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 enter recommended that CMS tie outcomes to fee-for-service patient performance within the hospital’s control. The commenter explained that MA enrollees accept different benefit design than FFS patients and expressed concern that hospitals cannot control MA plans’ requirements like prior authorization. The commenters also asked CMS to confirm that it does not intend to use MA payment information to assess hospitals under the Hospital VBP Program and suggested that CMS limit the expanded patient cohort for this measure to the Hospital IQR Program. annual confidential feedback reports to hospitals on their measured performance that they can use to assess the effects of the cohort change on their measure rates. We acknowledge commenters concerns regarding benefit design differences between MA plans and traditional Medicare, however, adding MA beneficiaries into the cohorts of the Hospital VBP Program measure set will provide a more robust and holistic view of quality of care provided to all Medicare beneficiaries despite these differences. For measure calculation, we identify index and subsequent admissions for patients enrolled in MA plans using MA encounter data and information-only l Medicare beneficiaries despite these differences. For measure calculation, we identify index and subsequent admissions for patients enrolled in MA plans using MA encounter data and information-only claims for MA inpatient stays. We note, neither of these data sources are dependent on the MA plan’s coverage determinations (including bundling or denying coverage) for that admission. Therefore, the measures would continue to encourage hospitals to focus on preventing readmissions, which are often an adverse event for patients and impose a financial burden on the patient and the healthcare system. Because an increasing portion of Medicare beneficiaries are covered by MA plans, including index admissions for these patients in our measure cohorts is an important step in ensuring high-quality, safe care for all Medicare beneficiaries. Including index admissions for Medicare beneficiaries enrolled in MA also increases the cohort size for the Hospital VBP Program measures, which in turn improves the measures’ precision for each hospital. CMS continues to encourage hospitals to work closely with insurers, including MA plans, to coordinate the highest quality care for their patients. We fur ves the measures’ precision for each hospital. CMS continues to encourage hospitals to work closely with insurers, including MA plans, to coordinate the highest quality care for their patients. We further note that this measure will not incorporate MA payment information into hospitals’ assessments. Comment: Several commenters supported our proposal to shorten the performance period of the COMP–HIP– KNEE measure. Commenters stated the change will more accurately reflect current care and simplify public reporting, thus providing hospitals and patients with more recent data. With this change, the hospitals will see results more quickly from their quality improvement efforts and avoid being scored on older information. Response: We thank the commenters for their support. After consideration of the public comments we received, we are finalizing the updates to the COMP– HIP–KNEE measure’s cohort and performance period as proposed VerDate Sep 2014 00:36 Aug 02, 2025 Jkt 265001 PO 00000 Frm 00413 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 36948 Federal Register / Vol. 90, No. 147 / Monday, August 4, 2025 / Rules and Re 0413 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 36948 Federal Register / Vol. 90, No. 147 / Monday, August 4, 2025 / Rules and Regulations beginning with the FY 2033 payment determination. b. Technical Updates to the Specifications of the COMP–HIP–KNEE Measure To Update the Risk Adjustment Model Beginning With the FY 2033 Program Year 207 In addition to the updates discussed previously and further updates we discuss below, we provided notice in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18291 through 18292) of our intent to make a non-substantive modification, as permitted under § 412.164(c)(1), to the COMP–HIP– KNEE measure to update the risk adjustment model to use individual International Classification of Diseases (ICD)-10 codes instead of Hierarchical Condition Categories (HCCs). Under this technical updates policy, we use a subregulatory process to incorporate technical measure specification updates into the measure specifications we have adopted for the Hospital VBP Program (79 FR 50077 through 50079). We continue to believe that this policy, codified at 42 CFR 412.164(c)(1), is the most expeditious m he measure specifications we have adopted for the Hospital VBP Program (79 FR 50077 through 50079). We continue to believe that this policy, codified at 42 CFR 412.164(c)(1), is the most expeditious manner possible to ensure that quality measures remain fully up to date while preserving the public’s ability to comment on substantive updates, which so fundamentally change a measure that it is no longer the same measure that we originally adopted. The current risk adjustment strategy for this measure involves grouping ICD–10 diagnosis codes from CMS’s HCC system into clinically relevant categories. We then evaluate the HCCs for statistical association with the measure’s outcome.208 However, research has indicated that using individual ICD codes in place of HCCs could significantly improve the model performance of the mortality measures.209 To better leverage the data and analytical advances since the measure was initially developed, we created a new approach to use individual ICD–10 codes for risk adjustment instead of grouping them 207 In the proposed rule, the section header was erroneously shown with the FY 2027 Program Year. We corrected this error in a Correction Notice that we s for risk adjustment instead of grouping them 207 In the proposed rule, the section header was erroneously shown with the FY 2027 Program Year. We corrected this error in a Correction Notice that we published on June 5, 2025 (90 FR 23867). 208 Centers for Medicare & Medicaid Services. 2024 Condition-Specific Measure Updates and Specifications Report. Available at: https:// qualitynet.cms.gov/inpatient/measures/mortality/ methodology. 209 Krumholz, H. M., Coppi, A. C., Warner, F., Triche, E. W., Li, S. X., Mahajan, S., Li, Y., Bernheim, S. M., Grady, J., Dorsey, K., Lin, Z., & Normand, S. T. (2019). Comparative Effectiveness of New Approaches to Improve Mortality Risk Models From Medicare Claims Data. JAMA network open, 2(7), e197314. https://doi.org/10.1001/jamanetwork open.2019.7314. into categories. With this new approach, the discriminative performance of the risk adjustment model as measured by c-statistic was significantly better and the calibration performance also proved to be satisfactory. We received several comments on this technical update. Comment: Many commenters supported our technical updates, noting that using ICD–10 codes rather than HCCs will allow more granular satisfactory. We received several comments on this technical update. Comment: Many commenters supported our technical updates, noting that using ICD–10 codes rather than HCCs will allow more granular and individualized risk stratification. Some commenters stated that the increased granularity of ICD–10 coding better captures patients’ clinical complexities, which results in fairer and more accurate evaluations of hospitals’ performance. Response: We thank the commenters for their support. Comment: A commenter also suggested that CMS consider an active diagnosis of COVID–19 as a risk variable where appropriate. Response: As we discuss in the following subsection of this final rule, we are removing the exclusion of patients with a principal or secondary diagnosis of COVID–19 in the measure denominators. We have concluded a risk variable is not appropriate because the broader patient cohort captured by the updated measures provides a more complete picture of the care quality provided in hospitals, which meets the goals of the Hospital VBP Program. Comment: A commenter requested additional transparency when CMS develops new models, including clinical validation and extensive testing be ospitals, which meets the goals of the Hospital VBP Program. Comment: A commenter requested additional transparency when CMS develops new models, including clinical validation and extensive testing before public reporting. Response: We intend to be transparent in developing models by providing feedback to participating hospitals and will continue providing feedback reports detailing hospitals’ performance in the Hospital VBP Program so they fully understand how risk adjustment models affect their measured performance. Comment: Some commenters expressed concern about CMS’s plan to change the risk adjustment model from HCC to ICD–10. Concerns included misalignment of risk adjustment methods across programs and models and potential for unintended consequences. A commenter cautioned this was not a minor technical refinement and instead represented a foundational departure from the methods used in many CMS programs, including the TEAM model, deserving a phased approach to avoid operational risk and threats to data continuity and integrity. Response: We do not agree that this risk adjustment change represents a foundational departure from prior CMS methods. As we discussed in the propose risk and threats to data continuity and integrity. Response: We do not agree that this risk adjustment change represents a foundational departure from prior CMS methods. As we discussed in the proposed rule (90 FR 18292), in depth data analysis conducted by the measure developer has indicated that using individual ICD codes in place of HCCs could significantly improve the model performance of mortality measures. Further, as discussed in the 2024 Condition- and Procedure-Specific Mortality/Complication Measures Supplemental Methodology Report, the new variable selection approach using ICD–10 codes in place of condition categories significantly improved the discriminative performance of the risk adjustment models, as measured by c- statistics, for stroke mortality while performance remained the same for THA/TKA complications.210 Better risk adjustment models help quality measures more accurately reflect the quality of care provided to Medicare beneficiaries, allowing CMS to better leverage data and analytical advances since the measure was initially developed and hospitals and patients to receive more accurate quality data. We intend to keep participating hospitals informed about the ge data and analytical advances since the measure was initially developed and hospitals and patients to receive more accurate quality data. We intend to keep participating hospitals informed about the effects of this policy change through our customary hospital- specific reports. Comment: Some commenters expressed specific concern about the burden imposed on hospitals by the change in risk adjustment model. Response: We note that hospitals are already submitting these data points through claims and there is no additional burden associated with this change to risk adjustment model. The change will only affect how CMS calculates measured performance. We thank the commenters for their feedback on this technical update. We will implement the technical updates as notified in the proposed rule. c. Technical Updates to the Specifications of the Five Condition- and Procedure-Specific Mortality Measures and the COMP–HIP–KNEE Measure Beginning With the FY 2027 Program Year During the COVID–19 public health emergency, in the FY 2022 IPPS/LTCH PPS final rule, we stated that we were updating the Hospital 30-Day, All- Cause, Risk-Standardized Mortality Rate Following Acute Myocardial Infarction blic health emergency, in the FY 2022 IPPS/LTCH PPS final rule, we stated that we were updating the Hospital 30-Day, All- Cause, Risk-Standardized Mortality Rate Following Acute Myocardial Infarction (AMI) Hospitalization (MORT–30–AMI), Hospital 30-Day, All-Cause, Risk- 210 Centers for Medicare & Medicaid Services. 2024 Condition- and Procedure-Specific Mortality/ Complication Measures Supplemental Methodology Report, Stroke/Elective Primary Total Hip Arthroplasty (THA) and/or Total Knee Arthroplasty (TKA). Available at: https://qualitynet.cms.gov/ inpatient/measures/complication/methodology VerDate Sep 2014 00:36 Aug 02, 2025 Jkt 265001 PO 00000 Frm 00414 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 36949 Standardized Mortality Rate Following Coronary Artery Bypass Graft (CABG) Surgery (MORT–30–CABG), Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate Following Chronic Obstructive Pulmonary Disease (COPD) Hospitalization (MORT–30 COPD), Hospital 30-Day, All-Cause, Risk- Standardized Mortality Rate Following Heart Failur -Standardized Mortality Rate Following Chronic Obstructive Pulmonary Disease (COPD) Hospitalization (MORT–30 COPD), Hospital 30-Day, All-Cause, Risk- Standardized Mortality Rate Following Heart Failure (HF) Hospitalization (MORT–30–HF), and Hospital-Level Risk-Standardized Complication Rate Following Elective Primary Total Hip Arthroplasty (THA) and/or Total Knee Arthroplasty (TKA) (COMP–HIP–KNEE) measures to exclude admissions with either a principal or secondary diagnosis of COVID–19 present on admission from the measure denominators (86 FR 45279 through 45281). In the FY 2023 IPPS/LTCH PPS final rule, we also updated the technical specifications for the Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate Following Pneumonia Hospitalization (MORT–30–PN) measure to exclude patients with either principal or secondary diagnoses of COVID–19 from the measure denominator (87 FR 49109 through 49110). Additionally, we further modified the technical measure specifications for all six measures in the Clinical Outcomes domain, the MORT– 30–AMI, MORT–30–CABG, MORT–30– COPD, MORT–30–HF, MORT–30–PN, and COMP–HIP–KNEE measures, in the FY 2023 IPPS/LTCH PPS final rule to include a covar measures in the Clinical Outcomes domain, the MORT– 30–AMI, MORT–30–CABG, MORT–30– COPD, MORT–30–HF, MORT–30–PN, and COMP–HIP–KNEE measures, in the FY 2023 IPPS/LTCH PPS final rule to include a covariate adjustment for patient history of COVID–19 in the 12 months prior to the admission beginning with the FY 2023 program year (87 FR 49106 through 49109). We stated that we were making these updates pursuant to the technical updates policy we finalized in the FY 2015 IPPS/LTCH PPS final rule. We refer readers to the previous section of the preamble of this final rule for more details on our subregulatory technical updates policy. Accordingly, we are providing notice in this final rule that we intend to remove the COVID–19 exclusions from the five condition- and procedure- specific mortality measures and one procedure-specific complication measure beginning with the FY 2027 program year. This technical update will modify the technical specifications of the MORT–30–AMI, MORT–30– CABG, MORT–30–COPD, MORT–30– HF, and MORT–30–PN measures to include the ICD–10 codes that identify patients with a principal diagnosis code of COVID–19 or with a secondary diagnosis code of COVID–19 coded as pr –30–COPD, MORT–30– HF, and MORT–30–PN measures to include the ICD–10 codes that identify patients with a principal diagnosis code of COVID–19 or with a secondary diagnosis code of COVID–19 coded as present on admission on the index admission claim. The technical update will also modify the technical specifications of the COMP–HIP–KNEE measure to include the ICD–10 codes that identify patients with a principal or secondary diagnosis of COVID–19 in both the measure numerator and denominator. Lastly, the technical update will remove the covariate adjustment for patient history of COVID–19 in the 12 months prior to the admission for all six measures in the Clinical Outcomes domain for the Hospital VBP Program beginning with the FY 2027 program year. Including COVID–19 patients in the measure specifications for the measures in the Clinical Outcomes domain beginning with the FY 2027 program year provides a more complete picture of the care quality provided in hospitals, which meets the goals of the Hospital VBP Program. Technical specifications of the Hospital VBP Program mortality and complication measures are provided on our website under the Measure Methodology Reports section (availa of the Hospital VBP Program. Technical specifications of the Hospital VBP Program mortality and complication measures are provided on our website under the Measure Methodology Reports section (available at: https://qualitynet.cms.gov/ inpatient/measures/mortality/ methodology and https:// qualitynet.cms.gov/inpatient/measures/ complication/methodology). Additional resources about the measure technical specifications and methodology for the Hospital VBP Program are on the QualityNet website (available at: https:// qualitynet.cms.gov/inpatient/hvbp). We received several public comments on this technical update. Comment: Many commenters supported the technical update to remove the COVID–19 exclusion from the Hospital VBP Program, a few commenting on the end of the public health emergency (PHE) and minimal impact to data. Response: We thank the commenters for their support. Comment: A commenter, supporting the removal of COVID–19 as an exclusion, suggested CMS consider whether an active diagnosis of COVID– 19 should be a risk variable where appropriate. Response: Given the analysis, we have concluded a risk variable is not appropriate because the broader patient cohort captured by the iagnosis of COVID– 19 should be a risk variable where appropriate. Response: Given the analysis, we have concluded a risk variable is not appropriate because the broader patient cohort captured by the updated measures provides a more complete picture of the care quality provided in hospitals, which meets the goals of the Hospital VBP Program. Comment: Some commenters recommended CMS adopt a phased implementation approach to ensure data integrity and support hospitals in adapting to the COVID–19 exclusion removal. The commenters requested CMS provide hospitals with reporting cycles of data for internal review, delay public reporting of measures with COVID–19 as a secondary diagnosis, and exclude these measures from value- based purchasing programs during initial reporting periods to avoid financial implications and ensure data accuracy. Response: We appreciate concerns regarding the removal of the COVID–19 exclusion and its potential impact on hospital measure scores and financial implications. To inform this discussion, we conducted an analysis of the effect of