2026-07203: Medicare Program; Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals (IPPS) and the Long-Term Care Hospital Prospective Payment System and Policy Changes and Fiscal Year (FY) 2027 Rates; Requirements for Quality Programs; and Other Policy Changes

1. Electronically. You may (and we encourage you to) submit

electronic comments on this regulation to https://www.regulations.gov. Follow the instructions under the ``submit a comment'' tab.

2. By regular mail. You may mail written comments to the following

address ONLY: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-1849-P, P.O. Box 8013, Baltimore, MD 21244-8013. Please allow sufficient time for mailed comments to be received before the close of the comment period.

3. By express or overnight mail. You may send written comments via

express or overnight mail to the following address ONLY: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-1849-P, Mail Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850. For information on viewing public comments, we refer readers to the beginning of the SUPPLEMENTARY INFORMATION section.

1. Purpose and Legal Authority

This FY 2027 IPPS/LTCH PPS proposed rule would make payment and policy changes under the Medicare inpatient prospective payment system (IPPS) for operating and capital-related costs of acute care hospitals as well as for certain hospitals and hospital units excluded from the IPPS. In addition, it would make payment and policy changes for inpatient hospital services provided by long-term care hospitals (LTCHs) under the long-term care hospital prospective payment system (LTCH PPS). This proposed rule also would make policy changes to programs associated with Medicare IPPS hospitals, IPPS-excluded hospitals, and LTCHs. We are also proposing to make changes relating to Medicare graduate medical education (GME) and nursing and allied health (NAH) education payments. We are proposing to adopt the Advance Care Planning electronic clinical quality measure (eCQM) in the Hospital Inpatient Quality Reporting, PPS-Exempt Cancer Hospital (PCH) Quality Reporting, and Medicare Promoting Interoperability Programs. We are proposing to adopt five modified claims-based, risk-standardized mortality measures in the Hospital Inpatient Quality Reporting Program and subsequently modify these measures in the Hospital Value-Based Purchasing Program. Other than these cross-program proposals, we are not proposing any updates for the Hospital Value-Based Purchasing Program or the Hospital Acquired-Conditions Reduction Program. In the Hospital Readmissions Reduction Program, we are proposing to adopt the Hospital 30-Day, All-Cause, Risk-Standardized Readmission Rate Following Sepsis Hospitalization measure. In addition to the cross-program proposals previously listed, in the Hospital Inpatient Quality Reporting Program, we are proposing to adopt two new quality measures, remove three measures, and modify three current measures. We are also proposing to modify the data reporting and submission requirements for electronic clinical quality measures (eCQMs) and the Maternal Morbidity structural measure. In addition to the cross-program proposal previously listed in the PCH Quality Reporting Program, we are proposing to adopt one new measure and remove one measure. We are also proposing to adopt data reporting and submission requirements for eCQMs. In addition to the cross-program proposal previously listed, in the Medicare Promoting Interoperability Program, we propose to remove two measures and two attestations; adopt a measure; modify one measure; adopt one additional eCQM in alignment with the Hospital Inpatient Quality Reporting Program; and remove three eCQMs in alignment with the Hospital Inpatient Quality Reporting Program. In the LTCH Quality Reporting Program (QRP), we are proposing to remove two measures, beginning with the FY 2028 LTCH QRP. We also propose the revision of the LTCH QRP Data Submission Deadlines beginning with the FY 2029 LTCH QRP. Finally, we are soliciting public comments on one Request for Information (RFI) on future measure concepts for the LTCH QRP. The Transforming Episode Accountability Model (TEAM), a mandatory alternative payment model that was finalized in the FY 2025 IPPS/LTCH PPS final rule (89 FR 68986), aims to improve beneficiary care through financial accountability for episodes categories that begin with one of the following procedures: coronary artery bypass graft (CABG), lower extremity joint replacement (LEJR), major bowel procedure, surgical hip/femur fracture treatment (SHFFT), and spinal fusion. TEAM tests whether financial accountability for these episode categories reduces Medicare expenditures while preserving or enhancing the quality of care for Medicare beneficiaries. In this proposed rule, we propose updates to TEAM that would modify policies affecting episode category triggers, quality measure assessment, and the construction of target prices. Additionally, we are soliciting public feedback on two Request for Information (RFIs) regarding ambulatory surgical center episodes and voluntary participation of hospitals with physician ownership. The Comprehensive Care for Joint Replacement CJR Expanded (CJR-X) Model builds upon the CJR Model test that ran from April 1, 2016 to December 31, 2024. Based on the strength of evidence from the CJR Model, the CMS Innovation Center is proposing to expand the model nationally, including U.S. Territories in FY 2028. The model would continue to focus on improving care and reducing spending for Medicare beneficiaries undergoing lower extremity joint replacement (LEJR) procedures. Participating hospitals would be held accountable for spending and quality of care during an inpatient stay or hospital outpatient procedure and for the 90 days following hospital discharge. If finalized, the CJR-X Model would be mandatory for acute care hospitals, except for those participating in TEAM, and acute care hospitals located in Maryland. CJR-X would include some modifications to the CJR Model. Some quality measures and payment methodology policies have been updated in response to CJR Model evaluation results, stakeholder feedback, and changes to national care delivery patterns among both CJR and non-CJR hospitals. Under various statutory authorities, we either discuss continued program implementation or propose changes to the Medicare IPPS, the LTCH PPS, other related payment methodologies and programs for FY 2027 and subsequent fiscal years, and other policies and provisions included in this proposed rule. These statutory authorities include, but are not limited to, the following: Section 1886(d) of the Social Security Act (the Act), which sets forth a system of payment for the operating costs of acute care hospital inpatient stays under Medicare Part A (Hospital Insurance) based on prospectively set rates. Section 1886(g) of the Act requires that, instead of paying for capital-related costs of inpatient hospital services on a reasonable cost basis, the Secretary use a prospective payment system (PPS). [[Page 19314]] Section 1886(d)(1)(B) of the Act, which specifies that certain hospitals and hospital units are excluded from the IPPS. These hospitals and units are: rehabilitation hospitals and units; LTCHs; psychiatric hospitals and units; children's hospitals; cancer hospitals; extended neoplastic disease care hospitals; and hospitals located outside the 50 States, the District of Columbia, and Puerto Rico (that is, hospitals located in the U.S. Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa). Religious nonmedical health care institutions (RNHCIs) are also excluded from the IPPS. Sections 123(a) and (c) of the Balanced Budget Refinement Act of 1999 (BBRA) (Public Law (Pub. L.) 106-113) and section 307(b)(1) of the Benefits Improvement and Protection Act of 2000 (BIPA) (Pub. L. 106-554) (as codified under section 1886(m)(1) of the Act), which provide for the development and implementation of a prospective payment system for payment for inpatient hospital services of LTCHs described in section 1886(d)(1)(B)(iv) of the Act. Section 1814(l)(4) of the Act requires, beginning with FY 2015, that CAHs that do not successfully demonstrate meaningful use of certified electronic health record technology (CEHRT) for an EHR reporting period for a cost reporting period shall be paid 100 percent of reasonable costs rather than 101 percent of reasonable costs. Section 1886(a)(4) of the Act, which specifies that costs of approved educational activities are excluded from the operating costs of inpatient hospital services. Hospitals with approved graduate medical education (GME) programs are paid for the direct costs of GME in accordance with section 1886(h) of the Act. Hospitals paid under the IPPS with approved GME programs are paid for the indirect costs of training residents in accordance with section 1886(d)(5)(B) of the Act. Section 1886(d)(5)(F) of the Act provides for additional Medicare IPPS payments to subsection (d) hospitals that serve a significantly disproportionate number of low-income patients. These payments are known as the Medicare disproportionate share hospital (DSH) adjustment. Section 1886(d)(5)(F) of the Act specifies the methods under which a hospital may qualify for the DSH payment adjustment. Section 1886(b)(3)(B)(viii) of the Act, which requires the Secretary to reduce the applicable percentage increase that would otherwise apply to the standardized amount applicable to a subsection (d) hospital for discharges occurring in a fiscal year if the hospital does not submit data on measures in a form and manner, and at a time, specified by the Secretary. Section 1886(r) of the Act, as added by section 3133 of the Affordable Care Act, which provides for a reduction to DSH payments under section 1886(d)(5)(F) of the Act and for an additional uncompensated care payment to eligible hospitals. Specifically, section 1886(r) of the Act requires that, for fiscal year 2014 and each subsequent fiscal year, subsection (d) hospitals that would otherwise receive a DSH payment made under section 1886(d)(5)(F) of the Act will receive two separate payments: (1) 25 percent of the amount they previously would have received under the statutory formula for Medicare DSH payments in section 1886(d)(5)(F) of the Act if subsection (r) did not apply (``the empirically justified amount''); and (2) an additional payment for the DSH hospital's proportion of uncompensated care, determined as the product of three factors. These three factors are: (1) 75 percent of the payments that would otherwise be made under section 1886(d)(5)(F) of the Act, in the absence of section 1886(r) of the Act; (2) 1 minus the percent change in the percent of individuals who are uninsured; and (3) the hospital's uncompensated care amount relative to the uncompensated care amount of all DSH hospitals expressed as a percentage. Section 1886(m)(6) of the Act, as added by section 1206(a)(1) of the Pathway for Sustainable Growth Rate (SGR) Reform Act of 2013 (Pub. L. 113-67) and amended by section 51005(a) of the Bipartisan Budget Act of 2018 (Pub. L. 115-123), which provided for the establishment of site neutral payment rate criteria under the LTCH PPS, with implementation beginning in FY 2016. Section 51005(b) of the Bipartisan Budget Act of 2018 amended section 1886(m)(6)(B) by adding new clause (iv), which specifies that the IPPS comparable amount defined in clause (ii)(I) shall be reduced by 4.6 percent for FYs 2018 through 2027. Section 1899B of the Act, which provides for the establishment of standardized data reporting for certain post-acute care providers, including LTCHs. Section 1886(b)(3)(B)(viii) of the Act, which establishes the Hospital Inpatient Quality Reporting Program, requires the Secretary to reduce the applicable percentage increase that would otherwise apply to the standardized amount applicable to a subsection (d) hospital for discharges occurring in a fiscal year if the hospital does not submit data on measures in a form and manner, and at a time, specified by the Secretary. Section 1886(b)(3)(B)(ix) of the Act, which establishes payment adjustments under the Medicare Promoting Interoperability Program by requiring downward adjustments to the applicable percentage increase, beginning with FY 2015 (and beginning with FY 2022 for subsection (d) Puerto Rico hospitals), for eligible hospitals that do not successfully demonstrate meaningful use of CEHRT for an EHR reporting period for a payment adjustment year. Additionally, Section 1886(n) of the Act establishes the requirements for an eligible hospital to be treated as a meaningful EHR user of CEHRT for an EHR reporting period for a payment adjustment year or, for purposes of subsection (b)(3)(B)(ix) of the Act, for a fiscal year. Section 1866(k) of the Act, which provides for the establishment of a quality reporting program for hospitals described in section 1886(d)(1)(B)(v) of the Act, referred to as ``PPS--exempt cancer hospitals.'' Section 1886(o) of the Act, which requires the Secretary to establish a Hospital Value-Based Purchasing (VBP) Program, under which value-based incentive payments are made in a fiscal year to hospitals based on their performance on measures established for a performance period for such fiscal year. Section 1886(p) of the Act, which establishes a Hospital- Acquired Condition (HAC) Reduction Program, under which payments to applicable hospitals are adjusted to provide an incentive to reduce hospital-acquired conditions. Section 1886(q) of the Act, as amended by section 15002 of the 21st Century Cures Act, which establishes the Hospital Readmissions Reduction Program. Under the program, payments for discharges from an applicable hospital as defined under section 1886(d) of the Act will be reduced to account for certain excess readmissions. Section 15002 of the 21st Century Cures Act directs the Secretary to compare hospitals with respect to the number of their Medicare-Medicaid dual-eligible beneficiaries in determining the extent of excess readmissions. Section 1886(m)(5) of the Act, which requires the Secretary to reduce by 2 percentage points the annual update to the standard Federal rate for discharges for a long-term care hospital (LTCH) during the rate year for LTCHs that do not submit data on quality [[Page 19315]] measures in the form, manner, and at a time, specified by the Secretary. Section 1115A of the Act authorizes the testing of innovative payment and service delivery models that preserve or enhance the quality of care furnished to Medicare, Medicaid, and Children's Health Insurance Program (CHIP) beneficiaries while reducing program expenditures.

2. Summary of the Major Provisions

The following is a summary of the major provisions in this proposed rule. In general, these major provisions are being proposed as part of the annual update to the payment policies and payment rates, consistent with the applicable statutory provisions. A general summary of the changes in this proposed rule is presented in section I.D. of the preamble of this proposed rule. a. Proposed Requirements To Prohibit Unlawful Discrimination by Graduate Medical Education Programs and Nursing and Allied Health Education Programs In section V.F.2. of the preamble of this proposed rule, we discuss our proposal to require that, in addition to meeting other applicable requirements, an approved medical residency training program must not discriminate, or promote or encourage discrimination, on the basis of race, color, national origin, sex, age, disability, or religion, including the use of those characteristics or intentional proxies for those characteristics as a selection criterion for employment, program participation, resource allocation, or similar activities, opportunities, or benefits. In V.G.3. of the preamble of this proposed rule, we discuss similar proposals with respect to approved nursing and allied health education programs and accreditors. b. Proposed Modifications to the Criteria for New Residency Programs In section V.F.3. of the preamble of this proposed rule, we discuss our proposed modifications to the criteria for identifying new residency programs under 42 CFR 413.79(l). We propose that, in addition to receiving initial accreditation by the appropriate accrediting body, for a residency program to be considered new, at least 90 percent of the individual residents must not have previous experience training in another program in the same specialty. The proposed requirement includes exceptions for small residency programs, displaced residents, and residents admitted via a binding third-party matching program. In determining whether a program is genuinely new for cap-building purposes, we would also no longer consider the previous employment of the program director or faculty. c. Hospital Readmissions Reduction Program (HRRP) In this FY 2027 IPPS/LTCH PPS proposed rule, we are proposing to adopt the Hospital 30-Day, All-Cause, Risk-Standardized Readmission Rate Following Sepsis Hospitalization measure beginning with an early look for the FY 2028 program year, and use beginning with the FY 2029 program year. d. Hospital Value-Based Purchasing (VBP) Program In this FY 2027 IPPS/LTCH PPS proposed rule, we are proposing modifications to five condition-specific and procedure-specific mortality measures beginning with the FY 2032 program year: (1) Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate Following Acute Myocardial Infarction (AMI) Hospitalization measure; (2) Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate Following Heart Failure Hospitalization measure; (3) Hospital 30-Day, All-Cause, Risk- Standardized Mortality Rate Following Pneumonia Hospitalization measure; (4) Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate Following Chronic Obstructive Pulmonary Disease (COPD) Hospitalization measure; and (5) Hospital 30-Day, All-Cause, Risk- Standardized Mortality Rate Following Coronary Artery Bypass Graft (CABG) Surgery measure. We also include requests for information on two topics: (1) measuring emergency room access and timeliness in Hospital Inpatient Quality Reporting and Value-Based Purchasing Programs; (2) potential future use of the Adult Community-Onset Sepsis Standardized Mortality Ratio measure in the Hospital Inpatient Quality Reporting Program. e. Hospital Inpatient Quality Reporting Program In this FY 2027 IPPS/LTCH PPS proposed rule, we are proposing several changes to the Hospital Inpatient Quality Reporting Program. We are proposing to adopt three new measures: (1) Excess Days in Acute Care After Hospitalization for Diabetes measure beginning with the FY 2029 payment determination; (2) Advance Care Planning eCQM beginning with the FY 2030 payment determination; (3) Hospital Harm-Postoperative Venous Thromboembolism eCQM beginning with the FY 2030 payment determination. We are also proposing to adopt five modified mortality measures in the Hospital Inpatient Quality Reporting Program beginning with the FY 2028 payment determination before subsequently modifying them in the Hospital Value-Based Purchasing Program: (1) Hospital 30- Day, All-Cause, Risk-Standardized Mortality Rate Following Acute Myocardial Infarction (AMI) Hospitalization measure; (2) Hospital 30- Day, All-Cause, Risk-Standardized Mortality Rate Following Heart Failure Hospitalization measure; (3) Hospital 30-Day, All-Cause, Risk- Standardized Mortality Rate Following Pneumonia Hospitalization measure; (4) Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate Following Chronic Obstructive Pulmonary Disease (COPD) Hospitalization measure; and (5) Hospital 30-Day, All-Cause, Risk- Standardized Mortality Rate Following Coronary Artery Bypass Graft (CABG) Surgery measure. We are proposing modifications to three claims- based measures beginning with the FY 2028 payment determination: (1) Excess Days in Acute Care after Hospitalization for Acute Myocardial Infarction; (2) Excess Days in Acute Care after Hospitalization for Heart Failure; and (3) Excess Days in Acute Care after Hospitalization for Pneumonia. We are proposing to remove three measures: (1) Venous Thromboembolism Prophylaxis (VTE-1) eCQM; (2) Intensive Care Unit Venous Thromboembolism Prophylaxis (VTE-2) eCQM; and (3) Discharged on Antithrombotic Therapy (STK-02) eCQM beginning with the FY 2030 payment determination. We are also proposing changes to data reporting and submission requirements for eCQMs and structural measures: (1) mandatory reporting for the Malnutrition Care Score eCQM beginning with the FY 2030 payment determination; (2) mandatory reporting for the Hospital Harm eCQMs after 2 years of self-selected reporting beginning with the FY 2030 payment determination; and (3) an update to the reporting of the Maternal Morbidity Structural measure beginning with the FY 2028 payment determination. We also include requests for information on three topics: (1) measuring emergency room access and timeliness in Hospital Inpatient Quality Reporting and Value-Based Purchasing Programs; (2) potential future use of the Adult Community- Onset Sepsis Standardized Mortality Ratio measure in the Hospital Inpatient Quality Reporting Program; and (3) Birthing-Friendly Hospital designation modification to expand designation criteria. [[Page 19316]] f. PPS-Exempt Cancer Hospital (PCH) Quality Reporting Program In this FY 2027 IPPS/LTCH PPS proposed rule, we are proposing to adopt two new measures: (1) Advance Care Planning eCQM beginning with the FY 2030 program year; and (2) Malnutrition Care Score eCQM beginning with the FY 2030 program year. We are also proposing to remove the COVID-19 Vaccination Coverage Among Healthcare Personnel (HCP COVID-19 Vaccination) measure beginning with the FY 2028 program year. In addition, we propose establishing reporting and submission requirements for eCQMs in this program. g. Long-Term Care Hospital Quality Reporting Program (LTCH QRP) In the LTCH QRP, we are proposing to remove two measures, beginning with the FY 2028 LTCH QRP. We also propose the revision of the LTCH QRP Data Submission Deadlines beginning with the FY 2029 LTCH QRP. We are also soliciting public comments on one Request for Information (RFI) on future measure concepts for the LTCH QRP. h. Medicare Promoting Interoperability Program We are proposing several changes to the Medicare Promoting Interoperability Program. Specifically, we are proposing: (1) to revise the definition of certified EHR technology (CEHRT) for the Medicare Promoting Interoperability Program based on Assistant Secretary for Technology Policy and Office of the National Coordinator for Health Information Technology (ASTP/ONC) proposals to update the ONC Health IT Certification Program; (2) to remove attestations related to ONC Direct Review and ONC-Authorized Certification Body (ONC-ACB) Surveillance; (3) to remove the Support Electronic Referral Loops by Sending Health Information measure and the Support Electronic Referral Loops by Receiving and Reconciling Health Information measure; (4) to modify the Electronic Prior Authorization measure; (5) to adopt the Unique Device Identifiers (UDIs) for Implantable Medical Devices measure within the Public Health and Clinical Data Exchange objective; (6) to adopt two new eCQMs in alignment with the Hospital Inpatient Quality Reporting Program; and (7) to remove three eCQMs in alignment with the Hospital Inpatient Quality Reporting Program. i. Transforming Episode Accountability Model (TEAM) In section X.A. of the preamble of this proposed rule, we discuss the changes we propose for the Transforming Episode Accountability Model (TEAM). TEAM is a 5-year mandatory model tested under the authority of section 1115A of the Act, that started on January 1, 2026, and will end on December 31, 2030. We propose changes to a few areas of the model, including: (1) adding X Medicare Severity Diagnosis Related Groups (MS-DRGs) that would initiate a spinal fusion anchor hospitalization; (2) clarifying quality measure performance periods for certain quality measures; (3) using a rolling historical Composite Quality Score (CQS) baseline period for certain quality measures; (4) adding an Ambulatory Payment Classification (APC) and MS-DRG update factor to target prices; and (5) using the full baseline period to construct the prospective normalization factor. We are also soliciting feedback on two Request for Information (RFIs) for ambulatory surgical center episodes and potential voluntary participation of physician owned hospitals in future years of the model. j. Comprehensive Care for Joint Replacement Expanded (CJR-X) Model In section X.C. of the preamble of this proposed rule, we propose expansion of the CJR Model. The CJR-X Model would be a mandatory model that would be tested under the authority of section 1115A of the Act, beginning on October 1, 2027 for acute care hospitals paid under the IPPS and OPPS with limited exclusions. Participating hospitals would be accountable for the cost and quality of care for LEJR episodes from the hospital inpatient or hospital outpatient admission through 90 days after the beneficiary is discharged from the hospital or hospital outpatient procedure. We propose multiple policies for CJR-X, including: (1) an October 1, 2027 start date; (2) acute care hospitals as the participant and accountable entity; (3) LEJR as the episode of care; (4) five quality measures and a composite quality score (CQS) to assess quality performance; (5) regional risk-adjusted target prices that include capped normalization and trend factors; (6) pricing- specific policies for certain hospitals, such as low volume hospitals and high duals hospitals; (7) provider and beneficiary overlap permitted with most models; (8) allowing participant hospitals to have financial arrangements; (9) waiving certain Medicare Program requirements; (10) permitting beneficiary-identifiable and regional aggregated data sharing; and (11) options for Alternative Payment Model (APM) participation.

3. Summary of Costs and Benefits

The following table provides a summary of the costs, savings, and benefits associated with the major provisions described in section I.A.2. of the preamble of this proposed rule. BILLING CODE 4120-01-P [[Page 19317]] [GRAPHIC] [TIFF OMITTED] TP14AP26.000 [[Page 19318]] BILLING CODE 4120-01-C

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

Section 1886(d) of the Act sets forth a system of payment for the operating costs of acute care hospital inpatient stays under Medicare Part A (Hospital Insurance) based on prospectively set rates. Section 1886(g) of the Act requires the Secretary to use a prospective payment system (PPS) to pay for the capital-related costs of inpatient hospital services for these ``subsection (d) hospitals.'' Under these PPSs, Medicare payment for hospital inpatient operating and capital-related costs is made at predetermined, specific rates for each hospital discharge. Discharges are classified according to a list of diagnosis- related groups (DRGs). The base payment rate is comprised of a standardized amount that is divided into a labor-related share and a nonlabor-related share. The labor-related share is adjusted by the wage index applicable to the area where the hospital is located. If the hospital is located in Alaska or Hawaii, the nonlabor-related share is adjusted by a cost-of- living adjustment (COLA) factor. This base payment rate is multiplied by the DRG relative weight. If the hospital treats a high percentage of certain low-income patients, it receives a percentage add-on payment applied to the DRG- adjusted base payment rate. This add-on payment, known as the disproportionate share hospital (DSH) adjustment, provides for a percentage increase in Medicare payments to hospitals that qualify under either of two statutory formulas designed to identify hospitals that serve a disproportionate share of low-income patients. For qualifying hospitals, the amount of this adjustment varies based on the outcome of the statutory calculations. The Affordable Care Act revised the Medicare DSH payment methodology and provides for an additional Medicare payment beginning on October 1, 2013, that considers the amount of uncompensated care furnished by the hospital relative to all other qualifying hospitals. If the hospital is training residents in an approved residency program(s), it receives a percentage add-on payment for each case paid under the IPPS, known as the indirect medical education (IME) adjustment. This percentage varies, depending on the ratio of residents to beds. Additional payments may be made for cases that involve new technologies or medical services that have been approved for special add-on payments. In general, to qualify, a new technology or medical service must demonstrate that it is a substantial clinical improvement over technologies or services otherwise available, and that, absent an add-on payment, it would be inadequately paid under the regular DRG payment. In addition, certain transformative new devices and certain antimicrobial products may qualify under an alternative inpatient new technology add-on payment pathway by demonstrating that, absent an add- on payment, they would be inadequately paid under the regular DRG payment. The costs incurred by the hospital for a case are evaluated to determine whether the hospital is eligible for an additional payment as an outlier case. This additional payment is designed to protect the hospital from large financial losses due to unusually expensive cases. Any eligible outlier payment is added to the DRG-adjusted base payment rate, plus any DSH, IME, and new technology or medical service add-on adjustments and, beginning in FY 2023 for IHS and Tribal hospitals and hospitals located in Puerto Rico, the new supplemental payment. Although payments to most hospitals under the IPPS are made on the basis of the standardized amounts, some categories of hospitals are paid in whole or in part based on their hospital-specific rate, which is determined from their costs in a base year. For example, sole community hospitals (SCHs) receive the higher of a hospital-specific rate based on their costs in a base year (the highest of FY 1982, FY 1987, FY 1996, or FY 2006) or the IPPS Federal rate based on the standardized amount. SCHs are the sole source of care in their areas. Specifically, section 1886(d)(5)(D)(iii) of the Act defines an SCH as a hospital that is located more than 35 road miles from another hospital or that, by reason of factors such as an isolated location, weather conditions, travel conditions, or absence of other like hospitals (as determined by the Secretary), is the sole source of hospital inpatient services reasonably available to Medicare beneficiaries. In addition, certain rural hospitals previously designated by the Secretary as essential access community hospitals are considered SCHs. With the recent enactment of section 6202 of the Consolidated Appropriations Act (CAA), 2026 (Pub. L. 119-75), under current law, the Medicare-dependent, small rural hospital (MDH) program is effective through December 31, 2026. For discharges occurring on or after October 1, 2007, but before January 1, 2027, an MDH receives the higher of the Federal rate or the Federal rate plus 75 percent of the amount by which the Federal rate is exceeded by the highest of its FY 1982, FY 1987, or FY 2002 hospital-specific rate. MDHs are a major source of care for Medicare beneficiaries in their areas. Section 1886(d)(5)(G)(iv) of the Act defines an MDH as a hospital that is located in a rural area (or, as amended by the Bipartisan Budget Act of 2018, a hospital located in a State with no rural area that meets certain statutory criteria), has not more than 100 beds, is not an SCH, and has a high percentage of Medicare discharges (not less than 60 percent of its inpatient days or discharges in its cost reporting year beginning in FY 1987 or in two of its three most recently settled Medicare cost reporting years). As section 6202 of the CAA, 2026 extended the MDH program through December 31, 2026, beginning on January 1, 2027, the MDH program will no longer be in effect absent a change in law. Because the MDH program is not authorized by statute beyond December 31, 2026, beginning January 1, 2027, all hospitals that previously qualified for MDH status under section 1886(d)(5)(G) of the Act will no longer have MDH status and will be paid based on the IPPS Federal rate. Section 1886(g) of the Act requires the Secretary to pay for the capital-related costs of inpatient hospital services in accordance with a prospective payment system established by the Secretary. The basic methodology for determining capital prospective payments is set forth in our regulations at 42 CFR 412.308 and 412.312. Under the capital IPPS, payments are adjusted by the same DRG for the case as they are under the operating IPPS. Capital IPPS payments are also adjusted for IME and DSH, similar to the adjustments made under the operating IPPS. In addition, hospitals may receive outlier payments for those cases that have unusually high costs. The existing regulations governing payments to hospitals under the IPPS are located in 42 CFR part 412, subparts A through M.

2. Hospitals and Hospital Units Excluded From the IPPS

Under section 1886(d)(1)(B) of the Act, as amended, certain hospitals and hospital units are excluded from the IPPS. These hospitals and units are: Inpatient rehabilitation facility (IRF) hospitals and units; long-term care hospitals (LTCHs); Inpatient psychiatric hospitals (IPF) and units; children's hospitals; cancer hospitals; extended neoplastic disease care hospitals, and hospitals located outside the 50 States, the District of Columbia, and Puerto Rico (that is, hospitals located in the [[Page 19319]] U.S. Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa). Religious nonmedical health care institutions (RNHCIs) are also excluded from the IPPS. Various sections of the Balanced Budget Act of 1997 (BBA) (Pub. L. 105-33), the Medicare, Medicaid and SCHIP [State Children's Health Insurance Program] Balanced Budget Refinement Act of 1999 (BBRA, Pub. L. 106-113), and the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (BIPA, Pub. L. 106-554) provide for the implementation of PPSs for IRF hospitals and units, LTCHs, and psychiatric hospitals and units (referred to as inpatient psychiatric facilities (IPFs)). (We note that the annual updates to the LTCH PPS are included along with the IPPS annual update in this document. Updates to the IRF PPS and IPF PPS are issued as separate documents.) Children's hospitals, cancer hospitals, hospitals located outside the 50 States, the District of Columbia, and Puerto Rico (that is, hospitals located in the U.S. Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa), and RNHCIs continue to be paid solely under a reasonable cost-based system, subject to a rate-of- increase ceiling on inpatient operating costs. Similarly, extended neoplastic disease care hospitals are paid on a reasonable cost basis, subject to a rate-of-increase ceiling on inpatient operating costs. The existing regulations governing payments to excluded hospitals and hospital units are located in 42 CFR parts 412 and 413.

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

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

4. Critical Access Hospitals (CAHs)

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

5. Payments for Graduate Medical Education (GME)

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

C. Summary of Provisions of Recent Legislation That Are Implemented in

This Proposed Rule--Consolidated Appropriations Act, 2026 (Pub. L. 119- 75) Section 6201 of the Consolidated Appropriations Act (CAA), 2026 extended through the portion of FY 2027 occurring on October 1, 2026, through December 31, 2026, the modified definition of a low-volume hospital and the methodology for calculating the payment adjustment for low-volume hospitals that had been in effect for FYs 2019 through 2025. Specifically, under section 1886(d)(12)(C)(i) of the Act, as amended, for FYs 2019 through 2026 and the portion of FY 2027 occurring on October 1, 2026 through December 31, 2026, a subsection (d) hospital qualifies as a low-volume hospital if it is more than 15 road miles from another subsection (d) hospital and has less than 3,800 total discharges during the fiscal year. Under section 1886(d)(12)(D) of the Act, as amended, for discharges occurring in FYs 2019 through December 31, 2026, the Secretary determines the applicable percentage increase using a continuous, linear sliding scale ranging from an additional 25 percent payment adjustment for low-volume hospitals with 500 or fewer discharges to a zero percent additional payment for low-volume hospitals with more than 3,800 discharges in the fiscal year. Section 6202 of the CAA, 2026 amended sections 1886(d)(5)(G)(i) and 1886(d)(5)(G)(ii)(II) of the Act to provide for an extension of the MDH program through the first quarter of FY 2027 (that is, through December 31, 2026).

D. Summary of the Proposed Provisions

In this proposed rule, we set forth proposed payment and policy changes to the Medicare IPPS for FY 2027 operating costs and capital- related costs of acute care hospitals and certain hospitals and hospital units that are excluded from IPPS. In addition, we set forth proposed changes to the payment rates, factors, and other payment and policy-related changes to programs associated with payment rate policies under the LTCH PPS for FY 2027. The following is a general summary of the changes that we are proposing to make:

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

Relative Weights In section II. of the preamble of the proposed rule, we included the following: Proposed changes to MS-DRG classifications based on our yearly review for FY 2027. Proposed recalibration of the MS-DRG relative weights. A discussion of the proposed FY 2027 status of new technologies approved for add-on payments for FY 2026, a presentation of our evaluation and analysis of the FY 2027 applicants for add-on payments for high-cost new medical services and technologies (including public input, as directed by [[Page 19320]] the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) Public Law 108-173, obtained in a town hall meeting for applications not submitted under an alternative pathway) with proposals for certain FDA market authorized technologies, and a discussion of the proposed status of FY 2027 new technology applicants under the alternative pathways for certain medical devices and certain antimicrobial products. A proposal to repeal the alternative pathway for new technology add-on payment and OPPS device pass-through applications, and require all applicants for new technology add-on payments and OPPS device pass-through payments to demonstrate that they meet all eligibility requirements to receive add-on payments and/or pass-through payments (as discussed in section II.E.7. of the preamble of this proposed rule).

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

In section III of the preamble of the proposed rule, we proposed revisions to the wage index for acute care hospitals and the annual update of the wage data. Specific issues addressed include, but are not limited to, the following: The proposed FY 2027 wage index update using wage data from cost reporting periods beginning in FY 2023. Calculation, analysis, and implementation of the proposed occupational mix adjustment to the wage index for acute care hospitals for FY 2027 based on the 2022 Occupational Mix Survey. Proposed application of the rural, imputed and frontier State floors, and proposed transition for the discontinuation of the low wage index hospital policy. Proposed revisions to the wage index for acute care hospitals, based on hospital redesignations and reclassifications under sections 1886(d)(8)(B), (d)(8)(E), and (d)(10) of the Act. Proposed adjustment to the wage index for acute care hospitals for FY 2027 based on commuting patterns of hospital employees who reside in a county and work in a different area with a higher wage index. The proposed transition for the discontinuation of the low wage index hospital policy. Proposed labor-related share for applying the FY 2027 wage index.

3. Payment Adjustment for Medicare Disproportionate Share Hospitals

(DSHs) for FY 2027 In section IV. of the preamble of the proposed rule, we discuss the following: Proposed calculation of Factor 1 and Factor 2 of the uncompensated care payment methodology. Proposed methodology for determining Factor 3 of the uncompensated care payment for FY 2027, which is the same methodology that was used for FY 2026. Proposed methodology for determining the amount of interim uncompensated care payments, using the average of the most recent 3 years of discharge data.

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

In section V. of the preamble of the proposed rule, we discussed proposed changes or clarifications of a number of the provisions of the regulations in 42 CFR parts 412 and 413, including the following: Proposed inpatient hospital market basket update for FY 2027. Proposed updated national and regional case-mix values and discharges for purposes of determining RRC status. Proposed conforming amendments to reflect the statutory extension of the temporary changes to the low-volume hospital payment adjustment through December 31, 2026. Proposed conforming amendments to reflect the statutory extension of the MDH program through December 31, 2026. Proposed requirements to prohibit unlawful discrimination by graduate medical education programs and nursing and allied health education programs. Proposed modifications to the criteria for identifying new residency programs for purposes of direct graduate medical education (GME) and indirect medical education (IME) payments; proposed clarifications of the methodology for calculating direct GME and IME payments following a teaching hospital merger; and a notice of closure of two teaching hospitals and opportunities to apply for available slots. Proposed nursing and allied health (NAH) education program Medicare Advantage (MA) add-on rates and direct GME MA percent reductions for CY 2024; and proposed changes to the regulations for determining net costs of approved NAH education programs and changes to the procedures for allocating indirect NAH costs. Proposed update to and revision to the payment adjustment for certain immunotherapy cases. Proposed changes to the requirements of the Hospital Readmissions Reduction Program--Updating the proposed estimate of the financial impacts for the FY 2027 Hospital Readmissions Reduction Program. Proposed changes to the requirements of the Hospital Value-Based Purchasing Program--Updating the proposed estimate of the financial impacts for the FY 2027 Hospital Value-Based Purchasing Program. Proposed changes to the requirements of the Hospital- Acquired Condition Reduction Program--Updating the proposed estimate of the financial impacts for the FY 2027 Hospital-Acquired Conditions Reduction Program. Discussion of and proposed changes relating to the implementation of the Rural Community Hospital Demonstration Program in FY 2027.

5. Proposed FY 2027 Policy Governing the IPPS for Capital-Related Costs

In section VI. of the preamble of the proposed rule, we discuss the proposed payment policy requirements for capital-related costs and capital payments to hospitals for FY 2027.

6. Proposed Changes to the Payment Rates for Certain Excluded

Hospitals: Rate-of-Increase Percentages In section VIII. of the preamble of the proposed rule, we discuss the following: Proposed changes to payments to certain excluded hospitals for FY 2027. Proposed continued implementation of the Frontier Community Health Integration Project (FCHIP) Demonstration.

7. Proposed Changes to the LTCH PPS

In section VIII. of the preamble of the proposed rule, we set forth proposed changes to the LTCH PPS Federal payment rates, factors, and other payment rate policies under the LTCH PPS for FY 2027.

8. Proposed Changes Relating to Quality Data Reporting for Specific

Providers and Suppliers In section IX. of the preamble of the proposed rule, we addressed the following: Proposed changes to the requirements for the Hospital Inpatient Quality Reporting Program. Proposed changes to the requirements for the PCH Quality Reporting Program. [[Page 19321]] Proposed changes to the requirements for the Long-Term Care Hospital Quality Reporting Program. Proposed changes to requirements pertaining to eligible hospitals and CAHs participating in the Medicare Promoting Interoperability Program.

9. Other Proposals and Comment Solicitations Included in the Proposed

Rule Section X.A. of the preamble of this proposed rule includes proposed changes to TEAM that would affect episodes, quality measure assessment, and pricing methodology. We are also soliciting comment on an ambulatory surgical center episode RFI and a voluntary hospitals with physician ownership RFI. Section X.B. of the preamble of the proposed rule, includes a proposed revision to the provider-based location criteria regulations applicable to off-campus facilities or organizations (Sec. 413.65). Section X.C. of the preamble of the proposed rule includes proposals for the CJR-X Model with policies affecting participation, episodes, quality measure and assessment, pricing methodology, model overlap, financial arrangements, waivers of Medicare Program requirements, data sharing, and APM options. In section X.D. of the preamble of this proposed rule, we are proposing the following: To reconcile non-renal organ acquisition costs for independent organ procurement organizations (IOPOs) and histocompatibility laboratories (HCLs), and to require the Medicare Administrative Contractor to establish, adjust if necessary, and publish the IOPO non-renal standard acquisition charges (SACs) and the HCL testing rates. To change certain existing policy and proposing to codify certain longstanding Medicare reasonable cost reimbursement policies, applicable to all providers reimbursed for all or for some of their services on a reasonable cost basis. To clarify and codify cost allocation principles. To codify the discretionary Administrator review of CMS reviewing official determinations with respect to appeals under Sec. 413.420(g) for IOPOs and HCLs.

10. Other Provisions of the Proposed Rule

Section X.A. of the preamble of the proposed rule includes our discussion of the MedPAC Recommendations. Section X.B. of the preamble of the proposed rule includes a descriptive listing of the public use files associated with the proposed rule. Section XI. of the preamble of the proposed rule includes the collection of information requirements for entities based on our proposals.

11. Determining Prospective Payment Operating and Capital Rates and

Rate-of-Increase Limits for Acute Care Hospitals In sections II. and III. of the Addendum of this proposed rule, we set forth proposed changes to the amounts and factors for determining the proposed FY 2027 prospective payment rates for operating costs and capital-related costs for acute care hospitals, including cost-of- living adjustment (COLA) factors for IPPS hospitals located in Alaska and Hawaii. We propose to establish the threshold amounts for outlier cases. In addition, in section V. of the Addendum of the proposed rule, we address the proposed update factors for determining the rate-of- increase limits for cost reporting periods beginning in FY 2027 for certain hospitals excluded from the IPPS.

12. Determining Prospective Payment Rates for LTCHs

In section V. of the Addendum of this proposed rule, we set forth proposed changes to the amounts and factors for determining the proposed FY 2027 LTCH PPS standard Federal payment rate and other factors used to determine LTCH PPS payments under both the LTCH PPS standard Federal payment rate and the site neutral payment rate in FY 2027. We propose to establish the adjustments for the wage index, labor -related share, the cost-of-living adjustment, and high-cost outliers, including the applicable fixed-loss amounts and the LTCH cost-to-charge ratios (CCRs) for both payment rates.

13. Impact Analysis

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

14. Recommendation of Update Factors for Operating Cost Rates of

Payment for Hospital Inpatient Services In Appendix B of this proposed rule, as required by sections 1886(e)(4) and (e)(5) of the Act, we provide our recommendations of the appropriate percentage changes for FY 2027 for the following: A single average standardized amount for all areas for hospital inpatient services paid under the IPPS for operating costs of acute care hospitals (and hospital-specific rates applicable to SCHs and MDHs). Target rate-of-increase limits to the allowable operating costs of hospital inpatient services furnished by certain hospitals excluded from the IPPS. The LTCH PPS standard Federal payment rate and the site neutral payment rate for hospital inpatient services provided for LTCH PPS discharges.

15. Discussion of Medicare Payment Advisory Commission Recommendations

Under section 1805(b) of the Act, MedPAC is required to submit a report to Congress, no later than March 15 of each year, in which MedPAC reviews and makes recommendations on Medicare payment policies. MedPAC's March 2026 recommendations concerning hospital inpatient payment policies address the update factor for hospital inpatient operating costs and capital-related costs for hospitals under the IPPS. We address these recommendations in Appendix B of the proposed rule. For further information relating specifically to the MedPAC March 2026 report or to obtain a copy of the report, contact MedPAC at (202) 220- 3700 or visit MedPAC's website at https://www.medpac.gov.

A. Background

Section 1886(d) of the Act specifies that the Secretary shall establish a classification system (referred to as diagnosis-related groups (DRGs)) for inpatient discharges and adjust payments under the IPPS based on appropriate weighting factors assigned to each DRG. Therefore, under the IPPS, Medicare pays for inpatient hospital services on a rate per discharge basis that varies according to the DRG to which a beneficiary's stay is assigned. The formula used to calculate payment for a specific case multiplies an individual hospital's payment rate per case by the weight of the DRG to which the case is assigned. Each DRG weight represents the average resources required to care for cases in that particular DRG, relative to the average resources used to treat cases in all DRGs. Section 1886(d)(4)(C) of the Act requires that the Secretary adjust the DRG classifications and relative weights at least annually to account for changes in resource consumption. These [[Page 19322]] adjustments are made to reflect changes in treatment patterns, technology, and any other factors that may change the relative use of hospital resources.

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

For information on the adoption of the MS-DRGs in FY 2008, we refer readers to the FY 2008 IPPS final rule with comment period (72 FR 47140 through 47189). For general information about the MS-DRG system, including yearly reviews and changes to the MS-DRGs, we refer readers to the previous discussions in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43764 through 43766) and the FYs 2011 through 2026 IPPS/LTCH PPS final rules (75 FR 50053 through 50055; 76 FR 51485 through 51487; 77 FR 53273; 78 FR 50512; 79 FR 49871; 80 FR 49342; 81 FR 56787 through 56872; 82 FR 38010 through 38085; 83 FR 41158 through 41258; 84 FR 42058 through 42165; 85 FR 58445 through 58596; 86 FR 44795 through 44961; 87 FR 48800 through 48891; 88 FR 58654 through 58787; 89 FR 69000 through 69109; 90 FR 36549 through 36649, respectively). For discussion regarding our previously finalized policies (including our historical adjustments to the payment rates) relating to the effect of changes in documentation and coding that do not reflect real changes in case mix, we refer readers to the FY 2023 IPPS/LTCH PPS final rule (87 FR 48799 through 48800).

1. Discussion of Changes to Coding System and Basis for Proposed FY

2027 MS-DRG Updates a. International Classification of Diseases, 10th Revision (ICD-10) Providers use the International Classification of Diseases, 10th Revision (ICD-10) coding system to report diagnoses and procedures for Medicare hospital inpatient services under the MS-DRG system. The ICD- 10 coding system includes the International Classification of Diseases, 10th Revision, Clinical Modification (ICD-10-CM) for diagnosis coding and the International Classification of Diseases, 10th Revision, Procedure Coding System (ICD-10-PCS) for inpatient hospital procedure coding, as well as the ICD-10-CM and ICD-10-PCS Official Guidelines for Coding and Reporting. b. Basis for Proposed FY 2027 MS-DRG Updates The deadline for interested parties to submit MS-DRG classification change requests for FY 2027 was October 20, 2025. All requests are submitted to CMS via Medicare Electronic Application Request Information SystemTM (MEARISTM), accessed at https://mearis.cms.gov. Specifically, as indicated on the MEARISTM site, the MS-DRG classification change request process may be used for requests to create, modify, or delete MS-DRGs, change ICD-10-CM diagnosis code(s) severity level designations, change ICD-10-PCS procedure code(s) Operating Room (O.R.) designations, or to review the CC Exclusions List or the surgical hierarchy. Within MEARISTM, we have built in several resources to support users, including a ``Resources'' section available at https://mearis.cms.gov/public/resources with technical support available under ``Useful Links'' at the bottom of the MEARISTM site. Questions regarding the MEARISTM system can be submitted to CMS using the form available under ``Contact'', also at the bottom of the MEARISTM site. We note that the burden associated with this information collection requirement is the time and effort required to collect and submit the data in the request for MS-DRG classification changes to CMS. The aforementioned burden is subject to the Paperwork Reduction Act (PRA) of 1995 and approved under OMB control number 0938-1431 and has an expiration date of 01/31/2029. As we have discussed in prior rulemaking, we may not be able to fully consider all of the requests that we receive for the upcoming fiscal year. We have found that, with the implementation of ICD-10, some types of requested changes to the MS-DRG classifications require more extensive research to identify and analyze all of the data that are relevant to evaluating the potential change. As discussed in the FY 2026 IPPS/LTCH PPS final rule (90 FR 36550), beginning with FY 2027 rulemaking we are no longer summarizing in the proposed and final rules those requests that are not able to be considered for the upcoming FY. As noted, requests that require more extensive analysis may include those involving multiple MS-DRGs, overlapping logic across multiple Major Diagnostic Categories (MDCs), special logic such as diagnosis codes combined with procedure codes, and/or complex logic including code clusters or multiple logic lists. In December 2025, we informed requestors via MEARISTM if their MS-DRG classification change request was not able to be considered with the FY 2027 rulemaking cycle. Interested parties should submit any MS-DRG classification change requests, including any comments and suggestions for FY 2028 consideration by October 20, 2026 via MEARISTM at: https://mearis.cms.gov/public/home. We will inform requestors via MEARIS\TM\ if the MS-DRG classification change request is not able to be considered with the upcoming fiscal year rulemaking cycle. As we did for the FY 2026 IPPS/LTCH PPS proposed rule, for this FY 2027 IPPS/LTCH PPS proposed rule we are providing a test version of the ICD-10 MS-DRG GROUPER Software, Version 44, so that the public can better analyze and understand the impact of the proposals included in this FY 2027 IPPS/LTCH PPS proposed rule. We note that this test software reflects the proposed GROUPER logic for FY 2027. Therefore, it includes the new diagnosis and procedure codes that are effective for FY 2027 as reflected in Table 6A.--New Diagnosis Codes--FY 2027 and Table 6B.--New Procedure Codes--FY 2027 associated with this FY 2027 IPPS/LTCH PPS proposed rule and does not include the diagnosis codes that are invalid beginning in FY 2027 as reflected in Table 6C.-- Invalid Diagnosis Codes--FY 2027 and Table 6D.--Invalid Procedure Codes--FY 2027 associated with this FY 2027 IPPS/LTCH PPS proposed rule. These tables are not published in the Addendum to this FY 2027 IPPS/LTCH PPS proposed rule, but are available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html as described in section VI. of the Addendum to this FY 2027 IPPS/LTCH PPS proposed rule. Because the diagnosis and procedure codes no longer valid for FY 2027 are not reflected in the test software, we are making available a supplemental file in Table 6P.1a that includes the mapped Version 44 FY 2027 ICD-10- CM codes and the deleted Version 43 FY 2026 ICD-10-CM codes and Table 6P.1b that includes the mapped Version 44 FY 2027 ICD-10-PCS codes and the deleted Version 43.1 FY 2026 ICD-10-PCS codes that should be used for testing purposes with users' available claims data. Therefore, users will have access to the test software allowing them to build case examples that reflect the proposals included in this FY 2027 IPPS/LTCH PPS proposed rule. In addition, users will be able to view the draft version of the ICD-10 MS-DRG [[Page 19323]] Definitions Manual, Version 44 that contains the documentation for proposed FY 2027 ICD-10 MS-DRG GROUPER Version 44 logic changes and will also be able to view a draft version of the Definitions of Medicare Code Edits (MCE) Manual to review any changes that will become effective October 1 for FY 2027. As a result of new and modified code updates approved after the annual spring ICD-10 Coordination and Maintenance Committee meeting, any further changes to the MCE will be reflected in the finalized Definitions of Medicare Code Edits (MCE) Manual, made available in association with the annual IPPS/LTCH PPS final rule. We are making available the draft FY 2027 ICD-10 MCE Version 44 Manual file on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software. The MCE manual is comprised of two chapters: Chapter 1: Edit code lists provides a listing of each edit, an explanation of each edit, and as applicable, the diagnosis and/or procedure codes for each edit, and Chapter 2: Code list changes summarizes the changes in the edit code lists (for example, additions and deletions) from the prior release of the MCE software. The public may submit any questions, comments, concerns, or recommendations regarding the MCE to the CMS mailbox at [email protected] for our review and consideration. The test version of the ICD-10 MS-DRG GROUPER Software, Version 44, the draft version of the ICD-10 MS-DRG Definitions Manual, Version 44, the draft version of the Definitions of Medicare Code Edits Manual, Version 44, and the supplemental mapping files in Tables 6P.1a and 6P.1b of the FY 2026 and FY 2027 ICD-10-CM diagnosis codes and ICD-10- PCS procedure codes are available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software. The following are the changes that we are proposing to the MS-DRGs for FY 2027. We are inviting public comments on each of the MS-DRG classification proposed changes, as well as our proposals to maintain certain existing MS-DRG classifications discussed in this FY 2027 IPPS/ LTCH PPS proposed rule. In some cases, we are proposing changes to the MS-DRG classifications based on our analysis of claims data and clinical appropriateness. In other cases, we are proposing to maintain the existing MS-DRG classifications based on our analysis of claims data and clinical appropriateness. For this FY 2027 IPPS/LTCH PPS proposed rule, our MS-DRG analysis was based on ICD-10 claims data from the September 2025 update of the FY 2025 MedPAR file, which contains hospital bills received from October 1, 2024 through September 30, 2025. In our discussion of the proposed MS-DRG reclassification changes, we refer to these claims data as the ``September 2025 update of the FY 2025 MedPAR file.'' In deciding whether to propose to make further modifications to the MS-DRGs for particular circumstances brought to our attention, we consider whether the resource consumption and clinical characteristics of the patients with a given set of conditions are significantly different than the remaining patients represented in the MS-DRG. We evaluate patient care costs using average costs and lengths of stay and rely on clinical factors to determine whether patients are clinically distinct or similar to other patients represented in the MS-DRG. In evaluating resource costs, we consider both the absolute and percentage differences in average costs between the cases we select for review and the remainder of cases in the MS-DRG. We also consider variation in costs within these groups; that is, whether observed average differences are consistent across patients or attributable to cases that are extreme in terms of costs or length of stay, or both. Further, we consider the number of patients who will have a given set of characteristics and generally prefer not to create a new MS-DRG unless it would include a substantial number of cases. In the FY 2021 IPPS/LTCH PPS final rule (85 FR 58448), we finalized our proposal to expand our existing criteria to create a new complication or comorbidity (CC) or major complication or comorbidity (MCC) subgroup within a base MS-DRG. Specifically, we finalized the expansion of the criteria to include the NonCC subgroup for a three-way severity level split. We stated we believed that applying these criteria to the NonCC subgroup would better reflect resource stratification as well as promote stability in the relative weights by avoiding low volume counts for the NonCC level MS-DRGs. We noted that in our analysis of MS-DRG classification requests for FY 2021 that were received by November 1, 2019, as well as any additional analyses that were conducted in connection with those requests, we applied these criteria to each of the MCC, CC, and NonCC subgroups. As discussed in the FY 2024 IPPS/LTCH PPS final rule (88 FR 58661), we continue to apply the criteria to create subgroups, including application of the NonCC subgroup criteria, in our annual analysis of MS-DRG classification requests, consistent with our approach since FY 2021 when we finalized the expansion of the criteria to include the NonCC subgroup for a three-way severity level split. Accordingly, in our analysis of the MS-DRG classification requests for FY 2027 that we received by October 20, 2025, as well as any additional analyses that were conducted in connection with those requests, we applied these criteria to each of the MCC, CC, and NonCC subgroups, as described in the following table. [[Page 19324]] [GRAPHIC] [TIFF OMITTED] TP14AP26.001 In general, once the decision has been made to propose to make further modifications to the MS-DRGs as described previously, such as creating a new base MS-DRG, or in our evaluation of a specific MS-DRG classification request to split (or subdivide) an existing base MS-DRG into severity levels, all five criteria must be met for the base MS-DRG to be split (or subdivided) by a CC subgroup. We note that in our analysis of requests to create a new MS-DRG, we typically evaluate the most recent year of MedPAR claims data available. For example, we stated earlier that for this FY 2027 IPPS/LTCH PPS proposed rule, our MS-DRG analysis was based on ICD-10 claims data from the September 2025 update of the FY 2025 MedPAR file. However, in our evaluation of requests to split an existing base MS-DRG into severity levels, as noted in prior rulemaking (80 FR 49368), we typically analyze the most recent two years of data. This analysis includes two years of MedPAR claims data to compare the data results from one year to the next to avoid making determinations about whether additional severity levels are warranted based on an isolated year's data fluctuation and also, to validate that the established severity levels within a base MS-DRG are supported. The first step in our process of evaluating if the creation of a new CC subgroup within a base MS-DRG is warranted is to determine if all the criteria is satisfied for a three-way split. In applying the criteria for a three-way split, a base MS-DRG is initially subdivided into the three subgroups: MCC, CC, and NonCC. Each subgroup is then analyzed in relation to the other two subgroups using the volume (Criteria 1 and 2), average cost (Criteria 3 and 4), and reduction in variance (Criteria 5). If the criteria fail, the next step is to determine if the criteria are satisfied for a two-way split. In applying the criteria for a two-way split, a base MS-DRG is initially subdivided into two subgroups: ``with MCC'' and ``without MCC'' (1_23) or ``with CC/MCC'' and ``without CC/MCC'' (12_3). Each subgroup is then analyzed in relation to the other using the volume (Criteria 1 and 2), average cost (Criteria 3 and 4), and reduction in variance (Criteria 5). If the criteria for both of the two-way splits fail, then a split (or CC subgroup) would generally not be warranted for that base MS-DRG. If the three-way split fails on any one of the five criteria and all five criteria for both two-way splits (1_23 and 12_3) are met, we would apply the two-way split with the highest R2 value. We note that if the request to split (or subdivide) an existing base MS-DRG into severity levels specifies the request is for either one of the two-way splits (1_23 or 12_3), in response to the specific request, we will evaluate the criteria for both of the two-way splits; however, we do not also evaluate the criteria for a three-way split.

2. MDC 04 (Diseases and Disorders of the Respiratory System)

a. Short-Term External Heart Assist Systems For this FY 2027 IPPS/LTCH PPS proposed rule, we received a request to reassign cases reporting procedure codes describing the insertion of a short-term external heart assist device from MDC 04 MS-DRGs 163, 164, and 165 (Major Chest Procedures with MCC, with CC, and without CC/MCC, respectively) to MDC 05 (Diseases and Disorders of the Circulatory System) MS-DRG 215 (Other Heart Assist System Implant). According to the requestor, when patients are admitted with pulmonary conditions, such as pulmonary embolism, and have Impella[supreg] Ventricular Support Systems inserted for cardiac support during a thrombectomy procedure, MS-DRGs 163, 164, or 165 are assigned. The requestor stated that cases reporting procedure codes describing the insertion of Impella[supreg] Ventricular Support Systems that are assigned to MS- DRGs 163, 164, or 165 require resources similar to cases that are assigned to MS-DRG 215. The requestor further requested that if CMS does not reassign cases reporting procedure codes describing the insertion of a short-term external heart assist device to MS-DRG 215, in the alternative, CMS should consider creating new MS-DRGs for cases reporting procedure codes describing the insertion of a short-term external heart assist device and major chest procedures. In reviewing this request, we note that acute massive pulmonary embolism can lead to right ventricular (RV) failure and cardiogenic shock, requiring urgent treatment. Thrombolytic therapy is the standard treatment for high-risk pulmonary embolism in hemodynamically unstable patients. However, in cases where thrombolytics are contraindicated or ineffective, mechanical circulatory support can serve as a rescue therapy. While extracorporeal membrane oxygenation (ECMO) is commonly utilized, Impella[supreg] Ventricular Support Systems can offer right ventricular support in patients with pulmonary embolism-induced cardiogenic shock.\1\ Impella[supreg] Ventricular Support Systems are [[Page 19325]] temporary heart assist devices intended to provide mechanical circulatory support by temporarily assisting the pumping function of the heart to provide adequate circulation of blood to critical organs while also allowing damaged heart muscle the opportunity to rest and recover in patients who need short-term support. --------------------------------------------------------------------------- \1\ Pandey, Asim MBBSa,*; Parajuli, Samriddhi MBBS\b\; Khanal, Prajwal MBBS\c\; Khanal, Kunjan MBBS\d\; Yadav, Ramsinhasan Prasad MBBS\e\. Hemodynamic improvement with Impella RP in acute massive pulmonary embolism: a narrative review of cardiovascular outcomes and pulmonary catheter pressure assessment. Annals of Medicine & Surgery 87(7):p 4303-4309, July 2025. [verbar] DOI: 10.1097/MS9.0000000000003431. --------------------------------------------------------------------------- The requestor identified cases reporting procedure codes describing the insertion of a short-term external heart assist device as reporting ICD-10-PCS codes 02HA3RZ (Insertion of short-term external heart assist system into the heart, percutaneous approach) and 5A0221D (Assistance with cardiac output using impeller pump, continuous). While we agree with the requestor that procedure code 02HA3RZ describes the insertion of a short-term external heart assist device, we note that there are additional ICD-10-PCS codes in the classification that also describe the insertion of a short-term external heart assist device. Therefore, in reviewing this request, we identified the five additional ICD-10-PCS procedure codes that also describe the insertion of a short-term external heart assist device listed in the following table and included these codes in our analysis. BILLING CODE 4120-01-P [GRAPHIC] [TIFF OMITTED] TP14AP26.002 To begin our analysis, we examined claims data from the September 2025 update of the FY 2025 MedPAR file for MS-DRGs 163, 164, and 165 to identify cases reporting ICD-10-PCS codes 02HA0RS, 02HA0RZ, 02HA3RS, 02HA3RZ, 02HA4RS, or 02HA4RZ. We agree with the requestor that when a patient is admitted and has an Impella[supreg] external heart assist device inserted, two ICD-10-PCS codes are assigned: a code that describes the insertion of the short-term external heart assist device and code 5A0221D that describes assistance with an impeller pump. Because the assistance with an Impella[supreg] is always coded with ICD-10-PCS code 5A0221D, we did not include this code in our analysis as the presence of the code would be expected to be identified in all cases. Our findings are shown in the following table. [GRAPHIC] [TIFF OMITTED] TP14AP26.003 As shown in the table, we identified a total of 13,396 cases within MS-DRG 163 with an average length of stay of 8.2 days and average costs of $40,641. Of these 13,396 cases, there were 17 cases that reported a procedure code describing the insertion of a short-term external heart assist device with an average length of stay of 8.4 days and average costs of $81,960. There were zero cases reporting a procedure code describing the insertion of a short-term external heart assist device in MS-DRGs 164 and 165. The data analysis shows that for the cases in MS-DRG 163 reporting a procedure code describing the insertion of a short-term external heart assist device, the average length of stay is longer, and the average costs are higher when compared to all cases in that MS-DRG. To further review the consumption of hospital resources for cases reporting a procedure code describing the insertion of a short-term external heart assist device with a principal diagnosis of a pulmonary condition, we reviewed the claims data to identify cases reporting ICD- 10-PCS codes 02HA0RS, 02HA0RZ, 02HA3RS, 02HA3RZ, 02HA4RS, or 02HA4RZ in other MS-DRGs in MDC 04 (Diseases and Disorders of the Respiratory System), specifically MS-DRGs 166, 167, and 168 (Other Respiratory System O.R. Procedures with MCC, with CC, and without CC/MCC, respectively) and MS-DRG 173 (Ultrasound Accelerated and Other Thrombolysis with Principal Diagnosis Pulmonary Embolism). We refer the reader to the ICD-10 MS-DRG Definitions Manual Version 43.1 (available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software) for complete listing of the MS-DRGs in MDC 04. There were zero cases reporting a procedure code describing the insertion of a short-term external heart assist device with a principal diagnosis of a pulmonary condition in MS-DRGs 166, 167, 168 or MS-DRG 173. We then reviewed the claims data to further identify the principal diagnoses that were reported to determine what factors may also be contributing to the [[Page 19326]] higher average costs for the subset of cases that reported a procedure code describing the insertion of a short-term external heart assist device in MS-DRG 163. Our findings for the principal diagnoses that were reported within the claims data from the September 2025 update of the FY 2025 MedPAR file for this subset of cases are shown in the following table: [GRAPHIC] [TIFF OMITTED] TP14AP26.004 BILLING CODE 4120-01-C As reflected in the table, all 17 cases reported a principal diagnosis of pulmonary embolism. While the results of the claims analysis as previously summarized indicate that the average costs of cases that reported a procedure code describing the insertion of a short-term external heart assist device are higher compared to the average costs for all cases in MS-DRG 163, we cannot ascertain from the claims data the additional resource use specifically attributable to the insertion of the short-term external heart assist device during the hospital stay as compared to the severity of illness of the patient and other circumstances of the admission. These data show that while cases that reported a procedure code describing the insertion of a short-term external heart assist device and a principal diagnosis of pulmonary embolism required greater resource utilization, there is a wide variance in average costs and average length of stay depending on the ICD-10-CM code reported as principal diagnosis. For example, the three cases that reported a principal diagnosis of I26.02 (Saddle embolus of pulmonary artery with acute cor pulmonale) had an average length of stay of 7.3 days and average costs of $61,956, while the two cases that reported a principal diagnosis of I26.92 (Saddle embolus of pulmonary artery without acute cor pulmonale) had an average length of stay of 11.5 days and average costs of $111,452. When reviewing consumption of hospital resources for this subset of cases, it is unclear to what degree the higher average costs for these cases are attributable to the severity of illness of the patient and other circumstances of the admission as opposed to the insertion of a short-term external heart assist device. There may have been other factors contributing to the higher costs. During our review of this issue and the examination of the cases reporting procedure codes describing the insertion of a short-term external heart assist device found in MS-DRG 163, as noted previously, we found these cases all reported principal diagnosis of pulmonary embolism. The ICD-10-codes that describe pulmonary embolism are currently assigned to MDC 04 (Diseases and Disorders of the Respiratory System). The diagnoses assigned to MDC 04 reflect conditions associated with the respiratory system. In ICD-10 the body or organ system is the axis of the classification, and diagnosis codes are classified by the body or organ system affected. The concept of clinical coherence generally requires that the patient characteristics included in the definition of each MS-DRG relate to a common organ system or etiology and that a specific medical specialty should typically provide care to the patients in the DRG. These diagnosis codes would require reassignment to MDC 05 (Diseases and Disorders of the Circulatory System) to group to MDC 05 MS-DRG 215. Although MDC 04 diagnoses such as pulmonary embolism can lead to RV failure and cardiogenic shock, which might be reasonable indications for the insertion of a short-term external heart assist device, it would not be appropriate to move these diagnoses into MDC 05 because it could inadvertently cause cases reporting these same MDC 04 diagnoses with a respiratory system procedure to be assigned to an ``unrelated'' MS-DRG because whenever there is a surgical procedure reported on the claim that is unrelated to the MDC to which the case was assigned based on the principal diagnosis, it results in a MS-DRG assignment to a surgical class referred to as ``unrelated operating room procedures''. To further examine the impact of moving the diagnosis codes describing pulmonary embolism into MDC 05, we analyzed claims data for cases reporting a respiratory system O.R. procedure and a principal diagnosis of pulmonary embolism. Our findings are reflected in the following table. BILLING CODE 4120-01-P [GRAPHIC] [TIFF OMITTED] TP14AP26.005 [[Page 19327]] As shown in the table, we identified 8,652 cases reporting a respiratory system O.R. procedure and a principal diagnosis of pulmonary embolism. If we were to move the diagnosis codes describing pulmonary embolism to MDC 05, these cases would be assigned to the surgical class referred to as ``unrelated operating room procedures'' as an unintended consequence because the surgical procedure reported on the claim would be considered unrelated to the MDC to which the case was assigned based on the principal diagnosis. The data also indicates that there were more cases that reported an O.R. procedure assigned to MDC 04 with a principal diagnosis describing pulmonary embolism than there were cases that reported a procedure code describing the insertion of a short-term external heart assist device, and a principal diagnosis of pulmonary embolism in MDC 04 (8,652 cases versus 17 cases) demonstrating that inpatient admissions for pulmonary embolism more typically have an O.R. procedure assigned to MDC 04 performed and do not report a procedure code describing the insertion of a short-term external heart assist device. We also reviewed the cases reporting an O.R. procedure assigned to MDC 04 and a principal diagnosis describing pulmonary embolism to identify the top ten O.R. procedures assigned to MDC 04 that were reported within the claims data for these cases. Our findings are shown in the following table: [GRAPHIC] [TIFF OMITTED] TP14AP26.006 BILLING CODE 4120-01-C As noted previously, if we were to move the diagnosis codes describing pulmonary embolism to MDC 05, cases reporting one of the O.R. procedures assigned to MDC 04 shown in the table would be assigned to the surgical class referred to as ``unrelated operating room procedures'' as an unintended consequence. Based on the results of our analysis, we believe that the diagnosis codes describing pulmonary embolism are most clinically aligned with the other diagnosis codes assigned to MDC 04 (where they are currently assigned). Considering the impact that moving the diagnoses describing pulmonary embolism to MDC 05 from MDC 04 would have, we also believe it would not be appropriate to move these diagnoses into MDC 05 because it would inadvertently cause cases reporting pulmonary embolism with O.R. procedures assigned to MDC 04 to be assigned to an unrelated MS-DRG. We then explored alternative options, as was requested. We noted that the 17 cases reporting a procedure code describing the insertion of a short-term external heart assist device had an average length of stay of 8.4 days and average costs of $81,960, as compared to the 13,396 cases in MS-DRG 163 that had an average length of stay of 8.2 days and average costs of $40,641. While these cases reporting a procedure code describing the insertion of a short-term external heart assist device had average costs that were $41,319 higher than the average costs of all cases in MS-DRG 163 (the highest severity level ``with MCC'' MS-DRG), there were only a total of 17 cases. The results of the claims analysis demonstrate that there is not sufficient claims data in the MedPAR file on which to assess the resource use of cases reporting a procedure code describing the insertion of a short-term external heart assist device with a principal diagnosis from MDC 04 to consider the creation of a new MS-DRG. As noted previously, we cannot ascertain from the claims data the resource use specifically attributable to the insertion of a short-term external heart assist device during the hospital stay. Accordingly, we do not believe that the small subset of cases reporting a procedure code describing the insertion of a short-term external heart assist device with a principal diagnosis from MDC 04 warrants the creation of a new MS-DRG for these cases at this time. Lastly, we explored reassigning cases reporting a procedure code describing the insertion of a short-term external heart assist device with an O.R. procedure assigned to MDC 04 and a principal diagnosis from MDC 04 to other MS-DRGs within MDC 04. However, our review did not support reassignment of these cases to any other [[Page 19328]] surgical MS-DRGs in MDC 04, as MS-DRGs 163, 164 and 165, where the cases are currently assigned, represent the highest surgical class in the surgical hierarchy of MDC 04. The surgical hierarchy is an ordering of surgical classes from most resource-intensive to least resource- intensive. Application of this hierarchy ensures that cases involving multiple surgical procedures are assigned to the MS-DRG associated with the most resource-intensive surgical class. We note that discussion of the surgical hierarchy is in section II.C.14. of the preamble of this FY 2027 IPPS/LTCH PPS proposed rule. While the data analysis reflects that cases that report a procedure code describing the insertion of a short-term external heart assist device with an O.R. procedure assigned to MDC 04 and a principal diagnosis from MDC 04 demonstrate higher average costs in their respective MS-DRGs, as discussed in prior rulemaking (86 FR 44878), the MS-DRG system is a system of averages and it is expected that within the diagnostic related groups, some cases may demonstrate higher than average costs, while other cases may demonstrate lower than average costs. We further note that section 1886(d)(5)(A) of the Act provides for Medicare payments to Medicare-participating hospitals in addition to the basic prospective payments for cases incurring extraordinarily high costs. We will continue to evaluate the clinical coherence and resource consumption costs that impact this subset of cases and their current MS-DRG assignment. Therefore, for the reasons stated previously, we are not proposing to reassign cases reporting procedure codes describing the insertion of a short-term external heart assist device from MDC 04 MS-DRGs 163, 164, and 165 (Major Chest Procedures with MCC, with CC, and without CC/MCC, respectively) to MDC 05 MS-DRG 215 (Other Heart Assist System Implant) for FY 2027. b. Fluorescence Guided Procedures of the Trunk Region Using Pafolacianine CYTALUX[supreg] (pafolacianine) is a folate receptor-targeted fluorescent optical imaging agent used as an adjunct for the identification of malignant and non-malignant pulmonary lesions in adult patients with known or suspected lung cancer. CYTALUX[supreg] binds to the folate receptors on these cancer cells and is endocytosed into folate receptor positive cancer cells. CYTALUX[supreg] is administered intravenously prior to thoracic resection procedures and requires use of a near-infrared imaging (NIR) system to illuminate, thereby making cancer visible within the surgical field. CYTALUX[supreg] received FDA approval and is indicated as an adjunct for intraoperative identification of malignant and non-malignant pulmonary lesions in adult patients with known or suspected cancer in the lung. We note that CYTALUX[supreg] for the lung indication was approved for new technology add-on payments for FY 2024 (88 FR 58810 through 58818), FY 2025 (89 FR 69120 through 69126), and FY 2026 (90 FR 36668). We refer readers to section II.E.5 of the preamble of this FY 2027 IPPS/LTCH PPS proposed rule for a discussion regarding the proposed FY 2027 status of technologies approved for FY 2026 new technology add-on payments, including CYTALUX[supreg] for the lung indication. We received a request from the manufacturer of CYTALUX[supreg] to modify the GROUPER logic of MS-DRGs 163, 164, and 165 (Major Chest Procedures with MCC, with CC, and without CC/MCC, respectively) by reassigning cases with an ICD-10-PCS code that describes fluorescence guided surgery using CYTALUX[supreg] (pafolacianine) for the lung indication that currently map to the lower severity level MS-DRG 165 (without CC/MCC) to the higher severity level MS-DRG 163 (with MCC) or MS-DRG 164 (with CC). According to the requestor, the utilization of CYTALUX[supreg] does not change the surgical procedure but adds significant value and cost to the procedure by improving the surgeon's ability to identify and completely resect malignant tissue. The requestor performed their own analysis of Medicare claims data from 10/ 1/2023-3/31/2025 and stated they found approximately 135 cases that used CYTALUX[supreg] in thoracic resections and that they expect adoption to accelerate as NIR systems become more widely available. Additionally, the requestor stated they found 35% of the cases using CYTALUX[supreg] within MS-DRG 165, and the average costs of these cases exceeded the average costs of cases that did not report the usage of CYTALUX[supreg]. When controlling for procedural and facility variation, the requestor stated they found that CYTALUX cases in MS-DRG 165 were $1,515 (8%) higher in cost and that 60% of the cases using CYTALUX[supreg] in MS-DRG DRG 165 received new technology add-on payments averaging approximately $2,300. The requestor further asserted that their review of the Inpatient Standard Analytical Files (SAF) indicated underreporting of CYTALUX[supreg] costs due to unclear inpatient drug billing guidance. The requestor stated they found that 64% of cases reporting an ICD-10-PCS code that describes fluorescence guided surgery using CYTALUX[supreg] (pafolacianine) for the lung indication fall into MS-DRGs 163 or 164. Additionally, the requestor stated while they found that the average length of stay for cases reporting CYTALUX[supreg] in MS-DRG 165 is lower (1.9 vs. 2.3 days), the cost profile of these cases aligns more closely with the higher- severity MS-DRGs 164 and 163. According to the requestor, this misalignment leads to underpayment when CYTALUX[supreg] cases are grouped into MS-DRG 165, therefore CMS should reassign cases with an ICD-10-PCS code that describes fluorescence guided surgery using CYTALUX[supreg] (pafolacianine) for the lung indication from MS-DRG 165 to MS-DRGs 163 or 164 to prevent barriers to hospital adoption of CYTALUX[supreg] as NIR system availability expands nationwide. The following ICD-10-PCS procedure codes describe fluorescence guided surgery using CYTALUX[supreg] (pafolacianine) for the lung indication. BILLING CODE 4120-01-P [[Page 19329]] [GRAPHIC] [TIFF OMITTED] TP14AP26.007 In the ICD-10 MS-DRGs Definitions Manual Version 43.1, procedure codes 8E0W0EN, 8E0W3EN, 8E0W4EN, 8E0W7EN and 8E0W8EN are designated as non-O.R. procedures for purposes of MS-DRG assignment, therefore when CYTALUX[supreg] is utilized during a procedure for the lung indication, the ICD-10-PCS code describing the surgical procedure will determine the surgical MS-DRG assignment based on the principal diagnosis reported. We examined claims data from the September 2025 update of the FY 2025 MedPAR file for MS-DRGs 163, 164, and 165 to identify cases reporting one of the five procedure codes listed previously that describe fluorescence guided surgery using CYTALUX[supreg] (pafolacianine). Our findings are shown in the following table: [GRAPHIC] [TIFF OMITTED] TP14AP26.008 BILLING CODE 4120-01-C As shown in the table, in MS-DRG 163, we identified a total of 13,396 cases with an average length of stay of 8.2 days and average costs of $40,641. Of those 13,396 cases, there were 14 cases reporting one of five procedure codes that describe fluorescence guided surgery using CYTALUX[supreg] (pafolacianine), with average costs lower than the average costs in the FY 2025 MedPAR file for MS-DRG 163 ($30,818 compared to $40,641) and a shorter average length of stay (4.6 days compared to 8.2 days). In MS-DRG 164, we identified a total of 14,384 cases with an average length of stay of 4 days and average costs of $23,393. Of those 14,384 cases, there were 87 cases reporting one of five procedure codes that describe fluorescence guided surgery using CYTALUX[supreg] (pafolacianine), with average costs lower than the average costs in the FY 2025 MedPAR file for MS-DRG 164 ($22,426 compared to $23,393) and a shorter average length of stay (2.7 days compared to 4 days). In MS-DRG 165, we identified a total of 6,431 cases with an average length of stay of 2.3 days and average costs of $17,981. Of those 6,431 cases, there were 58 cases reporting one of five procedure codes that describe fluorescence guided surgery using CYTALUX[supreg] (pafolacianine), with average costs higher than the average costs in the FY 2025 MedPAR file for MS-DRG 165 ($20,854 compared to $17,981), and a shorter average length of stay (1.9 days compared to 2.3 days). The 58 cases in MS-DRG 165 reporting one of five procedure codes that describe fluorescence guided surgery using CYTALUX[supreg] (pafolacianine), without a secondary diagnosis code designated as a CC or MCC, have a shorter average length of stay (1.9 days versus 4 days) and lower average costs ($20,854 versus $23,393) when compared to all the cases in MS-DRG 164. Similarly, the 58 cases in MS-DRG 165 reporting one of five procedure codes that describe fluorescence guided surgery using CYTALUX[supreg] (pafolacianine) have a shorter average length of stay (1.9 days versus 8.2 days) and lower average costs ($20,854 versus $40,641) when compared to all the cases in MS-DRG 163. While the data analysis reflects that cases that report one of five procedure codes that describe fluorescence guided surgery using CYTALUX[supreg] (pafolacianine), without a secondary diagnosis code designated as a CC or MCC, demonstrate slightly higher average costs compared to all the cases in MS-DRG 165, we believe these cases are more suitably grouped to MS-DRG 165, where they are currently assigned, based on the closer similarities in resource utilization compared to all the cases in their respective MS-DRG. As discussed in prior rulemaking (86 FR 44878), the MS-DRG system is a system of averages and it is expected that within the diagnostic related groups, some cases may demonstrate higher than average costs, while other cases may demonstrate lower than average costs. We further note that section 1886(d)(5)(A) of the Act provides for Medicare payments to Medicare- participating hospitals in addition to the basic prospective payments for cases [[Page 19330]] incurring extraordinarily high costs. Moreover, the data do not indicate cases reporting procedure codes that describe fluorescence guided surgery using CYTALUX[supreg] (pafolacianine), without a secondary diagnosis code designated as a CC or MCC, utilize similar resources when compared to the cases assigned to MS-DRGs 163 and 164. We believe it would be advantageous to allow for more claims data to be analyzed in consideration of any future modifications to the MS-DRGs for which fluorescence guided surgeries using CYTALUX[supreg] (pafolacianine) are assigned. We will continue to evaluate the clinical coherence and resource consumption costs that impact this subset of cases and their MS-DRG assignment. Therefore, for the reasons stated, for FY 2027, we are proposing to maintain the current structure of MS-DRGs 163, 164, and 165.

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

WiSE[supreg] CRT System The WiSE[supreg] CRT System is an implantable cardiac pacing system that delivers left ventricular endocardial pacing (LVEP) specifically for cardiac resynchronization therapy (CRT) without the use of wires or leads going into the heart. The WiSE[supreg] CRT System was designed to stimulate the endocardial surface of the left ventricle (LV) without a transvenous LV lead. Working in conjunction with previously implanted standard commercially available pacemakers or defibrillators, the WiSE[supreg] CRT System utilizes a wireless ultrasound-based energy transmission to a small, implanted electrode in the LV endocardium, which converts the ultrasound signal into pacing energy. According to the requestor, the WiSE[supreg] CRT System is engineered to benefit patients with heart failure who were previously untreatable with conventional CRT or who are considered at high risk for placement of a coronary sinus (CS) lead for CRT upgrades. The WiSE[supreg] CRT system consists of four components: the receiver, also known as the receiver electrode or electrode (implanted via catheter), delivery sheath, battery and transmitter. An external programmer is used to adjust parameters of the battery. The WiSE[supreg] CRT System was approved for new technology add-on payments for FY 2026 (90 FR 36821 through 36823). We refer readers to section II.E.4.a of the preamble of this proposed rule for a discussion regarding the proposed FY 2027 status of technologies approved for FY 2026 new technology add-on payments, including the WiSE[supreg] CRT System. In support of the new technology add-on payment application that was submitted for FY 2026 consideration, we received a request to create new ICD-10-PCS codes to differentiate cardiac procedures that involve the insertion of an implantable endocardial pacing system, such as the WiSE[supreg] CRT System, and a code proposal was displayed in association with the Spring 2025 ICD-10 Coordination and Maintenance Committee Update. As a result, effective October 1, 2025 (FY 2026), we implemented the following ICD-10-PCS procedure codes to identify the insertion of the WiSE[supreg] CRT System: X2HN37B (Insertion of endocardiac pacing electrode into left ventricle, percutaneous approach, new technology group 11) in combination with XHH80HB (Insertion of ultrasound transmitter and battery for endocardiac pacing electrode into chest subcutaneous tissue and fascia, open approach, new technology group 11). In the ICD-10 MS-DRGs Version 43.1, this procedure code combination is assigned to MS-DRGs 242, 243, and 244 (Permanent Cardiac Pacemaker Implant with MCC, with CC, without MCC respectively) in a logic list referred to as ``CARDIAC PACEMAKER DEVICE'' that includes 720 other ICD-10-PCS procedure code combinations that identify the insertion of cardiac pacemakers. When reported as standalone procedures, ICD-10-PCS code X2HN37B is assigned to MDC 05 MS-DRGs 264 (Other Circulatory System O.R. Procedures) and ICD-10-PCS code XHH80HB is assigned to MDC 05 MS-DRGs 258 and 259 (Cardiac Pacemaker Device Replacement with and without MCC, respectively). We refer the reader to the ICD-10 MS-DRG Definitions Manual Version 43.1, which is available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software for complete documentation of the GROUPER logic for MS-DRGs 242, 243, 244, 259, 259 and 264. For this FY 2027 IPPS/LTCH PPS proposed rule, we received a request to reassign the ICD-10-PCS procedure codes that describe the insertion of the WiSE[supreg] CRT System from MS-DRGs 242, 243, and 244 to MS- DRGs 228 and 229 (Other Cardiothoracic Procedures with and without MCC, respectively). The requestor stated that insertion of the WiSE[supreg] CRT System electrode, which is described by ICD-10-PCS code X2HN37B, is similar both clinically and in terms of resource utilization, to the procedure codes that describe the insertion of leadless pacemakers that are currently assigned to MS-DRGs 228 and 229. The requestor further stated that the cases assigned to MS-DRGs 242, 243, and 244 involve traditional pacemaker devices with leads and are dissimilar to the WiSE[supreg] CRT System. According to the requestor, based on clinical function, implant methodology, and patient profile, the WiSE[supreg] CRT System more closely aligns with leadless pacemaker technology than with traditional pacemaker procedures as the use of multi-modality imaging, arterial navigation, and ultrasound-guided transmitter placement adds to both time and resource utilization, paralleling the procedural profile of leadless pacemaker implantation rather than traditional pacemaker surgery. Therefore, the requestor suggested that CMS reassign ICD-10-PCS code X2HN37B that describes the insertion of the electrode of the WiSE[supreg] CRT System to MS-DRGs 228 and 229 to appropriately group the procedure with the leadless pacemaker cases. To begin our analysis, we reviewed the procedure codes. As noted previously, a code proposal was displayed as part of the ICD-10 Coordination and Maintenance Committee Spring 2025 update process to create unique ICD-10-PCS codes to describe the insertion of an implantable endocardial pacing system such as the WiSE[supreg] CRT System. As discussed in prior rulemaking (86 FR 44805), we used our established process to examine the MS-DRG assignment for the predecessor codes to determine the most appropriate MS-DRG assignment of new procedure codes X2HN37B and XHH80HB for FY 2026. Specifically, we review the predecessor code and MS-DRG assignment most closely associated with the new procedure code, and in the absence of claims data, we consider other factors that may be relevant to the MS-DRG assignment, including the severity of illness, treatment difficulty, complexity of service and the resources utilized in the diagnosis and/ or treatment of the condition. We have noted in prior rulemaking that this process does not automatically result in the new procedure code being assigned to the same MS-DRG or to have the same designation (O.R. versus Non-O.R.) as the predecessor code. Because the codes that describe the insertion of the WiSE[supreg] CRT System were effective October 1, 2025 (FY 2026), we would not expect the codes to be reported in the FY 2025 claims data used for this proposed rule. We examined claims data from the September 2025 update of the FY 2025 [[Page 19331]] MedPAR file for MS-DRGs 242, 243, and 244 and confirmed that there were zero cases reporting the procedure codes describing the insertion of the WiSE[supreg] CRT System across MS-DRGs 242, 243, and 244. We reviewed this issue and note the requestor is correct that the ICD-10-PCS codes that describe the insertion of intracardiac pacemakers, also known as ``leadless'' pacemakers, are currently assigned to MS-DRGs 228 and 229. In leadless pacemakers, the components are combined into a single device implanted within a heart chamber. They do not require a chest incision, a subcutaneous pocket or a tunneled lead. These devices are implanted via a femoral vein transcatheter approach and then advanced into the heart chamber, fixed to the chamber wall, and released. Conventional pacemakers are comprised of a metal generator (battery + electronics) placed under the skin in the upper chest, connected by one or more insulated wires (leads) threaded into the heart. We agree that leadless pacemakers and the WiSE[supreg] CRT System electrode are clinically coherent in that both eliminate the need for traditional, wire-based leads that run from the device to the heart muscle to transmit electrical impulses to the heart. We believe that the electrode of the WiSE[supreg] CRT System is more closely aligned with the leadless pacemakers assigned to MS-DRGs 228 and 229 as compared to the insertion of conventional pacemakers assigned to MS-DRGs 242, 243, and 244. While our analysis did not identify any cases reporting the procedure code that describes the insertion of the electrode of the WiSE[supreg] CRT System, based on our review of the clinical issues, and recognizing that it is expected that some Medicare patients will receive the WiSE[supreg] CRT System on an inpatient basis, we believe reassigning ICD-10-PCS code X2HN37B that describes the insertion of the endocardiac pacing electrode into the left ventricle from MS-DRG 264 to MDC 05 MS-DRGs 228 and 229 would improve clinical coherence in these MS-DRGs. For these reasons, for FY 2027, we are proposing to reassign procedure code X2HN37B (Insertion of endocardiac pacing electrode into left ventricle, percutaneous approach, new technology group 11) from MS-DRG 264 to MS-DRGs 228 and 229 for clinical coherence and to better account for the anticipated resources required. We are also proposing to delete the procedure code combination of X2HN37B and XHH80HB from the GROUPER logic of MS-DRGs 242, 243, and 244. Under this proposal, procedure code X2HN37B will not need to be reported as part of a procedure code combination or procedure code ``cluster'' to satisfy the logic for assignment to MS-DRGs 228 and 229. When reported as a standalone procedure, ICD-10-PCS code XHH80HB (Insertion of ultrasound transmitter and battery for endocardiac pacing electrode into chest subcutaneous tissue and fascia, open approach, new technology group 11) will be assigned to proposed new MDC 05 MS-DRG 210 (Cardiac Pacemaker Revision or Device Replacement with MCC) and proposed new MS-DRG 211 (Cardiac Pacemaker Revision or Device Replacement without MCC), which are discussed later in this section. Consistent with our annual review of the MS-DRGs, we consider changes in resource consumption, treatment patterns, technology, and any other factors that may change the relative use of hospital resources. In our review of the claims data from the September 2025 update of the FY 2025 MedPAR file for this request, we identified a low volume of cases for MS-DRGs 258 and 259 (Cardiac Pacemaker Device Replacement with MCC and without MCC, respectively), where procedure code XHH80HB is assigned when reported as a standalone procedure in Version 43.1. Our findings are shown in the following table. BILLING CODE 4120-01-P [GRAPHIC] [TIFF OMITTED] TP14AP26.009 In light of the initial findings of only 35 cases for MS-DRG 258 and 68 cases in MS-DRG 259, we further reviewed the MedPAR claims data for cases assigned to MS-DRGs 258 and 259 for the past 5 fiscal years. As reflected in the following tables, these data indicate that the number of cases grouping to MS-DRGs 258 and 259 has generally declined. [GRAPHIC] [TIFF OMITTED] TP14AP26.010 [GRAPHIC] [TIFF OMITTED] TP14AP26.011 [[Page 19332]] We note that, if, during our annual MS-DRG analysis we identify that there are only a few patients in a respective MS-DRG, consistent with our established process in deciding whether to propose to make further modifications, we consider if there have been potential changes in the clinical characteristics of the patients, treatment patterns, or resource utilization. A principle of the MS-DRGs and the characteristics of a meaningful DRG classification scheme is the ability to detect such changes and accordingly, propose clinically appropriate modifications that are also consistent with resource utilization. We have noted in prior rulemaking that we prefer to have a substantial number of cases in an MS-DRG because having larger clinically cohesive groups within an MS-DRG provides greater stability for annual updates to the relative payment weights. In light of these considerations, and the low volume of cases in MS-DRGs 258 and 259, we believed it was appropriate to further analyze how to potentially reclassify these cases. Accordingly, using the September 2025 update of the FY 2025 MedPAR file, we examined whether there were other MS-DRGs to which these cases could appropriately be reassigned. We note that surgical MS-DRGs 260, 261, and 262 (Cardiac Pacemaker Revision Except Device Replacement with MCC, with CC, and without CC/MCC, respectively) also include procedure codes related to cardiac pacemakers. A cardiac pacemaker device replacement (generator change) is a procedure to change an old battery (generator) for a new one. A cardiac pacemaker revision is a procedure that may involve replacing, moving, or adding leads, or fixing the pocket of the generator. While the terms are distinct, both cardiac pacemaker revision and cardiac pacemaker replacement procedures are performed in order to improve the way the cardiac pacemaker system works. As such, we reviewed the claims data from the September 2025 update of the FY 2025 MedPAR file for MS-DRGs 260, 261, and 262 to examine the resource utilization associated with cases assigned to these MS-DRGs. Our findings are shown in the following table. [GRAPHIC] [TIFF OMITTED] TP14AP26.012 As part of this analysis, we also reviewed the MS-DRGs for cases reporting ICD-10-PCS codes describing cardiac pacemaker device replacement procedures by severity claims data for MS-DRG 259 because this MS-DRG includes cases reporting a CC as well as cases reporting a NonCC. Therefore, we analyzed the claims data to determine the number of cases, the average length of stay, and average costs for the cases in MS-DRG 258 and 259 by severity level (1=MCC, 2=CC, and 3=NonCC). Our findings are shown in the following table. [GRAPHIC] [TIFF OMITTED] TP14AP26.013 As shown in the data, the 35 cases reporting an MCC in MS-DRG 258 have an average length of stay of 7 days with average costs of $28,275, which is comparable to the cases in MS-DRG 260 reporting an MCC that have an average length of stay of 7.5 days with average costs of $29,313. The 42 cases reporting a CC in MS-DRG 259 have an average length of stay of 4 days with average costs of $18,246, which is comparable to the cases in MS-DRG 261 reporting an CC that have an average length of stay of 3.5 days with average costs of $17,151. The 26 cases not reporting a CC or an MCC in MS-DRG 259 have an average length of stay of 2 days with average costs of $14,552, which is comparable to the cases in MS-DRG 262 not reporting a CC or an MCC that have an average length of stay of 2.5 days with average costs of $15,119. We reviewed these findings and believe that it may no longer be necessary to subdivide these MS-DRGs based on the cardiac pacemaker revision or device replacement procedure codes reported. We note that DRGs that differentiate cases reporting procedure codes describing cardiac pacemaker device replacement from cases reporting procedure codes describing cardiac pacemaker revisions have existed since 1983 (48 FR 39878) when Congress amended the Social Security Act to include a national DRG-based hospital prospective payment system for all Medicare patients. Our analysis of claims data from the September 2025 update of the FY 2025 MedPAR file shows that in the 43 years since the DRGs for cases reporting cardiac pacemaker revision procedures and cases reporting cardiac pacemaker device replacement procedures were created, the resource utilization appears to now be aligned, and the cases are clinically coherent, and therefore we believe it is appropriate to now restructure these MS-DRGs accordingly. Specifically, we believe it would be appropriate to delete MS-DRGs 258, 259, 260, 261, and 262, and to create new MS-DRGs for cases reporting ICD-10-PCS codes describing cardiac pacemaker revision or device replacement procedures, based on our analysis and review of the cases grouping to these MS-DRGs. The following table illustrates our simulation of the proposal. [GRAPHIC] [TIFF OMITTED] TP14AP26.014 [[Page 19333]] Consistent with our established process as discussed in section II.C.1.b. of the preamble of this FY 2027 IPPS/LTCH PPS proposed rule, once the decision has been made to propose to make further modifications to the MS-DRGs, such as creating a new base MS-DRG, all five criteria to create subgroups must be met for the base MS-DRG to be split (or subdivided) by a CC subgroup. Therefore, we applied the criteria to create subgroups in a base MS-DRG as discussed in section II.C.1.b. of the preamble of this FY 2027 IPPS/LTCH PPS proposed rule. As shown, a three-way split of the proposed new MS-DRG failed to meet the criterion that there be at least a 20% difference in average costs between the CC and NonCC subgroup. [GRAPHIC] [TIFF OMITTED] TP14AP26.015 As discussed in section II.C.1.b. of the preamble of this FY 2027 IPPS/LTCH PPS proposed rule, if the criteria for a three-way split fail, the next step is to determine if the criteria are satisfied for a two-way split. We therefore applied the criteria for a two-way split for the ``with MCC'' and ``without MCC'' subgroups and found that all five criteria were met. The following table illustrates our findings. [GRAPHIC] [TIFF OMITTED] TP14AP26.016 BILLING CODE 4120-01-C For the proposed new MS-DRGs for cases reporting procedure codes describing cardiac pacemaker revision or device replacement, there is at least (1) 500 cases in the MCC group and 500 cases in the without MCC group; (2) 5 percent of the cases in the MCC group and 5 percent in the without MCC group; (3) a 20 percent difference in average costs between the MCC group and the without MCC group; (4) a $2,000 difference in average costs between the MCC group and the without MCC group; and (5) a 3-percent reduction in cost variance, indicating that the proposed severity level splits increase the explanatory power of the base MS-DRG in capturing differences in expected cost between the proposed MS-DRG severity level splits by at least 3 percent and thus improve the overall accuracy of the IPPS payment system. Therefore, for FY 2027, we are proposing to delete MS-DRGs 258, 259, 260, 261, and 262 and to create two new MS-DRGs with a two-way severity level split for cases reporting procedure codes describing cardiac pacemaker revision or device replacement in MDC 05. These proposed new MS-DRGs are proposed new MS-DRG 210 (Cardiac Pacemaker Revision or Device Replacement with MCC) and proposed new MS-DRG 211 (Cardiac Pacemaker Revision or Device Replacement without MCC). We refer the reader to Table 6P.2a associated with this FY 2027 IPPS/LTCH PPS proposed rule (which is available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index) for the list of procedure codes we are proposing to define in the logic for the proposed new MS-DRGs. We note that discussion of the surgical hierarchy for the proposed modification is discussed in section II.C.14. of the preamble of this FY 2027 IPPS/ LTCH PPS proposed rule. In our evaluation of this MS-DRG classification request, we also noted that we identified 7,772 cases in base MS-DRG 264 (Other Circulatory System O.R. Procedures) with an average length of stay of 9.4 days and average costs of $29,545. Accordingly, in connection with our analysis we applied the five criteria as described in section II.C.1.b. of the preamble of this FY 2027 IPPS/LTCH PPS proposed rule to determine if it would be appropriate to subdivide cases currently assigned to base MS-DRG 264 into severity levels. This analysis includes two years of MedPAR claims data to compare the data results from one year to the next to avoid making determinations about whether additional severity levels are warranted based on an isolated year's data fluctuation and also to validate that the established severity levels within a base MS-DRG are supported. Therefore, we reviewed the claims data for base MS-DRG 264 using the September 2024 update of the FY 2024 MedPAR file and the September 2025 update of the FY 2025 MedPAR file, which were used in our analysis of claims data for MS-DRG reclassification requests for FY 2026 and FY 2027, respectively. Our findings are shown in the following table: [GRAPHIC] [TIFF OMITTED] TP14AP26.017 First, we applied the criteria to create subgroups for the three- way severity level split. We found that the criterion that there be at least 5% of the patients are in each of the MCC, CC, and NonCC subgroups failed based on the data in both the FY 2024 and FY 2025 MedPAR files. The criterion that there be at least 500 cases for each subgroup also was [[Page 19334]] not met, as shown in the table for both years. Specifically, for the ``with MCC'', ``with CC'', and ``without CC/MCC'' split, there were only 154 cases in the ``without CC/MCC'' subgroup based on the data in the FY 2024 MedPAR file and only 145 cases in the ``without CC/MCC'' subgroup based on the data in the FY 2025 MedPAR file. As discussed in section II.C.1.b. of the preamble of this FY 2027 IPPS/LTCH PPS proposed rule, if the criteria for a three-way split fail, the next step is to determine if the criteria are satisfied for a two-way split. We therefore applied the criteria for a two-way split for the ``with MCC'' and ``without MCC'' subgroups and found that all five criteria were met for both years. For both years, there are at least (1) 500 cases in the MCC group and 500 cases in the without MCC group; (2) 5 percent of the cases in the MCC group and 5 percent in the without MCC group; (3) a 20 percent difference in average costs between the MCC group and the without MCC group; (4) a $2,000 difference in average costs between the MCC group and the without MCC group; and (5) a 3-percent reduction in cost variance, indicating that a ``with MCC'' and ``without MCC'' severity level split increases the explanatory power of the base MS-DRG in capturing differences in expected cost between the MS-DRG severity level splits by at least 3 percent and thus improves the overall accuracy of the IPPS payment system. As the claims data supports a two-way severity level split for cases reporting other circulatory system O.R. Procedures, for FY 2027, we are proposing to delete base MS-DRG 264 and proposing to create two new MS-DRGs with a two-way severity level split for cases reporting other circulatory system O.R. Procedures in MDC 05. These proposed new MS-DRGs are proposed new MS-DRG 361 (Other Circulatory System O.R. Procedures with MCC) and proposed new MS-DRG 362 (Other Circulatory System O.R. Procedures without MCC). Under this proposal, we would reassign the 1,447 listed procedure codes in the GROUPER logic of MS- DRG 264 to new MS-DRGs 361 and 362. We refer the reader to the ICD-10 MS-DRG Version 43.1 Definitions Manual (which is available via the internet on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software) for complete documentation of the GROUPER logic for MS-DRG 264. We note that discussion of the surgical hierarchy for the proposed modification is discussed in section II.C.14. of the preamble of this FY 2027 IPPS/LTCH PPS proposed rule.

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

Connective Tissue) a. Spinal Fusion and Pelvic Fixation Procedures As discussed in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18012 through 108013) and final rule (90 FR 36550 through 36552), we received a request to modify the GROUPER logic of new MS-DRG 426 (Multiple Level Combined Anterior and Posterior Spinal Fusion Except Cervical with MCC or Custom-Made Anatomically Designed Interbody Fusion Device), new MS-DRG 427 (Multiple Level Combined Anterior and Posterior Spinal Fusion Except Cervical with CC), and new MS-DRG 428 (Multiple Level Combined Anterior and Posterior Spinal Fusion Except Cervical without CC/MCC); new MS-DRG 447 (Multiple Level Spinal Fusion Except Cervical with MCC or Custom-Made Anatomically Designed Interbody Fusion Device) and new MS-DRG 448 (Multiple Level Spinal Fusion Except Cervical without MCC); and MS-DRGs 456, 457, and 458 (Spinal Fusion Except Cervical with Spinal Curvature, Malignancy, Infection or Extensive Fusions with MCC, with CC, and without CC/MCC, respectively) by reassigning cases with an ICD-10-PCS code that describes fusion of a sacroiliac joint using an internal fixation device with tulip connector or insertion of an internal fixation device with tulip connector into a pelvic bone with another spinal fusion procedure code that currently map to the lower severity level MS-DRG to the highest severity level (with MCC) MS-DRG. In the FY 2026 IPPS/LTCH PPS final rule (90 FR 36552), we noted that we would continue to consider the request in connection with future rulemaking. We stated that the logic for MS-DRGs 456, 457, and 458 is defined by extensive fusions, in addition to specific diagnosis code logic and that MS-DRGs 426, 427, 428, 447, and 448 had recently become effective October 1, 2024, which we were continuing to monitor. We also stated that the data analysis necessary to examine the intricate logic within the spinal fusion MS-DRGs outlined in the request is complex and would require additional time for careful consideration of case redistribution and potential relative weight impacts, in connection with other related spinal fusion procedure requests that may be discussed in future rulemaking. For this FY 2027 IPPS/LTCH PPS proposed rule, we received another request from the same manufacturer to reassign cases reporting the use of the iFuse BedrockTM Granite Implant System (also referred to as tulip connector) in spinal fusion procedures that currently map to the lower severity level MS-DRG to the highest severity level (with MCC) MS-DRG for the previously listed MS-DRGs that were discussed in connection with the FY 2026 IPPS/LTCH PPS rulemaking; MS-DRGs 426, 427, 428, 447, 448, 456, 457, and 448. The requestor stated that historically, the junction between the lumbar spine and the sacrum (the L5-S1 spinal level), has been the most challenging level in which to achieve fusion. One of the primary reasons is because of our upright posture and normal spinal curvature that causes the L5-S1 intervertebral disc to become significantly inclined (tilted forward). The requester indicated that this results in significant shear load at this level, making this the level most likely to break down, and the level most challenging to stabilize during a fusion procedure. Per the requestor, the L5-S1 level is the junction between the mobile spine above and the much more rigid sacrum/pelvis below, leading to stress concentration at this level. The L5-S1 level experiences the most axial load as it is the base of the spine supporting the weight of the entire torso. Finally, the L5-S1 level experiences progressively more stress/load with more levels of the spine that are fused. The requestor stated that including additional levels in the fusion construct results in additional lengthening of the lever arm and increasing the loads acting at the L5-S1 level. The requestor stated that anchorage of spinal instrumentation into the sacrum is also challenging. The sacrum is narrow in the posterior to anterior dimension, resulting in the need to place shorter screws. The pedicles are larger diameter which results in diminished cortical engagement of the screws. According to the requestor, the bone structure of the sacrum is also suboptimal for screw anchorage as the density of the sacrum is frequently diminished, particularly in older adults, and especially in those with osteoporosis. The requestor stated that the problem also exists for older adults without osteoporosis. The requestor indicated that historically, surgeons added additional spinal instrumentation fixation anchor points into the pelvis (ilium and sacrum) to try and help solve the biomechanical and anatomic challenges previously described. These anchors (typically longer, larger diameter [[Page 19335]] pedicle-type screws) are placed into the ilium or placed crossing through the sacrum and then into the ilium. These screws are then connected to the spinal instrumentation and improve the biomechanical stability of the spinal instrumentation construct. The requestor stated that clinical practice has evolved to include pelvic fixation as an integral part of spinal instrumentation with multi-level fusions ending at the sacrum. The requestor stated that the current standard is to include pelvic fixation in fusions of four levels or more.\2\ The requestor added that recently, recommendations have been suggested to include pelvic fixation in some instances if the fusion includes three or more levels.\3\ The requestor stated that pelvic fixation is also considered in shorter level fusion procedures in clinical scenarios when there is increased risk of fusion failure, including patients with high pelvic incidence (PI), high body mass index (BMI), and conditions with sagittal plane deformity such as spondylolisthesis. The requestor stated that surgeons performing revision lumbar surgery to treat an existing pseudarthosis (that is, nonunion or failed fusion) commonly include pelvic fixation to provide additional stability in these challenging clinical situations. --------------------------------------------------------------------------- \2\ Lee CS, Chung SS, Choi SW, Yu JW, Sohn MS. Critical length of fusion requiring additional fixation to prevent nonunion of the lumbosacral junction. Spine (Phila Pa 1976). 2010 Mar 15;35(6):E206- 11. doi: 10.1097/BRS.0b013e3181bfa518. PMID: 20195201. \3\ Jankowski PP, Hashmi SZ, Lord EL, Heller JE, Essig DA, Passias PG, Tahmasebpour P, Capobianco RA, Kleck CJ, Polly DW, Zuckerman SL; Spinopelvic Study Group. Trends in Lumbosacral-Pelvic Fixation Strategies. Int J Spine Surg. 2025 Sep 2;19(4):402-408. doi: 10.14444/8765. PMID: 40514223. --------------------------------------------------------------------------- According to the requestor, although pelvic fixation strategies and implants have evolved since they were first introduced in the 1970s, including the development of sacro-alar-iliac (SAI) screws in 2007,\4\ challenges with pelvic fixation persist. Studies indicate a 17%-23% complication rate, including screw or rod breakages, loose screws, L5- S1 pseudoarthrosis, and high revision rates.5 6 Many patients also experience sacroiliac (SI) joint pain and degeneration after multilevel fusions to the sacrum.\7\ The SI joint often exhibits pathological increased motion in spinal deformity patients \8\ and continues to move even after single-implant pelvic fixation 9 10 leading to suboptimal outcomes and loss of correction. --------------------------------------------------------------------------- \4\ Kebaish, Khaled M. MD (Johns Hopkins Hospital); Gunne, Albert Pull ter MD; Mohamed, Ahmed S. MD; Zimmerman, Ryan; Ko, Phebe

