2026-15833: Medicare Program; Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals (IPPS) and the Long-Term Care Hospital Prospective Payment System and Policy Changes and Fiscal Year (FY) 2027 Rates; Requirements for Quality Programs; Other Policy Changes; and Adoption of Updated Versions of Certain Health Information Technology Standards

1. Purpose and Legal Authority

This FY 2027 IPPS/LTCH PPS final rule will make payment and policy changes under the Medicare inpatient prospective payment system (IPPS) for operating and capital-related costs of acute care hospitals as well as for certain hospitals and hospital units excluded from the IPPS. In addition, it will make payment and policy changes for inpatient hospital services provided by long-term care hospitals (LTCHs) under the long-term care hospital prospective payment system (LTCH PPS). This final rule also will make policy changes to programs associated with Medicare IPPS hospitals, IPPS-excluded hospitals, and LTCHs. We are [[Page 49571]] also making changes relating to Medicare graduate medical education (GME) and nursing and allied health (NAH) education payments. We are finalizing the adoption of the Advance Care Planning electronic clinical quality measure (eCQM) in the Hospital Inpatient Quality Reporting and Medicare Promoting Interoperability Programs and finalizing the adoption of the Advance Care Planning eCQM, with a modification, in the PPS-Exempt Cancer Hospital (PCH) Quality Reporting Program. We are finalizing the proposal to adopt five modified claims- based, risk-standardized mortality measures in the Hospital Inpatient Quality Reporting Program as a step towards subsequently modifying these measures in the Hospital Value-Based Purchasing Program. Other than these cross-program proposals, we did not propose any updates for the Hospital Value-Based Purchasing Program or the Hospital Acquired-Conditions Reduction Program. In the Hospital Readmissions Reduction Program, we are finalizing the adoption of the Hospital 30-Day, All-Cause, Risk-Standardized Readmission Rate Following Sepsis Hospitalization measure with modifications. In addition to the cross-program proposals previously listed, in the Hospital Inpatient Quality Reporting Program, we are finalizing the adoption of two new quality measures, removal of three measures, and modification of three current measures. We are also finalizing modifications of data reporting and submission requirements for electronic clinical quality measures (eCQMs) and the Maternal Morbidity structural measure. In addition to the cross-program proposal previously listed in the PCH Quality Reporting Program, we are finalizing the adoption of an additional new measure, with a modification, and finalizing the removal of one measure. We are also finalizing the adoption of data reporting and submission requirements for eCQMs. In addition to the cross-program proposal previously listed, in the Medicare Promoting Interoperability Program, we are finalizing the removal of two measures and two attestations; adoption of a measure; modification of one measure; adoption of one additional eCQM in alignment with the Hospital Inpatient Quality Reporting Program; and removal of three eCQMs in alignment with the Hospital Inpatient Quality Reporting Program. In the LTCH Quality Reporting Program (QRP), we are finalizing removal of two measures, beginning with the FY 2028 LTCH QRP. We also finalize a revision of the LTCH QRP Data Submission Deadlines beginning with the FY 2029 LTCH QRP. Finally, we summarize public comments received on one Request for Information (RFI) on future measure concepts for the LTCH QRP. The Transforming Episode Accountability Model (TEAM), a mandatory alternative payment model that was finalized in the FY 2025 IPPS/LTCH PPS final rule (89 FR 68986), aims to improve beneficiary care through financial accountability for episodes categories that begin with one of the following procedures: coronary artery bypass graft (CABG), lower extremity joint replacement (LEJR), major bowel procedure, surgical hip/femur fracture treatment (SHFFT), and spinal fusion. TEAM tests whether financial accountability for these episode categories reduces Medicare expenditures while preserving or enhancing the quality of care for Medicare beneficiaries. In this final rule, we are finalizing updates to TEAM that will modify policies affecting episode category triggers, quality measure assessment, and the construction of target prices. We also discuss the public comments received from a Request for Information (RFI) about voluntary opt-in opportunity for hospitals with physician ownership (POHs) and our policy intent for future rulemaking. The Comprehensive Care for Joint Replacement CJR Expanded (CJR-X) Model builds upon the CJR Model test that ran from April 1, 2016 to December 31, 2024. Based on the strength of evidence from the CJR Model, the CMS Innovation Center is expanding the model nationally, including U.S. Territories starting January 1, 2028. The model will focus on improving care and reducing spending for Medicare beneficiaries undergoing lower extremity joint replacement (LEJR) procedures. Participating hospitals will be held accountable for spending and quality of care during an inpatient stay or hospital outpatient procedure and for the 90 days following hospital discharge. The CJR-X Model will be mandatory for acute care hospitals, except for those participating in TEAM, and acute care hospitals located in Maryland. CJR-X includes some modifications to the CJR Model. Some quality measures and payment methodology policies have been updated in response to CJR Model evaluation results, stakeholder feedback, and changes to national care delivery patterns among both CJR and non-CJR hospitals. Under various statutory authorities, we either discuss continued program implementation or changes to the Medicare IPPS, the LTCH PPS, other related payment methodologies and programs for FY 2027 and subsequent fiscal years, and other policies and provisions included in this final rule. These statutory authorities include, but are not limited to, the following: Section 1886(d) of the Social Security Act (the Act), which sets forth a system of payment for the operating costs of acute care hospital inpatient stays under Medicare Part A (Hospital Insurance) based on prospectively set rates. Section 1886(g) of the Act requires that, instead of paying for capital-related costs of inpatient hospital services on a reasonable cost basis, the Secretary use a prospective payment system (PPS). Section 1886(d)(1)(B) of the Act, which specifies that certain hospitals and hospital units are excluded from the IPPS. These hospitals and units are: rehabilitation hospitals and units; LTCHs; psychiatric hospitals and units; children's hospitals; cancer hospitals; extended neoplastic disease care hospitals; and hospitals located outside the 50 States, the District of Columbia, and Puerto Rico (that is, hospitals located in the U.S. Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa). Religious nonmedical health care institutions (RNHCIs) are also excluded from the IPPS. Sections 123(a) and (c) of the Balanced Budget Refinement Act of 1999 (BBRA) (Public Law (Pub. L.) 106-113) and section 307(b)(1) of the Benefits Improvement and Protection Act of 2000 (BIPA) (Pub. L. 106-554) (as codified under section 1886(m)(1) of the Act), which provide for the development and implementation of a prospective payment system for payment for inpatient hospital services of LTCHs described in section 1886(d)(1)(B)(iv) of the Act. Section 1814(l)(4) of the Act requires, beginning with FY 2015, that CAHs that do not successfully demonstrate meaningful use of certified electronic health record technology (CEHRT) for an EHR reporting period for a cost reporting period shall be paid 100 percent of reasonable costs rather than 101 percent of reasonable costs. Section 1886(a)(4) of the Act, which specifies that costs of approved educational activities are excluded from the operating costs of inpatient hospital services. Hospitals with approved graduate medical education (GME) programs are paid for the direct costs of [[Page 49572]] GME in accordance with section 1886(h) of the Act. Hospitals paid under the IPPS with approved GME programs are paid for the indirect costs of training residents in accordance with section 1886(d)(5)(B) of the Act. Section 1886(d)(5)(F) of the Act provides for additional Medicare IPPS payments to subsection (d) hospitals that serve a significantly disproportionate number of low-income patients (DSH hospitals, or DSH-eligible hospitals). These payments are known as the Medicare disproportionate share hospital (DSH) adjustment, or DSH payment. Section 1886(d)(5)(F) of the Act specifies the methods under which a hospital may qualify for the DSH payment. Section 1886(r) of the Act, as added by section 3133 of the Affordable Care Act, provides for a reduction to DSH payments under section 1886(d)(5)(F) of the Act and for an additional uncompensated care payment to eligible hospitals. Specifically, section 1886(r) of the Act requires that, for fiscal year 2014 and each subsequent fiscal year, subsection (d) hospitals that would otherwise receive a DSH payment made under section 1886(d)(5)(F) of the Act will receive two separate payments: (1) 25 percent of the amount they previously would have received under the statutory formula for Medicare DSH payments in section 1886(d)(5)(F) of the Act if subsection (r) did not apply (``the empirically justified amount''); and (2) an additional payment for the DSH hospital's proportion of uncompensated care, determined as the product of three factors. These three factors are: (1) 75 percent of the payments that would otherwise be made under section 1886(d)(5)(F) of the Act, in the absence of section 1886(r) of the Act; (2) 1 minus the percent change in the percent of individuals who are uninsured; and (3) the hospital's uncompensated care amount relative to the uncompensated care amount of all DSH hospitals expressed as a percentage. Section 1886(m)(6) of the Act, as added by section 1206(a)(1) of the Pathway for Sustainable Growth Rate (SGR) Reform Act of 2013 (Pub. L. 113-67) and amended by section 51005(a) of the Bipartisan Budget Act of 2018 (Pub. L. 115-123), which provided for the establishment of site neutral payment rate criteria under the LTCH PPS, with implementation beginning in FY 2016. Section 51005(b) of the Bipartisan Budget Act of 2018 amended section 1886(m)(6)(B) by adding new clause (iv), which specifies that the IPPS comparable amount defined in clause (ii)(I) shall be reduced by 4.6 percent for FYs 2018 through 2027. Section 1899B of the Act, which provides for the establishment of standardized data reporting for certain post-acute care providers, including LTCHs. Section 1886(b)(3)(B)(viii) of the Act, which establishes the Hospital Inpatient Quality Reporting Program, requires the Secretary to reduce the applicable percentage increase that would otherwise apply to the standardized amount applicable to a subsection (d) hospital for discharges occurring in a fiscal year if the hospital does not submit data on measures in a form and manner, and at a time, specified by the Secretary. Section 1886(b)(3)(B)(ix) of the Act, which establishes payment adjustments under the Medicare Promoting Interoperability Program by requiring downward adjustments to the applicable percentage increase, beginning with FY 2015 (and beginning with FY 2022 for subsection (d) Puerto Rico hospitals), for eligible hospitals that do not successfully demonstrate meaningful use of CEHRT for an EHR reporting period for a payment adjustment year. Additionally, Section 1886(n) of the Act establishes the requirements for an eligible hospital to be treated as a meaningful EHR user of CEHRT for an EHR reporting period for a payment adjustment year or, for purposes of subsection (b)(3)(B)(ix) of the Act, for a fiscal year. Section 1866(k) of the Act, which provides for the establishment of a quality reporting program for hospitals described in section 1886(d)(1)(B)(v) of the Act, referred to as ``PPS-exempt cancer hospitals.'' Section 1886(o) of the Act, which requires the Secretary to establish a Hospital Value-Based Purchasing (VBP) Program, under which value-based incentive payments are made in a fiscal year to hospitals based on their performance on measures established for a performance period for such fiscal year. Section 1886(p) of the Act, which establishes a Hospital- Acquired Condition (HAC) Reduction Program, under which payments to applicable hospitals are adjusted to provide an incentive to reduce hospital-acquired conditions. Section 1886(q) of the Act, as amended by section 15002 of the 21st Century Cures Act, which establishes the Hospital Readmissions Reduction Program. Under the program, payments for discharges from an applicable hospital as defined under section 1886(d) of the Act will be reduced to account for certain excess readmissions. Section 15002 of the 21st Century Cures Act directs the Secretary to assess a hospital's performance relative to other hospitals with a similar proportion of beneficiaries who are dually eligible for both Medicare and full Medicaid benefits. Section 1886(m)(5) of the Act, which requires the Secretary to reduce by 2 percentage points the annual update to the standard Federal rate for discharges for a long-term care hospital (LTCH) during the rate year for LTCHs that do not submit data on quality measures in the form, manner, and at a time, specified by the Secretary. Section 1115A of the Act authorizes the testing of innovative payment and service delivery models that preserve or enhance the quality of care furnished to Medicare, Medicaid, and Children's Health Insurance Program (CHIP) beneficiaries while reducing program expenditures.

2. Summary of the Major Provisions

The following is a summary of the major provisions in this final rule. In general, these major provisions are being finalized as part of the annual update to the payment policies and payment rates, consistent with the applicable statutory provisions. A general summary of the changes in this final rule is presented in section I.D. of the preamble of this final rule. a. Requirements To Prohibit Unlawful Discrimination by Graduate Medical Education Programs and Nursing and Allied Health Education Programs In section V.F.2. of the preamble of this final rule, we discuss our finalized proposal to require that, in addition to meeting other applicable requirements, an approved medical residency training program must not discriminate, or promote or encourage discrimination, on the basis of race, color, national origin, sex, age, disability, or religion, including the use of those characteristics or intentional proxies for those characteristics as a selection criterion for employment, program participation, resource allocation, or similar activities, opportunities, or benefits. In V.G.3. of the preamble of this final rule, we discuss similar policies with respect to approved nursing and allied health education programs and accreditors. b. Modifications to the Criteria for New Residency Programs In section V.F.3. of the preamble of this final rule, we discuss our modifications to the criteria for identifying new residency programs under 42 CFR 413.79(l). Under this policy, in addition to receiving initial [[Page 49573]] accreditation by the appropriate accrediting body, for a residency program to be considered new, at least 90 percent of the individual residents must not have previous experience training in another program in the same specialty. This requirement includes exceptions for small residency programs, displaced residents, and residents admitted via a binding third-party matching program. In determining whether a program is genuinely new for cap-building purposes, we will also no longer consider the previous employment of the program director or faculty. c. Hospital Readmissions Reduction Program (HRRP) In this FY 2027 IPPS/LTCH PPS final rule, we are finalizing the adoption of the Hospital 30-Day, All-Cause, Risk-Standardized Readmission Rate Following Sepsis Hospitalization measure with modifications beginning with 2 years of early look reports for the FY 2028 and FY 2029 program years, and use beginning with the FY 2030 program year. d. Hospital Value-Based Purchasing (VBP) Program In this FY 2027 IPPS/LTCH PPS final rule, we are finalizing modifications to five condition-specific and procedure-specific mortality measures beginning with the FY 2032 program year: (1) Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate Following Acute Myocardial Infarction (AMI) Hospitalization measure; (2) Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate Following Heart Failure Hospitalization measure; (3) Hospital 30-Day, All-Cause, Risk- Standardized Mortality Rate Following Pneumonia Hospitalization measure; (4) Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate Following Chronic Obstructive Pulmonary Disease (COPD) Hospitalization measure; and (5) Hospital 30-Day, All-Cause, Risk- Standardized Mortality Rate Following Coronary Artery Bypass Graft (CABG) Surgery measure. We sought comments on two topics: (1) measuring emergency room access and timeliness in the Hospital Inpatient Quality Reporting and Value-Based Purchasing Programs; and (2) potential future use of the Adult Community-Onset Sepsis Standardized Mortality Ratio measure in the Hospital Inpatient Quality Reporting Program. e. Hospital Inpatient Quality Reporting Program In this FY 2027 IPPS/LTCH PPS final rule, we are finalizing several changes to the Hospital Inpatient Quality Reporting Program. We are finalizing the adoption of three new measures: (1) Excess Days in Acute Care After Hospitalization for Diabetes measure beginning with the FY 2029 payment determination; (2) Advance Care Planning eCQM beginning with the FY 2030 payment determination; and (3) Hospital Harm- Postoperative Venous Thromboembolism eCQM beginning with the FY 2030 payment determination. We are also finalizing the adoption of five modified mortality measures in the Hospital Inpatient Quality Reporting Program beginning with the FY 2028 payment determination before subsequently modifying them in the Hospital Value-Based Purchasing Program: (1) Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate Following AMI Hospitalization measure; (2) Hospital 30-Day, All- Cause, Risk-Standardized Mortality Rate Following Heart Failure Hospitalization measure; (3) Hospital 30-Day, All-Cause, Risk- Standardized Mortality Rate Following Pneumonia Hospitalization measure; (4) Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate Following COPD Hospitalization measure; and (5) Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate Following CABG Surgery measure. We are finalizing modifications to three claims-based measures beginning with the FY 2028 payment determination: (1) Excess Days in Acute Care after Hospitalization for AMI; (2) Excess Days in Acute Care after Hospitalization for Heart Failure; and (3) Excess Days in Acute Care after Hospitalization for Pneumonia. We are finalizing the removal of three measures beginning with the FY 2030 payment determination: (1) Venous Thromboembolism Prophylaxis (VTE-1) eCQM; (2) Intensive Care Unit Venous Thromboembolism Prophylaxis (VTE-2) eCQM; and (3) Discharged on Antithrombotic Therapy (STK-02) eCQM. We are finalizing changes to data reporting and submission requirements for eCQMs and structural measures: (1) mandatory reporting for the Malnutrition Care Score eCQM beginning with the FY 2030 payment determination; (2) mandatory reporting for the Hospital Harm eCQMs after 2 years of self- selected reporting beginning with the FY 2030 payment determination with modifications; and (3) an update to the reporting of the Maternal Morbidity Structural measure beginning with the FY 2028 payment determination. We sought comments on three topics: (1) measuring emergency room access and timeliness in the Hospital Inpatient Quality Reporting and Value-Based Purchasing Programs; (2) potential future use of the Adult Community-Onset Sepsis Standardized Mortality Ratio measure in the Hospital Inpatient Quality Reporting Program; and (3) Birthing-Friendly Hospital designation modification to expand designation criteria. f. PPS-Exempt Cancer Hospital (PCH) Quality Reporting Program In this FY 2027 IPPS/LTCH PPS final rule, we are finalizing the adoption of two new measures with modifications: (1) Advance Care Planning eCQM beginning with the FY 2030 program year; and (2) Malnutrition Care Score eCQM beginning with the FY 2030 program year. We are also finalizing the removal of the COVID-19 Vaccination Coverage Among Healthcare Personnel (HCP COVID-19 Vaccination) measure beginning with the FY 2028 program year. In addition, we finalized the establishment of reporting and submission requirements for eCQMs in this program. g. Long-Term Care Hospital Quality Reporting Program (LTCH QRP) In the LTCH QRP, we finalize removal of two measures, beginning with the FY 2028 LTCH QRP. We also finalize the revision of the LTCH QRP Data Submission Deadlines beginning with the FY 2029 LTCH QRP. We also summarize public comments received on one Request for Information (RFI) on future measure concepts for the LTCH QRP. h. Medicare Promoting Interoperability Program We are finalizing several changes to the Medicare Promoting Interoperability Program. Specifically, we are finalizing: (1) revisions to the definition of certified EHR technology (CEHRT) for the Medicare Promoting Interoperability Program based on Office of the National Coordinator for Health Information Technology (ONC) proposals to update the ONC Health IT Certification Program; (2) removal of attestations related to ONC Direct Review and ONC-Authorized Certification Body (ONC-ACB) Surveillance; (3) removal of the Support Electronic Referral Loops by Sending Health Information measure and the Support Electronic Referral Loops by Receiving and Reconciling Health Information measure; (4) modification of the Electronic Prior Authorization measure; (5) adoption of the Unique Device Identifiers (UDIs) for Implantable Medical Devices measure within the Public Health and Clinical Data Exchange objective; (6) adoption of two new eCQMs in alignment with the [[Page 49574]] Hospital Inpatient Quality Reporting Program; and (7) removal of three eCQMs in alignment with the Hospital Inpatient Quality Reporting Program. i. Transforming Episode Accountability Model (TEAM) In section X.A. of the preamble of this final rule, we discuss the changes we are finalizing for the Transforming Episode Accountability Model (TEAM). TEAM is a 5-year mandatory model tested under the authority of section 1115A of the Act, that started on January 1, 2026, and will end on December 31, 2030. We are finalizing changes to a few areas of the model, including: (1) adding 3 Medicare Severity Diagnosis Related Groups (MS-DRGs) that would initiate a spinal fusion anchor hospitalization; (2) clarifying quality measure performance periods for certain quality measures; (3) using a rolling concurrent Composite Quality Score (CQS) baseline period for certain quality measures; (4) adding an Ambulatory Payment Classification (APC) and MS-DRG update factor to target prices; and (5) using the full baseline period to construct the prospective normalization factor. We also discuss the public comments received from a RFI about voluntary opt-in opportunity for hospitals with physician ownership (POHs) and our policy intent for future rulemaking. j. Comprehensive Care for Joint Replacement Expanded (CJR-X) Model In section X.C. of the preamble of this final rule, we are finalizing expansion of the CJR Model. The CJR-X Model will be a mandatory model that will be tested under the authority of section 1115A of the Act, beginning on January 1, 2028 for acute care hospitals paid under the IPPS and OPPS with limited exclusions. Participating hospitals will be accountable for the cost and quality of care for LEJR episodes from the hospital inpatient or hospital outpatient admission through 90 days after the beneficiary is discharged from the hospital or hospital outpatient procedure. We are finalizing multiple policies for CJR-X, including: (1) a January 1, 2028 start date; (2) acute care hospitals as the participant and accountable entity; (3) LEJR as the episode of care; (4) five quality measures and a composite quality score (CQS) to assess quality performance; (5) regional risk-adjusted target prices that include capped normalization and trend factors; (6) pricing-specific policies for certain hospitals, such as low volume hospitals and safety net hospitals; (7) provider and beneficiary overlap permitted with most models; (8) allowing participant hospitals to have financial arrangements; (9) waiving certain Medicare Program requirements; (10) permitting beneficiary-identifiable and regional aggregated data sharing; and (11) options for Alternative Payment Model (APM) participation.

3. Summary of Costs and Benefits

The following table provides a summary of the costs, savings, and benefits associated with the major provisions described in section I.A.2. of the preamble of this final rule. BILLING CODE 4169-69-P [GRAPHIC] [TIFF OMITTED] TR04AU26.023 BILLING CODE 4169-69-C

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

Section 1886(d) of the Act sets forth a system of payment for the operating costs of acute care hospital inpatient stays under Medicare Part A (Hospital Insurance) based on prospectively set rates. Section 1886(g) of the Act requires the Secretary to use a prospective payment system (PPS) to pay for the capital-related costs of inpatient hospital services for these ``subsection (d) hospitals.'' Under these PPSs, Medicare payment for hospital inpatient operating and capital-related costs is made at predetermined, specific rates for each hospital discharge. Discharges are classified according to a list of diagnosis- related groups (DRGs). The base payment rate is comprised of a standardized amount that is divided into a labor-related share and a nonlabor-related share. The labor-related share is adjusted by the wage index applicable to the area where the hospital is located. If the hospital is located in Alaska or Hawaii, the nonlabor-related share is adjusted by a cost-of- living adjustment (COLA) factor. This base payment rate is multiplied by the DRG relative weight. If the hospital treats a high percentage of certain low-income patients, it [[Page 49575]] receives a percentage add-on payment applied to the DRG-adjusted base payment rate. This add-on payment, the disproportionate share hospital (DSH) adjustment discussed earlier in this section, provides for a percentage increase in Medicare payments. For qualifying hospitals, the amount of this adjustment varies based on the outcome of the statutory calculations. The Affordable Care Act revised the Medicare DSH payment methodology and provides for an additional Medicare payment beginning on October 1, 2013, that considers the amount of uncompensated care furnished by the hospital relative to all other qualifying hospitals. Additional payments may be made for cases that involve new technologies or medical services that have been approved for special add-on payments. In general, to qualify, a new technology or medical service must demonstrate that it is a substantial clinical improvement over technologies or services otherwise available, and that, absent an add-on payment, it would be inadequately paid under the regular DRG payment. In addition, certain transformative new devices and certain antimicrobial products may qualify under an alternative inpatient new technology add-on payment pathway by demonstrating that, absent an add- on payment, they would be inadequately paid under the regular DRG payment. The costs incurred by the hospital for a case are evaluated to determine whether the hospital is eligible for an additional payment as an outlier case. This additional payment is designed to protect the hospital from large financial losses due to unusually expensive cases. Any eligible outlier payment is added to the DRG-adjusted base payment rate, plus any DSH, IME, and new technology or medical service add-on adjustments and, beginning in FY 2023 for IHS and Tribal hospitals and hospitals located in Puerto Rico, the new supplemental payment. Although payments to most hospitals under the IPPS are made on the basis of the standardized amounts, some categories of hospitals are paid in whole or in part based on their hospital-specific rate, which is determined from their costs in a base year. For example, sole community hospitals (SCHs) receive the higher of a hospital-specific rate based on their costs in a base year (the highest of FY 1982, FY 1987, FY 1996, or FY 2006) or the IPPS Federal rate based on the standardized amount. SCHs are the sole source of care in their areas. Specifically, section 1886(d)(5)(D)(iii) of the Act defines an SCH as a hospital that is located more than 35 road miles from another hospital or that, by reason of factors such as an isolated location, weather conditions, travel conditions, or absence of other like hospitals (as determined by the Secretary), is the sole source of hospital inpatient services reasonably available to Medicare beneficiaries. In addition, certain rural hospitals previously designated by the Secretary as essential access community hospitals are considered SCHs. With the recent enactment of section 6202 of the Consolidated Appropriations Act (CAA), 2026 (Pub. L. 119-75), under current law, the Medicare-dependent, small rural hospital (MDH) program is effective through December 31, 2026. For discharges occurring on or after October 1, 2007, but before January 1, 2027, an MDH receives the higher of the Federal rate or the Federal rate plus 75 percent of the amount by which the Federal rate is exceeded by the highest of its FY 1982, FY 1987, or FY 2002 hospital-specific rate. MDHs are a major source of care for Medicare beneficiaries in their areas. Section 1886(d)(5)(G)(iv) of the Act defines an MDH as a hospital that is located in a rural area (or, as amended by the Bipartisan Budget Act of 2018, a hospital located in a State with no rural area that meets certain statutory criteria), has not more than 100 beds, is not an SCH, and has a high percentage of Medicare discharges (not less than 60 percent of its inpatient days or discharges in its cost reporting year beginning in FY 1987 or in two of its three most recently settled Medicare cost reporting years). As section 6202 of the CAA, 2026 extended the MDH program through December 31, 2026, beginning on January 1, 2027, the MDH program will no longer be in effect absent a change in law. Because the MDH program is not authorized by statute beyond December 31, 2026, beginning January 1, 2027, all hospitals that previously qualified for MDH status under section 1886(d)(5)(G) of the Act will no longer have MDH status and will be paid based on the IPPS Federal rate. Section 1886(g) of the Act requires the Secretary to pay for the capital-related costs of inpatient hospital services in accordance with a prospective payment system established by the Secretary. The basic methodology for determining capital prospective payments is set forth in our regulations at 42 CFR 412.308 and 412.312. Under the capital IPPS, payments are adjusted by the same DRG for the case as they are under the operating IPPS. Capital IPPS payments are also adjusted for IME and DSH, similar to the adjustments made under the operating IPPS. In addition, hospitals may receive outlier payments for those cases that have unusually high costs. The existing regulations governing payments to hospitals under the IPPS are located in 42 CFR part 412, subparts A through M.

2. Hospitals and Hospital Units Excluded From the IPPS

Under section 1886(d)(1)(B) of the Act, as amended, certain hospitals and hospital units are excluded from the IPPS. These hospitals and units are: Inpatient rehabilitation facility (IRF) hospitals and units; long-term care hospitals (LTCHs); Inpatient psychiatric hospitals (IPF) and units; children's hospitals; cancer hospitals; extended neoplastic disease care hospitals, and hospitals located outside the 50 States, the District of Columbia, and Puerto Rico (that is, hospitals located in the U.S. Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa). Religious nonmedical health care institutions (RNHCIs) are also excluded from the IPPS. Various sections of the Balanced Budget Act of 1997 (BBA) (Pub. L. 105- 33), the Medicare, Medicaid and SCHIP [State Children's Health Insurance Program] Balanced Budget Refinement Act of 1999 (BBRA, Pub.

L. 106-113), and the Medicare, Medicaid, and SCHIP Benefits Improvement

and Protection Act of 2000 (BIPA, Pub. L. 106-554) provide for the implementation of PPSs for IRF hospitals and units, LTCHs, and psychiatric hospitals and units (referred to as inpatient psychiatric facilities (IPFs)). (We note that the annual updates to the LTCH PPS are included along with the IPPS annual update in this document. Updates to the IRF PPS and IPF PPS are issued as separate documents.) Children's hospitals, cancer hospitals, hospitals located outside the 50 States, the District of Columbia, and Puerto Rico (that is, hospitals located in the U.S. Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa), and RNHCIs continue to be paid solely under a reasonable cost-based system, subject to a rate-of- increase ceiling on inpatient operating costs. Similarly, extended neoplastic disease care hospitals are paid on a reasonable cost basis, subject to a rate-of-increase ceiling on inpatient operating costs. The existing regulations governing payments to excluded hospitals and hospital units are located in 42 CFR parts 412 and 413. 3. Long-Term Care Hospital Prospective Payment System (LTCH PPS) The Medicare prospective payment system (PPS) for LTCHs applies to [[Page 49576]] hospitals described in section 1886(d)(1)(B)(iv) of the Act, effective for cost reporting periods beginning on or after October 1, 2002. The LTCH PPS was established under the authority of sections 123 of the BBRA and section 307(b) of the BIPA (as codified under section 1886(m)(1) of the Act). Section 1206(a) of the Pathway for SGR Reform Act of 2013 (Pub. L. 113-67) established the site neutral payment rate under the LTCH PPS, which made the LTCH PPS a dual rate payment system beginning in FY 2016. Under this statute, effective for LTCH's cost reporting periods beginning in FY 2016 cost reporting period, LTCHs are generally paid for discharges at the site neutral payment rate unless the discharge meets the patient criteria for payment at the LTCH PPS standard Federal payment rate. The existing regulations governing payment under the LTCH PPS are located in 42 CFR part 412, subpart O. Beginning October 1, 2009, we issue the annual updates to the LTCH PPS in the same documents that update the IPPS. 4. Critical Access Hospitals (CAHs) Under sections 1814(l), 1820, and 1834(g) of the Act, payments made to critical access hospitals (CAHs) (that is, rural hospitals or facilities that meet certain statutory requirements) for inpatient and outpatient services are generally based on 101 percent of reasonable cost. Reasonable cost is determined under the provisions of section 1861(v) of the Act and existing regulations under 42 CFR part 413. 5. Payments for Graduate Medical Education (GME) Under section 1886(a)(4) of the Act, costs of approved educational activities are excluded from the operating costs of inpatient hospital services. Hospitals with approved graduate medical education (GME) programs are paid for the direct costs of GME in accordance with section 1886(h) of the Act. The amount of payment for direct GME costs for a cost reporting period is based on the hospital's number of residents in that period and the hospital's costs per resident in a base year. The existing regulations governing payments to the various types of hospitals are located in 42 CFR part 413. Section 1886(d)(5)(B) of the Act provides that prospective payment hospitals that have residents in an approved GME program receive an additional payment for each Medicare discharge to reflect the higher patient care costs of teaching hospitals relative to non-teaching hospitals. The additional payment is based on the indirect medical education (IME) adjustment factor, which is calculated using a hospital's ratio of residents to beds and a multiplier, which is set by Congress. Section 1886(d)(5)(B)(ii)(XII) of the Act provides that, for discharges occurring during FY 2008 and fiscal years thereafter, the IME formula multiplier is 1.35. The regulations regarding the indirect medical education (IME) adjustment are located at 42 CFR 412.105.

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

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

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

2027 IPPS/LTCH PPS Proposed Provisions The FY 2027 IPPS/LTCH PPS proposed rule appeared in the April 14, 2026 Federal Register (91 FR 19312). In the proposed rule, we set forth proposed payment and policy changes to the Medicare IPPS for FY 2027 operating costs and capital-related costs of acute care hospitals and certain hospitals and hospital units that are excluded from IPPS. In addition, we set forth proposed changes to the payment rates, factors, and other payment and policy-related changes to programs associated with payment rate policies under the LTCH PPS for FY 2027. The following is a general summary of the changes that we proposed to make:

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

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

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

In section III of the preamble of the proposed rule, we proposed revisions to the wage index for acute care hospitals and the annual update of the wage data. Specific issues addressed include, but are not limited to, the following: The proposed FY 2027 wage index update using wage data from cost reporting periods beginning in FY 2023. Calculation, analysis, and implementation of the proposed occupational mix adjustment to the wage index for acute care hospitals for [[Page 49577]] FY 2027 based on the 2022 Occupational Mix Survey. Proposed application of the rural, imputed and frontier State floors, and proposed transition for the discontinuation of the low wage index hospital policy. Proposed revisions to the wage index for acute care hospitals, based on hospital redesignations and reclassifications under sections 1886(d)(8)(B), (d)(8)(E), and (d)(10) of the Act. Proposed adjustment to the wage index for acute care hospitals for FY 2027 based on commuting patterns of hospital employees who reside in a county and work in a different area with a higher wage index. The proposed transition for the discontinuation of the low wage index hospital policy. Proposed labor-related share for applying the FY 2027 wage index.

3. Payment Adjustment for Medicare Disproportionate Share Hospitals

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

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

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

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

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

6. Proposed Changes to the Payment Rates for Certain Excluded

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

7. Proposed Changes to the LTCH PPS

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

8. Proposed Changes Relating to Quality Data Reporting for Specific

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

9. Other Proposals and Comment Solicitations Included in This Final

Rule Section X.A. of the preamble of the proposed rule included changes to TEAM that would affect episodes, quality measure assessment, and pricing methodology. We also solicited comment on an ambulatory surgical center episode RFI and a voluntary hospitals with physician ownership RFI. Section X.B. of the preamble of the proposed rule, included a proposed revision to the provider-based location criteria regulations applicable to off-campus facilities or organizations (Sec. 413.65). Section X.C. of the preamble of the proposed rule included proposals for the CJR-X Model with policies affecting participation, episodes, quality measure and assessment, pricing methodology, model overlap, financial arrangements, waivers of Medicare Program requirements, data sharing, and APM options. Section X.D. of the preamble of the proposed rule, discussed the following proposals: To reconcile non-renal organ acquisition costs for independent organ procurement organizations (IOPOs) and histocompatibility laboratories (HCLs), and to require the Medicare Administrative Contractor to establish, adjust if necessary, and publish the IOPO non-renal standard acquisition charges (SACs) and the HCL testing rates. To change certain existing policy and to codify certain longstanding [[Page 49578]] Medicare reasonable cost reimbursement policies, applicable to all providers reimbursed for all or for some of their services on a reasonable cost basis. To clarify and codify cost allocation principles. To codify the discretionary Administrator review of CMS reviewing official determinations with respect to appeals under Sec. 413.420(g) for IOPOs and HCLs.

10. Other Provisions of the Proposed Rule

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

11. Determining Prospective Payment Operating and Capital Rates and

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

12. Determining Prospective Payment Rates for LTCHs

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

13. Impact Analysis

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

14. Recommendation of Update Factors for Operating Cost Rates of

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

15. Discussion of Medicare Payment Advisory Commission Recommendations

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

E. Public Comments Received in Response to the FY 2027 IPPS/LTCH PPS

Proposed Rule We received approximately 979 timely pieces of correspondence containing multiple comments on the proposed rule that appeared in the April 14, 2026 Federal Register (91 FR 19312) titled ``Medicare Program; Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals and the Long-Term Care Hospital Prospective Payment System and Policy Changes and Fiscal Year 2027 Rates; Requirements for Quality Programs; and Other Policy Changes'' (hereinafter referred to as the FY 2027 IPPS/LTCH PPS proposed rule). We note that some of these public comments were outside of the scope of the proposed rule. These out-of- scope public comments are not addressed with policy responses in this final rule. Summaries of the public comments that are within the scope of the proposed rule and our responses to those public comments are set forth in the various sections of this final rule under the appropriate heading.

F. Adoption of Health Information Technology Standards and

Incorporation by Reference In section X.E. of preamble of this final rule, the Office of the National Coordinator (ONC) is finalizing certain provisions that were included in the proposed rule that appeared in the April 14, 2026 Federal Register (91 FR 19890) titled ``Medicare and Medicaid Programs; Patient Protection and Affordable Care Act; Interoperability Standards and Prior Authorization for Drugs for Medicare Advantage Organizations, Medicaid Managed Care Plans, State Medicaid Agencies, Children's Health Insurance Program (CHIP) Agencies and CHIP Managed Care Entities, and Issuers of Qualified Health Plans on the Federally-Facilitated Exchanges'' (hereinafter referred to as 2026 CMS Interoperability Standards and Prior Authorization for Drugs proposed rule). ONC's proposals included adoption updated versions of certain health IT standards and specifications in 45 CFR 170.215 on behalf of HHS and a January 1, 2028 expiration date for versions of the standards and specifications currently in 45 CFR 170.215(j)(1) through (3), (k)(1), (m), and (n), provided that the proposals to adopt the newer versions of these adopted standards are finalized. Specifically, ONC is finalizing the adoption of certain health IT standards and specifications in 45 CFR 170.215(j) (k), (m), and (n) on behalf of HHS. These standards are referenced in ONC Health IT Certification criteria for electronic prior authorization as well as CMS proposals in the 2026 CMS Interoperability Standards and Prior Authorization for Drugs proposed rule. ONC is finalizing to replace previously adopted versions of corresponding standards in 45 CFR 170.215(j), (k), (m), and (n) with the finalized updated versions upon the effective date of this final rule. [[Page 49579]]

A. Background

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

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

For information on the adoption of the MS-DRGs in FY 2008, we refer readers to the FY 2008 IPPS final rule with comment period (72 FR 47140 through 47189). For general information about the MS-DRG system, including yearly reviews and changes to the MS-DRGs, we refer readers to the previous discussions in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43764 through 43766) and the FYs 2011 through 2026 IPPS/LTCH PPS final rules (75 FR 50053 through 50055; 76 FR 51485 through 51487; 77 FR 53273; 78 FR 50512; 79 FR 49871; 80 FR 49342; 81 FR 56787 through 56872; 82 FR 38010 through 38085; 83 FR 41158 through 41258; 84 FR 42058 through 42165; 85 FR 58445 through 58596; 86 FR 44795 through 44961; 87 FR 48800 through 48891; 88 FR 58654 through 58787; 89 FR 69000 through 69109; and 90 FR 36549 through 36649, respectively). For discussion regarding our previously finalized policies (including our historical adjustments to the payment rates) relating to the effect of changes in documentation and coding that do not reflect real changes in case mix, we refer readers to the FY 2023 IPPS/LTCH PPS final rule (87 FR 48799 through 48800). Comment: Multiple commenters summarized the statutory and regulatory history regarding the documentation and coding recoupment adjustments required under section (7)(b) of the TMA [Transitional Medical Assistance], Abstinence Education, and QI [Qualifying Individuals] Programs Extension Act of 2007 (Pub. L. 110-90), as amended. The commenters contend that the total level of adjustments made by CMS under this section took back more than was authorized by Congress and stated that section 7(b)(2) of Public Law 110-90 requires CMS to increase the standardized amount by 0.9412% to avoid carrying over into FY 2026 the -3.9% reduction to the standardized amount that law required between FY 2013 and FY 2017. Response: As we have discussed in prior rulemaking, including in response to comments in the FY 2026 IPPS/LTCH PPS final rule, as of FY 2023, CMS completed the statutory requirements of section 7(b)(1)(B) of Public Law 110-90 as amended by section 631 of the American Taxpayer Relief Act of 2012 (ATRA, Pub. L. 112-240), section 404 of the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) (Pub. L. 114-10), and section 15005 of the 21st Century Cures Act (Pub. L. 114-255). As we discussed in the FY 2022 IPPS/LTCH PPS final rule (86 FR 44794 through 44795), the FY 2021 IPPS/LTCH PPS final rule (85 FR 58444 through 58445) and in prior rules, we believe section 414 of the MACRA and section 15005 of the 21st Century Cures Act set forth the levels of positive adjustments for FYs 2018 through 2023. Those adjustments added up to +2.9488 percentage points, not +3.9 percentage points, and we see no evidence that Congress enacted that smaller adjustment schedule with the silent intent that CMS would later make a permanent 0.9412% payment adjustment to reach a total +3.9 percentage point adjustment. To the contrary, section 414 of the MACRA instructs the agency to ``not make the adjustment (estimated to be an increase of 3.2 percent) that would otherwise apply for discharges occurring during fiscal year 2018 by reason of the completion of the adjustments required under clause (ii).'' Because the adjustment ``that would otherwise apply'' in fiscal year 2018 but for clause (1)(B)(iii) was +3.9%, the commenter's suggestion to complete making that adjustment now is inconsistent with the statute's text. Subparagraph (b)(2) of Public Law 110-90 does not compel a contrary result. As the U.S. Court of Appeals for the D.C. Circuit has explained, that provision simply requires CMS ``to ignore recoupment adjustments'' when ``calculat[ing] and apply[ing] the annual `percentage increase''' to base rates provided for in the Medicare statute to account for inflation. Fresno Community Hospital & Medical Center v. Cochran, 987 F.3d 158, 163 (D.C. Cir. 2021). The Secretary has complied with that instruction. Similarly, the commenters' citations to statements the agency made in the Federal Register about its intent to unwind the reductions to the standardized amount the agency made between FY 2013 and FY 2017 were made before Congress passed clause (1)(B)(iii) and have been countermanded by that provision. We therefore decline the commenters' suggestion to read into section 7(b) of Public Law 110-90 implied authority to increase the standardized payment amount by 0.9412%. For the same reasons, we do not see a basis for exercising the Secretary's exceptions and adjustments authority under section 1886(d)(5)(I)(i) of the Act.

1. Discussion of Changes to Coding System and Basis for FY 2027 MS-DRG

Updates a. International Classification of Diseases, 10th Revision (ICD-10) Providers use the International Classification of Diseases, 10th Revision (ICD-10) coding system to report diagnoses and procedures for Medicare hospital inpatient services under the MS-DRG system. The ICD- 10 coding system includes the International Classification of Diseases, 10th Revision, Clinical Modification (ICD-10-CM) for diagnosis coding and the International Classification of Diseases, 10th Revision, Procedure Coding System (ICD-10-PCS) for inpatient hospital procedure coding, as well as the ICD-10-CM and ICD-10-PCS Official Guidelines for Coding and Reporting. b. Basis for FY 2027 MS-DRG Updates The deadline for interested parties to submit MS-DRG classification change requests for FY 2027 was October 20, 2025. All requests are submitted to CMS via Medicare Electronic Application Request Information SystemTM (MEARISTM), accessed at https://mearis.cms.gov. Specifically, as indicated on the MEARISTM site, the MS-DRG classification change request [[Page 49580]] process may be used for requests to create, modify, or delete MS-DRGs, change ICD-10-CM diagnosis code(s) severity level designations, change ICD-10-PCS procedure code(s) Operating Room (O.R.) designations, or to review the CC Exclusions List or the surgical hierarchy. Within MEARISTM, we have built in several resources to support users, including a ``Resources'' section available at https://mearis.cms.gov/public/resources with technical support available under ``Useful Links'' at the bottom of the MEARISTM site. Questions regarding the MEARISTM system can be submitted to CMS using the form available under ``Contact'', also at the bottom of the MEARISTM site. We note that the burden associated with this information collection requirement is the time and effort required to collect and submit the data in the request for MS-DRG classification changes to CMS. The aforementioned burden is subject to the Paperwork Reduction Act (PRA) of 1995 and approved under OMB control number 0938-1431 and has an expiration date of January 31, 2029. As we have discussed in prior rulemaking, we may not be able to fully consider all of the requests that we receive for the upcoming fiscal year. We have found that, with the implementation of ICD-10, some types of requested changes to the MS-DRG classifications require more extensive research to identify and analyze all of the data that are relevant to evaluating the potential change. As discussed in the FY 2026 IPPS/LTCH PPS final rule (90 FR 36550), beginning with FY 2027 rulemaking, we are no longer summarizing in the proposed and final rules those requests that are not able to be considered for the upcoming FY. We noted that requests that require more extensive analysis may include those involving multiple MS-DRGs, overlapping logic across multiple Major Diagnostic Categories (MDCs), special logic such as diagnosis codes combined with procedure codes, and/or complex logic including code clusters or multiple logic lists. In December 2025, we informed requestors via MEARISTM if their MS-DRG classification change request was not able to be considered with the FY 2027 rulemaking cycle. Comment: A commenter (technology association) acknowledged the process that CMS utilizes for accepting MS-DRG requests via MEARISTM and that some types of requested changes to the MS- DRG classifications require more extensive research to identify and analyze all the data that are relevant to evaluating the potential change. The commenter stated that CMS notified requestors via MEARISTM if their MS-DRG classification change request was not able to be considered with the FY 2027 rulemaking cycle and they understood that several of their members received such notifications. The commenter also stated that the agency does not publicly disclose the number of MS-DRG applications they receive and review annually. The commenter encouraged CMS to provide greater transparency regarding the overall volume and the nature of the MEARISTM requests that are submitted to CMS each year. The commenter stated their belief that it is important for CMS to provide transparency into the number of requests that it receives each year to provide stakeholders with an understanding of the volume of requests and potential likelihood of not having their application reviewed in rulemaking the same rulemaking cycle. The commenter further stated that for those applications CMS has stated require additional analysis, CMS should provide the applicant with an expected timeline for review. According to the commenter, absent a clear process for revisiting deferred requests, stakeholders are left without clarity as to when such submissions will receive further consideration. The commenter stated it is important for CMS to establish a transparent timeline for re-evaluation of MS-DRG requests that are not addressed in the year of submission. The commenter stated they identified two circumstances in which the public comment process could function as a necessary supplement to MEARISTM. In the first example, the commenter stated that when an MS-DRG classification change request has been submitted through MEARISTM and CMS has been unable to address the request, CMS should recognize the public comment process as an appropriate vehicle for stakeholders to consider the request. The commenter stated they agree that any policy change responsive to public comments, where CMS has not separately proposed the requested change in rulemaking, is appropriately reserved for proposal and finalization in the subsequent rulemaking cycle. The commenter stated this option would be consistent with the agency's general practice for off-cycle ambulatory payment classification, transitional pass-through, and new technology add-on payment determinations. According to the commenter, using this approach would allow the public comment process to operate as a transparency and queue-management mechanism, not as a substitute for proposal and finalization. In the second example, the commenter stated that when CMS has proposed to discontinue the new technology add-on payment for a specific technology, by listing that technology in a designated table within the proposed rule, the agency has put that technology's payment treatment before the public for comment. The commenter stated that the proposed new technology add-on payment discontinuation is itself the proposal. According to the commenter, any public comments addressing the adequacy of the MS-DRG payment for that technology, and a proposed corresponding adjustment to payment when the new technology add-on payment expires, are directly responsive to the action CMS has put before the public; they are not free-standing reassignment requests outside rulemaking. The commenter asserted that MS-DRG assignment is inseparable from the new technology add-on payment action that CMS has proposed. The commenter urged CMS to recognize that for the technologies subject to this scenario, any public comments that include concerns regarding payment adequacy are within the scope of rulemaking and may be considered for action in the same final rule that finalizes a proposed discontinuation of new technology add-on payment. The commenter stated that recognition of these two categories of examples would not displace MEARISTM as the agency's submission process but could ensure that the public comments function as a supplement because exclusive reliance on MEARISTM produces outcomes inconsistent with payment accuracy, beneficiary access, and administrative efficiency. The commenter urged CMS to address the public comments submitted for either example to include the requests received, a summary of the supporting evidence, and an explanation of the disposition. Response: We appreciate the commenter's feedback. In response to the commenter's recommendation that CMS provide greater transparency into the number of requests that it receives each year to afford stakeholders a better understanding of the volume of requests received and the potential likelihood of not having an application reviewed in rulemaking during that same rulemaking cycle, we note that, until the current FY 2027 rulemaking cycle, all prior MS-DRG classification change requests received via MEARISTM since FY 2024 rulemaking have been reflected in the annual IPPS/LTCH PPS rulemakings; therefore, stakeholders were provided with details regarding [[Page 49581]] the number and the nature of the MS-DRG classification change requests. We no longer believe that providing an annual summary as part of the annual rulemaking that outlines the number and nature of MS-DRG classification change requests received and for which we are unable to address for the upcoming fiscal year is beneficial because, as reflected in the FY 2026 IPPS/LTCH PPS final rule (90 FR 36550 through 36552), we received public comments in response to such summaries that were included in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18012), urging CMS to finalize changes for requests that we had indicated we were unable to consider for FY 2026 and for which we did not propose a change to the logic for FY 2026. Additionally, providing an annual summary detailing the number and nature of MS-DRG requests received may not completely reflect the complexity of a given request. We continue to believe that we provide sufficient transparency through our established annual notice and comment rulemaking process. We note that, since the implementation of MEARISTM for the submission of MS-DRG classification change requests, we have continued efforts towards refining our process for MS-DRG classification change requests. For example, as stated in the FY 2026 IPPS/LTCH PPS final rule (90 FR 36549 through 36550), and the preamble of the FY 2027 IPPS/ LTCH PPS proposed rule (91 FR 19322) and this final rule, beginning with FY 2027 rulemaking, we inform requestors via MEARISTM if an MS-DRG classification change request is unable to be considered with the upcoming fiscal year's rulemaking cycle and that we will no longer summarize in the proposed and final rules those requests that are not able to be considered for the upcoming fiscal year. As the commenter acknowledged in its submitted comments, several of their members received such notifications. Specifically, we note that for those requests that were unable to be considered for FY 2027 rulemaking, the requestors received an electronic notification that their MS-DRG classification change request was being deferred for the FY 2027 rulemaking cycle; therefore, requestors were made aware that their MS-DRG classification change request was not being considered in the FY 2027 rulemaking cycle. With respect to the commenter's recommendation that CMS should provide the requestors who received notification that their FY 2027 MS-DRG classification change request was deferred with an expected timeline for review, we note that following this FY 2027 rulemaking, we intend to provide additional information to those requestors whose MS-DRG classification change requests were deferred for FY 2027 regarding the status of their FY 2027 MS-DRG classification change request. In response to the commenter's second example where they asserted that any public comments addressing the adequacy of the MS-DRG payment in connection with the proposed discontinuation of a new technology add-on payment for a specific technology, with a proposed corresponding adjustment to payment, are within the scope of rulemaking and may be considered for action in the same final rule that finalizes a proposed discontinuation of a new technology add-on payment technology, we disagree. Specifically, we note that under our established process, requests for consideration of an MS-DRG classification change must be submitted via MEARISTM as discussed in the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28127) and final rule (87 FR 48800 through 48801). We disagree that the use of MEARISTM produces outcomes inconsistent with payment accuracy, beneficiary access, and administrative efficiency. As reflected in our annual rulemakings, for the MS-DRG classification change requests we are able to consider, we present a summary of the requests received, the relevant MDC(s), MS- DRG(s), ICD-10-CM diagnosis and ICD-10-PCS procedure codes that are analyzed using the designated MedPAR claims data file and the proposals that are set forth based on the findings from our analysis of claims data and clinical review. In connection with our annual proposed rulemakings, we also provide a test version of the ICD-10 MS-DRG GROUPER software, supplemental mapping files, a draft version of the ICD-10 MS-DRG Definitions Manual and, effective with FY 2025 rulemaking, a draft version of the Definitions of Medicare Code Edits (MCE) Manual, and the associated proposed relative weights file so that the public can better analyze and understand the impact of the proposals included in the proposed rule utilizing these available resources. Therefore, we do not believe it would be appropriate to finalize MS-DRG classification changes in connection with the proposed discontinuation of a new technology add-on payment for a specific technology in the absence of providing our standard data analysis and corresponding resources that are made publicly available under our established rulemaking process. To provide further transparency in connection with our MS-DRG request process, beginning with the FY 2028 rulemaking cycle, we intend to send notifications to requestors via MEARISTM if their MS-DRG classification change request(s) will be considered with a status update of ``Under Review'', and for those MS-DRG classification change requests that are unable to be considered for the upcoming fiscal year's rulemaking, we intend to send notifications to requestors via MEARISTM with a status update of ``Deferred'', followed by additional communication as to why the request is unable to be considered for the upcoming fiscal year's rulemaking cycle. Consistent with our process for the FY 2027 MS-DRG classification change requests, we intend to notify requestors by mid-December if their request is or is not able to be considered for the upcoming fiscal year. Interested parties should submit any MS-DRG classification change requests, including any comments and suggestions for FY 2028 consideration by October 20, 2026, via MEARISTM at: https://mearis.cms.gov/public/home. As noted, we will inform requestors via MEARIS\TM\ if the MS-DRG classification change request is or is not able to be considered with the upcoming fiscal year rulemaking cycle. As we did for the FY 2026 IPPS/LTCH PPS proposed rule, for the FY 2027 IPPS/LTCH PPS proposed rule we provided a test version of the ICD- 10 MS-DRG GROUPER Software, Version 44, so that the public can better analyze and understand the impact of the proposals included in the proposed rule. We noted that this test software reflected the proposed GROUPER logic for FY 2027. Therefore, it included the new diagnosis and procedure codes that are effective for FY 2027 as reflected in Table 6A.--New Diagnosis Codes--FY 2027 and Table 6B.--New Procedure Codes-- FY 2027 associated with the proposed rule and does not include the diagnosis codes that are invalid beginning in FY 2027 as reflected in Table 6C.--Invalid Diagnosis Codes--FY 2027 and Table 6D.--Invalid Procedure Codes--FY 2027 associated with the proposed rule. Those tables were not published in the Addendum to the FY 2027 IPPS/LTCH PPS proposed rule, but are available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html as described in section VI. of the Addendum to the FY 2027 IPPS/LTCH PPS proposed rule. Because the [[Page 49582]] diagnosis and procedure codes no longer valid for FY 2027 are not reflected in the test software, we made available a supplemental file in Table 6P.1a that includes the mapped Version 44 FY 2027 ICD-10-CM codes and the deleted Version 43 FY 2026 ICD-10-CM codes and Table 6P.1b that includes the mapped Version 44 FY 2027 ICD-10-PCS codes and the deleted Version 43.1 FY 2026 ICD-10-PCS codes that should be used for testing purposes with users' available claims data. Therefore, users had access to the test software allowing them to build case examples that reflect the proposals that were included in the proposed rule. In addition, users were able to view the draft version of the ICD-10 MS-DRG Definitions Manual, Version 44 that contains the documentation for proposed FY 2027 ICD-10 MS-DRG GROUPER Version 44 logic changes and were also able to view a draft version of the Definitions of Medicare Code Edits (MCE) Manual to review any changes that will become effective October 1 for FY 2027. In the proposed rule we also noted that, as a result of new and modified code updates approved after the annual spring ICD-10 Coordination and Maintenance Committee meeting, any further changes to the MCE will be reflected in the finalized Definitions of Medicare Code Edits (MCE) Manual, made available in association with the annual IPPS/LTCH PPS final rule. As such, we made available the draft FY 2027 ICD-10 MCE Version 44 Manual file on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software. We noted in the proposed rule that the MCE manual is comprised of two chapters: Chapter 1: Edit code lists provides a listing of each edit, an explanation of each edit, and as applicable, the diagnosis and/or procedure codes for each edit, and Chapter 2: Code list changes summarizes the changes in the edit code lists (for example, additions and deletions) from the prior release of the MCE software. We also stated that the public may submit any questions, comments, concerns, or recommendations regarding the MCE to the CMS mailbox at [email protected] for our review and consideration. The test version of the ICD-10 MS-DRG GROUPER Software, Version 44, the draft version of the ICD-10 MS-DRG Definitions Manual, Version 44, the draft version of the Definitions of Medicare Code Edits Manual, Version 44, and the supplemental mapping files in Tables 6P.1a and 6P.1b of the FY 2026 and FY 2027 ICD-10-CM diagnosis codes and ICD-10- PCS procedure codes are available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software. Comment: Commenters expressed appreciation that we provided a test version of the ICD-10 MS-DRG GROUPER Software, Version 44, along with mapping files to assist with analysis, however, the commenters stated that this version essentially only allows for a case-by-case analysis and a minimal batch analysis. The commenters stated that it would be more beneficial to have a Batch z/OS version of the test GROUPER so that it could be better utilized for broader and more meaningful analysis purposes. The commenters requested that availability of a Batch z/OS version of the test GROUPER be made publicly available for all future rulemaking. Response: We appreciate the commenters' feedback and will take the suggestion into consideration for future rulemaking. Following are the changes that we proposed to the MS-DRGs for FY 2027. We invited public comments on each of the MS-DRG classification proposed changes, as well as our proposals to maintain certain existing MS-DRG classifications discussed in the FY 2027 IPPS/LTCH PPS proposed rule. In some cases, we proposed changes to the MS-DRG classifications based on our analysis of claims data and clinical appropriateness. In other cases, we proposed to maintain the existing MS-DRG classifications based on our analysis of claims data and clinical appropriateness. As discussed in the FY 2027 IPPS/LTCH PPS proposed rule, our MS-DRG analysis was based on ICD-10 claims data from the September 2025 update of the FY 2025 MedPAR file, which contains hospital bills received from October 1, 2024, through September 30, 2025. In our discussion of the proposed MS-DRG reclassification changes, we referred to these claims data as the ``September 2025 update of the FY 2025 MedPAR file.'' As explained in previous rulemaking (76 FR 51487), in deciding whether to propose to make further modifications to the MS-DRGs for particular circumstances brought to our attention, we consider whether the resource consumption and clinical characteristics of the patients with a given set of conditions are significantly different than the remaining patients represented in the MS-DRG. We evaluate patient care costs using average costs and lengths of stay and rely on clinical factors to determine whether patients are clinically distinct or similar to other patients represented in the MS-DRG. In evaluating resource costs, we consider both the absolute and percentage differences in average costs between the cases we select for review and the remainder of cases in the MS-DRG. We also consider variation in costs within these groups; that is, whether observed average differences are consistent across patients or attributable to cases that are extreme in terms of costs or length of stay, or both. Further, we consider the number of patients who will have a given set of characteristics and generally prefer not to create a new MS-DRG unless it would include a substantial number of cases. In the FY 2021 IPPS/LTCH PPS final rule (85 FR 58448), we finalized our proposal to expand our existing criteria to create a new complication or comorbidity (CC) or major complication or comorbidity (MCC) subgroup within a base MS-DRG. Specifically, we finalized the expansion of the criteria to include the NonCC subgroup for a three-way severity level split. We stated we believed that applying these criteria to the NonCC subgroup would better reflect resource stratification as well as promote stability in the relative weights by avoiding low volume counts for the NonCC level MS-DRGs. We noted that in our analysis of MS-DRG classification requests for FY 2021 that were received by November 1, 2019, as well as any additional analyses that were conducted in connection with those requests, we applied these criteria to each of the MCC, CC, and NonCC subgroups. As discussed in the FY 2024 IPPS/LTCH PPS final rule (88 FR 58661), we continue to apply the criteria to create subgroups, including application of the NonCC subgroup criteria, in our annual analysis of MS-DRG classification requests, consistent with our approach since FY 2021 when we finalized the expansion of the criteria to include the NonCC subgroup for a three-way severity level split. Accordingly, in our analysis of the MS-DRG classification requests for FY 2027 that we received by October 20, 2025, as well as any additional analyses that were conducted in connection with those requests, we applied these criteria to each of the MCC, CC, and NonCC subgroups, as described in the following table. [[Page 49583]] [GRAPHIC] [TIFF OMITTED] TR04AU26.024 In general, once the decision has been made to propose to make further modifications to the MS-DRGs as described previously, such as creating a new base MS-DRG, or in our evaluation of a specific MS-DRG classification request to split (or subdivide) an existing base MS-DRG into severity levels, all five criteria must be met for the base MS-DRG to be split (or subdivided) by a CC subgroup. We note that in our analysis of requests to create a new MS-DRG, we typically evaluate the most recent year of MedPAR claims data available. For example, we stated earlier that for the FY 2027 IPPS/LTCH PPS proposed rule, our MS-DRG analysis was based on ICD-10 claims data from the September 2025 update of the FY 2025 MedPAR file. However, in our evaluation of requests to split an existing base MS-DRG into severity levels, as noted in prior rulemaking (80 FR 49368), we typically analyze the most recent two years of data. This analysis includes two years of MedPAR claims data to compare the data results from one year to the next to avoid making determinations about whether additional severity levels are warranted based on an isolated year's data fluctuation and also, to validate that the established severity levels within a base MS-DRG are supported. The first step in our process of evaluating if the creation of a new CC subgroup within a base MS-DRG is warranted is to determine if all the criteria is satisfied for a three-way split. In applying the criteria for a three-way split, a base MS-DRG is initially subdivided into the three subgroups: MCC, CC, and NonCC. Each subgroup is then analyzed in relation to the other two subgroups using the volume (Criteria 1 and 2), average cost (Criteria 3 and 4), and reduction in variance (Criteria 5). If the criteria fail, the next step is to determine if the criteria are satisfied for a two-way split. In applying the criteria for a two-way split, a base MS-DRG is initially subdivided into two subgroups: ``with MCC'' and ``without MCC'' (1_23) or ``with CC/MCC'' and ``without CC/MCC'' (12_3). Each subgroup is then analyzed in relation to the other using the volume (Criteria 1 and 2), average cost (Criteria 3 and 4), and reduction in variance (Criteria 5). If the criteria for both of the two-way splits fail, then a split (or CC subgroup) would generally not be warranted for that base MS-DRG. If the three-way split fails on any one of the five criteria and all five criteria for both two-way splits (1_23 and 12_3) are met, we would apply the two-way split with the highest R2 value. We note that if the request to split (or subdivide) an existing base MS-DRG into severity levels specifies the request is for either one of the two-way splits (1_23 or 12_3), in response to the specific request, we will evaluate the criteria for both of the two-way splits; however, we do not also evaluate the criteria for a three-way split. We are making the FY 2027 ICD-10 MS-DRG GROUPER and Medicare Code Editor (MCE) Software Version 44, the ICD-10 MS-DRG Definitions Manual files Version 44 and the Definitions of Medicare Code Edits Manual Version 44 available to the public on our CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps.

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

a. Short-term External Heart Assist Systems In the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19324 through 19328), we discussed a request we received to reassign cases reporting procedure codes describing the insertion of a short-term external heart assist device from MDC 04 MS-DRGs 163, 164, and 165 (Major Chest Procedures with MCC, with CC, and without CC/MCC, respectively) to MDC 05 (Diseases and Disorders of the Circulatory System) MS-DRG 215 (Other Heart Assist System Implant). According to the requestor, when patients are admitted with pulmonary conditions, such as pulmonary embolism, and have Impella[supreg] Ventricular Support Systems inserted for cardiac support during a thrombectomy procedure, MS-DRGs 163, 164, or 165 are assigned. The requestor stated that cases reporting procedure codes describing the insertion of Impella[supreg] Ventricular Support Systems that are assigned to MS-DRGs 163, 164, or 165 require resources similar to cases that are assigned to MS-DRG 215. The requestor further requested that if CMS did not reassign cases reporting procedure codes describing the insertion of a short-term external heart assist device to MS-DRG 215, in the alternative, CMS should consider creating new MS- DRGs for cases reporting procedure codes describing the insertion of a short-term external heart assist device and major chest procedures. As discussed in the proposed rule, in reviewing this request, we noted that acute massive pulmonary embolism can lead to right ventricular (RV) failure and cardiogenic shock, requiring urgent treatment. Thrombolytic therapy is the standard treatment for high-risk pulmonary embolism in hemodynamically unstable patients. However, in cases where thrombolytics are contraindicated or ineffective, mechanical circulatory support can serve as a rescue therapy. While extracorporeal membrane oxygenation (ECMO) is commonly utilized, Impella[supreg] Ventricular Support Systems can offer right ventricular support in patients with pulmonary embolism-induced [[Page 49584]] cardiogenic shock.\1\ Impella[supreg] Ventricular Support Systems are temporary heart assist devices intended to provide mechanical circulatory support by temporarily assisting the pumping function of the heart to provide adequate circulation of blood to critical organs while also allowing damaged heart muscle the opportunity to rest and recover in patients who need short-term support. --------------------------------------------------------------------------- \1\ Pandey, Asim MBBS\a,*\; Parajuli, Samriddhi MBBS\b\; Khanal, Prajwal MBBS\c\; Khanal, Kunjan MBBS\d\; Yadav, Ramsinhasan Prasad MBBS\e\. Hemodynamic improvement with Impella RP in acute massive pulmonary embolism: a narrative review of cardiovascular outcomes and pulmonary catheter pressure assessment. Annals of Medicine & Surgery 87(7):p 4303-4309, July 2025. [verbar] DOI: 10.1097/ MS9.0000000000003431 --------------------------------------------------------------------------- We noted in the proposed rule that the requestor identified cases reporting procedure codes describing the insertion of a short-term external heart assist device as reporting ICD-10-PCS codes 02HA3RZ (Insertion of short-term external heart assist system into the heart, percutaneous approach) and 5A0221D (Assistance with cardiac output using impeller pump, continuous). We stated that while we agree with the requestor that procedure code 02HA3RZ describes the insertion of a short-term external heart assist device, we note that there are additional ICD-10-PCS codes in the classification that also describe the insertion of a short-term external heart assist device. Therefore, in reviewing this request, we identified the five additional ICD-10-PCS procedure codes that also describe the insertion of a short-term external heart assist device listed in the following table and included these codes in our analysis. [GRAPHIC] [TIFF OMITTED] TR04AU26.025 To begin our analysis, as discussed in the proposed rule, we examined claims data from the September 2025 update of the FY 2025 MedPAR file for MS-DRGs 163, 164, and 165 to identify cases reporting ICD-10-PCS codes 02HA0RS, 02HA0RZ, 02HA3RS, 02HA3RZ, 02HA4RS, or 02HA4RZ. We stated in the proposed rule that we agreed with the requestor that when a patient is admitted and has an Impella[supreg] external heart assist device inserted, two ICD-10-PCS codes are assigned: a code that describes the insertion of the short-term external heart assist device and code 5A0221D that describes assistance with an impeller pump. Because the assistance with an Impella[supreg] is always coded with ICD-10-PCS code 5A0221D, we did not include this code in our analysis as the presence of the code would be expected to be identified in all cases. Our findings are shown in the following table. [GRAPHIC] [TIFF OMITTED] TR04AU26.307 As shown in the table, we identified a total of 13,396 cases within MS-DRG 163 with an average length of stay of 8.2 days and average costs of $40,641. Of these 13,396 cases, there were 17 cases that reported a procedure code describing the insertion of a short-term external heart assist device with an average length of stay of 8.4 days and average costs of $81,960. There were zero cases reporting a procedure code describing the insertion of a short-term external heart assist device in MS-DRGs 164 and 165. The data analysis shows that for the cases in MS-DRG 163 reporting a procedure code describing the insertion of a short-term external heart assist device, the average length of stay is longer, and the average costs are higher when compared to all cases in that MS-DRG. As discussed in the proposed rule, to further review the consumption of hospital resources for cases reporting a procedure code describing the insertion of a short-term external heart assist device with a principal diagnosis of a pulmonary condition, we reviewed the claims data to identify cases reporting ICD-10-PCS codes 02HA0RS, 02HA0RZ, 02HA3RS, 02HA3RZ, 02HA4RS, or 02HA4RZ in other MS-DRGs in MDC 04 (Diseases and Disorders of the Respiratory System), specifically MS- DRGs 166, 167, and 168 (Other Respiratory System O.R. Procedures with MCC, with CC, and without CC/MCC, respectively) and MS-DRG 173 (Ultrasound Accelerated and Other Thrombolysis with Principal Diagnosis Pulmonary Embolism). We refer the reader to the ICD-10 MS-DRG Definitions Manual Version 43.1 (available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software) for a complete listing of the MS-DRGs in MDC 04. There were zero cases reporting a procedure code describing the insertion of a short-term external heart assist device with a principal diagnosis of a pulmonary condition in MS-DRGs 166, 167, 168 or MS-DRG 173. We then reviewed the claims data to further identify the principal diagnoses that were reported to determine what factors may also be contributing to the higher average costs for the subset of cases that reported a procedure code describing the insertion of a short-term [[Page 49585]] external heart assist device in MS-DRG 163. Our findings for the principal diagnoses that were reported within the claims data from the September 2025 update of the FY 2025 MedPAR file for this subset of cases are shown in the following table: [GRAPHIC] [TIFF OMITTED] TR04AU26.026 As reflected in the table, all 17 cases reported a principal diagnosis of pulmonary embolism. While the results of the claims analysis as previously summarized indicate that the average costs of cases that reported a procedure code describing the insertion of a short-term external heart assist device are higher compared to the average costs for all cases in MS-DRG 163, we stated in the proposed rule that we could not ascertain from the claims data the additional resource use specifically attributable to the insertion of the short- term external heart assist device during the hospital stay as compared to the severity of illness of the patient and other circumstances of the admission. We stated that these data show that while cases that reported a procedure code describing the insertion of a short-term external heart assist device and a principal diagnosis of pulmonary embolism required greater resource utilization, there is a wide variance in average costs and average length of stay depending on the ICD-10-CM code reported as principal diagnosis. For example, the three cases that reported a principal diagnosis of I26.02 (Saddle embolus of pulmonary artery with acute cor pulmonale) had an average length of stay of 7.3 days and average costs of $61,956, while the two cases that reported a principal diagnosis of I26.92 (Saddle embolus of pulmonary artery without acute cor pulmonale) had an average length of stay of 11.5 days and average costs of $111,452. When reviewing consumption of hospital resources for this subset of cases, it is unclear to what degree the higher average costs for these cases are attributable to the severity of illness of the patient and other circumstances of the admission as opposed to the insertion of a short-term external heart assist device. There may have been other factors contributing to the higher costs. As discussed in the proposed rule, during our review of this issue and the examination of the cases reporting procedure codes describing the insertion of a short-term external heart assist device found in MS- DRG 163, as noted previously, we found these cases all reported a principal diagnosis of pulmonary embolism. The ICD-10-codes that describe pulmonary embolism are currently assigned to MDC 04 (Diseases and Disorders of the Respiratory System). The diagnoses assigned to MDC 04 reflect conditions associated with the respiratory system. In ICD- 10, the body or organ system is the axis of the classification, and diagnosis codes are classified by the body or organ system affected. The concept of clinical coherence generally requires that the patient characteristics included in the definition of each MS-DRG relate to a common organ system or etiology and that a specific medical specialty should typically provide care to the patients in the DRG. These diagnosis codes would require reassignment to MDC 05 (Diseases and Disorders of the Circulatory System) to group to MDC 05 MS-DRG 215. Although MDC 04 diagnoses such as pulmonary embolism can lead to RV failure and cardiogenic shock, which might be reasonable indications for the insertion of a short-term external heart assist device, we stated it would not be appropriate to move these diagnoses into MDC 05 because it could inadvertently cause cases reporting these same MDC 04 diagnoses with a respiratory system procedure to be assigned to an ``unrelated'' MS-DRG because whenever there is a surgical procedure reported on the claim that is unrelated to the MDC to which the case was assigned based on the principal diagnosis, it results in a MS-DRG assignment to a surgical class referred to as ``unrelated operating room procedures''. To further examine the impact of moving the diagnosis codes describing pulmonary embolism into MDC 05, we stated we analyzed claims data for cases reporting a respiratory system O.R. procedure and a principal diagnosis of pulmonary embolism. Our findings are reflected in the following table. [GRAPHIC] [TIFF OMITTED] TR04AU26.027 [[Page 49586]] As shown in the table, we identified 8,652 cases reporting a respiratory system O.R. procedure and a principal diagnosis of pulmonary embolism. We reviewed this issue and noted in the proposed rule if we were to move the diagnosis codes describing pulmonary embolism to MDC 05, these cases would be assigned to the surgical class referred to as ``unrelated operating room procedures'' as an unintended consequence because the surgical procedure reported on the claim would be considered unrelated to the MDC to which the case was assigned based on the principal diagnosis. We noted the data also indicates that there were more cases that reported an O.R. procedure assigned to MDC 04 with a principal diagnosis describing pulmonary embolism than there were cases that reported a procedure code describing the insertion of a short-term external heart assist device, and a principal diagnosis of pulmonary embolism in MDC 04 (8,652 cases versus 17 cases) demonstrating that inpatient admissions for pulmonary embolism more typically have an O.R. procedure assigned to MDC 04 performed and do not report a procedure code describing the insertion of a short-term external heart assist device. In the proposed rule, we stated we also reviewed the cases reporting an O.R. procedure assigned to MDC 04 and a principal diagnosis describing pulmonary embolism to identify the top ten O.R. procedures assigned to MDC 04 that were reported within the claims data for these cases. Our findings are shown in the following table: [GRAPHIC] [TIFF OMITTED] TR04AU26.028 As noted previously, if we were to move the diagnosis codes describing pulmonary embolism to MDC 05, cases reporting one of the O.R. procedures assigned to MDC 04 shown in the table would be assigned to the surgical class referred to as ``unrelated operating room procedures'' as an unintended consequence. Based on the results of our analysis, we stated we believe that the diagnosis codes describing pulmonary embolism are most clinically aligned with the other diagnosis codes assigned to MDC 04 (where they are currently assigned). Considering the impact that moving the diagnoses describing pulmonary embolism to MDC 05 from MDC 04 would have, we stated we also believe it would not be appropriate to move these diagnoses into MDC 05 because it would inadvertently cause cases reporting pulmonary embolism with O.R. procedures assigned to MDC 04 to be assigned to an unrelated MS-DRG. We then explored alternative options, as was requested, as discussed in the proposed rule. We noted that the 17 cases reporting a procedure code describing the insertion of a short-term external heart assist device had an average length of stay of 8.4 days and average costs of $81,960, as compared to the 13,396 cases in MS-DRG 163 that had an average length of stay of 8.2 days and average costs of $40,641. While these cases reporting a procedure code describing the insertion of a short-term external heart assist device had average costs that were $41,319 higher than the average costs of all cases in MS-DRG 163 (the highest severity level ``with MCC'' MS-DRG), there were only a total of 17 cases. We stated that the results of the claims analysis demonstrate that there are not sufficient claims data in the MedPAR file on which to assess the resource use of cases reporting a procedure code describing the insertion of a short-term external heart assist device with a principal diagnosis from MDC 04 to consider the creation of a new MS-DRG. As noted previously, we could not ascertain from the claims data the resource use specifically attributable to the insertion of a short-term external heart assist device during the hospital stay. Accordingly, we stated we do not believe that the small subset of cases reporting a procedure code describing the insertion of a short-term external heart assist device with a principal diagnosis from MDC 04 warrants the creation of a new MS-DRG for these cases at this time. Lastly, we explored reassigning cases reporting a procedure code describing the insertion of a short-term external heart assist device with an O.R. procedure assigned to MDC 04 and a principal diagnosis from MDC 04 to other MS-DRGs within MDC 04. However, we stated in the proposed rule our review did not support reassignment of these cases to any other surgical MS-DRGs in MDC 04, as MS-DRGs 163, 164 and 165, where the cases are currently assigned, represent the highest surgical class in the surgical hierarchy of MDC 04. The surgical hierarchy is an ordering of surgical classes from most resource-intensive to least resource-intensive. Application of this hierarchy ensures that cases involving multiple surgical procedures are assigned to the MS-DRG associated with the most resource-intensive surgical class. We note that discussion of the surgical hierarchy is in section II.C.14. of the preamble of this final rule. As discussed in the proposed rule, while the data analysis reflects that cases that report a procedure code describing the insertion of a short-term external heart assist device with an O.R. procedure assigned to MDC 04 and a principal diagnosis from MDC 04 demonstrate higher average costs in their respective MS-DRGs, as discussed in prior rulemaking (86 FR 44878), the MS-DRG system is a system of averages and it is expected that within the diagnostic related groups, some cases may demonstrate higher than average costs, while other cases may [[Page 49587]] demonstrate lower than average costs. We further note that section 1886(d)(5)(A) of the Act provides for Medicare payments to Medicare- participating hospitals in addition to the basic prospective payments for cases incurring extraordinarily high costs. We stated we will continue to evaluate the clinical coherence and resource consumption costs that impact this subset of cases and their current MS-DRG assignment. Therefore, for the reasons stated previously, we did not propose to reassign cases reporting procedure codes describing the insertion of a short-term external heart assist device from MDC 04 MS-DRGs 163, 164, and 165 (Major Chest Procedures with MCC, with CC, and without CC/MCC, respectively) to MDC 05 MS-DRG 215 (Other Heart Assist System Implant) for FY 2027. Comment: Many commenters expressed support for CMS' proposal to not reassign cases reporting procedure codes describing the insertion of a short-term external heart assist device from MDC 04 MS-DRGs 163, 164, and 165 (Major Chest Procedures with MCC, with CC, and without CC/MCC, respectively) to MDC 05 MS-DRG 215 (Other Heart Assist System Implant) for FY 2027. These commenters stated they support CMS' decision not to proceed with reassignment of these cases. Response: We thank the commenters for their support. Comment: Another commenter stated they recognize that CMS appropriately relies on diagnosis and procedure coding, as well as average costs, lengths of stay, and case counts in determining whether a cohort is sufficiently distinct to warrant a different MS-DRG assignment or subgrouping but stated, for the rare subset of pulmonary embolism cases requiring short-term external heart assist devices, high early mortality may materially distort the data by shortening length of stay and lowering total costs for some of the sickest patients. This commenter requested that, in addition to its standard analysis of average costs, lengths of stay (LOS), variance, and volume, CMS evaluate cases by taking into account patient discharge status in order to consider mortality-stratified cost analyses (for example, survivors versus non-survivors) before concluding that cases are not sufficiently distinct to justify further MS-DRG refinement or other payment adjustments. Response: We thank the commenter for sharing their view and recommendation. As explained in previous rulemaking (76 FR 51487), in deciding whether to propose to make further modifications to the MS- DRGs for particular circumstances brought to our attention, we consider whether the resource consumption and clinical characteristics of the patients with a given set of conditions are significantly different than the remaining patients represented in the MS-DRG. We evaluate patient care costs using average costs and lengths of stay and rely on clinical factors to determine whether patients are clinically distinct or similar to other patients represented in the MS-DRG. In evaluating resource costs, we consider both the absolute and percentage differences in average costs between the cases we select for review and the remainder of cases in the MS DRG. We also consider variation in costs within these groups; that is, whether observed average differences are consistent across patients or attributable to cases that are extreme in terms of costs or length of stay, or both. Further, we consider the number of patients who will have a given set of characteristics and generally prefer not to create a new MS-DRG unless it would include a substantial number of cases. We will take the commenters' feedback into consideration in future policy development. Comment: Another commenter recommended that CMS move the assignment of the procedure codes describing the insertion of a short-term external heart assist device from MDC 04 MS-DRGs 163, 164, 165 to MDC 05 (Diseases and Disorders of the Circulatory System) MS-DRG 215 (Other Heart Assist System Implant) to reflect the severity of the patient's condition and the complexity of care provided as well as the incremental resources consumed. Response: We thank the commenter for its recommendation. As discussed in the proposed rule, in reviewing this request, we identified six ICD-10-PCS procedure codes that describe the insertion of a short-term external heart assist device. In response to the recommendation that CMS move the assignment of the procedures codes describing the insertion of a short-term external heart assist device from MDC 04 MS-DRGs 163, 164, 165 to MDC 05 MS-DRG 215, we note that these procedure codes are not assigned to MDC 04 in the ICD-10 MS-DRG Definitions Manual Version 43.1. The six ICD-10-CM procedure codes reviewed, as well as their current MDC assignments, are found in the table: [GRAPHIC] [TIFF OMITTED] TR04AU26.029 As reflected in the ICD-10 MS-DRG Definitions Manual, we note that for the subset of cases reporting a procedure code describing the insertion of a short-term external heart assist device with a principal diagnosis from MDC 04, the logic for case assignment to MDC 04 MS-DRGs 163, 164, 165 (Major Chest Procedures with MCC, with CC, and without CC/MCC, respectively) is driven by also reporting a procedure code assigned to these MS-DRGs. We refer the reader to the ICD-10 MS-DRG Definitions Manual Version 43.1, which is available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software for complete documentation of the GROUPER logic for MS-DRGs 163, 164, and 165. We appreciate the commenters' concern regarding ensuring that these cases are assigned to an MS-DRG that reflects the severity of the patient's condition, the complexity of care provided, as well as the incremental resources consumed. We acknowledge the results of the claims analysis as summarized in the proposed rule and this final rule indicate that the average costs of cases that reported a procedure [[Page 49588]] code describing the insertion of a short-term external heart assist device and a principal diagnosis of pulmonary embolism are higher compared to the average costs for all cases in their assigned MS-DRG. However, considering the impact that moving the diagnoses describing pulmonary embolism to MDC 05 from MDC 04 would have, we continue to believe it would not be appropriate to move these diagnoses into MDC 05 because it would inadvertently cause cases reporting pulmonary embolism with O.R. procedures assigned to MDC 04 to be assigned to an unrelated MS-DRG. Additionally, as discussed in the proposed rule, we examined the MS-DRGs within MDC 04 and noted that MS-DRGs 163, 164, and 165 represent the highest surgical class in the surgical hierarchy of MDC 04. Therefore, the cases reporting procedure codes describing the insertion of a short-term external heart assist device and a principal diagnosis of pulmonary embolism are most suitably assigned to MS-DRGs 163, 164, and 165, where the cases are currently assigned. There is no other alternative assignment for these procedures in MDC 04. While the data do not support creating a new MS-DRG for cases reporting a procedure code describing the insertion of a short-term external heart assist device and a principal diagnosis of pulmonary embolism, we will continue to monitor the claims data to determine if refinements may be warranted in the future. We note that we will address any proposed modifications in future rulemaking. Therefore, after consideration of the public comments we received, and for the reasons discussed, we are finalizing our proposal to not reassign cases reporting procedure codes describing the insertion of a short-term external heart assist device from MDC 04 MS-DRGs 163, 164, and 165 (Major Chest Procedures with MCC, with CC, and without CC/MCC, respectively) to MDC 05 MS-DRG 215 (Other Heart Assist System Implant), without modification, for FY 2027. b. Fluorescence Guided Procedures of the Trunk Region Using Pafolacianine CYTALUX[supreg] (pafolacianine) is a folate receptor-targeted fluorescent optical imaging agent used as an adjunct for the identification of malignant and non-malignant pulmonary lesions in adult patients with known or suspected lung cancer. CYTALUX[supreg] binds to the folate receptors on these cancer cells and is endocytosed into folate receptor positive cancer cells. CYTALUX[supreg] is administered intravenously prior to thoracic resection procedures and requires use of a near-infrared imaging (NIR) system to illuminate, thereby making cancer visible within the surgical field. CYTALUX[supreg] received FDA approval and is indicated as an adjunct for intraoperative identification of malignant and non-malignant pulmonary lesions in adult patients with known or suspected cancer in the lung. In the FY 2027 IPPS/LTCH PPS proposed rule, we noted that CYTALUX[supreg] for the lung indication was approved for new technology add-on payments for FY 2024 (88 FR 58810 through 58818), FY 2025 (89 FR 69120 through 69126), and FY 2026 (90 FR 36668). We refer readers to section II.E.5 of the preamble of this final rule for a discussion regarding the FY 2027 status of technologies approved for FY 2026 new technology add-on payments, including CYTALUX[supreg] for the lung indication. As discussed in the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19328 through 19330, we received a request from the manufacturer of CYTALUX[supreg] to modify the GROUPER logic of MS-DRGs 163, 164, and 165 (Major Chest Procedures with MCC, with CC, and without CC/MCC, respectively) by reassigning cases with an ICD-10-PCS code that describes fluorescence guided surgery using CYTALUX[supreg] (pafolacianine) for the lung indication that currently map to the lower severity level MS-DRG 165 (without CC/MCC) to the higher severity level MS-DRG 163 (with MCC) or MS-DRG 164 (with CC). According to the requestor, the utilization of CYTALUX[supreg] does not change the surgical procedure but adds significant value and cost to the procedure by improving the surgeon's ability to identify and completely resect malignant tissue. The requestor performed their own analysis of Medicare claims data from October 1, 2023, through March, 31, 2025, and stated they found approximately 135 cases that used CYTALUX[supreg] in thoracic resections and that they expect adoption to accelerate as NIR systems become more widely available. Additionally, the requestor stated they found 35 percent of the cases using CYTALUX[supreg] within MS-DRG 165, and the average costs of these cases exceeded the average costs of cases that did not report the usage of CYTALUX[supreg]. When controlling for procedural and facility variation, the requestor stated they found that CYTALUX cases in MS-DRG 165 were $1,515 (8 percent) higher in cost and that 60 percent of the cases using CYTALUX[supreg] in MS-DRG DRG 165 received new technology add-on payments averaging approximately $2,300. The requestor further asserted that their review of the inpatient Standard Analytical Files (SAF) indicated underreporting of CYTALUX[supreg] costs due to unclear inpatient drug billing guidance. The requestor stated they found that 64 percent of cases reporting an ICD-10-PCS code that describes fluorescence guided surgery using CYTALUX[supreg] (pafolacianine) for the lung indication fall into MS-DRGs 163 or 164. Additionally, the requestor stated while they found that the average length of stay for cases reporting CYTALUX[supreg] in MS-DRG 165 is lower (1.9 vs. 2.3 days), the cost profile of these cases aligns more closely with the higher-severity MS- DRGs 164 and 163. According to the requestor, this misalignment leads to underpayment when CYTALUX[supreg] cases are grouped into MS-DRG 165, therefore CMS should reassign cases with an ICD-10-PCS code that describes fluorescence guided surgery using CYTALUX[supreg] (pafolacianine) for the lung indication from MS-DRG 165 to MS-DRGs 163 or 164 to prevent barriers to hospital adoption of CYTALUX[supreg] as NIR system availability expands nationwide. As discussed in the proposed rule, the following ICD-10-PCS procedure codes describe fluorescence guided surgery using CYTALUX[supreg] (pafolacianine) for the lung indication. [[Page 49589]] [GRAPHIC] [TIFF OMITTED] TR04AU26.030 In the ICD-10 MS-DRGs Definitions Manual Version 43.1, procedure codes 8E0W0EN, 8E0W3EN, 8E0W4EN, 8E0W7EN and 8E0W8EN are designated as non-O.R. procedures for purposes of MS-DRG assignment, therefore when CYTALUX[supreg] is utilized during a procedure for the lung indication, the ICD-10-PCS code describing the surgical procedure will determine the surgical MS-DRG assignment based on the principal diagnosis reported. In the proposed rule, we stated we examined claims data from the September 2025 update of the FY 2025 MedPAR file for MS-DRGs 163, 164, and 165 to identify cases reporting one of the five procedure codes listed previously that describe fluorescence guided surgery using CYTALUX[supreg] (pafolacianine). Our findings are shown in the following table: [GRAPHIC] [TIFF OMITTED] TR04AU26.031 As shown in the table, in MS-DRG 163, we identified a total of 13,396 cases with an average length of stay of 8.2 days and average costs of $40,641. Of those 13,396 cases, there were 14 cases reporting one of five procedure codes that describe fluorescence guided surgery using CYTALUX[supreg] (pafolacianine), with average costs lower than the average costs in the FY 2025 MedPAR file for MS-DRG 163 ($30,818 compared to $40,641) and a shorter average length of stay (4.6 days compared to 8.2 days). In MS-DRG 164, we identified a total of 14,384 cases with an average length of stay of 4 days and average costs of $23,393. Of those 14,384 cases, there were 87 cases reporting one of five procedure codes that describe fluorescence guided surgery using CYTALUX[supreg] (pafolacianine), with average costs lower than the average costs in the FY 2025 MedPAR file for MS-DRG 164 ($22,426 compared to $23,393) and a shorter average length of stay (2.7 days compared to 4 days). In MS-DRG 165, we identified a total of 6,431 cases with an average length of stay of 2.3 days and average costs of $17,981. Of those 6,431 cases, there were 58 cases reporting one of five procedure codes that describe fluorescence guided surgery using CYTALUX[supreg] (pafolacianine), with average costs higher than the average costs in the FY 2025 MedPAR file for MS-DRG 165 ($20,854 compared to $17,981), and a shorter average length of stay (1.9 days compared to 2.3 days). In the proposed rule we noted that the 58 cases in MS-DRG 165 reporting one of five procedure codes that describe fluorescence guided surgery using CYTALUX[supreg] (pafolacianine), without a secondary diagnosis code designated as a CC or MCC, have a shorter average length of stay (1.9 days versus 4 days) and lower average costs ($20,854 versus $23,393) when compared to all the cases in MS-DRG 164. Similarly, the 58 cases in MS-DRG 165 reporting one of five procedure codes that describe fluorescence guided surgery using CYTALUX[supreg] (pafolacianine) have a shorter average length of stay (1.9 days versus 8.2 days) and lower average costs ($20,854 versus $40,641) when compared to all the cases in MS-DRG 163. While the data analysis reflects that cases that report one of five procedure codes that describe fluorescence guided surgery using CYTALUX[supreg] (pafolacianine), without a secondary diagnosis code designated as a CC or MCC, demonstrate slightly higher average costs compared to all the cases in MS-DRG 165, we stated in the proposed rule we believe these cases are more suitably grouped to MS-DRG 165, where they are currently assigned, based on the closer similarities in resource utilization compared to all the cases in their respective MS-DRG. As discussed in prior rulemaking (86 FR 44878), the MS-DRG system is a system of averages and it is expected that within the diagnostic related groups, some cases may demonstrate higher than average costs, while other cases may demonstrate lower than average costs. We further noted that section 1886(d)(5)(A) of the Act provides for Medicare payments to Medicare- participating hospitals in addition to the basic prospective payments for cases incurring extraordinarily high costs. Moreover, we stated the data do not indicate cases reporting procedure codes that describe fluorescence guided surgery using CYTALUX[supreg] [[Page 49590]] (pafolacianine), without a secondary diagnosis code designated as a CC or MCC, utilize similar resources when compared to the cases assigned to MS-DRGs 163 and 164. We stated that we believe it would be advantageous to allow for more claims data to be analyzed in consideration of any future modifications to the MS-DRGs for which fluorescence guided surgeries using CYTALUX[supreg] (pafolacianine) are assigned. We stated we will continue to evaluate the clinical coherence and resource consumption costs that impact this subset of cases and their MS-DRG assignment. Therefore, for the reasons stated, for FY 2027, we proposed to maintain the current structure of MS-DRGs 163, 164, and 165. Comment: Several commenters agreed with the proposal to maintain the current structure of MS-DRGs 163, 164, and 165 for FY 2027. Another commenter (the manufacturer) disagreed with the proposal and urged CMS to reassign cases reporting procedure codes that describe fluorescence guided surgery using CYTALUX[supreg] (pafolacianine) that currently group to MS-DRG 165 to MS-DRG 164 based on demonstrated differences in resource utilization for FY 2027. The commenter noted that 64 percent of the cases that report an ICD-10-PCS code that describes fluorescence guided surgery using CYTALUX[supreg] (pafolacianine) for the lung indication already group to MS-DRGs 163 or 164. The commenter asserted that this demonstrates that CYTALUX[supreg] (pafolacianine) is predominantly utilized in more complex thoracic oncology procedures and that the remaining cases assigned to MS-DRG 165 represent a subset of cases that continue to incur materially higher costs when compared to all the cases in MS-DRG 165. In their own analysis, the commenter stated they found that 70 percent of the cases reporting procedure codes that describe fluorescence guided surgery using CYTALUX[supreg] (pafolacianine) that do currently group to MS-DRG 165 trigger new technology add-on payments, which the commenter states indicate hospitals routinely incur costs above beyond the standard payment for that MS-DRG. This commenter also stated that current Medicare claims data likely understate the true resource utilization associated with CYTALUX[supreg] (pafolacianine). The commenter stated they reviewed inpatient billing practices and found that 42 percent of hospitals do not consistently report the full acquisition cost of CYTALUX[supreg] (pafolacianine) because of uncertainty regarding billing and reporting requirements regarding the appropriate treatment of discarded products under the IPPS and whether Medicare Part B discarded drug billing policies apply in the inpatient setting under Medicare Part A, and frequently fail to capture the full cost associated with utilization of CYTALUX[supreg] (pafolacianine), which could materially affect the assessment of resource consumption within MS-DRGs 163, 164, and 165. The commenter further stated that maintaining cases reporting procedure codes that describe fluorescence guided surgery using CYTALUX[supreg] (pafolacianine) within MS-DRG 165 following new technology add-on payment expiration on September 30, 2026, risks creating a financial disincentive to adoption and will limit beneficiary access to a technology that can improve intraoperative visualization and facilitate more complete resections. Response: We thank the commenters for their feedback. As discussed in the proposed rule, based on our review and analysis of the claims data, the findings appear to indicate that cases reporting one of five procedure codes that describe fluorescence guided surgery using CYTALUX[supreg] (pafolacianine) for the lung indication, without a secondary diagnosis code designated as a CC or MCC, have a shorter average length of stay and lower average costs when compared to all the cases in MS-DRGs 163 and 164. While the data analysis reflects that the cases that report one of five procedure codes that describe fluorescence guided surgery using CYTALUX[supreg] (pafolacianine), without a secondary diagnosis code designated as a CC or MCC, demonstrate slightly higher average costs compared to all the cases in MS-DRG 165, we continue to believe these cases are more suitably grouped to MS-DRG 165, where they are currently assigned, based on the closer similarities in resource utilization compared to all the cases in their respective MS-DRG. In response to the commenter's assertion that maintaining cases reporting procedure codes that describe fluorescence guided surgery using CYTALUX[supreg] (pafolacianine) within MS-DRG 165 risks creating a financial disincentive to adoption and will limit beneficiary access to this technology, as we have stated in prior rulemaking, we rely on providers to assess the needs of their patients and provide the most appropriate treatment. It is not appropriate for facilities to deny treatment to beneficiaries needing a specific type of therapy or treatment that potentially involves increased costs (86 FR 44847). It would also not be appropriate to consider modifications to the MS-DRG assignment of cases reporting the performance of a procedure that identifies and describes a specific technology solely as an incentive for providers to purchase and utilize one technology over another. Additionally, in consideration of the concerns expressed by the manufacturer with respect to suspected facility billing and reporting inaccuracies and therefore, the reliability of the claims data, we believe it would be premature to finalize any MS-DRG modifications cases that report an ICD-10-PCS code that describes fluorescence guided surgery using CYTALUX[supreg] (pafolacianine) for the lung indication at this time. We will continue to examine the claims data for cases reporting the ICD-10-PCS code that describes fluorescence guided surgery using CYTALUX[supreg] (pafolacianine) for the lung indication to determine if refinements may be warranted in the future. Therefore, after consideration of the public comments received, and for the reasons previously described, we are finalizing our proposal to maintain the current structure of MS-DRGs 163, 164, and 165 for FY 2027, without modification.

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

WiSE[supreg] CRT System As discussed in the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19330 through 19334), the WiSE[supreg] CRT System is an implantable cardiac pacing system that delivers left ventricular endocardial pacing (LVEP) specifically for cardiac resynchronization therapy (CRT) without the use of wires or leads going into the heart. The WiSE[supreg] CRT System was designed to stimulate the endocardial surface of the left ventricle (LV) without a transvenous LV lead. Working in conjunction with previously implanted standard commercially available pacemakers or defibrillators, the WiSE[supreg] CRT System utilizes a wireless ultrasound-based energy transmission to a small, implanted electrode in the LV endocardium, which converts the ultrasound signal into pacing energy. According to the manufacturer, the WiSE[supreg] CRT System is engineered to benefit patients with heart failure who were previously untreatable with conventional CRT or who are considered at high risk for placement of a coronary sinus (CS) lead for CRT upgrades. The WiSE[supreg] CRT system consists of four components: the receiver, also known as the receiver electrode or electrode (implanted via catheter), delivery sheath, battery and transmitter. An external programmer is used to adjust parameters of the battery. [[Page 49591]] The WiSE[supreg] CRT System was approved for new technology add-on payments for FY 2026 (90 FR 36821 through 36823). We refer readers to section II.E.4.a of the preamble of this final rule for a discussion regarding the FY 2027 status of technologies approved for FY 2026 new technology add-on payments, including the WiSE[supreg] CRT System. In support of the new technology add-on payment application that was submitted for FY 2026 consideration, we discussed in the proposed rule that we received a request to create new ICD-10-PCS codes to differentiate cardiac procedures that involve the insertion of an implantable endocardial pacing system, such as the WiSE[supreg] CRT System, and a code proposal was displayed in association with the Spring 2025 ICD-10 Coordination and Maintenance Committee Update. As a result, effective October 1, 2025 (FY 2026), we implemented the following ICD-10-PCS procedure codes to identify the insertion of the WiSE[supreg] CRT System: X2HN37B (Insertion of endocardiac pacing electrode into left ventricle, percutaneous approach, new technology group 11) in combination with XHH80HB (Insertion of ultrasound transmitter and battery for endocardiac pacing electrode into chest subcutaneous tissue and fascia, open approach, new technology group 11). In the ICD-10 MS-DRGs Version 43.1, this procedure code combination is assigned to MS-DRGs 242, 243, and 244 (Permanent Cardiac Pacemaker Implant with MCC, with CC, without MCC respectively) in a logic list referred to as ``CARDIAC PACEMAKER DEVICE'' that includes 720 other ICD-10-PCS procedure code combinations that identify the insertion of cardiac pacemakers. When reported as standalone procedures, ICD-10-PCS code X2HN37B is assigned to MDC 05 MS-DRGs 264 (Other Circulatory System O.R. Procedures) and ICD-10-PCS code XHH80HB is assigned to MDC 05 MS-DRGs 258 and 259 (Cardiac Pacemaker Device Replacement with and without MCC, respectively). We refer the reader to the ICD-10 MS-DRG Definitions Manual Version 43.1, which is available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software for complete documentation of the GROUPER logic for MS- DRGs 242, 243, 244, 258, 259 and 264. As discussed in the FY 2027 IPPS/LTCH PPS proposed rule, we received a request to reassign the ICD-10-PCS procedure codes that describe the insertion of the WiSE[supreg] CRT System from MS-DRGs 242, 243, and 244 to MS-DRGs 228 and 229 (Other Cardiothoracic Procedures with and without MCC, respectively). The requestor stated that insertion of the WiSE[supreg] CRT System electrode, which is described by ICD-10-PCS code X2HN37B, is similar both clinically and in terms of resource utilization, to the procedure codes that describe the insertion of leadless pacemakers that are currently assigned to MS-DRGs 228 and 229. The requestor further stated that the cases assigned to MS-DRGs 242, 243, and 244 involve traditional pacemaker devices with leads and are dissimilar to the WiSE[supreg] CRT System. According to the requestor, based on clinical function, implant methodology, and patient profile, the WiSE[supreg] CRT System more closely aligns with leadless pacemaker technology than with traditional pacemaker procedures as the use of multi-modality imaging, arterial navigation, and ultrasound-guided transmitter placement adds to both time and resource utilization, paralleling the procedural profile of leadless pacemaker implantation rather than traditional pacemaker surgery. Therefore, the requestor suggested that CMS reassign ICD-10-PCS code X2HN37B that describes the insertion of the electrode of the WiSE[supreg] CRT System to MS-DRGs 228 and 229 to appropriately group the procedure with the leadless pacemaker cases. To begin our analysis, we reviewed the procedure codes as discussed in the proposed rule. As noted previously, a code proposal was displayed as part of the ICD-10 Coordination and Maintenance Committee Spring 2025 update process to create unique ICD-10-PCS codes to describe the insertion of an implantable endocardial pacing system such as the WiSE[supreg] CRT System. As discussed in prior rulemaking (86 FR 44805), we used our established process to examine the MS-DRG assignment for the predecessor codes to determine the most appropriate MS-DRG assignment of new procedure codes X2HN37B and XHH80HB for FY 2026. Specifically, we review the predecessor code and MS-DRG assignment most closely associated with the new procedure code, and in the absence of claims data, we consider other factors that may be relevant to the MS-DRG assignment, including the severity of illness, treatment difficulty, complexity of service and the resources utilized in the diagnosis and/or treatment of the condition. We have noted in prior rulemaking that this process does not automatically result in the new procedure code being assigned to the same MS-DRG or to have the same designation (O.R. versus Non-O.R.) as the predecessor code. Because the codes that describe the insertion of the WiSE[supreg] CRT System were effective October 1, 2025 (FY 2026), in the FY 2027 IPPS/LTCH PPS proposed rule, we stated we would not expect the codes to be reported in the FY 2025 claims data used for the proposed rule. We stated we examined claims data from the September 2025 update of the FY 2025 MedPAR file for MS-DRGs 242, 243, and 244 and confirmed that there were zero cases reporting the procedure codes describing the insertion of the WiSE[supreg] CRT System across MS-DRGs 242, 243, and 244. We reviewed this issue and noted the requestor is correct that the ICD-10-PCS codes that describe the insertion of intracardiac pacemakers, also known as ``leadless'' pacemakers, are currently assigned to MS-DRGs 228 and 229. In leadless pacemakers, the components are combined into a single device implanted within a heart chamber. As discussed in the proposed rule, they do not require a chest incision, a subcutaneous pocket or a tunneled lead. These devices are implanted via a femoral vein transcatheter approach and then advanced into the heart chamber, fixed to the chamber wall, and released. Conventional pacemakers are comprised of a metal generator (battery + electronics) placed under the skin in the upper chest, connected by one or more insulated wires (leads) threaded into the heart. We stated we agree that leadless pacemakers and the WiSE[supreg] CRT System electrode are clinically coherent in that both eliminate the need for traditional, wire-based leads that run from the device to the heart muscle to transmit electrical impulses to the heart. We further stated we believe that the electrode of the WiSE[supreg] CRT System is more closely aligned with the leadless pacemakers assigned to MS-DRGs 228 and 229 as compared to the insertion of conventional pacemakers assigned to MS- DRGs 242, 243, and 244. While our analysis did not identify any cases reporting the procedure code that describes the insertion of the electrode of the WiSE[supreg] CRT System, based on our review of the clinical issues, and recognizing that it is expected that some Medicare patients will receive the WiSE[supreg] CRT System on an inpatient basis, we stated we believe reassigning ICD-10-PCS code X2HN37B that describes the insertion of the endocardiac pacing electrode into the left ventricle from MS-DRG 264 to MDC 05 MS-DRGs 228 and 229 would improve clinical coherence in these MS-DRGs. [[Page 49592]] For these reasons, for FY 2027, we proposed to reassign procedure code X2HN37B (Insertion of endocardiac pacing electrode into left ventricle, percutaneous approach, new technology group 11) from MS-DRG 264 to MS-DRGs 228 and 229 for clinical coherence and to better account for the anticipated resources required. We also proposed to delete the procedure code combination of X2HN37B and XHH80HB from the GROUPER logic of MS-DRGs 242, 243, and 244. Under this proposal, procedure code X2HN37B will not need to be reported as part of a procedure code combination or procedure code ``cluster'' to satisfy the logic for assignment to MS-DRGs 228 and 229. When reported as a standalone procedure, ICD-10-PCS code XHH80HB (Insertion of ultrasound transmitter and battery for endocardiac pacing electrode into chest subcutaneous tissue and fascia, open approach, new technology group 11) will be assigned to new MDC 05 MS-DRG 210 (Cardiac Pacemaker Revision or Device Replacement with MCC) and new MS-DRG 211 (Cardiac Pacemaker Revision or Device Replacement without MCC), which are discussed later in this section. Comment: Commenters supported the proposal to reassign procedure code X2HN37B from MS-DRG 264 to MS-DRGs 228 and 229 and the proposal to delete the procedure code combination of X2HN37B and XHH80HB from the GROUPER logic of MS-DRGs 242, 243, and 244 for FY 2027. Several commenters specifically stated that they strongly support the proposed changes and stated that they believe CMS has developed a reasonable approach for ensuring that the MS-DRGs maintain clinical coherence and reflect the resource intensity of procedures when performed in the inpatient setting. Response: We appreciate the commenters' support. Comment: Another commenter disagreed with the proposal to reassign procedure code X2HN37B from MS-DRG 264. The commenter noted that in the FY 2027 IPPS/LTCH PPS proposed rule, CMS stated it found zero cases reporting the procedure codes describing the insertion of the WiSE[supreg] CRT System in the examination of claims data from the September 2025 update of the FY 2025 MedPAR file, yet proposed to reassign procedure code X2HN37B to MS-DRGs 228 and 229 without any underlying claims data to validate if the proposed reassignment to these MS-DRGs would be appropriate. The commenter further stated that it is unclear whether CMS' assumption about the clinical use of this technology will align with actual practice patterns. Therefore, the commenter recommended that CMS defer the proposed reassignment of procedure code X2HN37B from MS-DRG 264 to MS-DRGs 228 and 229 for FY 2027 until MedPAR claims data are available to support an evidence- based reassignment determination and preserve clinical and resource cohesion among these MS-DRGs. The commenter also recommended that CMS specify that the assignment of ICD-10-PCS code XHH80HB (Insertion of ultrasound transmitter and battery for endocardiac pacing electrode into chest subcutaneous tissue and fascia, open approach, new technology group 11) to new MS-DRGs 210 and 211 is a provisional assignment should the proposal for FY 2027 be finalized, and encouraged CMS to revisit this assignment in future rulemaking once more robust claims data are available. Response: We thank the commenter for their feedback and for sharing their concerns. In response to the suggestion that CMS defer the proposed reassignment of procedure code X2HN37B from MS-DRG 264 to MS-DRGs 228 and 229, while we recognize that our analysis did not identify any applicable cases, we continue to believe that the proposed reassignment would improve clinical coherence as compared to the current assignment and do not agree that a delay is necessary or appropriate. As stated earlier, the WiSE[supreg] CRT System is an implantable cardiac pacing system that delivers LVEP specifically for CRT without the use of wires or leads going into the heart. Both leadless pacemakers and the WiSE[supreg] CRT System share the goal of pacing the heart without traditional wires. We continue to believe that procedure code X2HN37B is more closely aligned with the procedure codes that describe the insertion of leadless pacemakers assigned to MS-DRGs 228 and 229 as compared to the procedure codes that describe the insertion of conventional pacemakers assigned to MS-DRGs 242, 243, and 244. CMS will continue to monitor and analyze the claims data with respect to procedure codes X2HN37B and XHH80HB to determine if future revisions are warranted. Therefore, after consideration of the public comments we received, and for the reasons discussed, we are finalizing our proposal to reassign procedure code X2HN37B (Insertion of endocardiac pacing electrode into left ventricle, percutaneous approach, new technology group 11) from MS-DRG 264 to MS-DRGs 228 and 229, without modification, effective October 1, 2026, for FY 2027. We are also finalizing our proposal to delete the procedure code combination of X2HN37B and XHH80HB from the GROUPER logic of MS-DRGs 242, 243, and 244, without modification, for FY 2027. Under this finalization, procedure code X2HN37B will not need to be reported as part of a procedure code combination or procedure code ``cluster'' to satisfy the logic for assignment to MS-DRGs 228 and 229. When reported as a standalone procedure, ICD-10-PCS code XHH80HB (Insertion of ultrasound transmitter and battery for endocardiac pacing electrode into chest subcutaneous tissue and fascia, open approach, new technology group 11) will be assigned to new MDC 05 MS-DRG 210 (Cardiac Pacemaker Revision or Device Replacement with MCC) and new MS-DRG 211 (Cardiac Pacemaker Revision or Device Replacement without MCC), which are discussed later in this section. As discussed in the FY 2027 IPPS/LTCH PPS proposed rule, consistent with our annual review of the MS-DRGs, we consider changes in resource consumption, treatment patterns, technology, and any other factors that may change the relative use of hospital resources. In our review of the claims data from the September 2025 update of the FY 2025 MedPAR file for this request, we stated we identified a low volume of cases for MS- DRGs 258 and 259 (Cardiac Pacemaker Device Replacement with MCC and without MCC, respectively), where procedure code XHH80HB is assigned when reported as a standalone procedure in Version 43.1. Our findings are shown in the following table. [GRAPHIC] [TIFF OMITTED] TR04AU26.032 [[Page 49593]] In light of the initial findings of only 35 cases for MS-DRG 258 and 68 cases in MS-DRG 259, we further reviewed the MedPAR claims data for cases assigned to MS-DRGs 258 and 259 for the past 5 fiscal years. As reflected in the following tables, these data indicate that the number of cases grouping to MS-DRGs 258 and 259 has generally declined. [GRAPHIC] [TIFF OMITTED] TR04AU26.033 In the proposed rule we noted that, if, during our annual MS-DRG analysis we identify that there are only a few patients in a respective MS-DRG, consistent with our established process in deciding whether to propose to make further modifications, we consider if there have been potential changes in the clinical characteristics of the patients, treatment patterns, or resource utilization. A principle of the MS-DRGs and the characteristics of a meaningful DRG classification scheme is the ability to detect such changes and accordingly, propose clinically appropriate modifications that are also consistent with resource utilization. We have noted in prior rulemaking that we prefer to have a substantial number of cases in an MS-DRG because having larger clinically cohesive groups within an MS-DRG provides greater stability for annual updates to the relative payment weights. In light of these considerations, and the low volume of cases in MS-DRGs 258 and 259, we stated we believed it was appropriate to further analyze how to potentially reclassify these cases. Accordingly, using the September 2025 update of the FY 2025 MedPAR file, we examined whether there were other MS-DRGs to which these cases could appropriately be reassigned. As discussed in the proposed rule, we noted that surgical MS-DRGs 260, 261, and 262 (Cardiac Pacemaker Revision Except Device Replacement with MCC, with CC, and without CC/ MCC, respectively) also include procedure codes related to cardiac pacemakers. A cardiac pacemaker device replacement (generator change) is a procedure to change an old battery (generator) for a new one. A cardiac pacemaker revision is a procedure that may involve replacing, moving or adding leads, or fixing the pocket of the generator. While the terms are distinct, both cardiac pacemaker revision and cardiac pacemaker replacement procedures are performed in order to improve the way the cardiac pacemaker system works. As such, we reviewed the claims data from the September 2025 update of the FY 2025 MedPAR file for MS-DRGs 260, 261, and 262 to examine the resource utilization associated with cases assigned to these MS-DRGs. Our findings are shown in the following table. [GRAPHIC] [TIFF OMITTED] TR04AU26.034 As part of this analysis, we also reviewed the MS-DRGs for cases reporting ICD-10-PCS codes describing cardiac pacemaker device replacement procedures by severity claims data for MS-DRG 259 because this MS-DRG includes cases reporting a CC as well as cases reporting a NonCC. Therefore, we analyzed the claims data to determine the number of cases, the average length of stay, and average costs for the cases in MS-DRG 258 and 259 by severity level (1=MCC, 2=CC, and 3=NonCC). Our findings are shown in the following table. [GRAPHIC] [TIFF OMITTED] TR04AU26.035 [[Page 49594]] As shown in the data, the 35 cases reporting an MCC in MS-DRG 258 have an average length of stay of 7 days with average costs of $28,275, which is comparable to the cases in MS-DRG 260 reporting an MCC that have an average length of stay of 7.5 days with average costs of $29,313. The 42 cases reporting a CC in MS-DRG 259 have an average length of stay of 4 days with average costs of $18,246, which is comparable to the cases in MS-DRG 261 reporting a CC that have an average length of stay of 3.5 days with average costs of $17,151. The 26 cases not reporting a CC or an MCC in MS-DRG 259 have an average length of stay of 2 days with average costs of $14,552, which is comparable to the cases in MS-DRG 262 not reporting a CC or an MCC that have an average length of stay of 2.5 days with average costs of $15,119. As discussed in the proposed rule, we reviewed these findings and stated we believe that it may no longer be necessary to subdivide these MS-DRGs based on the cardiac pacemaker revision or device replacement procedure codes reported. We noted that DRGs that differentiate cases reporting procedure codes describing cardiac pacemaker device replacement from cases reporting procedure codes describing cardiac pacemaker revisions have existed since the enactment of The Social Security Amendments of 1983 (Pub. L. 98-21), which established a national DRG-based hospital prospective payment system for all Medicare patients (48 FR 39878). We stated in the proposed rule that our analysis of claims data from the September 2025 update of the FY 2025 MedPAR file showed that in the 43 years since the DRGs for cases reporting cardiac pacemaker revision procedures and cases reporting cardiac pacemaker device replacement procedures were created, the resource utilization appears to now be aligned, and the cases are clinically coherent, and therefore we stated we believe it is appropriate to now restructure these MS-DRGs accordingly. Specifically, we stated we believe it would be appropriate to delete MS-DRGs 258, 259, 260, 261, and 262, and to create new MS- DRGs for cases reporting ICD-10-PCS codes describing cardiac pacemaker revision or device replacement procedures, based on our analysis and review of the cases grouping to these MS-DRGs. The following table illustrates our simulation of the proposal. [GRAPHIC] [TIFF OMITTED] TR04AU26.038 Consistent with our established process as discussed in section II.C.1.b. of the preamble of the proposed rule and this final rule, once the decision has been made to propose to make further modifications to the MS-DRGs, such as creating a new base MS-DRG, all five criteria to create subgroups must be met for the base MS-DRG to be split (or subdivided) by a CC subgroup. Therefore, we applied the criteria to create subgroups in a base MS-DRG as discussed in section II.C.1.b. of the preamble of the proposed rule and this final rule. As shown, a three-way split of the proposed new MS-DRG failed to meet the criterion that there be at least a 20 percent difference in average costs between the CC and NonCC subgroup. [GRAPHIC] [TIFF OMITTED] TR04AU26.036 As discussed in section II.C.1.b. of the preamble of the proposed rule and this final rule, if the criteria for a three-way split fail, the next step is to determine if the criteria are satisfied for a two- way split. We therefore applied the criteria for a two-way split for the ``with MCC'' and ``without MCC'' subgroups and found that all five criteria were met. The following table illustrates our findings. [GRAPHIC] [TIFF OMITTED] TR04AU26.037 For the proposed new MS-DRGs for cases reporting procedure codes describing cardiac pacemaker revision or device replacement, there is at least (1) 500 cases in the MCC group and 500 cases in the without MCC group; (2) 5 percent of the cases in the MCC group and 5 percent in the without MCC group; (3) a 20 percent difference in average costs between the MCC group and the without MCC group; (4) a $2,000 difference in average costs between the MCC group and the without MCC group; and (5) a 3-percent reduction in cost variance, indicating that the proposed severity level splits increase the explanatory power of the base MS-DRG in capturing differences in expected cost between the proposed MS-DRG severity level splits by at least 3 percent and thus improve the overall accuracy of the IPPS payment system. Therefore, for FY 2027, we proposed to delete MS-DRGs 258, 259, 260, 261, and 262 and to create two new MS-DRGs with a two-way severity level split for cases reporting procedure codes describing cardiac pacemaker revision or device replacement in MDC 05. These proposed new MS-DRGs are proposed new MS-DRG 210 (Cardiac Pacemaker Revision or Device Replacement with MCC) and proposed new MS-DRG 211 (Cardiac Pacemaker Revision or Device Replacement without MCC). We refer the reader to Table 6P.2a associated with the FY 2027 IPPS/LTCH PPS proposed rule (which is available on the CMS website at: https:// www.cms.gov/ [[Page 49595]] Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index) for the list of procedure codes we proposed to define in the logic for the proposed new MS-DRGs. We note that discussion of the surgical hierarchy for the proposed modification is discussed in section II.C.14. of the preamble of the proposed rule. Comment: Commenters supported the proposal to delete MS-DRGs 258, 259, 260, 261, and 262 and to create two new MS-DRGs with a two-way severity level split for cases reporting procedure codes describing cardiac pacemaker revision or device replacement in MDC 05 for FY 2027. Response: We appreciate the commenters' support. Comment: Other commenters expressed concern related to the proposed two-way severity level split in the new MS-DRGs for cases reporting procedure codes describing cardiac pacemaker revision or device replacement. The commenters noted the proposed consolidation collapses the existing three-way severity split in MS-DRGs 260, 261, and 262 (that is a ``with MCC'', ``with CC'', and ``without CC/MCC'' split) into a two-way split (that is a ``with MCC'' and ``without MCC'' split). These commenters stated that the review of the claims data from the September 2025 update of the FY 2025 MedPAR file showed that cases reporting procedure codes describing cardiac pacemaker revision or device replacement with a secondary diagnosis designated as a CC have average costs of $17,167, while cases reporting procedure codes describing cardiac pacemaker revision or device replacement without a secondary diagnosis designated as a CC or an MCC have average costs of $15,101, which represents a difference of approximately 13.7 percent. The commenters acknowledged that this differential is below the 20 percent threshold required for a three-way split under CMS' established methodology; however, they stated that this differential is meaningful enough that hospitals that disproportionately treat Medicare beneficiaries with secondary diagnoses designated as CCs, such as academic medical centers and safety-net hospitals, could have to absorb a structural payment shortfall under the proposed two-way structure. These commenters requested that CMS commit in the final rule to monitoring the claims data for new MS-DRGs 210 and 211 to reassess whether a three-way severity split should be reintroduced in future rulemaking. Response: We appreciate the commenters' feedback and thank the commenters for sharing their concerns. As discussed in the FY 2008 IPPS final rule (72 FR 47169), the objective in establishing criteria to create subgroups was to create homogeneous subgroups that are significantly different from one another in terms of resource use, that have enough volume to be meaningful, and that improve our ability to explain variance in resource use. As discussed in the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19333), we applied the criteria for the proposed new base MS-DRG and found that the criteria for a three-way split failed. Specifically, a three-way split of the proposed new MS-DRG failed to meet the criterion that there be at least a 20 percent difference in average costs between the CC and NonCC subgroup. We then applied the criteria for a two-way split for the ``with MCC'' and ``without MCC'' subgroups and found that all five criteria were met. Therefore, we proposed to create two new MS- DRGs with a two-way severity level split for cases reporting procedure codes describing cardiac pacemaker revision or device replacement in MDC 05. As discussed in prior rulemaking (86 FR 44878), the MS-DRG system is a system of averages and it is expected that within the diagnostic related groups, some cases may demonstrate higher than average costs, while other cases may demonstrate lower than average costs. It is generally expected that as a result of the annual MS-DRG reclassifications that are finalized, the experience of different categories of hospitals may differ based on the population of patients they treat and the services offered by the facility. We also provide outlier payments to mitigate extreme loss on individual cases. In response to the recommendation that CMS continue to closely monitor claims to determine whether a three-way split should be restored in future rulemaking, we note that, as stated in the preamble of the annual IPPS rulemakings, section 1886(d)(4)(C) of the Act requires that the Secretary adjust the DRG classifications and relative weights at least annually to account for changes in resource consumption. These adjustments are made to reflect changes in treatment patterns, technology, and any other factors that may change the relative use of hospital resources. We include these changes as part of our annual IPPS rulemaking, which provides the public, including any interested parties, the opportunity to review and comment on these proposals. Therefore, after consideration of the public comments we received, we are finalizing our proposal to delete MS-DRGs 258, 259, 260, 261, and 262, effective October 1, 2026, without modification, for FY 2027. We are also finalizing our proposal to create new MS-DRG 210 (Cardiac Pacemaker Revision or Device Replacement with MCC) and new MS-DRG 211 (Cardiac Pacemaker Revision or Device Replacement without MCC) for cases reporting procedure codes describing cardiac pacemaker revision or device replacement effective October 1, 2026, without modification, for FY 2027. We refer the reader to Table 6P.2a associated with the FY 2027 IPPS/LTCH PPS proposed rule (which is available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index) for the list of procedure codes we are finalizing to define in the logic for each of the new MS-DRGs. We note that discussion of the surgical hierarchy for the finalized modification is discussed in section II.C.14. of the preamble of this final rule. Comment: Other commenters stated they reviewed table 6P.2a associated with the FY 2027 IPPS/LTCH PPS proposed rule (which is available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index) that includes the list of procedure codes CMS proposed to define in the logic for proposed new MS-DRGs 210 and 211 and stated they encountered inconsistencies when grouping cases using the Version 44 test GROUPER that was made publicly available in association with the FY 2027 IPPS/LTCH PPS proposed rule on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software. A commenter stated that although Table 6P.2a lists the ICD-10-PCS codes proposed for assignment to MS-DRGs 210 and 211, the relationship between those codes and actual Version 44 GROUPER results could not be fully validated without additional detail on the logic interactions, including surgical hierarchy rules and the effects of removing cluster requirements. The commenters stated they identified six procedure codes that should map to new MS-DRGs 210 or 211 based on their inclusion in Table 6P.2a, but when assessed with the Version 44 test GROUPER, instead mapped to MS-DRGs 242, 243, and 244 (Permanent Cardiac Pacemaker Implant with MCC, with CC, without MCC respectively). Specifically, the [[Page 49596]] commenters stated they entered ICD-10-PCS procedure codes 02PA3MZ (Removal of cardiac lead from heart, percutaneous approach), 0JPT0PZ (Removal of cardiac rhythm related device from trunk subcutaneous tissue and fascia, open approach), 02H63JZ (Insertion of pacemaker lead into right atrium, percutaneous approach), 02HK32Z (Insertion of monitoring device into right ventricle, percutaneous approach), 02HK3MZ (Insertion of cardiac lead into right ventricle, percutaneous approach) and 0JH605Z (Insertion of pacemaker, single chamber rate responsive into chest subcutaneous tissue and fascia, open approach) and said MS- DRG 244 was assigned instead of the anticipated MS-DRG 211, which appears to be inconsistent with both the clinical scenario and the intended MS-DRG definitions. Lastly, these commenters stated that they performed their own analysis of the supplemental After Outliers Removed (AOR)/Before Outliers Removed (BOR) file available in association with the FY 2027 IPPS/LTCH PPS proposed rule on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps and stated it was unclear why over 40 MS-DRGs within MDC 05 demonstrate variances in volume between the Version 43 and Version 44. The commenters stated the magnitude and distribution of these shifts make it difficult for hospitals to reliably model financial and operational impacts using standard tools and the case-by-case test GROUPER. Another commenter noted CMS indicated in its discussion that cases involving WiSE[supreg] CRT procedures would shift into MS-DRGs 228 and 229. However, their review of the AOR file suggested a decline in case volumes within MS-DRGs 228 and 229. Response: We thank the commenters for their feedback. In table 6P.2a associated with the FY 2027 IPPS/LTCH proposed rule, the list of procedure codes we proposed to define the logic for the proposed new MS-DRGs 210 and 211 included 27 ICD-10-PCS codes designated as ``operating room procedures'' and 60 ICD-10-PCS codes designated as ``non-operating room procedures.'' Consistent with our proposal to delete MS-DRGs 258, 259, 260, 261, and 262, and to create new MS-DRGs 210 and 211 for cases reporting ICD-10-PCS codes describing cardiac pacemaker revision or device replacement procedures, this list was developed by combining the 21 ICD-10-PCS procedure codes designated as ``non-operating room procedures'' currently in the logic for MS-DRGs 258 and 259, with the 27 ICD-10-PCS codes designated as ``operating room procedures'' and 39 ICD-10-PCS codes designated as ``non-operating room procedures'' currently in the logic for MS-DRGs 260, 261, and 262. We further note that the proposal to create new MS-DRGs 210 and 211 did not involve proposing to create procedure code combinations in the GROUPER logic of the proposed new MS-DRGs. We refer the reader to the ICD-10 MS-DRG Version 43.1 Definitions Manual (which is available via the internet on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software) for complete documentation of the GROUPER logic for MS-DRGs 258, 259, 260, 261 and 262. As discussed in the proposed rule and earlier in this section, existing MS-DRGs 242, 243, and 244 are defined by a logic list referred to as ``CARDIAC PACEMAKER DEVICE'' that includes 721 ICD-10-PCS procedure code combinations that identify the insertion of cardiac pacemakers. The code combinations are represented by two ICD-10-PCS procedure codes; one ICD-10-PCS code for the insertion of a lead by site along with one ICD-10-PCS code for the insertion of a generator by site. As discussed in prior rulemaking (90 FR 36608 through 36610), it is correct that under the GROUPER software program some collections of ICD-10-PCS procedure codes have a different set of attributes, independent of those of the codes that make them up (that is, their ``components''). These collections of ICD-10-PCS procedure codes are called clusters. A routine program in the GROUPER, upstream of the MS- DRG assignment logic, searches the claim for clusters. When a cluster is found, it is added to the list of procedures found on the claim. Clusters may be ``restricted'' by Major Diagnostic Category (MDC), and a restricted cluster inhibits the use of its procedure code component attributes for the MDC's MS-DRG assignment logic. For purposes of our analysis, and consequently our proposal, for new MS-DRGs 210 and 211, we did not remove the restriction logic under MDC 05 for the procedure code combinations within MS-DRGs 242, 243, and 244 to maintain the differentiation in MS-DRG assignment between cases that report an ICD- 10-PCS code for the insertion of a lead along with an ICD-10-PCS code for the insertion of a generator as opposed to cases that report ICD- 10-PCS codes that describe performance of standalone procedures. Similar to case assignment for any other MS-DRG, assignment to MS- DRGs 210 and 211 would also be dependent on the absence of other procedure codes that could affect MS-DRG assignment on the claim. If other procedure codes that could affect MS-DRG assignment are also reported on the claim along with procedure codes describing cardiac pacemaker revision or device replacement, the MS-DRG assignment can vary depending on the procedure codes reported. We reviewed the ICD-10- PCS codes identified by commenters and agree that MS-DRG 244 is assigned when ICD-10-PCS procedure codes 02PA3MZ, 0JPT0PZ, 02H63JZ, 02HK32Z, 02HK3MZ and 0JH605Z are reported with a principal diagnosis from MDC 05, without reporting a secondary diagnosis designated as a CC or an MCC. This is an expected outcome as the procedure code combination of ICD-10-PCS code 02H63JZ (Insertion of pacemaker lead into right atrium, percutaneous approach) with 0JH605Z (Insertion of pacemaker, single chamber rate responsive into chest subcutaneous tissue and fascia, open approach) is listed in the logic list referred to as ``CARDIAC PACEMAKER DEVICE'' in MS-DRGs 242, 243, and 244. We further note that this assignment is consistent using both the Versions 43.1 GROUPER software and the Version 44 test GROUPER software. We disagree that the resulting MS-DRG assignment to MS-DRG 244 in the scenario provided by the commenters is inconsistent with the intended MS-DRG definitions. As discussed in the FY 2027 IPPS/LTCH proposed rule, a cardiac pacemaker device replacement (generator change) is a procedure to change an old battery (generator) for a new one, while a cardiac pacemaker revision is a procedure that may involve replacing, moving, or adding leads, or fixing the pocket of the generator. We believe that cases that involve changing an old battery, replacing, moving or adding leads, or fixing the pocket of the generator as standalone procedures are clinically distinct from cases that involve the insertion of both a lead and a generator that would be assigned to MS-DRGs 242, 243, or 244. With respect to concerns related to the apparent MS-DRG shifts in the Version 44 AOR/BOR file for MS-DRGs in MDC 05, we appreciate the commenters' feedback. We note that, as stated in the proposed rule, our MS-DRG analysis was based on ICD-10 claims data from the September 2025 update of the FY 2025 MedPAR file, which contains hospital bills received from October 1, 2024, through [[Page 49597]] September 30, 2025. In comparison, as also stated in the proposed rule, the AOR/BOR file, which contains data used to develop the proposed MS- DRG relative weights for FY 2027, includes discharges occurring on and after October 1, 2024, through September 30, 2025, based on bills received by CMS through December 31, 2025. We also note, that as discussed in section II.C.12.c.1 of the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19370 through 19371) and this final rule, we proposed to change the severity level designation of diagnosis codes Z59.00 (Homelessness, unspecified), Z59.01 (Sheltered homelessness), Z59.02 (Unsheltered homelessness), Z59.10 (Inadequate housing, unspecified), Z59.11 (Inadequate housing environmental temperature), Z59.12 (Inadequate housing utilities), Z59.19 (Other inadequate housing), Z59.811 (Housing instability, housed, with risk of homelessness), Z59.812 (Housing instability, housed, homelessness in past 12 months) and Z59.819 (Housing instability, housed unspecified) from CC to NonCC for FY 2027. Additionally, based on the changes that we proposed to make for FY 2027, we proposed to modify the existing surgical hierarchy of MDC 05 as illustrated in the tables available in section II.C.14 of the preamble of the FY 2027 IPPS/LTCH PPS proposed rule and this final rule. As discussed in section II.C.14, some inpatient stays entail multiple surgical procedures, each one of which, occurring by itself, could result in assignment of the case to a different MS-DRG within the MDC to which the principal diagnosis is assigned. Consequently, in many cases, the surgical hierarchy has an impact on more than one MS-DRG. Therefore, although we note the AOR/BOR file is used for a distinct but related aspect of IPPS/LTCH PPS rulemaking, it is expected that shifts in the assignment of cases would be reflected in the AOR/BOR file when we propose a change in the severity level designation of any ICD-10-CM diagnosis code or to modify the existing surgical hierarchy for an MDC. We intend to continue to explore alternative options and additional reports that could be made available to further facilitate modeling of the financial and operational impacts of the MS-DRG classification proposed changes. As discussed in the FY 2027 IPPS/LTCH PPS proposed rule, in our evaluation of this MS-DRG classification request, we also noted that we identified 7,772 cases in base MS-DRG 264 (Other Circulatory System O.R. Procedures) with an average length of stay of 9.4 days and average costs of $29,545. Accordingly, in connection with our analysis we stated we applied the five criteria as described in section II.C.1.b. of the preamble of the proposed rule and this final rule to determine if it would be appropriate to subdivide cases currently assigned to base MS-DRG 264 into severity levels. This analysis includes two years of MedPAR claims data to compare the data results from one year to the next to avoid making determinations about whether additional severity levels are warranted based on an isolated year's data fluctuation and also to validate that the established severity levels within a base MS- DRG are supported. Therefore, we reviewed the claims data for base MS- DRG 264 using the September 2024 update of the FY 2024 MedPAR file and the September 2025 update of the FY 2025 MedPAR file, which were used in our analysis of claims data for MS-DRG reclassification requests for FY 2026 and FY 2027, respectively. Our findings are shown in the following table: [GRAPHIC] [TIFF OMITTED] TR04AU26.039 First, we applied the criteria to create subgroups for the three- way severity level split. We found that the criterion that there be at least 5 percent of the patients are in each of the MCC, CC, and NonCC subgroups failed based on the data in both the FY 2024 and FY 2025 MedPAR files. The criterion that there be at least 500 cases for each subgroup also was not met, as shown in the table for both years. Specifically, for the ``with MCC'', ``with CC'', and ``without CC/MCC'' split, there were only 154 cases in the ``without CC/MCC'' subgroup based on the data in the FY 2024 MedPAR file and only 145 cases in the ``without CC/MCC'' subgroup based on the data in the FY 2025 MedPAR file. As discussed in section II.C.1.b. of the preamble of the FY 2027 IPPS/LTCH PPS proposed rule and this final rule, if the criteria for a three-way split fail, the next step is to determine if the criteria are satisfied for a two-way split. We therefore applied the criteria for a two-way split for the ``with MCC'' and ``without MCC'' subgroups and found that all five criteria were met for both years. For both years, there are at least (1) 500 cases in the MCC group and 500 cases in the without MCC group; (2) 5 percent of the cases in the MCC group and 5 percent in the without MCC group; (3) a 20 percent difference in average costs between the MCC group and the without MCC group; (4) a $2,000 difference in average costs between the MCC group and the without MCC group; and (5) a 3-percent reduction in cost variance, indicating that a ``with MCC'' and ``without MCC'' severity level split increases the explanatory power of the base MS-DRG in capturing differences in expected cost between the MS-DRG severity level splits by at least 3 percent and thus improves the overall accuracy of the IPPS payment system. As discussed in the proposed rule, as the claims data support a two-way severity level split for cases reporting other circulatory system O.R. Procedures, for FY 2027, we proposed to delete base MS-DRG 264 and proposed to create two new MS-DRGs with a two-way severity level split for cases reporting other circulatory system O.R. Procedures in MDC 05. The proposed new MS-DRGs are proposed new MS-DRG 361 (Other Circulatory System O.R. Procedures with MCC) and proposed new MS-DRG 362 (Other Circulatory System O.R. Procedures without MCC). We stated under this proposal, we would reassign the 1,447 listed procedure codes in the GROUPER logic of MS-DRG 264 to new MS-DRGs 361 and 362. We refer the reader to the ICD-10 MS-DRG Version 43.1 Definitions Manual (which is available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software) for complete documentation of the [[Page 49598]] GROUPER logic for MS-DRG 264. We note that the surgical hierarchy for the proposed modification is discussed in section II.C.14. of the preamble of the FY 2027 IPPS/LTCH PPS proposed rule. Comment: Commenters supported the proposal to delete base MS-DRG 264 and to create two new MS-DRGs with a two-way severity level split for cases reporting other circulatory system O.R. Procedures in MDC 05 for FY 2027. Response: We thank the commenters for their support. After consideration of the public comments we received, we are finalizing our proposal to delete base MS-DRG 264, effective October 1, 2026, without modification, for FY 2027. We are also finalizing our proposal to create new MS-DRG 361 (Other Circulatory System O.R. Procedures with MCC) and new MS-DRG 362 (Other Circulatory System O.R. Procedures without MCC) in MDC 05, effective October 1, 2026, without modification, for FY 2027. Under this finalization, we are reassigning the 1,447 listed procedure codes in the GROUPER logic of MS-DRG 264 to new MS-DRGs 361 and 362. We note that the surgical hierarchy for the finalized modification is discussed in section II.C.14. of the preamble of this final rule.

