Medicare Program; Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals (IPPS) and the Long-Term Care Hospital Prospective Payment System and Policy Changes and Fiscal Year (FY) 2026 Rates; Changes to the FY 2025 IPPS Rates Due to Court Decision; Requirements for Quality Programs; and Other Policy Changes; Health Data, Technology, and Interoperability: Electronic Prescribing, Real-Time Prescription Benefit and Electronic Prior Authorization CH PPS standard Federal payment rate of $50,824.51 (calculated as $49,383.26 × 1.027 × 1.0021275) for FY 2026. For LTCHs that fail to submit quality reporting data for FY 2026, in accordance with the requirements of the LTCH QRP under section 1866(m)(5) of the Act, we are establishing an LTCH PPS standard Federal payment rate of $49,834.74 (calculated as $49,383.26 × 1.007 × 1.0021275) for FY 2026. B. Adjustment for Area Wage Levels Under the LTCH PPS for FY 2026 1. Background Under the authority of section 123 of the BBRA, as amended by section 307(b) of the BIPA, we established an adjustment to the LTCH PPS standard Federal payment rate to account for differences in LTCH area wage levels under § 412.525(c). The labor-related share of the LTCH PPS standard Federal payment rate is adjusted to account for geographic differences in area wage levels by applying the applicable LTCH PPS wage index. The applicable LTCH PPS wage index is computed using wage data from inpatient acute care hospitals without regard to reclassification under section 1886(d)(8) or section 1886(d)(10) of the Act. VerDate Sep 2014 00:36 Aug 02, 2025 Jkt 265001 PO 00000 Frm 00703 Fmt 4701 Sfmt 4700 E:\FR\FM\04AUR itals without regard to reclassification under section 1886(d)(8) or section 1886(d)(10) of the Act. VerDate Sep 2014 00:36 Aug 02, 2025 Jkt 265001 PO 00000 Frm 00703 Fmt 4701 Sfmt 4700 E:\FR\FM\04AUR2.SGM 04AUR2 2 S E L U R h t i w D O R P 4 4 1 S 7 W 9 K S D n o d n o m m a h k 37238 Federal Register / Vol. 90, No. 147 / Monday, August 4, 2025 / Rules and Regulations The FY 2026 LTCH PPS standard Federal payment rate wage index values that will be applicable for LTCH PPS standard Federal payment rate discharges occurring on or after October 1, 2025, through September 30, 2026, are presented in Table 12A (for urban areas) and Table 12B (for rural areas), which are listed in section VI. of this Addendum and available via the internet on the CMS website. 2. Geographic Classifications (Labor Market Areas) under the LTCH PPS In adjusting for the differences in area wage levels under the LTCH PPS, the labor- related portion of an LTCH’s Federal prospective payment is adjusted by using an appropriate area wage index based on the geographic classification (labor market area) in which the LTCH is located. Specifically, the application of the LTCH PPS area wage level adjustment under exist ppropriate area wage index based on the geographic classification (labor market area) in which the LTCH is located. Specifically, the application of the LTCH PPS area wage level adjustment under existing § 412.525(c) is made based on the location of the LTCH— either in an ‘‘urban area,’’ or a ‘‘rural area,’’ as defined in § 412.503. Under § 412.503, an ‘‘urban area’’ is defined as a Metropolitan Statistical Area (MSA) (which includes a Metropolitan division, where applicable), as defined by the Executive OMB, and a ‘‘rural area’’ is defined as any area outside of an urban area (75 FR 37246). The geographic classifications (labor market area definitions) currently used under the LTCH PPS are based on the Core Based Statistical Areas (CBSAs) established by OMB. 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. In accordance with that schedule, on July 21, 2023, OMB released Bulletin No. 23– 01. According to OMB, the delineations reflect the 2020 Standards for Delineating Core Based Statistical Areas (‘‘the 2020 Standards’’), which chedule, on July 21, 2023, OMB released 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, American Community Survey, and Census Population Estimates Program data). A copy of OMB Bulletin No. 23–01 may be obtained at https://bidenwhitehouse. archives.gov/wp-content/uploads/2023/07/ OMB-Bulletin-23-01.pdf. In the FY 2025 IPPS/LTCH PPS final rule, we stated that we believe that adopting the CBSA-based labor market area delineations established in OMB Bulletin 23–01 will ensure that the LTCH PPS area wage level adjustment most appropriately accounts for and reflects the relative hospital wage levels in the geographic area of the hospital as compared to the national average hospital wage level based on the best available data that reflect the local economies and area wage levels of the hospitals that are currently located in these geographic areas (89 FR 69974). We also noted th wage level based on the best available data that reflect the local economies and area wage levels of the hospitals that are currently located in these geographic areas (89 FR 69974). We also noted that our adoption of the revised delineations announced in OMB Bulletin No. 23–01 is consistent with the changes under the IPPS for FY 2025. Therefore, in that same final rule, we adopted the updates set forth in OMB Bulletin No. 23–01, under the authority of section 123 of the BBRA, as amended by section 307(b) of the BIPA, for the LTCH PPS effective for FY 2025. We refer readers to the FY 2025 IPPS/ LTCH PPS final rule (89 FR 69973 through 69975), for a full discussion of our implementation of the OMB delineations based on OMB Bulletin No. 23–01 for the LTCH PPS. For additional information on the CBSA-based labor market area (geographic classification) delineations used under the LTCH PPS and the history of the labor market area definitions used under the LTCH PPS, we refer readers to the FY 2015 IPPS/LTCH PPS final rule (79 FR 50180 through 50185). We continue to believe that the CBSA- based labor market area delineations, as established in OMB Bulletin 23–01, ensure that the LTCH PPS FY 2015 IPPS/LTCH PPS final rule (79 FR 50180 through 50185). We continue to believe that the CBSA- based labor market area delineations, as established in OMB Bulletin 23–01, ensure that the LTCH PPS area wage level adjustment most appropriately accounts for and reflects the relative hospital wage levels in the geographic area of the hospital as compared to the national average hospital wage level based on the best available data that reflect the local economies and area wage levels of the hospitals that are currently located in these geographic areas (89 FR 69974). Therefore, for FY 2026, we are continuing to use the CBSA-based labor market area delineations as established in OMB Bulletin 23–01 and adopted in the FY 2025 IPPS/LTCH final rule. CBSAs are made up of one or more constituent counties. For FY 2026, we are continuing to use the Federal Information Processing Standard (FIPS) county codes, maintained by the U.S. Census Bureau, for purposes of crosswalking counties to CBSAs. The current county-to-CBSA crosswalk was adopted under the LTCH PPS in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69973 through 69975) and is located on the CMS website at https://www.cms.gov/medicare he current county-to-CBSA crosswalk was adopted under the LTCH PPS in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69973 through 69975) and is located on the CMS website at https://www.cms.gov/medicare/ payment/prospective-payment-systems/long- term-care-hospital/other-files-download. 3. Labor-Related Share for the LTCH PPS Standard Federal Payment Rate Under the payment adjustment for the differences in area wage levels under § 412.525(c), the labor-related share of an LTCH’s standard Federal payment rate is adjusted by the applicable wage index for the labor market area in which the LTCH is located. The LTCH PPS labor-related share currently represents the sum of the labor- related portion of operating costs and a labor- related portion of capital costs using the applicable LTCH market basket. Additional background information on the historical development of the labor-related share under the LTCH PPS can be found in the RY 2007 LTCH PPS final rule (71 FR 27810 through 27817 and 27829 through 27830) and the FY 2012 IPPS/LTCH PPS final rule (76 FR 51766 through 51769 and 51808). Effective FY 2025, we rebased and revised the 2017-based LTCH market basket to reflect a 2022 base year through 27830) and the FY 2012 IPPS/LTCH PPS final rule (76 FR 51766 through 51769 and 51808). Effective FY 2025, we rebased and revised the 2017-based LTCH market basket to reflect a 2022 base year and determined the labor- related share annually as the sum of the relative importance of each labor-related cost category in the 2022-based LTCH market basket using the most recent available data. (For more details, we refer readers to the FY 2025 IPPS/LTCH PPS final rule (89 FR 69435 through 69455).) LTCH PPS labor-related share for FY 2026 would be the sum of the FY 2026 relative importance of each labor-related cost category in the LTCH market basket using the most recent available data. Specially, we proposed that the labor-related share for FY 2026 is the sum of the labor-related portion of operating costs from the 2022-based LTCH market basket (that is, the sum of the FY 2026 relative importance shares of Wages and Salaries; Employee Benefits; Professional Fees: Labor-Related; Administrative and Facilities Support Services; Installation, Maintenance, and Repair Services; All Other: Labor-Related Services) and a portion of the relative importance of Capital-Related cost weight fr istrative and Facilities Support Services; Installation, Maintenance, and Repair Services; All Other: Labor-Related Services) and a portion of the relative importance of Capital-Related cost weight from the 2022-based LTCH market basket. The relative importance reflects the different rates of price change for these cost categories between the base year (2022) and FY 2026. Based on IHS Global Inc.’s fourth quarter 2024 forecast of the 2022-based LTCH market basket, the sum of the FY 2026 relative importance for 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 was 69.2 percent. The portion of capital-related costs that is influenced by the local labor market was estimated to be 46 percent (that was, the same percentage applied to the 2009-based, 2013-based, and 2017-based LTCH market basket capital-related costs relative importance). Since the FY 2026 relative importance for capital-related costs was 8.4 percent based on IHS Global Inc.’s fourth quarter 2024 forecast of the 2022-based LTCH market basket, we took 46 percent of e). Since the FY 2026 relative importance for capital-related costs was 8.4 percent based on IHS Global Inc.’s fourth quarter 2024 forecast of the 2022-based LTCH market basket, we took 46 percent of 8.4 percent to determine the labor-related share of capital-related costs for FY 2026 of 3.9 percent. Therefore, we proposed a total labor- related share for FY 2026 of 73.1 percent (the sum of 69.2 percent for the labor-related share of operating costs and 3.9 percent for the labor-related share of capital-related costs). Consistent with our historical practice, we also proposed that if more recent data became available after the publication of the proposed rule and before the publication of the final rule (for example, a more recent estimate of the relative importance of each labor-related cost category of the 2022-based LTCH market basket), we would use such data, if appropriate, to determine the FY 2026 LTCH PPS labor-related share. Comment: A few commenters expressed appreciation and support for the proposed FY 2026 labor-related share of 73.1 percent, which represents a 0.3 percentage point increase over last year’s 72.8 percent. The commenters stated that health care providers c support for the proposed FY 2026 labor-related share of 73.1 percent, which represents a 0.3 percentage point increase over last year’s 72.8 percent. The commenters stated that health care providers continue to face workforce challenges that were exacerbated during the COVID–19 pandemic and an increased labor-related share will help reimbursement rates to recognize that pressure. However, some commenters expressed concern that the proposed 0.3 percentage point increase to the labor-related share does not sufficiently account for the dramatic increases in labor costs that LTCHs are incurring. In the FY 2026 IPPS/LTCH PPS proposed Several commenters opposed CMS’ rule (90 FR 18664), consistent with our historical practice, we proposed that the proposal to increase the labor-related share to 73.1 percent for FY 2026. A commenter VerDate Sep 2014 00:36 Aug 02, 2025 Jkt 265001 PO 00000 Frm 00704 Fmt 4701 Sfmt 4700 E:\FR\FM\04AUR2.SGM 04AUR2 2 S E L U R h t i w D O R P 4 4 1 S 7 W 9 K S D n o d n o m m a h k Federal Register / Vol. 90, No. 147 / Monday, August 4, 2025 / Rules and Regulations 37239 stated that this change—especially coming on top of last year’s notable increase from 68.5 p d n o m m a h k Federal Register / Vol. 90, No. 147 / Monday, August 4, 2025 / Rules and Regulations 37239 stated that this change—especially coming on top of last year’s notable increase from 68.5 percent to 72.8 percent—will adversely affect hospitals in areas with below-average wage indices. The commenter stated that keeping the labor-related share at its current level (72.8 percent)—or lower—would help avoid further penalizing hospitals in low-wage areas and would help mitigate the growing disparity between high-wage and low-wage regions. Therefore, the commenter believed the labor-related share for LTCHs should remain aligned with, or below, that of other inpatient providers to ensure fairness and protect rural and community LTCHs from disproportionate payment cuts. Response: The total difference between the proposed FY 2026 labor-related share using the 2022-based LTCH market basket (73.1 percent) and the FY 2025 labor-related share (72.8 percent) is a result of incorporating more recent data regarding expected price pressures facing LTCHs. We believe incorporating these more recent data in the LTCH market basket is appropriate, resulting in a corresponding increase in the l re recent data regarding expected price pressures facing LTCHs. We believe incorporating these more recent data in the LTCH market basket is appropriate, resulting in a corresponding increase in the labor- related share, and appropriately identifies the portion of an LTCH’s standard Federal payment rate to be adjusted by the applicable LTCH wage index. This methodology is consistent with the determination of the labor-related share since the implementation of the LTCH PPS. After consideration of public comments, we are finalizing the FY 2026 labor-related share using the most recently available data. Based on IHS Global Inc.’s second quarter 2025 forecast of the 2022-based LTCH market basket, the sum of the FY 2026 relative importance for Wages and Salaries; Employee Benefits; Professional Fees: Labor-Related; Administrative and Facilities Support Services; Installation, Maintenance, & Repair Services; and All Other: Labor-Related Services is 69.0 percent. The portion of capital-related costs that is influenced by the local labor market is estimated to be 46 percent (that is, the same percentage applied to the 2009-based, 2013-based, and 2017- based LTCH market basket capital-relat d costs that is influenced by the local labor market is estimated to be 46 percent (that is, the same percentage applied to the 2009-based, 2013-based, and 2017- based LTCH market basket capital-related costs relative importance). Since the FY 2026 relative importance for capital-related costs is 8.4 percent based on IHS Global Inc.’s second quarter 2025 forecast of the 2022-based LTCH market basket, we took 46 percent of 8.4 percent to determine the labor-related share of capital-related costs for FY 2026 of 3.9 percent. Therefore, we are finalizing a total labor-related share for FY 2026 of 72.9 percent (the sum of 69.0 percent for the labor-related share of operating costs and 3.9 percent for the labor-related share of capital- related costs). 4. Wage Index for FY 2026 for the LTCH PPS Standard Federal Payment Rate Historically, we have established LTCH PPS area wage index values calculated from acute care IPPS hospital wage data without taking into account geographic reclassification under sections 1886(d)(8) and 1886(d)(10) of the Act (67 FR 56019). The area wage level adjustment established under the LTCH PPS is based on an LTCH’s actual location without regard to the ‘‘urban on under sections 1886(d)(8) and 1886(d)(10) of the Act (67 FR 56019). The area wage level adjustment established under the LTCH PPS is based on an LTCH’s actual location without regard to the ‘‘urban’’ or ‘‘rural’’ designation of any related or affiliated provider. As with the IPPS wage index, wage data for multicampus hospitals with campuses located in different labor market areas (CBSAs) are apportioned to each CBSA where the campus (or campuses) are located. We also employ a policy for determining area wage index values for areas where there are no IPPS wage data. Consistent with our historical methodology, to determine the applicable area wage index values for the FY 2026 LTCH PPS standard Federal payment rate, under the broad authority of section 123 of the BBRA, as amended by section 307(b) of the BIPA, as we proposed, we are continuing to employ our historical practice of using the same data we used to compute the FY 2026 acute care hospital inpatient wage index, as discussed in section III. of the preamble of this final rule (that is, wage data collected from cost reports submitted by IPPS hospitals for cost reporting periods beginning during FY 2022) because these data ar n section III. of the preamble of this final rule (that is, wage data collected from cost reports submitted by IPPS hospitals for cost reporting periods beginning during FY 2022) because these data are the most recent complete data available. Comment: A commenter opposed CMS’s use of unadjusted FY 2022 cost report data for determining the applicable area wage index values for the FY 2026 LTCH PPS standard Federal payment rate. The commenter noted that pandemic-driven labor costs, especially contract labor, were unusually high and not representative of future conditions. The commenter argued that using unmodified data from this period will distort wage index values and the data should be adjusted to account for pandemic- related anomalies. Response: We thank the commenter for the feedback regarding the use of adjusted data in calculating the applicable wage index values for the FY 2026 LTCH PPS standard Federal payment rate. Similar to the FY 2025 wage index (89 FR 69266 through 69268), it is not readily apparent how any changes due to the COVID–19 PHE differentially impacted the wages paid by individual hospitals. Even if changes due to the COVID–19 PHE did differentially impact th it is not readily apparent how any changes due to the COVID–19 PHE differentially impacted the wages paid by individual hospitals. Even if changes due to the COVID–19 PHE did differentially impact the wages paid by individual hospitals over time, it is not clear how those changes could be isolated from changes due to other reasons and what an appropriate potential methodology might be to adjust the data to account for the effects of the COVID–19 PHE. We have not identified any significant issues with the FY 2022 wage data based on our audits. As is standard practice, the Medicare Administrative Contractors (MACs) audited the data, and no major concerns were reported across hospitals. The commenter did not provide specific examples or data to show that certain providers or CBSAs were disproportionately affected by the PHE or contract labor costs. The concerns raised appear to be generalized without evidence of specific distortions in the FY 2022 wage data. Furthermore, even if CMS applied a uniform adjustment to contract labor salaries and hours, it would proportionally affect both area and national average hourly wages (AHW), leaving the wage index—which is a relative measure—esse ied a uniform adjustment to contract labor salaries and hours, it would proportionally affect both area and national average hourly wages (AHW), leaving the wage index—which is a relative measure—essentially unchanged. Lastly, FY 2022 remains the most recent year for which audited wage data is available. FY 2023 wage data has not yet been audited and is therefore not suitable for use in setting the FY 2026 wage index. Taking all of these factors into account, we believe the FY 2022 wage data is the best available wage data to use for FY 2026. Therefore, as we proposed, consistent with our historical practice, we are using the most recent data available to determine the final applicable area wage index values for the FY 2026 LTCH PPS standard Federal payment rate in this final rule.In addition, as we proposed, we computed the FY 2026 LTCH PPS standard Federal payment rate area wage index values consistent with the ‘‘urban’’ and ‘‘rural’’ geographic classifications (that is, the labor market area delineations as previously discussed in section V.B. of this Addendum) and our historical policy of not taking into account IPPS geographic reclassifications under sections 1886(d)(8) and 18 rket area delineations as previously discussed in section V.B. of this Addendum) and our historical policy of not taking into account IPPS geographic reclassifications under sections 1886(d)(8) and 1886(d)(10) of the Act in determining payments under the LTCH PPS. As we proposed, we also continued to apportion the wage data for multicampus hospitals with campuses located in different labor market areas to each CBSA where the campus or campuses are located, consistent with the IPPS policy. Lastly, consistent with our existing methodology for determining the LTCH PPS wage index values, for FY 2026, as we proposed, we continued to use our existing policy for determining area wage index values for areas where there are no IPPS wage data. Under our existing methodology, the LTCH PPS wage index value for urban CBSAs with no IPPS wage data is determined by using an average of all of the urban areas within the State, and the LTCH PPS wage index value for rural areas with no IPPS wage data is determined by using the unweighted average of the wage indices from all of the CBSAs that are contiguous to the rural counties of the State. Based on the FY 2022 IPPS wage data that we used to determin etermined by using the unweighted average of the wage indices from all of the CBSAs that are contiguous to the rural counties of the State. Based on the FY 2022 IPPS wage data that we used to determine the FY 2026 LTCH PPS area wage index values in this final rule, there are no IPPS wage data for the urban area of Hinesville, GA (CBSA 25980). Consistent with our existing methodology, we calculated the FY 2026 wage index value for CBSA 25980 as the average of the wage index values for all of the other urban areas within the State of Georgia (that is, CBSAs 10500, 12020, 12054, 12260, 15260, 16860, 17980, 19140, 23580, 31420, 31924, 40660, 42340, 46660, and 47580), as shown in Table 12A, which is listed in section VI. of this Addendum. Based on the FY 2022 IPPS wage data that we used to determine the FY 2026 LTCH PPS area wage index values in this final rule, there are no IPPS wage data for rural North Dakota (CBSA 35). Consistent with our existing methodology, we calculated the FY 2026 wage index value for CBSA 35 as the average of the wage index values for all CBSAs that are contiguous to the rural counties of the State (that is, CBSAs 13900, 22020, 24220, and 33500), as shown in T wage index value for CBSA 35 as the average of the wage index values for all CBSAs that are contiguous to the rural counties of the State (that is, CBSAs 13900, 22020, 24220, and 33500), as shown in Table 12B, which is listed in section VI. of this Addendum. We note that, as IPPS wage data are dynamic, it is possible that the number of urban and rural areas without IPPS wage data will vary in the future. 