S. BS; Skolasky, Richard L. ScD; O'Brien, Joseph R. MD, MPH;

Sponseller, Paul D. MD. A New Low Profile Sacro-Pelvic Fixation Using S2 Alar Iliac (S2AI) Screws in Adult Deformity Fusion to the Sacrum: A Prospective Study with Minimum Two-Year Follow-Up: E- Poster #21. Spine: Affiliated Society Meeting Abstracts 10( ):p 170, September 2009. \5\ Eastlack RK, Soroceanu A, Mundis GM Jr, et al. Rates of Loosening, Failure, and Revision of Iliac Fixation in Adult Deformity Surgery. Spine (Phila Pa 1976). 2022;47(14):986-994. doi:10.1097/BRS.0000000000004356. \6\ Odland K, Chanbour H, Zuckerman SL, Polly DW Jr. Spinopelvic fixation failure in the adult spinal deformity population: systematic review and meta-analysis. Eur Spine J. 2024 Jul;33(7):2751-2762. doi: 10.1007/s00586-024-08241-6. Epub 2024 Apr 15. Erratum in: Eur Spine J. 2025 Sep 18. doi: 10.1007/s00586-025- 09232-x. PMID: 38619634. \7\ Manzetti M, Ruffilli A, Barile F, et al. Sacroiliac Joint Degeneration and Pain After Spinal Arthrodesis: A Systematic Review. Clin Spine Surg. 2023;36(4):169-182. doi:10.1097/ BSD.0000000000001341. \8\ Mikula AL, Fogelson JL, Oushy S, Pinter ZW, Peters PA, Abode-Iyamah K, Sebastian AS, Freedman B, Currier BL, Polly DW, Elder BD. Change in pelvic incidence between the supine and standing positions in patients with bilateral sacroiliac joint vacuum signs. J Neurosurg Spine. 2021 Jan 15;34(4):617-622. doi: 10.3171/ 2020.8.SPINE20742. PMID: 33450735. \9\ Wei C, Zuckerman SL, Cerpa M, Ma H, Yang M, Yuan S, Lenke LG. Can pelvic incidence change after spinal deformity correction to the pelvis with S2-alar-iliac screws? Eur Spine J. 2021 Sep;30(9):2486-2494. doi: 10.1007/s00586-020-06658-3. Epub 2020 Nov 11. PMID: 33179128. \10\ Cunningham BW, Sponseller PD, Murgatroyd AA, Kikkawa J, Tortolani PJ. A comprehensive biomechanical analysis of sacral alar iliac fixation: an in vitro human cadaveric model. J Neurosurg Spine. 2019 Jan 4;30(3):367-375. doi: 10.3171/2018.8.SPINE18328. PMID: 30611149. --------------------------------------------------------------------------- The requestor stated that currently, greater biomechanical loads are being placed on spinopelvic constructs and surgeons are performing an increasing number of multilevel fusions. Evolving surgical techniques and instrumentation now allow for treatment of more severe deformities, as well as the performance of surgery on patients with a higher BMI and poor bone quality. According to the requestor, the iFuse BedrockTM Granite Implant System represents a next- generation solution that allows for both pelvic fixation and sacroiliac joint fusion. The requestor stated this implant is the first Food and Drug Administration (FDA) cleared device designed for both purposes,\11\ featuring a composite construction that includes a strong inner threaded screw component and a 3D-printed porous fusion sleeve to promote osseointegration. The requestor reported that there have been no reported breakages of the implant in over 8,500 cases.\12\ --------------------------------------------------------------------------- \11\ U.S. Food and Drug Administration. 510(k) Premarket Notification: iFuse Bedrock GraniteTM Implant System. Published May 26, 2022. Accessed October 15, 2024. www.accessdata.fda.gov/scripts/cdrh/cfdocs/cfpmn/pmn.cfm?id=K220195 \12\ Eastlack RK, Menger RP, Turner JD, Ashcraft KR, Carlton Recking W, Kleck CJ. Spinopelvic Fixation Using an Osseointegrative Implant: Analysis of Postmarket Surveillance to Determine the Failure Rate. Int J Spine Surg. 2025 Jun 12;19(3):273-278. doi: 10.14444/8720. PMID: 39890424; PMCID: PMC12268591. --------------------------------------------------------------------------- The requestor asserted the iFuse BedrockTM Granite Implant System provides clinical advantages such as immediate and durable stability of the spinal instrumentation construct, reducing the likelihood of implant breakage due to its larger diameter and stronger construction. The requestor stated the porous fusion sleeve facilitates osseous integration, enhancing stability over time as it is designed for permanent fusion of the SI joint. Per the requestor, multiple implants can be placed on each side, either connected to a single rod or to separate rods, providing multiple points of fixation across the SI joints which increases construct stability and decreases SI joint motion. According to the requestor, the iFuse BedrockTM Granite Implant System requires no changes to physician workflow, requires no additional surgical dissection, does not increase surgical time, or alter the length of hospital stay. The requestor stated that the iFuse BedrockTM Granite Implant System is cleared for use with two navigation systems most frequently used in surgical facilities across the country. The ICD-10-PCS codes that may be reported to describe the iFuse BedrockTM Granite tulip connector device are: [[Page 19336]] [GRAPHIC] [TIFF OMITTED] TP14AP26.018 The previously listed procedure codes describing ``Insertion'' (ICD-10-PCS codes XNH6058, XNH6358, XNH7058, and XNH7358) are assigned to MS-DRGs 515, 516, and 517 (Other Musculoskeletal System and Connective Tissue O.R. Procedures with MCC, with CC, and without CC/ MCC, respectively) and the procedure codes describing ``Fusion'' (ICD- 10-PCS codes XRGE058, XRGE358, XRGF058, and XRGF358) are assigned to MS-DRGs 028 (Spinal Procedures with MCC), MS-DRG 029 (Spinal Procedures with CC or Spinal Neurostimulators), and MS-DRG 030 (Spinal Procedures without CC/MCC) under MDC 01 (Diseases and Disorders of the Nervous System) and MS-DRGs 402, 426, 427, 428, 447, 448, 450, 451, 456, 457, and 458 under MDC 08. We note that because the ICD-10-PCS codes describing ``Insertion'' of internal fixation device with tulip connector are not assigned to one of the spinal fusion MS-DRGs as a standalone procedure, another ICD-10-PCS code describing a spinal fusion procedure would need to be reported on the same claim to group to one of the previously listed spinal fusion MS-DRGs. We refer the reader to the ICD-10 MS-DRG Definitions Manual, Version 43.1, which is available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software for complete documentation of the GROUPER logic for the previously listed MS-DRGs. For this FY 2027 IPPS/LTCH PPS proposed rule, we also received a separate, but related request, from another manufacturer of devices used in the performance of a spinal fusion procedure. Specifically, we received a request to reassign cases reporting the use of the aprevo[supreg] Intervertebral Body Fusion Device (hereafter referred to as aprevo[supreg]) from MS-DRG 402 (Single Level Combined Anterior and Posterior Spinal Fusion Except Cervical) to MS-DRG 450 (Single Level Spinal Fusion Except Cervical with MCC or Custom-Made Anatomically Designed Interbody Fusion Device) or alternatively, to reassign cases reporting the use of aprevo[supreg] from MS-DRG 402 to MS-DRG 428, and separately, to reassign cases reporting the use of aprevo[supreg] from MS-DRG 428 to the higher severity level (with MCC) MS-DRG 426. We note that we have previously discussed the reassignment of cases reporting the use of the aprevo[supreg] technology in the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26726 through 26729) and final rule (88 FR 58731through 58735, as corrected in the FY 2024 final rule correction notice at 88 FR 77211), and in the FY 2025 IPPS/LTCH PPS proposed rule (89 FR 35971 through 39585) and final rule (89 FR 69034 through 69061). We also note that the aprevo[supreg] technology was approved for new technology add-on payments for FY 2022 (86 FR 45127 through 45133), FY 2023 (87 FR 49468 through 49469) and FY 2024 (88 FR 58802). We refer the reader to those rulemaking discussions for additional detailed information regarding the aprevo[supreg] technology. The ICD-10-PCS codes that may be reported to describe lumbar fusion procedures that use the aprevo[supreg] device are: [[Page 19337]] [GRAPHIC] [TIFF OMITTED] TP14AP26.019 We note that for the Spring 2026 ICD-10-PCS code update, the manufacturer of the aprevo[supreg] custom-made anatomically designed interbody fusion device submitted a request to revise the descriptions for the procedure codes that describe use of the aprevo[supreg] device. The manufacturer requested that the description of the previously listed codes (and nine other procedure codes that describe a cervical fusion using a custom-made anatomically designed interbody fusion device) be revised to specifically identify that the technology is designed from a virtual anatomic model. The agenda and related meeting materials for these specific topics are available on the CMS website at: https://www.cms.gov/medicare/coding-billing/icd-10-codes/icd-10-coordination-maintenance-committee-materials. We note that the deadline for receipt of public comments for the proposals included in the Spring 2026 procedure code update is April 17, 2026; therefore, the final code decisions on these proposals are not yet available for inclusion in Table 6B.--New Procedure Codes associated with this FY 2027 IPPS/LTCH PPS proposed rule. Under our established process, if the new and revised procedure code proposals are finalized after review and consideration of public comments following the Spring procedure code update, the codes are specifically identified with a footnote in Table 6B.--New Procedure Codes and Table 6F.--Revised Procedure Code Titles along with the MDC, MS-DRG assignment(s), and operating room (O.R.) or non-operating room (non-O.R.) designation that is made publicly available in association with the final rule on the CMS website at https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps. This established process includes initially reviewing the predecessor codes' MS-DRG assignment and designation, while considering other relevant factors (for example, severity of illness, treatment difficulty, complexity of service and the resources utilized in the diagnosis and/or treatment of the condition). The public may provide feedback on these finalized assignments, which is then taken into consideration for the following fiscal year. Each of the previously listed procedure codes is currently assigned to MDC 01 in MS-DRGs 028, 029, and 030, and to MDC 08 in MS-DRGs 402, 426, 427, 428, 447, 448, 450, 451, 456, 457, and 458. As previously discussed, in the FY 2026 IPPS/LTCH PPS final rule (90 FR 36552), we noted that we would continue to consider the request to modify the GROUPER logic of MS-DRGs 426, 427, and 428 (with regard to the reassignment of cases with an ICD-10-PCS code that describes fusion of a sacroiliac joint using an internal fixation device with tulip connector or insertion of an internal fixation device with tulip connector into a pelvic bone with another spinal fusion procedure code that currently map to the lower severity level MS-DRG to the highest severity level (with MCC) MS-DRG) in connection with future rulemaking and stated that the logic for MS-DRGs 456, 457, and 458 is defined by extensive fusions. Under ICD-10-PCS, an extensive fusion procedure is defined as a spinal fusion procedure involving 8 or more thoracic vertebral joint levels. For example, ICD-10-PCS code 0RG8070 (Fusion of 8 or more thoracic vertebral joints with autologous tissue substitute, anterior approach, anterior column, open approach) describes an extensive fusion procedure. An extensive fusion procedure may also be reported with a combination of codes (cluster) that includes at least one code describing fusion at the thoracic vertebral joint levels and at least one code describing fusion at the lumbar vertebral joint levels, such as ICD-10-PCS code 0RG7070 (Fusion of 2 to 7 thoracic vertebral joints with autologous tissue substitute, anterior approach, anterior column, open approach) and ICD-10-PCS code 0SG1070 (Fusion of 2 or more lumbar vertebral joints with autologous tissue substitute, anterior approach, anterior column, open approach). We refer the reader to Table 6P. 3a that is publicly available in association with this FY 2027 IPPS/LTCH PPS proposed rule on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps for the list of procedure codes we analyzed to identify an extensive fusion that is also reflected in the ICD-10 MS-DRG Definitions [[Page 19338]] Manual, Version 43.1 under MS-DRGs 456, 457, and 458. In review of these requests, we first analyzed claims data from the September 2025 update of the FY 2025 MedPAR file for MS-DRGs 028, 029, and 030 and for cases reporting a spinal fusion procedure with a custom-made anatomically designed interbody fusion device, cases reporting an SI joint fusion or spinal fusion procedure with insertion of an internal fixation device with tulip connector, and cases reporting an extensive fusion. We found zero cases reporting either technology across MS-DRGs 028, 029, and 030. We found 4 cases reporting an extensive fusion in MS-DRG 028, 4 cases reporting an extensive fusion in MS-DRG 029, and zero cases reporting an extensive fusion in MS-DRG 030. Findings from our analysis are shown in the following table. [GRAPHIC] [TIFF OMITTED] TP14AP26.020 As shown in the table, for MS-DRG 028, the four cases reporting an extensive fusion had a longer average length of stay (16.8 days versus 12.2 days) and higher average costs ($122,802 versus $54,697) compared to the average length of stay and average costs of all the cases in MS- DRG 028. After further review of the data we considered three of the four cases to be outlier cases (that is, unusually expensive cases) because the costs for each of the three cases exceeded $100,000 and the length of stay for each of the three cases was twice as long or longer than the average length of stay of all the cases in MS-DRG 028. For MS- DRG 029, the four cases reporting an extensive fusion had a comparable average length of stay (6.8 days versus 6.1 days) and lower average costs ($31,250 versus $32,288) compared to the average length of stay and average costs of all the cases in MS-DRG 029. We note that although the logic for case assignment to MS-DRGs 028, 029, and 030 includes procedure codes that describe a spinal fusion procedure with a custom-made anatomically designed interbody fusion device and procedure codes that describe an SI joint fusion with insertion of an internal fixation device with tulip connector, as well as procedure codes that describe an extensive fusion procedure, the MS- DRG assigned is based on an MDC 01 principal diagnosis code that describes a disease or disorder of the nervous system, therefore, we would not expect to see a significant volume of cases reporting the procedure codes that describe a spinal fusion procedure with a custom- made anatomically designed interbody fusion device, an SI joint fusion with insertion of an internal fixation device with tulip connector, or an extensive fusion procedure in the data. Additionally, we note that the indications for the aprevo[supreg] custom-made anatomically designed interbody fusion device include adults with spinal deformities and degenerative conditions and the indications for the iFuse BedrockTM Granite Implant System include patients with sacroiliac joint dysfunction that is a direct result of SI joint disruption and degenerative sacroiliitis as well as patients with acute, non-acute, and non-traumatic fractures involving the SI joint. The diagnosis codes describing these conditions are assigned to MDC 08, therefore, it is expected that the majority of cases reporting the procedure codes that describe a spinal fusion procedure with a custom- made anatomically designed interbody fusion device, an SI joint fusion with insertion of an internal fixation device with tulip connector, or an extensive fusion procedure would group to the MDC 08 MS-DRGs instead of to MDC 01 MS-DRGs 028, 029, and 030. We refer the reader to the ICD- 10 MS-DRG Definitions Manual Version 43.1 (available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software) for complete documentation of the GROUPER logic for MDC 01 and MDC 08. We then analyzed claims data for MS-DRGs 402, 426, 427, 428, 447, 448, 450, 451, 456, 457, and 458 and for: (1) cases reporting a spinal fusion procedure with a custom-made anatomically designed interbody fusion device, (2) cases reporting an SI joint fusion or spinal fusion procedure with insertion of an internal fixation device with tulip connector, (3) cases reporting a fusion procedure with both technologies (that is, a single case reporting a procedure code describing a spinal fusion procedure with a custom-made anatomically designed interbody fusion device and another procedure code(s) describing an SI joint fusion or a spinal fusion procedure with insertion of an internal fixation device with tulip connector, (4) cases reporting an extensive fusion without either technology (that is, aprevo[supreg] or iFuse BedrockTM Granite Implant System), (5) cases reporting an extensive fusion with a custom-made anatomically designed interbody fusion device, (6) cases reporting an extensive fusion with an SI joint fusion or spinal fusion procedure with insertion of an internal fixation device with tulip connector, and (7) cases reporting an extensive fusion with both technologies. We note that the logic for case assignment to MS-DRGs 402, 447, 448, 450 and 451 does not include the procedure codes or the procedure code clusters that describe an extensive fusion; therefore, no data for extensive fusion cases are reflected in the table that follows for those MS-DRGs. There were also zero cases found reporting both technologies in MS-DRG 402. In addition, because the logic for case assignment to MS-DRGs 426, 447, and 450 includes the reporting of a custom-made anatomically designed interbody fusion device to group to the respective MCC severity level MS-DRG, no data for cases reporting a custom-made anatomically designed interbody fusion device are reflected in the table that follows for MS-DRGs 427, 448, and 451. Findings from our analysis are shown in the following table. BILLING CODE 4120-01-P [[Page 19339]] [GRAPHIC] [TIFF OMITTED] TP14AP26.021 [[Page 19340]] [GRAPHIC] [TIFF OMITTED] TP14AP26.022 BILLING CODE 4120-01-C The findings show that the cases reporting a spinal fusion procedure with the custom-made anatomically designed interbody fusion device, cases reporting an SI joint fusion or spinal fusion procedure with an internal fixation device with tulip connector, and cases reporting both technologies generally had higher average costs with variation in the average length of stay in comparison to the average costs and average length of stay of all the cases in their respective MS-DRG. The findings also show that cases reporting an extensive spinal fusion procedure with or without either of the technologies had average costs that are higher in [[Page 19341]] comparison to the average costs of all the cases in their respective MS-DRG and generally had a comparable or longer average length of stay in comparison to the average length of stay of all the cases in their respective MS-DRG. With regard to the request to reassign cases reporting a spinal fusion procedure with the custom-made anatomically designed interbody fusion device from MS-DRG 402 to MS-DRG 450 and the alternative request to reassign cases reporting a spinal fusion procedure with the custom- made anatomically designed interbody fusion device from MS-DRG 402 to MS-DRG 428, we note that MS-DRG 402 is a base MS-DRG and therefore is not subdivided into severity level subgroups. Additionally, the logic for MS-DRG 402 is defined by single level combined anterior and posterior spinal fusion procedures (except cervical) and the logic for MS-DRG 428 is defined by multiple level combined anterior and posterior spinal fusion procedures. Therefore, the reassignment of cases reporting the use of a custom-made anatomically designed interbody fusion device from MS-DRG 402 to MS-DRG 428 would not be feasible and would not be consistent with the logic of these recently formed MS-DRGs which is intended to differentiate a single level combined anterior and posterior fusion from a multiple level combined anterior and posterior spinal fusion. As discussed in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69058 through 69059), in response to public comments, we previously reviewed a request to reassign cases from the then proposed MS-DRG 402 to the then proposed MS-DRG 428 (both subsequently finalized) from this same manufacturer. Although the findings from our analysis show that the average costs of the cases reporting the use of a custom-made anatomically designed interbody fusion device in MS-DRG 402 are higher compared to all the cases in MS-DRG 402 ($59,906 versus $38,483) with a longer average length of stay (3.3 days versus 2.9 days), and are more similar to the average costs of all the cases in MS-DRG 450 which are $48,325 with an average length of stay of 7.9 days, we disagree with the requested reassignment of cases reporting a spinal fusion procedure with the custom-made anatomically designed interbody fusion device from MS-DRG 402 to MS-DRG 450 because MS-DRG 450 is subdivided into two severity level subgroups and defined by single level spinal fusions (except cervical), meaning either the anterior column of the spine or the posterior column of the spine is fused in a single operative episode. As previously discussed, the logic for case assignment to MS-DRG 402 reflects single level combined anterior and posterior spinal fusion procedures, meaning both the anterior column of the spine and the posterior column of the spine are fused in a single operative episode. MS-DRG 402 is also not subdivided into severity levels. As such, the logic for case assignment to MS-DRGs 402 and 450 reflects two different types of spinal fusions that are clinically distinct procedures with different resources. As shown in our review of the requested reassignment of cases reporting the use of a custom-made anatomically designed interbody fusion device from MS-DRG 428 to MS-DRG 426, the average costs of the 51 cases in MS-DRG 428 are higher compared to all the cases in MS-DRG 428 ($75,595 versus $56,192) with a comparable average length of stay (3.2 days versus 3.0 days), and the average costs of all the cases in MS-DRG 426 are $99,235 with an average length of stay of 8.9 days. However, we also note that there are 142 cases reporting the use of a custom-made anatomically designed interbody fusion device in MS-DRG 426 with average costs of $103,797 and an average length of stay of 5.6 days. Because the logic for MS-DRG 426 includes cases that are reassigned from MS-DRG 427 reporting the use of a custom-made anatomically designed interbody fusion device with a CC, we expanded our analysis to identify how many of the 142 cases would otherwise have grouped to MS-DRG 427 in the absence of the current logic. Of the 142 cases reporting the use of a custom-made anatomically designed interbody fusion device in MS-DRG 426, we found 22 cases were reported with an MCC secondary diagnosis with average costs of $143,062 and an average length of stay of 8.8 days and 120 cases were reported with a CC secondary diagnosis with average costs of $96,598 and an average length of stay of 5.1 days. We note that, as reflected in the previously displayed table, the average costs of all the cases in MS- DRG 427 is $68,506. As shown in our review of MS-DRG 426, the 154 cases reporting a fusion procedure with an internal fixation device with tulip connector had average costs of $134,327 with an average length of stay of 9.3 days in comparison to the average costs of all the cases in MS-DRG 426 of $99,235 with an average length of stay of 8.9 days. We also recognized a similar pattern in MS-DRGs 427, 428, 447, 448, 456, 457, and 458 where the average costs for cases reporting a fusion procedure with an internal fixation device with tulip connector had higher average costs and a longer or comparable average length of stay compared to the average costs and average length of stay of all the cases in their respective MS-DRG. Relatedly, our findings for cases reporting an extensive fusion without either technology and our findings for cases reporting an extensive fusion with either or both technologies for MS-DRGs 426, 427, and 428 and MS-DRGs 456, 457, and 458 demonstrate higher average costs in comparison to the average costs of all the cases in their respective MS-DRG, including at the MCC level. Specifically, our data analysis shows that cases reporting an extensive fusion without either technology currently grouping to MS-DRGs 426, 427, and 428 have higher average costs ($128,537, $103,226, and $81,054, respectively) compared to the average costs of all the cases in their respective MS-DRG ($99,235, $68,506, and $56,192, respectively). Similarly, cases reporting an extensive fusion without either technology currently grouping to MS-DRGs 456, 457, and 458 have higher average costs ($92,132, $66,745, and $57,964, respectively) compared to the average costs of all the cases in their respective MS-DRG ($79,972, $56,069, and $40,771, respectively). Our data analysis also shows that cases reporting an extensive fusion with either or both technologies currently grouping to MS-DRGs 426, 427, and 428 have higher average costs compared to the average costs of all the cases in their respective MS-DRG. Overall, the 229 cases (65 + 151 + 13 = 229) in MS- DRG 426 reporting an extensive fusion with either or both technologies have average costs of $153,092 and an average length of stay of 10.3 days compared to the average cost and average length of stay of all the cases in MS-DRG 426 ($99,235 and 8.9 days, respectively). The 247 cases in MS-DRG 427 reporting an extensive fusion with either or both technologies have costs of $129,777 and a length of stay of 7.0 days compared to the average cost and average length of stay of all the cases in MS-DRG 427 ($68,506 and 4.7 days, respectively). The 26 cases (2 + 22 + 2 = 26) in MS-DRG 428 reporting an extensive fusion with either or both technologies have average costs of $91,261 and an average length of stay of 6.1 days compared to the average cost and average length of stay of all the cases in MS-DRG 428 ($56,192 and 3.0 days, respectively). Additionally, cases reporting an extensive fusion with either or both technologies currently grouping to MS-DRGs 456, 457, and 458 [[Page 19342]] have higher costs and a longer length of stay compared to the average costs and average length of stay of all the cases in their respective MS-DRG. The 60 cases in MS-DRG 456 reporting an extensive fusion with either or both technologies have a cost of $136,660 and a length of stay of 12.7 days, the 121 cases in MS-DRG 457 reporting an extensive fusion with either or both technologies have a cost of $91,823 and a length of stay of 6.6 days, and the 10 cases in MS-DRG 458 reporting an extensive fusion with either or both technologies have a cost of $62,304 and a length of stay of 4.2 days. Based on our review and analysis, we disagree with the requested reassignment of cases from the lower severity level to the higher severity level MS-DRG for cases reporting use of the aprevo[supreg] custom-made anatomically designed interbody fusion device, as well as for cases reporting use of the iFuse BedrockTM Granite Implant System. We believe that each technology is indicated for use in complex spinal fusion procedures and requires increased resource utilization. If we were to reassign cases from the lower severity level to the higher severity level, that would not account for the cases at the MCC level that are unable to be reassigned. Specifically, the cases reporting use of the aprevo[supreg] custom-made anatomically designed interbody fusion device and cases reporting use of the iFuse BedrockTM Granite Implant System at the MCC level would continue to have higher average costs and a longer average length of stay compared to all the other cases at the MCC level. We also believe that extensive spinal fusion procedures, with or without the use of either or both technologies, also demonstrate increased resource utilization because extensive spinal fusion procedures address various spinal deformities across multiple spinal vertebral joint levels. As such, to address the differences in resource utilization and additional treatment options for the patients whose spinal condition requires an extensive fusion procedure or a complex spinal fusion procedure that uses either the aprevo[supreg] custom-made anatomically designed interbody fusion device or the iFuse BedrockTM Granite Implant System, we are proposing a new base MS-DRG. Consistent with our established process as discussed in section II.C.1.b. of the preamble of this FY 2027 IPPS/LTCH PPS proposed rule, once the decision has been made to propose to make further modifications to the MS-DRGs, such as creating a new base MS-DRG, all five criteria to create subgroups must be met for the base MS-DRG to be split (or subdivided) by a CC subgroup. Therefore, we applied the criteria to create subgroups in a base MS-DRG. We note that, as shown in the table that follows, a three-way split of this proposed new base MS-DRG was met. [GRAPHIC] [TIFF OMITTED] TP14AP26.023 For the proposed new MS-DRGs for cases reporting an extensive fusion or a complex spinal fusion procedure with either the aprevo[supreg] custom-made anatomically designed interbody fusion device or the iFuse BedrockTM Granite Implant System, there is at least (1) 500 cases in the MCC group, 500 cases in the with CC group, and 500 cases in the without CC/MCC group; (2) 5 percent of the cases in the MCC group, 5 percent of the cases in the CC group, and 5 percent of the cases in the without CC/MCC group; (3) a 20 percent difference in average costs between the MCC group, the CC group, and the without CC/MCC group; (4) a $2,000 difference in average costs between the MCC group, the CC group, and the without CC/MCC group; and (5) a 3-percent reduction in cost variance, indicating that the proposed severity level splits increase the explanatory power of the base MS-DRG in capturing differences in expected cost between the proposed MS-DRG severity level splits by at least 3 percent and thus improve the overall accuracy of the IPPS payment system. Therefore, for FY 2027, we are proposing to create new MS-DRGs 523, 524, and 525 (Extensive or Complex Spinal Fusion Procedures Except Cervical with MCC, with CC, and without CC/MCC, respectively). Specifically, we are proposing to reassign cases reporting an extensive spinal fusion procedure from MS-DRGs 426, 427, 428, 456, 457 and 458 and to reassign cases reporting a spinal fusion procedure with use of the aprevo[supreg] custom-made anatomically designed interbody fusion device or the iFuse BedrockTM Granite Implant System from MS-DRGs 402, 426, 427, 428, 447, 448, 450, 451, 456, 457 and 458 to proposed new MS-DRGs 523, 524, and 525. We are also proposing to revise the titles for MS-DRGs 426, 447, and 450 to remove the reference to ``Custom-made Anatomically Designed Interbody Fusion Device'' and to revise the titles for MS-DRGs 456, 457, and 458 to remove the reference to ``Extensive Fusions''. We note that discussion of the surgical hierarchy for the proposed modification is discussed in section II.C.14. of the preamble of this FY 2027 IPPS/LTCH PPS proposed rule. b. Hip or Knee Procedures With Periprosthetic Joint Infection In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18049 through 18052) and final rule (90 FR 36606 through 36610), we discussed a request we received to reassign cases reporting a hip or knee procedure with a principal diagnosis of periprosthetic joint infection (PJI) from the lower severity level ``without CC/MCC'' MS-DRG to the higher severity level ``with CC'' MS-DRG when there is no major complication or comorbidity (MCC) or complication or comorbidity (CC) reported for the following MS-DRGs; MS-DRGs 463, 464, and 465 (Wound Debridement and Skin Graft Except Hand for Musculoskeletal and Connective Tissue Disorders with MCC, with CC, and without CC/MCC, respectively), MS-DRGs 466, 467, and 468 (Revision of Hip or Knee Replacement with MCC, with CC, and without CC/MCC, respectively), MS-DRGs 474, 475, and 476 (Amputation for Musculoskeletal System and Connective Tissue Disorders with MCC, with CC, and without CC/MCC, respectively), MS-DRGs 480, 481, and 482 (Hip and Femur Procedures Except Major Joint with MCC, with CC, and without CC/MCC, respectively) and MS-DRG 485, 486, and 487 (Knee Procedures with Principal Diagnosis of Infection with MCC, with CC, and without CC/MCC, respectively). We stated that, based on our review and analysis of the data, we disagreed with the request to reassign PJI cases from the lower severity ``without CC/MCC'' level MS-DRG to the higher severity ``with CC'' level MS-DRG suggested by the requestor as the [[Page 19343]] average costs of the PJI cases in the ``without CC/MCC'' level were not comparable and did not align with the average costs of all the cases at the ``with CC'' level. We stated we believed that MS-DRGs 466, 467, and 468 appeared to group appropriately in their respective MS-DRG assignments and noted that the logic for case assignment to MS-DRGs 485, 486, and 487 includes a principal diagnosis of infection and the difference in average costs for the cases reporting a PJI with a hip or knee procedure compared to the average costs of all the cases in their respective MS-DRG was minimal. We stated we believed the data support proposing a new base MS-DRG for the cases reporting a PJI with a hip or knee procedure in MS-DRGs 463, 464, 465, 474, 475, 476, 480, 481, and 482 to better reflect the complexity of services, resource utilization, and severity of illness of these patients. We applied the criteria to create subgroups in a base MS-DRG as discussed in section II.C.1.b. of the preamble of the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18014 through 18015) and final rule (90 FR 36553 through 36554) and noted that the criteria for a two-way split was met. Therefore, for FY 2026 we proposed to create new MS-DRGs 403 and 404 (Hip or Knee Procedures with Principal Diagnosis of Periprosthetic Joint Infection with MCC and without MCC, respectively). As discussed in the FY 2026 IPPS/LTCH PPS final rule (90 FR 36608 through 36610), several commenters expressed support for the proposal to create proposed new MS-DRGs 403 and 404, however, a commenter stated they encountered inconsistencies when grouping cases using the Version 43 test GROUPER that was made publicly available in association with the FY 2026 IPPS/LTCH PPS proposed rule on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software. The commenter also stated they found an overlap of approximately 52 procedure codes among the list of procedure codes analyzed by CMS made publicly available in Table 6P.6a in connection with the proposed rule analysis and also listed in the logic for MS-DRGs 466, 467, and 468 included in the Draft Version 43 ICD-10 MS-DRG Definitions Manual. The commenter stated it was unable to reconcile some of the shifts in case volume from the MS- DRGs that were analyzed and those that shifted into the proposed new MS-DRGs because it was not clear if the cases shifted because of the procedure code overlap or because of programming within the Version 43 test GROUPER. We acknowledged the commenter's findings and noted that under the GROUPER software program, some collections of ICD-10-PCS procedure codes have a different set of attributes, independent of those of the codes that make them up (that is, their ``components''). We stated that these collections of ICD-10-PCS procedure codes are called clusters and that a routine program in the GROUPER, upstream of the MS-DRG assignment logic, searches the claim for clusters. We noted that when a cluster is found, it is added to the list of procedures found on the claim. We stated that clusters may be ``restricted'' by Major Diagnostic Category (MDC) and a restricted cluster inhibits the use of its procedure code component attributes for the MDC's MS-DRG assignment logic. We provided the example that procedure code cluster 0SPC0JZ (Removal of synthetic substitute from right knee joint, open approach) and 0SRT0JZ (Replacement of right knee joint, femoral surface with synthetic substitute, open approach) may be recognized on a claim if both codes appear (in any order) and the reporting of these codes creates a new procedure code cluster ``@0045''. We stated that the cluster @0045 has a different set of attributes than either code 0SPC0JZ or 0SRT0JZ by itself and is further ``restricted'' for MDC 08. We noted that when the GROUPER logic determines that the MDC is 08, it ignores the attributes of procedure codes 0SPC0JZ and 0SRT0JZ individually, only using those of @0045. We indicated in that example how the logic results in assignment of the claim to MS-DRGs 466, 467, and 468 rather than MS-DRGs 463, 464, and 465. We stated that if the principal diagnosis reported is not assigned under MDC 08, the cluster would not restrict the interpretation of the component codes and their individual attributes could be relevant as well as those of @0045. As also discussed in the FY 2026 IPPS/LTCH PPS final rule (90 FR 36610), following publication of the FY 2026 IPPS/LTCH PPS proposed rule, we identified that the intended grouping of cases to the proposed new MS-DRGs 403 and 404 was impacted because of these cluster restrictions under MDC 08; therefore, we removed the restrictions and performed additional analysis. As a result of removing the restrictions, and due to the existing overlapping procedure code logic among a subset of the MDC 08 MS-DRGs, our analysis showed that further redistribution of the cases under MDC 08 occurred, impacting the remaining number of cases in MS-DRGs 466, 467, and 468 and MS-DRGs 485, 486, and 487, such that, those MS-DRGs no longer satisfied the criteria for a 3-way split. We noted that under our established process for applying the criteria to create subgroups within a base MS-DRG, existing MS-DRGs 466, 467, and 468 would be deleted and a new base MS- DRG for Revision of Hip or Knee Replacement would be established. Additionally, we noted that under this established process, existing MS-DRGs 485, 486, and 487 would be deleted and new MS-DRGs (2-way split) for Knee Procedures with Principal Diagnosis of Infection with and without MCC, respectively, would be established. Because these findings associated with removal of the MDC 08 restrictions on the procedure code clusters for existing MS-DRGs 466, 467, and 468 and MS- DRGs 485, 486, and 487 were not identified until after publication of the proposed rule, in addition to having an updated test Grouper that reflected these potential changes, we did not finalize the creation of proposed new MS-DRGs 403 and 404 for FY 2026. We stated that we may further consider these potential MS-DRG changes for future rulemaking. We refer the reader to the FY 2026 IPPS/LTCH PPS proposed and final rulemaking discussions for additional detailed information. As also discussed in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18012 through 18013) and final rule (90 FR 36550 through 36552), we received a request to modify the GROUPER logic of MS-DRGs 463, 464, and 465; MS-DRGs 466, 467, and 468; and MS-DRGs 492, 493, and 494 (Lower Extremity and Humerus Procedures Except Hip, Foot and Femur with MCC, with CC, and without CC/MCC, respectively) by reassigning cases with ICD-10-PCS code XW0V0P7 (Introduction of antibiotic-eluting bone void filler into bones, open approach, new technology group 7) that currently map to the lower severity level MS-DRG to the highest severity level (with MCC) MS-DRG. We noted that the procedure to insert a bone void filler is designated as a non-operating room (Non-O.R.) procedure and stated our belief that the key factor that would contribute to resource utilization in these cases is the fact that the patients have an infection(s) which require additional resources. We further noted that, as discussed in section II.C.5.a. of the preamble of the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18049 through 18052), we received an MS-DRG request related to cases reporting a hip or knee procedure with [[Page 19344]] a diagnosis of PJI in MS-DRGs 463, 464, and 465 (the same set of MS- DRGs that were submitted to analyze ICD-10-PCS code XW0V0P7). We stated that in our review of the claims data to address that specific request we noted that a subset of the cases also reported procedure code XW0V0P7 and for these reasons and those previously described, we believed additional time was needed to review and evaluate potential extensive modifications to the structure of these MS-DRGs. As we discuss further in this section, based on our analysis of the September 2025 update of the FY 2025 MedPAR file for this FY 2027 IPPS/ LTCH PPS proposed rule, we continue to believe it is appropriate to propose new MS-DRGs 403 and 404 to better differentiate and reflect the complexity of services, resource utilization, and severity of illness for patients diagnosed with a PJI. For purposes of our analysis for this FY 2027 IPPS/LTCH PPS proposed rule, in connection with the FY 2026 IPPS/LTCH PPS final rule discussion related to the findings about the restriction logic and overlap of procedure codes, for proposed new MS-DRGs 403 and 404 for FY 2027, we removed the restriction logic under MDC 08 for the procedure code clusters within MS-DRGs 466, 467, and 468, and within MS-DRGs 485, 486, and 487. These changes are reflected in the test version of the ICD-10 MS-DRG GROUPER Software, Version 44, and the draft version of the ICD-10 MS-DRG Definitions Manual, Version 44, available in association with this FY 2027 IPPS/LTCH PPS proposed rule (available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software) so that the public can better analyze and understand the impact of the proposals as summarized in the discussion that follows. Additionally, for this FY 2027 IPPS/LTCH PPS proposed rule, in connection with the FY 2026 IPPS/LTCH PPS final rule discussion related to the request for reassignment of cases with ICD-10-PCS code XW0V0P7 that currently map to the lower severity level MS-DRG to the highest severity level (with MCC) MS-DRG, the requestor submitted a revised request. Specifically, in addition to the previously listed MS-DRGs identified for CMS' consideration for FY 2026, the requestor added MDC 08 MS-DRGs 474, 475, and 476 and MS-DRGs 480, 481, and 482, that are also the subject of the request to reassign cases reporting a hip or knee procedure with a principal diagnosis of PJI from the lower severity level ``without CC/MCC'' MS-DRG to the higher severity level ``with CC'' MS-DRG, and further added MDC 08 MS-DRGs 477, 478, and 479 (Biopsies of Musculoskeletal System and Connective Tissue with MCC, with CC, and without CC/MCC, respectively). We also note that separately, this same requestor submitted a request for the reassignment of cases reporting ICD-10-PCS code XW0V0P7 that currently map to the lower severity level MS-DRG to the highest severity level (with MCC) MS-DRG within MDC 10 for MS-DRGs 616, 617, and 618 (Amputation of Lower Limb for Endocrine, Nutritional and Metabolic Disorders with MCC, with CC, without CC/MCC, respectively) and MS-DRGs 628, 629, and 630 (Other Endocrine, Nutritional and Metabolic O.R. Procedures with MCC, with CC, without CC/MCC, respectively) that is discussed separately in section II.C.5 of the preamble of this FY 2027 IPPS/LTCH PPS proposed rule. Effective October 1, 2021, ICD-10-PCS code XW0V0P7 was created in association with a new technology add-on payment application for CERAMENT[supreg] G, a combination device-drug product intended to treat bone infections (for example, osteomyelitis). It is an implantable bone void filler that consists of hydroxyapatite and calcium sulfate, as well as gentamicin sulfate, which is an antibacterial agent. We refer the reader to the September 8, 2020 ICD-10 Coordination and Maintenance Committee meeting materials available on the CMS website at: https://www.cms.gov/medicare/coding-billing/icd-10-codes/icd-10-coordination-maintenance-committee-materials for information regarding the procedure code request, including a transcript of the discussion and the related meeting materials. We also note that CERAMENT[supreg] G was approved for a new technology add-on payment beginning October 1, 2022 for the indication of infection which expired on September 30, 2025. For FY 2026, CERAMENT[supreg] G was approved for a new technology add-on payment for the indication of an open fracture. We refer the reader to section II.E.4. of the preamble of the FY 2026 IPPS/LTCH PPS proposed and final rules for additional discussion regarding CERAMENT[supreg] G in association with the new technology add-on payment indication. For the Spring 2026 ICD-10-PCS code update, the manufacturer of CERAMENT[supreg] G submitted a request for a new code to describe another antibiotic-eluting bone void filler product, CERAMENT[supreg] V, in association with a new technology add-on payment application for FY 2027. We refer the reader to section II.E.6. of the preamble of this FY 2027 IPPS/LTCH PPS proposed rule for additional discussion regarding CERAMENT[supreg] V in association with the new technology add-on payment policy. The manufacturer also requested a revision to the existing code, ICD-10-PCS code XW0V0P7, that is reported to identify the administration of CERAMENT[supreg] G. CERAMENT[supreg] V is an injectable synthetic bone void filler that consists of hydroxyapatite, calcium sulfate, and the antibiotic vancomycin hydrochloride. The manufacturer requested that the description of existing ICD-10-PCS code XW0V0P7 be revised to specifically identify gentamicin and that a new code be created to specifically identify vancomycin in association with the new technology add-on payment application. The agenda and related materials for these specific topics are available on the CMS website at: https://www.cms.gov/medicare/coding-billing/icd-10-codes/icd-10-coordination-maintenance-committee-materials. We note that the deadline for receipt of public comments for the proposals included in the Spring 2026 procedure code update is April 17, 2026; therefore, the final code decisions on these proposals are not yet available for inclusion in Table 6B.--New Procedure Codes associated with this FY 2027 IPPS/LTCH PPS proposed rule. Under our established process, if the new and revised procedure code proposals are finalized after review and consideration of public comments following the Spring update, the codes are specifically identified with a footnote in Table 6B.--New Procedure Codes and Table 6F.--Revised Procedure Code Titles along with the MDC, MS-DRG assignment(s), and operating room (O.R.) or non-operating room (non-O.R.) designation that is made publicly available in association with the final rule on the CMS website at https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps. This established process includes initially reviewing the predecessor codes MS-DRG assignment and designation, while considering other relevant factors (for example, severity of illness, treatment difficulty, complexity of service and the resources utilized in the diagnosis and/ or treatment of the condition). The public may provide feedback on these finalized assignments, which is then taken into consideration for the following fiscal year. Accordingly, to continue our analysis of cases reporting a hip or knee procedure with a principal diagnosis of [[Page 19345]] PJI as discussed in the FY 2026 IPPS/LTCH PPS final rule with removal of the restriction logic and to address the request to modify the GROUPER logic by reassigning cases with ICD-10-PCS code XW0V0P7 that currently map to the lower severity level MS-DRG to the highest severity level (with MCC) MS-DRG, we reviewed claims data from the September 2025 update of the FY 2025 MedPAR file for MS-DRGs 463, 464, 465, 466, 467, 468, 474, 475, 476, 477, 478, 479, 480, 481, 482, 485, 486, 487, 492, 493, and 494 and for: 1) cases reporting a principal diagnosis of PJI with a hip or knee procedure based on the proposed logic as reflected in Table 6P.3b, 2) cases reporting the insertion of antibiotic-eluting bone void filler (code XW0V0P7) without a principal diagnosis of PJI among all the cases in the respective MS-DRG (that is, not limited to the proposed logic reflected in Table 6P.3b), and 3) cases reporting both a principal diagnosis of PJI with a hip or knee procedure and ICD-10-PCS code XW0V0P7 based on the proposed logic as reflected in Table 6P.3b. We refer the reader to Table 6P. 3b that is publicly available in association with this FY 2027 IPPS/LTCH PPS proposed rule on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps for the list of diagnosis codes we analyzed to identify a PJI, for the procedure code we analyzed to identify the insertion of antibiotic-eluting bone void filler, and for the list of procedure codes we analyzed from the previously listed MS-DRGs (excluding MS-DRGs 477, 478, and 479 that were not the subject of the request) to identify a hip or knee procedure. Findings from our analysis with removal of the restriction logic are shown in the following table. BILLING CODE 4120-01-P [[Page 19346]] [GRAPHIC] [TIFF OMITTED] TP14AP26.024 [[Page 19347]] [GRAPHIC] [TIFF OMITTED] TP14AP26.025 [[Page 19348]] [GRAPHIC] [TIFF OMITTED] TP14AP26.026 BILLING CODE 4120-01-C The findings show that with removal of the restriction logic from MS-DRGs 466, 467, and 468 there are zero cases reporting a principal diagnosis of PJI with a hip or knee procedure in MS-DRGs 466, 467, and 468. With removal of the restriction logic, the cases that previously grouped to MS-DRGs 466, 467, and 468 are redistributed to MS-DRGs 463, 464, and 465 based on the proposed Version 44 GROUPER logic and the surgical hierarchy. Under the current ICD-10 MS-DRGs Version 43.1, procedure code 0SP90JZ (Removal of synthetic substitute from right hip joint, open approach) is listed in the logic for case assignment to MS- DRGs 463, 464, and 465 and is also listed as part of a code cluster with procedure code 0SR9019 (Replacement of right hip joint with metal synthetic substitute, cemented, open approach) in the logic for case assignment to MS-DRGs 466, 467, and 468. With removal of the cluster restriction logic in MS-DRGs 466, 467, and 468, cases reporting procedure code 0SP90JZ with a principal diagnosis assigned to MDC 08 will group to MS-DRGs 463, 464, and 465 under the proposed ICD-10 MS- DRGs, Version 44. The findings also show that with removal of the restriction logic from MS-DRGs 485, 486, and 487 further redistribution of the cases occurs. Specifically, cases that previously grouped to MS- DRGs 485, 486, and 487 now group or ``shift'' to other MS-DRGs. As a result, the remaining number of cases in MS-DRGs 466, 467, and 468 and MS-DRGs 485, 486, and 487 is reduced and those MS-DRGs no longer satisfy the criteria for a 3-way split under application of our established criteria for subgroups consistent with the discussion in the FY 2026 IPPS/LTCH PPS final rule (90 FR 36610). The findings show that for the cases reporting a principal diagnosis of PJI with a hip or knee procedure in MS-DRGs 463, 464, 465, 474, 475, 476, 480, 481, 482, 485, 486, 487, 492, and 493, the average length of stay is generally comparable or longer compared to the average length of stay of all the cases in their respective MS-DRG. Findings from our analysis also show that the average costs of the cases reporting a principal diagnosis of PJI with a hip or knee procedure in MS-DRGs 464, 465, 474, 475, 476, 480, 481, 482, 485, 486, 487, 492, and 493 are higher compared to the average costs of all the cases in their respective MS-DRG. We note that the average length of stay and the average costs of the 5 cases reporting a PJI with a hip or knee procedure in MS-DRG 494 are shorter than (2.6 days versus 3.3 days) the average length of stay and lower than ($15,251 versus $18,846) the average costs of all the cases in MS-DRG 494. We also note that the average costs of the 3,262 cases reporting a principal diagnosis of PJI with a hip or knee procedure in MS-DRG 463 are approximately $49 less than the average costs of all the cases in MS- DRG 463 ($44,259 versus $44,308). For the cases reporting procedure code XW0V0P7 without a principal diagnosis of PJI in [[Page 19349]] MS-DRGs 463, 464, 465, 466, 467, 474, 475, 477, 478, 480, 481, 482, 486, 492, and 493, we found that the average length of stay is generally comparable or longer compared to the average length of stay of all the cases in their respective MS-DRG. We note that there were zero cases found reporting procedure code XW0V0P7 without a principal diagnosis of PJI in MS-DRGs 468 and 476. Findings from our analysis also show that the average costs of the cases reporting procedure code XW0V0P7 without a principal diagnosis of PJI in MS-DRGs 463, 464, 465, 466, 467, 474, 475, 477, 478, 480, 481, 482, 486, 492, 493, and 494 are higher compared to the average costs of all the cases in their respective MS-DRG. We also note that the 7 cases in MS-DRG 479 have a shorter average length of stay (2.9 days versus 4.1 days) and lower average costs ($11,760 versus $17,157) compared to the average length of stay and average costs of all the cases in MS-DRG 479. As shown in the table, the cases reporting procedure code XW0V0P7 without a principal diagnosis of PJI in the lower severity level MS-DRGs (that is, MS-DRGs 464, 465, 475, 478, 481, 482, 493, and 494) have average costs that overall, are more aligned with the average costs of all the cases at the respective higher severity level (with MCC) MS-DRG (that is MS-DRGs 463, 474, 477, 480, and 492). For example, the 62 cases in MS-DRG 464 and the 13 cases in MS-DRG 465 reporting procedure code XW0V0P7 without a principal diagnosis of PJI have average costs of $42,191 and $37,878 respectively, compared to the average costs of $44,308 for all the cases in MS-DRG 463. Lastly, for the cases reporting both a principal diagnosis of PJI with a hip or knee procedure and ICD-10-PCS code XW0V0P7 in MS-DRGs 463, 464, 465, 474, 475, 485, and 486, we found that the average length of stay is longer and the average costs are comparable or higher compared to the average length of stay and average costs of the cases reporting a principal diagnosis of PJI with a hip or knee procedure without ICD-10-PCS code XW0V0P7, as well as compared to all the cases in their respective MS-DRG. Based on our review and analysis of the data, we believe the data support proposing a new base MS-DRG for the cases reporting a PJI with a hip or knee procedure to better differentiate and reflect the complexity of services, resource utilization, and severity of illness of these patients. In connection with our review and analysis of the data, we note that under the current ICD-10 MS-DRGs Version 43.1, diagnosis codes T84.53XA (Infection and inflammatory reaction due to internal right knee prosthesis, initial encounter) and T84.54XA (Infection and inflammatory reaction due to internal left knee prosthesis, initial encounter) are listed in the logic for case assignment to MS-DRGs 485, 486, and 487, and are also listed in Table 6P.3b in association with this FY 2027 IPPS/LTCH PPS proposed rule as they describe a PJI of the knee and were included in our analysis previously discussed. Therefore, we believe it is appropriate to propose to remove these codes from the logic for case assignment to MS- DRGs 485, 486, and 487 in association with the removal of the restriction logic so that cases reporting a PJI with a knee procedure from those MS-DRGs appropriately group to the proposed new base MS-DRG. We also note that, as previously described, procedure code XW0V0P7 is currently designated as a non-O.R. procedure. Because our analysis of the data supports the reassignment of cases reporting procedure code XW0V0P7 without a principal diagnosis of PJI from the lower severity level (without CC/MCC or with CC) to the higher (with MCC) severity level, we are proposing to redesignate procedure code XW0V0P7 from a non-O.R. procedure to a non-O.R. procedure affecting the MS-DRG assignment at the higher with MCC severity level for MS-DRGs 463, 474, 477, 480, and 492. We further note that because the data show that the cases reporting both a principal diagnosis of PJI with a hip or knee procedure and ICD-10-PCS code XW0V0P7 in MS-DRGs 463, 464, 465, 474, 475, 485, and 486 have a longer average length of stay and higher average costs compared to the average length of stay and average costs of the cases reporting a principal diagnosis of PJI with a hip or knee procedure alone (without ICD-10-PCS code XW0V0P7), with the proposed redesignation of code XW0V0P7 from non-O.R. to non-O.R. affecting the MS-DRG, these cases reporting ICD-10-PCS code XW0V0P7 would also be reassigned at the highest severity level in connection with a new base MS-DRG proposal and consistent with the proposal for assignment to MS- DRGs 463, 474, 477, 480, and 492 previously discussed. As such, the data support proposing a new base MS-DRG for cases reporting a principal diagnosis of PJI with a hip or knee procedure with or without procedure code XW0V0P7. Consistent with our established process as discussed in section II.C.1.b. of the preamble of this FY 2027 IPPS/LTCH PPS proposed rule, once the decision has been made to propose to make further modifications to the MS-DRGs, such as creating a new base MS-DRG, all five criteria to create subgroups must be met for the base MS-DRG to be split (or subdivided) by a CC subgroup. Therefore, we applied the criteria to create subgroups in a base MS-DRG. We note that, as shown in the table that follows, a three-way split of this proposed new base MS-DRG failed to meet the criterion that there is at least a 20% difference in average costs in the without CC/MCC group. The following table illustrates our findings. BILLING CODE 4120-01-P [GRAPHIC] [TIFF OMITTED] TP14AP26.027 As discussed in section II.C.1.b. of the preamble of this FY 2027 IPPS/LTCH PPS proposed rule, if the criteria for a three-way split fail, the next step is to determine if the criteria are satisfied for a two-way split. We therefore applied the criteria for a two-way split for the ``with MCC and without MCC'' subgroups and found that all five criteria were met. The following table illustrates our findings and reflects a simulation of the proposed new MS-DRG 403 (Hip or Knee Procedures with Principal Diagnosis of Periprosthetic Joint Infection with MCC or Insertion of Antibiotic-eluting Bone Void Filler) and MS- DRG 404 (Hip or Knee Procedures with Principal Diagnosis of Periprosthetic Joint Infection without MCC). [[Page 19350]] [GRAPHIC] [TIFF OMITTED] TP14AP26.028 For the proposed new MS-DRGs to identify cases reporting a PJI with a hip or knee procedure with or without procedure code XW0V0P7, there is at least (1) 500 cases in the MCC group and 500 cases in the without MCC group; (2) 5 percent of the cases in the MCC group and 5 percent in the without MCC group; (3) a 20 percent difference in average costs between the MCC group and the without MCC group; (4) a $2,000 difference in average costs between the MCC group and the without MCC group; and (5) a 3-percent reduction in cost variance, indicating that the proposed severity level splits increase the explanatory power of the base MS-DRG in capturing differences in expected cost between the proposed MS-DRG severity level splits by at least 3-percent and thus improve the overall accuracy of the IPPS payment system. As also previously discussed, in connection with the proposed removal of the restriction logic and findings from our analysis, existing MS-DRGs 466, 467, and 468 and MS-DRGs 485, 486, and 487 would no longer meet the criteria for a 3-way split under our established process for applying the criteria to create subgroups within a base MS- DRG. We note that, as shown in the table that follows, a three-way split for MS-DRGs 466, 467, and 468 failed to meet the criterion that there be at least 500 cases in the MCC group and that there is at least a 20% difference in average cost between the CC and NonCC group. The following table illustrates our findings. [GRAPHIC] [TIFF OMITTED] TP14AP26.029 As discussed in section II.C.1.b. of the preamble of this FY 2027 IPPS/LTCH PPS proposed rule, if the criteria for a three-way split fail, the next step is to determine if the criteria are satisfied for a two-way split. We therefore applied the criteria for a two-way split for the ``with MCC and without MCC'' subgroups and found that a two-way split for these MS-DRGs failed to meet the criterion that there be at least 500 cases in the MCC group. The following table illustrates our findings. [GRAPHIC] [TIFF OMITTED] TP14AP26.030 We then applied the criteria for a two-way split for the ``with CC/ MCC'' and ``without CC/MCC'' subgroups. As shown in the table that follows, a two-way split of this base MS-DRG failed to meet the criterion that there be at least a 20% difference in average cost between the with CC/MCC and the without CC/MCC group. [GRAPHIC] [TIFF OMITTED] TP14AP26.031 We are therefore proposing to delete MS-DRGs 466, 467, and 468 and proposing to create new base MS-DRG 449 (Revision of Hip or Knee Replacement). We also note that following our analysis previously described that reflects removal of the restriction logic for MS-DRGs 466, 467, and 468, we identified 20 procedure codes that are listed individually in the logic for case assignment to MS-DRGs 466, 467, and 468 that are also listed separately in the logic with another procedure code as a code cluster. For example, procedure code 0SPE0JZ (Removal of synthetic substitute from left hip joint, acetabular surface, open approach) is listed individually and is also listed separately with procedure code 0SRB019 (Replacement of left hip joint with metal synthetic substitute, cemented, open approach) as a code cluster. We refer the reader to the ICD-10 MS-DRG Definitions Manual Version 43.1, which is available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software for complete documentation of the GROUPER logic for MS-DRGs 466, 467, and 468. To appropriately reflect the logic list for proposed new base MS-DRG 449 under the proposed ICD-10 MS- DRGs, Version 44, and to ensure cases group appropriately in connection with the proposed changes to the ICD-10 MS-DRGs for FY 2027, we are proposing to remove the following 20 procedure codes from the logic list as individually listed codes. [[Page 19351]] [GRAPHIC] [TIFF OMITTED] TP14AP26.032 The following table illustrates our simulation of proposed new MS- DRG 449. [GRAPHIC] [TIFF OMITTED] TP14AP26.033 We then applied the criteria to MS-DRGs 485, 486, and 487 in connection with the proposed removal of the restriction logic. We note that, as shown in the table that follows, a three-way split for MS-DRGs 485, 486, and 487 failed to meet the criterion that there be at least 500 cases in the MCC group. The following table illustrates our findings. [GRAPHIC] [TIFF OMITTED] TP14AP26.034 As discussed in section II.C.1.b. of the preamble of this FY 2027 IPPS/LTCH PPS proposed rule, if the criteria for a three-way split fail, the next step is to determine if the criteria are satisfied for a two-way split. We therefore applied the criteria for a two-way split for the ``with MCC and without MCC'' groups. We note that, as shown in the table that follows, a two-way split for these MS-DRGs failed to meet the criterion that there be at least 500 cases in the MCC group. The following table illustrates our findings. [[Page 19352]] [GRAPHIC] [TIFF OMITTED] TP14AP26.035 We are therefore proposing to delete MS-DRGs 485, 486, and 487 and proposing to create new base MS-DRG 400 (Knee Procedures with Principal Diagnosis of Infection). The following table illustrates our simulation of the proposal. [GRAPHIC] [TIFF OMITTED] TP14AP26.036 In summary, for FY 2027, we are proposing to (1) remove the restriction logic for MS-DRGs 466, 467, and 468 and MS-DRGs 485, 486, and 487, (2) remove ICD-10-CM diagnosis codes T84.53XA and T84.54XA from the logic for case assignment to MS-DRGs 485, 486, and 487, (3) delete MS-DRGs 466, 467, and 468 and MS-DRGs 485, 486, and 487, (4) create new base MS-DRG 449 and new base MS-DRG 400 with the logic lists as reflected in Tables 6P.3c and 6P.3d, respectively, that is available in association with this FY 2027 IPPS/LTCH PPS proposed rule, (5) redesignate procedure code XW0V0P7 from non-O.R. to non-O.R. affecting specified MS-DRGs as discussed in this section of this FY 2027 IPPS/ LTCH PPS proposed rule, (6) create new MS-DRG 403 (Hip or Knee Procedures with Principal Diagnosis of Periprosthetic Joint Infection with MCC or Insertion of Antibiotic-eluting Bone Void Filler) to reflect cases reporting a hip or knee procedure with a principal diagnosis of PJI and the reassignment of cases reporting ICD-10-PCS code XW0V0P7 from the lower severity level to the higher (with MCC) severity level and create new MS-DRG 404 (Hip or Knee Procedures with Principal Diagnosis of Periprosthetic Joint Infection without MCC) with the logic lists as reflected in Table 6P.3b, and (7) reassign cases reporting ICD-10-PCS code XW0V0P7 from the lower severity level (without CC/MCC or with CC) to the higher (with MCC) severity level and revise the titles to the following MS-DRGs to reflect the proposed reassignment. [GRAPHIC] [TIFF OMITTED] TP14AP26.037 BILLING CODE 4120-01-C We note that discussion of the surgical hierarchy for the proposed modification is discussed in section II.C.14. of the preamble of this FY 2027 IPPS/LTCH PPS proposed rule. We also note that the titles for MS-DRGs 463, 464, and 465 reflect ``Wound Debridement and Skin Graft Except Hand for Musculoskeletal and Connective Tissue Disorders with MCC, with CC, and without CC/MCC'', respectively. We believe the term ``and'' in these MS-DRG titles may be misleading as it implies that both a wound debridement and skin graft need to be reported to satisfy the logic for case assignment to these MS-DRGs. However, the logic for case assignment to MS-DRGs 463, 464, and 465 is satisfied when either a procedure code describing a wound debridement or a procedure code describing a skin graft (except hand) from the logic list is reported. Therefore, we are proposing to revise the term ``and'' to ``or'' for the titles for MS-DRGs 463, 464, and 465. These proposed title changes are reflected in the test version of the ICD-10 MS-DRG GROUPER Software, Version 44, and the draft version of the ICD-10 MS-DRG Definitions Manual, Version 44, available in association with this FY 2027 IPPS/LTCH PPS proposed rule (available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software). 5. MDC 10 (Endocrine, Nutritional and Metabolic Diseases and Disorders): CERAMENT[supreg] G Antibiotic-Eluting Bone Void Filler As discussed in the preamble of section II.C.4. of this FY 2027 IPPS/LTCH PPS proposed rule, we received a request to reassign cases reporting ICD-10-PCS code XW0V0P7 (Introduction of antibiotic-eluting bone void filler into bones, open approach, new technology group 7) from the lower severity level MS-DRG to the highest severity level (with MCC) MS-DRG within MDC 10 for MS-DRGs 616, 617, and 618 (Amputation of Lower Limb for Endocrine, Nutritional and Metabolic Disorders with MCC, with CC, without CC/MCC, respectively) and MS-DRGs 628, 629, and 630 (Other Endocrine, [[Page 19353]] Nutritional and Metabolic O.R. Procedures with MCC, with CC, without CC/MCC, respectively). As also discussed in the preamble of section II.C.4 of this FY 2027 IPPS/LTCH PPS proposed rule, ICD-10-PCS code XW0V0P7 was created effective October 1, 2021, in association with a new technology add-on payment application for CERAMENT[supreg] G, a combination device-drug product intended to treat bone infections (for example, osteomyelitis). It is an implantable bone void filler that consists of hydroxyapatite and calcium sulfate, as well as gentamicin sulfate, which is an antibacterial agent. We refer the reader to the September 8, 2020 ICD- 10 Coordination and Maintenance Committee meeting materials available on the CMS website at: https://www.cms.gov/medicare/coding-billing/icd-10-codes/icd-10-coordination-maintenance-committee-materials for information regarding the procedure code request, including a transcript of the discussion and the related meeting materials. We also note that CERAMENT[supreg] G was approved for a new technology add-on payment beginning October 1, 2022 for the indication of infection which expired on September 30, 2025. For FY 2026, CERAMENT[supreg] G was approved for a new technology add-on payment for the indication of an open fracture. We refer the reader to section II.E.4. of the preamble of the FY 2026 IPPS/LTCH PPS proposed and final rules for additional discussion regarding CERAMENT[supreg] G in association with the new technology add-on payment indication. In the preamble of section II.C.4 of this FY 2027 IPPS/LTCH PPS proposed rule we also noted that for the Spring 2026 ICD-10-PCS code update, the manufacturer of CERAMENT[supreg] G submitted a request for a new code to describe another antibiotic-eluting bone void filler product, CERAMENT[supreg] V, in association with a new technology add- on payment application for FY 2027. We refer the reader to section II.E.6. of the preamble of this FY 2027 IPPS/LTCH PPS proposed rule for additional discussion regarding CERAMENT[supreg] V in association with the new technology add-on payment policy. The manufacturer also requested a revision to the existing code, ICD-10-PCS code XW0V0P7, that is reported to identify the administration of CERAMENT[supreg] G. CERAMENT[supreg] V is an injectable synthetic bone void filler that consists of hydroxyapatite, calcium sulfate, and the antibiotic vancomycin hydrochloride. The manufacturer requested that the description of existing ICD-10-PCS code XW0V0P7 be revised to specifically identify gentamicin and that a new code be created to specifically identify vancomycin in association with the new technology add-on payment application. The agenda and related meeting materials for these specific topics are available on the CMS website at: https://www.cms.gov/medicare/coding-billing/icd-10-codes/icd-10-coordination-maintenance-committee-materials. We note that the deadline for receipt of public comments for the proposals included in the Spring 2026 procedure code update is April 17, 2026; therefore, the final code decisions on these proposals are not yet available for inclusion in Table 6B.--New Procedure Codes associated with this FY 2027 IPPS/LTCH PPS proposed rule. Under our established process, if the new and revised procedure code proposals are finalized after review and consideration of public comments following the Spring update, the codes are specifically identified with a footnote in Table 6B.--New Procedure Codes and Table 6F.--Revised Procedure Code Titles along with the MDC, MS-DRG assignment(s), and operating room (O.R.) or non-operating room (non-O.R.) designation that is made publicly available in association with the final rule on the CMS website at https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps. This established process includes initially reviewing the predecessor codes MS-DRG assignment and designation, while considering other relevant factors (for example, severity of illness, treatment difficulty, complexity of service and the resources utilized in the diagnosis and/ or treatment of the condition). The public may provide feedback on these finalized assignments, which is then taken into consideration for the following fiscal year. The requestor (the manufacturer) stated that the occurrence and economic burden of osteomyelitis is significant and diabetes has been driving the increase in osteomyelitis incidence over time, with the incidence of diabetes-related osteomyelitis rising from 2.3 to 10.5 cases per 100,000 person-years from the 1970s to the 1990s as reported by the Mayo Clinic. The requestor reported that the incidence of foot osteomyelitis among patients with diabetes mellitus is estimated to be approximately 0.3% per year, with a lifetime risk of 4%, and 68% of patients with diabetes-related foot osteomyelitis needing an amputation. Studies indicate many individuals are readmitted to the hospital within 1 year of the amputation due to complications of the affected limb. In addition to diabetic foot ulcers, the requestor stated that the incidence of fracture-associated osteomyelitis varies from 1.8% to 27% depending on the bone involved and the grade/type of fracture. According to the requestor, clinical trials demonstrate that the overall incidence of osteomyelitis may continue to rise due to multiple factors including improved diagnosis, increasing patient risk factors such as-diabetes, and increased needs for arthroplasties. Per the requestor, re-hospitalization and treatment for osteomyelitis has significant costs to both the individual and healthcare systems, impacting quality of life and the ability to work. The requestor stated that the antimicrobial properties of CERAMENT[supreg] G combat antimicrobial resistance, thereby effectively reducing the recurrence of infection. The requestor also stated that these antimicrobial properties have been shown to achieve good infection prevention with a shortened course of systemic antibiotics that does not extend beyond seven days. The requestor performed its own analysis using Medicare claims data across a subset of MS-DRGs for cases reporting the use of CERAMENT[supreg] G with ICD-10-PCS code XW0V0P7 and acknowledged that the volume of cases is small, however, it also stated that its findings reflected that claims reporting the use of CERAMENT[supreg] G have higher resource utilization compared to claims that did not report the use of CERAMENT[supreg] G. Of the MS-DRGs analyzed, the requestor stated the cases reporting ICD-10-PCS code XW0V0P7 in the lower severity level MS-DRG had standardized costs that were more aligned with the costs of the higher severity level MS-DRG sequenced above it. The requestor stated its belief that the data demonstrate cases reporting ICD-10-PCS code XW0V0P7 should be reassigned to the higher MCC level MS-DRG within the MS-DRG groupings requested. We reviewed claims data from the September 2025 update of the FY 2025 MedPAR file for MS-DRGs 616, 617, 618, 628, 629, and 630 and for cases reporting ICD-10-PCS code XW0V0P7. Findings from our analysis are shown in the following table. [[Page 19354]] [GRAPHIC] [TIFF OMITTED] TP14AP26.038 The findings show that the cases reporting ICD-10-PCS code XW0V0P7 in MS-DRGs 616, 617, 628, and 629 have a longer average length of stay and higher average costs compared to all the cases in their respective MS-DRGs. We note there were zero cases reporting ICD-10-PCS code XW0V0P7 in MS-DRGs 618 and 630. Based on our review and analysis of the data, we agree with the requestor that the average costs of the cases reporting ICD-10-PCS code XW0V0P7 at the lower severity level are more aligned with the average costs of the cases at the higher MCC severity level. To better reflect the resource utilization and severity of illness of patients with diabetic osteomyelitis, we are proposing to reassign cases reporting ICD-10-PCS code XW0V0P7 from the lower severity (without CC/MCC and with CC) MS-DRGs to the higher severity (MCC) level MS-DRG. As previously discussed, there were no cases found in our analysis reporting ICD-10-PCS code XW0V0P7 in MS-DRGs 618 and 630 at the ``without CC/MCC'' level, however, if any cases reporting ICD-10-PCS code XW0V0P7 potentially grouped to MS-DRGs 618 or 630 in the future, we would anticipate those cases also demonstrating higher average costs compared to all the cases in their respective MS-DRG. Therefore, for FY 2027, we are proposing to reassign cases reporting procedure code XW0V0P7 from the lower severity level MS-DRGs 617 and 618 to the higher severity (MCC) level MS-DRG 616 and from the lower severity level MS-DRGs 629 and 630 to the higher severity (MCC) level MS-DRG 628. We are also proposing to revise the title of MS-DRG 616 from ``Amputation of Lower Limb for Endocrine, Nutritional and Metabolic Disorders with MCC'' to ``Amputation of Lower Limb for Endocrine, Nutritional and Metabolic Disorders with MCC or Insertion of Antibiotic-eluting Bone Void Filler'' and to revise the title of MS-DRG 628 from ``Other Endocrine, Nutritional and Metabolic O.R. Procedures with MCC'' to ``Other Endocrine, Nutritional and Metabolic O.R. Procedures with MCC or Insertion of Antibiotic-eluting Bone Void Filler'' to reflect the reassignment of cases reporting procedure code XW0V0P7. 6. MDC 11 (Diseases and Disorders of the Kidney and Urinary Tract) a. Prostatectomy Consistent with our annual review of the MS-DRGs, we identified that the current GROUPER logic for MDC 11 MS-DRGs 665, 666, and 667 (Prostatectomy with MCC, with CC, and without CC/MCC, respectively) contains a logic list referred to as ``OPERATING ROOM PROCEDURES'' that includes 14 ICD-10-PCS procedure codes describing the destruction, excision, and resection of the prostate and also includes eight ICD-10- PCS procedure code combinations or procedure code ``clusters'' that, when reported together, satisfy the logic for assignment to MS-DRGs 665, 666, and 667. The code combinations are represented by two ICD-10- PCS procedure codes and include one ICD-10-PCS code for the resection of the prostate with one ICD-10-PCS code for the resection of bilateral seminal vesicles. We refer the reader to the ICD-10 MS-DRG Definitions Manual Version 43.1, which is available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software, for complete documentation of the GROUPER logic for MDC 11 MS-DRGs 665, 666, and 667. The eight ICD-10-PCS procedure code combinations currently assigned to MDC 11 MS-DRGs 665, 666, and 667 that identify the resection of the prostate with the resection of bilateral seminal vesicles are shown in the following table: [[Page 19355]] [GRAPHIC] [TIFF OMITTED] TP14AP26.039 As we examined the GROUPER logic that would determine the assignment of a case to MDC 11 MS-DRGs 665, 666, and 667, we noted that ICD-10-PCS codes 0VT00ZZ, 0VT04ZZ, 0VT07ZZ and 0VT08ZZ that describe the resection of the prostate, differing only in approach, are assigned to MS-DRGs 665, 666, and 667 as standalone procedures, as well as being included in the eight procedure code combinations listed previously in these same MS-DRGs. We note that the GROUPER software program will recognize codes 0VT00ZZ, 0VT04ZZ, 0VT07ZZ and 0VT08ZZ and assign MS- DRGs 665, 666, and 667 even when a procedure code describing the resection of the bilateral seminal vesicles is not also reported, when the other parameters of the GROUPER logic are met. As procedure codes 0VT00ZZ, 0VT04ZZ, 0VT07ZZ and 0VT08ZZ are assigned to MS-DRGs 665, 666, and 667 as standalone procedures, specific assignment of these procedure codes in procedure code combinations in MS-DRGs 665, 666, and 667 is not required. Therefore, for FY 2027, we are proposing to remove the eight ICD- 10-PCS procedure code combinations listed previously from the GROUPER logic of MDC 11 MS-DRGs 665, 666, and 667 (Prostatectomy with MCC, with CC, and without CC/MCC, respectively). b. Islet Cell Transplantation As discussed in section II.C.11.b.1 of this FY 2027 IPPS/LTCH PPS proposed rule, we received a request to change the designation of ICD- 10-PCS code XW033DA (Introduction of donislecel-jujn allogeneic pancreatic islet cellular suspension into peripheral vein, percutaneous approach, new technology group 10) from a non-O.R. procedure to an O.R. procedure. In the ICD-10 MS-DRGs Definitions Manual Version 43.1, procedure code XW033DA is currently designated as a non-O.R. procedure affecting assignment to MS-DRGs 673, 674, and 675 (Other Kidney and Urinary Tract Procedures with MCC, with CC, and without CC/MCC, respectively). In our review of the GROUPER logic of MS-DRGs 673, 674, and 675, we noted that the logic for case assignment to MS-DRGs 673, 674, and 675 as displayed in the ICD-10 MS-DRG Version 43.1 Definitions Manual (which is available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software) is comprised of seven logic lists. The first logic list is entitled ``Operating Room Procedures'' and is defined by a list of 1,754 ICD-10-PCS procedure codes describing surgical procedures which, while infrequent, could still reasonably be expected to be performed for a patient in MDC 11. The second and third logic lists are entitled ``or Principal Diagnosis'' and are defined by the 25 ICD-10-CM diagnosis codes. The fourth logic list is entitled ``with Secondary Diagnosis'' and is defined by ICD-10-CM diagnosis codes N18.5 (Chronic kidney disease, stage 5) and N18.6 (End stage renal disease). The fifth logic list is entitled ``and Non-Operating Room Procedures'' and is defined by a list of 30 ICD-10-PCS procedure codes describing the insertion of totally implantable vascular access devices (TIVADs) and tunneled vascular access devices. The second, third, and fourth logic lists are the components of the special logic in MS-DRGs 673, 674, and 675 for certain MDC 11 diagnoses reported with procedure codes for the insertion of tunneled or totally implantable vascular access devices. The sixth logic list entitled ``or Principal Diagnosis'' is defined by ICD-10-CM diagnosis codes E10.21 (Type 1 diabetes mellitus with diabetic nephropathy), E10.22 (Type 1 diabetes mellitus with diabetic chronic kidney disease) and E10.29 (Type 1 diabetes mellitus with other diabetic kidney complication) and the seventh logic list entitled ``and Non-Operating Room Procedures'' is defined by the 11 ICD-10-PCS procedure codes describing the introduction of pancreatic islet cells listed in the following table. These 11 procedure codes are all designated as non-O.R. procedures affecting assignment to MS-DRGs 673, 674, and 675 (Other Kidney and Urinary Tract Procedures with MCC, with CC, and without CC/MCC, respectively). BILLING CODE 4120-01-P [[Page 19356]] [GRAPHIC] [TIFF OMITTED] TP14AP26.040 The sixth and seventh logic lists are the components of the special logic in MS-DRGs 673, 674, and 675 for pancreatic islet cell transplantation. As discussed in the FY 2005 IPPS/LTCH PPS final rule (69 FR 48950 through 48953), the procedure codes describing islet cell transplantation were added to the GROUPER logic of DRG 315 (Other Kidney and Urinary Tract O.R. Procedures), the predecessor DRG of MS- DRGs 673, 674, and 675, to recognize the resource utilization associated with islet cell transplantation, performed to decrease or eliminate the need for insulin in patients with type 1 diabetes, in the absence of any other surgical procedure. In the FY 2005 IPPS/LTCH PPS final rule, we acknowledged that islet cell transplants do not involve either the kidney or the urinary tract directly. Rather, the islet cells are transplanted into the patient's liver. We also acknowledged that the diagnoses are the same for islet cell and pancreas transplants, and that the patient populations involved in these two procedures are virtually identical in terms of comorbidities and the nature of their primary disease. However, we stated islet cell transplants are not exactly the same as solid organ transplants. We stated that while the patient populations requiring intervention are similar, we did not believe that one can equate an operation of the magnitude of a pancreas transplant with a less intensive islet cell transplantation in which the portal vein is accessed and islet cells infused through a catheter. It is only because the technical aspects of islet transplants are of a surgical nature that we modified surgical DRG 315 to reflect the transfusion of islet cells. To understand the resource use for the subset of cases reporting procedure codes describing the introduction of pancreatic islet cells for this FY 2027 IPPS/LTCH PPS proposed rule, we began our analysis by examining claims data from the September 2025 update of the FY 2025 MedPAR file for cases assigned to MS-DRGs 673, 674, and 675. We found zero cases reporting procedure codes describing the introduction of pancreatic islet cells in MS-DRGs 673, 674, and 675. Then, to evaluate the frequency with which the procedure codes describing the introduction of pancreatic islet cells are reported for different clinical scenarios, we examined claims data from the September 2025 update of the FY 2025 MedPAR file to determine the MS- DRGs reporting one of the 11 procedure codes listed previously that describe the introduction of pancreatic islet cells. Our findings are shown in the following table. [GRAPHIC] [TIFF OMITTED] TP14AP26.041 [[Page 19357]] BILLING CODE 4120-01-C The data analysis shows a procedure code describing the introduction of pancreatic islet cells was reported in a total of ten cases across five MS-DRGs with an average length of stay of 20.2 days and average costs of $101,092. We reviewed these assignments and note that the special logic in MS-DRGs 673, 674, and 675 for pancreatic islet cell transplantation is defined by ICD-10-CM diagnosis codes E10.21 (Type 1 diabetes mellitus with diabetic nephropathy), E10.22 (Type 1 diabetes mellitus with diabetic chronic kidney disease) and E10.29 (Type 1 diabetes mellitus with other diabetic kidney complication). As noted previously, the ICD-10-PCS procedure codes describing the introduction of pancreatic islet cells are all designated as non-O.R. procedures affecting assignment only to MS-DRGs 673, 674, and 675. Therefore, when diagnosis codes E10.21, E10.22, or E10.29 are not reported as principal diagnosis, the MS-DRG assignment is determined by the principal diagnosis and other procedures reported on the claim when the ICD-10-PCS procedure codes describing the introduction of pancreatic islet cells are assigned. Pancreatic islet cell transplantation is indicated for patients with type 1 diabetes who have attempted to control their hypoglycemic episodes medically but continue to have hypoglycemic episodes without recognizing them.\13\ As the indication for pancreatic islet cell transplantation is not limited to patients with type 1 diabetes mellitus with kidney complications, we believe the special logic in MS- DRGs 673, 674, and 675 for pancreatic islet cell transplantation does not fully reflect the indications for pancreatic islet cell transplantation. --------------------------------------------------------------------------- \13\ Spence KT, Ladie DE. Islets Transplantation. [Updated 2023 Aug 8]. In: StatPearls [internet]. Treasure Island (FL): StatPearls Publishing; 2025 Jan-. Available from: https://www.ncbi.nlm.nih.gov/books/NBK562272/. --------------------------------------------------------------------------- We further note in type 1 diabetes, the body's immune system attacks and destroys the beta cells. Patients with type 1 diabetes must take insulin because their bodies no longer make this hormone. In patients for whom the primary indication for transplantation is unstable glycemic control, particularly hypoglycemic unawareness, the choice is between solid-organ pancreas transplantation alone or islet transplantation.\14\ Islet cell transplantation offers a less invasive established alternative to pancreas transplant, and the procedures are regulated similarly.\15\ The goal of both pancreas whole organ transplant and islet cell transplantation is to enable effective, stable glycemic management (often with insulin independence), to improve quality of life, and to reduce secondary complications. Both pancreas and islet cell transplantation require lifelong immunosuppression to prevent rejection of the graft. Islet transplantation may be performed at the same time as or after a kidney transplant. Kidney transplant recipients will already be taking immunosuppressants to prevent rejection of the transplanted kidney. Therefore, the islet transplant does not add much more risk. --------------------------------------------------------------------------- \14\ Mittal S, Johnson P, Friend P. Pancreas transplantation: solid organ and islet. Cold Spring Harb Perspect Med. 2014 Apr 1;4(4):a015610. doi: 10.1101/cshperspect.a015610. PMID: 24616200; PMCID: PMC3968790. \15\ Rickels MR, Robertson RP. Pancreatic Islet Transplantation in Humans: Recent Progress and Future Directions. Endocr Rev. 2019 Apr 1;40(2):631-668. doi: 10.1210/er.2018-00154. PMID: 30541144; PMCID: PMC6424003. --------------------------------------------------------------------------- As discussed in prior rulemaking, the MS-DRGs are a classification system intended to group together diagnoses and procedures with similar clinical characteristics and utilization of resources. We generally seek to identify sufficient sets of claims data with demonstrated clinical similarity in developing diagnosis related groups. After reviewing the indications for both whole organ pancreas transplant and pancreatic islet cell transplantation, and consideration of the intent of the MS-DRGs, we believe that for clinical coherence, the cases reporting procedure codes that describe the introduction of pancreatic islet cells should be grouped with the subset of cases that report pancreas transplant procedures. While we continue to acknowledge that islet cell transplants are not exactly the same as solid organ pancreas transplants, we believe the procedures are coherent given the similarity in clinical indication. For these reasons, we believe reassigning the 11 ICD-10-PCS procedure codes that describe the introduction of pancreatic islet cells from MS-DRGs 673, 674, and 675 to Pre-MDC MS-DRGs 008 (Simultaneous Pancreas and Kidney Transplant), MS-DRG 010 (Pancreas Transplant) and MS-DRG 019 (Simultaneous Pancreas and Kidney Transplant with Hemodialysis) would improve clinical coherence in these MS-DRGs. The following table reflects the simulation of our proposed changes in MS-DRGs 008, 010, and 019. [GRAPHIC] [TIFF OMITTED] TP14AP26.042 We believe that this simulation supports that the resulting MS-DRG assignments would be more clinically homogeneous, coherent and better reflect hospital resource use. As the table shows, for MS-DRG 008, there were a total of 168 cases with an average length of stay of 9.3 days and average costs of $51,760. For MS-DRG 010, [[Page 19358]] there were a total of 20 cases with an average length of stay of 15.8 days and average costs of $66,872. For MS-DRG 019, there were a total of 56 cases with an average length of stay of 14.5 days and average costs of $69,841. A review of this simulation shows that adding a new ``Islet Cell Transplant Procedures'' logic list, to the GROUPER logic in MS-DRGs 008, 010, and 019 has a limited effect on the average costs of these MS-DRGs, while leading to a grouping that is more coherent and better reflects the clinical severity and resource use involved in these cases. In summary, for FY 2027, for clinical coherence, we are proposing to add the 11 ICD-10-PCS procedure codes that describe the introduction of pancreatic islet cells to a new ``Islet Cell Transplant Procedures'' logic list in MS-DRGs 008, 010, and 019. Additionally, we are also proposing to delete the sixth logic list entitled ``or Principal Diagnosis'' that is defined by ICD-10-CM diagnosis codes E10.21 (Type 1 diabetes mellitus with diabetic nephropathy), E10.22 (Type 1 diabetes mellitus with diabetic chronic kidney disease) and E10.29 (Type 1 diabetes mellitus with other diabetic kidney complication) and the seventh logic list entitled ``and Non-Operating Room Procedures'' from MS-DRGs 673, 674, and 675. Lastly, for consistency, we are proposing to change the title of MS-DRG 008 from ``Simultaneous Pancreas and Kidney Transplant'' to ``Simultaneous Pancreas, Islet Cell and Kidney Transplant,'' proposing to change the title of MS-DRG 010 from ``Pancreas Transplant'' to ``Pancreas or Islet Cell Transplant'' and proposing to change the title of MS-DRG 019 from ``Simultaneous Pancreas and Kidney Transplant with Hemodialysis'' to ``Simultaneous Pancreas, Islet Cell and Kidney Transplant with Hemodialysis'' to better reflect the assigned procedures effective October 1, 2026, for FY 2027. Under this proposal, the current ``principal or secondary diagnosis'' logic in MS-DRGs 008, 010, and 019 would be maintained. Additionally, to maintain stability, we propose to add logic to MS-DRG 010 to exclude cases also reporting kidney transplant procedures to ensure cases will continue to group accordingly to MS-DRGs 008 and 019. We refer the reader to Table 6P.4a, Table 6P.4b, and Table 6P.4c associated with this FY 2027 IPPS/LTCH PPS proposed rule (which is available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index) for the list of procedure codes we are proposing to define in the ``Islet Cell Transplant Procedures'' logic list in Pre-MDC MS-DRGs 008, 010, and 019. We note that discussion of the surgical hierarchy for the proposed modification is discussed in section II.C.14. of the preamble of this FY 2027 IPPS/LTCH PPS proposed rule. 7. MDC 12 (Diseases and Disorders of the Male Reproductive System): Prostatectomy Consistent with our annual review of the MS-DRGs, we identified that the current GROUPER logic for MDC 12 MS-DRGs 707 and 708 (Major Male Pelvic Procedures with MCC and without CC/MCC, respectively) contains a logic list referred to as ``OPERATING ROOM PROCEDURES'' that includes 51 procedure codes describing various male pelvic procedures, including procedure codes describing the destruction, or resection of the prostate, and also includes eight procedure code combinations or procedure code ``clusters'' that, when reported together, satisfy the logic for assignment to MS-DRGs 707 and 708. The code combinations are represented by two procedure codes and include one code for the resection of the prostate with one code for the resection of bilateral seminal vesicles. We refer the reader to the ICD-10 MS-DRG Definitions Manual Version 43.1, which is available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software, for complete documentation of the GROUPER logic for MDC 12 MS-DRGs 707 and 708. The eight ICD-10-PCS procedure code combinations currently assigned to MS-DRGs 707 and 708 that identify the resection of the prostate with the resection of bilateral seminal vesicles are shown in the following table: BILLING CODE 4120-01-P [GRAPHIC] [TIFF OMITTED] TP14AP26.043 As we examined the GROUPER logic that would determine an assignment of a case to MDC 12 MS-DRGs 707 and 708, we noted that ICD-10-PCS codes 0VT00ZZ (Resection of prostate, open approach) and 0VT04ZZ (Resection of prostate, percutaneous endoscopic approach) that describe the resection of the prostate, differing only in approach, [[Page 19359]] are assigned to MS-DRGs 707 and 708 as standalone procedures, as well as being included in one of the eight procedure code combinations, or code clusters, listed previously in these same MS-DRGs. We note that the GROUPER software program will recognize codes 0VT00ZZ and 0VT04ZZ and assign MS-DRGs 707 and 708 even when a procedure code describing the resection of the bilateral seminal vesicles is not also reported when the other parameters of the GROUPER logic are met. As procedure codes 0VT00ZZ and 0VT04ZZ are assigned to MS-DRGs 707 and 708 as standalone procedures, specific assignment of these procedure codes in procedure code combinations in MS-DRGs 707 and 708 is not required. During our review of this issue, we noted that that ICD-10-PCS codes 0VT07ZZ (Resection of prostate, via natural or artificial opening) and 0VT08ZZ (Resection of prostate, via natural or artificial opening endoscopic) that describe the transurethral resection of the prostate, or removal of the prostate using an instrument inserted through the urethra, are also represented in the eight procedure code combinations in MS-DRGs 707 and 708. These codes are assigned to MDC 12 MS-DRGs 713 and 714 (Transurethral Prostatectomy with CC/MCC and without CC/MCC) when reported as standalone procedures. We refer the reader to the ICD-10 MS-DRG Definitions Manual Version 43.1, which is available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software, for complete documentation of the GROUPER logic for MDC 12 MS-DRGs 713 and 714. We then analyzed claims data from the September 2025 update of the September 2025 MedPAR file for all cases in MS-DRGs 707 and 708 and compared the results to cases reporting procedure codes describing transurethral prostatectomy and resection of bilateral seminal vesicles in these MS-DRGs. Our findings are shown in the following table. [GRAPHIC] [TIFF OMITTED] TP14AP26.044 As shown in the table, for MS-DRG 707, we identified a total of 1,697 cases, with an average length of stay of 3.1 days and average costs of $19,942. Of the 1,697 cases in MS-DRG 707, there were three cases reporting transurethral prostatectomy and resection of bilateral seminal vesicles with an average length of stay of 4 days and average costs of $14,896. For MS-DRG 708, we identified a total of 1,685 cases, with an average length of stay of 1.5 days and average costs of $14,075. Of the 1,685 cases in MS-DRG 708, there was one case reporting transurethral prostatectomy and resection of bilateral seminal vesicles with a length of stay of 1 day and costs of $6,726. We also examined claims data from the September 2025 update of the September 2025 MedPAR file for MS-DRGs 713 and 714. Our findings are shown in the following table. [GRAPHIC] [TIFF OMITTED] TP14AP26.045 BILLING CODE 4120-01-C In MS-DRG 713, we found a total of 3,746 cases with an average length of stay of 3.4 days and average costs of $14,670. In MS-DRG 714, we found a total of 860 cases with an average length of stay of 1.7 days and average costs of $10,869. Overall, the data analysis shows that the average costs for the cases reporting transurethral prostatectomy and resection of bilateral seminal vesicles in MS-DRGs 707 and 708 are more aligned with the average costs for all the cases in MS-DRGs 713 ($14,896 versus $14,670) and 714 ($6,726 versus $10,869), respectively. We reviewed this issue and noted that ICD-10-PCS procedure codes 0VT07ZZ or 0VT08ZZ describe transurethral resection of the prostate, and therefore, are most clinically aligned with the procedure codes assigned to MDC 12 MS-DRGs 713 and 714, where they are currently assigned when reported as standalone procedures. Therefore, for FY 2027, we are proposing to delete the eight ICD- 10-PCS procedure code combinations listed previously from the GROUPER logic of MDC 12 MS-DRGs 707 and 708 (Major Male Pelvic Procedures with CC/MCC and without CC/MCC, respectively). Under this proposal, when the other parameters of the GROUPER logic are met, cases reporting procedure codes 0VT00ZZ (Resection of prostate, open approach) and 0VT04ZZ (Resection of prostate, percutaneous endoscopic approach) would group to MS-DRGs 707 and 708, even when a procedure code describing the resection of the bilateral seminal vesicles is not also reported. Additionally, under this proposal, when the other parameters of the GROUPER logic are met, cases reporting procedure codes 0VT07ZZ (Resection of prostate, via natural or artificial opening) or 0VT08ZZ (Resection of prostate, via natural or artificial opening endoscopic) would group to MS-DRGs 713 and 714 (Transurethral Prostatectomy with CC/MCC and without CC/MCC), even when a procedure code describing the [[Page 19360]] resection of the bilateral seminal vesicles is not also reported. During our review of this issue and the examination of the MS-DRGs within MDC 12, we noted that the title of MS-DRGs 715 and 716 is ``Other Male Reproductive System O.R. Procedures for Malignancy with and without CC/MCC, respectively'' and the title of MS-DRGs 717 and 718 is ``Other Male Reproductive System O.R. Procedures Except Malignancy with and without CC/MCC, respectively.'' In examining the GROUPER logic for these MS-DRGs and reviewing the diagnoses listed under the heading of ``Principal Diagnosis'' in the ICD-10 MS-DRG Definitions Manual, we believe the titles for these MS-DRGs no longer accurately reflect the assigned diagnoses. The titles of DRGs 715, 716, 717, and 718 were established prior to the transition to the Medicare Severity DRGs (MS- DRGs) from the CMS DRGs (48 FR 39883). In the development of the DRGs, generally, in each MDC, a medical and a surgical class was formed and referred to as ``other medical diseases'' and ``other surgical procedures,'' respectively. The ``other'' medical and surgical classes are not as precisely defined from a clinical perspective and include diagnoses or procedures which are infrequently encountered. The ``other'' surgical class contains surgical procedures which, while infrequent, could still reasonably be expected to be performed for a patient in the particular MDC. Assignment to the ``other'' surgical class should only occur if no other surgical class more closely related to the diagnoses in the MDC is appropriate. As the cases in MS-DRGs 715 and 716 are further defined based on the precise principal diagnosis for which the patients were admitted to the hospital, we believe it is appropriate to propose to revise the titles of these MS-DRGs for consistency. Therefore, we are also proposing to change the title of MS-DRGs 715 and 716 from ``Other Male Reproductive System O.R. Procedures for Malignancy with and without CC/MCC, respectively'' to ``Male Reproductive System and Other O.R. Procedures for Malignancy with and without CC/MCC, respectively'' and to change the title of MS- DRGs 717 and 718 from ``Other Male Reproductive System O.R. Procedures Except Malignancy with and without CC/MCC, respectively'' to ``Other Male Reproductive System O.R. Procedures with and without CC/MCC, respectively'' to better reflect the assigned diagnoses. As discussed in section II.C.1.b of the preamble of this proposed rule, we are providing a test version of the ICD-10 MS-DRG GROUPER Software, Version 44, so that the public can better analyze and understand the impact of the proposals included in this proposed rule. We note that at the time of the development of the test software, this issue was unable to be addressed and therefore, the test software does not reflect the proposed change to the title of MS-DRGs 715 and 716 from ``Other Male Reproductive System O.R. Procedures for Malignancy with and without CC/MCC, respectively'' to ``Male Reproductive System and Other O.R. Procedures for Malignancy with and without CC/MCC, respectively'' and the proposed change to the title of MS-DRGs 717 and 718 from ``Other Male Reproductive System O.R. Procedures Except Malignancy with and without CC/MCC, respectively'' to ``Other Male Reproductive System O.R. Procedures with and without CC/MCC, respectively'' in MDC 12 for Version 44. 8. MDC 13 (Diseases and Disorders of the Female Reproductive System): Fluorescence Guided Procedures of the Female Reproductive System Using Pafolacianine CYTALUX[supreg] (pafolacianine) is a folate receptor-targeted fluorescent optical imaging agent used as an adjunct for intraoperative identification of ovarian cancer. CYTALUX[supreg] binds to the folate receptors on these cancer cells and is endocytosed into folate receptor positive cancer cells. CYTALUX[supreg] is administered intravenously prior to gynecologic oncology procedures, including ovarian cytoreduction and debulking surgeries, and requires use of a near- infrared imaging system (NIR) to illuminate, thereby making cancer visible within the surgical field. CYTALUX[supreg] received FDA approval and is indicated as an adjunct for intraoperative identification of malignant lesions in adult patients with ovarian cancer. We note that CYTALUX[supreg] for the ovarian indication was approved for new technology add-on payments for FY 2024 (88 FR 58804 through 58810) and FY 2025 (89 FR 69120 through 69126). We received a request from the manufacturer of CYTALUX[supreg] to modify the GROUPER logic of MS-DRGs 736, 737, and 738 (Uterine and Adnexa Procedures for Ovarian or Adnexal Malignancy with MCC, with CC, and without CC/MCC, respectively) by reassigning cases with an ICD-10- PCS code that describes fluorescence guided procedures of the female reproductive system using CYTALUX[supreg] (pafolacianine) to the higher severity level MS-DRG 736 (with MCC) or MS-DRG 737 (with CC). According to the requestor, the utilization of CYTALUX[supreg] does not change the surgical procedure but adds significant cost. The requestor performed their own analysis of Medicare claims data from 10/1/2023-3/ 31/2025 and stated they found approximately 13 cases that used CYTALUX[supreg] in ovarian surgery and that they expect adoption to accelerate as NIR systems become more widely available. The requestor stated they found that over 50% of cases using CYTALUX[supreg] in ovarian procedures triggered new technology add-on payments averaging $2,285. The requestor also stated they found cases reporting an ICD-10- PCS code that describes fluorescence guided procedures of the female reproductive system using CYTALUX[supreg] (pafolacianine) within MS-DRG 737 exhibit higher average costs than baseline and align more closely with cases in MS-DRG 736. Additionally, the requestor stated their analysis also found cases that reported the use of CYTALUX[supreg] in MS-DRGs 739, 740, and 741 (Uterine and Adnexa Procedures for Non- Ovarian and Non-Adnexal Malignancy with MCC, with CC, and without CC/ MCC, respectively) due to the reporting of diagnosis codes describing metastatic malignancies. The requestor stated their analysis found that cases reporting an ICD-10-PCS code that describes fluorescence guided procedures of the female reproductive system using CYTALUX[supreg] (pafolacianine) cases in MS-DRG 737 exhibited higher average costs than baseline ($34,735 vs. $23,538) and aligned more closely with cases in MS-DRG 736 ($39,682). The requestor further asserted that their review of the Inpatient Standard Analytical Files (SAF) indicated there were some accounts underreporting the full cost of the vial of CYTALUX[supreg] due to inconsistent guidance for single-use inpatient drugs and that, where applicable, pharmacy costs were adjusted to account for missing costs of the single-use vial. The requestor stated they found that cases reporting an ICD-10-PCS code that describes fluorescence guided procedures of the female reproductive system using CYTALUX[supreg] (pafolacianine) in MS-DRG 737 were approximately $11,000 more expensive than non-CYTALUX cases when controlled for the underreporting of costs. Therefore, the requestor suggested that CMS reassign cases with an ICD- 10-PCS code that describes fluorescence guided procedures of the female reproductive system using CYTALUX[supreg] (pafolacianine) to MS-DRGs 736 or 737 to ensure accurate payment, clinical [[Page 19361]] integrity, and to prevent barriers to hospital adoption of CYTALUX[supreg] as NIR system availability expands nationwide. To begin our analysis, we reviewed the GROUPER logic for MS-DRGs 736, 737, 738, 739, 740, and 741. MS-DRGs 736, 737, 738, 739, 740 and 741 contains a logic list referred to as ``OPERATING ROOM PROCEDURES'' that includes 689 ICD-10-PCS procedure codes that describe uterine and adnexa procedures, a logic list referred to as ``Ovarian or Adnexal Malignancy PRINCIPAL DIAGNOSIS'' that includes 22 ICD-10-CM diagnosis codes that describe ovarian or adnexal malignancies and a logic list referred to as ``Non-Ovarian and Non-Adnexal Malignancy PRINCIPAL DIAGNOSIS'' that includes 36 ICD-10-CM diagnosis codes that describe non-ovarian and non-adnexal malignancies. We refer the reader to the ICD-10 MS-DRG Definitions Manual, Version 43.1 (available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software) for complete documentation of the GROUPER logic for MS-DRGs 736, 737, 738, 739, 740, and 741. The following five ICD-10-PCS procedure codes describe fluorescence guided procedures of the female reproductive system using pafolacianine for the ovarian indication. BILLING CODE 4120-01-P [GRAPHIC] [TIFF OMITTED] TP14AP26.046 In the ICD-10 MS-DRGs Definitions Manual Version 43.1, procedure codes 8E0U0EN, 8E0U3EN, 8E0U4EN, 8E0U7EN, and 8E0U8EN are designated as non-O.R. procedures for purposes of MS-DRG assignment, therefore when CYTALUX[supreg] is utilized during a uterine and adnexa procedure described by one of the 689 ICD-10-PCS procedure codes in the GROUPER logic for MS-DRGs 736, 737, 738, 739, 740, and 741, the ICD-10-PCS code describing the uterine and adnexa procedure will determine the surgical MS-DRG assignment to one of the previously listed surgical MS-DRGs based on the principal diagnosis reported. We then examined claims data from the September 2025 update of the FY 2025 MedPAR file for MS-DRGs 736, 737, 738, 739, 740, and 741 to identify cases reporting one of the five procedure codes listed previously that describe fluorescence guided surgery using CYTALUX[supreg] (pafolacianine). Our findings are shown in the following table: [GRAPHIC] [TIFF OMITTED] TP14AP26.047 [[Page 19362]] BILLING CODE 4120-01-C As shown in the table, in MS-DRG 736, we identified a total of 647 cases with an average length of stay of 8.5 days and average costs of $33,196. Of those 647 cases, there were two cases reporting one of the five procedure codes that describe fluorescence guided surgery using CYTALUX[supreg] (pafolacianine), with average costs lower than the average costs in the FY 2025 MedPAR file for MS-DRG 736 ($28,068 compared to $33,196) and a shorter average length of stay (7 days compared to 8.5 days). There were zero cases reporting one of the five procedure codes that describe fluorescence guided surgery using CYTALUX[supreg] (pafolacianine) in MS-DRGs 737 and 738. In MS-DRG 739, we identified a total of 481 cases with an average length of stay of 8.4 days and average costs of $33,235. Of those 481 cases, there were two cases reporting one of the five procedure codes that describe fluorescence guided surgery using CYTALUX[supreg] (pafolacianine), with average costs lower than the average costs in the FY 2025 MedPAR file for MS-DRG 739 ($11,565 compared to $33,235) and a shorter average length of stay (1.5 days compared to 8.4 days). In MS- DRG 740, we identified a total of 1,327 cases with an average length of stay of 3.2 days and average costs of $16,784. Of those 1,327 cases, there was one case reporting one of the five procedure codes that describe fluorescence guided surgery using CYTALUX[supreg] (pafolacianine), with costs higher than the average costs in the FY 2025 MedPAR file for MS-DRG 740 ($39,154 compared to $16,784), and a longer length of stay (5 days compared to 3.2 days). In MS-DRG 741, we identified a total of 740 cases with an average length of stay of 1.7 days and average costs of $13,365. Of those 1,327 cases, there was one case reporting one of the five procedure codes that describe fluorescence guided surgery using CYTALUX[supreg] (pafolacianine), with costs higher than the average costs in the FY 2025 MedPAR file for MS- DRG 741 ($14,036 compared to $13,365), and a shorter length of stay (1 day compared to 1.7 days). The data reflects the six cases reporting one of the five procedure codes that describe fluorescence guided surgery using CYTALUX[supreg] (pafolacianine) found across MS-DRGs 736, 737, 738, 739, 740, and 741 have an average length of stay of 3.8 days and average costs of $22,076. These six cases have a shorter average length of stay (3.8 days versus 8.5 days) and lower average costs ($22,076 versus $33,196) when compared to all the cases in MS-DRG 736. The six cases reporting one of the five procedure codes that describe fluorescence guided surgery using CYTALUX[supreg] (pafolacianine) found across MS-DRGs 736, 737, 738, 739, 740, and 741 have a shorter average length of stay (3.8 days versus 4.3 days) and higher average costs ($22,076 versus $18,702) when compared to all the cases in MS-DRG 737. After reviewing the claims data, we believe it is premature to consider a proposal for cases with an ICD-10-PCS code that describes fluorescence guided procedures of the female reproductive system using CYTALUX[supreg] (pafolacianine) for FY 2027. While the data analysis reflects that six cases that report one of the five procedure codes that describe fluorescence guided surgery using CYTALUX[supreg] (pafolacianine) across MS-DRGs 736, 737, 738, 739, 740, and 741 demonstrate slightly higher average costs compared to all the cases in MS-DRG 737, the number of cases is small across the MS-DRGs. The claims data also reflect a wide variance with regard to the average costs for these cases reporting fluorescence guided procedures of the female reproductive system using CYTALUX[supreg] (pafolacianine). We note the one case that reported a fluorescence guided procedure of the female reproductive system using CYTALUX[supreg] (pafolacianine) in MS-DRG 740 had a length of stay of 5 days and costs of $39,154, while the two cases that reported a procedure code describing a fluorescence guided procedure of the female reproductive system using CYTALUX[supreg] (pafolacianine) in MS-DRG 739 had an average length of stay of 1.5 days and average costs of $11,565. We cannot ascertain from the claims data the resource use specifically attributable to the utilization of fluorescence guidance using CYTALUX[supreg] (pafolacianine) in procedures of the female reproductive system during inpatient admissions. We recognize the average costs of the small numbers of cases reporting an ICD-10-PCS code that describes fluorescence guided procedures of the female reproductive system using CYTALUX[supreg] (pafolacianine) can be greater when compared to the average costs of all cases in their respective MS-DRG however, the MS-DRG system is a system of averages and it is expected that within the diagnostic related groups, some cases may demonstrate higher than average costs, while other cases may demonstrate lower than average costs. We further note that section 1886(d)(5)(A) of the Act provides for Medicare payments to Medicare- participating hospitals in addition to the basic prospective payments for cases incurring extraordinarily high costs. We believe it would be advantageous to allow for more claims data to be analyzed in consideration of any future modifications to the MS-DRGs for which fluorescence guided surgeries using CYTALUX[supreg] (pafolacianine) are assigned. We will continue to evaluate the clinical coherence and resource consumption costs that impact this subset of cases and their MS-DRG assignment. Therefore for the reasons stated, for FY 2027, we are not proposing to modify the GROUPER logic of MS-DRGs 736, 737, and 738 (Uterine and Adnexa Procedures for Ovarian or Adnexal Malignancy with MCC, with CC, and without CC/MCC, respectively) by reassigning cases reporting ICD- 10-PCS codes that describes fluorescence guided procedures of the female reproductive system using CYTALUX[supreg] (pafolacianine) to the higher severity level MS-DRG 736 (with MCC) or MS-DRG 737 (with CC). During our review of this issue, we noted that the data analysis reflects that in cases reporting uterine and adnexa procedures in MS- DRGs 736, 737, 738, 739, 740, and 741, the average costs and length of stay are generally similar without regard to the presence of diagnosis codes describing ``ovarian or adnexal'' malignancies or ``non-ovarian or non-adnexal'' malignancies. In MS-DRG 736, there were 647 cases reporting an uterine and adnexa procedures with a principal diagnosis describing an ``ovarian or adnexal'' malignancy and a MCC with average costs of $33,196 and an average length of stay of 8.5 days compared to 481 cases reporting an uterine and adnexa procedures with a principal diagnosis describing a ``non-ovarian or non-adnexal'' malignancy and a MCC with average costs of $33,235 and an average length of stay of 8.4 days in MS-DRG 739. In MS-DRG 737, there were 1,803 cases reporting an uterine and adnexa procedures with a principal diagnosis describing an ``ovarian or adnexal'' malignancy and a CC with average costs of $18,702 and an average length of stay of 4.3 days compared to 1,327 cases reporting an uterine and adnexa procedures with a principal diagnosis describing a ``non-ovarian or non-adnexal'' malignancy and a CC with average costs of $16,784 and an average length of stay of 3.2 days in MS-DRG 740. In MS-DRG 738, there were 317 cases reporting an uterine and adnexa procedures with a principal diagnosis describing an ``ovarian or adnexal'' malignancy without a CC or an [[Page 19363]] MCC with average costs of $13,519 and an average length of stay of 2.5 days compared to 740 cases reporting an uterine and adnexa procedures with a principal diagnosis describing a ``non-ovarian or non-adnexal'' malignancy without a CC or an MCC with average costs of $13,365 and an average length of stay of 1.7 days in MS-DRG 741. We reviewed these findings and believe that it may no longer be necessary to subdivide these MS-DRGs based on the diagnosis codes reported. In the FY 1987 proposed notice titled ``Medicare Program; Changes to the DRG Classification System'' (51 FR 8770 through 8771), we stated that our analysis of cases with a principal diagnosis of malignancy where both a hysterectomy and uterine or adnexa procedures were performed suggested that malignancies and non-malignancies should be classified in different DRGs, and that ovarian and adnexa cancers were the most resource intensive of the malignancies in the DRGs reviewed. We further stated that, among the cases examined in the DRGs, the diagnosis had consistently greater explanatory power with respect to resource intensity than did the procedure performed, therefore we stated that cases with a principal diagnosis of malignancy would be further subdivided. Therefore, for FY 1987, DRG 357 (Non-Radical Hysterectomy, Uterus and Adnexa Procedures, for Ovarian and Adnexal Malignancy) and DRGs 354 and 355 (Non-Radical Hysterectomy, Uterus and Adnexa Procedures for Malignancy Except Ovarian/Adnexal Malignancy; Age over 69 and/or C.C., and Age under 70 without C.C., respectively) were created to ``increase homogeneity and thus more accurately reflect resource intensity of cases assigned to these DRGs'' (51 FR 31571). Our analysis of claims data from the September 2025 update of the FY 2025 MedPAR file shows that in the 39 years since the DRGs for cases reporting uterine and adnexa procedures split based on the presence of diagnosis codes describing ``ovarian or adnexal'' malignancies or ``non-ovarian or non-adnexal'' malignancies were created, the resource utilization appears to now be more related to the procedures performed rather than the diagnoses describing malignancies reported on the claim, and therefore we believe it is appropriate to restructure these MS-DRGs accordingly. In our direct comparison of the cases reporting diagnosis codes describing ``ovarian or adnexal'' malignancies or ``non-ovarian or non-adnexal'' malignancies in these MS-DRGs, we believe the distinction is no longer meaningful with regard to resource consumption. Clinically, a principal diagnosis of an ``ovarian or adnexal'' or a ``non-ovarian or non-adnexal'' malignancy in association with a uterine and adnexa procedure requires a commensurate level of patient care, including managing pain, monitoring for complications, ensuring proper wound and drain care, preventing blood clots, managing bowel function, and facilitating recovery through gradual activity, diet, and mobility. Decisions on potential further treatment like chemotherapy or radiation therapy for these diagnoses are based on the cancer's stage. We note that, as discussed in prior rulemaking, the MS-DRGs are a classification system intended to group together diagnoses and procedures with similar clinical characteristics and utilization of resources. We generally seek to identify sufficient sets of claims data with demonstrated clinical similarity in developing diagnosis related groups. As a result of our analysis and review of this issue, and consideration of the intent of the MS-DRGs, we believe the findings support restructuring the six MS-DRGs by proposing to create new MS- DRGs for uterine and adnexa procedures for female reproductive system malignancies and eliminating the logic that differentiates cases by reporting principal diagnoses describing ``ovarian or adnexal'' and ``non-ovarian or non-adnexal'' malignancies. For these reasons, we are proposing the deletion of MS-DRGs 736, 737, 738, 739, 740, and 741, and the creation of a base MS-DRG for cases reporting uterine and adnexa procedures and a principal diagnosis describing a female reproductive system malignancy, split by a three- way severity level subgroup. The following table illustrates our simulation of the proposal. [GRAPHIC] [TIFF OMITTED] TP14AP26.048 Consistent with our established process as discussed in section II.C.1.b. of the preamble of this proposed rule, once the decision has been made to propose to make further modifications to the MS-DRGs, all five criteria to create subgroups must be met for the base MS-DRG to be split (or subdivided) by a CC subgroup. Therefore, we applied the criteria to create subgroups in a base MS-DRG as discussed in section II.C.1.b. of the preamble of this FY 2027 IPPS/LTCH PPS proposed rule. We note that, as shown in the table that follows, a three-way split of this proposed new base MS-DRG was met. The following table illustrates our findings. [GRAPHIC] [TIFF OMITTED] TP14AP26.049 For the proposed new MS-DRGs, there is (1) at least 500 cases in the MCC subgroup, the CC subgroup, and in the without CC/MCC subgroup; (2) at least 5 percent of the cases are in the MCC subgroup, the CC subgroup, and in the without CC/MCC subgroup; (3) at least a 20 percent difference in average costs between the MCC subgroup and the CC subgroup and between the CC group and NonCC subgroup; (4) at least a $2,000 difference in average costs between the MCC subgroup and the with CC subgroup and between the CC subgroup and NonCC subgroup; and (5) at least a 3-percent reduction in cost variance, indicating that the proposed severity level splits increase the explanatory power of the base MS-DRG in capturing differences in expected cost between the proposed MS-DRG severity level splits by at least 3 percent and thus improve the overall accuracy of the IPPS payment system. [[Page 19364]] Therefore, for FY 2027, we are proposing to delete MS-DRGs 736, 737, 738, 739, 740, and 741 and proposing to create new MS-DRGs 731 (Uterine and Adnexa Procedures for Malignancy with MCC), MS-DRG 732 (Uterine and Adnexa Procedures for Malignancy with CC), and MS-DRG 733 (Uterine and Adnexa Procedures for Malignancy without CC/MCC). We are proposing to include the current list of 689 ICD-10-PCS procedure codes in the logic for MS-DRGs 736, 737, 738, 739, 740, and 741 for case assignment of uterine and adnexa procedures for the proposed new MS- DRGs. We refer the reader to Table 6P.5a and Table 6P.5b associated with this FY 2027 IPPS/LTCH PPS proposed rule (which are available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps) for the lists of the 58 diagnosis codes and 689 procedure codes we are proposing to define in the logic for the proposed new MS-DRGs. We note that discussion of the surgical hierarchy for the proposed modification is discussed in section II.C.14. of the preamble of this FY 2027 IPPS/LTCH PPS proposed rule. 9. MDC 25 (Human Immunodeficiency Virus Infections): Significant HIV Related Conditions Under the ICD-10 IPPS MS-DRGs, each of the 25 MDCs generally reflect a major organ system or etiology. Within each MDC, there is a list of all the possible ICD-10-CM diagnoses or conditions that correspond to the specific organ system(s) or etiology reflected by the respective MDC title to ensure clinical coherence. When one of the listed conditions for a designated MDC is reported as a principal or secondary diagnosis, the ICD-10-CM diagnosis code informs the resulting MS-DRG assignment from within that MDC. The logic for case assignment under MDC 25 (Human Immunodeficiency Virus Infections) is comprised of ICD-10-CM diagnosis code B20 (Human immunodeficiency virus [HIV] disease) when reported as a principal diagnosis or when reported as a secondary diagnosis with a principal diagnosis of a significant HIV related condition and the logic for case assignment specifically to MS-DRGs 974, 975, and 976 (HIV with Major Related Condition with MCC, with CC, without CC/MCC, respectively) under MDC 25 is comprised of ICD-10-CM diagnosis code B20 when reported as a principal or secondary diagnosis with a principal or secondary diagnosis of a major related condition as displayed in the ICD-10 MS- DRG Definitions Manual, Version 43.1 (available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software). In reviewing the listed diagnoses that fall under the MDC 25 header ``AND PRINCIPAL DIAGNOSIS OF SIGNIFICANT HIV RELATED CONDITION'' as reflected in the ICD-10 MS-DRG Definitions Manual, Version 43.1, we identified that a number of the listed diagnoses under this specific header overlap with the listed diagnoses in the logic list for case assignment to MS-DRGs 974, 975, and 976 as a major related condition of HIV, as displayed in the ICD-10 MS-DRG Definitions Manual, Version 43.1. To improve clarity of the listed diagnoses between the header that reflects ``SIGNIFICANT'' and the diagnoses listed in the logic for case assignment to MS-DRGs 974, 975, and 976 described as ``Major'', we believe the term ``SIGNIFICANT'' should be removed from the header under MDC 25. We also identified a subset of diagnoses listed under the header ``AND PRINCIPAL DIAGNOSIS OF SIGNIFICANT HIV RELATED CONDITION'' that do not appear to describe a significant HIV related condition. For example, ICD-10-CM diagnosis code A09 Infectious gastroenteritis and colitis, unspecified, and ICD-10-CM diagnosis code A74.9 Chlamydial infection, unspecified, are listed under the current significant HIV header list of diagnoses; however, these same diagnoses are not listed as a major condition under MS-DRG 974, 975, and 976. We do not believe these conditions are clinically appropriate to be included as a significant HIV related condition. We intend to perform additional review and analysis of the diagnoses listed in the logic for case assignment to MDC 25 as well as specifically, the logic for case assignment to MS-DRGs 974, 975, and 976 in consideration of any potential modifications that may be warranted. Any discussion regarding proposed changes will be discussed in future rulemaking. Therefore, for FY 2027, we are proposing to remove the term ``SIGNIFICANT'' under the header for MDC 25 and revise it to reflect, ``AND PRINCIPAL DIAGNOSIS OF HIV RELATED CONDITION''. 10. Review of Procedure Codes in MS-DRGs 981 Through 983 and 987 Through 989 We annually conduct a review of procedures producing assignment to MS-DRGs 981 through 983 (Extensive O.R. Procedure Unrelated to Principal Diagnosis with MCC, with CC, and without CC/MCC, respectively) or MS-DRGs 987 through 989 (Non-Extensive O.R. Procedure Unrelated to Principal Diagnosis with MCC, with CC, and without CC/MCC, respectively) on the basis of volume, by procedure, to see if it would be appropriate to move cases reporting these procedure codes out of these MS-DRGs into one of the surgical MS-DRGs for the MDC into which the principal diagnosis falls. The data are arrayed in two ways for comparison purposes. We look at a frequency count of each major operative procedure code. We also compare procedures across MDCs by volume of procedure codes within each MDC. We use this information to determine which procedure codes and diagnosis codes to examine. We identify those procedures occurring in conjunction with certain principal diagnoses with sufficient frequency to justify adding them to one of the surgical MS-DRGs for the MDC in which the diagnosis falls. We also consider whether it would be more appropriate to move the principal diagnosis codes into the MDC to which the procedure is currently assigned. Based on the results of our review of the claims data from the September 2025 update of the FY 2025 MedPAR file of cases found to group to MS-DRGs 981 through 983 or MS-DRGs 987 through 989, we did not identify any cases for reassignment and are not proposing to move any cases from MS-DRGs 981 through 983 or MS-DRGs 987 through 989 into a surgical MS-DRG for the MDC into which the principal diagnosis or procedure is assigned. In addition to the internal review of procedures producing assignment to MS-DRGs 981 through 983 or MS-DRGs 987 through 989, we also consider requests that we receive to examine cases found to group to MS-DRGs 981 through 983 or MS-DRGs 987 through 989 to determine if it would be appropriate to add procedure codes to one of the surgical MS-DRGs for the MDC into which the principal diagnosis falls or to move the principal diagnosis to the surgical MS-DRGs to which the procedure codes are assigned. We did not receive any requests suggesting reassignment. We also review the list of ICD-10-PCS procedure codes that, when in combination with their principal diagnosis code, result in assignment to MS-DRGs 981 through 983, or 987 through 989, to ascertain whether any of those procedure codes should be reassigned from one of those two groups of MS-DRGs to the other group of MS- [[Page 19365]] DRGs based on average costs and the length of stay. We look at the data for trends such as shifts in treatment practice or reporting practice that would make the resulting MS-DRG assignment illogical. If we find these shifts, we would propose to move cases to keep the MS-DRGs clinically similar or to provide payment for the cases in a similar manner. Generally, we move only those procedure codes for which we have an adequate number of discharges to analyze the data. Additionally, we also consider requests that we receive to examine cases found to group to MS-DRGs 981 through 983 or MS-DRGs 987 through 989 to determine if it would be appropriate for the cases to be reassigned from one of the MS-DRG groups to the other. Based on the results of our review of the claims data from the September 2025 update of the FY 2025 MedPAR file we did not identify any cases for reassignment. We also did not receive any requests suggesting reassignment. Therefore, for FY 2027 we are not proposing to move any cases reporting procedure codes from MS-DRGs 981 through 983 to MS-DRGs 987 through 989 or vice versa. 11. Operating Room (O.R.) and Non-O.R. Procedures a. Background Under the IPPS MS-DRGs (and former CMS MS-DRGs), we have a list of procedure codes that are considered operating room (O.R.) procedures. Historically, we developed this list using physician panels that classified each procedure code based on the procedure and its effect on consumption of hospital resources. For example, generally the presence of a surgical procedure which required the use of the operating room would be expected to have a significant effect on the type of hospital resources (for example, operating room, recovery room, and anesthesia) used by a patient, and therefore, these patients were considered surgical. Because the claims data generally available do not precisely indicate whether a patient was taken to the operating room, surgical patients were identified based on the procedures that were performed. Generally, if the procedure was not expected to require the use of the operating room, the patient would be considered medical (non-O.R.). Currently, each ICD-10-PCS procedure code has designations that determine whether and in what way the presence of that procedure on a claim impacts the MS-DRG assignment. First, each ICD-10-PCS procedure code is either designated as an O.R. procedure for purposes of MS-DRG assignment (``O.R. procedures'') or is not designated as an O.R. procedure for purposes of MS-DRG assignment (``non-O.R. procedures''). Second, for each procedure that is designated as an O.R. procedure, that O.R. procedure is further classified as either extensive or non- extensive. Third, for each procedure that is designated as a non-O.R. procedure, that non-O.R. procedure is further classified as either affecting the MS-DRG assignment or not affecting the MS-DRG assignment. We refer to these designations that do affect MS-DRG assignment as ``non-O.R. affecting the MS-DRG.'' For new procedure codes that have been finalized through the ICD-10 Coordination and Maintenance Committee code update process and are proposed to be classified as O.R. procedures or non-O.R. procedures affecting the MS-DRG, we recommend the MS-DRG assignment which is then made available in association with the proposed rule (Table 6B.--New Procedure Codes) and subject to public comment. These proposed assignments are generally based on the assignment of predecessor codes or the assignment of similar codes. For example, we generally examine the MS-DRG assignment for similar procedures, such as the other approaches for that procedure, to determine the most appropriate MS-DRG assignment for procedures proposed to be newly designated as O.R. procedures. As discussed in section II.C.15 of the preamble of this FY 2027 IPPS/LTCH PPS proposed rule, we are making Table 6B.--New Procedure Codes--FY 2027 available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps.html. We also refer readers to the ICD-10 MS-DRG Version 43.1 Definitions Manual at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software.html for detailed information regarding the designation of procedures as O.R. or non-O.R. (affecting the MS-DRG) in Appendix E--Operating Room Procedures and Procedure Code/MS-DRG Index. In the FY 2020 IPPS/LTCH PPS proposed rule (84 FR 19230), we stated that, given the long period of time that has elapsed since the original O.R. (extensive and non-extensive) and non-O.R. designations were established, the incremental changes that have occurred to these O.R. and non-O.R. procedure code lists, and changes in the way inpatient care is delivered, we plan to conduct a comprehensive, systematic review of the ICD-10-PCS procedure codes. This will be a multiyear project during which we will also review the process for determining when a procedure is considered an operating room procedure. For example, we may restructure the current O.R. and non-O.R. designations for procedures by leveraging the detail that is now available in the ICD-10 claims data. We refer readers to the discussion regarding the designation of procedure codes in the FY 2018 IPPS/LTCH PPS final rule (82 FR 38066) where we stated that the determination of when a procedure code should be designated as an O.R. procedure has become a much more complex task. This is, in part, due to the number of various approaches available in the ICD-10-PCS classification, as well as changes in medical practice. While we have typically evaluated procedures on the basis of whether or not they would be performed in an operating room, we believe that there may be other factors to consider with regard to resource utilization, particularly with the implementation of ICD-10. We discussed in the FY 2020 IPPS/LTCH PPS proposed rule (84 FR 19230) that, as a result of this planned review and potential restructuring, procedures that are currently designated as O.R. procedures may no longer warrant that designation, and conversely, procedures that are currently designated as non-O.R. procedures may warrant an O.R. designation. We intend to consider the resources used and how a procedure should affect the MS-DRG assignment. We may also consider the effect of certain surgical approaches to evaluate whether to subdivide a subset of MS-DRGs based on a specific surgical approach. We stated we plan to utilize our available MedPAR claims data as a basis for this review and the input of our clinical advisors. As part of this comprehensive review of the procedure codes, we also intend to evaluate the MS-DRG assignment of the procedures and the current surgical hierarchy because both of these factor into the process of refining the ICD-10 MS-DRGs to better recognize complexity of service and resource utilization. In the FY 2021 IPPS/LTCH PPS final rule (85 FR 58540 through 58541), we provided a summary of the comments we had received in response to our request for feedback on what factors or criteria to consider in determining whether a procedure is designated as an O.R. procedure in the ICD-10-PCS classification system for future consideration. We also stated that in consideration of the PHE, we believed it [[Page 19366]] may be appropriate to allow additional time for the claims data to stabilize prior to selecting the timeframe to analyze for this review. For this FY 2027 IPPS/LTCH PPS proposed rule, we continue to believe additional time is necessary as we continue to develop our process and methodology. As discussed in the FY 2024 IPPS/LTCH PPS final rule (88 FR 58749), we have signaled in prior rulemaking that the designation of an O.R. procedure encompasses more than the physical location of the hospital room in which the procedure may be performed; in other words, the performance of a procedure in an operating room is not the sole determining factor we will consider as we examine the designation of a procedure in the ICD-10-PCS classification system. We are exploring alternatives on how we may restructure the current O.R. and non-O.R. designations for procedures by leveraging the detail that is available in the ICD-10 claims data. We are considering the feedback received on what factors and/or criteria to consider in determining whether a procedure is designated as an O.R. procedure in the ICD-10- PCS classification system as we continue to develop our process and methodology and will provide more detail on this analysis and the methodology for conducting this comprehensive review in future rulemaking. We encourage the public to continue to submit feedback and comments on any other factors in consideration of our refinement efforts to recognize and differentiate consumption of resources under the ICD-10 MS-DRGs. For this FY 2027 IPPS/LTCH PPS proposed rule, we received requests regarding changing the designation of specific ICD-10-PCS procedure codes from non-O.R. to O.R. procedures. In this section of the preamble of this FY 2027 IPPS/LTCH PPS proposed rule, we detail and respond to those requests. In this section of the preamble of this proposed rule, we also discuss any proposals we are making based on our internal review and analysis and the process that was utilized for evaluating each procedure code. For each procedure, we consider-- Whether the procedure would typically require the resources of an operating room; Whether it is an extensive or a non-extensive procedure; and To which MS-DRGs the procedure should be assigned. We note that many MS-DRGs require the presence of any O.R. procedure. As a result, cases with a principal diagnosis associated with a particular MS-DRG would, by default, be grouped to that MS-DRG. Therefore, we do not list these MS-DRGs in our discussion in this section of the preamble of this FY 2027 IPPS/LTCH PPS proposed rule. Instead, we only discuss MS-DRGs that require explicitly adding the relevant procedure codes to the GROUPER logic in order for those procedure codes to affect the MS-DRG assignment as intended. For procedures that would not typically require the resources of an operating room, we determined if the procedure should affect the MS-DRG assignment. In cases where we are proposing to change the designation of procedure codes from non-O.R. procedures to O.R. procedures, we also are proposing one or more MS-DRGs with which these procedures are clinically aligned and to which the procedure code would be assigned. In addition, cases that contain O.R. procedures will map to MS-DRGs 981, 982, or 983 (Extensive O.R. Procedure Unrelated to Principal Diagnosis with MCC, with CC, and without CC/MCC, respectively) or MS- DRGs 987, 988, or 989 (Non-Extensive O.R. Procedure Unrelated to Principal Diagnosis with MCC, with CC, and without CC/MCC, respectively) when they do not contain a principal diagnosis that corresponds to one of the MDCs to which that procedure is assigned. These procedures need not be assigned to MS-DRGs 981 through 989 in order for this to occur. Therefore, we do not specifically address that aspect in summarizing the request and our response to that request or the proposals we make based on our internal review and analysis in this section of the preamble of this FY 2027 IPPS/LTCH PPS proposed rule. b. Non-O.R. Procedures to O.R. Procedures (1) Introduction of Allogeneic Pancreatic Islet Cellular Suspension For this FY 2027 IPPS/LTCH PPS proposed rule, we received a request to change the designation of ICD-10-PCS code XW033DA (Introduction of donislecel-jujn allogeneic pancreatic islet cellular suspension into peripheral vein, percutaneous approach, new technology group 10) from a non-O.R. procedure to a O.R. procedure. Donislecel-jujn (LantidraTM) is Food & Drug Administration (FDA) approved as an allogeneic pancreatic islet cellular therapy indicated for the treatment of adults with type 1 diabetes (T1D) who are unable to approach target HbA1c because of current, repeated episodes of severe hypoglycemia despite intensive diabetes management and education. Donislecel-jujn (LantidraTM) consists of a suspension of allogeneic pancreatic islets of Langerhans derived from a donor pancreas in buffered transplant medium containing sodium chloride, dextrose, minerals, amino acids, vitamins, and other compounds supplemented with HEPES (2-[4-(2-hydroxyethyl) piperazin-1-yl] ethanesulfonic acid; 10 mM final concentration) and human serum albumin (0.5% final concentration). In the ICD-10 MS-DRGs Definitions Manual Version 43.1, procedure code XW033DA is currently designated as a non-O.R. procedure affecting assignment to MS-DRGs 673, 674, and 675 (Other Kidney and Urinary Tract Procedures with MCC, with CC, and without CC/MCC, respectively). We refer the reader to the ICD-10 MS-DRG Version 43.1 Definitions Manual (which is available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software for complete documentation of the GROUPER logic for the MS-DRGs 673, 674, and 675. According to the requestor, the clinical characteristics and costs of cases assigned to MS-DRGs 673 through 675 are significantly different from those associated with the administration of donislecel- jujn (LantidraTM). The requestor states that the cost of donislecel-jujn (LantidraTM) is high due to complex and highly regulated manufacturing processes for biologic cell products. According to the requestor, code XW033DA should be assigned to Pre MDC MS-DRG 018 (Chimeric Antigen Receptor (CAR) T-Cell and Other Immunotherapies) because donislecel-jujn (LantidraTM) is similar to other CAR-T technologies that map to DRG 018 as a cellular product, and in regard to procedure complexity, high cost, and is indicated for a rare patient population. We reviewed this issue and note a proposal to create a procedure code that describes the administration of donislecel-jujn was presented and discussed at the March 19-20, 2024 ICD-10 Coordination and Maintenance Committee meeting and subsequently finalized. For new procedure codes that have been finalized through the ICD-10 Coordination and Maintenance Committee code update process, we recommend the O.R. designation, which is generally based on the assignment of predecessor codes or the assignment of similar codes. Consistent with our annual process of assigning new procedure codes to MDCs and MS- [[Page 19367]] DRGs and designating a procedure as an O.R. or non-O.R. procedure, we reviewed the predecessor procedure code assignment. The predecessor code for procedure code XW033DA is procedure code 3E033U1 (Introduction of nonautologous pancreatic islet cells into peripheral vein, percutaneous approach) which is designated as a non-O.R. procedure affecting assignment to MS-DRGs 673, 674, and 675 (Other Kidney and Urinary Tract Procedures with MCC, with CC, and without CC/MCC, respectively). We analyzed claims data from the September 2025 update of the FY 2025 MedPAR file for MS-DRGs 673, 674, and 675 for cases reporting procedure code XW033DA and did not find any cases. We then extended our analysis to all MS-DRGs and again did not find any cases. We note that these procedures do not typically require the resources of an operating room and are not surgical in nature. As such, we disagree with designating procedure code XW033DA, which describes the intravenous portal vein administration of donislecel-jujn, as an O.R. procedure. In reviewing this request, we note the underlying intent of this request is to change the MS-DRG assignment of procedure code XW033DA from MS-DRGs 673, 674, and 675 to MS-DRG 018. In regard to the reassignment of procedure code XW033DA to MS-DRG 018, we note that the category of cell and gene therapies continues to evolve. As discussed in prior rulemaking (90 FR 36554 through 36560), we are in the process of carefully considering the feedback we have previously received about ways in which we can continue to appropriately reflect resource utilization associated with cell and gene therapies while maintaining clinical coherence and stability in the relative weights under the IPPS MS-DRGs. We continue to examine these complex issues in consideration for future rulemaking. We acknowledge that there may be distinctions to account for as we continue to gain more experience in the use of these therapies and have additional claims data to analyze. We believe this topic, relating to the administration of donislecel-jujn (LantidraTM), an allogeneic (donor) pancreatic islet cellular therapy, is appropriately aligned with and should be considered as part of that broader effort. Therefore, for the reason discussed, we are proposing to maintain the current designation of procedure code XW033DA as ``non-O.R. affecting the MS-DRG'' for FY 2027. We refer the reader to the discussion in section II.C.6.b. of this FY 2027 IPPS/LTCH PPS proposed rule, regarding the proposed modifications for cases currently mapping to MS-DRGs 673, 674, and 675, effective October 1, 2026, for FY 2027. (2) Percutaneous Introduction of AGN1 Bone Void Filler Into Bones One requestor identified ICD 10-PCS procedure code XW0V3WA (Introduction of AGN1 bone void filler into bones, percutaneous approach, new technology group 10) that the requestor stated is currently not recognized as an O.R. procedure for purposes of MS-DRG assignment. The requestor noted that the Local Osteo-Enhancement Procedure (LOEP) is an investigational surgical procedure designed to mechanically strengthen the proximal femur to reduce the risk of hip fractures in patients who are known to have weakened bones or other factors leading to a high risk of hip fracture. According to the requestor, the AGN1 LOEP Kit is expected to be indicated to reduce the risk of hip fracture in patients at risk of fragility fracture and require access to specialized equipment only available in the operating room (including anesthesia, C-arm, operating table, etc.). The requestor stated that FDA approval of the AGN1 LOEP Kit is anticipated in late 2027. According to the requestor, there may be situations where the procedure could be performed as a standalone procedure. The requestor noted the procedure may be performed under any one of the following three clinical scenarios (1) unilateral, standalone cases: a patient has one hip treated in a scheduled procedure, (2) bilateral, standalone cases: a patient has both hips treated in a scheduled procedure, or (3) concomitant to an index hip fragility fracture in the unfractured, contralateral hip: a patient has their index hip fracture repaired and then the procedure utilizing the LOEP kit is performed to treat the unfractured, contralateral hip during the same operative session. Therefore, the requestor stated that this procedure should be recognized as an O.R. procedure for purposes of MS-DRG assignment. We agree with the requestor that in the ICD-10 MS-DRGs Definitions Manual Version 43.1, procedure code XW0V3WA is designated as a non-O.R. procedure for purposes of MS-DRG assignment; therefore, when the introduction of AGN1 bone void filler is reported with a procedure code that describes a surgical procedure, the ICD-10-PCS code describing the surgical procedure will determine the surgical MS-DRG assignment based on the principal diagnosis reported. We reviewed this issue and note a proposal to create a procedure code that describes the percutaneous introduction of AGN1 bone void filler into bones was presented and discussed at the September 12-13, 2023 ICD-10 Coordination and Maintenance Committee meeting and subsequently finalized. For new procedure codes that have been finalized through the ICD-10 Coordination and Maintenance Committee code update process, we recommend the O.R. designation, which is generally based on the assignment of predecessor codes or the assignment of similar codes. Consistent with our annual process of assigning new procedure codes to MDCs and MS-DRGs and designating a procedure as an O.R. or non-O.R. procedure, we reviewed the predecessor procedure code assignment. The predecessor code for procedure code XW0V3WA is procedure code 3E0V3GC (Introduction of other therapeutic substance into bones, percutaneous approach) which is designated as a non-O.R. procedure. To evaluate the frequency with which procedure code XW0V3WA is reported for different clinical scenarios, we examined claims data from the September 2025 update of the FY 2025 MedPAR file to determine the MS-DRGs reporting procedure code XW0V3WA. Our findings are shown in the following table. [GRAPHIC] [TIFF OMITTED] TP14AP26.050 [[Page 19368]] There were four cases reporting the percutaneous introduction of AGN1 bone void filler into bones with procedure code XW0V3WA. Overall, the data indicate that the percutaneous introduction of AGN1 bone void filler into bones was not the underlying reason for, or main driver of, resource utilization for those cases. As shown in the table, when the procedure code XW0V3WA is reported, the MS-DRGs assigned are classified as surgical MS-DRGs which indicates that at least one procedure code designated as an O.R. procedure was also reported in these cases. We refer the reader to the ICD-10 MS-DRG Version 43.1 Definitions Manual (which is available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software) for complete documentation of the GROUPER logic for the listed MS-DRGs. After reviewing the claims data, we believe it is premature to consider a proposal to change the designation of the procedure code that describes the percutaneous introduction of AGN1 bone void filler into bones. While the September 2025 update of the FY 2025 MedPAR file does contain claims reporting the percutaneous introduction of AGN1 bone void filler into bones, the number of cases is small across the MS-DRGs. Additionally, as stated previously, when the procedure code XW0V3WA is reported, the MS-DRGs assigned are classified as surgical MS-DRGs, which indicates that at least one procedure code designated as an O.R. procedure was also reported in these cases. We do not have claims data to further examine the impact of the percutaneous introduction of AGN1 bone void filler into bones when performed as a standalone procedure. The claims data also reflect a wide variance with regard to the average costs and average lengths of stay for the cases reporting the percutaneous introduction of AGN1 bone void filler into bones. As such, we disagree with designating the procedure code that describes the percutaneous introduction of AGN1 bone void filler into bones as an O.R. procedure for FY 2027. As noted previously, the Local Osteo-Enhancement Procedure (LOEP) is an investigational surgical procedure. In the absence of additional data, we believe that more time is needed to consider the clinical characteristics and resource utilization associated with this procedure before considering changing the designation of the procedure code to an O.R. procedure. In future years, we expect we will have additional data that could be used to evaluate the O.R. designation of procedure code XW0V3WA. Therefore, for the reasons discussed, we are proposing to maintain the designation of procedure code XW0V3WA as non-O.R. for FY 2027. 12. Proposed Changes to the MS-DRG Diagnosis Codes for FY 2027 a. Background of the CC List and the CC Exclusions List Under the IPPS MS-DRG classification system, we have developed a standard list of diagnoses that are considered CCs. Historically, we developed this list using physician panels that classified each diagnosis code based on whether the diagnosis, when present as a secondary condition, would be considered a substantial complication or comorbidity. A substantial complication or comorbidity was defined as a condition that, because of its presence with a specific principal diagnosis, would cause an increase in the length-of-stay by at least 1 day in at least 75 percent of the patients. However, depending on the principal diagnosis of the patient, some diagnoses on the basic list of complications and comorbidities may be excluded if they are closely related to the principal diagnosis. In FY 2008, we evaluated each diagnosis code to determine its impact on resource use and to determine the most appropriate CC subclassification (NonCC, CC, or MCC) assignment. We refer readers to sections II.D.2. and 3. of the preamble of the FY 2008 IPPS final rule with comment period for a discussion of the refinement of CCs in relation to the MS DRGs we adopted for FY 2008 (72 FR 47152 through 47171). b. Overview of Comprehensive CC/MCC Analysis In the FY 2008 IPPS/LTCH PPS final rule (72 FR 47159), we described our process for establishing three different levels of CC severity into which we would subdivide the diagnosis codes. The categorization of diagnoses as an MCC, a CC, or a NonCC was accomplished using an iterative approach in which each diagnosis was evaluated to determine the extent to which its presence as a secondary diagnosis resulted in increased hospital resource use. We refer readers to the FY 2008 IPPS/ LTCH PPS final rule (72 FR 47159) for a complete discussion of our approach. Since the comprehensive analysis was completed for FY 2008, we have evaluated diagnosis codes individually when assigning severity levels to new codes and when receiving requests to change the severity level of specific diagnosis codes. We noted in the FY 2020 IPPS/LTCH PPS proposed rule (84 FR 19235 through 19246) that with the transition to ICD-10-CM and the significant changes that have occurred to diagnosis codes since the FY 2008 review, we believed it was necessary to conduct a comprehensive analysis once again. Based on this analysis, we proposed changes to the severity level designations for 1,492 ICD-10-CM diagnosis codes and invited public comments on those proposals. As summarized in the FY 2020 IPPS/LTCH PPS final rule, many commenters expressed concern with the proposed severity level designation changes overall and recommended that CMS conduct further analysis prior to finalizing any proposals. After careful consideration of the public comments we received, as discussed further in the FY 2020 IPPS/LTCH PPS final rule, we generally did not finalize our proposed changes to the severity designations for the ICD-10-CM diagnosis codes, other than the changes to the severity level designations for the diagnosis codes in category Z16 (Resistance to antimicrobial drugs) from a NonCC to a CC. We stated that postponing adoption of the proposed comprehensive changes in the severity level designations would allow further opportunity to provide additional background to the public on the methodology utilized and clinical rationale applied across diagnostic categories to assist the public in its review. We refer readers to the FY 2020 IPPS/LTCH PPS final rule (84 FR 42150 through 42152) for a complete discussion of our response to public comments regarding the proposed severity level designation changes for FY 2020. As discussed in the FY 2021 IPPS/LTCH PPS proposed rule (85 FR 32550), to provide the public with more information on the CC/MCC comprehensive analysis discussed in the FY 2020 IPPS/LTCH PPS proposed and final rules, CMS hosted a listening session on October 8, 2019. The listening session included a review of this methodology utilized to mathematically measure the impact on resource use. We refer readers to https://www.cms.gov/Outreach-and-Education/Outreach/OpenDoorForums/Downloads/10082019ListingSessionTrasncriptandQandAsandAudioFile.zip for the transcript and audio file of the listening session. We also refer readers to https://www.cms.gov/Medicare/MedicareFee-for-Service- Payment/AcuteInpatientPPS/MS-DRG- [[Page 19369]] Classifications-and-Software.html for the supplementary file containing the mathematical data generated using claims from the FY 2018 MedPAR file describing the impact on resource use of specific ICD-10-CM diagnosis codes when reported as a secondary diagnosis that was made available for the listening session. In the FY 2021 IPPS/LTCH PPS final rule (85 FR 58550 through 58554), we discussed our plan to continue a comprehensive CC/MCC analysis, using a combination of mathematical analysis of claims data as discussed in the FY 2020 IPPS/LTCH PPS proposed rule (84 FR 19235) and the application of nine guiding principles and plan to present the findings and proposals in future rulemaking. The nine guiding principles are as follows: Represents end of life/near death or has reached an advanced stage associated with systemic physiologic decompensation and debility. Denotes organ system instability or failure. Involves a chronic illness with susceptibility to exacerbations or abrupt decline. Serves as a marker for advanced disease states across multiple different comorbid conditions. Reflects systemic impact. Post-operative/post-procedure condition/complication impacting recovery. Typically requires higher level of care (that is, intensive monitoring, greater number of caregivers, additional testing, intensive care unit care, extended length of stay). Impedes patient cooperation or management of care or both. Recent (last 10 years) change in best practice, or in practice guidelines and review of the extent to which these changes have led to concomitant changes in expected resource use. We refer readers to the FY 2021 IPPS/LTCH PPS final rule for a complete summation of the comments we received for each of the nine guiding principles and our responses to those comments. In the FY 2022 IPPS/LTCH PPS proposed rule (86 FR 25175 through 25180), as another interval step in our comprehensive review of the severity designations of ICD-10-CM diagnosis codes, we requested public comments on a potential change to the severity level designations for ``unspecified'' ICD-10-CM diagnosis codes that we were considering adopting for FY 2022. Specifically, we noted we were considering changing the severity level designation of ``unspecified'' diagnosis codes to a NonCC where there are other codes available in that code subcategory that further specify the anatomic site. As summarized in the FY 2022 IPPS/LTCH PPS final rule, many commenters expressed concern with the potential severity level designation changes overall and recommended that CMS delay any possible change to the designation of these codes to give hospitals and their physicians time to prepare. After careful consideration of the public comments we received, we maintained the severity level designation of the ``unspecified'' diagnosis codes currently designated as a CC or MCC where there are other codes available in that code subcategory that further specify the anatomic site for FY 2022. We refer readers to the FY 2022 IPPS/LTCH PPS final rule (86 FR 44916 through 44926) for a complete discussion of our response to public comments regarding the potential severity level designation changes. Instead, for FY 2022, we finalized a new MCE code edit for ``unspecified'' codes, effective with discharges on and after April 1, 2022. We stated we believe finalizing this new edit would provide additional time for providers to be educated while not affecting the payment the provider is eligible to receive. We refer the reader to section II.D.14.e. of the preamble of the FY 2022 IPPS/LTCH PPS final rule (86 FR 44940 through 44943) for the complete discussion. As discussed in the FY 2023 IPPS/LTCH PPS final rule (87 FR 48866), we stated that as the new unspecified edit became effective beginning with discharges on and after April 1, 2022, we believed it was appropriate to not propose to change the designation of any ICD-10-CM diagnosis codes, including the unspecified codes that are subject to the ``Unspecified Code'' edit, as we continue our comprehensive CC/MCC analysis to allow interested parties the time needed to become acclimated to the new edit. In the FY 2023 IPPS/LTCH proposed rule (87 FR 28177 through 28181), we also requested public comments on how the reporting of diagnosis codes in categories Z55-Z65 might improve our ability to recognize severity of illness, complexity of illness, and/or utilization of resources under the MS-DRGs. We stated we were also interested in receiving feedback on how we might otherwise foster the documentation and reporting of the diagnosis codes describing social and economic circumstances to more accurately reflect each health care encounter and improve the reliability and validity of the coded data. In the FY 2024 IPPS/LTCH PPS final rule (88 FR 58755 through 58759), based on our analysis of the impact on resource use for the ICD-10-CM Z codes that describe homelessness and after consideration of public comments, we finalized changes to the severity levels for diagnosis codes Z59.00 (Homelessness, unspecified), Z59.01 (Sheltered homelessness), and Z59.02 (Unsheltered homelessness), from NonCC to CC. In the FY 2025 proposed rule (89 FR 35995), we noted that since the FY 2021 IPPS/LTCH PPS final rule we have continued to solicit feedback regarding the nine guiding principles, as well as other possible ways we can incorporate meaningful indicators of clinical severity. We stated we had encouraged the public to provide a detailed explanation of how applying a suggested concept or principle would ensure that the severity designation appropriately reflects resource use for any diagnosis code when providing feedback or comments. We also noted in the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26748 through 26750) we illustrated how the nine guiding principles might be applied in evaluating changes to the severity designations of diagnosis codes in our discussion of our proposed changes to the severity level designation for certain diagnosis codes that describe homelessness. After consideration of the ongoing feedback and comments we had received, we proposed to finalize the nine guiding principles. After consideration of the public comments received, and for the reasons discussed, we finalized the nine guiding principles as listed previously in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69076 through 69078). Accordingly, we stated that our evaluations to determine the extent to which the presence of a diagnosis code as a secondary diagnosis results in increased hospital resource use will include a combination of mathematical analysis of claims data as discussed in the FY 2020 IPPS/LTCH PPS proposed rule (84 FR 19235) and the application of the nine guiding principles. Additionally, in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69079 through 69084), based on our analysis of the impact on resource use for the ICD-10-CM diagnosis codes that describe inadequate housing and housing instability, and after consideration of public comments, we finalized changes to the severity levels for seven diagnosis codes for FY 2025. We refer the reader to the following section of this proposed rule for our proposed changes to the severity level designation for the [[Page 19370]] diagnosis codes that describe homelessness, inadequate housing and housing instability for FY 2027. We have updated the Impact on Resource Use Files on the CMS website so that the public can review the mathematical data for the impact on resource use generated using claims from the FY 2019 through the FY 2025 MedPAR files. These files are posted on the CMS website at https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software. For new diagnosis codes approved for FY 2027, consistent with our annual process for designating a severity level (MCC, CC, or NonCC) for new diagnosis codes, we first review the predecessor code designation, followed by review and consideration of other factors that may be relevant to the severity level designation, including the severity of illness, treatment difficulty, complexity of service and the resources utilized in the diagnosis or treatment of the condition. We note that this process does not automatically result in the new diagnosis code having the same designation as the predecessor code. We refer the reader to section II.C.13 of the preamble of this FY 2027 IPPS/LTCH PPS proposed rule for the discussion of the proposed changes to the ICD-10- CM and ICD-10-PCS coding systems for FY 2027. c. Proposed Changes to Severity Levels