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

Connective Tissue) a. Spinal Fusion and Pelvic Fixation Procedures In the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19334 through 19342), we summarized a request we received from a manufacturer that was also previously discussed in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18012 through 108013) and final rule (90 FR 36550 through 36552). Specifically, in the FY 2026 IPPS/LTCH PPS final rule (90 FR 36552), we stated that we would continue to consider the request to modify the GROUPER logic of MS-DRG 426 (Multiple Level Combined Anterior and Posterior Spinal Fusion Except Cervical with MCC or Custom-Made Anatomically Designed Interbody Fusion Device), MS-DRG 427 (Multiple Level Combined Anterior and Posterior Spinal Fusion Except Cervical with CC), and MS-DRG 428 (Multiple Level Combined Anterior and Posterior Spinal Fusion Except Cervical without CC/MCC); MS-DRG 447 (Multiple Level Spinal Fusion Except Cervical with MCC or Custom-Made Anatomically Designed Interbody Fusion Device) and MS-DRG 448 (Multiple Level Spinal Fusion Except Cervical without MCC); and MS-DRGs 456, 457, and 458 (Spinal Fusion Except Cervical with Spinal Curvature, Malignancy, Infection or Extensive Fusions with MCC, with CC, and without CC/MCC, respectively) by reassigning cases reporting the use of the iFuse BedrockTM Granite Implant System with an ICD-10- PCS code that describes fusion of a sacroiliac joint using an internal fixation device with tulip connector or insertion of an internal fixation device with tulip connector into a pelvic bone with another spinal fusion procedure code that currently map to the lower severity level (without CC/MCC) MS-DRG to the highest severity level (with MCC) MS-DRG in connection with future rulemaking. We noted that the logic for MS-DRGs 456, 457, and 458 is defined by extensive fusions, in addition to specific diagnosis code logic, and MS-DRGs 426, 427, 428, 447, and 448 had recently become effective October 1, 2024, which we were continuing to monitor. We also stated that the data analysis necessary to examine the intricate logic within the spinal fusion MS- DRGs outlined in the request is complex and would require additional time for careful consideration of case redistribution and potential relative weight impacts, in connection with other related spinal fusion procedure requests that may be discussed in future rulemaking. The requestor stated that historically, the junction between the lumbar spine and the sacrum (the L5-S1 spinal level), has been the most challenging level in which to achieve fusion. One of the primary reasons is because of our upright posture and normal spinal curvature that causes the L5-S1 intervertebral disc to become significantly inclined (tilted forward). The requester indicated that this results in significant shear load at this level, making this the level most likely to break down, and the level most challenging to stabilize during a fusion procedure. Per the requestor, the L5-S1 level is the junction between the mobile spine above and the much more rigid sacrum/pelvis below, leading to stress concentration at this level. The L5-S1 level experiences the most axial load as it is the base of the spine supporting the weight of the entire torso. Finally, the L5-S1 level experiences progressively more stress/load with more levels of the spine that are fused. The requestor stated that including additional levels in the fusion construct results in additional lengthening of the lever arm and increasing the loads acting at the L5-S1 level. The requestor stated that anchorage of spinal instrumentation into the sacrum is also challenging. The sacrum is narrow in the posterior to anterior dimension, resulting in the need to place shorter screws. The pedicles are larger diameter which results in diminished cortical engagement of the screws. According to the requestor, the bone structure of the sacrum is also suboptimal for screw anchorage as the density of the sacrum is frequently diminished, particularly in older adults, and especially in those with osteoporosis. The requestor stated that the problem also exists for older adults without osteoporosis. The requestor indicated that historically, surgeons added additional spinal instrumentation fixation anchor points into the pelvis (ilium and sacrum) to try and help solve the biomechanical and anatomic challenges previously described. These anchors (typically longer, larger diameter pedicle-type screws) are placed into the ilium or placed crossing through the sacrum and then into the ilium. These screws are then connected to the spinal instrumentation and improve the biomechanical stability of the spinal instrumentation construct. The requestor stated that clinical practice has evolved to include pelvic fixation as an integral part of spinal instrumentation with multi-level fusions ending at the sacrum. The requestor stated that the current standard is to include pelvic fixation in fusions of four levels or more.\2\ The requestor added that recently, recommendations have been suggested to include pelvic fixation in some instances if the fusion includes three or more levels.\3\ The requestor stated that pelvic fixation is also considered in shorter level fusion procedures in clinical scenarios when there is increased risk of fusion failure, including patients with high pelvic incidence (PI), high body mass index (BMI), and conditions with sagittal plane deformity such as spondylolisthesis. The requestor stated that surgeons performing revision lumbar surgery to treat an existing pseudarthosis (that is, nonunion or failed fusion) commonly include pelvic [[Page 49599]] fixation to provide additional stability in these challenging clinical situations. --------------------------------------------------------------------------- \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 percent- 23 percent complication rate, including screw or rod breakages, loose screws, L5-S1 pseudoarthrosis, and high revision rates.5 6 Many patients also experience sacroiliac (SI) joint pain and degeneration after multilevel fusions to the sacrum.\7\ The SI joint often exhibits pathological increased motion in spinal deformity patients \8\ and continues to move even after single-implant pelvic fixation 9 10 leading to suboptimal outcomes and loss of correction. --------------------------------------------------------------------------- \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 C.J. Spinopelvic Fixation Using an Osseointegrative Implant: Analysis of Postmarket Surveillance to Determine the Failure Rate. Int J Spine Surg. 2025 Jun 12;19(3):273-278. doi: 10.14444/8720. PMID: 39890424; PMCID: PMC12268591. --------------------------------------------------------------------------- The requestor asserted the iFuse BedrockTM Granite Implant System provides clinical advantages such as immediate and durable stability of the spinal instrumentation construct, reducing the likelihood of implant breakage due to its larger diameter and stronger construction. The requestor stated the porous fusion sleeve facilitates osseous integration, enhancing stability over time as it is designed for permanent fusion of the SI joint. Per the requestor, multiple implants can be placed on each side, either connected to a single rod or to separate rods, providing multiple points of fixation across the SI joints which increases construct stability and decreases SI joint motion. According to the requestor, the iFuse BedrockTM Granite Implant System requires no changes to physician workflow, requires no additional surgical dissection, does not increase surgical time, or alter the length of hospital stay. The requestor stated that the iFuse BedrockTM Granite Implant System is cleared for use with two navigation systems most frequently used in surgical facilities across the country. The ICD-10-PCS codes that may be reported to describe the iFuse BedrockTM Granite tulip connector device are: [GRAPHIC] [TIFF OMITTED] TR04AU26.040 The previously listed procedure codes describing ``Insertion'' (ICD-10-PCS codes XNH6058, XNH6358, XNH7058, and XNH7358) are assigned to MS-DRGs 515, 516, and 517 (Other Musculoskeletal System and Connective Tissue O.R. Procedures with MCC, with CC, and without CC/ MCC, respectively) and the procedure codes describing ``Fusion'' (ICD- 10-PCS codes XRGE058, XRGE358, XRGF058, and XRGF358) are assigned to MS-DRGs 028 (Spinal Procedures with MCC), MS-DRG 029 (Spinal Procedures with CC or Spinal Neurostimulators), and MS-DRG 030 (Spinal Procedures without CC/MCC) under MDC 01 (Diseases and Disorders of the Nervous System) and MS-DRGs 402, 426, 427, 428, 447, 448, 450, 451, 456, 457, and 458 under MDC 08. In the proposed rule we noted that because the ICD-10-PCS codes describing ``Insertion'' of internal fixation device with tulip connector are not assigned to one of the spinal fusion MS- DRGs as a standalone procedure, another ICD-10-PCS code describing a spinal fusion procedure would need to be reported on the same claim to group to one of the previously listed spinal fusion MS-DRGs. We refer the reader to the ICD-10 MS-DRG Definitions Manual, Version 43.1, which is available on the CMS website at: https://www.cms.gov/medicare/ payment/prospective-payment-systems/acute-inpatient-pps/ [[Page 49600]] ms-drg-classifications-and-software for complete documentation of the GROUPER logic for the previously listed MS-DRGs. As also discussed in the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19336), we received a separate, but related request, from another manufacturer of devices used in the performance of a spinal fusion procedure. Specifically, we received a request to reassign cases reporting the use of the aprevo[supreg] Intervertebral Body Fusion Device (hereafter referred to as aprevo[supreg]) from MS-DRG 402 (Single Level Combined Anterior and Posterior Spinal Fusion Except Cervical) to MS-DRG 450 (Single Level Spinal Fusion Except Cervical with MCC or Custom-Made Anatomically Designed Interbody Fusion Device) or alternatively, to reassign cases reporting the use of aprevo[supreg] from MS-DRG 402 to MS-DRG 428, and separately, to reassign cases reporting the use of aprevo[supreg] from MS-DRG 428 to the higher severity level (with MCC) MS-DRG 426. We noted that we have previously discussed the reassignment of cases reporting the use of the aprevo[supreg] technology in the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26726 through 26729) and final rule (88 FR 58731through 58735, as corrected in the FY 2024 final rule correction notice at 88 FR 77211), and in the FY 2025 IPPS/LTCH PPS proposed rule (89 FR 35971 through 39585) and final rule (89 FR 69034 through 69061). We also noted that the aprevo[supreg] technology was approved for new technology add-on payments for FY 2022 (86 FR 45127 through 45133), FY 2023 (87 FR 49468 through 49469) and FY 2024 (88 FR 58802). We refer the reader to those rulemaking discussions for additional detailed information regarding the aprevo[supreg] technology. The ICD-10-PCS codes that may be reported to describe lumbar fusion procedures that use the aprevo[supreg] device are: [GRAPHIC] [TIFF OMITTED] TR04AU26.041 In the proposed rule we noted that for the Spring 2026 ICD-10-PCS code update, the manufacturer of the aprevo[supreg] custom-made anatomically designed interbody fusion device submitted a request to revise the descriptions for the procedure codes that describe use of the aprevo[supreg] device. The manufacturer requested that the description of the previously listed codes (and nine other procedure codes that describe a cervical fusion using a custom-made anatomically designed interbody fusion device) be revised to specifically identify that the technology is designed from a virtual anatomic model. The agenda and related meeting materials for these specific topics are available on the CMS website at: https://www.cms.gov/medicare/coding-billing/icd-10-codes/icd-10-coordination-maintenance-committee-materials. We also noted that the deadline for receipt of public comments for the proposals included in the Spring 2026 procedure code update was April 17, 2026; therefore, the final code decisions on these proposals were not yet available for inclusion in Table 6B.--New Procedure Codes associated with the FY 2027 IPPS/LTCH PPS proposed rule. Under our established process, if the new and revised procedure code proposals are finalized after review and consideration of public comments following the Spring procedure code update, the codes are specifically identified with a footnote in Table 6B.--New Procedure Codes and Table 6F.--Revised Procedure Code Titles along with the MDC, MS-DRG assignment(s), and operating room (O.R.) or non-operating room (non-O.R.) designation that is made publicly available in association with the final rule on the CMS website at https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps. This established process includes initially reviewing the predecessor codes' MS-DRG assignment and designation, while considering other relevant factors (for example, severity of illness, treatment difficulty, complexity of service and the resources utilized in the diagnosis and/ or treatment of the condition). We noted that the public may provide feedback on these finalized assignments, which is then taken into consideration for the following fiscal year. Each of the previously listed procedure codes is currently assigned to MDC 01 in MS-DRGs 028, 029, and 030, and to MDC 08 in MS-DRGs 402, 426, 427, 428, 447, 448, 450, 451, 456, 457, and 458. As stated in the proposed rule and previously discussed in the preamble of this final rule, in the FY 2026 IPPS/ [[Page 49601]] LTCH PPS final rule (90 FR 36552), we noted that we would continue to consider the request to modify the GROUPER logic of MS-DRGs 426, 427, and 428 (with regard to the reassignment of cases with an ICD-10-PCS code that describes fusion of a sacroiliac joint using an internal fixation device with tulip connector or insertion of an internal fixation device with tulip connector into a pelvic bone with another spinal fusion procedure code that currently map to the lower severity level MS-DRG to the highest severity level (with MCC) MS-DRG) in connection with future rulemaking and stated that the logic for MS-DRGs 456, 457, and 458 is defined by extensive fusions. Under ICD-10-PCS, an extensive fusion procedure is defined as a spinal fusion procedure involving 8 or more thoracic vertebral joint levels. For example, ICD- 10-PCS code 0RG8070 (Fusion of 8 or more thoracic vertebral joints with autologous tissue substitute, anterior approach, anterior column, open approach) describes an extensive fusion procedure. An extensive fusion procedure may also be reported with a combination of codes (cluster) that includes at least one code describing fusion at the thoracic vertebral joint levels and at least one code describing fusion at the lumbar vertebral joint levels, such as ICD-10-PCS code 0RG7070 (Fusion of 2 to 7 thoracic vertebral joints with autologous tissue substitute, anterior approach, anterior column, open approach) and ICD-10-PCS code 0SG1070 (Fusion of 2 or more lumbar vertebral joints with autologous tissue substitute, anterior approach, anterior column, open approach). We refer the reader to Table 6P. 3a that is publicly available in association with the FY 2027 IPPS/LTCH PPS proposed rule on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps for the list of procedure codes we analyzed to identify an extensive fusion that is also reflected in the ICD-10 MS-DRG Definitions Manual, Version 43.1 under MS-DRGs 456, 457, and 458. As stated in the proposed rule, in review of these requests, we first analyzed claims data from the September 2025 update of the FY 2025 MedPAR file for MS-DRGs 028, 029, and 030 and for cases reporting a spinal fusion procedure with a custom-made anatomically designed interbody fusion device, cases reporting an SI joint fusion or spinal fusion procedure with insertion of an internal fixation device with tulip connector, and cases reporting an extensive fusion. We found zero cases reporting either technology across MS-DRGs 028, 029, and 030. We found 4 cases reporting an extensive fusion in MS-DRG 028, 4 cases reporting an extensive fusion in MS-DRG 029, and zero cases reporting an extensive fusion in MS-DRG 030. Findings from our analysis are shown in the following table. [GRAPHIC] [TIFF OMITTED] TR04AU26.042 As shown in the table, for MS-DRG 028, the four cases reporting an extensive fusion had a longer average length of stay (16.8 days versus 12.2 days) and higher average costs ($122,802 versus $54,697) compared to the average length of stay and average costs of all the cases in MS- DRG 028. After further review of the data we considered three of the four cases to be outlier cases (that is, unusually expensive cases) because the costs for each of the three cases exceeded $100,000 and the length of stay for each of the three cases was twice as long or longer than the average length of stay of all the cases in MS-DRG 028. For MS- DRG 029, the four cases reporting an extensive fusion had a comparable average length of stay (6.8 days versus 6.1 days) and lower average costs ($31,250 versus $32,288) compared to the average length of stay and average costs of all the cases in MS-DRG 029. In the proposed rule we noted that although the logic for case assignment to MS-DRGs 028, 029, and 030 includes procedure codes that describe a spinal fusion procedure with a custom-made anatomically designed interbody fusion device and procedure codes that describe an SI joint fusion with insertion of an internal fixation device with tulip connector, as well as procedure codes that describe an extensive fusion procedure, the MS-DRG assigned is based on an MDC 01 principal diagnosis code that describes a disease or disorder of the nervous system, therefore, we would not expect to see a significant volume of cases reporting the procedure codes that describe a spinal fusion procedure with a custom-made anatomically designed interbody fusion device, an SI joint fusion with insertion of an internal fixation device with tulip connector, or an extensive fusion procedure in the data. Additionally, we noted that the indications for the aprevo[supreg] custom-made anatomically designed interbody fusion device include adults with spinal deformities and degenerative conditions and the indications for the iFuse BedrockTM Granite Implant System include patients with sacroiliac joint dysfunction that is a direct result of SI joint disruption and degenerative sacroiliitis as well as patients with acute, non-acute, and non-traumatic fractures involving the SI joint. The diagnosis codes describing these conditions are assigned to MDC 08, therefore, it is expected that the majority of cases reporting the procedure codes that describe a spinal fusion procedure with a custom-made anatomically designed interbody fusion device, an SI joint fusion with insertion of an internal fixation device with tulip connector, or an extensive fusion procedure would group to the MDC 08 MS-DRGs instead of to MDC 01 MS-DRGs 028, 029, and 030. We refer the reader to the ICD-10 MS-DRG Definitions Manual Version 43.1 (available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software) for complete documentation of the GROUPER logic for MDC 01 and MDC 08. We then analyzed claims data for MS-DRGs 402, 426, 427, 428, 447, 448, 450, 451, 456, 457, and 458 and for: (1) cases reporting a spinal fusion procedure with [[Page 49602]] a custom-made anatomically designed interbody fusion device, (2) cases reporting an SI joint fusion or spinal fusion procedure with insertion of an internal fixation device with tulip connector, (3) cases reporting a fusion procedure with both technologies (that is, a single case reporting a procedure code describing a spinal fusion procedure with a custom-made anatomically designed interbody fusion device and another procedure code(s) describing an SI joint fusion or a spinal fusion procedure with insertion of an internal fixation device with tulip connector, (4) cases reporting an extensive fusion without either technology (that is, aprevo[supreg] or iFuse BedrockTM Granite Implant System), (5) cases reporting an extensive fusion with a custom-made anatomically designed interbody fusion device, (6) cases reporting an extensive fusion with an SI joint fusion or spinal fusion procedure with insertion of an internal fixation device with tulip connector, and 7) cases reporting an extensive fusion with both technologies. In the proposed rule we noted that the logic for case assignment to MS-DRGs 402, 447, 448, 450 and 451 does not include the procedure codes or the procedure code clusters that describe an extensive fusion; therefore, no data for extensive fusion cases are reflected in the table that follows for those MS-DRGs. There were also zero cases found reporting both technologies in MS-DRG 402. In addition, because the logic for case assignment to MS-DRGs 426, 447, and 450 includes the reporting of a custom-made anatomically designed interbody fusion device to group to the respective MCC severity level MS-DRG, no data for cases reporting a custom-made anatomically designed interbody fusion device are reflected in the table that follows for MS-DRGs 427, 448, and 451. Findings from our analysis are shown in the following table. BILLING CODE 4169-69-P [[Page 49603]] [GRAPHIC] [TIFF OMITTED] TR04AU26.044 [[Page 49604]] [GRAPHIC] [TIFF OMITTED] TR04AU26.045 BILLING CODE 4169-69-C The findings show that the cases reporting a spinal fusion procedure with the custom-made anatomically designed interbody fusion device, cases reporting [[Page 49605]] an SI joint fusion or spinal fusion procedure with an internal fixation device with tulip connector, and cases reporting both technologies generally had higher average costs with variation in the average length of stay in comparison to the average costs and average length of stay of all the cases in their respective MS-DRG. The findings also show that cases reporting an extensive spinal fusion procedure with or without either of the technologies had average costs that are higher in comparison to the average costs of all the cases in their respective MS-DRG and generally had a comparable or longer average length of stay in comparison to the average length of stay of all the cases in their respective MS-DRG. As discussed in the proposed rule, with regard to the request to reassign cases reporting a spinal fusion procedure with the custom-made anatomically designed interbody fusion device from MS-DRG 402 to MS-DRG 450 and the alternative request to reassign cases reporting a spinal fusion procedure with the custom-made anatomically designed interbody fusion device from MS-DRG 402 to MS-DRG 428, we noted that MS-DRG 402 is a base MS-DRG and therefore is not subdivided into severity level subgroups. Additionally, the logic for MS-DRG 402 is defined by single level combined anterior and posterior spinal fusion procedures (except cervical) and the logic for MS-DRG 428 is defined by multiple level combined anterior and posterior spinal fusion procedures. Therefore, we stated that the reassignment of cases reporting the use of a custom- made anatomically designed interbody fusion device from MS-DRG 402 to MS-DRG 428 would not be feasible and would not be consistent with the logic of these recently formed MS-DRGs which is intended to differentiate a single level combined anterior and posterior fusion from a multiple level combined anterior and posterior spinal fusion. As discussed in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69058 through 69059), in response to public comments, we previously reviewed a request to reassign cases from the then proposed MS-DRG 402 to the then proposed MS-DRG 428 (both subsequently finalized) from this same manufacturer. We stated in the proposed rule that although the findings from our analysis show that the average costs of the cases reporting the use of a custom-made anatomically designed interbody fusion device in MS-DRG 402 are higher compared to all the cases in MS-DRG 402 ($59,906 versus $38,483) with a longer average length of stay (3.3 days versus 2.9 days), and are more similar to the average costs of all the cases in MS-DRG 450 which are $48,325 with an average length of stay of 7.9 days, we disagreed with the requested reassignment of cases reporting a spinal fusion procedure with the custom-made anatomically designed interbody fusion device from MS-DRG 402 to MS-DRG 450 because MS-DRG 450 is subdivided into two severity level subgroups and defined by single level spinal fusions (except cervical), meaning either the anterior column of the spine or the posterior column of the spine is fused in a single operative episode. As previously discussed, the logic for case assignment to MS-DRG 402 reflects single level combined anterior and posterior spinal fusion procedures, meaning both the anterior column of the spine and the posterior column of the spine are fused in a single operative episode. MS-DRG 402 is also not subdivided into severity levels. As such, the logic for case assignment to MS-DRGs 402 and 450 reflects two different types of spinal fusions that are clinically distinct procedures with different resources. As discussed in the proposed rule, in our review of the requested reassignment of cases reporting the use of a custom-made anatomically designed interbody fusion device from MS-DRG 428 to MS-DRG 426, the average costs of the 51 cases in MS-DRG 428 are higher compared to all the cases in MS-DRG 428 ($75,595 versus $56,192) with a comparable average length of stay (3.2 days versus 3.0 days), and the average costs of all the cases in MS-DRG 426 are $99,235 with an average length of stay of 8.9 days. However, we also noted that there are 142 cases reporting the use of a custom-made anatomically designed interbody fusion device in MS-DRG 426 with average costs of $103,797 and an average length of stay of 5.6 days. We stated that because the logic for MS-DRG 426 includes cases that are reassigned from MS-DRG 427 reporting the use of a custom-made anatomically designed interbody fusion device with a CC, we expanded our analysis to identify how many of the 142 cases would otherwise have grouped to MS-DRG 427 in the absence of the current logic. Of the 142 cases reporting the use of a custom-made anatomically designed interbody fusion device in MS-DRG 426, we found 22 cases were reported with an MCC secondary diagnosis with average costs of $143,062 and an average length of stay of 8.8 days and 120 cases were reported with a CC secondary diagnosis with average costs of $96,598 and an average length of stay of 5.1 days. We noted that, as reflected in the previously displayed table, the average costs of all the cases in MS-DRG 427 is $68,506. As shown in our review of MS-DRG 426, the 154 cases reporting a fusion procedure with an internal fixation device with tulip connector had average costs of $134,327 with an average length of stay of 9.3 days in comparison to the average costs of all the cases in MS-DRG 426 of $99,235 with an average length of stay of 8.9 days. We also recognized a similar pattern in MS-DRGs 427, 428, 447, 448, 456, 457, and 458 where the average costs for cases reporting a fusion procedure with an internal fixation device with tulip connector had higher average costs and a longer or comparable average length of stay compared to the average costs and average length of stay of all the cases in their respective MS-DRG. Relatedly, our findings for cases reporting an extensive fusion without either technology and our findings for cases reporting an extensive fusion with either or both technologies for MS-DRGs 426, 427, and 428 and MS-DRGs 456, 457, and 458 demonstrate higher average costs in comparison to the average costs of all the cases in their respective MS-DRG, including at the MCC level. Specifically, our data analysis shows that cases reporting an extensive fusion without either technology currently grouping to MS-DRGs 426, 427, and 428 have higher average costs ($128,537, $103,226, and $81,054, respectively) compared to the average costs of all the cases in their respective MS-DRG ($99,235, $68,506, and $56,192, respectively). Similarly, cases reporting an extensive fusion without either technology currently grouping to MS-DRGs 456, 457, and 458 have higher average costs ($92,132, $66,745, and $57,964, respectively) compared to the average costs of all the cases in their respective MS-DRG ($79,972, $56,069, and $40,771, respectively). Our data analysis also shows that cases reporting an extensive fusion with either or both technologies currently grouping to MS-DRGs 426, 427, and 428 have higher average costs compared to the average costs of all the cases in their respective MS-DRG. Overall, the 229 cases (65+151+13=229) in MS-DRG 426 reporting an extensive fusion with either or both technologies have average costs of $153,092 and an average length of stay of 10.3 days compared to the average cost and average length of stay of all the cases in MS-DRG 426 ($99,235 and 8.9 days, respectively). The 247 cases in MS-DRG [[Page 49606]] 427 reporting an extensive fusion with either or both technologies have costs of $129,777 and a length of stay of 7.0 days compared to the average cost and average length of stay of all the cases in MS-DRG 427 ($68,506 and 4.7 days, respectively). The 26 cases (2+22+2=26) in MS- DRG 428 reporting an extensive fusion with either or both technologies have average costs of $91,261 and an average length of stay of 6.1 days compared to the average cost and average length of stay of all the cases in MS-DRG 428 ($56,192 and 3.0 days, respectively). Additionally, cases reporting an extensive fusion with either or both technologies currently grouping to MS-DRGs 456, 457, and 458 have higher costs and a longer length of stay compared to the average costs and average length of stay of all the cases in their respective MS-DRG. The 60 cases in MS-DRG 456 reporting an extensive fusion with either or both technologies have a cost of $136,660 and a length of stay of 12.7 days, the 121 cases in MS-DRG 457 reporting an extensive fusion with either or both technologies have a cost of $91,823 and a length of stay of 6.6 days, and the 10 cases in MS-DRG 458 reporting an extensive fusion with either or both technologies have a cost of $62,304 and a length of stay of 4.2 days. We stated in the proposed rule that, based on our review and analysis, we disagreed with the requested reassignment of cases from the lower severity level to the higher severity level MS-DRG for cases reporting use of the aprevo[supreg] custom-made anatomically designed interbody fusion device, as well as for cases reporting use of the iFuse BedrockTM Granite Implant System. We stated we believed that each technology is indicated for use in complex spinal fusion procedures and requires increased resource utilization. We also stated that if we were to reassign cases from the lower severity level to the higher severity level, that would not account for the cases at the MCC level that are unable to be reassigned. Specifically, the cases reporting use of the aprevo[supreg] custom-made anatomically designed interbody fusion device and cases reporting use of the iFuse BedrockTM Granite Implant System at the MCC level would continue to have higher average costs and a longer average length of stay compared to all the other cases at the MCC level. In the proposed rule, we stated our belief that extensive spinal fusion procedures, with or without the use of either or both technologies, also demonstrate increased resource utilization because extensive spinal fusion procedures address various spinal deformities across multiple spinal vertebral joint levels. As such, to address the differences in resource utilization and additional treatment options for the patients whose spinal condition requires an extensive fusion procedure or a complex spinal fusion procedure that uses either the aprevo[supreg] custom-made anatomically designed interbody fusion device or the iFuse BedrockTM Granite Implant System, we proposed a new base MS-DRG. Consistent with our established process as discussed in section II.C.1.b. of the preamble of the FY 2027 IPPS/LTCH PPS proposed rule and this final rule, once the decision has been made to propose to make further modifications to the MS-DRGs, such as creating a new base MS- DRG, all five criteria to create subgroups must be met for the base MS- DRG to be split (or subdivided) by a CC subgroup. Therefore, we applied the criteria to create subgroups in a base MS-DRG. We noted that, as shown in the table that follows, a three-way split of this proposed new base MS-DRG was met. [GRAPHIC] [TIFF OMITTED] TR04AU26.046 For the proposed new MS-DRGs for cases reporting an extensive fusion or a complex spinal fusion procedure with either the aprevo[supreg] custom-made anatomically designed interbody fusion device or the iFuse BedrockTM Granite Implant System, there is at least (1) 500 cases in the MCC group, 500 cases in the with CC group, and 500 cases in the without CC/MCC group; (2) 5 percent of the cases in the MCC group, 5 percent of the cases in the CC group, and 5 percent of the cases in the without CC/MCC group; (3) a 20 percent difference in average costs between the MCC group, the CC group, and the without CC/MCC group; (4) a $2,000 difference in average costs between the MCC group, the CC group, and the without CC/MCC group; and (5) a 3-percent reduction in cost variance, indicating that the proposed severity level splits increase the explanatory power of the base MS-DRG in capturing differences in expected cost between the proposed MS-DRG severity level splits by at least 3 percent and thus improve the overall accuracy of the IPPS payment system. Therefore, for FY 2027, we proposed to create new MS-DRGs 523, 524, and 525 (Extensive or Complex Spinal Fusion Procedures Except Cervical with MCC, with CC, and without CC/MCC, respectively). Specifically, we proposed to reassign cases reporting an extensive spinal fusion procedure from MS-DRGs 426, 427, 428, 456, 457 and 458 and to reassign cases reporting a spinal fusion procedure with use of the aprevo[supreg] custom-made anatomically designed interbody fusion device or the iFuse BedrockTM Granite Implant System from MS-DRGs 402, 426, 427, 428, 447, 448, 450, 451, 456, 457 and 458 to proposed new MS-DRGs 523, 524, and 525. We also proposed to revise the titles for MS-DRGs 426, 447, and 450 to remove the reference to ``Custom-made Anatomically Designed Interbody Fusion Device'' and to revise the titles for MS-DRGs 456, 457, and 458 to remove the reference to ``Extensive Fusions''. We noted that discussion of the surgical hierarchy for the proposed modification is discussed in section II.C.14. of the preamble of the FY 2027 IPPS/LTCH PPS proposed rule. Comment: Several commenters (practicing spine surgeons, neurosurgeons, and hospitals) expressed support for proposed new MS- DRGs 523, 524, and 525 and the proposed revisions to the titles for MS- DRGs 426, 447, and 450. The commenters stated that these cases often involve medically complex patients in need of extensive, multi-segment constructs and advanced pelvic fixation techniques. The commenters stated the proposed new MS-DRGs better reflect the clinical complexity and resource intensity of these cases. The commenters also stated the proposed new MS-DRGs support hospitals' and surgeons' ability to appropriately treat more complex patients. The commenters stated these cases are clinically distinct from less extensive spinal fusion and often require greater operative time, specialized implants, advanced [[Page 49607]] planning, and increased hospital resource utilization. Response: We thank the commenters for their support. Comment: A commenter who supported proposed MS-DRGs 523, 524, and 525 stated their belief that CMS omitted the eight Section X ICD-10-PCS procedure codes identifying the use of the iFuse Bedrock Granite[supreg] Implant System in the performance of spinal fusion procedures in Table 6P.3a that was made available in association with the proposed rule on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps. The commenter requested that a correction be provided for Table 6P.3a in association with the final rule. Specifically, the commenter indicated that ICD-10- PCS procedure codes XNH6058, XNH6358, XNH7058, XNH7358, XRGE058, XRGE358, XRGF058, and XRGF358 were omitted and should be included in the logic for proposed MS-DRGs 523, 524, and 525 for FY 2027. Response: We thank the commenter for their feedback. We note that the ICD-10-PCS procedure codes listed in Table 6P.3a in association with the FY 2027 IPPS/LTCH PPS proposed rule and made available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps describe extensive fusion procedures only. As stated in the proposed rule (91 FR 19337), we referred the reader to Table 6P. 3a for the list of procedure codes we analyzed to identify an extensive fusion and noted that extensive fusions are also reflected in the ICD-10 MS-DRG Definitions Manual, Version 43.1 under MS-DRGs 456, 457, and 458. We further noted that under ICD-10-PCS, an extensive fusion procedure is defined as a spinal fusion procedure involving 8 or more thoracic vertebral joint levels and provided specific examples of the procedure codes describing an extensive spinal fusion procedure. We note that because the procedure codes that may be reported to describe the iFuse BedrockTM Granite tulip connector device were listed separately in the preamble of the proposed rule (91 FR 19336) and the procedure codes that may be reported to describe lumbar fusion procedures that use the aprevo[supreg] device were also listed separately in the preamble of the proposed rule (91 FR 19337), the purpose of Table 6P.3a was to list the procedure codes that describe an extensive fusion procedure. As also discussed in the proposed rule (91 FR 19336), the listed procedure codes describing ``Insertion'' (ICD-10-PCS codes XNH6058, XNH6358, XNH7058, and XNH7358) are assigned to MS-DRGs 515, 516, and 517 (Other Musculoskeletal System and Connective Tissue O.R. Procedures with MCC, with CC, and without CC/MCC, respectively) and the procedure codes describing ``Fusion'' (ICD-10-PCS codes XRGE058, XRGE358, XRGF058, and XRGF358) are assigned to MS-DRGs 028 (Spinal Procedures with MCC), MS-DRG 029 (Spinal Procedures with CC or Spinal Neurostimulators), and MS-DRG 030 (Spinal Procedures without CC/MCC) under MDC 01 (Diseases and Disorders of the Nervous System) and MS-DRGs 402, 426, 427, 428, 447, 448, 450, 451, 456, 457, and 458 under MDC 08. We noted that because the ICD-10-PCS codes describing ``Insertion'' of internal fixation device with tulip connector are not assigned to one of the spinal fusion MS-DRGs as a standalone procedure, another ICD-10- PCS code describing a spinal fusion procedure would need to be reported on the same claim to group to one of the previously listed spinal fusion MS-DRGs. We referred the reader to the ICD-10 MS-DRG Definitions Manual, Version 43.1, which is available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software for complete documentation of the GROUPER logic for the previously listed MS-DRGs. As such, the four ICD-10-PCS codes describing ``Insertion'' (ICD-10-PCS codes XNH6058, XNH6358, XNH7058, and XNH7358), were not included in the logic for proposed new MS-DRGs 523, 524, and 525 in association with the proposed rule, rather, only the four procedure codes describing ``Fusion'' (ICD-10-PCS codes XRGE058, XRGE358, XRGF058, and XRGF358) were included, as reflected in the test version of the ICD-10 MS-DRG GROUPER Software, Version 44, and the draft version of the ICD-10 MS- DRG Definitions Manual, Version 44, that was made available in association with the proposed rule on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software. Comment: A commenter representing an association of device manufacturers who supported the proposal stated that the creation of these MS-DRGs represents a meaningful refinement to the IPPS, aligning payment with the hospital reported costs of the most resource intensive spinal fusion procedures furnished to Medicare beneficiaries. Another commenter representing a specialty society stated they supported CMS' broader efforts to modernize the spinal fusion DRG hierarchy so that Medicare payment policy more accurately reflects the substantial clinical, operational, and resource differences between routine degenerative fusion procedures and highly complex spinal deformity and reconstruction surgery; however, this commenter expressed concern that the proposed MS-DRG descriptions may inadvertently exclude numerous clinically comparable, high-complexity spinal reconstruction procedures that do not involve the named devices or do not meet the current definition of ``extensive'' or ``complex''. The commenter urged CMS to collaborate with neurosurgical and orthopedic specialty societies to develop clinically grounded procedure based definitions of ``extensive'' and ``complex'' spinal fusion, regardless of the specific implant technology used or the number of vertebral levels fused. Another commenter who also supported the proposed new spinal fusion MS- DRGs requested that CMS monitor the claims data for impacts. Response: We appreciate the commenters' support and feedback. In response to the concerns expressed for the proposed MS-DRG descriptions, we note that the definition of an ``extensive'' spinal fusion has existed since the implementation of ICD-10-PCS in October 2015. As discussed in the preamble of the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19337 through 19338) and this final rule, under ICD-10-PCS, an extensive fusion is defined as a spinal fusion procedure involving 8 or more thoracic vertebral joint levels. An extensive fusion procedure may also be reported with a combination of codes (cluster) that includes at least one code describing fusion of 2-7 thoracic vertebral joint levels and at least one code describing fusion of 2 or more lumbar vertebral joint levels. We note that the proposed logic for case assignment to proposed MS-DRGs 523, 524, and 525, as reflected in the ICD-10 MS-DRG Definitions Manual, Version 43.1, that was made available in association with the proposed rule includes the lists of procedure codes that describe an extensive fusion and separately lists the procedure codes describing complex spinal fusion procedures performed with the use of the aprevo[supreg] custom-made anatomically designed interbody fusion device or the iFuse Bedrock Granite[supreg] Implant System. Based on our clinical review and the findings from our analysis as discussed in the proposed rule, the majority of spinal [[Page 49608]] fusion procedures that were reported to use either technology were those performed on a subset of clinically complex patients with adult spinal deformities and other conditions requiring specialized instrumentation and treatment plans. In response to the request that we should monitor the claims data for impacts, we note that we will continue to monitor the claims data in consideration of any potential modifications that may be warranted. Any discussion regarding proposed changes will be discussed in future rulemaking. Comment: A commenter who supported the proposal to create proposed new MS-DRGs 523, 524, and 525 expressed appreciation for the thoughtful analysis that was performed and urged CMS to finalize the proposal. The commenter also stated that they supported the proposal to revise the descriptions and create new procedure codes that describe use of the aprevo[supreg] device as proposed in the Spring 2026 procedure code update and discussed in the preamble of the proposed rule. The commenter requested that CMS follow its established process to identify any finalized procedure changes with a footnote in Table 6B.--New Procedure Codes, and that the final ICD-10 MS-DRG GROUPER, Version 44, also reflect the appropriate procedure code logic finalized for case assignment. Response: We thank the commenter for their support and feedback. As discussed in the preamble of the proposed rule, we noted that for the Spring 2026 ICD-10-PCS code update, the manufacturer of the aprevo[supreg] custom-made anatomically designed interbody fusion device submitted a request to revise the descriptions for the procedure codes that may be reported to describe use of the aprevo[supreg] device. The agenda and related meeting materials for this specific topics are available on the CMS website at: https://www.cms.gov/medicare/coding-billing/icd-10-codes/icd-10-coordination-maintenance-committee-materials. As reflected in the FY 2027 ICD-10-PCS Code Update files that were made publicly available on the CMS website at: https:// www.cms.gov/medicare/coding-billing/icd-10-codeshttps://www.cms.gov/medicare/coding-billing/icd-10-codes on June 5, 2026, and in Table 6B.--New Procedure Codes associated with this FY 2027 IPPS/LTCH PPS final rule (and available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps), consistent with our established processes, new procedure codes have been finalized that may be reported to describe use of the aprevo[supreg] custom-made anatomically and virtually designed interbody fusion device that are designated with a footnote and display the finalized operating room designation, MDC, and MS-DRG assignments effective with discharges on and after October 1, 2026. In addition, the FY 2027 ICD-10 MS-DRG GROUPER and Medicare Code Editor (MCE) Software Version 44, and the ICD-10 MS-DRG Definitions Manual files Version 44 available to the public on our CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps also reflect the finalized logic for case assignment. We also note that the current codes that may be reported to describe use of the aprevo[supreg] custom-made anatomically designed interbody fusion device are invalid effective with discharges on and after October 1, 2026, as reflected in Table 6D.--Invalid Procedure Codes, associated with this FY 2027 IPPS/LTCH PPS final rule (and available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps). Comment: A couple of commenters who supported the proposed new spinal fusion MS-DRGs 523, 524, and 525, stated that there have been revisions to the spinal fusion MS-DRGs for the last three fiscal years. Using MS-DRG 426 as an example, a commenter stated that cases grouping to this MS-DRG for FY 2025, FY 2026, and proposed FY 2027 are all unique and require recalibration to compare the MS-DRG with a batch GROUPER for accurate comparison. The commenters also stated there is a proposed relative weight difference for MS-DRG 426 in FY 2027 showing a decrease from approximately 11.0212 to 9.9191, making it difficult to compare current spinal fusion MS-DRGs with the V43 GROUPER due to cases shifting out of MS-DRG 426 as a result of changes made over the last three years. Another commenter stated that the observed shifts in MS- DRG 426 across the two years may reflect classification dynamics rather than true changes in patient acuity or resource use. The commenter requested that CMS publish supplemental files to enable hospitals to evaluate impacts using their own claims under the applicable GROUPER logic which may help inform and clarify the logic changes affecting the redistribution of cases among the MS-DRGs. Response: We thank the commenters for their support of the proposed new MS-DRGs and acknowledge there have been revisions to the logic for case assignment to MS-DRG 426 for FY 2025 and FY 2026, with proposed changes for FY 2027. As shown in the data analyses that have been discussed in prior rulemakings, and more recently in the preamble of the FY 2027 proposed rule, cases reporting use of the aprevo[supreg] technology generally have higher average costs and either a comparable or a longer average length of stay when compared to all the cases in the respective MS-DRG. When higher volume and higher average cost cases shift in and out of an MS-DRG, the relative weight of that MS-DRG will fluctuate. It is expected that changes to the relative weight will occur when logic changes are finalized resulting in a redistribution of cases. As discussed elsewhere in the preamble of this final rule, we may consider making available additional resources such as a batch GROUPER for future rulemaking. With regard to the request that CMS publish supplemental files to assist hospitals in their evaluation of the potential impacts as a result of the proposed MS-DRG changes, we intend to make available a redistribution report in association with future proposed rulemakings to further assist stakeholders in evaluating how proposed logic changes may affect the redistribution of cases among the MS-DRGs. After consideration of the public comments we received, we are finalizing our proposal, without modification, to create new MS-DRGs 523, 524, and 525, for FY 2027. We are also finalizing our proposal to reassign cases reporting an extensive spinal fusion procedure from MS- DRGs 426, 427, 428, 456, 457 and 458 and to reassign cases reporting a spinal fusion procedure with use of the aprevo[supreg] device or the iFuse BedrockTM Granite Implant System from MS-DRGs 402, 426, 427, 428, 447, 448, 450, 451, 456, 457 and 458 to new MS-DRGs 523, 524, and 525. Lastly, we are finalizing our proposal to revise the titles for MS-DRGs 426, 447, and 450 to remove the reference to ``Custom-made Anatomically Designed Interbody Fusion Device'' and to revise the titles for MS-DRGs 456, 457, and 458 to remove the reference to ``Extensive Fusions''. We refer the reader to the ICD-10 MS-DRG Definitions Manual files, Version 44 made available in association with this final rule at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software for complete documentation of the GROUPER logic. We note that the surgical hierarchy for the finalized modification is discussed [[Page 49609]] in section II.C.14. of the preamble of this final rule. b. Hip or Knee Procedures With Periprosthetic Joint Infection In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18049 through 18052) and final rule (90 FR 36606 through 36610), we discussed a request we received to reassign cases reporting a hip or knee procedure with a principal diagnosis of periprosthetic joint infection (PJI) from the lower severity level ``without CC/MCC'' MS-DRG to the higher severity level ``with CC'' MS-DRG when there is no major complication or comorbidity (MCC) or complication or comorbidity (CC) reported for the following MS-DRGs; MS-DRGs 463, 464, and 465 (Wound Debridement and Skin Graft Except Hand for Musculoskeletal and Connective Tissue Disorders with MCC, with CC, and without CC/MCC, respectively), MS-DRGs 466, 467, and 468 (Revision of Hip or Knee Replacement with MCC, with CC, and without CC/MCC, respectively), MS-DRGs 474, 475, and 476 (Amputation for Musculoskeletal System and Connective Tissue Disorders with MCC, with CC, and without CC/MCC, respectively), MS-DRGs 480, 481, and 482 (Hip and Femur Procedures Except Major Joint with MCC, with CC, and without CC/MCC, respectively) and MS-DRG 485, 486, and 487 (Knee Procedures with Principal Diagnosis of Infection with MCC, with CC, and without CC/MCC, respectively). We stated that, based on our review and analysis of the data, we disagreed with the request to reassign PJI cases from the lower severity ``without CC/MCC'' level MS-DRG to the higher severity ``with CC'' level MS-DRG suggested by the requestor as the average costs of the PJI cases in the ``without CC/MCC'' level were not comparable and did not align with the average costs of all the cases at the ``with CC'' level. We stated we believed that MS-DRGs 466, 467, and 468 appeared to group appropriately in their respective MS-DRG assignments and noted that the logic for case assignment to MS-DRGs 485, 486, and 487 includes a principal diagnosis of infection and the difference in average costs for the cases reporting a PJI with a hip or knee procedure compared to the average costs of all the cases in their respective MS-DRG was minimal. We stated we believed the data support proposing a new base MS-DRG for the cases reporting a PJI with a hip or knee procedure in MS-DRGs 463, 464, 465, 474, 475, 476, 480, 481, and 482 to better reflect the complexity of services, resource utilization, and severity of illness of these patients. We applied the criteria to create subgroups in a base MS-DRG as discussed in section II.C.1.b. of the preamble of the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18014 through 18015) and final rule (90 FR 36553 through 36554) and noted that the criteria for a two-way split was met. Therefore, for FY 2026 we proposed to create new MS-DRGs 403 and 404 (Hip or Knee Procedures with Principal Diagnosis of Periprosthetic Joint Infection with MCC and without MCC, respectively). As discussed in the FY 2026 IPPS/LTCH PPS final rule (90 FR 36608 through 36610), several commenters expressed support for the proposal to create proposed new MS-DRGs 403 and 404; however, a commenter stated they encountered inconsistencies when grouping cases using the Version 43 test GROUPER that was made publicly available in association with the FY 2026 IPPS/LTCH PPS proposed rule on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software. The commenter also stated they found an overlap of approximately 52 procedure codes among the list of procedure codes analyzed by CMS made publicly available in Table 6P.6a in connection with the proposed rule analysis and also listed in the logic for MS-DRGs 466, 467, and 468 included in the Draft Version 43 ICD-10 MS-DRG Definitions Manual. The commenter stated it was unable to reconcile some of the shifts in case volume from the MS- DRGs that were analyzed and those that shifted into the proposed new MS-DRGs because it was not clear if the cases shifted because of the procedure code overlap or because of programming within the Version 43 test GROUPER. We acknowledged the commenter's findings and noted that under the GROUPER software program, some collections of ICD-10-PCS procedure codes have a different set of attributes, independent of those of the codes that make them up (that is, their ``components''). We stated that these collections of ICD-10-PCS procedure codes are called clusters and that a routine program in the GROUPER, upstream of the MS-DRG assignment logic, searches the claim for clusters. We noted that when a cluster is found, it is added to the list of procedures found on the claim. We stated that clusters may be ``restricted'' by Major Diagnostic Category (MDC) and a restricted cluster inhibits the use of its procedure code component attributes for the MDC's MS-DRG assignment logic. We provided the example that procedure code cluster 0SPC0JZ (Removal of synthetic substitute from right knee joint, open approach) and 0SRT0JZ (Replacement of right knee joint, femoral surface with synthetic substitute, open approach) may be recognized on a claim if both codes appear (in any order) and the reporting of these codes creates a new procedure code cluster ``@0045''. We stated that the cluster @0045 has a different set of attributes than either code 0SPC0JZ or 0SRT0JZ by itself and is further ``restricted'' for MDC 08. We noted that when the GROUPER logic determines that the MDC is 08, it ignores the attributes of procedure codes 0SPC0JZ and 0SRT0JZ individually, only using those of @0045. We indicated in that example how the logic results in assignment of the claim to MS-DRGs 466, 467, and 468 rather than MS-DRGs 463, 464, and 465. We stated that if the principal diagnosis reported is not assigned under MDC 08, the cluster would not restrict the interpretation of the component codes and their individual attributes could be relevant as well as those of @0045. As also discussed in the FY 2026 IPPS/LTCH PPS final rule (90 FR 36610), following publication of the FY 2026 IPPS/LTCH PPS proposed rule, we identified that the intended grouping of cases to the proposed new MS-DRGs 403 and 404 was impacted because of these cluster restrictions under MDC 08; therefore, we removed the restrictions and performed additional analysis. As a result of removing the restrictions, and due to the existing overlapping procedure code logic among a subset of the MDC 08 MS-DRGs, our analysis showed that further redistribution of the cases under MDC 08 occurred, impacting the remaining number of cases in MS-DRGs 466, 467, and 468 and MS-DRGs 485, 486, and 487, such that, those MS-DRGs no longer satisfied the criteria for a 3-way split. We noted that under our established process for applying the criteria to create subgroups within a base MS-DRG, existing MS-DRGs 466, 467, and 468 would be deleted and a new base MS- DRG for Revision of Hip or Knee Replacement would be established. Additionally, we noted that under this established process, existing MS-DRGs 485, 486, and 487 would be deleted and new MS-DRGs (2-way split) for Knee Procedures with Principal Diagnosis of Infection with and without MCC, respectively, would be established. Because these findings associated with removal of the MDC 08 restrictions on the procedure code clusters for existing MS-DRGs 466, 467, and 468 and MS- DRGs 485, 486, [[Page 49610]] and 487 were not identified until after publication of the proposed rule, in addition to having an updated test Grouper that reflected these potential changes, we did not finalize the creation of proposed new MS-DRGs 403 and 404 for FY 2026. We stated that we may further consider these potential MS-DRG changes for future rulemaking. We refer the reader to the FY 2026 IPPS/LTCH PPS proposed and final rulemaking discussions for additional detailed information. As also discussed in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18012 through 18013) and final rule (90 FR 36550 through 36552), we received a request to modify the GROUPER logic of MS-DRGs 463, 464, and 465; MS-DRGs 466, 467, and 468; and MS-DRGs 492, 493, and 494 (Lower Extremity and Humerus Procedures Except Hip, Foot and Femur with MCC, with CC, and without CC/MCC, respectively) by reassigning cases with ICD-10-PCS code XW0V0P7 (Introduction of antibiotic-eluting bone void filler into bones, open approach, new technology group 7) that currently map to the lower severity level MS-DRG to the highest severity level (with MCC) MS-DRG. We noted that the procedure to insert a bone void filler is designated as a non-operating room (Non-O.R.) procedure and stated our belief that the key factor that would contribute to resource utilization in these cases is the fact that the patients have an infection(s) which require additional resources. We further noted that, as discussed in section II.C.5.a. of the preamble of the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18049 through 18052), we received an MS-DRG request related to cases reporting a hip or knee procedure with a diagnosis of PJI in MS-DRGs 463, 464, and 465 (the same set of MS-DRGs that were submitted to analyze ICD-10-PCS code XW0V0P7). We stated that in our review of the claims data to address that specific request, we noted that a subset of the cases also reported procedure code XW0V0P7 and for these reasons and those previously described, we believed additional time was needed to review and evaluate potential extensive modifications to the structure of these MS-DRGs. As discussed in the preamble of the proposed rule, based on our analysis of the September 2025 update of the FY 2025 MedPAR file for the FY 2027 IPPS/LTCH PPS proposed rule, we continued to believe it is appropriate to propose new MS-DRGs 403 and 404 to better differentiate and reflect the complexity of services, resource utilization, and severity of illness for patients diagnosed with a PJI. We stated in the FY 2027 IPPS/LTCH PPS proposed rule that for purposes of our analysis, in connection with the FY 2026 IPPS/LTCH PPS final rule discussion related to the findings about the restriction logic and overlap of procedure codes, for proposed new MS-DRGs 403 and 404 for FY 2027, we removed the restriction logic under MDC 08 for the procedure code clusters within MS-DRGs 466, 467, and 468, and within MS-DRGs 485, 486, and 487. These changes were reflected in the test version of the ICD-10 MS-DRG GROUPER Software, Version 44, and the draft version of the ICD- 10 MS-DRG Definitions Manual, Version 44, available in association with the FY 2027 IPPS/LTCH PPS proposed rule (available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software) so that the public could better analyze and understand the impact of the proposals as summarized in the discussion that follows. We stated in the FY 2027 IPPS/LTCH PPS proposed rule that, in connection with the FY 2026 IPPS/LTCH PPS final rule discussion related to the request for reassignment of cases with ICD-10-PCS code XW0V0P7 that currently map to the lower severity level MS-DRG to the highest severity level (with MCC) MS-DRG, the requestor submitted a revised request. Specifically, in addition to the previously listed MS-DRGs identified for CMS' consideration for FY 2026, the requestor added MDC 08 MS-DRGs 474, 475, and 476 and MS-DRGs 480, 481, and 482, that are also the subject of the request to reassign cases reporting a hip or knee procedure with a principal diagnosis of PJI from the lower severity level ``without CC/MCC'' MS-DRG to the higher severity level ``with CC'' MS-DRG, and further added MDC 08 MS-DRGs 477, 478, and 479 (Biopsies of Musculoskeletal System and Connective Tissue with MCC, with CC, and without CC/MCC, respectively). We also noted that separately, this same requestor submitted a request for the reassignment of cases reporting ICD-10-PCS code XW0V0P7 that currently map to the lower severity level MS-DRG to the highest severity level (with MCC) MS-DRG within MDC 10 for MS-DRGs 616, 617, and 618 (Amputation of Lower Limb for Endocrine, Nutritional and Metabolic Disorders with MCC, with CC, without CC/MCC, respectively) and MS-DRGs 628, 629, and 630 (Other Endocrine, Nutritional and Metabolic O.R. Procedures with MCC, with CC, without CC/MCC, respectively) that is discussed separately in section II.C.5 of the preamble of the FY 2027 IPPS/LTCH PPS proposed rule and this final rule. Effective October 1, 2021, ICD-10-PCS code XW0V0P7 was created in association with a new technology add-on payment application for CERAMENT[supreg] G, a combination device-drug product intended to treat bone infections (for example, osteomyelitis). It is an implantable bone void filler that consists of hydroxyapatite and calcium sulfate, as well as gentamicin sulfate, which is an antibacterial agent. We refer the reader to the September 8, 2020, ICD-10 Coordination and Maintenance Committee meeting materials available on the CMS website at: https://www.cms.gov/medicare/coding-billing/icd-10-codes/icd-10-coordination-maintenance-committee-materials for information regarding the procedure code request, including a transcript of the discussion and the related meeting materials. We also note that CERAMENT[supreg] G was approved for a new technology add-on payment beginning October 1, 2022 for the indication of infection which expired on September 30, 2025. For FY 2026, CERAMENT[supreg] G was approved for a new technology add-on payment for the indication of an open fracture. We refer the reader to section II.E.4. of the preamble of the FY 2026 IPPS/LTCH PPS proposed and final rules for additional discussion regarding CERAMENT[supreg] G in association with the new technology add-on payment indication. As discussed in the proposed rule, for the Spring 2026 ICD-10-PCS code update, the manufacturer of CERAMENT[supreg] G submitted a request for a new code to describe another antibiotic-eluting bone void filler product, CERAMENT[supreg] V, in association with a new technology add- on payment application for FY 2027. We refer the reader to section II.E.6. of the preamble of the FY 2027 IPPS/LTCH PPS proposed rule and this final rule for additional discussion regarding CERAMENT[supreg] V in association with the new technology add-on payment policy. The manufacturer also requested a revision to the existing code, ICD-10-PCS code XW0V0P7, that is reported to identify the administration of CERAMENT[supreg] G. CERAMENT[supreg] V is an injectable synthetic bone void filler that consists of hydroxyapatite, calcium sulfate, and the antibiotic vancomycin hydrochloride. The manufacturer requested that the description of existing ICD-10-PCS code XW0V0P7 be revised to specifically identify gentamicin and that a new code be created to specifically identify vancomycin in association with the new technology add-on payment application. [[Page 49611]] The agenda and related materials for these specific topics are available on the CMS website at: https://www.cms.gov/medicare/coding-billing/icd-10-codes/icd-10-coordination-maintenance-committee-materials. We note that the deadline for receipt of public comments for the proposals included in the Spring 2026 procedure code update was April 17, 2026; therefore, the final code decisions on these proposals were not yet available for inclusion in Table 6B.--New Procedure Codes associated with the FY 2027 IPPS/LTCH PPS proposed rule. Under our established process, if the new and revised procedure code proposals are finalized after review and consideration of public comments following the Spring update, the codes are specifically identified with a footnote in Table 6B.--New Procedure Codes and Table 6F.--Revised Procedure Code Titles along with the MDC, MS-DRG assignment(s), and operating room (O.R.) or non-operating room (non-O.R.) designation that is made publicly available in association with the final rule on the CMS website at https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps. This established process includes initially reviewing the predecessor codes' MS-DRG assignment and designation, while considering other relevant factors (for example, severity of illness, treatment difficulty, complexity of service and the resources utilized in the diagnosis and/or treatment of the condition). The public may provide feedback on these finalized assignments, which is then taken into consideration for the following fiscal year. We note that, after review and consideration of the public comments from the Spring 2026 ICD-10-PCS code update, we finalized the proposal to create a new ICD-10-PCS code to describe the administration of the antibiotic-eluting bone void filler product, CERAMENT[supreg] V, and we finalized the proposal to revise the existing ICD-10-PCS code XW0V0P7, to identify the administration of CERAMENT[supreg] G, as reflected in the FY 2027 ICD-10-PCS Code Update files that were made publicly available on the CMS website at: https://www.cms.gov/medicare/coding-billing/icd-10-codes on June 5, 2026. The new procedure code, XW0V0BC (Introduction of vancomycin-eluting bone void filler into bones, open approach, new technology group 12), is reflected in Table 6B.--New Procedure Codes, and the revised procedure code title for procedure code XW0V0P7 (Introduction of gentamicin-eluting bone void filler into bones, open approach, new technology group 7) is reflected in Table 6F.--Revised Procedure Code Titles, in association with this final rule and available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps, including the MS-DRG assignments for the new code for FY 2027. Accordingly, to continue our analysis of cases reporting a hip or knee procedure with a principal diagnosis of PJI as discussed in the FY 2026 IPPS/LTCH PPS final rule with removal of the restriction logic and to address the request to modify the GROUPER logic by reassigning cases with ICD-10-PCS code XW0V0P7 that currently map to the lower severity level MS-DRG to the highest severity level (with MCC) MS-DRG, we reviewed claims data from the September 2025 update of the FY 2025 MedPAR file for MS-DRGs 463, 464, 465, 466, 467, 468, 474, 475, 476, 477, 478, 479, 480, 481, 482, 485, 486, 487, 492, 493, and 494 and for: (1) cases reporting a principal diagnosis of PJI with a hip or knee procedure based on the proposed logic as reflected in Table 6P.3b, (2) cases reporting the insertion of antibiotic-eluting bone void filler (code XW0V0P7) without a principal diagnosis of PJI among all the cases in the respective MS-DRG (that is, not limited to the proposed logic reflected in Table 6P.3b), and (3) cases reporting both a principal diagnosis of PJI with a hip or knee procedure and ICD-10-PCS code XW0V0P7 based on the proposed logic as reflected in Table 6P.3b. We refer the reader to Table 6P. 3b that is publicly available in association with the FY 2027 IPPS/LTCH PPS proposed rule on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps for the list of diagnosis codes we analyzed to identify a PJI, for the procedure code we analyzed to identify the insertion of antibiotic-eluting bone void filler, and for the list of procedure codes we analyzed from the previously listed MS-DRGs (excluding MS-DRGs 477, 478, and 479 that were not the subject of the request) to identify a hip or knee procedure. Findings from our analysis with removal of the restriction logic are shown in the following table. BILLING CODE 4169-69-P [[Page 49612]] [GRAPHIC] [TIFF OMITTED] TR04AU26.047 [[Page 49613]] [GRAPHIC] [TIFF OMITTED] TR04AU26.048 [[Page 49614]] [GRAPHIC] [TIFF OMITTED] TR04AU26.049 BILLING CODE 4169-69-C The findings show that with removal of the restriction logic from MS-DRGs 466, 467, and 468, there are zero cases reporting a principal diagnosis of PJI with a hip or knee procedure in MS-DRGs 466, 467, and 468. With removal [[Page 49615]] of the restriction logic, the cases that previously grouped to MS-DRGs 466, 467, and 468 are redistributed to MS-DRGs 463, 464, and 465 based on the proposed Version 44 GROUPER logic and the surgical hierarchy. Under the current ICD-10 MS-DRGs Version 43.1, procedure code 0SP90JZ (Removal of synthetic substitute from right hip joint, open approach) is listed in the logic for case assignment to MS-DRGs 463, 464, and 465 and is also listed as part of a code cluster with procedure code 0SR9019 (Replacement of right hip joint with metal synthetic substitute, cemented, open approach) in the logic for case assignment to MS-DRGs 466, 467, and 468. With removal of the cluster restriction logic in MS-DRGs 466, 467, and 468, cases reporting procedure code 0SP90JZ with a principal diagnosis assigned to MDC 08 will group to MS- DRGs 463, 464, and 465 under the proposed ICD-10 MS-DRGs, Version 44. The findings also show that with removal of the restriction logic from MS-DRGs 485, 486, and 487 further redistribution of the cases occurs. Specifically, cases that previously grouped to MS-DRGs 485, 486, and 487 now group or ``shift'' to other MS-DRGs. As a result, the remaining number of cases in MS-DRGs 466, 467, and 468 and MS-DRGs 485, 486, and 487 is reduced and those MS-DRGs no longer satisfy the criteria for a 3-way split under application of our established criteria for subgroups consistent with the discussion in the FY 2026 IPPS/LTCH PPS final rule (90 FR 36610). The findings show that for the cases reporting a principal diagnosis of PJI with a hip or knee procedure in MS-DRGs 463, 464, 465, 474, 475, 476, 480, 481, 482, 485, 486, 487, 492, and 493, the average length of stay is generally comparable or longer compared to the average length of stay of all the cases in their respective MS-DRG. Findings from our analysis also show that the average costs of the cases reporting a principal diagnosis of PJI with a hip or knee procedure in MS-DRGs 464, 465, 474, 475, 476, 480, 481, 482, 485, 486, 487, 492, and 493 are higher compared to the average costs of all the cases in their respective MS-DRG. We note that the average length of stay and the average costs of the 5 cases reporting a PJI with a hip or knee procedure in MS-DRG 494 are shorter than (2.6 days versus 3.3 days) the average length of stay and lower than ($15,251 versus $18,846) the average costs of all the cases in MS-DRG 494. We also note that the average costs of the 3,262 cases reporting a principal diagnosis of PJI with a hip or knee procedure in MS-DRG 463 are approximately $49 less than the average costs of all the cases in MS- DRG 463 ($44,259 versus $44,308). For the cases reporting procedure code XW0V0P7 without a principal diagnosis of PJI in MS-DRGs 463, 464, 465, 466, 467, 474, 475, 477, 478, 480, 481, 482, 486, 492, and 493, we found that the average length of stay is generally comparable or longer compared to the average length of stay of all the cases in their respective MS-DRG. We note that there were zero cases found reporting procedure code XW0V0P7 without a principal diagnosis of PJI in MS-DRGs 468 and 476. Findings from our analysis also show that the average costs of the cases reporting procedure code XW0V0P7 without a principal diagnosis of PJI in MS-DRGs 463, 464, 465, 466, 467, 474, 475, 477, 478, 480, 481, 482, 486, 492, 493, and 494 are higher compared to the average costs of all the cases in their respective MS-DRG. We also note that the 7 cases in MS-DRG 479 have a shorter average length of stay (2.9 days versus 4.1 days) and lower average costs ($11,760 versus $17,157) compared to the average length of stay and average costs of all the cases in MS-DRG 479. As shown in the table, the cases reporting procedure code XW0V0P7 without a principal diagnosis of PJI in the lower severity level MS-DRGs (that is, MS-DRGs 464, 465, 475, 478, 481, 482, 493, and 494) have average costs that overall, are more aligned with the average costs of all the cases at the respective higher severity level (with MCC) MS-DRG (that is MS-DRGs 463, 474, 477, 480, and 492). For example, the 62 cases in MS-DRG 464 and the 13 cases in MS-DRG 465 reporting procedure code XW0V0P7 without a principal diagnosis of PJI have average costs of $42,191 and $37,878 respectively, compared to the average costs of $44,308 for all the cases in MS-DRG 463. Lastly, for the cases reporting both a principal diagnosis of PJI with a hip or knee procedure and ICD-10-PCS code XW0V0P7 in MS-DRGs 463, 464, 465, 474, 475, 485, and 486, we found that the average length of stay is longer and the average costs are comparable or higher compared to the average length of stay and average costs of the cases reporting a principal diagnosis of PJI with a hip or knee procedure without ICD-10-PCS code XW0V0P7, as well as compared to all the cases in their respective MS-DRG. We stated in the proposed rule that based on our review and analysis of the data, we believed the data support proposing a new base MS-DRG for the cases reporting a PJI with a hip or knee procedure to better differentiate and reflect the complexity of services, resource utilization, and severity of illness of these patients. In connection with our review and analysis of the data, we noted that under the current ICD-10 MS-DRGs Version 43.1, diagnosis codes T84.53XA (Infection and inflammatory reaction due to internal right knee prosthesis, initial encounter) and T84.54XA (Infection and inflammatory reaction due to internal left knee prosthesis, initial encounter) are listed in the logic for case assignment to MS-DRGs 485, 486, and 487, and are also listed in Table 6P.3b in association with the FY 2027 IPPS/LTCH PPS proposed rule as they describe a PJI of the knee and were included in our analysis previously discussed. Therefore, we stated we believed it is appropriate to propose to remove these codes from the logic for case assignment to MS-DRGs 485, 486, and 487 in association with the removal of the restriction logic so that cases reporting a PJI with a knee procedure from those MS-DRGs appropriately group to the proposed new base MS-DRG. As discussed in the proposed rule and this final rule, we also note that, as previously described, procedure code XW0V0P7 is currently designated as a non-O.R. procedure. Because our analysis of the data supports the reassignment of cases reporting procedure code XW0V0P7 without a principal diagnosis of PJI from the lower severity level (without CC/MCC or with CC) to the higher (with MCC) severity level, we proposed to redesignate procedure code XW0V0P7 from a non-O.R. procedure to a non-O.R. procedure affecting the MS-DRG assignment at the higher with MCC severity level for MS-DRGs 463, 474, 477, 480, and 492. We further noted that because the data show that the cases reporting both a principal diagnosis of PJI with a hip or knee procedure and ICD-10-PCS code XW0V0P7 in MS-DRGs 463, 464, 465, 474, 475, 485, and 486 have a longer average length of stay and higher average costs compared to the average length of stay and average costs of the cases reporting a principal diagnosis of PJI with a hip or knee procedure alone (without ICD-10-PCS code XW0V0P7), with the proposed redesignation of code XW0V0P7 from non-O.R. to non-O.R. affecting the MS-DRG, these cases reporting ICD-10-PCS code XW0V0P7 would also be reassigned at the highest severity level in connection with a new base MS-DRG proposal and consistent with the proposal for assignment to MS- DRGs 463, 474, 477, 480, and 492 [[Page 49616]] previously discussed. As such, we stated that the data supported the proposal for a new base MS-DRG for cases reporting a principal diagnosis of PJI with a hip or knee procedure with or without procedure code XW0V0P7. Consistent with our established process as discussed in section II.C.1.b. of the preamble of the FY 2027 IPPS/LTCH PPS proposed rule and this final rule, once the decision has been made to propose to make further modifications to the MS-DRGs, such as creating a new base MS- DRG, all five criteria to create subgroups must be met for the base MS- DRG to be split (or subdivided) by a CC subgroup. Therefore, we applied the criteria to create subgroups in a base MS-DRG. We note that, as shown in the table that follows, a three-way split of this proposed new base MS-DRG failed to meet the criterion that there is at least a 20 percent difference in average costs in the without CC/MCC group. The following table illustrates our findings. [GRAPHIC] [TIFF OMITTED] TR04AU26.050 As discussed in section II.C.1.b. of the preamble of the FY 2027 IPPS/LTCH PPS proposed rule and this final rule, if the criteria for a three-way split fail, the next step is to determine if the criteria are satisfied for a two-way split. We therefore applied the criteria for a two-way split for the ``with MCC and without MCC'' subgroups and found that all five criteria were met. The following table illustrates our findings and reflects a simulation of the proposed new MS-DRG 403 (Hip or Knee Procedures with Principal Diagnosis of Periprosthetic Joint Infection with MCC or Insertion of Antibiotic-eluting Bone Void Filler) and MS-DRG 404 (Hip or Knee Procedures with Principal Diagnosis of Periprosthetic Joint Infection without MCC). [GRAPHIC] [TIFF OMITTED] TR04AU26.051 For the proposed new MS-DRGs to identify cases reporting a PJI with a hip or knee procedure with or without procedure code XW0V0P7, there is at least (1) 500 cases in the MCC group and 500 cases in the without MCC group; (2) 5 percent of the cases in the MCC group and 5 percent in the without MCC group; (3) a 20 percent difference in average costs between the MCC group and the without MCC group; (4) a $2,000 difference in average costs between the MCC group and the without MCC group; and (5) a 3-percent reduction in cost variance, indicating that the proposed severity level splits increase the explanatory power of the base MS-DRG in capturing differences in expected cost between the proposed MS-DRG severity level splits by at least 3 percent and thus improve the overall accuracy of the IPPS payment system. As also discussed in the preamble of the FY 2027 IPPS/LTCH PPS proposed rule and this final rule, in connection with the proposed removal of the restriction logic and findings from our analysis, existing MS-DRGs 466, 467, and 468 and MS-DRGs 485, 486, and 487 would no longer meet the criteria for a 3-way split under our established process for applying the criteria to create subgroups within a base MS- DRG. We noted that, as shown in the table that follows, a three-way split for MS-DRGs 466, 467, and 468 failed to meet the criterion that there be at least 500 cases in the MCC group and that there is at least a 20 percent difference in average cost between the CC and NonCC group. The following table illustrates our findings. [GRAPHIC] [TIFF OMITTED] TR04AU26.054 As discussed in section II.C.1.b. of the preamble of the FY 2027 IPPS/LTCH PPS proposed rule and this final rule, if the criteria for a three-way split fail, the next step is to determine if the criteria are satisfied for a two-way split. We therefore applied the criteria for a two-way split for the ``with MCC and without MCC'' subgroups and found that a two-way split for these MS-DRGs failed to meet the criterion that there be at least 500 cases in the MCC group. The following table illustrates our findings. [GRAPHIC] [TIFF OMITTED] TR04AU26.053 We then applied the criteria for a two-way split for the ``with CC/ MCC'' and ``without CC/MCC'' subgroups. As shown in the table that follows, a two-way split of this base MS-DRG failed to meet the criterion that there be at least [[Page 49617]] a 20 percent difference in average cost between the with CC/MCC and the without CC/MCC group. [GRAPHIC] [TIFF OMITTED] TR04AU26.052 We therefore proposed to delete MS-DRGs 466, 467, and 468 and proposed to create new base MS-DRG 449 (Revision of Hip or Knee Replacement). We also noted that following our analysis previously described that reflects removal of the restriction logic for MS-DRGs 466, 467, and 468, we identified 20 procedure codes that are listed individually in the logic for case assignment to MS-DRGs 466, 467, and 468 that are also listed separately in the logic with another procedure code as a code cluster. For example, procedure code 0SPE0JZ (Removal of synthetic substitute from left hip joint, acetabular surface, open approach) is listed individually and is also listed separately with procedure code 0SRB019 (Replacement of left hip joint with metal synthetic substitute, cemented, open approach) as a code cluster. We refer the reader to the ICD-10 MS-DRG Definitions Manual Version 43.1, which is available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software for complete documentation of the GROUPER logic for MS-DRGs 466, 467, and 468. To appropriately reflect the logic list for proposed new base MS-DRG 449 under the proposed ICD-10 MS- DRGs, Version 44, and to ensure cases group appropriately in connection with the proposed changes to the ICD-10 MS-DRGs for FY 2027, we proposed to remove the following 20 procedure codes from the logic list as individually listed codes. [GRAPHIC] [TIFF OMITTED] TR04AU26.055 [[Page 49618]] The following table illustrates our simulation of proposed new MS- DRG 449. [GRAPHIC] [TIFF OMITTED] TR04AU26.059 We then applied the criteria to MS-DRGs 485, 486, and 487 in connection with the proposed removal of the restriction logic. We note that, as shown in the table that follows, a three-way split for MS-DRGs 485, 486, and 487 failed to meet the criterion that there be at least 500 cases in the MCC group. The following table illustrates our findings. [GRAPHIC] [TIFF OMITTED] TR04AU26.058 As discussed in section II.C.1.b. of the preamble of the FY 2027 IPPS/LTCH PPS proposed rule and this final rule, if the criteria for a three-way split fail, the next step is to determine if the criteria are satisfied for a two-way split. We therefore applied the criteria for a two-way split for the ``with MCC and without MCC'' groups. We note that, as shown in the table that follows, a two-way split for these MS- DRGs failed to meet the criterion that there be at least 500 cases in the MCC group. The following table illustrates our findings. [GRAPHIC] [TIFF OMITTED] TR04AU26.056 We therefore proposed to delete MS-DRGs 485, 486, and 487 and proposed to create new base MS-DRG 400 (Knee Procedures with Principal Diagnosis of Infection). The following table illustrates our simulation of the proposal. [GRAPHIC] [TIFF OMITTED] TR04AU26.057 In summary, for FY 2027, we proposed to (1) remove the restriction logic for MS-DRGs 466, 467, and 468 and MS-DRGs 485, 486, and 487, (2) remove ICD-10-CM diagnosis codes T84.53XA and T84.54XA from the logic for case assignment to MS-DRGs 485, 486, and 487, (3) delete MS-DRGs 466, 467, and 468 and MS-DRGs 485, 486, and 487, (4) create new base MS-DRG 449 and new base MS-DRG 400 with the logic lists as reflected in Tables 6P.3c and 6P.3d, respectively, that is available in association with the FY 2027 IPPS/LTCH PPS proposed rule, (5) redesignate procedure code XW0V0P7 from non-O.R. to non-O.R. affecting specified MS-DRGs as discussed in this section of the FY 2027 IPPS/LTCH PPS proposed rule and this final rule, (6) create new MS-DRG 403 (Hip or Knee Procedures with Principal Diagnosis of Periprosthetic Joint Infection with MCC or Insertion of Antibiotic-eluting Bone Void Filler) to reflect cases reporting a hip or knee procedure with a principal diagnosis of PJI and the reassignment of cases reporting ICD-10-PCS code XW0V0P7 from the lower severity level to the higher (with MCC) severity level and create new MS-DRG 404 (Hip or Knee Procedures with Principal Diagnosis of Periprosthetic Joint Infection without MCC) with the logic lists as reflected in Table 6P.3b in association with the proposed rule, and (7) reassign cases reporting ICD-10-PCS code XW0V0P7 from the lower severity level (without CC/MCC or with CC) to the higher (with MCC) severity level and revise the titles to the following MS-DRGs to reflect the proposed reassignment. [[Page 49619]] [GRAPHIC] [TIFF OMITTED] TR04AU26.060 We noted that the surgical hierarchy for the proposed modification is discussed in section II.C.14. of the preamble of the FY 2027 IPPS/ LTCH PPS proposed rule. In the proposed rule, we also noted that the titles for MS-DRGs 463, 464, and 465 reflect ``Wound Debridement and Skin Graft Except Hand for Musculoskeletal and Connective Tissue Disorders with MCC, with CC, and without CC/MCC'', respectively. We stated we believe the term ``and'' in these MS-DRG titles may be misleading as it implies that both a wound debridement and skin graft need to be reported to satisfy the logic for case assignment to these MS-DRGs. However, the logic for case assignment to MS-DRGs 463, 464, and 465 is satisfied when either a procedure code describing a wound debridement or a procedure code describing a skin graft (except hand) from the logic list is reported. Therefore, we proposed to revise the term ``and'' to ``or'' for the titles for MS-DRGs 463, 464, and 465. These proposed title changes were reflected in the test version of the ICD-10 MS-DRG GROUPER Software, Version 44, and the draft version of the ICD-10 MS-DRG Definitions Manual, Version 44, available in association with the FY 2027 IPPS/LTCH PPS proposed rule (available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software). Comment: Several commenters expressed support for the seven proposals outlined in response to the request discussed for cases reporting a principal diagnosis of a PJI with a hip or knee procedure. A commenter stated accurately capturing infection severity and treatment complexity in the MS-DRG groupings and relative weights is vital. The commenter agreed with CMS' proposal for MS-DRGs 403 and 404. However, a couple of commenters expressed concern that the proposed removal of the restriction logic inappropriately shifts cases currently reported with both a ``removal'' procedure code and a ``replacement'' procedure code from existing MS-DRGs 466, 467, and 468 to MS-DRGs 463, 464, and 465. The commenters stated that the ICD-10-PCS Official Guidelines for Coding and Reporting state that if a device that is intended to remain after the procedure is completed requires removal before the end of the operative episode in which it was inserted, both the insertion and removal of the device should be coded. According to the commenters, the current restriction logic recognizes when a removal and replacement procedure are performed together. The commenters stated that MS-DRGs 463, 464, and 465 are not similar clinically or from a resource perspective. The commenters requested that MS-DRGs 466, 467, and 468 be retained. Response: We thank the commenters for their support and feedback. With respect to the concerns expressed about clinical coherence, we note that under the proposal, the removal of the restriction logic and the redistribution of a subset of the cases from MS-DRGs 466, 467, and 468 to MS-DRGs 463, 464, and 465 aligns with the existing GROUPER logic that currently exists under Version 43.1 for MS-DRGs 463, 464, and 465. Specifically, the ICD-10-PCS procedure codes describing removal of synthetic substitute or removal of liner from the right or left hip or knee joint are currently reflected in the logic for cases assignment to MS-DRGs 463, 464, and 465 in the ICD-10 MS-DRG Definitions Manual, Version 43.1, available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software. We note that the procedure codes describing these removal procedures have been in the logic for MS-DRGs 463, 464, and 465 since the implementation of ICD-10-PCS. With regard to the ICD-10-PCS Official Guidelines for Coding and Reporting that was referenced, we note that the guideline is not applicable for this subset of cases. This guideline is referring to operative episodes where the intent is that an implanted device remain in the patient but due to reasons such as an ill-fitting implant or a broken implant, the implanted device must be removed, and no replacement device is subsequently implanted. In addition, as the commenters noted in their comments, the guideline is describing insertion and removal procedures, not removal and replacement procedures. As discussed previously, we intend to make available a redistribution report in association with future proposed rulemakings to further assist stakeholders in evaluating how proposed logic changes may affect the redistribution of cases among the MS-DRGs. Comment: A commenter who agreed with the proposed changes for revision procedures stated that they did not agree with the grouping methodology to MS-DRGs 463, 464, and 465 when a removal procedure was assigned and that these procedures are not reflected in the description of the MS-DRGs. The commenter also requested that the logic for MS-DRGs 463, 464, and 465 be further evaluated to determine a more appropriate MS-DRG assignment for the hip and knee joint removal procedures which are orthopedic in nature. Response: We appreciate the commenter's support and feedback. We acknowledge that the descriptions for MS-DRGs 463, 464, and 465 do not currently reflect orthopedic procedures. We also note that not every MS-DRG title reflects every type of procedure listed in the definition of the logic for [[Page 49620]] case assignment. Based on the findings from our analyses and clinical review, we believe that the proposed assignment for orthopedic procedures resulting from removal of the restriction logic is appropriate. We also note that, as previously discussed, the removal of the restriction logic and the redistribution of a subset of the cases from MS-DRGs 466, 467, and 468 to MS-DRGs 463, 464, and 465 aligns with the existing GROUPER logic that currently exists under Version 43.1 for MS-DRGs 463, 464, and 465; procedure codes describing removal of a synthetic substitute or removal of a liner from the hip or knee joint procedures are presently reflected in the logic for MS-DRGs 463, 464, and 465. As such, we do not believe that there is a clinical coherence issue to address. With regard to the commenter's request that the logic for MS-DRGs 463, 464, and 465 be further evaluated to determine a more appropriate MS-DRG assignment for the joint procedures which are orthopedic in nature, we note that, consistent with our established process, we will continue to analyze the data and any proposed modifications will be discussed in future rulemaking. For additional clarification in response to the public comments received, we note that with removal of the restriction logic in MS-DRGs 466, 467, and 468, the resulting proposed logic for proposed new MS-DRG 449 more accurately reflects the ICD-10-PCS definition of Revision. Under ICD-10-PCS, the root operation Revision is defined as: Correcting, to the extent possible, a portion of a malfunctioning device or the position of a displaced device. Revision can include correcting a malfunctioning or displaced device by taking out or putting in components of the device such as a screw or pin. Therefore, we believe that the proposed new MS-DRG more accurately aligns with the ICD-10-PCS definition of Revision. However, in response to some of the confusion expressed by commenters, we also believe it is appropriate to further clarify the intent of the proposed new MS-DRG by further revising the title for proposed MS-DRG 449 (Revision of Hip or Knee Replacement) to reflect ``Revision of Hip or Knee Prosthesis''. We believe that this modification will better describe the types of cases that are expected to group there. After consideration of the public comments we received, we are finalizing our proposals to (1) remove the restriction logic for MS- DRGs 466, 467, and 468 and MS-DRGs 485, 486, and 487, (2) remove ICD- 10-CM diagnosis codes T84.53XA and T84.54XA from the logic for case assignment to MS-DRGs 485, 486, and 487, (3) delete MS-DRGs 466, 467, and 468 and MS-DRGs 485, 486, and 487, (4) create new base MS-DRG 449, with modification of the MS-DRG title to reflect ``Revision of Hip or Knee Prosthesis'' and new base MS-DRG 400, (5) redesignate procedure code XW0V0P7 from non-O.R. to non-O.R. affecting specified MS-DRGs as discussed in this section of the FY 2027 IPPS/LTCH PPS proposed rule and this final rule, (6) create new MS-DRG 403 (Hip or Knee Procedures with Principal Diagnosis of Periprosthetic Joint Infection with MCC or Insertion of Antibiotic-eluting Bone Void Filler) to reflect cases reporting a hip or knee procedure with a principal diagnosis of PJI and the reassignment of cases reporting ICD-10-PCS code XW0V0P7 from the lower severity level to the higher (with MCC) severity level and create new MS-DRG 404 (Hip or Knee Procedures with Principal Diagnosis of Periprosthetic Joint Infection without MCC), and (7) reassign cases reporting ICD-10-PCS code XW0V0P7 from the lower severity level (without CC/MCC or with CC) to the higher (with MCC) severity level and revise the titles to the previously listed MS-DRGs 463, 474, 477, 480, and 492 to reflect the reassignment. We are also finalizing our proposal to remove the 20 procedure codes previously listed to appropriately reflect the logic list for new base MS-DRG 449 and to ensure cases group correctly. Lastly, we are finalizing our proposal to revise the term ``and'' to ``or'' for the titles for MS-DRGs 463, 464, and 465. These finalized changes, including the finalized logic lists for case assignment, are also reflected in the ICD-10 MS-DRG GROUPER Software, Version 44, and the ICD-10 MS-DRG Definitions Manual, Version 44, available in association with this final rule (available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software). We note that a few commenters suggested that if a new procedure code to describe CERAMENT[supreg] V was finalized, that the new procedure code also be assigned to the highest severity level MS-DRG, consistent with the proposals for cases reporting procedure code XW0V0P7, to identify the administration of CERAMENT[supreg] G. As previously discussed in this section of the preamble of this final rule, and as reflected in Table 6B.--New Procedure Codes in association with this final rule, we finalized new procedure code, XW0V0BC (Introduction of vancomycin-eluting bone void filler into bones, open approach, new technology group 12), and we finalized a revision to the procedure code title for procedure code XW0V0P7 (Introduction of gentamicin-eluting bone void filler into bones, open approach, new technology group 7) as reflected in Table 6F.--Revised Procedure Code Titles, in association with this final rule. As also previously discussed in this section of the preamble of this final rule, we finalized the proposal to redesignate procedure code XW0V0P7 from non- O.R. to non-O.R. affecting specified MS-DRGs and we finalized the proposal to reassign cases reporting ICD-10-PCS code XW0V0P7 from the lower severity level (without CC/MCC or with CC) to the higher (with MCC) severity level. Under our established process, we have finalized the O.R. status designation and the MS-DRG assignments for new procedure code XW0V0BC consistent with the finalized policies for procedure code XW0V0P7, as reflected in Tables 6B and 6F associated with this final rule (available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps). These finalized changes, including the finalized logic lists for case assignment, are also reflected in the ICD-10 MS-DRG GROUPER Software, Version 44, and the ICD-10 MS-DRG Definitions Manual, Version 44, available in association with this final rule (available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software). 5. MDC 10 (Endocrine, Nutritional and Metabolic Diseases and Disorders): CERAMENT[supreg] G Antibiotic-Eluting Bone Void Filler As discussed in the preamble of section II.C.4. of the FY 2027 IPPS/LTCH PPS proposed rule, we received a request to reassign cases reporting ICD-10-PCS code XW0V0P7 (Introduction of antibiotic-eluting bone void filler into bones, open approach, new technology group 7) from the lower severity level MS-DRG to the highest severity level (with MCC) MS-DRG within MDC 10 for MS-DRGs 616, 617, and 618 (Amputation of Lower Limb for Endocrine, Nutritional and Metabolic Disorders with MCC, with CC, without CC/MCC, respectively) and MS-DRGs 628, 629, and 630 (Other Endocrine, Nutritional and Metabolic O.R. Procedures with MCC, with CC, without CC/MCC, respectively). As also discussed in the preamble of section II.C.4 of the FY 2027 IPPS/LTCH [[Page 49621]] PPS proposed rule, ICD-10-PCS code XW0V0P7 was created effective October 1, 2021, in association with a new technology add-on payment application for CERAMENT[supreg] G, a combination device-drug product intended to treat bone infections (for example, osteomyelitis). It is an implantable bone void filler that consists of hydroxyapatite and calcium sulfate, as well as gentamicin sulfate, which is an antibacterial agent. We refer the reader to the September 8, 2020, ICD- 10 Coordination and Maintenance Committee meeting materials available on the CMS website at: https://www.cms.gov/medicare/coding-billing/icd-10-codes/icd-10-coordination-maintenance-committee-materials for information regarding the procedure code request, including a transcript of the discussion and the related meeting materials. In the proposed rule, we also noted that CERAMENT[supreg] G was approved for a new technology add-on payment beginning October 1, 2022 for the indication of infection which expired on September 30, 2025. For FY 2026, CERAMENT[supreg] G was approved for a new technology add-on payment for the indication of an open fracture. We refer the reader to section II.E.4. of the preamble of the FY 2026 IPPS/LTCH PPS proposed and final rules for additional discussion regarding CERAMENT[supreg] G in association with the new technology add-on payment indication. In the preamble of section II.C.4 of the FY 2027 IPPS/LTCH PPS proposed rule we also noted that for the Spring 2026 ICD-10-PCS code update, the manufacturer of CERAMENT[supreg] G submitted a request for a new code to describe another antibiotic-eluting bone void filler product, CERAMENT[supreg] V, in association with a new technology add- on payment application for FY 2027. We refer the reader to section II.E.6. of the preamble of the FY 2027 IPPS/LTCH PPS proposed rule and this final rule for additional discussion regarding CERAMENT[supreg] V in association with the new technology add-on payment policy. The manufacturer also requested a revision to the existing code, ICD-10-PCS code XW0V0P7, that is reported to identify the administration of CERAMENT[supreg] G. CERAMENT[supreg] V is an injectable synthetic bone void filler that consists of hydroxyapatite, calcium sulfate, and the antibiotic vancomycin hydrochloride. The manufacturer requested that the description of existing ICD-10-PCS code XW0V0P7 be revised to specifically identify gentamicin and that a new code be created to specifically identify vancomycin in association with the new technology add-on payment application. The agenda and related meeting materials for these specific topics are available on the CMS website at: https://www.cms.gov/medicare/coding-billing/icd-10-codes/icd-10-coordination-maintenance-committee-materials. We noted in the proposed rule that the deadline for receipt of public comments for the proposals included in the Spring 2026 procedure code update was April 17, 2026; therefore, the final code decisions on these proposals were not yet available for inclusion in Table 6B.--New Procedure Codes associated with the FY 2027 IPPS/LTCH PPS proposed rule. Under our established process, if the new and revised procedure code proposals are finalized after review and consideration of public comments following the Spring update, the codes are specifically identified with a footnote in Table 6B.--New Procedure Codes and Table 6F.--Revised Procedure Code Titles along with the MDC, MS-DRG assignment(s), and operating room (O.R.) or non-operating room (non-O.R.) designation that is made publicly available in association with the final rule on the CMS website at https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps. This established process includes initially reviewing the predecessor codes MS-DRG assignment and designation, while considering other relevant factors (for example, severity of illness, treatment difficulty, complexity of service and the resources utilized in the diagnosis and/ or treatment of the condition). The public may provide feedback on these finalized assignments, which is then taken into consideration for the following fiscal year. As previously discussed in section II.C.4.b of the preamble of this final rule, we finalized new ICD-10-PCS code XW0V0BC (Introduction of vancomycin-eluting bone void filler into bones, open approach, new technology group 12) to describe the administration of the antibiotic- eluting bone void filler product, CERAMENT[supreg] V, as reflected in Table 6B.-New Procedure Codes, and we finalized a revision to the title for existing ICD-10-PCS code XW0V0P7 (Introduction of gentamicin- eluting bone void filler into bones, open approach, new technology group 7) to identify the administration of CERAMENT[supreg] G, as reflected in Table 6F.--Revised Procedure Code Titles, in association with this final rule and available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps. Tables 6B and 6F also include the finalized O.R. designations and MS-DRG assignments for these new and revised procedure codes for FY 2027. The requestor (the manufacturer) stated that the occurrence and economic burden of osteomyelitis is significant and diabetes has been driving the increase in osteomyelitis incidence over time, with the incidence of diabetes-related osteomyelitis rising from 2.3 to 10.5 cases per 100,000 person-years from the 1970s to the 1990s as reported by the Mayo Clinic. The requestor reported that the incidence of foot osteomyelitis among patients with diabetes mellitus is estimated to be approximately 0.3 percent per year, with a lifetime risk of 4 percent, and 68 percent of patients with diabetes-related foot osteomyelitis needing an amputation. Studies indicate many individuals are readmitted to the hospital within 1 year of the amputation due to complications of the affected limb. In addition to diabetic foot ulcers, the requestor stated that the incidence of fracture-associated osteomyelitis varies from 1.8 percent to 27 percent depending on the bone involved and the grade/type of fracture. According to the requestor, clinical trials demonstrate that the overall incidence of osteomyelitis may continue to rise due to multiple factors including improved diagnosis, increasing patient risk factors such as diabetes, and increased needs for arthroplasties. Per the requestor, re-hospitalization and treatment for osteomyelitis has significant costs to both the individual and healthcare systems, impacting quality of life and the ability to work. The requestor stated that the antimicrobial properties of CERAMENT[supreg] G combat antimicrobial resistance, thereby effectively reducing the recurrence of infection. The requestor also stated that these antimicrobial properties have been shown to achieve good infection prevention with a shortened course of systemic antibiotics that does not extend beyond seven days. As discussed in the proposed rule, the requestor performed its own analysis using Medicare claims data across a subset of MS-DRGs for cases reporting the use of CERAMENT[supreg] G with ICD-10-PCS code XW0V0P7 and acknowledged that the volume of cases is small, however, it also stated that its findings reflected that claims reporting the use of CERAMENT[supreg] G have higher resource utilization compared to claims that did not report the use of CERAMENT[supreg] G. Of the MS- DRGs analyzed, the requestor [[Page 49622]] stated the cases reporting ICD-10-PCS code XW0V0P7 in the lower severity level MS-DRG had standardized costs that were more aligned with the costs of the higher severity level MS-DRG sequenced above it. The requestor stated its belief that the data demonstrate cases reporting ICD-10-PCS code XW0V0P7 should be reassigned to the higher MCC level MS-DRG within the MS-DRG groupings requested. We reviewed claims data from the September 2025 update of the FY 2025 MedPAR file for MS-DRGs 616, 617, 618, 628, 629, and 630 and for cases reporting ICD-10-PCS code XW0V0P7. Findings from our analysis are shown in the following table. [GRAPHIC] [TIFF OMITTED] TR04AU26.061 The findings show that the cases reporting ICD-10-PCS code XW0V0P7 in MS-DRGs 616, 617, 628, and 629 have a longer average length of stay and higher average costs compared to all the cases in their respective MS-DRGs. We note there were zero cases reporting ICD-10-PCS code XW0V0P7 in MS-DRGs 618 and 630. We stated in the proposed rule that based on our review and analysis of the data, we agreed with the requestor that the average costs of the cases reporting ICD-10-PCS code XW0V0P7 at the lower severity level are more aligned with the average costs of the cases at the higher MCC severity level. To better reflect the resource utilization and severity of illness of patients with diabetic osteomyelitis, we proposed to reassign cases reporting ICD-10-PCS code XW0V0P7 from the lower severity (without CC/MCC and with CC) MS-DRGs to the higher severity (MCC) level MS-DRG. As previously discussed, there were no cases found in our analysis reporting ICD-10-PCS code XW0V0P7 in MS-DRGs 618 and 630 at the ``without CC/MCC'' level, however, if any cases reporting ICD-10-PCS code XW0V0P7 potentially grouped to MS-DRGs 618 or 630 in the future, we stated we would anticipate those cases also demonstrating higher average costs compared to all the cases in their respective MS-DRG. Therefore, for FY 2027, we proposed to reassign cases reporting procedure code XW0V0P7 from the lower severity level MS-DRGs 617 and 618 to the higher severity (MCC) level MS-DRG 616 and from the lower severity level MS-DRGs 629 and 630 to the higher severity (MCC) level MS-DRG 628. We also proposed to revise the title of MS-DRG 616 from ``Amputation of Lower Limb for Endocrine, Nutritional and Metabolic Disorders with MCC'' to ``Amputation of Lower Limb for Endocrine, Nutritional and Metabolic Disorders with MCC or Insertion of Antibiotic-eluting Bone Void Filler'' and to revise the title of MS-DRG 628 from ``Other Endocrine, Nutritional and Metabolic O.R. Procedures with MCC'' to ``Other Endocrine, Nutritional and Metabolic O.R. Procedures with MCC or Insertion of Antibiotic-eluting Bone Void Filler'' to reflect the reassignment of cases reporting procedure code XW0V0P7. Comment: Commenters agreed with the proposal to reassign cases reporting procedure code XW0V0P7 from the lower severity level MS-DRGs 617 and 618 to the higher severity (MCC) level MS-DRG 616 and from the lower severity level MS-DRGs 629 and 630 to the higher severity level MS-DRG 628. Commenters also agreed with the proposed revision to the title of MS-DRG 616 and MS-DRG 628 to reflect the ``Insertion of Antibiotic-eluting Bone Void Filler'' component with the reassignment of cases reporting procedure code XW0V0P7. [[Page 49623]] Response: We appreciate the commenters' support. After consideration of the public comments we received, we are finalizing our proposal to reassign cases reporting procedure code XW0V0P7 from the lower severity level MS-DRGs 617 and 618 to the higher severity (MCC) level MS-DRG 616 and from the lower severity level MS- DRGs 629 and 630 to the higher (MCC) level MS-DRG 628. We are also finalizing our proposal to revise the titles of MS-DRG 616 and MS-DRG 628 to reflect the reassignment of cases reporting procedure code XW0V0P7 by adding the phrase ``Insertion of Antibiotic-eluting Bone Void Filler'' as also reflected in the ICD-10 MS-DRG Definitions Manual Version 44, available in association with this final rule on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps. 6. MDC 11 (Diseases and Disorders of the Kidney and Urinary Tract) a. Prostatectomy As discussed in the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19354 through 19355), consistent with our annual review of the MS-DRGs, we stated we identified that the current GROUPER logic for MDC 11 MS- DRGs 665, 666, and 667 (Prostatectomy with MCC, with CC, and without CC/MCC, respectively) contains a logic list referred to as ``OPERATING ROOM PROCEDURES'' that includes 14 ICD-10-PCS procedure codes describing the destruction, excision, and resection of the prostate and also includes eight ICD-10-PCS procedure code combinations or procedure code ``clusters'' that, when reported together, satisfy the logic for assignment to MS-DRGs 665, 666, and 667. The code combinations are represented by two ICD-10-PCS procedure codes and include one ICD-10- PCS code for the resection of the prostate with one ICD-10-PCS code for the resection of bilateral seminal vesicles. In this final rule, we would like to correct the statement in the proposed rule and note that in the ICD-10 MS-DRG Definitions Manual Version 43.1, the logic list referred to as ``OPERATING ROOM PROCEDURES'' includes 18 ICD-10-PCS procedure codes describing the destruction, excision, and resection of the prostate and also includes eight ICD-10-PCS procedure code combinations or procedure code ``clusters'' that, when reported together, satisfy the logic for assignment to MS-DRGs 665, 666, and 667. We refer the reader to the ICD-10 MS-DRG Definitions Manual Version 43.1, which is available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software, for complete documentation of the GROUPER logic for MDC 11 MS-DRGs 665, 666, and 667. The eight ICD-10-PCS procedure code combinations currently assigned to MDC 11 MS-DRGs 665, 666, and 667 that identify the resection of the prostate with the resection of bilateral seminal vesicles are shown in the following table: [GRAPHIC] [TIFF OMITTED] TR04AU26.062 In the proposed rule we stated as we examined the GROUPER logic that would determine the assignment of a case to MDC 11 MS-DRGs 665, 666, and 667, we noted that ICD-10-PCS codes 0VT00ZZ, 0VT04ZZ, 0VT07ZZ and 0VT08ZZ that describe the resection of the prostate, differing only in approach, are assigned to MS-DRGs 665, 666, and 667 as standalone procedures, as well as being included in the eight procedure code combinations listed previously in these same MS-DRGs. We noted that the GROUPER software program will recognize codes 0VT00ZZ, 0VT04ZZ, 0VT07ZZ and 0VT08ZZ and assign MS-DRGs 665, 666, and 667 even when a procedure code describing the resection of the bilateral seminal vesicles is not also reported, when the other parameters of the GROUPER logic are met. As procedure codes 0VT00ZZ, 0VT04ZZ, 0VT07ZZ and 0VT08ZZ are assigned to MS-DRGs 665, 666, and 667 as standalone procedures, specific assignment of these procedure codes in procedure code combinations in MS-DRGs 665, 666, and 667 is not required. Therefore, for FY 2027, we proposed to remove the eight ICD-10-PCS procedure code combinations listed previously from the GROUPER logic of MDC 11 MS-DRGs 665, 666, and 667 (Prostatectomy with MCC, with CC, and without CC/MCC, respectively). Comment: Commenters supported the proposal to remove the eight ICD- 10-PCS procedure code combinations from the GROUPER logic of MDC 11 MS- DRGs 665, 666, and 667 (Prostatectomy with MCC, with CC, and without CC/MCC, respectively), effective October 1, 2026, for FY 2027. Response: We appreciate the commenters' support. [[Page 49624]] After consideration of the public comments we received, we are finalizing our proposal to remove the eight ICD-10-PCS procedure code combinations listed previously from the GROUPER logic of MDC 11 MS-DRGs 665, 666, and 667 (Prostatectomy with MCC, with CC, and without CC/MCC, respectively), without modification, effective October 1, 2026, for FY 2027. b. Islet Cell Transplantation As discussed in section II.C.11.b.1 of the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19366 through 19367) and this final rule, we received a request to change the designation of ICD-10-PCS code XW033DA (Introduction of donislecel-jujn allogeneic pancreatic islet cellular suspension into peripheral vein, percutaneous approach, new technology group 10) from a non-O.R. procedure to an O.R. procedure. In the ICD-10 MS-DRGs Definitions Manual Version 43.1, procedure code XW033DA is currently designated as a non-O.R. procedure affecting assignment to MS-DRGs 673, 674, and 675 (Other Kidney and Urinary Tract Procedures with MCC, with CC, and without CC/MCC, respectively). As discussed in the proposed rule (91 FR 19355 through 19358), in our review of the GROUPER logic of MS-DRGs 673, 674, and 675, we noted that the logic for case assignment to MS-DRGs 673, 674, and 675 as displayed in the ICD-10 MS-DRG Version 43.1 Definitions Manual (which is available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software) is comprised of seven logic lists. We stated in the proposed rule that the first logic list is entitled ``Operating Room Procedures'' and is defined by a list of 1,754 ICD-10- PCS procedure codes describing surgical procedures which, while infrequent, could still reasonably be expected to be performed for a patient in MDC 11. In this final rule, we would like to correct the statement in the proposed rule and note that in the ICD-10 MS-DRG Definitions Manual Version 43.1, the first logic list entitled ``Operating Room Procedures'' is defined by a list of 1,765 ICD-10-PCS procedure codes describing surgical procedures which, while infrequent, could still reasonably be expected to be performed for a patient in MDC 11. The second and third logic lists are entitled ``or Principal Diagnosis'' and are defined by the 25 ICD-10-CM diagnosis codes. The fourth logic list is entitled ``with Secondary Diagnosis'' and is defined by ICD-10-CM diagnosis codes N18.5 (Chronic kidney disease, stage 5) and N18.6 (End stage renal disease). The fifth logic list is entitled ``and Non-Operating Room Procedures'' and is defined by a list of 30 ICD-10-PCS procedure codes describing the insertion of totally implantable vascular access devices (TIVADs) and tunneled vascular access devices. The second, third, and fourth logic lists are the components of the special logic in MS-DRGs 673, 674, and 675 for certain MDC 11 diagnoses reported with procedure codes for the insertion of tunneled or totally implantable vascular access devices. The sixth logic list entitled ``or Principal Diagnosis'' is defined by ICD-10-CM diagnosis codes E10.21 (Type 1 diabetes mellitus with diabetic nephropathy), E10.22 (Type 1 diabetes mellitus with diabetic chronic kidney disease) and E10.29 (Type 1 diabetes mellitus with other diabetic kidney complication) and the seventh logic list entitled ``and Non-Operating Room Procedures'' is defined by the 11 ICD-10-PCS procedure codes describing the introduction of pancreatic islet cells listed in the following table. As discussed in the FY 2027 IPPS/LTCH PPS proposed rule, these 11 procedure codes are all designated as non- O.R. procedures affecting assignment to MS-DRGs 673, 674, and 675 (Other Kidney and Urinary Tract Procedures with MCC, with CC, and without CC/MCC, respectively). [GRAPHIC] [TIFF OMITTED] TR04AU26.063 The sixth and seventh logic lists are the components of the special logic in MS-DRGs 673, 674, and 675 for pancreatic islet cell transplantation. As discussed in the FY 2005 IPPS/LTCH PPS final rule (69 FR 48950 through 48953), the procedure codes describing islet cell transplantation were added to the GROUPER logic of DRG 315 (Other Kidney and Urinary Tract O.R. Procedures), the predecessor DRG of MS- DRGs 673, 674, and 675, to recognize the resource utilization associated with islet cell transplantation, performed to decrease or eliminate the need for insulin in patients with type 1 diabetes, in the absence of any other surgical procedure. In the FY 2005 IPPS/LTCH PPS final rule, we acknowledged that islet cell transplants do not involve either the kidney or the urinary tract directly. Rather, the islet cells are transplanted into the patient's liver. We also acknowledged that the diagnoses are the same for islet cell and pancreas transplants, and that the patient [[Page 49625]] populations involved in these two procedures are virtually identical in terms of comorbidities and the nature of their primary disease. However, we stated islet cell transplants are not exactly the same as solid organ transplants. We stated that while the patient populations requiring intervention are similar, we did not believe that one can equate an operation of the magnitude of a pancreas transplant with a less intensive islet cell transplantation in which the portal vein is accessed and islet cells infused through a catheter. It is only because the technical aspects of islet transplants are of a surgical nature that we modified surgical DRG 315 to reflect the transfusion of islet cells. To understand the resource use for the subset of cases reporting procedure codes describing the introduction of pancreatic islet cells for the FY 2027 IPPS/LTCH PPS proposed rule, we stated we began our analysis by examining claims data from the September 2025 update of the FY 2025 MedPAR file for cases assigned to MS-DRGs 673, 674, and 675. We found zero cases reporting procedure codes describing the introduction of pancreatic islet cells in MS-DRGs 673, 674, and 675. Then, to evaluate the frequency with which the procedure codes describing the introduction of pancreatic islet cells are reported for different clinical scenarios, we stated we examined claims data from the September 2025 update of the FY 2025 MedPAR file to determine the MS-DRGs reporting one of the 11 procedure codes listed previously that describe the introduction of pancreatic islet cells. Our findings are shown in the following table. [GRAPHIC] [TIFF OMITTED] TR04AU26.064 The data analysis shows a procedure code describing the introduction of pancreatic islet cells was reported in a total of ten cases across five MS-DRGs with an average length of stay of 20.2 days and average costs of $101,092. We reviewed these assignments and noted that the special logic in MS-DRGs 673, 674, and 675 for pancreatic islet cell transplantation is defined by ICD-10-CM diagnosis codes E10.21 (Type 1 diabetes mellitus with diabetic nephropathy), E10.22 (Type 1 diabetes mellitus with diabetic chronic kidney disease) and E10.29 (Type 1 diabetes mellitus with other diabetic kidney complication). As noted previously, the ICD-10-PCS procedure codes describing the introduction of pancreatic islet cells are all designated as non-O.R. procedures affecting assignment only to MS-DRGs 673, 674, and 675. Therefore, when diagnosis codes E10.21, E10.22, or E10.29 are not reported as principal diagnosis, the MS-DRG assignment is determined by the principal diagnosis and other procedures reported on the claim when the ICD-10-PCS procedure codes describing the introduction of pancreatic islet cells are assigned. As discussed in the FY 2027 IPPS/LTCH PPS proposed rule, pancreatic islet cell transplantation is indicated for patients with type 1 diabetes who have attempted to control their hypoglycemic episodes medically but continue to have hypoglycemic episodes without recognizing them.\13\ As the indication for pancreatic islet cell transplantation is not limited to patients with type 1 diabetes mellitus with kidney complications, we stated we believe the special logic in MS-DRGs 673, 674, and 675 for pancreatic islet cell transplantation does not fully reflect the indications for pancreatic islet cell transplantation. --------------------------------------------------------------------------- \13\ Spence KT, Ladie DE. Islets Transplantation. [Updated 2023 Aug 8]. In: StatPearls [Internet]. Treasure Island (FL): StatPearls Publishing; 2025 Jan-. Available from: https://www.ncbi.nlm.nih.gov/books/NBK562272/. --------------------------------------------------------------------------- In the proposed rule, we further noted in type 1 diabetes, the body's immune system attacks and destroys the beta cells. Patients with type 1 diabetes must take insulin because their bodies no longer make this hormone. In patients for whom the primary indication for transplantation is unstable glycemic control, particularly hypoglycemic unawareness, the choice is between solid-organ pancreas transplantation alone or islet transplantation.\14\ Islet cell transplantation offers a less invasive established alternative to pancreas transplant, and the procedures are regulated similarly.\15\ The goal of both pancreas whole organ transplant and islet cell transplantation is to enable effective, stable glycemic management (often with insulin independence), to improve quality of life, and to reduce secondary complications. Both pancreas and islet cell transplantation require lifelong immunosuppression to prevent rejection of the graft. Islet transplantation may be performed at the same time as or after a kidney transplant. Kidney transplant recipients will already be taking immunosuppressants to prevent rejection of the transplanted kidney. Therefore, the islet transplant does not add much more risk. --------------------------------------------------------------------------- \14\ Mittal S, Johnson P, Friend P. Pancreas transplantation: solid organ and islet. Cold Spring Harb Perspect Med. 2014 Apr 1;4(4):a015610. doi: 10.1101/cshperspect.a015610. PMID: 24616200; PMCID: PMC3968790. \15\ Rickels MR, Robertson RP. Pancreatic Islet Transplantation in Humans: Recent Progress and Future Directions. Endocr Rev. 2019 Apr 1;40(2):631-668. doi: 10.1210/er.2018-00154. PMID: 30541144; PMCID: PMC6424003. --------------------------------------------------------------------------- As discussed in prior rulemaking, the MS-DRGs are a classification system intended to group together diagnoses and procedures with similar clinical characteristics and utilization of resources. We generally seek to identify sufficient sets of claims data with demonstrated clinical similarity in developing diagnosis related groups. After reviewing the indications for both [[Page 49626]] whole organ pancreas transplant and pancreatic islet cell transplantation, and consideration of the intent of the MS-DRGs, we stated in the FY 2027 IPPS/LTCH PPS proposed rule we believe that for clinical coherence, the cases reporting procedure codes that describe the introduction of pancreatic islet cells should be grouped with the subset of cases that report pancreas transplant procedures. We stated that while we continue to acknowledge that islet cell transplants are not exactly the same as solid organ pancreas transplants, we believe the procedures are coherent given the similarity in clinical indication. For these reasons, we stated we believe reassigning the 11 ICD-10-PCS procedure codes that describe the introduction of pancreatic islet cells from MS-DRGs 673, 674, and 675 to Pre-MDC MS-DRG 008 (Simultaneous Pancreas and Kidney Transplant), MS-DRG 010 (Pancreas Transplant) and MS-DRG 019 (Simultaneous Pancreas and Kidney Transplant with Hemodialysis) would improve clinical coherence in these MS-DRGs. The following table reflects the simulation of our proposed changes in MS-DRGs 008, 010, and 019. [GRAPHIC] [TIFF OMITTED] TR04AU26.065 We stated we believe that this simulation supports that the resulting MS-DRG assignments would be more clinically homogeneous, coherent and better reflect hospital resource use. As the table shows, for MS-DRG 008, there were a total of 168 cases with an average length of stay of 9.3 days and average costs of $51,760. For MS-DRG 010, there were a total of 20 cases with an average length of stay of 15.8 days and average costs of $66,872. For MS-DRG 019, there were a total of 56 cases with an average length of stay of 14.5 days and average costs of $69,841. We stated a review of this simulation shows that adding a new ``Islet Cell Transplant Procedures'' logic list, to the GROUPER logic in MS-DRGs 008, 010, and 019 has a limited effect on the average costs of these MS-DRGs, while leading to a grouping that is more coherent and better reflects the clinical severity and resource use involved in these cases. In summary, for FY 2027, for clinical coherence, we proposed to add the 11 ICD-10-PCS procedure codes that describe the introduction of pancreatic islet cells to a new ``Islet Cell Transplant Procedures'' logic list in MS-DRGs 008, 010, and 019. Additionally, we also proposed to delete the sixth logic list entitled ``or Principal Diagnosis'' that is defined by ICD-10-CM diagnosis codes E10.21 (Type 1 diabetes mellitus with diabetic nephropathy), E10.22 (Type 1 diabetes mellitus with diabetic chronic kidney disease) and E10.29 (Type 1 diabetes mellitus with other diabetic kidney complication) and the seventh logic list entitled ``and Non-Operating Room Procedures'' from MS-DRGs 673, 674, and 675. Lastly, for consistency, we proposed to change the title of MS-DRG 008 from ``Simultaneous Pancreas and Kidney Transplant'' to ``Simultaneous Pancreas, Islet Cell and Kidney Transplant,'' proposed to change the title of MS-DRG 010 from ``Pancreas Transplant'' to ``Pancreas or Islet Cell Transplant'' and proposed to change the title of MS-DRG 019 from ``Simultaneous Pancreas and Kidney Transplant with Hemodialysis'' to ``Simultaneous Pancreas, Islet Cell and Kidney Transplant with Hemodialysis'' to better reflect the assigned procedures effective October 1, 2026, for FY 2027. Under this proposal, the current ``principal or secondary diagnosis'' logic in MS-DRGs 008, 010, and 019 would be maintained. Additionally, to maintain stability, we proposed to add logic to MS-DRG 010 to exclude cases also reporting kidney transplant procedures to ensure cases will continue to group accordingly to MS-DRGs 008 and 019. We refer the reader to Table 6P.4a, Table 6P.4b, and Table 6P.4c associated with the FY 2027 IPPS/LTCH PPS proposed rule (which is available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index) for the list of procedure codes we proposed to define in the ``Islet Cell Transplant Procedures'' logic list in Pre-MDC MS-DRGs 008, 010, and 019. We note that the surgical hierarchy for the proposed modification is discussed in section II.C.14. of the preamble of the FY 2027 IPPS/LTCH PPS proposed rule. Comment: Many commenters expressed support for the proposal to add the 11 ICD-10-PCS procedure codes that describe the introduction of pancreatic islet cells to a new ``Islet Cell Transplant Procedures'' logic list in MS-DRGs 008, 010, and 019. Commenters stated they appreciate CMS' acknowledgement of the benefits of islet cell transplantation and stated they commend CMS for conducting an analysis and proposing to reassign the procedure codes to MS-DRGs that better reflect the clinical severity and resource use involved. Several commenters stated they agreed that the special logic in MS-DRGs 673, 674, and 675 did not fully reflect the indications for pancreatic islet cell transplantation and noted that deceased donor islet cell transplantation has been a proven and effective treatment indicated for adults with type 1 diabetes who are unable to approach target glycated hemoglobin levels because of current repeated episodes of severe hypoglycemia despite intensive diabetes management and education. A commenter specifically [[Page 49627]] stated that they value CMS' rigorous assessment of islet cell transplantation to improve clinical alignment. Another commenter stated that the proposed addition of a new ``Islet Cell Transplant Procedures'' logic list in MS-DRGs 008, 010, and 019 leads to groupings that are more coherent with diagnoses and procedures with similar clinical characteristics and utilization of resources. This commenter stated they agreed with CMS' approach in acknowledging the unique nature of islet cell transplant procedures and appreciate CMS' efforts to find a more suitable payment methodology for cases that report procedure codes that describe the introduction of pancreatic islet cells. Response: We appreciate the commenters' support. Comment: While expressing support for CMS' proposal to reassign the 11 ICD-10-PCS procedure codes that describe the introduction of pancreatic islet cells from MS-DRGs 673, 674, and 675 to improve clinical coherence, a commenter stated that they believe that assigning these procedure codes into MS-DRG 010 (Pancreas Transplant) is structurally unsuitable due to the fundamental clinical, operational, and cost distinctions between a manufactured cellular biologic and a standard whole-organ product because unlike a standard solid-organ pancreas transplant, donislecel-jujn (LantidraTM) has a distinct commercial product acquisition cost as a manufactured allogeneic cellular biologic. This commenter recommended CMS create a new, dedicated Pre-MDC MS-DRG specifically for ``Allogeneic Islet Cellular Therapies'' that captures the commercial acquisition costs of this FDA approved cellular biologic to align hospital payment with the resource-intensive nature of the therapy, and ensure patients have equitable access to a reasonable and necessary treatment that addresses a critical unmet clinical need. Another commenter stated they continue to believe that MS-DRG 018 (Chimeric Antigen Receptor (CAR) T-Cell and Other Immunotherapies) is a more appropriate assignment for ICD-10-PCS code XW033DA (Introduction of donislecel-jujn allogeneic pancreatic islet cellular suspension into peripheral vein, percutaneous approach, new technology group 10) to ensure strong clinical and hospital adoption. This commenter recommended that CMS consider the totality of other relevant clinical circumstances that differentiate (or tie together) the procedure from other procedures assigned to the applicable MS-DRG so as not to chill development in the still nascent but growing field of cell and gene therapy to the detriment of patients. Commenters recommended that CMS conduct a full and individualized evaluation of clinical and resource coherence when evaluating other future technologies, including future cell and gene therapies involving islet cells. Several commenters stated that there are noteworthy islet cell therapies under investigation that are substantially different from both traditional donor-derived transplantation and more recent allogeneic (deceased donor) islet cell therapies. A commenter stated that donor-derived islet therapies such as donislecel-jujn (LantidraTM) have limited manufacturing capacity as they use cells isolated from deceased human organs, and act like an organ transplant by requiring lifelong immunosuppression, while manufactured, or stem cell-derived, islet cell therapies use lab-grown cells engineered from pluripotent cells to provide an unlimited supply. In light of the islet cell therapies currently in clinical trial, several commenters recommended that CMS consider the clinical and resource related distinctions, unique administrative requirements, clinical outcomes, and manufacturing requirements that warrant differentiation from currently approved islet cell therapies when these investigational islet cell replacement technologies move to approval. Response: We thank commenters for sharing their views and recommendations. We will take the commenters' feedback into consideration in future policy development. As discussed in the FY 2027 proposed rule, and in prior rulemaking (90 FR 36554 through 36560), we are in the process of carefully considering the feedback we have previously received about ways in which we can continue to appropriately reflect resource utilization associated with cell and gene therapies while maintaining clinical coherence and stability in the relative weights under the IPPS MS-DRGs. As we examine these complex issues in consideration for future rulemaking, we continue to believe that for clinical coherence, the cases reporting procedure codes that describe the introduction of pancreatic islet cells should be grouped with the subset of cases that report pancreas transplant procedures for FY 2027, after reviewing the indications for both whole organ pancreas transplant and pancreatic islet cell transplantation, and consideration of the intent of the MS- DRGs. Accordingly, we continue to believe that reassigning the 11 ICD- 10-PCS procedure codes that describe the introduction of pancreatic islet cells from MS-DRGs 673, 674, and 675 to Pre-MDC MS-DRG 008 (Simultaneous Pancreas and Kidney Transplant), MS-DRG 010 (Pancreas Transplant) and MS-DRG 019 (Simultaneous Pancreas and Kidney Transplant with Hemodialysis) will improve clinical coherence in these MS-DRGs. Comment: A commenter noted that we proposed to change of title of MS-DRG 008 from ``Simultaneous Pancreas and Kidney Transplant'' to ``Simultaneous Pancreas, Islet Cell and Kidney Transplant,'' and that we proposed to change the title of MS-DRG 019 from ``Simultaneous Pancreas and Kidney Transplant with Hemodialysis'' to ``Simultaneous Pancreas, Islet Cell and Kidney Transplant with Hemodialysis'' to better reflect the assigned procedures. This commenter stated that they believe that the use of the word ``and'' instead of ``or'' in the titles for these MS-DRGs is concerning and recommended the title of MS- DRG 008 be changed to ``Simultaneous Kidney, Pancreas and/or Islet Cell Transplant'' and the title for MS-DRG 019 be changed to ``Simultaneous Pancreas, Islet Cell and/or Kidney Transplant with Hemodialysis.'' Response: We thank the commenter for their feedback. With respect to the titles of MS-DRGs 008 and 019, we will consider this suggestion for future rulemaking. While we disagree with using the conjunction ``and/or'' in the title of these new MS-DRGs, as we have found the conjunction can lead to ambiguity, we acknowledge that we did consider other alternatives to the revision of the titles of MS-DRG 008 and MS-DRG 019. After review, we found that ``Simultaneous Pancreas, Islet Cell and Kidney Transplant,'' and ``Simultaneous Pancreas, Islet Cell and Kidney Transplant with Hemodialysis,'' respectively, were the most appropriate options to better reflect the assigned procedures after our proposed modifications, given the conventions of the classification. To assist interested parties in understanding what conditions must be met to satisfy the GROUPER logic for MS-DRG 008, we note that we provided a logic table in the draft version of the ICD-10 MS-DRG Definitions Manual, Version 44, available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software. The logic table is reflected as follows: [[Page 49628]] [GRAPHIC] [TIFF OMITTED] TR04AU26.066 Similarly, we provided a logic table for MS-DRG 019 in the draft version of the ICD-10 MS-DRG Definitions Manual, Version 44. The logic table is reflected as follows: [GRAPHIC] [TIFF OMITTED] TR04AU26.067 These logic tables will also be reflected in the final ICD-10 MS- DRG Definitions Manual, Version 44. We will continue to review these MS-DRGs to determine if additional refinements to their titles may be warranted in the future. After consideration of the public comments received, we are finalizing our proposal to add the 11 ICD-10-PCS procedure codes that describe the introduction of pancreatic islet cells to a new ``Islet Cell Transplant Procedures'' logic list in MS-DRGs 008, 010, and 019, effective October 1, 2026, without modification, for FY 2027. Additionally, we are also finalizing our proposal to delete the sixth logic list entitled ``or Principal Diagnosis'' that is defined by ICD- 10-CM diagnosis codes E10.21 (Type 1 diabetes mellitus with diabetic nephropathy), E10.22 (Type 1 diabetes mellitus with diabetic chronic kidney disease) and E10.29 (Type 1 diabetes mellitus with other diabetic kidney complication) and the seventh logic list entitled ``and Non-Operating Room Procedures'' from MS-DRGs 673, 674, and 675. Lastly, for consistency, we are finalizing our proposals to change the title of MS-DRG 008 from ``Simultaneous Pancreas and Kidney Transplant'' to ``Simultaneous Pancreas, Islet Cell and Kidney Transplant,'' to change the title of MS-DRG 010 from ``Pancreas Transplant'' to ``Pancreas or Islet Cell Transplant'' and to change the title of MS-DRG 019 from ``Simultaneous Pancreas and Kidney Transplant with Hemodialysis'' to ``Simultaneous Pancreas, Islet Cell and Kidney Transplant with Hemodialysis'' to better reflect the assigned procedures, effective October 1, 2026, without modification, for FY 2027. Under this finalization, the current ``principal or secondary diagnosis'' logic in MS-DRGs 008, 010, and 019 will be maintained. Additionally, to maintain stability, we are finalizing our proposal to add logic to MS-DRG 010 to exclude cases also reporting kidney transplant procedures to ensure cases will continue to group accordingly to MS-DRGs 008 and 019. 7. MDC 12 (Diseases and Disorders of the Male Reproductive System): Prostatectomy As discussed in the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19358 through 19360), we stated consistent with our annual review of the MS-DRGs, we identified that the current GROUPER logic for MDC 12 MS-DRGs 707 and 708 (Major Male Pelvic Procedures with MCC and without CC/MCC, respectively) contains a logic list referred to as ``OPERATING ROOM PROCEDURES'' that includes 51 procedure codes describing various male pelvic procedures, including procedure codes describing the destruction, or resection of the prostate, and also includes eight procedure code combinations or procedure code ``clusters'' that, when reported together, satisfy the logic for assignment to MS-DRGs 707 and 708. In this final rule, we would like to correct the statement in the proposed rule and note that in the ICD-10 MS-DRG Definitions Manual Version 43.1, the logic list referred to as ``OPERATING ROOM PROCEDURES'' includes 53 procedure codes describing various male pelvic procedures, including procedure codes describing the destruction, or resection of the prostate, and also includes eight procedure code combinations or procedure code ``clusters'' that, when reported together, satisfy the logic for assignment to MS-DRGs 707 and 708. The code combinations are represented by two procedure codes and include one code for the resection of the prostate with one code for the resection of bilateral seminal vesicles. We refer the reader to the ICD-10 MS-DRG Definitions Manual Version 43.1, which is available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software, for complete documentation of the GROUPER logic for MDC 12 MS-DRGs 707 and 708. The eight ICD-10-PCS procedure code combinations currently assigned to MS-DRGs 707 and 708 that identify the resection of the prostate with the resection of bilateral seminal vesicles are shown in the following table: [[Page 49629]] [GRAPHIC] [TIFF OMITTED] TR04AU26.068 As we examined the GROUPER logic that would determine an assignment of a case to MDC 12 MS-DRGs 707 and 708 as discussed in the proposed rule, we noted that ICD-10-PCS codes 0VT00ZZ (Resection of prostate, open approach) and 0VT04ZZ (Resection of prostate, percutaneous endoscopic approach) that describe the resection of the prostate, differing only in approach, are assigned to MS-DRGs 707 and 708 as standalone procedures, as well as being included in one of the eight procedure code combinations, or code clusters, listed previously in these same MS-DRGs. We noted that the GROUPER software program will recognize codes 0VT00ZZ and 0VT04ZZ and assign MS-DRGs 707 and 708 even when a procedure code describing the resection of the bilateral seminal vesicles is not also reported when the other parameters of the GROUPER logic are met. As procedure codes 0VT00ZZ and 0VT04ZZ are assigned to MS-DRGs 707 and 708 as standalone procedures, specific assignment of these procedure codes in procedure code combinations in MS-DRGs 707 and 708 is not required. During our review of this issue, as discussed in the proposed rule, we noted that that ICD-10-PCS codes 0VT07ZZ (Resection of prostate, via natural or artificial opening) and 0VT08ZZ (Resection of prostate, via natural or artificial opening endoscopic) that describe the transurethral resection of the prostate, or removal of the prostate using an instrument inserted through the urethra, are also represented in the eight procedure code combinations in MS-DRGs 707 and 708. These codes are assigned to MDC 12 MS-DRGs 713 and 714 (Transurethral Prostatectomy with CC/MCC and without CC/MCC) when reported as standalone procedures. We refer the reader to the ICD-10 MS-DRG Definitions Manual Version 43.1, which is available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software, for complete documentation of the GROUPER logic for MDC 12 MS-DRGs 713 and 714. We stated we then analyzed claims data from the September 2025 update of the September 2025 MedPAR file for all cases in MS-DRGs 707 and 708 and compared the results to cases reporting procedure codes describing transurethral prostatectomy and resection of bilateral seminal vesicles in these MS-DRGs. Our findings are shown in the following table. [GRAPHIC] [TIFF OMITTED] TR04AU26.069 As shown in the table, for MS-DRG 707, we identified a total of 1,697 cases, with an average length of stay of 3.1 days and average costs of $19,942. Of the 1,697 cases in MS-DRG 707, there were three cases reporting transurethral prostatectomy and resection of bilateral seminal vesicles with an average length of stay of 4 days and average costs of $14,896. For MS-DRG 708, we identified a total of 1,685 cases, with an average length of stay of 1.5 days and average costs of $14,075. Of the 1,685 cases in MS-DRG 708, there was one case reporting transurethral prostatectomy and resection of bilateral seminal vesicles with a length of stay of 1 day and costs of $6,726. We also examined claims data from the September 2025 update of the September 2025 MedPAR file for MS-DRGs 713 and 714. Our findings are shown in the following table. [[Page 49630]] [GRAPHIC] [TIFF OMITTED] TR04AU26.070 In MS-DRG 713, we found a total of 3,746 cases with an average length of stay of 3.4 days and average costs of $14,670. In MS-DRG 714, we found a total of 860 cases with an average length of stay of 1.7 days and average costs of $10,869. Overall, the data analysis shows that the average costs for the cases reporting transurethral prostatectomy and resection of bilateral seminal vesicles in MS-DRGs 707 and 708 are more aligned with the average costs for all the cases in MS-DRGs 713 ($14,896 versus $14,670) and 714 ($6,726 versus $10,869), respectively. We reviewed this issue and in the proposed rule noted that ICD-10- PCS procedure codes 0VT07ZZ or 0VT08ZZ describe transurethral resection of the prostate, and therefore, are most clinically aligned with the procedure codes assigned to MDC 12 MS-DRGs 713 and 714, where they are currently assigned when reported as standalone procedures. Therefore, for FY 2027, we proposed to delete the eight ICD-10-PCS procedure code combinations listed previously from the GROUPER logic of MDC 12 MS-DRGs 707 and 708 (Major Male Pelvic Procedures with CC/MCC and without CC/MCC, respectively). Under this proposal, when the other parameters of the GROUPER logic are met, cases reporting procedure codes 0VT00ZZ (Resection of prostate, open approach) and 0VT04ZZ (Resection of prostate, percutaneous endoscopic approach) would group to MS-DRGs 707 and 708, even when a procedure code describing the resection of the bilateral seminal vesicles is not also reported. Additionally, under this proposal, when the other parameters of the GROUPER logic are met, cases reporting procedure codes 0VT07ZZ (Resection of prostate, via natural or artificial opening) or 0VT08ZZ (Resection of prostate, via natural or artificial opening endoscopic) would group to MS-DRGs 713 and 714 (Transurethral Prostatectomy with CC/MCC and without CC/MCC), even when a procedure code describing the resection of the bilateral seminal vesicles is not also reported. Comment: Commenters supported the proposal to delete the eight ICD- 10-PCS procedure code combinations listed previously from the GROUPER logic of MDC 12 MS-DRGs 707 and 708 (Major Male Pelvic Procedures with CC/MCC and without CC/MCC, respectively), effective October 1, 2026, for FY 2027. Response: We appreciate the commenters' support. After consideration of the public comments we received, we are finalizing our proposal to delete the eight ICD-10-PCS procedure code combinations listed previously from the GROUPER logic of MDC 12 MS-DRGs 707 and 708 (Major Male Pelvic Procedures with CC/MCC and without CC/ MCC, respectively), without modification, effective October 1, 2026, for FY 2027. As discussed in the proposed rule, during our review of this issue and the examination of the MS-DRGs within MDC 12, we noted that the title of MS-DRGs 715 and 716 is ``Other Male Reproductive System O.R. Procedures for Malignancy with and without CC/MCC, respectively'' and the title of MS-DRGs 717 and 718 is ``Other Male Reproductive System O.R. Procedures Except Malignancy with and without CC/MCC, respectively.'' In examining the GROUPER logic for these MS-DRGs and reviewing the diagnoses listed under the heading of ``Principal Diagnosis'' in the ICD-10 MS-DRG Definitions Manual, we stated we believe the titles for these MS-DRGs no longer accurately reflect the assigned diagnoses. The titles of DRGs 715, 716, 717, and 718 were established prior to the transition to the Medicare Severity DRGs (MS- DRGs) from the CMS DRGs (48 FR 39883). In the development of the DRGs, generally, in each MDC, a medical and a surgical class was formed and referred to as ``other medical diseases'' and ``other surgical procedures,'' respectively. The ``other'' medical and surgical classes are not as precisely defined from a clinical perspective and include diagnoses or procedures which are infrequently encountered. The ``other'' surgical class contains surgical procedures which, while infrequent, could still reasonably be expected to be performed for a patient in the particular MDC. Assignment to the ``other'' surgical class should only occur if no other surgical class more closely related to the diagnoses in the MDC is appropriate. As the cases in MS-DRGs 715 and 716 are further defined based on the precise principal diagnosis for which the patients were admitted to the hospital, we stated we believe it is appropriate to propose to revise the titles of these MS- DRGs for consistency. Therefore, we also proposed to change the title of MS-DRGs 715 and 716 from ``Other Male Reproductive System O.R. Procedures for Malignancy with and without CC/MCC, respectively'' to ``Male Reproductive System and Other O.R. Procedures for Malignancy with and without CC/MCC, respectively'' and to change the title of MS- DRGs 717 and 718 from ``Other Male Reproductive System O.R. Procedures Except Malignancy with and without CC/MCC, respectively'' to ``Other Male Reproductive System O.R. Procedures with and without CC/MCC, respectively'' to better reflect the assigned diagnoses. As discussed in section II.C.1.b of the preamble of the proposed rule, we provided a test version of the ICD-10 MS-DRG GROUPER Software, Version 44, so that the public can better analyze and understand the impact of the proposals included in the proposed rule. In the proposed rule, we noted that at the time of the development of the test software, this issue was unable to be addressed and therefore, the test software did not reflect the proposed change to the title of MS-DRGs 715 and 716 from ``Other Male Reproductive System O.R. Procedures for Malignancy with and without CC/MCC, respectively'' to ``Male Reproductive System and Other O.R. Procedures for Malignancy with and without CC/MCC, respectively'' and the proposed change to the title of MS-DRGs 717 and 718 from ``Other Male Reproductive System O.R. Procedures Except Malignancy with and without CC/MCC, respectively'' to ``Other Male Reproductive System O.R. Procedures with and without CC/ MCC, respectively'' in MDC 12 for Version 44. Comment: Commenters supported the proposal to change the title of MS-DRGs 715 and 716 from ``Other Male Reproductive System O.R. Procedures for Malignancy with and without CC/MCC, respectively'' to ``Male Reproductive System and Other O.R. Procedures for Malignancy with and without CC/MCC, respectively'' and to change the title of MS- DRGs 717 and 718 from ``Other Male Reproductive System O.R. Procedures Except Malignancy with and without CC/MCC, respectively'' to ``Other Male Reproductive System O.R. Procedures with and without CC/MCC, [[Page 49631]] respectively'' effective October 1, 2026, for FY 2027. Response: We appreciate the commenters' support. After consideration of the public comments we received, we are finalizing our proposal to change the title of MS-DRGs 715 and 716 from ``Other Male Reproductive System O.R. Procedures for Malignancy with and without CC/MCC, respectively'' to ``Male Reproductive System and Other O.R. Procedures for Malignancy with and without CC/MCC, respectively'' and to change the title of MS-DRGs 717 and 718 from ``Other Male Reproductive System O.R. Procedures Except Malignancy with and without CC/MCC, respectively'' to ``Other Male Reproductive System O.R. Procedures with and without CC/MCC, respectively'', effective October 1, 2026, for FY 2027. 8. MDC 13 (Diseases and Disorders of the Female Reproductive System): Fluorescence Guided Procedures of the Female Reproductive System Using Pafolacianine CYTALUX[supreg] (pafolacianine) is a folate receptor-targeted fluorescent optical imaging agent used as an adjunct for intraoperative identification of ovarian cancer. CYTALUX[supreg] binds to the folate receptors on these cancer cells and is endocytosed into folate receptor positive cancer cells. CYTALUX[supreg] is administered intravenously prior to gynecologic oncology procedures, including ovarian cytoreduction and debulking surgeries, and requires use of a near- infrared imaging system (NIR) to illuminate, thereby making cancer visible within the surgical field. CYTALUX[supreg] received FDA approval and is indicated as an adjunct for intraoperative identification of malignant lesions in adult patients with ovarian cancer. We note that CYTALUX[supreg] for the ovarian indication was approved for new technology add-on payments for FY 2024 (88 FR 58804 through 58810) and FY 2025 (89 FR 69120 through 69126). As discussed in the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19360 through 19364), we received a request from the manufacturer of CYTALUX[supreg] to modify the GROUPER logic of MS-DRGs 736, 737, and 738 (Uterine and Adnexa Procedures for Ovarian or Adnexal Malignancy with MCC, with CC, and without CC/MCC, respectively) by reassigning cases with an ICD-10-PCS code that describes fluorescence guided procedures of the female reproductive system using CYTALUX[supreg] (pafolacianine) to the higher severity level MS-DRG 736 (with MCC) or MS-DRG 737 (with CC). According to the requestor, the utilization of CYTALUX[supreg] does not change the surgical procedure but adds significant cost. The requestor performed their own analysis of Medicare claims data from October 1, 2023, through March, 31, 2025, and stated they found approximately 13 cases that used CYTALUX[supreg] in ovarian surgery and that they expect adoption to accelerate as NIR systems become more widely available. The requestor stated they found that over 50 percent of cases using CYTALUX[supreg] in ovarian procedures triggered new technology add-on payments averaging $2,285. The requestor also stated they found cases reporting an ICD-10-PCS code that describes fluorescence guided procedures of the female reproductive system using CYTALUX[supreg] (pafolacianine) within MS-DRG 737 exhibit higher average costs than baseline and align more closely with cases in MS-DRG 736. Additionally, the requestor stated their analysis also found cases that reported the use of CYTALUX[supreg] in MS-DRGs 739, 740, and 741 (Uterine and Adnexa Procedures for Non- Ovarian and Non-Adnexal Malignancy with MCC, with CC, and without CC/ MCC, respectively) due to the reporting of diagnosis codes describing metastatic malignancies. The requestor stated their analysis found that cases reporting an ICD-10-PCS code that describes fluorescence guided procedures of the female reproductive system using CYTALUX[supreg] (pafolacianine) cases in MS-DRG 737 exhibited higher average costs than baseline ($34,735 vs. $23,538) and aligned more closely with cases in MS-DRG 736 ($39,682). The requestor further asserted that their review of the Inpatient SAF indicated there were some accounts underreporting the full cost of the vial of CYTALUX[supreg] due to inconsistent guidance for single-use inpatient drugs and that, where applicable, pharmacy costs were adjusted to account for missing costs of the single-use vial. The requestor stated they found that cases reporting an ICD-10-PCS code that describes fluorescence guided procedures of the female reproductive system using CYTALUX[supreg] (pafolacianine) in MS-DRG 737 were approximately $11,000 more expensive than non-CYTALUX cases when controlled for the underreporting of costs. Therefore, the requestor suggested that CMS reassign cases with an ICD-10-PCS code that describes fluorescence guided procedures of the female reproductive system using CYTALUX[supreg] (pafolacianine) to MS-DRGs 736 or 737 to ensure accurate payment, clinical integrity, and to prevent barriers to hospital adoption of CYTALUX[supreg] as NIR system availability expands nationwide. To begin our analysis, as discussed in the proposed rule, we reviewed the GROUPER logic for MS-DRGs 736, 737, 738, 739, 740, and 741. MS-DRGs 736, 737, 738, 739, 740 and 741 contains a logic list referred to as ``OPERATING ROOM PROCEDURES'' that includes 689 ICD-10- PCS procedure codes that describe uterine and adnexa procedures, a logic list referred to as ``Ovarian or Adnexal Malignancy PRINCIPAL DIAGNOSIS'' that includes 22 ICD-10-CM diagnosis codes that describe ovarian or adnexal malignancies and a logic list referred to as ``Non- Ovarian and Non-Adnexal Malignancy PRINCIPAL DIAGNOSIS'' that includes 36 ICD-10-CM diagnosis codes that describe non-ovarian and non-adnexal malignancies. We refer the reader to the ICD-10 MS-DRG Definitions Manual, Version 43.1 (available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software) for complete documentation of the GROUPER logic for MS-DRGs 736, 737, 738, 739, 740, and 741. The following five ICD-10-PCS procedure codes describe fluorescence guided procedures of the female reproductive system using pafolacianine for the ovarian indication. [[Page 49632]] [GRAPHIC] [TIFF OMITTED] TR04AU26.071 In the ICD-10 MS-DRGs Definitions Manual Version 43.1, procedure codes 8E0U0EN, 8E0U3EN, 8E0U4EN, 8E0U7EN, and 8E0U8EN are designated as non-O.R. procedures for purposes of MS-DRG assignment, therefore when CYTALUX[supreg] is utilized during a uterine and adnexa procedure described by one of the 689 ICD-10-PCS procedure codes in the GROUPER logic for MS-DRGs 736, 737, 738, 739, 740, and 741, the ICD-10-PCS code describing the uterine and adnexa procedure will determine the surgical MS-DRG assignment to one of the previously listed surgical MS-DRGs based on the principal diagnosis reported. We then examined claims data from the September 2025 update of the FY 2025 MedPAR file for MS-DRGs 736, 737, 738, 739, 740, and 741 to identify cases reporting one of the five procedure codes listed previously that describe fluorescence guided surgery using CYTALUX[supreg] (pafolacianine). Our findings are shown in the following table: [GRAPHIC] [TIFF OMITTED] TR04AU26.072 As shown in the table, in MS-DRG 736, we identified a total of 647 cases with an average length of stay of 8.5 days and average costs of $33,196. Of those 647 cases, there were two cases reporting one of the five procedure codes that describe fluorescence guided surgery using CYTALUX[supreg] (pafolacianine), with average costs lower than the average costs in the FY 2025 MedPAR file for MS-DRG 736 ($28,068 compared to $33,196) and a shorter average length of stay (7 days compared to 8.5 days). There were zero cases reporting one of the five procedure codes that describe fluorescence guided surgery using CYTALUX[supreg] (pafolacianine) in MS-DRGs 737 and 738. In MS-DRG 739, we identified a total of 481 cases with an average length of stay of 8.4 days and average costs of $33,235. Of those 481 cases, there were two cases reporting one of the five procedure codes that describe fluorescence guided surgery using CYTALUX[supreg] (pafolacianine), with average costs lower than the average costs in the FY 2025 MedPAR file for MS-DRG 739 ($11,565 compared to $33,235) and a shorter average length of stay (1.5 days compared to 8.4 days). In MS- DRG 740, we identified a total of 1,327 cases with an average length of stay of 3.2 days and average costs of $16,784. Of those 1,327 cases, there was [[Page 49633]] one case reporting one of the five procedure codes that describe fluorescence guided surgery using CYTALUX[supreg] (pafolacianine), with costs higher than the average costs in the FY 2025 MedPAR file for MS- DRG 740 ($39,154 compared to $16,784), and a longer length of stay (5 days compared to 3.2 days). In MS-DRG 741, we identified a total of 740 cases with an average length of stay of 1.7 days and average costs of $13,365. Of those 1,327 cases, there was one case reporting one of the five procedure codes that describe fluorescence guided surgery using CYTALUX[supreg] (pafolacianine), with costs higher than the average costs in the FY 2025 MedPAR file for MS-DRG 741 ($14,036 compared to $13,365), and a shorter length of stay (1 day compared to 1.7 days). As discussed in the proposed rule, the data reflect the six cases reporting one of the five procedure codes that describe fluorescence guided surgery using CYTALUX[supreg] (pafolacianine) found across MS- DRGs 736, 737, 738, 739, 740, and 741 have an average length of stay of 3.8 days and average costs of $22,076. These six cases have a shorter average length of stay (3.8 days versus 8.5 days) and lower average costs ($22,076 versus $33,196) when compared to all the cases in MS-DRG 736. The six cases reporting one of the five procedure codes that describe fluorescence guided surgery using CYTALUX[supreg] (pafolacianine) found across MS-DRGs 736, 737, 738, 739, 740, and 741 have a shorter average length of stay (3.8 days versus 4.3 days) and higher average costs ($22,076 versus $18,702) when compared to all the cases in MS-DRG 737. After reviewing the claims data, in the proposed rule we stated we believe it is premature to consider a proposal for cases with an ICD- 10-PCS code that describes fluorescence guided procedures of the female reproductive system using CYTALUX[supreg] (pafolacianine) for FY 2027. While the data analysis reflects that six cases that report one of the five procedure codes that describe fluorescence guided surgery using CYTALUX[supreg] (pafolacianine) across MS-DRGs 736, 737, 738, 739, 740, and 741 demonstrate slightly higher average costs compared to all the cases in MS-DRG 737, the number of cases is small across the MS-DRGs. The claims data also reflect a wide variance with regard to the average costs for these cases reporting fluorescence guided procedures of the female reproductive system using CYTALUX[supreg] (pafolacianine). We noted the one case that reported a fluorescence guided procedure of the female reproductive system using CYTALUX[supreg] (pafolacianine) in MS- DRG 740 had a length of stay of 5 days and costs of $39,154, while the two cases that reported a procedure code describing a fluorescence guided procedure of the female reproductive system using CYTALUX[supreg] (pafolacianine) in MS-DRG 739 had an average length of stay of 1.5 days and average costs of $11,565. In the proposed rule, we stated we could not ascertain from the claims data the resource use specifically attributable to the utilization of fluorescence guidance using CYTALUX[supreg] (pafolacianine) in procedures of the female reproductive system during inpatient admissions. We stated we recognize the average costs of the small numbers of cases reporting an ICD-10-PCS code that describes fluorescence guided procedures of the female reproductive system using CYTALUX[supreg] (pafolacianine) can be greater when compared to the average costs of all cases in their respective MS-DRG; however, the MS- DRG system is a system of averages and it is expected that within the diagnostic related groups, some cases may demonstrate higher than average costs, while other cases may demonstrate lower than average costs. We further noted that section 1886(d)(5)(A) of the Act provides for Medicare payments to Medicare-participating hospitals in addition to the basic prospective payments for cases incurring extraordinarily high costs. We stated we believe it would be advantageous to allow for more claims data to be analyzed in consideration of any future modifications to the MS-DRGs for which fluorescence guided surgeries using CYTALUX[supreg] (pafolacianine) are assigned. We stated we will continue to evaluate the clinical coherence and resource consumption costs that impact this subset of cases and their MS-DRG assignment. Therefore, for the reasons stated, for FY 2027, we did not propose to modify the GROUPER logic of MS-DRGs 736, 737, and 738 (Uterine and Adnexa Procedures for Ovarian or Adnexal Malignancy with MCC, with CC, and without CC/MCC, respectively) by reassigning cases reporting ICD- 10-PCS codes that describes fluorescence guided procedures of the female reproductive system using CYTALUX[supreg] (pafolacianine) to the higher severity level MS-DRG 736 (with MCC) or MS-DRG 737 (with CC). Comment: Commenters expressed support for the decision to not modify the GROUPER logic of MS-DRGs 736, 737, and 738 (Uterine and Adnexa Procedures for Ovarian or Adnexal Malignancy with MCC, with CC, and without CC/MCC, respectively) by reassigning cases reporting ICD- 10-PCS codes that describes fluorescence guided procedures of the female reproductive system using CYTALUX[supreg] (pafolacianine) to the higher severity level MS-DRG 736 (with MCC) or MS-DRG 737 (with CC) for FY 2027. A commenter stated that they understand the concerns regarding the current volume of cases available for analysis and acknowledge that additional claims data is needed before evaluating any potential MS-DRG reassignment of cases reporting ICD-10-PCS codes that describes fluorescence guided procedures of the female reproductive system using CYTALUX[supreg] (pafolacianine). Response: We appreciate the commenters' support. During our review of this issue, as discussed in the proposed rule, we noted that the data analysis reflects that in cases reporting uterine and adnexa procedures in MS-DRGs 736, 737, 738, 739, 740, and 741, the average costs and length of stay are generally similar without regard to the presence of diagnosis codes describing ``ovarian or adnexal'' malignancies or ``non-ovarian or non-adnexal'' malignancies. In MS-DRG 736, there were 647 cases reporting an uterine and adnexa procedure with a principal diagnosis describing an ``ovarian or adnexal'' malignancy and a MCC with average costs of $33,196 and an average length of stay of 8.5 days compared to 481 cases reporting an uterine and adnexa procedure with a principal diagnosis describing a ``non-ovarian or non-adnexal'' malignancy and a MCC with average costs of $33,235 and an average length of stay of 8.4 days in MS-DRG 739. In MS-DRG 737, there were 1,803 cases reporting an uterine and adnexa procedure with a principal diagnosis describing an ``ovarian or adnexal'' malignancy and a CC with average costs of $18,702 and an average length of stay of 4.3 days compared to 1,327 cases reporting an uterine and adnexa procedure with a principal diagnosis describing a ``non-ovarian or non-adnexal'' malignancy and a CC with average costs of $16,784 and an average length of stay of 3.2 days in MS-DRG 740. In MS-DRG 738, there were 317 cases reporting an uterine and adnexa procedure with a principal diagnosis describing an ``ovarian or adnexal'' malignancy without a CC or an MCC with average costs of $13,519 and an average length of stay of 2.5 days compared to 740 cases reporting an uterine and adnexa procedure with a principal diagnosis describing a ``non-ovarian or non-adnexal'' malignancy [[Page 49634]] without a CC or an MCC with average costs of $13,365 and an average length of stay of 1.7 days in MS-DRG 741. We reviewed these findings and stated in the proposed rule we believe that it may no longer be necessary to subdivide these MS-DRGs based on the diagnosis codes reported. In the FY 1987 proposed notice titled ``Medicare Program; Changes to the DRG Classification System'' (51 FR 8770 through 8771), we stated that our analysis of cases with a principal diagnosis of malignancy where both a hysterectomy and uterine or adnexa procedures were performed suggested that malignancies and non-malignancies should be classified in different DRGs, and that ovarian and adnexa cancers were the most resource intensive of the malignancies in the DRGs reviewed. We further stated that, among the cases examined in the DRGs, the diagnosis had consistently greater explanatory power with respect to resource intensity than did the procedure performed; therefore, we stated that cases with a principal diagnosis of malignancy would be further subdivided. Therefore, for FY 1987, DRG 357 (Non-Radical Hysterectomy, Uterus and Adnexa Procedures, for Ovarian and Adnexal Malignancy) and DRGs 354 and 355 (Non-Radical Hysterectomy, Uterus and Adnexa Procedures for Malignancy Except Ovarian/Adnexal Malignancy; Age over 69 and/or C.C., and Age under 70 without C.C., respectively) were created to ``increase homogeneity and thus more accurately reflect resource intensity of cases assigned to these DRGs'' (51 FR 31571). As discussed in the proposed rule our analysis of claims data from the September 2025 update of the FY 2025 MedPAR file shows that in the 39 years since the DRGs for cases reporting uterine and adnexa procedures split based on the presence of diagnosis codes describing ``ovarian or adnexal'' malignancies or ``non-ovarian or non-adnexal'' malignancies were created, the resource utilization appears to now be more related to the procedures performed rather than the diagnoses describing malignancies reported on the claim, and therefore we stated we believe it is appropriate to restructure these MS-DRGs accordingly. In our direct comparison of the cases reporting diagnosis codes describing ``ovarian or adnexal'' malignancies or ``non-ovarian or non- adnexal'' malignancies in these MS-DRGs, we believe the distinction is no longer meaningful with regard to resource consumption. Clinically, a principal diagnosis of an ``ovarian or adnexal'' or a ``non-ovarian or non-adnexal'' malignancy in association with a uterine and adnexa procedure requires a commensurate level of patient care, including managing pain, monitoring for complications, ensuring proper wound and drain care, preventing blood clots, managing bowel function, and facilitating recovery through gradual activity, diet, and mobility. Decisions on potential further treatment like chemotherapy or radiation therapy for these diagnoses are based on the cancer's stage. In the proposed rule we noted that, as discussed in prior rulemaking, the MS-DRGs are a classification system intended to group together diagnoses and procedures with similar clinical characteristics and utilization of resources. We generally seek to identify sufficient sets of claims data with demonstrated clinical similarity in developing diagnosis related groups. As a result of our analysis and review of this issue, and consideration of the intent of the MS-DRGs, we stated we believe the findings support restructuring the six MS-DRGs by proposing to create new MS-DRGs for uterine and adnexa procedures for female reproductive system malignancies and eliminating the logic that differentiates cases by reporting principal diagnoses describing ``ovarian or adnexal'' and ``non-ovarian or non-adnexal'' malignancies. For these reasons, we proposed the deletion of MS-DRGs 736, 737, 738, 739, 740, and 741, and the creation of a base MS-DRG for cases reporting uterine and adnexa procedures and a principal diagnosis describing a female reproductive system malignancy, split by a three- way severity level subgroup. The following table illustrates our simulation of the proposal. [GRAPHIC] [TIFF OMITTED] TR04AU26.073 Consistent with our established process as discussed in section II.C.1.b. of the preamble of the proposed rule and this final rule, once the decision has been made to propose to make further modifications to the MS-DRGs, all five criteria to create subgroups must be met for the base MS-DRG to be split (or subdivided) by a CC subgroup. Therefore, we applied the criteria to create subgroups in a base MS-DRG as discussed in section II.C.1.b. of the preamble of the FY 2027 IPPS/LTCH PPS proposed rule and this final rule. We note that, as shown in the table that follows, a three-way split of this proposed new base MS-DRG was met. The following table illustrates our findings. [GRAPHIC] [TIFF OMITTED] TR04AU26.074 For the proposed new MS-DRGs, there is (1) at least 500 cases in the MCC subgroup, the CC subgroup, and in the without CC/MCC subgroup; (2) at least 5 percent of the cases are in the MCC subgroup, the CC subgroup, and in the without CC/MCC subgroup; (3) at least a 20 percent difference in average costs between the MCC subgroup and the CC subgroup and between the CC group and NonCC subgroup; (4) at least a $2,000 difference in average costs between the MCC subgroup and the with CC subgroup and between the CC subgroup and NonCC subgroup; and (5) at least a 3-percent reduction in cost variance, indicating that the proposed severity level splits increase the explanatory [[Page 49635]] power of the base MS-DRG in capturing differences in expected cost between the proposed MS-DRG severity level splits by at least 3 percent and thus improve the overall accuracy of the IPPS payment system. Therefore, for FY 2027, we proposed to delete MS-DRGs 736, 737, 738, 739, 740, and 741 and proposed to create new MS-DRG 731 (Uterine and Adnexa Procedures for Malignancy with MCC), MS-DRG 732 (Uterine and Adnexa Procedures for Malignancy with CC), and MS-DRG 733 (Uterine and Adnexa Procedures for Malignancy without CC/MCC). We proposed to include the current list of 689 ICD-10-PCS procedure codes in the logic for MS-DRGs 736, 737, 738, 739, 740, and 741 for case assignment of uterine and adnexa procedures for the proposed new MS-DRGs. We refer the reader to Table 6P.5a and Table 6P.5b associated with the FY 2027 IPPS/LTCH PPS proposed rule (which are available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps) for the lists of the 58 diagnosis codes and 689 procedure codes we proposed to define in the logic for the proposed new MS-DRGs. We note that the surgical hierarchy for the proposed modification is discussed in section II.C.14. of the preamble of the FY 2027 IPPS/LTCH PPS proposed rule. Comment: Commenters expressed support for the proposal to delete MS-DRGs 736, 737, 738, 739, 740, and 741 and to create new MS-DRGs 731, 732 and 733 in MDC 13 for FY 2027. Commenters also stated they agreed with the proposal to include the list of 689 ICD-10-PCS procedure codes currently in the logic for MS-DRGs 736, 737, 738, 739, 740, and 741 in the logic for the proposed new MS-DRGs. A commenter specifically stated they support the proposal to eliminate the current logic that differentiates cases based on principal diagnoses describing ``ovarian or adnexal'' versus ``non-ovarian or non-adnexal'' malignancies, as this change will improve clinical coherence and better align MS-DRG assignment with contemporary surgical practice patterns. This commenter thanked CMS for its thoughtful consideration of these issues and its ongoing efforts to ensure that MS-DRG classifications accurately reflect resource utilization and patient care. Response: We thank the commenters for their support. Comment: Another commenter stated that they seek clarification on how CMS will handle concomitant procedures in the proposed new MS-DRGs. The commenter noted that hysterectomy procedures are commonly performed concomitantly with procedures such as salpingectomies and oophorectomies. The commenter stated that while concomitant MS-DRGs exist in the classification, there are none that are representative of common gynecologic procedures and recommended that CMS explore avenues in which creating MS-DRGs for concomitant gynecologic procedures makes sense to better represent the actualized resource use for these procedures. This commenter stated that in reviewing the GROUPER logic of the proposed new MS-DRGs, a gynecologic oncology patient having a simple laparoscopic hysterectomy, and another gynecologic oncology patient having a total abdominal hysterectomy, bilateral salpingo- oophorectomy, and pelvic lymph node dissection would be assigned to the same MS-DRG despite the cases having a large gap in complexity. The commenter further stated that this structure could lead to many facilities only taking lower complexity gynecologic cases and fewer facilities taking higher complexity cases. Response: We thank the commenter for the feedback. In response to the request that CMS provide clarification on how combination procedures will be handled in the proposed new MS-DRGs, we note that we provided a test version of the ICD-10 MS-DRG GROUPER Software, Version 44, as discussed in the FY 2027 IPPS/LTCH PPS proposed rule and this final rule, so that the public can better analyze and understand the impact of the proposals included in the FY 2027 IPPS/LTCH PPS proposed rule, including testing how the reporting of multiple uterine and adnexa procedures in a single inpatient encounter would be handled in the proposed new MS-DRGs. We further note that the proposal to create new MS-DRGs 731, 732, and 733 did not involve modifying the list of ICD-10-PCS procedure codes that describe uterine and adnexa procedures or proposing to create procedure code combinations in the GROUPER logic of the proposed new MS-DRGs. As discussed in the proposed rule, in the ICD-10 MS-DRG Definitions Manual, Version 43.1 (available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software) the GROUPER logic for MS-DRGs 736, 737, 738, 739, 740, and 741 contains a logic list referred to as ``OPERATING ROOM PROCEDURES'' that includes 689 ICD-10- PCS procedure codes that describe uterine and adnexa procedures, a logic list referred to as ``Ovarian or Adnexal Malignancy PRINCIPAL DIAGNOSIS'' that includes 22 ICD-10-CM diagnosis codes that describe ovarian or adnexal malignancies and a logic list referred to as ``Non- Ovarian and Non-Adnexal Malignancy PRINCIPAL DIAGNOSIS'' that includes 36 ICD-10-CM diagnosis codes that describe non-ovarian and non-adnexal malignancies. We stated we proposed to include the list of 689 ICD-10- PCS procedure codes currently in the logic for MS-DRGs 736, 737, 738, 739, 740, and 741 in the logic for case assignment of uterine and adnexa procedures for the proposed new MS-DRGs 731, 732, and 733. Therefore, when multiple surgical uterine and adnexa procedures are performed, each one of which, occurring by itself, could result in assignment of the case to a different MS-DRG within the MDC to which the principal diagnosis is assigned, application of the surgical hierarchy ensures that cases involving multiple surgical procedures are assigned to the MS-DRG associated with the most resource-intensive surgical class as discussed in section II.C.14. of the preamble of the FY 2027 IPPS/LTCH PPS proposed rule and this final rule. In response to the recommendation that CMS create MS-DRGs for procedures performed concomitantly for diseases and disorders of the female reproductive system, while we consider this recommendation to be outside the scope of the proposal included in the FY 2027 IPPS/LTCH PPS proposed rule, we encourage individuals with MS-DRG classification change requests to submit these requests no later than October 20, 2026, via MEARISTM at: https://mearis.cms.gov/public/home, so that they can be considered for possible inclusion in an annual proposed rule. In response to the suggestion that facilities may decide which cases to take on due to their potential MS-DRG assignment, we note that the choice of which or how many uterine and adnexa procedures to perform should not be based on potential facility payment. As we have stated in prior rulemaking (83 FR 41201), it is not appropriate for facilities to deny treatment to beneficiaries needing a specific type of therapy or treatment that involves increased costs. Comment: A commenter stated that in reviewing the simulation of the proposal to create a base MS-DRG for cases reporting uterine and adnexa procedures and a principal diagnosis describing a female reproductive system malignancy, split by a three-way severity level subgroup, they were concerned that a non-equitable spread of cases across the three new MS-DRGs [[Page 49636]] could potentially result in lower average costs and lengths of stay for more complex cases. This commenter stated that CMS is proposing a fixed payment rate for the MCC cases to be $33,213, for CC cases to be $17,889, and for NonCC cases to be $13,411, and asserted that with the majority of cases being found at the CC level, it is imperative to ensure that the average cost is set as close to actualized resource use as possible. This commenter further recommended an ongoing review of usage and actualized costs of these new MS-DRGs to better understand where the average costs should land when usage stabilizes and recommended that CMS increase the average costs of the MCC cases to be closer to the outlier fixed-loss cost threshold in order to maintain financial stability within facilities working these cases and ensure access to these services does not continue to decrease due to potentially inadequate payment. Response: We thank the commenter for expressing their concerns. In response to the suggestion that CMS set the average costs of the cases at the CC level, and increase the average costs for MCC cases, we wish to clarify for the commenter that the average costs displayed in the table reflecting the simulation of the proposal do not reflect fixed payment rates for the proposed new MS-DRGs and furthermore, we wish to note that CMS does not set or establish the average costs of the cases in any MS-DRG. The simulation of the proposal as described in the FY 2027 IPPS/ LTCH PPS proposed rule was based on analysis of claims data from the September 2025 update of the FY 2025 MedPAR file. As discussed in section II.C.1.b of the preamble of the FY 2027 IPPS/LTCH PPS proposed rule and this final rule, our MS-DRG analysis was based on ICD-10 claims data from the September 2025 update of the FY 2025 MedPAR file, which contains fully coded diagnostic and procedure data for all Medicare inpatient hospital bills received from October 1, 2024, through September 30, 2025. Consequently, the values reflected in the ``number of cases'', ``average length of stay'', and ``average costs'' columns of the tables in the preamble of the proposed rule and this final rule are driven by the underlying claims data for cases reporting uterine and adnexa procedures and a principal diagnosis describing a female reproductive system malignancy from the September 2025 update of the FY 2025 MedPAR file. Therefore, after consideration of the public comments we received, we are finalizing our proposal to delete MS-DRGs 736, 737, 738, 739, 740, and 741 and finalizing our proposal to create new MS-DRG 731 (Uterine and Adnexa Procedures for Malignancy with MCC), new MS-DRG 732 (Uterine and Adnexa Procedures for Malignancy with CC), and new MS-DRG 733 (Uterine and Adnexa Procedures for Malignancy without CC/MCC), effective October 1, 2026, without modification, for FY 2027. Under this finalization, the current list of 689 ICD-10-PCS procedure codes in the logic for MS-DRGs 736, 737, 738, 739, 740, and 741 will be included for case assignment of uterine and adnexa procedures for the new MS-DRGs 731, 732, and 733. We refer the reader to Table 6P.5a and Table 6P.5b associated with the FY 2027 IPPS/LTCH PPS proposed rule (which is available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index) for the list of diagnosis codes and the list of procedure codes, respectively, that we are finalizing to define in the logic for each of the new MS-DRGs. We note that the surgical hierarchy for the finalized modification is discussed in section II.C.14. of the preamble of this final rule. 9. MDC 25 (Human Immunodeficiency Virus Infections): Significant HIV Related Conditions As discussed in the proposed rule, under the ICD-10 IPPS MS-DRGs, each of the 25 MDCs generally reflect a major organ system or etiology. Within each MDC, there is a list of all the possible ICD-10-CM diagnoses or conditions that correspond to the specific organ system(s) or etiology reflected by the respective MDC title to ensure clinical coherence. When one of the listed conditions for a designated MDC is reported as a principal or secondary diagnosis, the ICD-10-CM diagnosis code informs the resulting MS-DRG assignment from within that MDC. The logic for case assignment under MDC 25 (Human Immunodeficiency Virus Infections) is comprised of ICD-10-CM diagnosis code B20 (Human immunodeficiency virus [HIV] disease) when reported as a principal diagnosis or when reported as a secondary diagnosis with a principal diagnosis of a significant HIV related condition and the logic for case assignment specifically to MS-DRGs 974, 975, and 976 (HIV with Major Related Condition with MCC, with CC, without CC/MCC, respectively) under MDC 25 is comprised of ICD-10-CM diagnosis code B20 when reported as a principal or secondary diagnosis with a principal or secondary diagnosis of a major related condition as displayed in the ICD-10 MS- DRG Definitions Manual, Version 43.1 (available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software). We noted in the proposed rule that in reviewing the listed diagnoses that fall under the MDC 25 header ``AND PRINCIPAL DIAGNOSIS OF SIGNIFICANT HIV RELATED CONDITION'' as reflected in the ICD-10 MS-DRG Definitions Manual, Version 43.1, we identified that a number of the listed diagnoses under this specific header overlap with the listed diagnoses in the logic list for case assignment to MS-DRGs 974, 975, and 976 as a major related condition of HIV, as displayed in the ICD-10 MS-DRG Definitions Manual, Version 43.1. To improve clarity of the listed diagnoses between the header that reflects ``SIGNIFICANT'' and the diagnoses listed in the logic for case assignment to MS-DRGs 974, 975, and 976 described as ``Major'', we stated we believe the term ``SIGNIFICANT'' should be removed from the header under MDC 25. As also discussed in the proposed rule, we identified a subset of diagnoses listed under the header ``AND PRINCIPAL DIAGNOSIS OF SIGNIFICANT HIV RELATED CONDITION'' that do not appear to describe a significant HIV related condition. For example, ICD-10-CM diagnosis code A09 Infectious gastroenteritis and colitis, unspecified, and ICD- 10-CM diagnosis code A74.9 Chlamydial infection, unspecified, are listed under the current significant HIV header list of diagnoses; however, these same diagnoses are not listed as a major condition under MS-DRGs 974, 975, and 976. We stated we do not believe these conditions are clinically appropriate to be included as a significant HIV related condition. We further stated that we intend to perform additional review and analysis of the diagnoses listed in the logic for case assignment to MDC 25 as well as specifically, the logic for case assignment to MS-DRGs 974, 975, and 976 in consideration of any potential modifications that may be warranted. We noted that any discussion regarding proposed changes will be discussed in future rulemaking. Therefore, for FY 2027, we proposed to remove the term ``SIGNIFICANT'' under the header for MDC 25 and revise it to reflect, ``AND PRINCIPAL DIAGNOSIS OF HIV RELATED CONDITION''. Comment: Commenters supported the proposal to remove the term ``SIGNIFICANT'' under the header for MDC 25 and revise it to reflect, ``AND [[Page 49637]] PRINCIPAL DIAGNOSIS OF HIV RELATED CONDITION''. A commenter who expressed support for the proposal stated that the proposed change maintains the underlying logic for case assignment under the MDC 25 MS- DRGs while reducing confusion between the terms ``significant'' and ``major'' HIV-related conditions. The commenter stated that because the proposal improves consistency and transparency in MS-DRG descriptions they considered this proposed change to be an appropriate and noncontroversial technical update. Response: We appreciate the commenters' support. After consideration of the public comments we received, we are finalizing, without modification, our proposal to remove the term ``SIGNIFICANT'' under the header for MDC 25 and revise it to reflect, ``AND PRINCIPAL DIAGNOSIS OF HIV RELATED CONDITION''. 10. Review of Procedure Codes in MS-DRGs 981 Through 983 and 987 Through 989 We annually conduct a review of procedures producing assignment to MS-DRGs 981 through 983 (Extensive O.R. Procedure Unrelated to Principal Diagnosis with MCC, with CC, and without CC/MCC, respectively) or MS-DRGs 987 through 989 (Non-Extensive O.R. Procedure Unrelated to Principal Diagnosis with MCC, with CC, and without CC/MCC, respectively) on the basis of volume, by procedure, to see if it would be appropriate to move cases reporting these procedure codes out of these MS-DRGs into one of the surgical MS-DRGs for the MDC into which the principal diagnosis falls. The data are arrayed in two ways for comparison purposes. We look at a frequency count of each major operative procedure code. We also compare procedures across MDCs by volume of procedure codes within each MDC. We use this information to determine which procedure codes and diagnosis codes to examine. We identify those procedures occurring in conjunction with certain principal diagnoses with sufficient frequency to justify adding them to one of the surgical MS-DRGs for the MDC in which the diagnosis falls. We also consider whether it would be more appropriate to move the principal diagnosis codes into the MDC to which the procedure is currently assigned. Based on the results of our review of the claims data from the September 2025 update of the FY 2025 MedPAR file of cases found to group to MS-DRGs 981 through 983 or MS-DRGs 987 through 989, we did not identify any cases for reassignment and did not propose to move any cases from MS-DRGs 981 through 983 or MS-DRGs 987 through 989 into a surgical MS-DRG for the MDC into which the principal diagnosis or procedure is assigned. In addition to the internal review of procedures producing assignment to MS-DRGs 981 through 983 or MS-DRGs 987 through 989, we also consider requests that we receive to examine cases found to group to MS-DRGs 981 through 983 or MS-DRGs 987 through 989 to determine if it would be appropriate to add procedure codes to one of the surgical MS-DRGs for the MDC into which the principal diagnosis falls or to move the principal diagnosis to the surgical MS-DRGs to which the procedure codes are assigned. We stated we did not receive any requests suggesting reassignment. We also review the list of ICD-10-PCS procedure codes that, when in combination with their principal diagnosis code, result in assignment to MS-DRGs 981 through 983, or 987 through 989, to ascertain whether any of those procedure codes should be reassigned from one of those two groups of MS-DRGs to the other group of MS-DRGs based on average costs and the length of stay. We look at the data for trends such as shifts in treatment practice or reporting practice that would make the resulting MS-DRG assignment illogical. If we find these shifts, we would propose to move cases to keep the MS-DRGs clinically similar or to provide payment for the cases in a similar manner. Generally, we move only those procedure codes for which we have an adequate number of discharges to analyze the data. Additionally, we also consider requests that we receive to examine cases found to group to MS-DRGs 981 through 983 or MS-DRGs 987 through 989 to determine if it would be appropriate for the cases to be reassigned from one of the MS-DRG groups to the other. We stated that based on the results of our review of the claims data from the September 2025 update of the FY 2025 MedPAR file we did not identify any cases for reassignment. We also stated we did not receive any requests suggesting reassignment. Therefore, for FY 2027 we did not propose to move any cases reporting procedure codes from MS-DRGs 981 through 983 to MS-DRGs 987 through 989 or vice versa. Comment: Commenters expressed support for CMS' proposal to not move any cases reporting procedure codes from MS-DRGs 981 through 983 to MS- DRGs 987 through 989 or vice versa. Response: We appreciate the commenters' support. After consideration of the public comments we received, we are finalizing, without modification, our proposal to not move any cases reporting procedure codes from MS-DRGs 981 through 983 to MS-DRGs 987 through 989 or vice versa. 11. Operating Room (O.R.) and Non-O.R. Procedures a. Background Under the IPPS MS-DRGs (and former CMS MS-DRGs), we have a list of procedure codes that are considered operating room (O.R.) procedures. Historically, we developed this list using physician panels that classified each procedure code based on the procedure and its effect on consumption of hospital resources. For example, generally the presence of a surgical procedure which required the use of the operating room would be expected to have a significant effect on the type of hospital resources (for example, operating room, recovery room, and anesthesia) used by a patient, and therefore, these patients were considered surgical. Because the claims data generally available do not precisely indicate whether a patient was taken to the operating room, surgical patients were identified based on the procedures that were performed. Generally, if the procedure was not expected to require the use of the operating room, the patient would be considered medical (non-O.R.). Currently, each ICD-10-PCS procedure code has designations that determine whether and in what way the presence of that procedure on a claim impacts the MS-DRG assignment. First, each ICD-10-PCS procedure code is either designated as an O.R. procedure for purposes of MS-DRG assignment (``O.R. procedures'') or is not designated as an O.R. procedure for purposes of MS-DRG assignment (``non-O.R. procedures''). Second, for each procedure that is designated as an O.R. procedure, that O.R. procedure is further classified as either extensive or non- extensive. Third, for each procedure that is designated as a non-O.R. procedure, that non-O.R. procedure is further classified as either affecting the MS-DRG assignment or not affecting the MS-DRG assignment. We refer to these designations that do affect MS-DRG assignment as ``non-O.R. affecting the MS-DRG.'' For new procedure codes that have been finalized through the ICD-10 Coordination and Maintenance Committee code update process and are proposed to be classified as O.R. [[Page 49638]] procedures or non-O.R. procedures affecting the MS-DRG, we recommend the MS-DRG assignment which is then made available in association with the proposed rule (Table 6B.--New Procedure Codes) and subject to public comment. These proposed assignments are generally based on the assignment of predecessor codes or the assignment of similar codes. For example, we generally examine the MS-DRG assignment for similar procedures, such as the other approaches for that procedure, to determine the most appropriate MS-DRG assignment for procedures proposed to be newly designated as O.R. procedures. As discussed in section II.C.15 of the preamble of this final rule, we are making Table 6B.--New Procedure Codes--FY 2027 available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps.html. We also refer readers to the ICD-10 MS-DRG Version 43.1 Definitions Manual at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software.html for detailed information regarding the designation of procedures as O.R. or non-O.R. (affecting the MS-DRG) in Appendix E-- Operating Room Procedures and Procedure Code/MS-DRG Index. In the FY 2020 IPPS/LTCH PPS proposed rule (84 FR 19230), we stated that, given the long period of time that has elapsed since the original O.R. (extensive and non-extensive) and non-O.R. designations were established, the incremental changes that have occurred to these O.R. and non-O.R. procedure code lists, and changes in the way inpatient care is delivered, we plan to conduct a comprehensive, systematic review of the ICD-10-PCS procedure codes. This will be a multiyear project during which we will also review the process for determining when a procedure is considered an operating room procedure. For example, we may restructure the current O.R. and non-O.R. designations for procedures by leveraging the detail that is now available in the ICD-10 claims data. We refer readers to the discussion regarding the designation of procedure codes in the FY 2018 IPPS/LTCH PPS final rule (82 FR 38066) where we stated that the determination of when a procedure code should be designated as an O.R. procedure has become a much more complex task. This is, in part, due to the number of various approaches available in the ICD-10-PCS classification, as well as changes in medical practice. While we have typically evaluated procedures on the basis of whether or not they would be performed in an operating room, we believe that there may be other factors to consider with regard to resource utilization, particularly with the implementation of ICD-10. We discussed in the FY 2020 IPPS/LTCH PPS proposed rule (84 FR 19230) that, as a result of this planned review and potential restructuring, procedures that are currently designated as O.R. procedures may no longer warrant that designation, and conversely, procedures that are currently designated as non-O.R. procedures may warrant an O.R. designation. We intend to consider the resources used and how a procedure should affect the MS-DRG assignment. We may also consider the effect of certain surgical approaches to evaluate whether to subdivide a subset of MS-DRGs based on a specific surgical approach. We stated we plan to utilize our available MedPAR claims data as a basis for this review and the input of our clinical advisors. As part of this comprehensive review of the procedure codes, we also intend to evaluate the MS-DRG assignment of the procedures and the current surgical hierarchy because both of these factor into the process of refining the ICD-10 MS-DRGs to better recognize complexity of service and resource utilization. In the FY 2021 IPPS/LTCH PPS final rule (85 FR 58540 through 58541), we provided a summary of the comments we had received in response to our request for feedback on what factors or criteria to consider in determining whether a procedure is designated as an O.R. procedure in the ICD-10-PCS classification system for future consideration. We also stated that in consideration of the PHE, we believe it may be appropriate to allow additional time for the claims data to stabilize prior to selecting the timeframe to analyze for this review. As discussed in the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19366), we continue to believe additional time is necessary as we continue to develop our process and methodology. Comment: Commenters supported CMS' plan to continue to conduct a comprehensive, systematic review of the ICD-10-PCS codes and to evaluate their current O.R. and non-O.R. designations. These commenters expressed that they were supportive of CMS' decision to continue to develop our process and methodology. Commenters stated they share CMS' interest in appropriately identifying the service complexity and resource utilization of inpatient procedures as these distinctions can materially affect the MS-DRG assignment and payment by determining whether the resource demands of a procedure are appropriately recognized. A commenter stated they appreciate CMS providing an update on its consideration of changes to the O.R. versus non-O.R. designation framework. Another commenter stated they agreed that the performance of a procedure in an operating room may no longer be the most critical differentiator between resource-intensive procedures for MS-DRG purposes. A commenter stated they agreed that the revolution in medical procedures in recent years may render the performance of a procedure in an O.R. a less critical distinction in driving payment policy and stated that because of technological advances, sophisticated, resource- intensive procedures are no longer confined to the O.R. setting and noted that in their observation, bi-plane radiology interventional suites and cardiac catheterization labs used for procedures such as mechanical thrombectomy or endovascular coiling for aneurysms can utilize more advanced equipment and supplies than a basic operating room with minimal installed equipment. Commenters recommended that CMS provide opportunities for public comment regarding its methodology and provide detailed impact files prior to the adoption of changes to MS- DRG structures or procedure code designations in the future. Response: We appreciate the commenters' support and thank the commenters for sharing their views. We agree with commenters and believe that there may be other factors to consider with regard to resource utilization, particularly with the implementation of ICD-10. Consistent with our established process, once we are in a position to provide more detail on this analysis and the methodology for conducting this comprehensive review, we will do so in future rulemaking, which will provide the public, including any interested parties, the opportunity to review and comment. We will also explore additional means of eliciting feedback and will notify the public of any other opportunities for communication and comment in the future. Comment: As part of the broader and continuing conversation about the designations of procedures in the ICD-10-PCS classification system, a few commenters recommended that CMS work closely with physician specialty societies and industry stakeholders to identify the most important drivers of complexity and resource use in the hospital setting to incorporate into the [[Page 49639]] MS-DRG hierarchy. Several commenters specifically recommended that CMS include registered nurses when reviewing methodologies for determining the designation of procedure codes in the ICD-10-PCS classification system and noted that nurses are an integral part of the healthcare team, work closely with physicians in the operating room, and have firsthand knowledge and experience to know what hospital resources are needed for procedures. Other commenters further stated that omitting nurses only serves to discount their perspectives and could result in decision making that does not fully capture the hospital resources needed. Some commenters noted in the proposed rule we stated that historically we developed the list of procedure codes that are considered O.R. procedures using physician panels that classified each procedure code based on the procedure and its effect on consumption of hospital resources. These commenters noted in the CY 2024 Physician Fee Schedule, CMS began using the term practitioner instead of physician to explicitly include all practitioners involved in the delivery of health care services, including nurses and recommended CMS change the name of the panels to ``practitioner panels'' to be consistent in its use of the term practitioner. Response: We appreciate the commenters' feedback and will take the suggestions into consideration. We note that, as discussed in the CY 2024 Physician Fee Schedule (PFS) final rule (88 FR 78820), unless otherwise noted, the term ``practitioner'' is used throughout that final rule to describe both physicians and nonphysician practitioners (NPPs) who are permitted to bill Medicare under the PFS for the services they furnish to Medicare beneficiaries. In regard to O.R. and non-O.R. designations, we note that while historically we may have developed the list of procedure codes that are considered O.R. procedures using physician panels, as we continue to develop our process and methodology to conduct a comprehensive, systematic review of the ICD-10-PCS procedure codes, CMS has already convened an internal team comprised of clinicians, consultants, coding specialists and other policy analysts. We have also provided the opportunity for interested parties to provide feedback as to what factors to consider in evaluating O.R. versus non-O.R. designations, and we welcome further input and feedback from interested parties, including nurses. While we do not agree that the term ``practitioner panel'' would be fully representative of the comprehensive expertise and varying viewpoints that will be provided by the internal team, we will consider a utilizing a term that better reflects the perspectives offered when referring to the team in future rulemaking. Comment: Other commenters noted that for several years, CMS has expressed its intention to undertake a multi-year, comprehensive review of its system for designating ICD-10-PCS procedure codes as either O.R. or non-O.R. procedures to account for hospital resources. While expressing support for CMS' continued solicitation of stakeholder feedback, a commenter stated that they were concerned that CMS has again deferred meaningful progress on the comprehensive, multiyear review it has discussed in prior rulemaking and instead states that additional time is needed to develop its process and methodology. This commenter expressed that they believe the absence of further methodological development in the FY 2027 IPPS/LTCH PPS proposed rule prolongs uncertainty for hospitals and clinicians whose services may be affected by outdated procedure code designations and encouraged CMS to move from general statements of intent to a more transparent and actionable framework in future rulemaking, including a clear timeline for review, opportunities for specialty society input and explicit criteria for evaluating procedures whose resource intensity may not be well captured by legacy O.R. and non-O.R. designations. Response: We thank the commenters for their feedback. We acknowledge that CMS has indicated we plan to conduct a comprehensive, systematic review of the ICD-10-PCS procedure codes since the FY 2018 IPPS/LTCH PPS final rule. We wish to emphasize we have consistently indicated in prior rulemaking that this will be a multiyear project as extensive analyses are required to identify and evaluate all of the data relevant to assessing any potential modifications. Recognizing sufficient time is needed to provide feedback on what factors or criteria to consider in determining whether a procedure should be designated as an O.R. procedure in the ICD-10-PCS classification system, we also have provided opportunity for the public to provide feedback and we continue to solicit input. As discussed in the FY 2024 IPPS/LTCH PPS final rule (88 FR 58749), we have signaled in prior rulemaking that the designation of an O.R. procedure encompasses more than the physical location of the hospital room in which the procedure may be performed; in other words, the performance of a procedure in an operating room is not the sole determining factor we will consider as we examine the designation of a procedure in the ICD-10-PCS classification system. We stated we are exploring alternatives on how we may restructure the current O.R. and non-O.R. designations for procedures by leveraging the detail that is available in the ICD-10 claims data. As part of this comprehensive review of the procedure codes, we are considering renaming the designations that determine whether and in what way the presence of that procedure on a claim impacts the MS-DRG assignment (that is, ``O.R. procedures'', ``non-O.R. procedures'', or ``non O.R. affecting the MS-DRG'') for consistency, as discussed in prior rulemaking (90 FR 36620). As part of this evaluation, we will also analyze the ICD-10 coded claims data to determine if the patients' diagnoses, the objective of the procedure performed, the specific anatomical site where the procedure is performed or the surgical approach used (for example, open, percutaneous, percutaneous endoscopic, among others) factor into the resources used and how a procedure should affect the MS-DRG assignment. We also intend to evaluate the MS-DRG assignment of the procedures and the current surgical hierarchy because both of these factor into the process of refining the ICD-10 MS-DRGs to better recognize complexity of service and resource utilization. We are considering the feedback received on what factors and/or criteria to consider in determining whether a procedure is designated as an O.R. procedure in the ICD-10-PCS classification system as we continue to develop our process and methodology. Once we are in a position to provide more detail on this analysis and the methodology for conducting this comprehensive review, we will do so in future rulemaking. We continue to encourage the public to continue to submit comments and feedback on any other factors to consider in our refinement efforts to recognize and differentiate consumption of resources for procedures within the ICD-10 MS-DRGs under the IPPS. We will also explore additional means of eliciting feedback and will notify the public of any other opportunities for communication and comment in the future. We also refer readers to Appendix E of the ICD-10 MS-DRG Version 43.1 Definitions Manual (which is available on the CMS website at: https:// www.cms.gov/Medicare/ [[Page 49640]] Medicare-Feefor-Service-Payment/AcuteInpatientPPS/MS- DRGClassifications-and-Software) for a list of all the ICD-10-PCS procedure codes that affect MS-DRG assignment (that is, procedure codes designated as O.R. procedures or as non-O.R. procedures affecting the MS-DRG), the MDCs and MS-DRGs to which they are assigned, and a description of the surgical categories. We encourage individuals with comments about the appropriate MDC, MS-DRG, and operating room designation of ICD-10-PCS procedure codes to submit these comments no later than October 20th of each year, via the Medicare Electronic Application Request Information SystemTM (MEARISTM) at: https://mearis.cms.gov/public/home, so that they can be considered for possible inclusion in an annual proposed rule. As discussed in the FY 2027 IPPS/LTCH PPS proposed rule, we received requests regarding changing the designation of specific ICD- 10-PCS procedure codes from non-O.R. to O.R. procedures. In this section of the preamble of this final rule, as we did in the proposed rule, we summarize and respond to those requests. In this section of the preamble of this final rule, we also discuss the proposals we made based on our internal review and analysis and the process that was utilized for evaluating each procedure code. For each procedure, we considered-- Whether the procedure would typically require the resources of an operating room; Whether it is an extensive or a non-extensive procedure; and To which MS-DRGs the procedure should be assigned. We note that many MS-DRGs require the presence of any O.R. procedure. As a result, cases with a principal diagnosis associated with a particular MS-DRG would, by default, be grouped to that MS-DRG. Therefore, we do not list these MS-DRGs in our discussion in this section of the preamble of this final rule. Instead, we only discuss MS-DRGs that require explicitly adding the relevant procedure codes to the GROUPER logic in order for those procedure codes to affect the MS- DRG assignment as intended. For procedures that would not typically require the resources of an operating room, we determined if the procedure should affect the MS-DRG assignment. In cases where we proposed to change the designation of procedure codes from non-O.R. procedures to O.R. procedures, we also proposed one or more MS-DRGs with which these procedures are clinically aligned and to which the procedure code would be assigned. In addition, cases that contain O.R. procedures will map to MS-DRGs 981, 982, or 983 (Extensive O.R. Procedure Unrelated to Principal Diagnosis with MCC, with CC, and without CC/MCC, respectively) or MS- DRGs 987, 988, or 989 (Non-Extensive O.R. Procedure Unrelated to Principal Diagnosis with MCC, with CC, and without CC/MCC, respectively) when they do not contain a principal diagnosis that corresponds to one of the MDCs to which that procedure is assigned. These procedures need not be assigned to MS-DRGs 981 through 989 in order for this to occur. Therefore, we did not specifically address that aspect in summarizing the request and our response to that request or the proposals we made based on our internal review and analysis in the proposed rule and this section of the preamble of this final rule. b. Non-O.R. Procedures to O.R. Procedures (1) Introduction of Allogeneic Pancreatic Islet Cellular Suspension As discussed in the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19366 through 19367), we received a request to change the designation of ICD-10-PCS code XW033DA (Introduction of donislecel-jujn allogeneic pancreatic islet cellular suspension into peripheral vein, percutaneous approach, new technology group 10) from a non-O.R. procedure to a O.R. procedure. Donislecel-jujn (LantidraTM) is Food & Drug Administration (FDA) approved as an allogeneic pancreatic islet cellular therapy indicated for the treatment of adults with type 1 diabetes (T1D) who are unable to approach target HbA1c because of current, repeated episodes of severe hypoglycemia despite intensive diabetes management and education. Donislecel-jujn (LantidraTM) consists of a suspension of allogeneic pancreatic islets of Langerhans derived from a donor pancreas in buffered transplant medium containing sodium chloride, dextrose, minerals, amino acids, vitamins, and other compounds supplemented with HEPES (2-[4-(2-hydroxyethyl) piperazin-1-yl] ethanesulfonic acid; 10 mM final concentration) and human serum albumin (0.5 percent final concentration). In the ICD-10 MS-DRGs Definitions Manual Version 43.1, procedure code XW033DA is currently designated as a non-O.R. procedure affecting assignment to MS-DRGs 673, 674, and 675 (Other Kidney and Urinary Tract Procedures with MCC, with CC, and without CC/MCC, respectively). We refer the reader to the ICD-10 MS-DRG Version 43.1 Definitions Manual (which is available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software for complete documentation of the GROUPER logic for the MS-DRGs 673, 674, and 675. According to the requestor, the clinical characteristics and costs of cases assigned to MS-DRGs 673 through 675 are significantly different from those associated with the administration of donislecel- jujn (LantidraTM). The requestor states that the cost of donislecel-jujn (LantidraTM) is high due to complex and highly regulated manufacturing processes for biologic cell products. According to the requestor, code XW033DA should be assigned to Pre MDC MS-DRG 018 (Chimeric Antigen Receptor (CAR) T-Cell and Other Immunotherapies) because donislecel-jujn (LantidraTM) is similar to other CAR-T technologies that map to DRG 018 as a cellular product, and in regard to procedure complexity, high cost, and is indicated for a rare patient population. We reviewed this issue as discussed in the proposed rule and noted a proposal to create a procedure code that describes the administration of donislecel-jujn was presented and discussed at the March 19-20, 2024 ICD-10 Coordination and Maintenance Committee meeting and subsequently finalized. For new procedure codes that have been finalized through the ICD-10 Coordination and Maintenance Committee code update process, we recommend the O.R. designation, which is generally based on the assignment of predecessor codes or the assignment of similar codes. Consistent with our annual process of assigning new procedure codes to MDCs and MS-DRGs and designating a procedure as an O.R. or non-O.R. procedure, we reviewed the predecessor procedure code assignment. The predecessor code for procedure code XW033DA is procedure code 3E033U1 (Introduction of nonautologous pancreatic islet cells into peripheral vein, percutaneous approach) which is designated as a non-O.R. procedure affecting assignment to MS-DRGs 673, 674, and 675 (Other Kidney and Urinary Tract Procedures with MCC, with CC, and without CC/ MCC, respectively). We analyzed claims data from the September 2025 update of the FY 2025 MedPAR file for MS-DRGs 673, 674, and 675 for cases reporting procedure code XW033DA and did not find any [[Page 49641]] cases. We then extended our analysis to all MS-DRGs and again did not find any cases. We noted that these procedures do not typically require the resources of an operating room and are not surgical in nature. As such, we stated we disagree with designating procedure code XW033DA, which describes the intravenous portal vein administration of donislecel-jujn, as an O.R. procedure. As discussed in the proposed rule, in reviewing this request, we noted the underlying intent of this request was to change the MS-DRG assignment of procedure code XW033DA from MS-DRGs 673, 674, and 675 to MS-DRG 018. In regard to the reassignment of procedure code XW033DA to MS-DRG 018, we noted that the category of cell and gene therapies continues to evolve. As discussed in prior rulemaking (90 FR 36554 through 36560), we are in the process of carefully considering the feedback we have previously received about ways in which we can continue to appropriately reflect resource utilization associated with cell and gene therapies while maintaining clinical coherence and stability in the relative weights under the IPPS MS-DRGs. We continue to examine these complex issues in consideration for future rulemaking. We acknowledge that there may be distinctions to account for as we continue to gain more experience in the use of these therapies and have additional claims data to analyze. We stated we believe this topic, relating to the administration of donislecel-jujn (LantidraTM), an allogeneic (donor) pancreatic islet cellular therapy, is appropriately aligned with and should be considered as part of that broader effort. Therefore, for the reason discussed, we proposed to maintain the current designation of procedure code XW033DA as ``non-O.R. affecting the MS-DRG'' for FY 2027. Comment: Commenters supported CMS' proposal to maintain the designation of procedure code XW033DA as ``non-O.R. affecting the MS- DRG'' for FY 2027. Response: We appreciate the commenters' support. Comment: While not taking a position on the O.R. or non-O.R. designation of ICD-10-PCS code XW033DA, several commenters stated that this proposal provided an opportunity to raise an ongoing, structural concern as they believe that CMS lacks a transparent, predictable, and clinically coherent framework for determining which cell and gene therapies map to MS-DRG 018 (Chimeric Antigen Receptor (CAR) T-Cell and Other Immunotherapies) versus other MS-DRGs, which makes it difficult for manufacturers and academic medical centers to anticipate MS-DRG mapping, complicates economic modeling, and creates payment volatility that ultimately affects patient access. These commenters urged CMS to develop and publish, through notice-and-comment rulemaking, prospective criteria for assignment to MS-DRG 018 as the cell and gene therapy product landscape continues to expand and recommended that CMS solicit public input on the broader assignment of cell and gene therapies into the MS-DRG system to improve Medicare inpatient payment for other existing and future cell and gene therapies as the field evolves. Response: We thank commenters for sharing their views and recommendations. We will take the commenters' feedback into consideration in future policy development. As discussed in the FY 2027 proposed rule, and in prior rulemaking (90 FR 36554 through 36560), we are in the process of carefully considering the feedback we have previously received about ways in which we can continue to appropriately reflect resource utilization associated with cell and gene therapies while maintaining clinical coherence and stability in the relative weights under the IPPS MS-DRGs. We continue to examine these complex issues in consideration for future rulemaking. After consideration of the public comments received, we are finalizing our proposal to maintain the designation of procedure code XW033DA (Introduction of donislecel-jujn allogeneic pancreatic islet cellular suspension into peripheral vein, percutaneous approach, new technology group 10) as ``non-O.R. affecting the MS-DRG'', for FY 2027. We refer the reader to the discussion in section II.C.6.b. of this final rule, regarding the finalized modifications for cases currently mapping to MS-DRGs 673, 674, and 675, effective October 1, 2026, for FY 2027. (2) Percutaneous Introduction of AGN1 Bone Void Filler Into Bones As discussed in the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19367 through 19368), one requestor identified ICD 10-PCS procedure code XW0V3WA (Introduction of AGN1 bone void filler into bones, percutaneous approach, new technology group 10) that the requestor stated is currently not recognized as an O.R. procedure for purposes of MS-DRG assignment. The requestor noted that the Local Osteo-Enhancement Procedure (LOEP) is an investigational surgical procedure designed to mechanically strengthen the proximal femur to reduce the risk of hip fractures in patients who are known to have weakened bones or other factors leading to a high risk of hip fracture. According to the requestor, the AGN1 LOEP Kit is expected to be indicated to reduce the risk of hip fracture in patients at risk of fragility fracture and require access to specialized equipment only available in the operating room (including anesthesia, C-arm, operating table, etc.). The requestor stated that FDA approval of the AGN1 LOEP Kit is anticipated in late 2027. According to the requestor, there may be situations where the procedure could be performed as a standalone procedure. The requestor noted the procedure may be performed under any one of the following three clinical scenarios (1) unilateral, standalone cases: a patient has one hip treated in a scheduled procedure, (2) bilateral, standalone cases: a patient has both hips treated in a scheduled procedure, or (3) concomitant to an index hip fragility fracture in the unfractured, contralateral hip: a patient has their index hip fracture repaired and then the procedure utilizing the LOEP kit is performed to treat the unfractured, contralateral hip during the same operative session. Therefore, the requestor stated that this procedure should be recognized as an O.R. procedure for purposes of MS-DRG assignment. In the proposed rule we stated we agree with the requestor that in the ICD-10 MS-DRGs Definitions Manual Version 43.1, procedure code XW0V3WA is designated as a non-O.R. procedure for purposes of MS-DRG assignment; therefore, when the introduction of AGN1 bone void filler is reported with a procedure code that describes a surgical procedure, the ICD-10-PCS code describing the surgical procedure will determine the surgical MS-DRG assignment based on the principal diagnosis reported. We reviewed this issue and note a proposal to create a procedure code that describes the percutaneous introduction of AGN1 bone void filler into bones was presented and discussed at the September 12-13, 2023 ICD-10 Coordination and Maintenance Committee meeting and subsequently finalized. For new procedure codes that have been finalized through the ICD-10 Coordination and Maintenance Committee code update process, we recommend the O.R. designation, which is generally based on the assignment of predecessor codes or the assignment of similar codes. Consistent with our annual process of assigning new procedure codes to MDCs and MS- [[Page 49642]] DRGs and designating a procedure as an O.R. or non-O.R. procedure, we reviewed the predecessor procedure code assignment. The predecessor code for procedure code XW0V3WA is procedure code 3E0V3GC (Introduction of other therapeutic substance into bones, percutaneous approach) which is designated as a non-O.R. procedure. To evaluate the frequency with which procedure code XW0V3WA is reported for different clinical scenarios, as discussed in the proposed rule, we examined claims data from the September 2025 update of the FY 2025 MedPAR file to determine the MS-DRGs reporting procedure code XW0V3WA. Our findings are shown in the following table. [GRAPHIC] [TIFF OMITTED] TR04AU26.075 There were four cases reporting the percutaneous introduction of AGN1 bone void filler into bones with procedure code XW0V3WA. Overall, the data indicate that the percutaneous introduction of AGN1 bone void filler into bones was not the underlying reason for, or main driver of, resource utilization for those cases. As shown in the table, when the procedure code XW0V3WA is reported, the MS-DRGs assigned are classified as surgical MS-DRGs which indicates that at least one procedure code designated as an O.R. procedure was also reported in these cases. We refer the reader to the ICD-10 MS-DRG Version 43.1 Definitions Manual (which is available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software) for complete documentation of the GROUPER logic for the listed MS-DRGs. After reviewing the claims data, in the proposed rule we stated we believe it is premature to consider a proposal to change the designation of the procedure code that describes the percutaneous introduction of AGN1 bone void filler into bones. While the September 2025 update of the FY 2025 MedPAR file does contain claims reporting the percutaneous introduction of AGN1 bone void filler into bones, the number of cases is small across the MS-DRGs. Additionally, as stated previously, when the procedure code XW0V3WA is reported, the MS-DRGs assigned are classified as surgical MS-DRGs, which indicates that at least one procedure code designated as an O.R. procedure was also reported in these cases. We stated we did not have claims data to further examine the impact of the percutaneous introduction of AGN1 bone void filler into bones when performed as a standalone procedure. The claims data also reflect a wide variance with regard to the average costs and average lengths of stay for the cases reporting the percutaneous introduction of AGN1 bone void filler into bones. As such, we stated we disagree with designating the procedure code that describes the percutaneous introduction of AGN1 bone void filler into bones as an O.R. procedure for FY 2027. As noted previously, the Local Osteo-Enhancement Procedure (LOEP) is an investigational surgical procedure. In the absence of additional data, we stated in the proposed rule that we believe that more time is needed to consider the clinical characteristics and resource utilization associated with this procedure before considering changing the designation of the procedure code to an O.R. procedure. We stated that in future years, we expect we will have additional data that could be used to evaluate the O.R. designation of procedure code XW0V3WA. Therefore, for the reasons discussed, we proposed to maintain the designation of procedure code XW0V3WA as non-O.R. for FY 2027. Comment: Commenters supported CMS' proposal to maintain the designation of procedure code XW0V3WA as a non-O.R. procedure for FY 2027. Response: We appreciate the commenters' support. Comment: While thanking CMS for reviewing their request to classify ICD-10-PCS code XW0V3WA as an O.R. procedure for MS-DRG assignment, a commenter (the requestor) stated they continue to believe that the complexity of service, the associated resource utilization, and the need to be performed in the operating room as a standalone surgical procedure, supports designation of XW0V3WA as an O.R. procedure. The commenter noted that LOEP, an investigational surgical procedure designed to percutaneously implant AGN1 to treat diseased osteoporotic bone to reduce the risk of fragility fractures of the hip, may be performed as an independent standalone procedure on the unfractured hip opposite to the site of a hip fracture repair during the same operative session. The commenter stated when performed as a standalone procedure in the inpatient setting, the LOEP is clinically similar to hip fracture repair and requires similar resource utilization in the O.R. (for example, specialized equipment and instrumentation). Further, this commenter stated that in the four cases reporting the percutaneous introduction of AGN1 bone void filler into bones identified by CMS, procedure code XW0V3WA may have been inaccurately reported, given that the AGN1 LOEP is not yet on the market and is undergoing clinical trials. Response: We thank the commenter for their feedback. As we have signaled in prior rulemaking (88 FR 58750), the designation of an O.R. procedure encompasses more than the physical location of the hospital room in which the procedure may be performed; in other words, the performance of a procedure in an operating room is not the sole determining factor we consider as we examine the designation of a procedure in the ICD-10-PCS classification system. As discussed in the FY 2027 IPPS/LTCH PPS proposed rule, the examination of claims data from the September 2025 update of the FY 2025 MedPAR file indicates that the percutaneous introduction of AGN1 bone void filler into bones was not the underlying reason for, or main driver of, resource utilization in the cases identified. We note that in admissions where LOEP is performed in conjunction with surgical repair of the contralateral hip, the MS-DRG assignment will be dependent on the surgical repair procedure performed. Accordingly, in the cases identified [[Page 49643]] where procedure code XW0V3WA was reported, the MS-DRGs assigned are classified as surgical MS-DRGs, which indicates that at least one procedure code designated as an O.R. procedure was also reported in these cases. We do not have claims data to further examine the impact of the percutaneous introduction of AGN1 bone void filler into bones when performed in the absence of another surgical procedure to assess whether and in what way the presence of the procedure on a claim impacts the MS-DRG assignment. As such we continue to believe it is premature to consider a change in the designation of the procedure code XW0V3WA that describes the percutaneous introduction of AGN1 bone void filler into bones. After reviewing the commenter's feedback and appreciating the concerns expressed by the commenter regarding the potential inaccurate reporting of the investigational local osteo-enhancement procedure, we believe that additional time is needed to allow for further analysis of the claims data to determine to what extent the percutaneous introduction of AGN1 bone void filler into bones has an effect on the hospital resources used by a patient in an inpatient admission. Therefore, after consideration of the public comments we received, and for the reasons discussed, we are finalizing our proposal to maintain the designation of ICD-10-PCS procedure code XW0V3WA (Introduction of AGN1 bone void filler into bones, percutaneous approach, new technology group 10) as a non-O.R. procedure, without modification, for FY 2027. 12. Changes to the MS-DRG Diagnosis Codes for FY 2027 a. Background of the CC List and the CC Exclusions List Under the IPPS MS-DRG classification system, we have developed a standard list of diagnoses that are considered CCs. Historically, we developed this list using physician panels that classified each diagnosis code based on whether the diagnosis, when present as a secondary condition, would be considered a substantial complication or comorbidity. A substantial complication or comorbidity was defined as a condition that, because of its presence with a specific principal diagnosis, would cause an increase in the length-of-stay by at least 1 day in at least 75 percent of the patients. However, depending on the principal diagnosis of the patient, some diagnoses on the basic list of complications and comorbidities may be excluded if they are closely related to the principal diagnosis. In FY 2008, we evaluated each diagnosis code to determine its impact on resource use and to determine the most appropriate CC subclassification (NonCC, CC, or MCC) assignment. We refer readers to sections II.D.2. and 3. of the preamble of the FY 2008 IPPS final rule with comment period for a discussion of the refinement of CCs in relation to the MS DRGs we adopted for FY 2008 (72 FR 47152 through 47171). b. Overview of Comprehensive CC/MCC Analysis In the FY 2008 IPPS final rule (72 FR 47159), we described our process for establishing three different levels of CC severity into which we would subdivide the diagnosis codes. The categorization of diagnoses as an MCC, a CC, or a NonCC was accomplished using an iterative approach in which each diagnosis was evaluated to determine the extent to which its presence as a secondary diagnosis resulted in increased hospital resource use. We refer readers to the FY 2008 IPPS final rule (72 FR 47159) for a complete discussion of our approach. Since the comprehensive analysis was completed for FY 2008, we have evaluated diagnosis codes individually when assigning severity levels to new codes and when receiving requests to change the severity level of specific diagnosis codes. We noted in the FY 2020 IPPS/LTCH PPS proposed rule (84 FR 19235 through 19246) that with the transition to ICD-10-CM and the significant changes that have occurred to diagnosis codes since the FY 2008 review, we believed it was necessary to conduct a comprehensive analysis once again. Based on this analysis, we proposed changes to the severity level designations for 1,492 ICD-10-CM diagnosis codes and invited public comments on those proposals. As summarized in the FY 2020 IPPS/LTCH PPS final rule, many commenters expressed concern with the proposed severity level designation changes overall and recommended that CMS conduct further analysis prior to finalizing any proposals. After careful consideration of the public comments we received, as discussed further in the FY 2020 IPPS/LTCH PPS final rule, we generally did not finalize our proposed changes to the severity designations for the ICD-10-CM diagnosis codes, other than the changes to the severity level designations for the diagnosis codes in category Z16 (Resistance to antimicrobial drugs) from a NonCC to a CC. We stated that postponing adoption of the proposed comprehensive changes in the severity level designations would allow further opportunity to provide additional background to the public on the methodology utilized and clinical rationale applied across diagnostic categories to assist the public in its review. We refer readers to the FY 2020 IPPS/LTCH PPS final rule (84 FR 42150 through 42152) for a complete discussion of our response to public comments regarding the proposed severity level designation changes for FY 2020. As discussed in the FY 2021 IPPS/LTCH PPS proposed rule (85 FR 32550), to provide the public with more information on the CC/MCC comprehensive analysis discussed in the FY 2020 IPPS/LTCH PPS proposed and final rules, CMS hosted a listening session on October 8, 2019. The listening session included a review of this methodology utilized to mathematically measure the impact on resource use. We refer readers to https://www.cms.gov/Outreach-and-Education/Outreach/OpenDoorForums/Downloads/10082019ListingSessionTrasncriptandQandAsandAudioFile.zip for the transcript and audio file of the listening session. We also refer readers to https://www.cms.gov/Medicare/MedicareFee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software.html for the supplementary file containing the mathematical data generated using claims from the FY 2018 MedPAR file describing the impact on resource use of specific ICD-10-CM diagnosis codes when reported as a secondary diagnosis that was made available for the listening session. In the FY 2021 IPPS/LTCH PPS final rule (85 FR 58550 through 58554), we discussed our plan to continue a comprehensive CC/MCC analysis, using a combination of mathematical analysis of claims data as discussed in the FY 2020 IPPS/LTCH PPS proposed rule (84 FR 19235) and the application of nine guiding principles and plan to present the findings and proposals in future rulemaking. The nine guiding principles are as follows: Represents end of life/near death or has reached an advanced stage associated with systemic physiologic decompensation and debility. Denotes organ system instability or failure. Involves a chronic illness with susceptibility to exacerbations or abrupt decline. Serves as a marker for advanced disease states across multiple different comorbid conditions. [[Page 49644]] Reflects systemic impact. Post-operative/post-procedure condition/complication impacting recovery. Typically requires higher level of care (that is, intensive monitoring, greater number of caregivers, additional testing, intensive care unit care, extended length of stay). Impedes patient cooperation or management of care or both. Recent (last 10 years) change in best practice, or in practice guidelines and review of the extent to which these changes have led to concomitant changes in expected resource use. We refer readers to the FY 2021 IPPS/LTCH PPS final rule for a complete summation of the comments we received for each of the nine guiding principles and our responses to those comments. In the FY 2022 IPPS/LTCH PPS proposed rule (86 FR 25175 through 25180), as another interval step in our comprehensive review of the severity designations of ICD-10-CM diagnosis codes, we requested public comments on a potential change to the severity level designations for ``unspecified'' ICD-10-CM diagnosis codes that we were considering adopting for FY 2022. Specifically, we noted we were considering changing the severity level designation of ``unspecified'' diagnosis codes to a NonCC where there are other codes available in that code subcategory that further specify the anatomic site. As summarized in the FY 2022 IPPS/LTCH PPS final rule, many commenters expressed concern with the potential severity level designation changes overall and recommended that CMS delay any possible change to the designation of these codes to give hospitals and their physicians time to prepare. After careful consideration of the public comments we received, we maintained the severity level designation of the ``unspecified'' diagnosis codes currently designated as a CC or MCC where there are other codes available in that code subcategory that further specify the anatomic site for FY 2022. We refer readers to the FY 2022 IPPS/LTCH PPS final rule (86 FR 44916 through 44926) for a complete discussion of our response to public comments regarding the potential severity level designation changes. Instead, for FY 2022, we finalized a new MCE code edit for ``unspecified'' codes, effective with discharges on and after April 1, 2022. We stated we believe finalizing this new edit would provide additional time for providers to be educated while not affecting the payment the provider is eligible to receive. We refer the reader to section II.D.14.e. of the preamble of the FY 2022 IPPS/LTCH PPS final rule (86 FR 44940 through 44943) for the complete discussion. As discussed in the FY 2023 IPPS/LTCH PPS final rule (87 FR 48866), we stated that as the new unspecified edit became effective beginning with discharges on and after April 1, 2022, we believed it was appropriate to not propose to change the designation of any ICD-10-CM diagnosis codes, including the unspecified codes that are subject to the ``Unspecified Code'' edit, as we continue our comprehensive CC/MCC analysis to allow interested parties the time needed to become acclimated to the new edit. In the FY 2023 IPPS/LTCH proposed rule (87 FR 28177 through 28181), we also requested public comments on how the reporting of diagnosis codes in categories Z55-Z65 might improve our ability to recognize severity of illness, complexity of illness, and/or utilization of resources under the MS-DRGs. We stated we were also interested in receiving feedback on how we might otherwise foster the documentation and reporting of the diagnosis codes describing social and economic circumstances to more accurately reflect each health care encounter and improve the reliability and validity of the coded data. In the FY 2024 IPPS/LTCH PPS final rule (88 FR 58755 through 58759), based on our analysis of the impact on resource use for the ICD-10-CM Z codes that describe homelessness and after consideration of public comments, we finalized changes to the severity levels for diagnosis codes Z59.00 (Homelessness, unspecified), Z59.01 (Sheltered homelessness), and Z59.02 (Unsheltered homelessness), from NonCC to CC. In the FY 2025 proposed rule (89 FR 35995), we noted that since the FY 2021 IPPS/LTCH PPS final rule we have continued to solicit feedback regarding the nine guiding principles, as well as other possible ways we can incorporate meaningful indicators of clinical severity. We stated we had encouraged the public to provide a detailed explanation of how applying a suggested concept or principle would ensure that the severity designation appropriately reflects resource use for any diagnosis code when providing feedback or comments. We also noted in the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26748 through 26750) we illustrated how the nine guiding principles might be applied in evaluating changes to the severity designations of diagnosis codes in our discussion of our proposed changes to the severity level designation for certain diagnosis codes that describe homelessness. After consideration of the ongoing feedback and comments we had received, we proposed to finalize the nine guiding principles. After consideration of the public comments received, and for the reasons discussed, we finalized the nine guiding principles as listed previously in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69076 through 69078). Accordingly, we stated that our evaluations to determine the extent to which the presence of a diagnosis code as a secondary diagnosis results in increased hospital resource use will include a combination of mathematical analysis of claims data as discussed in the FY 2020 IPPS/LTCH PPS proposed rule (84 FR 19235) and the application of the nine guiding principles. Additionally, in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69079 through 69084), based on our analysis of the impact on resource use for the ICD-10-CM diagnosis codes that describe inadequate housing and housing instability, and after consideration of public comments, we finalized changes to the severity levels for seven diagnosis codes for FY 2025. We refer the reader to the following section of this final rule for our finalized changes to the severity level designation for the diagnosis codes that describe homelessness, inadequate housing and housing instability for FY 2027. We have updated the Impact on Resource Use Files on the CMS website so that the public can review the mathematical data for the impact on resource use generated using claims from the FY 2019 through the FY 2025 MedPAR files. These files are posted on the CMS website at https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software. We encourage individuals with comments about the severity level designations of ICD-10-CM diagnosis codes to submit these comments no later than October 20th of each year, via the Medicare Electronic Application Request Information SystemTM (MEARISTM) at: https://mearis.cms.gov/public/home, so that they can be considered for possible inclusion in the annual proposed rule. When submitting requests to change the severity level designation of an ICD-10-CM diagnosis code when reported as a secondary diagnosis, we encourage the public to review the mathematical data for the impact on resource use generated using claims from the FY 2019 through the FY 2025 MedPAR files as well as to provide a detailed explanation of how applying [[Page 49645]] a suggested guiding principle would ensure that the severity designation appropriately reflects resource use for any diagnosis code. For new diagnosis codes approved for FY 2027, consistent with our annual process for designating a severity level (MCC, CC, or NonCC) for new diagnosis codes, we first review the predecessor code designation, followed by review and consideration of other factors that may be relevant to the severity level designation, including the severity of illness, treatment difficulty, complexity of service and the resources utilized in the diagnosis or treatment of the condition. We note that this process does not automatically result in the new diagnosis code having the same designation as the predecessor code. We refer the reader to section II.C.13 of the preamble of this final rule for the discussion of the finalized changes to the ICD-10-CM and ICD-10-PCS coding systems for FY 2027. c. Changes to Severity Levels

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

As discussed earlier in this section, in the FY 2024 IPPS/LTCH PPS final rule (88 FR 58755 through 58759), we finalized changes to the severity levels for diagnosis codes Z59.00 (Homelessness, unspecified), Z59.01 (Sheltered homelessness), and Z59.02 (Unsheltered homelessness), from NonCC to CC. In the FY 2025 IPPS/LTCH PPS final rule (89 FR 69079 through 69084), we finalized changes to the severity levels for seven diagnosis codes that describe inadequate housing and housing instability from NonCC to CC. We stated CMS would further examine the claims data and consider future changes to the designation of the SDOH Z codes when reported as a secondary diagnosis. We further stated CMS would continue to monitor and evaluate the reporting of the diagnosis codes describing social and economic circumstances. In continuation of our examination of the SDOH Z codes, as discussed in FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19370 through 19371), we reviewed the mathematical data on the impact on resource use for the ICD-10-CM Z codes that describe homelessness, inadequate housing, and housing instability. The following table reflects the impact on resource use data generated using claims from the September 2025 update of the FY 2025 MedPAR file. We refer readers to the FY 2008 IPPS final rule (72 FR 47159) for a complete discussion of our historical approach to mathematically evaluate the extent to which the presence of an ICD-10-CM code as a secondary diagnosis resulted in increased hospital resource use, and a more detailed explanation of the columns in the table. [GRAPHIC] [TIFF OMITTED] TR04AU26.076 We reviewed the findings from these data as discussed in the proposed rule. As reflected in the table, the C1 findings ranged from a low of 1.02 to a high of 2.03. A value close to 2.0 in the C1 field suggests that the condition is more like a CC than a NonCC but not as significant in resource usage as an MCC. Because the C1 values in the table are generally close to 2, the mathematical data suggest that when these SDOH Z codes are reported as a secondary diagnosis increased resources are involved in caring for patients experiencing these circumstances, however in the proposed rule we noted that these SDOH Z codes describe social circumstances and not medical conditions or illnesses. As previously noted, in the FY 2008 IPPS final rule (72 FR 47159), we described our process for establishing three different levels of CC severity into which we would subdivide the diagnosis codes. The categorization of diagnoses as an MCC, a CC, or a NonCC was accomplished using an iterative approach in which each diagnosis was evaluated to determine the extent to which its presence as a secondary diagnosis resulted in increased hospital resource use. We noted in the FY 2008 IPPS final rule that as a result of the changes that had occurred during the years since the implementation of the IPPS, the CC list as defined at the time had lost much of its capacity to discriminate hospital resource use. The need for a revised CC list prompted a reexamination of the secondary diagnoses that qualify as a CC. Therefore, our efforts to better recognize severity of illness began with a comprehensive review of the CC list. Our intent was to better distinguish cases that are likely to result in [[Page 49646]] increased hospital resource use based on secondary diagnoses. We stated in the FY 2008 IPPS final rule (72 FR 47153) that certain diagnoses, such as chronic illness diagnoses, do not cause a significant increase in hospital resource use unless there is an acute exacerbation present or there is a significant deterioration in the underlying chronic condition. Therefore, in the revised CC list, we removed chronic diseases without a significant acute manifestation. We stated that recognition of the impact of the chronic disease is accomplished by separately coding the acute manifestation. In our further examination of the claims data and the current designation of the ICD-10-CM Z codes that describe homelessness, inadequate housing, and housing instability when reported as a secondary diagnosis, in the proposed rule we stated we now believe that similar to our analysis of the chronic illness diagnoses, change of designation from NonCC to CC should be based on the expected resource use associated with the treatment of an underlying medical condition or illness rather than social circumstances. Specifically, we stated we believe that recognition of the contribution that patient social and economic circumstances, such as homelessness, inadequate housing, and housing instability, add to the complexity of acute hospital care should be accomplished by separately coding those diagnoses that describe an acute exacerbation or deterioration of an underlying medical condition or illness, similar to the approach we undertook in categorizing chronic illness diagnoses as stated in the FY 2008 IPPS final rule. While we continue to include a mathematical analysis of claims data in evaluating the extent to which the presence of a diagnosis code as a secondary diagnosis results in increased hospital resource use, as previously described, we stated we believe that in the context of the ICD-10-CM Z codes that describe social circumstances, it is more appropriate to align our analysis with our intent as stated in the FY 2008 IPPS final rule with respect to chronic illness diagnoses (that is, recognition of the contribution to the complexity of hospital care would be accomplished by separately coding those diseases on the CC list that are associated with an acute exacerbation or deterioration of the underlying medical condition or illness (72 FR 47154)). Accordingly, we stated we believe that categorization of a diagnosis code as an MCC, a CC, or a NonCC should recognize the clinical complexity and expected resource consumption for the treatment of an underlying medical condition or illness, and not social circumstances. Therefore, we proposed to change the severity level designation of diagnosis codes Z59.00 (Homelessness, unspecified), Z59.01 (Sheltered homelessness), Z59.02 (Unsheltered homelessness), Z59.10 (Inadequate housing, unspecified), Z59.11 (Inadequate housing environmental temperature), Z59.12 (Inadequate housing utilities), Z59.19 (Other inadequate housing), Z59.811 (Housing instability, housed, with risk of homelessness), Z59.812 (Housing instability, housed, homelessness in past 12 months) and Z59.819 (Housing instability, housed unspecified) from CC to NonCC for FY 2027. Comment: Commenters expressed support for our proposal to change the severity level designation of the ten ICD-10-CM Z codes that describe homelessness, inadequate housing, and housing instability from CC to NonCC. A commenter stated that they believed that designating these codes as CCs is an imperfect proxy for an associated increase in acuity and resource use and further stated they believe it would be better to address social determinants as part of other adjustments, such as value-based purchasing, to ensure that only actions taken to alleviate health-related social needs are rewarded with higher payments rather than simply the presence of the need. Another commenter stated that they agreed with CMS's rationale and stated treatment-disrupting conditions that reliably increase hospital resource use by interrupting or impeding the delivery of medically necessary care by delaying treatment initiation, increasing procedural complexity, prolonging staff time, and requiring escalation to specialized services should instead be identified to support a more accurate measurement of inpatient complexity, improve care planning, and inform future policy development. Response: We thank the commenters for their support. Comment: Some commenters urged CMS to maintain the current SDOH quality measures and to not lower their severity levels. Several commenters stated that rather than lowering the severity of the SDOH- related measures, CMS should consider incentivizing hospitals and health systems to fully implement them to transform data into actionable care interventions and catalyze healthcare innovations that integrate social service partners. Other commenters stated that lowering the severity level of the SDOH quality measures will disincentivize providers from fully implementing the measures and using them to improve patient care. Response: We thank the commenters for their feedback. In response to the suggestion that CMS maintain the severity of SDOH-related measures, we note that our proposal specifically relates to the severity level designation of the ICD-10-CM Z codes that describe homelessness, inadequate housing, and housing instability when reported as a secondary diagnosis. Our proposal does not relate to measures in the Hospital Inpatient Quality Reporting (IQR) Program, nor does it relate to measures in the Hospital Outpatient Quality Reporting (OQR), Rural Emergency Hospital Quality Reporting (REHQR), and Ambulatory Surgical Center Quality Reporting (ASCQR) Programs. Further, we note that in the FY 2026 IPPS/LTCH PPS final rule (90 FR 37014), we finalized our proposal to remove the Screening for Social Drivers of Health (SDOH-1) measure and Screen Positive Rate for Social Drivers of Health (SDOH-2) measure from the Hospital IQR Program beginning with the FY 2026 payment determination. Additionally, we note that in the final rule for the Medicare Hospital Outpatient Prospective Payment System (OPPS) and the Medicare Ambulatory Surgical Center (ASC) payment system for calendar year (CY) 2026 (90 FR 53923), we finalized our proposal to remove the Screening for Social Drivers of Health measure and the Screen Positive Rate for Social Drivers of Health measure from the Hospital OQR, REHQR, and ASCQR Programs beginning with the CY 2025 reporting period. Comment: Many other commenters opposed the proposal to change the severity level designation of the ten ICD-10-CM Z codes that describe homelessness, inadequate housing, and housing instability from CC to NonCC. Commenters stated that maintaining the severity designation of these codes as CCs is critical to ensure that hospital payment reflects the real-world resource demands associated with caring for unhoused individuals and reflects the realities faced by providers and community organizations serving some of the nation's most vulnerable populations. Some commenters stated this proposal shifts financial burden of caring for these patients onto hospitals and ignores the stark reality of delivering care to patients experiencing these circumstances, as providers and care coordination teams expend significantly more resources, time, care management, and cross-continuum planning to safely treat, manage, and discharge these patients compared to stably housed individuals. A commenter [[Page 49647]] asserted that finalizing this proposal will send a concerning message that housing instability does not complicate clinical care and diminish the importance of addressing SDOH in modern healthcare delivery, while in practice, housing instability is one of the most critical factors influencing treatment adherence, recovery, and readmission risk resulting from lack of follow-up. Other commenters stated that this change will disproportionately affect hospitals serving medically underserved populations and safety net hospitals that treat patients impacted by health-related social risk factors and stated that these providers will face more resource and infrastructure constraints while working to address the complex problems raised by housing homelessness, inadequate housing, and housing instability. These commenters stated this proposal risks widening existing disparities and will limit the ability of hospitals to invest in the very services that improve outcomes and reduce long-term costs. A few commenters stated that incentives to ensure accurate coding of these social drivers of health are needed to better understand and address patient overall health and well-being. A commenter stated that in their own research, they found that the finalized changes to the severity levels of the diagnosis codes that describe homelessness to CCs in FY 2024 was associated with an immediate increase in inpatient documentation of homelessness and accelerated growth in documentation of other social determinants of health over the subsequent year. This commenter stated that these findings suggest that payment policy can meaningfully influence whether social risk factors are recognized and documented during hospitalization. Another commenter expressed concern that removing the CC designation might reduce the visibility of important social determinants of health data used for care planning, population health initiatives, and community resource allocation. Some commenters noted that designation of an ICD-10-CM diagnosis code as a CC when reported as a secondary diagnosis is intended to reflect higher expected resource consumption, and stated that the Z codes that describe homelessness, inadequate housing, and housing instability clearly meet this criterion, based on the analysis of the mathematical data on the impact on resource use generated using claims from the September 2025 update of the FY 2025 MedPAR file. Several commenters noted that CMS used its own data-driven methodology in prior rulemaking to conclude that these conditions warranted CC designation because they are associated with greater hospital resource use, including longer lengths of stay driven by discharge barriers, higher care coordination needs, and greater clinical severity at presentation. These commenters stated that downgrading the severity designation of these SDOH Z-codes would represent a departure from the agency's longstanding data-driven methodology without a clearly articulated justification. A commenter specifically stated changing the severity level designation of the codes that describe homelessness, inadequate housing, and housing instability without new clinical evidence undermines hospital investment in integrating health-related social needs (HRSN) screening and intervention into hospital workflows. Other commenters recommended that CMS establish an alternative payment methodology before finalizing the proposal if CMS determines that the severity level designation is not the appropriate mechanism for recognizing social circumstances. Response: We appreciate the commenters sharing their concerns. As stated in prior rulemaking (90 FR 53923), we acknowledge that some patients may face challenges following discharge that may be related to SDOH and recognize that some clinicians may find value in obtaining SDOH information as part of clinical decision making, such as discharge planning and patient care. We also agree that healthcare outcomes may be different for those experiencing homelessness, inadequate housing, and housing instability. We further acknowledge that, as noted by the commenters and discussed in the proposed rule, CMS previously finalized changes to the severity levels for ICD-10-CM Z codes that describe homelessness, inadequate housing, and housing instability when reported as a secondary diagnosis based on our analysis of the impact on resource use for these codes and after consideration of public comments. However, as we also explained in the FY 2027 IPPS/LTCH PPS proposed rule, these SDOH Z codes describe social circumstances and not medical conditions or illnesses. After further consideration of the claims data and the current designation of the ICD-10-CM Z codes that describe homelessness, inadequate housing, and housing instability when reported as a secondary diagnosis, we believe that recognition of the contribution that patient social and economic circumstances, such as homelessness, inadequate housing, and housing instability, add to the complexity of acute hospital care should instead be accomplished by separately coding those diagnoses that describe an acute exacerbation or deterioration of an underlying medical condition or illness that is being treated in that inpatient admission. We note that the purpose of the DRGs is to relate a hospital's case mix to the resource demands and associated costs experienced by the hospital. As such we believe that any measurable increase in inpatient resource consumption associated with caring for patients experiencing homelessness, inadequate housing, and housing instability should be recognized by assigning ICD-10-CM diagnosis codes that describe the medical conditions that were more clinically severe at presentation, the conditions that required extended active treatment time and higher nursing intensity, and the conditions that were managed while the facilities navigated delays in securing clinically appropriate discharge due to the patients' social and economic circumstances, as documented in the medical record. Comment: Some commenters stated that CMS did not identify any other diagnosis codes that would be appropriate to assign to capture the impact of homelessness, inadequate housing, and housing instability have on hospital resource utilization. These commenters suggested that if CMS finalizes the proposal to change the severity level designation of the ten ICD-10-CM Z codes that describe homelessness, inadequate housing, and housing instability, the agency should offer guidance to providers on evaluating and separately coding diagnoses that show an acute exacerbation or deterioration of an underlying medical condition or illness due to additional complexity added by homelessness and housing instability or inadequacy. Another commenter stated that recognition of the contribution that treatment of an underlying medical condition or illness adds to the complexity of acute hospital care can only be accomplished as long as there are codes available in the ICD- 10-CM diagnosis code classification that allow for the acute exacerbation or deterioration of an underlying medical condition or illness to be coded separately. Response: We appreciate the commenters' feedback. In response to the assertion that CMS did not identify any other codes that would be appropriate to assign to capture the impact of homelessness, inadequate housing, and housing [[Page 49648]] instability have on hospital resource utilization, we note that assignment of a diagnosis code is based on the provider's diagnostic statement that the condition exists. Therefore, the assignment of diagnosis codes that describe an underlying medical condition or illness that a patient experiencing homelessness, inadequate housing, and housing instability may have will depend on the specific terms used in the medical record documentation for each inpatient admission. In response to the suggestion that CMS offer guidance to providers on evaluating and separately coding diagnoses that show an acute exacerbation or deterioration of an underlying medical condition or illness, we note that the ICD-10-CM Official Guidelines for Coding and Reporting, which can be found on the CDC website at: https://www.cdc.gov/nchs/icd/icd-10-cm/files.html, are available and regularly revised to provide guidance as it relates to assigning the diagnosis codes. Additionally, the American Hospital Association (AHA)'s Coding Clinic for ICD-10-CM/PCS publication provides further clarification on the appropriate coding and reporting of ICD-10-CM diagnosis codes. If providers have inpatient cases for which they need ICD-10 coding assistance, we encourage them to submit their questions to the American Hospital Association's Central Office on ICD-10 at https://www.codingclinicadvisor.com/. In response to the statement that recognition of the contribution that treatment of an underlying medical condition or illness adds to the complexity of acute hospital care can only be accomplished as long as there are codes available in the ICD-10-CM diagnosis code classification that allow for the reporting of that underlying medical condition or illness, we note that if an interested party believes that diagnosis codes do not currently exist to describe an underlying medical condition or illness that a patient experiencing homelessness, inadequate housing, and housing instability may have, there is an established process to request that diagnosis codes be added to the classification. The ICD-10 Coordination and Maintenance Committee addresses updates to the ICD-10-CM and ICD-10-PCS coding systems, as discussed in section II.C.15 of the preamble of this final rule. The ICD-10 Coordination and Maintenance Committee presents proposals for ICD-10-CM diagnosis code changes each spring and fall to update the codes and the applicable payment and reporting systems by October 1 or April 1 of each year. As also discussed in section II.C.15 of the preamble of this final rule, the CDC/NCHS has lead responsibility for the diagnosis code classification. Proposals for updates to the diagnosis code classification should be directed to [email protected] for consideration at a future ICD-10 Coordination and Maintenance Committee meeting. Therefore, after consideration of the public comments received, and for the reasons discussed, we are finalizing the changes to the severity level designations for diagnosis codes Z59.00 (Homelessness, unspecified), Z59.01 (Sheltered homelessness), Z59.02 (Unsheltered homelessness), Z59.10 (Inadequate housing, unspecified), Z59.11 (Inadequate housing environmental temperature), Z59.12 (Inadequate housing utilities), Z59.19 (Other inadequate housing), Z59.811 (Housing instability, housed, with risk of homelessness), Z59.812 (Housing instability, housed, homelessness in past 12 months) and Z59.819 (Housing instability, housed unspecified) from CC to NonCC for FY 2027, without modification. In addition, these diagnosis codes are reflected in Table 6J.2--Deletions to the CC List--FY 2027 associated with this final rule and available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html. We refer the reader to section II.C.12.d of the preamble of the proposed rule and this final rule for further information regarding Table 6J.2.