5. Cap on Wage Index Decreases a. Cap on LTCH PPS Wage Index Decreases In the FY 2023 IPPS/LTCH PPS final rule (87 FR 49440 through 49442), we finalized a VerDate Sep 2014 00:36 Aug 02, 2025 Jkt 265001 PO 00000 Frm 00705 Fmt 4701 Sfmt 4700 E:\FR\FM\04AUR2.SGM 04AUR2 2 S E L U R h t i w D O R P 4 4 1 S 7 W 9 K S D n o d n o m m a h k 37240 Federal Register / Vol. 90, No. 147 / Monday, August 4, 2025 / Rules and Regulations policy that applies a permanent 5-percent cap on any decrease to an LTCH’s wage index from its wage index in the prior year. Consistent with the requirement at § 412.525(c)(2) that changes to area wage level adjustments are made in a budget neutral manner, we include the application of this policy in the determination of the area wage level budget neutrality facto 525(c)(2) that changes to area wage level adjustments are made in a budget neutral manner, we include the application of this policy in the determination of the area wage level budget neutrality factor that is applied to the standard Federal payment rate, as is discussed later in section V.B.6. of this Addendum. Under this policy, an LTCH’s wage index will not be less than 95 percent of its wage index for the prior fiscal year. An LTCH’s wage index cap adjustment is determined based on the wage index value applicable to the LTCH on the last day of the prior Federal fiscal year. However, for newly opened LTCHs that become operational on or after the first day of the fiscal year, these LTCHs will not be subject to the LTCH PPS wage index cap since they were not paid under the LTCH PPS in the prior year. For example, newly opened LTCHs that become operational during FY 2026 would not be eligible for the LTCH PPS wage index cap in FY 2026. These LTCHs would receive the calculated wage index for the area in which they are geographically located, even if other LTCHs in the same geographic area are receiving a wage index cap. The cap on wage index decreases policy is reflected at § 412.52 x for the area in which they are geographically located, even if other LTCHs in the same geographic area are receiving a wage index cap. The cap on wage index decreases policy is reflected at § 412.525(c)(1). For each LTCH we identify in our rulemaking data, we are including in a supplemental data file the wage index values from both fiscal years used in determining its capped wage index. This includes the LTCH’s final prior year wage index value, the LTCH’s uncapped current year wage index value, and the LTCH’s capped current year wage index value. Due to the lag in rulemaking data, a new LTCH may not be listed in this supplemental file for a few years. For this reason, a newly opened LTCH could contact their MAC to ensure that its wage index value is not less than 95 percent of the value paid to it for the prior Federal fiscal year. This supplemental data file for public use will be posted on the CMS website for this final rule at https://www.cms.gov/ Medicare/Medicare-Fee-for-Service-Payment/ AcuteInpatientPPS/index.html. Comment: A commenter stated that while they support the permanent cap on LTCH PPS wage index decreases policy, they urge CMS to implement this policy in a non- e-Payment/ AcuteInpatientPPS/index.html. Comment: A commenter stated that while they support the permanent cap on LTCH PPS wage index decreases policy, they urge CMS to implement this policy in a non- budget-neutral manner. to address financial strain that LTCHs continue to face. Response: Implementation of this policy in a budget neutral manner is consistent with the requirement at § 412.525(c)(2) that changes to area wage level adjustments are made in a budget neutral manner. Consistent with this requirement, we continue to believe that changes to area wage level adjustments, including the 5-percent cap on the decrease on an LTCH’s wage index, should not result in any change in estimated aggregate LTCH PPS payments. Furthermore, we also continue to anticipate that, in the absence of wage index policy changes beyond an annual update of the wage data, most LTCHs will experience year-to-year wage index declines less than 5 percent in any given year, and that the overall budget neutrality adjustments associated with the cap on wage index decreases will therefore be relatively small and will not create volatility in LTCH PPS payments. We expect 17 LTCHs to receive the 5-percent cap in y adjustments associated with the cap on wage index decreases will therefore be relatively small and will not create volatility in LTCH PPS payments. We expect 17 LTCHs to receive the 5-percent cap in FY 2026. b. Cap on IPPS Comparable Wage Index Decreases Determining LTCH PPS payments for short-stay-outlier cases (reflected in § 412.529) and site neutral payment rate cases (reflected in § 412.522(c)) requires calculating an ‘‘IPPS comparable amount.’’ For information on this ‘‘IPPS comparable amount’’ calculation, we refer the reader to the FY 2016 IPPS/LTCH PPS final rule (80 FR 49608 through 49610). Determining LTCH PPS payments for LTCHs that do not meet the applicable discharge payment percentage (reflected in § 412.522(d)) requires calculating an ‘‘IPPS equivalent amount.’’ For information on this ‘‘IPPS equivalent amount’’ calculation, we refer the reader to the FY 2020 IPPS/LTCH PPS final rule (84 FR 42439 through 42445). Calculating both the ‘‘IPPS comparable amount’’ and the ‘‘IPPS equivalent amount’’ requires adjusting the IPPS operating and capital standardized amounts by the applicable IPPS wage index for nonreclassified IPPS hospitals. That is, the standardized amount ‘‘IPPS equivalent amount’’ requires adjusting the IPPS operating and capital standardized amounts by the applicable IPPS wage index for nonreclassified IPPS hospitals. That is, the standardized amounts are adjusted by the IPPS wage index for nonreclassified IPPS hospitals located in the same geographic area as the LTCH. In the FY 2023 IPPS/LTCH PPS final rule (87 FR 49442 through 49443), we finalized a policy that applies a permanent 5- percent cap on decreases in an LTCH’s applicable IPPS comparable wage index from its applicable IPPS comparable wage index in the prior year. Historically, we have not budget neutralized changes to LTCH PPS payments that result from the annual update of the IPPS wage index for nonreclassified IPPS hospitals. Consistent with this approach, the cap on decreases in an LTCH’s applicable IPPS comparable wage index is not applied in a budget neutral manner. Under this policy, an LTCH’s applicable IPPS comparable wage index will not be less than 95 percent of its applicable IPPS comparable wage index for the prior fiscal year. An LTCH’s applicable IPPS comparable wage index cap adjustment is determined based on the wage index value applicable to the LTCH o its applicable IPPS comparable wage index for the prior fiscal year. An LTCH’s applicable IPPS comparable wage index cap adjustment is determined based on the wage index value applicable to the LTCH on the last day of the prior Federal fiscal year. However, for newly opened LTCHs that become operational on or after the first day of the fiscal year, these LTCHs will not be subject to the applicable IPPS comparable wage index cap since they were not paid under the LTCH PPS in the prior year. For example, newly opened LTCHs that become operational during FY 2026 would not be eligible for the applicable IPPS comparable wage index cap in FY 2026. This means that these LTCHs would receive the calculated applicable IPPS comparable wage index for the area in which they are geographically located, even if other LTCHs in the same geographic area are receiving a wage cap. The cap on IPPS comparable wage index decreases policy is reflected at § 412.529(d)(4)(ii)(B) and (d)(4)(iii)(B). Similar to the information we are making available for the cap on the LTCH PPS wage index values (described previously), for each LTCH we identify in our rulemaking data, we are including in a supplemental data f he information we are making available for the cap on the LTCH PPS wage index values (described previously), for each LTCH we identify in our rulemaking data, we are including in a supplemental data file the wage index values from both fiscal years used in determining its capped applicable IPPS comparable wage index. Due to the lag in rulemaking data, a new LTCH may not be listed in this supplemental file for a few years. For this reason, a newly opened LTCH could contact its MAC to ensure that its applicable IPPS comparable wage index value is not less than 95 percent of the value paid to them for the prior Federal fiscal year. This supplemental data file for public use will be posted on the CMS website for this final rule at: https://www.cms.gov/Medicare/ Medicare-Fee-for-Service-Payment/ AcuteInpatientPPS/index.html. 6. Budget Neutrality Adjustments for Changes to the LTCH PPS Standard Federal Payment Rate Area Wage Level Adjustment Historically, the LTCH PPS wage index and labor-related share are updated annually based on the latest available data. Under § 412.525(c)(2), any changes to the area wage index values or labor-related share are to be made in a budget neutral manner s lated share are updated annually based on the latest available data. Under § 412.525(c)(2), any changes to the area wage index values or labor-related share are to be made in a budget neutral manner such that estimated aggregate LTCH PPS payments are unaffected; that is, will be neither greater than nor less than estimated aggregate LTCH PPS payments without such changes to the area wage level adjustment. Under this policy, we determine an area wage level adjustment budget neutrality factor that is applied to the standard Federal payment rate to ensure that any changes to the area wage level adjustments are budget neutral such that any changes to the area wage index values or labor-related share would not result in any change (increase or decrease) in estimated aggregate LTCH PPS payments. Accordingly, under § 412.523(d)(4), we have applied an area wage level adjustment budget neutrality factor in determining the standard Federal payment rate, and we also established a methodology for calculating an area wage level adjustment budget neutrality factor. (For additional information on the establishment of our budget neutrality policy for changes to the area wage level adjustment, we r calculating an area wage level adjustment budget neutrality factor. (For additional information on the establishment of our budget neutrality policy for changes to the area wage level adjustment, we refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51771 through 51773 and 51809).) For FY 2026, in accordance with § 412.523(d)(4), we are applying an area wage level budget neutrality factor to adjust the LTCH PPS standard Federal payment rate to account for the estimated effect of the adjustments or updates to the area wage level adjustment under § 412.525(c)(1) on estimated aggregate LTCH PPS payments, consistent with the methodology we established in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51773). As discussed in section V.B.5. of this Addendum, consistent with, § 412.525(c)(2), we include the application of the 5-percent cap on wage index decreases in the determination of the area wage level budget neutrality factor. Specifically, as we proposed, we determined an area wage level adjustment budget neutrality factor that is applied to the LTCH PPS standard Federal payment rate under § 412.523(d)(4) for FY 2026 using the following methodology: VerDate Sep 2014 00:36 Aug ge level adjustment budget neutrality factor that is applied to the LTCH PPS standard Federal payment rate under § 412.523(d)(4) for FY 2026 using the following methodology: VerDate Sep 2014 00:36 Aug 02, 2025 Jkt 265001 PO 00000 Frm 00706 Fmt 4701 Sfmt 4700 E:\FR\FM\04AUR2.SGM 04AUR2 2 S E L U R h t i w D O R P 4 4 1 S 7 W 9 K S D n o d n o m m a h k Federal Register / Vol. 90, No. 147 / Monday, August 4, 2025 / Rules and Regulations 37241 Step 1—Simulate estimated aggregate LTCH PPS standard Federal payment rate payments using the FY 2025 wage index values and the FY 2025 labor-related share of 72.8 percent. Step 2—Simulate estimated aggregate LTCH PPS standard Federal payment rate payments using the FY 2026 wage index values (including the application of the 5- percent cap on wage index decreases) and the FY 2026 labor-related share of 72.9 percent. (As noted previously, the changes to the wage index values based on updated hospital wage data are discussed in section V.B.4. of this Addendum and the labor-related share is discussed in section V.B.3. of this Addendum.) Step 3—Calculate the ratio of these estimated total LTCH PPS standard Federal payment rate payments by dividing t Addendum and the labor-related share is discussed in section V.B.3. of this Addendum.) Step 3—Calculate the ratio of these estimated total LTCH PPS standard Federal payment rate payments by dividing the estimated total LTCH PPS standard Federal payment rate payments using the FY 2025 area wage level adjustments (calculated in Step 1) by the estimated total LTCH PPS standard Federal payment rate payments using the FY 2026 updates to the area wage level adjustment (calculated in Step 2) to determine the budget neutrality factor for updates to the area wage level adjustment for FY 2026 LTCH PPS standard Federal payment rate payments. Step 4—Apply the FY 2026 updates to the area wage level adjustment budget neutrality factor from Step 3 to determine the FY 2026 LTCH PPS standard Federal payment rate after the application of the FY 2026 annual update. As we proposed, we used the most recent data available, including claims from the FY 2024 MedPAR file, in calculating the FY 2026 LTCH PPS standard Federal payment rate area wage level adjustment budget neutrality factor. We note that, because the area wage level adjustment under § 412.525(c) is an adjustment to the LTCH PPS standard Feder andard Federal payment rate area wage level adjustment budget neutrality factor. We note that, because the area wage level adjustment under § 412.525(c) is an adjustment to the LTCH PPS standard Federal payment rate, consistent with historical practice, we only used data from claims that qualified for payment at the LTCH PPS standard Federal payment rate under the dual rate LTCH PPS to calculate the FY 2026 LTCH PPS standard Federal payment rate area wage level adjustment budget neutrality factor. For this final rule, using the steps in the methodology previously described, we determined a FY 2026 LTCH PPS standard Federal payment rate area wage level adjustment budget neutrality factor of 1.0021275. Accordingly, in section V.A. of this Addendum, we applied the area wage level adjustment budget neutrality factor of 1.0021275 to determine the FY 2026 LTCH PPS standard Federal payment rate, in accordance with § 412.523(d)(4). C. Cost-of-Living Adjustment (COLA) for LTCHs Located in Alaska and Hawaii Under § 412.525(b), a cost-of-living adjustment (COLA) is provided for LTCHs located in Alaska and Hawaii to account for the higher costs incurred in those States. Specifically, we apply a and Hawaii Under § 412.525(b), a cost-of-living adjustment (COLA) is provided for LTCHs located in Alaska and Hawaii to account for the higher costs incurred in those States. Specifically, we apply a COLA to payments to LTCHs located in Alaska and Hawaii by multiplying the nonlabor-related portion of the standard Federal payment rate by the applicable COLA factors established annually by CMS. Higher labor-related costs for LTCHs located in Alaska and Hawaii are taken into account in the adjustment for area wage levels. The current methodology used to determine the COLA factors for Alaska and Hawaii is based on the 2009 OPM COLAs (which are the last COLA factors OPM published prior to transitioning from COLA to locality pay) by a comparison of the growth in the Consumer Price Indexes (CPIs) for Urban Alaska and Urban Hawaii, relative to the growth in the CPI for the average U.S. city as published by the Bureau of Labor Statistics (BLS). We use the comparison of the growth in the overall CPI relative to the growth in the CPI for those areas to update the COLA factors for all areas in Alaska and Hawaii, respectively, because BLS publishes CPI data for only Urban Alaska and Urban Haw ll CPI relative to the growth in the CPI for those areas to update the COLA factors for all areas in Alaska and Hawaii, respectively, because BLS publishes CPI data for only Urban Alaska and Urban Hawaii. Using the respective CPI commodities index and CPI services index and using the approximate commodities/ services shares obtained from the IPPS market basket, we create reweighted CPIs for each of the respective areas to reflect the underlying composition of the IPPS market basket nonlabor-related share. The methodology also includes our discretionary authority to adjust payments to hospitals in Alaska and Hawaii by incorporating the statutorily mandated cap of 25 percent that was applied when determining OPM’s COLA factors (77 FR 53482). Under this policy, we have updated the COLA factors using this methodology every 4 years (at the same time as the update to the labor-related share of the IPPS market basket) beginning in FY 2014. We refer readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 53481 through 53482) for a detailed description of this methodology. In the FY 2022 IPPS/LTCH PPS final rule (86 FR 45559 through 45560), we last updated the COLA factors for LTCHs using th ule (77 FR 53481 through 53482) for a detailed description of this methodology. In the FY 2022 IPPS/LTCH PPS final rule (86 FR 45559 through 45560), we last updated the COLA factors for LTCHs using the methodology that we finalized in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53481 through 53482) and CPI data through 2020. We utilized these COLA factors for FYs 2022 through 2025 to adjust the nonlabor-related portion of the standardized amount for hospitals located in Alaska and Hawaii. (We note the same COLA methodology and factors were used under the IPPS and LTCH PPS for FYs 2022 through 2025.) As stated previously, we have historically updated the COLA factors at the same time as the update to the labor-related share of the IPPS market basket (77 FR 53482). In section III.H. the preamble of the FY 2026 IPPS/ LTCH PPS proposed rule (90 FR 18236), we proposed to update the labor-related share of the IPPS market basket. In section V.C. the Addendum of the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18448), we presented a table for comparison purposes between the COLA factors for Alaska and Hawaii hospitals as calculated under the methodology that we finalized in the FY 2013 IPPS/ sed rule (90 FR 18448), we presented a table for comparison purposes between the COLA factors for Alaska and Hawaii hospitals as calculated under the methodology that we finalized in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53481 through 53482), using updated CPI data through 2024 and the approximate 60 percent commodities/40 percent services shares obtained from the proposed 2023-based IPPS market basket and the COLA factors utilized for FYs 2022 through 2025. In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18449), we also proposed maintaining the current COLA factors for FY 2026 to be consistent with the approach proposed under the IPPS as discussed in section II.B.2. the Addendum of the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18438). We believed that it would be appropriate to maintain the current COLA factors for FY 2026 to allow us to consider whether it would be appropriate to incorporate additional data sources or other methodology changes in determining the adjustment we make to LTCH PPS payments to account for the unique circumstances of LTCHs located in Alaska and Hawaii. We solicited public comments on the proposal regarding maintaining the current COLA factors u e make to LTCH PPS payments to account for the unique circumstances of LTCHs located in Alaska and Hawaii. We solicited public comments on the proposal regarding maintaining the current COLA factors under the LTCH PPS for FY 2026. We received no comments on this proposal and are finalizing the use of the current COLA factors for FY 2026 without modification. We also summarize comments regarding the proposed COLAs under the IPPS in section II.B.2. of the Addendum of this final rule. Therefore, under the broad authority conferred upon the Secretary by section 123 of the BBRA, as amended by section 307(b) of the BIPA, to determine appropriate payment adjustments under the LTCH PPS, for FY 2026 we continue to use the FY 2025 COLA factors (which were originally established in the FY 2022 IPPS/ LTCH PPS final rule, as described previously). The following table lists the finalized FY 2026 COLA factors. FY 2026 COST-OF-LIVING ADJUSTMENT FACTORS: ALASKA AND HAWAII UNDER THE LTCH PPS Area COLA Alaska: City of Anchorage and 80-kilometer (50-mile) radius by road ..................................................................................................... City of Fairbanks and 80-kilome laska: City of Anchorage and 80-kilometer (50-mile) radius by road ..................................................................................................... City of Fairbanks and 80-kilometer (50-mile) radius by road ...................................................................................................... City of Juneau and 80-kilometer (50-mile) radius by road .......................................................................................................... Rest of Alaska .............................................................................................................................................................................. Hawaii: City and County of Honolulu ........................................................................................................................................................ County of Hawaii .......................................................................................................................................................................... 1.22 1.22 1.22 1.24 1.25 1.22 VerDate Sep 2014 00:36 Aug 02, 2025 Jkt 265001 PO 00000 Frm 00707 Fmt 4701 Sfmt 4700 E:\FR\FM\04AUR2.SGM 04 .............................................................. 1.22 1.22 1.22 1.24 1.25 1.22 VerDate Sep 2014 00:36 Aug 02, 2025 Jkt 265001 PO 00000 Frm 00707 Fmt 4701 Sfmt 4700 E:\FR\FM\04AUR2.SGM 04AUR2 2 S E L U R h t i w D O R P 4 4 1 S 7 W 9 K S D n o d n o m m a h k 37242 Federal Register / Vol. 90, No. 147 / Monday, August 4, 2025 / Rules and Regulations FY 2026 COST-OF-LIVING ADJUSTMENT FACTORS: ALASKA AND HAWAII UNDER THE LTCH PPS—Continued County of Kauai ............................................................................................................................................................................ County of Maui and County of Kalawao ...................................................................................................................................... 1.25 1.25 Area COLA D. Adjustment for LTCH PPS High-Cost Outlier (HCO) Cases 1. HCO Background From the beginning of the LTCH PPS, we have included an adjustment to account for cases in which there are extraordinarily high costs relative to the costs of most discharges. Under this policy, additional payments are made based on the degree to which the estimated cost of a case (which i which there are extraordinarily high costs relative to the costs of most discharges. Under this policy, additional payments are made based on the degree to which the estimated cost of a case (which is calculated by multiplying the Medicare allowable covered charge by the hospital’s overall hospital CCR) exceeds a fixed-loss amount. This policy results in greater payment accuracy under the LTCH PPS and the Medicare program, and the LTCH sharing the financial risk for the treatment of extraordinarily high-cost cases. We retained the basic tenets of our HCO policy in FY 2016 when we implemented the dual rate LTCH PPS payment structure under section 1206 of Public Law 113–67. LTCH discharges that meet the criteria for exclusion from the site neutral payment rate (that is, LTCH PPS standard Federal payment rate cases) are paid at the LTCH PPS standard Federal payment rate, which includes, as applicable, HCO payments under § 412.523(e). LTCH discharges that do not meet the criteria for exclusion are paid at the site neutral payment rate, which includes, as applicable, HCO payments under § 412.522(c)(2)(i). In the FY 2016 IPPS/LTCH PPS final rule, we established separate fixed loss amoun usion are paid at the site neutral payment rate, which includes, as applicable, HCO payments under § 412.522(c)(2)(i). In the FY 2016 IPPS/LTCH PPS final rule, we established separate fixed loss amounts and targets for the two different LTCH PPS payment rates. Under this bifurcated policy, the historic 8-percent HCO target was retained for LTCH PPS standard Federal payment rate cases, with the fixed- loss amount calculated using only data from LTCH cases that would have been paid at the LTCH PPS standard Federal payment rate if that rate had been in effect at the time of those discharges. For site neutral payment rate cases, we adopted the operating IPPS HCO target (currently 5.1 percent) and set the fixed-loss amount for site neutral payment rate cases at the value of the IPPS fixed-loss amount. Under the HCO policy for both payment rates, an LTCH receives 80 percent of the difference between the estimated cost of the case and the applicable HCO threshold, which is the sum of the LTCH PPS payment for the case and the applicable fixed-loss amount for such case. To maintain budget neutrality, consistent with the budget neutrality requirement at § 412.523(d)(1) for HCO payments to LT PPS payment for the case and the applicable fixed-loss amount for such case. To maintain budget neutrality, consistent with the budget neutrality requirement at § 412.523(d)(1) for HCO payments to LTCH PPS standard Federal rate payment cases, we also adopted a budget neutrality requirement for HCO payments to site neutral payment rate cases by applying a budget neutrality factor to the LTCH PPS payment for those site neutral payment rate cases. (We refer readers to § 412.522(c)(2)(i) of the regulations for further details.) We note that, during the 4-year transitional period, the site neutral payment rate HCO budget neutrality factor did not apply to the LTCH PPS standard Federal payment rate portion of the blended payment rate at § 412.522(c)(3) payable to site neutral payment rate cases. (For additional details on the HCO policy adopted for site neutral payment rate cases under the dual rate LTCH PPS payment structure, including the budget neutrality adjustment for HCO payments to site neutral payment rate cases, we refer readers to the FY 2016 IPPS/LTCH PPS final rule (80 FR 49617 through 49623).) 