for delay in the technology's market availability, the applicant stated that it expected that EMBLAVEOTM would be commercially available for use and purchase in the United States by quarter 3 (Q3) of calendar year (CY) 2025 due to delays related to first run manufacturing for the product and packaging and other processes such as securing an export license to ship the drug to the U.S., followed by customs clearance. The applicant stated that the product will not be commercially available in the U.S. until after these processes are complete and that it would notify CMS of the date when EMBLAVEOTM is first available in the U.S. The applicant requested that the newness period for the product begin on that date. The applicant also provided the cost for EMBLAVEOTM at $327 per vial as of June 9, 2025. The applicant stated that the anticipated cost of EMBLAVEOTM in the hospital setting is $12,000.90, which was calculated using data from the clinical trials and accounted for the loading dose, patients' estimated creatinine clearance, and treatment duration. The applicant requested that CMS set the maximum new technology add-on payment for cases involving the use of EMBLAVEOTM at $9,000.68 for FY 2026 (that is, 75 percent of the average cost of the technology), because EMBLAVEOTM is a designated QIDP. Response: We thank the commenters for their support and additional information. As we have discussed in prior rulemaking (86 FR 45132; 77 FR 53348), generally, our policy is to begin the newness period on the date of FDA approval or clearance or, if later, the date of availability of the product on the U.S. market. The applicant states that EMBLAVEOTM is expected to be commercially available by Q3 of CY 2025 due to product availability, but it is unclear whether the technology would be available for sale prior to that date. At this time, there is not sufficient information to determine a newness date based on a documented delay in the technology's availability on the U.S. market. Absent additional information, we therefore consider the newness date for this technology to be February 7, 2025. Based on the information provided in the application for new technology add-on payments, and after consideration of the public comments we received, we believe EMBLAVEOTM meets the cost criterion. The technology received NDA approval on February 7, 2025, with an indication for use in patients 18 years and older who have limited or no alternative options for the treatment of cIAI, which is covered by its QIDP designation. Therefore, we are finalizing our proposal to approve new technology add-on payments for EMBLAVEOTM for FY 2026. Absent additional information from the applicant, we consider the beginning of the newness period to commence on February 7, 2025, the date of FDA marketing authorization for the indication covered by its QIDP designation. Based on the information available at the time of this final rule, the cost per case of EMBLAVEOTM is $12,000.90. Under Sec. 412.88(a)(2), we limit new technology add-on payments for QIDPs to the lesser of 75 percent of the average cost of the technology, or 75 percent of the costs in excess of the MS-DRG payment for the case. As a result, we are finalizing that the maximum new technology add-on payment for a case involving the use of EMBLAVEOTM is $9,000.68 for FY 2026 (that is, 75 percent of the average cost of the technology). The applicant submitted a request and was granted approval for unique ICD-10-PCS procedure codes for EMBLAVEOTM beginning in FY 2026. Therefore, cases involving the use of EMBLAVEOTM that are eligible for new technology add-on payments will be identified by ICD-10-PCS procedure codes XW033PB (Introduction of aztreonam- avibactam anti-infective into peripheral vein, percutaneous approach, new technology group 11) or XW043PB (Introduction of aztreonam- avibactam anti-infective into central vein, percutaneous approach, new technology group 11). (2) CONTEPOTM (fosfomycin) The following table summarizes the information provided in the new technology add-on payment application for CONTEPOTM (fosfomycin). We note that Nabriva Therapeutics submitted an application for CONTEPOTM for FY 2021 and FY 2022, as summarized in the FY 2021 and FY 2022 IPPS/LTCH PPS proposed rules (85 FR 32682 through 32683; 86 FR 25390 through 25392), and received conditional approval subject to the technology receiving FDA marketing authorization before July 1 of the particular fiscal year for which the applicant applied for new technology add-on payments (85 FR 58723 through 58725; 86 FR 45154 through 45155). CONTEPOTM did not receive FDA marketing authorization by the applicable July 1 deadlines, and was therefore not eligible for new technology add-on payments for FY 2021 or FY 2022 (86 FR 44972; 87 FR 48909). Per the applicant, Meitheal Pharmaceuticals Inc. has acquired the rights to CONTEPOTM in the U.S. and is submitting the new technology add-on payment application for FY 2026. BILLING CODE 4120-01-P [[Page 36832]] [GRAPHIC] [TIFF OMITTED] TR04AU25.219 [[Page 36833]] [GRAPHIC] [TIFF OMITTED] TR04AU25.220 BILLING CODE 4120-01-C In the proposed rule, after review of the information provided by the applicant, we noted that the applicant stated that the technology is expected to be commercially available within 3 months of FDA approval, and we stated that we would appreciate more information on the reasons for any delay in the commercial availability of CONTEPOTM following FDA approval. We agreed with the applicant that CONTEPOTM meets the cost criterion and therefore proposed to approve CONTEPOTM for new technology add-on payments for FY 2026, subject to the technology receiving FDA marketing authorization for the indication corresponding to the QIDP designation by July 1, 2025. We stated that as an application submitted under the alternative pathway for certain antimicrobial products at Sec. 412.87(d), CONTEPOTM is eligible for conditional approval for new technology add-on payments if it does not receive FDA marketing authorization by July 1, 2025, provided that the technology receives FDA marketing authorization before July 1 of the fiscal year for which the applicant applied for new technology add-on payments (that is, July 1, 2026), as provided in Sec. 412.87(f)(3). We stated that if CONTEPOTM receives FDA marketing authorization before July 1, 2026, the new technology add-on payment for cases involving the use of this technology would be made effective for discharges beginning in the first quarter after FDA marketing authorization is granted. If FDA marketing authorization is received on or after July 1, 2026, no new technology add-on payments would be made for cases involving the use of CONTEPOTM for FY 2026. Based on preliminary information from the applicant at the time of the proposed rule, the applicant anticipated the total cost of CONTEPOTM to the hospital to be $11,700 per patient. The applicant estimated that each vial costs $325 and that 3 doses are needed each day for an average treatment duration of 12 days. We noted that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. Under Sec. 412.88(a)(2)(ii)(B), we limit new technology add-on payment for technologies designated as QIDPs to the lesser of 75 percent of the average cost of the technology, or 75 percent of the costs in excess of the MS-DRG payment for the case. As a result, we proposed that the maximum new technology add-on payment for a case involving the use of CONTEPOTM would be $8,775 for FY 2026 (that is, 75 percent of the average cost of the technology). We invited public comments on whether CONTEPOTM meets the cost criterion and our proposal to approve new technology add-on payments for CONTEPOTM for FY 2026, subject to the technology receiving FDA marketing authorization consistent with its QIDP designation by July 1, 2025. Comment: We received comments expressing support for technologies under consideration for new technology add-on payments for FY 2026. The applicant submitted a public comment in response to CMS's request for additional information regarding the expected delay in the commercial availability of CONTEPOTM following FDA approval. The applicant stated that once CONTEPOTM receives marketing authorization from FDA, the final label needs to be implemented and printed, and product packaging needs to be finalized and produced. The applicant stated that logistics in the supply chain and proper loading of product information in the supply chain systems would altogether take an anticipated three months from approval. The applicant stated that this was the basis of its assessment of product availability 3 months after FDA approval. Response: We thank the commenters for their comments. As we have discussed in prior rulemaking (86 FR 45132; 77 FR 53348), generally, our policy is to begin the newness period on the date of FDA approval or clearance or, if later, the date of availability of the product on the U.S. market. The applicant states that it anticipates three months from FDA approval for commercial availability, but it is unclear when the technology would be available for sale. At this time, there is not sufficient information to determine a newness date based on a documented delay in the technology's availability on the U.S. market. Based on the information provided in the application for new technology add-on payments, and after consideration of the public comments we received, we believe CONTEPOTM meets the cost criterion. Therefore, we are granting a conditional approval for CONTEPOTM for new technology add-on payments for FY 2026, subject to the technology receiving FDA marketing authorization before July 1, 2026 (that is, before July 1 of the fiscal year for which the applicant applied for new technology add-on payments (2026)). In the proposed rule we stated that as an application submitted under the alternative pathway for certain antimicrobial products at Sec. 412.87(d), CONTEPOTM is eligible for conditional approval for new technology add-on payments if it does not receive FDA marketing authorization by July 1, 2025, provided that the technology receives FDA marketing authorization before July 1 of the fiscal year for which the applicant applied for new technology add-on payments (that is, July 1, 2026), as provided in Sec. 412.87(f)(3) (90 FR 18217). If CONTEPOTM receives FDA marketing authorization before July 1, 2026, the new technology add-on payment for cases involving the use of this technology would be made effective for discharges beginning in the first quarter after FDA marketing authorization is granted. If FDA marketing authorization is received on or after July 1, 2026, no new technology add-on payments will be made for cases involving the use of CONTEPOTM for FY 2026. Based on the information available at the time of this final rule, the cost per case of CONTEPOTM is $11,700. Under Sec. 412.88(a)(2), we limit new technology add-on payments for QIDPs to the lesser [[Page 36834]] of 75 percent of the average cost of the technology, or 75 percent of the costs in excess of the MS-DRG payment for the case. As a result, we are finalizing that, subject to CONTEPOTM receiving FDA marketing authorization before July 1, 2026, the maximum new technology add-on payment for a case involving the use of CONTEPOTM is $8,775 for FY 2026 (that is, 75 percent of the average cost of the technology). Cases involving the use of CONTEPOTM that are eligible for new technology add-on payments will be identified by ICD- 10-PCS procedure codes XW033WB (Introduction of fosfomycin anti- infective into peripheral vein, percutaneous approach, new technology group 11) or XW043WB (Introduction of fosfomycin anti-infective into central vein, percutaneous approach, new technology group 11). 7. Other Comments We received several public comments requesting changes to the new technology add-on payment policies such as, but not limited to: modifying or removing the requirement for a complete and active FDA marketing authorization request, changing the deadline for an applicant for new technology add-on payments to receive FDA marketing authorization, and establishing a more frequent (such as quarterly or biannual) process to apply for new technology add-on payment. We also received comments on technologies that were not under consideration for new technology add-on payments for FY 2026. These comments were outside the scope of the proposals included in the FY 2026 IPPS/LTCH PPS proposed rule and we are therefore not addressing them in this final rule.

1. Legislative Authority

Section 1886(d)(3)(E) of the Act requires that, as part of the methodology for determining prospective payments to hospitals, the Secretary adjust the standardized amounts for area differences in hospital wage levels by a factor (established by the Secretary) reflecting the relative hospital wage level in the geographic area of the hospital compared to the national average hospital wage level. We currently define hospital labor market areas based on the delineations of statistical areas established by the Office of Management and Budget (OMB). A discussion of the FY 2026 hospital wage index based on the statistical areas appears under section III.B. of the preamble of this final rule. Section 1886(d)(3)(E) of the Act requires the Secretary to update the wage index annually and to base the update on a survey of wages and wage-related costs of short-term, acute care hospitals. CMS collects these data on the Medicare cost report, CMS Form 2552-10, Worksheet S- 3, Parts II, III, IV. The aforementioned information collection requirements are in Worksheet S-3, Parts II, III, IV. of the information collection request titled ``Hospitals and Health Care Complex Cost Report (CMS Form 2552-10)''. The information collection request is currently approved under OMB control number is 0938-0050 and has a September 30, 2025, expiration date. We have submitted the information collection request to OMB for reapproval. Section 1886(d)(3)(E) of the Act also requires that any updates or adjustments to the wage index be made in a manner that ensures that aggregate payments to hospitals are not affected by the change in the wage index. The adjustment for FY 2026 is discussed in section II.B. of the Addendum to this final rule. As discussed in section III.I. of the preamble of this final rule, we also take into account the geographic reclassification of hospitals in accordance with sections 1886(d)(8)(B) and 1886(d)(10) of the Act when calculating IPPS payment amounts. Under section 1886(d)(8)(D) of the Act, the Secretary is required to adjust the standardized amounts so as to ensure that aggregate payments under the IPPS after implementation of the provisions of sections 1886(d)(8)(B), 1886(d)(8)(C), and 1886(d)(10) of the Act are equal to the aggregate prospective payments that would have been made absent these provisions. The budget neutrality adjustment for FY 2026 is discussed in section II.A.4.b. of the Addendum to this final rule. Section 1886(d)(3)(E) of the Act also provides for the collection of data every 3 years on the occupational mix of employees for short- term, acute care hospitals participating in the Medicare program to construct an occupational mix adjustment to the wage index. The information collection request is currently approved under OMB control number is 0938-0907 and has a January 31, 2026, expiration date. We plan to submit the information collection request to OMB for reapproval in the near future. A discussion of the occupational mix adjustment that we are applying to the FY 2026 wage index appears under section III.E. of the preamble of this final rule.

2. Core-Based Statistical Areas (CBSAs) for the FY 2026 Hospital Wage

Index The wage index is calculated and assigned to hospitals on the basis of the labor market area in which the hospital is located. Under section 1886(d)(3)(E) of the Act, beginning with FY 2005 (69 FR 49026 through 49032), we delineate hospital labor market areas based on OMB- established Core-Based Statistical Areas (CBSAs). In the July 16, 2021, Federal Register (86 FR 37777), OMB finalized a schedule for future updates based on results of the decennial Census updates to commuting patterns from the American Community Survey (ACS). In accordance with that schedule, on July 21, 2023, OMB released Bulletin No. 23-01. The current statistical areas (which were implemented beginning with FY 2025) are based on revised OMB delineations issued on July 21, 2023, in OMB Bulletin No. 23-01. According to OMB, the delineations reflect the 2020 Standards for Delineating Core Based Statistical Areas (``the 2020 Standards''), which appeared in the Federal Register on July 16, 2021 (86 FR 37770 through 37778), and the application of those standards to Census Bureau population and journey-to-work data (that is, 2020 Decennial Census, the ACS, and Census Population Estimates Program data) (we refer to these revised OMB delineations as the ``new OMB delineations'' in this final rule). A copy of OMB Bulletin No. 23-01 may be obtained at https://bidenwhitehouse.archives.gov/wp-content/uploads/2023/07/OMB-Bulletin-23-01.pdf. We refer readers to the FY 2025 IPPS/LTCH PPS final rule (89 FR 69253 through 69266) for a full discussion of our implementation of the new OMB delineations for the FY 2025 wage index. For FY 2026, we are continuing to use the new OMB delineations that we adopted beginning with FY 2025 to calculate the area wage indexes and the transition periods.

3. Codes for Constituent Counties in CBSAs

CBSAs are made up of one or more constituent counties. Each CBSA and constituent county has its own unique identifying codes. The Federal Information Processing Standard (FIPS) county codes are maintained by the U.S. Census Bureau. In the FY 2018 IPPS/LTCH PPS final rule (82 FR 38129 through 38130), we adopted a policy to use the FIPS county codes for purposes of crosswalking counties to CBSAs. In addition, in the same rule, we implemented the latest FIPS code updates, which were effective October 1, 2017, beginning with the FY 2018 [[Page 36835]] wage indexes. These updates have been used to calculate the wage indexes in a manner generally consistent with the CBSA-based methodologies finalized in the FY 2005 IPPS final rule and the FY 2015 IPPS/LTCH PPS final rule. We refer the reader to the FY 2018 IPPS/LTCH PPS final rule (82 FR 38129 through 38130) for a complete discussion of our adoption of FIPS county codes. For FY 2026, we are continuing to use only the FIPS county codes for purposes of crosswalking counties to CBSAs. For FY 2026, Tables 2 and 3 associated with this final rule and the County to CBSA Crosswalk File and Urban CBSAs and Constituent Counties for Acute Care Hospitals File posted on the CMS website reflect the latest FIPS county code updates.

1. Cost Reporting Periods Beginning in FY 2022 for FY 2026 Wage Index

The FY 2026 wage index values are based on the data collected from the Medicare cost reports submitted by hospitals for cost reporting periods beginning in FY 2022 (the FY 2025 wage indexes were based on data from cost reporting periods beginning during FY 2021). The FY 2026 wage index includes all of the following categories of data associated with costs paid under the IPPS (as well as outpatient costs): Salaries and hours from short-term, acute care hospitals (including paid lunch hours and hours associated with military leave and jury duty). Home office costs and hours. Certain contract labor costs and hours including direct patient care (which includes nursing), certain top management, pharmacy, laboratory, and nonteaching physician Part A services, and certain contract indirect patient care services (as discussed in the FY 2008 final rule with comment period (72 FR 47315 through 47317)). Wage-related costs, including pension costs (based on policies adopted in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51586 through 51590) and modified in the FY 2016 IPPS/LTCH PPS final rule (80 FR 49505 through 49508)) and other deferred compensation costs. Consistent with the wage index methodology for FY 2025, the wage index for FY 2026 excludes the direct and overhead salaries and hours for services not subject to IPPS payment, such as skilled nursing facility (SNF) services, home health services, costs related to Graduate Medical Education (GME) (teaching physicians and residents) and certified registered nurse anesthetists (CRNAs), and other subprovider components that are not paid under the IPPS. The FY 2026 wage index also excludes the salaries, hours, and wage-related costs of hospital-based rural health clinics (RHCs), and federally qualified health centers (FQHCs), because Medicare pays for these costs outside of the IPPS (68 FR 45395). In addition, as explained in the FY 2004 IPPS final rule (68 FR 45397 through 45398), salaries, hours, and wage- related costs of critical access hospitals (CAHs) are excluded from the wage index as we believe that removing CAHs from the wage index is prudent policy, given the substantial negative impact these hospitals have on the wage indexes in the areas where they are located and the minimal impact they have on the wage indexes of other areas. We refer the reader to the FY 2004 IPPS final rule (68 FR 45397 through 45398) for a complete discussion regarding the exclusion of CAHs from the wage index. Similar to our treatment of CAHs, as discussed later in this section, we exclude rural emergency hospitals (REHs) from the wage index. For FY 2020 and subsequent years, other wage-related costs are also excluded from the calculation of the wage index. As discussed in the FY 2019 IPPS/LTCH final rule (83 FR 41365 through 41369), other wage- related costs reported on Worksheet S-3, Part II, Line 18 and Worksheet S-3, Part IV, Line 25 and subscripts, as well as all other wage-related costs, such as contract labor costs, are excluded from the calculation of the wage index.

2. Use of Wage Index Data by Suppliers and Providers Other Than Acute

Care Hospitals Under the IPPS Data collected for the IPPS wage index also are currently used to calculate wage indexes applicable to suppliers and other providers, such as SNFs, home health agencies (HHAs), ambulatory surgical centers (ASCs), and hospices. In addition, they are used for prospective payments to IRFs, IPFs, and LTCHs, and for hospital outpatient services. We note, in the calendar year (CY) 2025 ESRD PPS final rule (89 FR 89097 through 89116), CMS finalized a new ESRD PPS-specific wage index that will be used to adjust ESRD PPS payments for geographic differences in area wages. We refer the reader to the CY 2025 ESRD PPS final rule for complete details regarding ESRD wage index. We further note that, in the IPPS rules, we do not address comments pertaining to the wage indexes of any supplier or provider except IPPS providers and LTCHs. Such comments should be made in response to separate proposed rules for those suppliers and providers.

3. Verification of Worksheet S-3 Wage Data

The wage data for the FY 2026 wage index were obtained from Worksheet S-3, Parts II, III, and IV of the Medicare cost report, CMS Form 2552-10 (OMB Control Number 0938-0050 with an expiration date September 30, 2025) for cost reporting periods beginning on or after October 1, 2021, and before October 1, 2022. For wage index purposes, we refer to cost reports beginning on or after October 1, 2021, and before October 1, 2022, as the ``FY 2022 cost report,'' the ``FY 2022 wage data,'' or the ``FY 2022 data.'' Instructions for completing the wage index sections of Worksheet S-3 are included in the Provider Reimbursement Manual (PRM), Part 2 (Pub. 15-2), Chapter 40, Sections 4005.2 through 4005.4. The data file used to construct the FY 2026 wage index includes FY 2022 data submitted to us as of January 31, 2025. As in past years, we performed an extensive review of the wage data, mostly through the use of edits designed to identify aberrant data. We note, in previous fiscal years, we reviewed and evaluated the audited wage data, and the impacts of the COVID-19 PHE on such data. For FY 2026, we have not identified any significant issues with the FY 2022 wage data itself in terms of our audits of this data. As usual, the data was audited by the Medicare Administrative Contractors (MACs), and there were no significant issues reported across the data for all hospitals. We requested that our MACs revise or verify data elements that resulted in specific edit failures. For the proposed FY 2026 wage index, we identified and excluded 79 providers with aberrant data that should not be included in the wage index. However, we stated that if data elements for some of these providers are corrected, we intend to include data from those providers in the final FY 2026 wage index. We also adjusted certain aberrant data and included these data in the wage index. For example, in situations where a hospital did not have documentable salaries, wages, and hours for housekeeping and dietary services, we imputed estimates, in accordance with policies established in the FY 2015 IPPS/LTCH PPS final rule (79 FR 49965 through 49967). We instructed MACs to complete their verification of questionable data elements and to transmit any changes to the wage data no later than March 21, 2025. After we [[Page 36836]] issued the proposed rule, for the final FY 2026 wage index, we restored the data of 15 hospitals to the wage index, because their data was either verified or improved and removed the data of 2 hospitals with aberrant data. Thus, 66 hospitals with aberrant data remain excluded from the FY 2026 wage index (79-15 + 2 = 66). In constructing the proposed FY 2026 wage index, we included the wage data for facilities that were IPPS hospitals in FY 2022, inclusive of those facilities that have since terminated their participation in the program as hospitals, as long as those data did not fail any of our edits for reasonableness. We stated in the proposed rule (90 FR 18219) that we believe that including the wage data for these hospitals is, in general, appropriate to reflect the economic conditions in the various labor market areas during the relevant past period and to ensure that the current wage index represents the labor market area's current wages as compared to the national average of wages. As discussed in the FY 2004 IPPS final rule (68 FR 45397 through 45398) and FY 2025 IPPS/LTCH final rule (89 FR 69268), any hospital that is designated as a CAH or REH by 7 days prior to the publication of the preliminary wage index public use file (PUF) is excluded from the calculation of the wage index. For the proposed FY 2026 wage index, we removed 7 hospitals that converted to CAH status and 5 hospitals that converted to REH status on or after January 24, 2024, the cut-off date for CAH and REH exclusion from the FY 2025 wage index, and through and including January 24, 2025, the cut-off date for CAH and REH exclusion from the FY 2026 wage index. We did not receive any comments with regard to this proposal, and we are finalizing as proposed to exclude hospitals that have subsequently converted to CAH and/or REH from the wage index calculation. Since we issued the proposed rule, we learned of 6 more hospitals that converted to CAH and/or REH status on or after January 24, 2024, and through and including January 24, 2025. We removed these additional hospitals from the FY 2026 wage index due to their conversion to CAH and/or REH status. In summary, we calculated the FY 2026 wage index using the Worksheet S-3, Parts II and III wage data of 3,036 hospitals. For the FY 2026 wage index, we allotted the wages and hours data for a multicampus hospital among the different labor market areas where its campuses are located using campus full-time equivalent (FTE) percentages as originally finalized in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51591). Table 2, which contains the FY 2026 wage index associated with this final rule (available via the internet on the CMS website), includes separate wage data for the campuses of 29 multicampus hospitals. The following chart lists the multicampus hospitals by CMS certification number (CCN) and the FTE percentages on which the wages and hours of each campus were allotted to their respective labor market areas: [[Page 36837]] [GRAPHIC] [TIFF OMITTED] TR04AU25.221 We note that, in past years, in Table 2, we have placed a ``B'' to designate the subordinate campus in the fourth position of the hospital CCN. However, for the FY 2019 IPPS/LTCH PPS proposed and final rules and subsequent rules, we have moved the ``B'' to the third position of the CCN. Because all IPPS hospitals have a ``0'' in the third position of the CCN, we believe that placement of the ``B'' in this third position, instead of the ``0'' for the subordinate campus, is the most efficient method of identification and interferes the least with the other variable digits in the CCN. We also note that provider 340115 has an additional second sub campus located in a different CBSA then the main campus and its other sub campus. Therefore, in order to uniquely identify this second sub campus, we have placed a ``C'' in the third position of the CCN.

4. Process for Requests for Wage Index Data Corrections

a. Process for Hospitals To Request Wage Index Data Corrections The preliminary, unaudited Worksheet S-3 wage data files for the proposed FY 2026 wage index were made available on May 23, 2024, through the internet on the CMS website at https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/wage-index-files/fy-2026-wage-index-home-page. The FY 2026 preliminary Worksheet S-3 wage data file inadvertently contained cost report data with a begin date before 10/01/2021 and cost report data with a begin date after 10/01/2022. We removed these cost reports and added cost reports that were inadvertently omitted from the file originally posted on May 23. Therefore, on June 20, 2024, we posted an updated FY 2026 preliminary Worksheet S-3 wage data file. On January 31, 2025, we posted a public use file (PUF) at https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/wage-index-files/fy-2026-wage-index-home-page containing FY 2026 wage index data available as of January 31, 2025. This PUF contains a tab with the Worksheet S-3 wage data (which includes Worksheet S-3, Parts II and III wage data from cost reporting periods beginning on or after October 1, 2021, through September 30, 2022; that is, FY 2022 wage data), a tab with the occupational mix data (which includes data from the CY 2022 occupational mix survey, Form CMS- 10079), a tab containing the Worksheet S-3 wage data of hospitals deleted from the January 31, 2025 wage data PUF, and a tab containing the CY 2022 occupational mix data of the hospitals deleted from [[Page 36838]] the January 31, 2025 occupational mix PUF. In a memorandum dated January 31, 2025, we instructed all MACs to inform the IPPS hospitals that they service of the availability of the January 31, 2025, wage index data PUFs, and the process and timeframe for requesting revisions in accordance with the FY 2026 Hospital Wage Index Development Time Table available at https://www.cms.gov/files/document/fy-2026-hospital-wage-index-development-time-table.pdf. In the interest of meeting the data needs of the public, beginning with the proposed FY 2009 wage index, we post an additional PUF on the CMS website that reflects the actual data that are used in computing the proposed wage index. The release of this file does not alter the current wage index process or schedule. In a memorandum dated April 17, 2024, we instructed all MACs to inform the IPPS hospitals that they service of the availability of the preliminary wage index data files and the CY 2022 occupational mix survey data files posted on May 23, 2024, and the process and timeframe for requesting revisions. If a hospital wished to request a change to its data as shown in the May 23, 2024, preliminary wage data files and occupational mix data files, the hospital had to submit corrections along with complete, detailed supporting documentation to its MAC so that the MAC received them by September 3, 2024. Hospitals were notified of these deadlines and of all other deadlines and requirements, including the requirement to review and verify their data as posted in the preliminary wage index data files on the internet, through the letters sent to them by their MACs. November 1, 2024, was the date by when MACs notified State hospital associations regarding hospitals that failed to respond to issues raised during the desk reviews. Additional revisions made by the MACs were transmitted to CMS throughout January 2025. CMS published the wage index PUFs that included hospitals' revised wage index data on January 31, 2025. Hospitals had until February 18, 2025, to submit requests to the MACs to correct errors in the January 31, 2025, PUF due to CMS or MAC mishandling of the wage index data, or to revise desk review adjustments to their wage index data as included in the January 31, 2025, PUF. Hospitals also were required to submit sufficient documentation to support their requests. Hospitals' requests and supporting documentation must have been received by the MAC by the February deadline (that is, by February 18, 2025, for the FY 2026 wage index). After reviewing requested changes submitted by hospitals, MACs were required to transmit to CMS any additional revisions resulting from the hospitals' reconsideration requests by March 21, 2025. Under our current policy as adopted in the FY 2018 IPPS/LTCH PPS final rule (82 FR 38153), the deadline for a hospital to request CMS intervention in cases where a hospital disagreed with a MAC's handling of wage data on any basis (including a policy, factual, or other dispute) was April 4, 2025. Data that were incorrect in the preliminary or January 31, 2025, wage index data PUFs, but for which no correction request was received by the February 18, 2025, deadline, are not considered for correction at this stage. In addition, April 4, 2025, was the deadline for hospitals to dispute data corrections made by CMS of which the hospital was notified after the January 31, 2025, PUF and at least 14 calendar days prior to April 4, 2025 (that is, March 21, 2025), that do not arise from a hospital's request for revisions. The hospital's request and supporting documentation must be received by CMS (and a copy received by the MAC) by the April deadline (that is, by April 4, 2025, for the FY 2026 wage index). We refer readers to the FY 2026 Hospital Wage Index Development Time Table for complete details. Hospitals were given the opportunity to examine Table 2 associated with the proposed rule, which is listed in section VI. of the Addendum to the proposed rule and available via the internet on the CMS website at https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/wage-index-files/fy-2026-wage-index-home-page. Table 2 associated with the proposed rule contained each hospital's proposed adjusted average hourly wage used to construct the wage index values for the past 3 years, including the proposed FY 2026 wage index, which was constructed from FY 2022 data. We noted in the proposed rule that the proposed hospital average hourly wages shown in Table 2 only reflected changes made to a hospital's data that were transmitted to CMS by late January 2025. We posted the final wage index data PUFs on April 30, 2025, on the CMS website at https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/wage-index-files/fy-2026-wage-index-home-page. The April 2025 PUFs are made available solely for the limited purpose of identifying any potential errors made by CMS or the MAC in the entry of the final wage index data that resulted from the correction process (the process for disputing revisions submitted to CMS by the MACs by March 21, 2025, and the process for disputing data corrections made by CMS that did not arise from a hospital's request for wage data revisions as discussed earlier), as previously described. After the release of the April 2025 wage index data PUFs, changes to the wage and occupational mix data can only be made in those very limited situations involving an error by the MAC or CMS that the hospital could not have known about before its review of the final wage index data files. Specifically, neither the MAC nor CMS will approve the following types of requests: Requests for wage index data corrections that were submitted too late to be included in the data transmitted to CMS by the MACs on or before March 21, 2025. Requests for correction of errors that were not, but could have been, identified during the hospital's review of the January 31, 2025, wage index PUFs. Requests to revisit factual determinations or policy interpretations made by the MAC or CMS during the wage index data correction process. If, after reviewing the April 2025 final wage index data PUFs, a hospital believes that its wage or occupational mix data are incorrect due to a MAC or CMS error in the entry or tabulation of the final data, the hospital is given the opportunity to notify both its MAC and CMS regarding why the hospital believes an error exists and provide all supporting information, including relevant dates (for example, when it first became aware of the error). The hospital was required to send its request to CMS and to the MAC so that it was received no later than May 30, 2025. May 30, 2025, was also the deadline for hospitals to dispute data corrections made by CMS of which the hospital was notified on or after 13 calendar days prior to April 4, 2025 (that is, March 22, 2025), and at least 14 calendar days prior to May 30, 2025 (that is, May 16, 2025), that did not arise from a hospital's request for revisions. (Data corrections made by CMS of which a hospital is notified on or after 13 calendar days prior to May 30, 2025 (that is, May 17, 2025), may be appealed to the Provider Reimbursement Review Board (PRRB)). In accordance with the FY 2026 Hospital Wage Index Development Time Table posted on the CMS website at https://www.cms.gov/files/document/fy-2026-hospital-wage-index-development-time-table.pdf, the May appeals were required to be submitted to CMS [[Page 36839]] through an online submission process or through email. We refer readers to the FY 2026 Hospital Wage Index Development Time Table for complete details. Verified corrections to the wage index data received timely (that is, by May 30, 2025) by CMS and the MACs were incorporated into the final FY 2026 wage index, which will be effective October 1, 2025. We created the processes previously described to resolve all substantive wage index data correction disputes before we finalize the wage and occupational mix data for the FY 2026 payment rates. Accordingly, hospitals that do not meet the procedural deadlines set forth earlier will not be afforded a later opportunity to submit wage index data corrections or to dispute the MAC's decision with respect to requested changes. Specifically, our policy is that hospitals that do not meet the procedural deadlines as previously set forth (requiring requests to MACs by the specified date in February and, where such requests are unsuccessful, requests for intervention by CMS by the specified date in April) will not be permitted to challenge later, before the PRRB, the failure of CMS to make a requested data revision. We refer readers also to the FY 2000 IPPS final rule (64 FR 41513) for a discussion of the parameters for appeals to the PRRB for wage index data corrections. As finalized in the FY 2018 IPPS/LTCH PPS final rule (82 FR 38154 through 38156), this policy also applies to a hospital disputing corrections made by CMS that do not arise from a hospital's request for a wage index data revision. That is, a hospital disputing an adjustment made by CMS that did not arise from a hospital's request for a wage index data revision is required to request a correction by the first applicable deadline. Hospitals that do not meet the procedural deadlines set forth earlier will not be afforded a later opportunity to submit wage index data corrections or to dispute CMS' decision with respect to changes. Again, we believe the wage index data correction process described earlier provides hospitals with sufficient opportunity to bring errors in their wage and occupational mix data to the MAC's attention. Moreover, because hospitals had access to the final wage index data PUFs by late April 2025, they have an opportunity to detect any data entry or tabulation errors made by the MAC or CMS before the development and publication of the final FY 2026 wage index by August 2025, and the implementation of the FY 2026 wage index on October 1, 2025. Given these processes, the wage index implemented on October 1 should be accurate. Nevertheless, in the event that errors are identified by hospitals and brought to our attention after May 30, 2025, we retain the right to make midyear changes to the wage index under very limited circumstances. Specifically, in accordance with Sec. 412.64(k)(1) of our regulations, we make midyear corrections to the wage index for an area only if a hospital can show that: (1) The MAC or CMS made an error in tabulating its data; and (2) the requesting hospital could not have known about the error or did not have an opportunity to correct the error, before the beginning of the fiscal year. For purposes of this provision, ``before the beginning of the fiscal year'' means by the May deadline for making corrections to the wage data for the following fiscal year's wage index (for example, May 30, 2025, for the FY 2026 wage index). This provision is not available to a hospital seeking to revise another hospital's data that may be affecting the requesting hospital's wage index for the labor market area. As indicated earlier, because CMS makes the wage index data available to hospitals on the CMS website prior to publishing both the proposed and final IPPS rules, and the MACs notify hospitals directly of any wage index data changes after completing their desk reviews, we do not expect that midyear corrections will be necessary. However, under our current policy, if the correction of a data error changes the wage index value for an area, the revised wage index value will be effective prospectively from the date the correction is made. In the FY 2006 IPPS final rule (70 FR 47385 through 47387 and 47485), we revised Sec. 412.64(k)(2) to specify that, effective on October 1, 2005, that is, beginning with the FY 2006 wage index, a change to the wage index can be made retroactive to the beginning of the Federal fiscal year only when CMS determines all of the following: (1) The MAC or CMS made an error in tabulating data used for the wage index calculation; (2) the hospital knew about the error and requested that the MAC and CMS correct the error using the established process and within the established schedule for requesting corrections to the wage index data, before the beginning of the fiscal year for the applicable IPPS update (that is, by the May 30, 2025, deadline for the FY 2026 wage index); and (3) CMS agreed before October 1 that the MAC or CMS made an error in tabulating the hospital's wage index data and the wage index should be corrected. In those circumstances where a hospital requested a correction to its wage index data before CMS calculated the final wage index (that is, by the May 30, 2025 deadline for the FY 2026 wage index), and CMS acknowledges that the error in the hospital's wage index data was caused by CMS' or the MAC's mishandling of the data, we believe that the hospital should not be penalized by our delay in publishing or implementing the correction. As with our current policy, we indicated that the provision is not available to a hospital seeking to revise another hospital's data. In addition, the provision cannot be used to correct prior years' wage index data; it can only be used for the current Federal fiscal year. In situations where our policies would allow midyear corrections other than those specified in Sec. 412.64(k)(2)(ii), we continue to believe that it is appropriate to make prospective-only corrections to the wage index. We note that, as with prospective changes to the wage index, the final retroactive correction will be made irrespective of whether the change increases or decreases a hospital's payment rate. In addition, we note that the policy of retroactive adjustment will still apply in those instances where a final judicial decision reverses a CMS denial of a hospital's wage index data revision request. b. Process for Data Corrections by CMS After the January 31, 2025, Public Use File (PUF) The process set forth with the wage index timetable discussed in section III.C.4. of the preamble of this final rule allows hospitals to request corrections to their wage index data within prescribed timeframes. In addition to hospitals' opportunity to request corrections of wage index data errors or MACs' mishandling of data, CMS has the authority under section 1886(d)(3)(E) of the Act to make corrections to hospital wage index and occupational mix data to ensure the accuracy of the wage index. As we explained in the FY 2016 IPPS/ LTCH PPS final rule (80 FR 49490 through 49491) and the FY 2017 IPPS/ LTCH PPS final rule (81 FR 56914), section 1886(d)(3)(E) of the Act requires the Secretary to adjust the proportion of hospitals' costs attributable to wages and wage-related costs for area differences reflecting the relative hospital wage level in the geographic areas of the hospital compared to the national average hospital wage level. We believe that, under section 1886(d)(3)(E) of the Act, we have discretion to make corrections to hospitals' data to help [[Page 36840]] ensure that the costs attributable to wages and wage-related costs in fact accurately reflect the relative hospital wage level in the hospitals' geographic areas. We have an established multistep, 15-month process for the review and correction of the hospital wage data that is used to create the IPPS wage index for the upcoming fiscal year. Since the origin of the IPPS, the wage index has been subject to its own annual review process, first by the MACs, and then by CMS. As a standard practice, after each annual desk review, CMS reviews the results of the MACs' desk reviews and focuses on items flagged during the desk review, requiring that, if necessary, hospitals provide additional documentation, adjustments, or corrections to the data. This ongoing communication with hospitals about their wage data may result in the discovery by CMS of additional items that were reported incorrectly or other data errors, even after the posting of the January 31, 2025, PUF, and throughout the remainder of the wage index development process. In addition, the fact that CMS analyzes the data from a regional and even national level, unlike the review performed by the MACs that review a limited subset of hospitals, can facilitate additional editing of the data the need for which may not be readily apparent to the MACs. In these occasional instances, an error may be of sufficient magnitude that the wage index of an entire CBSA is affected. Accordingly, CMS uses its authority to ensure that the wage index accurately reflects the relative hospital wage level in the geographic area of the hospital compared to the national average hospital wage level, by continuing to make corrections to hospital wage data upon discovering incorrect wage data, distinct from instances in which hospitals request data revisions. We note that CMS corrects errors to hospital wage data as appropriate, regardless of whether that correction will raise or lower a hospital's average hourly wage. For example, as discussed in section III.C. of the preamble of the FY 2019 IPPS/LTCH PPS final rule (83 FR 41364), in situations where a hospital did not have documentable salaries, wages, and hours for housekeeping and dietary services, we imputed estimates, in accordance with policies established in the FY 2015 IPPS/LTCH PPS final rule (79 FR 49965 through 49967). Furthermore, if CMS discovers after conclusion of the desk review, for example, that a MAC inadvertently failed to incorporate positive adjustments resulting from a prior year's wage index appeal of a hospital's wage- related costs such as pension, CMS will correct that data error, and the hospital's average hourly wage will likely increase as a result. While we maintain CMS' authority to conduct additional review and make resulting corrections at any time during the wage index development process, in accordance with the policy finalized in the FY 2018 IPPS/LTCH PPS final rule (82 FR 38154 through 38156) and as first implemented with the FY 2019 wage index (83 FR 41389), hospitals are able to request further review of a correction made by CMS that did not arise from a hospital's request for a wage index data correction. Instances where CMS makes a correction to a hospital's data after the January 31, 2025, PUF based on a different understanding than the hospital about certain reported costs, for example, could potentially be resolved using this process before the final wage index is calculated. We believe this process and the timeline for requesting review of such corrections (as described earlier and in the FY 2018 IPPS/LTCH PPS final rule) promote additional transparency in instances where CMS makes data corrections after the January 31, 2025 PUF and provide opportunities for hospitals to request further review of CMS changes in time for the most accurate data to be reflected in the final wage index calculations. These additional appeals opportunities are described earlier and in the FY 2026 Hospital Wage Index Development Time Table, as well as in the FY 2018 IPPS/LTCH PPS final rule (82 FR 38154 through 38156).

C. Method for Computing the FY 2026 Unadjusted Wage Index

The method used to compute the FY 2026 wage index without an occupational mix adjustment follows the same methodology that we used to compute the wage indexes without an occupational mix adjustment in the FY 2021 IPPS/LTCH PPS final rule (see 85 FR 58758 through 58761), and we did not propose any changes to this methodology. We have restated our methodology in this section the preamble of this final rule. Step 1.--We gathered data from each of the non-Federal, short-term, acute care hospitals for which data were reported on the Worksheet S-3, Parts II and III of the Medicare cost report for the hospital's cost reporting period relevant to the wage index (in this case, for FY 2026, these were data from cost reports for cost reporting periods beginning on or after October 1, 2021, and before October 1, 2022). In addition, we included data from hospitals that had cost reporting periods beginning prior to the October 1, 2021, begin date and extending into FY 2022 but that did not have any cost report with a begin date on or after October 1, 2021, and before October 1, 2022. We include this data because no other data from these hospitals will be available for the cost reporting period as previously described, and because particular labor market areas might be affected due to the omission of these hospitals. However, we generally describe these wage data as data applicable to the fiscal year wage data being used to compute the wage index for those hospitals. We note that, if a hospital had more than one cost reporting period beginning during FY 2022 (for example, a hospital had two short cost reporting periods beginning on or after October 1, 2021, and before October 1, 2022), we include wage data from only one of the cost reporting periods, the longer, in the wage index calculation. If there was more than one cost reporting period and the periods were equal in length, we included the wage data from the later period in the wage index calculation. Step 2.--Salaries.--The method used to compute a hospital's average hourly wage excludes certain costs that are not paid under the IPPS. (We note that, beginning with FY 2008 (72 FR 47315), we included what were then Lines 22.01, 26.01, and 27.01 of Worksheet S-3, Part II of CMS Form 2552-96 for overhead services in the wage index. Currently, these lines are lines 28, 33, and 35 on CMS Form 2552-10. However, we note that the wages and hours on these lines are not incorporated into Line 101, Column 1 of Worksheet A, which, through the electronic cost reporting software, flows directly to Line 1 of Worksheet S-3, Part II. Therefore, the first step in the wage index calculation is to compute a ``revised'' Line 1, by adding to the Line 1 on Worksheet S-3, Part II (for wages and hours respectively) the amounts on Lines 28, 33, and 35.) In calculating a hospital's Net Salaries (we note that we previously used the term ``average'' salaries in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51592), but we now use the term ``net'' salaries) plus wage-related costs, we first compute the following: Subtract from Line 1 (total salaries) the GME and CRNA costs reported on CMS Form 2552-10, Lines 2, 4.01, 7, and 7.01, the Part B salaries reported on Lines 3, 5 and 6, home office salaries reported on Line 8, and exclude salaries reported on Lines 9 and 10 (that is, direct salaries attributable to SNF services, home health services, and other subprovider components not subject to the IPPS). We also subtract [[Page 36841]] from Line 1 the salaries for which no hours were reported. Therefore, the formula for Net Salaries (from Worksheet S-3, Part II) is the following: ((Line 1 + Line 28 + Line 33 + Line 35)-(Line 2 + Line 3 + Line 4.01 + Line 5 + Line 6 + Line 7 + Line 7.01 + Line 8 + Line 9 + Line 10)). To determine Total Salaries plus Wage-Related Costs, we add to the Net Salaries the costs of contract labor for direct patient care, certain top management, pharmacy, laboratory, and nonteaching physician Part A services (Lines 11, 12 and 13), home office salaries and wage- related costs reported by the hospital on Lines 14.01, 14.02, and 15, and nonexcluded area wage-related costs (Lines 17, 22, 25.50, 25.51, and 25.52). We note that contract labor and home office salaries for which no corresponding hours are reported are not included. In addition, wage-related costs for nonteaching physician Part A employees (Line 22) are excluded if no corresponding salaries are reported for those employees on Line 4. The formula for Total Salaries plus Wage- Related Costs (from Worksheet S-3, Part II) is the following: ((Line 1 + Line 28 + Line 33 + Line 35)-(Line 2 + Line 3 + Line 4.01 + Line 5 + Line 6 + Line 7 + Line 7.01 + Line 8 + Line 9 + Line 10)) + (Line 11 + Line 12 + Line 13 + Line 14.01 + 14.02 + Line 15) + (Line 17 + Line 22 + 25.50 + 25.51 + 25.52). Step 3.--Hours.--With the exception of wage-related costs, for which there are no associated hours, we compute total hours using the same methods as described for salaries in Step 2. The formula for Total Hours (from Worksheet S-3, Part II) is the following: ((Line 1 + Line 28 + Line 33 + Line 35)-(Line 2 + Line 3 + Line 4.01 + Line 5 + Line 6 + Line 7 + Line 7.01 + Line 8 + Line 9 + Line 10)) + (Line 11 + Line 12 + Line 13 + Line 14.01 + 14.02 + Line 15). Step 4.--For each hospital reporting both total overhead salaries and total overhead hours greater than zero, we then allocate overhead costs to areas of the hospital excluded from the wage index calculation. First, we determine the ``excluded rate'', which is the ratio of excluded area hours to Revised Total Hours (from Worksheet S- 3, Part II) with the following formula: (Line 9 + Line 10)/(Line 1 + Line 28 + Line 33 + Line 35)-(Lines 2, 3, 4.01, 5, 6, 7, 7.01, and 8 and Lines 26 through 43). We then compute the amounts of overhead salaries and hours to be allocated to the excluded areas by multiplying the previously discussed ratio by the total overhead salaries and hours reported on Lines 26 through 43 of Worksheet S-3, Part II. Next, we compute the amounts of overhead wage-related costs to be allocated to the excluded areas using three steps: We determine the ``overhead rate'' (from Worksheet S-3, Part II), which is the ratio of overhead hours (Lines 26 through 43 minus the sum of Lines 28, 33, and 35) to revised hours excluding the sum of lines 28, 33, and 35 (Line 1 minus the sum of Lines 2, 3, 4.01, 5, 6, 7, 7.01, 8, 9, 10, 28, 33, and 35). We note that, for the FY 2008 and subsequent wage index calculations, we have been excluding the overhead contract labor (Lines 28, 33, and 35) from the determination of the ratio of overhead hours to revised hours because hospitals typically do not provide fringe benefits (wage-related costs) to contract personnel. Therefore, it is not necessary for the wage index calculation to exclude overhead wage-related costs for contract personnel. Further, if a hospital does contribute to wage-related costs for contracted personnel, the instructions for Lines 28, 33, and 35 require that associated wage-related costs be combined with wages on the respective contract labor lines. The formula for the Overhead Rate (from Worksheet S-3, Part II) is the following: (Lines 26 through 43-- Lines 28, 33 and 35)/((((Line 1 + Lines 28, 33, 35)-(Lines 2, 3, 4.01, 5, 6, 7, 7.01, 8, and 26 through 43))-(Lines 9 and 10)) + (Lines 26 through 43-Lines 28, 33, and 35)). We compute overhead wage-related costs by multiplying the overhead hours ratio by wage-related costs reported on Part II, Lines 17, 22, 25.50, 25.51, and 25.52. We multiply the computed overhead wage-related costs by the previously described excluded area hours ratio. Finally, we subtract the computed overhead salaries, wage-related costs, and hours associated with excluded areas from the total salaries (plus wage-related costs) and hours derived in Steps 2 and 3. Step 5.--For each hospital, we adjust the total salaries plus wage- related costs to a common period to determine total adjusted salaries plus wage-related costs. To make the wage adjustment, we estimate the percentage change in the employment cost index (ECI) for compensation for each 30-day increment from October 14, 2021, through April 15, 2023, for private industry hospital workers from data obtained from the Bureau of Labor Statistics' (BLS') Office of Compensation and Working Conditions. We use the ECI because it reflects the price increase associated with total compensation (salaries plus fringe benefits) rather than just the increase in salaries. In addition, the ECI includes managers as well as other hospital workers. This methodology to compute the monthly update factors uses actual quarterly ECI data and assures that the update factors match the actual quarterly and annual percent changes. We also note that, since April 2006 with the publication of March 2006 data, the BLS' ECI uses a different classification system, the North American Industrial Classification System (NAICS), instead of the Standard Industrial Codes (SICs), which no longer exist. We have consistently used the ECI as the data source for our wages and salaries and other price proxies in the IPPS market basket, and we did not propose to make any changes to the usage of the ECI for FY 2026. The factors used to adjust the hospital's data are based on the midpoint of the cost reporting period, as indicated in this final rule. Step 6.--Each hospital is assigned to its appropriate urban or rural labor market area before any reclassifications under section 1886(d)(8)(B), 1886(d)(8)(E), or 1886(d)(10) of the Act. Within each urban or rural labor market area, we add the total adjusted salaries plus wage-related costs obtained in Step 5 for all hospitals in that area to determine the total adjusted salaries plus wage-related costs for the labor market area. Step 7.--We divide the total adjusted salaries plus wage-related costs obtained under Step 6 by the sum of the corresponding total hours (from Step 4) for all hospitals in each labor market area to determine an average hourly wage for the area. Step 8.--We add the total adjusted salaries plus wage-related costs obtained in Step 5 for all hospitals in the Nation and then divide the sum by the national sum of total hours from Step 4 to arrive at a national average hourly wage. Step 9.--For each urban or rural labor market area, we calculate the hospital wage index value, unadjusted for occupational mix, by dividing the area average hourly wage obtained in Step 7 by the national average hourly wage computed in Step 8. Step 10.--For each urban labor market area for which we do not have any hospital wage data (either because there are no IPPS hospitals in that labor market area, or there are IPPS hospitals in that area but their data are either too new to be reflected in the current year's wage index calculation, or their data are aberrant and are deleted from the wage index), we finalized in the FY 2020 IPPS/LTCH PPS final rule (84 FR 42305) that, for FY 2020 and subsequent years' wage index calculations, such CBSAs' wage index will be equal to total urban [[Page 36842]] salaries plus wage-related costs (from Step 5) in the State, divided by the total urban hours (from Step 4) in the State, divided by the national average hourly wage from Step 8 (see 84 FR 42305 and 42306). We believe that, in the absence of wage data for an urban labor market area, it is reasonable to use a statewide urban average, which is based on actual, acceptable wage data of hospitals in that State, rather than impute some other type of value using a different methodology. For calculation of the FY 2026 wage index, we note there is one urban CBSA for which we do not have IPPS hospital wage data. In Table 3 (which is available via the internet on the CMS website and contains the area wage indexes), we include a footnote to indicate to which CBSA this policy applies. This CBSA's wage index is calculated as described, based on the FY 2020 IPPS/LTCH PPS final rule methodology (84 FR 42305). Under this step, we also apply our policy with regard to how dollar amounts, hours, and other numerical values in the wage index calculations are rounded. We refer readers to section II. of Appendix B of this final rule for the policy regarding rural areas that do not have IPPS hospitals. Step 11.--Section 4410 of Public Law 105-33 provides that, for discharges on or after October 1, 1997, the area wage index applicable to any hospital that is located in an urban area of a State may not be less than the area wage index applicable to hospitals located in rural areas in that State. The areas affected by this provision are identified in Table 2 listed in section VI. of the Addendum to this final rule and available via the internet on the CMS website. The following is our policy with regard to rounding of the wage data (dollar amounts, hours, and other numerical values) in the calculation of the unadjusted and adjusted wage index, as finalized in the FY 2020 IPPS/LTCH final rule (84 FR 42306). For data that we consider to be ``raw data,'' such as the cost report data on Worksheets S-3, Parts II and III, and the occupational mix survey data, we use such data ``as is,'' and do not round any of the individual line items or fields. However, for any dollar amounts within the wage index calculations, including any type of summed wage amount, average hourly wages, and the national average hourly wage (both the unadjusted and adjusted for occupational mix), we round the dollar amounts to 2 decimals. For any hour amounts within the wage index calculations, we round such hour amounts to the nearest whole number. For any numbers not expressed as dollars or hours within the wage index calculations, which could include ratios, percentages, or inflation factors, we round such numbers to 5 decimals. However, we continue rounding the actual unadjusted and adjusted wage indexes to 4 decimals, as we have done historically. As discussed in the FY 2012 IPPS/LTCH PPS final rule, in ``Step 5,'' for each hospital, we adjust the total salaries plus wage-related costs to a common period to determine total adjusted salaries plus wage-related costs. To make the wage adjustment, we estimate the percentage change in the ECI for compensation for each 30-day increment from October 14, 2021, through April 15, 2023, for private industry hospital workers from the BLS' Office of Compensation and Working Conditions data. We have consistently used the ECI as the data source for our wages and salaries and other price proxies in the IPPS market basket, and we did not propose any changes to the usage of the ECI for FY 2026. The factors used to adjust the hospital's data were based on the midpoint of the cost reporting period, as indicated in the following table. [GRAPHIC] [TIFF OMITTED] TR04AU25.222 For example, the midpoint of a cost reporting period beginning January 1, 2022, and ending December 31, 2022, is June 30, 2022. An adjustment factor of 1.03412 was applied to the wages of a [[Page 36843]] hospital with such a cost reporting period. Previously, we also would provide a Puerto Rico overall average hourly wage. As discussed in the FY 2017 IPPS/LTCH PPS final rule (81 FR 56915), prior to January 1, 2016, Puerto Rico hospitals were paid based on 75 percent of the national standardized amount and 25 percent of the Puerto Rico-specific standardized amount. As a result, we calculated a Puerto Rico specific wage index that was applied to the labor-related share of the Puerto Rico-specific standardized amount. Section 601 of Division O, Title VI (section 601) of the Consolidated Appropriations Act, 2016 (Pub. L. 114-113) amended section 1886(d)(9)(E) of the Act to specify that the payment calculation with respect to operating costs of inpatient hospital services of a subsection (d) Puerto Rico hospital for inpatient hospital discharges on or after January 1, 2016, shall use 100 percent of the national standardized amount. As we stated in the FY 2017 IPPS/LTCH PPS final rule (81 FR 56915 through 56916), because Puerto Rico hospitals are no longer paid with a Puerto Rico specific standardized amount as of January 1, 2016, under section 1886(d)(9)(E) of the Act, as amended by section 601 of the Consolidated Appropriations Act, 2016, there is no longer a need to calculate a Puerto Rico specific average hourly wage and wage index. Hospitals in Puerto Rico are now paid 100 percent of the national standardized amount and, therefore, are subject to the national average hourly wage (unadjusted for occupational mix) and the national wage index, which is applied to the national labor-related share of the national standardized amount. Therefore, for FY 2026, there is no Puerto Rico-specific overall average hourly wage or wage index. Based on the previously described methodology, the final FY 2026 unadjusted national average hourly wage is the following: Final FY 2026 Unadjusted Average Hourly Wage: $57.92

D. Occupational Mix Adjustment to the FY 2026 Wage Index

As stated earlier, section 1886(d)(3)(E) of the Act provides for the collection of data every 3 years on the occupational mix of employees for each short-term, acute care hospital participating in the Medicare program, to construct an occupational mix adjustment to the wage index, for application beginning October 1, 2004 (the FY 2005 wage index). The purpose of the occupational mix adjustment is to control for the effect of hospitals' employment choices on the wage index. For example, hospitals may choose to employ different combinations of registered nurses, licensed practical nurses, nursing aides, and medical assistants for the purpose of providing nursing care to their patients. The varying labor costs associated with these choices reflect hospital management decisions rather than geographic differences in the costs of labor.

1. Use of 2022 Medicare Wage Index Occupational Mix Survey for the FY

2026 Wage Index Section 304(c) of Appendix F, Title III of the Consolidated Appropriations Act, 2001 (Pub. L. 106-554) amended section 1886(d)(3)(E) of the Act to require CMS to collect data every 3 years on the occupational mix of employees for each short-term, acute care hospital participating in the Medicare program and to measure the earnings and paid hours of employment for such hospitals by occupational category. As discussed in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69275 through 69278), we collected data in 2022 to compute the occupational mix adjustment for the FY 2025, FY 2026, and FY 2027 wage indexes. The FY 2026 occupational mix adjustment is based on a calendar year (CY) 2022 survey. Hospitals were required to submit their completed 2022 surveys (Form CMS-10079, OMB Control Number 0938-0907, expiration date January 31, 2026) to their MACs by July 1, 2023. The preliminary, unaudited CY 2022 survey data were posted on the CMS website on July 12, 2023. As with the Worksheet S-3, Parts II and III cost report wage data, as part of the FY 2026 desk review process, the MACs revised or verified data elements in hospitals' occupational mix surveys that resulted in certain edit failures.

2. Calculation of the Occupational Mix Adjustment for FY 2026

For FY 2026, we proposed to calculate the occupational mix adjustment factor using the same methodology that we have used since the FY 2012 wage index (76 FR 51582 through 51586) and to apply the occupational mix adjustment to 100 percent of the FY 2026 wage index. In the FY 2020 IPPS/LTCH PPS final rule (84 FR 42308), we modified our methodology with regard to how dollar amounts, hours, and other numerical values in the unadjusted and adjusted wage index calculation are rounded, to ensure consistency in the calculation. According to the policy finalized in the FY 2020 IPPS/LTCH PPS final rule (84 FR 42308 and 42309), for data that we consider to be ``raw data,'' such as the cost report data on Worksheets S-3, Parts II and III, and the occupational mix survey data, we continue to use these data ``as is'', and not round any of the individual line items or fields. However, for any dollar amounts within the wage index calculations, including any type of summed wage amount, average hourly wages, and the national average hourly wage (both the unadjusted and adjusted for occupational mix), we round such dollar amounts to 2 decimals. We round any hour amounts within the wage index calculations to the nearest whole number. We round any numbers not expressed as dollars or hours in the wage index calculations, which could include ratios, percentages, or inflation factors, to 5 decimals. However, we continue rounding the actual unadjusted and adjusted wage indexes to 4 decimals, as we have done historically. Similar to the method we use for the calculation of the wage index without occupational mix, salaries and hours for a multicampus hospital are allotted among the different labor market areas where its campuses are located. Table 2 associated with this final rule (which is available via the internet on the CMS website), which contains the final FY 2026 occupational mix adjusted wage index, includes separate wage data for the campuses of multicampus hospitals. We refer readers to section III.C. of the preamble of this final rule for a chart listing the multicampus hospitals and the FTE percentages used to allot their occupational mix data. Because the statute requires that the Secretary measure the earnings and paid hours of employment by occupational category not less than once every 3 years, all hospitals that are subject to payments under the IPPS, or any hospital that would be subject to the IPPS if not granted a waiver, must complete the occupational mix survey, unless the hospital has no associated cost report wage data that are included in the proposed FY 2026 wage index. For the proposed FY 2026 wage index, we used the Worksheet S-3, Parts II and III wage data of 3,029 hospitals, and we used the occupational mix surveys of 2,945 hospitals for which we also had Worksheet S-3 wage data, which represented a ``response'' rate of 97 percent (2,945/3,029). For the proposed FY 2026 wage index, we applied proxy data for noncompliant hospitals, new hospitals, or hospitals that submitted erroneous or aberrant data in the same manner that we applied proxy data for such hospitals in the FY 2012 wage index occupational mix adjustment (76 FR 51586). As a result of applying this [[Page 36844]] methodology, the proposed FY 2026 occupational mix adjusted national average hourly wage was $57.63. We did not receive any comments on our proposed calculation of the occupational mix adjustment to the FY 2026 wage index. Thus, for the reasons discussed in this final rule and in the FY 2026 IPPS/LTCH PPS proposed rule, we are finalizing our proposal without modification to calculate the occupational mix adjustment factor using the same methodology that we have used since the FY 2012 wage index and to apply the occupational mix adjustment to 100 percent of the FY 2026 wage index. For the final FY 2026 wage index, we are using the Worksheet S-3, Parts II and III wage data of 3,036 hospitals, and we are using the occupational mix surveys of 2,952 hospitals for which we also had Worksheet S-3 wage data, which represented a ``response'' rate of 97 percent (2,952/3,036). For the final FY 2026 wage index, we are applying proxy data for noncompliant hospitals, new hospitals, or hospitals that submitted erroneous or aberrant data in the same manner that we applied proxy data for such hospitals in the FY 2012 wage index occupational mix adjustment (76 FR 51586). As a result of applying this methodology, the final FY 2026 occupational mix adjusted national average hourly wage is the following: Final FY 2026 Occupational Mix Adjusted National Average Hourly Wage: $57.86

3. Occupational Mix Adjustment and the FY 2026 Occupational Mix

Adjusted Wage Index As discussed in section III.E. of the preamble of this final rule, for FY 2026, we are applying the occupational mix adjustment to 100 percent of the FY 2026 wage index. We calculated the occupational mix adjustment using data from the 2022 occupational mix survey, using the methodology described in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51582-51586). Based on the 2022 occupational mix survey data, the FY 2026 national average hourly wages for each occupational mix nursing subcategory as calculated in Step 2 of the occupational mix calculation are as follows: [GRAPHIC] [TIFF OMITTED] TR04AU25.223 The national average hourly wage for the entire nurse category is computed in Step 5 of the occupational mix calculation. Hospitals with a nurse category average hourly wage (as calculated in Step 4) of greater than the national nurse category average hourly wage receive an occupational mix adjustment factor (as calculated in Step 6) of less than 1.0. Hospitals with a nurse category average hourly wage (as calculated in Step 4) of less than the national nurse category average hourly wage receive an occupational mix adjustment factor (as calculated in Step 6) of greater than 1.0. Based on the 2022 occupational mix survey data, we determined (in Step 7 of the occupational mix calculation) the following: National Percentage of Hospital Employees in the Nurse Category: 45% National Percentage of Hospital Employees in the All Other Occupations Category: 55%

E. Hospital Redesignations and Reclassifications

The following sections III.E.1 through III.E.4 discuss revisions to the wage index based on hospital redesignations and reclassifications. Specifically, hospitals may have their geographic area changed for wage index payment by applying for urban to rural reclassification under section 1886(d)(8)(E) of the Act (implemented at Sec. 412.103), reclassification by the Medicare Geographic Classification Review Board (MGCRB) under section 1886(d)(10) of the Act, Lugar status redesignations under section 1886(d)(8)(B) of the Act, or a combination of the foregoing.

1. Urban to Rural Reclassification Under Section 1886(d)(8)(E) of the

Act, Implemented at Sec. 412.103 Under section 1886(d)(8)(E) of the Act, a qualifying prospective payment hospital located in an urban area may apply for rural status for payment purposes separate from reclassification through the MGCRB. Specifically, section 1886(d)(8)(E) of the Act provides that, not later than 60 days after the receipt of an application (in a form and manner determined by the Secretary) from a subsection (d) hospital that satisfies certain criteria, the Secretary shall treat the hospital as being located in the rural area (as defined in paragraph (2)(D)) of the State in which the hospital is located. We refer readers to the regulations at Sec. 412.103 for the general criteria and application requirements for a subsection (d) hospital to reclassify from urban to rural status in accordance with section 1886(d)(8)(E) of the Act (such hospitals are referred to herein as ``Sec. 412.103 hospitals''). The FY 2012 IPPS/LTCH PPS final rule (76 FR 51595 through 51596) includes our policies regarding the effect of wage data from reclassified or redesignated hospitals. We refer readers to the FY 2024 IPPS/LTCH final rule (88 FR 58971 through 58977) for a review of our policy finalized in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49004) to calculate the rural floor with the wage data of urban hospitals reclassifying to rural areas under Sec. 412.103, and discussion of our modification to the calculation of the rural wage index and its implications for the rural floor. In the FY 2019 IPPS/LTCH PPS final rule (83 FR 41369 through 41374), we codified certain policies regarding multicampus hospitals in the regulations at Sec. Sec. 412.92, 412.96, 412.103, and 412.108. We stated that reclassifications from urban to rural under Sec. 412.103 apply to the entire hospital (that is, the main campus and its remote location(s)). We also stated that a main campus of a hospital cannot obtain Sole Community Hospital (SCH), Rural Referral Center (RRC), or Medicare Dependent Hospital (MDH) status, or rural reclassification under Sec. 412.103, independently or separately from its remote location(s), and vice versa. In the [[Page 36845]] FY 2023 IPPS/LTCH PPS final rule (87 FR 49012 and 49013), we added Sec. 412.103(a)(8) to clarify that for a multicampus hospital, approved rural reclassification status applies to the main campus and any remote location located in an urban area, including a main campus or any remote location deemed urban under section 1886(d)(8)(B) of the Act. If a remote location of a hospital is located in a different CBSA than the main campus of the hospital, it is CMS' longstanding policy to assign that remote location a wage index based on its own geographic area to comply with the statutory requirement to adjust for geographic differences in hospital wage levels (section 1886(d)(3)(E) of the Act). Hospitals are required to identify and allocate wages and hours based on FTEs for remote locations located in different CBSAs on Worksheet S- 2, Part I, Lines 165 and 166 of form CMS-2552-10. In calculating wage index values, CMS identifies the allocated wage data for these remote locations in Table 2 with a ``B'' in the 3rd position of the CCN. These remote locations of hospitals with Sec. 412.103 rural reclassification status in a different CBSA are identified in Table 2, and hospitals should evaluate potential wage index outcomes for their remote location(s) when withdrawing or terminating MGCRB reclassification, or canceling Sec. 412.103 rural reclassification status. We also note that in the FY 2025 IPPS/LTCH PPS Final Rule (89 FR 69279 through 69280), we reminded hospitals located in rural areas becoming urban under the adoption of the revised OMB delineations in FY 2025 that if they have SCH, MDH, or RRC status, they may choose to apply for a Sec. 412.103 urban to rural reclassification if qualifying criteria are met to maintain the SCH, MDH, or RRC status. We advised hospitals to evaluate their options and if desired, apply for Sec. 412.103 urban to rural reclassification before the beginning of FY 2025, to avoid a lapse in SCH, MDH, or RRC status at the beginning of FY 2025. We note that the ``Am I Rural'' tool currently available on the Rural Health Information Hub\138\ website at https://www.ruralhealthinfo.org/am-i-rural was updated on November 21, 2024, based on data provided by the Federal Office of Rural Health Policy which is available at https://www.hrsa.gov/rural-health/about-us/what-is-rural/data-files. As discussed at Sec. 412.103(f), the duration of an approved rural reclassification remains in effect without need for reapproval unless there is a change in the circumstances under which the classification was approved. If a hospital located in an urban area was approved for a rural reclassification under Sec. 412.103(a)(1), that reclassification will no longer be valid if the hospital is no longer located within a rural census tract of an MSA as determined by the Federal Office of Rural Health Policy (FORHP) of the Health Resources and Services Administration (HRSA). Therefore, we encourage all hospitals and CAHs with active rural reclassifications under section 1886(d)(8)(E) of the Act to review their original reclassification application and determine whether the reclassification status will still apply. --------------------------------------------------------------------------- \138\ The Rural Health Information Hub is supported by the Health Resources and Services Administration (HRSA) of HHS under Grant Number U56RH05539 (Rural Assistance Center for Federal Office of Rural Health Policy Cooperative Agreement). Any information, content, or conclusions on this website are those of the authors and should not be construed as the official position or policy of, nor should any endorsements be inferred by HRSA, HHS or the U.S. Government. --------------------------------------------------------------------------- Finally, in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69280), CMS finalized a policy regarding terminated or ``tied-out'' hospitals, to address our concerns regarding the impacts these hospitals would have on rural wage index values. Specifically, we finalized a policy that Sec. 412.103 reclassifications would be considered cancelled for the purposes of calculating the area wage index for any hospital with a CCN listed as terminated or ``tied-out'' as of the date that the hospital ceased to operate with an active CCN. We stated that we will obtain and review the best available CCN termination status lists as of the Sec. 412.103(b)(6) ``lock-in'' date (60 days after the proposed rule for the FY is displayed in the Federal Register), consistent with the wage index development timeline. The lock-in date is used to determine whether a hospital has been approved for Sec. 412.103 reclassification in time for that status to be included in the upcoming year's wage index development. We noted that our policy to consider Sec. 412.103 reclassifications cancelled for the purposes of calculating area wage index for any hospital with a CCN listed as terminated or ``tied-out'' is not intended to alter or affect the qualification for Critical Access Hospital (CAH), Sole Community Hospital (SCH), or Rural Emergency Hospital (REH) statuses or to have other effects unrelated to hospital wage index calculations. The rural reclassification status will remain in effect for any period that the original PPS hospital remains in operation with an active CCN. For REH qualification requirement purposes, this will include the date of enactment of the Consolidated Appropriations Act, 2021 (Pub. L. 116-260), which was December 27, 2020.

2. General Policies and Effects of MGCRB Reclassification and Treatment

of Dual Reclassified Hospitals Under section 1886(d)(10) of the Act, the MGCRB considers applications by hospitals for geographic reclassification for purposes of payment under the IPPS. Hospitals must apply to the MGCRB to reclassify not later than 13 months prior to the start of the fiscal year for which reclassification is sought (usually by September 1). Generally, hospitals must be proximate to the labor market area to which they are seeking reclassification and must demonstrate characteristics similar to hospitals located in that area. The MGCRB issues its decisions not later than the end of February for reclassifications that become effective for the following fiscal year (beginning October 1). The regulations applicable to reclassifications by the MGCRB are located in Sec. Sec. 412.230 through 412.280. (We refer readers to a discussion in the FY 2002 IPPS final rule (66 FR 39874 and 39875) regarding how the MGCRB defines mileage for purposes of the proximity requirements.) The general policies for reclassifications and redesignations and the policies for the effects of hospitals' reclassifications and redesignations on the wage index are discussed in the FY 2012 IPPS/LTCH PPS final rule for the FY 2012 final wage index (76 FR 51595 and 51596). In addition, in the FY 2012 IPPS/LTCH PPS final rule, we discussed the effects on the wage index of urban hospitals reclassifying to rural areas under Sec. 412.103. In the FY 2020 IPPS/LTCH PPS final rule (84 FR 42332 through 42336), we finalized a policy to exclude the wage data of urban hospitals reclassifying to rural areas under Sec. 412.103 from the calculation of the rural floor, but we reverted to the pre-FY 2020 policy in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49002 through 49004). Hospitals that are geographically located in States without any rural areas are ineligible to apply for rural reclassification in accordance with the provisions of Sec. 412.103. On April 21, 2016, we published an interim final rule with comment period (IFC) in the Federal Register (81 FR 23428 through 23438) that included provisions amending our regulations to allow hospitals nationwide to have simultaneous Sec. 412.103 urban to rural and MGCRB reclassifications. Prior to this amendment to the regulations, hospitals had to choose between a Sec. 412.103 urban to rural reclassification which confers other rural benefits [[Page 36846]] (Medicare provisions such as payments to disproportionate share hospitals (DSHs), and non-Medicare payment provisions, such as the 340B Drug Pricing Program administered by HRSA) besides the wage index under section 1886(d) of the Act or a reclassification under the MGCRB to solely increase its wage index. Under the amended regulations, a hospital that has an active MGCRB reclassification and is then approved for an urban to rural reclassification under Sec. 412.103 will not lose its MGCRB reclassification. Additionally, a hospital is no longer required to cancel its Sec. 412.103 reclassification in order to be approved for an MGCRB reclassification. By amending the regulations and allowing a hospital to pursue reclassification under the MGCRB while also maintaining a rural reclassification under Sec. 412.103, hospitals are accorded the benefits of a Sec. 412.103 urban to rural reclassification and the ability to use distance and average hourly wage criteria designated for rural hospitals to obtain a higher wage index value through an MGCRB reclassification. We note, for wage index calculation and payment purposes, when there is both a Sec. 412.103 reclassification and an MGCRB reclassification, the MGCRB reclassification controls for wage index calculation and payment purposes. Prior to FY 2024, we excluded hospitals with Sec. 412.103 urban to rural redesignations from the calculation of the reclassified rural wage index if they also have an active MGCRB reclassification to another area. That is, if an application for urban reclassification through the MGCRB is approved and is not withdrawn or terminated by the hospital within the established timelines, we considered the hospital's geographic CBSA and the urban CBSA to which the hospital is reclassified under the MGCRB for the wage index calculation. We refer readers to the April 21, 2016, IFC (81 FR 23428 through 23438) and the FY 2017 IPPS/LTCH PPS final rule (81 FR 56922 through 56930), in which we finalized the April 21, 2016, IFC, for a full discussion of the effect of simultaneous reclassifications under both the Sec. 412.103 and the MGCRB processes on wage index calculations. For FY 2024 and subsequent years, we refer readers to the FY 2024 IPPS/LTCH PPS final rule for discussion of our policy to include hospitals with a Sec. 412.103 reclassification that also have an active MGCRB reclassification to another area in the calculation of the reclassified rural wage index (88 FR 58971 through 58977).

3. MGCRB Reclassification Issues for FY 2026

a. FY 2026 Reclassification Application Requirements and Approvals As previously stated, under section 1886(d)(10) of the Act, the MGCRB considers applications by hospitals for geographic reclassification for purposes of payment under the IPPS. The specific procedures and rules that apply to the geographic reclassification process are outlined in regulations under 42 CFR 412.230 through 412.280. There are 465 hospitals approved for wage index reclassifications by the MGCRB starting in FY 2026. Because MGCRB wage index reclassifications are effective for 3 years, for FY 2026, hospitals reclassified beginning in FY 2024 or FY 2025 are eligible to continue to be reclassified to a particular labor market area based on such prior reclassifications for the remainder of their 3-year period. There were 309 hospitals approved for wage index reclassifications in FY 2024 that will continue for FY 2026, and 335 hospitals approved for wage index reclassifications in FY 2025 that will continue for FY 2026. Of all the hospitals approved for reclassification for FY 2024, FY 2025, and FY 2026, 1,109 hospitals (approximately 30 percent of IPPS hospitals) are in a MGCRB reclassification status for FY 2026 (with 258 of these hospitals reclassified back to their urban geographic location). We noted in the proposed rule that several hospitals approved for MGCRB reclassifications may opt to withdraw this status after the proposed rule,\139\ and in some cases prior year reclassification would become effective in its place. There are 88 fewer hospitals in MGCRB reclassification status in this final rule than in the proposed rule due to withdrawals and terminations of MGCRB status. We refer readers to section III.F.3.b. of the preamble of this final rule for information on the effects of implementation of new OMB labor market area delineations on reclassified hospitals. --------------------------------------------------------------------------- \139\ We note that in the FY 2026 IPPS/LTCH PPS proposed rule (82 FR 18228), we inadvertently stated that hospitals approved for MGCRB reclassifications beginning in FY 2026 may opt to withdraw this status after the final rule. This was an error, and the correct statement should have read ``after the proposed rule''. --------------------------------------------------------------------------- Under the regulations at Sec. 412.273, hospitals that have been reclassified by the MGCRB are permitted to withdraw their applications if the request for withdrawal is received by the MGCRB any time before the MGCRB issues a decision on the application, or after the MGCRB issues a decision, provided the request for withdrawal is received by the MGCRB within 45 days of the date of filing for public inspection of the proposed rule at the website of the Office of the Federal Register, or within 7 calendar days of receiving a decision of the Administrator's in accordance with Sec. 412.273, whichever is later. For information about the current process for withdrawing, terminating, or canceling a previous withdrawal or termination of a 3- year reclassification for wage index purposes, we refer readers to Sec. 412.273, as well as section III.E.3.b. of the preamble of this final rule, and the FY 2002 IPPS final rule (66 FR 39887 through 39888) and the FY 2003 IPPS final rule (67 FR 50065 through 50066). Additional discussion on withdrawals and terminations was included in the FY 2008 IPPS final rule (72 FR 47333) and the FY 2018 IPPS/LTCH PPS final rule (82 FR 38148 through 38150). Applications for FY 2027 reclassifications are due to the MGCRB by September 2, 2025 (Note: While the deadline for reclassification applications is not later than 13 months prior to the start of the fiscal year for which reclassification is sought, usually by September 1, the Board has historically allowed submission up to the first business day in September, which is September 2, 2025, due to Labor Day). This is also the current deadline for canceling a previous wage index reclassification withdrawal or termination under Sec. 412.273(d) for the FY 2026 cycle. Applications and other information about MGCRB reclassifications may be obtained beginning in mid-July 2025 via the internet on the CMS website at https://www.cms.gov/medicare/regulations-guidance/geographic-classification-review-board. This collection of information was previously approved under OMB Control Number 0938-0573, which expired on January 31, 2021. A reinstatement of this PRA package is currently being developed. The public will have an opportunity to review and submit comments regarding the reinstatement of this PRA package through a public notice and comment period separate from this rulemaking. Comment: A commenter stated that the MGCRB decisions for FY 2026 were rendered earlier than in the past, which prevented hospitals from submitting rural or rural referral center (RRC) approval letters prior to the MGCRB's decision. The commenter stated that while the Administrator reversed the MGCRB ruling on appeal, it did not do so in time for the approved reclassification to be reflected in the proposed rule datasets. Therefore, the [[Page 36847]] commenter contended that the FY 2026 proposed rule included inaccurate or incomplete information that hospitals relied upon for withdrawal decisions. Consequently, the commenter requested that CMS allow hospitals a 15-day window following the release of the final rule to withdraw MGCRB reclassification requests without penalty after reassessing their decisions using the corrected and finalized data. Response: As we stated in response to a comment in the FY 2024 IPPS/LTCH PPS final rule (88 FR 58983), we believe hospitals should submit applications complete with supporting documentation at the time MGCRB applications are due. We stated that hospitals taking advantage of the MGCRB's practice of accepting supporting documentation to supplement applications until the date of the MGCRB's review are aware that the review is not held on the same date annually. Furthermore, rural reclassification may be obtained at any time, and hospitals seeking the benefits of rural status for MGCRB reclassification purposes should plan accordingly. In response to the commenter's specific request for CMS to allow hospitals a 15-day window following the release of the final rule to withdraw MGCRB reclassification requests, we stated in response to a similar comment in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58769 through 58770) that we maintain that the information provided in the proposed rule constitutes the best available data to assist hospitals in making reclassification decisions. In addition, section 1886(d)(8)(D) of the Act requires the Secretary to adjust the standardized amounts to ensure that aggregate payments under the IPPS after implementation of the provisions of certain sections of the Act, including section 1886(d)(10) of the Act for geographic reclassifications by the MGCRB, are equal to the aggregate prospective payments that would have been made absent these provisions. If hospitals were to withdraw or terminate reclassification statuses after the publication of the final rule, as the commenter suggested CMS permit, any resulting changes in the wage index would not have been taken into account when calculating the IPPS standardized amounts in the final rule in accordance with the statutory budget neutrality requirement. Therefore, it is necessary that the values published in the final rule represent the final wage index values reflective of reclassification decisions. b. Revisions to Sec. 412.273 To Simplify MGCRB Reinstatements As discussed in the previous section, under the regulations at Sec. 412.273, hospitals that have been reclassified by the MGCRB are permitted to withdraw their applications if the request for withdrawal is received by the MGCRB any time before the MGCRB issues a decision on the application, or after the MGCRB issues a decision, provided the request for withdrawal is received by the MGCRB within 45 days of the date of filing for public inspection of the proposed rule at the website of the Office of the Federal Register, or within 7 calendar days of receiving a decision of the Administrator's in accordance with Sec. 412.273, whichever is later. Hospitals may also terminate an existing approved reclassification, effective for the second and third year of the three year reclassification period or both, provided the request for termination is received by the MGCRB within 45 days of the date of filing for public inspection of the proposed rule at the website of the Office of the Federal Register, or within 7 calendar days of receiving a decision of the Administrator's in accordance with Sec. 412.273, whichever is later. Furthermore, these withdrawal and termination requests may be cancelled by submitting a request by the next application deadline for MGCRB application, reinstating the withdrawn or terminated reclassification for the remaining years of the reclassification. We believe this process allows hospitals to maintain flexibility in choosing the optimal reclassification status for any given fiscal year, while balancing the need for consistency and predictability of the wage index system. However, we also believe the regulations Sec. 412.273 can be confusing and contain complicated definitions and language. We proposed revisions to multiple paragraphs of Sec. 412.273 to clarify current policy and revise definitions in a more straightforward and understandable manner. The first consideration is CMS's definitions of a withdrawal and a termination in Sec. 412.273(a). Termination refers to the termination of an already existing 3-year MGCRB reclassification where such reclassification has already been in effect for 1 or 2 years, and there are 1 or 2 years remaining on the 3-year reclassification. A termination is effective only for the full fiscal year(s) remaining in the 3-year period at the time the request is received. Requests for terminations for part of a fiscal year are not considered. Withdrawal refers to the withdrawal of a 3-year MGCRB reclassification that has not yet gone into effect or where the MGCRB has not yet issued a decision on the application. Stated generally, a withdrawal is an action taken upon a reclassification that has either not yet been reviewed by the MGCRB, or an approved reclassification due to go into effect in that upcoming fiscal year, and a termination is an action taken on an approved reclassification that has already gone into effect. There are policy considerations for defining withdrawals and terminations separately. For example, county group reclassification withdrawals must include all parties to the application, while a termination may be submitted by any individual hospital that is party to the application. For reasons discussed later in this section, we stated in the proposed rule that we continue to believe this is the appropriate policy. However, we also stated that we believe that specifically citing this policy exception in regulation is more straightforward than maintaining differing definitions for substantially similar actions. Therefore, for consistency and simplicity we proposed to modify the definition of a withdrawal to only include requests made prior to a decision being made by the MGCRB. The definition of termination would encompass all post- decision actions to forgo the upcoming years of an approved reclassification. Specifically, we proposed to modify Sec. 412.273(a) to provide that a termination refers to the termination of an approved 3-year MGCRB reclassification. A termination is effective only for the full fiscal year(s) remaining in the 3-year period at the time the request is received. Requests for terminations for part of a fiscal year are not considered. We also specified that a withdrawal refers to the withdrawal of a 3-year MGCRB reclassification where the MGCRB has not yet issued a decision on the application. We also proposed to remove Sec. 412.273(c)(1)(i) and (ii) and revise paragraph (c)(1) to indicate that a request for withdrawal must be received by the MGCRB at any time before the MGCRB issues a decision on the application. There is also a current process for cancelling an eligible withdrawal or termination in order to make the reclassification effective for any remaining years of the 3-year reclassification period. We noted that this process is widely referring to as a request for ``reinstatement.'' To provide clarity and consistency, we proposed to modify several references in [[Page 36848]] Sec. 412.273(d) from ``cancelling'' or a ``cancellation'' to ``reinstating'' or ``reinstatement.'' As we proposed that withdrawals be limited to applications prior to approval, a proposed reinstatement will only apply to the proposed modified definition of a termination. Therefore, we proposed to delete the references to withdrawals from Sec. 412.273(d)(1). As discussed earlier in this section, we continue to believe that all parties to a county group reclassification must participate on any action prior to the effective date of a group reclassification. Under current policy, this will include whether to withdraw a reclassification in the timeframe described at Sec. 412.273(c)), and whether to cancel an approved reclassification withdrawal request to reinstate the remaining second and third year of the approved group reclassification, as described at Sec. 412.273(d)(2). In the proposed rule, we stated that we believe that requiring these actions to include all parties to the group reclassification reduces the possibility of one or more parties withdrawing from a reclassification to the benefit or detriment of other hospitals reclassified to that labor market area. For example, a hospital may be incentivized to withdraw a potentially beneficial reclassification if the exclusion of its wage data in the reclassified area will increase the wage index value. This type of manipulation of reclassification policy does not encourage stability or predictability of wage index system and is contrary to the concept of providing hospitals in a county an opportunity to obtain a reclassification that they may not be able to obtain through an individual reclassification. Therefore, we proposed to continue the current policy by modifying the current regulation to explicitly state that the proposed modified withdrawal requests and proposed modified termination and reinstatement requests made prior to the effective date of the reclassification (that is, any request made prior to the first year the reclassification goes into effect), must include all parties to the application. Specifically, we proposed to modify Sec. 412.273(e), by modifying paragraph (e)(2) to state that a request to terminate an approved individual reclassification must be submitted in writing to the MGCRB according to the method prescribed by the MGCRB and adding a new paragraph (e)(3) specifying that a request to terminate or reinstate an approved group reclassification must be submitted in writing to the MGCRB according to the method prescribed by the MGCRB. A request to terminate or reinstate an approved group reclassification that has not yet gone into effect must include all hospitals party to the reclassification. Termination requests for group reclassification for the second or third year of the 3-year wage index reclassification period and reinstatement requests for a group reclassification effective for the third year of the 3-year wage index reclassification period may be submitted by any individual hospital that is party to the reclassification. We stated that we believe that this proposal to explicitly state this policy regarding county group reclassification in regulation reduces confusion for hospitals and more clearly addresses our intent. To provide clarity, we also proposed to state that a termination of a 3-year reclassification defined at Sec. 412.273(d)(4) is not eligible to be reinstated. This type of termination of an approved reclassification occurs when a hospital receives a different MGCRB reclassification in a subsequent fiscal year. Under current policy, hospitals may effectively choose between accepting a newly approved reclassification, or to withdraw it and ``fallback'' to a previously approved reclassification. We stated in the proposed rule that we believe this provides sufficient flexibility for hospitals to obtain the most beneficial reclassification. However, once an approved reclassification goes into effect, we believe it is appropriate to permanently terminate other previously approved reclassifications. Doing so provides a degree of predictability and consistency in the wage index calculations by limiting hospitals to a total of two potential MGCRB reclassification options. This is the current policy of CMS and the current practice of the MGCRB. We proposed specifically to state this policy in regulation by providing in Sec. 412.273(d)(4) that the terminated reclassification in such a case is not eligible for reinstatement. We proposed the preceding changes to become effective for requests made beginning in FY 2026. The current policies and definitions will continue for the remainder of FY 2025. We noted that hospitals currently use the Office of Hearings Case and Document Management System (OH CDMS) to enter and maintain their MGCRB cases, and to correspond with the Office of Hearings. We are aware that the proposed changes would require system changes to the OH CDMS, and there could be some delay in revising certain terminology. However, these changes are not intended to significantly modify current policies and practices. Instead, they serve to clarify and simplify the process of determining whether an approved reclassification should be accepted and applied in a given fiscal year. We also stated that we believe that in making these changes, the regulation will provide clearer instructions to hospitals. Finally, we noted that under the current and proposed policies, there is no negative effect for a hospital to reinstate (cancel a withdrawal or termination) for a subsequent year, as the reclassification could be terminated in the following year, and hospitals are eligible to reapply for wage index reclassification to a different labor market area. When eligible, a large majority of hospitals already do this, as it provides greater flexibility and options for wage index reclassification. Before the introduction of the OH CDMS, these reinstatement requests were often submitted simultaneously with a withdrawal or termination request. However, in the online system, the option to reinstate is typically only made available after all withdrawal and termination requests have been processed. We stated that we have considered a policy modification to make termination requests effective for only one fiscal year. That is, all requests to withdraw or terminate a reclassification made in the timeframe specified at Sec. 412.273(c) would automatically be reinstated for any remaining fiscal years, without the need of a second action to reinstate it. We have not fully evaluated the impact of such a policy but may consider it in future rulemaking. We did not receive any comments regarding the proposed changes to Sec. 412.273 and are finalizing the proposed changes without revision. These changes, including the revised definitions, will be effective for all reclassification requests made on or after October 1, 2026 (FY 2026).