2. Newborn Affected by Malpresentation Before Labor

As discussed in the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19371 through 19372), we received a request to change the severity level designations of the ICD-10-CM diagnosis codes P01.7 (Newborn affected by malpresentation before labor) and P03.0 (Newborn affected by breech delivery and extraction) from NonCC to CC. The requestor did not provide additional rationale for this request. To evaluate this request, we analyzed the claims data in the September 2025 update of the FY 2025 MedPAR file. The following table shows the analysis for each of the diagnosis codes identified by the requestor. [GRAPHIC] [TIFF OMITTED] TR04AU26.077 As reflected in the table, we found zero instances where diagnosis codes P01.7 or P03.0 were reported as secondary diagnoses. As discussed in the proposed rule, in considering the nine guiding principles, as summarized previously, we note that fetal malpresentation is any position of the fetus at birth where the head is not the presenting part. Common types include breech (bottom/feet first), transverse (sideways), or oblique lie. While normal in early pregnancy, most babies turn; however, if still malpresenting at term, management often involves external cephalic version (ECV) to turn the baby or a planned C-section due to risks like cord prolapse during vaginal delivery. A [[Page 49649]] higher level of care for the mother (that is, intensive monitoring, greater number of caregivers, additional testing, intensive care unit care, extended length of stay) may be warranted depending on the treatment or management of the fetal malpresentation pursued by the attending provider. Based on the lack of claims data to evaluate to consider a severity level change, we stated we believe that the ICD-10-CM diagnosis codes P01.7 and P03.0 should remain designated as NonCCs. Therefore, we proposed to maintain the severity level designation of codes P01.7 and P03.0 as NonCCs for FY 2027. Comment: Commenters supported the proposal to maintain the severity level designation of ICD-10-CM diagnosis codes P01.7 and P03.0 as NonCCs for FY 2027. Response: We appreciate the commenters' support. Comment: Another commenter disagreed with the proposal to maintain the severity level designation of ICD-10-CM diagnosis codes P01.7 and P03.0 as NonCCs. While acknowledging that obstetric patients and newborns would not be well represented in the MedPAR data as these populations are not typically covered by Medicare, this commenter stated that clinically, malpresentation before labor requires elevated medical management, and possible procedural interventions resulting in increased resources needed to manage this population. Response: We thank the commenter for their feedback and for sharing their concerns. In reviewing this feedback, we continue to believe that the ICD-10-CM diagnosis codes P01.7 and P03.0 should remain designated as NonCCs for FY 2027, based on the lack of claims data to evaluate to consider a severity level change. We will continue to monitor the claims data in consideration of any future modifications to the severity level designation of diagnosis codes P01.7 and P03.0. We acknowledge in the FY 2008 IPPS final rule (72 FR 47158), when describing our process for establishing three different levels of CC severity into which we would subdivide the diagnosis codes, we stated the exception to our approach was for diagnoses related to newborns, maternity, and congenital anomalies. We stated we used the All Patient Refined DRGs (APR-DRGs) to categorize these diagnoses. For newborn, obstetric, and congenital anomaly diagnoses, we designated the APR-DRG default severity level 3 (major) and 4 (extreme) diagnoses as an MCC, the APR-DRG default severity level 2 (moderate) diagnoses as a CC, and the APR-DRG default severity 1 (minor) diagnoses as a NonCC. Using a combination of mathematical analysis of claims data and the application of the nine guiding principles, we may consider reevaluating the use of the APR-DRGs to categorize diagnoses related to newborns, maternity, and congenital anomalies in future rulemaking. After consideration of the public comments we received, and for the reasons discussed, we are finalizing our proposal to maintain the severity level designation of ICD-10-CM diagnosis codes P01.7 (Newborn affected by malpresentation before labor) and P03.0 (Newborn affected by breech delivery and extraction) as NonCCs without modification for FY 2027.

3. Functional Quadriplegia

As discussed in the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19372), we received a request to change the severity level designation of ICD-10-CM diagnosis code R53.2 (Functional quadriplegia) from MCC to NonCC. According to the requestor, code R53.2 describes patients who are unable to move any of their extremities, not because of a spinal cord or focal brain dysfunction, but because of global dysfunction such as severe dementia or contractures. The requestor further stated that the definition of functional quadriplegia does not exist in medical literature; therefore, the vagueness of the condition described by code R53.2 leads to the code being overused. The requestor also questioned whether an immobile patient during an inpatient stay utilizes more resources than other patients with very limited mobility. In the proposed rule, we stated we agree that diagnosis code R53.2 (Functional quadriplegia) is currently designated as an MCC. We refer the reader to Appendix H of the ICD-10 MS-DRG Version 43.1 Definitions Manual (available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software) for the complete list of diagnoses designated as MCCs when reported as secondary diagnoses, except when used in conjunction with the principal diagnosis in the corresponding CC Exclusion List in Appendix C. To evaluate this request, we analyzed the claims data in the September 2025 update of the FY 2025 MedPAR file. The following table shows the analysis for diagnosis code R53.2. [GRAPHIC] [TIFF OMITTED] TR04AU26.078 We analyzed these data as described in FY 2008 IPPS final rule (72 FR 47158 through 47161). The table shows that the C1 values of the diagnosis code that describes causally functional quadriplegia is 2.05. A C1 value close to 2.0 suggests the condition is more like a CC than a NonCC but not as significant in resource usage as an MCC. The C2 finding of diagnosis code R53.2 is 2.58. C2 values close to 3.0 suggests the condition is more similar to an MCC than a CC or NonCC. The C2 findings support maintaining the code R53.2 as an MCC. We stated that the data are clearly mixed between the C1 and C2 findings and does not consistently support a change in the severity level. As discussed in the proposed rule, in considering the nine guiding principles, as summarized previously, we noted [[Page 49650]] that functional quadriplegia is the inability to move due to another condition (for example, dementia, severe contractures, arthritis, etc.). It is a diagnosis that can impede patient cooperation or management of care or both. Patients diagnosed with functional quadriplegia can require a higher level of care by needing intensive monitoring, and a greater number of caregivers as the patient does not have the ability to ambulate. After considering the C1, and C2 values of ICD-10-CM diagnosis code R53.2, the lack of consistent claims data to support a severity level change, and consideration of the nine guiding principles, we stated we believe R53.2 should remain designated as an MCC. Therefore, we proposed to maintain the severity level designation of ICD-10-CM diagnosis code R53.2 as an MCC for FY 2027. Comment: Commenters supported the proposal to maintain the severity level designation of ICD-10-CM diagnosis code R53.2 as an MCC for FY 2027. Response: We appreciate the commenters' support. After consideration of the public comments we received, we are finalizing our proposal to maintain the severity level designation of ICD-10-CM diagnosis code R53.2 (Functional quadriplegia) as an MCC without modification for FY 2027.

4. Malnutrition

As discussed in the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19372 through 19373), we received a request to change the severity level designation of the following diagnosis codes from MCC to NonCC: E40 (Kwashiorkor) E41 (Nutritional marasmus) E42 (Marasmic kwashiorkor) E43 (Unspecified severe protein-calorie malnutrition) According to the requestor, the criteria for the ICD-10-CM diagnosis codes that describe malnutrition are vague. The requestor stated that nutritional assessment is the standard of care for all hospital admissions, and the short-term weight loss that often occurs in the hospital as a result of keeping patients with an empty stomach (that is, nothing by mouth) for other interventions does not signal real malnutrition requiring intensive treatment. In circumstances when treatment is initiated, for example increasing the intake of calories or protein, the treatment adds little or no additional costs to overall resource utilization for the encounter. In the proposed rule, we stated we agree that diagnosis codes E40, E41, E42, and E43 are currently designated as MCCs. We refer the reader to Appendix H of the ICD-10 MS-DRG Version 43.1 Definitions Manual (available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software) for the complete list of diagnoses designated as MCCs when reported as secondary diagnoses, except when used in conjunction with the principal diagnosis in the corresponding CC Exclusion List in Appendix C. To evaluate this request, we analyzed the claims data in the September 2025 update of the FY 2025 MedPAR file. The following table shows the analysis for each of the diagnosis codes identified by the requestor. [GRAPHIC] [TIFF OMITTED] TR04AU26.079 We analyzed these data as described in FY 2008 IPPS final rule (72 FR 47158 through 47161). The table above shows that the C1 findings ranged from a low of 0.73 to a high of 2.07. As stated earlier, a C1 value close to 2.0 suggests the condition is more like a CC than a NonCC but not as significant in resource usage as an MCC. The C1 findings suggest that these codes are more like a CC than an MCC. However, the C2 findings ranged from a low of 2.38 to a high of 3.21. Values close to 3.0 suggests the conditions are more similar to an MCC than a CC or NonCC. The C2 findings support maintaining the malnutrition codes identified by the requestor as MCCs. We stated that the data are clearly mixed between the C1 and C2 findings and does not consistently support a change in the severity level. As discussed in the proposed rule, in considering the nine guiding principles, as summarized previously, we noted that the World Health Organization (WHO) defines malnutrition as ``deficiencies, excesses or imbalances in a person's intake of energy and/or nutrients.'' Protein- calorie malnutrition is observed most frequently in developing countries but has been described with increasing frequency in hospitalized and chronically ill children in the United States. The distinction between the two forms of protein-calorie malnutrition is based on the presence of edema (kwashiorkor) or absence of edema (marasmus). Marasmus involves inadequate intake of protein and calories, whereas kwashiorkor involves fair-to-normal calorie intake with inadequate protein intake. In developed countries such as the United States, inadequate food intake is a less common cause of malnutrition. Instead, diseases and, in particular, chronic illnesses play an important role in the etiology of malnutrition. As such, the conditions described by the ICD-10-CM diagnosis codes identified by the requestor reflect systemic impact and serve as a marker for advanced disease states across multiple different comorbid conditions. [[Page 49651]] After considering the C1, and C2 values of ICD-10-CM diagnosis codes E40, E41, E42, and E43, the lack of consistent claims data to support a severity level change, and consideration of the nine guiding principles, we stated we believe E40, E41, E42, and E43 should remain designated as MCCs. Therefore, we proposed to maintain the severity level designation of ICD-10-CM diagnosis codes E40, E41, E42, and E43 as MCCs for FY 2027. Comment: Commenters expressed support for the proposal to maintain the severity level designation of ICD-10-CM diagnosis codes E40, E41, E42, and E43 as MCCs for FY 2027. Several commenters stated that a person's nutrition status can be a key part of their diagnosis and noted malnutrition is related to many other medical conditions including vitamin deficiencies, scurvy, and osteoporosis. A commenter specifically stated that they support CMS' decision and rationale for maintaining the severity level designation of ICD-10-CM diagnosis codes E40, E41, E42, and E43. This commenter stated that the conditions described in these ICD-10-CM codes reflect systemic impacts, serve as useful markers for advanced disease states across many different comorbid conditions and stated that maintaining the severity level designations retains adequate recognition of the significance of the etiology and impact of malnutrition. Another commenter stated nutritional status is a critical clinical indicator that informs diagnosis, treatment planning, and recovery and that maintaining the current designations supports comprehensive, high-quality patient care. Response: We appreciate the commenters' support. After consideration of the public comments we received, we are finalizing our proposal to maintain the severity level designation of ICD-10-CM diagnosis codes E40 (Kwashiorkor), E41 (Nutritional marasmus), E42 (Marasmic kwashiorkor), and E43 (Unspecified severe protein-calorie malnutrition) as MCCs without modification, for FY 2027.

5. Prolonged First Stage (of Labor)

As discussed in the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19373 through 19374), we received a request to change the severity level designation of ICD-10-CM diagnosis code O63.0 (Prolonged first stage (of labor)) from NonCC to CC. According to the requestor, prolonged labor increases length of stay by up to two days and significantly increases resources required to care for these patients. The requestor performed their own analysis of the Impact on Resource Use File on the CMS website generated using claims from the FY 2024 MedPAR file and found that when reported as a secondary diagnosis, O63.0 had a C1 value higher than 2, and C2 and C3 values of at least close to 2, which suggests the code should be designated as a CC. Additionally, in their own analysis of the Impact on Resource Use File on the CMS website generated using claims from the FY 2024 MedPAR file, the requestor found that, in comparison, when reported as a secondary diagnosis, ICD-10-CM diagnosis code O63.9 (Long labor, unspecified), which is designated as a CC, had a C1 value of only 0.88. The requestor also performed an analysis of claims at their healthcare facility to identify cases where prolonged labor in either the latent phase or second phase likely occurred and found that the C1 value was approximately 1.35 for diagnosis code O63.0. The requestor did not state if the analysis of cases at their facility was limited to Medicare cases. In the proposed rule, we stated we agree that that diagnosis code O63.0 (Prolonged first stage (of labor)) is currently designated as a NonCC and diagnosis code O63.9 (Long labor, unspecified) is currently designated as a CC. We refer the reader to Appendix G of the ICD-10 MS- DRG Version 43.1 Definitions Manual (available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software) for the complete list of diagnoses designated as CCs when reported as secondary diagnoses, except when used in conjunction with the principal diagnosis in the corresponding CC Exclusion List in Appendix C. To evaluate this request, we analyzed the claims data in the September 2025 update of the FY 2025 MedPAR file. The following table shows the analysis for diagnosis codes O63.0 and O63.9. [GRAPHIC] [TIFF OMITTED] TR04AU26.080 We analyzed these data as described in the FY 2008 IPPS final rule (72 FR 47158 through 47161). The table shows that the C1 value of the diagnosis code that describes prolonged first stage of labor is 2.14. As stated earlier, a C1 value close to 2.0 suggests the condition is more like a CC than a NonCC but not as significant in resource usage as an MCC. The C2 finding of diagnosis code O63.0 is 3.54. C2 values close to 3.0 suggests the condition is more similar to an MCC than a CC or NonCC. We stated the C1 and C2 findings reflect increased resource utilization when prolonged labor is reported as a secondary diagnosis however the data are clearly mixed between the C1 and C2 findings, and there was a low volume of cases (17) reporting this code as a secondary diagnosis. The table also shows there were zero cases that reported diagnosis code O63.9 with no other secondary diagnosis or with all other secondary diagnoses that are NonCCs. The C2 finding of diagnosis code O63.9 is 1.54. C2 values close to 2.0 suggest the condition is more similar to a CC than a NonCC. The C2 findings support maintaining diagnosis code O63.9 as a CC. Similar to diagnosis code O63.0, there was a low volume of cases [[Page 49652]] (6) reporting this code as a secondary diagnosis. As discussed in the proposed rule, in considering the nine guiding principles, as summarized previously, we noted that the first stage of labor is defined as the interval between the onset of labor and complete or 10 cm cervical dilation. Prolonged first stage of labor refers to a slow initial dilation (0-6 cm), or a stalled active phase, lasting over 16-20 hours, whereas ``long labor'' describes the entire birth process exceeding 20-25 hours. Long labor is monitored closely for risks like infection or fetal distress. While a prolonged first stage is rarely dangerous, a prolonged first stage of labor can sometimes require a higher level of care. Management of prolonged first stage of labor can sometimes involve amniotomy for patients undergoing augmentation or induction of labor to reduce the duration of labor, administration of oxytocin and/or the use intrauterine pressure catheters to determine adequacy of uterine contractions. If labor fails to progress or fetal distress occurs, a cesarean section or instrumental delivery (forceps/vacuum) may be necessary. After considering the C1, and C2 values of ICD-10-CM diagnosis codes O63.0 and O63.9, the lack of sufficient claims data to support a severity level change, and consideration of the nine guiding principles, we stated we believe diagnosis code O63.0 should remain designated as a NonCC and diagnosis code O63.9 should remain designated as a CC. Therefore, we proposed to maintain the severity level designations of ICD-10-CM diagnosis codes O63.0 and O63.9 for FY 2027. Comment: A commenter supported the proposal to maintain the severity level designation of ICD-10-CM diagnosis codes O63.0 and O63.9 for FY 2027. Response: We appreciate the commenters' support. Comment: Other commenters suggested that CMS reconsider the proposal to maintain the severity level designation of ICD-10-CM diagnosis code O63.0 (Prolonged first stage (of labor)) as a NonCC for FY 2027. A few commenters stated that clinically, a prolonged first stage labor frequently necessitates heightened medical management and procedural intervention, including labor augmentation with oxytocin, amniotomy, invasive uterine monitoring, prolonged nursing care, and escalation to operative vaginal delivery or cesarean section in cases of failed labor progression or fetal compromise. Several commenters noted that code O63.9 (Long labor, unspecified) is the only code in category O63 (Long labor) that is currently designated as a CC. These commenters recommended that CMS evaluate all of the codes in category O63 to determine if the severity level designation of any of the more specific codes in the category should be changed to a CC. A commenter specifically noted that diagnosis code O63.1 (prolonged second stage (of labor)) is also designated as a NonCC and stated recommended that CMS change the severity level designation of both code O63.0 and code O63.1 from NonCC to CC as a prolonged second stage of labor is associated with increased chorioamnionitis, third-degree or fourth-degree perineal lacerations, and neonatal morbidity. Some commenters noted that the low volume of cases reporting ICD- 10-CM diagnosis codes O63.0 and O63.9 as secondary diagnoses is likely attributable to the nature of the MedPAR dataset itself rather than being a reflection of a lack of clinical or resource significance. These commenters noted the MedPAR file captures predominantly Medicare beneficiaries, whereas prolonged labor disproportionately affects a younger obstetric population that is more commonly covered by commercial insurance or Medicaid. Several commenters stated that it is unreasonable to expect more claims data for these types of cases than is already available for analysis and CMS should not rely on this rationale to maintain the severity level designation of ICD-10-CM diagnosis code O63.0. Response: We thank the commenters for their feedback and for sharing their concerns. We will take the commenters' feedback into consideration in future policy development. While we continue to believe that based on the lack of sufficient claims data to evaluate to consider a severity level change, the severity level designation of ICD-10-CM diagnosis codes O63.0 and O63.9 should be maintained for FY 2027, we acknowledge that in the FY 2008 IPPS final rule (72 FR 47158), when describing our process for establishing three different levels of CC severity into which we would subdivide the diagnosis codes, we stated the exception to our approach was for diagnoses related to newborns, maternity, and congenital anomalies, as discussed earlier in this section. We stated we used the APR-DRGs to categorize these diagnoses. For newborn, obstetric, and congenital anomaly diagnoses, we designated the APR-DRG default severity level 3 (major) and 4 (extreme) diagnoses as an MCC, the APR- DRG default severity level 2 (moderate) diagnoses as a CC, and the APR- DRG default severity 1 (minor) diagnoses as a NonCC. Using a combination of mathematical analysis of claims data and the application of the nine guiding principles, we may consider reevaluating the use of the APR-DRGs to categorize diagnoses related to newborns, maternity, and congenital anomalies in future rulemaking. We will also continue to monitor the claims data in consideration of any future modifications to the severity level designation of diagnosis codes O63.0 and O63.9. After consideration of the public comments we received, and for the reasons discussed, we are finalizing our proposal to maintain the severity level designation of ICD-10-CM diagnosis code O63.0 (Prolonged first stage (of labor)) as a NonCC and to maintain the severity level designation of ICD-10-CM diagnosis code O63.9 (Long labor, unspecified) as a CC without modification for FY 2027. d. Additions and Deletions to the Diagnosis Code Severity Levels for FY 2027 In the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19374), we stated that the following tables identify the proposed additions to the diagnosis code MCC severity level list and the proposed additions and deletions to the diagnosis code CC severity levels list for FY 2027 and are available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html. Table 6I.1--Proposed Additions to the MCC List-FY 2027; Table 6J.1--Proposed Additions to the CC List-FY 2027; and Table 6J.2--Proposed Deletions to the CC List-FY 2027 Comment: Commenters agreed with the proposed additions to the MCC and CC lists as shown in tables 6I.1 and 6J.1 associated with the proposed rule. Commenters also generally agreed with the proposed deletions to the CC list as shown in table 6J.2 associated with the proposed rule. Response: We appreciate the commenters' support. We refer the reader to section II.C.12.c.1 of the preamble of this final rule for a summary of the public comments and our responses in connection with the diagnosis codes describing homelessness, inadequate housing, and housing instability. As discussed, after consideration of the public comments received, we are finalizing the proposed changes to the severity level [[Page 49653]] designations for the diagnosis codes describing homelessness, inadequate housing, and housing instability from CC to NonCC. The following tables associated with this final rule reflect the finalized severity levels under Version 44 of the ICD-10 MS-DRGs for FY 2027 and are available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html; Table 6I.--Complete MCC List-FY 2027; Table 6I.1--Additions to the MCC List-FY 2027; Table 6J.--Complete CC List-FY 2027; Table 6J.1-- Additions to the CC List-FY 2027; and Table 6J.2--Deletions to the CC List-FY 2027. e. CC Exclusions List for FY 2027 In the September 1, 1987, final notice (52 FR 33143) concerning changes to the DRG classification system, we modified the GROUPER logic so that certain diagnoses included on the standard list of CCs would not be considered valid CCs in combination with a particular principal diagnosis. We created the CC Exclusions List for the following reasons: (1) to preclude coding of CCs for closely related conditions; (2) to preclude duplicative or inconsistent coding from being treated as CCs; and (3) to ensure that cases are appropriately classified between the complicated and uncomplicated DRGs in a pair. In the May 19, 1987, proposed notice (52 FR 18886) and the September 1, 1987, final notice (52 FR 33154), we explained that the excluded secondary diagnoses were established using the following five principles: Chronic and acute manifestations of the same condition should not be considered CCs for one another; Specific and nonspecific (that is, not otherwise specified (NOS)) diagnosis codes for the same condition should not be considered CCs for one another; Codes for the same condition that cannot coexist, such as partial/total, unilateral/bilateral, obstructed/unobstructed, and benign/malignant, should not be considered CCs for one another; Codes for the same condition in anatomically proximal sites should not be considered CCs for one another; and Closely related conditions should not be considered CCs for one another. The creation of the CC Exclusions List was a major project involving hundreds of codes. We have continued to review the remaining CCs to identify additional exclusions and to remove diagnoses from the master list that have been shown not to meet the definition of a CC. We refer readers to the FY 2014 IPPS/LTCH PPS final rule (78 FR 50541 through 50544) for detailed information regarding revisions that were made to the CC and CC Exclusion Lists under the ICD-9-CM MS-DRGs. The ICD-10 MS-DRGs Version 43.1 CC Exclusion List is included as Appendix C in the ICD-10 MS-DRG Definitions Manual (available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software) and includes three lists identified as Part 1, Part 2 and Part 3. Part 1 is the list of all diagnosis codes that are defined as a CC or MCC when reported as a secondary diagnosis. For all diagnosis codes on the list, a link is provided to a collection of diagnosis codes which, when reported as the principal diagnosis, would cause the CC or MCC diagnosis to be considered as a NonCC. Part 2 is the list of diagnosis codes designated as an MCC only for patients discharged alive; otherwise, they are assigned as a NonCC. Part 3 is the list of diagnosis codes that are designated as a CC or MCC and included in the definition of the logic for the listed MS-DRGs. When reported as a secondary diagnosis and grouped to one of the listed MS-DRGs, the diagnosis is excluded from acting as a CC/MCC for severity in DRG assignment (that is, suppression logic). In the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19375), we proposed changes to the ICD-10 MS-DRGs Version 44 CC Exclusion List based on the diagnosis code updates as discussed in section II.C.13. of the preamble of the proposed rule and set forth in Tables 6G.1, 6G.2, 6H.1, and 6H.2 associated with the proposed rule and available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html. We did not receive any public comments opposing the proposed CC Exclusions List. For this final rule, we have developed Table 6G.1.--Secondary Diagnosis Order Additions to the CC Exclusions List-FY 2027; Table 6G.2.--Principal Diagnosis Order Additions to the CC Exclusions List-FY 2027; Table 6H.1.--Secondary Diagnosis Order Deletions to the CC Exclusions List-FY 2027; Table 6H.2.--Principal Diagnosis Order Deletions to the CC Exclusions List-FY 2027 and Table 6K.--Complete List of CC Exclusions-FY 2027. For Table 6G.1, each secondary diagnosis code finalized for addition to the CC Exclusion List is shown with an asterisk and the principal diagnoses that exclude the secondary diagnosis code are provided in the indented column immediately following it. For Table 6G.2, each of the principal diagnosis codes for which there is a CC exclusion is shown with an asterisk and the conditions finalized for addition to the CC Exclusion List that will not count as a CC are provided in an indented column immediately following the affected principal diagnosis. For Table 6H.1, each secondary diagnosis code finalized for deletion from the CC Exclusion List is shown with an asterisk followed by the principal diagnosis codes that exclude it. For Table 6H.2, each of the principal diagnosis codes is shown with an asterisk and the finalized deletions to the CC Exclusions List are provided in an indented column immediately following the affected principal diagnosis. Table 6K contains a list of all of the codes that are defined as either a CC or MCC when assigned as a secondary diagnosis. Each CC or MCC secondary diagnosis code is assigned to a principal diagnosis number that reflects a collection of diagnosis codes which, when reported as the principal diagnosis, will cause the CC or MCC secondary diagnosis to be considered as only a NonCC secondary diagnosis. The finalized CC Exclusions List as displayed in Tables 6G.1, 6G.2, 6H.1, 6H.2, and 6K associated with this final rule are available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html and reflect the additions, deletions, and complete list of CC Exclusions under Version 44 of the ICD-10 MS-DRGs. 13. Changes to the ICD-10-CM and ICD-10-PCS Coding Systems To identify new, revised, and deleted diagnosis and procedure codes, for FY 2027, we have developed Table 6A.--New Diagnosis Codes, Table 6B.--New Procedure Codes, Table 6C.--Invalid Diagnosis Codes, Table 6D.--Invalid Procedure Codes, Table 6E.--Revised Diagnosis Code Titles, and Table 6F.--Revised Procedure Code Titles for this final rule. These tables are not published in the Addendum to the proposed or final rule, but are available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html as described in section VI. of the Addendum to this final rule. As discussed in section II.C.11. of the preamble of this final rule, the code titles are adopted as part of the ICD-10 Coordination and Maintenance Committee meeting process. Therefore, although we publish the code titles in association with the IPPS proposed and [[Page 49654]] final rules, they are not subject to comment in the proposed or final rules. In the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19375), we proposed the MDC and MS-DRG assignments for the new diagnosis codes and procedure codes as set forth in Table 6A.--New Diagnosis Codes and Table 6B.--New Procedure Codes. We also stated that the proposed severity level designations for the new diagnosis codes are set forth in Table 6A. and the proposed O.R. status for the new procedure codes are set forth in Table 6B. Consistent with our established process, we examined the MS-DRG assignment and the attributes (severity level and O.R. status) of the predecessor diagnosis or procedure code, as applicable, to inform our proposed assignments and designations. Specifically, we reviewed the predecessor code and MS-DRG assignment most closely associated with the new diagnosis or procedure code, and in the absence of claims data, we considered other factors that may be relevant to the MS-DRG assignment, including the severity of illness, treatment difficulty, complexity of service and the resources utilized in the diagnosis and/or treatment of the condition. We noted that this process does not automatically result in the new diagnosis or procedure code being proposed for assignment to the same MS-DRG or to have the same designation as the predecessor code. In this final rule, we present a summation of the comments we received in response to the proposed assignments, our responses to those comments, and our finalized policies. Comment: Several commenters supported the proposed MDC and MS-DRG assignments for the new diagnosis codes and procedure codes as set forth in Table 6A.--New Diagnosis Codes and Table 6B.--New Procedure Codes. However, a few commenters suggested that CMS should evaluate the MS-DRG assignment for cases reporting newly established ICD-10-PCS code X28M3DC (Division of ventricular septum using transcatheter septal scoring technique, percutaneous approach) for the treatment of obstructive hypertrophic cardiomyopathy (HCM) once additional claims data becomes available to determine if MS-DRGs 228 and 229 (Other Cardiothoracic Procedures with and without MCC, respectively) are the most appropriate assignment from both a clinical and resource utilization perspective. The commenters stated that this procedure, Septal Scoring Along Mid-Line Endocardium (SESAME), is primarily performed in a unique subset of patients who exhibit severe structural heart disease and are frequently considered poor surgical candidates for conventional surgery. A commenter specified that in the largest published contemporary cohort, the average patient age was older than 75 years, more than half of the patients had chronic kidney disease, over half the patients had prior aortic valve replacement surgery, and the majority of patients had severe mitral valve pathology. This same commenter acknowledged that SESAME is typically not performed as a stand-alone procedure; however, they indicated that the published literature also describes substantial procedural complexity. The commenter stated that SESAME requires computed tomography based procedural planning, transesophageal echocardiographic guidance, advanced catheter-based electrosurgical techniques, and coordination among structural heart specialists, imaging physicians, anesthesiologists, and procedural staff. Another commenter stated that the clinical presentation and hospital course of patients undergoing SESAME can vary considerably. For example, the commenter indicated that while some patients may experience uncomplicated recovery, other patients may require extended monitoring and management due to underlying disease severity or coexisting medical conditions. The commenter stated that the treatment landscape for obstructive HCM continues to rapidly evolve where catheter-based septal reduction therapies now occupy an increasingly important role alongside medical therapy, alcohol septal ablation, and surgical myectomy. Another commenter stated that SESAME is a novel transcatheter electrosurgical procedure designed to replicate the effects of surgical septal myotomy without requiring open-heart surgery. According to the commenter, early peer-reviewed clinical experience has demonstrated successful application in patients with obstructive HCM, patients requiring septal modification before transcatheter mitral valve replacement, and patients with other forms of left ventricular outflow tract obstruction. The commenter also stated that SESAME represents a fundamentally different therapeutic approach than alcohol septal ablation. Specifically, the commenter stated that alcohol septal ablation depends on favorable septal coronary anatomy and achieves septal reduction through a controlled myocardial infarction. The commenter stated that the location and extent of myocardial injury may be variable and the procedure is associated with clinically meaningful rates of permanent pacemaker implantation. In contrast, the commenter reported that SESAME directly modifies the interventricular septum using a transcatheter electrosurgical technique intended to reproduce the anatomic effect of surgical myotomy while preserving future treatment options. The commenters stated that future claims data may provide additional insight into whether cases reporting the SESAME procedure are clinically distinct from other cases that group to MS- DRGs 228 and 229 and it is important for CMS to monitor. Response: We appreciate the commenters' support and feedback. We note that, as reflected in Table 6B.--New Procedure Codes, procedure code X28M3DC will become effective with discharges on and after October 1, 2026, for FY 2027. As claims data becomes available we intend to monitor the reporting of ICD-10-PCS code X28M3DC consistent with our annual rulemaking analyses to determine if MS-DRGs 228 and 229 are the most appropriate MS-DRG assignment from both a clinical coherence and resource utilization perspective. Comment: A commenter stated that active mechanical clearance represents an important clinical distinction in the postoperative management of cardiac surgery patients. Specifically, the commenter stated that active mechanical clearance is designed to proactively maintain chest tube patency through internal mechanical action. According to the commenter, the proposed ICD-10-PCS qualifier to describe active mechanical clearance would help distinguish this treatment from passive drainage in the claims data. The commenter also stated that cases involving active mechanical clearance should not be considered equivalent to passive drainage cases because it involves incremental technology, implementation, and postoperative workflow requirements beyond passive drainage, including staff education and care processes intended to maintain drainage function. According to the commenter, these additional resources may not be adequately accounted for under the MS-DRG assignment. Another commenter stated it is a core part of how patients are able to recover safely and deserves to be reflected accurately in the data and payment system. The commenter also stated that impaired drainage and retained blood can complicate recovery and often drive additional monitoring, escalation of care, or a return to the operating room. The commenter [[Page 49655]] suggested that CMS should consider whether current MS-DRG payment reflects the real differences these cases involve, the clinical management required, implementation and equipment they depend on, staff education, the protocolized use they demand, and overall resource utilization these cases generate. Another commenter stated that nursing engagement is clinically meaningful as the nursing team plays a more proactive role in supporting drainage function, rather than relying solely on passive observation of output. According to the commenter, nurses must understand the purpose of the technology, how it is used, and incorporate it appropriately into routine postoperative care. The commenter stated a distinct qualifier for active mechanical clearance would provide an important mechanism for identifying cases and will allow CMS to better evaluate the clinical, operational, and resource- use differences associated with this approach within the MS-DRG framework. Response: We appreciate the commenters' feedback. As reflected in the FY 2027 ICD-10-PCS Code Update files that were made publicly available on the CMS website at: https://www.cms.gov/medicare/coding-billing/icd-10-codes on June 5, 2026, and in Table 6B.--New Procedure Codes, associated with this final rule (and available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps), new procedure codes describing drainage using active mechanical clearance were finalized. As stated in section II.C.1.b. of the preamble of this final rule, we encourage individuals with comments about MS-DRG classifications to submit these comments no later than October 20, 2026, via MEARISTM at: https://mearis.cms.gov/public/home, so that they can be considered for possible inclusion in the annual proposed rule. We will consider these public comments for possible proposals in future rulemaking as part of our annual review process. After consideration of the public comments received, we are finalizing the MDC and MS-DRG assignments for the new diagnosis codes and procedure codes as set forth in Table 6A.--New Diagnosis Codes and Table 6B.--New Procedure Codes associated with this final rule. In addition, the finalized severity level designations for the new diagnosis codes are set forth in Table 6A. and the finalized O.R. status designations for the new procedure codes are set forth in Table 6B. associated with this final rule. In association with this final rule, we are making the following tables available on the CMS website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html: Table 6A.--New Diagnosis Codes-FY 2027; Table 6B.--New Procedure Codes-FY 2027; Table 6C.--Invalid Diagnosis Codes-FY 2027; Table 6D.--Invalid Procedure Codes-FY 2027; Table 6E.--Revised Diagnosis Code Titles-FY 2027; Table 6F.--Revised Procedure Code Titles-FY 2027; Table 6G.1.--Secondary Diagnosis Order Additions to the CC Exclusions List-FY 2027; Table 6G.2.--Principal Diagnosis Order Additions to the CC Exclusions List-FY 2027; Table 6H.1.--Secondary Diagnosis Order Deletions to the CC Exclusions List-FY 2027; Table 6H.2.--Principal Diagnosis Order Deletions to the CC Exclusions List-FY 2027; Table 6I.--Complete MCC List-FY 2027; Table 6I.1.--Additions to the MCC List-FY 2027; Table 6J.--Complete CC List-FY 2027; Table 6J.1.--Additions to the CC List-FY 2027; Table 6J.2.--Deletions to the CC List-FY 2027; and Table 6K.--Complete List of CC Exclusions-FY 2027. 14. Changes to the Surgical Hierarchies Some inpatient stays entail multiple surgical procedures, each one of which, occurring by itself, could result in assignment of the case to a different MS-DRG within the MDC to which the principal diagnosis is assigned. Therefore, it is necessary to have a decision rule within the GROUPER by which cases with multiple surgical procedures are assigned to a single MS-DRG. The surgical hierarchy, an ordering of surgical classes from most resource-intensive to least resource- intensive, performs that function. Application of this hierarchy ensures that cases involving multiple surgical procedures are assigned to the MS-DRG associated with the most resource-intensive surgical class. A surgical class can be composed of one or more MS-DRGs. For example, in MDC 11, the surgical class ``kidney transplant'' consists of a single MS-DRG (MS-DRG 652) and the class ``major bladder procedures'' consists of three MS-DRGs (MS-DRGs 653, 654, and 655). Consequently, in many cases, the surgical hierarchy has an impact on more than one MS-DRG. The methodology for determining the most resource-intensive surgical class involves weighting the average resources for each MS-DRG by frequency to determine the weighted average resources for each surgical class. For example, assume surgical class A includes MS-DRGs 001 and 002 and surgical class B includes MS- DRGs 003, 004, and 005. Assume also that the average costs of MS-DRG 001 are higher than that of MS-DRG 003, but the average costs of MS- DRGs 004 and 005 are higher than the average costs of MS-DRG 002. To determine whether surgical class A should be higher or lower than surgical class B in the surgical hierarchy, we would weigh the average costs of each MS-DRG in the class by frequency (that is, by the number of cases in the MS-DRG) to determine average resource consumption for the surgical class. The surgical classes would then be ordered from the class with the highest average resource utilization to that with the lowest, with the exception of ``other O.R. procedures'' as discussed in this FY 2027 IPPS/LTCH PPS final rule. This methodology may occasionally result in assignment of a case involving multiple procedures to the lower-weighted MS-DRG (in the highest, most resource-intensive surgical class) of the available alternatives. However, given that the logic underlying the surgical hierarchy provides that the GROUPER search for the procedure in the most resource-intensive surgical class, in cases involving multiple procedures, this result is sometimes unavoidable. We note that, notwithstanding the foregoing discussion, there are a few instances when a surgical class with a lower average cost is ordered above a surgical class with a higher average cost. For example, the ``other O.R. procedures'' surgical class is uniformly ordered last in the surgical hierarchy of each MDC in which it occurs, regardless of the fact that the average costs for the MS-DRG or MS-DRGs in that surgical class may be higher than those for other surgical classes in the MDC. The ``other O.R. procedures'' class is a group of procedures that are only infrequently related to the diagnoses in the MDC but are still occasionally performed on patients with cases assigned to the MDC with these diagnoses. Therefore, assignment to these surgical classes should only occur if no other surgical class more closely related to the diagnoses in the MDC is appropriate. A second example occurs when the difference between the average costs for [[Page 49656]] two surgical classes is very small. We have found that small differences generally do not warrant reordering of the hierarchy because, as a result of reassigning cases on the basis of the hierarchy change, the average costs are likely to shift, such that the higher- ordered surgical class has lower average costs than the class ordered below it. Based on the changes that we proposed to make for FY 2027, as discussed in section II.C. of the preamble of the FY 2027 IPPS/LTCH PPS proposed rule and this final rule, we proposed to modify the existing surgical hierarchy for FY 2027 as illustrated in the following tables. We noted in the proposed rule that because the current methodology involves weighing the average costs of each MS-DRG in the surgical class by frequency (that is, by the number of cases in the MS-DRG) to determine average resource consumption for the surgical class, that the surgical hierarchy of other MS-DRGs in the MDC may need to be adjusted based on the MS-DRG classification changes that are proposed to ensure that the average weighted cost for each base MS-DRG in each MDC are monotonically decreasing. We further noted that the proposed Version 44 surgical hierarchy as illustrated in the following tables may be subject to further modifications based on the finalized changes to the MS-DRG classifications for FY 2027. BILLING CODE 4169-69-P [GRAPHIC] [TIFF OMITTED] TR04AU26.081 [[Page 49657]] [GRAPHIC] [TIFF OMITTED] TR04AU26.108 [[Page 49658]] [GRAPHIC] [TIFF OMITTED] TR04AU26.109 [GRAPHIC] [TIFF OMITTED] TR04AU26.082 [[Page 49659]] [GRAPHIC] [TIFF OMITTED] TR04AU26.083 [GRAPHIC] [TIFF OMITTED] TR04AU26.084 [GRAPHIC] [TIFF OMITTED] TR04AU26.085 BILLING CODE 4169-69-C Comment: Several commenters supported the proposed surgical hierarchy, however, a commenter expressed disagreement with the proposed sequencing for MDC 10 MS-DRGs 616, 617, and 618 from number one to number two, and also disagreed with the proposed surgical hierarchy sequencing for MDC 10 MS-DRGs 622, 623, and 624 from number four to number one. The commenter stated that ICD-10-PCS code 0JBQ0ZZ (Excision of right foot subcutaneous tissue and fascia, open approach) appears to drive the MS-DRG assignment when ICD-10-PCS code 0Y6M0ZF (Detachment at right foot, partial 5th ray, open approach) is also reported. According to the commenter, a partial foot amputation should not be sequenced lower in the surgical hierarchy because it is clinically more complex than a soft tissue excision. Response: We appreciate the commenters' support and feedback. We note that, as discussed in the preamble of the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19375 through 19376) and this final rule, the surgical hierarchy is based on a methodology for determining the most resource-intensive surgical class that involves weighting the average resources for each MS-DRG by frequency to determine the weighted average resources for each surgical class. As such, the sequencing of the surgical hierarchy is not based on the individual procedure codes listed in the logic for case assignment to an MS-DRG based on the clinical complexity of a procedure, rather, using the established methodology, each MS-DRG within the surgical class is assessed to calculate the weighted average resources for that surgical class. We note that because the weighted average resources for the surgical class comprised of MS-DRGs 622, 623, and 624 are greater than the [[Page 49660]] weighted average resources for the surgical class comprised of MS-DRGs 616, 617, and 618, the sequencing of the proposed surgical hierarchy reflects that analysis. Therefore, after consideration of the public comments we received, and based on the changes that we are finalizing for FY 2027, as discussed in section II.C. of the preamble of this final rule, we are finalizing our proposals to modify the existing surgical hierarchy, effective with the ICD-10 MS-DRGs Version 44, without modification. The finalized changes are also reflected in Appendix D MS-DRG Surgical Hierarchy by MDC and MS-DRG of the ICD-10 MS-DRG Definitions Manual, Version 44 available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software. For issues pertaining to the surgical hierarchy, as with other MS- DRG related requests, we encourage interested parties to submit comments no later than October 20, 2026, via MEARISTM at https://mearis.cms.gov/public/home, so that they can be considered for possible inclusion in the annual proposed rule. 15. Maintenance of the ICD-10-CM and ICD-10-PCS Coding Systems In September 1985, the ICD-9-CM Coordination and Maintenance Committee was formed. This is a Federal interdepartmental committee, co-chaired by the Centers for Disease Control and Prevention's (CDC) National Center for Health Statistics (NCHS) and CMS, charged with maintaining and updating the ICD-9-CM system. The final update to ICD- 9-CM codes was made on October 1, 2013. Thereafter, the name of the Committee was changed to the ICD-10 Coordination and Maintenance Committee, effective with the March 19-20, 2014 meeting. The ICD-10 Coordination and Maintenance Committee addresses updates to the ICD-10- CM and ICD-10-PCS coding systems. The Committee is jointly responsible for approving coding changes, and developing errata, addenda, and other modifications to the coding systems to reflect newly identified diseases and newly developed procedures and technologies. The Committee is also responsible for encouraging the use of Federal and non-Federal educational programs and employing other communication techniques with a view toward standardizing coding applications and upgrading the quality of the classification system. The official list of ICD-9-CM diagnosis and procedure codes by fiscal year can be found on the CMS website at: https://www.cms.gov/medicare/coding-billing/icd-10-codes/icd-9-cm-diagnosis-procedure-codes-abbreviated-and-full-code-titles. The official list of ICD-10-CM and ICD-10-PCS codes can be found on the CMS website at: http://www.cms.gov/Medicare/Coding/ICD10/index.html. The NCHS has lead responsibility for the ICD-10-CM and ICD-9-CM diagnosis codes included in the Tabular List and Alphabetic Index for Diseases, while CMS has lead responsibility for the ICD-10-PCS and ICD- 9-CM procedure codes included in the Tabular List and Alphabetic Index for Procedures. The Committee encourages health-related organizations to participate in the previously mentioned process. In this regard, the Committee makes code request materials and proposed coding changes publicly available. These materials provide an opportunity for representatives of recognized organizations in the coding field, such as the American Health Information Management Association (AHIMA), the American Hospital Association (AHA), and various physician specialty groups, as well as individual physicians, health information management professionals, and other members of the public, to contribute ideas on coding matters. Members of the public may submit comments on the proposed procedure code topics to CMS at: [email protected] and may submit comments on the proposed diagnosis code topics to the CDC/NCHS at: [email protected]. After considering the public comments submitted, the Committee formulates recommendations, which then must be approved by CDC/NCHS and CMS. The Committee presented proposals for ICD-10-CM diagnosis code changes for implementation in FY 2027 at the virtual public meetings held on September 9-10, 2025 and finalized the coding changes after consideration of comments received during the meetings and in writing by November 14, 2025. In lieu of CMS holding its Fall 2025 meeting, the Committee solicited comments on the Fall 2025 ICD-10-PCS procedure code topics. The deadline to submit comments on the procedure code proposals considered for an April 1, 2026, implementation was October 10, 2025, and the deadline to submit comments on the procedure code proposals being considered for an October 1, 2026, implementation was November 14, 2025. The Committee presented proposals for ICD-10-CM diagnosis code changes for implementation in FY 2027 and FY 2028 at the virtual public meetings held on March 17-18, 2026 and will finalize the coding changes after consideration of comments received during the meetings and in writing by May 15, 2026. In lieu of CMS holding its Spring 2026 meeting, the Committee solicited comments on the Spring 2026 ICD-10-PCS procedure code topics. The deadline for submitting public comments on these code proposals was April 17, 2026. Any new diagnosis and procedure codes for which there was a consensus of public support, and for which complete tabular and indexing changes would be made by June 2026 are included in the October 1, 2026, update to the ICD-10-CM diagnosis and ICD-10-PCS procedure code sets. As discussed in earlier sections of the preamble of this final rule, there are new, revised, and deleted ICD-10-CM diagnosis codes and ICD-10-PCS procedure codes that are captured in Table 6A.-- New Diagnosis Codes, Table 6B.--New Procedure Codes, Table 6C.--Invalid Diagnosis Codes, Table 6D.--Invalid Procedure Codes, Table 6E.--Revised Diagnosis Code Titles, and Table 6F.--Revised Procedure Code Titles for this final rule, which are available on the CMS website at: https://www.cms.gov/medicare/medicare-fee-for-service-payment/acuteinpatientpps. The code titles are adopted as part of the ICD-10 Coordination and Maintenance Committee process. As previously noted, although we make the code titles available in association with the IPPS proposed and final rules, they are not subject to comment in the proposed or final rule. Because of the length of these tables, they are not published in the Addendum to the proposed or final rule. Rather, they are available on the CMS website as discussed in section VI. of the Addendum to the proposed rule. Recordings and materials for the virtual meeting discussions of the diagnosis codes at the Committee's September 9-10, 2025 and March 17- 18, 2026 meeting can be found at: https://www.cdc.gov/nchs/icd/icd-10-maintenance/meetings.html. Materials for the Fall 2025 and Spring 2026 ICD-10-PCS procedure code topics can be obtained from the CMS website at: https://www.cms.gov/Medicare/Coding/ICD10/C-and-M-Meeting-Materials. These websites also provide detailed information about the Committee, including information on requesting a new code, participating in a Committee meeting, timeline requirements, [[Page 49661]] submitting comments, and meeting dates. We encourage commenters to submit questions and comments on coding issues involving diagnosis codes to CDC/NCHS via Email to: [email protected]. Questions and comments concerning the procedure codes should be submitted to CMS via Email to: [email protected]. As discussed in the proposed rule (91 FR 19382), CMS implemented 80 new procedure codes including codes to describe the insertion of cardiac devices, (that is, leads) into the ventricular septum, codes to enable the differentiation between the endoscopic techniques utilized to drain hepatobiliary and pancreatic fluid collections, and codes to capture the utilization of adjunctive therapies such as microcurrent electrical neuromuscular stimulation (MENS) and frequency-specific microcurrent (FSM) into the ICD-10-PCS classification effective with discharges on and after April 1, 2026. The procedure codes are as follows: BILLING CODE 4169-69-P [[Page 49662]] [GRAPHIC] [TIFF OMITTED] TR04AU26.086 [[Page 49663]] [GRAPHIC] [TIFF OMITTED] TR04AU26.087 [[Page 49664]] [GRAPHIC] [TIFF OMITTED] TR04AU26.088 [[Page 49665]] [GRAPHIC] [TIFF OMITTED] TR04AU26.089 [[Page 49666]] [GRAPHIC] [TIFF OMITTED] TR04AU26.090 [[Page 49667]] [GRAPHIC] [TIFF OMITTED] TR04AU26.091 BILLING CODE 4169-69-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/ [[Page 49668]] Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS. As with the other new procedure codes and MS-DRG assignments included in Table 6B in association with the FY 2027 IPPS/LTCH PPS proposed rule, we solicited public comments on the most appropriate MDC, MS-DRG, and operating room status assignments for these codes for FY 2027, as well as any other options for the GROUPER logic. We discuss the comments we received on these assignments in section II.C.9. of this final rule as well as our finalized assignments, as reflected in Table 6B.--New Procedure Codes in association with this final rule. In the proposed rule, we also noted that Change Request (CR) 14337, Transmittal 13562, titled ``April 2026 Update to the Medicare Severity- Diagnosis Related Group (MS-DRG) Grouper and Medicare Code Editor (MCE) Version V43.1'' was issued on December 23, 2025, (available on the CMS website at: https://www.cms.gov/medicare/regulations-guidance/transmittals/2025-transmittals/r13562cp) regarding the release of an updated version of the ICD-10 MS-DRG GROUPER and Medicare Code Editor software, Version V43.1, effective with discharges on and after April 1, 2026, reflecting the new procedure codes. The updated software, along with the updated ICD-10 MS-DRG Version 43.1 Definitions Manual and the Definitions of Medicare Code Edits Version 43.1 manual is available at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software. In the September 7, 2001, Medicare Program: Payments for New Medical Services and New Technologies Under the Acute Care Hospital Inpatient Prospective Payment System final rule implementing the IPPS new technology add-on payments (66 FR 46902), we indicated our intention to include proposals for procedure codes that would describe new technology discussed and approved at the Spring meeting as part of the code revisions effective the following October. Section 503(a) of the Medicare Modernization Act (Pub. L. 108-173) included a requirement for updating diagnosis and procedure codes twice a year instead of a single update on October 1 of each year. This requirement was included as part of the amendments to the Act relating to recognition of new technology under the IPPS. Section 503(a) of Public Law 108-173 amended section 1886(d)(5)(K) of the Act by adding a clause (vii) which states that the Secretary shall provide for the addition of new diagnosis and procedure codes on April 1 of each year, but the addition of such codes shall not require the Secretary to adjust the payment (or diagnosis-related group classification) until the fiscal year that begins after such date. This requirement improves the recognition of new technologies under the IPPS by providing information on these new technologies at an earlier date. Data will be available six months earlier than would be possible with updates occurring only once a year on October 1. In the FY 2005 IPPS final rule, we implemented section 1886(d)(5)(K)(vii) of the Act, as added by section 503(a) of Public Law 108-173, by developing a mechanism for approving, in time for the April update, diagnosis and procedure code revisions needed to describe new technologies and medical services for purposes of the new technology add-on payment process. We also established the following process for making these determinations. Topics considered during the Fall ICD-10 (previously ICD-9-CM) Coordination and Maintenance Committee meeting were considered for an April 1 update if a strong and convincing case was made by the requestor during the Committee's public meeting. The request needed to identify the reason why a new code was needed in April for purposes of the new technology process. Meeting participants and those reviewing the Committee meeting materials were provided with the opportunity to comment on the expedited request. We refer the reader to the FY 2022 IPPS/LTCH PPS final rule (86 FR 44950) for further discussion of the implementation of this prior April 1 update for purposes of the new technology add-on payment process. As discussed in the FY 2022 IPPS/LTCH PPS final rule (86 FR 44950 through 44956), we adopted an April 1 implementation date, in addition to the annual October 1 update, beginning with April 1, 2022. We noted that the intent of this April 1 implementation date was to allow flexibility in the ICD-10 code update process. CMS uses the same process for consideration of all requests for an April 1 implementation date, including for purposes of the new technology add-on payment process (that is, the prior process for consideration of an April 1 implementation date only if a strong and convincing case was made by the requestor during the meeting no longer applies). We implement new codes through the April 1 code update, which includes displaying proposals for April 1 consideration in association with the Fall ICD-10 Coordination and Maintenance Committee code update, requesting public comments, reviewing the public comments, finalizing codes, and announcing the new codes with their assignments consistent with the new GROUPER release information. We note that under our established process, requestors indicate whether they are submitting their code request for consideration for an April 1 implementation date or an October 1 implementation date. The ICD-10 Coordination and Maintenance Committee makes reasonable efforts to accommodate the requested implementation date for each request submitted. However, the Committee ultimately determines which requests are to be presented for consideration for an April 1 implementation date or an October 1 implementation date. The ICD-10 Coordination and Maintenance Committee may not be able to consider all requests received for the next Committee code update and will determine if it would be appropriate to postpone consideration of any code requests to a future update. As discussed earlier in this section of the preamble of this final rule, there were procedure code proposals considered for an April 1, 2026 implementation for the Fall 2025 procedure code update. Following the receipt of public comments, the code proposals were approved and finalized, therefore, new codes were implemented on April 1, 2026. As discussed in the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19388), consistent with the process we outlined for the April 1 implementation date, we announced the new codes and provided the updated code files in December 2025. The NCHS provided the ICD-10-CM Official Guidelines for Coding and Reporting in January 2026. On February 03, 2026, we made available the updated Version 43.1 ICD-10 MS-DRG GROUPER software and related materials on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software. ICD-9-CM addendum and code title information are published on the CMS website at https://www.cms.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/addendum. ICD-10-CM and ICD-10-PCS addendum and code title information are published on the CMS website at https://www.cms.gov/Medicare/Coding/ICD10. CMS also sends electronic files containing all ICD-10-CM and ICD-10-PCS coding changes to its Medicare contractors for use in updating their [[Page 49669]] systems and furnishing education to providers. Information on ICD-10-CM diagnosis codes, along with the Official ICD-10-CM Coding Guidelines, can be found on the CDC website at https://www.cdc.gov/nchs/icd/icd-10-cm/files.html. Additionally, information on new, revised, and deleted ICD-10-CM diagnosis and ICD-10-PCS procedure codes is provided to the AHA for publication in the Coding Clinic for ICD-10. The AHA also distributes coding update information to publishers and software vendors. In the proposed rule (91 FR 19389), we noted that for FY 2026, there are currently 74,719 diagnosis codes and 79,193 procedure codes. We also noted, as displayed in Table 6A.--New Diagnosis Codes and in Table 6B.--New Procedure Codes associated with the FY 2027 IPPS/LTCH PPS proposed rule (and available on the CMS website at https:// www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/ AcuteInpatientPPS), there are 184 new diagnosis codes and 81 new procedure codes that had been finalized at the time of the development of the FY 2027 IPPS/LTCH PPS proposed rule, with 80 of the new procedure codes that were effective with discharges on and after April 1, 2026. As previously noted, the code titles are adopted as part of the ICD-10 Coordination and Maintenance Committee process. Thus, although we publish the code titles in association with the IPPS proposed and final rules, they are not subject to comment in the proposed or final rules. As discussed in section II.C.13 of the preamble of this final rule, we are making Table 6A.--New Diagnosis Codes, Table 6B.--New Procedure Codes, Table 6C.--Invalid Diagnosis Codes, Table 6D.--Invalid Procedure Codes, Table 6E.--Revised Diagnosis Code Titles and Table 6F.--Revised Procedure Code Titles available on the CMS website at: https:// www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS in association with this final rule. As shown in Table 6A.--New Diagnosis Codes, there were diagnosis codes proposed for the Spring 2026 ICD-10 Coordination and Maintenance Committee Update that were not finalized in time to include in the proposed rule. As shown in Table 6B.--New Procedure Codes, there were procedure codes proposed for the Spring 2026 ICD-10 Coordination and Maintenance Committee Update that were not finalized in time to include in the proposed rule and are identified with an asterisk. We refer the reader to Table 6A.--New Diagnosis Codes and Table 6B.--New Procedure Codes associated with this final rule and available on the CMS website at: https://www.cms.gov/ Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS for the detailed list of these six new diagnosis codes and the detailed list of these 101 new procedure codes finalized for FY 2027. We also note, as reflected in Table 6C.--Invalid Diagnosis Codes, and in Table 6D.--Invalid Procedure Codes, there are a total of 30 diagnosis codes and 38 procedure codes that will become invalid effective October 1, 2026. Based on these code updates, effective October 1, 2026, there are a total of 74,879 ICD-10-CM diagnosis codes and 79,256 ICD-10-PCS procedure codes for FY 2027 as shown in the following table. [GRAPHIC] [TIFF OMITTED] TR04AU26.110 The public is provided the opportunity to comment on any proposals for new diagnosis or procedure codes that are discussed during an ICD- 10 Coordination and Maintenance Committee Meeting or that are made available for public comments. The code titles are adopted as part of the ICD-10 Coordination and Maintenance Committee process. Thus, although we publish the code titles in the IPPS proposed and final rules, they are not subject to comment in the proposed or final rules. 16. Replaced Devices Offered Without Cost or With a Credit a. Background In the FY 2008 IPPS final rule with comment period (72 FR 47246 through 47251), we discussed the topic of Medicare payment for devices that are replaced without cost or where credit for a replaced device is furnished to the hospital. We implemented a policy to reduce a hospital's IPPS payment for certain MS-DRGs where the implantation of a device that subsequently failed or was recalled determined the base MS- DRG assignment. At that time, we specified that we will reduce a hospital's IPPS payment for those MS-DRGs where the hospital received a credit for a replaced device equal to 50 percent or more of the cost of the device. In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51556 through 51557), we clarified this policy to state that the policy applies if the hospital received a credit equal to 50 percent or more of the cost of the replacement device and issued instructions to hospitals accordingly. b. Changes for FY 2027 As discussed in section II.C.3. of the preamble of the FY 2027 IPPS/LTCH PPS proposed rule and this final rule, for FY 2027, under MDC 05, we are proposed to delete MS-DRGs 258 and 259 (Cardiac Pacemaker Device Replacement with and without MCC, respectively) and MS-DRGs 260, 261, and 262 (Cardiac Pacemaker Revision Except Device Replacement with MCC, with CC, and without CC/MCC, respectively) and create new MS-DRGs 210 and 211 (Cardiac Pacemaker Revision or Device Replacement with and without MCC, respectively). The procedures currently assigned to MS- DRGs 258, 259, 260, 261, and 262 were proposed for assignment to proposed new MS-DRGs 210 and 211. Additionally, as discussed in section II.C.4. of the preamble of the FY 2027 IPPS/LTCH PPS proposed rule and this final rule, for FY 2027, under MDC 08, we proposed to delete MS-DRGs 466, 467, and 468 (Revision of Hip or Knee Replacement with MCC, with CC, and without CC/ MCC, respectively) and create new MS-DRG 449 (Revision of Hip or Knee Replacement). The procedures currently assigned to MS-DRGs 466, 467, and 468 were proposed for assignment to proposed new MS-DRG 449. As stated in the FY 2016 IPPS/LTCH PPS proposed rule (80 FR 24409), we generally map new MS-DRGs onto the list when they are formed from procedures previously assigned to MS-DRGs that are already on the list. Currently, MS-DRGs 258, 259, 260, 261, 262, 466, 467, and 468 are on the list of MS-DRGs subject to the policy for payment under the IPPS for replaced devices offered without cost or with a [[Page 49670]] credit as shown in the following table. Therefore, we proposed that if the applicable proposed MS-DRG changes are finalized, we also would add proposed new MS-DRGs 210 and 211 and proposed new MS-DRG 449 to the list of MS-DRGs subject to the policy for payment under the IPPS for replaced devices offered without cost or with a credit as reflected in the following table. We also proposed to continue to include the existing MS-DRGs currently subject to the policy. As discussed in section II.C.3. of the preamble of this final rule, we are finalizing our proposals to delete MS-DRGs 258, 259, 260, 261, and 262, and to create new MS-DRGs 210 and 211. Additionally, as discussed in section II.C.4. of the preamble of this final rule, we are finalizing our proposal to delete MS-DRGs 466, 467, and 468 and to create new MS-DRG 449, with a modification to the proposed title. We did not receive any public comments opposing our proposals to add proposed new MS-DRGs 210, 211 and 449 to the list of MS-DRGs that will be subject to the replaced devices offered without cost or with a credit policy effective October 1, 2026. Therefore, we are finalizing our proposal to add new MS-DRGs 210, 211, and 449 to the list of MS- DRGs subject to the policy for payment under the IPPS for replaced devices offered without cost or credit for FY 2027. We did not receive any public comments opposing our proposal to continue to include the existing MS-DRGs currently subject to the policy. Therefore, for the reasons summarized, we are finalizing the list of MS-DRGs in the following table that will be subject to the replaced devices offered without cost or with a credit policy effective October 1, 2026. BILLING CODE 4169-69-P [[Page 49671]] [GRAPHIC] [TIFF OMITTED] TR04AU26.111 BILLING CODE 4169-69-C The final list of MS-DRGs subject to the IPPS policy for replaced devices offered without cost or with a credit will be issued to providers in the form of a Change Request (CR). 17. Out of Scope Public Comments Received We received public comments on MS-DRG related issues that were outside the scope of the proposals included in the FY 2027 IPPS/LTCH PPS proposed rule. Because we consider these public comments to be outside the scope of the proposed rule, we are not addressing them in this final rule. As stated in section II.C.1.b. of the preamble of this [[Page 49672]] final rule, we encourage individuals with comments about MS-DRG classifications to submit these comments no later than October 20, 2026, via MEARISTM at: https://mearis.cms.gov/public/home, so that they can be considered for possible inclusion in the annual proposed rule. We will consider these public comments for possible proposals in future rulemaking as part of our annual review process.

1. Data Sources for Developing the Relative Weights

Consistent with our established policy, in developing the MS-DRG relative weights for FY 2027, we proposed to use two data sources: claims data and cost report data. The claims data source is the MedPAR file, which includes fully coded diagnostic and procedure data for all Medicare inpatient hospital bills. The FY 2025 MedPAR data used in this final rule includes discharges occurring on October 1, 2024, through September 30, 2025, based on bills received by CMS through December 31, 2025, from all hospitals subject to the IPPS and short-term, acute care hospitals in Maryland (which at that time were under a waiver from the IPPS). The FY 2025 MedPAR file used in calculating the relative weights includes data for approximately 6,961,093 Medicare discharges from IPPS providers. Discharges for Medicare beneficiaries enrolled in a Medicare Advantage managed care plan are excluded from this analysis. These discharges are excluded when the MedPAR ``GHO Paid'' indicator field on the claim record is equal to ``1'' or when the MedPAR DRG payment field, which represents the total payment for the claim, is equal to the MedPAR ``Indirect Medical Education (IME)'' payment field, indicating that the claim was an ``IME only'' claim submitted by a teaching hospital on behalf of a beneficiary enrolled in a Medicare Advantage managed care plan. In addition, the March 2026 update of the FY 2025 MedPAR file complies with version 5010 of the X12 HIPAA Transaction and Code Set Standards, and includes a variable called ``claim type.'' Claim type ``60'' indicates that the claim was an inpatient claim paid as fee-for-service. Claim types ``61,'' ``62,'' ``63,'' and ``64'' relate to encounter claims, Medicare Advantage IME claims, and HMO no-pay claims. Therefore, the calculation of the relative weights for FY 2027 also excludes claims with claim type values not equal to ``60.'' The data exclude CAHs, including hospitals that subsequently became CAHs after the period from which the data were taken. In addition, the data exclude Rural Emergency Hospitals (REHs), including hospitals that subsequently became REHs after the period from which the data were taken. We note that the FY 2027 relative weights are based on the ICD-10-CM diagnosis codes and ICD-10-PCS procedure codes from the FY 2025 MedPAR claims data, grouped through the ICD-10 version of the FY 2027 GROUPER (Version 44). The second data source used in the cost-based relative weighting methodology is the Medicare cost report data files from the Healthcare Cost Report Information System (HCRIS). In general, we use the HCRIS dataset that is 3 years prior to the IPPS fiscal year. Specifically, for this final rule, we used the March 2026 update of the FY 2024 HCRIS for calculating the FY 2027 cost-based relative weights. Consistent with our historical practice, for this FY 2027 final rule, we are providing the version of the HCRIS from which we calculated these 19 cost-to charge-ratios (CCRs) on the CMS website at https://www.cms.gov/ Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS. Click on the link on the left side of the screen titled ``FY 2027 IPPS Final Rule Home Page'' or ``Acute Inpatient Files for Download.''

2. Methodology for Calculation of the Relative Weights

a. General We calculated the FY 2027 relative weights based on 19 CCRs. The methodology we proposed to use to calculate the FY 2027 MSDRG cost- based relative weights based on claims data in the FY 2025 MedPAR file and data from the FY 2024 Medicare cost reports is as follows: To the extent possible, all the claims were regrouped using the FY 2027 MS-DRG classifications discussed in sections II.B. and II.C. of the preamble of this final rule. The transplant cases that were used to establish the relative weights for heart and lung, liver and/or intestinal, and lung transplants (MS-DRGs 001, 002, 005, 006, and 007, respectively) were limited to those Medicare-approved transplant centers that have cases in the FY 2025 MedPAR file. (Medicare coverage for heart, heart-lung, liver and/or intestinal, and lung transplants is limited to those facilities that have received approval from CMS as transplant centers.) Organ acquisition costs for kidney, heart, heart-lung, liver, lung, pancreas, and intestinal (or multivisceral organs) transplants continue to be paid on a reasonable cost basis. Because these acquisition costs are paid separately from the prospective payment rate, it is necessary to subtract the acquisition charges from the total charges on each transplant bill that showed acquisition charges before computing the average cost for each MS-DRG and before eliminating statistical outliers. Section 108 of the Further Consolidated Appropriations Act, 2020 provides that, for cost reporting periods beginning on or after October 1, 2020, costs related to hematopoietic stem cell acquisition for the purpose of an allogeneic hematopoietic stem cell transplant shall be paid on a reasonable cost basis. We refer the reader to the FY 2021 IPPS/LTCH PPS final rule for further discussion of the reasonable cost basis payment for cost reporting periods beginning on or after October 1, 2020 (85 FR 58835 through 58842). For FY 2022 and subsequent years, we subtract the hematopoietic stem cell acquisition charges from the total charges on each transplant bill that showed hematopoietic stem cell acquisition charges before computing the average cost for each MS- DRG and before eliminating statistical outliers. Claims with total charges or total lengths of stay less than or equal to zero were deleted. Claims that had an amount in the total charge field that differed by more than $30.00 from the sum of the routine day charges, intensive care charges, pharmacy charges, implantable devices charges, supplies and equipment charges, therapy services charges, operating room charges, cardiology charges, laboratory charges, radiology charges, other service charges, labor and delivery charges, inhalation therapy charges, emergency room charges, blood and blood products charges, anesthesia charges, cardiac catheterization charges, CT scan charges, and MRI charges were also deleted. At least 92.7 percent of the providers in the MedPAR file had charges for 14 of the 19 cost centers. All claims of providers that did not have charges greater than zero for at least 14 of the 19 cost centers were deleted. In other words, a provider must have no more than five blank cost centers. If a provider did not have charges greater than zero in more than five cost centers, the claims for the provider were deleted. Statistical outliers were eliminated by removing all cases that were beyond 3.0 standard deviations from the [[Page 49673]] geometric mean of the log distribution of both the total charges per case and the total charges per day for each MS-DRG. Effective October 1, 2008, because hospital inpatient claims include a Present on Admission (POA) field for each diagnosis present on the claim, only for purposes of relative weight-setting, the POA indicator field was reset to ``Y'' for ``Yes'' for all claims that otherwise have an ``N'' (No) or a ``U'' (documentation insufficient to determine if the condition was present at the time of inpatient admission) in the POA field. Under current payment policy, the presence of specific HAC codes, as indicated by the POA field values, can generate a lower payment for the claim. Specifically, if the particular condition is present on admission (that is, a ``Y'' indicator is associated with the diagnosis on the claim), it is not a HAC, and the hospital is paid for the higher severity (and, therefore, the higher weighted MS-DRG). If the particular condition is not present on admission (that is, an ``N'' indicator is associated with the diagnosis on the claim) and there are no other complicating conditions, the DRG GROUPER assigns the claim to a lower severity (and, therefore, the lower weighted MS-DRG) as a penalty for allowing a Medicare inpatient to contract a HAC. While the POA reporting meets policy goals of encouraging quality care and generates program savings, it presents an issue for the relative weight-setting process. Because cases identified as HACs are likely to be more complex than similar cases that are not identified as HACs, the charges associated with HAC cases are likely to be higher as well. Therefore, if the higher charges of these HAC claims are grouped into lower severity MS-DRGs prior to the relative weight-setting process, the relative weights of these particular MS-DRGs would become artificially inflated, potentially skewing the relative weights. In addition, we want to protect the integrity of the budget neutrality process by ensuring that, in estimating payments, no increase to the standardized amount occurs as a result of lower overall payments in a previous year that stem from using weights and case-mix that are based on lower severity MS-DRG assignments. If this would occur, the anticipated cost savings from the HAC policy would be lost. To avoid these problems, we reset the POA indicator field to ``Y'' only for relative weight-setting purposes for all claims that otherwise have an ``N'' or a ``U'' in the POA field. This resetting ``forced'' the more costly HAC claims into the higher severity MS-DRGs as appropriate, and the relative weights calculated for each MS-DRG more closely reflect the true costs of those cases. The charges for each of the 19 cost groups for each claim were standardized to remove the effects of differences in area wage levels, IME and DSH payments, and for hospitals located in Alaska and Hawaii, the applicable cost-of-living adjustment. Because hospital charges include charges for both operating and capital costs, we standardized total charges to remove the effects of differences in geographic adjustment factors, cost-of-living adjustments, and DSH payments under the capital IPPS as well. Charges were then summed by MS-DRG for each of the 19 cost groups so that each MS-DRG had 19 standardized charge totals. Statistical outliers were then removed. These charges were then adjusted to cost by applying the national average CCRs developed from the FY 2024 cost report data. The 19 cost centers that we used in the relative weight calculation are shown in a supplemental data file, Cost Center HCRIS Lines Supplemental Data File, posted via the internet on the CMS website for this final rule and available at https://www.cms.gov/Medicare/Medicare- Fee-for-Service-Payment/AcuteInpatientPPS. The supplemental data file shows the lines on the cost report and the corresponding revenue codes that we used to create the 19 national cost center CCRs. In the proposed rule, we stated that if we receive comments about the groupings in this supplemental data file, we may consider these comments as we finalize our policy. We did not receive any comments on the groupings in this table and are finalizing the groupings as proposed. Consistent with historical practice, we account for rare situations of non-monotonicity in a base MS-DRG and its severity levels, where the mean cost in the higher severity level is less than the mean cost in the lower severity level, in determining the relative weights for the different severity levels. If there are initially non-monotonic relative weights in the same base DRG and its severity levels, then we combine the cases that group to the specific non-monotonic MS-DRGs for purposes of relative weight calculations. For example, if there are two non-monotonic MS-DRGs, combining the cases across those two MS-DRGs results in the same relative weight for both MS-DRGs. The relative weight calculated using the combined cases for those severity levels is monotonic, effectively removing any non-monotonicity with the base DRG and its severity levels. For this FY 2027 final rule, this calculation was applied to address non-monotonicity for cases that grouped to the following: MS-DRG 217 and MS-DRG 218, MS-DRG 504 and MS-DRG 505, and MS-DRG 582 and MS-DRG 583. In the supplemental file titled AOR/BOR File, we include statistics for the affected MS-DRGs both separately and with cases combined. We invited public comments on our proposals related to recalibration of the proposed FY 2027 relative weights and the changes in relative weights from FY 2026. Comment: Commenters expressed concern that the current MS-DRG payment methodology systematically disadvantages rural hospitals relative to urban hospitals, as recalibrations reduce payments for the lower-acuity cases rural hospitals predominantly treat while denying them the benefits of rising relative weights for complex cases they rarely see. Commenters warned that this dynamic creates a self- reinforcing downward spiral in which persistently low case-mix indexes (CMI) constrain revenue, limiting investment in technology and specialty capacity, which in turn prevents rural hospitals from treating higher-acuity patients and improving their CMI--ultimately threatening the long-term viability of these critical community resources. A commenter urged CMS to examine whether its rate-setting methodology contributes to these disproportionate impacts and, if confirmed, to pursue corrective payment adjustments. Specifically, commenters suggested a CMI-based payment adjustment modeled after the low wage index hospital policy finalized in the FY 2020 IPPS rule, which they stated successfully addressed a comparable cycle of disadvantage for low-wage-index hospitals. Commenters further stated that CMS has both the statutory authority under section 1886(d)(5)(I)(i) of the Act and established precedent in the MS-DRG context to implement such an adjustment. Response: We appreciate the commenters sharing their concerns regarding the impact of recalibration on payment for rural hospitals. We believe the relative weights determined under our recalibration methodology and using the best available data (as described previously) is consistent with the statutory requirement to adjust the MS-DRG relative weights at least annually to account for changes in relative resource consumption, reflecting changes in treatment patterns, technology, and any other factors that [[Page 49674]] may change the relative use of hospital resources. In addition, we believe the budget neutrality adjustments resulting from recalibration are fulfilling our statutory requirement to maintain budget neutrality. We note that in the CY 2026 OPPS final rule (90 FR 54019-54024), we finalized a change in our methodology to incorporate market-based rate information into our relative weight methodology. We believe that this change to our methodology will improve the accuracy of the resulting relative weights. To the extent that the care furnished by rural hospitals is classified into MS-DRGs that may experience increases in their relative weights under the market-based MS-DRG methodology then rural hospitals would see higher payments compared to the current methodology. After consideration of the comments received, we are finalizing our proposals without modifications related to the recalibration of the FY 2027 relative weights. We summarize and respond to comments relating to the methodology for calculating the relative weight for MS-DRG 018 in the next section of this final rule. b. Relative Weight Calculation for MS-DRG 018 In the FY 2021 IPPS/LTCH PPS final rule (85 FR 58451 through 58453), we created MS-DRG 018 for cases that include procedures describing CAR T-cell therapies. We also finalized our proposal to modify our existing relative weight methodology to ensure that the relative weight for MS-DRG 018 appropriately reflects the relative resources required for providing CAR T-cell therapy outside of a clinical trial, while still accounting for the clinical trial cases in the overall average cost for all MS-DRGs (85 FR 58599 through 58600). Specifically, we stated that clinical trial claims that group to new MS-DRG 018 would not be included when calculating the average cost for MS-DRG 018 that is used to calculate the relative weight for this MS- DRG, so that the relative weight reflects the costs of the CAR T-cell therapy drug. We stated that we identified clinical trial claims as claims that contain ICD-10-CM diagnosis code Z00.6 or contain standardized drug charges of less than $373,000, which was the average sales price of KYMRIAH and YESCARTA, the two CAR T-cell biological products licensed to treat relapsed/refractory large B-cell lymphoma as of the time of the development of the FY 2021 final rule. In addition, we stated that (a) when the CAR T-cell therapy product is purchased in the usual manner, but the case involves a clinical trial of a different product, the claim will be included when calculating the average cost for new MS-DRG 018 to the extent such cases can be identified in the historical data, and (b) when there is expanded access use of immunotherapy, these cases will not be included when calculating the average cost for new MS-DRG 018 to the extent such cases can be identified in the historical data. We also finalized our proposal to calculate an adjustment to account for the CAR T-cell therapy cases identified as clinical trial cases in calculating the national average standardized cost per case that is used to calculate the relative weights for all MS-DRGs and for purposes of budget neutrality and outlier simulations. We calculate this adjustor by dividing the average cost for cases that we identify as clinical trial cases by the average cost for cases that we identify as non-clinical trial cases, with the additional refinements that (a) when the CAR T-cell therapy product is purchased in the usual manner, but the case involves a clinical trial of a different product, the claim will be included when calculating the average cost for cases not determined to be clinical trial cases to the extent such cases can be identified in the historical data, and (b) when there is expanded access use of immunotherapy, these cases will be included when calculating the average cost for cases determined to be clinical trial cases to the extent such cases can be identified in the historical data. We stated that to the best of our knowledge, there were no claims in the historical data used in the calculation of this adjustment for cases involving a clinical trial of a different product, and to the extent the historical data contain claims for cases involving expanded access use of immunotherapy we believe those claims would have drug charges less than $373,000. In the FY 2021 IPPS/LTCH PPS final rule (85 FR 58842), we also finalized an adjustment to the payment amount for applicable clinical trial and expanded access use immunotherapy cases that group to MS-DRG 018, and indicated that we would provide instructions for identifying these claims in separate guidance. Following the issuance of the FY 2021 IPPS/LTCH PPS final rule, we issued guidance \16\ stating that providers may enter a Billing Note NTE02 ``Expand Acc Use'' on the electronic claim 837I or a remark ``Expand Acc Use'' on a paper claim to notify the MAC of expanded access use of CAR T-cell therapy. In this case, the MAC would add payer-only condition code ``ZB'' so that Pricer will apply the payment adjustment in calculating payment for the case. In cases when the CAR T-cell therapy product is purchased in the usual manner, but the case involves a clinical trial of a different product, the provider may enter a Billing Note NTE02 ``Diff Prod Clin Trial'' on the electronic claim 837I or a remark ``Diff Prod Clin Trial'' on a paper claim. In this case, the MAC would add payer-only condition code ``ZC'' so that the Pricer will not apply the payment adjustment in calculating payment for the case. --------------------------------------------------------------------------- \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. [[Page 49675]] Accordingly, and as discussed further in the FY 2024 IPPS/LTCH PPS final rule, we finalized two modifications to our methodology for identifying clinical trial claims and expanded access use claims in MS- DRG 018 (88 FR 58791). First, we finalized to exclude claims with the presence of condition code ``90'' (or, for FY 2024 ratesetting, which was based on the FY 2022 MedPAR data, the presence of condition code ``ZB'') and claims that contain ICD-10-CM diagnosis code Z00.6 without payer-only code ``ZC'' that group to MS-DRG 018 when calculating the average cost for MS-DRG 018. Second, we finalized to no longer use the proxy of standardized drug charges of less than $373,000 to identify clinical trial claims and expanded access use cases when calculating the average cost for MS-DRG 018. Accordingly, we finalized that in calculating the relative weight for MS-DRG 018 for FY 2024, only those claims that group to MS-DRG 018 that (1) contain ICD-10-CM diagnosis code Z00.6 and do not include payer-only code ``ZC'' or (2) contain condition code ``ZB'' (or, for subsequent fiscal years, condition code ``90'') would be excluded from the calculation of the average cost for MS-DRG 018. Consistent with this, we also finalized modifications to our calculation of the adjustment to account for the CAR T-cell therapy cases identified as clinical trial cases in calculating the national average standardized cost per case that is used to calculate the relative weights for all MS-DRGs. We refer readers to the FY 2024 IPPS/ LTCH PPS final rule for further discussion of these modifications (88 FR 58791). Consistent with the FY 2026 IPPS/LTCH PPS final rule, in the proposed rule, for FY 2027 we proposed to continue to use our methodology as modified in the FY 2024 IPPS/LTCH PPS final rule for identifying clinical trial claims and expanded access use claims in MS- DRG 018, with an additional modification as discussed in this section. First, we exclude claims with the presence of condition code ``90'' and claims that contain ICD-10-CM diagnosis code Z00.6 without payer-only code ``ZC'' that group to MS-DRG 018 when calculating the average cost for MS-DRG 018. Second, we no longer use the proxy of standardized drug charges of less than $373,000 to identify clinical trial claims and expanded access use cases when calculating the average cost for MS-DRG 018. In the FY 2026 IPPS/LTCH PPS final rule, we finalized our proposal to apply the payment adjustment for clinical trial and expanded access use immunotherapy cases to other cases where the immunotherapy product is not purchased in the usual manner, such as obtained at no cost. To mirror this change within our relative weight methodology, we finalized our proposal to also exclude claims with standardized drug charges below the median standardized drug charge of claims identified as clinical trials in MS-DRG 018 when we calculate the average cost for MS-DRG 018. We proposed to apply this policy for 2 years (that is, in our relative weight methodology for MS-DRG 018 for FYs 2026 and 2027), until the claims data reflects the addition of the condition code indicating that the immunotherapy product is not purchased in the usual manner, such as obtained at no cost, which then would be able to be used to identify these cases such that they can be identified for exclusion from the calculation of the average cost of MS-DRG 018. For the proposed rule, based on the December 2025 update of the FY 2025 MedPAR file, we estimated that the median standardized drug charge of claims identified as clinical trials in MS-DRG 018 is $25,323. For the purpose of performing this trim, we proposed to update the median standardized drug charge of claims identified as clinical trials in MS- DRG 018 based on more recent data for the final rule. Accordingly, we proposed that in calculating the relative weight for MS-DRG 018 for FY 2027, in identifying clinical trial claims and expanded access use claims and other cases where the immunotherapy product is not purchased in the usual manner, such as obtained at no cost, only those claims that group to MS-DRG 018 that (1) contain ICD- 10-CM diagnosis code Z00.6 and do not include payer-only code ``ZC'', (2) contain condition code ``90'', or (3) contain standardized drug charges below the median standardized drug charge of clinical trial cases in MS-DRG 018 would be excluded from the calculation of the average cost for MS-DRG 018. We also proposed to continue to use the methodology as modified in the FY 2024 IPPS/LTCH PPS final rule to calculate the adjustment to account for the CAR T-cell therapy cases identified as clinical trial cases in calculating the national average standardized cost per case that is used to calculate the relative weights for all MS-DRGs, with the same proposed modification as described previously to identify other cases where the immunotherapy product is not purchased in the usual manner, such as obtained at no cost: Calculate the average cost for cases assigned to MS-DRG 018 that (a) contain ICD-10-CM diagnosis code Z00.6 and do not contain condition code ``ZC'', (b) contain condition code ``90'', or (c) contain standardized drug charges below the median standardized drug charge of clinical trial cases in MS-DRG 018. Calculate the average cost for all other cases assigned to MS-DRG 018. Calculate an adjustor by dividing the average cost calculated in step 1 by the average cost calculated in step 2. Apply the adjustor calculated in step 3 to the cases identified in step 1 as applicable clinical trial or expanded access use cases, and other cases where the immunotherapy product is not purchased in the usual manner, such as obtained at no cost, then add this adjusted case count to the non-clinical trial case count prior to calculating the average cost across all MS-DRGs. Under our proposal to continue to apply this methodology, with the proposed modification as described, based on the December 2025 update of the FY 2025 MedPAR file used for the proposed rule, we estimated that the average costs of cases assigned to MS-DRG 018 that are identified as clinical trial cases ($71,039) were 17 percent of the average costs of the cases assigned to MS-DRG 018 that are identified as non-clinical trial cases ($412,218). Accordingly, as we did for FY 2026, we proposed to adjust the transfer-adjusted case count for MS-DRG 018 by applying the proposed adjustor of 0.17 to the applicable clinical trial and expanded access use immunotherapy cases, and other cases where the immunotherapy product is not purchased in the usual manner, such as obtained at no cost, and to use this adjusted case count for MS-DRG 018 in calculating the national average cost per case, which is used in the calculation of the relative weights. Therefore, in calculating the national average cost per case for purposes of the proposed rule, each case identified as an applicable clinical trial or expanded access use immunotherapy case, and other cases where the immunotherapy product is not purchased in the usual manner, such as obtained at no cost, was adjusted by 0.17. As we did for FY 2026, we applied the same adjustor for the applicable cases that group to MS-DRG 018 for purposes of budget neutrality and outlier simulations. We also proposed to update the value of the adjustor based on more recent data for the final rule. Comment: Commenters broadly supported the continued use of the modified payment and rate-setting methodology for MS-DRG 018, including the exclusion of cases involving a clinical trial, expanded [[Page 49676]] access, or products not purchased in the usual manner, from the relative weight calculation. Commenters welcomed CMS's evolving use of claims-based identifiers--such as condition codes and diagnosis codes-- to flag these cases, and urged CMS to conduct robust outreach and education to help hospitals navigate the upcoming transition from the drug charge threshold to condition code-based identification in FY 2028. Several commenters also called for greater transparency, requesting that CMS publish data on cases falling below the previous $373,000 threshold and monitor patient access and quality of care under the new methodology. A commenter cautioned that the base payment rate for MS-DRG 018 remains insufficient to cover the actual costs of CAR T- cell and other cellular immunotherapies, raising concerns about long- term Medicare beneficiary access. Additionally, commenters urged CMS to explore improvements to the base payment rate and consider separating cellular therapies from the broader Drugs and Cellular Therapies cost center, given the agency's own recognition of the distinct differences between traditional drugs and autologous cellular therapies. Response: We appreciate commenters' support for our proposal. With respect to the request that CMS conduct outreach and education regarding the transition to the use of the condition codes, we note that when condition code ZD was implemented with CR 14247, an MLN article was published to educate providers on the requirement to report when they do not purchase the CAR T-cell therapy or other immunotherapy product in the usual manner. Therefore, we do not believe additional outreach and education is necessary at this time, but we will continue to monitor whether this might be necessary in the future. With respect to the request that CMS publish the details regarding specific cases, we note that information on obtaining the MedPAR Limited Data Set is available on the CMS website, at https://www.cms.gov/Research-Statistics-Data-and-Systems/Files-for-Order/LimitedDataSets/MEDPARLDSHospitalNational. In response to comments about payment adequacy and the request to create a separate cellular therapy cost center, we refer the reader to the FY 2022 final rule (86 FR 44965), where we responded to similar comments. We will take these comments into consideration for future rulemaking as appropriate depending on how this clinical area continues to evolve. After consideration of the public comments we received, we are finalizing our proposals without modifications regarding the calculation of the relative weight for MS-DRG 018. We note that for this final rule, based on the March 2026 update of the FY 2025 MedPAR file, we estimated that the median standardized drug charge of claims identified as clinical trials in MS-DRG 018 (that is, claims that (a) contain ICD-10-CM diagnosis code Z00.6 and do not include payer-only code ``ZC'' or (b) contain condition code ``90'') is $24,863. Applying this finalized methodology, based on the March 2026 update of the FY 2025 MedPAR file used for this final rule, we estimated that the average costs of cases assigned to MS-DRG 018 that are identified as clinical trial cases ($64,963) were 16 percent of the average costs of the cases assigned to MS-DRG 018 that are identified as nonclinical trial cases ($410,125). Accordingly, as we did for FY 2026, we are finalizing our proposal to adjust the transfer-adjusted case count for MS-DRG 018 by applying the adjustor of 0.16 to the applicable clinical trial and expanded access use immunotherapy cases, and other cases where the immunotherapy product is not purchased in the usual manner, such as obtained at no cost, and to use this adjusted case count for MS-DRG 018 in calculating the national average cost per case, which is used in the calculation of the relative weights. Therefore, in calculating the national average cost per case for purposes of this final rule, each case identified as an applicable clinical trial or expanded access use immunotherapy case, and other cases where immunotherapy product is not purchased in the usual manner, such as obtained at no cost, was adjusted by 0.16. As we did for FY 2026, we are applying this same adjustor for the applicable cases that group to MS-DRG 018 for purposes of budget neutrality and outlier simulations. c. Cap for Relative Weight Reductions In the FY 2023 IPPS/LTCH PPS final rule, we finalized a permanent 10-percent cap on the reduction in an MS-DRG's relative weight in a given fiscal year, beginning in FY 2023. We also finalized a budget neutrality adjustment to the standardized amount for all hospitals to ensure that application of the permanent 10-percent cap does not result in an increase or decrease of estimated aggregate payments. We refer the reader to the FY 2023 IPPS/LTCH PPS final rule for further discussion of this policy. In the Addendum to this IPPS/LTCH PPS final rule, we present the budget neutrality adjustment for reclassification and recalibration of the FY 2027 MS-DRG relative weights with application of this cap. We are also making available on the CMS website a supplemental file demonstrating the application of the permanent 10 percent cap for FY 2027. For a further discussion of the final budget neutrality adjustment for FY 2027, we refer readers to the Addendum of this final rule.

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

We developed the national average CCRs as follows: Using the FY 2024 cost report data, we removed CAHs, REHs, Indian Health Service hospitals, all inclusive rate hospitals, and cost reports that represented time periods of less than 1 year (365 days). We included hospitals located in Maryland because we include their charges in our claims database. Then we created CCRs for each provider for each cost center (see the supplemental data file for line items used in the calculations) and removed any CCRs that were greater than 10 or less than 0.01. We normalized the departmental CCRs by dividing the CCR for each department by the total CCR for the hospital for the purpose of trimming the data. Then we took the logs of the normalized cost center CCRs and removed any cost center CCRs where the log of the cost center CCR was greater or less than the mean log plus/minus 3 times the standard deviation for the log of that cost center CCR. Once the cost report data were trimmed, we calculated a Medicare-specific CCR. The Medicare-specific CCR was determined by taking the Medicare charges for each line item from Worksheet D-3 and deriving the Medicare-specific costs by applying the hospital-specific departmental CCRs to the Medicare- specific charges for each line item from Worksheet D-3. Once each hospital's Medicare-specific costs were established, we summed the total Medicare-specific costs and divided by the sum of the total Medicare-specific charges to produce national average, charge-weighted CCRs. After we multiplied the total charges for each MS-DRG in each of the 19 cost centers by the corresponding national average CCR, we summed the 19 ``costs'' across each MS-DRG to produce a total standardized cost for the MS-DRG. The average standardized cost for each MS-DRG was then computed as the total standardized cost for the MS-DRG divided by the transfer-adjusted case count for the MS-DRG. The average cost [[Page 49677]] for each MS-DRG was then divided by the national average standardized cost per case to determine the relative weight. The final FY 2027 cost- based relative weights were then normalized by an adjustment factor of 1.945743 so that the average case weight after recalibration was equal to the average case weight before recalibration. The normalization adjustment is intended to ensure that recalibration by itself neither increases nor decreases total payments under the IPPS, as required by section 1886(d)(4)(C)(iii) of the Act. We then applied the permanent 10-percent cap on the reduction in a MS-DRG's relative weight in a given fiscal year; specifically for those MS-DRGs for which the relative weight otherwise would have declined by more than 10 percent from the FY 2026 relative weight, we set the final FY 2027 relative weight equal to 90 percent of the FY 2026 relative weight. The relative weights for FY 2027 as set forth in Table 5 associated with this final rule and available on the CMS website at https://www.cms.gov/Medicare/ Medicare-Fee-for-Service-Payment/AcuteInpatientPPS reflect the application of this cap. The 19 national average CCRs for FY 2027 are as follows: [GRAPHIC] [TIFF OMITTED] TR04AU26.092 Since FY 2009, the relative weights have been based on 100 percent cost weights based on our MS-DRG grouping system. When we recalibrated the DRG weights for previous years, we set a threshold of 10 cases as the minimum number of cases required to compute a reasonable weight. We proposed to use that same case threshold in recalibrating the proposed MS-DRG relative weights for FY 2027. Using data from the FY 2025 MedPAR file, there are 8 MS-DRGs that contain fewer than 10 cases. For FY 2027, because we do not have sufficient MedPAR data to set accurate and stable cost relative weights for these low-volume MS-DRGs, we proposed to compute relative weights for the low volume MS-DRGs by adjusting their final FY 2026 relative weights by the percentage change in the average weight of the cases in other MS-DRGs from FY 2026 to FY 2027. The crosswalk table is as follows. [GRAPHIC] [TIFF OMITTED] TR04AU26.093 [[Page 49678]] We did not receive any public comments on this proposal and therefore are finalizing it for FY 2027 without modification.

1. Background

Effective for discharges beginning on or after October 1, 2001, section 1886(d)(5)(K)(i) of the Act requires the Secretary to establish a mechanism to recognize the costs of new medical services and technologies (sometimes collectively referred to in this section as ``new technologies'') under the IPPS. Section 1886(d)(5)(K)(vi) of the Act specifies that a medical service or technology will be considered new if it meets criteria established by the Secretary after notice and opportunity for public comment. Section 1886(d)(5)(K)(ii)(I) of the Act specifies that a new medical service or technology may be considered for new technology add-on payment if, based on the estimated costs incurred with respect to discharges involving such service or technology, the DRG prospective payment rate otherwise applicable to such discharges under this subsection is inadequate. The regulations at 42 CFR 412.87 implement these provisions and Sec. 412.87(b) specifies three criteria for a new medical service or technology to receive the additional payment: (1) the medical service or technology must be new; (2) the medical service or technology must be costly such that the DRG rate otherwise applicable to discharges involving the medical service or technology is determined to be inadequate; and (3) the service or technology must demonstrate a substantial clinical improvement over existing services or technologies. In addition, certain transformative new devices and antimicrobial products may qualify under an alternative inpatient new technology add-on payment pathway, as set forth in the regulations at Sec. 412.87(c) and (d). We note that section 1886(d)(5)(K)(i) of the Act requires the Secretary to establish a mechanism to recognize the costs of new medical services and technologies under the payment system established under that subsection, which establishes the system for paying for the operating costs of inpatient hospital services. The system of payment for capital costs is established under section 1886(g) of the Act. Therefore, as discussed in prior rulemaking (72 FR 47307 through 47308), we do not include capital costs in the add-on payments for a new medical service or technology or make new technology add-on payments under the IPPS for capital-related costs. In the proposed rule, we highlighted some of the major statutory and regulatory provisions relevant to the new technology add-on payment criteria, as well as other information. For further discussion on the new technology add-on payment criteria, we refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51572 through 51574), the FY 2020 IPPS/ LTCH PPS final rule (84 FR 42288 through 42300), and the FY 2021 IPPS/ LTCH PPS final rule (85 FR 58736 through 58742). a. New Technology Add-On Payment Criteria (1) Newness Criterion Under the first criterion, as reflected in Sec. 412.87(b)(2), a specific medical service or technology will no longer be considered ``new'' for purposes of new medical service or technology add-on payments after CMS has recalibrated the MS-DRGs, based on available data, to reflect the cost of the technology. We note that we do not consider a service or technology to be new if it is substantially similar to one or more existing technologies. That is, even if a medical product receives a new FDA marketing authorization, it may not necessarily be considered ``new'' for purposes of new technology add-on payments if it is ``substantially similar'' to another medical product that was market authorized by FDA and has been on the market for more than 2 to 3 years. In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43813 through 43814), we established criteria for evaluating whether a new technology is substantially similar to an existing technology, specifically whether: (1) a product uses the same or a similar mechanism of action to achieve a therapeutic outcome; (2) a product is assigned to the same or a different MS-DRG; and (3) the new use of the technology involves the treatment of the same or similar type of disease and the same or similar patient population. If a technology meets all three of these criteria, it would be considered substantially similar to an existing technology and would not be considered ``new'' for purposes of new technology add-on payments. For a detailed discussion of the criteria for substantial similarity, we refer readers to the FY 2006 IPPS final rule (70 FR 47351 through 47352) and the FY 2010 IPPS/LTCH PPS final rule (74 FR 43813 through 43814). (2) Cost Criterion Under the second criterion, Sec. 412.87(b)(3) further provides that, to be eligible for the add-on payment for new medical services or technologies, the MS-DRG prospective payment rate otherwise applicable to discharges involving the new medical service or technology must be assessed for adequacy. Under the cost criterion, consistent with the formula specified in section 1886(d)(5)(K)(ii)(I) of the Act, to assess the adequacy of payment for a new technology paid under the applicable MS-DRG prospective payment rate, we evaluate whether the charges of the cases involving a new medical service or technology will exceed a threshold amount that is the lesser of 75 percent of the standardized amount (increased to reflect the difference between cost and charges) or 75 percent of one standard deviation beyond the geometric mean standardized charge for all cases in the MS-DRG to which the new medical service or technology is assigned (or the case-weighted average of all relevant MS-DRGs if the new medical service or technology occurs in many different MS-DRGs). The MS-DRG threshold amounts generally used in evaluating new technology add-on payment applications for FY 2027 are presented in a data file that is available, along with the other data files associated with the FY 2026 IPPS/LTCH PPS final rule on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index. We note that, under the policy finalized in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58603 through 58605), beginning with FY 2022, we use the proposed threshold values associated with the proposed rule for that fiscal year to evaluate the cost criterion for all applications for new technology add-on payments and previously approved technologies that may continue to receive new technology add-on payments, if those technologies would be assigned to a proposed new MS-DRG for that same fiscal year. As finalized in the FY 2019 IPPS/LTCH PPS final rule (83 FR 41275), beginning with FY 2020, we include the thresholds applicable to the next fiscal year (previously included in Table 10 of the annual IPPS/ LTCH PPS proposed and final rules) in the data files associated with the prior fiscal year. Accordingly, the final thresholds for applications for new technology add-on payments for FY 2028 are presented in a data file that is available on the CMS website, along with the other data files [[Page 49679]] associated with this FY 2027 final rule, by clicking on the FY 2027 IPPS Final Rule Home Page at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index. In the September 7, 2001, final rule that established the new technology add-on payment regulations (66 FR 46917), we discussed that applicants should submit a significant sample of data to demonstrate that the medical service or technology meets the high-cost threshold. Specifically, applicants should submit a sample of sufficient size to enable us to undertake an initial validation and analysis of the data. We also discussed in the September 7, 2001, final rule (66 FR 46917) the issue of whether the Health Insurance Portability and Accountability Act of 1996 (HIPAA) Privacy Rule at 45 CFR part 160 and subparts A and E of 45 CFR part 164, applies to claims information that providers submit with applications for new medical service or technology add-on payments. We refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51573) for further information on this issue. (3) Substantial Clinical Improvement Criterion Under the third criterion at Sec. 412.87(b)(1), a medical service or technology must represent an advance that substantially improves, relative to technologies previously available, the diagnosis or treatment of Medicare beneficiaries. In the FY 2020 IPPS/LTCH PPS final rule (84 FR 42288 through 42292), we prospectively codified in our regulations at Sec. 412.87(b) the following aspects of how we evaluate substantial clinical improvement for purposes of new technology add-on payments under the IPPS: The totality of the circumstances is considered when making a determination that a new medical service or technology represents an advance that substantially improves, relative to services or technologies previously available, the diagnosis or treatment of Medicare beneficiaries. A determination that a new medical service or technology represents an advance that substantially improves, relative to services or technologies previously available, the diagnosis or treatment of Medicare beneficiaries means-- ++ The new medical service or technology offers a treatment option for a patient population unresponsive to, or ineligible for, currently available treatments; ++ The new medical service or technology offers the ability to diagnose a medical condition in a patient population where that medical condition is currently undetectable, or offers the ability to diagnose a medical condition earlier in a patient population than allowed by currently available methods, and there must also be evidence that use of the new medical service or technology to make a diagnosis affects the management of the patient; ++ The use of the new medical service or technology significantly improves clinical outcomes relative to services or technologies previously available as demonstrated by one or more of the following: a reduction in at least one clinically significant adverse event, including a reduction in mortality or a clinically significant complication; a decreased rate of at least one subsequent diagnostic or therapeutic intervention; a decreased number of future hospitalizations or physician visits; a more rapid beneficial resolution of the disease process treatment including, but not limited to, a reduced length of stay or recovery time; an improvement in one or more activities of daily living; an improved quality of life; or, a demonstrated greater medication adherence or compliance; or ++ The totality of the circumstances otherwise demonstrates that the new medical service or technology substantially improves, relative to technologies previously available, the diagnosis or treatment of Medicare beneficiaries. Evidence from the following published or unpublished information sources from within the United States or elsewhere may be sufficient to establish that a new medical service or technology represents an advance that substantially improves, relative to services or technologies previously available, the diagnosis or treatment of Medicare beneficiaries: clinical trials, peer reviewed journal articles; study results; meta-analyses; consensus statements; white papers; patient surveys; case studies; reports; systematic literature reviews; letters from major healthcare associations; editorials and letters to the editor; and public comments. Other appropriate information sources may be considered. The medical condition diagnosed or treated by the new medical service or technology may have a low prevalence among Medicare beneficiaries. The new medical service or technology may represent an advance that substantially improves, relative to services or technologies previously available, the diagnosis or treatment of a subpopulation of patients with the medical condition diagnosed or treated by the new medical service or technology. We refer the reader to the FY 2020 IPPS/LTCH PPS final rule (84 FR 42288 through 42292) for additional discussion of the evaluation of substantial clinical improvement for purposes of new technology add-on payments under the IPPS. We note, consistent with the discussion in the FY 2003 IPPS final rule (67 FR 50015), that while FDA has regulatory responsibility for decisions related to marketing authorization (for example, approval, clearance, etc.), we do not rely upon FDA criteria in our evaluation of substantial clinical improvement for purposes of determining what services and technologies qualify for new technology add-on payments under Medicare. This criterion does not depend on the standard of safety and effectiveness on which FDA relies but on a demonstration of substantial clinical improvement in the Medicare population. b. Alternative Inpatient New Technology Add-On Payment Pathway Beginning with applications for FY 2021 new technology add-on payments, under the regulations at Sec. 412.87(c), a medical device that is part of FDA's Breakthrough Devices Program may qualify for the new technology add-on payment under an alternative pathway. Additionally, under the regulations at Sec. 412.87(d) for certain antimicrobial products, beginning with FY 2021, a drug that is designated by FDA as a Qualified Infectious Disease Product (QIDP), and, beginning with FY 2022, a drug that is approved by FDA under the Limited Population Pathway for Antibacterial and Antifungal Drugs (LPAD), may also qualify for the new technology add-on payment under an alternative pathway. We refer the reader to the FY 2020 IPPS/LTCH PPS final rule (84 FR 42292 through 42297) and the FY 2021 IPPS/LTCH PPS final rule (85 FR 58737 through 58739) for further discussion on this policy. We note that CMS reviews the application based on the information provided by the applicant only under the alternative pathway specified by the applicant at the time of application submission. To receive approval for the new technology add-on payment under that alternative pathway, the technology must have the applicable FDA designation and meet all other requirements in the regulations in Sec. 412.87(c) and (d), as applicable. We note, in section II.E.7. of this final rule, we are finalizing our proposal to repeal [[Page 49680]] the alternative pathway for new technology add-on payment beginning with applications received for new technology add-on payments for FY 2028 and require all applicants for new technology add-on payments to demonstrate that the technology meets all eligibility requirements to receive add-on payments, unless specifically grandfathered under the alternative pathway eligibility criteria. (We refer the reader to section II.E.7. of this final rule for a complete discussion regarding this finalized policy.) (1) Alternative Pathway for Certain Transformative New Devices For applications received for new technology add-on payments for FY 2021 and subsequent fiscal years, a medical device designated under FDA's Breakthrough Devices Program \18\ that has received FDA marketing authorization will be considered not substantially similar to an existing technology for purposes of the new technology add-on payment under the IPPS, and will not need to meet the requirement under Sec. 412.87(b)(1) that it represent an advance that substantially improves, relative to technologies previously available, the diagnosis or treatment of Medicare beneficiaries. Under this alternative pathway, a medical device that has received a Breakthrough Device designation, and then received FDA marketing authorization (that is, has been approved or cleared by, or had a De Novo classification request granted by, FDA) for the indication covered by the Breakthrough Device designation, will need to meet the requirements of Sec. 412.87(c). We note that in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58734 through 58736), we clarified our policy that a new medical device under this alternative pathway must receive marketing authorization for the indication covered by the Breakthrough Devices Program designation. We refer the reader to the FY 2021 IPPS/LTCH PPS final rule (85 FR 58734 through 58736) for further discussion regarding this clarification. --------------------------------------------------------------------------- \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 [[Page 49681]] (84 FR 42297 through 42300) for further discussion on the increase in the new technology add-on payment beginning with discharges on or after October 1, 2019. As discussed in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69245 through 69252), we finalized an increase in the new technology add-on payment percentage, reflected at Sec. 412.88(a)(2)(ii)(C) and (b)(2)(iv), that for certain gene therapies approved for new technology add-on payments in the FY 2025 IPPS/LTCH PPS final rule that are indicated and used specifically for the treatment of sickle cell disease (SCD), effective with discharges on or after October 1, 2024 and concluding at the end of the 2- to 3-year newness period for such therapy, if the costs of a discharge (determined by applying CCRs as described in Sec. [thinsp]412.84(h)) involving the use of such therapy for the treatment of SCD exceed the full DRG payment (including payments for IME and DSH, but excluding outlier payments), Medicare will make an add-on payment equal to the lesser of: (1) 75 percent of the costs of the new medical service or technology; or (2) 75 percent of the amount by which the costs of the case exceed the standard DRG payment. We noted that these payment amounts would only apply to CasgevyTM (exagamglogene autotemcel) and LyfgeniaTM (lovotibeglogene autotemcel), when indicated and used specifically for the treatment of SCD, which were approved for new technology add-on payments in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69128 through 69135, and 89 FR 69188 through 69196). We note that, consistent with the prospective nature of the IPPS, we finalize the new technology add on payment amount for technologies approved or conditionally approved for new technology add-on payments in the final rule for each fiscal year and do not make mid-year changes to new technology add-on payment amounts. Updated cost information may be submitted and included in rulemaking to be considered for the following fiscal year. Section 503(d)(2) of the MMA (Pub. L. 108-173) provides that there shall be no reduction or adjustment in aggregate payments under the IPPS due to add-on payments for new medical services and technologies. Therefore, in accordance with section 503(d)(2) of the MMA, add-on payments for new medical services or technologies for FY 2005 and subsequent years have not been subjected to budget neutrality. d. Evaluation of Eligibility Criteria for New Medical Service or Technology Applications In the FY 2009 IPPS final rule (73 FR 48561 through 48563), we modified our regulation at Sec. 412.87 to codify our longstanding practice of how CMS evaluates the eligibility criteria for new medical service or technology add-on payment applications. That is, we first determine whether a medical service or technology meets the newness criterion, and only if so, do we then make a determination as to whether the technology meets the cost threshold and represents a substantial clinical improvement over existing medical services or technologies. We specified that all applicants for new technology add- on payments must have FDA approval or clearance by July 1 of the year prior to the beginning of the fiscal year for which the application is being considered. In the FY 2021 IPPS/LTCH PPS final rule, to more precisely describe the various types of FDA approvals, clearances and classifications that we consider under our new technology add-on payment policy, we finalized a technical clarification to the regulation to indicate that new technologies must receive FDA marketing authorization 19 20 (such as pre-market approval (PMA); 510(k) clearance; the granting of a De Novo classification request; or approval of a New Drug Application (NDA) or Biologics License Application (BLA)) by July 1 of the year prior to the beginning of the fiscal year for which the application is being considered (85 FR 58742). Consistent with our longstanding policy, we consider FDA marketing authorization as representing that a product has received FDA approval or clearance, or has been granted a De Novo classification request when considering eligibility for the new technology add-on payment. --------------------------------------------------------------------------- \19\ How to Study and Market Your Device https://www.fda.gov/medical-devices/device-advice-comprehensive-regulatory-assistance/how-study-and-market-your-device. \20\ Types of Applications https://www.fda.gov/drugs/how-drugs-are-developed-and-approved/types-applications. --------------------------------------------------------------------------- Additionally, in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58739 through 58742), we finalized our proposal to provide conditional approval for new technology add-on payment for a technology for which an application is submitted under the alternative pathway for certain antimicrobial products at Sec. 412.87(d) that does not receive FDA marketing authorization by July 1 prior to the particular fiscal year for which the applicant applied for new technology add-on payments, provided that the technology otherwise meets the applicable add-on payment criteria. Under this policy, cases involving eligible antimicrobial products would begin receiving the new technology add-on payment sooner, effective for discharges the quarter after the date of FDA marketing authorization, provided that the technology receives FDA marketing authorization before July 1 of the fiscal year for which the applicant applied for new technology add-on payments. As noted, in section II.E.7. of this final rule, we are finalizing our proposal to repeal the alternative pathway for new technology add-on payment, such that beginning with applications received for new technology add-on payments for FY 2028, in order to be eligible for consideration for the new technology add on payment for the upcoming fiscal year, all applicants will need to receive FDA marketing authorization by May 1 prior to the particular fiscal year for which the application is being considered. As discussed in the FY 2024 and FY 2025 IPPS/LTCH PPS final rules (88 FR 58948 through 58958 and 89 FR 69242 through 69245, respectively), beginning with the new technology add-on payment applications for FY 2025, for technologies that are not already FDA market authorized for the indication that is the subject of the new technology add-on payment application, applicants must have a complete and active FDA market authorization request at the time of new technology add-on payment application submission and must provide documentation of FDA acceptance (for a 510(k) or De Novo Classification request submission) or filing (for a PMA, NDA, or BLA) to CMS at the time of application submission, consistent with the type of FDA marketing authorization application the applicant has submitted to FDA. See Sec. 412.87(e) and further discussion in the FY 2024 IPPS/LTCH PPS final rule (88 FR 58948 through 58958) and the FY 2025 IPPS/LTCH PPS final rule (89 FR 69242 through 69245). As we have discussed in prior rulemaking, we consider the application to be complete when the full application has been submitted to FDA and FDA has provided documentation to the applicant indicating that FDA has determined that the application is sufficiently complete to allow for substantive review by FDA. We further stated in the FY 2026 IPPS/LTCH PPS final rule (90 FR 36661 through 36662) that we recognize that FDA processes [[Page 49682]] and documentation may change over time, and the acceptance or filing documentation may vary depending on the type of FDA marketing authorization application the applicant has submitted to FDA. For example, we understand that FDA considers submission of a 510(k) or De Novo Classification request to be accepted for substantive review after the completion of either a refuse to accept (RTA) review or a technical screening process.21 22 Submissions of 510(k) and De Novo Classification requests undergo a technical screening process when they are submitted to FDA using the electronic Submission Template And Resource (eSTAR) process; 510(k) and De Novo Classification requests that are not submitted via eSTAR undergo an RTA review. Accordingly, FDA provides applicants using eSTAR with a review assignment notification to indicate that FDA has completed its technical screening process and has determined that the submission is sufficiently complete to allow for substantive review. Therefore, new technology add-on payment applicants that have submitted a 510(k) or De Novo Classification request submission to FDA through eSTAR must submit a copy of the review assignment notification to CMS (at the time of new technology add-on payment application) to establish the application is sufficiently complete to allow for substantive review by FDA. We noted that PMAs submitted using eSTAR that complete technical screening will still undergo a subsequent filing review by FDA, after which an application is determined to be sufficiently complete to allow for substantive review; therefore, we continue to require documentation of FDA filing for these applications. We also stated that we recognize that FDA does not conduct a new filing review for NDA or BLA applications that were the subject of a Complete Response Letter (CRL) and were subsequently resubmitted to FDA, even though resubmissions are considered a new review cycle.23 24 Therefore, beginning with the new technology add-on applications submitted for FY 2027, these new technology add-on payment applicants must provide to CMS a copy of the resubmission acknowledgement letter from FDA that provides the new goal date for FDA review of the application. We further note that if there are other processes not described here, or if there are further changes to FDA's review processes, consistent with our policy, applicants must provide to CMS the most up-to-date documentation that indicates FDA has determined that the application is sufficiently complete to allow for substantive review by FDA. --------------------------------------------------------------------------- \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 final rule, we are finalizing our proposal to repeal the alternative pathway for new technology add-on payment, such that beginning with the FY 2028 new technology add-on payment applications, in order to be eligible for consideration for the new technology add on payment for the upcoming fiscal year, all applicants will need to receive FDA marketing authorization by May 1 of the year prior to the beginning of the fiscal year for which the application is being considered. e. Pharmaceutical & Technology Ombudsman (PTO) Many interested parties (including device/biologic/drug developers or manufacturers, industry consultants, others) engage with CMS for coverage, coding, and payment questions or concerns. In order to streamline engagement by centralizing the different innovation pathways within CMS including new technology add-on payments, CMS utilizes the Pharmaceutical & Technology Ombudsman as an initial resource for interested parties. This Ombudsman is available to assist with all of the following: Help to point interested parties to or provide information and resources where possible regarding process, requirements, and timelines. As necessary, coordinate and facilitate opportunities for interested parties to engage with various CMS components. Serve as a primary point of contact for interested parties and provide updates on developments where possible or appropriate. We receive many questions from parties interested in pursuing new technology add-on payments who may not be entirely familiar with working with CMS. While we encourage interested parties to first review our resources available at https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/new-medical-services-and-new-technologies, we know that there may be additional questions about the application process. Interested parties with further questions regarding Medicare's coverage, coding, and payment processes, and how they can navigate these processes, whether for new technology add-on payments or otherwise, should review the updated resource guide available at: https://www.cms.gov/medicare/coding-billing/guide-medical-technology-companies-other-interested-parties. Parties that would like to further discuss questions or concerns with CMS should contact the Pharmaceutical & Technology Ombudsman at [email protected]. f. Application Information for New Medical Services or Technologies Applicants for add-on payments for new medical services or technologies for FY 2028 must submit a formal request, including a full description of the clinical applications of the medical service or technology and the results of any clinical evaluations demonstrating that the new medical service or technology represents a substantial clinical improvement, along with a significant sample of data to demonstrate that the medical service or technology meets the high-cost threshold. Complete application information, along with final deadlines for submitting a full application, will be posted as it becomes available on the CMS website at: https://www.cms.gov/medicare/payment/ prospective-payment-systems/acute-inpatient-pps/ [[Page 49683]] new-medical-services-and-new-technologies. To allow interested parties to identify the new medical services or technologies under review before the publication of the proposed rule for FY 2028, once the application deadline has closed, CMS will post on its website a list of the applications submitted, along with a brief description of each technology as provided by the applicant. As discussed in the FY 2023 IPPS/LTCH PPS final rule (87 FR 48986 through 48990), we finalized our proposal to publicly post online new technology add-on payment applications, including the completed application forms, certain related materials, and any additional updated application information submitted subsequent to the initial application submission (except certain volume, cost and other information identified by the applicant as confidential), beginning with the application cycle for FY 2024, at the time the proposed rule is published. We also finalized that with the exception of information included in a confidential information section of the application, cost and volume information, and materials identified by the applicant as copyrighted or not otherwise releasable to the public, the contents of the application and related materials may be posted publicly, and that we will not post applications that are withdrawn prior to publication of the proposed rule. We refer the reader to the FY 2023 IPPS/LTCH PPS final rule (87 FR 48986 through 48990) for further information regarding this policy. In addition, as discussed in the FY 2026 IPPS/ LTCH PPS final rule (90 FR 36663 through 36664), beginning with the new technology add-on payment applications submitted for FY 2027, the public posting includes the applicant's explanation of the cost analysis methodology, including the step-by-step explanation of the columns used in the cost analysis spreadsheet attachment, any optional comments provided by the applicant, and information about the case weighted threshold and final inflated case weighted standardized charge per case, as is currently subject to discussion in the cost criterion analysis for each eligible application in the proposed rule. The cost analysis spreadsheet attachment and other cost or charge values that may have been provided in the applicant's responses in the cost criterion section are not included in the public posting. Certain cost and volume information may still be summarized and discussed in the proposed rule, but we are providing more succinct information as part of the summaries in the proposed and final rules regarding the applicant's assertions as to how the medical service or technology meets the cost criterion. We note that the burden associated with this information collection requirement is the time and effort required to collect and submit the data in the formal request for add-on payments for new medical services and technologies to CMS. The aforementioned burden is subject to the PRA and approved under OMB control number 0938-1347 and has an expiration date of December 31, 2026.

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

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

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

Technologies As discussed in the FY 2016 IPPS/LTCH PPS final rule (80 FR 49434), the ICD-10-PCS includes a new section containing the new Section ``X'' codes, which began being used with discharges occurring on or after October 1, 2015. Decisions regarding changes to ICD-10-PCS Section ``X'' codes will be handled in the same manner as the decisions for all of the other ICD-10-PCS code changes. That is, proposals to create, [[Page 49684]] delete, or revise Section ``X'' codes under the ICD-10-PCS structure will be referred to the ICD-10 Coordination and Maintenance Committee. In addition, several of the new medical services and technologies that have been, or may be, approved for new technology add-on payments may now, and in the future, be assigned a Section ``X'' code within the structure of the ICD-10-PCS. We posted ICD-10-PCS Guidelines on the CMS website at: https://www.cms.gov/medicare/coding-billing/icd-10-codes, including guidelines for ICD-10-PCS Section ``X'' codes. We encourage providers to view the material provided on ICD-10-PCS Section ``X'' codes.

4. FY 2027 Status of Technologies Receiving New Technology Add-On

Payments for FY 2026 In this section of the final rule, we discuss the FY 2027 status of the 54 new technology add-on payments approved for FY 2026, as set forth in the tables that follow. In the proposed rule, we presented our proposals to continue the new technology add-on payments for FY 2027 for those technologies that were approved for the new technology add-on payment for FY 2026, and which would still be considered ``new'' for purposes of new technology add-on payments for FY 2027. We also presented our proposals to discontinue new technology add-on payments for FY 2027 for those technologies that were approved for the new technology add-on payment for FY 2026, and which would no longer be considered ``new'' for purposes of new technology add-on payments for FY 2027. Our policy is that a medical service or technology may continue to be considered ``new'' for purposes of new technology add-on payments within 2 or 3 years after the point at which data begin to become available reflecting the inpatient hospital code assigned to the new service or technology. Our practice has been to begin and end new technology add-on payments on the basis of a fiscal year, and, for technologies that were first approved for new technology add-on payments prior to FY 2025, we have generally followed a guideline that uses a 6-month window before and after the start of the fiscal year to determine whether to extend the new technology add-on payment for an additional fiscal year, and, in general, we have extended new technology add-on payments for these technologies for an additional year only if the 3-year anniversary date of the product's entry onto the U.S. market occurs in the latter half of the fiscal year (70 FR 47362). As discussed in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69238 through 69242), we finalized that, beginning with new technology add-on payments for FY 2026, in assessing whether to continue the new technology add-on payments for those technologies that are first approved for new technology add-on payments in FY 2025 or a subsequent year, we will extend new technology add-on payments for an additional fiscal year when the 3-year anniversary date of the product's entry onto the U.S. market occurs on or after October 1 of that fiscal year. This change is effective beginning with those technologies that are initially approved for new technology add-on payments in FY 2025 or a subsequent year. For technologies that were first approved for new technology add-on payments prior to FY 2025, including for technologies we determine to be substantially similar to those technologies, we continue to use the midpoint of the upcoming fiscal year (April 1) when determining whether a technology would still be considered ``new'' for purposes of new technology add-on payments. In the proposed rule, we provided Table II.E-01 listing the technologies that were first approved for new technology add-on payments in FY 2025 or a subsequent year, for which we proposed to continue making new technology add-on payments for FY 2027 because they were still considered ``new'' for purposes of new technology add-on payments because the 3-year anniversary date of the product's entry onto the U.S. market occurs on or after October 1, 2026. The table also presented the newness start date, new technology add-on payment start date, 3-year anniversary date of the product's entry onto the U.S. market, relevant final rule citations from prior fiscal years, proposed maximum add-on payment amount, and coding assignments for each technology. We referred readers to the cited final rules in the table for a complete discussion of the new technology add-on payment application, coding, and payment amount for these technologies, including the applicable indications and discussion of the newness start date. We noted that we conditionally approved CONTEPOTM (fosfomycin) for FY 2026 new technology add-on payments under the alternative pathway for certain antimicrobial products (90 FR 36831 through 36833), subject to the technology receiving FDA marketing authorization by July 1, 2026. CONTEPOTM received FDA marketing authorization on October 22, 2025, and was eligible to receive new technology add-on payments in FY 2026 beginning with discharges on or after January 1, 2026. As CONTEPOTM received FDA marketing authorization prior to July 1, 2026, and was approved for new technology add-on payments in FY 2026, we proposed to continue making new technology add-on payments for CONTEPOTM for FY 2027. As discussed in the FY 2026 IPPS/LTCH PPS final rule (90 FR 36666 through 36671), in response to comments from the applicant for ZEVTERA[supreg] requesting that CMS consider the beginning of the newness period for ZEVTERA[supreg] to commence on May 20, 2025, which it stated was the date on which ZEVTERA[supreg] became commercially available on the U.S. market, we noted that that date occurred after new technology add-on payments for ZEVTERA[supreg] began, as it was approved for new technology add-on payment for FY 2025 (starting October 1, 2024). While we agreed that per our policy, we may consider a documented delay in a technology's market availability in our determination of newness, we noted that the new technology add-on payment for claims reporting ICD-10-PCS procedure codes for ZEVTERA[supreg] (XW0335A (Introduction of ceftobiprole medocaril anti- infective into peripheral vein, percutaneous approach) and XW0435A (Introduction of ceftobiprole medocaril anti-infective into central vein, percutaneous approach)) was available beginning October 1, 2024. Furthermore, we noted that beginning with new technology add-on payments for FY 2026, in assessing whether to continue the new technology add-on payments for those technologies that are first approved for new technology add-on payments in FY 2025 or a subsequent year, we will extend new technology add-on payments for an additional fiscal year when the 3-year anniversary date of the product's entry onto the U.S. market occurs on or after October 1 of that fiscal year. We stated that if we were to consider the beginning of the newness period to commence on May 20, 2025, the date on which the applicant states ZEVTERA[supreg] became commercially available on the U.S. market, under our policy, the technology would potentially be eligible for new technology add-on payment for up to four years. Although the applicant stated that CMS had delayed the newness start dates for other technologies when market availability was significantly later than the FDA approval date, and that like these other products, ZEVTERA[supreg]'s newness period should commence on the date on which the technology became commercially available, we noted that, unlike these other technologies, the applicant for ZEVTERA[supreg] was asserting a date of [[Page 49685]] commercial availability that occurred after its new technology add-on payment began. We also noted that applicants may assert a delay in commercial availability due to business decisions made by the applicant. We were concerned that a delay in commercial availability extending beyond the implementation date for the new technology add-on payment would potentially allow applicants to postpone commercial availability for an indefinite period of time while the technology (and other technologies reported using the same codes) remains eligible for new technology add- on payment. Therefore, we questioned whether, where the applicant asserts a date of commercial availability that occurred after the new technology add-on payment for the technology began, it would be appropriate to instead consider the beginning of the newness period to commence with the start of the technology's new technology add-on payment. We noted that regardless of whether we considered the beginning of the newness period to commence for ZEVTERA[supreg] on May 20, 2025, April 3, 2024, or a date in between, the three-year anniversary date would occur after April 1, 2026, and, therefore, the technology was considered new for FY 2026. After further review, in the FY 2027 IPPS/LTCH PPS proposed rule, we stated we believed that it would be most appropriate to no longer consider commercial delays once a technology's new technology add-on payment becomes effective. We stated we have discussed in prior rulemaking (89 FR 36136) that, generally, we use the FDA marketing authorization date as the indicator of the time when a technology begins to become available on the market and data reflecting the costs of the technology begin to become available for recalibration of the DRG weights. In specific circumstances, we have recognized a date later than the FDA marketing authorization date as the appropriate starting point for the 2- to 3-year newness period. For example, we have recognized a later date where an applicant could prove a delay in actual availability of a product after FDA approval or clearance. However, due to the increasing volume and complexity of circumstances in which applicants assert a delay in commercial availability, we stated that we believed that a delay that extends to after implementation of a new technology add-on payment should no longer be considered. For example, we noted that, as discussed in the FY 2026 IPPS/LTCH PPS final rule (90 FR 36667), we were concerned that a delay in commercial availability extending beyond the implementation date for the new technology add-on payment would potentially allow applicants to postpone commercial availability for an indefinite period of time while the technology (and other technologies reported using the same codes) remain eligible for new technology add-on payment. We had also noted that applicants may be asserting a delay in commercial availability due to business decisions made by the applicant. In addition, because we now extend new technology add-on payments for an additional fiscal year when the 3-year anniversary date of a product's entry onto the U.S. market occurs on or after October 1 of that fiscal year (89 FR 69238 through 69242), we stated that commercial delays as asserted by manufacturers that extend to after the new technology add-on payment becomes effective could now have a bigger impact, as they could lead to new technology add-on payments being effective for four or more years under our current policy. Therefore, while we stated that we have considered no longer recognizing a date later than the FDA marketing authorization date as the appropriate starting point for the 2- to 3-year newness period, we proposed that we may consider a documented delay in the beginning of a technology's newness period due to commercial availability only until the new technology add-on payment becomes effective for the fiscal year for which the applicant applied for new technology add-on payments. Under the proposal, for a technology that is not yet available for sale when its new technology add-on payment becomes effective, we would consider the newness period to begin on September 30 preceding the start of the new technology add-on payment for the technology. As such, consistent with the proposal, because the new technology add-on payment for ZEVTERA[supreg] became effective on October 1, 2024, we stated that we considered the beginning of the newness period for ZEVTERA[supreg] to commence on September 30, 2024. We invited public comments on our proposals to continue new technology add-on payments for FY 2027 for the technologies listed in Tables II.E.-01 of the proposed rule. Comment: We received public comments regarding our proposal to consider a documented delay in the beginning of a technology's newness period due to commercial availability only until the new technology add-on payment becomes effective for the fiscal year for which the applicant applied for new technology add-on payments. Several commenters were supportive of CMS's efforts to provide greater transparency and consistency regarding its evaluation of technologies eligible for new technology add-on payment, specifically on the issue of commercial availability following FDA approval or clearance. A commenter stated that a range of factors can affect a technology's entry into the U.S. market, and clear and consistent CMS reasoning regarding how commercial availability is evaluated would improve predictability for stakeholders and support appropriate patient access to innovative technologies. Another commenter stated that it appreciated the flexibility that CMS has shown in evaluating circumstances in which there has been a significant gap between the receipt of marketing authorization from the FDA and the actual market introduction of a new medical device. Commenters stated that they understood CMS's concern that some successful new technology add-on payment applicants could seek to maximize their eligibility period by intentionally and strategically delaying market introduction. For that reason, the commenters supported the general rule that the start of the newness period would not be delayed any longer than the beginning of the fiscal year for which the manufacturer applied for new technology add-on payment. However, some commenters believed that CMS should continue to recognize a later newness start date in the limited circumstances when the delay in market introduction was demonstrably beyond the manufacturer's control. Commenters stated that these delays may include post-approval regulatory conditions imposed by FDA (such as requirements for PMA amendments, labeling revisions, or related approvals), or other specific and identifiable constraints on commercial availability. Another commenter asked that CMS make clear that any request to delay the start of the newness period must continue to satisfy CMS's established standard for documented evidence of a delay in commercial availability. The commenter stated that the proposed limitation should not be understood to create a September 30 ``default'' newness start date, nor should CMS grant an alternative start date based on ordinary commercial launch activities in the absence of evidence of circumstances beyond the applicant's control, such as documented manufacturing or distribution capacity constraints or post-approval regulatory conditions imposed by FDA. The commenter stated that even with this [[Page 49686]] proposed clarification, there appeared to be inconsistencies in the way CMS applied its criteria for applicants to prove a delay in actual availability of a product after FDA approval or clearance. The commenter stated that while CMS has consistently stated that it does not consider the date of first sale of a product or first shipment of a product to be an indicator of the entry of a product onto the U.S. market, there has been less clarity regarding delays related to commercialization of the technology. The commenter provided examples for AeroPace[supreg] System, aprevo[supreg]-C cervical interbody fusion device, SAINT Neuromodulation System, and EchoGo[supreg] Heart Failure, where it stated that CMS previously declined to accept requests to delay the new technology add-on payment start date in response to ordinary commercial launch activities. The commenter stated that in apparent contrast to these determinations, however, CMS proposes to accept field sales training and hospital contracting as a reason to consider commercial availability to be delayed for purposes of the new technology add-on payment newness start date for another application under consideration in the proposed rule. The commenter stated that CMS should apply a uniform and transparent standard in determining which types of manufacturer commercialization activities constitute a delay in the actual availability of a product after FDA marketing authorization for purposes of establishing the new technology add-on payment newness start date. The commenter requested that CMS provide additional details in the final rule regarding the specific criteria it will use to identify such delays, including whether those criteria represent a change in CMS policy, and requested that CMS apply this standard across all applications under consideration, so that similarly situated technologies are not subject to different determinations absent a clear and reasoned basis. Other commenters were not supportive of our proposal because they believed that starting the effective eligibility window too early may unintentionally reduce the time hospitals have to meaningfully integrate technologies into patient care. Commenters stated that CMS should retain its existing flexibility to account for legitimate commercial delays, which would preserve access to new technology add-on payment for therapies during the critical early-adoption period when an incentive for hospital uptake of innovative therapies is most needed. Commenters provided examples of technologies they stated frequently undergo gradual implementation across health systems and often require extensive physician education and procedural adoption before widespread availability is achieved. Some commenters requested that CMS either reconsider the proposal or create exceptions for FDA-designated Breakthrough Devices. Commenters also requested that CMS apply any modifications to the newness criterion prospectively, with a commenter further requesting an implementation date no fewer than two full new technology add-on payment application cycles following publication of the final rule to allow manufacturers and hospitals adequate planning time. Commenters also believed that narrowing the newness period would undermine CMS's ability to set accurate DRG weights. A commenter explained that the new technology add-on payment functions as a data- generation mechanism as hospitals that adopt a new technology report claims that enter the MedPAR database and ultimately inform DRG recalibration. The applicant asserted that a full three-years of new technology add-on payment maximizes the volume, geographic diversity, and clinical breadth of that claims data. The commenter stated that when a technology receives FDA marketing authorization relatively close to the relevant application cutoff, even modest adjustments to the marketing authorization deadline or to the interpretation of the newness window can materially reduce the effective period during which new technology add-on payment is available, which may result in less hospital cost data being available to CMS. The commenter also asserted that numerous technologies have been planned and financed with the existing new technology add-on payment newness framework as a core assumption, and modifying the newness criterion in a manner that shortens effective eligibility or introduces interpretive uncertainty would harm these technologies mid-stream, after manufacturers have already committed substantial research, development, and commercialization resources based on an expected reimbursement pathway. Commenters also expressed concern that this proposal taken in its totality with other proposals in the proposed rule, as well as other policies in prior rulemaking, reflected an increasingly restrictive approach toward new technology add-on payment. Commenters stated this change would further erode the incentive structure and prospective payment system reasonableness that Congress intended new technology add-on payment to provide. A commenter stated its concern that CMS's proposals reflect an increasing hostility to new technology add-on payment that it stated was at odds with both the statutory intent of the add-on payment and sound public policy. Another commenter stated that this proposal represented a marked departure from prior practice, which appropriately accounted for real-world delays between FDA marketing authorization and actual patient access. A commenter stated that for a service involving a new technology, CMS relies on the first year of claims data to set rates for the first fiscal year following new technology add-on payment expiration. The commenter stated that this first year is typically when a technology is coming to market, with relatively few claims as utilization ramps up. Commenters asserted that considering a product to be ``new'' when it was not commercially available would skew the data CMS collects during the new technology add-on payment period by injecting a period of zero claims into the data CMS uses for rate-setting, meaning that MS-DRG payment rates may not accurately reflect costs incurred by providers for the new technologies. Commenters were concerned that the proposal failed to reflect the operational and clinical realities of launching innovative therapies and would arbitrarily shorten the newness period for certain products, which would penalize manufacturers for circumstances that are often outside of their control or that reflect prudent and responsible launch planning, rather than an attempt to delay market entry. Another commenter stated that it did not believe that a blanket policy constricting the availability of a later newness start date based on ``commercial availability'' was the appropriate solution, particularly because CMS has not provided any evidence that this standard is in fact being exploited by new technology add-on payment applicants. The commenter stated that existing guidance required applicants to document and explain any delay between FDA marketing authorization and commercial availability, and CMS retained discretion to scrutinize claimed delays on a case-by-case basis. The commenter stated that capping the recognized delay at the new technology add-on payment effective date for the applied for fiscal year would reach legitimate launch timelines indistinguishably from any abusive ones. The commenter stated that the proposal effectively treats the rising number of requests as evidence [[Page 49687]] that the standard is being manipulated, but stated that the agency did not point to a single instance in which a recognized delay turned out to be inappropriate. The commenter stated that to the extent CMS's underlying concern is that recognizing a documented delay could push new technology add-on payment eligibility beyond three years, the appropriate response was a case-by-case denial. Commenters were also specifically concerned about the effect of the proposal on cell and gene therapies. Commenters requested that given the unique patient timelines and manufacturing dynamics of autologous gene and cell therapies, CMS should maximize the new technology add-on payment effective duration by starting the clock on newness following the first administration billed to Medicare and by adopting a three- year new technology add-on payment and use the agency's exceptions and adjustments authority to extend new technology add-on payment for an additional two years for these technologies. A commenter also stated that CMS could combine data from all three new technology add-on payment data years in the case of low-volume data signals or examine projections of new technology add-on payment therapy use against claims data to assess whether additional time for data collection under new technology add-on payment is needed. The commenter stated that, for example, CMS listed that it expected exagamglogene autotemcel and lovotibeglogene autotemcel to be used in 117 and 40 cases in FY 2025, respectively; it did not know the actual number but suspected it to be far, far lower than CMS' projections. A commenter stated that when assuming a three-year new technology add-on payment eligibility period and given the two-year time lag in the data that CMS uses for rate- setting, the number of claims that will exist in the data by the second year of new technology add-on payment will be very low and it is unlikely that the agency will be able to recalibrate the MS-DRGs to reflect the cost of the technology. Another commenter stated that while the assignment of a billing code is a necessary condition for capturing claims data, the regulation expressly recognizes that the timing of data availability--not merely the existence of a code--is central to determining the newness period. The commenter stated that consistent with this structure, it is appropriate to interpret the newness period as beginning when claims reflecting use of the technology first appear and data begin to accumulate, rather than when a code is first assigned but not yet used in practice. The commenter also provided additional details regarding the structural factors contributing to delayed initial claims for ex vivo gene therapies that result in a material delay between code assignment and the generation of meaningful Medicare claims data in support of its request that CMS clarify that the new technology add-on payment newness period begins when claims data reflecting use of the technology first become available. In addition, the commenter requested that CMS review and share aggregate volume and charge data for ex vivo gene therapies from the most recent year of available claims because without this visibility, it was not possible to assess whether the existing data are sufficient to inform the new technology add-on payment start date or whether alternative policy approaches are warranted. The commenter believed that sharing summary information on the number of cases and associated charge levels for ex vivo gene therapies in the most recent year of IPPS claims data would promote transparency, improve the quality of stakeholder feedback, and support more timely and accurate development of MS-DRG payment policies. Response: We thank commenters for their comments on our proposal. We agree with commenters that it is important to have a consistent and predictable approach when we consider a documented delay in a technology's market availability in our determination of newness. We also agree with commenters that we should maintain our flexibility to account for commercial availability delays. However, we disagree that our proposal narrows the effective eligibility window or introduces interpretive uncertainty. Under the proposal, we may consider a documented delay in the beginning of a technology's newness period due to commercial availability only until the new technology add-on payment becomes effective for the fiscal year for which the applicant applied for new technology add-on payments. We would still maintain the flexibility to consider commercial availability delays until the implementation date for the new technology add-on payment. We understand that technologies often apply for new technology add-on payments prior to receiving FDA market authorization, and must balance responsible launch planning activities with our new technology add-on payment timelines. These technologies, including those that may become available shortly after the fiscal year begins, would still remain eligible for a third year of new technology add-on payment, but would no longer inappropriately become eligible for a fourth year or beyond. With respect to the specific criteria that we use to identify a documented delay of commercial availability, as noted, we believe it is important to maintain flexibility regarding the range of circumstances that may be identified by a new technology add-on payment applicant as resulting in a delay in commercial availability. We make these decisions on an individual basis and in consideration of any communications with applicants while developing the proposed rule and as a part of our annual notice-and-comment rulemaking. In general, although we require sufficient information to determine a newness date based on a documented delay in the technology's availability on the U.S. market, we generally rely on the applicant's narrative of the delay. As noted, we do not consider the date of first sale of a product, or first shipment of a product, as an indicator of the entry of a product onto the U.S. market; neither of these dates indicate when a technology in fact became available for sale. We often request additional information when it is unclear to us whether a technology was not yet available for sale or was on the market but in a limited capacity. As we have also noted, we do not believe that case volume is a relevant consideration for making the determination as to whether a product is considered ``new'' for purposes of new technology add-on payments. We have generally established a later newness start date resulting from a documented delay in commercial availability due to a variety of commercialization activities, for example, requiring a new capable commercial partner, acquisitions, or execution of distribution agreements. We disagree with a commenter's assertion that we have inconsistently declined to accept requests to delay the new technology add-on payment start date in response to commercial launch activities. First, as noted, we often request additional information when it is unclear to us when a technology was available for sale, as we did in the examples of AeroPace[supreg] System and SAINT Neuromodulation System cited by the commenter. For both technologies, after receiving additional information in subsequent rulemaking, we established a later newness start date resulting from a documented delay in commercial availability, as discussed later in this section and in the FY 2026 [[Page 49688]] IPPS/LTCH PPS final rule (90 FR 36671), respectively. Similarly, we requested additional information regarding the documented delay in the commercial availability for the aprevo[supreg]-C cervical interbody fusion device, as, at the time, its applicant had asserted a tentative future date of commercial availability (90 FR 36783 through 36784). However, we note that we have not received this information. Finally, with respect to the applicant for EchoGo[supreg] Heart Failure's claim that the device was not available for sale until the date of its first customer contract, we had noted that the applicant's own press release had indicated that the device was commercially available months earlier than its stated date of first customer contract (90 FR 36672). We do not believe that this proposal should apply only for future new technology add-on payment applications, or create exceptions for specific groups of technologies. We also disagree that this proposal, taken in its totality with the policy as discussed in section II.E.7 and prior rulemaking, reflects an increasingly restrictive approach to new technology add-on payment. For example, as finalized in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69238 through 69242) to address how the prior change in the FDA marketing authorization deadline may limit the ability of new technology add-on payment applicants to be eligible for a third year of new technology add-on payments under our general practice for determining whether to extend the payment for an additional fiscal year, we now extend new technology add-on payments for an additional fiscal year when the 3-year anniversary date of the product's entry onto the U.S. market occurs on or after October 1 of that fiscal year. Overall, we continue to maintain a flexible approach to our review of an applicant's documented delay of commercial availability and generally do not require supporting documentation to substantiate an applicant's claims. We also note that we had stated we were considering this issue as early as the FY 2026 IPPS/LTCH PPS final rule (90 FR 36667; 90 FR 36671). Applicants that anticipate a significant delay in commercial availability may want to consider whether their anticipated commercial availability date would better align with a future rulemaking cycle. As we noted in the FY 2026 IPPS/ LTCH PPS final rule (90 FR 36667; 90 FR 36671), ZEVTERA[supreg] and SAINT Neuromodulation System both asserted a date of commercial availability that occurred after the new technology add-on payment for the technology began. If we were to consider the beginning of the newness period to commence on the date of commercial availability requested by the applicants, because we now extend new technology add- on payments for an additional fiscal year when the 3-year anniversary date of a product's entry onto the U.S. market occurs on or after October 1 of that fiscal year (89 FR 69238 through 69242), the technologies would be eligible for a fourth year of new technology add- on payment in FY 2028 and FY 2027, respectively. We believe it is necessary to establish an approach to address the specific scenario where a technology may have a legitimate commercial availability delay, but its new technology add-on payment has become effective and the technology (and other technologies reported using the same codes) have become eligible for new technology add-on payment, such that otherwise the technology may potentially be eligible for the new technology add- on payment for four or more years. We believe that implementing this proposal establishes a consistent approach, which would improve predictability for stakeholders. For the same reasons, we also disagree with establishing additional flexibilities specifically for cell and gene therapies, including starting the newness date with the first administration or extending new technology add-on payment to five years. With regards to a commenter's belief that the proposal effectively treated the rising number of requests as evidence that the standard is being manipulated, without any record support for that inference, we note that we considered two requests in the FY 2026 IPPS/LTCH PPS final rule (90 FR 36666 through 36667; 90 FR 36670 through 36671) where the delays may be attributed at least partially to factors within the applicants' control, including delays from entering into licensing and distribution agreements and delays from changing to a third-party manufacturer. Per the manufacturers, both decisions resulted in significant delays to commercialization that extended for over a year and overlapped with the start of their new technology add-on payment periods. Both applicants subsequently requested CMS consider delays in commercial availability that would have made these technologies eligible for a fourth year of new technology add-on payment. Although there may have been other related considerations that were outside of the applicants' control, due to the increasing complexity of these requests, it may be unclear the extent to which an applicant's asserted commercial availability delay results from such factors rather than a calculated business decision. We believe that due to the nature of the described delays, there may be a mixture of factors both within and outside of an applicant's control. Therefore, we believe the best approach to improve predictability for applicants would be to develop a consistent guideline across applications. We may continue to consider this policy in light of any other considerations that may arise, including any potential changes in the future. We also disagree with commenters that considering a product to be ``new'' when it was not commercially available would skew the data collected during the new technology add-on payment period. As we stated in the FY 2024 IPPS/LTCH PPS final rule (88 FR 58955), section 1886(d)(5)(K)(ii) of the Act establishes a period of not less than 2 years and not more than 3 years for the collection of data with respect to the costs of new services or technologies. We do not believe that 2 years' worth of data would be insufficient to inform rate-setting for the inpatient setting. In addition, although the technology that had applied for new technology add-on payment may not be on the market, it is possible that other technologies reported using the same codes may enter the market and would be eligible for the new technology add-on payment. Our current practice is to extend new technology add-on payments without a further application from the manufacturer of a competing product (85 FR 58679). As we've noted, procedure codes under the ICD-10-PCS are not manufacturer specific; rather, they are used to describe the hospital service that was performed. If, after consulting current official coding guidelines a hospital determines that an ICD- 10-PCS procedure code associated with a new technology add-on payment describes the technology that it used in the performance of a procedure, the hospital may report the code and may be eligible to receive the associated new technology add-on payment (89 FR 69224). We also do not believe that case volume is a relevant consideration for making the determination as to whether a product is ``new.'' As mentioned in previous rulemaking, consistent with the statute and our implementing regulations, a technology is no longer considered as ``new'' once it is more than 2 to 3 years old, irrespective of how frequently the medical service or technology has been used in the Medicare population (70 FR 47349, 85 [[Page 49689]] FR 58610). As such, regardless of whether the use of the technology that had applied for new technology add-on payment or other technologies reported using the same code is frequent or infrequent in the Medicare population, we would consider the costs of the technology to be included in the MS-DRG relative weights. In addition, depending on the prevalence of a disease within the Medicare beneficiary population and the clinical factors associated with the treatments, some technologies may inherently have a minimal claim volume. Therefore, we are finalizing as proposed that, for a technology that is not yet available for sale when its new technology add-on payment becomes effective, we will consider the newness period to begin on the date preceding the start of the new technology add-on payment for the technology. As such, consistent with this finalized policy, because the new technology add-on payment for ZEVTERA[supreg] became effective on October 1, 2024, we consider the beginning of the newness period for ZEVTERA[supreg] to commence on September 30, 2024. Comment: Multiple commenters supported CMS's proposed continuation of new technology add-on payments for FY 2027 for those technologies that were approved for the new technology add-on payment for FY 2026, and which would still be considered ``new'' for purposes of new technology add-on payments for FY 2027. Response: We appreciate the commenters' support. Comment: The applicant for the AGENT\TM\ Paclitaxel-Coated Balloon Catheter submitted a comment updating the average cost of the technology based on updated clinical and claims data. Per the applicant, since the AGENT\TM\ Paclitaxel-Coated Balloon Catheter received the FDA approval on February 29, 2023, the real-world data demonstrates that more than one device is routinely used across all sites of care. The applicant explained that due to clinical necessity, interventional cardiology practice frequently involves the use of multiple devices in a single case. Per the applicant, analysis of MedPAR data for the period between October 1, 2024, and September 30, 2025, shows 234 out of 1,539 claims (approximately 15 percent) involved the use of more than one device during a single procedure, with an average of 1.19 AGENT\TM\ Paclitaxel-Coated Balloon Catheters used per case. The applicant also shared information from published clinical studies and international real-world registries, which it stated consistently demonstrated that clinicians use more than one AGENT\TM\ Paclitaxel-Coated Balloon Catheter per case on average. Therefore, the applicant requested that CMS increase the FY 2027 maximum new technology add-on payment for a case involving the use of AGENT\TM\ Paclitaxel-Coated Balloon CatheterTM to $4,776 to reflect real-world average utilization of 1.19 devices per case. Response: We thank the applicant for its comment and the updated cost information. We have updated the new technology add-on payment amount for the AGENT\TM\ Paclitaxel-Coated Balloon CatheterTM accordingly. The current maximum new technology add-on payment amount for the AGENT\TM\ Paclitaxel-Coated Balloon CatheterTM is $4,013.75, which reflects the cost of one device (that is, 65 percent of the average cost of the technology of $6,175). For FY 2027, the maximum new technology add-on payment amount is $4,776.36, as reflected in Table II.E.-01 in this final rule. Comment: The applicant for CONTEPO\TM\ (fosfomycin) submitted a comment providing updated information on its commercial availability and to update its Wholesale Acquisition Cost (WAC). Per the applicant, CONTEPOTM was conditionally approved, and was eligible to receive new technology add-on payments in FY 2026 beginning with discharges on or after January 1, 2026; however, the applicant stated that CONTEPOTM was first made commercially available to patients in the U.S. in March 2026. The applicant encouraged CMS to continue to explore how products can obtain three years of new technology add-on payment from their market availability. The applicant stated that CONTEPOTM became commercially available with a WAC of $182.74 per vial. Per the applicant, the standard dosing regimen for CONTEPOTM is 6 grams administered intravenously three times daily for 7 to 14 days, and a 10-day course is representative for inpatient cases. The applicant stated that at the standard regimen of three vials per day, the daily cost of therapy is $548.22, and, for an average inpatient treatment duration of 10 days, the total average inpatient cost per case is $5,482.20. Therefore, because CONTEPOTM holds a designation as a QIDP, the applicant requested that CMS update the maximum new technology add-on payment for a case involving the use of CONTEPOTM to $4,111.65 (that is, 75 percent of the average cost of the technology). Response: We thank the applicant for its comment providing an updated cost information and recommendation. We have updated the new technology add-on payment amount for CONTEPO\TM\ accordingly. For FY 2027, the maximum new technology add-on payment amount is $4,111.65, as reflected in Table II.E.-01 in this final rule. Although the applicant states that CONTEPO\TM\ became available to patients in March 2026, we did not receive information regarding a documented delay in market availability, and absent additional information from the applicant, we cannot determine a newness date based on a documented delay in the technology's availability on the U.S. market. Therefore, we continue to consider the beginning of the newness period to commence on October 22, 2025, the date of FDA marketing authorization for the indication covered by its QIDP designation. With respect to the commenter's request that CMS continue to explore how products can obtain three years of new technology add-on payment from their market availability, as we stated in the FY 2024 IPPS/LTCH PPS final rule (88 FR 58955), section 1886(d)(5)(K)(ii) of the Act establishes a period of not less than 2 years and not more than 3 years for the collection of data with respect to the costs of new services or technologies; a full 3 years is not required. We do not believe that 2 years' worth of data would be insufficient to inform rate-setting for the inpatient setting. However, as discussed in greater detail earlier in this section, we note that because we now extend new technology add-on payments for an additional fiscal year when the 3-year anniversary date of a product's entry onto the U.S. market occurs on or after October 1 of that fiscal year (89 FR 69238 through 69242), this could lead to new technology add-on payments being effective for greater than three years for conditionally approved technologies. Therefore, for QIDPs that were conditionally approved for new technology add-on payment, we are considering whether it would also be more appropriate to discontinue new technology add-on payment on the fiscal year quarter that results in 3 years of new technology add-on payment from the start of the new technology add-on payment for the technology. For example, for a conditionally approved QIDP that became eligible to receive new technology add-on payments in FY 2026 beginning with discharges on or after January 1, 2026, under this approach, we would discontinue new technology add-on payment no later [[Page 49690]] than December 31, 2028, after 3 years of new technology add-on payment. Comment: The applicant for the AeroPace[supreg] System and a commenter submitted comments providing additional information on the technology's commercial availability delay and requested that CMS extend the technology's newness date to align with its commercial availability on October 16, 2025. The applicant stated that the PMA for AeroPace[supreg] System was accepted by FDA on May 8, 2024, and that based on the then-current average FDA PMA review time, which included a potential FDA Advisory Panel meeting, it anticipated FDA approval would occur in Q2 2025. The applicant stated that in October 2024, during FDA interactive review, FDA indicated a Panel Meeting was not required, and the applicant anticipated FDA approval between April and June of 2025. The applicant noted that on December 4, 2024, FDA approved the AeroPace[supreg] System based on draft labeling, subject to it submitting a PMA Amendment with final labeling revisions. The applicant explained that the revisions necessitated updating the Instructions for Use and the device label that is directly imprinted on the kit lid. The applicant stated that to mitigate manufacturing delays due to long procurement times, it ordered the kit lids in February 2025; FDA approved the updated labeling on March 5, 2025, which enabled the company to initiate manufacturing of the kits; and the applicant completed Quality Assurance/Quality Control (QA/QC) inspection of the labeled, sterilized kits on April 7, 2025. The applicant explained that this enabled it to initiate the UL certification process (or a similar certification) required for hospitals to meet Joint Commission requirements. The applicant stated that this process was completed and UL labels were received from its supplier on October 16, 2025. Per the applicant, the first AeroPace[supreg] System was installed on October 30, 2025, and the first commercial use was on December 9, 2025. The commenters stated that based on the CMS proposal, they acknowledged that CMS may consider the newness period for the AeroPace[supreg] System to begin on September 30, 2025, establishing a three-year NTAP anniversary date of Sept 30, 2028. Response: We thank the applicant and commenter for the information regarding the documented delay in the technology's availability on the U.S. market. As discussed previously, under our finalized proposal, for a technology that is not yet available for sale when its new technology add-on payment becomes effective, we consider the newness period to begin on September 30 preceding the start of the new technology add-on payment for the technology. Therefore, we consider the beginning of the newness period for the AeroPace[supreg] System to commence on September 30, 2025. After consideration of the public comments we received, we are finalizing our proposals to continue new technology add-on payments for FY 2027 for the technologies that were approved for new technology add- on payment for FY 2026 and would still be considered ``new'' for purposes of new technology add-on payments for FY 2027, as listed in the proposed rule and in the following Table II.E.-01 in this section of this final rule. We note that the following Table II.E.-01 is the same as Table II.E.-01 that was presented in the proposed rule, but Table II.E.-01 in this final rule includes the updated newness start date for the AeroPace[supreg] System and the updated cost information for AGENT\TM\ Paclitaxel-Coated Balloon CatheterTM and CONTEPO\TM\ (fosfomycin), as discussed previously. Table II.E.-01 in this final rule also presents the newness start date, new technology add-on payment start date, 3-year anniversary date of the product's entry onto the U.S. market, relevant final rule citations from prior fiscal years, maximum add-on payment amount, and coding assignments for each technology. We refer readers to the final rules cited in the following tables for a complete discussion of the new technology add-on payment application, coding, and payment amount for these technologies, including the applicable indications and discussion of the newness start date. BILLING CODE 4169-69-P [[Page 49691]] [GRAPHIC] [TIFF OMITTED] TR04AU26.094 [[Page 49692]] [GRAPHIC] [TIFF OMITTED] TR04AU26.095 [[Page 49693]] [GRAPHIC] [TIFF OMITTED] TR04AU26.096 BILLING CODE 4169-69-C In the proposed rule, we provided a Table II.E.-02 listing 12 technologies that were first approved for new technology add-on payments prior to FY [[Page 49694]] 2025, including technologies determined to be substantially similar to such technologies, for which we were proposing to discontinue making new technology add-on payments for FY 2027 because they were no longer ``new'' for purposes of new technology add-on payments because the 3- year anniversary date of the product's entry onto the U.S. market occurs before April 1, 2027. This table also listed one technology that was first approved for new technology add-on payments in FY 2026, for which we were proposing to discontinue making new technology add-on payments for FY 2027 because it was no longer ``new'' for purposes of new technology add-on payments because the 3-year anniversary date of the product's entry onto the U.S. market occurs before October 1, 2026. For all technologies, the table also presented the newness start date, new technology add-on payment start date, the 3-year anniversary date of the product's entry onto the U.S. market, and relevant final rule citations from prior fiscal years. We referred readers to the cited final rules in the table for a complete discussion of each new technology add-on payment application and the coding and payment amount for these technologies, including the applicable indications and discussion of the newness start date. We noted in the proposed rule that while we were proposing to discontinue new technology add-on payments for FY 2027 for the Ceribell Status Epilepticus Monitor, Ceribell, Inc. was seeking new technology add-on payments for the Ceribell Delirium Monitor System for FY 2027 (as discussed in section II.E.6. of the preamble of the proposed rule), which is also identified by the ICD-10-PCS procedure code XX20X89 (Monitoring of brain electrical activity, computer-aided detection and notification, new technology group 9). In order to identify cases using the ICD-10-PCS procedure code XX20X89 related to the Ceribell Delirium Monitor System and not the Ceribell Status Epilepticus Monitor, which would no longer be new, we proposed to exclude cases that report the ICD-10-CM diagnosis codes that we believed would identify patients with status epilepticus in combination with the ICD-10-PCS procedure code XX20X89. We provided Table 10.2.--Ceribell Delirium Monitor System, associated with the proposed rule, for the list of ICD-10-CM diagnosis codes that we stated we believe would identify patients with status epilepticus, which we proposed to exclude from new technology add-on payment when reported in combination with ICD-10-PCS procedure code XX20X89. We invited public comments on our proposal to exclude cases reporting these ICD-10-CM diagnosis codes in combination with the ICD- 10-PCS procedure code XX20X89, for purposes of the new technology add- on payment for FY 2027, if approved. As discussed in section II.E.6. of the preamble of this final rule, we are approving the Ceribell Delirium Monitor System for new technology add-on payments for FY 2027. We refer readers to that section for further discussion regarding the identification of cases associated with use of the Ceribell Status Epilepticus Monitor in patients diagnosed with status epilepticus, which would not be eligible for new technology add-on payment for FY 2027. As discussed in the FY 2026 IPPS/LTCH PPS final rule (90 FR 36666 through 36671), in response to public comments, including from the applicant for the SAINT Neuromodulation System, that requested that CMS recognize a delay in commercial availability of the technology to April 5, 2024, and subsequently extend new technology add-on payment for the SAINT Neuromodulation System for FY 2026, we questioned whether, where the applicant asserts a date of commercial availability that occurred after the new technology add-on payment for the technology began, it would be appropriate to instead consider the beginning of the newness period to commence with the start of the technology's new technology add-on payment. We noted that regardless of whether we considered the beginning of the newness period to commence for SAINT Neuromodulation System on April 5, 2024; a date that reflects the start of the technology's new technology add-on payment in FY 2024; or a date in between, the three-year anniversary date would occur after April 1, 2026, and, therefore, the technology was considered new for FY 2026. We stated that, as discussed in greater detail previously in this section, after further consideration, we were proposing that we may consider a documented delay in the beginning of a technology's newness period due to commercial availability only until the new technology add-on payment becomes effective. Specifically, for a technology that is not yet available for sale when its new technology add-on payment becomes effective, we stated we would consider the newness period to begin on September 30 preceding the start of the new technology add-on payment for the technology. As such, consistent with the proposal, because the new technology add-on payment for SAINT Neuromodulation System became effective on October 1, 2023, we stated that we considered the beginning of the newness period for SAINT Neuromodulation System to commence on September 30, 2023. As the SAINT Neuromodulation System was first approved for new technology add-on payments in FY 2024, we continue to use the midpoint of the upcoming fiscal year (April 1) when determining whether this technology would still be considered ``new'' for purposes of new technology add-on payments. We stated that because we considered the beginning of the newness period to commence on September 30, 2023, the three-year anniversary date would occur before April 1, 2027, and the technology would no longer be considered new for FY 2027. We invited public comments on our proposals to discontinue new technology add-on payments for FY 2027 for the technologies listed in Table II.E.-02 of the preamble of the proposed rule. Comment: The applicant for the TOPSTM System requested that CMS extend new technology add-on payment for the TOPSTM System for an additional year. The applicant stated that its MS-DRG reassignment request had been deferred from consideration during the current rulemaking cycle; however, it stated that claims data supported reassignment to a different MS-DRG, and absent MS-DRG reassignment, hospitals would experience a substantial reimbursement reduction following expiration of the new technology add-on payment. The applicant stated that extending new technology add-on payment eligibility for an additional 12 months would provide CMS with additional time to evaluate a larger and more mature body of Medicare claims data while avoiding disruption in patient access during the interim period. The applicant stated that given the relative novelty of posterior column arthroplasty technology and the continued accumulation of utilization and cost data, it believed such an extension would be consistent with the underlying policy objectives of the new technology add-on payment and would support CMS's broader goals of ensuring beneficiary access to innovative technologies while appropriate long- term reimbursement policies are established. The applicant stated that given the direct relationship between new technology add-on payment expiration and beneficiary access, technologies in this circumstance warranted particular consideration to avoid unintended disruptions in care [[Page 49695]] availability for Medicare beneficiaries. The applicant requested that CMS extend the new technology add-on payment associated with the TOPSTM System for an additional 12 months. The applicant noted that CMS had previously extended new technology add-on payment eligibility during the COVID-19 Public Health Emergency, and believed that similar consideration was appropriate to ensure continued beneficiary access while CMS completed its review. Similarly, the applicant for the DETOUR System requested that CMS extend new technology add-on payment for the DETOUR System for an additional year because its MS-DRG reassignment request had been deferred from consideration. The applicant requested that CMS either extend new technology add-on payment for an additional year or reassign the procedures involving the DETOUR System to MS-DRGs that better achieved clinical and resource coherence. The applicant stated that the circumstances surrounding the DETOUR system warranted immediate attention in Medicare's hospital inpatient setting to protect patient access effective for FY 2027 because under the MS-DRG assignments proposed for FY 2027 and without new technology add-on payment status, the available Medicare data demonstrated that procedures involving the DETOUR System would be substantially under-reimbursed in FY 2027 and would jeopardize patient access. The applicant noted that CMS has extended new technology add-on payment when warranted in the past, and believed that extending the new technology add-on payment in lieu of MS-DRG reassignment would ensure that the goals of the new technology add-on payment were preserved until the Agency could evaluate the relevant year data set to fully reflect the costs of the DETOUR procedure. Response: As further discussed in FY 2005 IPPS final rule (69 FR 49002), the intent of section 1886(d)(5)(K) of the Act and regulations under Sec. 412.87(b)(2) is to pay for new medical services and technologies for the first 2 to 3 years that a product comes on the market, during the period when the costs of the new technology are not yet fully reflected in the DRG weights. The costs of the new medical service or technology, once paid for by Medicare for this 2- to 3-year period, are accounted for in the MedPAR data that are used to recalibrate the DRG weights on an annual basis. Therefore, we stated it is appropriate to limit the add-on payment window for technologies that have passed this 2- to 3-year timeframe. Both the TOPSTM System and the DETOUR System were eligible for new technology add-on payment for three years, from FY 2024 through FY 2026, and are requesting an extension for a fourth year of new technology add-on payment through FY 2027. We disagree that an extension is warranted for these technologies. We refer the commenters to the MS-DRG classification change request process that is discussed in section II.C. of the preamble of this final rule. We note that the process to request MS-DRG classification changes is separate and distinct from the new technology add-on payment application. We also note that the methodology for recalibration of the relative weights is discussed in section II.D. of the preamble of this final rule. We note that we proposed a one-year extension of new technology add-on payments for those technologies for which the new technology add-on payment would otherwise be discontinued beginning with FY 2022 because of our proposal to use FY 2019 data instead of FY 2020 data to develop the FY 2022 relative weights (86 FR 44977). As such, the costs for a new technology for which the 3-year anniversary date of the product's entry onto the U.S. market occurred prior to the latter half of the upcoming fiscal year (FY 2022) may not have been fully reflected in the MedPAR data used to recalibrate the MS-DRG relative weights for FY 2022. As the costs of the TOPSTM System and the DETOUR System have been paid for by Medicare for the first 2 to 3 years the products were on the market and are accounted for in the MedPAR data that are used to recalibrate the DRG weights on an annual basis, we are finalizing our proposals to discontinue new technology add-on payments for the TOPSTM System and the DETOUR System. We did not receive any comment on our proposal to discontinue new technology add-on payment for the SAINT Neuromodulation System. Therefore, consistent with our policy finalized earlier in this section, because the new technology add-on payment for the SAINT Neuromodulation System became effective on October 1, 2023, we consider the beginning of the newness period for SAINT Neuromodulation System to commence on September 30, 2023. As the SAINT Neuromodulation System was first approved for new technology add-on payments in FY 2024, we continue to use the midpoint of the upcoming fiscal year (April 1) when determining whether this technology would still be considered ``new'' for purposes of new technology add-on payments. Because we consider the beginning of the newness period to commence on September 30, 2023, the three-year anniversary date would occur before April 1, 2027, and the technology is no longer be considered new for FY 2027. After consideration of the public comments we received, we are finalizing our proposals to discontinue new technology add-on payments for the technologies as listed in the proposed rule and in the following Table II.E.-02 of this final rule for FY 2027 because they are no longer ``new'' for purposes of new technology add-on payments. We note that Table II.E.-02 is the same as Table II.E.-02 that was presented in the proposed rule. Table II.E.-02 presents the newness start date, new technology add-on payment start date, the 3-year anniversary date of the product's entry onto the U.S. market, and relevant final rule citations from prior fiscal years. We refer readers to the final rules cited in the following table for a complete discussion of each new technology add-on payment application and the coding and payment amount for these technologies, including the applicable indications and discussion of the newness start date. BILLING CODE 7169-69-P [[Page 49696]] [GRAPHIC] [TIFF OMITTED] TR04AU26.097 [[Page 49697]] BILLING CODE 7169-69-C