2. Determining LTCH CCRs Under the LTCH PPS a. Background As noted previously, CC ite neutral payment rate cases, we refer readers to the FY 2016 IPPS/LTCH PPS final rule (80 FR 49617 through 49623).) 2. Determining LTCH CCRs Under the LTCH PPS a. Background As noted previously, CCRs are used to determine payments for HCO adjustments for both payment rates under the LTCH PPS and are also used to determine payments for site neutral payment rate cases. As noted earlier, in determining HCO and the site neutral payment rate payments (regardless of whether the case is also an HCO), we generally calculate the estimated cost of the case by multiplying the LTCH’s overall CCR by the Medicare allowable charges for the case. An overall CCR is used because the LTCH PPS uses a single prospective payment per discharge that covers both inpatient operating and capital-related costs. The LTCH’s overall CCR is generally computed based on the sum of LTCH operating and capital costs (as described in section 150.24, Chapter 3, of the Medicare Claims Processing Manual (Pub. 100–4)) as compared to total Medicare charges (that is, the sum of its operating and capital inpatient routine and ancillary charges), with those values determined from either the most recently settled cost report mpared to total Medicare charges (that is, the sum of its operating and capital inpatient routine and ancillary charges), with those values determined from either the most recently settled cost report or the most recent tentatively settled cost report, whichever is from the latest cost reporting period. However, in certain instances, we use an alternative CCR, such as the statewide average CCR, a CCR that is specified by CMS, or one that is requested by the hospital. (We refer readers to § 412.525(a)(4)(iv) of the regulations for further details regarding CCRs and HCO adjustments for either LTCH PPS payment rate and § 412.522(c)(1)(ii) for the site neutral payment rate.) The LTCH’s calculated CCR is then compared to the LTCH total CCR ceiling. Under our established policy, an LTCH with a calculated CCR in excess of the applicable maximum CCR threshold (that is, the LTCH total CCR ceiling, which is calculated as 3 standard deviations from the national geometric average CCR) is generally assigned the applicable statewide CCR. This policy is premised on a belief that calculated CCRs in excess of the LTCH total CCR ceiling are most likely due to faulty data reporting or entry, and CCRs assigned the applicable statewide CCR. This policy is premised on a belief that calculated CCRs in excess of the LTCH total CCR ceiling are most likely due to faulty data reporting or entry, and CCRs based on erroneous data should not be used to identify and make payments for outlier cases. b. LTCH Total CCR Ceiling Consistent with our historical practice, as we proposed, we used the best available data to determine the LTCH total CCR ceiling for FY 2026 in this final rule. Specifically, in this final rule, we used our established methodology for determining the LTCH total CCR ceiling based on IPPS total CCR data from the March 2025 update of the Provider Specific File (PSF), which is the most recent data available. Accordingly, we are establishing an LTCH total CCR ceiling of 1.348 under the LTCH PPS for FY 2026 in accordance with § 412.525(a)(4)(iv)(C)(2) for HCO cases under either payment rate and § 412.522(c)(1)(ii) for the site neutral payment rate. (For additional information on our methodology for determining the LTCH total CCR ceiling, we refer readers to the FY 2007 IPPS final rule (71 FR 48117 through 48119).) We did not receive any public comments on our proposals and a our methodology for determining the LTCH total CCR ceiling, we refer readers to the FY 2007 IPPS final rule (71 FR 48117 through 48119).) We did not receive any public comments on our proposals and are finalizing our proposals as described previously. c. LTCH Statewide Average CCRs Our general methodology for determining the statewide average CCRs used under the LTCH PPS is similar to our established methodology for determining the LTCH total CCR ceiling because it is based on ‘‘total’’ IPPS CCR data. (For additional information on our methodology for determining statewide average CCRs under the LTCH PPS, we refer readers to the FY 2007 IPPS final rule (71 FR 48119 through 48120).) Under the LTCH PPS HCO policy at § 412.525(a)(4)(iv)(C), the SSO policy at § 412.529(f)(4)(iii), and the site neutral payment rate at § 412.522(c)(1)(ii), the MAC may use a statewide average CCR, which is established annually by CMS, if it is unable to determine an accurate CCR for an LTCH in one of the following circumstances: (1) New LTCHs that have not yet submitted their first Medicare cost report (a new LTCH is defined as an entity that has not accepted assignment of an existing hospital’s provider lowing circumstances: (1) New LTCHs that have not yet submitted their first Medicare cost report (a new LTCH is defined as an entity that has not accepted assignment of an existing hospital’s provider agreement in accordance with § 489.18); (2) LTCHs whose calculated CCR is in excess of the LTCH total CCR ceiling; and (3) other LTCHs for whom data with which to calculate a CCR are not available (for example, missing or faulty data). (Other sources of data that the MAC may consider in determining an LTCH’s CCR include data from a different cost reporting period for the LTCH, data from the cost reporting period preceding the period in which the hospital began to be paid as an LTCH (that is, the period of at least 6 months that it was paid as a short-term, acute care hospital), or data from other comparable LTCHs, such as LTCHs in the same chain or in the same region.) Consistent with our historical practice of using the best available data, in this final VerDate Sep 2014 00:36 Aug 02, 2025 Jkt 265001 PO 00000 Frm 00708 Fmt 4701 Sfmt 4700 E:\FR\FM\04AUR2.SGM 04AUR2 2 S E L U R h t i w D O R P 4 4 1 S 7 W 9 K S D n o d n o m m a h k Federal Register / Vol. 90, No. 147 / Monday, August 25 Jkt 265001 PO 00000 Frm 00708 Fmt 4701 Sfmt 4700 E:\FR\FM\04AUR2.SGM 04AUR2 2 S E L U R h t i w D O R P 4 4 1 S 7 W 9 K S D n o d n o m m a h k Federal Register / Vol. 90, No. 147 / Monday, August 4, 2025 / Rules and Regulations 37243 rule, as we proposed, we are using our established methodology for determining the LTCH PPS statewide average CCRs, based on the most recent complete IPPS ‘‘total CCR’’ data from the March 2025 update of the PSF. As we proposed, we are establishing LTCH PPS statewide average total CCRs for urban and rural hospitals that will be effective for discharges occurring on or after October 1, 2025, through September 30, 2026, in Table 8C listed in section VI. of this Addendum (and available via the internet on the CMS website). Under the current LTCH PPS labor market areas, all areas in the District of Columbia, New Jersey, and Rhode Island are classified as urban. Therefore, there are no rural statewide average total CCRs listed for those jurisdictions in Table 8C. This policy is consistent with the policy that we established when we revised our methodology for determining the applicable LTCH statewide average CCRs in the FY 2007 IPPS final rule (71 FR 48 le 8C. This policy is consistent with the policy that we established when we revised our methodology for determining the applicable LTCH statewide average CCRs in the FY 2007 IPPS final rule (71 FR 48119 through 48121) and is the same as the policy applied under the IPPS. In addition, consistent with our existing methodology, in determining the urban and rural statewide average total CCRs for Maryland LTCHs paid under the LTCH PPS, as we proposed, we are continuing to use, as a proxy, the national average total CCR for urban IPPS hospitals and the national average total CCR for rural IPPS hospitals, respectively. We are using this proxy because we believe that the CCR data in the PSF for Maryland hospitals may not be entirely accurate (as discussed in greater detail in the FY 2007 IPPS final rule (71 FR 48120)). Furthermore, although Connecticut, Massachusetts, and North Dakota have areas that are designated as rural under the current LTCH PPS labor market areas, in our calculation of the LTCH statewide average CCRs, there were no trimmed CCR data available from IPPS hospitals located in these rural areas as of March 2025. We refer the reader to section II.A.4.i.(2). of this Addend the LTCH statewide average CCRs, there were no trimmed CCR data available from IPPS hospitals located in these rural areas as of March 2025. We refer the reader to section II.A.4.i.(2). of this Addendum for details on the trims applied to the IPPS CCR data from the March 2025 update of the PSF, which are the same data used to calculate the LTCH statewide average total CCRs. Therefore, consistent with our existing methodology, we used the national average total CCR for rural IPPS hospitals for rural Connecticut, Massachusetts, and North Dakota in Table 8C. We note that there were no LTCHs located in these rural areas as of March 2025. We did not receive any public comments on our proposals. We are finalizing our proposals as described previously. d. Reconciliation of HCO Payments Under the HCO policy at § 412.525(a)(4)(iv)(D), the payments for HCO cases are subject to reconciliation (regardless of whether payment is based on the LTCH standard Federal payment rate or the site neutral payment rate). Specifically, any such payments are reconciled at settlement based on the CCR that was calculated based on the cost report coinciding with the discharge. For additional information on the ment rate). Specifically, any such payments are reconciled at settlement based on the CCR that was calculated based on the cost report coinciding with the discharge. For additional information on the reconciliation policy, we refer readers to sections 150.26 through 150.28 of the Medicare Claims Processing Manual (Pub. 100–4), as added by Change Request 7192 (Transmittal 2111; December 3, 2010) and the RY 2009 LTCH PPS final rule (73 FR 26820 through 26821), and most recently modified by Change Request 13566 (Transmittal 12594; April 26, 2024) with an update to the outlier reconciliation criteria. 3. High-Cost Outlier Payments for LTCH PPS Standard Federal Payment Rate Cases a. High-Cost Outlier Payments for LTCH PPS Standard Federal Payment Rate Cases Under the regulations at § 412.525(a)(2)(ii) and as required by section 1886(m)(7) of the Act, the fixed-loss amount for HCO payments is set each year so that the estimated aggregate HCO payments for LTCH PPS standard Federal payment rate cases are 99.6875 percent of 8 percent (that is, 7.975 percent) of estimated aggregate LTCH PPS payments for LTCH PPS standard Federal payment rate cases. (For more details on the requirements for h e cases are 99.6875 percent of 8 percent (that is, 7.975 percent) of estimated aggregate LTCH PPS payments for LTCH PPS standard Federal payment rate cases. (For more details on the requirements for high-cost outlier payments in FY 2018 and subsequent years under section 1886(m)(7) of the Act and additional information regarding high-cost outlier payments prior to FY 2018, we refer readers to the FY 2018 IPPS/LTCH PPS final rule (82 FR 38542 through 38544).) b. Fixed-Loss Amount for LTCH PPS Standard Federal Payment Rate Cases for FY 2026 In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18450 through 18452), we discussed our proposed methodology for determining the fixed-loss amount for LTCH PPS standard Federal payment rate cases for FY 2026 and proposed an outlier fixed-loss amount of $91,247. This proposed fixed-loss amount was approximately $14,000 higher than the fixed-loss amount for FY 2025 ($77,048). In the proposed rule, we sought comments on the proposed fixed-loss amount and stated that we would consider these comments when determining the fixed-loss amount for LTCH PPS standard Federal payment rate cases for FY 2026 in the final rule. In this section, we first summariz d stated that we would consider these comments when determining the fixed-loss amount for LTCH PPS standard Federal payment rate cases for FY 2026 in the final rule. In this section, we first summarize and respond to the comments received. Later in this section, after consideration of the comments received, we present the detailed application of our finalized methodology and the resulting fixed-loss amount. Comment: Like previous years, several commenters objected to the methodology we proposed to use to calculate the charge inflation factor we proposed to apply when determining the FY 2026 fixed-loss amount. These commenters requested that CMS return to the methodology employed prior to FY 2022 in which the charge inflation factor was set equal to the market basket update. Some commenters stated that returning to this methodology would provide greater stability and predictability to the fixed-loss amount. Several commenters asserted that the proposed charge inflation methodology has led to unnecessary increases in the fixed-loss amount in prior years and in this year’s proposed rule. A few commenters stated that returning to the market basked based methodology would result in a fi ed to unnecessary increases in the fixed-loss amount in prior years and in this year’s proposed rule. A few commenters stated that returning to the market basked based methodology would result in a fixed-loss amount of approximately $51,000 for FY 2026. Response: We appreciate the feedback and suggestions that commenters provided on the proposed charge inflation factor. As we did in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69981), we acknowledge that in recent years and in FY 2026, the calculated fixed- loss amount would have been lower if we had estimated charge inflation based on the market basket update. However, while the market basket methodology would have yielded lower fixed-loss amounts, we estimate the methodology would have resulted in high cost outlier payments that significantly exceeded the statutory target compared to the current methodology. Therefore, we continue to believe using a charge inflation factor based on actual growth rates in charges from historical claims data rather than one based on quarterly market basket update values leads to better accuracy in calculating the fixed-loss amount that would result in actual outlier payments meeting the statutory ta data rather than one based on quarterly market basket update values leads to better accuracy in calculating the fixed-loss amount that would result in actual outlier payments meeting the statutory target. Comment: Some commenters objected to the use of FY 2023 cost report data in the determination of the FY 2026 fixed-loss amount. These commenters stated that these data were significantly impacted by the COVID–19 pandemic and reflect LTCH utilization trends that are unlikely to be repeated in FY 2026. Examples provided by commenters included differences in patient acuity during the COVID–19 pandemic, levels of COVID–19 hospitalizations, and changes in vaccination and immunity rates. Commenters specifically objected to the CCRs that CMS proposed to use in determining the fixed-loss amount, stating that these CCRs were derived from FY 2023 cost report data and reflect elevated costs incurred by LTCHs during the COVID–19 pandemic. A commenter specified that nursing costs significantly increased during the COVID–19 pandemic. The commenter stated that these costs have since stabilized and will not be representative of nursing costs in FY 2026. Another commenter described significant in creased during the COVID–19 pandemic. The commenter stated that these costs have since stabilized and will not be representative of nursing costs in FY 2026. Another commenter described significant increases in both labor and supply cost incurred by LTCHs during the pandemic. However, this commenter stated that these costs remain elevated due to distortions in the labor force and supply chains caused by the pandemic. Commenters requested that CMS use modified FY 2023 cost report data or pre-pandemic cost report data when determining the fixed-loss amount for FY 2026. Like previous years, some commenters urged CMS to exclude dialysis patients from the FY 2024 claims data when determining the fixed-loss amount. Commenters again presented evidence demonstrating that the cost of treating dialysis patients in LTCHs has risen in recent years. The commenters also provided explanations for these cost increases. As an example, some commenters stated that the withdrawal of dialysis services provided by lower-cost third-party providers has forced LTCHs to internalize these services at a higher expense. Commenters stated that the costs for dialysis services would continue escalating through FY ided by lower-cost third-party providers has forced LTCHs to internalize these services at a higher expense. Commenters stated that the costs for dialysis services would continue escalating through FY 2026 at a rate faster than CMS’s ratesetting methodology can accommodate. The commenters believe that removing these cases would ensure that these cases do not skew the calculation of the fixed-loss amount. VerDate Sep 2014 00:36 Aug 02, 2025 Jkt 265001 PO 00000 Frm 00709 Fmt 4701 Sfmt 4700 E:\FR\FM\04AUR2.SGM 04AUR2 2 S E L U R h t i w D O R P 4 4 1 S 7 W 9 K S D n o d n o m m a h k 37244 Federal Register / Vol. 90, No. 147 / Monday, August 4, 2025 / Rules and Regulations Similar to last year, a commenter encouraged CMS to incorporate claims data from FY 2025 into the calculation of the fixed-loss amount for FY 2026. This commenter stated that incorporating additional months of data into the ratesetting model would improve the accuracy of the fixed-loss amount calculation. Response: We thank the commenters for their feedback regarding the FY 2023 cost report data used in calculating the fixed-loss amount to account for COVID–19 impacts. As discussed later in this section of the Adden hank the commenters for their feedback regarding the FY 2023 cost report data used in calculating the fixed-loss amount to account for COVID–19 impacts. As discussed later in this section of the Addendum, we obtain CCRs used in determining the fixed-loss amount from the most recently available Provider Specific File (PSF). The PSF generally contains CCR data from an LTCH’s most recently settled or tentatively settled cost report, whichever is from the latest cost reporting period. We agree with commenters that the majority of CCRs obtained from the most recently available PSF used in this final rule were derived from FY 2023 cost reports. However, we do not believe the commenters provided sufficient evidence to support why LTCH costs relative to charges in FY 2023 would differ significantly from LTCH costs relative to charges in FY 2026. While commenters discussed levels of costs in FY 2023, they did not provide information on levels of charges or the relationship between costs and charges in FY 2023. We also note that the most recently available LTCH cost-to-charge ratios (of which the majority are from FY 2023 cost reports) are lower, on average, compared to pre-pandemic levels, rges in FY 2023. We also note that the most recently available LTCH cost-to-charge ratios (of which the majority are from FY 2023 cost reports) are lower, on average, compared to pre-pandemic levels, and as such, it appears LTCHs on average increased their charges even more than the increases in costs experienced due to the COVID–19 pandemic in FY 2023. Commenters did not provide any reasons why LTCH charges would not continue to rise or fall relative to increases or decreases in costs. As discussed in more detail later in this section of the Addendum, our current methodology already applies an adjustment factor to the most recently obtained CCRs that accounts for historical changes in the relationship between costs and charges for LTCHs. However, for the reasons discussed previously, we disagree with commenters that any further adjustment to the CCRs is appropriate for determining the FY 2026 fixed-loss amount. We thank the commenters for the suggestion to exclude dialysis claims when calculating the fixed-loss amount. The comments provided evidence supporting the belief that the costs of treating dialysis patients reflected in the FY 2024 claims data would further increase in FY calculating the fixed-loss amount. The comments provided evidence supporting the belief that the costs of treating dialysis patients reflected in the FY 2024 claims data would further increase in FY 2026. For this reason, we believe removing these claims from the calculation of the fixed-loss amount would lessen the accuracy of our payment model which sets a FY 2026 fixed-loss amount that results in total estimated outlier payments being equal to 7.975 percent of projected total LTCH PPS payments for LTCH PPS standard Federal payment rate cases. We thank the commenters for the suggestion to use more recent claims data for calculating the fixed loss amount in this final rule. As discussed later in this section, we are using more recent claims data than we used in the proposed rule. Specifically, we are using the March 2025 update of the FY 2024 MedPAR file to calculate the fixed loss amount in this final rule. At the time of developing this final rule, this was the most recent full year of publicly available claims data. We continue to believe it is most appropriate to use one full year of publicly available claims data in our ratesetting calculations. The use of one full year of p r of publicly available claims data. We continue to believe it is most appropriate to use one full year of publicly available claims data in our ratesetting calculations. The use of one full year of publicly available claims data is consistent with our historical practice and is not susceptible to the seasonality issues affiliated with using partial year data. We note the commenter did not provide any suggestions on how CMS could adjust partial year data for seasonality effects. For these reasons, we are not adopting commenters’ suggestion to incorporate claims from the first part of FY 2025 in our calculation of the fixed-loss amount for FY 2026. Comment: Like previous years, several commenters stated that CMS needs to update its high-cost outlier policy to better account for the effects of the dual rate LTCH PPS payment structure on outlier payments. Several commenters stated that under the dual rate payment structure, the majority of LTCH standard Federal payment rate cases have become concentrated in only a few MS– LTC–DRGs. The commenters stated that there is great variation in patient severity and costs among the cases grouped to these MS–LTC– DRGs which they believe leads to ome concentrated in only a few MS– LTC–DRGs. The commenters stated