4. Redesignations Under Section 1886(d)(8)(B) of the Act

a. Lugar Status Determinations In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51599 through 51600), we adopted the policy that, beginning with FY 2012, an eligible hospital that waives its Lugar status to receive the out-migration adjustment has effectively waived its deemed urban status and, thus, is rural for all purposes under the IPPS effective for the fiscal year in which the hospital receives the outmigration adjustment. In addition, in that rule, we adopted a minor [[Page 36849]] procedural change that will allow a Lugar hospital that qualifies for and accepts the out-migration adjustment (through written notification to CMS within 45 days from the issuance of the proposed rule in the Federal Register) to waive its urban status for the full 3-year period for which its out-migration adjustment is effective. By doing so, such a Lugar hospital will no longer be required during the second and third years of eligibility for the out-migration adjustment to advise us annually that it prefers to continue being treated as rural and receive the out-migration adjustment. In the FY 2017 IPPS/LTCH PPS final rule (81 FR 56930), we further clarified that if a hospital wishes to reinstate its urban status for any fiscal year within this 3-year period, it must send a request to CMS within 45 days of the issuance of the proposed rule in the Federal Register for that particular fiscal year. We indicated that such reinstatement requests may be sent electronically to [email protected]. In the FY 2018 IPPS/LTCH PPS final rule (82 FR 38147 through 38148), we finalized a policy revision to require a Lugar hospital that qualifies for and accepts the out- migration adjustment, or that no longer wishes to accept the out- migration adjustment and instead elects to return to its deemed urban status, to notify CMS within 45 days from the date of public display of the proposed rule at the Office of the Federal Register. These revised notification timeframes were effective beginning October 1, 2017. In addition, in the FY 2018 IPPS/LTCH PPS final rule (82 FR 38148), we clarified that both requests to waive and to reinstate Lugar status may be sent to [email protected]. To ensure proper accounting, we request hospitals to include their CCN, and either ``waive Lugar'' or ``reinstate Lugar'', in the subject line of these requests. When applicable, this election will result in a cancelation of a hospital's rural reclassification status under Sec. 412.103, effective October 1, 2025. We also inform hospitals that for the request to be approved, the hospital must withdraw or terminate any active MGCRB reclassification. All requests, once approved, will remain in effect for the remainder of the 3-year out-migration adjustment period. In the FY 2020 IPPS/LTCH PPS final rule (84 FR 42314 and 42315), we clarified that in circumstances where an eligible hospital elects to receive the outmigration adjustment within 45 days of the public display date of the proposed rule at the Office of the Federal Register in lieu of its Lugar wage index reclassification, and the county in which the hospital is located will no longer qualify for an outmigration adjustment when the final rule (or a subsequent correction notice) wage index calculations are completed, the hospital's request to accept the outmigration adjustment will be denied, and the hospital will be automatically assigned to its deemed urban status under section 1886(d)(8)(B) of the Act. We stated that final rule wage index values will be recalculated to reflect this reclassification, and in some instances, after taking into account this reclassification, the out- migration adjustment for the county in question could be restored in the final rule. However, as the hospital is assigned a Lugar reclassification under section 1886(d)(8)(B) of the Act, it will be ineligible to receive the county outmigration adjustment under section 1886(d)(13)(G) of the Act. We received two timely requests from hospitals to accept the county out-migration adjustment in lieu of its Lugar reclassification. The requests were from CCNs 180056 and 320033. When applicable, we informed the hospital that for the request to be approved, the hospital must withdraw or terminate any active MGCRB reclassification. All requests have been approved and will remain in effect for the remainder of the 3-year county outmigration adjustment period. We receive one timely request from CCN 390183 to reinstate its Lugar reclassification. This request was approved, and the hospital will be reclassified to CBSA 39740 for FY 2026.

F. Wage Index Adjustments: Rural Floor, Imputed Floor, State Frontier

Floor, Out-Migration Adjustment, Low Wage Index Hospital, and Cap on Wage Index Decrease Policies The following adjustments to the wage index are listed in the order that they are generally applied. First, the rural floor, imputed floor, and state frontier floor provide a minimum wage index. The rural floor at section 4410(a) of the Balanced Budget Act of 1997 (Pub. L. 105-33) provides that the wage index for hospitals in urban areas of a State may not be less than the wage index applicable to hospitals located in rural areas in that State. The imputed floor at section 1886(d)(3)(E)(iv) of the Act provides a wage index minimum for all- urban states. The state frontier floor at section 1886(d)(3)(E)(iii) of the Act requires that hospitals in frontier states cannot be assigned a wage index of less than 1.0000. Next, the out-migration adjustment at section 1886(d)(13)(A) of the Act is applied, potentially increasing the wage index for hospitals located in certain counties that have a relatively high percentage of hospital employees who reside in the county but work in a different county or counties with a higher wage index. For FY 2026 and subsequent fiscal years, as discussed later in this section, after considering the D.C. Circuit's decision in Bridgeport Hosp. v. Becerra, we are finalizing as proposed to discontinue the low wage index hospital policy. Because we are finalizing as proposed to discontinue the low wage index hospital policy for FY 2026 and subsequent fiscal years, we are no longer applying a low wage index budget neutrality factor to the standardized amounts. Finally, all hospital wage index decreases are capped at 95 percent of the hospital's final wage index in the prior fiscal year, according to the policy finalized in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49018 through 49021).

1. Rural Floor

Section 4410(a) of the Balanced Budget Act of 1997 (Pub. L. 105-33) provides that, for discharges on or after October 1, 1997, the area wage index applicable to any hospital that is located in an urban area of a State may not be less than the area wage index applicable to hospitals located in rural areas in that State. This provision is referred to as the rural floor. Section 3141 of the Patient Protection and Affordable Care Act (Pub. L. 111-148) also requires that a national budget neutrality adjustment be applied in implementing the rural floor. Based on the FY 2026 wage index associated with this final rule (which is available on the CMS website), and based on the calculation of the rural floor including the wage data of hospitals that have reclassified as rural under Sec. 412.103, we estimate that 961 hospitals will receive the rural floor in FY 2026. The budget neutrality impact of the application of the rural floor is discussed in section II.A.4.e. of Addendum A of this final rule. In the FY 2023 IPPS/LTCH PPS final rule (87 FR 48784), CMS finalized a policy change to calculate the rural floor in the same manner as we did prior to the FY 2020 IPPS/LTCH PPS final rule, in which the rural wage index sets the rural floor. We stated that for FY 2023 and subsequent years, we would include the wage data of Sec. 412.103 hospitals that have no Medicare Geographic Classification Review Board (MGCRB) reclassification in the calculation of the rural floor, and include the wage data of such hospitals in the calculation of ``the wage index for rural areas in the State in which the [[Page 36850]] county is located'' as referred to in section 1886(d)(8)(C)(iii) of the Act. In the FY 2024 IPPS/LTCH final rule (88 FR 58971 through 58977), we finalized a policy change beginning that year to include the data of all Sec. 412.103 hospitals, even those that have an MGCRB reclassification, in the calculation of the rural floor and the calculation of ``the wage index for rural areas in the State in which the county is located'' as referred to in section 1886(d)(8)(C)(iii) of the Act. We explained that after revisiting the case law, prior public comments, and the relevant statutory language, we agreed that the best reading of section 1886(d)(8)(E)'s text that CMS ``shall treat the [Sec. 412.103] hospital as being located in the rural area'' is that it instructs CMS to treat Sec. 412.103 hospitals the same as geographically rural hospitals for the wage index calculation. Accordingly, in the FY 2024 IPPS/LTCH PPS final rule, we finalized a policy to include hospitals with Sec. 412.103 reclassification along with geographically rural hospitals in all rural wage index calculations, and to exclude ``dual reclass'' hospitals (hospitals with simultaneous Sec. 412.103 and MGCRB reclassifications) that are implicated by the hold harmless provision at section 1886(d)(8)(C)(ii) of the Act. (For additional information on these changes, we refer readers to the FY 2024 IPPS/LTCH PPS final rule (88 FR 58971 through 58977).) Comment: Some commenters expressed continued support for CMS's treatment of urban hospitals reclassified as rural under Sec. 412.103 in the same manner as geographically rural hospitals for the rural wage index and rural floor calculations. These commenters stated that restoring equality between a state's rural floor and its rural wage index is an appropriate and fair implementation of the statute. Conversely, several commenters expressed concern that the current rural floor methodology and associated budget neutrality adjustment exacerbates inequities. A commenter stated that the rural floor magnifies Medicare underpayment to hospitals in high-cost regions, since payments to such hospitals are reduced due to the budget neutrality adjustment. Several commenters stated that hospitals in low- wage states are hurt when their payments are reduced to drive inflated reimbursement to hospitals in states gaming the rural floor. These commenters cited examples of states with high-wage urban hospitals reclassifying to rural to set the rural wage index for the state. The commenters urged CMS to reverse its current policy and calculate the rural wage index using wage data only from geographically rural hospitals in the state. Response: While we did not propose any changes to the rural floor policy in the FY 2026 IPPS/LTCH PPS proposed rule, we appreciate the commenters' continued support. We understand the commenters' concerns regarding the effect that the rural floor budget neutrality factor has on some hospitals as other hospitals make reclassification decisions to take advantage of the rural floor policy. As we noted in the FY 2024 IPPS/LTCH PPS final rule (88 FR 58975 through 58976) and the FY 2025 IPPS/LTCH PPS final rule (89 FR 69299), we expect that the number of IPPS hospitals assigned their State's rural wage index will increase in future years as hospitals adjust to the policy and as the relative value of States' rural wage index values increase due to the inclusion of hospitals that strategically obtain Sec. 412.103 reclassification. As a result, the majority of hospitals (if not all) will be assigned identical wage index values within their states. For example, in FY 2025, 58 percent of geographically urban hospitals received a wage index equal to their State's rural floor, imputed floor, or frontier floor prior to any outmigration, or 5 percent decrease cap adjustments. For FY 2026, approximately 70 percent of geographically urban hospitals will receive a wage index equal to their State's rural floor, imputed floor, or frontier floor prior to any outmigration, or 5 percent decrease cap adjustments. As we stated in the FY 2024 IPPS/LTCH PPS final rule (88 FR 58975) and the FY 2025 IPPS/LTCH PPS final rule (89 FR 69299), as substantially more hospitals receive the rural floor, there will be a consequently greater budget neutrality impact. However, we believe this result would be unavoidable given the requirement of section 1886(d)(8)(E) of the Act to treat Sec. 412.103 hospitals `as being located in the rural area' of the state, as well as the requirement at sections 4410(b) of the BBA 1997 and 3141 of the Patient Protection and Affordable Care Act (Pub. L. 111-148) that a uniform, national budget neutrality adjustment be applied in implementing the rural floor. Comment: Several commenters disagreed with CMS' current application of the rural floor and rural floor budget neutrality adjustment. These commenters asserted that section 4410(b) of the Balanced Budget Act of 1997 (BBA) exempts urban and reclassified rural hospitals that receive the rural floor from having their wage indexes reduced through the application of the rural floor budget neutrality adjustment. According to these commenters, the rural floor budget neutrality adjustment should be applied only to the wage indexes of hospitals not receiving the rural floor (that is, non- reclassified rural hospitals, and urban hospitals with wage indexes above the rural floor). Response: As we stated in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69299) in response to similar comments that we had received, we disagree with the commenters' assertion that urban and reclassified rural hospitals that receive the rural floor should be excluded from the application of the rural floor budget neutrality factor. We considered this approach in the FY 2008 IPPS proposed and final rules (72 FR 24787 and 72 FR 47325) and believe we have applied the rural floor budget neutrality adjustment in a manner consistent with the statute. Specifically, in the FY 2008 IPPS proposed rule, we rejected a reading of section 4410(b) of the BBA requiring that the budget neutrality adjustment would be applied only to those hospitals that do not receive the rural floor, because urban hospitals receiving the rural floor would receive a higher wage index than the rural hospitals within the same State (because hospitals receiving the rural floor would not be subject to budget neutrality, whereas rural hospitals would be) (72 FR 24787). We continue to believe that such a reading would not be consistent with the best reading of the statute. The statute sets a floor for urban hospitals. The statute does not instruct CMS to pay urban hospitals a wage index higher than the wage index applicable to rural hospitals and contains no suggestion that the general budget neutrality provisions of section 1886(d)(8)(D)--which expressly apply to the adjustments made in section 1886(d)(C)--should not apply. In the FY 2008 IPPS final rule, we adopted the current approach to implement rural floor budget neutrality by applying a uniform, national adjustment to the wage index (72 FR 47325). Since then, Congress specifically endorsed our approach in section 3141 of the Patient Protection and Affordable Care Act (Pub. L. 111-148), which requires that the rural floor budget neutrality adjustment be applied ``in the same manner as the Secretary administered such [adjustment] for discharges occurring during fiscal year 2008 (through a uniform, national adjustment to the area wage index).'' In addition, we note that section 4410 of the BBA to which the commenters refer provides [[Page 36851]] that the rural floor is equal to ``the area wage index applicable under [section 1886(d)(3)(E) of the Social Security Act] to hospitals located in rural areas in the State.'' Under our existing policy, the rural floor and the rural wage index for the state are the same after application of the rural floor budget neutrality adjustment factor, and nothing in section 4410 of the BBA requires otherwise. Put differently, CMS' methodology amounts to merely calculating the amount of the rural floor such that it is the same as the final rural wage index for the state, rather than reducing the wage indices of low wage urban hospitals or reclassified rural hospitals that receive the rural floor relative to what they would be otherwise--in that way it appropriately implements both section 4410 of the BBA and section 3141 of the ACA. Thus, consistent with our longstanding methodology for implementing the rural floor, we believe it is appropriate to continue to apply a budget neutrality adjustment to all hospitals' wage indexes.

2. Imputed Floor

In the FY 2005 IPPS final rule (69 FR 49109 through 49111), we adopted the imputed floor policy as a temporary 3-year regulatory measure to address concerns from hospitals in all-urban States that have stated that they are disadvantaged by the absence of rural hospitals to set a wage index floor for those States. We extended the imputed floor policy eight times since its initial implementation, the last of which was adopted in the FY 2018 IPPS/LTCH PPS final rule and expired on September 30, 2018. We refer readers to further discussions of the imputed floor in the IPPS/LTCH PPS final rules from FYs 2014 through 2019 (78 FR 50589 through 50590, 79 FR 49969 through 49971, 80 FR 49497 through 49498, 81 FR 56921 through 56922, 82 FR 38138 through 38142, and 83 FR 41376 through 41380, respectively) and to the regulations at Sec. 412.64(h)(4). For FYs 2019, 2020, and 2021, hospitals in all-urban states received a wage index that was calculated without applying an imputed floor, and we no longer included the imputed floor as a factor in the national budget neutrality adjustment. Section 9831 of the American Rescue Plan Act of 2021 (Pub. L. 117- 2), enacted on March 11, 2021, amended section 1886(d)(3)(E)(i) of the Act and added section 1886(d)(3)(E)(iv) of the Act to establish a minimum area wage index for hospitals in all-urban States for discharges occurring on or after October 1, 2021. Specifically, section 1886(d)(3)(E)(iv)(I) and (II) of the Act provides that for discharges occurring on or after October 1, 2021, the area wage index applicable to any hospital in an all-urban State may not be less than the minimum area wage index for the fiscal year for hospitals in that State established using the methodology described in Sec. 412.64(h)(4)(vi) as in effect for FY 2018. Unlike the imputed floor that was in effect from FYs 2005 through 2018, section 1886(d)(3)(E)(iv)(III) of the Act provides that the imputed floor wage index shall not be applied in a budget neutral manner. Section 1886(d)(3)(E)(iv)(IV) of the Act provides that, for purposes of the imputed floor wage index under clause (iv), the term all-urban State means a State in which there are no rural areas (as defined in section 1886(d)(2)(D) of the Act) or a State in which there are no hospitals classified as rural under section 1886 of the Act. Under this definition, given that it applies for purposes of the imputed floor wage index, we consider a hospital to be classified as rural under section 1886 of the Act if it is assigned the State's rural area wage index value. Effective beginning October 1, 2021 (FY 2022), section 1886(d)(3)(E)(iv) of the Act reinstated the imputed floor wage index policy for all-urban States, with no expiration date, using the methodology described in Sec. 412.64(h)(4)(vi) as in effect for FY 2018. We refer readers to the FY 2022 IPPS/LTCH PPS final rule (86 FR 45176 through 45178) for further discussion of the original imputed floor calculation methodology implemented in FY 2005 and the alternative methodology implemented in FY 2013. Based on data available for this final rule, States that will be all-urban States as defined in section 1886(d)(3)(E)(iv)(IV) of the Act, and thus hospitals in such States that will be eligible to receive an increase in their wage index due to application of the imputed floor for FY 2026, are identified in Table 3 (which is available on the CMS website) associated with this final rule. States with a value in the column titled ``State Imputed Floor'' are eligible for the imputed floor. The regulations at Sec. 412.64(e)(1) and (4) and (h)(4) and (5) implement the imputed floor required by section 1886(d)(3)(E)(iv) of the Act for discharges occurring on or after October 1, 2021. The imputed floor will continue to be applied for FY 2026 in accordance with the policies adopted in the FY 2022 IPPS/LTCH PPS final rule. For more information regarding our implementation of the imputed floor required by section 1886(d)(3)(E)(iv) of the Act, we refer readers to the discussion in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45176 through 45178). Comment: We received comments supporting the application of the imputed floor. Response: We thank the commenters for their input. As discussed earlier, the imputed floor is a statutory requirement under section 9831 of the American Rescue Plan Act of 2021 (Pub. L. 117-2) which requires the Secretary to establish a minimum area wage index for hospitals in all-urban States for discharges occurring on or after October 1, 2021. We did not propose any changes to the methodology for calculating the imputed floor as set forth in Sec. 412.64(e)(1) and (4) and (h)(4) and (5). Therefore, in accordance with the statute and existing regulations, we are applying the imputed floor for hospitals in all-urban States for FY 2026.

3. State Frontier Floor for FY 2026

Section 10324 of Public Law 111-148 requires that hospitals in frontier States cannot be assigned a wage index of less than 1.0000. (We refer readers to the regulations at Sec. 412.64(m) and to a discussion of the implementation of this provision in the FY 2011 IPPS/ LTCH PPS final rule (75 FR 50160 through 50161).) In the FY 2026 IPPS/ LTCH PPS proposed rule, we did not propose any changes to the frontier floor policy for FY 2026. In the proposed rule we stated 40 hospitals would receive the frontier floor value of 1.0000 for their FY 2026 proposed wage index. These hospitals are located in Montana, North Dakota, South Dakota, and Wyoming. We did not receive any public comments on the application of the State frontier floor for FY 2026. In this final rule, 23 hospitals will receive the frontier floor value of 1.0000 for their FY 2026 wage index. These hospitals are located in Montana, North Dakota, South Dakota, and Wyoming. We note that while Nevada meets the criteria of a frontier State, all hospitals within the State currently receive a wage index value greater than 1.0000. The areas affected by the rural and frontier floor policies for the final FY 2026 wage index are identified in Table 3 associated with this final rule, which is available via the internet on the CMS website.

4. Out-Migration Adjustment Based on Commuting Patterns of Hospital

Employees In accordance with section 1886(d)(13) of the Act, as added by section 505 of Public Law 108-173, beginning with FY 2005, we established [[Page 36852]] a process to make adjustments to the hospital wage index based on commuting patterns of hospital employees (the ``out-migration'' adjustment). The process, outlined in the FY 2005 IPPS final rule (69 FR 49061), provides for an increase in the wage index for hospitals located in certain counties that have a relatively high percentage of hospital employees who reside in the county but work in a different county (or counties) with a higher wage index. Section 1886(d)(13)(B) of the Act requires the Secretary to use data the Secretary determines to be appropriate to establish the qualifying counties. When the provision of section 1886(d)(13) of the Act was implemented for the FY 2005 wage index, we analyzed commuting data compiled by the U.S. Census Bureau that were derived from a special tabulation of the 2000 Census journey-to-work data for all industries (CMS extracted data applicable to hospitals). These data were compiled from responses to the ``long-form'' survey, which the Census Bureau used at that time, and which contained questions on where residents in each county worked (69 FR 49062). However, the 2010 Census was ``short form'' only; information on where residents in each county worked was not collected as part of the 2010 Census. The Census Bureau worked with CMS to provide an alternative dataset based on the latest available data on where residents in each county worked in 2010, for use in developing a new out-migration adjustment based on new commuting patterns developed from the 2010 Census data beginning with FY 2016. To determine the out-migration adjustments and applicable counties for FY 2016, we analyzed commuting data compiled by the Census Bureau that were derived from a custom tabulation of the American Community Survey (ACS), an official Census Bureau survey, utilizing 2008 through 2012 (5-year) Microdata. The data were compiled from responses to the ACS questions regarding the county where workers reside and the county to which workers commute. As we discussed in prior IPPS/LTCH PPS final rules, we have applied the same policies, procedures, and computations since FY 2012. We refer readers to the FY 2016 IPPS/LTCH PPS final rule (80 FR 49500 through 49502) for a full explanation of the revised data source. We also stated that we will consider determining out-migration adjustments based on data from the next Census or other available data, as appropriate. As discussed previously in section III.A.2., in the FY 2025 IPPS/ LTCH PPS final rule (89 FR 69253 through 69266), CMS adopted revised delineations from the OMB Bulletin 23-01, published July 21, 2023. The revised delineations incorporated population estimates based on the 2020 decennial census, as well as updated journey-to-work commuting data. The Census Bureau once again worked with CMS to provide an alternative dataset based on the latest available data on where residents in each county worked, for use in developing a new out- migration adjustment based on new commuting patterns. We analyzed commuting data compiled by the Census Bureau that were derived from a custom tabulation of the ACS, utilizing 2016 through 2020 data. The Census Bureau produces county level commuting flow tables every 5 years using non-overlapping 5-year ACS estimates. The data include demographic characteristics, home and work locations, and journey-to- work travel flows. The custom tabulation requested by CMS was specific to general medical and surgical hospital and specialty (except psychiatric and substance use disorder treatment) hospital employees (hospital sector Census code 8191/NAICS code 6221 and 6223) who worked in the 50 States, Washington, DC, and Puerto Rico and, therefore, provided information about commuting patterns of workers at the county level for residents of the 50 States, Washington, DC, and Puerto Rico. For the ACS, the Census Bureau selects a random sample of addresses where workers reside to be included in the survey, and the sample is designed to ensure good geographic coverage. The ACS samples approximately 3.5 million resident addresses per year.\140\ The results of the ACS are used to formulate descriptive population estimates, and, as such, the sample on which the dataset is based represents the actual figures that will be obtained from a complete count. --------------------------------------------------------------------------- \140\ According to the Census Bureau, the effects of the public health emergency (PHE) on ACS activities in 2020 resulted in a lower number of addresses (~2.9 million) in the sample, as well as fewer interviews than a typical year. --------------------------------------------------------------------------- In the FY 2025 IPPS/LTCH PPS final rule (89 FR 69301), we finalized that for FY 2025 and subsequent years, the out-migration adjustment will be based on the data derived from the previously discussed custom tabulation of the ACS utilizing 2016 through 2020 (5-year) Microdata. As discussed earlier, we believe that these data are the most appropriate to establish qualifying counties, because they are the most accurate and up-to-date data that are available to us. For FY 2026, we did not propose any changes to the methodology or data source for calculating the out-migration adjustment. Specifically, we proposed that the FY 2026 out-migration adjustments continue to be based on the same policies, procedures, and computation that were used for the FY 2012 out-migration adjustment. We did not receive any comments on this proposal. We are finalizing as proposed that the FY 2026 out-migration adjustments continue to be based on the same policies, procedures, and computation that were used for the FY 2012 out-migration adjustment. We have applied these same policies, procedures, and computations since FY 2012, and we believe they continue to be appropriate for FY 2026. We refer readers to a full discussion of the out-migration adjustment, including rules on deeming hospitals reclassified under section 1886(d)(8) or section 1886(d)(10) of the Act to have waived the out- migration adjustment, in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51601 through 51602). Table 2 of this final rule (which is available on the CMS website) lists the out-migration adjustments for the FY 2026 wage index. In addition, Table 4A associated with this final rule, ``List of Counties Eligible for the Out Migration Adjustment under Section 1886(d)(13) of the Act'' (also available on the CMS website), consists of the following: A list of counties that are eligible for the outmigration adjustment for FY 2026 identified by FIPS county code, the FY 2026 out-migration adjustment, and the number of years the adjustment will be in effect. We refer readers to section V.I. of the Addendum of this final rule for instructions on accessing IPPS tables that are posted on the CMS websites identified in this final rule.

5. Discontinuation of the Low Wage Index Hospital Policy and Budget

Neutrality Adjustment In the FY 2020 IPPS/LTCH PPS final rule (84 FR 42325 through 42339), we finalized a policy to address increasing wage index disparities, based in part on comments we received in response to our request for information included in our FY 2019 IPPS/LTCH PPS proposed rule (83 FR 20372 through 20377). Accordingly, we finalized a policy that provided certain low wage index hospitals with an opportunity to increase employee compensation without the usual lag in those increases being reflected in the calculation of the wage index (as they would expect to do if not for the lag). We accomplished this [[Page 36853]] by temporarily increasing the wage index values for certain hospitals with low wage index values and doing so in a budget neutral manner through an adjustment applied to the standardized amounts for all hospitals. We increased the wage index for hospitals with a wage index value below the 25th percentile wage index value for a fiscal year by half the difference between the otherwise applicable final wage index value for a year for that hospital and the 25th percentile wage index value for that year across all hospitals (the low wage index hospital policy). When we adopted the low wage index hospital policy in the FY 2020 IPPS/LTCH PPS final rule (84 FR 42326 through 42328), we stated our intention that this policy would be effective for at least 4 years, beginning in FY 2020, to allow employee compensation increases implemented by these hospitals sufficient time to be reflected in the wage index calculation. We also stated we intended to revisit the issue of the duration of this policy in future rulemaking as we gained experience under the policy. For FY 2024, we continued to apply the low wage index hospital policy and the related budget neutrality adjustment (88 FR 58977 through 58980). In the FY 2025 IPPS/LTCH PPS final rule (89 FR 69301 through 69308), we adopted an extension of the low wage index hospital policy and the related budget neutrality adjustment effective for at least three more years, beginning in FY 2025, in order for sufficient wage data from after the end of the COVID-19 Public Health Emergency to become available. On July 23, 2024, the Court of Appeals for the D.C. Circuit held that the Secretary lacked authority under section 1886(d)(3)(E) of the Act or under the ``adjustments'' language of section 1886(d)(5)(I)(i) of the Act to adopt the low wage index hospital policy for FY 2020, and that the policy and related budget neutrality adjustment must be vacated.\141\ After considering the D.C. Circuit's decision in Bridgeport Hosp. v. Becerra, in the interim final action with comment period (IFC) titled ``Medicare Program; Changes to the Fiscal Year 2025 Hospital Inpatient Prospective Payment System (IPPS) Rates Due to Court Decision'' (referred to herein as the FY 2025 IFC) (89 FR 80405 through 80421), we recalculated the FY 2025 IPPS hospital wage index to remove the low wage index hospital policy for FY 2025. We also removed the low wage index budget neutrality factor from the FY 2025 standardized amounts. We refer the reader to the applicable year final rule discussions (FY 2020 IPPS/LTCH PPS final rule (84 FR 42325 through 42339); FY 2024 IPPS/LTCH PPS final rule (88 FR 58977 through 58980)) regarding the implementation of the low wage index hospital policy and the FY 2025 IFC for a complete discussion regarding the removal of the low wage index hospital policy for FY 2025. --------------------------------------------------------------------------- \141\ Bridgeport Hosp. v. Becerra, 108 F.4th 882, 887-91 & n.6 (D.C. Cir. 2024). --------------------------------------------------------------------------- For FY 2026 and subsequent fiscal years, after considering the D.C. Circuit's decision in Bridgeport Hosp. v. Becerra, we proposed to discontinue the low wage index hospital policy. Because we proposed to discontinue the low wage index hospital policy for FY 2026 and subsequent fiscal years, we stated that we would no longer apply a low wage index budget neutrality factor to the standardized amounts. Comment: Many commenters supported the discontinuation of the low wage index hospital policy in light of the D.C. Circuit's decision in Bridgeport Hosp. v. Becerra. Commenters agreed with the court that the FY 2020 low wage index hospital policy is unlawful. These commenters stated that ending the low wage index hospital policy, under which the wage indexes of hospitals in the bottom quartile were raised at the expense of all hospitals nationwide due to a budget neutrality adjustment, would restore fairness and consistency to the wage index and align the true cost of care within an area. Other commenters strongly urged CMS to continue the low wage index hospital policy. While most commenters acknowledged the court's decision, they expressed concern regarding the impact of ending the policy on low wage hospitals. They stated that the rationales for implementing the low wage index hospital policy remain, and discontinuing the policy will end critical support to vulnerable low wage and often rural hospitals. Two commenters specifically asked CMS to explore the impacts of discontinuing the low wage index hospital policy on other policies and hospital payment programs before finalizing, report on the effects of this policy change, and examine how concurrent wage index adjustments may compound or offset the effects. Similarly, another commenter supported the discontinuation of the low wage index hospital policy but expressed concern regarding the impact of ending the policy on rural hospitals. The commenter believes that other programs such as the low volume payment adjustment should provide support. Response: We thank the commenters for their support for our proposal. With regard to the commenters opposing the discontinuation of the low wage index hospital policy, we understand the commenters' concerns that the rationales for implementing the low wage index hospital policy remain. However, as discussed in the FY 2025 IFC (89 FR 80407), although we respectfully disagree with the D.C. Circuit's decision in Bridgeport Hosp. v. Becerra and believed that the low wage index hospital policy and the related budget neutrality adjustment should be effective for at least three more years for the reasons stated in the FY 2025 IPPS rulemaking, after considering the D.C. Circuit's decision in Bridgeport Hosp. v. Becerra, we proposed to discontinue the low wage index hospital policy for FY 2026 and subsequent fiscal years. In response to concerns regarding the impact of ending the policy on low wage hospitals, we believe we have addressed those concerns with policies to mitigate any large decline in wage indexes. We refer readers to Section III.F.5 and III.F.6 for detailed discussions of the cap on wage index decreases and transition for the discontinuation of the low wage index hospital policy. With regard to comments requesting that we explore and report on the effects of discontinuing the low wage index hospital policy, we believe that Table 2 associated with this final rule (which is available on the CMS website) provides a clear analysis. Specifically, Table 2 contains columns with each hospital's FY 2026 wage index without and with the 5 percent cap on any decrease to a hospital's wage index from its wage index in the prior FY, and the value with the transitional payment exception for the discontinuation of the low wage index hospital policy, if applicable. With regard to examining how concurrent wage index adjustments and payment programs like the low volume payment adjustment may compound or offset the effects of discontinuing the low wage index hospital policy, we believe this is a payment analysis best performed by each hospital individually considering each hospital's unique circumstances and eligibility for different adjustments. Comment: Many commenters urged CMS to consider alternative policies to help low wage hospitals, specifically permanent solutions that address wage index inequities. Some commenters cited reports from the Office of Inspector General (OIG), the Institute of Medicine (IOM), and MedPAC that recognize flaws in the current wage [[Page 36854]] index system, and emphasized that comprehensive reform is necessary to protect care in rural and underserved communities in the absence of the low wage index hospital policy. Commenters requested that CMS develop a permanent, statutory solution to address the circularity affecting low wage hospitals by working with Congress to codify the low wage index hospital policy in a manner that complies with the court's decision. A commenter specifically asked CMS to expand on its administrative discretion to assist low wage hospitals. Another commenter encouraged CMS to continue developing policies that address low wage index hospitals without negatively impacting other hospitals by soliciting input from the hospital community. Similarly, many commenters also encouraged CMS to further investigate the specific factors causing wage disparities as part of developing a solution. A few commenters suggested that CMS establish a wage index floor for all hospitals. Response: We appreciate the varied solutions suggested by commenters to help low wage hospitals and reduce wage index disparities. We note that many of the suggested solutions may require changes to the Medicare statute. We also note that exercising CMS's administrative discretion in a manner that would help low wage hospitals must consider the recent decision and analysis of the D.C. Circuit in Bridgeport Hosp. v. Becerra. Regarding the commenters' suggestions to solicit input from the hospital community and investigate the causes of wage index disparities, we refer readers to the FY 2019 IPPS/LTCH PPS proposed rule (83 FR 20372), in which we invited the public to submit comments, suggestions, and recommendations for regulatory and policy changes to the Medicare wage index, and to the FY 2020 IPPS/LTCH PPS proposed rule (84 FR 19393 through 19394) for a summary of the responses received from that request for information (RFI). In response to the commenters' suggesting that CMS establish a wage index floor for all hospitals, we refer readers to the FY 2020 IPPS/LTCH PPS final rule (84 FR 42326), where we considered that alternative. Specifically, we stated that we believe the rank order of wage indexes generally reflects meaningful distinctions between the employee compensation costs faced by hospitals in different geographic areas. Comment: Many commenters requested that CMS implement a less restrictive reclassification mechanism for the lowest wage index hospitals (for a MGCRB reclassification). Specifically, commenters suggested regulatory changes to Sec. 412.230(d) to allow a low wage index hospital that is within 50 miles of a higher paid wage area (urban or rural) to reclassify to that area and receive the wage index that is paid to hospitals in that area. The commenters also suggested CMS add a low wage hospital exception as Sec. 412.230(d)(6) for any hospital that was in the lowest quartile of wage indexes nationally in any of the FYs 2020 through 2025. As a policy justification, the commenters stated that 50 miles reflect real-world commuting standards, and that altering the average hourly wage comparison test for low wage hospitals advances health equity. Overall, the commenters posited that their suggested regulation text and policy change would reduce disparities and enhance access to care. Response: We thank the commenters for their suggested policy and regulation changes to implement a less restrictive reclassification mechanism for the lowest wage index hospitals (for a MGCRB reclassification). We did not propose any changes to Sec. 412.230 in the FY 2026 IPPS/LTCH PPS proposed rule. Additionally, under section 1886(d)(8)(D) of the Act, the Secretary is required to adjust the standardized amount to ensure that aggregate payments under the IPPS after implementation of the provisions of sections 1886(d)(8)(B) and (C) and 1886(d)(10) of the Act are equal to the aggregate prospective payments that would have been made absent these provisions. Any changes that would allow more hospitals to reclassify would increase the budget neutrality adjustment under section 1886(d)(8)(D) of the Act and would further increase the adjustment made to the standardized amount for all hospitals. We believe it is important to receive public comments with regard to such changes. We note that we received comments that were out of scope with regard to our proposal to discontinue the low wage index hospital policy for FY 2026 and subsequent fiscal years. Therefore, we are not responding to these comments in this final rule. After consideration of the public comments received and the D.C. Circuit's decision in Bridgeport Hosp. v. Becerra, in this final rule, we are finalizing without modification for FY 2026 and subsequent fiscal years, our proposal to discontinue the low wage index hospital policy. Because we are finalizing our proposal to discontinue the low wage index hospital policy for FY 2026 and subsequent fiscal years, we will no longer apply a low wage index budget neutrality factor to the standardized amounts.

6. Cap on Wage Index Decreases and Budget Neutrality Adjustment

In the FY 2023 IPPS/LTCH PPS final rule (87 FR 49018 through 49021), we finalized a wage index cap policy and associated budget neutrality adjustment for FY 2023 and subsequent fiscal years. Under this policy, we apply a 5-percent cap on any decrease to a hospital's wage index from its wage index in the prior FY, regardless of the circumstances causing the decline. A hospital's wage index will not be less than 95 percent of its final wage index for the prior FY. If a hospital's prior FY wage index is calculated with the application of the 5-percent cap, the following year's wage index will not be less than 95 percent of the hospital's capped wage index in the prior FY. We note, the FY 2025 wage index was established in the FY 2025 IFC which removed the low wage index hospital policy (89 FR 80405 through 80421). Therefore, for FY 2026, the prior year wage index for purposes of the cap will be based on the wage index established in the IFC. We also note that in that same IFC, we established a transitional payment exception for FY 2025. The 5-percent cap for FY 2026 will be applied irrespective of the FY 2025 transitional payment exception. We finally note, as discussed later in this section, that for FY 2026 we proposed a transitional payment exception that addresses the effects of the removal of the low wage index hospital policy. We proposed that this transitional payment exception would be applied after the application of the 5-percent cap. Except for newly opened hospitals, we apply the cap for a FY using the final wage index applicable to the hospital on the last day of the prior FY. A newly opened hospital will be paid the wage index for the area in which it is geographically located for its first full or partial fiscal year, and it will not receive a cap for that first year, because it will not have been assigned a wage index in the prior year. The wage index cap policy is reflected at Sec. 412.64(h)(7). We apply the cap in a budget neutral manner through a national adjustment to the standardized amount each fiscal year. For more information about the wage index cap policy and associated budget neutrality adjustment, we refer readers to the discussion in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49018 through 49021). For FY 2026, we will apply the wage index cap and associated budget neutrality adjustment in accordance with the policies adopted in the FY [[Page 36855]] 2023 IPPS/LTCH PPS final rule. We refer readers to the Addendum of this final rule for further information regarding the budget neutrality calculations. Comment: Commenters, including MedPAC, supported the policy to cap wage index decreases. MedPAC urged CMS to apply a cap to wage index increases as well. Many commenters thanked CMS for recognizing that significant year-to-year changes in the wage index can occur due to external factors beyond a hospital's control and stated that this policy increases predictability in IPPS payments. However, many commenters urged CMS to apply this policy in a non-budget neutral manner. Response: We thank the commenters for their support. We note that we did not propose any changes to this policy in the FY 2026 IPPS/LTCH PPS proposed rule. We appreciate MedPAC's suggestion that the cap on wage index changes should also be applied to increases in the wage index. However, as we stated in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49021), one purpose of the policy is to help mitigate the significant negative impacts of certain wage index changes. That is, we cap decreases because we believe that a hospital would be able to more effectively budget and plan when there is predictability about its expected minimum level of IPPS payments in the upcoming fiscal year. We do not have a policy to limit wage index increases because we do not believe such a policy is needed to enable hospitals to more effectively budget and plan their operations. Therefore, we believe it is appropriate for hospitals that experience an increase in their wage index value to receive that wage index value. With regard to the commenters requesting that CMS apply this policy in a non-budget neutral manner, we refer readers to our response to similar comments in the FY 2024 IPPS/LTCH PPS final rule (88 FR 58981).

7. Transition for the Discontinuation of the Low Wage Index Hospital

Policy As discussed previously, in the FY 2025 IFC we recalculated the FY 2025 IPPS hospital wage index to remove the low wage index hospital policy for FY 2025. We also removed the low wage index budget neutrality factor from the FY 2025 standardized amounts. For FY 2026 and subsequent fiscal years, consistent with the FY 2025 IFC, after considering the D.C. Circuit's decision in Bridgeport Hosp. v. Becerra, we proposed to discontinue the low wage index hospital policy. Because we proposed to discontinue the low wage index hospital policy for FY 2026 and subsequent fiscal years, we would no longer apply the low wage index budget neutrality factor to the standardized amounts. In the past, we have established temporary transition policies when there have been significant changes to payment policies, and we have limited the duration of each transition in order to phase in the effects of those payment policy changes. In taking this temporary approach in the past, we have sought to mitigate short-term instability and payment fluctuations that can negatively impact hospitals consistent with principles of certainty and predictability under prospective payment systems. For example, CMS has recognized that hospitals in certain areas may experience a negative impact on their IPPS payment due to the adoption of revised OMB delineations for wage index purposes and has finalized transition policies to mitigate negative financial impacts and provide stability to year-to-year wage index variations. We refer readers to the FY 2015 IPPS/LTCH PPS final rule (79 FR 49956 through 49962) for a discussion of the transition period finalized when CMS adopted revised OMB delineations after the 2010 decennial census. For FY 2025, consistent with our past practice, we established an interim transition policy for hospitals significantly impacted by the removal of the FY 2025 low wage index hospital policy using our authority under section 1886(d)(5)(I) of the Act. Specifically, the transitional payment exception for FY 2025 for those hospitals is equal to the additional FY 2025 amount a hospital would have been paid under the IPPS if its FY 2025 wage index were equal to 95 percent of its FY 2024 wage index. For a discussion of the removal of the low wage index hospital policy and the establishment of the interim transition policy, we refer readers to the FY 2025 IFC (89 FR 80405 through 80421). We currently have a wage index cap policy at 42 CFR 412.64(h)(7), under which we apply a 5-percent cap on any decrease to a hospital's wage index from its wage index in the prior FY in a budget neutral manner, regardless of the circumstances causing the decline, so that a hospital's final wage index for the upcoming fiscal year will not be less than 95 percent of its final wage index from the prior fiscal year. In accordance with 42 CFR 412.64(e)(1)(ii), CMS applies a budget neutrality adjustment to offset the increase in total payments resulting from the application of that cap. We stated in the proposed rule that some hospitals that previously benefitted from the low wage index hospital policy would experience decreases of 10 percent or more over the two years from their FY 2024 wage index (with the low wage index hospital policy applied) to their proposed FY 2026 wage index (that is, approximately 5 percent or more per year over that time period). Similar to how 42 CFR 412.64(h)(7) operates, and how our interim transitional policy established in the FY 2025 IFC for these hospitals operates in FY 2025, we proposed to establish a narrow transitional exception to the calculation of FY 2026 payments for these hospitals. As described previously, if the combined payment effect of the FY 2025 wage index and the transitional payment exception for FY 2025 had been attributable solely to the FY 2025 wage index, then the wage index cap policy at 42 CFR 412.64(h)(7) would have mitigated these FY 2026 wage index decreases and would have done so in a budget neutral manner under our current regulations. As discussed in the FY 2025 IFC (89 FR 80407-80408), while CMS is not necessarily required by the statute to budget neutralize every exception or adjustment under section 1886(d)(5)(I), it has often done so by exercising its discretion under section 1886(d)(5)(I) of the Act twice: first to adopt an exception or adjustment, and then again to make that exception or adjustment budget neutral.\142\ For the FY 2025 interim transition policy, under the unique circumstances and due to the timing of the appellate court's decision in Bridgeport Hosp. v. Becerra so close to the beginning of FY 2025, we declined to exercise our discretion to budget neutralize that interim FY 2025 transition policy. We stated that unlike most policies relevant to the calculation of the hospital wage index, the timing of the court's decision shortly before the beginning of the fiscal year necessitated swift action by the agency via an IFC, rather than providing for prior notice and opportunity for comment. The agency's action in that IFC was intended to promote certainty regarding FY 2025 IPPS payments in light of the reasoning of Bridgeport, which risked creating ongoing confusion for hospitals extending into FY 2025 about the amount of their IPPS payments. In that circumstance, the lack of an opportunity to notify interested parties in a notice of proposed rulemaking about changes to their wage index that would result from [[Page 36856]] budget neutralizing the transition policy, and for the agency to consider before the policy's effective date issues hospitals might raise when commenting on those changes, weighed in favor of an approach that did not adversely affect the significant majority of hospitals. For these reasons, and as discussed in the IFC, we declined to budget neutralize the interim FY 2025 transition policy. --------------------------------------------------------------------------- \142\ For example, CMS has stated in the past that it would exercise its discretion under section 1886(d)(5)(I) of the Act to make the low wage index hospital policy budget neutral even if budget neutrality were not required by statute (88 FR 58979). --------------------------------------------------------------------------- In contrast, we proposed the FY 2026 transition policy under very different circumstances. We are not facing the timing constraints of a court decision issued shortly before the beginning of a fiscal year that necessitated swift action through an IFC to promote certainty and prevent ongoing confusion by hospitals. Rather, we proposed the FY 2026 transition policy through the normal course of our annual rulemaking for the IPPS, which allows both for advance notice of the policy and for us to consider issues interested parties might raise in comments on the proposed rule. We proposed to make this policy budget neutral through an adjustment applied to the standardized amount for all hospitals because: (1) the wage index cap policy at 42 CFR 412.64(h)(7) would have mitigated these FY 2026 wage index decreases had the combined payment effect of the FY 2025 wage index and the transitional payment exception been reflected solely in the FY 2025 wage index, and it would have done so in a budget neutral manner under our current regulations; and (2) the circumstances described previously that caused us to decline to budget neutralize the interim FY 2025 transition policy are not applicable to the proposed FY 2026 transition policy. In addition, we noted that implementing the proposed FY 2026 transition policy in a budget neutral manner would be consistent with past practice. For example, we budget neutralized the FY 2015 wage index transition budget neutrality policy discussed earlier (79 FR 49956 through 49962). As we have discussed in other instances (89 FR 19398), we believed, and continue to believe, that transition policies should not increase estimated aggregate Medicare payments beyond the payments that would be made had we never proposed these transition policies. Therefore, we proposed to use our authority under section 1886(d)(5)(I)(i) of the Act twice. First, we proposed to adopt a narrow transitional exception to the calculation of FY 2026 IPPS payments for low wage index hospitals significantly impacted by the discontinuation of the low wage index hospital policy. Second, we proposed to exercise our authority again to do so in a budget neutral manner.143 144 We refer the reader to section II.A.4.g. of the Addendum of this final rule for complete details regarding the application of the transition for the discontinuation of the low wage index hospital policy budget neutrality factor. --------------------------------------------------------------------------- \143\ We note that even more so than was the case for the FY 2025 interim transition policy, the scope and magnitude of the FY 2026 transitional policy are much smaller than the low wage index hospital policy. As discussed in section VI. of the preamble of this final rule, we estimate only 54 hospitals out of the over 3,000 hospitals paid under the IPPS will receive FY 2026 transitional exception payments, and the total payment impact of the transitional policy is an increase in IPPS operating payments by approximately $27 million. For the FY 2025 interim transition policy the corresponding figures were 113 hospitals and an increase in IPPS operating payments by approximately $37 million (89 FR 80417). \144\ We note that because creating an exception to the calculation of the FY 2026 payments is in this circumstance functionally equivalent to adjusting the FY 2026 payments, the transitional exception can be alternatively considered a transitional adjustment. --------------------------------------------------------------------------- The transitional exception policy we proposed applies to hospitals that benefitted from the FY 2024 low wage index hospital policy. For those hospitals, we stated that we would compare the hospital's proposed FY 2026 wage index to the hospital's FY 2024 wage index. If the hospital is significantly impacted by the discontinuation of the low wage index hospital policy, meaning the hospital's proposed FY 2026 wage index is decreasing by more than 9.75 percent \145\ from the hospital's FY 2024 wage index, then the transitional payment exception for FY 2026 for that hospital would be equal to the additional FY 2026 amount the hospital would be paid under the IPPS if its FY 2026 wage index were equal to 90.25 percent \146\ of its FY 2024 wage index.\147\ We noted this proposed transitional payment exception would be applied after the application of the 5-percent cap described at 42 CFR 412.64(h)(7). We provided the following example in the proposed rule: assume the FY 2024 wage index for a hospital that benefitted from the low wage index hospital policy is 0.7600, and the hospital's proposed FY 2026 wage index is 0.6500. (If applicable, this proposed FY 2026 wage index value would include the 5-percent cap based on a comparison of the hospital's FY 2026 wage index prior to application of the 5- percent cap, to the hospital's FY 2025 wage index. We noted that the FY 2025 wage index that will be used in this comparison is generally the FY 2025 wage index listed in Table 2 from the FY 2025 IFC in the column labeled ``FY 2025 Wage Index With Cap''. We noted that all hospitals, regardless of whether the cap was applied to their FY 2025 wage index, have a value in the column ``FY 2025 Wage Index With Cap''. Hospitals that did not have a cap applied to their FY 2025 wage index will display a wage index in this column without the cap.) The hospital's proposed FY 2026 wage index is decreasing by more than 9.75 percent from the hospital's FY 2024 wage index [that is, 0.6500 < 0.6859 where 0.6859 = (0.9025 times 0.7600)]. The proposed transitional payment exception for FY 2026 for this hospital is equal to the additional amount the hospital would be paid under the IPPS if its FY 2026 wage index were equal to 0.6859, which is 90.25 percent of 0.7600, its FY 2024 wage index. --------------------------------------------------------------------------- \145\ Under the wage index cap policy at 42 CFR 412.64(h)(7), a hospital's wage index for a FY cannot be lower than 0.95 * its wage index from the prior FY. Over a 2-year period if its wage index were decreasing by more than 5 percent each year, this will mean a hospital's wage index for a FY cannot be lower than (0.95*0.95) times its wage index from two years earlier. Similarly for our proposed FY 2026 transitional exception policy, we proposed that a hospital is significantly impacted by the discontinuation of the low wage index hospital policy if its FY 2026 wage index is less than (0.95*0.95) of its FY 2024 wage index, which equates to a decrease of more than 9.75 percent. \146\ 90.25 percent = 95 percent for FY 2025 * 95 percent for FY 2026. \147\ We note that we are not proposing to change the FY 2026 wage index values under section 1886(d)(3)(E) for hospitals eligible for the proposed FY 2026 transitional exception policy on the basis of the exception; the proposed change will be applied as a separate step only for purposes of determining the hospitals' FY 2026 IPPS payments. --------------------------------------------------------------------------- Under the capital IPPS, the adjustment for local cost variation is based on the hospital wage index value that is applicable to the hospital under the operating IPPS. We adjust the capital standard Federal rate so that the effects of the annual changes in the geographic adjustment factor (GAF) are budget neutral. The low wage index hospital policy has been reflected in the capital IPPS GAFs since FY 2020 (84 FR 42638). The removal of the low wage index hospital policy for FY 2025 also affects the FY 2025 GAFs. Because we are now no longer applying the low wage index hospital policy in FY 2025, we are also no longer making an adjustment to the FY 2025 capital standard Federal rate to ensure budget neutrality for the low wage index hospital policy. As discussed in the FY 2025 IFC (89 FR 80408), since FY 2023, the GAFs reflect the wage index cap policy that limits any decrease to a hospital's wage index from its wage index in the prior FY, regardless of the circumstances causing the decline, to 95 percent of its prior year value. As described previously, some hospitals that previously benefitted from the low wage index hospital policy will experience [[Page 36857]] decreases of 10 percent or more over the two years from their FY 2024 wage index (with the low wage index hospital policy applied) to their proposed FY 2026 wage index (that is, approximately 5 percent or more per year over that time period). As such, similar to the FY 2025 interim transition policy established in the FY 2025 IFC, we proposed to make a budget neutral equivalent exception under the capital IPPS. Comment: Commenters generally supported a transition for the discontinuation of the low wage index hospital policy. However, a few commenters expressed concern that CMS's proposed transition for FY 2026 is too narrow in scope and duration and suggested that CMS extend the transition for more years. Response: We thank the commenters for their support. For FY 2026, as discussed later in the section, we are finalizing as proposed without modification the transitional payment exception for FY 2026 in a budget neutral manner. With regard to extending the transition for additional years, we may consider this in future rulemaking. Comment: Regarding the budget neutrality adjustment for the transition, a commenter was supportive and explained that the budget neutrality adjustment will have only a very narrow impact. Most commenters, however, urged CMS to adopt the transition policy on a non- budget neutral basis. Some of these commenters stated that the statute does not require CMS to implement the policy in a budget neutral manner, and CMS could apply the transition in the same manner as in FY 2025. A few commenters maintained that CMS does not have the authority under 1886(d)(5)(I)(i) to apply budget neutrality, stating that the only authority for budget neutrality is under section 1886(d)(5)(I)(ii) of the Act when making adjustments for transfer cases. Multiple commenters maintained that a budget neutrality adjustment to fund the transition perpetuates the same issue the courts rejected by increasing payments to low wage hospitals at the expense of other hospitals. Similarly, a commenter stated that if CMS lacks the authority to implement the low wage index hospital policy, the burden should be on CMS to pay for a transition for hospitals benefiting from the unlawful policy, not on other hospitals. Other reasons given by commenters for a non-budget neutral transition included avoiding additional instability and the modest cost due to the relatively small number of hospitals benefiting from the policy. Response: We thank the commenter supportive of the budget neutrality adjustment. In response to the commenters urging CMS to finalize the transition without a budget neutrality adjustment like the FY 2025 transition, we continue to believe that the circumstances that caused us to decline to budget neutralize the interim FY 2025 transition policy are not applicable in FY 2026, and that the reasons we stated in the proposed rule for budget neutralizing the transition continue to apply. Regarding the comments challenging CMS's authority under 1886(d)(5)(I)(i) to apply the transition for FY 2026 in a budget neutral manner, we disagree with the commenters that we are not permitted to make budget neutral exceptions under section 1886(d)(5)(I)(i) of the Act. Consistent with our response to similar comments about the authority for budget neutrality in the FY 2021 IPPS/ LTCH PPS final rule (85 FR 58767), we believe that we have authority under section 1886(d)(5)(I)(i) of the Act to promulgate a budget neutrality adjustment to the national standardized amount and that this authority is not limited to transfer cases. In response to the commenters asserting that CMS should not budget neutralize a transition from a policy that a court ruled exceeded the Secretary's statutory authority, and other reasons given by commenters in support of a non-budget neutral transition, we continue to believe as we have stated in the past (89 FR 19398) that transition policies should not increase estimated aggregate Medicare payments beyond the payments that would have been made had we never proposed these transition policies. Also, as noted earlier, this is a narrow transition and the scope and magnitude of the FY 2026 transitional policy are much smaller. This is an appropriate budget neutral transition for hospitals. After consideration of the public comments we received, we are finalizing as proposed without modification to use our authority under section 1886(d)(5)(I)(i) of the Act twice. First, to adopt a narrow transitional exception to the calculation of FY 2026 IPPS payments for low wage index hospitals that benefitted from the FY 2024 low wage index hospital policy and are significantly impacted by the discontinuation of the low wage index hospital policy. Second, we are exercising our authority again to do so in a budget neutral manner through an adjustment applied to the standardized amount for all hospitals. We are also finalizing our proposal to make a budget neutral equivalent exception under the capital IPPS.

G. FY 2026 Wage Index Tables

In this FY 2026 IPPS/LTCH PPS final rule, we have included the following wage index tables: Table 2 titled ``Case-Mix Index and Wage Index Table by CCN''; Table 3 titled ``Wage Index Table by CBSA''; Table 4A titled ``List of Counties Eligible for the Out-Migration Adjustment under Section 1886(d)(13) of the Act''; and Table 4B titled ``Counties redesignated under section 1886(d)(8)(B) of the Act (Lugar Counties).'' We refer readers to section VI. of the Addendum to this final rule for a discussion of the wage index tables for FY 2026.

H. Labor-Related Share for the FY 2026 Wage Index

Section 1886(d)(3)(E) of the Act directs the Secretary to adjust the proportion of the national prospective payment system base payment rates that are attributable to wages and wage-related costs by a factor that reflects the relative differences in labor costs among geographic areas. It also directs the Secretary to estimate from time to time the proportion of hospital costs that are labor-related and to adjust the proportion (as estimated by the Secretary from time to time) of hospitals' costs that are attributable to wages and wage-related costs of the DRG prospective payment rates. We refer to the portion of hospital costs attributable to wages and wage-related costs as the labor-related share. The labor-related share of the prospective payment rate is adjusted by an index of relative labor costs, which is referred to as the wage index. Section 403 of Public Law 108-173 amended section 1886(d)(3)(E) of the Act to provide that the Secretary must employ 62 percent as the labor-related share unless this would result in lower payments to a hospital than would otherwise be made. However, this provision of Public Law 108-173 did not change the legal requirement that the Secretary estimate from time to time the proportion of hospitals' costs that are attributable to wages and wage-related costs. Thus, hospitals receive payment based on either a 62-percent labor-related share, or the labor-related share estimated from time to time by the Secretary, depending on which labor-related share results in a higher payment. In the FY 2022 IPPS/LTCH PPS final rule (86 FR 45194 through 45208), we rebased and revised the hospital market basket to a 2018- based IPPS hospital market basket, which replaced the 2014- [[Page 36858]] based IPPS hospital market basket, effective beginning October 1, 2021. Using the 2018-based IPPS market basket, we finalized a labor-related share of 67.6 percent for discharges occurring on or after October 1, 2021. In addition, in FY 2022, we implemented this revised and rebased labor-related share in a budget neutral manner (86 FR 45193, 86 FR 45529 through 45530). However, consistent with section 1886(d)(3)(E) of the Act, we did not take into account the additional payments that would be made as a result of hospitals with a wage index less than or equal to 1.0000 being paid using a labor-related share lower than the labor-related share of hospitals with a wage index greater than 1.0000. As described in section IV. of the preamble of this final rule, effective beginning FY 2026, in the FY 2026 IPPS/LTCH proposed rule, we proposed to rebase and revise the IPPS market basket to reflect a 2023 base year. We also proposed to recalculate the labor-related share for discharges occurring on or after October 1, 2025, using the proposed 2023-based IPPS market basket. As discussed in Appendix A of this final rule, we proposed this rebased and revised labor-related share in a budget neutral manner. However, consistent with section 1886(d)(3)(E) of the Act, we stated that we would not take into account the additional payments that would be made as a result of hospitals with a wage index less than or equal to 1.0000 being paid using a labor- related share lower than the labor-related share of hospitals with a wage index greater than 1.0000. The labor-related share is used to determine the proportion of the national IPPS base payment rate to which the area wage index is applied. We include a cost category in the labor-related share if the costs are labor intensive and vary with the local labor market. As described in section IV. of the preamble of this final rule, beginning with FY 2026, we proposed to include in the labor-related share the national average proportion of operating costs that are attributable to the following cost categories in the proposed 2023-based IPPS market basket: Wages and Salaries; Employee Benefits; Professional Fees: Labor-Related; Administrative and Facilities Support Services; Installation, Maintenance, and Repair Services; and All Other: Labor- Related Services as measured in the proposed 2023-based IPPS market basket. Therefore, for FY 2026, we proposed to use a labor-related share of 66.0 percent for discharges occurring on or after October 1, 2025. As discussed in section VI.B. of the preamble of this final rule, prior to January 1, 2016, Puerto Rico hospitals were paid based on 75 percent of the national standardized amount and 25 percent of the Puerto Rico-specific standardized amount. As a result, we applied the Puerto Rico-specific labor-related share percentage and nonlabor- related share percentage to the Puerto Rico-specific standardized amount. Section 601 of the Consolidated Appropriations Act, 2016 (Pub.

L. 114-113) amended section 1886(d)(9)(E) of the Act to specify that

the payment calculation with respect to operating costs of inpatient hospital services of a subsection (d) Puerto Rico hospital for inpatient hospital discharges on or after January 1, 2016, shall use 100 percent of the national standardized amount. Because Puerto Rico hospitals are no longer paid with a Puerto Rico-specific standardized amount as of January 1, 2016, under section 1886(d)(9)(E) of the Act as amended by section 601 of the Consolidated Appropriations Act, 2016, there is no longer a need for us to calculate a Puerto Rico-specific labor-related share percentage and nonlabor-related share percentage for application to the Puerto Rico-specific standardized amount. Hospitals in Puerto Rico are now paid 100 percent of the national standardized amount and, therefore, are subject to the national labor- related share and nonlabor-related share percentages that are applied to the national standardized amount. Accordingly, for FY 2026, we did not propose a Puerto Rico-specific labor-related share percentage or a nonlabor-related share percentage. Comment: A commenter stated that while they understood that the rebasing of the market basket to a 2023 base year requires recalibrating cost weights, CMS is not required to reweight the labor related share under section 1886(d)(2)(H) as part of that rebasing. They urged CMS to maintain the current 67.6 percent labor-related share in light of rising labor costs borne by essential hospitals. Some commenters were concerned that the reduction to the labor-related share from 67.6 percent to 66 percent would disproportionally negatively impact hospitals with a wage index greater than 1.000. Response: We thank the commenters for their comments. As stated previously, in the FY 2006 IPPS final rule (70 FR 47403), in accordance with section 404 of Public Law 108-173, CMS determined a new frequency for rebasing the hospital market basket. We established a rebasing frequency of every 4 years and, therefore, we rebase and revise the IPPS market basket effective for the FY 2026 IPPS update since it was last rebased effective for the FY 2022 IPPS update (the base year for the cost weights is being updated from 2018 to 2023). Section 1886(d)(3)(E) of the Act directs the Secretary to adjust the proportion of the national prospective payment system base payment rates that are attributable to wages and wage-related costs by a factor that reflects the relative differences in labor costs among geographic areas. It also directs the Secretary to estimate from ``time to time'' the proportion of hospital costs that are labor-related and to adjust the proportion (as estimated by the Secretary from ``time to time'') of hospitals' costs that are attributable to wages and wage-related costs of the DRG prospective payment rates. In order to meet the statutory requirement of ``time to time'', when we rebase and revise the IPPS market basket it is our longstanding practice to also recalculate the labor-related share using the rebased and revised IPPS market basket. Finally, we believe it is appropriate for FY 2026 to update the labor-related share to reflect the more recent cost structures of IPPS hospitals from the 2023-based IPPS market basket rather than continue to use the 2018- based IPPS market basket. After consideration of public comments, as discussed in section IV. of the preamble of this final rule, we are finalizing the rebasing of the 2023-based IPPS market basket without modification and the derivation of a labor-related share of 66.0 percent based on the final 2023-based IPPS market basket. Therefore, we are finalizing a labor- related share of 66.0 percent based on the 2023-based IPPS market basket. We refer the reader to section IV. of the preamble of this final rule for complete details regarding the rebasing of the labor- related share. Tables 1A and 1B, which are published in section VI. of the Addendum to this FY 2026 IPPS/LTCH PPS final rule and available via the internet on the CMS website, reflect the national labor-related share. Table 1C, in section VI. of the Addendum to this FY 2026 IPPS/LTCH PPS final rule and available via the internet on the CMS website, reflects the national labor-related share for hospitals located in Puerto Rico. For FY 2026, for all IPPS hospitals (including Puerto Rico hospitals) whose wage indexes are less than or equal to 1.0000, we are finalizing to apply the wage index to a labor-related share of 62 percent of the national standardized amount. For all IPPS hospitals (including Puerto Rico hospitals) whose wage indexes are greater than 1.000, for FY 2026, we are finalizing to apply the wage index to a labor-related share of 66.0 percent of the national standardized amount. [[Page 36859]]

A. Background

Effective for cost reporting periods beginning on or after July 1, 1979, we developed and adopted a hospital input price index (that is, the hospital market basket for operating costs). Although ``market basket'' technically describes the mix of goods and services used in providing hospital care, this term is also commonly used to denote the input price index (that is, cost category weights and price proxies combined) derived from that market basket. Accordingly, the term ``market basket'' as used in this document refers to the hospital input price index. The percentage change in the market basket reflects the average change in the price of goods and services hospitals purchase in order to provide inpatient care. We first used the market basket to adjust hospital cost limits by an amount that reflected the average increase in the prices of the goods and services used to provide hospital inpatient care. This approach linked the increase in the cost limits to the efficient utilization of resources. Since the inception of the IPPS, the projected change in the hospital market basket has been the integral component of the update factor by which the prospective payment rates are updated every year. An explanation of the hospital market basket used to develop the prospective payment rates was published in the Federal Register on September 1, 1983 (48 FR 39764). We also refer readers to the FY 2022 IPPS/LTCH PPS final rule (86 FR 45194 through 45207) in which we discussed the most recent previous rebasing of the hospital input price index. The hospital market basket is a fixed-weight, Laspeyres-type price index. A Laspeyres-type price index measures the change in price, over time, of the same mix of goods and services purchased in the base period. Any changes in the quantity or mix of goods and services (that is, intensity) purchased over time relative to the base period are not measured. The index itself is constructed in three steps. First, a base period is selected (in the proposed rule, we proposed to use 2023 as the base period) and total base period costs are estimated for a set of mutually exclusive and exhaustive spending categories, with the proportion of total costs that each category represents being calculated. These proportions are called cost weights. Second, each cost category is matched to an appropriate price or wage variable, referred to as a ``price proxy.'' In almost every instance, these price proxies are derived from publicly available statistical series that are published on a consistent schedule (preferably at least on a quarterly basis). Finally, the cost weight for each cost category is multiplied by the level of its respective price proxy. The sum of these products (that is, the cost weights multiplied by their price index levels) for all cost categories yields the composite index level of the market basket in a given period. Repeating this step for other periods produces a series of market basket levels over time. Dividing an index level for a given period by an index level for an earlier period produces a rate of growth in the input price index over that timeframe. As previously noted, the market basket is described as a fixed- weight index because it represents the change in price over time of a constant mix (quantity and intensity) of goods and services needed to provide hospital services. The effects on total costs resulting from changes in the mix of goods and services purchased subsequent to the base period are not measured. For example, a hospital hiring more nurses to accommodate the needs of patients would increase the volume of goods and services purchased by the hospital but would not be factored into the price change measured by a fixed-weight hospital market basket. Only when the index is rebased would changes in the quantity and intensity be captured, with those changes being reflected in the cost weights. Therefore, we rebase the market basket periodically so that the cost weights reflect recent changes in the mix of goods and services that hospitals purchase (hospital inputs) to furnish inpatient care between base periods. We last rebased the hospital market basket cost weights effective for FY 2022 (86 FR 45194 through 45207), with 2018 data used as the base period for the construction of the market basket cost weights. Effective for FY 2026, we proposed to rebase the IPPS operating market basket to reflect the 2023 cost structure for IPPS hospitals and to revise applicable cost categories and price proxies used to determine the IPPS market basket, as discussed in this final rule. We also proposed to rebase and revise the Capital Input Price Index (CIPI) as described in section IV.D. of the preamble of this final rule. In the following discussion, we provide an overview of the proposed IPPS market basket, describe the proposed methodologies for developing the cost weights, and provide information on the proposed price proxies. In each section, we describe any comments received, responses to these comments, and our final policies for this final rule. Then, we present the FY 2026 market basket update and labor-related share based on the 2023-based IPPS market basket.

B. Rebasing and Revising the IPPS Market Basket

The terms ``rebasing'' and ``revising,'' while often used interchangeably, actually denote different activities. ``Rebasing'' means moving the base year for the structure of costs of an input price index (for example, in the proposed rule, we proposed to shift the base year cost structure for the IPPS hospital index from 2018 to 2023). ``Revising'' means changing data sources or price proxies used in the input price index. As published in the FY 2006 IPPS final rule (70 FR 47403), in accordance with section 404 of Public Law 108-173, CMS determined a new frequency for rebasing the hospital market basket. We established a rebasing frequency of every 4 years and, therefore, we proposed to rebase and revise the IPPS market basket effective for the FY 2026 IPPS update since it was last rebased effective for the FY 2022 IPPS update (the base year for the cost weights is being updated from 2018 to 2023). We note that comments we received on the overall market basket method (including frequency of rebasings), transparency of the method, and resulting market basket updates are discussed in section IV.B.2. of the preamble of this final rule and comments we received on the labor-related share are discussed in section IV.B.3. of the preamble of this final rule.

1. Development of Cost Categories and Weights

a. Use of Medicare Cost Report Data The major source of expenditure data for developing the proposed rebased and revised hospital market basket cost weights is the 2023 Medicare cost reports. These 2023 Medicare cost reports are for cost reporting periods beginning on and after October 1, 2022, and before October 1, 2023. We proposed to use 2023 as the base year because we believe that the 2023 Medicare cost reports represent the most recent, complete set of Medicare cost report data available to develop cost weights for IPPS hospitals at the time of rulemaking. As was done in previous rebasings, these cost reports are from IPPS hospitals only (hospitals excluded from the IPPS (including CAHs and rural emergency hospitals) are not [[Page 36860]] included) and are based on IPPS Medicare-allowable operating costs. IPPS Medicare-allowable operating costs are costs that are eligible to be paid under the IPPS. For example, the IPPS market basket excludes home health agency (HHA) costs as these costs would be paid under the HHA PPS and, therefore, these costs are not IPPS Medicare-allowable costs. The current set of instructions for the Medicare cost reports for hospitals (Form 2552-10, OMB Control Number 0938-0050) can be found in Chapter 40 at the following website (https://www.cms.gov/Regulations-and-Guidance/Guidance/ManuFals/Paper-Based-Manuals-Items/CMS021935). The major types of costs underlying the 2023-based IPPS market basket are derived from the Medicare cost reports (Form 2552-10, OMB Control Number 0938-0050). Specifically, we proposed to use the Medicare cost reports for seven specific types of costs: Wages and Salaries, Employee Benefits, Contract Labor, Pharmaceuticals, Professional Liability Insurance (Malpractice), Blood and Blood Products, and Home Office/Related Organization Contract Labor. A residual category is then estimated and reflects all remaining costs not captured in the seven types of costs identified previously. The 2018-based IPPS market basket similarly used the Medicare cost reports. In order to create a market basket that is representative of IPPS hospitals serving Medicare patients and to help ensure the major cost weights accurately reflect the percent of total Medicare-allowable operating costs, as defined in this final rule, we proposed to apply edits to remove reporting errors and outliers. Specifically, the IPPS Medicare cost reports used to calculate the market basket cost weights exclude any providers that reported costs less than or equal to zero for the following categories: total Medicare inpatient costs (Worksheet D-1, Part II, column 1, line 49); Medicare PPS payments (Worksheet E, Part A, column 1, line 59); Total salary costs (Worksheet S-3, Part II, column 2, line 1). We also limited our sample to providers that had a Medicare cost reporting period that was between 10 and 14 months. The final sample used includes roughly 2,900 Medicare cost reports (about 93 percent of the universe of IPPS Medicare cost reports for 2023). The sample of providers is representative of the national universe of providers by ownership-type (proprietary, nonprofit, and government) and by urban/rural status. In the proposed rule, we proposed to calculate total Medicare- allowable operating costs for each hospital to be equal to noncapital costs (Worksheet B, Part I, column 26 less Worksheet B, Part II, column 26) that are attributable to the Medicare-allowable cost centers of the hospital. We proposed that Medicare-allowable cost centers are lines 30 through 35, 50 through 60, 62 through 76, 90, 91, 92.01, 93, 96 and 97. This is the same methodology that was used for the 2018-based IPPS market basket. (1) Wages and Salaries Costs To derive wages and salaries costs for the Medicare-allowable cost centers, we proposed to first calculate total unadjusted wages and salaries costs as reported on Worksheet S-3, Part II, column 4, line 1. We then proposed to remove the wages and salaries attributable to non- Medicare-allowable cost centers (that is, excluded areas) as well as a portion of overhead wages and salaries attributable to these excluded areas. This is the same methodology that was used to derive wages and salaries costs for the 2018-based IPPS market basket. Specifically, we proposed to calculate excluded area wages and salaries as equal to the sum of Worksheet S-3, Part II, column 4, lines 3, 4.01, 5, 6, 7, 7.01, 8, 9, and 10 less Worksheet A, column 1, lines 20 and 23. Overhead wages and salaries are attributable to the entire IPPS facility. Therefore, we proposed to only include the proportion attributable to the Medicare-allowable cost centers. Specifically, we proposed to estimate the proportion of overhead wages and salaries that are not attributable to Medicare-allowable cost centers (that is, excluded areas) by first calculating the ratio of total Medicare- allowable operating costs (as previously defined) to total facility operating costs (Worksheet B, Part I, column 26, line 202 less Worksheet B, Part I, column 0, lines 1 and 2). We then proposed to multiply this ratio by total overhead wages and salaries (Worksheet S- 3, Part II, column 4, lines 26, 27, 29 through 32, 34, and 36 through 43) to estimate Medicare allowable overhead wages and salaries. The difference between total overhead wages and salaries and Medicare allowable overhead wages and salaries is equal to the overhead wages and salaries attributable to the excluded areas. Therefore, we proposed wages and salaries costs used for the 2023- based IPPS market basket are equal to total wages and salaries costs less: (a) excluded area wages and salaries costs; and (b) overhead wages and salaries costs attributable to the excluded areas. (2) Employee Benefits Costs We proposed to derive employee benefits costs using a similar methodology as the wages and salaries costs; that is, reflecting employee benefits costs attributable to the Medicare-allowable cost centers. First, we calculate total unadjusted employee benefits costs as the sum of Worksheet S-3, Part II, column 4, lines 17, 18, 20, 22, and 25.52. We then exclude those employee benefits attributable to the overhead wages and salaries for the non-Medicare-allowable cost centers (that is, excluded areas). Employee benefits attributable to the non- Medicare-allowable cost centers are derived by multiplying the ratio of total employee benefits (equal to the sum of Worksheet S-3, Part II, column 4, lines 17, 18, 19, 20, 21, 22, 22.01, 23, 24, 25, 25.50, 25.51, 25.52, and 25.53) to total wages and salaries (Worksheet S-3, Part II, column 4, line 1) (which we hereafter refer to as the ``IPPS benefits ratio'') by excluded overhead wages and salaries (as previously described in section IV.B.1.a.(1). of the preamble of this final rule for wages and salaries costs). The same methodology was used in the 2018-based IPPS market basket. Therefore, we proposed employee benefit costs used for the 2023- based IPPS market basket are equal to total employee benefit costs less: (a) excluded area benefit costs; and (b) overhead benefit costs attributable to the excluded areas. (3) Contract Labor Costs Contract labor costs are primarily associated with direct patient care services. Contract labor costs for services such as accounting, billing, and legal are estimated using other government data sources as described in this final rule. We proposed to derive contract labor costs for the 2023-based IPPS market basket as the sum of Worksheet S- 3, Part II, column 4, lines 11, 13, and 15. The same methodology was used in the 2018-based IPPS market basket. (4) Professional Liability Insurance Costs We proposed that professional liability insurance (PLI) costs (often referred to as malpractice costs) be equal to premiums, paid losses, and self-insurance costs reported on Worksheet S-2, Part I, columns 1 through 3, line 118.01. The same methodology was used for the 2018-based IPPS market basket. [[Page 36861]] (5) Pharmaceuticals Costs We proposed to calculate pharmaceuticals costs as total costs reported for the Pharmacy cost center (Worksheet B, Part I, column 0, line 15) and Drugs Charged to Patients cost center (Worksheet B, Part I, column 0, line 73) less wages and salaries attributable to these two cost centers (Worksheet S-3, Part II, column 4, line 40 and Worksheet A, column 1, line 73) less estimated employee benefits attributable to these two cost centers. We proposed to estimate the employee benefits costs by multiplying the IPPS benefits ratio as described in section IV.B.1.a.(2) of the preamble of this final rule by total wages and salaries costs for the Pharmacy and Drugs Charged to Patients cost centers (equal to the sum of Worksheet S-3, Part II, column 4, line 40 and Worksheet A, column 1, line 73). The same methodology was used for the 2018-based IPPS market basket. (6) Blood and Blood Products Costs We proposed to calculate blood and blood products costs as total costs reported for the Whole Blood & Packed Red Blood Cells cost center (Worksheet B, Part I, column 0, line 62) and the Blood Storing, Processing, & Transfusing cost center (Worksheet B, Part I, column 0, line 63) less wages and salaries attributable to these two cost centers (Worksheet A, column 1, lines 62 and 63) less estimated employee benefits attributable to these two cost centers. We estimate these employee benefits costs by multiplying the IPPS benefits ratio as described in section IV.B.1.a.(2) of the preamble of this final rule by total wages and salaries for the Whole Blood & Packed Red Blood Cells and Blood Storing, Processing, & Transfusing cost centers (equal to the sum of Worksheet A, column 1, lines 62 and 63). The same methodology was used for the 2018-based IPPS market basket. (7) Home Office/Related Organization Contract Labor Costs We proposed to determine home office/related organization contract labor costs using data reported on Worksheet S-3, Part II, column 4, lines 14.01, 14.02, 25.50, and 25.51. The same methodology was used for the 2018-based IPPS market basket. b. Final Major Cost Category Computation After we derived costs for the major cost categories for each provider using the Medicare cost report data as previously described, we proposed to address data outliers using the following steps. First, for each of the major cost weights except the Home Office/ Related Organization Contract Labor cost weight, we proposed to trim the data to remove outliers (a standard statistical process) by: (step 1) requiring that major expenses (such as Wages and Salaries costs) and total Medicare-allowable operating costs be greater than zero; (step 2) dividing the costs for each of the six categories (calculated as previously described in this section) by total Medicare-allowable operating costs to obtain cost weights for each PPS hospital; and (step 3) excluding the top and bottom 5 percent of the major cost weight (for example, Wages and Salaries costs as a percent of total Medicare- allowable operating costs). We note that missing values are assumed to be zero consistent with the methodology for how missing values were treated in the 2018-based IPPS market basket. For the Home Office/Related Organization Contract Labor cost weight, we proposed to exclude outliers using a slightly different method by (step 1) requiring that total Medicare-allowable operating costs are greater than zero; (step 2) dividing the home office/related organization contract labor costs (calculated as previously described in this section) by total Medicare-allowable operating costs to obtain a cost weight for each PPS hospital; and (step 3) applying a trim that excludes those reporters with a Home Office/Related Organization Contract Labor cost weight above the 99th percentile. This allows all providers' Medicare-allowable costs to be included, even if their home office/related organization contract labor costs were reported to be zero. The Medicare cost report data (Worksheet S-2, Part I, line 140) indicate that not all hospitals have a home office. IPPS hospitals without a home office would report administrative costs that might typically be associated with a home office in the Wages and Salaries and Employee Benefits cost weights, or these costs would be reflected in the residual cost weight if they purchased these types of services from external contractors. We believe the trimming methodology that excludes those who report a Home Office/Related Organization Contract Labor cost weight above the 99th percentile is appropriate as it removes extreme outliers while also allowing providers with zero home office/related organization contract labor costs to be included in the Home Office/Related Organization Contract Labor cost weight calculation. After the outliers have been removed, we sum the costs for each category across all remaining providers. We then divide this by the sum of total Medicare-allowable operating costs across all remaining providers to obtain a cost weight for the 2023-based IPPS market basket for the given category. This is the same methodology used for the 2018- based IPPS market basket. The trimming process is done individually for each cost category so that providers excluded from one cost weight calculation are not automatically excluded from another cost weight calculation. We note that these proposed trimming methods are the same types of edits performed for the 2018-based IPPS market basket, as well as other PPS market baskets (including but not limited to SNF market basket and home health market basket). We note that for each of the cost weights we evaluated the distribution of providers and costs by ownership-type, and by urban/rural status. For all of the cost weights, the trimmed sample was nationally representative. Finally, we calculate the residual ``All Other'' cost weight that reflects all remaining costs that are not captured in the seven cost categories listed. We received the following comments on our proposed methodology for deriving the major cost weights of the proposed 2023-based IPPS market basket. Comment: A commenter stated that contract labor has been substituted for employed labor in recent years and accelerated with the COVID-19 PHE, and as a result their expectation would be that any decrease in labor costs for employee benefits would be more than offset by the increased costs for contract labor. The commenter requested that CMS reexamine its methodology for allocating home office costs to contract labor to ensure that it is appropriately resulting in an increase that offsets the decline in employee benefits as contract labor now represents a significantly higher share of total hospital labor costs. The commenter stated that the Employee Benefits cost weight is the largest factor in the decreasing labor-related share (1.2 percentage points). Response: We note that the discussion of the labor-related share as mentioned by the commenter is provided in section IV.B.3. of the preamble of this final rule. Our analysis of the Medicare cost report data indicates that the increase in the Home Office/Related Organization Contract Labor cost weight of 0.8 percentage point from 2018 to 2023 is more than offset by the estimated overhead compensation cost weight (excluding Home Office/Related Organization Contract Labor costs), which decreased about 1.4 percentage points over the same period. Overhead [[Page 36862]] compensation costs (as indicated in the FY 2026 IPPS/LTCH proposed rule (90 FR 18238)) would be reflected in the Wages and Salaries and Employee Benefits cost weights. Therefore, it is possible that hospitals are substituting some of their in-house administrative compensation costs for Home Office/Related Organization administrative compensation costs as the commenter alluded. We note that direct patient care contract labor costs are allocated to the Wages and Salaries and Employee Benefits cost weights based on their relative proportions for employed labor under the assumption that direct patient care contract labor costs are comprised of both wages and salaries and employee benefits and then these cost weights are proxied by the ECI for All Civilian Workers in Hospitals. As stated in the FY 2026 IPPS/ LTCH proposed rule (90 FR 18245 through 18246), we proposed to allocate the Home Office/Related Organization Contract Labor cost weight to the Professional Fees: Labor-Related and Professional Fees: Nonlabor- related cost weights (both of which are proxied by ECI for Total Compensation for Private Industry Workers in Professional and Related). After consideration of public comments, we are finalizing the major cost weights without modification. We note that comments we received on the overall market basket method (including frequency of rebasings), transparency of the method, and resulting market basket updates are discussed in section IV.B.2. of the preamble of this final rule and comments on the labor-related share are discussed in section IV.B.3 of the preamble of this final rule. Table IV-01 shows the resulting proposed and final cost weights for these major cost categories of the 2023-based IPPS market basket compared to the 2018-based IPPS market basket. [GRAPHIC] [TIFF OMITTED] TR04AU25.224 From 2018 to 2023, the Wages and Salaries and Employee Benefits cost weights as calculated directly from the Medicare cost reports decreased by 1.9 percentage points and 1.5 percentage points, respectively, while the Contract Labor cost weight increased by 1.6 percentage points. As we did for the 2018-based IPPS market basket (86 FR 45198), we proposed to allocate contract labor costs to the Wages and Salaries and Employee Benefits cost weights based on their relative proportions for employed labor under the assumption that contract labor costs are comprised of both wages and salaries and employee benefits. The contract labor allocation proportion for wages and salaries is equal to the Wages and Salaries cost weight as a percent of the sum of the Wages and Salaries cost weight and the Employee Benefits cost weight. Using the 2023 Medicare cost report data, this percentage is 79 percent. Therefore, we proposed to allocate approximately 79 percent of the Contract Labor cost weight to the Wages and Salaries cost weight and 21 percent to the Employee Benefits cost weight. The 2018-based IPPS market basket allocated 78 percent of the Contract Labor cost weight to the Wages and Salaries cost weight. We received no comments on the proposed methodology to allocate the Contract Labor cost weight to the Wages and Salaries cost weight and Employee Benefits cost weight and therefore, are finalizing this methodology without modification. Table IV-02 shows the Wages and Salaries and Employee Benefits cost weights after contract labor allocation for the 2018-based IPPS market basket and the proposed and final 2023-based IPPS market basket. In aggregate, the Compensation cost weight (calculated using more detailed decimal places) decreased from 53.0 percent to 51.1 percent, or 1.9 percentage points. [GRAPHIC] [TIFF OMITTED] TR04AU25.225 [[Page 36863]] c. Derivation of the Detailed Cost Weights To further divide the ``All Other'' residual cost weight estimated from the 2023 Medicare cost report data into more detailed cost categories, we proposed to use the 2017 Benchmark I-O, ``The Use Table (Supply-Use Framework),'' for NAICS 622000, Hospitals, published by the Bureau of Economic Analysis (BEA). These data are publicly available at the following website: https://www.bea.gov/industry/input-output-accounts-data. The BEA Benchmark I-O data are generally scheduled for publication every 5 years on a lagged basis, with the most recent data available for 2017. The 2017 Benchmark I-O data are derived from the 2017 Economic Census and are the building blocks for BEA's economic accounts. Therefore, they represent the most comprehensive and complete set of data on the economic processes or mechanisms by which output is produced and distributed.\148\ BEA also produces Annual I-O estimates. However, while based on a similar methodology, these estimates reflect less comprehensive and less detailed data sources and are subject to revision when benchmark data become available. Instead of using the less detailed Annual I-O data, we proposed to inflate the detailed 2017 Benchmark I-O data forward to 2023 by applying the annual price changes from the respective price proxies to the appropriate market basket cost categories that are obtained from the 2017 Benchmark I-O data and calculated the cost shares that each cost category represents using the inflated data. These resulting 2023 cost shares were applied to the residual ``All Other'' cost weight to obtain the detailed cost weights for the 2023-based IPPS market basket. For example, the cost for Food: Direct Purchases represents 4.0 percent of the sum of the residual ``All Other'' 2017 Benchmark I-O Hospital Expenditures inflated to 2023. Therefore, the Food: Direct Purchases cost weight represents 4.0 percent of the 2023-based IPPS market basket's ``All Other'' cost category (33.2 percent), yielding a Food: Direct Purchases proposed cost weight of 1.3 percent in the 2023-based IPPS market basket (0.040 x 33.2 percent = 1.3 percent). For the 2018-based IPPS market basket (86 FR 45198), we used the same methodology utilizing the 2012 Benchmark I-O data (aged to 2018). --------------------------------------------------------------------------- \148\ https://www.bea.gov/papers/pdf/IOmanual_092906.pdf. --------------------------------------------------------------------------- Using this methodology, we proposed to derive 17 detailed cost categories from the 2023-based IPPS market basket residual cost weight (33.2 percent). These categories are: (1) Fuel: Oil and Gas; (2) Electricity and Other Non-Fuel Utilities; (3) Food: Direct Purchases; (4) Food: Contract Services; (5) Chemicals; (6) Medical Instruments; (7) Rubber and Plastics; (8) Paper and Printing Products; (9) Miscellaneous Products; (10) Professional Fees: Labor-Related; (11) Administrative and Facilities Support Services; (12) Installation, Maintenance, and Repair Services; (13) All Other: Labor-Related Services; (14) Professional Fees: Nonlabor-Related; (15) Financial Services; (16) Telephone Services; and (17) All Other: Nonlabor-Related Services. We note that these are the same categories that were used in the 2018-based IPPS market basket. We received a few specific comments on our derivation of the Professional Fees: Labor-related and Professional Fees: Nonlabor- related cost weights as they relate to the proposed labor-related share. Those comments are summarized and responded to in section IV.B.3. of the preamble of this final rule.