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

Pathway) As discussed previously, as finalized in the FY 2023 IPPS/LTCH PPS final rule (87 FR 48986 through 48990) and subsequently updated in the FY 2026 IPPS/LTCH PPS final rule (90 FR 36662 through 36664), we publicly post online applications for new technology add-on payment beginning with FY 2024 applications. As noted in these final rules, while we are continuing to provide discussion of the concerns or issues we identified with respect to applications submitted under the traditional pathway, we are providing more succinct information as part of the summaries in the proposed and final rules regarding the applicant's assertions as to how the medical service or technology meets the newness, cost, and substantial clinical improvement criteria. We refer readers to https://mearis.cms.gov/public/publications/ntap for the publicly posted FY 2027 new technology add-on payment applications and supporting information (with the exception of certain cost and volume information, and information or materials identified by the applicant as confidential or copyrighted), including tables listing the ICD-10-CM codes, ICD-10-PCS codes, and/or MS-DRGs related to the analyses of the cost criterion for certain technologies for the FY 2027 new technology add-on payment applications. We received 15 applications for new technology add-on payments for FY 2027 under the new technology add-on payment traditional pathway. In accordance with the regulations under Sec. 412.87(f), applicants for FY 2027 new technology add-on payments must have received FDA marketing authorization by May 1 of the year prior to the beginning of the fiscal year for which the application is being considered. As previously discussed, beginning with the new technology add-on payment applications for FY 2025, for technologies that are not already FDA market authorized for the indication that is the subject of the new technology add-on payment application, applicants must have a complete and active FDA market authorization request at the time of new technology add-on payment application submission and must provide documentation of FDA acceptance or filing to CMS at the time of application submission, consistent with the type of FDA marketing authorization application the applicant has submitted to FDA. See Sec. 412.87(e) and further discussion in the FY 2024 and FY 2025 IPPS/LTCH PPS final rules (88 FR 58948 through 58958; 89 FR 69242 through 69245). Of the 15 applications received under the traditional pathway, 3 applicants were not eligible for consideration for new technology add- on payment because they did not meet these requirements, and 4 applicants withdrew their applications prior to the issuance of the proposed rule. Typically, in the annual proposed rule, we provide a summary of each traditional pathway application and describe any concerns we may have regarding whether the technology meets a specific new technology add-on payment criterion. In the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19409 through 19429), for technologies that have already received FDA marketing authorization, we proposed to approve or disapprove each of these applications for new technology add-on payment. We have stated in prior rulemaking that we do not believe it is appropriate for CMS to determine whether a medical service or technology represents a substantial clinical improvement over existing technologies before FDA makes a determination as to whether the medical service or technology is safe and effective (86 FR 45047). Therefore, we did not propose to approve or disapprove applications for technologies that had not yet received FDA marketing authorization for new technology add-on payment. Subsequently, prior to the issuance of this final rule, one additional application for Orca-T was withdrawn. We are not including in this final rule the description and discussion of applications that were withdrawn or that are ineligible for FY 2027 consideration. We are addressing the remaining 7 applications. We are not approving new technology add-on payments for four technologies: COBENFYTM (xanomeline and trospium chloride), Command Center Electronic Glycemic Management System, RAPIBLYKTM (landiolol), and WASKYRATM (etuvetidigene autotemcel), for the reasons discussed in the following sections. We are approving FY 2027 new technology add-on payments for three technologies, GAMIFANT[supreg] (emapalumab-lzsg), YARTEMLEA[supreg] (narsoplimab-wuug), and ZEVASKYNTM (prademagene zamikeracel). A discussion of these applications is presented in the following sections. a. COBENFYTM (Xanomeline and Trospium Chloride) Bristol Myers Squibb submitted a FY 2027 application for new technology add-on payments for COBENFYTM. According to the applicant, COBENFYTM is an oral combination drug consisting of xanomeline, a muscarinic agonist, and trospium chloride, a muscarinic antagonist, indicated for the treatment of schizophrenia in adults. COBENFYTM has 3 approved dose strengths (50 mg/20 mg, 100 mg/20 mg, and 125 mg/30 mg) in capsule form. The applicant stated the per-day treatment cost is the same across all dosages and that the average inpatient length of stay for patients taking COBENFYTM is 7.5 days. We noted that the applicant submitted a FY 2026 new technology add-on payment application for this technology, which was not approved, as discussed in the FY 2026 IPPS/ LTCH PPS final rule (90 FR 36695 through 36702). In the proposed rule, we provided the following table containing an overview of the new technology add-on payment application for COBENFYTM and CMS's preliminary assessment. For additional details provided by the applicant, please refer to the online application posting at https://mearis.cms.gov/public/publications/ntap/NTP251006PD218. [[Page 49698]] [GRAPHIC] [TIFF OMITTED] TR04AU26.098 Newness Criterion In the proposed rule, regarding substantial similarity, based on information available at the time of the proposed rule and as previously stated in the FY 2026 IPPS/LTCH PPS final rule (90 FR 36697), we stated we agreed with the applicant that COBENFYTM uses a unique mechanism of action, because it is the first schizophrenia treatment for adults to target muscarinic receptors in the brain by combining the muscarinic agonist, xanomeline, and the muscarinic antagonist, trospium chloride, unlike typical and atypical antipsychotics currently used to treat schizophrenia which antagonize dopamine receptors. Therefore, based on information available at the time of the proposed rule, we stated our belief that COBENFYTM is not substantially similar to existing treatment options and meets the newness criterion. As discussed in the FY 2026 IPPS/LTCH PPS final rule, we consider the beginning of the newness period to commence on October 9, 2024, the date on which COBENFYTM became commercially available. We invited public comments on whether COBENFYTM is substantially similar to existing technologies and whether COBENFYTM meets the newness criterion. Comment: The applicant submitted a public comment agreeing with CMS's initial determination that COBENFYTM meets the newness criterion. Response: We thank the applicant for its comment. Based on our review of the comment received and information submitted by the applicant as part of its FY 2027 new technology add-on payment application for COBENFYTM, we agree that COBENFYTM uses a unique mechanism of action, because it is the first schizophrenia treatment for adults to target muscarinic receptors in the brain by combining the muscarinic agonist, xanomeline, and the muscarinic antagonist, trospium chloride, compared to current typical and atypical antipsychotics used to treat schizophrenia which antagonize dopamine receptors. Therefore, we agree that COBENFYTM is not substantially similar to existing treatment options and meets the newness criterion. We consider the beginning of the newness period to commence on October 9, 2024, the date on which COBENFYTM became commercially available. Cost Criterion Regarding the cost criterion, we stated we agreed with the applicant that the technology meets the cost criterion. We invited public comments on whether COBENFYTM meets the cost criterion. Comment: The applicant submitted a public comment reiterating that COBENFYTM meets the cost criterion. Response: We thank the applicant for its comment. We agree with the applicant that the technology meets the cost criterion. Substantial Clinical Improvement Criterion We also received a public comment in response to the New Technology Town Hall meeting notice published in the Federal Register regarding the substantial clinical improvement criterion for COBENFYTM, which we summarized in the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19410 through 19411). In the proposed rule, after review of the information provided by the applicant and the public comment received in response to the New Technology Town Hall meeting, we stated we had the following concerns regarding whether COBENFYTM meets the substantial clinical improvement criterion. In support of its assertions that COBENFYTM provides a treatment option for a patient population unresponsive to or ineligible for currently available therapies and that COBENFYTM improves clinical outcomes, the applicant provided studies that were also included in its FY 2026 new technology add-on payment application in addition to three new references: a post-hoc analysis and two posters.25 26 27 In its FY 2027 new [[Page 49699]] technology add-on payment application, the applicant submitted six similar claims to those provided in its FY 2026 new technology add-on payment application, as well as additional claims stating: COBENFYTM offers a treatment option for schizophrenia patients with extensive prior antipsychotic use, COBENFYTM shows strong real-world persistence and adherence, and COBENFYTM shows superior effectiveness. --------------------------------------------------------------------------- \25\ Cutler, A.J., Zhong, Y., Gillard, K., Appio, J., Gao, C., Lalibert[eacute], F., Rubio, J.M. Real-World Use of Xanomeline- Trospium in Schizophrenia: Patient Characteristics and Antipsychotic Treatment Patterns. Presentation at Psych Congress, September 17-21, 2025, San Diego, CA. \26\ Horan W.P., Targum S.D., Claxton A., Kaul I., Yohn S.E., Marder S.R., Miller A.C., Brannan S.K. Efficacy of KarXT on negative symptoms in acute schizophrenia: A post hoc analysis of pooled data from 3 trials. Schizophr Res. 2024 Dec;274:57-65. https://doi.org/10.1016/j.schres.2024.08.001. \27\ Hickey, C., Sidovar, M., Garcia, A., Kramer, K., Chang, J.A, Kupas, K., Telukuntla, V., Cutler, A.J. Comparative Efficacy, Safety, and Tolerability of Xanomeline and Trospium Chloride versus Eight Atypical Antipsychotics for the Acute Treatment of Adults with Schizophrenia--A Network Meta-Analysis. Presentation at the 2025 Annual Congress of the Schizophrenia International Research Society (SIRS), March 29-April 2, 2025, Chicago, Illinois. --------------------------------------------------------------------------- In the proposed rule, after review of this information, we stated that we continued to question whether COBENFYTM provides a treatment option for a patient population unresponsive to or ineligible for currently available therapies or improves clinical outcomes relative to existing technologies. With regards to a new claim in its FY 2027 new technology add-on payment application that COBENFYTM offers a treatment option for schizophrenia patients with extensive prior antipsychotic use, we noted that this claim does not identify a patient population for which COBENFYTM could be used that is unresponsive to or ineligible for other available treatments since patients with prior antipsychotic use could still try other antipsychotics such as clozapine, which is indicated for patients who do not respond to other antipsychotics. We also questioned whether the evidence provided for this claim demonstrates the applicant's assertion. The applicant provided Cutler et al. (2025), a retrospective observational study of claims data for adults with schizophrenia in the U.S. before and after COBENFYTM initiation. Because Cutler et al. (2025) relied upon administrative claims data, we stated we could not be sure whether patients actually took the prescribed oral medication(s). Consequently, we stated we were unable to determine whether all patients treated in this study had extensive prior antipsychotic use or if the patients actually took COBENFYTM. We also stated that the study measured medication adherence at 60 and 90 days following COBENFYTM treatment initiation. However, we noted that injectable antipsychotics, which patients adhere to because they are long-acting drugs that require professional administration, are typically administered at intervals of 2 to 12 weeks.\28\ Therefore, we stated we were concerned that measuring adherence at 60 and 90 days may be inadequate to accurately assess differences between COBENFYTM and existing schizophrenia treatments. We also questioned long-term adherence rates since the average follow-up was only 2.6 months. Finally, we stated we were concerned that Cutler et al. (2025) does not demonstrate that COBENFYTM has improved clinical outcomes compared to other therapies because this evidence does not include a comparison of adherence data to existing schizophrenia treatments. --------------------------------------------------------------------------- \28\ Stroup, T.S. & Marder, S. (2025). Schizophrenia in adults: Maintenance therapy and side effect management. UpToDate. Retrieved October 7, 2025, from https://www.uptodate.com/contents/schizophrenia-in-adults-maintenance-therapy-and-side-effect-management. --------------------------------------------------------------------------- We stated that as discussed in the FY 2026 IPPS/LTCH PPS final rule (90 FR 36702), after consideration of public comments, we continued to have concerns as to whether COBENFYTM meets the substantial clinical improvement criterion, including with respect to the applicant's claims that COBENFYTM may be an effective treatment option for patients experiencing disruptive negative symptoms and that COBENFYTM is a valuable option for patients who respond inadequately to current treatments. We stated that the applicant submitted similar claims in its FY 2027 new technology add-on payment application but did not provide additional supporting evidence. Therefore, we stated that we continued to question whether the evidence provided for these claims in the FY 2027 new technology add-on payment application demonstrates that COBENFYTM offers a treatment option for patients unresponsive to or ineligible for other therapies, without data supporting that other antipsychotics cannot be used in patients with negative symptoms or who have not responded to other antipsychotics. With respect to the assertion that COBENFYTM provides improved clinical outcomes relative to previously available therapies by improving symptom response and reducing metabolic side effects compared to several atypical antipsychotics, the applicant provided Hickey et al. (2025), a network meta-analysis poster, which used data from 58 randomized controlled trials lasting between 4 and 6 weeks and indirectly compared COBENFYTM to aripiprazole, cariprazine, olanzapine, risperidone, brexpiprazole, quetiapine, clozapine, and lumateperone. However, we stated that the poster does not consistently show a statistically significant difference in favor of COBENFYTM (such as with respect to PANSS response, change from baseline weight, and sedation). We also noted that the poster did not provide a comparison to typical antipsychotics or other atypical antipsychotics, such as olanzapine/samidorphan, which includes samidorphan to reduce weight gain. For these reasons, we questioned whether this study demonstrates COBENFYTM improves clinical outcomes compared to other available therapies. Additionally, we noted that Hickey et al. (2025) found that COBENFYTM had statistically significant higher odds of discontinuation due to all causes compared to all comparators except cariprazine, for which results were unfavorable but not statistically significant. As a result, we further questioned the applicant's claim that COBENFYTM demonstrates improved persistence and adherence compared to currently available treatments. Finally, we noted that in support of its assertion of improved clinical outcomes compared to previously available therapies, the applicant also provided four claims in its FY 2027 new technology add- on payment application that were similar to the claims provided in its FY 2026 new technology add-on payment application. We noted the only additional evidence submitted for these claims in the applicant's FY 2027 new technology add-on payment application was Horan et al. (2024), a post-hoc analysis of pooled data from the three 5-week EMERGENT studies, which was also the only evidence provided for the claim regarding long-term reduction in symptoms and a persistently well- tolerated side effect profile. However, the studies included in this analysis compared COBENFYTM to placebo, and therefore, we stated we were unable to assess whether there is a long-term reduction of symptoms and a favorable side effect profile compared to existing schizophrenia treatments. In addition, we questioned this claim given the short duration of the trials and the lack of discussion on side effects in the article. Lastly, since the applicant did not submit evidence comparing COBENFYTM to other available therapies with regard to efficacy, safety, or discontinuation rates, we stated in the proposed rule that we continued to question whether the evidence demonstrates improved clinical outcomes compared to previously available therapies with respect to these claims, as stated in the FY 2026 IPPS/LTCH PPS final rule (90 FR 36702). After review of the information provided by the applicant and the public comment received in response to the New Technology Town Hall [[Page 49700]] meeting, we stated in the proposed rule that we were unable to determine that COBENFYTM represents a substantial clinical improvement over existing technologies, and therefore, we proposed to disapprove new technology add-on payments for COBENFYTM for FY 2027. We invited public comments on whether COBENFYTM meets the substantial clinical improvement criterion and our proposal to disapprove new technology add-on payments for COBENFYTM for FY 2027. Comment: A few commenters expressed support for approving new technology add-on payment status for COBENFYTM. Commenters highlighted the current societal and financial costs of schizophrenia. In expressing support for approval of COBENFYTM, commenters stated many patients with schizophrenia may not respond to conventional treatment or may discontinue treatment due to side effects such as weight gain, metabolic complications, sedation, cognitive blunting, movement disorders, fluid retention, sexual dysfunction, and hyperarousal. These commenters expressed their belief that patients should have COBENFYTM as a treatment option due to its novel mechanism of action and minimal adverse events. A commenter stated that while patients who have not responded to or who have discontinued a previous antipsychotic could try another antipsychotic, they should have an additional option with COBENFYTM, especially due to its new mechanism of action. The commenter also stated that most Medicare enrollees who are hospitalized with schizophrenia and psychotic symptoms are not individuals experiencing first-episode psychosis but are usually either adults over 65 who have lived with schizophrenia for decades or individuals under 65 with schizophrenia who are on Medicare due to disability status (with schizophrenia being the likely disabling condition). This commenter added that a majority of these patients are experiencing psychosis due to medication failure or discontinuation and are likely to be readmitted in the future for the same reason, which is a negative and costly outcome. The commenter noted that some individuals respond to and adhere to both COBENFYTM and clozapine, while others respond to and adhere to COBENFYTM but not to clozapine. The commenter stated that for these latter patients, the proposed CMS disapproval is condemning them to another psychotic episode, likely rehospitalization, and maybe even death. The commenter added that excluding a new medication that works differently from all other pharmacological options when the current likelihood of failure is already much too high seems like an unwise decision that lowers the probability of individuals achieving recovery. Another commenter stated that the side effects associated with antipsychotics can contribute to significant nonadherence rates, which can be as high as 65 percent in some studies.\29\ Therefore, the commenter stated the need for new treatments and new mechanisms of action is immense, and COBENFYTM's novel mechanism of action provides an innovative treatment option so that patients, especially those who respond poorly to currently available treatments, may avoid many of these side effects. The commenter noted COBENFYTM has been effective in reducing schizophrenia symptoms with minimal adverse events.\30\ The commenter expressed concern that CMS's comparisons in the proposed rule take an incomplete look at the larger treatment landscape for schizophrenia. The commenter stated that, while injectable antipsychotic medications might serve a role and aid in higher rates of adherence, these types of treatments might not be suitable for the larger patient population, and real-world evidence shows COBENFYTM has an encouraging adherence profile for a patient population that has historically struggled to maintain continuity on oral treatments.\31\ The commenter also stated that COBENFYTM's demonstrated lack of negative side effects due to its mechanism of action is critical and COBENFYTM provides a clear alternative to patients who otherwise would stop pursuing treatment or were unsuccessful on previous treatments. The commenter further stated that even when patients did show signs of metabolic side effects, these were often mild to moderate in severity and resolved themselves over a 52-week course of treatment \32\ and this demonstrates a significant improvement in the current standard of care, particularly for patients with a history of extensive antipsychotic use, ultimately allowing for long-term symptom reduction and improved tolerability from current options. The commenter encouraged CMS to prioritize policies that allow and encourage new treatment options for serious mental illness and stated that new treatment options with novel mechanisms of action offer hope to millions living with schizophrenia. --------------------------------------------------------------------------- \29\ Zwide GE, Dewet AT, Sokudela FB. Medication Non-Adherence in Re-Admitted Patients at a Psychiatry Hospital: A Qualitative Study. S Afr J Psychiatr. 2025; 31:2345. doi: 10.4102/ sajpsychiatry.v31i0.2345. \30\ Neporent, L ``Emergent Trial Data For KarXT Shows Promise in Schizophrenia'' Psychiatrist.com, May 30, 2023, https://www.psychiatrist.com/news/emergent-trial-data-for-karxt-shows-promise-in-schizophrenia/. \31\ Cutler, A.J., Zhong, Y., Gillard, K., Appio, J., Gao, C., Laliberte [acute], F., Rubio, J.M. Real-World Use of Xanomeline- Trospium in Schizophrenia: Patient Characteristics and Antipsychotic Treatment Patterns. Presentation at Psych Congress, September 17-21, 2025, San Diego, CA. \32\ Kuntz L. New Data Demonstrates KarXT's Positive Long-Term Metabolic Profile. Psychiatrictimes.com, April 12, 2024, https://www.psychiatrictimes.com/view/new-data-demonstrates-karxt-positive-long-term-metabolic-profile. --------------------------------------------------------------------------- A commenter stated that non-adherence with schizophrenia treatments drives relapse, rehospitalization, or traumatic interactions with the justice system. The commenter cited the April 2026 Schizophrenia & Psychosis Action Alliance study, which reported that 65 percent of community respondents reported that gaps in the mental health system had resulted in hospitalization, while 50 percent, 44 percent, and 44 percent reported these gaps resulted in job loss, housing instability, and justice system involvement, respectively.\33\ The commenter stated that currently available therapies are not a viable option for many of these patients and that CMS should weigh downstream outcomes (reduced subsequent hospitalization, reduced morbidity, and improved quality of life). The commenter also added that the study found that 62 percent of the public and 89 percent of schizophrenia community members reported that hospital availability for serious mental illness is inadequate, with only 11 percent of schizophrenia community members describing current schizophrenia treatments as ``very effective.'' In addition, the commenter cited a January 2026 study (Kraser et al., 2026) which analyzed the cost of schizophrenia in the United States.\34\ Krasa et al. (2026) estimated that schizophrenia's total societal cost in 2024 was $366.8 billion, affecting approximately 3.07 million American adults, with a per-person annual burden of $119,436. The commenter stated its belief that three findings from Krasa et al. (2026) are [[Page 49701]] directly relevant to CMS's evaluation of COBENFYTM's substantial clinical improvement. First, the commenter stated that Krasa et al. (2026) found that only $36.7 billion (approximately 9 percent) of schizophrenia's annual burden of $366.8 billion is healthcare spending. The commenter stated that, while the remaining cost is not paid by CMS, Medicare's decisions can influence lost productivity, premature mortality, supportive housing and homelessness, justice system involvement, and uncompensated caregiving. The commenter stated that this is relevant because inpatient hospitalization is often the moment at which a patient's longer-term trajectory is set, as early and effective intervention in psychosis is associated with better outcomes across measures like fewer relapses, reduced treatment discontinuation, improved school and work participation, lower rates of psychiatric hospitalization, and superior quality of life.\35\ The commenter added that inpatient payment rules that limit access to a different treatment option are not just a hospital cost-control factor, they also shape what happens to the patient long after discharge, especially in the case of schizophrenia, where the timing of a successful early intervention can be the most critical factor in a diagnosed person's life. Second, the commenter highlighted that Krasa et al. (2026) estimated that schizophrenia generates $4.3 billion annually in Social Security Disability Insurance (SSDI) payments, with approximately 422,000 adults with schizophrenia receiving SSDI. The commenter stated that because SSDI eligibility confers Medicare coverage after a 24-month waiting period, a substantial share of the adult schizophrenia population becomes Medicare-eligible well before age 65.\36\ Further, the commenter noted SSDI eligibility on the basis of schizophrenia commonly requires documentation that the illness has been severe enough to prevent stable employment despite treatment, which means the Medicare-via-disability population disproportionately reflects patients who have tried existing therapies that did not produce functional recovery.\37\ The commenter stated that this population has typically cycled through multiple antipsychotic regimens, accumulated the side-effect burden of long-term dopamine antagonism, and is most likely to need a novel option during inpatient stabilization. The commenter stated its belief that when CMS evaluates whether COBENFYTM offers substantial clinical improvement, it is evaluating that question for schizophrenia patients arriving at hospitalization with treatment histories that already document inadequacy of conventional options. Third, the commenter stated Krasa et al. (2026) attributed $165 billion annually to caregiver burden alone, including unpaid labor, caregiver health impacts, and out-of- pocket costs, with an additional $47.5 billion attributed to premature mortality (people with schizophrenia have a life expectancy approximately 15 years shorter than the general population). The commenter stated its opinion that the combination of Krasa et al. (2026) and insights from the community of diagnosed schizophrenia patients and caregivers demonstrates that schizophrenia is an inadequately treated disease with an enormous cost and urged CMS to weigh the costs to patients, families, and public systems alongside the cost of new technology. --------------------------------------------------------------------------- \33\ Voters Agree: Serious Mental Illness Care Needs Urgent Action--SPAN. (2026, April 30). SPAN--Schizophrenia Policy Action Network. Available at https://span-scz.org/mental-illness-care-poll/. \34\ Krasa, H.B., Baumgardner, J.R., Brewer, I.P., Chou, J.W., Flottemesch, T., Markowitz, J.T., Williams, C., & Nagendra, A. (2026). National and State Societal Costs of Schizophrenia in the U.S. in 2024. JAMA Psychiatry. https://doi.org/10.1001/jamapsychiatry.2025.4383. \35\ Correll CU, Galling B, Pawar A, et al. Comparison of early intervention services vs treatment as usual for early-phase psychosis: a systematic review, meta-analysis, and meta-regression. JAMA Psychiatry. 2018;75(6):555-565. doi:10.1001/ jamapsychiatry.2018.0623. \36\ Social Security Act Sec. 226(b), 42 U.S.C. 426(b). \37\ 20 CFR pt. 404, subpt. P, app. 1, Sec. Sec. 12.00G2, 12.03(C). See also U.S. Social Security Administration, ``Disability Evaluation Under Social Security: 12.00 Mental Disorders--Adult,'' https://www.ssa.gov/disability/professionals/bluebook/12.00-MentalDisorders-Adult.htm. --------------------------------------------------------------------------- Response: We thank the commenters for their input and have taken it into consideration in determining whether COBENFYTM meets the substantial clinical improvement criterion as discussed later in this section. While we acknowledge the burden of schizophrenia cited by commenters and that COBENFYTM has a new mechanism of action compared to previously available treatments, we note that we did not receive any comments including data to support efficacy of COBENFYTM in patients who have failed these other treatments. We further note that whether a technology receives new technology add-on payments or not does not affect coverage of the technology or the ability for hospitals to provide a technology to patients where appropriate. Even if a technology does not receive new technology add-on payments, CMS continues to pay for new technologies through the regular payment mechanism established by the DRG payment methodology (90 FR 36672). Comment: The applicant for COBENFYTM submitted a public comment regarding the substantial clinical improvement criterion and provided responses to our concerns from the proposed rule. The applicant asserted that COBENFYTM satisfies the substantial clinical improvement criteria under 42 CFR 412.87(b) and stated that CMS's determination rests solely on COBENFYTM failing to demonstrate substantial clinical improvement. The applicant stated that CMS established the new technology add-on payments to ensure that the Medicare payment system does not become a barrier to clinical innovation, enabling hospitals to provide patients access to genuinely innovative therapies without absorbing unsustainable financial losses. The applicant stated that COBENFYTM fits squarely within this framework as it provides a differentiated mechanism of action and expands treatment options for patients who are unable to tolerate or safely use existing therapies, addressing precisely the access and innovation concerns new technology add-on payments were designed to remedy. Further, the applicant stated that FDA approval of COBENFYTM was supported by clinical data evaluating its efficacy, safety, and tolerability in adults with schizophrenia across acute and longer-term studies. According to the applicant, COBENFYTM therefore represents a novel and clinically meaningful advancement in the treatment of schizophrenia that aligns directly with new technology add-on payments' purpose of supporting access to innovative treatments that deliver meaningful clinical benefit. The applicant asserted that COBENFYTM satisfies each of the three new technology add-on payment criteria, and granting new technology add-on payments for COBENFYTM will not only appropriately recognize its therapeutic value, mitigate access barriers associated with its introduction, and ensure Medicare beneficiaries can benefit from this important new treatment, but also effectuate CMS's intended objective under the program. The applicant also asserted that, under the governing regulatory framework, CMS must evaluate substantial clinical improvement based on the totality of the circumstances to determine whether a service or technology represents an advance that substantially improves, relative to technologies previously available, the diagnosis or treatment of Medicare beneficiaries. The applicant added that the regulations establish multiple independent pathways by which a technology satisfies the substantial clinical improvement criterion, each of which is independently sufficient to meet the criterion and must be [[Page 49702]] considered within the totality of the circumstances, and stated the requirements set forth in these regulations. The applicant stated that in assessing whether a technology meets substantial clinical improvement, CMS must consider a broad range of evidence, including both published and unpublished data, and that the regulations further clarify that neither low disease prevalence among Medicare beneficiaries nor the fact that a benefit is limited to a subpopulation disqualifies a technology from meeting the substantial clinical improvement criterion. The applicant further stated that, to the contrary, the regulations expressly provide that a technology may satisfy substantial clinical improvement by demonstrating substantial improvement in the diagnosis or treatment of a defined subpopulation. The applicant expressed that COBENFYTM satisfies the substantial clinical improvement criterion under the totality of the circumstances based on the evidentiary record which establishes that COBENFYTM: (1) introduces a novel mechanism of action based on M1/M4 muscarinic agonism with peripheral antagonism via trospium, representing a fundamentally different therapeutic approach relative to existing antipsychotics; (2) provides a treatment option for patient populations that are unresponsive to or ineligible for currently available therapies, satisfying 42 CFR 412.87(b)(1)(ii)(A) and the related subpopulation provision at (b)(1)(v); and (3) yields clinically meaningful improvements in outcomes relative to existing antipsychotics across efficacy, safety, and real-world endpoints, satisfying 42 CFR 412.87(b)(1)(ii)(C). Further, the applicant asserted that the regulations make clear that satisfaction of any one of these pathways is sufficient, and COBENFYTM meets all three. Per the applicant, the analysis of COBENFYTM in the FY 2027 IPPS/LTCH PPS proposed rule does not apply the required totality of the circumstances standard and instead isolates individual studies and rejects each in turn, thereby misapplying both 42 CFR 412.87(b)(1)(ii)(A) and the separate subpopulation provision at 42 CFR 412.87(b)(1)(v). The applicant stated its belief that if carried forward into this final rule, this approach would depart from CMS's own governing regulation, and in the absence of a legally coherent approach, would constitute arbitrary and capricious final agency action under the Administrative Procedure Act and undercut the new technology add-on payment program's core purpose in promoting and ensuring access to new and innovative technologies. The applicant also stated that by effectively narrowing the new technology add-on payment program's application beyond the regulatory standard to therapies that fit within rigid, established clinical frameworks, rather than encompassing truly novel technologies, CMS risks chilling investment in critical innovation. The applicant also asserted that novel mechanisms, by definition, often lack direct comparators and that imposing evidentiary standards that exceed regulatory requirements may lead to de facto head-to-head trials where they are often not feasible for truly novel mechanisms like COBENFYTM. The applicant suggested that CMS's interpretation of the unresponsive to, or ineligible for criterion in the FY 2027 IPPS/LTCH PPS proposed rule misapplies the substantial clinical improvement standard and imposes a requirement that does not appear in the regulatory text. The applicant stated CMS's assertion in the proposed rule that COBENFYTM does not identify a patient population for which COBENFYTM could be used that is unresponsive to or ineligible for other available treatments since patients with prior antipsychotic use could still try other antipsychotics such as clozapine and stated its belief that the governing regulation contains no requirement that a new technology be reserved as a last-line option after exhaustion of all existing therapies, including clozapine. The applicant stated its belief that CMS's interpretation is inconsistent with the regulatory standard, which instead asks whether the technology offers a treatment option for a patient population unresponsive to, or ineligible for, currently available treatments. The applicant stated that the United States Department of Veterans Affairs has established specific clinical criteria for COBENFYTM, effectively positioning it as a last line treatment by requiring that a patient first experience treatment failure with clozapine and demonstrate an insufficient response or intolerance to multiple antipsychotics.\38\ --------------------------------------------------------------------------- \38\ Department of Veterans Affairs. (November 2024). Trospium- Xanomeline (COBENFYTM) Criteria for Use. Available at https://www.va.gov/formularyadvisor/DOC_PDF/CFU_Trospium_Xanomeline_COBENFY_Criteria_Nov_2024.pdf. --------------------------------------------------------------------------- The applicant stated that the treatment-experienced population initiating COBENFYTM is clinically distinct and well- defined. The applicant stated that Cutler et al. (2025) reported nearly half (49 percent) of patients had used 3 or more antipsychotic agents in the prior 12 months and 39 percent had used long-acting injectables, thereby demonstrating extensive prior exposure to, and failure of, dopamine-pathway monotherapy, the very class of treatments that CMS suggests patients should continue trying. The applicant further stated that for this patient population, COBENFYTM is not a duplicative option, but instead, is a mechanistically distinct alternative, which is precisely what makes COBENFYTM a treatment option fitting squarely within the meaning of 42 CFR 412.87(b)(1)(ii)(A) for a patient population that, by definition, has not responded adequately to the dopamine-pathway therapies CMS would have them continue trying. The applicant stated its belief that CMS's articulation of the evidentiary standard effectively rewrites the regulatory standard by transforming a requirement that patients be unresponsive to, or ineligible for, currently available treatments into a demand for proof that the treatment cannot be used in other patients. The applicant specifically cited CMS's concern that it continues to question whether the evidence provided for these claims in the FY 2027 new technology add-on payment application demonstrates that COBENFYTM offers a treatment option for patients unresponsive to or ineligible for other therapies, without data supporting that other antipsychotics cannot be used in patients with negative symptoms or who have not responded to other antipsychotics. The applicant stated that the regulation defines a qualifying patient population as one that is ineligible for currently available treatments and that the evidence submitted in its application, including evidence from the EMERGENT program, supports a determination of substantial clinical improvement for this population under the regulation's plain text. The applicant cited results from Horan et al. (2024) and stated that the effects in the prominent-negative-symptoms subgroup remained statistically significant after controlling for improvements in positive symptoms, depression/anxiety, disorganization, and hostility--suggesting that the observed negative-symptom signal is not solely an artifact of positive- symptom improvement. The applicant stated that it submitted this evidence as supportive, not dispositive, of a substantial clinical improvement determination for this population. The applicant also acknowledged that COBENFYTM's FDA-approved label does not include a specific indication for negative-symptom predominance and that the [[Page 49703]] available data are post hoc and exploratory. The applicant stated that, compared to currently available antipsychotics, the FDA-approved labeling for COBENFYTM demonstrates that the technology offers a treatment option for a defined population of adult patients with schizophrenia who are ineligible for currently available treatments and thereby satisfies the ineligible patient population criterion, because it identifies patient populations for whom the risks of adverse side effects are clinically significant. The applicant stated that currently available antipsychotics operate through dopamine D2 receptors, a mechanism that carries class boxed warnings and precautions inherent to dopamine receptor antagonism with significant adverse effects, including extrapyramidal symptoms, tardive dyskinesia, neuroleptic malignant syndrome, metabolic changes, and QT prolongation.39 40 41 The applicant stated that in practice, these risks define patient populations for whom continued treatment with dopamine-based therapies is clinically inappropriate, and for certain adult patients with schizophrenia, these considerations render these treatments inappropriate due to pre-existing conditions or clinical histories. The applicant added that COBENFYTM does not rely on D2 receptors and does not carry those same warnings, thereby offering a treatment option for patients who would otherwise lack a viable alternative due to COBENFYTM's decreased likelihood of triggering these burdensome side effects and its ability to address real-world discontinuation drivers.\42\ The applicant added that COBENFYTM significantly reduces the risk of these dopamine- related adverse effects, with an adverse reaction profile primarily including manageable and transient effects such as nausea and dyspepsia,43 44 45 46 thereby representing an available treatment option for adults with schizophrenia, who, for example, have an active or prior history of extrapyramidal symptoms, are at high risk of cardiometabolic morbidity, or have a history of neuroleptic malignant syndrome. --------------------------------------------------------------------------- \39\ Lieberman, J.A., Stroup, T.S., McEvoy, J.P., Swartz, M.S., Rosenheck, R.A., Perkins, D., . . . & Hsiao, J.K. (2005). Effectiveness of antipsychotic drugs in patients with chronic schizophrenia. The New England Journal of Medicine, 353(12), 1209- 1223. https://doi.org/10.1056/NEJMoa051688. \40\ Leucht, S., Cipriani, A., Spineli, L., Mavridis, D., [Ouml]rey, D., Richter, F., Samara, M., Barbui, C., Engel, R.R., Geddes, J.R., Kissling, W., Stapf, M.P., L[auml]ssig, B., Salanti, G., & Davis, J.M. (2013). Comparative efficacy and tolerability of 15 antipsychotic drugs in schizophrenia: a multiple-treatments meta- analysis. The Lancet, 382(9896), 951-962. https://doi.org/10.1016/s0140-6736(13)60733-3. \41\ Huhn, M., Nikolakopoulou, A., Schneider-Thoma, J., Krause, M., Samara, M., Peter, N., Arndt, T., B[auml]ckers, L., Rothe, P., Cipriani, A., Davis, J., Salanti, G., & Leucht, S. (2019). Comparative Efficacy and Tolerability of 32 Oral Antipsychotics for the Acute Treatment of Adults with multi-episode schizophrenia: a Systematic Review and Network meta-analysis. The Lancet, 394(10202). https://doi.org/10.1016/s0140-6736(19)31135-3. \42\ Read J, Williams J. Positive and Negative Effects of Antipsychotic Medication: An International Online Survey of 832 Recipients. Curr Drug Saf. 2019;14(3):173-181. doi: 10.2174/ 1574886314666190301152734. PMID: 30827259; PMCID: PMC6864560. \43\ Brannan SK, Sawchak S, Miller AC, Lieberman JA, Paul SM, Breier A. Muscarinic Cholinergic Receptor Agonist and Peripheral Antagonist for Schizophrenia. N Engl J Med. 2021 Feb 25;384(8):717- 726. doi: 10.1056/NEJMoa2017015. PMID: 33626254; PMCID: PMC7610870. \44\ Kaul I, Sawchak S, Correll CU, Kakar R, Breier A, Zhu H, Miller AC, Paul SM, Brannan SK. Efficacy and safety of the muscarinic receptor agonist KarXT (xanomeline-trospium) in schizophrenia (EMERGENT-2) in the USA: results from a randomised, double-blind, placebo-controlled, flexible-dose phase 3 trial. Lancet. 2024 Jan 13;403(10422):160-170. doi: 10.1016/S0140- 6736(23)02190-6. Epub 2023 Dec 14. Erratum in: Lancet. 2024 Jun 1;403(10442):2380. doi: 10.1016/S0140-6736(24)01041-9. PMID: 38104575. \45\ Kaul I, Sawchak S, Walling DP, Tamminga CA, Breier A, Zhu H, Miller AC, Paul SM, Brannan SK. Efficacy and Safety of Xanomeline-Trospium Chloride in Schizophrenia: A Randomized Clinical Trial. JAMA Psychiatry. 2024 Aug 1;81(8):749-756. doi: 10.1001/ jamapsychiatry.2024.0785. Erratum in: JAMA Psychiatry. 2024 Aug 1;81(8):846. doi: 10.1001/jamapsychiatry.2024.2002. PMID: 38691387; PMCID: PMC11063924. \46\ Amy Claxton, George Konis, Inder Kaul, Andrew C. Miller, Steven M. Paul, Stephen K. Brannan, Ronald Marcus (2024). Long-Term Metabolic Outcomes Associated With KarXT (Xanomeline and Trospium): Interim Results From Pooled, Long-Term Safety Studies EMERGENT-4 and EMERGENT-5. Presentation at the 2024 Annual Conference of the Schizophrenia International Research Society (SIRS), April 3-7, 2024, Florence, Italy. --------------------------------------------------------------------------- The applicant suggested that Hickey et al. (2025) provides the comparative evidence with regard to efficacy, safety, or discontinuation rates, that CMS claims is lacking from its application, because the study is a Bayesian random-effects analysis following National Institute for Health and Care Excellence Technical Support Document guidance, which draws on a connected network of 58 randomized controlled trials and pre-specified Population, Intervention, Comparison, Outcome, and Study Design (PICOS) criteria. The applicant stated that Hickey et al. (2025) compare COBENFYTM directly to eight atypical antipsychotics on efficacy, safety, and discontinuation. The applicant cited the study's results and expressed its belief that the base-case efficacy findings demonstrate comparative superiority on multiple clinically meaningful endpoints and overwhelmingly establish that COBENFYTM provides clinically meaningful efficacy improvements relative to commonly used atypical antipsychotics. The applicant added that Hickey et al. (2025)'s safety findings independently and directly satisfy the regulatory criterion at 42 CFR 412.87(b)(1)(ii)(C)(1), which recognizes a reduction in at least one clinically significant adverse event as a basis for determining substantial clinical improvement. In regard to CMS's concern that the poster did not provide comparison to typical antipsychotics or other atypical antipsychotics, such as olanzapine, the applicant stated that the regulation imposes no requirement to compare a technology against every available therapy. The applicant highlighted that Hickey et al. (2025)'s eight-comparator scope captures clinically relevant agents that drive the United States schizophrenia treatment landscape, with typical antipsychotics appropriately excluded from the comparator set. The applicant further stated that market data and prescribing trends demonstrate that second- generation antipsychotics have long been preferred as a first-line treatment over first-generation antipsychotics,\47\ and therefore, the study's focus on atypical antipsychotics reflects current clinical practice. The applicant noted that olanzapine/samidorphan is a fixed- dose combination product rather than a monotherapy, and the pre- specified PICOS criteria appropriately limited inclusion to monotherapy oral, atypical antipsychotics. The applicant cited an independent study (Schneider-Thoma et al., 2026), which it asserted addresses CMS's concern and further supports COBENFYTM's differentiated profile relative to olanzapine-samidorphan.\48\ Schneider-Thoma et al. (2026) is a network meta-analysis of 388 randomized controlled trials with 78,193 participants across 24 antipsychotics, including COBENFYTM. The applicant stated that the study found that olanzapine-samidorphan resulted in 2.44 kg of weight gain compared to placebo (95% CI 1.48 to [[Page 49704]] 3.39), placing it among the antipsychotics with greater weight gain than at least 3 comparators, whereas COBENFYTM ranked first of 23 antipsychotics on weight gain (MD -0.37 kg; 95% CI -1.27 to 0.53). The applicant stated that the Schneider-Thoma et al. (2026) study's conclusion that samidorphan reduced olanzapine-related weight gain only slightly (0.47 kg less) directly addresses CMS's concern and demonstrates that COBENFYTM significantly improves at least one clinical outcome by likely reducing at least one clinically significant adverse event (weight gain) and supports an improved quality of life by avoiding excessive weight gain. --------------------------------------------------------------------------- \47\ Leucht S, Corves C, Arbter D et al. Second-generation versus first-generation antipsychotic drugs for schizophrenia: a meta-analysis. The Lancet, 2008; 373, 31-41. \48\ Schneider-Thoma, J., Zhu, Y., Qin, M., Dong, Y., Guan, S., Wang, J., Tian, J., Lin, X., Rodolico, A., Siafis, S., Bighelli, I., Wehner, M., Veith, C., Krayer, F., Scheuring, E., Davis, J. M., Priller, J., Nikolakopoulou, A., Salanti, G., & Li, C. (2026). Comparative efficacy and tolerability of antidopaminergic and muscarinic antipsychotics for acute schizophrenia: a network meta- analysis of randomised controlled trials indexed in international English and Chinese databases. The Lancet, 407 (10531), 876-891. https://doi.org/10.1016/s0140-6736(25)02365-7. --------------------------------------------------------------------------- Regarding CMS's statement that Hickey et al. (2025) found that COBENFYTM had statistically significant higher odds of discontinuation due to all causes compared to all comparators except cariprazine, the applicant stated that the poster explains why this finding reflects a mathematical artifact rather than a real-world adherence problem. Specifically, the applicant highlighted that unadjusted absolute discontinuation rates from EMERGENT-1, -2, and -3 were lower than rates from comparator trials in both intervention and placebo arms, and a smaller absolute difference relative to a lower placebo rate produces a larger odds ratio. The applicant further stated that a vast majority of discontinuation was not due to adverse events or a lack of efficacy, a pattern that is common particularly in inpatient schizophrenia trials. Instead, the applicant stated that real-world data show that COBENFYTM achieves clinically meaningful adherence and persistence in practice, reinforcing that the discontinuation finding in Hickey et al. (2025) does not translate into a real-world adherence problem: 72 percent of patients achieved a proportion of days covered (PDC) >= 80 percent during follow-up, and Kaplan-Meier estimation showed 80.9 percent persistence at month 4.\49\ --------------------------------------------------------------------------- \49\ Cutler AJ, Zhong Y, Gillard K, Appio J, Gao C, Lalibert[eacute] F, Rubio JM. Real-World Use of Xanomeline-Trospium in Schizophrenia: Patient Characteristics and Antipsychotic Treatment Patterns. Poster presented at: Psych Congress; September 17-21, 2025; San Diego, CA. --------------------------------------------------------------------------- The applicant stated that CMS's concerns regarding Cutler et al. (2025) do not provide a valid basis for discounting its relevance. Regarding CMS's concern that Cutler et al. (2025) relied upon administrative claims data and, thus, cannot be sure whether patients actually took the prescribed oral medication, the applicant suggested that if such a standard is adopted, claims-based real-world evidence would be effectively disqualified, which is inconsistent with the regulation's express recognition of evidence from published or unpublished information sources from within the United States or elsewhere. The applicant stated that claims-based analyses are a well- established and routinely accepted form of evidence in health services research and policy evaluation and that CMS itself accepts pharmacy- claims-based PDC as a validated adherence metric in its own Merit-based Incentive Payment System (MIPS) quality-measure program. Regarding CMS's concerns that Cutler et al. (2025)'s adherence measures (reported at 60 and 90 days) are insufficient to evaluate differences between COBENFYTM and existing therapies and that the long-term adherence rates for COBENFYTM are uncertain due to an average follow-up of only 2.6 months, the applicant stated that the concern mischaracterizes the study's primary adherence findings, as the 60- and 90-day figures are not the study's primary adherence finding. The applicant stated that Cutler et al. (2025)'s primary adherence outcome reports a mean PDC of 0.86 over an average 92-day observation period, with 72 percent of patients meeting the PDC >=0.8 threshold that CMS itself recognizes as the validated adherence definition for individuals with schizophrenia under the MIPS program. The applicant further stated that if CMS's concern is that PDC measurement over a relatively short window cannot capture comparator long-acting injectables dosed at 2- to 12-week intervals, that concern is misplaced since COBENFYTM is an oral therapy, and the appropriate comparator class for adherence assessment is other oral antipsychotics, for which short-window PDC measurement is the established and accepted standard, including under MIPS Measure 383. Lastly, the applicant stated that Cutler et al. (2025) represented the longest-term data available at the time of the analysis, which is typical for such a novel technology being evaluated so soon after FDA approval. The applicant cited a new study (Rubio et al., 2026), which the applicant described as a refresh of Cutler et al. (2025) using the same Komodo Research Database extended through August 31, 2025. The applicant stated that Rubio et al. (2026) included 2,613 adults with schizophrenia who initiated COBENFYTM (an 81 percent larger sample than Cutler et al. (2025)) and followed them for a mean of 150.1 days (nearly twice the average follow-up period in Cutler et al. (2025)) with 916 patients followed for at least 180 days and Kaplan- Meier persistence estimates extending through month 6.\50\ The applicant stated that the Rubio et al. (2026) study's 5-month follow-up duration (with substantial numbers of patients followed for 6 months or more) eliminates any factual basis for the agency's prior concern, and as a result, the findings in Cutler et al. (2025), as supplemented by Rubio et al. (2026), establish substantial clinical improvement under 42 CFR 412.87(b)(1)(ii)(C)(2) by showing a decreased rate of at least one subsequent therapeutic intervention. The applicant further stated that Cutler et al. (2025) found a meaningful reduction in subsequent pharmacological interventions following COBENFYTM initiation. The applicant cited results from Cutler et al. (2025) and stated that Rubio et al. (2026) replicated and extended Cutler et al.'s polypharmacy-reduction findings, confirming Cutler et al. (2025)'s directionally identical and statistically significant reductions in concomitant medication use. The applicant also cited the following results from Rubio et al. (2026): post-COBENFYTM initiation, oral antipsychotic use decreased 23 percent (rate ratio 0.77; 95 percent CI 0.74, 0.79; P<0.001), long-acting injectable antipsychotic use decreased 20 percent (rate ratio 0.80; 95 percent CI 0.76, 0.84; P<0.001), anticholinergic use decreased 15 percent (rate ratio 0.85; 95 percent CI 0.81, 0.90; P<0.001), and mood stabilizer use declined by 6 percent (rate ratio 0.94; 95 percent CI 0.90, 0.99; P=0.009). --------------------------------------------------------------------------- \50\ Rubio J.M., Zhong Y., Gillard K., Gao C., Lalibert[eacute]

F. Real-World Use of Xanomeline and Trospium Chloride in

Schizophrenia: Patient Characteristics, Treatment Patterns, and Outcomes. Presentation at American Psychiatric Association Annual Meeting; May 16-20, 2026; San Francisco, CA. --------------------------------------------------------------------------- The applicant stated that Rubio et al. (2026) reports a separate set of outcomes that independently satisfy the substantial clinical improvement criterion through a distinct regulatory pathway not previously included in its application and cited Sec. 412.87(b)(1)(ii)(C)(3): a decreased number of future hospitalizations or physician visits. The applicant noted that Rubio et al. (2026) found that, post-COBENFYTM initiation, the rate of all-cause hospitalizations decreased 16 percent (rate ratio 0.84; 95 percent CI 0.74, 0.97; P=0.014), the rate of mental health-related hospitalizations decreased 17 percent (rate ratio 0.83; 95 percent CI 0.72, 0.96; P=0.014), the rate of schizophrenia-related hospitalizations decreased 23 percent [[Page 49705]] (rate ratio 0.77; 95 percent CI 0.63, 0.93; P=0.007), and outpatient visit rates decreased 8 percent for all-cause visits (rate ratio 0.92; 95 percent CI 0.89, 0.95; P<0.001), 9 percent for mental health-related visits (rate ratio 0.91; 95 percent CI 0.87, 0.95; P<0.001), and 8 percent for schizophrenia-related visits (rate ratio 0.92; 95 percent CI 0.86, 0.97; P=0.003). The applicant stated that these hospitalization and outpatient-visit reductions translate into significant downstream cost reductions that further support a finding under 42 CFR 412.87(b)(1)(ii)(C)(6) (improved quality of life) and under the totality-of-the-information standard at 42 CFR 412.87(b)(1)(ii)(D). The applicant further cited Rubio et al. (2026) which found that compared to pre-initiation of treatment with COBENFYTM, post-initiation mental health-related total medical costs declined by $2,563 per patient per year (95 percent CI - $4,588, -$537; P=0.013), and schizophrenia-related total medical costs declined by $2,140 per patient per year (95 percent CI -$3,973, -$307; P=0.022). The applicant added that Rubio et al. (2026) observed that hospitalization-specific costs declined significantly across all categories: all-cause hospitalization costs by $1,632 per patient per year (95 percent CI -$3,080, -$183; P=0.027), mental health-related hospitalization costs by $1,923 per patient per year (95 percent CI - $3,729, -$116; P=0.037), and schizophrenia-related hospitalization costs by $1,512 per patient per year (95 percent CI -$2,820, -$204; P=0.023). The applicant added that the study also found that non- COBENFYTM pharmacy costs declined by $2,188 per patient per year (95 percent CI -$3,396, -$981; P<0.001). The applicant acknowledged that the difference in all-cause total medical costs (- $1,488 per patient per year; 95 percent CI -$3,143, $167) did not reach statistical significance (P=0.078) and stated that it does not rely on that endpoint but that, taken as a whole, the broader cost picture is consistent with the hospitalization-rate findings. With regard to CMS's concern about Horan et al. (2024) due to lack of comparison to other treatments, the applicant stated its belief that CMS misapplied the new technology add-on payment regulatory framework, which does not subordinate placebo-controlled evidence to head-to-head trials but rather, 42 CFR 412.87(b)(1)(iii) authorizes evidence from published or unpublished information sources without distinguishing between trial designs. The applicant stated that placebo-controlled randomized controlled trials remain the accepted scientific and regulatory standard for establishing efficacy. The applicant further stated that Horan et al. (2024) and Hickey et al. (2025) serve complementary roles and emphasized that Horan et al. (2024) supports a signal that COBENFYTM's negative symptoms benefit is independent of other symptom domains, while Hickey et al. (2025) provides the comparative evidence CMS identifies as missing. The applicant suggested that when the two studies are considered together, Horan et al. (2024) and Hickey et al. (2025) provide the internal validity necessary to establish clinically meaningful effects and the comparative context necessary to evaluate those effects against available treatments. In reference to CMS's concern regarding the short duration of the 5-week trials studied in Horan et al. (2024), the applicant stated its belief that CMS's concern is inconsistent with both regulatory expectations and accepted clinical trial design in schizophrenia, as a 5-week trial duration reflects the standard, FDA-accepted design for establishing acute efficacy in schizophrenia 51 52 53 and the governing regulation does not impose any minimum trial-duration requirement for determining substantial clinical improvement. The applicant highlighted that Horan et al. (2024)'s negative-symptom finding is precisely the kind of preliminary signal a 5-week placebo- controlled design is well-suited to generate, and that additional studies are assessing COBENFYTM's long-term durability. The applicant stated that CMS cannot reasonably expect applications to include long-term data that do not exist at the time of submission, particularly given that the new technology add-on payment framework is designed to facilitate and support earlier adoption of novel technologies. --------------------------------------------------------------------------- \51\ Horan WP, Targum SD, Claxton A, Kaul I, Yohn SE, Marder SR, Miller AC, Brannan SK. Efficacy of KarXT on negative symptoms in acute schizophrenia: A post hoc analysis of pooled data from 3 trials. \52\ Schizophr Res. 2024 Dec;274:57-65. doi: 10.1016/ j.schres.2024.08.001. Epub 2024 Sep 10. PMID: 39260339. \53\ U.S. Food and Drug Administration. Drug Trials Snapshot: Cobenfy. U.S. Food and Drug Administration. https://www.fda.gov/drugs/drug-trials-snapshots/drug-trials-snapshot-cobenfy. --------------------------------------------------------------------------- In reference to CMS's concern about Horan et al. (2024)'s lack of discussion on side effects, the applicant stated its belief that CMS's concern is inaccurate. The applicant noted that Horan et al. (2024) provided a within-trial analysis of pseudospecificity--the methodological concern arising in trials of acutely psychotic patients whereby apparent negative-symptom benefits may represent a secondary artifact of positive-symptom improvement rather than an independent treatment effect.\54\ The applicant further highlighted that in the study's post-hoc, exploratory prominent-negative-symptoms subgroup, COBENFYTM's effect on PANSS Marder Negative Factor remained statistically significant at weeks 4 and 5 after accounting for changes in positive symptoms, depression/anxiety, disorganization, and hostility (all P<.01). The applicant suggested that while these findings are exploratory and not part of COBENFYTM's FDA- approved labeling, they speak to pseudo-specificity by suggesting that the observed negative-symptoms benefit persists even after accounting for improvements across other symptom domains. --------------------------------------------------------------------------- \54\ See Kirkpatrick B, Fenton WS, Carpenter WT Jr, Marder SR. The NIMH-MATRICS consensus statement on negative symptoms. Schizophr Bull. 2006 Apr;32(2):214-9. doi: 10.1093/schbul/sbj053. Epub 2006 Feb 15. PMID: 16481659; PMCID: PMC2632223. --------------------------------------------------------------------------- The applicant stated that Schneider-Thoma et al. (2026) supports COBENFYTM's differentiated clinical profile relative to existing therapies and situates COBENFYTM within the broader antipsychotic evidence base to permit evaluation using a standardized cross-trial comparative framework. The applicant stated that Schneider- Thoma et al. (2026) places COBENFYTM among the more effective agents on overall symptom reduction due to its findings that COBENFYTM ranked in the top quarter of 24 antipsychotics for the primary outcome of overall symptom reduction, with a standardized mean difference (SMD) of -0.57 versus placebo (95 percent CI -0.76 to - 0.37). The applicant added that the study separately identified lumateperone, brexpiprazole, iloperidone, cariprazine, and lurasidone (each an FDA-approved atypical) as reducing symptoms less than at least three other antipsychotics, while COBENFYTM was not so identified. The applicant stated that Schneider-Thoma et al. (2026)'s pairwise data connecting COBENFYTM directly to these antipsychotics are limited (the network's xanomeline-trospium evidence is anchored primarily to placebo), so the comparative ranking presents evidence of COBENFYTM's competitive efficacy among atypical antipsychotics. The applicant further stated that regarding the analysis of positive-symptom reduction in Schneider-Thoma et al. (2026), COBENFYTM ranked fourth of 23 antipsychotics (after [[Page 49706]] clozapine, amisulpride, and risperidone) by surface under the cumulative ranking curve, with a SMD of -0.59 versus placebo (95 percent CI -0.78 to -0.40). The applicant suggested that this ranking reflects COBENFYTM's placebo-anchored efficacy combined with the network position of comparator drugs, rather than by direct pairwise comparisons. The applicant also highlighted that COBENFYTM met the study's clinical meaningfulness threshold for negative symptom reduction (95 percent CI excluding very small effects) with an SMD of -0.33 versus placebo (95 percent CI -0.51 to - 0.16). The applicant stated its belief that this independent, peer- reviewed finding helps contextualize CMS's concern that Horan et al. (2024)'s negative-symptoms data was placebo-only and post hoc. The applicant added that Schneider-Thoma et al. (2026) only included studies with appropriate randomization confirmed by author contact and placed COBENFYTM's placebo-anchored performance on negative- symptom measures within the broader antipsychotic field. The applicant added that this finding is based on placebo-anchored SMDs within the network rather than direct head-to-head comparisons in a negative- symptom-predominant population and that COBENFYTM's FDA- approved labeling does not include a specific negative-symptom indication. The applicant suggested that COBENFYTM's weight-gain profile alone is sufficient to meet the substantial clinical improvement criterion under 412.87(b)(1)(ii)(C)(1). The applicant again highlighted that in the study, COBENFYTM ranked first of 23 antipsychotics (MD-0.37 kg vs. placebo; 95 percent CI -1.27 to 0.53), with a point estimate in the direction of weight loss relative to baseline, although the 95 percent CI compared to placebo crosses zero. The applicant stated its belief that the pairwise network findings are more directly responsive to the substantial clinical improvement inquiry as COBENFYTM demonstrated statistically meaningful superiority on weight gain over 11 of 22 comparator antipsychotics (95 percent CIs excluding very small effects), the highest such count of any antipsychotic in the network. The applicant further suggested that these findings independently confirm and substantially extend Hickey et al. (2025)'s weight-gain findings. The applicant also stated that Schneider-Thoma et al. (2026) reported favorable findings for COBENFYTM on two other well- documented harms of dopamine-blocking antipsychotics. The applicant explained that the study found COBENFYTM demonstrated a statistically meaningful prolactin profile superior to five antipsychotics (MD 0.20 ng/ml vs. placebo; 95 percent CI -12.19 to 12.59). Additionally, the applicant stated that while Schneider-Thoma et al. (2026)'s antiparkinsonian-drug-use data for COBENFYTM are limited (one trial reporting the outcome, odds ratio 0.33 vs. placebo with a wide 95 percent CI of 0.01 to 8.90), it believed that this limitation reflects that extrapyramidal symptoms were rare in the EMERGENT program rather than evidence of concern. Furthermore, the applicant stated that Schneider-Thoma et al. (2026) reported expected tradeoffs that do not negate or otherwise undermine a substantial clinical improvement determination. The applicant added that the study identified that COBENFYTM had higher cholinergic adverse-event rates than most other antipsychotics (inferior to 16 of 22 antipsychotics by the article's S[verbar]I metric requiring 95 percent CIs to exclude very small effects), a more limited anticholinergic burden (inferior to 3 of 24), and the highest all-cause discontinuation rate in the network (inferior to 10 of 24 comparators). Additionally, the applicant highlighted that the study authors stated only one COBENFYTM participant discontinued for inefficacy across the EMERGENT trials; instead, the primary reason was withdrawn consent, which the applicant stated is a common phenomenon in schizophrenia clinical trials and is not indicative of treatment failure.\55\ --------------------------------------------------------------------------- \55\ Schoemaker JH, Vingerhoets AJJM, Emsley RA. Factors associated with poor satisfaction with treatment and trial discontinuation in chronic schizophrenia. CNS Spectrums. 2019;24(4):380-389. doi:10.1017/S109285291700044X. --------------------------------------------------------------------------- The applicant stated its belief that the substantial clinical improvement standard does not require a technology to be without trade- offs as 42 CFR 412.87(b)(1)(ii)(C)(1) expressly provides that a reduction in at least one clinically significant adverse event is sufficient to support a determination of substantial clinical improvement. The applicant suggested that COBENFYTM's first- place weight-gain ranking in Schneider-Thoma et al. (2026) independently satisfies this standard as it demonstrates statistically meaningful superiority versus 11 antipsychotics and directly addresses one of the most well-documented metabolic harms of dopamine-blocking antipsychotics. The applicant stated that the clinical significance of antipsychotic-induced weight gain (AIWG) and the corresponding downstream effects are well-established. The applicant cited Rotella et al. (2020), a meta-analysis of 92 randomized controlled trials, which confirmed that antipsychotics are associated with significant weight gain and carry a demonstrated link to serious adverse cardiometabolic outcomes, including increased risk of type 2 diabetes, among a patient population that bears a higher prevalence of cardiovascular mortality.\56\ The applicant added that Rotella et al. (2020) found that cardiovascular disease is the most frequent cause of death in patients with schizophrenia, with cardiovascular mortality at least five-fold greater than mortality from suicide. The applicant also stated that in addition to these immediate health concerns, AIWG poses a major risk to patient adherence and treatment discontinuation. The applicant cited De et al. (2025), a systematic review and meta-analysis which found that overweight or obese patients who reported weight gain in relation to antipsychotic use had more than twice the odds of nonadherence than normal weight individuals (OR 2.37; 95 percent CI 1.51-3.73; p = 0.0002).\57\ The applicant added that De et al. (2025) also found that olanzapine was associated with 3.32 times increased likelihood of nonadherence or discontinuation compared to antipsychotics that impact weight gain to a lesser degree (95 percent CI 2.32-4.74; p <0.00001). --------------------------------------------------------------------------- \56\ Rotella, F., Cassioli, E., Calderani, E., Lazzeretti, L., Ragghianti, B., Ricca, V., & Mannucci, E. (2020). Long-term metabolic and cardiovascular effects of antipsychotic drugs. A meta- analysis of randomized controlled trials. European Neuropsychopharmacology. https://doi.org/10.1016/j.euroneuro.2019.12.118. \57\ De, R., Emily, Janani Navagnanavel, Au, E., Kateryna Maksyutynska, Papoulias, M., Singh, R., Panganiban, K. J., Humber, B., Grimur H[oslash]gnason Mohr, Mette [Oslash]degaard Nielsen, Ebdrup, B. H., Remington, G., Sri Mahavir Agarwal, & Hahn, M. K. (2024). The impact of weight gain on antipsychotic nonadherence or discontinuation: A systematic review and meta[hyphen]analysis. Acta Psychiatrica Scandinavica. https://doi.org/10.1111/acps.13758. --------------------------------------------------------------------------- In summary, the applicant stated its belief that CMS's analysis departs from its own regulation in several respects, contrary to settled law requiring agencies to adhere to their own rules, and these departures result in a framework that differs materially from the one that CMS must apply as set forth in regulation. The applicant further stated that such departures are internally inconsistent with the agency's own regulations and the intent of the new technology add-on payment program to create meaningful access to new and innovative therapies. Additionally, the applicant suggested that these departures are not only technical but will have profound [[Page 49707]] implications on the new technology add-on payment program's governing framework and agency action as a whole. The applicant stated its opinion that CMS's preliminary determination, if finalized, would constitute arbitrary and capricious agency action under the Administrative Procedure Act, defined as when an agency entirely fails to consider an important aspect of the problem or offers an explanation for its decision that runs counter to the evidence before it. The applicant asserted that CMS does both: the FY 2027 IPPS/LTCH PPS proposed rule isolates individual studies--Cutler et al. (2025)'s claims-based design, Hickey et al. (2025)'s discontinuation odds ratio, and Horan et al. (2024)'s placebo-controlled comparator--and rejects each in turn, without evaluating the integrated evidentiary record that the regulation expressly requires it to assess under the totality of the circumstances. The applicant stated that the regulation requires CMS's review under this standard and it does not permit CMS to discharge that obligation through piecemeal dismissal of individual evidence, and that CMS's own regulation compels approval of COBENFYTM for new technology add-on payments. Response: We thank the applicant and commenters for their comments regarding the substantial clinical improvement criterion. Based on the additional information received and all data received to date, we continue to have concerns as to whether COBENFYTM meets the substantial clinical improvement criterion to be approved for new technology add-on payment status. Specifically, it remains unclear whether COBENFYTM offers a treatment option for a patient population unresponsive to, or ineligible for, currently available treatments for schizophrenia in adults and whether the use of COBENFYTM significantly improves clinical outcomes over existing technologies. The applicant asserted that CMS must evaluate substantial clinical improvement based on the totality of the circumstances and that CMS misapplied its substantial clinical improvement criterion. While we agree with the applicant that determinations of substantial clinical improvement are based on the totality of the evidence and circumstances, we disagree that we misapplied the regulations. We also note that the substantial clinical improvement criterion does not require head-to-head comparative trials and does not require a technology not to have trade-offs. CMS is not imposing evidentiary standards beyond those set forth in Sec. 412.87. Comparative information may be demonstrated through any valid form of evidence, and our evaluation of COBENFYTM is consistent with this regulatory framework. The substantial clinical improvement criterion does not require a technology to be last-line or to only be used in certain patient populations, and CMS has not applied such a standard in assessing the evidence provided by the applicant in support of substantial clinical improvement. Under Sec. 412.87(b)(1), demonstrating substantial clinical improvement requires sufficient evidence to establish that a new technology represents an advance that substantially improves, relative to services or technologies previously available, the treatment of Medicare beneficiaries. Consistent with Sec. 412.87(b)(1)(iii), we consider all relevant evidence, including published and unpublished information sources such as clinical trials, peer-reviewed journal articles, study results, meta-analyses, consensus statements, white papers, and other listed sources. Because our evaluation for new technology add-on payment requires a comparison against existing technologies used for Medicare beneficiaries, for a clinical area with a larger number of relevant comparator technologies, more information may be needed to demonstrate that a technology meets our criterion. In making our determination, we evaluate the merits of each study to determine the validity of its results and consider the totality of the circumstances and evidence to determine whether a technology represents a substantial clinical improvement over existing technologies consistent with Sec. 412.87(b)(1)(i) and (ii)(D). In the FY 2027 IPPS/LTCH PPS proposed rule, we did not dismiss the individual evidence provided by the applicant, but rather discussed our concerns with respect to the evidence in the context of the substantial clinical improvement criterion. The public comment period allows the applicant and other commenters to respond to these concerns. After consideration of the totality of the circumstances and evidence submitted, including the public comments we received, we do not believe the evidence provided demonstrates that COBENFYTM substantially improves the treatment of Medicare beneficiaries relative to currently available treatments. The applicant and commenters asserted that COBENFYTM offers a treatment option for schizophrenia patients with extensive prior antipsychotic use and may be able to help patients who do not respond to or are intolerant of other therapies. We agree with the applicant that Sec. 412.87(b)(1)(ii)(A) does not require a technology to be used only as a last-line therapy after failure of all existing treatments, including clozapine. However, we disagree that COBENFYTM meets the regulatory criterion because we did not receive evidence demonstrating that it provides a treatment option for a defined patient population that is unresponsive to or ineligible for currently available therapies. CMS's application of this standard is consistent with the regulation and with past practice. The assertions by the applicant and commenters were based on COBENFYTM's mechanism of action and associated lack of FDA class-wide boxed warnings for its approved indication or other side effects in the prescribing information. We note that warnings or potential side effects alone do not indicate a patient population that is unresponsive to, or ineligible for other antipsychotics, as side effect profiles among antipsychotics vary by agent such that a patient with a given side effect may be successful on a different antipsychotic with a lower risk of the side effect. In addition, rare and long-term side effects may not yet appear in 5-week clinical trials; thus, the lack of inclusion in prescribing from short-term trials does not mean COBENFYTM cannot cause these side effects. We also did not receive evidence that indicated that other antipsychotics cannot manage negative symptoms of schizophrenia. As such, we remain unclear whether COBENFYTM is the only treatment option available for patients unresponsive or intolerant to treatment with antipsychotics or for those with negative symptoms. Rather, it appears COBENFYTM is an alternative treatment option with a different mechanism of action available to patients in addition to these existing treatment options. We note that the evidence for increased adherence and persistence, as well as decreased healthcare resource utilization and healthcare costs in Cutler et al. (2025) and Rubio et al. (2026) was inconclusive about COBENFYTM's effect. Specifically, we did not receive a comparison of adherence and persistence to other antipsychotics nor did we receive data indicating that COBENFYTM was effective for these patients in Cutler et al. (2025) or Rubio et al. (2026). While the applicant stated that long-acting injectables are not an appropriate comparator to COBENFYTM since it is an oral therapy, we disagree because [[Page 49708]] both injectable and oral antipsychotics are indicated for the treatment of schizophrenia in adults and thus, should be considered as comparators to COBENFYTM. In addition, we note the healthcare resource utilization and costs data, including a reduction in hospitalizations and physician visits, compared 3.8 months leading up to dispensing COBENFYTM to an average of 3.8 months of on-treatment follow-up. This does not compare an equivalent period of time, but rather compares the last 3.8 months of prior therapy to the first 3.8 months of COBENFYTM. This is a short duration to assess for future hospitalizations and office visits. In addition, we are concerned that adherence was a confounding factor since adherence tends to decrease over time, as exhibited in Cutler et al. (2025) and Rubio et al. (2026), and thus, the change in healthcare resources could be related to a decrease in adherence over time, rather than to a change in therapy to COBENFYTM. In addition, regarding the claim that COBENFYTM decreases the rate of at least one subsequent therapeutic intervention by reducing subsequent pharmacological interventions, we question whether this is due to improved outcomes with COBENFYTM. For instance, when starting COBENFYTM or a different antipsychotic, it is reasonable for a patient to stop their prior therapy for schizophrenia, and a patient may reduce use of anticholinergic drugs when starting COBENFYTM, since it has anticholinergic side effects. With regard to the assertion that COBENFYTM improves clinical outcomes relative to previously available therapies, we have concerns as to whether the comparative data received in Hickey et al. (2025) and Schneider-Thoma et al. (2026) demonstrate improved clinical outcomes for COBENFYTM. As previously stated in Hickey et al. (2025), COBENFYTM was not favored compared to numerous drugs in PANSS and CGI-S, and COBENFYTM was not favored compared to numerous drugs with regard to sedation. We also note that Hickey et al. (2025) did not include typical antipsychotics, and while atypicals are the usual first-line agents, typical antipsychotics are options for patients who either don't respond adequately to atypicals or tolerate them poorly. In addition, while the seven percent weight gain outcome favored COBENFYTM, another outcome comparing weight, the change from baseline weight, did not favor COBENFYTM compared to numerous drugs. We also note that this analysis did not include other available options that tend to cause less weight gain, such as ziprasidone and lurasidone, and the included trials were 4 to 6 weeks, which are short durations for the assessment of weight changes. Therefore, we do not believe the evidence from Hickey et al. (2025) demonstrates a reduction in a clinically significant adverse event that would meet the criterion at Sec. 412.87(b)(1)(ii)(C)(1). While the applicant provided an explanation for the discontinuation findings in Hickey et al. (2025), the comparative data for discontinuation rates did not favor COBENFYTM in Hickey et al. (2025) or in Schneider-Thoma et al. (2026), and we continue to question whether COBENFYTM improves adherence relative to other therapies. Additionally, the article states that comparisons with other antipsychotics are needed to confirm the ranking of COBENFYTM due to the inclusion of only placebo-controlled trials for COBENFYTM. However, even when looking at the results in Schneider-Thoma et al. (2026), numerous drugs ranked higher than COBENFYTM for treating overall symptoms, positive symptoms, and negative symptoms, in addition to many having lower odds for discontinuation, cholinergic events, anticholinergic events, sedation, use of antiparkinsonian drugs, change in prolactin, and change in QTc. With regard to a change in weight, while the applicant highlighted COBENFYTM was superior to 11 antipsychotics, ziprasidone had similar results, with the mean differences overlapping between COBENFYTM and ziprasidone (-0.37 [95% CI -1.27 to 0.53] and -0.12 [95% CI -0.53 to 0.29], respectively), so we question if COBENFYTM offers a clinically meaningful improvement over ziprasidone for this outcome. We also question if weight gain could occur for COBENFYTM after the 5-week trials included in Schneider-Thoma et al. (2026), as weight gain may be a side effect that may not yet appear in 5 weeks' time. While commenters noted that having another treatment option with COBENFYTM could reduce hospitalization and morbidity, as well as improve quality of life, data were not provided to demonstrate this. After consideration of all the information received from the applicant as well as the public comments we received, we are unable to determine that COBENFYTM represents a substantial clinical improvement over existing technologies for the reasons discussed in the proposed rule and in this final rule, and therefore, we are not approving new technology add-on payments for COBENFYTM for FY 2027. b. Command Center Electronic Glycemic Management System Glytec, LLC submitted a FY 2027 application for new technology add- on payments for Command Center Electronic Glycemic Management System (Command Center). According to the applicant, Command Center is an electronic medical record (EMR)-integrated cloud-based software designed to maintain blood glucose in hospitalized patients by recommending personalized insulin dosing. According to the applicant, the technology utilizes inputs collected from EMRs to direct ongoing insulin dosage management and daily monitoring related glycemic variables (such as labs and diet) during an inpatient stay until insulin is discontinued or the patient is sent home. Per the applicant, direct per-patient charge for the use of Command Center follows a subscription model. In the proposed rule, we provided the following table containing an overview of the new technology add-on payment application for Command Center and CMS's preliminary assessment. For additional details provided by the applicant, please refer to the online application posting at https://mearis.cms.gov/public/publications/ntap/NTP251005YD7PG. [[Page 49709]] [GRAPHIC] [TIFF OMITTED] TR04AU26.099 Newness Criterion We stated in the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19413) that, regarding the newness date, the applicant provided an FDA 510(k) clearance letter for Glytec Glucommander (K152300), dated August 4, 2017, to support its new technology add-on payment application for Command Center. Per the 510(k) summary, the predicate device for Glytec Glucommander is GlucommanderTM System (K113853).\58\ Per the applicant, Command Center was available for sale immediately after FDA marketing authorization. Therefore, we stated the newness period for Command Center commenced on the date of FDA clearance, August 4, 2017, or earlier, as discussed further in this section. Because the 3-year anniversary date of the entry of Command Center onto the U.S. market (August 4, 2020, or earlier) occurred prior to FY 2027, we stated in the proposed rule that we did not believe that the device is eligible for new technology add on payments for FY 2027. Consistent with the statute and our implementing regulations, we stated a technology is no longer considered ``new'' once it is more than 2 to 3 years old, irrespective of how frequently the medical service or technology has been used in the Medicare population (70 FR 47349). Accordingly, we proposed to disapprove Command Center for new technology add on payments for FY 2027. --------------------------------------------------------------------------- \58\ FDA, May 8, 2012, GlucommanderTM System (https://www.accessdata.fda.gov/scripts/cdrh/cfdocs/cfPMN/pmn.cfm?ID=K113853, accessed 2/9/2026). --------------------------------------------------------------------------- In addition, regarding substantial similarity, we questioned whether Command Center has the same or similar mechanism of action as existing technologies that manage glycemic dosing. The applicant stated that Command Center differs from other insulin management methods because it is an intelligent, algorithm-based analytic technology that uses multiple administrative, technical, and clinical inputs to develop an optimized insulin and glycemic management system to control glucose metabolism while minimizing hyper- and hypoglycemic episodes. Per the applicant, glycemic management is typically performed by nurses and doctors using a paper and pencil sliding scale algorithm to estimate the amount of insulin needed based on blood glucose values. According to the applicant, while other digital glycemic management systems can be built into EMR tables or in stand-alone systems, none are as sophisticated or as well-documented as Command Center. However, we noted there are several existing software-based, EMR-integrated glycemic management systems. For example, we stated that the 2012 GlucommanderTM System,\59\ the GlucoStabilizer Insulin Dosing Calculator 3.0,\60\ the EndoToolTM Drug [[Page 49710]] Dose Calculator,\61\ and the EndoTool SubQTM \62\ are all FDA-cleared glycemic management tools that monitor patient blood glucose and generate personalized insulin dosing recommendations. Therefore, we disagreed with the applicant that Command Center uses a different mechanism of action compared to existing technologies to achieve a therapeutic outcome. Additionally, we stated we disagreed with the applicant that the use of Command Center involves the treatment of a different type of disease or patient population compared to existing technology. The applicant stated that Command Center will better address glycemic management needs in patients where higher degrees of blood glucose control accuracy are required, including post- coronary artery bypass graft (CABG) surgery patients, patients with diabetic ketoacidosis or hyperosmolar coma, stroke patients, pregnant patients, or children, and can be used in populations where advanced endocrinology expertise is not readily available. However, as we noted in the proposed rule, several technologies are currently available for insulin and glycemic management for the same or similar type of disease and patient populations. Furthermore, we noted per the FDA 510(k) summary for K152300, the indications for use for this device are the same as those for its predicate device (K113853). We stated we agreed with the applicant that Command Center maps to the same MS-DRG as existing technologies. As a result, we stated we believed that Command Center is substantially similar to existing technologies because it uses the same or similar mechanism of action, maps to the same MS-DRG, and involves the treatment of the same or similar type of disease and patient population when compared to existing technologies, including its predicate device (K113853). We noted that, per our policy, if technologies are substantially similar to each other, we use the earliest market availability date as the beginning of the newness period for the technologies. Accordingly, we stated that if we determined that Command Center is substantially similar to existing glycemic management systems as described previously, because they were all FDA-cleared prior to Command Center, the newness period for Command Center would have commenced even earlier than its FDA clearance date in 2017. We invited public comments on our proposal to disapprove new technology add-on payments for Command Center, including whether the technology is substantially similar to existing technologies and whether it meets the newness criterion. --------------------------------------------------------------------------- \59\ FDA, May 8, 2012, K113853 Glytec LLC GlucommanderTM System (https://www.accessdata.fda.gov/ scripts/cdrh/cfdocs/cfpmn/pmn.cfm?ID=K113853, accessed 1/2/2026). \60\ FDA, September 15, 2014, K141321, Glucostabilizer Insulin Dosing Calculator (https://www.accessdata.fda.gov/scripts/cdrh/cfdocs/cfpmn/pmn.cfm?ID=K141321, accessed 1/2/2026). \61\ FDA, June 14, 2006, K053137 EndoToolTM Drug Dose Calculator (https://www.accessdata.fda.gov/scripts/cdrh/cfdocs/cfpmn/pmn.cfm?ID=K053137, accessed 1/2/2026). \62\ FDA, April 24, 2015, K142918 EndoTool SubQTM (https://www.accessdata.fda.gov/scripts/cdrh/cfdocs/cfpmn/pmn.cfm?ID=K142918, accessed 1/2/2026). --------------------------------------------------------------------------- Comment: The applicant submitted a public comment in support of Command Center regarding the newness criterion. The applicant asserted that CMS's proposed denial turns largely on the newness criterion under 42 CFR 412.87(b)(2), which ties newness to when billing data begins to reflect inpatient hospital codes, per section 1886(d)(5)(K)(iii) of the Act. The applicant stated that no such data exists for its product, not because the technology is old, but because it has never had a code to generate such data. The applicant further stated this is precisely the situation the framework was designed to address, where technologies, like this one, are innovative enough to matter clinically but too new to have generated the billing history CMS typically relies on. The applicant added that its technology is a clear example that the absence of prior billing data is not evidence that the product is not new; rather, it is evidence that it is new. The applicant also stated that the technology implementation for its product is currently indirect via hospital software licensing, and reimbursement is uncovered. The applicant added that no systematically available patient billing data exists to enable the calculation of newness according to prior rulemaking in FY 2005 and FY 2022. Additionally, the applicant stated that section 1886(d)(5)(K)(iii) of the Act defines inpatient hospital code as including ICD codes and subsequent revisions, and hospital claims reflecting a new ICD-10-PCS code will not become available until after the code is implemented, which is in 2026 for this technology. The applicant asserted that per CMS, the 2 to 3 year newness period generally begins when a technology becomes available on the market for sale. The applicant stated that in the case of complex software, it takes several years before a technology can integrate commercially into standing electronic medical record systems, such as EPIC and Cerner. The applicant stated that its product first appeared in EPIC in 2024. The applicant also asserted that its product today is not the device FDA cleared in 2017. According to the applicant, the 2017 510(k) covered Glytec Glucommander as a dosing calculator, while Command Center as it exists today has capabilities that did not exist in 2017, including predictive analytics, system-wide benchmarking, surveillance, and workflow management. Per the applicant, Glucommander's predictive analytics, system-wide Glucosurveillance, and EMR-native workflow integration represent capabilities that do not exist in legacy glycemic management tools, and that lumping them together as equivalent would mischaracterize both the technology and the clinical problem it solves. Per the applicant, the 510(k) was the regulatory vehicle, not the product definition. The applicant noted that FDA recently issued a new 510(k) clearance (K254102) \63\ for this technology, and stated that this is not a minor update, as a new FDA clearance reflects a determination by FDA that the current product is sufficiently distinct to warrant independent review and authorization. The applicant argued that if FDA treats this as a new device, CMS should as well, and urged CMS to weigh this clearance as direct, concurrent federal agency evidence that its product's current platform meets the newness standard under 42 CFR 412.87(b)(2). The applicant encouraged CMS to reconsider its proposed denial of new technology add-on payment status for Command Center and reiterated its belief that it meets the newness criterion. The applicant added that new technology add-on payment approval rates hovering around 30 to 41 percent per cycle suggest the current framework may be filtering out the very technologies it was designed to support. The applicant concluded that its product is a clear example of how the absence of prior billing data is evidence that the product is new and that approval of Command Center would reflect both the letter and the spirit of the new technology add-on payment program. --------------------------------------------------------------------------- \63\ FDA, Glucommander, K254102, 5/27/2026 (https://www.accessdata.fda.gov/scripts/cdrh/cfdocs/cfpmn/pmn.cfm?ID=K254102, accessed 6/18/2026). --------------------------------------------------------------------------- Response: We appreciate the additional information from the applicant with respect to whether Command Center meets the newness criterion. However, we disagree with the applicant that Command Center meets the newness criterion and believe it is substantially similar to existing glycemic management systems. We disagree with the applicant's assertion that Command Center is new because it historically lacked a specific [[Page 49711]] code through which billing data could be collected and that the newness period begins only upon assignment of a new ICD-10-PCS code. As we explained in the FY 2005 and FY 2022 IPPS final rules (69 FR 49002 through 49003 and 86 FR 45151, respectively), using the date on which a specific code is assigned to a technology is not an appropriate test of newness as we noted, in many instances, a technology may have been in use for several years, or even several decades, prior to the assignment of a new code. As stated previously, consistent with the statute and our implementing regulations, a technology is no longer considered new once it is more than 2 to 3 years old, irrespective of how frequently the medical service or technology has been used in the Medicare population (70 FR 47349). We further note that the applicant has not provided documentation regarding a delay in commercial availability. While the applicant asserted that its product's integration into EPIC occurred in 2024, this does not mean that the technology was not available for sale prior to that date. We further note that the applicant indicated in its application that the technology was available for sale immediately following FDA market authorization in 2017. As such, in this case, because Command Center has been available on the U.S. market for more than 2 to 3 years, we consider the costs to have been included in the MS-DRG relative weights. With regard to the applicant's statement that the device is different than that under the 2017 FDA 510(k) clearance, we disagree that these changes affect the newness date. According to the applicant, Command Center is a cloud-based, EMR-integrated clinical decision support platform with capabilities that did not exist in 2017. According to the applicant's website,\64\ Command Center is a non- device clinical data visualization and analytics platform that displays current and historical glycemic data, supports quality improvement, and enables performance benchmarking. This website also noted that Command Center does not provide patient-specific treatment recommendations, generate alerts requiring immediate clinical action, or automate clinical decisions. Per the website, Glucommander[supreg] is a device that provides patient-specific dosing recommendations at the point of care. However, we note that Medicare IPPS payments are made for inpatient hospital services furnished to individual beneficiaries and are based on the costs associated with patient discharges. Consistent with this framework, the new technology add-on payment provisions rely on claims- and patient-level utilization data involving the technology to determine whether the costs of the new technology are adequately reflected in the MS-DRG payment system. We note that because the Command Center clinical data visualization and analytics platform is not a medical device and is not developed for patient-specific clinical treatment delivery, its costs cannot be attributed to inpatient services in the manner contemplated under the new technology add-on payment statutory and regulatory framework. --------------------------------------------------------------------------- \64\ Glytec[supreg] FAQs. What is the difference between Glucommander[supreg] and Command Center? (https://glytec.com/faqs/ #:~:text=What%20is%20the%20difference%20between%20Glucommander%C2%AE% 20and%20Command%20Center%3F, accessed 6/25/2026). --------------------------------------------------------------------------- We also disagree that Command Center uses a different mechanism of action than other legacy glycemic management tools, including its predicate versions. While the applicant stated that its technology includes predictive analytics, system-wide Glucosurveillance, and EMR- native workflow integration, we do not consider workflow tools or integration to be related to a technology's mechanism of action, as they do not change the therapeutic effect of monitoring blood glucose and recommending insulin doses for patients. Therefore, we are unable to determine that Command Center has a new mechanism of action. Furthermore, the recent 2026 FDA 510(k) clearance for Glucommander is not eligible for consideration for new technology add-on payment for FY 2027 under Sec. 412.87(e)(2) and Sec. 412.87(f)(2) because documentation of FDA acceptance or filing of the marketing authorization request that indicates that FDA has determined that the application is sufficiently complete to allow for substantive review by FDA, was not provided to CMS at the time of new technology add-on payment application submission, and because CMS only considers, for add-on payments for a particular fiscal year, an application for which the new medical service or technology has received FDA marketing authorization by May 1 prior to the particular fiscal year. In addition, we note that the FDA 510(k) summaries for the 2012, 2017, and 2026 510(k)s all share the same intended use and indications for use. The 2026 FDA 510(k) clearance for Glucommander describes modifications to the 2017 predicate version as updating cybersecurity controls and the addition of a predetermined change-control plan for dose calculation updates, expanding alert contents, enhancing record keeping, modernizing the user interface, and adding another data input source. However, we note that none of these updates describe a difference in the way the technology works for the purposes of mechanism of action under our substantial similarity criteria. After review of the comments and the information provided to date, we continue to disagree that Command Center uses a new mechanism of action and involves the treatment of a different type of disease or patient population compared to existing glycemic management systems. As we discussed in the proposed rule, we agree with the applicant that Command Center maps to the same MS-DRGs as existing technologies. In addition, we continue to disagree with the applicant's assertion that Command Center provides a treatment option to patients who are ineligible for or do not respond to treatments delivered by existing glycemic management software-support systems. Accordingly, we have determined that Command Center meets all three of the substantial similarity criteria. Therefore, we believe Command Center is substantially similar to existing software-based EMR-integrated glycemic management systems, including the 2012 GlucommanderTM System. As noted in the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19414), we consider the beginning of the newness period for Command Center to commence on the FDA clearance date for the previously described existing glycemic management systems, which commenced even earlier than Glucommander's FDA clearance date in 2017. Since these technologies have been on the U.S. market for longer than 3 years, and Command Center is substantially similar to these technologies, the 3-year anniversary date of Command Center's entry onto the market occurred prior to FY 2027. Therefore, Command Center does not meet the newness criterion and is not eligible for new technology add-on payments for FY 2027. We note that we received public comments with regard to the cost and substantial clinical improvement criteria for this technology, but because we have determined that the technology does not meet the newness criterion and therefore is not eligible for approval for new technology add-on payments for FY 2027, we are not summarizing comments received or making a determination on those criteria in this final rule. [[Page 49712]] c. GAMIFANT[supreg] (emapalumab-lzsg) Sobi, Inc. submitted an FY 2027 application for new technology add- on payments for GAMIFANT[supreg]. According to the applicant, GAMIFANT[supreg] is an interferon gamma (IFN[gamma])-blocking antibody that targets and neutralizes IFN[gamma] to stop the hyperinflammatory feedback loop of macrophage activation syndrome (MAS). Per the applicant, GAMIFANT[supreg] is an intravenous infusion consisting of a 6 mg/kg loading dose or a 3 mg/kg treatment dose administered over 1 hour. The applicant stated that in the GAMIFANT[supreg] studies, adults received 10 infusions (1 loading dose of 6 mg/kg and 9 treatment doses of 3 mg/kg) over a median 29 days in the inpatient setting. We noted in the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19415) that the applicant is seeking new technology add-on payments for GAMIFANT[supreg] for its indication for the treatment of adult and pediatric (newborn and older) patients with hemophagocytic lymphohistiocytosis (HLH)/MAS in known or suspected Still's disease, including systemic Juvenile Idiopathic Arthritis (sJIA), with an inadequate response or intolerance to glucocorticoids, or with recurrent MAS.\65\ --------------------------------------------------------------------------- \65\ In 2018, FDA granted GAMIFANT[supreg] approval under a BLA application for the treatment of adult and pediatric (newborn and older) patients with primary HLH with refractory, recurrent, or progressive disease or intolerance with conventional therapy. --------------------------------------------------------------------------- In the proposed rule, we provided the following table containing an overview of the new technology add-on payment application for GAMIFANT[supreg] and CMS's preliminary assessment. For additional details provided by the applicant, please refer to the online application posting at https://mearis.cms.gov/public/publications/ntap/NTP250926GGG85. [GRAPHIC] [TIFF OMITTED] TR04AU26.100 ICD-10 Coding In the proposed rule, after review of the information provided by the applicant, we stated we believed the relevant ICD-10-CM diagnosis codes to identify the indication of the treatment of adult and pediatric (newborn and older) patients with HLH/MAS in known or suspected Still's disease, including sJIA, with an inadequate response or intolerance to glucocorticoids, or with recurrent MAS are: [[Page 49713]] [GRAPHIC] [TIFF OMITTED] TR04AU26.101 We invited public comments on the use of these ICD-10-CM diagnosis codes to identify this indication for purposes of the new technology add-on payment, if approved. We did not receive any comments on the relevant ICD-10-CM diagnosis codes to identify the indication of adult and pediatric (newborn and older) patients with HLH/MAS in known or suspected Still's disease, including sJIA, with an inadequate response or intolerance to glucocorticoids, or with recurrent MAS. As previously discussed, based on the information submitted by the applicant as part of its new technology add-on payment application, we believe the list of ICD-10-CM diagnosis codes in the previous table identify this indication for purposes of the new technology add-on payment. Newness Criterion In the proposed rule, regarding substantial similarity, we stated that based on the information available at the time of the proposed rule, we agreed with the applicant that GAMIFANT[supreg] has a new mechanism of action and treats a new type of disease or patient population compared to existing technology, because it is the only FDA- approved treatment for HLH/MAS in known or suspected Still's disease. We noted that the applicant did not provide an explanation for why GAMIFANT[supreg] would not map to the same MS-DRGs as other therapies for HLH/MAS in Still's disease. Therefore, based on information available at the time of the proposed rule, we stated our belief that GAMIFANT[supreg] is not substantially similar to existing technology and meets the newness criterion. We stated we consider the beginning of the newness period to commence on June 27, 2025, the date on which GAMIFANT[supreg] received FDA market authorization for this indication. We invited public comments on whether GAMIFANT[supreg] is substantially similar to existing technologies and whether GAMIFANT[supreg] meets the newness criterion. Comment: The applicant reiterated that GAMIFANT[supreg] meets the newness criterion and stated that the technology is not the same or substantially similar to any therapies that are currently used in the treatment of HLH/MAS in Still's disease, nor to any included in the 2024 100% Medicare Provider Analysis and Review (MedPAR) Limited Data Set. The applicant stated that it agrees with CMS's assessment that GAMIFANT[supreg] has a new mechanism of action and treats a new type of disease or patient population compared to existing technology, because it is the only FDA-approved treatment for HLH/MAS in known or suspected Still's disease. The applicant concurred with CMS that the beginning of the newness period should commence on June 27, 2025, the date on which GAMIFANT[supreg] received FDA marketing authorization for this indication. Response: We thank the applicant for its comment. Based on our review of the comment received and information submitted by the applicant as part of its FY 2027 new technology add-on payment application for GAMIFANT[supreg], we agree that GAMIFANT[supreg] has a new mechanism of action and treats a new type of disease or patient population compared to existing technology, because it is the only FDA- approved treatment for HLH/MAS in known or suspected Still's disease. Therefore, we agree that GAMIFANT[supreg] is not substantially similar to existing treatment options and meets the newness criterion. We consider the beginning of the newness period to commence on June 27, 2025, the date on which GAMIFANT[supreg] received FDA marketing authorization for the treatment of adult and pediatric patients with HLH/MAS in known or suspected Still's disease, including systemic sJIA, with an inadequate response or intolerance to glucocorticoids, or with recurrent MAS. Cost Criterion In the proposed rule, regarding the cost criterion, we stated we agreed with the applicant that the technology meets the cost criterion. We invited public comments on whether GAMIFANT[supreg] meets the cost criterion. Comment: The applicant agreed with CMS's assessment that GAMIFANT[supreg] meets the cost criterion. Response: We thank the applicant for its comment. We agree with the applicant that the technology meets the cost criterion. Substantial Clinical Improvement Criterion In the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19417), after review of the information provided by the applicant, we stated we had the following concerns regarding whether GAMIFANT[supreg] meets the substantial clinical improvement criterion. The applicant asserted GAMIFANT[supreg] offers a treatment option for a patient population unresponsive to, or ineligible for, currently available treatments since GAMIFANT[supreg] is the first and only FDA-approved treatment for HLH/MAS in known or suspected Still's disease with an inadequate [[Page 49714]] response or intolerance to glucocorticoids, or with recurrent MAS. However, we questioned whether GAMIFANT[supreg] offers a treatment option for patients unresponsive to, or ineligible for, currently available treatments, because several second- and third-line therapies, including cyclosporine, etoposide, anakinra, and intravenous immunoglobulin, can also treat patients with an inadequate response or intolerance to glucocorticoids or with recurrent MAS.66 67 68 69 --------------------------------------------------------------------------- \66\ Shakoory B, et al. The 2022 EULAR/ACR points to consider at the early stages of diagnosis and management of suspected haemophagocytic lymphohistiocytosis/macrophage activation syndrome (HLH/MAS). Ann Rheum Dis. 2023;82(10):1271-1285. \67\ Hines MR, et al. Consensus-based guidelines for the recognition, diagnosis, and management of hemophagocytic lymphohistiocytosis in critically ill children and adults. Crit Care Med. 2022;50(5):860-872. \68\ Baldo F, et al. Current treatment in MAS worldwide: a systematic literature review to inform the METAPHOR project. Rheumatology (Oxford). 2025, 64, 32-44. \69\ Minoia F, et al. Clinical features, treatment, and outcome of macrophage activation syndrome complicating systemic juvenile idiopathic arthritis, a multinational, multicenter study of 362 patients. Arthritis Rheumatol. 2014;81(2);112-117. --------------------------------------------------------------------------- Furthermore, we stated we were unable to assess the applicant's assertion that GAMIFANT[supreg] significantly improves clinical outcomes relative to other available services or technologies without a comparison of outcomes to other therapies for patients with an inadequate response or intolerance to glucocorticoids or with recurrent MAS. In addition, while the applicant stated that GAMIFANT[supreg] achieves substantially improved clinical outcomes with a clear and positive benefit:risk profile in treating HLH/MAS patients who had an inadequate response to glucocorticoids and that GAMIFANT[supreg] initiation results in a clinically meaningful reduction of glucocorticoid dosing and contributes to the positive benefit:risk profile for the treatment of patients with HLH/MAS, we questioned whether having a positive benefit:risk profile is a relevant outcome under Sec. 412.87(b)(1)(ii)(C) because it does not address how GAMIFANT[supreg] improves clinical outcomes relative to other therapies that may be used to treat HLH/MAS patients who had an inadequate response to glucocorticoids or with recurrent MAS. We also noted that to support its assertion regarding improved clinical outcomes, the applicant provided results from two clinical studies, NI-0501-06 and NI-0501-14. We stated that all patients in the studies responded inadequately to high-dose glucocorticoids prior to study treatment, and providers would typically initiate other second- and third-line therapies in this patient population. While the applicant claimed GAMIFANT[supreg] reduces glucocorticoid dosing, we noted it is unclear whether GAMIFANT[supreg] significantly reduces glucocorticoid dosing compared to other therapies that may be used in these patients. In addition, some therapies used for MAS in Still's disease such as anakinra and cyclosporine were allowed during these studies and could have affected the outcomes, and thus, we stated we were unclear how these studies support the assertion of improved outcomes relative to other available treatments. While the applicant claimed a positive benefit:risk profile for GAMIFANT[supreg], we stated that the submitted clinical information does not clearly explain how it was determined whether serious adverse events were related to GAMIFANT[supreg], nor does it provide sufficient detail on the reported serious adverse events. Specifically, we noted that while De Benedetti et al. (2023) states that there were 9 serious adverse events in NI-0501-06 and the long-term follow-up, which appear to include one cytomegalovirus reactivation, one SJIA flare, one edema of the ankle, one MAS episode, one cardiopulmonary failure, and one severe neutropenia, we noted it was unclear what the other three reactions were and which were related to GAMIFANT[supreg]. Grom et al. (2025) also stated there were 7 serious adverse events in NI-0501-14, but we noted it was unclear what these events were and which were related to GAMIFANT[supreg]. Furthermore, we noted we would appreciate more detail on the visual analogue scale (VAS) scoring system used in the clinical trials in order to fully assess the efficacy outcome data. We also noted that the long-term clinical trials included up to 12 months of follow-up, and we questioned if this is enough time to assess for MAS recurrence. After review of the information provided by the applicant, we stated we were unable to determine whether GAMIFANT[supreg] represents a substantial clinical improvement over existing technologies, and therefore, we proposed to disapprove new technology add-on payments for GAMIFANT[supreg] for FY 2027. We invited public comments on whether GAMIFANT[supreg] meets the substantial clinical improvement criterion and our proposal to disapprove FY 2027 new technology add-on payments for GAMIFANT[supreg]. Comment: A few commenters submitted comments in support of new technology add-on payment status for GAMIFANT[supreg]. Commenters highlighted the efficacy and safety outcomes in the clinical trials. They also stated that clinical experience reflects outcomes noted in the clinical trial and suggest that GAMIFANT[supreg] improves survival rates, reduces exposure to various other toxic medications (such as corticosteroids), and decreases the need for intensive care and the overall length of hospitalization. Some commenters also stated that, with approval of GAMIFANT[supreg], clinicians can provide high value, evidence-based care to patients with MAS/sHLH, and clinicians and hospitals can be adequately reimbursed without financial concerns. A commenter further stated that MAS is treated with high-dose glucocorticoids with satisfactory response in one-third of the patients, and for patients unresponsive to glucocorticoids, cyclosporin is usually added, while other approaches, including cyclophosphamide, etoposide, intravenous immunoglobulin, etanercept, anakinra, tocilizumab, JAK inhibitors and plasmapheresis, have been described in case reports or small series. According to the commenter, none of these regimens have been prospectively investigated, and these treatments lack selectivity and are very toxic. The commenter stated that, until the introduction of GAMIFANT[supreg], mortality rates for patients with MAS had been around 20 percent. Further, the commenter highlighted that GAMIFANT[supreg] is the first targeted, prospectively studied therapy for MAS and that the Phase 2-3 trials of GAMIFANT[supreg] in patients who have failed to respond to high-dose glucocorticoids demonstrated that interferon-[gamma] has a pathogenic role in MAS and that its targeted neutralization leads to MAS remission with a safety profile that is very reassuring. Another commenter stated that MAS/sHLH not uncommonly occurs as a complication of, and it is very often the presenting clinical manifestation of, Adult-onset Still's disease (AOSD). Further, the commenter expressed that depending upon the severity of disease at the time of admission, patients may respond to first line therapy with high dose corticosteroids and interleukin-1 targeted therapy such as anakinra, but a significant minority do not, often with fatal outcomes from progressive hyper-inflammation or significant complications from protracted dosing with corticosteroids required to adequately manage their disease. Further, the commenter stated that the [[Page 49715]] consistent improvements observed in the status of patients otherwise destined for fatal outcomes have rendered the availability of GAMIFANT transformative. The commenter stated that barriers to accessing GAMIFANT[supreg] are most notable for hospitalized Medicare beneficiaries, whereby it is the expectation that the treatment costs for GAMIFANT[supreg] be covered in the context of MS-DRG reimbursement. The commenter also highlighted that currently, the cost for GAMIFANT[supreg] significantly exceeds the MS-DRG payment for this condition, a consideration that it said gives hospitals pause for designating GAMIFANT[supreg] as a formulary drug. This commenter also shared a personal anecdote about treating a hospitalized Medicare beneficiary patient with MAS/sHLH and suspected AOSD who expired before providers could obtain patient access to GAMIFANT[supreg] due to this reimbursement dynamic. A commenter also stated that, while corticosteroids and other immunosuppressive therapies remain important components of care, these treatments can be associated with substantial side effects, particularly when administered at high doses or for extended periods. The commenter explained that patients and families often face difficult tradeoffs between controlling disease activity and managing treatment- related complications. The commenter stated that for rare diseases, such as HLH/MAS, therapeutic innovation is critically important, and the development of additional treatment options offers hope to patients and healthcare providers confronting complex and severe disease presentations. The commenter further added that expanding the availability of therapies that address unmet medical needs may help improve outcomes and provide clinicians with additional tools to manage these highly challenging conditions. The commenter also stated that mechanisms such as the new technology add-on payment play an important role in reducing financial barriers that may otherwise limit timely patient access to emerging treatment options during the critical periods of care. Response: We thank the commenters for their input and have taken it into consideration in determining whether GAMIFANT[supreg] meets the substantial clinical improvement criterion as discussed later in this section. We note that whether a technology receives new technology add- on payments or not does not affect coverage of the technology or the ability for hospitals to provide a technology to patients where appropriate. Even if a technology does not receive new technology add- on payments, CMS continues to pay for new technologies through the regular payment mechanism established by the DRG payment methodology (90 FR 36672). Comment: The applicant submitted a public comment regarding the substantial clinical improvement criterion and provided responses to CMS's concerns from the proposed rule. In response to CMS's question as to whether GAMIFANT[supreg] offers a treatment option for patients unresponsive to, or ineligible for, currently available treatments, the applicant stated that there has been a critical need for a targeted therapy that can halt the cytokine storm and control hyperinflammation in patients with HLH/MAS in Still's disease who have an inadequate response or intolerance to glucocorticoids, or with recurrent MAS. The applicant reiterated that GAMIFANT[supreg] is the first and only FDA-approved treatment for adult and pediatric (newborn and older) patients with HLH/MAS in known or suspected Still's disease, including sJIA, with an inadequate response or intolerance to glucocorticoids, or with recurrent MAS, and that it works by binding to soluble and receptor-bound forms of IFN[gamma], ultimately inhibiting macrophage activation and the downstream release of proinflammatory cytokines. The applicant also stated that data presented in support of GAMIFANT[supreg] confirm that treatment with GAMIFANT[supreg] reduces disease activity in patients with MAS associated with Still's disease, including sJIA, who have failed previous treatments, and is well- tolerated without the medication-related toxicities associated with conventional therapy. Specifically, the applicant highlighted that patients studied in the phase II/III clinical trials were refractory to HLH/MAS treatment. The applicant stated that 36 percent of patients had previous MAS episodes and stated that 100 percent of this patient population had previous treatment with glucocorticoids, including 80 percent who had previous treatment with anakinra, and in all, 77 percent of patients had failed additional (1 to 4) therapies for the index MAS episode before GAMIFANT[supreg] initiation, in addition to glucocorticoid therapy. The applicant stated that patients in the trial had been treated with prior medications that included glucocorticoids, intravenous immunoglobulins (IVIg), calcineurin inhibitors (CNIs) (including cyclosporine), and interleukin inhibitors (anakinra, tocilizumab, and canakinumab). The applicant further reiterated that none of these therapies, including etoposide and cyclosporine, which CMS referenced in the proposed rule, have been prospectively studied, nor are they approved for the treatment of HLH/MAS. The applicant explained that some of these products used off-label for MAS have contraindications and risks that make them challenging to use in this patient population. The applicant stated that etoposide is contraindicated in patients with severe myelosuppression and severe hepatic impairment, which are both commonly observed in MAS patients,\70\ and that cyclosporine poses a risk to patients with difficult cases of MAS. The applicant also stated that, to that end, during its 2025 Convergence conference, the American College of Rheumatology (ACR) announced updated guidelines for MAS/sJIA management wherein biological disease-modifying antirheumatic drugs (DMARDs), including emapalumab (GAMIFANT[supreg]), are recommended.\71\ The applicant restated its belief that GAMIFANT[supreg] provides a treatment option for patients with HLH/MAS who are not responsive to, or ineligible for, the off-label therapies which have been used in the absence of prospectively studied and FDA-approved therapies. --------------------------------------------------------------------------- \70\ Etoposide prescribing information. https://labeling.pfizer.com/ShowLabeling.aspx?id=15276. \71\ ACR Convergence 2025. Panelists explain ACR's expanding JIA guidelines. October 2025. https://www.acrconvergencetoday.org/panelists-explain-acrs-expanding-jia-guidelines/. --------------------------------------------------------------------------- In response to CMS's concern about being unable to assess the applicant's assertion that GAMIFANT[supreg] significantly improves clinical outcomes relative to other therapies for patients with an inadequate response or intolerance to glucocorticoids or with recurrent MAS, the applicant stated that the clinical evidence submitted reflects GAMIFANT[supreg]'s outcomes in patients who had, in many cases, exhausted other off-label treatment options, like cyclosporine and anakinra. The applicant explained that because randomized clinical trials are challenging, even unethical, in small populations with rare and fatal complications, the inclusion of patients with long MAS treatment courses in the phase II/III studies provides evidence similar to a crossover study design. The applicant further stated that the high percentage of study participants that had failed additional therapies were enrolled in the GAMIFANT[supreg] phase II/III studies by their physicians with the hope that patients would experience [[Page 49716]] substantial clinical improvement with GAMIFANT[supreg]. In response to CMS's concern that it is unclear whether GAMIFANT[supreg] significantly reduces glucocorticoid dosing compared to other therapies that may be used in these patients, the applicant stated that 77 percent of patients failed to reduce their glucocorticoid dose while taking other MAS therapies prior to enrolling in the clinical trial and starting GAMIFANT[supreg] therapy. The applicant added that GAMIFANT[supreg] quickly enabled glucocorticoids to be reduced by 70 percent and 92 percent at week 2 and week 8, respectively. The applicant stated that GAMIFANT[supreg] enabled patients to aggressively decrease their exposure to glucocorticoids while obtaining responses despite the significant reduction in glucocorticoids. In response to CMS's concern that some therapies used for MAS in Still's disease, such as anakinra and cyclosporine, were allowed during the two clinical studies (NI-0501-06 and NI-0501-14) and could have affected the outcomes, the applicant stated that canakinumab, JAK inhibitors, tumor necrosis factor (TNF)--a inhibitors, tocilizumab, etoposide, and anakinra at doses greater than 4 mg/kg/day at the time of GAMIFANT[supreg] initiation were excluded from the GAMIFANT[supreg] studies. The applicant cited Shakoory et al. (2023) and explained that, based on published expert opinion, doses of anakinra less than 4mg/kg/ day are not high enough to treat a MAS episode. The applicant explained that because GAMIFANT[supreg] does not treat or control the underlying Still's disease, it is important to maintain interleukin (IL)-1 inhibition to control the underlying Still's disease so that the patient does not experience a Still's flare. The applicant further stated that the NI-0501-06 study originally excluded all doses of anakinra, but the protocol was later amended to allow doses less than 4mg/kg/day because patients were having flares of their underlying Still's disease. Specifically, the applicant noted that six patients who either were not on anakinra or discontinued anakinra had Still's flares compared to zero flares seen in patients on dosages of anakinra less than 4mg/kg/day. The applicant also stated that cyclosporine could not be started after GAMIFANT[supreg] initiation but could be continued if started at least 3 days before initiating GAMIFANT[supreg]. The applicant explained that, despite anakinra and/or cyclosporine having an immunosuppressive effect, patients enrolled in this study presented with MAS, so these concomitant medications were not considered by investigators to confound the study outcomes. In response to CMS's question whether having a positive benefit:risk profile is a relevant outcome under Sec. 412.87(b)(1)(ii)(C) because it does not address how GAMIFANT[supreg] improves clinical outcomes relative to other therapies that may be used to treat HLH/MAS patients who had an inadequate response to glucocorticoids or with recurrent MAS, the applicant reiterated that the GAMIFANT[supreg] studies included a refractory patient population and restated various outcomes included in its application. In response to CMS's concern that the submitted clinical information does not clearly explain how it was determined whether serious adverse events were related to GAMIFANT[supreg], nor does it provide sufficient detail on the reported serious adverse events, the applicant stated that a total of 16 patients (41.0 percent) experienced 41 treatment-emergent adverse events (TEAEs) assessed by the investigator as related to GAMIFANT[supreg], with the most frequently reported TEAE being cytomegalovirus (CMV) infection reactivation (four patients [10.3 percent]). The applicant also stated that 13 patients (33.3 percent) experienced 24 serious TEAEs with the most frequently reported serious TEAEs being condition aggravation (three patients [7.7 percent]), pneumonia (two patients [5.1 percent]), and Still's disease (two patients [5.1 percent]) with all other serious TEAEs reported in one patient (2.6 percent) each. The applicant also stated that four patients (10.3 percent) experienced six serious TEAEs that were assessed by the investigator as related to GAMIFANT[supreg] treatment, which included one patient in Study NI-0501-06 (CMV infection reactivation) and three patients with five events in Study NI-0501-14 (CMV infection, pneumonia, pulmonary arterial hypertension, multiple organ dysfunction syndrome, and sepsis). In response to CMS's request for additional detail on the clinical trials' VAS scoring system to fully assess the efficacy outcome data, the applicant stated that for both GAMIFANT[supreg] studies, investigators were asked to assess MAS activity based on the clinical signs and symptoms of the patient using the 10-point VAS, where the MAS clinical activity VAS is reported in centimeters (cm) on a scale that ranges from 0 to 10 cm where higher values indicate greater MAS disease activity and lower values indicate clinical improvement/remission. The applicant explained that investigator-assessed MAS clinical activity VAS was considered to represent an absence of MAS clinical signs and symptoms at a score of less than or equal to 1/10 cm. The applicant reiterated the finding that the VAS activity score of less than or equal to 1/10 was achieved by 84.6 percent of GAMIFANT[supreg]-treated patients within a median of 3.3 weeks. In response to CMS's question whether a 12-month follow-up is enough time to assess MAS recurrence, the applicant stated that GAMIFANT[supreg] was studied to show efficacy and safety in resolving a MAS episode, either from an initial MAS episode or in a recurrent MAS episode in patients who have had multiple previous MAS events. The applicant added that GAMIFANT[supreg] was not studied in preventing MAS recurrence. The applicant also explained that in the clinical trials, 14 patients had previous MAS episodes, and in the 12 months prior to trial enrollment, those 14 patients experienced a total of 27 MAS events (range: 0 to 5 per patient). The applicant stated that after the administration of GAMIFANT[supreg], only one patient had a single MAS recurrence during first year of follow up or last visit. The applicant reiterated that GAMIFANT[supreg] is a monoclonal antibody that binds to and neutralizes IFN[gamma], provides a targeted approach to controlling the hyperinflammatory surge, minimizing off- target effects, and is the only prospectively studied and FDA-approved, IFN[gamma]-blocking antibody indicated for treatment of patients with MAS in Still's disease. The applicant stated that the pooled safety and efficacy results of two interventional studies demonstrate substantial clinical improvement for patients who were refractory to prior off- label treatments. The applicant further stated that GAMIFANT[supreg] addresses a critical unmet need with a novel agent that can induce remission of MAS in Still's disease and protect patients from detrimental effects of prolonged MAS episodes, high-dose and longer- term glucocorticoids, and multiple escalating lines of therapy. The applicant concluded that it demonstrated that GAMIFANT[supreg] meets the three criteria for new technology add-on payment and urged CMS to approve new technology add-on payments for GAMIFANT[supreg], effective October 1, 2026, to ensure access to GAMIFANT[supreg] treatment for Medicare beneficiaries with HLH/MAS. Response: We thank the applicant for its comments regarding the substantial clinical improvement criterion. After consideration of the additional information we received from the applicant and other commenters, and [[Page 49717]] the totality of the available evidence, we agree that GAMIFANT[supreg] provides a treatment option for patients who are unresponsive to, or ineligible for, currently available treatments. GAMIFANT[supreg] is the first and only FDA-approved treatment option for adult and pediatric (newborn and older) patients with HLH/MAS in known or suspected Still's disease, including sJIA, who have an inadequate response or intolerance to glucocorticoids, or recurrent MAS, with a study population that consisted of heavily pretreated and treatment-refractory patients, all of whom had previously received glucocorticoids, 80 percent of whom had previously received anakinra, and 77 percent of whom had failed one or more additional therapies before receiving GAMIFANT[supreg], and resulted in a complete response in 53.8 percent of patients and an overall response in 82.1 percent of patients before week 8 of treatment. After consideration of the public comments we received and the information included in the applicant's new technology add-on payment application, we have determined that GAMIFANT[supreg] meets the criteria for approval for new technology add-on payments. Therefore, we are approving GAMIFANT[supreg] for new technology add-on payments for FY 2027. Cases involving the use of GAMIFANT[supreg] that are eligible for new technology add-on payments will be identified by ICD-10-PCS code XW033MA (Introduction of emapalumab-izsg anti-IFNy monoclonal antibody into peripheral vein, percutaneous approach, new technology group 10) or XW043MA (Introduction of emapalumab-izsg anti-IFNy monoclonal antibody into central vein, percutaneous approach, new technology group 10) in combination with any of the ICD-10-CM codes listed in the following table: [GRAPHIC] [TIFF OMITTED] TR04AU26.102 In its application, the applicant estimated that the cost of GAMIFANT[supreg] is $1,035,010 per patient. According to the applicant, the mean duration of days of treatment with GAMIFANT[supreg] in the inpatient setting was 29 days with 10 infusions, including one loading dose [6 mg/kg] ($185,212) followed by 9 treatment doses [3 mg/kg every 3 days for 5 doses, then twice per week until remission] ($94,422 per dose). The applicant stated one treatment dose for an average adult patient weight of 84 kg is 252 mg, which corresponds to two 100 mg/20ml vials ($36,316 per vial), one 50 mg/10ml vial ($18,158 per vial), and one 10 mg/2ml vial ($3,632 per vial). Under Sec. 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS-DRG payment for the case. As a result, the maximum new technology add-on payment for a case involving the use of GAMIFANT[supreg] is $672,756.50 for FY 2027. d. RAPIBLYKTM (landiolol) AOP Health US LLC submitted a FY 2027 application for new technology add-on payments for RAPIBLYKTM. According to the applicant, RAPIBLYKTM is a beta-1 ([beta]1) adrenergic blocker that inhibits adrenaline and noradrenaline's effects on the heart for short-term reduction of ventricular rate in adults with supraventricular tachycardia (SVT), including atrial fibrillation (AF) and atrial flutter (AFL). RAPIBLYKTM is supplied as a 280 mg lyophilized powder in a single-dose vial (equivalent to 300 mg of landiolol HCl) and, following reconstitution, is administered as a continuous intravenous infusion titrated according to ventricular rate.\72\ The applicant stated that during an inpatient stay, the average patient requires five RAPIBLYKTM vials. --------------------------------------------------------------------------- \72\ AOP Orphan Pharmaceuticals. (2024, November). RAPIBLYK (landiolol) for injection, for intravenous use: highlights of prescribing information. https://www.accessdata.fda.gov/drugsatfda_docs/label/2024/217202s000lbl.pdf. --------------------------------------------------------------------------- In the proposed rule, we provided the following table containing an overview of the new technology add-on payment [[Page 49718]] application for RAPIBLYKTM and CMS's preliminary assessment. For additional details provided by the applicant, please refer to the online application posting at https://mearis.cms.gov/public/publications/ntap/NTP251006EVR3D. [GRAPHIC] [TIFF OMITTED] TR04AU26.103 Newness Criterion In the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19420 through 19421), regarding commercial availability, we noted that the applicant stated that, after its NDA approval on November 22, 2024, RAPIBLYKTM was not immediately for sale and became commercially available on July 21, 2025, because the applicant needed to work through a number of time-intensive steps to facilitate U.S. commercial launch, including establishing a new entity for U.S. operations, identifying and contracting with a third-party logistics vendor and distributor, and identifying and contracting with wholesalers and group purchasing organizations. We stated we were interested in additional information regarding the cause of the delay in commercial availability. Regarding substantial similarity, we stated in the proposed rule that we disagreed with the applicant that RAPIBLYKTM uses a different mechanism of action compared to existing heart rate control technologies. Per the applicant, RAPIBLYKTM directly blocks [beta]1-adrenergic receptors on cardiac myocytes preventing catecholamine-induced increases in heart rate and conduction velocity. According to the applicant, unlike traditional beta blockers that rely on hepatic metabolism, have 3- to 12-hour half-lives, and exhibit lower [beta]1/[beta]2 selectivity ratios, RAPIBLYKTM is rapidly hydrolyzed by tissue and plasma esterases, yielding an ultra-short half-life of approximately 3 to 4 minutes without requiring hepatic clearance, and demonstrates an exceptionally high [beta]1/[beta]2 selectivity ratio. We stated that while we recognize that RAPIBLYKTM is metabolized and cleared differently compared to other beta blockers, we do not believe that this constitutes a unique mechanism of action because RAPIBLYKTM, like other beta blockers, blocks [beta]1-adrenergic receptors, reducing sympathetic stimulation. Additionally, we stated we disagreed with the applicant that RAPIBLYKTM treats a new patient population or disease compared to existing technology because there are other beta blockers, such as esmolol, that are FDA-approved for the treatment of adults with SVT, including AF and AFL. According to the applicant, RAPIBLYKTM is uniquely suited to resolve acute AF in a patient population with impaired cardiac function and hemodynamic instability because it is designed to safely manage tachyarrhythmias in patients with hemodynamic instability and hypotension. However, we noted that other therapies, such as esmolol, can also be used to treat acute AF patients with impaired cardiac function. While the applicant stated that in RAPIBLYKTM's prescribing label, a dosing regimen is included for patients with impaired cardiac function, we noted that the absence of a dosing regimen for cardiac impairment in the prescribing label \73\ for esmolol does not preclude the use of this drug in this patient population. Furthermore, in regards to the applicant's claim that RAPIBLYKTM can be used in acute AF patients with hemodynamic instability, we noted that according to both prescribing labels, esmolol and RAPIBLYKTM have the same contraindications for use in patients with hemodynamic instability, including those with severe sinus bradycardia, heart block greater than first degree, sick sinus syndrome, decompensated heart failure, and cardiogenic shock. While the applicant made several statements related to RAPIBLYKTM's dosing regimen, safety profile, and suitability for cardiac impaired patients, we stated we believed this is relevant to the assessment of substantial clinical improvement, rather than of newness. We also noted that we did not receive evidence identifying a new patient population or type of disease which [[Page 49719]] RAPIBLYKTM treats that cannot be treated with existing technologies such as esmolol, amiodarone, or digoxin. --------------------------------------------------------------------------- \73\ WG Critical Care, LLC. (1986, December). Esmolol hydrochloride in water for injection, for intravenous use: highlights of prescribing information. https://www.accessdata.fda.gov/drugsatfda_docs/label/2024/205703s003lbl.pdf. --------------------------------------------------------------------------- Accordingly, we stated that as it appears that RAPIBLYKTM and esmolol may use the same or similar mechanism of action to achieve a therapeutic outcome, are assigned to the same MS-DRG, and treat the same or similar patient population and disease, that is, adult patients with SVT including AF and AFL, we believe that these technologies are substantially similar to each other. We noted that, per our policy, if technologies are substantially similar to each other, we use the earliest market availability date as the beginning of the newness period for the technologies. Accordingly, if we determine that RAPIBLYKTM is substantially similar to esmolol, we stated we believe the newness period for RAPIBLYKTM would begin on December 31, 1986, the date esmolol received FDA approval. Since esmolol has been on the U.S. market since 1986, the 3-year anniversary date of its entry onto the market occurred prior to FY 2027. Therefore, we stated that RAPIBLYKTM would not be considered new and would be ineligible for new technology add-on payments for FY 2027. We invited public comments on whether RAPIBLYKTM is substantially similar to existing technologies and whether RAPIBLYKTM meets the newness criterion. Comment: The applicant and a few commenters submitted public comments regarding the newness criterion for RAPIBLYKTM. The applicant asserted that RAPIBLYKTM satisfies the newness criterion because it meets the 2- to 3-year threshold for being new to the U.S. market under CMS regulations and is not substantially similar to any existing technology. In response to CMS's request for additional information regarding the cause of delay in commercial availability, the applicant stated that following FDA approval, it undertook a number of time-intensive steps to facilitate the commercial launch of RAPIBLYKTM in the U.S. The applicant explained that prior to FDA approval, it established a new, U.S.-based entity for operations by working with a U.S. consultancy for commercial readiness in August 2024 and that following FDA approval in November 2024, it began medical outreach and education to customers while building commercial infrastructure. The applicant added that since RAPIBLYKTM was their first product for AOP Health in the U.S., it took time to establish a U.S. presence following FDA approval. The applicant stated that it next identified and contracted with a third-party logistics vendor and distributor in March 2025 and that the first shipment of RAPIBLYKTM to this vendor occurred on May 20, 2025. The applicant additionally stated that it identified and contracted with wholesalers and group purchasing organizations between the months of July and October 2025. The applicant asserted that it undertook these essential steps as quickly and efficiently as possible following RAPIBLYKTM's FDA approval, and they could not have been completed prior to FDA approval. The applicant requested that, consistent with CMS policy, RAPIBLYKTM's newness period should begin on July 21, 2025, the date of its commercial availability. In regards to substantial similarity, the applicant stated that RAPIBLYKTM is not substantially similar to any existing technology while noting that the substantially similar test for newness is set forth only in rulemaking preamble language and is not codified in statute or regulations. The applicant further stated that CMS had declined to adopt rigid criteria to define substantial similarity because such criteria would restrict unduly the Agency's ability to make appropriate determinations regarding whether a product should qualify for new technology add-on payments. The applicant agreed with avoiding rigid criteria, particularly given the broad statutory and regulatory language related to newness for new technology add-on payment purposes, and recommended that CMS apply the newness criterion consistently with the text and underlying purpose of the new technology add-on payment statute and regulations, which are intended to support timely access to innovative new therapies for Medicare beneficiaries during the period before costs are recognized in MS-DRG weights. The applicant asserted that RAPIBLYKTM meets newness standards and is not substantially similar to existing technology because it does not have the same or similar mechanism of action compared to existing technology to achieve a therapeutic outcome, and RAPIBLYKTM usage does not involve treatment of the same or similar type of patient population when compared to an existing technology. Specifically, the applicant stated that RAPIBLYKTM's unique mechanism of action results from key characteristics that lead to the distinct way RAPIBLYKTM is processed by and produces an effect in the body, and, as such, how it achieves a therapeutic outcome. The applicant suggested that the mechanism of action includes not only blocking of [beta]1-adrenergic receptors but also the receptor target, the molecular structure, [beta]1 receptor interaction, how it is metabolized, its effect duration, length of time in the body, and how these combine to be meaningfully distinct from other available control agents. The applicant added that three characteristics distinguish RAPIBLYKTM from other heart rate control agents: (1) a unique molecular structure resulting in distinct [beta]1 super- selectivity and limited negative inotropic effect, unlike other agents including beta blockers like esmolol and metoprolol; (2) distinct plasma esterase-based metabolism reflecting a unique way of being processed by the body compared to previously available heart rate control agents that are metabolized through hepatic and renal pathways; and (3) a uniquely short half-life, producing a distinctly short duration of effect allowing rapid on/rapid off rate control in acute care settings. The applicant and a commenter stated that RAPIBLYKTM's unique molecular structure as a pure S,S-enantiomer directly affects how the body metabolizes and processes it. The applicant and a commenter explained that its molecular structure is responsible for its ultra-high cardio-selective activity and allows for rapid heart rate reduction without compromising mean arterial blood pressure, eliminating the negative impact of cardiac output seen with esmolol. According to the applicant, RAPIBLYKTM has a [beta]1 to [beta]2 ratio of 255:1, making it about 7.7 and 100 times more [beta]1- selective than esmolol and metoprolol, respectively. The applicant stated that RAPIBLYKTM's ultra-high [beta]1 selectivity minimizes off-target effects on [beta]2 receptors, thereby reducing bronchoconstriction and peripheral vasoconstriction risks and providing effective heart rate control with minimal effects on bronchial tone or blood pressure. The applicant and a commenter added that RAPIBLYKTM has only limited inotropic effects, unlike esmolol, which they stated is a racemic R- and S-enantiomeric structure and confers negative inotropic effects that weaken heart muscle contraction, dilate blood vessels, and can lead to heart failure symptoms, particularly for vulnerable patients in intensive care and acute settings where quick titration and reversal are important. The applicant further stated that RAPIBLYKTM is characterized by rapid metabolism via plasma esterases (pseudocholinesterases and carboxylesterases), resulting in a short elimination half-life of approximately 4 [[Page 49720]] minutes and a low distribution volume. The applicant explained that RAPIBLYKTM's metabolism by plasma esterases yields the active metabolite M1, which has approximately 1/40th of the pharmacological activity of esmolol. The applicant added that RAPIBLYKTM is processed in a manner distinct from esmolol such that the drugs differ in metabolites, with esmolol yielding the toxic metabolite methanol. The applicant stated that RAPIBLYKTM's esterase-based metabolism pathway avoids liver- and kidney-reliant metabolism, fundamentally differentiating it from metoprolol (hepatic metabolism), amiodarone (extensive hepatic metabolism), and digoxin (renal elimination). The applicant added that, as a result of RAPIBLYKTM's esterase-based metabolism, no specific dose adjustment is needed for patients with renal impairment, in direct contrast to metoprolol and digoxin. Additionally, the applicant stated that the metabolism of RAPIBLYKTM minimizes the potential for drug accumulation and dose-dependent adverse events, particularly among patients with renal impairment. The applicant cited a pharmacokinetic study that evaluated RAPIBLYKTM in adult patients with septic shock and persistent tachycardia and demonstrated that dialysis exerts minimal influence on RAPIBLYKTM clearance while substantially eliminating M1. According to the applicant, this finding aligns with current renal impairment dosing recommendations and supports no dose adjustments are required during renal replacement therapy with RAPIBLYKTM, unlike a number of previously available agents used for heart rate control. The applicant stated that RAPIBLYKTM's uniquely short half-life produces a distinctly short effect duration with a half-life of approximately 4 to 4.5 minutes, allowing unprecedented rapid on/ rapid off rate control in acute care settings. The applicant explained that this pharmacokinetic profile contributes to RAPIBLYKTM's distinct suitability for precise titration and rapid effect cessation, as the ultra-short half-life allows titration that is impossible with other alternatives. Additionally, the applicant stated that RAPIBLYKTM's half-life is approximately half that of esmolol's approximately 9-minute half-life and is exponentially shorter than the half-life of metoprolol (3 to 7 hours), digoxin (36 to 44 hours), or amiodarone (20 to 47 days). The applicant asserted that this key characteristic of RAPIBLYKTM's processing and effects in the body enables real-time titration and rapid reversal if a patient's hemodynamic status changes. The applicant concluded that no previously available intravenous rate control agent, including but not limited to esmolol, is processed by and produces an effect in the body in the same way as RAPIBLYKTM, giving it a unique mechanism of action. In addition, the applicant compared RAPIBLYKTM to other acute rate-control therapies, noting its distinction from not only esmolol but also metoprolol, diltiazem, amiodarone, and digoxin. The applicant stated that antiarrhythmic agents are generally divided into four classes and that RAPIBLYKTM is a Class II medication that directly blocks [beta]-adrenergic receptors on cardiac myocytes, preventing catecholamine-induced increases in heart rate and conduction velocity. The applicant stated that this receptor-level blockade results in immediate negative chronotropic effects that are independent of parasympathetic pathways, allowing RAPIBLYKTM to rapidly reduce heart rate even during heightened sympathetic activity, such as in acute stress or perioperative settings. The applicant cited a recent Cardiology in Review article that focuses on RAPIBLYKTM's pharmacology, pharmacokinetics, and pharmacodynamics and stated that the analysis underscores its unique attributes compared to conventional beta blockers, particularly esmolol. The applicant highlighted that the study's authors state that although RAPIBLYKTM and esmolol are both short-acting and cardioselective [beta]1-adrenoceptor-blocking agents, the two drugs possess distinct characteristics and that RAPIBLYKTM's distinctive pharmacokinetics and pharmacodynamics, including its short half-life, high cardioselectivity, and limited impact on blood pressure, differentiate it from other beta blockers. The applicant stated that although certain previously available agents may share some aspects of RAPIBLYKTM's mechanism of action, no previously existing agent shares all aspects of RAPIBLYKTM's mechanism of action and included a table comparing treatments' differences in therapeutic class, rapid action onset (<20 minutes), half-life, negative inotropic effect, incidence of hypotension, metabolization issues, drug interactions, acute renal failure warnings, and use in cardiac dysfunction. The applicant concluded that RAPIBLYKTM has a unique mechanism of action because it combines specific features of an ultra-short half-life, extreme [beta]1 selectivity, limited negative inotropy, esterase-based metabolism, low interaction burden, and suitability in cardiac dysfunction, which no other agents have. The applicant further asserted that CMS has recognized on multiple occasions that being the first FDA-approved therapy for a particular indication or particular patient population demonstrates a unique mechanism of action and satisfies the new technology add-on payment newness criterion in previous final rules. In regard to whether RAPIBLYKTM treats a same or similar patient population or disease when compared to an existing technology, the applicant stated that RAPIBLYKTM offers a new antiarrhythmic treatment option for certain patients with cardiac impairment and hypotension or risk of hypotension, where previously available beta blockers have not been recommended due to negative effects on hypotension and cardiac function (left ventricular ejection fraction less than 40 percent). The applicant stated that with RAPIBLYKTM's availability, previously available beta blockers and other alternatives are no longer an appropriate treatment option for a vulnerable patient sub-population due to their significant adverse event risks and poor outcomes. The applicant stated that RAPIBLYKTM is the only beta blocker with specific, FDA- approved administration instructions for patients with impaired cardiac function. The applicant stated that these instructions, which FDA included in the technology's labeling based on the published, peer- reviewed studies submitted with RAPIBLYKTM's New Drug Application, provide compelling evidence of safety specifically in this vulnerable patient population. The applicant further asserted that this makes RAPIBLYKTM distinct from all previously existing agents used for short-term ventricular rate reduction in patients with SVTs. The applicant added that it revised RAPIBLYKTM's FDA- approved labeling in February 2026 to add a specific indication for the short-term reduction of ventricular rate in pediatric patients with SVT, making RAPIBLYKTM the first and only FDA-approved intravenous beta blocker for treatment of acute-onset SVTs in pediatric patients (from birth to less than 18 years of age). The applicant stated that this should be sufficient in demonstrating that RAPIBLYKTM treats a new patient population or disease compared to existing technology. The applicant and a few commenters also stated that RAPIBLYKTM is uniquely suited to resolve acute AF in [[Page 49721]] a patient population with impaired cardiac function and hypotension or risk of hypotension. According to the applicant, CMS stated in the proposed rule that other therapies, such as esmolol, can also be used to treat acute AF patients with impaired cardiac function and further stated that the absence of a dosing regimen for cardiac impairment in the prescribing label for esmolol does not preclude the use of this drug in this patient population. However, the applicant commented that while a therapy could be used to treat acute AF patients with impaired cardiac function even if the FDA-approved labeling does not include a specific dosing regimen for such patients, it remains the case that there is a sub-population for whom treatment with esmolol, or other previously existing rate control agents, presents significantly heightened clinical risks due to a combination of impaired cardiac function and additional comorbidities, such as hypotension or risk of hypotension or renal impairment. According to the applicant, RAPIBLYKTM addresses an unmet clinical need for these patients and provides a new option for effective rate control with markedly reduced risks of serious adverse events. The applicant and a few commenters, who are healthcare professionals, explained that as healthcare professionals seek to navigate complex conditions for vulnerable patients in acute and critical care settings, the clinical reality is that, for at least some patients with impaired cardiac function and other comorbidities like heart failure, hypotension or risk of hypotension, treatment with esmolol or another previously existing rate control agent may not be tolerable or clinically appropriate, especially now that RAPIBLYKTM is available, with a few commenters noting that RAPIBLYKTM was added to their hospital system's formulary. The applicant and a few commenters stated that, therefore, RAPIBLYKTM provides an option for patients who cannot tolerate or be safely treated by esmolol or other rate control agents, including those with hypotension, worsening heart failure, adverse inotropic effects, renal accumulation, and organ toxicity, and as such, RAPIBLYKTM involves treatment of a different patient population as compared to previously existing technologies. A commenter also stated that although the warnings, precautions, and contraindications on formal labeling may be similar for some of these rate control agents, they differ in fundamentally critical respects from a clinical perspective, and clinical realities create a subpopulation of patients who are not well served by previously existing rate control agents and for whom RAPIBLYKTM addresses an important unmet need. The applicant also directly compared RAPIBLYKTM's molecular features, outcomes, and adverse effects to those of esmolol, metoprolol, diltiazem, amiodarone, and digoxin in acute AF patients with impaired cardiac function and hypotension or risk of hypotension, and, for digoxin, in pediatric patients with SVT. Additionally, the applicant cited newly published evidence that shows RAPIBLYKTM's clinical use in patients who received and did not respond to other antiarrhythmic agents, including those with hemodynamic instability and cardiogenic shock, across the full Society for Cardiovascular Angiography and Interventions Shock Classification spectrum. The applicant concluded that the availability of alternative treatments does not preclude a finding that RAPIBLYKTM uniquely serves a distinct patient population and that the fact esmolol, other beta blockers, or heart rate control agents can be administered to patients with reduced ejection fractions or other comorbidities does not mean those agents are clinically appropriate, safe, or guideline-recommended for all patients or for the distinct population that RAPIBLYKTM serves. Response: We appreciate the additional information from the applicant and commenters with respect to whether RAPIBLYKTM is substantially similar to existing technologies. However, we disagree with the applicant and commenters that RAPIBLYKTM has a different mechanism of action and treats a different disease and patient population. With respect to our flexibility to define substantial similarity, we note that, as discussed in prior rulemaking, and as set forth in the FY 2010 IPPS final rule (74 FR 43813 through 43814), our long- established policy is to consider (1) whether a product uses the same or a similar mechanism of action to achieve a therapeutic outcome, (2) whether a product is assigned to the same or a different DRG, and (3) whether the new use of the technology involves the treatment of the same or similar type of disease and the same or similar patient population to determine whether a new technology is substantially similar to one or more existing technologies. We agree with the applicant that we should apply these criteria consistently with the text and underlying purpose of the new technology add-on payment statute and regulations, as reflected in our assessment of RAPIBLYKTM. With respect to whether a technology uses the same or similar mechanism of action to achieve a therapeutic outcome, we continue to disagree that RAPIBLYKTM has a unique mechanism of action compared to existing rate control technologies. While the applicant and commenters asserted that RAPIBLYKTM has a new mechanism of action due to a variety of reasons including its molecular structure, plasma esterase-based metabolism, short half-life and low distribution volume, and pharmacokinetic/pharmacodynamic profile, we disagree that these represent the mechanism of action by which RAPIBLYKTM achieves its therapeutic effect of reducing sympathetic stimulation and ventricular rate. Further, while commenters stated these differences lead to super-selectivity and limited negative inotropic effects for RAPIBLYKTM compared to other beta blockers, and that these attributes may reduce complications or side effects, we note that these relate to an assessment of substantial clinical improvement rather than to differentiating its mechanism of action. Similarly, we acknowledge the applicant's assertions that RAPIBLYKTM is differentiated from other rate control agents by its receptor target, [beta]1 receptor interaction, metabolism, duration of effect, length of presence, and how these characteristics combine. However, as similarly described in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45000), we do not believe these differences constitute a different mechanism of action because, as discussed previously, RAPIBLYKTM achieves the same therapeutic effect by blocking [beta]1-adrenergic receptors to reduce sympathetic stimulation and ventricular rate as other existing beta blockers, such as esmolol. With respect to whether a technology treats the same or similar type of disease and patient populations, we continue to disagree that the evidence provided demonstrates that RAPIBLYKTM treats a different type of disease or patient population compared to existing rate control therapies. Although the applicant asserted that RAPIBLYKTM has FDA-approved administration instructions for patients with impaired cardiac function, we do not believe this establishes that RAPIBLYKTM treats a different disease or patient population than existing technologies used for rate control in SVT, including AF or AFL. Specifically, we note that RAPIBLYKTM's FDA label includes the warning about the risk of hypotension, bradycardia, and cardiac failure. Therefore, it seems that the factors the [[Page 49722]] applicant described relate to treatment preferences and logistical considerations within the same patient population (adults with SVT, including AF and AFL) rather than identifying a different patient population. Similarly, while commenters stated that RAPIBLYKTM may be particularly useful in adult patients with impaired cardiac function, hypotension or risk of hypotension, renal impairment, or other comorbidities for whom other beta blockers are not clinically recommended due to adverse event risks and poor outcomes, we do not believe these factors identify a different disease or meaningfully different patient population for purposes of the substantial similarity analysis. Rather, these represent clinical practice considerations, treatment tolerance and preferences, dosing considerations, or potential clinical improvement within the same or similar patient population, who may also be treated by esmolol, rather than distinct patient populations. The applicant also cited evidence regarding RAPIBLYKTM's safety and tolerability in certain high-risk patients compared to existing beta blockers. However, we believe that while these differences may lead to improved clinical outcomes, they do not identify treatment of a new disease or patient population when compared to an existing technology. In addition, we acknowledge the applicant's comment regarding RAPIBLYKTM's February 2026 FDA approval for the short-term reduction of ventricular rate in pediatric patients with SVT, which is stated makes RAPIBLYKTM the first and only FDA-approved intravenous beta blocker for the treatment of acute onset SVTs in pediatric patients. However, RAPIBLYKTM's new technology add-on payment application included only the FDA indication for short- term reduction of ventricular rate in adult patients with SVT, including AF and AFL, and as such, only the adult indication is eligible for consideration for FY 2027 new technology add-on payment. We also note that many of the comments and cited studies regarding RAPIBLYKTM's real-world evidence, as well as comparisons with esmolol, metoprolol, amiodarone, diltiazem, or digoxin, relate to whether RAPIBLYKTM may improve clinical outcomes relative to existing rate control technologies. However, as discussed previously, these issues relate to an assessment of substantial clinical improvement, rather than to whether RAPIBLYKTM is substantially similar to existing technologies for purposes of the newness criterion. After review of the information provided in the comments, we continue to disagree that RAPIBLYKTM uses a new mechanism of action and treats a new patient population or disease compared to previously available technologies. Specifically, we believe RAPIBLYKTM and esmolol use the same mechanism of action to achieve a therapeutic outcome: [beta]1-adrenergic receptors blocker on cardiac myocytes, which results in the reduction of sympathetic stimulation and ventricular rate to treat adults with SVT, including AF and AFL. We also believe RAPIBLYKTM treats the same or similar patient population and disease as esmolol, which is also used to treat adults with SVT, including AF and AFL. Because we agree with the applicant that RAPIBLYKTM will be assigned to the same MS-DRG as previously available technologies, RAPIBLYKTM meets all three of the substantial similarity criteria. Therefore, we believe RAPIBLYKTM is substantially similar to esmolol. While we acknowledge the applicant's comments about the delay in commercial availability, in accordance with our policy, because RAPIBLYKTM is substantially similar to esmolol, we consider the beginning of the newness period for RAPIBLYKTM to begin on the date that esmolol became commercially available. Because esmolol has been on the U.S. market since December 31, 1986, the 3-year anniversary of its entry onto the market occurred prior to FY 2027, and therefore, RAPIBLYKTM does not meet the newness criterion and is not eligible for new technology add-on payments for FY 2027. We note that we received public comments with regard to the cost and substantial clinical improvement criteria for this technology, but because we have determined that the technology does not meet the newness criterion and therefore is not eligible for approval for new technology add-on payments for FY 2027, we are not summarizing comments received or making a determination on those criteria in this final rule. e. WASKYRATM (etuvetidigene autotemcel) Fondazione Telethon submitted an FY 2027 application for new technology add-on payments for WASKYRATM. According to the applicant, WASKYRATM is a one-time, cell-based autologous gene therapy indicated for the treatment of pediatric patients 6 months and older and adults with Wiskott-Aldrich Syndrome (WAS) who have a mutation in the WAS gene for whom hematopoietic stem cell transplantation (HCT) is appropriate and no suitable human leukocyte antigen (HLA)-matched related stem cell donor is available. Per the applicant, following reduced-intensity conditioning, WASKYRATM is administered intravenously as a single autologous infusion of gene-corrected cluster of differentiation (CD)34+ hematopoietic stem and progenitor cells (HSPCs), with a minimum recommended dose of 7.0x10\6\ CD34+ cells/kg, individualized by patient weight and leukapheresis yield. In the proposed rule, we provided the following table containing an overview of the new technology add-on payment application for WASKYRATM and CMS's preliminary assessment. For additional details provided by the applicant, please refer to the online application posting at https://mearis.cms.gov/public/publications/ntap/NTP2510033XJPK. [[Page 49723]] [GRAPHIC] [TIFF OMITTED] TR04AU26.104 Newness Criterion In the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19424), we noted that the applicant stated that the technology would not be commercially available until March 31, 2026, due to the applicant's need to establish commercial infrastructure, finalize import logistics, and plan for U.S. market compliance. We stated we were interested in additional information regarding when the technology first became available for sale and the cause of any delay in the technology's commercial availability, such as additional details regarding the establishment of commercial infrastructure. Regarding substantial similarity, we stated that the applicant asserted that WASKYRATM treats a new disease and/or a new patient population because it is a curative treatment designed for patients lacking a suitable HCT donor and noted that HCT is limited by donor availability, age, and risk of graft failure or graft-versus-host disease. However, based on information available at the time of the proposed rule, we stated we disagreed with the applicant that WASKYRATM treats a new disease or new patient population because there are several other therapies FDA-approved for WAS in patients that cannot receive a HCT, such as ALYGLOTM and ASCENIVTM, which are indicated for treatment of primary humoral immunodeficiency in patients with WAS, and corticosteroids indicated for eczema. We noted that the applicant did not assert that WASKYRATM has a new mechanism of action compared to existing treatments for WAS or that it changes the MS-DRG assignment. Therefore, based on information available at the time of the proposed rule, we stated we were unclear whether WASKYRATM is substantially similar to existing treatments. We invited public comments on whether WASKYRATM is substantially similar to existing technologies and whether WASKYRATM meets the newness criterion. We did not receive any public comments on whether WASKYRATM meets the newness criterion. We continue to remain unclear as summarized in the proposed rule as to whether WASKYRATM is substantially similar to other products that are currently available on the U.S. market. Despite the information the applicant previously submitted with its application describing WASKYRATM as a curative treatment designed for patients ineligible for HCT, we disagree that WASKYRATM treats a new disease or new patient population because there are other therapies indicated for patients with WAS who are not eligible for HCT. In addition, as noted, the applicant did not assert that WASKYRATM has a new mechanism of action compared to existing treatments for WAS or that it changes the MS-DRG assignment. Therefore, we are unable to determine that WASKYRATM meets the newness criterion. Cost Criterion Regarding the cost criterion, we stated we agreed with the applicant that the technology meets the cost criterion. We invited public comments on whether WASKYRATM meets the cost criterion. We did not receive any comments on whether WASKYRATM meets the cost criterion. Based on the information submitted by the applicant as part of its FY 2027 new technology add-on payment application, the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount. Therefore, WASKYRATM meets the cost criterion. Substantial Clinical Improvement Criterion In the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19425), after review of the information provided by the applicant, we stated we had the following concerns regarding whether WASKYRATM meets the substantial clinical improvement criterion. We noted that the applicant did not provide [[Page 49724]] any evidence to support its claims, as further discussed in this section, as to why the technology represents a substantial clinical improvement over existing technologies. We stated we were unable to evaluate substantial clinical improvement in the absence of supporting evidence. Furthermore, with respect to the applicant's claims, we noted that the applicant asserted that WASKYRATM offers a treatment option for a patient population unresponsive to, or ineligible for, currently available treatments because it provides a treatment option for WAS patients without HLA-identical related donors. However, we noted that this claim does not explain why these patients would be ineligible for HCT with an HLA-matched unrelated donor. In addition, while the applicant claimed that WASKYRATM reduces WAS disease burden, offers a safer disease-modifying option for patients eligible for HCT, demonstrates sustained engraftment of gene-corrected cells and long-term clinical benefit, and directly addresses the genetic defect underlying WAS through lentiviral gene transfer, we stated that these claims do not identify a patient population that is unresponsive to, or ineligible for, currently available supportive care treatments and HCT. We further noted that the applicant asserted that WASKYRATM significantly improves clinical outcomes relative to services or technologies previously available but did not identify specific outcomes. For example, the applicant claimed that WASKYRATM offers a safer option for WAS patients compared to HCT, but did not describe a clinical outcome, such as a reduction in at least one clinically significant adverse event as provided by Sec. 412.87(b)(1)(ii)(C)(1). Also, as previously noted, the applicant did not provide evidence to support any of its claims and therefore we stated we were unable to evaluate whether WASKYRATM represents a substantial clinical improvement over existing technologies. After review of the information provided by the applicant, we stated we were unable to determine that WASKYRATM represents a substantial clinical improvement over existing technologies, and therefore, we proposed to disapprove new technology add-on payments for WASKYRATM for FY 2027. We invited public comments on whether WASKYRATM meets the substantial clinical improvement criterion and our proposal to disapprove new technology add-on payments for WASKYRATM for FY 2027. Comment: A commenter encouraged CMS to assign new technology add-on payment status for WASKYRATM and stated that doing so will remove a potential barrier to patients accessing innovative treatments and tools advancing a personalized medicine approach to care. Response: We thank the commenter for their comment. We did not receive any public comments addressing the concerns we indicated in the proposed rule regarding whether WASKYRATM meets the substantial clinical improvement criterion. Accordingly, after consideration of the public comment we received, we are unable to determine that WASKYRATM represents a substantial clinical improvement over existing technologies. Based on the information submitted by the applicant as part of its FY 2027 new technology add-on payment application and the public comment we received for WASKYRATM, we are unable to determine that WASKYRATM meets the newness criterion and represents a substantial clinical improvement over existing technologies for the reasons discussed in the proposed rule and in this final rule. Therefore, we are not approving new technology add-on payments for WASKYRATM for FY 2027. f. YARTEMLEA[supreg] (narsoplimab-wuug) Omeros Corporation submitted an FY 2027 application for new technology add-on payments for YARTEMLEA[supreg] (narsoplimab-wuug). According to the applicant, YARTEMLEA[supreg] is a fully human monoclonal antibody designed to treat and alleviate the detrimental consequences of hematopoietic stem cell transplant-associated thrombotic microangiopathy (TA-TMA) by targeting and inhibiting mannan- binding lectin-associated serine protease 2 (MASP-2), an effector enzyme that activates the lectin pathway of the complement system. YARTEMLEA[supreg] is administered as a 30-minute intravenous infusion once weekly, and the recommended dose is 370 mg for patients greater than or equal to 50 kg and is 4 mg/kg for patients weighing less than 50 kg. The applicant estimated that patients receive an average total dosage of 4,218 mg per inpatient stay. We noted in the FY 2027 IPPS/ LTCH PPS proposed rule (91 FR 19425) that the applicant submitted an application for new technology add-on payments for this technology for FY 2022 (86 FR 25282 through 25286; 86 FR 44979) and FY 2023 (87 FR 28274 through 28279; 87 FR 48920). In the proposed rule, we provided the following table containing an overview of the new technology add-on payment application for YARTEMLEA[supreg] and CMS's preliminary assessment. For additional details provided by the applicant, please refer to the online application posting at https://mearis.cms.gov/public/publications/ntap/NTP251006R7LMC. [[Page 49725]] [GRAPHIC] [TIFF OMITTED] TR04AU26.105 Newness Criterion In the proposed rule, regarding substantial similarity, based on the information available at the time of the proposed rule, we stated we agreed with the applicant that YARTEMLEA[supreg] has a new mechanism of action and treats a new type of disease or patient population compared to existing technology, because YARTEMLEA[supreg] is the only FDA-approved therapy indicated for the treatment of adult and pediatric patients 2 years of age and older with hematopoietic stem cell TA-TMA. We noted that we disagreed with the applicant that YARTEMLEA[supreg] is assigned to a different MS-DRG compared to existing technology because patients diagnosed with TA-TMA, including those treated with YARTEMLEA[supreg], map to MS-DRGs 545-547. Therefore, based on information available at the time of the proposed rule, we stated our belief that YARTEMLEA[supreg] is not substantially similar to existing technology and meets the newness criterion. We stated that we consider the beginning of the newness period to commence on December 23, 2025, the date on which YARTEMLEA[supreg] received FDA market authorization for this indication. We invited public comments on whether YARTEMLEA[supreg] is substantially similar to existing technologies and whether YARTEMLEA[supreg] meets the newness criterion. Comment: The applicant submitted a public comment asserting that YARTEMLEA[supreg] satisfies the newness criterion. The applicant stated its agreement with CMS that YARTEMLEA[supreg] has a novel mechanism of action as the only approved therapy for TA-TMA and treats a new type of disease or patient compared to existing technologies. Response: We thank the applicant for its comment. Based on our review of the comment received and information submitted by the applicant as part of its FY 2027 new technology add-on payment application for YARTEMLEA[supreg], we agree that YARTEMLEA[supreg] has a new mechanism of action and treats a new type of disease or patient population compared to existing technology because YARTEMLEA[supreg] is the only FDA-approved therapy indicated for the treatment of adult and pediatric patients 2 years of age and older with hematopoietic stem cell TA-TMA. Therefore, we agree that YARTEMLEA[supreg] is not substantially similar to existing treatment options and meets the newness criterion. We consider the beginning of the newness period to commence on December 23, 2025, the date on which YARTEMLEA[supreg] received FDA market authorization for this indication. Cost Criterion Regarding the cost criterion, we stated we agreed with the applicant that the technology meets the cost criterion. We invited public comments on whether YARTEMLEA[supreg] meets the cost criterion. Comment: The applicant stated it agreed with CMS that YARTEMLEA[supreg] meets the cost criterion and requested that CMS calculate the maximum new technology add-on payment based on the cost of 12 vials per Medicare inpatient stay. The applicant noted that the average total dosage of YARTEMLEA[supreg] per inpatient stay is 4,218 mg, as stated in the proposed rule. Further, the applicant stated that because YARTEMLEA[supreg] is supplied in single-dose 370 mg/2 mL vials, this average dosage requires 11.4 vials, which must be rounded up to 12 vials per inpatient stay. The applicant commented that this approach reflects the clinical and operational realities of inpatient administration, because hospitals must acquire and use whole single- dose vials and cannot acquire or administer fractional vials. According to the applicant, at a wholesale acquisition cost of $36,805 per vial, 12 vials result in an estimated average drug cost of $441,660 per Medicare inpatient stay. The applicant stated that applying 65 percent yields a maximum new technology add-on payment of $287,079, which it recommended CMS establish for YARTEMLEA[supreg] in the final rule. Response: We thank the applicant for its comment. We agree with the applicant that YARTEMLEA[supreg] meets the cost criterion, and we have taken this comment into consideration in calculation of the new technology add-on payment, as discussed later in this section. Substantial Clinical Improvement Criterion In the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19426), after review of the information provided by the applicant, we stated we agreed with the applicant that YARTEMLEA[supreg] is the first and only FDA-approved treatment option for patients who develop TA-TMA and offers a treatment option for patients who have failed prior treatment with other available therapies including C5 inhibitors and other TA-TMA [[Page 49726]] directed therapies with a one-year overall survival (OS) of 42.7 percent (95% CI: 19.7, 65.8) in adult patients.\74\ Therefore, we stated we agreed that YARTEMLEA[supreg] would offer a treatment option for a patient population unresponsive to, or ineligible for, currently available treatments. Based on the information available at the time of the proposed rule, because YARTEMLEA[supreg] appears to meet the criteria for approval for new technology add-on payments, we proposed to approve YARTEMLEA[supreg] for new technology add-on payments for FY 2027. --------------------------------------------------------------------------- \74\ Schoettler ML, Pusarla SK, Nangia N, et al. Narsoplimab Results in Excellent Survival in Adults and Children With Hematopoietic Cell Transplant Associated Thrombotic Microangiopathy (TA-TMA). Am J Hematol. 2025d Aug 29. https://doi.org/10.1002/ajh.70044. Epub ahead of print. --------------------------------------------------------------------------- We invited public comments on whether YARTEMLEA[supreg] meets the substantial clinical improvement criterion and on our proposal to approve YARTEMLEA[supreg] for new technology add-on payments. Comment: The applicant reiterated that YARTEMLEA[supreg] meets the substantial clinical improvement criterion, because YARTEMLEA[supreg] offers a treatment option for a patient population unresponsive to, or ineligible for, available treatments. Response: We thank the applicant for its comment regarding the substantial clinical improvement criterion. We agree with the applicant that YARTEMLEA[supreg] represents a substantial clinical improvement over existing technologies, because it is the first and only FDA- approved treatment option for patients who develop TA-TMA and offers a treatment option for patients who have failed prior treatment with other available therapies, including C5 inhibitors and other TA-TMA directed therapies, with a 1-year overall survival of 42.7 percent (95 percent CI: 19.7, 65.8) in adult patients. After consideration of the public comments we received and the information included in the applicant's new technology add-on payment application, we have determined that YARTEMLEA[supreg] meets the criteria for approval for new technology add-on payment. Therefore, we are approving new technology add-on payments for this technology for FY 2027. Cases involving the use of YARTEMLEA[supreg] that are eligible for new technology add-on payments will be identified by ICD-10-PCS code XW03357 (Introduction of narsoplimab monoclonal antibody into peripheral vein, percutaneous approach, new technology group 7) or XW04357 (Introduction of narsoplimab monoclonal antibody into central vein, percutaneous approach, new technology group 7). In its application and comment, the applicant estimated that the cost of YARTEMLEA[supreg] is $441,660 per patient ($36,805 per vial * 12 vials). According to the applicant, the cost for a 370 mg/2 mL single-dose vial is $36,805, and adults receive an average of 11.4 administrations, which corresponds to 12 vials. Under Sec. 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS-DRG payment for the case. As a result, the maximum new technology add-on payment for a case involving the use of YARTEMLEA[supreg] is $287,079 for FY 2027. g. ZEVASKYNTM (prademagene zamikeracel) Abeona Therapeutics[supreg], Inc. submitted an FY 2027 application for new technology add-on payments for ZEVASKYNTM. According to the applicant, ZEVASKYNTM is an autologous cell sheet- based gene therapy which contains functional copies of the collagen type VII alpha 1 chain (COL7A1) transgene for the treatment of adult and pediatric patients with recessive dystrophic epidermolysis bullosa (RDEB). The applicant stated that autologous patient material procured by two 8mm punch biopsies will produce up to twelve 5.5 cm x 7.5 cm gene-corrected cellular sheets available for application in a single surgical session. The number of gene-corrected cellular sheets produced and available for application is not dependent on body size or age. The recommended dose of ZEVASKYN is based on the surface area of the wound(s). In the proposed rule, we provided the following table containing an overview of the new technology add-on payment application for ZEVASKYNTM and CMS's preliminary assessment. For additional details provided by the applicant, please refer to the online application posting at https://mearis.cms.gov/public/publications/ntap/NTP251003GPVPQ. [[Page 49727]] [GRAPHIC] [TIFF OMITTED] TR04AU26.106 Newness Criterion In the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19427), we noted that regarding commercial availability, the applicant stated that ZEVASKYNTM became available for sale on June 15, 2025, 2 months after it received BLA approval on April 28, 2025, because the applicant needed to onboard and train hospitals on the proper procedures for collecting specimens and applying the technology. We stated we were interested in additional information regarding the cause of any delay in the technology's commercial availability, including whether ZEVASKYNTM was available for purchase before June 15, 2025, during the period the applicant trained hospitals. Regarding substantial similarity, we stated that based on the information available at the time of the proposed rule, we agreed with the applicant that ZEVASKYNTM uses a new mechanism of action of transducing the full-length COL7A1 gene into a patient's own keratinocytes to create up to 12 gene-corrected cellular sheets for the treatment of RDEB wounds, as compared to VYJUVEK[supreg], a topical gene therapy that delivers a functional copy of the COL7A1 gene to affected skin cells using a non-replicating HSV-1 vector and FILSUVEZ[supreg], a botanical gel with an unknown mechanism of action. We also stated we agreed that ZEVASKYNTM maps to a new MS- DRG as compared to VYJUVEK[supreg] and FILSUVEZ[supreg]. We noted that we disagreed that ZEVASKYNTM does not treat the same or similar type of disease or the same or similar patient population when compared to existing technology because other therapies, such as VYJUVEK[supreg] and FILSUVEZ[supreg], are available to treat wounds in adult and pediatric patients with dystrophic epidermolysis bullosa (DEB), of which RDEB is a subtype. Therefore, based on information available at the time of the proposed rule, we stated our belief that ZEVASKYNTM is not substantially similar to existing technology and meets the newness criterion. We invited public comments on whether ZEVASKYNTM is substantially similar to existing technologies and whether ZEVASKYNTM meets the newness criterion. Comment: The applicant submitted a public comment agreeing with CMS's assessment that ZEVASKYNTM meets the newness criterion. With respect to commercial availability, the applicant stated that, between April 28 and June 15, 2025, it took necessary steps to identify patients eligible to receive ZEVASKYNTM, to train Quali[filig]ed Treatment Centers (QTCs) to administer ZEVASKYNTM, and to begin extensive payer engagement activities, including bene[filig]ts investigations, prior authorization submissions, and single case agreement negotiations. The applicant further explained that following these administrative steps, QTCs could order the product and schedule patients for biopsy. Response: We thank the applicant for its comment. Based on the information submitted by the applicant as part of its FY 2027 new technology add-on payment application for ZEVASKYNTM, we agree that ZEVASKYNTM uses a new mechanism of action of transducing the full-length COL7A1 gene into a patient's own keratinocytes to create up to 12 gene-corrected cellular sheets for the treatment of RDEB wounds and maps to a new MS-DRG as compared to VYJUVEK[supreg] and FILSUVEZ[supreg]. Therefore, we agree that ZEVASKYNTM is not substantially similar to existing treatment options and meets the newness criterion. We consider the beginning of the newness period to commence on June 15, 2025, the date on which ZEVASKYNTM became commercially available for the treatment of adult and pediatric patients with RDEB. Cost Criterion Regarding the cost criterion, we stated we agreed with the applicant that the technology meets the cost criterion. We invited public comments on whether ZEVASKYNTM meets the cost criterion. Comment: The applicant stated its appreciation for CMS's assessment that ZEVASKYNTM meets the cost criterion. Response: We thank the applicant for its comment. We agree with the applicant that the technology meets the cost criterion. [[Page 49728]] Substantial Clinical Improvement Criterion We stated in the proposed rule that we also received a public comment in response to the New Technology Town Hall meeting notice published in the Federal Register regarding the substantial clinical improvement criterion for ZEVASKYNTM, which we summarized in the proposed rule (91 FR 19247 through 19429). After review of the information provided by the applicant and the public comment received in response to the New Technology Town Hall meeting, we stated in the proposed rule that we had the following concerns regarding whether ZEVASKYNTM meets the substantial clinical improvement criterion. Regarding the assertion that ZEVASKYNTM offers a treatment option for a patient population unresponsive to, or ineligible for, current available treatments, we noted that the claims and supporting evidence do not identify a patient population treated with ZEVASKYNTM who cannot otherwise receive existing treatments, such as VYJUVEK[supreg] or FILSUVEZ[supreg]. The applicant claimed that RDEB patients suffer from severe large wounds that are highly debilitating and there currently are no treatments available to address large chronic RDEB wounds. However, we noted that both VYJUVEK[supreg] and FILSUVEZ[supreg] do not have a maximum dose in their prescribing label 75 76 that would preclude the use of either treatment in difficult-to-treat large and chronic RDEB wounds. Similarly, the applicant claimed that no currently available treatment options effectively target chronic pain and itching experienced by RDEB patients and that chronic RDEB wounds pose a high risk of developing squamous cell carcinoma (SCC) and multiple systemic infections, stating that ZEVASKYNTM is the only approved therapy that provides durable healing for these wounds. However, we stated that neither the presence of chronic pain and itching nor a high risk of developing SCC and multiple systemic infections preclude these patients from receiving treatment with VYJUVEK[supreg] or FILSUVEZ[supreg]. Accordingly, we questioned whether these claims describe improvements in clinical outcomes over existing therapies rather than identifying a distinct patient population unresponsive to, or ineligible for, current available treatments that ZEVASKYNTM can treat. --------------------------------------------------------------------------- \75\ Krystal Biotech, Inc. (2025, Sept.) VYJUVEK[supreg] (beremagene geperpavec-svdt) biological suspension mixed with excipient gel for topical application: highlights of prescribing information. https://www.krystallabel.com/pdf/vyjuvek-us-pi.pdf. \76\ Chiesi USA, Inc. (2024, May.) FILSUVEZ[supreg] (birch triterpenes) topical gel: highlights of prescribing information. https://resources.chiesiusa.com/Filsuvez/FILSUVEZ_PI.pdf. --------------------------------------------------------------------------- In addition, while the applicant asserted that ZEVASKYNTM significantly improves clinical outcomes for patients with RDEB, we noted that we did not receive sufficient evidence comparing ZEVASKYNTM to currently available treatments. The applicant stated that ZEVASKYNTM is the only autologous, cell-based gene therapy to demonstrate significantly improved wound healing even in the most difficult-to-treat large and chronic RDEB wounds; however, we noted that both VYJUVEK[supreg] and FILSUVEZ[supreg] demonstrated statistically significant wound healing in their respective clinical trials. Therefore, we questioned whether ZEVASKYNTM significantly improves wound healing compared to these treatments. The applicant had cited Tang et al. (2025),\77\ a randomized, open-label, intra-patient-controlled phase 3 trial that included 11 RDEB patients who had 86 matched and randomized wound pairs treated with either ZEVASKYNTM or control such as daily bandaging and other palliative measures. This study observed that 81 percent of ZEVASKYNTM-treated wounds were at least 50 percent healed from baseline compared with 16 percent of control wounds (mean difference: 67 percent; 95 percent CI: 50-89, p=<0.0001) and that complete wound healing from baseline was observed in 16 percent of ZEVASKYNTM-treated wounds compared to 0 percent of control wounds (mean difference 13 percent; 95 percent CI 2-26, p = 0.016). However, we noted that in Guide et al. (2022),\78\ a double-blind intra-patient randomized, placebo-controlled phase 3 trial consisting of 31 patients (30 with RDEB) who received either VYJUVEK[supreg] or placebo weekly for 26 weeks, 65 percent of patients achieved complete wound closure with VYJUVEK[supreg] compared to 26 percent with placebo. Similarly, in Kern et al. (2023),\79\ a randomized, double-blind, placebo-controlled phase 3 trial consisting of 223 patients (175 with RDEB) who received either FILSUVEZ[supreg] or placebo, 44 percent of RDEB patients treated with FILSUVEZ[supreg] achieved first complete closure of the target wound within 45 days compared to 26.2 percent of the patients who received placebo. --------------------------------------------------------------------------- \77\ Tang JY, Marinkovich MP, Wiss K, McCarthy D, Truesdale A, Chiou AS, Eid E, McIntyre JK, Bailey I, Furukawa LK, Gorell ES, Harris N, Khosla RK, Peter Lorenz H, Lu Y, Nazaroff J, Grachev ID, Moore AJ. Prademagene zamikeracel for recessive dystrophic epidermolysis bullosa wounds (VIITAL): a two-centre, randomised, open-label, intrapatient-controlled phase 3 trial. Lancet. 2025 Jul 12;406(10499):163-173. https://doi.org/10.1016/S0140-6736(25)00778- 0. \78\ Guide, S.V., Gonzalez, M.E., Ba[gbreve]c[inodot], I.S., Agostini, B., Chen, H., Feeney, G., Steimer, M., Kapadia, B., Sridhar, K., Quesada Sanchez, L., Gonzalez, F., Van Ligten, M., Parry, T.J., Chitra, S., Kammerman, L.A., Krishnan, S., & Marinkovich, M.P. (2022). Trial of Beremagene Geperpavec (B-VEC) for Dystrophic Epidermolysis Bullosa. New England Journal of Medicine, 387(24), 2211-2219. https://doi.org/10.1056/NEJMoa2206663. \79\ Kern, J.S., Sprecher E., Fernandez M.F., et al. Efficacy and safety of Oleogel-S10 (birch triterpenes) for epidermolysis bullosa: results from the phase III randomized double-blind phase of the EASE study. British Journal of Dermatology, 188(1), 12-21, https://doi.org/10.1093/bjd/ljac001. --------------------------------------------------------------------------- We noted that the applicant also asserted that ZEVASKYNTM is the only treatment for RDEB that has demonstrated significant reductions in both pain and itch and that ZEVASKYNTM results in durable wound healing. However, we noted that the comparator data we received did not specifically measure pain and itch, and follow-up time for wound healing was limited to 6 months for VYJUVEK[supreg] and 90 days for FILSUVEZ[supreg], which we stated limits meaningful comparisons to ZEVASKYNTM. Additionally, although the applicant asserted that ZEVASKYNTM provides durable wound healing following a single treatment application, we stated we were concerned that wounds that have not achieved complete closure may require additional treatment, which raises questions regarding the durability of the treatment and whether this can be considered a one-time treatment as asserted by the applicant. According to So et al. (2022),\80\ a single-center, non- randomized, open-label phase I/IIa trial that included seven patients who received ZEVASKYNTM on 38 chronic wounds while following patients for a mean of 5.9 years (range: 4-8 years), 70 percent of ZEVASKYNTM-treated sites had greater than or equal to 50 percent wound healing and 63 percent had greater than or equal to 75 percent wound healing at 5 years. We noted that given that a subset of treated wounds achieved complete closure and a substantial proportion demonstrated only partial healing, we were uncertain that a single application of ZEVASKYNTM is sufficient and durable for all patients. --------------------------------------------------------------------------- \80\ So JY. et al. Long-term safety and efficacy of gene- corrected autologous keratinocyte grafts for recessive dystrophic epidermolysis bullosa. Orphanet Journal of Rare Diseases. 2022(17):377. https://doi.org/10.1186/s13023-022-02546-9. --------------------------------------------------------------------------- Furthermore, we noted that although the applicant asserted that ZEVASKYNTM has a favorable safety [[Page 49729]] profile with no serious treatment-emergent adverse events (TEAEs) related to the study treatment and no reports of SCC in ZEVASKYN- treated wounds, the applicant did not compare this with TEAEs and rates of SCC seen with available treatments such as VYJUVEK[supreg] and FILSUVEZ[supreg]. Therefore, we stated we cannot determine an improvement in safety for ZEVASKYNTM over existing technologies. After review of the information provided by the applicant and the public comments received in response to the New Technology Town Hall meeting, we stated we were unable to determine that ZEVASKYNTM represents a substantial clinical improvement over existing technologies, and therefore, we proposed to disapprove new technology add-on payments for ZEVASKYNTM for FY 2027. We invited public comments on whether ZEVASKYNTM meets the substantial clinical improvement criterion and our proposal to disapprove new technology add-on payments for ZEVASKYNTM for FY 2027. Comment: The applicant and a commenter expressed support for approving new technology add-on payment status for ZEVASKYNTM. The commenter stated that doing so will remove a potential barrier to patients accessing innovative treatments and tools advancing a personalized medicine approach to care. The applicant disagreed with CMS's preliminary determination that ZEVASKYNTM does not meet the substantial clinical improvement criterion and requested CMS reconsider its proposal and approve ZEVASKYNTM for new technology add-on payment. In response to our concern that the claims and supporting evidence failed to identify a patient population treated with ZEVASKYNTM who cannot otherwise receive existing treatments, the applicant stated that, in clinical trials, ZEVASKYNTM was uniquely studied in large, chronic wounds each larger than 20 cm\2\ and open for 6 months or more. The applicant asserted that all clinical trial outcomes, including long-term follow up, were reported following a one-time surgical application to these tough-to-treat, large, chronic RDEB wounds. The applicant cited Tang et al. (2025) and So et al. (2022), stating that large and chronic wounds are a common occurrence in RDEB patients and that these wound characteristics, not simply the underlying RDEB diagnosis, define the population for whom no adequate alternative exists.81 82 The applicant added that the unmet need in this context is wound-specific, not patient-specific, and CMS's current framework does not adequately account for this distinction. The applicant further stated that, while existing therapies, including VYJUVEK[supreg] and FILSUVEZ[supreg], are also indicated for the treatment of wounds in DEB patients, RDEB patients have wounds of various sizes, shapes, and duration of chronicity. The applicant cited Guide et al. (2022), Kern et al. (2023), and Tang et al. (2025), asserting that VYJUVEK[supreg]'s and FILSUVEZ[supreg]'s respective clinical trials showed clinical responses primarily in smaller wounds (median wound size: 10.6 cm\2\ and 16.0 cm\2\, respectively) with weekly dosing, while ZEVASKYNTM has demonstrated wound healing and pain reduction in large (median size: 160 cm\2\) and chronic wounds. --------------------------------------------------------------------------- \81\ Tang et al. Prademagene zamikeracel for recessive dystrophic epidermolysis bullosa wounds (VIITAL): a two-centre, randomized, open-label, intrapatient-controlled phase 3 trial. Lancet. 2025. 406(10499):163-173. \82\ So et al. Long-term safety and efficacy of gene-corrected autologous keratinocyte grafts for recessive dystrophic epidermolysis bullosa. Orphanet Journal of Rare Diseases. 2022. 17:377. --------------------------------------------------------------------------- In response to our concern that both VYJUVEK[supreg] and FILSUVEZ[supreg] do not have a maximum dose that precludes the use of either treatment in difficult-to-treat, large, and chronic RDEB wounds, the applicant clarified that, according to VYJUVEK[supreg]'s prescribing information, the therapy has a maximum weekly dose equal to 2 x 10\9\ plaque forming units (PFU) (1 mL) for patients younger than 3 years old and a maximum weekly dose of 4 x 10\9\ PFU (2 mL) for patients 3 years of age or older. The applicant further explained that the VYJUVEK[supreg] prescribing information states that a 40 to 60 cm\2\ wound requires 1.2 x 10\9\ PFU or 0.6 mL of VYJUVEK[supreg] and that one should apply VYJUVEK[supreg] gel to wounds until they are closed before selecting new wound(s) to treat. The applicant also stated that based on this information, a patient may cover a maximum wound surface area of 133 to 200 cm\2\ with one VYJUVEK[supreg] vial (calculation: (4.0 PFU/mL/1.2 PFU/mL = 3.33) x 60 cm\2\ = 200 cm\2\)) and must continue treating the same wounds each week until those wounds are closed. In addition, the applicant stated that FILSUVEZ[supreg] was studied in wounds of 10 to 50 cm\2\, and it is unaware of data that suggests FILSUVEZ[supreg] could be used to treat wounds as large as those that ZEVASKYNTM can treat. The applicant noted that the FILSUVEZ[supreg] prescribing information specifies that one 25 mL tube, containing 23.4 g of 10 percent birch triterpene gel, covers up to 250 cm\2\ per application at wound dressing changes. The applicant asserted that while the label does not explicitly limit the number of tubes per dressing change, the per tube body surface area ceiling of 250 cm\2\ creates a meaningful, practical, and economic constraint. The applicant stated that FILSUVEZ[supreg], like VYJUVEK[supreg], has not demonstrated clinical benefit in the large, chronic, non-healing wounds. The applicant reiterated that each ZEVASKYNTM gene- modi[filig]ed cellular sheet can cover 41.25 cm\2\ of wound area and that up to 12 ZEVASKYNTM gene-modified cellular sheets are delivered for a single treatment of a patient, which can cover a total wound area of 495 cm\2\ (12 x 41.25 cm\2\). The applicant stated that ZEVASKYNTM can treat 2.5 to 8.7 times more wound area than VYJUVEK[supreg]. The applicant asserted that ZEVASKYNTM provides greater body surface area coverage than other therapies, and therefore, is a clinically meaningful advancement for this patient population. The applicant concluded that ZEVASKYNTM addresses a distinct and severe wound phenotype that other existing therapies, by virtue of their mechanism, dosing limitations, and clinical profiles, cannot address. In response to our concerns that we did not receive sufficient evidence comparing ZEVASKYNTM to currently available treatments, the applicant asserted that CMS's comparison of ZEVASKYNTM with VYJUVEK[supreg] and FILSUVEZ[supreg] is not scientifically supportable, because these treatments have different mechanisms of action, are categorically distinct, and achieve different clinical outcomes and are thus not interchangeable. The applicant stated that FILSUVEZ[supreg] is a tree-bark extract with an unknown mechanism of action and does not correct the underlying defect in the COL7A1 gene,\83\ while VYJUVEK[supreg] uses a non-integrating herpes simplex viral (HSV-1) vector that expresses the COL7A1 gene in the nucleus of treated skin cells.\84\ The applicant added that the HSV-1 genetic material does not integrate into the cellular genome of transduced cells and thus is diluted with each cellular division of treated skin cells, requiring repeated VYJUVEK[supreg] application for wound healing. The applicant stated that VYJUVEK[supreg] and FILSUVEZ[supreg] typically [[Page 49730]] require life-long, weekly applications to maintain their clinical effect. In contrast, the applicant highlighted that ZEVASKYNTM is designed to be a one-time treatment for wounds and uses a replication incompetent gamma retroviral vector, whose genetic material integrates into transduced cells' cellular genome, delivering a fully functional COL7A1 gene that stably integrates into the genome and is maintained throughout repeated cell division while negating the requirement for repeated application.\85\ The applicant cited So et al. (2022), Eid et al. (2026),\86\ and Gaona et al. (2026) \87\ and stated that ZEVASKYNTM is unique among approved RDEB treatments because it delivers a fully functional and persisting copy of the COL7A1 gene and is thus a one-time gene therapy that persists after treatment. The applicant concluded that because ZEVASKYNTM is a one-time treatment and VYJUVEK[supreg] and FILSUVEZ[supreg] require continued reapplication to wound healing, these interventions are categorically distinct and achieve different clinical outcomes. --------------------------------------------------------------------------- \83\ Schwieger-Briel et al. Mechanism of Oleogel-S10--A triterpene preparation for the treatment of EB. Dermatologic Therapy. 2019. Jul;32(4). \84\ Guide et al. Trial of Bermmagene Geparpavec (B-VEC) for Dystrophic Epidermolysis Bullosa. N Engl J Med. 2022. Dec 15;387(24):2211-2219. \85\ Tang et al. Prademagene zamikeracel for recessive dystrophic epidermolysis bullosa wounds (VIITAL): a two-centre, randomized, open-label, intrapatient-controlled phase 3 trial. Lancet. 2025. 406(10499):163-173. \86\ Eid et al. Sustained wound healing and long-term safety of prademagene zamikeracel (pz-cel) in recessive dystrophic epidermolysis bullosa (RDEB): Five-year results from the VIITAL phase 3 trial [Poster presentation]. Society for Investigational Dermatology. 2026. \87\ Gaona et al. Long-term safety and clinical outcomes of pz- cel gene therapy in a single patient with recessive dystrophic epidermolysis bullosa: a 12-year case report [Poster presentation]. Society for Investigative Dermatology. 2026. --------------------------------------------------------------------------- In response to our concern that pain and itch were not endpoints in the VYJUVEK[supreg] or FILSUVEZ[supreg] clinical trials and that this limits meaningful comparisons to ZEVASKYNTM, the applicant stated that VYJUVEK[supreg]'s clinical trial data did not achieve statistical significance for pain,\88\ and FILSUVEZ[supreg] demonstrated improvement in pain only at Day 14 in patients of ages 4 years and older, with no statistically significant findings at timepoints beyond 14 days.\89\ The applicant also noted that VYJUVEK[supreg] generated no meaningful data on itch and that FILSUVEZ[supreg] showed statistically significant improvement in itch only at Day 60 compared to placebo, with no sustained signal beyond that single timepoint. The applicant contrasted these findings to ZEVASKYNTM's pivotal VIITAL trial (Tang et al., 2025) which found a mean change in wound pain from baseline to week 24 of -3.07 for ZEVASKYNTM and -0.90 for control wounds (mean pairwise difference -2.23 (-3.45 to -0.66), p = 0.0002) and a mean change in itch severity from baseline to week 24 of -2.0 for ZEVASKYN versus - 0.05 for control wounds (mean pairwise difference -1.56 (95% CI -2.95 to -0.26; p = 0.0044)).\90\ The applicant stated that Tang et al. (2025) was powered for analyzing difference in pain, whereas difference in itch was an exploratory endpoint. The applicant suggested that ZEVASKYNTM's pain and itch data demonstrates greater rigor and significance than data available for VYJUVEK[supreg] and FILSUVEZ[supreg]. The applicant asserted that ZEVASKYNTM is the only therapy to have studied pain and itch alongside wound healing following treatment. --------------------------------------------------------------------------- \88\ Guide et al. Trial of Bermmagene Geparpavec (B-VEC) for Dystrophic Epidermolysis Bullosa. N Engl J Med. 2022. Dec 15;387(24):2211-2219. \89\ Kern et al. Efficacy and safety of Oleogel-S10 (birch triterpenes) for epidermolysis bullosa: results from the phase III randomized double-blind phase of the EASE study. Br. J. Dermatol. 2023. 188: 12-21. \90\ Tang et al. Prademagene zamikeracel for recessive dystrophic epidermolysis bullosa wounds (VIITAL): a two-centre, randomized, open-label, intrapatient-controlled phase 3 trial. Lancet. 2025. 406(10499):163-173. --------------------------------------------------------------------------- In response to our concern that the wounds that did not achieve full closure with ZEVASYKNTM may need additional treatment, the applicant disagreed with CMS's characterization that these concerns undermine ZEVASYKNTM's durability. The applicant asserted that ZEVASKYNTM has demonstrated long-term efficacy at treated wound sites. The applicant stated that ZEVASKYNTM is designed as a non-systemic cell-based gene therapy, distinguishing it from other gene therapies approved in the United States, and that this localized approach enables the therapy to act precisely where it is needed, supporting durable and clinically meaningful wound closure. The applicant further asserted that not a single wound of the 144 wounds treated across ZEVASKYNTM's clinical trials had been re- treated, and in the cases where patients returned for subsequent treatments, those treatments addressed wounds at new anatomic locations and not the retreatment of wounds already treated with ZEVSAKYNTM, asserting the crucial distinction that retreatment in this context bears no relationship to ZEVASKYNTM's durability. The applicant stated that ZEVASKYNTM's durability is further supported by biological evidence of long-term persistence, including histologic confirmation of anchoring fibril restoration and collagen VII expression at treated sites across 2 years follow-up, and durable wound healing up to 12 years post-application as shown by Eichstadt et al. (2019),\91\ So et al. (2022), Eid et al. (2026), and Gaona et al. (2026). The applicant also clarified that partial healing of a wound does not negate durable engraftment and these are not mutually exclusive outcomes. The applicant concluded that long-term follow-up data (up to 12 years to date and ongoing) provides additional evidence of ZEVASKYNTM's sustained biologic activity and that ZEVASKYNTM is the only therapy to demonstrate durable, single-treatment genomic correction with multi-year biologic persistence in treated wounds. --------------------------------------------------------------------------- \91\ Eichstadt et al. Phase 1/2a clinical trial of gene- corrected autologous cell therapy for recessive dystrophic epidermolysis bullosa. JCI Insight. 2019. Oct 3;4(19). --------------------------------------------------------------------------- In response to our concern that the applicant did not compare ZEVASKYNTM's safety profile to those of other available treatments, the applicant asserted that requiring such comparative evidence exceeds the evidentiary standard applicable to new technology add-on payment determinations according to 42 CFR 412.87(b)(1)(iii) regarding evidence for substantial clinical improvement, and suggested that the statute and implementing regulations do not require direct, head-to-head safety comparisons to existing therapies. The applicant asserted that denial of new technology add-on payment status for ZEVASKYNTM would critically impair patient access to a therapy that represents a genuine and substantial clinical advance for one of the most vulnerable rare disease patient populations. Response: We thank the applicant and commenter for their comments regarding the substantial clinical improvement criterion. After consideration of the public comments and the information included in the applicant's new technology add-on payment application, we agree that ZEVASKYNTM represents a substantial clinical improvement over existing technologies because ZEVASKYNTM is a one-time gene therapy for the treatment of large, chronic wounds up to 495 cm\2\ and significantly reduces pain in patients with RDEB, with a mean change in wound pain from baseline to week 24 of -3.07 points (mean pairwise difference -2.23 [-3.45 to -0.66]; p = 0.0002). In contrast, the available data for VYJUVEK[supreg] and FILSUVEZ[supreg] did not demonstrate statistically significant reductions in pain from baseline (at [[Page 49731]] timepoints beyond 14 days for FILSUVEZ[supreg]).\92\ --------------------------------------------------------------------------- \92\ Tang et al. Prademagene zamikeracel for recessive dystrophic epidermolysis bullosa wounds (VIITAL): a two-centre, randomized, open-label, intrapatient-controlled phase 3 trial. Lancet. 2025. 406(10499):163-173. --------------------------------------------------------------------------- Based on the information available at the time of this final rule, we have determined that ZEVASKYNTM meets the criteria for approval for new technology add-on payment. Therefore, we are approving new technology add-on payments for this technology for FY 2027. Cases involving the use of ZEVASKYNTM that are eligible for new technology add-on payments will be identified by any of the ICD-10-PCS codes listed in the following table: [GRAPHIC] [TIFF OMITTED] TR04AU26.107 In its application, the applicant estimated that the cost of ZEVASKYNTM is $3,147,000 per patient. According to the applicant, ZEVASKYNTM is supplied as 41.25 cm\2\ gene- corrected keratinocyte sheets with up to 12 sheets available for application in a single surgical session. Under Sec. 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS-DRG payment for the case. As a result, the maximum new technology add-on payment for a case involving the use of ZEVASKYNTM is $2,045,550 for FY 2027. 6. FY 2027 Applications for New Technology Add-On Payments (Alternative Pathways) As discussed previously, beginning with applications for FY 2021, a medical device designated under FDA's Breakthrough Devices Program that has received marketing authorization as a Breakthrough Device for the indication covered by the Breakthrough Device designation may qualify for the new technology add-on payment under an alternative pathway. Additionally, beginning with FY 2021, a medical product that is designated by FDA as a Qualified Infectious Disease Product (QIDP) and has received marketing authorization for the indication covered by the QIDP designation, and, beginning with FY 2022, a medical product that is a new medical product approved under FDA's Limited Population Pathway for Antibacterial and Antifungal Drugs (LPAD) and used for the indication approved under the LPAD pathway, may also qualify for the new technology add-on payment under an alternative pathway. Under an alternative pathway, a technology will be considered not substantially similar to an existing technology for purposes of the new technology add-on payment under the IPPS and will not need to meet the requirement that it represents an advance that substantially improves, relative to technologies previously available, the diagnosis or treatment of Medicare beneficiaries. These technologies must still be within the 2- to-3-year newness period to be considered ``new,'' and must also still meet the cost criterion. We refer readers to section II.H.8. of the preamble of the FY 2020 IPPS/LTCH PPS final rule (84 FR 42292 through 42297) for further discussion of the alternative new technology add-on payment pathways for these technologies. As previously noted, in section II.E.7. of this final rule, we are finalizing our proposal to repeal the alternative pathway for new technology add-on payment beginning with applications received for new technology add-on payments for FY 2028 and require all applicants for new technology add-on payments to demonstrate that the technology meets all eligibility requirements to receive add-on payments, unless specifically grandfathered under the alternative pathway eligibility criteria. (We refer readers to section II.E.7. of this final rule for a complete discussion of this finalized policy.) As discussed previously, as finalized in the FY 2023 IPPS/LTCH PPS final rule (87 FR 48986 through 48990) and subsequently updated in the FY 2026 IPPS/LTCH PPS final rule (90 FR 36662 through 36664), we publicly post online applications for new technology add-on payment beginning with FY 2024 applications. As noted in those final rules, we are continuing to provide discussion of the concerns or issues we identified with respect to applications submitted under the alternative pathway, but we are providing more succinct information as part of the summaries in the proposed and final rules regarding the applicant's assertions as to how the medical service or technology meets the applicable new technology add-on payment criteria. We refer readers to https://mearis.cms.gov/public/publications/ntap for the publicly posted FY 2027 new technology add-on payment applications and supporting information (with the exception of certain cost and volume information, and information or materials identified by the applicant as confidential or copyrighted), including tables listing the ICD-10-CM codes, ICD-10-PCS codes, and/or MS-DRGs related to the analyses of the cost [[Page 49732]] criterion for certain technologies for the FY 2027 new technology add- on payment applications. In addition, for certain FY 2027 new technology add-on payment applications, in the proposed rule, we made available separate tables listing the ICD-10-PCS codes or ICD-10-CM codes that would be used to identify the Breakthrough Device-designated indication, or would be appropriate to exclude for cases related to a different technology, for purposes of the new technology add-on payment, if approved, in Table 10 associated with the proposed rule, available via the internet on the CMS website at https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps. To access Table 10, click on the link titled ``FY 2027 IPPS Proposed Rule Home Page'' or ``Acute Inpatient--Files for Download'' on the left side of the screen, at the CMS website. Please see section VI of the Addendum of the proposed rule for additional information regarding tables associated with the proposed rule. Table 10 associated with this final rule reflects the finalized tables listing the ICD-10-PCS codes or ICD-10-CM codes that would be used to identify the relevant indication, or exclude cases related to a different technology, for these technologies for purposes of the new technology add-on payment for FY 2027, and is available on the CMS website at: https://www.cms.gov/medicare/medicare-fee-for-service-payment/acuteinpatientpps. We received 32 applications for new technology add-on payments for FY 2027 under the new technology add-on payment alternative pathway. As previously discussed, beginning with the new technology add-on payment applications for FY 2025, for technologies that are not already FDA market authorized for the indication that is the subject of the new technology add-on payment application, applicants must have a complete and active FDA marketing authorization request at the time of new technology add-on payment application submission and must provide documentation of FDA acceptance or filing to CMS at the time of application submission, consistent with the type of FDA marketing submission the applicant has submitted to FDA. See Sec. 412.87(e) and further discussion in the FY 2024 and FY 2025 IPPS/LTCH PPS final rules (88 FR 58948 through 58958; 89 FR 69242 through 69245). Of the 32 applications received under the alternative pathway, 7 applications were not eligible for consideration for new technology add-on payment because they did not meet these requirements; and 3 applicants withdrew their applications prior to the issuance of the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19312). Subsequently, prior to the issuance of this final rule, 5 additional applicants (for CERAMENT[supreg] V, MediBeacon[supreg] Transdermal GFR Measurement System [TGFR], Micro Medical Solutions MicroStent and the MicroStent XL Peripheral Vascular Stent System, PMCardio[supreg] STEMI AI ECG Model, and VUNO Med- DeepCARS[supreg]) withdrew their applications or did not meet the May 1 deadline for FDA approval or clearance of the technology, and therefore are not eligible for consideration for new technology add-on payments for FY 2027. While we do not typically address in the final rule those applications for which the technology has not received FDA marketing authorization as a Breakthrough Device for the relevant indication by the May 1 deadline, we are summarizing and responding to comments we received regarding whether the CARA System has received the required FDA marketing authorization for this product by May 1. We are also addressing the remaining 16 applications, all of which received marketing authorization as a Breakthrough Device from FDA. In accordance with the regulations under Sec. 412.87(f)(2), applicants for new technology add-on payments for FY 2027 for Breakthrough Devices must have FDA marketing authorization by May 1 of the year prior to the beginning of the fiscal year for which the application is being considered. Under Sec. 412.87(f)(3), applicants for new technology add-on payments for FY 2027 for QIDPs and technologies approved under the LPAD pathway must have FDA marketing authorization by July 1 of the year prior to the beginning of the fiscal year for which the application is being considered. The policy finalized in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58742) provides for conditional approval for a technology for which an application is submitted under the alternative pathway for certain antimicrobial products (QIDPs and LPADs) at Sec. 412.87(d) that does not receive FDA marketing authorization by July 1 prior to the particular fiscal year for which the applicant applied for new technology add-on payments, provided that the technology receives FDA marketing authorization before July 1 of the fiscal year for which the applicant applied for new technology add-on payments. We refer the reader to the FY 2021 IPPS/LTCH PPS final rule for a complete discussion of this policy (85 FR 58737 through 58742). As previously noted, in section II.E.7. of this final rule, we are finalizing our proposal to repeal the alternative pathway for new technology add-on payment, such that beginning with applications received for new technology add-on payments for FY 2028, in order to be eligible for consideration for the new technology add-on payment for the upcoming fiscal year, all applicants will need to receive FDA marketing authorization by May 1 prior to the particular fiscal year for which the application is being considered. As we did in the FY 2026 IPPS/LTCH PPS proposed rule, for applications under the alternative new technology add-on payment pathway, in the proposed rule we proposed to approve or disapprove each of the 22 applications for FY 2027 new technology add-on payments. Therefore, in this section of the preamble of this final rule, we provide the overview table from the proposed rule of each remaining new technology add-on payment application and CMS's preliminary assessment for each alternative pathway application, and our determination on whether or not each technology is eligible for the new technology add- on payment for FY 2027. We stated in the proposed rule that we received multiple applications for subscription-based technologies for FY 2027. We further noted that we stated in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58630) and in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69207) that we understand that there are unique circumstances with respect to determining a cost per case for a technology that utilizes a subscription for its cost and we will continue to consider the issues relating to calculation of the cost per unit of technologies sold on a subscription basis as we gain more experience in this area. We stated that we continue to welcome comments from the public as to the appropriate method to determine a cost per case for such technologies, including comments on whether the cost analysis should be updated based on the most recent subscriber data for each year for which the technology may be eligible for add-on payment. Comment: A commenter raised concerns regarding new technology add- on payment applications for software applications and electronic health record (EHR) tools that are integrated with hospital EHR systems and stated its belief that the new technology add-on payment program is not designed, nor is it the most appropriate avenue, to [[Page 49733]] account for provider costs from investments in software and equipment that is deployed across the enterprise through an EHR. The commenter stated that claims for additional new technology add-on payment are on a per-patient basis, and EHR software platforms are not deployed at the per-patient level. The commenter stated that, because these tools may be available across many patient populations and MS-DRGs, their costs may resemble administrative and general information technology operating costs that are reportable on the Medicare cost report but not typically separately chargeable on a per-patient basis. The commenter stated that CMS had asked for comment on the cost criterion for one of these EHR tools and whether the technology would replace any prior technology, and stated that for the uses described there were already clinical criteria, decision support tools, and other rubrics in use by providers. The commenter stated that clinical decision-making is up to the treating provider regardless of the use of such tools. The commenter further stated a new technology add-on payment application for an EHR-integrated tool was for a subscription service that is billed according to hospital size rather than on a per-patient basis. The commenter questioned whether CMS could elaborate on how a provider would appropriately charge a patient account and report utilization on an individual inpatient claim, given this cost structure. The commenter also questioned how these technologies, if approved, would be recognized for new technology add-on payment on inpatient claims. The commenter stated that new technology add-on payment claims are identified through the use of ICD-10-PCS procedure codes, which requires physician documentation of the procedure utilizing the new technology. The commenter questioned if the procedure identifying the use of these EHR tools would be specifically documented by clinicians and reportable for new technology add-on payment for individual claims, and if this would result in unnecessary documentation burden. The commenter recommended that CMS provide additional guidance for technologies seeking new technology add-on payment when the technology is an EHR-integrated software platform, and stated that CMS consider establishing a dedicated administrative and general cost center for clinical information technology applications or software so that such costs could be directly assigned or stepped down to benefiting service lines for rate setting purposes. The commenter stated that the function of the new technology add-on payment program may be diluted if it is utilized broadly to provide minimal supplemental payment for these software costs to a facility. Another commenter expressed its support for CMS's broadening approach to evaluating emerging software, including software as a service (SaaS) and software as a medical device (SaMD) under the new technology add-on payment program. The commenter stated that CMS is demonstrating flexibility in evaluating technologies that do not align with traditional per-case reimbursement frameworks and that this represents an important step towards ensuring that innovative, AI- enabled solutions can be considered within the Medicare payment system. The commenter recommended that CMS develop more standardized and transparent methodologies for evaluating the costs of subscription- based and artificial intelligence-driven solutions for new technology add-on payment purposes. The commenter stated that clearer expectations regarding cost allocation, utilization assumptions, and the definition of technology use within an inpatient stay would reduce reliance on varying approaches across applicants and improve predictability. The commenter stated that a more accessible and well-defined pathway would support appropriate hospital payment for these technologies and help ensure beneficiary access to tools that may enhance clinical decision- making, improve efficiency, and support better patient outcomes. Response: We thank the commenters for their support and recognition of the inherent complexities. We recognize that software-based, subscription-based, EHR-integrated, and artificial intelligence-driven technologies may present differently than technologies that are furnished as a more discrete item or service during an inpatient stay. We also acknowledge commenters' interest in additional clarity regarding how hospitals may report the use of such technologies on claims, how costs may be allocated to inpatient cases, and how applicants may support the cost criterion for purposes of new technology add-on payment. As we have evaluated technologies priced through subscriptions or other non-per-patient arrangements for new technology add-on payment eligibility, we have reviewed estimated average costs of the technology for eligible inpatient cases, including relevant utilization assumptions, cost allocation methodology, and how use of the technology would be identified and supported by documentation and coding (for example, 85 FR 58625 through 58636, 89 FR 69205 through 69208). ICD-10- PCS codes are typically used to identify eligible new technology add-on payments, under the same process as other claims. The addition of ICD- 10-CM codes may be used to identify technologies for new technology add-on payments, but only where the technology is otherwise not uniquely identifiable. Eligible new technology add-on payments are calculated using the methodology detailed at 42 CFR 412.88. Regarding the request that CMS develop more standardized and transparent methodologies for evaluating the costs of subscription- based and artificial intelligence-driven solutions for new technology add-on payment purposes, and that clearer expectations regarding cost allocation, utilization assumptions, and the definition of technology use within an inpatient stay would reduce reliance on varying approaches across applicants and improve predictability, we note that subscription-based approaches to pricing can vary significantly, and we have accommodated those differences in evaluating each applicant individually, rather than requiring a certain methodology by which subscription-based technology providers must calculate the price to hospitals for their services/products. We will continue to evaluate the cost information submitted for subscription-based technologies under the applicable new technology add-on payment criteria. For applicants that seek new technology add-on payment for technologies that are licensed, subscribed to, or otherwise priced on a basis other than a discrete per-patient charge, we expect the application to clearly describe the methodology used to estimate the average cost of the technology for eligible inpatient cases, including the assumptions used to identify relevant utilization, allocate costs to inpatient cases, and distinguish the cost of the technology from other administrative, general, or information technology costs, which might be considered capital costs. We also expect applicants to describe how cases involving use of the technology would be identified for purposes of any new technology add-on payment, including whether use of the technology can be supported by the applicable coding and medical record documentation. We may consider whether additional guidance would be useful for future rulemaking or other subregulatory materials as we [[Page 49734]] gain experience with more of these types of technologies. With respect to the recommendation to establish a dedicated administrative and general cost center for clinical information technology applications or software, we appreciate the commenter's suggestion. We are not adopting such a cost-reporting change in this final rule. We may consider whether further analysis of cost-reporting treatment for clinical software or EHR-integrated tools would be appropriate in future rulemaking and whether the cost analyses should be updated for each year for which the technology may be eligible for add-on payment. a. Alternative Pathway for Breakthrough Devices