removing the COVID–19 exclusion for the Hybrid Hospital-Wide Readmission (HKC) measure. Between July 2021 and June 2024, o cations. To inform this discussion, we conducted an analysis of the effect of removing the COVID–19 exclusion for the Hybrid Hospital-Wide Readmission (HKC) measure. Between July 2021 and June 2024, only 371 admissions out of 261,616 total index admissions (approximately 0.14%) were excluded due to a COVID–19 diagnosis. This demonstrates that the exclusion applied to a very small proportion of cases and, therefore, the impact of its removal on hospital-level measure scores is expected to be minimal. Given the limited number of affected admissions, we do not anticipate meaningful shifts in performance results due to this change. We will continue to monitor the impact over time, but current data indicate the removal of the exclusion does not warrant a phased implementation or exclusion from value-based purchasing programs. Hospitals will also have the chance to review their measure data during the 30- day preview period prior to public reporting. Additionally, including COVID–19 patients in the measure’s cohort provides a broader view of the care quality hospitals provide to Medicare beneficiaries and meets the goals of the Hospital VBP Program. Comment: A commenter was concerned abo in the measure’s cohort provides a broader view of the care quality hospitals provide to Medicare beneficiaries and meets the goals of the Hospital VBP Program. Comment: A commenter was concerned about the removal of the COVID–19 exclusion, stating the clinical and operational impacts of the COVID– 19 PHE continue to affect hospital performance, such as the long-term effects of COVID–19 on workforce capacity, patient outcomes, and systemic challenges, including access to post-acute care, all of which can affect quality outcomes independently of provider performance. The commenter suggested removing this exclusion may unfairly penalize hospitals that continue to admit high-acuity, complex patients. Another commenter suggested updated risk adjustment models account for the long-term clinical effects of COVID–19 to avoid unfairly penalizing hospitals with a higher number of post-COVID patients. Response: We appreciate the commenters’ concerns. Given the end of the federal COVID–19 PHE on May 11, 2023, it is important CMS provide hospitals and beneficiaries with a VerDate Sep 2014 00:36 Aug 02, 2025 Jkt 265001 PO 00000 Frm 00415 Fmt 4701 Sfmt 4700 E:\FR\FM\04AUR2.SGM 04AUR2 2 S E L U May 11, 2023, it is important CMS provide hospitals and beneficiaries with a VerDate Sep 2014 00:36 Aug 02, 2025 Jkt 265001 PO 00000 Frm 00415 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 36950 Federal Register / Vol. 90, No. 147 / Monday, August 4, 2025 / Rules and Regulations complete picture of the care quality provided for all patients. While hospitals and other types of health care facilities may face continuing challenges due to the long-term effects of the COVID–19 PHE, we do not agree these challenges represent such a significant threat to health care operations that patients with a secondary COVID–19 diagnosis should be excluded from these measures’ cohorts. remove the COVID–19 exclusion from the five Condition- and Procedure- Specific Mortality Measures and the COMP–HIP–KNEE Measure Beginning with the FY 2027 Program Year. We will implement the updates as outlined in the proposed rule. d. Summary of Previously Adopted Quality Measures for the Hospital VBP Program We thank the commenters for their We refer readers to the FY 2025 IPPS/ feedback on the technical update to LTCH PPS final rule for summaries sly Adopted Quality Measures for the Hospital VBP Program We thank the commenters for their We refer readers to the FY 2025 IPPS/ feedback on the technical update to LTCH PPS final rule for summaries of the previously adopted measures for the FY 2026 through FY 2030 program years (89 FR 69402). We did not propose any changes to the measure set. Table VI.L.- 02 summarizes the previously adopted Hospital VBP Program measure set for the FY–2026 program year. BILLING CODE 4120–01–P 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 Table VI.L.-03 summarizes the previously adopted Hospital VBP Program measures for the FY 2027 through FY 2031 program years. 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As described above, if we decide to propose a different payment adjustment in the future, we would review other programs’ adjustments as well as stakeholder input and propose in future rulemaking. Comment: Many commenters opposed the proposal to remove the HEA, stating HEA helps hospitals that face challenges providing care to the patients in their communities. The commenters also suggested that CMS has not had sufficient time to evaluate the adjustment’s impact on health outcomes and expressed worry that the removal may have unintended consequences for health outcomes. A commenter recommended that CMS continue the HEA for at least five years to fully evaluate the impact of the adjustment on health outcomes. Other commenters worried that the adjustment’s removal would have a disproportionate effect on safety net hospitals that often care for dually eligible ben impact of the adjustment on health outcomes. Other commenters worried that the adjustment’s removal would have a disproportionate effect on safety net hospitals that often care for dually eligible beneficiaries and hospitals in rural areas, both of which frequently operate under financial strain because they provide critical but unprofitable services. Response: As we explained in the proposed rule, we are addressing the additional complexity provided by the HEA in the Hospital VBP Program. As stated in the proposed rule, simplifying the program’s scoring methodology by removing the HEA will enhance providers’ understanding of the program’s quality incentives and its quality improvement goals, and we do not believe it would be appropriate to wait five years to simplify the program. We will continue monitoring safety net hospitals and rural hospitals as part of our monitoring and evaluation work as we work to maintain access to high- quality care for all Medicare beneficiaries. We remind commenters that, as we discussed above, the effect of the HEA on the average net percentage payment adjustment provided by the Hospital VBP Program is small, and by removing it effective for the FY 2 commenters that, as we discussed above, the effect of the HEA on the average net percentage payment adjustment provided by the Hospital VBP Program is small, and by removing it effective for the FY 2026 Hospital VBP program year before it has taken effect, we will avoid burdening participating hospitals with the adjustment’s complexity. Comment: A commenter stated that removing the HEA would return healthcare provision to an era where healthcare systems that provide care for the most medically and socially complex patients are no longer recognized for that additional burden. A few commenters rejected the need to remove HEA as a means of simplifying the scoring methodology, providing clearer incentives to hospitals, or reducing burden, thus opposing HEA removal and disagreeing with the intended goals of its removal. One commenter suggested CMS could resolve that complexity by providing better education to hospitals. Response: We appreciate the commenters’ concerns for hospitals that care for the most medically and socially complex patients. As outlined in the proposal, simplifying the program’s scoring methodology by removing the HEA will enhance providers’ understanding of the pro re for the most medically and socially complex patients. As outlined in the proposal, simplifying the program’s scoring methodology by removing the HEA will enhance providers’ understanding of the program’s quality incentives and its quality improvement goals, and is consistent with the Administration’s priority to streamline regulations on those participating in the Medicare program. We intend to continue working to educate participating providers on the mechanics of our quality programs to promote their understanding and their ability to compete for quality incentive payments. We note, however, that the complexity added to the program’s scoring methodology by the Health Equity Adjustment makes such educational efforts, particularly for new hospitals, more challenging. Comment: Some commenters opposed HEA removal and stated that the Hospital VBP Program should consider differences in a provider’s patient population, including social risk factors, to counter the challenges faced in achieving good clinical outcomes. The commenters recommended considering an alternative design for the Hospital VBP Program if HEA is removed, with one commenter suggesting a new hospital value incentive ieving good clinical outcomes. The commenters recommended considering an alternative design for the Hospital VBP Program if HEA is removed, with one commenter suggesting a new hospital value incentive program that accounts for social risk factors through a peer grouping approach and another suggesting the alternative design focus on upstream factors related to patients’ health. Response: We thank commenters for their feedback and suggestions on potential Hospital VBP Program methodology adjustments. The program remains a pay-for-performance quality program designed to make the quality of care better for hospital patients and hospital stays a better experience by encouraging hospitals to improve the quality, efficiency, patient experience and safety of care that Medicare beneficiaries receive during acute care inpatient stay. We note further that the program’s design is specified by statute and is intended to address the care quality provided by inpatient hospitals. CMS will continue to evaluate the Hospital VBP program and support alignment between the program’s goals and methodology. Comment: Some commenters opposed the proposal to remove HEA, arguing the adjustment helps protect evaluate the Hospital VBP program and support alignment between the program’s goals and methodology. Comment: Some commenters opposed the proposal to remove HEA, arguing the adjustment helps protect vulnerable and historically underserved populations, including patients with severe mental illness, complex social needs, low socioeconomic status, and dual eligibility status. Multiple commenters noted the adjustment will help underfunded safety net hospitals and hospitals in rural communities drive culture change and serve patients with medical complexities and financial hardships. Other commenters stated that the HEA encourages hospitals to focus on providing high-quality care to vulnerable patients, including maternal and psychiatric patients, and can lead to reduced health care costs in the long run. A commenter stated that hospitals working on care quality issues for vulnerable patients need appropriate infrastructure to be sustainable for all the communities they serve and suggested that eliminating the HEA risks penalizing hospitals that are working to address gaps in health outcomes. Response: We appreciate the commenters’ insights and remarks on safety net hospitals’ financia that eliminating the HEA risks penalizing hospitals that are working to address gaps in health outcomes. Response: We appreciate the commenters’ insights and remarks on safety net hospitals’ financial needs, as well as the complexities associated with high-risk patient populations. CMS will continue monitoring the quality of care provided by these hospitals and the effects of the Hospital VBP Program as parts of our monitoring and evaluation efforts. However, as discussed above, we note that the average net percentage payment adjustment provided by the Hospital VBP Program is small. We have concluded that the merits of the additional payment adjustment are outweighed by the complexity it adds to the program’s scoring methodology. We expect that all hospitals strive to provide the best possible care to all of their patients and we do not agree that the adjustment’s removal will impair those efforts by hospitals, doctors, and other medical staff. We agree with the commenter that hospitals need appropriate infrastructure to be able to serve all their patient communities. We will continue monitoring the effects of Medicare payment policy on numerous aspects of care quality and deliver ls need appropriate infrastructure to be able to serve all their patient communities. We will continue monitoring the effects of Medicare payment policy on numerous aspects of care quality and delivery, including maternal health and mortality. Comment: A commenter stated that the Hospital VBP Program represents a step towards a ‘‘total cost of care’’ model, and that removing the HEA would harm hospitals that serve higher proportions of dually eligible patients. The commenter estimated that safety- net hospitals will receive an estimated $29 million in additional payment adjustments from the HEA and that as a result, those hospitals and their patients will bear the brunt of the negative impact if the adjustment is removed. The commenter suggested that the HEA was a notable step to VerDate Sep 2014 00:36 Aug 02, 2025 Jkt 265001 PO 00000 Frm 00428 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 36963 strengthen value-based care reforms and aligns with the Trump Administration’s repeated emphasis on a new approach to health care that fac o. 147 / Monday, August 4, 2025 / Rules and Regulations 36963 strengthen value-based care reforms and aligns with the Trump Administration’s repeated emphasis on a new approach to health care that factors in nutrition and environmental impacts. Response: The original intention of the adjustment was to develop a methodology to reward top performing hospitals serving higher proportions of patients with dual eligibility status. However, we do not view the incorporation of these additional topics as a new payment model. CMS intends to identify potential avenues for the Hospital VBP Program to address nutrition, environmental impacts, and other potential factors that may affect the provision of high-quality health care in the inpatient hospital setting in the future. We will continue to evaluate the program’s methodology for alignment with the program’s objectives. After consideration of the public comments that we received, we are finalizing our proposal to remove the Health Equity Adjustment from the Hospital VBP Program effective with the FY 2026 program year. We are also finalizing our proposal to codify this policy by removing the definition of ‘‘Health equity adjustment bonus poin ent from the Hospital VBP Program effective with the FY 2026 program year. We are also finalizing our proposal to codify this policy by removing the definition of ‘‘Health equity adjustment bonus points’’ in § 412.160 of our regulations and revising § 412.165(b) to remove the calculation and addition of health equity adjustment bonus points from the Total Performance Score calculation beginning with the FY 2026 program year. We refer readers to Table I.G.6.-01 in Section 6: Effects of Changes Under the FY 2026 Hospital Value-Based Purchasing (VBP) Program, which reflect an estimated impact analysis of base operating DRG payment amounts resulting from the FY 2026 Hospital VBP Program without the HEA. M. Hospital-Acquired Condition Reduction Program Updates and Changes (HAC Reduction Program) 1. Regulatory Background We refer readers to the FY 2014 IPPS/ LTCH PPS final rule (78 FR 50707 through 50709) for a general overview of the Hospital-Acquired Condition (HAC) Reduction Program and a detailed discussion of the statutory basis for the Program. We also refer readers to 42 CFR 412.170 through 412.172 for codified HAC Reduction Program requirements. 2. Measures for FY 2026 and Subseq detailed discussion of the statutory basis for the Program. We also refer readers to 42 CFR 412.170 through 412.172 for codified HAC Reduction Program requirements. 2. Measures for FY 2026 and Subsequent Years in the HAC Reduction Program a. Current Measures The previously finalized measures for the HAC Reduction Program for FY 2026 and subsequent years are shown in table VI.M.