1. SDOH--Homelessness, Inadequate Housing, and Housing Instability

As discussed earlier in this section, in the FY 2024 IPPS/LTCH PPS final rule (88 FR 58755 through 58759), we finalized changes to the severity levels for diagnosis codes Z59.00 (Homelessness, unspecified), Z59.01 (Sheltered homelessness), and Z59.02 (Unsheltered homelessness), from NonCC to CC. In the FY 2025 IPPS/LTCH PPS final rule (89 FR 69079 through 69084), we finalized changes to the severity levels for seven diagnosis codes that describe inadequate housing and housing instability from NonCC to CC. We stated CMS would further examine the claims data and consider future changes to the designation of the SDOH Z codes when reported as a secondary diagnosis. We further stated CMS would continue to monitor and evaluate the reporting of the diagnosis codes describing social and economic circumstances. In continuation of our examination of the SDOH Z codes, for this FY 2027 IPPS/LTCH PPS proposed rule, we reviewed the mathematical data on the impact on resource use for the ICD-10-CM Z codes that describe homelessness, inadequate housing, and housing instability. The following table reflects the impact on resource use data generated using claims from the September 2025 update of the FY 2025 MedPAR file. We refer readers to the FY 2008 IPPS/LTCH PPS final rule (72 FR 47159) for a complete discussion of our historical approach to mathematically evaluate the extent to which the presence of an ICD-10-CM code as a secondary diagnosis resulted in increased hospital resource use, and a more detailed explanation of the columns in the table. [GRAPHIC] [TIFF OMITTED] TP14AP26.051 We reviewed the findings from these data. As reflected in the table, the C1 findings ranged from a low of 1.02 to a high of 2.03. A value close to 2.0 in the C1 field suggests that the condition is more like a CC than a non-CC but not as significant in resource usage as an MCC. Because the C1 values in the table are generally close to 2, the mathematical data suggest that when these SDOH Z codes are reported as a secondary diagnosis increased resources are involved in caring for patients experiencing these circumstances, however we note that these SDOH Z codes describe social circumstances and not medical conditions or illnesses. As previously noted, in the FY 2008 IPPS/LTCH PPS final rule (72 FR 47159), we described our process for establishing three different levels of CC severity into which we would subdivide the diagnosis codes. The categorization [[Page 19371]] of diagnoses as an MCC, a CC, or a NonCC was accomplished using an iterative approach in which each diagnosis was evaluated to determine the extent to which its presence as a secondary diagnosis resulted in increased hospital resource use. We noted in the FY 2008 IPPS/LTCH PPS final rule that as a result of the changes that had occurred during the years since the implementation of the IPPS, the CC list as defined at the time had lost much of its capacity to discriminate hospital resource use. The need for a revised CC list prompted a reexamination of the secondary diagnoses that qualify as a CC. Therefore, our efforts to better recognize severity of illness began with a comprehensive review of the CC list. Our intent was to better distinguish cases that are likely to result in increased hospital resource use based on secondary diagnoses. We stated in the FY 2008 IPPS/LTCH PPS final rule (72 FR 47153) that certain diagnoses, such as chronic illness diagnoses, do not cause a significant increase in hospital resource use unless there is an acute exacerbation present or there is a significant deterioration in the underlying chronic condition. Therefore, in the revised CC list, we removed chronic diseases without a significant acute manifestation. We stated that recognition of the impact of the chronic disease is accomplished by separately coding the acute manifestation. In our further examination of the claims data and the current designation of the ICD-10-CM Z codes that describe homelessness, inadequate housing, and housing instability when reported as a secondary diagnosis, we now believe that similar to our analysis of the chronic illness diagnoses, change of designation from NonCC to CC should be based on the expected resource use associated with the treatment of an underlying medical condition or illness rather than social circumstances. Specifically, we believe that recognition of the contribution that patient social and economic circumstances, such as homelessness, inadequate housing, and housing instability, add to the complexity of acute hospital care should be accomplished by separately coding those diagnoses that describe an acute exacerbation or deterioration of an underlying medical condition or illness, similar to the approach we undertook in categorizing chronic illness diagnoses as stated in the FY 2008 IPPS/LTCH PPS final rule. While we continue to include a mathematical analysis of claims data in evaluating the extent to which the presence of a diagnosis code as a secondary diagnosis results in increased hospital resource use, as previously described, we believe that in the context of the ICD-10-CM Z codes that describe social circumstances, it is more appropriate to align our analysis with our intent as stated in the FY 2008 IPPS/LTCH PPS final rule with respect to chronic illness diagnoses (that is, recognition of the contribution to the complexity of hospital care would be accomplished by separately coding those diseases on the CC list that are associated with an acute exacerbation or deterioration of the underlying medical condition or illness (72 FR 47154)). Accordingly, we believe that categorization of a diagnosis code as an MCC, a CC, or a NonCC should recognize the clinical complexity and expected resource consumption for the treatment of an underlying medical condition or illness, and not social circumstances. Therefore, we are proposing to change the severity level designation of diagnosis codes Z59.00 (Homelessness, unspecified), Z59.01 (Sheltered homelessness), Z59.02 (Unsheltered homelessness), Z59.10 (Inadequate housing, unspecified), Z59.11 (Inadequate housing environmental temperature), Z59.12 (Inadequate housing utilities), Z59.19 (Other inadequate housing), Z59.811 (Housing instability, housed, with risk of homelessness), Z59.812 (Housing instability, housed, homelessness in past 12 months) and Z59.819 (Housing instability, housed unspecified) from CC to NonCC for FY 2027.

2. Newborn Affected by Malpresentation Before Labor

For this FY 2027 IPPS/LTCH PPS proposed rule, we received a request to change the severity level designations of the ICD-10-CM diagnosis codes P01.7 (Newborn affected by malpresentation before labor) and P03.0 (Newborn affected by breech delivery and extraction) from NonCC to CC. The requestor did not provide additional rationale for this request. To evaluate this request, we analyzed the claims data in the September 2025 update of the FY 2025 MedPAR file. The following table shows the analysis for each of the diagnosis codes identified by the requestor. BILLING CODE 4120-01-P [GRAPHIC] [TIFF OMITTED] TP14AP26.052 As reflected in the table, we found zero instances where diagnosis codes P01.7 or P03.0 were reported as secondary diagnoses. In considering the nine guiding principles, as summarized previously, we note that fetal malpresentation is any position of the fetus at birth where the head is not the presenting part. Common types include breech (bottom/feet first), transverse (sideways), or oblique lie. While normal in early pregnancy, most babies turn; however, if still malpresenting at term, management often involves external cephalic version (ECV) to turn the baby or a planned C-section due to risks like cord prolapse during vaginal delivery. A higher level of care for the mother (that is, intensive monitoring, greater number of caregivers, additional testing, intensive care unit care, extended length [[Page 19372]] of stay) may be warranted depending on the treatment or management of the fetal malpresentation pursued by the attending provider. Based on the lack of claims data to evaluate to consider a severity level change, we believe that the ICD-10-CM diagnosis codes P01.7 and P03.0 should remain designated as NonCCs. Therefore, we are proposing to maintain the severity level designation of codes P01.7 and P03.0 as NonCCs for FY 2027. We will continue to monitor the claims data in consideration of any future modifications to the severity level designation of diagnosis codes P01.7 and P03.0.

3. Functional Quadriplegia

For this FY 2027 IPPS/LTCH PPS proposed rule, we received a request to change the severity level designation of ICD-10-CM diagnosis code R53.2 (Functional quadriplegia) from MCC to NonCC. According to the requestor, code R53.2 describes patients who are unable to move any of their extremities, not because of a spinal cord or focal brain dysfunction, but because of global dysfunction such as severe dementia or contractures. The requestor further stated that the definition of functional quadriplegia does not exist in medical literature; therefore, the vagueness of the condition described by code R53.2 leads to the code being overused. The requestor also questioned whether an immobile patient during an inpatient stay utilizes more resources than other patients with very limited mobility. We agree that that diagnosis code R53.2 (Functional quadriplegia) is currently designated as an MCC. We refer the reader to Appendix H of the ICD-10 MS-DRG Version 43.1 Definitions Manual (available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software) for the complete list of diagnoses designated as MCCs when reported as secondary diagnoses, except when used in conjunction with the principal diagnosis in the corresponding CC Exclusion List in Appendix C. To evaluate this request, we analyzed the claims data in the September 2025 update of the FY 2025 MedPAR file. The following table shows the analysis for diagnosis code R53.2. [GRAPHIC] [TIFF OMITTED] TP14AP26.053 BILLING CODE 4120-01-C We analyzed these data as described in FY 2008 IPPS final rule (72 FR 47158 through 47161). The table shows that the C1 values of the diagnosis code that describes causally functional quadriplegia is 2.05. A C1 value close to 2.0 suggests the condition is more like a CC than a non-CC but not as significant in resource usage as an MCC. The C2 finding of diagnosis code R53.2 is 2.58. C2 values close to 3.0 suggests the condition is more similar to an MCC than a CC or non-CC. The C2 findings support maintaining the code R53.2 as an MCC. The data are clearly mixed between the C1 and C2 findings and does not consistently support a change in the severity level. In considering the nine guiding principles, as summarized previously, we note that functional quadriplegia is the inability to move due to another condition (e.g., dementia, severe contractures, arthritis, etc.). It is a diagnosis that can impede patient cooperation or management of care or both. Patients diagnosed with functional quadriplegia can require a higher level of care by needing intensive monitoring, and a greater number of caregivers as the patient does not have the ability to ambulate. After considering the C1, and C2 values of ICD-10-CM diagnosis code R53.2, the lack of consistent claims data to support a severity level change, and consideration of the nine guiding principles, we believe R53.2 should remain designated as an MCC. Therefore, we are proposing to maintain the severity level designation of ICD-10-CM diagnosis code R53.2 as an MCC for FY 2027.

4. Malnutrition

For this FY 2027 IPPS/LTCH PPS proposed rule, we received a request to change the severity level designation of the following diagnosis codes from MCC to NonCC: E40 (Kwashiorkor) E41 (Nutritional marasmus) E42 (Marasmic kwashiorkor) E43 (Unspecified severe protein-calorie malnutrition) According to the requestor, the criteria for the ICD-10-CM diagnosis codes that describe malnutrition are vague. The requestor stated that nutritional assessment is the standard of care for all hospital admissions, and the short-term weight loss that often occurs in the hospital as a result of keeping patients with an empty stomach (i.e., nothing by mouth) for other interventions does not signal real malnutrition requiring intensive treatment. In circumstances when treatment is initiated, for example increasing the intake of calories or protein, the treatment adds little or no additional costs to overall resource utilization for the encounter. We agree that diagnosis codes E40, E41, E42, and E43 are currently designated as MCCs. We refer the reader to Appendix H of the ICD-10 MS- DRG Version 43.1 Definitions Manual (available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software) for the complete list of diagnoses designated as MCCs when reported as secondary diagnoses, except when used in conjunction with the principal diagnosis in the corresponding CC Exclusion List in Appendix C. To evaluate this request, we analyzed the claims data in the September 2025 update of the FY 2025 MedPAR file. The following table shows the analysis for [[Page 19373]] each of the diagnosis codes identified by the requestor. [GRAPHIC] [TIFF OMITTED] TP14AP26.054 We analyzed these data as described in FY 2008 IPPS final rule (72 FR 47158 through 47161). The table above shows that the C1 findings ranged from a low of 0.73 to a high of 2.07. As stated earlier, a C1 value close to 2.0 suggests the condition is more like a CC than a non- CC but not as significant in resource usage as an MCC. The C1 findings suggest that these codes are more like a CC than an MCC. However, the C2 findings ranged from a low of 2.38 to a high of 3.21. Values close to 3.0 suggests the conditions are more similar to an MCC than a CC or non-CC. The C2 findings support maintaining the malnutrition codes identified by the requestor as MCCs. The data are clearly mixed between the C1 and C2 findings and does not consistently support a change in the severity level. In considering the nine guiding principles, as summarized previously, we note that the World Health Organization (WHO) defines malnutrition as ``deficiencies, excesses or imbalances in a person's intake of energy and/or nutrients.'' Protein-calorie malnutrition is observed most frequently in developing countries but has been described with increasing frequency in hospitalized and chronically ill children in the United States. The distinction between the two forms of protein- calorie malnutrition is based on the presence of edema (kwashiorkor) or absence of edema (marasmus). Marasmus involves inadequate intake of protein and calories, whereas kwashiorkor involves fair-to-normal calorie intake with inadequate protein intake. In developed countries such as the United States, inadequate food intake is a less common cause of malnutrition. Instead, diseases and, in particular, chronic illnesses play an important role in the etiology of malnutrition. As such, the conditions described by the ICD-10-CM diagnosis codes identified by the requestor reflect systemic impact and serve as a marker for advanced disease states across multiple different comorbid conditions. After considering the C1, and C2 values of ICD-10-CM diagnosis codes E40, E41, E42, and E43, the lack of consistent claims data to support a severity level change, and consideration of the nine guiding principles, we believe E40, E41, E42, and E43 should remain designated as MCCs. Therefore, we are proposing to maintain the severity level designation of ICD-10-CM diagnosis codes E40, E41, E42, and E43 as MCCs for FY 2027.

5. Prolonged First Stage (of Labor)

For this FY 2027 IPPS/LTCH PPS proposed rule, we received a request to change the severity level designation of ICD-10-CM diagnosis code O63.0 (Prolonged first stage (of labor)) from NonCC to CC. According to the requestor, prolonged labor increases length of stay by up to two days and significantly increases resources required to care for these patients. The requestor performed their own analysis of the Impact on Resource Use File on the CMS website generated using claims from the FY 2024 MedPAR file and found that when reported as a secondary diagnosis, O63.0 had a C1 value higher than 2, and C2 and C3 values of at least close to 2, which suggests the code should be designated as a CC. Additionally, in their own analysis of the Impact on Resource Use File on the CMS website generated using claims from the FY 2024 MedPAR file, the requestor found that, in comparison, when reported as a secondary diagnosis, ICD-10-CM diagnosis code O63.9 (Long labor, unspecified), which is designated as a CC, had a C1 value of only 0.88. The requestor also performed an analysis of claims at their healthcare facility to identify cases where prolonged labor in either the latent phase or second phase likely occurred and found that the C1 value was approximately 1.35 for diagnosis code O63.0. The requestor did not state if the analysis of cases at their facility was limited to Medicare cases. We agree that that diagnosis code O63.0 (Prolonged first stage (of labor)) is currently designated as a NonCC and diagnosis code O63.9 (Long labor, unspecified) is currently designated as a CC. We refer the reader to Appendix G of the ICD-10 MS-DRG Version 43.1 Definitions Manual (available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software) for the complete list of diagnoses designated as CCs when reported as secondary diagnoses, except when used in conjunction with the principal diagnosis in the corresponding CC Exclusion List in Appendix C. To evaluate this request, we analyzed the claims data in the September 2025 update of the FY 2025 MedPAR file. The following table shows the analysis for diagnosis codes O63.0 and O63.9. [[Page 19374]] [GRAPHIC] [TIFF OMITTED] TP14AP26.055 We analyzed these data as described in the FY 2008 IPPS final rule (72 FR 47158 through 47161). The table shows that the C1 value of the diagnosis code that describes prolonged first stage of labor is 2.14. As stated earlier, a C1 value close to 2.0 suggests the condition is more like a CC than a non-CC but not as significant in resource usage as an MCC. The C2 finding of diagnosis code O63.0 is 3.54. C2 values close to 3.0 suggests the condition is more similar to an MCC than a CC or non-CC. The C1 and C2 findings reflect increased resource utilization when prolonged labor is reported as a secondary diagnosis however the data are clearly mixed between the C1 and C2 findings, and there was a low volume of cases (17) reporting this code as a secondary diagnosis. The table also shows there were zero cases that reported diagnosis code O63.9 with no other secondary diagnosis or with all other secondary diagnoses that are non-CCs. The C2 finding of diagnosis code O63.9 is 1.54. C2 values close to 2.0 suggest the condition is more similar to a CC than a non-CC. The C2 findings support maintaining diagnosis code O63.9 as a CC. Similar to diagnosis code O63.0, there was a low volume of cases (6) reporting this code as a secondary diagnosis. In considering the nine guiding principles, as summarized previously, we note that the first stage of labor is defined as the interval between the onset of labor and complete or 10 cm cervical dilation. Prolonged first stage of labor refers to a slow initial dilation (0-6 cm), or a stalled active phase, lasting over 16-20 hours, whereas ``long labor'' describes the entire birth process exceeding 20- 25 hours. Long labor is monitored closely for risks like infection or fetal distress. While a prolonged first stage is rarely dangerous, a prolonged first stage of labor can sometimes require a higher level of care. Management of prolonged first stage of labor can sometimes involve amniotomy for patients undergoing augmentation or induction of labor to reduce the duration of labor, administration of oxytocin and/ or the use intrauterine pressure catheters to determine adequacy of uterine contractions. If labor fails to progress or fetal distress occurs, a cesarean section or instrumental delivery (forceps/vacuum) may be necessary. After considering the C1, and C2 values of ICD-10-CM diagnosis codes O63.0 and O63.9, the lack of sufficient claims data to support a severity level change, and consideration of the nine guiding principles, we believe diagnosis code O63.0 should remain designated as a NonCC and diagnosis code O63.9 should remain designated as a CC. Therefore, we are proposing to maintain the severity level designations of ICD-10-CM diagnosis codes O63.0 and O63.9 for FY 2027. We will continue to monitor the claims data in consideration of any future modifications to the severity level designation of diagnosis codes O63.0 and O63.9. d. Proposed Additions and Deletions to the Diagnosis Code Severity Levels for FY 2027 The following tables identify the proposed additions to the diagnosis code MCC severity level list and the proposed additions and deletions to the diagnosis code CC severity levels list for FY 2027 and are available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html Table 6I.1--Proposed Additions to the MCC List--FY 2027; Table 6J.1-- Proposed Additions to the CC List--FY 2027; and Table 6J.2-- Proposed Deletions to the CC List--FY 2027 e. Proposed CC Exclusions List for FY 2027 In the September 1, 1987 final notice (52 FR 33143) concerning changes to the DRG classification system, we modified the GROUPER logic so that certain diagnoses included on the standard list of CCs would not be considered valid CCs in combination with a particular principal diagnosis. We created the CC Exclusions List for the following reasons: (1) to preclude coding of CCs for closely related conditions; (2) to preclude duplicative or inconsistent coding from being treated as CCs; and (3) to ensure that cases are appropriately classified between the complicated and uncomplicated DRGs in a pair. In the May 19, 1987 proposed notice (52 FR 18886) and the September 1, 1987 final notice (52 FR 33154), we explained that the excluded secondary diagnoses were established using the following five principles: Chronic and acute manifestations of the same condition should not be considered CCs for one another; Specific and nonspecific (that is, not otherwise specified (NOS)) diagnosis codes for the same condition should not be considered CCs for one another; Codes for the same condition that cannot coexist, such as partial/total, unilateral/bilateral, obstructed/unobstructed, and benign/malignant, should not be considered CCs for one another; Codes for the same condition in anatomically proximal sites should not be considered CCs for one another; and Closely related conditions should not be considered CCs for one another. The creation of the CC Exclusions List was a major project involving hundreds of codes. We have continued to review the remaining CCs to identify additional exclusions and to remove diagnoses from the master list that have been shown not to meet the definition of a CC. We refer readers to the FY 2014 IPPS/LTCH PPS final rule (78 FR 50541 through 50544) for detailed information regarding revisions that were made to the CC and CC Exclusion Lists under the ICD-9-CM MS-DRGs. The ICD-10 MS-DRGs Version 43.1 CC Exclusion List is included as Appendix C in the ICD-10 MS-DRG Definitions Manual (available on the CMS website at: https://www.cms.gov/medicare/payment/prospective- payment-systems/acute-inpatient-pps/ [[Page 19375]] ms-drg-classifications-and-software) and includes three lists identified as Part 1, Part 2 and Part 3. Part 1 is the list of all diagnosis codes that are defined as a CC or MCC when reported as a secondary diagnosis. For all diagnosis codes on the list, a link is provided to a collection of diagnosis codes which, when reported as the principal diagnosis, would cause the CC or MCC diagnosis to be considered as a NonCC. Part 2 is the list of diagnosis codes designated as an MCC only for patients discharged alive; otherwise, they are assigned as a NonCC. Part 3 is the list of diagnosis codes that are designated as a CC or MCC and included in the definition of the logic for the listed MS-DRGs. When reported as a secondary diagnosis and grouped to one of the listed MS-DRGs, the diagnosis is excluded from acting as a CC/MCC for severity in DRG assignment (that is, suppression logic). We are proposing changes to the ICD-10 MS-DRGs Version 44 CC Exclusion List based on the diagnosis code updates as discussed in section II.C.13. of the preamble of this FY 2027 IPPS/LTCH PPS proposed rule. Therefore, we have developed Table 6G.1.--Proposed Secondary Diagnosis Order Additions to the CC Exclusions List--FY 2027; Table 6G.2.--Proposed Principal Diagnosis Order Additions to the CC Exclusions List--FY 2027; Table 6H.1.--Proposed Secondary Diagnosis Order Deletions to the CC Exclusions List--FY 2027; and Table 6H.2.-- Proposed Principal Diagnosis Order Deletions to the CC Exclusions List--FY 2027. For Table 6G.1, each secondary diagnosis code proposed for addition to the CC Exclusion List is shown with an asterisk and the principal diagnoses proposed to exclude the secondary diagnosis code are provided in the indented column immediately following it. For Table 6G.2, each of the principal diagnosis codes for which there is a CC exclusion is shown with an asterisk and the conditions proposed for addition to the CC Exclusion List that will not count as a CC are provided in an indented column immediately following the affected principal diagnosis. For Table 6H.1, each secondary diagnosis code proposed for deletion from the CC Exclusion List is shown with an asterisk followed by the principal diagnosis codes that currently exclude it. For Table 6H.2, each of the principal diagnosis codes is shown with an asterisk and the proposed deletions to the CC Exclusions List are provided in an indented column immediately following the affected principal diagnosis. Tables 6G.1., 6G.2., 6H.1., and 6H.2. associated with this FY 2027 IPPS/LTCH PPS proposed rule are available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html. 13. Proposed Changes to the ICD-10-CM and ICD-10-PCS Coding Systems To identify new, revised, and deleted diagnosis and procedure codes, for FY 2027, we have developed Table 6A.-New Diagnosis Codes, Table 6B.-New Procedure Codes, Table 6C.-Invalid Diagnosis Codes, Table 6D.-Invalid Procedure Codes, and Table 6E.-Revised Diagnosis Code Titles for this FY 2027 IPPS/LTCH PPS proposed rule. These tables are not published in the Addendum to this FY 2027 IPPS/LTCH PPS proposed rule, but are available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html as described in section VI. of the Addendum to this FY 2027 IPPS/LTCH PPS proposed rule. As discussed in section II.C.11. of the preamble of this FY 2027 IPPS/LTCH PPS proposed rule, the code titles are adopted as part of the ICD-10 Coordination and Maintenance Committee meeting process. Therefore, although we publish the code titles in the IPPS proposed and final rules, they are not subject to comment in the proposed or final rules. We are proposing the MDC and MS-DRG assignments for the new diagnosis codes and procedure codes as set forth in Table 6A.-New Diagnosis Codes and Table 6B.-New Procedure Codes. In addition, the proposed severity level designations for the new diagnosis codes are set forth in Table 6A. and the proposed O.R. status for the new procedure codes are set forth in Table 6B. Consistent with our established process, we examined the MS-DRG assignment and the attributes (severity level and O.R. status) of the predecessor diagnosis or procedure code, as applicable, to inform our proposed assignments and designations. Specifically, we review the predecessor code and MS-DRG assignment most closely associated with the new diagnosis or procedure code, and in the absence of claims data, we consider other factors that may be relevant to the MS-DRG assignment, including the severity of illness, treatment difficulty, complexity of service and the resources utilized in the diagnosis and/or treatment of the condition. We note that this process does not automatically result in the new diagnosis or procedure code being proposed for assignment to the same MS-DRG or to have the same designation as the predecessor code. We are making available on the CMS website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html the following tables associated with this FY 2027 IPPS/LTCH PPS proposed rule: Table 6A.--New Diagnosis Codes-FY 2027; Table 6B.--New Procedure Codes-FY 2027; Table 6C.--Invalid Diagnosis Codes-FY 2027; Table 6D.--Invalid Procedure Codes-FY 2027; Table 6E.--Revised Diagnosis Code Titles-FY 2027; Table 6G.1.--Proposed Secondary Diagnosis Order Additions to the CC Exclusions List-FY 2027; Table 6G.2.--Proposed Principal Diagnosis Order Additions to the CC Exclusions List-FY 2027; Table 6H.1.--Proposed Secondary Diagnosis Order Deletions to the CC Exclusions List-FY 2027; Table 6H.2.--Proposed Principal Diagnosis Order Deletions to the CC Exclusions List--FY 2027; Table 6I.1.--Proposed Additions to the MCC List-FY 2027; Table 6J.1.--Proposed Additions to the CC List-FY 2027; and Table 6J.2.--Proposed Deletions to the CC List-FY 2027. 14. Proposed Changes to the Surgical Hierarchies Some inpatient stays entail multiple surgical procedures, each one of which, occurring by itself, could result in assignment of the case to a different MS-DRG within the MDC to which the principal diagnosis is assigned. Therefore, it is necessary to have a decision rule within the GROUPER by which cases with multiple surgical procedures are assigned to a single MS-DRG. The surgical hierarchy, an ordering of surgical classes from most resource-intensive to least resource- intensive, performs that function. Application of this hierarchy ensures that cases involving multiple surgical procedures are assigned to the MS-DRG associated with the most resource-intensive surgical class. A surgical class can be composed of one or more MS-DRGs. For example, in MDC 11, the surgical class ``kidney transplant'' consists of a single MS-DRG (MS-DRG 652) and the class ``major bladder procedures'' consists of three MS-DRGs (MS-DRGs 653, 654, and 655). Consequently, in many cases, the surgical hierarchy has an impact on more than one MS-DRG. The [[Page 19376]] methodology for determining the most resource-intensive surgical class involves weighting the average resources for each MS-DRG by frequency to determine the weighted average resources for each surgical class. For example, assume surgical class A includes MS-DRGs 001 and 002 and surgical class B includes MS-DRGs 003, 004, and 005. Assume also that the average costs of MS-DRG 001 are higher than that of MS-DRG 003, but the average costs of MS-DRGs 004 and 005 are higher than the average costs of MS-DRG 002. To determine whether surgical class A should be higher or lower than surgical class B in the surgical hierarchy, we would weigh the average costs of each MS-DRG in the class by frequency (that is, by the number of cases in the MS-DRG) to determine average resource consumption for the surgical class. The surgical classes would then be ordered from the class with the highest average resource utilization to that with the lowest, with the exception of ``other O.R. procedures'' as discussed in this FY 2027 IPPS/LTCH PPS proposed rule. This methodology may occasionally result in assignment of a case involving multiple procedures to the lower-weighted MS-DRG (in the highest, most resource-intensive surgical class) of the available alternatives. However, given that the logic underlying the surgical hierarchy provides that the GROUPER search for the procedure in the most resource-intensive surgical class, in cases involving multiple procedures, this result is sometimes unavoidable. We note that, notwithstanding the foregoing discussion, there are a few instances when a surgical class with a lower average cost is ordered above a surgical class with a higher average cost. For example, the ``other O.R. procedures'' surgical class is uniformly ordered last in the surgical hierarchy of each MDC in which it occurs, regardless of the fact that the average costs for the MS-DRG or MS-DRGs in that surgical class may be higher than those for other surgical classes in the MDC. The ``other O.R. procedures'' class is a group of procedures that are only infrequently related to the diagnoses in the MDC but are still occasionally performed on patients with cases assigned to the MDC with these diagnoses. Therefore, assignment to these surgical classes should only occur if no other surgical class more closely related to the diagnoses in the MDC is appropriate. A second example occurs when the difference between the average costs for two surgical classes is very small. We have found that small differences generally do not warrant reordering of the hierarchy because, as a result of reassigning cases on the basis of the hierarchy change, the average costs are likely to shift, such that the higher- ordered surgical class has lower average costs than the class ordered below it. Based on the changes that we are proposing to make for FY 2027, as discussed in section II.C. of the preamble of this FY 2027 IPPS/LTCH PPS proposed rule, our proposal for Appendix D MS-DRG Surgical Hierarchy by MDC and MS-DRG of the proposed ICD-10 MS-DRG Definitions Manual Version 44 to modify the existing surgical hierarchy in the Pre- MDC, MDC 05, MDC 08, MDC 10, MDC 11, MDC 12, and MDC 13 MS-DRGs for FY 2027 is illustrated in the following tables. We note that because the current methodology involves weighing the average costs of each MS-DRG in the surgical class by frequency (that is, by the number of cases in the MS-DRG) to determine average resource consumption for the surgical class, that the surgical hierarchy of other MS-DRGs in the MDC may need to be adjusted based on the MS-DRG classification changes that are proposed to ensure that the average weighted cost for each base MS-DRG in each MDC are monotonically decreasing. We further note that the proposed Version 44 surgical hierarchy as illustrated in the following tables may be subject to further modifications based on the finalized changes to the MS-DRG classifications for FY 2027. BILLING CODE 4120-01-P [GRAPHIC] [TIFF OMITTED] TP14AP26.056 [[Page 19377]] [GRAPHIC] [TIFF OMITTED] TP14AP26.057 [[Page 19378]] [GRAPHIC] [TIFF OMITTED] TP14AP26.058 [[Page 19379]] [GRAPHIC] [TIFF OMITTED] TP14AP26.059 [GRAPHIC] [TIFF OMITTED] TP14AP26.060 [GRAPHIC] [TIFF OMITTED] TP14AP26.061 For issues pertaining to the surgical hierarchy, as with other MS- DRG related requests, we encourage interested parties to submit comments no later than October 20, 2026, via MEARISTM at https://mearis.cms.gov/public/home, so that they can be considered for possible inclusion in the annual proposed rule. 15. Maintenance of the ICD-10-CM and ICD-10-PCS Coding Systems In September 1985, the ICD-9-CM Coordination and Maintenance Committee was formed. This is a Federal interdepartmental committee, co-chaired by the Centers for Disease Control and Prevention's (CDC) National Center for Health Statistics (NCHS) and CMS, charged with maintaining and updating the ICD-9-CM system. The final update to ICD- 9-CM codes was made on October 1, 2013. Thereafter, the name of the Committee was changed to the ICD-10 Coordination and Maintenance Committee, effective with the March 19-20, 2014 meeting. The ICD-10 Coordination and Maintenance Committee addresses updates to the ICD-10- CM and ICD-10-PCS coding systems. The Committee is jointly responsible for approving coding changes, and developing errata, addenda, and other modifications to the coding systems to reflect newly identified diseases and newly [[Page 19380]] developed procedures and technologies. The Committee is also responsible for encouraging the use of Federal and non-Federal educational programs and employing other communication techniques with a view toward standardizing coding applications and upgrading the quality of the classification system. [GRAPHIC] [TIFF OMITTED] TP14AP26.062 [[Page 19381]] [GRAPHIC] [TIFF OMITTED] TP14AP26.063 BILLING CODE 4120-01-C The official list of ICD-9-CM diagnosis and procedure codes by fiscal year can be found on the CMS website at: https://www.cms.gov/medicare/coding-billing/icd-10-codes/icd-9-cm-diagnosis-procedure-codes-abbreviated-and-full-code-titles. The official list of ICD-10-CM and ICD-10-PCS codes can be found on the CMS website at: http://www.cms.gov/Medicare/Coding/ICD10/index.html. The NCHS has lead responsibility for the ICD-10-CM and ICD-9-CM diagnosis codes included in the Tabular [[Page 19382]] List and Alphabetic Index for Diseases, while CMS has lead responsibility for the ICD-10-PCS and ICD-9-CM procedure codes included in the Tabular List and Alphabetic Index for Procedures. The Committee encourages health-related organizations to participate in the previously mentioned process. In this regard, the Committee makes code request materials and proposed coding changes publicly available. These materials provide an opportunity for representatives of recognized organizations in the coding field, such as the American Health Information Management Association (AHIMA), the American Hospital Association (AHA), and various physician specialty groups, as well as individual physicians, health information management professionals, and other members of the public, to contribute ideas on coding matters. Members of the public may submit comments on the proposed procedure code topics to CMS at: [email protected] and may submit comments on the proposed diagnosis code topics to the CDC/NCHS at: [email protected]. After considering the public comments submitted, the Committee formulates recommendations, which then must be approved by CDC/NCHS and CMS. The Committee presented proposals for ICD-10-CM diagnosis code changes for implementation in FY 2027 at the virtual public meetings held on September 9-10, 2025 and finalized the coding changes after consideration of comments received during the meetings and in writing by November 14, 2025. In lieu of CMS holding its Fall 2025 meeting, the Committee solicited comments on the Fall 2025 ICD-10-PCS procedure code topics. The deadline to submit comments on the procedure code proposals considered for an April 1, 2026 implementation was October 10, 2025, and the deadline to submit comments on the procedure code proposals being considered for an October 1, 2026 implementation was November 14, 2025. The Committee presented proposals for ICD-10-CM diagnosis code changes for implementation in FY 2027 and FY 2028 at the virtual public meetings held on March 17-18, 2026 and will finalize the coding changes after consideration of comments received during the meetings and in writing by May 15, 2026. In lieu of CMS holding its Spring 2026 meeting, the Committee solicited comments on the Spring 2026 ICD-10-PCS procedure code topics. The deadline for submitting public comments on these code proposals is April 17, 2026. The Committee will review the public comments submitted and identify whether there is a consensus of support for any new diagnosis and procedure codes. The Committee will also determine those new procedure codes for which complete tabular and indexing changes can be made by June 2026 and will include those in the October 1, 2026 update to the ICD-10-CM diagnosis and ICD-10-PCS procedure code sets. As discussed in earlier sections of the preamble of this FY 2027 IPPS/ LTCH PPS proposed rule, there are new, revised, and deleted ICD-10-CM diagnosis codes and ICD-10-PCS procedure codes that are captured in Table 6A.--New Diagnosis Codes, Table 6B.--New Procedure Codes, Table 6C.--Invalid Diagnosis Codes, Table 6D.--Invalid Procedure Codes, and Table 6E.--Revised Diagnosis Code Titles for this FY 2027 IPPS/LTCH PPS proposed rule, which are available on the CMS website at: https://www.cms.gov/medicare/medicare-fee-for-service-payment/acuteinpatientpps. The code titles are adopted as part of the ICD-10 Coordination and Maintenance Committee process. As previously noted, although we make the code titles available in association with the IPPS proposed rule, they are not subject to comment in the proposed rule. Because of the length of these tables, they are not published in the Addendum to the proposed rule. Rather, they are available on the CMS website as discussed in section VI. of the Addendum to the proposed rule. Recordings and materials for the virtual meeting discussions of the diagnosis codes at the Committee's September 9-10, 2025 meeting can be found at: https://www.cdc.gov/nchs/icd/icd-10-maintenance/meetings.html. Materials for the Fall 2025 ICD-10-PCS procedure code topics can be obtained from the CMS website at: https://www.cms.gov/Medicare/Coding/ICD10/C-and-M-Meeting-Materials. These websites also provide detailed information about the Committee, including information on requesting a new code, participating in a Committee meeting, timeline requirements, submitting comments, and meeting dates. We encourage commenters to submit questions and comments on coding issues involving diagnosis codes to CDC/NCHS via Email to: [email protected]. Questions and comments concerning the procedure codes should be submitted to CMS via Email to: [email protected]. CMS implemented 80 new procedure codes including codes to describe the insertion of cardiac devices, (i.e., leads) into the ventricular septum, codes to enable the differentiation between the endoscopic techniques utilized to drain hepatobiliary and pancreatic fluid collections, and codes to capture the utilization of adjunctive therapies such as microcurrent electrical neuromuscular stimulation (MENS) and frequency-specific microcurrent (FSM) into the ICD-10-PCS classification effective with discharges on and after April 1, 2026. The procedure codes are as follows: BILLING CODE 4120-01-P [[Page 19383]] [GRAPHIC] [TIFF OMITTED] TP14AP26.064 [[Page 19384]] [GRAPHIC] [TIFF OMITTED] TP14AP26.065 [[Page 19385]] [GRAPHIC] [TIFF OMITTED] TP14AP26.066 [[Page 19386]] [GRAPHIC] [TIFF OMITTED] TP14AP26.067 [[Page 19387]] [GRAPHIC] [TIFF OMITTED] TP14AP26.068 [[Page 19388]] [GRAPHIC] [TIFF OMITTED] TP14AP26.069 BILLING CODE 4120-01-C The 80 procedure codes are also reflected in Table 6B.- New Procedure Codes, which is available on the CMS website at: https:// www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/ AcuteInpatientPPS. As with the other new procedure codes and MS-DRG assignments included in Table 6B in association with this FY 2027 IPPS/ LTCH PPS proposed rule, we are inviting public comments on the most appropriate MDC, MS-DRG, and operating room status assignments for these codes for FY 2027, as well as any other options for the GROUPER logic. We note that Change Request (CR) 14337, Transmittal 13562, titled ``April 2026 Update to the Medicare Severity-Diagnosis Related Group (MS-DRG) Grouper and Medicare Code Editor (MCE) Version V43.1'' was issued on December 23, 2025 (available on the CMS website at: https://www.cms.gov/medicare/regulations-guidance/transmittals/2025-transmittals/r13562cp) regarding the release of an updated version of the ICD-10 MS-DRG GROUPER and Medicare Code Editor software, Version V43.1, effective with discharges on and after April 1, 2026, reflecting the new procedure codes. The updated software, along with the updated ICD-10 MS-DRG Version 43.1 Definitions Manual and the Definitions of Medicare Code Edits Version 43.1 manual is available at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software. In the September 7, 2001 Medicare Program: Payments for New Medical Services and New Technologies Under the Acute Care Hospital Inpatient Prospective Payment System final rule implementing the IPPS new technology add-on payments (66 FR 46902), we indicated our intention to include proposals for procedure codes that would describe new technology discussed and approved at the Spring meeting as part of the code revisions effective the following October. Section 503(a) of the Medicare Modernization Act (Pub. L. 108-173) included a requirement for updating diagnosis and procedure codes twice a year instead of a single update on October 1 of each year. This requirement was included as part of the amendments to the Act relating to recognition of new technology under the IPPS. Section 503(a) of Public Law 108-173 amended section 1886(d)(5)(K) of the Act by adding a clause (vii) which states that the Secretary shall provide for the addition of new diagnosis and procedure codes on April 1 of each year, but the addition of such codes shall not require the Secretary to adjust the payment (or diagnosis-related group classification) until the fiscal year that begins after such date. This requirement improves the recognition of new technologies under the IPPS by providing information on these new technologies at an earlier date. Data will be available six months earlier than would be possible with updates occurring only once a year on October 1. In the FY 2005 IPPS final rule, we implemented section 1886(d)(5)(K)(vii) of the Act, as added by section 503(a) of Public Law 108-173, by developing a mechanism for approving, in time for the April update, diagnosis and procedure code revisions needed to describe new technologies and medical services for purposes of the new technology add-on payment process. We also established the following process for making these determinations. Topics considered during the Fall ICD-10 (previously ICD-9-CM) Coordination and Maintenance Committee meeting were considered for an April 1 update if a strong and convincing case was made by the requestor during the Committee's public meeting. The request needed to identify the reason why a new code was needed in April for purposes of the new technology process. Meeting participants and those reviewing the Committee meeting materials were provided with the opportunity to comment on the expedited request. We refer the reader to the FY 2022 IPPS/LTCH PPS final rule (86 FR 44950) for further discussion of the implementation of this prior April 1 update for purposes of the new technology add-on payment process. As discussed in the FY 2022 IPPS/LTCH PPS final rule (86 FR 44950 through 44956), we adopted an April 1 implementation date, in addition to the annual October 1 update, beginning with April 1, 2022. We noted that the intent of this April 1 implementation date was to allow flexibility in the ICD-10 code update process. CMS uses the same process for consideration of all requests for an April 1 implementation date, including for purposes of the new technology add-on payment process (that is, the prior process for consideration of an April 1 implementation date only if a strong and convincing case was made by the requestor during the meeting no longer applies). We implement new codes through the April 1 code update, which includes displaying proposals for April 1 consideration in association with the Fall ICD-10 Coordination and Maintenance Committee code update, requesting public comments, reviewing the public comments, finalizing codes, and announcing the new codes with their assignments consistent with the new GROUPER release information. We note that under our established process, requestors indicate whether they are submitting their code request for consideration for an April 1 implementation date or an October 1 implementation date. The ICD-10 Coordination and Maintenance Committee makes reasonable efforts to accommodate the requested implementation date for each request submitted. However, the Committee ultimately determines which requests are to be presented for consideration for an April 1 implementation date or an October 1 implementation date. The ICD-10 Coordination and Maintenance Committee may not be able to consider all requests received for the next Committee code update and will determine if it would be appropriate to postpone consideration of any code requests to a future update. As discussed earlier in this section of the preamble of this FY 2027 IPPS/ LTCH PPS proposed rule, there were procedure code proposals considered for an April 1, 2026 implementation for the Fall 2025 procedure code update. Following the receipt of public comments, the code proposals were approved and finalized, therefore, new codes were implemented on April 1, 2026. Consistent with the process we outlined for the April 1 implementation date, we announced the new codes in November 2025 and provided the updated code files in December 2025. The NCHS provided the ICD-10-CM [[Page 19389]] Official Guidelines for Coding and Reporting in January 2026. On February 03, 2026, we made available the updated Version 43.1 ICD-10 MS-DRG GROUPER software and related materials on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software. ICD-9-CM addendum and code title information are published on the CMS website at https://www.cms.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/addendum. ICD-10-CM and ICD-10-PCS addendum and code title information are published on the CMS website at https://www.cms.gov/Medicare/Coding/ICD10. CMS also sends electronic files containing all ICD-10-CM and ICD-10-PCS coding changes to its Medicare contractors for use in updating their systems and furnishing education to providers. Information on ICD-10-CM diagnosis codes, along with the Official ICD-10-CM Coding Guidelines, can be found on the CDC website at https://www.cdc.gov/nchs/icd/icd-10-cm/files.html. Additionally, information on new, revised, and deleted ICD-10-CM diagnosis and ICD- 10-PCS procedure codes is provided to the AHA for publication in the Coding Clinic for ICD-10. The AHA also distributes coding update information to publishers and software vendors. For FY 2026, there are currently 74,719 diagnosis codes and 79,193 procedure codes. As displayed in Table 6A.--New Diagnosis Codes and in Table 6B.--New Procedure Codes associated with this FY 2027 IPPS/LTCH PPS proposed rule (and available on the CMS website at https:// www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/ AcuteInpatientPPS), there are 184 new diagnosis codes and 81 new procedure codes that have been finalized for FY 2027 at the time of the development of this FY 2027 IPPS/LTCH PPS proposed rule and 80 new procedure codes that were effective with discharges on and after April 1, 2026. As noted above, the code titles are adopted as part of the ICD-10 Coordination and Maintenance Committee process. Thus, although we publish the code titles in the IPPS proposed and final rules, they are not subject to comment in the proposed or final rules. 16. Replaced Devices Offered Without Cost or With a Credit a. Background In the FY 2008 IPPS final rule with comment period (72 FR 47246 through 47251), we discussed the topic of Medicare payment for devices that are replaced without cost or where credit for a replaced device is furnished to the hospital. We implemented a policy to reduce a hospital's IPPS payment for certain MS-DRGs where the implantation of a device that subsequently failed or was recalled determined the base MS- DRG assignment. At that time, we specified that we will reduce a hospital's IPPS payment for those MS-DRGs where the hospital received a credit for a replaced device equal to 50 percent or more of the cost of the device. In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51556 through 51557), we clarified this policy to state that the policy applies if the hospital received a credit equal to 50 percent or more of the cost of the replacement device and issued instructions to hospitals accordingly. b. Proposed Changes for FY 2027 As discussed in section II.C.3. of the preamble of this FY 2027 IPPS/LTCH PPS proposed rule, for FY 2027, under MDC 05, we are proposing to delete MS-DRGs 258 and 259 (Cardiac Pacemaker Device Replacement with and without MCC, respectively) and MS-DRGs 260, 261, and 262 (Cardiac Pacemaker Revision Except Device Replacement with MCC, with CC, and without CC/MCC, respectively) and create new MS-DRGs 210 and 211 (Cardiac Pacemaker Revision or Device Replacement with and without MCC, respectively). The procedures currently assigned to MS- DRGs 258, 259, 260, 261, and 262 are being proposed for assignment to proposed new MS-DRGs 210 and 211. Additionally, as discussed in section II.C.4. of the preamble of this FY 2027 IPPS/LTCH PPS proposed rule, for FY 2027, under MDC 08, we are proposing to delete MS-DRGs 466, 467, and 468 (Revision of Hip or Knee Replacement with MCC, with CC, and without CC/MCC, respectively) and create new MS-DRG 449 (Revision of Hip or Knee Replacement). The procedures currently assigned to MS-DRGs 466, 467, and 468 are being proposed for assignment to proposed new MS-DRG 449. As stated in the FY 2016 IPPS/LTCH PPS proposed rule (80 FR 24409), we generally map new MS-DRGs onto the list when they are formed from procedures previously assigned to MS-DRGs that are already on the list. Currently, MS-DRGs 258, 259, 260, 261, 262, 466, 467, and 468 are on the list of MS-DRGs subject to the policy for payment under the IPPS for replaced devices offered without cost or with a credit. Therefore, we are proposing that if the applicable proposed MS-DRG changes are finalized, we also would add proposed new MS-DRGs 210 and 211 and proposed new MS-DRG 449 to the list of MS-DRGs subject to the policy for payment under the IPPS for replaced devices offered without cost or with a credit as reflected in the following table. We also propose to continue to include the existing MS-DRGs currently subject to the policy as displayed in the following table. BILLING CODE 4120-01-P [[Page 19390]] [GRAPHIC] [TIFF OMITTED] TP14AP26.070 BILLING CODE 4120-01-C The final list of MS-DRGs subject to the IPPS policy for replaced devices offered without cost or with a credit will be included in the FY 2027 IPPS/LTCH PPS final rule and also will be issued to providers in the form of a Change Request (CR).

1. Data Sources for Developing the Relative Weights

Consistent with our established policy, in developing the MS-DRG [[Page 19391]] relative weights for FY 2027, we are proposing to use two data sources: claims data and cost report data. The claims data source is the MedPAR file, which includes fully coded diagnostic and procedure data for all Medicare inpatient hospital bills. The FY 2025 MedPAR data used in this proposed rule includes discharges occurring on October 1, 2024, through September 30, 2025, based on bills received by CMS through December 31, 2025, from all hospitals subject to the IPPS and short-term, acute care hospitals in Maryland (which at that time were under a waiver from the IPPS). The FY 2025 MedPAR file used in calculating the relative weights includes data for approximately 6,936,972 Medicare discharges from IPPS providers. Discharges for Medicare beneficiaries enrolled in a Medicare Advantage managed care plan are excluded from this analysis. These discharges are excluded when the MedPAR ``GHO Paid'' indicator field on the claim record is equal to ``1'' or when the MedPAR DRG payment field, which represents the total payment for the claim, is equal to the MedPAR ``Indirect Medical Education (IME)'' payment field, indicating that the claim was an ``IME only'' claim submitted by a teaching hospital on behalf of a beneficiary enrolled in a Medicare Advantage managed care plan. In addition, the December 2025 update of the FY 2025 MedPAR file complies with version 5010 of the X12 HIPAA Transaction and Code Set Standards, and includes a variable called ``claim type.'' Claim type ``60'' indicates that the claim was an inpatient claim paid as fee-for-service. Claim types ``61,'' ``62,'' ``63,'' and ``64'' relate to encounter claims, Medicare Advantage IME claims, and HMO no-pay claims. Therefore, the calculation of the relative weights for FY 2027 also excludes claims with claim type values not equal to ``60.'' The data exclude CAHs, including hospitals that subsequently became CAHs after the period from which the data were taken. In addition, the data exclude Rural Emergency Hospitals (REHs), including hospitals that subsequently became REHs after the period from which the data were taken. We note that the proposed FY 2027 relative weights are based on the ICD-10-CM diagnosis codes and ICD-10-PCS procedure codes from the FY 2025 MedPAR claims data, grouped through the ICD-10 version of the proposed FY 2027 GROUPER (Version 44). The second data source used in the cost-based relative weighting methodology is the Medicare cost report data files from the Healthcare Cost Report Information System (HCRIS). In general, we use the HCRIS dataset that is 3 years prior to the IPPS fiscal year. Specifically, for this proposed rule, we used the December 2025 update of the FY 2024 HCRIS for calculating the FY 2027 cost-based relative weights. Consistent with our historical practice, for this FY 2027 proposed rule, we are providing the version of the HCRIS from which we calculated these 19 cost-to charge-ratios (CCRs) on the CMS website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/ AcuteInpatientPPS. Click on the link on the left side of the screen titled ``FY 2027 IPPS Proposed Rule Home Page'' or ``Acute Inpatient Files for Download.''

2. Methodology for Calculation of the Relative Weights

a. General We calculated the proposed FY 2027 relative weights based on 19 CCRs. The methodology we are proposing to use to calculate the FY 2027 MSDRG cost-based relative weights based on claims data in the FY 2025 MedPAR file and data from the FY 2024 Medicare cost reports is as follows: To the extent possible, all the claims were regrouped using the proposed FY 2027 MS-DRG classifications discussed in sections II.B. and II.C. of the preamble of this proposed rule. The transplant cases that were used to establish the relative weights for heart and lung, liver and/or intestinal, and lung transplants (MS-DRGs 001, 002, 005, 006, and 007, respectively) were limited to those Medicare-approved transplant centers that have cases in the FY 2025 MedPAR file. (Medicare coverage for heart, heart-lung, liver and/or intestinal, and lung transplants is limited to those facilities that have received approval from CMS as transplant centers.) Organ acquisition costs for kidney, heart, heart-lung, liver, lung, pancreas, and intestinal (or multivisceral organs) transplants continue to be paid on a reasonable cost basis. Because these acquisition costs are paid separately from the prospective payment rate, it is necessary to subtract the acquisition charges from the total charges on each transplant bill that showed acquisition charges before computing the average cost for each MS-DRG and before eliminating statistical outliers. Section 108 of the Further Consolidated Appropriations Act, 2020 provides that, for cost reporting periods beginning on or after October 1, 2020, costs related to hematopoietic stem cell acquisition for the purpose of an allogeneic hematopoietic stem cell transplant shall be paid on a reasonable cost basis. We refer the reader to the FY 2021 IPPS/LTCH PPS final rule for further discussion of the reasonable cost basis payment for cost reporting periods beginning on or after October 1, 2020 (85 FR 58835 through 58842). For FY 2022 and subsequent years, we subtract the hematopoietic stem cell acquisition charges from the total charges on each transplant bill that showed hematopoietic stem cell acquisition charges before computing the average cost for each MS- DRG and before eliminating statistical outliers. Claims with total charges or total lengths of stay less than or equal to zero were deleted. Claims that had an amount in the total charge field that differed by more than $30.00 from the sum of the routine day charges, intensive care charges, pharmacy charges, implantable devices charges, supplies and equipment charges, therapy services charges, operating room charges, cardiology charges, laboratory charges, radiology charges, other service charges, labor and delivery charges, inhalation therapy charges, emergency room charges, blood and blood products charges, anesthesia charges, cardiac catheterization charges, CT scan charges, and MRI charges were also deleted. At least 92.5 percent of the providers in the MedPAR file had charges for 14 of the 19 cost centers. All claims of providers that did not have charges greater than zero for at least 14 of the 19 cost centers were deleted. In other words, a provider must have no more than five blank cost centers. If a provider did not have charges greater than zero in more than five cost centers, the claims for the provider were deleted. Statistical outliers were eliminated by removing all cases that were beyond 3.0 standard deviations from the geometric mean of the log distribution of both the total charges per case and the total charges per day for each MS-DRG. Effective October 1, 2008, because hospital inpatient claims include a Present on Admission (POA) field for each diagnosis present on the claim, only for purposes of relative weight-setting, the POA indicator field was reset to ``Y'' for ``Yes'' for all claims that otherwise have an ``N'' (No) or a ``U'' (documentation insufficient to determine if the condition was present at the time of inpatient admission) in the POA field. Under current payment policy, the presence of specific HAC codes, as [[Page 19392]] indicated by the POA field values, can generate a lower payment for the claim. Specifically, if the particular condition is present on admission (that is, a ``Y'' indicator is associated with the diagnosis on the claim), it is not a HAC, and the hospital is paid for the higher severity (and, therefore, the higher weighted MS-DRG). If the particular condition is not present on admission (that is, an ``N'' indicator is associated with the diagnosis on the claim) and there are no other complicating conditions, the DRG GROUPER assigns the claim to a lower severity (and, therefore, the lower weighted MS-DRG) as a penalty for allowing a Medicare inpatient to contract a HAC. While the POA reporting meets policy goals of encouraging quality care and generates program savings, it presents an issue for the relative weight-setting process. Because cases identified as HACs are likely to be more complex than similar cases that are not identified as HACs, the charges associated with HAC cases are likely to be higher as well. Therefore, if the higher charges of these HAC claims are grouped into lower severity MS-DRGs prior to the relative weight-setting process, the relative weights of these particular MS-DRGs would become artificially inflated, potentially skewing the relative weights. In addition, we want to protect the integrity of the budget neutrality process by ensuring that, in estimating payments, no increase to the standardized amount occurs as a result of lower overall payments in a previous year that stem from using weights and case-mix that are based on lower severity MS-DRG assignments. If this would occur, the anticipated cost savings from the HAC policy would be lost. To avoid these problems, we reset the POA indicator field to ``Y'' only for relative weight-setting purposes for all claims that otherwise have an ``N'' or a ``U'' in the POA field. This resetting ``forced'' the more costly HAC claims into the higher severity MS-DRGs as appropriate, and the relative weights calculated for each MS-DRG more closely reflect the true costs of those cases. The charges for each of the 19 cost groups for each claim were standardized to remove the effects of differences in area wage levels, IME and DSH payments, and for hospitals located in Alaska and Hawaii, the proposed applicable cost-of-living adjustment. Because hospital charges include charges for both operating and capital costs, we standardized total charges to remove the effects of differences in geographic adjustment factors, proposed cost-of-living adjustments, and DSH payments under the capital IPPS as well. Charges were then summed by MS-DRG for each of the 19 cost groups so that each MS-DRG had 19 standardized charge totals. Statistical outliers were then removed. These charges were then adjusted to cost by applying the proposed national average CCRs developed from the FY 2024 cost report data. The 19 cost centers that we used in the relative weight calculation are shown in a supplemental data file, Cost Center HCRIS Lines Supplemental Data File, posted via the internet on the CMS website for this proposed rule and available at https://www.cms.gov/Medicare/ Medicare-Fee-for-Service-Payment/AcuteInpatientPPS. The supplemental data file shows the lines on the cost report and the corresponding revenue codes that we used to create the 19 national cost center CCRs. If we receive comments about the groupings in this supplemental data file, we may consider these comments as we finalize our policy. Consistent with historical practice, we account for rare situations of non-monotonicity in a base MS-DRG and its severity levels, where the mean cost in the higher severity level is less than the mean cost in the lower severity level, in determining the relative weights for the different severity levels. If there are initially non-monotonic relative weights in the same base DRG and its severity levels, then we combine the cases that group to the specific non-monotonic MS-DRGs for purposes of relative weight calculations. For example, if there are two non-monotonic MS-DRGs, combining the cases across those two MS-DRGs results in the same relative weight for both MS-DRGs. The relative weight calculated using the combined cases for those severity levels is monotonic, effectively removing any non-monotonicity with the base DRG and its severity levels. For this FY 2027 proposed rule, this calculation was applied to address non-monotonicity for cases that grouped to the following: MS-DRG 217 and MS-DRG 218, MS-DRG 504 and MS- DRG 505, and MS-DRG 582 and 584. In the supplemental file titled AOR/ BOR File, we include statistics for the affected MS-DRGs both separately and with cases combined. We are inviting public comments on our proposals related to recalibration of the proposed FY 2027 relative weights and the changes in relative weights from FY 2026. b. Relative Weight Calculation for MS-DRG 018 In the FY 2021 IPPS/LTCH PPS final rule (85 FR 58451 through 58453), we created MS-DRG 018 for cases that include procedures describing CAR T-cell therapies. We also finalized our proposal to modify our existing relative weight methodology to ensure that the relative weight for MS-DRG 018 appropriately reflects the relative resources required for providing CAR T-cell therapy outside of a clinical trial, while still accounting for the clinical trial cases in the overall average cost for all MS-DRGs (85 FR 58599 through 58600). Specifically, we stated that clinical trial claims that group to new MS-DRG 018 would not be included when calculating the average cost for MS-DRG 018 that is used to calculate the relative weight for this MS- DRG, so that the relative weight reflects the costs of the CAR T-cell therapy drug. We stated that we identified clinical trial claims as claims that contain ICD-10-CM diagnosis code Z00.6 or contain standardized drug charges of less than $373,000, which was the average sales price of KYMRIAH and YESCARTA, the two CAR T-cell biological products licensed to treat relapsed/refractory large B-cell lymphoma as of the time of the development of the FY 2021 final rule. In addition, we stated that (a) when the CAR T-cell therapy product is purchased in the usual manner, but the case involves a clinical trial of a different product, the claim will be included when calculating the average cost for new MS-DRG 018 to the extent such cases can be identified in the historical data, and (b) when there is expanded access use of immunotherapy, these cases will not be included when calculating the average cost for new MS-DRG 018 to the extent such cases can be identified in the historical data. We also finalized our proposal to calculate an adjustment to account for the CAR T-cell therapy cases identified as clinical trial cases in calculating the national average standardized cost per case that is used to calculate the relative weights for all MS-DRGs and for purposes of budget neutrality and outlier simulations. We calculate this adjustor by dividing the average cost for cases that we identify as clinical trial cases by the average cost for cases that we identify as non-clinical trial cases, with the additional refinements that (a) when the CAR T-cell therapy product is purchased in the usual manner, but the case involves a clinical trial of a different product, the claim will be included when calculating the average cost for cases not determined to be [[Page 19393]] clinical trial cases to the extent such cases can be identified in the historical data, and (b) when there is expanded access use of immunotherapy, these cases will be included when calculating the average cost for cases determined to be clinical trial cases to the extent such cases can be identified in the historical data. We stated that to the best of our knowledge, there were no claims in the historical data used in the calculation of this adjustment for cases involving a clinical trial of a different product, and to the extent the historical data contain claims for cases involving expanded access use of immunotherapy we believe those claims would have drug charges less than $373,000. In the FY 2021 IPPS/LTCH PPS final rule (85 FR 58842), we also finalized an adjustment to the payment amount for applicable clinical trial and expanded access use immunotherapy cases that group to MS-DRG 018, and indicated that we would provide instructions for identifying these claims in separate guidance. Following the issuance of the FY 2021 IPPS/LTCH PPS final rule, we issued guidance \16\ stating that providers may enter a Billing Note NTE02 ``Expand Acc Use'' on the electronic claim 837I or a remark ``Expand Acc Use'' on a paper claim to notify the MAC of expanded access use of CAR T-cell therapy. In this case, the MAC would add payer-only condition code ``ZB'' so that Pricer will apply the payment adjustment in calculating payment for the case. In cases when the CAR T-cell therapy product is purchased in the usual manner, but the case involves a clinical trial of a different product, the provider may enter a Billing Note NTE02 ``Diff Prod Clin Trial'' on the electronic claim 837I or a remark ``Diff Prod Clin Trial'' on a paper claim. In this case, the MAC would add payer-only condition code ``ZC'' so that the Pricer will not apply the payment adjustment in calculating payment for the case. --------------------------------------------------------------------------- \16\ https://www.cms.gov/files/document/r10571cp.pdf. --------------------------------------------------------------------------- In the FY 2022 IPPS/LTCH PPS final rule, we revised MS-DRG 018 to include cases that report the procedure codes for CAR T-cell and non- CAR T-cell therapies and other immunotherapies (86 FR 44798 through 44806). We also finalized our proposal to continue to use the proxy of standardized drug charges of less than $373,000 (86 FR 44965) to identify clinical trial claims. We also finalized use of this same proxy for the FY 2023 IPPS/LTCH PPS final rule (87 FR 48894). Following the issuance of the FY 2023 IPPS/LTCH PPS final rule, we issued guidance \17\ stating where there is expanded access use of immunotherapy, the provider may submit condition code ``90'' on the claim so that Pricer will apply the payment adjustment in calculating payment for the case. We stated that MACs would no longer append Condition Code `ZB' to inpatient claims reporting Billing Note NTE02 ``Expand Acc Use'' on the electronic claim 837I or a remark ``Expand Acc Use'' on a paper claim, effective for claims for discharges that occur on or after October 1, 2022. --------------------------------------------------------------------------- \17\ https://www.cms.gov/files/document/r11727cp.pdf. --------------------------------------------------------------------------- In the FY 2024 IPPS/LTCH PPS final rule, we explained that the MedPAR claims data now includes a field that identifies whether or not the claim includes expanded access use of immunotherapy. We stated that for the FY 2022 MedPAR claims data, this field identifies whether or not the claim includes condition code ZB, and for the FY 2023 MedPAR data and subsequent years, this field will identify whether or not the claim includes condition code 90. We further noted that the MedPAR files now also include a variable that indicates whether the claim includes the payer-only condition code ``ZC'', which identifies a case involving the clinical trial of a different product where the CAR T- cell, non-CAR T-cell, or other immunotherapy product is purchased in the usual manner. Accordingly, and as discussed further in the FY 2024 IPPS/LTCH PPS final rule, we finalized two modifications to our methodology for identifying clinical trial claims and expanded access use claims in MS- DRG 018 (88 FR 58791). First, we finalized to exclude claims with the presence of condition code ``90'' (or, for FY 2024 ratesetting, which was based on the FY 2022 MedPAR data, the presence of condition code ``ZB'') and claims that contain ICD-10-CM diagnosis code Z00.6 without payer-only code ``ZC'' that group to MS-DRG 018 when calculating the average cost for MS-DRG 018. Second, we finalized to no longer use the proxy of standardized drug charges of less than $373,000 to identify clinical trial claims and expanded access use cases when calculating the average cost for MS-DRG 018. Accordingly, we finalized that in calculating the relative weight for MS-DRG 018 for FY 2024, only those claims that group to MS-DRG 018 that (1) contain ICD-10-CM diagnosis code Z00.6 and do not include payer-only code ``ZC'' or (2) contain condition code ``ZB'' (or, for subsequent fiscal years, condition code ``90'') would be excluded from the calculation of the average cost for MS-DRG 018. Consistent with this, we also finalized modifications to our calculation of the adjustment to account for the CAR T-cell therapy cases identified as clinical trial cases in calculating the national average standardized cost per case that is used to calculate the relative weights for all MS-DRGs. We refer readers to the FY 2024 IPPS/ LTCH PPS final rule for further discussion of these modifications (88 FR 58791). Consistent with the FY 2026 IPPS/LTCH PPS final rule, in this proposed rule, for FY 2027 we are proposing to continue to use our methodology as modified in the FY 2024 IPPS/LTCH PPS final rule for identifying clinical trial claims and expanded access use claims in MS- DRG 018, with an additional modification as discussed in this section. First, we exclude claims with the presence of condition code ``90'' and claims that contain ICD-10-CM diagnosis code Z00.6 without payer-only code ``ZC'' that group to MS-DRG 018 when calculating the average cost for MS-DRG 018. Second, we no longer use the proxy of standardized drug charges of less than $373,000 to identify clinical trial claims and expanded access use cases when calculating the average cost for MS-DRG 018. In the FY 2026 IPPS/LTCH PPS final rule, we finalized our proposal to apply the payment adjustment for clinical trial and expanded access use immunotherapy cases to other cases where the immunotherapy product is not purchased in the usual manner, such as obtained at no cost. To mirror this change within our relative weight methodology, we finalized our proposal to also exclude claims with standardized drug charges below the median standardized drug charge of claims identified as clinical trials in MS-DRG 018 when we calculate the average cost for MS-DRG 018. We proposed to apply this policy for 2 years (that is, in our relative weight methodology for MS-DRG 018 for FYs 2026 and 2027), until the claims data reflects the addition of the condition code indicating that the immunotherapy product is not purchased in the usual manner, such as obtained at no cost, which then would be able to be used to identify these cases such that they can be identified for exclusion from the calculation of the average cost of MS-DRG 018. For this proposed rule, based on the December 2025 update of the FY 2025 MedPAR file, we estimated that the median standardized drug charge of claims identified as clinical trials in MS-DRG 018 is $25,323. For the [[Page 19394]] purpose of performing this trim, we propose to update the median standardized drug charge of claims identified as clinical trials in MS- DRG 018 based on more recent data for the final rule. Accordingly, we are proposing that in calculating the relative weight for MS-DRG 018 for FY 2027, in identifying clinical trial claims and expanded access use claims and other cases where the immunotherapy product is not purchased in the usual manner, such as obtained at no cost, only those claims that group to MS-DRG 018 that (1) contain ICD- 10-CM diagnosis code Z00.6 and do not include payer-only code ``ZC'', (2) contain condition code ``90'', or (3) contain standardized drug charges below the median standardized drug charge of clinical trial cases in MS-DRG 018 would be excluded from the calculation of the average cost for MS-DRG 018. We are also proposing to continue to use the methodology as modified in the FY 2024 IPPS/LTCH PPS final rule to calculate the adjustment to account for the CAR T-cell therapy cases identified as clinical trial cases in calculating the national average standardized cost per case that is used to calculate the relative weights for all MS-DRGs, with the same proposed modification as described previously to identify other cases where the immunotherapy product is not purchased in the usual manner, such as obtained at no cost: Calculate the average cost for cases assigned to MS-DRG 018 that (a) contain ICD-10-CM diagnosis code Z00.6 and do not contain condition code ``ZC'', (b) contain condition code ``90'', or (c) contain standardized drug charges below the median standardized drug charge of clinical trial cases in MS-DRG 018. Calculate the average cost for all other cases assigned to MS-DRG 018. Calculate an adjustor by dividing the average cost calculated in step 1 by the average cost calculated in step 2. Apply the adjustor calculated in step 3 to the cases identified in step 1 as applicable clinical trial or expanded access use cases, and other cases where the immunotherapy product is not purchased in the usual manner, such as obtained at no cost, then add this adjusted case count to the non-clinical trial case count prior to calculating the average cost across all MS-DRGs. Under our proposal to continue to apply this methodology, with the proposed modification as described, based on the December 2025 update of the FY 2025 MedPAR file used for this proposed rule, we estimate that the average costs of cases assigned to MS-DRG 018 that are identified as clinical trial cases ($71,039) were 17 percent of the average costs of the cases assigned to MS-DRG 018 that are identified as non-clinical trial cases ($412,218). Accordingly, as we did for FY 2026, we are proposing to adjust the transfer-adjusted case count for MS-DRG 018 by applying the proposed adjustor of 0.17 to the applicable clinical trial and expanded access use immunotherapy cases, and other cases where the immunotherapy product is not purchased in the usual manner, such as obtained at no cost, and to use this adjusted case count for MS-DRG 018 in calculating the national average cost per case, which is used in the calculation of the relative weights. Therefore, in calculating the national average cost per case for purposes of this proposed rule, each case identified as an applicable clinical trial or expanded access use immunotherapy case, and other cases where the immunotherapy product is not purchased in the usual manner, such as obtained at no cost, was adjusted by 0.17. As we did for FY 2026, we are applying the same adjustor for the applicable cases that group to MS-DRG 018 for purposes of budget neutrality and outlier simulations. We are also proposing to update the value of the adjustor based on more recent data for the final rule. c. Cap for Relative Weight Reductions In the FY 2023 IPPS/LTCH PPS final rule, we finalized a permanent 10-percent cap on the reduction in an MS-DRG's relative weight in a given fiscal year, beginning in FY 2023. We also finalized a budget neutrality adjustment to the standardized amount for all hospitals to ensure that application of the permanent 10-percent cap does not result in an increase or decrease of estimated aggregate payments. We refer the reader to the FY 2023 IPPS/LTCH PPS final rule for further discussion of this policy. In the Addendum to this IPPS/LTCH PPS proposed rule, we present the proposed budget neutrality adjustment for reclassification and recalibration of the FY 2027 MS-DRG relative weights with application of this cap. We are also making available on the CMS website a supplemental file demonstrating the application of the permanent 10 percent cap for FY 2027. For a further discussion of the final budget neutrality adjustment for FY 2027, we refer readers to the Addendum of this proposed rule.

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

We developed the proposed national average CCRs as follows: Using the FY 2024 cost report data, we removed CAHs, REHs, Indian Health Service hospitals, all inclusive rate hospitals, and cost reports that represented time periods of less than 1 year (365 days). We included hospitals located in Maryland because we include their charges in our claims database. Then we created CCRs for each provider for each cost center (see the supplemental data file for line items used in the calculations) and removed any CCRs that were greater than 10 or less than 0.01. We normalized the departmental CCRs by dividing the CCR for each department by the total CCR for the hospital for the purpose of trimming the data. Then we took the logs of the normalized cost center CCRs and removed any cost center CCRs where the log of the cost center CCR was greater or less than the mean log plus/minus 3 times the standard deviation for the log of that cost center CCR. Once the cost report data were trimmed, we calculated a Medicare-specific CCR. The Medicare-specific CCR was determined by taking the Medicare charges for each line item from Worksheet D-3 and deriving the Medicare-specific costs by applying the hospital-specific departmental CCRs to the Medicare- specific charges for each line item from Worksheet D-3. Once each hospital's Medicare-specific costs were established, we summed the total Medicare-specific costs and divided by the sum of the total Medicare-specific charges to produce national average, charge-weighted CCRs. After we multiplied the total charges for each MS-DRG in each of the 19 cost centers by the corresponding national average CCR, we summed the 19 ``costs'' across each MS-DRG to produce a total standardized cost for the MS-DRG. The average standardized cost for each MS-DRG was then computed as the total standardized cost for the MS-DRG divided by the transfer-adjusted case count for the MS-DRG. The average cost for each MS-DRG was then divided by the national average standardized cost per case to determine the relative weight. The proposed FY 2027 cost-based relative weights were then normalized by an adjustment factor of 1.944557 so that the average case weight after recalibration was equal to the average case weight before recalibration. The normalization adjustment is intended to ensure that recalibration by itself neither increases nor decreases total payments under the IPPS, as required by section 1886(d)(4)(C)(iii) of the Act. We then applied the permanent 10-percent cap on the reduction in a MS- DRG's relative weight in a given [[Page 19395]] fiscal year; specifically for those MS-DRGs for which the relative weight otherwise would have declined by more than 10 percent from the FY 2026 relative weight, we set the proposed FY 2027 relative weight equal to 90 percent of the FY 2026 relative weight. The proposed relative weights for FY 2027 as set forth in Table 5 associated with this proposed rule and available on the CMS website at https:// www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS reflect the application of this cap. The 19 proposed national average CCRs for FY 2027 are as follows: BILLING CODE 4120-01-P [GRAPHIC] [TIFF OMITTED] TP14AP26.071 Since FY 2009, the relative weights have been based on 100 percent cost weights based on our MS-DRG grouping system. When we recalibrated the DRG weights for previous years, we set a threshold of 10 cases as the minimum number of cases required to compute a reasonable weight. We are proposing to use that same case threshold in recalibrating the proposed MS-DRG relative weights for FY 2027. Using data from the FY 2025 MedPAR file, there are 8 MSDRGs that contain fewer than 10 cases. For FY 2027, because we do not have sufficient MedPAR data to set accurate and stable cost relative weights for these low-volume MS-DRGs, we are proposing to compute relative weights for the low volume MS-DRGs by adjusting their final FY 2026 relative weights by the percentage change in the average weight of the cases in other MS-DRGs from FY 2026 to FY 2027. The crosswalk table is as follows. [GRAPHIC] [TIFF OMITTED] TP14AP26.072 [[Page 19396]] BILLING CODE 4120-01-C

1. Background

Effective for discharges beginning on or after October 1, 2001, section 1886(d)(5)(K)(i) of the Act requires the Secretary to establish a mechanism to recognize the costs of new medical services and technologies (sometimes collectively referred to in this section as ``new technologies'') under the IPPS. Section 1886(d)(5)(K)(vi) of the Act specifies that a medical service or technology will be considered new if it meets criteria established by the Secretary after notice and opportunity for public comment. Section 1886(d)(5)(K)(ii)(I) of the Act specifies that a new medical service or technology may be considered for new technology add-on payment if, based on the estimated costs incurred with respect to discharges involving such service or technology, the DRG prospective payment rate otherwise applicable to such discharges under this subsection is inadequate. The regulations at 42 CFR 412.87 implement these provisions and Sec. 412.87(b) specifies three criteria for a new medical service or technology to receive the additional payment: (1) the medical service or technology must be new; (2) the medical service or technology must be costly such that the DRG rate otherwise applicable to discharges involving the medical service or technology is determined to be inadequate; and (3) the service or technology must demonstrate a substantial clinical improvement over existing services or technologies. In addition, certain transformative new devices and antimicrobial products may qualify under an alternative inpatient new technology add-on payment pathway, as set forth in the regulations at Sec. 412.87(c) and (d). We note that section 1886(d)(5)(K)(i) of the Act requires the Secretary to establish a mechanism to recognize the costs of new medical services and technologies under the payment system established under that subsection, which establishes the system for paying for the operating costs of inpatient hospital services. The system of payment for capital costs is established under section 1886(g) of the Act. Therefore, as discussed in prior rulemaking (72 FR 47307 through 47308), we do not include capital costs in the add-on payments for a new medical service or technology or make new technology add-on payments under the IPPS for capital-related costs. In this proposed rule, we highlight some of the major statutory and regulatory provisions relevant to the new technology add-on payment criteria, as well as other information. For further discussion on the new technology add-on payment criteria, we refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51572 through 51574), the FY 2020 IPPS/ LTCH PPS final rule (84 FR 42288 through 42300), and the FY 2021 IPPS/ LTCH PPS final rule (85 FR 58736 through 58742). a. New Technology Add-on Payment Criteria (1) Newness Criterion Under the first criterion, as reflected in Sec. 412.87(b)(2), a specific medical service or technology will no longer be considered ``new'' for purposes of new medical service or technology add-on payments after CMS has recalibrated the MS-DRGs, based on available data, to reflect the cost of the technology. We note that we do not consider a service or technology to be new if it is substantially similar to one or more existing technologies. That is, even if a medical product receives a new FDA marketing authorization, it may not necessarily be considered ``new'' for purposes of new technology add-on payments if it is ``substantially similar'' to another medical product that was market authorized by FDA and has been on the market for more than 2 to 3 years. In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43813 through 43814), we established criteria for evaluating whether a new technology is substantially similar to an existing technology, specifically whether: (1) a product uses the same or a similar mechanism of action to achieve a therapeutic outcome; (2) a product is assigned to the same or a different MS-DRG; and (3) the new use of the technology involves the treatment of the same or similar type of disease and the same or similar patient population. If a technology meets all three of these criteria, it would be considered substantially similar to an existing technology and would not be considered ``new'' for purposes of new technology add-on payments. For a detailed discussion of the criteria for substantial similarity, we refer readers to the FY 2006 IPPS final rule (70 FR 47351 through 47352) and the FY 2010 IPPS/LTCH PPS final rule (74 FR 43813 through 43814). (2) Cost Criterion Under the second criterion, Sec. 412.87(b)(3) further provides that, to be eligible for the add-on payment for new medical services or technologies, the MS-DRG prospective payment rate otherwise applicable to discharges involving the new medical service or technology must be assessed for adequacy. Under the cost criterion, consistent with the formula specified in section 1886(d)(5)(K)(ii)(I) of the Act, to assess the adequacy of payment for a new technology paid under the applicable MS-DRG prospective payment rate, we evaluate whether the charges of the cases involving a new medical service or technology will exceed a threshold amount that is the lesser of 75 percent of the standardized amount (increased to reflect the difference between cost and charges) or 75 percent of one standard deviation beyond the geometric mean standardized charge for all cases in the MS-DRG to which the new medical service or technology is assigned (or the case-weighted average of all relevant MS-DRGs if the new medical service or technology occurs in many different MS-DRGs). The MS-DRG threshold amounts generally used in evaluating new technology add-on payment applications for FY 2027 are presented in a data file that is available, along with the other data files associated with the FY 2026 IPPS/LTCH PPS final rule on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index. We note that, under the policy finalized in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58603 through 58605), beginning with FY 2022, we use the proposed threshold values associated with the proposed rule for that fiscal year to evaluate the cost criterion for all applications for new technology add-on payments and previously approved technologies that may continue to receive new technology add-on payments, if those technologies would be assigned to a proposed new MS-DRG for that same fiscal year. As finalized in the FY 2019 IPPS/LTCH PPS final rule (83 FR 41275), beginning with FY 2020, we include the thresholds applicable to the next fiscal year (previously included in Table 10 of the annual IPPS/ LTCH PPS proposed and final rules) in the data files associated with the prior fiscal year. Accordingly, the proposed thresholds for applications for new technology add-on payments for FY 2028 are presented in a data file that is available on the CMS website, along with the other data files associated with this FY 2027 proposed rule, by clicking on the FY 2027 IPPS Proposed Rule Home Page at: https:// www.cms.gov/Medicare/ [[Page 19397]] Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index. In the September 7, 2001, final rule that established the new technology add-on payment regulations (66 FR 46917), we discussed that applicants should submit a significant sample of data to demonstrate that the medical service or technology meets the high-cost threshold. Specifically, applicants should submit a sample of sufficient size to enable us to undertake an initial validation and analysis of the data. We also discussed in the September 7, 2001, final rule (66 FR 46917) the issue of whether the Health Insurance Portability and Accountability Act of 1996 (HIPAA) Privacy Rule at 45 CFR part 160 and subparts A and E of 45 CFR part 164, applies to claims information that providers submit with applications for new medical service or technology add-on payments. We refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51573) for further information on this issue. (3) Substantial Clinical Improvement Criterion Under the third criterion at Sec. 412.87(b)(1), a medical service or technology must represent an advance that substantially improves, relative to technologies previously available, the diagnosis or treatment of Medicare beneficiaries. In the FY 2020 IPPS/LTCH PPS final rule (84 FR 42288 through 42292), we prospectively codified in our regulations at Sec. 412.87(b) the following aspects of how we evaluate substantial clinical improvement for purposes of new technology add-on payments under the IPPS: The totality of the circumstances is considered when making a determination that a new medical service or technology represents an advance that substantially improves, relative to services or technologies previously available, the diagnosis or treatment of Medicare beneficiaries. A determination that a new medical service or technology represents an advance that substantially improves, relative to services or technologies previously available, the diagnosis or treatment of Medicare beneficiaries means-- ++ The new medical service or technology offers a treatment option for a patient population unresponsive to, or ineligible for, currently available treatments; ++ The new medical service or technology offers the ability to diagnose a medical condition in a patient population where that medical condition is currently undetectable, or offers the ability to diagnose a medical condition earlier in a patient population than allowed by currently available methods, and there must also be evidence that use of the new medical service or technology to make a diagnosis affects the management of the patient; ++ The use of the new medical service or technology significantly improves clinical outcomes relative to services or technologies previously available as demonstrated by one or more of the following: a reduction in at least one clinically significant adverse event, including a reduction in mortality or a clinically significant complication; a decreased rate of at least one subsequent diagnostic or therapeutic intervention; a decreased number of future hospitalizations or physician visits; a more rapid beneficial resolution of the disease process treatment including, but not limited to, a reduced length of stay or recovery time; an improvement in one or more activities of daily living; an improved quality of life; or, a demonstrated greater medication adherence or compliance; or ++ The totality of the circumstances otherwise demonstrates that the new medical service or technology substantially improves, relative to technologies previously available, the diagnosis or treatment of Medicare beneficiaries. Evidence from the following published or unpublished information sources from within the United States or elsewhere may be sufficient to establish that a new medical service or technology represents an advance that substantially improves, relative to services or technologies previously available, the diagnosis or treatment of Medicare beneficiaries: clinical trials, peer reviewed journal articles; study results; meta-analyses; consensus statements; white papers; patient surveys; case studies; reports; systematic literature reviews; letters from major healthcare associations; editorials and letters to the editor; and public comments. Other appropriate information sources may be considered. The medical condition diagnosed or treated by the new medical service or technology may have a low prevalence among Medicare beneficiaries. The new medical service or technology may represent an advance that substantially improves, relative to services or technologies previously available, the diagnosis or treatment of a subpopulation of patients with the medical condition diagnosed or treated by the new medical service or technology. We refer the reader to the FY 2020 IPPS/LTCH PPS final rule (84 FR 42288 through 42292) for additional discussion of the evaluation of substantial clinical improvement for purposes of new technology add-on payments under the IPPS. We note, consistent with the discussion in the FY 2003 IPPS final rule (67 FR 50015), that while FDA has regulatory responsibility for decisions related to marketing authorization (for example, approval, clearance, etc.), we do not rely upon FDA criteria in our evaluation of substantial clinical improvement for purposes of determining what services and technologies qualify for new technology add-on payments under Medicare. This criterion does not depend on the standard of safety and effectiveness on which FDA relies but on a demonstration of substantial clinical improvement in the Medicare population. b. Alternative Inpatient New Technology Add-On Payment Pathway Beginning with applications for FY 2021 new technology add-on payments, under the regulations at Sec. 412.87(c), a medical device that is part of FDA's Breakthrough Devices Program may qualify for the new technology add-on payment under an alternative pathway. Additionally, under the regulations at Sec. 412.87(d) for certain antimicrobial products, beginning with FY 2021, a drug that is designated by FDA as a Qualified Infectious Disease Product (QIDP), and, beginning with FY 2022, a drug that is approved by FDA under the Limited Population Pathway for Antibacterial and Antifungal Drugs (LPAD), may also qualify for the new technology add-on payment under an alternative pathway. We refer the reader to the FY 2020 IPPS/LTCH PPS final rule (84 FR 42292 through 42297) and the FY 2021 IPPS/LTCH PPS final rule (85 FR 58737 through 58739) for further discussion on this policy. We note that CMS reviews the application based on the information provided by the applicant only under the alternative pathway specified by the applicant at the time of application submission. To receive approval for the new technology add-on payment under that alternative pathway, the technology must have the applicable FDA designation and meet all other requirements in the regulations in Sec. 412.87(c) and (d), as applicable. We note, in section II.E.7. of this proposed rule, we are proposing to repeal the alternative pathway for new technology add-on payment beginning with applications received for new technology add-on payments for FY [[Page 19398]] 2028 and require all applicants for new technology add-on payments to demonstrate that they meet all eligibility requirements to receive add- on payments. (We refer the reader to section II.E.7. of this proposed rule for a complete discussion regarding this proposal.) (1) Alternative Pathway for Certain Transformative New Devices For applications received for new technology add-on payments for FY 2021 and subsequent fiscal years, a medical device designated under FDA's Breakthrough Devices Program \18\ that has received FDA marketing authorization will be considered not substantially similar to an existing technology for purposes of the new technology add-on payment under the IPPS, and will not need to meet the requirement under Sec. 412.87(b)(1) that it represent an advance that substantially improves, relative to technologies previously available, the diagnosis or treatment of Medicare beneficiaries. Under this alternative pathway, a medical device that has received a Breakthrough Device designation, and then received FDA marketing authorization (that is, has been approved or cleared by, or had a De Novo classification request granted by, FDA) for the indication covered by the Breakthrough Device designation, will need to meet the requirements of Sec. 412.87(c). We note that in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58734 through 58736), we clarified our policy that a new medical device under this alternative pathway must receive marketing authorization for the indication covered by the Breakthrough Devices Program designation. We refer the reader to the FY 2021 IPPS/LTCH PPS final rule (85 FR 58734 through 58736) for further discussion regarding this clarification. --------------------------------------------------------------------------- \18\ Breakthrough Devices Program https://www.fda.gov/medical-devices/how-study-and-market-your-device/breakthrough-devices-program. --------------------------------------------------------------------------- (2) Alternative Pathway for Certain Antimicrobial Products For applications received for new technology add-on payments for certain antimicrobial products, beginning with FY 2021, if a technology is designated by FDA as a QIDP and received FDA marketing authorization, and, beginning with FY 2022, if a drug is approved under FDA's LPAD pathway and used for the indication approved under the LPAD pathway, it will be considered not substantially similar to an existing technology for purposes of new technology add-on payments and will not need to meet the requirement that it represent an advance that substantially improves, relative to technologies previously available, the diagnosis or treatment of Medicare beneficiaries. Under this alternative pathway for QIDPs and LPADs, a medical product that has received FDA marketing authorization and is designated by FDA as a QIDP or approved under the LPAD pathway will need to meet the requirements of Sec. 412.87(d). We refer the reader to the FY 2020 IPPS/LTCH PPS final rule (84 FR 42292 through 42297) and FY 2021 IPPS/LTCH PPS final rule (85 FR 58737 through 58739) for further discussion on this policy. We note that, in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58737 through 58739), we clarified that a new medical product seeking approval for the new technology add-on payment under the alternative pathway for QIDPs must receive FDA marketing authorization for the indication covered by the QIDP designation. We also finalized our policy to expand our alternative new technology add-on payment pathway for certain antimicrobial products to include products approved under the LPAD pathway and used for the indication approved under the LPAD pathway. c. Additional Payment for New Medical Service or Technology The new medical service or technology add-on payment policy under the IPPS provides additional payments for cases with relatively high costs involving eligible new medical services or technologies, while preserving some of the incentives inherent under an average-based prospective payment system. The payment mechanism is based on the cost to hospitals for the new medical service or technology. As noted previously, we do not include capital costs in the add-on payments for a new medical service or technology or make new technology add-on payments under the IPPS for capital-related costs (72 FR 47307 through 47308). For discharges occurring before October 1, 2019, under Sec. 412.88, if the costs of the discharge (determined by applying operating cost-to-charge ratios (CCRs) as described in Sec. 412.84(h)) exceed the full DRG payment (including payments for IME and DSH, but excluding outlier payments), CMS made an add-on payment equal to the lesser of: (1) 50 percent of the costs of the new medical service or technology; or (2) 50 percent of the amount by which the costs of the case exceed the standard DRG payment. Beginning with discharges on or after October 1, 2019, for the reasons discussed in the FY 2020 IPPS/LTCH PPS final rule (84 FR 42297 through 42300), we finalized an increase in the new technology add-on payment percentage, as reflected at Sec. 412.88(a)(2)(ii). Specifically, for a new technology other than a medical product designated by FDA as a QIDP, beginning with discharges on or after October 1, 2019, if the costs of a discharge involving a new technology (determined by applying CCRs as described in Sec. 412.84(h)) exceed the full DRG payment (including payments for IME and DSH, but excluding outlier payments), Medicare will make an add-on payment equal to the lesser of: (1) 65 percent of the costs of the new medical service or technology; or (2) 65 percent of the amount by which the costs of the case exceed the standard DRG payment. For a new technology that is a medical product designated by FDA as a QIDP, beginning with discharges on or after October 1, 2019, if the costs of a discharge involving a new technology (determined by applying CCRs as described in Sec. 412.84(h)) exceed the full DRG payment (including payments for IME and DSH, but excluding outlier payments), Medicare will make an add-on payment equal to the lesser of: (1) 75 percent of the costs of the new medical service or technology; or (2) 75 percent of the amount by which the costs of the case exceed the standard DRG payment. For a new technology that is a medical product approved under FDA's LPAD pathway, beginning with discharges on or after October 1, 2020, if the costs of a discharge involving a new technology (determined by applying CCRs as described in Sec. 412.84(h)) exceed the full DRG payment (including payments for IME and DSH, but excluding outlier payments), Medicare will make an add-on payment equal to the lesser of: (1) 75 percent of the costs of the new medical service or technology; or (2) 75 percent of the amount by which the costs of the case exceed the standard DRG payment. As set forth in Sec. 412.88(b)(2), unless the discharge qualifies for an outlier payment, the additional Medicare payment will be limited to the full MS-DRG payment plus 65 percent (or 75 percent for certain antimicrobial products (QIDPs and LPADs)) of the estimated costs of the new technology or medical service. We refer the reader to the FY 2020 IPPS/LTCH PPS final rule (84 FR 42297 through 42300) for further discussion on the increase in the new technology add-on payment beginning with discharges on or after October 1, 2019. [[Page 19399]] As discussed in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69245 through 69252), we finalized an increase in the new technology add-on payment percentage, reflected at Sec. 412.88(a)(2)(ii)(C) and (b)(2)(iv), that for certain gene therapies approved for new technology add-on payments in the FY 2025 IPPS/LTCH PPS final rule that are indicated and used specifically for the treatment of sickle cell disease (SCD), effective with discharges on or after October 1, 2024 and concluding at the end of the 2- to 3-year newness period for such therapy, if the costs of a discharge (determined by applying CCRs as described in Sec. [thinsp]412.84(h)) involving the use of such therapy for the treatment of SCD exceed the full DRG payment (including payments for IME and DSH, but excluding outlier payments), Medicare will make an add-on payment equal to the lesser of: (1) 75 percent of the costs of the new medical service or technology; or (2) 75 percent of the amount by which the costs of the case exceed the standard DRG payment. We noted that these payment amounts would only apply to CasgevyTM (exagamglogene autotemcel) and LyfgeniaTM (lovotibeglogene autotemcel), when indicated and used specifically for the treatment of SCD, which were approved for new technology add-on payments in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69128 through 69135, and 89 FR 69188 through 69196). We note that, consistent with the prospective nature of the IPPS, we finalize the new technology add on payment amount for technologies approved or conditionally approved for new technology add-on payments in the final rule for each fiscal year and do not make mid-year changes to new technology add-on payment amounts. Updated cost information may be submitted and included in rulemaking to be considered for the following fiscal year. Section 503(d)(2) of the MMA (Pub. L. 108-173) provides that there shall be no reduction or adjustment in aggregate payments under the IPPS due to add-on payments for new medical services and technologies. Therefore, in accordance with section 503(d)(2) of the MMA, add-on payments for new medical services or technologies for FY 2005 and subsequent years have not been subjected to budget neutrality. d. Evaluation of Eligibility Criteria for New Medical Service or Technology Applications In the FY 2009 IPPS final rule (73 FR 48561 through 48563), we modified our regulation at Sec. 412.87 to codify our longstanding practice of how CMS evaluates the eligibility criteria for new medical service or technology add-on payment applications. That is, we first determine whether a medical service or technology meets the newness criterion, and only if so, do we then make a determination as to whether the technology meets the cost threshold and represents a substantial clinical improvement over existing medical services or technologies. We specified that all applicants for new technology add- on payments must have FDA approval or clearance by July 1 of the year prior to the beginning of the fiscal year for which the application is being considered. In the FY 2021 IPPS/LTCH PPS final rule, to more precisely describe the various types of FDA approvals, clearances and classifications that we consider under our new technology add-on payment policy, we finalized a technical clarification to the regulation to indicate that new technologies must receive FDA marketing authorization 19 20 (such as pre-market approval (PMA); 510(k) clearance; the granting of a De Novo classification request; or approval of a New Drug Application (NDA) or Biologics License Application (BLA)) by July 1 of the year prior to the beginning of the fiscal year for which the application is being considered (85 FR 58742). Consistent with our longstanding policy, we consider FDA marketing authorization as representing that a product has received FDA approval or clearance, or has been granted a De Novo classification request when considering eligibility for the new technology add-on payment. --------------------------------------------------------------------------- \19\ How to Study and Market Your Device https://www.fda.gov/medical-devices/device-advice-comprehensive-regulatory-assistance/how-study-and-market-your-device. \20\ Types of Applications https://www.fda.gov/drugs/how-drugs-are-developed-and-approved/types-applications. --------------------------------------------------------------------------- Additionally, in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58739 through 58742), we finalized our proposal to provide conditional approval for new technology add-on payment for a technology for which an application is submitted under the alternative pathway for certain antimicrobial products at Sec. 412.87(d) that does not receive FDA marketing authorization by July 1 prior to the particular fiscal year for which the applicant applied for new technology add-on payments, provided that the technology otherwise meets the applicable add-on payment criteria. Under this policy, cases involving eligible antimicrobial products would begin receiving the new technology add-on payment sooner, effective for discharges the quarter after the date of FDA marketing authorization, provided that the technology receives FDA marketing authorization before July 1 of the fiscal year for which the applicant applied for new technology add-on payments. As noted, in section II.E.7. of this proposed rule, we are proposing to repeal the alternative pathway for new technology add-on payment, such that beginning with applications received for new technology add-on payments for FY 2028, in order to be eligible for consideration for the new technology add on payment for the upcoming fiscal year, all applicants would need to receive FDA marketing authorization by May 1 prior to the particular fiscal year for which the application is being considered. As discussed in the FY 2024 and FY 2025 IPPS/LTCH PPS final rules (88 FR 58948 through 58958 and 89 FR 69242 through 69245, respectively), beginning with the new technology add-on payment applications for FY 2025, for technologies that are not already FDA market authorized for the indication that is the subject of the new technology add-on payment application, applicants must have a complete and active FDA market authorization request at the time of new technology add-on payment application submission and must provide documentation of FDA acceptance (for a 510(k) or De Novo Classification request submission) or filing (for a PMA, NDA, or BLA) to CMS at the time of application submission, consistent with the type of FDA marketing authorization application the applicant has submitted to FDA. See Sec. 412.87(e) and further discussion in the FY 2024 IPPS/LTCH PPS final rule (88 FR 58948 through 58958) and the FY 2025 IPPS/LTCH PPS final rule (89 FR 69242 through 69245). As we have discussed in prior rulemaking, we consider the application to be complete when the full application has been submitted to FDA and FDA has provided documentation to the applicant indicating that FDA has determined that the application is sufficiently complete to allow for substantive review by FDA. We further stated in the FY 2026 IPPS/LTCH PPS final rule (90 FR 36661 through 36662) that we recognize that FDA processes and documentation may change over time, and the acceptance or filing documentation may vary depending on the type of FDA marketing authorization application the applicant has submitted to FDA. For example, we understand that FDA considers submission of a 510(k) or De Novo Classification request [[Page 19400]] to be accepted for substantive review after the completion of either a refuse to accept (RTA) review or a technical screening process.21 22 Submissions of 510(k) and De Novo Classification requests undergo a technical screening process when they are submitted to FDA using the electronic Submission Template And Resource (eSTAR) process; 510(k) and De Novo Classification requests that are not submitted via eSTAR undergo an RTA review. Accordingly, FDA provides applicants using eSTAR with a review assignment notification to indicate that FDA has completed its technical screening process and has determined that the submission is sufficiently complete to allow for substantive review. Therefore, new technology add-on payment applicants that have submitted a 510(k) or De Novo Classification request submission to FDA through eSTAR must submit a copy of the review assignment notification to CMS (at the time of new technology add-on payment application) to establish the application is sufficiently complete to allow for substantive review by FDA. We noted that PMAs submitted using eSTAR that complete technical screening will still undergo a subsequent filing review by FDA, after which an application is determined to be sufficiently complete to allow for substantive review; therefore, we continue to require documentation of FDA filing for these applications. We also stated that we recognize that FDA does not conduct a new filing review for NDA or BLA applications that were the subject of a Complete Response Letter (CRL) and were subsequently resubmitted to FDA, even though resubmissions are considered a new review cycle.23 24 Therefore, beginning with the new technology add-on applications submitted for FY 2027, these new technology add-on payment applicants must provide to CMS a copy of the resubmission acknowledgement letter from FDA that provides the new goal date for FDA review of the application. We further note that if there are other processes not described here, or if there are further changes to FDA's review processes, consistent with our policy, applicants must provide to CMS the most up-to-date documentation that indicates FDA has determined that the application is sufficiently complete to allow for substantive review by FDA. --------------------------------------------------------------------------- \21\ FDA and Industry Actions on Premarket Notification (510(k)) Submissions: Effect on FDA Review Clock and Goals Guidance for Industry and Food and Drug Administration Staff Document issued on October 3, 2022. https://www.fda.gov/media/73507/download. \22\ FDA and Industry Actions on De Novo Classification Requests: Effect on FDA Review Clock and Goals Guidance for Industry and Food and Drug Administration Staff Document issued on October 3, 2022. https://www.fda.gov/media/107652/download. \23\ SOPP 8405.1: Procedures for Resubmissions to an Application or Supplement. Version: 8, Effective Date: November 13, 2022. https://www.fda.gov/media/84417/download. \24\ 21 CFR 314.110, Complete response letter to the applicant https://www.ecfr.gov/current/title-21/chapter-I/subchapter-D/part-314/subpart-D/section-314.110. --------------------------------------------------------------------------- In the FY 2024 IPPS/LTCH PPS final rule (88 FR 58948 through 58958), we also finalized that, beginning with FY 2025 applications, in order to be eligible for consideration for the new technology add-on payment for the upcoming fiscal year, an applicant for new technology add-on payments must have received FDA marketing authorization by May 1 (rather than July 1) of the year prior to the beginning of the fiscal year for which the application is being considered (except for an application that is submitted under the alternative pathway for certain antimicrobial products), as reflected at Sec. 412.87(f)(2) and (3), as amended and redesignated in the FY 2024 IPPS/LTCH PPS final rule (88 FR 58948 through 58958, 88 FR 59331). As noted, in section II.E.7. of this proposed rule, we are proposing to repeal the alternative pathway for new technology add-on payment, such that beginning with the FY 2028 new technology add-on payment applications, in order to be eligible for consideration for the new technology add on payment for the upcoming fiscal year, all applicants would need to receive FDA marketing authorization by May 1 of the year prior to the beginning of the fiscal year for which the application is being considered. e. Pharmaceutical & Technology Ombudsman (PTO) Many interested parties (including device/biologic/drug developers or manufacturers, industry consultants, others) engage with CMS for coverage, coding, and payment questions or concerns. In order to streamline engagement by centralizing the different innovation pathways within CMS including new technology add-on payments, CMS utilizes the Pharmaceutical & Technology Ombudsman as an initial resource for interested parties. This Ombudsman is available to assist with all of the following: Help to point interested parties to or provide information and resources where possible regarding process, requirements, and timelines. As necessary, coordinate and facilitate opportunities for interested parties to engage with various CMS components. Serve as a primary point of contact for interested parties and provide updates on developments where possible or appropriate. We receive many questions from parties interested in pursuing new technology add-on payments who may not be entirely familiar with working with CMS. While we encourage interested parties to first review our resources available at https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/new-medical-services-and-new-technologies, we know that there may be additional questions about the application process. Interested parties with further questions regarding Medicare's coverage, coding, and payment processes, and how they can navigate these processes, whether for new technology add-on payments or otherwise, should review the updated resource guide available at: https://www.cms.gov/medicare/coding-billing/guide-medical-technology-companies-other-interested-parties. Parties that would like to further discuss questions or concerns with CMS should contact the Pharmaceutical & Technology Ombudsman at [email protected]. f. Application Information for New Medical Services or Technologies Applicants for add-on payments for new medical services or technologies for FY 2028 must submit a formal request, including a full description of the clinical applications of the medical service or technology and the results of any clinical evaluations demonstrating that the new medical service or technology represents a substantial clinical improvement (unless the application is under one of the alternative pathways as previously described, if the proposal in section II.E.7. of this proposed rule to repeal the alternative pathway for new technology add-on payment beginning with FY 2028 new technology add-on payment applications is not finalized), along with a significant sample of data to demonstrate that the medical service or technology meets the high-cost threshold. If the proposal in section II.E.7. of this proposed rule to repeal the alternative pathway is not finalized, CMS will continue to review applications under the pathway specified by the applicant at the time of application submission. Complete application information, along with final deadlines for submitting a full application, will be posted as it becomes available on the CMS website at: https:// [[Page 19401]] www.cms.gov/medicare/payment/prospective-payment-systems/acute- inpatient-pps/new-medical-services-and-new-technologies. To allow interested parties to identify the new medical services or technologies under review before the publication of the proposed rule for FY 2028, once the application deadline has closed, CMS will post on its website a list of the applications submitted, along with a brief description of each technology as provided by the applicant. As discussed in the FY 2023 IPPS/LTCH PPS final rule (87 FR 48986 through 48990), we finalized our proposal to publicly post online new technology add-on payment applications, including the completed application forms, certain related materials, and any additional updated application information submitted subsequent to the initial application submission (except certain volume, cost and other information identified by the applicant as confidential), beginning with the application cycle for FY 2024, at the time the proposed rule is published. We also finalized that with the exception of information included in a confidential information section of the application, cost and volume information, and materials identified by the applicant as copyrighted or not otherwise releasable to the public, the contents of the application and related materials may be posted publicly, and that we will not post applications that are withdrawn prior to publication of the proposed rule. We refer the reader to the FY 2023 IPPS/LTCH PPS final rule (87 FR 48986 through 48990) for further information regarding this policy. In addition, as discussed in the FY 2026 IPPS/ LTCH PPS final rule (90 FR 36663 through 36664), beginning with the new technology add-on payment applications submitted for FY 2027, the public posting includes the applicant's explanation of the cost analysis methodology, including the step-by-step explanation of the columns used in the cost analysis spreadsheet attachment, any optional comments provided by the applicant, and information about the case weighted threshold and final inflated case weighted standardized charge per case, as is currently subject to discussion in the cost criterion analysis for each eligible application in the proposed rule. The cost analysis spreadsheet attachment and other cost or charge values that may have been provided in the applicant's responses in the cost criterion section are not included in the public posting. Certain cost and volume information may still be summarized and discussed in the proposed rule, but we are providing more succinct information as part of the summaries in the proposed and final rules regarding the applicant's assertions as to how the medical service or technology meets the cost criterion. We note that the burden associated with this information collection requirement is the time and effort required to collect and submit the data in the formal request for add-on payments for new medical services and technologies to CMS. The aforementioned burden is subject to the PRA and approved under OMB control number 0938-1347 and has an expiration date of December 31, 2026.