1. Bayesian Health Sepsis Flagging Device

Bayesian Health, Inc. submitted a FY 2027 application for new technology add-on payments for the Bayesian Health Sepsis Flagging Device. According to the applicant, the Bayesian Health Sepsis Flagging Device is artificial intelligence and machine learning-based Software as a Medical Device (SaMD) intended for use in conjunction with clinical assessments and other laboratory findings to aid the early detection and/or risk prediction of sepsis within the next 4 days. In the proposed rule, we provided the following table containing an overview of the new technology add-on payment application for the Bayesian Health Sepsis Flagging Device and CMS's preliminary assessment. For additional details provided by the applicant, please refer to the online application posting at https://mearis.cms.gov/public/publications/ntap/NTP25100520EEP. [GRAPHIC] [TIFF OMITTED] TR04AU26.112 [[Page 49735]] Cost Criterion In the proposed rule, we stated that after review of the information provided by the applicant, we agreed with the applicant that the Bayesian Health Sepsis Flagging Device meets the cost criterion and therefore proposed to approve the Bayesian Health Sepsis Flagging Device for new technology add-on payments for FY 2027, subject to the technology receiving FDA marketing authorization for the indication corresponding to the Breakthrough Device designation by May 1, 2026. Based on preliminary information from the applicant at the time of the proposed rule, we proposed that the maximum new technology add-on payment for a case involving the use of the Bayesian Health Sepsis Flagging Device would be $61.84 for FY 2027 (that is, 65 percent of the average cost of the technology). We noted that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. We invited public comments on whether the Bayesian Health Sepsis Flagging Device meets the cost criterion and our proposal to approve new technology add-on payments for the Bayesian Health Sepsis Flagging Device for FY 2027, subject to the technology receiving FDA marketing authorization for the indication corresponding to the Breakthrough Device designation by May 1, 2026. Comment: Multiple commenters expressed support for the approval of the Bayesian Health Sepsis Flagging Device to address high morbidity, mortality and cost burden associated with sepsis and potentially allow for earlier recognition to improve outcomes when used in conjunction with clinician judgment and evidence-based sepsis care. In addition, a commenter suggested that CMS closely monitor real-world performance, including false positive and false negative rates across diverse patient populations and care settings, and to require robust post- implementation evaluation to ensure that algorithmic tools do not exacerbate disparities in sepsis recognition or treatment for historically marginalized communities. Response: We thank the commenters for their comments. Comment: A commenter expressed performance concerns regarding the Bayesian Health Sepsis Flagging Device based on its FDA 510(k) summary, asserting that the device performance would be on par with other devices, but substantially less than what the commenter referred to as the state-of-the-art generative AI model performance reported in the literature. Response: We thank the commenter for its comment. We note that performance concerns are not within the scope of CMS's evaluation for new technology add-on payment under the alternative pathway, as defined in Sec. 412.87(c). As discussed previously, a technology applying under an alternative pathway does not need to meet the requirement that it represents an advance that substantially improves, relative to technologies previously available, the diagnosis or treatment of Medicare beneficiaries. (84 FR 42296). Comment: A commenter expressed concern regarding EHR-integrated software tools with wide-spread use across the majority of MS-DRGs, specifically referencing the Bayesian Health Sepsis Flagging Device. The commenter stated that this technology's cost criterion analysis showed that it would be applicable to 739 MS-DRGs, and further stated this is nearly all MS-DRGs. The commenter stated that such broad applicability suggests the technology functions more like an EHR module or tool, which would already be baked into the MS-DRG and IPPS payment system as a whole, as an administrative and general information technology operating cost, reportable on hospital cost reports, but not typically separately chargeable per patient. Response: We thank the commenter for its comment. As discussed previously, for technologies priced through subscriptions or other non- per-patient arrangements, such as the Bayesian Health Sepsis Flagging Device, we review estimated average cost of the technology for eligible inpatient cases, including relevant utilization assumptions, cost allocation methodology, and how use of the technology would be identified and supported by documentation and coding. Comment: The applicant submitted a public comment in support of approving new technology add-on payments for the Bayesian Health Sepsis Flagging Device for FY 2027 as proposed, stating that it meets alternative pathway eligibility criteria, and that the Bayesian Health Sepsis Flagging Device received FDA 510(k) clearance for the same indication as that of the Breakthrough Device designation on April 30, 2026. Response: We thank the applicant for its comment. Based on the information provided in the application for new technology add-on payments, and after consideration of the public comments we received, we believe the Bayesian Health Sepsis Flagging Device meets the cost criterion. The technology received 510(k) clearance from FDA as a Breakthrough Device on April 30, 2026 with an indication for use by Health Care Providers (HCPs) in conjunction with clinical assessments and other laboratory data to aid in the early detection and/or risk prediction of sepsis developing within 24 hours for adult patients (>=18 years old) upon Emergency Department (ED) presentation or hospital admission throughout the duration of the patient's stay in acute care settings,\93\ which is covered by its Breakthrough Device designation. Therefore, we are finalizing our proposal to approve new technology add-on payments for the Bayesian Health Sepsis Flagging Device for FY 2027. We consider the beginning of the newness period to commence on April 30, 2026, the date on which the technology received FDA marketing authorization for the indication covered by its Breakthrough Device designation. --------------------------------------------------------------------------- \93\ https://www.accessdata.fda.gov/cdrh_docs/pdf25/K250680.pdf --------------------------------------------------------------------------- Based on the information available at the time of this final rule, the cost per case of the Bayesian Health Sepsis Flagging Device is $95.14. Under Sec. 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS-DRG payment for the case. As a result, we are finalizing that the maximum new technology add-on payment for a case involving the use of the Bayesian Health Sepsis Flagging Device is $61.84 for FY 2027 (that is, 65 percent of the average cost of the technology). The applicant was granted approval for a unique ICD-10-PCS procedure code for the Bayesian Health Sepsis Flagging Device beginning in FY 2027. Therefore, cases involving the use of the Bayesian Health Sepsis Flagging Device that are eligible for new technology add-on payments will be identified by ICD-10-PCS procedure code: XEZZXJC (High dimensional mixture-of-experts computer-aided assessment of inflammatory response and organ function, for notification and triage, new technology group 12).

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

CT Body Aidoc Medical Ltd., Inc. submitted a FY 2027 application for new technology add-on payments for BriefCase-Triage: CARE Multi-Triage CT Body (BriefCase-Triage). According to the applicant, BriefCase-Triage is a radiological triage device used for the analysis of contrast and non-contrast CT images that flags [[Page 49736]] and communicates suspected positive findings for a wide range of clinically actionable, time-sensitive conditions in the abdominopelvic region. In the proposed rule, we provided the following table containing an overview of the new technology add-on payment application for BriefCase-Triage and CMS's preliminary assessment. For additional details provided by the applicant, please refer to the online application posting at https://mearis.cms.gov/public/publications/ntap/NTP251004A9NVV. BILLING CODE 4169-69-C [[Page 49737]] [GRAPHIC] [TIFF OMITTED] TR04AU26.113 BILLING CODE 4169-69-C Cost Criterion In the proposed rule, we stated that after review of the information provided by the applicant, we agreed with the applicant that BriefCase-Triage meets the cost criterion and therefore proposed to approve BriefCase-Triage for new technology add-on payments for FY 2027 for the FDA-cleared indication covered by the Breakthrough Device designation listed in the table. We stated [[Page 49738]] we considered the beginning of the newness period to commence on January 7, 2026, the date on which BriefCase-Triage received FDA marketing authorization. Based on preliminary cost information from the applicant at the time of the proposed rule, we proposed that the maximum new technology add-on payment for a case involving the use of BriefCase-Triage would be $137.53 for FY 2027 (that is, 65 percent of the average cost of the technology). We noted that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. We invited public comments on whether BriefCase-Triage meets the cost criterion and our proposal to approve new technology add-on payments for BriefCase-Triage: CARE Multi-Triage CT Body for FY 2027. Comment: The applicant submitted a public comment in support of the proposal to approve BriefCase-Triage for new technology add-on payment. The applicant provided assertions regarding the technology's clinical impact and asserted that BriefCase-Triage is not substantially similar to existing technology. The applicant reiterated the cost analyses done at the time of application and agreed with CMS's proposed newness date and cost per case of $137.53. Response: We thank the applicant for its comment. We note that substantial similarity and substantial clinical improvement are not within the scope of CMS's evaluation for new technology add-on payment eligibility under the alternative pathway, as defined in Sec. 412.87(c) and as previously stated. Based on the information provided in the application for new technology add-on payments, and after consideration of the public comment we received, we believe BriefCase- Triage meets the cost criterion. The technology received marketing authorization from FDA as a Breakthrough Device on January 7, 2026 with an indication covered by its Breakthrough Device designation. Therefore, we are finalizing our proposal to approve new technology add-on payments for BriefCase-Triage for FY 2027. We consider the beginning of the newness period to commence on January 7, 2026, the date on which the technology received FDA marketing authorization for the indication covered by its Breakthrough Device designation. Based on the information available at the time of this final rule, the cost per case of BriefCase-Triage is $211.59. Under Sec. 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS-DRG payment for the case. As a result, we are finalizing that the maximum new technology add-on payment for a case involving the use of BriefCase-Triage is $137.53 for FY 2027 (that is, 65 percent of the average cost of the technology). The applicant was granted approval for a unique ICD-10-PCS procedure code for the BriefCase-Triage beginning in FY 2027. Therefore, cases involving the use of BriefCase-Triage that are eligible for new technology add-on payments will be identified by ICD- 10-PCS procedure code: XEZ5XKC (Computer-aided triage and notification for imaging abnormalities in computed tomography of chest, abdomen and pelvis, new technology group 12).

3. CARA System

Cara Medical submitted a FY 2027 application for new technology add-on payments for the CARA System. According to the applicant, the CARA System software simulates the path of a patient's cardiac conduction system using anatomical landmarks identifiable on routine CT angiography (CTA) imaging to enable Conduction Guided Intervention (CGI). Per the applicant, CARA augmented fluoroscopy can be used to help the operator visualize, during the procedure, the proximity of his tools and device to the patient's conduction system. In the proposed rule, we provided the following table containing an overview of the new technology add-on payment application for the CARA System and CMS's preliminary assessment. For additional details provided by the applicant, please refer to the online application posting at https://mearis.cms.gov/public/publications/ntap/NTP251006TVQL6. BILLING CODE 4169-69-P [[Page 49739]] [GRAPHIC] [TIFF OMITTED] TR04AU26.114 BILLING CODE 4169-69-C Cost Criterion In the proposed rule, after review of the information provided by the applicant, we stated that we agreed with the applicant that the CARA System meets the cost criterion and are therefore proposing to approve the CARA System for new technology add-on payments for FY 2027, subject to the technology receiving FDA marketing authorization for the indication corresponding to the Breakthrough Device designation by May 1, 2026. However, we questioned whether a surgical procedure done in the operating [[Page 49740]] room with the CARA Atlas\TM\ Navigator would correspond to the FDA Breakthrough Device designated indication involving real-time, intraprocedural, fluoroscopic imaging to assist in fluoroscopic-guided interventional heart procedures. We stated that we would be interested in information clarifying the components and process for use of the CARA Atlas\TM\ Navigator, accounting for the difference in cost between a surgical procedure and an interventional procedure. We also questioned whether procedures using only the CARA Metis\TM\ Simulator would correspond to the FDA Breakthrough Device designated indication, as a medical device comprising two integrated functions (that is, integrated functions of both the CARA Metis\TM\ Simulator and CARA Atlas\TM\ Navigator). We noted that under the eligibility criteria for approval under the alternative pathway for certain transformative devices, only the use of the technology for the indication that corresponds to the technology's Breakthrough Device designation would be eligible for the new technology add-on payment for FY 2027. We stated that we would be interested in detailed information clarifying the different uses of the CARA System components related to the Breakthrough Device designated indication. Based on preliminary information from the applicant at the time of the proposed rule, we proposed that the maximum new technology add-on payment for a case involving the use of the CARA System would be $10,205.00 for FY 2027 (that is, 65% of the average cost of the technology). We noted that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. We invited public comments on whether the CARA System meets the cost criterion and our proposal to approve new technology add-on payments for the CARA System for FY 2027, subject to the technology receiving FDA marketing authorization for the indication corresponding to the Breakthrough Device designation by May 1, 2026. We note that the CARA System was market authorized for use in adult patients (18 years of age and older) on February 20, 2026 (K252500 \94\) for preplanning and guidance of medical interventions in an area known to contain or be adjacent to the cardiac conduction system, such as percutaneous or surgical procedures, for example, transcatheter aortic valve replacement (TAVR), as well as medical procedures where the physician desires to deliver therapy to the patient's cardiac conduction system or to a targeted location within it (CSP). However, as of the May 1, 2026 deadline, FDA has not market authorized the CARA System as a Breakthrough Device. Because the applicant asserts that the CARA System qualifies for new technology add-on payments under the alternative pathway for FY 2027, we are discussing the applicant's related comments in this final rule. --------------------------------------------------------------------------- \94\ https://www.accessdata.fda.gov/scripts/cdrh/cfdocs/cfPMN/pmn.cfm?ID=K252500. --------------------------------------------------------------------------- Comment: The applicant submitted a comment, asserting that the CARA System should be eligible for the alternative pathway based on its Breakthrough Device designation and FDA-cleared indication, stating that the cleared indication is ``covered by'' its Breakthrough Device designation indication. The applicant stated that CMS--not FDA-- administers the eligibility criteria for the alternative pathway for Breakthrough Devices under Sec. 412.87(c). The applicant stated that CMS relies on different statutory and regulatory authority from FDA when it makes its own coverage and payment determinations for Medicare, just as a ``safe and effective'' determination by FDA is distinct from a ``reasonable and necessary'' determination for Medicare. Accordingly, the applicant stated that the application of CMS's own regulations and precedent--not FDA's separate decision regarding public disclosure on its Breakthrough Devices website--governs whether the CARA System qualifies under the alternative pathway. The applicant asserted that CARA System satisfies both elements of Sec. 412.87(c)(1). The applicant stated that first, the device is ``part of'' FDA's Breakthrough Devices Program: it received FDA Breakthrough Device designation (Q250281) and the company then engaged with FDA through the Breakthrough Devices Program to secure marketing authorization, ultimately obtaining 510(k) clearance (K252500). The applicant asserted that CMS has consistently treated designation plus the pursuit of marketing authorization as sufficient to establish that a device is ``part of'' the program; for example, in the FY 2023 IPPS/ LTCH PPS final rule CMS determined that the GORE[supreg] TAG[supreg] TBE device was ``part of the Breakthrough Devices Program'' based on its designation. The applicant asserted that neither CMS regulation nor guidance conditions this determination on a device appearing on FDA's Breakthrough Devices website, and that CMS has made alternative pathway eligibility determinations in the FY 2021 and FY 2022 cycles before that website existed. The applicant stated that second, the CARA System's FDA-cleared indication is ``covered by'' its FDA Breakthrough Device designation indication. The applicant asserted that CMS does not require the market-authorized indication and the designation indication to be identical or verbatim; it asks whether the cleared indication falls within the scope of the broader designated indication. The applicant stated that under both indications, the CARA System is used for preplanning and guidance of medical interventions in an area known to contain or be adjacent to the cardiac conduction system, including TAVR and conduction system pacing procedures. Per the applicant, CMS has approved alternative pathway new technology add-on payment applications on this basis even where the cleared indication was narrower than the designation indication and removed a specific claim. The applicant stated that in the FY 2026 IPPS/LTCH PPS final rule, CMS approved the Emily's Care Nourish Test System for new technology add-on payment even though its 510(k)-cleared indication both narrowed the treated population and removed a ``treatment'' claim that had been part of its designation indication. The applicant further asserted that CMS concluded the cleared indication was ``covered by'' the broader designation indication and simply limited the scope of new technology add-on payment recognition accordingly, and that CMS reached a comparable conclusion in the FY 2025 cycle. The applicant and another commenter also asserted that if CMS decided to not grant the CARA System approval under the new technology add-on payment alternative pathway, it should be granted consideration under the traditional pathway, and the applicant attached a separate letter that it stated laid out the claims and supportive evidence for how the Cara System meets the substantial clinical improvement criterion. The applicant stated that when applying for new technology add-on payment, applicants are required to note if they are applying via the traditional or the alternative pathway at the time of new technology add-on payment application submission, and that it used the alternative pathway because it believed the device met the eligibility criteria for the alternative [[Page 49741]] pathway based on the Breakthrough Device designation that the Cara System had received. Response: As we stated previously, a medical device designated under FDA's Breakthrough Devices Program that has received marketing authorization as a Breakthrough Device, for the indication covered by the Breakthrough Device designation, may qualify for the new technology add-on payment under an alternative pathway. Because the CARA System has not received marketing authorization as a Breakthrough Device for the indication covered by the Breakthrough Device designation, the CARA System does not qualify for new technology add-on payments under the alternative pathway for FY 2027. Although the applicant concluded that CMS has consistently treated designation plus the pursuit of marketing authorization as sufficient to establish that a device is ``part of'' the Breakthrough Devices program, this has not been our approach; neither do we condition our determination on a device appearing on FDA's Breakthrough Devices website. As we noted in the FY 2020 IPPS/LTCH PPS final rule (84 FR 42295) to implement the alternative pathways, we were committed to continue to work collaboratively with FDA, as FDA's expedited programs, including the Breakthrough Devices Program, evolve. We have continuously consulted with FDA to confirm whether devices are designated Breakthrough devices and to establish whether FDA has market authorized each device that applies under this pathway for an indication consistent with its Breakthrough Device designation, including with respect to the prior technologies as cited by the applicant, as well as the CARA System. We do not believe it would be appropriate for CMS to make our determination of eligibility under the alternative pathway before or in lieu of FDA's determination that an FDA-designated Breakthrough Device has obtained marketing authorization as a Breakthrough Device for an indication consistent with its Breakthrough Device designation. With respect to public disclosure on FDA's Breakthrough Devices web page, we note that in its 2023 guidance on the Breakthrough Devices Program,\95\ FDA stated that once a designated Breakthrough Device obtains marketing authorization for an indication consistent with its Breakthrough Device designation, FDA intends to publicly disclose its Breakthrough Device designation status for that indication for use. The FDA guidance further notes that because Breakthrough Device designation is granted for a device and its indication for use, if a designated Breakthrough Device receives marketing authorization for an indication other than the indication covered by its designation, it is not considered a market-authorized Breakthrough Device and would not be disclosed as such. FDA's Breakthrough Devices web page lists the Breakthrough Devices that have obtained marketing authorization for an indication consistent with its Breakthrough Designation.\96\ FDA's website further states that because Breakthrough Device designation is granted for a device and its indication for use, if a designated Breakthrough Device receives marketing authorization for an indication other than the indication covered by its designation, it is not considered a market-authorized Breakthrough Device and would not be included in this list. We note that while the CARA System received FDA 510(k) clearance on February 20, 2026 (K252500), it is not listed on FDA's Breakthrough Devices Program web page, which includes a list of Breakthrough Devices that have obtained marketing authorization for an indication consistent with its Breakthrough Designation through March 31, 2026. --------------------------------------------------------------------------- \95\ Breakthrough Devices Program--Guidance for Industry and Food and Drug Administration Staff (September 15, 2023) https://www.fda.gov/media/162413/download. \96\ FDA's Breakthrough Devices Program web page is available at: https://www.fda.gov/medical-devices/how-study-and-market-your-device/breakthrough-devices-program. --------------------------------------------------------------------------- We also disagree with the applicant's understanding of CMS's determination as to whether an FDA-cleared indication is ``covered by'' a technology's Breakthrough Device designated indication. We do not make a determination as to whether an FDA-cleared indication is covered by the technology's Breakthrough Device-designated indication until after FDA has determined that the device has obtained FDA marketing authorization as a Breakthrough Device. As an FDA marketing submission may be broader in scope and may cover both Breakthrough Device- designated and non-Breakthrough Device-designated indications, there may be differences in the patient population and/or disease treated between the FDA market authorized indication and the Breakthrough Device-designated indication. In these situations, because under the eligibility criteria for approval under the alternative pathway for certain transformative devices, only the use of the technology for the indication that corresponds to the technology's Breakthrough Device designation would be eligible for the new technology add-on payment, we must make a determination as to which uses of the device would be relevant for purposes of the new technology add-on payment. With respect to the applicant and commenter's suggestion that if CMS does not approve new technology add-on payments for the technology under the alternative pathway, CMS should consider approving the CARA System under the traditional pathway, we note that, as stated previously, CMS reviews applications based on the information provided by the applicant under the pathway specified by the applicant at the time of application submission (90 FR 36662). Therefore, because the CARA System has not received FDA marketing authorization as a Breakthrough Device, it does not qualify for new technology add-on payments for FY 2027. With respect to the comments we received regarding the technology's value and clinical impact, the importance of new technology add-on payments for the technology, and the different uses of the CARA System components with regard to the cost criterion, as noted, the technology has not received FDA marketing authorization as a Breakthrough Device and is not eligible for new technology add-on payments for FY 2027 under the pathway specified by the applicant at the time of application submission.

4. Ceribell Delirium Monitor System

Ceribell, Inc. submitted a FY 2027 application for new technology add-on payments for the Ceribell Delirium Monitor System. According to the applicant, the Ceribell Delirium Monitor System is a medical device system comprised of proprietary software, signal acquisition headbands and a recorder. Per the applicant, the software utilizes a machine learning model to analyze EEG signals to detect features indicative of delirium. In the proposed rule, we provided the following table containing an overview of the new technology add-on payment application for the Ceribell Delirium Monitor System and CMS's preliminary assessment. For additional details provided by the applicant, please refer to the online application posting at https://mearis.cms.gov/public/publications/ntap/NTP251006WFMK2. [[Page 49742]] [GRAPHIC] [TIFF OMITTED] TR04AU26.115 In the proposed rule we stated that after review of the information provided by the applicant, we noted that under the eligibility criteria for approval under the alternative pathway for certain transformative devices, only the use of the technology for the indication that corresponds to the technology's Breakthrough Device designation would be eligible for the new technology add-on payment for FY 2027. As stated by the applicant, the FDA-cleared indication is different and is not limited to adult patients aged 65 and older, as noted in the Breakthrough Device designation. Therefore, we stated that only the use of the Ceribell Delirium Monitor System for patients aged 65 and older, and the FDA Breakthrough Device designation it received for that use, would be relevant for purposes of the new technology add-on payment application for FY 2027. ICD-10 Coding In addition, we stated that as noted by the applicant, the ICD-10- PCS procedure code XX20X89 (Monitoring of brain electrical activity, computer-aided detection and notification, new technology group 9) is used for a different technology (the Ceribell Status Epilepticus Monitor) to help diagnose status epilepticus, which is not the subject of this new technology add-on payment application. Therefore, the applicant submitted a request for ICD-10-CM codes to differentiate use of the Ceribell Delirium Monitor System from use of the Ceribell Status Epilepticus Monitor, which was approved for new technology add-on payments for FY 2024 through FY 2026 (88 FR 58927 through 58930; 89 FR 70009; 90 FR 37260) and for which we proposed to discontinue making new technology add-on payments for FY 2027 because it will no longer be considered new (as discussed in section II.E.4. of the preamble of this final rule, we are finalizing our proposal to discontinue making new technology add-on payments for the Ceribell Status Epilepticus Monitor for FY 2027). Furthermore, for purposes of the new technology add-on payment, if approved, we stated we believed it would be appropriate to exclude cases reporting the ICD-10-PCS procedure code XX20X89 in patients with status epilepticus, which would instead identify use of the Ceribell Status Epilepticus Monitor. Please see Table 10.2.--Ceribell Delirium Monitor System, associated with the proposed [[Page 49743]] rule, for the list of ICD-10-CM diagnosis codes that we stated we believed would identify patients with status epilepticus, which we proposed to exclude from new technology add-on payment when reported in combination with ICD-10-PCS procedure code XX20X89. We invited public comments on our proposal to exclude cases reporting these ICD-10-CM diagnosis codes in combination with the ICD- 10-PCS procedure code XX20X89, for purposes of the new technology add- on payment for FY 2027, if approved. Comment: We received several comments, including from the applicant, expressing support for our proposal to approve new technology add-on payment for the Ceribell Delirium Monitor System. Multiple commenters described their assertions regarding the potential clinical impact of Ceribell Delirium Monitor System. Response: We thank the commenters for their comments. As previously noted, clinical performance is not within the scope of CMS's evaluation for new technology add-on payment under the alternative pathway. Comment: In response to our proposal to exclude cases reporting the status epilepticus ICD-10-CM diagnosis codes in combination with the ICD-10-PCS procedure code XX20X89, which was previously used for another technology, the Ceribell Status Epilepticus Monitor, the applicant stated that it agreed with CMS's proposed approach of utilizing ICD-10-PCS procedure code XX20X89 and excluding the 28 diagnosis codes listed for status epilepticus. Other commenters expressed concerns with the reliance on diagnosis code-based exclusions to distinguish between the use of the monitor for status epilepticus versus delirium. A commenter stated that the monitor may be utilized where there is no diagnosis and only a symptom would be reported. The commenter stated that it's also possible for a patient to have both conditions and it would be inappropriate to exclude delirium from new technology add-on payments for the system based on co-existing conditions. Some commenters recommended that CMS reconsider its proposal to exclude cases reporting diagnosis codes for status epilepticus, or create a distinct ICD-10-PCS code for the Ceribell Delirium Monitor System, or consider using ICD-10-CM signs and symptom codes that may be clinically representative of delirium, such as codes for altered mental status or confusion. Response: We thank the applicant and the other commenters for their comments. We appreciate the commenters raising their concerns regarding the potential use of the monitoring systems in cases where there is no diagnosis of either delirium or status epilepticus, as well as concerns regarding cases in which both conditions may be present. We continue to believe that the use of the ICD-10-PCS code XX20X89 in combination with the specified status epilepticus ICD-10-CM diagnosis code exclusions represents the most appropriate approach to identify cases associated with use of the Ceribell Status Epilepticus Monitor, which we proposed to exclude from new technology add-on payment. While we recognize that there may be instances in which patients are being monitored for delirium, but have a co-existing diagnosis of status epilepticus, we believe that this approach would provide an appropriate mechanism to exclude cases where the monitor is used for status epilepticus. As previously stated, ICD-10-PCS procedure code XX20X89 (Monitoring of brain electrical activity, computer-aided detection and notification, new technology group 9) is also used for the Ceribell Status Epilepticus Monitor, for which we are discontinuing new technology add- on payments for FY 2027 because it will no longer be considered new, and therefore coding between the two technologies must be differentiated to the extent of current capabilities. Further, we note that the suggested use of ICD-10-CM signs and symptoms codes that may be clinically representative of delirium, such as codes for altered mental status or confusion, would not be specific for delirium and may also inappropriately include cases with status epilepticus. However, we note that, following publication of the proposed rule, we were notified by the ICD-10 Coordination and Maintenance Committee that the applicant withdrew their request for new ICD-10-CM codes to differentiate use of the Ceribell Delirium Monitor System from use of the Ceribell Status Epilepticus Monitor. We question whether, without such codes, we would be able to differentiate use of the Ceribell Status Epilepticus Monitor for at-risk patients who do not ultimately receive a diagnosis of status epilepticus, from use of the Ceribell Delirium Monitor System for at-risk patients who do not ultimately receive a diagnosis of delirium. Therefore, we are considering whether it would be necessary to use ICD-10-PCS code XX20X89 in combination with ICD-10-CM diagnosis codes for delirium to identify cases using the Ceribell Delirium Monitor System that would be eligible for the new technology add-on payment. At this time, we are finalizing our proposal to use the ICD-10-PCS code XX20X89 in combination with ICD-10-CM diagnosis codes describing status epilepticus in Table 10.2.--Ceribell Delirium Monitor System (associated with this final rule) to identify cases associated with use of the Ceribell Status Epilepticus Monitor in patients diagnosed with status epilepticus, which would not be eligible for new technology add- on payment for FY 2027. Cost Criterion We stated we agreed with the applicant that the Ceribell Delirium Monitor System meets the cost criterion and therefore proposed to approve the Ceribell Delirium Monitor System for new technology add-on payments for FY 2027, for the FDA-cleared indication covered by the Breakthrough Device designation listed in the table. We stated we considered the beginning of the newness period to commence on December 8, 2025, the date on which the Ceribell Delirium Monitor System received FDA marketing authorization. Based on preliminary information from the applicant at the time of the proposed rule, we proposed that the maximum new technology add-on payment for a case involving the use of the Ceribell Delirium Monitor System would be $2,171 for FY 2027 (that is, 65 percent of the average cost of the technology). We noted that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. We invited public comments on whether the Ceribell Delirium Monitor System meets the cost criterion and our proposal to approve new technology add-on payments for the Ceribell Delirium Monitor System for FY 2027. Comment: The applicant submitted a public comment confirming that the expected hospital per-patient cost of the Ceribell Delirium Monitor is $3,340 and requested that CMS finalize its proposal to approve new technology add-on payment for this technology, effective October 1, 2026. Response: We thank the applicant for its comment. Based on the information provided in the application for new technology add-on payments, and after consideration of the public comments we received, we believe the Ceribell Delirium Monitor System meets the cost criterion. The technology received marketing authorization from FDA as a Breakthrough Device on December 8, [[Page 49744]] 2025, for an indication covered by its Breakthrough Device designation, as described previously. Therefore, we are finalizing our proposal to approve new technology add-on payments for the Ceribell Delirium Monitor System for FY 2027. We consider the beginning of the newness period to commence on December 8, 2025, the date on which the technology received FDA marketing authorization for the indication covered by its Breakthrough Device designation. Based on the information available at the time of this final rule, the cost per case of the Ceribell Delirium Monitor System is $3,340. Under Sec. 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS-DRG payment for the case. As a result, we are finalizing that the maximum new technology add-on payment for a case involving the use of the Ceribell Delirium Monitor System is $2,171 for FY 2027 (that is, 65 percent of the average cost of the technology). As noted earlier in this section, only the use of the Ceribell Delirium Monitor System for patients aged 65 and older, and the FDA Breakthrough Device designation it received for that use, is relevant for purposes of the new technology add-on payment application for FY 2027. For FY 2027, cases involving the use of the Ceribell Delirium Monitor System that are eligible for new technology add-on payments will be identified by ICD-10-PCS procedure code XX20X89 (Monitoring of brain electrical activity, computer-aided detection and notification, new technology group 9) without any of the ICD-10-CM diagnosis codes listed in Table 10.2.--Ceribell Delirium Monitor System associated with this final rule. However, as discussed earlier, we question whether it would be appropriate to also use ICD-10-PCS code XX20X89 in combination with ICD-10-CM diagnosis codes for delirium to identify cases using the Ceribell Delirium Monitor System for patients with delirium that would be eligible for the new technology add-on payment. We may revisit the codes used to identify cases involving the use of the Ceribell Delirium Monitor System that are eligible for new technology add-on payments in future rulemaking.

5. CMORE[supreg] CT System (posterior cervico-thoracic system)

Icotec ag submitted a FY 2027 application for new technology add-on payments for the CMORE[supreg] CT System. According to the applicant, the CMORE[supreg] CT System is a posterior cervico-thoracic fixation system manufactured from BlackArmor[supreg] Carbon/PEEK material for standard posterior fixation of the spinal column which features a variety of screw sizes and types, as well as rod shapes, to accommodate patient anatomy. In the proposed rule, we provided the following table containing an overview of the new technology add-on payment application for the CMORE[supreg] CT System and CMS's preliminary assessment. For additional details provided by the applicant, please refer to the online application posting at https://mearis.cms.gov/public/publications/ntap/NTP2510034V5CK. [[Page 49745]] [GRAPHIC] [TIFF OMITTED] TR04AU26.116 In the proposed rule, we noted that after review of the information provided by the applicant, as previously stated, under the eligibility criteria for approval under the alternative pathway for certain transformative devices, only the use of the technology for the indication that corresponds to the technology's Breakthrough Device designation would be eligible for the new technology add-on payment for FY 2027. We noted that the indication for use for the CMORE[supreg] [[Page 49746]] CT System in the absence of fusion for a limited time period in patients with advanced stage tumors involving the cervical spine in whom life expectancy is of insufficient duration to permit achievement of fusion, is not included in its Breakthrough Device designation. Therefore, we stated that the CMORE[supreg] CT System would only be eligible for new technology add-on payment for its Breakthrough Device- designated indication, as an adjunct to fusion of the cervical spine (C1 to C7) and the upper thoracic spine (T1 to T3), if approved. ICD-10 Coding Please see Table 10.1.--CMORE[supreg] CT System, associated with the proposed rule, for the list of relevant ICD-10-PCS procedure codes that we believed would be appropriate to report in combination with use of the CMORE[supreg] CT System to identify use of the technology for the Breakthrough Device-designated indication, as an adjunct to fusion of the cervical spine (C1 to C7) and the upper thoracic spine (T1 to T3). We invited public comments on the use of these ICD-10-PCS procedure codes to identify use of the technology for the Breakthrough Device-designated indication for purposes of the new technology add-on payment, if approved. We did not receive any comments related to the list of relevant ICD-10-PCS for the CMORE[supreg] CT System Breakthrough Device- designated indication. Cost Criterion In the proposed rule, we stated we agreed with the applicant that the CMORE[supreg] CT System meets the cost criterion and therefore proposed to approve the CMORE[supreg] CT System for new technology add- on payments for FY 2027, for the FDA-cleared indication covered by the Breakthrough Device designation listed in the table and as described previously. We considered the beginning of the newness period to commence on December 8, 2025, the date on which the CMORE[supreg] CT System became commercially available. Based on preliminary information from the applicant at the time of the proposed rule, we proposed that the maximum new technology add-on payment for a case involving the use of the CMORE[supreg] CT System would be $60,905 for FY 2027 (that is, 65 percent of the average cost of the technology). We noted that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. We invited public comments on whether the CMORE[supreg] CT System meets the cost criterion and our proposal to approve new technology add-on payments for the CMORE[supreg] CT System for FY 2027. We did not receive any comments related to the CMORE[supreg] CT System. Based on the information provided in the application for new technology add-on payments, we believe the CMORE[supreg] CT System meets the cost criterion. The technology received marketing authorization from FDA as a Breakthrough Device on November 12, 2025, as described previously. Therefore, we are finalizing our proposal to approve new technology add-on payments for the CMORE[supreg] CT System for FY 2027. We consider the beginning of the newness period to commence on December 8, 2025, the date on which the technology became commercially available for the indication covered by its Breakthrough Device designation. Based on the information available at the time of this final rule, the cost per case of the CMORE[supreg] CT System is $93,700. Under Sec. 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS-DRG payment for the case. As a result, we are finalizing that the maximum new technology add-on payment for a case involving the use of the CMORE[supreg] CT System is $60,905 for FY 2027 (that is, 65 percent of the average cost of the technology). As noted earlier in this section, the indication for use for the CMORE[supreg] CT System in the absence of fusion for a limited time period in patients with advanced stage tumors involving the cervical spine in whom life expectancy is of insufficient duration to permit achievement of fusion, is not included in its Breakthrough Device designation. Therefore, only the use of the CMORE[supreg] CT System as an adjunct to fusion of the cervical spine (C1 to C7) and the upper thoracic spine (T1 to T3), and the FDA Breakthrough Device designation it received for that use, are relevant for purposes of the new technology add-on payment application for FY 2027. In addition, the applicant was granted approval for unique ICD-10-PCS procedure codes for the CMORE[supreg] CT System beginning in FY 2027. Therefore, cases involving the use of the CMORE[supreg] CT System that are eligible for new technology add-on payments will be identified by any of the following ICD-10-PCS procedure codes in combination with any of the ICD-10-PCS procedure codes listed in Table 10.1.--CMORE[supreg] CT System, associated with this final rule. [[Page 49747]] [GRAPHIC] [TIFF OMITTED] TR04AU26.117

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

W.L. Gore & Associates, Inc. submitted a FY 2027 application for new technology add-on payments for the GORE[supreg] VIABAHN[supreg] FORTEGRA Venous Stent. According to the applicant, the GORE[supreg] VIABAHN[supreg] FORTEGRA Venous Stent is an open-structure polymer lattice device providing intraluminal support in the inferior vena cava and, if clinically warranted, the common iliac veins, at the iliocaval confluence in patients with symptomatic vessel obstruction. In the proposed rule, we provided the following table containing an overview of the new technology add-on payment application for the GORE[supreg] VIABAHN[supreg] FORTEGRA Venous Stent and CMS's preliminary assessment. For additional details provided by the applicant, please refer to the online application posting at https://mearis.cms.gov/public/publications/ntap/NTP251006MBT8G. [GRAPHIC] [TIFF OMITTED] TR04AU26.118 Cost Criterion In the proposed rule, we stated that after review of the information provided by the applicant, we agreed with the applicant that the GORE[supreg] VIABAHN[supreg] FORTEGRA Venous Stent meets the cost criterion and therefore proposed to approve the GORE[supreg] VIABAHN[supreg] FORTEGRA Venous Stent for new technology add-on payments for FY 2027, for the FDA-approved indication [[Page 49748]] covered by the Breakthrough Device designation listed in the table. We considered the beginning of the newness period to commence on December 19, 2025, the date on which the GORE[supreg] VIABAHN[supreg] FORTEGRA Venous Stent received FDA marketing authorization. Based on preliminary cost information from the applicant at the time of the proposed rule, we proposed that the maximum new technology add-on payment for a case involving the use of the GORE[supreg] VIABAHN[supreg] FORTEGRA Venous Stent would be $7,186.40 for FY 2027 (that is, 65 percent of the average cost of the technology). We noted that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. We invited public comments on whether the GORE[supreg] VIABAHN[supreg] FORTEGRA Venous Stent meets the cost criterion and our proposal to approve new technology add-on payments for the GORE[supreg] VIABAHN[supreg] FORTEGRA Venous Stent for FY 2027. Comment: Multiple commenters, including the applicant, expressed support for the proposal to approve the GORE[supreg] VIABAHN[supreg] FORTEGRA Venous Stent for new technology add-on payments and agreed that this technology meets eligibility requirements. The applicant stated its support of a maximum payment amount of $7,186.40. Response: We thank the applicant and other commenters for their comments. Based on the information provided in the application for new technology add-on payments, and after consideration of the public comments we received, we believe the GORE[supreg] VIABAHN[supreg] FORTEGRA Venous Stent meets the cost criterion. The technology received marketing authorization from FDA as a Breakthrough Device on December 19, 2025 for the indication covered by its Breakthrough Device designation. Therefore, we are finalizing our proposal to approve new technology add-on payments for the GORE[supreg] VIABAHN[supreg] FORTEGRA Venous Stent for FY 2027. We consider the beginning of the newness period to commence on December 19, 2025, the date on which the technology received FDA marketing authorization for the indication covered by its Breakthrough Device designation. Based on the information available at the time of this final rule, the cost per case of the GORE[supreg] VIABAHN[supreg] FORTEGRA Venous Stent is $11,056. Under Sec. 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS-DRG payment for the case. As a result, we are finalizing that the maximum new technology add-on payment for a case involving the use of the GORE[supreg] VIABAHN[supreg] FORTEGRA Venous Stent is $7,186.40 for FY 2027 (that is, 65 percent of the average cost of the technology). The applicant was granted approval for a unique ICD-10-PCS procedure code for the GORE[supreg] VIABAHN[supreg] FORTEGRA Venous Stent beginning in FY 2026. Therefore, cases involving the use of the GORE[supreg] VIABAHN[supreg] FORTEGRA Venous Stent that are eligible for new technology add-on payments will be identified by ICD-10-PCS procedure code: X2723CB (Dilation of inferior vena cava and iliocaval confluence with open-structure polymer lattice intraluminal device, percutaneous approach, new technology group 11).

7. InfuseTM Bone Graft

Medtronic Sofamor Danek USA, Inc. submitted a FY 2027 application for new technology add-on payments for InfuseTM Bone Graft. According to the applicant, InfuseTM Bone Graft--is a bone graft material designed to promote bone formation at the site of implantation for transforaminal lumbar interbody fusion (TLIF), at one or two adjacent levels from L2-S1 in the treatment of degenerative disc disease (DDD). Per the applicant, it consists of two primary components, recombinant human bone morphogenetic protein-2 (rhBMP-2) and an absorbable collagen sponge which serves as a delivery matrix and scaffold for bone growth. In the proposed rule, we provided the following table containing an overview of the new technology add-on payment application for InfuseTM Bone Graft and CMS's preliminary assessment. For additional details provided by the applicant, please refer to the online application posting at https://mearis.cms.gov/public/publications/ntap/NTP250929NNTP8. [[Page 49749]] [GRAPHIC] [TIFF OMITTED] TR04AU26.119 ICD-10 Coding In the proposed rule, we stated that after review of the information provided by the applicant, we noted that InfuseTM Bone Graft has been granted other FDA approvals beyond the scope of its Breakthrough Device designation. We stated we believed the relevant ICD-10-PCS procedure codes that would be appropriate to report in combination with use of InfuseTM Bone Graft, to identify use of the technology for the Breakthrough Device-designated indication in a TLIF surgical approach at one or two adjacent levels from L2-S1 in the treatment of degenerative disease of the lumbosacral spine for purposes of the new technology add-on payment, if approved, would be the following codes: [[Page 49750]] [GRAPHIC] [TIFF OMITTED] TR04AU26.120 We invited public comments on the use of these ICD-10-PCS procedure codes to identify use of the technology for the Breakthrough Device- designated indication for purposes of the new technology add-on payment, if approved. Comment: The applicant submitted a public comment stating that it agreed with CMS's assessment of the relevant ICD-10-PCS procedure codes that would be appropriate to report in combination with the use of Infuse Bone GraftTM to identify use of the technology for the Breakthrough Device-designated indication in a TLIF surgical approach for purposes of new technology add-on payments. Response: We thank the applicant for its support. Cost Criterion In the proposed rule we stated we agreed with the applicant that InfuseTM Bone Graft meets the cost criterion and therefore proposed to approve InfuseTM Bone Graft for new technology add-on payments for FY 2027, for the FDA-approved indication covered by the Breakthrough Device designation listed in the table and as described previously. We stated we considered the beginning of the newness period to commence on February 13, 2026, the date on which InfuseTM Bone Graft received FDA marketing authorization. Based on preliminary information from the applicant at the time of the proposed rule, we proposed that the maximum new technology add-on payment for a case involving the use of InfuseTM Bone Graft would be $4,396.60 for FY 2027 (that is, 65 percent of the average cost of the technology). We noted that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. We invited public comments on whether InfuseTM Bone Graft meets the cost criterion and our proposal to approve new technology add-on payments for InfuseTM Bone Graft for FY 2027. Comment: The applicant submitted a public comment supporting CMS's proposal to approve new technology add-on payments for InfuseTM Bone Graft for use in transforaminal lumbar interbody fusion (TLIF) procedures for degenerative disc disease. The applicant agreed with CMS's cost assessment and CMS's proposal to approve the technology with the proposed maximum payment amount of $4,396.60. Response: We thank the applicant for its comment. Based on the information provided in the application for new technology add-on payments, and after consideration of the public comments we received, we continue to believe InfuseTM Bone Graft meets the cost criterion. The technology received marketing authorization from FDA as a Breakthrough Device on February 13, 2026 for the indication covered by its Breakthrough Device designation. Therefore, we are finalizing our proposal to approve new technology add-on payments for InfuseTM Bone Graft for FY 2027. We consider the beginning of the newness period to commence on February 13, 2026, the date on which the technology received FDA marketing authorization for the indication covered by its Breakthrough Device designation. Based on the information available at the time of this final rule, the cost per case of InfuseTM Bone Graft is $6,764. Under Sec. 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS-DRG payment for the case. As a result, we are finalizing that the maximum new technology add-on payment for a case involving the use of InfuseTM Bone Graft is $4,396.60 for FY 2027 (that is, 65 percent of the average cost of the technology). As noted earlier in this section, InfuseTM Bone Graft has received FDA marketing authorization for multiple indications, and only the use of InfuseTM Bone Graft for the Breakthrough Device-designated indication in a TLIF surgical approach at one or two adjacent levels from L2-S1 in the treatment of degenerative disease of the lumbosacral spine is relevant for purposes of the new technology add-on payment application for FY 2027. In addition, the applicant was granted approval for a unique ICD-10-PCS procedure code for the InfuseTM Bone Graft beginning in FY 2027. Therefore, cases involving the use of InfuseTM Bone Graft that are eligible for new technology add-on payments will be identified by ICD-10-PCS procedure code XW0U0CC (Introduction of recombinant human bone morphogenetic protein-2 with collagen scaffold into joints, open approach, new technology group 12), in combination with any of the following ICD-10-PCS procedure codes: [[Page 49751]] [GRAPHIC] [TIFF OMITTED] TR04AU26.121

8. InVision Precision Cardiac Amyloid

Invision Medical Technology submitted a FY 2027 application for new technology add-on payments for InVision Precision Cardiac Amyloid (InVision PCA). According to the applicant, InVision PCA is a SaMD machine-learning disease detection algorithm to identify high suspicion of cardiac amyloidosis from routinely obtained echocardiogram videos. Per the applicant, the device assists clinicians in the diagnosis of cardiac amyloidosis. In the proposed rule, we provided the following table containing an overview of the new technology add-on payment application for InVision PCA and CMS's preliminary assessment. For additional details provided by the applicant, please refer to the online application posting at https://mearis.cms.gov/public/publications/ntap/NTP251002J7D89. [GRAPHIC] [TIFF OMITTED] TR04AU26.122 [[Page 49752]] Cost Criterion In the proposed rule, we stated that after review of the information provided by the applicant, we agreed with the applicant that InVision PCA meets the cost criterion and therefore proposed to approve InVision PCA for new technology add-on payments for FY 2027, for the FDA-cleared indication covered by the Breakthrough Device designation listed in the table. We stated we considered the beginning of the newness period to commence on May 21, 2025, the date on which InVision PCA received FDA market authorization. Based on preliminary information from the applicant at the time of the proposed rule, we proposed that the maximum new technology add-on payment for a case involving the use of InVision PCA would be $162.50 for FY 2027 (that is, 65 percent of the average cost of the technology). We noted that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. We invited public comments on whether InVision PCA meets the cost criterion and our proposal to approve new technology add-on payments for InVision PCA for FY 2027. Comment: Multiple commenters including the applicant submitted public comments expressing agreement that InVision PCA meets the eligibility requirements including the cost criterion, and supporting our proposal to approve new technology add-on payments for FY 2027. The applicant stated that the per-patient cost of the InVision PCA has changed since the filing of their application. The applicant stated that, following extensive market and competitive research, the final per-patient cost is $3,500, reflecting the rarity of the disease, the clinical value to patients, and increased costs associated with Graphics Processing Unit (GPU) computing infrastructure required for the application. The applicant submitted an updated cost analysis to CMS, and stated that the cost criterion is still met at this updated price. The applicant requested that CMS finalize the new technology add-on payment application at this new per-patient cost, effective October 1, 2026. Response: We thank the commenters and applicant for their comments. We also thank the applicant for the updated cost and cost analysis. We note that the updated final inflated average case-weighted standardized charge per case ($167,579) still exceeds the average case-weighted threshold amount ($97,126). Based on the information provided in the application for new technology add-on payments, and after consideration of the public comments we received, we believe InVision PCA meets the cost criterion. The technology received marketing authorization from FDA as a Breakthrough Device on May 21, 2025 for the indication covered by its Breakthrough Device designation. Therefore, we are finalizing our proposal to approve new technology add-on payments for InVision PCA for FY 2027. We consider the beginning of the newness period to commence on May 21, 2025, the date on which the technology received FDA marketing authorization for the indication covered by its Breakthrough Device designation. Based on the information available at the time of this final rule, the updated cost per case of InVision PCA is $3,500. Under Sec. 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS-DRG payment for the case. As a result, we are finalizing that the maximum new technology add-on payment for a case involving the use of InVision PCA is $2,275.00 for FY 2027 (that is, 65 percent of the average cost of the technology). The applicant was granted approval for a unique ICD-10-PCS procedure code for the InVision PCA beginning in FY 2027. Therefore, cases involving the use of InVision PCA that are eligible for new technology add-on payments will be identified by ICD-10-PCS procedure code: XEZZXLC (Computer-aided detection and notification for imaging abnormalities in echocardiography, new technology group 12).

9. NelliTM Seizure Monitoring System

Neuro Event Labs submitted a FY 2027 application for new technology add-on payments for the NelliTM Seizure Monitoring System. According to the applicant, the NelliTM Seizure Monitoring System is a prescription-only device that is designed to be used as an adjunct to seizure monitoring in healthcare facilities during periods of rest. Per the applicant, the device utilizes automated analysis of audio and video (media) to identify epileptic and non-epileptic seizure events with a positive motor component. We note that the applicant submitted an application for new technology add-on payments for this technology for FY 2026 (90 FR 18189 through 18191; 90 FR 36770), FY2024 (88 FR 26940 through 26942; 88 FR 58919), and FY 2023 (87 FR 28341 through 28342; 87 FR 48960). In the proposed rule, we provided the following table containing an overview of the new technology add-on payment application for the NelliTM Seizure Monitoring System and CMS's preliminary assessment. For additional details provided by the applicant, please refer to the online application posting at https://mearis.cms.gov/public/publications/ntap/NTP2509294WQJJ. [[Page 49753]] [GRAPHIC] [TIFF OMITTED] TR04AU26.123 Cost Criterion In the proposed rule, we stated that after review of the information provided by the applicant, we agreed with the applicant that the NelliTM Seizure Monitoring System meets the cost criterion and therefore proposed to approve the NelliTM Seizure Monitoring System for new technology add-on payments for FY 2027, for the FDA-cleared indication covered by the Breakthrough Device designation listed in the table. We stated we considered the beginning of the newness period to commence on January 20, 2026, the date on which the NelliTM Seizure Monitoring System became commercially available. As previously noted, we do not include capital costs in the add-on payments for a new medical service or technology or make new technology add-on payments under the IPPS for capital-related costs (86 FR 45145). As noted, the applicant included capital costs of $89 for the PRU in the total technology cost. Therefore, we stated it appeared that these costs are not eligible for new technology add-on payment, and we noted that any new technology add-on payment for the NelliTM Seizure Monitoring System would be based on only the operating costs of $1,500 for the analysis during inpatient hospital stay. As a result, based on preliminary information from the applicant at the time of the proposed rule, we proposed that the maximum new technology add-on payment for a case involving the use of the NelliTM Seizure Monitoring System would be $975 for FY 2027 (that is, 65 percent of the average cost of the technology). We noted that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. We invited public comments on whether the NelliTM Seizure Monitoring System meets the cost criterion and our proposal to approve new technology add-on payments for the NelliTM Seizure Monitoring System for FY 2027. Comment: The applicant submitted a public comment supporting CMS's proposal to approve new technology add-on payments for the NelliTM Seizure Monitoring System. The applicant provided assertions regarding the clinical impact of the technology and the expected impact of approval for new technology add-on payments. The applicant stated that the cost for the Nelli System remains $1,500. The applicant also stated that ICD-10-PCS code XXE0X48 (Measurement of brain electrical activity, computer-aided semiologic analysis, new technology group 8), effective October 1, 2022, may be used to identify use of the technology. [[Page 49754]] Response: We thank the applicant for its comment. As previously noted, clinical performance is not within the scope of CMS's evaluation for new technology add-on payment under the alternative pathway. Based on the information provided in the application for new technology add-on payments, and after consideration of the public comment we received, we continue to believe the NelliTM Seizure Monitoring System meets the cost criterion. The technology received marketing authorization from FDA as a Breakthrough Device on November 21, 2025 for the indication covered by its Breakthrough Device designation. Therefore, we are finalizing our proposal to approve new technology add-on payments for the NelliTM Seizure Monitoring System for FY 2027. We consider the beginning of the newness period to commence on January 20, 2026, the date on which the technology became commercially available for the indication covered by its Breakthrough Device designation. Based on the information available at the time of this final rule, the cost per case of the NelliTM Seizure Monitoring System is $1,500. Under Sec. 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS-DRG payment for the case. As a result, we are finalizing that the maximum new technology add-on payment for a case involving the use of the NelliTM Seizure Monitoring System is $975 for FY 2027 (that is, 65 percent of the average cost of the technology). Cases involving the use of the NelliTM Seizure Monitoring System that are eligible for new technology add-on payments will be identified by ICD-10-PCS procedure code: XXE0X48 (Measurement of brain electrical activity, computer-aided semiologic analysis, new technology group 8).

10. NEXUS[supreg] Aortic Arch Stent Graft System

ENDOSPAN submitted a FY 2027 application for new technology add-on payments for the NEXUS[supreg] Aortic Arch Stent Graft System. According to the applicant, the NEXUS[supreg] Aortic Arch Stent Graft System is a branched endovascular stent graft system designed specifically for repair of aortic arch pathologies (including aneurysms, chronic dissections, penetrating ulcers, and intramural hematoma) involving Zone 0 ascending aorta and the arch. In the proposed rule, we provided the following table containing an overview of the new technology add-on payment application for the NEXUS[supreg] Aortic Arch Stent Graft System and CMS's preliminary assessment. For additional details provided by the applicant, please refer to the online application posting at https://mearis.cms.gov/public/publications/ntap/NTP251006114Y0. [GRAPHIC] [TIFF OMITTED] TR04AU26.124 Cost Criterion In the proposed rule, we stated that after review of the information provided by the applicant, we agreed with the applicant that the NEXUS[supreg] Aortic Arch Stent Graft System meets the cost criterion and therefore proposed to approve the NEXUS[supreg] Aortic Arch Stent Graft System for new technology add-on payments for FY 2027, subject to the technology receiving FDA marketing authorization for the indication corresponding to the Breakthrough Device designation by May 1, 2026. Based on preliminary cost information from the applicant at the time of the proposed rule, we proposed that the maximum new technology add-on payment for a case involving the use [[Page 49755]] of the NEXUS[supreg] Aortic Arch Stent Graft System would be $35,880 for FY 2027 (that is, 65 percent of the average cost of the technology). We noted that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. We invited public comments on whether the NEXUS[supreg] Aortic Arch Stent Graft System meets the cost criterion and our proposal to approve new technology add-on payments for the NEXUS[supreg] Aortic Arch Stent Graft System for FY 2027, subject to the technology receiving FDA marketing authorization for the indication corresponding to the Breakthrough Device designation by May 1, 2026. Comment: The applicant submitted a public comment in support of the NEXUS[supreg] Aortic Arch Stent Graft System, including a copy of the FDA PMA approval letter. The applicant stated that FDA marketing authorization was received prior to the May 1, 2026 deadline and requested CMS confirm that the NEXUS[supreg] Aortic Arch Stent Graft System satisfies the FDA marketing authorization criterion. The applicant stated FDA approval was supported by the one-year results of the TRIOMPHE Investigational Device Exemption (IDE) clinical study and provided its assertions regarding the clinical outcomes demonstrated by the trial. Other commenters also expressed support for the approval of the NEXUS[supreg] Aortic Arch Stent Graft System, stating that the technology meets the new technology add-on payment requirements and offers a minimally invasive treatment option for patients with complex aortic arch disease--including aneurysms, chronic dissections, penetrating ulcers, and intramural hematoma--who often face high operative risk and limited alternatives with conventional open arch surgery. The commenters stated that temporary add-on payment is appropriate to facilitate access to this innovative therapy while utilization patterns and MS-DRG relative weights for these cases continue to evolve. Response: We thank the applicant and other commenters for their comments. As previously noted, clinical performance is not within the scope of CMS's evaluation for new technology add-on payment under the alternative pathway. We agree with the applicant that the NEXUS[supreg] Aortic Arch Stent Graft System meets the marketing authorization requirement because the NEXUS[supreg] Aortic Arch Stent Graft System received PMA approval as a Breakthrough Device prior to May 1, 2026. Comment: A commentor submitted a public comment related to the cost criterion analysis for the NEXUS[supreg] Aortic Arch Stent Graft System stating that MS-DRG 209 was not active until FY 2026 as it was created to recognize the complexity and resource use for procedures utilizing several new technologies in complex aortic arch procedures, including the GORE[supreg] TAG[supreg] Thoracic Branch Endoprosthesis. The commenter stated that the cost threshold is significantly higher for MS-DRG 209 and requested CMS clarify whether the cost analysis should rank MS-DRG 209 higher related to the payment thresholds for FY 2027 new technology add-on payment applications. The commenter also stated that if the applicant's cost analysis were used as submitted, the new ICD-10-PCS section X codes for this technology (which it referred to as X2VJ3HC and X2VJ3JC) should be included in MS-DRGs 219-221 only, which the commenter stated appeared to be the dominant MS-DRGs per the analysis. Response: We thank the commenter for its comment. We are unclear on the commenter's suggestion that the cost analysis should be reconfigured to rank MS-DRG 209 higher, as MS-DRGs in a cost analysis are not ranked. We note that even if only the FY 2027 new technology add-on payment threshold for MS-DRG 209 was used for all identified cases in the cost criterion analysis, the NEXUS[supreg] Aortic Arch Stent Graft System would still meet the cost criterion because the final inflated average case-weighted standardized charge per case ($513,444) would exceed the threshold amount for MS-DRG 209 ($402,058). We also note that the process to request MS-DRG classification changes is separate and distinct from the new technology add-on payment application process. We refer the commenter to the MS-DRG classification change request process that is discussed in section II.C.1.b of the preamble of this final rule for further information. We further note that the applicant was granted approval for unique ICD-10-PCS procedure codes that are different from one of the codes discussed in the comment, and which are discussed later in this section. Based on the information provided in the application for new technology add-on payments, and after consideration of the public comments we received, we believe the NEXUS[supreg] Aortic Arch Stent Graft System meets the cost criterion. The technology received PMA approval from FDA as a Breakthrough Device on April 2, 2026 with an indication for the endovascular treatment of chronic dissections involving the aortic arch in patients who are at high risk for open surgical repair and who have appropriate anatomy,\97\ which is covered by its Breakthrough Device designation. Therefore, we are finalizing our proposal to approve new technology add-on payments for the NEXUS[supreg] Aortic Arch Stent Graft System for FY 2027. We consider the beginning of the newness period to commence on April 2, 2026, the date on which the technology received FDA marketing authorization for the indication covered by its Breakthrough Device designation. --------------------------------------------------------------------------- \97\ https://www.accessdata.fda.gov/cdrh_docs/pdf25/P250033A.pdf. --------------------------------------------------------------------------- Based on the information available at the time of this final rule, the cost per case of the NEXUS[supreg] Aortic Arch Stent Graft System is $55,200. Under Sec. 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS-DRG payment for the case. As a result, we are finalizing that the maximum new technology add-on payment for a case involving the use of the NEXUS[supreg] Aortic Arch Stent Graft System is $35,880 for FY 2027 (that is, 65 percent of the average cost of the technology). The applicant was granted approval for unique ICD-10-PCS procedure codes for the NEXUS[supreg] Aortic Arch Stent Graft System beginning in FY 2027. Therefore, cases involving the use of the NEXUS[supreg] Aortic Arch Stent Graft System that are eligible for new technology add-on payments will be identified by either ICD-10-PCS procedure code X2VJ3HC (Restriction of thoracic aorta, ascending and arch using branched intraluminal device, integrated system with innominate branch, percutaneous approach, new technology group 12), or X2VJ3HC in combination with X2VW3JC (Restriction of thoracic aorta, descending using branched intraluminal device, integrated system extension, percutaneous approach, new technology group 12).

11. OmniaSecureTM MRI SureScanTM Lead Model 3930M

Medtronic submitted a FY 2027 application for new technology add-on payments for the OmniaSecureTM MRI SureScanTM Lead Model 3930M (OmniaSecureTM defibrillation lead). According to the applicant, the OmniaSecureTM defibrillation lead is an implantable defibrillation lead designed to deliver pacing, sensing, cardioversion, and defibrillation therapy [[Page 49756]] for patients at risk of life-threatening ventricular arrhythmias. In the proposed rule, we provided the following table containing an overview of the new technology add-on payment application for the OmniaSecureTM defibrillation lead and CMS's preliminary assessment. For additional details provided by the applicant, please refer to the online application posting at https://mearis.cms.gov/public/publications/ntap/NTP250930Q7TFH. [GRAPHIC] [TIFF OMITTED] TR04AU26.125 Cost Criterion In the proposed rule, we stated that after review of the information provided by the applicant, we agreed with the applicant that the OmniaSecureTM defibrillation lead meets the cost criterion and therefore proposed to approve the OmniaSecureTM defibrillation lead for new technology add-on payments for FY 2027, for the FDA-approved indication covered by the Breakthrough Device designation listed in the table. We stated we considered the beginning of the newness period to commence on January 7, 2026, the date on which the OmniaSecureTM defibrillation lead became commercially available. Based on preliminary information from the applicant at the time of the proposed rule, we proposed that the maximum new technology add-on payment for a case involving the use of the OmniaSecureTM defibrillation lead would be $7,796.75 for FY 2027 (that is, 65 percent of the average cost of the technology). We noted that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. We invited public comments on whether the OmniaSecureTM defibrillation lead meets the cost criterion and our proposal to approve new technology add-on payments for the OmniaSecureTM MRI SureScanTM Lead Model 3930M for FY 2027. Comment: A few commenters, including the applicant expressed support for our proposal to approve new technology add-on payment for the OmniaSecureTM MRI SureScanTM Lead Model 3930M. The applicant stated that it agreed with the assessment provided in the proposed rule and stated that two new ICD-10-PCS codes, X2HV3GB (Insertion of lumenless small-diameter defibrillator lead into right ventricle, percutaneous approach, new technology group 11) and X2HM3GB (Insertion of lumenless small-diameter defibrillator lead into ventricular septum, percutaneous approach, new technology group 11) became effective April 1, 2026, to describe procedures involving insertion of the OmniaSecureTM defibrillation lead. The applicant requested that CMS finalize approval at the proposed maximum payment amount of $7,796.75 per case. Response: We thank the commenters for their comments and support. Based on the information provided in the application for new technology add-on payments, and after consideration of the public comments we received, we believe the OmniaSecureTM defibrillation lead meets the cost criterion. The technology received marketing authorization from FDA as a Breakthrough Device on April 22, 2025 for the indication covered by its Breakthrough Device designation. Therefore, we are finalizing our proposal to approve new technology add-on payments for the OmniaSecureTM defibrillation lead for FY 2027 for single use in the right ventricle for pacing, sensing, cardioversion, and defibrillation when a cardiac implantable electronic device is indicated to treat patients who have experienced, or are at significant risk of [[Page 49757]] developing, life-threatening ventricular tachyarrhythmias. We consider the beginning of the newness period to commence on January 7, 2026, the date on which the technology became commercially available for the indication covered by its Breakthrough Device designation. Based on the information available at the time of this final rule, the cost per case of the OmniaSecureTM defibrillation lead is $11,995. Under Sec. 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS-DRG payment for the case. As a result, we are finalizing that the maximum new technology add-on payment for a case involving the use of the OmniaSecureTM defibrillation lead is $7,796.75 for FY 2027 (that is, 65 percent of the average cost of the technology). The applicant was granted approval for unique ICD-10-PCS procedure codes for the OmniaSecureTM defibrillation lead beginning in FY 2026. However, we disagree that cases involving the use of OmniaSecureTM defibrillation lead that are identified by X2HM3GB (Insertion of lumenless small-diameter defibrillator lead into ventricular septum, percutaneous approach, new technology group 11) should be eligible for new technology add-on payment as the FDA Breakthrough Device-designated indication only covers the OmniaSecureTM defibrillation lead when intended for use in the right ventricle. The use of the OmniaSecureTM defibrillation lead for placement at the left bundle branch area in the ventricular septum is not covered by its Breakthrough Device-designated indication. Therefore, cases involving the use of the OmniaSecureTM defibrillation lead that are eligible for new technology add-on payments will be identified by ICD-10-PCS procedure code X2HV3GB (Insertion of lumenless small-diameter defibrillator lead into right ventricle, percutaneous approach, new technology group 11).

12. PearlMatrixTM P-15 Peptide Enhanced Bone Graft

Cerapedics, Inc. submitted a FY 2027 application for new technology add-on payments for PearlMatrixTM P-15 Peptide Enhanced Bone Graft. According to the applicant, PearlMatrixTM P-15 Peptide Enhanced Bone Graft is a composite bone graft material consisting of a synthetic peptide, found naturally occurring in human Type I collagen (P-15), adsorbed onto calcium phosphate particles, which are incorporated into a fibrous collagen matrix putty as an inert carrier. We note that the applicant submitted an application for new technology add-on payments for this technology for FY 2026 (90 FR 18193 through 18195; 90 FR 36770). In the proposed rule, we provided the following table containing an overview of the new technology add-on payment application for PearlMatrixTM P-15 Peptide Enhanced Bone Graft and CMS's preliminary assessment. For additional details provided by the applicant, please refer to the online application posting at https://mearis.cms.gov/public/publications/ntap/NTP251001VFM4K. [[Page 49758]] [GRAPHIC] [TIFF OMITTED] TR04AU26.126 ICD-10-CM Coding: In the proposed rule, we stated that after review of the information provided by the applicant, we noted that subsequent to the June 18, 2025 PMA as listed in the table, a supplemental PMA for PearlMatrixTM P-15 Peptide Enhanced Bone Graft was approved on December 11, 2025,\98\ expanding the indication to allow implantation of the product using additional surgical approaches. We noted that, as previously stated, under the eligibility criteria for approval under the alternative pathway for certain transformative devices, only the use of the technology for the indication that corresponds to the technology's Breakthrough Device designation would be eligible for the new technology add-on payment for FY 2027. Therefore, we stated it appeared that only the use of the PearlMatrixTM P-15 Peptide Enhanced Bone Graft in conjunction with a TLIF device, and the FDA Breakthrough Device designation it received for that use, would be relevant for purposes of the new technology add-on payment application for FY 2027. We noted that the applicant stated that effective October 1, 2025, the following ICD-10-PCS codes could be used to uniquely describe procedures involving the use of the technology: XW0U0XB (Introduction of peptide enhanced bone void filler into joints, open approach, new technology group 11), XW0U3XB (Introduction of peptide enhanced bone void filler into joints, percutaneous approach, new technology group 11), or XW0U4XB (Introduction of peptide enhanced bone void filler into joints, percutaneous endoscopic approach, new technology group 11). We stated we believed the relevant ICD-10-PCS procedure codes that would be appropriate to report in combination with the PearlMatrixTM P-15 Peptide Enhanced Bone Graft's unique ICD-10-PCS codes to identify use of the technology for the Breakthrough Device-designated indication would be the following: --------------------------------------------------------------------------- \98\ https://www.accessdata.fda.gov/scripts/cdrh/cfdocs/cfpma/pma.cfm?id=P240001S001. --------------------------------------------------------------------------- [[Page 49759]] [GRAPHIC] [TIFF OMITTED] TR04AU26.127 We invited public comments on the use of these ICD-10-PCS procedure codes to identify use of the technology for the Breakthrough Device- designated indication for purposes of the new technology add-on payment, if approved, and did not receive any comments. Cost Criterion In the proposed rule we stated we agreed with the applicant that PearlMatrixTM P-15 Peptide Enhanced Bone Graft meets the cost criterion and therefore proposed to approve PearlMatrixTM P-15 Peptide Enhanced Bone Graft for new technology add-on payments for FY 2027, for the FDA-approved indication covered by the Breakthrough Device designation listed in the table and as described previously. We stated we considered the beginning of the newness period to commence on June 18, 2025, the date on which PearlMatrixTM P-15 Peptide Enhanced Bone Graft received FDA marketing authorization. Based on preliminary cost information from the applicant at the time of the proposed rule, we stated that the applicant anticipated the total cost of PearlMatrixTM P-15 Peptide Enhanced Bone Graft to the hospital to be $6,500 per patient, for one 10 cc kit used per inpatient stay. We noted that the applicant stated there were capital costs of $1,300 for the bone graft peptide, porcine anorganic bone mineral, and fibrous collagen matrix, and that, as we had previously discussed, we do not include capital costs in the add-on payments for a new medical service or technology or make new technology add-on payments under the IPPS for capital-related costs (86 FR 45145). Therefore, we stated it appeared that the $1,300 capital costs were not eligible for new technology add-on payment, and we noted that any new technology add-on payment for PearlMatrix P-15 Peptide Enhanced Bone Graft would be based on only the operating costs of $5,200 for the bone graft peptide, porcine anorganic bone mineral, and fibrous collagen matrix. As a result, we proposed that the maximum new technology add-on payment for a case involving the use of PearlMatrixTM P-15 Peptide Enhanced Bone Graft would be $3,380 for FY 2027 (that is, 65 percent of the average cost of the technology). We noted that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. We invited public comments on whether PearlMatrixTM P-15 Peptide Enhanced Bone Graft meets the cost criterion and our proposal to approve new technology add-on payments for PearlMatrixTM P-15 Peptide Enhanced Bone Graft for FY 2027. We did not receive any comments related to PearlMatrixTM P-15 Peptide Enhanced Bone Graft. Based on the information provided in the application for new technology add-on payments, we believe PearlMatrixTM P-15 Peptide Enhanced Bone Graft meets the cost criterion. The technology received marketing authorization from FDA as a Breakthrough Device on June 18, 2025 for the indication covered by its Breakthrough Device designation, as described previously. Therefore, we are finalizing our proposal to approve new technology add-on payments for PearlMatrixTM P-15 Peptide Enhanced Bone Graft for FY 2027. We consider the beginning of the newness period to commence on June 18, 2025, the date on which the technology received FDA marketing authorization for the indication covered by its Breakthrough Device designation. Based on the information available at the time of this final rule, the cost per case of PearlMatrixTM P-15 Peptide Enhanced Bone Graft meets is $5,200. Under Sec. 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS- DRG payment for the case. As a result, we are finalizing that the maximum new technology add-on payment for a case involving the use of PearlMatrixTM P-15 Peptide Enhanced Bone Graft is $3,380 for FY 2027 (that is, 65 percent of the average cost of the technology). As noted earlier in this section, PearlMatrixTM P-15 Peptide Enhanced Bone Graft has received FDA marketing authorization for multiple indications, and only the use of the PearlMatrixTM P-15 Peptide Enhanced Bone Graft in conjunction with a TLIF device, and the FDA Breakthrough Device designation it received for that use, are relevant for purposes of the new technology add-on payment application for FY 2027. Therefore, cases involving the use of PearlMatrixTM P-15 Peptide Enhanced Bone Graft that are eligible for new technology add-on payments will be identified by ICD-10-PCS procedure codes XW0U0XB (Introduction of peptide enhanced bone void filler into joints, open approach, new technology group 11), XW0U3XB (Introduction of peptide enhanced bone void filler into joints, percutaneous approach, new technology group 11), or XW0U4XB (Introduction of peptide enhanced bone void filler into joints, percutaneous endoscopic approach, new technology group 11), in combination with any of the following ICD-10-PCS procedure codes: [[Page 49760]] [GRAPHIC] [TIFF OMITTED] TR04AU26.128

13. SAPIEN M3 Transcatheter Mitral Valve Replacement System

Edwards LifeSciences, LLC submitted a FY 2027 application for new technology add-on payments for the SAPIEN M3 Transcatheter Mitral Valve Replacement System (the SAPIEN M3 TMVR System). According to the applicant, the SAPIEN M3 TMVR System is a transcatheter system designed to allow for replacement of the native mitral valve in patients with symptomatic mitral valve regurgitation or symptomatic mitral stenosis. In the proposed rule, we provided the following table containing an overview of the new technology add-on payment application for the SAPIEN M3 TMVR System and CMS's preliminary assessment. For additional details provided by the applicant, please refer to the online application posting at https://mearis.cms.gov/public/publications/ntap/NTP251003XXUEG. [[Page 49761]] [GRAPHIC] [TIFF OMITTED] TR04AU26.129 Cost Criterion In the proposed rule, we stated that after review of the information provided by the applicant, we agreed with the applicant that the SAPIEN M3 TMVR System meets the cost criterion and therefore proposed to approve the SAPIEN M3 TMVR System for new technology add-on payments for FY 2027, for the FDA-approved indication covered by the Breakthrough Device designation listed in the table. We stated we considered the beginning of the newness period to commence on December 22, 2025, the date on which the SAPIEN M3 TMVR System received FDA marketing authorization. Based on preliminary information from the applicant at the time of the proposed rule, we proposed that the maximum new technology add-on payment for a case involving the use of the SAPIEN M3 TMVR System would be $35,100 for FY 2027 (that is, 65 percent of the average cost of the technology). We noted that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. We invited public comments on whether the SAPIEN M3 TMVR System meets the cost criterion and our proposal to approve new technology add-on payments for the SAPIEN M3 Transcatheter Mitral Valve Replacement System for FY 2027. Comment: Multiple commenters, including the applicant, expressed support for our proposal to approve new technology add-on payment for the SAPIEN M3 TMVR System. The applicant stated that the cost criterion is met and urged CMS to finalize the proposal. Response: We thank the applicant and commenters for their comments and support. Based on the information provided in the application for new technology add-on payments, and after consideration of the public comments we received, we believe the SAPIEN M3 TMVR System meets the cost criterion. The technology received marketing authorization from FDA as a Breakthrough Device on December 22, 2025 for the indication covered by its Breakthrough Device designation. Therefore, we are finalizing our proposal to approve new technology add-on payments for the SAPIEN M3 TMVR System for FY 2027. We consider the beginning of the newness period to commence on December 22, 2025, the date on which the technology received [[Page 49762]] FDA marketing authorization for the indication covered by its Breakthrough Device designation. Based on the information available at the time of this final rule, the cost per case of the SAPIEN M3 TMVR System is $54,000. Under Sec. 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS-DRG payment for the case. As a result, we are finalizing that the maximum new technology add-on payment for a case involving the use of the SAPIEN M3 TMVR System is $35,100 for FY 2027 (that is, 65 percent of the average cost of the technology). The applicant was granted approval for a unique ICD-10-PCS procedure code for the SAPIEN M3 TMVR System beginning in FY 2027. Therefore, cases involving the use of the SAPIEN M3 TMVR System that are eligible for new technology add-on payments will be identified by ICD-10-PCS procedure code: X2RG3FC (Replacement of mitral valve with balloon-expandable bioprosthetic valve with dock, percutaneous approach, new technology group 12).

14. SetPoint System[supreg]

SetPoint Medical Corporation submitted a FY 2027 application for new technology add-on payments for the SetPoint System[supreg]. According to the applicant, the SetPoint System[supreg] is a fully integrated, rechargeable, implantable vagus nerve stimulation system used to treat individuals with moderate to severe rheumatoid arthritis (RA) who have experienced a loss of efficacy, inadequate response, or intolerance to one or more biologic or targeted synthetic disease modifying antirheumatic drugs (DMARDs). In the proposed rule, we provided the following table containing an overview of the new technology add-on payment application for the SetPoint System[supreg] and CMS's preliminary assessment. For additional details provided by the applicant, please refer to the online application posting at https://mearis.cms.gov/public/publications/ntap/NTP251006Y987F. [GRAPHIC] [TIFF OMITTED] TR04AU26.130 Cost Criterion In the proposed rule, we stated that after review of the information provided by the applicant, we agreed with the applicant that the SetPoint System[supreg] meets the cost criterion and therefore proposed to approve the SetPoint System[supreg] for new technology add- on payments for FY 2027, for the FDA approved indication covered by the Breakthrough Device designation listed in the table. We stated we considered the beginning of the newness period to commence on August 21, 2025, the date on which the SetPoint System[supreg] became commercially available. Based on preliminary information from the applicant at the time of the proposed rule, we proposed that the maximum new technology add-on payment for a case involving the use of the SetPoint System[supreg] would be $38,675 for FY 2027 (that is, 65 percent of the average cost of the technology). We noted that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. We invited public comments on whether the SetPoint System[supreg] meets the cost criterion and our proposal to approve new technology add-on payments for the SetPoint System[supreg] for FY 2027. Comment: A few commenters, including the applicant, submitted public comments that expressed support for our proposal to approve the SetPoint System[supreg] with a maximum payment amount of $38,675. The applicant described its assertions regarding the clinical impact of the technology and [[Page 49763]] the importance of approving it for new technology add-on payments. Response: We thank the applicant and commenters for their comments and support. We note that clinical performance is not within the scope of CMS's evaluation for new technology add-on payment under the alternative pathway, as previously stated. Based on the information provided in the application for new technology add-on payments, and after consideration of the public comments we received, we believe the SetPoint System[supreg] meets the cost criterion. The technology received marketing authorization from FDA as a Breakthrough Device on July 30, 2025 for the indication covered by its Breakthrough Device designation. Therefore, we are finalizing our proposal to approve new technology add-on payments for the SetPoint System[supreg] for FY 2027. We consider the beginning of the newness period to commence on August 21, 2025, the date on which the technology became commercially available for the indication covered by its Breakthrough Device designation. Based on the information available at the time of this final rule, the cost per case of the SetPoint System[supreg] is $59,500. Under Sec. 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS-DRG payment for the case. As a result, we are finalizing that the maximum new technology add-on payment for a case involving the use of the SetPoint System[supreg] is $38,675 for FY 2027 (that is, 65 percent of the average cost of the technology). The applicant was granted approval for a unique ICD-10-PCS procedure code for the SetPoint System[supreg] beginning in FY 2027. Therefore, cases involving the use of the SetPoint System[supreg] that are eligible for new technology add-on payments will be identified by ICD-10-PCS procedure code: X0HQ05C (Insertion of leadless neurostimulator generator into vagus nerve, open approach, new technology group 12).

15. Spur[supreg] Peripheral Retrievable Stent System

Reflow Medical, Inc. submitted a FY 2027 application for new technology add-on payments for the Spur[supreg] Peripheral Retrievable Stent System. According to the applicant, the Spur[supreg] Peripheral Retrievable Stent System is used as an adjunct to percutaneous transluminal angioplasty (PTA) to dilate stenoses in infrapopliteal arteries ranging in diameter from 2.5 mm to 4.5 mm. We note that the applicant submitted an application for new technology add-on payments for this technology for FY 2026 (90 FR 18203 through 18205; 90 FR 36770). In the proposed rule, we provided the following table containing an overview of the new technology add-on payment application for the Spur[supreg] Peripheral Retrievable Stent System and CMS's preliminary assessment. For additional details provided by the applicant, please refer to the online application posting at https://mearis.cms.gov/public/publications/ntap/NTP251001G2LL6. [GRAPHIC] [TIFF OMITTED] TR04AU26.131 Cost Criterion In the proposed rule, we stated that after review of the information provided by the applicant, we agreed with the applicant that the Spur[supreg] Peripheral Retrievable Stent System meets the cost criterion and therefore proposed to approve the Spur[supreg] Peripheral Retrievable Stent System for new technology add-on payments for FY 2027, for the FDA-approved indication [[Page 49764]] covered by the Breakthrough Device designation listed in the table. We stated we considered the beginning of the newness period to commence on May 29, 2025, the date on which the Spur[supreg] Peripheral Retrievable Stent System received FDA marketing authorization. Based on preliminary cost information from the applicant at the time of the proposed rule, we proposed that the maximum new technology add-on payment for a case involving the use of the Spur[supreg] Peripheral Retrievable Stent System would be $2,596.75 for FY 2027 (that is, 65 percent of the average cost of the technology). We noted that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. We invited public comments on whether the Spur[supreg] Peripheral Retrievable Stent System meets the cost criterion and our proposal to approve new technology add-on payments for the Spur[supreg] Peripheral Retrievable Stent System for FY 2027. Comment: The applicant and other commenters submitted comments in support of new technology add-on payments for the Spur[supreg] Peripheral Retrievable Stent System. The applicant's comment confirmed that the final per-patient price of the technology is $3,995, and agreed with the proposed maximum new technology add-on payment of $2,596.75 for FY 2027. The applicant requested that CMS finalize the proposal to approve new technology add-on payments. Response: We thank the applicant and other commenters for their comments. Based on the information provided in the application for new technology add-on payments, and after consideration of the public comments we received, we continue to believe the Spur[supreg] Peripheral Retrievable Stent System meets the cost criterion. The technology received marketing authorization from FDA as a Breakthrough Device on May 29, 2025 for the indication covered by its Breakthrough Device designation. Therefore, we are finalizing our proposal to approve new technology add-on payments for the Spur[supreg] Peripheral Retrievable Stent System for FY 2027. We consider the beginning of the newness period to commence on May 29, 2025, the date on which the technology received FDA marketing authorization for the indication covered by its Breakthrough Device designation. Based on the information available at the time of this final rule, the cost per case of the Spur[supreg] Peripheral Retrievable Stent System is $3,995. Under Sec. 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS-DRG payment for the case. As a result, we are finalizing that the maximum new technology add-on payment for a case involving the use of the Spur[supreg] Peripheral Retrievable Stent System is $2,596.75 for FY 2027 (that is, 65 percent of the average cost of the technology). Cases involving the use of the Spur[supreg] Peripheral Retrievable Stent System that are eligible for new technology add-on payments will be identified by any of the following ICD-10-PCS procedure codes: [GRAPHIC] [TIFF OMITTED] TR04AU26.132

16. TrilogyTM Transcatheter Aortic Valve Regurgitation

System JenaValve submitted a FY 2027 application for new technology add-on payments for the TrilogyTM Transcatheter Aortic Valve Regurgitation System. According to the applicant, the TrilogyTM Transcatheter Aortic Valve Regurgitation System for transcatheter aortic valve implantation is deployed so that the Transcatheter Heart Valve (THV) expands radially at the native annulus and clips onto the native aortic leaflets to anchor the THV. Per the applicant, the THV is designed to anchor in the diseased regurgitant aortic valve. In the proposed rule, we provided the following table containing an overview of the new technology add-on payment application for the TrilogyTM Transcatheter Aortic Valve Regurgitation System and CMS's preliminary assessment. For additional details provided by the applicant, please refer to the online application posting at https://mearis.cms.gov/public/publications/ntap/NTP25100691E86. [[Page 49765]] [GRAPHIC] [TIFF OMITTED] TR04AU26.133 Cost Criterion In the proposed rule, we stated that after review of the information provided by the applicant, we agreed with the applicant that the TrilogyTM Transcatheter Aortic Valve Regurgitation System meets the cost criterion and therefore proposed to approve the TrilogyTM Transcatheter Aortic Valve Regurgitation System for new technology add-on payments for FY 2027, for the FDA-approved indication covered by the Breakthrough Device designation listed in the table. We stated we considered the beginning of the newness period to commence on March 17, 2026, the date on which the TrilogyTM Transcatheter Aortic Valve Regurgitation System received FDA marketing authorization. Based on preliminary information from the applicant at the time of the proposed rule, we proposed that the maximum new technology add-on payment for a case involving the use of the TrilogyTM Transcatheter Aortic Valve Regurgitation System would be $25,675 for FY 2027 (that is, 65 percent of the average cost of the technology). We noted that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. We invited public comments on whether the TrilogyTM Transcatheter Aortic Valve Regurgitation System meets the cost criterion and our proposal to approve new technology add-on payments for the TrilogyTM Transcatheter Aortic Valve Regurgitation System for FY 2027. Comment: We received several comments that expressed support for our proposal to approve new technology add-on payment for the TrilogyTM Transcatheter Aortic Valve Regurgitation System. The commenters stated that without an add-on payment, the standard MS- DRG payment will not adequately compensate hospitals for the cost of the device during this early adoption period, and speculated on the potential for slow adoption of the technology and resulting issues with Medicare beneficiary access. Multiple commenters described their assertions regarding the clinical need for this technology for Medicare beneficiaries. Several commenters also asserted that the TrilogyTM Transcatheter Aortic Valve Regurgitation System is different from conventional TAVR systems. The applicant and other commenters stated that the technology meets eligibility requirements and requested that CMS finalize its proposal to approve the new technology add-on payments for FY 2027 at the proposed maximum add-on payment of $25,675 per case, with the applicant confirming the cost analysis values reflected in the proposed rule. Another commenter expressed concerns about the high cost of the technology when considering shelf life and lack of consignment options, within a broader context of concern about new technology add-on payments creating incentivization for higher costs and charges. Response: We thank the commenters for their comments. We agree that the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount. Therefore, the TrilogyTM Transcatheter Aortic Valve Regurgitation System meets the cost criterion. We note that assessment of clinical improvement and substantial similarity is not within the scope of CMS's evaluation for new technology add-on payment under the alternative pathway as previously described. Based on the information provided in the application for new technology add-on payments, and after consideration of the public comments we received, we [[Page 49766]] believe the TrilogyTM Transcatheter Aortic Valve Regurgitation System meets the cost criterion. The technology received marketing authorization from FDA as a Breakthrough Device on March 17, 2026 for the indication covered by its Breakthrough Device designation. Therefore, we are finalizing our proposal to approve new technology add-on payments for the TrilogyTM Transcatheter Aortic Valve Regurgitation System for FY 2027. We consider the beginning of the newness period to commence on March 17, 2026, the date on which the technology received FDA marketing authorization for the indication covered by its Breakthrough Device designation. Based on the information available at the time of this final rule, the cost per case of the TrilogyTM Transcatheter Aortic Valve Regurgitation System is $39,500. Under Sec. 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS-DRG payment for the case. As a result, we are finalizing that the maximum new technology add-on payment for a case involving the use of the TrilogyTM Transcatheter Aortic Valve Regurgitation System is $25,675 for FY 2027 (that is, 65 percent of the average cost of the technology). The applicant was granted approval for a unique ICD-10-PCS procedure code for the TrilogyTM Transcatheter Aortic Valve Regurgitation System beginning in FY 2027. Therefore, cases involving the use of the TrilogyTM Transcatheter Aortic Valve Regurgitation System that are eligible for new technology add-on payments will be identified by ICD-10-PCS procedure code: X2RF3LC (Replacement of aortic valve using zooplastic tissue, with integrated native leaflet clipping locators, percutaneous approach, new technology group 12).