-01. Technical specifications for the CMS Patient Safety and Adverse Events Composite (CMS PSI 90) measure can be found on the QualityNet website available at: https:// qualitynet.cms.gov/inpatient/measures/ psi/resources. Technical specifications for the Centers for Disease Control and Prevention’s (CDC) National Healthcare Safety Network (NHSN) healthcare- associated infection (HAI) measures can be found at the CDC’s NHSN website at: https://www.cdc.gov/nhsn/acute-care- hospital/index.html and on the QualityNet website available at: https:// qualitynet.cms.gov/inpatient/measures/ hai/resources. These web pages provide measure updates and other information necessary to guide hospitals participating in the collection of HAC Reduction Program data. We did not propose to add or remove any measures in the FY 20 provide measure updates and other information necessary to guide hospitals participating in the collection of HAC Reduction Program data. We did not propose to add or remove any measures in the FY 2026 IPPS/ LTCH PPS proposed rule (90 FR 18302). We refer readers to section I.G.7. of Appendix A of this final rule for an updated estimate of the impact of the Program policies on the proportion of hospitals in the worst performing quartile of Total HAC Scores for the FY 2026 HAC Reduction Program. b. Technical Update to CDC’s National Healthcare Safety Network Healthcare- Associated Infection Measures for the HAC Reduction Program In this section, we provide information regarding upcoming changes to the standard population data that are used to calculate the standardized infection ratio (SIR) for the CDC’s NHSN measures. These changes are occurring as part of routine measure maintenance. CDC’s NHSN measures are used to monitor hospital performance on prevention of healthcare-associated infections (HAIs). For each NHSN measure, CDC calculates the SIR, which compares a hospital’s observed number of HAIs to the number of infections predicted for the hospital, adjusting for several risk f fections (HAIs). For each NHSN measure, CDC calculates the SIR, which compares a hospital’s observed number of HAIs to the number of infections predicted for the hospital, adjusting for several risk factors. The predicted number of infections is determined using the amount of exposure (for example, the number of central line days when predicting CLABSI events) for a given hospital according to the relevant observed risk factors and infection rates for the same combination of risk factors that occurred among a standard population during a specified period as reflected by the appropriate risk adjustment model (this is sometimes referred to as a ‘‘baseline,’’ 221 but referred to here as 221 ‘‘Rebaseline’’ is a term that CDC’s NHSN staff use to describe the process of updating the national HAI baseline data and risk adjustment models Continued VerDate Sep 2014 00:36 Aug 02, 2025 Jkt 265001 PO 00000 Frm 00429 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 / > H P G 2014 00:36 Aug 02, 2025 Jkt 265001 PO 00000 Frm 00430 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 7 W 9 K S D n o d n o m m a h k / > H P G 2014 00:36 Aug 02, 2025 Jkt 265001 PO 00000 Frm 00430 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 / > H P G H P G 2014 00:36 Aug 02, 2025 Jkt 265001 PO 00000 Frm 00431 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 36966 Federal Register / Vol. 90, No. 147 / Monday, August 4, 2025 / Rules and Regulations data collection system directly impacted the ability of the hospital to comply with a quality data reporting requirement, or that an extraordinary circumstance has affected an entire region or locale. Any ECE granted will specify whether the affected hospitals are exempted from one or more reporting requirements or whether CMS has granted the hospitals an extension of time to comply with one or more reporting requirements. The ECE policy is intended to provide hospitals with further reporting flexibility and clarity regarding expectations when submitting ECE requests for participants of the HAC Reduction Program. We refer readers to sections X.C.8, VI.L.5, VI.K.3.c., and X.D.4. of the preamble of this fina larity regarding expectations when submitting ECE requests for participants of the HAC Reduction Program. We refer readers to sections X.C.8, VI.L.5, VI.K.3.c., and X.D.4. of the preamble of this final rule for similar ECE policy changes in the Hospital IQR Program, Hospital VBP Program, Hospital Readmissions Reduction Program, and PCHQR Program, respectively. We invited public comment on our proposals. Comment: Many commenters supported the proposal to formally codify and clarify the ECE policy in the HAC Reduction Program. Commenters stated that this policy will provide hospitals with needed clarity and flexibility when facing events beyond their control that impede timely data submission, is practical, and recognizes the varying needs of different facilities and different circumstances. Response: We thank commenters for their support. Comment: Several commenters recommended that CMS explicitly include cyber-attacks as a qualifying event for granting an ECE because cyber- attacks can disable data systems for extended periods. Another commenter recommended that ECE include infectious disease emergencies due to their downstream impacts on health care systems. Response: We thank com disable data systems for extended periods. Another commenter recommended that ECE include infectious disease emergencies due to their downstream impacts on health care systems. Response: We thank commenters for their recommendations. We note that extraordinary circumstances are not limited to the examples provided in the CFR language and proposal. We have received and accepted multiple ECE requests due to cyber-attacks across reporting programs. We recommend that hospitals submit an ECE request anytime an event beyond the control of a hospital affected the ability of the hospital to comply with one or more reporting requirements with respect to a fiscal year regardless of whether it was included in the examples provided in the CFR language and proposal. Comment: Several commenters, while supporting this proposal, expressed concern that CMS may replace reporting exemptions with extensions, regardless of the circumstances, and recommended that CMS continue to grant complete reporting exemptions in the case of an extraordinary circumstance, and to use extensions when appropriate. Commenters requested that CMS provide additional details on how the determination of an exception versus emptions in the case of an extraordinary circumstance, and to use extensions when appropriate. Commenters requested that CMS provide additional details on how the determination of an exception versus an extension will be made. Response: We thank commenters for their recommendation. We will continue to consider ECE applications on a case-by-case basis and offer any exception or extension based on the nature of the extraordinary circumstance and the capacity of the provider, as well as CMS operational feasibility to grant an exception versus an extension. We note our preference to grant an extension when it can be feasibly granted because of the importance of having quality measure data particularly for public reporting purposes, as transparency is a paramount goal of the program. Comment: A few commenters recommended that CMS produce publicly available guidance for ECE requests to set consistent expectations to ensure that ECE eligibility criteria are applied equitably across all facilities, with particular attention to hospitals serving medically complex, high-risk, or underserved patient populations in order to maintain fairness in the HAC Reduction Program that carries financial ties, with particular attention to hospitals serving medically complex, high-risk, or underserved patient populations in order to maintain fairness in the HAC Reduction Program that carries financial penalties for hospitals in the bottom quartile of performance. One commenter requested CMS provide additional clarification on its processes and policies associated with approving ECE requests related to cyberattacks, including publicly posting any supplemental ECE questionnaires that could aid a hospital in an initial ECE application. Response: We thank commenters for their recommendations. We note that QualityNet provides the ECE Request Form, ECE Information and Resources document, and ECE Quick Reference document, all of which are updated as necessary. We will continue to update these documents to provide updated information, resources, and references.229 Comment: Several commenters did not support the reduced timeframe for hospitals to submit an ECE request from 90 days to 30 days. Commenters stated that, following these extraordinary events, hospitals focus on staying 229 We note that the HACRP ECE QualityNet site is available at: https://qualitynet.cms.gov/inpatient/ hac/partici mmenters stated that, following these extraordinary events, hospitals focus on staying 229 We note that the HACRP ECE QualityNet site is available at: https://qualitynet.cms.gov/inpatient/ hac/participation#tab2, which links to the Hospital IQR ECE web page, available at: https:// qualitynet.cms.gov/inpatient/iqr/participation#tab3 for reference materials. operational and continuing to provide care for their patients and communities, and they do not have sufficient bandwidth to assess the impact on quality data submissions and complete the necessary paperwork within 30 days. For example, one commenter cited recent flooding in Virginia and North Carolina, noting that hospitals remained in crisis mode even 30 days after the event, and suggested that a 60-day deadline might be a more realistic compromise. Another commenter cited a significant ransomware attack which adversely affected their Certified Electronic Health Record Technology (CEHRT) applications and multiple data systems across their health system which caused them to request multiple ECEs related to various data reporting requirements during that time. Commenters also recommended that CMS retain the discretion to accept la their health system which caused them to request multiple ECEs related to various data reporting requirements during that time. Commenters also recommended that CMS retain the discretion to accept late requests in truly extraordinary circumstances, thereby safeguarding hospitals from unfair penalties for delayed submissions amid disasters. A few commenters supported the 30- day time period to request an exemption. Response: We appreciate commenters’ responses. After reviewing the concerns raised by commenters regarding the timeframe for making an ECE request, we have further considered what constitutes an appropriate number of days based on commenters’ feedback and examples. Nevertheless, we wish to reduce the timeframe for ECE applications across hospital settings for operational improvement while balancing the possible need for additional time by providers depending on the particular extraordinary circumstance. Therefore, we are finalizing a modified policy that states that a hospital may request an ECE within 60 calendar days of the date that the extraordinary circumstance occurred. We believe this timeframe will provide significant time for hospitals to assess the impact on qu al may request an ECE within 60 calendar days of the date that the extraordinary circumstance occurred. We believe this timeframe will provide significant time for hospitals to assess the impact on quality reporting without disrupting operational and care needs. After consideration of the public comments we received, we are finalizing our proposal to codify and update our ECE proposal with modification. After consideration of concerns identified in public comments regarding the proposed 30 calendar day timeframe during which a hospital may request an ECE, and for the reasons described above, we are finalizing a different timeframe in which an ECE can be requested. We will allow up to 60 calendar days for ECE requests after the precipitating event. We amended the VerDate Sep 2014 00:36 Aug 02, 2025 Jkt 265001 PO 00000 Frm 00432 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 36967 proposed CFR text to reflect this extended deadline. N. Rural Community Hospital Demonstration Program 1. Introduction The Rural Community Hospital Demonstr ugust 4, 2025 / Rules and Regulations 36967 proposed CFR text to reflect this extended deadline. N. Rural Community Hospital Demonstration Program 1. Introduction The Rural Community Hospital Demonstration was originally authorized by section 410A of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) (Pub. L. 108–173). The demonstration has been extended three times since the original 5-year period mandated by the MMA, each time for an additional 5 years. These extensions were authorized by sections 3123 and 10313 of the Affordable Care Act (Pub. L. 111–148), section 15003 of the 21st Century Cures Act (Pub. L. 114–255) (Cures Act) enacted in 2016, and most recently, by section 128 of the Consolidated Appropriations Act, 2021 (Pub. L. 116–260), which also reauthorized the RCHD for five years. Later in this section we summarize the status of the demonstration program and the current methodologies for implementation and calculating budget neutrality, and propose the amount to be subtracted from the national IPPS payment rates to account for the costs of the demonstration in FY 2026. The amount would include the reconciled amount of demonstration costs fo pose the amount to be subtracted from the national IPPS payment rates to account for the costs of the demonstration in FY 2026. The amount would include the reconciled amount of demonstration costs for FY 2020 in the FY 2026 IPPS/LTCH final rule. All finalized cost reports for FY 2020 were available for the FY 2026 IPPS/LTCH final rule at this time. Last year we published a new solicitation (89 FR 105049, December 26, 2024) to select 10 additional qualifying hospitals to participate in the Rural Community Hospital Demonstration. We only accepted applications to this solicitation from hospitals in the 20 least densely populated States, according to data for 2020 from the U.S. Census Bureau. These States are: Alaska, Arizona, Arkansas, Colorado, Idaho, Iowa, Kansas, Maine, Mississippi, Montana, Nebraska, Nevada, New Mexico, North Dakota, Oklahoma, Oregon, South Dakota, Utah, Vermont, and Wyoming. We did not accept applications from hospitals located in other States or in the U.S. territories. Applications were due March 1, 2025; 11 additional hospitals were selected to join the demonstration on a rolling basis beginning May 1, 2025. Given the upcoming statutory termination of the mod ries. Applications were due March 1, 2025; 11 additional hospitals were selected to join the demonstration on a rolling basis beginning May 1, 2025. Given the upcoming statutory termination of the model, we are aligning performance dates for the selected hospitals with the last performance day for the currently authorized extension; therefore, although previous agreements ran for 5- year periods, agreements for hospitals selected under the December 26, 2024 solicitation will run until June 30, 2028. 2. Background Section 410A(a) of the MMA (Pub. L. 108–173) required the Secretary to establish a demonstration program to test the feasibility and advisability of establishing rural community hospitals to furnish covered inpatient hospital services to Medicare beneficiaries. The demonstration pays rural community hospitals under a reasonable cost-based methodology for Medicare payment purposes for covered inpatient hospital services furnished to Medicare beneficiaries. A rural community hospital, as defined in section 410A(f)(1), is a hospital that— • Is located in a rural area (as defined in section 1886(d)(2)(D) of the Act) or is treated as being located in a rural area under section pital, as defined in section 410A(f)(1), is a hospital that— • Is located in a rural area (as defined in section 1886(d)(2)(D) of the Act) or is treated as being located in a rural area under section 1886(d)(8)(E) of the Act; • Has fewer than 51 beds (excluding beds in a distinct part psychiatric or rehabilitation unit) as reported in its most recent cost report; • Provides 24-hour emergency care services; and • Is not designated or eligible for designation as a CAH under section 1820 of the Act. Our policy for implementing the 5- year extension period authorized by the CAA, 2021 (Pub. L. 116–260) follows upon the previous extensions under the Affordable Care Act (Pub. L. 111–148) and the Cures Act (Pub. L. 114–255). Section 410A of the MMA (Pub. L. 108– 173) initially required a 5-year period of performance. Subsequently, sections 3123 and 10313 of the Affordable Care Act (Pub. L. 111–148) required the Secretary to conduct the demonstration program for an additional 5-year period, to begin on the date immediately following the last day of the initial 5- year period. In addition, the Affordable Care Act (Pub. L. 111–148) limited the number of hospitals participating to no more than begin on the date immediately following the last day of the initial 5- year period. In addition, the Affordable Care Act (Pub. L. 111–148) limited the number of hospitals participating to no more than 30. Section 15003 of the Cures Act (Pub. L. 114–255) required a 10-year extension period in place of the 5-year extension period under the Affordable Care Act (Pub. L. 111–148), thereby extending the demonstration for another 5 years. Section 128 of CAA, 2021 (Pub. L. 116–260), in turn, revised the statute to indicate a 15-year extension period, instead of the 10-year extension period mandated by the Cures Act (Pub. L. 114–255). Please refer to the FY 2023 IPPS proposed and final rules (87 FR 28454 through 28458 and 87 FR 49138 through 49142, respectively) for an account of hospitals entering into and withdrawing from the demonstration with these re- authorizations. In CY 2025, there are currently 30 hospitals participating in the demonstration. In addition to the ten selected initially, one additional hospital was selected to replace one that voluntarily withdrew from the demonstration; in total, we added 11 new hospitals from the new solicitation. 2. Budget Neutrality a. Statutory B one additional hospital was selected to replace one that voluntarily withdrew from the demonstration; in total, we added 11 new hospitals from the new solicitation. 2. Budget Neutrality a. Statutory Budget Neutrality Requirement Section 410A(c)(2) of the MMA (Pub. L. 108–173) requires that, in conducting the demonstration program under this section, the Secretary shall ensure that the aggregate payments made by the Secretary do not exceed the amount that the Secretary would have paid if the demonstration program under this section was not implemented. This requirement is commonly referred to as ‘‘budget neutrality.’’ Generally, when we implement a demonstration program on a budget neutral basis, the demonstration program is budget neutral on its own terms; in other words, the aggregate payments to the participating hospitals do not exceed the amount that would be paid to those same hospitals in the absence of the demonstration program. We note that the payment methodology for this demonstration, that is, cost-based payments to participating small rural hospitals, made it unlikely that increased Medicare outlays would produce an offsetting reduction to Medicare expenditures elsewher nstration, that is, cost-based payments to participating small rural hospitals, made it unlikely that increased Medicare outlays would produce an offsetting reduction to Medicare expenditures elsewhere. Therefore, in the IPPS final rules spanning the period from FY 2005 through FY 2016, we adjusted the national IPPS rates by an amount sufficient to account for the added costs of this demonstration program, thus applying budget neutrality across the payment system as a whole rather than merely across the participants in the demonstration program. (We applied a different methodology for FY 2017, with the demonstration expected to end prior to the Cures Act extension.) As we discussed in the FYs 2005 through 2017 IPPS/LTCH PPS final rules (69 FR 49183; 70 FR 47462; 71 FR 48100; 72 FR 47392; 73 FR 48670; 74 FR 43922, 75 FR 50343, 76 FR 51698, 77 FR 53449, 78 FR 50740, 77 FR 50145; 80 FR 49585; and 81 FR 57034, respectively), we believe that the statutory language of the budget neutrality requirements permits the agency to implement the budget neutrality provision in this manner. We resumed this methodology of offsetting demonstration costs against the national payment rates in the IPPS equirements permits the agency to implement the budget neutrality provision in this manner. We resumed this methodology of offsetting demonstration costs against the national payment rates in the IPPS final rules from FY 2018 through FY 2025. Please see the FY 2025 IPPS final VerDate Sep 2014 00:36 Aug 02, 2025 Jkt 265001 PO 00000 Frm 00433 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 36968 Federal Register / Vol. 90, No. 147 / Monday, August 4, 2025 / Rules and Regulations rule for an account of how we applied the budget neutrality requirement for these fiscal years (89 FR 69412 through 69413). rules. In this final rule, we outline the methodology to be used for determining the offset to the national IPPS payment rates for FY 2026. b. General Budget Neutrality Methodology We have generally incorporated two components into the budget neutrality offset amounts identified in the final IPPS rules in previous years. First, we have estimated the costs of the demonstration for the upcoming fiscal year, generally determined from historical, ‘‘as submitted’’ cost reports for the hospitals participating in that year. Updat , we have estimated the costs of the demonstration for the upcoming fiscal year, generally determined from historical, ‘‘as submitted’’ cost reports for the hospitals participating in that year. Updated factors representing nationwide trends in cost and volume increases have been incorporated into these estimates, as specified in the methodology described in the final rule for each fiscal year. Second, as finalized cost reports became available, we determined the amount by which the actual costs of the demonstration for an earlier, given year differed from the estimated costs for the demonstration set forth in the final IPPS rule for the corresponding fiscal year, and incorporated that amount into the budget neutrality offset amount for the upcoming fiscal year. If the actual costs for the demonstration for the earlier fiscal year exceeded the estimated costs of the demonstration identified in the final rule for that year, this difference was added to the estimated costs of the demonstration for the upcoming fiscal year when determining the budget neutrality adjustment for the upcoming fiscal year. Conversely, if the estimated costs of the demonstration set forth in the final rule ration for the upcoming fiscal year when determining the budget neutrality adjustment for the upcoming fiscal year. Conversely, if the estimated costs of the demonstration set forth in the final rule for a prior fiscal year exceeded the actual costs of the demonstration for that year, this difference was subtracted from the estimated cost of the demonstration for the upcoming fiscal year when determining the budget neutrality adjustment for the upcoming fiscal year. We note that we have calculated this difference for FYs 2005 through 2018 between the actual costs of the demonstration as determined from finalized cost reports once available, and estimated costs of the demonstration as identified in the applicable IPPS final rules for these years. c. Budget Neutrality Methodology for the Extension Period Authorized by CAA, 2021 For the most-recently enacted extension period, under the CAA, 2021, we have continued upon the general budget neutrality methodology used in previous years, as described previously in the citations to earlier IPPS final (1) Methodology for Estimating Demonstration Costs for FY 2026 Consistent with the general methodology from previous years, we are estimating escribed previously in the citations to earlier IPPS final (1) Methodology for Estimating Demonstration Costs for FY 2026 Consistent with the general methodology from previous years, we are estimating the costs of the demonstration for the upcoming fiscal year, and proposing to incorporate this estimate into the budget neutrality offset amount to be applied to the national IPPS rates for the upcoming fiscal year, that is, FY 2026. We are conducting this estimate for FY 2026 based on 20 hospitals. The methodology for calculating this amount for FY 2026 proceeds according to the following steps: Step 1: For each of these 20 hospitals, we identify the reasonable cost amount calculated under the reasonable cost- based methodology for covered inpatient hospital services, including swing beds, as indicated on the ‘‘as submitted’’ cost report for the most recent cost reporting period available. The ‘‘as submitted’’ cost report, submitted by each of the 20 hospitals, with a report end date in CY2023 is used. We sum these hospital -specific amounts to arrive at a total general amount representing the costs for covered inpatient hospital services, including swing beds, across the total 20 ho CY2023 is used. We sum these hospital -specific amounts to arrive at a total general amount representing the costs for covered inpatient hospital services, including swing beds, across the total 20 hospitals eligible to participate during FY 2026. Then, we multiply the total general amount by the FYs 2024, 2025, and 2026 IPPS market basket percentage increases, which are calculated by the CMS Office of the Actuary. (We are using the final market basket percentage increase for FY 2026, which can be found at section VI.B.1. of the preamble to this final rule). The result for the 20 hospitals is the general estimated reasonable cost amount for covered inpatient hospital services for FY 2026. Consistent with our methods in previous years for formulating this estimate, we are applying the IPPS market basket percentage increases for FYs 2024 through 2026 to the applicable estimated reasonable cost amount (previously described) to model the estimated FY 2026 reasonable cost amount under the demonstration. We believe that the IPPS market basket percentage increases appropriately indicate the trend of increase in inpatient hospital operating costs under the reasonable cost methodology for t emonstration. We believe that the IPPS market basket percentage increases appropriately indicate the trend of increase in inpatient hospital operating costs under the reasonable cost methodology for the years involved. Step 2: For each of the participating hospitals, we identify the estimated amount that would otherwise have been paid in FY 2026 under applicable Medicare payment methodologies for covered inpatient hospital services, including swing beds (as indicated on the same set of ‘‘as submitted’’ cost reports as in Step 1), if the demonstration had not been implemented. We sum these hospital specific-amounts, and, in turn, multiply this sum by the FYs 2024, 2025, and 2026 IPPS applicable percentage increases. (For FY 2026, we are using the final applicable percentage increase, per section VI.B.1. of the preamble of this final rule). This methodology differs from Step 1, in which we apply the market basket percentage increases to the hospitals’ applicable estimated reasonable cost amount for covered inpatient hospital services. We believe that the IPPS applicable percentage increases are appropriate factors to update the estimated amounts that generally would otherwise be paid amount for covered inpatient hospital services. We believe that the IPPS applicable percentage increases are appropriate factors to update the estimated amounts that generally would otherwise be paid without the demonstration because IPPS payments constitute the majority of payments that would otherwise be made without the demonstration and the applicable percentage increase is the factor used under the IPPS to update the inpatient hospital payment rates. Step 3: We subtract the amount derived in Step 2 from the amount derived in Step 1. According to our methodology, the resulting amount indicates the total difference for the 20 hospitals (for covered inpatient hospital services, including swing beds), which will be the general estimated amount of the costs of the demonstration for FY 2026. For this final rule, the resulting amount is $47,586,847 and will be incorporated into the budget neutrality offset adjustment for FY 2026. An offset of $47,527,557 was proposed in the FY 2026 IPPS/LTCH PPS proposed rule, and this has adjusted slightly based on the incorporation of the final FY 2026 market basket percentage increase (0.1 percentage point higher than the proposed rule) and the f /LTCH PPS proposed rule, and this has adjusted slightly based on the incorporation of the final FY 2026 market basket percentage increase (0.1 percentage point higher than the proposed rule) and the final FY 2026 applicable percentage increase (0.2 percentage point higher than the proposed rule). This estimated amount is based on the specific assumptions regarding the data sources used, that is, recently available ‘‘as submitted’’ cost reports and historical update factors for cost and payment. We proposed to include final costs of the demonstration for FY 2026 for all participating hospitals, to include those participating as a result of the current solicitation, in the budget neutrality offset adjustment in the FY 2026 IPPS proposed and final rules. VerDate Sep 2014 00:36 Aug 02, 2025 Jkt 265001 PO 00000 Frm 00434 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 36969 (2) Reconciling Actual and Estimated Costs of the Demonstration for Previous Years As described earlier, we have calculated the difference for FYs 2005 through 2018 be 25 / Rules and Regulations 36969 (2) Reconciling Actual and Estimated Costs of the Demonstration for Previous Years As described earlier, we have calculated the difference for FYs 2005 through 2018 between the actual costs of the demonstration, as determined from finalized cost reports once available, and estimated costs of the demonstration as identified in the applicable IPPS final rules for these years. At this time, for the FY2026 final rule, all of the FY2020 finalized cost reports are available and will be reconciled in FY2026. (3) Total Proposed Budget Neutrality Offset Amount for FY 2026 For this FY 2026 IPPS/LTCH PPS final rule, the proposed budget neutrality offset amount for FY 2026 is the amount determined under section X.2.c.(2). of the preamble of this final rule, representing the difference applicable to FY 2026 between the sum of the estimated reasonable cost amounts that would be paid under the demonstration for covered inpatient services to the 20 hospitals eligible to participate in the fiscal year and the sum of the estimated amounts that would generally be paid if the demonstration had not been implemented. This amount is $47,586,847. After consideration of the o participate in the fiscal year and the sum of the estimated amounts that would generally be paid if the demonstration had not been implemented. This amount is $47,586,847. After consideration of the public comments we received, primarily requesting to expand the number of hospitals participating in the program, we are finalizing our policy without modification. VII. Changes to the IPPS for Capital- Related Costs A. Overview Section 1886(g) of the Act requires the Secretary to pay for the capital-related costs of inpatient acute hospital services in accordance with a prospective payment system established by the Secretary. Under the statute, the Secretary has broad authority in establishing and implementing the IPPS for acute care hospital inpatient capital- related costs. We initially implemented the IPPS for capital-related costs in the FY 1992 IPPS final rule (56 FR 43358). In that final rule, we established a 10- year transition period to change the payment methodology for Medicare hospital inpatient capital-related costs from a reasonable cost-based payment methodology to a prospective payment methodology (based fully on the Federal rate). FY 2001 was the last year of the 10- e hospital inpatient capital-related costs from a reasonable cost-based payment methodology to a prospective payment methodology (based fully on the Federal rate). FY 2001 was the last year of the 10- year transition period that was established to phase in the IPPS for hospital inpatient capital-related costs. For cost reporting periods beginning in FY 2002, capital IPPS payments are based solely on the Federal rate for almost all acute care hospitals (other than hospitals receiving certain exception payments and certain new hospitals). (We refer readers to the FY 2002 IPPS final rule (66 FR 39910 through 39914) for additional information on the methodology used to determine capital IPPS payments to hospitals both during and after the transition period.) The basic methodology for determining capital prospective payments using the Federal rate is set forth in the regulations at 42 CFR 412.312. For the purpose of calculating capital payments for each discharge, the standard Federal rate is adjusted as follows: (Standard Federal Rate) × (DRG Weight) × (Geographic Adjustment Factor (GAF) × (COLA for hospitals located in Alaska and Hawaii) × (1 + Capital DSH Adjustment Factor + Capital is adjusted as follows: (Standard Federal Rate) × (DRG Weight) × (Geographic Adjustment Factor (GAF) × (COLA for hospitals located in Alaska and Hawaii) × (1 + Capital DSH Adjustment Factor + Capital IME Adjustment Factor, if applicable). In addition, under § 412.312(c), hospitals also may receive outlier payments under the capital IPPS for extraordinarily high-cost cases that qualify under the thresholds established for each fiscal year. B. Additional Provisions 1. Exception Payments The regulations at 42 CFR 412.348 provide for certain exception payments under the capital IPPS. The regular exception payments provided under § 412.348(b) through (e) were available only during the 10-year transition period. For a certain period after the transition period, eligible hospitals may have received additional payments under the special exceptions provisions at § 412.348(g). However, FY 2012 was the final year hospitals could receive special exceptions payments. For additional details regarding these exceptions policies, we refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51725). Under § 412.348(f), a hospital may request an additional payment if the hospital incurs unanticipat g these exceptions policies, we refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51725). Under § 412.348(f), a hospital may request an additional payment if the hospital incurs unanticipated capital expenditures in excess of $5 million due to extraordinary circumstances beyond the hospital’s control. Additional information on the exception payment for extraordinary circumstances in § 412.348(f) can be found in the FY 2005 IPPS final rule (69 FR 49185 and 49186). 2. New Hospitals Under the capital IPPS, the regulations at 42 CFR 412.300(b) define a new hospital as a hospital that has operated (under previous or current ownership) for less than 2 years and lists examples of hospitals that are not considered new hospitals. In accordance with § 412.304(c)(2), under the capital IPPS, a new hospital is paid 85 percent of its allowable Medicare inpatient hospital capital related costs through its first 2 years of operation, unless the new hospital elects to receive full prospective payment based on 100 percent of the Federal rate. We refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51725) for additional information on payments to new hospitals under the capital IPP e payment based on 100 percent of the Federal rate. We refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51725) for additional information on payments to new hospitals under the capital IPPS. 3. Payments for Hospitals Located in Puerto Rico In the FY 2017 IPPS/LTCH PPS final rule (81 FR 57061), we revised the regulations at 42 CFR 412.374 relating to the calculation of capital IPPS payments to hospitals located in Puerto Rico beginning in FY 2017 to parallel the change in the statutory calculation of operating IPPS payments to hospitals located in Puerto Rico, for discharges occurring on or after January 1, 2016, made by section 601 of the Consolidated Appropriations Act, 2016 (Pub. L. 114– 113). Section 601 of Pub. L. 114–113 increased the applicable Federal percentage of the operating IPPS payment for hospitals located in Puerto Rico from 75 percent to 100 percent and decreased the applicable Puerto Rico percentage of the operating IPPS payments for hospitals located in Puerto Rico from 25 percent to zero percent, applicable to discharges occurring on or after January 1, 2016. As such, under revised § 412.374, for discharges occurring on or after October 1, 2016, capit erto Rico from 25 percent to zero percent, applicable to discharges occurring on or after January 1, 2016. As such, under revised § 412.374, for discharges occurring on or after October 1, 2016, capital IPPS payments to hospitals located in Puerto Rico are based on 100 percent of the capital Federal rate. C. Annual Update for FY 2026 The annual update to the national capital Federal rate, as provided in 42 CFR 412.308(c), for FY 2026 is discussed in section III. of the Addendum to this FY 2026 IPPS/LTCH PPS final rule. We also note that in section II.D. of the preamble of this final rule, we discuss our revision to the adjustment to the payment amount for certain clinical trial or expanded access use immunotherapy cases to include other cases where the immunotherapy product is not purchased in the usual manner (such as provided at no cost) VerDate Sep 2014 00:36 Aug 02, 2025 Jkt 265001 PO 00000 Frm 00435 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 36970 Federal Register / Vol. 90, No. 147 / Monday, August 4, 2025 / Rules and Regulations that will group to MS–DRG 018 for both operating IPPS payments and capital IP 7 W 9 K S D n o d n o m m a h k 36970 Federal Register / Vol. 90, No. 147 / Monday, August 4, 2025 / Rules and Regulations that will group to MS–DRG 018 for both operating IPPS payments and capital IPPS payments. We refer readers to section II.D. of this preamble of this final rule for additional details on the finalized payment adjustment for these cases. VIII. Changes for Hospitals Excluded From the IPPS A. Rate-of-Increase in Payments To Excluded Hospitals for FY 2026 Certain hospitals excluded from a prospective payment system, including children’s hospitals, 11 cancer hospitals, and hospitals located outside the 50 States, the District of Columbia, and Puerto Rico (that is, hospitals located in the U.S. Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa) receive payment for inpatient hospital services they furnish on the basis of reasonable costs, subject to a rate-of-increase ceiling. A per discharge limit (the target amount, as defined in § 413.40(a) of the regulations) is set for each hospital based on the hospital’s own cost experience in its base year, and updated annually by a rate-of-increase percentage. For each cost reporting period, the updated ta egulations) is set for each hospital based on the hospital’s own cost experience in its base year, and updated annually by a rate-of-increase percentage. For each cost reporting period, the updated target amount is multiplied by total Medicare discharges during that period and applied as an aggregate upper limit (the ceiling as defined in § 413.40(a)) of Medicare reimbursement for total inpatient operating costs for a hospital’s cost reporting period. In accordance with § 403.752(a) of the regulations, religious nonmedical health care institutions (RNHCIs) also are subject to the rate-of- increase limits established under § 413.40 of the regulations discussed previously. Furthermore, in accordance with § 412.526(c)(3) of the regulations, extended neoplastic disease care hospitals (formerly classified as ‘‘Subclause II LTCs’’) also are subject to the rate-of-increase limits established under § 413.40 of the regulations discussed previously. As explained in the FY 2006 IPPS final rule (70 FR 47396 through 47398), beginning with FY 2006, we have used the percentage increase in the IPPS operating market basket to update the target amounts for children’s hospitals, the 11 cancer hospita 0 FR 47396 through 47398), beginning with FY 2006, we have used the percentage increase in the IPPS operating market basket to update the target amounts for children’s hospitals, the 11 cancer hospitals, and RNHCIs. Consistent with the regulations at §§ 412.23(g) and 413.40(a)(2)(ii)(A) and (c)(3)(viii), we also have used the percentage increase in the IPPS operating market basket to update target amounts for short-term acute care hospitals located in the U.S. Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa. In the FY 2022 IPPS/LTCH PPS final rule (86 FR 45194 through 45207), we rebased and revised the IPPS operating market basket to a 2018 base year, and finalized the use of the percentage increase in the 2018-based IPPS operating market basket to update the target amounts for children’s hospitals, the 11 cancer hospitals, RNHCIs, and short-term acute care hospitals located in the U.S. Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa for FY 2022 and subsequent fiscal years. As discussed in section IV. of the preamble of this FY 2026 IPPS/LTCH PPS final rule, we proposed to rebase and revise the IPPS operating basket to a 2023 base year. 2022 and subsequent fiscal years. As discussed in section IV. of the preamble of this FY 2026 IPPS/LTCH PPS final rule, we proposed to rebase and revise the IPPS operating basket to a 2023 base year. Therefore, as discussed in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18246 through 18247 and 18307 through 18308), we proposed to use the percentage increase in the proposed 2023-based IPPS operating market basket to update the target amounts for children’s hospitals, the 11 cancer hospitals, RNHCIs, and short-term acute care hospitals located in the U.S. Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa for FY 2026 and subsequent fiscal years. Accordingly, for FY 2026, the rate-of- increase percentage to be applied to the target amount for these hospitals would be the FY 2026 percentage increase in the proposed 2023-based IPPS operating market basket. For the FY 2026 IPPS/LTCH PPS proposed rule, based on IGI’s 2024 fourth quarter forecast, we estimated that the proposed 2023-based IPPS operating market basket percentage increase for FY 2026 was 3.2 percent (that is, the estimate of the market basket rate-of-increase). Based on this estimate, the FY 2026 rate proposed 2023-based IPPS operating market basket percentage increase for FY 2026 was 3.2 percent (that is, the estimate of the market basket rate-of-increase). Based on this estimate, the FY 2026 rate-of-increase percentage that would be applied to the FY 2025 target amounts in order to calculate the FY 2026 target amounts for children’s hospitals, the 11 cancer hospitals, RNHCIs, and short-term acute care hospitals located in the U.S. Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa was 3.2 percent, in accordance with the applicable regulations at 42 CFR 413.40. However, we proposed that if more recent data became available for the FY 2026 IPPS/LTCH PPS final rule, we would use such data, if appropriate, to calculate the final IPPS operating market basket update for FY 2026. As discussed in section IV of the preamble of this FY 2026 IPPS/LTCH PPS final rule, we finalized the rebasing of the IPPS operating market basket to a 2023 base year without modification. However, more recent data has become available. Based on IGI’s second quarter 2025 forecast, we estimate that the 2023- based IPPS operating market basket percentage increase for FY 2026 is 3.3 percent wever, more recent data has become available. Based on IGI’s second quarter 2025 forecast, we estimate that the 2023- based IPPS operating market basket percentage increase for FY 2026 is 3.3 percent (that is, the estimate of the market basket rate-of-increase). Accordingly, the FY 2026 rate-of- increase percentage that we will apply to the FY 2025 target amounts in order to calculate the FY 2026 target amounts for children’s hospitals, the 11 cancer hospitals, RNHCIs, and short-term acute care hospitals located in the U.S. Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa is 3.3 percent, which is based on IGI’s second quarter 2025 forecast. We received no comments on this proposal and therefore are finalizing this provision without modification. Incorporating more recent data available for this final rule, as we proposed, we are adopting a 3.3 percent update for FY 2026. In addition, payment for inpatient operating costs for hospitals classified under section 1886(d)(1)(B)(vi) of the Act (which we refer to as ‘‘extended neoplastic disease care hospitals’’) for cost reporting periods beginning on or after January 1, 2015, is to be made as described in 42 CFR 41 (d)(1)(B)(vi) of the Act (which we refer to as ‘‘extended neoplastic disease care hospitals’’) for cost reporting periods beginning on or after January 1, 2015, is to be made as described in 42 CFR 412.526(c)(3), and payment for capital costs for these hospitals is to be made as described in 42 CFR 412.526(c)(4). (For additional information on these payment regulations, we refer readers to the FY 2018 IPPS/LTCH PPS final rule (82 FR 38321 through 38322).) Section 412.526(c)(3) provides that the hospital’s Medicare allowable net inpatient operating costs for that period are paid on a reasonable cost basis, subject to that hospital’s ceiling, as determined under § 412.526(c)(1), for that period. Under § 412.526(c)(1), for each cost reporting period, the ceiling was determined by multiplying the updated target amount, as defined in § 412.526(c)(2), for that period by the number of total Medicare discharges paid during that period. Section 412.526(c)(2)(i) describes the method for determining the target amount for cost reporting periods beginning during FY 2015. Section 412.526(c)(2)(ii) specifies that, for cost reporting periods beginning during fiscal years after FY 2015, the target ing the target amount for cost reporting periods beginning during FY 2015. Section 412.526(c)(2)(ii) specifies that, for cost reporting periods beginning during fiscal years after FY 2015, the target amount will equal the hospital’s target amount for the previous cost reporting period updated by the applicable annual rate-of-increase percentage specified in § 413.40(c)(3) for the subject cost reporting period (79 FR 50197). For FY 2026, in accordance with §§ 412.22(i) and 412.526(c)(2)(ii) of the regulations, for cost reporting periods beginning during FY 2026, the proposed update to the target amount for extended neoplastic disease care VerDate Sep 2014 00:36 Aug 02, 2025 Jkt 265001 PO 00000 Frm 00436 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 36971 hospitals (that is, hospitals described under § 412.22(i)) was the applicable annual rate-of-increase percentage specified in § 413.40(c)(3), which was estimated to be the proposed percentage increase in the proposed 2023-based IPPS operating market basket (that is, the estimate of l rate-of-increase percentage specified in § 413.40(c)(3), which was estimated to be the proposed percentage increase in the proposed 2023-based IPPS operating market basket (that is, the estimate of the market basket rate- of-increase). Accordingly, the proposed update to an extended neoplastic disease care hospital’s target amount for FY 2026 was 3.2 percent, which was based on IGI’s fourth quarter 2024 forecast. Furthermore, we proposed that if more recent data became available for the FY 2026 IPPS/LTCH PPS final rule, we would use such data, if appropriate, to calculate the IPPS operating market basket rate of increase for FY 2026. As discussed in section IV of the preamble of this FY 2026 IPPS/LTCH PPS final rule, we finalized the rebasing of the IPPS operating market basket to a 2023 base year without modification. However, more recent data has become available. Based on IGI’s second quarter 2025 forecast, we estimate that the 2023- based IPPS operating market basket percentage increase for FY 2026 is 3.3 percent (that is, the estimate of the market basket rate-of-increase). Accordingly, the FY 2026 rate-of- increase percentage that we will apply to the FY 2025 target amounts ncrease for FY 2026 is 3.3 percent (that is, the estimate of the market basket rate-of-increase). Accordingly, the FY 2026 rate-of- increase percentage that we will apply to the FY 2025 target amounts in order to calculate the FY 2026 target amounts to an extended neoplastic disease care hospital is 3.3 percent, which is based on IGI’s second quarter 2025 forecast. We received no comments on this proposal and therefore are finalizing this provision without modification. Incorporating more recent data available for this final rule, as we proposed, we are adopting a 3.3 percent update for FY 2026. B. Report on Adjustment (Exception) Payments Section 4419(b) of Public Law 105–33 requires the Secretary to publish annually in the Federal Register a report describing the total amount of adjustment payments made to excluded hospitals and hospital units by reason of section 1886(b)(4) of the Act during the previous fiscal year. The process of requesting, reviewing, and awarding an adjustment payment is likely to occur over a 2-year period or longer. First, generally, an excluded hospital must file its cost report for the fiscal year in accordance with § 413.24(f)(2) of the regulations. The ayment is likely to occur over a 2-year period or longer. First, generally, an excluded hospital must file its cost report for the fiscal year in accordance with § 413.24(f)(2) of the regulations. The MAC reviews the cost report and issues a notice of provider reimbursement (NPR). Once the hospital receives the NPR, if its operating costs are in excess of the ceiling, the hospital may file a request for an adjustment payment. After the MAC receives the hospital’s request in accordance with applicable regulations, the MAC or CMS, depending on the type of adjustment requested, reviews the request and determines if an adjustment payment is warranted. This determination is sometimes not made until more than 180 days after the date the request is filed because there are times when the request applications are incomplete and additional information must be requested in order to have a completed request application. However, in an attempt to provide interested parties with data on the most recent adjustment payments for which we have data, we are publishing data on adjustment payments that were processed by the MAC or CMS during FY 2024. The table that follows includes the most recent data ent adjustment payments for which we have data, we are publishing data on adjustment payments that were processed by the MAC or CMS during FY 2024. The table that follows includes the most recent data available from the MACs and CMS on adjustment payments that were adjudicated during FY 2024. As indicated previously, the adjustments made during FY 2024 only pertain to cost reporting periods ending in years prior to FY 2024. Total adjustment payments made to IPPS- excluded hospitals during FY 2024 are $93,308,651. The table depicts for each class of hospitals, in the aggregate, the number of adjustment requests adjudicated, the excess operating costs over the ceiling, and the amount of the adjustment payments. C. Critical Access Hospitals (CAHs) 1. Background Section 1820 of the Act provides for the establishment of Medicare Rural Hospital Flexibility Programs (MRHFPs), under which individual States may designate certain facilities as critical access hospitals (CAHs). Facilities that are so designated and meet the CAH conditions of participation under 42 CFR part 485, subpart F, will be certified as CAHs by CMS. Regulations governing payments to CAHs for services to Medicare benefic e so designated and meet the CAH conditions of participation under 42 CFR part 485, subpart F, will be certified as CAHs by CMS. Regulations governing payments to CAHs for services to Medicare beneficiaries are located in 42 CFR part 413. 2. Frontier Community Health Integration Project Demonstration a. Introduction The Frontier Community Health Integration Project Demonstration was originally authorized by section 123 of the Medicare Improvements for Patients and Providers Act of 2008 (Pub. L. 110– 275). The demonstration has been extended by section 129 of the Consolidated Appropriations Act, 2021 (Pub. L. 116–260) for an additional 5 years. In this final rule, we are summarizing the status of the demonstration program, and the ongoing methodologies for implementation and budget neutrality for the demonstration extension period. b. Background and Overview As discussed in the FY 2025 IPPS/ LTCH PPS final rule (89 FR 69416 through 69419), section 123 of the Medicare Improvements for Patients and Providers Act of 2008, as amended by section 3126 of the Affordable Care Act, authorized a demonstration project to allow eligible entities to develop and test new models for the delivery o tients and Providers Act of 2008, as amended by section 3126 of the Affordable Care Act, authorized a demonstration project to allow eligible entities to develop and test new models for the delivery of health care services in eligible counties in order to improve access to and better integrate the delivery of acute care, extended care and other health care services to Medicare beneficiaries. The demonstration was titled ‘‘Demonstration Project on Community Health Integration Models in Certain Rural Counties,’’ and commonly known as the Frontier Community Health Integration Project (FCHIP) Demonstration. VerDate Sep 2014 00:36 Aug 02, 2025 Jkt 265001 PO 00000 Frm 00437 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 / > H P G 2014 00:36 Aug 02, 2025 Jkt 265001 PO 00000 Frm 00438 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 36973 Medicare physician fee schedule, for the distant site telehealth services furnished by physicians and practitioners who have reassigned thei 147 / Monday, August 4, 2025 / Rules and Regulations 36973 Medicare physician fee schedule, for the distant site telehealth services furnished by physicians and practitioners who have reassigned their billing rights to the CAH. For distant site telehealth services furnished by physicians or practitioners who have not reassigned billing rights to a participating CAH, payment to the distant site physician or practitioner would continue to be made as usual under the Medicare physician fee schedule. Except as described herein, CMS does not waive any other provisions of section 1834(m) of the Act for purposes of the telehealth services intervention payments, including the scope of Medicare telehealth services as established under section 1834(m)(4)(F) of the Act. (2) Ambulance Services Intervention Payments CMS waives 42 CFR 413.70(b)(5)(i)(D) and section 1834(l)(8) of the Act, which provides that payment for ambulance services furnished by a CAH, or an entity owned and operated by a CAH, is 101 percent of the reasonable costs of the CAH or the entity in furnishing the ambulance services, but only if the CAH or the entity is the only provider or supplier of ambulance services located w is 101 percent of the reasonable costs of the CAH or the entity in furnishing the ambulance services, but only if the CAH or the entity is the only provider or supplier of ambulance services located within a 35-mile drive of the CAH, excluding ambulance providers or suppliers that are not legally authorized to furnish ambulance services to transport individuals to or from the CAH. The participating CAH would be paid 101 percent of reasonable costs for its ambulance services regardless of whether there is any provider or supplier of ambulance services located within a 35-mile drive of the participating CAH or participating CAH- owned and operated entity. CMS would not make cost-based payment to the participating CAH for any new capital (for example, vehicles) associated with ambulance services. This waiver does not modify any other Medicare rules regarding or affecting the provision of ambulance services. (3) SNF/NF Beds Expansion Intervention Payments CMS waives 42 CFR 485.620(a) and 485.645(a)(2) and section 1820(c)(2)(B)(iii) of the Act which limit CAHs to maintaining no more than 25 inpatient beds, including beds available for acute inpatient or swing bed services. CMS waives se 85.645(a)(2) and section 1820(c)(2)(B)(iii) of the Act which limit CAHs to maintaining no more than 25 inpatient beds, including beds available for acute inpatient or swing bed services. CMS waives section 1820(f) of the Act permitting designating or certifying a facility as a critical access hospital for which the facility at any time is furnishing inpatient beds which exceed more than 25 beds. Under this waiver, if the participating CAH has received swing bed approval from CMS, the participating CAH may maintain up to ten additional beds (for a total of 35 beds) available for acute inpatient or swing bed services; however, the participating CAH may only use these 10 additional beds for nursing facility or skilled nursing facility level of care. CMS would pay the participating CAH 101 percent of reasonable costs for its SNF/NF services furnished in the 10 additional beds. d. Budget Neutrality (1) Budget Neutrality Requirement In the FY 2022 IPPS/LTCH PPS final rule (86 FR 45323 through 45328), we finalized a policy to address the budget neutrality requirement for the demonstration initial period. As explained in the FY 2022 IPPS/LTCH PPS final rule, we based our selection of CAHs h 45328), we finalized a policy to address the budget neutrality requirement for the demonstration initial period. As explained in the FY 2022 IPPS/LTCH PPS final rule, we based our selection of CAHs for participation in the demonstration with the goal of maintaining the budget neutrality of the demonstration on its own terms meaning that the demonstration would produce savings from reduced transfers and admissions to other health care providers, offsetting any increase in Medicare payments as a result of the demonstration. However, because of the small size of the demonstration and uncertainty associated with the projected Medicare utilization and costs, the