2. Selection of Proposed Price Proxies

After computing the 2023 cost weights for the IPPS market basket, it was necessary to select appropriate wage and price proxies to reflect the rate of price change for each expenditure category. With the exception of the proxy for professional liability insurance (PLI), all the proxies we proposed are based on Bureau of Labor Statistics (BLS) data and are grouped into one of the following BLS categories: Producer Price Indexes--Producer Price Indexes (PPIs) measure the average change over time in the selling prices received by domestic producers for their output. The prices included in the PPI are from the first commercial transaction for many products and some services (https://www.bls.gov/ppi/). Consumer Price Indexes--Consumer Price Indexes (CPIs) measure the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services (https://www.bls.gov/cpi/). CPIs are only used when the purchases are similar to those of retail consumers rather than purchases at the producer level, or if no appropriate PPIs are available. Employment Cost Indexes--Employment Cost Indexes (ECIs) measure the rate of change in employee wage rates and employer costs for employee benefits per hour worked. These indexes are fixed-weight indexes and strictly measure the change in wage rates and employee benefits per hour. ECIs are superior to Average Hourly Earnings (AHE) as price proxies for input price indexes because they are not affected by shifts in occupation or industry mix, and because they measure pure price change and are available by both occupational group and by industry. The industry ECIs are based on the NAICS and the occupational ECIs are based on the Standard Occupational Classification System (SOC). We evaluated the price proxies using the criteria of reliability, timeliness, availability, and relevance: Reliability. Reliability indicates that the index is based on valid statistical methods and has low sampling variability. Widely accepted statistical methods ensure that the data were collected and aggregated in a way that can be replicated. Low sampling variability is desirable because it indicates that the sample reflects the typical members of the population. (Sampling variability is variation that occurs by chance because only a sample was surveyed rather than the entire population.) Timeliness. Timeliness implies that the proxy is published regularly, preferably at least once a quarter. The market basket levels are updated quarterly, and therefore, it is important for the underlying price proxies to be up-to-date, reflecting the most recent data available. We believe that using proxies that are published regularly (at least quarterly, whenever possible) helps to ensure that we are using the most recent data available to update the market basket. We strive to use publications that are disseminated frequently, because we believe that this is an optimal way to stay abreast of the most current data available. Availability. Availability means that the proxy is publicly available. We prefer that our proxies are publicly available because this will help ensure that our market basket updates are as transparent to the public as possible. In addition, this enables the public to be able to obtain the price proxy data on a regular basis. Relevance. Relevance means that the proxy is applicable and representative of the cost category weight to which it is applied. We believe the proposed PPIs, CPIs, and ECIs selected meet these criteria. Therefore, we believe that they continue to be the best proxy of price changes for the cost categories to which they would be applied. In this final rule, we present a detailed explanation of the price proxies that we proposed for each cost category weight. [[Page 36864]] a. Wages and Salaries We proposed to use the ECI for Wages and Salaries for All Civilian Workers in Hospitals (BLS series code CIU1026220000000I) to proxy the price growth of this cost category. This is the same price proxy used in the 2018-based IPPS market basket. b. Employee Benefits We proposed to use the ECI for Total Benefits for All Civilian Workers in Hospitals to proxy the price growth of this cost category. This ECI is calculated using the ECI for Total Compensation for All Civilian Workers in Hospitals (BLS series code CIU1016220000000I) and the relative importance of wages and salaries within total compensation. This is the same price proxy used in the 2018-based IPPS market basket. c. Fuel: Oil and Gas For the 2023-based IPPS market basket, we proposed to use a blend of the PPI Industry for Petroleum Refineries (NAICS 3241), PPI for Other Petroleum and Coal Products (NAICS 32419) and the PPI Commodity for Natural Gas. Our analysis of the Bureau of Economic Analysis' 2017 Benchmark I-O data for NAICS 622000 Hospitals shows that Petroleum Refineries expenses account for approximately 86 percent, Other Petroleum and Coal Products expenses account for about 7 percent and Natural Gas expenses account for approximately 7 percent of Hospitals' (NAICS 622000) total Fuel: Oil and Gas expenses. Therefore, we proposed to use a blend of 86 percent of the PPI Industry for Petroleum Refineries (BLS series code PCU324110324110), 7 percent of the PPI for Other Petroleum and Coal Products (BLS series code PCU32419) and 7 percent of the PPI Commodity Index for Natural Gas (BLS series code WPU0531) as the price proxy for this cost category. The 2018-based IPPS market basket used a 90/10 blend of the PPI Industry for Petroleum Refineries and PPI Commodity for Natural Gas, reflecting the 2012 I-O data (86 FR 45199). We believe that the three proposed price proxies are the most technically appropriate indices available to proxy the price growth of the Fuel: Oil and Gas cost category in the 2023-based IPPS market basket. d. Electricity and Other Non-Fuel Utilities We proposed to use the PPI Commodity for Commercial Electric Power (BLS series code WPU0542) to proxy the price growth of this cost category. This is the same price proxy used in the 2018-based IPPS market basket. e. Professional Liability Insurance We proposed to proxy price changes in hospital professional liability insurance premiums (PLI) using percentage changes as estimated by the CMS Hospital Professional Liability Index. To generate these estimates, we collect commercial insurance medical liability premiums for a fixed level of coverage while holding nonprice factors constant (such as a change in the level of coverage). This is the same price proxy used in the 2018-based IPPS market basket. f. Pharmaceuticals We proposed to use the PPI Commodity for Pharmaceuticals for Human Use, Prescription (BLS series code WPUSI07003) to proxy the price growth of this cost category. This is the same price proxy used in the 2018-based IPPS market basket. g. Food: Direct Purchases We proposed to use the PPI Commodity for Processed Foods and Feeds (BLS series code WPU02) to proxy the price growth of this cost category. This is the same price proxy used in the 2018-based IPPS market basket. h. Food: Contract Services We proposed to use the CPI for Food Away From Home (All Urban Consumers) (BLS series code CUUR0000SEFV) to proxy the price growth of this cost category. This is the same price proxy used in the 2018-based IPPS market basket. i. Chemicals Similar to the 2018-based IPPS market basket, we proposed to use a four-part blended PPI as the proxy for the Chemicals cost category in the 2023-based IPPS market basket. The proposed blend is composed of the PPI Industry for Industrial Gas Manufacturing, Primary Products (BLS series code PCU325120325120P), the PPI Industry for Other Basic Inorganic Chemical Manufacturing (BLS series code PCU32518-32518), the PPI Industry for Other Basic Organic Chemical Manufacturing (BLS series code PCU32519-32519), and the PPI Industry for Other Miscellaneous Chemical Product Manufacturing (BLS series code PCU325998325998). For the 2023-based IPPS market basket, we proposed to derive the weights for the PPIs using the 2017 Benchmark I-O data. The 2018-based IPPS market basket used the 2012 Benchmark I-O data to derive the weights for the four PPIs (86 FR 45200). We did not receive comments on the proposed methodology to derive the blended Chemicals price proxy using the 2017 Benchmark I-O and therefore are finalizing this methodology without modification. Table IV-03 shows the proposed and final weights for each of the four PPIs used to create the blended index compared to those used for the 2018-based IPPS market basket. [GRAPHIC] [TIFF OMITTED] TR04AU25.226 j. Blood and Blood Products We proposed to use the PPI Industry for Blood and Organ Banks (BLS series code PCU621991621991) to proxy the price growth of this cost category. This is the same price proxy used in the 2018-based IPPS market basket. k. Medical Instruments We proposed to use a blended price proxy for the Medical Instruments category, as shown in Table IV-04. The 2017 Benchmark I-O data shows the majority of medical instruments and supply costs are for NAICS 339112--Surgical and medical instrument manufacturing costs (approximately 64 [[Page 36865]] percent) and NAICS 339113--Surgical appliance and supplies manufacturing costs (approximately 36 percent). To proxy the price changes associated with NAICS 339112, we proposed using the PPI Commodity for Surgical and medical instruments (BLS series code WPU1562). To proxy the price changes associated with NAICS 339113, we proposed to use a 50/50 blend of the PPI Commodity for Medical and surgical appliances and supplies (BLS series code WPU1563) and the PPI Commodity for Miscellaneous products, Personal safety equipment and clothing (BLS series code WPU1571). We proposed to include the latter price proxy as it would reflect personal protective equipment including but not limited to face shields and protective clothing. The 2017 Benchmark I-O data does not provide specific expenses for these products. However, we recognize that this category reflects costs faced by IPPS hospitals. These are the same price proxies used in the 2018- based IPPS market basket. We did not receive comments on the proposed methodology to derive the blended Medical Instruments price proxy using the 2017 Benchmark I-O data and therefore are finalizing this methodology without modification. [GRAPHIC] [TIFF OMITTED] TR04AU25.227 l. Rubber and Plastics We proposed to use the PPI Commodity for Rubber and Plastic Products (BLS series code WPU07) to proxy the price growth of this cost category. This is the same price proxy used in the 2018-based IPPS market basket. m. Paper and Printing Products We proposed to use a 61/39 blend of the PPI Commodity for Publications Printed Matter and Printing Material (BLS Series Code WPU094) and the PPI Commodity for Converted Paper and Paperboard Products (BLS series code WPU0915) to proxy the price growth of this cost category. The 2017 Benchmark I-O data shows that 61 percent of paper and printing expenses are for Printing (NAICS 323110) and the remaining expenses are for Paper manufacturing (NAICS 322). The 2018- based IPPS market basket (86 FR 45201) used the PPI Commodity for Converted Paper and Paperboard Products (BLS series code WPU0915) as this comprised the majority of expenses as reported in the 2012 Benchmark I-O data. n. Miscellaneous Products We proposed to use the PPI Commodity for Finished Goods Less Food and Energy (BLS series code WPUFD4131) to proxy the price growth of this cost category. This is the same price proxy used in the 2018-based IPPS market basket. o. Professional Fees: Labor-Related We proposed to use the ECI for Total Compensation for Private Industry Workers in Professional and Related (BLS series code CIU2010000120000I) to proxy the price growth of this category. It includes occupations such as legal, accounting, and engineering services. This is the same price proxy used in the 2018-based IPPS market basket. p. Administrative and Facilities Support Services We proposed to use the ECI for Total Compensation for Private Industry Workers in Office and Administrative Support (BLS series code CIU2010000220000I) to proxy the price growth of this category. This is the same price proxy used in the 2018-based IPPS market basket. q. Installation, Maintenance, and Repair Services We proposed to use the ECI for Total Compensation for All Civilian Workers in Installation, Maintenance, and Repair (BLS series code CIU1010000430000I) to proxy the price growth of this cost category. This is the same proxy used in the 2018-based IPPS market basket. r. All Other: Labor-Related Services We proposed to use the ECI for Total Compensation for Private Industry Workers in Service Occupations (BLS series code CIU2010000300000I) to proxy the price growth of this cost category. This is the same price proxy used in the 2018-based IPPS market basket. s. Professional Fees: Nonlabor-Related We proposed to use the ECI for Total Compensation for Private Industry Workers in Professional and Related (BLS series code CIU2010000120000I) to proxy the price growth of this category. This is the same price proxy that we proposed to use for the Professional Fees: Labor-Related cost category and the same price proxy used in the 2018- based IPPS market basket. t. Financial Services We proposed to use the ECI for Total Compensation for Private Industry Workers in Financial Activities (BLS series code CIU201520A000000I) to proxy the price growth of this cost category. This is the same price proxy used in the 2018-based IPPS market basket. u. Telephone Services We proposed to use the CPI for Telephone Services (BLS series code CUUR0000SEED) to proxy the price growth of this cost category. This is the same price proxy used in the 2018-based IPPS market basket. v. All Other: Nonlabor-Related Services We proposed to use the CPI for All Items Less Food and Energy (BLS series code CUUR0000SA0L1E) to proxy the price growth of this cost category. We believe that using the CPI for All Items Less Food and Energy avoids double counting of changes in food and energy prices as they are already captured elsewhere in the market basket. This is the same price proxy used in the 2018-based IPPS market basket. We received the following comments on our proposed price proxies for the 2023-based IPPS market basket. Comment: Several commenters urged CMS to adjust its methodology for calculating the annual payment update (including the adoption of additional data elements in the IPPS market basket) to ensure it provides a robust payment update that adequately incorporates the effects of rising workforce costs on hospitals, which they believe is not being captured by the ECI used in the IPPS market basket. The commenters stated that the use of the ECI may not be adequately capturing employment [[Page 36866]] and labor cost growth. Commenters stated that CMS should identify and use data inputs that better capture these price increases--for example, incorporating more recent wage data that include contract labor expenses, which the ECI currently does not fully reflect. They stated that they continue to stand ready to work with CMS to examine the market basket compensation indices and proxies to improve the accuracy of these measures. Response: We believe that the ECI for wages and salaries for hospital workers is accurately reflecting the price change associated with the labor used to provide hospital care. The ECI appropriately does not reflect other factors that might affect the rate of price changes associated with labor costs, such as a shift in the occupations that may occur due to increases in case-mix or shifts in hospital purchasing decisions (for instance, to hire or to use contract labor). We believe that the prices of employed staff and contract labor are influenced by the same factors and should generally grow at similar rates. In most periods when there are not significant occupational shifts or significant shifts between employed and contract labor, the data has shown that the growth in the ECI for wages and salaries for hospital workers has generally been consistent with overall hospital wage trends. For example, our more recent analysis of the Medicare cost report data shows from 2018 to 2023, the compound annual growth rate of IPPS Medicare allowable salaries, benefits and contract labor costs per hour was about 4 percent, consistent with the growth rate of the compensation price increases in the 2023-based IPPS market basket as measured by the ECIs for hospital workers over the same period. For this final rule, based on the more recent IGI second quarter 2025 forecast with historical data through the first quarter of 2025, the projected 2023-based IPPS market basket increase factor for FY 2026 reflects a projected increase in compensation prices of 3.4 percent. After consideration of public comments, we are finalizing the price proxies for the 2023-based IPPS market basket as proposed without modification. Table IV-05 sets forth the 2023-based IPPS market basket, including the cost categories and their respective weights and price proxies. For comparison purposes, the corresponding 2018-based IPPS market basket cost weights also are listed. BILLING CODE 4120-01-P [[Page 36867]] [GRAPHIC] [TIFF OMITTED] TR04AU25.228 [[Page 36868]] [GRAPHIC] [TIFF OMITTED] TR04AU25.229 BILLING CODE 4120-01-C Table IV-06 compares both the historical and forecasted percent changes in the 2018-based IPPS market basket and the final 2023-based IPPS market basket. The forecasted growth rates in Table IV-06 are based on IHS Global Inc.'s (IGI's) second quarter 2025 forecast with historical data through first quarter 2025. [GRAPHIC] [TIFF OMITTED] TR04AU25.230 The average historical percent change of the 2023-based IPPS market basket is slightly lower than the average percent change of the 2018- based IPPS market basket over the FY 2021 through FY 2024 time period. The average projected percent change of the 2023-based IPPS market basket is equal to the average percent change of the 2018-based IPPS market basket over the FY 2025 through FY 2028 time period. For FY 2026, the 2023-based IPPS market basket is projected to increase 3.3 percent, which is the same as the FY 2026 projected increase of the 2018-based IPPS market basket. This is 0.1 percentage point higher than the FY 2026 projected increase of 3.2 percent that we proposed in the FY 2026 IPPS/LTCH PPS proposed rule. We note that while there are multiple offsetting factors contributing to differences in the forecasts underlying the proposed and final rules, the final FY 2026 IPPS market basket increase is slightly higher due to economic uncertainty. We summarize and respond to the public comments we received on the adequacy of the proposed IPPS market basket increase in section VI.B.1. of the preamble of this final rule. In this section, we summarize and respond to comments we received regarding the proposal to rebase the IPPS market basket. Comment: A commenter appreciated CMS' efforts to rebase the IPPS market basket this year, as scheduled, but the commenter expressed concern that CMS' analyses are not fully representative of the input costs for providing care. Another commenter requested CMS rebase the market baskets more frequently and at least [[Page 36869]] every 3 years to ensure the market basket reflects the appropriate mix of services provided to Medicare beneficiaries. Several commenters stated that the 3.2 percent market basket increase is lower than what it would have been absent the rebasing and revising of the hospital market basket. They stated that based on the growth in their costs that they expect to experience in the coming federal fiscal year, they are concerned that this rebasing has incorrectly lowered the calculated rate of growth of hospital costs. Response: We appreciate the commenters' support for the rebasing and revising of the IPPS market basket, which we believe appropriately reflects a more recent input cost structure for IPPS hospitals for providing care. The major cost weights (accounting for about 70 percent of the proposed 2023-based IPPS operating market basket) were derived using 2023 Medicare cost report data for IPPS hospitals. We then supplement these data with Benchmark Input-Output data for NAICS 622000, Hospitals from ``The Use Table (Supply-Use Framework)'' to derive more detailed cost weights that reflect the complex cost structure of hospitals (reflecting costs such as compensation, food, and medical supplies/equipment). We believe both of these data sources are representative of the cost weights for IPPS hospitals providing services to Medicare beneficiaries. As discussed in the proposed rule, as published in the FY 2006 IPPS final rule (70 FR 47403), in accordance with section 404 of Public Law 108-173, CMS determined a new frequency for rebasing the hospital market basket. We established a rebasing frequency of every 4 years based on our evaluation of data and methods at the time of the FY 2006 IPPS final rule and we continue to believe a rebasing frequency of every 4 years is appropriate. We refer readers to the FY 2006 IPPS final rule (70 FR 47404 through 47407) for the research we conducted at the time to determine this, which included reviewing the frequency and availability of the data needed to produce the market basket and analyzing the impact on the market basket of determining the market basket weights under various frequencies. Therefore, we proposed to rebase and revise the IPPS market basket effective for the FY 2026 IPPS update since it was last rebased effective for the FY 2022 IPPS update (the base year for the cost weights is being updated from 2018 to 2023). Despite this established frequency, we regularly monitor the Medicare cost report data to assess whether a rebasing is technically appropriate, and we will continue to do so in the future. The IPPS market basket is designed to measure price inflation for IPPS hospitals and would not reflect increases in costs associated with changes in the volume or intensity of input goods and services. As noted by the commenters and stated in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18244), based on IGI's fourth quarter 2024 forecast with historical data through third quarter 2024, the proposed 2023-based IPPS market basket rate-of-increase was 0.1 percentage point lower (after rounding to a tenth of a percentage point) compared to the 2018-based IPPS market basket rate-of-increase. Based on more recent data available for this FY 2026 IPPS/LTCH PPS final rule (that is, IGI's second quarter 2025 forecast of the 2023-based IPPS market basket rate-of-increase with historical data through the first quarter of 2025), we estimate that the FY 2026 IPPS market basket update used to determine the applicable percentage increase is 3.3 percent (the same percentage increase of the 2018-based IPPS market basket after rounding to a tenth of a percentage point).

3. Labor-Related Share

Under section 1886(d)(3)(E) of the Act, the Secretary estimates from time to time the proportion of payments that are labor-related. Section 1886(d)(3)(E) of the Act states that the Secretary shall adjust the proportion (as estimated by the Secretary from time to time) of hospitals' costs which are attributable to wages and wage-related costs, of the DRG prospective payment rates. We refer to the proportion of hospitals' costs that are attributable to wages and wage-related costs as the ``labor-related share.'' The labor-related share is used to determine the proportion of the national PPS base payment rate to which the area wage index is applied. We include a cost category in the labor-related share if the costs are labor intensive and vary with the local labor market. We proposed to include in the labor-related share the national average proportion of operating costs that are attributable to the following cost categories in the 2023-based IPPS market basket: Wages and Salaries, Employee Benefits, Professional Fees: Labor-Related, Administrative and Facilities Support Services, Installation, Maintenance, and Repair Services, and All Other: Labor-Related Services, as we did in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45204). Similar to the 2018-based IPPS market basket, for the 2023-based IPPS market basket we proposed to classify expenses into the Professional Fees: Labor-Related cost category using the Benchmark I-O data, and then for this rebasing supplement these estimates with data obtained from the Medicare hospital cost report regarding the proportion of expenses classified as professional fees (for example, advertising, legal services, accounting and auditing, engineering, and management consulting) that are purchased within the local area labor market. The 2018-based IPPS market basket (86 FR 45204 through 45205) used a survey of hospitals conducted by CMS in 2008 (OMB Control Number 0938-1036) to supplement the Benchmark I-O data and determine this proportion. Effective for transmittal 18 (https://www.cms.gov/Regulations-and-Guidance/Guidance/Transmittals/Transmittals/r18p240i, the hospital Medicare cost report (CMS Form 2552-10, OMB No. 0938-0050) Worksheet S-2, Part I collects information on whether a hospital purchased professional services (for example, legal, accounting, tax preparation, bookkeeping, payroll, advertising, and management/ consulting services or both) from an unrelated organization and if the majority of these expenses were purchased from unrelated organizations located outside of the main hospital's local area labor market. For the 2023-based IPPS market basket, we proposed to determine the proportion of expenses classified as professional fees that meet our definition of labor-related services based on the Medicare cost report data. Based on these data, approximately 73 percent of IPPS hospitals (approximately 2,100) purchased professional services from an unrelated organization in 2023 as reported on Worksheet S-2, Part I, column 1, line 123 (that is, answered Yes) and also indicated whether the majority of these expenses are purchased outside their local labor market (reported Yes or No on Worksheet S-2, Part I, column 2, line 123). Of those hospitals, 37 percent of them purchased the majority of these expenses from unrelated organizations located in a CBSA outside of the main hospital CBSA as reported on Worksheet S-2, Part I, column 2, line 123. For these reporters (which accounted for 32 percent of total Medicare allowable operating costs) that indicated they purchased the majority of these services outside of the local labor market, we need to estimate a specific proportion of these services that are purchased inside the local labor market. For these reporters, we use 25 percent [[Page 36870]] (the median of 1 percent to 49 percent range) to estimate the proportion of these services that are purchased inside of the local labor market. For the remaining reporters (which accounted for 68 percent of total Medicare allowable operating costs) that indicated they purchased the majority of these services inside the local labor market we use 75 percent (the median of 51 percent to 100 percent). To estimate the overall proportion of expenses classified as professional fees that meet our definition of labor-related services (that is, reflects services purchased inside of the local labor market), for the first group of reporters we multiply 32 percent times 25 percent, which yields an estimate of 8 percent, and for the second group of reporters multiply 68 percent times 75 percent, which yields an estimated proportion of 51 percent. Combining these two measures yields 59 percent (8 percent plus 51 percent), which reflects the overall proportion of total Medicare allowable operating expenses that are purchased inside the local labor market and will be reflected in our labor-related measure. Therefore, we proposed to allocate 59 percent of the Benchmark I-O expenses classified as professional fees to estimate Professional Fees: Labor-Related cost weight, and 41 percent of the Benchmark I-O expenses classified as professional fees to estimate Professional Fees: Nonlabor-Related cost weight. In the 2023-based IPPS market basket, expenses classified as professional fees that are subject to allocation represent approximately 9.8 percent of total operating costs. Based on the Medicare cost report results, we proposed to apportion 5.8 percentage points of the 9.8 percentage point figure into the Professional Fees: Labor-Related cost category (59 percent of 9.8 percent) and designate the remaining approximately 4.0 percentage points into the Professional Fees: Nonlabor-Related cost category (41 percent of 9.8 percent). We note that in the 2018-based IPPS market basket given the data available from the 2008 survey, we classified some expenses from the 2012 Benchmark I-O data as Professional Fees: Labor-Related, some expenses as Professional Fees: Nonlabor-Related, and some expenses as professional fees subject to allocation based on the survey. We then applied the 2008 survey results to the following specific categories of expenses: Legal services, Accounting, tax preparation, bookkeeping, and payroll services, Architectural, engineering and related services, and Management consulting services. However, for the 2023-based IPPS market basket, we proposed to revise the methodology to now use the data as reported on the Medicare cost reports (Worksheet S-2, Part I) to allocate all of the expenses we proposed to classify as professional fees costs from the 2017 Benchmark I-O data. The impact of this proposed change is an increase in the 2023-based Professional Fees: Labor-Related cost weight of about 1 percentage point. In addition to the professional services listed earlier, we also classify a proportion of the Home Office/Related Organization Contract Labor cost weight into the Professional Fees: Labor-Related cost category as was done in the previous rebasing. We believe that many of these costs are labor-intensive and vary with the local labor market. However, data indicate that not all IPPS hospitals with home offices have home offices located in their local labor market. Therefore, we proposed to include in the labor-related share only a proportion of the Home Office/Related Organization Contract Labor cost weight based on the methodology described in this final rule. For the 2023-based IPPS market basket, based on Medicare cost report data, we found that approximately 71 percent of IPPS hospitals reported some type of home office information on their Medicare cost report for 2023 (for example, city, State, and zip code). Using the data reported on the Medicare cost report, we compared the location of the hospital with the location of the hospital's home office. We then determined the proportion of home office/related organization contract labor cost that should be allocated to the labor-related share based on the percent of the home office/related organization contract labor costs for those hospitals that had home offices located in their respective local labor markets--defined as being in the same MSA. We determined a hospital's and home office's MSAs using their zip code information from the Medicare cost report. Based on these data, we determined the proportion of costs that should be allocated to the labor-related share based on the percent of hospital home office/related organization contract labor costs (equal to the sum of Worksheet S-3, Part II, column 4, lines 14.01, 14.02, 25.50, and 25.51). Using this methodology, we determined that 62 percent of hospitals' home office compensation costs were for home offices located in their respective local labor markets. Therefore, we proposed to allocate 62 percent of Home Office/Related Organization Contract Labor cost weight to the labor-related share. The 2018-based IPPS market basket used a 60 percent proportion, which was based on the same methodology and the 2018 Medicare cost report data. In the 2023-based IPPS market basket, the Home Office/Related Organization Contract Labor cost weight that is subject to allocation based on the home office allocation methodology represented 6.7 percent of total operating costs. Based on the results of the home office analysis, as previously discussed, we apportioned approximately 4.2 percentage points of the 6.7 percentage points figure into the Professional Fees: Labor-Related cost category and designated the remaining approximately 2.6 percentage points into the Professional Fees: Nonlabor-Related cost category.\149\ In summary, based on the two previously mentioned allocations, we apportioned 10.0 percentage points (sum of the professional fees (5.8 percentage points) and Home Office/ Related Organization Contract Labor cost weight (4.2 percentage points)) into the Professional Fees: Labor-Related cost category. Using these two methods, we then apportion 6.6 percentage points (sum of the professional fees (4.0 percentage points) and Home Office/Related Organization Contract Labor cost weight (2.6 percentage points)) to the Professional Fees: Nonlabor-related cost category to be included with other costs classified as Professional Fees: Nonlabor-Related (approximately 0.4 percentage point), resulting in a Professional Fees: Nonlabor-related cost weight of 7.0 percent. The resulting 2023-based Professional Fees: Labor-related cost weight is about 1.4 percentage points higher than the 2018-based Professional Fees: Labor-related cost weight. --------------------------------------------------------------------------- \149\ Note: The cost weights are calculated using 3 decimal places. For presentational purposes, we are displaying one decimal and therefore, the detail may not add to the total due to rounding. --------------------------------------------------------------------------- Using the proposed 2023-based IPPS market basket cost weights, we derived a proposed labor-related share of 66.0 percent based on the proposed 2023-based IPPS market basket. We summarize and respond to the public comments we received on our proposed methodology for deriving the proposed labor-related share for FY 2026 here. Comment: A commenter was supportive of the proposed update to the labor-related share and encouraged CMS to review the labor-related share of all states to ensure that the labor proportion is accurate to current costs incurred by hospitals. Several commenters were concerned about the downward adjustment of the labor-related share from 67.6 percent to 66 [[Page 36871]] percent in FY 2026 stating that they believe it does not reflect hospital labor and non-labor cost pressures. They stated that per- discharge labor costs have dramatically increased in recent years, citing that according to one study, 37 percent from 2019 to 2022. A few commenters noted the labor-related share has declined in five of the last six rebasings of the hospital market basket. The commenters stated that this continued decline only negatively impacts hospitals with a wage index over 1.0 without a clearly delineated budget neutrality adjustment to ensure overall Medicare hospital reimbursement is maintained. The commenters stated that given the current healthcare workforce crisis and the growing wage demands on hospitals, labor costs as a share of total hospital costs have grown since the 2018 base year, not declined. A few commenters stated that they understood the need for rebasing the labor share but requested that CMS release additional information on how it arrived at its proposed estimate for the national labor- related share for FY 2026. Commenters stated that to accurately replicate and verify the labor related share, they requested CMS publish a table of their intermediate steps reflective of the numerators and denominators utilized in each cost category and calculation step. These commenters requested CMS include the dollar values used to calculate the percentage of each cost category. A commenter stated that the proposed reduction in the national labor-related share could lead to lower payments for hospitals with higher wage indexes, as a smaller share of the payment rate will reflect local labor costs. Accordingly, the commenter requested that CMS, at a minimum, reconsider labor expense calculations to provide a more appropriate update based on growing and unsustainable costs. Response: The purpose of the labor-related share is to reflect the proportion of the national IPPS standardized amount that is adjusted by the hospital's wage index (representing the relative costs of their local labor market to the national average). We proposed to derive the labor-related share using the 2023-based IPPS market basket, reflecting average national cost weights for IPPS hospitals. As stated in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18239), for each cost weight included in the 2023-based IPPS market basket we utilized reported data from all IPPS hospitals reporting Medicare IPPS payments and facility operating costs with proposed trims to the data to remove outliers. For each of the cost weights, we evaluated the distribution of providers and costs by ownership-type and by urban/rural status to make sure they were nationally representative. We appreciate the commenters' request to explain the decrease in the labor-related share in more detail. The decrease in the labor- related share from 67.6 percent to 66.0 percent is primarily due to the lower compensation cost weight (calculated using the Medicare cost report data) in the 2023-based IPPS market basket (51.1 percent) compared to the compensation cost weight in the 2018-based IPPS market basket (53.0 percent) as these costs increased at a slower rate than total operating costs. Our analysis of the Medicare cost report data showed that on a per inpatient day basis, compensation costs, which largely reflect direct patient care salaries, grew by about 4 percent per year from 2018 to 2023 while total operating costs grew by about 5 percent per year. The slower growth in compensation costs also reflected slower growth in employee benefit costs (particularly qualified defined benefit plan costs) and overhead employee salaries at about 3 percent per year. Contract labor costs for direct patient care, on the other hand, offset some of this experience as costs grew nearly 18 percent per year over this same period. For noncompensation costs, which grew nearly 6 percent per year from 2018-2023, key contributors were costs for home office contract labor (about 8 percent growth per year) and pharmaceuticals (about 6 percent growth per year). Consistent with some of the commenter's findings, our analysis of the Medicare cost report data shows that compensation costs have been increasing at a faster rate between the 2018 to 2023 time period compared to the prior 4-year period; however, these compensation costs have been growing slower than noncompensation costs, which results in a decrease in the compensation cost weight. In addition, from 2018 to 2023, we have seen faster growth in the Professional Fees costs and Home Office/ Related Organization costs resulting in an increase in the professional fees cost weights and Home Office/Related Organization cost weight, which are partially offsetting the decrease in compensation cost weight as shown in Table IV-05. In response to commenters' request for additional information on the methodology for calculating the labor related share, as stated in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18240), we derive the Professional Fees cost weight using the 2017 Benchmark I-O, ``The Use Table (Supply-Use Framework),'' for NAICS 622000, Hospitals, published by the Bureau of Economic Analysis (BEA). First, to obtain an amount for the Professional Fees costs subject to the allocation percentage from the Medicare cost reports, we calculated the sum of I-O expenses for Professional, Scientific, and Technical Services (NAICS 54) excluding Veterinary services (which we include in the Professional Fees: Nonlabor-Related), I-O expenses for Business Support Services (NAICS 5614), Data Processing, Hosting and Related services (NAICS 5182) and I-O expenses for Lessors of Nonfinancial Intangible Assets (NAICS 533). In addition, we also are adding in 34 percent of Employment Services (NAICS 5613) as Census and BEA data indicate that these expenses reflect more than just direct patient care contract labor (which we directly obtain from Worksheet S-3, Part II, column 4, lines 11, 13, and 15 from the Medicare cost report as noted in the proposed rule). The sum of these costs reflect total Professional Fees from the 2017 Benchmark I-O data that are subject to the allocation percentage from the Medicare cost reports, or 30.2 percent of total ``All Other'' costs from the 2017 Benchmark I-O data. The ``All Other'' costs are equal to the sum of the Benchmark I-O data for the detailed cost categories as described in section IV.B.c. of the preamble of the FY 2026 IPPS/LTCH proposed rule. Second, we proposed to inflate the detailed 2017 Benchmark I-O data forward to 2023 by applying the annual price changes from the respective price proxies to the appropriate market basket cost categories that are obtained from the 2017 Benchmark I-O data (for instance, for the Professional Fees category we applied the growth in the ECI for Total Compensation for Private industry workers in Professional and Related). After inflating the 2017 costs to 2023 and calculating the cost shares we determined that the resulting cost share was 29.5 percent of ``All Other'' costs in 2023 dollars. Third, these resulting 2023 cost shares were applied to the residual ``All Other'' cost weight to obtain the detailed cost weights for the proposed 2023-based IPPS market basket. For example, we apply the Professional Fees cost share (29.5 percent of total ``All Other'' costs) to the residual ``All Other'' cost weight of 33.2 percent, resulting in a total Professional Fees cost weight from the Benchmark I-O data of approximately 9.8 percent of the 2023-based IPPS market basket. Lastly, this is then allocated between Professional Fees: Labor- Related and Professional Fees: Nonlabor-Related as [[Page 36872]] described later in this section. As stated in the FY 2026 IPPS/LTCH proposed rule (90 FR 18245) for the 2018-based IPPS market basket given the data available from the 2008 survey, we classified some expenses from the 2012 Benchmark I-O data as Professional Fees: Labor-Related, some expenses as Professional Fees: Nonlabor-Related, and some expenses as professional fees subject to allocation based on the survey. We then applied the 2008 survey results to the following specific categories of expenses: Legal services, Accounting, tax preparation, bookkeeping, and payroll services, Architectural, engineering and related services, and Management consulting services (all of which are reported in NAICS 54). However, for the 2023-based IPPS market basket, since we proposed to revise the methodology to use the data as reported on the Medicare cost reports (Worksheet S-2, Part I), we proposed to apply the allocation percentage of 59 percent obtained from the Medicare cost reports to all of the professional fees costs we identified from the 2017 Benchmark I- O data as described previously. This proposal to apply the percentage to all of the professional fees costs is a result of the revised scope of expenses captured in the question when we switched to using the Medicare cost report data. Specifically, the professional fees question on Worksheet S-2, Part I of the Medicare cost report stated a wider range of types of costs as an example (legal, accounting, tax preparation, bookkeeping, payroll, advertising, and management/ consulting services) while the survey conducted by CMS in 2009 was more limited and had specific questions for each type of cost (legal services, accounting and auditing, engineering, and management consulting). The impact of this proposed methodology change in order to be consistent with the Medicare cost report professional fees question is an increase in the proposed 2023-based Professional Fees: Labor- Related cost weight of about 1 percentage point. For even greater transparency, as requested by the commenter, we are posting a table providing the calculations of the detailed cost category weights for the 2023-based IPPS market basket using the publicly available I-O data. This table along with other market basket information can be found at https://www.cms.gov/data-research/statistics-trends-and-reports/medicare-program-rates-statistics/market-basket-research-and-information. We believe it is technically appropriate to update the labor- related share to reflect the cost structures of IPPS hospitals from the 2023-based IPPS market basket rather than continue to use the less recent 2018-based IPPS market basket. Comment: A few commenters were grateful that CMS proposed to use Medicare cost report data to inform the determination of the proportion of expenses classified as professional fees that are purchased within the local area labor market rather than relying on survey data as had been done in previous calculations of the labor-related share. However, the commenters were disappointed that CMS has not revised the calculation to reflect that professional fees purchased outside the local area labor market are also ``related to, influenced by, or vary with the local market.'' They believe the cost of professional fees purchased outside of the hospital's local area market should be considered labor-related, because providers of these professional services must adjust their pricing to reflect what local markets are able to bear. Commenters stated that an accounting firm will not necessarily charge a hospital located in a major urban area the same that it would charge a hospital in a small rural area for the same services. Several commenters recommended CMS increase the labor-related portion of professional fees from 59 percent (which reflects CMS's estimate of the proportion of professional fees purchased within hospitals' local area labor markets) to a higher percentage. Another commenter stated that CMS should revise its methodology for rebasing the labor-related share, to account for the geographic wage variation inherent in all non-clinical professional services costs. Response: We appreciate the commenters' support to use the Medicare cost report data to determine the proportion of professional fees that are purchased in the local labor market. However, we disagree that the proportion of professional fees services costs purchased by hospitals outside the local area labor market should be included in the labor-related share. The labor-related share of the IPPS standardized amount is adjusted to account for geographic differences in area wage levels by applying the applicable IPPS wage index. The purpose of the labor-related share is to reflect the proportion of the national IPPS standardized amount that is adjusted by the hospital's wage index (representing the relative costs of their local labor market to the national average). Therefore, we include a cost category in the labor-related share if the costs are labor intensive and vary with the local labor market. As acknowledged by the commenter and confirmed by the Medicare cost report data for IPPS hospitals, professional services can be purchased from local firms as well as national and regional professional services firms. It is not necessarily the case, as asserted by the commenter, that these national and regional firms have fees that match those in the local labor market even though providers have the option to utilize those firms. That is, fees for services purchased from firms outside the local labor market may differ from those that would be purchased in the local labor market for any number of reasons (including but not limited to, the skill level of the contracted personnel, higher capital costs, etc.). We believe it is reasonable to conclude that the 59 percent of those Professional Fees costs purchased directly within the local labor market are directly related to local labor market conditions and, thus, should be included in the labor-related share. The remaining approximately 41 percent of Professional Fees costs, which are purchased outside the local labor market, reflect different and additional factors outside the local labor market and, thus, should be excluded from the labor-related share. In addition, we note the compensation costs of professional services provided by hospital employees (which would reflect the local labor market) are included in the labor-related share as they are included in the Wages and Salaries and Employee Benefits cost weights. Therefore, for the reasons discussed, we believe our proposed methodology of continuing to allocate only a portion of Professional Fees to the Professional Fees: Labor-Related cost category is appropriate. After consideration of public comments, we are finalizing the rebasing of the 2023-based IPPS market basket without modification and the derivation of a labor-related share of 66.0 percent based on the final 2023-based IPPS market basket. Table IV-07 presents a comparison of the proposed and final 2023-based labor-related share and the 2018- based labor-related share. As discussed in section IV.B.1.b. of the preamble of this final rule, the Wages and Salaries and Employee Benefits cost weights reflect contract labor costs. [[Page 36873]] [GRAPHIC] [TIFF OMITTED] TR04AU25.231 Using the cost category weights from the 2023-based IPPS market basket, we calculated a labor-related share of 66.0 percent, 1.6 percentage points lower than the current labor-related share of 67.6 percent. This downward revision to the labor-related share is primarily the result of incorporating the more recent 2023 Medicare cost report data for Wages and Salaries, Employee Benefits, and Contract Labor costs. This is partially offset by an increase in the Professional Fees: Labor-Related cost weight. Therefore, we proposed and are finalizing a labor-related share of 66.0 percent based on the 2023-based IPPS market basket. We continue to believe, as we have stated in the past, that these operating cost categories are related to, influenced by, or vary with the local markets. Therefore, our definition of the labor-related share continues to be consistent with section 1886(d)(3) of the Act. We note that section 403 of Public Law 108-173 amended sections 1886(d)(3)(E) and 1886(d)(9)(C)(iv) of the Act to provide that the Secretary must employ 62 percent as the labor-related share unless 62 percent would result in lower payments to a hospital than will otherwise be made.

C. Market Basket for Certain Hospitals Presently Excluded From the IPPS

As explained in the FY 2006 IPPS final rule (70 FR 47396 through 47398), beginning with FY 2006, we have used the percentage increase in the IPPS operating market basket to update the target amounts for children's hospitals, the 11 cancer hospitals, and RNHCIs. Consistent with the regulations at Sec. Sec. 412.23(g) and 413.40(a)(2)(ii)(A) and (c)(3)(viii), we also have used the percentage increase in the IPPS operating market basket to update target amounts for short-term acute care hospitals located in the U.S. Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa. In the FY 2018 IPPS/LTCH PPS final rule, we rebased and revised the IPPS operating market basket to a 2014 base year, effective for FY 2018 and subsequent fiscal years (82 FR 38158 through 38175), and finalized the use of the percentage increase in the 2014-based IPPS operating market basket to update the target amounts for children's hospitals, the 11 cancer hospitals, RNHCIs, and short-term acute care hospitals located in the U.S. Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa for FY 2018 and subsequent fiscal years. Effective for the FY 2022 IPPS/LTCH PPS final rule (86 FR 45194 through 45207), we rebased and revised the IPPS operating market basket to a 2018 base year. Therefore, we used the percentage increase in the 2018-based IPPS operating market basket to update the target amounts for children's hospitals, the 11 cancer hospitals, RNHCIs, and short-term acute care hospitals located in the U.S. Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa for FY 2022 and subsequent fiscal years. As discussed in this section IV. of the preamble of this final rule, we proposed and are finalizing to rebase and revise the IPPS operating market basket to a 2023 base year. We continue to believe that it is appropriate to use the increase in the IPPS operating market basket to update the target amounts for these excluded facilities, as discussed in prior rulemaking. Therefore, we proposed to use the percentage increase in the 2023-based IPPS operating market basket to update the target amounts for children's hospitals, the 11 cancer hospitals, RNHCIs, and short-term acute care hospitals located in the U.S. Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa for FY 2026 and subsequent fiscal years. Accordingly, for FY 2026, the rate-of increase percentage to be applied to the target amount for these hospitals would be the FY 2026 percentage increase in the 2023-based IPPS operating market basket. We received no comments on this proposal and therefore are finalizing this proposal without modification.

D. Rebasing and Revising the Capital Input Price Index (CIPI)

The CIPI was originally described in the FY 1993 IPPS final rule (57 FR 40016). There have been subsequent discussions of the CIPI presented in the IPPS proposed and final rules. The FY 2022 IPPS/LTCH PPS final rule (86 FR 45208 through 45213) described the most recent rebasing and revising of the CIPI to a 2018 base year, which reflected the capital cost structure of IPPS hospitals available at that time. Effective for FY 2026, we proposed to rebase and revise the CIPI to a 2023 base year to reflect a more current structure of capital costs for IPPS hospitals. This 2023-based CIPI was derived using data from the 2023 cost reports for IPPS hospitals, which includes providers whose cost reporting period began on or after October 1, 2022, and prior to September 30, 2023. We also proposed to start with the same subset of Medicare cost reports from IPPS hospitals as previously described in section IV.B.1.a. of the preamble of this final rule. As with the 2018-based index, we proposed to develop two sets of weights to derive the 2023-based CIPI. The first set of weights identifies the proportion of hospital capital expenditures attributable to each expenditure category, while the second set of weights is a set of relative vintage weights for depreciation and interest. The set of vintage weights is used to identify the proportion of capital expenditures within a cost category that is attributable to each year over the [[Page 36874]] useful life of the capital assets in that category. A more thorough discussion of vintage weights is provided later in this section. Using 2023 Medicare cost reports (CMS Form 2552-10, OMB Control number 0938-0050), we are able to obtain capital costs for the following categories: Depreciation, Interest, Lease, and Other. Specifically, we proposed to determine what proportion of total capital costs that each category represents using the data reported by IPPS hospitals on Worksheet A-7, Part III. We proposed that Depreciation costs are equal to the sum of Worksheet A-7, Part III, column 9, lines 1 and 2. We proposed that Interest costs are equal to the sum of Worksheet A-7, Part III, column 11, lines 1 and 2. We proposed that Lease costs are equal to the sum of Worksheet A-7, Part III, column 10, lines 1 and 2. We proposed that Other costs are equal to the sum of Worksheet A-7, Part III, columns 12 through 14, lines 1 and 2. We proposed that Total Capital costs are equal to the sum of Worksheet A- 7, Part III, column 15, lines 1 and 2. We proposed to derive cost weights for each IPPS hospital for each CIPI cost category by calculating the ratio of the costs reported for each cost category (for example, Depreciation) to Total Capital costs. Finally, we proposed to apply a set of simultaneous trims based on these derived cost weights to remove outliers. Specifically, we proposed to only include cost reports for providers where their Depreciation cost weight is between 25 percent and 90 percent; Interest cost weight is between 0 and 75 percent, Lease cost weight is between 0 and 50 percent and Total Capital costs are greater than zero and less than Total Facility Costs reported on Worksheet B, Part I, column 26, line 202. The trimming process is done simultaneously on each cost category so that if a cost weight is outside the specific range for one or more of the cost weight criteria mentioned, the provider is excluded from the sample. We note that these proposed trimming methods are the same types of edits performed for the 2018-based CIPI. We then proposed to sum the costs for each cost category (Depreciation, Interest, Lease, and Other) and divide each sum by the sum of Total Capital costs for this same set of IPPS hospitals. The ratio of the total costs for each category to the sum of Total Capital costs represents the cost weight for each of the Depreciation, Interest, Lease and Other cost categories. This is the same methodology as was used for the 2018-based CIPI. As shown in the left column of Table IV-08, in 2023 depreciation expenses accounted for 67.2 percent of total capital costs, interest expenses accounted for 15.2 percent, leasing expenses accounted for 11.6 percent, and other capital expenses accounted for 6.0 percent. We also proposed to allocate lease costs across each of the remaining capital cost categories as was done in the 2018-based CIPI. We proposed to proportionally distribute leasing costs among the cost categories of Depreciation, Interest, and Other, reflecting the assumption that the underlying cost structure of leases is similar to that of capital costs in general. As was done for the 2018-based CIPI, we proposed to assume that 10 percent of the lease costs as a proportion of total capital costs represents overhead and to assign those costs to the Other capital cost category accordingly. Therefore, we are assuming that approximately 1.2 percent (11.6 percent x 0.1) of total capital costs represent lease costs attributable to overhead, and we proposed to add this 1.2 percent to the 6.0 percent Other cost category weight. We then proposed to distribute the remaining lease costs (10.4 percent, or 11.6 percent-1.2 percent) proportionally across the three cost categories (Depreciation, Interest, and Other) based on the proportion that these categories comprise of the sum of the Depreciation, Interest, and Other cost categories (excluding lease expenses). For example, the Other cost category represented 6.7 percent of all three cost categories (Depreciation, Interest, and Other) prior to any lease expenses being allocated. This 6.7 percent is applied to the 10.4 percent of remaining lease expenses so that another 0.7 percent of lease expenses as a percent of total capital costs is allocated to the Other cost category. Therefore, the resulting proposed Other cost weight is 7.8 percent (calculated using unrounded numbers, which is approximately equal to 6.0 percent + 1.2 percent + 0.7 percent). This is the same methodology used for the 2018-based CIPI. We did not receive any comments on the proposed methodology to derive the cost weights of the 2023-based CIPI and therefore are finalizing this methodology without modification. The resulting cost weights of the allocation of lease expenses are shown in the right column of Table IV-08. [GRAPHIC] [TIFF OMITTED] TR04AU25.232 Finally, we proposed to further divide the Depreciation and Interest cost categories. We proposed to separate the Depreciation cost category into the following two categories: (1) Building and Fixed Equipment and (2) Movable Equipment. We also proposed to separate the Interest cost category into the following two categories: (1) Government/Nonprofit; and (2) For-profit. These are the same categories used for the 2018-based CIPI. To disaggregate the depreciation cost weight, we needed to determine the percent of total depreciation costs for IPPS hospitals (after the allocation of lease costs) that are attributable to building and fixed equipment, which we hereafter refer to as the ``fixed percentage.'' After applying the trim requiring that the Depreciation cost weight is between 25 percent and 90 percent as described previously, for the providers remaining, we calculate the fixed percentage as the ratio of the sum of building and fixed equipment depreciation (Worksheet A-7, Part III, [[Page 36875]] column 9, line 1) to the sum of total depreciation (sum of Worksheet A- 7, Part III column 9, lines 1 and 2). Based on the 2023 IPPS Medicare cost reports, we have determined that depreciation costs for building and fixed equipment account for approximately 52 percent of total depreciation costs, while depreciation costs for movable equipment account for approximately 48 percent of total depreciation costs. This is the same methodology used for the 2018-based CIPI. As was done for the 2018-based CIPI, we proposed to apply this fixed percentage to the depreciation cost weight (after leasing costs are included) to derive a Depreciation cost weight attributable to Building and Fixed Equipment and a Depreciation cost weight attributable to Movable Equipment. To disaggregate the Interest cost weight, we needed to determine the percent of total interest costs for IPPS hospitals that are attributable to government and nonprofit facilities, which we hereafter refer to as the ``nonprofit percentage,'' because interest price pressures tend to differ between nonprofit and for-profit facilities. After applying the trim requiring that the Interest cost weight is between 0 percent and 75 percent as described previously, for the providers remaining, we calculate the nonprofit percentage as the ratio of the sum of interest costs (Worksheet A-7, Part III, column 11, lines 1 and 2) for government and nonprofit facilities to the sum of total interest costs for all facilities. This is the same methodology used for the 2018-based CIPI. The nonprofit percentage determined using this method is 91 percent. We did not receive any comments on the proposed methodology to disaggregate the Depreciation and Interest cost weights of the 2023- based CIPI and therefore are finalizing this methodology without modification. Table IV-09 provides a comparison of the 2018-based CIPI cost weights and the proposed and final 2023-based CIPI cost weights. After the capital cost category weights were computed, it was necessary to select appropriate price proxies to reflect the rate-of-increase for each expenditure category. We proposed to use the same price proxies as were used in the 2018-based CIPI, which are listed in Table IV-09. We also proposed to continue to vintage weight the capital price proxies for Depreciation and Interest to capture the long-term consumption of capital. This vintage weighting method is the same general method that was used for the 2018-based CIPI (with a proposed change to the data source used to derive the vintage weights) and is described later in this section of this final rule. For the Depreciation--Building and Fixed Equipment cost category, we proposed to continue to use the BEA Chained Price Index for Private Fixed Investment in Structures, Nonresidential, Hospitals and Special Care (BEA Table 5.4.4. Price Indexes for Private Fixed Investment in Structures by Type) as the price proxy. This BEA index is intended to capture prices for construction of facilities such as hospitals, nursing homes, hospices, and rehabilitation centers. For the Depreciation--Movable Equipment cost category, we proposed to continue to use the PPI Commodity for Machinery and Equipment (BLS series code WPU11) as the price proxy. This price index reflects price inflation associated with a variety of machinery and equipment that will be utilized by hospitals including but not limited to communication equipment, computers, and medical equipment. For the Nonprofit Interest cost category, we proposed to continue to use the average yield on domestic municipal bonds (Bond Buyer 20-bond index) as the price proxy. For the For-profit Interest cost category, we proposed to continue to use the iBoxx AAA Corporate Bond Yield index as the price proxy. For the Other capital cost category (including insurances, taxes, and other capital-related costs), we proposed to continue to use the CPI for Rent of Primary Residence (All Urban Consumers) (BLS series code CUUS0000SEHA) as the price proxy. We believe that these price series continue to be the most appropriate proxies for IPPS capital costs that meet our selection criteria of relevance, timeliness, availability, and reliability. We did not receive any comments on our proposed price proxies for the 2023-based CIPI and therefore are finalizing without modification. [GRAPHIC] [TIFF OMITTED] TR04AU25.233 Because capital is acquired and paid for over time, capital expenses in any given year are determined by both past and present purchases of physical and financial capital. The vintage-weighted 2023- based CIPI is intended to capture the long-term consumption of capital, using vintage weights for depreciation (physical capital) and interest (financial [[Page 36876]] capital). These vintage weights reflect the proportion of capital purchases attributable to each year of the expected life of building and fixed equipment, movable equipment, and interest. Vintage weights are an integral part of the CIPI. Capital costs are inherently complicated and are determined by complex capital purchasing decisions, over time, based on such factors as interest rates and debt financing. In addition, capital is depreciated over time instead of being consumed in the same period it is purchased. By accounting for the vintage nature of capital, we are able to provide an accurate and stable annual measure of price changes. Annual nonvintage price changes for capital are unstable due to the volatility of interest rate changes and, therefore, do not reflect the actual annual price changes for IPPS capital costs. The CIPI reflects the underlying stability of the capital acquisition process. To calculate the vintage weights for depreciation and interest expenses, we first needed a time series of capital purchases for building and fixed equipment and movable equipment. We found no single source that provides an appropriate time series of capital purchases by hospitals for all of the components of capital purchases previously noted. For the 2018-based CIPI, we calculated capital purchases using data on total expenses from the American Hospital Association (AHA) for the years 1964 through 2018 and the method was described in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45210). The data from AHA are no longer available beyond 2020 and, therefore, for the 2023-based CIPI, we proposed to use an alternative data source for deriving the capital purchases needed to calculate the vintage weights. Specifically, we proposed to obtain a time series of building and fixed equipment acquisitions (that is, purchases) and movable equipment acquisitions using two different data sources. For the years 1996 through 2023, we proposed to use data from Worksheet A-7 on the Medicare cost report as reported by IPPS hospitals (with the exception of 2002 through 2004 due to the temporary discontinuation of Worksheet A-7 from the Medicare cost report in those years). For the years 1977 through 1995 we proposed to use the growth rates in the building and fixed equipment and movable equipment acquisitions derived using our previous method used for the 2018-based CIPI (based on AHA data) to extrapolate the levels from the Medicare cost report back in time. We provide the proposed steps for calculating capital acquisitions (that is, capital purchases) used to derive the vintage weights for the 2023-based CIPI. Step 1--We obtain data from Worksheet A-7 of the Medicare cost reports and apply basic trims. Specifically, for 1996 through 2010 we use the CMS Form 2552-96, OMB Control number 0938-0050 and for 2010 through 2023 we use the CMS Form 2552-10, OMB Control number 0938-0050 (where 2010 data were collected using both forms). Specific cost report references in this discussion are based on the CMS Form 2552-10, OMB Control number 0938-0050. For each of the years 1996 through 2001 and 2005 through 2023, we proposed to apply a set of general trims based on data obtained from Worksheet A-7 requiring that total capital costs (sum of Worksheet A-7, part III, column 15, lines 1 and 2) are greater than zero; beginning values of building and fixed equipment (sum of Worksheet A-7, part I, column 1, lines 2 through 5) and movable equipment (sum of Worksheet A-7, part I, column 1, lines 6 and 7) are greater than zero; ending asset values of building and fixed equipment and movable equipment are greater than zero; building and fixed equipment depreciation is greater than zero; movable equipment depreciation is greater than zero; building and fixed equipment acquisitions are greater than zero; movable equipment acquisitions are greater than zero as well as total facility costs (Worksheet B, part I, column 26, line 202) are greater than zero. In addition to these basic edits, we also proposed to remove outliers in the data by trimming separately the top and bottom 1 percent building and fixed equipment useful lives and top and bottom 1 percent movable equipment useful lives. We first calculate the building and fixed equipment useful life and movable equipment useful life for each hospital for the years 1996 through 2001 and 2005 through 2023. The expected life of any asset can be determined by dividing the value of the asset (excluding fully depreciated assets) by its current year depreciation amount. This calculation yields the estimated expected life of an asset if the rates of depreciation were to continue at current year levels, assuming straight-line depreciation. We proposed to calculate the building and fixed equipment useful life as the ending value of fixed assets (sum of Worksheet A-7, part I, column 6, lines 2 through 5, less sum of Worksheet A-7, part I, column 7, lines 2 through 5) divided by fixed asset depreciation (Worksheet A-7, part III, column 9, line 1). We proposed to calculate the movable equipment useful life as the ending value of movable assets (sum of Worksheet A-7, part I, column 6, lines 6 through 7, less sum of Worksheet A-7, part I, column 7, lines 6 through 7) divided by movable depreciation (Worksheet A-7, part III, column 9, line 2). For the remaining hospitals (after applying the top and bottom 1 percent trim on useful lives), we obtain a time series of building and fixed equipment acquisitions (sum of Worksheet A-7, part I, columns 2 and 3, lines 2 through 5) and a time series of movable equipment acquisitions (sum of Worksheet A-7, part I, columns 2 and 3, lines 6 through 7). Step 2--Due to the temporary discontinuation of Worksheet A-7 from the Medicare cost reports for the years 2002 through 2004, we need to derive the building and fixed equipment acquisitions and movable equipment acquisitions using a slightly different methodology. First, for each of the years 1996 through 2001 and 2005 through 2023 we calculate the annual ratio of the sum of building and fixed equipment acquisitions from Worksheet A-7 to the sum of building and fixed equipment ending asset values from Worksheet G. We next estimate these fixed ratios for 2002 through 2004 (when Worksheet A-7 data are not available) by straight-line interpolating the ratios between 2001 and 2005. Finally, we multiply these fixed ratios for 2002 through 2004 by the total ending building and fixed equipment asset values (as reported on Worksheet G). This results in an estimate of building and fixed equipment acquisitions for the years 2002 through 2004. We use this same methodology to derive movable equipment acquisitions using the movable equipment data. We note that the total ending asset values from Worksheet G are calculated after the application of a set of general trims (similar to those in Step 1) requiring total capital costs to be greater than zero and ending asset values of building and fixed equipment and movable equipment (as reported on Worksheet G) to be greater than zero. Step 3--As done with prior vintage weights (including those used in the 2018-based CIPI), we proposed to use a time series of capital acquisitions of more than 50 years in the derivation of the vintage weights. Since we only have Medicare cost report data back to 1996, we proposed to derive capital acquisitions for the prior period based on the capital acquisitions used to derive the vintage weights for the 2018-based CIPI based on AHA data. Specifically, beginning with the 1996 [[Page 36877]] acquisition level derived in Step 1 (first year of data available from the Medicare cost reports) we proposed to apply the growth rate of acquisitions derived using the prior method going back to 1977. We do this separately for both building and fixed equipment acquisitions and movable equipment acquisitions. As done in prior CIPI rebasings (including the 2018-based CIPI), in order to derive the proposed vintage weights, we need to calculate the average useful lives for building and fixed equipment and movable equipment based on the most recent Medicare cost report data. As previously described in Step 1, we proposed to calculate the average building and fixed equipment useful life using 2023 Medicare cost report data as the ending asset value of building and fixed equipment (sum of Worksheet A-7, part I, column 6, lines 2 through 5, less sum of Worksheet A-7, part I, column 7, lines 2 through 5) divided by building and fixed equipment depreciation (Worksheet A-7, part III, column 9, line 1). We proposed to calculate the average movable equipment useful life using 2023 Medicare cost report data as the ending asset value of movable equipment (sum of Worksheet A-7, part I, column 6, lines 6 through 7, less sum of Worksheet A-7, part I, column 7, lines 6 through 7) divided by movable equipment depreciation (Worksheet A-7, part III, column 9, line 2). Using this proposed method, we determined the average expected life of building and fixed equipment to be equal to 28 years, and the average expected life of movable equipment to be equal to 12 years. For the expected life of interest, we believe that vintage weights for interest should represent the average expected life of building and fixed equipment because, based on previous research described in the FY 1997 IPPS final rule (61 FR 46198), the expected life of hospital debt instruments and the expected life of buildings and fixed equipment are similar. We note that the 2018-based CIPI was based on an expected average life of building and fixed equipment of 27 years and an expected average life of movable equipment of 12 years. For the building and fixed equipment and movable equipment vintage weights, we proposed to use the real annual capital-related purchase amounts for each asset type to capture the actual amount of the physical acquisition, net of the effect of price inflation. These real annual capital-related purchase amounts are produced by deflating the nominal annual purchase amount (as calculated in Steps 1 through 3) by the associated price proxy as provided earlier in this final rule. For the interest vintage weights, we proposed to use the total nominal annual capital-related purchase amounts to capture the value of the debt instrument (including, but not limited to, mortgages and bonds). Using these capital purchases time series specific to each asset type, we proposed to calculate the vintage weights for building and fixed equipment, for movable equipment, and for interest. The vintage weights for each asset type are deemed to represent the average purchase pattern of the asset over its expected life (in the case of building and fixed equipment and interest, 28 years, and in the case of movable equipment, 12 years). For each asset type, we proposed to use the time series of annual capital purchases amounts available from 1977 to 2023. These data allow us to derive twenty 28-year periods of capital purchases for building and fixed equipment and interest, and thirty-five 12-year periods of capital purchases for movable equipment. For each 28-year period for building and fixed equipment and interest, or 12-year period for movable equipment, we proposed to calculate annual vintage weights by dividing the capital-related purchase amount in any given year by the total amount of purchases over the entire 28- year or 12-year period. This calculation was done for each year in the 28-year or 12-year period and for each of the periods for which we have data. We then calculated the average vintage weight for a given year of the expected life by taking the average of these vintage weights across the multiple periods of data. This is the same methodology used for the 2018-based CIPI but using 27 years and 12 years and reflecting data through 2018. The vintage weights for the 2023-based CIPI and the 2018-based CIPI are presented in Table IV-10. While we proposed an alternative methodology for calculating the vintage weights due to the discontinuation of AHA data, Table IV-10 shows this change had limited impact on the results. We note that using the 2023-based vintage weights instead of the 2018-based vintage weights has a minimal impact on the overall CIPI update (averaging less than 0.1 percentage point over FY 2021 through FY 2026). We did not receive any comments on our proposed vintage weights and therefore are finalizing without modification. [[Page 36878]] [GRAPHIC] [TIFF OMITTED] TR04AU25.234 The process of creating vintage-weighted price proxies requires applying the vintage weights to the price proxy index where the last applied vintage weight in Table IV-10 is applied to the most recent data point. We have provided on the CMS website an example of how the vintage weighting price proxies are calculated, using example vintage weights and example price indices. The example can be found under the following CMS website link: https://www.cms.gov/data-research/statistics-trends-and-reports/medicare-program-rates-statistics/market-basket-research-and-information in the zip file titled ``Weight Calculations as described in the IPPS FY 2010 Proposed Rule.'' Table IV-11 in this section of this final rule compares both the historical and forecasted percent changes in the 2018-based CIPI and the 2023-based CIPI. Over the most recent historical period, the 2023- based CIPI increases at a slightly lower rate, on average, than the 2018-based CIPI primarily due to rebasing the CIPI from 2018 to 2023 and updating the base year cost weights. [[Page 36879]] [GRAPHIC] [TIFF OMITTED] TR04AU25.235 IHS Global, Inc. forecasts a 2.8 percent increase in the 2023-based CIPI for FY 2026, as shown in Table IV-11. This is 0.2 percentage point higher than in the proposed rule due to higher projected price inflation for machinery and fixed investment as well as higher expected interest rates. The underlying vintage-weighted price increases for depreciation (including building and fixed equipment and movable equipment) and interest (including government/nonprofit and for-profit) based on the 2023-based CIPI are included in Table IV-12. [GRAPHIC] [TIFF OMITTED] TR04AU25.236 The FY 2026 percentage increase based on the 2023-based CIPI is 0.1 percentage point lower than the increase based on the 2018-based CIPI when rounded, as shown in Table IV-11, primarily due to rebasing the CIPI to reflect 2023 costs.

A. General Discussion

Section 1886(d)(5)(F) of the Act provides for additional Medicare payments to subsection (d) hospitals \150\ that serve a significantly disproportionate number of low-income patients. The Act specifies two methods by which a hospital may qualify for the Medicare disproportionate share hospital (DSH) adjustment. Under the first method, hospitals that are located in an urban area and have 100 or more beds may receive a Medicare DSH payment adjustment if the hospital can demonstrate that, during its cost reporting period, more than 30 percent of its net inpatient care revenues are derived from State and local government payments for care furnished to patients with low incomes. This method is commonly referred to as the ``Pickle method.'' The second method for qualifying for the DSH payment adjustment, which is the more commonly used method, is based on the hospital's disproportionate patient percentage (DPP), described later in this section, under which the DSH payment adjustment is based a complex statutory formula which includes the hospital's geographic designation, the number of [[Page 36880]] beds in the hospital, and the level of the hospital's DPP. --------------------------------------------------------------------------- \150\ See section 1886(d)(1)(B) of the Act for the definition of a ``subsection (d) hospital''. --------------------------------------------------------------------------- A hospital's DPP is the sum of two fractions: the ``Medicare fraction'' and the ``Medicaid fraction.'' The Medicare fraction (also known as the ``SSI fraction'' or ``SSI ratio'') is computed by dividing the number of the hospital's inpatient days that are furnished to patients who were entitled to both Medicare Part A and Supplemental Security Income (SSI) benefits by the hospital's total number of patient days furnished to patients entitled to benefits under Medicare Part A. The Medicaid fraction is computed by dividing the hospital's number of inpatient days furnished to patients who, for such days, were eligible for Medicaid, but were not entitled to benefits under Medicare Part A, by the hospital's total number of inpatient days in the same period. [GRAPHIC] [TIFF OMITTED] TR04AU25.237 Because the DSH payment adjustment is part of the IPPS, the statutory references to ``days'' in section 1886(d)(5)(F) of the Act have been interpreted to apply only to hospital acute care inpatient days. Regulations located at 42 CFR 412.106 govern the Medicare DSH payment adjustment and specify how the DPP is calculated as well as how beds and patient days are counted in determining the Medicare DSH payment adjustment. Under Sec. 412.106(a)(1)(i), the number of beds for the Medicare DSH payment adjustment is determined in accordance with bed counting rules for the IME adjustment under Sec. 412.105(b). Section 3133 of the Patient Protection and Affordable Care Act (Pub. L. 111-148), as amended by section 10316 of the same Act and section 1104 of the Health Care and Education Reconciliation Act (Pub.

L. 111-152), added a section 1886(r) to the Act that modifies the

methodology for computing the Medicare DSH payment adjustment. We refer to these provisions collectively as section 3133 of the Affordable Care Act. Beginning with discharges in FY 2014, hospitals that qualify for Medicare DSH payments under section 1886(d)(5)(F) of the Act receive 25 percent of the amount they previously would have received under the statutory formula for Medicare DSH payments. This provision applies equally to hospitals that qualify for DSH payments on the basis of the hospital's DPP under section 1886(d)(5)(F)(i)(I) of the Act and those hospitals that qualify under the Pickle method under section 1886(d)(5)(F)(i)(II) of the Act. The remaining amount, equal to an estimate of 75 percent of what otherwise would have been paid as Medicare DSH payments, reduced to reflect changes in the percentage of individuals who are uninsured, is available to make additional payments to each hospital that qualifies for Medicare DSH payments and that has uncompensated care. The payments to each hospital for a fiscal year are based on the hospital's amount of uncompensated care for a given time period relative to the total amount of uncompensated care for that same time period reported by all hospitals that receive Medicare DSH payments for that fiscal year. Since FY 2014, section 1886(r) of the Act has required that hospitals that are eligible for DSH payments under section 1886(d)(5)(F) of the Act receive 2 separately calculated payments: ------------------------------------------------------------------------ ------------------------------------------------------------------------ Medicare DSH Payment.............. An empirically justified DSH payment equal to 25% of the amount determined under the statutory formula in section 1886(d)(5)(F) of the Act. Medicare DSH Uncompensated Care An uncompensated care payment Payment. determined as the product of 3 factors, as discussed in this section. ------------------------------------------------------------------------ Specifically, section 1886(r)(1) of the Act provides that the Secretary shall pay to such subsection (d) hospital 25 percent of the amount the hospital would have received under section 1886(d)(5)(F) of the Act for DSH payments, which represents the empirically justified amount for such payment, as determined by the MedPAC in its March 2007 Report to Congress.\151\ We refer to this payment as the ``empirically justified Medicare DSH payment.'' --------------------------------------------------------------------------- \151\ https://www.medpac.gov/document/march-2007-report-to-the-congress-medicare-payment-policy/. --------------------------------------------------------------------------- In addition to this empirically justified Medicare DSH payment, section 1886(r)(2) of the Act provides that, for FY 2014 and each subsequent fiscal year, the Secretary shall pay to such subsection (d) hospitals an additional amount equal to the product of three factors. The first factor is the difference between the aggregate amount of payments that would be made to subsection (d) hospitals under section 1886(d)(5)(F) of the Act if subsection (r) did not apply and the aggregate amount of payments that are made to subsection (d) hospitals under section 1886(r)(1) of the Act for such fiscal year. In other words, the first factor of the uncompensated care payment calculation is 75 percent of the payments that would otherwise be made as Medicare DSH payments under section 1886(d)(5)(F) of the Act. The second factor is, for FY 2018 and subsequent fiscal years, 1 minus the percent change in the percent of individuals who are uninsured, as determined by comparing the percent of individuals who were uninsured in 2013 (as estimated by the Secretary, based on data from the Census Bureau [[Page 36881]] or other sources the Secretary determines appropriate, and certified by the Chief Actuary of CMS) and the percent of individuals who were uninsured in the most recent period for which data are available (as so estimated and certified). As discussed in a later section, we note that the second factor is computed based on estimates of the total U.S population. The third factor is a percent that, for each subsection (d) hospital, represents the quotient of the amount of uncompensated care for such hospital for a period selected by the Secretary (as estimated by the Secretary, based on appropriate data), including the use of alternative data where the Secretary determines that alternative data are available which are a better proxy for the costs of subsection (d) hospitals for treating the uninsured, and the aggregate amount of uncompensated care for all subsection (d) hospitals that receive a payment under section 1886(r) of the Act. Therefore, this third factor represents a hospital's uncompensated care amount for a given time period relative to the uncompensated care amount for that same time period for all hospitals that receive Medicare DSH payments in the applicable fiscal year, expressed as a percent. For each hospital, the product of these three factors represents its additional payment for uncompensated care for the applicable fiscal year. We refer to the additional payment determined by these factors as the ``uncompensated care payment.'' In brief, the uncompensated care payment for an individual hospital is determined as the product of the following 3 factors: ------------------------------------------------------------------------ ------------------------------------------------------------------------ Factor 1.......................... 75% of the total amount of DSH payments that would otherwise be made under section 1886(d)(5)(F) of the Act. Factor 2.......................... 1 minus the percent change in the percent of individuals who are uninsured. Factor 3.......................... The hospital's uncompensated care amount relative to the uncompensated care amount for all hospitals that receive DSH payments, expressed as a percentage. ------------------------------------------------------------------------ Section 1886(r) of the Act applies to FY 2014 and each subsequent fiscal year. In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50620 through 50647) and the FY 2014 IPPS interim final rule with comment period (78 FR 61191 through 61197), we set forth our policies for implementing the required changes to the Medicare DSH payment methodology made by section 3133 of the Affordable Care Act for FY 2014. In those rules, we noted that, because section 1886(r) of the Act modifies the payment required under section 1886(d)(5)(F) of the Act, it affects only the DSH payment under the operating IPPS. It does not revise or replace the capital IPPS DSH payment provided under the regulations at 42 CFR part 412, subpart M, which was established through the exercise of the Secretary's discretion in implementing the capital IPPS under section 1886(g)(1)(A) of the Act. Finally, section 1886(r)(3) of the Act provides that there shall be no administrative or judicial review under section 1869, section 1878, or otherwise of any estimate of the Secretary for purposes of determining the factors described in section 1886(r)(2) of the Act or of any period selected by the Secretary for the purpose of determining those factors. Therefore, there is no administrative or judicial review of the estimates developed for purposes of applying the three factors used to determine uncompensated care payments, or of the periods selected to develop such estimates.

B. Eligibility for Empirically Justified Medicare DSH Payments and

Uncompensated Care Payments The payment methodology under section 3133 of the Affordable Care Act applies to ``subsection (d) hospitals'' that would otherwise receive a DSH payment made under section 1886(d)(5)(F) of the Act. Therefore, hospitals must receive empirically justified Medicare DSH payments in a fiscal year to receive an additional Medicare uncompensated care payment for that year. Specifically, section 1886(r)(2) of the Act states that, in addition to the empirically justified Medicare DSH payment made to a subsection (d) hospital under section 1886(r)(1) of the Act, the Secretary shall pay to ``such subsection (d) hospitals'' the uncompensated care payment. Section 1886(r)(2)'s reference to ``such subsection (d) hospitals'' refers to hospitals that receive empirically justified Medicare DSH payments under section 1886(r)(1) for the applicable fiscal year. In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50622) and the FY 2014 IPPS interim final rule with comment period (78 FR 61193), we explained that hospitals that are not eligible to receive empirically justified Medicare DSH payments in a fiscal year will not receive uncompensated care payments for that year. We also specified that we would make a determination concerning eligibility for interim uncompensated care payments based on each hospital's estimated DSH status (that is, eligibility to receive empirically justified Medicare DSH payments) for the applicable fiscal year (using the most recent data that are available). For the IPPS/LTCH PPS proposed rule (90 FR 18254), we estimated DSH status for all hospitals using the most recent available SSI ratios and information from the most recent available Provider Specific File. We noted that FY 2021 SSI ratios available on the CMS website were the most recent available SSI ratios at the time of developing the proposed rule.\152\ We stated that if more recent data on DSH eligibility became available before the final rule, we would use such data in the final rule. The FY 2022 SSI ratios are the most recent data available at the time of developing this FY 2026 IPPS/ LTCH PPS final rule, and so we have used this data to estimate DSH status for all hospitals. --------------------------------------------------------------------------- \152\ https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/dsh. --------------------------------------------------------------------------- Our final determinations of a hospital's eligibility for uncompensated care and empirically justified Medicare DSH payments will be based on the hospital's actual DSH status at cost report settlement for FY 2026. In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50622) and in the rulemakings for subsequent fiscal years, we have specified our policies for several specific classes of hospitals within the scope of section 1886(r) of the Act. Eligible hospitals include the following: Subsection (d) Puerto Rico hospitals that are eligible for DSH payments also are eligible to receive empirically justified Medicare DSH payments and uncompensated care payments under section 1886(r) of the Act (78 FR 50623 and 79 FR 50006). Sole community hospitals (SCHs) that are paid under the IPPS Federal rate receive interim payments based on what we estimate and project their DSH status to be prior to the beginning of the fiscal year (based on the best available data at that time) subject to settlement through the cost report. If they receive interim empirically justified Medicare DSH payments in a fiscal year, they will also be eligible to receive interim [[Page 36882]] uncompensated care payments for that fiscal year on a per discharge basis. Final eligibility determinations will be made at the end of the cost reporting period at settlement, and both interim empirically justified Medicare DSH payments and uncompensated care payments will be adjusted accordingly (78 FR 50624 and 79 FR 50007). Medicare-dependent, small rural hospitals (MDHs) are paid based on the IPPS Federal rate or, if higher, the IPPS Federal rate plus 75 percent of the amount by which the Federal rate is exceeded by the updated hospital-specific rate from certain specified base years (FY 2012 IPPS/LTCH PPS final rule 76 FR 51684). The IPPS Federal rate that is used in the MDH payment methodology is the same IPPS Federal rate that is used in the SCH payment methodology. Because MDHs are paid based on the IPPS Federal rate, they continue to be eligible to receive empirically justified Medicare DSH payments and uncompensated care payments if their DPP is at least 15 percent, and we apply the same process to determine MDHs' eligibility for interim empirically justified Medicare DSH and interim uncompensated care payments as we do for all other IPPS hospitals. Recently enacted legislation has extended the MDH program through September 30, 2025. We refer readers to section V.F. of the preamble of this final rule for further discussion of the MDH program. We will continue to make a determination concerning an MDH's eligibility for interim empirically justified Medicare DSH and uncompensated care payments based on the hospital's estimated DSH status for the applicable fiscal year. IPPS hospitals that elect to participate in the Bundled Payments for Care Improvement Advanced (BPCI Advanced) model, will continue to be paid under the IPPS and, therefore, are eligible to receive empirically justified Medicare DSH payments and uncompensated care payments until the Model's final performance year, which ends on December 31, 2025. For further information regarding the BPCI Advanced model, we refer readers to the CMS website at https://innovation.cms.gov/innovation-models/bpci-advanced. Transforming Episode Accountability Model (TEAM) is a new episode-based payment model. Hospitals participating in TEAM would continue to be paid under the IPPS and, therefore, are eligible to receive empirically justified Medicare DSH payments and uncompensated care payments. The model's start date is January 1, 2026. Ineligible hospitals include the following: Maryland hospitals are not eligible to receive empirically justified Medicare DSH payments and uncompensated care payments under the payment methodology of section 1866(r) of the Act because they are not paid under the IPPS. As discussed in the FY 2019 IPPS/LTCH PPS final rule (83 FR 41402 through 41403), CMS and the State have entered into an agreement to govern payments to Maryland hospitals under a new payment model, the Maryland Total Cost of Care (TCOC) Model, which began on January 1, 2019. Under the Maryland TCOC Model, which concludes on December 31, 2026, Maryland hospitals are not paid under the IPPS and are ineligible to receive empirically justified Medicare DSH payments and uncompensated care payments under section 1886(r) of the Act. SCHs that are paid under their hospital-specific rate are not eligible for Medicare DSH and uncompensated care payments (78 FR 50623 and 50624). Hospitals participating in the Rural Community Hospital Demonstration Program are not eligible to receive empirically justified Medicare DSH payments and uncompensated care payments under section 1886(r) of the Act because they are not paid under the IPPS (78 FR 50625 and 79 FR 50008). The Rural Community Hospital Demonstration Program was originally authorized for a 5-year period by section 410A of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) (Pub. L. 108-173).\153\ The period of participation for the last hospital in the demonstration under this most recent legislative authorization will end on June 30, 2028. Under the payment methodology that applies during this most recent extension of the demonstration program, participating hospitals do not receive empirically justified Medicare DSH payments, and they are excluded from receiving interim and final uncompensated care payments. At the time of development of the proposed rule, we stated we believed 16 hospitals may participate in the demonstration program at the start of FY 2026. We noted that if at the time of developing the final rule there is a different number of hospitals projected to participate in the demonstration program during FY 2026, we would use updated information in the FY 2026 final rule. At the time of developing this FY 2026 final rule, we believe 30 hospitals may participate in the demonstration program during FY 2026. --------------------------------------------------------------------------- \153\ The Rural Community Hospital Demonstration Program was extended for a subsequent 5-year period by sections 3123 and 10313 of the Affordable Care Act (Pub. L. 111-148). The period of performance for this 5-year extension period ended on December 31, 2016. Section 15003 of the 21st Century Cures Act (Pub. L. 114-255), enacted on December 13, 2016, again amended section 410A of Public Law 108-173 to require a 10-year extension period (in place of the 5-year extension required by the Affordable Care Act), therefore requiring an additional 5-year participation period for the demonstration program. Section 15003 of Public Law 114-255 also required a solicitation for applications for additional hospitals to participate in the demonstration program. The period of performance for this 5-year extension period ended December 31, 2021. The Consolidated Appropriations Act, 2021 (Pub. L. 116-260) amended section 410A of Public Law 108-173 to extend the demonstration program for an additional 5-year period. --------------------------------------------------------------------------- We received comments that are outside the scope of the proposed rule. For example, we received comments related to the eligibility of SCHs paid under hospital-specific rate and MDHs to receive DSH payments, our policy related to patient days associated with Section 1115 demonstrations, and determination of patient SSI eligibility. Because we consider these public comments to be outside the scope of the proposed rule, we are not addressing these comments in this final rule.

C. Empirically Justified Medicare DSH Payments

As we have discussed earlier, section 1886(r)(1) of the Act requires the Secretary to pay 25 percent of the amount of the Medicare DSH payment that would otherwise be made under section 1886(d)(5)(F) of the Act to a subsection (d) hospital. Because section 1886(r)(1) of the Act merely requires the Secretary to pay a designated percentage of these payments, without revising the criteria governing eligibility for DSH payments or the underlying payment methodology, we stated in the FY 2014 IPPS/LTCH PPS final rule that we did not believe that it was necessary to develop any new operational mechanisms for making such payments. Therefore, in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50626), we implemented this provision by advising Medicare Administrative Contractors (MACs) to simply adjust subsection (d) hospitals' interim claim payments to an amount equal to 25 percent of what would have been paid if section 1886(r) of the Act did not apply. We also made corresponding changes to the hospital cost report so that these empirically justified Medicare DSH payments could be settled at the appropriate level at the time of cost report settlement. We provided more detailed operational instructions and cost report instructions following issuance of the FY 2014 IPPS/LTCH PPS final rule that are available on the CMS website at https:// [[Page 36883]] www.cms.gov/Regulations-and-Guidance/Guidance/Transmittals/2014- Transmittals-Items/R5P240.html.

D. Supplemental Payment for Indian Health Service (IHS) and Tribal

Hospitals and Puerto Rico Hospitals In the FY 2023 IPPS/LTCH PPS final rule (87 FR 49047 through 49051), we established a new supplemental payment for IHS/Tribal hospitals and hospitals located in Puerto Rico for FY 2023 and subsequent fiscal years. This payment was established to help to mitigate the impact of the decision to discontinue the use of low- income insured days as a proxy for uncompensated care costs for these hospitals and to prevent undue long-term financial disruption for these providers. The regulations located at 42 CFR 412.106(h) govern the supplemental payment. In brief, the supplemental payment for a fiscal year is determined as the difference between the hospital's base year amount and its uncompensated care payment for the applicable fiscal year as determined under Sec. 412.106(g)(1). The base year amount is the hospital's FY 2022 uncompensated care payment adjusted by one plus the percent change in the total uncompensated care amount between the applicable fiscal year (that is, FY 2026 for purposes of this rulemaking) and FY 2022, where the total uncompensated care amount for a fiscal year is determined as the product of Factor 1 and Factor 2 for that year. If the base year amount is equal to or lower than the hospital's uncompensated care payment for the current fiscal year, then the hospital would not receive a supplemental payment because the hospital would not be experiencing financial disruption in that year as a result of the use of uncompensated care data from the Worksheet S-10 in determining Factor 3 of the uncompensated care payment methodology. In the FY 2026 IPPS/LTCH PPS proposed rule, we did not propose any changes to the methodology for determining the amount of or hospital eligibility for supplemental payments. For FY 2026, we will calculate the supplemental payments to eligible IHS/Tribal and Puerto Rico hospitals consistent with the methodology described in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49047 through 49051) and Sec. 412.106(h). As discussed in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49048 and 49049), the eligibility and payment processes for the supplemental payment are consistent with the processes for determining eligibility to receive interim and final uncompensated care payments adopted in FY 2014 IPPS/LTCH PPS final rule. We note that the MAC will make a final determination with respect to a hospital's eligibility to receive the supplemental payment for a fiscal year, in conjunction with its final determination of the hospital's eligibility for DSH payments and uncompensated care payments for that fiscal year. Comment: A commenter reiterated their prior recommendation that was submitted in response to the proposal to establish these supplemental payments in the FY 2023 IPPS/LTCH PPS proposed rule. The commenter recommended that CMS calculate the supplemental payment for Puerto Rico hospitals using a base year amount determined using a Medicare SSI days proxy of at least 42 percent, consistent with the local poverty level, instead of the current value of 14 percent which incorporates the proxy that was applied from FY 2017 through FY 2022 of 14 percent of the hospital's Medicaid days and that was based on national data on the relationship between Medicare SSI days and Medicaid days. Another commenter reiterated similar comments submitted in response to the FY 2025 IPPS/LTCH PPS proposed rule, thanking CMS for the supplemental payments but requesting that CMS evaluate alternatives to better support hospitals in Puerto Rico if uninsured days increased. This commenter suggested reverting to the previous method of using a proxy to determine uninsured days for hospitals in Puerto Rico, citing ongoing challenges with collecting reliable Worksheet S-10 data for hospitals in Puerto Rico. Response: In the proposed rule, we did not propose any changes to our methodology for calculating or determining hospital eligibility for supplemental payments. Therefore, we consider these comments to be outside the scope of the proposed rule. However, we refer readers to our responses to substantially similar comments in the FY 2025 IPPS/ LTCH PPS final rule (89 FR 69314, FY 2024 IPPS/LTCH PPS final rule (88 FR 58992-58993) and FY 2023 IPPS/LTCH PPS final rule (87 FR 49047- 49048) for fulsome discussion on these issues.

E. Uncompensated Care Payments

As we discussed earlier, section 1886(r)(2) of the Act provides that, for each eligible hospital in FY 2014 and subsequent years, the uncompensated care payment is the product of three factors, which are discussed in the next sections.