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

Payments Section 1886(d)(5)(K)(viii) of the Act, as amended by section 503(b)(2) of the MMA, provides for a mechanism for public input before publication of a notice of proposed rulemaking regarding whether a medical service or technology represents a substantial clinical improvement. The process for evaluating new medical service and technology applications requires the Secretary to do all of the following: Provide, before publication of a proposed rule, for public input regarding whether a new service or technology represents an advance in medical technology that substantially improves the diagnosis or treatment of Medicare beneficiaries. Make public and periodically update a list of the services and technologies for which applications for add-on payments are pending. Accept comments, recommendations, and data from the public regarding whether a service or technology represents a substantial clinical improvement. Provide, before publication of a proposed rule, for a meeting at which organizations representing hospitals, physicians, manufacturers, and any other interested party may present comments, recommendations, and data regarding whether a new medical service or technology represents a substantial clinical improvement to the clinical staff of CMS. In order to provide an opportunity for public input regarding add- on payments for new medical services and technologies for FY 2027 prior to publication of the FY 2027 IPPS/LTCH PPS proposed rule, we published a notice in the Federal Register on September 10, 2025 (90 FR 43613), and held a virtual town hall meeting on December 10, 2025. In the announcement notice for the meeting, we stated that the opinions and presentations provided during the meeting would assist us in our evaluations of applications by allowing public discussion of the substantial clinical improvement criterion for the FY 2027 new medical service and technology add-on payment applications before the publication of the FY 2027 IPPS/LTCH PPS proposed rule. Approximately 190 individuals attended the virtual town hall meeting. We posted the recordings of the virtual town hall on the CMS web page at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/new-medical-services-and-new-technologies. We considered each applicant's presentation made at the town hall meeting, as well as written comments received by the December 15, 2025 deadline, in our evaluation of the new technology add-on payment applications for FY 2027 in the development of the FY 2027 IPPS/LTCH PPS proposed rule. In response to the published notice and the New Technology Town Hall meeting, we received written comments regarding the applications for FY 2027 new technology add-on payments. As explained earlier and in the Federal Register notice announcing the New Technology Town Hall meeting (90 FR 43613), the purpose of the meeting was specifically to discuss the substantial clinical improvement criterion with regard to pending new technology add-on payment applications for FY 2027. Therefore, we are not summarizing any written comments in this proposed rule that are unrelated to the substantial clinical improvement criterion. In section II.E.5. of the preamble of this proposed rule, we summarize comments regarding individual applications, or, if applicable, indicate that there were no comments received in response to the New Technology Town Hall meeting notice or New Technology Town Hall meeting, at the end of each discussion of the individual applications.

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

Technologies As discussed in the FY 2016 IPPS/LTCH PPS final rule (80 FR 49434), the ICD-10-PCS includes a new section containing the new Section ``X'' codes, which began being used with discharges occurring on or after October 1, 2015. Decisions regarding changes to ICD-10-PCS Section ``X'' codes will be handled in the same manner as the decisions for all of the other ICD-10-PCS code [[Page 19402]] changes. That is, proposals to create, delete, or revise Section ``X'' codes under the ICD-10-PCS structure will be referred to the ICD-10 Coordination and Maintenance Committee. In addition, several of the new medical services and technologies that have been, or may be, approved for new technology add-on payments may now, and in the future, be assigned a Section ``X'' code within the structure of the ICD-10-PCS. We posted ICD-10-PCS Guidelines on the CMS website at: https://www.cms.gov/medicare/coding-billing/icd-10-codes, including guidelines for ICD-10-PCS Section ``X'' codes. We encourage providers to view the material provided on ICD-10-PCS Section ``X'' codes.

4. Proposed FY 2027 Status of Technologies Receiving New Technology

Add-On Payments for FY 2026 In this section of the proposed rule, we discuss the proposed FY 2027 status of the 54 new technology add-on payments approved for FY 2026, as set forth in the tables that follow. Specifically, we present our proposals to continue the new technology add-on payments for FY 2027 for those technologies that were approved for the new technology add-on payment for FY 2026, and which would still be considered ``new'' for purposes of new technology add-on payments for FY 2027. We also present our proposals to discontinue new technology add-on payments for FY 2027 for those technologies that were approved for the new technology add-on payment for FY 2026, and which would no longer be considered ``new'' for purposes of new technology add-on payments for FY 2027. Our policy is that a medical service or technology may continue to be considered ``new'' for purposes of new technology add-on payments within 2 or 3 years after the point at which data begin to become available reflecting the inpatient hospital code assigned to the new service or technology. Our practice has been to begin and end new technology add-on payments on the basis of a fiscal year, and, for technologies that were first approved for new technology add-on payments prior to FY 2025, we have generally followed a guideline that uses a 6-month window before and after the start of the fiscal year to determine whether to extend the new technology add-on payment for an additional fiscal year, and, in general, we have extended new technology add-on payments for these technologies for an additional year only if the 3-year anniversary date of the product's entry onto the U.S. market occurs in the latter half of the fiscal year (70 FR 47362). As discussed in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69238 through 69242), we finalized that, beginning with new technology add-on payments for FY 2026, in assessing whether to continue the new technology add-on payments for those technologies that are first approved for new technology add-on payments in FY 2025 or a subsequent year, we will extend new technology add-on payments for an additional fiscal year when the 3-year anniversary date of the product's entry onto the U.S. market occurs on or after October 1 of that fiscal year. This change is effective beginning with those technologies that are initially approved for new technology add-on payments in FY 2025 or a subsequent year. For technologies that were first approved for new technology add-on payments prior to FY 2025, including for technologies we determine to be substantially similar to those technologies, we continue to use the midpoint of the upcoming fiscal year (April 1) when determining whether a technology would still be considered ``new'' for purposes of new technology add-on payments. Table II.E-01 lists the technologies that were first approved for new technology add-on payments in FY 2025 or a subsequent year, for which we are proposing to continue making new technology add-on payments for FY 2027 because they are still considered ``new'' for purposes of new technology add-on payments because the 3-year anniversary date of the product's entry onto the U.S. market occurs on or after October 1, 2026. This table also presents the newness start date, new technology add-on payment start date, 3-year anniversary date of the product's entry onto the U.S. market, relevant final rule citations from prior fiscal years, proposed maximum add-on payment amount, and coding assignments for each technology. We refer readers to the cited final rules in the table for a complete discussion of the new technology add-on payment application, coding, and payment amount for these technologies, including the applicable indications and discussion of the newness start date. We note that we conditionally approved CONTEPOTM (fosfomycin) for FY 2026 new technology add-on payments under the alternative pathway for certain antimicrobial products (90 FR 36831 through 36833), subject to the technology receiving FDA marketing authorization by July 1, 2026. CONTEPOTM received FDA marketing authorization on October 22, 2025, and was eligible to receive new technology add-on payments in FY 2026 beginning with discharges on or after January 1, 2026. As CONTEPOTM received FDA marketing authorization prior to July 1, 2026, and was approved for new technology add-on payments in FY 2026, we are proposing to continue making new technology add-on payments for CONTEPOTM for FY 2027. As discussed in the FY 2026 IPPS/LTCH PPS final rule (90 FR 36666 through 36671), in response to comments from the applicant for ZEVTERA[supreg] requesting that CMS consider the beginning of the newness period for ZEVTERA[supreg] to commence on May 20, 2025, which it stated was the date on which ZEVTERA[supreg] became commercially available on the U.S. market, we noted that that date occurred after new technology add-on payments for ZEVTERA[supreg] began, as it was approved for new technology add-on payment for FY 2025 (starting October 1, 2024). While we agreed that per our policy, we may consider a documented delay in a technology's market availability in our determination of newness, we noted that the new technology add-on payment for claims reporting ICD-10-PCS procedure codes for ZEVTERA[supreg] (XW0335A (Introduction of ceftobiprole medocaril anti- infective into peripheral vein, percutaneous approach) and XW0435A (Introduction of ceftobiprole medocaril anti-infective into central vein, percutaneous approach)) was available beginning October 1, 2024. Furthermore, we noted that beginning with new technology add-on payments for FY 2026, in assessing whether to continue the new technology add-on payments for those technologies that are first approved for new technology add-on payments in FY 2025 or a subsequent year, we will extend new technology add-on payments for an additional fiscal year when the 3-year anniversary date of the product's entry onto the U.S. market occurs on or after October 1 of that fiscal year. We stated that if we were to consider the beginning of the newness period to commence on May 20, 2025, the date on which the applicant states ZEVTERA[supreg] became commercially available on the U.S. market, under our policy, the technology would potentially be eligible for new technology add-on payment for up to four years. Although the applicant stated that CMS had delayed the newness start dates for other technologies when market availability was significantly later than the FDA approval date, and that like these other products, ZEVTERA[supreg]'s newness period should commence on the date on which the technology became commercially [[Page 19403]] available, we noted that, unlike these other technologies, the applicant for ZEVTERA[supreg] was asserting a date of commercial availability that occurred after its new technology add-on payment began. We also noted that applicants may assert a delay in commercial availability due to business decisions made by the applicant. We were concerned that a delay in commercial availability extending beyond the implementation date for the new technology add-on payment would potentially allow applicants to postpone commercial availability for an indefinite period of time while the technology (and other technologies reported using the same codes) remains eligible for new technology add- on payment. Therefore, we questioned whether, where the applicant asserts a date of commercial availability that occurred after the new technology add-on payment for the technology began, it would be appropriate to instead consider the beginning of the newness period to commence with the start of the technology's new technology add-on payment. We noted that regardless of whether we considered the beginning of the newness period to commence for ZEVTERA[supreg] on May 20, 2025, April 3, 2024, or a date in between, the three-year anniversary date would occur after April 1, 2026, and, therefore, the technology was considered new for FY 2026. After further review, we believe that it would be most appropriate to no longer consider commercial delays once a technology's new technology add-on payment becomes effective. We have discussed in prior rulemaking (89 FR 36136) that, generally, we use the FDA marketing authorization date as the indicator of the time when a technology begins to become available on the market and data reflecting the costs of the technology begin to become available for recalibration of the DRG weights. In specific circumstances, we have recognized a date later than the FDA marketing authorization date as the appropriate starting point for the 2- to 3-year newness period. For example, we have recognized a later date where an applicant could prove a delay in actual availability of a product after FDA approval or clearance. However, due to the increasing volume and complexity of circumstances in which applicants assert a delay in commercial availability, we believe that a delay that extends to after implementation of a new technology add-on payment should no longer be considered. For example, as discussed in the FY 2026 IPPS/LTCH PPS final rule (90 FR 36667), we are concerned that a delay in commercial availability extending beyond the implementation date for the new technology add-on payment would potentially allow applicants to postpone commercial availability for an indefinite period of time while the technology (and other technologies reported using the same codes) remain eligible for new technology add- on payment. We have also noted that applicants may be asserting a delay in commercial availability due to business decisions made by the applicant. In addition, because we now extend new technology add-on payments for an additional fiscal year when the 3-year anniversary date of a product's entry onto the U.S. market occurs on or after October 1 of that fiscal year (89 FR 69238 through 69242), commercial delays as asserted by manufacturers that extend to after the new technology add- on payment becomes effective could now have a bigger impact, as they could lead to new technology add-on payments being effective for four or more years under our current policy. Therefore, while we have considered no longer recognizing a date later than the FDA marketing authorization date as the appropriate starting point for the 2- to 3-year newness period, we are proposing that we may consider a documented delay in the beginning of a technology's newness period due to commercial availability only until the new technology add-on payment becomes effective for the fiscal year for which the applicant applied for new technology add-on payments. Under this proposal, for a technology that is not yet available for sale when its new technology add-on payment becomes effective, we would consider the newness period to begin on September 30 preceding the start of the new technology add-on payment for the technology. As such, consistent with this proposal, because the new technology add-on payment for ZEVTERA[supreg] became effective on October 1, 2024, we consider the beginning of the newness period for ZEVTERA[supreg] to commence on September 30, 2024. We are inviting public comments on our proposals to continue new technology add-on payments for FY 2027 for the technologies listed in Tables II.E.-01 of this proposed rule. BILLING CODE 4120-01-P [[Page 19404]] [GRAPHIC] [TIFF OMITTED] TP14AP26.073 [[Page 19405]] [GRAPHIC] [TIFF OMITTED] TP14AP26.074 [[Page 19406]] [GRAPHIC] [TIFF OMITTED] TP14AP26.075 BILLING CODE 4120-01-C Table II.E.-02 lists twelve technologies that were first approved for new technology add-on payments prior to FY 2025, including technologies [[Page 19407]] determined to be substantially similar to such technologies, for which we are proposing to discontinue making new technology add-on payments for FY 2027 because they are no longer ``new'' for purposes of new technology add-on payments because the 3-year anniversary date of the product's entry onto the U.S. market occurs before April 1, 2027. This table also lists one technology that was first approved for new technology add-on payments in FY 2026, for which we are proposing to discontinue making new technology add-on payments for FY 2027 because it is no longer ``new'' for purposes of new technology add-on payments because the 3-year anniversary date of the product's entry onto the U.S. market occurs before October 1, 2026. For all technologies, this table also presents the newness start date, new technology add-on payment start date, the 3-year anniversary date of the product's entry onto the U.S. market, and relevant final rule citations from prior fiscal years. We refer readers to the cited final rules in the table for a complete discussion of each new technology add-on payment application and the coding and payment amount for these technologies, including the applicable indications and discussion of the newness start date. We note that while we are proposing to discontinue new technology add-on payments for FY 2027 for the Ceribell Status Epilepticus Monitor, Ceribell, Inc. is seeking new technology add-on payments for the Ceribell Delirium Monitor System for FY 2027 (as discussed in section II.E.6. of the preamble of this proposed rule), which is also identified by the ICD-10-PCS procedure code XX20X89 (Monitoring of brain electrical activity, computer-aided detection and notification, new technology group 9). In order to identify cases using the ICD-10- PCS procedure code XX20X89 related to the Ceribell Delirium Monitor System and not the Ceribell Status Epilepticus Monitor, which would no longer be new, we are proposing to exclude cases that report the ICD- 10-CM diagnosis codes that we believe would identify patients with status epilepticus in combination with the ICD-10-PCS procedure code XX20X89. Please see Table 10.2.-- Ceribell Delirium Monitor System, associated with this proposed rule, for the list of ICD-10-CM diagnosis codes that we believe would identify patients with status epilepticus, which we propose to exclude from new technology add-on payment when reported in combination with ICD-10-PCS procedure code XX20X89. We are inviting public comments on our proposal to exclude cases reporting these ICD-10-CM diagnosis codes in combination with the ICD-10-PCS procedure code XX20X89, for purposes of the new technology add-on payment for FY 2027, if approved. As discussed in the FY 2026 IPPS/LTCH PPS final rule (90 FR 36666 through 36671), in response to public comments, including from the applicant for the SAINT Neuromodulation System, that requested that CMS recognize a delay in commercial availability of the technology to April 5, 2024, and subsequently extend new technology add-on payment for the SAINT Neuromodulation System for FY 2026, we questioned whether, where the applicant asserts a date of commercial availability that occurred after the new technology add-on payment for the technology began, it would be appropriate to instead consider the beginning of the newness period to commence with the start of the technology's new technology add-on payment. We noted that regardless of whether we considered the beginning of the newness period to commence for SAINT Neuromodulation System on April 5, 2024; a date that reflects the start of the technology's new technology add-on payment in FY 2024; or a date in between, the three-year anniversary date would occur after April 1, 2026, and, therefore, the technology was considered new for FY 2026. As discussed in greater detail previously in this section, after further consideration, we are proposing that we may consider a documented delay in the beginning of a technology's newness period due to commercial availability only until the new technology add-on payment becomes effective. Specifically, for a technology that is not yet available for sale when its new technology add-on payment becomes effective, we would consider the newness period to begin on September 30 preceding the start of the new technology add-on payment for the technology. As such, consistent with this proposal, because the new technology add-on payment for SAINT Neuromodulation System became effective on October 1, 2023, we consider the beginning of the newness period for SAINT Neuromodulation System to commence on September 30, 2023. As the SAINT Neuromodulation System was first approved for new technology add- on payments in FY 2024, we continue to use the midpoint of the upcoming fiscal year (April 1) when determining whether this technology would still be considered ``new'' for purposes of new technology add-on payments. Because we consider the beginning of the newness period to commence on September 30, 2023, the three-year anniversary date would occur before April 1, 2027, and the technology would no longer be considered new for FY 2027. We are inviting public comments on our proposals to discontinue new technology add-on payments for FY 2027 for the technologies listed in Table II.E.-02 of the preamble of this proposed rule. BILLING CODE 4120-01-P [[Page 19408]] [GRAPHIC] [TIFF OMITTED] TP14AP26.076 [[Page 19409]] BILLING CODE 4120-01-C

5. Proposed FY 2027 Applications for New Technology Add-On Payments

(Traditional Pathway) As discussed previously, as finalized in the FY 2023 IPPS/LTCH PPS final rule (87 FR 48986 through 48990) and subsequently updated in the FY 2026 IPPS/LTCH PPS final rule (90 FR 36662 through 36664), we publicly post online applications for new technology add-on payment beginning with FY 2024 applications. As noted in these final rules, while we are continuing to provide discussion of the concerns or issues we identified with respect to applications submitted under the traditional pathway, we are providing more succinct information as part of the summaries in the proposed and final rules regarding the applicant's assertions as to how the medical service or technology meets the newness, cost, and substantial clinical improvement criteria. We refer readers to https://mearis.cms.gov/public/publications/ntap for the publicly posted FY 2027 new technology add-on payment applications and supporting information (with the exception of certain cost and volume information, and information or materials identified by the applicant as confidential or copyrighted), including tables listing the ICD-10-CM codes, ICD-10-PCS codes, and/or MS-DRGs related to the analyses of the cost criterion for certain technologies for the FY 2027 new technology add-on payment applications. We received 15 applications for new technology add-on payments for FY 2027 under the new technology add-on payment traditional pathway. In accordance with the regulations under Sec. 412.87(f), applicants for FY 2027 new technology add-on payments must have received FDA marketing authorization by May 1 of the year prior to the beginning of the fiscal year for which the application is being considered. As previously discussed, beginning with the new technology add-on payment applications for FY 2025, for technologies that are not already FDA market authorized for the indication that is the subject of the new technology add-on payment application, applicants must have a complete and active FDA market authorization request at the time of new technology add-on payment application submission and must provide documentation of FDA acceptance or filing to CMS at the time of application submission, consistent with the type of FDA marketing authorization application the applicant has submitted to FDA. See Sec. 412.87(e) and further discussion in the FY 2024 and FY 2025 IPPS/LTCH PPS final rules (88 FR 58948 through 58958; 89 FR 69242 through 69245). Of the 15 applications received under the traditional pathway, 3 applicants were not eligible for consideration for new technology add- on payment because they did not meet these requirements, and 4 applicants withdrew their applications prior to the issuance of this proposed rule. We are addressing the remaining 8 applications. Typically, in the annual proposed rule, we provide a summary of each traditional pathway application and describe any concerns we may have regarding whether the technology meets a specific new technology add-on payment criterion. In this proposed rule, for technologies that have already received FDA marketing authorization, we are making a proposal to approve or disapprove each of these applications for new technology add-on payment. We have stated in prior rulemaking that we do not believe it is appropriate for CMS to determine whether a medical service or technology represents a substantial clinical improvement over existing technologies before the FDA makes a determination as to whether the medical service or technology is safe and effective (86 FR 45047). Therefore, we are not making a proposal approve or disapprove applications for technologies that have not yet received FDA marketing authorization for new technology add-on payment. a. COBENFYTM (Xanomeline and Trospium Chloride) Bristol Myers Squibb submitted a FY 2027 application for new technology add-on payments for COBENFYTM. According to the applicant, COBENFYTM is an oral combination drug consisting of xanomeline, a muscarinic agonist, and trospium chloride, a muscarinic antagonist, indicated for the treatment of schizophrenia in adults. COBENFYTM has 3 approved dose strengths (50 mg/20 mg, 100 mg/20 mg, and 125 mg/30 mg) in capsule form. The applicant stated the per-day treatment cost is the same across all dosages and that the average inpatient length of stay for patients taking COBENFYTM is 7.5 days. We note that the applicant submitted a FY 2026 new technology add-on payment application for this technology, which was not approved, as discussed in the FY 2026 IPPS/ LTCH PPS final rule (90 FR 36695 through 36702). The following table provides an overview of the new technology add- on payment application for COBENFYTM and CMS's preliminary assessment. For additional details provided by the applicant, please refer to the online application posting at https://mearis.cms.gov/public/publications/ntap/NTP251006PD218. [[Page 19410]] [GRAPHIC] [TIFF OMITTED] TP14AP26.077 Newness Criterion Regarding substantial similarity, based on information available at the time of this proposed rule and as previously stated in the FY 2026 IPPS/LTCH PPS final rule (90 FR 36697), we agree with the applicant that COBENFYTM uses a unique mechanism of action, because it is the first schizophrenia treatment for adults to target muscarinic receptors in the brain by combining the muscarinic agonist, xanomeline, and the muscarinic antagonist, trospium chloride, unlike typical and atypical antipsychotics currently used to treat schizophrenia which antagonize dopamine receptors. Therefore, based on information available at the time of this proposed rule, we believe that COBENFYTM is not substantially similar to existing treatment options and meets the newness criterion. As discussed in the FY 2026 IPPS/LTCH PPS final rule, we consider the beginning of the newness period to commence on October 9, 2024, the date on which COBENFYTM became commercially available. We are inviting public comments on whether COBENFYTM is substantially similar to existing technologies and whether COBENFYTM meets the newness criterion. Cost Criterion Regarding the cost criterion, we agree with the applicant that the technology meets the cost criterion. We are inviting public comments on whether COBENFYTM meets the cost criterion. Substantial Clinical Improvement Criterion Regarding substantial clinical improvement, we also received a public comment in response to the New Technology Town Hall meeting notice published in the Federal Register regarding the substantial clinical improvement criterion for COBENFYTM, which we are summarizing in this section. Comment: The applicant submitted a public comment in response to questions posed at the New Technology Town Hall meeting. With regard to a question asking if COBENFYTM is considered to be an antipsychotic, the applicant stated that the FDA label for COBENFYTM does not use the term antipsychotic in the indication section. The applicant stated that the indication section states that COBENFYTM is a combination of xanomeline, a muscarinic agonist, and trospium chloride, a muscarinic antagonist, indicated for the treatment of schizophrenia in adults.\25\ According to the applicant, this distinction is due to FDA's recent shift toward a mechanism-based nomenclature, rather than a determination regarding COBENFYTM's therapeutic role. The applicant also stated that the term antipsychotic is based on both pharmacology and clinical use, encompassing drugs used for a range of psychiatric conditions beyond psychosis. The applicant further noted that FDA recognized COBENFYTM's role as an antipsychotic when the agency described the drug as the first antipsychotic drug approved to treat schizophrenia that targets cholinergic receptors as opposed to dopamine receptors, which has long been the standard of care.\26\ Additionally, the applicant stated that, in recognition of COBENFYTM's unique role as an antipsychotic, the United States Pharmacopeia Drug Classification (USP DC) 2025 established a new Antipsychotics, Other class within the Antipsychotics Category to accommodate novel medicines like COBENFYTM that do not fit into the traditional typical or atypical antipsychotic classes due to distinct pharmacology. Per the applicant, COBENFYTM's inclusion in the Antipsychotics, Other class highlights its differentiated mechanism while maintaining its place among other antipsychotic therapies as a treatment for schizophrenia. --------------------------------------------------------------------------- \25\ Bristol Myers Squibb Company. (2024). Highlights of Prescribing Information: COBENFYTM (xanomeline and trospium chloride) capsules, for oral use. https://www.accessdata.fda.gov/drugsatfda_docs/label/2024/216158s000lbl.pdf. \26\ U.S. Food and Drug Administration. (2024, September 26). FDA Approves Drug with New Mechanism of Action for Treatment of Schizophrenia [Press release]. https://www.fda.gov/news-events/press-announcements/fda-approves-drug-new-mechanism-action-treatment-schizophrenia. --------------------------------------------------------------------------- With regard to a question asking how quickly COBENFYTM takes effect, the applicant stated that although the EMERGENT studies assessed the primary endpoint at 5 weeks, the studies observed meaningful clinical effects much earlier. The applicant [[Page 19411]] further added that the studies found significant reductions in Positive and Negative Syndrome Scale (PANSS) total score (nominal p-value) within 2 weeks (the first scheduled assessment across all 3 trials), demonstrating that COBENFYTM's therapeutic benefit appears well before the primary endpoint. In addition, the applicant stated that this clinically observable effect time period complements care in the inpatient setting, where patients with schizophrenia often require 7 to 14 days of treatment, compared to the more standard 3 to 4 days for other mental health conditions. With regard to a question inquiring whether the clinical trials included case management or patient support to ensure compliance or if there was qualitative evidence that efficacy alone drives compliance, the applicant stated that clinical trials typically provide a more controlled environment with additional patient support, which often leads to higher compliance compared to adherence and persistence observed in real-world settings; a pattern, the applicant noted, that is likely true for COBENFYTM as well. The applicant noted that it drew the adherence and persistence data presented at the New Technology Town Hall from a large, observational, real-world administrative claims database of patients prescribed COBENFYTM in routine clinical practice, without extra monitoring or support beyond standard care.\27\ The applicant also stated that early real-world data for COBENFYTM show encouraging adherence and persistence: over 80 percent of patients remained on therapy through month 4, and 72 percent met the established adherence metric during the follow-up, all while receiving only standard clinical care (Cutler et al., 2025). Additionally, the applicant stated that, although these findings reflect very early treatment patterns less than a year after COBENFYTM's market introduction, this strong adherence signal is particularly meaningful, as consistent use of antipsychotic medications is closely linked to lower rates of relapse, preventable hospitalizations, and emergency department visits in individuals with schizophrenia. Per the applicant, these early results suggest that COBENFYTM may offer meaningful benefits in real-world settings by supporting sustained treatment and potentially reducing the burden of acute healthcare utilization. Lastly, the applicant noted that CMS has designated adherence to antipsychotic medications as a clinical quality measure for healthcare providers.\28\ --------------------------------------------------------------------------- \27\ Cutler, A.J., Zhong, Y., Gillard, K., Appio, J., Gao, C., Lalibert[eacute], F., Rubio, J.M. Real-World Use of Xanomeline- Trospium in Schizophrenia: Patient Characteristics and Antipsychotic Treatment Patterns. Presentation at Psych Congress, September 17-21, 2025, San Diego, CA. \28\ Merit-Based Incentive Payment System Clinical Quality Measures #383: Adherence to Antipsychotic Medications For Individuals with Schizophrenia. Centers for Medicare and Medicaid Services. Retrieved December 16, 2025 from https://qpp.cms.gov/docs/QPP_quality_measure_specifications/CQM-Measures/2025_Measure_383_MIPSCQM.pdf. --------------------------------------------------------------------------- Response: We thank the applicant for its comment. After review of the information provided by the applicant and the public comment received in response to the New Technology Town Hall meeting, we have the following concerns regarding whether COBENFYTM meets the substantial clinical improvement criterion. In support of its assertions that COBENFYTM provides a treatment option for a patient population unresponsive to or ineligible for currently available therapies and that COBENFYTM improves clinical outcomes, the applicant provided studies that were also included in its FY 2026 new technology add-on payment application in addition to three new references: a post-hoc analysis and two posters.29 30 31 In its FY 2027 new technology add-on payment application, the applicant submitted six similar claims to those provided in its FY 2026 new technology add-on payment application, as well as additional claims stating: COBENFYTM offers a treatment option for schizophrenia patients with extensive prior antipsychotic use, COBENFYTM shows strong real-world persistence and adherence, and COBENFYTM shows superior effectiveness. --------------------------------------------------------------------------- \29\ Cutler, A.J., Zhong, Y., Gillard, K., Appio, J., Gao, C., Lalibert[eacute], F., Rubio, J.M. Real-World Use of Xanomeline- Trospium in Schizophrenia: Patient Characteristics and Antipsychotic Treatment Patterns. Presentation at Psych Congress, September 17-21, 2025, San Diego, CA. \30\ Horan W.P., Targum S.D., Claxton A., Kaul I., Yohn S.E., Marder S.R., Miller A.C., Brannan S.K. Efficacy of KarXT on negative symptoms in acute schizophrenia: A post hoc analysis of pooled data from 3 trials. Schizophr Res. 2024 Dec;274:57-65. https://doi.org/10.1016/j.schres.2024.08.001. \31\ Hickey, C., Sidovar, M., Garcia, A., Kramer, K., Chang, J.A., Kupas, K., Telukuntla, V., Cutler, A.J. Comparative Efficacy, Safety, and Tolerability of Xanomeline and Trospium Chloride versus Eight Atypical Antipsychotics for the Acute Treatment of Adults with Schizophrenia--A Network Meta-Analysis. Presentation at the 2025 Annual Congress of the Schizophrenia International Research Society (SIRS), March 29-April 2, 2025, Chicago, Illinois. --------------------------------------------------------------------------- After review of this information, we continue to question whether COBENFYTM provides a treatment option for a patient population unresponsive to or ineligible for currently available therapies or improves clinical outcomes relative to existing technologies. With regards to a new claim in its FY 2027 new technology add-on payment application that COBENFYTM offers a treatment option for schizophrenia patients with extensive prior antipsychotic use, we note that this claim does not identify a patient population for which COBENFY\TM\ could be used that is unresponsive to or ineligible for other available treatments since patients with prior antipsychotic use could still try other antipsychotics such as clozapine, which is indicated for patients who do not respond to other antipsychotics. We also question whether the evidence provided for this claim demonstrates the applicant's assertion. The applicant provided Cutler et al. (2025), a retrospective observational study of claims data for adults with schizophrenia in the U.S. before and after COBENFYTM initiation. Because Cutler et al. (2025) relied upon administrative claims data, we cannot be sure whether patients actually took the prescribed oral medication(s). Consequently, we are unable to determine whether all patients treated in this study had extensive prior antipsychotic use or if the patients actually took COBENFYTM. Also, the study measured medication adherence at 60 and 90 days following COBENFYTM treatment initiation. However, we note that injectable antipsychotics, which patients adhere to because they are long-acting drugs that require professional administration, are typically administered at intervals of 2 to 12 weeks.\32\ Therefore, we are concerned that measuring adherence at 60 and 90 days may be inadequate to accurately assess differences between COBENFYTM and existing schizophrenia treatments. We also question long-term adherence rates since the average follow-up was only 2.6 months. Finally, we are concerned that Cutler et al. (2025) does not demonstrate that COBENFYTM has improved clinical outcomes compared to other therapies because this evidence does not include a comparison of adherence data to existing schizophrenia treatments. --------------------------------------------------------------------------- \32\ Stroup, T.S. & Marder, S. (2025). Schizophrenia in adults: Maintenance therapy and side effect management. UpToDate. Retrieved October 7, 2025, from https://www.uptodate.com/contents/schizophrenia-in-adults-maintenance-therapy-and-side-effect-management. --------------------------------------------------------------------------- As discussed in the FY 2026 IPPS/LTCH PPS final rule (90 FR 36702), after consideration of public comments, we continued to have concerns as to whether COBENFYTM meets the substantial clinical improvement criterion, including with respect to the [[Page 19412]] applicant's claims that COBENFYTM may be an effective treatment option for patients experiencing disruptive negative symptoms and that COBENFYTM is a valuable option for patients who respond inadequately to current treatments. The applicant submitted similar claims in its FY 2027 new technology add-on payment application, but did not provide additional supporting evidence. Therefore, we continue to question whether the evidence provided for these claims in the FY 2027 new technology add-on payment application demonstrates that COBENFYTM offers a treatment option for patients unresponsive to or ineligible for other therapies, without data supporting that other antipsychotics cannot be used in patients with negative symptoms or who have not responded to other antipsychotics. With respect to the assertion that COBENFYTM provides improved clinical outcomes relative to previously available therapies by improving symptom response and reducing metabolic side effects compared to several atypical antipsychotics, the applicant provided Hickey et al. (2025), a network meta-analysis poster, which used data from 58 randomized controlled trials lasting between 4 and 6 weeks and indirectly compared COBENFYTM to aripiprazole, cariprazine, olanzapine, risperidone, brexpiprazole, quetiapine, clozapine, and lumateperone. However, the poster does not consistently show a statistically significant difference in favor of COBENFYTM (such as with respect to PANSS response, change from baseline weight, and sedation). We also note that the poster did not provide comparison to typical antipsychotics or other atypical antipsychotics, such as olanzapine/samidorphan, which includes samidorphan to reduce weight gain. For these reasons, we question whether this study demonstrates COBENFYTM improves clinical outcomes compared to other available therapies. Additionally, we note that Hickey et al. (2025) found that COBENFYTM had statistically significant higher odds of discontinuation due to all causes compared to all comparators except cariprazine, for which results were unfavorable but not statistically significant. As a result, we further question the applicant's claim that COBENFYTM demonstrates improved persistence and adherence compared to currently available treatments. Finally, we note that in support of its assertion of improved clinical outcomes compared to previously available therapies, the applicant also provided four claims in its FY 2027 new technology add- on payment application that were similar to the claims provided in its FY 2026 new technology add-on payment application. We note the only additional evidence submitted for these claims in the applicant's FY 2027 new technology add-on payment application was Horan et al. (2024), a post-hoc analysis of pooled data from the three 5-week EMERGENT studies, which was also the only evidence provided for the claim regarding long-term reduction in symptoms and a persistently well- tolerated side effect profile. However, the studies included in this analysis compared COBENFYTM to placebo, and therefore, we are unable to assess whether there is a long term reduction of symptoms and favorable side effect profile compared to existing schizophrenia treatments. In addition, we question this claim given the short duration of the trials and the lack of discussion on side effects in the article. Lastly, since the applicant did not submit evidence comparing COBENFYTM to other available therapies with regard to efficacy, safety, or discontinuation rates, we continue to question whether the evidence demonstrates improved clinical outcomes compared to previously available therapies with respect to these claims, as stated in the FY 2026 IPPS/LTCH PPS final rule (90 FR 36702). After review of the information provided by the applicant and the public comment received in response to the New Technology Town Hall meeting, we are unable to determine that COBENFYTM represents a substantial clinical improvement over existing technologies, and therefore, we are proposing to disapprove new technology add-on payments for COBENFYTM for FY 2027. We are inviting public comments on whether COBENFYTM meets the substantial clinical improvement criterion and our proposal to disapprove new technology add-on payments for COBENFYTM for FY 2027. b. Command Center Electronic Glycemic Management System Glytec, LLC submitted a FY 2027 application for new technology add- on payments for Command Center Electronic Glycemic Management System (Command Center). According to the applicant, Command Center is an electronic medical record (EMR)-integrated cloud-based software designed to maintain blood glucose in hospitalized patients by recommending personalized insulin dosing. According to the applicant, the technology utilizes inputs collected from EMRs to direct ongoing insulin dosage management and daily monitoring related glycemic variables (such as labs and diet) during an inpatient stay until insulin is discontinued or the patient is sent home. Per the applicant, direct per-patient charge for the use of Command Center follows a subscription model. The following table provides an overview of the new technology add- on payment application for Command Center and CMS's preliminary assessment. For additional details provided by the applicant, please refer to the online application posting at https://mearis.cms.gov/public/publications/ntap/NTP251005YD7PG. BILLING CODE 4120-01-P [[Page 19413]] [GRAPHIC] [TIFF OMITTED] TP14AP26.078 BILLING CODE 4120-01-C Newness Criterion Regarding the newness date, the applicant provided an FDA 510(k) clearance letter for Glytec Glucommander (K152300), dated August 4, 2017, to support its new technology add-on payment application for Command Center. Per the 510(k) summary, the predicate device for Glytec Glucommander is GlucommanderTM System (K113852).\33\ Per the applicant, Command Center was available for sale immediately after FDA marketing authorization. Therefore, the newness period for Command Center commenced on the date of FDA clearance, August 4, 2017, or earlier, as discussed further in this section. Because the 3-year anniversary date of the entry of Command Center onto the U.S. market (August 4, 2020, or earlier) occurred prior to FY 2027, we do not believe that the device is eligible for new technology add on payments for FY 2027. Consistent with the statute and our implementing regulations, a technology is no longer considered ``new'' once it is more than 2 to 3 years old, irrespective of how frequently the medical service or technology has been used in the Medicare population (70 FR 47349). Accordingly, we are proposing to disapprove Command Center for new technology add on payments for FY 2027. --------------------------------------------------------------------------- \33\ FDA, GlucommanderTM System, May 8, 2012 (https://www.accessdata.fda.gov/scripts/cdrh/cfdocs/cfPMN/pmn.cfm?ID=K113853, accessed 2/9/2026). --------------------------------------------------------------------------- In addition, regarding substantial similarity, we question whether Command Center has the same or similar mechanism of action as existing technologies that manage glycemic dosing. The applicant stated that Command Center differs from other insulin management methods because it is an intelligent, algorithm-based analytic technology that uses multiple administrative, technical, and clinical inputs to develop an optimized insulin and glycemic management system to control glucose metabolism while minimizing hyper- and hypoglycemic episodes. Per the applicant, glycemic management is typically performed by nurses and doctors using a paper and pencil sliding scale algorithm to estimate the amount of insulin needed based on blood glucose values. According to the applicant, while other digital glycemic management systems can be built into EMR tables or in stand-alone systems, none are as sophisticated or as well-documented as Command Center. However, we note that there are several existing software-based, EMR-integrated glycemic management systems. For example, the 2012 GlucommanderTM System,\34\ the GlucoStabilizer Insulin Dosing Calculator 3.0,\35\ the EndoToolTM Drug [[Page 19414]] Dose Calculator,\36\ and the EndoTool SubQTM \37\ are all FDA-cleared glycemic management tools that monitor patient blood glucose and generate personalized insulin dosing recommendations. Therefore, we disagree with the applicant that Command Center uses a different mechanism of action compared to existing technologies to achieve a therapeutic outcome. Additionally, we disagree with the applicant that the use of Command Center involves the treatment of a different type of disease or patient population compared to existing technology. The applicant stated that Command Center will better address glycemic management needs in patients where higher degrees of blood glucose control accuracy are required, including post-coronary artery bypass graft (CABG) surgery patients, patients with diabetic ketoacidosis or hyperosmolar coma, stroke patients, pregnant patients, or children, and can be used in populations where advanced endocrinology expertise is not readily available. However, as we noted, several technologies are currently available for insulin and glycemic management for the same or similar type of disease and patient populations. Furthermore, we note per the FDA 510(k) summary for K152300, the indications for use for this device are the same as those for its predicate device (K113853). We agree with the applicant that Command Center maps to the same MS-DRG as existing technologies. As a result, we believe that Command Center is substantially similar to existing technologies because it uses the same or similar mechanism of action, maps to the same MS-DRG, and involves the treatment of the same or similar type of disease and patient population when compared to existing technologies, including its predicate device (K113853). We note that, per our policy, if technologies are substantially similar to each other, we use the earliest market availability date as the beginning of the newness period for the technologies. Accordingly, if we determine that Command Center is substantially similar to existing glycemic management systems as described previously, because they all were FDA market authorized prior to Command Center, the newness period for Command Center would have commenced even earlier than its FDA clearance date in 2017. We are inviting public comments on our proposal to disapprove new technology add-on payments for Command Center, including whether the technology is substantially similar to existing technologies and whether it meets the newness criterion. --------------------------------------------------------------------------- \34\ FDA, May 8, 2012, K113853 Glytec LLC GlucommanderTM System (https://www.accessdata.fda.gov/ scripts/cdrh/cfdocs/cfpmn/pmn.cfm?ID=K113853, accessed 1/2/2026). \35\ FDA, September 15, 2014, K141321, Glucostabilizer Insulin Dosing Calculator (https://www.accessdata.fda.gov/scripts/cdrh/cfdocs/cfpmn/pmn.cfm?ID=K141321, accessed 1/2/2026). \36\ FDA, June 14, 2006, K053137 EndoToolTM Drug Dose Calculator (https://www.accessdata.fda.gov/scripts/cdrh/cfdocs/cfpmn/pmn.cfm?ID=K053137, accessed 1/2/2026). \37\ FDA, April 24, 2015, K142918 EndoTool SubQTM (https://www.accessdata.fda.gov/scripts/cdrh/cfdocs/cfpmn/pmn.cfm?ID=K142918, accessed 1/2/2026). --------------------------------------------------------------------------- Cost Criterion Regarding the cost criterion, we note the following concerns with the cost analysis provided by the applicant. We note that the applicant did not remove any charges or indirect charges for prior technology. We are interested in additional information regarding whether Command Center would replace any prior technology, such as existing electronic glycemic management tools. We also note that the average standardized charges per case were not calculated according to the instructions in Appendix A--Standardizing Charges.\38\ Instead, the applicant calculated a single standardization rate factor (1.71) across all hospitals included in the analysis and multiplied it by the average charge per case (unstandardized with no case weight) for every MS-DRG in the analysis. In addition, we note that the final inflated case- weighted standardized charge per case was not provided. As such, we are unable to determine whether the final inflated case weighted standardized charge per case exceeds the case weighted threshold amount; that is, whether Command Center meets the cost criterion for new technology add-on payment. We are inviting public comments on whether Command Center meets the cost criterion. --------------------------------------------------------------------------- \38\ Medicare Electronic Application Request Information System (MEARISTM). Resources: NTAP Appendix A Standardizing Charges (https://mearis.cms.gov/public/resources, accessed 1/8/ 2026). --------------------------------------------------------------------------- Substantial Clinical Improvement Criterion We did not receive any written comments in response to the New Technology Town Hall meeting notice published in the Federal Register regarding the substantial clinical improvement criterion for Command Center. After reviewing the information provided by the applicant, we have the following concerns regarding whether Command Center meets the substantial clinical improvement criterion. We note that it appears that the applicant submitted studies using its predicate device (K113853) to support its assertions as to why Command Center represents a substantial clinical improvement. However, the applicant did not present any clinical data comparing Command Center to its predicate device. With respect to the applicant's claims that Command Center offers a treatment option for patients unresponsive to, or ineligible for, currently available treatments, we note that the applicant compared its predicate device to paper-based insulin infusion protocol,39 40 41 intensive glucose control,\42\ and provider-managed insulin therapy \43\ on achieving target blood glucose timelier, improving clinical outcomes, and reducing resource use. However, we did not receive any information that identifies a patient population that is unresponsive to or ineligible for other available electronic glycemic management solutions, such as the GlucoStabilizer Insulin Dosing Calculator 3.0, the EndoToolTM Drug Dose Calculator, the EndoTool SubQTM, the EndoTool IV 1.10, and its own predicate device, and for which Command Center could be used. --------------------------------------------------------------------------- \39\ Mumpower, A; et al Glycemic Control Using eGMS and Readmission Rates in Cardiovascular Patients Hospitalized with AMI, CHF or Undergoing CABG During a System-Wide Glycemic Initiative. Annual Diabetes Technology Meeting. November 2016. Study was unpublished but presented at a national meeting poster session. \40\ Ponnusamy D, Piziak V, Patel S, Urbanosky R. B2-3: Comparative Effectiveness of a Computerized Algorithm versus a Physician Instituted Protocol to Manage Insulin Infusions after Cardiac Surgery. Clin Med Res. 2014 Sep;12(1-2):97. doi: 10.3121/ cmr.2014.1250.b2-3. PMCID: PMC4453383. \41\ Smiley, D; Cardona, S; Weaver, J; Register, K; Peng, L; Pasquel, F; Umpierrez, G. (Emory University) Hospitalization Costs, Resource Utilization, and Clinical Outcome in Patients Undergoing CABG Receiving Intensive Versus Conservative Glucose Control. American Diabetes Association Scientific Sessions. June 2014. \42\ Umpierrez G, Cardona S, Pasquel F, et al. Randomized Controlled Trial of Intensive Versus Conservative Glucose Control in Patients Undergoing Coronary Artery Bypass Graft Surgery: GLUCO-CABG Trial. Diabetes Care. 2015 Sep;38(9):1665-72. doi: 10.2337/dc15- 0303. Epub 2015 Jul 15. PMID: 26180108; PMCID: PMC4542267. \43\ Aloi J, Bode BW, Ullal J, et al. Comparison of an Electronic Glycemic Management System Versus Provider-Managed Subcutaneous Basal Bolus Insulin Therapy in the Hospital Setting. J Diabetes Sci Technol. 2017 Jan;11(1):12-16. doi: 10.1177/ 1932296816664746. Epub 2016 Sep 25. PMID: 27555601; PMCID: PMC5375075. --------------------------------------------------------------------------- With respect to the assertion that Command Center offers the ability to diagnose a medical condition where it is currently undetectable or earlier than allowed by currently available methods, and that the use of Command Center to make a diagnosis affects the management of the patient, the applicant provided a study showing that patients who relied on the predicate 2012 GlucommanderTM device were more likely than those on standard [[Page 19415]] treatments to reach target blood glucose range.\44\ However, reaching target blood glucose is not a diagnosis, and therefore does not identify and provide evidence for a specific medical condition in a population in which the condition is currently undetectable that can be diagnosed by Command Center, nor how Command Center can diagnose a medical condition earlier than currently available technologies, such as other electronic glycemic management solutions. Furthermore, the FDA 510(k) clearance covering Command Center states that it is not a substitute for, but rather an adjunct to clinical reasoning and that no medical decision should be based solely on the recommended guidance provided by this software program. We further note that the study did not indicate whether the difference between the two groups of patients was statistically significant. --------------------------------------------------------------------------- \44\ Mabrey M, Ullal J, McFarland R, et al. eGlycemic Management Solution Safely Achieves Prescribed Glycemic Target with a Low Incidence of Hypoglycemia in Patients with Acute Myocardial Infarction in the Hospital. American Association of Clinical Endocrinologists Scientific & Clinical Congress. May 2015. --------------------------------------------------------------------------- Similarly, with regard to the applicant's assertion that Command Center significantly improves clinical outcomes for a patient population compared to currently available treatments, we note that one of the two pieces of evidence provided by the applicant mentioned the features and functionalities of Command Center, like real-time glycemic insights, benchmarking, predictive analytics, and system-wide supporting.\45\ However, we did not receive any evidence that compared the clinical outcomes between Command Center and those of other existing technologies. The supporting evidence for these claims included study results on the clinical \46\ and financial \47\ effects of glucose control in general, and the effects of electronic glycemic management systems on hypoglycemia.\48\ Although the applicant claimed that its software has been recognized repeatedly in the community for its advanced,49 50 innovative approach and contribution to medical care, this does not correspond with a clinical outcome under Sec. 412.87(b)(1)(ii)(C). As a result, we are unable to determine whether Command Center significantly improves clinical outcomes relative to existing treatments. --------------------------------------------------------------------------- \45\ Healthcare Tech Outlook. ``Glytec Modernizing Inpatient Insulin Management.'' (Glytec [verbar] Top Diabetes Management Platform-2025.) https://www.healthcaretechoutlook.com/glytec. Accessed 12/12/2025. \46\ Mumpower (2016). op.cit. \47\ Smiley (2014). Op.cit. \48\ Rabinovich (2018). Op.cit. \49\ Healthcare Tech Outlook. Op.cit. \50\ Glytec. ``Glytec Honored as Gold Stevie[supreg] Award Winner in 2025 Stevie[supreg] Awards for Technology Excellence-- Glytec.'' https://glytec.com/newsroom/glytec-honored-as-gold-stevie-award-winner-in-2025-stevie-awards-for-technology-excellence/. July 29,2025. Accessed 1/13/2026. --------------------------------------------------------------------------- After review of the information provided by the applicant, we are unable to determine that Command Center represents a substantial clinical improvement over existing technologies, and therefore, we are proposing to disapprove new technology add-on payments for Command Center for FY 2027. We are inviting public comments on whether Command Center meets the substantial clinical improvement criterion and our proposal to disapprove new technology add-on payments for Command Center for FY 2027. c. GAMIFANT[supreg] (emapalumab-lzsg) Sobi, Inc. submitted an FY 2027 application for new technology add- on payments for GAMIFANT[supreg]. According to the applicant, GAMIFANT[supreg] is an interferon gamma (IFN[gamma])-blocking antibody that targets and neutralizes IFN[gamma] to stop the hyperinflammatory feedback loop of macrophage activation syndrome (MAS). Per the applicant, GAMIFANT[supreg] is an intravenous infusion consisting of a 6 mg/kg loading dose or a 3 mg/kg treatment dose administered over 1 hour. The applicant stated that in the GAMIFANT[supreg] studies, adults received 10 infusions (1 loading dose of 6 mg/kg and 9 treatment doses of 3 mg/kg) over a median 29 days in the inpatient setting. We note that the applicant is seeking new technology add-on payments for GAMIFANT[supreg] for its indication for the treatment of adult and pediatric (newborn and older) patients with hemophagocytic lymphohistiocytosis (HLH)/MAS in known or suspected Still's disease, including systemic Juvenile Idiopathic Arthritis (sJIA), with an inadequate response or intolerance to glucocorticoids, or with recurrent MAS.\51\ --------------------------------------------------------------------------- \51\ In 2018, FDA granted GAMIFANT[supreg] approval under a BLA application for the treatment of adult and pediatric (newborn and older) patients with primary HLH with refractory, recurrent, or progressive disease or intolerance with conventional therapy. --------------------------------------------------------------------------- The following table provides an overview of the new technology add- on payment application for GAMIFANT[supreg] and CMS's preliminary assessment. For additional details provided by the applicant, please refer to the online application posting at https://mearis.cms.gov/public/publications/ntap/NTP250926GGG85. BILLING CODE 4120-01-P [[Page 19416]] [GRAPHIC] [TIFF OMITTED] TP14AP26.079 ICD-10 Coding After review of the information provided by the applicant, we believe the relevant ICD-10-CM diagnosis codes to identify the indication of the treatment of adult and pediatric (newborn and older) patients with HLH/MAS in known or suspected Still's disease, including sJIA, with an inadequate response or intolerance to glucocorticoids, or with recurrent MAS are: [[Page 19417]] [GRAPHIC] [TIFF OMITTED] TP14AP26.080 BILLING CODE 4120-01-C We are inviting public comments on the use of these ICD-10-CM diagnosis codes to identify this indication for purposes of the new technology add-on payment, if approved. Newness Criterion Regarding substantial similarity, based on the information available at the time of this proposed rule, we agree with the applicant that GAMIFANT[supreg] has a new mechanism of action and treats a new type of disease or patient population compared to existing technology, because it is the only FDA-approved treatment for HLH/MAS in known or suspected Still's disease. We note that the applicant did not provide an explanation for why GAMIFANT[supreg] would not map to the same MS-DRGs as other therapies for HLH/MAS in Still's disease. Therefore, based on information available at the time of this proposed rule, we believe that GAMIFANT[supreg] is not substantially similar to existing technology and meets the newness criterion. We consider the beginning of the newness period to commence on June 27, 2025, the date on which GAMIFANT[supreg] received FDA market authorization for this indication. We are inviting public comments on whether GAMIFANT[supreg] is substantially similar to existing technologies and whether GAMIFANT[supreg] meets the newness criterion. Cost Criterion Regarding the cost criterion, we agree with the applicant that the technology meets the cost criterion. We are inviting public comments on whether GAMIFANT[supreg] meets the cost criterion. Substantial Clinical Improvement Criterion We did not receive any written comments in response to the New Technology Town Hall meeting notice published in the Federal Register regarding the substantial clinical improvement criterion for GAMIFANT[supreg]. After review of the information provided by the applicant, we have the following concerns regarding whether GAMIFANT[supreg] meets the substantial clinical improvement criterion. The applicant asserted GAMIFANT[supreg] offers a treatment option for a patient population unresponsive to, or ineligible for, currently available treatments since GAMIFANT[supreg] is the first and only FDA-approved treatment for HLH/MAS in known or suspected Still's disease with an inadequate response or intolerance to glucocorticoids, or with recurrent MAS. However, we question whether GAMIFANT[supreg] offers a treatment option for patients unresponsive to, or ineligible for, currently available treatments, because several second- and third-line therapies, including cyclosporine, etoposide, anakinra, and intravenous immunoglobulin, can also treat patients with an inadequate response or intolerance to glucocorticoids or with recurrent MAS.52 53 54 55 --------------------------------------------------------------------------- \52\ Shakoory B, et al. The 2022 EULAR/ACR points to consider at the early stages of diagnosis and management of suspected haemophagocytic lymphohistiocytosis/macrophage activation syndrome (HLH/MAS). Ann Rheum Dis. 2023;82(10):1271-1285. \53\ Hines MR, et al. Consensus-based guidelines for the recognition, diagnosis, and management of hemophagocytic lymphohistiocytosis in critically ill children and adults. Crit Care Med. 2022;50(5):860-872. \54\ Baldo F, et al. Current treatment in MAS worldwide: a systematic literature review to inform the METAPHOR project. Rheumatology (Oxford). 2025, 64, 32-44. \55\ Minoia F, et al. Clinical features, treatment, and outcome of macrophage activation syndrome complicating systemic juvenile idiopathic arthritis, a multinational, multicenter study of 362 patients. Arthritis Rheumatol. 2014;81(2);112-117. --------------------------------------------------------------------------- Furthermore, we are unable to assess the applicant's assertion that GAMIFANT[supreg] significantly improves clinical outcomes relative to other available services or technologies without a comparison of outcomes to other therapies for patients with an inadequate response or intolerance to glucocorticoids or with recurrent MAS. In addition, while the applicant stated that GAMIFANT[supreg] achieves substantially improved clinical outcomes with a clear and positive benefit:risk profile in treating HLH/MAS patients who had an inadequate response to glucocorticoids and that GAMIFANT[supreg] initiation results in a clinically meaningful reduction of glucocorticoid dosing and contributes to the positive benefit:risk profile for the treatment of patients with HLH/MAS, we question whether having a positive benefit:risk profile is a relevant outcome under Sec. 412.87(b)(1)(ii)(C) because it does not address how GAMIFANT[supreg] improves clinical outcomes relative to other therapies that may be used to treat HLH/MAS patients who had an inadequate response to glucocorticoids or with recurrent MAS. We also note that to support its assertion regarding improved clinical outcomes, the applicant provided results from two clinical studies, NI-0501-06 and NI-0501-14. We note that all patients in the studies responded inadequately to high-dose [[Page 19418]] glucocorticoids prior to study treatment, and providers would typically initiate other second- and third-line therapies in this patient population. While the applicant claimed GAMIFANT[supreg] reduces glucocorticoid dosing, it is unclear whether GAMIFANT[supreg] significantly reduces glucocorticoid dosing compared to other therapies that may be used in these patients. In addition, some therapies used for MAS in Still's disease such as anakinra and cyclosporine were allowed during these studies and could have affected the outcomes, and thus, we are unclear how these studies support the assertion of improved outcomes relative to other available treatments. While the applicant claims a positive benefit:risk profile for GAMIFANT[supreg], the submitted clinical information does not clearly explain how it was determined whether serious adverse events were related to GAMIFANT[supreg], nor does it provide sufficient detail on the reported serious adverse events. Specifically, we note that while De Benedetti et al. (2023) states that there were 9 serious adverse events in NI-0501-06 and the long-term follow-up, which appear to include one cytomegalovirus reactivation, one SJIA flare, one edema of the ankle, one MAS episode, one cardiopulmonary failure, and one severe neutropenia, it is unclear what the other three reactions were and which were related to GAMIFANT[supreg]. Grom et al. (2025) also stated there were 7 serious adverse events in NI-0501-14, but it is unclear what these events were and which were related to GAMIFANT[supreg]. Furthermore, we would appreciate more detail on the visual analogue scale (VAS) scoring system used in the clinical trials in order to fully assess the efficacy outcome data. We also note that the long-term clinical trials included up to 12 months of follow-up, and we question if this is enough time to assess for MAS recurrence. After review of the information provided by the applicant, we are unable to determine whether GAMIFANT[supreg] represents a substantial clinical improvement over existing technologies, and therefore, we are proposing to disapprove new technology add-on payments for GAMIFANT[supreg] for FY 2027. We are inviting public comments on whether GAMIFANT[supreg] meets the substantial clinical improvement criterion and our proposal to disapprove FY 2027 new technology add-on payments for GAMIFANT[supreg]. d. Orca-T Orca Bio submitted an FY 2027 application for new technology add-on payments for Orca-T. According to the applicant, Orca-T is an allogeneic stem cell and T-cell immunotherapy derived from a human leukocyte antigen (HLA)-matched donor for the curative treatment of hematologic malignancies, including acute myeloid leukemia (AML), acute lymphoblastic leukemia (ALL), high-risk myelodysplastic syndrome (MDS), and mixed-phenotype acute leukemia (MPAL), in adults. Orca-T is administered as four single-dose, patient-specific infusions composed of purified hematopoietic stem and progenitor cells (HSPC), regulatory T cells (Treg), and conventional T cells (Tcon) along with a diluent from an HLA-matched donor blood apheresis product. The following table provides an overview of the new technology add- on payment application for Orca-T and CMS's preliminary assessment. For additional details provided by the applicant, please refer to the online application posting at https://mearis.cms.gov/public/publications/ntap/NTP251003TH4EH. [GRAPHIC] [TIFF OMITTED] TP14AP26.081 [[Page 19419]] Newness Criterion Regarding substantial similarity, the applicant stated that Orca-T does not have the same or similar mechanism of action as any therapies that are currently used in potentially curative hematologic malignancy treatments mapped to Pre-MDC MS-DRG 018 (Chimeric Antigen Receptor [CAR] T-cell and Other Immunotherapies). While the applicant asserted that Orca-T's engineered product is novel in composition of HSPC, Treg, and Tcon fractions derived from an allograft and administered in a specific sequence, we note that the cell lines isolated in Orca-T already exist in an unmanipulated allograft administered as part of an allogeneic hematopoietic stem cell transplantation (alloHSCT) after cytoreductive conditioning. However, we agree with the applicant that Orca-T is not substantially similar to alloHSCT because it maps to a different MS-DRG than alloHSCTs, which are mapped to Pre-Major Diagnostic Category (MDC) MS-DRG 014 (Allogeneic Bone Marrow Transplant). Therefore, based on information available at the time of this proposed rule, we believe that Orca-T is not substantially similar to existing technologies and meets the newness criterion. We are inviting public comments on whether Orca-T is substantially similar to existing technologies and whether Orca-T meets the newness criterion. Cost Criterion Regarding the cost criterion, we agree with the applicant that the technology meets the cost criterion. We are inviting public comments on whether Orca-T meets the cost criterion. Substantial Clinical Improvement Criterion Regarding substantial clinical improvement, we received a public comment in response to the New Technology Town Hall meeting notice published in the Federal Register regarding the substantial clinical improvement criterion for Orca-T, which we are summarizing in this section. Comment: A commenter submitted a public comment regarding whether Orca-T meets the substantial clinical improvement criterion, stating that CMS should prioritize measurable, reproducible, and auditable clinical improvement rather than narrative claims alone in assessing substantial clinical improvement. The commenter stated that, where possible, substantial clinical improvement determinations should be supported by standardized episode definitions, clearly described patient selection and comparators, and outcome measures, such as complications, length of stay, and readmissions, that can be independently reproduced across sites. In addition, the commenter emphasized that it may be especially important that claimed improvements are supported by reproducible episode definitions, clearly documented eligibility and protocol criteria, and integrity-preserving audit trails that can be independently reviewed when decision support (including AI-assisted decision support) is used for patient selection. The commenter also recommended that CMS give greater weight to submissions that provide traceable evidence linkage from claimed improvements back to underlying data and protocol definitions to improve consistency and transparency. The commenter suggested that this would help ensure that new technology add-on payments recognize technologies delivering clinically meaningful and verifiable improvements in real-world inpatient care. Response: We thank the commenter for the comment. After review of the information provided by the applicant and the public comment received in response to the New Technology Town Hall meeting, we have the following concerns regarding whether Orca-T meets the substantial clinical improvement criterion. We are concerned about the lack of technology-specific evidence in support of the applicant's assertion that Orca-T provides a treatment option for patients unresponsive to, or ineligible for, currently available treatments. The applicant claimed that Orca-T is favorable to patients at risk of severe toxicities and mortality with standard of care (SoC) alloHSCT. We note that the supporting evidence for this claim is comprised of background literature about the impact of graft- versus-host disease (GVHD) on patients with hematologic malignancies in general, but does not identify a patient population that is unresponsive to, or ineligible for, alloHSCT, nor does it demonstrate that Orca-T can treat such a patient population. We remain unclear if there is a group of patients who can be treated with Orca-T, but cannot receive existing treatments for hematologic malignancies such as alloHSCT, CAR T-cell therapies, and chemotherapies. We are also concerned that we are unable to assess whether Orca-T significantly improves clinical outcomes relative to services or technologies previously available without evidence comparing outcomes for Orca-T to other therapies available for patients with hematologic malignancies, including CAR T-cell therapies. While the evidence compared Orca-T to conventional MAC-alloHSCT approaches using standard GVHD prophylaxis regimens, it did not include comparisons to other therapeutic modalities such as CAR-T cell therapies which are available for the treatment of patients with hematologic malignancies and may not be associated with the risk of GVHD. We also note that the supporting evidence for this claim does not include comparisons to other treatment options used in this patient population outside the unmanipulated allo- HSCT setting, such as chemotherapies, nor does it compare the effects of Orca-T with reduced-toxicity or reduced-intensity conditioning on regimen-related toxicity and other clinical outcomes. As a result, we question whether Orca-T results in improved clinical outcomes relative to existing hematologic malignancy treatments. We are inviting public comments on whether Orca-T meets the substantial clinical improvement criterion. e. RAPIBLYKTM (landiolol) AOP Health US LLC submitted a FY 2027 application for new technology add-on payments for RAPIBLYKTM. According to the applicant, RAPIBLYKTM is a beta-1 ([beta]1) adrenergic blocker that inhibits adrenaline and noradrenaline's effects on the heart for short-term reduction of ventricular rate in adults with supraventricular tachycardia (SVT), including atrial fibrillation (AF) and atrial flutter (AFL). RAPIBLYKTM is supplied as a 280 mg lyophilized powder in a single-dose vial (equivalent to 300 mg of landiolol HCl) and, following reconstitution, is administered as a continuous intravenous infusion titrated according to ventricular rate.\56\ The applicant stated that during an inpatient stay, the average patient requires five RAPIBLYKTM vials. --------------------------------------------------------------------------- \56\ AOP Orphan Pharmaceuticals. (2024, November). RAPIBLYK (landiolol) for injection, for intravenous use: highlights of prescribing information. https://www.accessdata.fda.gov/drugsatfda_docs/label/2024/217202s000lbl.pdf. --------------------------------------------------------------------------- The following table provides an overview of the new technology add- on payment application for RAPIBLYKTM and CMS's preliminary assessment. For additional details provided by the applicant, please refer to the online application posting at https://mearis.cms.gov/public/publications/ntap/NTP251006EVR3D. [[Page 19420]] [GRAPHIC] [TIFF OMITTED] TP14AP26.082 Newness Criterion Regarding commercial availability, the applicant stated that, after its NDA approval on November 22, 2024, RAPIBLYKTM was not immediately for sale and became commercially available on July 21, 2025, because the applicant needed to work through a number of time- intensive steps to facilitate U.S. commercial launch, including establishing a new entity for U.S. operations, identifying and contracting with a third-party logistics vendor and distributor, and identifying and contracting with wholesalers and group purchasing organizations. We are interested in additional information regarding the cause of the delay in commercial availability. Regarding substantial similarity, we disagree with the applicant that RAPIBLYKTM uses a different mechanism of action compared to existing heart rate control technologies. Per the applicant, RAPIBLYKTM directly blocks [beta]1-adrenergic receptors on cardiac myocytes preventing catecholamine-induced increases in heart rate and conduction velocity. According to the applicant, unlike traditional beta blockers that rely on hepatic metabolism, have 3- to 12-hour half-lives, and exhibit lower [beta]1/[beta]2 selectivity ratios, RAPIBLYKTM is rapidly hydrolyzed by tissue and plasma esterases, yielding an ultra-short half-life of approximately 3 to 4 minutes without requiring hepatic clearance, and demonstrates an exceptionally high [beta]1/[beta]2 selectivity ratio. While we recognize that RAPIBLYKTM is metabolized and cleared differently compared to other beta blockers, we do not believe that this constitutes a unique mechanism of action because RAPIBLYKTM, like other beta blockers, blocks [beta]1- adrenergic receptors, reducing sympathetic stimulation. Additionally, we disagree with the applicant that RAPIBLYKTM treats a new patient population or disease compared to existing technology because there are other beta blockers, such as esmolol, that are FDA-approved for the treatment of adults with SVT, including AF and AFL. According to the applicant, RAPIBLYKTM is uniquely suited to resolve acute AF in a patient population with impaired cardiac function and hemodynamic instability because it is designed to safely manage tachyarrhythmias in patients with hemodynamic instability and hypotension. However, we note that other therapies, such as esmolol, can also be used to treat acute AF patients with impaired cardiac function. While the applicant stated that in RAPIBLYKTM's prescribing label, a dosing regimen is included for patients with impaired cardiac function, we note that the absence of a dosing regimen for cardiac impairment in the prescribing label \57\ for esmolol does not preclude the use of this drug in this patient population. Furthermore, in regards to the applicant's claim that RAPIBLYKTM can be used in acute AF patients with hemodynamic instability, we note that according to both prescribing labels, esmolol and RAPIBLYKTM have the same contraindications for use in patients with hemodynamic instability, including those with severe sinus bradycardia, heart block greater than first degree, sick sinus syndrome, decompensated heart failure, and cardiogenic shock. While the applicant made several statements related to RAPIBLYKTM's dosing regimen, safety profile, and suitability for cardiac impaired patients, we believe this is relevant to the assessment of substantial clinical improvement, rather than of newness. We did not receive evidence identifying a new patient population or type of disease which RAPIBLYKTM treats that cannot be treated with existing technologies such as esmolol, amiodarone, or digoxin. --------------------------------------------------------------------------- \57\ WG Critical Care, LLC. (1986, December). Esmolol hydrochloride in water for injection, for intravenous use: highlights of prescribing information. https://www.accessdata.fda.gov/drugsatfda_docs/label/2024/205703s003lbl.pdf. --------------------------------------------------------------------------- Accordingly, as it appears that RAPIBLYKTM and esmolol may use the same or similar mechanism of action to achieve a therapeutic outcome, are assigned to the same MS-DRG, and treat the same or similar patient population and disease, that is, adult patients with SVT including AF and AFL, we believe that these technologies are substantially similar to each other. We note that, per our policy, if technologies are substantially similar to each other, we use the earliest market availability date as the beginning of the [[Page 19421]] newness period for the technologies. Accordingly, if we determine that RAPIBLYKTM is substantially similar to esmolol, we believe the newness period for RAPIBLYKTM would begin on December 31, 1986, the date esmolol received FDA approval. Since esmolol has been on the U.S. market since 1986, the 3-year anniversary date of its entry onto the market occurred prior to FY 2027. Therefore, RAPIBLYKTM would not be considered new and would be ineligible for new technology add-on payments for FY 2027. We are inviting public comments on whether RAPIBLYKTM is substantially similar to existing technologies and whether RAPIBLYKTM meets the newness criterion. Cost Criterion Regarding the cost criterion, we agree with the applicant that the technology meets the cost criterion. We are inviting public comments on whether RAPIBLYKTM meets the cost criterion. Substantial Clinical Improvement Criterion Regarding substantial clinical improvement, we also received a few public comments in response to the New Technology Town Hall meeting notice published in the Federal Register regarding the substantial clinical improvement criterion for RAPIBLYKTM, which we are summarizing in this section. Comment: The applicant submitted a comment in response to the New Technology Town Hall meeting. With regard to a question on which high- risk population with AF is not well-managed by other beta blockers, the applicant stated that, based on Koukoulitsios et al. (2025) and the 2023 AF Consensus Guidelines, this refers to patients with impaired cardiac output, specifically those with an ejection fraction below 40 percent, as described in its application.58 59 The applicant also submitted one study in addition to its comment letter while discussing two other studies to support RAPIBLYKTM's substantial clinical improvement.60 61 62 The applicant submitted Dizdarevic et al. (2025), a multicenter, prospective observational study of 450 European patients with SVTs, including AF and AFL, requiring acute rate control treated with RAPIBLYKTM across intensive care units (ICUs), emergency departments, and general wards to support its claim that RAPIBLYKTM provides a new, effective heart rate control option for acute AF patients with significant comorbidities, including chronic heart failure (CHF) and renal impairment. Per the applicant, the authors defined subgroups by arrhythmia type, comorbidities (such as sepsis or acute myocardial infarction), and concomitant interventions. According to the applicant, the primary endpoints included RAPIBLYKTM utilization patterns, such as infusion duration, dosing, and the route of administration (central or peripheral venous access). The applicant stated that the secondary endpoints included time to heart rate control, sinus rhythm restoration, need for cardioversion, blood pressure effects, ICU and hospital length of stay (LOS), and safety outcomes, such as adverse events (AEs), serious AEs (SAEs), and major adverse cardiovascular events (MACEs). As reported by the applicant, Dizdarevic et al. (2025) showed that 74.2 percent of patients receiving RAPIBLYKTM achieved heart rate control within 4 hours of discontinuation. Per the applicant, the median heart rate at the end of RAPIBLYKTM infusion was 100 beats per minute (bpm), with statistically significant reductions compared to baseline (p < 0.001) across all arrhythmia subgroups. The applicant also stated that patients' blood pressure generally remained stable throughout treatment, with no clinically meaningful changes in systolic or diastolic values, and that study showed favorable safety outcomes: AEs occurred in 17.6 percent of patients, but only 2.0 percent experienced hypotension and only 1 case reported bradycardia. Per the applicant, none of the AEs or MACEs were attributed to RAPIBLYKTM treatment, and only 6 patients (1.3 percent) discontinued therapy due to AEs. --------------------------------------------------------------------------- \58\ Koukoulitsios G, Tsikritsaki K, Magklaras G, Koutivas AM, Kalogeromitros A, Papaioannou V. Comparison of Landiolol and Esmolol on Haemodynamic Responses During Weaning of Intensive Care Unit Patients with Reduced Ejection Fraction after Vascular Surgery. Card Fail Rev. 2025 May 21;11:e13. https://doi.org/10.15420/cfr.2024.18. \59\ Cafaro T, Allwood M, McIntyre WF, Park LJ, Daza J, Ofori SN, Ke Wang M, Borges FK, Conen D, Marcucci M, Healey JS, Whitlock RP, Lamy A, Belley-C[ocirc]t[eacute] EP, Spence JD, McGillion M, Devereaux PJ. Landiolol for the prevention of postoperative atrial fibrillation after cardiac surgery: a systematic review and meta- analysis. Can J Anaesth. 2023 Nov;70(11):1828-1838. https://doi.org/10.1007/s12630-023-02586-0. \60\ Dizdarevic, A.-M., [Scaron]ramko, M., Mangner, N., Merkely, B., Zima, E., Nikolaos, N., Scherr, D., Knotzer, J., K[ouml]glberger, P., Nouvaki, Z., Martinek, M., Hnat, T., Bethlehem, C., Fras, Z., Go[zacute]dzik, W., Kotanidou, A., D[aogon]browski, W., Lesiak, M., Stefanska-Wronka, K., . . . Siller-Matula, J. (2025). A multicentre observational study on landiolol use, efficacy, and safety in European patients with supraventricular arrhythmia (Landi-UP). European Heart Journal: Acute Cardiovascular Care. Advance online publication. https://doi.org/10.1093/ehjacc/zuaf129. \61\ Floria, M., Oancea, A. F., Morariu, P. C., Burlacu, A., Iov, D. E., Chiriac, C. P., Baroi, G. L., Stafie, C. S., Cuciureanu, M., Scripcariu, V., & Tanase, D. M. (2024). An overview of the pharmacokinetics and pharmacodynamics of landiolol (an ultra-short acting [beta]1 selective antagonist) in atrial fibrillation. Pharmaceutics, 16(4), 517. https://doi.org/10.3390/pharmaceutics16040517. \62\ Perrett, M., Gohil, N., Tica, O., Bunting, K. V., & Kotecha, D. (2024). Efficacy and safety of intravenous beta-blockers in acute atrial fibrillation and flutter is dependent on beta-1 selectivity: A systematic review and meta-analysis of randomised trials. Clinical Research in Cardiology, 113(6), 831-841. https://doi.org/10.1007/s00392-023-02295-0. --------------------------------------------------------------------------- The applicant also discussed a review article that was already submitted (Floria et al., 2024) to support its claims that RAPIBLYKTM is effective in reducing the incidence of postoperative atrial fibrillation (POAF) in cardiac surgery patients. According to the applicant, this review provided a comprehensive overview of RAPIBLYKTM, including its pharmacology, clinical applications, efficacy, safety profile, and future directions in research and clinical data. Per the applicant, as described in Floria et al. (2024),\33\ in the randomized, double-blind, placebo-controlled PASCAL trial, coronary artery bypass grafting (CABG) patients who received RAPIBLYKTM infusion had AF incidence of 5 percent compared to 34.3 percent for placebo (p = 0.0006), along with reductions in inflammatory and ischemic biomarkers. Per the applicant, similarly, the PLATON study of 60 patients with left ventricular ejection fraction below 35 percent who had cardiac surgery performed with cardiopulmonary bypass found AF in only 10 percent of the RAPIBLYKTM group compared to 40 percent of controls (p = 0.002), along with improved brain natriuretic peptide levels, ischemic biomarkers, and shorter hospital stays. According to the applicant, across these trials, inclusion criteria focused on patients undergoing major cardiac surgery, with some studies targeting elderly populations or those with reduced ventricular function, while exclusion criteria involved contraindications to beta blockers, such as severe bradycardia or advanced heart block. The applicant stated that endpoints consistently measured AF incidence, biomarker changes, and safety outcomes. Per the applicant, results were statistically significant, confirming that RAPIBLYKTM not only reduces POAF but also improves perioperative biomarker profiles and clinical outcomes. The applicant stated that its rapid onset, short half-life, and high cardioselectivity make RAPIBLYKTM a safe and effective option for perioperative heart rate control, [[Page 19422]] particularly in critically ill patients or those with compromised cardiac function. According to the applicant, these trials also show improved outcomes beyond rhythm control, including reductions in inflammatory and ischemic biomarkers, shorter hospital stays, and better tolerance in compromised cardiac patients. The applicant stated that, taken together, this evidence supports the claim that RAPIBLYKTM offers superior AF prevention and outcome benefits compared to other heart rate control therapies. In addition, the applicant discussed Perrett et al. (2024), a systematic review and meta-analysis evaluating the efficacy and safety of intravenous (IV) beta blockers in acute AF and AFL, focusing on the role of [beta]-1 receptor selectivity, to support its claim that RAPIBLYKTM offers a new heart rate control option for acute AF patients, including those with CHF and renal impairment. According to the applicant, across 12 randomized controlled trials with 1,152 patients, the study found that: (1) overall, non-selective IV beta blockers were not superior to other pharmacological agents for heart rate control or conversion to sinus rhythm, but (2) outcomes varied significantly depending on the degree of beta-1 selectivity, with RAPIBLYKTM having superior clinical results and the highest beta-1 selectivity. The applicant stated that, in this analysis, a total of 1,152 adult patients were included, with 526 receiving IV beta blockers and 626 receiving comparators such as diltiazem, digoxin, verapamil, flecainide, ibutilide, or placebo. Per the applicant, the patient population had a mean age of 62.4 years, 38 percent were women, and the baseline heart rate averaged 137 bpm. The applicant stated that most patients had AF (78 percent), with 11 percent having AFL. The study's inclusion criteria required adults (>=18 years) with AF/AFL needing acute treatment, typically with ventricular rate >=100 bpm. According to the applicant, exclusion criteria included obstructive lung disease, recent anti-arrhythmic use, prophylactic therapy, or arrhythmias other than AF/AFL. The applicant stated that the primary endpoints were heart rate reduction and proportion achieving target heart rate, and the secondary endpoints included conversion to sinus rhythm, need for electrical cardioversion, blood pressure changes, AEs (hypotension, bradycardia, leading to drug discontinuation), time to discharge, and mortality. Per the applicant, Perrett et al. (2024) did not show statistically significant difference between beta blockers and comparators for heart rate reduction (standardized mean difference - 0.65 bpm, p = 0.19) or achieving the target heart rate (relative risk 0.85, p = 0.70). The applicant stated subgroup analysis revealed, however, that (1) conventional selective beta-1 blockers, metoprolol and esmolol, were inferior to diltiazem (relative risk 0.33, p < 0.001), and (2) RAPIBLYKTM was superior to digoxin/diltiazem (relative risk 1.98, p < 0.001). According to the applicant, safety outcomes indicated no overall difference in hypotension (relative risk 1.85, p = 0.11) or bradycardia (relative risk 1.29, p = 0.76) compared to controls. The applicant stated that, while non-selective beta blockers were associated with significantly more hypotension (p < 0.001) and bradycardia (p = 0.003), RAPIBLYKTM did not increase AEs. According to the applicant, this meta-analysis demonstrated that RAPIBLYKTM improved outcomes compared to conventional agents like diltiazem or digoxin (as well as non-selective beta blockers) for acute AF and AFL, achieving superior heart rate control without increasing hypotension or bradycardia. The applicant stated these findings directly support that RAPIBLYKTM offers a valuable new option for patients with AF who also have comorbidities such as CHF or renal impairment, where tolerability and safety are critical. A few commenters expressed support for new technology add-on payments for RAPIBLYKTM by asserting that there is a population for whom RAPIBLYKTM is a more appropriate treatment option than other beta blockers. Two clinicians stated their belief that improved access to RAPIBLYKTM would benefit critically ill patients who previously had no viable alternatives. The commenters stated that RAPIBLYKTM has been available in Japan and the European Union for years and that its ultra-selective beta-1 blockade provides effective heart rate control with minimal impact on blood pressure, vascular tone, or bronchial tone, enabling safe use in patients with impaired cardiac contractility, renal dysfunction, or advanced heart failure. The commenters also stated that RAPIBLYKTM's rapid onset of action, titratability, and ultra-short half-life and ultra-high selectivity for beta-1 cardio- receptors have been shown to effectively lower heart rate and allows for precise control and efficacy evaluation in the ICU environment, where patients are highly susceptible to adverse drug effects. A few commenters asserted that RAPIBLYKTM can treat a different patient population compared to other heart rate control drugs, including other beta blockers, as it has demonstrated effective management of tachyarrhythmias, even in patients with impaired cardiac function or at risk of hemodynamic instability or hypotension. The commenters reiterated evidence submitted in the application (Koukoulitsios et al., 2025; Cafaro et al., 2023; Si et al., 2025) and asserted that, based on their clinical experience, there is a clear gap in available and effective heart rate control therapies for these high- risk patient subgroups,\63\ including use in critically ill patients, who have shown improved outcomes even compared to other selective beta blockers such as esmolol. The commenters noted that Si et al. (2025) showed that patients in the RAPIBLYKTM group experienced a shorter hospital LOS and a shorter ICU stay, including in the elderly cohort (>=65 years old), than patients in the esmolol group. One commenter stated current options often lack the safety and efficacy needed for rapid rate control in unstable patients and asserted that there is a great unmet need for RAPIBLYKTM, particularly for his patients with heart failure with reduced ejection fraction and/or shock, where traditional beta blockers pose substantial risks. One commenter stated that current consensus guidelines recommend beta blockers or calcium channel blockers, but these agents are often contraindicated in ICU patients due to risk of hypotension or for patients with impaired cardiac function, while other alternatives, such as amiodarone or digoxin, are limited by toxicities, poor efficacy in high adrenergic states, or unfavorable pharmacokinetics. Another commenter stated that experience with RAPIBLYKTM outside the U.S. has demonstrated the benefits of its use in this patient population, with the European Society of Cardiology (ESC) 2024 Guidelines for the Management of AF stating that RAPIBLYKTM safely controls rapid AF in patients with low ejection fraction with minimal impact on contractility or blood pressure.\64\ The [[Page 19423]] commenter cited the RAPIBLYKTM prescribing information, which contains specific dosing instructions for patients with impaired cardiac function, stating that 5 randomized, double-blind, placebo- controlled studies, which included treatment of 317 adults with SVT, showed that within 10 minutes, patients treated with RAPIBLYKTM had a decreased heart rate of 40 to 90 percent compared to 0 to 11 percent for patients treated with placebo.\65\ According to the commenter, the availability of RAPIBLYKTM would allow him to stabilize these patients quickly and safely, improving outcomes in the most vulnerable population. --------------------------------------------------------------------------- \63\ Si X, Yuan H, Shi R, Song W, Guo J, Jiang J, Yang T, Ma X, Wang H, Chen M, Wu J, Guan X, Monnet X. Comparison of the efficacy and safety of Landiolol and Esmolol in critically ill patients: a propensity score-matched study. Ann Intensive Care. 2025 Jan 12;15(1):5. https://doi.org/10.1186/s13613-024-01418-8. \64\ Van Gelder, IC et al., 2024 ESC Guidelines for the management of atrial fibrillation developed in Collaboration with the European Association for Cardio-Thoracic Surgery (EACTS), EURO. HEART J. 00, 1-101. https://doi.org/10.1093/eurheartj/ehae176. \65\ AOP Orphan Pharmaceuticals. (2024 November). RAPIBLYK (landiolol) for injection, for intravenous use: Highlights of Prescribing Information. https://www.accessdata.fda.gov/drugsatfda_docs/label/2024/217202s000lbl.pdf. --------------------------------------------------------------------------- Response: We thank the applicant and commenters for their comments. After review of the information provided by the applicant and the public comments received in response to the New Technology Town Hall meeting, we have the following concerns regarding whether RAPIBLYKTM meets the substantial clinical improvement criterion. While the applicant asserted that RAPIBLYKTM offers a treatment option for patients unresponsive to, or ineligible for, currently available treatments because it offers a new heart rate control option for patients with acute AF and additional co- morbidities, including CHF and renal impairment, we note that we did not receive evidence to identify a patient population that is unresponsive to, or ineligible for, currently available treatments. Although the applicant claimed that the use of non-selective beta blockers and calcium channel blockers for rate control are ineffective or contraindicated in high risk patients, which the applicant defined as those with an ejection fraction (EF) less than 40 percent, we note that beta blockers, including esmolol, a selective beta-1 adrenergic blocker, are not specifically contraindicated for use in patients with an EF less than 40 percent. According to the 2023 Guideline for the Diagnosis and Management of AF \66\ provided by the applicant, patients with an EF less than 40 percent can receive beta blockers, amiodarone, and digoxin for rate control. Additionally, the applicant cited Eslami et al. (2021),\67\ a prospective study from 2018 to 2020 consisting of 87 patients with HF or AF with underlying chronic kidney dysfunction which observed that there was a significant relationship between Glomerular Filtration Rate (GFR) and serum digoxin concentration. However, we note that this is not a contraindication to the use of digoxin and that a dose reduction \68\ would be recommended. --------------------------------------------------------------------------- \66\ Joglar JA, Chung MK, Armbruster AL, Benjamin EJ, Chyou JY, Cronin EM, Deswal A, Eckhardt L, Goldberger ZD, Gopinathannair R, Gorenek B, Hess PL, Hlatky M, Hogan G, Ibeh C, Indik JH, Kido K, Kusumoto F, Link MS, Linta KT, Marcus GM, McCarthy PM, Patel N, Patton KK, Perez MV, Piccini JP, Russo AM, Sanders P, Streur MM, Thomas KL, Times S, Tisdale JE, Valente AM, Van Wagoner DR. 2023 ACC/AHA/ACCP/HRS guideline for the diagnosis and management of atrial fibrillation: a report of the American College of Cardiology/ American Heart Association Joint Committee on Clinical Practice Guidelines. Circulation. 2024;149:e1-e156. https://doi.org/10.1161/CIR.0000000000001193. \67\ Eslami V, Mortezapour F, Samavat S, Ziae S, Gheymati A (2021) Evaluating plasma Digoxin concentration after an intravenous loading dose in patients with renal failure. Arch Clin Nephrol 7(1): 033-037. https://dx.doi.org/10.17352/acn. \68\ Concordia Pharmaceuticals Inc. Prescribing information for Lanoxin (digoxin) injection, for intravenous or intramuscular use; 2025. (Revised 10/2025). Available at: https://www.accessdata.fda.gov/drugsatfda_docs/label/2025/009330s040lbl.pdf. --------------------------------------------------------------------------- Regarding the assertion that RAPIBLYKTM significantly improves clinical outcomes relative to services or technologies previously available, we are concerned that we did not receive sufficient evidence to compare RAPIBLYKTM to other available treatments, such as amiodarone. To support its claim that RAPIBLYKTM reduces AF and improves outcomes compared to other heart rate control therapies in patients at high risk for POAF, the applicant provided Koukoulitsios et al. (2025),\69\ a prospective, randomized, open-label study consisting of 39 patients in an ICU in General Hospital of Athens from 2018 to 2020 that observed RAPIBLYKTM reduced heart rate (HR) by 40 bpm in comparison to 30 bpm for esmolol at 30 minutes. However, we note that the study did not assess for AF or whether use of RAPIBLYKTM and esmolol reduced AF events. The applicant also cited Cafaro et al. (2023),\70\ a systematic review and meta-analysis of nine randomized controlled studies that observed RAPIBLYKTM showed a 12.2 percent incidence in POAF compared to 32.6 percent for the control group. However, while patients treated with RAPIBLYKTM showed a reduction in POAF (56 events in 460 patients) compared to those who received either saline placebo or undefined controls (133 events in 408 patients) (p < 0.00001) in the control group, we note that it is difficult to evaluate if RAPIBLYKTM reduces AF and improves outcomes compared to other heart rate control therapies because it is unclear if existing therapies were included as undefined controls. --------------------------------------------------------------------------- \69\ Koukoulitsios G, Tsikritsaki K, Magklaras G, Koutivas AM, Kalogeromitros A, Papaioannou V. Comparison of Landiolol and Esmolol on Haemodynamic Responses During Weaning of Intensive Care Unit Patients with Reduced Ejection Fraction after Vascular Surgery. Card Fail Rev. 2025 May 21;11:e13. https://doi.org/10.15420/cfr.2024.18. \70\ Cafaro T, Allwood M, McIntyre WF, Park LJ, Daza J, Ofori SN, Ke Wang M, Borges FK, Conen D, Marcucci M, Healey JS, Whitlock RP, Lamy A, Belley-C[ocirc]t[eacute] EP, Spence JD, McGillion M, Devereaux PJ. Landiolol for the prevention of postoperative atrial fibrillation after cardiac surgery: a systematic review and meta- analysis. Can J Anaesth. 2023 Nov;70(11):1828-1838. https://doi.org/10.1007/s12630-023-02586-0. --------------------------------------------------------------------------- Similarly, we question whether the provided evidence is sufficient to demonstrate that RAPIBLYKTM leads to improved outcomes, reduced hospital LOS, and reduced ICU LOS in critically ill patients and those with POAF. To support this claim, the applicant submitted one peer-reviewed study (Si et al., 2025),\71\ which retrospectively observed RAPIBLYKTM and esmolol's effects in 438 surgical and medical ICU patients (292 receiving esmolol and 146 receiving RAPIBLYKTM) with tachycardia, noting that a small subset of patients had AF (9.8 percent). The study observed significantly shorter ICU and hospital LOS in the RAPIBLYKTM group compared to the esmolol group (ICU LOS: 4.9 vs. 6.7 days, p = 0.011; hospital LOS: 26.5 vs. 30.0 days, p = 0.044). However, we note that the study treated patients with moderate illness severity and used physician preference rather than randomization to determine treatment selection. These design features limit generalizability to critically ill patients and may introduce the potential for selection bias and confounding in the reported outcomes. --------------------------------------------------------------------------- \71\ Si, X., Yuan, H., Shi, R., Song, W., Guo, J., Jiang, J., Yang, T., Ma, X., Wang, H., Chen, M., Wu, J., Guan, X., & Monnet, X. (2025). Comparison of the efficacy and safety of Landiolol and Esmolol in critically ill patients: a propensity score-matched study. Annals of intensive care, 15 (1), 5. https://doi.org/10.1186/s13613-024-01418-8. --------------------------------------------------------------------------- After review of the information provided by the applicant and the public comments received in response to the New Technology Town Hall meeting, we are unable to determine that RAPIBLYKTM represents a substantial clinical improvement over existing technologies, and therefore, we are proposing to disapprove FY 2027 new technology add-on payments for RAPIBLYKTM. We are inviting public comments on whether RAPIBLYKTM meets the substantial clinical improvement criterion and our proposal to disapprove new technology add-on payments for RAPIBLYKTM for FY 2027. [[Page 19424]] f. WASKYRATM (etuvetidigene autotemcel) Fondazione Telethon submitted an FY 2027 application for new technology add-on payments for WASKYRATM. According to the applicant, WASKYRATM is a one-time, cell-based autologous gene therapy indicated for the treatment of pediatric patients 6 months and older and adults with Wiskott-Aldrich Syndrome (WAS) who have a mutation in the WAS gene for whom hematopoietic stem cell transplantation (HCT) is appropriate and no suitable human leukocyte antigen (HLA)-matched related stem cell donor is available. Per the applicant, following reduced-intensity conditioning, WASKYRATM is administered intravenously as a single autologous infusion of gene-corrected cluster of differentiation (CD)34+ hematopoietic stem and progenitor cells (HSPCs), with a minimum recommended dose of 7.0x10\6\ CD34+ cells/kg, individualized by patient weight and leukapheresis yield. The following table provides an overview of the new technology add- on payment application for WASKYRATM and CMS's preliminary assessment. For additional details provided by the applicant, please refer to the online application posting at https://mearis.cms.gov/public/publications/ntap/NTP2510033XJPK. BILLING CODE 4120-01-P [GRAPHIC] [TIFF OMITTED] TP14AP26.083 BILLING CODE 4120-01-C Newness Criterion The applicant stated that the technology would not be commercially available until March 31, 2026, due to the applicant's need to establish commercial infrastructure, finalize import logistics, and plan for U.S. market compliance. We are interested in additional information regarding when the technology first became available for sale and the cause of any delay in the technology's commercial availability, such as additional details regarding the establishment of commercial infrastructure. Regarding substantial similarity, the applicant asserted that WASKYRATM treats a new disease and/or a new patient population because it is a curative treatment designed for patients lacking a suitable HCT donor and noted that HCT is limited by donor availability, age, and risk of graft failure or graft-versus-host disease. However, based on information available at the time of this proposed rule, we disagree with the applicant that WASKYRATM treats a new disease or new patient population because there are several other therapies FDA-approved for WAS in patients that cannot receive a HCT, such as ALYGLOTM and ASCENIVTM which are indicated for treatment of primary humoral immunodeficiency in patients with WAS and corticosteroids indicated for eczema. We note that the applicant did not assert that WASKYRATM has a new mechanism of action compared to existing treatments for WAS or that it changes the MS-DRG assignment. Therefore, based on information available at the time of this proposed rule, it is unclear whether WASKYRATM is substantially similar to existing treatments. We are inviting public comments on whether WASKYRATM is substantially similar to existing technologies and whether WASKYRATM meets the newness criterion. Cost Criterion Regarding the cost criterion, we agree with the applicant that the technology meets the cost criterion. We are inviting [[Page 19425]] public comments on whether WASKYRATM meets the cost criterion. Substantial Clinical Improvement Criterion We did not receive any written comments in response to the New Technology Town Hall meeting notice published in the Federal Register regarding the substantial clinical improvement criterion for WASKYRATM. After review of the information provided by the applicant, we have the following concerns regarding whether WASKYRATM meets the substantial clinical improvement criterion. We note that the applicant did not provide any evidence to support its claims, as further discussed in this section, as to why the technology represents a substantial clinical improvement over existing technologies. We are unable to evaluate substantial clinical improvement in the absence of supporting evidence. Furthermore, with respect to the applicant's claims, we note that the applicant asserted that WASKYRATM offers a treatment option for a patient population unresponsive to, or ineligible for, currently available treatments because it provides a treatment option for WAS patients without HLA-identical related donors. However, we note that this claim does not explain why these patients would be ineligible for HCT with an HLA-matched unrelated donor. In addition, while the applicant claimed that WASKYRATM reduces WAS disease burden, offers a safer disease-modifying option for patients eligible for HCT, demonstrates sustained engraftment of gene-corrected cells and long- term clinical benefit, and directly addresses the genetic defect underlying WAS through lentiviral gene transfer, we note that these claims do not identify a patient population that is unresponsive to, or ineligible for, currently available supportive care treatments and HCT. We further note that the applicant asserted that WASKYRATM significantly improves clinical outcomes relative to services or technologies previously available, but did not identify specific outcomes. For example, the applicant claimed that WASKYRATM offers a safer option for WAS patients compared to HCT, but did not describe a clinical outcome, such as a reduction in at least one clinically significant adverse event as provided by Sec. 412.87(b)(1)(ii)(C)(1). Also, as previously noted, the applicant did not provide evidence to support any of its claims and therefore we are unable to evaluate whether WASKYRATM represents a substantial clinical improvement over existing technologies. After review of the information provided by the applicant, we are unable to determine that WASKYRATM represents a substantial clinical improvement over existing technologies, and therefore, we are proposing to disapprove new technology add-on payments for WASKYRATM for FY 2027. We are inviting public comments on whether WASKYRATM meets the substantial clinical improvement criterion and our proposal to disapprove new technology add-on payments for WASKYRATM for FY 2027. g. YARTEMLEA[supreg] (narsoplimab-wuug) Omeros Corporation submitted an FY 2027 application for new technology add-on payments for YARTEMLEA[supreg] (narsoplimab-wuug). According to the applicant, YARTEMLEA[supreg] is a fully human monoclonal antibody designed to treat and alleviate the detrimental consequences of hematopoietic stem cell transplant-associated thrombotic microangiopathy (TA-TMA) by targeting and inhibiting mannan- binding lectin-associated serine protease 2 (MASP-2), an effector enzyme that activates the lectin pathway of the complement system. YARTEMLEA[supreg] is administered as a 30-minute intravenous infusion once weekly, and the recommended dose is 370 mg for patients greater than or equal to 50 kg and is 4 mg/kg for patients weighing less than 50 kg. The applicant estimated that patients receive an average total dosage of 4,218 mg per inpatient stay. We note that the applicant submitted an application for new technology add-on payments for this technology for FY 2022 (86 FR 25282 through 25286; 86 FR 44979) and FY 2023 (87 FR 28274 through 28279; 87 FR 48920). The following table provides an overview of the new technology add- on payment application for YARTEMLEA[supreg] and CMS's preliminary assessment. For additional details provided by the applicant, please refer to the online application posting at https://mearis.cms.gov/public/publications/ntap/NTP251006R7LMC. [[Page 19426]] [GRAPHIC] [TIFF OMITTED] TP14AP26.084 Newness Criterion Regarding substantial similarity, based on the information available at the time of this proposed rule, we agree with the applicant that YARTEMLEA[supreg] has a new mechanism of action and treats a new type of disease or patient population compared to existing technology, because YARTEMLEA[supreg] is the only FDA-approved therapy indicated for the treatment of adult and pediatric patients 2 years of age and older with hematopoietic stem cell TA-TMA. We note that we disagree with the applicant that YARTEMLEA[supreg] is assigned to a different MS-DRG compared to existing technology because patients diagnosed with TA-TMA, including those treated with YARTEMLEA[supreg], map to MS-DRGs 545-547. Therefore, based on information available at the time of this proposed rule, we believe that YARTEMLEA[supreg] is not substantially similar to existing technology and meets the newness criterion. We consider the beginning of the newness period to commence on December 23, 2025, the date on which YARTEMLEA[supreg] received FDA market authorization for this indication. We are inviting public comments on whether YARTEMLEA[supreg] is substantially similar to existing technologies and whether YARTEMLEA[supreg] meets the newness criterion. Cost Criterion Regarding the cost criterion, we agree with the applicant that the technology meets the cost criterion. We are inviting public comments on whether YARTEMLEA[supreg] meets the cost criterion. Substantial Clinical Improvement Criterion We did not receive any written comments in response to the New Technology Town Hall meeting notice published in the Federal Register regarding the substantial clinical improvement criterion for YARTEMLEA[supreg]. After review of the information provided by the applicant, we agree with the applicant that YARTEMLEA[supreg] is the first and only FDA- approved treatment option for patients who develop TA-TMA and offers a treatment option for patients who have failed prior treatment with other available therapies including C5 inhibitors and other TA-TMA directed therapies with a one-year overall survival (OS) of 42.7 percent (95% CI: 19.7, 65.8) in adult patients.\72\ Therefore, we agree that YARTEMLEA[supreg] would offer a treatment option for a patient population unresponsive to, or ineligible for, currently available treatments. Based on the information available at the time of this proposed rule, because YARTEMLEA[supreg] appears to meet the criteria for approval for new technology add-on payments, we are proposing to approve YARTEMLEA[supreg] for new technology add-on payments for FY 2027. --------------------------------------------------------------------------- \72\ Schoettler ML, Pusarla SK, Nangia N, et al. Narsoplimab Results in Excellent Survival in Adults and Children With Hematopoietic Cell Transplant Associated Thrombotic Microangiopathy (TA-TMA). Am J Hematol. 2025d Aug 29. https://doi.org/10.1002/ajh.70044. Epub ahead of print. --------------------------------------------------------------------------- We are inviting public comments on whether YARTEMLEA[supreg] meets the substantial clinical improvement criterion and on our proposal to approve YARTEMLEA[supreg] for new technology add-on payments. h. ZEVASKYNTM (prademagene zamikeracel) Abeona Therapeutics[supreg], Inc. submitted an FY 2027 application for new technology add-on payments for ZEVASKYNTM. According to the applicant, ZEVASKYNTM is an autologous cell sheet- based gene therapy which contains functional copies of the collagen type VII alpha 1 chain (COL7A1) transgene for the treatment of adult and pediatric patients with recessive dystrophic epidermolysis bullosa (RDEB). The applicant stated that autologous patient material procured by two 8mm punch biopsies will produce up to twelve 5.5 cm x 7.5 cm gene-corrected cellular sheets available for application in a single surgical session. The number of gene-corrected cellular sheets produced and available for application is not dependent on body size or age. The recommended dose of ZEVASKYN is based on the surface area of the wound(s). The following table provides an overview of the new technology add- on payment application for ZEVASKYNTM and CMS's preliminary assessment. For additional details provided by the applicant, please refer to the online [[Page 19427]] application posting at https://mearis.cms.gov/public/publications/ntap/NTP251003GPVPQ. BILLING CODE 4120-01-P [GRAPHIC] [TIFF OMITTED] TP14AP26.085 BILLING CODE 4120-01-C Newness Criterion Regarding commercial availability, the applicant stated that ZEVASKYNTM became available for sale on June 15, 2025, 2 months after it received BLA approval on April 28, 2025, because the applicant needed to onboard and train hospitals on the proper procedures for collecting specimens and applying the technology. We are interested in additional information regarding the cause of any delay in the technology's commercial availability, including whether ZEVASKYNTM was available for purchase before June 15, 2025, during the period the applicant trained hospitals. Regarding substantial similarity, based on the information available at the time of this proposed rule, we agree with the applicant that ZEVASKYNTM uses a new mechanism of action of transducing the full-length COL7A1 gene into a patient's own keratinocytes to create up to 12 gene-corrected cellular sheets for the treatment of RDEB wounds, as compared to VYJUVEK[supreg], a topical gene therapy that delivers a functional copy of the COL7A1 gene to affected skin cells using a non-replicating HSV-1 vector and FILSUVEZ[supreg], a botanical gel with an unknown mechanism of action. We also agree that ZEVASKYNTM maps to a new MS-DRG as compared to VYJUVEK[supreg] and FILSUVEZ[supreg]. We note that we disagree that ZEVASKYNTM does not treat the same or similar type of disease or the same or similar patient population when compared to existing technology because other therapies, such as VYJUVEK[supreg] and FILSUVEZ[supreg], are available to treat wounds in adult and pediatric patients with dystrophic epidermolysis bullosa (DEB), of which RDEB is a subtype. Therefore, based on information available at the time of this proposed rule, we believe that ZEVASKYNTM is not substantially similar to existing technology and meets the newness criterion. We are inviting public comments on whether ZEVASKYNTM is substantially similar to existing technologies and whether ZEVASKYNTM meets the newness criterion. Cost Criterion Regarding the cost criterion, we agree with the applicant that the technology meets the cost criterion. We are inviting public comments on whether ZEVASKYNTM meets the cost criterion. Substantial Clinical Improvement Criterion Regarding substantial clinical improvement, we also received a public comment in response to the New Technology Town Hall meeting notice published in the Federal Register regarding the substantial clinical improvement criterion for ZEVASKYNTM, which we are summarizing in this section. Comment: The applicant submitted a public comment in response to questions posed at the Town Hall meeting. With regard to a question as to how wound healing was defined in the phase III VIITAL clinical trial,\73\ the applicant stated that wound healing was a co-primary end point and was [[Page 19428]] measured by visual skin examination by the study investigator, a dermatologist with significant epidermolysis bullosa expertise. Per the applicant, the VIITAL study categorized wound healing into the following brackets: (1) healing at less than 50 percent of baseline, (2) greater than or equal to 50 percent to less than 75 percent of baseline, and (3) greater than or equal to 75 percent of baseline; healing greater than or equal to 75 percent of baseline was assessed as complete wound closure with complete wound healing defined as re- epithelialization with no drainage or erosion and only minor crusting. The applicant stated that the co-primary endpoint evaluated greater than or equal to 50 percent healing from baseline at week 24, and exploratory endpoints further assessed greater than or equal to 75 percent healing. According to the applicant, these definitions ensured consistent, prespecified evaluation across all treated wounds. --------------------------------------------------------------------------- \73\ Tang JY, Marinkovich MP, Wiss K, McCarthy D, Truesdale A, Chiou AS, Eid E, McIntyre JK, Bailey I, Furukawa LK, Gorell ES, Harris N, Khosla RK, Peter Lorenz H, Lu Y, Nazaroff J, Grachev ID, Moore AJ. Prademagene zamikeracel for recessive dystrophic epidermolysis bullosa wounds (VIITAL): a two-centre, randomised, open-label, intrapatient-controlled phase 3 trial. Lancet. 2025 Jul 12;406(10499):163-173. https://doi.org/10.1016/S0140-6736(25)00778- 0. --------------------------------------------------------------------------- With regard to a question inquiring whether the study (Tang et al., 2025) biopsied skin as part of the co-primary endpoint, the applicant stated that the investigators did not use biopsies to evaluate the greater than or equal to 50 percent wound healing co-primary endpoint. Per the applicant, consistent with standard dermatologic practice where wound healing is assessed through clinical and visual examination rather than routine biopsies, the study used photographic and investigator assessments to evaluate the endpoint. According to the applicant, the study's investigators only performed biopsies in the early phase of the long-term follow-up study to confirm anchoring fibrils and C7 production up to 2 years after treatment with ZEVASKYNTM.\74\ Beyond 2 years, the applicant stated that the study discontinued biopsies due to ethical considerations and because patients refused repeated biopsies of healed skin. The applicant noted that efficacy data extends out to 8 years, with continued planned follow-up of these study subjects extending to up to 15 years. --------------------------------------------------------------------------- \74\ Abeona Therapeutics, Inc. (2024, June 27). A Long-Term Extension Study for Participants Previously Treated With EB-101 for the Treatment of RDEB (Study No. NCT05708677). ClinicalTrials.gov. https://clinicaltrials.gov/study/NCT05708677. --------------------------------------------------------------------------- With regard to a question about the comparison of ZEVASKYNTM to other therapies and the size of treated wound areas, the applicant stated that the 200 cm\2\ reference reflects the maximum weekly treatable area for VYJUVEK[supreg], not ZEVASKYNTM, which is supplied as up to 12 credit-card sized cellular sheets per treatment cycle (Tang et al., 2023). Per the applicant, these sheets may be sutured onto separate discrete wounds or joined together on larger wound areas, covering up to 495 cm\2\ of wound surface area in a single session. The applicant stated that some patients in ZEVASKYNTM clinical trials had single large wounds while others had multiple separate chronic wounds each greater than or equal to 20 cm\2\. According to the applicant, the study did not permit patients to receive other RDEB therapies while participating in the study, and there are no head-to-head studies of ZEVASKYNTM with VYJUVEK[supreg] or FILSUVEZ[supreg]. The applicant asserted that head-to-head studies are not required for purposes of determining substantial clinical improvement under the new technology add-on payment criteria. According to the applicant, ZEVASKYNTM's ability to cover up to 495 cm\2\ of wound surface area in a single, one-time treatment is a key reason that it is a substantial clinical improvement that addresses an ongoing unmet need for RDEB patients notwithstanding the availability of VYJUVEK[supreg] and FILSUVEZ[supreg]. With regard to a question about the definition of a large, chronic wound, the applicant stated that large, chronic wounds for RDEB generally means a wound that is greater than 20 cm\2\ and open for more than 6 months. The applicant also reiterated information from its application regarding the current RDEB treatment landscape, ZEVASKYNTM's clinical profile and durability, and the key features that distinguish ZEVASKYN\TM\ from other available RDEB therapies. Response: We thank the applicant for its comments. After review of the information provided by the applicant and the public comment received in response to the New Technology Town Hall meeting, we have the following concerns regarding whether ZEVASKYNTM meets the substantial clinical improvement criterion. Regarding the assertion that ZEVASKYNTM offers a treatment option for a patient population unresponsive to, or ineligible for, current available treatments, we note that the claims and supporting evidence do not identify a patient population treated with ZEVASKYNTM who cannot otherwise receive existing treatments, such as VYJUVEK[supreg] or FILSUVEZ[supreg]. The applicant claimed that RDEB patients suffer from severe large wounds that are highly debilitating and there currently are no treatments available to address large chronic RDEB wounds. However, we note that both VYJUVEK[supreg] and FILSUVEZ[supreg] do not have a maximum dose in their prescribing label 75 76 that would preclude the use of either treatment in difficult-to-treat large and chronic RDEB wounds. Similarly, the applicant claimed that no currently available treatment options effectively target chronic pain and itching experienced by RDEB patients and that chronic RDEB wounds pose a high risk of developing squamous cell carcinoma (SCC) and multiple systemic infections, stating that ZEVASKYNTM is the only approved therapy that provides durable healing for these wounds. However, neither the presence of chronic pain and itching nor a high risk of developing SCC and multiple systemic infections preclude these patients from receiving treatment with VYJUVEK[supreg] or FILSUVEZ[supreg]. Accordingly, we question whether these claims describe improvements in clinical outcomes over existing therapies rather than identifying a distinct patient population unresponsive to, or ineligible for, current available treatments that ZEVASKYNTM can treat. --------------------------------------------------------------------------- \75\ Krystal Biotech, Inc. (2025, Sept.) VYJUVEK[supreg] (beremagene geperpavec-svdt) biological suspension mixed with excipient gel for topical application: highlights of prescribing information. https://www.krystallabel.com/pdf/vyjuvek-us-pi.pdf. \76\ Chiesi USA, Inc. (2024, May.) FILSUVEZ[supreg] (birch triterpenes) topical gel: highlights of prescribing information. https://resources.chiesiusa.com/Filsuvez/FILSUVEZ_PI.pdf. --------------------------------------------------------------------------- In addition, while the applicant asserted that ZEVASKYNTM significantly improves clinical outcomes for patients with RDEB, we note that we did not receive sufficient evidence comparing ZEVASKYNTM to currently available treatments. The applicant stated that ZEVASKYNTM is the only autologous, cell-based gene therapy to demonstrate significantly improved wound healing even in the most difficult-to-treat large and chronic RDEB wounds; however, we note that both VYJUVEK[supreg] and FILSUVEZ[supreg] demonstrated statistically significant wound healing in their respective clinical trials. Therefore, we question whether ZEVASKYNTM significantly improves wound healing compared to these treatments. The applicant had cited Tang et al. (2025),\77\ a randomized, open-label, intra-patient-controlled phase 3 trial that included 11 RDEB patients who had 86 matched and [[Page 19429]] randomized wound pairs treated with either ZEVASKYNTM or control such as daily bandaging and other palliative measures. This study observed that 81 percent of ZEVASKYNTM-treated wounds were at least 50 percent healed from baseline compared with 16 percent of control wounds (mean difference: 67 percent; 95 percent CI: 50-89, p = <0.0001) and that complete wound healing from baseline was observed in 16 percent of ZEVASKYNTM-treated wounds compared to 0 percent of control wounds (mean difference 13 percent; 95 percent CI 2- 26, p = 0.016). However, we note that in Guide et al. (2022),\78\ a double-blind intra-patient randomized, placebo-controlled phase 3 trial consisting of 31 patients (30 with RDEB) who received either VYJUVEK[supreg] or placebo weekly for 26 weeks, 65 percent of patients achieved complete wound closure with VYJUVEK[supreg] compared to 26 percent with placebo. Similarly, in Kern et al. (2023),\79\ a randomized, double-blind, placebo-controlledphase 3 trial consisting of 223 patients (175 with RDEB) who received either FILSUVEZ[supreg] or placebo, 44 percent of RDEB patients treated with FILSUVEZ[supreg] achieved first complete closure of the target wound within 45 days compared to 26.2 percent of the patients who received placebo. --------------------------------------------------------------------------- \77\ Tang JY, Marinkovich MP, Wiss K, McCarthy D, Truesdale A, Chiou AS, Eid E, McIntyre JK, Bailey I, Furukawa LK, Gorell ES, Harris N, Khosla RK, Peter Lorenz H, Lu Y, Nazaroff J, Grachev ID, Moore AJ. Prademagene zamikeracel for recessive dystrophic epidermolysis bullosa wounds (VIITAL): a two-centre, randomised, open-label, intrapatient-controlled phase 3 trial. Lancet. 2025 Jul 12;406(10499):163-173. https://doi.org/10.1016/S0140-6736(25)00778- 0. \78\ Guide, S. V., Gonzalez, M. E., Ba[gbreve]c[inodot], I. S., Agostini, B., Chen, H., Feeney, G., Steimer, M., Kapadia, B., Sridhar, K., Quesada Sanchez, L., Gonzalez, F., Van Ligten, M., Parry, T. J., Chitra, S., Kammerman, L. A., Krishnan, S., & Marinkovich, M. P. (2022). Trial of Beremagene Geperpavec (B-VEC) for Dystrophic Epidermolysis Bullosa. New England Journal of Medicine, 387(24), 2211-2219. https://doi.org/10.1056/NEJMoa2206663. \79\ Kern, J. S., Sprecher E., Fernandez M. F., et al. Efficacy and safety of Oleogel-S10 (birch triterpenes) for epidermolysis bullosa: results from the phase III randomized double-blind phase of the EASE study. British Journal of Dermatology, 188(1), 12-21, https://doi.org/10.1093/bjd/ljac001. --------------------------------------------------------------------------- The applicant also asserted that ZEVASKYNTM is the only treatment for RDEB that has demonstrated significant reductions in both pain and itch and that ZEVASKYNTM results in durable wound healing. However, we note that the comparator data we received did not specifically measure pain and itch, and follow-up time for wound healing was limited to 6 months for VYJUVEK[supreg] and 90 days for FILSUVEZ[supreg], which limits meaningful comparisons to ZEVASKYNTM. Additionally, although the applicant asserted that ZEVASKYN\TM\ provides durable wound healing following a single treatment application, we are concerned that wounds that have not achieved complete closure may require additional treatment, which raises questions regarding the durability of the treatment and whether this can be considered a one-time treatment as asserted by the applicant. According to So et al. (2022),\80\ a single-center, non- randomized, open-label phase I/IIa trial that included seven patients who received ZEVASKYNTM on 38 chronic wounds while following patients for a mean of 5.9 years (range: 4-8 years), 70 percent of ZEVASKYNTM-treated sites had greater than or equal to 50 percent wound healing and 63 percent had greater than or equal to 75 percent wound healing at 5 years. We note that given that a subset of treated wounds achieved complete closure and a substantial proportion demonstrated only partial healing, we are uncertain that a single application of ZEVASKYNTM is sufficient and durable for all patients. --------------------------------------------------------------------------- \80\ So JY. et al. Long-term safety and efficacy of gene- corrected autologous keratinocyte grafts for recessive dystrophic epidermolysis bullosa. Orphanet Journal of Rare Diseases. 2022(17):377. https://doi.org/10.1186/s13023-022-02546-9. --------------------------------------------------------------------------- Furthermore, we note that although the applicant asserted that ZEVASKYNTM has a favorable safety profile with no serious treatment-emergent adverse events (TEAEs) related to the study treatment and no reports of SCC in ZEVASKYN-treated wounds, the applicant did not compare this with TEAEs and rates of SCC seen with available treatments such as VYJUVEK[supreg] and FILSUVEZ[supreg]. Therefore, we cannot determine an improvement in safety for ZEVASKYNTM over existing technologies. After review of the information provided by the applicant and the public comments received in response to the New Technology Town Hall meeting, we are unable to determine that ZEVASKYNTM represents a substantial clinical improvement over existing technologies, and therefore, we are proposing to disapprove new technology add-on payments for ZEVASKYNTM for FY 2027. We are inviting public comments on whether ZEVASKYNTM meets the substantial clinical improvement criterion and our proposal to disapprove new technology add-on payments for ZEVASKYNTM for FY 2027.