policy we finalized for the demonstration initial period of performance in the FY 2022 IPPS/LTCH PPS final rule provides a contingency plan to ensure that the budget neutrality requirement in section 123 of Public Law 110–275 is met. In the FY 2023 IPPS/LTCH PPS final rule (87 FR 49144 through 49147), we adopted the same budget neutrality policy contingency plan used during the demonstration initial period to ensure that the budget neutrality requirement in section 123 of Public Law 110–275 is met during the demonstration exte utrality policy contingency plan used during the demonstration initial period to ensure that the budget neutrality requirement in section 123 of Public Law 110–275 is met during the demonstration extension period. If analysis of claims data for Medicare beneficiaries receiving services at each of the participating CAHs, as well as from other data sources, including cost reports for the participating CAHs, shows that increases in Medicare payments under the demonstration during the 5-year extension period are not sufficiently offset by reductions elsewhere, we would recoup the additional expenditures attributable to the demonstration through a reduction in payments to all CAHs nationwide. As explained in the FY 2023 IPPS/ LTCH PPS final rule, because of the small scale of the demonstration, we indicated that we did not believe it would be feasible to implement budget neutrality for the demonstration extension period by reducing payments to only the participating CAHs. Therefore, in the event that this demonstration extension period is found to result in aggregate payments in excess of the amount that would have been paid if this demonstration extension period were not implemented, C event that this demonstration extension period is found to result in aggregate payments in excess of the amount that would have been paid if this demonstration extension period were not implemented, CMS policy is to comply with the budget neutrality requirement finalized in the FY 2023 IPPS/LTCH PPS final rule, by reducing payments to all CAHs, not just those participating in the demonstration extension period. In the FY 2023 IPPS/LTCH PPS final rule (87 FR 49144 through 49147), we stated that we believe it is appropriate to make any payment reductions across all CAHs because the FCHIP Demonstration was specifically designed to test innovations that affect delivery of services by the CAH provider category. We explained our belief that the language of the statutory budget neutrality requirement at section 123(g)(1)(B) of Public Law 110–275 permits the agency to implement the budget neutrality provision in this manner. The statutory language merely refers to ensuring that aggregate payments made by the Secretary do not exceed the amount which the Secretary estimates would have been paid if the demonstration project was not implemented and does not identify the range across which aggr nts made by the Secretary do not exceed the amount which the Secretary estimates would have been paid if the demonstration project was not implemented and does not identify the range across which aggregate payments must be held equal. In the FY 2023 IPPS/LTCH PPS final rule, we finalized a policy that in the event the demonstration extension period is found not to have been budget neutral, any excess costs would be recouped within one fiscal year. We explained our belief that this policy is a more efficient timeframe for the government to conclude the demonstration operational requirements (such as analyzing claims data, cost report data or other data sources) to adjudicate the budget neutrality payment recoupment process due to any excess cost that occurred as result of the demonstration extension period. (2) FCHIP Budget Neutrality Methodology and Analytical Approach As explained in the FY 2022 IPPS/ LTCH PPS final rule, we finalized a policy to address the demonstration budget neutrality methodology and analytical approach for the initial period of the demonstration. In the FY 2023 IPPS/LTCH PPS final rule, we finalized a policy to adopt the budget neutrality methodology and ana ality methodology and analytical approach for the initial period of the demonstration. In the FY 2023 IPPS/LTCH PPS final rule, we finalized a policy to adopt the budget neutrality methodology and analytical approach used during the demonstration initial period to ensure budget neutrality for the extension period. The analysis of VerDate Sep 2014 00:36 Aug 02, 2025 Jkt 265001 PO 00000 Frm 00439 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 36974 Federal Register / Vol. 90, No. 147 / Monday, August 4, 2025 / Rules and Regulations budget neutrality during the initial period of the demonstration identified both the costs related to providing the intervention services under the FCHIP Demonstration and any potential downstream effects of the intervention- related services, including any savings that may have accrued. The budget neutrality analytical approach for the demonstration initial period incorporated two major data components: (1) Medicare cost reports; and (2) Medicare administrative claims. As described in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45323 through 45328), CMS computed the cost of the demonstrati omponents: (1) Medicare cost reports; and (2) Medicare administrative claims. As described in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45323 through 45328), CMS computed the cost of the demonstration for each fiscal year of the demonstration initial period using Medicare cost reports for the participating CAHs, and Medicare administrative claims and enrollment data for beneficiaries who received demonstration intervention services. In addition, in order to capture the full impact of the interventions, CMS developed a statistical modeling, Difference-in-Difference (DiD) regression analysis to estimate demonstration expenditures and compute the impact of expenditures on the intervention services by comparing cost data for the demonstration and non- demonstration groups using Medicare administrative claims across the demonstration period of performance under the initial period of the demonstration. The DiD regression analysis would compare the direct cost and potential downstream effects of intervention services, including any savings that may have accrued, during the baseline and performance period for both the demonstration and comparison groups. Second, the Medicare administrati ts of intervention services, including any savings that may have accrued, during the baseline and performance period for both the demonstration and comparison groups. Second, the Medicare administrative claims analysis would be reconciled using data obtained from auditing the participating CAHs’ Medicare cost reports. We would estimate the costs of the demonstration using ‘‘as submitted’’ cost reports for each hospital’s financial fiscal year participation within each of the demonstration extension period performance years. Each CAH has its own Medicare cost report end date applicable to the 5-year period of performance for the demonstration extension period. The cost report is structured to gather costs, revenues and statistical data on the provider’s financial fiscal period. As a result, we finalized a policy in the FY 2023 IPPS/ LTCH PPS final rule that we would determine the final budget neutrality results for the demonstration extension once complete data is available for each CAH for the demonstration extension period. e. Policies for Implementing the 5-year Extension and Provisions Authorized by Section 129 of the Consolidated Appropriations Act, 2021 (Pub. L. 116– 260) As s for the demonstration extension period. e. Policies for Implementing the 5-year Extension and Provisions Authorized by Section 129 of the Consolidated Appropriations Act, 2021 (Pub. L. 116– 260) As stated in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69416 through 69419), our policy for implementing the 5-year extension period for section 129 of Public Law 116–260 follows same budget neutrality methodology and analytical approach as the demonstration initial period methodology. While we expect to use the same methodology that was used to assess the budget neutrality of the FCHIP Demonstration during initial period of the demonstration to assess the financial impact of the demonstration during this extension period, upon receiving data for the extension period, we may update and/ or modify the FCHIP budget neutrality methodology and analytical approach to ensure that the full impact of the demonstration is appropriately captured. Comment: Commenters expressed support of the FCHIP demonstration, and conveyed the demonstration ‘‘Intervention Payment and Payment Waivers’’ are vital for improving access and care coordination in extremely rural communities, where workforce shortages, t nstration, and conveyed the demonstration ‘‘Intervention Payment and Payment Waivers’’ are vital for improving access and care coordination in extremely rural communities, where workforce shortages, travel distances, and infrastructure limitations pose persistent barriers to timely, high- quality care. Commenters recommended CMS publicly report key findings from the FCHIP evaluation and/or preliminary reports. The commenters expressed these reports would be essential to understanding whether the demonstration has improved access and reduced disparities in the targeted regions. Commenters expressed lessons learned from the demonstration findings could be essential to help inform future innovations in rural health care delivery and to ensure that Medicare payment policy supports sustainable models of care in frontier communities. The commenters expressed the importance of transparency as CMS implements the demonstration project to help build trust and to maintain stable participation among rural stakeholders. Commenters urge CMS, as the demonstration progresses, to clearly communicate the demonstration budget neutrality methodology and analytical approach timeline and describe any po ng rural stakeholders. Commenters urge CMS, as the demonstration progresses, to clearly communicate the demonstration budget neutrality methodology and analytical approach timeline and describe any potential future budget neutrality payment adjustments associated with FCHIP demonstration and payment waivers. In addition, the commenters requested CMS to increase the number of hospitals participating in the demonstration. Specifically, commenters explained CMS should explore options for scaling successful components of the FCHIP model more broadly, particularly to other rural areas with similar access challenges. Response: We appreciate the commenter’s support of the demonstration project and the demonstration intervention payment and payment waivers. The authorizing legislation under section 123(h)(2) of Public Law 110–275 requires CMS to submit a final report to the Congress, no later than 1 year after the completion of the demonstration project. In 2020, CMS published a final report to Congress and an evaluation report covering the initial period of the demonstration. CMS will submit a final report to Congress covering the demonstration extension period of performance no later tha o Congress and an evaluation report covering the initial period of the demonstration. CMS will submit a final report to Congress covering the demonstration extension period of performance no later than 1 year after completion of the extension period. Currently, rural stakeholders may monitor the progress of the demonstration, and any preliminary findings and reports via the FCHIP demonstration website. We acknowledge the commenter’s request for CMS to expand the number of hospitals participating in the demonstration. However, we note that section 129(b)(2)(C) of Public Law 116– 260, stipulates ‘‘[a]n entity shall only be eligible to participate in the demonstration project under this section during the extension period if the entity participated in the demonstration project under this section during the initial period.’’ As such, expanding the number of hospitals participating within the demonstration would require legislative action to increase the number of eligible entities, as defined in section 129(b)(2)(C) of Public Law 116–260. After consideration of the public comments we received, we are continuing our previously stated policy to adopt the same budget neutrality methodolog ned in section 129(b)(2)(C) of Public Law 116–260. After consideration of the public comments we received, we are continuing our previously stated policy to adopt the same budget neutrality methodology and analytical approach used during the demonstration initial period for the demonstration extension period without modification. f. Total Budget Neutrality Offset Amount for FY 2026 At this time, for the FY 2026 IPPS/ LTCH PPS final rule, while this discussion represents our anticipated approach to assessing the financial impact of the demonstration extension period based on upon receiving data for the full demonstration extension period, we may update and/or modify the FCHIP Demonstration budget neutrality methodology and analytical approach to VerDate Sep 2014 00:36 Aug 02, 2025 Jkt 265001 PO 00000 Frm 00440 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 36975 ensure that the full impact of the demonstration is appropriately captured. Therefore, we did not propose to apply a budget neutrality payment offset to payments to CAHs in F les and Regulations 36975 ensure that the full impact of the demonstration is appropriately captured. Therefore, we did not propose to apply a budget neutrality payment offset to payments to CAHs in FY 2026. This policy would have no impact for any national payment system for FY 2026. IX. Changes to the Long-Term Care Hospital Prospective Payment System (LTCH PPS) for FY 2026 A. Background of the LTCH PPS 1. Legislative and Regulatory Authority Section 123 of the Medicare, Medicaid, and SCHIP (State Children’s Health Insurance Program) Balanced Budget Refinement Act of 1999 (BBRA) (Pub. L. 106–113), as amended by section 307(b) of the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (BIPA) (Pub. L. 106–554), provides for payment for both the operating and capital-related costs of hospital inpatient stays in long-term care hospitals (LTCHs) under Medicare Part A based on prospectively set rates. The Medicare prospective payment system (PPS) for LTCHs applies to hospitals that are described in section 1886(d)(1)(B)(iv) of the Act, effective for cost reporting periods beginning on or after October 1, 2002. Section 1886(d)(1)(B)(iv)(I) of the Act originally to hospitals that are described in section 1886(d)(1)(B)(iv) of the Act, effective for cost reporting periods beginning on or after October 1, 2002. Section 1886(d)(1)(B)(iv)(I) of the Act originally defined an LTCH as a hospital that has an average inpatient length of stay (as determined by the Secretary) of greater than 25 days. Section 1886(d)(1)(B)(iv)(II) of the Act also provided an alternative definition of LTCHs (‘‘subclause II’’ LTCHs). However, section 15008 of the 21st Century Cures Act (Pub. L. 114–255) amended section 1886 of the Act to exclude former ‘‘subclause II’’ LTCHs from being paid under the LTCH PPS and created a new category of IPPS- excluded hospitals, which we refer to as ‘‘extended neoplastic disease care hospitals,’’ to be paid as hospitals that were formally classified as ‘‘subclause (II)’’ LTCHs (82 FR 38298). Section 123 of the BBRA requires the PPS for LTCHs to be a ‘‘per discharge’’ system with a diagnosis-related group (DRG) based patient classification system that reflects the differences in patient resource use and costs in LTCHs. Section 307(b)(1) of the BIPA, among other things, mandates that the Secretary shall examine, and may provide for, adj system that reflects the differences in patient resource use and costs in LTCHs. Section 307(b)(1) of the BIPA, among other things, mandates that the Secretary shall examine, and may provide for, adjustments to payments under the LTCH PPS, including adjustments to DRG weights, area wage adjustments, geographic reclassification, outliers, updates, and a disproportionate share adjustment. In the August 30, 2002, Federal Register (67 FR 55954), we issued a final rule that implemented the LTCH PPS authorized under the BBRA and BIPA. For the initial implementation of the LTCH PPS (FYs 2003 through 2007), the system used information from LTCH patient records to classify patients into distinct long-term care-diagnosis-related groups (LTCDRGs) based on clinical characteristics and expected resource needs. Beginning in FY 2008, we adopted the Medicare severity-long-term care-diagnosis related groups (MS–LTC– DRGs) as the patient classification system used under the LTCH PPS. Payments are calculated for each MS– LTC–DRG and provisions are made for appropriate payment adjustments. Payment rates under the LTCH PPS are updated annually and published in the Federal Register. The LTCH PPS replac lated for each MS– LTC–DRG and provisions are made for appropriate payment adjustments. Payment rates under the LTCH PPS are updated annually and published in the Federal Register. The LTCH PPS replaced the reasonable cost-based payment system under the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) (Pub. L. 97–248) for payments for inpatient services provided by an LTCH with a cost reporting period beginning on or after October 1, 2002. (The regulations implementing the TEFRA reasonable-cost-based payment provisions are located at 42 CFR part 413.) With the implementation of the PPS for acute care hospitals authorized by the Social Security Amendments of 1983 (Pub. L. 98–21), which added section 1886(d) to the Act, certain hospitals, including LTCHs, were excluded from the PPS for acute care hospitals and paid their reasonable costs for inpatient services subject to a per discharge limitation or target amount under the TEFRA system. For each cost reporting period, a hospital specific ceiling on payments was determined by multiplying the hospital’s updated target amount by the number of total current year Medicare discharges. (Generally, in this section of the preamble of specific ceiling on payments was determined by multiplying the hospital’s updated target amount by the number of total current year Medicare discharges. (Generally, in this section of the preamble of this final rule, when we refer to discharges, we describe Medicare discharges.) The August 30, 2002, final rule further details the payment policy under the TEFRA system (67 FR 55954). In the August 30, 2002, final rule, we provided for a 5-year transition period from payments under the TEFRA system to payments under the LTCH PPS. During this 5-year transition period, an LTCH’s total payment under the PPS was based on an increasing percentage of the Federal rate with a corresponding decrease in the percentage of the LTCH PPS payment that is based on reasonable cost concepts, unless an LTCH made a one-time election to be paid based on 100 percent of the Federal rate. Beginning with LTCHs’ cost reporting periods beginning on or after October 1, 2006, total LTCH PPS payments are based on 100 percent of the Federal rate. In addition, in the August 30, 2002, final rule, we presented an in-depth discussion of the LTCH PPS, including the patient classification system, relative weights, payme percent of the Federal rate. In addition, in the August 30, 2002, final rule, we presented an in-depth discussion of the LTCH PPS, including the patient classification system, relative weights, payment rates, additional payments, and the budget neutrality requirements mandated by section 123 of the BBRA. The same final rule that established regulations for the LTCH PPS under 42 CFR part 412, subpart O, also contained LTCH provisions related to covered inpatient services, limitation on charges to beneficiaries, medical review requirements, furnishing of inpatient hospital services directly or under arrangement, and reporting and recordkeeping requirements. We refer readers to the August 30, 2002, final rule for a comprehensive discussion of the research and data that supported the establishment of the LTCH PPS (67 FR 55954). In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49601 through 49623), we implemented the provisions of the Pathway for Sustainable Growth Rate (SGR) Reform Act of 2013 (Pub. L. 113– 67), which mandated the application of the ‘‘site neutral’’ payment rate under the LTCH PPS for discharges that do not meet the statutory criteria for exclusion beginning in FY 2016. 