1. Calculation of Factor 1 for FY 2026

Section 1886(r)(2)(A) of the Act establishes Factor 1 in the calculation of the uncompensated care payment. The regulations located at 42 CFR 412.106(g)(1)(i) govern the Factor 1 calculation. Under a prospective payment system, we would not know the precise aggregate Medicare DSH payment amounts that would be paid for a fiscal year until cost report settlement for all IPPS hospitals is completed, which occurs several years after the end of the fiscal year. Therefore, section 1886(r)(2)(A)(i) of the Act provides authority to estimate this amount by specifying that, for each fiscal year to which the provision applies, such amount is to be estimated by the Secretary. Similarly, we would not know the precise aggregate empirically justified Medicare DSH payment amounts that would be paid for a fiscal year until cost report settlement for all IPPS hospitals is completed. Thus, section 1886(r)(2)(A)(ii) of the Act provides authority to estimate this amount. In brief, Factor 1 is the difference between the Secretary's estimates of: (1) the amount that would have been paid in Medicare DSH payments for the fiscal year, in the absence of section 1886(r) of the Act; and (2) the amount of empirically justified Medicare DSH payments that are made for the fiscal year, which takes into account the requirement to pay 25 percent of what would have otherwise been paid under section 1886(d)(5)(F) of the Act. In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18255 through 18257), we proposed to continue the policy that has applied since the FY 2014 final rule (78 FR 50627 through 50631), to determine Factor 1 from the most recently available estimates of the aggregate amount of Medicare DSH payments that would be made for FY 2026 in the absence of section 1886(r)(1) of the Act and the aggregate amount of empirically justified Medicare DSH payments that would be made for FY 2026, both as calculated by CMS' Office of the Actuary (OACT). Consistent with the policy that has applied in previous years, these estimates will not be revised or updated subsequent to publication of our final projections in the FY 2026 IPPS/LTCH PPS final rule. In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18255 through 18257), to calculate both estimates, we used the most recently available projections of Medicare DSH payments for the fiscal year, as calculated by OACT using the most recently filed Medicare hospital cost reports with [[Page 36884]] Medicare DSH payment information and the most recent DPPs and Medicare DSH payment adjustments provided in the IPPS Impact File. The projection of Medicare DSH payments for the fiscal year is also partially based on OACT's Part A benefits projection model, which projects, among other things, inpatient hospital spending. Projections of DSH payments additionally require projections of expected increases in utilization and case-mix. The assumptions that were used in making these inpatient hospital spending, utilization, and case-mix projections and the resulting estimates of DSH payments for FY 2023 through FY 2026 are discussed later in this section and in the table titled ``Factors Applied for FY 2023 through FY 2026 to Estimate Medicare DSH Expenditures Using FY 2022 Baseline.'' For purposes of calculating Factor 1 and modeling the impact of the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18255 through 18257), we used OACT's January 2025 Medicare DSH estimates, which were based on data from the December 2024 update of the Medicare Hospital Cost Report Information System (HCRIS) and the FY 2025 IPPS/LTCH PPS final rule IPPS Impact File, published in conjunction with the publication of the FY 2025 IPPS/LTCH PPS final rule. Because SCHs that are projected to be paid under their hospital-specific rate are ineligible for empirically justified Medicare DSH payments and uncompensated care payments, they were excluded from the January 2025 Medicare DSH estimates. Because Maryland hospitals are not paid under the IPPS, they are also ineligible for empirically justified Medicare DSH payments and uncompensated care payments and were also excluded from OACT's January 2025 Medicare DSH estimates. The 16 hospitals that CMS expects will participate in the Rural Community Hospital Demonstration Program in FY 2026 were also excluded from OACT's January 2025 Medicare DSH estimates because under the payment methodology that applies during the demonstration, these hospitals are not eligible to receive empirically justified Medicare DSH payments or uncompensated care payments. For the proposed rule, using the data sources previously discussed, OACT's January 2025 estimates of Medicare DSH payments for FY 2026 without regard to the application of section 1886(r)(1) of the Act, as corrected, was approximately $15.791 billion. (90 FR 18256 and 90 FR 23867). Therefore, also based on OACT's January 2025 Medicare DSH estimates, the estimate of empirically justified Medicare DSH payments for FY 2026, with the application of section 1886(r)(1) of the Act, as corrected, was approximately $3.95 billion (or 25 percent of the total amount of estimated Medicare DSH payments for FY 2026). (90 FR 18256 and 90 FR 23867.) Under Sec. 412.106(g)(1)(i), Factor 1 is the difference between these two OACT estimates. Therefore, in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18255 through 18257), as corrected, we proposed that Factor 1 for FY 2026 would be $11.843 billion, which is equal to 75 percent of the total amount of estimated Medicare DSH payments for FY 2026 ($15.791 billion minus $3.95 billion). (90 FR 23867.) We noted that consistent with our approach in previous rulemakings, OACT intended to use more recent data that may become available for purposes of projecting the final Factor 1 estimates for the FY 2026 IPPS/LTCH PPS final rule. In the FY2026 IPPS/LTCH PPS proposed rule, we noted that the Factor 1 estimates for IPPS/LTCH PPS proposed rules are generally consistent with the economic assumptions and actuarial analysis used to develop the President's Budget estimates under current law, and Factor 1 estimates for IPPS/LTCH PPS final rules are generally consistent with those used for the Midsession Review of the President's Budget. Consistent with historical practice, we stated in the proposed rule that we expected the Midsession Review will have updated economic assumptions and actuarial analysis, which would be used for the development of Factor 1 estimates in the FY 2026 IPPS/LTCH PPS final rule. For a general overview of the principal steps involved in projecting future inpatient costs and utilization, we referred readers to the ``2025 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds,'' available on the CMS website at https://www.cms.gov/oact/tr/2025.\1\ The actuarial projections contained in these reports are based on numerous assumptions regarding future trends in program enrollment, utilization and costs of health care services covered by Medicare, as well as other factors affecting program expenditures. In addition, although the methods used to estimate future costs based on these assumptions are complex, they are subject to periodic review by independent experts to ensure their validity and reasonableness. In the FY 2026 IPPS/LTCH proposed rule (90 FR 18255 through 18257), we included information regarding the data sources, methods, and assumptions employed by OACT's actuaries in determining our estimate of Factor 1. In summary, we indicated the historical HCRIS data update OACT used to estimate Medicare DSH payments; we explained that the most recent Medicare DSH payment adjustments provided in the IPPS Impact File were used, and we provided the components of all the update factors that were applied to the historical data to estimate the Medicare DSH payments for the upcoming fiscal year, along with the associated rationale and assumptions. The discussion also included descriptions of the ``Other'' and ``Discharges'' assumptions and provided additional information regarding how we address Medicaid expansion. We invited public comments on our proposed Factor 1 for FY 2026. Comment: A few commenters thanked CMS for the increase in the proposed Factor 1 amount for FY 2026. Some commenters requested clarification on a discrepancy between the Factor 1 estimate cited in the proposed rule's preamble and the figure provided in the supplemental file. Response: We thank the commenters for their support. Regarding the discrepancy in Factor 1 estimates, we refer readers to the June 5, 2025 correction to the proposed rule (CMS-1833-CN) (90 FR 23867). Comment: As in previous years, some commenters expressed concerns with and requested greater transparency in the methodology used by CMS and OACT to calculate Factor 1. A few commenters emphasized their inability to accurately replicate CMS' calculations without clarity on how inputs, such as the effects of the COVID-19 public health emergency (PHE) on Medicare discharges, case mix, Medicaid enrollment and subsequent disenrollment through redeterminations, impact Factor 1 estimates. Some of these commenters requested that CMS provide details of its Factor 1 calculation in advance of the publication of the IPPS/ LTCH PPS final rule and in the IPPS/LTCH PPS proposed rule each year going forward, so that sufficient data is available to replicate CMS' DSH payment calculations and enable commenters to provide more informed comments in future years. Another commenter requested that CMS provide detailed explanations for how the agency calculates Factor 1 to ensure safety net providers are not being disproportionately impacted. A few commenters asserted that the lack of opportunity afforded to hospitals to review the data used to estimate DSH [[Page 36885]] payment calculations in rulemaking is in violation of the Administrative Procedure Act. These commenters expressed concerns about the lack of transparency in how Factor 1 is calculated, arguing that hospitals cannot meaningfully comment on the Factor 1 calculation methodology given the lack of details provided by CMS in each IPPS/LTCH PPS proposed rule. In particular, these commenters stated that the FY 2026 IPPS/LTCH proposed rule provided neither sufficient details nor a complete explanation of the treatment of Medicaid expansions in the calculation for Factor 1. Additionally, several commenters stated that CMS failed to provide sufficient details on how the ``Other'' factor, including both the overall calculation and individual inputs used to determine the estimate, is calculated. These commenters noted that although CMS indicates Medicaid enrollment is included in the ``Other'' factor, the agency does not explain its specific impact on the overall estimate. One commenter emphasized the importance of interested parties understanding how changes in Medicaid enrollment affect Medicare DSH payments, particularly considering recent, significant shifts in Medicaid enrollment. Other commenters specifically questioned whether the ``Other'' factor accurately reflects the impact of the COVID-19 PHE. Some of these commenters requested that CMS publish a detailed methodology of its ``Other'' calculation specifying how all the components contribute to changes in its estimate from year to year. A couple commenters requested that CMS clarify why the ``Other'' factor frequently varies in successive rulemaking cycles. Some of these commenters requested that this information be provided in advance of the final rule publication and in the IPPS/LTCH PPS proposed rule each year going forward to ensure the data is available to replicate CMS' DSH calculation, allowing for sufficient ability to comment in future years. Response: We thank the commenters for their input. We disagree with commenters' assertions regarding the lack of transparency with respect to the methodology and assumptions used in the calculation of Factor 1. As explained in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18255- 18257) and in this section of this final rule, we have been and continue to be transparent about the methodology and data used to estimate Factor 1. Regarding the commenters who reference the Administrative Procedure Act, we note that under the Administrative Procedure Act, a proposed rule is required to include either the terms or substance of the proposed rule or a description of the subjects and issues involved. In this case, the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18002) included a detailed discussion of our proposed Factor 1 methodology and the data sources that would be used in making our final estimate. Accordingly, we believe commenters were able to meaningfully comment on our proposed estimate of Factor 1. To provide additional context, and as we have explained in prior rulemakings (see, for example, 89 FR 68986), we note that Factor 1 is not estimated in isolation from other projections made by OACT. The Factor 1 estimates for the proposed rules are generally consistent with the economic assumptions and actuarial analyses used to develop the President's Budget estimates under current law, and the Factor 1 estimates for the final rule are the latest estimates from OACT at the time of development of this final rule. We recognize that our reliance on the economic assumptions and actuarial analyses used to develop the President's Budget in estimating Factor 1 has an impact on hospitals, health systems, and other impacted parties that wish to replicate the Factor 1 calculation by, for example, modeling the relevant Medicare Part A portion of the President's Budget. Yet, we believe commenters are able to meaningfully comment on our proposed estimate of Factor 1 without replicating the budget. For a general overview of the principal steps involved in projecting future inpatient costs and utilization, we refer readers to the ``2025 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds,'' available under ``Downloads'' on the CMS website at: https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/index.html. We note that the annual reports of the Medicare Boards of Trustees to Congress represent the Federal Government's official evaluation of the financial status of the Medicare Program. The actuarial projections contained in these reports are based on numerous assumptions regarding future trends in program enrollment, utilization, and costs of health care services covered by Medicare, as well as other factors affecting program expenditures. In addition, given that the methods used to estimate future costs based on these assumptions are complex, they are subject to periodic review by independent experts to ensure their validity and reasonableness. Additionally, in the FY 2026 IPPS/LTCH PPS proposed rule and described in more detail later in this section, we included information regarding the data sources, methods, and assumptions employed by the actuaries to determine the OACT's estimate of Factor 1. We explained that the most recent Medicare DSH payment adjustments provided in the IPPS Impact File were used, and we provided the components of all update factors that were applied to historical data to estimate the Medicare DSH payments for the upcoming fiscal year, along with the associated rationale and assumptions. This discussion also included a description of the ``Other,'' ``Case-Mix,'' and ``Discharges'' assumptions, as well as additional information regarding the estimated impact of the COVID-19 PHE. Regarding the commenter who expressed concern that our proposed calculation of Factor 1 would disproportionately impact safety net providers, we continue to believe that estimating Factor 1 based on the economic data and assumptions detailed in this final rule and the FY 2026 IPPS/LTCH PPS proposed rule is appropriate and consistent with the requirements of section 1886(r)(2)(A) of the Act. Comment: Some commenters requested that CMS provide additional detail on the calculations and assumptions related to the ``Discharge'' component used in the Factor 1 formula so they can evaluate the impact of Medicare Advantage (MA) growth on Medicare Fee for Service (FFS) inpatient hospital payments. These commenters noted that the continued expansion of MA has raised concerns--particularly around prior authorization requirements imposed by plans, which often create burdens for both patients and providers. The same commenters noted that these issues have prompted broader questions about the sustainability of MA growth and its implications for inpatient hospital payments, especially for hospitals serving a disproportionate share of low-income beneficiaries. The same commenters welcomed the opportunity to work with CMS in examining the impacts of MA enrollment on FFS inpatient hospital payments. Other commenters urged CMS to use more recent data and update its estimates of Medicare DSH payment amounts to reflect changes in the discharge volume more accurately. Finally, a commenter, citing the Medicare Payment and Advisory Commission's (MedPAC) draft recommendation for 2026 and its March 2025 report to Congress, urged CMS to increase the market basket updates for [[Page 36886]] 2024 through 2026 used in the FY 2026 Factor 1 ``Update'' component by at least 1 percentage point. The same commenter also requested that the market basket update be increased by at least 1.5 percentage points per MedPAC's March 2024 report to Congress. Another commenter argued that the proposed 0.8 percent productivity adjustment used to offset the projected 3.2 percent market basket increase in the ``Update'' component of Factor 1 was inappropriately high, given the significant economic volatility caused by recent cost period outliers. Response: We thank the commenters for their input. Regarding commenters' requests for additional detail on the calculations and assumptions underlying the ``Discharges'' factor, we refer the commenters to the discussion elsewhere in this section of this final rule and the relevant discussion in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18002), which detail the calculations and assumptions we used to calculate the FY 2026 ``Discharges'' factor. We also note that in updating our estimate of Factor 1 for this final rule, we considered, as appropriate, the same set of factors that we used in the FY 2025 IPPS/LTCH PPS proposed rule and in prior rulemakings (see example, 89 FR 35934 35934 through 36649). As we stated we would do in the FY 2026 IPPS/LTCH PPS proposed rule, we then updated our estimates for the FY 2026 ``Discharges'' component, and other Factor 1 components, to incorporate the latest available data based on more recent economic assumptions and actuarial analyses as available to us. Regarding the comments on the impacts of MA enrollment on the Medicare FFS discharge volume, we refer commenters to the actuarial projections and assumptions regarding future trends in Medicare FFS and MA program enrollment, utilization, and costs of health care services covered by Medicare, as well as other factors affecting Medicare FFS and MA program expenditures, contained in the ``2025 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds,'' available under ``Downloads'' on the CMS website at: https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/index.html. We considered these projections, assumptions, and other factors when developing our estimate of the ``Discharges'' factor for FY 2026. We also note that in this final rule, consistent with prior years (see, for example, 89 FR 68986), our estimate of the ``Discharges'' component for FY 2026 incorporates only claims from the Medicare FFS program rather than claims from the MA program. Accordingly, we believe that the FY 2026 ``Discharges'' factor in this final rule accurately reflects trends in Medicare FFS discharges. Regarding the commenter who requested that CMS increase the FY 2026 Factor 1 ``Update'' component consistent with the MedPAC recommended increases to the IPPS market basket used to estimate DSH payments for FY 2024, FY 2025, and FY 2026, we note that consistent with the inpatient hospital update discussion in section VI.B of the preamble of this final rule, OACT is using the final inpatient hospital market basket update and productivity adjustment for FY 2026, based on the more recent data available for this final rule, for the final FY 2026 ``Update'' component in the Factor 1 calculation. We refer readers to the discussion of the finalized inpatient hospital update for FY 2026 in section VI.B of the preamble of this final rule. Regarding the commenter expressing concern that the productivity adjustment used to offset the projected market basket was inappropriately high, we also refer to the discussion in section VI.B of the preamble of this final rule. After consideration of the public comments we received, we are finalizing, as proposed, the methodology for calculating Factor 1 for FY 2026. We discuss the resulting Factor 1 amount for FY 2026 in this final rule. Consistent with prior rulemakings, for this final rule, OACT used the most recently submitted Medicare cost report data from the March 31, 2025, update of HCRIS to identify Medicare DSH payments and the most recent Medicare DSH payment adjustments provided in the Impact File and applied update factors and assumptions for projected changes in utilization and case-mix to estimate Medicare DSH payments for the upcoming fiscal year. The June 2025 OACT estimate for Medicare DSH payments for FY 2026, without regard to the application of section 1886(r)(1) of the Act, is approximately $16.550 billion. This estimate excluded Maryland hospitals, which participate in the Maryland Total Cost of Care Model and are not paid under the IPPS, hospitals participating in the Rural Community Hospital Demonstration, and SCHs paid under their hospital- specific payment rate. Therefore, based on this June 2025 estimate, the estimate of empirically justified Medicare DSH payments for FY 2026, with the application of section 1886(r)(1) of the Act, is approximately $4.14 billion (or 25 percent of the total amount of estimated Medicare DSH payments for FY 2026). Under Sec. 412.106(g)(1)(i), Factor 1 is the difference between these two OACT estimates. Therefore, the final Factor 1 for FY 2026 is $12,412,500,000, which is equal to 75 percent of the total amount of estimated Medicare DSH payments for FY 2026 ($16,550,000,000 minus $4,137,500,000). OACT's estimates for FY 2026 for this final rule began with a baseline of $13.022 billion in Medicare DSH expenditures for FY 2022. The following table shows the factors applied to update this baseline through the current estimate for FY 2026: [GRAPHIC] [TIFF OMITTED] TR04AU25.238 [[Page 36887]] In this table, the discharges column shows the changes in the number of Medicare FFS inpatient hospital discharges. The discharge figures for FY 2023 and FY 2024 are based on Medicare claims data that have been adjusted by a completion factor to account for incomplete claims data. The discharge figures for FY 2025 and FY 2026 are assumptions based on recent historical experience and assumptions related to how many beneficiaries will be enrolled in MA plans. The case-mix column shows the estimated change in case-mix for IPPS hospitals. The case-mix figures for FY 2023 and FY 2024 are based on actual claims data adjusted by a completion factor to account for incomplete claims data. The case-mix figures for FY 2025 and for FY 2026 are assumptions based on the 2012 ``Review of Assumptions and Methods of the Medicare Trustees' Financial Projections'' report by the 2010-2011 Medicare Technical Review Panel.\154\ --------------------------------------------------------------------------- \154\ https://www.cms.gov/research-statistics-data-and-systems/statistics-trends-and-reports/reportstrustfunds/downloads/technicalpanelreport2010-2011.pdf. --------------------------------------------------------------------------- The ``Other'' column reflects the change in other factors that contribute to the Medicare DSH estimates. These factors include the difference between the total inpatient hospital discharges and IPPS discharges and various adjustments to the payment rates that have been included over the years but are not reflected in the other columns. In addition, the ``Other'' column includes a factor for the estimated changes in Medicaid enrollment through FY 2023. The following table shows the factors that are included in the ``IPPS Hospital Market Basket Update Factor'' column of the previous table: [GRAPHIC] [TIFF OMITTED] TR04AU25.239

2. Calculation of Factor 2 for FY 2026

a. Background Section 1886(r)(2)(B) of the Act establishes Factor 2 in the calculation of the uncompensated care payment. Section 1886(r)(2)(B)(ii) of the Act provides that, for FY 2018 and subsequent fiscal years, the second factor is 1 minus the percent change in the percent of individuals who are uninsured, as determined by comparing the percent of individuals who were uninsured in 2013 (as estimated by the Secretary, based on data from the Census Bureau or other sources the Secretary determines appropriate, and certified by the Chief Actuary of CMS) and the percent of individuals who were uninsured in the most recent period for which data are available (as so estimated and certified). We are continuing to use the methodology that was used in FY 2018 through FY 2025 to determine Factor 2 for FY 2026--to use the National Health Expenditure Accounts (NHEA) data to determine the percent change in the percent of individuals who are uninsured. We refer readers to the FY 2018 IPPS/LTCH PPS final rule (82 FR 38197 and 38198) for a complete discussion of the NHEA and why we determined, and continue to believe, that it is the data source for the rate of uninsurance that, on balance, best meets all our considerations and is consistent with the statutory requirement that the estimate of the rate of uninsurance be based on data from the Census Bureau or other sources the Secretary determines appropriate. In brief, the NHEA represents the government's official estimates of economic activity (spending) within the health sector. The NHEA includes comprehensive enrollment estimates for total private health insurance (PHI) (including direct-purchase and employer-sponsored plans), Medicare, Medicaid, the Children's Health Insurance Program (CHIP), and other public programs, and estimates of the number of individuals who are uninsured. The NHEA data are publicly available on the CMS website at https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/index.html. To compute Factor 2 for FY 2026, the first metric that is needed is the proportion of the total U.S. population that was uninsured in 2013. For a complete discussion of the approach OACT used to prepare the NHEA's estimate of the rate of uninsurance in 2013, including the data sources used, we refer readers to the FY 2024 IPPS/LTCH PPS final rule (88 FR 58998-58999). The next metrics needed to compute Factor 2 for FY 2026 are projections of the rate of uninsurance in both CY 2025 and CY 2026 for the total U.S. population. On an annual basis, OACT projects enrollment and spending trends for the coming 10-year period. The most recent projections are for 2024 through 2033 and were published on June 25, 2025. Those projections used the latest NHEA historical data that were available at the time of their construction (that is, historical data through 2023). The NHEA projection methodology accounts for expected changes in enrollment across all of the categories of insurance coverage previously listed. For a complete discussion of how the NHEA data account for expected changes in enrollment across all the categories of insurance coverage previously listed, we refer readers to the FY 2024 IPPS/LTCH PPS final rule (88 FR 58999). b. Factor 2 for FY 2026 Using these data sources and the previously described methodologies, at the time of developing the FY 2026 IPPS/LTCH proposed rule, OACT had estimated that the uninsured rate for the historical, baseline year of 2013 was 14 percent, and that the uninsured rates for CYs 2025 and 2026 were 7.7 percent and 8.7 percent, respectively (90 FR 18258). As required by section 1886(r)(2)(B)(ii) of the Act, the Chief Actuary of CMS certified these estimates. We refer readers to OACT's Memorandum on Certification of Rates [[Page 36888]] of Uninsured prepared for the FY 2026 IPPS/LTCH PPS proposed rule for further details on the methodology and assumptions that were used in the projection of these rates of uninsurance.\155\ --------------------------------------------------------------------------- \155\ https://www.cms.gov/files/document/certification-rates-uninsured-2026-proposed-rule.pdf. --------------------------------------------------------------------------- As with the CBO estimates on which we based Factor 2 for fiscal years before FY 2018, the NHEA estimates are for a calendar year. Under the approach originally adopted in the FY 2014 IPPS/LTCH PPS final rule, we have used a weighted average approach to project the rate of uninsurance for each fiscal year. We continue to believe that, in order to estimate the rate of uninsurance during a fiscal year accurately, Factor 2 should reflect the estimated rate of uninsurance that hospitals will experience during the fiscal year, rather than the rate of uninsurance during only one of the calendar years that the fiscal year spans. Accordingly, in the FY 2026 IPPS/LTCH PPS proposed rule, we proposed to continue to apply the weighted average approach used in past fiscal years to estimate this final rule's rate of uninsurance for FY 2026. OACT certified the estimate of the rate of uninsurance for FY 2026 determined using this weighted average approach to be reasonable and appropriate for purposes of section 1886(r)(2)(B)(ii) of the Act. In the proposed rule (90 FR 18258), we noted that we may also consider the use of more recent data that may become available for purposes of estimating the rates of uninsurance used in the calculation of the final Factor 2 for FY 2026. In the proposed rule, we outlined the calculation of the proposed Factor 2 for FY 2026 as follows: Percent of individuals without insurance for CY 2013: 14 percent. Percent of individuals without insurance for CY 2025: 7.7 percent. Percent of individuals without insurance for CY 2026: 8.7 percent. Percent of individuals without insurance for FY 2026: (0.25 times 0.077) + (0.75 times 0.087) = 8.5 percent. FY 2026's proposed Factor 2 is calculated as 1 minus the percent change in the percent of individuals without insurance between CY 2013 and FY 2026. Proposed Factor 2 is as follows: 1-[verbar]((0.14-0.085)/ 0.14)[verbar]= 1-0.3929 = 0.6071. We proposed that Factor 2 for FY 2026 would be 60.71 percent. The proposed FY 2026 uncompensated care amount was equivalent to proposed Factor 1 multiplied by proposed Factor 2, which was $ 7,190,037,075. We invited public comments on our proposed Factor 2 for FY 2026. Comment: Several commenters expressed their support for CMS' proposed increase in Factor 2 and Medicare DSH uncompensated care payments. Most commenters that discussed Factor 2 expressed their concern that CMS has an underestimate of the uninsured rate for FY 2026. Commenters noted that the proposed Factor 2 amount does not account for several finalized and proposed policy changes that could dramatically increase the uninsured rates in FY 2026. These commenters referenced the expiration of the American Rescue Plan's Marketplace enhanced premium tax credits, the unwinding of the Medicaid continuous coverage protections, pending or proposed federal policy changes that may restrict Medicaid and marketplace insurance access, and reconciliation bills and tax changes (that is, the One Big Beautiful Bill Act) that could increase the uninsured population in FY 2026. Many commenters also referenced data sources and analyses estimating the impact of proposed federal legislation on the FY 2026 uninsured rate. Several commenters cited the Congressional Budget Office's (CBO) projections, which estimated that the number of uninsured individuals will increase by 2.2 million in 2026, 3.7 million in 2027, and 3.8 million on average each year from 2026 to 2034 due to the expiration of the enhanced premium tax credits. Other commenters cited the CBO's projection that 16 million individuals will lose their health insurance by 2034, and of these, almost 11 million will become uninsured due to the One Big Beautiful Bill Act (as referred to by commenters, which became Pub. L. 119-21), with the other 5 million losing their insurance due to the expired enhanced premium tax credits. A few commenters referenced a memorandum issued by the White House Council of Economic Advisers, which projected an increase of 9.2 million in the uninsured population if the proposed reconciliation budget bill does not pass by the end of Summer 2025. A commenter stated that 35 percent of enrollees in Louisiana were disenrolled from Medicaid between 2023 and 2024 according to a Kaiser Family Foundation analysis. Accordingly, these commenters requested that CMS increase Factor 2 to reflect the anticipated increase in the FY 2026 uninsured population. A commenter requested that CMS use administrative discretion to adjust Factor 2 upward in the final rule, stating that the current NHEA projections were certified before the introduction of recent legislative and regulatory proposals that could significantly reshape the insurance coverage landscape. Another commenter requested that CMS commit to recalculate the total DSH uncompensated payments for FY 2026 once the fate of the reconciliation bill is known. Citing CMS' statement in the proposed rule that the agency could consider more recent data that may become available for the calculation of Factor 2 in FY 2026, many commenters urged CMS to use more recent and accurate data sources to account for the anticipated increase in the uninsured rate. Some of these commenters urged CMS to consider utilizing alternative data sources and calculations, such as real-world data from interested parties and researchers, to ensure that the Factor 2 estimate appropriately reflects the current coverage landscape and accurately estimates uninsured projections. A few commenters stated that the current Factor 2 methodology may have been appropriate during periods of stable insurance coverage but may no longer be adequate given recent and anticipated policy-driven shifts in the uninsured rate. As such, these commenters urged CMS to re-evaluate the current data sources and methodologies used to estimate Factor 2. Given that OACT updates its projected enrollment and spending trends for the coming 10-year period, including the estimated uninsured rate for the upcoming fiscal year, using NHEA data annually between the proposed and final IPPS/LTCH rules, a few commenters requested that CMS update the proposed rule's estimate of the uninsurance rate for the upcoming fiscal year earlier in the rulemaking cycle issue an earlier update to enhance the reliability of the proposed rule in projecting changes to uncompensated care payments for upcoming fiscal years. Response: We thank the commenters for their input and diligence regarding the estimate of Factor 2 included in the proposed rule. In response to comments concerning the NHEA data source used for calculating Factor 2 for FY 2026, we refer readers to the FY 2018 IPPS/ LTCH PPS final rule (82 FR 38197 and 38198) for a complete discussion of the NHEA and why we determined, and continue to believe, that it is the data source for the rate of uninsurance that, on balance, best meet all of our considerations for ensuring that the data source meets the statutory requirement that the estimate [[Page 36889]] be based on data from the Census Bureau or other sources the Secretary determines appropriate. We continue to believe that the NHEA will provide reasonable estimates for the rate of uninsurance that are available in conjunction with the IPPS rulemaking cycle. In the FY 2026 IPPS/LTCH PPS proposed rule, we explained that we used the most recent available estimates from the NHEA at that time (that were released in June 2024), and we refer readers to the relevant discussion in the proposed rule and OACT's memorandum on ``Certification of Rates of Uninsured'' prepared for the proposed rule for further details on the methodology and assumptions used in the proposed rule's calculation of the projected uninsured rate. In brief, we indicated that our projection of the rates of uninsurance for CY 2025 and CY 2026 were from the latest NHEA historical data available and accounted for expected changes in enrollment across all categories of insurance coverage. We note, in particular, that OACT's estimates in the proposed rule considered the expiration of the American Rescue Plan's Marketplace enhanced premium tax credits and the latest Medicaid projections publicly available at that time. In response to commenters who requested that we update the Factor 2 estimates in the FY 2026 IPPS/LTCH PPS proposed rule to account for any anticipated changes in the uninsured rate using more recent or alternative data sources, in the proposed rule, we stated we may consider the use of more recent data that may become available for purposes of estimating the rates of uninsurance used in the calculation of the final Factor 2 for FY 2026. In this final rule, we are using the most recent NHEA estimates for the rate of uninsurance, which became available on June 25, 2025 and account for all updates to the CY 2025 and CY 2026 uninsured rate, and reflect current law and administrative actions as of March 25, 2025, including the legislative impacts of the expiration of the American Rescue Plan's Marketplace enhanced premium tax credits. At this stage of the FY 2026 IPPS/LTCH PPS final rule development, there is not an available estimate of the impact of Public Law 119-21 on the uninsured rate, and there is a wide range of uncertainty associated with the demographic, economic and programmatic outcomes. Consistent with prior final IPPS/LTCH PPS rulemakings (see, for example, 89 FR 68986), we are using the updated NHEA data for the final Factor 2 calculation because we believe that it is the most appropriate measure of changes in the rate of uninsurance. Regarding the comments requesting that CMS update the Factor 2 methodology and data sources and increase Factor 2 we continue to believe that estimating Factor 2 based on the best available data is appropriate and consistent with the requirements of Section 1886(r)(2)(B)(ii) of the Act. Regarding the comments requesting that CMS issue an earlier update of the uninsured rate for the upcoming FY during each annual rulemaking cycle, we note that we use the most recent NHEA projections available at the time of developing the proposed and final rules. Comment: Several commenters urged CMS to be transparent in the calculation of Factor 2 and how it accounts for the current coverage landscape, while others urged CMS to be transparent regarding the data sources used for calculating Factor 2 and the assumptions behind the uninsured rate. One commenter asserted that the proposed rule did not provide sufficient details nor an explanation of the treatment of Medicaid expansions in the calculation for Factor 2. A few commenters requested that CMS publish a detailed methodology on the calculation of Factor 2 and how the NHEA projections are incorporated into the estimate. Response: In response to the comments concerning transparency, we note that OACT's updated memorandum ``Certification of Rates of Uninsured'' contains additional background describing the methods used to derive the FY 2026 rate of uninsured for this final rule. Section 1886(r)(2)(B)(ii) of the Act permits us to use a data source other than CBO estimates to determine the percent change in the rate of uninsurance beginning in FY 2018. As explained elsewhere in this section of this final rule, the NHEA data and methodology that were used to estimate Factor 2 for this final rule are transparent and best meet all our considerations for ensuring reasonable estimates for the rate of uninsurance that are available in conjunction with the IPPS rulemaking cycle, and we have concluded it is appropriate to update the projection of the FY 2026 rate of uninsurance using the most recent NHEA data. For additional information on the projection of the uninsured rate, see the projection's methodology documentation. (Available on the CMS website at: https://www.cms.gov/research-statistics-data-and-systems/statistics-trends-and-reports/nationalhealthexpenddata/downloads/projectionsmethodology.pdf). After consideration of the public comments we received, we are updating the calculation of Factor 2 for FY 2026 to incorporate the most recent NHEA data. The final estimates of the percentage of uninsured individuals have been certified by the Chief Actuary of CMS. The calculation of the final Factor 2 for FY 2026 using a weighted average of OACT's updated projections for CY 2025 and CY 2026 is as follows: Percent of individuals without insurance for CY 2013: 14.0 percent Percent of individuals without insurance for CY 2025: 7.9 percent Percent of individuals without insurance for CY 2026: 9.0 percent Percent of individuals without insurance for FY 2026: (0.25 times 7.9) + (0.75 times 9.0) = 8.7 percent Factor 2: 1-[verbar]((0.087-0.14)/0.14)[verbar] = 1-0.3786 = 0.6214 (62.14 percent) Therefore, the final Factor 2 for FY 2026 is 62.14 percent. The final FY 2026 uncompensated care amount is $12,412,500,000 * 0.6214 = $ 7,713,127,500.

3. Calculation of Factor 3 for FY 2026

a. General Background Section 1886(r)(2)(C) of the Act defines Factor 3 in the calculation of the uncompensated care payment. As we have discussed earlier, section 1886(r)(2)(C) of the Act states that Factor 3 is equal to the percent, for each subsection (d) hospital, that represents the quotient of: (1) the amount of uncompensated care for such hospital for a period selected by the Secretary (as estimated by the Secretary, based on appropriate data (including, in the case where the Secretary determines alternative data are available that are a better proxy for the costs of subsection (d) hospitals for treating the uninsured, the use of such alternative data)); and (2) the aggregate amount of uncompensated care for all subsection (d) hospitals that receive a payment under section 1886(r) of the Act for such period (as so estimated, based on such data). Therefore, Factor 3 is a hospital-specific value that expresses the proportion of the estimated uncompensated care amount for each subsection (d) hospital and each subsection (d) Puerto Rico hospital with the potential to receive Medicare DSH payments relative to the estimated uncompensated care amount for all hospitals estimated to receive Medicare DSH payments in the fiscal year for which the uncompensated care payment [[Page 36890]] is to be made. Factor 3 is applied to the product of Factor 1 and Factor 2 to determine the amount of the uncompensated care payment that each eligible hospital will receive for FY 2014 and subsequent fiscal years. In order to implement the statutory requirements for this factor of the uncompensated care payment formula, it was necessary for us to determine: (1) the definition of uncompensated care or, in other words, the specific items that are to be included in the numerator (that is, the estimated uncompensated care amount for an individual hospital) and the denominator (that is, the estimated uncompensated care amount for all hospitals estimated to receive Medicare DSH payments in the applicable fiscal year); (2) the data source(s) for the estimated uncompensated care amount; and (3) the timing and manner of computing the quotient for each hospital estimated to receive Medicare DSH payments. The statute instructs the Secretary to estimate the amounts of uncompensated care for a period based on appropriate data. In addition, we note that the statute permits the Secretary to use alternative data in the case where the Secretary determines that such alternative data are available that are a better proxy for the costs of subsection (d) hospitals for treating individuals who are uninsured. For a discussion of the methodology, we used to calculate Factor 3 for fiscal years 2014 through 2022, we refer readers to the FY 2024 IPPS/ LTCH final rule (88 FR 59001 and 59002). b. Background on the Methodology Used To Calculate Factor 3 for FY 2024 and Subsequent Years Section 1886(r)(2)(C) of the Act governs the selection of the data to be used in calculating Factor 3 and allows the Secretary the discretion to determine the time periods from which we will derive the data to estimate the numerator and the denominator of the Factor 3 quotient. Specifically, section 1886(r)(2)(C)(i) of the Act defines the numerator of the quotient as the amount of uncompensated care for a subsection (d) hospital for a period selected by the Secretary. Section 1886(r)(2)(C)(ii) of the Act defines the denominator as the aggregate amount of uncompensated care for all subsection (d) hospitals that receive a payment under section 1886(r) of the Act for such period. In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50634 through 50647), we adopted a process of making interim payments with final cost report settlement for both the empirically justified Medicare DSH payments and the uncompensated care payments required by section 3133 of the Affordable Care Act. Consistent with that process, we also determined the time period from which to calculate the numerator and denominator of the Factor 3 quotient in a way that would be consistent with making interim and final payments. Specifically, we must have Factor 3 values available for hospitals that we estimate will qualify for Medicare DSH payments for a fiscal year and for those hospitals that we do not estimate will qualify for Medicare DSH payments for that fiscal year but that may ultimately qualify for Medicare DSH payments for that fiscal year at the time of cost report settlement. As described in the FY 2022 IPPS/LTCH PPS final rule, commenters expressed concerns that the use of only 1 year of data to determine Factor 3 would lead to significant variations in year-to-year uncompensated care payments. Some stakeholders recommended the use of 2 years of historical data from Worksheet S-10 data of the Medicare cost report (86 FR 45237). In the FY 2022 IPPS/LTCH PPS final rule, we stated that we would consider using multiple years of data when the vast majority of providers had been audited for more than 1 fiscal year under the revised reporting instructions. Audited FY 2020 cost reports were available for the development of the FY 2024 IPPS/LTCH PPS proposed and final rules. Feedback from previous audits and lessons learned were incorporated into the audit process for the FY 2020 reports. In consideration of the comments discussed in the FY 2022 IPPS/LTCH PPS final rule, in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49036 through 49047), we finalized a policy of using a multi-year average of audited Worksheet S-10 data to determine Factor 3 for FY 2023 and subsequent fiscal years. We explained our belief that this approach would be generally consistent with our past practice of using the most recent single year of audited data from the Worksheet S-10, while also addressing commenters' concerns regarding year-to-year fluctuations in uncompensated care payments. Under this policy, we used a 2-year average of audited FY 2018 and FY 2019 Worksheet S-10 data to calculate Factor 3 for FY 2023. We also indicated that we expected FY 2024 would be the first year that 3 years of audited data would be available at the time of rulemaking. For FY 2024 and subsequent fiscal years, we finalized a policy of using a 3-year average of the uncompensated care data from the 3 most recent fiscal years for which audited data are available to determine Factor 3. Consistent with the approach that we followed when multiple years of data were previously used in the Factor 3 methodology, if a hospital does not have data for all 3 years used in the Factor 3 calculation, we will determine Factor 3 based on an average of the hospital's available data. For IHS and Tribal hospitals and Puerto Rico hospitals, we use the same multi-year average of Worksheet S-10 data to determine Factor 3 for FY 2024 and subsequent fiscal years as is used to determine Factor 3 for all other DSH- eligible hospitals (in other words, hospitals eligible to receive empirically justified Medicare DSH payments for a fiscal year) to determine Factor 3. In the FY 2023 IPPS/LTCH PPS final rule (87 FR 49033 through 49047), we also modified our policy regarding cost reports that start in one fiscal year and span the entirety of the following fiscal year. Specifically, in the rare cases when we use a cost report that starts in one fiscal year and spans the entirety of the subsequent fiscal year to determine uncompensated care costs for the subsequent fiscal year, we would not use the same cost report to determine the hospital's uncompensated care costs for the earlier fiscal year. We explained that using the same cost report to determine uncompensated care costs for both fiscal years would not be consistent with our intent to smooth year-to-year variation in uncompensated care costs. As an alternative, we finalized our proposal to use the hospital's most recent prior cost report, if that cost report spans the applicable period.\156\ --------------------------------------------------------------------------- \156\ For example, in determining Factor 3 for FY 2023, we did not use the same cost report to determine a hospital's uncompensated care costs for both FY 2018 and FY 2019. Rather, we used the cost report that spanned the entirety of FY 2019 to determine uncompensated care costs for FY 2019 and used the hospital's most recent prior cost report to determine its uncompensated care costs for FY 2018, provided that cost report spanned some portion of FY 2018. --------------------------------------------------------------------------- (1) Scaling Factor In the FY 2025 IPPS/LTCH PPS final rule (89 FR 69323), we continued the policy finalized in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49042) to address the effects of calculating Factor 3 using data from multiple fiscal years, in which we apply a scaling factor to the Factor 3 values calculated for all DSH-eligible hospitals so that total uncompensated care payments to hospitals that are projected to be DSH- eligible for a fiscal year will be consistent with the estimated amount available to make uncompensated care payments for that fiscal year. Pursuant to that policy, we divide 1 (the expected sum of all DSH- eligible hospitals' Factor [[Page 36891]] 3 values) by the actual sum of all DSH-eligible hospitals' Factor 3 values and then multiply the quotient by the uncompensated care payment determined for each DSH-eligible hospital to obtain a scaled uncompensated care payment amount for each hospital. This process is designed to ensure that the sum of the scaled uncompensated care payments for all hospitals that are projected to be DSH-eligible is consistent with the estimate of the total amount available to make uncompensated care payments for the applicable fiscal year. (2) New Hospital Policy for Purposes of Factor 3 In the FY 2025 IPPS/LTCH PPS final rule (89 FR 69323), we continued our new hospital policy that was modified in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49042) and initially adopted in the FY 2020 IPPS/LTCH PPS final rule (84 FR 42370 through 42371) to determine Factor 3 for new hospitals. Consistent with our policy of using multiple years of cost reports to determine Factor 3, we defined new hospitals as hospitals that do not have cost report data for the most recent year of data being used in the Factor 3 calculation. Under this definition, the cut-off date for the new hospital policy is the beginning of the fiscal year after the most recent year for which audits of the Worksheet S-10 data have been conducted. For FY 2026, the FY 2022 cost reports are the most recent year of cost reports for which audits of Worksheet S-10 data have been conducted. Thus, hospitals with CMS Certification Numbers (CCNs) established on or after October 1, 2022, would be subject to the new hospital policy for FY 2026. Under our modified new hospital policy, if a new hospital has a preliminary projection of being DSH-eligible based on its most recent available disproportionate patient percentage, it may receive interim empirically justified DSH payments. However, new hospitals will not receive interim uncompensated care payments because we would have no uncompensated care data on which to determine what those interim payments should be. The MAC will make a final determination concerning whether the hospital is eligible to receive Medicare DSH payments at cost report settlement. In FY 2025, while we continued to determine the numerator of the Factor 3 calculation using the new hospital's uncompensated care costs reported on Worksheet S-10 of the hospital's cost report for the current fiscal year, we determined Factor 3 for new hospitals using a denominator based solely on uncompensated care costs from cost reports for the most recent fiscal year for which audits have been conducted. In addition, we applied a scaling factor to the Factor 3 calculation for a new hospital.\157\ --------------------------------------------------------------------------- \157\ In the FY 2023 IPPS/LTCH PPS final rule (87 FR 49042), we explained our belief that applying the scaling factor is appropriate for purposes of calculating Factor 3 for all hospitals, including new hospitals and hospitals that are treated as new hospitals, to improve consistency and predictability across all hospitals. --------------------------------------------------------------------------- (3) Newly Merged Hospital Policy In the FY 2025 IPPS/LTCH PPS final rule (89 FR 690323 through 690324), we continued our policy of treating hospitals that merge after the development of the final rule for the applicable fiscal year similar to new hospitals. As explained in the FY 2015 IPPS/LTCH PPS final rule (79 FR 50021), for these newly merged hospitals, we do not have data currently available to calculate a Factor 3 amount that accounts for the merged hospital's uncompensated care burden. In the FY 2015 IPPS/LTCH PPS final rule (79 FR 50021 and 50022), we finalized a policy under which Factor 3 for hospitals that we do not identify as undergoing a merger until after the public comment period and additional review period following the publication of the final rule or that undergo a merger during the fiscal year will be recalculated similar to new hospitals. Consistent with the policy adopted in the FY 2015 IPPS/LTCH PPS final rule, in the FY 2025 IPPS/LTCH PPS final rule (89 FR 690323 through 690324), we stated that we would continue to treat newly merged hospitals in a similar manner to new hospitals, such that the newly merged hospital's final uncompensated care payment will be determined at cost report settlement where the numerator of the newly merged hospital's Factor 3 will be based on the cost report of only the surviving hospital (that is, the newly merged hospital's cost report) for the current fiscal year. However, if the hospital's cost reporting period includes less than 12 months of data, the data from the newly merged hospital's cost report will be annualized for purposes of the Factor 3 calculation. Consistent with the methodology used to determine Factor 3 for new hospitals described in section IV.E.3. of the preamble of this final rule, we continued our policy for determining Factor 3 for newly merged hospitals using a denominator that is the sum of the uncompensated care costs for all DSH-eligible hospitals, as reported on Worksheet S-10 of their cost reports for the most recent fiscal year for which audits have been conducted. In addition, we apply a scaling factor, as discussed in section IV.E.3. of the preamble of this final rule, to the Factor 3 calculation for a newly merged hospital. In the FY 2025 IPPS/LTCH PPS final rule, we explained that consistent with past policy, interim uncompensated care payments for the newly merged hospital would be based only on the data for the surviving hospital's CCN available at the time of the development of the final rule. We received comments on the newly merged hospital policy. Comment: A few commenters expressed support for the new hospital and newly merged hospital policies currently in place. Response: We appreciate the continued support of our policies for new and newly merged hospitals. (4) CCR Trim Methodology The calculation of a hospital's total uncompensated care costs on Worksheet S-10 requires the use of the hospital's cost to charge ratio (CCR). In the FY 2025 IPPS/LTCH PPS final rule (89 FR 69324), we continued the policy of trimming CCRs, which we adopted in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49043), for FY 2025. Under this policy, we apply the following steps to determine the applicable CCR separately for each fiscal year that is included as part of the multi-year average used to determine Factor 3: Step 1: Remove Maryland hospitals. In addition, we will remove all- inclusive rate providers because their CCRs are not comparable to the CCRs calculated for other IPPS hospitals. Step 2: Calculate a CCR ``ceiling'' for the applicable fiscal year with the following data: for each IPPS hospital that was not removed in Step 1 (including hospitals that are not DSH-eligible), we use cost report data to calculate a CCR by dividing the total costs on Worksheet C, Part I, Line 202, Column 3 by the charges reported on Worksheet C, Part I, Line 202, Column 8. (Combining data from multiple cost reports from the same fiscal year is not necessary, as the longer cost report will be selected.) The ceiling is calculated as 3 standard deviations above the national geometric mean CCR for the applicable fiscal year. This approach is consistent with the methodology for calculating the CCR ceiling used for high-cost outliers. Remove all hospitals that exceed the ceiling so that these aberrant CCRs do not skew the calculation of the statewide average CCR. Step 3: Using the CCRs for the remaining hospitals in Step 2, [[Page 36892]] determine the urban and rural statewide average CCRs for the applicable fiscal year for hospitals within each State (including hospitals that are not DSH-eligible), weighted by the sum of total hospital discharges from Worksheet S-3, Part I, Line 14, Column 15. Step 4: Assign the appropriate statewide average CCR (urban or rural) calculated in Step 3 to all hospitals, excluding all-inclusive rate providers, with a CCR for the applicable fiscal year greater than 3 standard deviations above the national geometric mean for that fiscal year (that is, the CCR ``ceiling''). Step 5: For hospitals that did not report a CCR on Worksheet S-10, Line 1, we assign them the statewide average CCR for the applicable fiscal year as determined in step 3. After completing these steps, we re-calculate the hospital's uncompensated care costs (Line 30) for the applicable fiscal year using the trimmed CCR (the statewide average CCR (urban or rural, as applicable)). (5) Uncompensated Care Data Trim Methodology After applying the CCR trim methodology, there are rare situations where a hospital has potentially aberrant uncompensated care data for a fiscal year that are unrelated to its CCR. Therefore, under the trim methodology for potentially aberrant uncompensated care costs (UCC) that was included as part of the methodology for purposes of determining Factor 3 in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58832), if the hospital's uncompensated care costs for any fiscal year that is included as a part of the multi-year average are an extremely high ratio (greater than 50 percent) of its total operating costs in the applicable fiscal year, we will determine the ratio of uncompensated care costs to the hospital's total operating costs from another available cost report, and apply that ratio to the total operating expenses for the potentially aberrant fiscal year to determine an adjusted amount of uncompensated care costs for the applicable fiscal year.\158\ --------------------------------------------------------------------------- \158\ For example, if a hospital's FY 2018 cost report is determined to include potentially aberrant data, data from its FY 2019 cost report would be used for the ratio calculation. --------------------------------------------------------------------------- However, we note that we have audited the Worksheet S-10 data that will be used in the Factor 3 calculation for a number of hospitals. Because the UCC data for these hospitals have been subject to audit, we believe that there is increased confidence that if high uncompensated care costs are reported by these audited hospitals, the information is accurate. Therefore, as we explained in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58832), we determined it is unnecessary to apply the UCC trim methodology for a fiscal year for which a hospital's UCC data have been audited. In rare cases, hospitals that are not currently projected to be DSH-eligible and that do not have audited Worksheet S-10 data may have a potentially aberrant amount of insured patients' charity care costs (line 23 column 2). In the FY 2025 IPPS/LTCH PPS final rule (89 FR 69324 through 69325), we stated that in addition to the UCC trim methodology, we will continue to apply an alternative trim specific to certain hospitals that do not have audited Worksheet S-10 data for one or more of the fiscal years that are used in the Factor 3 calculation. For FY 2023 and subsequent fiscal years, in the rare case that a hospital's insured patients' charity care costs for a fiscal year are greater than $7 million and the ratio of the hospital's cost of insured patient charity care (line 23 column 2) to total uncompensated care costs (line 30) is greater than 60 percent, we will not calculate a Factor 3 for the hospital at the time of proposed or final rulemaking. This trim will only impact hospitals that are not currently projected to be DSH-eligible; and therefore, are not part of the calculation of the denominator of Factor 3, which includes only uncompensated care costs for hospitals projected to be DSH-eligible. Consistent with the approach adopted in the FY 2022 IPPS/LTCH PPS final rule, if a hospital would be trimmed under both the UCC trim methodology and this alternative trim, we will apply this trim in place of the existing UCC trim methodology. We continue to believe this alternative trim more appropriately addresses potentially aberrant insured patient charity care costs compared to the UCC trim methodology, because the UCC trim is based solely on the ratio of total uncompensated care costs to total operating costs and does not consider the level of insured patients' charity care costs. Similar to the approach initially adopted in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45245 and 45246), in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69324), we also stated that we would continue to use a threshold of 3 standard deviations from the mean ratio of insured patients' charity care costs to total uncompensated care costs (line 23 column 2 divided by line 30) and a dollar threshold that is the median total uncompensated care cost reported on most recent audited cost reports for hospitals that are projected to be DSH-eligible. We stated that we continued to believe these thresholds are appropriate to address potentially aberrant data. We also continued to include Worksheet S-10 data from IHS/Tribal hospitals and Puerto Rico hospitals consistent with our policy finalized in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49047 through 49051). In addition, we continued our policy adopted in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49044) of applying the same threshold amounts originally calculated for the FY 2019 reports to identify potentially aberrant data for FY 2025 and subsequent fiscal years to facilitate transparency and predictability. If a hospital subject to this trim is determined to be DSH-eligible at cost report settlement, the MAC will calculate the hospital's Factor 3 using the same methodology used to calculate Factor 3 for new hospitals. c. Methodology for Calculating Factor 3 for FY 2026 For FY 2026, consistent with Sec. 412.106(g)(1)(iii)(C)(11), we are following the same methodology as applied in FY 2024 and described in the previous section of the preamble of this final rule to determine Factor 3 using the most recent 3 years of audited cost reports, from FY 2020, FY 2021, and FY 2022. Consistent with our approach for FY 2025, for FY 2026, we are also applying the scaling factor, new hospital, newly merged hospital, CCR trim methodology, UCC trim, and alternative trim methodology policies discussed in the previous section of the preamble of this final rule. For purposes of the FY 2026 IPPS/LTCH PPS proposed rule, we used reports from the December 2024 HCRIS extract to calculate Factor 3. In the proposed rule, we noted that we intended to use the March 2025 update of HCRIS to calculate the final Factor 3 for the FY 2026 IPPS/LTCH PPS final rule. Thus, for FY 2026, we will use 3 years of audited Worksheet S-10 Part 1 data to calculate Factor 3 for all eligible hospitals, including IHS and Tribal hospitals and Puerto Rico hospitals that have a cost report for 2013, following steps. We note that we are clarifying in these steps our use of Worksheet S-10, Part I, rather than Worksheet S- 10, Part II, to calculate Factor 3. Step 1: Select the hospital's longest cost report for each of the most recent 3 years of fiscal year (FY) audited cost reports (FY 2020, FY 2021, and FY 2022). Alternatively, in the rare case when the hospital has no cost report for a particular year because the cost report for the previous fiscal year spanned the [[Page 36893]] more recent fiscal year, the previous fiscal year cost report will be used in this step. In the rare case that using a previous fiscal year cost report results in a period without a report, we would use the prior year report, if that cost report spanned the applicable period.\159\ In general, we note that, for purposes of the Factor 3 methodology, references to a fiscal year cost report are to the cost report that spans the relevant fiscal year. --------------------------------------------------------------------------- \159\ For example, if a hospital does not have a FY 2020 cost report because the hospital's FY 2019 cost report spanned the FY 2020 time period, we will use the FY 2019 cost report that spanned the FY 2020 time period for this step. Using the same example, where the hospital's FY 2019 report is used for the FY 2020 time period, we will use the hospital's FY 2018 report if it spans some of the FY 2019 time period. We will not use the same cost report for both the FY 2020 and the FY 2019 time periods. --------------------------------------------------------------------------- Step 2: Annualize the UCC from Worksheet S-10, Part I, Line 30, if a cost report is more than or less than 12 months. (If applicable, use the statewide average CCR (urban or rural) to calculate uncompensated care costs.) Step 3: Combine adjusted and/or annualized uncompensated care costs for hospitals that merged using the merger policy. Step 4: Calculate Factor 3 for all DSH-eligible hospitals using annualized uncompensated care costs (Worksheet S-10, Part I, Line 30) based on cost report data from the most recent 3 years of audited cost reports (from Step 1, 2 or 3). New hospitals and other hospitals that are treated as if they are new hospitals for purposes of Factor 3 are excluded from this calculation. Step 5: Average the Factor 3 values from Step 4; that is, add the Factor 3 values, and divide that amount by the number of cost reporting periods with data to compute an average Factor 3 for the hospital. Multiply by a scaling factor, as discussed in the previous section of the preamble of this final rule. We received comments regarding the Factor 3 calculation, including Worksheet S-10 cost report audits and uncompensated care cost report instructions. Comment: Several commenters expressed their support for CMS' proposal to calculate Factor 3 for FY 2026 based on a three-year average of audited FY 2020, FY 2021, and FY 2022 Worksheet S-10 data. Supporters of this proposal specified that the use of a multi-year average of Worksheet S-10 data significantly reduces year-to-year volatility in uncompensated care payments. Notably, no commenters expressed opposition to using a three-year average of Worksheet S-10 data to calculate uncompensated care payments. Response: We are grateful to those commenters who expressed their support for our policy of using a three-year average of audited FY 2020, FY 2021, and FY 2022 Worksheet S-10 data to determine each hospital's share of uncompensated care costs in FY 2026. As explained in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18002), we believe that using a multi-year average of Worksheet S-10 data will provide assurance that hospitals' uncompensated care payments remain stable and predictable, while mitigating unpredictable swings and anomalies in a hospital's uncompensated care costs. Comment: A commenter urged CMS to monitor trends in uncompensated care as reported on Worksheet S-10 during the COVID-19 Public Health Emergency (PHE). This commenter encouraged CMS to assess how disruptions in care during the COVID-19 PHE affected Factor 3 calculations and consider steps to dampen the effect of any large reductions in uncompensated care costs attributable to the PHE and ensure that the inclusion of FY 2020-2022 data does not reduce Factor 3 for essential hospitals. Response: Regarding requests for CMS to monitor and account for the impact of the COVID-19 PHE on Worksheet S-10 cost report data, we will continue to monitor the impact of the PHE and will consider this issue further in future rulemaking, as appropriate. We refer readers to our responses to similar comments in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69325-39326), and we note that we will continue to use the three-year average of the most recently audited cost report data for FY 2026 and subsequent years, consistent with the policy finalized in the FY 2023 IPPS/LTCH PPS final rule (87 FR 48780) and Sec. 412.106(g)(1)(iii)(C)(11). Comment: A commenter expressed their support for the continued distribution of the uncompensated care payments based on each DSH hospital's share of total uncompensated care. Response: We appreciate the support for our policies on the distribution of uncompensated care payments. Comment: We received comments that were outside the scope of previously discussed methodological concepts concerning the blending of historical Worksheet S-10 data to calculate Factor 3. A commenter recommended that CMS distribute current DSH and uncompensated care payments using the Medicare Safety-Net Index (MSNI) framework outlined by the Medicare Payment Advisory Commission (MedPAC) in its 2024 Report to Congress. Another commenter urged CMS to explore additional policy levers to increase DSH and/or uncompensated care payments, such as temporarily directing supplemental funds--beyond empirically justified DSH payments and/or uncompensated care payments--to hospitals that serve the highest proportion of low-income patients. Response: Regarding the commenters' suggestions unrelated to the previously discussed methodological concepts for the blending of historical Worksheet S-10 data to calculate Factor 3, we consider these public comments to be outside the scope of the proposed rule and are not addressing them in this final rule. However, we appreciate the commenters' input and note that we may consider these suggestions in future rulemaking, as appropriate. Comment: Commenters reiterated comments from prior years suggesting modifications to the Worksheet S-10 audit process. Specifically, a commenter requested that CMS publicly disseminate comprehensive audit policy and protocols that must be employed by all auditors and MACs and disclose these through notice and comment rulemaking. The same commenter requested that CMS implement a workable appeal or review process to correct errors and inconsistent audit disallowances in a timely manner. Another commenter requested that CMS provide clear guidelines on its audit protocols and ensure Worksheet S-10 reviews impose minimal burden and are uniformly applied across all hospitals. The commenter urged CMS to disclose the criteria it uses to identify hospitals for audits and ensure audits are conducted consistently and equitably. Lastly, a commenter encouraged CMS to continuously take steps to improve Worksheet S-10 data auditing accuracy. Response: We thank commenters for their feedback on the audits of the Worksheet S-10 data and their recommendations for future audits, which we will take into consideration for future rulemaking. We note that as we have stated in previous rulemakings in response to comments regarding audit protocols (see, for example, 88 FR 58640), audit protocols are provided to MACs in advance of the audit to ensure consistency and timeliness in the audit process. Regarding the request to make public the audit policies and protocols, as we previously explained most recently in the FY 2024 IPPS/LTCH PPS final rule (88 FR 58640), we do not make our protocols public as CMS desk review and audit protocols are confidential and are for CMS and MAC use only. In addition, there is no requirement under either the Administrative Procedure Act [[Page 36894]] or the Medicare statute that CMS adopt audit policies or protocols through notice and comment rulemaking. Finally, as noted in the FY 2024 IPPS/LTCH PPS final rule (88 FR 58640), to most efficiently and appropriately utilize our limited audit resources, we do not plan to introduce an audit appeal process at this time. Comment: Commenters thanked CMS for recent revisions to the Worksheet S-10 audit protocols but expressed concern about recent changes that require more detailed information. A commenter expressed concerns regarding cost report exhibits and the Worksheet S-10 audits, in particular the commenter stated that they should not have to put unnecessary effort into exhibits if the MAC asks for different information during the Worksheet S-10 audits. Another commenter requested clarification on how the exhibits will be utilized. The commenter requested that CMS consider making some fields as optional rather than mandatory to reduce administrative burden. Response: Regarding commenters' concerns about cost report instructions, we note that to ensure the accuracy and integrity of the cost reports, all hospitals are required to maintain documentation for the Worksheet S-10, such as exhibits and Exhibits 3B and 3C (PRM 15-2, 4012.2) in particular. Regarding commenters' concerns about exhibits, we refer commenters to the ``Justification'' section of the Paperwork Reduction Act (PRA) revision request and approval of the existing information collection requirement (ICR) for cost reports (OMB control number 0938-0050 with an expiration date September 30, 2025). Comment: Regarding Worksheet S-10 instructions and guidance, a commenter requested that CMS clarify inconsistent Worksheet S-10 instructions on line 29 so that non-Medicare bad debt is not multiplied by the CCR. The commenter stated that while CMS' revised cost report instructions indicate that non-reimbursed Medicare bad debt is not multiplied by the CCR, CMS' September 2017 transmittal \160\ states that non-Medicare bad debt should be multiplied by the CCR. --------------------------------------------------------------------------- \160\ https://www.cms.gov/regulations-and-guidance/guidance/transmittals/2017downloads/r11p240.pdf. --------------------------------------------------------------------------- Response: We appreciate the commenter's concern regarding the need for clarification of the Worksheet S-10 instructions and refer the commenter to our response to a substantially similar comment in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69327). Comment: Some commenters reiterated concerns previously raised in response to the FY 2025 IPPS/LTCH PPS proposed rule (89 FR 35934), proposing technical revisions to how CMS defines and calculates uncompensated care costs on Worksheet S-10. They recommended that CMS include all patient care costs, such as costs related to training medical residents, supporting physician and professional services, and paying provider taxes associated with Medicaid revenue, when converting costs to charges. These commenters suggested specific revisions to Worksheet S-10 to incorporate all patient care costs, such as utilizing the total of worksheet A, column 3, lines 1 through 117 (reduced by the amount on worksheet A-8, line 10) as the cost component and worksheet C, column 8, line 200, as the charge component. Additionally, some of these commenters requested that CMS include Graduate Medical Education (GME) costs when calculating a hospital's CCR. The same commenters further urged CMS to treat the unreimbursed portion of state or local indigent care programs as charity care and revise Worksheet S-10 such that data on Medicaid shortfalls resembles actual shortfalls incurred by hospitals. Specifically, they requested that hospitals be allowed to reduce their Medicaid revenue reported on Worksheet S-10 by the amount of any contributions to the nonfederal share of Medicaid funding, whether through provider taxes, intergovernmental transfers (IGTs), or certified public expenditures (CPEs). Response: We appreciate commenters' suggestions for revisions and/ or modifications to Worksheet S-10. We will consider the modifications as necessary to further improve and refine the information that is reported on Worksheet S-10 to support the collection of information regarding uncompensated care costs. Regarding the request to include costs for teaching and providing physician and other professional services, including GME costs, when calculating the CCR, as stated in past final rules (see, for example, 85 FR 58826, 86 FR 44774, and 89 FR 68986), we continue to believe that it is not appropriate to modify the calculation of the CCR on Line 1 of Worksheet S-10 to include any additional costs in the numerator of the CCR calculation. We refer readers to those prior rules for further discussion on this issue. With regard to the comments requesting that payment shortfalls from Medicaid and state and local indigent care programs be included in uncompensated care cost calculations, we have consistently explained in past final rules (85 FR 58826, 86 FR 44774, and 89 FR 68986) in response to similar comments that we believe there are compelling arguments for excluding such shortfalls from the definition of uncompensated care. We refer readers to those prior rules for further discussion on this issue. As we explained previously in this section, for FY 2026, we are also applying the scaling factor, new hospital, newly merged hospital, CCR trim methodology, UCC trim, and alternative trim methodology policies discussed in the previous section of the preamble of this final rule. For a hospital that is subject to either of the trims for potentially aberrant data (the UCC trim and alternative trim methodology explained in the previous section of the preamble of this final rule) and is ultimately determined to be DSH-eligible at cost report settlement, its uncompensated care payment will be calculated only after the hospital's reporting of insured charity care costs on its FY 2026 Worksheet S-10 has been reviewed. Accordingly, the MAC will calculate a Factor 3 for the hospital only after reviewing the uncompensated care information reported on Worksheet S-10 of the hospital's FY 2026 cost report. Then we will calculate Factor 3 for the hospital using the same methodology used to determine Factor 3 for new hospitals. Specifically, the numerator will reflect the uncompensated care costs reported on the hospital's FY 2026 cost report, while the denominator will reflect the sum of the uncompensated care costs reported on Worksheet S-10 of the FY 2022 cost reports of all DSH- eligible hospitals. In addition, we will apply a scaling factor, as discussed previously, to the Factor 3 calculation for the hospital. Under the CCR trim methodology, for purposes of the FY 2026 IPPS/ LTCH proposed rule and this final rule, the statewide average CCR was applied to 8 hospitals' FY 2020 reports, of which 2 hospitals had FY 2020 Worksheet S-10 data. The statewide average CCR was applied to 10 hospitals' FY 2021 reports, of which 4 hospitals had FY 2021 Worksheet S-10 data. The statewide average CCR was applied to 8 hospitals' FY 2022 reports, of which 2 hospitals had FY 2022 Worksheet S-10 data. We received comments on the trim methodology. Comment: A commenter expressed their support for CMS' CCR trim and UCC methodologies to address unusual and atypical data. Response: We appreciate the support for our policies on the CCR trim [[Page 36895]] methodology and the UCC trim methodology. For purposes of this FY 2026 IPPS/LTCH PPS final rule, consistent with our Factor 3 methodology since the FY 2014 IPPS/LTCH PPS final rule (78 FR 50642), we intend to use data from the March 2025 HCRIS extract for this calculation, which would be the latest quarterly HCRIS extract that is publicly available at the time of the development of this FY 2026 IPPS/LTCH PPS final rule. Regarding requests from providers to amend and/or reopen previously audited Worksheet S-10 data for the most recent 3 cost reporting years that are used in the methodology for calculating Factor 3, in the proposed rule, we noted that MACs follow normal timelines and procedures. For purposes of the Factor 3 calculation for the FY 2026 IPPS/LTCH PPS final rule, any amended reports and/or reopened reports would need to have completed the amended report and/or reopened report submission processes by the end of March 2025. In other words, if the amended report and/or reopened report is not available for the March HCRIS extract, then that amended and/or reopened report data would not be part of the FY 2026 IPPS/LTCH PPS final rule's Factor 3 calculation. We also noted in the proposed rule that the March HCRIS data extract would be available during the comment period for the proposed rule if providers wanted to verify that their amended and/or reopened data is reflected in the March HCRIS extract. d. Per-Discharge Amount of Interim Uncompensated Care Payments for FY 2026 Since FY 2014, we have made interim uncompensated care payments during the fiscal year on a per-discharge basis. Typically, we use a 3- year average of the number of discharges for a hospital to produce an estimate of the amount of the hospital's uncompensated care payment per discharge. Specifically, the hospital's total uncompensated care payment amount for the applicable fiscal year is divided by the hospital's historical 3-year average of discharges computed using the most recent available data to determine the uncompensated care payment per discharge for that fiscal year. As discussed in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69328- 69329), we finalized a policy to use a 3-year average of the most recent years of available historical discharge data to calculate a per- discharge payment amount that would be used to make interim uncompensated care payments to each projected DSH-eligible hospital during FY 2026 and subsequent fiscal years, codified at 42 CFR 412.106(i)(1). We are applying this policy for FY 2026. Interim uncompensated care payments made to a hospital during the fiscal year are reconciled following the end of the year to ensure that the final payment amount is consistent with the hospital's prospectively determined uncompensated care payment for the fiscal year. We received comments on the proposed per discharge payment amount used to make interim uncompensated care payments. Comment: A commenter raised their concern that CMS has understated the per-discharge amount of interim uncompensated care payments in the FY 2026 proposed rule, given the overestimation of discharges from past data years. This commenter also expressed opposition to using a three- year average for determining the discharge volume and requested that CMS project a reasonable estimation of discharges. Response: We thank the commenter for their feedback. As discussed in the FY 2025 IPPS/LTCH PPS final rule (89 FR 68986), we believe using an average of the most recent three-years of available historical discharge data will appropriately reflect year-to-year variations in discharge volumes in FY 2026 and subsequent fiscal years, and this approach is consistent with 42 CFR 412.106(i)(1). We refer the commenter to that final rule for additional discussion on this subject. We also refer the commenter to our response in that rulemaking (89 FR 69329) to similar comments stating that CMS overestimated discharge volume in recent years. Consistent with 42 CFR 412.106(i)(1), we are finalizing our proposal as is and will calculate the per-discharge amount of uncompensated care payments based on a three-year average of discharge data. As we explained in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69329 through 69330), we also finalized a voluntary process in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58833 and 58834), through which a hospital may submit a request to its MAC for a lower per-discharge interim uncompensated care payment amount, including a reduction to zero, once before the beginning of the fiscal year and/or once during the fiscal year. In conjunction with this request, the hospital must provide supporting documentation demonstrating that there would likely be a significant recoupment at cost report settlement if the per- discharge amount is not lowered (for example, recoupment of 10 percent or more of the hospital's total uncompensated care payment, or at least $100,000). For example, a hospital might submit documentation showing a large projected increase in discharges during the fiscal year to support reduction of its per-discharge uncompensated care payment amount. As another example, a hospital might request that its per- discharge uncompensated care payment amount be reduced to zero midyear if the hospital's interim uncompensated care payments during the year have already surpassed the total uncompensated care payment calculated for the hospital. Under the policy we finalized in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58833 through 58834), the hospital's MAC will evaluate these requests and the supporting documentation before the beginning of the fiscal year and/or with midyear requests when the historical average number of discharges is lower than the hospital's projected discharges for the current fiscal year. If, following review of the request and the supporting documentation, the MAC agrees that there likely would be significant recoupment of the hospital's interim Medicare uncompensated care payments at cost report settlement, the only change that will be made is to lower the per-discharge amount either to the amount requested by the hospital or another amount determined by the MAC to be appropriate to reduce the likelihood of a substantial recoupment at cost report settlement. If the MAC determines it would be appropriate to reduce the interim Medicare uncompensated care payment per-discharge amount, that updated amount will be used for purposes of the outlier payment calculation for the remainder of the fiscal year. We are continuing to apply this policy for FY 2026. We refer readers to the Addendum in the FY 2023 IPPS/LTCH final rule for a more detailed discussion of the steps for determining the operating and capital Federal payment rate and the outlier payment calculation (87 FR 49431 through 49432). No change would be made to the total uncompensated care payment amount determined for the hospital on the basis of its Factor 3. In other words, any change to the per-discharge uncompensated care payment amount will not change how the total uncompensated care payment amount will be reconciled at cost report settlement. We received comments related to the uncompensated care payment reconciliation process. Comment: Some commenters reiterated their recommendation that [[Page 36896]] CMS use the traditional payment reconciliation process to calculate final payments for uncompensated care costs pursuant to section 1886(r)(2) of the Act. These commenters did not object to CMS using prospective estimates, derived from the best data available, to calculate interim payments for uncompensated care costs. However, the commenters stated that interim payments should be subject to later reconciliation based on estimates derived from actual data from the federal fiscal year. The commenters also stated that CMS' current IPPS/ LTCH PPS rulemaking process is flawed because CMS may use data and calculations in final rules that were not included in the relevant proposed rules without providing advance notice to hospitals. The commenters claim that this limits the hospitals' ability to provide informed comments. These same commenters stated that CMS fails to provide meaningful explanations of its uncompensated care payment calculations and is in violation of the Administrative Procedure Act. These commenters recommended that CMS satisfy its legal obligation by providing hospitals with the opportunity to review and comment on the more recent data used to calculate Factors 1, 2, and 3 in each final rulemaking before the agency publishes the final rule. Response: Consistent with the position that we have taken in past rulemaking, we continue to believe that applying our best estimates of the three factors used in the calculation of uncompensated care payments to determine payments prospectively is most conducive to administrative efficiency, finality, and predictability in payments (83 FR 41144; 84 FR 42044; 85 FR 58432; 86 FR 44774; 87 FR 48780; 88 FR 58640; and 89 FR 68986). We continue to believe that, in affording the Secretary the discretion of estimating the three factors used to determine uncompensated care payments and by including a prohibition against administrative and judicial review of those estimates in section 1886(r)(3) of the Act, Congress recognized the importance of finality and predictability under a prospective payment system. As a result, we do not agree with the commenter's suggestion that we should establish a process for reconciling our estimates of uncompensated care payments, which would be contrary to the notion of prospectivity in a payment system. Furthermore, we note that this rulemaking has been conducted consistent with the requirements of the Administrative Procedure Act and Title XVIII of the Act. Under the Administrative Procedure Act, a proposed rule is required to include either the terms or substance of the proposed rule, or a description of the subjects and issues involved. In this case, the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18002) included a detailed discussion of our proposed methodology for calculating Factors 1-3 and the data that would be used. We made public the best data available at the time of the proposed rule to allow hospitals to understand the anticipated impact of the proposed methodology and submit comments, and we have considered those comments in determining our final policies for FY 2026. e. Process for Notifying CMS of Merger Updates and To Report Upload Issues As we have done for every proposed and final rule beginning in FY 2014, in conjunction with this final rule, we will publish on the CMS website a table listing Factor 3 for hospitals that we estimate will receive empirically justified Medicare DSH payments in FY 2026 (that is, those hospitals that will receive interim uncompensated care payments during the fiscal year), and for the remaining subsection (d) hospitals and subsection (d) Puerto Rico hospitals that have the potential of receiving an uncompensated care payment in the event that they receive an empirically justified Medicare DSH payment for the fiscal year as determined at cost report settlement. However, we note that a Factor 3 will not be published for new hospitals and hospitals that are subject to the alternative trim for hospitals with potentially aberrant data that are not projected to be DSH-eligible. We will also publish a supplemental data file containing a list of the mergers that we are aware of and the computed uncompensated care payment for each merged hospital. In the DSH uncompensated care supplemental data file, we list new hospitals and the 7 hospitals that would be subject to the alternative trim for hospitals with potentially aberrant data that are not projected to be DSH-eligible, with a N/A in the Factor 3 column. Hospitals had 60 days from the date of public display of the FY 2026 IPPS/LTCH PPS proposed rule in the Federal Register to review the table and supplemental data file published on the CMS website in conjunction with the proposed rule and to notify CMS in writing of issues related to mergers and/or to report potential upload discrepancies due to MAC mishandling of Worksheet S-10 data during the report submission process.\161\ In the proposed rule, we stated that comments raising issues or concerns that are specific to the information included in the table and supplemental data file should be submitted by email to the CMS inbox at [email protected]. We indicated that we would address comments related to mergers and/or reporting upload discrepancies submitted to the CMS DSH inbox as appropriate in the table and the supplemental data file that we publish on the CMS website in conjunction with the publication of the FY 2026 IPPS/LTCH PPS final rule. We also stated that all other comments submitted in response to our proposals for FY 2026 must be submitted in one of the three ways found in the ADDRESSES section of the proposed rule before the close of the comment period in order to be assured consideration. In addition, we noted that the CMS DSH inbox is not intended for Worksheet S-10 audit process related emails, which should be directed to the MACs. --------------------------------------------------------------------------- \161\ For example, if the report does not reflect audit results due to MAC mishandling, or the most recent report differs from a previously accepted, amended report due to MAC mishandling. ---------------------------------------------------------------------------

A. Changes to MS-DRGs Subject to Postacute Care Transfer Policy and MS-

DRG Special Payments Policies (Sec. 412.4)

1. Background

Existing regulations at 42 CFR 412.4(a) define discharges under the IPPS as situations in which a patient is formally released from an acute care hospital or dies in the hospital. Section 412.4(b) defines acute care transfers, and Sec. 412.4(c) defines postacute care transfers. Our policy set forth in Sec. 412.4(f) provides that when a patient is transferred and his or her length of stay is less than the geometric mean length of stay for the MS-DRG to which the case is assigned, the transferring hospital is generally paid based on a graduated per diem rate for each day of stay, not to exceed the full MS-DRG payment that would have been made if the patient had been discharged without being transferred. The per diem rate paid to a transferring hospital is calculated by dividing the full MS-DRG payment by the geometric mean length of stay for the MS-DRG. Based on an analysis that showed that the first day of hospitalization is the most expensive (60 FR 45804), our policy generally provides for payment that is twice the per diem amount for the first day, with [[Page 36897]] each subsequent day paid at the per diem amount up to the full MS-DRG payment (Sec. 412.4(f)(1)). Transfer cases also are eligible for outlier payments. In general, the outlier threshold for transfer cases, as described in Sec. 412.80(b), is equal to (Fixed-Loss Outlier threshold for Nontransfer Cases adjusted for geographic variations in costs/Geometric Mean Length of Stay for the MS-DRG) *(Length of Stay for the Case plus 1 day). We established the criteria set forth in Sec. 412.4(d) for determining which DRGs qualify for postacute care transfer payments in the FY 2006 IPPS final rule (70 FR 47419 through 47420). The determination of whether a DRG is subject to the postacute care transfer policy was initially based on the Medicare Version 23.0 GROUPER (FY 2006) and data from the FY 2004 MedPAR file. However, if a DRG did not exist in Version 23.0 or a DRG included in Version 23.0 is revised, we use the current version of the Medicare GROUPER and the most recent complete year of MedPAR data to determine if the DRG is subject to the postacute care transfer policy. Specifically, if the MS- DRG's total number of discharges to postacute care equals or exceeds the 55th percentile for all MS-DRGs and the proportion of short-stay discharges to postacute care to total discharges in the MS-DRG exceeds the 55th percentile for all MS-DRGs, CMS will apply the postacute care transfer policy to that MS-DRG and to any other MS-DRG that shares the same base MS-DRG. The statute at subparagraph 1886(d)(5)(J) of the Act directs CMS to identify MS-DRGs based on a high volume of discharges to postacute care facilities and a disproportionate use of postacute care services. As discussed in the FY 2006 IPPS final rule (70 FR 47416), we determined that the 55th percentile is an appropriate level at which to establish these thresholds. In that same final rule (70 FR 47419), we stated that we will not revise the list of DRGs subject to the postacute care transfer policy annually unless we are making a change to a specific MS-DRG. To account for MS-DRGs subject to the postacute care policy that exhibit exceptionally higher shares of costs very early in the hospital stay, Sec. 412.4(f) also includes a special payment methodology. For these MS-DRGs, hospitals receive 50 percent of the full MS-DRG payment, plus the single per diem payment, for the first day of the stay, as well as a per diem payment for subsequent days (up to the full MS-DRG payment (Sec. 412.4(f)(6))). For an MS-DRG to qualify for the special payment methodology, the geometric mean length of stay must be greater than 4 days, and the average charges of 1-day discharge cases in the MS-DRG must be at least 50 percent of the average charges for all cases within the MS-DRG. MS-DRGs that are part of an MS-DRG severity level group will qualify under the MS-DRG special payment methodology policy if any one of the MS-DRGs that share that same base MS-DRG qualifies (Sec. 412.4(f)(6)). Prior to the enactment of the Bipartisan Budget Act of 2018 (Pub.

L. 115-123), under section 1886(d)(5)(J) of the Act, a discharge was

deemed a ``qualified discharge'' if the individual was discharged to one of the following postacute care settings: A hospital or hospital unit that is not a subsection (d) hospital. A skilled nursing facility. Related home health services provided by a home health agency provided within a timeframe established by the Secretary (beginning within 3 days after the date of discharge). Section 53109 of the Bipartisan Budget Act of 2018 amended section 1886(d)(5)(J)(ii) of the Act to also include discharges to hospice care provided by a hospice program as a qualified discharge, effective for discharges occurring on or after October 1, 2018. In the FY 2019 IPPS/ LTCH PPS final rule (83 FR 41394), we made conforming amendments to Sec. 412.4(c) of the regulation to include discharges to hospice care occurring on or after October 1, 2018, as qualified discharges. We specified that hospital bills with a Patient Discharge Status code of 50 (Discharged/Transferred to Hospice--Routine or Continuous Home Care) or 51 (Discharged/Transferred to Hospice, General Inpatient Care or Inpatient Respite) are subject to the postacute care transfer policy in accordance with this statutory amendment. 2. Changes for FY 2026 As discussed in the proposed rule and section II.C. of the preamble of this final rule, based on our analysis of FY 2024 MedPAR claims data, CMS proposed to make changes to a number of MS-DRGs, effective for FY 2026. Specifically, we proposed the following changes: Adding ICD-10-PCS codes describing restriction and replacement of the thoracic aorta, and bypass and occlusion of the subclavian and carotid arteries, to proposed new MS-DRG 209 (Complex Aortic Arch Procedures). Adding ICD-10-PCS codes describing restriction of the abdominal aorta and restriction of the iliac artery to proposed new MS- DRG 213 (Endovascular Abdominal Aorta with Iliac Branch Procedures). Reassigning ICD-10-PCS codes describing extirpation of matter from coronary arteries to proposed new MS-DRG 318 (Percutaneous Coronary Atherectomy without Intraluminal Device). Reassigning ICD-10-PCS codes describing extirpation of matter from coronary arteries and adding ICD-10-PCS codes describing dilation of coronary arteries and insertion of an intraluminal or other device to proposed new MS-DRGs 359 and 360 (Percutaneous Coronary Atherectomy with Intraluminal Device with MCC and without MCC, respectively). Adding ICD-10-CM diagnosis codes describing periprosthetic joint infection and ICD-10-PCS procedure codes describing hip or knee procedures to proposed new MS-DRGs 403 and 404 (Hip or Knee Procedures with Principal Diagnosis of Periprosthetic Joint Infection with MCC and without MCC, respectively). Deleting MS-DRGs 294 and 295 (Deep Vein Thrombophlebitis with CC/MCC and without CC/MCC, respectively) and reassigning the ICD- 10-CM codes to MS-DRGs 299, 300, and 301 (Peripheral Vascular Disorders with MCC, with CC, and without CC/MCC, respectively). Deleting MS-DRG 509 (Arthroscopy) and reassigning the ICD- 10-PCS codes describing inspection of various anatomic sites to their respective clinically appropriate MS-DRGs. Adding ICD-10-CM diagnosis codes describing the insertion of a radioactive element into the brain to MS-DRG 023 (Craniotomy with Major Device Implant or Acute Complex CNS Principal Diagnosis with MCC or Chemotherapy Implant or Epilepsy with Neurostimulator). When proposing changes to MS-DRGs that involve adding, deleting, and reassigning procedure or diagnosis codes between proposed new and revised MS-DRGs, we stated in the proposed rule that we continue to believe it is necessary to evaluate the affected MS-DRGs to determine whether they should be subject to the postacute care transfer policy. Considering the proposed changes to the MS-DRGs for FY 2026, according to the regulations under Sec. 412.4(d), we evaluated the proposed new MS-DRGs using the general postacute care transfer policy criteria and data from the FY 2024 MedPAR file. We continue to believe it is appropriate to assess new MS-DRGs and reassess revised MS-DRGs when proposing reassignment of procedure codes or diagnosis codes that would result in material changes to an [[Page 36898]] MS DRG. We evaluated any current MS-DRGs if we estimate that more than 5 percent of the current cases would shift from the current assigned MS-DRGs to proposed new MS-DRGs, or to a current MS-DRG from a proposed revised or deleted MS-DRG. For existing MS-DRGs 321 and 322 (Percutaneous Cardiovascular Procedures with Intraluminal Device with MCC or 4+ arteries/ intraluminal devices, and without MCC, respectively), we determined that more than 5 percent of the current cases would shift from the current assigned MS-DRGs to proposed new MS-DRGs 359 and 360. We also determined that for MS-DRGs 463, 464, and 465 (Wound Debridement and Skin Graft Except Hand for Musculoskeletal and Connective Tissue Disorders with MCC, with CC, and without MCC/CC, respectively), more than 5 percent of the current cases would shift from the current assigned MS-DRGs to proposed new MS-DRGs 403 and 404. We noted that for all other proposed changes, the relative volume of cases shifting to or from current MS-DRGs did not exceed the 5 percent threshold. If an MS-DRG qualified for the postacute care transfer policy, we also evaluated that MS-DRG under the special payment methodology criteria according to regulations at Sec. 412.4(f)(6). In the proposed rule, we noted that proposed new MS-DRGs 403 and 404 would qualify to be included on the list of MS-DRGs that are subject to the postacute care transfer policy (90 FR 18264). We therefore proposed to add new MS-DRGs 403 and 404 to the list of MS- DRGs that are subject to the postacute care transfer policy. We also noted that MS-DRGs 463, 464 and 465 are currently subject to the postacute care transfer policy. As a result of our review, these revised MS-DRGs would continue to qualify to be included on the list of MS-DRGs that are subject to the postacute care transfer policy. As discussed in section II.C. of the preamble of this final rule, we are finalizing these proposed changes to the MS-DRGs, with exception of the proposal to create new MS-DRGs 403 and 404 (Hip or Knee Procedures with Principal Diagnosis of Periprosthetic Joint Infection with MCC and without MCC, respectively) for FY 2026. We have therefore removed MS-DRGs 403 and 404 from further analysis. We are also removing MS-DRGs 463, 464, and 465 (Wound Debridement and Skin Graft Except Hand for Musculoskeletal and Connective Tissue Disorders with MCC, with CC, and without MCC/CC, respectively) from further analysis for purposes of this final rule as we included them in our initial review due to our determination that more than 5 percent of the current cases would shift from these MS-DRGs to proposed new MS-DRGs 403 and 404 (which are not being finalized). Using the March 2025 update of the FY 2024 MedPAR file, we have developed the following table which sets forth the most recent analysis of the postacute care transfer policy criteria completed for this final rule with respect to each of these finalized new or revised MS-DRGs. BILLING CODE 4120-01-P [[Page 36899]] [GRAPHIC] [TIFF OMITTED] TR04AU25.240 BILLING CODE 4120-01-C During our annual review of proposed new or revised MS-DRGs and analysis of the December 2024 update of the FY 2024 MedPAR file, we reviewed the list of proposed revised or new MS-DRGs that qualify to be included on the list of MS-DRGs subject to the postacute care transfer policy for FY 2026 to determine if any of these MS-DRGs would also be subject to the special payment methodology policy for FY 2026 (90 FR 18265). Based on our analysis of the proposed changes to the MS-DRGs included in the proposed rule, we determined that proposed new and revised MS-DRGs 404 and 464 met the criteria for the MS-DRG special payment methodology. As described in the regulations at Sec. 412.4(f)(6)(iv), MS-DRGs that share the same base MS-DRG will all qualify under the MS-DRG special payment policy if any one of the MS- DRGs that [[Page 36900]] share that same base MS-DRG qualifies. Therefore, we proposed that MS- DRGs 403, 404, 463, 464, and 465 would be subject to the MS-DRG special payment methodology, effective for FY 2026. As new MS-DRGs 403 and 404 are not being finalized, MS-DRGs 403 and 404 have been removed from further analysis. As discussed previously, MS-DRGs 463, 464, and 465 were also removed from further analysis for purposes of this final rule as their inclusion in our review of postacute care transfer policy status was due to an expected shift in cases to the proposed new MS- DRGS 403 and 404, which are not being finalized. As a result, there are no remaining MS-DRGs to evaluate for special payment policy for FY 2026. Comment: We received a comment requesting CMS to not apply the post-acute transfer policy to proposed new MS-DRGs 403 and 404 for FY 2026 in order to avoid disincentivizing proper care for patients with complex joint infections. Response: As discussed previously, the proposed new MS-DRGs 403 and 404 are not being finalized for FY 2026. Based on the finalized changes to the MS-DRGs for FY 2026 and the updated analysis, we are not finalizing to add MS-DRGs to the postacute care transfer or the special payment policies for FY 2026. We note that MS-DRGs 463, 464 and 465 will continue to be subject to the postacute care transfer policy. The postacute care transfer and special payment policy status of all MS-DRGs is reflected in Table 5 associated with this final rule, which is listed in section VI. of the Addendum to this final rule and available on the CMS website.