6. Proposed FY 2027 Applications for New Technology Add-On Payments

(Alternative Pathways) As discussed previously, beginning with applications for FY 2021, a medical device designated under FDA's Breakthrough Devices Program that has received marketing authorization as a Breakthrough Device, for the indication covered by the Breakthrough Device designation, may qualify for the new technology add-on payment under an alternative pathway. Additionally, beginning with FY 2021, a medical product that is designated by FDA as a Qualified Infectious Disease Product (QIDP) and has received marketing authorization for the indication covered by the QIDP designation, and, beginning with FY 2022, a medical product that is a new medical product approved under FDA's Limited Population Pathway for Antibacterial and Antifungal Drugs (LPAD) and used for the indication approved under the LPAD pathway, may also qualify for the new technology add-on payment under an alternative pathway. Under an alternative pathway, a technology will be considered not substantially similar to an existing technology for purposes of the new technology add-on payment under the IPPS and will not need to meet the requirement that it represents an advance that substantially improves, relative to technologies previously available, the diagnosis or treatment of Medicare beneficiaries. These technologies must still be within the 2- to-3-year newness period to be considered ``new,'' and must also still meet the cost criterion. We refer readers to section II.H.8. of the preamble of the FY 2020 IPPS/LTCH PPS final rule (84 FR 42292 through 42297) and FY 2021 IPPS/LTCH PPS final rule (85 FR 58715 through 58733) for further discussion of the alternative new technology add-on payment pathways for these technologies. As previously noted, in section II.E.7. of this proposed rule, we are proposing to repeal the alternative pathway for new technology add-on payment beginning with applications received for new technology add-on payments for FY 2028 and require all applicants for new technology add-on payments to demonstrate that they meet all eligibility requirements to receive add- on payments. (We refer readers to section II.E.7. of this proposed rule for a complete discussion regarding this proposal.) As discussed previously, as finalized in the FY 2023 IPPS/LTCH PPS final rule (87 FR 48986 through 48990) and subsequently updated in the FY 2026 IPPS/LTCH PPS final rule (90 FR 36662 through 36664), we publicly post online applications for new technology add-on payment beginning with FY 2024 applications. As noted in those final rules, we are continuing to provide discussion of the concerns or issues we identified with respect to applications submitted under the alternative pathway, but we are providing more succinct information as part of the summaries in the proposed and final [[Page 19430]] rules regarding the applicant's assertions as to how the medical service or technology meets the applicable new technology add-on payment criteria. We refer readers to https://mearis.cms.gov/public/publications/ntap for the publicly posted FY 2027 new technology add-on payment applications and supporting information (with the exception of certain cost and volume information, and information or materials identified by the applicant as confidential or copyrighted), including tables listing the ICD-10-CM codes, ICD-10-PCS codes, and/or MS-DRGs related to the analyses of the cost criterion for certain technologies for the FY 2027 new technology add-on payment applications. In addition, for certain FY 2027 new technology add-on payment applications, we are making available separate tables listing the ICD- 10-PCS codes or ICD-10-CM codes that would be used to identify the Breakthrough Device-designated indication, or would be appropriate to exclude for cases related to a different technology, for purposes of the new technology add-on payment, if approved, in Table 10 associated with this proposed rule, available via the internet on the CMS website at https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps. To access Table 10, click on the link titled ``FY 2027 IPPS Proposed Rule Home Page'' or ``Acute Inpatient--Files for Download'' on the left side of the screen, at the CMS website. Please see section VI of the Addendum for additional information regarding tables associated with this proposed rule. We received 32 applications for new technology add-on payments for FY 2027 under the new technology add-on payment alternative pathway. As previously discussed, beginning with the new technology add-on payment applications for FY 2025, for technologies that are not already FDA market authorized for the indication that is the subject of the new technology add-on payment application, applicants must have a complete and active FDA market authorization request at the time of new technology add-on payment application submission and must provide documentation of FDA acceptance or filing to CMS at the time of application submission, consistent with the type of FDA marketing authorization application the applicant has submitted to FDA. See Sec. 412.87(e) and further discussion in the FY 2024 and FY 2025 IPPS/LTCH PPS final rules (88 FR 58948 through 58958; 89 FR 69242 through 69245). Of the 32 applications received under the alternative pathway, 7 applications were not eligible for consideration for new technology add-on payment because they did not meet these requirements; and 3 applicants withdrew their applications prior to the issuance of this proposed rule. For the remaining 22 applications, all of the technologies received a Breakthrough Device designation from FDA. In accordance with the regulations under Sec. 412.87(f)(2), applicants for new technology add-on payments for FY 2027 for Breakthrough Devices must have FDA marketing authorization by May 1 of the year prior to the beginning of the fiscal year for which the application is being considered. Under Sec. 412.87(f)(3), applicants for new technology add-on payments for FY 2027 for QIDPs and technologies approved under the LPAD pathway must have FDA marketing authorization by July 1 of the year prior to the beginning of the fiscal year for which the application is being considered. The policy finalized in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58742) provides for conditional approval for a technology for which an application is submitted under the alternative pathway for certain antimicrobial products (QIDPs and LPADs) at Sec. 412.87(d) that does not receive FDA marketing authorization by July 1 prior to the particular fiscal year for which the applicant applied for new technology add-on payments, provided that the technology receives FDA marketing authorization before July 1 of the fiscal year for which the applicant applied for new technology add-on payments. We refer the reader to the FY 2021 IPPS/LTCH final rule for a complete discussion of this policy (85 FR 58737 through 58742). As we did in the FY 2026 IPPS/LTCH PPS proposed rule, for applications under the alternative new technology add-on payment pathway, in this proposed rule we are making a proposal to approve or disapprove each of these 22 applications for FY 2027 new technology add-on payments. Therefore, in this section of the preamble of this proposed rule, we provide an overview table of the new technology add- on payment application and CMS's preliminary assessment for each alternative pathway application, and propose whether or not each technology would be eligible for the new technology add-on payment for FY 2027. We note that we received multiple applications for subscription- based technologies for FY 2027. As stated in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58630) and in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69207), we understand that there are unique circumstances with respect to determining a cost per case for a technology that utilizes a subscription for its cost and we will continue to consider the issues relating to calculation of the cost per unit of technologies sold on a subscription basis as we gain more experience in this area. We continue to welcome comments from the public as to the appropriate method to determine a cost per case for such technologies, including comments on whether the cost analysis should be updated based on the most recent subscriber data for each year for which the technology may be eligible for add-on payment. a. Alternative Pathway for Breakthrough Devices

1. Bayesian Health Sepsis Flagging Device

Bayesian Health, Inc. submitted a FY2027 application for new technology add-on payments for the Bayesian Health Sepsis Flagging Device. According to the applicant, the Bayesian Health Sepsis Flagging Device is artificial intelligence and machine learning-based Software as a Medical Device (SaMD) intended for use in conjunction with clinical assessments and other laboratory findings to aid the early detection and/or risk prediction of sepsis within the next 4 days. The following table provides an overview of the new technology add- on payment application for the Bayesian Health Sepsis Flagging Device and CMS's preliminary assessment. For additional details provided by the applicant, please refer to the online application posting at https://mearis.cms.gov/publicpublications/ntap/NTP25100520EEP. BILLING CODE 4120-01-P [[Page 19431]] [GRAPHIC] [TIFF OMITTED] TP14AP26.086 Cost Criterion After review of the information provided by the applicant, we agree with the applicant that the Bayesian Health Sepsis Flagging Device meets the cost criterion and are therefore proposing to approve the Bayesian Health Sepsis Flagging Device for new technology add-on payments for FY 2027, subject to the technology receiving FDA marketing authorization for the indication corresponding to the Breakthrough Device designation by May 1, 2026. Based on preliminary information from the applicant at the time of this proposed rule, we are proposing that the maximum new technology add-on payment for a case involving the use of the Bayesian Health Sepsis Flagging Device would be $61.84 for FY 2027 (that is, 65 percent of the average cost of the technology). We note that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. We invite public comments on whether the Bayesian Health Sepsis Flagging Device meets the cost criterion and our proposal to approve new technology add-on payments for the Bayesian Health Sepsis Flagging Device for FY 2027, subject to the technology receiving FDA marketing authorization for the indication corresponding to the Breakthrough Device designation by May 1, 2026.

2. BriefCase-Triage: CARE (Clinical AI Reasoning Engine) Multi-Triage

CT Body Aidoc Medical Ltd., Inc. submitted a FY2027 application for new technology add-on payments for BriefCase-Triage: CARE Multi-Triage CT Body (BriefCase-Triage). According to the applicant, BriefCase-Triage is a radiological triage device used for the analysis of contrast and non-contrast CT images that flags and communicates suspected positive findings for a wide range of clinically actionable, time-sensitive conditions in the abdominopelvic region. The following table provides an overview of the new technology add- on payment application for BriefCase-Triage and CMS's preliminary assessment. For additional details [[Page 19432]] provided by the applicant, please refer to the online application posting at https://mearis.cms.gov/public/publications/ntap/NTP251004A9NVV. [GRAPHIC] [TIFF OMITTED] TP14AP26.087 [[Page 19433]] Cost Criterion After review of the information provided by the applicant, we agree with the applicant that BriefCase-Triage meets the cost criterion and are therefore proposing to approve BriefCase-Triage for new technology add-on payments for FY 2027 for the FDA-cleared indication covered by the Breakthrough Device designation listed in the table. We consider the beginning of the newness period to commence on January 7, 2026, the date on which BriefCase-Triage received FDA marketing authorization. Based on preliminary cost information from the applicant at the time of this proposed rule, we are proposing that the maximum new technology add-on payment for a case involving the use of BriefCase- Triage would be $137.53 for FY 2027 (that is, 65 percent of the average cost of the technology). We note that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. We invite public comments on whether BriefCase-Triage meets the cost criterion and our proposal to approve new technology add-on payments for BriefCase-Triage: CARE Multi-Triage CT Body for FY 2027.

3. CARA System

Cara Medical submitted a FY 2027 application for new technology add-on payments for the CARA System. According to the applicant, the CARA System software simulates the path of a patient's cardiac conduction system using anatomical landmarks identifiable on routine CT angiography (CTA) imaging to enable Conduction Guided Intervention (CGI). Per the applicant, CARA augmented fluoroscopy can be used to help the operator visualize, during the procedure, the proximity of his tools and device to the patient's conduction system. The following table provides an overview of the new technology add- on payment application for the CARA System and CMS's preliminary assessment. For additional details provided by the applicant, please refer to the online application posting at https://mearis.cms.gov/public/publications/ntap/NTP251006TVQL6. [[Page 19434]] [GRAPHIC] [TIFF OMITTED] TP14AP26.088 BILLING CODE 4120-01-C Cost Criterion After review of the information provided by the applicant, we agree with the applicant that the CARA System meets the cost criterion and are therefore proposing to approve the CARA System for new technology add-on payments for FY 2027, subject to the technology receiving FDA marketing authorization for the indication corresponding to the Breakthrough Device designation by May 1, 2026. However, we question whether a surgical procedure done in the operating room with the CARA AtlasTM Navigator [[Page 19435]] would correspond to the FDA Breakthrough Device designated indication involving real-time, intra-procedural, fluoroscopic imaging to assist in fluoroscopic-guided interventional heart procedures. We would be interested in information clarifying the components and process for use of the CARA AtlasTM Navigator, accounting for the difference in cost between a surgical procedure and an interventional procedure. We also question whether procedures using only the CARA MetisTM Simulator would correspond to the FDA Breakthrough Device designated indication, as a medical device comprising two integrated functions (that is, integrated functions of both the CARA MetisTM Simulator and CARA AtlasTM Navigator). We note that under the eligibility criteria for approval under the alternative pathway for certain transformative devices, only the use of the technology for the indication that corresponds to the technology's Breakthrough Device designation would be eligible for the new technology add-on payment for FY 2027. We would be interested in detailed information clarifying the different uses of the CARA System components related to the Breakthrough Device designated indication. Based on preliminary information from the applicant at the time of this proposed rule, we are proposing that the maximum new technology add-on payment for a case involving the use of the CARA System would be $10,205.00 for FY 2027 (that is, 65% of the average cost of the technology). We note that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. We invite public comments on whether the CARA System meets the cost criterion and our proposal to approve new technology add-on payments for the CARA System for FY 2027, subject to the technology receiving FDA marketing authorization for the indication corresponding to the Breakthrough Device designation by May 1, 2026.

4. CERAMENT[supreg] V

BONESUPPORT Inc. submitted a FY 2027 application for new technology add-on payments for CERAMENT[supreg] V. According to the applicant, CERAMENT[supreg] V is a resorbable, vancomycin-eluting ceramic bone graft substitute intended for use as a bone void filler as an adjunct to systemic antibiotic therapy and surgical debridement as part of the surgical treatment of osteomyelitis. Per the applicant, CERAMENT[supreg] V is indicated for use on vancomycin-sensitive microorganisms. The following table provides an overview of the new technology add- on payment application for CERAMENT[supreg] V and CMS's preliminary assessment. For additional details provided by the applicant, please refer to the online application posting at https://mearis.cms.gov/public/publications/ntap/NTP251006EFW54. BILLING CODE 4120-01-P [GRAPHIC] [TIFF OMITTED] TP14AP26.089 Newness Period After review of the information provided by the applicant, we note that the applicant stated that the technology is not expected to be commercially available until a few months after FDA marketing authorization because of the required time to implement the technical requirements to comply with FDA marketing authorization and to produce the first batches of CERAMENT[supreg] V for the United States. We are interested in additional information regarding the anticipated cause for any delay in the technology's market availability, as another bone graft substitute from the applicant that was first approved for new technology add-on payment for FY 2023 (87 FR [[Page 19436]] 48961 through 48966) did not have a delay in market availability. Cost Criterion We agree with the applicant that CERAMENT[supreg] V meets the cost criterion and are therefore proposing to approve CERAMENT[supreg] V for new technology add-on payments for FY 2027, subject to the technology receiving FDA marketing authorization for the indication corresponding to the Breakthrough Device designation by May 1, 2026. Based on preliminary information from the applicant at the time of this proposed rule, we are proposing that the maximum new technology add-on payment for a case involving the use of CERAMENT[supreg] V would be $5,687.50 for FY 2027 (that is, 65% of the average cost of the technology). We note that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. We invite public comments on whether CERAMENT[supreg] V meets the cost criterion and our proposal to approve new technology add-on payments for CERAMENT[supreg] V for FY 2027, subject to the technology receiving FDA marketing authorization for the indication corresponding to the Breakthrough Device designation by May 1, 2026.

5. Ceribell Delirium Monitor System

Ceribell, Inc. submitted a FY 2027 application for new technology add-on payments for the Ceribell Delirium Monitor System. According to the applicant, the Ceribell Delirium Monitor System is a medical device system comprised of proprietary software, signal acquisition headbands and a recorder. Per the applicant, the software utilizes a machine learning model to analyze EEG signals to detect features indicative of delirium. The following table provides an overview of the new technology add- on payment application for the Ceribell Delirium Monitor System and CMS's preliminary assessment. For additional details provided by the applicant, please refer to the online application posting at https://mearis.cms.gov/public/publications/ntap/NTP251006WFMK2. [GRAPHIC] [TIFF OMITTED] TP14AP26.090 [[Page 19437]] BILLING CODE 4120-01-C After review of the information provided by the applicant, we note that under the eligibility criteria for approval under the alternative pathway for certain transformative devices, only the use of the technology for the indication that corresponds to the technology's Breakthrough Device designation would be eligible for the new technology add-on payment for FY 2027. As stated by the applicant, the FDA-cleared indication is different and is not limited to adult patients aged 65 and older, as noted in the Breakthrough Device designation. Therefore, only the use of the Ceribell Delirium Monitor System for patients aged 65 and older, and the FDA Breakthrough Device designation it received for that use, would be relevant for purposes of the new technology add-on payment application for FY 2027. ICD-10 Coding In addition, as noted by the applicant, the ICD-10-PCS procedure code XX20X89 (Monitoring of brain electrical activity, computer-aided detection and notification, new technology group 9) is used for a different technology (the Ceribell Status Epilepticus Monitor) to help diagnose status epilepticus, which is not the subject of this new technology add-on payment application. Therefore, the applicant has submitted a request for ICD-10-CM codes to differentiate use of the Ceribell Delirium Monitor System from use of the Ceribell Status Epilepticus Monitor, which was approved for new technology add-on payments for FY 2024 through FY 2026 (88 FR 58927 through 58930; 89 FR 70009; 90 FR 37260) and for which we are proposing to discontinue making new technology add-on payments for FY 2027 because it will no longer be considered new (as discussed in section II.E.4. of the preamble of this proposed rule). Furthermore, for purposes of the new technology add-on payment, if approved, we believe it would be appropriate to exclude cases reporting the ICD-10-PCS procedure code XX20X89 in patients with status epilepticus, which would instead identify use of the Ceribell Status Epilepticus Monitor. Please see Table 10.2.-- Ceribell Delirium Monitor System, associated with this proposed rule, for the list of ICD-10-CM diagnosis codes that we believe would identify patients with status epilepticus, which we propose to exclude from new technology add-on payment when reported in combination with ICD-10-PCS procedure code XX20X89. We are inviting public comments on our proposal to exclude cases reporting these ICD-10-CM diagnosis codes in combination with the ICD- 10-PCS procedure code XX20X89, for purposes of the new technology add- on payment for FY 2027, if approved. Cost Criterion We agree with the applicant that the Ceribell Delirium Monitor System meets the cost criterion and are therefore proposing to approve the Ceribell Delirium Monitor System for new technology add-on payments for FY 2027, for the FDA-cleared indication covered by the Breakthrough Device designation listed in the table. We consider the beginning of the newness period to commence on December 8, 2025, the date on which the Ceribell Delirium Monitor System received FDA marketing authorization. Based on preliminary information from the applicant at the time of this proposed rule, we are proposing that the maximum new technology add-on payment for a case involving the use of the Ceribell Delirium Monitor System would be $2,171 for FY 2027 (that is, 65% of the average cost of the technology). We note that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. We invite public comments on whether the Ceribell Delirium Monitor System meets the cost criterion and our proposal to approve new technology add-on payments for the Ceribell Delirium Monitor System for FY 2027.

6. CMORE[supreg] CT System (Posterior Cervico-Thoracic System)

Icotec ag submitted a FY 2027 application for new technology add-on payments for the CMORE[supreg] CT System. According to the applicant, the CMORE[supreg] CT System is a posterior cervico-thoracic fixation system manufactured from BlackArmor[supreg] Carbon/PEEK material for standard posterior fixation of the spinal column which features a variety of screw sizes and types, as well as rod shapes, to accommodate patient anatomy. The following table provides an overview of the new technology add- on payment application for the CMORE[supreg] CT System and CMS's preliminary assessment. For additional details provided by the applicant, please refer to the online application posting at https://mearis.cms.gov/public/publications/ntap/NTP2510034V5CK. BILLING CODE 4120-01-P [[Page 19438]] [GRAPHIC] [TIFF OMITTED] TP14AP26.091 BILLING CODE 4120-01-C After review of the information provided by the applicant, we note that, as previously stated, under the eligibility criteria for approval under the alternative pathway for certain transformative devices, only the use of the technology for the indication that corresponds to the technology's Breakthrough Device designation would be eligible for the new technology add-on payment for FY 2027. The indication [[Page 19439]] for use for the CMORE[supreg] CT System in the absence of fusion for a limited time period in patients with advanced stage tumors involving the cervical spine in whom life expectancy is of insufficient duration to permit achievement of fusion, is not included in its Breakthrough Device designation. Therefore, the CMORE[supreg] CT System would only be eligible for new technology add-on payment for its Breakthrough Device-designated indication, as an adjunct to fusion of the cervical spine (C1 to C7) and the upper thoracic spine (T1 to T3), if approved. ICD-10 Coding Please see Table 10.1.--CMORE[supreg] CT System, associated with this proposed rule, for the list of relevant ICD-10-PCS procedure codes that we believe would be appropriate to report in combination with use of the CMORE[supreg] CT System to identify use of the technology for the Breakthrough Device-designated indication, as an adjunct to fusion of the cervical spine (C1 to C7) and the upper thoracic spine (T1 to T3). We are inviting public comments on the use of these ICD-10-PCS procedure codes to identify use of the technology for the Breakthrough Device-designated indication for purposes of the new technology add-on payment, if approved. Cost Criterion We agree with the applicant that the CMORE[supreg] CT System meets the cost criterion and are therefore proposing to approve the CMORE[supreg] CT System for new technology add-on payments for FY 2027, for the FDA-cleared indication covered by the Breakthrough Device designation listed in the table and as described previously. We consider the beginning of the newness period to commence on December 8, 2025, the date on which the CMORE[supreg] CT System became commercially available. Based on preliminary information from the applicant at the time of this proposed rule, we are proposing that the maximum new technology add-on payment for a case involving the use of the CMORE[supreg] CT System would be $60,905 for FY 2027 (that is, 65% of the average cost of the technology). We note that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. We invite public comments on whether the CMORE[supreg] CT System meets the cost criterion and our proposal to approve new technology add-on payments for the CMORE[supreg] CT System for FY 2027.

7. GORE[supreg] VIABAHN[supreg] FORTEGRA Venous Stent

W.L. Gore & Associates, Inc. submitted a FY 2027 application for new technology add-on payments for the GORE[supreg] VIABAHN[supreg] FORTEGRA Venous Stent. According to the applicant, the GORE[supreg] VIABAHN[supreg] FORTEGRA Venous Stent is an open-structure polymer lattice device providing intraluminal support in the inferior vena cava and, if clinically warranted, the common iliac veins, at the iliocaval confluence in patients with symptomatic vessel obstruction. The following table provides an overview of the new technology add- on payment application for the GORE[supreg] VIABAHN[supreg] FORTEGRA Venous Stent and CMS's preliminary assessment. For additional details provided by the applicant, please refer to the online application posting at https://mearis.cms.gov/public/publications/ntap/NTP251006MBT8G. BILLING CODE 4120-01-P [GRAPHIC] [TIFF OMITTED] TP14AP26.092 Cost Criterion After review of the information provided by the applicant, we agree with the applicant that the GORE[supreg] VIABAHN[supreg] FORTEGRA Venous Stent meets the cost criterion and are therefore proposing to approve the GORE[supreg] VIABAHN[supreg] FORTEGRA Venous Stent for new technology add-on payments for FY 2027, for the FDA-approved indication covered by the Breakthrough Device designation listed in the table. We consider the beginning of the newness period to commence on December 19, 2025, the date on which the GORE[supreg] VIABAHN[supreg] FORTEGRA Venous Stent received FDA marketing authorization. Based on preliminary cost information from the applicant at the time of this proposed rule, we are proposing that the maximum new technology add-on payment for a case involving the use of the GORE[supreg] VIABAHN[supreg] Venous Stent would be [[Page 19440]] $7,186.40 for FY 2027 (that is, 65 percent of the average cost of the technology). We note that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. We invite public comments on whether the GORE[supreg] VIABAHN[supreg] Venous Stent meets the cost criterion and our proposal to approve new technology add-on payments for the GORE[supreg] VIABAHN[supreg] Venous Stent for FY 2027.

8. InfuseTM Bone Graft

Medtronic Sofamor Danek USA, Inc. submitted a FY 2027 application for new technology add-on payments for InfuseTM Bone Graft. According to the applicant, InfuseTM Bone Graft-is a bone graft material designed to promote bone formation at the site of implantation for transforaminal lumbar interbody fusion (TLIF), at one or two adjacent levels from L2-S1 in the treatment of degenerative disc disease (DDD). Per the applicant, it consists of two primary components, recombinant human bone morphogenetic protein-2 (rhBMP-2) and an absorbable collagen sponge which serves as a delivery matrix and scaffold for bone growth. The following table provides an overview of the new technology add- on payment application for InfuseTM Bone Graft and CMS's preliminary assessment. For additional details provided by the applicant, please refer to the online application posting at https://mearis.cms.gov/public/publications/ntap/NTP250929NNTP8. [GRAPHIC] [TIFF OMITTED] TP14AP26.093 ICD-10 Coding After review of the information provided by the applicant, we note that InfuseTM Bone Graft has been granted other FDA approvals beyond the scope of its Breakthrough Device designation. We believe the relevant ICD-10-PCS procedure codes that would be appropriate to report in combination with use of InfuseTM Bone Graft, to identify use of the technology for the Breakthrough Device-designated indication in a TLIF surgical approach at one or two adjacent levels from L2-S1 in the treatment of degenerative disease of the lumbosacral spine for purposes of the new technology add-on payment, if approved, would be the following codes: [[Page 19441]] [GRAPHIC] [TIFF OMITTED] TP14AP26.094 We are inviting public comments on the use of these ICD-10-PCS procedure codes to identify use of the technology for the Breakthrough Device-designated indication for purposes of the new technology add-on payment, if approved. Cost Criterion We agree with the applicant that InfuseTM Bone Graft meets the cost criterion and are therefore proposing to approve InfuseTM Bone Graft for new technology add-on payments for FY 2027, for the FDA-approved indication covered by the Breakthrough Device designation listed in the table and as described previously. We consider the beginning of the newness period to commence on February 13, 2026, the date on which InfuseTM Bone Graft received FDA marketing authorization. Based on preliminary information from the applicant at the time of this proposed rule, we are proposing that the maximum new technology add-on payment for a case involving the use of InfuseTM Bone Graft would be $4,396.60 for FY 2027 (that is, 65% of the average cost of the technology). We note that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. We invite public comments on whether InfuseTM Bone Graft meets the cost criterion and our proposal to approve new technology add-on payments for InfuseTM Bone Graft for FY 2027.

9. InVision Precision Cardiac Amyloid

Invision Medical Technology submitted a FY 2027 application for new technology add-on payments for InVision Precision Cardiac Amyloid (InVision PCA). According to the applicant, InVision PCA is a SaMD machine-learning disease detection algorithm to identify high suspicion of cardiac amyloidosis from routinely obtained echocardiogram videos. Per the applicant, the device assists clinicians in the diagnosis of cardiac amyloidosis. The following table provides an overview of the new technology add- on payment application for InVision PCA and CMS's preliminary assessment. For additional details provided by the applicant, please refer to the online application posting at https://mearis.cms.gov/public/publications/ntap/NTP251002J7D89. [[Page 19442]] [GRAPHIC] [TIFF OMITTED] TP14AP26.095 Cost Criterion After review of the information provided by the applicant, we agree with the applicant that InVision PCA meets the cost criterion and are therefore proposing to approve InVision PCA for new technology add-on payments for FY 2027, for the FDA-cleared indication covered by the Breakthrough Device designation listed in the table. We consider the beginning of the newness period to commence on May 21, 2025, the date on which InVision PCA received FDA market authorization. Based on preliminary information from the applicant at the time of this proposed rule, we are proposing that the maximum new technology add-on payment for a case involving the use of InVision PCA would be $162.50 for FY 2027 (that is, 65 percent of the average cost of the technology). We note that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. We invite public comments on whether InVision PCA meets the cost criterion and our proposal to approve new technology add-on payments for InVision PCA for FY 2027.

10. MediBeacon[supreg] Transdermal GFR Measurement System (TGFR)

MediBeacon submitted a FY 2027 application for new technology add- on payments for the MediBeacon[supreg] Transdermal GFR Measurement System (MediBeacon[supreg] TGFR). According to the applicant, the MediBeacon[supreg] TGFR provides an assessment of glomerular filtration rate (GFR) at the point of care and employs an intravenously administered fluorescent tracer agent which has been engineered to be excreted exclusively by the kidneys. Per the applicant, noninvasive transdermal fluorescence detection of the excretion rate of the agent is converted into a GFR reading. We note that the applicant submitted an application for new technology add-on payments for this technology for FY 2025 (89 FR 36128 through FR 36130; 89 FR 69204) and FY 2024 (88 FR 26954 through 26955; 88 FR 58919) under the name Transdermal GFR Measurement System Utilizing Lumitrace. The following table provides an overview of the new technology add- on payment application for the MediBeacon[supreg] TGFR and CMS's preliminary assessment. For additional details provided by the applicant, please refer to the online application posting at https://mearis.cms.gov/public/publications/ntap/NTP251003G1JT8. [[Page 19443]] [GRAPHIC] [TIFF OMITTED] TP14AP26.096 BILLING CODE 4120-01-C Cost Criterion After review of the information provided by the applicant, we agree with the applicant that the MediBeacon[supreg] TGFR meets the cost criterion and are therefore proposing to approve the MediBeacon[supreg] TGFR for new technology add-on payments for FY 2027, subject to the technology receiving FDA marketing authorization for the indication corresponding to the Breakthrough Device designation by May 1, 2026. The applicant has not provided an estimate for the cost of the MediBeacon[supreg] TGFR at the time of this proposed rule. The applicant stated that there would be four components for the cost of the technology: the operating cost of Lumitrace[supreg], the operating cost of the TGFR Reusable Sensor, the operating cost of the TGFR Adhesive Ring and the capital cost of the TGFR Monitor. Because section 1886(d)(5)(K)(i) of the Act requires that the Secretary establish a mechanism to recognize the costs of new medical services or technologies under the payment system established under that subsection, which establishes the system for payment of the operating costs of inpatient hospital services, we do not include capital costs in the add-on payments for a new medical service or technology or make new technology add-on payments under the IPPS for capital-related costs (86 FR 45145). Therefore, it appears that the TGFR Monitor component is not eligible for new technology add-on payment because, as discussed in prior rulemaking, we only make new technology add-on payments for operating costs (72 FR 47307 through 47308). We would be interested in additional information about the TGFR Reusable Sensor, which also appears to be a reusable, capital expenditure. We expect the applicant to submit cost information prior to the final rule, and we will provide an update regarding the new technology add-on payment amount for the technology, if approved, in the final rule. Any new technology add-on payment for the MediBeacon[supreg] TGFR would be subject to our policy under Sec. 412.88(a)(2) where we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS-DRG payment for the case. We invite public comments on whether the MediBeacon[supreg] TGFR meets the cost criterion and our proposal to approve new technology add-on payments for the MediBeacon[supreg] Transdermal GFR Measurement System for FY 2027, subject to the technology receiving FDA marketing authorization as a Breakthrough Device for the indication corresponding to the Breakthrough Device designation by May 1, 2026.

11. Micro Medical Solutions MicroStent and the MicroStent XL Peripheral

Vascular Stent System Micro Medical Solutions, Inc. submitted a FY 2027 application for new technology add-on payments for the Micro Medical Solutions MicroStent and the MicroStent XL Peripheral Vascular Stent System (MicroStent). According to the applicant, the MicroStent is a self- expanding nitinol stent system for permanent implantation to improve luminal diameter in the treatment of ischemia in the lower leg. The following table provides an overview of the new technology add- on payment application for the MicroStent and CMS's preliminary assessment. For additional details provided by the applicant, please refer to the online application posting at https://mearis.cms.gov/public/publications/ntap/NTP251002M8X4J. BILLING CODE 4120-01-P [[Page 19444]] [GRAPHIC] [TIFF OMITTED] TP14AP26.097 Cost Criterion After review of the information provided by the applicant, we agree with the applicant that the MicroStent meets the cost criterion and are therefore proposing to approve the MicroStent for new technology add-on payments for FY 2027, subject to the technology receiving FDA marketing authorization for the indication corresponding to the Breakthrough Device designation by May 1, 2026. Based on preliminary cost information from the applicant at the time of this proposed rule, we are proposing that the maximum new technology add-on payment for a case involving the use of the MicroStent would be $4,550 for FY 2027 (that is, 65 percent of the average cost of the technology). We note that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. We invite public comments on whether the MicroStent meets the cost criterion and our proposal to approve new technology add-on payments for the Micro Medical Solutions MicroStent and the MicroStent XL Peripheral Vascular Stent System for FY 2027, subject to the technology receiving FDA marketing authorization for the indication corresponding to the Breakthrough Device designation by May 1, 2026.

12. NelliTM Seizure Monitoring System

Neuro Event Labs submitted a FY 2027 application for new technology add-on payments for the NelliTM Seizure Monitoring System. According to the applicant, the NelliTM Seizure Monitoring System is a prescription-only device that is designed to be used as an adjunct to seizure monitoring in healthcare facilities during periods of rest. Per the applicant, the device utilizes automated analysis of audio and video (media) to identify epileptic and non-epileptic seizure events with a positive motor component. We note that the applicant submitted an application for new technology add-on payments for this technology for FY 2026 (90 FR 18189 through 18191; 90 FR 36770), FY2024 (88 FR 26940 through 26942; 88 FR 58919), and FY 2023 (87 FR 28341 through 28342; 87 FR 48960). The following table provides an overview of the new technology add- on payment application for the NelliTM Seizure Monitoring System and CMS's preliminary assessment. For additional details provided by the applicant, please refer to the online application posting at https://mearis.cms.gov/public/publications/ntap/NTP2509294WQJJ. [[Page 19445]] [GRAPHIC] [TIFF OMITTED] TP14AP26.098 Cost Criterion After review of the information provided by the applicant, we agree with the applicant that the NelliTM Seizure Monitoring System meets the cost criterion and are therefore proposing to approve the NelliTM Seizure Monitoring System for new technology add-on payments for FY 2027, for the FDA-cleared indication covered by the Breakthrough Device designation listed in the table. We consider the beginning of the newness period to commence on January 20, 2026, the date on which the NelliTM Seizure Monitoring System became commercially available. As previously noted, we do not include capital costs in the add-on payments for a new medical service or technology or make new technology add-on payments under the IPPS for capital-related costs (86 FR 45145). As noted, the applicant included capital costs of $89 for the PRU in the total technology cost. Therefore, as it appears that these costs are not eligible for new technology add-on payment, we note that any new technology add-on payment for the NelliTM Seizure Monitoring System would be based on only the operating costs of $1,500 for the analysis during inpatient hospital stay. As a result, based on preliminary information from the applicant at the time of this proposed rule, we are proposing that the maximum new technology add-on payment for a case involving the use of the NelliTM Seizure Monitoring System would be $975 for FY 2027 (that is, 65% of the average cost of the technology). We note that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. We invite public comments on whether the NelliTM Seizure Monitoring System meets the cost criterion and our proposal to approve new technology add-on payments for the NelliTM Seizure Monitoring System for FY 2027.

13. NEXUS[supreg] Aortic Arch Stent Graft System

ENDOSPAN submitted a FY 2027 application for new technology add-on payments for the NEXUS[supreg] Aortic Arch Stent Graft System. According to the applicant, the NEXUS[supreg] Aortic Arch Stent Graft System is a branched endovascular stent graft system designed specifically for repair of aortic arch pathologies (including aneurysms, chronic dissections, penetrating ulcers, and intramural hematoma) involving Zone 0 ascending aorta and the arch. The following table provides an overview of the new technology add- on payment application for the NEXUS[supreg] Aortic Arch Stent Graft System and CMS's preliminary assessment. For [[Page 19446]] additional details provided by the applicant, please refer to the online application posting at https://mearis.cms.gov/public/publications/ntap/NTP251006114Y0. [GRAPHIC] [TIFF OMITTED] TP14AP26.099 Cost Criterion After review of the information provided by the applicant, we agree with the applicant that the NEXUS[supreg] Aortic Arch Stent Graft System meets the cost criterion and are therefore proposing to approve the NEXUS[supreg] Aortic Arch Stent Graft System for new technology add-on payments for FY 2027, subject to the technology receiving FDA marketing authorization for the indication corresponding to the Breakthrough Device designation by May 1, 2026. Based on preliminary cost information from the applicant at the time of this proposed rule, we are proposing that the maximum new technology add-on payment for a case involving the use of the NEXUS[supreg] Aortic Arch Stent Graft System would be $35,880 for FY 2027 (that is, 65 percent of the average cost of the technology). We note that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. We invite public comments on whether the NEXUS[supreg] Aortic Arch Stent Graft System meets the cost criterion and our proposal to approve new technology add-on payments for the NEXUS[supreg] Aortic Arch Stent Graft System for FY 2027, subject to the technology receiving FDA marketing authorization for the indication corresponding to the Breakthrough Device designation by May 1, 2026.

14. OmniaSecureTM MRI SureScanTM Lead Model 3930M

Medtronic submitted a FY 2027 application for new technology add-on payments for the OmniaSecureTM MRI SureScanTM Lead Model 3930M (OmniaSecureTM defibrillation lead). According to the applicant, the OmniaSecureTM defibrillation lead is an implantable defibrillation lead designed to deliver pacing, sensing, cardioversion, and defibrillation therapy for patients at risk of life-threatening ventricular arrhythmias. The following table provides an overview of the new technology add- on payment application for the OmniaSecureTM defibrillation lead and CMS's preliminary assessment. For additional details provided by the applicant, please refer to the online application posting at https://mearis.cms.gov/public/publications/ntap/NTP250930Q7TFH. [[Page 19447]] [GRAPHIC] [TIFF OMITTED] TP14AP26.100 Cost Criterion After review of the information provided by the applicant, we agree with the applicant that the OmniaSecureTM defibrillation lead meets the cost criterion and are therefore proposing to approve the OmniaSecureTM defibrillation lead for new technology add-on payments for FY 2027, for the FDA-approved indication covered by the Breakthrough Device designation listed in the table. We consider the beginning of the newness period to commence on January 7, 2026, the date on which the OmniaSecureTM defibrillation lead became commercially available. Based on preliminary information from the applicant at the time of this proposed rule, we are proposing that the maximum new technology add-on payment for a case involving the use of the OmniaSecureTM defibrillation lead would be $7,796.75 for FY 2027 (that is, 65% of the average cost of the technology). We note that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. We invite public comments on whether the OmniaSecureTM defibrillation lead meets the cost criterion and our proposal to approve new technology add-on payments for the OmniaSecureTM MRI SureScanTM Lead Model 3930M for FY 2027.

15. PearlMatrixTM P-15 Peptide Enhanced Bone Graft

Cerapedics, Inc. submitted a FY 2027 application for new technology add-on payments for PearlMatrixTM P-15 Peptide Enhanced Bone Graft. According to the applicant, PearlMatrixTM P-15 Peptide Enhanced Bone Graft is a composite bone graft material consisting of a synthetic peptide, found naturally occurring in human Type I collagen (P-15), adsorbed onto calcium phosphate particles, which are incorporated into a fibrous collagen matrix putty as an inert carrier. We note that the applicant submitted an application for new technology add-on payments for this technology for FY 2026 (90 FR 18193 through 18195; 90 FR 36770). The following table provides an overview of the new technology add- on payment application for PearlMatrixTM P-15 Peptide Enhanced Bone Graft and CMS's preliminary assessment. For additional details provided by the applicant, please refer to the online application posting at https://mearis.cms.gov/public/publications/ntap/NTP251001VFM4K. [[Page 19448]] [GRAPHIC] [TIFF OMITTED] TP14AP26.101 ICD-10-CM Coding After review of the information provided by the applicant, we note that subsequent to the June 18, 2025 PMA as listed in the table, a supplemental PMA for PearlMatrixTM P-15 Peptide Enhanced Bone Graft was approved on December 11, 2025,\81\ expanding the indication to allow implantation of the product using additional surgical approaches. As previously stated, under the eligibility criteria for approval under the alternative pathway for certain transformative devices, only the use of the technology for the indication that corresponds to the technology's Breakthrough Device designation would be eligible for the new technology add-on payment for FY 2027. Therefore, it appears that only the use of the PearlMatrixTM P-15 Peptide Enhanced Bone Graft in conjunction with a TLIF device, and the FDA Breakthrough Device designation it received for that use, would be relevant for purposes of the new technology add-on payment application for FY 2027. The applicant stated that effective October 1, 2025, the following ICD-10- PCS codes could be used to uniquely describe procedures involving the use of the technology: XW0U0XB (Introduction of peptide enhanced bone void filler into joints, open approach, new technology group 11), XW0U3XB (Introduction of peptide enhanced bone void filler into joints, percutaneous approach, new technology group 11), or XW0U4XB (Introduction of peptide enhanced bone void filler into joints, percutaneous endoscopic approach, new technology group 11). We believe the relevant ICD-10-PCS procedure codes that would be appropriate to report in combination with the PearlMatrixTM P-15 Peptide Enhanced Bone Graft's unique ICD-10-PCS codes to identify use of the technology for the Breakthrough Device-designated indication would be the following: --------------------------------------------------------------------------- \81\ https://www.accessdata.fda.gov/scripts/cdrh/cfdocs/cfpma/pma.cfm?id=P240001S001. --------------------------------------------------------------------------- [[Page 19449]] [GRAPHIC] [TIFF OMITTED] TP14AP26.102 BILLING CODE 4120-01-C We are inviting public comments on the use of these ICD-10-PCS procedure codes to identify use of the technology for the Breakthrough Device-designated indication for purposes of the new technology add-on payment, if approved. Cost Criterion We agree with the applicant that PearlMatrixTM P-15 Peptide Enhanced Bone Graft meets the cost criterion and are therefore proposing to approve PearlMatrixTM P-15 Peptide Enhanced Bone Graft for new technology add-on payments for FY 2027, for the FDA- approved indication covered by the Breakthrough Device designation listed in the table and as described previously. We consider the beginning of the newness period to commence on June 18, 2025, the date on which PearlMatrixTM P-15 Peptide Enhanced Bone Graft received FDA marketing authorization. Based on preliminary cost information from the applicant at the time of this proposed rule, the applicant anticipated the total cost of PearlMatrixTM P-15 Peptide Enhanced Bone Graft to the hospital to be $6,500 per patient, for one 10 cc kit used per inpatient stay. As the applicant stated, there are capital costs of $1,300 for the bone graft peptide, porcine anorganic bone mineral, and fibrous collagen matrix. As previously discussed, we do not include capital costs in the add-on payments for a new medical service or technology or make new technology add-on payments under the IPPS for capital-related costs (86 FR 45145). Therefore, as it appears that the $1300 capital costs are not eligible for new technology add-on payment, we note that any new technology add-on payment for PearlMatrix P-15 Peptide Enhanced Bone Graft would be based on only the operating costs of $5,200 for the bone graft peptide, porcine anorganic bone mineral, and fibrous collagen matrix. As a result, we are proposing that the maximum new technology add-on payment for a case involving the use of PearlMatrixTM P-15 Peptide Enhanced Bone Graft would be $3,380 for FY 2027 (that is, 65 percent of the average cost of the technology). We note that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. We invite public comments on whether PearlMatrixTM P-15 Peptide Enhanced Bone Graft meets the cost criterion and our proposal to approve new technology add-on payments for PearlMatrixTM P-15 Peptide Enhanced Bone Graft for FY 2027.

16. PMcardio[supreg] STEMI AI ECG Model

Powerful Medical Inc. submitted a FY 2027 application for new technology add-on payments for the PMcardio[supreg] STEMI AI ECG Model (PMcardio[supreg] STEMI AI). According to the applicant, PMcardio[supreg] STEMI AI is a stand-alone software device intended to analyze resting 12-lead ECGs of patients presenting with symptoms suspicious for acute coronary syndromes in the hospital setting. Per the applicant, the technology identifies ECG patterns of STEMI/STEMI- equivalents as an adjunctive decision support tool used by healthcare professionals. The following table provides an overview of the new technology add- on payment application for PMcardio[supreg] STEMI AI and CMS's preliminary assessment. For additional details provided by the applicant, please refer to the online application posting at https://mearis.cms.gov/public/publications/ntap/NTP251006JRE0P. BILLING CODE 4120-01-P [[Page 19450]] [GRAPHIC] [TIFF OMITTED] TP14AP26.103 Cost Criterion After review of the information provided by the applicant, we agree with the applicant that PMcardio[supreg] STEMI AI meets the cost criterion and are therefore proposing to approve PMcardio[supreg] STEMI AI for new technology add-on payments for FY 2027, subject to the technology receiving FDA marketing authorization for the indication corresponding to the Breakthrough Device designation by May 1, 2026. Based on preliminary information from the applicant at the time of this proposed rule, we are proposing that the maximum new technology add-on payment for a case involving the use of PMcardio[supreg] STEMI AI would be $113.75 for FY 2027 (that is, 65% of the average cost of the technology). We note that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. We invite public comments on whether PMcardio[supreg] STEMI AI meets the cost criterion and our proposal to approve new technology add-on payments for the PMcardio[supreg] STEMI AI ECG Model for FY 2027, subject to the technology receiving FDA marketing authorization for the indication corresponding to the Breakthrough Device designation by May 1, 2026.

17. SAPIEN M3 Transcatheter Mitral Valve Replacement System

Edwards LifeSciences, LLC submitted a FY 2027 application for new technology add-on payments for the SAPIEN M3 Transcatheter Mitral Valve Replacement System (the SAPIEN M3 TMVR System). According to the applicant, the SAPIEN M3 TMVR System is a transcatheter system designed to allow for replacement of the native mitral valve in patients with symptomatic mitral valve regurgitation or symptomatic mitral stenosis. The following table provides an overview of the new technology add- on payment application for the SAPIEN M3 TMVR System and CMS's preliminary assessment. For additional details provided by the applicant, please refer to the online application posting at https://mearis.cms.gov/public/publications/ntap/NTP251003XXUEG. [[Page 19451]] [GRAPHIC] [TIFF OMITTED] TP14AP26.104 Cost Criterion After review of the information provided by the applicant, we agree with the applicant that the SAPIEN M3 TMVR System meets the cost criterion and are therefore proposing to approve the SAPIEN M3 TMVR System for new technology add-on payments for FY 2027, for the FDA- approved indication covered by the Breakthrough Device designation listed in the table. We consider the beginning of the newness period to commence on December 22, 2025, the date on which the SAPIEN M3 TMVR System received FDA marketing authorization. Based on preliminary information from the applicant at the time of this proposed rule, we are proposing that the maximum new technology add-on payment for a case involving the use of the SAPIEN M3 TMVR System would be $35,100 for FY 2027 (that is, 65% of the average cost of the technology). We note that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. We invite public comments on whether the SAPIEN M3 TMVR System meets the cost criterion and our proposal to approve new technology add-on payments for the SAPIEN M3 Transcatheter Mitral Valve Replacement System for FY 2027.

18. SetPoint System[supreg]

SetPoint Medical Corporation submitted a FY 2027 application for new technology add-on payments for the SetPoint System[supreg]. According to the applicant, the SetPoint System[supreg] is a fully integrated, rechargeable, implantable vagus nerve stimulation system used to treat individuals with moderate to severe rheumatoid arthritis (RA) who have experienced a loss of efficacy, inadequate response, or intolerance to one or more biologic or targeted synthetic disease modifying antirheumatic drugs (DMARDs). The following table provides an overview of the new technology add- on payment application for the SetPoint System[supreg] and CMS's preliminary assessment. For additional details provided by the applicant, please refer to the online application posting at https://mearis.cms.gov/public/publications/ntap/NTP251006Y987F. [[Page 19452]] [GRAPHIC] [TIFF OMITTED] TP14AP26.105 Cost Criterion After review of the information provided by the applicant, we agree with the applicant that the SetPoint System[supreg] meets the cost criterion and are therefore proposing to approve the SetPoint System[supreg] for new technology add-on payments for FY 2027, for the FDA approved indication covered by the Breakthrough Device designation listed in the table. We consider the beginning of the newness period to commence on August 21, 2025, the date on which the SetPoint System[supreg] became commercially available. Based on preliminary information from the applicant at the time of this proposed rule, we are proposing that the maximum new technology add-on payment for a case involving the use of the SetPoint System[supreg] would be $38,675 for FY 2027 (that is, 65% of the average cost of the technology). We note that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. We invite public comments on whether the SetPoint System[supreg] meets the cost criterion and our proposal to approve new technology add-on payments for the SetPoint System[supreg] for FY 2027.

19. Spur[supreg] Peripheral Retrievable Stent System

Reflow Medical, Inc. submitted a FY 2027 application for new technology add-on payments for the Spur[supreg] Peripheral Retrievable Stent System. According to the applicant, the Spur[supreg] Peripheral Retrievable Stent System is used as an adjunct to percutaneous transluminal angioplasty (PTA) to dilate stenoses in infrapopliteal arteries ranging in diameter from 2.5 mm to 4.5 mm. We note that the applicant submitted an application for new technology add-on payments for this technology for FY 2026 (90 FR 18203 through 18205; 90 FR 36770). The following table provides an overview of the new technology add- on payment application for the Spur[supreg] Peripheral Retrievable Stent System and CMS's preliminary assessment. For additional details provided by the applicant, please refer to the online application posting at https://mearis.cms.gov/public/publications/ntap/NTP251001G2LL6. [[Page 19453]] [GRAPHIC] [TIFF OMITTED] TP14AP26.106 Cost Criterion After review of the information provided by the applicant, we agree with the applicant that the Spur[supreg] Peripheral Retrievable Stent System meets the cost criterion and are therefore proposing to approve the Spur[supreg] Peripheral Retrievable Stent System for new technology add-on payments for FY 2027, for the FDA-approved indication covered by the Breakthrough Device designation listed in the table. We consider the beginning of the newness period to commence on May 29, 2025, the date on which the Spur[supreg] Peripheral Retrievable Stent System received FDA marketing authorization. Based on preliminary cost information from the applicant at the time of this proposed rule, we are proposing that the maximum new technology add-on payment for a case involving the use of the Spur[supreg] Peripheral Retrievable Stent System would be $2,596.75 for FY 2027 (that is, 65 percent of the average cost of the technology). We note that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. We invite public comments on whether the Spur[supreg] Peripheral Retrievable Stent System meets the cost criterion and our proposal to approve new technology add-on payments for the Spur[supreg] Peripheral Retrievable Stent System for FY 2027.

20. TrilogyTM Transcatheter Aortic Valve Regurgitation

System JenaValve submitted a FY 2027 application for new technology add-on payments for the TrilogyTM Transcatheter Aortic Valve Regurgitation System. According to the applicant, the TrilogyTM Transcatheter Aortic Valve Regurgitation System for transcatheter aortic valve implantation is deployed so that the Transcatheter Heart Valve (THV) expands radially at the native annulus and clips onto the native aortic leaflets to anchor the THV. Per the applicant, the THV is designed to anchor in the diseased regurgitant aortic valve. The following table provides an overview of the new technology add- on payment application for the TrilogyTM Transcatheter Aortic Valve Regurgitation System and CMS's preliminary assessment. For additional details provided by the applicant, please refer to the online application posting at https://mearis.cms.gov/public/publications/ntap/NTP25100691E86. [[Page 19454]] [GRAPHIC] [TIFF OMITTED] TP14AP26.107 Cost Criterion After review of the information provided by the applicant, we agree with the applicant that the TrilogyTM Transcatheter Aortic Valve Regurgitation System meets the cost criterion and are therefore proposing to approve the TrilogyTM Transcatheter Aortic Valve Regurgitation System for new technology add-on payments for FY 2027, for the FDA-approved indication covered by the Breakthrough Device designation listed in the table. We consider the beginning of the newness period to commence on March 17, 2026, the date on which the TrilogyTM Transcatheter Aortic Valve Regurgitation System received FDA marketing authorization. Based on preliminary information from the applicant at the time of this proposed rule, we are proposing that the maximum new technology add-on payment for a case involving the use of the TrilogyTM Transcatheter Aortic Valve Regurgitation System would be $25,675 for FY 2027 (that is, 65% of the average cost of the technology). We note that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. We invite public comments on whether the TrilogyTM Transcatheter Aortic Valve Regurgitation System meets the cost criterion and our proposal to approve new technology add-on payments for the TrilogyTM Transcatheter Aortic Valve Regurgitation System for FY 2027.

21. ViaOneTM Epicardial Access System

CardioVia Ltd. submitted a FY 2027 application for new technology add-on payments for the ViaOneTM Epicardial Access System (ViaOneTM). According to the applicant, ViaOneTM is a sterile, single use device, designed to allow safe pericardial access utilizing a proprietary mechanism of entry into the pericardial sac with a blunt tip and a concealed needle. The following table provides an overview of the new technology add- on payment application for ViaOneTM and CMS's preliminary assessment. For additional details provided by the applicant, please refer to the online application posting at https://mearis.cms.gov/public/publications/ntap/NTP251001MFBVW. [[Page 19455]] [GRAPHIC] [TIFF OMITTED] TP14AP26.108 Newness Period After review of the information provided by the applicant, we note that, regarding commercial availability, the applicant stated that the technology would not be available for sale until April 27, 2026. The applicant stated that the original manufacturing partner permanently ceased operations, requiring the applicant to engage a new qualified manufacturer and conduct full verification and validation testing. The applicant also stated that delays in completion of the required FDA establishment registration and device listing process, and current aviation and international shipping constraints related to regional security developments are expected to further delay initial U.S. availability. We are interested in confirmation regarding the first date of availability for sale of ViaOneTM on the U.S. market (irrespective of purchase volume or when the first sale occurred). Cost Criterion We agree with the applicant that ViaOneTM meets the cost criterion and are therefore proposing to approve ViaOneTM for new technology add-on payments for FY 2027, for the FDA-cleared indication covered by the Breakthrough Device designation listed in the table. Based on preliminary information from the applicant at the time of this proposed rule, we are proposing that the maximum new technology add-on payment for a case involving the use of ViaOneTM would be $1,300 for FY 2027 (that is, 65% of the average cost of the technology). We note that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. We invite public comments on whether ViaOneTM meets the cost criterion and our proposal to approve new technology add-on payments for the ViaOneTM Epicardial Access System for FY 2027.

22. VUNO Med-DeepCARS[supreg]

VUNO Med Inc. submitted a FY 2027 application for new technology add-on payments for VUNO Med-DeepCARS[supreg] (DeepCARS[supreg]). According to the applicant, DeepCARS[supreg] is an artificial intelligence based technology that monitors and assesses the risk of impending cardiac arrest within a 24-hour period among inpatients in general hospital wards. The following table provides an overview of the new technology add- on payment application for DeepCARS[supreg] and CMS's preliminary assessment. For additional details provided by the applicant, please refer to the online application posting at https://mearis.cms.gov/public/publications/ntap/NTP251004DL00M. [[Page 19456]] [GRAPHIC] [TIFF OMITTED] TP14AP26.109 BILLING CODE 4120-01-C Cost Criterion After review of the information provided by the applicant, we agree with the applicant that DeepCARS[supreg] meets the cost criterion and are therefore proposing to approve DeepCARS[supreg] for new technology add-on payments for FY 2027, subject to the technology receiving FDA marketing authorization for the indication corresponding to the Breakthrough Device designation by May 1, 2026. Based on preliminary information from the applicant at the time of this proposed rule, we are proposing that the maximum new technology add-on payment for a case involving the use of DeepCARS[supreg] would be $236.66 for FY 2027 (that is, 65% of the average cost of the technology). We note that the cost information for this technology may be updated in the final rule based on [[Page 19457]] revised or additional information CMS receives prior to the final rule. We invite public comments on whether DeepCARS[supreg] meets the cost criterion and our proposal to approve new technology add-on payments for VUNO Med-DeepCARS[supreg] for FY 2027, subject to the technology receiving FDA marketing authorization for the indication corresponding to the Breakthrough Device designation by May 1, 2026. 7. Proposed Alternative Pathway Repeal for New Technology Add-on Payment and Outpatient Prospective Payment System (OPPS) Device Pass- Through As discussed previously, in the FY 2020 and FY 2021 IPPS/LTCH PPS final rules (84 FR 42292 through 42297; 85 FR 58737 through 58739), we finalized a policy to establish an alternative inpatient new technology add-on payment pathway for certain transformative new devices and certain antimicrobial products. Under this pathway, FDA-designated Breakthrough Devices and QIDPs, and drugs approved under FDA's Limited Population Pathway for Antibacterial and Antifungal Drugs (LPAD) pathway (sometimes collectively referred to in this section as ``alternative pathway designations'') are considered to be not substantially similar to existing technology for purposes of the new technology add-on payment, and do not need to meet the requirement under Sec. 412.87(b)(1) that the technology represent an advance that substantially improves, relative to technologies previously available, the diagnosis or treatment of Medicare beneficiaries. We also finalized a policy in the CY 2020 OPPS/ASC final rule to establish an alternative transitional pass-through payment pathway for devices that are part of the FDA's Breakthrough Devices Program and have received FDA marketing authorization for the indication covered by the Breakthrough Device designation (84 FR 61295 through 61296). Under this alternative pathway, FDA-designated Breakthrough Devices are not evaluated for substantial clinical improvement under Sec. 419.66(c)(2) for the purposes of determining device pass-through payment status. We refer readers to the CY 2026 OPPS/ASC final rule (90 FR 53632 through 53636) for additional background on the OPPS Pass-Through Payment for Devices. We note that the Breakthrough Devices Program is intended to help patients have more timely access to designated medical devices by expediting their development, assessment, and review.\82\ The Breakthrough Device designation criteria are defined in section 515B(b) of the FD&C Act (21 U.S.C. 360e-3(b)), which provides for a Program for devices that: ``(1) that provide for more effective treatment or diagnosis of life-threatening or irreversibly debilitating human disease or conditions; and (2)(A) that represent breakthrough technologies; (B) for which no approved or cleared alternatives exist; (C) that offer significant advantages over existing approved or cleared alternatives, including the potential, compared to existing approved alternatives, to reduce or eliminate the need for hospitalization, improve patient quality of life, facilitate patients' ability to manage their own care (such as through self-directed personal assistance), or establish long-term clinical efficiencies; or (D) the availability of which is in the best interest of patients.'' \83\ Per FDA guidance, a sponsor should demonstrate a reasonable expectation that the device could provide for more effective treatment or diagnosis of the disease or condition identified in the proposed indications for use.\84\ FDA defines a QIDP as ``an antibacterial or antifungal drug for human use intended to treat serious or life-threatening infections, including those caused by--(1) an antibacterial or antifungal resistant pathogen, including novel or emerging infectious pathogens; or (2) qualifying pathogens listed by the Secretary under'' section 505E(f) of the FD&C Act.\85\ FDA believed the LPAD pathway would facilitate development and approval of certain antibacterial and antifungal drugs to treat serious or life-threatening infections in limited populations of patients with unmet needs. FDA may approve an antibacterial or antifungal drug, alone or in combination with one or more other drugs, under the LPAD pathway, if: The drug is intended to treat a serious or life-threatening infection in a limited population of patients with unmet needs; The drug meets the standards for approval under section 505(c) and (d) of the FD&C Act or the standards for licensure under section 351 of the Public Health Service Act; and FDA receives a written request from the sponsor to approve the drug as a LPAD pathway drug.\86\ --------------------------------------------------------------------------- \82\ Breakthrough Devices Program Guidance for Industry and Food and Drug Administration Staff (September 15, 2023) https://www.fda.gov/media/162413/download. \83\ Ibid. \84\ Ibid. \85\ Qualified Infectious Disease Product Designation Questions and Answers Guidance for Industry (May 2021) https://www.fda.gov/media/148480/download. \86\ Limited Population Pathway for Antibacterial and Antifungal Drugs--the LPAD Pathway (Content current as of: 03/24/2025) https://www.fda.gov/drugs/development-resources/limited-population-pathway-antibacterial-and-antifungal-drugs-lpad-pathway. --------------------------------------------------------------------------- As discussed in the FY 2020 IPPS/LTCH PPS rulemaking (84 FR 42292 through 42297) and in the CY 2020 OPPS/ASC rulemaking (84 FR 61295 through 61296), we stated that we believed that the benefits of addressing barriers to healthcare innovation and ensuring Medicare beneficiaries have access to critical and life-saving new cures and technologies that improve beneficiary health outcomes supported establishing the alternative pathway for new technology add-on payments and OPPS device pass-through payments. We also stated that we believed it was prudent to gain experience under this new alternative pathway for certain transformative new devices before expanding it to other special designations to allow us to evaluate the benefits of this proposed alternative pathway to facilitate beneficiary access to transformative new medical devices as well as any other considerations that may come to light after application of this new pathway (84 FR 42296). As we have gained experience, we have concerns with the limited evaluation process for alternative pathway applications for new technology add-on and OPPS device pass-through payments, and after further consideration, we believe it is in the best interest of Medicare patients to refine our approach, to ensure that all new technologies approved for new technology add-on payment have demonstrated that the technology is not substantially similar to existing technologies and represents an advance that substantially improves, relative to technologies previously available, the diagnosis or treatment of Medicare beneficiaries. Similarly, we believe it is in the best interest of Medicare patients that new technologies approved for OPPS device pass-through payment status have demonstrated a substantial clinical improvement, that is, they substantially improve the diagnosis or treatment of an illness or injury or improve the functioning of a malformed body part, compared to the benefits of a device or devices in a previously established category or other available treatment. Therefore, we are proposing to repeal the alternative pathway for new technology add-on payment and OPPS device pass-through applications, and require all applicants for new technology add-on payments and OPPS [[Page 19458]] device pass-through payments to demonstrate that they meet the same eligibility requirements to receive add-on payments and/or pass-through payments. We believe this proposed requirement will better align spending and value and ultimately support providers in delivering the best, data-driven care possible. By requiring all technologies to demonstrate that they offer a substantial clinical improvement as part of our evaluation process, we believe we will be better able to make evidence-based decisions on which technologies should receive these additional payments. We believe that holding all applicants to the same standards and requiring all applicants to demonstrate that their technologies meet the same criteria maintains our focus on new and innovative technologies that improve beneficiary health outcomes while strengthening the evidence base supporting our approval decisions for new technology add-on payment and OPPS device pass-through payment, ensuring value for American taxpayers and Medicare beneficiaries. Therefore, we are proposing that for all applications received for new technology add-on payments for FY 2028 and subsequent fiscal years, including applications for FDA-designated Breakthrough Devices and QIDPs, or drugs approved under FDA's LPAD pathway, we would evaluate whether the technology is new and not substantially similar to an existing technology, and the technology must demonstrate that it meets the requirements under Sec. 412.87(b) that it represent an advance that substantially improves, relative to technologies previously available, the diagnosis or treatment of Medicare beneficiaries. That is, beginning with applications received for new technology add-on payments for FY 2028 and subsequent fiscal years, all applicants would need to meet all three of the criteria as specified at Sec. 412.87(b) and described earlier in this section in order to receive the additional payment: (1) the medical service or technology must be new; (2) the medical service or technology must be costly such that the DRG rate otherwise applicable to discharges involving the medical service or technology is determined to be inadequate; and (3) the service or technology must demonstrate a substantial clinical improvement over existing services or technologies. Technologies that are currently under review for FY 2027 new technology add-on payments under the alternative pathway will remain eligible for consideration for add-on payment under the alternative pathway. Technologies that have previously been approved for add-on payments under the alternative pathway will remain eligible for add-on payment under the alternative pathway. Consistent with our proposal to remove the alternative pathway for certain antimicrobial products currently at Sec. [thinsp]412.87(d), we would also remove the conditional approval process for a technology for which an application is submitted under the alternative pathway for certain antimicrobial products that does not receive FDA marketing authorization by July 1 prior to the fiscal year for which the applicant applied for new technology add-on payments, as currently reflected at Sec. 412.87(f)(3). Accordingly, beginning with the FY 2028 new technology add-on payment applications, in order to be eligible for consideration for the new technology add on payment for the upcoming fiscal year, all applicants would need to receive FDA marketing authorization by May 1 of the year prior to the beginning of the fiscal year for which the application is being considered, as reflected at Sec. 412.87(f)(2). We are proposing to amend Sec. [thinsp]412.87 to reflect these proposals by revising paragraphs Sec. [thinsp]412.87(c) and (d) and removing subparagraph 412.87(f)(3). We are also proposing related revisions to the title of paragraph (f) and subparagraphs (1) and (2) of paragraph (f) to reflect this proposed policy. We are also proposing to make a technical correction to the introductory text at Sec. [thinsp]412.87(d) to restore language that was previously removed in error, with additional revisions to reflect the proposed repeal. We are also proposing to make a technical correction to the introductory text at Sec. 412.88(a)(2)(ii)(A) to reference Sec. 412.88(a)(2)(ii)(C), consistent with our policy as finalized in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69245 through 69252). Similarly, we are proposing that all applications received for OPPS device pass-through payment status on or after October 1, 2026, including all applications received through the remainder of the CY 2028 OPPS application cycle ending on March 1, 2027, and applications received for subsequent calendar years would have to demonstrate that the technology met the requirements currently reflected at Sec. 419.66(c)(2)(i). OPPS device pass-through payment applications submitted as of September 30, 2026, for devices that are part of the FDA's Breakthrough Devices Program and received FDA marketing authorization for the indication covered by the Breakthrough Device designation would be evaluated and could be approved under the alternative pathway, provided that all other criteria have been met. Existing device category codes established based on the approval, either preliminary or via a final determination made in an OPPS/ASC final rule, including any device category codes established for approved alternative pathway applications received as of September 30, 2026, would continue to be eligible for device pass-through payment status and would remain in effect for at least 2 years, but no more than 3 years, consistent with Sec. 419.66(g). Previously existing device category codes that were no longer eligible for device pass- through payment status would remain unchanged. We are proposing to revise paragraph Sec. 419.66(c)(2)(ii) to reflect this proposed policy, effective October 1, 2026. We believe these changes would be the most prudent and transparent method to allow us to improve our focus on facilitating payment for innovative, high-value technologies that improve care for Medicare beneficiaries. As we stated in the September 7, 2001 final rule (66 FR 46913), we believed the special payments for new technology should be limited to those new technologies that have been demonstrated to represent a substantial improvement in caring for Medicare beneficiaries, such that there is a clear advantage to creating a payment incentive for physicians and hospitals to utilize the new technology. We also stated that where such an improvement was not demonstrated, we continued to believe the incentives of the DRG system would provide a useful balance to the introduction of new technologies. As discussed in the FY 2026 IPPS/LTCH PPS final rule (90 FR 36672), even if a technology does not receive new technology add-on payments, CMS continues to pay for new technologies through the regular payment mechanism established by the DRG payment methodology. Similarly, as we stated in the CY 2026 OPPS/ASC final rule (90 FR 53635), if a technology does not obtain OPPS device pass-through payment status, these devices can still be used by hospitals, and hospitals will be paid for them through appropriate Ambulatory Payment Classifications (APC) payment. Whether a technology receives new technology add-on payments or OPPS device pass-through payments does not affect coverage of the technology or the ability for Medicare providers to provide such technology to patients where appropriate. In addition, we believe that holding all applicants to the same standards by [[Page 19459]] requiring all applicants to demonstrate that their technologies meet the same criteria would ensure that all applications undergo the same review process by CMS. For new technology add-on payment, this includes the opportunity to present at the New Technology Town Hall Meeting on the substantial clinical improvement criterion with regard to pending new technology add-on payment applications, and to have applications considered as part of the annual IPPS rulemaking. Furthermore, because the application and approval timelines for new technology add-on payments are the same for traditional and alternative application pathways, this proposal would not change the time to approval, except for technologies submitted under the alternative pathway for certain antimicrobial products, for which the conditional approval process would no longer be available. Likewise, for OPPS device pass-through, applications are submitted to CMS through the quarterly process, and all applications are subject to notice and comment rulemaking in the next applicable OPPS/ASC annual rulemaking cycle (80 FR 70417 through 70418). Applications, regardless of the pathway under which they apply, that we are able to determine meet all of the criteria for device pass- through payment under the quarterly review process may receive pass- through payment status prior to the final determination in the OPPS/ASC final rule. This proposal would not change the time to approval. Technologies that demonstrate they meet the criteria during the quarterly process may receive pass-through payment status prior to the final determination in the OPPS/ASC final rule. Technologies that demonstrate they meet the criteria during notice and comment rulemaking would receive pass-through payment status via a final determination in the OPPS/ASC final rule. We would also be interested in information on alternate methods that stakeholders believe would more effectively or efficiently accomplish the goal of aligning payment with value by facilitating payment for innovative, high-value technologies that have demonstrated improved Medicare beneficiary health outcomes, such as alternative strategies for leveraging FDA designations. We invite public comment on our proposal to require all applicants for new technology add-on payments and OPPS device pass-through payments to demonstrate that they meet the same requirements for eligibility.

1. Legislative Authority

Section 1886(d)(3)(E) of the Act requires that, as part of the methodology for determining prospective payments to hospitals, the Secretary adjust the standardized amounts for area differences in hospital wage levels by a factor (established by the Secretary) reflecting the relative hospital wage level in the geographic area of the hospital compared to the national average hospital wage level. We refer to this factor as the wage index. We currently define hospital labor market areas based on the delineations of statistical areas established by the Office of Management and Budget (OMB). A discussion of the proposed FY 2027 hospital wage index based on the statistical areas appears under section III.B of the preamble of this proposed rule. Section 1886(d)(3)(E) of the Act requires the Secretary to update the wage index annually and to base the update on a survey of wages and wage-related costs of short-term, acute care hospitals. CMS collects these data on the Medicare cost report titled ``Hospital and Hospital Health Care Complex Cost Report'', Form CMS-2552-10, Worksheet S-3, Parts II, III, and IV. The information collection is currently approved under OMB control number 0938-0050 and has a September 30, 2028, expiration date. Section 1886(d)(3)(E) of the Act also requires that any updates or adjustments to the wage index be made in a manner that ensures that aggregate payments to hospitals are not affected by the change in the wage index. The proposed adjustment for FY 2027 is discussed in section II.B of the Addendum to this proposed rule. As discussed in section III.I of the preamble of this proposed rule, we also take into account the geographic reclassification of hospitals in accordance with sections 1886(d)(8)(B) and 1886(d)(10) of the Act when calculating IPPS payment amounts. Under section 1886(d)(8)(D) of the Act, the Secretary is required to adjust the standardized amounts so as to ensure that aggregate payments under the IPPS after implementation of the provisions of sections 1886(d)(8)(B), 1886(d)(8)(C), and 1886(d)(10) of the Act are equal to the aggregate prospective payments that would have been made absent these provisions. The proposed budget neutrality adjustment for FY 2027 is discussed in section II.A.4.b of the Addendum to this proposed rule. Section 1886(d)(3)(E) of the Act also provides for the collection of data every 3 years on the occupational mix of employees for short- term, acute care hospitals participating in the Medicare program to construct an occupational mix adjustment to the wage index. The information collection is currently approved under OMB control number is 0938-0907 and expires on December 31, 2028. A discussion of the occupational mix adjustment that we are proposing to apply to the FY 2027 wage index appears under section III.E of the preamble of this proposed rule.

2. Core-Based Statistical Areas (CBSAs) for the FY 2027 Hospital Wage

Index The wage index is calculated and assigned to hospitals on the basis of the labor market area in which the hospital is located. In accordance with section 1886(d)(3)(E) of the Act, we delineate hospital labor market areas based on OMB-established Core-Based Statistical Areas (CBSAs) (FY 2005 IPPS final rule, 69 FR 49026 through 49032). In the July 16, 2021, Federal Register (86 FR 37777), OMB finalized a schedule for future updates based on results of the decennial Census updates to commuting patterns from the American Community Survey (ACS). In accordance with that schedule, on July 21, 2023, OMB released Bulletin No. 23-01. The current statistical areas (which were implemented beginning with FY 2025) are based on revised OMB delineations issued on July 21, 2023, in OMB Bulletin No. 23-01. According to OMB, the delineations reflect the 2020 Standards for Delineating Core Based Statistical Areas (``the 2020 Standards''), which appeared in the Federal Register on July 16, 2021 (86 FR 37770 through 37778), and the application of those standards to Census Bureau population and journey-to-work data (that is, 2020 Decennial Census, ACS, and Census Population Estimates Program data) (we refer to these revised OMB delineations as the ``new OMB delineations'' in this proposed rule). A copy of OMB Bulletin No. 23-01 may be obtained at https://bidenwhitehouse.archives.gov/wp-content/uploads/2023/07/OMB-Bulletin-23-01.pdf. We refer readers to the FY 2025 IPPS/LTCH PPS final rule (89 FR 69253 through 69266) for a full discussion of our implementation of the new OMB delineations for the FY 2025 wage index. For FY 2027, we are proposing to continue to use the new OMB delineations that we adopted beginning with FY 2025 to calculate the area wage indexes and the transition periods, as we discuss below. [[Page 19460]]

3. Codes for Constituent Counties in CBSAs

CBSAs are made up of one or more constituent counties. Each CBSA and constituent county has its own unique identifying code, a Federal Information Processing Standard (FIPS) county code. The FIPS county codes are maintained by the U.S. Census Bureau. In the FY 2018 IPPS/ LTCH PPS final rule (82 FR 38129 through 38130), we adopted a policy to use the FIPS county codes for purposes of crosswalking counties to CBSAs. In addition, in the same rule, we implemented the latest FIPS code updates, which were effective October 1, 2017, beginning with the FY 2018 wage indexes. These updates have been used to calculate the wage indexes in a manner generally consistent with the CBSA-based methodologies finalized in the FY 2005 IPPS final rule and the FY 2015 IPPS/LTCH PPS final rule (79 FR 49951 through 49963). We refer the reader to the FY 2018 IPPS/LTCH PPS final rule (82 FR 38129 through 38130) for a complete discussion of our adoption of FIPS county codes. For FY 2027, we are proposing to continue to use the FIPS county codes for purposes of crosswalking counties to CBSAs. For FY 2027, Tables 2 and 3 associated with this proposed rule and the County to CBSA Crosswalk File and Urban CBSAs and Constituent Counties for Acute Care Hospitals File posted on the CMS website reflect the latest FIPS county code updates.

1. Cost Reporting Periods Beginning in FY 2023 for FY 2027 Wage Index

The proposed FY 2027 wage index values are based on the data collected from the Medicare cost reports submitted by hospitals for cost reporting periods beginning in FY 2023 (cost reports with a begin date on or after October 1, 2022 and before October 1, 2023). The FY 2026 wage indexes were based on data from cost reporting periods beginning during FY 2022. The proposed FY 2027 wage index includes all of the following categories of data associated with costs paid under the IPPS (as well as outpatient costs): Salaries and hours from short-term, acute care hospitals (including paid lunch hours and hours associated with military leave and jury duty). Home office costs and hours. Certain contract labor costs and hours including direct patient care (which includes nursing), certain top management, pharmacy, laboratory, and nonteaching physician Part A services, and certain contract indirect patient care services (as discussed in the FY 2008 IPPS final rule with comment period (72 FR 47315 through 47317)). Wage-related costs, including pension costs (based on policies adopted in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51586 through 51590) and modified in the FY 2016 IPPS/LTCH PPS final rule (80 FR 49505 through 49508)) and other deferred compensation costs. Consistent with the wage index methodology for FY 2026, the proposed wage index for FY 2027 excludes the direct and overhead salaries and hours for services not subject to IPPS payment, such as skilled nursing facility (SNF) services, home health services, costs related to Graduate Medical Education (GME) (teaching physicians and residents), certified registered nurse anesthetists (CRNAs), and other subprovider components that are not paid under the IPPS. The proposed FY 2027 wage index also excludes the salaries, hours, and wage-related costs of hospital-based rural health clinics (RHCs), and Federally Qualified Health Centers (FQHCs), because Medicare pays for these costs outside of the IPPS (68 FR 45395). In addition, as explained in the FY 2004 IPPS final rule (68 FR 45397 through 45398), salaries, hours, and wage-related costs of Critical Access Hospitals (CAHs) are excluded from the wage index as we believe that removing CAHs from the wage index is prudent policy, given the substantial negative impact these hospitals have on the wage indexes in the areas where they are located and the minimal impact they have on the wage indexes of other areas. We refer the reader to the FY 2004 IPPS final rule (68 FR 45397 through 45398) for a complete discussion regarding the exclusion of CAHs from the wage index. Similar to our treatment of CAHs, as discussed later in this section, we exclude Rural Emergency Hospitals (REHs) from the wage index. For FY 2020 and subsequent years, other wage-related costs are also excluded from the calculation of the wage index. As discussed in the FY 2019 IPPS/LTCH final rule (83 FR 41365 through 41369), other wage- related costs reported on Worksheet S-3, Part II, Line 18 and Worksheet S-3, Part IV, Line 25 and subscripts, as well as all other wage-related costs, such as contract labor costs, are excluded from the calculation of the wage index.

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

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

3. Verification of Worksheet S-3 Wage Data

The wage data for the proposed FY 2027 wage index were obtained from Worksheet S-3, Parts II, III and IV of the Medicare cost report, CMS Form 2552-10 (OMB Control Number 0938-0050 with an expiration date September 30, 2028) for cost reporting periods beginning on or after October 1, 2022, and before October 1, 2023. For wage index purposes, we refer to cost reports beginning on or after October 1, 2022, and before October 1, 2023, as the ``FY 2023 cost report,'' the ``FY 2023 wage data,'' or the ``FY 2023 data.'' Instructions for completing the wage index sections of Worksheet S-3 are included in the Provider Reimbursement Manual (PRM), Part 2 (Pub. 15-2), Chapter 40, Sections 4005.2 through 4005.4. The data file used to construct the FY 2027 wage index includes FY 2023 data submitted to us as of January 21, 2026. For FY 2027, the wage data was not subject to a desk review by the Medicare Administrative Contractors (MACs). CMS performed a review of the wage data to identify and resolve aberrant data, such as analyzing the data from a regional and national level. We note, in previous fiscal years, we reviewed and evaluated the audited wage data, and the impacts of the COVID-19 PHE on such data. For FY 2027, we have not identified any significant issues with the FY 2023 wage data itself in terms of our review of this data. For the proposed FY 2027 wage index, we identified and excluded 68 [[Page 19461]] providers with aberrant data that should not be included in the wage index. If data elements for some of these providers are corrected, we intend to include data from those providers in the final FY 2027 wage index. We also adjusted certain aberrant data and included these data in the wage index. For example, in situations where a hospital did not have documentable salaries, wages, and hours for housekeeping and dietary services, we imputed estimates, in accordance with policies established in the FY 2015 IPPS/LTCH PPS final rule (79 FR 49965 through 49967). We instructed MACs to transmit any changes to the wage data no later than March 21, 2026. In constructing the proposed FY 2027 wage index, we included the wage data for facilities that were IPPS hospitals in FY 2023, inclusive of those facilities that have since terminated their participation in the program as hospitals, as long as those data did not fail any of our edits for reasonableness. We believe that including the wage data for these hospitals is, in general, appropriate to reflect the economic conditions in the various labor market areas during the relevant past period and to ensure that the current wage index represents the labor market area's current wages as compared to the national average of wages. As discussed in the FY 2004 IPPS final rule (68 FR 45397 through 45398) and FY 2025 IPPS/LTCH final rule (89 FR 69268), any hospital that is designated as a CAH or REH by 7 days prior to the publication of the preliminary wage index public use file (PUF) is excluded from the calculation of the wage index. For the proposed FY 2027 wage index, we removed 7 hospitals that converted to CAH status and 2 hospitals that converted to REH status on or after January 24, 2025, the cut-off date for CAH and REH exclusion from the FY 2026 wage index, and through and including January 23, 2026, the cut-off date for CAH and REH exclusion from the FY 2027 wage index. We also note that we removed 2 hospitals that converted to REH status prior to January 24, 2025. In summary, we calculated the proposed FY 2027 wage index using the Worksheet S-3, Parts II and III wage data of 3,006 hospitals. For the proposed FY 2027 wage index, we allotted the wages and hours data for a multicampus hospital among the different labor market areas where its campuses are located using campus full-time equivalent (FTE) percentages as originally finalized in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51591). Table 2, which contains the FY 2027 wage index associated with this proposed rule (available via the internet on the CMS website), includes separate wage data for the campuses of 26 multicampus hospitals. The following chart lists the multicampus hospitals by CMS certification number (CCN) and the FTE percentages on which the wages and hours of each campus were allotted to their respective labor market areas: BILLING CODE 4120-01-P [[Page 19462]] [GRAPHIC] [TIFF OMITTED] TP14AP26.110 BILLING CODE 4120-01-C We note that, in past years, in Table 2, we have placed a ``B'' to designate the subordinate campus in the fourth position of the hospital CCN. However, for the FY 2019 IPPS/LTCH PPS proposed and final rules and subsequent rules, we have moved the ``B'' to the third position of the CCN. Because all IPPS hospitals have a ``0'' in the third position of the CCN, we believe that placement of the ``B'' in this third position, instead of the ``0'' for the subordinate campus, is the most efficient method of identification and interferes the least with the other variable digits in the CCN. We also note that providers can have an additional second sub campus located in a different CBSA then the main campus and its other sub campus(es). Therefore, in order to uniquely identify a second sub campus, we place a ``C'' in the third position of the CCN.

4. Process for Requests for Wage Index Data Corrections

a. Process for Hospitals To Request Wage Index Data Corrections The preliminary, unaudited Worksheet S-3 wage data files for the proposed FY 2027 wage index were made available on May 23, 2025, through the internet on the CMS website at https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/wage-index-files/fy-2027-wage-index-home-page. On January 30, 2026, we posted a public use file (PUF) at https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/wage-index-files/fy-2027-wage-index-home-page containing FY 2027 wage index data available as of January 30, 2026. This PUF contains a tab with the Worksheet S-3 wage data (which includes Worksheet S-3, Parts II and III wage data from cost reporting periods beginning on or after October 1, 2022, through September 30, 2023; that is, FY 2023 wage data), a tab with the occupational mix data (which includes data from the CY 2022 occupational mix survey, Form CMS- 10079), a tab containing the Worksheet S-3 wage data of hospitals deleted from the January 30, 2026 wage data PUF, and a tab containing the CY 2022 occupational mix data of the hospitals deleted from the January 30, 2026 occupational mix PUF. In a memorandum dated January 22, 2026, we instructed all MACs to inform the IPPS hospitals that they service of the availability of the January 30, 2026, wage index data PUFs, and the process and timeframe for requesting revisions in accordance with the FY 2027 Hospital Wage Index Development Timetable available at https://www.cms.gov/files/document/fy-2027- [[Page 19463]] hospital-wage-index-development-time-table.pdf. In the interest of meeting the data needs of the public, beginning with the proposed FY 2009 wage index, we post an additional PUF on the CMS website that reflects the actual data that are used in computing the proposed wage index. The release of this file does not alter the current wage index process or schedule. In a memorandum dated April 16, 2025, we instructed all MACs to inform the IPPS hospitals that they service of the availability of the preliminary wage index data files and the CY 2022 occupational mix survey data files posted on May 23, 2025, and the process and timeframe for requesting revisions. If a hospital wished to request a change to its data as shown in the May 23, 2025, preliminary wage data files and occupational mix data files, the hospital had to submit corrections along with complete, detailed supporting documentation to its MAC so that the MAC received them by September 2, 2025. Hospitals were notified of these deadlines and of all other deadlines and requirements, including the requirement to review and verify their data as posted in the preliminary wage index data files on the internet, through the letters sent to them by their MACs. November 14, 2025, was the date by when MACs were required to transmit revised wage index data files and occupational mix data files to CMS. CMS published the wage index PUFs that included hospitals' revised wage index data on January 30, 2026. Hospitals had until February 17, 2026, to submit requests to the MACs to correct errors in the January 30, 2026, PUF due to CMS or MAC mishandling of the wage index data, or to revise adjustments to their wage index data as included in the January 30, 2026, PUF. Hospitals also were required to submit sufficient documentation to support their requests. Hospitals' requests and supporting documentation must have been received by the MAC by the February deadline (that is, by February 17, 2026, for the FY 2027 wage index). After reviewing requested changes submitted by hospitals, MACs were required to transmit to CMS any additional revisions resulting from the hospitals' reconsideration requests by March 20, 2026. Under our current policy as adopted in the FY 2018 IPPS/LTCH PPS final rule (82 FR 38153), the deadline for a hospital to request CMS intervention in cases where a hospital disagreed with a MAC's handling of wage data on any basis (including a policy, factual, or other dispute) is April 3, 2026. Data that were incorrect in the preliminary or January 30, 2026, wage index data PUFs, but for which no correction request was received by the February 17, 2026, deadline, are not considered for correction at this stage. In addition, April 3, 2026, is the deadline for hospitals to dispute data corrections made by CMS of which the hospital was notified after the January 30, 2026, PUF and at least 14 calendar days prior to April 3, 2026 (that is, by March 20, 2026), that do not arise from a hospital's request for revisions. The hospital's request and supporting documentation must be received by CMS (and a copy received by the MAC) by the April deadline (that is, by April 3, 2026, for the FY 2027 wage index). We refer readers to the FY 2027 Hospital Wage Index Development Timetable for complete details. Hospitals were given the opportunity to examine Table 2 associated with this proposed rule, which is listed in section VI of the Addendum to this proposed rule and available via the internet on the CMS website at https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/wage-index-files/fy-2027-wage-index-home-page. Table 2 associated with the proposed rule contained each hospital's proposed adjusted average hourly wage used to construct the wage index values for the past 3 years, including the proposed FY 2027 wage index, which was constructed from FY 2023 data. We note that the proposed hospital average hourly wages shown in Table 2 only reflect changes made to a hospital's data that were transmitted to CMS by late January 2026. We plan to post the final wage index data PUFs on April 30, 2026, on the CMS website at https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/wage-index-files/fy-2027-wage-index-home-page. The April 2026 PUFs are made available solely for the limited purpose of identifying any potential errors made by CMS or the MAC in the entry of the final wage index data that resulted from the correction process (the process for disputing revisions submitted to CMS by the MACs by March 20, 2026, and the process for disputing data corrections made by CMS that did not arise from a hospital's request for wage data revisions as discussed earlier), as previously described. After the release of the April 2026 wage index data PUFs, changes to the wage and occupational mix data can only be made in those very limited situations involving an error by the MAC or CMS that the hospital could not have known about before its review of the final wage index data files. Specifically, neither the MAC nor CMS will approve the following types of requests: Requests for wage index data corrections that were submitted too late to be included in the data transmitted to CMS by the MACs on or before March 20, 2026. Requests for correction of errors that were not, but could have been, identified during the hospital's review of the January 30, 2026, wage index PUFs. Requests to revisit factual determinations or policy interpretations made by the MAC or CMS during the wage index data correction process. If, after reviewing the April 2026 final wage index data PUFs, a hospital believes that its wage or occupational mix data are incorrect due to a MAC or CMS error in the entry or tabulation of the final data, the hospital is given the opportunity to notify both its MAC and CMS regarding why the hospital believes an error exists and provide all supporting information, including relevant dates (for example, when it first became aware of the error). The hospital is required to send its request to CMS and to the MAC so that it is received no later than May 29, 2026. May 29, 2026, is also the deadline for hospitals to dispute data corrections made by CMS of which the hospital is notified on or after 13 calendar days prior to April 3, 2026 (that is, March 21, 2026), and at least 14 calendar days prior to May 29, 2026 (that is, May 15, 2026), that did not arise from a hospital's request for revisions. (Data corrections made by CMS of which a hospital is notified on or after 13 calendar days prior to May 29, 2026 (that is, May 16, 2026), may be appealed to the Provider Reimbursement Review Board (PRRB)). In accordance with the FY 2027 Hospital Wage Index Development Timetable posted on the CMS website at https://www.cms.gov/files/document/fy-2027-hospital-wage-index-development-time-table.pdf, the May appeals are required to be submitted to CMS through an online submission process. We refer readers to the FY 2027 Hospital Wage Index Development Timetable for complete details. Verified corrections to the wage index data received timely (that is, by May 29, 2026) by CMS and the MACs will be incorporated into the final FY 2027 wage index, which will be effective October 1, 2026. We created the processes previously described to resolve all substantive wage index data correction disputes before we finalize the wage and occupational mix data for the FY 2027 payment rates. Accordingly, hospitals [[Page 19464]] that do not meet the procedural deadlines set forth earlier will not be afforded a later opportunity to submit wage index data corrections or to dispute the MAC's decision with respect to requested changes. Specifically, our policy is that hospitals that do not meet the procedural deadlines as previously set forth (requiring requests to MACs by the specified date in February and, where such requests are unsuccessful, requests for intervention by CMS by the specified date in April) will not be permitted to challenge later, before the PRRB, the failure of CMS to make a requested data revision. We refer readers also to the FY 2000 IPPS final rule (64 FR 41513) for a discussion of the parameters for appeals to the PRRB for wage index data corrections. As finalized in the FY 2018 IPPS/LTCH PPS final rule (82 FR 38154 through 38156), this policy also applies to a hospital disputing corrections made by CMS that do not arise from a hospital's request for a wage index data revision. That is, a hospital disputing an adjustment made by CMS that did not arise from a hospital's request for a wage index data revision is required to request a correction by the first applicable deadline. Hospitals that do not meet the procedural deadlines set forth earlier will not be afforded a later opportunity to submit wage index data corrections or to dispute CMS' decision with respect to changes. Again, we believe the wage index data correction process described earlier provides hospitals with sufficient opportunity to bring errors in their wage and occupational mix data to the MAC's attention. Moreover, because hospitals will have access to the final wage index data PUFs by late April 2026, they have an opportunity to detect any data entry or tabulation errors made by the MAC or CMS before the development and publication of the final FY 2027 wage index by August 2026, and the implementation of the FY 2027 wage index on October 1, 2026. Given these processes, the wage index implemented on October 1 should be accurate. Nevertheless, in the event that errors are identified by hospitals and brought to our attention after May 29, 2026, we retain the right to make midyear changes to the wage index under very limited circumstances. Specifically, in accordance with Sec. 412.64(k)(1) of our regulations, we make midyear corrections to the wage index for an area only if a hospital can show that: (1) the MAC or CMS made an error in tabulating its data; and (2) the requesting hospital could not have known about the error or did not have an opportunity to correct the error, before the beginning of the fiscal year. For purposes of this provision, ``before the beginning of the fiscal year'' means by the May deadline for making corrections to the wage data for the following fiscal year's wage index (for example, May 29, 2026, for the FY 2027 wage index). This provision is not available to a hospital seeking to revise another hospital's data that may be affecting the requesting hospital's wage index for the labor market area. As indicated earlier, because CMS makes the wage index data available to hospitals on the CMS website prior to publishing both the proposed and final IPPS rules, and the MACs notify hospitals directly of any wage index data changes, we do not expect that midyear corrections will be necessary. However, under our current policy, if the correction of a data error changes the wage index value for an area, the revised wage index value will be effective prospectively from the date the correction is made. In the FY 2006 IPPS final rule (70 FR 47385 through 47387 and 47485), we revised Sec. 412.64(k)(2) to specify that, effective October 1, 2005, that is, beginning with the FY 2006 wage index, a change to the wage index can be made retroactive to the beginning of the Federal fiscal year only when CMS determines all of the following: (1) the MAC or CMS made an error in tabulating data used for the wage index calculation; (2) the hospital knew about the error and requested that the MAC and CMS correct the error using the established process and within the established schedule for requesting corrections to the wage index data, before the beginning of the fiscal year for the applicable IPPS update (that is, by the May 29, 2026, deadline for the FY 2027 wage index); and (3) CMS agreed before October 1 that the MAC or CMS made an error in tabulating the hospital's wage index data and the wage index should be corrected. In those circumstances where a hospital requested a correction to its wage index data before CMS calculated the final wage index (that is, by the May 29, 2026 deadline for the FY 2027 wage index), and CMS acknowledges that the error in the hospital's wage index data was caused by CMS' or the MAC's mishandling of the data, we believe that the hospital should not be penalized by our delay in publishing or implementing the correction. As with our current policy, we indicated that the provision is not available to a hospital seeking to revise another hospital's data. In addition, the provision cannot be used to correct prior years' wage index data; it can only be used for the current Federal fiscal year. In situations where our policies will allow midyear corrections other than those specified in Sec. 412.64(k)(2)(ii), we continue to believe that it is appropriate to make prospective-only corrections to the wage index. We note that, as with prospective changes to the wage index, the final retroactive correction will be made irrespective of whether the change increases or decreases a hospital's payment rate. In addition, we note that the policy of retroactive adjustment will still apply in those instances where a final judicial decision reverses a CMS denial of a hospital's wage index data revision request. b. Process for Data Corrections by CMS After the January 30, 2026, Public Use File (PUF) The process set forth with the wage index timetable discussed in section III.C.4 of the preamble of this proposed rule allows hospitals to request corrections to their wage index data within prescribed timeframes. In addition to hospitals' opportunity to request corrections of wage index data errors or MACs' mishandling of data, CMS has the authority under section 1886(d)(3)(E) of the Act to make corrections to hospital wage index and occupational mix data to ensure the accuracy of the wage index. As we explained in the FY 2016 IPPS/ LTCH PPS final rule (80 FR 49490 through 49491) and the FY 2017 IPPS/ LTCH PPS final rule (81 FR 56914), section 1886(d)(3)(E) of the Act requires the Secretary to adjust the proportion of hospitals' costs attributable to wages and wage-related costs for area differences reflecting the relative hospital wage level in the geographic areas of the hospital compared to the national average hospital wage level. We believe that, under section 1886(d)(3)(E) of the Act, we have discretion to make corrections to hospitals' data to help ensure that the costs attributable to wages and wage-related costs in fact accurately reflect the relative hospital wage level in the hospitals' geographic areas. We have a multistep, 15-month process for the review and correction of the hospital wage data that is used to create the IPPS wage index for the upcoming fiscal year. Since the origin of the IPPS, the wage index has been subject to its own annual review process. As noted above, for the development of the FY 2027 wage index, the wage data was not subject to a desk review by the MACs. As in past years, CMS conducted its own review of the data and, if necessary, hospitals [[Page 19465]] provide additional documentation, adjustments, or corrections to the data. This ongoing communication with hospitals about their wage data may result in the discovery by CMS of additional items that were reported incorrectly or other data errors, even after the posting of the January 30, 2026, PUF, and throughout the remainder of the wage index development process. In addition, the fact that CMS analyzes the data from a regional and even national level, can facilitate additional editing of the data. In these occasional instances, an error may be of sufficient magnitude that the wage index of an entire CBSA is affected. Accordingly, CMS uses its authority to ensure that the wage index accurately reflects the relative hospital wage level in the geographic area of the hospital compared to the national average hospital wage level, by continuing to make corrections to hospital wage data upon discovering incorrect wage data, distinct from instances in which hospitals request data revisions. We note that CMS corrects errors to hospital wage data as appropriate, regardless of whether that correction will raise or lower a hospital's average hourly wage. For example, as discussed in section III.C of the preamble of the FY 2019 IPPS/LTCH PPS final rule (83 FR 41364), in situations where a hospital did not have documentable salaries, wages, and hours for housekeeping and dietary services, we imputed estimates, in accordance with policies established in the FY 2015 IPPS/LTCH PPS final rule (79 FR 49965 through 49967). Furthermore, for example, if a positive adjustment resulting from a prior year's wage index appeal of a hospital's wage-related costs such as pension costs was not incorporated in the data, CMS can correct the data error, and the hospital's average hourly wage will likely increase as a result. While we maintain CMS' authority to conduct additional review and make resulting corrections at any time during the wage index development process, in accordance with the policy finalized in the FY 2018 IPPS/LTCH PPS final rule (82 FR 38154 through 38156) and as first implemented with the FY 2019 wage index (83 FR 41389), hospitals are able to request further review of a correction made by CMS that did not arise from a hospital's request for a wage index data correction. Instances where CMS makes a correction to a hospital's data after the January 30, 2026, PUF based on a different understanding than the hospital about certain reported costs, for example, could potentially be resolved using this process before the final wage index is calculated. We believe this process and the timeline for requesting review of such corrections (as described earlier and in the FY 2018 IPPS/LTCH PPS final rule) promote additional transparency in instances where CMS makes data corrections after the January 30, 2026 PUF and provide opportunities for hospitals to request further review of CMS changes in time for the most accurate data to be reflected in the final wage index calculations. These additional appeals opportunities are described earlier and in the FY 2027 Hospital Wage Index Development Timetable, as well as in the FY 2018 IPPS/LTCH PPS final rule (82 FR 38154 through 38156).

C. Method for Computing the Proposed FY 2027 Unadjusted Wage Index

The method used to compute the proposed FY 2027 wage index without an occupational mix adjustment follows the same methodology that we used to compute the wage indexes without an occupational mix adjustment in the FY 2021 IPPS/LTCH PPS final rule (see 85 FR 58758 through 58761), and we are not proposing any changes to this methodology. We have restated our methodology in this preamble section of this proposed rule. Step 1.--We gathered data from each of the non-Federal, short-term, acute care hospitals for which data were reported on the Worksheet S-3, Parts II and III of the Medicare cost report for the hospital's cost reporting period relevant to the wage index (in this case, for FY 2027, these were data from cost reports for cost reporting periods beginning on or after October 1, 2022, and before October 1, 2023). In addition, we included data from hospitals that had cost reporting periods beginning prior to the October 1, 2022, begin date and extending into FY 2023 but that did not have any cost report with a begin date on or after October 1, 2022, and before October 1, 2023. We include this data because no other data from these hospitals will be available for the cost reporting period as previously described, and because particular labor market areas might be affected due to the omission of these hospitals. However, we generally describe these wage data as data applicable to the fiscal year wage data being used to compute the wage index for those hospitals. We note that, if a hospital had more than one cost reporting period beginning during FY 2023 (for example, a hospital had two short cost reporting periods beginning on or after October 1, 2022, and before October 1, 2023), we include wage data from only one of the cost reporting periods, the longer, in the wage index calculation. If there was more than one cost reporting period and the periods were equal in length, we included the wage data from the later period in the wage index calculation. Step 2.--Salaries.--The method used to compute a hospital's average hourly wage excludes certain costs that are not paid under the IPPS. (We note that, beginning with FY 2008 (72 FR 47315), we included what were then Lines 22.01, 26.01, and 27.01 of Worksheet S-3, Part II of CMS Form 2552-96 for overhead services in the wage index. Currently, these lines are lines 28, 33, and 35 on CMS Form 2552-10. However, we note that the wages and hours on these lines are not incorporated into Line 101, Column 1 of Worksheet A, which, through the electronic cost reporting software, flows directly to Line 1 of Worksheet S-3, Part II. Therefore, the first step in the wage index calculation is to compute a ``revised'' Line 1, by adding to the Line 1 on Worksheet S-3, Part II (for wages and hours respectively) the amounts on Lines 28, 33, and 35. In calculating a hospital's Net Salaries (we note that we previously used the term ``average'' salaries in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51592), but we now use the term ``net'' salaries) plus wage-related costs, we first compute the following: Subtract from Line 1 (total salaries) the GME and CRNA costs reported on CMS Form 2552-10, Lines 2, 4.01, 7, and 7.01, the Part B salaries reported on Lines 3, 5 and 6, home office salaries reported on Line 8, and exclude salaries reported on Lines 9 and 10 (that is, direct salaries attributable to SNF services, home health services, and other subprovider components not subject to the IPPS). We also subtract from Line 1 the salaries for which no hours were reported. Therefore, the formula for Net Salaries (from Worksheet S-3, Part II) is the following: ((Line 1 + Line 28 + Line 33 + Line 35)-(Line 2 + Line 3 + Line 4.01 + Line 5 + Line 6 + Line 7 + Line 7.01 + Line 8 + Line 9 + Line 10)). To determine Total Salaries plus Wage-Related Costs, we add to the Net Salaries the costs of contract labor for direct patient care, certain top management, pharmacy, laboratory, and nonteaching physician Part A services (Lines 11, 12 and 13), home office salaries and wage- related costs reported by the hospital on Lines 14.01, 14.02, 15.01 and 15.02, and nonexcluded area wage-related costs (Lines 17, 22, 25.50, 25.51, and 25.52). We note that contract labor and home office salaries for which no corresponding hours are reported are not included. In addition, wage-related costs for nonteaching physician Part A [[Page 19466]] employees (Line 22) are excluded if no corresponding salaries are reported for those employees on Line 4. As noted above, the proposed FY 2027 wage index values are based on the data collected from the Medicare cost reports submitted by hospitals for cost reporting periods beginning in FY 2023 (cost reports with a begin date on or after October 1, 2022 and before October 1, 2023). Per the instructions in Section 4005.2, Part II, Hospital Wage Index Information, of the Provider Reimbursement Manual, for cost reporting periods on or after October 1, 2015 and before October 1, 2022, hospitals reported salaries and hours for Home Office (and related organizations) Physician Part A--Administrative direct employees and employees under contract on Worksheet S3, Part II, Line 15. Per the instructions in Section 4005.2, Part II, Hospital Wage Index Information, of the Provider Reimbursement Manual, for cost reporting periods on or after October 1, 2022, line 15 has been split into two lines with hospitals reporting salaries and hours for Home Office (and related organizations) Physician Part A--Administrative direct employees on Line 15.01 and salaries and hours for Home Office (and related organizations) Physicians Part A--Administrative under contract on Line 15.02. Since the FY 2027 wage index uses cost reports with a begin date in FY 2023, we propose including Lines 15.01 and 15.02 in the calculation of the FY 2027 wage index and future fiscal years. In reviewing the wage data used for FY 2027, approximately 61 hospitals reported salaries and hours on Line 15 instead of Lines 15.01 and 15.02. Because this is the first year we are using Lines 15.01 and 15.02 and hospitals are still adjusting to this reporting change, for FY 2027, we are proposing to use Line 15 in the wage index calculation in addition to lines 15.01 and 15.02. We believe using Line 15 for the FY 2027 wage index will minimize disparities in the FY 2027 wage index by ensuring that the data informing the calculation are applied uniformly. The formula for Total Salaries plus Wage-Related Costs (from Worksheet S-3, Part II) is the following: ((Line 1 + Line 28 + Line 33 + Line 35)-(Line 2 + Line 3 + Line 4.01 + Line 5 + Line 6 + Line 7 + Line 7.01 + Line 8 + Line 9 + Line 10)) + (Line 11 + Line 12 + Line 13 + Line 14.01 + 14.02 + Line 15 + Line 15.01 + Line 15.02) + (Line 17 + Line 22 + 25.50 + 25.51 + 25.52). As noted above, for FY 2027 we are proposing to include Lines 15, 15.01 and Line 15.02 in this calculation. We are further proposing to use Lines 15.01 and 15.02 instead of Line 15 for future fiscal years. Step 3.--Hours.--With the exception of wage-related costs, for which there are no associated hours, we compute total hours using the same methods as described for salaries in Step 2. The formula for Total Hours (from Worksheet S-3, Part II) is the following: ((Line 1 + Line 28 + Line 33 + Line 35)-(Line 2 + Line 3 + Line 4.01 + Line 5 + Line 6 + Line 7 + Line 7.01 + Line 8 + Line 9 + Line 10)) + (Line 11 + Line 12 + Line 13 + Line 14.01 + 14.02 + Line 15 + Line 15.01 + Line 15.02). As noted above, for FY 2027 we are proposing to include Lines 15, 15.01 and Line 15.02 in this calculation. We are further proposing to use Lines 15.01 and 15.02 instead of Line 15 for future fiscal years. Step 4.--For each hospital reporting both total overhead salaries and total overhead hours greater than zero, we then allocate overhead costs to areas of the hospital excluded from the wage index calculation. First, we determine the ``excluded rate'', which is the ratio of excluded area hours to Revised Total Hours (from Worksheet S- 3, Part II) with the following formula: (Line 9 + Line 10)/(Line 1 + Line 28 + Line 33 + Line 35)-(Lines 2, 3, 4.01, 5, 6, 7, 7.01, and 8 and Lines 26 through 43). We then compute the amounts of overhead salaries and hours to be allocated to the excluded areas by multiplying the previously discussed ratio by the total overhead salaries and hours reported on Lines 26 through 43 of Worksheet S-3, Part II. Next, we compute the amounts of overhead wage-related costs to be allocated to the excluded areas using three steps: We determine the ``overhead rate'' (from Worksheet S-3, Part II), which is the ratio of overhead hours (Lines 26 through 43 minus the sum of Lines 28, 33, and 35) to revised hours excluding the sum of lines 28, 33, and 35 (Line 1 minus the sum of Lines 2, 3, 4.01, 5, 6, 7, 7.01, 8, 9, 10, 28, 33, and 35). We note that, for the FY 2008 and subsequent wage index calculations, we have been excluding the overhead contract labor (Lines 28, 33, and 35) from the determination of the ratio of overhead hours to revised hours because hospitals typically do not provide fringe benefits (wage-related costs) to contract personnel. Therefore, it is not necessary for the wage index calculation to exclude overhead wage-related costs for contract personnel. Further, if a hospital does contribute to wage-related costs for contracted personnel, the instructions for Lines 28, 33, and 35 require that associated wage-related costs be combined with wages on the respective contract labor lines. The formula for the Overhead Rate (from Worksheet S-3, Part II) is the following: (Lines 26 through 43-Lines 28, 33 and 35)/((((Line 1 + Lines 28, 33, 35)-(Lines 2, 3, 4.01, 5, 6, 7, 7.01, 8, and 26 through 43))-(Lines 9 and 10)) + (Lines 26 through 43-Lines 28, 33, and 35)). We compute overhead wage-related costs by multiplying the overhead hours ratio by wage-related costs reported on Part II, Lines 17, 22, 25.50, 25.51, and 25.52. We multiply the computed overhead wage-related costs by the previously described excluded area hours ratio. Finally, we subtract the computed overhead salaries, wage-related costs, and hours associated with excluded areas from the total salaries (plus wage-related costs) and hours derived in Steps 2 and 3. Step 5.--For each hospital, we adjust the total salaries plus wage- related costs to a common period to determine total adjusted salaries plus wage-related costs. To make the wage adjustment, we estimate the percentage change in the employment cost index (ECI) for compensation for each 30-day increment from October 14, 2022, through April 15, 2024, for private industry hospital workers from data obtained from the Bureau of Labor Statistics' (BLS') Office of Compensation and Working Conditions. We use the ECI because it reflects the price increase associated with total compensation (salaries plus fringe benefits) rather than just the increase in salaries. In addition, the ECI includes managers as well as other hospital workers. This methodology to compute the monthly update factors uses actual quarterly ECI data and assures that the update factors match the actual quarterly and annual percent changes. We have consistently used the ECI as the data source for our wages and salaries and other price proxies in the IPPS market basket, and we are not proposing to make any changes to the usage of the ECI for FY 2027. The factors used to adjust the hospital's data are based on the midpoint of the cost reporting period, as indicated in this proposed rule. Step 6.--Each hospital is assigned to its appropriate urban or rural labor market area before any reclassifications [[Page 19467]] under section 1886(d)(8)(B), 1886(d)(8)(E), or 1886(d)(10) of the Act. Within each urban or rural labor market area, we add the total adjusted salaries plus wage-related costs obtained in Step 5 for all hospitals in that area to determine the total adjusted salaries plus wage-related costs for the labor market area. Step 7.--We divide the total adjusted salaries plus wage-related costs obtained under Step 6 by the sum of the corresponding total hours (from Step 4) for all hospitals in each labor market area to determine an average hourly wage for the area. Step 8.--We add the total adjusted salaries plus wage-related costs obtained in Step 5 for all hospitals in the Nation and then divide the sum by the national sum of total hours from Step 4 to arrive at a national average hourly wage. Step 9.--For each urban or rural labor market area, we calculate the hospital wage index value, unadjusted for occupational mix, by dividing the area average hourly wage obtained in Step 7 by the national average hourly wage computed in Step 8. Step 10.--For each urban labor market area for which we do not have any hospital wage data (either because there are no IPPS hospitals in that labor market area, or there are IPPS hospitals in that area but their data are either too new to be reflected in the current year's wage index calculation, or their data are aberrant and are deleted from the wage index), we finalized in the FY 2020 IPPS/LTCH PPS final rule (84 FR 42305) that, for FY 2020 and subsequent years' wage index calculations, such CBSAs' wage index will be equal to total urban salaries plus wage-related costs (from Step 5) in the State, divided by the total urban hours (from Step 4) in the State, divided by the national average hourly wage from Step 8 (see 84 FR 42305 and 42306). We believe that, in the absence of wage data for an urban labor market area, it is reasonable to use a statewide urban average, which is based on actual, acceptable wage data of hospitals in that State, rather than impute some other type of value using a different methodology. For calculation of the FY 2027 wage index, we note there is one urban CBSA for which we do not have IPPS hospital wage data. In Table 3 (which is available via the internet on the CMS website and contains the area wage indexes), we include a footnote to indicate to which CBSA this policy applies. This CBSA's wage index is calculated as described, based on the FY 2020 IPPS/LTCH PPS final rule methodology (84 FR 42305). Under this step, we also apply our policy with regard to how dollar amounts, hours, and other numerical values in the wage index calculations are rounded. We refer readers to section II of Appendix B of this proposed rule for the policy regarding rural areas that do not have IPPS hospitals. Step 11.-- Section 4410 of Public Law 105-33 provides that, for discharges on or after October 1, 1997, the area wage index applicable to any hospital that is located in an urban area of a State may not be less than the area wage index applicable to hospitals located in rural areas in that State. The areas affected by this provision are identified in Table 2 listed in section VI of the Addendum to this proposed rule and available via the internet on the CMS website. The following is our policy with regard to rounding of the wage data (dollar amounts, hours, and other numerical values) in the calculation of the unadjusted and adjusted wage index, as finalized in the FY 2020 IPPS/LTCH final rule (84 FR 42306). For data that we consider to be ``raw data,'' such as the cost report data on Worksheets S-3, Parts II and III, and the occupational mix survey data, we use such data ``as is,'' and do not round any of the individual line items or fields. However, for any dollar amounts within the wage index calculations, including any type of summed wage amount, average hourly wages, and the national average hourly wage (both the unadjusted and adjusted for occupational mix), we round the dollar amounts to 2 decimals. For any hour amounts within the wage index calculations, we round such hour amounts to the nearest whole number. For any numbers not expressed as dollars or hours within the wage index calculations, which could include ratios, percentages, or inflation factors, we round such numbers to 5 decimals. However, we continue rounding the actual unadjusted and adjusted wage indexes to 4 decimals, as we have done historically. As discussed in the FY 2012 IPPS/LTCH PPS final rule, in ``Step 5,'' for each hospital, we adjust the total salaries plus wage-related costs to a common period to determine total adjusted salaries plus wage-related costs. To make the wage adjustment, we estimate the percentage change in the ECI for compensation for each 30-day increment from October 14, 2022, through April 15, 2024, for private industry hospital workers from the BLS' Office of Compensation and Working Conditions data. We have consistently used the ECI as the data source for our wages and salaries and other price proxies in the IPPS market basket, and we are not proposing any changes to the usage of the ECI for FY 2027. The factors used to adjust the hospital's data were based on the midpoint of the cost reporting period, as indicated in the following table. [[Page 19468]] [GRAPHIC] [TIFF OMITTED] TP14AP26.111 For example, the midpoint of a cost reporting period beginning January 1, 2023, and ending December 31, 2023, is June 30, 2023. An adjustment factor of 1.02991 was applied to the wages of a hospital with such a cost reporting period. Previously, we would also provide a Puerto Rico overall average hourly wage. As discussed in the FY 2017 IPPS/LTCH PPS final rule (81 FR 56915), prior to January 1, 2016, Puerto Rico hospitals were paid based on 75 percent of the national standardized amount and 25 percent of the Puerto Rico-specific standardized amount. As a result, we calculated a Puerto Rico specific wage index that was applied to the labor-related share of the Puerto Rico-specific standardized amount. Section 601 of Division O, Title VI (section 601) of the Consolidated Appropriations Act, 2016 (Pub. L. 114-113) amended section 1886(d)(9)(E) of the Act to specify that the payment calculation with respect to operating costs of inpatient hospital services of a subsection (d) Puerto Rico hospital for inpatient hospital discharges on or after January 1, 2016, shall use 100 percent of the national standardized amount. As we stated in the FY 2017 IPPS/LTCH PPS final rule (81 FR 56915 through 56916), because Puerto Rico hospitals are no longer paid with a Puerto Rico specific standardized amount as of January 1, 2016, under section 1886(d)(9)(E) of the Act, as amended by section 601 of the Consolidated Appropriations Act, 2016, there is no longer a need to calculate a Puerto Rico specific average hourly wage and wage index. Hospitals in Puerto Rico are now paid 100 percent of the national standardized amount and, therefore, are subject to the national average hourly wage (unadjusted for occupational mix) and the national wage index, which is applied to the national labor-related share of the national standardized amount. Therefore, for FY 2027, there is no Puerto Rico-specific overall average hourly wage or wage index. Based on the previously described methodology, the proposed FY 2027 unadjusted national average hourly wage is the following: [GRAPHIC] [TIFF OMITTED] TP14AP26.112

D. Proposed Occupational Mix Adjustment to the FY 2027 Wage Index

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

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

2027 Wage Index Section 304(c) of Appendix F, Title III of the Consolidated Appropriations Act, 2001 (Pub. L. 106-554) amended section 1886(d)(3)(E) of the Act to require CMS to collect data every 3 years on the occupational mix of employees for each short-term, acute care hospital participating in the Medicare program and to measure the earnings and paid hours of employment for such hospitals by occupational category. As discussed in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69275 through 69278), we collected data in 2022 to compute the occupational mix adjustment for the FY 2025, FY 2026, and FY 2027 wage indexes. The FY 2027 occupational mix adjustment is based on a calendar year (CY) 2022 survey. Hospitals were required to submit their completed 2022 [[Page 19469]] surveys (Form CMS-10079, OMB Control Number 0938-0907, expiration date December 31, 2028) to their MACs by July 1, 2023. The preliminary, unaudited CY 2022 survey data were posted on the CMS website on July 12, 2023.