that there is great variation in patient severity and costs among the cases grouped to these MS–LTC– DRGs which they believe leads to many of them qualifying for outlier payments, and that this pattern is contributing to the proposed increase in the fixed-loss amount. Commenters again highlighted standard Federal payment rate cases grouped to base MS–LTC–DRGs 189 and 207. These two base MS DRGs, which accounted for over 40 percent of standard Federal payment rate cases in FY 2024, are not subdivided based on the presence or absence of a complication or comorbidity (CC) or a major complication or comorbidity (MCC). Commenters requested that CMS refine certain MS–LTC– DRGs by creating subgroups within these base MS–DRGs based on the presence or absence of CCs and MCCs, which they believe would increase LTCH PPS payment accuracy thereby reducing the outlier payments made to cases grouped to such MS–LTC–DRGs. A commenter suggested that CMS use LTCH claims data, rather than IPPS claims data, when determining changes to the MS–LTC–DRG classifications. The commenter believes that the LTCH claims data would support splittin ggested that CMS use LTCH claims data, rather than IPPS claims data, when determining changes to the MS–LTC–DRG classifications. The commenter believes that the LTCH claims data would support splitting certain MS– LTC–DRG that the current IPPS data does not justify. Response: We continue to appreciate commenters’ suggestions on possible refinements to certain MS LTC–DRGs, in particular the concerns regarding the absence of CC or MCC subgroups within certain high- volume MS–LTC–DRGs, and commenters’ thoughts on the impact this may have on LTCH PPS outlier payments. In the FY 2025 IPPS/LTCH PPS final rule, we stated that we would like to have the opportunity to explore and analyze such adjustments more before making this type of change. At this time, we have not found evidence that the MS–LTC– DRG structure is a major driver in the recent increases to the fixed-loss amount. We also note that commenters did not provide quantitative analysis of their own that would support this conclusion. For these reasons, we are not adopting any of the changes to the MS–LTC–DRGs suggested by commenters in this final rule. However, we may consider these comments for future rulemaking. Comment: Like p For these reasons, we are not adopting any of the changes to the MS–LTC–DRGs suggested by commenters in this final rule. However, we may consider these comments for future rulemaking. Comment: Like previous years, commenters expressed concern with the impact of the LTCH PPS dual rate payment system on the claims data CMS uses for calculating the fixed-loss amount. Commenters again asserted that because CMS only uses cases that would have been paid the standard Federal rate, the claims dataset used in the calculation is smaller and on average has a higher acuity than the claims datasets CMS used prior to the start of the dual rate payment structure. The commenters believe this change has led to fluctuations in the fixed-loss amount. To offset the decrease in standard Federal rate claims, commenters recommended that CMS use all LTCH claims, including those paid at the site neutral payment rate, to determine the fixed-loss amount. Commenters again stated that CMS should reconsider whether the statutory outlier payment target of 7.975 percent is still an appropriate target for LTCH PPS standard Federal rate cases under the dual rate payment system. One commenter stated that CMS should r the statutory outlier payment target of 7.975 percent is still an appropriate target for LTCH PPS standard Federal rate cases under the dual rate payment system. One commenter stated that CMS should use its authority to implement methodological changes that will prevent large increases in the fixed loss amount caused by the dual rate payment system and the 7.975 percent criterion. Response: We thank the commenters for this feedback. Section 1886(m)(7) of the Act directs the Secretary to establish a fixed-loss amount for LTCH PPS standard Federal payment rate cases that would result in total estimated outlier payments being equal to 7.975 percent of projected total LTCH PPS payments for LTCH PPS standard Federal payment rate cases. Therefore, we are not adopting the commenter’s suggestion to modify the 7.975 percent target or include cases in our payment model other than those paid the standard Federal payment rate (or would have been paid at the LTCH PPS standard Federal payment rate if the dual rate LTCH PPS payment structure had been in effect at the time of those discharges). Comment: Several commenters urged CMS to factor into the calculation of the fixed-loss amount a projec if the dual rate LTCH PPS payment structure had been in effect at the time of those discharges). Comment: Several commenters urged CMS to factor into the calculation of the fixed-loss amount a projection of the amount of outlier dollars CMS estimates it will recoup through outlier reconciliation. Commenters expressed that this is especially important given the instructions CMS issued to MACs in CR 13566, which commenters stated will increase the number of LTCHs subject to outlier reconciliation in FY 2026. Commenters also stated that not including a projection of reconciled outlier dollars in the fixed-loss amount calculation is contrary to what CMS does in other payment systems, including the IPPS. Commenters stated that CMS’s failure to account for recouped outlier dollars would cause CMS to set the fixed-loss amount at an artificially high level that will not represent the actual amount of outlier payments to LTCHs after outlier reconciliations are done as part of the settlement of FY 2026 cost reports. Response: We thank the commenters for this feedback. We agree with commenters that incorporating an estimate of reconciled VerDate Sep 2014 00:36 Aug 02, 2025 Jkt 265001 PO 0000 FY 2026 cost reports. Response: We thank the commenters for this feedback. We agree with commenters that incorporating an estimate of reconciled VerDate Sep 2014 00:36 Aug 02, 2025 Jkt 265001 PO 00000 Frm 00710 Fmt 4701 Sfmt 4700 E:\FR\FM\04AUR2.SGM 04AUR2 2 S E L U R h t i w D O R P 4 4 1 S 7 W 9 K S D n o d n o m m a h k Federal Register / Vol. 90, No. 147 / Monday, August 4, 2025 / Rules and Regulations 37245 outlier dollars for the fiscal year into our methodology for determining the fixed-loss amount for that fiscal year would improve its accuracy. However, at the time of writing this final rule, we are unable to determine an appropriate estimate and predictor of outlier reconciliation for the upcoming fiscal year. It is difficult to predict the specific LTCHs that will have CCRs and outlier payments reconciled in any given year as there are many different variables that determine whether a specific case will be eligible for an outlier payment, including the CCR, the estimated costs of the case, the payment amounts, and the fixed-loss amount itself. Historically, under the IPPS, in general an outlier reconciliation adjustment to the IPPS fixed-loss threshold has been computed sts of the case, the payment amounts, and the fixed-loss amount itself. Historically, under the IPPS, in general an outlier reconciliation adjustment to the IPPS fixed-loss threshold has been computed using the percentage of total outlier reconciliation dollars to total Federal payments for a historical cost report data year. Rather than trying to predict which claims and/or hospitals may be subject to outlier reconciliation, we adopted a methodology that incorporates an estimate of outlier reconciliation dollars based on actual outlier reconciliation amounts reported in historical cost reports as we believe such an approach would be a more feasible and provide a better estimate and predictor of outlier reconciliation for the upcoming fiscal year (84 FR 42623 through 42623). It stands to reason that any such adjustment to the determination of the fixed-loss amount for LTCH PPS standard Federal payment rate cases would encounter similar considerations or would be computed in a similar manner. The LTCH PPS payments (including outlier payments and reconciled outlier payments) are reported on Worksheet E3, Part IV of the cost report. However, this worksheet does not separately list out anner. The LTCH PPS payments (including outlier payments and reconciled outlier payments) are reported on Worksheet E3, Part IV of the cost report. However, this worksheet does not separately list outlier payments or reconciled outlier payments for only standard Federal payment rate cases. We believe an accurate outlier reconciliation adjustment would require historical outlier and reconciled outlier payment data from cases that were paid the standard Federal payment rate (or would have been paid at the LTCH PPS standard Federal payment rate if the dual rate LTCH PPS payment structure had been in effect at the time of those discharges). Furthermore, as discussed in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69948 through 69955), CMS modified its historical methodology for incorporating outlier reconciliation in the IPPS fixed-loss threshold to account for the additional hospitals that will be reconciled under the new criteria outlined in CR 13566. The modified methodology incorporates supplemental outlier payment data provided to CMS from MACs for IPPS hospitals that would have been identified for reconciliation had the new criteria been in place during that historical cost report supplemental outlier payment data provided to CMS from MACs for IPPS hospitals that would have been identified for reconciliation had the new criteria been in place during that historical cost reporting period. CMS did not request these data from MACs for LTCHs, and due to system limitations, the MACs would need sufficient lead time to produce these supplemental data for LTCHs. For these reasons, we are unable to adopt the commenters’ suggestion. We note that the commenters did not specifically address how to project outlier reconciliation for the upcoming fiscal year, but we welcome recommendations or suggestions on how to account for the potential impact of reconciliation in the determination of the fixed-loss amount for LTCH PPS standard Federal payment rate cases. We intend to explore the data challenges discussed previously as we continue to consider the feasibility of including outlier reconciliation in the determination of the fixed-loss amount or LTCH PPS standard Federal payment rate cases and may consider this issue for future rulemaking. Comment: In general, commenters expressed concern that the proposed fixed- loss amount would result in three consecutive years of larg ent rate cases and may consider this issue for future rulemaking. Comment: In general, commenters expressed concern that the proposed fixed- loss amount would result in three consecutive years of large increase to the fixed-loss amount. The commenters stated that these increases create instability and uncertainty for LTCHs and negatively impact their ability to serve the sickest patients. Commenters believe that the proposed increase to the outlier fixed-loss amount would have negative financial impacts on LTCHs. Some commenters warned the increase would reduce access to LTCH care, increase ‘‘backups’’ at IPPS hospitals, and cause some LTCHs to close. Commenters expressed that the proposed increase in the fixed-loss amount would make reimbursement insufficient compared to the costs of treatment and would make admitting the most medically complex patients untenable for LTCHs. A commenter stated that CMS must account for patient access to LTCH services when setting HCO thresholds. Commenters provided a variety of recommendations for CMS to consider when determining the fixed-loss amount in this final rule. Some commenters advocated for CMS to adopt a modified version of the alternati ters provided a variety of recommendations for CMS to consider when determining the fixed-loss amount in this final rule. Some commenters advocated for CMS to adopt a modified version of the alternative approach to determining the FY 2025 fixed-loss amount that CMS discussed and considered in the FY 2025 IPPS/LTCH PPS proposed rule appendix (89 FR 36644). In that FY 2025 proposed rule, CMS considered providing a non-budget neutral, one-year transition to the full increase to the fixed-loss amount by setting the amount equal to an average of the 2024 fixed-loss amount and the calculated FY 2025 fixed- loss amount. The commenters urged CMS to consider this approach for FY 2026, but requested that CMS phase in the increase to the fixed-loss amount over a longer period, such as three or four years. One commenter requested that CMS set the FY 2026 fixed- loss amount equal to the FY 2023 fixed-loss amount. Another commenter similarly requested that CMS set the FY 2026 fixed- loss amount equal to the FY 2025 fixed-loss amount. Several commenters requested that CMS adopt a non-budget neutral cap on annual increases to the fixed-loss amount. Some commenters stated that this cap would be sim l to the FY 2025 fixed-loss amount. Several commenters requested that CMS adopt a non-budget neutral cap on annual increases to the fixed-loss amount. Some commenters stated that this cap would be similar to the cap policies CMS already applies to the LTCH PPS wage index and MS–LTC–DRG relative weights. A commenter requested that the cap be 5 percent while another stated that the cap should be set equal to the annual market basket percent increase. Some commenters stated that in combination with setting the charge inflation factor equal to the market basket update when determining the FY 2026 fixed-loss amount, CMS should also adopt in a non-budget neutral manner a freeze on the fixed-loss amount for future years beginning in FY 2027. Response: We thank the commenters for the feedback. As discussed in greater detail later in this section, with the use of more recent data available for this final rule, our proposed methodology for determining the fixed-loss amount results in a fixed-loss amount of $78,936, which is significantly lower than the fixed-loss amount of $91,247 that we proposed and similar to the FY 2025 fixed-loss amount of $77,048. At this time we do not believe it is n s amount of $78,936, which is significantly lower than the fixed-loss amount of $91,247 that we proposed and similar to the FY 2025 fixed-loss amount of $77,048. At this time we do not believe it is necessary or appropriate to use our adjustments authority to adjust outlier payments by using an alternative methodology to set the fixed-loss amount that would not result in total estimated outlier payments being projected to be equal to the statutory target of 7.975 percent in section 1886(m)(7) of the Act. We understand the comments on the impact the fixed-loss amount has on LTCH finances and access to care under the LTCH PPS and will continue to consider those issues for future rulemaking. After consideration of the comments received, we are finalizing our proposed methodology for determining the fixed-loss amount for LTCH PPS standard Federal payment rate cases for FY 2026 without modification. In this section of this Addendum, we present the detailed application of our finalized methodology. When we implemented the LTCH PPS, we established a fixed-loss amount so that total estimated outlier payments are projected to equal 8 percent of total estimated payments (that is, the target dology. When we implemented the LTCH PPS, we established a fixed-loss amount so that total estimated outlier payments are projected to equal 8 percent of total estimated payments (that is, the target percentage) under the LTCH PPS (67 FR 56022 through 56026). When we implemented the dual rate LTCH PPS payment structure beginning in FY 2016, we established that, in general, the historical LTCH PPS HCO policy would continue to apply to LTCH PPS standard Federal payment rate cases. That is, the fixed-loss amount for LTCH PPS standard Federal payment rate cases would be determined using the LTCH PPS HCO policy adopted when the LTCH PPS was first implemented, but we limited the data used under that policy to LTCH cases that would have been LTCH PPS standard Federal payment rate cases if the statutory changes had been in effect at the time of those discharges. To determine the applicable fixed-loss amount for LTCH PPS standard Federal payment rate cases, we estimate outlier payments and total LTCH PPS payments for each LTCH PPS standard Federal payment rate case (or for each case that would have been an LTCH PPS standard Federal payment rate case if the statutory changes had been in effe l LTCH PPS payments for each LTCH PPS standard Federal payment rate case (or for each case that would have been an LTCH PPS standard Federal payment rate case if the statutory changes had been in effect at the time of the discharge) using claims data from the MedPAR files. In accordance with § 412.525(a)(2)(ii), the applicable fixed-loss amount for LTCH PPS standard Federal payment rate cases results in estimated total outlier payments being projected to be equal to 7.975 percent of projected total LTCH PPS payments for LTCH PPS standard Federal payment rate cases. VerDate Sep 2014 00:36 Aug 02, 2025 Jkt 265001 PO 00000 Frm 00711 Fmt 4701 Sfmt 4700 E:\FR\FM\04AUR2.SGM 04AUR2 2 S E L U R h t i w D O R P 4 4 1 S 7 W 9 K S D n o d n o m m a h k 37246 Federal Register / Vol. 90, No. 147 / Monday, August 4, 2025 / Rules and Regulations (1) Charge Inflation Factor for Use in Determining the Fixed-Loss Amount for LTCH PPS Standard Federal Payment Rate Cases for FY 2026 Under the LTCH PPS, the cost of each claim is estimated by multiplying the charges on the claim by the provider’s CCR. Due to the lag time in the availability of claims data, when estimating costs for the upcoming payment y cost of each claim is estimated by multiplying the charges on the claim by the provider’s CCR. Due to the lag time in the availability of claims data, when estimating costs for the upcoming payment year we typically inflate the charges from the claims data by a uniform factor. For greater accuracy in calculating the fixed-loss amount, in the FY 2022 IPPS/ LTCH PPS final rule (86 FR 45562 through 45566), we finalized a technical change to our methodology for determining the charge inflation factor. Similar to the method used under the IPPS hospital payment methodology (as discussed in section II.A.4.i.(2). of this Addendum), our methodology determines the LTCH charge inflation factor based on the historical growth in charges for LTCH PPS standard Federal payment rate cases, calculated using historical MedPAR claims data. In this section of this Addendum, we describe our charge inflation factor methodology. Step 1—Identify LTCH PPS Standard Federal Payment Rate Cases The first step in our methodology is to identify LTCH PPS standard Federal payment rate cases from the MedPAR claim files for the two most recently available Federal fiscal year time periods. For both fiscal years, cons ur methodology is to identify LTCH PPS standard Federal payment rate cases from the MedPAR claim files for the two most recently available Federal fiscal year time periods. For both fiscal years, consistent with our historical methodology for determining payment rates for the LTCH PPS, we remove any claims submitted by LTCHs that were all-inclusive rate providers as well as any Medicare Advantage claims. For both fiscal years, we also remove claims from providers that only had claims in one of the fiscal years. Step 2—Remove Statistical Outliers The next step in our methodology is to remove all claims from providers whose growth in average charges was a statistical outlier. We remove these statistical outliers prior to calculating the charge inflation factor because we believe they may represent aberrations in the data that would distort the measure of average charge growth. To perform this statistical trim, we first calculate each provider’s average charge in both fiscal years. Then, we calculate a charge growth factor for each provider by dividing its average charge in the most recent fiscal year by its average charge in the prior fiscal year. Then we remove all claims for provid we calculate a charge growth factor for each provider by dividing its average charge in the most recent fiscal year by its average charge in the prior fiscal year. Then we remove all claims for providers whose calculated charge growth factor was outside 3 standard deviations from the mean provider charge growth factor. Step 3—Calculate the Charge Inflation Factor The final step in our methodology is to use the remaining claims to calculate a national charge inflation factor. We first calculate the average charge for those remaining claims in both fiscal years. Then we calculate the national charge inflation factor by dividing the average charge in the more recent fiscal year by the average charge in the prior fiscal year. Following the methodology described previously, as we proposed, we computed a charge inflation factor based on the most recently available data. Specifically, we used the March 2025 update of the FY 2024 MedPAR file and the March 2024 update of the FY 2023 MedPAR as the basis of the LTCH PPS standard Federal payment rate cases for the two most recently available Federal fiscal year time periods, as described previously in our methodology. Therefore, we trimmed the he basis of the LTCH PPS standard Federal payment rate cases for the two most recently available Federal fiscal year time periods, as described previously in our methodology. Therefore, we trimmed the March 2025 update of the FY 2024 MedPAR file and the March 2024 update of the FY 2023 MedPAR file as described in steps 1 and 2 of our methodology. To compute the 1-year average annual rate-of-change in charges per case, we compared the average covered charge per case of $303,404 ($12,753,897,528/42,036 cases) from FY 2023 to the average covered charge per case of $342,229 ($14,779,859,933/43,187 cases) from FY 2024. This rate-of-change was 12.7965 percent, which results in a 1-year charge inflation factor of 1.127965, and a 2-year charge inflation factor of 1.272305 (calculated by squaring the 1-year factor). We inflated the billed charges obtained from the FY 2024 MedPAR file by this 2-year charge inflation factor of 1.272305 when determining the fixed-loss amount for LTCH PPS standard Federal payment rate cases for FY 2026. (2) CCRs for Use in Determining the Fixed- Loss Amount for LTCH PPS Standard Federal Payment Rate Cases for FY 2026 For greater accuracy in calculating the fixe Federal payment rate cases for FY 2026. (2) CCRs for Use in Determining the Fixed- Loss Amount for LTCH PPS Standard Federal Payment Rate Cases for FY 2026 For greater accuracy in calculating the fixed-loss amount, in the FY 2022 IPPS/ LTCH PPS final rule (86 FR 45562 through 45566), we finalized a technical change to our methodology for determining the CCRs used to calculate the fixed-loss amount. Similar to the methodology used for IPPS hospitals (as discussed in section II.A.4.i.