1. FY 2026 Inpatient Hospital Update

In accordance with section 1886(b)(3)(B)(i) of the Act, each year we update the national standardized amount for inpatient hospital operating costs by a factor called the ``applicable percentage increase.'' For FY 2026, we stated in the proposed rule that we are setting the applicable percentage increase by applying the adjustments listed in this section in the same sequence as we did for FY 2025. (We note that section 1886(b)(3)(B)(xii) of the Act required an additional reduction each year only for FYs 2010 through 2019.) Specifically, consistent with section 1886(b)(3)(B) of the Act, as amended by sections 3401(a) and 10319(a) of the Affordable Care Act, we stated that we are setting the applicable percentage increase by applying the following adjustments in the following sequence. The applicable percentage increase under the IPPS for FY 2026 is equal to the rate-of- increase in the hospital market basket for IPPS hospitals in all areas, subject to all of the following: A reduction of one-quarter of the applicable percentage increase (prior to the application of other statutory adjustments; also referred to as the market basket update or rate-of-increase (with no adjustments)) for hospitals that fail to submit quality information under rules established by the Secretary in accordance with section 1886(b)(3)(B)(viii) of the Act. A reduction of three-quarters of the applicable percentage increase (prior to the application of other statutory adjustments; also referred to as the market basket update or rate-of-increase (with no adjustments)) for hospitals not considered to be meaningful EHR users in accordance with section 1886(b)(3)(B)(ix) of the Act. An adjustment based on changes in economy-wide multifactor productivity (MFP) (the productivity adjustment) in accordance with section 1886(b)(3)(B)(xi)(II) of the Act. Section 1886(b)(3)(B)(xi) of the Act, as added by section 3401(a) of the Affordable Care Act, states that application of the productivity adjustment may result in the applicable percentage increase being less than zero. As published in the FY 2006 IPPS final rule (70 FR 47403), in accordance with section 404 of Public Law 108-173, CMS determined a new frequency for rebasing the hospital market basket of every 4 years. In compliance with section 404 of Public Law 108-173, in the FY 2022 IPPS/ LTCH PPS final rule (86 FR 45194 through 45204), we replaced the 2014- based IPPS operating and capital market baskets with the rebased and revised 2018-based IPPS operating and capital market baskets beginning in FY 2022. Consistent with our established frequency of rebasing the IPPS market basket every 4 years, in the FY 2026 IPPS/LTCH PPS proposed rule, we proposed to rebase and revise the IPPS market basket to a 2023 base year, effective beginning in FY 2026. We proposed to base the FY 2026 market basket update used to determine the applicable percentage increase for the IPPS on IHS Global Inc.'s (IGI's) fourth quarter 2024 forecast of the proposed 2023-based IPPS market basket rate-of-increase with historical data through third quarter 2024, which was estimated to be 3.2 percent. We also proposed that if more recent data subsequently became available (for example, a more recent estimate of the market basket update), we would use such data, if appropriate, to determine the FY 2026 market basket update in this final rule. We received public comments regarding the rebasing and revising of the IPPS operating market basket and refer readers to section IV.B. of the preamble of this final rule for a complete discussion on the rebasing and revising of the market basket. As stated in section IV.B. of the preamble of this final rule, we are finalizing our proposals without modification and, therefore, are using the finalized rebased and revised 2023-based IPPS market basket rate-of increase for FY 2026 based on more recent data available. Comment: Several commenters appreciated the proposed net increase in operating payment rates for hospitals. Several commenters stated that CMS's reliance on the current market basket and productivity assumptions fails to capture the financial pressure facing DRG-based hospitals, particularly those providing high-acuity complex, resource- intensive care including the safety-net and rural hospitals which commenters stated often face higher fixed costs, narrower operating margins, and increased demand for services. They stated that the proposed 2.4 percent increase is simply too low and fails to account for the enduring impacts of high price inflation and cost increases. Commenters expressed specific concerns regarding compensation costs (highlighting increased contract labor utilization, employee burnout and a tight labor market (which the commenter stated would persist well into the future)), administrative costs (including what they described as unnecessary administrative costs for prior authorizations, claims appeals and denials from large commercial health insurers, including Medicare Advantage and Medicaid managed care plans), and pharmaceuticals costs. Commenters stated that the AHA found that in 2024 alone, hospital expenses grew by 5.1 percent of which a large portion was labor expenses, and that prices for nearly 2,000 drugs increased an average of 15.2 percent from 2017 through 2023, notably faster than the rate of general inflation. The commenters also referred to other economic headwinds creating uncertainty such as tariffs, which commenters stated would impact the prices of pharmaceuticals, medical equipment/supplies prices, and construction materials. They stated that their concerns are further compounded by the likelihood of additional funding reductions resulting from reconciliation legislation (affecting health insurance [[Page 36901]] coverage and Medicaid funding) currently under consideration in Congress. In addition, several commenters stated that CMS did not consider the Medicare Payment Advisory Commission (MedPAC)'s recommendation to Congress to add 1 percent to the annual market basket which the commission stated is merited given that even ``relatively efficient'' hospitals have negative Medicare margins. In its March 2025 report, commenters noted that MedPAC reported Medicare fee-for-service margins of -13 percent in 2023 (and -14 percent for nonprofit hospitals), virtually unchanged from the record-low -13.1 percent margins in 2022. Several commenters stated that Medicare reimbursement continues to lag behind inflation. A commenter stated that Medicare underpayments reached $100 billion in 2023 (covering just 83 cents per dollar) according to AHA analysis of AHA Annual Survey data (https://www.aha.org/costsofcaring). A commenter stated that according to the Kaiser Family Foundation, Medicare payments have not accommodated market increases for at least the last 10 years. Several commenters urged CMS to focus on appropriately accounting for recent and future trends in inflationary pressures and cost increases in the hospital payment update, which they stated is essential to ensure that Medicare payments for acute care services more accurately reflect the cost of providing hospital care. Several commenters stated CMS calculates the market basket based on forecasts rather than actual labor and supply cost increases, thus failing to incorporate the challenging circumstances brought on by unprecedented labor, supply, and drug cost increases. They recommended CMS look to alternative data sources that better reflect true labor and input cost increases in a timelier manner. At a minimum, they requested CMS provide additional publicly available data on the assumptions and inputs that go into developing a market basket update. Commenters also stated that due to the timing of the projections that the CMS Office of the Actuary used for the proposed rule, which were made in December 2024, the effects of tariffs on hospital costs are not accounted for in the IPPS market basket projection. They stated CMS must ensure that its final market basket update for FY 2026 appropriately includes the cost increases attributable to tariffs. Many commenters requested CMS use its exceptions and adjustments authority to increase the market basket increase from the proposed rate of 2.4 percent. In addition, a commenter stated that given the continued rise in input costs and the inadequate market basket updates derived from use of the ECI, CMS may consider using the weighted average growth rate in allowable Medicare costs per risk-adjusted discharge for IPPS hospitals to calculate the final or future market basket update for IPPS hospitals. Several commenters requested CMS increase the FY 2026 market basket update to reflect historic inflationary increases more accurately with a commenter stating it should be no less than the FY 2024 final rule market basket rate of 3.6 percent. However, a commenter stated that when historical data is no longer a good predictor of future changes, the market basket becomes inadequate citing the high inflation, as measured by the consumer price index, of 9.1 percent in June 2022. They urged CMS to use a factor to update the historical data to ensure that rates align with the real-time costs that health systems are experiencing and, therefore requested that CMS include an additional increase to the 2023 historical data to help offset the significant increased costs that providers are currently experiencing. Commenters recommended CMS consider how it can use its regulatory authority to boost payments to rural hospitals. They believe the market basket update of 2.4 percent is inadequate given inflation, workforce shortages, and labor and supply chain cost pressures that rural hospitals continue to face. They stated nearly 50 percent of rural hospitals are operating with negative margins and the median operating margin for rural hospitals is 1 percent. Several commenters recommended CMS work with Congress to address economic pressures and reform the Medicare reimbursement formula to better reflect the actual cost of delivering quality care to an ageing population. A commenter urged CMS to evaluate whether the proposed update sufficiently supports operational stability across hospitals with high social risk indicators or atypical cost structures. If disparities emerge, the commenter stated that future rulemaking should explore targeted adjustments to preserve service availability and financial solvency. Response: Section 1886(b)(3)(B)(iii) of the Act states the Secretary shall update IPPS payments based on a market basket percentage increase estimated by the Secretary before the beginning of the period or fiscal year, by which the cost of the mix of goods and services (including personnel costs but excluding nonoperating costs) comprising routine, ancillary, and special care unit inpatient hospital services, based on an index of appropriately weighted indicators of changes in wages and prices which are representative of the mix of goods and services included in such inpatient hospital services, for the period or fiscal year will exceed the cost of such mix of goods and services for the preceding 12-month cost reporting period or fiscal year. As described in section IV. of the preamble of this final rule, we believe that the proposed 2023-based IPPS market basket (including the ECI) is consistent with the statute as it is a fixed-weight, Laspeyres-type price index that measures the change in price, over time, while maintaining a mix of goods and services purchased by hospitals consistent with a base period. Therefore, the market basket is designed to measure price inflation for IPPS hospitals and would not reflect increases in costs associated with changes in the volume or intensity of input goods and services. Likewise, the commenter's suggestion that a weighted average growth rate in allowable Medicare costs per risk-adjusted discharge for IPPS hospitals be used to calculate the final or future market basket update for IPPS hospitals would not be consistent with the IPPS hospital market basket as described in section 1886(b)(3)(B)(iii) of the Act which reflects changes in wages and prices. CMS understands that the market basket updates may differ from other overall inflation indexes such as the topline CPI; however, we would reiterate that these topline indexes are not comparable since they measure different mixes of products, services, or wages than the legislatively defined CMS IPPS hospital market basket. Additionally, the market basket updates appropriately differ from other payment updates that would reflect anticipated volume and intensity of services. CMS welcomes feedback on alternative data sources for the market basket price proxies that measure price inflation. For the FY 2026 IPPS/LTCH PPS proposed rule, we proposed to rebase and revise the market basket to reflect a 2023 base year and provided a detailed methodology for calculating the cost weights as well as proposed specific price proxies for each of the cost weights. We note that we did not receive any alternative data sources for measuring the prices of the cost weights in the market basket. We appreciate the commenters' request for CMS to provide additional [[Page 36902]] publicly available data on the assumptions and inputs that go into developing a market basket update. As noted, the detailed market basket cost weights (including the methodology) and price proxies used in the market baskets were set forth in the proposed rule and in section IV. of the preamble of this final rule. Additionally, shortly after the publication of the proposed rule, we made available on the CMS website (https://www.cms.gov/data-research/statistics-trends-and-reports/medicare-program-rates-statistics/market-basket-data) the detailed historical growth rates for the market baskets as well as price forecasts for the aggregated cost weights (such as compensation, utilities). As stated previously, the detailed price proxies used in the market basket are forecasted by IGI (a nationally recognized economic and financial forecasting firm). We also note that general inquiries on the forecasting methodology can be emailed to [email protected], as is also noted in the market basket spreadsheets on the CMS website. We would highlight that the market basket percentage increase is a forecast of the price pressures that hospitals are expected to face in FY 2026 based on IGI's consideration of industry-specific and overall economic conditions, which is notably uncertain in FY 2026. More specifically for the ECI for hospital workers, IGI considers overall labor market conditions (including the impact of wage pressures on skill mix) as well as trends in contract labor wages, which both have an impact on wage pressures for workers employed directly by the hospital. As stated in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18266) we proposed a FY 2026 applicable percentage increase of 2.4 percent, reflecting the proposed 2023-based IPPS market basket rate-of-increase of 3.2 percent and productivity adjustment of 0.8 percentage point, consistent with current law. We also proposed that if more recent data became available, we would use such data, if appropriate, to derive the final FY 2026 IPPS market basket update for the final rule. We appreciate the commenter's concern regarding inflationary pressure and the request to use more recent data to determine the FY 2026 IPPS market basket update. For this final rule (as proposed), we are using an updated forecast of the price proxies underlying the market basket that incorporates more recent historical data and reflects a revised outlook regarding the U.S. economy (including the impact of economic uncertainty). As discussed in section IV.A. of the preamble of this final rule, based on more recent data available for this FY 2026 IPPS/ LTCH PPS final rule (that is, IGI's second quarter 2025 forecast of the 2023-based IPPS market basket rate-of-increase with historical data through the first quarter of 2025), we estimate that the FY 2026 market basket increase used to determine the applicable percentage increase for the IPPS is 3.3 percent. As discussed later in this section, based on more recent data available for this FY 2026 IPPS/LTCH PPS final rule (that is, IGI's second quarter 2025 forecast of the productivity adjustment), the current estimate of the productivity adjustment for FY 2026 is 0.7 percentage point. Therefore, the applicable percentage increase applied to the standardized amount for hospitals that are considered to be a meaningful EHR user under section 1886(b)(3)(B)(ix) of the Act and submit quality information under rules established by the Secretary in accordance with section 1886(b)(3)(B)(viii) of the Act is 2.6 percent, which is 0.2 percentage point higher than the proposed rule. For these reasons, we believe that the 2023-based IPPS market basket appropriately reflects IPPS cost structures (we note, as described in section IV. of the preamble of this final rule, effective beginning FY 2026, we are finalizing to rebase and revise the IPPS market basket to reflect a 2023 base year), and we believe the price proxies used (such as those from BLS that reflect wage and benefit price growth) are an appropriate representation of price changes for the inputs used by hospitals in providing services. Given that we believe the rebased and revised 2023-based IPPS market basket reflects an index of appropriately weighted indicators of changes in wages and prices that are representative of the mix of goods and services included in such inpatient hospital services and the percentage change of the rebased and revised 2023-based IPPS market basket is based on IGI's more recent forecast reflecting the prospective price pressures for FY 2026, we do not believe it would be appropriate to use our exceptions and adjustment authority to create a separate payment that would have the effect of modifying the current law update. Comment: Many commenters urged CMS to use its special exceptions and adjustments authority under Section 1886(d)(5)(I)(i) of the Act to implement a retrospective adjustment for FY 2026 to account for the difference between the market basket update that was implemented, and the actual market basket increase in prior years. Commenters stated an adjustment would reset hospital losses over the last four years and realign IPPS payments with hospitals' costs. They stated MedPAC's March 2025 report to Congress found that fee-for-service (FFS) Medicare payments in 2023 continued the trend below hospitals' actual costs with a hospital FFS Medicare margin of - 13 percent in 2023 (- 14 percent for nonprofit hospitals) and median FFS Medicare margin of - 2 percent even for efficient providers. They stated hospitals cannot continue to take on losses on their Medicare business and also be expected to keep up with rising costs and inflation that has affected the entire economy. Commenters also stated that the missed forecasts have a significant and permanent impact on hospitals as they are permanently established in the standard payment rate for IPPS and absent action from CMS will continue to compound. Many commenters noted that MedPAC recommended for 2026 to update the 2025 Medicare base payment rates for general acute care hospitals by the amount specified in current law plus 1 percent. Commenters recommended that CMS implement various one-time adjustments to account for underpayments in 1 or more years between FY 2021 and FY 2024 as well as for forecasted underpayments for FY 2025. The commenters stated the underestimation is, in large part, because the market basket is a time-lagged estimate that cannot fully account for unexpected changes that occur, such as historic inflation and increased labor and supply costs. They stated this is exactly what occurred at the end of the CY 2021 into CY 2022, which resulted in a large forecast error in the FY 2022 market basket update. Commenters also noted that CMS makes forecast error adjustments under the SNF PPS and the capital IPPS update. In both payment systems, CMS applies the forecast error adjustment based on previously established policy if the difference between the update and the actual rate of inflation, using after-the-fact data, differs by more than a threshold amount (0.5 percentage point for the SNF update and 0.25 percentage point for the capital IPPS update). They noted the forecast errors for FY 2021 through FY 2023 for IPPS exceeded the 0.5 percentage point threshold that is used for the SNF forecast error adjustment policy. A commenter recommended CMS establish a forecast error threshold of 1.5 percentage points and retroactively adjust payments for that year. Commenters stated that while CMS has not developed an analogous [[Page 36903]] policy for the IPPS operating update, they believe such a forecast error adjustment to the FY 2026 IPPS operating update could be adopted under CMS' rulemaking authority. A commenter requested that CMS apply a positive adjustment of 4.6 percentage points to the IPPS update taking into account the combined forecast error for the years FY 2021 through FY 2024. The commenter stated that if CMS were to adopt this recommendation, the update would be the market basket update of 3.2 percent plus 4.6 percentage points for forecast error correction less 0.8 percentage point for productivity or a net 7.0 percent. Response: While the projected IPPS hospital market basket updates have been under forecast (actual increases less forecasted increases were positive) for this most recent period, over longer periods the forecasts have generally averaged close to the historical measures (for instance, from FY 2014 through FY 2023 the cumulative forecast error was 0.0 percentage point). CMS will continue to monitor the methods associated with the market basket forecasts to ensure there are not underlying systematic issues in the forecasting approach. We note that the under forecast of the IPPS market basket increase in the recent time period was largely due to unanticipated inflationary and labor market pressures as the economy emerged from the COVID-19 PHE. However, an analysis of the forecast error of the IPPS market basket over a longer period of time shows the forecast error has been both positive and negative. Only considering the forecast error for years when the final hospital market basket update was lower than the actual market basket update does not consider the full experience and impact of forecast error, in particular the numerous years that providers benefited from the forecast error. Relatedly, as we discussed in the FY 2024 IPPS/LTCH PPS final rule in response to similar comments (88 FR 59034), the capital IPPS and SNF PPS forecast error adjustments were adopted very early in both payment systems and, unlike what commenters are requesting here for the IPPS, forecast errors over many years have been consistently addressed within each of the Capital IPPS and SNF PPS. For these reasons, we continue to believe it is not appropriate to include adjustments to the market basket update for future years based on the difference between the actual and forecasted market basket increase in prior years. After consideration of the comments received and consistent with our proposal, we are finalizing to use more recent data to determine the FY 2026 market basket update for the final rule. Specifically, based on more recent data available, we determined final applicable percentage increases to the standardized amount for FY 2026, as specified in the table that appears later in this section. In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51689 through 51692), we finalized our methodology for calculating and applying the productivity adjustment. As we explained in that rule, section 1886(b)(3)(B)(xi)(II) of the Act, as added by section 3401(a) of the Affordable Care Act, defines this productivity adjustment as equal to the 10-year moving average of changes in annual economy-wide, private nonfarm business MFP (as projected by the Secretary for the 10-year period ending with the applicable fiscal year, calendar year, cost reporting period, or other annual period). The U.S. Department of Labor's Bureau of Labor Statistics (BLS) publishes the official measures of private nonfarm business productivity for the U.S. economy. We note that previously the productivity measure referenced in section 1886(b)(3)(B)(xi)(II) of the Act was published by BLS as private nonfarm business multifactor productivity. Beginning with the November 18, 2021, release of productivity data, BLS replaced the term multifactor productivity (MFP) with total factor productivity (TFP). BLS noted that this is a change in terminology only and will not affect the data or methodology. As a result of the BLS name change, the productivity measure referenced in section 1886(b)(3)(B)(xi)(II) of the Act is now published by BLS as private nonfarm business total factor productivity. However, as mentioned, the data and methods are unchanged. Please see www.bls.gov for the BLS historical published TFP data. A complete description of IGI's TFP projection methodology is available on the CMS website at https://www.cms.gov/data-research/statistics-trends-and-reports/medicare-program-rates-statistics/market-basket-research-and-information. In addition, we note that beginning with the FY 2022 IPPS/LTCH PPS final rule, we refer to this adjustment as the productivity adjustment rather than the MFP adjustment, to more closely track the statutory language in section 1886(b)(3)(B)(xi)(II) of the Act. We note that the adjustment continues to rely on the same underlying data and methodology. For FY 2026, we proposed a productivity adjustment of 0.8 percent. Similar to the market basket rate-of-increase, for the proposed rule, the estimate of the proposed FY 2026 productivity adjustment was based on IGI's fourth quarter 2024 forecast. As noted previously, we proposed that if more recent data subsequently became available, we would use such data, if appropriate, to determine the FY 2026 productivity adjustment for the final rule. Based on more recent data available for this FY 2026 IPPS/LTCH PPS final rule (that is, IGI's second quarter 2025 forecast of the productivity adjustment), the current estimate of the productivity adjustment for FY 2026 is 0.7 percentage point. Comment: Commenters expressed concerns about the application of the productivity adjustment stating it is flawed because it is based on a measure for the private nonfarm business sector. Several commenters stated that the use of private nonfarm business total factor productivity effectively assumes the hospital field can mirror productivity gains achieved by private nonfarm businesses. Other commenters stated that private-sector productivity trends do not reflect the complex operational realities of hospital care, particularly during a time of sustained labor shortages and wage inflation. Several commenters also claimed that it is well proven by the economic literature that the hospital and health care field cannot achieve the same productivity gains as the total economy. For example, the commenters stated that by focusing only on private businesses, this measure excludes nonprofit and government businesses, which account for more than 60 percent of hospitals and health systems. Thus, the commenter stated that this measure is not an appropriate or reliable predictor of productivity for the hospital field. The commenters stated that an Office of the Actuary memo indicated that hospitals are unable to achieve the same productivity gains as the general economy over the long run. Specifically, some commenters requested CMS consider its own findings that hospitals historically have not achieved the same level of productivity as the general economy referencing the June 2, 2022 memorandum where CMS's Office of the Actuary stated hospital TFP ranged from 0.2 percent to 0.5 percent compared to the average growth of private nonfarm business TFP of 0.8 percent. Commenters also referred to the BLS publication on a TFP measure for the combined Hospitals and Nursing and Residential Care Facilities industry, which indicated average TFP growth from 1990-2019 of -0.5 percent, even [[Page 36904]] lower than either of OACT's estimates. A commenter stated that the productivity adjustment penalizes hospitals for their cost-saving efforts and further compounds their fears of adequate funding. Therefore, commenters stated that using the private nonfarm business sector TFP to adjust the market basket inappropriately exacerbates Medicare's chronic underpayments to hospitals. Other commenters expressed concern regarding the increase in the productivity adjustment for FY 2026 relative to prior years. Commenters requested CMS explain the magnitude of the proposed productivity adjustment stating it is the largest CMS has used since FY 2019 and is the second largest in the 15 years for which CMS has published data. A commenter stated CMS should evaluate how the rolling average experienced such a significant increase when compared with the productivity adjustments ranging from 0.2 to 0.5 percentage point in the last three years. Several commenters stated that it is puzzling how an indicator based on a 10-year moving average could yield such an increase in the productivity cut from FY 2025 to FY 2026 and stated that they were unable to fully analyze the projections due to a lack of transparency from CMS. A few commenters requested that CMS explain the large increase to the productivity offset relative to its historical average application in the final rule. Some commenters stated that the application of variables as wide as this ten-year range is no longer appropriate due to the unprecedented cost of goods and services during the COVID-19 pandemic and claimed that prices have never leveled back down to pre-pandemic rates. Another commenter requested that CMS reevaluate the calculation of the productivity adjustment, paying particular attention to what it described as the inconsistency in cost during FYs beginning in FY 2020. Given their concerns about the productivity adjustment, commenters requested CMS use its discretion under section 1886(d)(5)(I)(i) of the Act to reduce or eliminate the productivity adjustment of 0.8 percentage point for FY 2026. A commenter requested a FY 2026 productivity adjustment of 0.2 percentage point while another commenter urged CMS to consider an alternative or blended productivity adjustment such as a hospital- specific productivity measure. Response: Section 1886(b)(3)(B)(xi) of the Act requires the application of the productivity adjustment. As required by statute, the FY 2026 productivity adjustment is derived based on the 10-year moving average growth in economy-wide private nonfarm business total factor productivity for the period ending FY 2026. As previously discussed, the general method for calculating the productivity adjustment is made available on the CMS website at https://www.cms.gov/data-research/statistics-trends-and-reports/medicare-program-rates-statistics/market-basket-research-and-information. The most recent BLS historical TFP data is available at http://www.bls.gov/productivity/, which allows interested parties to obtain historical TFP annual index levels for 1987 through 2024. We also provided the IGI projection model (https://www.cms.gov/research-statistics-data-and-systems/statistics-trends-and-reports/medicareprogramratesstats/downloads/tfp_methodology.pdf), which is used to derive annual TFP growth rates for 2025 and 2026. The annual index level derived from this method is then interpolated to quarterly levels, and the FY 2026 productivity adjustment is equal to the percent change in the 40- quarter moving average projected level for the period ending September 30, 2026 relative to the 40-quarter moving average projected level for the period ending September 30, 2025. We believe our methodology for the productivity adjustment is consistent with section 1886(b)(3)(B)(xi)(II) of the Act which states that the productivity adjustment is equal to the 10-year moving average of changes in annual economy-wide private nonfarm business multi-factor productivity (as projected by the Secretary for the 10-year period ending with the applicable fiscal year, year, cost reporting period, or other annual period). At the time of this final rule, the FY 2026 productivity adjustment reflects BLS historical TFP data through 2024 (released on March 21, 2025) and IGI's forecasted TFP growth for 2025 and 2026. The average annual growth rate of historical TFP published by BLS for 2017 through 2024 is currently 0.9 percent and IGI is projecting average TFP growth of about 0.0 percent for 2025 and 2026 based on IGI's second-quarter 2025 forecast. Combining the historical and projected TFP data over the entire 10-year time period results in a compound annual growth rate of TFP of 0.7 percent for 2026. The productivity adjustment (based on the 10-year period ending with FY 2026) for the FY 2026 IPPS/LTCH PPS final rule is 0.1 percentage point lower than for the FY 2026 IPPS/LTCH PPS proposed rule and primarily reflects the incorporation of a revised outlook from IGI that has lower projected economic growth over 2025 and 2026. The 0.7 percentage point productivity adjustment in this FY 2026 final rule is larger than the productivity adjustment in prior final rules for FY 2023 and FY 2024 mainly due to the incorporation of updated BLS historical data. We thank the commenters for their comments. After consideration of the comments received and consistent with our proposal, we are finalizing as proposed to use more recent data to determine the FY 2026 productivity adjustment for the final rule. In summary, based on more recent data available for this FY 2026 IPPS/LTCH PPS final rule (that is, IGI's second quarter 2025 forecast of the 2023-based IPPS market basket rate-of- increase with historical data through the first quarter of 2025), we estimate that the FY 2026 market basket update used to determine the applicable percentage increase for the IPPS is 3.3 percent. Based on more recent data available for this FY 2026 IPPS/LTCH PPS final rule (that is, IGI's second quarter 2025 forecast of the productivity adjustment), the current estimate of the productivity adjustment for FY 2026 is 0.7 percentage point. Based on these more recent data, for this final rule, we have determined four applicable percentage increases to the standardized amount for FY 2026, as specified in the following table: [[Page 36905]] [GRAPHIC] [TIFF OMITTED] TR04AU25.241 In the FY 2020 IPPS/LTCH PPS final rule (84 FR 42344), we revised our regulations at 42 CFR 412.64(d) to reflect the current law for the update for FY 2020 and subsequent fiscal years. Specifically, in accordance with section 1886(b)(3)(B) of the Act, we added paragraph (d)(1)(viii) to Sec. 412.64 to set forth the applicable percentage increase to the operating standardized amount for FY 2020 and subsequent fiscal years as the percentage increase in the market basket index, subject to the reductions specified under Sec. 412.64(d)(2) for a hospital that does not submit quality data and Sec. 412.64(d)(3) for a hospital that is not a meaningful EHR user, reduced by a productivity adjustment. Section 1886(b)(3)(B)(iv) of the Act provides that the applicable percentage increase to the hospital-specific rates for SCHs and MDHs equals the applicable percentage increase set forth in section 1886(b)(3)(B)(i) of the Act (that is, the same update factor as for all other hospitals subject to the IPPS). Therefore, the update to the hospital-specific rates for SCHs and MDHs is also subject to section 1886(b)(3)(B)(i) of the Act, as amended by sections 3401(a) and 10319(a) of the Affordable Care Act. As discussed in section V.F. of the preamble of this final rule, section 2202 of the Full-Year Continuing Appropriations and Extensions Act, 2025 extended the MDH program through FY 2025. Therefore, under current law, the MDH program will expire for discharges on or after October 1, 2025. We refer readers to section V.F. of the preamble of this final rule for further discussion of the MDH program. We note that if the MDH program were to be extended by law into FY 2026, the finalized updates to the hospital-specific rates for SCHs as described in this section would also apply to the hospital-specific rates for MDHs for FY 2026. For FY 2026, we proposed the following updates to the hospital- specific rates applicable to SCHs: A proposed update of 2.4 percent for a hospital that submits quality data and is a meaningful EHR user (as defined in section 1886(n) of the Act); a proposed update of 0.0 percent for a hospital that submits quality data and is not a meaningful EHR user; a proposed update of 1.6 percent for a hospital that fails to submit quality data and is a meaningful EHR user; and a proposed update of -0.8 percent for a hospital that fails to submit quality data and is not an meaningful EHR user. As previously discussed, we proposed that if more recent data subsequently became available (for example, a more recent estimate of the market basket update and the productivity adjustment), we would use such data, if appropriate, to determine the market basket update and the productivity adjustment in the final rule. We did not receive any public comments on our proposed updates to hospital-specific rates applicable to SCHs and MDHs. The general comments we received on the proposed FY 2026 update (including the proposed market basket update and productivity adjustment) are discussed earlier in this section. For FY 2026, we are finalizing the proposal to determine the update to the hospital specific rates for SCHs and MDHs in this final rule using the more recent available data, as previously discussed. For this final rule, based on more recent available data, we are finalizing the following updates to the hospital specific rates applicable to SCHs and MDHs: An update of 2.6 percent for a hospital that submits quality data and is a meaningful EHR user; an update of 1.775 percent for a hospital that fails to submit quality data and is a meaningful EHR user; an update of 0.125 percent for a hospital that submits quality data and is not a meaningful EHR user; and an update of -0.7 percent for a hospital that fails to submit quality data and is not a meaningful EHR user.

2. FY 2026 Puerto Rico Hospital Update

Section 602 of Public Law 114-113 amended section 1886(n)(6)(B) of the Act to specify that subsection (d) Puerto Rico hospitals are eligible for incentive payments for the meaningful use of certified EHR technology, effective beginning FY 2016. In addition, section 1886(n)(6)(B) of the Act was amended to specify that the adjustments to the applicable percentage increase under section 1886(b)(3)(B)(ix) of the Act apply to subsection (d) Puerto Rico hospitals that are not meaningful EHR users, effective beginning FY 2022. Accordingly, for FY 2022, section 1886(b)(3)(B)(ix) of the Act in conjunction with section 602(d) of Public Law 114-113 requires that any subsection (d) Puerto Rico hospital that is not a meaningful EHR user as defined in section 1886(n)(3) of the Act and not subject to an exception under section 1886(b)(3)(B)(ix) of the Act will have ``three-quarters'' of the applicable percentage increase (prior to the application of other statutory adjustments), or three-quarters of the applicable market basket rate-of-increase, reduced by 33 \1/3\ percent. The reduction to three-quarters of the applicable percentage increase for subsection (d) Puerto Rico hospitals that are not meaningful EHR users increases to 66 \2/3\ percent for FY 2023, and, for FY 2024 and subsequent fiscal years, to 100 percent. (We note that section 1886(b)(3)(B)(viii) of the Act, which specifies the adjustment to the applicable percentage increase for ``subsection (d)'' hospitals that do not submit quality data under the rules established by the Secretary, is not applicable to hospitals located in Puerto Rico.) The regulations at 42 CFR 412.64(d)(3)(ii) reflect the current law for the update for subsection (d) Puerto Rico hospitals for FY 2022 and subsequent fiscal years. In the FY 2019 IPPS/LTCH PPS final rule, we finalized the payment reductions (83 FR 41674). [[Page 36906]] For FY 2026, consistent with section 1886(b)(3)(B) of the Act, as amended by section 602 of Public Law 114-113, we are setting the applicable percentage increase for Puerto Rico hospitals by applying the following adjustments in the following sequence. Specifically, the applicable percentage increase under the IPPS for Puerto Rico hospitals will be equal to the rate of-increase in the hospital market basket for IPPS hospitals in all areas, subject to a reduction of three-quarters of the applicable percentage increase (prior to the application of other statutory adjustments; also referred to as the market basket update or rate-of-increase (with no adjustments)) for Puerto Rico hospitals not considered to be meaningful EHR users in accordance with section 1886(b)(3)(B)(ix) of the Act, and then subject to the productivity adjustment at section 1886(b)(3)(B)(xi) of the Act. As noted previously, section 1886(b)(3)(B)(xi) of the Act states that application of the productivity adjustment may result in the applicable percentage increase being less than zero. In the FY 2026 IPPS/LTCH PPS proposed rule, based on IGI's fourth quarter 2024 forecast of the proposed 2023-based IPPS market basket update with historical data through third quarter 2024, in accordance with section 1886(b)(3)(B) of the Act, as discussed previously, for Puerto Rico hospitals we proposed a market basket update of 3.2 percent reduced by a productivity adjustment of 0.8 percentage point. For FY 2026, depending on whether a Puerto Rico hospital is a meaningful EHR user, there are two possible applicable percentage increases that could be applied to the standardized amount. Based on these data, we determined the following proposed applicable percentage increases to the standardized amount for FY 2026 for Puerto Rico hospitals: For a Puerto Rico hospital that is a meaningful EHR user, we proposed a FY 2026 applicable percentage increase to the operating standardized amount of 2.4 percent (that is, the FY 2026 estimate of the proposed market basket rate-of-increase of 3.2 percent less 0.8 percentage point for the proposed productivity adjustment). For a Puerto Rico hospital that is not a meaningful EHR user, we proposed a FY 2026 applicable percentage increase to the operating standardized amount of 0.0 percent (that is, the FY 2026 estimate of the proposed market basket rate-of-increase of 3.2 percent, less an adjustment of 2.4 percentage points (the proposed market basket rate-of-increase of 3.2 percent x 0.75 for failure to be a meaningful EHR user), and reduced by 0.8 percentage point for the proposed productivity adjustment). As noted previously, we proposed that if more recent data subsequently became available, we would use such data, if appropriate, to determine the FY 2026 market basket update and the productivity adjustment for the FY 2026 IPPS/LTCH PPS final rule. We did not receive any public comments on our proposed updates to the standardized amount for FY 2026 for Puerto Rico hospitals. The general comments we received on the proposed FY 2026 update (including the proposed market basket update and productivity adjustment) are discussed in greater detail earlier in this section. For FY 2026, we are finalizing the proposal to determine the update to the standardized amount for FY 2026 for Puerto Rico hospitals in this final rule using the more recent available data, as previously discussed. As previously discussed in section VI.B. of the preamble of this final rule, based on more recent data available for this final rule (that is, IGI's second quarter 2025 forecast of the 2023-based IPPS market basket rate-of-increase with historical data through the first quarter of 2025), we estimate that the FY 2026 market basket update used to determine the applicable percentage increase for the IPPS is 3.3 percent and a productivity adjustment of 0.7 percent. For FY 2026, depending on whether a Puerto Rico hospital is a meaningful EHR user, there are two possible applicable percentage increases that can be applied to the standardized amount. Based on these data, in accordance with section 1886(b)(3)(B) of the Act, we determined the following applicable percentage increases to the standardized amount for FY 2026 for Puerto Rico hospitals: For a Puerto Rico hospital that is a meaningful EHR user, an applicable percentage increase to the operating standardized amount of 2.6 percent (that is, the FY 2026 estimate of the market basket rate-of-increase of 3.3 percent reduced by 0.7 percentage point for the productivity adjustment). For a Puerto Rico hospital that is not a meaningful EHR user, an applicable percentage increase to the operating standardized amount of 0.125 percent (that is, the FY 2026 estimate of the market basket rate-of-increase of 3.3 percent, less an adjustment of 2.475 percentage point (the market basket rate-of-increase of 3.3 percent x 0.75 for failure to be a meaningful EHR user), and reduced by an adjustment of 0.7 percentage point for the productivity adjustment). [GRAPHIC] [TIFF OMITTED] TR04AU25.242

C. Rural Referral Centers (RRCs) Annual Updates to Case-Mix Index (CMI)

and Discharge Criteria (Sec. 412.96) Under the authority of section 1886(d)(5)(C)(i) of the Act, the regulations at 42 CFR 412.96 set forth the criteria that a hospital must meet to qualify under the IPPS as a rural referral center (RRC). RRCs receive special treatment under both the DSH payment adjustment and the criteria for geographic reclassification. Section 402 of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (Pub. L. 108-173) raised the DSH payment adjustment for RRCs such that they are not subject to the 12-percent cap on DSH payments that is applicable to other rural hospitals. RRCs also are not subject to the proximity criteria when [[Page 36907]] applying for geographic reclassification. In addition, they do not have to meet the requirement that a hospital's average hourly wage must exceed, by a certain percentage, the average hourly wage of the labor market area in which the hospital is located. Section 4202(b) of the Balanced Budget Act of 1997 (Pub. L. 105-33) states, in part, that any hospital classified as an RRC by the Secretary for FY 1991 shall be classified as such an RRC for FY 1998 and each subsequent fiscal year. In the August 29, 1997, IPPS final rule with comment period (62 FR 45999 through 46000), we reinstated RRC status for all hospitals that lost that status due to triennial review or MGCRB reclassification. However, we did not reinstate the status of hospitals that lost RRC status because they were now urban for all purposes because of the OMB designation of their geographic area as urban. Subsequently, in the August 1, 2000, IPPS final rule (65 FR 47087), we indicated that we were revisiting that decision. Specifically, we stated that we would permit hospitals that previously qualified as an RRC and lost their status due to OMB redesignation of the county in which they are located from rural to urban, to be reinstated as an RRC. Otherwise, a hospital seeking RRC status must satisfy all of the other applicable criteria. We use the definitions of ``urban'' and ``rural'' specified in subpart D of 42 CFR part 412. One of the criteria under which a hospital may qualify as an RRC is to have 275 or more beds available for use (42 CFR 412.96(b)(1)(ii)). A rural hospital that does not meet the bed size requirement can qualify as an RRC if the hospital meets two mandatory prerequisites (a minimum case- mix index (CMI) and a minimum number of discharges), and at least one of three optional criteria (relating to specialty composition of medical staff, source of inpatients, or referral volume). (We refer readers to 42 CFR 412.96(c)(1) through (5) and the September 30, 1988, Federal Register (53 FR 38513) for additional discussion.) With respect to the two mandatory prerequisites, a hospital may be classified as an RRC if the hospital's-- CMI is at least equal to the lower of the median CMI for urban hospitals in its census region, excluding hospitals with approved teaching programs, or the median CMI for all urban hospitals nationally; and Number of discharges is at least 5,000 per year, or, if fewer, the median number of discharges for urban hospitals in the census region in which the hospital is located. The number of discharges criterion for an osteopathic hospital is at least 3,000 discharges per year, as specified in section 1886(d)(5)(C)(i) of the Act. In the FY 2022 IPPS/LTCH PPS final rule (86 FR 45217), in light of the COVID-19 PHE, we amended the regulations at 42 CFR 412.96(h)(1) to provide for the use of the best available data rather than the latest available data in calculating the national and regional CMI criteria. We also amended the regulations at 42 CFR 412.96(c)(1) to indicate that the individual hospital's CMI value for discharges during the same Federal fiscal year used to compute the national and regional CMI values is used for purposes of determining whether a hospital qualifies for RRC classification. We also amended the regulations 42 CFR 412.96(i)(1) and (2), which describe the methodology for calculating the number of discharges criteria, to provide for the use of the best available data rather than the latest available or most recent data when calculating the regional discharges for RRC classification.

1. Case-Mix Index (CMI)

Section 412.96(c)(1) provides that CMS establish updated national and regional CMI values in each year's annual notice of prospective payment rates for purposes of determining RRC status. The methodology we used to determine the national and regional CMI values is set forth in the regulations at 42 CFR 412.96(c)(1)(ii). The national median CMI value for FY 2026 is based on the CMI values of all urban hospitals nationwide, and the regional median CMI values for FY 2026 are based on the CMI values of all urban hospitals within each census region, excluding those hospitals with approved teaching programs (that is, those hospitals that train residents in an approved GME program as provided in 42 CFR 413.75). These values are based on discharges occurring during FY 2024 (October 1, 2023, through September 30, 2024), and include bills posted to CMS' records through March 2025. We believe that this is the best available data for use in calculating the national and regional median CMI values and is consistent with our use of the FY 2024 MedPAR claims data for FY 2026 ratesetting. In the FY 2026 IPPS/LTCH PPS proposed rule, we proposed that, in addition to meeting other criteria, if rural hospitals with fewer than 275 beds are to qualify for initial RRC status for cost reporting periods beginning on or after October 1, 2025, they must have a CMI value for FY 2024 that is at least-- 1.7802 (national--all urban); or The median CMI value (not transfer-adjusted) for urban hospitals (excluding hospitals with approved teaching programs as identified in 42 CFR 413.75) calculated by CMS for the census region in which the hospital is located. (We refer readers to the table set forth in the FY 2026 IPPS/LTCH PPS proposed rule at 90 FR 18269). In the proposed rule we stated that we intended to update the proposed CMI values in the FY 2026 IPPS/LTCH PPS final rule to reflect the updated FY 2024 MedPAR file, which contains data from additional bills received through March 2025. Comment: Commenters supported our proposal to use FY 2024 data to calculate the national and regional median CMI values for FY 2026. Response: We appreciate the commenters' support. Therefore, based on the best available data (FY 2024 bills received through March 2025), in addition to meeting other criteria, if rural hospitals with fewer than 275 beds are to qualify for initial RRC status for cost reporting periods beginning on or after October 1, 2025, they must have a CMI value for FY 2024 that is at least: 1.7801 (national--all urban); or The median CMI value (not transfer-adjusted) for urban hospitals (excluding hospitals with approved teaching programs as identified in Sec. 413.75) calculated by CMS for the census region in which the hospital is located. The final CMI values by region are set forth in the following table. ------------------------------------------------------------------------ Case-mix index Region value ------------------------------------------------------------------------ 1. New England (CT, ME, MA, NH, RI, VT)................. 1.4962 2. Middle Atlantic (PA, NJ, NY)......................... 1.558 3. East North Central (IL, IN, MI, OH, WI).............. 1.6264 4. West North Central (IA, KS, MN, MO, NE, ND, SD)...... 1.7413 5. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV).. 1.6352 6. East South Central (AL, KY, MS, TN).................. 1.5965 [[Page 36908]] 7. West South Central (AR, LA, OK, TX).................. 1.7594 8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY)............ 1.807 9. Pacific (AK, CA, HI, OR, WA)......................... 1.78045 ------------------------------------------------------------------------ A hospital seeking to qualify as an RRC should obtain its hospital- specific CMI value (not transfer-adjusted) from its MAC. Data are available on the Provider Statistical and Reimbursement (PS&R) System. In keeping with our policy on discharges, the CMI values are computed based on all Medicare patient discharges subject to the IPPS MS-DRG- based payment. 2. Discharges Section 412.96(c)(2)(i) provides that CMS set forth the national and regional numbers of discharges criteria in each year's annual notice of prospective payment rates for purposes of determining RRC status. As specified in section 1886(d)(5)(C)(ii) of the Act, the national standard is set at 5,000 discharges. In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18269), we proposed to update the regional standards based on discharges for urban hospitals' cost reporting periods that began during FY 2023 (that is, October 1, 2022, through September 30, 2023), which are the latest cost report data available at the time this final rule was developed. We believe that this is the best available data for use in calculating the median number of discharges by region and is consistent with our finalized data proposal to use cost report data from cost reporting periods beginning during FY 2023 for FY 2026 ratesetting. In the FY 2026 IPPS/LTCH PPS proposed rule, we proposed that, in addition to meeting other criteria, a hospital, if it is to qualify for initial RRC status for cost reporting periods beginning on or after October 1, 2025, must have, as the number of discharges for its cost reporting period that began during FY 2023, at least-- 5,000 (3,000 for an osteopathic hospital); or If less, the median number of discharges for urban hospitals in the census region in which the hospital is located. (We refer readers to the table set forth in the FY 2026 IPPS/LTCH PPS proposed rule at 90 FR 18269). In the proposed rule, we stated that we intended to update these numbers in the FY 2026 final rule based on the latest available cost report data. Comment: Commenters supported our proposal to use FY 2023 data to calculate median number of discharges by region for FY 2026. Response: We appreciate the commenters' support. Therefore, based on the best available discharge data at this time, that is, for cost reporting periods that began during FY 2023, the final median number of discharges for urban hospitals by census region are set forth in the following table. ------------------------------------------------------------------------ Number of Region discharges ------------------------------------------------------------------------ 1. New England (CT, ME, MA, NH, RI, VT)................. 8,535 2. Middle Atlantic (PA, NJ, NY)......................... 9,844 3. East North Central (IL, IN, MI, OH, WI).............. 7,918 4. West North Central (IA, KS, MN, MO, NE, ND, SD)...... 7,414 5. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV).. 10,897 6. East South Central (AL, KY, MS, TN).................. 8,511 7. West South Central (AR, LA, OK, TX).................. 6,002 8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY)............ 7,901 9. Pacific (AK, CA, HI, OR, WA)......................... 9,100 ------------------------------------------------------------------------ We note that because the median number of discharges for hospitals in each census region is greater than the national standard of 5,000 discharges, under this final rule, 5,000 discharges is the minimum criterion for all hospitals, except for osteopathic hospitals for which the minimum criterion is 3,000 discharges.

1. Background

Section 1886(d)(12) of the Act provides for an additional payment to each qualifying low-volume hospital under the IPPS beginning in FY 2005. The low-volume hospital payment adjustment is implemented in the regulations at 42 CFR 412.101. The additional payment adjustment to a low-volume hospital provided for under section 1886(d)(12) of the Act is in addition to any payment calculated under section 1886 of the Act and is based on the per discharge amount paid to the qualifying hospital. In other words, the low-volume hospital payment adjustment is based on total per discharge payments made under section 1886 of the Act, including capital, DSH, IME, and outlier payments. For SCHs and MDHs, the low-volume hospital payment adjustment is based in part on either the Federal rate or the hospital-specific rate, whichever results in a greater operating IPPS payment. The payment adjustment for low-volume hospitals is not budget neutral. As discussed in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69348 through 69352), Section 306 of the Consolidated Appropriations Act, 2024 (CAA, 2024) (Pub. L. 118-42), extended the temporary changes to the low-volume hospital qualifying criteria and payment adjustment under the IPPS, that is the modified definition of low-volume hospital and the methodology for calculating the payment adjustment for low- volume hospitals under section 1886(d)(12), through December 31, 2024. Section 3201 of the American Relief Act, 2025 (Pub. L. 118-158), further extended those temporary changes through March 31, 2025. Most recently, section 2201 of the Full-Year Continuing Appropriations and Extensions Act, 2025 (Pub. L. 119-4), enacted on March 15, 2025, provides an extension of those temporary changes to the qualifying criteria and payment adjustment methodology for certain low-volume hospitals through September 30, 2025. Absent further Congressional action, beginning October 1, 2025, the low-volume hospital [[Page 36909]] qualifying criteria and payment adjustment are set to revert to the statutory requirements that were in effect prior to FY 2011, and the preexisting low-volume hospital payment adjustment methodology and qualifying criteria, as implemented in FY 2005 and discussed later in this section, will resume. We discuss the payment policies for FY 2026, in section V.D.3. of the preamble of this final rule. [GRAPHIC] [TIFF OMITTED] TR04AU25.243

2. Extension of Temporary Changes to Low-Volume Hospital Payment

Definition and Payment Adjustment Methodology and Conforming Changes to Regulations As discussed previously, prior to the enactment of the American Relief Act, 2025, the temporary changes to the low-volume hospital qualifying criteria and payment adjustment provided by section 306 of CAA, 2024 were set to expire on January 1, 2025. Section 3201 of the American Relief Act, 2025 extended the temporary changes to the low- volume hospital qualifying criteria and payment adjustment under the IPPS for the portion of FY 2025 beginning on January 1, 2025, and ending on March 31, 2025 (that is, for discharges occurring before April 1, 2025). We note that we addressed the extension provided by section 3201 of the American Relief Act, 2025, in Change Request 13949 (Transmittal 13035), issued January 6, 2025. For additional information, please refer to the transmittal https://www.cms.gov/medicare/regulations-guidance/transmittals/2025-transmittals/r13035otn. Subsequently, section 2201 of the Full-Year Continuing Appropriations and Extensions Act, 2025 further extended the temporary changes to the low-volume hospital qualifying criteria and payment adjustment under the IPPS for the remainder of FY 2025 (that is, for discharges occurring before October 1, 2025). We note the extension provided by section 2201 of the Full-Year Continuing Appropriations and Extensions Act, 2025 was addressed in Change Request 14045 (Transmittal 13151), issued May 5, 2025. For additional information, please refer to the transmittal https://www.hhs.gov/guidance/sites/default/files/hhs-guidance-documents/CMS/r13151otn.pdf. Under section 1886(d)(12)(C)(i) of the Act, as amended by the Full- Year Continuing Appropriations and Extensions Act, 2025, for FYs 2019 through FY 2025, a subsection (d) hospital qualifies as a low-volume hospital if it is more than 15 road miles from another subsection (d) hospital and has less than 3,800 total discharges during the fiscal year. In accordance with the existing regulations at Sec. 412.101(a), we define the term ``road miles'' to mean ``miles'' as defined at Sec. 412.92(c)(1). Under section 1886(d)(12)(D) of the Act, as amended, for discharges occurring in FYs 2019 through 2025, the Secretary determines the applicable percentage increase using a continuous, linear sliding scale ranging from an additional 25 percent payment adjustment for low- volume hospitals with 500 or fewer discharges to a zero percent additional payment for low volume hospitals with more than 3,800 discharges in the fiscal year. Consistent with the requirements of section 1886(d)(12)(C)(ii) of the Act, the term ``discharge'' for purposes of these provisions refers to total discharges, regardless of payer (that is, Medicare and non-Medicare discharges). In the FY 2019 IPPS/LTCH PPS final rule (83 FR 41399), we specified a continuous, linear sliding scale formula to determine the low volume payment adjustment, as reflected in the regulations at Sec. 412.101(c)(3)(ii). Consistent with the statute, we provided that qualifying hospitals with 500 or fewer total discharges will receive a low-volume hospital payment adjustment of 25. For qualifying hospitals with fewer than 3,800 discharges but more than 500 discharges, the low- volume payment adjustment is calculated by subtracting from 25 percent the proportion of payments associated with the discharges in excess of 500. For qualifying hospitals with fewer than 3,800 total discharges but more than 500 total discharges, the low-volume hospital payment adjustment is calculated using the formula at Sec. 412.101(c)(3)(ii) (which is shown in the Table V.D.-01). For this purpose, the term ``discharge'' refers to total discharges, regardless of payer (that is, Medicare and non-Medicare discharges). The hospital's most recently submitted cost report is used to determine if the hospital meets the discharge criterion to receive the low volume payment adjustment in the current year (Sec. 412.101(b)(2)(iii)). The low-volume hospital payment adjustment for FYs 2019 through 2024 and the portion-of FY 2025 beginning on October 1, 2024, and ending on December 31, 2024, is set forth in the current regulations at Sec. 412.101(c)(3). In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18271), we proposed to make conforming changes to the regulation text in Sec. 412.101 to reflect the extensions of the changes to the qualifying criteria and the payment adjustment methodology for low-volume hospitals in accordance with provisions of the American Relief Act, 2025 and the Full-Year Continuing Appropriations and Extensions Act, 2025. Specifically, we proposed to make conforming changes to paragraphs (b)(2)(iii) and (c)(3) introductory text of Sec. 412.101 to reflect that the low-volume hospital payment adjustment policy in effect through FY 2025 is the same low-volume hospital payment adjustment policy in effect for FYs 2019 through December 31, 2024 (as described in the FY 2019 IPPS/LTCH PPS final rule (83 FR 41398 through 41399) and in the FY 2025 IPPS/LTCH final rule (89 FR 69348 through 69352)). In addition, in accordance with the provisions of the Full- Year Continuing Appropriations and Extensions Act, 2025, we proposed to make conforming changes to [[Page 36910]] paragraphs (b)(2)(i) and (c)(1) of Sec. 412.101 to reflect that for FY 2026 and subsequent fiscal years, the low-volume hospital payment adjustment policy will revert back to the low-volume hospital payment adjustment policy in effect for FYs 2005 through 2010, as described in section V.D.3. of the preamble of the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18002). We further proposed that if the temporary changes to the low-volume payment adjustment are extended through legislation beyond September 30, 2025, we would make the conforming changes to the regulations at Sec. 412.101(b)(2)(i) and (iii) and (c)(1) and (3) to reflect any further extension. In the next section, we discuss the comments we received on the extension of the temporary changes to the low-volume hospital payment definition and payment adjustment methodology. We received no comments on our proposed conforming changes to the regulations to codify this extension and we are finalizing the proposed changes to the regulations text in Sec. 412.101 without modification.

3. Payment Adjustment for FY 2026 and Subsequent Fiscal Years

In accordance with section 1886(d)(12) of the Act, as amended by section 2201 of the Full-Year Continuing Appropriations and Extensions Act, 2025, beginning with discharges occurring on or after October 1, 2025, the low-volume hospital definition and payment adjustment methodology will revert to the statutory requirements that were in effect prior to the amendments made by the Affordable Care Act and subsequent legislation. Specifically, section 1886(d)(12)(B) of the Act requires, for discharges occurring in FYs 2005 through 2010 and for discharges occurring in FY 2026 and subsequent years, that the Secretary determine an applicable percentage increase for these low- volume hospitals based on the ``empirical relationship'' between the standardized cost-per-case for such hospitals and the total number of discharges of such hospitals and the amount of the additional incremental costs (if any) that are associated with such number of discharges. The statute thus mandates that the Secretary develop an empirically justifiable adjustment based on the relationship between costs and discharges for these low-volume hospitals. Therefore, absent further Congressional action, effective FY 2026 and subsequent years, under current policy at Sec. 412.101(b), to qualify as a low-volume hospital, a subsection (d) hospital must be more than 25 road miles from another subsection (d) hospital and have less than 200 discharges (that is, less than 200 discharges total, including both Medicare and non-Medicare discharges) during the fiscal year. For FY 2026 and subsequent years, the statute specifies that a low-volume hospital must have less than 800 discharges during the fiscal year. However, as required by section 1886(d)(12)(B)(i) of the Act, the Secretary has developed an empirically justifiable payment adjustment based on the relationship, for IPPS hospitals with less than 800 discharges, between the additional incremental costs (if any) that are associated with a particular number of discharges. Based on an analysis we conducted for the FY 2005 IPPS final rule (69 FR 49099 through 49102), a 25-percent low-volume adjustment to all qualifying hospitals with less than 200 discharges was found to be most consistent with the statutory requirement to provide relief for low-volume hospitals where there is empirical evidence that higher incremental costs are associated with low numbers of total discharges. (Under the policy we established in that same final rule, hospitals with between 200 and 799 discharges do not receive a low-volume hospital adjustment.) As discussed previously, for FYs 2005 through 2010 and FY 2019 and subsequent years, the discharge determination is made based on the hospital's number of total discharges, that is, Medicare and non- Medicare discharges. The hospital's most recently submitted cost report is used to determine if the hospital meets the discharge criterion to receive the low-volume payment adjustment in the current year (Sec. 412.101(b)(2)(i)). We use cost report data to determine if a hospital meets the discharge criterion because this is the best available data source that includes information on both Medicare and non-Medicare discharges. We note that, for FYs 2011 through 2018, we used the most recently available MedPAR data to determine the hospital's Medicare discharges because only Medicare discharges were used to determine if a hospital met the discharge criterion for those years. In addition to the discharge criterion, a hospital must also meet the mileage criterion to qualify for the low-volume payment adjustment. As specified by section 1886(d)(12)(C)(i) of the Act, a low-volume hospital must be more than 25 road miles (or 15 road miles for FYs 2011 through 2025) from another subsection (d) hospital. Accordingly, for FY 2026 and subsequent fiscal years, in addition to the discharge criterion, the eligibility for the low-volume payment adjustment is also dependent upon the hospital meeting the mileage criterion at Sec. 412.101(b)(2)(i), which specifies that a hospital must be located more than 25 road miles from the nearest subsection (d) hospital, consistent with section 1886(d)(12)(C)(i) of the Act. We define, at Sec. 412.101(a), the term ``road miles'' to mean ``miles'' as defined at Sec. 412.92(c)(1) (75 FR 50238 through 50275 and 50414). As previously noted, we proposed to make conforming changes to paragraphs (b)(2)(i) and (c)(1) of Sec. 412.101 to reflect that for FY 2026 and subsequent fiscal years, the low-volume hospital payment adjustment policy is the same as that in effect for FYs 2005 through 2010. Comment: Many commenters supported the legislative extension of the temporary changes to the definition and payment adjustment for low- volume hospitals through September 30, 2025 and expressed support for additional legislative extensions. Many commenters requested that CMS collaborate with Congress to extend or make permanent the temporary modifications to the low-volume hospital payment policy. Several commenters expressed concerns that hospitals, particularly those in rural areas or that serve primarily Medicare patients, would face financial instability in the absence of an extension of the temporary modifications to the low-volume hospital payment policy. Several commenters asked CMS to clarify how it would handle any legislation that would provide a continuation of the modified low-volume hospital payment policy beyond the end of the fiscal year. Another commenter urged CMS to expeditiously process claims and provide instructions to MACs for any subsequent extensions, especially in instances when extensions are made retroactively. A few commenters requested CMS provide a transition payment to hospitals impacted by the expiration of the temporary modifications to the low-volume hospital payment policy. Response: We appreciate the commenters sharing their support for legislative action and the commenters' concerns about the expiration of the temporary changes to the low-volume hospital policy and the corresponding financial impact. As previously discussed, section 1886(d)(12) of the Act sets forth the applicable low-volume hospital policy beginning FY 2026. As we have said in the past, we make every effort to implement any extension of the low-volume hospital payment policy as expeditiously as possible. However, we believe it would be premature to opine on exactly how any subsequent extension would be implemented. As [[Page 36911]] with past extensions, we would continue to work to implement any subsequent extensions as quickly and seamlessly as possible based on the specific legislative requirements of the particular extension. Comment: Several commenters stated that it is not the intent of Congress for the low-volume hospital payment policy to revert to the historical statutory requirements. Some of these commenters believe that CMS is ignoring the congressional intent of this policy and denying a group of IPPS providers low-volume hospital payments with the reversion to the policy that was originally established for FY 2005. A few commenters also stated that CMS did not explain why limiting the low-volume hospital payment adjustment to hospitals with fewer than 200 discharges is ``most consistent'' with statute. These commenters requested expanding eligibility for the discharge criteria to match the statutory requirement to include IPPS hospitals with 200-799 discharges. Response: We disagree that it is contrary to the congressional intent for the low-volume hospital policy to revert to the policy established under the original historical statutory requirements. As previously discussed, section 2201 of the Full-Year Continuing Appropriations and Extensions Act, 2025 (Pub. L. 119-4), enacted on March 15, 2025, provided an extension of the temporary changes to the qualifying criteria and payment adjustment methodology for certain low- volume hospitals through September 30, 2025 only. Consistent with the discussion in the FY 2005 IPPS final rule (69 FR 49100), despite the statutory definition of a low-volume hospital as a subsection (d) hospital that has less than 800 discharges during the fiscal year for FYs 2026 and subsequent years, the statutory provision mandating this adjustment also requires the Secretary to determine the empirical relationship between the standardized cost-per-case, the total number of discharges, and the amount of incremental costs (if any) associated with the number of discharges. In addition, the statute requires that the applicable percentage increase shall be based upon such relationship in a manner that reflects such incremental costs. We continue to believe that the statutory language thus gives the Secretary the flexibility to set the percentage increase at zero for a given number of discharges if the empirical evidence shows that hospitals experience no higher incremental costs when they reach that number of discharges. In other words, the statute does not require the Secretary to provide an adjustment in the absence of empirical evidence that an adjustment is warranted by higher incremental costs. As discussed in response to public comments in the FY 2013 IPPS/ LTCH PPS final rule (77 FR 53408 through 53409), the FY 2014 IPPS/LTCH PPS final rule (78 FR 50612 through 50613), and the FY 2018 IPPS/LTCH PPS final rule (82 FR 38184 through 38189), to implement the original low-volume hospital payment adjustment provision, and as mandated by statute, we developed an empirically justified adjustment based on the relationship between costs and total discharges of hospitals with less than 800 total (Medicare and non-Medicare) discharges. Specifically, we performed several regression analyses to evaluate the relationship between hospitals' costs per case and discharges, and found that an adjustment for hospitals with less than 200 total discharges is most consistent with the statutory requirement to provide for additional payments to low-volume hospitals where there is empirical evidence that higher incremental costs are associated with lower numbers of discharges (69 FR 49101 through 49102). Based on these analyses, we established a low-volume hospital policy under which qualifying hospitals with less than 200 total discharges receive a payment adjustment of an additional 25 percent. (Section 1886(d)(12)(B)(iii) of the Act limits the applicable percentage increase adjustment to no more than 25 percent.) At this time, we are not aware of any analysis or empirical evidence that would support expanding the originally established low-volume hospital adjustment policy and we did not make any proposals regarding the low-volume hospital payment adjustment for FY 2026. For these reasons, we are not making any changes to the low- volume hospital payment adjustment policy in this final rule. Comment: A few commenters expressed support for the methodology for calculating the low-volume payment adjustment using a single, non- sliding scale adjustment of 25 percent for qualifying hospitals discharges beginning in FY 2026. A commenter requested that CMS publish disaggregated impact analyses to help stakeholders and legislators understand the projected consequences of expiration. Response: We appreciate commenters' support for the single, non- sliding scale payment adjustment for qualifying hospitals beginning in FY 2026. In response to the comment requesting that CMS publish disaggregated impact analyses to help stakeholders and legislators understand the projected financial effect of expiration, we refer the commenter to the provider data used in creating Table I--Impact Analysis of Changes to the IPPS for Operating Costs for FY 2026, in Appendix A of this final rule, which can be used to estimate individual hospital's payments for FY 2026 and is available on the CMS website for this final rule at https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps. After consideration of the public comments we received regarding the changes to the qualifying criteria and the payment adjustment methodology for low-volume hospitals for FY 2026, we are finalizing our proposals without modification.

4. Process for Requesting and Obtaining the Low-Volume Hospital Payment

Adjustment for FY 2026 In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50238 through 50275 and 50414) and subsequent rulemaking, most recently in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69348 through 69352), we discussed the process for requesting and obtaining the low-volume hospital payment adjustment. Under this previously established process, a hospital makes a written request for the low-volume payment adjustment under Sec. 412.101 to its MAC. This request must contain sufficient documentation to establish that the hospital meets the applicable mileage and discharge criteria. The MAC will determine if the hospital qualifies as a low-volume hospital by reviewing the data the hospital submits with its request for low-volume hospital status in addition to other available data. Under this approach, a hospital will know in advance whether or not it will receive a payment adjustment under the low- volume hospital policy. The MAC and CMS may review available data such as the number of discharges, in addition to the data the hospital submits with its request for low-volume hospital status, to determine whether or not the hospital meets the qualifying criteria. (For additional information on our existing process for requesting the low- volume hospital payment adjustment, we refer readers to the FY 2019 IPPS/LTCH PPS final rule (83 FR 41399 through 41401).) As explained earlier, for FY 2019 and subsequent fiscal years, the discharge determination is made based on the hospital's number of total discharges, that is, Medicare and non-Medicare discharges, as was the case for FYs 2005 [[Page 36912]] through 2010. Under Sec. 412.101(b)(2)(i) and (iii), a hospital's most recently submitted cost report is used to determine if the hospital meets the discharge criterion to receive the low-volume payment adjustment in the current year. As discussed in the FY 2019 IPPS/LTCH PPS final rule (83 FR 41399 and 41400), we use cost report data to determine if a hospital meets the discharge criterion because this is the best available data source that includes information on both Medicare and non-Medicare discharges. (For FYs 2011 through 2018, the most recently available MedPAR data were used to determine the hospital's Medicare discharges because non-Medicare discharges were not used to determine if a hospital met the discharge criterion for those years.) Therefore, a hospital must refer to its most recently submitted cost report for total discharges (Medicare and non-Medicare) to decide whether or not to apply for low-volume hospital status for a particular fiscal year. In addition to the discharge criterion, eligibility for the low- volume hospital payment adjustment is also dependent upon the hospital meeting the applicable mileage criterion specified in section 1886(d)(12)(C)(i) of the Act, which is codified at Sec. 412.101(b)(2), for the fiscal year. To meet the mileage criterion to qualify for the low-volume hospital payment adjustment for FY 2026, a hospital must be located more than 25 road miles from the nearest subsection (d) hospital. (We define in Sec. 412.101(a) the term ``road miles'' to mean ``miles'' as defined in Sec. 412.92(c)(1) (75 FR 50238 through 50275 and 50414).) For establishing that the hospital meets the mileage criterion, the use of a web-based mapping tool as part of the documentation is acceptable. The MAC will determine if the information submitted by the hospital, such as the name and street address of the nearest hospital(s), location on a map, and distance from the hospital requesting low-volume hospital status, is sufficient to document that it meets the mileage criterion. If not, the MAC will follow up with the hospital to obtain additional necessary information to determine whether or not the hospital meets the applicable mileage criterion. In accordance with our previously established process, a hospital must make a written request for low-volume hospital status that is received by its MAC by September 1 immediately preceding the start of the Federal fiscal year for which the hospital is applying for low- volume hospital status in order for the applicable low-volume hospital payment adjustment to be applied to payments for its discharges for the fiscal year beginning on or after October 1 immediately following the request (that is, the start of the Federal fiscal year). For a hospital whose request for low-volume hospital status is received after September 1, if the MAC determines the hospital meets the criteria to qualify as a low-volume hospital, the MAC will apply the applicable low-volume hospital payment adjustment to determine payment for the hospital's discharges for the fiscal year, effective prospectively within 30 days of the date of the MAC's low-volume status determination. Consistent with this previously established process, for FY 2026, we proposed that a hospital must submit a written request for low- volume hospital status to its MAC that includes sufficient documentation to establish that the hospital meets the applicable mileage and discharge criteria (as described earlier). Specifically, for FY 2026, a hospital must make a written request for low-volume hospital status that is received by its MAC no later than September 1, 2025, in order for the 25-percent, low-volume, add-on payment adjustment to be applied to payments for its discharges beginning on or after October 1, 2025. If a hospital's written request for low-volume hospital status for FY 2026 is received after September 1, 2025, and if the MAC determines the hospital meets the criteria to qualify as a low- volume hospital, the MAC would apply the low-volume hospital payment adjustment to determine the payment for the hospital's FY 2026 discharges, effective prospectively within 30 days of the date of the MAC's low-volume hospital status determination. Under this process, a hospital that qualified for the low-volume hospital payment adjustment for FY 2025, may continue to receive a low- volume hospital payment adjustment for FY 2026 without reapplying if it meets both the discharge criterion and the mileage criterion applicable for FY 2026 (that is, the preexisting low-volume hospital qualifying criteria as implemented in FY 2005 and specified in the existing regulations at Sec. 412.101(b)(2)(i), as discussed previously). In such a case, we proposed that the hospital must send written verification that is received by its MAC no later than September 1, 2025, stating that it meets the mileage criterion for FY 2026, consistent with our process in previous years. If a hospital's request for low-volume hospital status for FY 2026 is received after September 1, 2025, and if the MAC determines the hospital meets the criteria to qualify as a low-volume hospital, the MAC will apply the applicable low-volume add-on payment adjustment to determine the payment for the hospital's discharges for the applicable portion of FY 2026, effective prospectively within 30 days of the date of the MAC's low-volume hospital status determination. We received no comments on our proposed process for requesting and obtaining the low-volume hospital payment adjustment for FY 2026 and therefore are finalizing this proposal without modification.

1. Background for the MDH Program

Section 1886(d)(5)(G) of the Act provides special non-budget neutral payment protections, under the IPPS, to a Medicare-dependent, small rural hospital (MDH). MDHs are paid for their hospital inpatient services based on the higher of the Federal rate or a blended rate based in part on the Federal rate and in part on the MDH's hospital specific rate. (For additional information on the MDH program and the payment methodology, we refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51683 through 51684).) Section 2202 of the Full-Year Continuing Appropriations and Extensions Act, 2025 (Pub. L. 119-4), enacted on March 15, 2025, extended the MDH program through September 30, 2025 (that is, for discharges occurring before October 1, 2025). Prior to enactment of the Full-Year Continuing Appropriations and Extensions Act, 2025, the MDH program was only to be in effect for FY 2025 discharges occurring before April 1, 2025. Under current law, the MDH program provisions at section 1886(d)(5)(G) of the Act will expire for discharges on or after October 1, 2025. Beginning with discharges occurring on or after October 1, 2025, absent further Congressional action, all hospitals that previously qualified for MDH status will be paid based on the Federal rate. Since the extension of the MDH program through FY 2012 provided by section 3124 of the Affordable Care Act, the MDH program had been extended by subsequent legislation as follows: section 606 of the American Taxpayer Relief Act (Pub. L. 112-240) extended the MDH program through FY 2013 (that is, for discharges occurring before October 1, 2013). Section 1106 of the Pathway for SGR Reform Act of 2013 (Pub. L. 113-67) extended the MDH program through the first half of FY 2014 (that is, for discharges occurring before April 1, 2014). Section 106 of the Protecting Access to Medicare Act (Pub. [[Page 36913]]

L. 113-93) extended the MDH program through the first half of FY 2015

(that is, for discharges occurring before April 1, 2015). Section 205 of the MACRA (Pub. L. 114-10) extended the MDH program through FY 2017 (that is, for discharges occurring before October 1, 2017). Section 50205 of the Bipartisan Budget Act (Pub. L. 115-123) extended the MDH program through FY 2022 (that is for discharges occurring before October 1, 2022). Section 102 of the Continuing Appropriations and Ukraine Supplemental Appropriations Act, 2023 (Pub. L. 117-180) extended the MDH program through December 16, 2022. Section 102 of the Further Continuing Appropriations and Extensions Act, 2023 (Pub. L. 117-229) extended the MDH program through December 23, 2022. Section 4102 of the Consolidated Appropriations Act, 2023 (Pub. L. 117-328) extended the MDH program through FY 2024 (that is for discharges occurring before October 1, 2024). Section 307 of the CAA, 2024 (Pub.

L. 118-42) extended the MDH program through December 31, 2024 (that is,

for discharges occurring before January 1, 2025). Section 3202 of the American Relief Act, 2025 (Pub. L. 118-158) extended the MDH program through March 31, 2025 (that is, for discharges occurring before April 1, 2025). Lastly, under current law, section 2202 of the Full-Year Continuing Appropriations and Extensions Act, 2025 (Pub. L. 119-4) extended the MDH program through September 30, 2025 (that is, for discharges occurring before October 1, 2025). For additional information on the extensions of the MDH program after FY 2012, we refer readers to the following Federal Register documents: The FY 2013 IPPS/LTCH PPS final rule (77 FR 53404 through 53405 and 53413 through 53414); the FY 2013 IPPS notice (78 FR 14689); the FY 2014 IPPS/LTCH PPS final rule (78 FR 50647 through 50649); the FY 2014 interim final rule with comment period (79 FR 15025 through 15027); the FY 2014 notice (79 FR 34446 through 34449); the FY 2015 IPPS/LTCH PPS final rule (79 FR 50022 through 50024); the August 2015 interim final rule with comment period (80 FR 49596); the FY 2017 IPPS/ LTCH PPS final rule (81 FR 57054 through 57057); the FY 2018 notice (83 FR 18303 through 18305); the FY 2019 IPPS/LTCH PPS final rule (83 FR 41429); the FY 2024 IPPS/LTCH PPS final rule (88 FR 59045); and the FY 2025 IPPS/LTCH PPS final rule (89 FR 69352). 2. Implementation of Legislative Extension of MDH Program Prior to the enactment of Public Law 119-4, under section 3202 of Public Law 118-158, the MDH program authorized by section 1886(d)(5)(G) of the Act was set to expire on April 1, 2025. Section 2202 of Public Law 119-4 amended sections 1886(d)(5)(G)(i) and 1886(d)(5)(G)(ii)(II) of the Act by striking ``April 1, 2025'' and inserting ``October 1, 2025''. Section 2202 of Public Law 119-4 also made conforming amendments to sections 1886(b)(3)(D)(i) and 1886(b)(3)(D)(iv) of the Act. Therefore, in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18273), we proposed to make conforming changes to the regulations governing the MDH program at Sec. 412.108(a)(1) and (c)(2)(iii) and the general payment rules at Sec. 412.90(j) to reflect the extension of the MDH program through September 30, 2025. As a result of the extension of the MDH program through September 30, 2025, as provided by section 2202 of Public Law 119-4, a provider that was classified as an MDH as of March 31, 2025, will continue to be classified as an MDH as of April 1, 2025, with no need to reapply for MDH classification. We addressed the extension provided by section 3202 of the American Relief Act, 2025, in Change Request 13949 (Transmittal 13035), issued January 6, 2025. For additional information, please refer to the transmittal https://www.cms.gov/medicare/regulations-guidance/transmittals/2025-transmittals/r13035otn. We addressed the extension provided by section 2202 of the Full-Year Continuing Appropriations and Extensions Act, 2025 (Pub. L. 119-4) in Change Request 14045 (Transmittal 13151), issued May 5, 2025. For additional information, please refer to the transmittal https://www.hhs.gov/guidance/sites/default/files/hhs-guidance-documents/CMS/r13151otn.pdf. 3. Expiration of the MDH Program Because section 2202 of the Full-Year Continuing Appropriations and Extensions Act, 2025 extended the MDH program through September 30, 2025, only, beginning October 1, 2025, the MDH program will no longer be in effect. Since the MDH program is not authorized by statute beyond September 30, 2025, absent Congressional action, beginning October 1, 2025, all hospitals that previously qualified for MDH status under section 1886(d)(5)(G) of the Act will no longer have MDH status and will be paid based on the Federal rate. When the MDH program was set to expire at the end of FY 2012, in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53404 through 53405), we revised our sole community hospital (SCH) policies to allow MDHs to apply for SCH status in advance of the expiration of the MDH program and be paid as such under certain conditions. We codified these changes in the regulations at Sec. 412.92(b)(2)(i) and (v). For additional information, we refer readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 53404 through 53405 and 53674). We note that a MDH that classifies as a SCH in anticipation of the MDH program expiration would have to reapply for MDH classification in accordance with the regulations at 42 CFR 412.108(b) and meet the classification criteria at 42 CFR 412.108(a) in the event that the MDH program is further extended, and the provider wishes to return to its classification as a MDH. As noted, in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18273), we proposed to make conforming changes to the regulations governing the MDH program at Sec. 412.108(a)(1) and (c)(2)(iii) and the general payment rules at Sec. 412.90(j) to reflect the extension of the MDH program through September 30, 2025. We also proposed that if the MDH program were to be extended by law beyond September 30, 2025, similar to how it was extended by prior legislation as described previously, we would, depending on timing of such legislation in relation to the final rule, modify our proposed conforming changes to the regulations governing the MDH program at Sec. 412.108(a)(1) and (c)(2)(iii) and the general payment rules at Sec. 412.90(j) to reflect any such further extension of the MDH program. We also noted that these modifications to our proposed conforming changes would only be made if the MDH program were to be extended by statute beyond September 30, 2025. Comment: Many commenters expressed support for extending the MDH program or making the MDH program permanent and noted that they would continue supporting congressional efforts to protect the MDH program. A few commenters urged CMS to advocate for action to be taken to ensure that the MDH program is extended. Several state hospital associations expressed their concern that hospitals in their states would experience significant payment decreases as a result of the expiration of the MDH program. One commenter stated that if CMS moves forward with the proposed changes, any transitional payments must be meaningful and implemented over a multi-year period to [[Page 36914]] prevent harmful disruptions in patient care. Another commenter asked that CMS consider whether any alternative regulatory flexibilities exist to assist these hospitals if the program is not renewed. Some commenters also expressed support for increasing the base rates for these hospitals. Others supported an additional base rate for calculating MDH payments. Response: While we appreciate the commenters' concerns about the expiration of the MDH program and the financial impact to affected providers if the MDH program is not extended beyond FY 2025, CMS does not have the authority under current law to extend the MDH program beyond the September 30, 2025 statutory expiration date. Similarly, section 1886(b)(3)(D) of the Act specifies the applicable base years or ``target amounts'' for hospitals classified as MDHs. These comments are similar to comments we received previously, prior to the most recent statutory extension of the MDH program for FY 2025. We refer commenters to our discussion in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69353). In response to the comment requesting CMS explore other regulatory support options, should Congress not act, we may consider this for future rulemaking. Comment: Several commenters expressed support for CMS' policy that allows MDHs to apply for SCH status in advance of the expiration of the MDH program and be paid as such under certain conditions. A commenter requested that CMS provide technical assistance to MDHs seeking to transition to SCH classification. Commenters requested that CMS explicitly clarify how it would handle the MDH program should Congress extend it and requested that CMS expedite restoration of MDH status and expeditiously process claims in the event the program lapses. Commenters also urged CMS to ensure that affected hospitals have access to technical assistance and timely guidance to minimize confusion. Other commenters requested that CMS provide instructions to MACs during program extensions, especially in instances when extensions are made retroactively. A commenter requested that CMS publish disaggregated impact analyses to help stakeholders and legislators understand the projected consequences of expiration. Response: We appreciate the commenters' support of our policy allowing MDHs to apply for SCH status in advance of the expiration of the MDH program and to be paid as such under certain conditions and allow for a seamless transition from MDH classification to SCH classification. MDHs looking to apply for SCH classification should contact their individual MACs for assistance on the application requirements or for any technical assistance. We appreciate the commenters' sharing their concerns relating to a retroactive restoration of the MDH program. As with past extensions, CMS will evaluate enacted legislation to determine the most appropriate approach to implement changes to the law, including issuing instructions to the MACs to reinstate MDH status to eligible hospitals and to communicate with affected hospitals. As in the past, we will make every effort to implement any extension of the MDH program as expeditiously as possible. In response to the comment requesting that CMS publish disaggregated impact analyses to help stakeholders and legislators understand the projected financial effect of expiration, we refer the commenter to the provider data used in creating Table I--Impact Analysis of Changes to the IPPS for Operating Costs for FY 2026, in Appendix A of this final rule and posted on the web which can be used to estimate individual hospital's payments for FY 2026. The data can be found on the CMS website at https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps. In addition, we note in Table I in Appendix A of this final rule, the lines reflecting the changes for ``Bed Size (Rural)'' with 0-49 beds and 50-99 beds generally reflect the expected impact for hospitals classified as MDH prior to the expiration on October 1, 2025 under current law. In summary, under current law, beginning October 1, 2025, all hospitals that previously qualified for MDH status will no longer have MDH status. After consideration of the public comments we received, we are adopting as final the proposed conforming changes to the regulations text at Sec. Sec. 412.90 and 412.108 to reflect the extension of the MDH program through September 30, 2025 in accordance with section 2202 of the Full-Year Continuing Appropriations and Extensions Act, 2025 (Pub. L. 119-4). We are finalizing the proposed changes in paragraphs (a)(1) and (c)(2)(iii) of Sec. 412.108 and paragraph (j) of Sec. 412.90 without modification.

F. Payment for Indirect and Direct Graduate Medical Education Costs

(Sec. Sec. 412.105 and 413.75 through 413.83)

1. Background

Section 1886(h) of the Act, as added by section 9202 of the Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985 (Pub. L. 99-272) and as currently implemented in the regulations at 42 CFR 413.75 through 413.83, establishes a methodology for determining payments to hospitals for the direct costs of approved graduate medical education (GME) programs. Section 1886(h)(2) of the Act sets forth a methodology for the determination of a hospital-specific base-period per resident amount (PRA) that is calculated by dividing a hospital's allowable direct costs of GME in a base period by its number of full- time equivalent (FTE) residents in the base period. The base period is, for most hospitals, the hospital's cost reporting period beginning in FY 1984 (that is, October 1, 1983, through September 30, 1984). The base year PRA is updated annually for inflation. In general, Medicare direct GME payments are calculated by multiplying the hospital's updated PRA by the weighted number of FTE residents working in all areas of the hospital complex (and at non- provider sites, when applicable), and the hospital's Medicare share of total inpatient days. Section 1886(d)(5)(B) of the Act provides for a payment adjustment known as the indirect medical education (IME) adjustment under the IPPS for hospitals that have residents in an approved GME program, in order to account for the higher indirect patient care costs of teaching hospitals relative to nonteaching hospitals. The regulations regarding the calculation of this additional payment are located at 42 CFR 412.105. The hospital's IME adjustment applied to the DRG payments is calculated based on the ratio of the hospital's number of FTE residents training in either the inpatient or outpatient departments of the IPPS hospital (and, for discharges occurring on or after October 1, 1997, at non-provider sites, when applicable) to the number of inpatient hospital beds. The calculation of both direct GME payments and the IME payment adjustment is affected by the number of FTE residents that a hospital is allowed to count. Generally, the greater the number of FTE residents a hospital counts, the greater the amount of Medicare direct GME and IME payments the hospital will receive. In an attempt to end the implicit incentive for hospitals to increase the number of FTE residents, Congress established a limit on the number of allopathic and osteopathic residents that a hospital could include in its FTE resident count for direct GME and IME payment purposes in the Balanced Budget Act of 1997 (Pub. L. 105-33). Under section 1886(h)(4)(F) of the Act, for cost [[Page 36915]] reporting periods beginning on or after October 1, 1997, a hospital's unweighted FTE count of residents for purposes of direct GME cannot exceed the hospital's unweighted FTE count for direct GME in its most recent cost reporting period ending on or before December 31, 1996. Under section 1886(d)(5)(B)(v) of the Act, a similar limit based on the FTE count for IME during that cost reporting period is applied, effective for discharges occurring on or after October 1, 1997. Dental and podiatric residents are not included in this statutorily mandated cap. We received some comments related to IME and direct GME payment that were outside the scope of the proposed rule, including comments related to the eligibility of SCHs and MDHs paid under the hospital- specific rate to receive IME payments. Because we consider these public comments to be outside the scope of the proposed rule, we are not addressing these comments in this final rule.

2. Calculating Full-time Equivalent Counts and Caps for Cost Reporting

Periods Other Than Twelve Months CMS's full-time equivalent (FTE) counting regulations, as established in the September 29, 1989, Federal Register (54 FR 40291), specify that no individual should be counted as more than one FTE, and that FTE status is based on the total time necessary to fill a residency slot and the share of total time spent training at each training site (see 42 CFR 412.105(f)(1)(iii)(A) for IME and 42 CFR 413.78(b)(1) for DGME). The requirements for what constitutes full-time participation may vary from specialty to specialty, or among different programs in the same specialty. Additionally, full-time equivalency may be computed based on various increments, such as hours, days, weeks, or months, in order for a hospital to obtain the full-time equivalent which it is allowed to count. Full-time equivalency for each resident is computed by determining the portion of total allowable training time that may be claimed by each hospital. In general, these data are sourced from a ``master'' rotation schedule for each approved residency program. Each rotation may consist of both allowable and non-allowable training time. For example, the time that a resident spends in a hospital's distinct-part unit is allowable to the hospital for purposes of DGME, but not for purposes of IME, while time spent in research activities at an offsite nonpatient care facility is not allowable for either DGME or IME. Additionally, a hospital cannot claim the time spent by residents training at another hospital. Consistent with the regulations at 42 CFR 413.75(d), hospitals that cross-train residents in the same program need to agree on the method of computing FTEs to ensure that no resident is counted as more than one FTE. For purposes of completing the Medicare cost report (Worksheet E, Part A, for IME and Worksheet E-4 for DGME of Form CMS-2552-10), full- time equivalency is typically calculated on the basis of 365 days (or 366 days, in the case of a leap year) for DGME versus the actual number of days in the cost reporting period for IME. Thus, for a standard 12- month cost reporting period, there is no difference in the calculation of the DGME and IME FTE counts. In the case of a cost reporting period other than 12 months in length, the statute for both DGME and IME instructs the Secretary to make ``appropriate modifications'' to ensure that the FTE counts are based on the equivalent of 12 months. Specifically, for DGME, section 1886(h)(4)(G)(ii) states that if any cost reporting period beginning on or after October 1, 1997, is not equal to 12 months, the Secretary shall make appropriate modifications to ensure that the average full- time equivalent resident counts pursuant to section 1886(h)(4)(G)(i) are based on the equivalent of full 12-month cost reporting periods. Similarly, for IME, section 1886(d)(5)(B)(vii) states that if any cost reporting period beginning on or after October 1, 1997, is not equal to 12 months, the Secretary shall make appropriate modifications to ensure that the average full-time equivalent residency count pursuant to section 1886(d)(5)(B)(vi)(II) is based on the equivalent of full 12- month cost reporting periods. The procedures for determining the total DGME and IME FTE counts for a non-12-month cost reporting period reflect the underlying differences in the two payment methodologies. A hospital's DGME count represents the number of FTE residents working in the healthcare complex over the course of an entire cost reporting period, and the total DGME payment is based on the hospital's PRA, which reflects the average costs incurred per resident during a 12-month base period or equivalent (see discussion at 54 FR 40290). Accordingly, the DGME FTE count must be prorated to reflect the length of a short or long cost reporting period, as illustrated in the following section of this preamble. By contrast, the IME adjustment reflects the average intensity of teaching activity in a hospital at any given time, and the total IME payment is based on the hospital's DRG payments during a cost reporting period. Because the size of a hospital's DRG payments already reflects the amount of patient care furnished during a short or long cost reporting period, it is not necessary to prorate the IME FTE count in the same manner as the DGME FTE count. Similarly, as explained later in this section, proration must be applied to a hospital's DGME FTE cap (but not the IME FTE cap) to account for a non-12-month cost reporting period, as well as to the prior- and penultimate-year DGME FTE counts (but not the IME FTE counts) for the purpose of calculating the three-year rolling average FTE count. We also note that, while these methodological distinctions become apparent in the context of calculating the counts and caps for a non-12-month cost reporting period, they are equally applicable in the case of a standard 12-month cost reporting period. In the FY 2026 IPPS/LTCH PPS Proposed Rule (90 FR 18274 through 18277), we stated that while CMS's FTE counting policy is long- established and widely used in existing cost reporting software and the Intern and Resident Information System (IRIS) software, we were taking the opportunity to restate and clarify our FTE counting policy in rulemaking. We did not propose any changes to the FTE counting policy in the proposed rule. a. Calculating FTE Counts To determine the unweighted FTE count for DGME, whether or not the cost reporting period is 12 months, or more or less, the following steps should be used: For each resident and each of that resident's individual rotations, determine the ratio of total days allowable to the hospital in that rotation, to total days in that entire rotation, consistent with the regulations at 42 CFR 413.78. Multiply the ratio from Step 1 by the ratio of (total days in the entire rotation divided by 365) (or 366, in the case of a leap year).\162\ This represents the portion of total FTE time for this rotation that may be claimed by the hospital for purposes of DGME payment, prorated for the length of the cost reporting period. --------------------------------------------------------------------------- \162\ 366 days should be used when the cost reporting period includes February 29. --------------------------------------------------------------------------- Calculate the sum of the products from Step 2 for all residents and rotations in the hospital's programs to arrive at the hospital's total unweighted [[Page 36916]] DGME FTE count for the cost reporting period. Stated formulaically: Unweighted DGME FTE count = Sum of [(Allowable days in a rotation/Total days in the rotation) x (Total days in the rotation/365)] Note: This portion of the FTE calculation is not weighted for years outside of the Initial Residency Period, as the application of weighting factors is a separate step in the calculation of DGME payment on the cost report. See 42 CFR 413.79(a) for more information about the Initial Residency Period. Example: A resident worked in a rotation at Hospital A for 4 weeks (28 days) but spent 1 week (7 days) offsite engaged in non-patient care research. Step 1: Consistent with the DGME regulations, the total time allowable to Hospital A for this rotation is 21 days. The ratio is (21 days/28 days) = 0.75. Step 2: The portion of total FTE time for this rotation that Hospital A may claim for purposes of DGME payment is 0.75 x (28/ 365) = 0.06 FTE. (Note: In the case of a leap year, divide by 366 days.) Step 3: Repeat Steps 1 and 2 for all residents and rotations in the hospital's programs and sum the results from Step 2 to arrive at Hospital A's total unweighted DGME FTE count for the cost reporting period. As stated previously, 365 or 366 days is used as the denominator in Step 2 of the calculation regardless of the actual number of days in the cost reporting period. Thus, in computing the DGME FTE count, the length of the cost reporting period can affect the full-time equivalency determined for a given number of residents training at the hospital. For example, there would be fewer total rotations in a 3- month cost reporting period than in a 12-month period, and thus a commensurately smaller DGME count calculated in accordance with the procedure outlined previously. Note that the hospital's updated PRA is always used and is not prorated, as it represents that hospital's average cost to train an FTE resident determined in a base period and is not dependent upon the length of cost reporting periods subsequent to the PRA base period. In this manner, the DGME FTE count continues to be based on the ``equivalent of 12 months,'' as required by section 1886(h)(4)(G)(ii) of the Act. This procedure is performed to determine the total unweighted DGME FTE count on Form CMS-2552-10, Worksheet E-4, line 6 and line 7, as well as for the weighted FTE counts on lines 8 through 11, lines 15 and 16, and lines 21 and 22. For lines that record weighted FTE counts, the appropriate weighting factors are applied consistent with the regulations at 42 CFR 413.79(a). As mentioned previously, the procedure for determining the 12-month equivalent IME FTE count, in accordance with section 1886(d)(5)(B)(vii) of the Act, is different in that the number of days used in the denominator of the calculation in Step 2 depends on the length of the cost reporting period. For 12-month cost reporting periods, a denominator of 365 days is used (or 366 days in the case of a leap year), while for cost reporting periods of different lengths, the denominator is equal to the actual number of days in the cost reporting period. The resulting FTE count represents the average number of residents in the hospital at any given time, and in turn is multiplied by the DRG payments in that same cost reporting period to obtain the hospital's total IME payment. Accordingly, to determine the FTE count for IME, whether or not the cost reporting period is 12 months, or more or less, the following steps should be used: For each resident and each of that resident's individual rotations, determine the ratio of total days allowable to the hospital in that rotation, to total days in that entire rotation, consistent with the regulations at 42 CFR 412.105(f). Multiply the ratio from Step 1 by the ratio of (total days in the entire rotation divided by the actual number of days in the cost reporting period). This represents the portion of total FTE time for this rotation that may be claimed by the hospital for purposes of IME payment. Calculate the sum of the products from Step 2 for all residents and rotations in the hospital's programs to arrive at the hospital's total IME FTE count for the cost reporting period. Stated formulaically: IME FTE count = Sum of [(Allowable days in a rotation/Total days in the rotation) x (Total days in the rotation/Days in cost reporting period)] Example 1: 12-Month Cost Reporting Period (365 Days): A resident worked in a rotation at Hospital A for 4 weeks (28 days) but spent 1 week (7 days) offsite engaged in non-patient care research. Step 1: Consistent with the IME regulations, the total time allowable to Hospital A for this rotation is 21 days. The ratio is (21 days/28 days) = 0.75. Step 2: The portion of total FTE time for this rotation that Hospital A may claim for purposes of IME payment is 0.75 x (28/365) = 0.06 FTE. (Note: In the case of a leap year, divide by 366 days.) Step 3: Repeat Steps 1 and 2 for all residents and rotations in the hospital's programs and sum the results from Step 2 to arrive at Hospital A's total IME FTE count for the cost reporting period. Example 2: 3-Month Cost Reporting Period (92 Days): During a 92-day cost reporting period, a resident worked in a rotation at Hospital A for 4 weeks (28 days) but spent 1 week (7 days) offsite engaged in non-patient care research. Step 1: Consistent with the IME regulations, the total time allowable to Hospital A for this rotation is 21 days. The ratio is (21 days/28 days) = 0.75. Step 2: The portion of total FTE time for this rotation that Hospital A may claim for purposes of IME payment is 0.75 x (28/92) = 0.23 FTE. Step 3: Repeat Steps 1 and 2 for all residents and rotations in the hospital's programs and sum the results from Step 2 to arrive at Hospital A's total IME FTE count for the 3-month cost reporting period. Consistent with the regulations at 42 CFR 412.105(b), the bed count used in the denominator of the intern and resident to bed (IRB) ratio is determined by counting the number of available bed days during the cost reporting period and dividing that number by the number of days in the cost reporting period. While the IME FTE count itself is not prorated, the final amount of a hospital's IME payment nonetheless will be commensurate with the cost reporting period by virtue of the total amount of its DRG payments, which will generally increase or decrease as a result of the length of the period. For example, if a cost reporting period is 12 months long, the DRG payments by which the IME adjustment factor is multiplied to derive the total IME payment will also reflect 12 months of patient care. By contrast, the DRG payments for the 3-month (or 92-day) cost reporting period in Example 2 would reflect just 3 months of patient care. This procedure is performed to determine the total IME FTE count on Form CMS-2552-10, Worksheet E, Part A, lines 10 through 12, as well as the FTE counts on lines 16 and 17 and lines 24 and 25. [[Page 36917]] b. Calculating FTE Caps for Cost Reporting Periods Other Than Twelve Months Just as the DGME FTE counts are prorated on the basis of a standard 365- or 366-day cost reporting period, a hospital's DGME FTE cap must similarly be prorated for cost reporting periods other than 12 months in length. To calculate the prorated cap, the hospital's regular 12- month DGME FTE cap is divided by 365 days (or 366 days, in the case of a leap year) and then multiplied by the actual number of days in the cost reporting period. For example, if a hospital has a regular DGME FTE cap of 270 FTEs, then the prorated DGME cap for a 3-month cost reporting period with 92 days would be: (270/365) x (92) = 68.05 FTEs. (If the hospital subsequently had a 9-month cost report with 273 days, the DGME FTE cap for the 9-month cost report would be calculated as follows: (270/365) x (273) = 201.95 FTEs. Note that 68.05 + 201.95 = 270, equivalent to the total DGME cap for 12 months (totals may be slightly off due to rounding)). Proration applies similarly to all lines on Worksheet E-4 that are associated with the FTE cap, including lines 1 through 5 and line 20. For reasons similar to those explained previously in the discussion of the FTE counts, it is not necessary to prorate the IME FTE caps for a non-12-month cost reporting period; the same IME FTE cap and any associated cap adjustments apply to a cost reporting period that is less than or more than 12 months. c. Calculating the Three-Year Rolling Average for Cost Reporting Periods of Unequal Lengths Sections 1886(d)(5)(B)(vi)(II) and 1886(h)(4)(G)(i) of the Act require that a hospital's FTE counts for IME and DGME payment, respectively, in the current cost reporting period be based on a three- year rolling average. That is, the FTE counts in the current cost reporting period, prior cost reporting period, and penultimate cost reporting period are summed, then divided by 3. These provisions phase in any reductions or increases in payment over a three-year period for hospitals that experience a change in the number of residents they train. The regulations are at 42 CFR 412.105(f)(1)(v) for IME and 42 CFR 413.79(d)(3) for DGME. For reasons similar to those discussed previously, no adjustments need to be made to the prior and penultimate years when calculating the rolling average IME count. However, if the current, prior and/or penultimate year cost reporting periods are of different lengths, adjustments must be made to the respective DGME FTE counts so that the rolling average is based on quantities that are comparable with one another. Accordingly, if the current cost reporting period is other than 12 months in length, the prior- and penultimate-year DGME FTE counts must be prorated, yielding 3 years of comparable FTE counts from which to calculate the rolling average: For the prior year, take the FTE count that would be reported on Worksheet E-4, line 12, and divide by 365 (or 366, if the prior year cost reporting period includes February 29), and then multiply that quotient by the number of days in the current non-12-month cost reporting period. Report this prorated FTE count on Worksheet E-4, line 12, of the current year cost report. For the penultimate year, take the FTE count that would be reported on Worksheet E-4, line 13, and divide by 365 (or 366, if the penultimate year cost reporting period includes February 29), and then multiply that quotient by the number of days in the current non-12- month cost reporting period. Report this prorated FTE count on Worksheet E-4, line 13, of the current year cost report. Stated formulaically: Prorated DGME FTE count = [(Total annual DGME FTE count/365 or 366) x (Number of days in current cost reporting period)] For example, if the current year cost reporting period is 3 months (92 days), while the prior year cost reporting period was 12 months, and the hospital's total capped DGME FTE count in the prior year was 300, then the prorated FTE count for the prior year would be: [(300/ 365) x (92)] = 75.62. That is, a DGME FTE count of 300 in a 12-month cost reporting period would be the equivalent of 75.62 FTEs in the current year 3-month cost reporting period. On the current year cost report, the hospital would enter 75.62 on line 12 of Worksheet E-4 (prior year FTE count). If the total capped DGME FTE count in the penultimate cost reporting period was 302, and the penultimate year was also 12 months, then the prorated FTE count for the penultimate year would be: [(302/365) x (92)] = 76.12. On the current year cost report, the hospital would enter 76.12 on line 13 of Worksheet E-4 (penultimate year FTE count). We note that in this scenario, if either the prior or penultimate year cost reporting period was also other than 12 months in length, then it would be necessary to adjust the calculation to account for that difference. For instance, suppose that the hospital's penultimate year cost reporting period was 9 months or 273 days long, and its capped DGME FTE count during that period (prorated on a 12-month basis as described earlier in this preamble) was 225. In this case, rather than dividing by 365 days, the hospital would divide the penultimate- year DGME FTE count by 273 days, as follows: [(225/273) x (92)] = 75.82 FTEs. Thus, the hospital would enter 75.82 on line 13 of Worksheet E-4 of the current year cost report. Conversely, if the current year is a full cost reporting period, but the prior and/or penultimate cost reporting period was other than 12 months, then the prior and/or penultimate year DGME FTE counts (which have been prorated on a 12-month basis as described earlier in this preamble) must be annualized to yield 12-month equivalents. This procedure avoids understatement (or overstatement) of the DGME FTE count in the current year and, similar to the proration of DGME counts in the preceding scenario, results in 3 years of comparable FTE counts from which to calculate the DGME rolling average: For the prior year, take the FTE count that would be reported on Worksheet E-4, line 12, and divide by the number of days in the non-12- month cost reporting period, and then multiply that quotient by 365 (or 366, if the current cost reporting period includes February 29). Report this annualized FTE count on Worksheet E-4, line 12 of, the current year cost report. For the penultimate year, take the FTE count that would be reported on Worksheet E-4, line 13, and divide by the number of days in the non- 12-month cost reporting period, and then multiply that quotient by 365 (or 366, if the current cost reporting period includes February 29). Report this annualized FTE count on Worksheet E-4, line 13 of the current year cost report. Stated formulaically: Annualized DGME FTE count = [(Prorated DGME FTE count/Number of days in the non-12-month cost reporting period) x (365 or 366)] For example, if the current year cost reporting period is 12 months (365 days), while the prior year cost reporting period was 3 months (92 days), and the prior-year capped DGME FTE count (prorated on a 12-month basis) was 75, then the annualized FTE count for the prior year would be: [(75/92) x (365)] = 297.55. On the current year cost report, the hospital would enter 297.55 on line 12 of Worksheet E-4 (prior year FTE count). Comment: Commenters expressed support for our proposed clarification of [[Page 36918]] the policy for determining the DGME and IME FTE resident counts for 12- month and non-12-month cost reporting periods. Response: We thank the commenters for their support. As noted previously, we did not propose any changes to our existing FTE counting policies. Accordingly, we are finalizing our proposed clarification with no change to the regulations at 42 CFR 412.105 or Sec. Sec. 413.75 through 81.