2. Calculation of the Occupational Mix Adjustment for FY 2027

For FY 2027, we are proposing to calculate the occupational mix adjustment factor using the same methodology that we have used since the FY 2012 wage index (76 FR 51582 through 51586) and to apply the occupational mix adjustment to 100 percent of the FY 2027 wage index. In the FY 2020 IPPS/LTCH PPS final rule (84 FR 42308), we modified our methodology with regard to how dollar amounts, hours, and other numerical values in the unadjusted and adjusted wage index calculation are rounded, to ensure consistency in the calculation. According to the policy finalized in the FY 2020 IPPS/LTCH PPS final rule (84 FR 42308 and 42309), for data that we consider to be ``raw data,'' such as the cost report data on Worksheets S-3, Parts II and III, and the occupational mix survey data, we continue to use these data ``as is'', and not round any of the individual line items or fields. However, for any dollar amounts within the wage index calculations, including any type of summed wage amount, average hourly wages, and the national average hourly wage (both the unadjusted and adjusted for occupational mix), we round such dollar amounts to 2 decimals. We round any hour amounts within the wage index calculations to the nearest whole number. We round any numbers not expressed as dollars or hours in the wage index calculations, which could include ratios, percentages, or inflation factors, to 5 decimals. However, we continue rounding the actual unadjusted and adjusted wage indexes to 4 decimals, as we have done historically. Similar to the method we use for the calculation of the wage index without occupational mix, salaries and hours for a multicampus hospital are allotted among the different labor market areas where its campuses are located. Table 2 associated with this proposed rule (which is available via the internet on the CMS website), which contains the proposed FY 2027 occupational mix adjusted wage index, includes separate wage data for the campuses of multicampus hospitals. We refer readers to section III.C of the preamble of this proposed rule for a chart listing the multicampus hospitals and the FTE percentages used to allot their occupational mix data. Because the statute requires that the Secretary measure the earnings and paid hours of employment by occupational category not less than once every 3 years, all hospitals that are subject to payments under the IPPS, or any hospital that will be subject to the IPPS if not granted a waiver, must complete the occupational mix survey, unless the hospital has no associated cost report wage data that are included in the proposed FY 2027 wage index. For the proposed FY 2027 wage index, we used the Worksheet S-3, Parts II and III wage data of 3,006 hospitals, and we used the occupational mix surveys of 2,922 hospitals for which we also had Worksheet S-3 wage data, which represented a ``response'' rate of 97 percent (2,922/3,006). For the proposed FY 2027 wage index, we applied proxy data for noncompliant hospitals, new hospitals, or hospitals that submitted erroneous or aberrant data in the same manner that we applied proxy data for such hospitals in the FY 2012 wage index occupational mix adjustment (76 FR 51586). As a result of applying this methodology, the proposed FY 2027 occupational mix adjusted national average hourly wage is the following: [GRAPHIC] [TIFF OMITTED] TP14AP26.113

3. Deadline for Submitting the 2025 Medicare Wage Index Occupational

Mix Survey for Use Beginning With the FY 2028 Wage Index A new measurement of occupational mix is required for FY 2028. The FY 2028 occupational mix adjustment will be based on a new calendar year (CY) 2025 survey. The CY 2025 survey (Form CMS-10079, OMB Control Number 0938-0907, expiration date December 31, 2028) received OMB approval on December 30, 2025. The final CY 2025 Occupational Mix Survey Hospital Reporting Form is available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/wage-index-files/2025-occupational-mix-survey-hospital-reporting-form-cms-10079-wage-index-beginning-fy-2028. Hospitals are required to submit their completed 2025 surveys to their MACs by June 30, 2026. The preliminary, unaudited CY 2025 survey data will be posted on the CMS website in mid-July 2026. As with the Worksheet S-3, Parts II and III cost report wage data, CMS and the MACs may revise or verify data elements in hospitals' occupational mix surveys as part of the FY 2028 wage index development process.

4. Proposed Occupational Mix Adjustment and the Proposed FY 2027

Occupational Mix Adjusted Wage Index As discussed in section III.E of the preamble of this proposed rule, for FY 2027, we are applying the occupational mix adjustment to 100 percent of the FY 2027 wage index. We calculated the occupational mix adjustment using data from the 2022 occupational mix survey, using the methodology described in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51582-51586). Based on the 2022 occupational mix survey data, the proposed FY 2027 national average hourly wages for each occupational mix nursing subcategory as calculated in Step 2 of the occupational mix calculation are as follows: [GRAPHIC] [TIFF OMITTED] TP14AP26.114 [[Page 19470]] The proposed national average hourly wage for the entire nurse category is computed in Step 5 of the occupational mix calculation. Hospitals with a nurse category average hourly wage (as calculated in Step 4) of greater than the national nurse category average hourly wage receive an occupational mix adjustment factor (as calculated in Step 6) of less than 1.0. Hospitals with a nurse category average hourly wage (as calculated in Step 4) of less than the national nurse category average hourly wage receive an occupational mix adjustment factor (as calculated in Step 6) of greater than 1.0. Based on the 2022 occupational mix survey data, we determined (in Step 7 of the occupational mix calculation) the following: [GRAPHIC] [TIFF OMITTED] TP14AP26.115

E. Hospital Redesignations and Reclassifications

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

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

Act, Implemented at Sec. 412.103 Under section 1886(d)(8)(E) of the Act, a qualifying prospective payment hospital located in an urban area may apply for rural status for payment purposes separate from reclassification through the MGCRB. Specifically, section 1886(d)(8)(E) of the Act provides that, not later than 60 days after the receipt of an application (in a form and manner determined by the Secretary) from a subsection (d) hospital that satisfies certain criteria, the Secretary shall treat the hospital as being located in the rural area (as defined in paragraph (2)(D)) of the State in which the hospital is located. We refer readers to the regulations at Sec. 412.103 for the general criteria and application requirements for a subsection (d) hospital to reclassify from urban to rural status in accordance with section 1886(d)(8)(E) of the Act (such hospitals are referred to herein as ``Sec. 412.103 hospitals''). The FY 2012 IPPS/LTCH PPS final rule (76 FR 51595 through 51596) includes our policies regarding the effect of wage data from reclassified or redesignated hospitals. We refer readers to the FY 2024 IPPS/LTCH final rule (88 FR 58971 through 58977) for a review of our policy finalized in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49004) to calculate the rural floor with the wage data of urban hospitals reclassifying to rural areas under Sec. 412.103, and discussion of our modification to the calculation of the rural wage index and its implications for the rural floor. In the FY 2019 IPPS/LTCH PPS final rule (83 FR 41369 through 41374), we codified certain policies regarding multicampus hospitals in the regulations at Sec. Sec. 412.92, 412.96, 412.103, and 412.108. We stated that reclassifications from urban to rural under Sec. 412.103 apply to the entire hospital (that is, the main campus and its remote location(s)). We also stated that a main campus of a hospital cannot obtain Sole Community Hospital (SCH), Rural Referral Center (RRC), or Medicare Dependent Hospital (MDH) status, or rural reclassification under Sec. 412.103, independently or separately from its remote location(s), and vice versa. In the FY 2023 IPPS/LTCH PPS final rule (87 FR 49012 and 49013), we added Sec. 412.103(a)(8) to clarify that for a multicampus hospital, approved rural reclassification status applies to the main campus and any remote location located in an urban area, including a main campus or any remote location deemed urban under section 1886(d)(8)(B) of the Act. If a remote location of a hospital is located in a different CBSA than the main campus of the hospital, it is CMS' longstanding policy to assign that remote location a wage index based on its own geographic area to comply with the statutory requirement to adjust for geographic differences in hospital wage levels (section 1886(d)(3)(E) of the Act). Hospitals are required to identify and allocate wages and hours based on FTEs for remote locations located in different CBSAs on Worksheet S-2, Part I, Lines 165 and 166 of form CMS-2552-10. In calculating wage index values, CMS identifies the allocated wage data for these remote locations in Table 2 with a ``B'' in the 3rd position of the CCN. These remote locations of hospitals with Sec. 412.103 rural reclassification status in a different CBSA are identified in Table 2, and hospitals should evaluate potential wage index outcomes for their remote location(s) when terminating MGCRB reclassification, or canceling Sec. 412.103 rural reclassification status. As discussed at Sec. 412.103(f), the duration of an approved rural reclassification remains in effect without need for reapproval unless there is a change in the circumstances under which the classification was approved. If a hospital located in an urban area was approved for a rural reclassification under Sec. 412.103(a)(1), that reclassification will no longer be valid if the hospital is no longer located within a rural census tract of an MSA as determined by the Federal Office of Rural Health Policy (FORHP) of the Health Resources and Services Administration (HRSA). Therefore, we encourage all hospitals and CAHs with active rural reclassifications under section 1886(d)(8)(E) of the Act to review their original reclassification application and determine whether the reclassification status will still apply. Finally, in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69280), CMS finalized a policy regarding terminated or ``tied-out'' hospitals, to address our concerns regarding the impacts these hospitals would have on rural wage index values. Specifically, we finalized a policy that Sec. 412.103 reclassifications would be considered cancelled for the purposes of calculating the area wage index for any hospital with a CCN listed as terminated or ``tied-out'' as of the date that the hospital ceased to operate with an active CCN. We stated that we will obtain and review the best available CCN termination status lists as of the Sec. 412.103(b)(6) ``lock-in'' date (60 days after the proposed rule for the FY is displayed in the Federal Register), consistent with the wage index development timeline. The lock-in date is used to determine whether a hospital has been approved for Sec. 412.103 reclassification in time for that status to be included in the upcoming year's wage index development. We noted that our policy to consider Sec. 412.103 reclassifications cancelled for the purposes of calculating area wage [[Page 19471]] index for any hospital with a CCN listed as terminated or ``tied-out'' is not intended to alter or affect the qualification for Critical Access Hospital (CAH), Sole Community Hospital (SCH), or Rural Emergency Hospital (REH) statuses or to have other effects unrelated to hospital wage index calculations. The rural reclassification status will remain in effect for any period that the original PPS hospital remains in operation with an active CCN. For REH qualification requirement purposes, this will include the date of enactment of the Consolidated Appropriations Act, 2021 (Pub. L. 116-260), which was December 27, 2020.

2. General Policies and Effects of MGCRB Reclassification and Treatment

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

3. MGCRB Reclassification Issues for FY 2027

a. FY 2027 Reclassification Application Requirements and Approvals As previously stated, under section 1886(d)(10) of the Act, the MGCRB considers applications by hospitals for geographic reclassification for purposes of payment under the IPPS. The specific procedures and rules that apply to the geographic reclassification process are outlined in regulations under 42 CFR 412.230 through 412.280. There are 707 hospitals approved for wage index reclassifications by the MGCRB starting in FY 2027. Because MGCRB wage index reclassifications are effective for 3 years, for FY 2027, hospitals reclassified beginning in FY 2025 or FY 2026 are eligible to continue to be reclassified to a particular labor market area based on such prior reclassifications for the remainder of their 3-year period. There were 242 hospitals approved for wage index reclassifications in FY 2025 that will continue for FY 2027, and 263 hospitals approved for wage index reclassifications in FY 2026 that will continue for FY 2027. Of all the hospitals approved for reclassification for FY 2025, FY 2026, and FY 2027, 1,212 hospitals (approximately 37 percent of IPPS hospitals) are in a MGCRB reclassification status for FY 2027 (with 331 of these hospitals reclassified back to their urban geographic location). We note that several hospitals approved for MGCRB reclassifications may opt to terminate this status after the proposed rule, and in some cases prior year reclassification would become effective in its place. We refer readers to section III.F.3.b of the preamble of this proposed rule for information on the effects of implementation of the new OMB delineations on reclassified hospitals. Under the regulations at Sec. 412.273, hospitals that have applied to be reclassified by the MGCRB are permitted to withdraw their applications if the request for withdrawal is received by the MGCRB any time before the MGCRB issues a [[Page 19472]] decision on the application. Hospitals are also permitted to terminate an approved reclassification after the MGCRB issues a decision, provided the request for termination is received by the MGCRB within 45 days of the date of filing for public inspection of the proposed rule at the website of the Office of the Federal Register, or within 7 calendar days of receiving a decision of the Administrator's in accordance with Sec. 412.273, whichever is later. For information about the current process for withdrawing a 3-year MGCRB reclassification application, terminating an approved 3-year MGCRB reclassification, or canceling a previous termination of a 3-year reclassification for wage index purposes, we refer readers to Sec. 412.273, as well as section III.E.3.b of the preamble of this proposed rule, the FY 2002 IPPS final rule (66 FR 39887 through 39888), and the FY 2003 IPPS final rule (67 FR 50065 through 50066). Additional discussion on withdrawals and terminations was included in the FY 2008 IPPS final rule (72 FR 47333), the FY 2018 IPPS/LTCH PPS final rule (82 FR 38148 through 38150), and the FY 2026 IPPS/LTCH PPS final rule (90 FR 36847 through 36848). Applications for FY 2028 reclassifications are due to the MGCRB by September 1, 2026. This is also the current deadline for canceling a previous wage index reclassification termination (reinstating a reclassification) under Sec. 412.273(d) for the FY 2027 cycle. Applications and other information about MGCRB reclassifications may be obtained beginning in mid-July 2026 via the internet on the CMS website at https://www.cms.gov/medicare/regulations-guidance/geographic-classification-review-board. This collection of information is approved under OMB Control Number 0938-0573 and expires on February 28, 2029. b. Proposed Revisions to Sec. 412.230(c)(1) to Address Ferry Routes The regulation at 412.230(c)(1) requires that hospitals seeking reclassification to an area must submit appropriate data relating to its proximity to the area, including evidence of the shortest route over improved roads to the area and the distance of that route as proximity data. The MGCRB has denied reclassification requests using ferry routes, but these decisions were overturned via administrative appeal. In the FY 2025 IPPS/LTCH PPS final rule (89 FR 69281), commenters suggested revising the proximity data regulations to include waterways traveled by ferry boats as equivalent to travel over improved roads. CMS agreed that a modification to Sec. 412.230(c)(1) could reduce unnecessary appeals. Therefore, we are proposing to modify 412.230(c)(1) to include ferry routes when mapping the shortest route. This change would minimize appeals of MGCRB decisions and reduce administrative burden for both CMS and hospitals. This proposal is consistent with our definition of mileage for purposes of proximity in the FY 2002 IPPS Final Rule (66 FR 39874-39875), where we stated that we believe that mileage should continue to be measured by the shortest route over improved roads maintained by any local, State, or Federal government entity for public use. Since most ferry routes are maintained by local, State, or Federal government entities for public transportation over water, similar to bridges, we consider it appropriate to treat them as improved roads. We would apply the same measurement method for miles traveled on land to those traveled by ferry boat over water. That is, the MGCRB requires providers to submit map evidence from nationally recognized electronic mapping services (e.g., Google Maps, Bing Maps, MapQuest) showing the shortest route over improved roads from the front entrance of the hospital to the county line of the requested area and the distance of that route.\87\ Miles traveled by ferry boat would also need to be mapped using a nationally recognized electronic mapping service and included as evidence of the shortest route. --------------------------------------------------------------------------- \87\ MGCRB Rules 5.2(A)(1), available at https://www.cms.gov/medicare/regulations-guidance/geographic-classification-review-board/mgcrb-rules. --------------------------------------------------------------------------- We are proposing to revise the regulations at 412.230(c)(1) to state: ``To demonstrate proximity to the area, the hospital must submit evidence from a nationally recognized electronic mapping service of the shortest route from the front entrance of the hospital over improved roads or waterways traveled by ferry boats to the county line of the requested area and the distance of that route.'' We seek comment on this proposal. c. Proposed Clarification Regarding the Data Used for Reclassifying to an Area With a Lower Wage Index (412.230(a)(5)(i)) MGCRB reclassifications are approved for a 3-year period, and when evaluating a hospital's request for reclassification, effective with reclassifications for FY 2003, section 1886(d)(10)(D)(vi)(II) of the Act requires that the MGCRB must use the average of the most recent hospital wage survey data and the data from each of the two immediately preceding surveys. These data requirements are described in regulation at Sec. 412.230(d)(2). CMS publishes this data in a ``Three Year MGCRB Reclassification Data Applications'' file during each application cycle on the CMS website.\88\ We believe that using 3-year data improves wage index consistency, and reduces the likelihood that a single year of aberrant wage data in given area would impact the ability of hospitals to obtain geographic reclassification. --------------------------------------------------------------------------- \88\ https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/wage-index-files. --------------------------------------------------------------------------- To be approved for an MGCRB reclassification, hospitals, in general, must demonstrate that their average hourly wage data is, on average, greater than their geographic area, and is similar to the area to which they seek to be reclassified. As described at Sec. 412.230(a)(5)(i), hospitals also must demonstrate that the area to which they are reclassifying has a higher pre-reclassification wage index than the area they are geographically located. It has come to our attention that some view the data requirement of Sec. 412.230(a)(5)(i) to be ambiguous and believe using only a single year of wage data is acceptable. It is CMS' longstanding position that, for all average hourly wage criteria described under Sec. 412.230, the three-year weighted average data is required for approval by the MGCRB. To remove any ambiguity, we are therefore proposing to revise Sec. 412.230(a)(5)(i) to explicitly state that the data submitted must comply with the requirements of Sec. 412.230(d)(2). That is, for purposes of meeting the criterion at Sec. 412.230(a)(5)(i), we are affirming that the most recent three-year average hourly wage data must be submitted for hospitals located in both the area the applicant is located, and hospitals in the area to which reclassification is sought. This clarification is consistent with prior decisions made by the MGCRB, and the required usage of published 3-year data has been upheld on appeal through the Administrator's review process. We seek comment on this proposal. d. Proposed Revisions to 412.230 To Waive Wage Data Comparisons for Hospitals Reclassifying to Home As discussed in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45188- 45190), urban hospitals with Sec. 412.103 rural reclassifications are eligible to [[Page 19473]] obtain MGCRB reclassifications to receive the wage index of another area. In that rulemaking, CMS also discussed the option of such a hospital reclassifying to its geographic labor market area, or its ``home'' area. When approved for a home area reclassification, the hospital may obtain the benefits of rural status, while receiving the wage index applied to other hospitals in its geographic urban area. These home area reclassifications have become significantly more common since FY 2022 rule, with nearly a quarter of all MGCRB approvals being to the hospital's geographic home area in FY 2026. Under current regulations, obtaining a home area reclassification is a relatively simple process. There would be no proximity requirement, as the hospital is physically located in the labor market to which it is seeking reclassification. As discussed in the May 10, 2021 Interim final rule with comment period (86 FR 24736-24738) and in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45188-45190), CMS described several options to obtain MGCRB reclassification for hospitals with Sec. 412.103 reclassification. For example, in meeting the criterion at Sec. 412.230(a)(5)(i), restricting MGCRB reclassifications to labor market areas with lower pre-reclassified wages than the area the hospital is located, CMS allowed an urban hospital with a Sec. 412.103 rural reclassification to be considered located either in its geographic area or in the rural area of the State. Regarding the criteria at Sec. 412.230(d)(1)(iii)(C), confirming that the hospital's wages are above average for its area (the 106/108 percent criterion), Sec. 412.103 hospitals are permitted to compare their average hourly wage data to either the other hospitals in its geographic area, or to the hospitals in the state's rural labor market area. Additionally, many Sec. 412.103 hospitals also have obtained rural referral center status. The provision at Sec. 412.230(d)(3)(i) waives the average hourly wage comparison requirement at Sec. 412.230(d)(1)(iii)(C) for rural referral centers. The only criterion that most home area reclassification applicants are required to meet is at Sec. 412.230(d)(1)(iv). That is, if a hospital with a rural reclassification demonstrates that its 3-year average hourly wage is at least 82 percent of the average hourly wage of its own geographic labor market area (the area to which it is seeking a home area MGCRB reclassification), the MGCRB application would be approved. The 82 percent criterion was initially determined to cover more than two standard deviations of wage variance within any given labor market area. Given these factors, it would be exceptionally rare for any hospital with a rural reclassification to be denied a home area MGCRB reclassification. However, we are aware of a circumstance in which a home area MGCRB reclassification would be denied. The published wage data used for MGCRB reclassification is based on cost report data that could be up to three years old. Newly established hospitals (or remote locations of hospitals located in a different labor market area than the main campus of the hospital) would not yet have a cost report included in the current fiscal year wage index development process, and no average hourly wage data would be published. In this case, these hospitals and remote locations would not be eligible for individual MGCRB reclassification due to their inability to meet the Sec. 412.230(d)(1)(iv) average hourly wage comparison. Individual hospitals are required to have at least one year of published average hourly wage data in order to receive a wage index reclassification. Newly established hospitals or remote locations without published wage data that are included in a county group reclassification (Sec. 412.232 and Sec. 412.234) with other hospitals are eligible for approval. However, individual reclassification requests would be denied. We believe this is the appropriate policy, as the MGCRB is required to review wage data to determine whether it is appropriate to grant an individual hospital the wage index of another labor market area. However, given the unique nature of a home area reclassification, it is difficult to see what policy objective would be achieved by denying a hospital a wage index based on its own geographic area. Therefore, we are proposing to waive the application of Sec. 412.230(d)(1)(iv) for a hospital requesting reclassification to its geographic home area. Specifically, we are proposing to add an exception Sec. 412.230(d)(6) to waive the application of requirements of Sec. 412.230(d)(1)(iv) for hospitals with Sec. 412.103 rural reclassification and are seeking MGCRB reclassification to their geographic labor market area. While CMS continues to have concerns with hospitals using Sec. 412.103 in order to enhance the state's rural floor, the scenario we are addressing would only affect situations where the inability to obtain a home area reclassification could lead to lower wage index value for the hospital. In such a case, a hospital would have the option to cancel its rural reclassification per the provision at Sec. 412.103(g), and receive the wage index of its geographic urban area. However, there are situations where canceling rural reclassification would have significant financial impacts on the hospital, particularly in scenarios where a hospital operates in multiple urban labor market areas. For example, if a hospital with a Sec. 412.103 reclassification opens or acquires a remote location in a different urban labor market area, we apply a separate wage index to that remote location based on its location and reclassification status. That remote location would be ineligible for individual MGCRB reclassification until CMS reviewed a cost report that allocates wages between the inpatient locations. In this case, the new remote location would be assigned its state's rural wage index based on the main campus' rural status, not the urban wage index for its geographic area. Given that the large majority of hospitals with Sec. 412.103 rural reclassifications can obtain home area MGCRB reclassification, we see no compelling policy justification to restrict reclassification in such a narrow circumstance. The few hospitals potentially affected by this proposed policy would not have published wage data for at least first year of any MGCRB reclassification and, therefore, would have a negligible impact on the accuracy or consistency of overall wage index values. We believe this proposal to waive the application of Sec. 412.230(d)(1)(iv) for hospitals requesting reclassification to its geographic home area would provide an equitable opportunity to obtain a competitive wage index for affected hospitals. We seek comment on this proposal.

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

a. Lugar Status Determinations In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51599 through 51600), we adopted the policy that, beginning with FY 2012, an eligible hospital that waives its Lugar status to receive the out-migration adjustment has effectively waived its deemed urban status and, thus, is rural for all purposes under the IPPS effective for the fiscal year in which the hospital receives the outmigration adjustment. In addition, in that rule, we adopted a minor procedural change that will allow a Lugar hospital that qualifies for and accepts the out-migration adjustment (through written notification to CMS within 45 days from the issuance of the proposed rule in the Federal Register) to waive its urban status for the full 3- [[Page 19474]] year period for which its out-migration adjustment is effective. By doing so, such a Lugar hospital will no longer be required during the second and third years of eligibility for the out-migration adjustment to advise us annually that it prefers to continue being treated as rural and receive the out-migration adjustment. In the FY 2017 IPPS/ LTCH PPS final rule (81 FR 56930), we further clarified that if a hospital wishes to reinstate its urban status for any fiscal year within this 3-year period, it must send a request to CMS within 45 days of the issuance of the proposed rule in the Federal Register for that particular fiscal year. We indicated that such reinstatement requests may be sent electronically to [email protected]. In the FY 2018 IPPS/LTCH PPS final rule (82 FR 38147 through 38148), we finalized a policy revision to require a Lugar hospital that qualifies for and accepts the out-migration adjustment, or that no longer wishes to accept the out-migration adjustment and instead elects to return to its deemed urban status, to notify CMS within 45 days from the date of public display of the proposed rule at the Office of the Federal Register. These revised notification timeframes were effective beginning October 1, 2017. In addition, in the FY 2018 IPPS/LTCH PPS final rule (82 FR 38148), we clarified that both requests to waive and to reinstate Lugar status may be sent to [email protected]. To ensure proper accounting, we request hospitals to include their CCN, and either ``waive Lugar'' or ``reinstate Lugar'', in the subject line of these requests. When applicable, this election will result in a cancelation of a hospital's rural reclassification status under Sec. 412.103, effective October 1, 2026. We also inform hospitals that for the request to be approved, the hospital must terminate any active MGCRB reclassification. All requests, once approved, will remain in effect for the remainder of the 3-year out-migration adjustment period. In the FY 2020 IPPS/LTCH PPS final rule (84 FR 42314 and 42315), we clarified that in circumstances where an eligible hospital elects to receive the outmigration adjustment within 45 days of the public display date of the proposed rule at the Office of the Federal Register in lieu of its Lugar wage index reclassification, and the county in which the hospital is located will no longer qualify for an outmigration adjustment when the final rule (or a subsequent correction notice) wage index calculations are completed, the hospital's request to accept the outmigration adjustment will be denied, and the hospital will be automatically assigned to its deemed urban status under section 1886(d)(8)(B) of the Act. We stated that final rule wage index values will be recalculated to reflect this reclassification, and in some instances, after taking into account this reclassification, the out- migration adjustment for the county in question could be restored in the final rule. However, as the hospital is assigned a Lugar reclassification under section 1886(d)(8)(B) of the Act, it will be ineligible to receive the county outmigration adjustment under section 1886(d)(13)(G) of the Act.

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

Frontier Floor, Out-Migration Adjustment, Cap on Wage Index Decrease Policies, and Continuation of Transition for the Discontinuation of the Low Wage Index Hospital Policy The following adjustments to the wage index are listed in the order that they are generally applied. First, the rural floor, imputed floor, and state frontier floor provide a minimum wage index. The rural floor at section 4410(a) of the Balanced Budget Act of 1997 (Pub. L. 105-33) provides that the wage index for hospitals in urban areas of a State may not be less than the wage index applicable to hospitals located in rural areas in that State. The imputed floor at section 1886(d)(3)(E)(iv) of the Act provides a wage index minimum for all- urban states. The state frontier floor at section 1886(d)(3)(E)(iii) of the Act generally requires that hospitals in frontier states cannot be assigned a wage index of less than 1.00. Next, the out-migration adjustment at section 1886(d)(13)(A) of the Act is applied, potentially increasing the wage index for hospitals located in certain counties that have a relatively high percentage of hospital employees who reside in the county but work in a different county or counties with a higher wage index. Finally, all hospital wage index decreases are capped at 5 percent of the hospital's final wage index in the prior fiscal year, such that a hospital's wage index would not be less than 95 percent of its final wage index for the prior fiscal year, according to the policy finalized in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49018 through 49021).

1. Rural Floor

Section 4410(a) of the Balanced Budget Act of 1997 (Pub. L. 105-33) provides that, for discharges on or after October 1, 1997, the area wage index applicable to any hospital that is located in an urban area of a State may not be less than the area wage index applicable to hospitals located in rural areas in that State. This provision is referred to as the rural floor. Section 3141 of the Patient Protection and Affordable Care Act (Pub. L. 111-148) also requires that a national budget neutrality adjustment be applied in implementing the rural floor. Based on the FY 2027 wage index associated with this proposed rule (which is available on the CMS website), and based on the calculation of the rural floor including the wage data of hospitals that have reclassified as rural under Sec. 412.103, we estimate that 535 hospitals would receive the rural floor in FY 2027. The budget neutrality impact of the proposed application of the rural floor is discussed in section II.A.4.e of Addendum A of this proposed rule. In the FY 2023 IPPS/LTCH PPS final rule (87 FR 48784), CMS finalized a policy change to calculate the rural floor in the same manner as we did prior to the FY 2020 IPPS/LTCH PPS final rule, in which the rural wage index sets the rural floor. We stated that for FY 2023 and subsequent years, we would include the wage data of Sec. 412.103 hospitals that have no Medicare Geographic Classification Review Board (MGCRB) or Lugar reclassification in the calculation of the rural floor, and include the wage data of such hospitals in the calculation of ``the wage index for rural areas in the State in which the county is located'' as referred to in section 1886(d)(8)(C)(iii) of the Act. In the FY 2024 IPPS/LTCH final rule (88 FR 58971 through 58977), we finalized a policy change beginning that year to include the data of all Sec. 412.103 hospitals, even those that have an MGCRB reclassification, in the calculation process for the rural floor and the calculation of ``the wage index for rural areas in the State in which the county is located'' as referred to in section 1886(d)(8)(C)(iii) of the Act. We explained that after revisiting the case law, prior public comments, and the relevant statutory language, we agreed that the best reading of section 1886(d)(8)(E)'s text that CMS ``shall treat the [Sec. 412.103] hospital as being located in the rural area'' is that it instructs CMS to treat Sec. 412.103 hospitals the same as geographically rural hospitals for the wage index calculation. Accordingly, in the FY 2024 IPPS/LTCH PPS final rule, we finalized a policy to include hospitals with Sec. 412.103 reclassification along with geographically rural hospitals in all rural wage index calculations, and to exclude ``dual reclass'' hospitals (hospitals with simultaneous Sec. 412.103 [[Page 19475]] and MGCRB reclassifications) that are implicated by the hold harmless provision at section 1886(d)(8)(C)(ii) of the Act. For additional information on these changes, we refer readers to the FY 2024 IPPS/LTCH PPS final rule (88 FR 58971 through 58977).

2. Imputed Floor

In the FY 2005 IPPS final rule (69 FR 49109 through 49111), we adopted the imputed floor policy as a temporary 3-year regulatory measure to address concerns from hospitals in all-urban States that had stated that they were disadvantaged by the absence of rural hospitals to set a wage index floor for those States. We extended the imputed floor policy eight times since its initial implementation, the last of which was adopted in the FY 2018 IPPS/LTCH PPS final rule and expired on September 30, 2018. We refer readers to further discussions of the imputed floor in the IPPS/LTCH PPS final rules from FYs 2014 through 2019 (78 FR 50589 through 50590, 79 FR 49969 through 49971, 80 FR 49497 through 49498, 81 FR 56921 through 56922, 82 FR 38138 through 38142, and 83 FR 41376 through 41380, respectively) and to the regulations at Sec. 412.64(h)(4). For FYs 2019, 2020, and 2021, hospitals in all- urban states received a wage index that was calculated without applying an imputed floor, and we no longer included the imputed floor as a factor in the national budget neutrality adjustment. Section 9831 of the American Rescue Plan Act of 2021 (Pub. L. 117- 2), enacted on March 11, 2021, amended section 1886(d)(3)(E)(i) of the Act and added section 1886(d)(3)(E)(iv) of the Act to establish a minimum area wage index for hospitals in all-urban States for discharges occurring on or after October 1, 2021. Specifically, section 1886(d)(3)(E)(iv)(I) and (II) of the Act provides that for discharges occurring on or after October 1, 2021, the area wage index applicable to any hospital in an all-urban State may not be less than the minimum area wage index for the fiscal year for hospitals in that State established using the methodology described in Sec. 412.64(h)(4)(vi) as in effect for FY 2018. Unlike the imputed floor that was in effect from FYs 2005 through 2018, section 1886(d)(3)(E)(iv)(III) of the Act provides that the imputed floor wage index shall not be applied in a budget neutral manner. Section 1886(d)(3)(E)(iv)(IV) of the Act provides that, for purposes of the imputed floor wage index under clause (iv), the term all-urban State means a State in which there are no rural areas (as defined in section 1886(d)(2)(D) of the Act) or a State in which there are no hospitals classified as rural under section 1886 of the Act. Under this definition, given that it applies for purposes of the imputed floor wage index, we consider a hospital to be classified as rural under section 1886 of the Act if it is assigned the State's rural area wage index value. Effective beginning October 1, 2021 (FY 2022), section 1886(d)(3)(E)(iv) of the Act reinstated the imputed floor wage index policy for all-urban States, with no expiration date, using the methodology described in Sec. 412.64(h)(4)(vi) as in effect for FY 2018. We refer readers to the FY 2022 IPPS/LTCH PPS final rule (86 FR 45176 through 45178) for further discussion of the original imputed floor calculation methodology implemented in FY 2005 and the alternative methodology implemented in FY 2013. Based on data available for this proposed rule, States that would be all-urban States as defined in section 1886(d)(3)(E)(iv)(IV) of the Act, and thus hospitals in such States that would be eligible to receive an increase in their wage index due to application of the imputed floor for FY 2027, are identified in Table 3 (which is available on the CMS website) associated with this proposed rule. States with a value in the column titled ``State Imputed Floor'' are eligible for the imputed floor. The regulations at Sec. 412.64(e)(1) and (4) and (h)(4) and (5) implement the imputed floor required by section 1886(d)(3)(E)(iv) of the Act for discharges occurring on or after October 1, 2021. The imputed floor would continue to be applied for FY 2027 in accordance with the policies adopted in the FY 2022 IPPS/LTCH PPS final rule. For more information regarding our implementation of the imputed floor required by section 1886(d)(3)(E)(iv) of the Act, we refer readers to the discussion in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45176 through 45178).

3. State Frontier Floor for FY 2027

Section 10324 of Public Law 111-148 amended Section 1886(d)(3)(E) of the Act and added section 1886(d)(3)(E)(iii) of the Act to require that hospitals in frontier States cannot be assigned a wage index of less than 1.00. We refer readers to the regulations at Sec. 412.64(m) and to a discussion of the implementation of this provision in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50160 through 50161). We are not proposing any changes to the frontier floor policy for FY 2027. In this proposed rule, 40 hospitals would receive the frontier floor value of 1.00 for their FY 2027 proposed wage index. These hospitals are located in Montana, North Dakota, South Dakota, and Wyoming. We note that while Nevada meets the criteria of a frontier State, all hospitals within the State currently receive a wage index value greater than 1.00. The areas affected by the rural and frontier floor policies for the proposed FY 2027 wage index are identified in Table 3 associated with this proposed rule, which is available via the internet on the CMS website.

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

Employees In accordance with section 1886(d)(13) of the Act, as added by section 505 of Public Law 108-173, beginning with FY 2005, we established a process to make adjustments to the hospital wage index based on commuting patterns of hospital employees (the ``out- migration'' adjustment). The process, outlined in the FY 2005 IPPS final rule (69 FR 49061), provides for an increase in the wage index for hospitals located in certain counties that have a relatively high percentage of hospital employees who reside in the county but work in a different county (or counties) with a higher wage index. Section 1886(d)(13)(B) of the Act requires the Secretary to use data the Secretary determines to be appropriate to establish the qualifying counties. When section 1886(d)(13) was implemented for the FY 2005 wage index, we analyzed commuting data compiled by the U.S. Census Bureau that were derived from a special tabulation of the 2000 Census journey-to-work data for all industries (CMS extracted data applicable to hospitals). These data were compiled from responses to the ``long-form'' survey, which the Census Bureau used at that time, and which contained questions on where residents in each county worked (69 FR 49062). However, the 2010 Census was ``short form'' only; information on where residents in each county worked was not collected as part of the 2010 Census. The Census Bureau worked with CMS to provide an alternative data set based on the latest available data on where residents in each county worked in 2010, for use in developing a new out-migration adjustment based on new commuting patterns developed from the 2010 Census data beginning with FY 2016. To determine the out-migration adjustments and applicable counties for FY 2016, we analyzed commuting data compiled by the Census Bureau that [[Page 19476]] were derived from a custom tabulation of the American Community Survey (ACS), an official Census Bureau survey, utilizing 2008 through 2012 (5-year) Microdata. The data were compiled from responses to the ACS questions regarding the county where workers reside and the county to which workers commute. As we discussed in prior IPPS/LTCH PPS final rules, we have applied the same policies, procedures, and computations since FY 2012. We refer readers to the FY 2016 IPPS/LTCH PPS final rule (80 FR 49500 through 49502) for a full explanation of the revised data source. We also stated that we will consider determining out-migration adjustments based on data from the next Census or other available data, as appropriate. As discussed previously in section III.A.2, in the FY 2025 IPPS/ LTCH PPS final rule (89 FR 69253 through 69266), CMS adopted revised Core-Based Statistical Area (CBSA) delineations from the OMB Bulletin 23-01, published July 21, 2023. The revised delineations incorporated population estimates based on the 2020 decennial census, as well as updated journey-to-work commuting data. The Census Bureau once again worked with CMS to provide an alternative dataset based on the latest available data on where residents in each county worked, for use in developing a new out-migration adjustment based on new commuting patterns. We analyzed commuting data compiled by the Census Bureau that were derived from a custom tabulation of the ACS, utilizing 2016 through 2020 data. The Census Bureau produces county level commuting flow tables every 5 years using non-overlapping 5-year ACS estimates. The data includes demographic characteristics, home and work locations, and journey-to-work travel flows. The custom tabulation requested by CMS was specific to general medical and surgical hospital and specialty (except psychiatric and substance use disorder treatment) hospital employees (hospital sector Census code 8191/NAICS code 6221 and 6223) who worked in the 50 States, Washington, DC, and Puerto Rico and, therefore, provided information about commuting patterns of workers at the county level for residents of the 50 States, Washington, DC, and Puerto Rico. For the ACS, the Census Bureau selects a random sample of addresses where workers reside to be included in the survey, and the sample is designed to ensure good geographic coverage. The ACS samples approximately 3.5 million resident addresses per year.\89\ The results of the ACS are used to formulate descriptive population estimates, and, as such, the sample on which the dataset is based represents the figures that would be obtained from a complete count. --------------------------------------------------------------------------- \89\ According to the Census Bureau, the effects of the public health emergency (PHE) on ACS activities in 2020 resulted in a lower number of addresses (~2.9 million) in the sample, as well as fewer interviews than a typical year. --------------------------------------------------------------------------- In the FY 2025 IPPS/LTCH PPS final rule (89 FR 69301), we finalized that for FY 2025 and subsequent years, the out-migration adjustment will be based on the data derived from the previously discussed custom tabulation of the ACS utilizing 2016 through 2020 (5-year) Microdata. We believe that these data are the most appropriate to establish qualifying counties, because they are the most accurate and up-to-date data that are available to us. For FY 2027, we are not proposing any changes to the methodology or data source for calculating the out- migration adjustment. Specifically, we are proposing that the FY 2027 out-migration adjustments continue to be based on the same policies, procedures, and computation that were used for the FY 2012 out- migration adjustment. We have applied these same policies, procedures, and computations since FY 2012, and we believe they continue to be appropriate for FY 2027. We refer readers to a full discussion of the out-migration adjustment, including rules on deeming hospitals reclassified under section 1886(d)(8) or section 1886(d)(10) of the Act to have waived the out-migration adjustment, in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51601 through 51602). Table 2 of this proposed rule (which is available on the CMS website) lists the proposed out- migration adjustments for the FY 2027 wage index. In addition, Table 4A associated with this proposed rule, ``List of Counties Eligible for the Out Migration Adjustment under Section 1886(d)(13) of the Act'' (also available on the CMS website), consists of the following: A list of counties that are eligible for the outmigration adjustment for FY 2027 identified by FIPS county code, the proposed FY 2027 out-migration adjustment, and the number of years the adjustment would be in effect. We refer readers to section V.I of the Addendum of this proposed rule for instructions on accessing IPPS tables that are posted on the CMS websites identified in this proposed rule.

5. Cap on Wage Index Decreases and Budget Neutrality Adjustment

In the FY 2023 IPPS/LTCH PPS final rule (87 FR 49018 through 49021), we finalized a wage index cap policy and associated budget neutrality adjustment for FY 2023 and subsequent fiscal years. Under this policy, we apply a 5-percent cap on any decrease to a hospital's wage index from its wage index in the prior FY, regardless of the circumstances causing the decline. A hospital's wage index will not be less than 95 percent of its final wage index for the prior FY. We note, as discussed below, that for FY 2027 we are proposing to continue the transitional payment exception that addresses the effects of the removal of the low wage index hospital policy. This proposed transitional payment exception would be applied after the application of the 5-percent cap. Except for newly opened hospitals, we apply the cap for a fiscal year using the final wage index applicable to the hospital on the last day of the prior fiscal year. A newly opened hospital will be paid the wage index for the area in which it is geographically located for its first full or partial fiscal year, and it will not receive a cap for that first year, because it will not have been assigned a wage index in the prior year. The wage index cap policy is reflected at Sec. 412.64(h)(7). We apply the cap in a budget neutral manner through a national adjustment to the standardized amount each fiscal year. For more information about the wage index cap policy and associated budget neutrality adjustment, we refer readers to the discussion in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49018 through 49021). For FY 2027, we would apply the wage index cap and associated budget neutrality adjustment in accordance with the policies adopted in the FY 2023 IPPS/LTCH PPS final rule. We refer readers to the Addendum of this proposed rule for further information regarding the budget neutrality calculations.

6. Continued Transition for the Discontinuation of the Low Wage Index

Hospital Policy In the FY 2025 interim final action with comment period (IFC) (89 FR 80405 through 80421), we recalculated the FY 2025 IPPS hospital wage index to remove the low wage index hospital policy for FY 2025. We also removed the low wage index budget neutrality factor from the FY 2025 standardized amounts. For FY 2026 and subsequent fiscal years, consistent with the FY 2025 IFC, after considering the D.C. Circuit's [[Page 19477]] decision in Bridgeport Hospital v. Becerra, we discontinued the low wage index hospital policy and the application of the low wage index budget neutrality factor to the standardized amounts (90 FR 36854). For FY 2025 and FY 2026, consistent with our past practice to establish temporary transition policies to mitigate short-term instability and payment fluctuations, we established transition policies for hospitals significantly impacted by the discontinuation of the low wage index hospital policy using our authority under section 1886(d)(5)(I) of the Act. The transitional payment exception for FY 2025 for those hospitals was equal to the additional FY 2025 amount a hospital would have been paid under the IPPS if its FY 2025 wage index were equal to 95 percent of its FY 2024 wage index. The transitional payment exception for FY 2026 was equal to the additional FY 2026 amount the hospital would be paid under the IPPS if its FY 2026 wage index were equal to 90.25 percent of its FY 2024 wage index.\90\ For FY 2025, we opted not to budget neutralize the interim transition policy given the timing of the Bridgeport Hospital v. Becerra decision. However, for FY 2026, we finalized a payment transition with a budget neutrality adjustment through notice-and-comment rulemaking for hospitals facing significant reductions over two years that would not be sufficiently mitigated by the wage index cap policy at 42 CFR 412.64(h)(7). We refer readers to the FY 2025 IFC (89 FR 80405 through 80421) and to the FY 2026 IPPS/LTCH PPS Final Rule (90 FR 36855 through 36857) for a full discussion of these transitional payment policies. --------------------------------------------------------------------------- \90\ 90.25 percent = 95 percent for FY 2025 * 95 percent for FY 2026. This can also be expressed as .95-2. --------------------------------------------------------------------------- Some hospitals that previously benefitted from the low wage index hospital policy would continue to experience decreases of approximately 5 percent or more per year from their FY 2024 wage index (with the low wage index hospital policy applied). For example, these hospitals may experience a decrease of 15 percent or more over the three years from their FY 2024 wage index to their proposed FY 2027 wage index (that is, approximately 5 percent or more per year over that time period). Therefore, we are proposing to extend the transitional exception to the calculation payments for FY 2027 for these hospitals in the same manner as we did for the FY 2026 wage index. Similar to the FY 2026 transition, the transitional exception policy we are proposing for FY 2027 would continue to apply only to hospitals that benefited from the FY 2024 low wage index hospital policy. For FY 2027, for example, we would compare the hospital's proposed FY 2027 wage index to the hospital's FY 2024 wage index if the hospital benefited from the low wage index hospital policy in FY 2024. If the hospital is significantly impacted by the discontinuation of the low wage index hospital policy, meaning the hospital's proposed FY 2027 wage index is decreasing by more than 14.2625 percent \91\ from the hospital's FY 2024 wage index, then the transitional payment exception for FY 2027 for that hospital would be equal to the additional FY 2027 amount the hospital would be paid under the IPPS if its FY 2027 wage index were equal to 85.7375 percent \92\ of its FY 2024 wage index.\93\ We note this proposed transitional payment exception would be applied after the application of the 5-percent cap described at 42 CFR 412.64(h)(7). --------------------------------------------------------------------------- \91\ Under the wage index cap policy at 42 CFR 412.64(h)(7), a hospital's wage index for a FY cannot be lower than 0.95 * its wage index from the prior FY. Over a 3-year period if its wage index were decreasing by more than 5 percent each year, this will mean a hospital's wage index for a FY cannot be lower than (0.95*0.95*0.95) times its wage index from three years earlier. Similarly for our proposed FY 2027 transitional exception policy, we are proposing that a hospital is significantly impacted by the discontinuation of the low wage index hospital policy if its FY 2027 wage index is less than (0.95*0.95*0.95) of its FY 2024 wage index, which equates to a decrease of more than 14.2625 percent. \92\ 85.7375 percent = 95 percent for FY 2025 * 95 percent for FY 2026* 95 percent for FY 2027. This can also be expressed as .95-3. \93\ We note that we are not proposing to change the FY 2027 wage index values under section 1886(d)(3)(E) for hospitals eligible for the proposed FY 2027 transitional exception policy on the basis of the exception; the proposed change will be applied as a separate step only for purposes of determining the hospitals' FY 2027 IPPS payments. --------------------------------------------------------------------------- For example: assume the FY 2024 wage index for a hospital that benefitted from the low wage index hospital policy is 0.7600, and the hospital's proposed FY 2027 wage index is 0.6500. (If applicable, this proposed FY 2027 wage index value would include the 5-percent cap based on a comparison of the hospital's FY 2027 wage index prior to application of the 5-percent cap, to the hospital's FY 2026 wage index. We note that the FY 2026 wage index that will be used in this comparison is generally the FY 2026 wage index listed in Table 2 from the FY 2026 Final Rule in the column labeled ``FY 2026 Wage Index With Cap''. We note that all hospitals, regardless of whether the cap was applied to their FY 2026 wage index, have a value in the column ``FY 2026 Wage Index With Cap''. Hospitals that did not have a cap applied to their FY 2026 wage index will display a wage index in this column without the cap.) The hospital's proposed FY 2027 wage index is decreasing by more than 14.2625 percent from the hospital's FY 2024 wage index [that is, 0.6500 < 0.6516 where 0.6516 = (0.857375 times 0.7600)]. The proposed transitional payment exception for FY 2027 for this hospital is equal to the additional amount the hospital would be paid under the IPPS if its FY 2027 wage index were equal to 0.6516, which is 85.7375 percent of 0.7600, its FY 2024 wage index. We note that the hospital in this example would not qualify for the transitional payment exception in FY 2028 should the policy be extended if its 2028 wage index is more than 0.6190, which is 81.450625 percent (or 0.95-4) of its FY 2024 wage index of 0.7600. Similar to the FY 2026 transition, we are proposing to make this policy budget neutral for FY 2027 through an adjustment applied to the standardized amount for all hospitals because: (1) the wage index cap policy at 42 CFR 412.64(h)(7) would have mitigated these FY 2027 wage index decreases had the combined payment effect of the FY 2025 and FY 2026 wage index and the transitional payment exception been reflected solely in the FY 2025 and FY 2026 wage index, and it would have done so in a budget neutral manner under our current regulations; and (2) the circumstances described in the FY 2025 IFC (89 FR 80405 through 80421) that caused us to decline to budget neutralize the interim FY 2025 transition policy are not applicable to subsequent years. In addition, implementing the proposed transition policy for FY 2027 in a budget neutral manner would be consistent with past practice. For example, we budget neutralized the FY 2015 wage index transition budget neutrality policy discussed earlier (79 FR 49956 through 49962). As we have discussed in other instances (89 FR 19398), we believed, and continue to believe, that transition policies should not increase estimated aggregate Medicare payments beyond the payments that would be made had we never proposed these transition policies. Therefore, we are proposing to use our authority under section 1886(d)(5)(I)(i) of the Act twice. First, we are proposing to adopt a narrow transitional exception to the calculation of FY 2027 IPPS for low wage index hospitals significantly impacted by the discontinuation of the low wage index [[Page 19478]] hospital policy. Second, we are proposing to exercise our authority again to do so in a budget neutral manner.94 95 We refer the reader to section II.A.4.g of the Addendum of this proposed rule for complete details regarding the application of the transition for the discontinuation of the low wage index hospital policy budget neutrality factor. --------------------------------------------------------------------------- \94\ We note that even more so than was the case for the FY 2025 and FY 2026 interim transition policy, the scope and magnitude of the FY 2027 transitional policy are much smaller than the low wage index hospital policy, and we expect this trend to continue as effects of discontinuing the low wage hospital policy diminish. As discussed in section VI of the preamble of this proposed rule, we estimate only 54 hospitals, out of the over 3,000 hospitals paid under the IPPS will receive FY 2027 transitional exception payments. Also, as discussed in section II. A 4 of the addendum to this proposed rule, as proposed, we applied a budget neutrality factor to the standardized amount. \95\ We note that because creating an exception to the calculation of the FY 2027 payments is in this circumstance functionally equivalent to adjusting the FY 2027 payments, the transitional exception can be alternatively considered a transitional adjustment. --------------------------------------------------------------------------- We are also proposing to make a budget neutral equivalent exception under the capital IPPS. Under the capital IPPS, the adjustment for local cost variation is based on the hospital wage index value that is applicable to the hospital under the operating IPPS. We adjust the capital standard Federal rate so that the effects of the annual changes in the geographic adjustment factor (GAF) are budget neutral. As discussed in the FY 2025 IFC (89 FR 80408), since FY 2023, the GAFs reflect the wage index cap policy that limits any decrease to a hospital's wage index from its wage index in the prior FY, regardless of the circumstances causing the decline, to 95 percent of its prior year value. As described previously, some hospitals that previously benefitted from the low wage index hospital policy will experience decreases of 15 percent or more over the three years from their FY 2024 wage index (with the low wage index hospital policy applied) to their proposed FY 2027 wage index, at approximately 5 percent or more per year over that time period and for subsequent years. As such, similar to the FY 2025 and FY 2026 transition policies, we are proposing for FY 2027 to make a budget neutral equivalent exception under the capital IPPS.

G. FY 2027 Wage Index Tables

In this FY 2027 IPPS/LTCH PPS proposed rule, we have included the following wage index tables: Table 2 titled ``Case-Mix Index and Wage Index Table by CCN''; Table 3 titled ``Wage Index Table by CBSA''; Table 4A titled ``List of Counties Eligible for the Out-Migration Adjustment under Section 1886(d)(13) of the Act''; and Table 4B titled ``Counties redesignated under section 1886(d)(8)(B) of the Act (Lugar Counties).'' We refer readers to section VI of the Addendum to this proposed rule for a discussion of the wage index tables for FY 2027.

H. Proposed Labor-Related Share for the FY 2027 Wage Index

Section 1886(d)(3)(E) of the Act directs the Secretary to adjust the proportion of the national prospective payment system base payment rates that are attributable to wages and wage-related costs by a factor that reflects the relative differences in labor costs among geographic areas. It also directs the Secretary to estimate from time to time the proportion of hospital costs that are labor-related and to adjust the proportion (as estimated by the Secretary from time to time) of hospitals' costs that are attributable to wages and wage-related costs of the diagnosis related group (DRG) prospective payment rates. We refer to the portion of hospital costs attributable to wages and wage- related costs as the labor-related share. The labor-related share of the prospective payment rate is adjusted by an index of relative labor costs, which is referred to as the wage index. Section 403 of Public Law 108-173 amended section 1886(d)(3)(E) of the Act to provide that the Secretary must employ 62 percent as the labor-related share unless this would result in lower payments to a hospital than would otherwise be made. However, this provision of Public Law 108-173 did not change the legal requirement that the Secretary estimate from time to time the proportion of hospitals' costs that are attributable to wages and wage-related costs. Thus, hospitals receive payment based on either a 62-percent labor-related share, or the labor-related share estimated from time to time by the Secretary, depending on which labor-related share results in a higher payment. In the FY 2026 IPPS/LTCH PPS final rule (90 FR 36869 through 36873), we rebased and revised the hospital market basket to a 2023- based IPPS hospital market basket, which replaced the 2018-based IPPS hospital market basket, effective beginning October 1, 2025. Using the 2023-based IPPS market basket, we finalized a labor-related share of 66.0 percent for discharges occurring on or after October 1, 2025. In addition, in FY 2026, we implemented this rebased labor-related share in a budget neutral manner (90 FR 36857 through 36858, 90 FR 37216 through 37217). However, consistent with section 1886(d)(3)(E) of the Act, we did not take into account the additional payments that would be made as a result of hospitals with a wage index less than or equal to 1.0000 being paid using a labor-related share lower than the labor- related share of hospitals with a wage index greater than 1.0000. The labor-related share is used to determine the proportion of the national IPPS base payment rate to which the area wage index is applied. We include a cost category in the labor-related share if the costs are labor intensive and vary with the local labor market. In the FY 2026 IPPS/LTCH PPS final rule, we included in the labor-related share the national average proportion of operating costs that are attributable to the following cost categories in the 2023-based IPPS market basket: Wages and Salaries; Employee Benefits; Professional Fees: Labor-Related; Administrative and Facilities Support Services; Installation, Maintenance, and Repair Services; and All Other: Labor- Related Services as measured in the 2023-based IPPS market basket. For FY 2027, we are proposing to continue to use a labor-related share of 66.0 percent for discharges occurring on or after October 1, 2026. As discussed in section VI.B of the preamble of this proposed rule, prior to January 1, 2016, Puerto Rico hospitals were paid based on 75 percent of the national standardized amount and 25 percent of the Puerto Rico-specific standardized amount. As a result, we applied the Puerto Rico-specific labor-related share percentage and nonlabor- related share percentage to the Puerto Rico-specific standardized amount. Section 601 of the Consolidated Appropriations Act, 2016 (Pub.

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

the payment calculation with respect to operating costs of inpatient hospital services of a subsection (d) Puerto Rico hospital for inpatient hospital discharges on or after January 1, 2016, shall use 100 percent of the national standardized amount. Because Puerto Rico hospitals are no longer paid with a Puerto Rico-specific standardized amount as of January 1, 2016, under section 1886(d)(9)(E) of the Act as amended by section 601 of the Consolidated Appropriations Act, 2016, there is no longer a need for us to calculate a Puerto Rico-specific labor-related share percentage and nonlabor-related share percentage for application to the Puerto Rico-specific standardized amount. Hospitals in Puerto Rico are now paid 100 percent of the national standardized amount and, therefore, are [[Page 19479]] subject to the national labor-related share and nonlabor-related share percentages that are applied to the national standardized amount. Accordingly, for FY 2027, we are not proposing a Puerto Rico-specific labor-related share percentage or a nonlabor-related share percentage. Tables 1A and 1B, which are published in section VI of the Addendum to this FY 2027 IPPS/LTCH PPS proposed rule and available via the internet on the CMS website, reflect the proposed national labor- related share. Table 1C, in section VI of the Addendum to this FY 2027 IPPS/LTCH PPS proposed rule and available via the internet on the CMS website, reflects the national labor-related share for hospitals located in Puerto Rico. For FY 2027, for all IPPS hospitals (including Puerto Rico hospitals) whose wage indexes are less than or equal to 1.0000, we are proposing to apply the wage index to a labor-related share of 62 percent of the national standardized amount. For all IPPS hospitals (including Puerto Rico hospitals) whose wage indexes are greater than 1.000, for FY 2027, we are proposing to apply the wage index to a labor-related share of 66.0 percent of the national standardized amount.

A. General Discussion

Section 1886(d)(5)(F) of the Act provides for additional Medicare payments to subsection (d) hospitals \96\ that serve a significantly disproportionate number of low-income patients. The Act specifies two methods by which a hospital may qualify for the Medicare disproportionate share hospital (DSH) adjustment. Under the first method, hospitals that are located in an urban area and have 100 or more beds may receive a Medicare DSH payment adjustment if the hospital can demonstrate that, during its cost reporting period, more than 30 percent of its net inpatient care revenues are derived from State and local government payments for care furnished to patients with low incomes. This method is commonly referred to as the ``Pickle method.'' The second method for qualifying for the DSH payment adjustment, which is the more commonly used method, is based on the hospital's disproportionate patient percentage (DPP), described below, under which the DSH payment adjustment is based on a complex statutory formula that includes the hospital's geographic designation, the number of beds in the hospital, and the level of the hospital's DPP. --------------------------------------------------------------------------- \96\ See section 1886(d)(1)(B) of the Act for the definition of a ``subsection (d) hospital''. --------------------------------------------------------------------------- A hospital's DPP is the sum of two fractions: the ``Medicare fraction'' and the ``Medicaid fraction.'' The Medicare fraction (also known as the ``SSI fraction'' or ``SSI ratio'') is computed by dividing the number of the hospital's inpatient days that are furnished to patients who were entitled to both Medicare Part A and Supplemental Security Income (SSI) benefits by the hospital's total number of patient days furnished to patients entitled to benefits under Medicare Part A. The Medicaid fraction is computed by dividing the hospital's number of inpatient days furnished to patients who, for such days, were eligible for Medicaid, but were not entitled to benefits under Medicare Part A, by the hospital's total number of inpatient days in the same period. [GRAPHIC] [TIFF OMITTED] TP14AP26.116 Because the DSH payment adjustment is part of the IPPS, the statutory references to ``days'' in section 1886(d)(5)(F) of the Act have been interpreted to apply only to hospital acute care inpatient days. Regulations located at 42 CFR 412.106 govern the Medicare DSH payment adjustment and specify how the DPP is calculated as well as how beds and patient days are counted in determining the Medicare DSH payment adjustment. Under Sec. 412.106(a)(1)(i), the number of beds for the Medicare DSH payment adjustment is determined in accordance with bed counting rules for the IME adjustment under Sec. 412.105(b). Section 3133 of the Patient Protection and Affordable Care Act (Pub. L. 111-148), as amended by section 10316 of the same Act and section 1104 of the Health Care and Education Reconciliation Act (Pub.

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

methodology for computing the Medicare DSH payment adjustment. We refer to these provisions collectively as section 3133 of the Affordable Care Act. Beginning with discharges in FY 2014, hospitals that qualify for Medicare DSH payments under section 1886(d)(5)(F) of the Act receive 25 percent of the amount they previously would have received under the statutory formula for Medicare DSH payments. This provision applies equally to hospitals that qualify for DSH payments on the basis of the hospital's DPP under section 1886(d)(5)(F)(i)(I) of the Act and those hospitals that qualify under the Pickle method under section 1886(d)(5)(F)(i)(II) of the Act. The remaining amount, equal to an estimate of 75 percent of what otherwise would have been paid as Medicare DSH payments, reduced to reflect changes in the percentage of individuals who are uninsured, is available to make additional payments to each hospital that qualifies for Medicare DSH payments and that has uncompensated care. The payments to each hospital for a fiscal year are based on the hospital's amount of uncompensated care for a given time period relative to the total amount of uncompensated care for that same time period reported by all hospitals that receive Medicare DSH payments for that fiscal year. Since FY 2014, section 1886(r) of the Act has required that hospitals that are eligible under section 1886(d)(5)(F) of the Act receive two separately calculated payments: [[Page 19480]] [GRAPHIC] [TIFF OMITTED] TP14AP26.117 Specifically, section 1886(r)(1) of the Act provides that the Secretary shall pay to such subsection (d) hospital 25 percent of the amount the hospital would have received under section 1886(d)(5)(F) of the Act for DSH payments, which represents the empirically justified amount for such payment, as determined by the MedPAC in its March 2007 Report to Congress.\97\ We refer to this payment as the ``empirically justified Medicare DSH payment.'' --------------------------------------------------------------------------- \97\ https://www.medpac.gov/document/march-2007-report-to-the-congress-medicare-payment-policy/. --------------------------------------------------------------------------- In addition to this empirically justified Medicare DSH payment, section 1886(r)(2) of the Act provides that, for FY 2014 and each subsequent fiscal year, the Secretary shall pay to such subsection (d) hospitals an additional amount equal to the product of three factors. The first factor is the difference between the aggregate amount of payments that would be made to subsection (d) hospitals under section 1886(d)(5)(F) of the Act if subsection (r) did not apply and the aggregate amount of payments that are made to subsection (d) hospitals under section 1886(r)(1) of the Act for such fiscal year. In other words, the first factor of the uncompensated care payment calculation is 75 percent of the payments that would otherwise be made as Medicare DSH payments under section 1886(d)(5)(F) of the Act. Section 1886(r)(2)(B) of the Act provides that the second factor is, for FY 2018 and subsequent fiscal years, 1 minus the percent change in the percent of individuals who are uninsured, as determined by comparing the percent of individuals who were uninsured in 2013 (as estimated by the Secretary, based on data from the Census Bureau or other sources the Secretary determines appropriate, and certified by the Chief Actuary of CMS) and the percent of individuals who were uninsured in the most recent period for which data are available (as so estimated and certified). As discussed in a later section, we note that the second factor is computed based on estimates of the total U.S. population. Section 1886(r)(2)(C) of the Act provides that the third factor is a percent that, for each subsection (d) hospital, represents the quotient of the amount of uncompensated care for such hospital for a period selected by the Secretary (as estimated by the Secretary, based on appropriate data), including the use of alternative data where the Secretary determines that alternative data are available which are a better proxy for the costs of subsection (d) hospitals for treating the uninsured, and the aggregate amount of uncompensated care for all subsection (d) hospitals that receive a payment under section 1886(r) of the Act. Therefore, this third factor represents a hospital's uncompensated care amount for a given time period relative to the uncompensated care amount for that same time period for all hospitals that receive Medicare DSH payments in the applicable fiscal year, expressed as a percent. For each hospital, the product of these three factors represents its additional payment for uncompensated care for the applicable fiscal year. We refer to the additional payment amount determined by these factors as the ``uncompensated care payment.'' In brief, the uncompensated care payment for an individual hospital is the product of the following 3 factors: [GRAPHIC] [TIFF OMITTED] TP14AP26.118 Section 1886(r) of the Act applies to FY 2014 and each subsequent fiscal year. In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50620 through 50647) and the FY 2014 IPPS interim final rule with comment period (78 FR 61191 through 61197), we set forth our policies for implementing the required changes to the Medicare DSH payment methodology made by section 3133 of the Affordable Care Act for FY 2014. In those rules, we noted that, because section 1886(r) of the Act modifies the payment required under section 1886(d)(5)(F) of the Act, it affects only the DSH payment under the operating IPPS. It does not revise or replace the capital IPPS DSH payment provided under the regulations at 42 CFR part 412, subpart M, which was established through the exercise of the Secretary's discretion in implementing the capital IPPS under section 1886(g)(1)(A) of the Act. Finally, section 1886(r)(3) of the Act provides that there shall be no administrative or judicial review under section 1869, section 1878, or otherwise of any estimate of the Secretary for purposes of determining the factors described in section 1886(r)(2) of the Act or of any period selected by the Secretary for the purpose of determining those factors. Therefore, there is no administrative or judicial review of the estimates developed for purposes of applying the three factors used to determine uncompensated care payments, or of the periods selected to develop such estimates.

B. Eligibility for Empirically Justified Medicare DSH Payments and

Uncompensated Care Payments The payment methodology under section 3133 of the Affordable Care Act applies to ``subsection (d) hospitals'' that would otherwise receive a DSH payment made under section 1886(d)(5)(F) of the Act. Therefore, hospitals must receive empirically justified Medicare DSH payments in a fiscal year to receive a Medicare uncompensated care payment for that year. Specifically, section 1886(r)(2) of the Act states that, in addition to the empirically justified Medicare DSH payment made to a subsection (d) hospital under section 1886(r)(1) of the Act, the Secretary shall pay to ``such subsection (d) hospitals'' the [[Page 19481]] uncompensated care payment. Section 1886(r)(2)'s reference to ``such subsection (d) hospitals'' refers to hospitals that receive empirically justified Medicare DSH payments under section 1886(r)(1) for the applicable fiscal year. In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50622) and the FY 2014 IPPS interim final rule with comment period (78 FR 61193), we explained that hospitals that are not eligible to receive empirically justified Medicare DSH payments in a fiscal year will not receive uncompensated care payments for that year. We also specified that we would make a determination concerning eligibility for interim uncompensated care payments based on each hospital's estimated DSH status (that is, eligibility to receive empirically justified Medicare DSH payments) for the applicable fiscal year (using the most recent data that is available). For this proposed rule, we estimated DSH status for all hospitals using the most recent available SSI ratios and information from the most recent available Provider Specific File. We note that FY 2023 SSI ratios available on the CMS website were the most recent available SSI ratios at the time of developing this proposed rule.\98\ If more recent data on DSH eligibility becomes available before the final rule, we would use such data in the final rule. Our final determinations of a hospital's eligibility for empirically justified Medicare DSH and uncompensated care payments will be based on the hospital's actual DSH status at cost report settlement for FY 2027. --------------------------------------------------------------------------- \98\ https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/dsh. --------------------------------------------------------------------------- In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50622) and in the rulemakings for subsequent fiscal years, we have specified our policies for several specific classes of hospitals within the scope of section 1886(r) of the Act. Eligible hospitals include the following: Subsection (d) Puerto Rico hospitals are eligible to receive empirically justified Medicare DSH payments and uncompensated care payments under section 1886(r) of the Act (78 FR 50623 and 79 FR 50006). Sole community hospitals (SCHs) that are paid under the IPPS Federal rate receive interim payments based on what we estimate and project their DSH status to be prior to the beginning of the fiscal year (based on the best available data at that time) subject to settlement through the cost report. If they receive interim empirically justified Medicare DSH payments in a fiscal year, they will also be eligible to receive interim uncompensated care payments for that fiscal year on a per discharge basis. Final eligibility determinations will be made at the end of the cost reporting period at settlement, and both interim empirically justified Medicare DSH payments and uncompensated care payments will be adjusted accordingly (78 FR 50624 and 79 FR 50007). Medicare-dependent, small rural hospitals (MDHs) are paid based on the IPPS Federal rate or, if higher, the IPPS Federal rate plus 75 percent of the amount by which the Federal rate is exceeded by the updated hospital-specific rate from certain specified base years (FY 2012 IPPS/LTCH PPS final rule, 76 FR 51684). The IPPS Federal rate that is used in the MDH payment methodology is the same IPPS Federal rate that is used in the SCH payment methodology. Because MDHs are paid based on the IPPS Federal rate, they continue to be eligible to receive empirically justified Medicare DSH payments and uncompensated care payments if their DPP is at least 15 percent, and we apply the same process to determine MDHs' eligibility for interim empirically justified Medicare DSH and interim uncompensated care payments as we do for all other IPPS hospitals. Recently enacted legislation has extended the MDH program through December 31, 2026. We refer readers to section V.E. of the preamble of this proposed rule for further discussion of the MDH program. We will continue to make a determination concerning an MDH's eligibility for interim empirically justified Medicare DSH and uncompensated care payments based on the hospital's estimated DSH status for the applicable fiscal year. Transforming Episode Accountability Model (TEAM) is a new episode-based payment model (89 FR 68986). Hospitals participating in TEAM continue to be paid under the IPPS and, therefore, are eligible to receive empirically justified Medicare DSH payments and uncompensated care payments. The model started January 1, 2026. IPPS hospitals that participate in the proposed Comprehensive Care for Joint Replacement Expansion (CJR-X) Model would continue to be paid under the IPPS and, therefore, are eligible to receive empirically justified Medicare DSH payments and uncompensated care payments. We refer the reader to section X.C. of the FY2027 IPPS/ LTCH proposed rule for further discussion on the CJR-X Model. CMS proposes beginning this model on October 1, 2027. Ineligible hospitals include the following: Maryland hospitals are not eligible to receive empirically justified Medicare DSH payments and uncompensated care payments under the payment methodology of section 1866(r) of the Act because they are not paid under the IPPS. CMS and the State have entered into an agreement to govern payments to Maryland hospitals under a new payment model, the Achieving Healthcare Efficiency through Accountable Design (AHEAD) Model, beginning January 1, 2026. Maryland hospitals are not paid under the IPPS and are ineligible to receive empirically justified Medicare DSH payments and uncompensated care payments under section 1886(r) of the Act. Further information is available on the CMS website at https://www.cms.gov/priorities/innovation/innovation-models/ahead. SCHs that are paid under their hospital-specific rate are not eligible for Medicare DSH and uncompensated care payments (78 FR 50623 and 50624). Hospitals participating in the Rural Community Hospital Demonstration Program are not eligible to receive empirically justified Medicare DSH payments and uncompensated care payments under section 1886(r) of the Act because they are not paid under the IPPS (78 FR 50625 and 79 FR 50008). The Rural Community Hospital Demonstration Program was originally authorized for a 5-year period by section 410A of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) (Pub. L. 108-173).\99\ The period of participation for the last hospital in the demonstration under the most recent legislative authorization (Pub. L. 116-260) will end on June 30, 2028. Under the payment methodology that applies during this most recent extension of the demonstration program, participating hospitals do not receive [[Page 19482]] empirically justified Medicare DSH payments, and they are excluded from receiving interim and final uncompensated care payments. At the time of development of this proposed rule, we believe 22 hospitals may participate in the demonstration program at the start of FY 2027. We note that if at the time of developing the final rule there is a different number of hospitals projected to participate in the demonstration program during FY 2027, we would use updated information in the FY 2027 final rule. --------------------------------------------------------------------------- \99\ The Rural Community Hospital Demonstration Program was extended for a subsequent 5-year period by sections 3123 and 10313 of the Affordable Care Act (Pub. L. 111-148). The period of performance for this 5-year extension period ended on December 31, 2016. Section 15003 of the 21st Century Cures Act (Pub. L. 114-255), enacted on December 13, 2016, again amended section 410A of Public Law 108-173 to require a 10-year extension period (in place of the 5-year extension required by the Affordable Care Act), therefore requiring an additional 5-year participation period for the demonstration program. Section 15003 of Public Law 114-255 also required a solicitation for applications for additional hospitals to participate in the demonstration program. The period of performance for this 5-year extension period ended December 31, 2021. The Consolidated Appropriations Act, 2021 (Pub. L. 116-260) amended section 410A of Public Law 108-173 to extend the demonstration program for an additional 5-year period. ---------------------------------------------------------------------------

C. Empirically Justified Medicare DSH Payments

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

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

Hospitals and Puerto Rico Hospitals In the FY 2023 IPPS/LTCH PPS final rule (87 FR 49047 through 49051), we established a new supplemental payment for IHS/Tribal hospitals and hospitals located in Puerto Rico for FY 2023 and subsequent fiscal years. This payment was established to help to mitigate the impact of the decision to discontinue the use of low- income insured days as a proxy for uncompensated care costs for these hospitals and to prevent undue long-term financial disruption for these providers. The regulations located at 42 CFR 412.106(h) govern the supplemental payment. In brief, the supplemental payment for a fiscal year is determined as the difference between the hospital's base year amount and its uncompensated care payment for the applicable fiscal year as determined under Sec. 412.106(g)(1). The base year amount is the hospital's FY 2022 uncompensated care payment adjusted by one plus the percent change in the total uncompensated care amount between the applicable fiscal year (that is, FY 2027 for purposes of this rulemaking) and FY 2022, where the total uncompensated care amount for a fiscal year is determined as the product of Factor 1 and Factor 2 for that year. If the base year amount is equal to or lower than the hospital's uncompensated care payment for the current fiscal year, then the hospital would not receive a supplemental payment because the hospital would not be experiencing financial disruption in that year as a result of the use of uncompensated care data from the Worksheet S-10 in determining Factor 3 of the uncompensated care payment methodology. For FY 2027, we are not proposing any changes to the methodology for determining the supplemental payments and we will calculate the supplemental payments to eligible IHS/Tribal and Puerto Rico hospitals consistent with the methodology described in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49047 through 49051) and Sec. 412.106(h). As discussed in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49048 and 49049), the eligibility and payment processes for the supplemental payment are consistent with the processes for determining eligibility to receive interim and final uncompensated care payments adopted in FY 2014 IPPS/LTCH PPS final rule. We note that the MAC will make a final determination with respect to a hospital's eligibility to receive the supplemental payment for a fiscal year, in conjunction with its final determination of the hospital's eligibility for DSH payments and uncompensated care payments for that fiscal year.

E. Uncompensated Care Payments

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

1. Proposed Calculation of Factor 1 for FY 2027

Section 1886(r)(2)(A) of the Act establishes Factor 1 in the calculation of the uncompensated care payment. The regulations located at 42 CFR 412.106(g)(1)(i) govern the Factor 1 calculation. Under a prospective payment system, we would not know the precise aggregate Medicare DSH payment amounts that would be paid for a fiscal year until cost report settlement for all IPPS hospitals is completed, which occurs several years after the end of the fiscal year. Therefore, section 1886(r)(2)(A)(i) of the Act provides authority to estimate this amount by specifying that, for each fiscal year to which the provision applies, such amount is to be estimated by the Secretary. Similarly, we would not know the precise aggregate empirically justified Medicare DSH payment amounts that would be paid for a fiscal year until cost report settlement for all IPPS hospitals is completed. Thus, section 1886(r)(2)(A)(ii) of the Act provides authority to estimate this amount. In brief, Factor 1 is the difference between the Secretary's estimates of: (1) the amount that would have been paid in Medicare DSH payments for the fiscal year, in the absence of section 1886(r) of the Act; and (2) the amount of empirically justified Medicare DSH payments that are made for the fiscal year, which takes into account the requirement to pay 25 percent of what would have otherwise been paid under section 1886(d)(5)(F) of the Act. In this FY 2027 IPPS/LTCH PPS proposed rule, consistent with the policy that has applied since the FY 2014 final rule (78 FR 50627 through 50631), we are determining Factor 1 from the most recently available estimates of the aggregate amount of Medicare DSH payments that would be made for FY 2027 in the absence of section 1886(r)(1) of the Act and the aggregate amount of empirically justified Medicare DSH payments that would be made for FY 2027, both as calculated by CMS' Office of the Actuary (OACT). Consistent with the policy that has applied in previous years, these estimates will not be revised or updated subsequent to publication of our final projections in the FY 2027 IPPS/LTCH PPS final rule. For this proposed rule, to calculate both estimates, we used the most recently available projections of Medicare DSH payments for the fiscal year, as calculated by OACT using the [[Page 19483]] most recently filed Medicare hospital cost reports with Medicare DSH payment information and the most recent DPPs and Medicare DSH payment adjustments provided in the IPPS Impact File. The projection of Medicare DSH payments for the fiscal year is also partially based on OACT's Part A benefits projection model, which projects, among other things, inpatient hospital spending. Projections of DSH payments additionally require projections of expected increases in utilization and case-mix. The assumptions that were used in making these inpatient hospital spending, utilization, and case-mix projections and the resulting estimates of DSH payments for FY 2024 through FY 2027 are discussed later in this section and in the table titled ``Factors Applied for FY 2024 through FY 2027 to Estimate Medicare DSH Expenditures Using FY 2023 Baseline.'' For purposes of calculating Factor 1 and modeling the impact of this FY 2027 IPPS/LTCH PPS proposed rule, we used OACT's January 2026 Medicare DSH estimates, which were based on data from the December 2025 update of the Medicare Hospital Cost Report Information System (HCRIS) and the FY 2026 IPPS/LTCH PPS final rule IPPS Impact File, published in conjunction with the publication of the FY 2026 IPPS/LTCH PPS final rule. Because SCHs that are projected to be paid under their hospital- specific rate are ineligible for empirically justified Medicare DSH payments and uncompensated care payments, they were excluded from the January 2026 Medicare DSH estimates. Because Maryland hospitals are not paid under the IPPS, they are also ineligible for empirically justified Medicare DSH payments and uncompensated care payments and were also excluded from OACT's January 2026 Medicare DSH estimates. The 22 hospitals that CMS expects will participate in the Rural Community Hospital Demonstration Program in FY 2027 were also excluded from OACT's January 2026 Medicare DSH estimates because under the payment methodology that applies during the demonstration, these hospitals are not eligible to receive empirically justified Medicare DSH payments or uncompensated care payments. For this proposed rule, using the data sources previously discussed, OACT's January 2026 estimates of Medicare DSH payments for FY 2027 without regard to the application of section 1886(r)(1) of the Act, is approximately $15.303 billion. Therefore, also based on OACT's January 2026 Medicare DSH estimates, the estimate of empirically justified Medicare DSH payments for FY 2027, with the application of section 1886(r)(1) of the Act, is approximately $3.826 billion (or 25 percent of the total amount of estimated Medicare DSH payments for FY 2027). Under Sec. 412.106(g)(1)(i), Factor 1 is the difference between these two OACT estimates. Therefore, in this FY 2027 IPPS/LTCH PPS proposed rule, we are determining that Factor 1 for FY 2027 would be $11.477 billion, which is equal to 75 percent of the total amount of estimated Medicare DSH payments for FY 2027 ($15.303 billion minus $3.826 billion). We note that consistent with our approach in previous rulemakings, OACT intends to use more recent data that may become available for purposes of projecting the final Factor 1 estimates for the FY 2027 IPPS/LTCH PPS final rule. We note that the Factor 1 estimates for IPPS/LTCH PPS proposed rules are generally consistent with the economic assumptions and actuarial analysis used to develop the President's Budget estimates under current law, and Factor 1 estimates for IPPS/LTCH PPS final rules are generally consistent with those used for the Midsession Review of the President's Budget. Consistent with historical practice, we expect the Midsession Review will have updated economic assumptions and actuarial analysis, which will be used for the development of Factor 1 estimates in the FY 2027 IPPS/LTCH PPS final rule. For a general overview of the principal steps involved in projecting future inpatient costs and utilization, we refer readers to the ``2025 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds,'' available on the CMS website at https://www.cms.gov/oact/tr/2025. The actuarial projections contained in these reports are based on numerous assumptions regarding future trends in program enrollment, utilization and costs of health care services covered by Medicare, as well as other factors affecting program expenditures. In addition, although the methods used to estimate future costs based on these assumptions are complex, they are subject to periodic review by independent experts to ensure their validity and reasonableness. In this proposed rule, we include information regarding the data sources, methods, and assumptions employed by OACT's actuaries in determining our estimate of Factor 1. In summary, we indicate the historical HCRIS data update OACT used to estimate Medicare DSH payments. We also explain that the most recent Medicare DSH payment adjustments provided in the IPPS Impact File were used, and we provide the components of all the update factors that were applied to the historical data to estimate the Medicare DSH payments for the upcoming fiscal year, along with the associated rationale and assumptions. The discussion also includes descriptions of the ``Other'' and ``Discharges'' assumptions. OACT's estimates for FY 2027 for this proposed rule began with a baseline of $12.901 billion in Medicare DSH expenditures for FY 2023. The following table shows the factors applied to update this baseline through the current estimate for FY 2027: [GRAPHIC] [TIFF OMITTED] TP14AP26.119 [[Page 19484]] In this table, the discharges column shows the changes in the number of Medicare FFS inpatient hospital discharges. The discharge figures for FY 2024 and FY 2025 are based on Medicare claims data that have been adjusted by a completion factor to account for incomplete claims data. The discharge figures for FY 2026 and FY 2027 are assumptions based on recent historical experience and assumptions related to how many beneficiaries will be enrolled in MA plans. The case-mix column shows the estimated change in case-mix for IPPS hospitals. The case-mix figures for FY 2024 and FY 2025 are based on actual claims data adjusted by a completion factor to account for incomplete claims data. The case-mix figure for FY 2026 is the expected transition to the case-mix for FY 2027. The FY 2027 case-mix is based on assumptions from the 2012 ``Review of Assumptions and Methods of the Medicare Trustees' Financial Projections'' report by the 2010-2011 Medicare Technical Review Panel.\100\ --------------------------------------------------------------------------- \100\ https://www.cms.gov/research-statistics-data-and-systems/statistics-trends-and-reports/reportstrustfunds/downloads/technicalpanelreport2010-2011.pdf. --------------------------------------------------------------------------- The ``Other'' column reflects the change in other factors that contribute to the Medicare DSH estimates. These factors include the difference between the total inpatient hospital discharges and IPPS discharges and various adjustments to the payment rates that have been included over the years but are not reflected in the other columns. The following table shows the factors that are included in the ``IPPS Hospital Market Basket Update Factor'' column of the previous table: [GRAPHIC] [TIFF OMITTED] TP14AP26.120 We are inviting public comments on our proposed Factor 1 for FY 2027.

2. Calculation of Proposed Factor 2 for FY 2027

a. Background Section 1886(r)(2)(B) of the Act establishes Factor 2 in the calculation of the uncompensated care payment. Section 1886(r)(2)(B)(ii) of the Act provides that, for FY 2018 and subsequent fiscal years, the second factor is 1 minus the percent change in the percent of individuals who are uninsured, as determined by comparing the percent of individuals who were uninsured in 2013 (as estimated by the Secretary, based on data from the Census Bureau or other sources the Secretary determines appropriate, and certified by the Chief Actuary of CMS) and the percent of individuals who were uninsured in the most recent period for which data are available (as so estimated and certified). We are continuing to use the methodology that was used in fiscal years (FYs) 2018 through 2026 to determine Factor 2 for FY 2027--to use the National Health Expenditure Accounts (NHEA) data to determine the percentage point change in the percent of individuals who are uninsured. We refer readers to the FY 2018 IPPS/LTCH PPS final rule (82 FR 38197 and 38198) for a complete discussion of the NHEA and why we determined, and continue to believe, that it is the data source for the rate of uninsurance that best meets all our considerations and is consistent with the statutory requirement that the estimate of the rate of uninsurance be based on data from the Census Bureau or other sources the Secretary determines appropriate. In brief, the NHEA represents the government's official estimates of economic activity (that is, spending) within the health sector. The NHEA includes comprehensive enrollment estimates for total private health insurance (PHI) (including direct-purchase and employer- sponsored plans), Medicare, Medicaid, the Children's Health Insurance Program (CHIP), and other public programs, and estimates of the number of individuals who are uninsured. The NHEA data are publicly available on the CMS website at https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/index.html. To compute Factor 2 for FY 2027, the first metric that is needed is the proportion of the total U.S. population that was uninsured in 2013. For a complete discussion of the approach OACT used to prepare the NHEA's estimate of the rate of uninsurance in 2013, including the data sources used, we refer readers to the FY 2024 IPPS/LTCH PPS final rule (88 FR 58998-58999). The next metrics needed to compute Factor 2 for FY 2027 are projections of the rate of uninsurance in calendar years (CYs) 2026 and 2027 for the total U.S. population. On an annual basis, OACT projects enrollment and spending trends for the coming 10-year period. The most recent projections are for 2024 through 2033 and were published on June 25, 2025. Those projections used the latest NHEA historical data that were available at the time of their construction (that is, all NHEA historical data through 2023). The NHEA projection methodology accounts for expected changes in enrollment across all of the categories of insurance coverage previously noted. For a complete discussion of how the NHEA data account for expected changes in enrollment across all the categories of insurance coverage previously noted, we refer readers to the FY 2024 IPPS/LTCH PPS final rule (88 FR 58999). b. Proposed Factor 2 for FY 2027 Using these data sources and the previously described methodologies, at the time of developing this proposed rule, OACT has estimated that the uninsured rate for the historical baseline year of 2013 was 14.0 percent, and that the uninsured rates for CYs 2026 and 2027 are projected to be 9.0 and 9.1percent, respectively. As required by section 1886(r)(2)(B)(ii) of the Act, the Chief Actuary of CMS certified these [[Page 19485]] estimates. We refer readers to OACT's Memorandum on Certification of Rates of Uninsured prepared for this proposed rule for further details on the methodology and assumptions that were used in the projection of these rates of uninsurance.\101\ --------------------------------------------------------------------------- \101\ See https://www.cms.gov/files/document/certification-rates-uninsured-2027-proposed-rule.pdf. --------------------------------------------------------------------------- As with the CBO estimates on which we based Factor 2 for fiscal years before FY 2018, the NHEA estimates are for a calendar year. Under the approach originally adopted in the FY 2014 IPPS/LTCH PPS final rule (79 FR 50014), we use a weighted average approach to project the rate of uninsurance for each fiscal year. We continue to believe that, in order to estimate the rate of uninsurance during a fiscal year accurately, Factor 2 should reflect the estimated rate of uninsurance that hospitals will experience during the fiscal year, rather than the rate of uninsurance during only one of the calendar years the fiscal year spans. Accordingly, in this proposed rule, we are continuing to apply the weighted average approach used in past fiscal years to estimate this proposed rule's rate of uninsurance for FY 2027. OACT certified the estimate of the rate of uninsurance for FY 2027 determined using this weighted average approach to be reasonable and appropriate for purposes of section 1886(r)(2)(B)(ii) of the Act.\1\ We note that we may also consider the use of more recent data that may become available before publication of the final rule, for purposes of estimating the rates of uninsurance used in the calculation of the final Factor 2 for FY 2027. The calculation of the proposed Factor 2 for FY 2027 is as follows: Percent of individuals without insurance for CY 2013: 14.0 percent. Percent of individuals without insurance for CY 2026: 9.0 percent. Percent of individuals without insurance for CY 2027: 9.1 percent. Percent of individuals without insurance for FY 2027: (0.25 times 0.090) + (0.75 times 0.091) = 9.1 percent. FY 2027's proposed Factor 2 is calculated as 1 minus the percent change in the percent of individuals without insurance between CY 2013 and FY 2027. Proposed Factor 2 is as follows: 1-[verbar]((0.14-0.091)/ 0.14)[verbar] = 1-0.3500 = 0.6500. We propose that Factor 2 for FY 2027 would be 65.00 percent. The proposed FY 2027 uncompensated care amount is equivalent to proposed Factor 1 multiplied by proposed Factor 2, which is $7,460,212,500. We invite public comments on our proposed Factor 2 for FY 2027.

3. Calculation of Proposed Factor 3 for FY 2027

a. General Background Section 1886(r)(2)(C) of the Act defines Factor 3 in the calculation of the uncompensated care payment. As we have discussed earlier, section 1886(r)(2)(C) of the Act states that Factor 3 is equal to the percent, for each subsection (d) hospital, that represents the quotient of: (1) the amount of uncompensated care for such hospital for a period selected by the Secretary (as estimated by the Secretary, based on appropriate data (including, in the case where the Secretary determines alternative data are available that are a better proxy for the costs of subsection (d) hospitals for treating the uninsured, the use of such alternative data)); and (2) the aggregate amount of uncompensated care for all subsection (d) hospitals that receive a payment under section 1886(r) of the Act for such period (as so estimated, based on such data). Therefore, Factor 3 is a hospital-specific value that expresses the proportion of the estimated uncompensated care amount for each subsection (d) hospital and each subsection (d) Puerto Rico hospital with the potential to receive Medicare DSH payments relative to the estimated uncompensated care amount for all hospitals estimated to receive Medicare DSH payments in the fiscal year for which the uncompensated care payment is to be made. Factor 3 is applied to the product of Factor 1 and Factor 2 to determine the amount of the uncompensated care payment that each eligible hospital will receive for FY 2014 and subsequent fiscal years. To implement the statutory requirements for this factor of the uncompensated care payment formula, it was necessary for us to determine: (1) the definition of uncompensated care or, in other words, the specific items that are to be included in the numerator (the estimated uncompensated care amount for an individual hospital) and the denominator (the estimated uncompensated care amount for all hospitals estimated to receive Medicare DSH payments in the applicable fiscal year); (2) the data source(s) for the estimated uncompensated care amount; and (3) the timing and manner of computing the quotient for each hospital estimated to receive Medicare DSH payments. The statute instructs the Secretary to estimate the amounts of uncompensated care for a period based on appropriate data. In addition, the statute permits the Secretary to use alternative data in the case where the Secretary determines that such alternative data are available that are a better proxy for the costs of subsection (d) hospitals for treating individuals who are uninsured. For a discussion of the methodology, we used to calculate Factor 3 for fiscal years (FYs) 2014 through 2022, we refer readers to the FY 2024 IPPS/LTCH final rule (88 FR 59001 and 59002). b. Background on the Methodology Used To Calculate Factor 3 for FY 2024 and Subsequent Years Section 1886(r)(2)(C) of the Act governs the selection of the data to be used in calculating Factor 3 and allows the Secretary the discretion to determine the time periods from which we derive the data to estimate the numerator and the denominator of the Factor 3 quotient. Specifically, section 1886(r)(2)(C)(i) of the Act defines the numerator of the quotient as the amount of uncompensated care for a subsection (d) hospital for a period selected by the Secretary. Section 1886(r)(2)(C)(ii) of the Act defines the denominator as the aggregate amount of uncompensated care for all subsection (d) hospitals that receive a payment under section 1886(r) of the Act for such period. In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50634 through 50647), we adopted a process of making interim payments with final cost report settlement for both the empirically justified Medicare DSH payments and the uncompensated care payments required by section 3133 of the Affordable Care Act. Consistent with that process, we also determined the time period from which to calculate the numerator and denominator of the Factor 3 quotient in a way that would be consistent with making interim and final payments. Specifically, we must have Factor 3 values available for hospitals that we estimate will qualify for Medicare DSH payments for a fiscal year and for those hospitals that we do not estimate will qualify for Medicare DSH payments for that fiscal year but that may ultimately qualify for Medicare DSH payments for that fiscal year at the time of cost report settlement. As described in the FY 2022 IPPS/LTCH PPS final rule, commenters expressed concerns that the use of only 1 year of data to determine Factor 3 would lead to significant variations in year-to-year uncompensated care payments. Some stakeholders recommended the use of 2 years of [[Page 19486]] historical data from Worksheet S-10 data of the Medicare cost report (86 FR 45237). In the FY 2022 IPPS/LTCH PPS final rule, we stated that we would consider using multiple years of data when the vast majority of providers had been audited for more than 1 fiscal year under the revised reporting instructions. Audited FY 2020 cost reports were available for the development of the FY 2024 IPPS/LTCH PPS proposed and final rules. Feedback from previous audits and lessons learned were incorporated into the audit process for the FY 2020 reports. In consideration of the comments discussed in the FY 2022 IPPS/LTCH PPS final rule, in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49036 through 49047), we finalized a policy of using a multi-year average of audited Worksheet S-10 data to determine Factor 3 for FY 2023 and subsequent fiscal years. We explained our belief that this approach would be generally consistent with our past practice of using the most recent single year of audited data from the Worksheet S-10, while also addressing commenters' concerns regarding year-to-year fluctuations in uncompensated care payments. Under this policy, we used a 2-year average of audited FYs 2018 and 2019 Worksheet S-10 data to calculate Factor 3 for FY 2023. We also indicated that we expected FY 2024 would be the first year that 3 years of audited data would be available at the time of rulemaking. For FY 2024 and subsequent fiscal years, we finalized a policy of using a 3-year average of the uncompensated care data from the 3 most recent fiscal years for which audited data are available to determine Factor 3. Consistent with the approach that we followed when multiple years of data were previously used in the Factor 3 methodology, if a hospital does not have data for all 3 years used in the Factor 3 calculation, we will determine Factor 3 based on an average of the hospital's available data. For IHS and Tribal hospitals and Puerto Rico hospitals, we use the same multi-year average of Worksheet S-10 data to determine Factor 3 for FY 2024 and subsequent fiscal years as is used to determine Factor 3 for all other DSH- eligible hospitals (in other words, hospitals eligible to receive empirically justified Medicare DSH payments for a fiscal year) to determine Factor 3. In the FY 2023 IPPS/LTCH PPS final rule (87 FR 49033 through 49047), we also modified our policy regarding cost reports that start in one fiscal year and span the entirety of the following fiscal year. Specifically, in the rare cases when we use a cost report that starts in one fiscal year and spans the entirety of the subsequent fiscal year to determine uncompensated care costs for the subsequent fiscal year, we would not use the same cost report to determine the hospital's uncompensated care costs for the earlier fiscal year. We explained that using the same cost report to determine uncompensated care costs for both fiscal years would not be consistent with our intent to smooth year-to-year variation in uncompensated care costs. As an alternative, we finalized our proposal to use the hospital's most recent prior cost report, if that cost report spans the applicable period.\102\ --------------------------------------------------------------------------- \102\ For example, in determining Factor 3 for FY 2023, we did not use the same cost report to determine a hospital's uncompensated care costs for both FY 2018 and FY 2019. Rather, we used the cost report that spanned the entirety of FY 2019 to determine uncompensated care costs for FY 2019 and used the hospital's most recent prior cost report to determine its uncompensated care costs for FY 2018, provided that cost report spanned some portion of FY 2018. --------------------------------------------------------------------------- (1) Scaling Factor In the FY 2025 IPPS/LTCH PPS final rule (89 FR 69323), we continued the policy finalized in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49042) to address the effects of calculating Factor 3 using data from multiple fiscal years, in which we apply a scaling factor to the Factor 3 values calculated for all DSH-eligible hospitals so that total uncompensated care payments to hospitals that are projected to be DSH- eligible for a fiscal year will be consistent with the estimated amount available to make uncompensated care payments for that fiscal year. Pursuant to that policy, we divide 1 (the expected sum of all DSH- eligible hospitals' Factor 3 values) by the actual sum of all DSH- eligible hospitals' Factor 3 values and then multiply the quotient by the uncompensated care payment determined for each DSH-eligible hospital to obtain a scaled uncompensated care payment amount for each hospital. This process is designed to ensure that the sum of the scaled uncompensated care payments for all hospitals that are projected to be DSH-eligible is consistent with the estimate of the total amount available to make uncompensated care payments for the applicable fiscal year. (2) New Hospital Policy In the FY 2025 IPPS/LTCH PPS final rule (89 FR 69323), we continued our new hospital policy that was modified in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49042) and initially adopted in the FY 2020 IPPS/LTCH PPS final rule (84 FR 42370 through 42371) to determine Factor 3 for new hospitals. Consistent with our policy of using multiple years of cost reports to determine Factor 3, we defined new hospitals as hospitals that do not have cost report data for the most recent year of data being used in the Factor 3 calculation. Under this definition, the cut-off date for the new hospital policy is the beginning of the fiscal year after the most recent year for which audits of the Worksheet S-10 data have been conducted. For FY 2027, the FY 2023 cost reports are the most recent year of cost reports for which audits of Worksheet S-10 data have been conducted. Thus, hospitals with CMS Certification Numbers (CCNs) established on or after October 1, 2023, would be subject to the new hospital policy for FY 2027. Under our modified new hospital policy, if a new hospital has a preliminary projection of being DSH-eligible based on its most recent available disproportionate patient percentage, it may receive interim empirically justified DSH payments. However, new hospitals will not receive interim uncompensated care payments because we would have no uncompensated care data on which to determine what those interim payments should be. The MAC will make a final determination concerning whether the hospital is eligible to receive Medicare DSH payments at cost report settlement. In FY 2025, while we continued to determine the numerator of the Factor 3 calculation using the new hospital's uncompensated care costs reported on Worksheet S-10 of the hospital's cost report for the current fiscal year, we determined Factor 3 for new hospitals using a denominator based solely on uncompensated care costs from cost reports for the most recent fiscal year for which audits have been conducted. In addition, we applied a scaling factor to the Factor 3 calculation for a new hospital.\103\ --------------------------------------------------------------------------- \103\ In the FY 2023 IPPS/LTCH PPS final rule (87 FR 49042), we explained our belief that applying the scaling factor is appropriate for purposes of calculating Factor 3 for all hospitals, including new hospitals and hospitals that are treated as new hospitals, to improve consistency and predictability across all hospitals. --------------------------------------------------------------------------- (3) Newly Merged Hospital Policy In the FY 2025 IPPS/LTCH PPS final rule (89 FR 690323 through 690324), we continued our policy of treating hospitals that merge after the development of the final rule for the applicable fiscal year similar to new hospitals. As explained in the FY 2015 IPPS/LTCH PPS final rule (79 FR 50021), for these newly merged [[Page 19487]] hospitals, we do not have data currently available to calculate a Factor 3 amount that accounts for the merged hospital's uncompensated care burden. In the FY 2015 IPPS/LTCH PPS final rule (79 FR 50021 and 50022), we finalized a policy under which Factor 3 for hospitals that we do not identify as undergoing a merger until after the public comment period and additional review period following the publication of the final rule or that undergo a merger during the fiscal year will be recalculated similar to new hospitals. Consistent with the policy adopted in the FY 2015 IPPS/LTCH PPS final rule, in the FY 2025 IPPS/LTCH PPS final rule (89 FR 690323 through 690324), we stated that we would continue to treat newly merged hospitals in a similar manner to new hospitals, such that the newly merged hospital's final uncompensated care payment will be determined at cost report settlement where the numerator of the newly merged hospital's Factor 3 will be based on the cost report of only the surviving hospital (that is, the newly merged hospital's cost report) for the current fiscal year. However, if the hospital's cost reporting period includes less than 12 months of data, the data from the newly merged hospital's cost report will be annualized for purposes of the Factor 3 calculation. Consistent with the methodology used to determine Factor 3 for new hospitals described in section IV.E.3. of the preamble of this proposed rule, we continued our policy for determining Factor 3 for newly merged hospitals using a denominator that is the sum of the uncompensated care costs for all DSH-eligible hospitals, as reported on Worksheet S-10 of their cost reports for the most recent fiscal year for which audits have been conducted. In addition, we apply a scaling factor, as discussed in section IV.E.3. of the preamble of this proposed rule, to the Factor 3 calculation for a newly merged hospital. In the FY 2025 IPPS/LTCH PPS final rule, we explained that consistent with past policy, interim uncompensated care payments for the newly merged hospital would be based only on the data for the surviving hospital's CCN available at the time of the development of the final rule. (4) CCR Trim Methodology The calculation of a hospital's total uncompensated care costs on Worksheet S-10 requires the use of the hospital's cost to charge ratio (CCR). In the FY 2025 IPPS/LTCH PPS final rule (89 FR 69324), we continued the policy of trimming CCRs, which we adopted in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49043), for FY 2025. Under this policy, we apply the following steps to determine the applicable CCR separately for each fiscal year that is included as part of the multi-year average used to determine Factor 3: Step 1: Remove Maryland hospitals. In addition, we will remove all- inclusive rate providers because their CCRs are not comparable to the CCRs calculated for other IPPS hospitals. Step 2: Calculate a CCR ``ceiling'' for the applicable fiscal year with the following data: for each IPPS hospital that was not removed in Step 1 (including hospitals that are not DSH-eligible), we use cost report data to calculate a CCR by dividing the total costs on Worksheet C, Part I, Line 202, Column 3 by the charges reported on Worksheet C, Part I, Line 202, Column 8. (Combining data from multiple cost reports from the same fiscal year is not necessary, as the longer cost report will be selected.) The ceiling is calculated as 3 standard deviations above the national geometric mean CCR for the applicable fiscal year. This approach is consistent with the methodology for calculating the CCR ceiling used for high-cost outliers. Remove all hospitals that exceed the ceiling so that these aberrant CCRs do not skew the calculation of the statewide average CCR. Step 3: Using the CCRs for the remaining hospitals in Step 2, determine the urban and rural statewide average CCRs for the applicable fiscal year for hospitals within each State (including hospitals that are not DSH-eligible), weighted by the sum of total hospital discharges from Worksheet S-3, Part I, Line 14, Column 15. Step 4: Assign the appropriate statewide average CCR (urban or rural) calculated in Step 3 to all hospitals, excluding all-inclusive rate providers, with a CCR for the applicable fiscal year greater than 3 standard deviations above the national geometric mean for that fiscal year (that is, the CCR ``ceiling''). Step 5: For hospitals that did not report a CCR on Worksheet S-10, Line 1, we assign them the statewide average CCR for the applicable fiscal year as determined in step 3. After completing these steps, we re-calculate the hospital's uncompensated care costs (Line 30) for the applicable fiscal year using the trimmed CCR (the statewide average CCR (urban or rural, as applicable)). (5) Uncompensated Care Data Trim Methodology After applying the CCR trim methodology, there are rare situations where a hospital has potentially aberrant uncompensated care data for a fiscal year that are unrelated to its CCR. Therefore, under the trim methodology for potentially aberrant uncompensated care costs (UCC) that was included as part of the methodology for purposes of determining Factor 3 in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58832), if the hospital's uncompensated care costs for any fiscal year that is included as a part of the multi-year average are an extremely high ratio (greater than 50 percent) of its total operating costs in the applicable fiscal year, we will determine the ratio of uncompensated care costs to the hospital's total operating costs from another available cost report, and apply that ratio to the total operating expenses for the potentially aberrant fiscal year to determine an adjusted amount of uncompensated care costs for the applicable fiscal year.\104\ --------------------------------------------------------------------------- \104\ For example, if a hospital's FY 2018 cost report is determined to include potentially aberrant data, data from its FY 2019 cost report would be used for the ratio calculation. --------------------------------------------------------------------------- However, we note that we have audited the Worksheet S-10 data that will be used in the Factor 3 calculation for a number of hospitals. Because the UCC data for these hospitals have been subject to audit, we believe that there is increased confidence that if high uncompensated care costs are reported by these audited hospitals, the information is accurate. Therefore, as we explained in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58832), we determined it is unnecessary to apply the UCC trim methodology for a fiscal year for which a hospital's UCC data have been audited. In rare cases, hospitals that are not currently projected to be DSH-eligible and that do not have audited Worksheet S-10 data may have a potentially aberrant amount of insured patients' charity care costs (line 23 column 2). In the FY 2025 IPPS/LTCH PPS final rule (89 FR 69324 through 69325), we stated that in addition to the UCC trim methodology, we will continue to apply an alternative trim specific to certain hospitals that do not have audited Worksheet S-10 data for one or more of the fiscal years that are used in the Factor 3 calculation. For FY 2023 and subsequent fiscal years, in the rare case that a hospital's insured patients' charity care costs for a fiscal year are greater than $7 million and the ratio of the hospital's cost of insured patient charity care (line 23 column 2) to total uncompensated care costs (line 30) is greater than 60 percent, we will not calculate a Factor 3 for the hospital at the time of proposed or final rulemaking. This trim will only impact hospitals that are not currently [[Page 19488]] projected to be DSH-eligible; and therefore, are not part of the calculation of the denominator of Factor 3, which includes only uncompensated care costs for hospitals projected to be DSH-eligible. Consistent with the approach adopted in the FY 2022 IPPS/LTCH PPS final rule, if a hospital would be trimmed under both the UCC trim methodology and this alternative trim, we apply this trim in place of the existing UCC trim methodology. We continue to believe this alternative trim more appropriately addresses potentially aberrant insured patient charity care costs compared to the UCC trim methodology, because the UCC trim is based solely on the ratio of total uncompensated care costs to total operating costs and does not consider the level of insured patients' charity care costs. Similar to the approach initially adopted in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45245 and 45246), in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69324), we also stated that we would continue to use a threshold of 3 standard deviations from the mean ratio of insured patients' charity care costs to total uncompensated care costs (line 23 column 2 divided by line 30) and a dollar threshold that is the median total uncompensated care cost reported on most recent audited cost reports for hospitals that are projected to be DSH-eligible. We stated that we continued to believe these thresholds are appropriate to address potentially aberrant data. We also continued to include Worksheet S-10 data from IHS/Tribal hospitals and Puerto Rico hospitals consistent with our policy finalized in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49047 through 49051). In addition, we continued our policy adopted in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49044) of applying the same threshold amounts originally calculated for the FY 2019 reports to identify potentially aberrant data for FY 2025 and subsequent fiscal years to facilitate transparency and predictability. If a hospital subject to this trim is determined to be DSH-eligible at cost report settlement, the MAC will calculate the hospital's Factor 3 using the same methodology used to calculate Factor 3 for new hospitals. c. Methodology for Calculating Factor 3 for FY 2027 For FY 2027, consistent with Sec. 412.106(g)(1)(iii)(C)(11), we are following the same methodology as applied in FY 2024 and described in the previous section of the preamble of this proposed rule, to determine Factor 3 using the most recent 3 years of audited cost reports, from FYs 2021, 2022, and 2023. Consistent with our approach for FY 2025, for FY 2027, we are also applying the scaling factor, new hospital, newly merged hospital, CCR trim methodology, UCC trim, and alternative trim methodology policies discussed in the previous section of the preamble of this proposed rule. For purposes of this proposed rule, we are using reports from the December 2025 HCRIS extract to calculate Factor 3. We intend to use the March 2026 update of HCRIS to calculate the final Factor 3 for the FY 2027 IPPS/LTCH PPS final rule. Thus, for FY 2027, we will use 3 years of audited Worksheet S-10 Part 1 data to calculate Factor 3 for all eligible hospitals, including IHS and Tribal hospitals and Puerto Rico hospitals that have a cost report for 2013, following steps. We note that these steps use Worksheet S-10, Part I, rather than Worksheet S-10, Part II, to calculate Factor 3. Step 1: Select the hospital's longest cost report for each of the most recent 3 years of FY audited cost reports (FYs 2021, 2022, and 2023). Alternatively, in the rare case when the hospital has no cost report for a particular year because the cost report for the previous fiscal year spanned the more recent fiscal year, the previous fiscal year cost report will be used in this step. In the rare case that using a previous fiscal year cost report results in a period without a report, we would use the prior year report, if that cost report spanned the applicable period.\105\ In general, we note that, for purposes of the Factor 3 methodology, references to a fiscal year cost report are to the cost report that spans the relevant fiscal year. --------------------------------------------------------------------------- \105\ For example, if a hospital does not have a FY 2021 cost report because the hospital's FY 2020 cost report spanned the FY 2021 time period, we will use the FY 2020 cost report that spanned the FY 2021 time period for this step. Using the same example, where the hospital's FY 2020 report is used for the FY 2021 time period, we will use the hospital's FY 2019 report if it spans some of the FY 2020 time period. We will not use the same cost report for both the FY 2021 and the FY 2020 time periods. --------------------------------------------------------------------------- Step 2: Annualize the UCC from Worksheet S-10, Part I, Line 30, if a cost report is more than or less than 12 months. (If applicable, use the statewide average CCR (urban or rural) to calculate uncompensated care costs.) Step 3: Combine adjusted and/or annualized uncompensated care costs for hospitals that merged using the merger policy. Step 4: Calculate Factor 3 for all DSH-eligible hospitals using annualized uncompensated care costs (Worksheet S-10, Part I, Line 30) based on cost report data from the most recent 3 years of audited cost reports (from Step 1, 2 or 3). New hospitals and other hospitals that are treated as if they are new hospitals for purposes of Factor 3 are excluded from this calculation. Step 5: Average the Factor 3 values from Step 4; that is, add the Factor 3 values, and divide that amount by the number of cost reporting periods with data to compute an average Factor 3 for the hospital. Multiply by a scaling factor, as discussed in the previous section of the preamble of this proposed rule. As we explained previously in this section, for FY 2027, we are also applying the scaling factor, new hospital, newly merged hospital, CCR trim methodology, UCC trim, and alternative trim methodology policies discussed in the previous section of the preamble of this proposed rule. For a hospital that is subject to either of the trims for potentially aberrant data (the UCC trim and alternative trim methodology explained in the previous section of the preamble of this proposed rule) and is ultimately determined to be DSH-eligible at cost report settlement, its uncompensated care payment will be calculated only after the hospital's reporting of insured charity care costs on its FY 2027 Worksheet S-10 has been reviewed. Accordingly, the MAC will calculate a Factor 3 for the hospital only after reviewing the uncompensated care information reported on Worksheet S-10 of the hospital's FY 2027 cost report. Then we will calculate Factor 3 for the hospital using the same methodology used to determine Factor 3 for new hospitals. Specifically, the numerator will reflect the uncompensated care costs reported on the hospital's FY 2027 cost report, while the denominator will reflect the sum of the uncompensated care costs reported on Worksheet S-10 of the FY 2023 cost reports of all DSH- eligible hospitals. In addition, we will apply a scaling factor, as discussed previously, to the Factor 3 calculation for the hospital. Under the CCR trim methodology, for purposes of this FY 2027 IPPS/ LTCH proposed rule, the statewide average CCR was applied to 12 hospitals' FY 2021 reports, of which 6 hospitals had FY 2021 Worksheet S-10 data. The statewide average CCR was applied to 10 hospitals' FY 2022 reports, of which 4 hospitals had FY 2022 Worksheet S-10 data. The statewide average CCR was applied to 12 hospitals' FY 2023 reports, of which 7 hospitals had FY 2023 Worksheet S-10 data. For purposes of the FY 2027 IPPS/LTCH PPS final rule, consistent with our Factor 3 methodology since the FY 2014 IPPS/LTCH PPS final rule (78 FR [[Page 19489]] 50642), we intend to use data from the March 2026 HCRIS extract for this calculation, which would be the latest quarterly HCRIS extract that is publicly available at the time of the development of the FY 2027 IPPS/LTCH PPS final rule. Regarding requests from providers to amend and/or reopen previously audited Worksheet S-10 data for the most recent 3 cost reporting years that are used in the methodology for calculating Factor 3, we note that MACs follow normal timelines and procedures. For purposes of the Factor 3 calculation for the FY 2027 IPPS/LTCH PPS final rule, any amended reports and/or reopened reports would need to have completed the amended report and/or reopened report submission processes by the end of March 2026. In other words, if the amended report and/or reopened report is not available for the March HCRIS extract, then that amended and/or reopened report data would not be part of the FY 2027 IPPS/LTCH PPS final rule's Factor 3 calculation. We note that the March HCRIS data extract will be available during the comment period for this proposed rule if providers wanted to verify that their amended and/or reopened data is reflected in the March HCRIS extract. d. Per-Discharge Amount of Interim Uncompensated Care Payments for FY 2027 Since FY 2014, we have made interim uncompensated care payments during the fiscal year on a per-discharge basis. Typically, we use a 3- year average of the number of discharges for a hospital to produce an estimate of the amount of the hospital's uncompensated care payment per discharge. Specifically, the hospital's total uncompensated care payment amount for the applicable fiscal year is divided by the hospital's historical 3-year average of discharges computed using the most recent available data to determine the uncompensated care payment per discharge for that fiscal year. As discussed in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69328 and 69329), we finalized a policy to use a 3-year average of the most recent years of available historical discharge data to calculate a per- discharge payment amount that would be used to make interim uncompensated care payments to each projected DSH-eligible hospital during FY 2027 and subsequent fiscal years, codified at 42 CFR 412.106(i)(1). We are applying this policy for FY 2027. Interim uncompensated care payments made to a hospital during the fiscal year are reconciled following the end of the year to ensure that the final payment amount is consistent with the hospital's prospectively determined uncompensated care payment for the fiscal year. As we explained in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69329 through 69330), we also finalized a voluntary process in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58833 and 58834), through which a hospital may submit a request to its MAC for a lower per-discharge interim uncompensated care payment amount, including a reduction to zero, once before the beginning of the fiscal year and/or once during the fiscal year. In conjunction with this request, the hospital must provide supporting documentation demonstrating that there would likely be a significant recoupment at cost report settlement if the per- discharge amount is not lowered (for example, recoupment of 10 percent or more of the hospital's total uncompensated care payment, or at least $100,000). For example, a hospital might submit documentation showing a large projected increase in discharges during the fiscal year to support reduction of its per-discharge uncompensated care payment amount. As another example, a hospital might request that its per- discharge uncompensated care payment amount be reduced to zero midyear if the hospital's interim uncompensated care payments during the year have already surpassed the total uncompensated care payment calculated for the hospital. Under the policy we finalized in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58833 through 58834), the hospital's MAC will evaluate these requests and the supporting documentation before the beginning of the fiscal year and/or with midyear requests when the historical average number of discharges is lower than the hospital's projected discharges for the current fiscal year. If, following review of the request and the supporting documentation, the MAC agrees that there likely would be significant recoupment of the hospital's interim Medicare uncompensated care payments at cost report settlement, the only change that will be made is to lower the per-discharge amount either to the amount requested by the hospital or another amount determined by the MAC to be appropriate to reduce the likelihood of a substantial recoupment at cost report settlement. If the MAC determines it would be appropriate to reduce the interim Medicare uncompensated care payment per-discharge amount, that updated amount will be used for purposes of the outlier payment calculation for the remainder of the fiscal year. We are continuing to apply this policy for FY 2027. We refer readers to the Addendum in the FY 2023 IPPS/LTCH final rule for a more detailed discussion of the steps for determining the operating and capital Federal payment rate and the outlier payment calculation (87 FR 49431 through 49432). No change would be made to the total uncompensated care payment amount determined for the hospital on the basis of its Factor 3. In other words, any change to the per-discharge uncompensated care payment amount will not change how the total uncompensated care payment amount will be reconciled at cost report settlement. e. Process for Notifying CMS of Merger Updates and To Report Upload Issues As we have done for every proposed and final rule beginning in FY 2014, in conjunction with this proposed rule, we will publish on the CMS website a table listing Factor 3 for hospitals that we estimate will receive empirically justified Medicare DSH payments in FY 2027 (that is, those hospitals that will receive interim uncompensated care payments during the fiscal year), and for the remaining subsection (d) hospitals and subsection (d) Puerto Rico hospitals that have the potential of receiving an uncompensated care payment in the event that they receive an empirically justified Medicare DSH payment for the fiscal year as determined at cost report settlement. However, we note that a Factor 3 will not be published for new hospitals and hospitals that are subject to the alternative trim for hospitals with potentially aberrant data that are not projected to be DSH-eligible. We will also publish a supplemental data file containing a list of the mergers that we are aware of and the computed uncompensated care payment for each merged hospital. In the DSH uncompensated care supplemental data file, we list new hospitals and the 17 hospitals that would be subject to the alternative trim for hospitals with potentially aberrant data that are not projected to be DSH-eligible, with a N/A in the Factor 3 column. Hospitals have 60 days from the date of public display of this FY 2027 IPPS/LTCH PPS proposed rule in the Federal Register to review the table and supplemental data file published on the CMS website in conjunction with this proposed rule and to notify CMS in writing of issues related to mergers and/or to report potential upload discrepancies due to MAC mishandling of Worksheet S-10 data during the [[Page 19490]] report submission process.\106\ Comments raising issues or concerns that are specific to the information included in the table and supplemental data file should be submitted by email to the CMS inbox at [email protected]. We will address comments related to mergers and/or reporting upload discrepancies submitted to the CMS DSH inbox as appropriate in the table and the supplemental data file that we publish on the CMS website in conjunction with the publication of the FY 2027 IPPS/LTCH PPS final rule. All other comments submitted in response to our proposals for FY 2027 must be submitted in one of the three ways found in the ADDRESSES section of this proposed rule before the close of the comment period in order to be assured consideration. In addition, we note that the CMS DSH inbox is not intended for Worksheet S-10 audit process related emails, which should be directed to the MACs. --------------------------------------------------------------------------- \106\ For example, if the report does not reflect audit results due to MAC mishandling, or the most recent report differs from a previously accepted, amended report due to MAC mishandling. --------------------------------------------------------------------------- We invite public comments on all the previously described proposals for Factor 3 for FY 2027.