013 (Pub. L. 113– 67), which mandated the application of the ‘‘site neutral’’ payment rate under the LTCH PPS for discharges that do not meet the statutory criteria for exclusion beginning in FY 2016. For cost reporting periods beginning on or after October 1, 2015, discharges that do not meet certain statutory criteria for exclusion are paid based on the site neutral payment rate. Discharges that do meet the statutory criteria continue to receive payment based on the LTCH PPS standard Federal payment rate. For more information on the statutory requirements of the Pathway for SGR Reform Act of 2013, we refer readers to the FY 2016 IPPS/LTCH PPS final rule (80 FR 49601 through 49623) and the FY 2017 IPPS/LTCH PPS final rule (81 FR 57068 through 57075). In the FY 2018 IPPS/LTCH PPS final rule, we implemented several provisions of the 21st Century Cures Act (‘‘the Cures Act’’) (Pub. L. 114–255) that affected the LTCH PPS. (For more information on these provisions, we refer readers to (82 FR 38299).) In the FY 2019 IPPS/LTCH PPS final rule (83 FR 41529), we made conforming changes to our regulations to implement the provisions of section 51005 of the Bipartisan Budget Act of 2018 (Pub. FR 38299).) In the FY 2019 IPPS/LTCH PPS final rule (83 FR 41529), we made conforming changes to our regulations to implement the provisions of section 51005 of the Bipartisan Budget Act of 2018 (Pub. L. 115–123), which extends the transitional blended payment rate VerDate Sep 2014 00:36 Aug 02, 2025 Jkt 265001 PO 00000 Frm 00441 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 36976 Federal Register / Vol. 90, No. 147 / Monday, August 4, 2025 / Rules and Regulations for site neutral payment rate cases for an additional 2 years. We refer readers to section VII.C. of the preamble of the FY 2019 IPPS/LTCH PPS final rule for a discussion of our final policy. In addition, in the FY 2019 IPPS/LTCH PPS final rule, we removed the 25- percent threshold policy under 42 CFR 412.538, which was a payment adjustment that was applied to payments for Medicare patient LTCH discharges when the number of such patients originating from any single referring hospital was in excess of the applicable threshold for given cost reporting period. In the FY 2020 IPPS/LTCH PPS final rule (84 FR 42439), we further revised our regulations to implem single referring hospital was in excess of the applicable threshold for given cost reporting period. In the FY 2020 IPPS/LTCH PPS final rule (84 FR 42439), we further revised our regulations to implement the provisions of the Pathway for SGR Reform Act of 2013 (Pub. L. 113–67) that relate to the payment adjustment for discharges from LTCHs that do not maintain the requisite discharge payment percentage and the process by which such LTCHs may have the payment adjustment discontinued. 2. Criteria for Classification as an LTCH a. Classification as an LTCH Under the regulations at § 412.23(e)(1), to qualify to be paid under the LTCH PPS, a hospital must have a provider agreement with Medicare. Furthermore, § 412.23(e)(2)(i), which implements section 1886(d)(1)(B)(iv) of the Act, requires that a hospital have an average Medicare inpatient length of stay of greater than 25 days to be paid under the LTCH PPS. In accordance with section 1206(a)(3) of the Pathway for SGR Reform Act of 2013 (Pub. L. 113–67), as amended by section 15007 of Public Law 114–255, we amended our regulations to specify that Medicare Advantage plans’ and site neutral payment rate discharges are excluded from the cal . L. 113–67), as amended by section 15007 of Public Law 114–255, we amended our regulations to specify that Medicare Advantage plans’ and site neutral payment rate discharges are excluded from the calculation of the average length of stay for all LTCHs, for discharges occurring in cost reporting period beginning on or after October 1, 2015. b. Hospitals Excluded From the LTCH PPS The following hospitals are paid under special payment provisions, as described in § 412.22(c) and, therefore, are not subject to the LTCH PPS rules: • Veterans Administration hospitals. • Hospitals that are reimbursed under State cost control systems approved under 42 CFR part 403. • Hospitals that are reimbursed in accordance with demonstration projects authorized under section 402(a) of the Social Security Amendments of 1967 (Pub. L. 90–248) (42 U.S.C. 1395b–1), section 222(a) of the Social Security Amendments of 1972 (Pub. L. 92–603) (42 U.S.C. 1395b1 (note)) (Statewide-all payer systems, subject to the rate-of increase test at section 1814(b) of the Act), or section 3021 of the Patient Protection and Affordable Care Act (Pub. L. 111–148) (42 U.S.C. 1315a). • Nonparticipating hospitals furnishing emerg te-of increase test at section 1814(b) of the Act), or section 3021 of the Patient Protection and Affordable Care Act (Pub. L. 111–148) (42 U.S.C. 1315a). • Nonparticipating hospitals furnishing emergency services to Medicare beneficiaries. 3. Limitation on Charges to Beneficiaries In the August 30, 2002, final rule, we presented an in-depth discussion of beneficiary liability under the LTCH PPS (67 FR 55974 through 55975). This discussion was further clarified in the RY 2005 LTCH PPS final rule (69 FR 25676). In keeping with those discussions, if the Medicare payment to the LTCH is the full LTC–DRG payment amount, consistent with other established hospital prospective payment systems, § 412.507 currently provides that an LTCH may not bill a Medicare beneficiary for more than the deductible and coinsurance amounts as specified under §§ 409.82, 409.83, and 409.87, and for items and services specified under § 489.30(a). However, under the LTCH PPS, Medicare will only pay for services furnished during the days for which the beneficiary has coverage until the short-stay outlier (SSO) threshold is exceeded. If the Medicare payment was for a SSO case (in accordance with § 412.529), and t nished during the days for which the beneficiary has coverage until the short-stay outlier (SSO) threshold is exceeded. If the Medicare payment was for a SSO case (in accordance with § 412.529), and that payment was less than the full LTC– DRG payment amount because the beneficiary had insufficient coverage as a result of the remaining Medicare days, the LTCH also is currently permitted to charge the beneficiary for services delivered on those uncovered days (in accordance with § 412.507). In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49623), we amended our regulations to expressly limit the charges that may be imposed upon beneficiaries whose LTCHs’ discharges are paid at the site neutral payment rate under the LTCH PPS. In the FY 2017 IPPS/LTCH PPS final rule (81 FR 57102), we amended the regulations under § 412.507 to clarify our existing policy that blended payments made to an LTCH during its transitional period (that is, an LTCH’s payment for discharges occurring in cost reporting periods beginning in FYs 2016 through 2019) are considered to be site neutral payment rate payments. We received comments that are outside the scope of the proposed rule. For example, we received co g periods beginning in FYs 2016 through 2019) are considered to be site neutral payment rate payments. We received comments that are outside the scope of the proposed rule. For example, we received comments related to providing additional payments for end-stage renal disease (ESRD) patients in LTCHs, similar to the ESRD add-on payment for IPPS hospitals. Because we did not make any proposals related to additional payments for ESRD patients in LTCHs in the proposed rule, we consider these public comments to be outside the scope of the proposed rule, therefore we are not addressing the comment in this final rule. B. Medicare Severity Long-Term Care Diagnosis-Related Group (MS–LTC– DRG) Classifications and Relative Weights for FY 2026 1. Background Section 123 of the BBRA required that the Secretary implement a PPS for LTCHs to replace the cost-based payment system under TEFRA. Section 307(b)(1) of the BIPA modified the requirements of section 123 of the BBRA by requiring that the Secretary examine the feasibility and the impact of basing payment under the LTCH PPS on the use of existing (or refined) hospital DRGs that have been modified to account for different resource use of LTCH p ry examine the feasibility and the impact of basing payment under the LTCH PPS on the use of existing (or refined) hospital DRGs that have been modified to account for different resource use of LTCH patients. Under both the IPPS and the LTCH PPS, the DRG-based classification system uses information on the claims for inpatient discharges to classify patients into distinct groups (for example, DRGs) based on clinical characteristics and expected resource needs. When the LTCH PPS was implemented for cost reporting periods beginning on or after October 1, 2002, we adopted the same DRG patient classification system utilized at that time under the IPPS. We referred to this patient classification system as the ‘‘long-term care diagnosis-related groups (LTC–DRGs).’’ As part of our efforts to better recognize severity of illness among patients, in the FY 2008 IPPS final rule with comment period (72 FR 47130), we adopted the MS–DRGs and the Medicare severity long-term care diagnosis-related groups (MS–LTC– DRGs) under the IPPS and the LTCH PPS, respectively, effective beginning October 1, 2007 (FY 2008). For a full description of the development, implementation, and rationale for the use of ps (MS–LTC– DRGs) under the IPPS and the LTCH PPS, respectively, effective beginning October 1, 2007 (FY 2008). For a full description of the development, implementation, and rationale for the use of the MS–DRGs and MS–LTC– DRGs, we refer readers to the FY 2008 IPPS final rule with comment period (72 FR 47141 through 47175 and 47277 through 47299). (We note that, in that same final rule, we revised the regulations at § 412.503 to specify that for LTCH discharges occurring on or after October 1, 2007, when applying the provisions of 42 CFR part 412, subpart O, applicable to LTCHs for policy descriptions and payment calculations, all references to LTC– DRGs would be considered a reference VerDate Sep 2014 00:36 Aug 02, 2025 Jkt 265001 PO 00000 Frm 00442 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 36977 to MS–LTC–DRGs. For the remainder of this section, we present the discussion in terms of the current MS–LTC–DRG patient classification system unless specifically referring to the previous LTC–DRG patient classification system that wa of this section, we present the discussion in terms of the current MS–LTC–DRG patient classification system unless specifically referring to the previous LTC–DRG patient classification system that was in effect before October 1, 2007.) Consistent with section 123 of the BBRA, as amended by section 307(b)(1) of the BIPA, and § 412.515 of the regulations, we use information derived from LTCH PPS patient records to classify LTCH discharges into distinct MS–LTC–DRGs based on clinical characteristics and estimated resource needs. As noted previously, we adopted the same DRG patient classification system utilized at that time under the IPPS. The MS–DRG classifications are updated annually, which has resulted in the number of MS–DRGs changing over time. For FY 2026, there will be 772 MS–DRG, and by extension, MS–LTC– DRG, groupings based on the changes, as discussed in section II.C. of the preamble of this final rule. Although the patient classification system used under both the LTCH PPS and the IPPS are the same, the relative weights are different. The established relative weight methodology and data used under the LTCH PPS result in relative weights under the LTCH PPS that reflect the d the IPPS are the same, the relative weights are different. The established relative weight methodology and data used under the LTCH PPS result in relative weights under the LTCH PPS that reflect the differences in patient resource use of LTCH patients, consistent with section 123(a)(1) of the BBRA. That is, we assign an appropriate weight to the MS–LTC–DRGs to account for the differences in resource use by patients exhibiting the case complexity and multiple medical problems characteristic of LTCH patients. 2. Patient Classifications Into MS–LTC– DRGs a. Background The MS–DRGs (used under the IPPS) and the MS–LTC–DRGs (used under the LTCH PPS) are based on the CMS DRG structure. As noted previously in this section, we refer to the DRGs under the LTCH PPS as MS–LTC–DRGs although they are structurally identical to the MS–DRGs used under the IPPS. The MS–DRGs are organized into 25 major diagnostic categories (MDCs), most of which are based on a particular organ system of the body; the remainder involve multiple organ systems (such as MDC 22, Burns). Within most MDCs, cases are then divided into surgical DRGs and medical DRGs. Surgical DRGs are assigned based on a surgical hierarchy emainder involve multiple organ systems (such as MDC 22, Burns). Within most MDCs, cases are then divided into surgical DRGs and medical DRGs. Surgical DRGs are assigned based on a surgical hierarchy that orders operating room (O.R.) procedures or groups of O.R. procedures by resource intensity. The GROUPER software program does not recognize all ICD–10–PCS procedure codes as procedures affecting DRG assignment. That is, procedures that are not surgical (for example, EKGs) or are minor surgical procedures (for example, a biopsy of skin and subcutaneous tissue (procedure code 0JBH3ZX)) do not affect the MS–LTC–DRG assignment based on their presence on the claim. Generally, under the LTCH PPS, a Medicare payment is made at a predetermined specific rate for each discharge that varies based on the MS– LTC–DRG to which a beneficiary’s discharge is assigned. Cases are classified into MS–LTC–DRGs for payment based on the following six data elements: • Principal diagnosis. • Additional or secondary diagnoses. • Surgical procedures. • Age. • Sex. • Discharge status of the patient. Currently, for claims submitted using the version ASC X12 5010 standard, up to 25 diagnosis codes and 25 proced ndary diagnoses. • Surgical procedures. • Age. • Sex. • Discharge status of the patient. Currently, for claims submitted using the version ASC X12 5010 standard, up to 25 diagnosis codes and 25 procedure codes are considered for an MS–DRG assignment. This includes one principal diagnosis and up to 24 secondary diagnoses for severity of illness determinations. (For additional information on the processing of up to 25 diagnosis codes and 25 procedure codes on hospital inpatient claims, we refer readers to section II.G.11.c. of the preamble of the FY 2011 IPPS/LTCH PPS final rule (75 FR 50127).) Under the HIPAA transactions and code sets regulations at 45 CFR parts 160 and 162, covered entities (45 CFR 160.103) must comply with the adopted transaction standards and operating rules specified in subparts I through S of part 162. Among other requirements, on or after January 1, 2012, covered entities are required to use the ASC X12 Standards for Electronic Data Interchange Technical Report Type 3— Health Care Claim: Institutional (837), May 2006, ASC X12N/005010X223, and Type 1 Errata to Health Care Claim: Institutional (837) ASC X12 Standards for Electronic Data Interchange Technical Re ype 3— Health Care Claim: Institutional (837), May 2006, ASC X12N/005010X223, and Type 1 Errata to Health Care Claim: Institutional (837) ASC X12 Standards for Electronic Data Interchange Technical Report Type 3, October 2007, ASC X12N/005010X233A1 for the health care claims or equivalent encounter information transaction (45 CFR 162.1102(c)). HIPAA requires covered entities to use the applicable medical data code sets when conducting HIPAA transactions (45 CFR 162.1000). Currently, upon the discharge of the patient, the LTCH must assign appropriate diagnosis and procedure codes from the International Classification of Diseases, 10th Revision, Clinical Modification (ICD– 10–CM) for diagnosis coding and the International Classification of Diseases, 10th Revision, Procedure Coding System (ICD–10–PCS) for inpatient hospital procedure coding, both of which were required to be implemented October 1, 2015 (45 CFR 162.1002(c)(2) and (3)). For additional information on the implementation of the ICD–10 coding system, we refer readers to section II.F.1. of the preamble of the FY 2017 IPPS/LTCH PPS final rule (81 FR 56787 through 56790) and section II.E.1. of the preamble of this final rule. e ICD–10 coding system, we refer readers to section II.F.1. of the preamble of the FY 2017 IPPS/LTCH PPS final rule (81 FR 56787 through 56790) and section II.E.1. of the preamble of this final rule. Additional coding instructions and examples are published in the AHA’s Coding Clinic for ICD–10–CM/PCS. To create the MS–DRGs (and by extension, the MS–LTC–DRGs), base DRGs were subdivided