1. General

Under section 1861(v) of the Act, Medicare has historically paid providers for Medicare's share of the costs that providers incur in connection with approved educational activities. The costs of these activities are excluded from the definition of ``inpatient hospital operating costs'' and are not included in the calculation of payment rates for hospitals or hospital units paid under the IPPS, IRF PPS, or IPF PPS, and are excluded from the rate-of-increase ceiling for certain facilities not paid on a PPS. These costs are separately identified and ``passed through'' (that is, paid separately on a reasonable cost basis). Under the existing regulations at 42 CFR 413.85, approved nursing and allied health (NAH) education programs must meet State licensure requirements or be accredited by a recognized national professional organization. Additionally, an approved NAH education program must be operated by a provider. The most recent substantive rulemakings on these regulations were in the January 12, 2001, final rule (66 FR 3358 through 3374), and in the August 1, 2003, final rule (68 FR 45423 and 45434). The regulations regarding Medicare Advantage (MA) add-on payments for NAH education programs are at 42 CFR 413.87.

2. Medicare Advantage Nursing and Allied Health Education Payments

Section 541 of the Balanced Budget Refinement Act (BBRA) of 1999 provides for additional payments to hospitals for costs of nursing and allied health education associated with services to Medicare+Choice (now called Medicare Advantage (MA)) \163\ enrollees. Hospitals that operate approved nursing or allied health education programs and receive Medicare reasonable cost reimbursement for these programs may receive additional payments to account for MA enrollees. Section 541 of the BBRA limits total spending under the provision for MA enrollees to no more than $60 million in any calendar year (CY). (In this document, we refer to the total amount of $60 million or less as the payment ``pool''.) Section 541 of the BBRA also provides that direct graduate medical education (GME) payments for Medicare+Choice (now MA) utilization be reduced to the extent that these additional payments are made for nursing and allied health education programs. This provision was effective for portions of cost reporting periods occurring in a calendar year, on or after January 1, 2000. --------------------------------------------------------------------------- \163\ The M+C program in Part C of Medicare was renamed the Medicare Advantage (MA) Program under the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), which was enacted in December 2003. --------------------------------------------------------------------------- Section 512 of the Benefits Improvement and Protection Act (BIPA) of 2000 changed the formula for determining the additional amounts to be paid to hospitals for Medicare+Choice (now MA) nursing and allied health costs. Under section 541 of the BBRA, the additional payment amount was determined based on the proportion of each individual hospital's nursing and allied health education payment to total nursing and allied health education payments made to all hospitals. However, this formula did not account for a hospital's specific Medicare+Choice (now MA) utilization. Section 512 of the BIPA revised this payment formula to specifically account for each hospital's Medicare+Choice (now MA) utilization. This provision was effective for portions of cost reporting periods occurring in a calendar year, beginning with CY 2001. The regulations at 42 CFR 413.87 implement both statutory provisions. We first implemented the BBRA NAH Medicare+Choice (now MA) provision in the August 1, 2000, IPPS interim final rule with comment period (IFC) (65 FR 47036 through 47039), and subsequently implemented the BIPA provision in the August 1, 2001 IPPS final rule (66 FR 39909 and 39910). In those rules, we outlined the qualifying conditions for a hospital to receive the NAH Medicare+Choice (now MA) payment, how we would calculate the NAH Medicare+Choice (now MA) payment pool, and how a qualifying hospital would calculate its ``share'' of payment from that pool. Determining a hospital's NAH MA payment essentially involves applying a ratio of the hospital-specific NAH Part A payments, total inpatient days, and MA inpatient days, to national totals of those same variables, from cost reporting periods ending in the fiscal year that is 2 years prior to the current calendar year. The formula is as follows: (((Hospital NAH pass-through payment/Hospital Part A Inpatient Days) *(Hospital MA Inpatient Days)) divided by ((National NAH pass-through payment/National Part A Inpatient Days) * (National MA Inpatient Days))) * Current Year Payment Pool. With regard to determining the total national amounts for NAH pass- through payment, Part A inpatient days, and MA inpatient days, we note that section 1886(l) of the Act, as added by section 541 of the BBRA, gives the Secretary the discretion to ``estimate'' the national components of the formula noted previously. For example, section 1886(l)(2)(A) of the Act states that the Secretary shall estimate the ratio of payments for all hospitals for portions of cost reporting periods occurring in the year under section 1886(h)(3)(D) of the Act to total direct GME payments estimated for the same portions of periods under section 1886(h)(3) of the Act. Accordingly, we stated in the August 1, 2000, IFC (65 FR 47038) that each year, we would determine and publish in a final rule the total amount of nursing and allied health education payments made across all hospitals during the fiscal year 2 years prior to the current calendar year. We would use the best available cost reporting data for the applicable hospitals from the Hospital Cost Report Information System (HCRIS) for cost reporting periods in the fiscal year that is 2 years prior to the current calendar year. To calculate the pool, in accordance with section 1886(l) of the Act, we stated that we would ``estimate'' a total amount for each calendar year, not to exceed $60 million (65 FR 47038). To calculate the proportional reduction to Medicare+Choice (now MA) direct GME payments, we stated that the percentage is estimated by calculating the ratio of the Medicare+Choice nursing and allied health payment ``pool'' for the current calendar year to the projected total Medicare+Choice direct GME payments made across all hospitals for the current calendar year. We stated that the projections of Medicare+Choice direct GME and Part A direct GME payments are based on the best available cost report data from the HCRIS (for example, for CY 2000, the projections are based on the best available cost report data from FY 1998 HCRIS), and these payment amounts are increased using the increases allowed by section 1886(h) of the Act for these services (using the percentage applicable for the [[Page 36919]] current calendar year for Medicare+Choice direct GME and the Consumer Price Index (CPI-U) increases for Part A direct GME). We also stated that we would publish the applicable percentage reduction each year in the IPPS proposed and final rules (65 FR 47038). Thus, in the August 1, 2000, IFC, we described our policy regarding the timing and source of the national data components for the NAH Medicare+Choice (now MA) add-on payment and the percent reduction to the direct GME Medicare+Choice payments, and we stated that we would publish the rates for each calendar year in the IPPS proposed and final rules. While the rates for CY 2000 were published in the August 1, 2000, IFC (see 65 FR 47038 and 47039), the rates for subsequent CYs were only issued through Change Requests (CRs) (CR 2692, CR 11642, CR 12407). After recent issuance of the CY 2019 rates in CR 12407 on August 19, 2021, we reviewed our update procedures, and were reminded that the August 1, 2000, IFC states that we would publish the NAH Medicare+Choice (now MA) rates and direct GME percent reduction every year in the IPPS rules. Accordingly, for CY 2020 and CY 2021, we proposed and finalized the NAH MA add-on rates in the FY 2023 IPPS/LTCH PPS proposed and final rules. We stated that for CYs 2022 and after, we would similarly propose and finalize the respective NAH MA rates and direct GME percent reductions in subsequent IPPS/LTCH PPS rulemakings (see 87 FR 49073, August 10, 2022). In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18278 through 18280), we proposed the rates for CY 2024. Consistent with the use of HCRIS data for past calendar years, we proposed to use data from cost reports ending in FY 2022 HCRIS (the fiscal year that is 2 years prior to CY 2024) to compile these national amounts: NAH pass-through payment, Part A Inpatient Days, MA Inpatient Days. For the proposed rule, we accessed the FY 2022 HCRIS data from the fourth quarterly HCRIS update of 2024. However, to calculate the ``pool'' and the direct GME MA percent reduction, we ``projected'' Part A direct GME payments and MA direct GME payments for the current calendar year, which in the proposed rule and in this final rule is CY 2024, based on the ``best available cost report data from the HCRIS'' (65 FR 47038). Next, consistent with the method we described previously in the August 1, 2000, IFC, we increased these payment amounts from midpoint to midpoint of the appropriate calendar year using the increases allowed by section 1886(h) of the Act for these services (using the percentage applicable for the current calendar year for MA direct GME, and the Consumer Price Index-Urban (CPI-U) increases for Part A direct GME). For CY 2024, the direct GME projections are based on the fourth quarterly update of CY 2022 HCRIS, adjusted for the CPI-U and for increasing MA enrollment. For CY 2024, the proposed national rates and percentages, and their data sources, are set forth in this table. We stated in the proposed rule that we intended to update these numbers in the FY 2026 final rule based on the latest available cost report data. [GRAPHIC] [TIFF OMITTED] TR04AU25.244 Comment: We received a few comments in support of our proposed calculation of the NAH MA payment rates for CY 2024. Response: We thank the commenters for their support. For this final rule, consistent with the use of HCRIS data for past calendar years, for CY 2024, we use data from cost reports ending in FY 2022 HCRIS (the fiscal year that is 2 years prior to CY 2024) to compile these national amounts: NAH pass-through payment, Part A Inpatient Days, and MA Inpatient Days. For this final rule, we accessed the HCRIS data from the first quarterly update of 2025. However, to calculate the ``pool'' and the direct GME MA percent reduction, we ``project'' Part A direct GME payments and MA direct GME payments for the current calendar year, which in this final rule in CY 2024, based on the best available cost report data. Next, consistent with the method we described previously from the August 1, 2000 IFC, we increase these payment amounts from midpoint to midpoint of the appropriate calendar year using the increases allowed by section 1886(h) of the Act for these services (using the percentage applicable for the current calendar year for MA direct GME, and the Consumer Price Index-Urban (CPI-U) increases for Part A direct GME). For CY 2024, the direct GME projections are based on the first quarterly update of CY 2022 HCRIS, adjusted for the CPI-U and for increasing MA enrollment. For CY 2024, the final national rates and percentages, and their data sources, are set forth in this table. [GRAPHIC] [TIFF OMITTED] TR04AU25.245 [[Page 36920]]

3. Regulatory Changes Regarding the Calculation of Net Cost of NAH

Education Programs (42 CFR 413.85(d)(2)(i) and (ii)) In the January 12, 2001, final rule (66 FR 3358), we codified the payment regulations regarding NAH education program costs at 42 CFR 413.85. With regard to determining the net costs which are allowed for ``pass-through'' payment, 42 CFR 413.85(d)(2)(i) states that the net cost of approved educational activities is determined by deducting the revenues that a provider receives from tuition and student fees from the provider's total allowable educational costs that are directly related to approved educational activities. Section 413.85(d)(2)(ii) further states that a provider's total allowable educational costs are those costs incurred by the provider for trainee stipends, compensation of teachers, and other costs of the activities as determined under the Medicare cost-finding principles in Sec. 413.24. These costs do not include patient care costs, costs incurred by a related organization, or costs that constitute a redistribution of costs from an educational institution to a provider or costs that have been or are currently being provided through community support. Worksheet A of the Medicare cost report captures the direct costs associated with a hospital's various cost centers, including its NAH education programs. The direct costs associated with operating a hospital's approved NAH education programs are reported on Worksheet A, line 20 (nursing programs) and line 23 (paramedical/allied health education programs). The instructions to these lines state-- Lines 20 and 23--If you have an approved nursing or allied health education program that meets the criteria of 42 CFR 413.85(e), classroom and clinical portions of the costs may be allowable as pass- through costs as defined in 42 CFR 413.85(d)(2). . . . (CMS Pub. 15-2, section 4013) In addition to direct costs, hospitals also incur indirect or overhead costs associated with their operations. Overhead costs are assigned to the general service cost centers on lines 1 through 23 of Worksheet A, which are a hospital's non-patient care/non-revenue producing cost centers, and which include the Administrative & General (A&G) cost center on line 5. The general cost report instructions for Worksheet A state-- Lines 1 through 23--These lines are for the general service cost centers. These costs are expenses incurred in operating the facility as a whole that are not directly associated with furnishing patient care such as, but not limited to mortgage, rent, plant operations, administrative salaries, utilities, telephone charges, computer hardware and software costs, etc. General service cost centers furnish services to both general service areas and to other cost centers in the provider (emphasis added). Because the costs of operating a hospital's NAH education programs are not directly associated with furnishing patient care, these cost centers are also included among the general service cost centers on Worksheet A. As noted in the cost report instructions cited previously, general service cost centers may furnish services to other general service areas. Thus, for example, a hospital's Administrative and General cost center may furnish services to its Nursing and Allied Health Education cost centers. The regulations and cost report instructions require that, prior to allocating overhead costs to the revenue producing cost centers, a provider must make appropriate reclassifications and adjustments to its direct costs. Worksheet A-6 is used to reclassify costs between cost centers on the cost report, while Worksheet A-8 is used to adjust both a provider's revenue producing and non-revenue producing cost centers, and remove non-allowable costs. The cost report instructions for Worksheet A-8 state, in relevant part-- Types of adjustments entered on this worksheet include (1) those needed to adjust expenses to reflect actual expenses incurred; (2) those items which constitute recovery of expenses through sales, charges, fees, etc.; (3) those items needed to adjust expenses in accordance with the Medicare principles of reimbursement; and (4) those items which are provided for separately in the cost apportionment process (emphasis added). (CMS Pub. 15-2, section 4016.) Adjustments, including the recovery of expenses through various forms of revenue, occur prior to cost finding, which is the process by which indirect costs (that is, the costs of the general service cost centers) are allocated to other cost centers (both other general service cost centers and revenue producing cost centers). Worksheets B, Part I, and B-1 have been designed to accommodate the stepdown method of cost finding described at 42 CFR 413.24(d)(1). Certain other cost adjustments, referred to as post-stepdown adjustments, occur after the allocation of indirect and overhead costs and are reported separately on Worksheet B-2. On November 17, 2017, CMS issued Transmittal 12, which contained updates to the hospital cost report instructions at CMS-2552-10, Pub. 15-2, chapter 40. It added the following instructions to line 19 of Worksheet A-8: Line 19--For each NAHE program on Worksheet A, line 20, and its subscripts, and Worksheet A, line 23, and its subscripts, enter the revenue adjustments (for tuition, fees, books, etc.) to be applied against total allowable costs that are directly related to the approved NAHE activities. Subscript this line to separately report the revenue offset for each NAHE program reported on line 20 and line 23. (See CMS Pub. 15-1, chapter 4, Sec. 414, and 42 CFR 413.85(d)(2)(i).) Transmittal 12 also added to Worksheet B-2 specific instructions for post-stepdown adjustments for certain costs associated with NAHE non-provider-operated programs under 42 CFR 413.85(g)(2), with the following note: Note: Do not use this worksheet to reduce the total allowable costs that are directly related to the NAHE programs by the revenue received from tuition and student fees. Use Worksheet A-8 to offset NAHE program costs by tuition and student fees (42 CFR 413.85(d)(2)(i)). Do not use a post step-down adjustment. By issuing these cost report clarifications in Transmittal 12, CMS was clarifying the rules regarding ensuring the appropriate order of operations for allocations and post-stepdown adjustments of overhead to the NAH education pass-through cost centers. Specifically, Transmittal 12 made it clear that adjustments to the direct costs of NAH education programs as a result of revenue received from tuition, student fees and other sources should occur on Worksheet A-8, prior to the allocation of overhead costs, and not as post-stepdown adjustments on Worksheet B-2. On February 9, 2024, the U.S. District Court for the District of Columbia (DC) issued a decision involving five plaintiff hospitals (Mercy Health--St. Vincent Medical Center LLC d/b/a Mercy St. Vincent Medical Center, et al., v. Xavier Becerra, 717 F.Supp.3d 33 (D.D.C. 2024)). The providers disputed the order of operations for determining ``net costs'' under 42 CFR 413.85(d)(2)(i). The providers disagreed with the instructions in Transmittal 12, and argued that the offsets for revenue from tuition and student fees should be made after indirect costs are allocated, using Worksheet B-2, which follows the allocation of indirect costs on [[Page 36921]] Worksheet B, Part I. According to the providers, the regulations require that indirect costs be included as part of a provider's total allowable educational costs before tuition and student fees are offset, and the change to the cost reporting instructions in 2017 was a change in policy that conflicts with the regulations. The U.S. District Court for D.C. sided with the providers, arguing that the plain reading of the regulations text at 42 CFR 413.85(d)(2)(i) is consistent with the providers' interpretation of the order of operations, which is to allow direct and indirect costs to be summed, and tuition and fees to be subtracted from that sum. In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18280 through 18282), we stated that we disagree with the Court's ruling and asserted that the cost report instructions at PRM 15-2 sec. 4016 are clear that revenue that is a recovery of expenses should be offset via Worksheet A-8, prior to the allocation of indirect costs, and that these instructions are consistent with the regulations and Medicare cost reporting policy broadly. Nevertheless, to further clarify the regulations, we proposed to change the regulations text at 42 CFR 413.85(d)(2)(i) to state that the net cost of approved educational activities is determined as follows: Determine allowable direct costs incurred by the provider for trainee stipends and compensation of teachers employed by the provider. Subtract from allowable direct costs the revenues the provider receives from students or on behalf of students enrolled in the program, such as, but not limited to, tuition, student fees, or textbooks purchased for resale. Add indirect costs of the activities as determined under the Medicare cost-finding principles in 42 CFR 413.24, but limited to indirect costs that the provider itself incurs as a consequence of operating the approved educational activities. We noted that as a result of this proposal, we would be modifying and moving the first sentence of existing 42 CFR 413.85(d)(2)(ii), which defines a provider's total allowable educational costs as those costs incurred by the provider for trainee stipends, compensation of teachers, and other costs of the activities as determined under the Medicare cost-finding principles in Sec. 413.24, up to proposed 42 CFR 413.85(d)(2)(i). However, we did not propose to revise the portion of existing regulations text at 42 CFR 413.85(d)(2)(ii) which states that the direct and indirect allowable costs of educational activities do not include patient care costs, costs incurred by a related organization, or costs that constitute a redistribution of costs from an educational institution to a provider or costs that have been or are currently being provided through community support. The effective date of this proposed regulatory change would have been cost reporting periods beginning on or after October 1, 2025. We received many comments in opposition to our proposal to determine the net cost of approved nursing and allied health education programs by deducting tuition and other revenue from direct costs prior to the allocation of indirect costs. Commenters objected that the proposed policy is inconsistent with general cost-finding principles and would result in the NAH cost centers receiving less than their share of institutional overhead. We thank the commenters for their feedback. Due to the number and nature of the comments that we received, and after further consideration of this issue, we have decided not to finalize changes to our existing policy in this final rule. We expect to revisit the treatment of NAH education costs in future rulemaking and we encourage interested parties to submit comments on any proposed policy changes at that time.

H. Payment Adjustment for Certain Immunotherapy Cases (Sec. Sec.

412.85 and 412.312) Effective for FY 2021, we created MS-DRG 018 for cases that include procedures describing CAR T-cell therapies, which were reported using ICD-10-PCS procedure codes XW033C3 or XW043C3 (85 FR 58599 through 58600). Effective for FY 2022, we revised MS-DRG 018 to include cases that report the procedure codes for CAR T-cell and non-CAR T-cell therapies and other immunotherapies (86 FR 44798 through 448106). Effective for FY 2021, we modified our relative weight methodology for MS-DRG 018 to develop a relative weight that is reflective of the typical costs of providing CAR T-cell therapies relative to other IPPS services. Specifically, under our finalized policy we do not include claims determined to be clinical trial claims that group to MS-DRG 018 when calculating the average cost for MS-DRG 018 that is used to calculate the relative weight for this MS-DRG, with the additional refinements that: (a) when the CAR T-cell therapy product is purchased in the usual manner, but the case involves a clinical trial of a different product, the claim will be included when calculating the average cost for MS DRG 018 to the extent such claims can be identified in the historical data; and (b) when there is expanded access use of immunotherapy, these cases will not be included when calculating the average cost for MS-DRG 018 to the extent such claims can be identified in the historical data (85 FR 58600). The term ``expanded access'' (sometimes called ``compassionate use'') is a potential pathway for a patient with a serious or immediately life-threatening disease or condition to gain access to an investigational medical product (drug, biologic, or medical device) for treatment outside of clinical trials when, among other criteria, there is no comparable or satisfactory alternative therapy to diagnose, monitor, or treat the disease or condition (21 CFR 312.305).\164\ --------------------------------------------------------------------------- \164\ https://www.fda.gov/news-events/expanded-access/expanded-access-keywords-definitions-and-resources. --------------------------------------------------------------------------- Effective FY 2021, we also finalized an adjustment to the payment amount for applicable clinical trial and expanded access immunotherapy cases that group to MS-DRG 018 using the same methodology that we used to adjust the case count for purposes of the relative weight calculations (85 FR 58842 through 58844). (As previously noted, effective beginning FY 2022, we revised MS-DRG 018 to include cases that report the procedure codes for CAR T-cell and non-CAR T-cell therapies and other immunotherapies (86 FR 44798 through 448106).) Specifically, under our finalized policy we apply a payment adjustment to claims that group to MS-DRG 018 and include ICD-10-CM diagnosis code Z00.6, with the modification that when the CAR T-cell, non-CAR T-cell, or other immunotherapy product is purchased in the usual manner, but the case involves a clinical trial of a different product, the payment adjustment will not be applied in calculating the payment for the case. We also finalized that when there is expanded access use of immunotherapy, the payment adjustment will be applied in calculating the payment for the case. This payment adjustment is codified at 42 CFR 412.85 (for operating IPPS payments) and 412.312 (for capital IPPS payments), for claims appropriately containing Z00.6, as described previously, and reflects that the adjustment is also applied for cases involving expanded access use immunotherapy, and that the payment adjustment only applies to applicable clinical trial cases; that is, the adjustment is not applicable to cases where the CAR T-cell, non-CAR T-cell, or other immunotherapy product is [[Page 36922]] purchased in the usual manner, but the case involves a clinical trial of a different product. The regulations at 42 CFR 412.85(c) also specify that the adjustment factor will reflect the average cost for cases to be assigned to MS-DRG 018 that involve expanded access use of immunotherapy or are part of an applicable clinical trial to the average cost for cases to be assigned to MS-DRG 018 that do not involve expanded access use of immunotherapy and are not part of a clinical trial (85 FR 58844). For FY 2026, we proposed to continue to apply an adjustment to the payment amount for expanded access use of immunotherapy and applicable clinical trial cases that group to MS-DRG 018, calculated using the same methodology, as modified in the FY 2024 IPPS/LTCH PPS final rule (88 FR 59062), that we proposed to use to adjust the case count for purposes of the relative weight calculations, including our proposed modifications to that methodology for FY 2026, as described in section II.D. of the preamble of this final rule. As discussed in the FY 2024 IPPS/LTCH PPS final rule, the MedPAR claims data now includes a field that identifies whether or not the claim includes expanded access use of immunotherapy. For the FY 2023 MedPAR data and for subsequent years, this field identifies whether or not the claim includes condition code 90. The MedPAR files now also include information for claims with the payer-only condition code ``ZC'', which is used by the IPPS Pricer to identify a case where the CAR T-cell, non-CAR T-cell, or other immunotherapy product is purchased in the usual manner, but the case involves a clinical trial of a different product so that the payment adjustment is not applied in calculating the payment for the case (for example, see Change Request 11879, available at https://www.cms.gov/files/document/r10571cp.pdf). We refer the readers to section II.D. of this final rule for further discussion of our methodology for identifying clinical trial claims and expanded access use claims in MS-DRG 018 and our methodology used to adjust the case count for purposes of the relative weight calculations, as modified in the FY 2024 IPPS/LTCH PPS final rule, and as further proposed to be modified for FY 2026 to identify other claims for which the immunotherapy product was not purchased in the usual manner, such as obtained at no cost. In the FY 2025 IPPS/LTCH PPS final rule, we summarized a comment requesting that CMS establish a mechanism for hospitals to report when a product is not purchased in the usual manner, such as obtained at no cost, for reasons other than participation in a clinical trial or expanded access use (89 FR 69112). We indicated we may consider this request in future rulemaking. We agree that the same adjustment that applies to expanded access use of immunotherapy and applicable clinical trial cases should apply to other cases where the immunotherapy product is not purchased in the usual manner, such as obtained at no cost, and therefore proposed that, beginning in FY 2026, the payment adjustment would also be applied in calculating the payment for such cases. We intend to issue billing instructions in separate guidance that would allow a provider to indicate, for that case, that the immunotherapy product was not purchased in the usual manner so that MACs would apply the same adjustment to the payment amount that is applied for expanded access use of immunotherapy and applicable clinical trial cases that group to MS-DRG 018. We also proposed to modify our regulations at 42 CFR 412.85 (for operating IPPS payments) and 412.312 (for capital IPPS payments) to codify this proposed payment adjustment for other cases where the immunotherapy product is not purchased in the usual manner, such as obtained at no cost. Specifically, we proposed to modify the section heading and paragraphs (b) and (c) at 42 CFR 412.85 to include other cases where the immunotherapy product is not purchased in the usual manner, such as obtained at no cost, and to make additional technical revisions to paragraph (c). We also proposed to modify paragraph (f) at 42 CFR 412.312 to include cases where the immunotherapy product is not purchased in the usual manner, such as obtained at no cost. We also refer readers to section II.D. of the preamble of this final rule for further discussion of our proposed and finalized changes to our methodology for calculating the relative weight for MS-DRG 018 to identify other cases where the immunotherapy product is not purchased in the usual manner, such as obtained at no cost and to adjust the case count for purposes of the relative weight calculations. Using the same methodology that we proposed to use to adjust the case count for purposes of the relative weight calculations, including our proposed modifications as discussed in section II.D. of the preamble of this final rule, we proposed to calculate the adjustment to the payment amount for expanded access use of immunotherapy, applicable clinical trial cases, and other cases where the immunotherapy product is not purchased in the usual manner, such as obtained at no cost as follows: Calculate the average cost for cases assigned to MS-DRG 018 that (a) contain ICD-10-CM diagnosis code Z00.6 and do not contain condition code ``ZC'', (b) contain condition code ``90'', or (c) contain standardized drug charges below the median standardized drug charge of clinical trial cases in MS-DRG 018. Calculate the average cost for all other cases assigned to MS-DRG 018. Calculate an adjustor by dividing the average cost calculated in step 1 by the average cost calculated in step 2. Apply this adjustor when calculating payments for expanded access use of immunotherapy, applicable clinical trial cases, and other cases where the immunotherapy product is not purchased in the usual manner, such as obtained at no cost, that group to MS-DRG 018 by multiplying the relative weight for MS-DRG 018 by the adjustor. We refer the readers to section II.D. of the preamble of this final rule for further discussion of our methodology. Consistent with our calculation of the proposed adjustor for the relative weight calculations, for the proposed rule we proposed to calculate this adjustor based on the December 2024 update of the FY 2024 MedPAR file for purposes of establishing the FY 2026 payment amount. Specifically, in accordance with proposed revised 42 CFR 412.85 (for operating IPPS payments) and 412.312 (for capital IPPS payments), we proposed to multiply the FY 2026 relative weight for MS-DRG 018 by a proposed adjustor of 0.23 as part of the calculation of the payment for claims determined to be applicable clinical trial claims, expanded access use immunotherapy claims, or other cases where the immunotherapy product is not purchased in the usual manner, such as obtained at no cost, that group to MS-DRG 018, which includes CAR T-cell and non-CAR T-cell therapies and other immunotherapies. We also proposed to update the value of the adjustor based on more recent data for the final rule. We did not receive any comments specifically relating to the proposed payment adjustment for applicable clinical trial cases, expanded access use immunotherapy cases, and other cases where the immunotherapy product is not purchased in the usual manner, such as obtained at no cost, and are therefore finalizing our proposal without modification. We are also finalizing our proposed modifications to our regulations at 42 CFR 412.85 and [[Page 36923]] 412.312 to codify this payment adjustment for other cases where the immunotherapy product is not purchased in the usual manner, such as obtained at no cost, without modification. We are also finalizing our proposal to update the value of this adjustor based on more recent data for this final rule. Therefore, using the March 2025 update of the FY 2024 MedPAR data, we are finalizing an adjustor of 0.16 for FY 2026, which will be multiplied by the final FY 2026 relative weight for MS- DRG 018 as part of the calculation of the payment for claims determined to be applicable clinical trial cases, expanded use access immunotherapy claims, and other cases where the immunotherapy product is not purchased in the usual manner, such as obtained at no cost, that group to MS-DRG 018.

1. Regulatory Background

Section 1886(q) of the Act sets forth the requirements of the Hospital Readmissions Reduction Program effective for discharges from applicable hospitals beginning on or after October 1, 2012. Under the Hospital Readmissions Reduction Program, payments to applicable hospitals must be reduced to account for certain excess readmissions. We refer readers to the FY 2016 IPPS/LTCH PPS final rule (80 FR 49530 through 49543) and the FY 2018 IPPS/LTCH PPS final rule (82 FR 38221 through 38240) for a general overview of the Hospital Readmissions Reduction Program. We also refer readers to 42 CFR 412.152 through 412.154 for codified Hospital Readmissions Reduction Program requirements.

2. Hospital Readmissions Reduction Program Measures

a. Integration of Medicare Advantage (MA) Beneficiaries Into the Cohorts of the Hospital Readmissions Reduction Program Measure Set Beginning With the FY 2027 Program Year (1) Background In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18283 through 18286), we proposed to adopt substantive updates to the Hospital 30- Day, All-Cause, Risk-Standardized Readmission Rate (RSRR) Following Acute Myocardial Infarction (AMI) Hospitalization; Hospital 30-Day, All-Cause, RSRR Following Heart Failure (HF) Hospitalization; Hospital 30-Day, All-Cause, RSRR Following Pneumonia (PN) Hospitalization; Hospital-Level, 30-Day, All-Cause, RSRR Following Chronic Obstructive Pulmonary Disease (COPD) Hospitalization; Hospital 30-Day, All-Cause, RSRR Following Total Hip Arthroplasty (THA) and Total Knee Arthroplasty (TKA) Hospitalization; and Hospital 30-Day, All-Cause, RSRR Following Coronary Artery Bypass Graft (CABG) Surgery measures, hereinafter referred to as the Hospital Readmissions Reduction Program measure set, beginning with the FY 2027 Program Year. The proposed updates to the Hospital Readmissions Reduction Program measure set would include integrating MA beneficiaries into each measure's cohorts and reducing the applicable period from a three-year period to a two-year period. In addition, we proposed to make a non-substantive modification; we would update the risk adjustment model to use individual International Classification of Diseases (ICD)-10 codes instead of Hierarchical Condition Categories (HCCs). For the purposes of describing the substantive change of the Hospital Readmissions Reduction Program measure set, we note that ``cohort'' is defined as the hospitalizations, or ``index admissions,'' that are included when calculating each measure. This cohort is the set of hospitalizations that meet all the inclusion and exclusion criteria. For measure cohort details of the most recent versions of the Hospital Readmissions Reduction Program measure set, we refer readers to the measure methodology report and measure risk adjustment statistical model on our website at: https://qualitynet.cms.gov/inpatient/measures/readmission/methodology. Including MA beneficiaries in hospital outcome measures would help ensure that hospital quality would be measured across all Medicare beneficiaries and not just the Fee-For-Service (FFS) population. In 2024, 50 percent of eligible Medicare beneficiaries--or 34.3 million people--were covered by MA plans.\165\ It is projected that nearly two- thirds of all Medicare enrollees will be enrolled in MA plans by 2030.\166\ Consequently, using FFS-only beneficiaries may exclude a large segment of the focus population for quality measurement. --------------------------------------------------------------------------- \165\ Centers for Medicaid & Medicare Services. Medicare Enrollment for September 2024 (Accessed on February 5, 2025). Available at: https://data.cms.gov/tools/medicare-enrollment-dashboard. \166\ Hale J, Hong N, Hopkins B, et al. (2024) Health Insurance Coverage Projections for the US Population and Sources of Coverage, by Age, 2024-34. Health Affairs. 43(7); 922-932. https://doi.org/10.1377/hlthaff.2024.00460. --------------------------------------------------------------------------- Additionally, studies comparing readmission rates between MA and FFS-only have shown mixed results. While several studies report lower readmissions for MA enrollees,167 168 others have found no difference or even higher risk-adjusted readmission rates for certain conditions.169 170 Due to these differing research study conclusions, adding the MA cohort to the Hospital Readmissions Reduction Program measures would allow for a more robust and holistic view of quality of care provided to all Medicare beneficiaries.\171\ Most importantly, the FFS and MA data in our hospital outcome measures would empower patients and caregivers to make informed decisions about their healthcare by giving them additional comparative data on hospitals. --------------------------------------------------------------------------- \167\ Jacobs PD, Basu J. Medicare Advantage and Post discharge Quality: Evidence From Hospital Readmissions. American Journal of Managed Care, 2020;26(12):524-529. Available at: https://www.ajmc.com/view/medicare-advantage-and-postdischarge-quality-evidence-from-hospital-readmissions. \168\ Huckfeldt PJ, Escarce JJ, Rabideau B, et al. Less Intense Postacute Care, Better Outcomes for Enrollees in Medicare Advantage Than Those in Fee-For-Service. Health Affairs. 2017;26(1):91-100. https://doi.org/10.1377/hlthaff.2016.1027. \169\ Yayac MF, Harrer SL, Janiec DA, et al. Costs and Outcomes of Medicare Advantage and Traditional Medicare Beneficiaries After Total Hip and Knee Arthroplasty. Journal of American Academy of Orthopedic Surgeons. 2020;28(20):e910-e916. https://doi.org/10.5435/JAAOS-D-19-00609. \170\ Henke RM, Karaca Z, Gibson TB, et al. Medicare Advantage and Traditional Medicare Hospitalization Intensity and Readmissions. Medical Care Research and Review. 2018;75(4):434-453. https://doi.org/10.1177%2F1077558717692103. \171\ Panagiotou OA, Kumar A, Gutman R, et al. Hospital Readmission Rates in Medicare Advantage and Traditional Medicare: A Retrospective Population-Based Analysis. Annals of Internal Medicine. 2019;171(2):99-106. https://doi.org/10.7326/M18-1795. --------------------------------------------------------------------------- (2) Overview of Measure Updates We refer readers to the CMS Measures Inventory Tool and Hospital Readmissions Reduction Program readmission measures specification manuals for more information on the Hospital Readmissions Reduction Program measure set, including background on each measure and a complete summary of measure specifications.172 173 --------------------------------------------------------------------------- \172\ CMS Measures Inventory Tool. Available at: https://cmit.cms.gov/cmit/#. \173\ CMS Quality Net. Available at: https://qualitynet.cms.gov/inpatient/measures/readmission/methodology. --------------------------------------------------------------------------- We proposed to adopt updates to the Hospital Readmissions Reduction Program measure set in the Hospital Readmissions Reduction Program beginning with the FY 2027 program year. The newly refined versions of the Hospital Readmissions Reduction [[Page 36924]] Program measure set would expand the measures' inclusion criteria to include MA beneficiaries. Currently, the measure denominator for the Hospital Readmissions Reduction Program measure set includes beneficiaries ``Enrolled in Medicare FFS Part A and Part B for the first 12 months prior to the date of admission and enrolled in Part A during the index admission.'' \174\ We proposed to modify the measure cohort to ``Enrolled in Medicare FFS and/or MA for the 12 months prior to the date of admission; and enrolled in FFS or MA during the index admission.'' \175\ The addition of MA data to the measure doubles the cohort size and more accurately reflects the quality of care for both FFS and MA beneficiaries. --------------------------------------------------------------------------- \174\ CMS Measures Inventory Tool. Available at: https://cmit.cms.gov/cmit/#. \175\ 2024 Measures Under Consideration List. Available at: https://mmshub.cms.gov/2024/2024-11/2024-measures-under-consideration-list-now-available. --------------------------------------------------------------------------- We are also providing a non-substantive update which would re- specify the risk model for each measure to primarily use individual ICD-10 codes, leveraging the specificity of individual ICD-10 coding in place of the previously used HCCs. This technical update would improve the performance of the risk adjustment models for condition- and procedure-specific mortality and complication measures.\176\ We refer readers to QualityNet for more on the list of ICD-10 codes used in the risk adjustment model, available at: https://qualitynet.cms.gov/inpatient/measures/readmission/resources.\177\ --------------------------------------------------------------------------- \176\ Krumholz HM, Coppi AC, Warner F, et al. Comparative effectiveness of new approaches to improve mortality risk models from Medicare claims data. JAMA Network Open. 2019;2(7):e197314- e197314 Available at: https://pmc.ncbi.nlm.nih.gov/articles/PMC6647547/. \177\ In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18284), we referred readers to the CMS Measures Management System, available at: https://mmshub.cms.gov/measure-lifecycle/measure-implementation/pre-rulemaking/lists-and-reports/2024-MUC-List-materials for the list of ICD-10 codes used. Subsequently, we issued a correction notice, available at 90 FR 23867. --------------------------------------------------------------------------- (3) Pre-Rulemaking Process and Measure Endorsement (a) Recommendation From the PRMR Process We refer readers to the FY 2025 IPPS/LTCH PPS final rule (89 FR 69457 through 69458) for details on the Pre-Rulemaking Measure Review (PRMR) process, including the voting procedures that the PRMR process uses to reach consensus on measure recommendations. The PRMR Hospital Committee, comprised of the PRMR Hospital Advisory Group and PRMR Hospital Recommendation Group, reviewed the proposed updated versions of the Hospital Readmissions Reduction Program measure set. Consensus is reached when there is 75 percent or higher agreement among members of a committee.\178\ The PRMR Hospital Recommendation Group reviewed the proposed updated Hospital Readmissions Reduction Program measure set specifications (MUC2024-030, MUC2024-032, MUC2024-040, MUC2024-041, MUC2024-045, MUC2024-046) during a meeting on January 16, 2025, to vote on a recommendation about use of these measures for the Hospital Readmissions Reduction Program.\179\ --------------------------------------------------------------------------- \178\ Battelle--Partnership for Quality Measurement. (February 2025). Guidebook of Policies and Procedures for Pre-Rulemaking Measure Review (PRMR) and Measure Set Review (MSR). Available at: https://p4qm.org/sites/default/files/2024-12/Final-Draft-Multi-Stakeholder-Group-Guidebook-of-Policies-and-Procedures.pdf. \179\ Battelle--Partnership for Quality Measurement. (February 2025). PRMR 2024 MUC Recommendations Spreadsheet Final. Available at: https://p4qm.org/PRMR/Resources. --------------------------------------------------------------------------- The PRMR Hospital Recommendation Group reached consensus for each of the measures. For each measure, they voted to recommend the addition of MA data to each measure, with conditions.\180\ --------------------------------------------------------------------------- \180\ Battelle--Partnership for Quality Measurement. (February 2025). PRMR 2024 MUC Recommendations Spreadsheet Final. Available at: https://p4qm.org/media/3891. --------------------------------------------------------------------------- The voting results of the PRMR Hospital Recommendation Group for the proposed updates to the Hospital 30-Day, All-Cause, RSRR Following AMI Hospitalization measure were: 18 members of the group recommended adopting the updates without conditions; 9 members recommended adoption with conditions; and 0 members voted not to recommend the updates for adoption. Taken together, 100 percent of the votes were between ``recommend'' and ``recommend with conditions.'' Thus, the committee reached consensus and recommended with conditions the updates to the Hospital 30-Day, All-Cause, RSRR Following AMI Hospitalization measure. The voting results of the PRMR Hospital Recommendation Group for the proposed updates to the Hospital 30-Day, All-Cause, RSRR Following HF Hospitalization measure were: 17 members of the group recommended adopting the updates without conditions; 10 members recommended adoption with conditions; and 0 members voted not to recommend the updates for adoption. Taken together, 100 percent of the votes were between ``recommend'' and ``recommend with conditions.'' Thus, the committee reached consensus and recommended with conditions the updates to the Hospital 30-Day, All-Cause, RSRR Following HF Hospitalization measure. The voting results of the PRMR Hospital Recommendation Group for the proposed updates to the Hospital-Level, 30-Day, All-Cause, RSRR Following COPD Hospitalization measure were: 18 members of the group recommended adopting the updates without conditions; 9 members recommended adoption with conditions; and 0 members voted not to recommend the updates for adoption. Taken together, 100 percent of the votes were between ``recommend'' and ``recommend with conditions.'' Thus, the committee reached consensus and recommended with conditions the updates to the Hospital-Level, 30-Day, All-Cause, RSRR Following COPD Hospitalization measure. The voting results of the PRMR Hospital Recommendation Group for the proposed updates to the Hospital 30-Day, All-Cause, RSRR Following THA and/or TKA Hospitalization measure were: 19 members of the group recommended adopting the updates without conditions; 7 members recommended adoption with conditions; and 1 member voted not to recommend the updates for adoption. Taken together, 96 percent of the votes were between ``recommend'' and ``recommend with conditions.'' Thus, the committee reached consensus and recommended with conditions the updates to the Hospital 30-Day, All-Cause, RSRR Following THA and/ or TKA Hospitalization measure. The voting results of the PRMR Hospital Recommendation Group for the proposed updates to the Hospital 30-Day, All-Cause, RSRR Following PN Hospitalization measure were: 17 members of the group recommended adopting the updates without conditions; 10 members recommended adoption with conditions; and 0 members voted not to recommend the updates for adoption. Taken together, 100 percent of the votes were between ``recommend'' and ``recommend with conditions.'' Thus, the committee reached consensus and recommended with conditions the updates to the Hospital 30-Day, All-Cause, RSRR Following PN Hospitalization measure. The voting results of the PRMR Hospital Recommendation Group for the proposed updates to the Hospital 30-Day, All-Cause, RSRR Following CABG Surgery measure were: 19 members of the group recommended adopting the updates without conditions; 8 members [[Page 36925]] recommended adoption with conditions; and 0 members voted not to recommend the updates for adoption. Taken together, 100 percent of the votes were between ``recommend'' and ``recommend with conditions.'' Thus, the committee reached consensus and recommended with conditions the updates to the Hospital 30-Day, All-Cause, RSRR Following CABG Surgery measure. The measure set was discussed as a group during the Hospital Recommendation Group meeting, with committee members providing recommendations that spanned across measures. The conditions submitted included: revising the inclusion criteria to include care provided in ambulatory settings; stratification of measure data by MA and FFS; consideration of a shorter 7- or 14-day readmission time period; and conducting additional testing to evaluate whether the measure is topped out for all subgroups reporting. After taking these conditions into account, we proposed to adopt the updated Hospital Readmissions Reduction Program measure set in the Hospital Readmissions Reduction Program. We note that the conditions were not specific to the addition of MA data into the measures but addressed the measures in totality. Therefore, we will review the applicability of stratifying the measures by MA or FFS data and provide that information through the confidential feedback reports for hospitals. We will also evaluate a shorter 7- or 14-day readmission time period and review the criteria to include care provided in ambulatory settings and its applicability to each measure. We continue to review each measure's topped out status through our internal measure evaluation reports. (b) Measure Endorsement We refer readers to FY 2025 IPPS/LTCH PPS final rule (89 FR 69457 through 69458) for details on the endorsement and maintenance (E&M) process including the procedures the CBE's E&M Committees use to evaluate measures and whether they meet endorsement criteria. The currently implemented version of these measures in the Hospital Readmissions Reduction Program were previously evaluated and endorsed by the CBE.\181\ The proposed updated measures that include MA beneficiaries in the patient cohorts will each be considered for future endorsement. --------------------------------------------------------------------------- \181\ Hospital 30-Day, All-Cause, RSRR Following PN Hospitalization (CBE #0506), Hospital 30-Day, All-Cause, RSRR Following HF Hospitalization (CBE #0330), Hospital 30-Day, All- Cause, RSRR Following THA and/or TKA Hospitalization (CBE #1551), Hospital 30-Day, All-Cause, RSRR Following CABG Surgery (CBE #2515), Hospital-Level, 30-Day, All-Cause, RSRR Following COPD Hospitalization (CBE #1891), and Hospital 30-Day, All-Cause, RSRR Following AMI Hospitalization (CBE #0505) can all be found at https://cmit.cms.gov/cmit/#/MeasureInventory. --------------------------------------------------------------------------- (4) Data Submission and Reporting The proposed updated Hospital Readmissions Reduction Program measure set would use index admission diagnoses and in-hospital comorbidity data from Medicare FFS Part A, hospital-submitted MA claims, and MAO-submitted encounter data. Additional comorbidities prior to the index admission are assessed using Part A and Part B Medicare claims and/or MA encounters in the 12 months prior to index (initial) admission. A patient's Medicare FFS or MA enrollment status would be obtained from the Medicare enrollment data which contains beneficiary demographic, benefit/coverage, and vital status information. We proposed to use claims and encounter data with admission dates beginning from July 1, 2023, through June 30, 2025, which is associated with the FY 2027 program year. By using CMS administrative data, hospitals would not be required to submit additional data for calculating the measures. If these measure updates are finalized, we would continue to publicly report readmission rates by posting the readmission measure results for the applicable conditions for a fiscal year for each applicable hospital on the Compare tool or successor website(s), currently available at https://www.medicare.gov/care-compare/, and on the Provider Data Catalog, available at https://data.cms.gov/provider-data/, as codified at Sec. 412.154(f). We invited public comment on this proposal. Comment: Many commenters supported the inclusion of MA beneficiaries into the Hospital Readmissions Reduction Program measure set stating that inclusion would result in a fairer, more representative evaluation of hospital performance; improve data accuracy and timeliness; and align with broader initiatives in value- based care. Commenters stated that this inclusion enhances representativeness and fairness by creating a more comprehensive view of the Medicare population since MA beneficiaries comprise a growing share of Medicare beneficiaries. A commenter supported the inclusion because the PRMR Hospital Committee reviewed and supported these changes. Response: We thank these commenters for their support. Comment: A few commenters recommended that CMS stratify performance results by payer type, which would allow comparison of performance between MA and FFS populations. A commenter stated that stratification by payer would allow analysis of the effects of MA plan design on readmissions rates. Some elements of MA plan design cited by the commenter were a limited post-acute care network, a limited specialty network, referral restrictions, and denials of post-acute care coverage. Response: We thank commenters for this recommendation. Consistent with the recommendation from the PRMR Hospital Recommendation Group, we intend to review the applicability of stratifying the measures by MA or FFS data. We note that stratifying the model by FFS and MA did not yield meaningful differences in performance, supporting the decision to model them together with an indicator variable. Finally, keeping FFS and MA patients together for purposes of this measure's calculation will keep the hospitals' total volume higher for more reliable measure scores. We would provide data regarding payer for hospitals to review through annual confidential feedback reports provided as part of participation in the Hospital Readmissions Reduction Program. Comment: A commenter supported inclusion of index admissions for MA beneficiaries in the measure cohorts but did not support stratifying by Medicare FFS and MA data. This commenter stated that the measures were not developed and have not been tested for reporting at the health plan level. Response: We understand the commenter's concern about potential stratification of measure results and will consider whether the lack of testing at the health plan level affects the applicability of stratifying the measures by MA or FFS data. We would only make data regarding payer available through the confidential feedback reports for hospitals. Any potential public reporting of stratified measure data would be through future notice-and-comment rulemaking. Comment: Several commenters expressed concern that MA plans do not follow the same readmission calculation methodologies and reimbursement policies as traditional Medicare. These commenters recommended requiring MA plans to adhere to traditional Medicare payment policies prior to incorporating index admissions for MA beneficiaries into the cohorts for Hospital Readmissions Reduction [[Page 36926]] Program measures. Commenters specifically expressed concern that MA plans bundle multiple admissions into one or refuse to pay for readmissions within defined windows which could result in hospitals being penalized for events related to MA plan policies. Some commenters requested clarification regarding whether admissions for which MA plans denied payments would be excluded as readmissions for the purposes of the Hospital Readmissions Reduction Program. Response: We acknowledge commenters concerns regarding readmission calculation methodologies and reimbursement policies differences between MA plans and traditional Medicare. However, adding MA beneficiaries into the cohorts of the Hospital Readmissions Reduction Program measure set will provide a more robust and holistic view of quality of care provided to all Medicare beneficiaries despite reimbursement differences. For measure calculation, we identify index admissions and subsequent admissions (that is, readmissions) for patients enrolled in MA plans using MA encounter data and information- only claims for MA inpatient stays. We note that neither of these data sources are dependent on the MA plan's coverage determinations (including bundling or denying coverage) for that admission. Therefore, the measures would continue to encourage hospitals to focus on preventing readmissions, which are often an adverse event for patients and impose a financial burden on the patient and the healthcare system. Because an increasing portion of Medicare beneficiaries are covered by MA plans, including index admissions for these patients in our measure cohorts is an important step in ensuring high-quality, safe care for all Medicare beneficiaries. Including index admissions for Medicare beneficiaries enrolled in MA also increases the cohort size for the Hospital Readmissions Reduction Program measures, which in turn improves the measures' precision for each hospital. Due to the benefits of improving accuracy and reliability of the measures, we do not think it is appropriate to exclude any readmissions for which MA plans may have denied payment for the readmission if the administrative data reflect that a readmission occurred. Comment: A few commenters recommended the development of separate or modified quality measures designed specifically for MA's capitated payment model. Response: While separate quality measures designed specifically for MA's capitated payment model could be possible, the Hospital Readmissions Reduction Program is designed to encourage hospitals to improve communication and care coordination to better engage patients and caregivers in discharge plans and, in turn, reduce avoidable readmissions. As previously stated, adding the MA cohort to the Hospital Readmissions Reduction Program measures would provide a more robust and holistic view of quality of care provided to all Medicare beneficiaries. Therefore, we find the addition of the MA cohort to the Hospital Readmissions Reduction Program measures to further the Hospital Readmissions Reduction Program goals. Comment: A few commenters requested that CMS clarify whether readmissions data regarding MA beneficiaries would be based on shadow claims that hospitals submit to CMS or whether the MA plan would be responsible for reporting readmissions. Response: For determining readmissions for the Hospital Readmissions Reduction Program, we would evaluate the detailed data regarding enrollee health care encounters that MA plans are already required to submit to CMS as well as the information-only claims that hospitals submit (that is, ``shadow claims''). We would use index admission diagnoses from Medicare FFS Part A claims and MA encounter data as well as data from hospital inpatient information-only claims, outpatient and physician Medicare FFS claims (information-only claims), and MA encounter data from the 12 months prior to the index admission to identify comorbidities for risk adjustments. We would use the MA encounter data, information-only claims, and Medicare Part A claims to identify index admissions and applicable readmissions such that neither hospitals nor MA plans would be required to submit any additional data for this cohort expansion. Comment: Many commenters expressed concern that MA encounter data are neither as complete nor as reliable as FFS claims, which they stated could affect the fairness and accuracy of Hospital Readmissions Reduction Program performance assessments. Some commenters expressed concern that basing performance calculations on data which could be incomplete or unreliable could cause financial or reputational harm to hospitals. Some commenters noted that MedPAC and the Government Accountability Office (GAO) have found that variations in coding practices, historical discrepancies, and a lack of data validation have impacted the completeness and reliability of MA encounter data. Some commenters also stated that under the current Health Effectiveness Data and Information Set (HEDIS) data submission requirements, MA plans are not obligated to report all hospital readmissions, only those for which they have approved payment, which could potentially undercount readmissions for index admissions for beneficiaries enrolled in MA plans. Response: We refer readers to the Announcement of Calendar Year (CY) 2022 Medicare Advantage (MA) Capitation Rates and Part C and Part D Payment Policies where CMS discussed the efforts undertaken to improve the completeness and validity of encounter data, and transitioned to calculating 100 percent of the risk score using diagnoses from encounter data and FFS (see discussion in Attachment III, Sections G and M of this Announcement). We respectfully disagree that the level of completeness of the MA data presents a significant issue with regard to measure reliability. We have been evaluating the MA data for use in quality measurement since 2017, and we note recent CMS policies have aimed to improve timeliness, completeness, and accuracy of MA data, thereby further enhancing its usability for hospital outcome measures.182 183 Hospital-submitted MA claims data are currently already in use for DSH and GME payment calculations and Medicare Advantage Organization (MAO)-submitted encounter data are currently already in use for calculating MA beneficiary risk scores.\184\ In calculating both the Hybrid Hospital- Wide All-Cause Readmission and Hybrid Hospital-Wide All-Cause Risk Standardized Mortality measures in the Hospital Inpatient Quality Reporting Program, we specify that for each MA admission, we would use either the hospital-submitted MA claim or the [[Page 36927]] MAO-submitted MA encounter data record, whichever is available. If the MA admission information for a patient is available in both sources, we would use the hospital-submitted MA claim because it is timelier and already associated with the applicable hospital's CMS Certification Number (CCN). --------------------------------------------------------------------------- \182\ Centers for Medicare & Medicaid Services. Calendar Year (CY) 2024 Advance Notice of Methodological Changes for Medicare Advantage (MA) Capitation Rates and Part C and Part D Payment Policies (the Advance Notice). Accessed March 5, 2023. Available from: https://www.cms.gov/files/document/2024-advance-notice.pdf. \183\ Medicare Payment Advisory Commission. March 2022 report to the Congress: Medicare Payment Policy: The Medicare Advantage program: Status Report and mandated report on dual-eligible special needs plans. May 30, 2022. Available from: https://www.medpac.gov/wp-content/uploads/2022/03/Mar22_MedPAC_ReportToCongress_Ch12_SEC.pdf. \184\ Medicare monthly enrollment data available at: https://data.cms.gov/summary-statistics-on-beneficiary-enrollment/medicare-and-medicaid-reports/medicare-monthly-enrollment --------------------------------------------------------------------------- More generally, we have found that incorporating data regarding MA patients into the readmission measures improve reliability, narrow the confidence intervals of measure scores, and lead to more hospitals and beneficiaries being included in the measures. Based on internal analyses of MA data reported to CMS by hospitals and MAOs for the years 2017 through 2021, we determined that it is feasible to use MA admissions in CMS hospital outcome measures. Hospitals and MAOs submit the data on a schedule that allows for their use. National Provider Identifiers (NPIs) from inpatient MA encounter data in CMS' Integrated Data Repository (IDR) can be matched to CMS CCNs currently used to identify hospitals in the CMS outcome measures. A high percentage of MA encounter data were submitted within the three-month time frame needed for reporting hospital measures and has improved over time (90.3% in 2018 compared to 95.2% in 2021 for inpatient encounters for acute care and critical access hospitals). Our internal analysis found a high rate of matching diagnoses between the MAO-submitted MA encounter data and the hospital-submitted MA claims, supporting the use of either data source for a given admission for measure calculation As stated previously, the measures will capture readmissions from information- only hospital claims and/or MA encounter data regardless of whether the plan paid for them or reported (or not reported) them in other information sets, such as HEDIS. Generally, while HEDIS evaluates the quality of care at the population plan level where MA plans submit HEDIS-required data elements to evaluate quality across the enrolled population, the Hospital Readmissions Reduction Program uses fee-for-service claims, hospital-submitted MA claims or the MAO-submitted MA encounter records to calculate condition or procedure-specific hospital-level readmission rates to hold hospitals directly accountable for excess readmission rates. Essentially, HEDIS focuses on broad plan quality, while the Hospital Readmissions Reduction Program focuses on condition- and procedure-specific hospital outcomes at the facility-level. The fundamental difference is that HEDIS measures evaluate how well MA plans manage their members' overall health and care experience, while the Hospital Readmissions Reduction Program condition- and procedure- specific measures evaluate how well individual hospitals prevent unnecessary readmissions after discharge. Comment: Many commenters expressed concern about the proposal, stating that MA beneficiaries experience different benefit designs, network restrictions, utilization management requirements, and prior authorization practices than beneficiaries covered under Medicare FFS. Some commenters were also concerned that MA plan policies may affect readmissions, leading to higher readmission rates, due to policies such as restrictive formularies, denials or delays in home care services, or limited specialist access. Commenters stated that this could cause hospitals to be penalized for delays or denials that originate in MA plan policies rather than from substandard hospital care. Response: We recognize that Medicare Advantage payment policies are not the same as Medicare FFS payment policies, and by design, MAOs are given more flexibility in benefit and provider reimbursement design. However, from a patient's perspective, a readmission is an adverse outcome irrespective of benefit or payment policies. It is important to measure and provide transparency as to readmission rates for all Medicare beneficiaries. Using data from calendar year (CY) 2022 to 2023, internal analyses showed no statistical difference in the average risk-standardized readmission rates (RSRR) across the condition- and procedure-specific measures for the FFS-only and MA-only patients. While we understand that MA enrollees are subject to different benefits design and payment approaches than FFS enrollees, we do not agree that these differences mean that their clinical outcomes are beyond the hospital's control. We continue to encourage hospitals to work closely with insurers, including MA plans, to coordinate the highest quality care for their patients. Comment: Some commenters requested that CMS communicate any shifts in benchmarks, distributions, or penalty thresholds that result from the inclusion of MA data. A few commenters also requested analysis of the impact of including index admissions for beneficiaries enrolled in MA plans in the measure cohort on hospital reimbursement, including identification of regional and local trends. Response: We note that there is no baseline or benchmark period under the Hospital Readmissions Reduction Program. We will continue to use excess readmission ratios (ERRs) to assess a hospital's excess readmissions during the applicable period for each of the conditions or procedures included in the program. The ERR is a measure of a hospital's relative performance compared with an average hospital with a patient case mix similar to that hospital's (that is, if patients with the same characteristics had been treated at an average hospital, rather than at that hospital). Additionally, under the peer grouping methodology as required by section 1886(q)(3)(D) of the Act, we assess hospitals' performance relative to other hospitals with a similar proportion of stays for beneficiaries who are dually eligible for Medicare and full Medicaid benefits during the applicable period. Under the peer grouping methodology, we use the peer group median ERR (that is, the median ERR within a peer group) as the threshold to assess hospital performance on each measure. We will continue to communicate information on peer groups and peer group median ERRs during the Review and Correction period. Comment: Some commenters expressed concern that inclusion of index admissions for MA beneficiaries in the measure cohort would disproportionately affect hospitals in regions with high MA adoption rates. Response: Table VI.K-02 of this final rule displays a comparison of hospital performance under the proposed updates to performance under the current methodology. This table analyzes performance across a number of hospital characteristics, including geographic region. The table shows that the number of penalized hospitals increases moderately (up to 7 percentage points) among all regions, with the exception of hospitals in the West South Central and Mountain regions. Additionally, although the penalty as a share of payments, which indicates the estimated financial impact on hospitals, increases for hospitals in the Middle Atlantic, East North Central, West North Central, and Pacific regions, no region is disproportionately impacted by the addition of MA beneficiaries in the measure cohort. With respect to the concern that this update would disproportionately affect hospitals in regions with high MA adoption rates, we note that MA beneficiaries comprise a majority of Medicare enrollees (51.2 percent as of [[Page 36928]] March 2025 \185\) and that hospitals are responsible for providing high quality care to all their patients, regardless of payer. We continue to encourage hospitals to work closely with insurers, including MA plans, to coordinate the highest quality care for their patients. By adding the MA cohort to the Hospital Readmissions Reduction Program measures we would provide a more robust and holistic view of quality of care provided to all Medicare beneficiaries. We note that our analysis of the mean risk-standardized readmission rates (RSRRs) using calendar years (CYs) 2022 and 2023, the rates are similar between FFS-only and MA-only patients for most conditions and procedures. The largest difference was 0.5 percentage points for performance both on the Hospital 30-Day, All-Cause, RSRR Following CABG Surgery measure and the Hospital 30-Day, All-Cause, RSRR Following HF Hospitalization measure (the results were statistically significant at the 0.05 level).\186\ --------------------------------------------------------------------------- \185\ Medicare monthly enrollment data available at: https://data.coms.gov/summary-statistics-on-beneficiary-enrollment/medicare-and-medicaid-reports//medicare-monthly-enrollment. \186\ CMS internal analysis. February 2025. --------------------------------------------------------------------------- Comment: A commenter requested clarification on when baseline reports including the MA patient cohort data will be distributed. Response: We assume the commenter is referring to baseline reports such as are used in the Hospital VBP Program and note that the Hospital Readmissions Reduction Program does not use baseline reports. For the Hospital Readmissions Reduction Program, hospitals will receive annual confidential feedback reports that include details such as a hospital's payment reduction percentage, payment adjustment factors, dual proportion, peer group assignment, measure results, ratio of base operating DRG payments per measure to total payments, national readmission rates, detailed discharge-level data, and risk factor information for the readmission measures, and a flag to indicate whether the index admission data originated from FFS or MA. Comment: A few commenters requested CMS clarify how risk adjustment methodologies will be adapted to account for differences in MA populations and ensure that hospitals are not unfairly penalized. Response: The risk adjustment for each readmission measure in the Hospital Readmissions Reduction Program is based on patient comorbidities as identified through an analysis of the admission diagnoses and in-hospital comorbidity data as well as clinical data (currently assessed from Medicare Part A and Part B claims) for the 12 months prior to the index admission. Under this updated measure cohort, we would also include MA encounter data for the index admission and the 12 months prior to the index admission to identify clinical risk factors to risk adjust the measures. Internal analyses showed that stratification of the model by FFS and MA did not yield meaningful differences in risk profiles. And as previously discussed, we saw similar readmission rates between FFS-only and MA-only patients for most conditions and procedures. Therefore, the clinical variables for risk adjustment were identified through an analysis of a combined MA and FFS cohort.\187\ This cohort was approximately evenly split between FFS and MA beneficiaries, and the prevalence of clinical risk factors and their associations with readmission outcomes were similar across both groups. The final models also included an indicator for MA versus FFS enrollment to adjust for any potential residual case-mix differences between the two beneficiary groups. --------------------------------------------------------------------------- \187\ 2024 Condition- and Procedure-Specific Readmission Measures Supplemental Methodology Report (available at: https://qualitynet.cms.gov/inpatient/measures/readmission/methodology). --------------------------------------------------------------------------- Comment: A commenter expressed concern that the URL provided in the proposed rule for the CMS Measures Management System does not actually display the list of applicable ICD-10 codes used in the risk adjustment model. The commenter requested that CMS clearly identify the location or provide a document containing those ICD-10 codes so that stakeholders may verify the standards underlying risk adjustment. Response: The commenter is correct that the cited website did not display the list of applicable ICD-10 codes used in the risk adjustment model. We subsequently issued a correction notice to correctly refer readers to the QualityNet website for a crosswalk between ICD-10 codes and condition categories used for risk adjustment (90 FR 23867). This crosswalk is available at: https://qualitynet.cms.gov/inpatient/measures/readmission/resources. Comment: A few commenters stated that adding MA beneficiaries to the Hospital Readmissions Reduction Program would likely increase administrative burden on hospitals. Some commenters stated that the incorporation of MA data would require significant updates to reporting systems, staff training, and potentially new infrastructure, thereby diverting resources from direct patient care. Response: These measures will continue to be calculated using administrative data already reported to CMS by hospitals and MA plans. Therefore, we do not agree that hospitals would be required to invest in reporting systems, staff training, or new infrastructure. In addition, we note that MA plans have been using hospital readmission measures and hospitals have been preparing for the addition of MA data to several Hospital IQR Program measures, including the Hybrid Hospital-Wide All-Cause Readmission and Hybrid Hospital-Wide All-Cause Risk Standardized Mortality measures (88 FR 59161 through 59168) and the Thirty-day Risk-Standardized Death Rate among Surgical Inpatients with Complications measure (89 FR 69545 through 69552). Comment: Many commenters recommended a phased implementation approach with a confidential review period during which hospitals could assess the data's accuracy and understand its impact on performance. Some commenters further requested that CMS release detailed, provider[hyphen]level data and analyses before final adoption of the new methodology. A few commenters urged a phased rollout which initially integrates MA data in quality reporting programs (such as the Hospital IQR Program) rather than in pay-for-performance programs. A few commenters recommended that CMS establish stakeholder workgroups to harmonize definitions and reporting requirements across Medicare populations. Response: As discussed previously, several Hospital IQR Program measures have integrated MA data similar to our proposal for the Hospital Readmissions Reduction Program measure set. We are also finalizing the integration of MA data for the Hospital-level Risk- Standardized Complication Rate Following Elective Primary Total Hip Arthroplasty and/or Total Knee Arthroplasty measure in the Hospital IQR and Hospital VBP programs, as discussed in section X.C.3.b and VI.L.2.a., respectively, of the preamble of this final rule. We note that restricting the measure cohort to only include index admissions for patients covered by Medicare FFS does not incentivize hospitals to improve care-coordination for Medicare beneficiaries enrolled in MA plans. Expanding the measure cohort to include index admissions for this patient population will enable us to address this, and encourage high-quality, safe care for all Medicare beneficiaries regardless of [[Page 36929]] payer. Therefore, we believe it is appropriate to include these index admissions in the measure cohort as early as technically feasible. We will continue to monitor and evaluate the effects of including these data in the cohorts for the Hospital Readmissions Reduction Program measures. We welcome continued input on harmonizing definitions and reporting requirements to ensure that our quality programs serve the largest number of patients possible. Comment: A few commenters supported CMS's technical update to transition from Hierarchical Condition Categories (HCCs) to International Classification of Diseases (ICD)-10 codes, stating that this would reduce incentives for upcoding and improve comparisons. Another commenter stated that the transition would increase precision and clinical relevance, particularly for high[hyphen]variability conditions, as well as promote more accurate modeling and benchmarking, potentially allowing for better differentiation between hospitals serving complex and socially vulnerable patient populations. Response: We thank commenters for their support. Comment: A commenter expressed concern that removing key clinical risk adjustment covariates from the Excess Readmission Ratio (ERR) calculation would unfairly penalize hospitals that serve complex and vulnerable populations. The commenter recommended retaining the current clinical risk adjustment until Z-codes and comprehensive social risk data are available to avoid unwarranted penalties. A commenter noted that the projected increase in aggregate penalties may signal that the program thresholds are too stringent or not sufficiently adjusted for social risk. Response: We note that the technical update does not remove risk adjustment for the ERRs, rather the update transitions to the more specific ICD-10-CM codes as opposed to the grouped HCC. This risk adjustment continues to be based on patient-level comorbidities as identified through an analysis of the admission diagnoses and in- hospital comorbidity data as well as clinical data for the 12 months prior to the index admission. The Hospital Readmissions Reduction Program is intended to encourage high-quality, safe care for all Medicare beneficiaries, and beginning in FY 2019, CMS used the peer grouping methodology to evaluate a hospital's performance by assessing hospitals' performance relative to the performance of other hospitals with a similar proportion of stays for beneficiaries who are dually eligible for Medicare and full Medicaid benefits. Our analysis of the estimated impact of adding MA data to the readmission measures, shortening the performance period to two years, the technical updates to the measures, and adding MA data to the aggregate payments for each condition/procedure and all discharges indicated that, while those changes are likely to increase payment reductions, the addition of MA data to the aggregate payments for each condition/procedure and all discharges is the largest driver of payment reduction increases. Refer to section VI.K.3.b.(1) for more detailed information about our analysis. Comment: Several commenters raised concerns about CMS's technical update to base the risk adjustment model directly on individual ICD-10- CM diagnosis codes instead of on HCC[hyphen]based variables for the measures in the Hospital Readmissions Reduction Program. Some commenters stated that this is inconsistent with CMS's continued use of HCC models for some payment models. Some commenters expressed concern that the transition to ICD-10-CM diagnosis codes could result in unintended changes in reported outcomes, particularly for smaller, rural, or safety net hospitals. Some commenters urged CMS either to postpone the switch to an ICD-10-based model or to implement a transition period during which both HCC and ICD[hyphen]10-based risk models are reported to monitor impact. Some commenters requested that CMS conduct clinical validations and implement rigorous testing and consistent application of risk adjustment methodology across all programs to ensure transparency and comparability. A commenter further advised caution and transparency in model development, recommending that CMS clearly document the rationale and process for ICD-10 code selection and grouping. Response: We note that individual ICD-10 codes are more specific than HCCs. By re-specifying the risk models for each measure with individual ICD-10 codes, we improve the performance of the risk adjustment models for our condition- and procedure-specific measures. We understand that some payment models continue to use HCC models to calculate payments and note that because different programs are focused on achieving different elements of our priorities, it is sometimes appropriate to use different methods of calculating risk. We note that we conduct annual measure re-evaluations to ensure that the risk- standardized complication model is continually assessed and remains valid, given possible changes in clinical practice and coding standards over time.\188\ Modifications made to the measure cohort, risk model, and outcomes are informed by review of the most recent literature related to measure conditions or outcomes, feedback from various stakeholders, empirical analyses, and assessment of coding trends that reveal shifts in clinical practice or billing patterns.\189\ Input is solicited from a workgroup composed of up to 20 clinical and measure experts, inclusive of internal and external consultants and subcontractors. As a part of annual re-evaluations, one of the activities we undertook was reviewing select pre-existing ICD-10 code- based specifications with our workgroup to confirm appropriateness unaffected by the updates, as well as review any potentially clinically relevant codes that ``neighbor'' existing codes used in the measure to identify any warranted specification changes.\190\ As a part of our routine monitoring and evaluation, we will watch for any unintended consequences from this updated risk model. --------------------------------------------------------------------------- \188\ Centers for Medicare & Medicaid Services. 2025 Condition- Specific Readmission Measures Updates and Specifications Reports. Available at: https://qualitynet.cms.gov/inpatient/measures/readmission/methodology. \189\ Ibid. \190\ Ibid. --------------------------------------------------------------------------- After consideration of the public comments we received, we are finalizing our proposal to integrate Medicare Advantage (MA) beneficiaries into the cohorts of the Hospital Readmissions Reduction Program measure set beginning with the FY 2027 program year as proposed. b. Technical Updates to the Specifications of the Hospital Readmissions Reduction Program Measures Beginning With the FY 2027 Program Year During the COVID-19 public health emergency (PHE), in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45256 through 45258), we updated the Hospital 30-Day All-Cause RSRR Following AMI Hospitalization; Hospital 30-Day, All-Cause, RSRR Following CABG Surgery; Hospital-Level, 30-Day, All-Cause, RSRR Following COPD Hospitalization; Hospital 30-Day, All- Cause, RSRR Following HF Hospitalization; and Hospital 30-Day, All- Cause, RSRR Following THA and/or TKA Hospitalization measures to exclude patients diagnosed with COVID-19, including a primary or secondary diagnosis present on admission (POA) of COVID-19, from both index [[Page 36930]] admissions and readmissions (86 FR 45257 through 45258). In the FY 2023 IPPS/LTCH PPS final rule, we provided an update regarding the technical specifications for the Hospital 30-Day, All-Cause, RSRR Following PN Hospitalization measure to exclude patients with either principal or secondary diagnosis POA of COVID-19 from both index admissions and readmissions (87 FR 49083 through 49086). Additionally, in the FY 2023 IPPS/LTCH PPS final rule, we modified the technical measure specifications of each of the six readmission measures to include a covariate adjustment for patient history of COVID-19 in the 12 months prior to the admission beginning with the FY 2023 program year (87 FR 49086 through 49088). We stated that we were making these updates pursuant to the technical updates policy we finalized in the FY 2015 IPPS/LTCH PPS final rule. Under this policy, we finalized a subregulatory process to incorporate technical measure specification updates into the measure specifications we had previously adopted for the Hospital Readmissions Reduction Program (79 FR 50039). We reiterated this policy in the FY 2020 IPPS/LTCH PPS final rule, stating our continued belief that the subregulatory process is the most expeditious manner possible to ensure that quality measures remain fully up to date while preserving the public's ability to comment on updates that so fundamentally change a measure that it is no longer the same measure that we originally adopted (84 FR 42385 through 42387). We are providing notice in this final rule that we intend to remove the COVID-19 exclusion from the readmission measures beginning with the FY 2027 program year. This technical update will modify these readmission measures to remove the exclusion of COVID-19 diagnosed patients from the index admissions and readmissions, including the removal of the exclusion of certain ICD-10 Codes that represented patients with a secondary diagnosis of COVID-19, and the history of COVID-19 risk variable. The exclusion began as a response to the COVID-19 PHE which expired May 11, 2023. We believe that hospitals have had adequate time to adjust to the presence of COVID-19 as an ongoing virus. Using data from the last four years, July 2020-June 2024, our internal analysis showed a decline over time of the number of patients excluded from the various measure cohorts. Therefore, we believe that removing the exclusion of COVID-19 patients will ensure that these readmission measures continue to account for readmissions as intended and meet the goals of the Hospital Readmissions Reduction Program. Additional resources about current measure technical specifications and the methodology for the Hospital Technical specification of the current readmission measures are provided at our website in the Measure Methodology Reports (available at: https://qualitynet.cms.gov/inpatient/measures/readmission/methodology). Hospital Readmissions Reduction Program resources are located at the Resources web page of the QualityNet website (available at: https://qualitynet.cms.gov/inpatient/hrrp/resources). An updated measure methodology report will be made available in May 2026. While we are not required to solicit comments for technical updates, we received public comment on this proposed update. Comment: Many commenters supported the technical update to remove COVID-19 exclusions from the Hospital Readmissions Reduction Program measure set as part of the transition from a public health emergency to managing COVID-19 as an endemic risk. A commenter stated that eliminating the exclusion of COVID-19 diagnosed patients from index admissions and readmissions will reflect a more accurate depiction of all Medicare patients, improve data collection, and therefore measure hospitals more accurately and fairly. In addition, a commenter noted that the removal of these exclusions will incentivize hospitals to implement robust infection prevention strategies and ensure that care for all Medicare patients is measured consistently. Response: We thank commenters for their support. Comment: Several commenters emphasized the need for careful risk adjustment given the potential long-term clinical effects of COVID-19. Commenters noted that patients with prior COVID-19 exposure may experience persistent complications that could influence post-acute outcomes and readmission rates and recommended that CMS update its risk adjustment models to account for the long-term clinical effects of COVID-19 to avoid penalizing hospitals that care for a higher proportion of post COVID patients. A commenter recommended that CMS continue to closely monitor the data to ensure that the removal of this exclusion accurately reflects hospital performance, and that hospitals are not being penalized due to variation in local disease spread. Another commenter recommended incorporating COVID-19 on the co- condition list for risk adjustment stratification. Response: We thank commenters for their recommendations. As a part of our routine monitoring and evaluation, we will watch for any unintended consequences from this updated risk model. We note that we conduct annual measure re-evaluations to ensure that the risk- standardized complication model is continually assessed and remains valid, given possible changes in clinical practice and coding standards over time.\191\ --------------------------------------------------------------------------- \191\ Centers for Medicare & Medicaid Services. 2025 Condition- Specific Readmission Measures Updates and Specifications Reports. Available at: https://qualitynet.cms.gov/inpatient/measures/readmission/methodology. --------------------------------------------------------------------------- Comment: A few commenters recommended that CMS provide a phased implementation approach to ensure data integrity and support hospitals in adapting to the COVID-19 exclusion removal. A few commenters recommended that the phased implementation contain one to two reporting cycles of data for internal review, delay public reporting of measures that include COVID-19 as a secondary diagnosis, and exclude these measures from the Hospital Readmissions Reduction Program during the initial reporting periods to avoid financial implications. Response: We do not believe that delaying technical updates to the measures will help meet the goals the commenters specify--that is, ensuring that accurate and reliable data are scored under the Hospital Readmissions Reduction Program. Rather, including COVID-19 patients provides a broader view of the care that hospitals provide to Medicare beneficiaries. Hospitals will also have the chance to review their measure data during the 30-day review and correction period each year prior to application of payment adjustments and public reporting. Comment: A commenter did not support the technical update to remove COVID-19 exclusions from the Hospital Readmissions Reduction Program measure set because clinical and operational impacts of COVID-19 continue to affect hospital performance; patients with COVID-19 often present with complex conditions, extended lengths of stay, and increased risk of complications; added cases may lead to skewed performance data, especially for those hospitals that serve a disproportionate share of medically complex or underserved populations; and the health care system is still contending with the long-term effects of COVID-19 on workforce capacity, patient outcomes, and systemic [[Page 36931]] challenges with access to post-acute care. Response: We appreciate the commenter's concerns. However, while hospitals and other types of health care facilities may face continuing challenges due to the long-term effects of the COVID-19 pandemic, we do not agree that these challenges represent such a significant threat to health care operations that patients with a principal or secondary COVID-19 diagnosis should be excluded from these measures' cohorts. Based on data from July 2021 to June 2024, internal analyses for the Hospital Readmissions Reduction Program measure set showed a small percentage of patients, ranging in cases from 0.15 percent for THA/TKA and 2.5 percent for PN met the COVID-19 exclusion criteria. Please note that some of these cases could also have been excluded for other reasons besides the COVID-19 exclusion. More importantly, such patients, as with all patients treated by hospitals, should receive the best quality care from their providers, and incorporating them into quality measures represents the best way for us to incentivize high- quality care for all. Rather than unfairly penalizing hospitals, including patients with a principal or secondary diagnosis of COVID-19 will encourage them to provide the best care to a broader patient population. We appreciate commenters' input on our technical update to remove the COVID-19 exclusion from the readmission measures beginning with the FY 2027 program year.