A. Proposed Changes to MS-DRGs Subject to Postacute Care Transfer

Policy and MS-DRG Special Payments Policies (Sec. 412.4)

1. Background

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

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

deemed a ``qualified discharge'' if the individual was discharged to one of the following postacute care settings: A hospital or hospital unit that is not a subsection (d) hospital. A skilled nursing facility. Related home health services provided by a home health agency provided within a timeframe established by the Secretary (beginning within 3 days after the date of discharge). Section 53109 of the Bipartisan Budget Act of 2018 amended section 1886(d)(5)(J)(ii) of the Act to also include discharges to hospice care provided by a hospice program as a qualified discharge, effective for discharges occurring on or after October 1, 2018. In the FY 2019 IPPS/ LTCH PPS final rule (83 FR 41394), we made conforming amendments to Sec. 412.4(c) of the regulation to include discharges to hospice care occurring on or after October 1, 2018, as qualified discharges. We specified that hospital bills with a Patient Discharge Status code of 50 (Discharged/Transferred to Hospice--Routine or Continuous Home Care) or 51 (Discharged/Transferred to Hospice, General Inpatient Care or Inpatient Respite) are subject to the postacute care transfer policy in accordance with this statutory amendment. 2. Proposed Changes for FY 2027 As discussed in the preamble of this proposed rule, based on our analysis of FY 2025 MedPAR claims data, CMS proposed to make changes to a number of MS-DRGs, effective for FY 2027. Specifically, we are proposing the following changes: Reassigning an ICD-10-PCS code describing the insertion of an endocardiac pacing electrode to MS-DRGs 228-229, deleting MS-DRGs 258, 259, 260, 261 and 262, and creating proposed new MS-DRGs 210 and 211 (Cardiac Pacemaker Revision or Device Replacement with MCC and without MCC, respectively). [[Page 19491]] Reassigning the ICD-10-PCS codes describing extensive spinal fusions, fusions performed with a custom-made anatomically designed interbody fusion device and fusion of the sacroiliac joints using an internal fixation device with tulip connector from MS-DRGs 402, 426-428, 447-448, 450-451, and 456-458 to proposed new MS-DRGs 523, 524, and 525 (Extensive or Complex Spinal Fusion Procedures Except Cervical with MCC, with CC, and without CC/MCC, respectively). Redesignating an ICD-10-PCS code describing introduction of an antibiotic-eluting bone void filler from non-O.R. to non-O.R. affecting the MS-DRG assignment for MS-DRGs 463, 474, 477, 480, 492, 616, and 628. Deleting MS-DRGs 485-487, and creating proposed new MS-DRG 400 (Knee Procedures with Principal Diagnosis of Infection). Deleting MS-DRGs 466-468, and creating proposed new MS-DRG 449 (Revision of Hip or Knee Replacement). Creating proposed new MS-DRG 403 (Hip or Knee Procedures with Principal Diagnosis of Periprosthetic Joint Infection with MCC or Insertion of Antibiotic-eluting Bone Void Filler) and proposed new MS- DRG 404 (Hip or Knee Procedures with Principal Diagnosis of Periprosthetic Joint Infection without MCC). Deleting MS-DRGs 736, 737, 738, 739, 740 and 741 and creating proposed new MS-DRGs 731, 732, and 733 for uterine and adnexa procedures for female reproductive system malignancies. Deleting MS-DRG 264 (Other Circulatory System O.R. Procedures) and creating proposed new MS-DRGs 361 and 362 (Other Circulatory System O.R. Procedures with and without MCC, respectively). Adding ICD-10-PCS procedure codes describing the introduction of pancreatic islet cells to a new ``Islet Cell Transplant Procedures'' logic list in Pre-MDC MS-DRGs 008, 010, and 019. When proposing changes to MS-DRGs that involve adding, deleting, and reassigning procedure or diagnosis codes between proposed new and revised MS-DRGs, we continue to believe it is necessary to evaluate the affected MS-DRGs to determine whether they should be subject to the postacute care transfer policy. Considering the proposed changes to the MS-DRGs for FY 2027, according to the regulations under Sec. 412.4(d), we evaluated the proposed new MS-DRGs using the general postacute care transfer policy criteria and data from the FY 2025 MedPAR file. We continue to believe it is appropriate to assess new MS-DRGs and reassess revised MS-DRGs when proposing reassignment of procedure codes or diagnosis codes that would result in material changes to an MS-DRG. We evaluated any current MS-DRG if we estimate that more than 5 percent of the current cases would shift from the current assigned MS-DRGs to proposed new MS-DRGs, or to a current MS-DRG from a proposed revised or deleted MS-DRG. For existing MS-DRG 426 (Multiple Level Combined Anterior and Posterior Spinal Fusion Except Cervical with MCC or Custom-Made Anatomically Designed Interbody Fusion Device), MS-DRG 427 (Multiple Level Combined Anterior and Posterior Spinal Fusion Except Cervical with CC), and MS-DRG 428 (Multiple Level Combined Anterior and Posterior Spinal Fusion Except Cervical without CC/MCC)) and MS-DRGs 456, 457, and 458 (Spinal Fusion Except Cervical with Spinal Curvature, Malignancy, Infection or Extensive Fusions with MCC, with CC, and without CC/MCC, respectively) we determined that more than 5 percent of the current cases would shift from the current assigned MS-DRGs to proposed new MS-DRGs 523, 524, and 525. For existing MS-DRGs 463, 464, and 465 (Wound Debridement and Skin Graft Except Hand for Musculoskeletal and Connective Tissue Disorders with MCC with CC, and without CC/MCC, respectively) and MS-DRGS 474, 475, and 476 (Amputation for Musculoskeletal System and Connective Tissue Disorders with MCC, with CC, and without CC/MCC, respectively) we determined that more than 5 percent of the current cases would shift from the current assigned MS-DRGs to proposed new MS-DRGs 403 and 404. For existing MS-DRGs 616, 617, and 618 (Amputation of Lower Limb for Endocrine, Nutritional and Metabolic Disorders with MCC, with CC, and without CC/MCC, respectively) we determined that more than 5 percent of the current cases would shift from the current assigned MS-DRGs to MS-DRGs 622, 623, and 624 (Skin Grafts and Wound Debridement for Endocrine, Nutritional and Metabolic Disorders with MCC, with CC, and without CC/ MCC, respectively). We note that for all other proposed changes, the relative volume of cases shifting to or from current MS-DRGs does not exceed the 5 percent threshold. If an MS-DRG qualified for the postacute care transfer policy, we also evaluated that MS-DRG under the special payment methodology criteria according to regulations at Sec. 412.4(f)(6). We note that proposed new and revised MS-DRGs 210, 361, 362, 400, 403, 404, 426, 457, 463, 464, 474, 475, 523, 524, 616, and 617 would qualify to be included on the list of MS-DRGs that are subject to the postacute care transfer policy. As described in the regulations at Sec. 42 CFR 412.4(d)(3)(ii)(D), MS-DRGs that share the same base MS- DRG will all qualify under the MS-DRG postacute care transfer payment policy if any one of the MS-DRGs that share that same base MS-DRG qualifies. We therefore are proposing to add new or revised MS-DRGs 210, 211, 361, 362, 400, 403, 404, 456, 457, 458, 523, 524, and 525 to the list of MS-DRGs that are subject to the postacute care transfer policy. We note that MS-DRGs 426, 427, 428, 463, 464, 465, 474, 475, 476, 616, 617, and 618 are currently subject to the postacute care transfer policy. As a result of our review, these MS-DRGs, as proposed to be revised, would continue to qualify to be included on the list of MS-DRGs that are subject to the postacute care transfer policy. Using the December 2025 update of the FY 2025 MedPAR file, we have developed the following table which sets forth the most recent analysis of the postacute care transfer policy criteria completed for this proposed rule with respect to each of these proposed new or revised MS- DRGs. For the FY 2027 final rule, we intend to update this analysis using the most recent available data at that time. BILLING CODE 4120-01-P [[Page 19492]] [GRAPHIC] [TIFF OMITTED] TP14AP26.121 [[Page 19493]] [GRAPHIC] [TIFF OMITTED] TP14AP26.122 During our annual review of proposed new or revised MS-DRGs and analysis of the December 2025 update of the FY 2026 MedPAR file, we reviewed the list of proposed revised or new MS-DRGs that qualify to be included on the list of [[Page 19494]] MS-DRGs subject to the postacute care transfer policy for FY 2027 to determine if any of these MS-DRGs would also be subject to the special payment methodology policy for FY 2027. Based on our analysis of the proposed changes to the MS-DRGs included in the proposed rule, we determined that proposed new or revised MS-DRGs 362, 400, 404, 426, 457, 463, 617 met the criteria for the MS-DRG special payment methodology. As described in the regulations at Sec. 412.4(f)(6)(iv), MS-DRGs that share the same base MS-DRG will all qualify under the MS-DRG special payment policy if any one of the MS-DRGs that share that same base MS-DRG qualifies. Therefore, we are proposing that proposed new and revised MS-DRGs 361, 362, 400, 403, 404, 456, 457, 458, 463, 464, 465, 616, 617, 618 would be subject to the MS-DRG special payment methodology, effective for FY 2027. We note that MS-DRGs 426, 427, and 428 are currently subject to the special payment methodology. As a result of our review, these MS-DRGs, as proposed to be revised, would continue to qualify to be included on the list of MS-DRGs that are subject to the special payment methodology. For the FY 2027 final rule, we intend to update this analysis using the most recent available data at that time. [[Page 19495]] [GRAPHIC] [TIFF OMITTED] TP14AP26.123 [[Page 19496]] BILLING CODE 4120-01-C

1. Proposed FY 2027 Inpatient Hospital Update

In accordance with section 1886(b)(3)(B)(i) of the Act, each year we update the national standardized amount for inpatient hospital operating costs by a factor called the ``applicable percentage increase.'' For FY 2027, we are setting the applicable percentage increase by applying the adjustments listed in this section in the same sequence as we did for FY 2026. (We note that section 1886(b)(3)(B)(xii) of the Act required an additional reduction each year only for FYs 2010 through 2019.) Specifically, consistent with section 1886(b)(3)(B) of the Act, as amended by sections 3401(a) and 10319(a) of the Affordable Care Act, we are setting the applicable percentage increase by applying the following adjustments in the following sequence. The applicable percentage increase under the IPPS for FY 2027 is equal to the rate-of-increase in the hospital market basket for IPPS hospitals in all areas, subject to all of the following: A reduction of one-quarter of the applicable percentage increase (prior to the application of other statutory adjustments; also referred to as the market basket update or rate-of-increase (with no adjustments)) for hospitals that fail to submit quality information under rules established by the Secretary in accordance with section 1886(b)(3)(B)(viii) of the Act. A reduction of three-quarters of the applicable percentage increase (prior to the application of other statutory adjustments; also referred to as the market basket update or rate-of-increase (with no adjustments)) for hospitals not considered to be meaningful EHR users in accordance with section 1886(b)(3)(B)(ix) of the Act. An adjustment based on changes in economy-wide multifactor productivity (the productivity adjustment) in accordance with section 1886(b)(3)(B)(xi)(II) of the Act. Section 1886(b)(3)(B)(xi) of the Act, as added by section 3401(a) of the Affordable Care Act, states that application of the productivity adjustment may result in the applicable percentage increase being less than zero. As published in the FY 2006 IPPS final rule (70 FR 47403), in accordance with section 404 of Public Law 108-173, CMS determined a new frequency for rebasing the hospital market basket of every 4 years. In compliance with section 404 of Public Law 108-173, in the FY 2026 IPPS/ LTCH PPS final rule (90 FR 36859 through 36866), we replaced the 2018 based IPPS operating and capital market baskets with the rebased and revised 2023-based IPPS operating and capital market baskets beginning in FY 2026. Consistent with our established frequency of rebasing the IPPS market basket every 4 years, we plan on proposing to rebase and revise the IPPS market in the FY 2030 IPPS/LTCH PPS proposed rule. We are proposing to base the FY 2027 market basket update used to determine the applicable percentage increase for the IPPS on IHS Global Inc.'s (IGI's) fourth quarter 2025 forecast of the 2023-based IPPS market basket rate-of-increase with historical data through third quarter 2025, which is estimated to be 3.2 percent. We are also proposing that if more recent data subsequently become available (for example, a more recent estimate of the market basket update), we would use such data, if appropriate, to determine the FY 2027 market basket update in the final rule. In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51689 through 51692), we finalized our methodology for calculating and applying the productivity adjustment. As we explained in that rule, section 1886(b)(3)(B)(xi)(II) of the Act, as added by section 3401(a) of the Affordable Care Act, defines this productivity adjustment as equal to the 10-year moving average of changes in annual economy-wide, private nonfarm business multifactor productivity (as projected by the Secretary for the 10-year period ending with the applicable fiscal year, calendar year, cost reporting period, or other annual period). The U.S. Department of Labor's Bureau of Labor Statistics (BLS) publishes the official measures of productivity for the U.S. economy. The productivity measure referenced in section 1886(b)(3)(B)(xi)(II) of the Act is published by BLS as private nonfarm business total factor productivity ((TFP) previously referred to as multifactor productivity).\107\ Please see https://www.bls.gov/productivity/ for the BLS historical published TFP data. A complete description of IGI's TFP projection methodology is available on the CMS website at https://www.cms.gov/data-research/statistics-trends-and-reports/medicare-program-rates-statistics/market-basket-research-and-information. --------------------------------------------------------------------------- \107\ https://www.bls.gov/productivity/notices/2021/mfp-to-tfp-term-change.htm. --------------------------------------------------------------------------- For FY 2027, we are proposing a productivity adjustment of 0.8 percent. Similar to the proposed market basket rate-of-increase, for this proposed rule, the estimate of the proposed FY 2027 productivity adjustment is based on IGI's fourth quarter 2025 forecast. As noted previously, we are proposing that if more recent data subsequently become available, we would use such data, if appropriate, to determine the FY 2027 productivity adjustment for the final rule. Based on these data, we have determined four proposed applicable percentage increases to the standardized amount for FY 2027, as specified in the following table: [GRAPHIC] [TIFF OMITTED] TP14AP26.124 [[Page 19497]] In the FY 2020 IPPS/LTCH PPS final rule (84 FR 42344), we revised our regulations at 42 CFR 412.64(d) to reflect the current law for the update for FY 2020 and subsequent fiscal years. Specifically, in accordance with section 1886(b)(3)(B) of the Act, we added paragraph (d)(1)(viii) to Sec. 412.64 to set forth the applicable percentage increase to the operating standardized amount for FY 2020 and subsequent fiscal years as the percentage increase in the market basket index, subject to the reductions specified under Sec. 412.64(d)(2) for a hospital that does not submit quality data and Sec. 412.64(d)(3) for a hospital that is not a meaningful EHR user, reduced by a productivity adjustment. Section 1886(b)(3)(B)(iv) of the Act provides that the applicable percentage increase to the hospital-specific rates for SCHs and MDHs equals the applicable percentage increase set forth in section 1886(b)(3)(B)(i) of the Act (that is, the same update factor as for all other hospitals subject to the IPPS). Therefore, the update to the hospital-specific rates for SCHs and MDHs is also subject to section 1886(b)(3)(B)(i) of the Act, as amended by sections 3401(a) and 10319(a) of the Affordable Care Act. As discussed in section V.F. of the preamble of this proposed rule, section 6202 of the Consolidated Appropriations Act, 2026 (Pub. L. 119- 75) extended the MDH program for FY 2027 discharges occurring before January 1, 2027. Therefore, under current law, the MDH program will expire for discharges on or after January 1, 2027. We refer readers to section V.F. of the preamble of this proposed rule for further discussion of the MDH program. For FY 2027, we are proposing the following updates to the hospital-specific rates applicable to SCHs and MDHs: A proposed update of 2.4 percent for a hospital that submits quality data and is a meaningful EHR user (as defined in section 1886(n) of the Act); a proposed update of 0.0 percent for a hospital that submits quality data and is not a meaningful EHR user; a proposed update of 1.6 percent for a hospital that fails to submit quality data and is a meaningful EHR user; and a proposed update of -0.8 percent for a hospital that fails to submit quality data and is not an meaningful EHR user. As previously discussed, we are proposing that if more recent data subsequently become available (for example, a more recent estimate of the market basket update and the productivity adjustment), we would use such data, if appropriate, to determine the market basket update and the productivity adjustment in the final rule.

2. Proposed FY 2027 Puerto Rico Hospital Update

Section 602 of Public Law 114-113 amended section 1886(n)(6)(B) of the Act to specify that subsection (d) Puerto Rico hospitals are eligible for incentive payments for the meaningful use of certified EHR technology, effective beginning FY 2016. In addition, section 1886(n)(6)(B) of the Act was amended to specify that the adjustments to the applicable percentage increase under section 1886(b)(3)(B)(ix) of the Act apply to subsection (d) Puerto Rico hospitals that are not meaningful EHR users, effective beginning FY 2022. Accordingly, for FY 2022, section 1886(b)(3)(B)(ix) of the Act in conjunction with section 602(d) of Public Law 114-113 requires that any subsection (d) Puerto Rico hospital that is not a meaningful EHR user as defined in section 1886(n)(3) of the Act and not subject to an exception under section 1886(b)(3)(B)(ix) of the Act will have ``three-quarters'' of the applicable percentage increase (prior to the application of other statutory adjustments), or three-quarters of the applicable market basket rate-of-increase, reduced by 33\1/3\ percent. The reduction to three-quarters of the applicable percentage increase for subsection (d) Puerto Rico hospitals that are not meaningful EHR users increases to 66\2/3\ percent for FY 2023, and, for FY 2024 and subsequent fiscal years, to 100 percent. (We note that section 1886(b)(3)(B)(viii) of the Act, which specifies the adjustment to the applicable percentage increase for ``subsection (d)'' hospitals that do not submit quality data under the rules established by the Secretary, is not applicable to hospitals located in Puerto Rico.) The regulations at 42 CFR 412.64(d)(3)(ii) reflect the current law for the update for subsection (d) Puerto Rico hospitals for FY 2022 and subsequent fiscal years. In the FY 2019 IPPS/LTCH PPS final rule, we finalized the payment reductions (83 FR 41674). For FY 2027, consistent with section 1886(b)(3)(B) of the Act, as amended by section 602 of Public Law 114-113, we are setting the applicable percentage increase for Puerto Rico hospitals by applying the following adjustments in the following sequence. Specifically, the applicable percentage increase under the IPPS for Puerto Rico hospitals will be equal to the rate of-increase in the hospital market basket for IPPS hospitals in all areas, subject to a reduction of three-quarters of the applicable percentage increase (prior to the application of other statutory adjustments; also referred to as the market basket update or rate-of-increase (with no adjustments)) for Puerto Rico hospitals not considered to be meaningful EHR users in accordance with section 1886(b)(3)(B)(ix) of the Act, and then subject to the productivity adjustment at section 1886(b)(3)(B)(xi) of the Act. As noted previously, section 1886(b)(3)(B)(xi) of the Act states that application of the productivity adjustment may result in the applicable percentage increase being less than zero. Based on IGI's fourth quarter 2025 forecast of the 2023-based IPPS market basket update with historical data through third quarter 2025, for this FY 2027 IPPS/LTCH PPS proposed rule, in accordance with section 1886(b)(3)(B) of the Act, as discussed previously, for Puerto Rico hospitals we are proposing a market basket update of 3.2 percent reduced by a productivity adjustment of 0.8 percentage point. Therefore, for FY 2027, depending on whether a Puerto Rico hospital is a meaningful EHR user, there are two possible applicable percentage increases that could be applied to the standardized amount. Based on these data, we determined the following proposed applicable percentage increases to the standardized amount for FY 2027 for Puerto Rico hospitals: For a Puerto Rico hospital that is a meaningful EHR user, we are proposing a FY 2027 applicable percentage increase to the operating standardized amount of 2.4 percent (that is, the FY 2027 estimate of the proposed market basket rate-of-increase of 3.2 percent, less 0.8 percentage point for the proposed productivity adjustment). For a Puerto Rico hospital that is not a meaningful EHR user, we are proposing a FY 2027 applicable percentage increase to the operating standardized amount of 0.0 percent (that is, the FY 2027 estimate of the proposed market basket rate-of-increase of 3.2 percent, less 2.4 percentage points (the proposed market basket rate-of-increase of 3.2 percent x 0.75 for failure to be a meaningful EHR user), and less 0.8 percentage point for the proposed productivity adjustment). As noted previously, we are proposing that if more recent data subsequently become available, we would use such data, if appropriate, to determine the FY 2027 market basket update and the productivity adjustment for the FY 2027 IPPS/LTCH PPS final rule. [[Page 19498]] [GRAPHIC] [TIFF OMITTED] TP14AP26.125

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

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

1. Case-Mix Index (CMI)

Section 412.96(c)(1) provides that CMS establish updated national and regional CMI values in each year's annual notice of prospective payment rates for purposes of determining RRC status. The methodology we used to determine the national and regional CMI values is set forth in the regulations at 42 CFR 412.96(c)(1)(ii). The proposed national median CMI value for FY 2027 is based on the CMI values of all urban hospitals nationwide, and the proposed regional median CMI values for FY 2027 are based on the CMI values of all urban hospitals within each census region, excluding those hospitals with approved teaching programs (that is, those hospitals that train residents in an approved GME program as provided in 42 CFR 413.75). These proposed values are based on discharges occurring during FY 2025 (October 1, 2024, through September 30, 2025), and include bills posted to CMS' records through December 2025. We believe that this is the best available data for use in calculating the proposed national and regional median CMI values and is consistent with our proposal to use the FY 2025 MedPAR claims data for FY 2027 ratesetting. In this FY 2027 IPPS/LTCH PPS proposed rule, we are proposing that, in addition to meeting other criteria, if rural hospitals with fewer than 275 beds are to qualify for initial RRC status for cost reporting periods beginning on or after October 1, 2026, they must have a CMI value for FY 2025 that is at least-- 1.7783 (national--all urban); or The median CMI value (not transfer-adjusted) for urban hospitals (excluding hospitals with approved teaching programs as identified in 42 CFR 413.75) calculated by CMS for the census region in which the hospital is located. The proposed median CMI values by region are set forth in the following table. We intend to update the proposed CMI values in the FY 2027 IPPS/LTCH PPS final rule to reflect the updated FY 2025 MedPAR file, which contains data from additional bills received through March 2026. [[Page 19499]] [GRAPHIC] [TIFF OMITTED] TP14AP26.126 A hospital seeking to qualify as an RRC should obtain its hospital- specific CMI value (not transfer-adjusted) from its MAC. Data are available on the Provider Statistical and Reimbursement (PS&R) System. In keeping with our policy on discharges, the CMI values are computed based on all Medicare patient discharges subject to the IPPS MS-DRG- based payment.

2. Discharges

Section 412.96(c)(2)(i) provides that CMS set forth the national and regional numbers of discharges criteria in each year's annual notice of prospective payment rates for purposes of determining RRC status. As specified in section 1886(d)(5)(C)(ii) of the Act, the national standard is set at 5,000 discharges. For FY 2027, we are proposing to update the regional standards based on discharges for urban hospitals' cost reporting periods that began during FY 2024 (that is, October 1, 2023, through September 30, 2024), which are the latest cost report data available at the time this proposed rule was developed. We believe that this is the best available data for use in calculating the proposed median number of discharges by region and is consistent with our data proposal to use cost report data from cost reporting periods beginning during FY 2024 for FY 2027 ratesetting. Therefore, we are proposing that, in addition to meeting other criteria, a hospital, if it is to qualify for initial RRC status for cost reporting periods beginning on or after October 1, 2026, must have, as the number of discharges for its cost reporting period that began during FY 2024, at least-- 5,000 (3,000 for an osteopathic hospital); or If less, the median number of discharges for urban hospitals in the census region in which the hospital is located. We refer readers to the proposed number of discharges as set forth in the following table. We intend to update these numbers in the FY 2027 final rule based on the latest available cost report data. [GRAPHIC] [TIFF OMITTED] TP14AP26.127 We note that because the median number of discharges for hospitals in each census region is greater than the national standard of 5,000 discharges, under this proposed rule, 5,000 discharges is the minimum criterion for all hospitals, except for osteopathic hospitals for which the minimum criterion is 3,000 discharges.

1. Background

Section 1886(d)(12) of the Act provides for an additional payment to each qualifying low-volume hospital under the IPPS beginning in FY 2005. The low-volume hospital payment adjustment is implemented in the regulations at 42 CFR 412.101. The additional payment adjustment to a low-volume hospital provided for under section 1886(d)(12) of the Act is in addition to any payment calculated under section 1886 of the Act and is based on the per discharge amount paid to the qualifying hospital. In other words, the low-volume hospital payment adjustment is based on total per discharge payments made under section 1886 of the Act, including capital, DSH, IME, and outlier payments. For SCHs and MDHs, the low-volume hospital payment adjustment is based in part on either the Federal rate or the hospital-specific rate, whichever results in a greater operating IPPS payment. The payment adjustment for low-volume hospitals is not budget neutral. As discussed in the FY 2026 IPPS/LTCH PPS final rule (90 FR 36908 through 36912), section 2201 of the Full-Year Continuing Appropriations and Extensions Act, 2025 (Pub. L. 119-4) extended the temporary changes to the low-volume hospital qualifying criteria and payment adjustment under the IPPS, that is, the modified definition of low-volume hospital and the methodology for calculating the payment adjustment for low- volume hospitals under section 1886(d)(12), through September 30, 2025. The Continuing Appropriations, Agriculture, Legislative Branch, Military Construction and Veterans Affairs, and Extensions Act, 2026 (Pub. L. 119-37), enacted on November 12, 2025, provided an extension of those temporary changes to the qualifying criteria and payment adjustment methodology for certain low-volume [[Page 19500]] hospitals through January 30, 2026. Most recently, the Consolidated Appropriations Act, 2026 (Pub. L. 119-75), provided an extension of those temporary changes to the qualifying criteria and payment adjustment methodology for certain low-volume hospitals through FY 2026 and the portion of fiscal year 2027 beginning on October 1, 2026, and ending on December 31, 2026. Absent further Congressional action, beginning January 1, 2027 the low-volume hospital qualifying criteria and payment adjustment revert to the statutory requirements that were in effect prior to FY 2011, and the preexisting low-volume hospital payment adjustment methodology and qualifying criteria, as implemented in FY 2005 and discussed later in this section, resume. We discuss the payment policies for FY 2027 in sections V.D.2 and V.D.3. of the preamble of this proposed rule. [GRAPHIC] [TIFF OMITTED] TP14AP26.128

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

Definition and Payment Adjustment Methodology and Conforming Changes to Regulations As discussed previously, section 2201 of the Full-Year Continuing Appropriations and Extensions Act, 2025, extended the temporary changes to the low-volume hospital qualifying criteria and payment adjustment through September 30, 2025. Section 6201 of the Continuing Appropriations, Agriculture, Legislative Branch, Military Construction and Veterans Affairs, and Extensions Act, 2026 further extended the temporary changes to the low-volume hospital qualifying criteria and payment adjustment under the IPPS for the portion of FY 2026 beginning on October 1, 2025, and ending on January 30, 2026. Most recently, section 6201 of the Consolidated Appropriations Act, 2026 extended the temporary changes to the low-volume hospital qualifying criteria and payment adjustment through FY 2026 and the portion of fiscal year 2027 beginning on October 1, 2026, and ending on December 31, 2026. We note the extension provided by the Continuing Appropriations, Agriculture, Legislative Branch, Military Construction and Veterans Affairs, and Extensions Act, 2026 was addressed in Change Request 14341 (Transmittal 13564) and the extension provided by the Consolidated Appropriations Act, 2026 was addressed in Change Request 14415 (Transmittal 13703), issued March 26, 2026. For additional information, please refer to the transmittal R13564OTN and R13703OTN. Under section 1886(d)(12)(C)(i) of the Act, as amended by the Consolidated Appropriations Act, 2026, for FYs 2019 through FY 2026 and the portion of FY 2027 beginning on October 1, 2026 and ending on December 31, 2026, a subsection (d) hospital qualifies as a low-volume hospital if it is more than 15 road miles from another subsection (d) hospital and has less than 3,800 total discharges during the fiscal year. In accordance with the existing regulations at Sec. 412.101(a), we define the term ``road miles'' to mean ``miles'' as defined at Sec. 412.92(c)(1). Under section 1886(d)(12)(D) of the Act, as amended, for discharges occurring in FYs 2019 through 2026 and the portion of FY 2027 beginning on October 1, 2026 and ending on December 31, 2026, the Secretary determines the applicable percentage increase using a continuous, linear sliding scale ranging from an additional 25 percent payment adjustment for low-volume hospitals with 500 or fewer discharges to a zero percent additional payment for low volume hospitals with more than 3,800 discharges in the fiscal year. Consistent with the requirements of section 1886(d)(12)(C)(ii) of the Act, the term ``discharge'' for purposes of these provisions refers to total discharges, regardless of payer (that is, Medicare and non- Medicare discharges). In the FY 2019 IPPS/LTCH PPS final rule (83 FR 41399), we specified a continuous, linear sliding scale formula to determine the low volume payment adjustment, as reflected in the regulations at Sec. 412.101(c)(3)(ii). Consistent with the statute, we provided that qualifying hospitals with 500 or fewer total discharges will receive a low-volume hospital payment adjustment of 25 percent. For qualifying hospitals with fewer than 3,800 discharges but more than 500 discharges, the low-volume payment adjustment is calculated by subtracting from 25 percent the proportion of payments associated with the discharges in excess of 500. For qualifying hospitals with fewer than 3,800 total discharges but more than 500 total discharges, the low-volume hospital payment adjustment is calculated using the formula at Sec. 412.101(c)(3)(ii) (which is shown in the Table V.D.-01). For this purpose, the term ``discharge'' refers to total discharges, regardless of payer (that is, Medicare and non-Medicare discharges). The hospital's most recently submitted cost report is used to determine if the hospital meets the discharge criterion to receive the low volume payment adjustment in the current year (Sec. 412.101(b)(2)(iii)). The low-volume hospital payment adjustment for FYs 2019 through 2025 is set forth in the current regulations at Sec. 412.101(c)(3). In this proposed rule, we propose to make conforming changes to the regulation text in Sec. 412.101 to reflect the extension of the changes to the qualifying criteria and the payment adjustment methodology for low-volume hospitals in accordance with provisions of the Consolidated Appropriations Act, 2026. Specifically, we propose to make conforming changes to paragraphs (b)(2)(iii) and (c)(3) introductory text of Sec. 412.101 to reflect that the low-volume hospital payment adjustment policy in effect through FY 2026 and the portion of fiscal year 2027 beginning on October 1, 2026, and ending on December 31, 2026 is the same low-volume hospital payment adjustment policy in effect for FYs 2019 through 2025 (as described in the FY 2019 IPPS/LTCH PPS final rule (83 FR 41398 through 41399) and in the FY 2026 IPPS/LTCH PPS final rule (90 FR [[Page 19501]] 36908 through 36912)). In addition, in accordance with the provisions of the Consolidated Appropriations Act, 2026, we are proposing to make conforming changes to paragraphs (b)(2)(i) and (c)(1) of Sec. 412.101 to reflect that beginning with the portion of fiscal year 2027 beginning on January 1, 2027, and ending on September 30, 2027, and for fiscal year 2028 and subsequent fiscal years, the low-volume hospital payment adjustment policy reverts back to the low-volume hospital payment adjustment policy in effect for FYs 2005 through 2010, as described in section V.D.3. of the preamble of this proposed rule. We further propose that if the temporary changes to the low-volume payment adjustment are extended through legislation beyond December 31, 2026, we would make the conforming changes to the regulations at Sec. 412.101(b)(2)(i) and (iii) and (c)(1) and (3) to reflect any further extension.

3. Payment Adjustment for the Portion of FY 2027 Beginning on January

1, 2027 and Subsequent Fiscal Years In accordance with section 1886(d)(12) of the Act, as amended by the Consolidated Appropriations Act, 2026, beginning with FY 2027 discharges occurring on or after January 1, 2027 the low-volume hospital definition and payment adjustment methodology revert to the statutory requirements that were in effect prior to the amendments made by the Affordable Care Act and subsequent legislation. Specifically, section 1886(d)(12)(B) of the Act requires, for discharges occurring in FYs 2005 through 2010 and for discharges occurring during the portion of FY 2027 beginning on or after January 1, 2027, and subsequent fiscal years, that the Secretary determine an applicable percentage increase for these low-volume hospitals based on the ``empirical relationship'' between the standardized cost-per-case for such hospitals and the total number of discharges of such hospitals and the amount of the additional incremental costs (if any) that are associated with such number of discharges. The statute thus mandates that the Secretary develop an empirically justifiable adjustment based on the relationship between costs and discharges for these low-volume hospitals. Therefore, absent further Congressional action, effective for the portion of FY 2027 beginning on January 1, 2027, and ending on September 30, 2027, and for FY 2028 and subsequent fiscal years, under current policy at Sec. 412.101(b), to qualify as a low-volume hospital, a subsection (d) hospital must be more than 25 road miles from another subsection (d) hospital and have less than 200 discharges (that is, less than 200 discharges total, including both Medicare and non-Medicare discharges) during the fiscal year. For the portion of FY 2027 beginning on January 1, 2027 and for subsequent fiscal years, the statute specifies that a low-volume hospital must have less than 800 discharges during the fiscal year. However, as required by section 1886(d)(12)(B)(i) of the Act, the Secretary has developed an empirically justifiable payment adjustment based on the relationship, for IPPS hospitals with less than 800 discharges, between the additional incremental costs (if any) that are associated with a particular number of discharges. Based on an analysis we conducted for the FY 2005 IPPS final rule (69 FR 49099 through 49102), a 25 percent low-volume adjustment to all qualifying hospitals with less than 200 discharges was found to be most consistent with the statutory requirement to provide relief for low-volume hospitals where there is empirical evidence that higher incremental costs are associated with low numbers of total discharges. (Under the policy we established in that same final rule, hospitals with between 200 and 799 discharges do not receive a low-volume hospital adjustment.) As discussed previously, for FYs 2005 through 2010 and FY 2019 and subsequent years, the discharge determination is made based on the hospital's number of total discharges, that is, Medicare and non- Medicare discharges. The hospital's most recently submitted cost report is used to determine if the hospital meets the discharge criterion to receive the low-volume payment adjustment in the current year (Sec. 412.101(b)(2)(i)). We use cost report data to determine if a hospital meets the discharge criterion because this is the best available data source that includes information on both Medicare and non-Medicare discharges. We note that, for FYs 2011 through 2018, we used the most recently available MedPAR data to determine the hospital's Medicare discharges because only Medicare discharges were used to determine if a hospital met the discharge criterion for those years. In addition to the discharge criterion, a hospital must also meet the mileage criterion to qualify for the low-volume payment adjustment. As specified by section 1886(d)(12)(C)(i) of the Act, a low-volume hospital must be more than 25 road miles (or 15 road miles for FYs 2011 through the portion of FY 2027 ending on December 31, 2026) from another subsection (d) hospital. Accordingly, for the portion of FY 2027 beginning on January 1, 2027, and for subsequent fiscal years, in addition to the discharge criterion, the eligibility for the low-volume payment adjustment is also dependent upon the hospital meeting the mileage criterion at Sec. 412.101(b)(2)(i), which specifies that a hospital must be located more than 25 road miles from the nearest subsection (d) hospital, consistent with section 1886(d)(12)(C)(i) of the Act. We define, at Sec. 412.101(a), the term ``road miles'' to mean ``miles'' as defined at Sec. 412.92(c)(1) (75 FR 50238 through 50275 and 50414). As previously noted, we propose to make conforming changes to paragraphs (b)(2)(i) and (c)(1) of Sec. 412.101 to reflect that for the portion of FY 2027 beginning on January 1, 2027, and for subsequent fiscal years, the low-volume hospital payment adjustment policy is the same as that in effect for FYs 2005 through 2010.

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

Adjustment for FY 2027 In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50238 through 50275 and 50414) and subsequent rulemaking, most recently in the FY 2026 IPPS/LTCH PPS final rule (90 FR 36908 through 36912), we discussed the process for requesting and obtaining the low-volume hospital payment adjustment. Under this previously established process, a hospital makes a written request for the low-volume payment adjustment under Sec. 412.101 to its MAC. This request must contain sufficient documentation to establish that the hospital meets the applicable mileage and discharge criteria. The MAC will determine if the hospital qualifies as a low-volume hospital by reviewing the data the hospital submits with its request for low-volume hospital status in addition to other available data. Under this approach, a hospital will know in advance whether or not it will receive a payment adjustment under the low- volume hospital policy. The MAC and CMS may review available data such as the number of discharges, in addition to the data the hospital submits with its request for low-volume hospital status, to determine whether or not the hospital meets the qualifying criteria. (For additional information on our existing process for requesting the low- volume hospital payment adjustment, we refer readers to the FY 2019 IPPS/LTCH PPS final rule (83 FR 41399 through 41401).) [[Page 19502]] As explained earlier, for FY 2019 and subsequent fiscal years, the discharge determination is made based on the hospital's number of total discharges, that is, Medicare and non-Medicare discharges, as was the case for FYs 2005 through 2010. Under Sec. 412.101(b)(2)(i) and (iii), a hospital's most recently submitted cost report is used to determine if the hospital meets the discharge criterion to receive the low-volume payment adjustment in the current year. As discussed in the FY 2019 IPPS/LTCH PPS final rule (83 FR 41399 and 41400), we use cost report data to determine if a hospital meets the discharge criterion because this is the best available data source that includes information on both Medicare and non-Medicare discharges. (For FYs 2011 through 2018, the most recently available MedPAR data were used to determine the hospital's Medicare discharges because non-Medicare discharges were not used to determine if a hospital met the discharge criterion for those years.) Therefore, a hospital must refer to its most recently submitted cost report for total discharges (Medicare and non-Medicare) to decide whether or not to apply for low-volume hospital status for a particular fiscal year. In addition to the discharge criterion, eligibility for the low- volume hospital payment adjustment is also dependent upon the hospital meeting the applicable mileage criterion specified in section 1886(d)(12)(C)(i) of the Act, which is codified at Sec. 412.101(b)(2), for the fiscal year. To meet the mileage criterion to qualify for the low-volume hospital payment adjustment for the portion of FY 2027 beginning October 1, 2026 through December 31, 2026, a hospital must be located more than 15 road miles from the nearest subsection (d) hospital, as reflected in proposed revised Sec. 412.101(b)(2). Additionally, to meet the mileage criterion to qualify for the low- volume hospital payment adjustment for the portion of FY 2027 beginning January 1, 2027 through September 30, 2027, a hospital must be located more than 25 road miles from the nearest subsection (d) hospital. (We define in Sec. 412.101(a) the term ``road miles'' to mean ``miles'' as defined in Sec. 412.92(c)(1) (75 FR 50238 through 50275 and 50414).) For establishing that the hospital meets the mileage criterion, the use of a web-based mapping tool as part of the documentation is acceptable. The MAC will determine if the information submitted by the hospital, such as the name and street address of the nearest hospital(s), location on a map, and distance from the hospital requesting low-volume hospital status, is sufficient to document that it meets the mileage criterion. If not, the MAC will follow up with the hospital to obtain additional necessary information to determine whether or not the hospital meets the applicable mileage criterion. In accordance with our previously established process, a hospital must make a written request for low-volume hospital status that is received by its MAC by September 1 immediately preceding the start of the Federal fiscal year for which the hospital is applying for low- volume hospital status in order for the applicable low-volume hospital payment adjustment to be applied to payments for its discharges for the fiscal year beginning on or after October 1 immediately following the request (that is, the start of the Federal fiscal year). For a hospital whose request for low-volume hospital status is received after September 1, if the MAC determines the hospital meets the criteria to qualify as a low-volume hospital, the MAC will apply the applicable low-volume hospital payment adjustment to determine payment for the hospital's discharges for the fiscal year, effective prospectively within 30 days of the date of the MAC's low-volume status determination. Consistent with this previously established process, for FY 2027, we propose that a hospital must submit a written request for low-volume hospital status to its MAC that includes sufficient documentation to establish that the hospital meets the applicable mileage and discharge criteria (as described earlier). Specifically, for the portion of FY 2027 beginning October 1, 2026 through December 31, 2026, a hospital must make a written request for low-volume hospital status that is received by its MAC no later than September 1, 2026, in order for the low-volume, add-on payment adjustment to be applied to payments for its discharges beginning on or after October 1, 2026. If a hospital's written request for low-volume hospital status for the portion of FY 2027 beginning October 1, 2026 through December 31, 2026 is received after September 1, 2026, and if the MAC determines the hospital meets the criteria to qualify as a low-volume hospital, the MAC would apply the low-volume hospital payment adjustment to determine the payment for the hospital's FY 2027 discharges beginning October 1, 2026 through December 31, 2026, effective prospectively within 30 days of the date of the MAC's low-volume hospital status determination. Additionally, we are proposing that a hospital must also submit a written request for low-volume hospital status to its MAC that includes sufficient documentation to establish that the hospital continues to meet the applicable mileage and discharge criteria for the portion of FY 2027 beginning on January 1, 2027 through September 30, 2027 (as described earlier). Specifically, for the portion of FY 2027 beginning on January 1, 2027, a hospital must make a written request for low- volume hospital status that is received by its MAC no later than December 1, 2026, in order for the 25-percent, low-volume, add-on payment adjustment to be applied to payments for its discharges beginning on or after January 1, 2027. If a hospital's written request for low-volume hospital status for the portion of FY 2027 beginning on January 1, 2027 is received after December 1, 2026, and if the MAC determines the hospital meets the criteria to qualify as a low-volume hospital, the MAC would apply the low-volume hospital payment adjustment to determine the payment for the hospital's FY 2027 discharges on or after January 1, 2027, effective prospectively within 30 days of the date of the MAC's low-volume hospital status determination. A hospital may choose to make a single written request for low- volume hospital status to its MAC for both the portion of FY 2027 beginning on October 1, 2026 and ending December 31, 2026 and the portion of FY 2027 beginning on January 1, 2027 through September 30, 2027 by the September 1, 2026 deadline discussed previously. Alternatively, a hospital may choose to submit separate written requests, one for the portion of FY 2027 beginning on October 1, 2026 and ending on December 31, 2026 (by the September 1, 2026 deadline discussed previously), and another for the portion of FY 2027 beginning on January 1, 2027 through September 30, 2027 (by the December 1, 2026 deadline discussed previously). Under this process, a hospital that qualified for the low-volume hospital payment adjustment for FY 2026 may continue to receive a low- volume hospital payment adjustment for FY 2027 without reapplying if it meets both the discharge criterion and the mileage criterion applicable for FY 2027 (that is, the discharge criterion and mileage criterion for the period beginning October 1, 2026 through December 31, 2026, as well as the discharge criterion and mileage criterion for the period beginning on January 1, 2027 through September 30, 2027, respectively). As discussed previously, for the portion of FY 2027 beginning on January 1, 2027, the discharge and the mileage criteria are reverting to the statutory requirements that were in effect prior to [[Page 19503]] FY 2011, and to the preexisting low-volume hospital qualifying criteria, as implemented in FY 2005 and specified in the existing regulations at Sec. 412.101(b)(2)(i). As in previous years, we are proposing that such a hospital must send written verification that is received by its MAC no later than September 1, 2026 or December 1, 2026, respectively, stating that it meets the mileage criterion for the applicable portion(s) of FY 2027, as described previously. For example, for the portion of FY 2027 beginning October 1, 2026 through December 31, 2026, the hospital must state it is located more than 15 road miles from the nearest ``subsection (d)'' hospital. Similarly, for the portion of FY 2027 beginning on January 1, 2027, the hospital must state it is located more than 25 road miles from the nearest ``subsection (d)'' hospital. For FY 2027, we are further proposing that this written verification must also state, based upon the most recently submitted cost report, that the hospital meets the discharge criterion for the applicable portion(s) of FY 2027, as described previously. For example, for the portion of FY 2027 beginning October 1, 2026 through December 31, 2026, the hospital must have less than 3,800 discharges total, including both Medicare and non-Medicare discharges. Similarly, for the portion of FY 2027 beginning on January 1, 2027, the hospital must have less than 200 discharges total, including both Medicare and non-Medicare discharges. If a hospital's request for low-volume hospital status for FY 2027 is received after September 1, 2026, (or after December 1, 2026 for the portion of FY 2027 beginning on January 1, 2027) and if the MAC determines the hospital meets the criteria to qualify as a low-volume hospital, the MAC will apply the applicable low-volume add-on payment adjustment to determine the payment for the hospital's discharges for the applicable portion of FY 2027, effective prospectively within 30 days of the date of the MAC's low-volume hospital status determination.

1. Background for the MDH Program

Section 1886(d)(5)(G) of the Act provides special non-budget neutral payment protections, under the IPPS, to a Medicare-dependent, small rural hospital (MDH). MDHs are paid for their hospital inpatient services based on the higher of the Federal rate or a blended rate based in part on the Federal rate and in part on the MDH's hospital specific rate. (For additional information on the MDH program and the payment methodology, we refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51683 through 51684).) Under current law, the MDH program provisions at section 1886(d)(5)(G) of the Act will expire for discharges on or after January 1, 2027. Beginning with discharges occurring on or after January 1, 2027, absent further Congressional action, all hospitals that previously qualified for MDH status will be paid based on the Federal rate.

2. Implementation of Legislative Extension of MDH Program

Since the extension of the MDH program through FY 2012 provided by section 3124 of the Affordable Care Act, the MDH program has been extended by subsequent legislation, most recently through December 31, 2026 (that is, for discharges occurring before January 1, 2027), as discussed further in this section. (Additional information on the extensions of the MDH program through FY 2025 can be found in the FY 2026 IPPS/LTCH PPS final rule (90 FR 36912).) As discussed in the FY 2026 IPPS/LTCH PPS final rule, the MDH program provision at section 1886(d)(5)(G) of the Act was set to expire at the end of FY 2025 (90 FR 36913). Subsequently, the MDH program was extended by additional legislation as follows: Section 6202 of the Continuing Appropriations, Agriculture, Legislative Branch, Military Construction and Veterans Affairs, and Extensions Act, 2026 (Pub. L. 119-37), enacted on November 12, 2025, provided for an extension of the MDH program through January 30, 2026. Section 6202 of the Consolidated Appropriations Act, 2026 (Pub. L. 119-75), enacted on February 3, 2026, provided for an extension of the MDH program through December 31, 2026 (that is, for discharges occurring before January 1, 2027). Specifically, section 6202 of Public Law 119-75 amended sections 1886(d)(5)(G)(i) and 1886(d)(5)(G)(ii)(II) of the Act by striking ``January 31, 2026'' and inserting ``January 1, 2027''. Section 6202 of Public Law 119-75 also made conforming amendments to sections 1886(b)(3)(D)(i) and 1886(b)(3)(D)(iv) of the Act. Therefore, we are proposing to make conforming changes to the regulations governing the MDH program at Sec. 412.108(a)(1) and (c)(2)(iii) and the general payment rules at Sec. 412.90(j) to reflect the extension of the MDH program through December 31, 2026. Generally, as a result of these extensions, a provider that was classified as an MDH as of September 30, 2025 may continue to be classified as a MDH as of October 1, 2025, with no need to reapply for MDH classification. (For more information on the MDH extensions through December 31, 2026, see Change Request 14341 (Transmittal 13564), issued December 23, 2025 and Change Request 14415 (Transmittal 13703), issued March 27, 2026, which are available online at https://www.cms.gov/medicare/regulations-guidance/transmittals/2025-transmittals/r13564otn and https://www.cms.gov/medicare/regulations-guidance/transmittals/2026-transmittals/r13703otn.

3. Expiration of the MDH Program

Because section 6202 of the Consolidated Appropriations Act, 2026 extended the MDH program through December 31, 2026 only, beginning January 1, 2027, the MDH program will no longer be in effect. Since the MDH program is not authorized by statute beyond December 31, 2026, absent Congressional action, beginning January 1, 2027, all hospitals that previously qualified for MDH status under section 1886(d)(5)(G) of the Act will no longer have MDH status and will be paid based on the Federal rate. When the MDH program was set to expire at the end of FY 2012, in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53404 through 53405), we revised our sole community hospital (SCH) policies to allow MDHs to apply for SCH status in advance of the expiration of the MDH program and be paid as such under certain conditions. We codified these changes in the regulations at Sec. 412.92(b)(2)(i) and (v). For additional information, we refer readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 53404 through 53405 and 53674). We note that a MDH that classifies as a SCH in anticipation of the MDH program expiration would have to reapply for MDH classification in accordance with the regulations at 42 CFR 412.108(b) and meet the classification criteria at 42 CFR 412.108(a) in the event that the MDH program is further extended, and the provider wishes to return to its classification as a MDH. As noted, we are proposing to make conforming changes to the regulations governing the MDH program at Sec. 412.108(a)(1) and (c)(2)(iii) and the general payment rules at Sec. 412.90(j) to reflect the extension of the MDH program through December 31, 2026. We are further proposing that if the MDH program were to be extended by law beyond December 31, 2026, similar [[Page 19504]] to how it was extended by prior legislation as described previously, we would, depending on timing of such legislation in relation to the final rule, modify our proposed conforming changes to the regulations governing the MDH program at Sec. 412.108(a)(1) and (c)(2)(iii) and the general payment rules at Sec. 412.90(j) to reflect any such further extension of the MDH program. These modifications to our proposed conforming changes would only be made if the MDH program were to be extended by statute beyond December 31, 2026.

F. Payment for Indirect and Direct Graduate Medical Education Costs

(Sec. Sec. 412.105 and 413.75 Through 413.83)

1. Background

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

2. Proposed Requirements To Prohibit Unlawful Discrimination in

Approved Medical Residency Programs Hospitals may receive direct GME and IME payments for residents in ``approved medical residency training programs.'' Section 1886(h)(5)(A) of the Act defines an ``approved medical residency training program'' as ``a residency or other postgraduate medical training program participation in which may be counted toward certification in a specialty or subspecialty and includes formal postgraduate training programs in geriatric medicine approved by the Secretary.'' ``Approved medical residency program'' and equivalent terms are defined in the regulations at Sec. Sec. 412.105(f)(1)(i), 413.75(b), and 415.152. In general, under these regulations, an ``approved'' program is a program accredited by one of several national accrediting bodies or that leads toward board certification by the American Board of Medical Specialties (ABMS). Therefore, to ensure that accreditation for approved medical residency programs is in compliance with applicable laws related to race-based admission policies and to improve the accreditation process, in the CY 2026 OPPS/ASC final rule (90 FR 54024 through 54027), we finalized changes to the regulations at Sec. Sec. 412.105(f)(1)(i), 413.75(b), and 415.152, to state that accrediting organizations may not use accreditation criteria that promote or encourage discrimination on the basis of race, color, national origin, sex, age, disability, or religion, including the use of those characteristics or intentional proxies for those characteristics as a selection criterion for employment, program participation, resource allocation, or similar activities, opportunities, or benefits. We also clarified that prohibited practices under this policy include all other conduct in violation of federal antidiscrimination laws, including any ``unlawful practices'' under the Attorney General's Guidance for Recipients of Federal Funding Regarding Unlawful Discrimination (July 29, 2025). The policy finalized in the CY 2026 OPPS/ASC final rule applied specifically to graduate medical education accrediting bodies. In this proposed rule, we are proposing a similar policy that would apply to approved medical residency programs themselves. Specifically, we are proposing to require that, in addition to meeting other applicable requirements, an approved medical residency training program must not discriminate, or promote or encourage discrimination, on the basis of race, color, national origin, sex, age, disability, or religion, including the use of those characteristics or intentional proxies for those characteristics as a selection criterion for employment, program participation, resource allocation, or similar activities, opportunities, or benefits. We believe such a policy is necessary to ensure that, even in the absence of discriminatory accreditation standards, individual programs do not implement policies that constitute unlawful discrimination under Federal law. The effective date of this proposed policy would be October 1, 2026. In order to streamline the regulations text and ensure consistent application of the requirements to approved medical residency programs and GME accrediting organizations, we are also proposing to consolidate the majority of our existing and proposed non-discrimination requirements under proposed new 42 CFR 413.84. We are proposing to cross-reference this new section as necessary in the regulations at Sec. Sec. 412.105(f)(1)(i), 413.75(b), and 415.152. We further note that we are [[Page 19505]] proposing conforming policies in section V.G.3. of this proposed rule with respect to approved nursing and allied health education programs under 42 CFR 413.85.

3. Proposed Modifications to the Criteria for New Residency Programs

a. Background Section 1886(h)(4)(H)(i) of the Act requires CMS to establish rules for applying the direct GME cap in the case of medical residency training programs established on or after January 1, 1995. Under section 1886(d)(5)(B)(viii) of the Act, this provision also applies for purposes of the IME adjustment. These statutory requirements are implemented in the direct GME regulations at Sec. Sec. 413.79(e)(1) through (3) and the IME regulations at Sec. 412.105(f)(1)(vii), which provide for an FTE cap increase for certain hospitals that begin training residents in a new medical residency training program(s) on or after January 1, 1995, and specify the methodology for determining the permanent cap adjustment. Under these rules, cap adjustments are not provided for expansions of existing programs. Rather, a new urban teaching hospital receives a single five-year cap-building window to start new residency programs and grow those new residency programs, after which point its IME and DGME caps are permanently set. However, a rural teaching hospital may receive a separate cap adjustment each time it starts a new program. CMS originally implemented these policies in the August 29, 1997 Federal Register (62 FR 46005) and in the May 12, 1998 Federal Register (63 FR 26333); the calculation of both the DGME cap and IME cap for new programs is discussed in the August 31, 2012 Federal Register (77 FR 53416). Section 413.79(l) defines a new medical residency training program as ``a medical residency that receives initial accreditation by the appropriate accrediting body or begins training residents on or after January 1, 1995.'' In the August 27, 2009 Federal Register (74 FR 43908 through 43917), CMS clarified the definition of a ``new'' residency program and adopted supporting criteria regarding whether or not a residency program can be considered new for the purpose of determining if a hospital can receive additional direct GME and/or IME cap slots for that program. CMS adopted these criteria in part to prevent situations where a program at an existing teaching hospital might be transferred to a new teaching hospital, resulting in cap slots created for the same program at two different hospitals. Under this policy, in addition to receiving initial accreditation, to be considered a ``new'' program for which new cap adjustments can be established, a residency program must satisfy three primary criteria (74 FR 43912): The program director is new; and The teaching staff are new; and The residents are new. Over the years, we have received questions regarding the application of these criteria, such as whether CMS would still consider a program to be new for cap adjustment purposes if the three criteria are partially, but not fully, satisfied. We have answered such questions by stating that, generally, a residency program's newness would not be compromised as long as the ``overwhelming majority'' of the residents and staff are not coming from previously existing programs in the same specialty. b. The FY 2025 Proposed Rule In the FY 2025 IPPS/LTCH PPS proposed rule (May 2, 2024; 89 FR 36221 through 36224), we noted that the question of what constitutes a ``new'' program eligible to receive additional Medicare-funded GME slots has taken on increasing significance in light of the ability of urban hospitals to reclassify as rural under 42 CFR 412.103 for IME payment purposes and thus to receive additional IME cap slots for any new program started, leading to significant increases in aggregate Medicare IME spending. We stated that, to continue to ensure that new cap slots are created appropriately, we ultimately would like to establish additional criteria through rulemaking for determining program newness. However, we indicated that we were not yet certain about some of the criteria that should be proposed. Accordingly, we issued a proposal regarding the threshold for determining whether the ``overwhelming majority'' of residents in a program are new and solicited public input on other topics via a Request for Information (RFI) (89 FR 36222). With regard to the newness of residents, we proposed that, in order for a residency program to be considered new, at least 90 percent of the individual resident trainees (not FTEs) must not have previous training in the same specialty as the new program. If more than 10 percent of the trainees (not FTEs) transferred from another program at a different hospital/sponsor in the same specialty, even during their first year of training, we proposed that this would render the program as a whole (but not the entire hospital or its other new programs, if applicable) ineligible for new cap slots. In addition, we stated that there may be certain challenges that are unique to small or rural-based programs in developing new residencies, and that meeting the proposed threshold of 90 percent of resident trainees with no previous training experience in the specialty may be more difficult for those programs. Accordingly, we solicited comment on what should be considered a ``small'' program and what percentage threshold or other approach regarding new resident trainees should be applied to these programs. We specifically sought comment on defining a small residency program as a program accredited for 16 or fewer resident positions. For further detail regarding our proposal on the newness of residents, we direct readers to the discussion in the FY 2025 proposed rule at 89 FR 36222. As stated previously, in the FY 2025 proposed rule we also issued a Request for Information on other aspects of the policy for determining program newness. In particular, we noted that it would be reasonable for a new residency program to seek to hire some experienced staff members, and we therefore solicited feedback on what an appropriate threshold should be for the percentage of faculty with no previous experience teaching in a program in the same specialty. We also solicited comment on whether it would be appropriate to define a certain period of time (for example, 10 years or 5 years) during which a faculty member or program director must not have been employed by another program in the same specialty in order to be considered ``new.'' Finally, we sought input on two additional scenarios that might have implications for determining the newness of a residency program: the sharing of certain clinical and didactic experiences among residents from different programs, which we referred to as ``commingling''; and situations in which one hospital operates two (or more) programs in the same specialty. For further details regarding the topics on which we solicited public comment, we direct readers to the discussion in the FY 2025 proposed rule at 89 FR 36222 through 36224. c. The FY 2025 Final Rule In the FY 2025 IPPS/LTCH PPS final rule (August 28, 2024; 89 FR 69377 through 69380), we published a summary of the comments we received in response to our proposal that, for a residency program to be considered new, at least 90 percent of the individual resident trainees (not FTEs) must not have previous training in the [[Page 19506]] same specialty as the new program. We explained that, given the lack of consensus on this issue, we would not be finalizing our proposal in that rule. Instead, we initiated another comment solicitation particularly focused on the criterion regarding newness of residents. As part of this request, we asked commenters to consider the broad statutory authority provided to the Secretary in this area, our prior rulemaking on this issue, and all of the public comments on our proposal as summarized in the final rule. In the interest of facilitating consensus, we encouraged commenters to provide feedback on which alternatives to their preferred approach they would consider most acceptable among those suggested by other commenters. We also noted that, in response to our Requests for Information, the vast majority of commenters opposed any restrictions on the hiring of experienced faculty and program directors, as well as on the commingling of residents or sponsorship of multiple programs in the same specialty by a single hospital. d. Summary of Responses to the Second Comment Solicitation We received 14 timely pieces of correspondence to our second comment solicitation on an appropriate standard for determining the newness of residents in a new program, including potential exceptions for small and/or rural programs. In addition, commenters submitted additional feedback on other topics on which we had previously issued Requests for Information, including the hiring of experienced faculty and staff, commingling of residents, and sponsorship of multiple programs in the same specialty by a single hospital. Later in this section, we present a summary of the responses we received and discuss our proposed policy for determining whether a residency program should be considered new for purposes of receiving additional Medicare-funded GME slots. Several commenters continued to urge CMS to define a ``new'' residency program as one that has received initial accreditation from the ACGME and to disregard other factors in determining program newness. However, a majority of commenters (including some who expressed a preference for the initial accreditation criterion) indicated that considering the previous training experience of residents could be an appropriate way for CMS to determine whether a residency program is genuinely new for cap-building purposes. Several commenters also indicated that the 90 percent threshold that we had originally proposed in the FY 2025 IPPS/LTCH PPS proposed rule could be an acceptable standard, while urging CMS to provide exceptions for programs that fall short of the threshold as a result of various extenuating circumstances. (We discuss feedback pertaining specifically to exceptions for small and/or rural programs separately later in the section.) For example, several commenters mentioned that hospitals sometimes need to replace residents who depart from a program for various reasons, including residents accepted via the supplemental match process who subsequently transfer to another residency in their preferred specialty. The commenters recommended that CMS allow programs to replace departing residents with other residents at the same training level, and that these replacements should not count against a program's compliance with the 90 percent threshold. More generally, several commenters stated that the 90 percent requirement should apply only to residents at the Program Year 1 level, while residents recruited at the Program Year 2 level or above should not disqualify a program from consideration as ``new.'' In addition, a number of commenters recommended that CMS allow a program to demonstrate that it would have met the 90 percent threshold were it not for the results of the National Resident Matching Program (the ``Match'') or other GME matching programs. Commenters noted that the results of the Match are binding on hospitals, and that selecting against candidates with prior training experience could violate the Match code of conduct and result in programs being banned from participation in the Match. A few commenters indicated that, for purposes of determining whether a program complies with the minimum new resident threshold, CMS should consider all the individual residents that enter the program during its five-year cap-building period. Additionally, some commenters recommended that CMS conduct interim reviews during the cap-building period to determine whether a new program is on track to meet the requirements and to give providers a chance to make necessary changes before a final newness determination is made. Several commenters also indicated that residents with previous training experience could be excluded from the final cap calculation without disqualifying the program itself from consideration as new. One commenter suggested that, instead of establishing an overall new resident threshold, CMS should only limit the number of residents admitted from the same existing program. In general, commenters reiterated their strong opposition to any restrictions on the hiring of experienced faculty and program directors, stating that such a policy would be harmful to the development of new residency programs. However, some commenters suggested a compromise policy whereby CMS would consider the previous experience of faculty and program director in conjunction with the previous experience of residents. Under this policy, CMS would continue to assess newness primarily on the basis of the proportion of residents with previous experience training in a program in the same specialty, but would conduct an ``enhanced review'' under certain circumstances, as follows: 100 percent new residents: the program qualifies as new, without further review; At least 90 percent but less than 100 percent new residents: the program must demonstrate that residents have not previously trained in an existing residency program in the same specialty with any faculty or with the program director from the new residency program; Less than 90 percent new residents: the program does not qualify as new (subject to exceptions for certain categories of residents, as discussed previously). The commenters stated that this policy would effectively prevent the transfer of existing programs without unduly restricting the ability of programs to hire experienced staff. Other commenters recommended that CMS adopt a ``safe harbor'' policy, whereby a separately accredited program would be considered ``new'' regardless of any potential overlap (in terms of residents, faculty or program director) with an existing program, as long as the existing program remains in operation for at least one year. Commenters argued that the concurrent operation of both programs would make it clear that the new program does not constitute a relocation of the existing program or an inappropriate duplication of the existing program's cap slots. Similarly, one commenter recommended that, instead of considering the previous experience of residents or staff, CMS should only consider whether these individuals are ``solely committed'' to the new program going forward. Commenters agreed that CMS should create exceptions to the new requirements for small and/or rural programs. A majority of commenters also agreed that a ``small'' program [[Page 19507]] should be defined as one that is accredited for 16 or fewer resident positions, although a few commenters indicated that only small programs located in rural or urban underserved areas should qualify for an exception. (We note that one commenter recommended a higher ceiling of 22 resident positions.) The commenters recommended various more lenient newness criteria for programs that would qualify for an exception, with a few commenters recommending that such programs be exempted entirely from the newness requirements. In general, commenters urged CMS to ensure that the new program criteria do not unfairly disadvantage small programs or impede the development of residency programs in rural and/ or urban underserved areas, with a few commenters also voicing particular concern about the effect of potential policies on Rural Track Programs. Finally, commenters generally reiterated their opposition to any restrictions on ``commingling'' of residents or on hospitals sponsoring multiple residency programs in the same specialty. Commenters asserted the educational soundness of shared clinical and didactic experiences and indicated that such arrangements are increasingly required by the ACGME. In addition, commenters provided examples of circumstances under which a hospital might sponsor multiple programs in the same specialty, such as in the wake of a merger of hospitals, or in the case of a hospital that serves a large geographic area. e. Proposal We thank the commenters for their thoughtful feedback in response to the comment solicitation published in the FY 2025 IPPS final rule. While commenters continued to recommend various ways of defining a ``new'' residency program for purposes of establishing FTE caps, we believe there is sufficient consensus on the major issues for us to propose certain modifications to our existing policy. (1) Initial Accreditation First, we acknowledge that a number of commenters continued to urge CMS to define a new residency program as one that has received initial accreditation from the ACGME and to disregard other factors in determining program newness. While we concede that this approach would be simple administratively, we reiterate the concerns that we originally discussed in the August 27, 2009 Federal Register, where we explained that the mission and priorities of CMS differ from those of the accrediting bodies, and that, in determining whether a residency program is genuinely new, it is appropriate for CMS to consider factors in addition to the accrediting body's characterization of that program (see discussion at 74 FR 43909 through 43913). In particular, we emphasize that a primary concern of CMS, not shared by the accrediting bodies, remains the inappropriate duplication of FTE cap slots associated with the relocation of an existing program from one hospital to another. Thus, although the existing regulations at Sec. 413.79(l) refer to initial accreditation as one of the criteria for determining whether a program is genuinely new for cap-building purposes, we continue to believe that we cannot rely solely on the characterization of an accrediting body in making this determination. (2) Proposed Removal of Restrictions on Experienced Faculty and Staff Nevertheless, we are persuaded by commenters' arguments that some of the supporting factors promulgated in the August 27, 2009 Federal Register may be overly restrictive. In particular, we are persuaded by commenters who argued that CMS should not restrict the ability of new residency programs to hire experienced faculty and program directors. After considering the feedback we received in response to our original Requests for Information and our subsequent comment solicitation, we believe that considering the previous training experience of residents (as discussed in more detail later in this section) should provide a sufficient guardrail to ensure that existing programs are not being transferred between hospitals. Thus, we are proposing that, effective for programs started on or after October 1, 2026, we would no longer consider the previous employment of the faculty or program director in determining whether a residency program should be considered genuinely new for cap-building purposes. That is, a hospital would no longer have to demonstrate that the faculty and program director in a new program have not previously been employed in an existing program in the same specialty. We note that programs started on an earlier date that are still within the five-year cap-building period as of October 1, 2026, would continue to be subject to the newness criteria established in the August 27, 2009 Federal Register. (3) Proposed Requirement for New Residents While we are proposing to remove the requirement related to previous employment of the faculty or program director, we do believe it is still appropriate for CMS to consider the previous training experience of residents in determining whether a residency program should be considered genuinely new. As discussed previously in the summary of responses to our second comment solicitation, a majority of commenters indicated that a 90 percent threshold could be an appropriate standard for determining whether the ``overwhelming majority'' of residents in a program are in fact new. Additionally, as discussed in the FY 2025 IPPS proposed rule (89 FR 36222), a 90 percent threshold would be generally consistent with the concept of an ``overwhelming majority,'' and we have precedent for such a threshold in the regulations for section 5506 of the Affordable Care Act, which state that a hospital is considered to have taken over an ``entire'' program from a closed hospital if it can demonstrate that it took in 90 percent or more of the FTE residents in that program. Therefore, we are proposing that, effective for programs started on or after October 1, 2026, in order for a residency program to be considered new, in addition to receiving initial accreditation from the appropriate accrediting body, at least 90 percent of the individual resident trainees (not FTEs) must not have previous training in the same specialty as the new program. Apart from the exceptions, discussed later in this section, for small programs, for certain residents admitted via a binding resident matching program, and for displaced residents counted under the provisions of 42 CFR 413.79(h), this proposal regarding the newness of residents is substantially the same as the policy we had originally proposed in the FY 2025 IPPS/LTCH PPS proposed rule (89 FR 36222). For example, if a hospital establishes a new residency program in internal medicine, then, under our proposal, at least 90 percent of the residents in that program must not have previous training experience in another internal medicine program. If a resident was formally enrolled in another internal medicine program (whether preliminary or categorical), even if that resident switched programs during their first year of training, we would consider that resident to have previous training in the same specialty. By contrast, if an individual previously trained in a specialty other than internal medicine, and that resident switched into the new internal medicine program and began training in that program as a first-year resident, then the resident would not be [[Page 19508]] considered to have previous training in the same specialty, and would be counted as a new resident for purposes of determining compliance with the 90 percent threshold. (Consistent with the definition of ``resident'' at 42 CFR 413.75(b), in the example noted previously we are distinguishing between a resident that was actually accepted, enrolled and participated in an internal medicine residency program from a resident who was not enrolled in an internal medicine program but who may have done a rotation in internal medicine as part of the requirements for a different specialty. Additionally, we note that an individual who enters a subspecialty training program, after having previously completed a residency in the antecedent specialty, would be counted as a new resident--for example, a resident who enters a critical care medicine fellowship after having previously completed a residency program in internal medicine would be counted as a new resident under our proposal.) Under the proposed policy, we would determine whether a program has satisfied the 90 percent threshold by tallying all of the individual residents who enter a program during the five-year cap building period (that is, for new urban teaching hospitals, during the first five program years of the first new program's existence; and for rural hospitals, during the first five program years of each new program). For example, if 50 trainees (not FTEs) enter the program over the course of the five-year cap building period, then at least 45 of the trainees (that is, 90 percent of 50) must enter the program as brand- new first-year residents in that particular specialty. If more than 10 percent of the individual trainees (not FTEs) previously trained in another program in the same specialty, we propose that this would render the program not new and therefore ineligible for an FTE cap adjustment. We would apply standard rounding in instances where the quotient does not equal a whole number, rounding down to the nearest whole number when the remainder is less than 0.5, and rounding up to the nearest whole number when the remainder is greater than or equal to 0.5. For example, if 48 trainees (not FTEs) enter a program over the course of the five-year cap building period, then at least 43 of the trainees (90 percent of 48 = 43.2, which rounds down to 43) must not have previous experience training in a different program in the same specialty. We propose that, after the end of the five-year cap building period, the MAC would review the previous training experience of each individual trainee and determine the newness of the residency program prior to calculating the IME and DGME cap adjustments for the hospital. Consistent with our historical policy, the MAC would not be required to provide an initial assessment of ``newness'' prior to the end of the five-year cap building period. (4) Proposed Exceptions for Certain Categories of Residents As noted previously, we are proposing to create a limited exception to the counting rules for certain residents admitted via the National Resident Matching Program (the Match) or other third-party resident matching programs whose results are binding on hospitals. (Examples of other matching programs that would fall under this provision include the Supplemental Offer and Acceptance Program, the Urology Residency Match Program, and the SF Match for Ophthalmology and Plastic Surgery residency programs.) Based on feedback received from commenters, we understand that the Match and similar programs are generally used to match prospective first-year residents to residency programs in their chosen specialties, and that hospitals do not have the discretion to refuse admission to a resident matched via this process. We also understand that candidates applying through the various matching programs may occasionally have previous experience training in another program in the same specialty--for example, an individual who may have withdrawn from a residency program and is seeking to restart his or her training. While hospitals may rank their preferred candidates, they cannot predict the ultimate complement of first-year residents allocated via the Match or other matching programs. As a result, a hospital that included multiple candidates with previous training experience on its ranked list could be required to accept a mix of residents that would cause it to fall short of our proposed 90 percent requirement. We agree with commenters that in such situations hospitals should not be penalized for the results of the Match or other binding resident matching programs. Accordingly, for purposes of determining compliance with the 90 percent requirement, we are proposing to exclude from the count of trainees any individuals with previous experience training in another program in the same specialty who enter the new program as first-year residents through the National Resident Matching Program or another binding third-party resident matching program. That is, such individuals would be excluded both from the numerator and from the denominator of the calculation used to determine the proportion of new vs. experienced residents. However, assuming that the program otherwise satisfies the proposed 90 percent threshold, the hospital would report such individuals on the new resident lines of the hospital cost report (that is, lines 15 and 15.01 of Worksheet E-4 and line 16 of Worksheet E, Part A) and the individuals would be included in the calculation of the hospital's permanent cap adjustment at the conclusion of the five- year cap-building period. We also propose to exclude from the count of trainees any residents admitted into the new program from another program in the same specialty who meet the definition of a ``displaced resident'' under 42 CFR 413.79(h)(1)(iii). That is, such individuals would be excluded both from the numerator and from the denominator of the calculation used to determine the proportion of new vs. experienced residents. In order to prevent the inappropriate duplication of cap slots associated with a closed program or closed hospital, we propose that displaced residents must not be reported on the new resident lines or included in the hospital's permanent cap adjustment. Instead, such individuals would be reported on the displaced resident lines (lines 16 and 16.01 of Worksheet E-4 and line 17 of Worksheet E, Part A) if the hospital qualifies for a temporary cap adjustment under 42 CFR 413.79(h). Otherwise, the individuals must be reported on the regular FTE lines (line 6 of Worksheet E-4 and line 10 of Worksheet E, Part A), subject to the hospital's existing DGME and IME FTE caps. Furthermore, since rotation schedules, and not cost report entries, are used to identify individual residents training in the new program for the purpose of calculating the permanent cap at the end of the five year cap building period under 42 CFR 413.79(e)(1)(i)(A), the displaced residents listed on the rotation schedule would be excluded from the new program cap calculation. We note that under certain circumstances, if a hospital trains residents displaced by a hospital closure, it may receive priority for receipt of cap slots if it submits an application for a permanent cap adjustment under the provisions of section 5506. For example, suppose that 50 individual trainees (not FTEs) enter a program during the five-year cap-building period, and that 4 of those [[Page 19509]] individuals enter the program as first-year residents via the Match and have previous experience training in another program in the same specialty. Additionally, the program admits 2 residents displaced from a closed program in the same specialty. If all 50 residents were included in the count, then at least 6 out of 50 or 12 percent of the residents in the program would be considered not new, rendering the program as a whole not new under our proposed 90 percent threshold. Under the proposed exceptions, we would exclude from this calculation the 4 first-year residents with previous training experience admitted via the Match, as well as the 2 residents displaced from the closed program. Thus, the hospital would have to demonstrate that at least 90 percent of the remaining 44 residents (that is, 39.6 [ap] 40 residents) do not have previous experience training in another program in the same specialty. During the initial years of the new program, the hospital would report the 4 first-year residents on the new program lines, while it would report the 2 displaced residents on the displaced resident lines or the regular FTE lines, as applicable. At the conclusion of the cap-building period, the calculation of the hospital's permanent cap adjustment would include the 4 first-year residents admitted via the Match and exclude the 2 residents displaced from the closed program. (5) Proposed Exception for Small Programs In addition, we are proposing to create an exception to the 90 percent requirement for small residency programs. We propose to define a ``small'' program as one that is accredited for 16 or fewer resident (or fellow) positions, regardless of whether the program is located in an urban or a rural area. Based on the feedback we received from commenters, we believe that small programs, in particular, are at the greatest risk of failing to meet the 90 percent threshold for reasons beyond their control. Accordingly, we are proposing to exempt small residency programs, as defined previously, from the requirement that at least 90 percent of the residents who enter the program during the five-year cap-building period must not have previous experience training in another program in the same specialty. We are not proposing any minimum proportion of new residents that a small program must achieve in order to be considered new for cap-building purposes. However, programs accredited for 16 or fewer positions must still obtain initial accreditation from the appropriate accrediting body. We note that we are not proposing to adopt various other exceptions or policies recommended by commenters, as summarized in the preceding section of this preamble. We believe that the criterion we have proposed would accomplish our stated goal of preventing the inappropriate duplication of FTE cap slots, while the exception for small programs provides a reasonable safeguard for those programs that are at greatest risk of failing to meet the proposed requirement for reasons beyond their control. Additionally, we believe that the proposed policies have the advantage of being unambiguous and administratively simple, whereas we wish to avoid scenarios in which CMS or the MACs would need to review individual hospitals' circumstances on a case-by-case basis. Additionally, we note that we are not proposing any distinct policies with respect to the commingling of residents. Rather, we propose that program newness should be determined consistently on the basis of initial accreditation and the 90 percent new resident threshold. That is, we propose that if a particular program has received initial accreditation, and at least 90 percent of the individual trainees (not FTEs) entering the program during the five- year cap building period are new (with exceptions as noted previously), then the program would be considered new for cap-building purposes regardless of whether residents in that program have shared educational experiences with residents of an existing program in the same specialty. Similarly, with regard to the question of whether it is permissible for one hospital to operate two or more programs in the same specialty, we propose that this would be permissible for cap-building purposes if the second or subsequent program has separately received initial accreditation and at least 90 percent of the individual trainees (not FTEs) entering the program during the five-year cap building period are new (with exceptions as noted previously). Note that this would be a change from existing policy, under which it is permissible for one hospital to operate two or more programs in the same specialty provided that the programs have separate program directors, staff, and separately matched residents without meeting any additional requirements (see discussion of existing policy in the August 27, 2009 Federal Register at 74 FR 43913). In summary, we are proposing that, in addition to receiving initial accreditation by the appropriate accrediting body, for a residency program to be considered new, at least 90 percent of the individual resident trainees (not FTEs) must not have previous experience training in another program in the same specialty. We would no longer consider the previous employment of the faculty or program director in determining whether a residency program is genuinely new for cap- building purposes. We would determine compliance with the 90 percent threshold by tallying all of the individual residents who enter a program during the five-year cap building period (that is, for new urban teaching hospitals, during the first five program years of the first new program's existence; and for rural hospitals, during the first five program years of each new program). This tally would exclude individuals with previous experience training in another program in the same specialty who enter the new program as first-year residents through the National Resident Matching Program or another binding third-party resident matching program, as well as individuals who meet the definition of a ``displaced resident'' under 42 CFR 413.79(h)(1)(iii). The requirement that at least 90 percent of the individual residents must be new would not apply to small programs, defined as programs accredited for 16 or fewer resident positions, regardless of geographic designation. These policies would be effective for programs starting on or after October 1, 2026. To ensure that the regulations text appropriately reflects our proposed policy, we propose to revise the text of 42 CFR 413.79(l) to state that a new medical residency training program means a program that receives initial accreditation by the appropriate accrediting body or begins training residents on or after January 1, 1995, and that meets the following conditions: Subject to the following provisions, effective for programs started on or after October 1, 2026, at least 90 percent of the individual residents (not FTEs) that enter the program during the five-year cap building period (that is, for new urban teaching hospitals, during the first five program years of the first new program's existence under Sec. 413.79(e)(1); and for rural hospitals, during the first five program years of each new program under Sec. 413.79(e)(3)) must not have previous experience training in another program in the same specialty. For purposes of determining compliance with the preceding requirement, the count of individual residents excludes individuals with previous experience training in another program in the same specialty who enter the program as first-year residents through the National Resident Matching [[Page 19510]] Program or another binding third-party resident matching program. The 90 percent new resident requirement does not apply to a program accredited for 16 or fewer resident positions.

4. Calculation of Direct GME and IME Payments Following a Merger of

Hospitals When a hospital merger involves one or more teaching hospitals, the surviving provider experiences an influx of FTE residents from the terminating providers' residency programs. The surviving hospital also absorbs those providers' FTE caps (63 FR 26329) and receives a merged per resident amount for purposes of direct GME payment (71 FR 48073). In addition, the Medicare Part A and Medicare Advantage (MA) patient loads of the surviving hospital represent the combined Medicare utilization of all hospitals (teaching and non-teaching) participating in the merger. The surviving provider also experiences changes in the payment rates that determine the amount of its indirect medical education adjustment. In addition to the influx of FTE residents from the terminating providers' residency programs, the surviving provider absorbs those hospitals' existing IME FTE caps and available beds, resulting in a change to its intern- and resident-to-bed (IRB) ratio. The total amount of IME payment is also affected by the combination of the merged hospitals' Part A and simulated MA DRG revenues. While we are not proposing any new policies at this time, we are taking the opportunity to clarify in rulemaking the methodology for calculating DGME and IME payments for the surviving provider following a merger of hospitals. We discuss the procedure for calculating each payment type separately later in this section. a. Calculating DGME Payments Following a Merger of Hospitals If the surviving hospital begins a new cost reporting period effective with the date of the merger, then direct GME payment for that initial merged period and subsequent periods is determined based on the hospital's new, combined DGME payment rates (with special consideration for the rolling average during the first two cost reporting periods, as discussed further later in this section). However, if the merger takes place in the middle of the surviving hospital's cost reporting period, then the hospital's DGME payment for that period must reflect the different payment rates that apply before and after the merger. In the August 18, 2006 Federal Register (71 FR 48075-48076), we stated that direct GME payment for the surviving hospital would be calculated on the basis of two distinct sets of PRAs (that is, two distinct primary care PRAs and two distinct nonprimary care PRAs, or two distinct single PRAs, as applicable), one for the pre-merger period and one for the post-merger period. Thus, to calculate the DGME payment for the surviving hospital for the cost reporting period in which the merger occurred, the Medicare administrative contractor (MAC) performs a series of off-the-cost-report calculations, treating the pre-merger and post-merger periods of the surviving hospital's cost reporting period as if they were two short cost reporting periods. The MAC would calculate the direct GME payment for the surviving hospital for the portion of the cost reporting period prior to the merger using only the surviving hospital's FTE counts, PRA(s) and Medicare utilization rate. Separately, the MAC would calculate the surviving hospital's post- merger direct GME payment using the merged weighted average PRA(s) updated using special CPI-U factors; a combined rolling average FTE count reflecting the merged hospitals' FTE counts; and a combined Medicare utilization rate reflecting the portion of the cost reporting period following the merger. The MAC would add the pre-merger and post- merger payments to determine the surviving hospital's total reimbursement for that cost reporting period. We also stated in the 2006 rule that similar pre-merger and post-merger calculations are performed for the intern- and resident-to-bed ratio for purposes of IME payment, as discussed later in this preamble. In effect, the pre- and post-merger timeframes are treated as though they were individual short cost reporting periods, with virtual payment rates established for each period on the basis of the best available data for all providers. Later in this section, we provide a detailed step-by-step explanation, with an illustrative example, of how to calculate pre- and post-merger direct GME payments according to the policy outlined previously. To facilitate the calculation of the DGME payment amounts, the MAC determines the following variables separately for the pre- and post- merger timeframes, consistent with the FTE counting rules for non-12- month cost reporting periods as clarified in the August 4, 2025 Federal Register (90 FR 36915). In general, the pre-merger payment rates are based on data from the surviving provider only, while post-merger rates utilize data from all participating hospitals: FTE resident count--Calculate separately for the pre- merger and post-merger periods: To determine the partial year unweighted DGME FTE counts, the sum of allowable rotations for all residents during each period is divided by 365 or 366, using data from the master rotation schedule or a similar source (see 90 FR 36915-16 for further details). The weighted counts are obtained by applying the appropriate weighting factor to the rotations associated with each resident, and separate weighted counts are determined for primary care and non-primary care residents. For the pre-merger period, the count includes rotations allowable to the surviving provider only; for the post-merger period, the count includes the sum of all rotations allowable to the merged entity.\108\ --------------------------------------------------------------------------- \108\ If any of the merged hospitals is training displaced residents or residents in the initial years of a new program, those weighted counts would be determined according to the same procedure and the FTEs would be added to the respective rolling averages calculated for the pre- and post-merger periods. --------------------------------------------------------------------------- FTE resident limit (cap)--Calculate separately for the pre-merger and post-merger periods: The partial year DGME FTE resident limit is calculated by prorating the hospitals' original FTE caps, including any applicable adjustments, for the number of days in each respective period: the pre-merger limit is derived from the FTE caps of the surviving provider only, whereas the post-merger limit includes the combined caps of all hospitals participating in the merger. The prorated FTE caps are applied to the partial year FTE resident counts according to the usual procedure as described in the August 4, 2025 Federal Register (90 FR 36917). If any of the merged hospitals has residents participating in a rural track program or residents counted under section 422 of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (Pub. L. 108-173, codified at section 1886(h)(7) of the Act), then those counts and caps are also determined and applied separately for the pre- and post-merger periods. Rolling average FTE count--Calculate separately for the pre-merger and post-merger periods: The current, prior- and penultimate-year weighted FTE counts, which serve as the inputs to the three-year rolling average, must also be determined separately for the [[Page 19511]] pre- and post-merger timeframes. The current year FTE counts are calculated as explained previously, while the prior- and penultimate- year counts are obtained from lines 12 and 13 of Worksheet E-4 of the respective hospitals' cost reports, and prorated according to the procedure described in the August 4, 2025 Federal Register (90 FR 36917).\109\ The numerator of the rolling average for the pre-merger period consists of the prorated FTE counts of the surviving provider only, while the post-merger numerator equals the sum of the prorated FTE counts of the surviving and terminating providers, simulating what the effect of the merger would have been during the prior and penultimate cost reporting periods. --------------------------------------------------------------------------- \109\ Note that the proration factor is applied after the prior- and penultimate-year FTE counts have been determined based on data from the respective cost reports, consistent with the instructions to lines 12 and 13 of Worksheet E-4. --------------------------------------------------------------------------- Note that a ``virtual'' rolling average must also be calculated for the merged provider's first two cost reporting periods beginning on or after the effective date of the merger: that is, the surviving and terminating providers' FTE counts must be combined as though they were merged during the prior and/or penultimate years (with proration applied as necessary to account for differences in the length of the respective hospitals' cost years). This procedure applies whether or not the merger occurred in the middle of the surviving provider's cost reporting period. Standard computation of the rolling average would resume in the third full post-merger cost reporting period. In addition to the FTE resident count, FTE resident limit, and rolling average FTE count, the MAC also determines separate per resident amounts and Medicare patient loads (for both Part A and managed care enrollees) for the pre- and post-merger timeframes: Per resident amount--Calculate separately for the pre- merger and post-merger periods: Direct GME payment for the pre-merger period is calculated using the surviving provider's original primary care and nonprimary care PRAs, or single PRA, as applicable, updated to the midpoint of the pre-merger period. The post-merger payment is calculated using the merged primary care and nonprimary care PRAs, or merged single PRA, as applicable, determined according to the procedure finalized in the August 18, 2006 Federal Register (71 FR 48075-6); the merged PRA(s) is updated for inflation to the midpoint of the post- merger period. If the surviving and/or terminating providers count additional residents under the provisions of section 422, then direct GME payments for those residents would be calculated separately for the pre- and post-merger periods, as applicable, with the special per resident amounts updated according to the same procedures outlined previously. Medicare patient load--Calculate separately for the pre- merger and post-merger periods: Separate Medicare Part A and MA patient loads are determined for the pre- and post-merger periods using data from the hospitals' Provider Statistical and Reimbursement (PS&R) reports (see specific fields in the example table later in this section). For the pre-merger period, the numerator and denominator of the Medicare patient load comprise the Medicare and total inpatient days, respectively, attributable to the surviving provider during that period; for the post-merger period, the numerator and denominator comprise the sum of all inpatient days attributable to the merged hospitals (including any non-teaching hospitals absorbed by the surviving provider). If either the pre- or post-merger period straddles multiple calendar years, then separate MA patient loads must also be determined for the portions of that period occurring prior to and on or after January 1, so that the MA DGME payments may be adjusted by the percentage reduction applicable to each calendar year (as required by the regulations at Sec. 413.76(d)). Since the cost report does not support the use of multiple DGME payment rates for portions of a single cost year, these calculations must be performed off the cost report, and the results are summed to determine total DGME payment for the cost reporting period. Placeholder values based on the combined payment rates of the merged hospitals are reported as necessary on the applicable lines of Worksheet E-4.\110\ --------------------------------------------------------------------------- \110\ For example, the FTE caps and adjustments of the surviving and terminating providers would be added and reported on the applicable FTE cap lines as though the providers had been merged for the entire cost reporting period. --------------------------------------------------------------------------- The following example illustrates the application of the policies described previously. Example: Consider a merger between teaching Hospitals A and B, effective November 1, 2023, where Hospital A is the surviving provider. Prior to the merger, Hospitals A and B had fiscal year ends of June 30 and December 31, respectively. As the surviving provider, Hospital A elects to maintain its existing fiscal year, and files a cost report for the period July 1, 2023, to June 30, 2024. Since different payment rates apply to the timeframes 07/01/23-10/31/23 and 11/01/23-06/30/24, two separate direct GME payments must be calculated for Hospital A's cost reporting period ending June 30, 2024. These calculations are performed off the cost report, and the sum of the total payments is reported on line 31 of Worksheet E-4 of the hospital cost report (Form CMS-2552- 10). (Hospital B would file a terminating cost report for the period January 1, 2023-October 31, 2023, with direct GME payment determined in accordance with the rules applicable to short cost reporting periods, as clarified in the August 4, 2025 Federal Register.) The following table summarizes the data that will be used to calculate Hospital A's pre- and post-merger DGME payments, based on the surviving and terminating providers' historical cost reports, as well as other sources such as rotation schedules and PS&R reports: [[Page 19512]] [GRAPHIC] [TIFF OMITTED] TP14AP26.129 --------------------------------------------------------------------------- \111\ From the providers' most recently settled cost reports, as explained below under Notes. --------------------------------------------------------------------------- Notes: Since the hospitals are merged effective November 1, 2023, Hospital B technically does not have a separate FTE resident count, or separate inpatient days, during the period 11/01/23-06/30/24; post- merger data for Hospital B are broken out for illustrative purposes only. In addition, Hospital B's pre-merger FTE counts and inpatient days for its 2023 cost year are printed in brackets since they do not factor into the merged provider's DGME payment rates for FYE 06/30/24. (However, note that Hospital B's pre-merger FTE counts will be used to calculate the rolling average for the merged provider's subsequent cost reports, as explained further later in this section.) Hospital B would file its terminating cost report and receive DGME payment for the period 01/01/23-10/31/23 in accordance with the rules applicable to short cost reporting periods. As noted later in this section, we assume in this example that Hospitals A and B each have a single PRA; accordingly, the FTE counts in this table represent combined totals for residents in both primary and nonprimary care programs. The prior- and penultimate-year FTE counts are required to calculate the three-year rolling averages for the pre- and post-merger periods. Hospital A's prior- and penultimate-year cost reporting periods are those ending on June 30, 2023, and June 30, 2022, respectively; Hospital B's are those ending on December 31, 2022, and December 31, 2021. The hospitals' DGME FTE resident limits include any applicable adjustments, such as those for new programs or slots received under various statutory provisions. For the purpose of this example, we assume that neither hospital has received additional residency slots under section 422. Consistent with the policy finalized in the August 18, 2006 Federal Register (71 FR 48075), the individual hospitals' original (pre-merger) PRAs are sourced from the most recently settled cost reports. In this example we assume that the most recently settled cost reports of Hospitals A and B are those ending on June 30, 2021, and December 31, 2020, respectively. For the sake of convenience, we assume each hospital has a single PRA applicable to residents in all specialties. Managed care and total inpatient days during the post- merger period 11/01/23-06/30/24 are further broken out into portions occurring before and after January 1, since different percentage reductions to MA DGME payments apply to calendar years 2023 and 2024. Pre-Merger Direct GME Payment (July 1, 2023, to October 31, 2023) To calculate the surviving provider's direct GME payment for the pre-merger period 07/01/23-10/31/23, the following variables are determined based on Hospital A's individual records for the relevant timeframe: FTE resident count: As indicated in the table outlined previously, Hospital A's weighted DGME FTE resident count during the period 07/01/23--10/31/23 is 14.28 FTEs, based on data from Hospital A's rotation schedules or similar documentation and determined according to the methodology clarified in the August 4, 2025 Federal Register. FTE resident limit: The FTE resident limit for the pre- merger period is obtained by prorating Hospital A's full-year DGME FTE cap. Since there are 123 days during the period 07/01/23-10/31/23 and the full cost reporting period includes February 29, the prorated FTE cap equals: 40 x (123 / 366) = 13.44, which is less than the actual weighted DGME count of 14.28. Accordingly, Hospital A's effective DGME resident count for the pre-merger period is 13.44 FTEs. Rolling average FTE count: To determine the three-year rolling average, Hospital A's prior- and penultimate-year FTE counts are divided by the number of days in the respective cost reporting periods and multiplied by 123: \112\ --------------------------------------------------------------------------- \112\ This assumes that Hospital A's prior- and penultimate-year CRPs are both standard 12-month periods. --------------------------------------------------------------------------- ++ Prior year: 40 x (123 / 365) = 13.48 FTEs. ++ Penultimate year: 39 x (123 / 365) = 13.14 FTEs. The rolling average therefore equals: (13.44 + 13.48 + 13.14) / 3 = 13.35 FTEs. Per resident amount: Hospital A's updated single PRA for its most recently settled cost reporting period ending June 30, 2021, was $134,000. This PRA must be updated from the calendrical midpoint of Hospital A's June 30, 2021 fiscal year to the midpoint of the period 07/01/23-10/31/23, that is, from December 30, 2020, to August 31, 2023, using an appropriate inflation factor to estimate the change in the CPI-U during this period. Accordingly, Hospital A's FY 2021 PRA is updated by an inflation factor of 1.1777: $134,000 x 1.1777 = [[Page 19513]] $157,812. (The calculation of the inflation factor itself is omitted for the sake of brevity.) Medicare patient load: Based on the data from the table noted previously, Hospital A's Medicare Part A patient load for the period 07/01/23-10/31/23 is 8,303 / 18,450 = 0.45; the Medicare Advantage patient load for the same period is 2,768 / 18,450 = 0.15. With these data points established, we can calculate total Part A and MA DGME payment for Hospital A during the pre-merger period 07/01/ 23-10/31/23. (Note: MA DGME payment is reduced by the percentage determined by CMS for calendar year 2023 and published in the Federal Register): Part A: $157,812 x 13.35 x 0.45 = $948,055.59. MA: $157,812 x 13.35 x 0.15 x (1-0.0274) = $307,359.62. Thus, Hospital A's total DGME payment for the pre-merger period is: $948,055.59 + $307,359.62 = $1,255,415.21. Post-Merger Direct GME Payment (November 1, 2023, to June 30, 2024) For the post-merger period, the same payment variables are calculated using data from the records of both the surviving and terminating providers: FTE resident count: The combined weighted DGME resident count of Hospitals A and B (that is, the newly merged entity) for the period 11/01/23-06/30/24 is 27.72 + 13.20 = 40.92 FTEs. FTE resident limit: The merged provider's combined DGME FTE cap is 40 + 25 = 65 FTEs, which must be prorated for the partial cost reporting period. Since there are 243 days during the period 11/ 01/23-06/30/24 and the full cost reporting period includes February 29, the prorated FTE cap equals: 65 x (243 / 366) = 43.16, which is greater than the actual weighted DGME count of 40.92. Accordingly, the provider's effective DGME resident count for the post-merger period is 40.92 FTEs. Rolling average FTE count: To determine a representative three-year rolling average for the post-merger timeframe, we must treat Hospitals A and B as though they had been merged during their preceding two cost reporting periods. Accordingly, the prior-year FTE count used in the rolling average calculation (before proration) is equal to the combined prior-year FTE counts of the two hospitals: 40 + 21.5 = 61.50 FTEs; and the penultimate-year FTE count is equal to: 39 + 19.25 = 58.25 FTEs. These totals are then divided by the number of days in the respective cost reporting periods and multiplied by 243: \113\ --------------------------------------------------------------------------- \113\ This assumes that the hospitals' prior- and penultimate- year CRPs are all standard 12-month periods. If not, the appropriate proration factors would need to be applied prior to summing the hospitals' respective FTE counts (since the proration factor would be different for each hospital). --------------------------------------------------------------------------- [cir] Prior year: 61.50 x (243 / 365) = 40.94 FTEs. [cir] Penultimate year: 58.25 x (243 / 365) = 38.78 FTEs. The rolling average therefore equals: (40.92 + 40.94 + 38.78) / 3 = 40.21 FTEs. [cir] Hospital A's FY 2021 PRA of $134,000 is updated by an inflation factor of 1.1416 to $152,974. [cir] Hospital B's FY 2020 PRA of $127,500 is updated by an inflation factor of 1.1530 to $147,007. To determine the weighted average merged PRA, each hospital's individual PRA is weighted by the number of DGME FTE residents on its most recently settled cost report. Assume that on their FY 2021 and FY 2020 cost reports, Hospitals A and B reported 40 FTEs and 20 FTEs, respectively. The merged PRA is then equal to: ((40 x $152,974) + (20 x $147,007)) / 60 = $150,985. Finally, the merged PRA as established previously is updated from the calendrical midpoint of Hospital A's June 30, 2023 fiscal year to the midpoint of the period 11/01/23-06/30/24, that is, from December 30, 2022, to March 1, 2024. Using the same methodology as previously, the merged PRA of $150,985 is updated by an inflation factor of 1.0448 to $157,749. Medicare patient load: The Medicare patient load for the period 11/01/23-06/30/24 is determined based on the combined inpatient days attributable to the merged hospitals. Since the period straddles multiple calendar years, separate MA patient loads must be determined for the periods before and after January 1: [cir] Part A: 29,887 / 74,720 = 0.399. [cir] MA (before Jan. 1): 3,325 / 74,720 = 0.044. [cir] MA (from Jan. 1): 9,565 / 74,720 = 0.128. (In these calculations, the denominator is equal to the total number of inpatient days at the merged hospital for the entire period 11/01/23-06/30/24 (that is, the sum of the inpatient days at Hospitals A and B, as indicated in the table noted previously); the numerators are obtained by summing the relevant categories of inpatient days for the respective periods.) With these data points established, we can calculate total Part A and MA DGME payment for the merged provider during the post-merger period 11/01/23-06/30/24. (Note: MA DGME payments are reduced by the percentages determined by CMS for calendar years 2023 and 2024 and published in the Federal Register): Part A: $157,749 x 40.21 x 0.399 = $2,530,891.83. MA (before Jan. 1): $157,749 x 40.21 x 0.044 x (1-0.0274) = $271,448.61. MA (from Jan. 1): $157,749 x 40.21 x 0.128 x (1-0.0233) = $792,997.55 Thus, the provider's total DGME payment for the post-merger period is: $2,530,891.83 + $271,448.61 + $792,997.55 = $3,595,337.99. Subsequent Cost Reporting Periods (FYEs June 30, 2025, and June 30, 2026) Direct GME payments for subsequent cost reporting periods are based on the provider's merged DGME payment rates and calculated according to the usual procedures. However, during the first two cost reporting periods following the merger (that is, FYE 06/30/25 and FYE 06/30/26), the rolling average must be calculated as though the hospitals had been merged for the entirety of their prior- and penultimate-year cost reporting periods. This ensures that the rolling average is representative of the training that occurs at the post-merger entity. (Note that this procedure applies whether the merger occurs in the middle of the surviving provider's cost reporting period, as in this example, or coincides with the start of a new cost reporting period.) Accordingly, in this example, the prior- and penultimate-year FTE counts for the merged provider's cost reporting period ending June 30, 2025, would be determined as follows: Prior year: The prior cost reporting periods of Hospitals A and B are those ending on June 30, 2024, and October 31, 2023, respectively, and the prior-year FTE count is equal to the hospitals' combined weighted FTE counts, determined based on data from the respective cost reports, consistent with the instructions to lines 12 and 13 of Worksheet E-4. (Note that Hospital B's FYE 10/31/23 is its short terminating cost reporting period that began January 1, 2023.) Based on data from the applicable cost reports, and as shown in the table, Hospital A's individual FTE count (subject to the cap) during FYE 06/30/24 is 40 FTEs,\114\ while Hospital [[Page 19514]] B's individual FTE count (subject to the cap) during FYE 10/31/23 is 16.55 FTEs.\115\ --------------------------------------------------------------------------- \114\ I.e., the lesser of its DGME FTE cap of 40 or the actual weighted FTE count during this period, plus any podiatric or dental FTEs (not applicable to this example). Since the actual weighted FTE count is 14.28 + 27.72 = 42, the effective DGME count for the prior year is 40 FTEs. (Note that this prior year-FTE count would be equal to the placeholder value reported on line 11 of Worksheet E-4 of Hospital A's FYE 06/30/2024 cost report.) \115\ On Hospital B's FYE 10/31/23 cost report, the weighted FTE count of 16.55 on Worksheet E-4, line 8, represents 10 months of aggregate rotations allowable for purposes of DGME payment (9.75 during 01/01/23-06/30/23 and 6.80 during 07/01/23-10/31/23, as show in the table). Hospital B's DGME FTE cap of 25 FTEs, as reported on line 5, would also be prorated to reflect the short cost reporting period: 25 / 365 x 304 = 20.82. Thus, Hospital B's prior year DGME FTE count is the lesser of 16.55 FTEs or its prorated DGME FTE cap of 20.82. (Note that this would be equal to the value reported on line 11 of Worksheet E-4 of Hospital B's FYE 10/31/23 cost report.) --------------------------------------------------------------------------- Since Hospital B's prior cost reporting period was only 10 months long, its prior-year FTE count must be inflated to a 12-month equivalent, consistent with the policy clarified in the August 4, 2025 Federal Register (90 FR 36917): 16.55 / 304 x 365 = 19.87 FTEs. Accordingly, the combined prior-year FTE count of the merged entity is: 40 + 19.87 = 59.87 FTEs. Penultimate year: The penultimate cost reporting periods of Hospitals A and B are those ending on June 30, 2023, and December 31, 2022, respectively. Based on data from the applicable cost reports, and as shown in the table, the sum of the providers' individual FTE counts during those respective periods is equal to: 40 + 21.5 = 61.50 FTEs. For the following cost reporting period ending June 30, 2026, the prior year-FTE count would be the merged provider's weighted DGME count, subject to the cap, as reported on the preceding cost report (FYE 06/30/2025; not shown); and the penultimate-year FTE count would be the hospitals' combined count as determined previously for the periods 07/01/23-06/30/24 and 01/01/23-10/31/23, that is, 59.87 FTEs. Beginning with the provider's FYE 06/30/2027 cost report, the rolling average would be calculated in accordance with normal procedure. b. Calculating IME Payments Following a Merger of Hospitals As stated previously, when a hospital merger involves one or more teaching hospitals, the surviving provider experiences an influx of FTE residents from the terminating providers' residency programs and absorbs those hospitals' existing IME FTE caps and available beds, resulting in a change to its intern- and resident-to-bed (IRB) ratio. The merged provider also experiences an increase in both Part A and simulated managed care DRG revenue. The IME payment associated with a particular discharge reflects the payment rates applicable on the date the discharge occurs: if the discharge occurs prior to the effective date of the merger, the provider's individual IME payment rates are used; if the discharge occurs on or after the effective date of the merger, the IME adjustment is computed based on the combined payment rates of the merged providers. For cost reporting purposes, the surviving provider's total IME payment is based on the payment rate(s) applicable during each cost reporting period or portion thereof. Specifically, if the surviving hospital begins a new cost reporting period effective with the date of the merger, then total IME payment for that initial merged period and subsequent periods is determined based on the hospital's new, combined IME payment rates (with special consideration for the IRB ratio cap and rolling average during the first two cost reporting periods, as discussed further later in this section). However, if the merger takes place in the middle of the surviving hospital's cost reporting period, then the hospital's total IME payment for that period must reflect the different payment rates that apply before and after the merger. Principles similar to what is discussed previously for direct GME apply to the calculation of the surviving provider's total IME payment amounts: that is, the MAC divides the cost reporting period into pre- and post-merger portions and calculates separate IME payments for each portion (according to the procedure described later in this section). In effect, the pre- and post-merger timeframes are treated as though they were individual short cost reporting periods, with virtual payment rates established for each period on the basis of the best available data for all providers and consistent with the FTE counting policies for non-12-month cost reporting periods as clarified in the August 4, 2025 Federal Register (90 FR 36915). To facilitate the calculation of the IME payment amounts, the MAC determines separate intern- and resident-to-bed ratios for the pre- and post-merger portions of the cost reporting period, which involves determining separate FTE resident counts, FTE caps, rolling average FTE counts, and available bed counts, as well as separate application of the IRB ratio cap. The resulting teaching adjustment factors are multiplied by DRG revenue to obtain total Part A and managed care IME payments for the respective timeframes. Specific procedures for determining these variables are discussed later in this section; as clarified previously for DGME, the pre-merger IME payment rates are based on data from the surviving provider only, while post-merger rates utilize data from all participating hospitals. IRB Ratio--Numerator The numerator of the current year IRB ratio (prior to the application of the IRB ratio cap) consists of the allowable IME FTE resident count, subject to the IME FTE cap and the three-year rolling average. These variables are determined for the pre- and post-merger periods as follows: FTE resident count--Calculate separately for the pre- merger and post-merger periods: To determine the partial year IME FTE counts, the sum of allowable rotations for all residents during the pre- and post-merger periods is divided by the actual number of days in each respective period, using data from the master rotation schedule or a similar source (see 90 FR 36915-16 for further details). For the pre- merger period, the count includes rotations allowable to the surviving provider only; for the post-merger period, the count includes the sum of all rotations allowable to the merged entity.\116\ --------------------------------------------------------------------------- \116\ If any of the merged hospitals is training displaced residents or residents in the initial years of a new program, those FTE counts would be determined according to the same procedure and the FTEs would be added to the respective rolling averages calculated for the pre- and post-merger periods. --------------------------------------------------------------------------- FTE resident limit (cap)--Calculate separately for the pre-merger and post-merger periods: Consistent with the FTE counting policies clarified in the August 4, 2025 Federal Register (90 FR 36917), it is not necessary to prorate the IME cap for non-12-month cost reporting periods; the partial year IME FTE resident limits are thus equal to the hospitals' original FTE caps, including any adjustments, without the application of a proration factor. The pre- merger limit is equal to the FTE cap of the surviving provider only, whereas the post-merger limit consists of the combined caps of all hospitals participating in the merger. The FTE caps are applied to the partial year FTE resident counts according to the usual procedure as described in the August 4, 2025 Federal Register (90 FR 36917). If any of the merged hospitals has residents participating in a rural track program or residents counted under section 422, then those counts and caps are also determined and applied separately for the pre- and post- merger periods. Rolling average FTE count--Calculate separately for the pre-merger and post-merger periods: The current, [[Page 19515]] prior- and penultimate-year IME counts, which serve as the inputs to the three-year rolling average, must also be determined separately for the pre- and post-merger timeframes. The current year FTE counts are calculated as explained previously, while the prior- and penultimate- year counts are obtained from lines 13 and 14 of Worksheet E, Part A, of the respective hospitals' cost reports (without the application of proration factors; see 90 FR 36917). The numerator of the rolling average for the pre-merger period consists of the FTE counts of the surviving provider only, while the post-merger numerator equals the combined FTE counts of the surviving and terminating providers, simulating what the effect of the merger would have been during the prior and penultimate cost reporting periods. Note that a ``virtual'' rolling average must also be calculated for the merged provider's first two cost reporting periods beginning on or after the effective date of the merger: that is, the surviving and terminating providers' FTE counts must be combined as though they were merged during the prior and/or penultimate years. This procedure applies whether or not the merger occurred in the middle of the surviving provider's cost reporting period. Standard computation of the rolling average would resume in the third full post-merger cost reporting period. Also note that the procedures for determining the partial year IME resident counts, caps, and rolling averages closely resemble the corresponding procedures described previously for direct GME, except that the IME variables are not adjusted relative to a standard 12-month cost reporting period, consistent with the policy clarified in the August 4, 2025 Federal Register. IRB Ratio--Denominator (Available Beds) The denominator of the current year IRB ratio (prior to the application of the IRB ratio cap) consists of the number of available beds, determined for the pre- and post-merger periods as follows: Available bed count--Calculate separately for the pre- merger and post-merger periods: Consistent with the methodology at 42 CFR 412.105(b), the available bed count is equal to the number of available bed days divided by the number of days in the virtual cost reporting period. For the pre-merger period, only the surviving provider's available bed days are counted. Thus, the pre-merger bed count is computed by counting the number of available bed days during the pre-merger period for the surviving provider, and dividing by the number of days in the pre-merger period. For the post-merger period, the count includes the available bed days of the surviving and terminating providers, including any non-teaching hospitals participating in the merger.\117\ Thus, the post-merger bed count is computed by counting the number of available bed days during the post- merger period for all participating hospitals, and dividing by the number of days in the post-merger period. --------------------------------------------------------------------------- \117\ Available bed days of terminating non-teaching providers are included in the post-merger count because the IRB ratio represents teaching intensity across the entire merged entity. This is analogous to the inclusion of the inpatient days of non-teaching providers in the Medicare patient load for purposes of determining post-merger DGME payments. --------------------------------------------------------------------------- IRB Ratio Cap Similar to the rolling average, the IRB ratio cap must be determined and applied separately for the pre- and post-merger timeframes, with the post-merger cap simulating what the effect of the merger would have been during the hospitals' preceding cost reporting periods: Prior year numerator--Calculate separately for the pre- merger and post-merger periods: The numerator of the IRB ratio cap is derived from the allowable IME FTE counts, subject to the IME FTE cap (but before application of the rolling average), reported on Worksheet E, Part A, line 12 of the respective hospitals' prior year cost reports: the numerator of the pre-merger cap consists of the FTE count of the surviving provider only (that is, the FTE count reported on line 12 of Worksheet E, Part A, of the surviving provider's prior year cost report), while the numerator of the post-merger cap equals the sum of the FTE counts of the surviving and terminating providers (that is, of the sum of the FTE counts reported on line 12 of Worksheet E, Part A, of each participating hospital's prior year cost report). If a hospital reports displaced residents or residents in the initial years of a new program, or if its FTE count has increased in the current year as a result of an affiliation agreement, then those residents are added to the prior year numerator, consistent with the instructions to line 20 of Worksheet E, Part A. Prior year denominator--Calculate separately for the pre- merger and post-merger periods: Similarly, the denominator of the IRB ratio cap is derived from the available bed counts reported on Worksheet E, Part A, line 4 of the respective hospitals' prior year cost reports: the denominator of the pre-merger cap includes the available beds of the surviving provider only, while the denominator of the post-merger cap, consists of the sum of the available beds of the surviving and terminating providers. The available bed counts are obtained from line 4 of Worksheet E, Part A, of the hospitals' prior year cost reports; if any non-teaching hospital participates in the merger, that hospital's bed count would be determined by dividing the prior year Worksheet S-3, Part I, column 3, line 14, plus line 32, by the number of days in the prior year cost reporting period. For reasons analogous to those discussed elsewhere in this preamble and in the August 4, 2025 Federal Register (90 FR 36915), the components of the IRB ratio cap are derived without the application of a proration factor. Consistent with the usual policy under Sec. 412.105(a)(1), the respective IRB ratios and IRB ratio caps, as determined previously, are compared, and the lesser values are used to calculate the teaching adjustment factors for the pre- and post-merger timeframes. Similar to the rolling average, a ``virtual'' IRB ratio cap, consisting of the combined FTE and available bed counts of the surviving and terminating providers, must also be determined for the first cost reporting period beginning on or after the effective date of the merger, to simulate what the effect of the merger would have been during the prior year. This procedure applies whether or not the merger occurred in the middle of the surviving provider's cost reporting period. Standard computation of the IRB ratio cap would resume in the second full post-merger cost reporting period. DRG Revenue and Total IME Payment To calculate total IME payments, the pre- and post-merger teaching adjustment factors, as determined previously, are multiplied by the hospitals' Part A and simulated managed care DRG revenue for the respective timeframes: DRG revenue (Part A and simulated managed care)--Calculate separately for the pre-merger and post-merger periods: The teaching adjustment factor for the pre-merger period is multiplied by the pre- merger DRG revenue of the surviving provider only, while the teaching adjustment factor for the post-merger period is multiplied by the combined DRG revenue of the surviving and terminating providers. Both Part A and simulated managed care DRG revenue are accumulated on the Provider Statistical and Reimbursement (PS&R) Report based on claims submitted by the hospital. [[Page 19516]] Note that if the surviving and/or terminating providers count additional residents under the provisions of section 422, the total IME payments for those residents would be calculated separately for the pre- and post-merger periods, as applicable, using the special formula multiplier of 0.66. Since the cost report does not support the use of multiple IME payment rates for portions of a single cost year, the calculations described in this section must be performed off the cost report, and the results are summed to determine total IME payment for the cost reporting period. Placeholder values based on the combined payment rates of the merged hospitals are reported as necessary on the applicable lines of Worksheet E, Part A.\118\ --------------------------------------------------------------------------- \118\ For example, the FTE caps and adjustments of the surviving and terminating providers would be added and reported on the applicable FTE cap lines as though the providers had been merged for the entire cost reporting period. --------------------------------------------------------------------------- The following example illustrates the application of the policies described previously. Example: (Note: This example generally replicates the scenario outline previously in the discussion of direct GME payment, adjusted as necessary to reflect the variables involved in the IME payment calculation.) Consider a merger between teaching Hospitals A and B, effective November 1, 2023, where Hospital A is the surviving provider. Prior to the merger, Hospitals A and B had fiscal year ends of June 30 and December 31, respectively. As the surviving provider, Hospital A elects to maintain its existing fiscal year, and files a cost report for the period July 1, 2023, to June 30, 2024. Since different payment rates apply to the timeframes 07/01/23-10/31/23 and 11/01/23-06/30/24, two separate IME payment totals must be calculated for Hospital A's cost reporting period ending June 30, 2024. These calculations are performed off the cost report, and the total Part A and managed care payments are reported on lines 29 and 29.01, respectively, of Worksheet E, Part A of the hospital cost report (Form CMS-2552-10). (Hospital B would file a terminating cost report for the period January 1, 2023-October 31, 2023, with IME payment determined in accordance with the rules applicable to short cost reporting periods, as clarified in the August 4, 2025 Federal Register.) The following table summarizes the data that will be used to calculate Hospital A's pre- and post-merger IME payments, based on the surviving and terminating providers' historical cost reports, as well as other sources such as rotation schedules and PS&R reports: [GRAPHIC] [TIFF OMITTED] TP14AP26.130 Notes: Since the hospitals are merged effective November 1, 2023, Hospital B technically does not have a separate FTE resident count, separate available bed count, or separate DRG revenue during the period 11/01/23-06/30/24; post-merger data for Hospital B are broken out for illustrative purposes only. In addition, Hospital B's pre-merger FTE counts and available bed counts for its 2023 cost year are printed in brackets since they do not factor into the merged provider's IME payment rates for FYE 06/30/24. (However, note that Hospital B's pre- merger FTE and bed counts will be used to calculate the rolling average and the IRB ratio cap for the merged provider's subsequent cost reports, as explained further below.) Hospital B would file its terminating cost report and receive IME payment for the period 01/01/ 23-10/31/23 in accordance with the rules applicable to short cost reporting periods. The prior- and penultimate-year FTE counts are required to calculate the three-year rolling averages for the pre- and post-merger periods. Hospital A's prior- and penultimate-year cost reporting periods are those ending on June 30, 2023, and June 30, 2022, respectively; Hospital B's are those ending on December 31, 2022, and December 31, 2021. The hospitals' IME FTE resident limits include any applicable adjustments, such as those for new programs or slots received under various statutory provisions. For purposes of this example, we assume that neither hospital has received additional residency slots under section 422. As explained previously, the available bed count is equal to the number of available bed days divided by the number of days in the cost reporting period (or virtual period, as here). For purposes of this example, we assume that each hospital's available bed count remains constant over time. Pre-Merger IME Payment (July 1, 2023, to October 31, 2023) To calculate the surviving provider's IME payment for the pre- merger period 07/01/23-10/31/23, the following variables are determined based on Hospital A's individual records for the relevant timeframe: FTE resident count: As indicated in the table noted previously, Hospital A's IME FTE resident count during the period 07/ 01/23-10/31/23 is 42.00 FTEs, based on data from Hospital A's rotation schedules or similar documentation and determined according to the methodology clarified in the August 4, 2025 Federal Register. FTE resident limit: Hospital A's IME FTE resident limit is 40.00, which is less than the actual IME count of 42 FTEs during this timeframe. Accordingly, Hospital A's effective IME resident count for the pre-merger period is 40.00 FTEs. (Note that neither the IME FTE count nor the IME FTE cap is prorated for the short virtual cost reporting period.) [[Page 19517]] Rolling average FTE count: As shown in the table, Hospital A's prior- and penultimate-year IME FTE counts are 40 and 39 FTEs, respectively. (Again, note that these values are not prorated for the short cost reporting period.) The rolling average therefore equals: (40 + 40 + 39) / 3 = 39.67 FTEs. IRB ratio: The unadjusted IRB ratio for the pre-merger period is equal to the rolling average FTE count divided by the count of available beds: 39.67 / 300 = 0.132. IRB ratio cap: The IRB ratio cap is equal to the prior year IME FTE count (subject to the cap but before application of the rolling average) divided by the count of available beds: 40 / 300 = 0.133, which is greater than the actual IRB ratio of 0.132. Accordingly, Hospital A's effective IRB ratio for the pre-merger period is 0.132. DRG revenue: Hospital A's total Part A DRG revenue during the pre-merger period is $15,625,000, and its simulated managed care DRG revenue (based on shadow claims submitted during the same period) is $5,187,500. Based on the data noted previously, the IME teaching adjustment factor for Hospital A during the pre-merger period 07/01/23-10/31/23 equals: 1.35 x ((1 + 0.132)\0.405\-1) = 0.07. Accordingly, Hospital A's total IME payment amounts during this period are: Part A IME: 0.07 x $15,625,000 = $1,093,750. Managed care (MA) IME: 0.07 x $5,187,500 = $363,125. Thus, Hospital A's total IME payment for the pre-merger period is: $1,093,750 + $363,125 = $1,456,875. Post-Merger IME Payment (November 1, 2023, to June 30, 2024) For the post-merger period, the same payment variables are calculated using data from the records of both the surviving and terminating providers: FTE resident count: The combined IME FTE resident count of Hospitals A and B (that is, the newly merged entity) for the period 11/ 01/23-06/30/24 is 42 + 20 = 62.00 FTEs. FTE resident limit: The merged provider's IME combined IME cap is 40 + 25 = 65 FTEs, which is greater than the actual IME count of 62. Accordingly, the provider's effective IME resident count for the post-merger period is 62.00 FTEs. Rolling average FTE count: To determine a representative three-year rolling average for the post-merger timeframe, we must treat Hospitals A and B as though they had been merged during their preceding two cost reporting periods. Accordingly, the prior-year FTE count used in the rolling average calculation is equal to the combined prior-year FTE counts of the two hospitals: 40 + 21.5 = 61.50 FTEs; and the penultimate-year FTE count is equal to: 39 + 19.25 = 58.25 FTEs. The rolling average therefore equals: (62 + 61.5 + 58.25) / 3 = 60.58 FTEs. IRB ratio: The unadjusted IRB ratio for the post-merger period is equal to the rolling average FTE count divided by the total count of available beds at both hospitals: 60.58 / (300 + 250) = 0.11. IRB ratio cap: The IRB ratio cap is equal to the combined prior year IME FTE count (subject to the combined cap but before application of the rolling average) divided by the total count of available beds: (40 + 21.5) / (300 + 250) = 0.112, which is greater than the actual IRB ratio of 0.11. Accordingly, the merged provider's effective IRB ratio for the post-merger period is 0.11. DRG revenue: The merged provider's total Part A DRG revenue during the post-merger period is $30,625,000 + $25,375,000 = $56,000,000, and its simulated managed care DRG revenue (based on shadow claims submitted during the same period) is $10,125,000 + $13,750,000 = $23,875,000. Based on the data noted previously, the IME teaching adjustment factor for the merged provider during the post-merger period 11/01/23- 06/30/24 equals: 1.35 x ((1 + 0.11)0.405-1) = 0.058. Accordingly, the provider's total IME payment amounts during this period are: Part A IME: 0.058 x $56,000,000 = $3,248,000. Managed care (MA) IME: 0.058 x $23,875,000 = $1,384,750. Thus, the provider's total IME payment for the post-merger period is: $3,248,000 + $1,384,750 = $4,632,750. Subsequent Cost Reporting Periods (FYEs June 30, 2025, and June 30, 2026) Total IME payments for subsequent cost reporting periods are based on the provider's merged IME payment rates and calculated according to the usual procedures. However, during the first cost reporting period following the merger (that is, FYE 06/30/25), the IRB ratio cap must be calculated as though the hospitals had been merged for the entirety of their prior cost reporting periods. In addition, as for direct GME, during the first two cost reporting periods following the merger (that is, FYE 06/30/25 and FYE 06/30/26), the rolling average must be calculated as though the hospitals had been merged for the entirety of their prior- and penultimate-year cost reporting periods. This ensures that both the IRB ratio cap and the rolling average are representative of the training that occurs at the post-merger entity. (Note that this procedure applies whether the merger occurs in the middle of the surviving provider's cost reporting period, as in this example, or coincides with the start of a new cost reporting period.) Accordingly, in this example, the IRB ratio cap for the merged provider's cost reporting period ending June 30, 2025, would be determined as follows: Prior-year numerator: The prior cost reporting periods of Hospitals A and B are those ending on June 30, 2024, and October 31, 2023, respectively, and the prior-year FTE count is equal to the hospitals' combined IME FTE counts, determined based on data from the respective cost reports, consistent with the instructions to line 20 of Worksheet E, Part A. (Note that Hospital B's FYE 10/31/23 is its short terminating cost reporting period that began January 1, 2023.) Based on the data from the applicable cost reports, and as shown in the table, Hospital A's individual FTE count (subject to the cap but before application of the rolling average) during FYE 06/30/24 is 40 FTEs, while Hospital's B's individual FTE count (subject to the cap but before application of the rolling average) during FYE 10/31/23 is 20 FTEs.\119\ Accordingly, the combined prior year numerator is equal to 40 + 20 = 60.00 FTEs. --------------------------------------------------------------------------- \119\ I.e., the lesser of each hospital's IME FTE cap or actual IME FTE count, plus any podiatric and dental FTEs (not applicable to this example), during the respective periods. In this example, Hospital A's prior year numerator would be equal to the placeholder value reported on line 12 of Worksheet E, Part A, of its FYE 06/30/ 2024 cost report; while Hospital B's prior year numerator would be equal to the value reported on line 12 of Worksheet E, Part A, of its FYE 10/31/2023 cost report. --------------------------------------------------------------------------- Prior-year denominator: As shown in the table, the hospitals' total available bed count during their prior cost reporting periods is equal to 300 + 250 = 550 beds. Thus, the IRB ratio cap for the merged provider during this period is: 60 / 550 = 0.11. Beginning with the provider's FYE 06/30/2026 cost report, the IRB ratio cap would be calculated in accordance with normal procedure. For a demonstration of how to calculate the rolling average for the cost reporting periods ending on June 30, 2025, and June 30, 2026, refer to the direct GME example earlier in this preamble. Beginning with the provider's FYE 06/30/2027 cost report, the rolling average would be calculated in accordance with normal procedure. [[Page 19518]]

5. Notice of Closure of Teaching Hospitals and Opportunity To Apply for

Available Slots a. Background Section 5506 of the Patient Protection and Affordable Care Act (Pub. L. 111-148), as amended by the Health Care and Education Reconciliation Act of 2010 (Pub. L. 111-152) (collectively, ``Affordable Care Act''), authorizes the Secretary to redistribute residency slots after a hospital that trained residents in an approved medical residency program closes. Section 5506 of the Affordable Care Act instructs the Secretary to establish a process by regulation that redistributes slots from teaching hospitals that close to hospitals that meet certain criteria, with priority given to certain hospitals including those located in the same Core Based Statistical Area (CBSA), in a contiguous CBSA or in the same state as the closed hospital. Specifically, section 5506 of the Affordable Care Act amended the Act by adding subsection (vi) to section 1886(h)(4)(H) of the Act and modifying language at section 1886(d)(5)(B)(v) of the Act, to instruct the Secretary to establish a process to increase the FTE resident caps for other hospitals based upon the full-time equivalent (FTE) resident caps in teaching hospitals that closed on or after a date that is 2 years before the date of enactment (that is, March 23, 2008). In the CY 2011 Outpatient Prospective Payment System (OPPS) final rule with comment period (75 FR 72264), we established regulations at 42 CFR 413.79(o) and an application process for qualifying hospitals to apply to CMS to receive direct GME and IME FTE resident cap slots from the hospital that closed. We made certain additional modifications to Sec. 413.79 in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53434), and we made changes to the section 5506 application process in the FY 2015 IPPS/LTCH PPS final rule (79 FR 50122 through 50134). The procedures we established apply both to teaching hospitals that closed on or after March 23, 2008, and on or before August 3, 2010, and to teaching hospitals that close after August 3, 2010 (75 FR 72215). b. Notice of Closure of Delaware County Memorial Hospital Located in Drexel Hill, PA, and the Application Process--Round 27 CMS has learned of the closure of Delaware County Memorial Hospital, located in Drexel Hill, PA (CCN 390081). Accordingly, this notice serves to notify the public of the closure of this teaching hospital and initiate another round (``Round 27'') of the application and selection process. This round will be the 27th round (``Round 27'') of the application and selection process. The table in this section of this rule contains the identifying information and IME and direct GME FTE resident caps for the closed teaching hospital, which are part of the Round 27 application process under section 5506 of the Affordable Care Act. [GRAPHIC] [TIFF OMITTED] TP14AP26.131 c. Notice of Closure of Crozer-Chester Medical Center Located in Chester, PA, and the Application Process--Round 28 CMS has learned of the closure of Crozer-Chester Medical Center, located in Chester, PA (CCN 390180). Accordingly, this notice serves to notify the public of the closure of this teaching hospital and initiate another round (``Round 28'') of the application and selection process. This round will be the 28th round (``Round 28'') of the application and selection process. The table in this section of this rule contains the identifying information and IME and direct GME FTE resident caps for the closed teaching hospital, which are part of the Round 28 application process under section 5506 of the Affordable Care Act. [GRAPHIC] [TIFF OMITTED] TP14AP26.132 d. Application Process for Available Resident Slots The application period for hospitals to apply for slots under section 5506 of the Affordable Care Act is 90 days following notice to the public of a hospital closure (77 FR 53436). Therefore, hospitals that wish to apply for and receive slots from the previously noted hospitals' FTE resident caps must submit applications using the electronic application intake system, Medicare Electronic Application Request Information SystemTM (MEARISTM), with application submissions for Round [[Page 19519]] 27 and 28 due no later than [insert date 90 days from date of filing for public inspection]. The Section 5506 application can be accessed at: https://mearis.cms.gov/public/home. CMS will only accept Round 27 and 28 applications submitted via MEARISTM. Applications submitted through any other method will not be considered. Within MEARISTM, we have built in several resources to support applicants: Please refer to the ``Resources'' section for guidance regarding the application submission process at: https://mearis.cms.gov/public/resources. Technical support is available under ``Useful Links'' at the bottom of the MEARISTM web page. Application related questions can be submitted to CMS using the form available under ``Contact'' at: https://mearis.cms.gov/public/resources. Application submission through MEARISTM will not only help CMS track applications and streamline the review process, but it will also create efficiencies for applicants when compared to a paper submission process. We have not established a deadline by when CMS will issue the final determinations to hospitals that receive slots under section 5506 of the Affordable Care Act. However, we review all applications received by the application deadline and notify applicants of our determinations as soon as possible. We refer readers to the CMS Direct Graduate Medical Education (DGME) website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/direct-graduate-medical-education-dgme. Hospitals should access this website for a list of additional section 5506 guidelines for the policy and procedures for applying for slots, and the redistribution of the slots under sections 1886(h)(4)(H)(vi) and 1886(d)(5)(B)(v) of the Act.