17. ViaOneTM Epicardial Access System

CardioVia Ltd. submitted a FY 2027 application for new technology add-on payments for the ViaOneTM Epicardial Access System (ViaOneTM). According to the applicant, ViaOneTM is a sterile, single use device, designed to allow safe pericardial access utilizing a proprietary mechanism of entry into the pericardial sac with a blunt tip and a concealed needle. In the proposed rule, we provided the following table containing an overview of the new technology add-on payment application for ViaOneTM and CMS's preliminary assessment. For additional details provided by the applicant, please refer to the online application posting at https://mearis.cms.gov/public/publications/ntap/NTP251001MFBVW. [GRAPHIC] [TIFF OMITTED] TR04AU26.134 Newness Period In the proposed rule, we stated that after review of the information provided by the applicant, regarding commercial availability, we noted that the applicant stated that the technology would not be available for sale until April 27, 2026. We noted that the applicant stated that the original manufacturing partner permanently ceased operations, requiring the applicant to engage a new qualified manufacturer and conduct full verification and validation testing. We noted that the applicant also stated that delays in completion of the required FDA establishment registration and device listing process, and current aviation and international shipping constraints related to regional security developments are expected to further delay initial U.S. availability. We stated we were interested in confirmation regarding the first date of availability for sale of ViaOneTM on the U.S. market (irrespective of purchase volume or when the first sale occurred). Comment: In response to CMS's request for additional information regarding the technology's market availability, the applicant submitted a public comment reiterating that its manufacturing partner permanently ceased operations unexpectedly, requiring the applicant to restart the process of identifying and qualifying a new manufacturing partner that met all [[Page 49767]] FDA requirements. The applicant further reiterated that it experienced substantial delays in aviation and international shipping caused by regional security developments, which significantly delayed product shipment and commercial availability. The applicant stated that these circumstances were outside its control and that the product is expected to be available for purchase in June 2026. The applicant requested that CMS use June 2026 as the beginning of the newness period for the ViaOneTM Epicardial Access System, rather than the initial expected commercial date of April 27, 2026. The applicant stated its recognition that if further delays in market availability were to occur, the newness period would begin no later than September 30, 2026, consistent with CMS's proposed policy to ensure the newness period begins prior to the new technology add-on payment effective date. Response: We thank the applicant for its comment, including the additional information regarding the commercial availability of ViaOneTM. Because the applicant stated that it anticipates first commercial use and launch beginning June 2026, but the exact date has yet to be established at this time, there is not sufficient information to determine a specific newness date based on the documented delay in the technology's availability on the U.S. market. Absent additional information, we therefore consider the newness date for this technology to be March 20, 2025, the date on which the technology received 510(k) clearance. We welcome updates from the applicant once the technology becomes commercially available for future rulemaking. Cost Criterion In the proposed rule, we stated we agreed with the applicant that ViaOneTM meets the cost criterion and therefore proposed to approve ViaOneTM for new technology add-on payments for FY 2027, for the FDA-cleared indication covered by the Breakthrough Device designation listed in the table. Based on preliminary information from the applicant at the time of the proposed rule, we proposed that the maximum new technology add-on payment for a case involving the use of ViaOneTM would be $1,300 for FY 2027 (that is, 65 percent of the average cost of the technology). We noted that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. We invited public comments on whether ViaOneTM meets the cost criterion and our proposal to approve new technology add-on payments for the ViaOneTM Epicardial Access System for FY 2027. Comment: Multiple commenters, including the applicant, expressed support for approval of new technology add-on payments for ViaOneTM. The applicant stated ViaOneTM met the new technology add-on payment requirements for Breakthrough-designated devices under the alternative pathway having received Breakthrough Device designation from FDA on August 2, 2022, and FDA market authorization on March 30, 2025, prior to May 1, 2026. The applicant confirmed that the per-patient hospital operating cost of ViaOneTM is $2,000, consistent with the amount provided in its application. Response: We thank the commenters for their comments. We note that while the applicant stated in its comment that FDA market authorization was received on March 30, 2025, the application for new technology add- on payment and the supporting documentation provided by the applicant indicate an FDA market authorization date of March 20, 2025. Based on the information provided in the application for new technology add-on payments, and after consideration of the public comments we received, we believe ViaOneTM meets the cost criterion. The technology received marketing authorization from FDA as a Breakthrough Device on March 20, 2025 for the indication covered by its Breakthrough Device designation. Therefore, we are finalizing our proposal to approve new technology add-on payments for ViaOneTM for FY 2027. We consider the beginning of the newness period to commence on March 20, 2025, the date on which the technology received FDA marketing authorization for the indication covered by its Breakthrough Device designation. Based on the information available at the time of this final rule, the cost per case of ViaOneTM is $2,000. Under Sec. 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS-DRG payment for the case. As a result, we are finalizing that the maximum new technology add-on payment for a case involving the use of ViaOneTM is $1,300 for FY 2027 (that is, 65 percent of the average cost of the technology). The applicant was granted approval for a unique ICD-10-PCS procedure code for ViaOneTM beginning in FY 2027. Therefore, cases involving the use of ViaOneTM that are eligible for new technology add-on payments will be identified by ICD-10-PCS procedure code: XEZD3QC (Pericardial cavity access using blunt-tip concealed needle with mechanical gripping mechanism, percutaneous approach, new technology group 12). 7. Alternative Pathway Repeal for New Technology Add-On Payment and Outpatient Prospective Payment System (OPPS) Device Pass-Through As discussed previously, in the FY 2020 and FY 2021 IPPS/LTCH PPS final rules (84 FR 42292 through 42297; 85 FR 58737 through 58739), we finalized a policy to establish an alternative inpatient new technology add-on payment pathway for certain transformative new devices and certain antimicrobial products. Under this pathway, FDA-designated Breakthrough Devices and QIDPs, and drugs approved under FDA's Limited Population Pathway for Antibacterial and Antifungal Drugs (LPAD) pathway (sometimes collectively referred to in this section as ``alternative pathway designations'') are considered to be not substantially similar to existing technology for purposes of the new technology add-on payment, and do not need to meet the requirement under Sec. 412.87(b)(1) that the technology represent an advance that substantially improves, relative to technologies previously available, the diagnosis or treatment of Medicare beneficiaries. We also finalized a policy in the CY 2020 OPPS/ASC final rule to establish an alternative transitional pass-through payment pathway for devices that are part of the FDA's Breakthrough Devices Program and have received FDA marketing authorization for the indication covered by the Breakthrough Device designation (84 FR 61295 through 61296). Under this alternative pathway, FDA-designated Breakthrough Devices are not evaluated for substantial clinical improvement under Sec. 419.66(c)(2) for the purposes of determining device pass-through payment status. We refer readers to the CY 2026 OPPS/ASC final rule (90 FR 53632 through 53636) for additional background on the OPPS Pass-Through Payment for Devices. In the proposed rule, we noted that the Breakthrough Devices Program is intended to help patients have more timely access to designated medical devices by expediting their development, assessment, and review.\99\ The Breakthrough Device designation criteria are defined in section 515B(b) of [[Page 49768]] the FD&C Act (21 U.S.C. 360e-3(b)), which provides for a Program for devices that: ``(1) that provide for more effective treatment or diagnosis of life-threatening or irreversibly debilitating human disease or conditions; and (2)(A) that represent breakthrough technologies; (B) for which no approved or cleared alternatives exist; (C) that offer significant advantages over existing approved or cleared alternatives, including the potential, compared to existing approved alternatives, to reduce or eliminate the need for hospitalization, improve patient quality of life, facilitate patients' ability to manage their own care (such as through self-directed personal assistance), or establish long-term clinical efficiencies; or (D) the availability of which is in the best interest of patients.'' \100\ Per FDA guidance, a sponsor should demonstrate a reasonable expectation that the device could provide for more effective treatment or diagnosis of the disease or condition identified in the proposed indications for use.\101\ FDA defines a QIDP as ``an antibacterial or antifungal drug for human use intended to treat serious or life-threatening infections, including those caused by--(1) an antibacterial or antifungal resistant pathogen, including novel or emerging infectious pathogens; or (2) qualifying pathogens listed by the Secretary under'' section 505E(f) of the FD&C Act.\102\ FDA believed the LPAD pathway would facilitate development and approval of certain antibacterial and antifungal drugs to treat serious or life-threatening infections in limited populations of patients with unmet needs. FDA may approve an antibacterial or antifungal drug, alone or in combination with one or more other drugs, under the LPAD pathway, if: The drug is intended to treat a serious or life-threatening infection in a limited population of patients with unmet needs; The drug meets the standards for approval under section 505(c) and (d) of the FD&C Act or the standards for licensure under section 351 of the Public Health Service Act; and FDA receives a written request from the sponsor to approve the drug as a LPAD pathway drug.\103\ --------------------------------------------------------------------------- \99\ Breakthrough Devices Program Guidance for Industry and Food and Drug Administration Staff (September 15, 2023) https://www.fda.gov/media/162413/download. \100\ Ibid. \101\ Ibid. \102\ Qualified Infectious Disease Product Designation Questions and Answers Guidance for Industry (May 2021) https://www.fda.gov/media/148480/download. \103\ Limited Population Pathway for Antibacterial and Antifungal Drugs--the LPAD Pathway (Content current as of: 03/24/ 2025) https://www.fda.gov/drugs/development-resources/limited-population-pathway-antibacterial-and-antifungal-drugs-lpad-pathway. --------------------------------------------------------------------------- We noted in the proposed rule that, as discussed in the FY 2020 IPPS/LTCH PPS rulemaking (84 FR 42292 through 42297) and in the CY 2020 OPPS/ASC rulemaking (84 FR 61295 through 61296), we stated that we believed that the benefits of addressing barriers to healthcare innovation and ensuring Medicare beneficiaries have access to critical and life-saving new cures and technologies that improve beneficiary health outcomes supported establishing the alternative pathway for new technology add-on payments and OPPS device pass-through payments. We also stated that we believed it was prudent to gain experience under this new alternative pathway for certain transformative new devices before expanding it to other special designations to allow us to evaluate the benefits of this proposed alternative pathway to facilitate beneficiary access to transformative new medical devices as well as any other considerations that may come to light after application of this new pathway (84 FR 42296). We further stated that as we have gained experience, we had concerns with the limited evaluation process for alternative pathway applications for new technology add-on and OPPS device pass-through payments, and after further consideration, we believed it would be in the best interest of Medicare patients to refine our approach to ensure that all new technologies approved for new technology add-on payment have demonstrated that the technology is not substantially similar to existing technologies and represents an advance that substantially improves, relative to technologies previously available, the diagnosis or treatment of Medicare beneficiaries. Similarly, we thought it in the best interest of Medicare patients that new technologies approved for OPPS device pass-through payment status have demonstrated a substantial clinical improvement; that is, the devices substantially improved the diagnosis or treatment of an illness or injury or improved the functioning of a malformed body part, compared to the benefits of a device or devices in a previously established category or other available treatment. Therefore, we proposed to repeal the alternative pathway for new technology add-on payment and OPPS device pass-through applications, and require all applicants for new technology add-on payments and OPPS device pass-through payments to demonstrate that they met the same eligibility requirements to receive add-on payments and/or pass-through payments. We stated our belief that this proposed requirement would better align spending and value and ultimately support providers in delivering the best, data-driven care possible. We also stated that by requiring all technologies to demonstrate that they offered a substantial clinical improvement as part of our evaluation process, we would be better able to make evidence-based decisions on which technologies should receive these additional payments. We also stated that holding all applicants to the same standards and requiring all applicants to demonstrate that their technologies meet the same criteria would maintain our focus on new and innovative technologies that improve beneficiary health outcomes while strengthening the evidence base supporting our approval decisions for new technology add- on payment and OPPS device pass-through payment, ensuring value for American taxpayers and Medicare beneficiaries. Therefore, we proposed that for all applications received for new technology add-on payments for FY 2028 and subsequent fiscal years, including applications for FDA-designated Breakthrough Devices and QIDPs, or drugs approved under FDA's LPAD pathway, we would evaluate whether the technology is new and not substantially similar to an existing technology, and the technology must demonstrate that it meets the requirements under Sec. 412.87(b) that it represent an advance that substantially improves, relative to technologies previously available, the diagnosis or treatment of Medicare beneficiaries. That is, we proposed that beginning with applications received for new technology add-on payments for FY 2028 and subsequent fiscal years, all applicants would need to meet all three of the criteria as specified at Sec. 412.87(b) and described earlier in this section in order to receive the additional payment: (1) the medical service or technology must be new; (2) the medical service or technology must be costly such that the DRG rate otherwise applicable to discharges involving the medical service or technology is determined to be inadequate; and (3) the service or technology must demonstrate a substantial clinical improvement over existing services or technologies. We stated that technologies that are currently under review for FY 2027 new technology add-on payments under the alternative pathway would remain eligible for consideration for add-on payment under the alternative pathway. Technologies that have previously been approved for add-on payments under [[Page 49769]] the alternative pathway would remain eligible for add-on payment under the alternative pathway. Consistent with our proposal to remove the alternative pathway for certain antimicrobial products currently at Sec. [thinsp]412.87(d), we also proposed removal of the conditional approval process for a technology for which an application is submitted under the alternative pathway for certain antimicrobial products that does not receive FDA marketing authorization by July 1 prior to the fiscal year for which the applicant applied for new technology add-on payments, as currently reflected at Sec. 412.87(f)(3). Accordingly, we stated that beginning with the FY 2028 new technology add-on payment applications, in order to be eligible for consideration for the new technology add on payment for the upcoming fiscal year, all applicants would need to receive FDA marketing authorization by May 1 of the year prior to the beginning of the fiscal year for which the application is being considered, as reflected at Sec. 412.87(f)(2). We proposed to amend Sec. [thinsp]412.87 to reflect these proposals by revising paragraphs Sec. [thinsp]412.87(c) and (d) and removing subparagraph 412.87(f)(3). We also proposed related revisions to the title of paragraph (f) and subparagraphs (1) and (2) of paragraph (f) to reflect the proposed policy. We also proposed to make a technical correction to the introductory text at Sec. [thinsp]412.87(d) to restore language that was previously removed in error, with additional revisions to reflect the proposed repeal. We also proposed to make a technical correction to the introductory text at Sec. 412.88(a)(2)(ii)(A) to reference Sec. 412.88(a)(2)(ii)(C), consistent with our policy as finalized in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69245 through 69252). Similarly, we proposed that all applications received for OPPS device pass-through payment status on or after October 1, 2026, including all applications received through the remainder of the CY 2028 OPPS application cycle ending on March 1, 2027, and applications received for subsequent calendar years would be required to demonstrate that the technology met the requirements currently reflected at Sec. 419.66(c)(2)(i). We stated that OPPS device pass-through payment applications submitted as of September 30, 2026, for devices that were part of the FDA's Breakthrough Devices Program and received FDA marketing authorization for the indication covered by the Breakthrough Device designation would be evaluated and could be approved under the alternative pathway, provided that all other criteria had been met. Existing device category codes established based on the approval, either preliminary or via a final determination made in an OPPS/ASC final rule, including any device category codes established for approved alternative pathway applications received as of September 30, 2026, would continue to be eligible for device pass-through payment status and would remain in effect for at least 2 years, but no more than 3 years, consistent with Sec. 419.66(g). Previously existing device category codes that were no longer eligible for device pass- through payment status would remain unchanged. We proposed to revise paragraph Sec. 419.66(c)(2)(ii) to reflect the proposed policy, effective October 1, 2026. We stated that we believed these changes would be the most prudent and transparent method to allow us to improve our focus on facilitating payment for innovative, high-value technologies that improve care for Medicare beneficiaries. As we stated in the September 7, 2001 final rule (66 FR 46913), we believed the special payments for new technology should be limited to those new technologies that have been demonstrated to represent a substantial improvement in caring for Medicare beneficiaries, such that there is a clear advantage to creating a payment incentive for physicians and hospitals to utilize the new technology. We also stated that where such an improvement was not demonstrated, we continued to believe the incentives of the DRG system would provide a useful balance to the introduction of new technologies. As discussed in the FY 2026 IPPS/LTCH PPS final rule (90 FR 36672), even if a technology does not receive new technology add-on payments, CMS continues to pay for new technologies through the regular payment mechanism established by the DRG payment methodology. Similarly, as we stated in the CY 2026 OPPS/ASC final rule (90 FR 53635), if a technology does not obtain OPPS device pass-through payment status, these devices can still be used by hospitals, and hospitals will be paid for them through appropriate Ambulatory Payment Classifications (APC) payment. Whether a technology receives new technology add-on payments or OPPS device pass-through payments does not affect coverage of the technology or the ability for Medicare providers to provide such technology to patients where appropriate. In addition, we stated that we believe holding all applicants to the same standards by requiring all applicants to demonstrate that their technologies meet the same criteria would ensure that all applications undergo the same review process by CMS. For new technology add-on payment, this includes the opportunity to present at the New Technology Town Hall Meeting on the substantial clinical improvement criterion with regard to pending new technology add-on payment applications, and to have applications considered as part of the annual IPPS rulemaking. Furthermore, we noted that because the application and approval timelines for new technology add-on payments are the same for traditional and alternative application pathways, the proposal would not change the time to approval, except for technologies submitted under the alternative pathway for certain antimicrobial products, for which the conditional approval process would no longer be available. Likewise, for OPPS device pass-through, applications are submitted to CMS through the quarterly process, and all applications are subject to notice and comment rulemaking in the next applicable OPPS/ASC annual rulemaking cycle (80 FR 70417 through 70418). We stated that applications, regardless of the pathway under which they apply, that we are able to determine meet all of the criteria for device pass-through payment under the quarterly review process may receive pass-through payment status prior to the final determination in the OPPS/ASC final rule. We noted that the proposal would not change the time to approval. Technologies that demonstrate they meet the criteria during the quarterly process may receive pass-through payment status prior to the final determination in the OPPS/ASC final rule. Technologies that demonstrate they meet the criteria during notice and comment rulemaking would receive pass-through payment status via a final determination in the OPPS/ASC final rule. We stated we would also be interested in information on alternate methods that stakeholders believe would more effectively or efficiently accomplish the goal of aligning payment with value by facilitating payment for innovative, high-value technologies that have demonstrated improved Medicare beneficiary health outcomes, such as alternative strategies for leveraging FDA designations. We invited public comment on our proposal to require all applicants for new technology add-on payments and OPPS device pass-through payments to demonstrate that they meet the same requirements for eligibility. [[Page 49770]] We received numerous comments, which we summarize and address in this section. Comment: Commenters stated their support of CMS's proposal to rescind the alternative pathways and agreed that all technologies seeking additional payment should be required to meet the same statutory and regulatory eligibility criteria. Commenters agreed that this approach would better align spending and value for Medicare and its beneficiaries. A commenter appreciated CMS's clarification that this change will not affect coverage of the technology or the ability for Medicare providers to choose a technology where appropriate. The commenter stated that holding all technologies to comparable evidentiary standards is critical to ensuring consistent and equitable determinations of whether existing diagnosis-related group or ambulatory payment classification rates are inadequate and warrant additional payment. The commenter stated that absent uniform requirements, the alternative pathways risk undermining payment accuracy and creating inequitable incentives across technologies. The commenter also stated that ensuring that all applicants demonstrate comparable clinical benefit and resource impact supports the integrity of both the IPPS and the OPPS. Another commenter, MedPAC, stated that it recognized the need to maintain financial rewards for innovation while preserving the incentives within the IPPS and OPPS for efficiency. MedPAC stated that including the substantial clinical improvement requirement in the evaluation ensures that additional Medicare payments are used to support Medicare beneficiaries' access to innovations that are demonstrated to improve outcomes compared to the currently available treatment. MedPAC further stated that CMS's proposal is consistent with its comment letter submitted in response to the IPPS proposed rule for FY 2020, in which it indicated its lack of support for the use of the FDA's Breakthrough Device Program for qualification for new technology add-on payment unless the drug or device in question also meets the current substantial clinical improvement criterion--that is, unless there is evidence that the new technology results in improved care for beneficiaries. Specifically, MedPAC pointed to language in its comment letter that stated that it maintained that the Medicare program, not FDA, should adjudicate spending determinations based on the specific needs of the Medicare population.\104\ In addition, MedPAC highlighted that, it had also noted that it has long held that Medicare should pay similar rates for similar care, and that to protect the well-being of beneficiaries and ensure good value for the Medicare program and thus the taxpayers, Medicare should not pay more for technologies that have not yet been proven to provide better outcomes for beneficiaries. Therefore, drugs or devices should not qualify for new technology add- on payment if there is no evidence that the drug or device is an improvement relative to existing care.\105\ Likewise, MedPAC noted that it did not support CMS's proposal to use the FDA's Breakthrough Device Program for qualification for OPPS device pass-through payment, or FDA's LPAD for qualification for new technology add-on payment, unless the technologies in question also meet the substantial clinical improvement requirement, as MedPAC stated in its comment letters on the CY 2020 OPPS and FY 2021 IPPS proposed rules, respectively.106 107 MedPAC further noted that it has also supported a clinical superiority requirement being included in two other contexts, including its June 2021 report to the Congress where MedPAC recommended that the Secretary modify the pass-through drug policy in the OPPS so that it applies only to drugs and biologics that are clinically superior to their packaged analogs and in its comment letters on the CY 2022 and 2025 ESRD proposed rules stating that CMS should use a clinical superiority requirement for transitional drug add-on payment adjustment (TDAPA) and post-TDAPA for end-stage renal disease drugs.108 109 110 Finally, MedPAC further noted that it continued to have general concerns about how Medicare pays for new costly technology, including drugs and biologicals, and had previously commented that the cost criteria used to determine payment for new technology provide an incentive for manufacturers and hospitals to increase their prices and charges.\111\ --------------------------------------------------------------------------- \104\ https://www.medpac.gov/wp-content/uploads/import_data/scrape_files/docs/default-source/comment-letters/06212019_medpac_2020_ipps_ltch_comment_v3_sec.pdf. \105\ Ibid. \106\ https://www.medpac.gov/wp-content/uploads/import_data/scrape_files/docs/default-source/comment-letters/09132019_opps_asc_2020_medpac_comment_v2_sec.pdf. \107\ https://www.medpac.gov/wp-content/uploads/import_data/scrape_files/docs/default-source/comment-letters/07072020_fy2021_ipps_medpac_comment_v2_sec.pdf. \108\ https://www.medpac.gov/wp-content/uploads/import_data/scrape_files/docs/default-source/default-document-library/jun21_ch8_medpac_report_to_congress_sec.pdf. \109\ Ibid. \110\ https://www.medpac.gov/wp-content/uploads/2022/08/08192022_ESRD_CY2023_MedPAC_COMMENT_SEC.pdf. \111\ https://www.medpac.gov/wp-content/uploads/import_data/scrape_files/docs/default-source/comment-letters/06252021_fy_2022_ipps_ltch_medpac_comment_sec.pdf. --------------------------------------------------------------------------- Another commenter stated that it strongly agreed that the qualifications for new technology add-on payment and OPPS device pass- through payments should be demonstrated, and not assumed, for FDA- designated Breakthrough Devices. The commenter stated that the FDA Breakthrough Device designation does not necessarily ensure that a device is ``not substantially similar to existing technology.'' The commenter stated that while the first three of the four elements of the designation's second criterion are related to the device's novelty, the fourth element is that the device's availability ``is in the best interest of patients,'' and only one of the elements of the second criterion must be met. The commenter asserted that as the designation's first criterion is concerned with the potential for more effective treatment, not necessarily the device's novelty, FDA-designated Breakthrough Device technologies that meet the second criterion based only on its fourth element may not be sufficiently evaluated for similarity to existing alternatives. The commenter also noted that receiving an FDA Breakthrough Device designation and earning authorization from the FDA does not mean that a device demonstrates substantial clinical improvement, as the commenter stated was required for both new technology add-on payment and OPPS pass-through payment. The commenter stated that FDA Breakthrough Device designation is based on ``a reasonable expectation that a device could provide for more effective treatment or diagnosis,'' and FDA market authorization does not require that this expectation is sufficiently substantiated. Instead, the commenter stated that when considering whether to authorize an FDA-designated Breakthrough Device, the FDA ``may accept a greater extent of uncertainty of the benefit-risk profile'' and allow for more flexibility in the design of the study supporting authorization, including the use of surrogate endpoints, shorter duration of follow-up, and increased reliance on postmarket data.\112\ The commenter referenced an analysis of the data [[Page 49771]] supporting FDA-designated Breakthrough Devices, which found that about half of primary effectiveness endpoints were surrogate measures and almost 20 percent were not evaluated with statistical tests.\113\ Similarly, the commenter stated that in an examination of the studies supporting FDA-designated Breakthrough Devices approved for OPPS device pass-through payments between 2017 and 2023, less than two-thirds of the studies met any primary effectiveness endpoint and half of the primary effectiveness endpoints were surrogate measures.\114\ Furthermore, the commenter asserted the evidence supporting FDA- designated Breakthrough Devices may not be generalizable to Medicare beneficiaries, as this is not required for FDA authorization. As an example, the commenter shared an examination of three cardiovascular FDA-designated Breakthrough Devices, which found that the study participants were younger and more likely to be male than would be expected for a Medicare beneficiary population.\115\ The commenter stated that while the repeal of the alternative pathways is an important step, analyses of devices receiving new technology add-on payment and pass-through payments that are not FDA-designated Breakthrough Devices have found that these devices may not be supported by high-quality data and may not have been studied sufficiently in the Medicare population.\116\ The commenter suggested that to strengthen the new technology add-on payment and OPPS device pass-through payment, CMS should consider specifying data quality requirements for the demonstration of substantial improvement, such as the use of randomized, controlled trials with blinding, when possible, that evaluate clinical benefit and have participant populations representative of the Medicare beneficiary population.\117\ --------------------------------------------------------------------------- \112\ Breakthrough Devices Program: Guidance for Industry and Food and Drug Administration Staff. U.S. Food and Drug Administration; 2023. Accessed June 8, 2026. https://www.fda.gov/media/162413/download. \113\ Kadakia KT, Dhruva SS, Ross JS, et al. FDA Authorization of Therapeutic Devices Under the Breakthrough Devices Program. JAMA Intern Med. 2025;185(8):996. doi:10.1001/jamainternmed.2025.2235. \114\ Moneer O, Johnston JL, Rathi VK, Ross JS, Dhruva SS. Medical Devices Applying for Outpatient Medicare Supplemental Payments. JAMA Health Forum. 2024;5(11):e244016. doi:10.1001/ jamahealthforum.2024.4016. \115\ Moneer O, Rathi VK, Johnston JL, Ross JS, Dhruva SS. Aligning US Agency Policies for Cardiovascular Devices Through the Breakthrough Devices Program. JAMA Cardiol. 2023;8(12):1174. doi:10.1001/jamacardio.2023.3819. \116\ Moneer O, Johnston JL, Rathi VK, Ross JS, Dhruva SS. Medical Devices Applying for Outpatient Medicare Supplemental Payments. JAMA Health Forum. 2024;5(11):e244016. doi:10.1001/ jamahealthforum.2024.4016. \117\ Judson TJ, Dhruva SS, Redberg RF. Evaluation of technologies approved for supplemental payments in the United States. BMJ. Published online June 17, 2019:l2190. doi:10.1136/ bmj.l2190. --------------------------------------------------------------------------- Another commenter stated that the new technology add-on payment alternative pathway for FDA-designated Breakthrough Devices may result in unintended consequences that misalign Medicare spending with value. The commenter stated that first, as Breakthrough Device designation is often issued before product development and clinical trial protocols are finalized, the alternative pathway may create a disincentive to generate evidence of improved outcomes for Medicare beneficiaries, which could lead to safety concerns, as well as unjustified excess spending. Second, the commenter stated that the alternative pathway may create a disincentive for providers to adopt FDA-designated Breakthrough Devices that receive new technology add-on payment because they have not been evaluated for substantial clinical improvement, as providers may be less willing to adopt costly new FDA-designated Breakthrough Devices without an assurance of substantial clinical improvement relative to existing treatments. The commenter asserted that the substantial clinical improvement criterion is an indicator of the benefit of an FDA-designated Breakthrough Device to the Medicare population and ensures the intended effect of the new technology add-on payment program by promoting uptake of novel products that can ensure better alignment between Medicare spending and value. The commenter also stated its belief that new technology add-on payment is critical to promote uptake and evidence generation that supports other determinants of patient access like Medicare coverage. This commenter stated that this was particularly relevant for FDA- designated Breakthrough Devices that may not have sufficient evidence to meet the ``reasonable and necessary'' threshold for Medicare coverage but do have evidence to demonstrate substantial clinical improvement. For example, the commenter stated that of the 13 eligible devices with active Coverage with Evidence Development (CED) policies, six have received new technology add-on payment. The commenter asserted that new technology add-on payment thus supports evidence generation for ``reasonable and necessary'' Medicare coverage. The commenter also stated that there was an opportunity to consider how the new technology add-on payment supports efforts to streamline Medicare coverage for FDA-designated Breakthrough Devices. The commenter stated that premarket evidence generation under the Regulatory Alignment for Predictable and Immediate Device (RAPID) coverage pathway would inform both FDA authorization and CMS coverage assessments. The commenter believed that although this premarket evidence generation may not always meet the ``reasonable and necessary''' standard for Medicare coverage, meeting the new technology add-on payment criteria, particularly the substantial clinical improvement criterion, would be a very effective indicator of not just the potential value of the product, but the effectiveness of the RAPID coverage pathway in evidence generation relevant to Medicare beneficiaries. The commenter stated that when critical postmarket evidence gaps remain, CMS could consider employing key elements of the Transitional Coverage of Emerging Technologies (TCET) pathway such as the Evidence Development Plan (EDP), and CED policy to ensure predictable and robust evidence generation. The commenter also recommended that CMS preserve the technology add-on payment alternative pathway for antimicrobials as the commenter believed that greater use of these products could drastically reduce Medicare costs, thereby aligning spending with value. Response: We appreciate the commenters' feedback and their support of the proposal. We agree with the commenters that requiring all technologies seeking additional payment under IPPS or OPPS meet the same statutory and regulatory eligibility criteria for each pathway would better align spending and value for Medicare and its beneficiaries and would ensure consistent and equitable determinations while maintaining the integrity of both the IPPS and the OPPS. Further, we agree with the commenter that the qualifications for new technology add-on payment and OPPS device pass-through payments should be demonstrated, and not assumed, for FDA-designated technologies seeking add-on payments. With respect to comments on the RAPID coverage pathway, we refer commenters to the CMS press release which notes that a proposed procedural notice regarding the RAPID coverage pathway is expected to be issued for additional information.\118\ --------------------------------------------------------------------------- \118\ CMS and FDA Announce RAPID Coverage Pathway to Accelerate Patient Access to Life-Changing Medical Devices https://www.cms.gov/newsroom/press-releases/cms-fda-announce-rapid-coverage-pathway-accelerate-patient-access-life-changing-medical-devices. --------------------------------------------------------------------------- [[Page 49772]] We agree that absent uniform requirements, continuing the alternative pathways may create challenges for payment accuracy or inequitable incentives across technologies. We agree with MedPAC that including the substantial clinical improvement requirement in the evaluation ensures that additional Medicare payments are used to support Medicare beneficiaries' access to innovations that are demonstrated to improve outcomes compared to the currently available treatment. Further, we agree with the commenter that receiving an FDA designation and earning FDA market authorization does not mean that a device demonstrates substantial clinical improvement, as required under the traditional pathway for both new technology add-on payment and OPPS pass-through payment. As we noted in the proposed rule, FDA Breakthrough Device designation is based on ``a reasonable expectation that the device could provide for more effective treatment or diagnosis of the disease or condition identified in the proposed indications for use,'' and FDA market authorization does not evaluate whether this expectation is substantiated. Moreover, FDA guidance \119\ provides that a complete set of clinical data is not required for Breakthrough Device designation, and mechanisms for demonstrating a reasonable expectation of technical and clinical success could include literature or preliminary data (bench, animal, or clinical). The guidance provides examples, where a sponsor might provide preliminary bench data to support the potential for technical success and literature to support that a given principle of operation could more effectively treat or diagnose the identified disease or condition. We believe that the FDA Breakthrough Device and QIDP designation criteria are distinct from the CMS new technology add-on payment and OPPS device pass-through payment status program requirements. New technology add-on payment and OPPS device pass-through payment status criteria require that the technology demonstrate a substantial clinical improvement for Medicare beneficiaries, which is not a requirement for the FDA designations. As approvals under the alternative pathway do not require the assessment of available data or comparison to other technologies used by Medicare patients, CMS would not be able to ensure that technologies receiving add-on payments under this pathway truly add value. CMS has continuously stated that FDA and CMS act under different statutes that have different standards, and has noted in recent years that FDA marketing authorization alone is often insufficient to support Medicare decision making.120 121 We also believe it may be relevant to consider whether, as stated by another commenter, that as Breakthrough Device designation is often issued before product development and clinical trial protocols are finalized, the alternative pathway may reduce incentives to generate evidence of improved outcomes for Medicare beneficiaries. --------------------------------------------------------------------------- \119\ https://www.fda.gov/regulatory-information/search-fda-guidance-documents/breakthrough-devices-program. \120\ Final rule to repeal the ``Medicare Coverage of Innovative Technology (MCIT) and Definition of ``Reasonable and Necessary'' final rule (86 FR 62945-62946). \121\ Transitional Coverage for Emerging Technologies (TCET) pathway final notice (89 FR 65725, 65727). --------------------------------------------------------------------------- Our concerns are exacerbated by the timing gap between FDA Breakthrough Device and QIDP designation and marketing authorization, or when technologies begin to be eligible to apply for add-on payments. As mentioned by a commenter, these FDA designations are early designations that generally occur years before the manufacturer applies for marketing authorization. Therefore, even the expectation of benefit under these designations is generally assessed years before CMS would evaluate technologies for the purposes of new technology add-on payment and OPPS device pass-through payment status, in many cases more than four years prior. During the time between when a technology receives FDA Breakthrough Device or QIDP designation and when the technology may apply for new technology add-on payment and OPPS device pass-through payment status, other meaningful comparator technologies may receive FDA market authorization such that a technology with a FDA designation that may have had the potential to demonstrate substantial clinical improvement over technologies existing at the time of FDA designation may no longer offer substantial clinical improvements over the currently available treatments. New developments in the treatment landscape in the years following the FDA designations remain an important consideration for CMS under our statute and regulations. We also agree with the commenter that FDA designation does not necessarily ensure that a device is not substantially similar to existing technology. For a Breakthrough Device designation, FDA does not necessarily have to consider whether the device represents a novel technology. We also note that before issuing a marketing authorization, FDA generally cannot publicly disclose whether FDA has granted a Breakthrough Device designation request, unless the sponsor decides to make that information available to the public, and that while FDA's website includes a list of Breakthrough Devices that have obtained marketing authorization for an indication consistent with its Breakthrough Designation, FDA does not identify there the particular criteria under which the Breakthrough Device designation was granted. We further note that even when the device represents a novel technology, as previously stated, FDA considers whether there is a reasonable expectation that a device could provide for more effective treatment or diagnosis, but FDA market authorization does not provide a determination that this expectation was substantiated, and with a time lag between this assessment and eligibility for add-on payment, the treatment landscape may have changed. Finally, FDA may grant Breakthrough Device designation to multiple devices with the same intended use, and a Breakthrough Device designation will not be revoked solely on the basis of another FDA-designated Breakthrough device obtaining marketing authorization.\122\ Similarly, FDA may grant QIDP designation to multiple products with the same active ingredient with the same use, because the designation applies to a specific drug product from a specific sponsor for a specific use for which it is being studied.\123\ As such, we do not believe that FDA Breakthrough Device or QIDP designations ensure that a technology is not substantially similar nor a substantial clinical improvement relative to existing technology, especially when the time lag is considered. Accordingly, we do not believe a technology should be considered to have demonstrated that it is not substantially similar to existing technology or to have met the substantial clinical improvement criterion strictly on the basis of having FDA Breakthrough Device or QIDP designation. --------------------------------------------------------------------------- \122\ Breakthrough Devices Program--Guidance for Industry and Food and Drug Administration Staff--Document issued on September 15, 2023. https://www.fda.gov/files/guidance%20documents/published/Breakthrough-Devices-Program.pdf. \123\ Qualified Infectious Disease Product Designation-- Questions and Answers Guidance for Industry--May 2021 https://www.fda.gov/media/148480/download. --------------------------------------------------------------------------- [[Page 49773]] Regarding the commenter's concern that the alternative pathway may create a disincentive for providers to adopt FDA-designated Breakthrough Devices that receive new technology add-on payment because they have not been evaluated for substantial clinical improvement, we agree that CMS's determination that a technology demonstrates substantial clinical improvement may be a factor for providers when they are faced with the decision to adopt a new technology. In addition, we are concerned that providers may assume that CMS's approval of a technology indicates that the technology has demonstrated that it offers a substantial clinical improvement over other products or treatments on the market, when in fact, no such demonstration has been made. In fact, we are aware of instances where manufacturers suggest that technologies approved for the alternative pathway can be said to have met the substantial clinical improvement criterion by virtue of being approved for add-on payments through the alternative pathways. We believe it would be beneficial to providers to require that all technologies that receive add-on payments have demonstrated that they have met all of the CMS criteria, as this may further support providers in making informed decisions regarding the technologies available to them and their beneficiaries. We concur with MedPAC's statement that Medicare should not pay more for these technologies when they have not yet been proven to provide better outcomes for beneficiaries. As such, we continue to believe it is in the best interest of Medicare patients to refine our approach to ensure that all applicants for new technology add-on payment or OPPS device pass- through payment status have demonstrated that they meet the same eligibility requirements, including that they improve the diagnosis or treatment of Medicare beneficiaries. We further agree that CMS, not FDA, should adjudicate spending determinations based on the specific needs of the Medicare population, as these add-on payments are governed by CMS's statutory and regulatory authority. For these reasons, we continue to believe that ensuring that all applicants for new technology add-on payment or OPPS device pass- through payment status have demonstrated that they meet the same eligibility requirements is the better policy. With respect to a commenter's belief that new technology add-on payment supports other determinants of patient access like Medicare coverage, as discussed further in this section, and as stated in the September 7, 2001 final rule and CY 2003 OPPS final rule (66 FR 46914, 67 FR 66783), the criteria for determining whether a technology is eligible for new technology add-on payment and OPPS device pass-through payments are not intended for use in making coverage decisions under section 1862(a)(1)(A) of the Act. Regarding the commenter who described concerns that even devices applying under the traditional pathway and which have been determined to have met the substantial clinical improvement criterion may not be supported by the highest-quality data, and they may not necessarily have been studied in the Medicare population, we agree that higher quality data with generalizability to Medicare beneficiaries is ideal. However, the regulations at Sec. 412.87 are intentionally broad in order to provide flexibility for applicants in what they can provide to demonstrate substantial clinical improvement, and we have aimed to strike a balance in accepting a broad range of available evidence for consideration. In addition, we do not agree that CMS should preserve the alternative pathway for antimicrobials, which we discuss in greater detail later in this section. Comment: Many commenters stated they shared CMS's commitment to ensuring that Medicare beneficiaries receive the best, evidence-based care; however, they opposed the proposal to repeal the alternative pathways for new technology add-on payment and OPPS device pass- through. Commenters who were non-supportive of the proposal stated that the alternative pathways facilitate the early adoption of promising technologies while additional evidence is developed, and that removing the alternative pathways may limit the generation of clinically meaningful data and real-world evidence to inform future coverage and payment policy. Commenters believed that the alternative pathways have played a critical role in supporting early adoption of breakthrough technologies in both the inpatient and outpatient setting by mitigating the payment lag that often follows FDA market authorization, improving the timeliness of Medicare beneficiary access to FDA-designated Breakthrough Devices, and easing the burden on innovators to meet the Agency's evidentiary requirements. Some of the commenters stated their belief that devices that have received FDA Breakthrough Device designation have cleared a meaningful, evidence-based, and rigorous threshold, as FDA has determined the technologies address an unmet need and warrant expedited development and review. A commenter stated that by aligning new technology add-on payment and OPPS device pass-through eligibility with FDA's Breakthrough Device designation, CMS had created a more predictable and efficient route for technologies that meet a high evidentiary bar. Some commenters stated that in CMS's rationale from prior rulemaking to establish the alternative pathways, CMS had recognized that FDA provides marketing authorization under the FDA Breakthrough Devices Program to technologies that are still developing their evidence base and had concluded that FDA's assessment could serve as a reasonable proxy for the substantial clinical improvement criterion, which reduced duplicative evidentiary burdens. A commenter stated that CMS and stakeholders had accumulated meaningful experience with FDA Breakthrough Device-related OPPS device pass-through payments and that the alternative pathway had functioned as intended. The commenter provided a cross-sectional analysis of 43 OPPS device pass- through applications (2017-2023) and found that CMS approved 17 (40 percent) overall, including all 8 (100 percent) applications submitted under the alternative pathway for FDA-designated Breakthrough Devices, with most denials due to failure to demonstrate substantial clinical improvement, highlighting that this was the principal access barrier. The commenter further stated that CMS had also increased transparency by publicly posting OPPS device pass-through public application summaries, illustrating continued reliance on the OPPS device pass- through framework by innovators. Commenters provided examples from prior rulemaking, including applications for FY 2027, stating that 32 of 47 (68 percent) new technology add-on payment applicants utilized the alternative pathway, reflecting that the pathway is a central mechanism by which genuinely novel, high-need technologies access the add-on payment, and that overall, total new technology add-on payment applications have increased 161 percent from FY 2020 to FY 2027, reflecting the pathway working as intended. Commenters stated their belief that requiring proof of substantial clinical improvement at the time of new technology add-on payment application imposes a standard that does not fully account for the different FDA and CMS evidence timelines. Commenters further stated that demonstration of substantial clinical improvement at the time of new [[Page 49774]] technology add-on payment application may be difficult for many technologies to meet or may be constrained by ethical, methodological, or practical considerations. A commenter explained that when a device treats a population for whom no comparable standard of care exists, or for whom the counterfactual is high-risk surgery or no treatment at all, randomized comparative trials are frequently ethically and practically impossible within the new technology add-on payment timeframe. Another commenter asserted that for patients without a single, defined comparable therapy against which improvement can be measured, such as patients with drug-resistant epilepsy that have failed multiple antiseizure medications and have varying comorbidities and prior treatment history, technologies may offer profound clinical value that is not captured by the framework that CMS has historically applied in the substantial clinical improvement criterion evaluation process. Some commenters asserted that the traditional pathway is not available to pre-commercial FDA-designated Breakthrough Devices by nature of the designation, not by choice or for lack of clinical merit, and that the alternative pathway fills a genuine structural gap in the new technology add-on payment evaluation. Other commenters noted that devices cleared through the FDA 510(k) clearance pathway, such as those used in spine surgery, do not require pre-market clinical trial data as they are only required to be substantially equivalent to a predicate device. A commenter stated that for technologies cleared through the 510(k) pathway, the window available to accumulate the peer-reviewed, comparative outcome literature CMS expects under the substantial clinical improvement criterion often overlaps the technology's same three-year new technology add-on payment eligibility window, and usually cannot be satisfied simultaneously. Another commenter stated that evidence of substantial clinical improvement is not typically available during the initial period of commercialization of a novel technology because the evidence is beyond the scope of FDA's determination of safety and effectiveness, which would disproportionately affect FDA 510(k) cleared devices that require limited or no clinical evidence for marketing authorization, but would also impact devices reviewed through the Premarket Approval (PMA) process. Other commenters stated that for FDA PMA products in particular, the FDA Breakthrough Device designation reflects technologies that address serious or life-threatening conditions and meet rigorous FDA criteria. A commenter stated its agreement that Breakthrough Device designation alone is not a sufficient proxy for robust clinical evidence demonstrating safety, effectiveness, and meaningful clinical benefit because the designation is granted early in development, typically before such evidence has been fully generated. The commenter cited a recent peer-reviewed analysis \124\ that examined the 26 FDA-designated Breakthrough Devices cleared through the 510(k) pathway as of July 2023 and found that, among the 16 therapeutic devices, 6 (37.5 percent) had no clinical studies referenced in their FDA decision letters. However, the commenter believed that the appropriate response was targeted reform, as it stated that technologies FDA market authorized through FDA De Novo and PMA pathways based on completed IDE studies are already required to have the clinical evidence sought by CMS. --------------------------------------------------------------------------- \124\ FDA Breakthrough Device Designation: Clinical Evidence And Medicare Payment Policies https://www.healthaffairs.org/content/forefront/fda-breakthrough-device-designation-clinical-evidence-and-medicare-payment-policies. --------------------------------------------------------------------------- Commenters also shared their concerns that CMS was increasingly holding applicants to excessively stringent standards, particularly with respect to the substantial clinical improvement criterion. A few commenters further believed this stringency disproportionately impacted certain classes of technologies, including cell and gene therapies, particularly those that treat rare or ultra-rare conditions. The commenter stated that these therapies often serve very small patient populations, making traditional clinical trial designs and data accumulation challenging, despite profound clinical benefit, and that without new technology add-on payment, hospitals may delay or altogether forgo adopting technologies that could improve outcomes for patients with limited or no existing treatment options. Another commenter stated its concerns about CMS inappropriately considering newer generation CAR T-cell therapies as ``substantially similar'' to first generation therapies despite differences in their methods of action. The commenter urged CMS to recognize innovations in the newer generation of CAR T-cell therapies and how they differentiate these from previous generations, including recognizing when the CAR construct of a CAR T-cell therapy is differentiated in a manner that leads to improvements in treatment that are supported by clinical evidence. Other commenters also asserted that the evidentiary standard CMS applies to substantial clinical improvement for medical devices raises concerns about alignment with the Agency's position that new technology add-on payment and OPPS device pass-through determinations are payment decisions, not coverage determinations. Commenters stated that in practice, the substantial clinical improvement threshold increasingly requires comparative, peer-reviewed evidence demonstrating improved outcomes in the Medicare population, a level of rigor similar to, or exceeding, that typically used for Medicare coverage under the ``reasonable and necessary'' standard. Commenters stated that once CMS determines a technology meets this threshold, it becomes difficult to reconcile how coverage could subsequently be denied for clinically appropriate patients. A commenter further stated that such an illogical result demonstrates the unreasonably high burden of the evidentiary showing required to demonstrate substantial clinical improvement. The commenter stated that CMS's escalating substantial clinical improvement evidence demands have, in practice, converted what the Agency characterizes as a circumscribed payment inquiry into a de facto coverage adjudication. The commenter stated that the substantial clinical improvement standard was never intended for this purpose, but current evidence requirements created what it described as a clear contradiction--either (i) new technology add-on payment and OPPS device pass-through determinations are genuinely ``only payment decisions,'' with evidentiary standards that reflect that limited scope, or (ii) CMS should recognize that the substantial clinical improvement criterion as applied is expansive such that it encompasses and exceeds the bar for a ``reasonable and necessary'' coverage determination and treat it as such. A commenter stated that the statutory text reflects that Congress intended new technology add-on payment to be available for innovative new technologies with costs not yet reflected in applicable MS-DRG rates, not that Congress intended technology add-on payment to have such strict evidentiary requirements that it would be only very rarely available. Response: We appreciate commenters' feedback on our proposal to require all applicants for new technology add-on payments and OPPS device pass- [[Page 49775]] through payments to meet the same eligibility criteria. We recognize the role of the alternative pathways in supporting early adoption of technologies in both the inpatient and outpatient setting by mitigating the payment lag that often follows FDA market authorization. However, both new technology add-on payment and OPPS device pass-through payment are intended to collect cost data for the purposes of payment, not to facilitate the collection of clinical data. For new technology add-on payment, this is reflected in the general provisions at Sec. 412.87(a). OPPS device pass-through payment, as implemented at Sec. 419.66, is intended to facilitate access for beneficiaries to the advantages of new, innovative devices by allowing for adequate payment for these new devices while the necessary cost data is collected to incorporate the costs for these devices into the procedure APC rate (66 FR 55861). With respect to comments arguing that devices that have received FDA Breakthrough Device designation have cleared a rigorous, evidence- based threshold, we note, as we have before, that FDA Breakthrough Device designation is based on, among other things, a reasonable expectation that a device could provide for more effective treatment or diagnosis.\125\ FDA market authorization does not provide a determination that this expectation was substantiated, and mechanisms for demonstrating a reasonable expectation of technical and clinical success could include literature or preliminary data (bench, animal, or clinical). We further note that FDA-designated Breakthrough Devices that have obtained premarket authorization through the 510(k) pathway are sometimes cleared without evaluation of clinical safety or effectiveness data and instead are authorized on the basis of substantial equivalence to a legally marketed predicate device. Accordingly, we do not believe a device should be considered to have met CMS's substantial clinical improvement criterion strictly on the basis of having FDA Breakthrough Device designation. We further note with respect to the comments regarding therapies that serve small patient populations and provide profound clinical benefit, or improve outcomes for patients without existing treatment options, if they in fact do have evidence to support improved outcomes, we do not believe these therapies would be negatively impacted as the regulations describing requirements for substantial clinical improvement specifically describe these scenarios as potentially representative of substantial clinical improvement. In fact, many of these types of technologies have been approved for new technology add-on payments after providing evidence that meets the requirements for approval. --------------------------------------------------------------------------- \125\ https://www.fda.gov/media/162413/download. --------------------------------------------------------------------------- Regarding the commenters who stated that we had previously believed, at the time of implementation of the alternative pathway, that it was appropriate to facilitate beneficiary access to transformative new medical devices without requiring substantial clinical improvement, we note that we have continued to accumulate experience with this pathway and worked collaboratively with the FDA and FDA's expedited programs, including the Breakthrough Devices Program, over the past years. We believe it may be relevant to consider whether the pathways may unintentionally reduce incentives to generate evidence of improved outcomes for Medicare beneficiaries because evidence submission became unnecessary to receive these additional payments under the alternative pathway, as suggested by a commenter. Furthermore, we disagree that requiring a demonstration of substantial clinical improvement for new technology add-on payment and OPPS device pass-through payment would systematically disadvantage novel and innovative technologies. Rather, these technologies would instead be subject to the same criteria as all other novel and innovative technologies that apply under the traditional pathways. We believe CMS should incentivize the use of technologies that have demonstrated evidence of substantial clinical improvement. As we stated in the September 7, 2001 final rule (66 FR 46913), we believed the special payments for new technology should be limited to those new technologies that have been demonstrated to represent a substantial improvement in caring for Medicare beneficiaries, such that there is a clear advantage to creating a payment incentive for physicians and hospitals to utilize the new technology. Following our continued experience with the alternative pathway and for the reasons discussed in this final rule, we believe it is most appropriate for CMS to return to providing additional payment and facilitating beneficiary access under these special payment programs for those technologies that have demonstrated a substantial improvement for Medicare beneficiaries. We disagree that our evaluations of substantial similarity and substantial clinical improvement have gotten increasingly stringent. We note, as previously summarized, that other commenters have suggested that we are not stringent enough, as they asserted recent approvals for new technology add-on payments and OPPS device pass-through payment are not based on high-quality data. We believe that commenters who assert our evaluations have become increasingly stringent may instead be seeing a positive reflection of the improvement in treatment landscapes for a diversity of patient populations and diseases since the inception of new technology add-on payment and OPPS device pass-through payment, which has increased the standard-of-care options available to patients. Because our evaluations for the additional payments compare against existing technologies used for Medicare beneficiaries, an increase in relevant comparator technologies may have the appearance of stricter standards because more information may be necessary to demonstrate that a technology meets our criteria. We believe that this inherent scaling relative to the availability of treatment options in a particular clinical area also appropriately supports innovation in areas with true unmet needs where there are little to no meaningful standard-of-care options. We also believe there is a misunderstanding of what CMS requires to establish substantial clinical improvement. In fact, we discussed in the FY 2020 IPPS/LTCH PPS final rule (84 FR 42288 through 42292) how we may evaluate substantial clinical improvement for purposes of new technology add-on payments and OPPS device pass-through payments to allow for greater clarity and predictability. The regulations under Sec. 412.87(b)(1)(iii), as codified in the FY 2020 IPPS/LTCH PPS final rule, provide a non-exhaustive list of published or unpublished information sources from within the United States or elsewhere that may be sufficient to establish substantial clinical improvement. Direct comparative, peer-reviewed evidence is not a requirement under the regulations. As previously stated, the regulations are intentionally broad to provide flexibility for applicants in the evidence required to demonstrate substantial clinical improvement. We also disagree with commenters asserting that the evidentiary standard CMS applies to substantial clinical improvement raises concerns about alignment with the Agency's position that new technology add-on payment and OPPS device pass-through payment determinations are payment decisions, not coverage determinations. As stated [[Page 49776]] in the September 7, 2001 final rule (66 FR 46914) and the CY 2003 OPPS final rule (67 FR 66783), the criteria for determining whether a technology is eligible for new technology add-on payment and OPPS device pass-through payments are not intended for use in making coverage decisions under section 1862(a)(1)(A) of the Act. While a technology can be covered under Medicare and not receive new technology add-on payment or OPPS device pass-through payment, the reverse is generally not true. When a new technology add-on or pass-through payment is established for a technology, it would not be covered and no payment would be made if it is furnished to a patient for which it is not reasonable and necessary. Moreover, we note that the substantial clinical improvement criterion requires that new technologies demonstrate that the technology represents an advance that substantially improves, relative to technologies previously available, the diagnosis or treatment of Medicare beneficiaries. Section 1862(a)(1)(A) of the Act, the standard for Medicare coverage, requires (absent a specific statutory exception) a determination that items and services are ``reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member.'' This does not establish that to be reasonable and necessary that an item or service offer substantial clinical improvement over other appropriate options. These two determinations serve different purposes, as one allows for payment under Medicare, while the other provides extra payment for specific technologies that meet additional criteria. Setting a standard for substantial clinical improvement for additional payments exceeds what is required for Medicare coverage and standardized payment; therefore, there is no misalignment. We also disagree that our evaluation of substantial clinical improvement conflicts with statutory text. Sections 1886(d)(5)(K)(vi) and Section 1833(t)(6) of the Act specify that a medical service or technology will be considered ``new'' if it meets criteria established by the Secretary (after notice and opportunity for public comment). When we subsequently established the substantial clinical improvement criterion in the September 7, 2001 final rule (66 FR 46913), we explained that we had proposed the ``substantial improvement'' criterion to limit these special payments for those technologies that afford clear improvements over the use of previously available technologies. Similarly, when we finalized the substantial clinical improvement criterion in the November 2, 2001, OPPS interim final rule with comment period (66 FR 55852 to 55853), we explained that we believed it is important for hospitals to receive pass-through payments for devices that offer substantial clinical improvement in the treatment of Medicare beneficiaries to facilitate access by beneficiaries to the advantages of the new technology. Conversely, the need for additional payments for devices that offer little or no clinical improvement over a previously existing device is less apparent. Comment: Commenters expressed concern that this proposal may limit hospital willingness to adopt newer technologies and slow the availability of innovative technologies, including those intended to address serious or life-threatening conditions for Medicare beneficiaries, which would particularly affect underserved patient populations or those with unmet needs. A commenter stated that CMS has historically played an important role in supporting responsible adoption of breakthrough technologies that improve patient outcomes. Commenters stated that the alternative pathways have allowed providers to gain earlier access to innovative therapies during the period before payment systems fully reflect the costs associated with new technologies. Commenters provided examples of technologies that they each believed would not have been offered or will not be available to Medicare beneficiaries in the absence of the alternative pathways. Commenters spoke to their experiences with hospital decisions to adopt new technologies while facing thin to nonexistent hospital margins. The commenters stated that financial considerations were a prerequisite to bringing a new device into the formulary, and a technology that was not adequately reimbursed would be a financial liability and would not be adopted by the hospital. Commenters believed that this would have a significant impact on patients, listing different groups such as those treated by safety-net institutions, community hospitals, health systems serving rural and underserved populations, or academic medical centers. Commenters asserted that rather than creating better stewardship of CMS/Medicare dollars, this would instead exacerbate disparities between the care available in well-resourced settings and the care available elsewhere. Commenters also shared examples of patients they each believed would be particularly affected by the proposal, such as those requiring dialysis access, with drug-resistant epilepsy, or with severe therapy-refractory diabetic foot ulcers. Commenters stated that predictability matters as much as the payment itself, and that what they described as the abrupt proposal would make responsible institutions more hesitant to invest in the next generation of tools. A commenter also stated from the provider's perspective, an add-on payment never dictates care, and that whether a given technology is used for a given patient remains a clinical judgment made by physicians and care teams at the point of care, and that they took seriously their dual responsibility for both patient care and the prudent use of resources. Commenters stated that as new technology add-on payment eligibility is determined post-claim, it is unknown at the point of patient admission whether the case will ultimately receive an add-on payment. Commenters noted that although CMS stated technologies may still be paid through the regular MS-DRG or APC payment mechanisms, the current MS-DRG or APC payment rates would not yet account for the costs of the new technologies. Another commenter stated that many FDA- designated Breakthrough Devices are adjunctive technologies used within existing inpatient procedures already reimbursed under existing coding and payment frameworks, and do not seek a separate inpatient procedure payment. Commenters emphasized the uncertainty for device manufacturers if the pathway is repealed because investment, clinical, and commercialization decisions for devices currently in development typically span 5 to 7 years or longer, with antimicrobial resistance product development spanning 10 to 15 years, and which they stated were made based on the existing alternative pathways. Another commenter stated that the new technology add-on payment alternative pathway was specifically designed to address the period between FDA approval and sustainable reimbursement. Commenters stated their belief that the proposed, abrupt changes to the requirements could disrupt development and reimbursement planning, ultimately limiting Medicare beneficiary access to promising, innovative technologies. Commenters stated that the inadequate transition time would be particularly damaging for startups, small, emerging, or mid-size manufacturers across the country, who lacked the resources to absorb a sudden shift in the [[Page 49777]] reimbursement landscape. Some commenters shared the negative impacts that the proposed repeal would have on their technologies in development, and explained the difficulties they would face pivoting to or starting over clinical trials to potentially meet the substantial clinical improvement criterion. Another commenter stated that the repeal would disproportionately disadvantage novel technologies that, for example, address rare diseases or small patient populations or rely on non-traditional or adaptive evidence generation approaches, as well as undermining FDA programs expressly designed to accelerate patient access to novel therapies. A commenter further stated that it would be fundamentally unfair, and contrary to the settled expectations CMS created, to foreclose technologies already in the commercialization pipeline because of a change in program timing that manufacturers could not have anticipated or controlled. In addition, commenters stated that the proposal introduced regulatory unpredictability that risks deterring future investment in these technologies. A commenter noted that over time, this could shift investment away from complex inpatient technologies and toward areas with more predictable reimbursement, impacting Medicare beneficiaries that require the most complex care. Commenters stated that the early-market uncertainty would be particularly acute for technologies that depend on newly established CPT codes or ICD-10-PCS procedure codes and lack viable legacy coding alternatives to achieve meaningful hospital adoption. A commenter further asserted that in such cases, absence of timely OPPS device pass-through payment would not merely slow adoption, it could effectively prevent hospitals from offering the technology at launch, irrespective of clinical need. Another commenter asserted that without a strong national payment anchor, Medicare Administrative Contractor- level coverage variability will create inequitable access for Medicare beneficiaries whose hospitals fall into lower-reimbursement jurisdictions, effectively stratifying access to a technology designed to benefit a broader Medicare population. Commenters also described the impact the proposed repeal would have on technologies under specific FDA marketing authorization pathways. A commenter provided its analysis on the FY 2026 new technology add-on payment applications, stating that CMS received more than twice as many applications through the alternative pathway for devices as through the traditional pathway (34, compared to 13), at least 10 of which were based on FDA 510(k)-cleared technologies, suggesting that the alternative pathway has become the primary route through which innovative technologies, including those following a FDA 510(k) pathway, access new technology add-on payment since its inception. Another commenter asserted that the unstated implication of the proposal is that, if finalized, no FDA-designated Breakthrough Device would qualify for new technology add-on payment or OPPS device pass- through ever again, and as a result, developers may choose not to develop these devices at all. A commenter further asserted that repealing the pathway would not reduce the pipeline of innovative technologies seeking Medicare payment recognition; it simply would foreclose the pathway best suited to evaluate them, returning the burden of demonstrating substantial clinical improvement to technologies cleared via the 510(k) FDA regulatory pathway, for which it asserted that standard was previously structurally inaccessible. Commenters stated that the practical consequences for Medicare beneficiaries are predictable as manufacturers of 510(k)-cleared FDA- designated Breakthrough Devices may deliberately slow their path to market to preserve newness eligibility under the traditional pathway once sufficient post-market clinical data can be assembled; or hospitals may be unable to support the premium price of these new technologies introduced without add-on payment support. Other commenters expressed their concerns about the impact of the proposed repeal of the alternative pathway specifically on QIDPs and LPAD products, due to the impact of antimicrobial resistance on Medicare beneficiaries along with the challenges presented by the current antibiotic development landscape. Commenters stated the proposed repeal was inconsistent with the Administration's stated commitments on antimicrobial resistance. Commenters also asserted that the proposal contradicted CMS's rationale from FY 2020 IPPS rulemaking, where CMS stated its belief that Medicare beneficiaries may be disproportionately impacted by antimicrobial resistance and that the alternative pathway for QIDPs would be a means of addressing some of the regulatory barriers and disincentives for manufacturers to invest in innovation. The commenter noted that stewardship programs appropriately encourage the restricted use of novel antibiotics to preserve their effectiveness and slow the emergence of resistance, but that this necessary public health practice simultaneously limits commercial utilization and undermines the economic viability of antibiotic innovation. However, commenters stated that antibiotic registration programs are typically conducted using non-inferiority trial designs, which are considered the ethical and regulatory standard for serious bacterial infections where placebo-controlled studies are not feasible, and requiring demonstration of significant clinical improvement creates a substantial disconnect between the realities of antimicrobial development under established FDA regulatory pathways and CMS reimbursement policy. Commenters stated that these trial designs cannot generate the head-to-head superiority data required for a substantial clinical improvement criterion determination under the new technology add-on payment. A commenter further stated that the new technology add-on payment substantial similarity criterion may also not adequately capture the nature of antimicrobial innovation, where products may share similar classes or mechanisms of action but still provide clinically meaningful benefits through improved activity against resistant pathogens. Therefore, commenters asserted that antimicrobial drugs are uniquely disadvantaged from qualifying for new technology add-on payment in the absence of the alternative pathway. Another commenter asserted that CMS failed to confront the fact that these technologies have already essentially proven that they represent a substantial clinical improvement and are not ``substantially similar'' to existing products, and cited Sec. 506(h)(1) of the FD&C Act, stating that specifically, to be approved under the LPAD, a drug must be intended for use by patients with unmet needs. The commenter, citing FDA guidance issued in 2014, stated that an unmet need means ``a condition whose treatment or diagnosis is not addressed adequately by available therapy,'' including ``an immediate need for a defined population . . . or a longer-term need for society (e.g., to address the development of resistance to antibacterial drugs).'' \126\ Commenters believed that the proposed policy change would further weaken incentives for antibiotic research and development at a time when antimicrobial resistance [[Page 49778]] remains a national security and growing global threat and the antibiotic pipeline is already fragile, which would negatively impact patients, public health, and innovation. Commenters believed it was also important to recognize that relatively few QIDP products utilize the new technology add-on payment pathway. A commenter further stated that the overall cost to Medicare associated with new technology add-on payment for QIDPs was limited due to the small number of products that seek (and therefore get approved for) add-on payment and the limited payment period. The commenter also provided an analysis of claims data from FY 2021 to FY 2025 that showed that actual new technology add-on payment utilization for QIDP and LPAD products was only 1.3 percent of CMS estimates in rulemaking (about $9.4 million versus $721.2 million). Therefore, the commenter asserted that the impact to CMS and on the Medicare budget associated with this pathway for QIDPs was simply not considerable enough to supersede the importance of maintaining innovation in this space. The commenter also further urged CMS not to finalize the proposal to remove the conditional approval process for QIDPs because it would impose further hurdles on manufacturers that worsen delays in availability that are driven by these external dynamics, which would negatively impact utilization and market access. Another commenter stated that new technology add-on payment remains one of the few practical and functioning policy tools available to help mitigate the distinctive economic challenges associated with anti- infective development, while broader reimbursement reform, such as establishing a subscription-based reimbursement model for qualifying antibiotics, has not been enacted. A commenter stated that between 2020 and 2024, only four systemic antibacterial new molecular entities were approved by FDA, and global assessments by the World Health Organization have found that few candidates in development represent meaningful advances against priority pathogens.\127\ --------------------------------------------------------------------------- \126\ FDA. (May 2014). Guidance for Industry Expedited Programs for Serious Conditions--Drugs and Biologics, at 4. Available at: https://www.fda.gov/media/86377/download. \127\ World Health Organization. (June 2022). Lack of innovation set to undermine antibiotic performance and health gains. Available at: https://www.who.int/news/item/22-06-2022-22-06-2022-lack-of-innovation-set-to-undermine-antibiotic-performance-and-health-gains. World Health Organization. (October 2025). Analysis of Antibacterial Agents in Clinical and Preclinical Development: Overview and Analysis 2025. Available at: https://www.who.int/publications/i/item/9789240113091. --------------------------------------------------------------------------- Response: We share commenters' interest in ensuring that new and innovative technologies, including those intended to address serious or life-threatening conditions, remain available to Medicare beneficiaries. We also appreciate commenters' perspectives based on their experiences as manufacturers and investors developing these new technologies and as providers and hospitals caring for these beneficiaries. Applicants retain the ability to pursue new technology add-on payment and OPPS device pass-through payment under the traditional pathway. In addition, as we have previously noted, there are existing mechanisms to pay for new technologies under the IPPS and OPPS. As we stated in the proposed rule (91 FR 19458), and as discussed in the FY 2026 IPPS/LTCH PPS final rule (90 FR 36672), even if a technology does not receive new technology add-on payments, CMS continues to pay for new technologies through the regular payment mechanism established by the DRG payment methodology. Similarly, as we stated in the CY 2026 OPPS/ASC final rule (90 FR 53635), if a technology does not obtain OPPS device pass-through payment status, these devices can still be used by hospitals, and hospitals will be paid for them through appropriate APC payment. Whether a technology receives new technology add-on payments or OPPS device pass-through payments does not affect coverage of the technology or the ability for Medicare providers to provide such technology to patients where appropriate. Although commenters have noted that the MS-DRG or APC payment rates would not yet account for the costs of these new technologies, we continue to believe that the existing payment mechanisms provide a useful balance to the introduction of new technologies, especially when substantial clinical improvement is not demonstrated. We continue to believe it is in the best interest of Medicare beneficiaries to proceed very carefully with respect to the incentives created to quickly adopt new technology. As also discussed in the September 7, 2001 final rule, in deciding which treatment is most appropriate for any particular patient, it is expected that physicians would balance the clinical needs of patients with the efficacy and costliness of particular treatments (66 FR 46919). We also note that there are other mechanisms, beyond additional payments from Medicare, that hospitals may be able to consider to support any premium price of new technologies, including negotiation with manufacturers, or taking advantage of rebates offered by manufacturers. We also disagree that this proposal is an abrupt shift that disrupts settled expectations. When we initially finalized the policy that established the alternative pathways in the FY 2020 IPPS/LTCH PPS final rule, we indicated that we would be evaluating the benefits of the alternative pathways and any considerations that may come to light. Specifically, we stated that we believed it was prudent to gain experience under this new alternative pathway for certain transformative new devices before expanding it to other special designations to allow us to evaluate the benefits of this proposed alternative pathway to facilitate beneficiary access to transformative new medical devices as well as any other considerations that may come to light after application of this new pathway (84 FR 42296). CMS has continually emphasized FDA and CMS act under different statutes that have different standards and has noted in recent years that FDA designation or marketing authorization alone is often insufficient to support Medicare decision making.128 129 For example, FDA and CMS must consider different legal authorities and apply different statutory standards when making marketing authorization and payment decisions, respectively. We believe that requiring all applicants to demonstrate that they meet the same eligibility requirements to receive add-on payments and/or pass-through payments is consistent with the determinations that CMS has continued to make over the past few years and is a regulatory change to align with Agency understanding and ongoing experience with these technologies, rather than a drastic, unexpected reversal. We also disagree with commenter assertions that there was a settled expectation that their technologies would be approved for new technology add-on payment or OPPS device pass-through payment because CMS must review all applications and make an approval determination through annual notice-and-comment rulemaking, regardless of a technology's eligibility under the alternative pathways. With respect to commenters' belief that the lack of legacy coding options could effectively prevent hospitals from offering the technology at launch, we note that new CPT codes or ICD-10-PCS codes may be established in advance of FDA market [[Page 49779]] authorization, and that, in general OPPS and IPPS are bundled payment systems, so while it may be not be possible to actually identify when a particular product was used when there is no unique code to identify it amongst other products in the category, the product is nonetheless used and paid for. We also disagree that new technology add-on payment or OPPS device pass-through payments would be considered a strong national payment anchor, as these are additional payments provided for a limited period of time for certain new technologies that meet the criteria. --------------------------------------------------------------------------- \128\ Final rule to repeal the ``Medicare Coverage of Innovative Technology (MCIT) and Definition of ``Reasonable and Necessary'' final rule (86 FR 62944-62958). \129\ Transitional Coverage for Emerging Technologies (TCET) pathway final notice (89 FR 65724-65754). --------------------------------------------------------------------------- We recognize that changes to the alternative pathways for new technology add-on payment and OPPS device pass-through payment may have implications for manufacturers' launch planning and evidence development strategies, particularly for technologies that anticipated additional payment to support early adoption. We also recognize that the implications may change depending on the availability of clinical evidence required under the type of FDA marketing authorization pathway relevant to a technology. However, we believe that these additional payments are appropriately reserved for technologies that demonstrate substantial clinical improvement for Medicare beneficiaries. The proposed repeal reflects our interest in maintaining a consistent, evidence-based standard for additional payment eligibility, rather than reliance on external designations that may be based on different evidentiary thresholds or policy objectives. CMS continues to support timely beneficiary access to innovative technologies, and we believe that aligning payment with demonstrated clinical value is essential to ensuring appropriate resource use. Importantly, manufacturers retain the ability to pursue new technology add-on payment and OPPS device pass-through payment under the traditional pathway and may consider how their evidence development strategies can best address CMS's criteria, including generating data relevant to the Medicare population and demonstrating meaningful clinical improvement over existing alternatives. We also disagree that an implication of this proposal was that FDA-designated Breakthrough Devices would no longer qualify for new technology add-on payment or OPPS device pass-through payment, because we have approved devices through the traditional pathway, including those without an FDA Breakthrough Device designation, who also receive marketing authorization under FDA's standard 510(k), De Novo, or PMA pathways. With respect to commenters' concerns about the impact of the proposed repeal specifically on QIDPs and LPAD products, we note that commenters primarily focused on the need to support the development of these products. While we continue to recognize the concerns related to antimicrobial resistance and its impact on Medicare beneficiaries, it is unclear to us whether new technology add-on payment is the appropriate vehicle to support these goals in lieu of broader reimbursement reforms. For example, a commenter highlighted that some products may share similar classes or mechanisms of action but still provide clinically meaningful benefits through improved activity against resistant pathogens. However, we note that having additional options to choose from related to public health concerns would not necessarily indicate that those options are dissimilar from existing technologies that have already been incorporated into the MS-DRG payment rates. In addition, although commenters describe the difficulties of demonstrating substantial clinical improvement through placebo-controlled studies and head-to-head superiority data, as discussed earlier, such evidence is not required under the regulations at Sec. 412.87(b)(1)(iii). We encourage applicants for QIDPs and LPAD products to review the available options for demonstrating substantial clinical improvement to determine which approach would best align with the outcomes demonstrated by their technology. We also disagree with commenters that these products have already proven that they represent a substantial clinical improvement and are not ``substantially similar'' to existing products. Although a commenter stated that to be approved under the LPAD, a drug must be intended for use by patients with unmet needs, we note that under the FDA guidance shared by the commenter, FDA provides additional definitions of unmet needs that do not align with the new technology add-on payment criteria. For example, FDA states: ``When available therapy exists for a condition, a new treatment generally would be considered to address an unmet medical need if the treatment [. . .] addresses an emerging or anticipated public health need, such as a drug shortage.'' Or ``where the only available therapy was approved under the accelerated approval program based on a surrogate endpoint or an intermediate clinical endpoint and clinical benefit has not yet been verified.'' \130\ We also note that FDA's requirement to address an unmet need does not apply to QIDPs. In addition, with respect to commenters' request to maintain conditional approval, we note that it is procedurally infeasible to maintain conditional approval under the traditional pathway because, as discussed previously in this rule and in prior rulemaking, we do not believe it is appropriate for CMS to determine whether a medical service or technology represents a substantial clinical improvement over existing technologies before FDA makes a determination as to whether the medical service or technology is safe and effective (86 FR 45047). --------------------------------------------------------------------------- \130\ https://www.fda.gov/media/86377/download. --------------------------------------------------------------------------- Comment: Commenters asserted that this proposal contradicted with the Administration's views on reducing regulatory burdens, ensuring American leadership in healthcare and life sciences, innovation, or the power of the private sector to drive meaningful clinical change. Commenters further stated that the proposed changes appear incongruent with FDA and CMS's goals as proposed under the RAPID coverage pathway to accelerate patient access to certain innovative technologies. A commenter quoted CMS's stated objectives in the recent RAPID announcement that noted the Agency's goal of, ``cutting red tape for innovators, and helping beneficiaries access new, life-changing health technology faster.'' \131\ Commenters stated that manufacturers would need to demonstrate substantial clinical improvement even after they provided sufficient evidence for FDA market authorization and Medicare national coverage. Commenters asserted that the proposed repeal may undermine the broader Agency objectives by creating additional barriers to hospital adoption of new therapies, and risks creating a situation where technologies are technically covered but practically unavailable at many hospitals. --------------------------------------------------------------------------- \131\ CMS and FDA Announce RAPID Coverage Pathway to Accelerate Patient Access to Life-Changing Medical Devices https://www.cms.gov/newsroom/press-releases/cms-fda-announce-rapid-coverage-pathway-accelerate-patient-access-life-changing-medical-devices. --------------------------------------------------------------------------- Commenters also stated their belief that the proposed repeal did not align with congressional intent for the Breakthrough Device Program or QIDP pathway, with a commenter further asserting that CMS may be exceeding its statutory authority. A commenter stated that requiring that a 510(k)-cleared FDA-designated Breakthrough Device also satisfy the CMS substantial clinical improvement criterion at the time of [[Page 49780]] new technology add-on payment application imposes a third evidentiary requirement that neither FDA nor Congress designed for FDA 510(k) devices. The commenter also stated that any suggestion that FDA 510(k) clearance, by virtue of its predicate-comparison framework, is inherently inconsistent with newness for new technology add-on payment eligibility conflates two standards that Congress and the agencies themselves have kept separate. Commenters stated their concern that the proposed repeal would create a structural bias, as the FDA 510(k) pathway exists because Congress and FDA determined that lower-risk devices do not require clinical trials as a condition of market clearance. Commenters believed that the proposal could reduce Medicare beneficiary access to the types of innovative breakthrough devices the program was designed to reach, including technologies that FDA has authorized to enter the commercial market, which, by FDA's own regulatory design, do not require pre-market clinical trial data. Commenters stated that such devices have no clinical trial data because their risk profile and substantial equivalence to a predicate device satisfy FDA's clearance standard under the 510(k) pathway. Commenters believed that recognition by FDA's Breakthrough Device designation indicated the potential for more effective treatment or diagnosis of life-threatening or irreversibly debilitating disease or conditions. The commenter further stated that the proposed repeal was inconsistent with the aims of the 21st Century Cures Act, as it stated Congress enacted the 21st Century Cures Act specifically to reduce barriers to patient access to breakthrough medical innovations by accelerating FDA review timelines. The commenter asserted that CMS's proposed repeal effectively offsets that acceleration by reinstating what it described as the most significant payment-side barrier to early adoption of FDA 510(k) technologies: the requirement to demonstrate substantial clinical review through post-market literature, before MS-DRG rates have adjusted to reflect a technology's cost. Other commenters stated their belief that eliminating the alternative pathways tells researchers, hospitals, and innovators that the FDA's scientific judgment and Breakthrough Device designation no longer translates into a meaningful reimbursement advantage. Commenters believed that this messaging would be contrary to congressional intent, would deter investment in these technologies, and would undermine United States's global competitiveness in medical innovation. A commenter expressed its concern that current proposals and policy changes from prior rulemaking, taken in their totality, reflect an increasingly restrictive approach toward new technology add-on payments. The commenter stated that new technology add-on payments were created in response to an express directive by Congress for CMS to ``establish a mechanism to recognize the costs of new medical services and technologies,'' that ``adequately reflects the estimated average cost of such service or technology'' during a statutorily prescribed newness period. The commenter stated that in enacting the new technology add-on payments statute, Congress recognized the need for CMS to address an inherent limitation in the IPPS's rate-setting methodology: due to the time-lag inherent in the retrospective claims data used to set rates under the IPPS, truly novel technologies are not adequately reimbursed under the MS-DRG system unless a special additional payment mechanism is available to account for the costs of such new technologies. The commenter stated it did not believe Congress intended improper restrictions on new technology add-on payment that could either prevent its availability or unreasonably limit its effective duration, thereby undermining the purpose of the statutorily- mandated mechanism. The commenter stated its concern that CMS's proposals reflect an increasing hostility to new technology add-on payment that is at odds with both its statutory intent and sound public policy. Response: We disagree that requiring all applicants for new technology add-on payments and OPPS device pass-through payments to meet the same eligibility criteria would be contrary to the Administration's views on reducing federal regulatory burden. We believe that this proposal would create more homogeneity and consistency in the administration of the new technology add-on payment process, and result in the removal of certain regulations related to the alternative pathway and associated costs that do not necessarily deliver value to Medicare beneficiaries. We also do not agree that this proposal is incongruent with FDA and CMS's stated goals under the RAPID coverage pathway to accelerate patient access to certain innovative technologies. Requiring all applicants for new technology add-on payments and OPPS device pass- through payments to meet the same eligibility criteria is not indicative of any change in CMS's goals for the RAPID coverage pathway. We remind commenters that coverage and additional payments for new technologies are separate processes with different standards and purposes, as previously discussed. The traditional pathway for new technology add-on payment applications will continue. We do not believe that Medicare should financially incentivize new technologies for hospitals and manufacturers without evidence of substantial clinical improvement over existing services or technologies, to benefit Medicare beneficiaries. We further disagree that CMS is exceeding its statutory authority or is implementing these programs in a way that is contrary to congressional intent for the FDA Breakthrough Device Program and QIDP pathway. We note that FDA and CMS must consider different legal authorities and apply different statutory standards in implementing their respective programs. While FDA must consider the applicable authorities for the Breakthrough Device Program under the FD&C Act, as created by the 21st Century Cures Act, among other statutes, QIDP pathway, and FDA marketing authorization pathways as outlined in its statute, CMS is not bound by the same statutory authorities. Instead, CMS implements its payment programs in accordance with section 1886(d)(5)(K)(i) of the Act, which required the Secretary to establish a mechanism to recognize the costs of new medical services and technologies, and section 1833(t)(6), which establishes transitional pass-through payment. As previously noted, sections 1886(d)(5)(K)(vi) and section 1833(t)(6) of the Act further specify that a medical service or technology will be considered ``new'' if it meets criteria established by the Secretary (after notice and opportunity for public comment). In addition, we disagree with the concerns that our proposal represented a structural bias against the FDA 510(k) clearance pathway or suggests it is inherently inconsistent with newness, as such technologies may also demonstrate that they meet the newness and substantial clinical improvement criteria, as applicable.\132\ --------------------------------------------------------------------------- \132\ For example, the following FDA 510(k) devices have received new technology add-on payment and/or OPPS device pass- through payments: T2Bacteria[supreg] Panel (84 FR 42278 through 42288); SpineJack[supreg] Expansion Kit (85 FR 58689 through 58701; 85 FR 86003 through 86011); FLEX Vessel PrepTM System (88 FR 81749 through 81755). --------------------------------------------------------------------------- We also disagree that our proposals reflect an increasing hostility toward new technology add-on payment and that they are at odds with both its [[Page 49781]] statutory intent and sound public policy. Although the commenter stated that it did not believe Congress intended what it described as improper restrictions on new technology add-on payments that could either prevent its availability or unreasonably limit its effective duration, we note that section 1886(d)(5)(K)(i) and section 1833(t)(6) of the Act authorized the Secretary to establish a mechanism to recognize the costs of new medical services and technologies, after notice and opportunity for public comment. When CMS first established this mechanism in the September 7, 2001 final rule (66 FR 46912 to 46921) and in the November 2, 2001, OPPS interim final rule with comment period (66 FR 55852 to 55853), we finalized the requirement that a new technology must represent a substantial improvement. In these final rules, we explained our belief that the special payments for new technology established by the final rule should be limited to those new technologies that have been demonstrated to represent a substantial improvement in caring for Medicare beneficiaries, such that there is a clear advantage to creating a payment incentive for physicians and hospitals to utilize the new technology. As previously discussed, we subsequently adopted the alternative pathway for certain transformative medical devices and antimicrobials. However, at this time, following our further experience with and consideration of the application of this alternative pathway, we believe it is most appropriate to return to applying this standard consistently across all applications. Comment: Commenters stated that CMS had not presented data demonstrating that the alternative pathways have failed to deliver clinical benefit to Medicare beneficiaries, or resulted in inappropriate approvals, excess spending, adverse outcomes, program integrity concerns, or systematic abuse that would warrant a repeal. Commenters also stated that CMS did not explain why the proposed repeal serves Medicare patients' best interests nor analyze how it would impact Medicare patients' timely access to these technologies. Commenters stated that CMS did not appear to analyze the cost to industry related to practice development and evidence-generation associated with transitioning to the traditional pathway, which may particularly affect small single-product companies. Commenters requested that CMS provide data behind its proposal to eliminate the alternative pathways and stated that without this information, the proposal was premature and stakeholders would be unable to offer meaningful input on alternative options. Commenters stated that CMS did not explain how FDA's determinations are now insufficient to demonstrate that a new technology confers a substantial clinical advantage despite the alignment between the FDA statute and CMS regulations, and that CMS should transparently identify exactly why FDA's evaluation is (or has become) insufficient. Commenters further stated that if CMS feels FDA's Breakthrough Device evaluation is in fact sufficient, CMS should provide its basis for proposing to repeal the policy that allowed the Agency to waive the `substantial clinical improvement' requirement under 42 CFR 412.87(b)(1). Another commenter believed that CMS's statements in the proposed rule contradicted statements in prior rulemaking about working towards a broader alternative pathway over time and that it was prudent to gain experience under this new alternative pathway before expanding it to other special designations, and which the commenter stated had resulted in reliance interests (84 FR 42044, 42296). Another commenter stated that the Agency's own actions in this rulemaking are difficult to reconcile with its position that the alternative pathways produce insufficiently justified spending, as in the same proposed rule, CMS proposed to approve a substantial number of FDA-designated Breakthrough Devices under the alternative pathways. A commenter stated that CMS failed to adequately consider less drastic reform alternatives. Commenters also asserted that CMS failed to address reliance interest of stakeholders during every stage of the product lifecycle, including early-stage clinical development, multi- year planning cycles and pipelines, and post-market evidence collection. A commenter provided examples of multicenter randomized controlled trials, large-scale claims analyses, and prospective registries collected during the early commercialization period. Commenters asserted that under the Administrative Procedure Act, a change in agency position requires a more detailed justification when prior policy has engendered serious reliance interests. Commenters provided prior Supreme Court case law, including Encino Motorcars, LLC v. Navarro \133\ and Department of Homeland Security v. Regents of the University of California,\134\ stating when an agency is not writing on a blank slate, it must identify whether reliance interests exist, determine their significance, and weigh them against competing policy concerns. Another commenter further stated that under Motor Vehicle Manufacturers Ass'n v. State Farm Mutual Automobile Insurance Co.,\135\ an Agency acts arbitrarily and capriciously when it fails to consider an important aspect of the problem. Commenters stated that the Supreme Court held in FCC v. Fox Television Stations, Inc.\136\ that an agency must give a ``reasoned explanation'' when it changes a policy. The commenters stated that the decision stated that the agency must have ``good reasons'' for the new policy, and in certain situations, must ``provide a more detailed justification than what would suffice for a new policy created on a blank slate,'' which includes situations where ``its new policy rests upon factual findings that contradict those which underlay its prior policy.'' Commenters argued that the reasoning provided by CMS to support the proposal failed to meet the standard set forth by the Supreme Court. Commenters asserted that, therefore, for procedural reasons alone, the proposal must not be finalized. --------------------------------------------------------------------------- \133\ 579 U.S. 211 (2016). \134\ 591 U.S. 1 (2020). \135\ 463 U.S. 29 (1983)12. \136\ 556 U.S. 502, 514 (2009). --------------------------------------------------------------------------- A commenter also disagreed that the proposed repeal would achieve CMS's goal to better align spending and value and ultimately support providers in delivering the best, data-driven care possible. The commenter asserted that a hospital's receipt of incremental payments for the adoption of new technologies does not mandate the use of the technology and would not lead to less than optimal care. The commenter stated that decisions on the appropriate care pathway belong with providers and established coverage determination processes and that the new technology add-on payment eliminates the financial disincentive that hospitals have for adopting new and innovative technologies that may benefit patient care. A commenter stated that CMS has expressed concern with the increasing volume and complexity of new technology add-on payment applications and finalized policies intended to reduce agency burden associated with evaluating them, and stated it was not clear why these challenges would warrant repealing a pathway that, by design, reduced CMS's evaluative burden. Commenters believed that evaluating FY 2028 [[Page 49782]] applications under the traditional pathways would likely consume more time and resources for CMS. Commenters stated their belief that the alternative pathways had also reduced administrative burden at the Agency by streamlining aspects of the new technology add-on payment and OPPS device pass-through review process without lowering standards. Commenters stated that eliminating the alternative pathways risked duplicative review and longer timelines without a clear policy benefit. A commenter stated that CMS retained multiple safeguards that already provided the flexibility to ensure that new technology add-on payment and OPPS device pass-through payments remain targeted, time-limited, and value-conscious, including: the newness criterion, with a defined 2 to 3 year newness window and policies clarifying how commercial availability delays are treated; a rigorous cost criterion to ensure that new technology add-on payment is reserved for cases where IPPS payment is demonstrably inadequate; and caps on new technology add-on payment percentage, which preserves financial risk under the prospective payment system and prevents full cost-shifting to Medicare. The commenter further stated that recent CMS rulemaking demonstrates that the Agency is willing to use new technology add-on payment policy to support access to transformative, high-cost therapies while at the same time refining financial safeguards, such as when CMS increased the new technology add-on payment percentage to 75 percent for certain gene therapies for sickle cell disease, or when CMS clarified how delays in commercial availability should affect the newness period to emphasize that new technology add-on payments remain focused on the true introductory period of a technology. The commenter stated that the examples suggest that targeted refinements, rather than repeal, are the appropriate policy tool if CMS believes additional guardrails are needed. Commenters stated that the proposed changes appear to be focused on cost reductions, and stated their belief that CMS needed to provide an evidentiary basis to repeal the alternative pathways, such as a cost- benefit analysis demonstrating that costs of the alternative pathways outweigh the patient benefits. A few commenters described their analyses of CMS spending on new technology add-on payment. The commenters stated that their claims analyses for technologies approved for new technology add-on payment under the alternative pathway found that actual utilization was significantly lower than CMS estimates. A commenter shared its empirical analysis of new technology add-on payment utilization and payment data spanning FY 2011 through FY 2024 and compared actual new technology add-on payment expenditures to CMS estimates provided during annual rulemaking. The commenter stated that the data showed that actual new technology add-on payment expenditures under the alternative pathway represented only 13.3 percent of CMS's estimates across all product types, compared to 45.2 percent for the traditional pathway, which it stated suggested that CMS's methodology for projecting new technology add-on payment expenditures may not adequately account for the utilization dynamics of alternative pathway technologies. The commenter also found that new technology add-on payments for devices under the alternative pathway represented a small fraction of both estimated expenditures and overall inpatient hospital spending. The commenter also reviewed year-by-year patterns for new technology add-on payments for devices under the alternative pathway and found that actual expenditures had declined since FY 2022. A few commenters stated that a claims analysis for FY 2021 to FY 2024 found that 38 percent of eligible claims under the alternative pathway triggered new technology add-on payment (22 percent of the estimated expenditure), and under the traditional pathway, those values were 46 percent and 28 percent respectively. The commenters noted that critically, add-on payments are not automatic; they are triggered only when a hospital's costs for a particular case exceed the applicable payment threshold, and, as a result, lower hospital acquisition costs reduce both the likelihood and magnitude of any add-on payment. Additional commenters stated an analysis of FY 2021 to FY 2025 claims data showed that hospitals only received less than 20 percent (17.3 percent) of an estimated spend of $1.5 billion over the five-year period. Commenters stated that new technology add-on payments and OPPS device pass-through payments are temporary and limited in scope and help support appropriate reimbursement and incentivize technology adoption for a short time before the costs of new technologies are incorporated into the applicable payment rates. A commenter stated that deferring a final decision on the proposed repeal would carry comparatively low fiscal risk for several reasons: (1) actual expenditures have consistently been a fraction of estimated expenditures and have declined; (2) the new technology add-on payment is time-limited by statute and does not capture the full incremental cost of a new device; and (3) the total new technology add-on payment for devices was only a small fraction of overall Medicare inpatient spending. Response: We disagree with commenters' assertions that the repeal would be arbitrary and capricious, or that the proposal should not be finalized because we failed to consider less drastic alternatives or reliance interests or provide data to demonstrate the proposal is warranted. We believe we have adequately assessed whether there were reliance interests, determined whether those interests were significant, and weighed any such interests against competing policy concerns in accordance with requirements under law, including court decisions cited by the commenters. We further believe that our new policy is permissible under the statute, that there are good reasons for it, and--for the reasons set forth in this preamble--we believe it to be better than continuing the existing alternative pathways policy. For example, we recognize that there may be potential reliance interests of industry, including manufacturers and investors, throughout the product lifecycle when considering evidence development and commercialization strategies for their technologies, and providers and facilities that may be interested in using these technologies. However, we do not believe that the existence of the alternative pathways would have given rise to serious or significant reliance interests that would be affected by our proposal. At the time of FY 2020 IPPS/LTCH PPS and CY 2020 OPPS/ASC final rules, the FDA's Breakthrough Device program was still relatively new. We indicated in the FY 2020 IPPS/LTCH PPS final rule that we believed it was prudent to gain experience under the new alternative pathway, in order to allow us to evaluate the benefits of this proposed alternative pathway to facilitate beneficiary access to transformative new medical devices as well as any other considerations that may come to light after application of this new pathway. As previously described, since then, CMS has indicated our concern with relying solely on an FDA designation to support Medicare decision-making as FDA and CMS operate under different statutory authorities.\137\ We believe that [[Page 49783]] any reliance on the availability of the alternative pathways would have been neither significant nor reasonable in light of CMS's stated openness to reassess the alternative pathways as it gained more information, and our continued concern that FDA and CMS must consider different legal authorities and apply different statutory standards. We also believe that any asserted reliance interests that may have stemmed from an expectation that technologies would be eligible to apply under the alternative pathways and would all be approved for new technology add-on payment or OPPS device pass-through payment would be unjustified because CMS reviews all applications and makes determinations through annual notice-and-comment rulemaking. While, as noted, we recognize that there may be potential reliance interests of industry, providers, and facilities, even taking those interests into account, we do not believe those interests outweigh CMS's obligations to American taxpayers and Medicare beneficiaries, including the obligation to make sure that in creating a payment incentive for the use of new technology, such technology represents a substantial improvement in care provided for Medicare beneficiaries. With respect to commenters' statements that CMS did not explain how FDA's determinations are now insufficient, as discussed in greater detail earlier, we do not consider technologies applying under the alternative pathways to have demonstrated that they are not substantially similar to existing technology or to have met the substantial clinical improvement criterion strictly on the basis of having an FDA Breakthrough Device or QIDP designation, or being approved under the LPAD pathway, and we refer readers to our prior discussion regarding the differences between the FDA and CMS criteria. Moreover, as noted, in recent years, CMS has continually emphasized that FDA marketing authorization alone is often insufficient to support Medicare decision making. As we explained in the proposed rule, we believe that holding all applicants to the same standards and requiring all applicants to demonstrate that their technologies meet the same criteria maintains our focus on new and innovative technologies that improve beneficiary health outcomes while strengthening the evidence base supporting our approval decisions for new technology add-on payment and OPPS device pass-through payment, ensuring value for American taxpayers and Medicare beneficiaries. With respect to the commenter stating that our actions in this rulemaking are difficult to reconcile because CMS proposed to approve applications under the alternative pathway, we clarify that while we had proposed to continue to make available the alternative pathway for those technologies for which an application had previously been submitted under the alternative pathway for FY 2027, we continue to believe that it is appropriate to change our policy going forward for the reasons discussed. --------------------------------------------------------------------------- \137\ Final rule to repeal the ``Medicare Coverage of Innovative Technology (MCIT) and Definition of ``Reasonable and Necessary'' final rule (86 FR 62945). --------------------------------------------------------------------------- While evaluation of applications under the traditional pathway would not necessarily reduce agency review, we believe that any change in agency burden associated with reviewing all applications under the same criteria would also be outweighed by CMS's obligations to ensure value for current and future beneficiaries of the Medicare Trust Fund. With respect to the analyses shared by commenters showing that the overall utilization of all new technology add-on payments including technologies approved under the alternative pathways were lower than CMS estimates, we note that this both aligns with our experience and was not a relevant consideration in our development of this proposal. As mentioned by commenters, our cost estimates are based on the applicant's estimated cases at the time they submitted their original application and the increase in new technology add-on payments as if every claim that would qualify for a new technology add-on payment would receive the maximum add-on payment, which would typically result in an overestimation. The estimated financial impact of a technology does not influence our evaluation of new technology add-on payment applications. We believe that any payment incentive that may be made for the use of new technologies should be limited to those technologies that improve outcomes for Medicare beneficiaries, regardless of whether actual Medicare expenditures reach estimated spending. Although commenters pointed out these additional payments are temporary and limited in scope, this would not mitigate the limitations in evaluation of technologies under the alternative pathways that we are addressing. Comment: Many commenters requested that CMS consider alternatives to the proposal to preserve predictable reimbursement pathways that support early hospital adoption of transformative technologies. Commenters provided suggestions that CMS withdraw the proposal or spend additional time to evaluate its impact and explore modifications. Commenters requested that CMS evaluate the access implications for rural, safety-net, teaching, and specialty hospitals before finalizing any changes that could slow adoption. A commenter recommended that CMS conduct and publish a comprehensive evaluation of the alternative pathways' impact on FDA-designated Breakthrough Devices, including: the number and type of FDA-designated Breakthrough Devices that have received new technology add-on payment or OPPS device pass-through under the alternative pathway; the aggregate spending associated with these devices relative to total IPPS and OPPS expenditures; and patterns of adoption and affordability challenges across hospital types (rural vs. urban, teaching vs. non-teaching, safety-net vs. non-safety- net), and corresponding changes in access for Medicare beneficiaries. Commenters suggested that CMS improve cross-agency coordination (with CDC and FDA) and pursue additional stakeholder engagement through a Request for Information (RFI), such as to understand how the alternative pathways influenced clinical practice, patient outcomes, and investment decisions in healthcare. A commenter further requested that CMS directly conduct outreach to affected companies before finalizing any changes. Commenters believed that subsequent refinements should be proposed through future notice-and-comment rulemaking before finalizing any changes. Commenters stated their belief that this was especially important given ongoing changes to CMS coverage programs, including the recently announced RAPID coverage pathway. Some commenters requested additional clarity and details on the new RAPID coverage program and how it would interact with new technology add-on payment eligibility. Commenters further asked that CMS explicitly clarify that participation in the RAPID coverage pathway does not increase the evidentiary burden for simultaneous or subsequent new technology add-on payment participation, and that RAPID coverage determinations are independent of and do not substitute for new technology add-on payment eligibility determinations. A commenter urged CMS to delay finalization of the proposed alternative pathways repeal until the RAPID coverage program has published its final Federal Register procedural notice and has demonstrably completed at least three national coverage determinations within the [[Page 49784]] Agency's target timelines. The commenter believed that finalizing the proposed alternative pathways repeal would be defensible once the RAPID coverage program was demonstrably operational. Another commented believed that the RAPID coverage pathway could not substitute for the alternative pathways, as its eligibility requirements, including an Investigational Device Exemption (``IDE'') study enrolling Medicare beneficiaries and, for Class II devices, enrollment in FDA's Total Product Lifecycle Advisory Program (``TAP'') pilot, may render the program structurally unavailable to many 510(k)-cleared FDA-designated Breakthrough Devices. Some commenters also requested that CMS provide additional clarity on the substantial clinical improvement criterion, including methods, standards, or evidentiary expectations for assessing whether a new technology meets the substantial clinical improvement criterion. Commenters were interested in additional published guidance on the types of evidence necessary to prove that the substantial clinical improvement is met, taking into consideration the differing types of evidence used to support FDA market authorization and the time-based restrictions for the additional payments. Commenters requested formal guidance clarifying how substantial clinical improvement would be evaluated for epilepsy-specific indications, including for implantable monitoring, neuromodulation, and precision therapeutics. A commenter requested that for computer-aided triage and notification software, CMS adopt evidentiary endpoints appropriate to that class of technology, such as demonstrated reductions in time-to-notification and in missed or delayed identification of target findings, rather than therapeutic- outcome endpoints designed for drugs and therapeutic devices. Commenters recommended that CMS treat an FDA Breakthrough Device designation, together with subsequent FDA marketing authorization, as establishing a rebuttable presumption that the substantial clinical improvement criterion is satisfied, and expressly recognize real-world evidence, patient registry data, and peer-reviewed clinical studies as acceptable forms of evidence. A commenter believed that CMS should confirm that pre-market single-arm trial data and real-world evidence may satisfy the substantial clinical improvement criterion where comparative head-to-head data against existing alternatives is unavailable at the time of application, and that the absence of published peer-reviewed comparative data does not constitute a failure per se. Another commenter stated that CMS could enhance evidence requirements by requiring alternative pathway applicants to submit: human factors or real-world performance data from clinical deployments; a cost-benefit analysis demonstrating that the incremental cost of the technology is offset by downstream savings; and a structured data collection plan that would generate utilization and outcomes data usable for future MS-DRG recalibration. A commenter encouraged CMS to consider National Comprehensive Cancer Network Guidelines as a resource in determining clinical appropriateness. Commenters requested that CMS continue to enable engagement and build on opportunities for applicants to meet with CMS throughout the application cycle, including prior to submission of applications. The commenter believed that as manufacturers are contemplating evidence generation to support determination of substantial clinical improvement, both CMS and applicants would benefit from earlier engagement to discuss availability of evidence and anticipated outcomes to support new technology add-on payment and OPPS device pass-through. Commenters believed that CMS should work with stakeholders to establish substantial clinical improvement evidentiary standards that meet the Agency's pledge to consider the totality of the circumstances, including reasonable expectations regarding the type and extent of comparative effectiveness data that may be available at the time of FDA marketing authorization, and that reflect the objectives of new technology add-on payment and OPPS device pass-through as well as the limited ``payment only'' scope of positive determinations. Another commenter further stated that until then, it would be inappropriate and damaging to both beneficiary access and the U.S. medical innovation ecosystem for CMS to proceed with eliminating the alternative pathways. Commenters also requested that CMS delay or provide a transition period of up to a few years before any potential repeal of the alternative pathways to allow companies to adjust their technology development to potentially meet the eligibility requirements under the traditional pathways, and provide clear guidance and protection for technologies already in the application pipeline. Other commenters requested that CMS grandfather technologies that have received FDA Breakthrough Device or QIDP designations and allow them continued access to the existing alternative pathways, with a commenter further suggesting that to ensure the program does not remain open-ended, there could be a defined window, such as 7 to 10 years from the date of the FDA Breakthrough Device designation, for applicants to apply for additional payments for their technology. A commenter stated that it was confident that its FY 2028 new technology add-on payment application would meet the traditional pathway criteria, but would appreciate being grandfathered into the alternative pathway. Other commenters provided targeted suggestions that select technologies could be grandfathered into existing policy if they: had previously applied for new technology add-on payment under the alternative pathways; were developed in reliance on the existing policy framework; were far along the development and/or clinical validation cycle; had established clinical performance profiles, or were in the process of establishing such performance profiles through Category A and B IDE pivotal trials with endpoints reviewed and approved by both FDA and CMS; were class II or III technology that were actively enrolling Medicare beneficiaries and/or Medicare-aged subjects in an IDE study generating relevant clinical evidence for Medicare beneficiaries; or had data demonstrating a reasonable likelihood of substantial clinical improvement in a Medicare beneficiary population. A commenter suggested that any new restrictions or eliminations would apply only to designations granted after the policy change takes effect. A commenter stated that although the proposed repeal is described as applying to FY 2028 applications and beyond, in practical effect, this proposal would be retroactive for any Breakthrough Device company currently in an IDE trial. A commenter stated that when CMS finalized the new technology add-on payment FDA marketing authorization deadline change from July 1 to May 1, it applied the new deadline prospectively beginning with FY 2025 applications, allowing manufacturers a full year to adjust, and that applying the same principle here (at a minimum, delaying the effective date of any repeal) would preserve both the integrity of CMS's regulatory framework and the confidence of future innovators that Breakthrough Device development has stable and predictable reimbursement, without representing new obligations for CMS staff reviewing applications. A [[Page 49785]] commenter stated its belief that the proposed September 30, 2026, eligibility cutoff for the alternative pathway under the new technology add-on payment created a practical problem, as applications for the upcoming fiscal year were historically not available until August, and therefore may not open before the cutoff date. The commenter requested that CMS either open the FY 2028 new technology add-on payment application before September 30, 2026, or extend the alternative pathway eligibility to the actual application deadline, so that manufacturers currently in the pipeline can complete the process under the existing framework. Commenters also provided alternate methods that they believed would more effectively or efficiently accomplish the goal of aligning payment with value by facilitating payment for innovative, high-value technologies that have demonstrated improved Medicare beneficiary health outcomes. Alternatives suggested by commenters included: requiring applicants to provide outcomes through post-market evaluation before consideration for future ratesetting changes; requiring structured continued evidence development and reporting; requiring transparency guardrails; setting defined points for reassessment; focusing on a subset of FDA-designated Breakthrough Devices addressing the most serious conditions with the highest unmet need; incorporating claims-based tracking; including FDA-designated Regenerative Medicine Advanced Therapies (RMATs) and Breakthrough Therapies in the alternative pathways; establishing an enhanced new technology add-on payment pathway specific to gene therapies that would pay 100 percent of the cost of the therapy for greater than three years; or establishing a MS-DRG for each FDA-approved gene therapy, which would also be budget neutral. A commenter believed that CMS should work with stakeholders to establish clearer, more consistent, and more predictable evidentiary standards that appropriately reflect the types of evidence used to support FDA market authorization, including data generated through investigational device exemption (IDE) studies and other FDA-reviewed evidence development pathways. Another commenter believed that CMS could address concerns through targeted refinements, such as enhanced documentation standards or additional cost substantiation requirements. A commenter recommended that CMS consider the FDA National Evaluation System for Health Technology (NEST) initiative, which it stated had facilitated FDA's acceptance of real- world evidence to demonstrate safety, effectiveness and improvement through industry partnerships. Commenters encouraged CMS to establish a provisional substantial clinical improvement standard for alternative pathway applicants, accepting observational studies, registry data, surgeon expert testimony, or published case series as sufficient to demonstrate substantial clinical improvement for OPPS device pass- through and under the totality-of-circumstances standard for new technology add-on payment. A commenter asked that CMS recognize that early payment is often essential to evidence development itself, and that developing a modernized transitional payment pathway could support both patient access and evidence generation. A few commenters asked CMS to state that FDA Breakthrough Device or QIDP designation remained a relevant factor in coverage and quality framework decisions. Commenters suggested that retaining the alternative pathways could serve as safeguard to help ensure that hospitals and Medicare beneficiaries continue to have timely access to breakthrough technologies during periods of regulatory transition or uncertainty, with one stating that federal policy surrounding FDA accelerated review pathways continues to evolve. A commenter encouraged CMS to simplify operational and documentation requirements, and explore supplemental pathways that improve equitable access to innovative therapies and technologies. An additional commenter suggested that CMS could implement tiered or cost- adjusted payment structures that preserve innovation incentives while addressing fiscal considerations. Commenters recommended that CMS establish a phased approach or a conditional pathway that would permit evidence generation where substantial clinical improvement could not yet be demonstrated. A commenter explained that an applicant with a CMS-approved study protocol designed to produce the evidence necessary to demonstrate substantial clinical improvement could be eligible to receive new technology add-on payment while that evidence was collected, with continued payment subject to a final, up-or-down determination by CMS on the substantial clinical improvement criterion at the conclusion of the study. The commenter stated that this mechanism reflects the same evidence development principles embodied in CMS's existing Coverage with Evidence Development framework: it allows clinically promising technologies to reach Medicare beneficiaries while ensuring that payment remained tied to the timely production of robust clinical evidence and that add-on payment would cease if the technology ultimately failed to demonstrate substantial clinical improvement. Another commenter recommended that CMS establish an explicit evidence maturity framework that would account for differences in evidence development at the time of application, where technologies would be evaluated based on the level of clinical evidence available, with payment aligned accordingly. A commenter also provided another consideration that CMS decouple the duration of the add-on payment from the newness window, as a technology that requires additional time to generate the evidence necessary to demonstrate substantial clinical improvement may exhaust much of its newness window before it is able to qualify. The commenter recommended that CMS retain the newness period for eligibility, but provide approved technologies three years of payment as measured from the date of new technology add-on payment approval. The commenter asserted that where a technology saw limited adoption during the early portion of its newness window precisely because it lacked adequate reimbursement, the corresponding claims data will not reflect the technology's cost, and the rationale for terminating payment at the original newness date--that the MS-DRG weights have been recalibrated to capture that cost--does not hold. Another commenter suggested that CMS could extend new technology add-on payment eligibility windows commensurate with the evidence generation timelines that early-stage clearance necessitates. A commenter stated that stakeholders have disagreed over whether a new device category is merited or if the mechanism of action and/or composition of the underlying materials demonstrates ``newness.'' A few commenters suggested that CMS should instead require that FDA- designated Breakthrough Device applicants demonstrate that their devices meet the newness criterion in rulemaking, with a commenter further suggesting that applicants could present on this requirement during the new technology add-on payment Town Hall. Commenters also recommended limiting eligibility to the alternative pathways for specific categories of technologies. For example, a commenter [[Page 49786]] believed that the alternative pathways should be maintained for FDA- designated Breakthrough Devices in high-acuity areas such as stroke and neurovascular disease. Some commenters believed that the alternative pathways should be maintained for FDA 510(k) cleared technologies because these devices reach the market without pre-market clinical trial data by regulatory design, and the alternative pathways allowed early hospital adoption to generate post-market evidence. Other commenters asserted that the alternative pathways should be maintained for technologies that have received FDA Premarket Approval (PMA) because PMA-approved technologies have undergone FDA's rigorous review process and are supported by substantial clinical evidence demonstrating safety and effectiveness. These commenters believed that prioritizing FDA PMA products would support truly innovative technologies that provide meaningful clinical benefit to create a more clinically grounded and sustainable alternative pathway framework while continuing to support meaningful medical innovation. Another commenter further believed that devices granted an FDA De Novo classification request based on completed IDE studies generating Medicare-relevant clinical evidence of safety and effectiveness, including clinical health outcomes agreed upon by CMS and FDA and relevant to Medicare coverage decision-making, should remain eligible under the alternative pathways. The commenter stated that such considerations would also align with the eligibility criteria CMS and FDA articulated for the RAPID coverage pathway. Some commenters stated that FDA-designated Breakthrough Devices authorized through pathways not commonly supported by Medicare-relevant clinical evidence of safety and effectiveness, most notably the FDA 510(k) pathway, should be required to demonstrate substantial clinical improvement through a controlled clinical study, consistent with CMS's criterion. Another commenter supported CMS's proposal to repeal the alternative pathway for FDA 510(k)-cleared devices and device-led combination products, which it stated are often authorized without clinical evaluations of safety or effectiveness and instead rely on predicate devices. The commenter stated that it was not appropriate to use Medicare funds to provide additional reimbursement for therapies that lack robust evidence of clinical benefit. Commenters requested that CMS not move forward with the proposal to repeal the alternative pathway and conditional approvals for QIDP and LPAD products. Commenters stated that conditional approvals expedited patient access to new products and would address the access gaps created by the Agency's prior decision to move the FDA marketing authorization deadline from July 1 to May 1 of the new technology add- on payment application year. A commenter stated that the case for expanding the conditional approval policy to FDA-designated Breakthrough Devices has garnered bipartisan support in Congress. A commenter cautioned that eliminating the alternative pathway could create additional barriers and timing misalignments for urgently needed antibacterial and antifungal agents that target multidrug resistant organisms and other high consequence infections, as well as for other high priority infectious diseases technologies. The commenter urged CMS to either maintain an appropriately structured alternative pathway for infectious diseases products or, at minimum, develop a modified framework that preserves an expedited, conditional approval process for qualifying infectious diseases technologies, allowing them to receive time-limited new technology add-on payments while additional evidence is generated, with the expectation that these products ultimately meet the criteria for the traditional pathway through annual notice-and- comment-rulemaking. The commenter believed this approach would preserve streamlined access to high priority infectious diseases diagnostics, therapeutics, and devices while still incorporating safeguards to ensure clinical benefit and prudent use of Medicare resources, and would avoid inadvertently slowing access to important FDA-designated QIDP, LPAD, and other critical infectious disease products that previously relied on the alternative pathway for timely support. A commenter suggested that CMS could refine eligibility criteria to maintain alternative pathways for multidrug-resistant organisms where clinical need is unquestionable, create tiered review processes with expedited pathways for designated priority pathogens identified by CDC, and establish clear clinical criteria that define specific infectious disease scenarios while maintaining rigorous scientific standards. The commenter stated that value-based innovation approaches could implement outcome-based payment adjustments that link new technology add-on payments to demonstrated resistance prevention benefits, establish shared savings programs for antimicrobials that demonstrate stewardship benefits and reduced healthcare utilization, and create population health incentives that significantly reduce healthcare-associated infections or improve antimicrobial stewardship outcomes. Response: We thank commenters for sharing their recommendations and alternatives to our proposal for our consideration. With respect to comments regarding the potential impact of our proposal, it appears that commenters' concerns may be predicated on the assumption that interested parties would no longer have access to apply for additional payments for these technologies. However, technologies that meet the traditional new technology add-on payment application pathway or OPPS device pass-through payment requirements will still be appropriately considered and approved for additional payments under these pathways. Comments requesting additional details and clarification on the RAPID coverage pathway are outside of scope of the proposed rule, as a separate proposed procedural notice outlining the RAPID coverage pathway will be published in the Federal Register. We refer commenters to the CMS press release announcing the RAPID coverage pathway for additional information.\138\ --------------------------------------------------------------------------- \138\ CMS and FDA Announce RAPID Coverage Pathway to Accelerate Patient Access to Life-Changing Medical Devices https://www.cms.gov/newsroom/press-releases/cms-fda-announce-rapid-coverage-pathway-accelerate-patient-access-life-changing-medical-devices. --------------------------------------------------------------------------- With respect to comments requesting additional clarity and guidance on the substantial clinical improvement criterion, as previously discussed, we currently make determinations on an application-by- application basis based on clinical factors relevant to a specific technology. As previously stated, the regulations are intentionally broad to provide flexibility for applicants in the evidence required to demonstrate substantial clinical improvement. Commenters have described unique challenges specific to certain categories of technologies, which are taken into consideration during our reviews and during the public notice-and-comment rulemaking. The regulations under Sec. 412.87(b)(1)(iii) provide a non-exhaustive list of published or unpublished information sources from within the United States or elsewhere that may be sufficient to establish substantial clinical improvement. In practice, this has included the various information sources that commenters [[Page 49787]] have requested we take into consideration, including clinical guidelines, single-arm trial data, case studies, and real-world evidence. As discussed in greater detail earlier in this section, we disagree with commenter recommendations that CMS treat the FDA designations with subsequent FDA marketing authorization as a presumption that the technologies meet the substantial clinical improvement criterion. FDA and CMS reviews are separate and are conducted independently by the two agencies under different statutory and regulatory standards. While earlier engagement with manufacturers may be beneficial, we note that any determinations as to whether the criteria for additional payment are met for any particular technology continue to be subject to CMS's evaluation of the application and the rulemaking process. As discussed earlier, interested parties with further questions regarding Medicare's coverage, coding, and payment processes, and how they can navigate these processes, whether for new technology add-on payments or otherwise, should review the updated resource guide available at: https://www.cms.gov/medicare/coding-billing/guide-medical-technology-companies-other-interested-parties. Parties that would like to further discuss questions or concerns with CMS should contact the Pharmaceutical & Technology Ombudsman at [email protected]. We also appreciate the alternate methods shared by commenters that they believed would more effectively or efficiently accomplish the goal of aligning payment with value by facilitating payment for innovative, high-value technologies that have demonstrated improved Medicare beneficiary health outcomes. Commenters provided a variety of suggestions as to how the new technology add-on payment and OPPS device pass-through payment programs could be modified to allow for the generation of evidence to support improved outcomes for Medicare beneficiaries through a conditional evidence generation pathway. However, we believe the special payments for new technology should be limited to those new technologies that have been demonstrated to represent a substantial improvement in caring for Medicare beneficiaries, such that there is a clear advantage to creating a payment incentive for physicians and hospitals to utilize the new technology. In addition, we are concerned that providing these additional payments during a conditional evidence generation period could result in Medicare having incentivized the use of technology for which later evidence generated demonstrates that the technology had been less effective than initially thought, or even potentially harmful. There are also practical limitations to developing a conditional evidence generation pathway, as for example, applicable rulemaking for a second year of payment would commence during the first year of additional payment for a technology. As commenters have noted, both new technology add-on payment and OPPS device pass-through payments are time limited, which is required under statute. In addition, consistent with the prospective nature of the IPPS and OPPS, we do not make mid-year changes to payment amounts, and any changes to payment amounts are considered in future rulemaking. We note that commenters also suggested alternatives that were either outside the scope of the statute or our proposal, such as decoupling the newness period from payment for new technology add-on payment, further expanding the alternative pathways, increasing new technology add-on payment percentages, or establishing new MS-DRGs. While we agree with commenters that suggested that CMS evaluate the substantial similarity criteria under the newness criterion, we do not believe that implementing this suggestion alone as an alternative to our proposal addresses our concerns about the lack of evaluation of the substantial clinical improvement criterion. Regarding the suggestions to limit eligibility to the alternative pathways for specific categories of technologies, such as those addressing specific conditions or those under specific FDA marketing authorization pathways, we note that while commenters were supportive of their technology of interest, they raised concerns about other technologies that they believed should not be eligible. Taken in their entirety, we believe that these concerns further support that repealing the alternative pathways is the appropriate policy to ensure that CMS is only providing an additional payment for technologies that have evidence of clinical benefit. Furthermore, as we discussed in greater detail earlier, while we understand the importance of facilitating innovation in antimicrobial products, we do not believe that CMS should continue to provide an additional payment for technologies that may not offer substantial clinical improvement over currently available treatments. We also disagree with commenters that have asserted that a substantial blanket delay is needed to allow companies to adjust their technology development, or that the effect of the proposal would be retroactive. As previously described, when we initially finalized the alternative pathways, we indicated that we would be evaluating the benefits of the alternative pathways and any considerations that may come to light. Since that time, as previously discussed, CMS has also described our concerns with the use of FDA Breakthrough Device designation alone to support Medicare decision- making.139 140 We would hope that manufacturers would have been considering the clinical impacts of their technologies with respect to Medicare beneficiaries regardless of the available pathways for additional Medicare payment. However, while we continue to believe that it is appropriate to finalize our policy in this final rule for the reasons discussed, after consideration of the public comments received, we also agree that it would be appropriate to adopt a transitional approach to support the technologies already in advanced stages of commercial development or that may already be commercially available. Therefore, we are finalizing our proposal, with modifications, to grandfather eligibility under the alternative pathway for certain technologies for a limited period of time. Specifically, a new technology that is (1) designated by FDA as a Breakthrough Device or QIDP as of September 30, 2026, and has received marketing authorization for the indication covered by the Breakthrough Device or QIDP designation by May 1, 2028, or (2) approved under FDA's LPAD pathway and used for the indication approved under the LPAD pathway by May 1, 2028, will remain eligible to apply for new technology add-on payment under the alternative pathways for FY 2028 and FY 2029. In addition, a new device that is part of FDA's Breakthrough Devices Program and has received Breakthrough Device designation as of September 30, 2026, and has received marketing authorization as a Breakthrough Device for the indication covered by the Breakthrough Device designation, will remain eligible to apply for OPPS device pass- through payment under the [[Page 49788]] alternative pathway for CY 2028 and CY 2029. --------------------------------------------------------------------------- \139\ Final rule to repeal the ``Medicare Coverage of Innovative Technology (MCIT) and Definition of ``Reasonable and Necessary'' final rule (86 FR 62944-62958). \140\ Transitional Coverage for Emerging Technologies (TCET) pathway final notice (89 FR 65724-65754). --------------------------------------------------------------------------- Similar to other policy changes made to the new technology add-on payment in prior rulemaking (for example, to move the deadline for FDA marketing authorization from July 1 to May 1 (88 FR 58948 through 58958)), this finalized policy applies prospectively as described. With respect to the commenter that requested that CMS open the FY 2028 new technology add-on payment application before September 30, 2026, we note that regardless of the duration of the application window, any application for FY 2028 new technology add-on payment will be considered under the policy finalized in this final rule. After consideration of the public comments received, for the reasons discussed previously and in the FY 2027 IPPS/LTCH PPS proposed rule, we are finalizing our proposed policy, with modification to grandfather eligibility under the alternative pathway for certain technologies for a limited period of time. Specifically, we are finalizing a policy that, unless specifically excepted as described in this section, for all applications received for new technology add-on payments for FY 2028 and subsequent fiscal years, including applications for FDA-designated Breakthrough Devices and QIDPs, or drugs approved under FDA's LPAD pathway, we will evaluate whether the technology is new and not substantially similar to an existing technology, and the technology must demonstrate that it meets the requirements under Sec. 412.87(b) that it represent an advance that substantially improves, relative to technologies previously available, the diagnosis or treatment of Medicare beneficiaries. That is, beginning with applications received for new technology add-on payments for FY 2028 and subsequent fiscal years, all applicants will need to demonstrate that the technology meets all three of the criteria as specified at Sec. 412.87(b) and described earlier in this section in order to receive the additional payment: (1) the medical service or technology must be new; (2) the medical service or technology must be costly such that the DRG rate otherwise applicable to discharges involving the medical service or technology is determined to be inadequate; and (3) the service or technology must demonstrate a substantial clinical improvement over existing services or technologies. In addition, we are finalizing a limited exception such that the following technologies will remain eligible to apply for new technology add-on payment under the alternative pathway through FY 2029: (1) a new medical device that is part of FDA's Breakthrough Devices Program and has received Breakthrough Device designation as of September 30, 2026, and has received marketing authorization as a Breakthrough Device for the indication covered by the Breakthrough Device designation by May 1, 2028; (2) new medical product that is designated by FDA as a QIDP as of September 30, 2026, and has received marketing authorization for the indication covered by the QIDP designation by May 1, 2028; and (3) a new medical product that is approved under FDA's LPAD pathway and used for the indication approved under the LPAD pathway by May 1, 2028. Technologies that have previously been approved for new technology add-on payments under the alternative pathway, as well as technologies that have been approved for FY 2027 new technology add-on payments under the alternative pathway in this final rule, will remain eligible for add-on payment under the alternative pathway, subject to the requirements for continued payment, as previously discussed in section II.E.4. of the preamble of this final rule. Consistent with our finalized policy to remove the alternative pathway for certain antimicrobial products currently at Sec. 412.87(d), we are also finalizing the removal of the conditional approval process for a technology for which an application is submitted under the alternative pathway for certain antimicrobial products that does not receive FDA marketing authorization by July 1 prior to the fiscal year for which the applicant applied for new technology add-on payments, as currently reflected at Sec. 412.87(f)(3). Accordingly, beginning with the FY 2028 new technology add-on payment applications, in order to be eligible for consideration for the new technology add on payment for the upcoming fiscal year, all applicants will need to receive FDA marketing authorization by May 1 of the year prior to the beginning of the fiscal year for which the application is being considered, as reflected at Sec. 412.87(f)(2). This includes QIDPs and LPADs that meet the criteria for exception and are eligible to apply under the alternative pathway through FY 2029 as described above. We are finalizing our amendments to Sec. 412.87, with modifications, to reflect the finalized policy by revising paragraphs Sec. 412.87(c) and (d) and removing subparagraph 412.87(f)(3). We are also finalizing the proposed revisions to the title of paragraph (f) to reflect the modified policy. In connection with these changes, we are also making a technical correction to subparagraph (c)(1) for clarity and consistent with our existing policy, to reflect that the new medical device must receive marketing authorization as a Breakthrough Device for the indication covered by the Breakthrough Device designation by May 1, 2028. We are not finalizing our proposed revisions to subparagraphs (1) and (2) of paragraph (f) due to the modified policy. We are also finalizing the proposed technical correction to the introductory text at Sec. 412.87(d) to restore language that was previously removed in error, with additional revisions to reflect the finalized policy. We are also finalizing as proposed the technical correction to the introductory text at Sec. 412.88(a)(2)(ii)(A) to reference Sec. 412.88(a)(2)(ii)(C), consistent with our policy as finalized in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69245 through 69252). We note that we did not receive any public comments with respect to these technical corrections. Similarly, we are finalizing our policy, with modification, that, unless specifically exempted, all applications received for OPPS device pass-through payment status on or after October 1, 2026, including all applications received through the remainder of the CY 2028 OPPS application cycle ending on March 1, 2027, and applications received for subsequent calendar years will have to demonstrate that the technology met the requirements currently reflected at Sec. 419.66(c)(2)(i). OPPS device pass-through payment applications submitted as of September 30, 2026, for devices that are part of the FDA's Breakthrough Devices Program and received FDA marketing authorization for the indication covered by the Breakthrough Device designation will be evaluated and could be approved under the alternative pathway, provided that all other criteria have been met. In addition, we are finalizing a limited exception such that the following devices will remain eligible to apply for OPPS device pass-through payment under the alternative pathway through CY 2029: a new device that is part of FDA's Breakthrough Devices Program and has received Breakthrough Device designation as of September 30, 2026, and has received marketing authorization as a Breakthrough Device for the indication covered by the Breakthrough Device designation. Existing device category codes established based on the approval, either preliminary or via a final determination made in an OPPS/ASC [[Page 49789]] final rule, including any device category codes established for approved alternative pathway applications received as of September 30, 2026, will continue to be eligible for OPPS device pass-through payment status and would remain in effect for at least 2 years, but no more than 3 years, consistent with Sec. 419.66(g). Previously existing device category codes that were no longer eligible for OPPS device pass-through payment status would remain unchanged. We are finalizing revisions, with modifications, to paragraph Sec. 419.66(c)(2)(ii) to reflect the finalized policy, effective October 1, 2026. We note that we are making these modifications to address the many comments we received regarding the need for support for technologies already in advanced stages of commercial development or that may already be commercially available. 8. Other Comments We received several public comments requesting changes to the new technology add-on payment policies such as, but not limited to: changing the payment length or payment methodology, rescinding the requirement for a complete and active FDA marketing authorization request, providing a remedy for technologies impacted by the requirement for a complete and active FDA marketing authorization request, developing a more frequent application cycle, adding guidance regarding the reporting of inpatient drug acquisition costs for products furnished from single-use vials, and creating a new pathway for FDA 510(k)-exempt Class I products to be eligible for new technology add-on payment. We also received comments on technologies that are not under consideration for new technology add-on payments for FY 2027. These comments were outside the scope of the proposals included in the FY 2027 IPPS/LTCH PPS proposed rule and we are therefore not addressing them in this final rule.

1. Legislative Authority

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

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

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

3. Codes for Constituent Counties in CBSAs

CBSAs are made up of one or more constituent counties. Each CBSA and constituent county has its own unique identifying code, a Federal Information Processing Standard (FIPS) county code. The FIPS county codes are maintained by the U.S. Census Bureau. In the FY 2018 IPPS/ LTCH PPS final rule (82 FR 38129 through 38130), we adopted a policy to use the FIPS county codes for purposes of crosswalking counties to CBSAs. In addition, in the same rule, we implemented the latest FIPS code updates, which were effective October 1, 2017, beginning with the FY 2018 [[Page 49790]] wage indexes. These updates have been used to calculate the wage indexes in a manner generally consistent with the CBSA-based methodologies finalized in the FY 2005 IPPS final rule and the FY 2015 IPPS/LTCH PPS final rule (79 FR 49951 through 49963). We refer the reader to the FY 2018 IPPS/LTCH PPS final rule (82 FR 38129 through 38130) for a complete discussion of our adoption of FIPS county codes. For FY 2027, we are continuing to use the FIPS county codes for purposes of crosswalking counties to CBSAs. For FY 2027, Tables 2 and 3 associated with this final rule and the County to CBSA Crosswalk File and Urban CBSAs and Constituent Counties for Acute Care Hospitals File posted on the CMS website reflect the latest FIPS county code updates.

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

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

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

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

3. Verification of Worksheet S-3 Wage Data

The wage data for the FY 2027 wage index were obtained from Worksheet S-3, Parts II, III and IV of the Medicare cost report, CMS Form 2552-10 (OMB Control Number 0938-0050 with an expiration date September 30, 2028) for cost reporting periods beginning on or after October 1, 2022, and before October 1, 2023. For wage index purposes, we refer to cost reports beginning on or after October 1, 2022, and before October 1, 2023, as the ``FY 2023 cost report,'' the ``FY 2023 wage data,'' or the ``FY 2023 data.'' Instructions for completing the wage index sections of Worksheet S-3 are included in the Provider Reimbursement Manual (PRM), Part 2 (Pub. 15-2), Chapter 40, Sections 4005.2 through 4005.4. The data file used to construct the FY 2027 wage index includes FY 2023 data submitted to us as of January 21, 2026. For FY 2027, the wage data was not subject to a desk review by the Medicare Administrative Contractors (MACs). CMS performed a review of the wage data to identify and resolve aberrant data, such as analyzing the data from a regional and national level. We note, in previous fiscal years, we reviewed and evaluated the audited wage data, and the impacts of the COVID-19 PHE on such data. For FY 2027, we have not identified any significant issues with the FY 2023 wage data itself in terms of our review of this data. For the proposed FY 2027 wage index, we identified and excluded 66 providers with aberrant data that should not be included in the wage index. (We note, in the proposed rule we inadvertently stated that 68 hospitals were identified and excluded with aberrant data instead of 66 hospitals). However, we stated that if data elements for some of these providers are corrected, we intended to include data from those providers in the final FY 2027 wage index. We also adjusted certain aberrant data and included these data in the wage index. For example, in situations where a hospital did not have documentable salaries, wages, and hours for housekeeping and dietary services, we imputed estimates, in [[Page 49791]] accordance with policies established in the FY 2015 IPPS/LTCH PPS final rule (79 FR 49965 through 49967). We instructed MACs to transmit any changes to the wage data no later than March 21, 2026. After we issued the proposed rule, for the final FY 2027 wage index, we restored the data of 8 hospitals to the wage index, because their data was either verified or improved, and removed the data of 1 hospital with aberrant data. Thus, 59 hospitals with aberrant data remain excluded from the FY 2027 wage index. In constructing the proposed FY 2027 wage index, we included the wage data for facilities that were IPPS hospitals in FY 2023, inclusive of those facilities that have since terminated their participation in the program as hospitals, as long as those data did not fail any of our edits for reasonableness. We stated in the proposed rule (91 FR 19461) that we believe that including the wage data for these hospitals is, in general, appropriate to reflect the economic conditions in the various labor market areas during the relevant past period and to ensure that the current wage index represents the labor market area's current wages as compared to the national average of wages. As discussed in the FY 2004 IPPS final rule (68 FR 45397 through 45398) and FY 2025 IPPS/LTCH final rule (89 FR 69268), any hospital that is designated as a CAH or REH by 7 days prior to the publication of the preliminary wage index public use file (PUF) is excluded from the calculation of the wage index. For the proposed FY 2027 wage index, we removed 7 hospitals that converted to CAH status and 2 hospitals that converted to REH status on or after January 24, 2025, the cut-off date for CAH and REH exclusion from the FY 2026 wage index, and through and including January 23, 2026, the cut-off date for CAH and REH exclusion from the FY 2027 wage index. We did not receive any comments with regard to this proposal, and we are finalizing as proposed to exclude hospitals that converted to CAH and/or REH on or after January 24, 2025 and through and including January 23, 2026 from the wage index calculation. Since we issued the proposed rule, we learned of 7 more hospitals that converted to CAH and/or REH status on or after January 24, 2025, and through and including January 23, 2026. We removed these additional hospitals from the FY 2027 wage index due to their conversion to CAH and/or REH status. In summary, we calculated the FY 2027 wage index using the Worksheet S-3, Parts II and III wage data of 3,006 hospitals. For the FY 2027 wage index, we allotted the wages and hours data for a multicampus hospital among the different labor market areas where its campuses are located using campus full-time equivalent (FTE) percentages as originally finalized in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51591). Table 2, which contains the FY 2027 wage index associated with this final rule (available via the internet on the CMS website), includes separate wage data for the campuses of 26 multicampus hospitals. The following chart lists the multicampus hospitals by CMS certification number (CCN) and the FTE percentages on which the wages and hours of each campus were allotted to their respective labor market areas: [GRAPHIC] [TIFF OMITTED] TR04AU26.135 We note that, in past years, in Table 2, we have placed a ``B'' to designate the subordinate campus in the fourth position of the hospital CCN. However, for the FY 2019 IPPS/LTCH PPS proposed and final rules and subsequent rules, we have moved the ``B'' to the third position of the CCN. Because all IPPS hospitals have a ``0'' in the third position of the CCN, we believe that placement of the ``B'' in this third position, instead of the ``0'' for the subordinate campus, is the most efficient method of identification and interferes the least with the other variable digits in the CCN. We also note that providers can have an additional second sub campus located in a [[Page 49792]] different CBSA then the main campus and its other sub campus(es). Therefore, to uniquely identify a second sub campus, we place a ``C'' in the third position of the CCN. Comment: A commenter urged CMS to consider policies to mitigate abrupt year-to-year wage index reductions when they are driven by historical wage data that may not reflect current labor market conditions. The commenter suggested that such policies could include additional transition protections, smoothing methodologies, or other approaches that better align Medicare payment adjustments with contemporary labor costs. The commenter expressed concern that the FY 2027 wage index methodology does not adequately reflect current labor market conditions and could result in significant payment reductions despite continued growth in hospital workforce costs. Although the commenter acknowledged that CMS's existing 5-percent cap on annual hospital-level wage index decreases provides important protection against abrupt payment disruptions, the commenter asserted that additional refinements are warranted to ensure that Medicare payments more accurately reflect hospitals' actual labor expenses and workforce challenges. Specifically, the commenter recommended that CMS do all of the following: Adopt a multi-year rolling average of wage data to reduce year-to-year volatility. Incorporate more current wage data into the wage index calculation. Provide additional transition relief for states experiencing unusually large aggregate wage index declines. Evaluate whether rapid population growth and resulting workforce demand should be reflected in the wage index methodology. Review the effects of occupational mix adjustments and other wage index policies to ensure they accurately reflect regional labor costs. The commenter stated that these changes would improve the stability, predictability, and accuracy of the wage index while preserving budget neutrality and better aligning Medicare payments with hospitals' actual workforce costs. Response: We thank the commenter for their comments. Under the current annual wage index timeline, consistent with the IPPS rate- setting processes, our policy has generally been to use the most current data and information available, which typically reflects a 4- year lag (for example, the FY 2027 wage index is based on FY 2023 cost report data). Since the inception of the IPPS, the wage index has been subject to this annual review process. As noted above, for development of the FY 2027 wage index, the wage data were not subject to a desk review by the MACs. However, CMS conducted its own review of the data for the development of the FY 2027 wage index. With regard to the use a multi year rolling average and states experiencing unusually large aggregate wage index declines, as discussed in the FY 2023 IPPS/LTCH PPS Final Rule discussion (87 FR 49018 through 49019), we believe a 5 percent annual cap on wage index decreases effectively addresses instability. With regard to the use of more recent wage data and to evaluate whether rapid population growth and resulting workforce demand should be reflected in the wage index methodology, as discussed below, we have a multistep, 15-month process for the review and correction of the hospital wage data used to develop the IPPS wage index for the upcoming fiscal year. We will consider, through future rulemaking, modifications to the 15-month process that may allow for the use of more recent wage data. We also note that the commenter did not provide any data or evaluation of potential effects of rapid population growth and resulting workforce demand on the wage index methodology or how such factors could be reflected in the wage index methodology. With regard to the effects of the occupational mix data and other wage index policies, the commenter did not provide any evidence or data to demonstrate the effects of these adjustments and their effect on year-to-year changes to the wage index. We welcome additional data from the commenter to demonstrate the effects of these adjustments and their effect on year to year changes to the wage index.

4. Process for Requests for Wage Index Data Corrections

a. Process for Hospitals To Request Wage Index Data Corrections The preliminary, unaudited Worksheet S-3 wage data files for the proposed FY 2027 wage index were made available on May 23, 2025, through the internet on the CMS website at https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/wage-index-files/fy-2027-wage-index-home-page. On January 30, 2026, we posted a public use file (PUF) at https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/wage-index-files/fy-2027-wage-index-home-page containing FY 2027 wage index data available as of January 30, 2026. This PUF contains a tab with the Worksheet S-3 wage data (which includes Worksheet S-3, Parts II and III wage data from cost reporting periods beginning on or after October 1, 2022, through September 30, 2023; that is, FY 2023 wage data), a tab with the occupational mix data (which includes data from the CY 2022 occupational mix survey, Form CMS- 10079), a tab containing the Worksheet S-3 wage data of hospitals deleted from the January 30, 2026 wage data PUF, and a tab containing the CY 2022 occupational mix data of the hospitals deleted from the January 30, 2026 occupational mix PUF. In a memorandum dated January 22, 2026, we instructed all MACs to inform the IPPS hospitals that they service of the availability of the January 30, 2026, wage index data PUFs, and the process and timeframe for requesting revisions in accordance with the FY 2027 Hospital Wage Index Development Timetable available at https://www.cms.gov/files/document/fy-2027-hospital-wage-index-development-time-table.pdf. In the interest of meeting the data needs of the public, beginning with the proposed FY 2009 wage index, we post an additional PUF on the CMS website that reflects the actual data that are used in computing the proposed wage index. The release of this file does not alter the current wage index process or schedule. In a memorandum dated April 16, 2025, we instructed all MACs to inform the IPPS hospitals that they service of the availability of the preliminary wage index data files and the CY 2022 occupational mix survey data files posted on May 23, 2025, and the process and timeframe for requesting revisions. If a hospital wished to request a change to its data as shown in the May 23, 2025, preliminary wage data files and occupational mix data files, the hospital had to submit corrections along with complete, detailed supporting documentation to its MAC so that the MAC received them by September 2, 2025. Hospitals were notified of these deadlines and of all other deadlines and requirements, including the requirement to review and verify their data as posted in the preliminary wage index data files on the internet, through the letters sent to them by their MACs. November 14, 2025, was the date by when MACs were required to transmit revised wage index data files and occupational mix data files to CMS. CMS published the wage index PUFs that included hospitals' revised wage index data on January 30, 2026. Hospitals had until February 17, 2026, [[Page 49793]] to submit requests to the MACs to correct errors in the January 30, 2026, PUF due to CMS or MAC mishandling of the wage index data, or to revise adjustments to their wage index data as included in the January 30, 2026, PUF. Hospitals also were required to submit sufficient documentation to support their requests. Hospitals' requests and supporting documentation must have been received by the MAC by the February deadline (that is, by February 17, 2026, for the FY 2027 wage index). After reviewing requested changes submitted by hospitals, MACs were required to transmit to CMS any additional revisions resulting from the hospitals' reconsideration requests by March 20, 2026. Under our current policy as adopted in the FY 2018 IPPS/LTCH PPS final rule (82 FR 38153), the deadline for a hospital to request CMS intervention in cases where a hospital disagreed with a MAC's handling of wage data on any basis (including a policy, factual, or other dispute) was April 3, 2026. Data that were incorrect in the preliminary or January 30, 2026, wage index data PUFs, but for which no correction request was received by the February 17, 2026, deadline, are not considered for correction at this stage. In addition, April 3, 2026, was the deadline for hospitals to dispute data corrections made by CMS of which the hospital was notified after the January 30, 2026, PUF and at least 14 calendar days prior to April 3, 2026 (that is, by March 20, 2026), that do not arise from a hospital's request for revisions. The hospital's request and supporting documentation must be received by CMS (and a copy received by the MAC) by the April deadline (that is, by April 3, 2026, for the FY 2027 wage index). We refer readers to the FY 2027 Hospital Wage Index Development Timetable for complete details. Hospitals were given the opportunity to examine Table 2 associated with the proposed rule, which is listed in section VI of the Addendum to the proposed rule and available via the internet on the CMS website at https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/wage-index-files/fy-2027-wage-index-home-page. Table 2 associated with the proposed rule contained each hospital's proposed adjusted average hourly wage used to construct the wage index values for the past 3 years, including the proposed FY 2027 wage index, which was constructed from FY 2023 data. We noted in the proposed rule that the proposed hospital average hourly wages shown in Table 2 only reflected changes made to a hospital's data that were transmitted to CMS by late January 2026. We posted the final wage index data PUFs on April 30, 2026, on the CMS website at https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/wage-index-files/fy-2027-wage-index-home-page. The April 2026 PUFs are made available solely for the limited purpose of identifying any potential errors made by CMS or the MAC in the entry of the final wage index data that resulted from the correction process (the process for disputing revisions submitted to CMS by the MACs by March 20, 2026, and the process for disputing data corrections made by CMS that did not arise from a hospital's request for wage data revisions as discussed earlier), as previously described. After the release of the April 2026 wage index data PUFs, changes to the wage and occupational mix data can only be made in those very limited situations involving an error by the MAC or CMS that the hospital could not have known about before its review of the final wage index data files. Specifically, neither the MAC nor CMS will approve the following types of requests: Requests for wage index data corrections that were submitted too late to be included in the data transmitted to CMS by the MACs on or before March 20, 2026. Requests for correction of errors that were not, but could have been, identified during the hospital's review of the January 30, 2026, wage index PUFs. Requests to revisit factual determinations or policy interpretations made by the MAC or CMS during the wage index data correction process. If, after reviewing the April 2026 final wage index data PUFs, a hospital believes that its wage or occupational mix data are incorrect due to a MAC or CMS error in the entry or tabulation of the final data, the hospital is given the opportunity to notify both its MAC and CMS regarding why the hospital believes an error exists and provide all supporting information, including relevant dates (for example, when it first became aware of the error). The hospital was required to send its request to CMS and to the MAC so that it was received no later than May 29, 2026. May 29, 2026, was also the deadline for hospitals to dispute data corrections made by CMS of which the hospital was notified on or after 13 calendar days prior to April 3, 2026 (that is, March 21, 2026), and at least 14 calendar days prior to May 29, 2026 (that is, May 15, 2026), that did not arise from a hospital's request for revisions. (Data corrections made by CMS of which a hospital is notified on or after 13 calendar days prior to May 29, 2026 (that is, May 16, 2026), may be appealed to the Provider Reimbursement Review Board (PRRB)). In accordance with the FY 2027 Hospital Wage Index Development Timetable posted on the CMS website at https://www.cms.gov/files/document/fy-2027-hospital-wage-index-development-time-table.pdf, the May appeals were required to be submitted to CMS through an online submission process. We refer readers to the FY 2027 Hospital Wage Index Development Timetable for complete details. Verified corrections to the wage index data received timely (that is, by May 29, 2026) by CMS and the MACs were incorporated into the final FY 2027 wage index, which will be effective October 1, 2026. We created the processes previously described to resolve all substantive wage index data correction disputes before we finalize the wage and occupational mix data for the FY 2027 payment rates. Accordingly, hospitals that do not meet the procedural deadlines set forth earlier will not be afforded a later opportunity to submit wage index data corrections or to dispute the MAC's decision with respect to requested changes. Specifically, our policy is that hospitals that do not meet the procedural deadlines as previously set forth (requiring requests to MACs by the specified date in February and, where such requests are unsuccessful, requests for intervention by CMS by the specified date in April) will not be permitted to challenge later, before the PRRB, the failure of CMS to make a requested data revision. We refer readers also to the FY 2000 IPPS final rule (64 FR 41513) for a discussion of the parameters for appeals to the PRRB for wage index data corrections. As finalized in the FY 2018 IPPS/LTCH PPS final rule (82 FR 38154 through 38156), this policy also applies to a hospital disputing corrections made by CMS that do not arise from a hospital's request for a wage index data revision. That is, a hospital disputing an adjustment made by CMS that did not arise from a hospital's request for a wage index data revision is required to request a correction by the first applicable deadline. Hospitals that do not meet the procedural deadlines set forth earlier will not be afforded a later opportunity to submit wage index data corrections or to dispute CMS' decision with respect to changes. Again, we believe the wage index data correction process described earlier [[Page 49794]] provides hospitals with sufficient opportunity to bring errors in their wage and occupational mix data to the MAC's attention. Moreover, because hospitals had access to the final wage index data PUFs by late April 2026, they had an opportunity to detect any data entry or tabulation errors made by the MAC or CMS before the development and publication of the final FY 2027 wage index by August 2026, and the implementation of the FY 2027 wage index on October 1, 2026. Given these processes, the wage index implemented on October 1 should be accurate. Nevertheless, in the event that errors are identified by hospitals and brought to our attention after May 29, 2026, we retain the right to make midyear changes to the wage index under very limited circumstances. Specifically, in accordance with Sec. 412.64(k)(1) of our regulations, we make midyear corrections to the wage index for an area only if a hospital can show that: (1) the MAC or CMS made an error in tabulating its data; and (2) the requesting hospital could not have known about the error or did not have an opportunity to correct the error, before the beginning of the fiscal year. For purposes of this provision, ``before the beginning of the fiscal year'' means by the May deadline for making corrections to the wage data for the following fiscal year's wage index (for example, May 29, 2026, for the FY 2027 wage index). This provision is not available to a hospital seeking to revise another hospital's data that may be affecting the requesting hospital's wage index for the labor market area. As indicated earlier, because CMS makes the wage index data available to hospitals on the CMS website prior to publishing both the proposed and final IPPS rules, and the MACs notify hospitals directly of any wage index data changes, we do not expect that midyear corrections will be necessary. However, under our current policy, if the correction of a data error changes the wage index value for an area, the revised wage index value will be effective prospectively from the date the correction is made. In the FY 2006 IPPS final rule (70 FR 47385 through 47387 and 47485), we revised Sec. 412.64(k)(2) to specify that, effective October 1, 2005, that is, beginning with the FY 2006 wage index, a change to the wage index can be made retroactive to the beginning of the Federal fiscal year only when CMS determines all of the following: (1) the MAC or CMS made an error in tabulating data used for the wage index calculation; (2) the hospital knew about the error and requested that the MAC and CMS correct the error using the established process and within the established schedule for requesting corrections to the wage index data, before the beginning of the fiscal year for the applicable IPPS update (that is, by the May 29, 2026, deadline for the FY 2027 wage index); and (3) CMS agreed before October 1 that the MAC or CMS made an error in tabulating the hospital's wage index data and the wage index should be corrected. In those circumstances where a hospital requested a correction to its wage index data before CMS calculated the final wage index (that is, by the May 29, 2026 deadline for the FY 2027 wage index), and CMS acknowledges that the error in the hospital's wage index data was caused by CMS' or the MAC's mishandling of the data, we believe that the hospital should not be penalized by our delay in publishing or implementing the correction. As with our current policy, we indicated that the provision is not available to a hospital seeking to revise another hospital's data. In addition, the provision cannot be used to correct prior years' wage index data; it can only be used for the current Federal fiscal year. In situations where our policies will allow midyear corrections other than those specified in Sec. 412.64(k)(2)(ii), we continue to believe that it is appropriate to make prospective-only corrections to the wage index. We note that, as with prospective changes to the wage index, the final retroactive correction will be made irrespective of whether the change increases or decreases a hospital's payment rate. In addition, we note that the policy of retroactive adjustment will still apply in those instances where a final judicial decision reverses a CMS denial of a hospital's wage index data revision request. b. Process for Data Corrections by CMS After the January 30, 2026, Public Use File (PUF) The process set forth with the wage index timetable discussed in section III.B.4 of the preamble of this final rule allows hospitals to request corrections to their wage index data within prescribed timeframes. In addition to hospitals' opportunity to request corrections of wage index data errors or MACs' mishandling of data, CMS has the authority under section 1886(d)(3)(E) of the Act to make corrections to hospital wage index and occupational mix data to ensure the accuracy of the wage index. As we explained in the FY 2016 IPPS/ LTCH PPS final rule (80 FR 49490 through 49491) and the FY 2017 IPPS/ LTCH PPS final rule (81 FR 56914), section 1886(d)(3)(E) of the Act requires the Secretary to adjust the proportion of hospitals' costs attributable to wages and wage-related costs for area differences reflecting the relative hospital wage level in the geographic areas of the hospital compared to the national average hospital wage level. We believe that, under section 1886(d)(3)(E) of the Act, we have discretion to make corrections to hospitals' data to help ensure that the costs attributable to wages and wage-related costs in fact accurately reflect the relative hospital wage level in the hospitals' geographic areas. We have a multistep, 15-month process for the review and correction of the hospital wage data that is used to create the IPPS wage index for the upcoming fiscal year. Since the origin of the IPPS, the wage index has been subject to its own annual review process. As noted above, for the development of the FY 2027 wage index, the wage data was not subject to a desk review by the MACs. As in past years, CMS conducted its own review of the data and, if necessary, hospitals provide additional documentation, adjustments, or corrections to the data. This ongoing communication with hospitals about their wage data may result in the discovery by CMS of additional items that were reported incorrectly or other data errors, even after the posting of the January 30, 2026, PUF, and throughout the remainder of the wage index development process. In addition, the fact that CMS analyzes the data from a regional and even national level, can facilitate additional editing of the data. In these occasional instances, an error may be of sufficient magnitude that the wage index of an entire CBSA is affected. Accordingly, CMS uses its authority to ensure that the wage index accurately reflects the relative hospital wage level in the geographic area of the hospital compared to the national average hospital wage level, by continuing to make corrections to hospital wage data upon discovering incorrect wage data, distinct from instances in which hospitals request data revisions. We note that CMS corrects errors to hospital wage data as appropriate, regardless of whether that correction will raise or lower a hospital's average hourly wage. For example, as discussed in section III.C. of the preamble of the FY 2019 IPPS/LTCH PPS final rule (83 FR 41364), in situations where a hospital did not have documentable salaries, wages, and hours for housekeeping and dietary services, we imputed estimates, in accordance with [[Page 49795]] policies established in the FY 2015 IPPS/LTCH PPS final rule (79 FR 49965 through 49967). Furthermore, for example, if a positive adjustment resulting from a prior year's wage index appeal of a hospital's wage-related costs such as pension costs was not incorporated in the data, CMS can correct the data error, and the hospital's average hourly wage will likely increase as a result. While we maintain CMS' authority to conduct additional review and make resulting corrections at any time during the wage index development process, in accordance with the policy finalized in the FY 2018 IPPS/LTCH PPS final rule (82 FR 38154 through 38156) and as first implemented with the FY 2019 wage index (83 FR 41389), hospitals are able to request further review of a correction made by CMS that did not arise from a hospital's request for a wage index data correction. Instances where CMS makes a correction to a hospital's data after the January 30, 2026, PUF based on a different understanding than the hospital about certain reported costs, for example, could potentially be resolved using this process before the final wage index is calculated. We believe this process and the timeline for requesting review of such corrections (as described earlier and in the FY 2018 IPPS/LTCH PPS final rule) promote additional transparency in instances where CMS makes data corrections after the January 30, 2026 PUF and provide opportunities for hospitals to request further review of CMS changes in time for the most accurate data to be reflected in the final wage index calculations. These additional appeals opportunities are described earlier and in the FY 2027 Hospital Wage Index Development Timetable, as well as in the FY 2018 IPPS/LTCH PPS final rule (82 FR 38154 through 38156).

C. Method for Computing the FY 2027 Unadjusted Wage Index

The method used to compute the FY 2027 wage index without an occupational mix adjustment follows the same methodology that we used to compute the wage indexes without an occupational mix adjustment in the FY 2021 IPPS/LTCH PPS final rule (see 85 FR 58758 through 58761), and we did not propose any changes to this methodology. We have restated our methodology in this preamble section of this final rule. Step 1.--We gathered data from each of the non-Federal, short-term, acute care hospitals for which data were reported on the Worksheet S-3, Parts II and III of the Medicare cost report for the hospital's cost reporting period relevant to the wage index (in this case, for FY 2027, these were data from cost reports for cost reporting periods beginning on or after October 1, 2022, and before October 1, 2023). In addition, we included data from hospitals that had cost reporting periods beginning prior to the October 1, 2022, begin date and extending into FY 2023 but that did not have any cost report with a begin date on or after October 1, 2022, and before October 1, 2023. We include this data because no other data from these hospitals will be available for the cost reporting period as previously described, and because particular labor market areas might be affected due to the omission of these hospitals. However, we generally describe these wage data as data applicable to the fiscal year wage data being used to compute the wage index for those hospitals. We note that, if a hospital had more than one cost reporting period beginning during FY 2023 (for example, a hospital had two short cost reporting periods beginning on or after October 1, 2022, and before October 1, 2023), we include wage data from only one of the cost reporting periods, the longer, in the wage index calculation. If there was more than one cost reporting period and the periods were equal in length, we included the wage data from the later period in the wage index calculation. Step 2.--Salaries.--The method used to compute a hospital's average hourly wage excludes certain costs that are not paid under the IPPS. (We note that, beginning with FY 2008 (72 FR 47315), we included what were then Lines 22.01, 26.01, and 27.01 of Worksheet S-3, Part II of CMS Form 2552-96 for overhead services in the wage index. Currently, these lines are lines 28, 33, and 35 on CMS Form 2552-10. However, we note that the wages and hours on these lines are not incorporated into Line 101, Column 1 of Worksheet A, which, through the electronic cost reporting software, flows directly to Line 1 of Worksheet S-3, Part II. Therefore, the first step in the wage index calculation is to compute a ``revised'' Line 1, by adding to the Line 1 on Worksheet S-3, Part II (for wages and hours respectively) the amounts on Lines 28, 33, and 35. In calculating a hospital's Net Salaries (we note that we previously used the term ``average'' salaries in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51592), but we now use the term ``net'' salaries) plus wage-related costs, we first compute the following: Subtract from Line 1 (total salaries) the GME and CRNA costs reported on CMS Form 2552-10, Lines 2, 4.01, 7, and 7.01, the Part B salaries reported on Lines 3, 5 and 6, home office salaries reported on Line 8, and exclude salaries reported on Lines 9 and 10 (that is, direct salaries attributable to SNF services, home health services, and other subprovider components not subject to the IPPS). We also subtract from Line 1 the salaries for which no hours were reported. Therefore, the formula for Net Salaries (from Worksheet S-3, Part II) is the following: ((Line 1 + Line 28 + Line 33 + Line 35) - (Line 2 + Line 3 + Line 4.01 + Line 5 + Line 6 + Line 7 + Line 7.01 + Line 8 + Line 9 + Line 10)). To determine Total Salaries plus Wage-Related Costs, we add to the Net Salaries the costs of contract labor for direct patient care, certain top management, pharmacy, laboratory, and nonteaching physician Part A services (Lines 11, 12 and 13), home office salaries and wage- related costs reported by the hospital on Lines 14.01, 14.02, 15.01 and 15.02, and nonexcluded area wage-related costs (Lines 17, 22, 25.50, 25.51, and 25.52). We note that contract labor and home office salaries for which no corresponding hours are reported are not included. In addition, wage-related costs for nonteaching physician Part A employees (Line 22) are excluded if no corresponding salaries are reported for those employees on Line 4. As noted above, the FY 2027 wage index values are based on the data collected from the Medicare cost reports submitted by hospitals for cost reporting periods beginning in FY 2023 (cost reports with a begin date on or after October 1, 2022 and before October 1, 2023). Per the instructions in Section 4005.2, Part II, Hospital Wage Index Information, of the Provider Reimbursement Manual, for cost reporting periods on or after October 1, 2015 and before October 1, 2022, hospitals reported salaries and hours for Home Office (and related organizations) Physician Part A--Administrative direct employees and employees under contract on Worksheet S3, Part II, Line 15. Per the instructions in Section 4005.2, Part II, Hospital Wage Index Information, of the Provider Reimbursement Manual, for cost reporting periods on or after October 1, 2022, line 15 has been split into two lines with hospitals reporting salaries and hours for Home Office (and related organizations) Physician Part A--Administrative direct employees on Line 15.01 and salaries and hours for Home Office (and related organizations) Physicians Part A--Administrative under contract on Line 15.02. Since the FY 2027 wage index uses cost reports with a begin date in FY 2023, we [[Page 49796]] proposed to include Lines 15.01 and 15.02 in the calculation of the FY 2027 wage index and future fiscal years. In reviewing the wage data used for FY 2027, approximately 61 hospitals reported salaries and hours on Line 15 instead of Lines 15.01 and 15.02. Because this is the first year we are using Lines 15.01 and 15.02 and hospitals are still adjusting to this reporting change, for FY 2027, we proposed to use Line 15 in the wage index calculation in addition to lines 15.01 and 15.02. We stated in the proposed rule that we believe using Line 15 for the FY 2027 wage index will minimize disparities in the FY 2027 wage index by ensuring that the data informing the calculation are applied uniformly. We further proposed to use Lines 15.01 and 15.02 instead of Line 15 for future fiscal years. We did not receive any comments on these proposals, and we are finalizing as proposed for FY 2027 to use Line 15 in the wage index calculation in addition to lines 15.01 and 15.02. We also are finalizing as proposed to use Lines 15.01 and 15.02 instead of Line 15 for future fiscal years. The formula for Total Salaries plus Wage-Related Costs (from Worksheet S-3, Part II) for FY 2027 is the following: ((Line 1 + Line 28 + Line 33 + Line 35) - (Line 2 + Line 3 + Line 4.01 + Line 5 + Line 6 + Line 7 + Line 7.01 + Line 8 + Line 9 + Line 10)) + (Line 11 + Line 12 + Line 13 + Line 14.01 + Line 14.02 + Line 15 + Line 15.01 + Line 15.02) + (Line 17 + Line 22 + Line 25.50 + Line 25.51 + Line 25.52). Step 3.--Hours.--With the exception of wage-related costs, for which there are no associated hours, we compute total hours using the same methods as described for salaries in Step 2. As noted above, for FY 2027 we are finalizing as proposed to include Lines 15, 15.01 and Line 15.02 in this calculation. We also are finalizing as proposed to use Lines 15.01 and 15.02 instead of Line 15 for future fiscal years. The formula for Total Hours (from Worksheet S-3, Part II) for FY 2027 is the following: ((Line 1 + Line 28 + Line 33 + Line 35) - (Line 2 + Line 3 + Line 4.01 + Line 5 + Line 6 + Line 7 + Line 7.01 + Line 8 + Line 9 + Line 10)) + (Line 11 + Line 12 + Line 13 + Line 14.01 + 14.02 + Line 15 + Line 15.01 + Line 15.02). Step 4.--For each hospital reporting both total overhead salaries and total overhead hours greater than zero, we then allocate overhead costs to areas of the hospital excluded from the wage index calculation. First, we determine the ``excluded rate'', which is the ratio of excluded area hours to Revised Total Hours (from Worksheet S- 3, Part II) with the following formula: (Line 9 + Line 10)/(Line 1 + Line 28 + Line 33 + Line 35)-(Lines 2, 3, 4.01, 5, 6, 7, 7.01, and 8 and Lines 26 through 43). We then compute the amounts of overhead salaries and hours to be allocated to the excluded areas by multiplying the previously discussed ratio by the total overhead salaries and hours reported on Lines 26 through 43 of Worksheet S-3, Part II. Next, we compute the amounts of overhead wage-related costs to be allocated to the excluded areas using three steps: We determine the ``overhead rate'' (from Worksheet S-3, Part II), which is the ratio of overhead hours (Lines 26 through 43 minus the sum of Lines 28, 33, and 35) to revised hours excluding the sum of lines 28, 33, and 35 (Line 1 minus the sum of Lines 2, 3, 4.01, 5, 6, 7, 7.01, 8, 9, 10, 28, 33, and 35). We note that, for the FY 2008 and subsequent wage index calculations, we have been excluding the overhead contract labor (Lines 28, 33, and 35) from the determination of the ratio of overhead hours to revised hours because hospitals typically do not provide fringe benefits (wage-related costs) to contract personnel. Therefore, it is not necessary for the wage index calculation to exclude overhead wage-related costs for contract personnel. Further, if a hospital does contribute to wage-related costs for contracted personnel, the instructions for Lines 28, 33, and 35 require that associated wage-related costs be combined with wages on the respective contract labor lines. The formula for the Overhead Rate (from Worksheet S-3, Part II) is the following: (Lines 26 through 43 - Lines 28, 33 and 35)/((((Line 1 + Lines 28, 33, 35) - (Lines 2, 3, 4.01, 5, 6, 7, 7.01, 8, and 26 through 43)) - (Lines 9 and 10)) + (Lines 26 through 43 - Lines 28, 33, and 35)). We compute overhead wage-related costs by multiplying the overhead hours ratio by wage-related costs reported on Part II, Lines 17, 22, 25.50, 25.51, and 25.52. We multiply the computed overhead wage-related costs by the previously described excluded area hours ratio. Finally, we subtract the computed overhead salaries, wage-related costs, and hours associated with excluded areas from the total salaries (plus wage-related costs) and hours derived in Steps 2 and 3. Step 5.--For each hospital, we adjust the total salaries plus wage- related costs to a common period to determine total adjusted salaries plus wage-related costs. To make the wage adjustment, we estimate the percentage change in the employment cost index (ECI) for compensation for each 30-day increment from October 14, 2022, through April 15, 2024, for private industry hospital workers from data obtained from the Bureau of Labor Statistics' (BLS') Office of Compensation and Working Conditions. We use the ECI because it reflects the price increase associated with total compensation (salaries plus fringe benefits) rather than just the increase in salaries. In addition, the ECI includes managers as well as other hospital workers. This methodology to compute the monthly update factors uses actual quarterly ECI data and assures that the update factors match the actual quarterly and annual percent changes. We have consistently used the ECI as the data source for our wages and salaries and other price proxies in the IPPS market basket, and we did not propose to make any changes to the usage of the ECI for FY 2027. The factors used to adjust the hospital's data are based on the midpoint of the cost reporting period, as indicated in this final rule. Step 6.--Each hospital is assigned to its appropriate urban or rural labor market area before any reclassifications under section 1886(d)(8)(B), 1886(d)(8)(E), or 1886(d)(10) of the Act. Within each urban or rural labor market area, we add the total adjusted salaries plus wage-related costs obtained in Step 5 for all hospitals in that area to determine the total adjusted salaries plus wage-related costs for the labor market area. Step 7.--We divide the total adjusted salaries plus wage-related costs obtained under Step 6 by the sum of the corresponding total hours (from Step 4) for all hospitals in each labor market area to determine an average hourly wage for the area. Step 8.--We add the total adjusted salaries plus wage-related costs obtained in Step 5 for all hospitals in the Nation and then divide the sum by the national sum of total hours from Step 4 to arrive at a national average hourly wage. Step 9.--For each urban or rural labor market area, we calculate the hospital wage index value, unadjusted for occupational mix, by dividing the area average hourly wage obtained in Step 7 by the national average hourly wage computed in Step 8. Step 10.--For each urban labor market area for which we do not have any hospital wage data (either because there are no IPPS hospitals in that labor market area, or there are IPPS hospitals in that area but their data are either too new to be reflected in the current year's wage index calculation, or their data are aberrant and are deleted from the wage [[Page 49797]] index), we finalized in the FY 2020 IPPS/LTCH PPS final rule (84 FR 42305) that, for FY 2020 and subsequent years' wage index calculations, such CBSAs' wage index will be equal to total urban salaries plus wage- related costs (from Step 5) in the State, divided by the total urban hours (from Step 4) in the State, divided by the national average hourly wage from Step 8 (see 84 FR 42305 and 42306). We believe that, in the absence of wage data for an urban labor market area, it is reasonable to use a statewide urban average, which is based on actual, acceptable wage data of hospitals in that State, rather than impute some other type of value using a different methodology. For calculation of the FY 2027 wage index, we note there is one urban CBSA for which we do not have IPPS hospital wage data. In Table 3 (which is available via the internet on the CMS website and contains the area wage indexes), we include a footnote to indicate to which CBSA this policy applies. This CBSA's wage index is calculated as described, based on the FY 2020 IPPS/LTCH PPS final rule methodology (84 FR 42305). Under this step, we also apply our policy with regard to how dollar amounts, hours, and other numerical values in the wage index calculations are rounded. We refer readers to section II of Appendix B of this final rule for the policy regarding rural areas that do not have IPPS hospitals. Step 11.--Section 4410 of Public Law 105-33 provides that, for discharges on or after October 1, 1997, the area wage index applicable to any hospital that is located in an urban area of a State may not be less than the area wage index applicable to hospitals located in rural areas in that State. The areas affected by this provision are identified in Table 2 listed in section VI of the Addendum to this final rule and available via the internet on the CMS website. The following is our policy with regard to rounding of the wage data (dollar amounts, hours, and other numerical values) in the calculation of the unadjusted and adjusted wage index, as finalized in the FY 2020 IPPS/LTCH final rule (84 FR 42306). For data that we consider to be ``raw data,'' such as the cost report data on Worksheets S-3, Parts II and III, and the occupational mix survey data, we use such data ``as is,'' and do not round any of the individual line items or fields. However, for any dollar amounts within the wage index calculations, including any type of summed wage amount, average hourly wages, and the national average hourly wage (both the unadjusted and adjusted for occupational mix), we round the dollar amounts to 2 decimals. For any hour amounts within the wage index calculations, we round such hour amounts to the nearest whole number. For any numbers not expressed as dollars or hours within the wage index calculations, which could include ratios, percentages, or inflation factors, we round such numbers to 5 decimals. However, we continue rounding the actual unadjusted and adjusted wage indexes to 4 decimals, as we have done historically. As discussed in the FY 2012 IPPS/LTCH PPS final rule, in ``Step 5,'' for each hospital, we adjust the total salaries plus wage-related costs to a common period to determine total adjusted salaries plus wage-related costs. To make the wage adjustment, we estimate the percentage change in the ECI for compensation for each 30-day increment from October 14, 2022, through April 15, 2024, for private industry hospital workers from the BLS' Office of Compensation and Working Conditions data. We have consistently used the ECI as the data source for our wages and salaries and other price proxies in the IPPS market basket, and we did not propose to make any changes to the usage of the ECI for FY 2027. The factors used to adjust the hospital's data were based on the midpoint of the cost reporting period, as indicated in the following table. [GRAPHIC] [TIFF OMITTED] TR04AU26.136 For example, the midpoint of a cost reporting period beginning January 1, 2023, and ending December 31, 2023, is June 30, 2023. An adjustment factor of 1.02991 was applied to the wages of a hospital with such a cost reporting period. Previously, we would also provide a Puerto Rico overall average hourly wage. As discussed in the FY 2017 IPPS/LTCH PPS final rule (81 FR [[Page 49798]] 56915), prior to January 1, 2016, Puerto Rico hospitals were paid based on 75 percent of the national standardized amount and 25 percent of the Puerto Rico-specific standardized amount. As a result, we calculated a Puerto Rico specific wage index that was applied to the labor-related share of the Puerto Rico-specific standardized amount. Section 601 of Division O, Title VI (section 601) of the Consolidated Appropriations Act, 2016 (Pub. L. 114-113) amended section 1886(d)(9)(E) of the Act to specify that the payment calculation with respect to operating costs of inpatient hospital services of a subsection (d) Puerto Rico hospital for inpatient hospital discharges on or after January 1, 2016, shall use 100 percent of the national standardized amount. As we stated in the FY 2017 IPPS/LTCH PPS final rule (81 FR 56915 through 56916), because Puerto Rico hospitals are no longer paid with a Puerto Rico specific standardized amount as of January 1, 2016, under section 1886(d)(9)(E) of the Act, as amended by section 601 of the Consolidated Appropriations Act, 2016, there is no longer a need to calculate a Puerto Rico specific average hourly wage and wage index. Hospitals in Puerto Rico are now paid 100 percent of the national standardized amount and, therefore, are subject to the national average hourly wage (unadjusted for occupational mix) and the national wage index, which is applied to the national labor-related share of the national standardized amount. Therefore, for FY 2027, there is no Puerto Rico- specific overall average hourly wage or wage index. Based on the previously described methodology, the final FY 2027 unadjusted national average hourly wage is the following: [GRAPHIC] [TIFF OMITTED] TR04AU26.137

D. Occupational Mix Adjustment to the FY 2027 Wage Index

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

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

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

2. Calculation of the Occupational Mix Adjustment for FY 2027

For FY 2027, we proposed to calculate the occupational mix adjustment factor using the same methodology that we have used since the FY 2012 wage index (76 FR 51582 through 51586) and to apply the occupational mix adjustment to 100 percent of the FY 2027 wage index. In the FY 2020 IPPS/LTCH PPS final rule (84 FR 42308), we modified our methodology with regard to how dollar amounts, hours, and other numerical values in the unadjusted and adjusted wage index calculation are rounded, to ensure consistency in the calculation. According to the policy finalized in the FY 2020 IPPS/LTCH PPS final rule (84 FR 42308 and 42309), for data that we consider to be ``raw data,'' such as the cost report data on Worksheets S-3, Parts II and III, and the occupational mix survey data, we continue to use these data ``as is'', and not round any of the individual line items or fields. However, for any dollar amounts within the wage index calculations, including any type of summed wage amount, average hourly wages, and the national average hourly wage (both the unadjusted and adjusted for occupational mix), we round such dollar amounts to 2 decimals. We round any hour amounts within the wage index calculations to the nearest whole number. We round any numbers not expressed as dollars or hours in the wage index calculations, which could include ratios, percentages, or inflation factors, to 5 decimals. However, we continue rounding the actual unadjusted and adjusted wage indexes to 4 decimals, as we have done historically. Similar to the method we use for the calculation of the wage index without occupational mix, salaries and hours for a multicampus hospital are allotted among the different labor market areas where its campuses are located. Table 2 associated with this final rule (which is available via the internet on the CMS website), which contains the FY 2027 occupational mix adjusted wage index, includes separate wage data for the campuses of multicampus hospitals. We refer readers to section III.C of the preamble of this final rule for a chart listing the multicampus hospitals and the FTE percentages used to allot their occupational mix data. Because the statute requires that the Secretary measure the earnings and paid hours of employment by occupational category not less than once every 3 years, all hospitals that are subject to payments under the IPPS, or any hospital that will be subject to the IPPS if not granted a waiver, must complete the occupational mix survey, unless the hospital has no associated cost report wage data that are included in the FY 2027 wage index. For the proposed FY 2027 wage index, we used the Worksheet S-3, Parts II and III wage data of 3,006 hospitals, and we used the occupational mix surveys of 2,922 hospitals for which we also had Worksheet S-3 wage data, which represented a ``response'' rate of 97 percent (2,922/3,006). For the proposed FY 2027 wage index, we applied proxy [[Page 49799]] data for noncompliant hospitals, new hospitals, or hospitals that submitted erroneous or aberrant data in the same manner that we applied proxy data for such hospitals in the FY 2012 wage index occupational mix adjustment (76 FR 51586). As a result of applying this methodology, the proposed FY 2027 occupational mix adjusted national average hourly wage was $58.82. We did not receive any comments on our proposed calculation of the occupational mix adjustment to the FY 2027 wage index. Thus, for the reasons discussed in this final rule and in the FY 2027 IPPS/LTCH PPS proposed rule, we are finalizing our proposal without modification to calculate the occupational mix adjustment factor using the same methodology that we have used since the FY 2012 wage index and to apply the occupational mix adjustment to 100 percent of the FY 2027 wage index. For the final FY 2027 wage index, we are using the Worksheet S-3, Parts II and III wage data of 3,006 hospitals and the occupational mix surveys of 2,921 hospitals of those hospitals for which we also had Worksheet S-3 wage data, or 97 percent (2,921/3,006). For the final FY 2027 wage index, we are applying proxy data for noncompliant hospitals, new hospitals, or hospitals that submitted erroneous or aberrant data in the same manner that we applied proxy data for such hospitals in the FY 2012 wage index occupational mix adjustment (76 FR 51586). As a result of applying this methodology, the final FY 2027 occupational mix adjusted national average hourly wage is the following: [GRAPHIC] [TIFF OMITTED] TR04AU26.138

3. Occupational Mix Adjustment and the FY 2027 Occupational Mix

Adjusted Wage Index As discussed in section III.E of the preamble of this final rule, for FY 2027, we are applying the occupational mix adjustment to 100 percent of the FY 2027 wage index. We calculated the occupational mix adjustment using data from the 2022 occupational mix survey, using the methodology described in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51582-51586). Based on the 2022 occupational mix survey data, the FY 2027 national average hourly wages for each occupational mix nursing subcategory as calculated in Step 2 of the occupational mix calculation are as follows: [GRAPHIC] [TIFF OMITTED] TR04AU26.139 The national average hourly wage for the entire nurse category is computed in Step 5 of the occupational mix calculation. Hospitals with a nurse category average hourly wage (as calculated in Step 4) of greater than the national nurse category average hourly wage receive an occupational mix adjustment factor (as calculated in Step 6) of less than 1.0. Hospitals with a nurse category average hourly wage (as calculated in Step 4) of less than the national nurse category average hourly wage receive an occupational mix adjustment factor (as calculated in Step 6) of greater than 1.0. Based on the 2022 occupational mix survey data, we determined (in Step 7 of the occupational mix calculation) the following: [GRAPHIC] [TIFF OMITTED] TR04AU26.140

4. 2025 Medicare Wage Index Occupational Mix Survey Data for Use

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

E. Hospital Redesignations and Reclassifications

The following sections III.E.1 through III.E.4 discuss revisions to the wage index based on hospital redesignations and reclassifications. Specifically, hospitals may have their geographic area changed for wage index payment by applying for urban to rural reclassification under section 1886(d)(8)(E) of the Act (implemented at Sec. 412.103), reclassification by the Medicare Geographic Classification Review Board (MGCRB) under section 1886(d)(10) of the Act, Lugar status redesignations under section [[Page 49800]] 1886(d)(8)(B) of the Act, or a combination of the foregoing.

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

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

2. General Policies and Effects of MGCRB Reclassification and Treatment

of Dual Reclassified Hospitals Under section 1886(d)(10) of the Act, the MGCRB considers applications by hospitals for geographic reclassification for purposes of payment under the IPPS. Hospitals must apply to the MGCRB to reclassify not later than 13 months prior to the start of the fiscal year for which reclassification is sought (usually by September 1). Generally, hospitals must be proximate to the labor market area to which they are seeking reclassification and must demonstrate characteristics similar to hospitals located in that area. The MGCRB issues its decisions not later than the end of February for reclassifications that become effective for the following fiscal year (beginning October 1). The regulations applicable to reclassifications by the MGCRB are located in Sec. 412.230 through 412.280. (We refer readers to a discussion in the FY 2002 IPPS final rule (66 FR 39874 and 39875) regarding how the MGCRB defines mileage for purposes of the proximity requirements.) The general policies for reclassifications and redesignations and the policies for the effects of hospitals' reclassifications and redesignations on the wage index are discussed in the FY 2012 IPPS/LTCH PPS final rule for the FY 2012 final wage index (76 FR 51595 and 51596). In addition, in the FY 2012 IPPS/LTCH PPS final rule, we discussed the effects on the wage index of urban hospitals reclassifying to rural areas under Sec. 412.103. In the FY 2020 IPPS/ [[Page 49801]] LTCH PPS final rule (84 FR 42332 through 42336), we finalized a policy to exclude the wage data of urban hospitals reclassifying to rural areas under Sec. 412.103 from the calculation of the rural floor, but we reverted to the pre-FY 2020 policy in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49002 through 49004). Hospitals that are geographically located in States without any rural areas are ineligible to apply for rural reclassification in accordance with the provisions of Sec. 412.103. On April 21, 2016, we published an interim final rule with comment period (IFC) in the Federal Register (81 FR 23428 through 23438) that included provisions amending our regulations to allow hospitals nationwide to have simultaneous Sec. 412.103 urban to rural and MGCRB reclassifications. Prior to this amendment to the regulations, hospitals had to choose between a Sec. 412.103 urban to rural reclassification which confers other rural benefits (Medicare provisions such as payments to disproportionate share hospitals (DSHs), and non-Medicare payment provisions, such as the 340B Drug Pricing Program administered by HRSA) besides the wage index under section 1886(d) of the Act or a reclassification under the MGCRB to solely increase its wage index. Under the amended regulations, a hospital that has an active MGCRB reclassification and is then approved for an urban to rural reclassification under Sec. 412.103 will not lose its MGCRB reclassification. Additionally, a hospital is no longer required to cancel its Sec. 412.103 reclassification in order to be approved for an MGCRB reclassification. By amending the regulations and allowing a hospital to pursue reclassification under the MGCRB while also maintaining a rural reclassification under Sec. 412.103, hospitals are accorded the benefits of a Sec. 412.103 urban to rural reclassification and the ability to use distance and average hourly wage criteria designated for rural hospitals to obtain a higher wage index value through an MGCRB reclassification. We note, for wage index calculation and payment purposes, when there is both a Sec. 412.103 reclassification and an MGCRB reclassification, the MGCRB reclassification controls for wage index calculation and payment purposes. Prior to FY 2024, we excluded hospitals with Sec. 412.103 urban to rural redesignations from the calculation of the reclassified rural wage index if they also have an active MGCRB reclassification to another area. That is, if an application for urban reclassification through the MGCRB is approved and is not terminated by the hospital within the established timelines, we considered the hospital's geographic CBSA and the urban CBSA to which the hospital is reclassified under the MGCRB for the wage index calculation. We refer readers to the April 21, 2016, IFC (81 FR 23428 through 23438) and the FY 2017 IPPS/LTCH PPS final rule (81 FR 56922 through 56930), in which we finalized the April 21, 2016, IFC, for a full discussion of the effect of simultaneous reclassifications under both the Sec. 412.103 and the MGCRB processes on wage index calculations. For FY 2024 and subsequent years, we refer readers to the FY 2024 IPPS/LTCH PPS final rule for discussion of our policy to include hospitals with a Sec. 412.103 reclassification that also have an active MGCRB reclassification to another area in the calculation of the reclassified rural wage index (88 FR 58971 through 58977).

3. MGCRB Reclassification Issues for FY 2027

a. FY 2027 Reclassification Application Requirements and Approvals As previously stated, under section 1886(d)(10) of the Act, the MGCRB considers applications by hospitals for geographic reclassification for purposes of payment under the IPPS. The specific procedures and rules that apply to the geographic reclassification process are outlined in regulations under 42 CFR 412.230 through Sec. 412.280. There are 501 hospitals approved for wage index reclassifications by the MGCRB starting in FY 2027. Because MGCRB wage index reclassifications are effective for 3 years, for FY 2027, hospitals reclassified beginning in FY 2025 or FY 2026 are eligible to continue to be reclassified to a particular labor market area based on such prior reclassifications for the remainder of their 3-year period. There were 284 hospitals approved for wage index reclassifications in FY 2025 that will continue for FY 2027, and 333 hospitals approved for wage index reclassifications in FY 2026 that will continue for FY 2027. Of all the hospitals approved for reclassification for FY 2025, FY 2026, and FY 2027, 1,118 hospitals (approximately 35 percent of IPPS hospitals) are in a MGCRB reclassification status for FY 2027 (with 302 of these hospitals reclassified back to their urban geographic location). We refer readers to section III.F.3.b of the preamble of this final rule for information on the effects of adopting the new OMB delineations on reclassified hospitals. Under the regulations at Sec. 412.273, hospitals that have applied to be reclassified by the MGCRB are permitted to withdraw their applications if the request for withdrawal is received by the MGCRB any time before the MGCRB issues a decision on the application. Hospitals are also permitted to terminate an approved reclassification after the MGCRB issues a decision, provided the request for termination is received by the MGCRB within 45 days of the date of filing for public inspection of the proposed rule at the website of the Office of the Federal Register, or within 7 calendar days of receiving a decision of the Administrator's in accordance with Sec. 412.273, whichever is later. For information about the current process for withdrawing a 3-year MGCRB reclassification application, terminating an approved 3-year MGCRB reclassification, or canceling a previous termination of a 3-year reclassification for wage index purposes, we refer readers to Sec. 412.273, as well as section III.E.3.b of the preamble of this final rule, the FY 2002 IPPS final rule (66 FR 39887 through 39888), and the FY 2003 IPPS final rule (67 FR 50065 through 50066). Additional discussion on withdrawals and terminations was included in the FY 2008 IPPS final rule (72 FR 47333), the FY 2018 IPPS/LTCH PPS final rule (82 FR 38148 through 38150), and the FY 2026 IPPS/LTCH PPS final rule (90 FR 36847 through 36848). Applications for FY 2028 reclassifications are due to the MGCRB by September 1, 2026. This is also the current deadline for canceling a previous wage index reclassification termination (reinstating a reclassification) under Sec. 412.273(d) for FY 2028. Applications and other information about MGCRB reclassifications may be obtained beginning in mid-July 2026 via the internet on the CMS website at https://www.cms.gov/medicare/regulations-guidance/geographic-classification-review-board. This collection of information is approved under OMB Control Number 0938-0573 and expires on February 28, 2029. Comment: Several commenters stated that reclassification was intended to ensure fair reimbursement for hospitals in CBSAs that exhibited the characteristics of another CBSA but now serves as a tool to manipulate wage indexes, leading to uncertainty. They requested CMS revise its termination, cancellation, and withdrawal rules and restrict hospitals' ability to reclassify annually or between the proposed and final rule, to stabilize reclassification changes and improve the predictability [[Page 49802]] of final wage indexes based on the proposed rule. Response: We acknowledge that hospitals' reclassification decisions can create wage index fluctuations annually or between the proposed and final rules. However, we note that we did not propose any changes to the regulations at Sec. 412.273 for withdrawing an application, terminating an approved 3-year reclassification, or cancelling a previous termination in the FY 2027 IPPS/LTCH PPS proposed rule. b. Revisions to Sec. 412.230(c)(1) To Address Ferry Routes The regulation at Sec. 412.230(c)(1) requires that hospitals seeking reclassification to an area must submit appropriate data relating to its proximity to the area, including evidence of the shortest route over improved roads to the area and the distance of that route as proximity data. The MGCRB has denied reclassification requests using ferry routes, but these decisions were overturned via administrative appeal. In the FY 2025 IPPS/LTCH PPS final rule (89 FR 69281), commenters suggested revising the proximity data regulations to include waterways traveled by ferry boats as equivalent to travel over improved roads. CMS agreed that a modification to Sec. 412.230(c)(1) could reduce unnecessary appeals. Therefore, we proposed to modify Sec. 412.230(c)(1) to include ferry routes when mapping the shortest route. This change would minimize appeals of MGCRB decisions and reduce administrative burden for both CMS and hospitals. This proposal is consistent with our definition of mileage for purposes of proximity in the FY 2002 IPPS Final Rule (66 FR 39874-39875), where we stated that we believe that mileage should continue to be measured by the shortest route over improved roads maintained by any local, State, or Federal government entity for public use. Since most ferry routes are maintained by local, State, or Federal government entities for public transportation over water, similar to bridges, we consider it appropriate to treat them as improved roads. We stated that we would apply the same measurement method for miles traveled on land to those traveled by ferry boat over water. That is, the MGCRB requires providers to submit map evidence from nationally recognized electronic mapping services (e.g., Google Maps, Bing Maps, MapQuest) showing the shortest route over improved roads from the front entrance of the hospital to the county line of the requested area and the distance of that route.\141\ Miles traveled by ferry boat would also need to be mapped using a nationally recognized electronic mapping service and included as evidence of the shortest route. --------------------------------------------------------------------------- \141\ MGCRB Rules 5.2(A)(1), available at https://www.cms.gov/medicare/regulations-guidance/geographic-classification-review-board/mgcrb-rules. --------------------------------------------------------------------------- We proposed to revise the regulations at Sec. 412.230(c)(1) to state: ``To demonstrate proximity to the area, the hospital must submit evidence from a nationally recognized electronic mapping service of the shortest route from the front entrance of the hospital over improved roads or waterways traveled by ferry boats to the county line of the requested area and the distance of that route.'' We sought comment on this proposal. Comment: A commenter supported CMS's proposal to recognize ferry routes for MGCRB proximity requirements, stating that this revision will ease administrative burden for hospitals with unique transportation circumstances. Response: After consideration of the comment we received in support of our proposal, we are finalizing this policy and corresponding revision of the regulation at 412.230(c)(1) as proposed without modification. c. Clarification Regarding the Data Used for Reclassifying to an Area With a Lower Wage Index (Sec. 412.230(a)(5)(i)) MGCRB reclassifications are approved for a 3-year period, and when evaluating a hospital's request for reclassification, effective with reclassifications for FY 2003, section 1886(d)(10)(D)(vi)(II) of the Act requires that the MGCRB must use the average of the most recent hospital wage survey data and the data from each of the two immediately preceding surveys. These data requirements are described in regulation at Sec. 412.230(d)(2). CMS publishes this data in a ``Three Year MGCRB Reclassification Data Applications'' file during each application cycle on the CMS website.\142\ We believe that using 3-year data improves wage index consistency, and reduces the likelihood that a single year of aberrant wage data in given area would impact the ability of hospitals to obtain geographic reclassification. --------------------------------------------------------------------------- \142\ 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 therefore proposed to revise Sec. 412.230(a)(5)(i) to explicitly state that the data submitted must comply with the requirements of Sec. 412.230(d)(2). That is, for purposes of meeting the criterion at Sec. 412.230(a)(5)(i), we are affirming that the most recent three-year average hourly wage data must be submitted for hospitals located in both the area the applicant is located, and hospitals in the area to which reclassification is sought. This clarification is consistent with prior decisions made by the MGCRB, and the required usage of published 3-year data has been upheld on appeal through the Administrator's review process. We did not receive any comments on this proposal, and we are finalizing the revision to Sec. 412.230(a)(5)(i) to clarify the appropriate wage data to be used by hospitals seeking reclassification as proposed. d. Revisions to Sec. 412.230 To Waive Wage Data Comparisons for Hospitals Reclassifying to Home As discussed in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45188- 45190), urban hospitals with Sec. 412.103 rural reclassifications are eligible to obtain MGCRB reclassifications to receive the wage index of another area. In that rulemaking, CMS also discussed the option of such a hospital reclassifying to its geographic labor market area, or its ``home'' area. When approved for a home area reclassification, the hospital may obtain the benefits of rural status, while receiving the wage index applied to other hospitals in its geographic urban area. These home area reclassifications have become significantly more common since FY 2022 rule, with nearly a quarter of all MGCRB approvals being to the hospital's geographic home area in FY 2026. Under current regulations, obtaining a home area reclassification is a relatively simple process. There would be no proximity requirement, as the hospital is physically located in the labor market to [[Page 49803]] which it is seeking reclassification. As discussed in the May 10, 2021 Interim final rule with comment period (86 FR 24736-24738) and in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45188-45190), CMS described several options to obtain MGCRB reclassification for hospitals with Sec. 412.103 reclassification. For example, in meeting the criterion at Sec. 412.230(a)(5)(i), restricting MGCRB reclassifications to labor market areas with lower pre-reclassified wages than the area the hospital is located, CMS allowed an urban hospital with a Sec. 412.103 rural reclassification to be considered located either in its geographic area or in the rural area of the State. Regarding the criteria at Sec. 412.230(d)(1)(iii)(C), confirming that the hospital's wages are above average for its area (the 106/108 percent criterion), Sec. 412.103 hospitals are permitted to compare their average hourly wage data to either the other hospitals in its geographic area, or to the hospitals in the state's rural labor market area. Additionally, many Sec. 412.103 hospitals also have obtained rural referral center status. The provision at Sec. 412.230(d)(3)(i) waives the average hourly wage comparison requirement at Sec. 412.230(d)(1)(iii)(C) for rural referral centers. The only criterion that most home area reclassification applicants are required to meet is at Sec. 412.230(d)(1)(iv). That is, if a hospital with a rural reclassification demonstrates that its 3-year average hourly wage is at least 82 percent of the average hourly wage of its own geographic labor market area (the area to which it is seeking a home area MGCRB reclassification), the MGCRB application would be approved. The 82 percent criterion was initially determined to cover more than two standard deviations of wage variance within any given labor market area. Given these factors, it would be exceptionally rare for any hospital with a rural reclassification to be denied a home area MGCRB reclassification. However, we are aware of a circumstance in which a home area MGCRB reclassification would be denied. The published wage data used for MGCRB reclassification is based on cost report data that could be up to three years old. Newly established hospitals (or remote locations of hospitals located in a different labor market area than the main campus of the hospital) would not yet have a cost report included in the current fiscal year wage index development process, and no average hourly wage data would be published. In this case, these hospitals and remote locations would not be eligible for individual MGCRB reclassification due to their inability to meet the Sec. 412.230(d)(1)(iv) average hourly wage comparison. Individual hospitals are required to have at least one year of published average hourly wage data in order to receive a wage index reclassification. Newly established hospitals or remote locations without published wage data that are included in a county group reclassification (Sec. 412.232 and Sec. 412.234) with other hospitals are eligible for approval. However, individual reclassification requests would be denied. We believe this is the appropriate policy, as the MGCRB is required to review wage data to determine whether it is appropriate to grant an individual hospital the wage index of another labor market area. However, given the unique nature of a home area reclassification, it is difficult to see what policy objective would be achieved by denying a hospital a wage index based on its own geographic area. Therefore, we proposed to waive the application of Sec. 412.230(d)(1)(iv) for a hospital requesting reclassification to its geographic home area. Specifically, we proposed to add an exception at Sec. 412.230(d)(6) to waive the application of requirements of Sec. 412.230(d)(1)(iv) for hospitals with Sec. 412.103 rural reclassification seeking MGCRB reclassification to their geographic labor market area. While CMS continues to have concerns with hospitals using Sec. 412.103 in order to enhance the state's rural floor, the scenario we are addressing would only affect situations where the inability to obtain a home area reclassification could lead to lower wage index value for the hospital. In such a case, a hospital would have the option to cancel its rural reclassification per the provision at Sec. 412.103(g), and receive the wage index of its geographic urban area. However, there are situations where canceling rural reclassification would have significant financial impacts on the hospital, particularly in scenarios where a hospital operates in multiple urban labor market areas. For example, if a hospital with a Sec. 412.103 reclassification opens or acquires a remote location in a different urban labor market area, we apply a separate wage index to that remote location based on its location and reclassification status. That remote location would be ineligible for individual MGCRB reclassification until CMS reviewed a cost report that allocates wages between the inpatient locations. In this case, the new remote location would be assigned its state's rural wage index based on the main campus' rural status, not the urban wage index for its geographic area. Given that the large majority of hospitals with Sec. 412.103 rural reclassifications can obtain home area MGCRB reclassification, we see no compelling policy justification to restrict reclassification in such a narrow circumstance. The few hospitals potentially affected by this proposed policy would not have published wage data for at least first year of any MGCRB reclassification and, therefore, would have a negligible impact on the accuracy or consistency of overall wage index values. We believe this proposal to waive the application of Sec. 412.230(d)(1)(iv) for hospitals requesting reclassification to its geographic home area would provide an equitable opportunity to obtain a competitive wage index for affected hospitals. We sought comment on this proposal. We did not receive any comments on this proposal, and we are finalizing as proposed to add an exception Sec. 412.230(d)(6) to waive the application of requirements of Sec. 412.230(d)(1)(iv) for hospitals with Sec. 412.103 rural reclassification seeking MGCRB reclassification to their geographic labor market area. Comment: Many commenters asked CMS to waive the wage data comparison requirement for low wage index hospitals seeking any MGCRB reclassification, similar to the exception for hospitals reclassifying to home proposed at Sec. 412.230(d)(6). In addition, commenters requested regulatory changes to Sec. 412.230(d) to permit low wage hospitals to reclassify to an area within 50 miles and to receive the unblended wage index that is paid to hospitals in that area. Several commenters requested a common 50-mile standard for proximity criteria for all hospitals, to better account for current commuting patterns. Response: We note that we did not propose any changes to Sec. 412.230 in the FY 2027 IPPS/LTCH PPS proposed rule beyond the narrow exception for hospitals reclassifying to their geographic labor market, and as such, are not finalizing other changes to Sec. 412.230 in this final rule.

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

a. Lugar Status Determinations In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51599 through 51600), we adopted the policy that, beginning with FY 2012, an eligible hospital that waives its Lugar status to receive the out-migration adjustment has effectively [[Page 49804]] waived its deemed urban status and, thus, is rural for all purposes under the IPPS effective for the fiscal year in which the hospital receives the outmigration adjustment. In addition, in that rule, we adopted a minor procedural change that will allow a Lugar hospital that qualifies for and accepts the out-migration adjustment (through written notification to CMS within 45 days from the issuance of the proposed rule in the Federal Register) to waive its urban status for the full 3- year period for which its out-migration adjustment is effective. By doing so, such a Lugar hospital will no longer be required during the second and third years of eligibility for the out-migration adjustment to advise us annually that it prefers to continue being treated as rural and receive the out-migration adjustment. In the FY 2017 IPPS/ LTCH PPS final rule (81 FR 56930), we further clarified that if a hospital wishes to reinstate its urban status for any fiscal year within this 3-year period, it must send a request to CMS within 45 days of the issuance of the proposed rule in the Federal Register for that particular fiscal year. We indicated that such reinstatement requests may be sent electronically to [email protected]. In the FY 2018 IPPS/LTCH PPS final rule (82 FR 38147 through 38148), we finalized a policy revision to require a Lugar hospital that qualifies for and accepts the out-migration adjustment, or that no longer wishes to accept the out-migration adjustment and instead elects to return to its deemed urban status, to notify CMS within 45 days from the date of public display of the proposed rule at the Office of the Federal Register. These revised notification timeframes were effective beginning October 1, 2017. In addition, in the FY 2018 IPPS/LTCH PPS final rule (82 FR 38148), we clarified that both requests to waive and to reinstate Lugar status may be sent to [email protected]. To ensure proper accounting, we request hospitals to include their CCN, and either ``waive Lugar'' or ``reinstate Lugar'', in the subject line of these requests. When applicable, this election will result in a cancelation of a hospital's rural reclassification status under Sec. 412.103, effective October 1, 2026. We also inform hospitals that for the request to be approved, the hospital must terminate any active MGCRB reclassification. All requests, once approved, will remain in effect for the remainder of the 3-year out-migration adjustment period. In the FY 2020 IPPS/LTCH PPS final rule (84 FR 42314 and 42315), we clarified that in circumstances where an eligible hospital elects to receive the outmigration adjustment within 45 days of the public display date of the proposed rule at the Office of the Federal Register in lieu of its Lugar wage index reclassification, and the county in which the hospital is located will no longer qualify for an outmigration adjustment when the final rule (or a subsequent correction notice) wage index calculations are completed, the hospital's request to accept the outmigration adjustment will be denied, and the hospital will be automatically assigned to its deemed urban status under section 1886(d)(8)(B) of the Act. We stated that final rule wage index values will be recalculated to reflect this reclassification, and in some instances, after taking into account this reclassification, the out- migration adjustment for the county in question could be restored in the final rule. However, as the hospital is assigned a Lugar reclassification under section 1886(d)(8)(B) of the Act, it will be ineligible to receive the county outmigration adjustment under section 1886(d)(13)(G) of the Act. We did not receive any requests from hospitals to waive or reinstate its Lugar redesignation this cycle.

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

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

1. Rural Floor

Section 4410(a) of the Balanced Budget Act of 1997 (Pub. L. 105-33) provides that, for discharges on or after October 1, 1997, the area wage index applicable to any hospital that is located in an urban area of a State may not be less than the area wage index applicable to hospitals located in rural areas in that State. This provision is referred to as the rural floor. Section 3141 of the Patient Protection and Affordable Care Act (Pub. L. 111-148) also requires that a national budget neutrality adjustment be applied in implementing the rural floor. Based on the FY 2027 wage index associated with this final rule (which is available on the CMS website), and based on the calculation of the rural floor including the wage data of hospitals that have reclassified as rural under Sec. 412.103, we estimate that 991 hospitals would receive the rural floor in FY 2027. The budget neutrality impact of the proposed application of the rural floor is discussed in section II.A.4.e of Addendum A of this final rule. In the FY 2023 IPPS/LTCH PPS final rule (87 FR 48784), CMS finalized a policy change to calculate the rural floor in the same manner as we did prior to the FY 2020 IPPS/LTCH PPS final rule, in which the rural wage index sets the rural floor. We stated that for FY 2023 and subsequent years, we would include the wage data of Sec. 412.103 hospitals that have no Medicare Geographic Classification Review Board (MGCRB) or Lugar reclassification in the calculation of the rural floor, and include the wage data of such hospitals in the calculation of ``the wage index for rural areas in the State in which the county is located'' as referred to in section 1886(d)(8)(C)(iii) of the Act. In the FY 2024 IPPS/LTCH final rule (88 FR 58971 through 58977), we finalized a policy change beginning that year to include the data of all Sec. 412.103 hospitals, even those that have an MGCRB reclassification, in the calculation process for the rural floor and the calculation of ``the wage index for rural areas in the State in which the county is located'' as referred to in section 1886(d)(8)(C)(iii) of the Act. We explained that after revisiting the case law, prior public comments, and the [[Page 49805]] relevant statutory language, we agreed that the best reading of section 1886(d)(8)(E)'s text that CMS ``shall treat the [Sec. 412.103] hospital as being located in the rural area'' is that it instructs CMS to treat Sec. 412.103 hospitals the same as geographically rural hospitals for the wage index calculation. Accordingly, in the FY 2024 IPPS/LTCH PPS final rule, we finalized a policy to include hospitals with Sec. 412.103 reclassification along with geographically rural hospitals in all rural wage index calculations, and to exclude ``dual reclass'' hospitals (hospitals with simultaneous Sec. 412.103 and MGCRB reclassifications) that are implicated by the hold harmless provision at section 1886(d)(8)(C)(ii) of the Act. For additional information on these changes, we refer readers to the FY 2024 IPPS/LTCH PPS final rule (88 FR 58971 through 58977). Comment: A commenter expressed continued support for treating urban hospitals reclassified as rural under Sec. 412.103 the same as geographically rural hospitals for wage index purposes. Response: We appreciate the commenter's support of our current policy. We note that we did not propose any changes to the treatment of hospitals with Sec. 412.103 urban to rural reclassifications for wage index purposes in the FY 2027 IPPS/LTCH PPS proposed rule. Comment: Several commenters asked CMS not to apply the rural floor budget neutrality adjustment to hospitals receiving the rural floor. The commenters asserted that Section 4410(b) of the Balanced Budget Act of 1997 exempts urban and reclassified rural hospitals receiving the rural floor from wage index reductions due to application of the budget neutrality factor. Response: We disagree with the commenters' argument that hospitals receiving the rural floor should be excluded from the application of the rural floor budget neutrality factor. We direct the reader to responses to similar comments in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69299) and the FY 2026 IPPS/LTCH PPS final rule (90 FR 36850 through 36851) for a full explanation of why we disagree with the commenters' approach. We believe we have applied the rural floor budget neutrality adjustment in a manner consistent with the statute. Comment: Several commenters expressed concern over rural floor manipulation, particularly by large urban hospitals reclassifying as rural to raise their state's rural floor. Commenters encouraged CMS to evaluate the redistributive impacts of the rural floor and other wage index policies, with some commenters specifically noting the impact on Medicare Advantage reimbursement. Commenters asked CMS to increase predictability by changing the methodology for including wage data of reclassified hospitals and by limiting wage index changes annually and between the proposed and final rules. Response: While we note that we did not propose any changes to the rural floor policy in the FY 2027 IPPS/LTCH PPS proposed rule, we understand the commenters' concerns regarding hospitals taking advantage of the rural floor policy and the effect on all hospitals due to the budget neutrality adjustment. As we have noted in previous rules in response to similar comments (88 FR 58975 through 58976, 89 FR 69299, and 90 FR 36850), we expect this trend to continue such that the majority of hospitals (if not all) will be assigned identical wage index values within their states. We also understand that the IPPS wage index has effects beyond the IPPS, including on Medicare Advantage reimbursement. However, as we stated in the previous rules, we believe this result would be unavoidable given the requirement of section 1886(d)(8)(E) of the Act to treat Sec. 412.103 hospitals ``as being located in the rural area'' of the State, as well as the requirement at sections 4410(b) of the BBA 1997 and 3141 of the Patient Protection and Affordable Care Act (Pub. L. 111-148) that a uniform, national budget neutrality adjustment be applied in implementing the rural floor. While we note that we did not propose any limits on reclassification decisions hospitals can make annually or between the proposed and final rules, we believe that our 5% cap policy helps increase predictability by limiting annual wage index decreases.

2. Imputed Floor

In the FY 2005 IPPS final rule (69 FR 49109 through 49111), we adopted the imputed floor policy as a temporary 3-year regulatory measure to address concerns from hospitals in all-urban States that had stated that they were disadvantaged by the absence of rural hospitals to set a wage index floor for those States. We extended the imputed floor policy eight times since its initial implementation, the last of which was adopted in the FY 2018 IPPS/LTCH PPS final rule and expired on September 30, 2018. We refer readers to further discussions of the imputed floor in the IPPS/LTCH PPS final rules from FYs 2014 through 2019 (78 FR 50589 through 50590, 79 FR 49969 through 49971, 80 FR 49497 through 49498, 81 FR 56921 through 56922, 82 FR 38138 through 38142, and 83 FR 41376 through 41380, respectively) and to the regulations at Sec. 412.64(h)(4). For FYs 2019, 2020, and 2021, hospitals in all- urban states received a wage index that was calculated without applying an imputed floor, and we no longer included the imputed floor as a factor in the national budget neutrality adjustment. Section 9831 of the American Rescue Plan Act of 2021 (Pub. L. 117- 2), enacted on March 11, 2021, amended section 1886(d)(3)(E)(i) of the Act and added section 1886(d)(3)(E)(iv) of the Act to establish a minimum area wage index for hospitals in all-urban States for discharges occurring on or after October 1, 2021. Specifically, section 1886(d)(3)(E)(iv)(I) and (II) of the Act provides that for discharges occurring on or after October 1, 2021, the area wage index applicable to any hospital in an all-urban State may not be less than the minimum area wage index for the fiscal year for hospitals in that State established using the methodology described in Sec. 412.64(h)(4)(vi) as in effect for FY 2018. Unlike the imputed floor that was in effect from FYs 2005 through 2018, section 1886(d)(3)(E)(iv)(III) of the Act provides that the imputed floor wage index shall not be applied in a budget neutral manner. Section 1886(d)(3)(E)(iv)(IV) of the Act provides that, for purposes of the imputed floor wage index under clause (iv), the term all-urban State means a State in which there are no rural areas (as defined in section 1886(d)(2)(D) of the Act) or a State in which there are no hospitals classified as rural under section 1886 of the Act. Under this definition, given that it applies for purposes of the imputed floor wage index, we consider a hospital to be classified as rural under section 1886 of the Act if it is assigned the State's rural area wage index value. Effective beginning October 1, 2021 (FY 2022), section 1886(d)(3)(E)(iv) of the Act reinstated the imputed floor wage index policy for all-urban States, with no expiration date, using the methodology described in Sec. 412.64(h)(4)(vi) as in effect for FY 2018. We refer readers to the FY 2022 IPPS/LTCH PPS final rule (86 FR 45176 through 45178) for further discussion of the original imputed floor calculation methodology implemented in FY 2005 and the alternative methodology implemented in FY 2013. Based on data available for this final rule, States that would be all-urban States as defined in section 1886(d)(3)(E)(iv)(IV) of the Act, and thus hospitals in such States that would be [[Page 49806]] eligible to receive an increase in their wage index due to application of the imputed floor for FY 2027, are identified in Table 3 (which is available on the CMS website) associated with this final rule. States with a value in the column titled ``State Imputed Floor'' are eligible for the imputed floor. The regulations at Sec. 412.64(e)(1) and (4) and (h)(4) and (5) implement the imputed floor required by section 1886(d)(3)(E)(iv) of the Act for discharges occurring on or after October 1, 2021. The imputed floor would continue to be applied for FY 2027 in accordance with the policies adopted in the FY 2022 IPPS/LTCH PPS final rule. For more information regarding our implementation of the imputed floor required by section 1886(d)(3)(E)(iv) of the Act, we refer readers to the discussion in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45176 through 45178). Comment: We received comments supporting the application of the imputed floor. Response: We thank the commenters for their input. As discussed earlier, the imputed floor is a statutory requirement under section 9831 of the American Rescue Plan Act of 2021 (Pub. L. 117-2) which requires the Secretary to establish a minimum area wage index for hospitals in all-urban States for discharges occurring on or after October 1, 2021. We note that we did not propose any changes to the methodology for calculating the imputed floor as set forth in Sec. 412.64(e)(1) and (4) and (h)(4) and (5). Therefore, in accordance with the statute and existing regulations, we are applying the imputed floor for hospitals in all-urban States for FY 2027.

3. State Frontier Floor for FY 2027

Section 10324 of Public Law 111-148 amended Section 1886(d)(3)(E) of the Act and added section 1886(d)(3)(E)(iii) of the Act to require that hospitals in frontier States cannot be assigned a wage index of less than 1.00. We refer readers to the regulations at Sec. 412.64(m) and to a discussion of the implementation of this provision in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50160 through 50161). We note that in the FY 2027 IPPS/LTCH PPS proposed rule, we did not propose any changes to the frontier floor policy for FY 2027. In the proposed rule, we stated 40 hospitals would receive the frontier floor value of 1.00 for their FY 2027 proposed wage index. These hospitals are located in Montana, North Dakota, South Dakota, and Wyoming. We did not receive any public comments on the application of the State frontier floor for FY 2027. In this final rule, 31 hospitals will receive the frontier floor value of 1.00 for their FY 2027 wage index. These hospitals are located in Montana, North Dakota, South Dakota, and Wyoming. We note that while Nevada meets the criteria of a frontier State, all hospitals within the State currently receive a wage index value greater than 1.00. The areas affected by the rural and frontier floor policies for the FY 2027 wage index are identified in Table 3 associated with this final rule, which is available via the internet on the CMS website.