3. Additional Policies for the Hospital Readmissions Reduction Program

a. Modification of the Applicable Period for the Hospital Readmissions Reduction Program Measures Set In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18286), we proposed to modify the definition of ``applicable period'' as specified at Sec. 412.152. Currently, the ``applicable period'' is the 3-year period from which data are being collected to calculate excess readmission ratios (ERRs) and payment adjustment factors for the fiscal year; this includes aggregate payments for excess readmissions and aggregate payments for all discharges used in the calculation of the payment adjustment. In the FY 2013 IPPS/LTCH PPS final rule, we noted that the 3-year period provided an increase in the number of cases per hospital used for measure calculation, which improved the precision of each hospital's readmission estimate (77 FR 53379 through 53382). The ``applicable period for dual eligibility'' is the same as the ``applicable period'' that we otherwise adopted for purposes of the Hospital Readmissions Reduction Program. However, in the FY 2026 IPPS/LTCH PPS proposed rule we proposed to reduce the applicable period from 3 to 2 years (90 FR 18286). The proposed update would allow for more recent data when assessing performance. With the proposed inclusion of MA patients in the cohort, we assessed whether the reliability of the measures could reach a satisfactory level when the applicable period is shortened. In testing, all measures showed better between-hospital variance using the 2-year FFS and MA combined cohort as compared to the current measure specifications of a 3-year applicable period and the FFS-only cohort. Beginning in FY 2027, we proposed that the ``applicable period'' for the Hospital Readmissions Reduction Program would be the 2-year period beginning 1 year advanced from the previous program fiscal year's start of the ``applicable period.'' For example, for the FY 2027 program determination, claims/encounter data with admission dates beginning from July 1, 2023, through June 30, 2025, would be used. Under this policy, for all subsequent years, we would advance this 2-year period by 1 year unless otherwise specified by the Secretary, which we would revise through notice and comment rulemaking. Similarly, the ``applicable period for dual eligibility'' would continue to correspond to the ``applicable period'' for the Hospital Readmissions Reduction Program, unless otherwise specified by the Secretary. We invited public comment on this proposal. Comment: Many commenters supported the proposal to reduce the applicable period from three years to two years. Some commenters stated that a shorter window will ensure that hospital performance metrics reflect more current quality improvements and care practices while maintaining acceptable reliability. A few commenters also stated that a two[hyphen]year applicable period enables hospitals to implement more responsive and sustainable improvements, promoting more effective allocation of resources and ultimately supporting improved health outcomes. Additionally, a few commenters stated that the proposed update to shorten the applicable period, when considered with the inclusion of MA beneficiaries and enhanced risk adjustment based on individual ICD-10 codes, would improve the measures by creating a larger, more representative patient cohort with more recent, accurate, and actionable information. Response: We thank commenters for their support. Comment: A few commenters stated that decreasing the applicable period to two years may reduce the reliability of hospital comparisons and increase performance variability. A commenter recommended that CMS monitor the statistical reliability of this change for low-volume hospitals. Another commenter recommended a phased implementation or pilot evaluation of the impact on measurement validity for a 2-year applicable period. Response: We appreciate commenters' concerns and recommendations. We reiterate that reducing the applicable period to two years will continue to preserve reliability while ensuring that hospital performance metrics reflect more recent quality improvements and care practices. We note that prior to proposing to shorten the applicable period to 2 years, we assessed whether the reliability of the measures could reach a satisfactory level. In testing, all measures showed better between-hospital variance using the 2-year FFS and MA combined cohort as compared to the current measure specifications of a 3-year applicable period and the FFS-only cohort. The measure reliability remains robust despite the change from a 3-year period to a 2-year period for several key reasons. More low-volume hospitals meet the 25 or more criteria for reporting despite the reduction from 3 to 2 years of data due to the inclusion of MA admissions resulting in nearly doubling of the annual cohort size. The combined effect is a roughly one-third increase in overall hospital volume. Empirical comparisons of the 3-year FFS-only cohort (July 2021-June 2024 FFS data) and the 2- year FFS+MA cohort (CY 2022 and CY 2023) showed that the median hospital volume and number of hospitals included for public reporting were similar to or higher in the 2-year FFS+MA cohort, and median reliability scores improved for every measure except THA/TKA (for example, AMI (0.5589 for 2-year FFS+MA versus 0.4458 for 3-year FFS- only) and HF (0.5832 for 2-year FFS+MA versus 0.4914 for 3-year FFS- only)). Our analysis of THA/TKA procedures under the combined FFS+MA cohort did not demonstrate the anticipated volume increases. This outcome can be attributed to the ongoing migration of these procedures from inpatient to outpatient care settings, reflecting broader trends in healthcare delivery patterns. Given the evolving nature of care delivery for these procedures, we acknowledge uncertainty regarding [[Page 36932]] future volume trends and care setting distributions. The continued shift toward outpatient settings presents challenges for accurate volume projections and measure implementation. To ensure consistency across our quality measurement framework, the applicable period for TKA/THA measure with a 2-year applicable period ensures consistency and alignment with the program's measure set. However, we intend to monitor the effects of the applicable period length for hospitals, including for low-volume hospitals, and make any future refinements as needed. Comment: A commenter did not support the proposal to reduce the applicable period from 3 years to 2 years stating that this change, along with the addition of MA beneficiaries into the Hospital Readmissions Reduction Program measure set and the transition of the risk adjustment model from Hierarchical Condition Categories (HCCs) to individual ICD-10 codes, could increase hospitals' risk of incurring penalties. This commenter expressed concern that these proposals did not include adequate transparency, impact modeling, or data reliability safeguards. Response: Including MA beneficiaries and enhancing the risk adjustment based on individual ICD-10 codes would generate a broader, more representative patient population with more precise and actionable insights for both the public and providers. Because of the expanded cohort of index admissions, we can obtain the same or better measure precision with a shorter applicable period. We note that we performed impact modeling, as shown in Table VI.K-02. of the proposed rule (90 FR 18287 through 18288) and reprinted below in this final rule. Furthermore, as discussed above in response to concerns in the section that discusses the Modification of the Applicable Period for the Hospital Readmissions Reduction Program Measures Set, all measures displayed better between-hospital variance with the 2-year FFS+MA combined cohort compared to the current measure specifications of 3- year FFS-only cohort, more low-volume hospitals now meet the 25 or more criteria for reporting despite the shorter timeframe, MA inclusion nearly doubles the annual cohort size, resulting in roughly one-third increase in overall hospital volume despite the reduction from 3 to 2 years of data. CMS intends to monitor the effects of this change, particularly for low-volume hospitals, and will make refinements as needed. This represents a significant methodological improvement that maintains statistical reliability while providing more timely quality assessments by incorporating a broader patient population. After consideration of the public comments we received, we are finalizing our proposal to reduce the applicable period from 3 years to 2 years, as proposed. b. Identification of Aggregate Payments for Each Condition/Procedure and All Discharges for FY 2027 and Subsequent Years When calculating the numerator (aggregate payments for excess readmissions), we determine the base operating DRG payment amount for an individual hospital for the applicable period for each condition/ procedure using Medicare FFS inpatient claims from the MedPAR file with discharge dates that are within the applicable period. Under our established methodology, we use the update of the MedPAR file for each Federal fiscal year, which is updated 6 months after the end of each Federal fiscal year within the applicable period, as our data source. In identifying discharges for the applicable conditions/procedures to calculate the aggregate payments for excess readmissions, we apply the same exclusions to the claims in the MedPAR file as are applied in the measure methodology for each of the applicable conditions/ procedures. For example, for the FY 2025 applicable period, this included the discharge diagnoses for each applicable condition/ procedure based on the list of specific ICD-10-CM and ICD-10-PCS code sets, as applicable, for that condition/procedure, as specified in the 2024 version of the measure methodology reports.\192\ --------------------------------------------------------------------------- \192\ CMS Quality Net. Available at: https://qualitynet.cms.gov/inpatient/measures/readmission/methodology. --------------------------------------------------------------------------- In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18286 through 18288), we proposed to include payment data for Medicare FFS and MA beneficiaries that meet the criteria as previously described for each applicable condition/procedure to calculate the aggregate payments for excess readmissions. We would rely on the MedPAR and/or the latest available data source that would provide the most up-to-date comprehensive information on payment information for Medicare FFS and MA beneficiaries. This proposal resulted from our proposal to include MA beneficiaries in the Hospital Readmissions Reduction Program measure set cohorts. We noted that Sec. 412.152 defines the terms ``aggregate payments for excess readmissions'' and ``excess readmissions ratio'' (ERR) broadly enough to allow us to include MA beneficiaries in the calculation without requiring us to revise the regulatory definition. (1) Analysis of Estimated Impacts on Aggregate Payments In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18286 through 18288), to assess the expected impact on hospital payment adjustments resulting from the changes to the readmission measures, the ``applicable period'', and calculations for aggregate payments for excess readmissions, we estimated hospitals' payment adjustment factors using the proposed measures updates to include MA data, the proposed 2- year applicable period, and the proposed updates to the calculations for aggregate payments for each condition/procedure to include MA data. In the proposed rule, we showed the estimated total Medicare savings under the current payment adjustment factor calculations and the proposed payment adjustment factor calculations which would use a 2- year applicable period and include MA data in the ERR calculations and calculations for aggregate payments for each condition/procedure. Based on our analysis, the estimated average change in Medicare savings per hospital from the proposed updates was $15,579, with 1,424 hospitals having a greater penalty amount and 1,547 hospitals having the same or lower penalty amount. [[Page 36933]] [GRAPHIC] [TIFF OMITTED] TR04AU25.246 Our proposed rule analysis also assessed the impact of the proposed updates to the number of eligible hospitals, number and percentage of penalized hospitals, and penalties as a share of payments overall and by hospital characteristics. The first and fifth columns in Table VI.K- 02 of the proposed rule (90 FR 18287 through 18288) and reprinted in the table below indicate the total number of hospitals eligible for a penalty under the Hospital Readmissions Reduction Program. In FY 2025, approximately 3,000 subsection (d) hospitals were included in the Hospital Readmissions Reduction Program. Poorly performing hospitals included in the program may receive a penalty if they are non-Maryland subsection (d) hospitals with 25 or more eligible discharges for at least one measure during the applicable period. The second and sixth columns in the table indicated the total number of non-Maryland hospitals with available data for each characteristic that have an estimated payment adjustment factor less than 1 (that is, penalized hospitals). The third and seventh columns in the table indicated the estimated percentage of penalized hospitals among those eligible to receive a penalty by hospital characteristic. The fourth and eighth columns in the table estimated the financial impact on hospitals by hospital characteristic, referred to as the penalty as a share of payments. The penalty as a share of payments is calculated as the sum of penalties for all hospitals with that characteristic over the sum of all base operating DRG payments for those hospitals. For example, under the current methodology, the penalty as a share of payments for urban hospitals is 0.42 percent, and with the proposed updates, the penalty as a share of payments for urban hospitals is 0.46 percent. This means that total penalties for all urban hospitals is 0.42 percent of total payments for urban hospitals under the current methodology and 0.46 percent with the proposed updates. Measuring the financial impact on hospitals as a percentage of total base operating DRG payments accounts for differences in the amount of base operating DRG payments for hospitals with the characteristic when comparing the financial impact of the program on different groups of hospitals. BILLING CODE 4120-01-P [[Page 36934]] [GRAPHIC] [TIFF OMITTED] TR04AU25.247 [[Page 36935]] [GRAPHIC] [TIFF OMITTED] TR04AU25.248 [[Page 36936]] [GRAPHIC] [TIFF OMITTED] TR04AU25.249 [[Page 36937]] BILLING CODE 4120-01-C We invited public comment on this proposal. Comment: A few commenters expressed concerns over the use of hospital submitted information-only claims for MA patients in the MedPAR data to calculate aggregated payments for excess readmissions. These commenters stated that while some hospitals (such as teaching hospitals and safety net hospitals) are required to submit information- only claims for MA inpatient stays, other hospitals may not submit complete information-only claims. These commenters stated that this could introduce bias in the data used to calculate aggregate payments and urged CMS to only use data reported consistently across all hospitals in calculating aggregate payments. Response: We acknowledge that not all hospitals in the Hospital Readmissions Reduction Program use information-only claims for MA inpatient stays and not all types of hospitals are required to submit complete data on such information-only claims. Further, our analysis on 2023 data showed that approximately 94% of IPPS hospitals submitted information-only claims for MA inpatient stays.\193\ Due to this current state, we understand commenters' concern with our proposal to use the information-only claims to calculate aggregate payments for excess readmissions, potentially leading to some types of hospitals being more likely to be subject to increased penalties under the Hospital Readmissions Reduction Program than other hospital types. Due to this concern, we are not finalizing our proposal to include MA data in the calculations of aggregate payments for excess readmissions at this time. We will continue to evaluate the consistency of data reported across hospital types. --------------------------------------------------------------------------- \193\ CMS internal analysis of CY 2023 IPPS hospital FFS and information-only claims. --------------------------------------------------------------------------- Comment: Several commenters expressed concern that CMS has not clearly explained the proposed changes to the calculation of aggregate payments for excess readmissions. These commenters stated that the terminology used in the methodology is unclear and that CMS has not provided sufficient data for hospitals to accurately assess the impact of the proposed changes. A few of these commenters noted that hospitals would need access to MA encounter data to replicate the impact estimates. Response: We note that we are not finalizing the proposed changes to the calculation of aggregate payments for excess readmissions. However, we did provide sufficient data in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18286 through 18289) to allow hospitals to accurately assess the impact of the proposed changes by providing TABLE VI.K-01 and TABLE VI.K-02, along with relevant resources. In connection with the other program changes we are finalizing in this final rule, we present the newly estimated impacts to payments in TABLE VI.K-03 and TABLE VI.K-04 below along with relevant resources. Please refer to the program's payment reduction methodology on the CMS web page for additional information (https://qualitynet.cms.gov/inpatient/hrrp/methodology) and the payment reduction methodology infographic resource document (https://qualitynet.cms.gov/inpatient/hrrp/resources). If we revisit this policy in future rulemaking, we will consider ways to clarify our proposal and our intended data sources. Comment: Several commenters expressed concerns that blending MA and FFS data in DRG calculations may inflate penalty calculations due to differences in patient mix and utilization characteristics rather than hospital performance. Several commenters expressed concern that penalties would be impacted by MA plan coverage determinations rather than the quality of hospital care and recommended basing DRG ratio calculations exclusively on FFS data. Some commenters expressed concern that hospitals serving MA beneficiaries may experience two impacts to payments, one from the MA plans denial of coverage for a readmission and the second from an increased penalty in the Hospital Readmissions Reduction Program. Some commenters expressed concern that inclusion of index admissions for MA beneficiaries in DRG calculations would disproportionately affect hospitals located in regions with high MA adoption rates. A few commenters stated their belief that the inclusion of MA patients in the DRG ratio is inconsistent with the broader design of the program. Response: We note that MA beneficiaries comprise a growing share of Medicare enrollees and that hospitals are responsible for providing high quality care to all their patients, regardless of payer. Hospitals must work closely with insurers, including MA plans, to ensure high quality care for all their patients. By adding the MA cohort to the Hospital Readmissions Reduction Program measures we would provide a more robust and holistic view of quality of care provided to all Medicare beneficiaries. However, we note that we are not finalizing the proposed changes to the calculation of aggregate payments for excess readmissions. After consideration of the public comments we received, we are not finalizing our proposal to include MA data in the calculations of aggregate payments for excess readmissions, and instead we will continue to use Medicare FFS claims in the calculations of aggregate payments for excess readmissions and include MA data only in the ERR calculations. To assess the expected impact on hospital payment adjustments resulting from the changes to the readmission measures and the ``applicable period'' only and excluding the proposed updates to the calculations for aggregate payments, we have updated our estimation of hospitals' payment adjustment factors using the measures updates to include MA data and the 2-year applicable period. Later in this section we show the updated estimated total Medicare savings under the current payment adjustment factor calculations and the newly finalized payment adjustment factor calculations which use a 2-year applicable period and include MA data only in the ERR calculations. Based on our analysis, as shown in TABLE VI.K-03, the updated estimated average change in Medicare savings per hospital from the newly finalized updates is $2,265, with 1,305 hospitals having a greater penalty amount and 1,666 hospitals having the same or lower penalty amount. [[Page 36938]] [GRAPHIC] [TIFF OMITTED] TR04AU25.250 As shown in TABLE VI.K-04, our analysis also assesses the impact of the newly finalized updates to the number of eligible hospitals, number and percentage of penalized hospitals, and penalties as a share of payments overall and by hospital characteristics. The first and fifth columns in the below table indicate the total number of hospitals eligible for a penalty under the Hospital Readmissions Reduction Program. In FY 2025, approximately 3,000 subsection (d) hospitals were included in the Hospital Readmissions Reduction Program. Poorly performing hospitals included in the program may receive a penalty if they are non-Maryland subsection (d) hospitals with 25 or more eligible discharges for at least one measure during the applicable period. The second and sixth columns in the table indicate the total number of non- Maryland hospitals with available data for each characteristic that have an estimated payment adjustment factor less than 1 (that is, penalized hospitals). The third and seventh columns in the table indicate the estimated percentage of penalized hospitals among those eligible to receive a penalty by hospital characteristic. The fourth and eighth columns in the table estimate the financial impact on hospitals by hospital characteristic, referred to as the penalty as a share of payments. The penalty as a share of payments is calculated as the sum of penalties for all hospitals with that characteristic over the sum of all base operating DRG payments for those hospitals. For example, under the current methodology (FY 2025), the penalty as a share of payments for urban hospitals is 0.42 percent, and with the newly finalized updates, the penalty as a share of payments for urban hospitals is 0.41 percent. This means that total penalties for all urban hospitals is 0.42 percent of total payments for urban hospitals under the current methodology (FY 2025) and 0.41 percent with the finalized updates. Measuring the financial impact on hospitals as a percentage of total base operating DRG payments accounts for differences in the amount of base operating DRG payments for hospitals with the characteristic when comparing the financial impact of the program on different groups of hospitals. BILLING CODE 4120-01-P [[Page 36939]] [GRAPHIC] [TIFF OMITTED] TR04AU25.251 [[Page 36940]] [GRAPHIC] [TIFF OMITTED] TR04AU25.252 [[Page 36941]] [GRAPHIC] [TIFF OMITTED] TR04AU25.253 [[Page 36942]] BILLING CODE 4120-01-C c. Updates and Codification of the Extraordinary Circumstance Exception (ECE) Policy for the Hospital Readmissions Reduction Program (1) Background Under our current Extraordinary Circumstances Exception (ECE) regulations, we have granted exceptions to exclude data from Hospital Readmissions Reduction Program payment reduction calculations (FY 2016 IPPS/LTCH PPS final rule, 80 FR 49542 through 49543). An exception may be granted for extraordinary circumstances including, but not limited to, natural disasters or systemic problems with CMS data collection systems that directly affected the ability of facilities to submit data.\194\ We refer readers to the FY 2016 IPPS/LTCH PPS final rule (80 FR 49542 through 49544); FY 2018 IPPS/LTCH PPS final rule (82 FR 38239 through 38240), and FY 2022 IPPS/LTCH PPS final rule (86 FR 45260 through 45262) for further background and details of our ECE policy. We also refer readers to the QualityNet website for the specific requirements for submission of an ECE request in the Hospital Readmissions Reduction Program.\195\ Hospitals can request a CMS Quality Program ECE for multiple programs based on the same extraordinary circumstance using one ECE request form, including the Hospital Inpatient Quality Reporting (IQR) Program, the Hospital VBP Program, and the HAC Reduction Program. --------------------------------------------------------------------------- \194\ Centers for Medicare & Medicaid Services (CMS) Quality Program Extraordinary Circumstances Exceptions (ECE) Request Form. (2025). QualityNet. Available at: https://qualitynet.cms.gov/files/677e843f50ed8df7419f60e1?filename=HQR_ECE_Req_Form_CY_2025.pdf. \195\ CMS QualityNet. Available at: https://qualitynet.cms.gov/inpatient/hrrp/participation#tab2. --------------------------------------------------------------------------- Our ECE policy provides flexibility for Hospital Readmissions Reduction Program participants to ensure continuity of quality care delivery and measure reporting in the event of an extraordinary circumstance. For instance, we recognize that, in circumstances where an exclusion of data from the calculation of a hospital's payment reduction for the applicable period is not applicable, it is beneficial for a hospital to submit data for use in payment reduction calculations later than the Hospital Readmissions Reduction Program data submission deadline. Delayed data submission for use in payment reduction calculations authorized under the ECE policy would allow temporary relief for a hospital experiencing an extraordinary circumstance while preserving data reporting such as transparency and informed decision- making for beneficiaries and providers alike. Accordingly, in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18289), we proposed to update our regulations to specify that an ECE could take the form of an extension of time for a hospital to comply with a data reporting requirement if CMS determines that this type of relief would be appropriate under the circumstances. (2) Updates and Codification of the Extraordinary Circumstances Exception (ECE) Policy for the Hospital Readmissions Reduction Program In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18289), we proposed to update and codify our ECE policy at 42 CFR 412.154(d) to include extensions of time as a form of relief and to further clarify the policy. Specifically, at Sec. 412.154(d)(1), we proposed that CMS may grant an ECE with respect to reporting requirements in the event of an extraordinary circumstance--defined as an event beyond the control of a hospital (for example a natural or man-made disaster such as a hurricane, tornado, earthquake, terrorist attack, or bombing)--that affected the ability of the hospital to comply with one or more applicable reporting requirements with respect to a fiscal year. We proposed that the process for requesting or granting an ECE would remain the same as the current ECE process, detailed by CMS at the QualityNet website or a successor website.\196\ At Sec. 412.154(d)(2)(i), we proposed that a hospital may request an ECE within 30 calendar days of the date that the extraordinary circumstance occurred. Under this finalized policy, we clarify that CMS retains the authority to grant an ECE as a form of relief at any time after the extraordinary circumstance has occurred. At Sec. 412.154(d)(2)(ii), we proposed that CMS notify the requestor with a decision, in writing, via email. In the event that CMS grants an ECE to the hospital, the written decision will specify whether the hospital is exempted from one or more reporting requirements or whether CMS has granted the hospital an extension of time to comply with one or more reporting requirements. --------------------------------------------------------------------------- \196\ CMS QualityNet. Available at: https://qualitynet.cms.gov/inpatient/hrrp/participation#tab2. --------------------------------------------------------------------------- Additionally, at Sec. 412.154(d)(3), we proposed that CMS may grant an ECE to one or more hospitals that have not requested an ECE, if CMS determines that: a systemic problem with CMS data collection system directly impacted the ability of the hospital to comply with a quality data reporting requirement; or that an extraordinary circumstance has affected an entire region or locale. As is the case under our current policy, any ECE granted will specify whether the affected hospitals are exempted from one or more reporting requirements or whether CMS has granted the hospitals an extension of time to comply with one or more reporting requirements. This ECE policy will provide further reporting flexibility for hospitals and clarify the ECE process for participants of the Hospital Readmissions Reduction Program. We refer readers to sections X.C.8., VI.L.5., VI.M.3.b., and X.D.4. in this final rule for similar updates to the ECE policy in the Hospital IQR Program, Hospital VBP Program, HAC Reduction Program, and PCHQR Program, respectively. We invited public comment on our proposals. We received many general comments regarding our ECE related proposals. We did not receive any comments specific to these updates for the Hospital Readmissions Reduction Program. For our responses to general comments we refer readers to our responses in the Hospital IQR Program section of this final rule (section X.C.8). As stated in section X.C.8 of this final rule in response to commenter concerns regarding the proposed 30-day deadline, we recognize that hospitals may not have the ability to assess the impact on quality data submissions and complete the necessary paperwork within 30 days of the extraordinary circumstance. Due to concerns regarding hospitals' ability to complete the ECE request within 30 days of the extraordinary circumstance and a commenter suggestion to increase to a 60-day deadline, we are modifying the timeframe to allow for 60 days to submit an ECE request. We believe this timeframe will provide sufficient time for hospitals to assess the impact on quality reporting without disrupting operational and care needs. After consideration of the public comments we received, we are finalizing our proposals as proposed, except for the proposed 30-day deadline. In lieu of the 30-day deadline, we are finalizing an ECE request deadline of 60 days following an extraordinary circumstance. We are making conforming amendments to our regulation text at Sec. 412.154(d)(2)(i) to reflect this policy change. [[Page 36943]]

1. Background

a. Overview For background on the Hospital VBP Program, we refer readers to the CMS website at: https://www.cms.gov/medicare/quality/initiatives/hospital-quality-initiative/hospital-value-based-purchasing. We also refer readers to our codified requirements for the Hospital VBP Program at 42 CFR 412.160 through 412.168. b. FY 2026 Program Year Payment Details Under section 1886(o)(7)(C)(v) of the Act, the applicable percent for the FY 2026 program year is 2.00 percent. Using the methodology we adopted in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53571 through 53573), we estimated in the proposed rule (90 FR 18289) that the total amount available for value-based incentive payments for FY 2026 is approximately $1.7 billion, based on the December 2024 update of the FY 2024 MedPAR file. As finalized in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53573 through 53576), we utilize a linear exchange function to translate this estimated amount available into a value-based incentive payment percentage for each hospital, based on its Total Performance Score (TPS). We are publishing proxy value-based incentive payment adjustment factors in Table 16 associated with this final rule (which is available via the internet on the CMS website). We note that these proxy adjustment factors will not be used to adjust hospital payments. These proxy value-based incentive payment adjustment factors were calculated using the proposed FY 2026 Hospital VBP program methodology and historical baseline and performance periods for the FY 2025 Hospital VBP Program and the SEP-1 measure. These proxy factors were calculated using the March 2025 update to the FY 2024 MedPAR file. The slope of the linear exchange function used to calculate these proxy factors was 4.5252441909, and the estimated amount available for value-based incentive payments to hospitals for FY 2026 remains approximately $1.7 billion. We stated our intent to include an update to this table, as Table 16A, with the FY 2026 IPPS/LTCH PPS final rule, to reflect changes based on the March 2025 update to the FY 2024 MedPAR file and the finalized FY 2026 Hospital VBP program methodology as discussed in section VI.L.6. of the preamble of this final rule. We will add Table 16B to display the actual value-based incentive payment adjustment factors, exchange function slope, and estimated amount available for the FY 2026 Hospital VBP Program. We expect that Table 16B will be posted on the CMS website in Fall 2025.

2. Hospital VBP Program Measures

a. Proposed Measure Updates to the Hospital-Level Risk-Standardized Complication Rate (RSCR) Following Elective Primary Total Hip Arthroplasty (THA) and/or Total Knee Arthroplasty (TKA) (1) Background In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18290 through 18291), we proposed to adopt substantive measure updates to the Hospital-level Risk-Standardized Complication Rate (RSCR) Following Elective Primary Total Hip Arthroplasty (THA) and/or Total Knee Arthroplasty (TKA) (hereinafter referred to as the COMP-HIP-KNEE measure), beginning with the FY 2033 program year. We proposed these updates contingent on our adopting the same updates to the COMP-HIP- KNEE measure for use in the Hospital IQR Program beginning with the FY 2027 payment determination, which we discuss further in section X.C. of the preamble of this final rule. We adopted the COMP-HIP-KNEE measure in the FY 2015 IPPS/LTCH PPS final rule beginning with the FY 2019 program year for use in the Hospital VBP Program (79 FR 50062 through 50063). We previously adopted substantive updates to the COMP-HIP-KNEE measure in the FY 2024 IPPS/ LTCH PPS final rule (88 FR 59067 through 59070) to include index admission diagnoses and in-hospital comorbidity data from Medicare Part A claims which expanded the measure outcome to include 26 additional mechanical complications as identified from 10th revision of the International Classification of Diseases (ICD-10) codes. We continue to consider the clinical outcomes of the COMP-HIP-KNEE measure a high priority, providing important data on patient safety and adverse events, which is why we proposed to adopt additional updates to the COMP-HIP-KNEE measure in the Hospital VBP Program under the Clinical Outcomes Domain beginning with the FY 2033 program year. In Table VI.L.-01, we illustrate the program years for which we have adopted the COMP-HIP-KNEE measure, and the modifications we previously adopted, as well as the additional modifications we proposed in the FY 2026 IPPS/ LTCH PPS proposed rule. [GRAPHIC] [TIFF OMITTED] TR04AU25.254 [[Page 36944]] (2) Overview of Measure Updates The proposed substantive updates to the COMP-HIP-KNEE measure would (1) expand the measure's inclusion criteria to include Medicare Advantage (MA) patients and (2) shorten the performance period from 3 years to 2 years. The addition of MA data to the measure would approximately double the cohort size, demonstrate measure reliability, and more accurately reflect the quality of care for both FFS and MA beneficiaries. Additionally, the proposed update to reduce the performance period from 3 to 2 years would allow for more recent data for assessing performance. Being able to report measures with only 2 years of data with satisfactory reliability would provide more relevant and up to date quality information for actionable quality improvement insights. With the inclusion of MA patients in the cohort, we assessed whether the reliability of the measure could reach a satisfactory level when the performance period is shortened. Signal-to-noise reliability testing was calculated for all hospitals in the testing sample (n= 3,124) and hospitals with at least 25 cases (n= 1,777), using 2 years of data for analysis (CY 2022/2023). For hospitals with at least 25 cases, the median reliability score was 0.784, ranging from 0.545 to 0.997. The 25th and 75th percentiles were 0.673 and 0.883, respectively. Therefore 75 percent of hospitals exceed a 0.6 reliability score, using the 2 year FFS and MA combined cohort, and we believe that this reliability score demonstrates that 2 years of data provide satisfactory reliability. The proposed updated COMP-HIP-KNEE measure would use index admission diagnoses and procedure codes from Medicare FFS claims and MA encounter data to determine cohort inclusion criteria, complications outcomes, and present on admission (POA) comorbidities. We would assess additional comorbidities prior to the index (initial) admission using Part A inpatient, outpatient, and Part B office visit Medicare claims and MA encounters in the 12 months prior to index admission. We would obtain enrollment status from the Medicare Enrollment Database which contains beneficiary demographic, benefit/coverage, and vital status information. We refer readers to section X.C. of the preamble of this final rule for more information on the proposed updates. As stated previously, these proposed updates in the Hospital VBP Program are contingent on our adopting them in the Hospital IQR Program. (3) Pre-Rulemaking Process and Measure Endorsement We listed this updated COMP-HIP-KNEE measure in the publicly available document entitled ``List of Measures Under Consideration for December 1, 2024'' (the ``MUC List'') with identification number MUC2024-042.197 198 199 We refer readers to section X.C. of the preamble of this final rule for a discussion of the Pre-Rulemaking Measure Review (PRMR) meeting for this measure. --------------------------------------------------------------------------- \197\ Centers for Medicare & Medicaid Services. (2024) Overview of the List of Measures Under Consideration December 1, 2024. Available at: https://mmshub.cms.gov/sites/default/files/2024-MUC-List-Overview.pdf. \198\ Centers for Medicare and Medicaid Services. (2024) 2024 MUC List. Available at: https://mmshub.cms.gov/sites/default/files/2024-MUC-List.xlsx. \199\ We note that the measure denominator of the updated COMP- HIP-KNEE measure, as described in the MUC List, excludes patients with a principal diagnosis code of COVID-19 ICD-10 code (U07.1) or with a secondary diagnosis code of COVID-19 coded as present on admission (POA) on the index admission claim. As discussed further below, we are providing notice of our intent to remove this exclusion from the measure. --------------------------------------------------------------------------- The CBE previously re-endorsed the original measure in July of 2021.\200\ We submitted the measure with the proposed modifications (CBE #1550) for re-endorsement for the Fall 2024 cycle. The CBE's Endorsement & Maintenance Cost and Efficiency Committee convened in the Fall 2024 cycle to review the COMP-HIP-KNEE measure that was submitted to the CBE for re-endorsement. The E&M Cost and Efficiency Committee voted on this measure on February 10, 2025, but did not reach consensus because only 73 percent of the committee voted to endorse or endorse with conditions, below the 75 percent required by the CBE to reach consensus.\201\ As a result, the measure was not re-endorsed by the CBE. The E&M Cost and Efficiency Committee discussed concerns about the case mix of patients, noting the shift from inpatient to outpatient for these elective procedures and that healthier patients may be directed to ambulatory surgical centers, leaving acute care hospitals with higher-risk individuals, which could affect case mix and measure outcomes. Another concern discussed was the limited scope of the measure which only includes inpatient complications, and whether this limited scope provides utility and relevance for patients. Additional concerns discussed include the overall approach to adjusting low-volume provider performance to the average, and that scores for lower volume providers may be misleading to patients. --------------------------------------------------------------------------- \200\ Centers for Medicare & Medicaid Services. (2022) MAP 2021- 2022 Considerations for Implementing Measures Final Report-- Clinicians, Hospitals, and PAC-LTC. Available at: https://www.qualityforum.org/Publications/2022/03/MAP_2021-2022_Considerations_for_Implementing_Measures_Final_Report_-_Clinicians,_Hospitals,_and_PAC-LTC.aspx. \201\ Battelle--Partnership for Quality Measurement. (2025). Fall 2024 Cycle Endorsement and Maintenance (E&M) Technical Report: Management of Acute Events and Chronic Conditions. Available at: https://p4qm.org/sites/default/files/Cost%2C%20Resource%20Use%2C%20and%20Efficiency/material/EM-Fall-2024-Cost-and-Efficiency-Final-Project-Report.pdf. --------------------------------------------------------------------------- The measure developer then submitted an appeal of the decision not to re-endorse the measure, citing the following rationales: (1) procedural error in the endorsement process with an excessive focus on outpatient setting exclusions; and (2) misapplication of measure evaluation criteria, particularly risk adjustment. The CBE convened the E&M Fall 2024 Appeals Committee meeting on March 31, 2025. The Appeals Committee voted to grant the appeal request, with a vote of 100 percent for both rationales, and overturn the decision not to re-endorse the measure. Thus, the COMP-HIP-KNEE measure was endorsed with the following conditions: (1) explore the proportion of procedures done in the ambulatory surgical centers and hospital outpatient department setting and evaluate the need for adjustment based on the impact of case mix; and (2) explore additional approaches to the reliability assessment to account for low-volume facilities. Regarding the impact of case mix, we note that this measure focuses on higher-risk patients and is intentionally narrow to capture significant complications, such as sepsis, pulmonary embolism, or a second surgery, which should be treated in the inpatient setting. We wish to emphasize that those having elective THA or TKA procedures within the inpatient setting must meet certain criteria, resulting in a smaller cohort of patients, and in communities where there are no ambulatory care centers the patient would be treated in the hospital outpatient department and would not be counted in this measure. Regarding the second condition for endorsement, to explore additional approaches to the reliability assessment to account for low-volume facilities, we emphasize that the goal of this measure and adjusting for low volume is to make performance scores available for as many providers as possible while trying to avoid misclassification or profiling of providers. We note that scores are not available for facilities with fewer than 25 cases, because the number of cases may be too small for meaningful results. [[Page 36945]] We wish to emphasize that this measure has been an important patient safety measure that has provided meaningful quality and patient safety information for patients on the hospital inpatient setting for a substantial period of time. Further, we are committed to continually improving quality and patient safety for as many patients as possible within the inpatient setting. Based on our evaluation of the endorsement criteria, the conditions for endorsement have been met. (4) Data Source, Submission and Public Reporting To continue to assess clinical outcomes, we proposed to adopt these measure updates to the COMP-HIP-KNEE measure in the Hospital VBP Program under the Clinical Outcomes Domain beginning with the FY 2033 program year, contingent on our adoption of these changes in the Hospital IQR Program as described in section X.C. of the preamble of this final rule. We stated that, if finalized, we would begin posting the updated measure data on the Compare tool beginning in July 2026, which would enable us to post data on the substantive updates to the measure for at least one year before the proposed adoption beginning with the April 1, 2029-March 31, 2031, performance period which is associated with the FY 2033 payment determination, as required by section 1886(o)(2)(C)(i) of the Act.\202\ We also proposed that the performance standards calculation methodology for the updated COMP-HIP- KNEE measure would be the same as that which we currently use for the measure. The performance standards for the updated measure for FY 2033 are not yet available. --------------------------------------------------------------------------- \202\ We noted that this performance period would only be 2 years instead of 3 if the proposed updates to the COMP-HIP-KNEE measure, which includes shortening of the performance period, are adopted. --------------------------------------------------------------------------- We invited public comment on this proposal. Below, we summarize the public comments that we received and our responses. Comment: Many commenters supported CMS's plans to include MA patients in the COMP-HIP-KNEE measure contingent on adoption of this update in the Hospital IQR Program. The commenters noted that this cohort change will more fully capture care quality in the Medicare Program and more accurately reflect the care quality provided in hospitals with high proportions of MA patients. Response: We thank the commenters for their support. Comment: Some commenters cautioned that CMS should ensure MA encounter data provides enough information to assess quality performance. Response: We have studied the feasibility of incorporating MA encounter data and concluded MA data are feasible for use in CMS's claims-based hospital outcome measures. We refer readers to published methodology of incorporating MA inpatient data \203\ for more information. We will continue monitoring MA encounter data as we incorporate it into the measure's cohort. --------------------------------------------------------------------------- \203\ See Kyanko et. al. ``Processing and validation of inpatient Medicare Advantage data for use in hospital outcome measures.'' Health Services Research, vol. 59, issue 6. Available at: https://doi.org/10.1111/1475-6773.14350. --------------------------------------------------------------------------- Comment: A commenter supported CMS's proposal to update quality measure populations to include MA beneficiaries, though the commenter also expressed concern that the new population has the potential to shift performance distributions meaningfully if not accounted for in risk adjustment. The commenter stated that some areas of the country have lower MA penetration and benchmarks, which may impact those hospitals disproportionately. The commenter recommended CMS continue with the proposal and communicate benchmark adjustments transparently, while also ensuring the risk model fully reflects the population's characteristics. Response: We thank the commenter for their support. We note that the risk adjustment model has been updated to account for case mix in both fee-for-service (FFS) and MA. The clinical variables included in the risk adjustment model were selected based on analyses using a combined FFS and MA cohort, approximately evenly split between FFS and MA beneficiaries. This approach ensures the model captures the key risk factors relevant to the combined population. The model includes an indicator variable for FFS versus MA enrollment status, which accounts for any potential differences in readmission risk between these groups. We found that the prevalence of clinical risk factors and their associations with readmission outcomes were similar across FFS and MA beneficiaries. Stratifying the model by FFS and MA did not yield meaningful improvements in performance, supporting the decision to model them together with an indicator variable. Finally, keeping FFS and MA patients together for purposes of this measure's calculation will keep the hospitals' total volume higher for more precise measure scores. We proposed for these changes to take effect beginning with the FY 2033 Hospital VBP Program year to provide time and data to monitor for any unintended consequences. We intend to provide hospitals with measure performance data with the expanded measure's patient cohort based on data collected while the `Modification 2' version of the measure is in use in the Hospital IQR Program via annual confidential hospital-specific reports beginning with the FY 2027 program year, as well as via annual Provider Participation Summary Reports under the Hospital VBP Program beginning with the FY 2033 program year. In addition, Hospital VBP Program performance standards for this measure will be published at least 60 days prior to the beginning of each applicable performance period as required by section 1886(o)(3)(C) of the Act. Comment: Several commenters supported improved measure reliability and accuracy by adding MA patients to the measure calculations, though urged caution given their questions about data collection. The commenters urged CMS to monitor MA data and its impact on quality measures carefully. A commenter expressed concern about data completeness due to the increased likelihood of MA patients having incomplete or missing Medicare Beneficiary Identifiers (MBIs) at the time of submission, which can lead to challenges in claims documentation. While supportive of adding MA data, the commenter stated hospitals could be penalized due to factors outside their control in high-penetration markets for MA beneficiaries. Response: As stated above, we have studied the feasibility of incorporating MA encounter data and concluded that MA data are feasible for use in CMS's claims-based hospital outcome measures.\204\ We intend to monitor the effects of the updated patient cohort for this measure carefully, including the impact of using MBIs, and will provide as much information as possible to participating hospitals. We would also like to clarify that the MA encounter data and FFS claims used in the measure are submitted by Medicare Advantage Organizations and providers, respectively, and already include MBIs. These data are processed and validated through CMS systems prior to being made available for use in quality measurement. Hospitals are not required to submit any additional data or ensure MBI completeness beyond their usual billing practices. As such, the inclusion of MA data does not introduce a new [[Page 36946]] responsibility for hospitals with respect to MBI submission. The modifications are intended to increase reliability and more accurately reflect the quality of care for both FFS and MA beneficiaries, thus providing hospitals more accurate data. We will continue working with hospitals to ensure that they fully understand any effects this change may have on their performance assessment under the Hospital VBP Program. --------------------------------------------------------------------------- \204\ See Kyanko et. al. ``Processing and validation of inpatient Medicare Advantage data for use in hospital outcome measures.'' Health Services Research, vol. 59, issue 6. Available at: https://doi.org/10.1111/1475-6773.14350. --------------------------------------------------------------------------- Comment: A commenter supported the addition of MA beneficiaries to this measure, noting the measure is episode-specific and reflects all of the major complications that can arise following elective THA/TKA procedures. The commenter recommended CMS consider reporting the inverse complication rate in the future, or the rate without major complications, to support the public's understanding of the measure's results, along with volume of associated procedures and patient risk profiles. Response: We thank the commenter for this feedback and will consider it as we continue refining our public reporting policies in the future. Comment: Several commenters requested that CMS conduct a dry run with scoring reports or a phased-in approach showing how the change would affect hospitals' performance before finalizing the update. The commenters requested that CMS provide a clearer understanding of data collections, assess the associated burden, and analyze potential shifts in performance. A few commenters opposing the proposed measure changes suggested, if we choose to move forward, CMS adopt a phased implementation approach focused on the Hospital IQR Program first, including a multi-cycle impact analysis, and postpone public reporting and payment adjustments. Response: We thank the commenters for this feedback. We would like to clarify that the inclusion of MA data does not require any additional data collection or submission from hospitals beyond what is already reported for administrative and billing purposes. Specifically, the MA encounter data used for this measure are submitted by Medicare Advantage Organizations (MAOs) to CMS. Hospitals that receive disproportionate-share hospital or medical education payments from Medicare are required to submit information-only claims for inpatient stays of MA beneficiaries for years already. Similarly, FFS claims are submitted through existing hospital billing processes. As such, the proposed modifications do not impose additional data submission burden on hospitals. We have also conducted testing to evaluate the effects of including MA data on the measure cohort and the results are detailed in the 2024 Readmission Measures Supplemental Methodology Report. This analysis found that, overall, more than 80% of hospitals remained in the same performance quintile or shifted by no more than one quintile after the addition of MA data. These findings suggest that the inclusion of MA data results in minimal disruption to hospital performance classification while offering a more comprehensive view of quality for hospitals serving both FFS and MA beneficiaries. As proposed, we are finalizing these changes to take effect beginning with the FY 2033 Hospital VBP Program year. Per section 1886(o)(2)(C)(i) of the Act, measures must be specified for use in the Hospital IQR Program and publicly reported for at least one year prior to use in the Hospital VBP Program. This updated measure is being adopted in the Hospital IQR Program beginning with the FY 2027 payment determination, and hospitals will be able to preview their data on this measure in the Hospital IQR Program prior to it being publicly reported. This delay will give hospitals time and data to identify any performance impacts before this updated measure impacts payment under the Hospital VBP Program. We intend to continue to monitor and evaluate the performance of this measure for changes that may be a result of the measure updates, along with any unintended consequences. Comment: A couple of commenters agreed with the reasoning of the Endorsement & Maintenance Cost and Efficiency Committee for not reaching initial consensus on endorsement of the updated measure and expressed concern endorsement was ultimately granted in the appeal process, and recommended CMS reconsider the measure in the Hospital VBP Program. Response: On February 10, 2025,\205\ the Endorsement & Maintenance Cost and Efficiency Committee voted, and did not reach consensus on this measure, resulting in the measure not being re-endorsed. The decision was appealed and the Appeals Committee unanimously voted to grant the appeal, overturning the initial endorsement decision and endorsing the measure with conditions. The two conditions for endorsement were: (1) explore the proportion of procedures done in the ambulatory surgical centers and hospital outpatient department setting and evaluate the need for adjustment based on the impact of case mix; and (2) explore additional approaches to the reliability assessment to account for low-volume facilities. --------------------------------------------------------------------------- \205\ Battelle--Partnership for Quality Measurement. (2025). Fall 2024 Cycle Endorsement and Maintenance (E&M) Technical Report: Management of Acute Events and Chronic Conditions. Available at: https://p4qm.org/articles/now-available-final-fall-2024-e-m-reports. --------------------------------------------------------------------------- Comment: A commenter, who generally supported CMS's plans to include MA beneficiaries in the measure's cohort, urged CMS to reconsider the utility of the measure in the Hospital VBP Program given complications may result from a variety of factors outside the hospital's control. Response: We thank the commenter for their feedback and support. We continue to consider clinical outcomes for this measure a priority, including clinical outcomes for Medicare patients in MA, as the measure provides important patient safety and adverse events data to providers and patients. Empirically, fee for service and MA patients each represent approximately half of the cohort for this measure. The two groups have similar outcome rates, similar risk variable prevalence, and, with the addition of the MA indicator for risk adjustment, model performance and calibration was good in the combined cohort. Using the modified measure not only in the Hospital IQR Program, but also the Hospital VBP Program under which a portion of payments to hospitals is tied to measure performance, serves as an important incentive for quality improvement. Comment: A commenter expressed concerns with the use of mortality measures and the COMP-HIP-KNEE measure for low reliability results. The commenter suggested that none of those measures reached what the commenter described as the minimum acceptable threshold of 0.7 for reliability. Response: We thank the commenter for their feedback. The measure developer conducted rigorous testing and concluded that the addition of MA patients into the measure's cohort, in conjunction with the performance period changes, resulted in 75 percent of hospitals exceeding a 0.6 reliability score. Based on measures in the program, a 0.7 reliability score does not represent the minimum threshold for a measure's reliability in the Hospital VBP Program, and we note further that the CBE describes 0.6 as the accepted threshold for reliability when evaluating quality measures.\206\ This result demonstrates the proposed measure [[Page 36947]] updates balance a focus on more recent data with a sufficiently reliable measure calculation that accurately reflects the quality of care provided by hospitals. --------------------------------------------------------------------------- \206\ Table 4, Endorsement and Maintenance (E&M) Guidebook, June 2025. Partnership for Quality Measurement. Available at: https://www.p4qm.org/e-m-guidebook/e-m/e-m-guidebook-version-3-0. --------------------------------------------------------------------------- Comment: Some commenters opposed inclusion of MA data in quality measure cohorts until hospitals can validate and become comfortable with the data. While the commenters acknowledged MA enrollment is now over 50 percent of Medicare beneficiaries, the commenters stated that MA encounter data is less accessible and sometimes less accurate than FFS claims data. The commenters also noted that MA plans often use their own utilization management tools like lengthy authorization processes that can alter care patterns and recommended that CMS implement a transition period before fully including MA data in measurement. Other commenters requested that CMS allow time for hospitals to review MA performance data to understand how their performance cohorts have changed, stating that hospitals need time to determine MA patient data will not skew their performance assessments due to issues beyond the hospital's control. The commenters requested CMS delay implementation until CMS can provide more information for hospital's review and understanding or reconsider the proposal entirely. Response: The Hospital VBP Program intends to drive quality improvement for the entire Medicare population and by extension, to all patients served by hospitals. As MA enrollment grows, it becomes necessary to expand the cohort population to more accurately reflect the quality of care for all beneficiaries. As stated earlier, we conducted testing to evaluate the effects of including MA data on the measure cohort and found more than 80% of hospitals remained in the same performance quintile or shifted by no more than one quintile after the addition of MA data. These findings suggest that the inclusion of MA data results in minimal disruption to hospital performance classification while offering a more comprehensive view of quality for hospitals serving both FFS and MA beneficiaries. CMS is finalizing changes to the COMP-HIP-KNEE measure's cohort to take effect with the FY 2033 Hospital VBP Program year, following their implementation in the Hospital IQR Program beginning with the FY 2027 payment determination. This effective date will provide hospitals with sufficient time to understand if and how the new patient cohort will affect their performance assessment under the Hospital VBP Program. Comment: Several commenters cautioned CMS about incorporating MA outcomes in FFS quality programs, arguing this policy could lead to duplicative penalties on hospitals. The commenters explained MA plans have their own value-based programs and MA patients often experience different post-acute care options due to MA plan structures. A commenter encouraged us to analyze performance variations between MA and FFS beneficiaries and provide annual confidential feedback reports to hospitals on any differences. Another commenter suggested that CMS work to develop improved measures of key outcomes rather than using MA data and requested that it not publicly report current measures by insurance type as such reporting contradicts the stated purpose of combining the populations. Response: We thank the commenters for sharing their concerns and we intend to monitor the potential for differences between the MA and FFS populations' on this measure. While we understand MA plans have their own quality program, we remain concerned that omitting MA patients from the measure provides an incomplete picture of the care quality provided to Medicare beneficiaries by participating hospitals. As we stated in the proposed rule (90 FR 18290), the addition of MA data in the measure would approximately double the cohort size, and we have concluded that including these patients in the measure provides CMS, providers, patients, caregivers, and others a broader view of care quality. We appreciate the commenter's concern about public reporting and will take it into account as we refine our public reporting policies in the future. Comment: Some commenters requested CMS release data on the modified THA/TKA measure and how performance changes with the addition of MA patients. The commenters were concerned that MA benefit design means hospitals will have less control over their MA patients' care, especially due to prior authorization requirements. A commenter recommended that CMS tie outcomes to fee-for-service patient performance within the hospital's control. The commenter explained that MA enrollees accept different benefit design than FFS patients and expressed concern that hospitals cannot control MA plans' requirements like prior authorization. The commenters also asked CMS to confirm that it does not intend to use MA payment information to assess hospitals under the Hospital VBP Program and suggested that CMS limit the expanded patient cohort for this measure to the Hospital IQR Program. Response: We intend to provide annual confidential feedback reports to hospitals on their measured performance that they can use to assess the effects of the cohort change on their measure rates. We acknowledge commenters concerns regarding benefit design differences between MA plans and traditional Medicare, however, adding MA beneficiaries into the cohorts of the Hospital VBP Program measure set will provide a more robust and holistic view of quality of care provided to all Medicare beneficiaries despite these differences. For measure calculation, we identify index and subsequent admissions for patients enrolled in MA plans using MA encounter data and information-only claims for MA inpatient stays. We note, neither of these data sources are dependent on the MA plan's coverage determinations (including bundling or denying coverage) for that admission. Therefore, the measures would continue to encourage hospitals to focus on preventing readmissions, which are often an adverse event for patients and impose a financial burden on the patient and the healthcare system. Because an increasing portion of Medicare beneficiaries are covered by MA plans, including index admissions for these patients in our measure cohorts is an important step in ensuring high-quality, safe care for all Medicare beneficiaries. Including index admissions for Medicare beneficiaries enrolled in MA also increases the cohort size for the Hospital VBP Program measures, which in turn improves the measures' precision for each hospital. CMS continues to encourage hospitals to work closely with insurers, including MA plans, to coordinate the highest quality care for their patients. We further note that this measure will not incorporate MA payment information into hospitals' assessments. Comment: Several commenters supported our proposal to shorten the performance period of the COMP-HIP-KNEE measure. Commenters stated the change will more accurately reflect current care and simplify public reporting, thus providing hospitals and patients with more recent data. With this change, the hospitals will see results more quickly from their quality improvement efforts and avoid being scored on older information. Response: We thank the commenters for their support. After consideration of the public comments we received, we are finalizing the updates to the COMP-HIP-KNEE measure's cohort and performance period as proposed [[Page 36948]] beginning with the FY 2033 payment determination. b. Technical Updates to the Specifications of the COMP-HIP-KNEE Measure To Update the Risk Adjustment Model Beginning With the FY 2033 Program Year \207\ --------------------------------------------------------------------------- \207\ In the proposed rule, the section header was erroneously shown with the FY 2027 Program Year. We corrected this error in a Correction Notice that we published on June 5, 2025 (90 FR 23867). --------------------------------------------------------------------------- In addition to the updates discussed previously and further updates we discuss below, we provided notice in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18291 through 18292) of our intent to make a non- substantive modification, as permitted under Sec. 412.164(c)(1), to the COMP-HIP-KNEE measure to update the risk adjustment model to use individual International Classification of Diseases (ICD)-10 codes instead of Hierarchical Condition Categories (HCCs). Under this technical updates policy, we use a subregulatory process to incorporate technical measure specification updates into the measure specifications we have adopted for the Hospital VBP Program (79 FR 50077 through 50079). We continue to believe that this policy, codified at 42 CFR 412.164(c)(1), is the most expeditious manner possible to ensure that quality measures remain fully up to date while preserving the public's ability to comment on substantive updates, which so fundamentally change a measure that it is no longer the same measure that we originally adopted. The current risk adjustment strategy for this measure involves grouping ICD-10 diagnosis codes from CMS's HCC system into clinically relevant categories. We then evaluate the HCCs for statistical association with the measure's outcome.\208\ However, research has indicated that using individual ICD codes in place of HCCs could significantly improve the model performance of the mortality measures.\209\ To better leverage the data and analytical advances since the measure was initially developed, we created a new approach to use individual ICD-10 codes for risk adjustment instead of grouping them into categories. With this new approach, the discriminative performance of the risk adjustment model as measured by c-statistic was significantly better and the calibration performance also proved to be satisfactory. --------------------------------------------------------------------------- \208\ Centers for Medicare & Medicaid Services. 2024 Condition- Specific Measure Updates and Specifications Report. Available at: https://qualitynet.cms.gov/inpatient/measures/mortality/methodology. \209\ Krumholz, H. M., Coppi, A. C., Warner, F., Triche, E. W., Li, S. X., Mahajan, S., Li, Y., Bernheim, S. M., Grady, J., Dorsey, K., Lin, Z., & Normand, S. T. (2019). Comparative Effectiveness of New Approaches to Improve Mortality Risk Models From Medicare Claims Data. JAMA network open, 2(7), e197314. https://doi.org/10.1001/jamanetworkopen.2019.7314. --------------------------------------------------------------------------- We received several comments on this technical update. Comment: Many commenters supported our technical updates, noting that using ICD-10 codes rather than HCCs will allow more granular and individualized risk stratification. Some commenters stated that the increased granularity of ICD-10 coding better captures patients' clinical complexities, which results in fairer and more accurate evaluations of hospitals' performance. Response: We thank the commenters for their support. Comment: A commenter also suggested that CMS consider an active diagnosis of COVID-19 as a risk variable where appropriate. Response: As we discuss in the following subsection of this final rule, we are removing the exclusion of patients with a principal or secondary diagnosis of COVID-19 in the measure denominators. We have concluded a risk variable is not appropriate because the broader patient cohort captured by the updated measures provides a more complete picture of the care quality provided in hospitals, which meets the goals of the Hospital VBP Program. Comment: A commenter requested additional transparency when CMS develops new models, including clinical validation and extensive testing before public reporting. Response: We intend to be transparent in developing models by providing feedback to participating hospitals and will continue providing feedback reports detailing hospitals' performance in the Hospital VBP Program so they fully understand how risk adjustment models affect their measured performance. Comment: Some commenters expressed concern about CMS's plan to change the risk adjustment model from HCC to ICD-10. Concerns included misalignment of risk adjustment methods across programs and models and potential for unintended consequences. A commenter cautioned this was not a minor technical refinement and instead represented a foundational departure from the methods used in many CMS programs, including the TEAM model, deserving a phased approach to avoid operational risk and threats to data continuity and integrity. Response: We do not agree that this risk adjustment change represents a foundational departure from prior CMS methods. As we discussed in the proposed rule (90 FR 18292), in depth data analysis conducted by the measure developer has indicated that using individual ICD codes in place of HCCs could significantly improve the model performance of mortality measures. Further, as discussed in the 2024 Condition[hyphen] and Procedure[hyphen]Specific Mortality/Complication Measures Supplemental Methodology Report, the new variable selection approach using ICD-10 codes in place of condition categories significantly improved the discriminative performance of the risk adjustment models, as measured by c-statistics, for stroke mortality while performance remained the same for THA/TKA complications.\210\ Better risk adjustment models help quality measures more accurately reflect the quality of care provided to Medicare beneficiaries, allowing CMS to better leverage data and analytical advances since the measure was initially developed and hospitals and patients to receive more accurate quality data. We intend to keep participating hospitals informed about the effects of this policy change through our customary hospital-specific reports. --------------------------------------------------------------------------- \210\ Centers for Medicare & Medicaid Services. 2024 Condition- and Procedure-Specific Mortality/Complication Measures Supplemental Methodology Report, Stroke/Elective Primary Total Hip Arthroplasty (THA) and/or Total Knee Arthroplasty (TKA). Available at: https://qualitynet.cms.gov/inpatient/measures/complication/methodology --------------------------------------------------------------------------- Comment: Some commenters expressed specific concern about the burden imposed on hospitals by the change in risk adjustment model. Response: We note that hospitals are already submitting these data points through claims and there is no additional burden associated with this change to risk adjustment model. The change will only affect how CMS calculates measured performance. We thank the commenters for their feedback on this technical update. We will implement the technical updates as notified in the proposed rule. c. Technical Updates to the Specifications of the Five Condition- and Procedure-Specific Mortality Measures and the COMP-HIP-KNEE Measure Beginning With the FY 2027 Program Year During the COVID-19 public health emergency, in the FY 2022 IPPS/ LTCH PPS final rule, we stated that we were updating the Hospital 30- Day, All-Cause, Risk-Standardized Mortality Rate Following Acute Myocardial Infarction (AMI) Hospitalization (MORT-30-AMI), Hospital 30- Day, All-Cause, Risk- [[Page 36949]] Standardized Mortality Rate Following Coronary Artery Bypass Graft (CABG) Surgery (MORT-30-CABG), Hospital 30-Day, All-Cause, Risk- Standardized Mortality Rate Following Chronic Obstructive Pulmonary Disease (COPD) Hospitalization (MORT-30 COPD), Hospital 30-Day, All- Cause, Risk-Standardized Mortality Rate Following Heart Failure (HF) Hospitalization (MORT-30-HF), and Hospital-Level Risk-Standardized Complication Rate Following Elective Primary Total Hip Arthroplasty (THA) and/or Total Knee Arthroplasty (TKA) (COMP-HIP-KNEE) measures to exclude admissions with either a principal or secondary diagnosis of COVID-19 present on admission from the measure denominators (86 FR 45279 through 45281). In the FY 2023 IPPS/LTCH PPS final rule, we also updated the technical specifications for the Hospital 30-Day, All- Cause, Risk-Standardized Mortality Rate Following Pneumonia Hospitalization (MORT-30-PN) measure to exclude patients with either principal or secondary diagnoses of COVID-19 from the measure denominator (87 FR 49109 through 49110). Additionally, we further modified the technical measure specifications for all six measures in the Clinical Outcomes domain, the MORT-30-AMI, MORT-30-CABG, MORT-30- COPD, MORT-30-HF, MORT-30-PN, and COMP-HIP-KNEE measures, in the FY 2023 IPPS/LTCH PPS final rule to include a covariate adjustment for patient history of COVID-19 in the 12 months prior to the admission beginning with the FY 2023 program year (87 FR 49106 through 49109). We stated that we were making these updates pursuant to the technical updates policy we finalized in the FY 2015 IPPS/LTCH PPS final rule. We refer readers to the previous section of the preamble of this final rule for more details on our subregulatory technical updates policy. Accordingly, we are providing notice in this final rule that we intend to remove the COVID-19 exclusions from the five condition- and procedure-specific mortality measures and one procedure-specific complication measure beginning with the FY 2027 program year. This technical update will modify the technical specifications of the MORT- 30-AMI, MORT-30-CABG, MORT-30-COPD, MORT-30-HF, and MORT-30-PN measures to include the ICD-10 codes that identify patients with a principal diagnosis code of COVID-19 or with a secondary diagnosis code of COVID- 19 coded as present on admission on the index admission claim. The technical update will also modify the technical specifications of the COMP-HIP-KNEE measure to include the ICD-10 codes that identify patients with a principal or secondary diagnosis of COVID-19 in both the measure numerator and denominator. Lastly, the technical update will remove the covariate adjustment for patient history of COVID-19 in the 12 months prior to the admission for all six measures in the Clinical Outcomes domain for the Hospital VBP Program beginning with the FY 2027 program year. Including COVID-19 patients in the measure specifications for the measures in the Clinical Outcomes domain beginning with the FY 2027 program year provides a more complete picture of the care quality provided in hospitals, which meets the goals of the Hospital VBP Program. Technical specifications of the Hospital VBP Program mortality and complication measures are provided on our website under the Measure Methodology Reports section (available at: https://qualitynet.cms.gov/inpatient/measures/mortality/methodology and https://qualitynet.cms.gov/inpatient/measures/complication/methodology). Additional resources about the measure technical specifications and methodology for the Hospital VBP Program are on the QualityNet website (available at: https://qualitynet.cms.gov/inpatient/hvbp). We received several public comments on this technical update. Comment: Many commenters supported the technical update to remove the COVID-19 exclusion from the Hospital VBP Program, a few commenting on the end of the public health emergency (PHE) and minimal impact to data. Response: We thank the commenters for their support. Comment: A commenter, supporting the removal of COVID-19 as an exclusion, suggested CMS consider whether an active diagnosis of COVID- 19 should be a risk variable where appropriate. Response: Given the analysis, we have concluded a risk variable is not appropriate because the broader patient cohort captured by the updated measures provides a more complete picture of the care quality provided in hospitals, which meets the goals of the Hospital VBP Program. Comment: Some commenters recommended CMS adopt a phased implementation approach to ensure data integrity and support hospitals in adapting to the COVID-19 exclusion removal. The commenters requested CMS provide hospitals with reporting cycles of data for internal review, delay public reporting of measures with COVID-19 as a secondary diagnosis, and exclude these measures from value-based purchasing programs during initial reporting periods to avoid financial implications and ensure data accuracy. Response: We appreciate concerns regarding the removal of the COVID-19 exclusion and its potential impact on hospital measure scores and financial implications. To inform this discussion, we conducted an analysis of the effect of removing the COVID-19 exclusion for the Hybrid Hospital-Wide Readmission (HKC) measure. Between July 2021 and June 2024, only 371 admissions out of 261,616 total index admissions (approximately 0.14%) were excluded due to a COVID-19 diagnosis. This demonstrates that the exclusion applied to a very small proportion of cases and, therefore, the impact of its removal on hospital-level measure scores is expected to be minimal. Given the limited number of affected admissions, we do not anticipate meaningful shifts in performance results due to this change. We will continue to monitor the impact over time, but current data indicate the removal of the exclusion does not warrant a phased implementation or exclusion from value-based purchasing programs. Hospitals will also have the chance to review their measure data during the 30-day preview period prior to public reporting. Additionally, including COVID-19 patients in the measure's cohort provides a broader view of the care quality hospitals provide to Medicare beneficiaries and meets the goals of the Hospital VBP Program. Comment: A commenter was concerned about the removal of the COVID- 19 exclusion, stating the clinical and operational impacts of the COVID-19 PHE continue to affect hospital performance, such as the long- term effects of COVID-19 on workforce capacity, patient outcomes, and systemic challenges, including access to post-acute care, all of which can affect quality outcomes independently of provider performance. The commenter suggested removing this exclusion may unfairly penalize hospitals that continue to admit high-acuity, complex patients. Another commenter suggested updated risk adjustment models account for the long-term clinical effects of COVID-19 to avoid unfairly penalizing hospitals with a higher number of post-COVID patients. Response: We appreciate the commenters' concerns. Given the end of the federal COVID-19 PHE on May 11, 2023, it is important CMS provide hospitals and beneficiaries with a [[Page 36950]] complete picture of the care quality provided for all patients. While hospitals and other types of health care facilities may face continuing challenges due to the long-term effects of the COVID-19 PHE, we do not agree these challenges represent such a significant threat to health care operations that patients with a secondary COVID-19 diagnosis should be excluded from these measures' cohorts. We thank the commenters for their feedback on the technical update to remove the COVID-19 exclusion from the five Condition- and Procedure-Specific Mortality Measures and the COMP-HIP-KNEE Measure Beginning with the FY 2027 Program Year. We will implement the updates as outlined in the proposed rule. d. Summary of Previously Adopted Quality Measures for the Hospital VBP Program We refer readers to the FY 2025 IPPS/LTCH PPS final rule for summaries of the previously adopted measures for the FY 2026 through FY 2030 program years (89 FR 69402). We did not propose any changes to the measure set. Table VI.L.-02 summarizes the previously adopted Hospital VBP Program measure set for the FY-2026 program year. BILLING CODE 4120-01-P [GRAPHIC] [TIFF OMITTED] TR04AU25.255 Table VI.L.-03 summarizes the previously adopted Hospital VBP Program measures for the FY 2027 through FY 2031 program years. [[Page 36951]] [GRAPHIC] [TIFF OMITTED] TR04AU25.256

3. Baseline and Performance Periods for the FY 2027 Through FY 2031

Program Years a. Background We refer readers to the FY 2025 IPPS/LTCH PPS final rule (89 FR 69403 through 69405) for previously adopted baseline and performance periods for the FY 2026 through FY 2030 program years. We also refer readers to the FY 2017 IPPS/LTCH PPS final rule (81 FR 56998) in which we finalized a schedule for all future baseline and performance periods. b. Summary of Baseline and Performance Periods for the FY 2027 through FY 2031 Program Years Tables VI.L.-04, VI.L.-05, VI.L.-06, VI.L.-07, and VI.L.-08 summarize the baseline and performance periods that we have previously adopted. [[Page 36952]] [GRAPHIC] [TIFF OMITTED] TR04AU25.257 [GRAPHIC] [TIFF OMITTED] TR04AU25.258 [[Page 36953]] [GRAPHIC] [TIFF OMITTED] TR04AU25.259 [GRAPHIC] [TIFF OMITTED] TR04AU25.260 [[Page 36954]] [GRAPHIC] [TIFF OMITTED] TR04AU25.261 BILLING CODE 4120-01-C

4. Performance Standards for the Hospital VBP Program

a. Background We refer readers to the FY 2024 IPPS/LTCH PPS final rule (88 FR 59089) for previously established performance standards for the FY 2026 program year. We also refer readers to the FY 2025 IPPS/LTCH PPS final rule (89 FR 69406 through 69407) for the previously established performance standards for the FY 2027 program year. We received one general comment on our performance standards updates. Comment: A commenter stated their support for the updates to Hospital VBP performance standards for the FY 2027 through FY 2031 program years. Response: We thank the commenter for their support. b. Technical Update to the Five National Healthcare Safety Network (NHSN) Healthcare-Associated Infection (HAI) Measures In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18296 through 18297), we provided information regarding upcoming changes to the standard population data that are used to calculate the standardized infection ratio (SIR) for the CDC's NHSN measures. These changes are occurring as part of routine measure maintenance. CDC's NHSN measures are used to monitor hospital performance on prevention of HAIs. For each NHSN measure, CDC calculates the standardized infection ratio (SIR), which compares a hospital's observed number of HAIs to the number of infections predicted for the hospital, adjusting for several risk factors. The predicted number of infections is determined using the amount of exposure (for example, the number of central line days when predicting CLABSI events) for a given hospital according to the relevant observed risk factors and infection rates for the same combination of risk factors that occurred among a standard population during a specified period as reflected by the appropriate risk adjustment model (this is sometimes referred to as a ``baseline,'' \211\ but referred to here as ``standard population data''). This set of rates forms standard population data that promotes timely comparisons to measure change in an outcome. Since 2016, CDC has been using data collected in CY 2015 to determine the standard population and, currently, the 2015 standard population is used to calculate the HAI measures in the Hospital VBP Program.\212\ Prior to 2016, calculated SIRs had different standard population years for each infection type and facility type.\213\ --------------------------------------------------------------------------- \211\ ``Rebaseline'' is a term that CDC's NHSN staff use to describe the process of updating the national HAI baseline data and risk adjustment models developed using these data. As part of routine measure maintenance, CDC has updated the baseline to ensure the number of predicted infections used in SIR calculations reflects the current state of HAIs in the United States using CY 2022 data. The CDC released its initial announcement of this rebaseline in June 2023. Resources and training regarding the 2015 and 2022 standard population data can be found at: https://www.cdc.gov/nhsn/nhsnrebaseline/index.html. \212\ Centers for Disease Control and Prevention. CHARTING THE COURSE: 2022 HAI REBASELINE. Available at: https://www.cdc.gov/nhsn/pdfs/rebaseline/22-Rebaseline-FAQs-Final-Version.pdf. \213\ Centers for Disease Control and Prevention. Paving the Path Forward: 2015 Rebaseline. Available at: https://www.cdc.gov/nhsn/2015rebaseline/index.html. --------------------------------------------------------------------------- During this update, HAI SIR calculations of infections reported beginning in CY 2025 will reflect the use of both the new 2022 standard population data and the 2015 standard population data. Because the Hospital VBP Program calculates improvement points using comparisons between data collected from hospitals in a baseline period and data collected in a performance period, the Hospital VBP Program must treat CDC's baseline update differently than other quality programs. We have determined that we cannot equally compare CDC's new baseline data to the current baseline data to calculate improvement points. If we do not address the CDC's measure update, we will be unable to compare the baseline and performance periods for NHSN measures in the FY 2027 through FY 2028 program years. To address the problem, we intend to use the 2015 baseline data to calculate performance standards as well as to calculate and publicly report measure scores until the FY 2029 program year, as depicted in the table. For the FY 2029 program year and subsequent years, the Hospital VBP Program will use the ``new standard population data'' (that is, CY 2022 data) to calculate performance standards and calculate and publicly report measure scores. [[Page 36955]] [GRAPHIC] [TIFF OMITTED] TR04AU25.262 We received public comments on the technical update. Comment: Many commenters supported CMS's notification of the update to the standardized baseline year for the Hospital VBP Program's HAI measures, agreeing 2022 is a reasonable, recent, post-COVID-19 baseline for updated quality measurement. Some commenters acknowledged the importance of updating the baseline year for NHSN measures' risk adjustment. The commenters encouraged CMS to evaluate the potential impacts of CY 2022 data for the commenters' information. Response: We thank the commenters for their support. Hospitals will receive confidential reports on their measure performance. We thank the commenters for their feedback on this technical update and we will implement the updates as outlined in the proposed rule. c. Previously and Newly Established Performance Standards for the FY 2027 Program Year We have adopted certain measures for the Safety domain, Clinical Outcomes domain, and the Efficiency and Cost Reduction domain for future program years to ensure that we can adopt baseline and performance periods of sufficient length for performance scoring purposes. In the FY 2022 IPPS/LTCH PPS final rule (86 FR 45294 through 45295), we established performance standards for the FY 2027 program year for the Clinical Outcomes domain measures (MORT-30-AMI, MORT-30- HF, MORT-30-PN (updated cohort), MORT-30-COPD, MORT-30-CABG, and COMP- HIP-KNEE) and the Efficiency and Cost Reduction domain measure (MSPB). Additionally, in the FY 2025 IPPS/LTCH PPS final rule, we established the performance standards for the FY 2027 program year for the Safety domain measures (CAUTI, CLABSI, CDI, MRSA Bacteremia, Colon and Abdominal Hysterectomy SSI, and SEP-1) and the Person and Community Engagement Domain (the HCAHPS Survey Dimensions) (89 FR 69406 through 69407). While we are making technical updates to the measures in the Clinical Outcomes domain beginning with the FY 2027 program year as discussed previously, the FY 2027 performance standards that we previously adopted for measures in this domain are unchanged because the applicable baseline period does not include COVID-19 impacted data after applying the national ECE. For the reader's reference, the performance standards for the measures in the Clinical Outcomes domain for the FY 2027 program year are set out in Table VI.L.-10. [GRAPHIC] [TIFF OMITTED] TR04AU25.263 d. Newly Established and Estimated Performance Standards for the FY 2028 Program Year We have adopted certain measures for the Safety domain, Clinical Outcomes domain, and the Efficiency and Cost Reduction domain for future program years to ensure that we can adopt baseline and performance periods of sufficient length for performance scoring purposes. In the FY 2023 IPPS/LTCH PPS final rule (87 FR 49118), we established performance standards for the FY 2028 program year for the Clinical Outcomes domain measures (MORT-30-AMI, MORT-30-HF, MORT-30-PN, MORT-30-COPD, MORT-30-CABG, and COMP-HIP-KNEE) and the Efficiency and Cost Reduction domain measure (MSPB Hospital). However, given the technical update to the measures in the Clinical Outcomes domain beginning with the FY 2027 program year as discussed previously in section VI.L.2.c., we are establishing new performance standards for the measures in the Clinical Outcomes domain for the FY 2028 program year. We note that the performance standards for the MSPB Hospital measure are based on performance period data. Therefore, we are unable to provide numerical equivalents for the standards at this time. The newly established performance standards for these [[Page 36956]] measures are set out in Table VI.L.-11.\214\ --------------------------------------------------------------------------- \214\ NOTE TO REVIEWERS: Table VI.L.-11 has been updated. --------------------------------------------------------------------------- BILLING CODE 4120-01-P [GRAPHIC] [TIFF OMITTED] TR04AU25.264 BILLING CODE 4120-01-C We refer readers to the FY 2025 IPPS/LTCH PPS final rule (89 FR 69507-69508) where we finalized the policy to modify the scoring of the HCAHPS Survey for the FY 2027 through FY 2029 program years while updates to the survey are publicly reported under the Hospital IQR Program. Scoring is modified to only score hospitals on the six unchanged Hospital VBP dimensions of the HCAHPS Survey until the updates to the HCAHPS Survey have been publicly reported for one year. The six unchanged dimensions of the HCAHPS Survey for the Hospital VBP Program are as follows: ``Communication with Nurses''. ``Communication with Doctors''. ``Communication about Medicines''. ``Discharge Information''. ``Cleanliness and Quietness''. ``Overall Rating.'' Scoring is modified such that for each of the six unchanged dimensions, Achievement Points (0-10 points) and Improvement Points (0- 9 points) will be calculated, the larger of which will be summed across these six dimensions to create a pre-normalized HCAHPS Base Score of 0- 60 points (as compared to 0-80 points with the current eight dimensions). The pre-normalized HCAHPS Base Score will then be multiplied by \8/6\ (1.3333333) and rounded according to standard rules [[Page 36957]] (values of 0.5 and higher are rounded up, values below 0.5 are rounded down) to create the normalized HCAHPS Base Score. Each of the six unchanged dimensions will be of equal weight, so that, as currently scored, the normalized HCAHPS Base Score will range from 0 to 80 points. HCAHPS Consistency Points will be calculated in the same manner as the current method and will continue to range from 0 to 20 points. Like the Base Score, the Consistency Points Score will consider scores across the six unchanged dimensions of the Person and Community Engagement domain. The final element of the scoring formula, which will remain unchanged from the current formula, will be the sum of the HCAHPS Base Score and the HCAHPS Consistency Points Score for a total score that ranges from 0 to 100 points. The method for calculating the performance standards for the six dimensions will remain unchanged. We refer readers to the Hospital Inpatient VBP Program final rule (76 FR 26511 through 26512) for our methodology for calculating performance standards. The performance standards for the six unchanged dimensions for the FY 2028 program year are set out in Table VI.L.-12.\215\ --------------------------------------------------------------------------- \215\ NOTE TO REVIEWERS: Table VI.L.-12 has been updated. [GRAPHIC] [TIFF OMITTED] TR04AU25.265 e. Newly Established Performance Standards for Certain Measures for the FY 2029 Program Year We have adopted certain measures for the Safety domain, Clinical Outcomes domain, and the Efficiency and Cost Reduction domain for future program years to ensure that we can adopt baseline and performance periods of sufficient length for performance scoring purposes. In the FY 2024 IPPS/LTCH PPS final rule (88 FR 59091 through 59092), we established performance standards for the FY 2029 program year for the Clinical Outcomes domain measures (MORT-30-AMI, MORT-30- HF, MORT-30-PN, MORT-30-COPD, MORT-30-CABG, and COMP-HIP-KNEE) and the Efficiency and Cost Reduction domain measure (MSPB Hospital). However, given the technical update to the measures in the Clinical Outcomes domain beginning with the FY 2027 program year as discussed previously, we are newly establishing the performance standards for the measures in the Clinical Outcomes domain for the FY 2029 program year to now include COVID-19 patients in the measure data. We note that the performance standards for the MSPB Hospital measure are based on performance period data. Therefore, we are unable to provide numerical equivalents for the standards at this time. The newly established performance standards for these measures are set out in Table VI.L.- 13.\216\ --------------------------------------------------------------------------- \216\ NOTE TO REVIEWERS: Table VI.L.-13 has been updated. --------------------------------------------------------------------------- [[Page 36958]] [GRAPHIC] [TIFF OMITTED] TR04AU25.266 f. Newly Established Performance Standards for Certain Measures for the FY 2030 Program Year We have adopted certain measures for the Safety domain, Clinical Outcomes domain, and the Efficiency and Cost Reduction domain for future program years to ensure that we can adopt baseline and performance periods of sufficient length for performance scoring purposes. In the FY 2025 IPPS/LTCH PPS final rule (89 FR 69409 through 69410), we established performance standards for the FY 2030 program year for the Clinical Outcomes domain measures (MORT-30-AMI, MORT-30- HF, MORT-30-PN, MORT-30-COPD, MORT-30-CABG, and COMP-HIP-KNEE) and the Efficiency and Cost Reduction domain measure (MSPB Hospital). However, given the technical update to the measures in the Clinical Outcomes domain beginning with the FY 2027 program year as discussed previously, we are newly establishing the performance standards for the measures in the Clinical Outcomes domain for the FY 2030 program year. We note that the performance standards for the MSPB Hospital measure are based on performance period data. Therefore, we are unable to provide numerical equivalents for the standards at this time. The newly established performance standards for these measures are set out in Table VI.L.- 14.\217\ --------------------------------------------------------------------------- \217\ NOTE TO REVIEWERS: Table VI.L.-14 has been updated. --------------------------------------------------------------------------- [[Page 36959]] [GRAPHIC] [TIFF OMITTED] TR04AU25.267 g. Newly Established Performance Standards for Certain Measures for the FY 2031 Program Year As discussed previously, we have adopted certain measures for the Clinical Outcomes domain (MORT-30-AMI, MORT-30-HF, MORT-30-PN, MORT-30- COPD, MORT-30-CABG, and COMP-HIP-KNEE) and the Efficiency and Cost Reduction domain (MSPB Hospital) for future program years to ensure that we can adopt baseline and performance periods of sufficient length for performance scoring purposes. In accordance with our methodology for calculating performance standards discussed more fully in the Hospital Inpatient VBP Program final rule (76 FR 26511 through 26512), which is codified at 42 CFR 412.160, we are establishing the following performance standards for the FY 2031 program year for the Clinical Outcomes domain and the Efficiency and Cost Reduction domain. We note that the performance standards for the MSPB Hospital measure are based on performance period data. Therefore, we are unable to provide numerical equivalents for the standards at this time. The newly established performance standards for these measures are set out in Table VI.L.-15.\218\ --------------------------------------------------------------------------- \218\ NOTE TO REVIEWERS: Table VI.L.-15 has been updated. --------------------------------------------------------------------------- [[Page 36960]] [GRAPHIC] [TIFF OMITTED] TR04AU25.268

5. Update to the Extraordinary Circumstance Exception (ECE) Policy for

the Hospital VBP Program (a) Background Under our current Extraordinary Circumstances Exception (ECE) regulations, we have granted exceptions with respect to Hospital VBP Program requirements in the event of certain extraordinary circumstances beyond the control of the hospital. We refer readers to the FY 2022 IPPS/LTCH PPS final rule (86 FR 45298 through 45299) and 42 CFR 412.165(c) for additional details related to the Hospital VBP Program ECE policy. We also refer readers to the QualityNet website for the specific requirements for submission of an ECE request in the Hospital VBP Program.\219\ --------------------------------------------------------------------------- \219\ https://qualitynet.cms.gov/inpatient/hvbp/participation#tab6. --------------------------------------------------------------------------- Our ECE policies provide flexibility for Hospital VBP program participants to ensure continuity of quality care delivery and measure scoring in the event of an extraordinary circumstance. For instance, we recognize that, in circumstances where a full exception is not applicable, it is beneficial for a hospital to report data later than the reporting deadline. Delayed reporting authorized under our ECE policy allows temporary relief for a hospital experiencing an extraordinary circumstance while preserving the benefits of data reporting such as transparency and informed decision-making for beneficiaries and providers alike. Accordingly, we proposed to update our regulations to specify that an ECE could take the form of an extension of time for a hospital to comply with a data reporting requirement if CMS determines that this type of relief would be appropriate under the circumstances. (b) Update to the Extraordinary Circumstances Exception (ECE) Policy for the Hospital VBP Program In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18300 through 18301), we proposed to update the current ECE policy codified at 42 CFR 412.165(c) to include extensions of time as a form of relief and to further clarify the policy. Specifically, at proposed Sec. 412.165(c)(1), we proposed that CMS may grant an ECE with respect to reporting requirements in the event of an extraordinary circumstance-- defined as an event beyond the control of a hospital (for example, a natural or man-made disaster such as a hurricane, tornado, earthquake, terrorist attack, or bombing)--that affected the ability of the hospital to comply with one or more applicable reporting requirements with respect to a fiscal year. We proposed that the process for requesting or granting an ECE would remain the same as the current ECE process, detailed by CMS at the QualityNet website or a successor website.\220\ At proposed Sec. 412.165(c)(2)(i), we proposed that a hospital may request an ECE within 30 calendar days of the date that the extraordinary circumstance occurred. Our current policy allows a request within 90 days; however, this proposed change would align to CMS systems implementation requirements across all quality reporting programs. Under this proposed codified policy, we clarified that CMS retains the authority to grant an ECE as a form of relief at any time after the extraordinary circumstance has occurred. At proposed Sec. 412.165(c)(2)(ii), we proposed that CMS notify the requestor with a decision in writing. In the event that CMS grants an ECE to the hospital, the written decision would specify whether the hospital is exempted from one or more reporting requirements or whether CMS has granted the hospital an [[Page 36961]] extension of time to comply with one or more reporting requirements. --------------------------------------------------------------------------- \220\ https://qualitynet.cms.gov/inpatient/iqr/participation#tab3. --------------------------------------------------------------------------- Additionally, at Sec. 412.165(c)(3), we noted that CMS may grant an ECE to one or more hospitals that have not requested an ECE if CMS determines either of the following: a systemic problem with a CMS data collection system directly impacted the ability of the hospital to comply with a quality data reporting requirement, or that an extraordinary circumstance has affected an entire region or locale. As is the case under our current policy, any ECE granted will specify whether the affected hospitals are exempted from one or more reporting requirements or whether CMS has granted the hospitals an extension of time to comply with one or more reporting requirements. This ECE policy would provide further reporting flexibility for hospitals and clarify the ECE process. We invited public comment on our proposals. We received many general comments regarding our ECE-related proposals. However, we did not receive any comments specific to these updates for the Hospital VBP Program. For our responses to general comments, we refer readers to our responses in the Hospital IQR section of this final rule (section X.C). After consideration of the public comments, we will finalize our ECE proposals as proposed, except for the proposed 30-day deadline. In lieu of the 30-day deadline and as discussed further in the Hospital IQR section of this final rule (section X.C.), we will finalize an ECE deadline of 60 days following an extraordinary circumstance. We are making conforming amendments to our regulation text (at 412.165(c)(2)(i)) to reflect this policy change.

6. Proposed Removal of the Health Equity Adjustment From the Hospital

VBP Program In the FY 2024 IPPS/LTCH PPS final rule (88 FR 59092 through 59106), we adopted a Health Equity Adjustment (HEA) that, beginning with the FY 2026 program year, rewards top performing hospitals that serve higher proportions of patients with dual eligibility status. We codified the HEA at Sec. Sec. 412.160 and 412.165(b) of our regulations. Section 1886(o)(5)(A) of the Act authorizes the Secretary to develop the methodology for assessing hospital performance based on performance standards established with respect to the measures selected for the Hospital VBP Program. As discussed in the FY 2024 IPPS/LTCH PPS final rule, by providing the HEA to hospitals that serve higher proportions of patients with dual eligibility status and that perform well on quality measures, the HEA would appropriately recognize the resource intensity expended to achieve high performance on quality measures by hospitals that serve a high proportion of patients with dual eligibility status, while also mitigating the worse health outcomes experienced by dually eligible patients through incentivizing better care across all hospitals. In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18301), we proposed to remove the HEA because simplifying the Hospital VBP Program's scoring methodology by removing the HEA would improve hospitals' understanding of the program and provide clearer incentives to hospitals as they seek to improve the quality of care for all patients. As noted in section I.G. of Appendix A of the proposed rule, in Table I.G.6.-01 and Table I.G.6.-02, the overall impact of the HEA on the overall payment adjustments is small. With the HEA, the average net percentage payment adjustment from the Hospital VBP Program for FY 2026 is 0.170 percent and without the HEA, the average net percentage payment adjustment is 0.168 percent. Given this relatively small impact, and in light of the Administration's priority to streamline regulations and reduce burdens on those participating in the Medicare program, we proposed to remove the HEA. We refer readers to ``Supplementary Information'' section of this final rule for the Unleashing Prosperity Through Deregulation of the Medicare Program-- Request for Information for more information. We considered altering the structure of the adjustment methodology to simplify it, but that process would require time to develop and test a new adjustment and, if pursued, would be addressed in future rulemaking. We did not anticipate any serious reliance interests as a result of this proposal since the HEA does not require any additional reporting burden. We proposed to codify this removal of the HEA by removing the definition of ``Health equity adjustment bonus points'' in Sec. 412.160 of our regulations and revising Sec. 412.165(b) to remove the calculation and addition of health equity adjustment bonus points from the Total Performance Score calculation beginning with the FY 2026 program year. We referred readers to Table I.G.6.-01 (90 FR 18471 through 18472) and Table I.G.6.-02 (90 FR 18473) in Section 6: Effects of Changes Under the FY 2026 Hospital Value-Based Purchasing (VBP) Program in the proposed rule, which reflected an estimated impact analysis of base operating DRG payment amounts resulting from the FY 2026 Hospital VBP Program with and without the HEA, respectively. We invited public comment on these proposals. Comment: A few commenters supported the proposal to remove the HEA, while noting their continued commitment to providing high-quality care for all, and did not suggest other alternative adjustments. Response: We thank the commenters for their feedback and support their commitment to providing high-quality care to all patients. Comment: Several commenters acknowledged the importance of providing additional resources to hospitals serving a high proportion of dually eligible beneficiaries but did not take a strong position on supporting or opposing the proposal to removal HEA. Instead, the commenters suggested CMS explore other mechanisms, such as the beneficiary economic risk adjustment variable proposed for TEAM, noting the importance of transparency and simplicity. One commenter acknowledged the calculation's complexity but suggested that other policies such as the dual-eligible patient index have also created confusion. Response: We thank the commenters for this feedback. As stated in the proposed rule (90 FR 18301), it would require time to develop and test an alternative, simplified structure for the HEA's bonus methodology. If we decide to propose a different adjustment in the future, we would review adjustments adopted in other CMS quality programs to enhance cross-program alignment whenever feasible and effective and then propose the adjustment in future rulemaking. Comment: Most commenters strongly opposed the proposal to eliminate the HEA, noting the HEA shifted much-needed financial support towards hospitals operating on thin margins and serving high-risk, complex communities. Some commenters recommended CMS delay the HEA's removal until a robust, data-driven alternative is in place, and suggested CMS convene stakeholder panels to develop the new adjustment. Response: As we discussed in the proposed rule (90 FR 18301), the effect of the HEA on the average net percentage payment adjustment provided by the Hospital VBP Program is small. We proposed to remove the adjustment beginning with the FY 2026 program year. This timing avoids burden by removing it before it was implemented for the first time. If we were to delay removal, burden would be incurred in the years the adjustment [[Page 36962]] was in effect. As described above, if we decide to propose a different payment adjustment in the future, we would review other programs' adjustments as well as stakeholder input and propose in future rulemaking. Comment: Many commenters opposed the proposal to remove the HEA, stating HEA helps hospitals that face challenges providing care to the patients in their communities. The commenters also suggested that CMS has not had sufficient time to evaluate the adjustment's impact on health outcomes and expressed worry that the removal may have unintended consequences for health outcomes. A commenter recommended that CMS continue the HEA for at least five years to fully evaluate the impact of the adjustment on health outcomes. Other commenters worried that the adjustment's removal would have a disproportionate effect on safety net hospitals that often care for dually eligible beneficiaries and hospitals in rural areas, both of which frequently operate under financial strain because they provide critical but unprofitable services. Response: As we explained in the proposed rule, we are addressing the additional complexity provided by the HEA in the Hospital VBP Program. As stated in the proposed rule, simplifying the program's scoring methodology by removing the HEA will enhance providers' understanding of the program's quality incentives and its quality improvement goals, and we do not believe it would be appropriate to wait five years to simplify the program. We will continue monitoring safety net hospitals and rural hospitals as part of our monitoring and evaluation work as we work to maintain access to high-quality care for all Medicare beneficiaries. We remind commenters that, as we discussed above, the effect of the HEA on the average net percentage payment adjustment provided by the Hospital VBP Program is small, and by removing it effective for the FY 2026 Hospital VBP program year before it has taken effect, we will avoid burdening participating hospitals with the adjustment's complexity. Comment: A commenter stated that removing the HEA would return healthcare provision to an era where healthcare systems that provide care for the most medically and socially complex patients are no longer recognized for that additional burden. A few commenters rejected the need to remove HEA as a means of simplifying the scoring methodology, providing clearer incentives to hospitals, or reducing burden, thus opposing HEA removal and disagreeing with the intended goals of its removal. One commenter suggested CMS could resolve that complexity by providing better education to hospitals. Response: We appreciate the commenters' concerns for hospitals that care for the most medically and socially complex patients. As outlined in the proposal, simplifying the program's scoring methodology by removing the HEA will enhance providers' understanding of the program's quality incentives and its quality improvement goals, and is consistent with the Administration's priority to streamline regulations on those participating in the Medicare program. We intend to continue working to educate participating providers on the mechanics of our quality programs to promote their understanding and their ability to compete for quality incentive payments. We note, however, that the complexity added to the program's scoring methodology by the Health Equity Adjustment makes such educational efforts, particularly for new hospitals, more challenging. Comment: Some commenters opposed HEA removal and stated that the Hospital VBP Program should consider differences in a provider's patient population, including social risk factors, to counter the challenges faced in achieving good clinical outcomes. The commenters recommended considering an alternative design for the Hospital VBP Program if HEA is removed, with one commenter suggesting a new hospital value incentive program that accounts for social risk factors through a peer grouping approach and another suggesting the alternative design focus on upstream factors related to patients' health. Response: We thank commenters for their feedback and suggestions on potential Hospital VBP Program methodology adjustments. The program remains a pay-for-performance quality program designed to make the quality of care better for hospital patients and hospital stays a better experience by encouraging hospitals to improve the quality, efficiency, patient experience and safety of care that Medicare beneficiaries receive during acute care inpatient stay. We note further that the program's design is specified by statute and is intended to address the care quality provided by inpatient hospitals. CMS will continue to evaluate the Hospital VBP program and support alignment between the program's goals and methodology. Comment: Some commenters opposed the proposal to remove HEA, arguing the adjustment helps protect vulnerable and historically underserved populations, including patients with severe mental illness, complex social needs, low socioeconomic status, and dual eligibility status. Multiple commenters noted the adjustment will help underfunded safety net hospitals and hospitals in rural communities drive culture change and serve patients with medical complexities and financial hardships. Other commenters stated that the HEA encourages hospitals to focus on providing high-quality care to vulnerable patients, including maternal and psychiatric patients, and can lead to reduced health care costs in the long run. A commenter stated that hospitals working on care quality issues for vulnerable patients need appropriate infrastructure to be sustainable for all the communities they serve and suggested that eliminating the HEA risks penalizing hospitals that are working to address gaps in health outcomes. Response: We appreciate the commenters' insights and remarks on safety net hospitals' financial needs, as well as the complexities associated with high-risk patient populations. CMS will continue monitoring the quality of care provided by these hospitals and the effects of the Hospital VBP Program as parts of our monitoring and evaluation efforts. However, as discussed above, we note that the average net percentage payment adjustment provided by the Hospital VBP Program is small. We have concluded that the merits of the additional payment adjustment are outweighed by the complexity it adds to the program's scoring methodology. We expect that all hospitals strive to provide the best possible care to all of their patients and we do not agree that the adjustment's removal will impair those efforts by hospitals, doctors, and other medical staff. We agree with the commenter that hospitals need appropriate infrastructure to be able to serve all their patient communities. We will continue monitoring the effects of Medicare payment policy on numerous aspects of care quality and delivery, including maternal health and mortality. Comment: A commenter stated that the Hospital VBP Program represents a step towards a ``total cost of care'' model, and that removing the HEA would harm hospitals that serve higher proportions of dually eligible patients. The commenter estimated that safety-net hospitals will receive an estimated $29 million in additional payment adjustments from the HEA and that as a result, those hospitals and their patients will bear the brunt of the negative impact if the adjustment is removed. The commenter suggested that the HEA was a notable step to [[Page 36963]] strengthen value-based care reforms and aligns with the Trump Administration's repeated emphasis on a new approach to health care that factors in nutrition and environmental impacts. Response: The original intention of the adjustment was to develop a methodology to reward top performing hospitals serving higher proportions of patients with dual eligibility status. However, we do not view the incorporation of these additional topics as a new payment model. CMS intends to identify potential avenues for the Hospital VBP Program to address nutrition, environmental impacts, and other potential factors that may affect the provision of high-quality health care in the inpatient hospital setting in the future. We will continue to evaluate the program's methodology for alignment with the program's objectives. After consideration of the public comments that we received, we are finalizing our proposal to remove the Health Equity Adjustment from the Hospital VBP Program effective with the FY 2026 program year. We are also finalizing our proposal to codify this policy by removing the definition of ``Health equity adjustment bonus points'' in Sec. 412.160 of our regulations and revising Sec. 412.165(b) to remove the calculation and addition of health equity adjustment bonus points from the Total Performance Score calculation beginning with the FY 2026 program year. We refer readers to Table I.G.6.-01 in Section 6: Effects of Changes Under the FY 2026 Hospital Value-Based Purchasing (VBP) Program, which reflect an estimated impact analysis of base operating DRG payment amounts resulting from the FY 2026 Hospital VBP Program without the HEA.