(2). of this Addendum), our methodology adjusts CCRs obtained from the best available PSF data by an adjustment factor that is calculated based on historical changes in the average case-weighted CCR for LTCHs. We believe these adjusted CCRs more accurately reflect CCR levels in the upcoming payment year because they account for historical changes in the relationship between costs and charges for LTCHs. In this section of this Addendum, we describe our CCR adjustment factor methodology. Step 1—Assign Providers Their Historical CCRs The first step in our methodology is to identify providers with LTCH PPS standard Federal payment rate cases in the most recent MedPAR claims file (excluding all-inclusive rate s Their Historical CCRs The first step in our methodology is to identify providers with LTCH PPS standard Federal payment rate cases in the most recent MedPAR claims file (excluding all-inclusive rate providers and providers with only Medicare Advantage claims). For each of these providers, we then identify the CCR from the most recently available PSF. For each of these providers we also identify the CCR from the PSF that was made available one year prior to the most recently available PSF. Step 2—Trim Providers with Insufficient CCR Data The next step in our methodology is to remove from the CCR adjustment factor calculation any providers for which we cannot accurately measure changes to their CCR using the PSF data. We first remove any provider whose CCR was missing in the most recent PSF or prior year PSF. We next remove any provider assigned the statewide average CCR for their State in either the most recent PSF or prior year PSF. We lastly remove any provider whose CCR was not updated between the most recent PSF and prior year PSF (determined by comparing the effective date of the records). Step 3—Remove Statistical Outliers The next step in our methodology is to remove provid ated between the most recent PSF and prior year PSF (determined by comparing the effective date of the records). Step 3—Remove Statistical Outliers The next step in our methodology is to remove providers whose change in their CCR is a statistical outlier. To perform this statistical trim, for those providers remaining after application of Step 2, we calculate a provider-level CCR growth factor by dividing the provider’s CCR from the most recent PSF by its CCR in the prior year’s PSF. We then remove any provider whose CCR growth factor was outside 3 standard deviations from the mean provider CCR growth factor. These statistical outliers are removed prior to calculating the CCR adjustment factor because we believe that they may represent aberrations in the data that would distort the measure of average annual CCR change. Step 4—Calculate a CCR Adjustment Factor The final step in our methodology is to calculate, across all remaining providers after application of Step 3, an average case- weighted CCR from both the most recent PSF and prior year PSF. The provider case counts that we use to calculate the case-weighted average are determined from claims for LTCH standard Federal rate cas weighted CCR from both the most recent PSF and prior year PSF. The provider case counts that we use to calculate the case-weighted average are determined from claims for LTCH standard Federal rate cases from the most recent MedPAR claims file. We note when determining these case counts, consistent with our historical methodology for determining the MS–LTC–DRG relative weights, we do not count short stay outlier claims as full cases but instead as a fraction of a case based on the ratio of covered days to the geometric mean length of stay for the MS–LTC–DRG grouped to the case. We calculate the national CCR adjustment factor by dividing the case-weighted CCR from the most recent PSF by the case-weighted CCR from the prior year PSF. Following the methodology described previously, as we proposed, we computed a CCR adjustment factor based on the most recently available data. Specifically, we used the March 2025 PSF as the most recently available PSF and the March 2024 PSF as the PSF that was made available one year prior to the most recently available PSF, as described in our methodology. In addition, we used claims from the March 2025 update of the FY 2024 MedPAR file in our calculati as made available one year prior to the most recently available PSF, as described in our methodology. In addition, we used claims from the March 2025 update of the FY 2024 MedPAR file in our calculation of average case-weighted CCRs described in Step 4 of our methodology. Specifically, following the methodology described previously and, for providers with LTCH PPS standard Federal payment rate cases in the March 2025 update of the FY 2024 MedPAR file, we identified their CCRs from both the March 2024 PSF and March 2025 PSF. After performing the trims outlined in our methodology, we used the LTCH PPS standard Federal payment rate case counts from the FY 2024 MedPAR file (classified using finalized Version 43 of the GROUPER) to calculate case-weighted average CCRs. Based on this data, we calculated a March 2024 national average case-weighted CCR of 0.235922 and a March 2025 national average case-weighted CCR of 0.220240. We then calculated the national VerDate Sep 2014 00:36 Aug 02, 2025 Jkt 265001 PO 00000 Frm 00712 Fmt 4701 Sfmt 4700 E:\FR\FM\04AUR2.SGM 04AUR2 2 S E L U R h t i w D O R P 4 4 1 S 7 W 9 K S D n o d n o m m a h k Federal Register / Vol. 90, No. 147 / Monday, August 4, Jkt 265001 PO 00000 Frm 00712 Fmt 4701 Sfmt 4700 E:\FR\FM\04AUR2.SGM 04AUR2 2 S E L U R h t i w D O R P 4 4 1 S 7 W 9 K S D n o d n o m m a h k Federal Register / Vol. 90, No. 147 / Monday, August 4, 2025 / Rules and Regulations 37247 CCR adjustment factor by dividing the March 2025 national average case-weighted CCR by the March 2024 national average case- weighted CCR. This results in a 1-year national CCR adjustment factor of 0.933527. When calculating the fixed-loss amount for FY 2026, we assigned the statewide average CCR for the upcoming fiscal year to all providers who were assigned the statewide average in the March 2025 PSF or whose CCR was missing in the March 2025 PSF. For all other providers, we multiplied their CCR from the March 2025 PSF by the 1-year national CCR adjustment factor of 0.933527. We note that the March 2025 PSF national average case-weighted CCR was 2.8 percent lower than the December 2024 PSF national average case-weighted CCR. We also note that the 1-year national adjustment CCR adjustment factor calculated in this final rule is 1.7 percent lower than the 1-year national adjustment CCR factor that we proposed. The incorporation of more recent cost-to r national adjustment CCR adjustment factor calculated in this final rule is 1.7 percent lower than the 1-year national adjustment CCR factor that we proposed. The incorporation of more recent cost-to-charge ratio data into our payment model was the primary driver of the reduction in the fixed- loss amount calculated in this final rule compared to the fixed-loss amount calculated in the proposed rule. (3) Fixed-Loss Amount for LTCH PPS Standard Federal Payment Rate Cases for FY 2026 In this final rule, for FY 2026, using the best available data and the steps described previously, we calculated a fixed-loss amount that would maintain estimated HCO payments at the projected 7.975 percent of total estimated LTCH PPS payments for LTCH PPS standard Federal payment rate cases as required by section 1886(m)(7) of the Act and in accordance with § 412.525(a)(2)(ii) (based on the payment rates and policies for these cases presented in this final rule). Consistent with our historical practice, we use the best available LTCH claims data and CCR data when determining the fixed-loss amount for LTCH PPS standard Federal payment rate cases for FY 2026 in the final rule. Therefore, based on LTCH cl use the best available LTCH claims data and CCR data when determining the fixed-loss amount for LTCH PPS standard Federal payment rate cases for FY 2026 in the final rule. Therefore, based on LTCH claims data from the March 2025 update of the FY 2024 MedPAR file adjusted for charge inflation and adjusted CCRs from the March 2025 update of the PSF, under the broad authority of section 123(a)(1) of the BBRA and section 307(b)(1) of the BIPA, we are establishing a fixed-loss amount for LTCH PPS standard Federal payment rate cases for FY 2026 of $78,936 that will result in estimated outlier payments projected to be equal to 7.975 percent of estimated FY 2026 payments for such cases. As such, we will make an additional HCO payment for the cost of an LTCH PPS standard Federal payment rate case that exceeds the HCO threshold amount that is equal to 80 percent of the difference between the estimated cost of the case and the outlier threshold (the sum of the adjusted LTCH PPS standard Federal payment rate payment and the fixed-loss amount for LTCH PPS standard Federal payment rate cases of $78,936). 4. High-Cost Outlier Payments for Site Neutral Payment Rate Cases When we implemented the a payment rate payment and the fixed-loss amount for LTCH PPS standard Federal payment rate cases of $78,936). 4. High-Cost Outlier Payments for Site Neutral Payment Rate Cases When we implemented the application of the site neutral payment rate in FY 2016, in examining the appropriate fixed-loss amount for site neutral payment rate cases issue, we considered how LTCH discharges based on historical claims data would have been classified under the dual rate LTCH PPS payment structure and the CMS’ Office of the Actuary projections regarding how LTCHs will likely respond to our implementation of policies resulting from the statutory payment changes. We again relied on these considerations and actuarial projections in FY 2017 and FY 2018 because the historical claims data available in each of these years were not all subject to the LTCH PPS dual rate payment system. Similarly, for FYs 2019 through 2025, we continued to rely on these considerations and actuarial projections because, due to the transitional blended payment policy for site neutral payment rate cases and the provisions of section 3711(b)(2) of the CARES Act, the historical claims data available in each of these years were no e transitional blended payment policy for site neutral payment rate cases and the provisions of section 3711(b)(2) of the CARES Act, the historical claims data available in each of these years were not subject to the full effect of the site neutral payment rate. For FYs 2016 through 2025, our actuaries projected that the proportion of cases that would qualify as LTCH PPS standard Federal payment rate cases versus site neutral payment rate cases under the statutory provisions would remain consistent with what is reflected in the historical LTCH PPS claims data. Although our actuaries did not project an immediate change in the proportions found in the historical data, they did project cost and resource changes to account for the lower payment rates. Our actuaries also projected that the costs and resource use for cases paid at the site neutral payment rate would likely be lower, on average, than the costs and resource use for cases paid at the LTCH PPS standard Federal payment rate and would likely mirror the costs and resource use for IPPS cases assigned to the same MS–DRG, regardless of whether the proportion of site neutral payment rate cases in the future remains similar to what ould likely mirror the costs and resource use for IPPS cases assigned to the same MS–DRG, regardless of whether the proportion of site neutral payment rate cases in the future remains similar to what is found based on the historical data. As discussed in the FY 2016 IPPS/LTCH PPS final rule (80 FR 49619), this actuarial assumption is based on our expectation that site neutral payment rate cases would generally be paid based on an IPPS comparable per diem amount under the statutory LTCH PPS payment changes that began in FY 2016, which, in the majority of cases, is much lower than the payment that would have been paid if these statutory changes were not enacted. In light of these projections and expectations, we discussed that we believed that the use of a single fixed-loss amount and HCO target for all LTCH PPS cases would be problematic. In addition, we discussed that we did not believe that it would be appropriate for comparable LTCH PPS site neutral payment rate cases to receive dramatically different HCO payments from those cases that would be paid under the IPPS (80 FR 49617 through 49619 and 81 FR 57305 through 57307). For those reasons, we stated that we believed that the mos atically different HCO payments from those cases that would be paid under the IPPS (80 FR 49617 through 49619 and 81 FR 57305 through 57307). For those reasons, we stated that we believed that the most appropriate fixed-loss amount for site neutral payment rate cases for FYs 2016 through 2025 would be equal to the IPPS fixed-loss amount for that particular fiscal year. Therefore, we established the fixed-loss amount for site neutral payment rate cases as the corresponding IPPS fixed-loss amounts for FYs 2016 through 2025. In particular, in FY 2025, we established the fixed-loss amount for site neutral payment rate cases as the FY 2025 IPPS fixed-loss amount of $46,217 (89 FR 80412). For this final rule, we used FY 2024 data in the FY 2026 LTCH PPS ratesetting. We note that section 3711(b)(2) of the CARES Act provided a waiver of the application of the site neutral payment rate for LTCH cases. This waiver applied to patients admitted during the COVID–19 PHE period and expired on May 11, 2023. Although the vast majority of LTCH discharges in FY 2024 were not subject to the waiver of the application of the site neutral payment rate, we believe LTCHs’ admission patterns may still have 2023. Although the vast majority of LTCH discharges in FY 2024 were not subject to the waiver of the application of the site neutral payment rate, we believe LTCHs’ admission patterns may still have been adapting to the expiration of the waiver of the application of the site neutral payment rate. Therefore, at this time, we do not believe it would be appropriate to use FY 2024 data to develop a fixed-loss amount for site neutral payment rate cases for FY 2026. As discussed earlier in this section, we also continue to believe LTCH PPS site neutral payment rate cases should not receive dramatically different HCO payments from those cases that would be paid under the IPPS while we continue to evaluate the actuarial assumptions discussed previously and the use of LTCH PPS site neutral payment rate data to determine an appropriate outlier threshold for such cases. For these reasons, we continue to believe that the most appropriate fixed-loss amount for site neutral payment rate cases for FY 2026 is the IPPS fixed-loss amount for FY 2026. Accordingly, for FY 2026, as we proposed, we are establishing that the applicable HCO threshold for site neutral payment rate cases is the sum of the Y 2026 is the IPPS fixed-loss amount for FY 2026. Accordingly, for FY 2026, as we proposed, we are establishing that the applicable HCO threshold for site neutral payment rate cases is the sum of the site neutral payment rate for the case and the IPPS fixed-loss amount. That is, we are establishing a fixed-loss amount for site neutral payment rate cases of $40,397, which is the same FY 2026 IPPS fixed-loss amount discussed in section II.A.4.i.(2). of this Addendum. Accordingly, under this policy, for FY 2026, we will calculate an HCO payment for site neutral payment rate cases with costs that exceed the HCO threshold amount that is equal to 80 percent of the difference between the estimated cost of the case and the outlier threshold (the sum of the site neutral payment rate payment and the fixed-loss amount for site neutral payment rate cases of $40,397). In establishing an HCO policy for site neutral payment rate cases, we established a budget neutrality adjustment under § 412.522(c)(2)(i). We established this requirement because we believed, and continue to believe, that the HCO policy for site neutral payment rate cases should be budget neutral, just as the HCO policy for LTCH P 2)(i). We established this requirement because we believed, and continue to believe, that the HCO policy for site neutral payment rate cases should be budget neutral, just as the HCO policy for LTCH PPS standard Federal payment rate cases is budget neutral, meaning that estimated site neutral payment rate HCO payments should not result in any change in estimated aggregate LTCH PPS payments. To ensure that estimated HCO payments payable to site neutral payment rate cases in FY 2026 would not result in any increase in estimated aggregate FY 2026 LTCH PPS payments, under the budget neutrality requirement at § 412.522(c)(2)(i), it is VerDate Sep 2014 00:36 Aug 02, 2025 Jkt 265001 PO 00000 Frm 00713 Fmt 4701 Sfmt 4700 E:\FR\FM\04AUR2.SGM 04AUR2 2 S E L U R h t i w D O R P 4 4 1 S 7 W 9 K S D n o d n o m m a h k 37248 Federal Register / Vol. 90, No. 147 / Monday, August 4, 2025 / Rules and Regulations necessary to reduce site neutral payment rate payments by 5.1 percent to account for the estimated additional HCO payments payable to those cases in FY 2026. Consistent with our historical practice, as we proposed, we are continuing this policy. As discussed earlier, consistent with the IPP timated additional HCO payments payable to those cases in FY 2026. Consistent with our historical practice, as we proposed, we are continuing this policy. As discussed earlier, consistent with the IPPS HCO payment threshold, we estimate the fixed-loss threshold would result in FY 2026 HCO payments for site neutral payment rate cases to equal 5.1 percent of the site neutral payment rate payments that are based on the IPPS comparable per diem amount. As such, to ensure estimated HCO payments payable for site neutral payment rate cases in FY 2026 would not result in any increase in estimated aggregate FY 2026 LTCH PPS payments, under the budget neutrality requirement at § 412.522(c)(2)(i), it is necessary to reduce the site neutral payment rate amount paid under § 412.522(c)(1)(i) by 5.1 percent to account for the estimated additional HCO payments payable for site neutral payment rate cases in FY 2026. To achieve this, for FY 2026, as we proposed, we are applying a budget neutrality factor of 0.949 (that is, the decimal equivalent of a 5.1 percent reduction, determined as 1.0¥5.1/ 100 = 0.949) to the site neutral payment rate for those site neutral payment rate cases paid under § 412. r of 0.949 (that is, the decimal equivalent of a 5.1 percent reduction, determined as 1.0¥5.1/ 100 = 0.949) to the site neutral payment rate for those site neutral payment rate cases paid under § 412.522(c)(1)(i). We note that, consistent with our current policy, this HCO budget neutrality adjustment will not be applied to the HCO portion of the site neutral payment rate amount (81 FR 57309). We did not receive any public comments on our proposals regarding HCO payments for site neutral payment rate cases and are finalizing these proposals as described previously, without modification. E. Update to the IPPS Comparable Amount To Reflect the Statutory Changes to the IPPS DSH Payment Adjustment Methodology In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50766), we established a policy to reflect the changes to the Medicare IPPS DSH payment adjustment methodology made by section 3133 of the Affordable Care Act in the calculation of the ‘‘IPPS comparable amount’’ under the SSO policy at § 412.529 and the ‘‘IPPS equivalent amount’’ under the site neutral payment rate at § 412.522. Historically, the determination of both the ‘‘IPPS comparable amount’’ and the ‘‘IPPS equivalent amount’’ inc 2.529 and the ‘‘IPPS equivalent amount’’ under the site neutral payment rate at § 412.522. Historically, the determination of both the ‘‘IPPS comparable amount’’ and the ‘‘IPPS equivalent amount’’ includes an amount for inpatient operating costs ‘‘for the costs of serving a disproportionate share of low- income patients.’’ Under the statutory changes to the Medicare DSH payment adjustment methodology that began in FY 2014, in general, eligible IPPS hospitals receive an empirically justified Medicare DSH payment equal to 25 percent of the amount they otherwise would have received under the statutory formula for Medicare DSH payments prior to the amendments made by the Affordable Care Act. The remaining amount, equal to an estimate of 75 percent of the amount that otherwise would have been paid as Medicare DSH payments, reduced to reflect changes in the percentage of individuals under the age of 65 who are uninsured, is made available to make additional payments to each hospital that qualifies for Medicare DSH payments and that has uncompensated care. The additional uncompensated care payments are based on the hospital’s amount of uncompensated care for a given time period relative t lifies for Medicare DSH payments and that has uncompensated care. The additional uncompensated care payments 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. To reflect the Medicare DSH payment adjustment methodology statutory changes in section 3133 of the Affordable Care Act in the calculation of the ‘‘IPPS comparable amount’’ and the ‘‘IPPS equivalent amount’’ under the LTCH PPS, we stated in the FY 2014 IPPS/ LTCH PPS final rule (78 FR 50766) that we will include a reduced Medicare DSH payment amount that reflects the projected percentage of the payment amount calculated based on the statutory Medicare DSH payment formula prior to the amendments made by the Affordable Care Act that will be paid to eligible IPPS hospitals as empirically justified Medicare DSH payments and uncompensated care payments in that year (that is, a percentage of the operating Medicare DSH payment amount that has historically been reflected in the LTCH PPS payments that are based on IPPS rates). We also stated, in the FY 2014 IPPS/LTCH hat is, a percentage of the operating Medicare DSH payment amount that has historically been reflected in the LTCH PPS payments that are based on IPPS rates). We also stated, in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50766), that the projected percentage will be updated annually, consistent with the annual determination of the amount of uncompensated care payments that will be made to eligible IPPS hospitals. We believe that this approach results in appropriate payments under the LTCH PPS and is consistent with our intention that the ‘‘IPPS comparable amount’’ and the ‘‘IPPS equivalent amount’’ under the LTCH PPS closely resemble what an IPPS payment would have been for the same episode of care, while recognizing that some features of the IPPS cannot be translated directly into the LTCH PPS (79 FR 50766 through 50767). As discussed in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18453), for FY 2026, based on the most recent data available at that time, we proposed to establish that the calculation of the ‘‘IPPS comparable amount’’ under § 412.529 would include an applicable operating Medicare DSH payment amount that is equal to 70.53 percent of the operating Medicare DSH pay hat the calculation of the ‘‘IPPS comparable amount’’ under § 412.529 would include an applicable operating Medicare DSH payment amount that is equal to 70.53 percent of the operating Medicare DSH payment amount that would have been paid based on the statutory Medicare DSH payment formula absent the amendments made by the Affordable Care Act. Furthermore, consistent with our historical practice, we proposed that, if more recent data became available, we would use that data to determine the applicable operating Medicare DSH payment amount used to calculate the ‘‘IPPS comparable amount’’ in the final rule. We did not receive any public comments in response to our proposal, and as such are finalizing this proposal. However, as we proposed, we are determining the applicable operating Medicare DSH payment amount used to calculate the ‘‘IPPS comparable amount’’ in this final rule using more recent data. For FY 2026, as discussed in greater detail in section IV.E.2.b. of the preamble of this final rule, based on the most recent data available, our estimate of 75 percent of the amount that would otherwise have been paid as Medicare DSH payments (under the methodology outlined in section 18 final rule, based on the most recent data available, our estimate of 75 percent of the amount that would otherwise have been paid as Medicare DSH payments (under the methodology outlined in section 1886(r)(2) of the Act) is adjusted to 62.14 percent of that amount to reflect the change in the percentage of individuals who are uninsured. The resulting amount is then used to determine the amount available to make uncompensated care payments to eligible IPPS hospitals in FY 2026. In other words, the amount of the Medicare DSH payments that would have been made prior to the amendments made by the Affordable Care Act is adjusted to 46.61 percent (the product of 75 percent and 62.14 percent) and the resulting amount is used to calculate the uncompensated care payments to eligible hospitals. As a result, for FY 2026, we project that the reduction in the amount of Medicare DSH payments pursuant to section 1886(r)(1) of the Act, along with the payments for uncompensated care under section 1886(r)(2) of the Act, will result in overall Medicare DSH payments of 71.61 percent of the amount of Medicare DSH payments that would otherwise have been made in the absence of the amendments made by the r)(2) of the Act, will result in overall Medicare DSH payments of 71.61 percent of the amount of Medicare DSH payments that would otherwise have been made in the absence of the amendments made by the Affordable Care Act (that is, 25 percent + 46.61 percent = 71.61 percent). Therefore, for FY 2026, consistent with our proposal, we are establishing that the calculation of the ‘‘IPPS comparable amount’’ under § 412.529 will include an applicable operating Medicare DSH payment amount that is equal to 71.61 percent of the operating Medicare DSH payment amount that would have been paid based