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

Employees In accordance with section 1886(d)(13) of the Act, as added by section 505 of Public Law 108-173, beginning with FY 2005, we established a process to make adjustments to the hospital wage index based on commuting patterns of hospital employees (the ``out- migration'' adjustment). The process, outlined in the FY 2005 IPPS final rule (69 FR 49061), provides for an increase in the wage index for hospitals located in certain counties that have a relatively high percentage of hospital employees who reside in the county but work in a different county (or counties) with a higher wage index. Section 1886(d)(13)(B) of the Act requires the Secretary to use data the Secretary determines to be appropriate to establish the qualifying counties. When section 1886(d)(13) was implemented for the FY 2005 wage index, we analyzed commuting data compiled by the U.S. Census Bureau that were derived from a special tabulation of the 2000 Census journey-to-work data for all industries (CMS extracted data applicable to hospitals). These data were compiled from responses to the ``long-form'' survey, which the Census Bureau used at that time, and which contained questions on where residents in each county worked (69 FR 49062). However, the 2010 Census was ``short form'' only; information on where residents in each county worked was not collected as part of the 2010 Census. The Census Bureau worked with CMS to provide an alternative data set based on the latest available data on where residents in each county worked in 2010, for use in developing a new out-migration adjustment based on new commuting patterns developed from the 2010 Census data beginning with FY 2016. To determine the out-migration adjustments and applicable counties for FY 2016, we analyzed commuting data compiled by the Census Bureau that were derived from a custom tabulation of the American Community Survey (ACS), an official Census Bureau survey, utilizing 2008 through 2012 (5-year) Microdata. The data were compiled from responses to the ACS questions regarding the county where workers reside and the county to which workers commute. As we discussed in prior IPPS/LTCH PPS final rules, we have applied the same policies, procedures, and computations since FY 2012. We refer readers to the FY 2016 IPPS/LTCH PPS final rule (80 FR 49500 through 49502) for a full explanation of the revised data source. We also stated that we will consider determining out-migration adjustments based on data from the next Census or other available data, as appropriate. As discussed previously in section III.A.2, in the FY 2025 IPPS/ LTCH PPS final rule (89 FR 69253 through 69266), CMS adopted revised Core-Based Statistical Area (CBSA) delineations from the OMB Bulletin No. 23-01, published July 21, 2023. The revised delineations incorporated population estimates based on the 2020 decennial census, as well as updated journey-to-work commuting data. The Census Bureau once again worked with CMS to provide an alternative dataset based on the latest available data on where residents in each county worked, for use in developing a new out-migration adjustment based on new commuting patterns. We analyzed commuting data compiled by the Census Bureau that were derived from a custom tabulation of the ACS, utilizing 2016 through 2020 data. The Census Bureau produces county level commuting flow tables every 5 years using non-overlapping 5-year ACS estimates. The data includes demographic characteristics, home and work locations, and journey-to-work travel flows. The custom tabulation requested by CMS was specific to general medical and surgical hospital and specialty (except psychiatric and substance use disorder treatment) hospital employees (hospital sector Census code 8191/NAICS code 6221 and 6223) who worked in the 50 States, Washington, DC, and Puerto Rico and, therefore, provided information about commuting patterns of workers at the county level for residents of the 50 States, Washington, DC, and Puerto Rico. For the ACS, the Census Bureau selects a random sample of addresses where workers reside to be included in the survey, and the sample is designed to ensure good geographic coverage. The ACS samples approximately 3.5 million [[Page 49807]] resident addresses per year.\143\ The results of the ACS are used to formulate descriptive population estimates, and, as such, the sample on which the dataset is based represents the figures that would be obtained from a complete count. --------------------------------------------------------------------------- \143\ According to the Census Bureau, the effects of the public health emergency (PHE) on ACS activities in 2020 resulted in a lower number of addresses (~2.9 million) in the sample, as well as fewer interviews than a typical year. --------------------------------------------------------------------------- In the FY 2025 IPPS/LTCH PPS final rule (89 FR 69301), we finalized that for FY 2025 and subsequent years, the out-migration adjustment will be based on the data derived from the previously discussed custom tabulation of the ACS utilizing 2016 through 2020 (5-year) Microdata. We believe that these data are the most appropriate to establish qualifying counties, because they are the most accurate and up-to-date data that are available to us. For FY 2027, we are not proposing any changes to the methodology or data source for calculating the out- migration adjustment. Specifically, we proposed that the FY 2027 out- migration adjustments continue to be based on the same policies, procedures, and computation that were used for the FY 2012 out- migration adjustment. Comment: We received a comment stating that Middlesex County, NJ narrowly missed the eligibility thresholds required to qualify for the out-migration adjustment despite having previously qualified in prior years. Given that the underlying data used to calculate these thresholds is not fully audited, the commenter argues that such a marginal shortfall should not be sufficient grounds for withholding the adjustment. The commenter also raised a broader policy concern, arguing that the current eligibility structure is inequitable, as counties with nearly identical labor market conditions can receive different treatment based on negligible differences. The commenter suggested that CMS should reassess whether the current OMA eligibility criteria reflect labor market realities; and to consider refining the standards in future rulemaking, specifically by eliminating the average hourly wage comparison requirement. Response: Section 1886(d)(13)(B)(iii) of the Act requires that, to qualify for the out-migration adjustment, the average hourly wage for all hospitals in the county must be equal to or exceed the average hourly wage for all hospitals in its labor market area. We believe we have implemented this policy consistent with the statute (69 FR 49061- 49067). With regard to the commenter stating that a marginal shortfall should not be sufficient grounds for not qualifying for the adjustment when the underlying data used to calculate the qualifying thresholds is not fully audited, as stated earlier, CMS uses actual wage data submitted by the hospitals to calculate the wage index. Specifically, the wage data for the FY 2027 wage index were obtained from Worksheet S-3, Parts II, III and IV of the Medicare cost report, CMS Form 2552-10 (OMB Control Number 0938-0050 with an expiration date September 30, 2028) for cost reporting periods beginning on or after October 1, 2022, and before October 1, 2023. Hospitals submit wage data to CMS through the Medicare cost report and should ensure accuracy when submitting their own wage data. In addition, as noted above, for the development of the FY 2027 wage index, CMS conducted its own review of the data. For these reasons, we disagree with the commenter that the adjustments be provided when the eligibility thresholds are narrowly missed based on the data used for the FY 2027 rulemaking. After consideration of the comments, we are finalizing as proposed that the FY 2027 out-migration adjustments continue to be based on the same policies, procedures, and computation that were used for the FY 2012 out-migration adjustment. We have applied these same policies, procedures, and computations since FY 2012, and we believe they continue to be appropriate for FY 2027. We refer readers to a full discussion of the out-migration adjustment, including rules on deeming hospitals reclassified under section 1886(d)(8) or section 1886(d)(10) of the Act to have waived the out-migration adjustment, in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51601 through 51602). Table 2 of this final rule (which is available on the CMS website) lists the out- migration adjustments for the FY 2027 wage index. In addition, Table 4A associated with this final rule, ``List of Counties Eligible for the Out Migration Adjustment under Section 1886(d)(13) of the Act'' (also available on the CMS website), consists of the following: A list of counties that are eligible for the outmigration adjustment for FY 2027 identified by FIPS county code, the FY 2027 out-migration adjustment, and the number of years the adjustment would be in effect. We refer readers to section V.I of the Addendum of this final rule for instructions on accessing IPPS tables that are posted on the CMS websites identified in this final rule.

5. Cap on Wage Index Decreases and Budget Neutrality Adjustment

In the FY 2023 IPPS/LTCH PPS final rule (87 FR 49018 through 49021), we finalized a wage index cap policy and associated budget neutrality adjustment for FY 2023 and subsequent fiscal years. Under this policy, we apply a 5-percent cap on any decrease to a hospital's wage index from its wage index in the prior FY, regardless of the circumstances causing the decline. A hospital's wage index will not be less than 95 percent of its final wage index for the prior FY. We note, as discussed below, that for FY 2027 we proposed to continue the transitional payment exception that addresses the effects of the removal of the low wage index hospital policy. This proposed transitional payment exception would be applied after the application of the 5-percent cap. Except for newly opened hospitals, we apply the cap for a fiscal year using the final wage index applicable to the hospital on the last day of the prior fiscal year. A newly opened hospital will be paid the wage index for the area in which it is geographically located for its first full or partial fiscal year, and it will not receive a cap for that first year, because it will not have been assigned a wage index in the prior year. The wage index cap policy is reflected at Sec. 412.64(h)(7). We apply the cap in a budget neutral manner through a national adjustment to the standardized amount each fiscal year. For more information about the wage index cap policy and associated budget neutrality adjustment, we refer readers to the discussion in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49018 through 49021). For FY 2027, we will apply the wage index cap and associated budget neutrality adjustment in accordance with the policies adopted in the FY 2023 IPPS/LTCH PPS final rule. We refer readers to the Addendum of this final rule for further information regarding the budget neutrality calculations. Comment: We received many comments in support of our proposed cap on wage index decreases for FY 2027. Some of these commenters urged CMS to apply this policy in a non-budget neutral manner. A commenter asked CMS to consider a smaller percentage point cap, stating that even a 5 percent decrease could impact the financial stability of hospitals operating on narrow margins. Response: We thank the commenters for their support. With regard to the commenters requesting that CMS apply this policy in a non-budget neutral [[Page 49808]] manner, we refer readers to our response to similar comments in the FY 2024 IPPS/LTCH PPS final rule (88 FR 58981). In response to the commenter asking for a smaller percentage point cap, we refer readers to the FY 2023 IPPS/LTCH PPS Final Rule discussion (87 FR 49018 through 49019) explaining why we believe a 5 percent annual cap on wage index decreases effectively addresses instability.

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

Hospital Policy In the FY 2025 interim final action with comment period (IFC) (89 FR 80405 through 80421), we recalculated the FY 2025 IPPS hospital wage index to remove the low wage index hospital policy for FY 2025. We also removed the low wage index budget neutrality factor from the FY 2025 standardized amounts. For FY 2026 and subsequent fiscal years, consistent with the FY 2025 IFC, after considering the D.C. Circuit's decision in Bridgeport Hospital v. Becerra, we discontinued the low wage index hospital policy and the application of the low wage index budget neutrality factor to the standardized amounts (90 FR 36854). For FY 2025 and FY 2026, consistent with our past practice to establish temporary transition policies to mitigate short-term instability and payment fluctuations, we established transition policies for hospitals significantly impacted by the discontinuation of the low wage index hospital policy using our authority under section 1886(d)(5)(I) of the Act. The transitional payment exception for FY 2025 for those hospitals was equal to the additional FY 2025 amount a hospital would have been paid under the IPPS if its FY 2025 wage index were equal to 95 percent of its FY 2024 wage index. The transitional payment exception for FY 2026 was equal to the additional FY 2026 amount the hospital would be paid under the IPPS if its FY 2026 wage index were equal to 90.25 percent of its FY 2024 wage index.\144\ For FY 2025, we opted not to budget neutralize the interim transition policy given the timing of the Bridgeport Hospital v. Becerra decision. However, for FY 2026, we finalized a payment transition with a budget neutrality adjustment through notice-and-comment rulemaking for hospitals facing significant reductions over two years that would not be sufficiently mitigated by the wage index cap policy at 42 CFR 412.64(h)(7). We refer readers to the FY 2025 IFC (89 FR 80405 through 80421) and to the FY 2026 IPPS/LTCH PPS Final Rule (90 FR 36855 through 36857) for a full discussion of these transitional payment policies. --------------------------------------------------------------------------- \144\ 90.25 percent = 95 percent for FY 2025 * 95 percent for FY 2026. This can also be expressed as .95[supcaret]2. --------------------------------------------------------------------------- Some hospitals that previously benefitted from the low wage index hospital policy would continue to experience decreases of approximately 5 percent or more per year from their FY 2024 wage index (with the low wage index hospital policy applied). For example, these hospitals may experience a decrease of 15 percent or more over the three years from their FY 2024 wage index to their proposed FY 2027 wage index (that is, approximately 5 percent or more per year over that time period). Therefore, we proposed to extend the transitional exception to the calculation payments for FY 2027 for these hospitals in the same manner as we did for the FY 2026 wage index. Similar to the FY 2026 transition, the transitional exception policy we proposed for FY 2027 would continue to apply only to hospitals that benefited from the FY 2024 low wage index hospital policy. For FY 2027, for example, we would compare the hospital's proposed FY 2027 wage index to the hospital's FY 2024 wage index if the hospital benefited from the low wage index hospital policy in FY 2024. If the hospital is significantly impacted by the discontinuation of the low wage index hospital policy, meaning the hospital's proposed FY 2027 wage index is decreasing by more than 14.2625 percent \145\ from the hospital's FY 2024 wage index, then the transitional payment exception for FY 2027 for that hospital would be equal to the additional FY 2027 amount the hospital would be paid under the IPPS if its FY 2027 wage index were equal to 85.7375 percent \146\ of its FY 2024 wage index.\147\ We note this proposed transitional payment exception would be applied after the application of the 5-percent cap described at 42 CFR 412.64(h)(7). --------------------------------------------------------------------------- \145\ Under the wage index cap policy at 42 CFR 412.64(h)(7), a hospital's wage index for a FY cannot be lower than 0.95 * its wage index from the prior FY. Over a 3-year period if its wage index were decreasing by more than 5 percent each year, this will mean a hospital's wage index for a FY cannot be lower than (0.95 * 0.95 * 0.95) times its wage index from three years earlier. Similarly for our proposed FY 2027 transitional exception policy, we proposed that a hospital is significantly impacted by the discontinuation of the low wage index hospital policy if its FY 2027 wage index is less than (0.95 * 0.95 * 0.95) of its FY 2024 wage index, which equates to a decrease of more than 14.2625 percent. \146\ 85.7375 percent = 95 percent for FY 2025 * 95 percent for FY 2026 * 95 percent for FY 2027. This can also be expressed as .95[supcaret]3. \147\ We note that we are not proposing to change the FY 2027 wage index values under section 1886(d)(3)(E) for hospitals eligible for the proposed FY 2027 transitional exception policy on the basis of the exception; the proposed change will be applied as a separate step only for purposes of determining the hospitals' FY 2027 IPPS payments. --------------------------------------------------------------------------- For example: assume the FY 2024 wage index for a hospital that benefitted from the low wage index hospital policy is 0.7600, and the hospital's proposed FY 2027 wage index is 0.6500. (If applicable, this proposed FY 2027 wage index value would include the 5-percent cap based on a comparison of the hospital's FY 2027 wage index prior to application of the 5-percent cap, to the hospital's FY 2026 wage index. We note that the FY 2026 wage index that will be used in this comparison is generally the FY 2026 wage index listed in Table 2 from the FY 2026 Final Rule in the column labeled ``FY 2026 Wage Index With Cap''. We note that all hospitals, regardless of whether the cap was applied to their FY 2026 wage index, have a value in the column ``FY 2026 Wage Index With Cap''. Hospitals that did not have a cap applied to their FY 2026 wage index will display a wage index in this column without the cap.) The hospital's proposed FY 2027 wage index is decreasing by more than 14.2625 percent from the hospital's FY 2024 wage index [that is, 0.6500 < 0.6516 where 0.6516 = (0.857375 times 0.7600)]. The proposed transitional payment exception for FY 2027 for this hospital is equal to the additional amount the hospital would be paid under the IPPS if its FY 2027 wage index were equal to 0.6516, which is 85.7375 percent of 0.7600, its FY 2024 wage index. We note that the hospital in this example would not qualify for the transitional payment exception in FY 2028 should the policy be extended if its 2028 wage index is more than 0.6190, which is 81.450625 percent (or 0.95[supcaret]4) of its FY 2024 wage index of 0.7600. Similar to the FY 2026 transition, we proposed to make this policy budget neutral for FY 2027 through an adjustment applied to the standardized amount for all hospitals because: (1) the wage index cap policy at 42 CFR 412.64(h)(7) would have mitigated these FY 2027 wage index decreases had the combined payment effect of the FY 2025 and FY 2026 wage index and the transitional payment exception been reflected solely in the FY 2025 and FY 2026 wage index, and it would have done so in a budget neutral manner under our current regulations; and (2) the circumstances described in the FY 2025 IFC (89 FR 80405 through 80421) that caused us to decline to budget neutralize the interim FY 2025 transition policy are not applicable to subsequent years. In addition, [[Page 49809]] implementing the proposed transition policy for FY 2027 in a budget neutral manner would be consistent with past practice. For example, we budget neutralized the FY 2015 wage index transition budget neutrality policy discussed earlier (79 FR 49956 through 49962). As we have discussed in other instances (89 FR 19398), we believed, and continue to believe, that transition policies should not increase estimated aggregate Medicare payments beyond the payments that would be made had we never proposed these transition policies. Therefore, we proposed to use our authority under section 1886(d)(5)(I)(i) of the Act twice. First, we proposed to adopt a narrow transitional exception to the calculation of FY 2027 IPPS for low wage index hospitals significantly impacted by the discontinuation of the low wage index hospital policy. Second, we proposed to exercise our authority again to do so in a budget neutral manner.148 149 We refer the reader to section II.A.4.g of the Addendum of this final rule for complete details regarding the application of the transition for the discontinuation of the low wage index hospital policy budget neutrality factor. --------------------------------------------------------------------------- \148\ We note that even more so than was the case for the FY 2025 and FY 2026 interim transition policy, the scope and magnitude of the FY 2027 transitional policy are much smaller than the low wage index hospital policy, and we expect this trend to continue as effects of discontinuing the low wage hospital policy diminish. As discussed in section VI of the preamble of this final rule, we estimate only 54 hospitals, out of the over 3,000 hospitals paid under the IPPS will receive FY 2027 transitional exception payments. Also, as discussed in section II. A 4 of the addendum to this final rule, as proposed, we applied a budget neutrality factor to the standardized amount. \149\ We note that because creating an exception to the calculation of the FY 2027 payments is in this circumstance functionally equivalent to adjusting the FY 2027 payments, the transitional exception can be alternatively considered a transitional adjustment. --------------------------------------------------------------------------- We also proposed to make a budget neutral equivalent exception under the capital IPPS. Under the capital IPPS, the adjustment for local cost variation is based on the hospital wage index value that is applicable to the hospital under the operating IPPS. We adjust the capital standard Federal rate so that the effects of the annual changes in the geographic adjustment factor (GAF) are budget neutral. As discussed in the FY 2025 IFC (89 FR 80408), since FY 2023, the GAFs reflect the wage index cap policy that limits any decrease to a hospital's wage index from its wage index in the prior FY, regardless of the circumstances causing the decline, to 95 percent of its prior year value. As described previously, some hospitals that previously benefitted from the low wage index hospital policy will experience decreases of 15 percent or more over the three years from their FY 2024 wage index (with the low wage index hospital policy applied) to their proposed FY 2027 wage index, at approximately 5 percent or more per year over that time period and for subsequent years. As such, similar to the FY 2025 and FY 2026 transition policies, we proposed for FY 2027 to make a budget neutral equivalent exception under the capital IPPS. Comment: Many commenters supported the proposed transition but urged CMS not to budget neutralize the policy. Several challenged CMS's authority under subsection (d)(5)(I)(i) to budget neutralize the policy, and a commenter urged CMS to allow the policy to sunset to end the associated budget neutrality adjustment. Conversely, some commenters asked CMS to extend the transition beyond FY 2027 to provide payment stability to affected hospitals, particularly in Puerto Rico. Many commenters encouraged CMS to continue developing policies to support low wage hospitals that do not adversely affect other hospitals. These commenters expressed that a temporary transition is inadequate, since the need for the discontinued low wage policy remains. Suggested alternatives included: working with Congress on permanent wage index reform or legislation to assist low wage hospitals; a Cost of Living Adjustment (COLA) for Puerto Rico; and a more permissive reclassification mechanism for low wage hospitals. Response: We thank the commenters for their support for the policy in general. In response to the commenters opposing the budget neutrality adjustment, we believe that the reasons we stated in the proposed rule for budget neutralizing the transition continue to apply. Consistent with our response to similar comments about the authority for budget neutrality in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58767), we believe that we have authority under section 1886(d)(5)(I)(i) of the Act to promulgate a budget neutrality adjustment to the national standardized amount and that this authority is not limited to transfer cases. We disagree with the commenters that we are not permitted to make budget neutral exceptions under section 1886(d)(5)(I)(i) of the Act. With regard to extending the transition for additional years, we may consider this in future rulemaking. We thank the commenters for the suggested alternatives to assist low wage hospitals in the absence of the low wage hospital policy, some of which would require legislation. Finally, regarding the suggested reclassification changes for low wage hospitals, we have addressed those comments in Section IV.E.III.d. of this final rule. After consideration of the public comments we received, we are finalizing as proposed without modification to use our authority under section 1886(d)(5)(I)(i) of the Act twice. First, to adopt a narrow transitional exception to the calculation of FY 2027 IPPS payments for low wage index hospitals that benefitted from the FY 2024 low wage index hospital policy and are significantly impacted by the discontinuation of the low wage index hospital policy. Second, we are exercising our authority again to do so in a budget neutral manner through an adjustment applied to the standardized amount for all hospitals. We are also finalizing our proposal to make a budget neutral equivalent exception under the capital IPPS.

G. FY 2027 Wage Index Tables

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

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

Section 1886(d)(3)(E) of the Act directs the Secretary to adjust the proportion of the national prospective payment system base payment rates that are attributable to wages and wage-related costs by a factor that reflects the relative differences in labor costs among geographic areas. It also directs the Secretary to estimate from time to time the proportion of hospital costs that are labor-related and to adjust the proportion (as estimated by the Secretary from time to time) of hospitals' costs that are attributable to wages and wage-related costs of the diagnosis related group (DRG) prospective payment rates. We refer to the portion of hospital costs attributable to wages and wage- related costs as the labor-related share. The labor-related share of the prospective payment rate is adjusted by an index of relative labor costs, which is referred to as the wage index. [[Page 49810]] Section 403 of Public Law 108-173 amended section 1886(d)(3)(E) of the Act to provide that the Secretary must employ 62 percent as the labor-related share unless this would result in lower payments to a hospital than would otherwise be made. However, this provision of Public Law 108-173 did not change the legal requirement that the Secretary estimate from time to time the proportion of hospitals' costs that are attributable to wages and wage-related costs. Thus, hospitals receive payment based on either a 62-percent labor-related share, or the labor-related share estimated from time to time by the Secretary, depending on which labor-related share results in a higher payment. In the FY 2026 IPPS/LTCH PPS final rule (90 FR 36869 through 36873), we rebased and revised the hospital market basket to a 2023- based IPPS hospital market basket, which replaced the 2018-based IPPS hospital market basket, effective beginning October 1, 2025. Using the 2023-based IPPS market basket, we finalized a labor-related share of 66.0 percent for discharges occurring on or after October 1, 2025. In addition, in FY 2026, we implemented this rebased labor-related share in a budget neutral manner (90 FR 36857 through 36858, 90 FR 37216 through 37217). However, consistent with section 1886(d)(3)(E) of the Act, we did not take into account the additional payments that would be made as a result of hospitals with a wage index less than or equal to 1.0000 being paid using a labor-related share lower than the labor- related share of hospitals with a wage index greater than 1.0000. The labor-related share is used to determine the proportion of the national IPPS base payment rate to which the area wage index is applied. We include a cost category in the labor-related share if the costs are labor intensive and vary with the local labor market. In the FY 2026 IPPS/LTCH PPS final rule, we included in the labor-related share the national average proportion of operating costs that are attributable to the following cost categories in the 2023-based IPPS market basket: Wages and Salaries; Employee Benefits; Professional Fees: Labor-Related; Administrative and Facilities Support Services; Installation, Maintenance, and Repair Services; and All Other: Labor- Related Services as measured in the 2023-based IPPS market basket. We note that in the proposed rule for FY 2027, we did not propose to make any further changes to the labor-related share. For FY 2027, we are finalizing the policy to continue to use a labor-related share of 66.0 percent for discharges occurring on or after October 1, 2026. As discussed in section VI.B of the preamble of this final rule, prior to January 1, 2016, Puerto Rico hospitals were paid based on 75 percent of the national standardized amount and 25 percent of the Puerto Rico-specific standardized amount. As a result, we applied the Puerto Rico-specific labor-related share percentage and nonlabor- related share percentage to the Puerto Rico-specific standardized amount. Section 601 of the Consolidated Appropriations Act, 2016 (Pub.

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

the payment calculation with respect to operating costs of inpatient hospital services of a subsection (d) Puerto Rico hospital for inpatient hospital discharges on or after January 1, 2016, shall use 100 percent of the national standardized amount. Because Puerto Rico hospitals are no longer paid with a Puerto Rico-specific standardized amount as of January 1, 2016, under section 1886(d)(9)(E) of the Act as amended by section 601 of the Consolidated Appropriations Act, 2016, there is no longer a need for us to calculate a Puerto Rico-specific labor-related share percentage and nonlabor-related share percentage for application to the Puerto Rico-specific standardized amount. Hospitals in Puerto Rico are now paid 100 percent of the national standardized amount and, therefore, are subject to the national labor- related share and nonlabor-related share percentages that are applied to the national standardized amount. Accordingly, for FY 2027, we are not proposing a Puerto Rico-specific labor-related share percentage or a nonlabor-related share percentage. Tables 1A and 1B, which are published in section VI of the Addendum to this FY 2027 IPPS/LTCH PPS final rule and available via the internet on the CMS website, reflect the national labor-related share. Table 1C, in section VI of the Addendum to this FY 2027 IPPS/LTCH PPS final rule and available via the internet on the CMS website, reflects the national labor-related share for hospitals located in Puerto Rico. For FY 2027, for all IPPS hospitals (including Puerto Rico hospitals) whose wage indexes are less than or equal to 1.0000, we are applying the wage index to a labor-related share of 62 percent of the national standardized amount. For all IPPS hospitals (including Puerto Rico hospitals) whose wage indexes are greater than 1.000, for FY 2027, we are applying the wage index to a labor-related share of 66.0 percent of the national standardized amount. Comment: A commenter stated that CMS's labor-related share methodology understates the labor-related share by excluding the ``universe'' of labor-related costs, regardless of whether those costs vary by the local market. The commenter urged CMS to include these costs in the labor-related share. Response: We note that we did not propose to make any further changes to the labor-related share for FY 2027. As discussed earlier, for FY 2027, we are continuing to use a labor-related share of 66.0 percent for discharges occurring on or after October 1, 2026. We also disagree with the commenter's claim that the labor-related share should include the universe of labor-related costs, including those costs that do not vary with the local labor market. The labor- related share of the IPPS standardized amount is adjusted to account for geographic differences in area wage levels by applying the applicable IPPS wage index. The purpose of the labor-related share is to reflect the proportion of the national IPPS standardized amount that is adjusted by the hospital's wage index (representing the relative costs of their local labor market to the national average). Therefore, we include a cost category in the labor-related share if the costs are labor intensive and vary with the local labor market. Currently this would include all wages and salaries and employee benefits for any worker employed by the hospital, and any contract worker providing direct patient care. Additionally, it includes a proportion of costs for professional services (such as legal and accounting) and home office/related organization costs based on Medicare cost report data submitted by IPPS hospitals, and purchased costs associated with services that would generally be conducted in the location of the hospital (such as maintenance and repair, etc.). We note that for the 2023-based IPPS market basket (90 FR 36869 through 36873), we finalized the use of the Medicare cost report data for IPPS hospitals to determine the proportion of expenses classified as professional fees that meet our definition of labor-related services while the 2018-based IPPS market basket (86 FR 45204 through 45205) used a survey of hospitals conducted by CMS in 2008. Both the Medicare cost report data and survey indicated that only a portion of these costs are purchased in the local labor market. [[Page 49811]]

A. General Discussion

Section 1886(d)(5)(F) of the Act provides for additional Medicare payments to subsection (d) hospitals \150\ that serve a significantly disproportionate number of low-income patients. The Act specifies two methods by which a hospital may qualify for the Medicare disproportionate share hospital (DSH) adjustment. Under the first method, hospitals that are located in an urban area and have 100 or more beds may receive a Medicare DSH payment adjustment if the hospital can demonstrate that, during its cost reporting period, more than 30 percent of its net inpatient care revenues are derived from State and local government payments for care furnished to patients with low incomes. This method is commonly referred to as the ``Pickle method.'' The second method for qualifying for the DSH payment adjustment, the more commonly used method, is based on the hospital's disproportionate patient percentage (DPP), described below, under which the DSH payment adjustment is based on a complex statutory formula that includes the hospital's geographic designation, the number of beds in the hospital, and the level of the hospital's DPP. --------------------------------------------------------------------------- \150\ See section 1886(d)(1)(B) of the Act for the definition of a ``subsection (d) hospital''. --------------------------------------------------------------------------- A hospital's DPP is the sum of two fractions: the ``Medicare fraction'' and the ``Medicaid fraction.'' The Medicare fraction (also known as the ``SSI fraction'' or ``SSI ratio'') is computed by dividing the number of the hospital's inpatient days that are furnished to patients who were entitled to both Medicare Part A and Supplemental Security Income (SSI) benefits by the hospital's total number of patient days furnished to patients entitled to benefits under Medicare Part A. The Medicaid fraction is computed by dividing the hospital's number of inpatient days furnished to patients who, for such days, were eligible for Medicaid, but were not entitled to benefits under Medicare Part A, by the hospital's total number of inpatient days in the same period. [GRAPHIC] [TIFF OMITTED] TR04AU26.141 Because the DSH payment adjustment is part of the IPPS, the statutory references to ``days'' in section 1886(d)(5)(F) of the Act have been interpreted to apply only to hospital acute care inpatient days. Regulations located at 42 CFR 412.106 govern the Medicare DSH payment adjustment and specify how the DPP is calculated and how beds and patient days are counted in determining the Medicare DSH payment adjustment. Under Sec. 412.106(a)(1)(i), the number of beds for the Medicare DSH payment adjustment is determined in accordance with bed counting rules for the IME adjustment under Sec. 412.105(b). Section 3133 of the Patient Protection and Affordable Care Act (Pub. L. 111-148) (ACA), as amended by section 10316 of the ACA and section 1104 of the Health Care and Education Reconciliation Act (Pub.

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

methodology for computing the Medicare DSH payment adjustment. We refer to these provisions collectively as section 3133 of the ACA. Beginning with discharges in FY 2014, hospitals that qualify for Medicare DSH payments under section 1886(d)(5)(F) of the Act receive 25 percent of the amount they previously would have received under the statutory formula for Medicare DSH payments. This provision applies equally to hospitals that qualify for DSH payments on the basis of the hospital's DPP under section 1886(d)(5)(F)(i)(I) of the Act and those hospitals that qualify under the Pickle method under section 1886(d)(5)(F)(i)(II) of the Act. The remaining amount, equal to an estimate of 75 percent of what otherwise would have been paid as Medicare DSH payments, reduced to reflect changes in the percentage of individuals who are uninsured, is available to make additional payments to each hospital that qualifies for Medicare DSH payments and that has uncompensated care. The payments to each hospital for a fiscal year are based on the hospital's amount of uncompensated care for a given time period relative to the total amount of uncompensated care for that same time period reported by all hospitals that receive Medicare DSH payments for that fiscal year. Since FY 2014, section 1886(r) of the Act has required that hospitals that are eligible under section 1886(d)(5)(F) of the Act receive two separately calculated payments: [GRAPHIC] [TIFF OMITTED] TR04AU26.142 Specifically, section 1886(r)(1) of the Act provides that the Secretary shall pay to such subsection (d) hospital 25 percent of the amount the hospital would have received under section 1886(d)(5)(F) of the Act for DSH payments, which represents the empirically justified amount for such payment, as determined by the MedPAC [[Page 49812]] in its March 2007 Report to Congress.\151\ We refer to this payment as the ``empirically justified Medicare DSH payment.'' --------------------------------------------------------------------------- \151\ https://www.medpac.gov/document/march-2007-report-to-the-congress-medicare-payment-policy/. --------------------------------------------------------------------------- In addition to this empirically justified Medicare DSH payment, section 1886(r)(2) of the Act provides that, for FY 2014 and each subsequent fiscal year, the Secretary shall pay to such subsection (d) hospitals an additional amount equal to the product of three factors. The first factor is the difference between the aggregate amount of payments that would be made to subsection (d) hospitals under section 1886(d)(5)(F) of the Act if subsection (r) did not apply and the aggregate amount of payments that are made to subsection (d) hospitals under section 1886(r)(1) of the Act for such fiscal year. In other words, the first factor of the uncompensated care payment calculation is 75 percent of the payments that would otherwise be made as Medicare DSH payments under section 1886(d)(5)(F) of the Act. Section 1886(r)(2)(B) of the Act provides that the second factor is, for FY 2018 and subsequent fiscal years, 1 minus the percent change in the percent of individuals who are uninsured, as determined by comparing the percent of individuals who were uninsured in 2013 (as estimated by the Secretary, based on data from the Census Bureau or other sources the Secretary determines appropriate, and certified by the Chief Actuary of CMS) and the percent of individuals who were uninsured in the most recent period for which data are available (as so estimated and certified). As discussed in a later section, we note that the second factor is computed based on estimates of the total U.S. population. Section 1886(r)(2)(C) of the Act provides that the third factor is a percent that, for each subsection (d) hospital, represents the quotient of the amount of uncompensated care for such hospital for a period selected by the Secretary (as estimated by the Secretary, based on appropriate data), including the use of alternative data where the Secretary determines that alternative data are available which are a better proxy for the costs of subsection (d) hospitals for treating the uninsured, and the aggregate amount of uncompensated care for all subsection (d) hospitals that receive a payment under section 1886(r) of the Act. Therefore, this third factor represents a hospital's uncompensated care amount for a given time period relative to the uncompensated care amount for that same time period for all hospitals that receive Medicare DSH payments for the applicable fiscal year, expressed as a percent. For each hospital, the product of these three factors represents its additional payment for uncompensated care for the applicable fiscal year. We refer to the additional payment amount determined by these factors as the ``uncompensated care payment.'' In brief, the uncompensated care payment for an individual hospital is the product of the following 3 factors: [GRAPHIC] [TIFF OMITTED] TR04AU26.143 Section 1886(r) of the Act applies to FY 2014 and each subsequent fiscal year. In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50620 through 50647) and the FY 2014 IPPS interim final rule with comment period (78 FR 61191 through 61197), we set forth our policies for implementing the required changes to the Medicare DSH payment methodology made by section 3133 of the ACA for FY 2014. In those rules, we noted that, because section 1886(r) of the Act modifies the payment required under section 1886(d)(5)(F) of the Act, it affects only the DSH payment under the operating IPPS. It does not revise or replace the capital IPPS DSH payment provided under the regulations at 42 CFR part 412, subpart M, which was established through the exercise of the Secretary's discretion in implementing the capital IPPS under section 1886(g)(1)(A) of the Act. Finally, section 1886(r)(3) of the Act provides that there shall be no administrative or judicial review under section 1869, section 1878, or otherwise of any estimate of the Secretary for purposes of determining the factors described in section 1886(r)(2) of the Act or of any period selected by the Secretary for the purpose of determining those factors. Therefore, there is no administrative or judicial review of the estimates developed for purposes of applying the three factors used to determine uncompensated care payments, or of the periods selected to develop such estimates.

B. Eligibility for Empirically Justified Medicare DSH Payments and

Uncompensated Care Payments The payment methodology under section 3133 of the ACA applies to ``subsection (d) hospitals'' that would otherwise receive a DSH payment made under section 1886(d)(5)(F) of the Act. Therefore, hospitals must receive empirically justified Medicare DSH payments in a fiscal year to receive a Medicare uncompensated care payment for that year. Specifically, section 1886(r)(2) of the Act states that, in addition to the empirically justified Medicare DSH payment made to a subsection (d) hospital under section 1886(r)(1) of the Act, the Secretary shall pay to ``such subsection (d) hospitals'' the uncompensated care payment. Section 1886(r)(2)'s reference to ``such subsection (d) hospitals'' refers to hospitals that receive empirically justified Medicare DSH payments under section 1886(r)(1) for the applicable fiscal year. In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50622) and the FY 2014 IPPS interim final rule with comment period (78 FR 61193), we explained that hospitals that are not eligible to receive empirically justified Medicare DSH payments in a fiscal year will not receive uncompensated care payments for that year. We also specified that we would make a determination concerning eligibility for interim uncompensated care payments based on each hospital's estimated DSH status (that is, a hospital's eligibility to receive empirically justified Medicare DSH payments) for the applicable fiscal year (using the most recent data available). For this final rule, we estimated DSH status for all hospitals using the most recent available SSI ratios and information from the most recent available Provider Specific File. We note that FY 2023 SSI ratios available on the CMS website were the most recent [[Page 49813]] available SSI ratios at the time of developing this final rule.\152\ If more recent data on DSH eligibility becomes available before the final rule, we would use such data in the final rule. Our final determinations of a hospital's eligibility for empirically justified Medicare DSH and uncompensated care payments will be based on the hospital's actual DSH status at cost report settlement for FY 2027. --------------------------------------------------------------------------- \152\ 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 FY 2015 IPPS/LTCH PPS final rule (79 FR 50006). Sole community hospitals (SCHs) that are paid under the IPPS Federal rate receive interim payments based on what we estimate and project their DSH status to be prior to the beginning of the fiscal year (based on the best available data at that time) subject to settlement through the cost report. If they receive interim empirically justified Medicare DSH payments in a fiscal year, they will also be eligible to receive interim uncompensated care payments for that fiscal year on a per discharge basis. Final eligibility determinations will be made at the end of the cost reporting period at settlement, and both interim empirically justified Medicare DSH payments and uncompensated care payments will be adjusted accordingly (78 FR 50624 and 79 FR 50007). Medicare-dependent, small rural hospitals (MDHs) are paid based on the IPPS Federal rate or, if higher, the IPPS Federal rate plus 75 percent of the amount by which the Federal rate is exceeded by the updated hospital-specific rate from certain specified base years (FY 2012 IPPS/LTCH PPS final rule, 76 FR 51684). The IPPS Federal rate that is used in the MDH payment methodology is the same IPPS Federal rate that is used in the SCH payment methodology. Because MDHs are paid based on the IPPS Federal rate, they continue to be eligible to receive empirically justified Medicare DSH payments and uncompensated care payments if their DPP is at least 15 percent, and we apply the same process to determine MDHs' eligibility for interim empirically justified Medicare DSH and interim uncompensated care payments as we do for all other IPPS hospitals. Recently enacted legislation has extended the MDH program through December 31, 2026. We refer readers to section V.E. of the preamble of this final rule for further discussion of the MDH program. We will continue to make a determination concerning an MDH's eligibility for interim empirically justified Medicare DSH and uncompensated care payments based on the hospital's estimated DSH status for the applicable fiscal year. Transforming Episode Accountability Model (TEAM) is a new episode-based payment model (89 FR 68986). Hospitals participating in TEAM continue to be paid under the IPPS and, therefore, are eligible to receive empirically justified Medicare DSH payments and uncompensated care payments. The model started January 1, 2026. IPPS hospitals that participate in the Comprehensive Care for Joint Replacement Expanded (CJR-X) Model would continue to be paid under the IPPS and, therefore, are eligible to receive empirically justified Medicare DSH payments and uncompensated care payments. We refer readers to section X.C. of this final rule for further discussion on the CJR-X Model. Ineligible hospitals include the following: Maryland hospitals are not eligible to receive empirically justified Medicare DSH payments and uncompensated care payments under the payment methodology of section 1866(r) of the Act because they are not paid under the IPPS. CMS and the State have entered into an agreement to govern payments to Maryland hospitals under a new payment model, the Achieving Healthcare Efficiency through Accountable Design (AHEAD) Model, beginning January 1, 2026. Maryland hospitals are not paid under the IPPS and are ineligible to receive empirically justified Medicare DSH payments and uncompensated care payments under section 1886(r) of the Act. Further information is available on the CMS website at https://www.cms.gov/priorities/innovation/innovation-models/ahead. SCHs that are paid under their hospital-specific rate are not eligible for Medicare DSH and uncompensated care payments (78 FR 50623 and 50624). Hospitals participating in the Rural Community Hospital Demonstration Program are not eligible to receive empirically justified Medicare DSH payments and uncompensated care payments under section 1886(r) of the Act because they are not paid under the IPPS (78 FR 50625 and 79 FR 50008). The Rural Community Hospital Demonstration Program was originally authorized for a 5-year period by section 410A of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) (Pub. L. 108-173).\153\ The period of participation for the last hospital in the demonstration under the most recent legislative authorization (Pub. L. 116-260) will end on June 30, 2028. Under the payment methodology that applies during this most recent extension of the demonstration program, participating hospitals do not receive empirically justified Medicare DSH payments, and they are excluded from receiving interim and final uncompensated care payments. At the time of development of this final rule, we believe 22 hospitals may participate in the demonstration program at the start of FY 2027. In the FY2027 IPPS/LTCH PPS proposed rule (91 FR 19482), we noted that if at the time of developing the final rule there is a different number of hospitals projected to participate in the demonstration program during FY 2027, we would use updated information in the FY 2027 final rule. --------------------------------------------------------------------------- \153\ The Rural Community Hospital Demonstration Program was extended for a subsequent 5-year period by sections 3123 and 10313 of the ACA. The period of performance for this 5-year extension period ended on December 31, 2016. Section 15003 of the 21st Century Cures Act (Pub. L. 114-255), enacted on December 13, 2016, again amended section 410A of Public Law 108-173 to require a 10-year extension period (in place of the 5-year extension required by the ACA), therefore requiring an additional 5-year participation period for the demonstration program. Section 15003 of Public Law 114-255 also required a solicitation for applications for additional hospitals to participate in the demonstration program. The period of performance for this 5-year extension period ended December 31, 2021. The Consolidated Appropriations Act, 2021 (Pub. L. 116-260) amended section 410A of Public Law 108-173 to extend the demonstration program for an additional 5-year period. ---------------------------------------------------------------------------

C. Empirically Justified Medicare DSH Payments

As we have discussed earlier, section 1886(r)(1) of the Act requires the Secretary to pay 25 percent of the amount of the Medicare DSH payment that would otherwise be made under section 1886(d)(5)(F) of the Act to a subsection (d) hospital. Because section 1886(r)(1) of the Act merely requires the Secretary to pay a designated percentage of these payments, without revising the criteria governing eligibility for DSH payments or the underlying payment methodology, we stated in the FY 2014 IPPS/LTCH PPS final rule that we did not believe that it was necessary to [[Page 49814]] develop any new operational mechanisms for making such payments. Therefore, in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50626), we implemented this provision by advising Medicare Administrative Contractors (MACs) to simply adjust subsection (d) hospitals' interim claim payments to an amount equal to 25 percent of what would have been paid if section 1886(r) of the Act did not apply. We also made corresponding changes to the hospital cost report so that these empirically justified Medicare DSH payments could be settled at the appropriate level at the time of cost report settlement. We provided more detailed operational instructions and cost report instructions following issuance of the FY 2014 IPPS/LTCH PPS final rule that are available on the CMS website at https://www.cms.gov/Regulations-and-Guidance/Guidance/Transmittals/2014-Transmittals-Items/R5P240.html. Comment: We received several comments outside the scope of the proposed rule. Response: While the comments were outside the scope of this rulemaking, we will consider issues and concerns raised by the commenters for future rulemaking.

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

Hospitals and Puerto Rico Hospitals In the FY 2023 IPPS/LTCH PPS final rule (87 FR 49047 through 49051), we established a supplemental payment for IHS/Tribal hospitals and hospitals located in Puerto Rico for FY 2023 and subsequent fiscal years. This payment was established to help to mitigate the impact of the decision to discontinue the use of low-income insured days as a proxy for uncompensated care costs for these hospitals and to prevent undue long-term financial disruption for these providers. The regulations located at 42 CFR 412.106(h) govern the supplemental payment. In brief, the supplemental payment for a fiscal year is the difference between the hospital's base year amount and its uncompensated care payment for the applicable fiscal year as determined under Sec. 412.106(g)(1). The base year amount is the hospital's FY 2022 uncompensated care payment adjusted by one plus the percent change in the total uncompensated care amount between the applicable fiscal year (that is, FY 2027 for purposes of this rulemaking) and FY 2022, where the total uncompensated care amount for a fiscal year is the product of Factor 1 and Factor 2 for that year. If the base year amount is equal to or lower than the hospital's uncompensated care payment for the current fiscal year, then the hospital would not receive a supplemental payment because the hospital would not be experiencing financial disruption in that year as a result of the use of uncompensated care data from the Worksheet S-10 in determining Factor 3 of the uncompensated care payment methodology. For FY 2027, we did not propose any changes to the methodology for determining the supplemental payments, and we will calculate the supplemental payments to eligible IHS/Tribal and Puerto Rico hospitals consistent with the methodology finalized in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49047 through 49051) and Sec. 412.106(h). As discussed in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49048 and 49049), the eligibility and payment processes for the supplemental payment are consistent with the processes for determining eligibility to receive interim and final uncompensated care payments adopted in FY 2014 IPPS/LTCH PPS final rule. The MAC will make a final determination with respect to a hospital's eligibility to receive the supplemental payment for a fiscal year, in conjunction with its final determination of the hospital's eligibility for DSH payments and uncompensated care payments for that fiscal year. Comment: Several commenters discussed the supplemental payment for Puerto Rico hospitals. A commenter thanked CMS for continuing to recognize that Puerto Rico hospitals face unique challenges with respect to Medicare DSH payments. However, this commenter stated that Puerto Rico hospitals' delivery system is operating on margins that cannot absorb further payment reductions. Another commenter thanked CMS for continuing to recognize that Worksheet S-10 data alone does not fully reflect the level of uncompensated care provided by Puerto Rico hospitals. Several commenters expressed concern that the supplemental payment for Puerto Rico hospitals has declined in recent years and remains vulnerable to year-to-year fluctuations. The commenters requested that CMS confirm the FY 2027 supplemental payment at a level no lower than the FY 2026 level and disclose the data and methodology used to calculate the supplemental payment in the final rule. The commenters also recommended that CMS commit to a stable, transparent, multi-year DSH supplemental payment methodology, rather than deriving the payment amount annually, to support hospital financial planning. Additionally, both commenters requested that CMS evaluate whether the Worksheet S-10 can be refined to reflect Puerto Rico's distinct payer mix and disproportionate share of uncompensated and undercompensated care. A commenter reiterated similar recommendations that they submitted in response to the proposal to establish these supplemental payments in the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 49049). The commenter recommended that CMS calculate the supplemental payment for Puerto Rico hospitals using a base year amount determined using a Medicare SSI days proxy of at least 43 percent of the hospital's Medicaid days, to reflect the local poverty level instead of the current base year amount, which incorporates the proxy that was applied from FYs 2017 through 2022 of 14 percent of the hospital's Medicaid days and that was based on national data on the relationship between Medicare SSI days and Medicaid days. Response: We thank the commenters for their input. We refer commenters to the FY 2023 IPPS/LTCH PPS final rule (87 FR 49047 through 49051) for a detailed discussion of the methodology for calculating the supplemental payment for Puerto Rico hospitals. In response to commenters suggesting other approaches to calculating the supplemental payment for Puerto Rico hospitals, we note that we did not propose any changes to our methodology in the proposed rule and therefore consider these comments to be outside the scope. However, we refer readers to our responses to substantially similar comments in the FY 2023 IPPS/ LTCH PPS final rule (87 FR 49047 through 49051, FY 2024 IPPS/LTCH PPS final rule (88 FR 58992 and 58993), and FY 2025 IPPS/LTCH PPS final rule (89 FR 69313 through 69315) for fulsome discussion on these issues.

E. Uncompensated Care Payments

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

1. Calculation of Factor 1 for FY 2027

Section 1886(r)(2)(A) of the Act establishes Factor 1 in the calculation of the uncompensated care payment. The regulations located at 42 CFR 412.106(g)(1)(i) govern the Factor 1 calculation. Under a prospective payment system, we would not know [[Page 49815]] the precise aggregate Medicare DSH payment amounts that would be paid for a fiscal year until cost report settlement for all IPPS hospitals is completed, which occurs several years after the end of the fiscal year. Therefore, section 1886(r)(2)(A)(i) of the Act provides authority to estimate this amount by specifying that, for each fiscal year to which the provision applies, such amount is to be estimated by the Secretary. Similarly, we would not know the precise aggregate empirically justified Medicare DSH payment amounts that would be paid for a fiscal year until cost report settlement for all IPPS hospitals is completed. Thus, section 1886(r)(2)(A)(ii) of the Act provides authority to estimate this amount. In brief, Factor 1 is the difference between the Secretary's estimates of: (1) the amount that would have been paid in Medicare DSH payments for the fiscal year, in the absence of section 1886(r) of the Act; and (2) the amount of empirically justified Medicare DSH payments that are made for the fiscal year, which takes into account the requirement to pay 25 percent of what would have otherwise been paid under section 1886(d)(5)(F) of the Act. In the FY 2027 IPPS/LTCH PPS proposed rule, consistent with the policy that has applied since the FY 2014 final rule (78 FR 50627 through 50631), we determined Factor 1 from the most recently available estimates of the aggregate amount of Medicare DSH payments that would be made for FY 2027 in the absence of section 1886(r)(1) of the Act and the aggregate amount of empirically justified Medicare DSH payments that would be made for FY 2027, both as calculated by CMS' Office of the Actuary (OACT). We stated that consistent with the policy that has applied in previous years, these estimates will not be revised or updated subsequent to publication of our final projections in the FY 2027 IPPS/LTCH PPS final rule. In the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19482 through 19484), to calculate both estimates, we used the most recently available projections of Medicare DSH payments for the fiscal year, as calculated by OACT using the most recently filed Medicare hospital cost reports with Medicare DSH payment information and the most recent DPPs and Medicare DSH payment adjustments provided in the IPPS Impact File. The projection of Medicare DSH payments for the fiscal year is also partially based on OACT's Part A benefits projection model, which projects, among other things, inpatient hospital spending. Projections of DSH payments additionally require projections of expected increases in utilization and case-mix. The assumptions that were used in making these inpatient hospital spending, utilization, and case-mix projections and the resulting estimates of DSH payments for FY 2024 through FY 2027 are discussed later in this section and in the table titled ``Factors Applied for FY 2024 through FY 2027 to Estimate Medicare DSH Expenditures Using FY 2023 Baseline.'' For purposes of calculating Factor 1 and modeling the impact of the FY 2027 IPPS/LTCH PPS proposed rule, we used OACT's January 2026 Medicare DSH estimates, which were based on data from the December 2025 update of the Medicare Hospital Cost Report Information System (HCRIS) and the FY 2026 IPPS/LTCH PPS final rule IPPS Impact File, published in conjunction with the publication of the FY 2026 IPPS/LTCH PPS final rule. Because SCHs that are projected to be paid under their hospital- specific rate are ineligible for empirically justified Medicare DSH payments and uncompensated care payments, they were excluded from the January 2026 Medicare DSH estimates. Because Maryland hospitals are not paid under the IPPS, they are also ineligible for empirically justified Medicare DSH payments and uncompensated care payments and were also excluded from OACT's January 2026 Medicare DSH estimates. The 22 hospitals that CMS expects will participate in the Rural Community Hospital Demonstration Program in FY 2027 were also excluded from OACT's January 2026 Medicare DSH estimates because under the payment methodology that applies during the demonstration, these hospitals are not eligible to receive empirically justified Medicare DSH payments or uncompensated care payments. In the FY 2027 IPPS/LTCH proposed rule, using the data sources previously discussed, OACT's January 2026 estimate of Medicare DSH payments for FY 2027 without regard to the application of section 1886(r)(1) of the Act, is approximately $15.303 billion. Therefore, also based on OACT's January 2026 Medicare DSH estimates, the estimate of empirically justified Medicare DSH payments for FY 2027, with the application of section 1886(r)(1) of the Act, is approximately $3.826 billion (or 25 percent of the total amount of estimated Medicare DSH payments for FY 2027). Under Sec. 412.106(g)(1)(i), Factor 1 is the difference between these two OACT estimates. Therefore, in the FY 2027 IPPS/LTCH PPS proposed rule, we determined that Factor 1 for FY 2027 would be $11.477 billion, which is equal to 75 percent of the total amount of estimated Medicare DSH payments for FY 2027 ($15.303 billion minus $3.826 billion). We noted that consistent with our approach in previous rulemakings, OACT intended to use more recent data that may become available for purposes of projecting the final Factor 1 estimates for the FY 2027 IPPS/LTCH PPS final rule. In the FY 2027 IPPS/LTCH proposed rule (91 FR 19483), we stated that the Factor 1 estimates for IPPS/LTCH PPS proposed rules are generally consistent with the economic assumptions and actuarial analysis used to develop the President's Budget estimates under current law, and Factor 1 estimates for IPPS/LTCH PPS final rules are generally consistent with those used for the Midsession Review of the President's Budget. We explained that consistent with historical practice, we expected the Midsession Review would have updated economic assumptions and actuarial analysis, which would be used for the development of Factor 1 estimates in the FY 2027 IPPS/LTCH PPS final rule. For a general overview of the principal steps involved in projecting future inpatient costs and utilization, we refer readers to the ``2025 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds,'' available on the CMS website at https://www.cms.gov/oact/tr/2025. The actuarial projections contained in these reports are based on numerous assumptions regarding future trends in program enrollment, utilization and costs of health care services covered by Medicare, as well as other factors affecting program expenditures. In addition, although the methods used to estimate future costs based on these assumptions are complex, they are subject to periodic review by independent experts to ensure their validity and reasonableness. In the FY 2027 IPPS/LTCH proposed rule (91 FR 19482 through 19484), we included information regarding the data sources, methods, and assumptions employed by OACT's actuaries in determining our estimate of Factor 1. In summary, we indicated the historical HCRIS data update OACT used to estimate Medicare DSH payments. We also explained that the most recent Medicare DSH payment adjustments provided in the IPPS Impact File were used, and we provided the components of all the update factors that were applied to the historical data to estimate the Medicare DSH payments for the upcoming fiscal year, along with the [[Page 49816]] associated rationale and assumptions. The discussion also includes descriptions of the ``Other'' and ``Discharges'' assumptions. We invited public comments on our proposed Factor 1 for FY 2027. Comment: A few commenters expressed concern regarding CMS' proposed reduction to the Factor 1 amount for FY 2027 while others requested that CMS ensure that the proposed Factor 1 amount accurately reflects DSH payments. As in prior years, commenters encouraged CMS to provide greater transparency regarding the assumptions and data used by CMS OACT to estimate Factor 1. A few commenters asserted that hospitals' lack of opportunity to review the data used in rulemaking is inconsistent with the Administrative Procedure Act. These commenters expressed concern regarding the lack of transparency in the Factor 1 calculation and asserted that hospitals cannot meaningfully comment on the methodology without additional detail. Specifically, these commenters stated that the proposed rule provided neither sufficient detail nor an explanation regarding the treatment of Medicaid expansions in the Factor 1 calculation. Several commenters urged CMS to provide additional detail regarding how the ``Other'' factor is calculated, including the assumptions and adjustments reflected in the estimate. Specifically, a commenter stated the FY 2027 IPPS/LTCH PPS proposed rule omitted a statement included in prior rulemaking explaining that the ``Other'' factor accounts for estimated changes in Medicaid enrollment through FY 2023. Another commenter stated that CMS did not clearly explain how it used Medicaid expansion levels in calculating Factors 1 and 2, whether it considered those levels consistently across both factors, or how it adjusted Factor 1 for the assumed Medicaid expansion level in FY 2027. Several commenters stated that CMS estimates a $900 million, or 9 percent, decrease in Factor 1 attributable to the ``Other'' factor for FY 2027 and requested additional explanation on CMS' assumptions and data that resulted in the decline. A commenter requested that CMS publish a detailed methodology for its ``Other'' calculation, including how each component contributes to changes in the estimate from year to year, while a couple of commenters also requested that CMS clarify why the ``Other'' factor frequently varies across successive rulemaking cycles. Response: We thank the commenters for their input. Regarding the commenters that express concern with the proposed decrease in Factor 1, as discussed further in this section, we have used the best available data to estimate DSH payments for this final rule, consistent with the statutory requirements for Factor 1. We disagree with commenters' assertions regarding a lack of transparency with respect to the methodology and assumptions used in the calculation of Factor 1. As explained in the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19312) and in this section of this final rule, we have been and continue to be transparent about the methodology and data used to estimate Factor 1. Regarding the commenters who reference the Administrative Procedure Act, we note that under the Administrative Procedure Act, a proposed rule is required to include either the terms or substance of the proposed rule or a description of the subjects and issues involved. In this case, the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19482 through 19484) included a detailed discussion of our proposed Factor 1 methodology and the data sources that would be used in making our final estimate. Accordingly, we believe commenters were able to meaningfully comment on our proposed estimate of Factor 1. To provide additional context, and as we have explained in prior rulemakings (see example, 90 FR 36536), Factor 1 is not estimated in isolation from other projections made by OACT. As stated in the FY 2027 IPPS/LTCH proposed rule (91 FR 19483) the Factor 1 estimates for the proposed rules are generally consistent with the economic assumptions and actuarial analyses used to develop the President's Budget estimates under current law, and the Factor 1 estimates for this final rule are the latest estimates from OACT at the time of development of this final rule. We recognize that our reliance on the economic assumptions and actuarial analyses used to develop the President's Budget in estimating Factor 1 has an impact on hospitals, health systems, and other impacted parties that wish to replicate the Factor 1 calculation by, for example, modeling the relevant Medicare Part A portion of the President's Budget. Yet, we continue to believe commenters are able to meaningfully comment on our proposed estimate of Factor 1 without replicating the budget. For a general overview of the principal steps involved in projecting future inpatient costs and utilization, we refer readers to the ``2026 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds,'' available under ``Downloads'' on the CMS website at: https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/index.html. The annual reports of the Medicare Boards of Trustees to Congress represent the Federal Government's official evaluation of the financial status of the Medicare Program. The actuarial projections contained in these reports are based on numerous assumptions regarding future trends in program enrollment, utilization, and costs of health care services covered by Medicare, as well as other factors affecting program expenditures. In addition, given that the methods used to estimate future costs based on these assumptions are complex, they are subject to periodic review by independent experts to ensure their validity and reasonableness. Additionally, in the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19482 through19484) and described in more detail later in this section, we included information regarding the data sources, methods, and assumptions employed by the actuaries to determine the OACT's estimate of Factor 1. We explained that the most recent Medicare DSH payment adjustments provided in the IPPS Impact File were used to calculate Factor 1, and we provided the components of all update factors that were applied to historical data to estimate the Medicare DSH payments for the upcoming fiscal year, along with the associated rationale and assumptions. This discussion also included a description of the ``Other,'' ``Discharges,'' and ``Case-Mix'' factors and their underlying assumptions. Regarding the commenter's concern that the FY 2027 proposed rule did not include a prior statement that the ``Other'' factor accounts for estimated changes in Medicaid enrollment through FY 2023, we refer readers to OACT's FY 2027 Memorandum ``Estimate of Medicare DSH Payments Used in Development of Factor 1.'' (Available on the CMS website at: https://www.cms.gov/files/document/fy-2027-final-rule-oact-memo-dsh-factor-1.pdf). In that memorandum, OACT explains that the ``Other'' factor includes an adjustment for the change in Medicaid enrollment in 2023 and that, after examining estimated changes in Medicaid enrollment over the past few years, OACT is making no further explicit adjustments for Medicaid enrollment beyond 2023. As we described in the proposed rule (91 FR [[Page 49817]] 19483), OACT's estimates for FY 2027 for the proposed rule began with baseline Medicare DSH expenditures for FY 2023 and as such make no further adjustments for Medicaid enrollment. Comment: Commenters requested that CMS provide additional detail regarding the calculations and assumptions associated with the ``Discharge'' component used in the Factor 1 formula, with some urging CMS to publish discharge estimates annually in the IPPS proposed rule. These commenters stated that the additional detail would allow commenters to evaluate whether CMS is accurately capturing the impact of Medicare Advantage (MA) enrollment growth on Medicare Fee for Service (FFS) inpatient hospital payments. One of the commenters stated that the continued expansion of MA has raised concerns, especially around prior authorization requirements imposed by plans, which often create burdens for both patients and providers, prompting broader conversations about the sustainability of MA growth and its implications for inpatient hospital payments, especially for hospitals serving a disproportionate share of low-income beneficiaries. The same commenter welcomed the opportunity to work with CMS in examining the impacts of MA enrollment on FFS inpatient hospital payments-- particularly with respect to this impact on the ``Discharge'' component of Factor 1. Another commenter urged CMS to clarify how it uses MA data to inform Factor 1 and stated that MA penetration varies significantly by state, community, and provider, and that DSH status meaningfully affects hospitals' relationships with MA plans, as some hospitals report that MA plans frequently exclude essential hospitals with higher DSH adjustments from their networks. Several other commenters stated that CMS' discharge projections for FY 2026 and FY 2027 are based on assumptions rather than actual data. Another commenter requested that CMS establish a formal process, such as a technical workgroup or a dedicated public comment period on DSH methodology, through which these issues could be examined in a structured and transparent manner. Further, a commenter urged CMS to update its proposed ``Case-Mix'' update factor to more accurately reflect the increasing acuity and resource intensity of inpatient encounters. The commenter stated that the shift of healthcare services from inpatient to outpatient settings, as further reflected by the elimination of the inpatient-only list for the Outpatient Prospective Payment System, has resulted in increasingly complex care being furnished in the inpatient setting. The commenter also cited CMS projections that Medicare Part A per capita spending will grow at an average annual rate of 4.5 percent between 2020 and 2030, while CMS proposes a 13 percent decline in the proposed ``Case- Mix'' factor from 1.0075 in FY 2026 to 1.0050 in FY 2027. Another commenter stated that CMS had not adequately explained why assumptions from a 2012 Technical Review Panel report remain appropriate for estimating the FY 2027 Case-Mix update factor, given changes in Medicare beneficiary demographics, MA enrollment trends, and post-COVID-19 PHE utilization patterns since 2012. Response: We thank the commenters for their input. We continue to disagree with commenters' assertions regarding a lack of transparency with respect to the methodology and assumptions used in the calculation of Factor 1. Regarding commenters' requests for additional detail on the calculations and assumptions underlying the ``Discharges'' and ``Case-Mix'' factors, we refer the commenters to the discussion elsewhere in this section of this final rule and the relevant discussion in the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19483- 19484), which detail the calculations and assumptions we used to calculate the FY 2027 ``Discharges'' and ``Case-Mix'' factors. We also note that in updating our estimate of Factor 1 for this final rule, we considered, as appropriate, the same set of factors that we used in the FY 2026 IPPS/LTCH PPS proposed rule and in prior rulemakings (for example, FY 2026 IPPS/LTCH final rule 90 FR 36536, 36880 through 36894). As we stated we would do in the FY 2027 IPPS/LTCH PPS proposed rule, we then updated our estimates for the FY 2027 ``Discharges,'' ``Case-Mix'' component, and other Factor 1 components, to incorporate the latest available data based on more recent economic assumptions and actuarial analyses. Regarding the comment on the changes to the inpatient only procedures list, we refer readers to the CY2026 OPPS final rule. (90 FR 53450). Regarding the comments on the impacts of MA enrollment on the Medicare FFS discharge volume and the ``Discharges'' component of Factor 1, we refer commenters to the actuarial projections and assumptions regarding future trends in Medicare FFS and MA program enrollment, utilization, and costs of health care services covered by Medicare, as well as other factors affecting Medicare FFS and MA program expenditures, contained in the ``2026 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds,'' available under ``Downloads'' on the CMS website at: https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/index.html. We considered these projections, assumptions, and other factors when developing our estimate of the ``Discharges'' factor for FY 2027. We also note that in this final rule, consistent with prior years (see example, 90 FR 36536), our estimate of the ``Discharges'' component for FY 2027 incorporates only claims from the Medicare FFS program rather than claims from the MA program. Accordingly, we believe that the FY 2027 ``Discharges'' factor in this final rule accurately reflects trends in Medicare FFS discharges. We welcome input from commenters on the MA program and the Factor 1 methodology during the comment period. Regarding the comments about CMS discharge projections, we note that we believe the use of discharge trend assumptions and projections for Factor 1 is consistent with the statute and long-standing methodology of Factor 1. OACT's Factor 1 estimate is based on the most recent available data and uses reasonable assumptions for recent discharge trends. Regarding the commenter's comparison of the projected growth in Medicare Part A per capita spending and the case-mix changes in FY 2027, we refer the commenters to the actuarial projections and assumptions regarding future trends outlined in the ``2026 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds''. We considered those projections and assumptions in calculating the Case-Mix factor component of Factor 1. As discussed later in this section, we continue to believe it is a reasonable assumption that the growth in case-mix will slow gradually until reaching 0.5 percent annually in fiscal year 2027. The projections for case-mix growth are discussed later in this section. After consideration of the public comments received, we are finalizing, as proposed, the methodology for calculating Factor 1 for FY 2027. Consistent with prior rulemakings, for this final rule, OACT used the most recently submitted Medicare cost report data from the March 31, 2026, update of HCRIS to identify Medicare DSH payments and the most recent Medicare [[Page 49818]] DSH payment adjustments provided in the Impact File and applied update factors and assumptions for projected changes in utilization and case- mix to estimate Medicare DSH payments for the upcoming fiscal year. The June 2026 OACT estimate for Medicare DSH payments for FY 2027, without regard to application of section 1886(r)(1) of the Act, is approximately $15.767 billion. This estimate excluded Maryland hospitals, which participate in the Maryland Total Cost of Care Model and are not paid under the IPPS, hospitals participating in the Rural Community Hospital Demonstration, and SCHs paid under their hospital- specific payment rate. Therefore, based on this June 2026 estimate, the estimate of empirically justified Medicare DSH payments for FY 2027, with application of section 1886(r)(1) of the Act, is approximately $3.94 billion (or 25 percent of the total amount of estimated Medicare DSH payments for FY 2027). Under Sec. 412.106(g)(1)(i), Factor 1 is the difference between these two OACT estimates. Therefore, the final Factor 1 for FY 2027 is $11,825,250,000, which is equal to 75 percent of the total amount of estimated Medicare DSH payments for FY 2027 ($15,767,000,000 minus $3,941,750,000). OACT's estimates for FY 2027 for this final rule began with a baseline of $12.898 billion in Medicare DSH expenditures for FY 2023. The following table shows the factors applied to update this baseline through the current estimate for FY 2027. [GRAPHIC] [TIFF OMITTED] TR04AU26.144 In this table, the discharges factor column shows the changes in the number of Medicare FFS inpatient hospital discharges. The discharge figures for FY 2024 and FY 2025 are based on Medicare claims data that have been adjusted by a completion factor to account for incomplete claims data. The discharge figures for FY 2026 and FY 2027 are assumptions based on recent historical experience and assumptions related to how many beneficiaries will be enrolled in MA plans. The case-mix factorcolumn shows the estimated change in case-mix for IPPS hospitals. The case-mix figures for FY 2024 and FY 2025 are based on actual claims data adjusted by a completion factor to account for incomplete claims data. The case-mix figure for FY 2026 reflects an expected transition to the case-mix figure for FY 2027. In other words, the FY 2026 factor value of 1.0075 is a midpoint transition to the expected ultimate trend of 1.005. The FY 2026 and the FY 2027 case-mix figures are based on assumptions from the 2012 ``Review of Assumptions and Methods of the Medicare Trustees' Financial Projections'' report by the 2010-2011 Medicare Technical Review Panel.\154\ --------------------------------------------------------------------------- \154\ https://www.cms.gov/research-statistics-data-and-systems/statistics-trends-and-reports/reportstrustfunds/downloads/technicalpanelreport2010-2011.pdf. --------------------------------------------------------------------------- The ``Other'' column reflects the change in other factors that contribute to the Medicare DSH estimates. These factors include the difference between the total inpatient hospital discharges and IPPS discharges and various adjustments (e.g., budget neutrality adjustments) to the IPPS payment rates that have been finalized and applied over the years but are not reflected in the other columns. The following table shows the factors that are included in the ``IPPS Hospital Market Basket Update Factor'' column of the previous table: [GRAPHIC] [TIFF OMITTED] TR04AU26.145 Note: All figures in this table are the final inpatient hospital updates for the applicable fiscal year. The FY 2027 figures reflect the inpatient hospital market basket percentage increase and productivity adjustment and are based on the 2nd quarter 2026 IGI forecast, the most recent forecast available at the time of development of this final rule. We refer to section VI.B. of the preamble of this final rule for a complete discussion of the inpatient hospital market basket update for FY 2027.

2. Calculation of Factor 2 for FY 2027

a. Background Section 1886(r)(2)(B) of the Act establishes Factor 2 in the calculation of the uncompensated care payment. Section 1886(r)(2)(B)(ii) of the Act [[Page 49819]] provides that, for FY 2018 and subsequent fiscal years, the second factor is 1 minus the percent change in the percent of individuals who are uninsured, as determined by comparing the percent of individuals who were uninsured in 2013 (as estimated by the Secretary, based on data from the Census Bureau or other sources the Secretary determines appropriate, and certified by the Chief Actuary of CMS) and the percent of individuals who were uninsured in the most recent period for which data are available (as so estimated and certified). We are continuing to use the methodology that was used in fiscal years (FYs) 2018 through 2026 to determine Factor 2 for FY 2027--to use the National Health Expenditure Accounts (NHEA) data to determine the percentage point change in the percent of individuals who are uninsured. We refer readers to the FY 2018 IPPS/LTCH PPS final rule (82 FR 38197 and 38198) for a complete discussion of the NHEA and why we determined, and continue to believe, that it is the data source for the rate of uninsurance that best meets all our considerations and is consistent with the statutory requirement that the estimate of the rate of uninsurance be based on data from the Census Bureau or other sources the Secretary determines appropriate. In brief, the NHEA represents the government's official estimates of economic activity (that is, spending) within the health sector. The NHEA includes comprehensive enrollment estimates for total private health insurance (PHI) (including direct-purchase and employer- sponsored plans), Medicare, Medicaid, the Children's Health Insurance Program (CHIP), and other public programs, and estimates of the number of individuals who are uninsured. The NHEA data are publicly available on the CMS website at https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/index.html. To compute Factor 2 for FY 2027, the first metric that is needed is the proportion of the total U.S. population that was uninsured in 2013. For a complete discussion of the approach OACT used to prepare the NHEA's estimate of the rate of uninsurance in 2013, including the data sources used, we refer readers to the FY 2024 IPPS/LTCH PPS final rule (88 FR 58998-58999). The next metrics needed to compute Factor 2 for FY 2027 are projections of the rate of uninsurance in calendar years (CYs) 2026 and 2027 for the total U.S. population. On an annual basis, OACT projects enrollment and spending trends for the coming 10-year period. The most recent projections are for 2025 through 2034 and were published on June 24, 2026. Those projections used the latest NHEA historical data that were available at the time of their construction (that is, all NHEA historical data through 2024). The NHEA projection methodology accounts for expected changes in enrollment across all of the categories of insurance coverage previously noted. For a complete discussion of how the NHEA data account for expected changes in enrollment across all the categories of insurance coverage previously noted, we refer readers to the FY 2024 IPPS/LTCH PPS final rule (88 FR 58999). b. Factor 2 for FY 2027 Using these data sources and the previously described methodologies, at the time of developing the proposed rule, OACT had estimated that the uninsured rate for the historical baseline year of 2013 was 14.0 percent, and that the uninsured rates for CYs 2026 and 2027 were projected to be 9.0 and 9.1 percent, respectively (FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19484)). As required by section 1886(r)(2)(B)(ii) of the Act, the Chief Actuary of CMS certified these estimates. We refer readers to OACT's Memorandum on Certification of Rates of Uninsured prepared for the FY 2027 IPPS/LTCH PPS proposed rule for further details on the methodology and assumptions that were used in the projection of these rates of uninsurance.\155\ --------------------------------------------------------------------------- \155\ See https://www.cms.gov/files/document/certification-rates-uninsured-fy-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 have used a weighted average approach to project the rate of uninsurance for each fiscal year. We continue to believe that, in order to estimate the rate of uninsurance during a fiscal year accurately, Factor 2 should reflect the estimated rate of uninsurance that hospitals will experience during the fiscal year, rather than the rate of uninsurance during only one of the calendar years the fiscal year spans. Accordingly, in the FY 2027 IPPS/LTCH PPS proposed rule, we proposed to continue to apply the weighted average approach used in past fiscal years to estimate this final rule's rate of uninsurance for FY 2027. OACT certified the estimate of the rate of uninsurance for FY 2027 determined using this weighted average approach to be reasonable and appropriate for purposes of section 1886(r)(2)(B)(ii) of the Act.\1\ In the proposed rule (91 FR 19485), we noted that we may also consider the use of more recent data that may become available before publication of the final rule, for purposes of estimating the rates of uninsurance used in the calculation of the final Factor 2 for FY 2027. In the proposed rule, we outlined the calculation of the proposed Factor 2 for FY 2027 as follows: Percent of individuals without insurance for CY 2013: 14.0 percent. Percent of individuals without insurance for CY 2026: 9.0 percent. Percent of individuals without insurance for CY 2027: 9.1 percent. Percent of individuals without insurance for FY 2027: (0.25 times 0.090) + (0.75 times 0.091) = 9.1 percent. FY 2027's proposed Factor 2 is calculated as 1 minus the percent change in the percent of individuals without insurance between CY 2013 and FY 2027. Proposed Factor 2 is as follows: 1-[verbar]((0.14-0.091)/ 0.14)[verbar] = 1-0.3500 = 0.6500 We proposed that Factor 2 for FY 2027 would be 65.00 percent. The proposed FY 2027 uncompensated care amount was equivalent to proposed Factor 1 multiplied by proposed Factor 2, which was $7,460,212,500. We invited public comments on our proposed Factor 2 for FY 2027. Comment: Most commenters that discussed Factor 2 expressed concern that the proposed rule's FY 2027 uninsured rate is underestimated. Commenters stated that the proposed Factor 2 amount does not account for several finalized and proposed federal policy changes that could dramatically increase the uninsured rate in FY 2027. These commenters referenced policy changes such as the expiration of the American Rescue Plan's Marketplace enhanced premium tax credits, the implementation of Medicaid work requirements, the projected impact of the One Big Beautiful Bill Act (H.R.1), the Working Families Tax Cut legislation, and other pending or proposed federal policy changes that may restrict Medicaid enrollment and impact the uninsured population in FY 2027. Other commenters voiced concerns that the proposed reduction to Factor 2 coincides with increased operating costs for hospitals that provide uncompensated care. [[Page 49820]] Several commenters also referenced data sources and analyses estimating the impact of proposed federal policies on the uninsured rate. Some commenters cited the Congressional Budget Office (CBO) projection of the uninsured rate, which estimates that the number of uninsured individuals will increase by 5.2 million in 2027, and 10 million by 2034, due to the passage of the One Big Beautiful Bill Act. Other commenters cited the CBO projection that 2.2 million individuals will lose their health insurance in 2026 and that 16 million will become uninsured from 2027 to 2034 due to the expiration of the American Rescue Plan's Marketplace enhanced premium tax credits. A few commenters referenced the CBO estimate that by 2034, about 4.8 to 5.3 million individuals will lose their insurance due to the Medicaid work requirements, and 10 million individuals will become uninsured. A commenter also referred to the CMS Marketplace Integrity and Affordability Final Rule regarding estimates that Marketplace enrollment would decrease by 725,000, to 1.8 million enrollees in 2026 (90 FR 27213). A commenter referenced a Kaiser Family Foundation analysis, which showed that 28 percent of enrollees in Louisiana were disenrolled from Medicaid and the Children's Health Insurance Program (CHIP) between 2023 and 2026. Another commenter referenced a Robert Wood Johnson Foundation report, which showed that 4.9 to 10.1 million individuals, and 25 to 50 percent of enrollees in Ohio, are at risk of losing their Medicaid coverage by 2028 because of the new Medicaid work requirements. Citing CMS' statement in the proposed rule that the agency could consider more recent data that may become available for the calculation of final Factor 2 for FY 2027, many commenters urged CMS to use more recent and ``accurate'' data sources to account for the anticipated increase in the uninsured rate for FY 2027. Some commenters urged CMS to consider utilizing alternative, more comprehensive, and real-world data sources and calculations from interested parties and researchers or supplementing the NHEA data with other data sources to ensure that the Factor 2 estimate appropriately reflects the current coverage landscape and accurately estimates uninsured projections. Additionally, a few commenters stated that the current Factor 2 methodology may have been appropriate during periods of stable insurance coverage but may no longer be adequate given the above- referenced recent and proposed federal policy shifts that may impact the uninsured rate. As such, these commenters urged CMS to reevaluate the current data sources and methodologies used to estimate Factor 2. Another commenter requested that CMS update the proposed rule's estimate of the uninsured rate for the upcoming fiscal year earlier in each rulemaking cycle to enhance the reliability of the proposed rule in projecting changes to uncompensated care payments for upcoming fiscal years. Other commenters urged CMS to ensure that the NHEA estimates are accurate and up to date, while others questioned the NHEA's conclusion that Medicaid enrollment will continue to grow in 2026 and 2027, given CBO estimates of an increase in the uninsured rate. A couple of commenters also questioned the reliability of the NHEA projections, noting that they were published in June 2025, rely on historical data through 2023, and do not fully account for recent changes in the coverage landscape due to the above-referenced, recently enacted and proposed federal policy changes. Response: We thank the commenters for their input regarding the estimate of Factor 2 included in the proposed rule. In response to comments concerning the NHEA data source used for calculating Factor 2 for FY 2027, we refer readers to the FY 2018 IPPS/LTCH PPS final rule (82 FR 38197 through 38198) for a complete discussion of why we continue to believe the NHEA remains the data source that best meets all considerations for ensuring reasonable estimates of the uninsured rate throughout the IPPS rulemaking cycle. Importantly, the NHEA's projected estimates of the rate of uninsurance are based on an established methodology, they account for expected enrollment changes across all coverage categories (including public and private coverage), and they incorporate the latest available data for use in the respective proposed and final rules. Regarding the comments requesting that CMS update the Factor 2 methodology and data sources and increase Factor 2, we continue to believe that estimating Factor 2 based on the best available data is appropriate and consistent with the requirements of Section 1886(r)(2)(B)(ii) of the Act, as discussed in prior rulemaking (see, e.g., 82 FR 38197 and 38198). In the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19484 and 19485), we explained that we used the most recent available estimates from the NHEA at that time, and we refer readers to the relevant discussion in the proposed rule and OACT's memorandum on ``Certification of Rates of Uninsured'' prepared for the proposed rule for further details on the methodology and assumptions used in the proposed rule's calculation of the projected uninsured rate.\[1]\ In brief, we indicated that our projection of the rates of uninsurance for CYs 2026 and 2027 were from the latest NHEA historical data available and accounted for expected changes in enrollment across all categories of insurance coverage. We remind readers that OACT's estimates in the proposed rule considered the expiration of the American Rescue Plan's Marketplace enhanced premium tax credits and the latest Medicaid projections publicly available at that time (90 FR 36889). In response to commenters who requested that we update the Factor 2 estimates in the FY 2027 IPPS/LTCH PPS proposed rule to account for any anticipated changes in the uninsured rate using more recent or alternative data sources, we stated in the proposed rule that we may consider the use of more recent data that may become available for purposes of estimating the rates of uninsurance used in the calculation of the final Factor 2 for FY 2027. This final rule uses the most recent NHEA estimates, available as of June 24, 2026. These projections were finalized in April 2026 and reflect current law (including the expiration of the Inflation Reduction Act's temporary extension of enhanced premium tax credits and the enactment of the One Big Beautiful Bill Act). Consistent with the FY 2026 IPPS/LTCH PPS final rule (90 FR 36887), and for the reasons stated earlier in this section of this final rule, we are using the updated NHEA data for the final Factor 2 calculation as we believe that it is the most appropriate measure of changes in the rate of uninsurance. Regarding the request that CMS issue an earlier estimate of the uninsured rate for the upcoming FY during each annual IPPS rulemaking cycle, we believe the proposed rule and final rule's estimates are appropriate and timely as they reflect projections that are developed in each calendar year and released in June of each calendar year. We will continue to use the most recently available data during the development of the proposed and final rule. Comment: Several commenters urged CMS to provide additional details on how Factor 2 is calculated and how it accounts for the current coverage landscape, while others urged CMS to be more transparent regarding the data sources used for calculating Factor 2, the assumptions behind the uninsured [[Page 49821]] rate, and the ``hospital-specific uncompensated care factors.'' A couple of commenters asserted that the proposed rule did not provide sufficient details, nor an explanation of the treatment of Medicaid expansions in the calculation for Factor 2. A few commenters requested that CMS publish a detailed methodology on the calculation of Factor 2 and how the NHEA projections are incorporated into the estimate. Finally, a commenter requested that CMS publish the relevant OACT information involved in the calculation of Factor 2 in advance of the final rule publication and in the IPPS proposed rule each year going forward to ensure that hospitals can verify the underlying data and understand the fluctuations in DSH payments before the end of the proposed rule's comment period. Response: In response to the comments concerning transparency, we note that OACT's updated memorandum, ``Certification of Rates of Uninsured,'' contains additional methodological detail describing the methods used to derive the FY 2027 rate of uninsured for this final rule. Section 1886(r)(2)(B)(ii) of the Act permits us to use a data source other than CBO estimates to determine the percent change in the rate of uninsurance beginning in FY 2018. (Available on the CMS website at: https://www.cms.gov/files/document/certification-rates-uninsured-2027-final-rule.pdf.) As explained elsewhere in this section of this final rule, the NHEA data and methodology that were used to estimate Factor 2 for this final rule are transparent and best meet all our considerations for ensuring reasonable estimates for the rate of uninsurance that are available for each IPPS rulemaking cycle. We continue to believe it is appropriate to update the projection of the FY 2027 rate of uninsurance using the most recent NHEA data, as it properly accounts for all recent, relevant legislative actions. For additional information on the NHEA's projection of the uninsured rate, see the projection's methodology documentation. (Available on the CMS website at: https://www.cms.gov/research-statistics-data-and-systems/statistics-trends-and-reports/nationalhealthexpenddata/downloads/projectionsmethodology.pdf.) While we appreciate the commenter's request for earlier publication of the OACT data used to calculate Factor 2, the publication timeframe of that NHEA data is beyond the scope of this rulemaking's Factor 2 calculation. The projected national uninsured rates and underlying methodologies were available for public review by the display and publication dates of the IPPS proposed rule, and we stated that if more timely estimates became available, they would be used for the final rule. Updated projections became publicly available in June 2026 and included supporting methodology material. (Available on the CMS website at: https://www.cms.gov/data-research/statistics-trends-and-reports/national-health-expenditure-data/projected). We believe our established process allows hospitals adequate opportunity to analyze the proposed rule's estimate and supporting methodology material (see, e.g., 90 FR 36888 and 36889). After consideration of the public comments we received, we are updating the calculation of Factor 2 for FY 2027 to incorporate the most recent NHEA data. The final estimates of the percentage of uninsured individuals have been certified by the Chief Actuary of CMS. The calculation of the final Factor 2 for FY 2027 using a weighted average of OACT's updated projections for CY 2026 and CY 2027 is as follows: Percent of individuals without insurance for CY 2013: 14.0 percent. Percent of individuals without insurance for CY 2026: 9.2 percent. Percent of individuals without insurance for CY 2027: 9.5 percent. Percent of individuals without insurance for FY 2027: (0.25 times 0.092) + (0.75 times 0.095) = 9.4 percent. FY 2027's Factor 2 is calculated as 1 minus the percent change in the percent of individuals without insurance between CY 2013 and FY 2027. Factor 2 is as follows: 1-[verbar]((0.14-0.094)/0.14) [verbar] = 1-0.3286 = 0.6714 Therefore, Factor 2 for FY 2027 is 67.14 percent. The final FY 2027 uncompensated care amount is equivalent to Factor 1 multiplied by Factor 2, which is $7,939,472,850.

3. Calculation of Factor 3 for FY 2027

a. General Background Section 1886(r)(2)(C) of the Act defines Factor 3 in the calculation of the uncompensated care payment. As we have discussed earlier, section 1886(r)(2)(C) of the Act states that Factor 3 is equal to the percent, for each subsection (d) hospital, that represents the quotient of: (1) the amount of uncompensated care for such hospital for a period selected by the Secretary (as estimated by the Secretary, based on appropriate data (including, in the case where the Secretary determines alternative data are available that are a better proxy for the costs of subsection (d) hospitals for treating the uninsured, the use of such alternative data)); and (2) the aggregate amount of uncompensated care for all subsection (d) hospitals that receive a payment under section 1886(r) of the Act for such period (as so estimated, based on such data). Therefore, Factor 3 is a hospital-specific value that expresses the proportion of the estimated uncompensated care amount for each subsection (d) hospital and each subsection (d) Puerto Rico hospital with the potential to receive Medicare DSH payments relative to the estimated uncompensated care amount for all hospitals estimated to receive Medicare DSH payments in the fiscal year for which the uncompensated care payment is to be made. Factor 3 is applied to the product of Factor 1 and Factor 2 to determine the amount of the uncompensated care payment that each eligible hospital will receive for FY 2014 and subsequent fiscal years. To implement the statutory requirements for this factor of the uncompensated care payment formula, it was necessary for us to determine: (1) the definition of uncompensated care or, in other words, the specific items that are to be included in the numerator (the estimated uncompensated care amount for an individual hospital) and the denominator (the estimated uncompensated care amount for all hospitals estimated to receive Medicare DSH payments in the applicable fiscal year); (2) the data source(s) for the estimated uncompensated care amount; and (3) the timing and manner of computing the quotient for each hospital estimated to receive Medicare DSH payments. The statute instructs the Secretary to estimate the amounts of uncompensated care for a period based on appropriate data. In addition, the statute permits the Secretary to use alternative data in the case where the Secretary determines that such alternative data are available that are a better proxy for the costs of subsection (d) hospitals for treating individuals who are uninsured. For a discussion of the methodology we used to calculate Factor 3 for fiscal years (FYs) 2014 through 2022, we refer readers to the FY 2024 IPPS/LTCH final rule (88 FR 59001 and 59002). b. Background on the Methodology Used To Calculate Factor 3 for FY 2024 and Subsequent Years Section 1886(r)(2)(C) of the Act governs the selection of the data to be [[Page 49822]] used in calculating Factor 3 and allows the Secretary the discretion to determine the time periods from which we derive the data to estimate the numerator and the denominator of the Factor 3 quotient. Specifically, section 1886(r)(2)(C)(i) of the Act defines the numerator of the quotient as the amount of uncompensated care for a subsection (d) hospital for a period selected by the Secretary. Section 1886(r)(2)(C)(ii) of the Act defines the denominator as the aggregate amount of uncompensated care for all subsection (d) hospitals that receive a payment under section 1886(r) of the Act for such period. In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50634 through 50647), we adopted a process of making interim payments with final cost report settlement for both the empirically justified Medicare DSH payments and the uncompensated care payments required by section 3133 of the Affordable Care Act. Consistent with that process, we also determined the time period from which to calculate the numerator and denominator of the Factor 3 quotient in a way that would be consistent with making interim and final payments. Specifically, we must have Factor 3 values available for hospitals that we estimate will qualify for Medicare DSH payments for a fiscal year and for those hospitals that we do not estimate will qualify for Medicare DSH payments for that fiscal year but that may ultimately qualify for Medicare DSH payments for that fiscal year at the time of cost report settlement. As described in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45237), commenters expressed concerns that the use of only 1 year of data to determine Factor 3 would lead to significant variations in year-to-year uncompensated care payments. Some stakeholders recommended the use of 2 years of historical data from Worksheet S-10 data of the Medicare cost report. In the FY 2022 IPPS/LTCH PPS final rule (86 FR 45237), we stated that we would consider using multiple years of data when the vast majority of providers had been audited for more than 1 fiscal year under the revised reporting instructions. Audited FY 2020 cost reports were available for the development of the FY 2024 IPPS/LTCH PPS proposed and final rules. Feedback from previous audits and lessons learned were incorporated into the audit process for the FY 2020 reports. In consideration of the comments discussed in the FY 2022 IPPS/LTCH PPS final rule, in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49036 through 49047), we finalized a policy of using a multi-year average of audited Worksheet S-10 data to determine Factor 3 for FY 2023 and subsequent fiscal years. We explained our belief that this approach would be generally consistent with our past practice of using the most recent single year of audited data from the Worksheet S-10, while also addressing commenters' concerns regarding year-to-year fluctuations in uncompensated care payments. Under this policy, we used a 2-year average of audited FYs 2018 and 2019 Worksheet S-10 data to calculate Factor 3 for FY 2023. We also indicated that we expected FY 2024 would be the first year that 3 years of audited data would be available at the time of rulemaking. For FY 2024 and subsequent fiscal years, we finalized a policy of using a 3-year average of the uncompensated care data from the 3 most recent fiscal years for which audited data are available to determine Factor 3. Consistent with the approach that we followed when multiple years of data were previously used in the Factor 3 methodology, if a hospital does not have data for all 3 years used in the Factor 3 calculation, we will determine Factor 3 based on an average of the hospital's available data. For IHS and Tribal hospitals and Puerto Rico hospitals, we use the same multi-year average of Worksheet S-10 data to determine Factor 3 for FY 2024 and subsequent fiscal years as is used to determine Factor 3 for all other DSH-eligible hospitals (in other words, hospitals eligible to receive empirically justified Medicare DSH payments for a fiscal year) to determine Factor 3. In the FY 2023 IPPS/LTCH PPS final rule (87 FR 49033 through 49047), we also modified our policy regarding cost reports that start in one fiscal year and span the entirety of the following fiscal year. Specifically, in the rare cases when we use a cost report that starts in one fiscal year and spans the entirety of the subsequent fiscal year to determine uncompensated care costs for the subsequent fiscal year, we would not use the same cost report to determine the hospital's uncompensated care costs for the earlier fiscal year. We explained that using the same cost report to determine uncompensated care costs for both fiscal years would not be consistent with our intent to smooth year-to-year variation in uncompensated care costs. As an alternative, we finalized our proposal to use the hospital's most recent prior cost report, if that cost report spans the applicable period.\156\ --------------------------------------------------------------------------- \156\ For example, in determining Factor 3 for FY 2023, we did not use the same cost report to determine a hospital's uncompensated care costs for both FY 2018 and FY 2019. Rather, we used the cost report that spanned the entirety of FY 2019 to determine uncompensated care costs for FY 2019 and used the hospital's most recent prior cost report to determine its uncompensated care costs for FY 2018, provided that cost report spanned some portion of FY 2018. --------------------------------------------------------------------------- (1) Scaling Factor In the FY 2025 IPPS/LTCH PPS final rule (89 FR 69323), we continued the policy finalized in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49042) to address the effects of calculating Factor 3 using data from multiple fiscal years by applying a scaling factor to the Factor 3 values calculated for all DSH-eligible hospitals. As a result, the total uncompensated care payments to hospitals that are projected to be DSH-eligible for a fiscal year will be consistent with the estimated amount available to make uncompensated care payments for that fiscal year. Pursuant to that policy, we divide 1 (the expected sum of all DSH-eligible hospitals' Factor 3 values) by the actual sum of all DSH- eligible hospitals' Factor 3 values and then multiply the quotient by the uncompensated care payment determined for each DSH-eligible hospital to obtain a scaled uncompensated care payment amount for each hospital. This process is designed to ensure that the sum of the scaled uncompensated care payments for all hospitals that are projected to be DSH-eligible is consistent with the estimate of the total amount available to make uncompensated care payments for the applicable fiscal year. (2) New Hospital Policy In the FY 2025 IPPS/LTCH PPS final rule (89 FR 69323), we continued our new hospital policy that was modified in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49042) and initially adopted in the FY 2020 IPPS/LTCH PPS final rule (84 FR 42370 through 42371) to determine Factor 3 for new hospitals. Consistent with our policy of using multiple years of cost reports to determine Factor 3, we defined new hospitals as hospitals that do not have cost report data for the most recent year of data being used in the Factor 3 calculation. Under this definition, the cut-off date for the new hospital policy is the beginning of the fiscal year after the most recent year for which audits of the Worksheet S-10 data have been conducted. For FY 2027, FY 2023 cost reports are the most recent year of cost reports for which audits of Worksheet S-10 data have been conducted. Thus, hospitals with CMS Certification Numbers (CCNs) established on or after October 1, 2023, would be subject to the new hospital policy for FY 2027. [[Page 49823]] Under our modified new hospital policy, if a new hospital has a preliminary projection of being DSH-eligible based on its most recent available disproportionate patient percentage, it may receive interim empirically justified DSH payments. However, new hospitals will not receive interim uncompensated care payments because we would have no uncompensated care data on which to determine what those interim payments should be. The MAC will make a final determination concerning whether the hospital is eligible to receive Medicare DSH payments at cost report settlement. In FY 2025, while we continued to determine the numerator of the Factor 3 calculation using the new hospital's uncompensated care costs reported on Worksheet S-10 of the hospital's cost report for the current fiscal year, we determined Factor 3 for new hospitals using a denominator based solely on uncompensated care costs from cost reports for the most recent fiscal year for which audits have been conducted. In addition, we applied a scaling factor to the Factor 3 calculation for a new hospital.\157\ --------------------------------------------------------------------------- \157\ In the FY 2023 IPPS/LTCH PPS final rule (87 FR 49042), we explained our belief that applying the scaling factor is appropriate for purposes of calculating Factor 3 for all hospitals, including new hospitals and hospitals that are treated as new hospitals, to improve consistency and predictability across all hospitals. --------------------------------------------------------------------------- (3) Newly Merged Hospital Policy In the FY 2025 IPPS/LTCH PPS final rule (89 FR 690323 through 690324), we continued our policy of treating hospitals that merge after the development of the final rule for the applicable fiscal year similar to new hospitals. As explained in the FY 2015 IPPS/LTCH PPS final rule (79 FR 50021), for these newly merged hospitals, we do not have data currently available to calculate a Factor 3 amount that accounts for the merged hospital's uncompensated care burden. In the FY 2015 IPPS/LTCH PPS final rule (79 FR 50021 and 50022), we finalized a policy under which Factor 3 for hospitals that we do not identify as undergoing a merger until after the public comment period and additional review period following the publication of the final rule or that undergo a merger during the fiscal year will be recalculated similar to new hospitals. Consistent with the policy adopted in the FY 2015 IPPS/LTCH PPS final rule, in the FY 2025 IPPS/LTCH PPS final rule (89 FR 690323 through 690324), we stated that we would continue to treat newly merged hospitals in a similar manner to new hospitals, such that the newly merged hospital's final uncompensated care payment will be determined at cost report settlement where the numerator of the newly merged hospital's Factor 3 will be based on the cost report of only the surviving hospital (that is, the newly merged hospital's cost report) for the current fiscal year. However, if the hospital's cost reporting period includes less than 12 months of data, the data from the newly merged hospital's cost report will be annualized for purposes of the Factor 3 calculation. Consistent with the methodology used to determine Factor 3 for new hospitals described in section IV.E.3. of the preamble of this final rule, we continued our policy for determining Factor 3 for newly merged hospitals using a denominator that is the sum of the uncompensated care costs for all DSH-eligible hospitals, as reported on Worksheet S-10 of their cost reports for the most recent fiscal year for which audits have been conducted. In addition, we apply a scaling factor, as discussed in section IV.E.3. of the preamble of this final rule, to the Factor 3 calculation for a newly merged hospital. In the FY 2025 IPPS/LTCH PPS final rule, we explained that consistent with past policy, interim uncompensated care payments for the newly merged hospital would be based only on the data for the surviving hospital's CCN available at the time of the development of the final rule. Comment: A commenter supported for the policy currently in place for newly merged and new hospitals, while another commenter suggested that CMS verify the proper attribution of merger data to a surviving hospital's CCN to avoid any potential underpayment to hospitals that will not be resolved until cost report settlement. Response: We thank commenters for their input. We refer commenters to the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19312), where we state that each year, along with the proposed rule, we publish a supplemental data file containing a list of the mergers of which we are aware and the computed uncompensated care payment for each merged hospital. We generally believe that publishing the supplemental data file in conjunction with the proposed rule and the 60-day window from the proposed rule date of public display allows hospitals adequate time to review the data and notify CMS of any discrepancies. We note that we do not include pending mergers for purposes of the final rule's calculations. (4) CCR Trim Methodology The calculation of a hospital's total uncompensated care costs on Worksheet S-10 requires the use of the hospital's cost to charge ratio (CCR). In the FY 2025 IPPS/LTCH PPS final rule (89 FR 69324), we continued the policy of trimming CCRs, which we adopted in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49043), for FY 2025. Under this policy, we apply the following steps to determine the applicable CCR separately for each fiscal year that is included as part of the multi-year average used to determine Factor 3: Step 1: Remove Maryland hospitals. In addition, we will remove all- inclusive rate providers because their CCRs are not comparable to the CCRs calculated for other IPPS hospitals. Step 2: Calculate a CCR ``ceiling'' for the applicable fiscal year with the following data: for each IPPS hospital that was not removed in Step 1 (including hospitals that are not DSH-eligible), we use cost report data to calculate a CCR by dividing the total costs on Worksheet C, Part I, Line 202, Column 3 by the charges reported on Worksheet C, Part I, Line 202, Column 8. (Combining data from multiple cost reports from the same fiscal year is not necessary, as the longer cost report will be selected.) The ceiling is calculated as 3 standard deviations above the national geometric mean CCR for the applicable fiscal year. This approach is consistent with the methodology for calculating the CCR ceiling used for high-cost outliers. Remove all hospitals that exceed the ceiling so that these aberrant CCRs do not skew the calculation of the statewide average CCR. Step 3: Using the CCRs for the remaining hospitals in Step 2, determine the urban and rural statewide average CCRs for the applicable fiscal year for hospitals within each State (including hospitals that are not DSH-eligible), weighted by the sum of total hospital discharges from Worksheet S-3, Part I, Line 14, Column 15. Step 4: Assign the appropriate statewide average CCR (urban or rural) calculated in Step 3 to all hospitals, excluding all-inclusive rate providers, with a CCR for the applicable fiscal year greater than 3 standard deviations above the national geometric mean for that fiscal year (that is, the CCR ``ceiling''). Step 5: For hospitals that did not report a CCR on Worksheet S-10, Line 1, we assign them the statewide average CCR for the applicable fiscal year as determined in step 3. After completing these steps, we re-calculate the hospital's uncompensated care costs (Line 30) for the applicable fiscal year using the trimmed CCR (the statewide average CCR (urban or rural, as applicable)). [[Page 49824]] (5) Uncompensated Care Data Trim Methodology After applying the CCR trim methodology, there are rare situations where a hospital has potentially aberrant uncompensated care data for a fiscal year that are unrelated to its CCR. Therefore, under the trim methodology for potentially aberrant uncompensated care costs (UCC) that was included as part of the methodology for purposes of determining Factor 3 in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58832), if the hospital's uncompensated care costs for any fiscal year that is included as a part of the multi-year average are an extremely high ratio (greater than 50 percent) of its total operating costs in the applicable fiscal year, we will determine the ratio of uncompensated care costs to the hospital's total operating costs from another available cost report, and apply that ratio to the total operating expenses for the potentially aberrant fiscal year to determine an adjusted amount of uncompensated care costs for the applicable fiscal year.\158\ --------------------------------------------------------------------------- \158\ For example, if a hospital's FY 2018 cost report is determined to include potentially aberrant data, data from its FY 2019 cost report would be used for the ratio calculation. --------------------------------------------------------------------------- However, we note that we have audited the Worksheet S-10 data that will be used in the Factor 3 calculation for a number of hospitals. Because the UCC data for these hospitals have been subject to audit, we believe that there is increased confidence that if high uncompensated care costs are reported by these audited hospitals, the information is accurate. Therefore, as we explained in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58832), we determined it is unnecessary to apply the UCC trim methodology for a fiscal year for which a hospital's UCC data have been audited. In rare cases, hospitals that are not currently projected to be DSH-eligible and that do not have audited Worksheet S-10 data may have a potentially aberrant amount of insured patients' charity care costs (line 23 column 2). In the FY 2025 IPPS/LTCH PPS final rule (89 FR 69324 through 69325), we stated that in addition to the UCC trim methodology, we will continue to apply an alternative trim specific to certain hospitals that do not have audited Worksheet S-10 data for one or more of the fiscal years that are used in the Factor 3 calculation. For FY 2023 and subsequent fiscal years, in the rare case that a hospital's insured patients' charity care costs for a fiscal year are greater than $7 million and the ratio of the hospital's cost of insured patient charity care (line 23 column 2) to total uncompensated care costs (line 30) is greater than 60 percent, we will not calculate a Factor 3 for the hospital at the time of proposed or final rulemaking. This trim will only impact hospitals that are not currently projected to be DSH-eligible; and therefore, are not part of the calculation of the denominator of Factor 3, which includes only uncompensated care costs for hospitals projected to be DSH-eligible. Consistent with the approach adopted in the FY 2022 IPPS/LTCH PPS final rule, if a hospital would be trimmed under both the UCC trim methodology and this alternative trim, we apply this trim in place of the existing UCC trim methodology. We continue to believe this alternative trim more appropriately addresses potentially aberrant insured patient charity care costs compared to the UCC trim methodology, because the UCC trim is based solely on the ratio of total uncompensated care costs to total operating costs and does not consider the level of insured patients' charity care costs. Similar to the approach initially adopted in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45245 and 45246), in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69324), we also stated that we would continue to use a threshold of 3 standard deviations from the mean ratio of insured patients' charity care costs to total uncompensated care costs (line 23 column 2 divided by line 30) and a dollar threshold that is the median total uncompensated care cost reported on most recent audited cost reports for hospitals that are projected to be DSH-eligible. We stated that we continued to believe these thresholds are appropriate to address potentially aberrant data. We also continued to include Worksheet S-10 data from IHS/Tribal hospitals and Puerto Rico hospitals consistent with our policy finalized in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49047 through 49051). In addition, we continued our policy adopted in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49044) of applying the same threshold amounts originally calculated for the FY 2019 reports to identify potentially aberrant data for FY 2025 and subsequent fiscal years to facilitate transparency and predictability. If a hospital subject to this trim is determined to be DSH-eligible at cost report settlement, the MAC will calculate the hospital's Factor 3 using the same methodology used to calculate Factor 3 for new hospitals. c. Methodology for Calculating Factor 3 for FY 2027 For FY 2027, consistent with Sec. 412.106(g)(1)(iii)(C)(11), we are following the same methodology as applied in FY 2024 and described in the previous section of the preamble of this final rule, to determine Factor 3 using the most recent 3 years of audited cost reports, from FYs 2021, 2022, and 2023. Consistent with our approach for FY 2025, for FY 2027, we are also applying the scaling factor, new hospital, newly merged hospital, CCR trim methodology, UCC trim, and alternative trim methodology policies discussed in the previous section of the preamble of this final rule. For purposes of the proposed rule, we used reports from the December 2025 Healthcare Provider Cost Reporting Information System (HCRIS) extract to calculate Factor 3. In the proposed rule, we noted that we intended to use the March 2026 update of HCRIS to calculate the final Factor 3 for the FY 2027 IPPS/ LTCH PPS final rule. Thus, for FY 2027, we will use 3 years of audited Worksheet S-10 Part 1 data to calculate Factor 3 for all eligible hospitals, including IHS and Tribal hospitals and Puerto Rico hospitals that have a cost report for 2013, following steps. We note that these steps use Worksheet S-10, Part I, rather than Worksheet S-10, Part II, to calculate Factor 3. Step 1: Select the hospital's longest cost report for each of the most recent 3 years of FY audited cost reports (FYs 2021, 2022, and 2023). Alternatively, in the rare case when the hospital has no cost report for a particular year because the cost report for the previous fiscal year spanned the more recent fiscal year, the previous fiscal year cost report will be used in this step. In the rare case that using a previous fiscal year cost report results in a period without a report, we would use the prior year report, if that cost report spanned the applicable period.\159\ In general, we note that, for purposes of the Factor 3 methodology, references to a fiscal year cost report are to the cost report that spans the relevant fiscal year. --------------------------------------------------------------------------- \159\ For example, if a hospital does not have a FY 2021 cost report because the hospital's FY 2020 cost report spanned the FY 2021 time period, we will use the FY 2020 cost report that spanned the FY 2021 time period for this step. Using the same example, where the hospital's FY 2020 report is used for the FY 2021 time period, we will use the hospital's FY 2019 report if it spans some of the FY 2020 time period. We will not use the same cost report for both the FY 2021 and the FY 2020 time periods. --------------------------------------------------------------------------- Step 2: Annualize the UCC from Worksheet S-10, Part I, Line 30, if a cost [[Page 49825]] report is more than or less than 12 months. (If applicable, use the statewide average CCR (urban or rural) to calculate uncompensated care costs.) Step 3: Combine adjusted and/or annualized uncompensated care costs for hospitals that merged using the merger policy. Step 4: Calculate Factor 3 for all DSH-eligible hospitals using annualized uncompensated care costs (Worksheet S-10, Part I, Line 30) based on cost report data from the most recent 3 years of audited cost reports (from Step 1, 2 or 3). New hospitals and other hospitals that are treated as if they are new hospitals for purposes of Factor 3 are excluded from this calculation. Step 5: Average the Factor 3 values from Step 4; that is, add the Factor 3 values, and divide that amount by the number of cost reporting periods with data to compute an average Factor 3 for the hospital. Multiply by a scaling factor, as discussed in the previous section of the preamble of this final rule. We received comments regarding the Factor 3 calculation, including Worksheet S-10 cost report audits and uncompensated care cost report instructions. Comment: Several commenters expressed their support for CMS's proposal to calculate Factor 3 for FY 2027 based on a three-year average of audited FYs 2021, 2022, and 2023 Worksheet S-10 data. Commenters who supported this proposal specified that the use of a multi-year average of Worksheet S-10 data minimizes year-to-year volatility in uncompensated care payments and provides greater transparency. Response: We are grateful to the commenters who expressed their support for our policy of using a three-year average of audited FYs 2021, 2022, and 2023 Worksheet S-10 data to determine each hospital's share of uncompensated care costs in FY 2027. As explained in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49037), we believe that using a multi-year average of Worksheet S-10 data will provide assurance that hospitals' uncompensated care payments remain stable and predictable, while mitigating unpredictable swings and anomalies in a hospital's uncompensated care costs. Comment: Other commenters expressed opposition to using a three- year average of Worksheet S-10 data to calculate uncompensated care payments for FY 2027. Commenters raised concerns that CMS's reliance on an average of three years of dated Medicare cost report Worksheet S-10 data does not adequately account for recent and expected changes in insurance coverage. Specifically, they stated that CMS estimates of the FY2027 uninsured rate projections from the FY 2027 IPPS/LTCH PPS proposed rule show an increase from FY 2026 uninsured rate to FY 2027 uninsured rate. Commenters stated that the agency's approach may not reflect the current coverage landscape or the substantial coverage losses that occurred following the end of the COVID-19 PHE continuous enrollment protections and impacts from recent legislation, such as H.R.1. Other commenters expressed their concern that the multi-year averaging approach does not adequately acknowledge emerging uncompensated care pressures, particularly those faced by rural hospitals, and may understate rural providers' uncompensated care burden. Response: For the reasons explained in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49038), we continue to believe that using a multi- year average of Worksheet S-10 data will provide assurance that hospitals' uncompensated care payments remain stable and predictable, while mitigating unpredictable swings and anomalies in a hospital's uncompensated care costs. For those commenters who expressed concern regarding the three-year average due to the significant policy changes introduced by H.R.1, we continue to believe the three-year average methodology will smooth data fluctuations over time. Comment: We received comments recommending alternative approaches to consider when distributing uncompensated care (UC) payments, the vast majority of which we consider outside the scope of methodological concepts concerning the blending of historical Worksheet S-10 data to calculate Factor 3 discussed in the proposed rule (91 FR 19486) and earlier in this section of this final rule. These recommendations included maintaining the same uncompensated care pool in FY 2027 as in FY 2026, incorporating alternative or additional data sources to more accurately estimate total uncompensated care costs and each hospital's share, publishing interim Factor 3 calculations earlier in each IPPS rulemaking cycle, creating temporary adjustments for states with significant coverage losses, and establishing a supplemental uncompensated care payment for hospitals with large increases in the number of uninsured patients or uncompensated care costs. Another commenter recommended that CMS distribute existing DSH and UC payments based on each hospital's share of the Medicare Safety-Net Index (MSNI) and add $4 billion to the MSNI pool. The commenter also recommended that CMS make similar MSNI payments to hospitals for services furnished to Medicare Advantage (MA) enrollees and exclude those payments from MA benchmarks. Response: We thank commenters for their feedback, concerns, and suggestions related to incorporating alternative and additional data sources to validate total uncompensated care costs. However, for the reasons stated earlier in this section of this final rule and in earlier rulemaking (see also 83 FR 41144; 84 FR 42044; 85 FR 58432; 86 FR 44774; 87 FR 48780; 88 FR 58640; 89 FR 68986; and 90 FR 36536), we continue to believe that utilizing Worksheet S-10 data to generate the best estimates of the uncompensated care payments is most conducive to administrative efficiency, finality, and predictability in payments. In response to the commenter who suggested we publish interim Factor 3 calculations earlier in the rulemaking cycle, we made public the best data available at the time of the proposed rule to allow hospitals to understand the anticipated impact of the proposed methodology and submit comments. In particular, the proposed Factor 3 data files were available concurrently with the publication of the IPPS proposed rule (Available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/fy-2027-ipps-proposed-rule-home-page). This provided stakeholders with a robust public comment window to review the methodology and calculations of the proposed uncompensated care payment amounts. We consider commenters' other comments to be outside of the scope of the proposed rule and we do not address them here, though we appreciate commenters' input. Comment: Some commenters expressed concerns regarding the accuracy and consistency of Worksheet S-10 data. A commenter urged CMS to continue refining its Worksheet S-10 policies to reduce volatility and improve accuracy. Another commenter urged CMS to use more recent cost report and utilization data to better reflect ``post-pandemic realities'' (i.e., current uncompensated care cost conditions) following the COVID-19 PHE. Response: We appreciate commenters' concerns regarding the accuracy and consistency of Worksheet S-10 data and their recommendations to continue refining our policies to reduce volatility and improve accuracy. Our use of the three-year average of the most recently [[Page 49826]] audited cost report data for FY 2027 and subsequent years is intended to smooth the variation in year-to-year uncompensated care payments and lessen the impacts of unforeseen events, such as the COVID-19 PHE. For the reasons stated earlier in this section of this final rule and in prior rulemakings (see, e.g. (87 FR 49038)), we continue to believe this methodology promotes stability in uncompensated care payments while continuing to rely on audited data that are the most appropriate data available for determining Factor 3. Regarding the request to use more recent cost report and utilization data to better reflect uncompensated care cost conditions following the COVID-19 PHE, for reasons stated earlier in this section of this final rule, we believe that the three-year average methodology will mitigate fluctuations. We will continue to evaluate the data available for purposes of determining uncompensated care payments and to consider whether refinements to the methodology are warranted in future rulemaking. We also note that the audit process for Worksheet S- 10 cost reports will continue to be an important part of promoting accuracy and consistency and identifying potential irregularities in the data. Comment: Commenters expressed a range of views on the Worksheet S- 10 audit process--supporting improvements to Worksheet S-10 audits while urging clearer guidance, standardized and targeted procedures, reduced burden for hospitals, and updates to the procedures to better capture full uncompensated care costs. A commenter acknowledged CMS's continued efforts to improve the consistency and reliability of uncompensated care reporting, while encouraging CMS to continue evaluating whether Worksheet S-10 accurately reflects hospitals' uncompensated care burden in an evolving coverage environment. The commenter recommended that CMS focus audits on key uncompensated care elements, including charity care determinations, bad debt, and subsequent adjustments. A commenter urged CMS to revise the audit exhibits and procedures to focus on verifying charity care and bad debt write-offs, rather than reviewing entire account balances. Another commenter raised concerns regarding recent changes to the Worksheet S-10 audit templates, including expanded information requests such as patient insurance data, without sufficient explanation of how such information affects reimbursement determinations. The commenter requested standardized templates across MACs, advance notice of template changes, a comprehensive audit policy established through notice-and-comment rulemaking, and a workable appeal or review process to address Worksheet S-10 errors and inconsistent audit disallowances. Response: We thank commenters for their feedback on the audits of the Worksheet S-10 data and their recommendations for future audits, as well as their acknowledgement of CMS's continued efforts to improve the consistency and reliability of uncompensated care reporting. As we have explained in previous rulemakings (see, for example, 90 FR 36536), audit protocols are provided to MACs in advance of the audit to ensure consistency and timeliness in the audit process. We appreciate commenters' input and recommendations on how to improve the audit process and reiterate our commitment to continue working with MACs and providers on audit improvements, including making changes to increase the efficiency of the audit process and building on the lessons learned in previous audit years. We will take these recommendations into consideration for future rulemaking. Regarding commenters' requests for standardized templates across MACs, advance notice of template changes, a comprehensive audit policy established through notice-and-comment rulemaking, and public disclosure of audit policies and protocols, as we previously explained, most recently in the FY 2024 IPPS/LTCH PPS final rule (88 FR 58640), we do not make our protocols public because CMS desk review and audit protocols are confidential and are for CMS and MAC use only. In addition, there is no requirement under either the Administrative Procedure Act or the Act that CMS adopt audit policies or protocols through notice-and-comment rulemaking. With respect to concerns about expanded information requests, including patient health insurance data, that information requested during the audit process is intended to assist CMS and the MACs in validating Worksheet S-10 data and identifying potential irregularities in the data. Finally, as noted in the FY 2024 IPPS/LTCH PPS final rule (88 FR 58640), to most efficiently and appropriately utilize our limited audit resources, we do not plan to introduce an audit appeal process at this time. Comment: Commenters recommended that CMS provide additional clarification of the Worksheet S-10 instructions and related guidance and reconsider certain methodological approaches to improve consistency and accuracy. Specifically, a commenter requested that CMS clarify the Worksheet S-10 instructions for line 29 so that non-Medicare bad debt is not multiplied by the hospital's CCR. Another commenter suggested that CMS reduce reliance on financial assistance policies (FAPs) across uncompensated care categories, citing concerns regarding the complexity and variability associated with coverage denials, non-covered services, medical necessity determinations, out-of-network care, and compliance with state and federal requirements. Response: We appreciate commenters' concerns regarding the need for clarification of the Worksheet S-10 instructions and guidance, including commenters' recommendations related to line 29 and FAPs. We reiterate our commitment to continuing to work with impacted parties to address their concerns regarding Worksheet S-10 instructions and reporting through provider education and further refinement of the instructions, as appropriate. We also encourage providers to share with their respective MAC any questions regarding clarifications of instructions, reporting, and submission deadlines. We continue to believe that our past efforts to refine the Worksheet S-10 instructions and related guidance have improved provider understanding of Worksheet S-10 and have made the instructions clearer. We also recognize that there are continuing opportunities to further improve the accuracy and consistency of the information that is reported on Worksheet S-10, and to the extent commenters have raised questions and concerns regarding the reporting requirements, including concerns related to reliance on FAPs across uncompensated care categories, we do not mandate eligibility criteria that hospitals use under the hospital's FAPs, because we note that hospitals establish their own policies (see Form CMS-2552-10. Available on the CMS website at: https://www.cms.gov/regulations-and-guidance/guidance/manuals/downloads/p152_40.zip). We will also attempt to address commenters' concerns as may be appropriate through future rulemaking and/or sub- regulatory guidance and subsequent outreach to MACs and providers. However, as stated in previous rules (see, e.g., (91 FR 19488)), we continue to believe that the Worksheet S-10 instructions are sufficiently clear and allow hospitals to accurately complete Worksheet S-10. [[Page 49827]] Regarding the commenter's request that CMS clarify the instructions for line 29 with respect to whether non-Medicare bad debt is multiplied by the CCR, we believe that the Worksheet S-10 instructions are clear and indicate that the CCR will not be applied to the deductible and coinsurance amounts for insured patients approved for charity care and non-reimbursed Medicare bad debt. Comment: Two commenters recommended that CMS use the traditional payment reconciliation process to calculate final payments for uncompensated care costs pursuant to section 1886(r)(2) of the Act. These commenters did not object to CMS using prospective estimates, derived from the best data available, to calculate interim payments for uncompensated care costs. However, the commenters stated that interim payments should be subject to later reconciliation based on estimates derived from actual data from the federal fiscal year. The commenters also stated that CMS's current IPPS/LTCH PPS rulemaking process is flawed because CMS may use data and calculations in the final rules that were not included in the relevant proposed rules without providing advance notice to hospitals. The commenters claim that this limits hospitals' ability to provide informed comments. These same commenters stated that CMS's failures to provide meaningful explanations of its uncompensated care payment calculations violates the Administrative Procedure Act. These commenters recommended that CMS provide hospitals with the opportunity to review and comment on the more recent data used to calculate Factors 1, 2, and 3 in each final rulemaking cycle before the agency publishes the final rule. Similarly, a commenter stated that a reconciliation process based on contemporaneous cost report data would be consistent with the payment reconciliation process for other Medicare payments and would avoid CMS updating the uncompensated care payment amounts based on inaccurate estimates. Response: As we have explained in past rulemakings, we continue to believe that applying our best estimates of the three factors used in the calculation of uncompensated care payments to determine payments prospectively is most conducive to administrative efficiency, finality, and predictability in payments (see, e.g., 83 FR 41144; 84 FR 42044; 85 FR 58432; 86 FR 44774; 87 FR 48780; 88 FR 58640; 89 FR 68986; and 90 FR 36536). We continue to believe that, in affording the Secretary the discretion of estimating the three factors used to determine uncompensated care payments and by including a prohibition against administrative and judicial review of those estimates in section 1886(r)(3) of the Act, Congress recognized the importance of finality and predictability under a prospective payment system. As a result, we do not agree with commenters' suggestions that we should establish a process for reconciling our estimates of uncompensated care payments, which would be contrary to the notion of prospectivity in a payment system. Further, we note that this rulemaking has been conducted consistent with the requirements of the Administrative Procedure Act and Title XVIII of the Act. Under the Administrative Procedure Act, a proposed rule is required to include either the terms or substance of the proposed rule or a description of the subjects and issues involved. In this case, the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19479 through 19490) included a detailed discussion of our proposed methodology for calculating Factors 1 through 3 and noted that more recent data would be available for the final rule's development. We made public the best data available at the time of the proposed rule to allow hospitals to understand the anticipated impact of the proposed methodology and submit comments, and we have considered those comments in determining our final policies for FY 2027. Comment: Several commenters requested that CMS reconsider our DSH uncompensated care policy to better reflect current hospital costs and protect access to care. In particular, a commenter recommended that CMS approach Congress regarding any statutory changes needed to realign DSH and UC payments with the current healthcare environment. Another urged CMS to ensure that DSH UC payment methodologies align with the current administration's priorities to support working families, make healthcare more affordable, and support hospitals serving Medicaid and safety-net populations. Commenters also objected to the proposed 3.3 percent reduction in uncompensated care payments, particularly in light of CMS's projected increase in the uninsured rate and hospitals' rising uncompensated care costs. The commenters emphasized the potential impact on safety-net providers and access to care for vulnerable populations, including Medicaid beneficiaries, uninsured and underinsured patients, medically complex patients, and rural or low-income communities. Commenters urged CMS to ensure that DSH policy does not weaken access to care or destabilize providers serving these populations. Response: CMS appreciates the feedback from commenters regarding the financial pressures faced by safety-net providers and the potential impact of UC payment adjustments on vulnerable patient populations. We understand the critical role these institutions play in maintaining access to care within rural and low-income communities. However, under Section 1886(r) of the Act, the calculation of hospitals' uncompensated care payments is governed by a three-factor statutory formula. and for the reasons stated earlier in this section of this final rule, we believe that our estimates of Factors 1 through 3 in the proposed rule adhere to those statutory requirements. As we explained previously in this section, for FY 2027, we are also applying the scaling factor, new hospital, newly merged hospital, CCR trim methodology, UCC trim, and alternative trim methodology policies discussed in the previous section of the preamble of this final rule. For a hospital that is subject to either of the trims for potentially aberrant data (the UCC trim and alternative trim methodology explained in the previous section of the preamble of this final rule) and is ultimately determined to be DSH-eligible at cost report settlement, its uncompensated care payment will be calculated only after the hospital's reporting of insured charity care costs on its FY 2027 Worksheet S-10 has been reviewed. Accordingly, the MAC will calculate a Factor 3 for the hospital only after reviewing the uncompensated care information reported on Worksheet S-10 of the hospital's FY 2027 cost report. Then we will calculate Factor 3 for the hospital using the same methodology used to determine Factor 3 for new hospitals. Specifically, the numerator will reflect the uncompensated care costs reported on the hospital's FY 2027 cost report's Worksheet S-10 Part 1, line 30, while the denominator will reflect the sum of the uncompensated care costs reported on Worksheet S-10 Part 1, line 30 of the FY 2023 cost reports of all DSH-eligible hospitals. In addition, we will apply a scaling factor, as discussed previously, to the Factor 3 calculation for the hospital. Under the CCR trim methodology, for purposes of the FY 2027 IPPS/ LTCH PPS proposed and this final rule, the statewide average CCR was applied to 12 hospitals' FY 2021 reports, of which 6 hospitals had FY 2021 Worksheet S-10 data. The statewide average CCR was [[Page 49828]] applied to 10 hospitals' FY 2022 reports, of which 4 hospitals had FY 2022 Worksheet S-10 data. The statewide average CCR was applied to 12 hospitals' FY 2023 reports, of which 7 hospitals had FY 2023 Worksheet S-10 data. Comment: A commenter supported our use of statistical trimming methodology, while another commenter suggested that CMS use caution when applying CCR, UCC, and alternative trim methodologies on hospital audited Worksheet S-10 data, noting that these trims may penalize hospitals with legitimately high uncompensated care burdens. The commenter requested that CMS ensure these trims do not override verified Worksheet S-10 cost report data. Response: We appreciate the feedback regarding the use of statistical trimming methodologies. We recognize the critical importance of ensuring that these statistical trims do not disproportionately penalize or financially disadvantage hospitals that serve vulnerable communities and carry legitimately high uncompensated care burdens. The objective of CMS's auditing and trim methodologies is to identify extreme anomalies, reporting errors, or data outliers to ensure accurate and equitable distribution of uncompensated care payments. Trims are intended as an administrative safeguard rather than a mechanism to discount valid, verifiable data. We refer commenters to the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19487 through 19489), where we describe the CCR, UCC, and alternative trim methodologies. For the reasons explained in the proposed rule (91 FR 19488) and earlier in this section of this final rule, we continue to believe that these trims are appropriate for hospitals with potentially aberrant data. We also note that the UCC and alternative trims are not applicable to hospitals with audited Worksheet S-10 data. In the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19489), we stated that for purposes of the FY 2027 IPPS/LTCH PPS final rule, consistent with our Factor 3 methodology since the FY 2014 IPPS/LTCH PPS final rule (78 FR 50642), we intend to use data from the March 2026 HCRIS extract for this calculation, which would be the latest quarterly HCRIS extract that is publicly available at the time of the development of the FY 2027 IPPS/LTCH PPS final rule. Comment: A commenter expressed concern regarding the reductions in uncompensated care payments and urged CMS to use more recent cost report and utilization data to better reflect post-COVID-19 PHE conditions. Response: We appreciate the commenter's concern regarding reductions in uncompensated care payments and the recommendation that CMS use more recent cost report and utilization data to better reflect post-COVID-19 PHE conditions. We are finalizing the use of the March HCRIS extract to calculate Factor 3 for this FY 2027 IPPS/LTCH PPS final rule. For the reasons stated earlier in this final rule and in the proposed rule (91 FR 19485), we believe this is the best available data for the purposes of calculating Factor 3 for FY 2027. Consistent with prior IPPS/LTCH PPS rules (see, e.g. (91 FR 19488 and 19489), we also intend to continue utilizing the most recent data available for each rulemaking, which generally means the December HCRIS extract for each proposed rule for purposes of Factor 3 calculations. Furthe, as noted in the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19489), we intend to continue using the respective March HCRIS for future final rules. CMS will continue to monitor the availability and quality of updated cost report and utilization data and will consider the use of more recent data in future rulemaking, as appropriate and consistent with applicable law. Regarding requests from providers to amend and/or reopen previously audited Worksheet S-10 data for the most recent 3 cost reporting years that are used in the methodology for calculating Factor 3, we note that MACs follow normal timelines and procedures. For purposes of the Factor 3 calculation for the FY 2027 IPPS/LTCH PPS final rule, any amended reports and/or reopened reports would need to have completed the amended report and/or reopened report submission processes by the end of March 2026. In other words, if the amended report and/or reopened report is not available for the March HCRIS extract, then that amended and/or reopened report data would not be part of the FY 2027 IPPS/LTCH PPS final rule's Factor 3 calculation. In the proposed rule, we noted that the March HCRIS data extract would be available during the comment period for the proposed rule if providers wanted to verify that their amended and/or reopened data is reflected in the March HCRIS extract in advance of this final rule. d. Per-Discharge Amount of Interim Uncompensated Care Payments for FY 2027 Since FY 2014, we have made interim uncompensated care payments during the fiscal year on a per-discharge basis. Typically, we use a 3- year average of the number of discharges for a hospital to produce an estimate of the amount of the hospital's uncompensated care payment per discharge. Specifically, the hospital's total uncompensated care payment amount for the applicable fiscal year is divided by the hospital's historical 3-year average of discharges computed using the most recent available data to determine the uncompensated care payment per discharge for that fiscal year. As discussed in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69328 and 69329), we finalized a policy to use a 3-year average of the most recent years of available historical discharge data to calculate a per- discharge payment amount that would be used to make interim uncompensated care payments to each projected DSH-eligible hospital during FY 2027 and subsequent fiscal years, codified at 42 CFR 412.106(i)(1). We are applying this policy for FY 2027. Interim uncompensated care payments made to a hospital during the fiscal year are reconciled following the end of the year to ensure that the final payment amount is consistent with the hospital's prospectively determined uncompensated care payment for the fiscal year. As we explained in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69329 and 69330), we also finalized a voluntary process in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58833 and 58834), through which a hospital may submit a request to its MAC for a lower per-discharge interim uncompensated care payment amount, including a reduction to zero, once before the beginning of the fiscal year and/or once during the fiscal year. In conjunction with this request, the hospital must provide supporting documentation demonstrating that there would likely be a significant recoupment at cost report settlement if the per- discharge amount is not lowered (for example, recoupment of 10 percent or more of the hospital's total uncompensated care payment, or at least $100,000). For example, a hospital might submit documentation showing a large projected increase in discharges during the fiscal year to support reduction of its per-discharge uncompensated care payment amount. As another example, a hospital might request that its per- discharge uncompensated care payment amount be reduced to zero midyear if the hospital's interim uncompensated care payments during the year have already surpassed the total uncompensated care payment calculated for the hospital. [[Page 49829]] Under the policy we finalized in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58833 and 58834), the hospital's MAC will evaluate these requests and the supporting documentation before the beginning of the fiscal year and/or with midyear requests when the historical average number of discharges is lower than the hospital's projected discharges for the current fiscal year. If, following review of the request and the supporting documentation, the MAC agrees that there likely would be significant recoupment of the hospital's interim Medicare uncompensated care payments at cost report settlement, the only change that will be made is to lower the per-discharge amount either to the amount requested by the hospital or another amount determined by the MAC to be appropriate to reduce the likelihood of a substantial recoupment at cost report settlement. If the MAC determines it would be appropriate to reduce the interim Medicare uncompensated care payment per-discharge amount, that updated amount will be used for purposes of the outlier payment calculation for the remainder of the fiscal year. We are continuing to apply this policy for FY 2027. We refer readers to the Addendum in the FY 2023 IPPS/LTCH final rule for a more detailed discussion of the steps for determining the operating and capital Federal payment rate and the outlier payment calculation (87 FR 49431 and 49432). No change will be made to the total uncompensated care payment amount determined for the hospital on the basis of its Factor 3. In other words, any change to the per-discharge uncompensated care payment amount will not change how the total uncompensated care payment amount will be reconciled at cost report settlement. e. Process for Notifying CMS of Merger Updates and To Report Upload Issues As we have done for every proposed and final rule beginning in FY 2014, in conjunction with this final rule, we will publish on the CMS website a table listing Factor 3 for hospitals that we estimate will receive empirically justified Medicare DSH payments for FY 2027 (that is, those hospitals that will receive interim uncompensated care payments during the fiscal year), and for the remaining subsection (d) hospitals and subsection (d) Puerto Rico hospitals that have the potential of receiving an uncompensated care payment in the event that they receive an empirically justified Medicare DSH payment for the fiscal year as determined at cost report settlement. However, we note that a Factor 3 will not be published for new hospitals and hospitals that are subject to the alternative trim for hospitals with potentially aberrant data that are not projected to be DSH-eligible. We will also publish a supplemental data file containing a list of the mergers that we are aware of and the computed uncompensated care payment for each merged hospital. In the DSH uncompensated care supplemental data file, we list new hospitals and the 22 hospitals that will be subject to the alternative trim for hospitals with potentially aberrant data that are not projected to be DSH-eligible, with a N/A in the Factor 3 column. Hospitals had 60 days from the date of public display of the FY 2027 IPPS/LTCH PPS proposed rule in the Federal Register to review the table and supplemental data file published on the CMS website in conjunction with the proposed rule and to notify CMS in writing of issues related to mergers and/or to report potential upload discrepancies due to MAC mishandling of Worksheet S-10 data during the report submission process.\160\ In the proposed rule, we stated comments raising issues or concerns that are specific to the information included in the table and supplemental data file should be submitted by email to the CMS inbox at [email protected]. We stated that we would address comments related to mergers and/or reporting upload discrepancies submitted to the CMS DSH inbox as appropriate in the table and the supplemental data file that we publish on the CMS website in conjunction with the publication of the FY 2027 IPPS/LTCH PPS final rule. We also stated that all other comments submitted in response to our proposals for FY 2027 must be submitted in one of the three ways found in the ADDRESSES section of the proposed rule before the close of the comment period in order to be assured consideration. In addition, we noted that the CMS DSH inbox is not intended for Worksheet S-10 audit process related emails, which should be directed to the MACs. --------------------------------------------------------------------------- \160\ For example, a potential upload discrepancy related to MAC mishandling may exist if the report does not reflect audit results due to MAC mishandling, or the most recent report differs from a previously accepted, amended report due to MAC mishandling. --------------------------------------------------------------------------- We invited public comments on all the previously described proposals for Factor 3 for FY 2027.

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

DRG Special Payments Policies (Sec. 412.4)

1. Background

Existing regulations at 42 CFR 412.4(a) define discharges under the IPPS as situations in which a patient is formally released from an acute care hospital or dies in the hospital. Section 412.4(b) defines acute care transfers, and Sec. 412.4(c) defines postacute care transfers. Our policy set forth in Sec. 412.4(f) provides that when a patient is transferred and his or her length of stay is less than the geometric mean length of stay for the MS-DRG to which the case is assigned, the transferring hospital is generally paid based on a graduated per diem rate for each day of stay, not to exceed the full MS-DRG payment that would have been made if the patient had been discharged without being transferred. The per diem rate paid to a transferring hospital is calculated by dividing the full MS-DRG payment by the geometric mean length of stay for the MS-DRG. Based on an analysis that showed that the first day of hospitalization is the most expensive (60 FR 45804), our policy generally provides for payment that is twice the per diem amount for the first day, with each subsequent day paid at the per diem amount up to the full MS-DRG payment (Sec. 412.4(f)(1)). Transfer cases also are eligible for outlier payments. In general, the outlier threshold for transfer cases, as described in Sec. 412.80(b), is equal to (Fixed- Loss Outlier threshold for Nontransfer Cases adjusted for geographic variations in costs/Geometric Mean Length of Stay for the MS-DRG) * (Length of Stay for the Case plus 1 day). We established the criteria set forth in Sec. 412.4(d) for determining which DRGs qualify for postacute care transfer payments in the FY 2006 IPPS final rule (70 FR 47419 through 47420). The determination of whether a DRG is subject to the postacute care transfer policy was initially based on the Medicare Version 23.0 GROUPER (FY 2006) and data from the FY 2004 MedPAR file. However, if a DRG did not exist in Version 23.0 or a DRG included in Version 23.0 is revised, we use the current version of the Medicare GROUPER and the most recent complete year of MedPAR data to determine if the DRG is subject to the postacute care transfer policy. Specifically, if the MS- DRG's total number of discharges to postacute care equals or exceeds the [[Page 49830]] 55th percentile for all MS-DRGs and the proportion of short-stay discharges to postacute care to total discharges in the MS-DRG exceeds the 55th percentile for all MS-DRGs, CMS will apply the postacute care transfer policy to that MS-DRG and to any other MS-DRG that shares the same base MS-DRG. The statute at subparagraph 1886(d)(5)(J) of the Act directs CMS to identify MS-DRGs based on a high volume of discharges to postacute care facilities and a disproportionate use of postacute care services. As discussed in the FY 2006 IPPS final rule (70 FR 47416), we determined that the 55th percentile is an appropriate level at which to establish these thresholds. In that same final rule (70 FR 47419), we stated that we will not revise the list of DRGs subject to the postacute care transfer policy annually unless we are making a change to a specific MS-DRG. For MS-DRGs subject to the postacute care policy that exhibit exceptionally higher shares of costs very early in the hospital stay, Sec. 412.4(f) includes a special payment methodology that adjusts the per diem payment. For these MS-DRGs, hospitals receive 50 percent of the full MS-DRG payment, plus the single per diem payment, for the first day of the stay, as well as a per diem payment for subsequent days (up to the full MS-DRG payment (Sec. 412.4(f)(6))). For an MS-DRG to qualify for the special payment methodology, the geometric mean length of stay must be greater than 4 days, and the average charges of 1-day discharge cases in the MS-DRG must be at least 50 percent of the average charges for all cases within the MS-DRG. MS-DRGs that are part of an MS-DRG severity level group will qualify under the MS-DRG special payment methodology policy if any one of the MS-DRGs that share that same base MS-DRG qualifies (Sec. 412.4(f)(6)). Prior to the enactment of the Bipartisan Budget Act of 2018 (Pub.

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

deemed a ``qualified discharge'' if the individual was discharged to one of the following postacute care settings: A hospital or hospital unit that is not a subsection (d) hospital, as described in section 1886(d)(1)(B) of the Act . A skilled nursing facility. Related home health services provided by a home health agency provided within a timeframe established by the Secretary (beginning within 3 days after the date of discharge). Section 53109 of the Bipartisan Budget Act of 2018 amended section 1886(d)(5)(J)(ii) of the Act to also include discharges to hospice care provided by a hospice program as a qualified discharge, effective for discharges occurring on or after October 1, 2018. In the FY 2019 IPPS/ LTCH PPS final rule (83 FR 41394), we made conforming amendments to Sec. 412.4(c) of the regulation to include discharges to hospice care occurring on or after October 1, 2018, as qualified discharges. We specified that hospital bills with a Patient Discharge Status code of 50 (Discharged/Transferred to Hospice--Routine or Continuous Home Care) or 51 (Discharged/Transferred to Hospice, General Inpatient Care or Inpatient Respite) are subject to the postacute care transfer policy in accordance with this statutory amendment. 2. Changes for FY 2027 As discussed in the proposed rule and section II.C of the preamble of this final rule, based on our analysis of FY 2025 MedPAR claims data, CMS proposed to make changes to a number of MS-DRGs, effective for FY 2027. Specifically, we proposed the following changes: Reassigning an ICD-10-PCS code describing the insertion of an endocardiac pacing electrode to MS-DRGs 228-229, deleting MS-DRGs 258, 259, 260, 261 and 262, and creating proposed new MS-DRGs 210 and 211 (Cardiac Pacemaker Revision or Device Replacement with MCC and without MCC, respectively). Reassigning the ICD-10-PCS codes describing extensive spinal fusions, fusions performed with a custom-made anatomically designed interbody fusion device and fusion of the sacroiliac joints using an internal fixation device with tulip connector from MS-DRGs 402, 426-428, 447-448, 450-451, and 456-458 to proposed new MS-DRGs 523, 524, and 525 (Extensive or Complex Spinal Fusion Procedures Except Cervical with MCC, with CC, and without CC/MCC, respectively). Redesignating an ICD-10-PCS code describing introduction of an antibiotic-eluting bone void filler from non-O.R. to non-O.R. affecting the MS-DRG assignment for MS-DRGs 463, 474, 477, 480, 492, 616, and 628. Deleting MS-DRGs 485-487, and creating proposed new MS-DRG 400 (Knee Procedures with Principal Diagnosis of Infection). Deleting MS-DRGs 466-468, and creating proposed new MS-DRG 449 (Revision of Hip or Knee Replacement). Creating proposed new MS-DRG 403 (Hip or Knee Procedures with Principal Diagnosis of Periprosthetic Joint Infection with MCC or Insertion of Antibiotic-eluting Bone Void Filler) and proposed new MS- DRG 404 (Hip or Knee Procedures with Principal Diagnosis of Periprosthetic Joint Infection without MCC). Deleting MS-DRGs 736, 737, 738, 739, 740 and 741 and creating proposed new MS-DRGs 731, 732, and 733 for uterine and adnexa procedures for female reproductive system malignancies. Deleting MS-DRG 264 (Other Circulatory System O.R. Procedures) and creating proposed new MS-DRGs 361 and 362 (Other Circulatory System O.R. Procedures with and without MCC, respectively). Adding ICD-10-PCS procedure codes describing the introduction of pancreatic islet cells to a new ``Islet Cell Transplant Procedures'' logic list in Pre-MDC MS-DRGs 008, 010, and 019. When proposing changes to MS-DRGs that involve adding, deleting, and reassigning procedure or diagnosis codes between proposed new and revised MS-DRGs, we stated in the proposed rule that we continue to believe it is necessary to evaluate the affected MS-DRGs to determine whether they should be subject to the postacute care transfer policy. Considering the proposed changes to the MS-DRGs for FY 2027, according to the regulations under Sec. 412.4(d), we evaluated the proposed new MS-DRGs using the general postacute care transfer policy criteria and data from the FY 2025 MedPAR file. We continue to believe it is appropriate to assess new MS-DRGs and reassess revised MS-DRGs when proposing reassignment of procedure codes or diagnosis codes that would result in material changes to an MS-DRG. We evaluated any current MS- DRG if we estimate that more than 5 percent of the current cases would shift from the current assigned MS-DRGs to proposed new MS-DRGs, or to a current MS-DRG from a proposed revised or deleted MS-DRG. For existing MS-DRG 426 (Multiple Level Combined Anterior and Posterior Spinal Fusion Except Cervical with MCC or Custom-Made Anatomically Designed Interbody Fusion Device), MS-DRG 427 (Multiple Level Combined Anterior and Posterior Spinal Fusion Except Cervical with CC), and MS-DRG 428 (Multiple Level Combined Anterior and Posterior Spinal Fusion Except Cervical without CC/MCC)) and MS-DRGs 456, 457, and 458 (Spinal Fusion Except Cervical with Spinal Curvature, Malignancy, Infection or Extensive Fusions with MCC, with CC, and without CC/MCC, respectively) we determined that more than 5 percent of the current cases would shift from the current assigned MS-DRGs to proposed new MS-DRGs 523, 524, and 525. For existing MS-DRGs 463, 464, and 465 [[Page 49831]] (Wound Debridement and Skin Graft Except Hand for Musculoskeletal and Connective Tissue Disorders with MCC with CC, and without CC/MCC, respectively) and MS-DRGS 474, 475, and 476 (Amputation for Musculoskeletal System and Connective Tissue Disorders with MCC, with CC, and without CC/MCC, respectively) we determined that more than 5 percent of the current cases would shift from the current assigned MS- DRGs to proposed new MS-DRGs 403 and 404. For existing MS-DRGs 616, 617, and 618 (Amputation of Lower Limb for Endocrine, Nutritional and Metabolic Disorders with MCC, with CC, and without CC/MCC, respectively) we determined that more than 5 percent of the current cases would shift from the current assigned MS-DRGs to MS-DRGs 622, 623, and 624 (Skin Grafts and Wound Debridement for Endocrine, Nutritional and Metabolic Disorders with MCC, with CC, and without CC/ MCC, respectively). We noted that for all other proposed changes, the relative volume of cases shifting to or from current MS-DRGs did not exceed the 5 percent threshold. If an MS-DRG qualified for the postacute care transfer policy, we also evaluated that MS-DRG under the special payment methodology criteria according to regulations at Sec. 412.4(f)(6). In the proposed rule, we noted that proposed new and revised MS- DRGs 210, 361, 362, 400, 403, 404, 426, 457, 463, 464, 474, 475, 523, 524, 616, and 617 would qualify to be included on the list of MS-DRGs that are subject to the postacute care transfer policy. As described in the regulations at Sec. 42 CFR 412.4(d)(3)(ii)(D), MS-DRGs that share the same base MS-DRG will all qualify under the MS-DRG postacute care transfer payment policy if any one of the MS-DRGs that share that same base MS-DRG qualifies. We therefore proposed to add new or revised MS- DRGs 210, 211, 361, 362, 400, 403, 404, 456, 457, 458, 523, 524, and 525 to the list of MS-DRGs that are subject to the postacute care transfer policy. We also noted that MS-DRGs 426, 427, 428, 463, 464, 465, 474, 475, 476, 616, 617, and 618 are currently subject to the postacute care transfer policy. As a result of our review, these revised MS-DRGs would continue to qualify to be included on the list of MS-DRGs that are subject to the postacute care transfer policy. As discussed in section II.C of this proposed rule, we are finalizing these proposed changes to the MS-DRGs, with modification to the proposed title for new MS-DRG 449 (Revision of Hip or Knee Replacement) to ``Revision of Hip or Knee Prosthesis''. This finalized policy is reflected in the table that follows. Using the March 2026 update of the FY 2025 MedPAR file, we have developed the following table which sets forth the most recent analysis of the postacute care transfer policy criteria completed for this final rule with respect to each of these finalized new or revised MS-DRGs. We note that these updated results confirm the previous analysis based on the December 2025 update of the FY 2025 MedPAR file, described in the proposed rule. BILLING CODE 4169-69-P [[Page 49832]] [GRAPHIC] [TIFF OMITTED] TR04AU26.146 [[Page 49833]] [GRAPHIC] [TIFF OMITTED] TR04AU26.147 BILLING CODE 4169-69-C During our annual review of proposed new or revised MS-DRGs and analysis of the December 2025 update of the FY 2026 MedPAR file, we reviewed the list of proposed revised or new MS-DRGs that qualify to be included on the list of MS-DRGs subject to the postacute care transfer policy for FY 2027 to determine if any of these MS-DRGs would also be subject to the special payment methodology policy for FY 2027. Based on our analysis of the proposed changes to the MS-DRGs included in the proposed rule, we determined that proposed new or revised MS-DRGs 362, 400, 404, 426, 457, 463, 617 met the criteria for the MS-DRG special payment methodology. As described in the regulations at Sec. 412.4(f)(6)(iv), MS-DRGs that share the same base MS-DRG will all qualify under the MS-DRG special payment policy if any one of the MS-DRGs that share that same base MS-DRG qualifies. Therefore, we proposed that proposed new and revised MS-DRGs 361, 362, 400, 403, 404, 456, 457, 458, 463, 464, 465, 616, 617, 618 would be subject to the MS- DRG special payment methodology, effective for FY 2027. In the proposed rule, we also noted that MS-DRGs 426, 427, and 428 are currently subject to the special payment methodology. As a result of our review, these revised MS-DRGs would continue to qualify to be included on the list of MS-DRGs that are subject to the special payment methodology. As discussed in the proposed rule, we updated this analysis using the March 2026 update of the FY 2025 MedPAR. We note that these updated results confirm the previous analysis based on the December 2025 update of the FY 2025 MedPAR file, described in the proposed rule. BILLING CODE 4169-69-P [[Page 49834]] [GRAPHIC] [TIFF OMITTED] TR04AU26.148 BILLING CODE 4169-69-C Comment: Multiple commenters raised concerns about CMS's proposal to add 13 new or revised MS-DRGs to the post-acute care transfer policy. Commenters stated that the policy creates a financial disincentive for short-term acute care hospitals to transfer patients to post-acute settings, such as LTCHs and IRFs, before the geometric mean length of stay is reached in order to avoid payment reductions. Commenters warned this would delay patient access to specialized services; undermining the principle of providing care in the most clinically appropriate setting. Some commenters emphasized that a disproportionately high percentage of Medicaid beneficiaries and uninsured individuals with greater clinical complexity incur front- loaded costs in the earliest days of admission that are not eliminated by early transfer, leaving these hospitals with inadequate reimbursement for care already delivered. Additionally, a commenter stated that the policy may infringe on Medicare beneficiaries' freedom to choose their post-acute care provider. Commenters recommended CMS to either reconsider the expansion entirely or, at minimum, adopt explicit safeguards such as targeted exceptions or payment protections for safety-net hospitals serving complex patients. Response: We appreciate the commenters sharing their concerns regarding the addition of new or revised MS-DRGs to the post-acute care transfer policy and the potential impact on patient access to LTCHs or IRFs and other post-acute care services. The post-acute care transfer policy was established to ensure that Medicare payments to transferring hospitals more accurately reflect the actual costs incurred during a patient's stay. When a patient is discharged to a post-acute care setting before the geometric mean length of stay for the assigned MS-DRG has been reached, the full MS- DRG payment may result in payment to the transferring hospital that is disproportionate to the resources expended during that shortened stay. Regarding the addition of new or revised MS-DRGs to the policy, CMS's analysis of MedPAR data identified these MS-DRGs as having a significant proportion of cases resulting in transfers to post-acute care settings. The criteria for adding MS-DRGs to the post-acute care transfer policy are applied uniformly and are based on objective data, and we believe it is appropriate to evaluate new or significantly revised MS-DRGs when they are proposed to ensure annual consistency in payments. The policy does not prohibit or discourage clinically appropriate transfers; rather, it adjusts the payment to the transferring hospital to reflect the shorter length of stay. However, CMS intends to monitor any potential unintended adverse implications of the policy on appropriate transfer of patients to post-acute settings. With respect to commenters' concerns about patient access to post- acute care settings, we note that the post-acute care [[Page 49835]] transfer policy is a payment adjustment applicable to the transferring IPPS hospital and does not affect a patient's right to receive care in the most clinically appropriate setting. Decisions regarding the timing and destination of patient transfers should be driven by clinical need, not by payment considerations. We encourage hospitals to continue making transfer decisions based on the best interests of the patient, consistent with their obligations under the Medicare Conditions of Participation, including transfer protocols described at 42 CFR 482.43(c). Beneficiaries retain the right to choose among Medicare- participating post-acute care providers, consistent with CMS's longstanding policy. The payment adjustment applies solely to the transferring hospital and has no bearing on the beneficiary's ability to select a preferred post-acute care setting. Regarding concerns regarding patient populations with greater clinical complexity and higher front-loaded costs, we note that of the 13 new or revised MS-DRGs that were proposed to be added to the post- acute care transfer policy, 8 were also proposed to be added to the special payment policy. For special payment MS-DRGs, hospitals receive 50 percent of the full MS-DRG payment, plus the single per diem payment, for the first day of the stay, as well as a per diem payment for subsequent days. We believe this modification to the transfer adjusted payment mitigates negative financial implications for cases with higher-than-average up-front costs. Additionally, for cases with exceptionally high costs, the outlier payment policy could also provide additional payments to these hospitals. After consideration of the comments received, CMS is finalizing the addition of the new or revised MS-DRGs to the post-acute care transfer policy and special payment policy as proposed. We believe this action is consistent with the policy's longstanding goal of aligning Medicare payments with the actual costs of care furnished during an acute care admission.

1. FY 2027 Inpatient Hospital Update

In accordance with section 1886(b)(3)(B)(i) of the Act, each year we update the national standardized amount for inpatient hospital operating costs by a factor called the ``applicable percentage increase.'' For FY 2027, we are setting the applicable percentage increase by applying the adjustments listed in this section in the same sequence as we did for FY 2026. (We note that section 1886(b)(3)(B)(xii) of the Act required an additional reduction each year only for FYs 2010 through 2019.) Specifically, consistent with section 1886(b)(3)(B) of the Act, as amended by sections 3401(a) and 10319(a) of the Affordable Care Act, we are setting the applicable percentage increase by applying the following adjustments in the following sequence. The applicable percentage increase under the IPPS for FY 2027 is equal to the rate-of-increase in the hospital market basket for IPPS hospitals in all areas, subject to all of the following: A reduction of one-quarter of the applicable percentage increase (prior to the application of other statutory adjustments; also referred to as the market basket update or rate-of-increase (with no adjustments)) for hospitals that fail to submit quality information under rules established by the Secretary in accordance with section 1886(b)(3)(B)(viii) of the Act. A reduction of three-quarters of the applicable percentage increase (prior to the application of other statutory adjustments; also referred to as the market basket update or rate-of-increase (with no adjustments)) for hospitals not considered to be meaningful EHR users in accordance with section 1886(b)(3)(B)(ix) of the Act. An adjustment based on changes in economy-wide multifactor productivity (the productivity adjustment) in accordance with section 1886(b)(3)(B)(xi)(II) of the Act. Section 1886(b)(3)(B)(xi) of the Act, as added by section 3401(a) of the Affordable Care Act, states that application of the productivity adjustment may result in the applicable percentage increase being less than zero. As published in the FY 2006 IPPS final rule (70 FR 47403), in accordance with section 404 of Public Law 108-173, CMS determined a new frequency for rebasing the hospital market basket of every 4 years. In compliance with section 404 of Public Law 108-173, in the FY 2026 IPPS/ LTCH PPS final rule (90 FR 36859 through 36866), we replaced the 2018- based IPPS operating and capital market baskets with the rebased and revised 2023-based IPPS operating and capital market baskets beginning in FY 2026. Consistent with our established frequency of rebasing the IPPS market basket every 4 years, we plan on proposing to rebase and revise the IPPS market in the FY 2030 IPPS/LTCH PPS proposed rule. We proposed to base the FY 2027 market basket update used to determine the applicable percentage increase for the IPPS on IHS Global Inc.'s (IGI's) fourth quarter 2025 forecast of the 2023-based IPPS market basket rate-of-increase with historical data through third quarter 2025, which was estimated to be 3.2 percent. We also proposed that if more recent data subsequently became available (for example, a more recent estimate of the market basket update), we would use such data, if appropriate, to determine the FY 2027 market basket update in the final rule. Comment: Several commenters expressed concern that the Employment Cost Index (ECI) may not be adequately capturing employment and labor cost growth in the market basket. They stated that they continue to stand ready to work with CMS to examine the market basket compensation indices and proxies to improve the accuracy of these measures and to ensure labor costs, inclusive of contract labor, are adequately reflected in the Medicare hospital payment. Response: As we discussed in response to similar comments in the FY 2026 IPPS/LTCH PPS final rule (90 FR 36865), we believe that the ECI for Wages and Salaries for All Civilian Workers in Hospitals and the ECI for Total Benefits for All Civilian Workers in Hospitals are accurately reflecting the price change associated with the labor used to provide hospital care in IPPS hospitals. The ECI appropriately does not reflect other factors that might affect the annual rate of price changes associated with labor costs, such as a shift in the occupations that may occur due to increases in case-mix or shifts in hospital purchasing decisions (for instance, to hire or to use contract labor). We believe that the prices of employed staff and contract labor are influenced by the same factors and as the Medicare cost report data show these measures have grown at similar rates over the last 10 years. Comment: A commenter requested CMS provide additional publicly available data on the assumptions and inputs that go into developing a market basket update. A commenter stated it is imperative that CMS clarify how it is accounting for tariffs in payment policy, particularly the market basket update, for FY 2027. Response: As discussed in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69450) and the FY 2026 IPPS/LTCH PPS final rule (90 FR 36987), information on the CMS market baskets can be found at the CMS website: https://www.cms.gov/data-research/statistics-trends-and-reports/medicare-program-rates-statistics/market-basket-research-and-information. This website provides information including but not limited to how a top-line market basket level is [[Page 49836]] derived from the detailed cost categories, how a four-quarter percent change moving average is calculated, and a link to a spreadsheet containing the calculation of the detailed market basket cost weights for the 2023-based IPPS market basket. In addition, the latest, publicly available CMS market baskets are available at the CMS website: https://www.cms.gov/data-research/statistics-trends-and-reports/medicare-program-rates-statistics/market-basket-data. We note that publicly available market baskets on the CMS website would reflect an updated forecast only after a proposed or final rule is published. Using these spreadsheets, stakeholders are able to replicate the top- line market basket index levels in the historical time period by multiplying the detailed index level for each cost category by the associated cost weight. These products (weight multiplied by index level) can then be summed up to derive the aggregate market basket index level. In response to the commenter's request for specific assumptions and inputs, in this final rule, we are also providing the projected increase for FY 2027 for some of the aggregated cost categories that underlie the most recent forecast of the FY 2027 IPPS market basket increase (3.2 percent). This detail is consistent with the level of information that is published on the CMS website on a quarterly basis as described above. We note that forecasted FY 2027 prices for compensation costs, which account for about 51 percent of the market basket, are projected to increase 3.2 percent; and prices for All Other Products and Services, which account for about 46 percent of the market basket, are projected to increase 3.1 percent. While the projected market basket increase is calculated using the aggregation of the detailed price forecasts multiplied by their respective cost weights for each of the 22 individual cost categories, we want to provide an estimate of how the broader cost categories are contributing to the overall increase. As stated previously, the detailed price proxy forecasts that underlie the IPPS market basket percentage increase (and all CMS market baskets) are forecasted by IGI (a nationally recognized economic and financial forecasting firm). We also note that when developing its forecast for the various price indexes used in the IPPS market basket, IGI considers all macroeconomic factors that influence pricing trends, which would include factors that would affect supply prices such as tariffs. We strive for transparency regarding our methods and regularly respond to questions from the public regarding the market baskets via email at [email protected]. Comment: A commenter requested CMS rebase the market baskets more frequently and at least every three years to ensure the market basket reflects the appropriate mix of services provided to Medicare beneficiaries. Response: We appreciate the commenter's request. As discussed in the FY 2026 IPPS/LTCH PPS final rule (90 FR 36868 through 36869), we discussed our frequency for rebasing and revising the IPPS market basket every four years. We note that we rebased and revised the market basket to reflect a 2023 base year in the FY 2026 IPPS/LTCH PPS final rule (90 FR 36859 through 36873). Therefore, we believe that the 2023- based IPPS market basket is reflective of the cost structure and input price pressures facing hospitals. As noted in the FY 2026 IPPS/LTCH PPS final rule, we will continue to monitor the major cost weights (derived from the hospital Medicare cost reports) to determine whether a rebasing is warranted. A rebasing of the IPPS market basket would be subject to public comments through proposed and final rulemaking. Comment: Several commenters expressed concern regarding the proposed net increase in operating payment rates for hospitals. They stated that the proposed 2.4 percent increase is too low and fails to account for the enduring impacts of high price inflation and cost increases. Commenters expressed specific concerns regarding compensation costs (highlighting increased contract labor utilization and workforce shortages), administrative costs (including what they described as unnecessary administrative costs for prior authorizations, claims appeals and denials from large commercial health insurers, including Medicare Advantage and Medicaid managed care plans), pharmaceuticals and supply costs. The commenters also referred to other economic headwinds creating uncertainty such as tariffs, which commenters stated would impact the prices of pharmaceuticals, medical equipment/supplies, and construction materials. They also expressed concern that recent actions, such as changes to federal student loan limits that exclude nurses and other clinicians from enhanced borrowing limits, will exacerbate workforce shortages, which contribute to higher costs for labor. They stated that their concerns are further compounded by the likelihood of additional funding reductions resulting from One Big Beautiful Bill Act (OBBBA) (affecting health insurance coverage and Medicaid funding). Several commenters noted that the proposed update was below overall inflation, as measured by the Consumer Price Index (CPI). A commenter further stated that even though the CPI measures a different set of goods and services than the IPPS market basket, it is suggestive that later economic information on which the inflation updates are based shows prices growing more rapidly than reflected in the data used to forecast the FY 2027 IPPS updates. In addition, commenters cited MedPAC's March 2026 report, which showed continuing negative Medicare fee-for-service operating margins of about -12 percent for 2022-2024. A commenter referenced AHA's analysis of their own Annual Survey data to indicate Medicare underpayments in 2024 (https://www.aha.org/costsofcaring). A commenter stated that according to the Kaiser Family Foundation, Medicare payments have not accommodated market increases for at least the last 10 years. Several commenters urged CMS to focus on appropriately accounting for recent and future trends in inflationary pressures and cost increases in the hospital payment update, which they stated is essential to ensure that Medicare payments for acute care services more accurately reflect the cost of providing hospital care. Several commenters stated CMS calculates the market basket based on forecasts rather than actual labor and supply cost increases, thus failing to incorporate the challenging circumstances brought on by unprecedented labor, supply, and drug cost increases. They recommended CMS look to alternative data sources (such as the Medicare cost reports) that they claim better reflect true labor and input cost increases in a timelier manner. Commenters stated CMS must ensure and clarify that its final market basket update for FY 2027 appropriately includes the cost increases attributable to tariffs. A commenter requested CMS continue monitoring the impact of exogenous factors such as tariffs or geopolitical instability on supply chain costs so that, if necessary, CMS may invoke its full statutory authority to make appropriate adjustments to the market basket. Many commenters requested CMS use its special exceptions and adjustments authority to increase the market basket update from the proposed growth rate of 2.4 percent. Commenters urged CMS to revisit both its market basket forecasts and the magnitude of the productivity [[Page 49837]] adjustment, and to consider their combined effect on provider reimbursements. A commenter encouraged CMS to update the market basket by at least 5 percent and to use its statutory adjustment authority to waive the productivity adjustment in FY 2027. Another commenter strongly urged CMS to use the later data on the market basket increase for FY 2027 as it has in past years. Response: Section 1886(b)(3)(B)(iii) of the Act states the Secretary shall update IPPS payments based on a market basket percentage increase estimated by the Secretary before the beginning of the period or fiscal year, by which the cost of the mix of goods and services (including personnel costs but excluding nonoperating costs) comprising routine, ancillary, and special care unit inpatient hospital services, based on an index of appropriately weighted indicators of changes in wages and prices which are representative of the mix of goods and services included in such inpatient hospital services, for the period or fiscal year will exceed the cost of such mix of goods and services for the preceding 12-month cost reporting period or fiscal year. For the FY 2026 IPPS/LTCH PPS final rule (90 FR 36859 through 36873), we rebased and revised the market basket to reflect a 2023 base year. We believe that the 2023-based IPPS market basket is consistent with the statute as it is a fixed-weight, Laspeyres-type price index that measures the change in price, over time, while maintaining a mix of goods and services purchased by hospitals consistent with a base period. Therefore, the market basket is designed to measure price inflation for IPPS hospitals and would not reflect increases in costs associated with changes in the volume or intensity of input goods and services. As stated in the FY 2026 IPPS/LTCH PPS final rule (90 FR 36901), CMS understands that the market basket updates may differ from other overall inflation indexes such as the topline CPI; however, we note that these topline indexes are not comparable since they measure different mixes of products, services, or wages than the legislatively defined CMS IPPS hospital market basket. CMS welcomes feedback on alternative data sources for the market basket price proxies that appropriately measure price inflation and not costs. We note that suggestions can be emailed to [email protected]. We appreciate the commenters' request for CMS to provide additional publicly available data on the assumptions and inputs that go into developing a market basket update. As noted, the detailed market basket cost weights (including the methodology) and price proxies used in the market baskets were set forth in the FY 2026 IPPS/LTCH PPS final rule (90 FR 36859 through 36873). Additionally, shortly after the publication of the FY 2027 IPPS/LTCH PPS proposed rule, we made available on the CMS website (https://www.cms.gov/data-research/statistics-trends-and-reports/medicare-program-rates-statistics/market-basket-data) the detailed historical growth rates for the market baskets as well as price forecasts for the aggregated cost weights (such as compensation, utilities). As stated previously, the detailed price proxies used in the market basket are forecasted by IGI (a nationally recognized economic and financial forecasting firm). We also note that general inquiries on the forecasting methodology can be emailed to [email protected], as is also noted in the market basket spreadsheets on the CMS website. We would highlight that the market basket percentage increase is a forecast of the price pressures that hospitals are expected to face in FY 2027. We also note that when developing its forecast for the various price indexes used in the IPPS market basket, IGI considers industry- specific and overall economic conditions. More specifically for the ECI for hospital workers, IGI considers overall labor market conditions (including the impact of wage pressures on skill mix) as well as trends in contract labor wages, which both have an impact on wage pressures for workers employed directly by the hospital. As stated in the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19496) we proposed a FY 2027 applicable percentage increase of 2.4 percent, reflecting the 2023-based IPPS market basket rate-of-increase of 3.2 percent and productivity adjustment of 0.8 percentage point, consistent with current law. We also proposed that if more recent data became available, we would use such data, if appropriate, to derive the final FY 2027 IPPS market basket update for the final rule. We appreciate the commenter's concern regarding inflationary pressure and the request to use more recent data to determine the FY 2027 IPPS market basket update. For this final rule (as proposed), we are using an updated forecast of the price proxies underlying the market basket that incorporates more recent historical data and reflects a revised outlook regarding the U.S. economy. Based on more recent data available for this FY 2027 IPPS/LTCH PPS final rule (that is, IGI's second quarter 2026 forecast of the 2023-based IPPS market basket rate-of-increase with historical data through the first quarter of 2026), we estimate that the FY 2027 market basket increase used to determine the applicable percentage increase for the IPPS is 3.2 percent. As discussed later in this section, based on more recent data available for this FY 2027 IPPS/LTCH PPS final rule (that is, IGI's second quarter 2026 forecast of the productivity adjustment), the current estimate of the productivity adjustment for FY 2026 is 0.9 percentage point. Therefore, the applicable percentage increase applied to the standardized amount for hospitals that are considered to be a meaningful EHR user under section 1886(b)(3)(B)(ix) of the Act and submit quality information under rules established by the Secretary in accordance with section 1886(b)(3)(B)(viii) of the Act is 2.3 percent. For these reasons, we believe that the 2023-based IPPS market basket appropriately reflects IPPS cost structures and we believe the price proxies used (such as those from BLS that reflect wage and benefit price growth) are an appropriate representation of price changes for the inputs used by hospitals in providing services. We also note, as discussed previously, that section 1886(b)(3)(B)(i) of the Act establishes the statutory update for the national standardized amount for inpatient hospital operating costs through the ``applicable percentage increase'' (subject to the additional reductions prescribed in sections 1886(b)(3)(B)(viii) and 1886(b)(3)(B)(ix) of the Act). As discussed previously, and in the FY 2026 IPPS/LTCH PPS final rule (90 FR 36902), given that we believe the 2023-based IPPS market basket reflects an index of appropriately weighted indicators of changes in wages and prices that are representative of the mix of goods and services included in such inpatient hospital services and the percentage change of the 2023-based IPPS market basket is based on IGI's more recent forecast of the expected input price pressures facing hospitals for FY 2027, we do not believe it is appropriate to use our exceptions and adjustments authority to create a separate payment that would have the effect of modifying the current law update. Comment: Some commenters stated that CMS has consistently underestimated the market basket updates in recent years. Several commenters recommended that CMS consider adopting a prospective forecast [[Page 49838]] error correction policy for FY 2027 in the event that CMS again underestimates hospital inflation in a period of economic uncertainty and instability. In considering this request, the commenter requested that CMS consider that the productivity adjustment reduces the payment update below what the commenter claimed that OACT says is reasonable for hospitals to achieve. Some commenters urged CMS to use its special exceptions and adjustments authority under section 1886(d)(5)(I)(i) of the Act to update the final payment rate to reflect the difference between prior years' actual and forecasted market basket increases. A commenter stated that the combined 4.3 percentage point understatement of the FY 2021 through FY 2023 market basket results in a permanent reduction in IPPS payments below the rate of inflation. The commenter stated that CMS should make an adjustment for forecast error consistent with the policy it has adopted under the SNF PPS, and use its special exceptions and adjustments authority to make a one-time retrospective adjustment. Response: We responded to similar comments in the FY 2026 IPPS/LTCH PPS final rule (90 FR 36903). In general, while projected IPPS hospital market basket updates can be underforecast (actual increases less forecasted increases were positive), over longer periods the forecasts have generally averaged close to the historical measures. CMS will continue to monitor the methods associated with the market basket forecasts to ensure there are not underlying systematic issues in the forecasting approach. We note that the under forecast of the IPPS market basket increase in the recent time period (FY 2014 through FY 2025) was largely due to unanticipated inflationary and labor market pressures as the economy emerged from the COVID-19 PHE. However, an analysis of the forecast error of the IPPS market basket over a longer period of time shows the forecast error has been both positive and negative. Only considering the forecast error for years when the final hospital market basket update was lower than the actual market basket update does not consider the full experience and impact of forecast error, in particular the numerous years that providers benefited from the forecast error. Relatedly, as we discussed in the FY 2024 IPPS/LTCH PPS final rule in response to similar comments (88 FR 59034), the SNF PPS forecast error adjustment was adopted very early in the payment system and, unlike what commenters are requesting here for the IPPS, forecast errors over many years have been consistently addressed within the SNF PPS. For these reasons, we continue to believe it is not appropriate to include adjustments to the market basket update for future years based on the difference between the actual and forecasted market basket increase in prior years. After consideration of the comments received and consistent with our proposal, we are finalizing to use more recent data to determine the FY 2027 market basket update for the final rule. Specifically, based on more recent data available, we determined final applicable percentage increases to the standardized amount for FY 2027, as specified in the table that appears later in this section. In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51689 through 51692), we finalized our methodology for calculating and applying the productivity adjustment. As we explained in that rule, section 1886(b)(3)(B)(xi)(II) of the Act, as added by section 3401(a) of the Affordable Care Act, defines this productivity adjustment as equal to the 10-year moving average of changes in annual economy-wide, private nonfarm business multifactor productivity (as projected by the Secretary for the 10-year period ending with the applicable fiscal year, calendar year, cost reporting period, or other annual period). The U.S. Department of Labor's Bureau of Labor Statistics (BLS) publishes the official measures of productivity for the U.S. economy. The productivity measure referenced in section 1886(b)(3)(B)(xi)(II) of the Act is published by BLS as private nonfarm business total factor productivity ((TFP) previously referred to as multifactor productivity).\161\ Please see https://www.bls.gov/productivity/ for the BLS historical published TFP data. A complete description of IGI's TFP projection methodology is available on the CMS website at https://www.cms.gov/data-research/statistics-trends-and-reports/medicare-program-rates-statistics/market-basket-research-and-information. --------------------------------------------------------------------------- \161\ https://www.bls.gov/productivity/notices/2021/mfp-to-tfp-term-change.htm. --------------------------------------------------------------------------- For FY 2027, we proposed a productivity adjustment of 0.8 percent. Similar to the proposed market basket rate-of-increase, for the proposed rule, the estimate of the proposed FY 2027 productivity adjustment was based on IGI's fourth quarter 2025 forecast. As noted previously, we proposed that if more recent data subsequently became available, we would use such data, if appropriate, to determine the FY 2027 productivity adjustment for the final rule. Comment: Commenters expressed concerns about the application of the productivity adjustment, stating it is flawed because it is based on a measure for the private nonfarm business sector. Several commenters stated that the use of private nonfarm business total factor productivity effectively assumes the hospital field can mirror productivity gains achieved by private nonfarm businesses. Other commenters stated that private-sector productivity trends do not reflect the complex operational realities of hospital care (which they described as operating under fixed payment systems, extensive regulatory obligations, maintaining 24/7 operations, unpredictable patient volumes, and increasingly complex clinical demands), particularly during a time of sustained labor shortages and wage inflation and without regard to the unique impacts of COVID, and, more recently, the increase in targeting of cyberattacks to healthcare providers. Several commenters also claimed that it is well proven by the economic literature that the hospital and health care field cannot achieve the same productivity gains as the total economy. The commenters stated that an Office of the Actuary memo indicated that hospitals are unable to achieve the same productivity gains as the general economy over the long run. Specifically, some commenters requested CMS consider its own findings that hospitals historically have not achieved the same level of productivity as the general economy, referencing the June 2, 2022 memorandum where CMS's Office of the Actuary stated hospital TFP ranged from 0.2 percent to 0.5 percent compared to the average growth of private nonfarm business TFP of 0.8 percent. Commenters also referred to the BLS publication on a TFP measure for the combined Hospitals and Nursing and Residential Care Facilities industry, which indicated average TFP growth from 1990-2019 of -0.5 percent, even lower than either of OACT's estimates. Therefore, commenters stated that using the private nonfarm business sector TFP to adjust the market basket inappropriately exacerbates Medicare's chronic underpayments to hospitals. Other commenters expressed concern regarding the increase in the productivity adjustment for FY 2027 relative to prior years. Commenters requested that CMS explain the magnitude of the proposed productivity adjustment, stating it is the largest CMS has used since FY 2019 and is the second largest in the 15 years for which [[Page 49839]] CMS has published data. A commenter stated CMS should evaluate how the rolling average experienced such a significant increase when compared with the productivity adjustments of 0.5 percentage point or less in three of the last five years. Given the increase in the productivity adjustment, the commenter stated that it is likely that one or two years of significantly high outlier values contributed to the 10-year rolling average being 0.8 percentage points. Several commenters stated there was limited information available in the proposed rule regarding how the productivity adjustment was reached, including the underlying assumptions. A commenter stated that the productivity adjustments have been in place for more than a decade now and it is hard to believe that hospital productivity has increased enough to warrant a reduction in cumulative payments of over 8.5 percent. They further stated that these same pressures also amplify the negative impact of the productivity adjustment on providers' ability to fund the very investments that can drive operational efficiencies. Given their concerns about the productivity adjustment, commenters requested CMS use its discretion under section 1886(d)(5)(I)(i) of the Act or to work with Congress to reduce or eliminate the productivity adjustment of 0.8 percentage point for FY 2027. Another commenter requested a FY 2027 productivity adjustment of 0.2 percentage point. Several commenters expressed concern that the productivity adjustment appears to be applied only when it reduces Medicare payments. They stated that in the one year (FY 2021) where productivity in the non-farm business sector did not improve and measured TFP declined, CMS set the productivity adjustment to 0.0 rather than increasing payments. A commenter stated that while section 1886(b)(3)(B)(xi)(I) of the Act states that ``such percentage increase shall be reduced by the productivity adjustment'' it does not follow that the statute necessarily requires that the productivity adjustment be a subtraction from the otherwise applicable update. The commenter believes that CMS should make this issue subject to public notice and comment rulemaking. A commenter also requested that CMS provide more transparency about how the productivity adjustment is calculated. Response: We appreciate commenters' sharing their concerns and suggestions including working with Congress; however, section 1886(b)(3)(B)(xi) of the Act requires the application of the productivity adjustment. As required by statute, the FY 2027 productivity adjustment is derived based on the 10-year moving average growth in economy-wide private nonfarm business total factor productivity for the period ending FY 2027. In the FY 2026 IPPS/LTCH PPS final rule (90 FR 36904), in response to similar comments regarding the methodology for calculating the productivity adjustment, we provided information on how the productivity adjustment is calculated using the TFP index levels (historical and projected). In addition, as stated in the FY 2026 IPPS/ LTCH final rule, we have always made available on the CMS website the general method for calculating the productivity adjustment at (https://www.cms.gov/research-statistics-data-and-systems/statistics-trends-and-reports/medicareprogramratesstats/downloads/tfp_methodology.pdf). In this same TFP methodology document, we also provide a link to the most recent BLS historical TFP data (http://www.bls.gov/productivity), which currently allows interested parties to obtain historical TFP annual index levels for 1987 through 2025 and we provide the IGI projection model which is currently used to derive annual TFP growth rates for 2026 and 2027. The annual index level derived from this method is then interpolated to quarterly levels, and the FY 2027 productivity adjustment is equal to the percent change in the 40-quarter moving average projected level for the period ending September 30, 2027 relative to the 40-quarter moving average projected level for the period ending September 30, 2026. We believe our methodology for the productivity adjustment is consistent with section 1886(b)(3)(B)(xi)(II) of the Act, which states that the productivity adjustment is equal to the 10-year moving average of changes in annual economy-wide private nonfarm business multi-factor productivity (as projected by the Secretary for the 10-year period ending with the applicable fiscal year, year, cost reporting period, or other annual period). At the time of this final rule, the FY 2027 productivity adjustment reflects BLS historical TFP data through 2025 (released on March 19, 2026) and IGI's forecasted TFP growth for 2026 and 2027. The average annual growth rate of historical TFP published by BLS for 2018 through 2025 is currently 1.0 percent and IGI is projecting average TFP growth of about 0.7 percent for 2026 and 2027 based on IGI's second-quarter 2026 forecast. Combining the historical and projected TFP data over the entire 10-year time period and interpolating into quarterly index levels results in a 10-year moving average growth rate of TFP of 0.9 percent for FY 2027. The productivity adjustment (based on the 10-year period ending with FY 2027) for the FY 2027 IPPS/LTCH PPS final rule is 0.1 percentage point higher than for the FY 2027 IPPS/LTCH PPS proposed rule mainly due to the incorporation of updated BLS historical data. In response to commenters' concerns about the productivity adjustment only being applied if it reduces the payment update, we note that the statutory language in section 1886(b)(3)(B)(xi)(I) of the Act requires that the Secretary reduce (not increase) the market basket percentage increase by changes in economy-wide productivity. We thank the commenters for their comments. After consideration of the comments received and consistent with our proposal, we are finalizing as proposed to use more recent data to determine the FY 2027 productivity adjustment for the final rule. In summary, based on more recent data available for this FY 2027 IPPS/LTCH PPS final rule (that is, IGI's second quarter 2026 forecast of the 2023-based IPPS market basket rate-of- increase with historical data through the first quarter of 2026), we estimate that the FY 2027 market basket update used to determine the applicable percentage increase for the IPPS is 3.2 percent. Based on more recent data available for this FY 2027 IPPS/LTCH PPS final rule (that is, IGI's second quarter 2026 forecast of productivity adjustment), the current estimate of the productivity adjustment for FY 2027 is 0.9 percentage point. Based on these more recent data, for this final rule, we have determined four applicable percentage increases to the standardized amount for FY 2027, as specified in the following table: [[Page 49840]] [GRAPHIC] [TIFF OMITTED] TR04AU26.149 In the FY 2020 IPPS/LTCH PPS final rule (84 FR 42344), we revised our regulations at42 CFR 412.64(d) to reflect the current law for the update for FY 2020 and subsequent fiscal years. Specifically, in accordance with section 1886(b)(3)(B) of the Act, we added paragraph (d)(1)(viii) to Sec. 412.64 to set forth the applicable percentage increase to the operating standardized amount for FY 2020 and subsequent fiscal years as the percentage increase in the market basket index, subject to the reductions specified under Sec. 412.64(d)(2) for a hospital that does not submit quality data and Sec. 412.64(d)(3) for a hospital that is not a meaningful EHR user, reduced by a productivity adjustment. Section 1886(b)(3)(B)(iv) of the Act provides that the applicable percentage increase to the hospital-specific rates for SCHs and MDHs equals the applicable percentage increase set forth in section 1886(b)(3)(B)(i) of the Act (that is, the same update factor as for all other hospitals subject to the IPPS). Therefore, the update to the hospital-specific rates for SCHs and MDHs is also subject to section 1886(b)(3)(B)(i) of the Act, as amended by sections 3401(a) and 10319(a) of the Affordable Care Act. As discussed in section V.F. of the preamble of this final rule, section 6202 of the Consolidated Appropriations Act, 2026 (Pub. L. 119- 75) extended the MDH program for FY 2027 discharges occurring before January 1, 2027. Therefore, under current law, the MDH program will expire for discharges on or after January 1, 2027. We refer readers to section V.F. of the preamble of this final rule for further discussion of the MDH program. For FY 2027, we proposed the following updates to the hospital- specific rates applicable to SCHs and MDHs: A proposed update of 2.4 percent for a hospital that submits quality data and is a meaningful EHR user (as defined in section 1886(n) of the Act); a proposed update of 0.0 percent for a hospital that submits quality data and is not a meaningful EHR user; a proposed update of 1.6 percent for a hospital that fails to submit quality data and is a meaningful EHR user; and a proposed update of -0.8 percent for a hospital that fails to submit quality data and is not an meaningful EHR user. As previously discussed, we proposed that if more recent data subsequently became available (for example, a more recent estimate of the market basket update and the productivity adjustment), we would use such data, if appropriate, to determine the market basket update and the productivity adjustment in the final rule. We did not receive any public comments on our proposed updates to hospital-specific rates applicable to SCHs and MDHs. The general comments we received on the proposed FY 2027 update (including the proposed market basket update and productivity adjustment) are discussed earlier in this section. For FY 2027, we are finalizing the proposal to determine the update to the hospital specific rates for SCHs and MDHs in this final rule using the more recent available data, as previously discussed. For this final rule, based on more recent available data, we are finalizing the following updates to the hospital specific rates applicable to SCHs and MDHs: An update of 2.3 percent for a hospital that submits quality data and is a meaningful EHR user; an update of 1.5 percent for a hospital that fails to submit quality data and is a meaningful EHR user; an update of -0.1 percent for a hospital that submits quality data and is not a meaningful EHR user; and an update of -0.9 percent for a hospital that fails to submit quality data and is not a meaningful EHR user.