1. Regulatory Background

We refer readers to the FY 2014 IPPS/LTCH PPS final rule (78 FR 50707 through 50709) for a general overview of the Hospital-Acquired Condition (HAC) Reduction Program and a detailed discussion of the statutory basis for the Program. We also refer readers to 42 CFR 412.170 through 412.172 for codified HAC Reduction Program requirements.

2. Measures for FY 2026 and Subsequent Years in the HAC Reduction

Program a. Current Measures The previously finalized measures for the HAC Reduction Program for FY 2026 and subsequent years are shown in table VI.M.-01. Technical specifications for the CMS Patient Safety and Adverse Events Composite (CMS PSI 90) measure can be found on the QualityNet website available at: https://qualitynet.cms.gov/inpatient/measures/psi/resources. Technical specifications for the Centers for Disease Control and Prevention's (CDC) National Healthcare Safety Network (NHSN) healthcare-associated infection (HAI) measures can be found at the CDC's NHSN website at: https://www.cdc.gov/nhsn/acute-care-hospital/index.html and on the QualityNet website available at: https://qualitynet.cms.gov/inpatient/measures/hai/resources. These web pages provide measure updates and other information necessary to guide hospitals participating in the collection of HAC Reduction Program data. [GRAPHIC] [TIFF OMITTED] TR04AU25.269 We did not propose to add or remove any measures in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18302). We refer readers to section I.G.7. of Appendix A of this final rule for an updated estimate of the impact of the Program policies on the proportion of hospitals in the worst performing quartile of Total HAC Scores for the FY 2026 HAC Reduction Program. b. Technical Update to CDC's National Healthcare Safety Network Healthcare-Associated Infection Measures for the HAC Reduction Program In this section, we provide information regarding upcoming changes to the standard population data that are used to calculate the standardized infection ratio (SIR) for the CDC's NHSN measures. These changes are occurring as part of routine measure maintenance. CDC's NHSN measures are used to monitor hospital performance on prevention of healthcare-associated infections (HAIs). For each NHSN measure, CDC calculates the SIR, which compares a hospital's observed number of HAIs to the number of infections predicted for the hospital, adjusting for several risk factors. The predicted number of infections is determined using the amount of exposure (for example, the number of central line days when predicting CLABSI events) for a given hospital according to the relevant observed risk factors and infection rates for the same combination of risk factors that occurred among a standard population during a specified period as reflected by the appropriate risk adjustment model (this is sometimes referred to as a ``baseline,'' \221\ but referred to here as [[Page 36964]] ``standard population data''). This set of rates forms standard population data that promotes timely comparisons to measure change in an outcome. Since 2016, CDC has been using data collected in CY 2015 to determine the standard population and, currently, the 2015 standard population is used to calculate the HAI measures in the HAC Reduction Program.\222\ Prior to 2016, calculated SIRs had different standard population years for each infection type and facility type.\223\ --------------------------------------------------------------------------- \221\ ``Rebaseline'' is a term that CDC's NHSN staff use to describe the process of updating the national HAI baseline data and risk adjustment models developed using these data. As part of routine measure maintenance, CDC has updated the baseline to ensure the number of predicted infections used in SIR calculations reflects the current state of HAIs in the United States using CY 2022 data. The CDC released its initial announcement of this rebaseline in June 2023. Resources and training regarding the 2015 and 2022 standard population data can be found at: https://www.cdc.gov/nhsn/nhsnrebaseline/index.html. \222\ Centers for Disease Control and Prevention. CHARTING THE COURSE: 2022 HAI REBASELINE. Available at: https://www.cdc.gov/nhsn/pdfs/rebaseline/22-Rebaseline-FAQs-Final-Version.pdf. \223\ Centers for Disease Control and Prevention. Paving the Path Forward: 2015 Rebaseline. Available at: https://www.cdc.gov/nhsn/2015rebaseline/index.html. --------------------------------------------------------------------------- During this update, HAI SIR calculations of infections reported beginning in CY 2025 will reflect the use of both the new 2022 standard population data and the 2015 standard population data. We anticipate that the new 2022 standard population data will affect the HAC Reduction Program beginning with the FY 2028 program year when both years of the 2-year applicable period (also referred to as the ``performance period'' of the measures), CY 2025 and CY 2026, will use the 2022 update to the standard population for the CDC's NHSN measures. Under the HAC Reduction Program, confidential reports are made available to hospitals with respect to HACs of the hospital during the applicable period (78 FR 50708 through 50709). In the FY 2019 IPPS/LTCH PPS final rule (83 FR 41484 through 41489), we clarified the Scoring Calculations Review and Correction Period (83 FR 41484) for the HAC Reduction Program, which provides hospitals with detailed HAC Reduction Program data and results in confidential Hospital-Specific Reports (HSRs). We give hospitals 30 days to review their HAC Reduction Program data, submit questions about the calculation of their results, and request corrections prior to such information being made public.\224\ The HAI measures using the 2022 update to the standard population in the FY 2028 HAC Reduction Program dataset would be publicly reported on the Provider Data Catalog in early 2028. --------------------------------------------------------------------------- \224\ For more information on the Scoring Calculations Review and Correction Period, see: https://qualitynet.cms.gov/inpatient/hac/payment#tab2. --------------------------------------------------------------------------- For the HAI measure information publicly reported on the Compare tool on Medicare.gov, it will continue to display on a quarterly basis calculated from a rolling four quarters of data. The HAI measures using the 2022 update to the standard population data will begin to be publicly reported on the Compare tool in fall 2026 using four quarters of CY 2025 data. [GRAPHIC] [TIFF OMITTED] TR04AU25.270 As we stated in the FY 2018 IPPS/LTCH PPS final rule (82 FR 38324), our current policy has been to report data as soon as it is feasible on CMS websites such as the Compare tool and the Provider Data Catalog, after a 30-day preview period.\225\ Table VI.M.-03 summarizes the HAI performance periods, the standard population data year, HAC Reduction Program year, and public reporting timeframe for the CDC's NHSN measures. --------------------------------------------------------------------------- \225\ For more information on the Care Compare Preview period, see: https://qualitynet.cms.gov/inpatient/public-reporting/public-reporting/hospital-compare-preview. [GRAPHIC] [TIFF OMITTED] TR04AU25.271 We refer readers to section VI.L.4.b of this final rule, where we provided notice of technical updates to the standard population data for the CDC's NHSN HAI measures in the Hospital Value-Based Purchasing (VBP) Program. While we are not required to solicit comments on technical updates, we invited public comment on this technical update. Comment: Many commenters expressed strong support for updating the CDC NHSN HAI measure baseline year from 2015 to 2022 baseline data. Commenters emphasized that utilizing current CDC data not only enhances the accuracy of infection control performance measurement in a post- pandemic context but also aligns benchmarks with modern clinical practices. A commenter recommended that CMS publish comparative data showing the impact of the updated baseline on historical performance, stratified by hospital type and size. Response: We thank commenters for their support. We agree that utilizing current CDC data enhances the accuracy of infection control performance measurement in a post-pandemic context and aligns benchmarks with modern clinical practices. We appreciate commenters' recommendation to publish comparative data showing the impact of the updated baseline on historical performance, stratified by hospital type and size. We will take this recommendation into consideration to determine the feasibility of providing that data. Comment: A few commenters expressed support for updating the CDC [[Page 36965]] NHSN HAI measure baseline year from 2015 to 2022 baseline data but recommended postponing implementation of the technical update. A few of these commenters recommended aligning the baseline year for the HAC Reduction Program with that of the Hospital VBP Program, beginning with FY 2029 for both programs, as it would allow for a coordinated approach that would enhance clarity, reduce administrative burden, and ensure more meaningful comparisons across programs using the same underlying measures. Another commenter stated that there were challenges and delays that had been noted by healthcare providers updating to the new baseline due to technical issues with the NHSN reporting system. These issues include frequent changes to module tables, acceptance of incomplete data, and errors during data uploads. Another commenter noted that some of the rebaseline models were not yet published at the time of the proposed rule. These commenters recommended that CMS delay implementation of the 2022 baseline in the HAC Reduction Program to provide time for hospitals to understand their data and align with federal requirements and reimbursement practices without penalty. Response: We thank commenters for their support. While we understand commenters' recommendation to align with the Hospital VBP Program, we note that the Hospital VBP Program's scoring methodology differs from the HAC Reduction Program in that it uses a one year performance period and that it calculates improvement points using comparisons between data collected from hospitals in a baseline period and data collected in a performance period. At this time, we still anticipate that the new 2022 standard population data will affect the HAC Reduction Program beginning with the FY 2028 program year when both years of the 2-year applicable period, CY 2025 and CY 2026, will use the 2022 update to the standard population for the CDC's NHSN measures. We appreciate commenters' input on the technical updates to the standard population data for the CDC's NHSN HAI measures for the HAC Reduction Program.

3. Codification of the Extraordinary Circumstances Exception Policy for

the HAC Reduction Program a. Background In the FY 2022 IPPS/LTCH PPS final rule (86 FR 45309 through 45310), we clarified that an Extraordinary Circumstances Exception (ECE) granted under the HAC Reduction Program may allow an exception from quality data reporting requirements and may grant a request to exclude any data submitted (whether submitted for claims purposes or to the CDC's NHSN) from the calculation of a hospital's measure results or Total HAC Score for the applicable period or both, depending on the exact circumstances under which the request was made. We intend to provide relief for a hospital whose ability to accurately collect quality measure data and to report those data in a timely manner has been negatively impacted as a direct result of experiencing a significant disaster or other extraordinary circumstance beyond the control of a hospital (80 FR 49579 through 49581) or both. An exception may be granted for extraordinary circumstances including, but not limited to, natural disasters or systemic problems with data collection systems.\226\ We refer readers to the FY 2016 IPPS/LTCH PPS final rule (80 FR 49579 through 49581), FY 2018 IPPS/LTCH PPS final rule (82 FR 38276 through 38278), and FY 2022 IPPS/LTCH PPS final rule (86 FR 45308 through 45310) for further background and details of our ECE policy. We also refer readers to the QualityNet website for the specific requirements for submission of an ECE request in the HAC Reduction Program.\227\ Hospitals can request a CMS Quality Program ECE for multiple programs based on the same extraordinary circumstance using one ECE request form, including the Hospital IQR Program, the Hospital VBP Program, and the Hospital Readmissions Reduction Program. --------------------------------------------------------------------------- \226\ Centers for Medicare & Medicaid Services (CMS) Quality Program Extraordinary Circumstances Exceptions (ECE) Request Form. (2025). QualityNet. Available at: https://qualitynet.cms.gov/files/677e843f50ed8df7419f60e1?filename=HQR_ECE_Req_Form_CY_2025.pdf. \227\ CMS QualityNet. Available at: https://qualitynet.cms.gov/inpatient/hac/participation#tab2. --------------------------------------------------------------------------- Our ECE policy provides flexibility for HAC Reduction Program participants to ensure continuity of quality care delivery and measure reporting in the event of an extraordinary circumstance. For instance, we recognize that, in circumstances where an exclusion of any data submitted from the calculation of a hospital's measure results or Total HAC Score for the applicable period is not applicable, it may be beneficial for a hospital to report data later than the reporting deadline. Delayed reporting authorized under the ECE policy would allow temporary relief for a hospital experiencing an extraordinary circumstance, while preserving data reporting benefits such as transparency and informed decision-making for beneficiaries and providers alike. Accordingly, in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18303 and 18304), we proposed to specify that an ECE could take the form of an extension of time for a hospital to comply with a data reporting requirement if CMS determines that this type of relief would be appropriate under the circumstances. b. Codification of the Extraordinary Circumstances Exception (ECE) Policy for the HAC Reduction Program In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18303 and 18304), we proposed to codify the ECE policy at 42 CFR 412.172(c) and include extensions of time as a form of relief. Specifically, at Sec. 412.172(c)(1), we proposed that CMS may grant an ECE with respect to reporting requirements in the event of an extraordinary circumstance-- defined as an event beyond the control of a hospital (for example a natural or man-made disaster such as a hurricane, tornado, earthquake, terrorist attack, or bombing)--that affected the ability of the hospital to comply with one or more applicable reporting requirements with respect to a fiscal year. We proposed that the process for requesting or granting an ECE would remain the same as the current ECE process, detailed by CMS at the QualityNet website or a successor website.\228\ At Sec. 412.172(c)(2)(i), we proposed that a hospital may request an ECE within 30 calendar days of the date that the extraordinary circumstance occurred. Under this proposed policy, we clarify that CMS retains the authority to grant an ECE as a form of relief at any time after the extraordinary circumstance has occurred. At Sec. 412.172(c)(2)(ii), we proposed that CMS notify the requestor with a decision in writing, via email. In the event that CMS grants an ECE to the hospital, the written decision will specify whether the hospital is exempted from one or more reporting requirements or whether CMS has granted the hospital an extension of time to comply with one or more reporting requirements. --------------------------------------------------------------------------- \228\ CMS QualityNet. Available at: https://qualitynet.cms.gov/inpatient/iqr/participation#tab3. --------------------------------------------------------------------------- Additionally, at Sec. 412.172(c)(3), we note that CMS may grant an ECE to one or more hospitals that have not requested an ECE if CMS determines that: a systemic problem with a CMS [[Page 36966]] data collection system directly impacted the ability of the hospital to comply with a quality data reporting requirement, or that an extraordinary circumstance has affected an entire region or locale. Any ECE granted will specify whether the affected hospitals are exempted from one or more reporting requirements or whether CMS has granted the hospitals an extension of time to comply with one or more reporting requirements. The ECE policy is intended to provide hospitals with further reporting flexibility and clarity regarding expectations when submitting ECE requests for participants of the HAC Reduction Program. We refer readers to sections X.C.8, VI.L.5, VI.K.3.c., and X.D.4. of the preamble of this final rule for similar ECE policy changes in the Hospital IQR Program, Hospital VBP Program, Hospital Readmissions Reduction Program, and PCHQR Program, respectively. We invited public comment on our proposals. Comment: Many commenters supported the proposal to formally codify and clarify the ECE policy in the HAC Reduction Program. Commenters stated that this policy will provide hospitals with needed clarity and flexibility when facing events beyond their control that impede timely data submission, is practical, and recognizes the varying needs of different facilities and different circumstances. Response: We thank commenters for their support. Comment: Several commenters recommended that CMS explicitly include cyber-attacks as a qualifying event for granting an ECE because cyber- attacks can disable data systems for extended periods. Another commenter recommended that ECE include infectious disease emergencies due to their downstream impacts on health care systems. Response: We thank commenters for their recommendations. We note that extraordinary circumstances are not limited to the examples provided in the CFR language and proposal. We have received and accepted multiple ECE requests due to cyber-attacks across reporting programs. We recommend that hospitals submit an ECE request anytime an event beyond the control of a hospital affected the ability of the hospital to comply with one or more reporting requirements with respect to a fiscal year regardless of whether it was included in the examples provided in the CFR language and proposal. Comment: Several commenters, while supporting this proposal, expressed concern that CMS may replace reporting exemptions with extensions, regardless of the circumstances, and recommended that CMS continue to grant complete reporting exemptions in the case of an extraordinary circumstance, and to use extensions when appropriate. Commenters requested that CMS provide additional details on how the determination of an exception versus an extension will be made. Response: We thank commenters for their recommendation. We will continue to consider ECE applications on a case-by-case basis and offer any exception or extension based on the nature of the extraordinary circumstance and the capacity of the provider, as well as CMS operational feasibility to grant an exception versus an extension. We note our preference to grant an extension when it can be feasibly granted because of the importance of having quality measure data particularly for public reporting purposes, as transparency is a paramount goal of the program. Comment: A few commenters recommended that CMS produce publicly available guidance for ECE requests to set consistent expectations to ensure that ECE eligibility criteria are applied equitably across all facilities, with particular attention to hospitals serving medically complex, high-risk, or underserved patient populations in order to maintain fairness in the HAC Reduction Program that carries financial penalties for hospitals in the bottom quartile of performance. One commenter requested CMS provide additional clarification on its processes and policies associated with approving ECE requests related to cyberattacks, including publicly posting any supplemental ECE questionnaires that could aid a hospital in an initial ECE application. Response: We thank commenters for their recommendations. We note that QualityNet provides the ECE Request Form, ECE Information and Resources document, and ECE Quick Reference document, all of which are updated as necessary. We will continue to update these documents to provide updated information, resources, and references.\229\ --------------------------------------------------------------------------- \229\ We note that the HACRP ECE QualityNet site is available at: https://qualitynet.cms.gov/inpatient/hac/participation#tab2, which links to the Hospital IQR ECE web page, available at: https://qualitynet.cms.gov/inpatient/iqr/participation#tab3 for reference materials. --------------------------------------------------------------------------- Comment: Several commenters did not support the reduced timeframe for hospitals to submit an ECE request from 90 days to 30 days. Commenters stated that, following these extraordinary events, hospitals focus on staying operational and continuing to provide care for their patients and communities, and they do not have sufficient bandwidth to assess the impact on quality data submissions and complete the necessary paperwork within 30 days. For example, one commenter cited recent flooding in Virginia and North Carolina, noting that hospitals remained in crisis mode even 30 days after the event, and suggested that a 60-day deadline might be a more realistic compromise. Another commenter cited a significant ransomware attack which adversely affected their Certified Electronic Health Record Technology (CEHRT) applications and multiple data systems across their health system which caused them to request multiple ECEs related to various data reporting requirements during that time. Commenters also recommended that CMS retain the discretion to accept late requests in truly extraordinary circumstances, thereby safeguarding hospitals from unfair penalties for delayed submissions amid disasters. A few commenters supported the 30-day time period to request an exemption. Response: We appreciate commenters' responses. After reviewing the concerns raised by commenters regarding the timeframe for making an ECE request, we have further considered what constitutes an appropriate number of days based on commenters' feedback and examples. Nevertheless, we wish to reduce the timeframe for ECE applications across hospital settings for operational improvement while balancing the possible need for additional time by providers depending on the particular extraordinary circumstance. Therefore, we are finalizing a modified policy that states that a hospital may request an ECE within 60 calendar days of the date that the extraordinary circumstance occurred. We believe this timeframe will provide significant time for hospitals to assess the impact on quality reporting without disrupting operational and care needs. After consideration of the public comments we received, we are finalizing our proposal to codify and update our ECE proposal with modification. After consideration of concerns identified in public comments regarding the proposed 30 calendar day timeframe during which a hospital may request an ECE, and for the reasons described above, we are finalizing a different timeframe in which an ECE can be requested. We will allow up to 60 calendar days for ECE requests after the precipitating event. We amended the [[Page 36967]] proposed CFR text to reflect this extended deadline.

1. Introduction

The Rural Community Hospital Demonstration was originally authorized by section 410A of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) (Pub. L. 108-173). The demonstration has been extended three times since the original 5-year period mandated by the MMA, each time for an additional 5 years. These extensions were authorized by sections 3123 and 10313 of the Affordable Care Act (Pub. L. 111-148), section 15003 of the 21st Century Cures Act (Pub. L. 114-255) (Cures Act) enacted in 2016, and most recently, by section 128 of the Consolidated Appropriations Act, 2021 (Pub. L. 116- 260), which also reauthorized the RCHD for five years. Later in this section we summarize the status of the demonstration program and the current methodologies for implementation and calculating budget neutrality, and propose the amount to be subtracted from the national IPPS payment rates to account for the costs of the demonstration in FY 2026. The amount would include the reconciled amount of demonstration costs for FY 2020 in the FY 2026 IPPS/LTCH final rule. All finalized cost reports for FY 2020 were available for the FY 2026 IPPS/LTCH final rule at this time. Last year we published a new solicitation (89 FR 105049, December 26, 2024) to select 10 additional qualifying hospitals to participate in the Rural Community Hospital Demonstration. We only accepted applications to this solicitation from hospitals in the 20 least densely populated States, according to data for 2020 from the U.S. Census Bureau. These States are: Alaska, Arizona, Arkansas, Colorado, Idaho, Iowa, Kansas, Maine, Mississippi, Montana, Nebraska, Nevada, New Mexico, North Dakota, Oklahoma, Oregon, South Dakota, Utah, Vermont, and Wyoming. We did not accept applications from hospitals located in other States or in the U.S. territories. Applications were due March 1, 2025; 11 additional hospitals were selected to join the demonstration on a rolling basis beginning May 1, 2025. Given the upcoming statutory termination of the model, we are aligning performance dates for the selected hospitals with the last performance day for the currently authorized extension; therefore, although previous agreements ran for 5-year periods, agreements for hospitals selected under the December 26, 2024 solicitation will run until June 30, 2028.

2. Background

Section 410A(a) of the MMA (Pub. L. 108-173) required the Secretary to establish a demonstration program to test the feasibility and advisability of establishing rural community hospitals to furnish covered inpatient hospital services to Medicare beneficiaries. The demonstration pays rural community hospitals under a reasonable cost- based methodology for Medicare payment purposes for covered inpatient hospital services furnished to Medicare beneficiaries. A rural community hospital, as defined in section 410A(f)(1), is a hospital that-- Is located in a rural area (as defined in section 1886(d)(2)(D) of the Act) or is treated as being located in a rural area under section 1886(d)(8)(E) of the Act; Has fewer than 51 beds (excluding beds in a distinct part psychiatric or rehabilitation unit) as reported in its most recent cost report; Provides 24-hour emergency care services; and Is not designated or eligible for designation as a CAH under section 1820 of the Act. Our policy for implementing the 5-year extension period authorized by the CAA, 2021 (Pub. L. 116-260) follows upon the previous extensions under the Affordable Care Act (Pub. L. 111-148) and the Cures Act (Pub.

L. 114-255). Section 410A of the MMA (Pub. L. 108-173) initially

required a 5-year period of performance. Subsequently, sections 3123 and 10313 of the Affordable Care Act (Pub. L. 111-148) required the Secretary to conduct the demonstration program for an additional 5-year period, to begin on the date immediately following the last day of the initial 5-year period. In addition, the Affordable Care Act (Pub. L. 111-148) limited the number of hospitals participating to no more than 30. Section 15003 of the Cures Act (Pub. L. 114-255) required a 10-year extension period in place of the 5-year extension period under the Affordable Care Act (Pub. L. 111-148), thereby extending the demonstration for another 5 years. Section 128 of CAA, 2021 (Pub. L. 116-260), in turn, revised the statute to indicate a 15-year extension period, instead of the 10-year extension period mandated by the Cures Act (Pub. L. 114-255). Please refer to the FY 2023 IPPS proposed and final rules (87 FR 28454 through 28458 and 87 FR 49138 through 49142, respectively) for an account of hospitals entering into and withdrawing from the demonstration with these re-authorizations. In CY 2025, there are currently 30 hospitals participating in the demonstration. In addition to the ten selected initially, one additional hospital was selected to replace one that voluntarily withdrew from the demonstration; in total, we added 11 new hospitals from the new solicitation. 2. Budget Neutrality a. Statutory Budget Neutrality Requirement Section 410A(c)(2) of the MMA (Pub. L. 108-173) requires that, in conducting the demonstration program under this section, the Secretary shall ensure that the aggregate payments made by the Secretary do not exceed the amount that the Secretary would have paid if the demonstration program under this section was not implemented. This requirement is commonly referred to as ``budget neutrality.'' Generally, when we implement a demonstration program on a budget neutral basis, the demonstration program is budget neutral on its own terms; in other words, the aggregate payments to the participating hospitals do not exceed the amount that would be paid to those same hospitals in the absence of the demonstration program. We note that the payment methodology for this demonstration, that is, cost-based payments to participating small rural hospitals, made it unlikely that increased Medicare outlays would produce an offsetting reduction to Medicare expenditures elsewhere. Therefore, in the IPPS final rules spanning the period from FY 2005 through FY 2016, we adjusted the national IPPS rates by an amount sufficient to account for the added costs of this demonstration program, thus applying budget neutrality across the payment system as a whole rather than merely across the participants in the demonstration program. (We applied a different methodology for FY 2017, with the demonstration expected to end prior to the Cures Act extension.) As we discussed in the FYs 2005 through 2017 IPPS/LTCH PPS final rules (69 FR 49183; 70 FR 47462; 71 FR 48100; 72 FR 47392; 73 FR 48670; 74 FR 43922, 75 FR 50343, 76 FR 51698, 77 FR 53449, 78 FR 50740, 77 FR 50145; 80 FR 49585; and 81 FR 57034, respectively), we believe that the statutory language of the budget neutrality requirements permits the agency to implement the budget neutrality provision in this manner. We resumed this methodology of offsetting demonstration costs against the national payment rates in the IPPS final rules from FY 2018 through FY 2025. Please see the FY 2025 IPPS final [[Page 36968]] rule for an account of how we applied the budget neutrality requirement for these fiscal years (89 FR 69412 through 69413). b. General Budget Neutrality Methodology We have generally incorporated two components into the budget neutrality offset amounts identified in the final IPPS rules in previous years. First, we have estimated the costs of the demonstration for the upcoming fiscal year, generally determined from historical, ``as submitted'' cost reports for the hospitals participating in that year. Updated factors representing nationwide trends in cost and volume increases have been incorporated into these estimates, as specified in the methodology described in the final rule for each fiscal year. Second, as finalized cost reports became available, we determined the amount by which the actual costs of the demonstration for an earlier, given year differed from the estimated costs for the demonstration set forth in the final IPPS rule for the corresponding fiscal year, and incorporated that amount into the budget neutrality offset amount for the upcoming fiscal year. If the actual costs for the demonstration for the earlier fiscal year exceeded the estimated costs of the demonstration identified in the final rule for that year, this difference was added to the estimated costs of the demonstration for the upcoming fiscal year when determining the budget neutrality adjustment for the upcoming fiscal year. Conversely, if the estimated costs of the demonstration set forth in the final rule for a prior fiscal year exceeded the actual costs of the demonstration for that year, this difference was subtracted from the estimated cost of the demonstration for the upcoming fiscal year when determining the budget neutrality adjustment for the upcoming fiscal year. We note that we have calculated this difference for FYs 2005 through 2018 between the actual costs of the demonstration as determined from finalized cost reports once available, and estimated costs of the demonstration as identified in the applicable IPPS final rules for these years. c. Budget Neutrality Methodology for the Extension Period Authorized by CAA, 2021 For the most-recently enacted extension period, under the CAA, 2021, we have continued upon the general budget neutrality methodology used in previous years, as described previously in the citations to earlier IPPS final rules. In this final rule, we outline the methodology to be used for determining the offset to the national IPPS payment rates for FY 2026. (1) Methodology for Estimating Demonstration Costs for FY 2026 Consistent with the general methodology from previous years, we are estimating the costs of the demonstration for the upcoming fiscal year, and proposing to incorporate this estimate into the budget neutrality offset amount to be applied to the national IPPS rates for the upcoming fiscal year, that is, FY 2026. We are conducting this estimate for FY 2026 based on 20 hospitals. The methodology for calculating this amount for FY 2026 proceeds according to the following steps: Step 1: For each of these 20 hospitals, we identify the reasonable cost amount calculated under the reasonable cost-based methodology for covered inpatient hospital services, including swing beds, as indicated on the ``as submitted'' cost report for the most recent cost reporting period available. The ``as submitted'' cost report, submitted by each of the 20 hospitals, with a report end date in CY2023 is used. We sum these hospital -specific amounts to arrive at a total general amount representing the costs for covered inpatient hospital services, including swing beds, across the total 20 hospitals eligible to participate during FY 2026. Then, we multiply the total general amount by the FYs 2024, 2025, and 2026 IPPS market basket percentage increases, which are calculated by the CMS Office of the Actuary. (We are using the final market basket percentage increase for FY 2026, which can be found at section VI.B.1. of the preamble to this final rule). The result for the 20 hospitals is the general estimated reasonable cost amount for covered inpatient hospital services for FY 2026. Consistent with our methods in previous years for formulating this estimate, we are applying the IPPS market basket percentage increases for FYs 2024 through 2026 to the applicable estimated reasonable cost amount (previously described) to model the estimated FY 2026 reasonable cost amount under the demonstration. We believe that the IPPS market basket percentage increases appropriately indicate the trend of increase in inpatient hospital operating costs under the reasonable cost methodology for the years involved. Step 2: For each of the participating hospitals, we identify the estimated amount that would otherwise have been paid in FY 2026 under applicable Medicare payment methodologies for covered inpatient hospital services, including swing beds (as indicated on the same set of ``as submitted'' cost reports as in Step 1), if the demonstration had not been implemented. We sum these hospital specific-amounts, and, in turn, multiply this sum by the FYs 2024, 2025, and 2026 IPPS applicable percentage increases. (For FY 2026, we are using the final applicable percentage increase, per section VI.B.1. of the preamble of this final rule). This methodology differs from Step 1, in which we apply the market basket percentage increases to the hospitals' applicable estimated reasonable cost amount for covered inpatient hospital services. We believe that the IPPS applicable percentage increases are appropriate factors to update the estimated amounts that generally would otherwise be paid without the demonstration because IPPS payments constitute the majority of payments that would otherwise be made without the demonstration and the applicable percentage increase is the factor used under the IPPS to update the inpatient hospital payment rates. Step 3: We subtract the amount derived in Step 2 from the amount derived in Step 1. According to our methodology, the resulting amount indicates the total difference for the 20 hospitals (for covered inpatient hospital services, including swing beds), which will be the general estimated amount of the costs of the demonstration for FY 2026. For this final rule, the resulting amount is $47,586,847 and will be incorporated into the budget neutrality offset adjustment for FY 2026. An offset of $47,527,557 was proposed in the FY 2026 IPPS/LTCH PPS proposed rule, and this has adjusted slightly based on the incorporation of the final FY 2026 market basket percentage increase (0.1 percentage point higher than the proposed rule) and the final FY 2026 applicable percentage increase (0.2 percentage point higher than the proposed rule). This estimated amount is based on the specific assumptions regarding the data sources used, that is, recently available ``as submitted'' cost reports and historical update factors for cost and payment. We proposed to include final costs of the demonstration for FY 2026 for all participating hospitals, to include those participating as a result of the current solicitation, in the budget neutrality offset adjustment in the FY 2026 IPPS proposed and final rules. [[Page 36969]] (2) Reconciling Actual and Estimated Costs of the Demonstration for Previous Years As described earlier, we have calculated the difference for FYs 2005 through 2018 between the actual costs of the demonstration, as determined from finalized cost reports once available, and estimated costs of the demonstration as identified in the applicable IPPS final rules for these years. At this time, for the FY2026 final rule, all of the FY2020 finalized cost reports are available and will be reconciled in FY2026. (3) Total Proposed Budget Neutrality Offset Amount for FY 2026 For this FY 2026 IPPS/LTCH PPS final rule, the proposed budget neutrality offset amount for FY 2026 is the amount determined under section X.2.c.(2). of the preamble of this final rule, representing the difference applicable to FY 2026 between the sum of the estimated reasonable cost amounts that would be paid under the demonstration for covered inpatient services to the 20 hospitals eligible to participate in the fiscal year and the sum of the estimated amounts that would generally be paid if the demonstration had not been implemented. This amount is $47,586,847. After consideration of the public comments we received, primarily requesting to expand the number of hospitals participating in the program, we are finalizing our policy without modification.

A. Overview

Section 1886(g) of the Act requires the Secretary to pay for the capital-related costs of inpatient acute hospital services in accordance with a prospective payment system established by the Secretary. Under the statute, the Secretary has broad authority in establishing and implementing the IPPS for acute care hospital inpatient capital-related costs. We initially implemented the IPPS for capital-related costs in the FY 1992 IPPS final rule (56 FR 43358). In that final rule, we established a 10-year transition period to change the payment methodology for Medicare hospital inpatient capital-related costs from a reasonable cost-based payment methodology to a prospective payment methodology (based fully on the Federal rate). FY 2001 was the last year of the 10-year transition period that was established to phase in the IPPS for hospital inpatient capital-related costs. For cost reporting periods beginning in FY 2002, capital IPPS payments are based solely on the Federal rate for almost all acute care hospitals (other than hospitals receiving certain exception payments and certain new hospitals). (We refer readers to the FY 2002 IPPS final rule (66 FR 39910 through 39914) for additional information on the methodology used to determine capital IPPS payments to hospitals both during and after the transition period.) The basic methodology for determining capital prospective payments using the Federal rate is set forth in the regulations at 42 CFR 412.312. For the purpose of calculating capital payments for each discharge, the standard Federal rate is adjusted as follows: (Standard Federal Rate) x (DRG Weight) x (Geographic Adjustment Factor (GAF) x (COLA for hospitals located in Alaska and Hawaii) x (1 + Capital DSH Adjustment Factor + Capital IME Adjustment Factor, if applicable). In addition, under Sec. 412.312(c), hospitals also may receive outlier payments under the capital IPPS for extraordinarily high-cost cases that qualify under the thresholds established for each fiscal year.

1. Exception Payments

The regulations at 42 CFR 412.348 provide for certain exception payments under the capital IPPS. The regular exception payments provided under Sec. 412.348(b) through (e) were available only during the 10-year transition period. For a certain period after the transition period, eligible hospitals may have received additional payments under the special exceptions provisions at Sec. 412.348(g). However, FY 2012 was the final year hospitals could receive special exceptions payments. For additional details regarding these exceptions policies, we refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51725). Under Sec. 412.348(f), a hospital may request an additional payment if the hospital incurs unanticipated capital expenditures in excess of $5 million due to extraordinary circumstances beyond the hospital's control. Additional information on the exception payment for extraordinary circumstances in Sec. 412.348(f) can be found in the FY 2005 IPPS final rule (69 FR 49185 and 49186).

2. New Hospitals

Under the capital IPPS, the regulations at 42 CFR 412.300(b) define a new hospital as a hospital that has operated (under previous or current ownership) for less than 2 years and lists examples of hospitals that are not considered new hospitals. In accordance with Sec. 412.304(c)(2), under the capital IPPS, a new hospital is paid 85 percent of its allowable Medicare inpatient hospital capital related costs through its first 2 years of operation, unless the new hospital elects to receive full prospective payment based on 100 percent of the Federal rate. We refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51725) for additional information on payments to new hospitals under the capital IPPS.

3. Payments for Hospitals Located in Puerto Rico

In the FY 2017 IPPS/LTCH PPS final rule (81 FR 57061), we revised the regulations at 42 CFR 412.374 relating to the calculation of capital IPPS payments to hospitals located in Puerto Rico beginning in FY 2017 to parallel the change in the statutory calculation of operating IPPS payments to hospitals located in Puerto Rico, for discharges occurring on or after January 1, 2016, made by section 601 of the Consolidated Appropriations Act, 2016 (Pub. L. 114-113). Section 601 of Pub. L. 114-113 increased the applicable Federal percentage of the operating IPPS payment for hospitals located in Puerto Rico from 75 percent to 100 percent and decreased the applicable Puerto Rico percentage of the operating IPPS payments for hospitals located in Puerto Rico from 25 percent to zero percent, applicable to discharges occurring on or after January 1, 2016. As such, under revised Sec. 412.374, for discharges occurring on or after October 1, 2016, capital IPPS payments to hospitals located in Puerto Rico are based on 100 percent of the capital Federal rate.

C. Annual Update for FY 2026

The annual update to the national capital Federal rate, as provided in 42 CFR 412.308(c), for FY 2026 is discussed in section III. of the Addendum to this FY 2026 IPPS/LTCH PPS final rule. We also note that in section II.D. of the preamble of this final rule, we discuss our revision to the adjustment to the payment amount for certain clinical trial or expanded access use immunotherapy cases to include other cases where the immunotherapy product is not purchased in the usual manner (such as provided at no cost) [[Page 36970]] that will group to MS-DRG 018 for both operating IPPS payments and capital IPPS payments. We refer readers to section II.D. of this preamble of this final rule for additional details on the finalized payment adjustment for these cases.

A. Rate-of-Increase in Payments To Excluded Hospitals for FY 2026

Certain hospitals excluded from a prospective payment system, including children's hospitals, 11 cancer hospitals, and hospitals located outside the 50 States, the District of Columbia, and Puerto Rico (that is, hospitals located in the U.S. Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa) receive payment for inpatient hospital services they furnish on the basis of reasonable costs, subject to a rate-of-increase ceiling. A per discharge limit (the target amount, as defined in Sec. 413.40(a) of the regulations) is set for each hospital based on the hospital's own cost experience in its base year, and updated annually by a rate-of-increase percentage. For each cost reporting period, the updated target amount is multiplied by total Medicare discharges during that period and applied as an aggregate upper limit (the ceiling as defined in Sec. 413.40(a)) of Medicare reimbursement for total inpatient operating costs for a hospital's cost reporting period. In accordance with Sec. 403.752(a) of the regulations, religious nonmedical health care institutions (RNHCIs) also are subject to the rate-of-increase limits established under Sec. 413.40 of the regulations discussed previously. Furthermore, in accordance with Sec. 412.526(c)(3) of the regulations, extended neoplastic disease care hospitals (formerly classified as ``Subclause II LTCs'') also are subject to the rate-of-increase limits established under Sec. 413.40 of the regulations discussed previously. As explained in the FY 2006 IPPS final rule (70 FR 47396 through 47398), beginning with FY 2006, we have used the percentage increase in the IPPS operating market basket to update the target amounts for children's hospitals, the 11 cancer hospitals, and RNHCIs. Consistent with the regulations at Sec. Sec. 412.23(g) and 413.40(a)(2)(ii)(A) and (c)(3)(viii), we also have used the percentage increase in the IPPS operating market basket to update target amounts for short-term acute care hospitals located in the U.S. Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa. In the FY 2022 IPPS/LTCH PPS final rule (86 FR 45194 through 45207), we rebased and revised the IPPS operating market basket to a 2018 base year, and finalized the use of the percentage increase in the 2018-based IPPS operating market basket to update the target amounts for children's hospitals, the 11 cancer hospitals, RNHCIs, and short-term acute care hospitals located in the U.S. Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa for FY 2022 and subsequent fiscal years. As discussed in section IV. of the preamble of this FY 2026 IPPS/LTCH PPS final rule, we proposed to rebase and revise the IPPS operating basket to a 2023 base year. Therefore, as discussed in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18246 through 18247 and 18307 through 18308), we proposed to use the percentage increase in the proposed 2023-based IPPS operating market basket to update the target amounts for children's hospitals, the 11 cancer hospitals, RNHCIs, and short-term acute care hospitals located in the U.S. Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa for FY 2026 and subsequent fiscal years. Accordingly, for FY 2026, the rate-of-increase percentage to be applied to the target amount for these hospitals would be the FY 2026 percentage increase in the proposed 2023-based IPPS operating market basket. For the FY 2026 IPPS/LTCH PPS proposed rule, based on IGI's 2024 fourth quarter forecast, we estimated that the proposed 2023-based IPPS operating market basket percentage increase for FY 2026 was 3.2 percent (that is, the estimate of the market basket rate-of-increase). Based on this estimate, the FY 2026 rate-of-increase percentage that would be applied to the FY 2025 target amounts in order to calculate the FY 2026 target amounts for children's hospitals, the 11 cancer hospitals, RNHCIs, and short-term acute care hospitals located in the U.S. Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa was 3.2 percent, in accordance with the applicable regulations at 42 CFR 413.40. However, we proposed that if more recent data became available for the FY 2026 IPPS/LTCH PPS final rule, we would use such data, if appropriate, to calculate the final IPPS operating market basket update for FY 2026. As discussed in section IV of the preamble of this FY 2026 IPPS/ LTCH PPS final rule, we finalized the rebasing of the IPPS operating market basket to a 2023 base year without modification. However, more recent data has become available. Based on IGI's second quarter 2025 forecast, we estimate that the 2023-based IPPS operating market basket percentage increase for FY 2026 is 3.3 percent (that is, the estimate of the market basket rate-of-increase). Accordingly, the FY 2026 rate- of-increase percentage that we will apply to the FY 2025 target amounts in order to calculate the FY 2026 target amounts for children's hospitals, the 11 cancer hospitals, RNHCIs, and short-term acute care hospitals located in the U.S. Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa is 3.3 percent, which is based on IGI's second quarter 2025 forecast. We received no comments on this proposal and therefore are finalizing this provision without modification. Incorporating more recent data available for this final rule, as we proposed, we are adopting a 3.3 percent update for FY 2026. In addition, payment for inpatient operating costs for hospitals classified under section 1886(d)(1)(B)(vi) of the Act (which we refer to as ``extended neoplastic disease care hospitals'') for cost reporting periods beginning on or after January 1, 2015, is to be made as described in 42 CFR 412.526(c)(3), and payment for capital costs for these hospitals is to be made as described in 42 CFR 412.526(c)(4). (For additional information on these payment regulations, we refer readers to the FY 2018 IPPS/LTCH PPS final rule (82 FR 38321 through 38322).) Section 412.526(c)(3) provides that the hospital's Medicare allowable net inpatient operating costs for that period are paid on a reasonable cost basis, subject to that hospital's ceiling, as determined under Sec. 412.526(c)(1), for that period. Under Sec. 412.526(c)(1), for each cost reporting period, the ceiling was determined by multiplying the updated target amount, as defined in Sec. 412.526(c)(2), for that period by the number of total Medicare discharges paid during that period. Section 412.526(c)(2)(i) describes the method for determining the target amount for cost reporting periods beginning during FY 2015. Section 412.526(c)(2)(ii) specifies that, for cost reporting periods beginning during fiscal years after FY 2015, the target amount will equal the hospital's target amount for the previous cost reporting period updated by the applicable annual rate-of-increase percentage specified in Sec. 413.40(c)(3) for the subject cost reporting period (79 FR 50197). For FY 2026, in accordance with Sec. Sec. 412.22(i) and 412.526(c)(2)(ii) of the regulations, for cost reporting periods beginning during FY 2026, the proposed update to the target amount for extended neoplastic disease care [[Page 36971]] hospitals (that is, hospitals described under Sec. 412.22(i)) was the applicable annual rate-of-increase percentage specified in Sec. 413.40(c)(3), which was estimated to be the proposed percentage increase in the proposed 2023-based IPPS operating market basket (that is, the estimate of the market basket rate-of-increase). Accordingly, the proposed update to an extended neoplastic disease care hospital's target amount for FY 2026 was 3.2 percent, which was based on IGI's fourth quarter 2024 forecast. Furthermore, we proposed that if more recent data became available for the FY 2026 IPPS/LTCH PPS final rule, we would use such data, if appropriate, to calculate the IPPS operating market basket rate of increase for FY 2026. As discussed in section IV of the preamble of this FY 2026 IPPS/ LTCH PPS final rule, we finalized the rebasing of the IPPS operating market basket to a 2023 base year without modification. However, more recent data has become available. Based on IGI's second quarter 2025 forecast, we estimate that the 2023-based IPPS operating market basket percentage increase for FY 2026 is 3.3 percent (that is, the estimate of the market basket rate-of-increase). Accordingly, the FY 2026 rate- of-increase percentage that we will apply to the FY 2025 target amounts in order to calculate the FY 2026 target amounts to an extended neoplastic disease care hospital is 3.3 percent, which is based on IGI's second quarter 2025 forecast. We received no comments on this proposal and therefore are finalizing this provision without modification. Incorporating more recent data available for this final rule, as we proposed, we are adopting a 3.3 percent update for FY 2026.

B. Report on Adjustment (Exception) Payments

Section 4419(b) of Public Law 105-33 requires the Secretary to publish annually in the Federal Register a report describing the total amount of adjustment payments made to excluded hospitals and hospital units by reason of section 1886(b)(4) of the Act during the previous fiscal year. The process of requesting, reviewing, and awarding an adjustment payment is likely to occur over a 2-year period or longer. First, generally, an excluded hospital must file its cost report for the fiscal year in accordance with Sec. 413.24(f)(2) of the regulations. The MAC reviews the cost report and issues a notice of provider reimbursement (NPR). Once the hospital receives the NPR, if its operating costs are in excess of the ceiling, the hospital may file a request for an adjustment payment. After the MAC receives the hospital's request in accordance with applicable regulations, the MAC or CMS, depending on the type of adjustment requested, reviews the request and determines if an adjustment payment is warranted. This determination is sometimes not made until more than 180 days after the date the request is filed because there are times when the request applications are incomplete and additional information must be requested in order to have a completed request application. However, in an attempt to provide interested parties with data on the most recent adjustment payments for which we have data, we are publishing data on adjustment payments that were processed by the MAC or CMS during FY 2024. The table that follows includes the most recent data available from the MACs and CMS on adjustment payments that were adjudicated during FY 2024. As indicated previously, the adjustments made during FY 2024 only pertain to cost reporting periods ending in years prior to FY 2024. Total adjustment payments made to IPPS-excluded hospitals during FY 2024 are $93,308,651. The table depicts for each class of hospitals, in the aggregate, the number of adjustment requests adjudicated, the excess operating costs over the ceiling, and the amount of the adjustment payments. [GRAPHIC] [TIFF OMITTED] TR04AU25.272

2. Frontier Community Health Integration Project Demonstration

a. Introduction The Frontier Community Health Integration Project Demonstration was originally authorized by section 123 of the Medicare Improvements for Patients and Providers Act of 2008 (Pub. L. 110-275). The demonstration has been extended by section 129 of the Consolidated Appropriations Act, 2021 (Pub. L. 116-260) for an additional 5 years. In this final rule, we are summarizing the status of the demonstration program, and the ongoing methodologies for implementation and budget neutrality for the demonstration extension period. b. Background and Overview As discussed in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69416 through 69419), section 123 of the Medicare Improvements for Patients and Providers Act of 2008, as amended by section 3126 of the Affordable Care Act, authorized a demonstration project to allow eligible entities to develop and test new models for the delivery of health care services in eligible counties in order to improve access to and better integrate the delivery of acute care, extended care and other health care services to Medicare beneficiaries. The demonstration was titled ``Demonstration Project on Community Health Integration Models in Certain Rural Counties,'' and commonly known as the Frontier Community Health Integration Project (FCHIP) Demonstration. [[Page 36972]] The authorizing statute stated the eligibility criteria for entities to be able to participate in the demonstration. An eligible entity, as defined in section 123(d)(1)(B) of Public Law 110-275, as amended, is a Medicare Rural Hospital Flexibility Program (MRHFP) grantee under section 1820(g) of the Act (that is, a CAH); and is located in a State in which at least 65 percent of the counties in the state are counties that have 6 or less residents per square mile. The authorizing statute stipulated several other requirements for the demonstration. In addition, section 123(g)(1)(B) of Public Law 110- 275 required that the demonstration be budget neutral. Specifically, this provision stated that, in conducting the demonstration project, the Secretary shall ensure that the aggregate payments made by the Secretary do not exceed the amount which the Secretary estimates would have been paid if the demonstration project under the section were not implemented. Furthermore, section 123(i) of Public Law 110-275 stated that the Secretary may waive such requirements of titles XVIII and XIX of the Act as may be necessary and appropriate for the purpose of carrying out the demonstration project, thus allowing the waiver of Medicare payment rules encompassed in the demonstration. CMS selected CAHs to participate in four interventions, under which specific waivers of Medicare payment rules would allow for enhanced payment for telehealth, skilled nursing facility/nursing facility beds, ambulance services, and home health services. These waivers were formulated with the goal of increasing access to care with no net increase in costs. Section 123 of Public Law 110-275 initially required a 3-year period of performance. The FCHIP Demonstration began on August 1, 2016, and concluded on July 31, 2019 (referred to in this section of the proposed rule as the ``initial period''). Subsequently, section 129 of the Consolidated Appropriations Act, 2021 (Pub. L. 116-260) extended the demonstration by 5 years (referred to in this section of the proposed rule as the ``extension period''). The Secretary is required to conduct the demonstration for an additional 5-year period. CAHs participating in the demonstration project during the extension period began such participation in their cost reporting year that began on or after January 1, 2022. As described in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69416 through 69419), 10 CAHs were selected for participation in the demonstration initial period. The selected CAHs were located in three States--Montana, Nevada, and North Dakota--and participated in three of the four interventions identified in the FY 2025 IPPS/LTCH PPS final rule. Each CAH was allowed to participate in more than one of the interventions. None of the selected CAHs were participants in the home health intervention, which was the fourth intervention. In the FY 2022 IPPS/LTCH PPS final rule (86 FR 45323 through 45328), CMS concluded that the initial period of the FCHIP Demonstration (covering the performance period of August 1, 2016, to July 31, 2019) had satisfied the budget neutrality requirement described in section 123(g)(1)(B) of Public Law 110-275. Therefore, CMS did not apply a budget neutrality payment offset policy for the initial period of the demonstration. Section 129 of Public Law 116-260 stipulates that only the 10 CAHs that participated in the initial period of the FCHIP Demonstration are eligible to participate during the extension period. Among the eligible CAHs, five have elected to participate in the extension period. The selected CAHs are located in two States--Montana and North Dakota--and are implementing three of the four interventions. The eligible CAH participants elected to change the number of interventions and payment waivers they would participate in during the extension period. CMS accepted and approved the CAHs intervention and payment waiver updates. For the extension period, five CAHs are participants in the telehealth intervention, three CAHs are participants in the skilled nursing facility/nursing facility bed intervention, and three CAHs are participants in the ambulance services intervention. As with the initial period, each CAH was allowed to participate in more than one of the interventions during the extension period. None of the selected CAHs are participants in the home health intervention, which was the fourth intervention. c. Intervention Payment and Payment Waivers As described in the FY 2025IPPS/LTCH PPS final rule (89 FR 69416 through 69419), CMS waived certain Medicare rules for CAHs participating in the demonstration initial period to allow for alternative reasonable cost-based payment methods in the three distinct intervention service areas: telehealth services, ambulance services, and skilled nursing facility/nursing facility (SNF/NF) beds expansion. The payments and payment waiver provisions only apply if the CAH is a participant in the associated intervention. CMS Intervention Payment and Payment Waivers for the demonstration extension period consist of the following: (1) Telehealth Services Intervention Payments CMS waives section 1834(m)(2)(B) of the Act, which specifies the facility fee to the originating site for Medicare telehealth services. CMS modifies the facility fee payment specified under section 1834(m)(2)(B) of the Act to make reasonable cost-based reimbursement to the participating CAH where the participating CAH serves as the originating site for a telehealth service furnished to an eligible telehealth individual, as defined in section 1834(m)(4)(B) of the Act. CMS reimburses the participating CAH serving as the originating site at 101 percent of its reasonable costs for overhead, salaries and fringe benefits associated with telehealth services at the participating CAH. CMS does not fund or provide reimbursement to the participating CAH for the purchase of new telehealth equipment. CMS waives section 1834(m)(2)(A) of the Act, which specifies that the payment for a telehealth service furnished by a distant site practitioner is the same as it would be if the service had been furnished in-person. CMS modifies the payment amount specified for telehealth services under section 1834(m)(2)(A) of the Act to make reasonable cost-based reimbursement to the participating CAH for telehealth services furnished by a physician or practitioner located at distant site that is a participating CAH that is billing for the physician or practitioner professional services. Whether the participating CAH has or has not elected Optional Payment Method II for outpatient services, CMS would pay the participating CAH 101 percent of reasonable costs for telehealth services when a physician or practitioner has reassigned their billing rights to the participating CAH and furnishes telehealth services from the participating CAH as a distant site practitioner. This means that participating CAHs that are billing under the Standard Method on behalf of employees who are physicians or practitioners (as defined in section 1834(m)(4)(D) and (E) of the Act, respectively) would be eligible to bill for distant site telehealth services furnished by these physicians and practitioners. Additionally, CAHs billing under the Optional Method would be reimbursed based on 101 percent of reasonable costs, rather than paid based on the [[Page 36973]] Medicare physician fee schedule, for the distant site telehealth services furnished by physicians and practitioners who have reassigned their billing rights to the CAH. For distant site telehealth services furnished by physicians or practitioners who have not reassigned billing rights to a participating CAH, payment to the distant site physician or practitioner would continue to be made as usual under the Medicare physician fee schedule. Except as described herein, CMS does not waive any other provisions of section 1834(m) of the Act for purposes of the telehealth services intervention payments, including the scope of Medicare telehealth services as established under section 1834(m)(4)(F) of the Act. (2) Ambulance Services Intervention Payments CMS waives 42 CFR 413.70(b)(5)(i)(D) and section 1834(l)(8) of the Act, which provides that payment for ambulance services furnished by a CAH, or an entity owned and operated by a CAH, is 101 percent of the reasonable costs of the CAH or the entity in furnishing the ambulance services, but only if the CAH or the entity is the only provider or supplier of ambulance services located within a 35-mile drive of the CAH, excluding ambulance providers or suppliers that are not legally authorized to furnish ambulance services to transport individuals to or from the CAH. The participating CAH would be paid 101 percent of reasonable costs for its ambulance services regardless of whether there is any provider or supplier of ambulance services located within a 35- mile drive of the participating CAH or participating CAH-owned and operated entity. CMS would not make cost-based payment to the participating CAH for any new capital (for example, vehicles) associated with ambulance services. This waiver does not modify any other Medicare rules regarding or affecting the provision of ambulance services. (3) SNF/NF Beds Expansion Intervention Payments CMS waives 42 CFR 485.620(a) and 485.645(a)(2) and section 1820(c)(2)(B)(iii) of the Act which limit CAHs to maintaining no more than 25 inpatient beds, including beds available for acute inpatient or swing bed services. CMS waives section 1820(f) of the Act permitting designating or certifying a facility as a critical access hospital for which the facility at any time is furnishing inpatient beds which exceed more than 25 beds. Under this waiver, if the participating CAH has received swing bed approval from CMS, the participating CAH may maintain up to ten additional beds (for a total of 35 beds) available for acute inpatient or swing bed services; however, the participating CAH may only use these 10 additional beds for nursing facility or skilled nursing facility level of care. CMS would pay the participating CAH 101 percent of reasonable costs for its SNF/NF services furnished in the 10 additional beds. d. Budget Neutrality (1) Budget Neutrality Requirement In the FY 2022 IPPS/LTCH PPS final rule (86 FR 45323 through 45328), we finalized a policy to address the budget neutrality requirement for the demonstration initial period. As explained in the FY 2022 IPPS/LTCH PPS final rule, we based our selection of CAHs for participation in the demonstration with the goal of maintaining the budget neutrality of the demonstration on its own terms meaning that the demonstration would produce savings from reduced transfers and admissions to other health care providers, offsetting any increase in Medicare payments as a result of the demonstration. However, because of the small size of the demonstration and uncertainty associated with the projected Medicare utilization and costs, the policy we finalized for the demonstration initial period of performance in the FY 2022 IPPS/ LTCH PPS final rule provides a contingency plan to ensure that the budget neutrality requirement in section 123 of Public Law 110-275 is met. In the FY 2023 IPPS/LTCH PPS final rule (87 FR 49144 through 49147), we adopted the same budget neutrality policy contingency plan used during the demonstration initial period to ensure that the budget neutrality requirement in section 123 of Public Law 110-275 is met during the demonstration extension period. If analysis of claims data for Medicare beneficiaries receiving services at each of the participating CAHs, as well as from other data sources, including cost reports for the participating CAHs, shows that increases in Medicare payments under the demonstration during the 5-year extension period are not sufficiently offset by reductions elsewhere, we would recoup the additional expenditures attributable to the demonstration through a reduction in payments to all CAHs nationwide. As explained in the FY 2023 IPPS/LTCH PPS final rule, because of the small scale of the demonstration, we indicated that we did not believe it would be feasible to implement budget neutrality for the demonstration extension period by reducing payments to only the participating CAHs. Therefore, in the event that this demonstration extension period is found to result in aggregate payments in excess of the amount that would have been paid if this demonstration extension period were not implemented, CMS policy is to comply with the budget neutrality requirement finalized in the FY 2023 IPPS/LTCH PPS final rule, by reducing payments to all CAHs, not just those participating in the demonstration extension period. In the FY 2023 IPPS/LTCH PPS final rule (87 FR 49144 through 49147), we stated that we believe it is appropriate to make any payment reductions across all CAHs because the FCHIP Demonstration was specifically designed to test innovations that affect delivery of services by the CAH provider category. We explained our belief that the language of the statutory budget neutrality requirement at section 123(g)(1)(B) of Public Law 110-275 permits the agency to implement the budget neutrality provision in this manner. The statutory language merely refers to ensuring that aggregate payments made by the Secretary do not exceed the amount which the Secretary estimates would have been paid if the demonstration project was not implemented and does not identify the range across which aggregate payments must be held equal. In the FY 2023 IPPS/LTCH PPS final rule, we finalized a policy that in the event the demonstration extension period is found not to have been budget neutral, any excess costs would be recouped within one fiscal year. We explained our belief that this policy is a more efficient timeframe for the government to conclude the demonstration operational requirements (such as analyzing claims data, cost report data or other data sources) to adjudicate the budget neutrality payment recoupment process due to any excess cost that occurred as result of the demonstration extension period. (2) FCHIP Budget Neutrality Methodology and Analytical Approach As explained in the FY 2022 IPPS/LTCH PPS final rule, we finalized a policy to address the demonstration budget neutrality methodology and analytical approach for the initial period of the demonstration. In the FY 2023 IPPS/LTCH PPS final rule, we finalized a policy to adopt the budget neutrality methodology and analytical approach used during the demonstration initial period to ensure budget neutrality for the extension period. The analysis of [[Page 36974]] budget neutrality during the initial period of the demonstration identified both the costs related to providing the intervention services under the FCHIP Demonstration and any potential downstream effects of the intervention-related services, including any savings that may have accrued. The budget neutrality analytical approach for the demonstration initial period incorporated two major data components: (1) Medicare cost reports; and (2) Medicare administrative claims. As described in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45323 through 45328), CMS computed the cost of the demonstration for each fiscal year of the demonstration initial period using Medicare cost reports for the participating CAHs, and Medicare administrative claims and enrollment data for beneficiaries who received demonstration intervention services. In addition, in order to capture the full impact of the interventions, CMS developed a statistical modeling, Difference-in- Difference (DiD) regression analysis to estimate demonstration expenditures and compute the impact of expenditures on the intervention services by comparing cost data for the demonstration and non- demonstration groups using Medicare administrative claims across the demonstration period of performance under the initial period of the demonstration. The DiD regression analysis would compare the direct cost and potential downstream effects of intervention services, including any savings that may have accrued, during the baseline and performance period for both the demonstration and comparison groups. Second, the Medicare administrative claims analysis would be reconciled using data obtained from auditing the participating CAHs' Medicare cost reports. We would estimate the costs of the demonstration using ``as submitted'' cost reports for each hospital's financial fiscal year participation within each of the demonstration extension period performance years. Each CAH has its own Medicare cost report end date applicable to the 5-year period of performance for the demonstration extension period. The cost report is structured to gather costs, revenues and statistical data on the provider's financial fiscal period. As a result, we finalized a policy in the FY 2023 IPPS/LTCH PPS final rule that we would determine the final budget neutrality results for the demonstration extension once complete data is available for each CAH for the demonstration extension period. e. Policies for Implementing the 5-year Extension and Provisions Authorized by Section 129 of the Consolidated Appropriations Act, 2021 (Pub. L. 116-260) As stated in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69416 through 69419), our policy for implementing the 5-year extension period for section 129 of Public Law 116-260 follows same budget neutrality methodology and analytical approach as the demonstration initial period methodology. While we expect to use the same methodology that was used to assess the budget neutrality of the FCHIP Demonstration during initial period of the demonstration to assess the financial impact of the demonstration during this extension period, upon receiving data for the extension period, we may update and/or modify the FCHIP budget neutrality methodology and analytical approach to ensure that the full impact of the demonstration is appropriately captured. Comment: Commenters expressed support of the FCHIP demonstration, and conveyed the demonstration ``Intervention Payment and Payment Waivers'' are vital for improving access and care coordination in extremely rural communities, where workforce shortages, travel distances, and infrastructure limitations pose persistent barriers to timely, high-quality care. Commenters recommended CMS publicly report key findings from the FCHIP evaluation and/or preliminary reports. The commenters expressed these reports would be essential to understanding whether the demonstration has improved access and reduced disparities in the targeted regions. Commenters expressed lessons learned from the demonstration findings could be essential to help inform future innovations in rural health care delivery and to ensure that Medicare payment policy supports sustainable models of care in frontier communities. The commenters expressed the importance of transparency as CMS implements the demonstration project to help build trust and to maintain stable participation among rural stakeholders. Commenters urge CMS, as the demonstration progresses, to clearly communicate the demonstration budget neutrality methodology and analytical approach timeline and describe any potential future budget neutrality payment adjustments associated with FCHIP demonstration and payment waivers. In addition, the commenters requested CMS to increase the number of hospitals participating in the demonstration. Specifically, commenters explained CMS should explore options for scaling successful components of the FCHIP model more broadly, particularly to other rural areas with similar access challenges. Response: We appreciate the commenter's support of the demonstration project and the demonstration intervention payment and payment waivers. The authorizing legislation under section 123(h)(2) of Public Law 110-275 requires CMS to submit a final report to the Congress, no later than 1 year after the completion of the demonstration project. In 2020, CMS published a final report to Congress and an evaluation report covering the initial period of the demonstration. CMS will submit a final report to Congress covering the demonstration extension period of performance no later than 1 year after completion of the extension period. Currently, rural stakeholders may monitor the progress of the demonstration, and any preliminary findings and reports via the FCHIP demonstration website. We acknowledge the commenter's request for CMS to expand the number of hospitals participating in the demonstration. However, we note that section 129(b)(2)(C) of Public Law 116-260, stipulates ``[a]n entity shall only be eligible to participate in the demonstration project under this section during the extension period if the entity participated in the demonstration project under this section during the initial period.'' As such, expanding the number of hospitals participating within the demonstration would require legislative action to increase the number of eligible entities, as defined in section 129(b)(2)(C) of Public Law 116-260. After consideration of the public comments we received, we are continuing our previously stated policy to adopt the same budget neutrality methodology and analytical approach used during the demonstration initial period for the demonstration extension period without modification. f. Total Budget Neutrality Offset Amount for FY 2026 At this time, for the FY 2026 IPPS/LTCH PPS final rule, while this discussion represents our anticipated approach to assessing the financial impact of the demonstration extension period based on upon receiving data for the full demonstration extension period, we may update and/or modify the FCHIP Demonstration budget neutrality methodology and analytical approach to [[Page 36975]] ensure that the full impact of the demonstration is appropriately captured. Therefore, we did not propose to apply a budget neutrality payment offset to payments to CAHs in FY 2026. This policy would have no impact for any national payment system for FY 2026.

1. Legislative and Regulatory Authority

Section 123 of the Medicare, Medicaid, and SCHIP (State Children's Health Insurance Program) Balanced Budget Refinement Act of 1999 (BBRA) (Pub. L. 106-113), as amended by section 307(b) of the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (BIPA) (Pub. L. 106-554), provides for payment for both the operating and capital-related costs of hospital inpatient stays in long-term care hospitals (LTCHs) under Medicare Part A based on prospectively set rates. The Medicare prospective payment system (PPS) for LTCHs applies to hospitals that are described in section 1886(d)(1)(B)(iv) of the Act, effective for cost reporting periods beginning on or after October 1, 2002. Section 1886(d)(1)(B)(iv)(I) of the Act originally defined an LTCH as a hospital that has an average inpatient length of stay (as determined by the Secretary) of greater than 25 days. Section 1886(d)(1)(B)(iv)(II) of the Act also provided an alternative definition of LTCHs (``subclause II'' LTCHs). However, section 15008 of the 21st Century Cures Act (Pub. L. 114-255) amended section 1886 of the Act to exclude former ``subclause II'' LTCHs from being paid under the LTCH PPS and created a new category of IPPS- excluded hospitals, which we refer to as ``extended neoplastic disease care hospitals,'' to be paid as hospitals that were formally classified as ``subclause (II)'' LTCHs (82 FR 38298). Section 123 of the BBRA requires the PPS for LTCHs to be a ``per discharge'' system with a diagnosis-related group (DRG) based patient classification system that reflects the differences in patient resource use and costs in LTCHs. Section 307(b)(1) of the BIPA, among other things, mandates that the Secretary shall examine, and may provide for, adjustments to payments under the LTCH PPS, including adjustments to DRG weights, area wage adjustments, geographic reclassification, outliers, updates, and a disproportionate share adjustment. In the August 30, 2002, Federal Register (67 FR 55954), we issued a final rule that implemented the LTCH PPS authorized under the BBRA and BIPA. For the initial implementation of the LTCH PPS (FYs 2003 through 2007), the system used information from LTCH patient records to classify patients into distinct long-term care-diagnosis-related groups (LTCDRGs) based on clinical characteristics and expected resource needs. Beginning in FY 2008, we adopted the Medicare severity-long-term care-diagnosis related groups (MS-LTC-DRGs) as the patient classification system used under the LTCH PPS. Payments are calculated for each MS-LTC-DRG and provisions are made for appropriate payment adjustments. Payment rates under the LTCH PPS are updated annually and published in the Federal Register. The LTCH PPS replaced the reasonable cost-based payment system under the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) (Pub. L. 97-248) for payments for inpatient services provided by an LTCH with a cost reporting period beginning on or after October 1, 2002. (The regulations implementing the TEFRA reasonable-cost-based payment provisions are located at 42 CFR part 413.) With the implementation of the PPS for acute care hospitals authorized by the Social Security Amendments of 1983 (Pub. L. 98-21), which added section 1886(d) to the Act, certain hospitals, including LTCHs, were excluded from the PPS for acute care hospitals and paid their reasonable costs for inpatient services subject to a per discharge limitation or target amount under the TEFRA system. For each cost reporting period, a hospital specific ceiling on payments was determined by multiplying the hospital's updated target amount by the number of total current year Medicare discharges. (Generally, in this section of the preamble of this final rule, when we refer to discharges, we describe Medicare discharges.) The August 30, 2002, final rule further details the payment policy under the TEFRA system (67 FR 55954). In the August 30, 2002, final rule, we provided for a 5-year transition period from payments under the TEFRA system to payments under the LTCH PPS. During this 5-year transition period, an LTCH's total payment under the PPS was based on an increasing percentage of the Federal rate with a corresponding decrease in the percentage of the LTCH PPS payment that is based on reasonable cost concepts, unless an LTCH made a one-time election to be paid based on 100 percent of the Federal rate. Beginning with LTCHs' cost reporting periods beginning on or after October 1, 2006, total LTCH PPS payments are based on 100 percent of the Federal rate. In addition, in the August 30, 2002, final rule, we presented an in-depth discussion of the LTCH PPS, including the patient classification system, relative weights, payment rates, additional payments, and the budget neutrality requirements mandated by section 123 of the BBRA. The same final rule that established regulations for the LTCH PPS under 42 CFR part 412, subpart O, also contained LTCH provisions related to covered inpatient services, limitation on charges to beneficiaries, medical review requirements, furnishing of inpatient hospital services directly or under arrangement, and reporting and recordkeeping requirements. We refer readers to the August 30, 2002, final rule for a comprehensive discussion of the research and data that supported the establishment of the LTCH PPS (67 FR 55954). In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49601 through 49623), we implemented the provisions of the Pathway for Sustainable Growth Rate (SGR) Reform Act of 2013 (Pub. L. 113-67), which mandated the application of the ``site neutral'' payment rate under the LTCH PPS for discharges that do not meet the statutory criteria for exclusion beginning in FY 2016. For cost reporting periods beginning on or after October 1, 2015, discharges that do not meet certain statutory criteria for exclusion are paid based on the site neutral payment rate. Discharges that do meet the statutory criteria continue to receive payment based on the LTCH PPS standard Federal payment rate. For more information on the statutory requirements of the Pathway for SGR Reform Act of 2013, we refer readers to the FY 2016 IPPS/LTCH PPS final rule (80 FR 49601 through 49623) and the FY 2017 IPPS/LTCH PPS final rule (81 FR 57068 through 57075). In the FY 2018 IPPS/LTCH PPS final rule, we implemented several provisions of the 21st Century Cures Act (``the Cures Act'') (Pub. L. 114-255) that affected the LTCH PPS. (For more information on these provisions, we refer readers to (82 FR 38299).) In the FY 2019 IPPS/LTCH PPS final rule (83 FR 41529), we made conforming changes to our regulations to implement the provisions of section 51005 of the Bipartisan Budget Act of 2018 (Pub. L. 115-123), which extends the transitional blended payment rate [[Page 36976]] for site neutral payment rate cases for an additional 2 years. We refer readers to section VII.C. of the preamble of the FY 2019 IPPS/LTCH PPS final rule for a discussion of our final policy. In addition, in the FY 2019 IPPS/LTCH PPS final rule, we removed the 25-percent threshold policy under 42 CFR 412.538, which was a payment adjustment that was applied to payments for Medicare patient LTCH discharges when the number of such patients originating from any single referring hospital was in excess of the applicable threshold for given cost reporting period. In the FY 2020 IPPS/LTCH PPS final rule (84 FR 42439), we further revised our regulations to implement the provisions of the Pathway for SGR Reform Act of 2013 (Pub. L. 113-67) that relate to the payment adjustment for discharges from LTCHs that do not maintain the requisite discharge payment percentage and the process by which such LTCHs may have the payment adjustment discontinued.

2. Criteria for Classification as an LTCH

a. Classification as an LTCH Under the regulations at Sec. 412.23(e)(1), to qualify to be paid under the LTCH PPS, a hospital must have a provider agreement with Medicare. Furthermore, Sec. 412.23(e)(2)(i), which implements section 1886(d)(1)(B)(iv) of the Act, requires that a hospital have an average Medicare inpatient length of stay of greater than 25 days to be paid under the LTCH PPS. In accordance with section 1206(a)(3) of the Pathway for SGR Reform Act of 2013 (Pub. L. 113-67), as amended by section 15007 of Public Law 114-255, we amended our regulations to specify that Medicare Advantage plans' and site neutral payment rate discharges are excluded from the calculation of the average length of stay for all LTCHs, for discharges occurring in cost reporting period beginning on or after October 1, 2015. b. Hospitals Excluded From the LTCH PPS The following hospitals are paid under special payment provisions, as described in Sec. 412.22(c) and, therefore, are not subject to the LTCH PPS rules: Veterans Administration hospitals. Hospitals that are reimbursed under State cost control systems approved under 42 CFR part 403. Hospitals that are reimbursed in accordance with demonstration projects authorized under section 402(a) of the Social Security Amendments of 1967 (Pub. L. 90-248) (42 U.S.C. 1395b-1), section 222(a) of the Social Security Amendments of 1972 (Pub. L. 92- 603) (42 U.S.C. 1395b1 (note)) (Statewide-all payer systems, subject to the rate-of increase test at section 1814(b) of the Act), or section 3021 of the Patient Protection and Affordable Care Act (Pub. L. 111- 148) (42 U.S.C. 1315a). Nonparticipating hospitals furnishing emergency services to Medicare beneficiaries.

3. Limitation on Charges to Beneficiaries

In the August 30, 2002, final rule, we presented an in-depth discussion of beneficiary liability under the LTCH PPS (67 FR 55974 through 55975). This discussion was further clarified in the RY 2005 LTCH PPS final rule (69 FR 25676). In keeping with those discussions, if the Medicare payment to the LTCH is the full LTC-DRG payment amount, consistent with other established hospital prospective payment systems, Sec. 412.507 currently provides that an LTCH may not bill a Medicare beneficiary for more than the deductible and coinsurance amounts as specified under Sec. Sec. 409.82, 409.83, and 409.87, and for items and services specified under Sec. 489.30(a). However, under the LTCH PPS, Medicare will only pay for services furnished during the days for which the beneficiary has coverage until the short-stay outlier (SSO) threshold is exceeded. If the Medicare payment was for a SSO case (in accordance with Sec. 412.529), and that payment was less than the full LTC-DRG payment amount because the beneficiary had insufficient coverage as a result of the remaining Medicare days, the LTCH also is currently permitted to charge the beneficiary for services delivered on those uncovered days (in accordance with Sec. 412.507). In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49623), we amended our regulations to expressly limit the charges that may be imposed upon beneficiaries whose LTCHs' discharges are paid at the site neutral payment rate under the LTCH PPS. In the FY 2017 IPPS/LTCH PPS final rule (81 FR 57102), we amended the regulations under Sec. 412.507 to clarify our existing policy that blended payments made to an LTCH during its transitional period (that is, an LTCH's payment for discharges occurring in cost reporting periods beginning in FYs 2016 through 2019) are considered to be site neutral payment rate payments. We received comments that are outside the scope of the proposed rule. For example, we received comments related to providing additional payments for end-stage renal disease (ESRD) patients in LTCHs, similar to the ESRD add-on payment for IPPS hospitals. Because we did not make any proposals related to additional payments for ESRD patients in LTCHs in the proposed rule, we consider these public comments to be outside the scope of the proposed rule, therefore we are not addressing the comment in this final rule.

B. Medicare Severity Long-Term Care Diagnosis-Related Group (MS-LTC-

DRG) Classifications and Relative Weights for FY 2026

1. Background

Section 123 of the BBRA required that the Secretary implement a PPS for LTCHs to replace the cost-based payment system under TEFRA. Section 307(b)(1) of the BIPA modified the requirements of section 123 of the BBRA by requiring that the Secretary examine the feasibility and the impact of basing payment under the LTCH PPS on the use of existing (or refined) hospital DRGs that have been modified to account for different resource use of LTCH patients. Under both the IPPS and the LTCH PPS, the DRG-based classification system uses information on the claims for inpatient discharges to classify patients into distinct groups (for example, DRGs) based on clinical characteristics and expected resource needs. When the LTCH PPS was implemented for cost reporting periods beginning on or after October 1, 2002, we adopted the same DRG patient classification system utilized at that time under the IPPS. We referred to this patient classification system as the ``long-term care diagnosis-related groups (LTC-DRGs).'' As part of our efforts to better recognize severity of illness among patients, in the FY 2008 IPPS final rule with comment period (72 FR 47130), we adopted the MS-DRGs and the Medicare severity long-term care diagnosis-related groups (MS-LTC-DRGs) under the IPPS and the LTCH PPS, respectively, effective beginning October 1, 2007 (FY 2008). For a full description of the development, implementation, and rationale for the use of the MS-DRGs and MS-LTC-DRGs, we refer readers to the FY 2008 IPPS final rule with comment period (72 FR 47141 through 47175 and 47277 through 47299). (We note that, in that same final rule, we revised the regulations at Sec. 412.503 to specify that for LTCH discharges occurring on or after October 1, 2007, when applying the provisions of 42 CFR part 412, subpart O, applicable to LTCHs for policy descriptions and payment calculations, all references to LTC- DRGs would be considered a reference [[Page 36977]] to MS-LTC-DRGs. For the remainder of this section, we present the discussion in terms of the current MS-LTC-DRG patient classification system unless specifically referring to the previous LTC-DRG patient classification system that was in effect before October 1, 2007.) Consistent with section 123 of the BBRA, as amended by section 307(b)(1) of the BIPA, and Sec. 412.515 of the regulations, we use information derived from LTCH PPS patient records to classify LTCH discharges into distinct MS-LTC-DRGs based on clinical characteristics and estimated resource needs. As noted previously, we adopted the same DRG patient classification system utilized at that time under the IPPS. The MS-DRG classifications are updated annually, which has resulted in the number of MS-DRGs changing over time. For FY 2026, there will be 772 MS-DRG, and by extension, MS-LTC-DRG, groupings based on the changes, as discussed in section II.C. of the preamble of this final rule. Although the patient classification system used under both the LTCH PPS and the IPPS are the same, the relative weights are different. The established relative weight methodology and data used under the LTCH PPS result in relative weights under the LTCH PPS that reflect the differences in patient resource use of LTCH patients, consistent with section 123(a)(1) of the BBRA. That is, we assign an appropriate weight to the MS-LTC-DRGs to account for the differences in resource use by patients exhibiting the case complexity and multiple medical problems characteristic of LTCH patients.

2. Patient Classifications Into MS-LTC-DRGs

a. Background The MS-DRGs (used under the IPPS) and the MS-LTC-DRGs (used under the LTCH PPS) are based on the CMS DRG structure. As noted previously in this section, we refer to the DRGs under the LTCH PPS as MS-LTC-DRGs although they are structurally identical to the MS-DRGs used under the IPPS. The MS-DRGs are organized into 25 major diagnostic categories (MDCs), most of which are based on a particular organ system of the body; the remainder involve multiple organ systems (such as MDC 22, Burns). Within most MDCs, cases are then divided into surgical DRGs and medical DRGs. Surgical DRGs are assigned based on a surgical hierarchy that orders operating room (O.R.) procedures or groups of O.R. procedures by resource intensity. The GROUPER software program does not recognize all ICD-10-PCS procedure codes as procedures affecting DRG assignment. That is, procedures that are not surgical (for example, EKGs) or are minor surgical procedures (for example, a biopsy of skin and subcutaneous tissue (procedure code 0JBH3ZX)) do not affect the MS- LTC-DRG assignment based on their presence on the claim. Generally, under the LTCH PPS, a Medicare payment is made at a predetermined specific rate for each discharge that varies based on the MS-LTC-DRG to which a beneficiary's discharge is assigned. Cases are classified into MS-LTC-DRGs for payment based on the following six data elements: Principal diagnosis. Additional or secondary diagnoses. Surgical procedures. Age. Sex. Discharge status of the patient. Currently, for claims submitted using the version ASC X12 5010 standard, up to 25 diagnosis codes and 25 procedure codes are considered for an MS-DRG assignment. This includes one principal diagnosis and up to 24 secondary diagnoses for severity of illness determinations. (For additional information on the processing of up to 25 diagnosis codes and 25 procedure codes on hospital inpatient claims, we refer readers to section II.G.11.c. of the preamble of the FY 2011 IPPS/LTCH PPS final rule (75 FR 50127).) Under the HIPAA transactions and code sets regulations at 45 CFR parts 160 and 162, covered entities (45 CFR 160.103) must comply with the adopted transaction standards and operating rules specified in subparts I through S of part 162. Among other requirements, on or after January 1, 2012, covered entities are required to use the ASC X12 Standards for Electronic Data Interchange Technical Report Type 3-- Health Care Claim: Institutional (837), May 2006, ASC X12N/005010X223, and Type 1 Errata to Health Care Claim: Institutional (837) ASC X12 Standards for Electronic Data Interchange Technical Report Type 3, October 2007, ASC X12N/005010X233A1 for the health care claims or equivalent encounter information transaction (45 CFR 162.1102(c)). HIPAA requires covered entities to use the applicable medical data code sets when conducting HIPAA transactions (45 CFR 162.1000). Currently, upon the discharge of the patient, the LTCH must assign appropriate diagnosis and procedure codes from 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, both of which were required to be implemented October 1, 2015 (45 CFR 162.1002(c)(2) and (3)). For additional information on the implementation of the ICD-10 coding system, we refer readers to section II.F.1. of the preamble of the FY 2017 IPPS/LTCH PPS final rule (81 FR 56787 through 56790) and section II.E.1. of the preamble of this final rule. Additional coding instructions and examples are published in the AHA's Coding Clinic for ICD-10-CM/PCS. To create the MS-DRGs (and by extension, the MS-LTC-DRGs), base DRGs were subdivided according to the presence of specific secondary diagnoses designated as complications or comorbidities (CCs) into one, two, or three levels of severity, depending on the impact of the CCs on resources used for those cases. Specifically, there are sets of MS-DRGs that are split into 2 or 3 subgroups based on the presence or absence of a CC or a major complication or comorbidity (MCC). We refer readers to section II.D. of the preamble of the FY 2008 IPPS final rule with comment period for a detailed discussion about the creation of MS-DRGs based on severity of illness levels (72 FR 47141 through 47175). Medicare Administrative Contractors (MACs) enter the clinical and demographic information submitted by LTCHs into their claims processing systems and subject this information to a series of automated screening processes called the Medicare Code Editor (MCE). These screens are designed to identify cases that require further review before assignment into a MS-LTC-DRG can be made. During this process, certain types of cases are selected for further explanation (74 FR 43949). After screening through the MCE, each claim is classified into the appropriate MS-LTC-DRG by the Medicare LTCH GROUPER software on the basis of diagnosis and procedure codes and other demographic information (age, sex, and discharge status). The GROUPER software used under the LTCH PPS is the same GROUPER software program used under the IPPS. Following the MS-LTC-DRG assignment, the MAC determines the prospective payment amount by using the Medicare PRICER program, which accounts for hospital-specific adjustments. Under the LTCH PPS, we provide an opportunity for LTCHs to review the MS-LTC-DRG assignments made by the MAC and to submit [[Page 36978]] additional information within a specified timeframe as provided in Sec. 412.513(c). The GROUPER software is used both to classify past cases to measure relative hospital resource consumption to establish the MS-LTC-DRG relative weights and to classify current cases for purposes of determining payment. The records for all Medicare hospital inpatient discharges are maintained in the MedPAR file. The data in this file are used to evaluate possible MS-DRG and MS-LTC-DRG classification changes and to recalibrate the MS-DRG and MS-LTC-DRG relative weights during our annual update under both the IPPS (Sec. 412.60(e)) and the LTCH PPS (Sec. 412.517), respectively. b. Changes to the MS-LTC-DRGs for FY 2026 As specified by our regulations at Sec. 412.517(a), which require that the MS-LTC-DRG classifications and relative weights be updated annually, and consistent with our historical practice of using the same patient classification system under the LTCH PPS as is used under the IPPS, in this final rule, as we proposed, we updated the MS-LTC-DRG classifications effective October 1, 2025, through September 30, 2026 (FY 2026), consistent with the changes to specific MS-DRG classifications presented in section II.C. of the preamble of this final rule. Accordingly, the MS-LTC-DRGs for FY 2026 are the same as the MS-DRGs being used under the IPPS for FY 2026. In addition, because the MS-LTC-DRGs for FY 2026 are the same as the MS-DRGs for FY 2026, the other changes that affect MS-DRG (and by extension MS-LTC-DRG) assignments under GROUPER Version 43, as discussed in section II.C. of the preamble of this final rule, including the changes to the MCE software and the ICD-10-CM/PCS coding system, are also applicable under the LTCH PPS for FY 2026.

3. Development of the FY 2026 MS-LTC-DRG Relative Weights

a. General Overview of the MS-LTC-DRG Relative Weights One of the primary goals for the implementation of the LTCH PPS is to pay each LTCH an appropriate amount for the efficient delivery of medical care to Medicare patients. The system must be able to account adequately for each LTCH's case-mix to ensure both fair distribution of Medicare payments and access to adequate care for those Medicare patients whose care is costlier (67 FR 55984). To accomplish these goals, we have annually adjusted the LTCH PPS standard Federal prospective payment rate by the applicable relative weight in determining payment to LTCHs for each case. Under the LTCH PPS, relative weights for each MS-LTC-DRG are a primary element used to account for the variations in cost per discharge and resource utilization among the payment groups (Sec. 412.515). To ensure that Medicare patients classified to each MS-LTC-DRG have access to an appropriate level of services and to encourage efficiency, we calculate a relative weight for each MS-LTC-DRG that represents the resources needed by an average inpatient LTCH case in that MS-LTC-DRG. For example, cases in an MS-LTC-DRG with a relative weight of 2 would, on average, cost twice as much to treat as cases in an MS-LTC-DRG with a relative weight of 1. The established methodology to develop the MS-LTC-DRG relative weights is generally consistent with the methodology established when the LTCH PPS was implemented in the August 30, 2002, LTCH PPS final rule (67 FR 55989 through 55991). However, there have been some modifications of our historical procedures for assigning relative weights in cases of zero volume or nonmonotonicity or both resulting from the adoption of the MS-LTC-DRGs. We also made a modification in conjunction with the implementation of the dual rate LTCH PPS payment structure beginning in FY 2016 to use LTCH claims data from only LTCH PPS standard Federal payment rate cases (or LTCH PPS cases that would have qualified for payment under the LTCH PPS standard Federal payment rate if the dual rate LTCH PPS payment structure had been in effect at the time of the discharge). We also adopted, beginning in FY 2023, a 10-percent cap policy on the reduction in a MS-LTC-DRG's relative weight in a given year. (For details on the modifications to our historical procedures for assigning relative weights in cases of zero volume and nonmonotonicity or both, we refer readers to the FY 2008 IPPS final rule with comment period (72 FR 47289 through 47295) and the FY 2009 IPPS final rule (73 FR 48542 through 48550)). For details on the change in our historical methodology to use LTCH claims data only from LTCH PPS standard Federal payment rate cases (or cases that would have qualified for such payment had the LTCH PPS dual payment rate structure been in effect at the time) to determine the MS-LTC-DRG relative weights, we refer readers to the FY 2016 IPPS/LTCH PPS final rule (80 FR 49614 through 49617). For details on our adoption of the 10-percent cap policy, we refer readers to the FY 2023 IPPS/LTCH PPS final rule (87 FR 49152 through 49154). For purposes of determining the MS-LTC-DRG relative weights, under our historical methodology, there are three different categories of MS- LTC-DRGs based on volume of cases within specific MS-LTC-DRGs: (1) MS- LTC-DRGs with at least 25 applicable LTCH cases in the data used to calculate the relative weight, which are each assigned a unique relative weight; (2) low-volume MS-LTC-DRGs (that is, MS-LTC-DRGs that contain between 1 and 24 applicable LTCH cases that are grouped into quintiles (as described later in this section in Step 3 of our methodology) and assigned the relative weight of the quintile); and (3) no-volume MS-LTC-DRGs that are cross-walked to other MS-LTC-DRGs based on the clinical similarities and assigned the relative weight of the cross-walked MS-LTC-DRG (as described later in this section in Step 8 of our methodology). For FY 2026, we are continuing to use applicable LTCH cases to establish the same volume-based categories to calculate the FY 2026 MS-LTC-DRG relative weights. b. Development of the MS-LTC-DRG Relative Weights for FY 2026 In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18314 through 18320), we presented our proposed methodology for determining the MS- LTC-DRG relative weights for FY 2026. Comment: We received several comments requesting that CMS modify certain high-volume MS-LTC-DRGs to better account for the variation in patient severity and costs among the cases grouped to these MS-LTC- DRGs. A few commenters recommended that CMS split certain high-volume MS-LTC-DRGs based on the presence or absence of a CC or a MCC, which is not currently done for these particular MS-LTC-DRGs. Response: Since these comments were primarily focused on the impact these high-volume MS-LTC-DRGs have on the FY 2026 outlier fixed-loss amount, we have fully summarized and responded to these comments in section V.D.3. of the Addendum to this final rule. Comment: We received comments urging CMS to adjust the proposed methodologies for determining the FY 2026 LTCH PPS rates to account for the impact of the COVID-19 pandemic on the underlying ratesetting data. A commenter expressed particular concern about the use of FY 2023 cost report data in the determination of the [[Page 36979]] MS-LTC-DRG relative weights, noting that these data reflect patient acuity and cost trends unlikely to persist in FY 2026. Response: We thank the commenter for their feedback. As discussed in Step 6 of our methodology, the MS-LTC-DRG relative weights are calculated using the hospital-specific relative weights methodology, which relies on charges from historical Medicare LTCH claims data rather than data from historical cost reports. As discussed in Step 1 of our methodology, we proposed to use charge data from the FY 2024 MedPAR file. Therefore, we do not agree that a modification to our methodology for determining the relative weights is warranted. After consideration of the comments we received, we are finalizing, without modification, our proposed methodology for determining the MS- LTC-DRG relative weights for FY 2026. In the remainder of this section, we present our finalized methodology. We first list and provide a brief description of our steps for determining the FY 2026 MS-LTC-DRG relative weights. We then, later in this section, discuss in greater detail each step. We note that, as we did in FY 2025, we used our historical relative weight methodology as described in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58898 through 58907), subject to a ten percent cap as described in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49162). Step 1--Prepare data for MS-LTC-DRG relative weight calculation. In this step, we select and group the applicable claims data used in the development of the MS-LTC-DRG relative weights.