on the statutory Medicare DSH payment formula absent the amendments made by the Affordable Care Act. F. Computing the Adjusted LTCH PPS Federal Prospective Payments for FY 2026 Under the dual rate LTCH PPS payment structure, only LTCH PPS cases that meet the statutory criteria to be excluded from the site neutral payment rate are paid based on the LTCH PPS standard Federal payment rate. Under § 412.525(c), the LTCH PPS standard Federal payment rate is adjusted to account for differences in area wages; we make this adjustment by multiplying the labor-related share of the LTCH PPS standard Federal paym ), the LTCH PPS standard Federal payment rate is adjusted to account for differences in area wages; we make this adjustment by multiplying the labor-related share of the LTCH PPS standard Federal payment rate for a case by the applicable LTCH PPS wage index (the FY 2026 values are shown in Tables 12A through 12B listed in section VI. of this Addendum and are available via the internet on the CMS website). The LTCH PPS standard Federal payment rate is also adjusted to account for the higher costs of LTCHs located in Alaska and Hawaii by the applicable COLA factors (the FY 2026 factors are shown in the chart in section V.C. of this Addendum) in accordance with § 412.525(b). In this final rule, we are establishing an LTCH PPS standard Federal payment rate for FY 2026 of $50,824.51, as discussed in section V.A. of this Addendum. We illustrate the methodology to adjust the LTCH PPS standard Federal payment rate for FY 2026, applying our LTCH PPS amounts for the standard Federal payment rate, MS–LTC– DRG relative weights, and wage index in the following example: Example: During FY 2026, a Medicare discharge that meets the criteria to be excluded from the site VerDate Sep 2014 00:36 Aug 0 , MS–LTC– DRG relative weights, and wage index in the following example: Example: During FY 2026, a Medicare discharge that meets the criteria to be excluded from the site VerDate Sep 2014 00:36 Aug 02, 2025 Jkt 265001 PO 00000 Frm 00714 Fmt 4701 Sfmt 4700 E:\FR\FM\04AUR2.SGM 04AUR2 2 S E L U R h t i w D O R P 4 4 1 S 7 W 9 K S D n o d n o m m a h k Federal Register / Vol. 90, No. 147 / Monday, August 4, 2025 / Rules and Regulations 37249 neutral payment rate, that is, an LTCH PPS standard Federal payment rate case, is from an LTCH that is located in CBSA 16984, which has a FY 2026 LTCH PPS wage index value of 1.0228 (as shown in Table 12A listed in section VI. of this Addendum). The Medicare patient case is classified into MS– LTC–DRG 189 (Pulmonary Edema & Respiratory Failure), which has a relative weight for FY 2026 of 0.9443 (as shown in Table 11 listed in section VI. of this Addendum). The LTCH submitted quality reporting data for FY 2026 in accordance with the LTCH QRP under section 1886(m)(5) of the Act. To calculate the LTCH’s total adjusted Federal prospective payment for this Medicare patient case in FY 2026, we computed the wage-adjusted Federal prospective payment amoun ion 1886(m)(5) of the Act. To calculate the LTCH’s total adjusted Federal prospective payment for this Medicare patient case in FY 2026, we computed the wage-adjusted Federal prospective payment amount by multiplying the unadjusted FY 2026 LTCH PPS standard Federal payment rate ($50,824.51) by the labor-related share (72.9 percent) and the wage index value (1.0228). This wage- adjusted amount was then added to the nonlabor-related portion of the unadjusted LTCH PPS standard Federal payment rate (27.1 percent; adjusted for cost of living, if applicable) to determine the adjusted LTCH PPS standard Federal payment rate, which is then multiplied by the MS–LTC–DRG relative weight (0.9443) to calculate the total adjusted LTCH PPS standard Federal payment for FY 2026 ($48,791.30). The table illustrates the components of the calculations in this example. Unadjusted LTCH PPS Standard Federal Prospective Payment Rate ........................................................................................ Labor-Related Share ..................................................................................................................................................................... Labo ......... Labor-Related Share ..................................................................................................................................................................... Labor-Related Portion of the LTCH PPS Standard Federal Payment Rate ................................................................................. Wage Index (CBSA 16984) ........................................................................................................................................................... Wage-Adjusted Labor Share of the LTCH PPS Standard Federal Payment Rate ...................................................................... Nonlabor-Related Portion of the LTCH PPS Standard Federal Payment Rate ($50,824.51 × 0.271) ........................................ Adjusted LTCH PPS Standard Federal Payment Amount ............................................................................................................ MS–LTC–DRG 189 Relative Weight ............................................................................................................................................. $50,824.51 × 0.729 = $37,051.07 × 1.0228 = $37,895.83 + $13,773.44 ..................................................................................................................................... $50,824.51 × 0.729 = $37,051.07 × 1.0228 = $37,895.83 + $13,773.44 = $51,669.27 × 0.9443 Total Adjusted LTCH PPS Standard Federal Prospective Payment ..................................................................................... = $48,791.30 VI. Tables Referenced in This Final Rule Generally Available Through the Internet on the CMS Website This section lists the tables referred to throughout the preamble of this final rule and in the Addendum. In the past, a majority of these tables were published in the Federal Register as part of the annual proposed and final rules. However, similar to FYs 2012 through 2025, for the FY 2026 rulemaking cycle, the IPPS and LTCH PPS tables will not be published in the Federal Register in the annual IPPS/LTCH PPS proposed and final rules and will be on the CMS website. Specifically, all IPPS tables listed in the final rule, with the exception of IPPS Tables 1A, 1B, 1C, and 1D, and LTCH PPS Table 1E, will generally be available on the CMS website. IPPS Tables 1A, 1B, 1C, and 1D, and LTCH PPS Table 1E are display nal rule, with the exception of IPPS Tables 1A, 1B, 1C, and 1D, and LTCH PPS Table 1E, will generally be available on the CMS website. IPPS Tables 1A, 1B, 1C, and 1D, and LTCH PPS Table 1E are displayed at the end of this section and will continue to be published in the Federal Register as part of the annual proposed and final rules. Tables 7A and 7B historically contained the Medicare prospective payment system selected percentile lengths of stay for the MS–DRGs for the prior year and upcoming fiscal year. We note, in the FY 2023 IPPS/ LTCH PPS final rule (87 FR 49452), we finalized beginning with FY 2023, to provide the percentile length of stay information previously included in Tables 7A and 7B in the supplemental AOR/BOR data file. The AOR/BOR files can be found on the FY 2026 IPPS final rule home page on the CMS website at https://www.cms.gov/Medicare/ Medicare-Fee-for-Service-Payment/ AcuteInpatientPPS/index.html. As discussed in section II.E.6. of the preamble to this final rule, we are making available separate tables listing the ICD–10– CM codes or ICD–10–PCS codes that would be used to identify cases relevant to the Breakthrough Device-designated indication for the RECEL e, we are making available separate tables listing the ICD–10– CM codes or ICD–10–PCS codes that would be used to identify cases relevant to the Breakthrough Device-designated indication for the RECELL® Autologous Cell Harvesting Device for purposes of the new technology add-on payment for FY 2026, in Table 10 associated with this final rule. After hospitals have been given an opportunity to review and correct their calculations for FY 2026, we will post Table 15 (which will be available via the CMS website) to display the final FY 2026 readmissions payment adjustment factors that will be applicable to discharges occurring on or after October 1, 2025. We expect Table 15 will be posted on the CMS website in the Fall 2025. Readers who experience any problems accessing any of the tables that are posted on the CMS websites identified in this final rule should contact Michael Treitel at (410) 786– 4552. The following IPPS tables for this final rule are generally available on the CMS website at https://www.cms.gov/Medicare/Medicare- Fee-for-Service-Payment/AcuteInpatientPPS/ index.html. Click on the link on the left side of the screen titled ‘‘FY 2026 IPPS Final Rule Home Page’’ or ‘‘Acu at https://www.cms.gov/Medicare/Medicare- Fee-for-Service-Payment/AcuteInpatientPPS/ index.html. Click on the link on the left side of the screen titled ‘‘FY 2026 IPPS Final Rule Home Page’’ or ‘‘Acute Inpatient -Files- for Download.’’ Table 2.—Case-Mix Index and Wage Index Table by CCN—FY 2026 Final Rule Table 3.—Wage Index Table by CBSA—FY 2026 Final Rule Table 4A.—List of Counties Eligible for the Out-Migration Adjustment under Section 1886(d)(13) of the Act—FY 2026 Final Rule Table 4B.—Counties Redesignated under Section 1886(d)(8)(B) of the Act (LUGAR Counties)—FY 2026 Final Rule Table 5.—List of Medicare Severity Diagnosis-Related Groups (MS–DRGs), Relative Weighting Factors, and Geometric and Arithmetic Mean Length of Stay—FY 2026 Final Rule Table 6A.—New Diagnosis Codes—FY 2026 Table 6B.—New Procedure Codes—FY 2026 Table 6C.—Invalid Diagnosis Codes—FY 2026 Table 6D.—Invalid Procedure Codes—FY 2026 Table 6E.—Revised Diagnosis Code Titles— FY 2026 Table 6F.—Revised Procedure Code Titles— FY 2026 Table 6G.1.—Secondary Diagnosis Order Additions to the CC Exclusions List—FY 2026 Table 6G.2.—Principal Diagnosis Order Additions to the CC Exclusions List—FY 2026 Table 6H.1.—Second e Titles— FY 2026 Table 6G.1.—Secondary Diagnosis Order Additions to the CC Exclusions List—FY 2026 Table 6G.2.—Principal Diagnosis Order Additions to the CC Exclusions List—FY 2026 Table 6H.1.—Secondary Diagnosis Order Deletions to the CC Exclusions List—FY 2026 Table 6H.2.—Principal Diagnosis Order Deletions to the CC Exclusions List—FY 2026 Table 6I.—Complete MCC List—FY 2026 Table 6I.1.—Additions to the MCC List—FY 2026 Table 6J.—Complete CC List –FY 2026 Table 6J.1.—Additions to the CC List—FY 2026 Table 6J.2.—Deletions to the CC List—FY 2026 Table 6K.—Complete CC Exclusions List—FY 2026 Table 6P.—ICD–10–CM and ICD–10–PCS Codes for MS–DRG Changes—FY 2026 (Table 6P contains multiple tables, 6P.1a. through 6P.8a that include the ICD–10–CM and ICD–10–PCS code lists relating to specific MS–DRG changes or other analyses). These tables are referred to throughout section II.C. of the preamble of this final rule. Table 8A.—FY 2026 Statewide Average Operating Cost-to-Charge Ratios (CCRs) for Acute Care Hospitals (Urban and Rural)— FY 2026 Final Rule Table 8B.—FY 2026 Statewide Average Capital Cost-to-Charge Ratios (CCRs) for Acute Care Hospitals—FY 2026 Final Rule Table 10.—Relevant IC or Acute Care Hospitals (Urban and Rural)— FY 2026 Final Rule Table 8B.—FY 2026 Statewide Average Capital Cost-to-Charge Ratios (CCRs) for Acute Care Hospitals—FY 2026 Final Rule Table 10.—Relevant ICD–10 Codes for Certain FY 2026 New Technology Add-On Payments Table 16.—Proxy Hospital Value-Based Purchasing (VBP) Program Adjustment Factors for FY 2026 Table 18.—FY 2026 Medicare DSH Uncompensated Care Payment Factor 3 The following LTCH PPS tables for this FY 2026 final rule are available through the internet on the CMS website at https:// www.cms.gov/Medicare/Medicare-Fee-for- Service-Payment/LongTermCareHospitalPPS/ index.html under the list item for Regulation Number CMS–1833–P: VerDate Sep 2014 00:36 Aug 02, 2025 Jkt 265001 PO 00000 Frm 00715 Fmt 4701 Sfmt 4700 E:\FR\FM\04AUR2.SGM 04AUR2 2 S E L U R h t i w D O R P 4 4 1 S 7 W 9 K S D n o d n o m m a h k 37250 Federal Register / Vol. 90, No. 147 / Monday, August 4, 2025 / Rules and Regulations Table 8C.—FY 2026 Statewide Average Total Cost-to-Charge Ratios (CCRs) for LTCHs (Urban and Rural)—FY 2026 Final Rule Table 11.—MS–LTC–DRGs, Relative Weights, Geometric Average Length of Stay, and Short-Stay Outlier (SSO) Threshold for LT tal Cost-to-Charge Ratios (CCRs) for LTCHs (Urban and Rural)—FY 2026 Final Rule Table 11.—MS–LTC–DRGs, Relative Weights, Geometric Average Length of Stay, and Short-Stay Outlier (SSO) Threshold for LTCH PPS Discharges Occurring from October 1, 2025, through September 30, 2026—FY 2026 Final Rule Table 12A.—LTCH PPS Wage Index for Urban Areas for Discharges Occurring from October 1, 2025, through September 30, 2026—FY 2026 Final Rule Table 12B.—LTCH PPS Wage Index for Rural Areas for Discharges Occurring from October 1, 2025, through September 30, 2026—FY 2026 Final Rule TABLE 1A—NATIONAL ADJUSTED OPERATING STANDARDIZED AMOUNTS, LABOR/NONLABOR (66.0 PERCENT LABOR SHARE/34.0 PERCENT NONLABOR SHARE IF WAGE INDEX IS GREATER THAN 1)—FY 2026 FINAL RULE Hospital submitted quality data and is a meaningful EHR user (update = 2.6 percent) Hospital submitted quality data and is NOT a meaningful EHR user (update = 0.125 percent) Hospital did NOT submit quality data and is a meaningful EHR user (update = 1.775 percent) Hospital did NOT submit quality data and is NOT a meaningful EHR user (update = ¥0.7 percent) Labor Nonlabor Labor Nonlabor Labor Nonlabor Labor Nonlabor $4,456.72 $2,295.89 $4,34 ate = 1.775 percent) Hospital did NOT submit quality data and is NOT a meaningful EHR user (update = ¥0.7 percent) Labor Nonlabor Labor Nonlabor Labor Nonlabor Labor Nonlabor $4,456.72 $2,295.89 $4,349.21 $2,240.51 $4,420.88 $2,277.43 $4,313.38 $2,222.05 TABLE 1B—NATIONAL ADJUSTED OPERATING STANDARDIZED AMOUNTS, LABOR/NONLABOR (62 PERCENT LABOR SHARE/ 38 PERCENT NONLABOR SHARE IF WAGE INDEX IS LESS THAN OR EQUAL TO 1)—FY 2026 FINAL RULE Hospital submitted quality data and is a meaningful EHR user (update = 2.6 percent) Hospital submitted quality data and is NOT a meaningful EHR user (update = 0.125 percent) Hospital did NOT submit quality data and is a meaningful EHR user (update = 1.775 percent) Hospital did NOT submit quality data and is NOT a meaningful EHR user (update = ¥0.7 percent) Labor Nonlabor Labor Nonlabor Labor Nonlabor Labor Nonlabor $4,186.62 $2,565.99 $4,085.63 $2,504.09 $4,152.95 $2,545.36 $4,051.97 $2,483.46 TABLE 1C—ADJUSTED OPERATING STANDARDIZED AMOUNTS FOR HOSPITALS IN PUERTO RICO, LABOR/NONLABOR (NA- TIONAL: 62 PERCENT LABOR SHARE/38 PERCENT NONLABOR SHARE BECAUSE WAGE INDEX IS LESS THAN OR EQUAL TO 1)—FY 2026 FINAL RULE Rates if wage index greater than 1 Lab LS IN PUERTO RICO, LABOR/NONLABOR (NA- TIONAL: 62 PERCENT LABOR SHARE/38 PERCENT NONLABOR SHARE BECAUSE WAGE INDEX IS LESS THAN OR EQUAL TO 1)—FY 2026 FINAL RULE Rates if wage index greater than 1 Labor Nonlabor Hospital is a meaningful EHR user and wage index less than or equal to 1 (update = 2.6 percent) Hospital is NOT a meaningful EHR user and wage index less than or equal to 1 (update = 0.125 percent) Labor Nonlabor Labor Nonlabor National 1 ..................................................................... Not Applicable ...... Not Applicable ...... $4,186.62 $2,565.99 $4,085.63 $2,504.09 1 For FY 2026, there are no CBSAs in Puerto Rico with a national wage index greater than 1. TABLE 1D—CAPITAL STANDARD FEDERAL PAYMENT RATE—FY 2026 FINAL RULE National .......................................................................................................................................................................................... $524.15 Rate TABLE 1E—LTCH PPS STANDARD FEDERAL PAYMENT RATE—FY 2026 FINAL RULE Full update (2.7 percent) Reduced update * (0.7 percent) Standard Federal Rate .................................................................................. EDERAL PAYMENT RATE—FY 2026 FINAL RULE Full update (2.7 percent) Reduced update * (0.7 percent) Standard Federal Rate ................................................................................................................................ $50,824.51 $49,834.74 * For LTCHs that fail to submit quality reporting data for FY 2026 in accordance with the LTCH Quality Reporting Program (LTCH QRP), the annual update is reduced by 2.0 percentage points as required by section 1886(m)(5) of the Act. Appendix A: Economic Analyses I. Regulatory Impact Analysis A. Statement of Need This final rule is necessary to make payment and policy changes under the IPPS for Medicare acute care hospital inpatient services for operating and capital-related costs as well as for certain hospitals and hospital units excluded from the IPPS. This final rule also is necessary to make payment and policy changes for Medicare hospitals under the LTCH PPS. Also, as we note later in this Appendix, the primary objective of the IPPS and the LTCH PPS is to create incentives for hospitals to operate efficiently and minimize unnecessary costs, while at the same time ensuring that payments are sufficient to adequatel tive of the IPPS and the LTCH PPS is to create incentives for hospitals to operate efficiently and minimize unnecessary costs, while at the same time ensuring that payments are sufficient to adequately compensate hospitals for their legitimate costs in delivering necessary care to Medicare beneficiaries. In addition, we share national goals of preserving the Medicare Hospital Insurance Trust Fund. We believe that the changes in this final rule, such as the updates to the IPPS and LTCH PPS rates, and the decisions and discussions relating to applications for new technology add-on payments, are needed to further each of these goals while maintaining the financial viability of the hospital industry and ensuring access to high quality health care for Medicare beneficiaries. We expect that these changes will ensure that the outcomes of the prospective payment systems are reasonable and provide equitable payments, while avoiding or minimizing unintended adverse consequences. 1. Acute Care Hospital Inpatient Prospective Payment System (IPPS) a. Update to the IPPS Payment Rates As discussed in section IV. of the preamble of this final rule, we are finalizing our proposal to rebase and revi spital Inpatient Prospective Payment System (IPPS) a. Update to the IPPS Payment Rates As discussed in section IV. of the preamble of this final rule, we are finalizing our proposal to rebase and revise the 2018-based IPPS market basket to reflect a 2023 base year. In addition, using the cost category VerDate Sep 2014 00:36 Aug 02, 2025 Jkt 265001 PO 00000 Frm 00716 Fmt 4701 Sfmt 4700 E:\FR\FM\04AUR2.SGM 04AUR2 2 S E L U R h t i w D O R P 4 4 1 S 7 W 9 K S D n o d n o m m a h k Federal Register / Vol. 90, No. 147 / Monday, August 4, 2025 / Rules and Regulations 37251 weights from the 2023-based IPPS market basket, we calculated a labor-related share of 66.0 percent, which we will use for discharges occurring on or after October 1, 2025. The labor-related share of 66.0 percent is 1.6 percentage points lower than the current labor-related share of 67.6 percent. As discussed in section IV.B.3. of the preamble of this final rule, this downward revision to the labor-related share is primarily the result of incorporating the more recent 2023 Medicare cost report data for Wages and Salaries, Employee Benefits, and Contract Labor costs. This is partially offset by an increase in the Profes ly the result of incorporating the more recent 2023 Medicare cost report data for Wages and Salaries, Employee Benefits, and Contract Labor costs. This is partially offset by an increase in the Professional Fees: Labor-Related cost weight. In accordance with section 1886(b)(3)(B) of the Act and as described in section VI.B. of the preamble of this final rule, we are updating the national standardized amount for inpatient hospital operating costs by the applicable percentage increase of 2.6 percent (that is, a 3.3 percent market basket percentage increase with a reduction of 0.7 percentage point for the productivity adjustment). We are also updating the hospital-specific rates by the applicable percentage increase (including the market basket percentage increase and the productivity adjustment). Subsection (d) hospitals that do not submit quality information under rules established by the Secretary and that are meaningful EHR users under section 1886(b)(3)(B)(ix) of the Act will receive an applicable percentage increase of 1.775 percent which reflects a one-quarter percent reduction of the market basket update for failure to submit quality data. Hospitals that are not meaningful EHR an applicable percentage increase of 1.775 percent which reflects a one-quarter percent reduction of the market basket update for failure to submit quality data. Hospitals that are not meaningful EHR users and do submit quality information under section 1886(b)(3)(B)(viii) of the Act will receive an applicable percentage increase of 0.125 percent which reflects a three-quarter percent reduction of the market basket update for being identified as not a EHR meaningful user. Hospitals that are not meaningful EHR users under section 1886(b)(3)(B)(ix) of the Act and also do not submit quality data under section 1886(b)(3)(B)(viii) of the Act will receive an applicable percentage increase of -0.70 percent, which reflects a one-quarter percent reduction of the market basket update for failure to submit quality data and a three-quarter percent reduction of the market basket update for not meeting the requirements to be a meaningful EHR user. b. Changes for the Add-On Payments for New Services and Technologies Consistent with sections 1886(d)(5)(K) and (L) of the Act, we review applications for new technology add-on payments based on the eligibility criteria at 42 CFR 412.87. As set forth and Technologies Consistent with sections 1886(d)(5)(K) and (L) of the Act, we review applications for new technology add-on payments based on the eligibility criteria at 42 CFR 412.87. As set forth in 42 CFR 412.87(f)(1), we consider whether a technology meets the criteria for the new technology add-on payment and announce the results as part of the annual updates and changes to the IPPS. New technology add-on payments are not budget neutral. c. Transition for the Discontinuation of the Low Wage Index Hospital Policy To help mitigate wage index disparities between high wage and low wage hospitals, in the FY 2020 IPPS/LTCH PPS rule (84 FR 42326 through 42332), we adopted a policy to increase the wage index values for certain hospitals with low wage index values (the low wage index hospital policy). This policy was adopted in a budget neutral manner through an adjustment applied to the standardized amounts for all hospitals. We indicated our intention that this policy would be effective for at least 4 years, beginning in FY 2020, to allow employee compensation increases implemented by these hospitals sufficient time to be reflected in the wage index calculation. We also stated we i e for at least 4 years, beginning in FY 2020, to allow employee compensation increases implemented by these hospitals sufficient time to be reflected in the wage index calculation. We also stated we intended to revisit the issue of the duration of this policy in future rulemaking as we gained experience under the policy. In the FY 2025 IPPS/LTCH PPS final rule (89 FR 69301 through 69308), we adopted an extension of the low wage index hospital policy and the related budget neutrality adjustment effective for at least three more years, beginning in FY 2025, in order for sufficient wage data from after the end of the COVID–19 Public Health Emergency to become available. As discussed in section III.F.5. of the preamble of this final rule, on July 23, 2024, the Court of Appeals for the D.C. Circuit held that the Secretary lacked authority under section 1886(d)(3)(E) of the Act or under the ‘‘adjustments’’ language of section 1886(d)(5)(I)(i) of the Act to adopt the low wage index hospital policy for FY 2020, and that the policy and related budget neutrality adjustment must be vacated. After considering the D.C. Circuit’s decision in Bridgeport Hosp. v. Becerra, in the FY 2025 IFC (89 FR olicy for FY 2020, and that the policy and related budget neutrality adjustment must be vacated. After considering the D.C. Circuit’s decision in Bridgeport Hosp. v. Becerra, in the