2. FY 2027 Puerto Rico Hospital Update

Section 602 of Public Law 114-113 amended section 1886(n)(6)(B) of the Act to specify that subsection (d) Puerto Rico hospitals are eligible for incentive payments for the meaningful use of certified EHR technology, effective beginning FY 2016. In addition, section 1886(n)(6)(B) of the Act was amended to specify that the adjustments to the applicable percentage increase under section 1886(b)(3)(B)(ix) of the Act apply to subsection (d) Puerto Rico hospitals that are not meaningful EHR users, effective beginning FY 2022. Accordingly, for FY 2022, section 1886(b)(3)(B)(ix) of the Act in conjunction with section 602(d) of Public Law 114-113 requires that any subsection (d) Puerto Rico hospital that is not a meaningful EHR user as defined in section 1886(n)(3) of the Act and not subject to an exception under section 1886(b)(3)(B)(ix) of the Act will have ``three-quarters'' of the applicable percentage increase (prior to the application of other statutory adjustments), or three-quarters of the applicable market basket rate-of-increase, reduced by 33\1/3\ percent. The reduction to three-quarters of the applicable percentage increase for subsection (d) Puerto Rico hospitals that are not meaningful EHR users increases to 66\2/3\ percent for FY 2023, and, for FY 2024 and subsequent fiscal years, to 100 percent. (We note that section 1886(b)(3)(B)(viii) of the Act, which specifies the adjustment to the applicable percentage increase for ``subsection (d)'' hospitals that do not submit quality data under the rules established by the Secretary, is not applicable to hospitals located in Puerto Rico.) The regulations at 42 CFR 412.64(d)(3)(ii) reflect the current law for the update for subsection (d) Puerto Rico hospitals for FY 2022 and subsequent fiscal years. In the FY 2019 IPPS/LTCH PPS final rule, we finalized the payment reductions (83 FR 41674). For FY 2027, consistent with section 1886(b)(3)(B) of the Act, as amended by section 602 of Public Law 114-113, we are setting the applicable percentage increase for Puerto Rico hospitals by applying the following adjustments in the following sequence. Specifically, the applicable percentage increase under [[Page 49841]] the IPPS for Puerto Rico hospitals will be equal to the rate of- increase in the hospital market basket for IPPS hospitals in all areas, subject to a reduction of three-quarters of the applicable percentage increase (prior to the application of other statutory adjustments; also referred to as the market basket update or rate-of-increase (with no adjustments)) for Puerto Rico hospitals not considered to be meaningful EHR users in accordance with section 1886(b)(3)(B)(ix) of the Act, and then subject to the productivity adjustment at section 1886(b)(3)(B)(xi) of the Act. As noted previously, section 1886(b)(3)(B)(xi) of the Act states that application of the productivity adjustment may result in the applicable percentage increase being less than zero. In the FY2027 IPPS/LTCH PPS proposed rule, based on IGI's fourth quarter 2025 forecast of the 2023-based IPPS market basket update with historical data through third quarter 2025, in accordance with section 1886(b)(3)(B) of the Act, as discussed previously, for Puerto Rico hospitals we proposed a market basket update of 3.2 percent reduced by a productivity adjustment of 0.8 percentage point. Therefore, for FY 2027, depending on whether a Puerto Rico hospital is a meaningful EHR user, we stated that there are two possible applicable percentage increases that could be applied to the standardized amount. Based on these data, we determined the following proposed applicable percentage increases to the standardized amount for FY 2027 for Puerto Rico hospitals: For a Puerto Rico hospital that is a meaningful EHR user, we proposed a FY 2027 applicable percentage increase to the operating standardized amount of 2.4 percent (that is, the FY 2027 estimate of the proposed market basket rate-of-increase of 3.2 percent, less 0.8 percentage point for the proposed productivity adjustment). For a Puerto Rico hospital that is not a meaningful EHR user, we proposed a FY 2027 applicable percentage increase to the operating standardized amount of 0.0 percent (that is, the FY 2027 estimate of the proposed market basket rate-of-increase of 3.2 percent, less 2.4 percentage points (the proposed market basket rate-of-increase of 3.2 percent x 0.75 for failure to be a meaningful EHR user), and less 0.8 percentage point for the proposed productivity adjustment). As noted previously, we proposed that if more recent data subsequently became available, we would use such data, if appropriate, to determine the FY 2027 market basket update and the productivity adjustment for the FY 2027 IPPS/LTCH PPS final rule. We did not receive any public comments on our proposed updates to the standardized amount for FY 2027 for Puerto Rico hospitals. The general comments we received on the proposed FY 2027 update (including the proposed market basket update and productivity adjustment) are discussed in greater detail earlier in this section. For FY 2027, we are finalizing the proposal to determine the update to the standardized amount for FY 2027 for Puerto Rico hospitals in this final rule using the more recent available data, as previously discussed. As previously discussed in section VI.B. of the preamble of this final rule, based on more recent data available for this final rule (that is, IGI's second quarter 2026 forecast of the 2023-based IPPS market basket rate-of-increase with historical data through the first quarter of 2026), we estimate that the FY 2027 market basket update used to determine the applicable percentage increase for the IPPS is 3.2 percent and a productivity adjustment of 0.9 percent. For FY 2027, depending on whether a Puerto Rico hospital is a meaningful EHR user, there are two possible applicable percentage increases that can be applied to the standardized amount. Based on these data, in accordance with section 1886(b)(3)(B) of the Act, we determined the following applicable percentage increases to the standardized amount for FY 2027 for Puerto Rico hospitals: For a Puerto Rico hospital that is a meaningful EHR user, an applicable percentage increase to the operating standardized amount of 2.3 percent (that is, the FY 2027 estimate of the market basket rate-of-increase of 3.2 percent reduced by 0.9 percentage point for the productivity adjustment). For a Puerto Rico hospital that is not a meaningful EHR user, an applicable percentage increase to the operating standardized amount of -0.1 percent (that is, the FY 2027 estimate of the market basket rate-of-increase of 3.2 percent, less an adjustment of 2.4 percentage point (the market basket rate- of-increase of 3.2 percent x 0.75 for failure to be a meaningful EHR user), and reduced by a productivity adjustment of 0.9 percentage point). [GRAPHIC] [TIFF OMITTED] TR04AU26.150

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

and Discharge Criteria (Sec. 412.96) Under the authority of section 1886(d)(5)(C)(i) of the Act, the regulations at 42 CFR 412.96 set forth the criteria that a hospital must meet to qualify under the IPPS as a rural referral center (RRC). RRCs receive special treatment under both the DSH payment adjustment and the criteria for geographic reclassification. Section 402 of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (Pub. L. 108-173) raised the DSH payment adjustment for RRCs such that they are not subject to the 12-percent cap on DSH payments that is applicable to other rural hospitals. RRCs also are not subject to the proximity criteria when applying for geographic reclassification. In addition, they do not have to meet the requirement that a hospital's average hourly wage must exceed, by a certain percentage, the average hourly wage of the labor market area in which the hospital is located. Section 4202(b) of the Balanced Budget Act of 1997 (Pub. L. 105-33) states, in part, that any hospital classified as an RRC by the Secretary for [[Page 49842]] FY 1991 shall be classified as such an RRC for FY 1998 and each subsequent fiscal year. In the August 29, 1997, IPPS final rule with comment period (62 FR 45999 through 46000), we reinstated RRC status for all hospitals that lost that status due to triennial review or MGCRB reclassification. However, we did not reinstate the status of hospitals that lost RRC status because they were now urban for all purposes because of the designation of their geographic area as urban. Subsequently, in the August 1, 2000, IPPS final rule (65 FR 47087), we indicated that we were revisiting that decision. Specifically, we stated that we would permit hospitals that previously qualified as an RRC and lost their status due to redesignation of the county in which they are located from rural to urban, to be reinstated as an RRC. Otherwise, a hospital seeking RRC status must satisfy all of the other applicable criteria. We use the definitions of ``urban'' and ``rural'' specified in subpart D of 42 CFR part 412. One of the criteria under which a hospital may qualify as an RRC is to have 275 or more beds available for use (42 CFR 412.96(b)(1)(ii)). A rural hospital that does not meet the bed size requirement can qualify as an RRC if the hospital meets two mandatory prerequisites (a minimum case-mix index (CMI) and a minimum number of discharges), and at least one of three optional criteria (relating to specialty composition of medical staff, source of inpatients, or referral volume). (We refer readers to 42 CFR 412.96(c)(1) through (5) and the September 30, 1988, Federal Register (53 FR 38513) for additional discussion.) With respect to the two mandatory prerequisites, a hospital may be classified as an RRC if the hospital's-- CMI is at least equal to the lower of the median CMI for urban hospitals in its census region, excluding hospitals with approved teaching programs, or the median CMI for all urban hospitals nationally; and Number of discharges is at least 5,000 per year, or, if fewer, the median number of discharges for urban hospitals in the census region in which the hospital is located. The number of discharges criterion for an osteopathic hospital is at least 3,000 discharges per year, as specified in section 1886(d)(5)(C)(i) of the Act. In the FY 2022 IPPS/LTCH PPS final rule (86 FR 45217), in light of the COVID-19 PHE, we amended the regulations at 42 CFR 412.96(h)(1) to provide for the use of the best available data rather than the latest available data in calculating the national and regional CMI criteria. We also amended the regulations at 42 CFR 412.96(c)(1) to indicate that the individual hospital's CMI value for discharges during the same Federal fiscal year used to compute the national and regional CMI values is used for purposes of determining whether a hospital qualifies for RRC classification. We also amended the regulations 42 CFR 412.96(i)(1) and (2), which describe the methodology for calculating the number of discharges criteria, to provide for the use of the best available data rather than the latest available or most recent data when calculating the regional discharges for RRC classification.

1. Case-Mix Index (CMI)

Section 412.96(c)(1) provides that CMS establish updated national and regional CMI values in each year's annual notice of prospective payment rates for purposes of determining RRC status. The methodology we used to determine the national and regional CMI values is set forth in the regulations at 42 CFR 412.96(c)(1)(ii). The national median CMI value for FY 2027 is based on the CMI values of all urban hospitals nationwide, and the regional median CMI values for FY 2027 are based on the CMI values of all urban hospitals within each census region, excluding those hospitals with approved teaching programs (that is, those hospitals that train residents in an approved GME program as provided in 42 CFR 413.75). These values are based on discharges occurring during FY 2025 (October 1, 2024, through September 30, 2025), and include bills posted to CMS' records through March 2026. We believe that this is the best available data for use in calculating the national and regional median CMI values and is consistent with our use of the FY 2025 MedPAR claims data for FY 2027 ratesetting. In the FY 2027 IPPS/LTCH PPS proposed rule, we proposed that, in addition to meeting other criteria, if rural hospitals with fewer than 275 beds are to qualify for initial RRC status for cost reporting periods beginning on or after October 1, 2026, they must have a CMI value for FY 2025 that is at least-- 1.7783 (national--all urban); or The median CMI value (not transfer-adjusted) for urban hospitals (excluding hospitals with approved teaching programs as identified in 42 CFR 413.75) calculated by CMS for the census region in which the hospital is located. (We refer readers to the table set forth in the FY 2027 IPPS/LTCH PPS proposed rule at 91 FR 19499). In the proposed rule, we stated that we intended to update the proposed CMI values in the FY 2027 IPPS/LTCH PPS final rule to reflect the updated FY 2025 MedPAR file, which contains data from additional bills received through March 2026. Comment: Commenters supported our proposal to use FY 2025 data to calculate the national and regional median CMI values for FY 2027. Response: We appreciate the commenters' support. Therefore, based on the best available data (FY 2025 bills received through March 2026), in addition to meeting other criteria, if rural hospitals with fewer than 275 beds are to qualify for initial RRC status for cost reporting periods beginning on or after October 1, 2026, they must have a CMI value for FY 2025 that is at least: 1.778 (national--all urban); or The median CMI value (not transfer-adjusted) for urban hospitals (excluding hospitals with approved teaching programs as identified in Sec. 413.75) calculated by CMS for the census region in which the hospital is located. The final CMI values by region are set forth in the following table. [GRAPHIC] [TIFF OMITTED] TR04AU26.151 [[Page 49843]] A hospital seeking to qualify as an RRC should obtain its hospital- specific CMI value (not transfer-adjusted) from its MAC. Data is available on the Provider Statistical and Reimbursement (PS&R) System. In keeping with our policy on discharges, the CMI values are computed based on all Medicare patient discharges subject to the IPPS MS-DRG- based payment.

2. Discharges

Section 412.96(c)(2)(i) provides that CMS set forth the national and regional numbers of discharges criteria in each year's annual notice of prospective payment rates for purposes of determining RRC status. As specified in section 1886(d)(5)(C)(ii) of the Act, the national standard is set at 5,000 discharges. In the FY 2027 IPPS/LTCH PPS proposed rule, we proposed to update the regional standards based on discharges for urban hospitals' cost reporting periods that began during FY 2024 (that is, October 1, 2023, through September 30, 2024), which are the latest cost report data available at the time this final rule was developed. We believe that this is the best available data for use in calculating the median number of discharges by region and is consistent with our finalized data proposal to use cost report data from cost reporting periods beginning during FY 2024 for FY 2027 ratesetting. In the FY 2027 IPPS/LTCH PPS proposed rule, we proposed that, in addition to meeting other criteria, a hospital, if it is to qualify for initial RRC status for cost reporting periods beginning on or after October 1, 2026, must have, as the number of discharges for its cost reporting period that began during FY 2024, at least-- 5,000 (3,000 for an osteopathic hospital); or If less, the median number of discharges for urban hospitals in the census region in which the hospital is located. (We refer readers to the table set forth in the FY 2027 IPPS/LTCH PPS proposed rule at 91 FR 19499). In the proposed rule, we stated that we intended to update these numbers in the FY 2027 final rule based on the latest available cost report data. Comment: Commenters supported our proposal to use FY 2024 data to calculate median number of discharges by region for FY 2027. Response: We appreciate the commenters' support. Therefore, based on the best available discharge data at this time, that is, for cost reporting periods that began during FY 2024, the final median number of discharges for urban hospitals by census region are set forth in the following table. [GRAPHIC] [TIFF OMITTED] TR04AU26.152 We note that because the median number of discharges for hospitals in each census region is greater than the national standard of 5,000 discharges, under this final rule, 5,000 discharges is the minimum criterion for all hospitals, except for osteopathic hospitals for which the minimum criterion is 3,000 discharges.

1. Background

Section 1886(d)(12) of the Act provides for an additional payment to each qualifying low-volume hospital under the IPPS beginning in FY 2005. The low-volume hospital payment adjustment is implemented in the regulations at 42 CFR 412.101. The additional payment adjustment to a low-volume hospital provided for under section 1886(d)(12) of the Act is in addition to any payment calculated under section 1886 of the Act and is based on the per discharge amount paid to the qualifying hospital. In other words, the low-volume hospital payment adjustment is based on total per discharge payments made under section 1886 of the Act, including capital, DSH, IME, and outlier payments. For SCHs and MDHs, the low-volume hospital payment adjustment is based in part on either the Federal rate or the hospital-specific rate, whichever results in a greater operating IPPS payment. The payment adjustment for low-volume hospitals is not budget neutral. As discussed in the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19499 through 19503), section 2201 of the Full-Year Continuing Appropriations and Extensions Act, 2025 (Pub. L. 119-4) extended the temporary changes to the low-volume hospital qualifying criteria and payment adjustment under the IPPS, that is, the modified definition of low-volume hospital and the methodology for calculating the payment adjustment for low-volume hospitals under section 1886(d)(12), through September 30, 2025. The Continuing Appropriations, Agriculture, Legislative Branch, Military Construction and Veterans Affairs, and Extensions Act, 2026 (Pub. L. 119-37), enacted on November 12, 2025, provided an extension of those temporary changes to the qualifying criteria and payment adjustment methodology for certain low-volume hospitals through January 30, 2026. Most recently, the Consolidated Appropriations Act, 2026 (Pub. L. 119-75), provided an extension of those temporary changes to the qualifying criteria and payment adjustment methodology for certain low-volume hospitals through FY 2026 and the portion of fiscal year 2027 beginning on October 1, 2026, and ending on December 31, 2026. Absent further Congressional action, beginning January 1, 2027 the low-volume hospital qualifying criteria and payment adjustment revert to the statutory requirements that were in effect prior to FY 2011, and the preexisting low-volume hospital payment adjustment methodology and qualifying criteria, as implemented in FY 2005 and discussed later in this section, resume. We discuss the payment policies for FY 2027 in sections V.D.2 and V.D.3. of the preamble of this final rule. [[Page 49844]] [GRAPHIC] [TIFF OMITTED] TR04AU26.153

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

Definition and Payment Adjustment Methodology and Conforming Changes to Regulations As discussed previously, section 2201 of the Full-Year Continuing Appropriations and Extensions Act, 2025, extended the temporary changes to the low-volume hospital qualifying criteria and payment adjustment through September 30, 2025. Section 6201 of the Continuing Appropriations, Agriculture, Legislative Branch, Military Construction and Veterans Affairs, and Extensions Act, 2026 further extended the temporary changes to the low-volume hospital qualifying criteria and payment adjustment under the IPPS for the portion of FY 2026 beginning on October 1, 2025, and ending on January 30, 2026. Most recently, section 6201 of the Consolidated Appropriations Act, 2026 extended the temporary changes to the low-volume hospital qualifying criteria and payment adjustment through FY 2026 and the portion of fiscal year 2027 beginning on October 1, 2026, and ending on December 31, 2026. We note the extension provided by the Continuing Appropriations, Agriculture, Legislative Branch, Military Construction and Veterans Affairs, and Extensions Act, 2026 was addressed in Change Request 14341 (Transmittal 13564) and the extension provided by the Consolidated Appropriations Act, 2026 was addressed in Change Request 14415 (Transmittal 13735), issued April 14, 2026. For additional information, please refer to the transmittal R13564OTN and R13735OTN. Under section 1886(d)(12)(C)(i) of the Act, as amended by the Consolidated Appropriations Act, 2026, for FYs 2019 through FY 2026 and the portion of FY 2027 beginning on October 1, 2026 and ending on December 31, 2026, a subsection (d) hospital qualifies as a low-volume hospital if it is more than 15 road miles from another subsection (d) hospital and has less than 3,800 total discharges during the fiscal year. In accordance with the existing regulations at Sec. 412.101(a), we define the term ``road miles'' to mean ``miles'' as defined at Sec. 412.92(c)(1). Under section 1886(d)(12)(D) of the Act, as amended, for discharges occurring in FYs 2019 through 2026 and the portion of FY 2027 beginning on October 1, 2026 and ending on December 31, 2026, the Secretary determines the applicable percentage increase using a continuous, linear sliding scale ranging from an additional 25 percent payment adjustment for low-volume hospitals with 500 or fewer discharges to a zero percent additional payment for low volume hospitals with more than 3,800 discharges in the fiscal year. Consistent with the requirements of section 1886(d)(12)(C)(ii) of the Act, the term ``discharge'' for purposes of these provisions refers to total discharges, regardless of payer (that is, Medicare and non- Medicare discharges). In the FY 2019 IPPS/LTCH PPS final rule (83 FR 41399), we specified a continuous, linear sliding scale formula to determine the low volume payment adjustment, as reflected in the regulations at Sec. 412.101(c)(3)(ii). Consistent with the statute, we provided that qualifying hospitals with 500 or fewer total discharges will receive a low-volume hospital payment adjustment of 25 percent. For qualifying hospitals with fewer than 3,800 discharges but more than 500 discharges, the low-volume payment adjustment is calculated by subtracting from 25 percent the proportion of payments associated with the discharges in excess of 500. For qualifying hospitals with fewer than 3,800 total discharges but more than 500 total discharges, the low-volume hospital payment adjustment is calculated using the formula at Sec. 412.101(c)(3)(ii) (which is shown in the Table V.D.-01). For this purpose, the term ``discharge'' refers to total discharges, regardless of payer (that is, Medicare and non-Medicare discharges). The hospital's most recently submitted cost report is used to determine if the hospital meets the discharge criterion to receive the low volume payment adjustment in the current year (Sec. 412.101(b)(2)(iii)). The low-volume hospital payment adjustment for FYs 2019 through 2025 is set forth in the current regulations at Sec. 412.101(c)(3). In the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19499), we proposed to make conforming changes to the regulation text in Sec. 412.101 to reflect the extension of the changes to the qualifying criteria and the payment adjustment methodology for low-volume hospitals in accordance with provisions of the Consolidated Appropriations Act, 2026. Specifically, we proposed to make conforming changes to paragraphs (b)(2)(iii) and (c)(3) introductory text of Sec. 412.101 to reflect that the low-volume hospital payment adjustment policy in effect through FY 2026 and the portion of fiscal year 2027 beginning on October 1, 2026, and ending on December 31, 2026 is the same low-volume hospital payment adjustment policy in effect for FYs 2019 through 2025 (as described in the FY 2019 IPPS/LTCH PPS final rule (83 FR 41398 through 41399) and in the FY 2026 IPPS/LTCH PPS final rule (90 FR 36908 through 36912)). In addition, in accordance with the provisions of the Consolidated Appropriations Act, 2026, we proposed to make conforming changes to paragraphs (b)(2)(i) and (c)(1) of Sec. 412.101 to reflect that beginning with the portion of fiscal year 2027 beginning on January 1, 2027, and ending on September 30, 2027, and for fiscal year 2028 and subsequent fiscal years, the low-volume hospital payment adjustment policy reverts back to the low-volume hospital payment adjustment policy in effect for FYs 2005 through 2010, as described in section V.D.3. of the preamble of this final rule. We further proposed that if the temporary changes to the low-volume payment adjustment are extended through legislation beyond December 31, 2026, we would make the conforming changes to the regulations at Sec. 412.101(b)(2)(i) and (iii) and (c)(1) and (3) to reflect any further extension. We received no comments on our proposed conforming changes to the regulations to codify this extension and we are finalizing the proposed changes to the regulations text in Sec. 412.101 without modification. [[Page 49845]]

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

1, 2027 and Subsequent Fiscal Years In accordance with section 1886(d)(12) of the Act, as amended by the Consolidated Appropriations Act, 2026, beginning with FY 2027 discharges occurring on or after January 1, 2027 the low-volume hospital definition and payment adjustment methodology revert to the statutory requirements that were in effect prior to the amendments made by the Affordable Care Act and subsequent legislation. Specifically, section 1886(d)(12)(B) of the Act requires, for discharges occurring in FYs 2005 through 2010 and for discharges occurring during the portion of FY 2027 beginning on or after January 1, 2027, and subsequent fiscal years, that the Secretary determine an applicable percentage increase for these low-volume hospitals based on the ``empirical relationship'' between the standardized cost-per-case for such hospitals and the total number of discharges of such hospitals and the amount of the additional incremental costs (if any) that are associated with such number of discharges. The statute thus mandates that the Secretary develop an empirically justifiable adjustment based on the relationship between costs and discharges for these low-volume hospitals. Therefore, absent further Congressional action, effective for the portion of FY 2027 beginning on January 1, 2027, and ending on September 30, 2027, and for FY 2028 and subsequent fiscal years, under current policy at Sec. 412.101(b), to qualify as a low-volume hospital, a subsection (d) hospital must be more than 25 road miles from another subsection (d) hospital and have less than 200 discharges (that is, less than 200 discharges total, including both Medicare and non-Medicare discharges) during the fiscal year. For the portion of FY 2027 beginning on January 1, 2027 and for subsequent fiscal years, the statute specifies that a low-volume hospital must have less than 800 discharges during the fiscal year. However, as required by section 1886(d)(12)(B)(i) of the Act, the Secretary has developed an empirically justifiable payment adjustment based on the relationship, for IPPS hospitals with less than 800 discharges, between the additional incremental costs (if any) that are associated with a particular number of discharges. Based on an analysis we conducted for the FY 2005 IPPS final rule (69 FR 49099 through 49102), a 25 percent low-volume adjustment to all qualifying hospitals with less than 200 discharges was found to be most consistent with the statutory requirement to provide relief for low-volume hospitals where there is empirical evidence that higher incremental costs are associated with low numbers of total discharges. (Under the policy we established in that same final rule, hospitals with between 200 and 799 discharges do not receive a low-volume hospital adjustment.) As discussed previously, for FYs 2005 through 2010 and FY 2019 and subsequent years, the discharge determination is made based on the hospital's number of total discharges, that is, Medicare and non- Medicare discharges. The hospital's most recently submitted cost report is used to determine if the hospital meets the discharge criterion to receive the low-volume payment adjustment in the current year (Sec. 412.101(b)(2)(i)). We use cost report data to determine if a hospital meets the discharge criterion because this is the best available data source that includes information on both Medicare and non-Medicare discharges. We note that, for FYs 2011 through 2018, we used the most recently available MedPAR data to determine the hospital's Medicare discharges because only Medicare discharges were used to determine if a hospital met the discharge criterion for those years. In addition to the discharge criterion, a hospital must also meet the mileage criterion to qualify for the low-volume payment adjustment. As specified by section 1886(d)(12)(C)(i) of the Act, a low-volume hospital must be more than 25 road miles (or 15 road miles for FYs 2011 through the portion of FY 2027 ending on December 31, 2026) from another subsection (d) hospital. Accordingly, for the portion of FY 2027 beginning on January 1, 2027, and for subsequent fiscal years, in addition to the discharge criterion, the eligibility for the low-volume payment adjustment is also dependent upon the hospital meeting the mileage criterion at Sec. 412.101(b)(2)(i), which specifies that a hospital must be located more than 25 road miles from the nearest subsection (d) hospital, consistent with section 1886(d)(12)(C)(i) of the Act. We define, at Sec. 412.101(a), the term ``road miles'' to mean ``miles'' as defined at Sec. 412.92(c)(1) (75 FR 50238 through 50275 and 50414). As previously noted, we proposed to make conforming changes to paragraphs (b)(2)(i) and (c)(1) of Sec. 412.101 to reflect that for the portion of FY 2027 beginning on January 1, 2027, and for subsequent fiscal years, the low-volume hospital payment adjustment policy is the same as that in effect for FYs 2005 through 2010. Comment: Similar to previous extensions, many commenters supported the legislative extension of the temporary changes to the definition and payment adjustment for low-volume hospitals through December 31, 2026, and expressed support for additional legislative extensions. Many commenters continued to request that CMS work with Congress to extend or make permanent the temporary modifications to the low-volume hospital payment policy. Several commenters expressed financial instability concerns, particularly those in rural areas or that serve primarily Medicare patients, in the absence of a further extension of the temporary modifications to the low-volume hospital payment policy. A commenter stated that the proposed changes to the mileage and discharge criteria do not account for the business decisions that hospitals have made in reliance on the low-volume adjustment since current criteria took effect in FY 2019. A commenter urged CMS to use its legal authority to make low-volume hospital payments to all current low-volume hospitals in the absence of an extension of the temporary modifications. A few commenters requested CMS provide a transition payment to hospitals impacted by the expiration of the temporary modifications to the low-volume hospital payment policy. Several commenters again sought clarification on how CMS would handle any legislation that would further extend the modified low- volume hospital payment policy beyond the end of the year. Other commenters urged CMS to expeditiously process claims and provide instructions to MACs for any subsequent extensions, especially in instances when extensions are made retroactively to avoid significant financial strain to affected hospitals and potential lower Medicare reimbursement from MA plans (as they stated many MA plans do not make retrospective payments for extensions that occur retrospectively until after CMS issues instructions to the MACs). Response: We appreciate the commenters sharing their support for legislative action and the commenters' concerns about the expiration of the temporary changes to the low-volume hospital policy and the corresponding financial impact. As previously discussed, section 1886(d)(12) of the Act sets forth the applicable low-volume hospital policy beginning January 1, 2027, and the statute mandates that the Secretary develop an empirically justifiable adjustment based on the [[Page 49846]] relationship between costs and discharges for low volume hospitals. As described previously, a 25 percent low-volume adjustment for qualifying hospitals with less than 200 discharges was found to be most consistent with the statutory requirement. We understand commenters' concerns with the financial impact of the expiration of the temporary modifications to the low-volume hospital policy, however, we note that since the current criteria under the expanded low-volume hospital adjustment took effect in FY 2019, those modifications have been temporary. As we have said in the past, we make every effort to implement any extension of the low-volume hospital payment policy as expeditiously as possible. As with past extensions, CMS will evaluate enacted legislation to determine the most appropriate approach to implement changes to the law, including issuing instructions to the MACs and to communicate with affected hospitals. However, we believe it would be premature to opine on exactly how any subsequent extension would be implemented. As with past extensions, we would continue to work to implement any subsequent extensions as quickly and seamlessly as possible based on the specific legislative requirements of the particular extension. Comment: As in past years, several commenters stated that it is not the intent of Congress for the low-volume hospital payment policy to revert to the historical statutory requirements. Some of these commenters believe that CMS is ignoring the congressional intent of this policy and denying a group of IPPS providers low-volume hospital payments with the reversion to the policy that was originally established for FY 2005. A few commenters also stated that CMS did not explain why limiting the low-volume hospital payment adjustment to hospitals with fewer than 200 discharges is ``most consistent'' with statute. These commenters requested expanding eligibility for the discharge criteria to match the statutory requirement to include IPPS hospitals with 200-799 discharges. A commenter requested that CMS evaluate whether hospitals with greater than 200 discharges continue to experience the financial vulnerabilities that the low-volume adjustment was designed to address. Response: We continue to disagree that it is contrary to the congressional intent for the low-volume hospital policy to revert to the policy established under the original historical statutory requirements. As previously discussed, the extension of the temporary changes to the qualifying criteria and payment adjustment methodology for certain low-volume hospitals provided by section 6201 of the Consolidated Appropriations Act, 2026 is through December 31, 2026, only. Consistent with the discussion in the FY 2005 IPPS final rule (69 FR 49100), despite the statutory definition of a low-volume hospital as a subsection (d) hospital that has less than 800 discharges, the statutory provision mandating this adjustment also requires the Secretary to determine the empirical relationship between the standardized cost-per-case, the total number of discharges, and the amount of incremental costs (if any) associated with the number of discharges (emphasis added). The statute requires that the applicable percentage increase shall be based upon such relationship in a manner that reflects such incremental costs. We continue to believe that the statutory language thus gives the Secretary the flexibility to set the percentage increase at zero for a given number of discharges if the empirical evidence shows that hospitals experience no higher incremental costs when they reach that number of discharges. In other words, the statute does not require the Secretary to provide an adjustment in the absence of empirical evidence that an adjustment is warranted by higher incremental costs. As discussed in response to public comments in the FY 2013 IPPS/ LTCH PPS final rule (77 FR 53408 through 53409), the FY 2014 IPPS/LTCH PPS final rule (78 FR 50612 through 50613), the FY 2018 IPPS/LTCH PPS final rule (82 FR 38184 through 38189), and the FY 2026 IPPS/LTCH PPS final rule (90 FR 36910 through 36911), to implement the original low- volume hospital payment adjustment provision, and as mandated by statute, we developed an empirically justified adjustment based on the relationship between costs and total discharges of hospitals with less than 800 total (Medicare and non-Medicare) discharges. Specifically, we performed several regression analyses to evaluate the relationship between hospitals' costs per case and discharges, and found that an adjustment for hospitals with less than 200 total discharges is most consistent with the statutory requirement to provide for additional payments to low-volume hospitals where there is empirical evidence that higher incremental costs are associated with lower numbers of discharges (69 FR 49101 through 49102). Based on these analyses, we established a low-volume hospital policy under which qualifying hospitals with less than 200 total discharges receive a payment adjustment of an additional 25 percent. (Section 1886(d)(12)(B)(iii) of the Act limits the applicable percentage increase adjustment to no more than 25 percent.) At this time, we are not aware of any analysis or empirical evidence that would support expanding the originally established low-volume hospital adjustment policy and we did not make any proposals regarding the low-volume hospital payment adjustment for FY 2027. For these reasons, we are not making any changes to the low- volume hospital payment adjustment policy in this final rule. Comment: A few commenters expressed support for the methodology for calculating the low-volume payment adjustment using a single, non- sliding scale adjustment of 25 percent for qualifying hospital discharges beginning January 1, 2027, when the temporary changes expire under current law. Response: We appreciate commenters' support for the single, non- sliding scale payment adjustment for qualifying hospitals beginning January 1, 2027. After consideration of the public comments we received regarding the changes to the qualifying criteria and the payment adjustment methodology for low-volume hospitals for FY 2027, we are finalizing our proposals without modification.

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

Adjustment for FY 2027 In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50238 through 50275 and 50414) and subsequent rulemaking, most recently in the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19501 through 19503), we discussed the process for requesting and obtaining the low-volume hospital payment adjustment. Under this previously established process, a hospital makes a written request for the low-volume payment adjustment under Sec. 412.101 to its MAC. This request must contain sufficient documentation to establish that the hospital meets the applicable mileage and discharge criteria. The MAC will determine if the hospital qualifies as a low-volume hospital by reviewing the data the hospital submits with its request for low-volume hospital status in addition to other available data. Under this approach, a hospital will know in advance whether or not it will receive a payment adjustment under the low-volume hospital policy. The MAC and CMS may review available data such as the number of discharges, in addition to the data the hospital submits with its request for [[Page 49847]] low-volume hospital status, to determine whether or not the hospital meets the qualifying criteria. (For additional information on our existing process for requesting the low-volume hospital payment adjustment, we refer readers to the FY 2019 IPPS/LTCH PPS final rule (83 FR 41399 through 41401).) As explained earlier, for FY 2019 and subsequent fiscal years, the discharge determination is made based on the hospital's number of total discharges, that is, Medicare and non-Medicare discharges, as was the case for FYs 2005 through 2010. Under Sec. 412.101(b)(2)(i) and (iii), a hospital's most recently submitted cost report is used to determine if the hospital meets the discharge criterion to receive the low-volume payment adjustment in the current year. As discussed in the FY 2019 IPPS/LTCH PPS final rule (83 FR 41399 and 41400), we use cost report data to determine if a hospital meets the discharge criterion because this is the best available data source that includes information on both Medicare and non-Medicare discharges. (For FYs 2011 through 2018, the most recently available MedPAR data were used to determine the hospital's Medicare discharges because non-Medicare discharges were not used to determine if a hospital met the discharge criterion for those years.) Therefore, a hospital must refer to its most recently submitted cost report for total discharges (Medicare and non-Medicare) to decide whether or not to apply for low-volume hospital status for a particular fiscal year. In addition to the discharge criterion, eligibility for the low- volume hospital payment adjustment is also dependent upon the hospital meeting the applicable mileage criterion specified in section 1886(d)(12)(C)(i) of the Act, which is codified at Sec. [thinsp]412.101(b)(2), for the fiscal year. To meet the mileage criterion to qualify for the low-volume hospital payment adjustment for the portion of FY 2027 beginning October 1, 2026 through December 31, 2026, a hospital must be located more than 15 road miles from the nearest subsection (d) hospital, as reflected in revised Sec. [thinsp]412.101(b)(2). Additionally, to meet the mileage criterion to qualify for the low-volume hospital payment adjustment for the portion of FY 2027 beginning January 1, 2027 through September 30, 2027, a hospital must be located more than 25 road miles from the nearest subsection (d) hospital. (We define in Sec. [thinsp]412.101(a) the term ``road miles'' to mean ``miles'' as defined in Sec. [thinsp]412.92(c)(1) (75 FR 50238 through 50275 and 50414).) For establishing that the hospital meets the mileage criterion, the use of a web-based mapping tool as part of the documentation is acceptable. The MAC will determine if the information submitted by the hospital, such as the name and street address of the nearest hospital(s), location on a map, and distance from the hospital requesting low-volume hospital status, is sufficient to document that it meets the mileage criterion. If not, the MAC will follow up with the hospital to obtain additional necessary information to determine whether or not the hospital meets the applicable mileage criterion. In accordance with our previously established process, a hospital must make a written request for low-volume hospital status that is received by its MAC by September 1 immediately preceding the start of the Federal fiscal year for which the hospital is applying for low- volume hospital status in order for the applicable low-volume hospital payment adjustment to be applied to payments for its discharges for the fiscal year beginning on or after October 1 immediately following the request (that is, the start of the Federal fiscal year). For a hospital whose request for low-volume hospital status is received after September 1, if the MAC determines the hospital meets the criteria to qualify as a low-volume hospital, the MAC will apply the applicable low-volume hospital payment adjustment to determine payment for the hospital's discharges for the fiscal year, effective prospectively within 30 days of the date of the MAC's low-volume status determination. Consistent with this previously established process, for FY 2027, we proposed that a hospital must submit a written request for low- volume hospital status to its MAC that includes sufficient documentation to establish that the hospital meets the applicable mileage and discharge criteria (as described earlier). Specifically, for the portion of FY 2027 beginning October 1, 2026 through December 31, 2026, a hospital must make a written request for low-volume hospital status that is received by its MAC no later than September 1, 2026, in order for the low-volume, add-on payment adjustment to be applied to payments for its discharges beginning on or after October 1, 2026. If a hospital's written request for low-volume hospital status for the portion of FY 2027 beginning October 1, 2026 through December 31, 2026 is received after September 1, 2026, and if the MAC determines the hospital meets the criteria to qualify as a low-volume hospital, the MAC would apply the low-volume hospital payment adjustment to determine the payment for the hospital's FY 2027 discharges beginning October 1, 2026 through December 31, 2026, effective prospectively within 30 days of the date of the MAC's low-volume hospital status determination. Additionally, we proposed that a hospital must also submit a written request for low-volume hospital status to its MAC that includes sufficient documentation to establish that the hospital continues to meet the applicable mileage and discharge criteria for the portion of FY 2027 beginning on January 1, 2027 through September 30, 2027 (as described earlier). Specifically, for the portion of FY 2027 beginning on January 1, 2027, a hospital must make a written request for low- volume hospital status that is received by its MAC no later than December 1, 2026, in order for the 25-percent, low-volume, add-on payment adjustment to be applied to payments for its discharges beginning on or after January 1, 2027. If a hospital's written request for low-volume hospital status for the portion of FY 2027 beginning on January 1, 2027 is received after December 1, 2026, and if the MAC determines the hospital meets the criteria to qualify as a low-volume hospital, the MAC would apply the low-volume hospital payment adjustment to determine the payment for the hospital's FY 2027 discharges on or after January 1, 2027, effective prospectively within 30 days of the date of the MAC's low-volume hospital status determination. A hospital may choose to make a single written request for low- volume hospital status to its MAC for both the portion of FY 2027 beginning on October 1, 2026 and ending December 31, 2026 and the portion of FY 2027 beginning on January 1, 2027 through September 30, 2027 by the September 1, 2026 deadline discussed previously. Alternatively, a hospital may choose to submit separate written requests, one for the portion of FY 2027 beginning on October 1, 2026 and ending on December 31, 2026 (by the September 1, 2026 deadline discussed previously), and another for the portion of FY 2027 beginning on January 1, 2027 through September 30, 2027 (by the December 1, 2026 deadline discussed previously). Under this process, a hospital that qualified for the low-volume hospital payment adjustment for FY 2026 may continue to receive a low- volume hospital payment adjustment for FY 2027 without reapplying if it meets both the discharge criterion and the mileage criterion applicable for FY 2027 (that is, the discharge criterion and mileage criterion for the period beginning October 1, 2026 through December 31, 2026, as well as the discharge criterion and mileage criterion for the period [[Page 49848]] beginning on January 1, 2027 through September 30, 2027, respectively). As discussed previously, for the portion of FY 2027 beginning on January 1, 2027, the discharge and the mileage criteria are reverting to the statutory requirements that were in effect prior to FY 2011, and to the preexisting low-volume hospital qualifying criteria, as implemented in FY 2005 and specified in the existing regulations at Sec. [thinsp]412.101(b)(2)(i). As in previous years, we proposed that such a hospital must send written verification that is received by its MAC no later than September 1, 2026 or December 1, 2026, respectively, stating that it meets the mileage criterion for the applicable portion(s) of FY 2027, as described previously. For example, for the portion of FY 2027 beginning October 1, 2026 through December 31, 2026, the hospital must state it is located more than 15 road miles from the nearest ``subsection (d)'' hospital. Similarly, for the portion of FY 2027 beginning on January 1, 2027, the hospital must state it is located more than 25 road miles from the nearest ``subsection (d)'' hospital. For FY 2027, we are further proposed that this written verification must also state, based upon the most recently submitted cost report, that the hospital meets the discharge criterion for the applicable portion(s) of FY 2027, as described previously. For example, for the portion of FY 2027 beginning October 1, 2026 through December 31, 2026, the hospital must have less than 3,800 discharges total, including both Medicare and non-Medicare discharges. Similarly, for the portion of FY 2027 beginning on January 1, 2027, the hospital must have less than 200 discharges total, including both Medicare and non- Medicare discharges. If a hospital's request for low-volume hospital status for FY 2027 is received after September 1, 2026, (or after December 1, 2026 for the portion of FY 2027 beginning on January 1, 2027) and if the MAC determines the hospital meets the criteria to qualify as a low-volume hospital, the MAC will apply the applicable low-volume add-on payment adjustment to determine the payment for the hospital's discharges for the applicable portion of FY 2027, effective prospectively within 30 days of the date of the MAC's low-volume hospital status determination. We received no comments on our proposed process for requesting and obtaining the low-volume hospital payment adjustment for FY 2027 and therefore are finalizing this proposal without modification.

1. Background for the MDH Program

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

2. Implementation of Legislative Extension of MDH Program

Since the extension of the MDH program through FY 2012 provided by section 3124 of the Affordable Care Act, the MDH program has been extended by subsequent legislation, most recently through December 31, 2026 (that is, for discharges occurring before January 1, 2027), as discussed further in this section. (Additional information on the extensions of the MDH program through FY 2025 can be found in the FY 2026 IPPS/LTCH PPS final rule (90 FR 36912).) As discussed in the FY 2026 IPPS/LTCH PPS final rule, the MDH program provision at section 1886(d)(5)(G) of the Act was set to expire at the end of FY 2025 (90 FR 36913). Subsequently, the MDH program was extended by additional legislation as follows: Section 6202 of the Continuing Appropriations, Agriculture, Legislative Branch, Military Construction and Veterans Affairs, and Extensions Act, 2026 (Pub. L. 119-37), enacted on November 12, 2025, provided for an extension of the MDH program through January 30, 2026. Section 6202 of the Consolidated Appropriations Act, 2026 (Pub. L. 119-75), enacted on February 3, 2026, provided for an extension of the MDH program through December 31, 2026 (that is, for discharges occurring before January 1, 2027). Specifically, section 6202 of Public Law 119-75 amended sections 1886(d)(5)(G)(i) and 1886(d)(5)(G)(ii)(II) of the Act by striking ``January 31, 2026'' and inserting ``January 1, 2027.'' Section 6202 of Public Law 119-75 also made conforming amendments to sections 1886(b)(3)(D)(i) and 1886(b)(3)(D)(iv) of the Act. Therefore, in the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19503) we proposed to make conforming changes to the regulations governing the MDH program at Sec. 412.108(a)(1) and (c)(2)(iii) and the general payment rules at Sec. 412.90(j) to reflect the extension of the MDH program through December 31, 2026. Generally, as a result of these extensions, a provider that was classified as an MDH as of September 30, 2025 may continue to be classified as a MDH as of October 1, 2025, with no need to reapply for MDH classification. (For more information on the MDH extensions through December 31, 2026, see Change Request 14341 (Transmittal 13564), issued December 23, 2025 and Change Request 14415 (Transmittal 13703), issued March 27, 2026, which are available online at https://www.cms.gov/medicare/regulations-guidance/transmittals/2025-transmittals/r13564otn and https://www.cms.gov/medicare/regulations-guidance/transmittals/2026-transmittals/r13703otn.

3. Expiration of the MDH Program

Because section 6202 of the Consolidated Appropriations Act, 2026 extended the MDH program through December 31, 2026 only, beginning January 1, 2027, the MDH program will no longer be in effect. Since the MDH program is not authorized by statute beyond December 31, 2026, absent Congressional action, beginning January 1, 2027, all hospitals that previously qualified for MDH status under section 1886(d)(5)(G) of the Act will no longer have MDH status and will be paid based on the Federal rate. When the MDH program was set to expire at the end of FY 2012, in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53404 through 53405), we revised our sole community hospital (SCH) policies to allow MDHs to apply for SCH status in advance of the expiration of the MDH program and be paid as such under certain conditions. We codified these changes in the regulations at Sec. 412.92(b)(2)(i) and (v). For additional information, we refer readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 53404 through 53405 and 53674). We note that a MDH that classifies as a SCH in anticipation of the MDH program expiration would have to reapply for MDH classification in accordance with the regulations at 42 CFR 412.108(b) and [[Page 49849]] meet the classification criteria at 42 CFR 412.108(a) in the event that the MDH program is further extended, and the provider wishes to return to its classification as a MDH. As noted, in the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19503), we proposed to make conforming changes to the regulations governing the MDH program at Sec. 412.108(a)(1) and (c)(2)(iii) and the general payment rules at Sec. 412.90(j) to reflect the extension of the MDH program through December 31, 2026. We also proposed that if the MDH program were to be extended by law beyond December 31, 2026, similar to how it was extended by prior legislation as described previously, we would, depending on timing of such legislation in relation to the final rule, modify our proposed conforming changes to the regulations governing the MDH program at Sec. 412.108(a)(1) and (c)(2)(iii) and the general payment rules at Sec. 412.90(j) to reflect any such further extension of the MDH program. We also noted that these modifications to our proposed conforming changes would only be made if the MDH program were to be extended by statute beyond December 31, 2026. Comment: Many commenters expressed support for extending the MDH program or making the MDH program permanent and noted that they would continue supporting congressional action to protect the MDH program and develop long term solutions to the financial challenges facing rural hospitals. They noted the uncertainty that these hospitals face and the resulting inability to make long-term capital and infrastructure investments or expansion of patient services. A few commenters urged CMS to continue to communicate to Congress the importance of extending the MDH program. Several State hospital associations and hospital chains expressed their concern that their hospitals would experience significant payment decreases as a result of the expiration of the MDH program. Commenters underscored the critical nature of the MDH program in supporting hospital solvency and preserving access to care in rural communities. A commenter requested that CMS consider additional transition protections for vulnerable providers. Another commenter urged CMS to include regulatory or policy clarification that supports continuity of MDH payment methodologies during any transition period. Other commenters supported an additional base rate for calculating MDH payments. Response: We understand the commenters' concerns about the expiration of the MDH program and the financial impact to affected providers if the MDH program is not extended beyond December 31, 2026. CMS does not have the authority under current law to extend the MDH program beyond the statutory expiration date. Similarly, section 1886(b)(3)(D) of the Act specifies the applicable base years or ``target amounts'' for hospitals classified as MDHs. These comments are similar to comments we received previously, prior to the most recent statutory extensions of the MDH program for FY 2026 and the portion of FY 2027 beginning October 1, 2026 through December 31, 2026. We refer commenters to our discussion in the FY 2026 IPPS/LTCH PPS final rule (90 FR 36912). In response to the comment requesting a regulatory or policy clarification that supports continuity of MDH payment methodologies during any transition period, as discussed previously, under current law, the MDH program is not authorized by statute beyond December 31, 2026. Absent further Congressional action, CMS may consider this for future rulemaking. Comment: Commenters requested that CMS clearly communicate how it will implement program extensions and prepare systems to facilitate expedited retroactive payments in the event that the MDH program lapses. Commenters urged CMS to implement any potential retroactive restoration and/or extensions of the MDH program more expeditiously to avoid significant financial strain to affected hospitals and potential lower Medicare reimbursement from MA plans. They requested that CMS engage stakeholders early to establish lines of communication, minimize confusion, and mitigate any potential delays in reimbursement and signal readiness to support impacted hospitals with technical guidance and financial planning resources. Another commenter requested that CMS issue guidance outlining how claims would be processed for discharges occurring after December 31, 2026 if the program expires. A commenter requested that CMS evaluate the projected impact of expiration on rural hospital margins and access to care and analyze the relationship between payment instability and service line reductions in rural communities. Another commenter requested that CMS publish hospital-specific modeling or impact data to allow affected providers to properly understand and prepare for potential financial risk. Response: We appreciate the commenters' sharing their concerns relating to a retroactive restoration of the MDH program. As with past extensions, CMS will evaluate enacted legislation to determine the most appropriate approach to implement changes to the law, including issuing instructions to the MACs to reinstate MDH status to eligible hospitals and to communicate with affected hospitals. As in the past, we will make every effort to implement any extension of the MDH program as expeditiously as possible. In response to the comment requesting that CMS issue guidance outlining how claims would be processed for discharges occurring after the MDH program expires, as noted previously, beginning with discharges occurring on or after January 1, 2027, absent further Congressional action, all hospitals that previously qualified for MDH status under section 1886(d)(5)(G) of the Act will no longer have MDH status and claims will be processed and will be paid based on the Federal rate. Following the issuance of the IPPS/LTCH PPS final rule each year, if the MDH program is set to expire, as part of the associated annual CR, CMS includes instructions to the Medicare contractors on how to modify the provider type for MDH providers in the Provider Specific File (PSF). The provider type is used by the claims processing system to apply the special payment provisions for eligible MDHs. For example, for the FY 2026 IPPS/LTCH PPS final rule, CMS issued Change Request 14203 (Transmittal 13398) on September 22, 2025, which is available online at https://www.cms.gov/files/document/r13398otn.pdf. In response to the comments requesting that CMS evaluate the projected impact of expiration on rural hospital margins and access and hospital-specific modeling or impact data, we refer the commenter to the provider data used in creating Table I--Impact Analysis of Changes to the IPPS for Operating Costs for FY 2027, in Appendix A of this final rule and posted on the web which can be used to estimate individual hospital's payments for FY 2027. The data can be found on the CMS website at https://www.cms.gov/medicare/payment/prospective-payment-systems/acuteinpatient-pps. In addition, we note in Table I in Appendix A of this final rule, the line for MDHs under ``Special Hospital Types'' reflects the expected impact for hospitals classified as MDH prior to the expiration on January 1, 2027, under current law. In summary, under current law, beginning January 1, 2027, all hospitals [[Page 49850]] that previously qualified for MDH status will no longer have MDH status. After consideration of the public comments we received, we are adopting as final the proposed conforming changes to the regulations text at Sec. Sec. 412.90 and 412.108 to reflect the extension of the MDH program through December 31, 2026 in accordance with section 6202 of the Consolidated Appropriations Act, 2026 (Pub. L. 119-75). We are finalizing the proposed changes in paragraphs (a)(1) and (c)(2)(iii) of Sec. 412.108 and paragraph (j) of Sec. 412.90 without modification.

F. Payment for Indirect and Direct Graduate Medical Education Costs

(Sec. Sec. 412.105 and 413.75 Through 413.83

1. Background

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

2. Requirements To Prohibit Unlawful Discrimination in Approved Medical

Residency Programs Hospitals may receive direct GME and IME payments for residents in ``approved medical residency training programs.'' Section 1886(h)(5)(A) of the Act defines an ``approved medical residency training program'' as ``a residency or other postgraduate medical training program participation in which may be counted toward certification in a specialty or subspecialty and includes formal postgraduate training programs in geriatric medicine approved by the Secretary.'' ``Approved medical residency program'' and equivalent terms are defined in the regulations at Sec. Sec. 412.105(f)(1)(i), 413.75(b), and 415.152. In general, under these regulations, an ``approved'' program is a program accredited by one of several national accrediting bodies or that leads toward board certification by the American Board of Medical Specialties (ABMS). Therefore, to ensure that accreditation for approved medical residency programs is in compliance with applicable laws related to race-based admission policies and to improve the accreditation process, in the CY 2026 OPPS/ASC final rule (90 FR 54024 through 54027), we finalized changes to the regulations at Sec. Sec. 412.105(f)(1)(i), 413.75(b), and 415.152, to state that accrediting organizations may not use accreditation criteria that promote or encourage discrimination on the basis of race, color, national origin, sex, age, disability, or religion, including the use of those characteristics or intentional proxies for those characteristics as a selection criterion for employment, program participation, resource allocation, or similar activities, opportunities, or benefits. We also clarified that prohibited practices under this policy include all other conduct in violation of federal antidiscrimination laws, including any ``unlawful practices'' under the Attorney General's Guidance for Recipients of Federal Funding Regarding Unlawful Discrimination (July 29, 2025). The policy finalized in the CY 2026 OPPS/ASC final rule applied specifically to graduate medical education accrediting bodies. In the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19504), we proposed a similar policy that would apply to approved medical residency programs themselves. Specifically, we proposed to require that, in addition to meeting other applicable requirements, an approved medical residency training program must not discriminate, or promote or encourage discrimination, on the basis of race, color, national origin, sex, age, disability, or religion, including the use of those characteristics or intentional proxies for those characteristics as a selection criterion for employment, program participation, resource allocation, or similar activities, opportunities, or benefits. We indicated that we believe such a policy is necessary to ensure that, even in the absence of discriminatory accreditation standards, individual programs do not implement policies that constitute unlawful discrimination under Federal law. The effective date of this proposed policy would be October 1, 2026. To streamline the regulations text and ensure consistent application of the requirements to approved medical residency programs and GME accrediting organizations, we also proposed to consolidate the majority of our existing and proposed non-discrimination requirements under proposed new 42 CFR 413.84. We proposed to cross-reference this new [[Page 49851]] section as necessary in the regulations at Sec. Sec. 412.105(f)(1)(i), 413.75(b), and 415.152. In section V.G.3. of the proposed rule (91 FR 19520), we proposed conforming policies with respect to approved nursing and allied health (NAH) education programs and accrediting bodies under 42 CFR 413.85. In this section of the final rule, we are combining our summary of and responses to the comments we received on the proposed requirements to prohibit unlawful discrimination by approved medical residency programs, approved NAH education programs, and NAH accrediting bodies. (As noted previously, we finalized requirements applicable to accreditors of graduate medical education programs in the CY 2026 OPPS final rule.) We refer readers to section V.G.3. of this final rule for discussion of comments that address concerns specific to payments for nursing and allied health education. Comment: We received several comments in support of our proposals to consolidate the existing GME-related antidiscrimination requirements under new 42 CFR 413.84 and to extend the requirements to individual graduate medical education programs, as well as to nursing and allied health education programs and accreditors. The commenters discussed instances in which they or others believed they experienced discriminatory treatment because of their religious or moral objections to certain training requirements and stated that, as a result of such reportedly hostile training environments, clinicians who object to performing abortions may be disincentivized from pursuing OB/GYN training, thus exacerbating workforce shortages in maternity care. A commenter stated that diversity, equity and inclusion criteria in admissions and employment are often a guise for unlawful discrimination and stated that the proposed requirements are necessary in light of the Accreditation Council for Graduate Medical Education's (ACGME) historical inclusion of DEI-related initiatives in its Common Program Requirements. A commenter that supported the proposal further urged CMS to require that abortion training be offered under an opt-in only model, as opposed to the opt-out model currently required by the ACGME, stating that the opt-out model creates a coercive environment both for residents with conscientious objections to training in induced abortions and for faith-based programs that are required to incorporate such training into their curricula. The commenter also expressed concern that Medicare GME funding may be used to pay for abortions, in violation of the Hyde Amendment, which generally prohibits the use of Federal funding for abortion except under limited circumstances. Another commenter encouraged CMS to expand the scope of the proposed regulations to include procedures besides abortion that are frequently implicated in discussions over conscience protections and religious freedom. Specifically, the commenter recommended adding an additional paragraph to the regulations under proposed Sec. 413.84(c) recognizing approved programs that would be accredited except for the accrediting agency's reliance upon an accreditation standard the requires an entity to ``[p]rescribe or provide procedures for contraception, sterilization, assisted suicide, euthanasia, or sex- rejecting interventions (what advocates call `gender affirmative care'), or require, provide, or refer for training in the performance of such procedures, or make arrangements for such training, regardless of whether the standard provides exceptions or exemptions.'' The commenter stated that this modification would further help enforce compliance with Federal conscience statutes, which extend to procedures in addition to abortion. Response: We thank the commenters for their support of our proposals. While we note that the most recent revisions to the ACGME's Common Program Requirements no longer include the diversity, equity and inclusion requirements cited by a commenter, we continue to believe our proposed policies are necessary to ensure that, even in the absence of discriminatory accreditation standards, individual programs do not implement policies that constitute unlawful discrimination under Federal law. Therefore, we are finalizing, without modification, our proposal that approved medical residency training programs, as well as approved nursing and allied health education programs and accrediting bodies, must not discriminate, or promote or encourage discrimination, on the basis of race, color, national origin, sex, age, disability, or religion, including the use of those characteristics or intentional proxies for those characteristics as a selection criterion for employment, program participation, resource allocation, or similar activities, opportunities, or benefits. In addition, we are finalizing our proposal to consolidate various GME- and NAH-related antidiscrimination requirements under new 42 CFR 413.84. In response to comments recommending further expansion of the proposed policies, we may take these comments into consideration for future rulemaking. We emphasize that regardless of the inclusion of explicit language in the GME regulations, no entity or individual may be forced to act contrary to objections protected by Federal conscience and nondiscrimination statutes. We also note with regard to the Hyde Amendment that both direct GME and IME payments are made only with respect to services otherwise payable under Medicare, and that abortion services are not payable under Medicare except under the limited circumstances specified in the Hyde Amendment (as codified most recently at Sec. Sec. 506-507 of Division B, Title V, of the Consolidated Appropriations Act, 2026, Pub. L. 119-75). Comment: Many commenters supported the overall goal of prohibiting unlawful discrimination but expressed concern about our proposal to codify these requirements as part of the definition of ``approved'' programs for purposes of Medicare GME and NAH payments. If CMS implements the proposed requirements, commenters stated that we should do so in a manner that is transparent and administratively feasible, and requested clarification on the following points: How hospitals would be evaluated for compliance with the proposed antidiscrimination requirements, including what constitutes an ``intentional proxy'' for protected characteristics under the proposed regulations text; How the proposed requirements would align with existing accreditation standards and Federal civil rights laws; The role that Medicare contractors, accrediting bodies, regulated institutions and other parties would assume in enforcing the proposed requirements; and What due process protections would be afforded to hospitals, including notice and response opportunities, appeal rights, and the postponement of any adverse payment consequence until a final determination of noncompliance has been reached by the appropriate body. Commenters warned that the absence of objective and administrable standards, duplication of established accreditation and civil rights requirements, lack of clearly delineated responsibilities, and unresolved questions about due process would increase compliance risks and create payment uncertainty for hospitals, potentially hampering development of the physician, nursing and allied health workforce pipelines. In addition, some [[Page 49852]] commenters urged CMS to delay implementation of the proposed requirements to give hospitals time to demonstrate compliance with the proposed regulations. A couple of commenters, while expressing support for compliance with Federal antidiscrimination laws, objected to the proposed prohibition on the use of identity characteristics or intentional proxies for those characteristics as selection criteria for residency programs. The commenters emphasized the importance of a diverse physician workforce in achieving positive health outcomes, especially among vulnerable groups, and stated that ignoring identity-based characteristics in the selection process could disadvantage qualified applicants from marginalized backgrounds. Response: While we appreciate commenters' concerns regarding the operationalization and enforcement of the antidiscrimination policies that we are finalizing in this final rule, we do not believe that prohibiting unlawful discrimination on the part of approved GME and NAH education programs would impose a significant administrative burden or create compliance risk or payment uncertainty for hospitals. Under the policy that we are codifying at 42 CFR 413.84, effective October 1, 2026, approved GME and NAH programs, must not discriminate, or promote or encourage discrimination, on the basis of race, color, national origin, sex, age, disability, or religion, including the use of those characteristics or intentional proxies for those characteristics as a selection criterion for employment, program participation, resource allocation, or similar activities, opportunities, or benefits. For a non-exhaustive list of unlawful policies and practices that are prohibited under these regulations, we refer readers to the Attorney General's Guidance for Recipients of Federal Funding Regarding Unlawful Discrimination (June 29, 2025). We note that section B.1 of this guidance includes discussion of the prohibited use of proxies for protected characteristics, including examples of potentially unlawful proxies. We also disagree with commenters who advocated for the use of identity-based characteristics, or proxies for such characteristics, as selection criteria in residency training programs. As we stated in the CY 2026 OPPS/ASC final rule (90 FR 54027, November 25, 2025), we believe that race-conscious elements of diversity, equity and inclusion policies are generally impermissible under Federal law, as strongly suggested by the Supreme Court's ruling in Students for Fair Admissions v. President Fellows of Harvard College (2023). In addition, we remain unpersuaded by commenters' arguments that such policies are necessary for achieving positive health outcomes and reiterate our position that patients and society at large have a compelling need for medical education to be focused primarily on excellence and delivering the best possible care to patients. Accordingly, emphasize that GME and NAH education programs should review their selection criteria to ensure that such criteria do not unlawfully discriminate on the basis of race or other protected characteristics or intentional proxies for those characteristics. Comment: Several commenters urged us to withdraw the proposal to prohibit unlawful discrimination in approved GME and NAH education programs. Instead, commenters stated that CMS should rely on existing Federal civil rights laws to address concerns related to unlawful discrimination and defer to the medical community and accrediting organizations to develop evidence-based standards that safeguard patient safety and promote an effective learning environment. A commenter argued that CMS has failed to explain why the proposed requirements are necessary or how they would advance the objectives of the Medicare GME program. Another commenter emphasized the importance of physician self-governance and expressed concern that additional restrictions could set a precedent for further government interference in residency training. Response: We respectfully disagree with the commenters' objections. As we stated in the proposed rule, we believe that the policy we are finalizing is necessary to ensure that, even in the absence of discriminatory accreditation standards, individual residency programs do not implement policies that constitute unlawful discrimination under Federal law. In addition, we continue to believe that similar concerns about unlawful discrimination apply in the context of nursing and allied health education. After consideration of public comments, we are finalizing, without modification, our proposal that in addition to meeting other applicable requirements, an approved medical residency training program must not discriminate, or promote or encourage discrimination, on the basis of race, color, national origin, sex, age, disability, or religion, including the use of those characteristics or intentional proxies for those characteristics as a selection criterion for employment, program participation, resource allocation, or similar activities, opportunities, or benefits. We are also finalizing, without modification, our proposal that, in addition to meeting other applicable requirements, individual NAH education programs and NAH accrediting bodies must not discriminate, or promote or encourage discrimination, on the basis of race, color, national origin, sex, age, disability, or religion, including the use of those characteristics or intentional proxies for those characteristics as a selection criterion for employment, program participation, resource allocation, or similar activities, opportunities, or benefits. We are also finalizing our proposal to consolidate various GME- and NAH-related antidiscrimination requirements under 42 CFR 413.84 and to cross-reference this new section as necessary in the regulations at Sec. Sec. 412.105(f)(1)(i), 413.75(b), and 415.152. The effective date of these policies is October 1, 2026.

3. Modifications to the Criteria for New Residency Programs

a. Background Section 1886(h)(4)(H)(i) of the Act requires CMS to establish rules for applying the direct GME cap in the case of medical residency training programs established on or after January 1, 1995. Under section 1886(d)(5)(B)(viii) of the Act, this provision also applies for purposes of the IME adjustment. These statutory requirements are implemented in the direct GME (DGME) regulations at Sec. Sec. 413.79(e)(1) through (3) and the IME regulations at Sec. 412.105(f)(1)(vii), which provide for an FTE cap increase for certain hospitals that begin training residents in a new medical residency training program(s) on or after January 1, 1995, and specify the methodology for determining the permanent cap adjustment. Under these rules, cap adjustments are not provided for expansions of existing programs. Rather, a new urban teaching hospital receives a single five-year cap-building window to start new residency programs and grow those new residency programs, after which point its IME and DGME caps are permanently set. However, a rural teaching hospital may receive a separate cap adjustment each time it starts a new program. CMS originally implemented these policies in the August 29, 1997 FY 1998 IPPS Final Rule (62 FR 46005) and in the May 12, 1998 ``Changes to the Hospital Inpatient Prospective Payment Systems and Fiscal Year 1998 Rates'' final rule (63 FR 26333); the calculation of both the [[Page 49853]] DGME cap and IME cap for new programs is discussed in the August 31, 2012 FY 2013 IPPS Final Rule (77 FR 53416). Section 413.79(l) defines a new medical residency training program as ``a medical residency that receives initial accreditation by the appropriate accrediting body or begins training residents on or after January 1, 1995.'' In the August 27, 2009 ``Changes to the Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals'' final rule (74 FR 43908 through 43917), CMS clarified the definition of a ``new'' residency program and adopted supporting criteria regarding whether a residency program can be considered new for the purpose of determining if a hospital can receive additional direct GME and/or IME cap slots for that program. CMS adopted these criteria in part to prevent situations where a program at an existing teaching hospital might be transferred to a new teaching hospital, resulting in cap slots created for the same program at two different hospitals. Under this policy, in addition to receiving initial accreditation, to be considered a ``new'' program for which new cap adjustments can be established, a residency program must satisfy three primary criteria (74 FR 43912): The program director is new; and The teaching staff are new; and The residents are new. Over the years, we have received questions regarding the application of these criteria, such as whether CMS would still consider a program to be new for cap adjustment purposes if the three criteria are partially, but not fully, satisfied. We have answered such questions by stating that, generally, a residency program's newness would not be compromised if the ``overwhelming majority'' of the residents and staff are not coming from previously existing programs in the same specialty. b. The FY 2025 Proposed Rule In the FY 2025 IPPS/LTCH PPS proposed rule (May 2, 2024; 89 FR 36221 through 36224), we noted that the question of what constitutes a ``new'' program eligible to receive additional Medicare-funded GME slots has taken on increasing significance in light of the ability of urban hospitals to reclassify as rural under 42 CFR 412.103 for IME payment purposes and thus to receive additional IME cap slots for any new program started, leading to significant increases in aggregate Medicare IME spending. We stated that to ensure that new cap slots are created appropriately, we ultimately would like to establish additional criteria through rulemaking for determining program newness. However, we indicated that we were not yet certain about some of the criteria that should be proposed. Accordingly, we issued a proposal regarding the threshold for determining whether the ``overwhelming majority'' of residents in a program are new and solicited public input on other topics via a Request for Information (RFI) (89 FR 36222). Regarding the newness of residents, we proposed that, for a residency program to be considered new, at least 90 percent of the individual resident trainees (not FTEs) must not have previous training in the same specialty as the new program. If more than 10 percent of the trainees (not FTEs) transferred from another program at a different hospital/sponsor in the same specialty, even during their first year of training, we proposed that this would render the program as a whole (but not the entire hospital or its other new programs, if applicable) ineligible for new cap slots. In addition, we stated that there may be certain challenges that are unique to small or rural-based programs in developing new residencies, and that meeting the proposed threshold of 90 percent of resident trainees with no previous training experience in the specialty may be more difficult for those programs. Accordingly, we solicited comment on what should be considered a ``small'' program and what percentage threshold or other approach regarding new resident trainees should be applied to these programs. We specifically sought comment on defining a small residency program as a program accredited for 16 or fewer resident positions. For further detail regarding our proposal on the newness of residents, we direct readers to the discussion in the FY 2025 proposed rule at 89 FR 36222. As stated previously, in the FY 2025 proposed rule we also issued a Request for Information on other aspects of the policy for determining program newness. We noted that it would be reasonable for a new residency program to seek to hire some experienced staff members, and we therefore solicited feedback on what an appropriate threshold should be for the percentage of faculty with no previous experience teaching in a program in the same specialty. We also solicited comment on whether it would be appropriate to define a certain period of time (for example, 10 years or 5 years) during which a faculty member or program director must not have been employed by another program in the same specialty to be considered ``new.'' Finally, we sought input on two additional scenarios that might have implications for determining the newness of a residency program: the sharing of certain clinical and didactic experiences among residents from different programs, which we referred to as ``commingling''; and situations in which one hospital operates two (or more) programs in the same specialty. For further details regarding the topics on which we solicited public comment, we direct readers to the discussion in the FY 2025 proposed rule at 89 FR 36222 through 36224. c. The FY 2025 Final Rule In the FY 2025 IPPS/LTCH PPS final rule (August 28, 2024; 89 FR 69377 through 69380), we published a summary of the comments we received in response to our proposal that, for a residency program to be considered new, at least 90 percent of the individual resident trainees (not FTEs) must not have previous training in the same specialty as the new program. We explained that, given the lack of consensus on this issue, we would not finalize our proposal in that rule. Instead, we initiated another comment solicitation particularly focused on the criterion regarding newness of residents. As part of that request, we asked commenters to consider the broad statutory authority provided to the Secretary in this area, our prior rulemaking on this issue, and the public comments on our proposal as summarized in the final rule. In the interest of facilitating consensus, we encouraged commenters to provide feedback on which alternatives to their preferred approach they would consider most acceptable among those suggested by other commenters. We also noted that, in response to our Requests for Information, most commenters opposed any restrictions on the hiring of experienced faculty and program directors, as well as on the commingling of residents or sponsorship of multiple programs in the same specialty by a single hospital. d. Summary of Responses to the Second Comment Solicitation We received 14 timely pieces of correspondence to our second comment solicitation on an appropriate standard for determining the newness of residents in a new program, including potential exceptions for small and/or rural programs. In addition, commenters submitted additional feedback on other topics on which we had previously issued Requests for Information, including the hiring of experienced faculty and staff, commingling of [[Page 49854]] residents, and sponsorship of multiple programs in the same specialty by a single hospital. Later in this section, we present a summary of the responses we received and discuss our proposed policy for determining whether a residency program should be considered new for purposes of receiving additional Medicare-funded GME slots. Several commenters continued to urge CMS to define a ``new'' residency program as one that has received initial accreditation from the ACGME and to disregard other factors in determining program newness. However, most commenters (including some who expressed a preference for the initial accreditation criterion) indicated that considering the previous training experience of residents could be an appropriate way for CMS to determine whether a residency program is genuinely new for cap-building purposes. Several commenters also indicated that the 90 percent threshold that we had originally proposed in the FY 2025 IPPS/LTCH PPS proposed rule could be an acceptable standard, while urging CMS to provide exceptions for programs that fall short of the threshold due to various extenuating circumstances. (We discuss feedback pertaining specifically to exceptions for small and/or rural programs separately later in this section.) For example, several commenters mentioned that hospitals sometimes need to replace residents who depart from a program for various reasons, including residents accepted via the supplemental match process who subsequently transfer to another residency in their preferred specialty. The commenters recommended that CMS allow programs to replace departing residents with other residents at the same training level, and that these replacements should not count against a program's compliance with the 90 percent threshold. More generally, several commenters stated that the 90 percent requirement should apply only to residents at the Program Year 1 level, while residents recruited at the Program Year 2 level or above should not disqualify a program from consideration as ``new.'' In addition, several commenters recommended that CMS allow a program to demonstrate that it would have met the 90 percent threshold were it not for the results of the National Resident Matching Program (NRMP, or the ``Match'') or other GME matching programs. Commenters noted that the results of the Match are binding on hospitals, and that not selecting candidates with prior training experience could violate the Match code of conduct and result in programs being banned from participation in the Match. A few commenters indicated that, for purposes of determining whether a program complies with the minimum new resident threshold, CMS should consider all the individual residents that enter the program during its five-year cap-building period. Additionally, some commenters recommended that CMS conduct interim reviews during the cap-building period to determine whether a new program is on track to meet the requirements and to give providers a chance to make necessary changes before a final newness determination is made. Several commenters also indicated that residents with previous training experience could be excluded from the final cap calculation without disqualifying the program itself from consideration as new. A commenter suggested that, instead of establishing an overall new resident threshold, CMS should only limit the number of residents admitted from the same existing program. In general, commenters reiterated their strong opposition to any restrictions on the hiring of experienced faculty and program directors, stating that such a policy would be harmful to the development of new residency programs. However, some commenters suggested a compromise policy whereby CMS would consider the previous experience of faculty and program director in conjunction with the previous experience of residents. Under this policy, CMS would continue to assess newness primarily based upon the proportion of residents with previous experience training in a program in the same specialty, but would conduct an ``enhanced review'' under certain circumstances, as follows: 100 percent new residents: the program qualifies as new, without further review; At least 90 percent but less than 100 percent new residents: the program must demonstrate that residents have not previously trained in an existing residency program in the same specialty with any faculty or with the program director from the new residency program; Less than 90 percent new residents: the program does not qualify as new (subject to exceptions for certain categories of residents, as discussed previously). The commenters stated that this policy would effectively prevent the transfer of existing programs without unduly restricting the ability of programs to hire experienced staff. Other commenters recommended that CMS adopt a ``safe harbor'' policy, whereby a separately accredited program would be considered ``new'' regardless of any potential overlap (in terms of residents, faculty or program director) with an existing program, if the existing program remains in operation for at least one year. Commenters argued that the concurrent operation of both programs would make it clear that the new program does not constitute a relocation of the existing program or an inappropriate duplication of the existing program's cap slots. Similarly, a commenter recommended that, instead of considering the previous experience of residents or staff, CMS should only consider whether these individuals are ``solely committed'' to the new program going forward. Commenters agreed that CMS should create exceptions to the new requirements for small and/or rural programs. Most commenters also agreed that a ``small'' program should be defined as one that is accredited for 16 or fewer resident positions, although a few commenters indicated that only small programs located in rural or urban underserved areas should qualify for an exception. (We note that a commenter recommended a higher ceiling of 22 resident positions.) The commenters recommended various more lenient newness criteria for programs that would qualify for an exception, with a few commenters recommending that such programs be exempted entirely from the newness requirements. In general, commenters urged CMS to ensure that the new program criteria do not unfairly disadvantage small programs or impede the development of residency programs in rural and/or urban underserved areas, with a few commenters also voicing particular concern about the effect of potential policies on Rural Track Programs. Finally, commenters generally reiterated their opposition to any restrictions on ``commingling'' of residents or on hospitals sponsoring multiple residency programs in the same specialty. Commenters asserted the educational soundness of shared clinical and didactic experiences and indicated that such arrangements are increasingly required by the ACGME. In addition, commenters provided examples of circumstances under which a hospital might sponsor multiple programs in the same specialty, such as in the wake of a merger of hospitals, or in the case of a hospital that serves a large geographic area. [[Page 49855]] e. Proposal We thanked the commenters for their thoughtful feedback in response to the comment solicitation published in the FY 2025 IPPS final rule. While commenters continued to recommend various ways of defining a ``new'' residency program for purposes of establishing FTE caps, we believed there was sufficient consensus on the major issues for us to propose certain modifications to our existing policy in the FY 2027 IPPS LTCH proposed rule. (1) Initial Accreditation First, we acknowledged that several commenters continued to urge CMS to define a new residency program as one that has received initial accreditation from the ACGME and to disregard other factors in determining program newness. While we conceded that this approach would be simple administratively, we reiterated the concerns that we originally discussed in the August 27, 2009 ``Changes to the Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals'' final rule (74 FR 43754). In that final rule, we explained that the mission and priorities of CMS differ from those of the accrediting bodies, and that, in determining whether a residency program is genuinely new, it is appropriate for CMS to consider factors in addition to the accrediting body's characterization of that program (see discussion at 74 FR 43909 through 43913). We emphasized that a primary concern of CMS, not shared by the accrediting bodies, remains the inappropriate duplication of FTE cap slots associated with the relocation of an existing program from one hospital to another. Thus, although the existing regulations at Sec. 413.79(l) refer to initial accreditation as one of the criteria for determining whether a program is genuinely new for cap-building purposes, we continued to believe that we cannot rely solely on the characterization of an accrediting body in making this determination. (2) Removal of Restrictions on Experienced Faculty and Staff Nevertheless, we were persuaded by commenters' arguments that some of the supporting factors promulgated in the August 27, 2009 ``Changes to the Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals'' final rule may be overly restrictive. We were persuaded by commenters who argued that CMS should not restrict the ability of new residency programs to hire experienced faculty and program directors. After considering the feedback we received in response to our original Requests for Information and our subsequent comment solicitation, we believed that considering the previous training experience of residents (as discussed in more detail later in this section) should provide a sufficient guardrail to ensure that existing programs are not being transferred between hospitals. Thus, we proposed that, effective for programs started on or after October 1, 2026, we would no longer consider the previous employment of the faculty or program director in determining whether a residency program should be considered genuinely new for cap-building purposes. That is, a hospital would no longer have to demonstrate that the faculty and program director in a new program have not previously been employed in an existing program in the same specialty. We noted that programs started on an earlier date that are still within the five-year cap-building period as of October 1, 2026, would continue to be subject to the newness criteria established in the August 27, 2009 ``Changes to the Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals'' final rule. (3) Requirement for New Residents While we proposed to remove the requirement related to previous employment of the faculty or program director, we do believe it is still appropriate for CMS to consider the previous training experience of residents in determining whether a residency program should be considered genuinely new. As discussed previously in the summary of responses to our second comment solicitation, most commenters indicated that a 90 percent threshold could be an appropriate standard for determining whether the ``overwhelming majority'' of residents in a program are in fact new. Additionally, as discussed in the FY 2025 IPPS proposed rule (89 FR 36222), a 90 percent threshold would be generally consistent with the concept of an ``overwhelming majority.'' We have precedent for such a threshold in the regulations for section 5506 of the Affordable Care Act, which state that a hospital is considered to have taken over an ``entire'' program from a closed hospital if it can demonstrate that it took in 90 percent or more of the FTE residents in that program. Therefore, we proposed that, effective for programs starting on or after October 1, 2026, for a residency program to be considered new, in addition to receiving initial accreditation from the appropriate accrediting body, at least 90 percent of the individual resident trainees (not FTEs) must not have previous training in the same specialty as the new program. Apart from the exceptions, discussed later in this section, this proposal regarding the newness of residents is substantially the same as the policy we proposed in the FY 2025 IPPS/LTCH PPS proposed rule (89 FR 36222). For example, if a hospital establishes a new residency program in internal medicine, then, under our proposal, at least 90 percent of the residents in that program must not have previous training experience in another internal medicine program. If a resident was formally enrolled in another internal medicine program (whether preliminary or categorical), even if that resident switched programs during their first year of training, we would consider that resident to have previous training in the same specialty. By contrast, if an individual previously trained in a specialty other than internal medicine, and that resident switched into the new internal medicine program and began training in that program as a first-year resident, then the resident would not be considered to have previous training in the same specialty and would be counted as a new resident for purposes of determining compliance with the 90 percent threshold. Consistent with the definition of ``resident'' at 42 CFR 413.75(b), in the example noted previously, we are distinguishing between a resident that was actually accepted, enrolled, and participated in an internal medicine residency program from a resident who was not enrolled in an internal medicine program but who may have done a rotation in internal medicine as part of the requirements for a different specialty. Additionally, we note that an individual who enters a subspecialty training program, after having previously completed a residency in the antecedent specialty, would be counted as a new resident--for example, a resident who enters a critical care medicine fellowship after having previously completed a residency program in internal medicine would be counted as a new resident under our proposal. Under the proposed policy, we would determine whether a program has satisfied the 90 percent threshold by tallying all of the individual residents who enter a program during the five-year cap building period (that is, for new urban teaching hospitals, during the first five program years of the first new program's existence; and for rural hospitals, during the first five program years of each new program). For example, if 50 trainees (not FTEs) enter [[Page 49856]] the program over the course of the five-year cap building period, then at least 45 of the trainees (that is, 90 percent of 50) must enter the program as brand-new first-year residents in that particular specialty. If more than 10 percent of the individual trainees (not FTEs) previously trained in another program in the same specialty, we proposed that this would render the program not new and therefore ineligible for an FTE cap adjustment. We would apply standard rounding in instances where the quotient does not equal a whole number, rounding down to the nearest whole number when the remainder is less than 0.5, and rounding up to the nearest whole number when the remainder is greater than or equal to 0.5. For example, if 48 trainees (not FTEs) enter a program over the course of the five-year cap building period, then at least 43 of the trainees (90 percent of 48 = 43.2, which rounds down to 43) must not have previous experience training in a different program in the same specialty. We proposed that, after the end of the five-year cap building period, the Medicare administrative contractor (MAC) would review the previous training experience of each individual trainee and determine the newness of the residency program prior to calculating the IME and DGME cap adjustments for the hospital. Consistent with our historical policy, the MAC would not be required to provide an initial assessment of ``newness'' prior to the end of the five-year cap building period. (4) Exceptions for Certain Categories of Residents As noted previously, we proposed to create a limited exception to the counting rules for certain residents admitted via the National Resident Matching Program (the Match) or other third-party resident matching programs whose results are binding on hospitals. (Examples of other matching programs that would fall under this provision include the Supplemental Offer and Acceptance Program (SOAP), the Urology Residency Match Program, and the SF Match for Ophthalmology and Plastic Surgery residency programs.) Based on feedback received from commenters, we understand that the Match and similar programs are generally used to match prospective first-year residents to residency programs in their chosen specialties, and that hospitals do not have the discretion to refuse admission to a resident matched via this process. We also understand that candidates applying through the various matching programs may occasionally have previous experience training in another program in the same specialty--for example, an individual who may have withdrawn from a residency program and is seeking to restart his or her training. While hospitals may rank their preferred candidates, they cannot predict the ultimate complement of first-year residents allocated via the Match or other matching programs. As a result, a hospital that included multiple candidates with previous training experience on its ranked list could be required to accept a mix of residents that would cause it to fall short of our proposed 90 percent requirement. We agree with commenters that in such situations hospitals should not be penalized for the results of the Match or other binding resident matching programs. Accordingly, for purposes of determining compliance with the 90 percent requirement, we proposed to exclude from the count of trainees any individuals with previous experience training in another program in the same specialty who enter the new program as first-year residents through the National Resident Matching Program or another binding third-party resident matching program. That is, such first year individuals would be excluded both from the numerator and from the denominator of the calculation used to determine the proportion of new vs. experienced residents. However, assuming that the program otherwise satisfies the proposed 90 percent threshold, the hospital would report such individuals on the new resident lines of the hospital cost report (that is, lines 15 and 15.01 of Worksheet E-4 and line 16 of Worksheet E, Part A) and the individuals would be included in the calculation of the hospital's permanent cap adjustment at the conclusion of the five- year cap-building period. We also proposed to exclude from the count of trainees any residents admitted into the new program from another program in the same specialty who meet the definition of a ``displaced resident'' under 42 CFR 413.79(h)(1)(iii). That is, such individuals would be excluded both from the numerator and from the denominator of the calculation used to determine the proportion of new vs. experienced residents. To prevent the inappropriate duplication of cap slots associated with a closed program or closed hospital, we proposed that displaced residents must not be reported on the new resident lines or included in the hospital's permanent cap adjustment. Instead, such individuals would be reported on the displaced resident lines (lines 16 and 16.01 of Worksheet E-4 and line 17 of Worksheet E, Part A) if the hospital qualifies for a temporary cap adjustment under 42 CFR 413.79(h). Otherwise, the individuals must be reported on the regular FTE lines (line 6 of Worksheet E-4 and line 10 of Worksheet E, Part A), subject to the hospital's existing DGME and IME FTE caps. Furthermore, since rotation schedules, and not cost report entries, are used to identify individual residents training in the new program for the purpose of calculating the permanent cap at the end of the five-year cap building period under 42 CFR 413.79(e)(1)(i)(A), the displaced residents listed on the rotation schedule would be excluded from the new program cap calculation. We note that under certain circumstances, if a hospital trains residents displaced by a hospital closure, it may receive priority for receipt of cap slots if it applies for a permanent cap adjustment under the provisions of section 5506. For example, suppose that 50 individual trainees (not FTEs) enter a program during the five-year cap-building period, and that 4 of those individuals enter the program as first-year residents via the Match and have previous experience training in another program in the same specialty. Additionally, the program admits 2 residents displaced from a closed program in the same specialty. If all 50 residents were included in the count, then at least 6 out of 50 or 12 percent of the residents in the program would be considered not new, rendering the program not new under our proposed 90 percent threshold. Under the proposed exceptions, we would exclude from this calculation the 4 first-year residents with previous training experience admitted via the Match, as well as the 2 residents displaced from the closed program. Thus, the hospital would have to demonstrate that at least 90 percent of the remaining 44 residents (that is, 39.6 [ap] 40 residents) do not have previous experience training in another program in the same specialty. During the initial years of the new program, the hospital would report the 4 first-year residents on the new program lines, while it would report the 2 displaced residents on the displaced resident lines or the regular FTE lines, as applicable. At the conclusion of the cap-building period, the calculation of the hospital's permanent cap adjustment would include the 4 first-year residents admitted via the Match and exclude the 2 residents displaced from the closed program. [[Page 49857]] Comment: Comments were overwhelmingly supportive and appreciative of our proposals to no longer consider the previous employment of the faculty or program director in determining whether a residency program should be considered genuinely new for cap-building purposes. Many commenters also were supportive of our proposal to require that at least 90 percent of the individual resident trainees (not FTEs) must not have previous training in the same specialty, in addition to receiving initial accreditation from the appropriate accrediting body. Response: We appreciate the commenters' support for our proposals. Comment: A commenter requested that CMS consider reducing the threshold for residents without previous training in the program's specialty from 90 percent to 80 percent. The commenter believed that the lower threshold would provide greater flexibility to accommodate residents with prior training. The commenter alternatively suggested that CMS could refine the proposal to ``temporally weight'' the calculation of residents that do not have prior training in the specialty or subspecialty (i.e., counting resident years rather than residents), so that new programs are not unduly constrained when replacing residents that do not complete the program. Another commenter asked that CMS reduce the 90 percent threshold to 51 percent, allowing for up to 49 percent of individual residents during the cap building period to have received previous training in the same specialty. This commenter suggested that to safeguard against the inappropriate transfer of existing programs, CMS could impose a requirement that individual residents who had received previous training in the same specialty as the new program must have received such training at a program that continues to train residents throughout the completion of each resident's training. If the other programs continue to train residents, the new program cannot also be the progeny of one of those programs. Other commenters requested that CMS add exceptions for resident hardship situations where a resident needs to relocate due to reasons beyond his or her control, for residents who join a program specifically to replace residents who left unexpectedly, or in general, where ``it is clear'' that the program was not transferred. Response: As discussed previously in the summary of responses to our second comment solicitation, most commenters indicated that a 90 percent threshold could be an appropriate standard for determining whether the ``overwhelming majority'' of residents in a program are in fact new. Additionally, as discussed in the FY 2025 IPPS proposed rule (89 FR 36222), a 90 percent threshold would be generally consistent with the concept of an ``overwhelming majority,'' and we have precedent for such a threshold in the regulations for section 5506 of the Affordable Care Act, which state that a hospital is considered to have taken over an ``entire'' program from a closed hospital if it can demonstrate that it took in 90 percent or more of the FTE residents in that program. Therefore, we are not accepting these commenters' suggestions to reduce to 90 percent threshold to 80 percent or 51 percent. We also believe that alternative measures such as weighting the residents that do not have prior training experience in the same specialty would add unnecessary complexity to the determination of program newness. Regarding the comment that suggested CMS impose a requirement that individual residents who received previous training in the same specialty as the new program must have received such training at a program that continues to train residents throughout the completion of each resident's training, we addressed this scenario in the August 27, 2009 ``Changes to the Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals'' final rule (74 FR 43914). We stated that because it was (and still is) our intent to ensure that no duplicative FTE resident slots are created by virtue of an inappropriate ``new program'' adjustment, a hospital considering starting a new program should ask several questions, one of which is, ``is this program part of any existing hospital's FTE cap determination (74 FR 43914)?'' The point of asking such a question is to assess whether the slots continue to be incorporated into the national aggregate FTE caps. We stated that we do not believe it would be appropriate to consider a program that is substantially the same as a previous program at another hospital that remains open to be a new program. We reiterated our primary concern that there should be no duplicative FTE resident cap slots, thereby we would ensure to the extent possible that no FTE cap increases are granted when there is another ``active'' FTE cap of which the transferred program was a part. Accordingly, we do not agree with the commenter that an appropriate safeguard against the transfer of existing programs would be that individual residents who had received previous training in the same specialty as the new program must have received such training at a program that continues to train residents throughout the completion of each resident's training. We also do not believe that it is necessary to create an explicit exception to the 90 percent rule for resident hardship, meaning for residents who have prior experience in the same specialty, but who join a program specifically to replace residents who depart unexpectedly from the program, or for other reasons. If a resident needs to transfer to a different program in the same specialty due to circumstances outside of his or her control, or if a resident needs to be replaced, the 10 percent exception is sufficient to provide the opportunity for such residents to still transfer into a program that is within its cap building, while not immediately jeopardizing the newness of the program. Comment: A commenter asked that in light of a national projected shortage of physicians, CMS should consider establishing an exception to the 90 percent new resident threshold if a community need for additional physicians practicing in the program's specialty within the community can be established, and any other program in the same specialty operating within the community continues to train residents during the five year cap building period of the new program. Response: Granting a larger exception to the 90 percent rule would not meaningfully address an impending physician shortage, as such an exception would only serve to permit residents already training in their specialty of choice to move from one existing program to another, rather than adding actual new medical school graduates into newly created residency programs. Therefore, we are not adopting the commenter's request. Comment: Several commenters who supported the proposals also asked CMS to apply the revised criteria to programs still in their five-year cap-building period as of October 1, 2026, rather than the proposed effective date of new programs that start on or after October 1, 2026. Commenters stated that it is necessary to apply the effective date for new programs still within their 5-year cap building period to ease the physician shortage pipeline and to provide a consistent effective date for hospitals that are simultaneously within the cap-building period for new programs and are also planning to start new programs after October 1, 2026. A commenter argued that CMS's existing standard of ``overwhelming majority'' was not adopted in notice- [[Page 49858]] and-comment rulemaking as required under section 1871 of the Social Security Act and cannot be applied; therefore, CMS should provide instructions to its MACs confirming that a program established before October 1, 2026 will still be treated as new as of the date it receives accreditation or begins training if the program was not moved in its entirety from one hospital to another. Response: We have considered the commenters' requests to revise the effective date of the proposal, and we agree that to more quickly reduce regulatory burden, we should revise our proposed effective date for the definition of a new program to be effective for new programs still within their 5-year cap building period as of October 1, 2026. That is, in this final rule, the effective date for the definition of what constitutes a new program for cap building purposes (i.e., meeting the 90 percent threshold) is for programs still within their 5-year cap building period as of October 1, 2026. However, we note that one important reason for the proposal to redefine the criteria for what constitutes a new program for cap building purposes is to provide a prospective, clear, standard for hospitals to utilize when planning and developing new residency programs. Accordingly, hospitals still within their 5-year cap building periods as of October 1, 2026 are on notice to abide by the new definition (i.e., that at least 90 percent of the individual residents that participate in the program during the 5-year cap building period must not have previous experience training in another program in the same specialty), and provide the complete training history to their MACs for each resident that entered the program over the 5-year period, even if the hospitals' 5-year cap building period ends shortly after October 1, 2026. We disagree with the commenter that argued that because CMS's existing standard of ``overwhelming majority'' was not adopted in notice-and-comment rulemaking, CMS should provide instructions to its MACs confirming that a program established before October 1, 2026 will still be treated as new as of the date it receives accreditation or begins training if the program was not moved in its entirety from one hospital to another. This commenter is overlooking what was established in notice and comment rulemaking in the August 27, 2009 ``Changes to the Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals'' final rule, which was that, in addition to receiving initial accreditation, to be considered a ``new'' program for which new cap adjustments can be established, a residency program must satisfy three primary criteria (74 FR 43912): The program director is new; and The teaching staff are new; and The residents are new. These criteria do not include the commenter's request that a program is to be treated as new if the program was not moved in its entirety from one hospital to another. Therefore, we cannot provide such instructions to the MACs for programs established prior to October 1, 2026. Comment: A commenter stated that the proposal to wait until after the 5-year cap building closes and then to tally all individual residents who enter a program during the five-year cap building period is an excessive administrative burden. In addition, the commenter stated that by the time the hospital with the new program files its cost report in which the newness and cap calculation would be determined, there are already five or six previous cost reporting periods where the hospital had claimed FTE counts for residents in the new programs and for which the final settlements have been issued. If there is an adverse finding on the ``newness'' of a program, the earliest of these cost reporting periods may no longer be subject to reopening. The commenter recommended that the determination of newness should be made at the time of the review of the first cost reporting period where the hospital is claiming FTE residents in the new program, and that the assessment of the newness should generally not need to be continually made in the second through the fifth years of a new program's existence. However, the issue should be addressed if there is any evidence of there being a transfer of an existing program from one hospital to another. Another commenter urged CMS to provide clear implementation guidance on the documentation hospitals will be expected to maintain to demonstrate compliance. Response: Under the proposed policy, we would determine whether a program has satisfied the 90 percent threshold by tallying all individual residents who enter a program during the five-year cap building period (that is, for new urban teaching hospitals, during the first five program years of the first new program's existence; and for rural hospitals, during the first five program years of each new program). For example, if 50 trainees (not FTEs) enter the program over the course of the five-year cap building period, then at least 45 of the trainees (that is, 90 percent of 50) must enter the program as brand-new first-year residents in that particular specialty. We proposed that after the end of the five-year cap building period, the MAC would review the previous training experience of each individual trainee and determine the newness of the residency program prior to calculating the IME and DGME cap adjustments for the hospital. We stated that, consistent with our historical policy, the MAC would not be required to provide an initial assessment of ``newness'' prior to the end of the five-year cap building period. We understand that particularly with larger programs, reviewing the training history of all residents that enter a program over the course of 5 years can be a significant amount of work for the MAC. Simultaneously, the hospital is responsible for maintaining and providing the training history of each of those residents and to provide that documentation to the MAC in an orderly and auditable format at the end of the 5-year period. We do note, however, that much of this information should be the same or similar to documentation needed to establish and record the resident's Initial Residency Period (IRP) under 42 CFR 413.79(a) in the Intern and Resident Information System (IRIS). In both situations, it is necessary for the hospitals involved and the MAC to know when and in what specialty did the resident first begin training, and to verify where and in what specialty the resident subsequently trained to know whether a hospital can claim the FTE training time of each resident. The proposal and finalizing of clearer rules regarding what constitutes a new program should assist hospitals in planning and developing new programs that will be eligible for additional cap slots at the end of the 5-year cap building period. We are hopeful that hospitals can avoid unfortunate determinations that their programs do not comply with CMS's definition of a new program, and that reopenings and recoupments of overpayments from earlier cost reports within the 5- year cap building period would be minimal or avoided altogether. In addition, we do not agree with the commenter that the determination of whether a program is new can be done after the hospital's first cost reporting period in training the new residents and should generally not need to be reviewed again during the second through fifth years of the program, unless there is evidence that a program was transferred. Unless the MAC reviews the history of each resident accepted into the program in years 2 through 5, the MAC may not learn about residents that enter the program via a [[Page 49859]] program transfer. That is, if only year 1 of the new program is reviewed, there would be no additional guardrails preventing the hospital from accepting a significant number of residents with previous training in the same specialty in program years 2 through 5. Therefore, we believe it is most appropriate for the MAC to wait until after the end of the five-year cap building period to review the previous training experience of each individual trainee and determine the newness of the residency program prior to calculating the IME and DGME cap adjustments for the hospital. The MAC would not be required to provide an initial assessment of ``newness'' prior to the end of the five-year cap building period. A determination of newness and attending IME and DGME cap increases cannot be provided to a hospital that does not provide sufficient, auditable documentation (e.g., curricula vitae or other detailed documentation showing full training history) regarding each resident's training history it wishes to include in its FTE cap calculation. Comment: A comment expressed significant concern over our proposal that for purposes of determining compliance with the 90 percent requirement, we would exclude from the count of trainees any individuals with previous experience training in another program in the same specialty who enter the new program through the NRMP (the Match) or another binding third-party resident matching program. The commenter stated that with most residency positions being filled through the NRMP, it seems this aspect of the proposal renders the 90 percent threshold meaningless. Response: We appreciate the concern raised by the commenter, as we would agree that an exception that excludes all residents that enter through the NRMP would render the 90 percent threshold meaningless. However, we did not propose that all residents that enter through the NRMP would be excluded from the determination of the 90 percent threshold. Rather, we proposed that, for purposes of determining compliance with the 90 percent requirement, we would exclude from the count of trainees any individuals with previous experience training in another program in the same specialty who enter the new program as first-year residents through the NRMP or another binding third-party resident matching program (91 FR 19508). The key is that to be excluded from the 90 percent threshold calculation, the trainee with previous experience in that same specialty would have to enter the new program as a first-year resident, thereby starting his/her training over again from the beginning of the PGY-1 year. We understand that, generally, if an individual already has previous training in a specialty, he/she would try to avoid repeating training in the same specialty for a variety of reasons (such as not wanting to unnecessarily extend training time, facing a reduced DGME weighting factor due to expiration of the Initial Residency Period toward the end of his/her training, etc.). Accordingly, we believe that the proposed exception to the 90 percent threshold for individuals with previous experience in the same specialty that enter the new program as first year residents via the NRMP or similar binding matching program will be invoked relatively infrequently. Comment: Several commenters opposed the proposed exclusion of displaced residents accepted into new small or rural programs from cap- building, asserting that not infrequently, rural hospitals, unlike urban counterparts, rely on displaced residents to fill positions that were not filled through the NRMP or SOAP. Another commenter objected to excluding displaced residents from cap-building, arguing it could disincentivize new programs from accepting them. The commenter also expressed concern about CMS's specification of the clause ``in the same specialty,'' noting that if the displaced resident would be transferring from a different specialty, concerns about duplicating cap would still be present. This commenter suggested CMS instead require the displaced resident's original hospital to relinquish the associated FTE from its permanent cap. Response: In the FY 2027 IPPS/LTCH proposed rule (91 FR 19508), we proposed to exclude any residents admitted into the new program from another program in the same specialty who meet the definition of a ``displaced resident'' (under 42 CFR 413.79(h)(1)(iii) both from the numerator and from the denominator of the calculation used to determine the proportion of new vs. experienced residents). We made this proposal in order to prevent the inappropriate duplication of cap slots associated with a closed program or closed hospital, and stated that such displaced individuals would not count toward the new program's cap calculation, but instead must be reported on the displaced resident lines (lines 16 and 16.01 of Worksheet E-4 and line 17 of Worksheet E, Part A) if the hospital qualifies for a temporary cap adjustment under 42 CFR 413.79(h). Otherwise, the individuals must be reported on the regular FTE lines (line 6 of Worksheet E-4 and line 10 of Worksheet E, Part A), subject to the hospital's existing DGME and IME FTE caps. Furthermore, since rotation schedules, and not cost report entries, are used to identify individual residents training in the new program for the purpose of calculating the permanent cap at the end of the five-year cap building period under 42 CFR 413.79(e)(1)(i)(A), the displaced residents listed on the rotation schedule would be excluded from the new program cap calculation. We also noted that under certain circumstances, if a hospital trains residents displaced by a hospital closure, it may receive priority for receipt of cap slots if it applies for a permanent cap adjustment under the provisions of section 5506 of the Affordable Care Act. We continue to believe that individuals that meet the definition of ``displaced resident'' (under 42 CFR 413.79(h)(1)(iii)) should not count toward the new program cap calculation as a necessary guardrail to prevent the inappropriate duplication of cap slots associated with a closed program or closed hospital. To the extent that this guardrail may serve as a disincentive for some new programs to accept displaced residents, we note that hospitals closing or closing their programs may opt to lend FTE cap slots to receiving hospitals under 42 CFR 413.79(h). Regarding the comment questioning why CMS specified ``in the same specialty,'' the commenter is correct in pointing out that if the displaced resident would be transferring from a different specialty, concerns about duplicating cap would still be present, and it would be irrelevant if the displaced resident is coming from the same specialty as the new program or coming from a different specialty. Therefore, in this final rule, we are removing the words ``in the same specialty,'' and instead stating that we would exclude any residents admitted into the new program from another program who meet the definition of a ``displaced resident'' (under 42 CFR 413.79(h)(1)(iii)) both from the numerator and from the denominator of the calculation used to determine the proportion of new vs. experienced residents. However, we cannot, as a commenter suggests, require the displaced resident's original hospital to relinquish the associated FTE from its permanent cap. In the instance of hospital closure (i.e., the hospital terminates its Medicare provider agreement), CMS has the authority to permanently remove a hospital's IME and DGME FTE caps, per section 5506 [[Page 49860]] of the ACA as implemented at 42 CFR 413.79(o); section 5506 does not apply in the instance of program closure where the provider agreement remains active.\162\ --------------------------------------------------------------------------- \162\ In the instance where the originating teaching hospital closes, and a hospital that is within its 5 year cap building period takes in a resident or some residents displaced by a teaching hospital's closure, the host hospital might be able to receive FTE cap slots permanently associated with the displaced residents, if it meets certain criteria and applies under the section 5506 of the ACA application process initiated by CMS subsequent to the closure of the originating teaching hospital. In the November 24, 2010 OPPS final rule (75 FR 72229), we stated that if a nonteaching hospital assumes an entire program(s) from the closed teaching hospital, this hospital would not have the opportunity to receive a further cap increase as a new teaching hospital under 42 CFR 413.79(e). Nonteaching hospitals that take in a portion of a program(s) from the closed teaching hospital (i.e., just one or a few displaced residents) could still qualify to start new programs and receive a cap increase under 42 CFR 413.79(e). Thus, even though we are finalizing our proposal to exclude from the FTE cap calculation any displaced residents the host hospital trains under 42 CFR 413.79(h), the host hospital that is also within its 5 year cap building period might be able to receive FTE cap slots permanently under section 5506 of the ACA for training those displaced FTEs in the instance where it is not assuming an entire program(s) from the closed teaching hospital. --------------------------------------------------------------------------- (5) Exception for Small Programs In addition, we proposed to create an exception to the 90 percent requirement for small residency programs. We proposed to define a ``small'' program as one that is accredited for 16 or fewer resident (or fellow) positions, regardless of whether the program is located in an urban or a rural area. Based on the feedback we received from commenters, we believe that small programs are at the greatest risk of failing to meet the 90 percent threshold for reasons beyond their control. Accordingly, we proposed to exempt small residency programs from the requirement that at least 90 percent of the residents who enter the program during the five-year cap-building period must not have previous experience training in another program in the same specialty. We did not propose any minimum proportion of new residents that a small program must achieve to be considered new for cap-building purposes. However, programs accredited for 16 or fewer positions must still obtain initial accreditation from the appropriate accrediting body. We note that we did not propose to adopt various other exceptions or policies recommended by commenters, as summarized in the preceding section of this preamble. We believe that the criterion we have proposed would accomplish our stated goal of preventing the inappropriate duplication of FTE cap slots, while the exception for small programs provides a reasonable safeguard for those programs at greatest risk of failing to meet the proposed requirement for reasons beyond their control. Additionally, we believe that the proposed policies have the advantage of being unambiguous and administratively simple. We wish to avoid scenarios in which CMS or the MACs would need to review individual hospitals' circumstances on a case-by-case basis and introduce greater uncertainty into the process for hospitals. Additionally, we note that we did not propose any distinct policies with respect to the commingling of residents. Rather, we proposed that program newness should be determined consistently based upon initial accreditation and the 90 percent new resident threshold. That is, we proposed that if a particular program has received initial accreditation, and at least 90 percent of the individual trainees (not FTEs) entering the program during the five-year cap building period are new (with previously noted exceptions), then the program would be considered new for cap-building purposes, regardless of whether residents in that program have shared educational experiences with residents of an existing program in the same specialty. Similarly, we proposed one hospital operating two or more programs in the same specialty would be permissible for cap-building purposes, if the second or subsequent program separately received initial accreditation and at least 90 percent of the individual trainees (not FTEs) entering the program during the five-year cap building period are new (with previously noted exceptions). Note that this would be a change from existing policy, under which it is permissible for one hospital to operate two or more programs in the same specialty provided that the programs have separate program directors, staff, and separately matched residents without meeting any additional requirements (see discussion of existing policy in the August 27, 2009 ``Changes to the Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals'' final rule at 74 FR 43913). Comment: A commenter requested that the CMS Administrator ``simply abandon this proposal in its entirety,'' as the proposal is insufficient to blunt the significant increases in Medicare IME spending that result from the ability of urban hospitals to reclassify as rural under 42 CFR 412.103 for IME payment purposes, and in order to receive additional IME cap slots for any new program started. This commenter stated that the proposed definition of and exception for small programs will allow for the inappropriate transfer of existing programs or the duplication of FTE cap slots for ``small'' programs by exempting them from meeting any ``newness'' requirement beyond the receipt of an initial accreditation from the ACGME, particularly in the case of fellowship programs at urban hospitals, which typically are not more than 16 residents. Another commenter warned that the small-program exception may allow urban hospitals to be reclassified as rural to ``skirt'' cap limitations but acknowledged that without clearer statutory guidance in the statute, CMS faces challenges addressing this issue. The commenter recommended that in determining the 16-resident limit for a small program, CMS should distinguish between CMS-funded hospital slots from accredited resident positions. The commenter recommended clarifying that the 16-resident small-program exception should be based on the size of the accredited residency program itself, not on the number of residents reported by any individual participating hospital. The commenter recommended that CMS add language saying: ``Cost reported and CMS-funded slots are not the same as resident positions in an accredited program. Therefore the 16-resident exception for small programs is in reference to the program and its accreditation, not any single participating hospital and the number of residents claimed in its cost report.'' Response: We proposed to define a ``small'' program as one that is accredited for 16 or fewer resident (or fellow) positions, regardless of whether the program is located in an urban or a rural area. We also proposed that programs accredited for 16 or fewer positions must still obtain initial accreditation from the appropriate accrediting body. The commenter is correct that if a program is accredited for 16 or fewer positions, and receives initial accreditation, this program would not need to meet the 90 percent threshold. We share the commenters' concerns regarding urban hospitals' possible use of rural reclassifications to obtain increased cap limits. However, the proposal regarding the exception to the 90 percent threshold for small programs does not exclude urban hospitals reclassified as rural under 42 CFR 412.103 because, as a commenter alludes, of the statutory requirement at section 1886(d)(8)(E)(i) of the Act to treat Sec. 412.103 hospitals `as being located in the rural area' of the state'' (88 FR 58976). Thus, urban hospitals that reclassify as rural under 42 CFR 412.103 and start new programs are [[Page 49861]] included in the exemption for small (rural) programs. We also agree that the 16-resident exemption is based on the accredited size of the program, not based on FTEs, as we proposed that a ``small'' program is one that is accredited for 16 or fewer positions. We agree that the 16-resident exception for small programs is in reference to the program and its accreditation, not any single participating hospital and the number of FTE residents claimed in its cost report. Comment: A commenter requested that small programs still in their cap building period as of October 1, 2026, be permitted to opt in to application of the Small Program Exception back to May 2, 2024, the date of publication of the FY 2025 IPPS proposed rule (89 FR 35934), when CMS first acknowledged that small or rural residencies face unique challenges in satisfying historically implemented criteria for determining program newness. In the alternative, the commenter requested that CMS interpret the ``start'' date of a program as the date on which it begins training residents, rather than the date of initial accreditation. Such an interpretation would allow new small programs which were initially accredited prior to October 1, 2026, but have not commenced training residents by that date, to fall within the Small Program Exception. Response: As noted in response to other comments, we are revising the effective date in this final rule to state that for programs still within their 5-year cap building period as of October 1, 2026, or for programs started on or after October 1, 2026, at least 90 percent of the individual residents that participate in the program during the 5- year cap building period must not have previous experience training in another program in the same specialty. The 90 percent requirement does not apply to a program accredited for 16 or fewer resident positions. This final effective date extends earlier than the commenter's requested effective date of May 2, 2024, as there may be programs accredited for 16 or less residents that are still within their 5-year cap building period as of October 1, 2026, that started even prior to May 2, 2024. In this final rule, while receipt of initial accreditation for the program is still required, the date of that initial accreditation is not relevant, as the effective date applies to when residents start training in the new program. Thus, even if a program received initial accreditation prior to October 1, 2026, but residents first start training in the program on or after October 1, 2026, this program would be subject to the effective date, definitions, and exclusions we are adopting in this final rule. Comment: A commenter requested that CMS define a small program as a program that is accredited for five or fewer residents per program year, where a 3-year residency program is approved for up to sixteen residents, a four-year program is approved for up to twenty residents, and a five-year program is approved for up to twenty-five residents; each of which would all fall within the Small Program Exception. The commenter believed this modification would not favor certain, shorter programs and inadvertently incentivize formations of three-year programs over programs that require more years of training. Response: In the May 2, 2024 IPPS/LTCH PPS proposed rule (89 FR 36222), we stated that we are soliciting comments on whether a small residency program should be defined as a program accredited for 16 or fewer resident positions, because 16 positions would encompass the minimum number of resident positions required for accredited programs in certain specialties, such as primary care and general surgery, that have historically experienced physician shortages, and therefore have been prioritized by Congress and CMS for receipt of slots under sections 5503 and 5506 of the Affordable Care Act. While primary care programs are typically accredited for 3 years and general surgery is accredited for 5 years, yet both can be accredited for 16 positions. Therefore, we do not believe it is necessary to adopt the commenter's suggestion where 3, 4, and 5-year programs would have their own ``small program'' exception amount, as 16 seems to sufficiently apply to 3, 4, and 5-year programs. Comment: A commenter suggested the following revisions to the regulatory text to more closely align with the proposed policy and avoid ambiguities (added/edited text in italics): Sec. 413.79(l) For purposes of this section, a new medical residency training program means a program that receives initial accreditation by the appropriate accrediting body or begins training residents on or after January 1, 1995, and, in the case of a medical residency training program that receives such initial accreditation or begins training residents on or after October 1, 2026, that meets the following additional conditions: (1) Subject to the provisions of paragraphs (l)(2) and (l)(3) of this section, effective for programs started on or after October 1, 2026, . . . . Response: We agree that the commenter's edits add clarity to the regulations text, and we accept them, with modification to the effective date that we are finalizing in this rule, as follows: 413.79(l) For purposes of this section, a new medical residency training program means a program that receives initial accreditation by the appropriate accrediting body or begins training residents on or after January 1, 1995, and in the case of a medical residency training program that receives initial accreditation by the appropriate accrediting body and is still within its 5-year cap building period as of October 1, 2026, or starts training residents on or after October 1, 2026, that meets the following conditions: (1) Subject to the provisions of paragraphs (l)(2) and (l)(3) of this section, at least 90 percent of the individual residents that participate in the program during the 5-year cap building period . . . In summary, we are finalizing our proposal that, in addition to receiving initial accreditation by the appropriate accrediting body, for a residency program to be considered new, at least 90 percent of the individual resident trainees (not FTEs) must not have previous experience training in another program in the same specialty. We would no longer consider the previous employment of the faculty or program director in determining whether a residency program is genuinely new for cap-building purposes. We would determine compliance with the 90 percent threshold by tallying all of the individual residents who enter a program during the five-year cap building period (that is, for new urban teaching hospitals, during the first five program years of the first new program's existence; and for rural hospitals, during the first five program years of each new program). This tally would exclude individuals with previous experience training in another program in the same specialty who enter the new program as first-year residents through the National Resident Matching Program or another binding third-party resident matching program, as well as individuals who meet the definition of a ``displaced resident'' under 42 CFR 413.79(h)(1)(iii). The requirement that at least 90 percent of the individual residents must be new would not apply to small programs, defined as programs accredited for 16 or fewer resident positions, regardless of geographic designation. However, programs accredited for 16 or fewer positions must still receive initial accreditation from the ACGME. We are adopting commenters' requests [[Page 49862]] regarding modifying the proposed effective date and in this final rule, we are stating that these policies will be effective for programs still within their 5-year cap building period as of October 1, 2026, or for programs started on or after October 1, 2026. To ensure that the regulations text appropriately reflects our final policy, we are revising the text of 42 CFR 413.79(l) to state that a new medical residency training program means a program that receives initial accreditation by the appropriate accrediting body or begins training residents on or after January 1, 1995, and in the case of a medical residency training program that receives initial accreditation by the appropriate accrediting body and is still within its 5-year cap building period as of October 1, 2026, or starts training residents on or after October 1, 2026, that meets the following conditions: Subject to the following provisions, at least 90 percent of the individual residents (not FTEs) that enter the program during the five-year cap building period (that is, for new urban teaching hospitals, during the first five program years of the first new program's existence under Sec. 413.79(e)(1); and for rural hospitals, during the first five program years of each new program under Sec. 413.79(e)(3)) must not have previous experience training in another program in the same specialty. For purposes of determining whether a program satisfies the preceding requirement of this section, the count of individual residents excludes an individual-- ++ With previous experience training in another program in the same specialty who enters the program as a first-year resident through the National Resident Matching Program or another binding third-party resident matching program; or ++ Who meets the definition of a ``displaced resident'' under paragraph (h)(1)(iii). The 90 percent requirement does not apply to a program accredited for 16 or fewer resident positions.

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

Hospitals When a hospital merger involves one or more teaching hospitals, the surviving provider experiences an influx of FTE residents from the terminating providers' residency programs. The surviving hospital also absorbs those providers' FTE caps (63 FR 26329) and receives a merged per resident amount for purposes of direct GME payment (71 FR 48073). In addition, the Medicare Part A and Medicare Advantage (MA) patient loads of the surviving hospital represent the combined Medicare utilization of all hospitals (teaching and non-teaching) participating in the merger. The surviving provider also experiences changes in the payment rates that determine the amount of its indirect medical education adjustment. In addition to the influx of FTE residents from the terminating providers' residency programs, the surviving provider absorbs those hospitals' existing IME FTE caps and available beds, resulting in a change to its intern- and resident-to-bed (IRB) ratio. The total amount of IME payment is also affected by the combination of the merged hospitals' Part A and simulated MA DRG revenues. While we did not propose any new policies at this time, we are taking the opportunity to clarify in rulemaking the methodology for calculating DGME and IME payments for the surviving provider following a merger of hospitals. We discuss the procedure for calculating each payment type separately later in this section. a. Calculating DGME Payments Following a Merger of Hospitals If the surviving hospital begins a new cost reporting period effective with the date of the merger, then direct GME payment for that initial merged period and subsequent periods is determined based on the hospital's new, combined DGME payment rates (with special consideration for the rolling average during the first two cost reporting periods, as discussed further later in this section). However, if the merger takes place in the middle of the surviving hospital's cost reporting period, then the hospital's DGME payment for that period must reflect the different payment rates that apply before and after the merger. In the August 18, 2006 FY 2007 IPPS final rule and interim final rule with comment period (71 FR 48075-48076), we stated that direct GME payment for the surviving hospital would be calculated on the basis of two distinct sets of PRAs (that is, two distinct primary care PRAs and two distinct nonprimary care PRAs, or two distinct single PRAs, as applicable), one for the pre-merger period and one for the post-merger period. Thus, to calculate the DGME payment for the surviving hospital for the cost reporting period in which the merger occurred, the MAC performs a series of off-the-cost-report calculations, treating the pre-merger and post-merger periods of the surviving hospital's cost reporting period as if they were two short cost reporting periods. The MAC would calculate the direct GME payment for the surviving hospital for the portion of the cost reporting period prior to the merger using only the surviving hospital's FTE counts, PRA(s) and Medicare utilization rate. Separately, the MAC would calculate the surviving hospital's post-merger direct GME payment using the merged weighted average PRA(s) updated using special CPI-U factors; a combined rolling average FTE count reflecting the merged hospitals' FTE counts; and a combined Medicare utilization rate reflecting the portion of the cost reporting period following the merger. The MAC would add the pre- merger and post-merger payments to determine the surviving hospital's total reimbursement for that cost reporting period. We also stated in the 2006 rule that similar pre-merger and post-merger calculations are performed for the intern- and resident-to-bed ratio for purposes of IME payment, as discussed later in this preamble. In effect, the pre- and post-merger timeframes are treated as though they were individual short cost reporting periods, with virtual payment rates established for each period based upon the best available data for all providers. Later in this section, we provide a detailed step-by-step explanation, with an illustrative example, of how to calculate pre- and post-merger direct GME payments according to the policy outlined previously. To facilitate the calculation of the DGME payment amounts, the MAC determines the following variables separately for the pre- and post- merger timeframes, consistent with the FTE counting rules for non-12- month cost reporting periods as clarified in the August 4, 2025 FY 2026 IPPS final rule (90 FR 36915). In general, the pre-merger payment rates are based on data from the surviving provider only, while post-merger rates utilize data from all participating hospitals: FTE resident count--Calculate separately for the pre- merger and post-merger periods: To determine the partial year unweighted DGME FTE counts, the sum of allowable rotations for all residents during each period is divided by 365 or 366, using data from the master rotation schedule or a similar source (see 90 FR 36915-16 for further details). The weighted counts are obtained by applying the appropriate weighting factor to the rotations associated with each resident, and separate weighted counts are determined for primary care and non-primary care residents. For the pre- [[Page 49863]] merger period, the count includes rotations allowable to the surviving provider only; for the post-merger period, the count includes the sum of all rotations allowable to the merged entity.\163\ --------------------------------------------------------------------------- \163\ If any of the merged hospitals is training displaced residents or residents in the initial years of a new program, those weighted counts would be determined according to the same procedure, and the FTEs would be added to the respective rolling averages calculated for the pre- and post-merger periods. --------------------------------------------------------------------------- FTE resident limit (cap)--Calculate separately for the pre-merger and post-merger periods: The partial year DGME FTE resident limit is calculated by prorating the hospitals' original FTE caps, including any applicable adjustments, for the number of days in each respective period. The pre-merger limit is derived from the FTE caps of the surviving provider only, whereas the post-merger limit includes the combined caps of all hospitals participating in the merger. The prorated FTE caps are applied to the partial year FTE resident counts according to the usual procedure as described in the August 4, 2025 FY 2026 IPPS Final Rule (90 FR 36917). If any of the merged hospitals have residents participating in a rural track program or residents counted under section 422 of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (Pub. L. 108-173, codified at section 1886(h)(7) of the Act) (MMA), then those counts and caps are also determined and applied separately for the pre- and post-merger periods. Rolling average FTE count--Calculate separately for the pre-merger and post-merger periods: The current, prior- and penultimate-year weighted FTE counts, which serve as the inputs to the three-year rolling average, must also be determined separately for the pre- and post-merger timeframes. The current year FTE counts are calculated as explained previously, while the prior- and penultimate- year counts are obtained from lines 12 and 13 of Worksheet E-4 of the respective hospitals' cost reports, and prorated according to the procedure described in the August 4, 2025 FY 2026 IPPS final rule (90 FR 36917).\164\ The numerator of the rolling average for the pre-merger period consists of the prorated FTE counts of the surviving provider only, while the post-merger numerator equals the sum of the prorated FTE counts of the surviving and terminating providers, simulating what the effect of the merger would have been during the prior and penultimate cost reporting periods. --------------------------------------------------------------------------- \164\ Note that the proration factor is applied after the prior- and penultimate-year FTE counts have been determined based on data from the respective cost reports, consistent with the instructions to lines 12 and 13 of Worksheet E-4. --------------------------------------------------------------------------- Note that a ``virtual'' rolling average must also be calculated for the merged provider's first two cost reporting periods beginning on or after the effective date of the merger: that is, the surviving and terminating providers' FTE counts must be combined as though they were merged during the prior and/or penultimate years (with proration applied as necessary to account for differences in the length of the respective hospitals' cost years). This procedure applies whether the merger occurred in the middle of the surviving provider's cost reporting period. Standard computation of the rolling average would resume in the third full post-merger cost reporting period. In addition to the FTE resident count, FTE resident limit, and rolling average FTE count, the MAC also determines separate per resident amounts and Medicare patient loads (for both Part A and managed care enrollees) for the pre- and post-merger timeframes: Per resident amount--Calculate separately for the pre- merger and post-merger periods: Direct GME payment for the pre-merger period is calculated using the surviving provider's original primary care and non-primary care PRAs, or single PRA, as applicable, updated to the midpoint of the pre-merger period. The post-merger payment is calculated using the merged primary care and non-primary care PRAs, or merged single PRA, as applicable, determined according to the procedure finalized in the August 18, 2006 FY 2007 IPPS Final rule/Interim Final Rule with Comment Period (71 FR 48075-76); the merged PRA(s) is updated for inflation to the midpoint of the post-merger period. If the surviving and/or terminating providers count additional residents under the provisions of section 422 of the MMA, then direct GME payments for those residents would be calculated separately for the pre- and post-merger periods, as applicable, with the special per resident amounts updated according to the same procedures outlined previously. Medicare patient load--Calculate separately for the pre- merger and post-merger periods: Separate Medicare Part A and MA patient loads are determined for the pre- and post-merger periods using data from the hospitals' Provider Statistical and Reimbursement (PS&R) reports (see specific fields in the example table later in this section). For the pre-merger period, the numerator and denominator of the Medicare patient load comprise the Medicare and total inpatient days, respectively, attributable to the surviving provider during that period; for the post-merger period, the numerator and denominator comprise the sum of all inpatient days attributable to the merged hospitals (including any non-teaching hospitals absorbed by the surviving provider). If either the pre- or post-merger period straddles multiple calendar years, then separate MA patient loads must also be determined for the portions of that period occurring prior to and on or after January 1, so that the MA DGME payments may be adjusted by the percentage reduction applicable to each calendar year (as required by the regulations at Sec. 413.76(d)). Since the cost report does not support the use of multiple DGME payment rates for portions of a single cost year, these calculations must be performed off the cost report, and the results are summed to determine total DGME payment for the cost reporting period. Placeholder values based on the combined payment rates of the merged hospitals are reported as necessary on the applicable lines of Worksheet E-4.\165\ --------------------------------------------------------------------------- \165\ For example, the FTE caps and adjustments of the surviving and terminating providers would be added and reported on the applicable FTE cap lines as though the providers had been merged for the entire cost reporting period. --------------------------------------------------------------------------- The following example illustrates the application of the policies described previously. Example: Consider a merger between teaching Hospitals A and B, effective November 1, 2023, where Hospital A is the surviving provider. Prior to the merger, Hospitals A and B had fiscal year ends of June 30 and December 31, respectively. As the surviving provider, Hospital A elects to maintain its existing fiscal year, and files a cost report for the period July 1, 2023, to June 30, 2024. Since different payment rates apply to the timeframes 07/01/23-10/31/23 and 11/01/23-06/30/24, two separate direct GME payments must be calculated for Hospital A's cost reporting period ending June 30, 2024. These calculations are performed off the cost report, and the sum of the total payments is reported on line 31 of Worksheet E-4 of the hospital cost report (Form CMS-2552- 10). Hospital B would file a terminating cost report for the period January 1, 2023-October 31, 2023, with direct GME payment determined in accordance with the rules applicable to short cost reporting periods, as clarified in the August 4, 2025 FY 2026 IPPS Final Rule (90 FR 36915). The following table summarizes the data that will be used to calculate Hospital A's pre- and post-merger [[Page 49864]] DGME payments, based on the surviving and terminating providers' historical cost reports, as well as other sources such as rotation schedules and PS&R reports: [GRAPHIC] [TIFF OMITTED] TR04AU26.154 Since the hospitals are merged effective November 1, 2023, Hospital B does not have a separate FTE resident count, or separate inpatient days, during the period 11/01/23-06/30/24; post-merger data for Hospital B are broken out for illustrative purposes only. In addition, Hospital B's pre-merger FTE counts and inpatient days for its 2023 cost year are printed in brackets since they do not factor into the merged provider's DGME payment rates for fiscal year end (FYE) 06/ 30/24. However, note that Hospital B's pre-merger FTE counts will be used to calculate the rolling average for the merged provider's subsequent cost reports, as explained later in this section. Hospital B would file its terminating cost report and receive DGME payment for the period 01/01/23-10/31/23 in accordance with the rules applicable to short cost reporting periods. --------------------------------------------------------------------------- \166\ From the providers' most recently settled cost reports, as explained below under Notes. --------------------------------------------------------------------------- As noted later in this section, we assume in this example that Hospitals A and B each have a single PRA; accordingly, the FTE counts in this table represent combined totals for residents in both primary and non-primary care programs. The prior- and penultimate-year FTE counts are required to calculate the three-year rolling averages for the pre- and post-merger periods. Hospital A's prior- and penultimate-year cost reporting periods end on June 30, 2023, and June 30, 2022, respectively; Hospital B's cost reporting periods end on December 31, 2022, and December 31, 2021. The hospitals' DGME FTE resident limits include any applicable adjustments, such as those for new programs or slots received under various statutory provisions. For this example, we assume that neither hospital received additional residency slots under section 422. Consistent with the policy finalized in the August 18, 2006 FY 2007 IPPS Final Rule/Interim Final Rule with Comment Period (71 FR 48075), the individual hospitals' original (pre-merger) PRAs are sourced from the most recently settled cost reports. In this example we assume that the most recently settled cost reports of Hospitals A and B are those ending on June 30, 2021, and December 31, 2020, respectively. For the sake of convenience, we assume each hospital has a single PRA applicable to residents in all specialties. Managed care and total inpatient days during the post- merger period 11/01/23-06/30/24 are further broken out into portions occurring before and after January 1, since different percentage reductions to MA DGME payments apply to calendar years 2023 and 2024. Pre-Merger Direct GME Payment (July 1, 2023, to October 31, 2023) To calculate the surviving provider's direct GME payment for the pre-merger period 07/01/23-10/31/23, the following variables are determined based on Hospital A's individual records for the relevant timeframe: FTE resident count: As indicated in the table outlined previously, Hospital A's weighted DGME FTE resident count during the period 07/01/23-10/31/23 is 14.28 FTEs, based on data from Hospital A's rotation schedules or similar documentation and determined according to the methodology clarified in the August 4, 2025 FY 2026 IPPS Final Rule (90 FR 36915). FTE resident limit: The FTE resident limit for the pre- merger period is obtained by prorating Hospital A's full-year DGME FTE cap. Since there are 123 days during the period 07/01/23-10/31/23 and the full cost reporting period includes February 29, the prorated FTE cap equals: 40 x (123 / 366) = 13.44, which is less than the actual weighted DGME count of 14.28. Accordingly, Hospital A's effective DGME resident count for the pre-merger period is 13.44 FTEs. Rolling average FTE count: To determine the three-year rolling average, Hospital A's prior- and penultimate-year FTE counts are divided by the number of days in the respective cost reporting periods and multiplied by 123 \167\: --------------------------------------------------------------------------- \167\ This assumes that Hospital A's prior- and penultimate-year CRPs are both standard 12-month periods. --------------------------------------------------------------------------- ++ Prior year: 40 x (123 / 365) = 13.48 FTEs. ++ Penultimate year: 39 x (123 / 365) = 13.14 FTEs. The rolling average therefore equals: (13.44 \168\ + 13.48 + 13.14) / 3 = 13.35 FTEs. --------------------------------------------------------------------------- \168\ From FTE resident limit. --------------------------------------------------------------------------- Per resident amount: Hospital A's updated single PRA for its most recently [[Page 49865]] settled cost reporting period ending June 30, 2021, was $134,000. This PRA must be updated from the calendrical midpoint of Hospital A's June 30, 2021 fiscal year to the midpoint of the period 07/01/23-10/31/23, that is, from December 30, 2020, to August 31, 2023, using an appropriate inflation factor to estimate the change in the CPI-U during this period. Accordingly, Hospital A's FY 2021 PRA is updated by an inflation factor of 1.1777: $134,000 x 1.1777 = $157,812. (The calculation of the inflation factor itself is omitted for the sake of brevity; contact a MAC for additional guidance.) Medicare patient load: Based on the data from the table noted previously, Hospital A's Medicare Part A patient load for the period 07/01/23-10/31/23 is 8,303 / 18,450 = 0.45; the Medicare Advantage patient load for the same period is 2,768 / 18,450 = 0.15. With these data points established, we can calculate total Part A and MA DGME payment for Hospital A during the pre-merger period 07/01/ 23-10/31/23. (Note: MA DGME payment is reduced by the percentage determined by CMS for calendar year 2023 and published in the Federal Register): Part A: $157,812 x 13.35 x 0.45 = $948,055.59. MA: $157,812 x 13.35 x 0.15 x (1-0.0274) = $307,359.62. Thus, Hospital A's total DGME payment for the pre-merger period is: $948,055.59 + $307,359.62 = $1,255,415.21. Post-Merger Direct GME Payment (November 1, 2023, to June 30, 2024) For the post-merger period, the same payment variables are calculated using data from the records of both the surviving and terminating providers: FTE resident count: The combined weighted DGME resident count of Hospitals A and B (that is, the newly merged entity) for the period 11/01/23-06/30/24 is 27.72 + 13.20 = 40.92 FTEs. FTE resident limit: The merged provider's combined DGME FTE cap is 40 + 25 = 65 FTEs, which must be prorated for the partial cost reporting period. Since there are 243 days during the period 11/ 01/23-06/30/24 and the full cost reporting period includes February 29, the prorated FTE cap equals: 65 x (243 / 366) = 43.16, which is greater than the actual weighted DGME count of 40.92. Accordingly, the provider's effective DGME resident count for the post-merger period is 40.92 FTEs. Rolling average FTE count: To determine a representative three-year rolling average for the post-merger timeframe, we must treat Hospitals A and B as though they had been merged during their preceding two cost reporting periods. Accordingly, the prior-year FTE count used in the rolling average calculation (before proration) is equal to the combined prior-year FTE counts of the two hospitals: 40 + 21.5 = 61.50 FTEs; and the penultimate-year FTE count is equal to: 39 + 19.25 = 58.25 FTEs. These totals are then divided by the number of days in the respective cost reporting periods and multiplied by 243: \169\ --------------------------------------------------------------------------- \169\ This assumes that the hospitals' prior- and penultimate- year CRPs are all standard 12-month periods. If not, the appropriate proration factors would need to be applied prior to summing the hospitals' respective FTE counts (since the proration factor would be different for each hospital). --------------------------------------------------------------------------- [cir] Prior year: 61.50 x (243 / 365) = 40.94 FTEs. [cir] Penultimate year: 58.25 x (243 / 365) = 38.78 FTEs. The rolling average therefore equals: (40.92 + 40.94 + 38.78) / 3 = 40.21 FTEs. Per resident amount: The merged per resident amount for the post-merger period is determined according to the procedure finalized in the August 18, 2006 FY 2007 IPPS Final rule/Interim Final Rule with Comment Period: [cir] Hospital A's FY 2021 PRA of $134,000 is updated by an inflation factor of 1.1416 to $152,974. [cir] Hospital B's FY 2020 PRA of $127,500 is updated by an inflation factor of 1.1530 to $147,007. To determine the weighted average merged PRA, each hospital's individual PRA is weighted by the number of DGME FTE residents on its most recently settled cost report. Assume that on their FY 2021 and FY 2020 cost reports, Hospitals A and B reported 40 FTEs and 20 FTEs, respectively. The merged PRA is then equal to: ((40 x $152,974) + (20 x $147,007)) / 60 = $150,985. Finally, the merged PRA as established previously is updated from the calendrical midpoint of Hospital A's June 30, 2023 fiscal year (that is, from December 30, 2022) to the midpoint of the period 11/01/ 23-06/30/24, (that is, to March 1, 2024). Using the same methodology as previously, the merged PRA of $150,985 is updated by an inflation factor of 1.0448 to $157,749. Medicare patient load: The Medicare patient load for the period 11/01/23-06/30/24 is determined based on the combined inpatient days attributable to the merged hospitals. Since the period straddles multiple calendar years, separate MA patient loads must be determined for the periods before and after January 1: [cir] Part A: 29,887 / 74,720 = 0.399 [cir] MA (before Jan. 1): 3,325 / 74,720 = 0.044 [cir] MA (from Jan. 1): 9,565 / 74,720 = 0.128 (In these calculations, the denominator is equal to the total number of inpatient days at the merged hospital for the entire period 11/01/23-06/30/24 (that is, the sum of the inpatient days at Hospitals A and B, as indicated in the table noted previously); the numerators are obtained by summing the relevant categories of inpatient days for the respective periods.) With these data points established, we can calculate total Part A and MA DGME payment for the merged provider during the post-merger period 11/01/23-06/30/24. (Note: MA DGME payments are reduced by the percentages determined by CMS for calendar years 2023 and 2024 and published in the Federal Register): Part A: $157,749 x 40.21 x 0.399 = $2,530,891.83. MA (before Jan. 1): $157,749 x 40.21 x 0.044 x (1-0.0274) = $271,448.61. MA (from Jan. 1): $157,749 x 40.21 x 0.128 x (1-0.0233) = $792,997.55 Thus, the provider's total DGME payment for the post-merger period is: $2,530,891.83 + $271,448.61 + $792,997.55 = $3,595,337.99. Subsequent Cost Reporting Periods (FYEs June 30, 2025, and June 30, 2026) Direct GME payments for subsequent cost reporting periods are based on the provider's merged DGME payment rates and calculated according to the usual procedures. However, during the first two cost reporting periods following the merger (that is, FYE 06/30/25 and FYE 06/30/26), the rolling average must be calculated as though the hospitals had been merged for the entirety of their prior- and penultimate-year cost reporting periods. This ensures that the rolling average is representative of the training that occurs at the post-merger entity. (Note that this procedure applies whether the merger occurs in the middle of the surviving provider's cost reporting period, as in this example, or coincides with the start of a new cost reporting period.) Accordingly, in this example, the prior- and penultimate-year FTE counts for the merged provider's cost reporting period ending June 30, 2025, would be determined as follows: Prior year: The prior cost reporting periods of Hospitals A and B are those ending on June 30, 2024, and October 31, 2023, respectively, and the prior-year FTE count is equal to the hospitals' combined weighted FTE counts, [[Page 49866]] determined based on data from the respective cost reports, consistent with the instructions to lines 12 and 13 of Worksheet E-4. (Note that Hospital B's FYE 10/31/23 is its terminating cost reporting period that began January 1, 2023.) Based on data from the applicable cost reports, and as shown in the table, Hospital A's individual FTE count (subject to the cap) during FYE 06/30/24 is 40 FTEs,\170\ while Hospital B's individual FTE count (subject to the cap) during FYE 10/31/23 is 16.55 FTEs.\171\ --------------------------------------------------------------------------- \170\ I.e., the lesser of its DGME FTE cap of 40 or the actual weighted FTE count during this period, plus any podiatric or dental FTEs (not applicable to this example). Since the actual weighted FTE count is 14.28 + 27.72 = 42, the effective DGME count for the prior year is 40 FTEs. (Note that this prior year-FTE count would be equal to the placeholder value reported on line 11 of Worksheet E-4 of Hospital A's FYE 06/30/2024 cost report.) \171\ On Hospital B's FYE 10/31/23 cost report, the weighted FTE count of 16.55 on Worksheet E-4, line 8, represents 10 months of aggregate rotations allowable for purposes of DGME payment (9.75 during 01/01/23-06/30/23 and 6.80 during 07/01/23-10/31/23, as show in the table). Hospital B's DGME FTE cap of 25 FTEs, as reported on line 5, would also be prorated to reflect the short cost reporting period: 25 / 365 x 304 = 20.82. Thus, Hospital B's prior year DGME FTE count is the lesser of 16.55 FTEs or its prorated DGME FTE cap of 20.82. (Note that this would be equal to the value reported on line 11 of Worksheet E-4 of Hospital B's FYE 10/31/23 cost report.) --------------------------------------------------------------------------- Since Hospital B's prior cost reporting period was only 10 months long, its prior-year FTE count must be inflated to a 12-month equivalent, consistent with the policy clarified in the August 4, 2025 FY 2026 IPPS Final Rule (90 FR 36917): 16.55 / 304 x 365 = 19.87 FTEs. Accordingly, the combined prior-year FTE count of the merged entity is: 40 + 19.87 = 59.87 FTEs. Penultimate year: The penultimate cost reporting periods of Hospitals A and B end on June 30, 2023, and December 31, 2022, respectively. Based on data from the applicable cost reports, and as shown in the table, the sum of the providers' individual FTE counts during those respective periods is equal to: 40 + 21.5 = 61.50 FTEs. For the following cost reporting period ending June 30, 2026, the prior year-FTE count would be the merged provider's weighted DGME count, subject to the cap, as reported on the preceding cost report (FYE 06/30/2025; not shown); and the penultimate-year FTE count would be the hospitals' combined count as determined previously for the periods 07/01/23-06/30/24 and 01/01/23-10/31/23, that is, 59.87 FTEs. Beginning with the provider's FYE 06/30/2027 cost report, the rolling average would be calculated in accordance with normal procedure. b. Calculating IME Payments Following a Merger of Hospitals As stated previously, when a hospital merger involves one or more teaching hospitals, the surviving provider experiences an influx of FTE residents from the terminating providers' residency programs and absorbs those hospitals' existing IME FTE caps and available beds, resulting in a change to its IRB ratio. The merged provider also experiences an increase in both Part A and simulated managed care DRG revenue. The IME payment associated with a particular discharge reflects the payment rates applicable on the date the discharge occurs: if the discharge occurs prior to the effective date of the merger, the provider's individual IME payment rates are used; if the discharge occurs on or after the effective date of the merger, the IME adjustment is computed based on the combined payment rates of the merged providers. For cost reporting purposes, the surviving provider's total IME payment is based on the payment rate(s) applicable during each cost reporting period or portion thereof. Specifically, if the surviving hospital begins a new cost reporting period effective with the date of the merger, then total IME payment for that initial merged period and subsequent periods is determined based on the hospital's new, combined IME payment rates (with special consideration for the IRB ratio cap and rolling average during the first two cost reporting periods, as discussed further later in this section). However, if the merger takes place in the middle of the surviving hospital's cost reporting period, then the hospital's total IME payment for that period must reflect the different payment rates that apply before and after the merger. Principles similar to what is discussed previously for direct GME apply to the calculation of the surviving provider's total IME payment amounts: that is, the MAC divides the cost reporting period into pre- and post-merger portions and calculates separate IME payments for each portion (according to the procedure described later in this section). In effect, the pre- and post-merger timeframes are treated as though they were individual short cost reporting periods, with virtual payment rates established for each period on the basis of the best available data for all providers and consistent with the FTE counting policies for non-12-month cost reporting periods as clarified in the August 4, 2025 FY 2026 IPPS Final Rule (90 FR 36915). To facilitate the calculation of the IME payment amounts, the MAC determines separate IRB ratios for the pre- and post-merger portions of the cost reporting period, which involves determining separate FTE resident counts, FTE caps, rolling average FTE counts, and available bed counts, as well as the separate application of the IRB ratio cap. The resulting teaching adjustment factors are multiplied by DRG revenue to obtain total Part A and managed care IME payments for the respective timeframes. Specific procedures for determining these variables are discussed later in this section; as clarified previously for DGME, the pre-merger IME payment rates are based on data from the surviving provider only, while post-merger rates utilize data from all participating hospitals. IRB Ratio--Numerator The numerator of the current year IRB ratio (prior to the application of the IRB ratio cap) consists of the allowable IME FTE resident count, subject to the IME FTE cap and the three-year rolling average. These variables are determined for the pre- and post-merger periods as follows: FTE resident count--Calculate separately for the pre- merger and post-merger periods: To determine the partial year IME FTE counts, the sum of allowable rotations for all residents during the pre- and post-merger periods is divided by the actual number of days in each respective period, using data from the master rotation schedule or a similar source (see 90 FR 36915-16 for further details). For the pre- merger period, the count includes rotations allowable to the surviving provider only; for the post-merger period, the count includes the sum of all rotations allowable to the merged entity.\172\ --------------------------------------------------------------------------- \172\ If any of the merged hospitals is training displaced residents or residents in the initial years of a new program, those FTE counts would be determined according to the same procedure, and the FTEs would be added to the respective rolling averages calculated for the pre- and post-merger periods. --------------------------------------------------------------------------- FTE resident limit (cap)--Calculate separately for the pre-merger and post-merger periods: Consistent with the FTE counting policies clarified in the August 4, 2025 FY 2026 IPPS Final Rule (90 FR 36917), it is not necessary to prorate the IME cap for non-12-month cost reporting periods; the partial year IME FTE resident limits are thus equal to the hospitals' original FTE caps, including any adjustments, without the application of a proration factor. The pre- merger limit is equal to the FTE cap of the surviving provider only, whereas the post-merger limit consists of the combined caps of all hospitals participating in the merger. The FTE [[Page 49867]] caps are applied to the partial year FTE resident counts according to the usual procedure as described in the August 4, 2025 FY 2026 IPPS Final Rule (90 FR 36917). If any of the merged hospitals has residents participating in a rural track program or residents counted under section 422, then those counts and caps are also determined and applied separately for the pre- and post-merger periods. Rolling average FTE count--Calculate separately for the pre-merger and post-merger periods: The current, prior- and penultimate-year IME counts, which serve as the inputs to the three- year rolling average, must also be determined separately for the pre- and post-merger timeframes. The current year FTE counts are calculated as explained previously, while the prior- and penultimate-year counts are obtained from lines 13 and 14 of Worksheet E, Part A, of the respective hospitals' cost reports (without the application of proration factors; see 90 FR 36917). The numerator of the rolling average for the pre-merger period consists of the FTE counts of the surviving provider only, while the post-merger numerator equals the combined FTE counts of the surviving and terminating providers, simulating what the effect of the merger would have been during the prior and penultimate cost reporting periods. Note that a ``virtual'' rolling average must also be calculated for the merged provider's first two cost reporting periods beginning on or after the effective date of the merger: that is, the surviving and terminating providers' FTE counts must be combined as though they were merged during the prior and/or penultimate years. This procedure applies even if the merger occurred in the middle of the surviving provider's cost reporting period. Standard computation of the rolling average would resume in the third full post-merger cost reporting period. Also note that the procedures for determining the partial year IME resident counts, caps, and rolling averages closely resemble the corresponding procedures described previously for direct GME, except that the IME variables are not adjusted relative to a standard 12-month cost reporting period, consistent with the policy clarified in the August 4, 2025 FY 2026 IPPS Final Rule (90 FR 36917). IRB Ratio--Denominator (Available Beds) The denominator of the current year IRB ratio (prior to the application of the IRB ratio cap) consists of the number of available beds, determined for the pre- and post-merger periods as follows: Available bed count--Calculate separately for the pre- merger and post-merger periods: Consistent with the methodology at 42 CFR 412.105(b), the available bed count is equal to the number of available bed days divided by the number of days in the virtual cost reporting period. For the pre-merger period, only the surviving provider's available bed days are counted. Thus, the pre-merger bed count is computed by counting the number of available bed days during the pre-merger period for the surviving provider and dividing by the number of days in the pre-merger period. For the post-merger period, the count includes the available bed days of the surviving and terminating providers, including any non-teaching hospitals participating in the merger.\173\ Thus, the post-merger bed count is computed by counting the number of available bed days during the post- merger period for all participating hospitals, and dividing by the number of days in the post-merger period. --------------------------------------------------------------------------- \173\ Available bed days of terminating non-teaching providers are included in the post-merger count because the IRB ratio represents teaching intensity across the entire merged entity. This is analogous to the inclusion of the inpatient days of non-teaching providers in the Medicare patient load for purposes of determining post-merger DGME payments. --------------------------------------------------------------------------- IRB Ratio Cap Similar to the rolling average, the IRB ratio cap must be determined and applied separately for the pre- and post-merger timeframes, with the post-merger cap simulating what the effect of the merger would have been during the hospitals' preceding cost reporting periods: Prior year numerator--Calculate separately for the pre- merger and post-merger periods: The numerator of the IRB ratio cap is derived from the allowable IME FTE counts, subject to the IME FTE cap (but before application of the rolling average), reported on Worksheet E, Part A, line 12 of the respective hospitals' prior year cost reports: the numerator of the pre-merger cap consists of the FTE count of the surviving provider only (that is, the FTE count reported on line 12 of Worksheet E, Part A, of the surviving provider's prior year cost report), while the numerator of the post-merger cap equals the sum of the FTE counts of the surviving and terminating providers (that is, of the sum of the FTE counts reported on line 12 of Worksheet E, Part A, of each participating hospital's prior year cost report). If a hospital reports displaced residents or residents in the initial years of a new program, or if its FTE count has increased in the current year due to an affiliation agreement, then those residents are added to the prior year numerator, consistent with the instructions to line 20 of Worksheet E, Part A. Prior year denominator--Calculate separately for the pre- merger and post-merger periods: Similarly, the denominator of the IRB ratio cap is derived from the available bed counts reported on Worksheet E, Part A, line 4 of the respective hospitals' prior year cost reports: the denominator of the pre-merger cap includes the available beds of the surviving provider only, while the denominator of the post-merger cap, consists of the sum of the available beds of the surviving and terminating providers. The available bed counts are obtained from line 4 of Worksheet E, Part A, of the hospitals' prior year cost reports; if any non-teaching hospital participates in the merger, that hospital's bed count would be determined by dividing the prior year Worksheet S-3, Part I, column 3, line 14, plus line 32, by the number of days in the prior year cost reporting period. For reasons analogous to those discussed elsewhere in this preamble and in the August 4, 2025 FY 2026 IPPS Final Rule (90 FR 36915), the components of the IRB ratio cap are derived without the application of a proration factor. Consistent with the usual policy under Sec. 412.105(a)(1), the respective IRB ratios and IRB ratio caps, as determined previously, are compared, and the lesser values are used to calculate the teaching adjustment factors for the pre- and post-merger timeframes. Similar to the rolling average, a ``virtual'' IRB ratio cap, consisting of the combined FTE and available bed counts of the surviving and terminating providers, must also be determined for the first cost reporting period beginning on or after the effective date of the merger, to simulate what the effect of the merger would have been during the prior year. This procedure applies whether the merger occurred in the middle of the surviving provider's cost reporting period. Standard computation of the IRB ratio cap would resume in the second full post-merger cost reporting period. DRG Revenue and Total IME Payment To calculate total IME payments, the pre- and post-merger teaching adjustment factors, as determined previously, are multiplied by the hospitals' Part A and simulated managed care DRG revenue for the respective timeframes: [[Page 49868]] DRG revenue (Part A and simulated managed care)--Calculate separately for the pre-merger and post-merger periods: The teaching adjustment factor for the pre-merger period is multiplied by the pre- merger DRG revenue of the surviving provider only, while the teaching adjustment factor for the post-merger period is multiplied by the combined DRG revenue of the surviving and terminating providers. Both Part A and simulated managed care DRG revenue are accumulated on the Provider Statistical and Reimbursement (PS&R) Report based on claims submitted by the hospital. Note that if the surviving and/or terminating providers count additional residents under the provisions of section 422, the total IME payments for those residents would be calculated separately for the pre- and post-merger periods, as applicable, using the formula multiplier of 0.66. Since the cost report does not support the use of multiple IME payment rates for portions of a single cost year, the calculations described in this section must be performed off the cost report, and the results are summed together to determine total IME payment for the cost reporting period. Placeholder values based on the combined payment rates of the merged hospitals are reported as necessary on the applicable lines of Worksheet E, Part A.\174\ --------------------------------------------------------------------------- \174\ For example, the FTE caps and adjustments of the surviving and terminating providers would be added and reported on the applicable FTE cap lines as though the providers had been merged for the entire cost reporting period. --------------------------------------------------------------------------- The following example illustrates the application of the policies described previously. Example: (Note: This example generally replicates the scenario outlined previously in the discussion of direct GME payment, adjusted as necessary to reflect the variables involved in the IME payment calculation.) Consider a merger between teaching Hospitals A and B, effective November 1, 2023, where Hospital A is the surviving provider. Prior to the merger, Hospitals A and B had fiscal year ends of June 30 and December 31, respectively. As the surviving provider, Hospital A elects to maintain its existing fiscal year, and files a cost report for the period July 1, 2023, to June 30, 2024. Since different payment rates apply to the timeframes 07/01/23-10/31/23 and 11/01/23-06/30/24, two separate IME payment totals must be calculated for Hospital A's cost reporting period ending June 30, 2024. These calculations are performed off the cost report, and the total Part A and managed care payments are reported on lines 29 and 29.01, respectively, of Worksheet E, Part A of the hospital cost report (Form CMS-2552-10). Hospital B would file a terminating cost report for the period January 1, 2023-October 31, 2023, with IME payment determined in accordance with the rules applicable to short cost reporting periods, as clarified in the August 4, 2025 FY 2026 IPPS Final Rule. The following table summarizes the data that will be used to calculate Hospital A's pre- and post-merger IME payments, based on the surviving and terminating providers' historical cost reports, as well as other sources such as rotation schedules and PS&R reports: [GRAPHIC] [TIFF OMITTED] TR04AU26.155 Notes: Since the hospitals are merged effective November 1, 2023, Hospital B technically does not have a separate FTE resident count, separate available bed count, or separate DRG revenue during the period 11/01/23-06/30/24; post-merger data for Hospital B are broken out for illustrative purposes only. In addition, Hospital B's pre-merger FTE counts and available bed counts for its 2023 cost year are printed in brackets since they do not factor into the merged provider's IME payment rates for FYE 06/30/24. However, note that Hospital B's pre- merger FTE and bed counts will be used to calculate the rolling average and the IRB ratio cap for the merged provider's subsequent cost reports, as explained further below. Hospital B would file its terminating cost report and receive IME payment for the period 01/01/ 23-10/31/23 in accordance with the rules applicable to short cost reporting periods. The prior- and penultimate-year FTE counts are required to calculate the three-year rolling averages for the pre- and post-merger periods. Hospital A's prior- and penultimate-year cost reporting periods end on June 30, 2023, and June 30, 2022, respectively; Hospital B's cost reporting periods end on December 31, 2022, and December 31, 2021. The hospitals' IME FTE resident limits include any applicable adjustments, such as those for new programs or slots received under various statutory provisions. For this example, we assume that neither hospital has received additional residency slots under section 422. As explained previously, the available bed count is equal to the number of available bed days divided by the number of days in the cost reporting period (or virtual period, as here). For this example, we assume that each hospital's available bed count remains constant over time. Pre-Merger IME Payment (July 1, 2023, to October 31, 2023) To calculate the surviving provider's IME payment for the pre- merger period 07/01/23-10/31/23, the following variables are determined based on Hospital A's individual records for the relevant timeframe: FTE resident count: As indicated in the table noted previously, Hospital A's IME FTE resident count during the period 07/ 01/23-10/31/23 is 42.00 FTEs, based on data from Hospital A's rotation schedules or similar documentation and determined according to the methodology clarified in the August 4, 2025 FY 2026 IPPS Final Rule. FTE resident limit: Hospital A's IME FTE resident limit is 40.00, which is less than the actual IME count of 42 FTEs during this timeframe. [[Page 49869]] Accordingly, Hospital A's effective IME resident count for the pre- merger period is 40.00 FTEs. (Note that neither the IME FTE count nor the IME FTE cap is prorated for the short virtual cost reporting period.) Rolling average FTE count: As shown in the table, Hospital A's prior- and penultimate-year IME FTE counts are 40 and 39 FTEs, respectively. (Again, note that these values are not prorated for the shortened cost reporting period.) The rolling average therefore equals: (40 + 40 + 39) / 3 = 39.67 FTEs. IRB ratio: The unadjusted IRB ratio for the pre-merger period is equal to the rolling average FTE count divided by the count of available beds: 39.67 / 300 = 0.132. IRB ratio cap: The IRB ratio cap is equal to the prior year IME FTE count (subject to the cap but before application of the rolling average) divided by the count of available beds: 40 / 300 = 0.133, which is greater than the actual IRB ratio of 0.132. Accordingly, Hospital A's effective IRB ratio for the pre-merger period is 0.132. DRG revenue: Hospital A's total Part A DRG revenue during the pre-merger period is $15,625,000, and its simulated managed care DRG revenue (based on shadow claims submitted during the same period) is $5,187,500. Based on the data noted previously, the IME teaching adjustment factor for Hospital A during the pre-merger period 07/01/23-10/31/23 equals: 1.35 x ((1 + 0.132)\0.405\-1) = 0.07. Accordingly, Hospital A's total IME payment amounts during this period are: Part A IME: 0.07 x $15,625,000 = $1,093,750. Managed care (MA) IME: 0.07 x $5,187,500 = $363,125. Thus, Hospital A's total IME payment for the pre-merger period is: $1,093,750 + $363,125 = $1,456,875. Post-Merger IME Payment (November 1, 2023, to June 30, 2024) For the post-merger period, the same payment variables are calculated using data from the records of both the surviving and terminating providers: FTE resident count: The combined IME FTE resident count of Hospitals A and B (that is, the newly merged entity) for the period 11/ 01/23-06/30/24 is 42 + 20 = 62.00 FTEs. FTE resident limit: The merged provider's IME combined IME cap is 40 + 25 = 65 FTEs, which is greater than the actual IME count of 62. Accordingly, the provider's effective IME resident count for the post-merger period is 62.00 FTEs. Rolling average FTE count: To determine a representative three-year rolling average for the post-merger timeframe, we must treat Hospitals A and B as though they had been merged during their preceding two cost reporting periods. Accordingly, the prior-year FTE count used in the rolling average calculation is equal to the combined prior-year FTE counts of the two hospitals: 40 + 21.5 = 61.50 FTEs; and the penultimate-year FTE count is equal to: 39 + 19.25 = 58.25 FTEs. The rolling average therefore equals: (62 + 61.5 + 58.25) / 3 = 60.58 FTEs. IRB ratio: The unadjusted IRB ratio for the post-merger period is equal to the rolling average FTE count divided by the total count of available beds at both hospitals: 60.58 / (300 + 250) = 0.11. IRB ratio cap: The IRB ratio cap is equal to the combined prior year IME FTE count (subject to the combined cap but before application of the rolling average) divided by the total count of available beds: (40 + 21.5) / (300 + 250) = 0.112, which is greater than the actual IRB ratio of 0.11. Accordingly, the merged provider's effective IRB ratio for the post-merger period is 0.11. DRG revenue: The merged provider's total Part A DRG revenue during the post-merger period is $30,625,000 + $25,375,000 = $56,000,000, and its simulated managed care DRG revenue (based on shadow claims submitted during the same period) is $10,125,000 + $13,750,000 = $23,875,000. Based on the data noted previously, the IME teaching adjustment factor for the merged provider during the post-merger period 11/01/23- 06/30/24 equals: 1.35 x ((1 + 0.11)0.405-1) = 0.058. Accordingly, the provider's total IME payment amounts during this period are: Part A IME: 0.058 x $56,000,000 = $3,248,000. Managed Care (MA) IME: 0.058 x $23,875,000 = $1,384,750. Thus, the provider's total IME payment for the post-merger period is: $3,248,000 + $1,384,750 = $4,632,750. Subsequent Cost Reporting Periods (FYEs June 30, 2025, and June 30, 2026) Total IME payments for subsequent cost reporting periods are based on the provider's merged IME payment rates and calculated according to the usual procedures. However, during the first cost reporting period following the merger (that is, FYE 06/30/25), the IRB ratio cap must be calculated as though the hospitals had been merged for the entirety of their prior cost reporting periods. In addition, as for direct GME, during the first two cost reporting periods following the merger (that is, FYE 06/30/25 and FYE 06/30/26), the rolling average must be calculated as though the hospitals had been merged for the entirety of their prior- and penultimate-year cost reporting periods. This ensures that both the IRB ratio cap and the rolling average are representative of the training that occurs at the post-merger entity. (Note that this procedure applies whether the merger occurs in the middle of the surviving provider's cost reporting period, as in this example, or coincides with the start of a new cost reporting period.) Accordingly, in this example, the IRB ratio cap for the merged provider's cost reporting period ending June 30, 2025, would be determined as follows: Prior-year numerator: The prior cost reporting periods of Hospitals A and B are those ending on June 30, 2024, and October 31, 2023, respectively, and the prior-year FTE count is equal to the hospitals' combined IME FTE counts, determined based on data from the respective cost reports, consistent with the instructions to line 20 of Worksheet E, Part A. (Note that Hospital B's FYE 10/31/23 is its short terminating cost reporting period that began January 1, 2023.) Based on the data from the applicable cost reports, and as shown in the table, Hospital A's individual FTE count (subject to the cap but before application of the rolling average) during FYE 06/30/24 is 40 FTEs, while Hospital's B's individual FTE count (subject to the cap but before application of the rolling average) during FYE 10/31/23 is 20 FTEs.\175\ Accordingly, the combined prior year numerator is equal to 40 + 20 = 60.00 FTEs. --------------------------------------------------------------------------- \175\ I.e., the lesser of each hospital's IME FTE cap or actual IME FTE count, plus any podiatric and dental FTEs (not applicable to this example), during the respective periods. In this example, Hospital A's prior year numerator would be equal to the placeholder value reported on line 12 of Worksheet E, Part A, of its FYE 06/30/ 2024 cost report; while Hospital B's prior year numerator would be equal to the value reported on line 12 of Worksheet E, Part A, of its FYE 10/31/2023 cost report. --------------------------------------------------------------------------- Prior-year denominator: As shown in the table, the hospitals' total available bed count during their prior cost reporting periods is equal to 300 + 250 = 550 beds. Thus, the IRB ratio cap for the merged provider during this period is: 60 / 550 = 0.11. Beginning with the provider's FYE 06/30/2026 cost report, the IRB ratio cap would be calculated in accordance with normal procedure. For a demonstration of how to calculate the rolling average for the cost reporting periods ending on June 30, 2025, and June 30, 2026, refer to the direct GME example earlier in this preamble. Beginning with the provider's [[Page 49870]] FYE 06/30/2027 cost report, the rolling average would be calculated in accordance with normal procedure. Comment: Commenters supported and appreciated the transparency regarding CMS's clarification of the payment methodology following hospital mergers. Response: We appreciate the commenters' support and are finalizing our clarified policy.

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

Available Slots a. Background Section 5506 of the Patient Protection and Affordable Care Act (Pub. L. 111-148), as amended by the Health Care and Education Reconciliation Act of 2010 (Pub. L. 111-152) (collectively, ``Affordable Care Act''), authorizes the Secretary to redistribute residency slots after a hospital that trained residents in an approved medical residency program closes. Section 5506 of the Affordable Care Act instructs the Secretary to establish a process by regulation that redistributes slots from teaching hospitals that close to hospitals that meet certain criteria, with priority given to certain hospitals including those located in the same Core Based Statistical Area (CBSA), in a contiguous CBSA or in the same state as the closed hospital. Specifically, section 5506 of the Affordable Care Act amended the Act by adding subsection (vi) to section 1886(h)(4)(H) of the Act and modifying language at section 1886(d)(5)(B)(v) of the Act. These changes instruct the Secretary to establish a process to increase the FTE resident caps at other hospitals based upon the FTE resident caps at teaching hospitals that closed on or after March 23, 2008. In the CY 2011 Outpatient Prospective Payment System (OPPS) final rule with comment period (75 FR 72264), we established regulations at 42 CFR 413.79(o) and an application process for qualifying hospitals to apply to CMS to receive direct GME and IME FTE resident cap slots from the hospital that closed. We made certain additional modifications to Sec. 413.79 in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53434), and we made changes to the section 5506 application process in the FY 2015 IPPS/LTCH PPS final rule (79 FR 50122 through 50134). The procedures we established apply to teaching hospitals that closed between March 23, 2008, and August 3, 2010, and to teaching hospitals that close after August 3, 2010 (75 FR 72215). b. Notice of Closure of Insight Hospital and Medical Center Trumbull Located in Warren, OH, and the Application Process--Round 30 CMS learned of the closure of Insight Hospital and Medical Center Trumbull, located in Warren, OH (CCN 360055). Accordingly, we are providing notice of the closure of this teaching hospital and initiating another round of the application and selection process to redistribute the closed hospital's FTE resident caps. This round will be the 30th round (``Round 30'') of the application and selection process. Table V.F.01 contains the identifying information for the closed teaching hospital and its IME and direct GME FTE resident caps, which are part of the Round 30 application process under section 5506 of the Affordable Care Act. [GRAPHIC] [TIFF OMITTED] TR04AU26.156 c. Notice of Closure of M Health Fairview St. Joseph's Hospital Located in Saint Paul, MN, and the Application Process--Round 31 CMS learned of the closure of M Health Fairview St. Joseph's Hospital, located in Saint Paul, MN (CCN 240063). Accordingly, we are providing notice of the closure of this teaching hospital and initiating another round of the application and selection process to redistribute the closed hospital's FTE resident slots. This round will be the 31st round (``Round 31'') of the application and selection process. Table V.F.02 contains the identifying information for the closed teaching hospital and its IME and direct GME FTE resident caps, which are part of the Round 31 application process under section 5506 of the Affordable Care Act. [GRAPHIC] [TIFF OMITTED] TR04AU26.157 [[Page 49871]] d. Application Process for Available Resident Slots The application period for hospitals to apply for slots under section 5506 of the Affordable Care Act is 90 days following notice to the public of a hospital closure (77 FR 53436). Therefore, hospitals that wish to apply for and receive slots from the previously noted hospitals' FTE resident caps must submit Round 30 and 31 applications using the electronic application intake system, Medicare Electronic Application Request Information SystemTM (MEARISTM) no later than October 29, 2026. The Section 5506 application can be accessed at: https://mearis.cms.gov/public/home. CMS will only accept Round 30 and 31 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 MEARIS