1. General

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

2. Medicare Advantage Nursing and Allied Health Education Payments

Section 541 of the Balanced Budget Refinement Act (BBRA) of 1999 (codified at section 1886(l) of the Act) provides for additional payments to hospitals for costs of nursing and allied health education associated with services to Medicare+Choice (now called Medicare Advantage (MA)) \120\ enrollees. Hospitals that operate approved nursing or allied health education programs and receive Medicare reasonable cost reimbursement for these programs may receive additional payments to account for MA enrollees. Section 541 of the BBRA limits total spending under the provision for MA enrollees to no more than $60 million in any calendar year (CY). (In this document, we refer to the total amount of $60 million or less as the payment ``pool''. We also note that section 4143 of Pub. L. 117-328 waived the $60 million limit for calendar years 2010 through 2019: see the August 28, 2023 Federal Register at 88 FR 59058.) Section 541 of the BBRA also provides that direct graduate medical education (GME) payments for Medicare+Choice (now MA) utilization be reduced to the extent that these additional payments are made for nursing and allied health education programs. The provisions of section 541 are effective for portions of cost reporting periods occurring in a calendar year, on or after January 1, 2000. --------------------------------------------------------------------------- \120\ The M+C program in Part C of Medicare was renamed the Medicare Advantage (MA) Program under the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), which was enacted in December 2003. --------------------------------------------------------------------------- Section 512 of the Benefits Improvement and Protection Act (BIPA) of 2000 changed the formula for determining the additional amounts to be paid to hospitals for Medicare+Choice (now MA) nursing and allied health costs. Under section 541 of the BBRA, the additional payment amount was determined based on the proportion of each individual hospital's nursing and allied health education payment to total nursing and allied health education payments made to all hospitals. However, this formula did not account for a hospital's specific Medicare+Choice (now MA) utilization. Section 512 of the BIPA revised this payment formula to specifically account for each hospital's Medicare+Choice (now MA) utilization. This provision was effective for portions of cost reporting periods occurring in a calendar year, beginning with CY 2001. The regulations at 42 CFR 413.87 implement these statutory provisions. We first implemented the BBRA NAH Medicare+Choice (now MA) provision in the August 1, 2000, IPPS interim final rule with comment period (IFC) (65 FR 47036 through 47039), and subsequently implemented the BIPA provision in the August 1, 2001 IPPS final rule (66 FR 39909 and 39910). In those rules, we outlined the qualifying conditions for a hospital to receive the NAH Medicare+Choice (now MA) payment, how we would calculate the NAH Medicare+Choice (now MA) payment pool, and how a qualifying hospital would calculate its ``share'' of payment from that pool. Determining a hospital's NAH MA payment essentially involves applying a ratio of the hospital-specific NAH Part A payments, total inpatient days, and MA inpatient days, to national totals of those same variables, from cost reporting periods ending in the fiscal year that is 2 years prior to the current calendar year. The formula is as follows: (((Hospital NAH pass-through payment/Hospital Part A Inpatient Days) * (Hospital MA Inpatient Days)) divided by ((National NAH pass-through payment/National Part A Inpatient Days) * (National MA Inpatient Days))) * Current Year Payment Pool. With regard to determining the total national amounts for NAH pass- through payment, Part A inpatient days, and MA inpatient days, we note that section 1886(l) of the Act, as added by section 541 of the BBRA, gives the Secretary the discretion to ``estimate'' the national components of the formula noted previously. For example, section 1886(l)(2)(A) of the Act states that the Secretary shall estimate the ratio of payments for all hospitals for portions of cost reporting periods occurring in the year under section 1886(h)(3)(D) of [[Page 19520]] the Act to total direct GME payments estimated for the same portions of periods under section 1886(h)(3) of the Act. Accordingly, we stated in the August 1, 2000, IFC (65 FR 47038) that each year, we would determine and publish in a final rule the total amount of nursing and allied health education payments made across all hospitals during the fiscal year 2 years prior to the current calendar year. We would use the best available cost reporting data for the applicable hospitals from the Hospital Cost Report Information System (HCRIS) for cost reporting periods in the fiscal year that is 2 years prior to the current calendar year. To calculate the pool, in accordance with section 1886(l) of the Act, we stated that we would ``estimate'' a total amount for each calendar year, not to exceed $60 million (65 FR 47038). To calculate the proportional reduction to Medicare+Choice (now MA) direct GME payments, we stated that the percentage is estimated by calculating the ratio of the Medicare+Choice nursing and allied health payment ``pool'' for the current calendar year to the projected total Medicare+Choice direct GME payments made across all hospitals for the current calendar year. We stated that the projections of Medicare+Choice direct GME and Part A direct GME payments are based on the best available cost report data from the HCRIS (for example, for CY 2000, the projections are based on the best available cost report data from FY 1998 HCRIS), and these payment amounts are increased using the increases allowed by section 1886(h) of the Act for these services (using the percentage applicable for the current calendar year for Medicare+Choice direct GME and the Consumer Price Index (CPI-U) increases for Part A direct GME). We also stated that we would publish the applicable percentage reduction each year in the IPPS proposed and final rules (65 FR 47038). Thus, in the August 1, 2000, IFC, we described our policy regarding the timing and source of the national data components for the NAH Medicare+Choice (now MA) add-on payment and the percent reduction to the direct GME Medicare+Choice payments, and we stated that we would publish the rates for each calendar year in the IPPS proposed and final rules. While the rates for CY 2000 were published in the August 1, 2000, IFC (see 65 FR 47038 and 47039), the rates for subsequent CYs were only issued through Change Requests (CRs) (CR 2692, CR 11642, CR 12407). After recent issuance of the CY 2019 rates in CR 12407 on August 19, 2021, we reviewed our update procedures, and were reminded that the August 1, 2000, IFC states that we would publish the NAH Medicare+Choice (now MA) rates and direct GME percent reduction every year in the IPPS rules. Accordingly, for CY 2020 and CY 2021, we proposed and finalized the NAH MA add-on rates in the FY 2023 IPPS/LTCH PPS proposed and final rules. We stated that for CYs 2022 and after, we would similarly propose and finalize the respective NAH MA rates and direct GME percent reductions in subsequent IPPS/LTCH PPS rulemakings (see 87 FR 49073, August 10, 2022). In this FY 2027 IPPS/LTCH PPS proposed rule, we proposed the rates for CY 2025. Consistent with the use of HCRIS data for past calendar years, we are proposing to use data from cost reports ending in FY 2023 HCRIS (the fiscal year that is 2 years prior to CY 2025) to compile these national amounts: NAH pass-through payment, Part A Inpatient Days, MA Inpatient Days. For this proposed rule, we accessed the FY 2023 HCRIS data from the third quarterly HCRIS update of 2025. However, to calculate the ``pool'' and the direct GME MA percent reduction, we ``project'' Part A direct GME payments and MA direct GME payments for the current calendar year, which in this proposed rule is CY 2025, based on the ``best available cost report data from the HCRIS'' (65 FR 47038). Next, consistent with the method we described previously in the August 1, 2000, IFC, we increase these payment amounts from midpoint to midpoint of the appropriate calendar year using the increases allowed by section 1886(h) of the Act for these services (using the percentage applicable for the current calendar year for MA direct GME, and the Consumer Price Index-Urban (CPI-U) increases for Part A direct GME). For CY 2025, the direct GME projections are based on the third quarterly update of CY 2023 HCRIS, adjusted for the CPI-U and for increasing MA enrollment. For CY 2025, the proposed national rates and percentages, and their data sources, are set forth in this table. We intend to update these numbers in the FY 2027 final rule based on the latest available cost report data. [GRAPHIC] [TIFF OMITTED] TP14AP26.133

3. Proposed Requirements To Prohibit Unlawful Discrimination in

Approved Nursing and Allied Health Education Programs and Accreditation Standards Hospitals may receive nursing and allied health education pass- through payments for costs incurred in connection with approved programs. The statute does not explicitly define ``approved programs'' for purposes of NAH education payments. Instead, section 1886(l)(1) of the Act refers to ``approved educational activities for nurse and allied health professional training''. Under the existing regulations at Sec. 413.85(e), CMS considers an activity to be an ``approved nursing and allied health education program'' if the program is a planned program of study that is licensed by State law, or if licensing is not required, is accredited by the recognized national professional organization for the particular activity. The regulations note that such national accrediting bodies include, but are not limited to, the Commission on Accreditation of Allied Health Education Programs, the National League of Nursing Accrediting Commission, the Association for Clinical Pastoral Education Inc., and the American Dietetic Association. In the CY 2026 OPPS/ASC final rule (90 FR 54024 through 54027), we finalized changes to the definition of ``approved medical residency program'' and equivalent terms, to state that accrediting organizations may not use accreditation criteria that promote or encourage discrimination on the basis of race, color, national origin, sex, age, [[Page 19521]] disability, or religion, including the use of those characteristics or intentional proxies for those characteristics as a selection criterion for employment, program participation, resource allocation, or similar activities, opportunities, or benefits. Our intent in finalizing this policy was to ensure that accreditation for approved medical residency programs would be in compliance with applicable laws related to race- based admission policies and to improve the accreditation process. In this proposed rule, we are proposing a similar policy that would apply to approved medical residency programs themselves. For further details on these existing and proposed policies, we refer readers to the CY 2026 OPPS/ASC final rule and to section V.F.2. of this proposed rule, respectively. We believe that similar concerns related to unlawful and discriminatory accreditation standards and program requirements also apply to approved nursing and allied health education programs. Therefore, we are proposing to require that, in addition to meeting other applicable requirements, individual NAH education programs and NAH accrediting bodies must not discriminate, or promote or encourage discrimination, on the basis of race, color, national origin, sex, age, disability, or religion, including the use of those characteristics or intentional proxies for those characteristics as a selection criterion for employment, program participation, resource allocation, or similar activities, opportunities, or benefits. These policies would be effective October 1, 2026, and would be codified under proposed new 42 CFR 413.84, which would be cross-referenced as necessary by the regulations at Sec. 413.85. Separately, we propose to remove from Sec. 413.85(e) the language specifying individual accrediting organizations of nursing and allied health education programs. In the January 12, 2001 Federal Register (66 FR 3365 through 3366), we eliminated the list of nursing and allied health specialty programs and respective accrediting bodies at Sec. 413.85(e) and instead established the general requirement that an approved NAH program must be a planned program of study that is licensed by State law, or if licensing is not required, is accredited by the recognized national professional organization for the particular activity. Nevertheless, we continued to provide examples of recognized accrediting bodies in the regulations text, specifically, the Commission on Accreditation of Allied Health Education Programs, the National League of Nursing Accrediting Commission, the Association for Clinical Pastoral Education Inc., and the American Dietetic Association. While it is our understanding that these organizations continue to accredit programs in their respective specialties, we no longer believe it is useful to reference a limited number of specific accreditors in the regulations, given the evolving nature of the field and the large number of additional accrediting bodies active across various disciplines.

4. Proposed Changes to the Regulations for Determining the Net Cost of

Nursing and Allied Health Education Programs and Clarifications Regarding the Correct Allocation of Overhead Costs a. Overview of Existing Regulations and Cost Report Instructions In the January 12, 2001, final rule (66 FR 3358) ``Medicare Program; Payment for Nursing and Allied Health Education'', we codified the payment regulations regarding NAH education program costs at 42 CFR 413.85. With regard to determining the net costs that are allowed for ``pass-through'' payment, Sec. 413.85(d)(2)(i) states that the net cost of approved educational activities is determined by deducting the revenues that a provider receives from tuition and student fees from the provider's total allowable educational costs that are directly related to approved educational activities. Section 413.85(d)(2)(ii) further states that a provider's total allowable educational costs are those costs incurred by the provider for trainee stipends, compensation of teachers, and other costs of the activities as determined under the Medicare cost-finding principles in Sec. 413.24. These costs do not include patient care costs, costs incurred by a related organization, or costs that constitute a redistribution of costs from an educational institution to a provider or costs that have been or are currently being provided through community support. Worksheet A of the Medicare cost report captures the direct costs associated with a hospital's various cost centers, including its NAH education programs. The direct costs associated with operating a hospital's approved NAH education programs are reported on Worksheet A, line 20 (nursing programs) and line 23 (paramedical/allied health education programs). The instructions to these lines state-- Lines 20 and 23--If you have an approved nursing or allied health education program that meets the criteria of 42 CFR 413.85(e), classroom and clinical portions of the costs may be allowable as pass- through costs as defined in 42 CFR 413.85(d)(2). (CMS Pub. 15-2, section 4013.) In addition to direct costs, hospitals also incur indirect or overhead costs associated with their operations. Overhead costs are assigned to the general service cost centers on lines 1 through 23 of Worksheet A, which are a hospital's non-patient care/non-revenue producing cost centers, and which include the administrative & general (A&G) cost center on line 5. The general cost report instructions for Worksheet A state-- Lines 1 through 23--These lines are for the general service cost centers. These costs are expenses incurred in operating the facility as a whole that are not directly associated with furnishing patient care such as, but not limited to mortgage, rent, plant operations, administrative salaries, utilities, telephone charges, computer hardware and software costs, etc. General service cost centers provide services to both general service areas and to other cost centers in the provider. (CMS Pub. 15-2, section 4013; emphasis added.) Because the costs of operating a hospital's NAH education programs are not directly associated with furnishing patient care, these cost centers are also included among the general service cost centers on Worksheet A. As noted in the cost report instructions cited previously, general service cost centers may furnish services to other general service areas. Thus, for example, a hospital's Administrative and General cost center may furnish services to its Nursing and Allied Health Education cost centers. The regulations and cost report instructions require that, prior to allocating overhead costs to the revenue producing cost centers, a provider must make appropriate reclassifications and adjustments to its direct costs. Worksheet A-6 is used to reclassify costs between cost centers on the cost report, while Worksheet A-8 is used to adjust both revenue and non-revenue producing cost centers for (1) expenses to reflect actual expenses incurred; (2) those items which constitute recovery of expenses through sales, charges, fees, etc.; (3) expenses in accordance with the Medicare principles of reimbursement; and (4) those items which are provided for separately in the cost apportionment process. (CMS Pub. 15-2, section 4016.) Adjustments, including the recovery of expenses through various forms of revenue, occur prior to cost finding, which is the process by which indirect costs (that is, the costs of the general service cost centers) are allocated to other cost centers (both other general service cost centers and revenue producing cost centers). Worksheets B, [[Page 19522]] Part I, and B-1 have been designed to accommodate the stepdown method of cost finding described at 42 CFR 413.24(d)(1). Certain other cost adjustments, referred to as post-stepdown adjustments, occur after the allocation of indirect and overhead costs and are reported separately on Worksheet B-2. On November 17, 2017, CMS issued Transmittal 12, which contained clarifications to the hospital cost report instructions at CMS-2552-10, Pub. 15-2, chapter 40. Transmittal 12 added the following clarification to line 19 of Worksheet A-8: Line 19--For each NAHE program on Worksheet A, line 20, and its subscripts, and Worksheet A, line 23, and its subscripts, enter the revenue adjustments (for tuition, fees, books, etc.) to be applied against total allowable costs that are directly related to the approved NAHE activities. Subscript this line to separately report the revenue offset for each NAHE program reported on line 20 and line 23 [and their subscripts]. (CMS Pub. 15-2, section 4016.) Transmittal 12 also added to Worksheet B-2 specific instructions for post-stepdown adjustments for certain costs associated with NAHE nonprovider-operated programs under 42 CFR 413.85(g)(2), with the following note: Note: Do not use this worksheet to reduce the total allowable costs that are directly related to the NAHE programs by the revenue received from tuition and student fees. Use Worksheet A-8 to offset NAHE program costs by tuition and student fees (42 CFR 413.85(d)(2)(i)). Do not use a post step-down adjustment. (CMS Pub. 15-2, section 4022.) In issuing these cost report clarifications in Transmittal 12, CMS was clarifying the rules regarding the appropriate order of operations for assigning costs and allocating overhead to the NAH education pass- through cost centers. Specifically, Transmittal 12 made it clear that adjustments to the direct costs of NAH education programs as a result of revenue received from tuition, student fees and other sources should occur on Worksheet A-8, prior to the allocation of overhead costs, and not as post-stepdown adjustments on Worksheet B-2. b. Recent Litigation and Rulemaking Activity On February 9, 2024, the U.S. District Court for the District of Columbia (DC) issued a decision involving five plaintiff hospitals (Mercy Health-St. Vincent Medical Center LLC d/b/a Mercy St. Vincent Medical Center v. Becerra, 717 F. Supp. 3d 33 (D.D.C. 2024)). The providers disputed the order of operations for determining ``net costs'' of approved educational activities under 42 CFR 413.85(d)(2)(i). The providers disagreed with the clarified instructions in Transmittal 12, and argued that the offsets for revenue from tuition and student fees should be made after indirect costs are allocated, using Worksheet B-2, which follows the allocation of indirect costs on Worksheet B, Part I. According to the providers, the regulations require that indirect costs be included as part of a provider's total allowable educational costs before tuition and student fees are offset, and the clarification of the cost reporting instructions in 2017 was a change in policy that conflicts with the regulations. The court sided with the providers, holding that the plain text of 42 CFR 413.85(d)(2)(i) is consistent with the providers' interpretation of the order of operations. In the FY 2026 IPPS proposed rule (90 FR 18280 through 18282), we proposed to revise 42 CFR 413.85(d)(2)(i) to define the net cost of approved educational activities in a manner consistent with the cost reporting clarifications in Transmittal 12. Specifically, we proposed that revenues from tuition, student fees and other sources should be subtracted from the allowable direct costs of a provider's NAH education programs prior to the allocation of overhead costs. We also clarified that, in order to mitigate the reduction in overhead costs that might result from this procedure, a provider could seek permission from its MAC to utilize a statistical basis other than accumulated cost for the purpose of allocating indirect costs to its nursing and allied health cost centers. More specifically, we explained that a provider may elect to subscript its administrative and general cost center (line 5 of Worksheet A) for overhead costs directly related to its NAH programs and employ a statistical basis other than accumulated cost that would accurately reflect the services rendered to those departments. In addition, we stated that the proposed order of operations to offset revenue from direct costs on Worksheet A-8 would be consistent with the policy that A&G costs allocated to the NAH cost centers must be directly related to the operation of specific approved programs, as finalized in the January 12, 2001 Federal Register (66 FR 3367). We received many comments in opposition to our proposal to determine the net cost of approved nursing and allied health education programs by deducting tuition and other revenue from direct costs prior to the allocation of indirect costs. Commenters objected that the proposed policy would be inconsistent with general cost-finding principles and would result in the NAH cost centers receiving less than their share of institutional overhead. Due to the number and nature of the comments we received, we decided not to finalize changes to our existing policy in the FY 2026 IPPS final rule (90 FR 36921). Instead, we stated that we expected to revisit the treatment of NAH education costs in future rulemaking. After considering the feedback we received on our earlier proposal, we continue to believe, for the reasons stated below, that correct accounting procedures require the deduction of tuition and other revenue from the direct costs of a provider's approved educational activities on Worksheet A-8, prior to the allocation of overhead, consistent with the clarifications contained in Transmittal 12. However, we acknowledge that it would be helpful to provide additional technical context to explain how the proposed order of operations is consistent with general Medicare cost-finding principles. We are also modifying our original proposal to ensure that the deduction of revenue on Worksheet A-8 does not inappropriately reduce the allocation of overhead to the NAH cost centers when hospitals allocate administrative and general costs using accumulated cost as the default statistical basis. In addition, we recognize that some portions of our discussion in the FY 2026 proposed rule may have caused confusion about our existing policies regarding allowable indirect costs of approved nursing and allied health education programs. In particular, some commenters believed that we had defined allowable indirect costs in such a way as to essentially preclude the recognition of overhead for purposes of NAH pass-through payment. Therefore, in this proposed rule, we are also proposing to clarify the nature of allowable indirect costs of approved educational activities and to refine the cost reporting procedures to ensure that hospitals appropriately allocate overhead costs to the NAH cost centers. c. Determination of Net Cost of Approved Nursing and Allied Health Education Activities (Sec. Sec. 413.85(d)(2)(i) and (ii)) We are proposing to change the regulations text at 42 CFR 413.85(d)(2)(i) and (ii) to state that the net cost of approved educational activities is determined by taking the allowable direct costs incurred by the provider for trainee stipends and compensation of faculty employed by the provider, and [[Page 19523]] subtracting from those direct costs the revenues the provider receives from students or on behalf of students enrolled in the program, such as, but not limited to, tuition, student fees, or textbooks purchased for resale. After subtracting revenues from allowable direct costs, indirect costs would be allocated to the nursing and allied health cost centers (limited to those costs that the provider itself incurs in connection with the operation of its approved educational activities), consistent with Medicare cost-finding principles at 42 CFR 413.24. The effective date of this proposed change would be cost reporting periods beginning on or after October 1, 2026. We are not proposing changes to the existing portion of the regulations at Sec. 413.85(d)(2)(ii) stating that net NAH costs do not include patient care costs, costs incurred by a related organization, or costs that constitute a redistribution of costs from an educational institution to a provider or costs that have been or are currently being provided through community support. (We discuss our proposed clarification of allowable indirect costs of educational activities and the associated cost reporting procedures in the following subsection of this preamble.) As we stated in the FY 2026 proposed rule (90 FR 18281), we understand that it is not uncommon for a provider's allowable nursing and allied health education programs to generate revenues from tuition, student fees and other sources that exceed the allowable direct costs the provider incurs for those programs. Because of that, the revenue offset on Worksheet A-8 might result in a zero or negative balance prior to the allocation of overhead costs; on Worksheet B-1, the accumulated cost statistic, which serves as the recommended statistical basis for allocating administrative and general costs, would consequently also be reduced to zero. Even if the provider were to componentize their administrative and general cost center (consistent with the procedures proposed below), certain components might continue to be allocated on the basis of accumulated cost, limiting the amount of A&G allocated to the provider's NAH cost centers, regardless of the extent to which those cost centers benefit from the hospital's administrative functions. In order to ensure that the deduction of revenue on Worksheet A-8 does not understate the administrative and general costs allocated to the NAH cost centers, we are proposing the following modifications to the procedures for offsetting revenue and computing the accumulated cost statistic. First, we are proposing that providers offset the total revenue generated by each NAH program, which may result in a credit balance (negative amount) on the corresponding line(s) of Worksheet A. Next, we propose that providers utilize the reconciliation column on Worksheet B-1 to adjust the accumulated cost statistic by the total amount of NAH revenue offset on Worksheet A-8, effectively reversing that offset for purposes of overhead allocation only. The following example illustrates the application of this procedure in the event that total revenues from tuition and other sources exceed the direct costs that the provider incurs for a particular NAH program. (Note, the same procedure would be followed if total revenues do not exceed direct costs.) Suppose that Hospital A incurs $1,000,000 in direct costs for an allied health education program; Hospital A reports $1,000,000 on line 23, column 5, of Worksheet A, which represents the direct costs of the program prior to any adjustments. Hospital A receives $1,200,000 in tuition and fees from students enrolled in the program; Hospital A reports a revenue adjustment of $1,200,000 on line 19, column 2, of Worksheet A-8, representing a recovery of expenses associated with that program. The revenue adjustment of $1,200,000 carries over to line 23, column 6, of Worksheet A. This results in a negative expense of ($200,000) ($1,000,000 minus $1,200,000 equals ($200,000)) on line 23, column 7. Assume for purposes of this example that there are no further adjustments (positive or negative) to Hospital A's direct NAH costs. On Worksheet B-1, the hospital then utilizes the reconciliation column (line 23, column 5A) to increase the accumulated cost statistic by the amount of revenue offset previously, $1,200,000. (Note: in the cost report software, the provider must ensure to indicate ``override with value'' and check to add this value to the existing accumulated cost from Worksheet B, Part I, line 23, column 4A.) The accumulated cost statistic for purposes of allocating A&G on Worksheet B, Part I, will be equal to the adjusted expense on Worksheet A, column 7, line 23, plus the amount of revenue from tuition and fees deducted on Worksheet A-8, plus any amounts already allocated to the NAH cost center on Worksheet B, Part I, line 23, columns 1 through 4. From this point, the stepdown process on Worksheet B, Part I, continues according to normal procedures. While the accumulated cost statistic will thus allocate an appropriate share of institutional overhead to the NAH cost center, the amount of NAH costs available for allocation on Worksheet B, Part I, line 23, column 23, will continue to reflect the revenue offset, ensuring that the unallowable costs are not allocated from NAH to the patient care cost centers. We emphasize that the deduction of tuition and other revenue on Worksheet A-8, prior to the allocation of indirect costs on Worksheet B, Part I, is consistent with general Medicare cost-finding principles as described in PRM 15-1, chapter 23, and the cost report instructions in PRM 15-2, chapter 40, and as codified in the regulations at 42 CFR 413.24. The general service cost centers, including the NAH cost centers, represent a hospital's allowable non-patient care expenses, which are allocated to all the cost centers they serve via the stepdown method on Worksheet B, Part I. Once these expenses have been allocated to the patient care cost centers, Medicare's share of allowable costs is determined based on the hospital's Medicare utilization. It is therefore necessary to remove those costs that are not generally allowable to Medicare prior to the stepdown process. Such generally unallowable costs include indirect expenses that are recovered through related non-patient care revenue, as reported on lines 6 through 25 on Worksheet G-3 (including tuition on line 19). For example, interest expense and cafeteria expense are allowable general service non-patient care expenses; however, interest expense is reduced by investment income, and cafeteria expense is reduced by income from the sale of food and drink. Similarly, the tuition and other revenue received for a hospital's nursing and allied health education programs constitute non- patient care revenues that must be used to offset (reduce) the related NAH program expense on Worksheet A-8, consistent with the handling of other non-patient care revenue as described above. We would also like to take the opportunity to address concerns raised in response to the FY 2026 proposed rule that the proposed order of operations for deducting tuition and other revenue would be inconsistent with our treatment of organ acquisition costs, which are also reimbursed on a pass-through basis. In contrast to the NAH cost centers, the organ acquisition cost centers are ancillary/revenue- producing centers related to patient care. Revenue for organs sold to other [[Page 19524]] organ procurement organizations or transplant hospitals may only be used to reduce Medicare's share of costs for organs claimed as Medicare usable organs. Those costs are not determined until the full apportionment process on Worksheet D-4, after the allocation of indirect costs on Worksheet B, Part I. By contrast, NAH costs are general service (non-revenue-producing) costs that are not directly related to patient care and are reimbursed to the extent the costs incurred have not been recovered through tuition and other fees. Only the net cost that the hospital actually bears is allocated to other departments. Thus, adjustments for tuition and other NAH revenue must occur on Worksheet A-8, which modifies total costs, not Medicare's share of costs. (However, note that if there are generally non- allowable costs included in an organ acquisition cost center, those costs would be removed on Worksheet A-8, prior to determining Medicare's share of costs.) d. Identification of Allowable Indirect (Overhead) Costs of Approved Educational Activities The FY 2026 proposed rule included a discussion of the types of costs allowable for purposes of pass-through payment under 42 CFR 413.85 (90 FR 18281 through 18282). That discussion referred to our longstanding nursing and allied health payment policies finalized in the January 12, 2001 Federal Register (66 FR 3367), in which we clarified the meaning of the term ``tuition'' and specified that ``total costs'' include direct and indirect costs incurred by a provider that are directly attributable to the operation of an approved educational activity. We explained in the 2001 final rule that such costs do not include usual patient care costs that would be incurred in the absence of the educational activity, such as the salary costs for nursing supervisors who oversee the floor nurses and student nurses; moreover, these costs do not include costs incurred by a related organization. In the FY 2026 proposed rule, we observed that a significant portion of the indirect costs that certain hospitals allocate to their nursing and allied health cost centers include costs incurred by a related organization (such as a home office), in violation of the regulation at Sec. 413.85(d)(2)(ii),\121\ as well as administrative and general costs that may be incurred by the hospital but are not directly attributable to the operation of the hospital's NAH education programs. We stated that those A&G costs not directly incurred as a result of operating a hospital's NAH education programs are paid as normal operating costs under the IPPS (or other applicable hospital payment system) rather than on a pass-through basis. As examples of such costs, we listed costs that benefit the hospital as a whole and that would generally be incurred in the absence of a provider's NAH programs, such as Infection Control, Admissions, Patient Registration, Telecommunications, etc. We stated that it is therefore the provider's responsibility to request permission from its MAC to use an allocation method for overhead costs that accurately and appropriately reflects overhead costs incurred by the provider as a direct result of operating its NAH education programs. --------------------------------------------------------------------------- \121\ In addition to the regulation under 413.85(d)(2)(ii), we note that under Sec. 413.85(f)(1)(i), the provider itself must directly incur the training costs in order for a program to be deemed provider-operated and thus eligible for pass-through payment. Accordingly, we caution related parties about incurring NAH training costs (including indirect costs), as that could jeopardize the provider's status as the operator of the program. --------------------------------------------------------------------------- We intended this discussion in the FY 2026 proposed rule to serve as a restatement and clarification of various elements of our existing NAH payment policies. Nevertheless, we received several comments objecting to our characterization of the allowable costs of educational activities. In particular, commenters alleged that we had defined allowable indirect costs in such a way as to effectively preclude the allocation of overhead to the NAH cost centers, by requiring that indirect costs be ``directly attributable'' to the operation of a provider's NAH education programs. One commenter also objected to our examples of unallowable indirect costs and specifically to our characterization of the salary costs of a nursing supervisor as ``usual patient care costs that would be incurred in the absence of the educational activity'' and that are thus not allowable for purposes of NAH pass-through payment. We are therefore taking this opportunity to further clarify our existing policies concerning the nature of allowable costs of nursing and allied health, as well as to propose specific procedures for correctly allocating those costs on the hospital cost report. First, we propose to clarify the meaning of the statement in the January 12, 2001, final rule that ``total costs'' include only ``direct and indirect costs incurred by a provider that are directly attributable to the operation of an approved educational activity.'' We note that these costs are explicitly contrasted with ``usual patient care costs that would be incurred in the absence of the educational activity, such as the salary costs for nursing supervisors who oversee the floor nurses and student nurses'' (66 FR 3367). With respect to the assignment of direct costs on Worksheet A, the purpose of this requirement is to distinguish between the costs of NAH educational activities engaged in by the hospital's nursing and allied health staff, which would not occur in the absence of a hospital's approved NAH programs and which are thus ``directly attributable'' to the operation of such programs, and the costs of usual patient care services, which may be furnished by some of the same staff members and which the hospital would incur even in the absence of its NAH programs. For example, a nursing supervisor who oversees floor nurses and student nurses may spend part of his or her time engaged in usual patient care activities, such as monitoring patient vital signs or directing the clinical activities of the floor nurses, and part of the time instructing students in the hospital's nursing program. A portion of the salary costs of the nursing supervisor would be considered direct costs of the nursing program, and the salary costs would thus be apportioned between the hospital's patient care and nursing education cost centers, based on the percentage of time the supervisor spent on each activity. This procedure is analogous to the apportionment of the salary costs of teaching physicians who spend part of their time supervising residents and part of their time providing clinical services to the hospital's patients. With respect to the allocation of indirect costs on Worksheet B, Part I, the requirement that such costs must be ``directly attributable to the operation of an approved educational activity'' does not categorically preclude the allocation of institutional overhead to the nursing and allied health cost centers. Rather, this requirement emphasizes the general principle that indirect costs allocated to a particular cost center must proportionately reflect the extent to which that department benefits from the hospital's various overhead functions. For example, if only certain staff in a hospital department work on administrative functions related to the NAH program, then only the salary costs of those particular staff, and not the costs of the entire department/cost center, should be allocated to the NAH cost centers, as only the salary costs of those particular staff are ``directly attributable to the operation of an approved educational activity.'' We are clarifying that, if a hospital's nursing or [[Page 19525]] allied health education program benefits from a particular overhead function whose costs are incurred directly by the provider (rather than a related party), then the corresponding NAH cost center must only receive a proportional share of the indirect costs associated with that function, since the function may also provide a benefit to the hospital's other departments, and since the provider would have incurred costs for that function in the absence of its approved NAH programs. That is, the fact that hospital departments are complex and service multiple areas of the hospital necessitates a distinction between those costs that do and do not provide a benefit to a hospital's NAH programs, and the accurate apportionment of only those costs that provide a benefit to the NAH cost centers. Furthermore, we reiterate the policy finalized in the January 12, 2001, Federal Register that allowable costs do not include costs incurred by a related organization, such as a corporate home office. If a program does not derive a benefit from a particular overhead function, then it should not receive any of the indirect costs that the provider incurs for that function. In the FY 2026 proposed rule, we listed examples of several types of overhead, such as Infection Control, Admissions, Patient Registration, Telecommunications, etc., that we believe would usually not provide a benefit to hospitals' NAH education programs, and whose costs should therefore not be allocated to the NAH cost centers. However, we recognize that hospitals' operations vary and that different NAH programs may require different forms of administrative support, potentially including one or more of the functions enumerated in the FY 2026 proposed rule. As stated above, whether or not a particular overhead cost should be allocated to the NAH cost centers depends on whether or not that function provides a benefit to the hospital's NAH programs. The general service cost centers, including the administrative and general cost center, comprise a variety of distinct overhead functions, some of which may benefit the hospital's nursing and allied health education programs, while others may not. In order to properly distinguish between the costs associated with these distinct functions, and to ensure that the pass-through cost centers receive only those indirect costs allowable under our longstanding policies, we are proposing to require providers with approved NAH education programs to componentize (that is, to fragment or subscript) their general service cost centers according to the procedures described below. We are proposing that if a hospital operates ``approved educational activities,'' as defined under Sec. 413.85(c) and subject to the provider-operated requirements under Sec. 413.85(f), then the hospital must identify any general service cost center that comprises costs of multiple overhead functions, where some of those functions provide a benefit to the hospital's NAH programs and others do not. For each such general service cost center, the hospital must create one or more subscripts that contain only those costs that provide a benefit to its NAH programs. (Note that such costs may also provide a benefit to other departments of the hospital.) As a result of this process, the general service cost center would contain the following components (in addition to any other subscripts created by the hospital for other purposes): (1) Indirect costs that provide a benefit to the hospital's NAH programs, and (2) Indirect costs that do not provide a benefit to NAH. Only those costs contained in component (1) would flow to Worksheet D, Parts III and IV, to be reimbursed on a pass-through basis. On lines 20 and 23 (and subscripts thereof) of Worksheet B-1, the hospital would delete (zero out) the allocation statistic in the column corresponding to component (2), so that those costs are allocated to the departments that they serve but not to the NAH cost centers. We note that a similar procedure would apply to certain nonprovider-operated programs paid for clinical costs on a pass-through basis under 42 CFR 413.85(g)(1) and (2). In contrast to provider- operated programs paid under Sec. 413.85(f), providers that qualify for reasonable cost payment of clinical costs associated with nonprovider operated programs under Sec. 413.85(g) may receive reasonable cost payment for the clinical training costs only, including the clinical training costs incurred by a related organization (Sec. 413.85(g)(2)(v); 66 FR 3367); however, the January 12, 2001 Federal Register explicitly states that ``overhead costs incurred by a related organization generally would not be considered allowable'' under this provision (66 FR 3369). Accordingly, under our proposal, a provider that claims pass-through costs under Sec. Sec. 413.85(g)(1) and (2) must further distinguish between overhead costs incurred directly by the provider and those incurred by a related party. This would be accomplished by creating an additional subscript of the general service cost center containing only those related party costs.\122\ We further note that any excess clinical training costs as defined at Sec. 413.85(g)(2)(iii) would continue to be removed as a post-stepdown adjustment on Worksheet B-2, consistent with the instructions in CMS Pub. 15-2, section 4022. --------------------------------------------------------------------------- \122\ General service costs incurred by a related party are reported on Worksheet A-8-1 of the hospital cost report. Under our proposal, if the hospital reports related party overhead costs associated with an NAH program on Worksheet A-8-1, then it must create an additional subscript for each corresponding general service cost center containing only those related party costs. Overhead costs incurred by a related organization and allocated to the NAH cost centers would be removed as a post-stepdown adjustment on Worksheet B-2; such costs are not paid on a pass-through basis, but instead are allowable as normal operating costs of the hospital, included in the prospective payment rates. --------------------------------------------------------------------------- These procedures would ensure that only indirect costs incurred by the provider that are ``directly attributable'' to the provider's operation of approved educational activities are allocated to the pass- through NAH cost centers. We note that the componentization of general service cost centers is consistent with longstanding Medicare cost reporting procedures as described in CMS Pub. 15-1, chapter 23, section 2307(B). In addition, we are clarifying that the hospital must ensure that the statistical basis used to allocate each general service cost center and its subscripts (if applicable) must reasonably relate to the general service costs and must appropriately reflect the proportion of those costs attributable to the downstream cost centers, including NAH. For further discussion of the use of appropriate allocation statistics, refer to section X.D.3. of this proposed rule (``Clarification and Codification of Cost Allocation Principles''). The following example illustrates the application of our proposed procedures in the case of a hospital with a subset of administrative and general costs allowable for purposes of NAH pass-through payment. Assume the hospital's NAH programs are deemed provider-operated consistent with the requirements at Sec. 413.85(f). Example: Suppose that a hospital reports $100,000,000 in administrative and general costs, of which $75,000,000 is attributable to specific overhead functions (such as executive salaries, accounting services, and facility administrative services) that provide a benefit to the hospital's approved NAH education programs, as well as to the rest of the hospital. The remaining $25,000,000 is attributable to functions (such as legal services and inpatient admissions) that do not provide a benefit to the hospital's NAH programs. [[Page 19526]] The hospital would subscript its A&G cost center as follows: One subscript (for example, line 5.01), would contain the $75,000,000 in A&G costs that provide a benefit to the hospital's NAH programs. Another subscript (for example, line 5.02), would contain the residual $25,000,000 in A&G costs not attributable to the hospital's NAH programs. Cost center 5.01 would be allocated among all cost centers on an appropriate statistical basis (for example, accumulated cost, adjusted so as to reverse the offset of tuition and/or other revenue, as described in the preceding section of this proposal); any costs allocated to the NAH cost centers would flow to Worksheet D, Parts III and IV, and be reimbursed on a pass-through basis. The hospital would delete (zero out) the allocation statistic on Worksheet B-1, lines 20 and 23, column 5.02; this would prevent A&G costs unrelated to the hospital's NAH programs from being allocated to the NAH cost centers. We propose that the effective date of these policies would be cost reporting periods beginning on or after October 1, 2026. We intend to issue revisions to the hospital cost report (Form CMS-2552-10) to implement these policies, if finalized.

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

412.85 and 412.312) Effective for FY 2021, we created MSDRG 018 for cases that include procedures describing CAR T-cell therapies, which were reported using ICD-10-PCS procedure codes XW033C3 or XW043C3 (85 FR 58599 through 58600). Effective for FY 2022, we revised MSDRG 018 to include cases that report the procedure codes for CAR T-cell and non-CAR T-cell therapies and other immunotherapies (86 FR 44798 through 448106). Effective for FY 2021, we modified our relative weight methodology for MSDRG 018 to develop a relative weight that is reflective of the typical costs of providing CAR T-cell therapies relative to other IPPS services. Specifically, under our finalized policy we do not include claims determined to be clinical trial claims that group to MS-DRG 018 when calculating the average cost for MS-DRG 018 that is used to calculate the relative weight for this MSDRG, with the additional refinements that: (a) when the CAR T-cell therapy product is purchased in the usual manner, but the case involves a clinical trial of a different product, the claim will be included when calculating the average cost for MS DRG 018 to the extent such claims can be identified in the historical data; and (b) when there is expanded access use of immunotherapy, these cases will not be included when calculating the average cost for MS-DRG 018 to the extent such claims can be identified in the historical data (85 FR 58600). The term ``expanded access'' (sometimes called ``compassionate use'') is a potential pathway for a patient with a serious or immediately life-threatening disease or condition to gain access to an investigational medical product (drug, biologic, or medical device) for treatment outside of clinical trials when, among other criteria, there is no comparable or satisfactory alternative therapy to diagnose, monitor, or treat the disease or condition (21 CFR 312.305).\123\ --------------------------------------------------------------------------- \123\ https://www.fda.gov/news-events/expanded-access/expanded-access-keywords-definitions-and-resources --------------------------------------------------------------------------- Effective FY 2021, we also finalized an adjustment to the payment amount for applicable clinical trial and expanded access immunotherapy cases that group to MS-DRG 018 using the same methodology that we used to adjust the case count for purposes of the relative weight calculations (85 FR 58842 through 58844). (As previously noted, effective beginning FY 2022, we revised MS-DRG 018 to include cases that report the procedure codes for CAR T-cell and non-CAR T-cell therapies and other immunotherapies (86 FR 44798 through 448106).) Specifically, under our finalized policy we apply a payment adjustment to claims that group to MS-DRG 018 and include ICD-10CM diagnosis code Z00.6, with the modification that when the CAR T-cell, non-CAR T-cell, or other immunotherapy product is purchased in the usual manner, but the case involves a clinical trial of a different product, the payment adjustment will not be applied in calculating the payment for the case. We also finalized that when there is expanded access use of immunotherapy, the payment adjustment will be applied in calculating the payment for the case. Effective FY 2026, we also finalized the application of the payment adjustment for clinical trial and expanded access use of immunotherapy cases to other cases where the immunotherapy product is not purchased in the usual manner, such as obtained at no cost. This payment adjustment is codified at 42 CFR 412.85 (for operating IPPS payments) and 412.312 (for capital IPPS payments), for claims appropriately containing Z00.6, as described previously, and reflects that the adjustment is also applied for cases involving expanded access use immunotherapy, and that the payment adjustment only applies to applicable clinical trial cases; that is, the adjustment is not applicable to cases where the CAR T-cell, non-CAR T-cell, or other immunotherapy product is purchased in the usual manner, but the case involves a clinical trial of a different product. The regulations at 42 CFR 412.85(c) also specify that the adjustment factor will reflect the average cost for cases assigned to MS-DRG 018 that involve expanded access use of immunotherapy, are part of an applicable clinical trial, or for discharges occurring on or after October 1, 2025, other cases where the immunotherapy product is not purchased in the usual manner, such as provided at no cost, to the average cost for all other cases assigned to MS-DRG 018 (90 FR 36922). For FY 2027, we are proposing to continue to apply an adjustment to the payment amount for expanded access use of immunotherapy and applicable clinical trial cases, and other cases where the immunotherapy product is not purchased in the usual manner, such as obtained at no cost, that group to MS-DRG 018, calculated using the same methodology, as modified in the FY 2024 IPPS/LTCH PPS final rule (88 FR 59062), that we are proposing to use to adjust the case count for purposes of the relative weight calculations, including our proposed modifications to that methodology for FY 2027, as described in section II.D. of the preamble of this proposed rule. As discussed in the FY 2024 IPPS/LTCH PPS final rule, the MedPAR claims data now includes a field that identifies whether or not the claim includes expanded access use of immunotherapy. For the FY 2023 MedPAR data and for subsequent years, this field identifies whether or not the claim includes condition code 90. The MedPAR files now also include information for claims with the payer-only condition code ``ZC'', which is used by the IPPS Pricer to identify a case where the CAR T-cell, non-CAR T-cell, or other immunotherapy product is purchased in the usual manner, but the case involves a clinical trial of a different product so that the payment adjustment is not applied in calculating the payment for the case (for example, see Change Request 11879, available at https://www.cms.gov/files/document/r10571cp.pdf). We refer the readers to section II.D. of this proposed rule for further discussion of our proposed methodology for identifying clinical trial claims and expanded access use [[Page 19527]] claims in MS-DRG 018 and our methodology used to adjust the case count for purposes of the relative weight calculations, as modified in the FY 2024 IPPS/LTCH PPS final rule, and as further modified for FY 2026 to identify other claims for which the immunotherapy product was not purchased in the usual manner, such as obtained at no cost. Using the same methodology that we are proposing to use to adjust the case count for purposes of the relative weight calculations, we are proposing to calculate the adjustment to the payment amount for expanded access use of immunotherapy, applicable clinical trial cases, and other cases where the immunotherapy product is not purchased in the usual manner, such as obtained at no cost as follows: Calculate the average cost for cases assigned to MS-DRG 018 that: (a) contain ICD-10-CM diagnosis code Z00.6 and do not contain condition code ``ZC''; (b) contain condition code ``90''; or (c) contain standardized drug charges below the median standardized drug charge of clinical trial cases in MS-DRG 018. Calculate the average cost for all other cases assigned to MS-DRG 018. Calculate an adjustor by dividing the average cost calculated in step 1 by the average cost calculated in step 2. Apply this adjustor when calculating payments for expanded access use of immunotherapy, applicable clinical trial cases, and other cases where the immunotherapy product is not purchased in the usual manner, such as obtained at no cost, that group to MS-DRG 018 by multiplying the relative weight for MS-DRG 018 by the adjustor. We refer the readers to section II.D. of the preamble of this proposed rule for further discussion of our methodology. Consistent with our calculation of the proposed adjustor for the relative weight calculations, for this proposed rule we are proposing to calculate this adjustor based on the December 2025 update of the FY 2025 MedPAR file for purposes of establishing the FY 2027 payment amount. Specifically, in accordance with 42 CFR 412.85 (for operating IPPS payments) and 412.312 (for capital IPPS payments), we are proposing to multiply the FY 2027 relative weight for MS-DRG 018 by a proposed adjustor of 0.17 as part of the calculation of the payment for claims determined to be applicable clinical trial claims, expanded access use immunotherapy claims, or other cases where the immunotherapy product is not purchased in the usual manner, such as obtained at no cost, that group to MS-DRG 018, which includes CAR T-cell and non-CAR T-cell therapies and other immunotherapies. We are also proposing to update the value of the adjustor based on more recent data for the final rule.

1. Regulatory Background

Section 1886(q) of the Act sets forth the requirements of the Hospital Readmissions Reduction Program effective for discharges from applicable hospitals beginning on or after October 1, 2012. Under the Hospital Readmissions Reduction Program, payments to applicable hospitals must be reduced to account for certain excess readmissions after an initial treatment for specified diagnoses (referred to in section 1886(q)(5)(A) of the Act as ``applicable conditions'', certain high-volume or high-expenditure conditions specified by the Secretary). We refer readers to the FY 2016 IPPS/LTCH PPS final rule (80 FR 49530 through 49543) and the FY 2018 IPPS/LTCH PPS final rule (82 FR 38221 through 38240) for a general overview of the Hospital Readmissions Reduction Program. We also refer readers to 42 CFR 412.152 through 412.154 for codified Hospital Readmissions Reduction Program requirements.

2. Hospital Readmissions Reduction Program Measures

a. Summary of Previously Adopted Measures for the Hospital Readmissions Reduction Program Table V.K-01 shows the Hospital Readmissions Reduction Program measure set for the FY 2027 program year and subsequent years, that is, the ``applicable conditions'' used to calculate excess readmission ratios.\124\ Additional resources on the measure technical specifications and methodology for the Hospital Readmissions Reduction Program are available on the CMS QualityNet website (available at: https://qualitynet.cms.gov/inpatient/measures/readmission/methodology). --------------------------------------------------------------------------- \124\ Sec. 412.152. [GRAPHIC] [TIFF OMITTED] TP14AP26.134 [[Page 19528]] b. Proposed Adoption of the Hospital 30-Day, All-Cause, Risk- Standardized Readmission Rate Following Sepsis Hospitalization Measure (1) Background Sepsis, or septicemia, is a life-threatening condition that results from the body's dysregulated response to infection and is a leading cause of mortality, hospitalization, and readmission in the United States.\125\ It is the most frequent principal diagnosis among non- maternal, non-neonatal inpatients, with over 2.2 million hospitalizations reported in 2018.\126\ Of the 1.7 million adults diagnosed with sepsis annually, approximately 20 percent die.127 128 129 --------------------------------------------------------------------------- \125\ An Assessment of Sepsis in the United States and its Burden on Hospital Care. Rockville, MD: Agency for Healthcare Research and Quality; 2024. AHRQ Pub No. 24-0087. \126\ McDermott K.W., Roemer M. (2021). Most Frequent Principal Diagnoses for Inpatient Stays in U.S. Hospitals, 2018. Healthcare Cost and Utilization Project (HCUP) Statistical Brief #277. Available at: https://pubmed.ncbi.nlm.nih.gov/34428003/. Accessed March 23, 2026. \127\ Centers for Disease Control and Prevention. About Sepsis. August 2025. Available at: https://www.cdc.gov/sepsis/about/index.html. Accessed March 23, 2026. \128\ U.S Department of Health and Human Services. Agency for Healthcare Research and Quality. Report to Congress: An Assessment of Sepsis in the United States and its Burden on Hospital Care. 2024. Available at: https://www.ahrq.gov/sites/default/files/publications2/files/sepsis-report-to-congress_0.pdf. \129\ Page B., Klompas M., Chan C., et al. Surveillance for healthcare-associated infections: hospital-onset adult sepsis events versus current reportable conditions. Clin Infect Dis 2021; 73:1013- 9. --------------------------------------------------------------------------- Consistent with section 1886(q)(5)(A) of the Act, which, as noted above, defines an ``applicable condition'' in the Hospital Readmissions Reduction Program, sepsis readmissions are both high volume and high expenditure. Thirty-day average readmission rates for patients with sepsis are estimated to be about 21 percent.\130\ Sepsis is also associated with poor health outcomes, such as the development of chronic conditions and functional impairment,\131\ as well as higher costs compared to other conditions included in CMS value-based and quality reporting programs.\132\ Between 2016 and 2021, the aggregate hospital costs for patients with sepsis aged 65 and older increased from $16.7 billion to $26.3 billion, and the average total cost of sepsis stays for this population increased from $21,700 to $25,000 over this period. \133\ Approximately 50 percent of the total hospital costs for sepsis stays in 2020 and 2021 were associated with stays expected to be billed to Medicare.\134\ A recent study concluded that the quality reporting and payment-for-performance programs should address these concerns after finding that sepsis readmissions occurred at a rate similar to that of other conditions included in the Hospital Readmissions Reduction Program (for example, heart failure, chronic obstructive pulmonary disease, acute myocardial infarction).\135\ --------------------------------------------------------------------------- \130\ Shankar-Hari, et al. Rate and Risk Factors for Rehospitalization in Sepsis Survivors: Systematic Review and Meta- analysis. 2020. Intensive Care Med; 46(4):619-636. doi: 10.1007/ s00134-019-05908-3. \131\ Van der Slikke, E.C., Beumeler, L.F., Holmqvist, M., Linder, A., Mankowski, R.T., & Bouma, H.R. (2023). Understanding post-sepsis syndrome: how can clinicians help?. Infection and Drug Resistance, 6493-6511. https://doi.org/10.2147/IDR.S390947. \132\ Weiss A., Jiang J. Overview of clinical conditions with frequent and costly hospital readmissions by payer, 2018 #278. hcup-us.ahrq.gov. Published 2021. https://hcup-us.ahrq.gov/reports/statbriefs/sb278-Conditions-Frequent-Readmissions-By-Payer-2018.jsp. \133\ Owens, P.L., et al. (2024). Overview of Outcomes for Inpatient Stays Involving Sepsis, 2016-2021 (HCUP Statistical Brief No. 306). Agency for Healthcare Research and Quality. Available at: https://hcup-us.ahrq.gov/reports/statbriefs/sb306-overview-sepsis-2016-2021.pdf. \134\ Owens, P.L., et al. (2024). Overview of Outcomes for Inpatient Stays Involving Sepsis, 2016-2021 (HCUP Statistical Brief No. 306). Agency for Healthcare Research and Quality. Available at: https://hcup-us.ahrq.gov/reports/statbriefs/sb306-overview-sepsis-2016-2021.pdf. \135\ Cam C., Bridging the Gap: Developing a Standardized Metric for Sepsis Readmission Using CMS Methodology. Hospital Quality Institute. 2025. https://hqinstitute.org/file/analysis-paper-developing-a-standardized-metric-for-sepsis-readmission-using-cms-methodologies/. --------------------------------------------------------------------------- Sepsis readmissions are often preventable, highlighting the need for targeted interventions to reduce sepsis-related mortality and improve post-discharge outcomes including readmissions.\136\ Readmission following a sepsis hospitalization may be a result of inadequate treatment of the initial infection, complications of hospital care, or secondary to the many challenges in implementation of care transitions and immediate post-discharge care among a complex patient population.137 138 Research has demonstrated that targeted quality improvement initiatives can reduce sepsis readmission rates. One study at a large, academically-affiliated hospital showed that the use of multimodal interventions, such as clinical decision support tools, sepsis response teams, standardized order sets, and data-driven quality tracking, have been associated with a lower rate of infection-related readmissions as well as lower overall readmission rates.\139\ Another study of patients with severe sepsis showed that post-discharge strategies, including timely home health visits and outpatient physician follow-up within the first week, reduced all-cause 30-day readmissions.\140\ A randomized clinical trial at a multisite facility showed that a multicomponent post-sepsis transition service led by a nurse navigator was associated with a 20 percent reduced risk of 30-day readmission or mortality compared to usual care.\141\ These findings highlight the effectiveness of both in-hospital and post- discharge quality improvement efforts in improving outcomes for sepsis patients. --------------------------------------------------------------------------- \136\ Taylor, Stephanie et. al., 43: Effect of a Navigator-Led Transition and Recovery Program on Mortality and Readmission After Sepsis. Critical Care Medicine 49(1):p 22. (2021). doi: 10.1097/ 01.ccm.0000726200.09497.d2. \137\ Ackermann K., Lynch I., Aryal N., Westbrook J., Li L. Hospital readmission after surviving sepsis: A systematic review of readmission reasons and meta-analysis of readmission rates. Journal of Critical Care. 2025/02/01/2025;85:154925. doi:https://doi.org/10.1016/j.jcrc.2024.154925. \138\ Gadre S.K., Shah M., Mireles-Cabodevila E., Patel B., Duggal A. Epidemiology and Predictors of 30-Day Readmission in Patients With Sepsis. CHEST. 2019;155(3):483-490. doi:10.1016/ j.chest.2018.12.008. \139\ Alnababteh M.H., Huang S.S., Ryan A., McGowan K.M., Yohannes S.A. Multimodal Sepsis Quality-Improvement Initiative Including 24/7 Screening and a Dedicated Sepsis Response Team- Reduced Readmissions and Mortality. Crit Care Explor. 2020 Nov. 24;2(12):e0251. doi: 10.1097/CCE.0000000000000251. \140\ Deb P., Murtaugh C.M., Bowles K.H., et al. Does Early Follow-Up Improve the Outcomes of Sepsis Survivors Discharged to Home Health Care? Medical Care. 2019;57(8):633-640. doi:10.1097/ mlr.0000000000001152. \141\ Taylor S.P., Murphy S., Rios A., et al. Effect of a Multicomponent Sepsis Transition and Recovery Program on Mortality and Readmissions After Sepsis: The Improving Morbidity During Post- Acute Care Transitions for Sepsis Randomized Clinical Trial*. Critical Care Medicine. 2022. https://doi.org/10.1097/CCM.0000000000005300. --------------------------------------------------------------------------- (2) Overview of Measure We propose adopting the Hospital 30-Day, All-Cause, Risk- Standardized Readmission Rate Following Sepsis Hospitalization measure (Sepsis Readmission measure) for the Hospital Readmissions Reduction Program beginning with an applicable period of July 1, 2025, to June 30, 2027, for the FY 2029 program year. The purpose of the Sepsis Readmission measure is to improve patient outcomes by providing patients, physicians, hospitals, and policymakers with important information about hospital-level unplanned readmission rates following hospitalization for sepsis. The Sepsis Readmission measure would encourage hospitals to improve patient safety and the quality of care provided across the care continuum by tracking hospital-level rates of sepsis readmission. The measure would also promote adherence to evidence-based practices, including standardized clinical protocols, [[Page 19529]] implementation of targeted post-discharge interventions, and appropriate discharge planning. This measure would also give consumers meaningful insights into the quality of care received by Medicare patients.\142\ --------------------------------------------------------------------------- \142\ https://p4qm.org/measures/5275. Accessed March 23, 2026. --------------------------------------------------------------------------- The measure aligns with our Meaningful Measures 2.0 priority area of ``Seamless Care Coordination,'' which aims to ensure patients receive timely and coordinated care, reduce the risk of errors, and improve overall patient outcomes.\143\ The Sepsis Readmission measure has been specified to include both Medicare Fee-for-Service and Medicare Advantage beneficiaries. Including Medicare Advantage beneficiaries in CMS hospital outcome measures helps ensure that hospital quality is measured consistently across all Medicare beneficiaries.\144\ This is also consistent with the program's finalization of a policy in the FY 2026 IPPS/LTCH PPS final rule to integrate Medicare Advantage beneficiaries into the cohorts of the Hospital Readmissions Reduction Program measure set beginning with the FY 2027 program year (90 FR 36923 through 36929). --------------------------------------------------------------------------- \143\ Centers for Medicare & Medicaid Services. (November 2025). Cascade of Meaningful Measures. Available at: https://www.cms.gov/medicare/quality/cms-national-quality-strategy/meaningful-measures-20-moving-measure-reduction-modernization. Accessed March 23, 2026. \144\ https://p4qm.org/measures/5275. Accessed March 23, 2026. --------------------------------------------------------------------------- The proposed Sepsis Readmission measure addresses a significant performance gap in healthcare quality. Sepsis represents a critical public health challenge, with substantial variation in hospital readmission rates following an index sepsis hospitalization. This variation reflects differences in the quality of initial treatment, discharge planning, and post-discharge care transitions across healthcare facilities. Based on our calculations using data from 2022 to 2023, the mean 30-day all-cause risk-standardized readmission rate (RSRR) for sepsis using the proposed measure methodology (see section V.I.b.4. of the preamble of this proposed rule for the proposed Sepsis Readmission measure methodology) for all hospitals with at least 25 eligible discharges for the measure is about 18.09 percent. Among hospitals with at least 25 eligible discharges for the Sepsis Readmission measure, hospitals with a Disproportionate Share Hospital (DSH) patient percentage of at least 65 percent and teaching hospitals with 100 or more residents have the highest mean RSRRs (18.63 percent and 18.62 percent, respectively). Additionally, safety-net hospitals with at least 25 eligible discharges have a slightly higher mean RSRR than non-safety-net hospitals with at least 25 eligible discharges (18.37 percent and 18.02 percent, respectively). BILLING CODE 4120-01-P [[Page 19530]] [GRAPHIC] [TIFF OMITTED] TP14AP26.135 [[Page 19531]] [GRAPHIC] [TIFF OMITTED] TP14AP26.136 BILLING CODE 4120-01-C As discussed in the Background section, research demonstrates that thirty-day hospital readmissions following sepsis hospitalization often stem from ineffective initial treatment, poor discharge planning, and insufficient post-discharge follow-up. Studies have shown that facilities implementing a higher number of evidence-based transitional care processes experience lower readmission rates, indicating substantial opportunity for quality improvement across the healthcare system. Given that infection (either new or recurrent) is the leading cause of sepsis-related readmission, and that evidence-based interventions such as care coordination, medication reconciliation, patient education, and timely post-discharge follow-up have been proven effective in reducing readmissions, this measure would provide hospitals with actionable feedback to enhance quality across the entire care continuum and reduce preventable readmissions for a population not captured in CMS' other condition- and procedure-specific readmission measures. (3) Measure Specifications (a) Numerator The numerator of the measure is defined as Medicare Fee-for-Service or Medicare Advantage beneficiaries aged 65 years and older, who were discharged from the hospital with a principal diagnosis of sepsis (including post-procedural sepsis), who were then readmitted to an acute care hospital for any cause within 30 days. Patients must have been enrolled in Medicare Fee-for-Service or Medicare Advantage during the index admission and for the 12 months prior to the date of admission, discharged alive from a non-federal short-term acute care hospital, and not transferred to another acute care facility. Only an unplanned inpatient admission to a short-term acute care hospital can qualify as a readmission. Planned readmissions, which are generally not a signal of quality of care, are not included in the numerator. For details of the measure methodology, we refer readers to the measure methodology report, available at: https://qualitynet.cms.gov/inpatient/measures/readmission/methodology. (b) Denominator The measure denominator includes all Medicare Fee-for-Service or Medicare Advantage beneficiaries aged 65 years and older, hospitalized at non-federal short-term acute care hospitals who are discharged alive following a principal hospital discharge diagnosis of sepsis (including post-procedural sepsis), and with a continuous 12-month Medicare enrollment period prior to the index hospitalization. This measure excludes index admissions for patients who meet additional exclusion criteria, including: (1) admissions during which patients leave the hospital against medical advice (AMA) (excluded because providers may not have the opportunity to deliver full care and prepare the patient for discharge); (2) admissions for patients without at least 30 days post-discharge enrollment in Medicare Fee-for-Service or Medicare Advantage (excluded because the 30-day readmission outcome cannot be assessed in this group); (3) admissions resulting in patients discharged to hospice (readmission may not be a meaningful outcome for these hospice patients and the discharging hospital is not the most appropriate party to hold accountable for the readmission from hospice for this measure); (4) sepsis admissions captured in the pneumonia readmission measure (to avoid overlap with the pneumonia readmission measure); and (5) sepsis admissions within 30 days of an eligible sepsis index admission (excluded because they are considered readmissions, not index admissions). For more information about the measure specifications, we refer readers to the methodology report, available at: https://qualitynet.cms.gov/ [[Page 19532]] inpatient/measures/readmission/methodology. (c) Risk Adjustment To account for differences in case mix across hospitals, the Sepsis Readmission measure includes risk adjustments for patient factors such as age, comorbid diseases, and indicators of patient frailty. The measure also adjusts for the aggressiveness of the infectious organism (bacteria, virus, or fungus) causing sepsis, a transplant recipient indicator, and clinical markers of severe sepsis. These factors are included in risk adjustment calculations for the measure because they are clinically relevant and are related to the measure outcome. For each patient, risk adjustment variables are obtained from inpatient, outpatient, and physician Medicare administrative claims data (Medicare Fee-for-Service Part A and Part B claims, hospital-submitted Medicare Advantage claims, and Medicare Advantage Organization-submitted encounter data) extending up to 12 months prior to the index hospitalization, and secondary diagnoses documented as present on admission during the index hospitalization. The risk adjustment does not include complications that arise during the course of the index hospitalization because they reflect the quality of care delivered and fall within the causal pathway rather than patient risk.\145\ For more information on risk adjustment we refer readers to the methodology report, available at: https://qualitynet.cms.gov/inpatient/measures/readmission/methodology. --------------------------------------------------------------------------- \145\ https://p4qm.org/measures/5275. --------------------------------------------------------------------------- (4) Calculating Sepsis Risk-Standardized Readmission Rate The Sepsis Readmission measure calculates hospital-level 30-day all-cause risk-standardized readmission rates (RSRR) for sepsis. If this measure is adopted as proposed, the sepsis RSRR would be calculated as the ratio of the number of predicted readmissions based on the hospital's performance with its observed case mix to the number of expected readmissions based on the average national level of performance with that hospital's case mix, multiplied by the national observed readmission rate. This is the same measure calculation methodology as the current measures in the Hospital Readmissions Reduction Program. For more detail on how the Sepsis Readmission measure would be used to calculate the 30-day Risk-Standardized Readmission Rate we refer readers to the methodology report available at: https://qualitynet.cms.gov/inpatient/measures/readmission/methodology. (5) Calculating the Excess Readmission Ratio If finalized as proposed, the Sepsis Readmission measure would use the same methodology and statistical modeling approach as the current measures in the Hospital Readmissions Reduction Program. In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51673 through 51676), we finalized the excess readmission ratio pursuant to section 1886(q)(4)(C) of the Act. The ratio is calculated using hierarchical logistic regression. The method adjusts for variation across hospitals in how sick their patients are when admitted to the hospital (and therefore, variation in hospital patients' readmission risk) as well as the variation in the number of patients that a hospital treats to reveal differences in quality. The method produces an adjusted actual (or ``predicted'') number in the numerator and an ``expected'' number in the denominator. The expected calculation is similar to that for logistic regression--it is the sum of all patients' expected probabilities of readmission, given their risk factors and the risk of readmission at an average hospital with a similar patient case mix. For each hospital, the numerator of the ratio used in the consensus-based entity methodology (actual adjusted readmissions) is calculated by estimating the probability of readmission for each patient at that hospital and summing up over all the hospital's patients to get the actual adjusted number of readmissions for that hospital. The ratio compares the total adjusted actual readmissions at the hospital to the number that would be expected if the hospital's patients were treated at an average hospital with similar patients. Hospitals with more adjusted actual readmissions than expected readmissions will have a risk-standardized ratio (excess readmission ratio) greater than one. For additional detail on the methodology of excess readmission ratio calculations, we refer readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 53380 through 53381). We also refer readers to section V.I.2.b.5. of the preamble of this proposed rule for a description of how the Sepsis Readmission measure would be incorporated into the Hospital Readmissions Reduction Program payment adjustment beginning with the FY 2029 program year. (6) Reliability Testing Reliability testing was conducted to assess the consistency and stability of the Sepsis Readmission measure in distinguishing hospital performance. The testing methodology evaluated whether observed differences in hospital readmission rates reflect true differences in quality of care rather than random variation. The reliability analysis employed standard statistical approaches to examine measure performance across hospitals with varying patient volumes. Specifically, we assessed split-half reliability, also called split-sample reliability, to test the internal consistency or stability of the measure. Reliability was estimated both at the measure score and accountable-entity levels. Reliability testing was assessed using two years of data from January 1, 2022, through December 31, 2023. Table V.I.-03 shows split- half reliability result at the measure score level for hospitals with a minimum case of >= 2 cases and >= 25 cases (the proposed threshold for public reporting), respectively. The results indicate that the measure is sufficiently reliable for distinguishing between high- and low- performing hospitals, consistent with the minimum standard for reliability set forth by the Partnership for Quality Measurement (>=0.60).\146\ --------------------------------------------------------------------------- \146\ For more details on reliability guidance, we refer readers to the Reliability Guidance for the Endorsement and Maintenance of Clinical Quality Measures Document available at: https://p4qm.org/em/resources. [GRAPHIC] [TIFF OMITTED] TP14AP26.137 [[Page 19533]] Table V.I.-04 shows the accountable entity-level reliability results for hospitals with a minimum case of >= 25 cases (the proposed threshold for public reporting). Hospitals were categorized into volume deciles to assess reliability across different facility sizes and patient populations. Using this method, 69 percent of accountable entities met the split-half reliability estimate threshold of >= 0.60. This indicates that the measure is sufficiently reliable for distinguishing between high- and low-performing hospitals. [GRAPHIC] [TIFF OMITTED] TP14AP26.138 The Sepsis Readmission measure demonstrates acceptable reliability based on the split-half reliability method, both at the measure score level, and at the entity level. The measure's strong reliability, combined with evidence of substantial performance variation, indicates that it will provide hospitals with actionable, consistent feedback to drive improvements in sepsis care transitions and reduce preventable readmissions. We also conducted additional analyses to examine coding variability as a source of bias in entity level performance scores; and post- discharge mortality within 30 days of discharge to account for competing risk of mortality in readmission risk. The analyses found no correlation between the hospital level use of sepsis code A41.9 (the most widely used code) and readmission or mortality risk. There was also no correlation between post-discharge mortality and readmission risk at the entity (hospital) level. Post-discharge mortality was stable with increasing duration of time since discharge and up to 30 days. Please refer to the measure methodology report on QualityNet for more detailed information on these analyses, available at: https://qualitynet.cms.gov/inpatient/measures/readmission/methodology. (7) Pre-Rulemaking Process and Measure Endorsement (a) Recommendation From the Pre-Rulemaking Measure Review (PRMR) Process We refer readers to the Partnership for Quality Measurement website for details on the PRMR process, including the voting procedures used to reach consensus on measure recommendations.147 148 The PRMR Hospital Committee met on January 12 and 13, 2026, to review measures included by the Secretary on the publicly available ``2025 Measures Under Consideration List,'' including the Hospital 30-Day, All-Cause, Risk-Standardized Readmission Rate Following Sepsis Hospitalization measure (MUC2025-055).\149\ --------------------------------------------------------------------------- \147\ Battelle, Partnership for Quality website. Available at: https://p4qm.org/. Accessed March 23, 2026. \148\ In 2025, we updated the PRMR voting process such that committee members will vote to either ``recommend'' or ``do not recommend'' that a measure be added to the intended CMS program(s), thus, removing the ``recommend with conditions'' voting option. The threshold to reach consensus on a given measure continues to be a minimum of 75 percent agreement among members. Committee members can provide considerations for CMS to review prior to implementation. \149\ Centers for Medicare & Medicaid Services. (2025). 2025 Measures Under Consideration (MUC) List. Available at: https://mmshub.cms.gov/measure-lifecycle/measure-implementation/pre-rulemaking/lists-and-reports/overview. Accessed February 26, 2026. --------------------------------------------------------------------------- The voting results of the PRMR Hospital Recommendation Group for the proposed Sepsis Readmission measure within the Hospital Readmissions Reduction Program were as follows: 13 (65 percent) of the Recommendation Group members recommended adopting the measure into the Hospital Readmissions Reduction Program; seven (35 percent) of the Recommendation Group members voted not to recommend the measure for adoption.\150\ With 65 percent of the votes for recommend, consensus was not reached, but the majority of the Recommendation Group expressed some support for use of the measure in the Hospital Readmission Reduction Program. Recommendation Group members who voted not to recommend adoption of the measure for the Program provided the following rationales: (1) concerns about adopting the Sepsis Readmission measure directly into the Hospital Readmissions Reduction Program; (2) methodological concerns; and (3) the need for greater consistency in sepsis definitions across measures and payers. --------------------------------------------------------------------------- \150\ Battelle. (February 2026). National Consensus Development and Strategic Planning for Health Care Quality Measurement 2025-2026 Pre-Rulemaking Measure Review (PRMR) Recommendation Group Final Meeting Summary: Hospital Committee. https://p4qm.org/sites/default/files/2026-02/PRMR-Hospital-Recommendation-Group-Meeting-Final-Summary-508.pdf. Accessed February 26, 2026. --------------------------------------------------------------------------- The Recommendation Group expressed concerns about adopting the Sepsis Readmission measure directly into the Hospital Readmissions Reduction Program, given the payment implications and the perception that hospitals may need time to adapt. Several members recommended a staged approach--initial implementation in the Hospital Inpatient Quality Reporting Program for multiple years, followed by later consideration for Hospital Readmissions Reduction Program--so hospitals have adequate time to understand the measure before the measure is tied to payment. We appreciate these implementation concerns and agree that careful rollout planning is important for any measure proposed for pay-for- performance programs. We agree that hospitals would benefit from understanding their performance on the Sepsis Readmission measure and potential impacts to their payment under the Hospital Readmissions Reduction Program prior to using the measure for payment adjustments. We considered whether to first adopt this measure in the Hospital Inpatient Quality Reporting Program, in order to give hospitals time to become familiar with the measure before adopting it in a penalty program. However, given the significant morbidity and mortality linked to sepsis and the high case volume and cost of hospital readmissions, we are proposing to adopt the measure directly into the Hospital Readmissions Reduction Program, but using a phased approach, in an effort to balance implementation concerns against our intention to address this CMS priority in a timely manner. We are proposing to implement the Sepsis Readmission measure with ``early look'' reports for FY 2028--discussed further in section V.I.2.b.6. of the preamble of this proposed rule-- that would include sepsis readmission rates as well as estimated Hospital Readmissions Reduction Program payment adjustments with the addition [[Page 19534]] of the Sepsis Readmissions measure before beginning to use this measure in the FY 2029 payment adjustment. In addition, we would continue to evaluate measure performance characteristics (including hospital-level reliability, stability year-over-year, and subgroup impacts such as rural/low-volume hospitals) as part of routine measure maintenance.\151\ --------------------------------------------------------------------------- \151\ We conduct an annual reevaluation of measures implemented in its quality reporting and value-based purchasing programs to ensure that they remain valid and reflective of current clinical practice and coding standards. As part of this process, we may update measure cohorts, risk adjustment models, or outcomes, as appropriate. These updates are informed by review of the most recent scientific literature, stakeholder input, empirical analyses, and assessments of coding trends that may indicate shifts in clinical practice or billing patterns. --------------------------------------------------------------------------- Committee members also raised methodological concerns, including the perceived imprecision of claims-based readmission measures and uncertainty about risk adjustment adequacy, particularly for rural hospitals and hospitals facing documentation constraints (for example, non-employed clinicians, limited resources). We acknowledge the committee's view of the limitations and variability in accuracy of claims-based measures; however, claims-based readmission measures are widely used in CMS programs because they are nationally scalable, consistently available, and minimize provider reporting burden while enabling standardized comparisons across hospitals. For this measure specifically, we conducted analyses to examine variation in the use of sepsis codes across hospitals, stratified by volume of sepsis cases treated, and observed no correlation with 30-readmission or mortality, indicating that documentation practices are not driving hospital measure performance. We wish to emphasize that the risk adjustment variables were identified through a deliberative and empirical process that resulted in a robust risk adjustment model that includes clinically relevant variables such as severity of sepsis, source of infection, how aggressive the infectious organism is, immunocompromised state of the patient, and organ failure/dysfunction. The risk model demonstrated strong calibration and discrimination in testing including for patients with differing severity of sepsis. For more details on our analysis of measure reliability and the risk adjustment methodology, we refer readers to subsection (6) in this section and to the measure methodology report, available at: https://qualitynet.cms.gov/inpatient/measures/readmission/methodology. Finally, the committee emphasized the need for greater consistency in sepsis definitions across measures and payors, with many urging alignment with Sepsis-3 as the most current international consensus definition.\152\ CMS noted that differing definitions can reflect deliberate tradeoffs between sensitivity and specificity; \153\ a scan of the literature shows that the most common problems with sepsis diagnoses relates to under-coding by providers.\154\ The developer noted that the current approach yields excellent model performance and identifies a clinically meaningful at-risk population for readmission. We appreciate the committee's request for clarity and standardization, particularly given reported coding and claims-denial dynamics that may influence whether sepsis is included on a claim. We note that we conducted analyses to examine coding practices as a factor that impacts performance scores and found no evidence to support this relationship. Further, as a part of routine measure maintenance, we conduct ongoing monitoring and evaluation analyses to watch for any unintended consequences. --------------------------------------------------------------------------- \152\ Singer M., Deutschman C.S., Seymour C.W., et al. The Third International Consensus Definitions for Sepsis and Septic Shock (Sepsis-3). JAMA. 2016;315(8):801-810. doi:10.1001/jama.2016.0287. \153\ While there is no one consensus definition of sepsis, Sepsis-2 (based mainly on Systemic Inflammatory Response Syndrome criteria or SIRS) is highly sensitive, often identifying patients before severe deterioration. Sepsis-3 (based primarily on Sequential Organ Failure Assessment or SOFA) is highly specific, meaning it risks missing patients. Based on detailed expert clinical and TEP input, we elected to align the measure with Sepsis-2 definition in order to ensure cases were not missed, but also ensured no overlap with existing condition- and procedure-specific 30-day readmission measures. \154\ Liu B., Hadzi-Tosev M., Liu Y., Lucier K.J., Garg A., Li S., Heddle N.M., Rochwerg B., Ning S. Accuracy of International Classification of Diseases, 10th Revision Codes for Identifying Sepsis: A Systematic Review and Meta-Analysis. Crit Care Explor. 2022 Nov 9;4(11):e0788. doi: 10.1097/CCE.0000000000000788. PMID: 36382338; PMCID: PMC9649267. --------------------------------------------------------------------------- (b) Measure Endorsement We refer readers to the Partnership for Quality Measurement website for details on the measure endorsement and maintenance process, including the measure evaluation procedures the Endorsement and Maintenance Committees use to evaluate measures and whether they meet endorsement criteria. The measure was submitted for review in the Fall 2025 cycle. The Cost and Efficiency Recommendation Group reviewed the Hospital-Level, Risk-Standardized 30-day All-Cause Readmission Following Hospitalization for Sepsis (CBE# 5275) on February 6, 2026. The voting results of the Recommendation Group were: 16 members (84 percent) voted to endorse the measure, and 3 members (16 percent) voted not to endorse the measure. With a vote of 84 percent, the measure was endorsed, without conditions.\155\ --------------------------------------------------------------------------- \155\ Partnership for Quality Measurement. (February 2026). Cost and Efficiency Recommendation Group Fall 2025 Technical Report. Will become available at: https://p4qm.org/em/news-events. --------------------------------------------------------------------------- (8) Payment Reductions The payment adjustment factor under the Hospital Readmissions Reduction Program is calculated as the greater of 1 minus the ratio of aggregate payments for excess readmissions for the applicable condition to aggregate payments for all discharges or the applicable floor adjustment factor, as defined by section 1886(q)(3)(A) of the Act. The definition for ``aggregate payments for excess readmissions'' is codified at Sec. 412.152 and the methodology to calculate the payment adjustment factor is codified at Sec. 412.154(c). As a result of the proposal to add sepsis as an applicable condition under the Hospital Readmissions Reduction Program, excess readmissions for sepsis would be included in the calculation of aggregate payments for excess readmissions beginning with the FY 2029 program year. Consistent with the definition codified at Sec. 412.152, aggregate payments for excess readmissions would include the aggregate base operating DRG payments for excess readmissions associated with sepsis, as applicable. Accordingly, the inclusion of sepsis as an applicable condition would be reflected in the calculation of the payment adjustment factor consistent with the established methodology of the program. To assess the expected impact on hospital payment adjustments resulting from the proposal to adopt the Sepsis Readmission measure, we estimated hospitals' payment adjustment factors including the Sepsis Readmission measure. Table V.I.-05 shows the estimated total Medicare savings with and without the Sepsis Readmission measure included in the program measure set. Based on our analysis, the estimated average payment reduction per penalized hospital when including the Sepsis Readmission measure increased by approximately $63,500. [[Page 19535]] [GRAPHIC] [TIFF OMITTED] TP14AP26.139 Our analysis, as reflected in Table V.I.-06, also assessed the impact of the proposed Sepsis Readmission measure adoption on the number of hospitals that could be penalized under the Hospital Readmissions Reduction Program (that is, they have 25 or more eligible discharges for at least one measure), the number and percentage of penalized hospitals, and penalties as a share of payments overall and by hospital characteristics. The results for the current measure set are equal to those in Table V.I.-05, which show the estimated results for the FY 2027 Hospital Readmissions Reduction Program by hospital characteristic. The second and sixth columns in Table V.I.-06 indicate the total number of hospitals that could be penalized under the Hospital Readmissions Reduction Program. Poorly performing hospitals included in the program may receive a penalty if they are non-Maryland subsection (d) hospitals with 25 or more eligible discharges for at least one measure during the applicable period. The third and seventh columns in the table indicate the total number of non-Maryland hospitals with available data for each characteristic that have an estimated payment adjustment factor less than 1 (that is, penalized hospitals). The fourth and eighth columns in the table indicate the estimated percentage of penalized hospitals among those that could be penalized by hospital characteristic. The fifth and ninth columns in the table estimate the financial impact on hospitals by hospital characteristic, referred to as the penalty as a share of payments. The penalty as a share of payments is calculated as the sum of penalties for all hospitals with that characteristic over the sum of all base operating DRG payments for those hospitals. For example, under the current measure set without sepsis, the penalty as a share of payments for urban hospitals is 0.48 percent, and with the proposed updates, the penalty as a share of payments for urban hospitals is 0.68 percent. This means that total penalties for all urban hospitals is 0.48 percent of total payments for urban hospitals under the current measure set and 0.68 percent with the proposed measure set to add sepsis. Measuring the financial impact on hospitals as a percentage of total base operating DRG payments accounts for differences in the amount of base operating DRG payments for hospitals with the characteristic when comparing the financial impact of the program on different groups of hospitals. BILLING CODE 4120-01-P [[Page 19536]] [GRAPHIC] [TIFF OMITTED] TP14AP26.140 [[Page 19537]] [GRAPHIC] [TIFF OMITTED] TP14AP26.141 [[Page 19538]] BILLING CODE 4120-01-C (9) Data Submission, Early Look, and Public Reporting The Sepsis Readmission measure uses Medicare administrative data (Medicare Fee-for-Service Part A and Part B claims, hospital-submitted Medicare Advantage claims, and Medicare Advantage Organization- submitted encounter data) for Medicare Fee-for-Service and Medicare Advantage beneficiaries hospitalized for sepsis. Because this measure utilizes CMS administrative data, a hospital would not be required to submit additional data for calculating the measure. In the FY 2026 IPPS/LTCH PPS final rule, we finalized our policy to use 2 years of claims data to calculate readmission measures (90 FR 36931 through 36932) in conjunction with the policy to integrate Medicare Advantage beneficiaries into the cohorts of the Hospital Readmissions Reduction Program measure set (90 FR 36923 through 36929) beginning with the FY 2027 program year. We considered whether to first adopt this measure in the Hospital Inpatient Quality Reporting Program, in order to give hospitals time to become familiar with the measure before adopting it in a penalty program. However, as discussed in section V.I.b.1. of the preamble of this proposed rule, given the significant morbidity and mortality linked to sepsis and the high case volume and cost of hospital readmissions, and our intention to address this CMS priority in a timely manner, we are proposing to adopt the measure in the Hospital Readmissions Reduction Program without delay, but also to provide hospitals with an ``early look'' of their Sepsis Readmission measure results and estimated Hospital Readmissions Reduction Program payment adjustments with the addition of the Sepsis Readmission measure for the FY 2028 program year, for which the applicable period is from July 1, 2024, to June 30, 2026. Data used in this early look would not be publicly reported or used for payment adjustment; the early look would provide hospitals with confidential reports of their measure and program results prior to public reporting of the Sepsis Readmission measure beginning with the FY 2029 program year. We are proposing that the Sepsis Readmission measure would be used for payment adjustment beginning with the FY 2029 program year, for which the applicable period is from July 1, 2025, to June 30, 2027. We recognize that the first year of data used to calculate the Sepsis Readmission measure would include patient data from a period of time predating the proposal of the measure. We note that the approach of including that data in public reporting and payment determination is consistent with prior claims-based measure adoptions in the Hospital Readmissions Reduction Program. We reiterate that this measure would not require any additional data from hospitals and that the proposed implementation timeline would support our goal of addressing the health care quality gap in sepsis care in a timely manner. Consistent with the standard of care for patients with sepsis, we expect that hospitals are already providing the types of discharge planning and care coordination services that would be expected to minimize readmissions. Additionally, more than half of the proposed first reporting period would take place after the intended publication date of the FY 2027 IPPS/LTCH PPS final rule. This would allow hospitals to make any necessary improvements to their discharge planning and care coordination processes. We refer readers to the FY 2015 IPPS/LTCH PPS final rule for an example of such an instance (79 FR 50033 through 50039). If this measure adoption is finalized, we would continue to publicly report readmission rates by publicly posting the readmission measure results annually for the applicable conditions for each hospital on the Compare tool or successor website(s), currently available at https://www.medicare.gov/care-compare/, and on the Provider Data Catalog, available at https://data.cms.gov/provider-data/, as codified at Sec. 412.154(f). We invite public comment on our proposal to adopt the Hospital 30- Day, All-Cause, Risk-Standardized Readmission Rate Following Sepsis Hospitalization measure as part of the Hospital Readmissions Reduction Program measure set beginning with an early look for the FY 2028 program year (applicable period of July 1, 2024, to June 30, 2026), and use for the FY 2029 program year (applicable period of July 1, 2025, to June 30, 2027) and subsequent years.

1. Background

a. Overview For background on the Hospital Value-Based Purchasing Program, we refer readers to the CMS website at: https://www.cms.gov/medicare/quality/initiatives/hospital-quality-initiative/hospital-value-based-purchasing. We also refer readers to our codified requirements for the Hospital Value-Based Purchasing Program at 42 CFR 412.160 through 412.168. b. FY 2027 Program Year Payment Details Under section 1886(o)(7)(C)(v) of the Act, the applicable percent for the FY 2027 program year is 2.00 percent. Using the methodology we adopted in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53571 through 53573), we estimate that the total amount available for value-based incentive payments for FY 2027 is approximately $1.9 billion, based on the December 2025 update of the FY 2025 MedPAR file. As finalized in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53573 through 53576), we will utilize a linear exchange function to translate this estimated amount available into a value-based incentive payment percentage for each hospital, based on its Total Performance Score (TPS). We are publishing proxy value-based incentive payment adjustment factors in Table 16 associated with this proposed rule (which is available via the internet on the CMS website). We note that these proxy adjustment factors will not be used to adjust hospital payments. These proxy value-based incentive payment adjustment factors were calculated using the FY 2027 Hospital Value-Based Purchasing Program methodology and historical baseline and performance periods for the FY 2026 Hospital Value-Based Purchasing Program. These proxy factors were calculated using the December 2025 update to the FY 2025 MedPAR file. The slope of the linear exchange function used to calculate these proxy factors was 3.4503276602, and the estimated amount available for value- based incentive payments to hospitals for FY 2027 is approximately $1.9 billion. We intend to include an update to this table, as Table 16A, with the FY 2027 IPPS/LTCH PPS final rule, to reflect changes based on the March 2026 update to the FY 2025 MedPAR file. We will add Table 16B to display the actual value-based incentive payment adjustment factors, exchange function slope, and estimated amount available for the FY 2027 Hospital Value-Based Purchasing Program. We expect that Table 16B will be posted on the CMS website in fall 2026.

2. Hospital Value-Based Purchasing Program Measures

We are proposing to adopt substantive measure updates to five condition-specific and procedure-specific mortality measures, in the Clinical Outcome domain, beginning with the July 1, 2028 through June 30, 2030 [[Page 19539]] performance period for the FY 2032 program year, which we discuss further in section IX.B.2. of the preamble of this proposed rule. We are proposing these updates contingent on our adopting the same refined mortality measures in the Hospital Inpatient Quality Reporting Program beginning with the FY 2028 payment determination, which we discuss further in section IX.B.2. of the preamble of this proposed rule. a. Summary of Previously Adopted Quality Measures for the Hospital Value-Based Purchasing Program We refer readers to the FY 2026 IPPS/LTCH PPS final rule for summaries of the previously adopted measures for the FY 2027 through FY 2031 program years (90 FR 36951). We are not proposing any changes to the measure set. Table V.J.1. summarizes the previously adopted Hospital Value-Based Purchasing Program measure set for the FY 2027 program year. BILLING CODE 4120-01-P [GRAPHIC] [TIFF OMITTED] TP14AP26.142 Table V.J.2. summarizes the previously adopted Hospital Value-Based Purchasing Program measures for the FY 2028 through FY 2032 program years. [[Page 19540]] [GRAPHIC] [TIFF OMITTED] TP14AP26.143 [[Page 19541]]

3. Baseline and Performance Periods for the FY 2028 Through FY 2032

Program Years a. Background We refer readers to the FY 2026 IPPS/LTCH PPS final rule (90 FR 36951 through 36954) for previously adopted baseline and performance periods for the FY 2027 through FY 2031 program years. We also refer readers to the FY 2017 IPPS/LTCH PPS final rule (81 FR 56998) in which we finalized a schedule for all future baseline and performance periods. b. Summary of Baseline and Performance Periods for the FY 2028 Through FY 2032 Program Years Tables V.J.3., V.J.4., V.J.5., V.J.6., and V.J.7. summarize the baseline and performance periods that we have previously adopted. [GRAPHIC] [TIFF OMITTED] TP14AP26.144 [GRAPHIC] [TIFF OMITTED] TP14AP26.145 [[Page 19542]] [GRAPHIC] [TIFF OMITTED] TP14AP26.146 [GRAPHIC] [TIFF OMITTED] TP14AP26.147 [[Page 19543]] [GRAPHIC] [TIFF OMITTED] TP14AP26.148

4. Performance Standards for the Hospital Value-Based Purchasing

Program a. Background We refer readers to the FY 2025 IPPS/LTCH PPS final rule (89 FR 69406 through 69407) for previously established performance standards for the FY 2027 program year. We also refer readers to the FY 2026 IPPS/LTCH PPS final rule (90 FR 36955 through 36957) for the previously established performance standards for the FY 2028 program year. b. Previously Established Performance Standards for Certain Measures for the FY 2029 Through the FY 2031 Program Years We have adopted certain measures for the Safety domain, Clinical Outcomes domain, and the Efficiency and Cost Reduction domain for future program years to ensure that we can adopt baseline and performance periods of sufficient length for performance scoring purposes. In the FY 2026 IPPS/LTCH PPS final rule (90 FR 36948 through 36950), we made technical updates to the Clinical Outcomes domain beginning with the FY 2027 program year to include COVID-19 patients in the measure data, and thus established new performance standards for the FY 2029 through the FY 2031 program years for the Clinical Outcomes domain measures (MORT-30-AMI, MORT-30-HF, MORT-30-PN, MORT-30-COPD, MORT-30- CABG, and COMP-HIP-KNEE). In the FY 2026 IPPS/LTCH PPS final rule (90 FR 36954 through 36955), we made technical updates to the Safety domain, such that the five National Healthcare Safety Network Healthcare-associated Infection measures (CAUTI, CLABSI, CDI, MRSA Bacteremia, and Colon and Abdominal Hysterectomy SSI) would use the CY 2022 data to calculate performance standards for the FY 2029 program year and subsequent years. In the FY 2025 IPPS/LTCH PPS final rule (89 FR 69409 through 69410), we established performance standards for the FY 2029 through the FY 2030 program years for the Efficiency and Cost Reduction domain measure (MSPB Hospital). We note that the performance standards for the MSPB Hospital measure are based on performance period data. Therefore, we are unable to provide numerical equivalents for the standards at this time. The previously established performance standards for Clinical Outcomes domain and the Efficiency and Cost Reduction domain and newly estimated performance standards for the Safety domain measures are set out in Table V.J.8. for the FY 2029 program year. [[Page 19544]] [GRAPHIC] [TIFF OMITTED] TP14AP26.149 We refer readers to the FY 2025 IPPS/LTCH PPS final rule (89 FR 69507 through 69508) where we finalized the policy to modify the scoring of the HCAHPS Survey for the FY 2027 through FY 2029 program years while updates to the survey are publicly reported under the Hospital Inpatient Quality Reporting Program. Scoring is modified to only score hospitals on the six unchanged Hospital Value-Based Purchasing Program dimensions of the HCAHPS Survey until the updates to the HCAHPS Survey have been publicly reported for one year. The six unchanged dimensions of the HCAHPS Survey for the Hospital Value-Based Purchasing Program are as follows: ``Communication with Nurses,'' ``Communication with Doctors,'' ``Communication about Medicines,'' ``Discharge Information,'' ``Cleanliness and Quietness,'' ``Overall Rating.'' Scoring is modified such that for each of the six unchanged dimensions, Achievement Points (0-10 points) and Improvement Points (0- 9 points) will be calculated, the larger of which will be summed across these six dimensions to create a pre-normalized HCAHPS Base Score of 0- 60 points (as compared to 0-80 points with the current eight dimensions). The pre-normalized HCAHPS Base Score will then be multiplied by \8/6\ (1.3333333) and rounded according to standard rules (values of 0.5 and higher are rounded up, values below 0.5 are rounded down) to create the normalized HCAHPS Base Score. Each of the six unchanged dimensions will be of equal weight, so that, as currently scored, the normalized HCAHPS Base Score will range from 0 to 80 points. HCAHPS Consistency Points will be calculated in the same manner as the current method and will continue to range from 0 to 20 points. Like the Base Score, the Consistency Points Score will consider scores across the six unchanged dimensions of the Person and Community Engagement domain. The final element of the scoring formula, which will remain unchanged from the current formula, will be the sum of the HCAHPS Base Score and the HCAHPS Consistency Points Score for a total score that ranges from 0 to 100 points. The method for calculating the performance standards for the six dimensions will remain unchanged. We refer readers to the Hospital Inpatient Value-Based Purchasing Program final rule (76 FR 26511 through 26512) for our methodology for calculating performance standards. The estimated performance standards for the six unchanged dimensions for the FY 2029 program year are set out in Table V.J.9. [[Page 19545]] [GRAPHIC] [TIFF OMITTED] TP14AP26.150 The previously established performance standards for Clinical Outcomes domain and the Efficiency and Cost Reduction domain measures are set out in Table V.J.10. for the FY 2030 program year. [GRAPHIC] [TIFF OMITTED] TP14AP26.151 The previously established performance standards for Clinical Outcomes domain and the Efficiency and Cost Reduction domain measures are set out in Table V.J.11. for the FY 2031 program year. [[Page 19546]] [GRAPHIC] [TIFF OMITTED] TP14AP26.152 c. Newly Established Performance Standards for Certain Measures for the FY 2032 Program Year As discussed previously, we have adopted certain measures for the Clinical Outcomes domain (MORT-30- AMI, MORT-30-HF, MORT-30-PN, MORT- 30-COPD, MORT-30-CABG, and COMP-HIP- KNEE) and the Efficiency and Cost Reduction domain (MSPB Hospital) for future program years to ensure that we can adopt baseline and performance periods of sufficient length for performance scoring purposes. In accordance with our methodology for calculating performance standards discussed more fully in the Hospital Inpatient Value-Based Purchasing Program final rule (76 FR 26511 through 26512), which is codified at 42 CFR 412.160, we are establishing the following performance standards for the FY 2032 program year for the Clinical Outcomes domain and the Efficiency and Cost Reduction domain. We note that the performance standards for the MSPB Hospital measure are based on performance period data. Therefore, we are unable to provide numerical equivalents for the standards at this time. The newly established performance standards for these measures are set out in Table V.J.12. [GRAPHIC] [TIFF OMITTED] TP14AP26.153 BILLING CODE 4120-01-C

K. Hospital-Acquired Condition (HAC) Reduction Program

We refer readers to the FY 2014 IPPS/LTCH PPS final rule (78 FR 50707 through 50709) for a general overview of the HAC Reduction Program and a detailed discussion of the statutory basis for the program. We also refer readers to 42 CFR 412.170 through 412.172 for codified HAC Reduction Program requirements. For additional information about the HAC Reduction Program measures and maintenance of technical specifications, we refer readers to the FY 2026 IPPS/LTCH PPS final rule (90 FR 36963 through 36967). We are not making any proposals or updates for the HAC Reduction Program in this proposed rule. We refer readers to section I.G.8. of Appendix A of this [[Page 19547]] proposed rule for an updated estimate of the proportion of hospitals in the worst performing quartile of the Total HAC Scores for the FY 2027 HAC Reduction Program.

1. Introduction

The Rural Community Hospital Demonstration was originally authorized by section 410A of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) (Pub. L. 108-173). The demonstration has been extended three times since the original 5-year period mandated by the MMA, each time for an additional 5 years. These extensions were authorized by sections 3123 and 10313 of the Patient Protection and Affordable Care Act (ACA) (Pub. L. 111-148), section 15003 of the 21st Century Cures Act (Pub. L. 114-255) (Cures Act) enacted in 2016, and most recently, by section 128 of the Consolidated Appropriations Act, 2021 (Pub. L. 116-260), which also reauthorized the RCHD for five years. Later in this section we summarize the status of the demonstration program and the current methodologies for implementation and calculating budget neutrality.

2. Background

Section 410A(a) of the MMA required the Secretary to establish a demonstration program to test the feasibility and advisability of establishing rural community hospitals to furnish covered inpatient hospital services to Medicare beneficiaries. The demonstration pays rural community hospitals under a reasonable cost-based methodology for Medicare payment purposes for covered inpatient hospital services furnished to Medicare beneficiaries. A rural community hospital, as defined in section 410A(f)(1), is a hospital that-- Is located in a rural area (as defined in section 1886(d)(2)(D) of the Act) or is treated as being located in a rural area under section 1886(d)(8)(E) of the Act; Has fewer than 51 beds (excluding beds in a distinct part psychiatric or rehabilitation unit) as reported in its most recent cost report; Provides 24-hour emergency care services; and 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 follows upon the previous extensions under the ACA and the Cures Act. Section 410A of the MMA initially required a 5-year period of performance. Subsequently, sections 3123 and 10313 of the ACA (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 5year period. In addition, the ACA (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 ACA (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). The FY 2023 IPPS proposed and final rules (87 FR 28454 through 28458, and 87 FR 49138 through 49142, respectively) describe hospitals entering into and withdrawing from the demonstration with these re-authorizations. As of March 2026, there are 27 hospitals participating in the demonstration. 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; 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 have adjusted the national IPPS rates by an amount sufficient to account for the added costs of this demonstration program, 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 described 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 2026. Please see the FY 2026 IPPS/LTCH PPS final rule for a description of how we applied the budget neutrality requirement for these fiscal years (90 FR 36967 through 36969). 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 [[Page 19548]] the upcoming fiscal year when determining the budget neutrality adjustment for the upcoming fiscal year. For historical development and modifications to this methodology, see 81 FR 57034 through 57037. We note that we have calculated this difference for FYs 2005 through 2020 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. Under the general methodology used in previous years, we have estimated the costs of the demonstration for the upcoming fiscal year, and proposed to incorporate the estimate into the budget neutrality offset amount to be applied to the national IPPS rates for the upcoming fiscal year. We are conducting this estimate for FY 2027 based on the 30 participating hospitals for cost report periods ending in CY2024. However, due to timing issues with the addition of 11 new hospitals in 2025, we are not yet able to finalize the estimated FY 2027 costs of the demonstration at this time. We anticipate that all of the historical ``as submitted'' cost reports needed to formulate estimated demonstration costs for FY 2027 and FY 2028 will be available in advance of the FY 2028 IPPS/LTCH PPS proposed rule and we will be able to finalize estimated demonstration costs for both FY 2027 and FY 2028. As noted, in previous years we have also calculated the difference between the actual costs of the demonstration and estimated costs of the demonstration for FYs 2005 through 2020 as determined from finalized cost reports. We intend to continue with this approach and anticipate that we will be able to determine the actual costs for the demonstration for FY 2021 and FY 2022 from finalized cost reports in advance of the FY 2028 IPPS/LTCH PPS proposed rule. Consistent with our methods in previous years these differences will be applied to the estimated costs of the demonstration when determining the FY 2027 and FY 2028 budget neutrality offsets. As we are not yet able to finalize the FY 2027 estimated costs of the demonstration at this time, we are not proposing to apply a budget neutrality offset to the FY 2027 IPPS/LTCH PPS proposed rule. Rather, we are proposing to apply budget neutrality offsets for both FY 2027 and FY 2028 to the national IPPS rates in the FY 2028 IPPS/LTCH PPS proposed rule. We will also incorporate any statutory change that might affect the methodology for determining hospital costs either with or without the demonstration. We invite public comments.

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 [[Page 19549]] 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. Proposed Annual Update for FY 2027

The proposed annual update to the national capital Federal rate, as provided in 42 CFR 412.308(c), for FY 2027 is discussed in section III. of the Addendum to this FY 2027 IPPS/LTCH PPS proposed rule.

A. Proposed Rate-of-Increase in Payments to Excluded Hospitals for FY

2027 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 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 the FY 2026 IPPS/LTCH PPS final rule (90 FR 36859 through 36866), we rebased and revised the IPPS operating basket to a 2023 base year. Therefore, we used 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. For this FY 2027 IPPS/LTCH PPS proposed rule, based on IGI's 2025 fourth quarter forecast, we estimate that the 2023-based IPPS operating market basket percentage increase for FY 2027 is 3.2 percent (that is, the estimate of the market basket rate-of-increase). Based on this estimate, the FY 2027 rate-of-increase percentage that will be applied to the FY 2026 target amounts in order to calculate the FY 2027 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 3.2 percent, in accordance with the applicable regulations at 42 CFR 413.40. Furthermore, we are proposing that if more recent data become available for the FY 2027 IPPS/LTCH PPS final rule, we would use such data, if appropriate, to calculate the final IPPS operating market basket percentage increase for FY 2027. 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 2027, in accordance with Sec. Sec. 412.22(i) and 412.526(c)(2)(ii) of the regulations, for cost reporting periods beginning during FY 2027, the proposed update to the target amount for extended neoplastic disease care hospitals (that is, hospitals described under Sec. 412.22(i)) is the applicable annual rate-of- increase percentage specified in Sec. 413.40(c)(3), which is estimated to be the proposed percentage increase in the 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 2027 is 3.2 percent, which is based on IGI's fourth quarter 2025 forecast. Furthermore, we are proposing that if more recent data become available for the FY 2027 IPPS/LTCH PPS final rule, [[Page 19550]] we would use such data, if appropriate, to calculate the IPPS operating market basket rate of increase for FY 2027.

1. Background

Section 1820 of the Act provides for the establishment of Medicare Rural Hospital Flexibility Programs (MRHFPs), under which individual States may designate certain facilities as critical access hospitals (CAHs). Facilities that are so designated and meet the CAH conditions of participation under 42 CFR part 485, subpart F, will be certified as CAHs by CMS. Regulations governing payments to CAHs for services to Medicare beneficiaries are located in 42 CFR part 413.

2. Frontier Community Health Integration Project Demonstration

a. Introduction The Frontier Community Health Integration Project Demonstration was originally authorized by section 123 of the Medicare Improvements for Patients and Providers Act of 2008 (Pub L. 110-275). The demonstration has been extended by section 129 of the Consolidated Appropriations Act, 2021 (Pub. L. 116-260) for an additional 5 years. In this proposed 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 2026 IPPS/LTCH PPS final rule (90 FR 36971 through 36975), 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. 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 2026 IPPS/LTCH PPS final rule (90 FR 36971 through 36975), 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 2026 IPPS/LTCH PPS final rule (90 FR 36971 through 36975), 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: [[Page 19551]] (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 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), 42 CFR 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 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 [[Page 19552]] 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 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 2026 IPPS/LTCH PPS final rule (90 FR 36971 through 36975), 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. f. Total Budget Neutrality Offset Amount for FY 2027 At this time, for the FY 2027 IPPS/LTCH PPS proposed 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 ensure that the full impact of the demonstration is appropriately captured. Therefore, we do not propose to apply a budget neutrality payment offset to payments to CAHs in FY 2027. This policy would have no impact for any national payment system for FY 2027.

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 [[Page 19553]] 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 proposed 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 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. [[Page 19554]]

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.