FY 2025 IFC (89 FR 80405 through 80421), we recalculated the FY 2025 IPPS hospital wage index to remove the low wage index hospital policy for FY 2025. We also removed the low wage index budget neutrality factor from the FY 2025 standardized amounts. In addition, we established an interim transition policy for hospitals significantly impacted by the removal of the FY 2025 low wage index hospital policy using our authority under section 1886(d)(5)(I) of the Act. For FY 2026 and subsequent fiscal years, after considering the D.C. Circuit’s decision in Bridgeport Hosp. v. Becerra, we are discontinuing the low wage index hospital policy and are no longer applying a low wage index budget neutrality factor to the standardized amounts. As discussed in section III.F.7. of the preamble of this final rule, we are using our authority under section 1886(d)(5)(I)(i) of the Act to adopt a narrow transitional exception to the calculation of FY 2026 IPPS payments for low wage index hospitals significantly impacted by t ng our authority under section 1886(d)(5)(I)(i) of the Act to adopt a narrow transitional exception to the calculation of FY 2026 IPPS payments for low wage index hospitals significantly impacted by the discontinuation of the low wage index hospital policy, that is being implemented in a budget neutral manner. This transitional exception policy applies to hospitals that benefitted from the FY 2024 low wage index hospital policy and compares the hospital’s FY 2026 wage index to the hospital’s FY 2024 wage index. If the hospital’s FY 2026 wage index is decreasing by more than 9.75 percent from the hospital’s FY 2024 wage index, then the transitional payment exception for FY 2026 for that hospital will be equal to the additional FY 2026 amount the hospital would be paid under the IPPS if its FY 2026 wage index were equal to 90.25 percent of its FY 2024 wage index. We are making this policy budget neutral through an adjustment applied to the standardized amounts for all hospitals. d. Additional Payment for Uncompensated Care to Medicare Disproportionate Share Hospitals (DSHs) and Supplemental Payment In this final rule, as required by section 1886(r)(2) of the Act, we are updating our ional Payment for Uncompensated Care to Medicare Disproportionate Share Hospitals (DSHs) and Supplemental Payment In this final rule, as required by section 1886(r)(2) of the Act, we are updating our estimates of the 3 factors used to determine uncompensated care payments for FY 2026. Beginning with FY 2023, we adopted a multiyear averaging methodology to determine Factor 3 of the uncompensated care payment methodology, which would help to mitigate against large fluctuations in uncompensated care payments from year to year. Under this methodology, for FY 2025 and subsequent fiscal years, we determine Factor 3 for all eligible hospitals using a 3- year average of the data on uncompensated care costs from Worksheet S–10 for the 3 most recent fiscal years for which audited data are available. We are using a 3-year average of audited data on uncompensated care costs from Worksheet S–10 from the FY 2020, FY 2021, and FY 2022 cost reports to calculate Factor 3 for FY 2026 for all eligible hospitals. Beginning with FY 2023 (87 FR 49047 through 49051), we also established a supplemental payment for IHS and Tribal hospitals and hospitals located in Puerto Rico. In section V.D. of the preamb spitals. Beginning with FY 2023 (87 FR 49047 through 49051), we also established a supplemental payment for IHS and Tribal hospitals and hospitals located in Puerto Rico. In section V.D. of the preamble of this final rule, we summarize the ongoing methodology for supplemental payments. e. Rural Community Hospital Demonstration Program The Rural Community Hospital Demonstration (RCHD) was authorized originally for a 5-year period by section 410A of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) (Pub. L. 108–173), and it was extended for another 5-year period by section 3123 and 10313 of the Affordable Care Act (Pub. L. 111–148). Section 15003 of the 21st Century Cures Act (Cures Act) (Pub. L. 114– 255) extended the demonstration for an additional 5-year period, and section 128 of the Consolidated Appropriations Act of 2021 (Pub. L. 116–159) included an additional 5- year re-authorization. CMS has conducted the demonstration since 2004, which allows enhanced, cost-based payment for Medicare inpatient services for up to 30 small rural hospitals. The authorizing legislation imposes a strict budget neutrality requirement. In this final rule, we summariz nced, cost-based payment for Medicare inpatient services for up to 30 small rural hospitals. The authorizing legislation imposes a strict budget neutrality requirement. In this final rule, we summarize the status of the demonstration program, and the ongoing methodologies for implementation and budget neutrality. 2. Frontier Community Health Integration Project (FCHIP) Demonstration The Frontier Community Health Integration Project (FCHIP) demonstration was authorized under section 123 of the Medicare Improvements for Patients and Providers Act of 2008 (Pub. L 110–275), as amended by section 3126 of the Affordable Care Act of 2010 (Pub. L 114–158), and most recently re-authorized and extended by the VerDate Sep 2014 00:36 Aug 02, 2025 Jkt 265001 PO 00000 Frm 00717 Fmt 4701 Sfmt 4700 E:\FR\FM\04AUR2.SGM 04AUR2 2 S E L U R h t i w D O R P 4 4 1 S 7 W 9 K S D n o d n o m m a h k 37252 Federal Register / Vol. 90, No. 147 / Monday, August 4, 2025 / Rules and Regulations Consolidated Appropriations Act of 2021 (Pub. L 116–260). The legislation authorized a demonstration project to allow eligible entities to develop and test new models for the delivery of health care in order to improve a iations Act of 2021 (Pub. L 116–260). The legislation authorized a demonstration project to allow eligible entities to develop and test new models for the delivery of health care in order to improve access to and better integrate the delivery of acute care, extended care and other health care services to Medicare beneficiaries in certain rural areas. The FCHIP demonstration initial period was conducted in 10 critical access hospitals (CAHs) from August 1, 2016, to July 31, 2019, and the demonstration ‘‘extension period’’ began on January 1, 2022, to run through June 30, 2027. The authorizing legislation requires the FCHIP demonstration to be budget neutral. In this final rule, we proposed to continue with the budget neutrality approach used in the demonstration initial period for the demonstration extension period—to offset payments across CAHs nationally—should the demonstration incur costs to Medicare. 3. Update to the LTCH PPS Payment Rates The update to the LTCH PPS standard Federal payment rate for FY 2026 is discussed in section IX.C. of the preamble of this final rule. For FY 2026, we are establishing an annual market basket update to the LTCH PPS standard Federal payment ra l payment rate for FY 2026 is discussed in section IX.C. of the preamble of this final rule. For FY 2026, we are establishing an annual market basket update to the LTCH PPS standard Federal payment rate of 2.7 percent (that is, the 3.4 percent market basket increase with a reduction of 0.7 percentage point for the productivity adjustment, as required by section 1886(m)(3)(A)(i) of the Act). LTCHs that failed to submit quality data, as required by 1886(m)(5)(A)(i) of the Act would receive an update of 0.7 percent for FY 2026, which reflects a 2.0 percentage point reduction for failure to submit quality data. 4. Hospital Quality Programs Section 1886(b)(3)(B)(viii) of the Act requires subsection (d) hospitals to report data in accordance with the requirements of the Hospital IQR Program for purposes of measuring and making publicly available information on health care quality and links the quality data submission to the annual applicable percentage increase. Sections 1886(b)(3)(B)(ix), 1886(n), and 1814(l) of the Act require eligible hospitals and CAHs to demonstrate they are meaningful users of certified EHR technology for purposes of electronic exchange of health information to imp 886(n), and 1814(l) of the Act require eligible hospitals and CAHs to demonstrate they are meaningful users of certified EHR technology for purposes of electronic exchange of health information to improve the quality of health care and link the submission of information demonstrating meaningful use to the annual applicable percentage increase for eligible hospitals and the applicable percent for CAHs. Section 1886(m)(5) of the Act requires each LTCH to submit quality measure data in accordance with the requirements of the LTCH QRP for purposes of measuring and making publicly available information on health care quality, and in order to avoid a 2-percentage point reduction. Section 1886(o) of the Act requires the Secretary to establish a value-based purchasing program under which value- based incentive payments are made in a fiscal year to hospitals that meet the performance standards established on an announced set of quality and efficiency measures for the fiscal year. The purposes of the Hospital VBP Program include measuring the quality of hospital inpatient care, linking hospital measure performance to payment, and making publicly available information on hospital quality of c f the Hospital VBP Program include measuring the quality of hospital inpatient care, linking hospital measure performance to payment, and making publicly available information on hospital quality of care. Section 1886(p) of the Act requires a reduction in payment for subsection (d) hospitals that rank in the worst-performing 25 percent with respect to measures of hospital-acquired conditions under the HAC Reduction Program for the purpose of measuring HACs, linking measure performance to payment, and making publicly available information on health care quality. Section 1886(q) of the Act requires a reduction in payment for subsection (d) hospitals for excess readmissions based on measures for applicable conditions under the Hospital Readmissions Reduction Program for the purpose of measuring readmissions, linking measure performance to payment, and making publicly available information on health care quality. Section 1866(k) of the Act applies to hospitals described in section 1886(d)(1)(B)(v) of the Act (referred to as ‘‘PPS-exempt cancer hospitals’’ or ‘‘PCHs’’) and requires PCHs to report data in accordance with the requirements of the PCHQR Program for purposes of measuring and 1)(B)(v) of the Act (referred to as ‘‘PPS-exempt cancer hospitals’’ or ‘‘PCHs’’) and requires PCHs to report data in accordance with the requirements of the PCHQR Program for purposes of measuring and making publicly available information on the quality of care furnished by PCHs. However, there is no reduction in payment to a PCH that does not report data. 5. Other Provisions—Transforming Episode Accountability Model (TEAM) In section XI.A. of the preamble of this final rule, we discuss the alternative payment model called the Transforming Episode Accountability Model (TEAM), which will be tested under the authority at section 1115A of the Act. 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 CHIP beneficiaries while reducing program expenditures. The underlying issue addressed by TEAM is that under the traditional fee-for-service (FFS) payment system, Medicare makes separate payments to providers and suppliers for items and services furnished to a beneficiary over the course of an episode of care. Because providers and suppliers are paid for each indiv care makes separate payments to providers and suppliers for items and services furnished to a beneficiary over the course of an episode of care. Because providers and suppliers are paid for each individual item or service delivered, this may lead to care that is fragmented, unnecessary or duplicative, while making it challenging to invest in quality improvement or care coordination that would maximize patient benefit. We anticipate TEAM may reduce costs while maintaining or improving quality of care by bundling payment for items and services for a given episode and holding TEAM participants accountable for spending and quality performance, as well as by providing incentives to promote high quality and efficient care. Further, testing TEAM would allow us to learn more about the patterns of potentially inefficient utilization of health care services, as well as how to improve the beneficiary care experience during care transitions and incentivize quality improvements for common surgical episodes. This information could inform future Medicare payment policy and potentially establish the framework for managing clinical episodes as a standard practice in Traditional Medicare. indicated episodes. This information could inform future Medicare payment policy and potentially establish the framework for managing clinical episodes as a standard practice in Traditional Medicare. indicated that we intended to go through future rulemaking to promulgate new policies before the model start date. The proposals finalized within this final rule address policy gaps, make technical or conforming updates, and establish new policies to ensure TEAM has sound and well developed technical, administrative, and operational policies before the model starts. 6. Finalization of the IFC on the Changes to the FY 2025 Hospital IPPS Rates Due to Court Decision (CMS–1808–IFC) In section XI.C. of the preamble of this final rule, we finalize the provisions of the FY 2025 IFC published in the October 4, 2025 Federal Register (89 FR 80405), which implemented revised Medicare wage index values for FY 2025, established a transitional payment exception for low wage hospitals significantly impacted by those revisions, and made conforming changes to the hospital IPPS payment rates for FY 2025. These changes reflect the removal of the low wage index hospital policy following the appellate court decision se revisions, and made conforming changes to the hospital IPPS payment rates for FY 2025. These changes reflect the removal of the low wage index hospital policy following the appellate court decision in Bridgeport Hosp. v. Becerra. That IFC also made conforming changes to IPPS rates and factors used to determine certain payments under the LTCH PPS for FY 2025. 7. ONC Health IT Certification Program Updates In section IX.B. of the preamble of this final rule, ASTP/ONC finalizes provisions of the HTI–2 proposed rule published on August 5, 2024 (89 FR 63498), which update the ONC Health IT Certification Program in accordance with our statutory responsibilities under the Health Information Technology for Economic and Clinical Health (HITECH) Act and 21st Century Cures Act. These updates advance HHS policy goals to strengthen interoperability, reduce burden for health IT developers and users, improve health data exchange, and support transparency to empower patients to make well-informed healthcare decisions. These final policy provisions result in monetary costs for developers of certified health IT and health IT providers purchasing or upgrading certified health IT. These costs are o ealthcare decisions. These final policy provisions result in monetary costs for developers of certified health IT and health IT providers purchasing or upgrading certified health IT. These costs are offset by downstream efficiencies such as cost savings resulting from improvements to automation, reduction of manual effort required to conduct prior authorizations, improved operational workflow, and support for more timely and transparent clinical decision- making. These finalized provisions are needed to promote a more patient-centered healthcare system. B. Overall Impact We have examined the impacts of this final rule as required by Executive Order 12866, ‘‘Regulatory Planning and Review’’; Executive Order 13132, ‘‘Federalism‘‘; Executive Order 13563, ‘‘Improving Regulation and Regulatory Review’’; Executive Order 14192, ’’ Unleashing Prosperity Through Deregulation’’; the Regulatory Flexibility Act (RFA) (Pub. L. 96– 354); section 1102(b) of the Social Security Act; section 202 of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104–4). TEAM was finalized in the FY 2025 IPPS/ Executive Orders 12866 and 13563 direct LTCH PPS final rule (89 FR 68986) and we agencies to assess all c Unfunded Mandates Reform Act of 1995 (Pub. L. 104–4). TEAM was finalized in the FY 2025 IPPS/ Executive Orders 12866 and 13563 direct LTCH PPS final rule (89 FR 68986) and we agencies to assess all costs and benefits of VerDate Sep 2014 00:36 Aug 02, 2025 Jkt 265001 PO 00000 Frm 00718 Fmt 4701 Sfmt 4700 E:\FR\FM\04AUR2.SGM 04AUR2 2 S E L U R h t i w D O R P 4 4 1 S 7 W 9 K S D n o d n o m m a h k Federal Register / Vol. 90, No. 147 / Monday, August 4, 2025 / Rules and Regulations 37253 available regulatory alternatives and, if regulation is necessary, to select those regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety, and other advantages; distributive impacts; and equity). Section 3(f) of Executive Order 12866 defines a ‘‘significant regulatory action’’ as any regulatory action that is likely to result in a rule that may: (1) have an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities; (2) create a serious inc ial way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities; (2) create a serious inconsistency or otherwise interfere with an action taken or planned by another agency; (3) materially alter the budgetary impact of entitlements, grants, user fees, or loan programs or the rights and obligations of recipients thereof; or (4) raise novel legal or policy issues arising out of legal mandates, or the President’s priorities. A regulatory impact analysis (RIA) must be prepared for a regulatory action that is significant under section 3(f)(1) of E.O. 12866. Based on our estimates, OMB’s Office of Information and Regulatory Affairs has determined this rulemaking is significant per section 3(f)(1). We have prepared a regulatory impact analysis that to the best of our ability presents the costs and benefits of the rulemaking. OMB has reviewed these regulations, and the Departments have provided the following assessment of their impact. We estimate that the changes for FY 2026 acute care hospital operating and capital payments will redistribute amounts in excess of $100 million to e provided the following assessment of their impact. We estimate that the changes for FY 2026 acute care hospital operating and capital payments will redistribute amounts in excess of $100 million to acute care hospitals. The applicable percentage increase to the IPPS rates required by the statute, in conjunction with other payment changes in this final rule, will result in an estimated $5.0 billion increase in FY 2026 payments, primarily driven by the net effect of changes in FY 2026 operating payments, including uncompensated care payments, FY 2026 capital payments, the expiration of the temporary changes in the low-volume hospital program, the expiration of the MDH program, and new technology add-on payment changes. These changes are relative to payments made in FY 2025. The impact analysis of the capital payments can be found in section I.I. of this Appendix. In addition, as described in section I.J. of this Appendix, LTCHs are expected to experience an increase in payments of approximately $83 million in FY 2026 relative to FY 2025. Our operating payment impact estimate includes the 2.6 percent applicable percentage increase to the standardized amount (reflecting the 3.3 perce oximately $83 million in FY 2026 relative to FY 2025. Our operating payment impact estimate includes the 2.6 percent applicable percentage increase to the standardized amount (reflecting the 3.3 percent market basket rate-of-increase reduced by the 0.7 percentage point productivity adjustment). The estimates of IPPS operating payments to acute care hospitals generally do not reflect any changes in hospital admissions or real case-mix intensity, which would also affect overall payment changes. The analysis in this Appendix, in conjunction with the remainder of this document, demonstrates that this final rule is consistent with the regulatory philosophy and principles identified in Executive Orders 12866 and 13563, the RFA, and section 1102(b) of the Act. This final rule will affect payments to a substantial number of small rural hospitals, as well as other classes of hospitals, and the effects on some hospitals may be significant. Finally, in accordance with the provisions of Executive Order 12866, the Office of Management and Budget has reviewed this final rule. C. Objectives of the IPPS and the LTCH PPS The primary objective of the IPPS and the LTCH PPS is to create incentives for Order 12866, the Office of Management and Budget has reviewed this final rule. C. Objectives of the IPPS and the LTCH PPS The primary objective of the IPPS and the LTCH PPS is to create incentives for hospitals to operate efficiently and minimize unnecessary costs, while at the same time ensuring that payments are sufficient to adequately compensate hospitals for their costs in delivering necessary care to Medicare beneficiaries. In addition, we share national goals of preserving the Medicare Hospital Insurance Trust Fund. We believe that the changes in this final rule will further each of these goals while maintaining the financial viability of the hospital industry and ensuring access to high quality health care for Medicare beneficiaries. We expect that these changes will ensure that the outcomes of the prospective payment systems are reasonable and equitable, while avoiding or minimizing unintended adverse consequences. Because this final rule contains a range of policies, we refer readers to the section of the final rule where each policy is discussed. These sections include the rationale for our decisions, including the need for the final policy. D. Limitations of Our Analysi readers to the section of the final rule where each policy is discussed. These sections include the rationale for our decisions, including the need for the final policy. D. Limitations of Our Analysis The following quantitative analysis presents the projected effects of our policy changes, as well as statutory changes effective for FY 2026, on various hospital groups. We estimate the effects of individual policy changes by estimating payments per case, while holding all other payment policies constant. We use the best data available, but, generally, unless specifically indicated, we do not attempt to make adjustments for future changes in such variables as admissions, lengths of stay, case mix, changes to the Medicare population, or incentives. In addition, we discuss limitations of our analysis for specific policies in the discussion of those policies as needed. E. Hospitals Included in and Excluded From the IPPS The prospective payment systems for hospital inpatient operating and capital related- costs of acute care hospitals encompass most general short-term, acute care hospitals that participate in the Medicare program. There were 26 Indian Health Service hospitals in our data pital related- costs of acute care hospitals encompass most general short-term, acute care hospitals that participate in the Medicare program. There were 26 Indian Health Service hospitals in our database, which we excluded from the analysis due to the special characteristics of the prospective payment methodology for these hospitals. Among other short term, acute care hospitals, hospitals in Maryland are paid in accordance with the Maryland Total Cost of Care Model, and hospitals located outside the 50 States, the District of Columbia, and Puerto Rico (that is, 6 short-term acute care hospitals located in the U.S. Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa) receive payment for inpatient hospital services they furnish on the basis of reasonable costs, subject to a rate-of-increase ceiling. As of March 2025, there were 3,033 IPPS acute care hospitals included in our analysis. This represents approximately 52 percent of all Medicare-participating hospitals. The majority of this impact analysis focuses on this set of hospitals. There also are approximately 1,381 CAHs. These small, limited-service hospitals are paid on the basis of reasonable costs, rather t e majority of this impact analysis focuses on this set of hospitals. There also are approximately 1,381 CAHs. These small, limited-service hospitals are paid on the basis of reasonable costs, rather than under the IPPS. IPPS-excluded hospitals and units, which are paid under separate payment systems, include IPFs, IRFs, LTCHs, RNHCIs, children’s hospitals, cancer hospitals, extended neoplastic disease care hospital, and short-term acute care hospitals located in the Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa. Changes in the prospective payment systems for IPFs and IRFs are made through separate rulemaking. Payment impacts of changes to the prospective payment systems for these IPPS-excluded hospitals and units are not included in this final rule. The impact of the update and policy changes to the LTCH PPS for FY 2026 is discussed in section I.J. of this Appendix. F. Quantitative Effects of the Policy Changes Under the IPPS for Operating Costs and Medicare Uncompensated Care Payments 1. Basis and Methodology of Estimates In this final rule, we are announcing policy changes and payment rate updates for the IPPS for FY 2026 for operating costs of acute care compensated Care Payments 1. Basis and Methodology of Estimates In this final rule, we are announcing policy changes and payment rate updates for the IPPS for FY 2026 for operating costs of acute care hospitals and for uncompensated care payments. The FY 2026 updates to the capital payments to acute care hospitals are discussed in section I.I. of this Appendix. A more detailed analysis of the update to uncompensated care payments is discussed in section I.G.2 of this Appendix. Based on the overall percentage change in payments per case estimated using our payment simulation model, we estimate that total FY 2026 operating payments and uncompensated care payments, will increase by 4.3 percent, compared to FY 2025. The operating payment impacts generally do not reflect changes in the number of hospital admissions or real case-mix intensity, which would also affect overall payment changes. We have prepared separate impact analyses of the changes on the operating and capital prospective payment systems. This section primarily deals with the changes to the operating inpatient prospective payment system for acute care hospitals. Our payment simulation model relies on the best available cl ment systems. This section primarily deals with the changes to the operating inpatient prospective payment system for acute care hospitals. Our payment simulation model relies on the best available claims data to enable us to estimate the impacts on payments per case of certain changes in this final rule. However, there are other changes for which we do not have data available that would allow us to estimate the payment impacts using this model. For those changes, we have attempted to predict the payment impacts based upon our experience and other more limited data. The data used in developing the quantitative analyses of changes in operating payments per case presented in this section VerDate Sep 2014 00:36 Aug 02, 2025 Jkt 265001 PO 00000 Frm 00719 Fmt 4701 Sfmt 4700 E:\FR\FM\04AUR2.SGM 04AUR2 2 S E L U R h t i w D O R P 4 4 1 S 7 W 9 K S D n o d n o m m a h k 37254 Federal Register / Vol. 90, No. 147 / Monday, August 4, 2025 / Rules and Regulations are taken from the FY 2024 MedPAR file and the most current Provider-Specific File (PSF) that is used for payment purposes. Although the analyses of the changes to the operating PPS do not incorporate cost data, data from the best ava file and the most current Provider-Specific File (PSF) that is used for payment purposes. Although the analyses of the changes to the operating PPS do not incorporate cost data, data from the best available hospital cost reports were used to categorize hospitals. Our analysis has several qualifications. First, in this analysis, we do not generally adjust for future changes in such variables as admissions, lengths of stay, or underlying growth in real case-mix. Second, due to the interdependent nature of the IPPS payment components, it is very difficult to precisely quantify the impact associated with each change. Third, we use various data sources to categorize hospitals in the tables. In some cases, particularly the number of beds, there is a fair degree of variation in the data from the different sources. We have attempted to construct these variables with the best available source overall. However, for individual hospitals, some miscategorizations are possible. Using cases from the FY 2024 MedPAR file, we simulate payments under the operating IPPS given various combinations of payment parameters. As described previously, Indian Health Service hospitals and hospitals in Maryland FY 2024 MedPAR file, we simulate payments under the operating IPPS given various combinations of payment parameters. As described previously, Indian Health Service hospitals and hospitals in Maryland were excluded from the simulations. The impact of payments under the capital IPPS, and the impact of payments other than inpatient operating payments and uncompensated care payments are not analyzed in this section. Estimated payment impacts of the capital IPPS for FY 2026 are discussed in section I.I. of this Appendix. We discuss the following changes: • The estimated effects of outlier payments returning to their targeted levels in FY 2026 as compared to the estimated outlier payments for FY 2025 produced from our payment simulation model. • The effects of the application of the applicable percentage increase of 2.6 percent (that is, a 3.3 percent market basket rate-of- increase with a reduction of 0.7 percentage point for the productivity adjustment), and the applicable percentage increase (including the market basket rate-of-increase and the productivity adjustment) to the hospital- specific rates. • The effects of the changes to estimated uncompensated care payments in FY 2026 as ase (including the market basket rate-of-increase and the productivity adjustment) to the hospital- specific rates. • The effects of the changes to estimated uncompensated care payments in FY 2026 as compared to FY 2025. • The effects of the expiration of the special payment status for MDHs beginning October 1, 2025 under current law. • The effects of the changes to the relative weights and MS–DRG GROUPER. • The effects of the changes in hospitals’ wage index values due to the effects of the incorporation of updated wage data from hospitals’ cost reporting periods, the update to the labor and non-labor share percentages, and the changes in wage index reclassifications. • The total estimated change in payments based on the FY 2026 policies relative to payments based on FY 2025 policies. To illustrate the impact of the FY 2026 changes, our analysis begins with a FY 2025 baseline simulation model using: the FY 2025 national adjusted operating standardized amount; the FY 2025 MS–DRG GROUPER (Version 42); the FY 2025 CBSA designations for hospitals based on the OMB definitions from the 2020 Census; the FY 2025 wage index, including the FY 2025 labor and nonlabor share percentages; FY 20 R (Version 42); the FY 2025 CBSA designations for hospitals based on the OMB definitions from the 2020 Census; the FY 2025 wage index, including the FY 2025 labor and nonlabor share percentages; FY 2025 uncompensated care payments; and FY 2025 outlier payments which reflects our estimate of 4.6 percent of total operating MS– DRG and outlier payments as produced by our payment simulation model based on FY 2024 MedPAR data. Our comparison illustrates the percent change in payments per case from FY 2025 to FY 2026. The update to the standardized amount is a significant factor in the percent change in payments per case. In accordance with section 1886(b)(3)(B)(i) of the Act, each year we update the national standardized amount for inpatient hospital operating costs by a factor called the ‘‘applicable percentage increase.’’ For FY 2026, depending on whether a hospital submits quality data under the rules established in accordance with section 1886(b)(3)(B)(viii) of the Act (hereafter referred to as a hospital that submits quality data) and is a meaningful EHR user under section 1886(b)(3)(B)(ix) of the Act (hereafter referred to as a hospital that is a meaningful EHR user), there are fo ed to as a hospital that submits quality data) and is a meaningful EHR user under section 1886(b)(3)(B)(ix) of the Act (hereafter referred to as a hospital that is a meaningful EHR user), there are four possible applicable percentage increases that can be applied to the national standardized amount. We refer readers to section VI.B. of the preamble of this final rule for a complete discussion of the FY 2026 inpatient hospital update, including the four possible applicable percentage increases. For purposes of the simulations shown later in this section, we modeled the payment changes for FY 2026 using a reduced update for hospitals that (1) failed to submit quality data but are meaningful EHR users; (2) are identified as not meaningful EHR users that do submit quality data; and (3) are identified as not meaningful EHR users that do not submit quality data. The reduced updates used for these hospitals are discussed previously and in section VI.B. of the preamble of this final rule and these hospitals are identified in the impact file posted in conjunction with this final rule. We note, section 1886(b)(3)(B)(iv) of the Act provides that the applicable percentage increase applicable t hese hospitals are identified in the impact file posted in conjunction with this final rule. We note, section 1886(b)(3)(B)(iv) of the Act provides that the applicable percentage increase applicable 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). Because the Act sets the update factor for SCHs and MDHs equal to the update factor for all other IPPS hospitals, the update to the hospital-specific rates for SCHs and MDHs is subject to the amendments to section 1886(b)(3)(B) of the Act for hospitals that fail to submit quality data or are not a meaningful EHR users. Accordingly, the applicable percentage increases to the hospital-specific rates applicable to SCHs (and MDHs, if the program is extended by subsequent legislation) for FY 2026 are the same as the four applicable percentage increases discussed in section VI.B. of the preamble of this final rule. 2. Impact Analysis of Final Changes on Payments for IPPS Operating Costs and Uncompensated Care Payments Table I displays the results of our analysis of the chang . of the preamble of this final rule. 2. Impact Analysis of Final Changes on Payments for IPPS Operating Costs and Uncompensated Care Payments Table I displays the results of our analysis of the changes for FY 2026 on payments for IPPS operating costs and uncompensated care payments. The table categorizes hospitals by various geographic and special payment consideration groups to illustrate the varying impacts on different types of hospitals. The top row of the table shows the overall impact on the acute care hospitals included in the analysis. The next two rows of Table I contain hospitals categorized according to their geographic location: urban and rural. The next two groupings are by bed-size categories, shown separately for urban and rural hospitals. The last groupings by geographic location are by census divisions, also shown separately for urban and rural hospitals. The second part of Table I shows hospital groups based on hospitals’ FY 2026 payment classifications, including any reclassifications under sections 1886(d)(8) and 1886(d)(10) of the Act. For example, the rows labeled urban and rural show that the numbers of hospitals paid based on these categorizations after con y reclassifications under sections 1886(d)(8) and 1886(d)(10) of the Act. For example, the rows labeled urban and rural show that the numbers of hospitals paid based on these categorizations after consideration of geographic reclassifications (including reclassifications under section 1886(d)(8)(B) of the Act, also known as Lugar hospitals, and section 1886(d)(8)(E) of the Act as implemented at 42 CFR 412.103). The next three groupings examine the impacts of the changes on hospitals grouped by whether or not they have GME residency programs (teaching hospitals that receive an IME adjustment) or receive Medicare DSH payments, or some combination of these two adjustments. In the DSH categories, hospitals are grouped according to their DSH payment status, and whether they are considered urban or rural for DSH payment purposes. The next category groups together hospitals considered urban or rural, in terms of whether they receive the IME adjustment, the DSH adjustment, both, or neither. The next six rows examine the impacts of the changes on rural hospitals by special payment groups (SCHs and RRCs) and reclassification status from urban to rural in accordance with section 1886(d)(8)(E) e next six rows examine the impacts of the changes on rural hospitals by special payment groups (SCHs and RRCs) and reclassification status from urban to rural in accordance with section 1886(d)(8)(E) of the Act. The next series of groupings are based on the type of ownership and the hospital’s Medicare and Medicaid utilization expressed as a percent of total inpatient days. These data were taken from the most recent available Medicare cost reports. The next grouping concerns the geographic reclassification status of hospitals. The first subgrouping is based on whether a hospital is reclassified or not. The second and third subgroupings are based on whether urban and rural hospitals were reclassified by the MGCRB for FY 2026 or not, respectively. The fourth subgrouping displays hospitals that reclassified from urban to rural in accordance with section 1886(d)(8)(E) of the Act as implemented at 42 CFR 412.103. The fifth subgrouping displays hospitals deemed urban in accordance with section 1886(d)(8)(B) of the Act, also known as Lugar hospitals. VerDate Sep 2014 00:36 Aug 02, 2025 Jkt 265001 PO 00000 Frm 00720 Fmt 4701 Sfmt 4700 E:\FR\FM\04AUR2.SGM 04AUR2 2 S E L U R h t i w D O R P ion 1886(d)(8)(B) of the Act, also known as Lugar hospitals. VerDate Sep 2014 00:36 Aug 02, 2025 Jkt 265001 PO 00000 Frm 00720 Fmt 4701 Sfmt 4700 E:\FR\FM\04AUR2.SGM 04AUR2 2 S E L U R h t i w D O R P 4 4 1 S 7 W 9 K S D n o d n o m m a h k Federal Register / Vol. 90, No. 147 / Monday, August 4, 2025 / Rules and Regulations 37255 TABLE I—IMPACT ANALYSIS OF CHANGES ON PAYMENTS FOR IPPS OPERATING COSTS AND UNCOMPENSATED CARE PAYMENTS FOR FY 2026 Number of hospitals 1 FY 2026 outlier payments (1) 2 FY 2026 hospital rate update (2) 3 MDH expiration (3) 4 FY 2026 uncompensated care payments (4) 5 FY 2026 weights and DRG changes with application of recalibration budget neutrality (5) 6 FY 2026 wage index (6) 7 8 9 All FY 2026 changes (7) 10 All Hospitals .................................. By Geographic Location: Urban hospitals .......................... Rural hospitals ........................... Bed Size (Urban): 0–99 beds .................................. 100–199 beds ............................ 200–299 beds ............................ 300–499 beds ............................ 500 or more beds ...................... Bed Size (Rural): 0–49 beds .................................. 50– ......... 200–299 beds ............................ 300–499 beds ............................ 500 or more beds ...................... Bed Size (Rural): 0–49 beds .................................. 50–99 beds ................................ 100–149 beds ............................ 150–199 beds ............................ 200 or more beds ...................... Urban by Region: New England ............................. Middle Atlantic ........................... East North Central ..................... West North Central .................... South Atlantic ............................ East South Central .................... West South Central ................... Mountain .................................... Pacific ........................................ Rural by Region: New England ............................. Middle Atlantic ........................... East North Central ..................... West North Central .................... South Atlantic ............................ East South Central .................... West South Central ................... Mountain .................................... Pacific ........................................ Puerto Rico: Puerto Rico Hospit South Central .................... West South Central ................... Mountain .................................... Pacific ........................................ Puerto Rico: Puerto Rico Hospitals ................ By Payment Classification: Urban hospitals .......................... Rural areas ................................ Teaching Status: Nonteaching ............................... Fewer than 100 residents .......... 100 or more residents ............... Urban DSH: Non-DSH ................................... 100 or more beds ...................... Less than 100 beds ................... Rural DSH: Non-DSH ................................... SCH ........................................... RRC ........................................... 100 or more beds ...................... Less than 100 beds ................... Urban teaching and DSH: Both teaching and DSH ............. Teaching and no DSH ............... No teaching and DSH ............... No teaching and no DSH .......... Special Hospital Types: RRC ........................................... RRC that reclassified from urban to rural in accordance with section 1886(d)(8)(E) as implemented at 42 CFR 412.103 ........... Special Hospital Types: RRC ........................................... RRC that reclassified from urban to rural in accordance with section 1886(d)(8)(E) as implemented at 42 CFR 412.103 .................................. SCH ........................................... SCH that reclassified from urban to rural in accordance with section 1886(d)(8)(E) as implemented at 42 CFR 412.103 .................................. SCH and RRC ........................... 3,033 2,372 661 647 673 406 392 252 313 180 95 42 31 104 274 366 156 393 141 355 180 351 19 48 106 74 108 127 116 39 24 52 1,611 1,422 1,756 986 291 346 909 356 93 227 863 41 198 527 58 738 288 131 657 218 37 119 0.3 0.4 0.1 0.2 0.2 0.3 0.3 0.5 0.1 0.1 0.1 0.1 0.2 0.3 0.4 0.3 0.4 0.3 0.4 0.3 0.3 0.5 0.3 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.3 0.4 0.3 0.3 0.5 0.3 0.4 0.2 0.3 0.0 0.4 0.3 0.1 0.4 0.3 0.3 0.3 0.2 0.4 0.0 0.0 0.1 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.4 2.4 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.4 2.4 2.3 2.5 2.5 2.6 2.5 2.5 2.6 2.4 2.5 2.4 2.6 2.6 1.8 2.5 2.5 2.5 2.5 2.4 2.6 2.5 2.4 2.6 2.5 2.5 2.3 2.4 2.4 2.6 2.5 2.7 2.5 2.5 2.5 2.6 2.6 ¥0.1 ¥0.1 ¥0.6 ¥1.5 ¥0.3 0.0 0.0 0.0 ¥1.3 ¥1.6 ¥0.1 0.0 0.0 ¥0.2 ¥0.1 ¥0.3 0.0 ¥0.1 0.0 ¥0.1 2.5 2.4 2.6 2.6 1.8 2.5 2.5 2.5 2.5 2.4 2.6 2.5 2.4 2.6 2.5 2.5 2.3 2.4 2.4 2.6 2.5 2.7 2.5 2.5 2.5 2.6 2.6 ¥0.1 ¥0.1 ¥0.6 ¥1.5 ¥0.3 0.0 0.0 0.0 ¥1.3 ¥1.6 ¥0.1 0.0 0.0 ¥0.2 ¥0.1 ¥0.3 0.0 ¥0.1 0.0 ¥0.1 0.0 0.0 ¥1.6 ¥0.2 ¥1.5 ¥0.4 ¥0.8 ¥0.4 ¥0.2 0.0 0.0 0.0 0.0 ¥0.2 ¥0.4 ¥0.1 0.0 ¥0.1 0.0 ¥0.4 ¥1.8 0.0 ¥0.1 ¥0.5 ¥4.0 0.0 ¥0.3 0.0 0.0 ¥0.6 ¥0.1 0.0 0.0 0.0 1.7 1.7 1.4 1.7 1.5 1.8 1.6 1.9 2.1 1.4 1.4 1.2 0.9 0.8 1.3 1.1 1.1 2.4 2.4 4.4 1.5 0.9 0.3 0.7 1.1 0.6 2.5 1.9 2.8 0.3 0.2 11.2 2.0 1.6 1.6 1.5 2.0 0.1 2.2 2.9 0.0 0.8 1.5 5.1 3.1 2.3 0.1 2.1 0.0 1.7 1.6 1.1 0.1 0.7 0.0 0.0 ¥0.4 0.1 ¥0.2 ¥0.1 0.0 0.2 ¥0.5 ¥0.5 ¥0.6 ¥0.3 ¥0.1 ¥0.1 ¥0.1 0.0 0.1 0.0 0.0 0.1 0.1 0.0 ¥0.2 ¥0.4 ¥0.4 ¥0.4 ¥0.5 ¥0.5 ¥0.4 ¥0.1 ¥0.6 0.0 ¥0.1 0.0 ¥0.1 0.0 0.1 0.2 ¥0.1 ¥0.3 0.1 ¥0.5 0.1 0.1 ¥0.5 ¥0.1 0.0 ¥0.2 0.4 ¥0.2 0.1 ¥0.5 ¥0.4 ¥0.4 ¥0.1 ¥0.1 0.0 ¥0.1 ¥0.3 ¥0.2 ¥0.3 0.0 0.3 ¥0.1 0.1 0.1 ¥0.3 ¥1.7 0.7 ¥0.3 1.4 0.4 ¥0.1 0.5 ¥0.6 ¥1.7 ¥0.5 0.1 ¥0.3 1.3 ¥0.3 ¥0.3 0.4 0.3 ¥0.7 ¥1.7 ¥0.4 0.1 ¥0.3 ¥0.1 ¥0.1 0.3 ¥0.5 ¥0.1 ¥0.3 0.2 0.0 1.0 0.1 ¥0.5 0.3 ¥0.6 0.3 ¥0.5 0.0 0.2 0.1 0.0 4.3 4.4 2.9 2.9 3.5 4.2 4.2 5.0 3.0 1.7 3.4 3.7 3.2 1.6 4.8 3.2 5.5 5.5 5.2 7.7 3.8 2.3 0.8 2.9 1.5 3.7 3.5 3.1 5.2 3.1 1.6 11.4 4.3 4. ¥0.1 ¥0.3 0.2 0.0 1.0 0.1 ¥0.5 0.3 ¥0.6 0.3 ¥0.5 0.0 0.2 0.1 0.0 4.3 4.4 2.9 2.9 3.5 4.2 4.2 5.0 3.0 1.7 3.4 3.7 3.2 1.6 4.8 3.2 5.5 5.5 5.2 7.7 3.8 2.3 0.8 2.9 1.5 3.7 3.5 3.1 5.2 3.1 1.6 11.4 4.3 4.3 3.6 4.1 4.9 3.4 4.4 4.7 0.9 3.1 4.4 8.4 0.9 4.6 3.0 4.1 3.6 3.1 4.5 3.4 2.4 3.0 VerDate Sep 2014 00:36 Aug 02, 2025 Jkt 265001 PO 00000 Frm 00721 Fmt 4701 Sfmt 4700 E:\FR\FM\04AUR2.SGM 04AUR2 2 S E L U R h t i w D O R P 4 4 1 S 7 W 9 K S D n o d n o m m a h k 37256 Federal Register / Vol. 90, No. 147 / Monday, August 4, 2025 / Rules and Regulations TABLE I—IMPACT ANALYSIS OF CHANGES ON PAYMENTS FOR IPPS OPERATING COSTS AND UNCOMPENSATED CARE PAYMENTS FOR FY 2026—Continued Number of hospitals 1 FY 2026 outlier payments (1) 2 FY 2026 hospital rate update (2) 3 MDH expiration (3) 4 FY 2026 uncompensated care payments (4) 5 FY 2026 weights and DRG changes with application of recalibration budget neutrality (5) 6 FY 2026 wage index (6) 7 8 9 All FY 2026 changes (7) 10 SCH and RRC that reclassified from urban to rural in accord- ance with section 1886(d)(8)(E) as implemented at 42 CFR 412.103 ................ Type of Ownership: Voluntary .................................... Proprietary ... ified from urban to rural in accord- ance with section 1886(d)(8)(E) as implemented at 42 CFR 412.103 ................ Type of Ownership: Voluntary .................................... Proprietary ................................. Government ............................... Medicare Utilization as a Percent of Inpatient Days: 0–25 ........................................... 25–50 ......................................... 50–65 ......................................... Over 65 ...................................... Medicaid Utilization as a Percent of Inpatient Days: 0–25 ........................................... 25–50 ......................................... 50–65 ......................................... Over 65 ...................................... FY 2026 Reclassifications: All Reclassified Hospitals .......... Non-Reclassified Hospitals ........ Urban Hospitals Reclassified .... Urban Non-reclassified Hos- pitals ....................................... Rural Hospitals Reclassified Full Year ........................................ Rural Non-reclassified Hospitals Full Year ................................. All hospitals that reclassified from urban to rural in accord- ance w ed Full Year ........................................ Rural Non-reclassified Hospitals Full Year ................................. All hospitals that reclassified from urban to rural in accord- ance with section 1886(d)(8)(E) as implemented at 42 CFR 412.103 ................ Other Reclassified Hospitals (Section 1886(d)(8)(B), also known as Lugar hospitals) ..... 49 1,902 724 406 1,548 1,388 65 13 1,917 992 91 32 1,093 1,940 979 1,407 268 379 811 50 0.0 0.4 0.2 0.5 0.4 0.3 0.2 0.6 0.3 0.4 0.4 0.3 0.3 0.4 0.4 0.3 0.1 0.2 0.4 0.1 2.6 2.5 2.5 2.3 2.4 2.6 2.6 2.7 2.5 2.4 2.1 1.9 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 0.0 ¥0.2 ¥0.1 ¥0.1 0.0 ¥0.3 ¥0.4 ¥0.6 ¥0.2 0.0 0.0 0.0 ¥0.2 ¥0.1 ¥0.1 0.0 ¥0.4 ¥0.8 ¥0.2 ¥2.5 0.3 1.3 1.9 3.9 2.5 0.8 0.3 0.1 1.3 1.9 8.2 10.9 1.6 1.9 1.6 1.9 1.3 1.5 1.6 1.6 0.0 0.0 0.0 0.0 0.0 ¥0.1 0.1 2.0 0.0 0.0 ¥0.3 ¥0.2 0.0 0.0 0.1 0.0 ¥0.4 ¥0.4 0.2 ¥0.1 ¥0.1 ¥0.1 0.0 ¥0.3 0.4 ¥0.2 ¥0.1 ¥0.1 ¥0.4 ¥1.0 ¥0.1 ¥0.2 0.0 ¥0.4 0.0 0.1 0.1 0.1 ¥0.5 ¥0.1 3.1 3.8 4.4 6.6 5.3 3.0 3.2 4.5 3.7 4.6 10.1 12.1 4.2 4.4 4.4 4.3 3.1 3.0 4.4 1.1 1 Because data necessary to classify some hospitals by category were missing, the total number of hospitals in each category may not equal the nationa 3.7 4.6 10.1 12.1 4.2 4.4 4.4 4.3 3.1 3.0 4.4 1.1 1 Because data necessary to classify some hospitals by category were missing, the total number of hospitals in each category may not equal the national total. Dis- charge data are from FY 2024, and hospital cost report data are from the latest available reporting periods. 2 This column displays the effects of estimated outlier payments returning to their targeted levels in FY 2026 as compared to the estimated outlier payments for FY 2025. 3 This column displays the payment impact of the hospital rate update, including the 2.6 percent update to the national standardized amount and the hospital-spe- cific rate (the 3.3 percent IPPS market basket rate-of-increase reduced by the 0.7 percentage point for the productivity adjustment). 4 This column displays the impact of the expiration of the MDH status on October 1, 2025, a non-budget neutral payment provision. 5 This column displays the effects of the changes to estimated uncompensated care payments in FY 2026 as compared to FY 2025. See also the table in section I.G.2 of this Appendix. 6 This column displays the payment impact of Version 43 GROUPER, the changes to the relative weights