according to the presence of specific secondary diagnoses designated as complications or comorbidities (CCs) into one, two, or three levels of severity, depending on the impact of the CCs on resources used for those cases. Specifically, there are sets of MS–DRGs that are split into 2 or 3 subgroups based on the presence or absence of a CC or a major complication or comorbidity (MCC). We refer readers to section II.D. of the preamble of the FY 2008 IPPS final rule with comment period for a detailed discussion about the creation of MS–DRGs based on severity of illness levels (72 FR 47141 through 47175). Medicare Administrative Contractors (MACs) enter the clinical and demographic information submitted by LTCHs into their claims processing systems and subject this information to a series of automated sc dicare Administrative Contractors (MACs) enter the clinical and demographic information submitted by LTCHs into their claims processing systems and subject this information to a series of automated screening processes called the Medicare Code Editor (MCE). These screens are designed to identify cases that require further review before assignment into a MS–LTC–DRG can be made. During this process, certain types of cases are selected for further explanation (74 FR 43949). After screening through the MCE, each claim is classified into the appropriate MS–LTC–DRG by the Medicare LTCH GROUPER software on the basis of diagnosis and procedure codes and other demographic information (age, sex, and discharge status). The GROUPER software used under the LTCH PPS is the same GROUPER software program used under the IPPS. Following the MS–LTC–DRG assignment, the MAC determines the prospective payment amount by using the Medicare PRICER program, which accounts for hospital-specific adjustments. Under the LTCH PPS, we provide an opportunity for LTCHs to review the MS–LTC–DRG assignments made by the MAC and to submit VerDate Sep 2014 00:36 Aug 02, 2025 Jkt 265001 PO 00000 Frm 00443 Fmt 4701 Sfmt 47 the LTCH PPS, we provide an opportunity for LTCHs to review the MS–LTC–DRG assignments made by the MAC and to submit VerDate Sep 2014 00:36 Aug 02, 2025 Jkt 265001 PO 00000 Frm 00443 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 36978 Federal Register / Vol. 90, No. 147 / Monday, August 4, 2025 / Rules and Regulations additional information within a specified timeframe as provided in § 412.513(c). The GROUPER software is used both to classify past cases to measure relative hospital resource consumption to establish the MS–LTC–DRG relative weights and to classify current cases for purposes of determining payment. The records for all Medicare hospital inpatient discharges are maintained in the MedPAR file. The data in this file are used to evaluate possible MS–DRG and MS–LTC–DRG classification changes and to recalibrate the MS–DRG and MS–LTC–DRG relative weights during our annual update under both the IPPS (§ 412.60(e)) and the LTCH PPS (§ 412.517), respectively. b. Changes to the MS–LTC–DRGs for FY 2026 As specified by our regulations at § 412.517(a), which require that the MS– LTC–DRG classifications and relative and the LTCH PPS (§ 412.517), respectively. b. Changes to the MS–LTC–DRGs for FY 2026 As specified by our regulations at § 412.517(a), which require that the MS– LTC–DRG classifications and relative weights be updated annually, and consistent with our historical practice of using the same patient classification system under the LTCH PPS as is used under the IPPS, in this final rule, as we proposed, we updated the MS–LTC– DRG classifications effective October 1, 2025, through September 30, 2026 (FY 2026), consistent with the changes to specific MS–DRG classifications presented in section II.C. of the preamble of this final rule. Accordingly, the MS–LTC–DRGs for FY 2026 are the same as the MS–DRGs being used under the IPPS for FY 2026. In addition, because the MS–LTC–DRGs for FY 2026 are the same as the MS–DRGs for FY 2026, the other changes that affect MS– DRG (and by extension MS–LTC–DRG) assignments under GROUPER Version 43, as discussed in section II.C. of the preamble of this final rule, including the changes to the MCE software and the ICD–10–CM/PCS coding system, are also applicable under the LTCH PPS for FY 2026. 3. Development of the FY 2026 MS– LTC–DRG Relative Weights a. rule, including the changes to the MCE software and the ICD–10–CM/PCS coding system, are also applicable under the LTCH PPS for FY 2026. 3. Development of the FY 2026 MS– LTC–DRG Relative Weights a. General Overview of the MS–LTC– DRG Relative Weights One of the primary goals for the implementation of the LTCH PPS is to pay each LTCH an appropriate amount for the efficient delivery of medical care to Medicare patients. The system must be able to account adequately for each LTCH’s case-mix to ensure both fair distribution of Medicare payments and access to adequate care for those Medicare patients whose care is costlier (67 FR 55984). To accomplish these goals, we have annually adjusted the LTCH PPS standard Federal prospective payment rate by the applicable relative weight in determining payment to LTCHs for each case. Under the LTCH PPS, relative weights for each MS–LTC– DRG are a primary element used to account for the variations in cost per discharge and resource utilization among the payment groups (§ 412.515). To ensure that Medicare patients classified to each MS–LTC–DRG have access to an appropriate level of services and to encourage efficiency, we calculate a relative weig the payment groups (§ 412.515). To ensure that Medicare patients classified to each MS–LTC–DRG have access to an appropriate level of services and to encourage efficiency, we calculate a relative weight for each MS– LTC–DRG that represents the resources needed by an average inpatient LTCH case in that MS–LTC–DRG. For example, cases in an MS–LTC–DRG with a relative weight of 2 would, on average, cost twice as much to treat as cases in an MS–LTC–DRG with a relative weight of 1. The established methodology to develop the MS–LTC–DRG relative weights is generally consistent with the methodology established when the LTCH PPS was implemented in the August 30, 2002, LTCH PPS final rule (67 FR 55989 through 55991). However, there have been some modifications of our historical procedures for assigning relative weights in cases of zero volume or nonmonotonicity or both resulting from the adoption of the MS–LTC– DRGs. We also made a modification in conjunction with the implementation of the dual rate LTCH PPS payment structure beginning in FY 2016 to use LTCH claims data from only LTCH PPS standard Federal payment rate cases (or LTCH PPS cases that would have qualified for payment under the LT ate LTCH PPS payment structure beginning in FY 2016 to use LTCH claims data from only LTCH PPS standard Federal payment rate cases (or LTCH PPS cases that would have qualified for payment under the LTCH PPS standard Federal payment rate if the dual rate LTCH PPS payment structure had been in effect at the time of the discharge). We also adopted, beginning in FY 2023, a 10-percent cap policy on the reduction in a MS–LTC– DRG’s relative weight in a given year. (For details on the modifications to our historical procedures for assigning relative weights in cases of zero volume and nonmonotonicity or both, we refer readers to the FY 2008 IPPS final rule with comment period (72 FR 47289 through 47295) and the FY 2009 IPPS final rule (73 FR 48542 through 48550)). For details on the change in our historical methodology to use LTCH claims data only from LTCH PPS standard Federal payment rate cases (or cases that would have qualified for such payment had the LTCH PPS dual payment rate structure been in effect at the time) to determine the MS–LTC– DRG relative weights, we refer readers to the FY 2016 IPPS/LTCH PPS final rule (80 FR 49614 through 49617). For details on our adoption of the 10- been in effect at the time) to determine the MS–LTC– DRG relative weights, we refer readers to the FY 2016 IPPS/LTCH PPS final rule (80 FR 49614 through 49617). For details on our adoption of the 10- percent cap policy, we refer readers to the FY 2023 IPPS/LTCH PPS final rule (87 FR 49152 through 49154). For purposes of determining the MS– LTC–DRG relative weights, under our historical methodology, there are three different categories of MS–LTC–DRGs based on volume of cases within specific MS–LTC–DRGs: (1) MS–LTC– DRGs with at least 25 applicable LTCH cases in the data used to calculate the relative weight, which are each assigned a unique relative weight; (2) low-volume MS–LTC–DRGs (that is, MS–LTC–DRGs that contain between 1 and 24 applicable LTCH cases that are grouped into quintiles (as described later in this section in Step 3 of our methodology) and assigned the relative weight of the quintile); and (3) no-volume MS–LTC– DRGs that are cross-walked to other MS–LTC–DRGs based on the clinical similarities and assigned the relative weight of the cross-walked MS–LTC– DRG (as described later in this section in Step 8 of our methodology). For FY 2026, we are continuing to use appli he clinical similarities and assigned the relative weight of the cross-walked MS–LTC– DRG (as described later in this section in Step 8 of our methodology). For FY 2026, we are continuing to use applicable LTCH cases to establish the same volume-based categories to calculate the FY 2026 MS–LTC–DRG relative weights. b. Development of the MS–LTC–DRG Relative Weights for FY 2026 In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18314 through 18320), we presented our proposed methodology for determining the MS– LTC–DRG relative weights for FY 2026. Comment: We received several comments requesting that CMS modify certain high-volume MS–LTC–DRGs to better account for the variation in patient severity and costs among the cases grouped to these MS–LTC–DRGs. A few commenters recommended that CMS split certain high-volume MS– LTC–DRGs based on the presence or absence of a CC or a MCC, which is not currently done for these particular MS– LTC–DRGs. Response: Since these comments were primarily focused on the impact these high-volume MS–LTC–DRGs have on the FY 2026 outlier fixed-loss amount, we have fully summarized and responded to these comments in section V.D.3. of the Addendum to this final used on the impact these high-volume MS–LTC–DRGs have on the FY 2026 outlier fixed-loss amount, we have fully summarized and responded to these comments in section V.D.3. of the Addendum to this final rule. Comment: We received comments urging CMS to adjust the proposed methodologies for determining the FY 2026 LTCH PPS rates to account for the impact of the COVID–19 pandemic on the underlying ratesetting data. A commenter expressed particular concern about the use of FY 2023 cost report data in the determination of the VerDate Sep 2014 00:36 Aug 02, 2025 Jkt 265001 PO 00000 Frm 00444 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 36979 MS–LTC–DRG relative weights, noting that these data reflect patient acuity and cost trends unlikely to persist in FY 2026. Response: We thank the commenter for their feedback. As discussed in Step 6 of our methodology, the MS–LTC– DRG relative weights are calculated using the hospital-specific relative weights methodology, which relies on charges from historical Medicare LTCH claims data rather than ur methodology, the MS–LTC– DRG relative weights are calculated using the hospital-specific relative weights methodology, which relies on charges from historical Medicare LTCH claims data rather than data from historical cost reports. As discussed in Step 1 of our methodology, we proposed to use charge data from the FY 2024 MedPAR file. Therefore, we do not agree that a modification to our methodology for determining the relative weights is warranted. After consideration of the comments we received, we are finalizing, without modification, our proposed methodology for determining the MS– LTC–DRG relative weights for FY 2026. In the remainder of this section, we present our finalized methodology. We first list and provide a brief description of our steps for determining the FY 2026 MS–LTC–DRG relative weights. We then, later in this section, discuss in greater detail each step. We note that, as we did in FY 2025, we used our historical relative weight methodology as described in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58898 through 58907), subject to a ten percent cap as described in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49162). • Step 1—Prepare data for MS–LTC– DRG relati 2021 IPPS/LTCH PPS final rule (85 FR 58898 through 58907), subject to a ten percent cap as described in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49162). • Step 1—Prepare data for MS–LTC– DRG relative weight calculation. In this step, we select and group the applicable claims data used in the development of the MS–LTC–DRG relative weights. • Step 2—Remove cases with a length of stay of 7 days or less. In this step, we trim the applicable claims data to remove cases with a length of stay of 7 days or less. • Step 3—Establish low-volume MS– LTC–DRG quintiles. In this step, we employ our established quintile methodology for low-volume MS–LTC– DRGs (that is, MS–LTC–DRGs with fewer than 25 cases). • Step 4—Remove statistical outliers. In this step, we trim the applicable claims data to remove statistical outlier cases. • Step 5—Adjust charges for the effects of Short Stay Outliers (SSOs). In this step, we adjust the number of applicable cases in each MS–LTC–DRG (or low-volume quintile) for the effect of SSO cases. • Step 6—Calculate the relative weights on an iterative basis using the hospital-specific relative weights methodology. In this step, we use our established hospital-specifi r the effect of SSO cases. • Step 6—Calculate the relative weights on an iterative basis using the hospital-specific relative weights methodology. In this step, we use our established hospital-specific relative value (HSRV) methodology, which is an iterative process, to calculate the relative weights. • Step 7—Adjust the relative weights to account for nonmonotonically increasing relative weights. In this step, we make adjustments that ensure that within each base MS–LTC–DRG, the relative weights increase by MS–LTC– DRG severity. • Step 8—Determine a relative weight for MS–LTC–DRGs with no applicable LTCH cases. In this step, we cross-walk each no-volume MS–LTC–DRG to another MS–LTC–DRG for which we calculated a relative weight. • Step 9—Budget neutralize the uncapped relative weights. In this step, to ensure budget neutrality in the annual update to the MS–LTC–DRG classifications and relative weights, we adjust the relative weights by a normalization factor and a budget neutrality factor that ensures estimated aggregate LTCH PPS payments will be unaffected by the updates to the MS– LTC–DRG classifications and relative weights. • Step 10—Apply the 10-percent cap to decreases in MS– tor that ensures estimated aggregate LTCH PPS payments will be unaffected by the updates to the MS– LTC–DRG classifications and relative weights. • Step 10—Apply the 10-percent cap to decreases in MS–LTC–DRG relative weights. In this step we limit the reduction of the relative weight for a MS–LTC–DRG to 10 percent of its prior year value. This 10-percent cap does not apply to zero-volume MS–LTC–DRGs or low-volume MS–LTC–DRGs. • Step 11—Budget neutralize the application of the 10-percent cap policy. In this step, to ensure budget neutrality in the application of the MS–LTC–DRG cap policy, we adjust the relative weights by a budget neutrality factor that ensures estimated aggregate LTCH PPS payments will be unaffected by our application of the cap to the MS–LTC– DRG relative weights. We next describe each of the 11 steps for calculating the FY 2026 MS–LTC– DRG relative weights in greater detail. Step 1—Prepare data for MS–LTC– DRG relative weight calculation. For the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18315), we obtained total charges from FY 2024 Medicare LTCH claims data from the December 2024 update of the FY 2024 MedPAR file and used proposed Version 43 of the GROUPER to S proposed rule (90 FR 18315), we obtained total charges from FY 2024 Medicare LTCH claims data from the December 2024 update of the FY 2024 MedPAR file and used proposed Version 43 of the GROUPER to classify LTCH cases. Consistent with our historical practice, we proposed that if better data become available, we would use those data and the finalized Version 43 of the GROUPER in establishing the FY 2026 MS–LTC–DRG relative weights in the final rule. Accordingly, for this final rule, we are establishing the FY 2026 MS–LTC–DRG relative weights based on updated FY 2024 Medicare LTCH claims data from the March 2025 update of the FY 2024 MedPAR file, which is the best available data at the time of development of this final rule, and the finalized Version 43 of the GROUPER to classify LTCH cases. To calculate the FY 2026 MS–LTC– DRG relative weights under the dual rate LTCH PPS payment structure, we continue to use applicable LTCH data, which includes our policy of only using cases that meet the criteria for exclusion from the site neutral payment rate (or would have met the criteria had they been in effect at the time of the discharge) (80 FR 49624). Section 3711(b)(2) of the CARES Act t the criteria for exclusion from the site neutral payment rate (or would have met the criteria had they been in effect at the time of the discharge) (80 FR 49624). Section 3711(b)(2) of the CARES Act provided a waiver of the application of the site neutral payment rate for LTCH cases admitted during the COVID–19 PHE period. The COVID–19 PHE expired on May 11, 2023. Therefore, nearly all LTCH PPS cases in FY 2024 were subject to the dual rate LTCH PPS payment structure. However, a small number of FY 2024 LTCH PPS cases (those with admission dates on or before May 11, 2023) were subject to the CARES Act waiver and were paid the LTCH PPS standard Federal rate regardless of whether the discharge met the statutory patient criteria. Therefore, for purposes of setting rates for LTCH PPS standard Federal rate cases for FY 2026 (including MS–LTC–DRG relative weights), we proposed to identify FY 2024 cases that meet the statutory patient criteria depending on date of admission as follows. First, we proposed to use LTCH PPS cases in the FY 2024 MedPAR file with an admission date after May 11, 2023, that met the criteria for exclusion from the site neutral payment rate under § 412.522(b) and , we proposed to use LTCH PPS cases in the FY 2024 MedPAR file with an admission date after May 11, 2023, that met the criteria for exclusion from the site neutral payment rate under § 412.522(b) and were paid the LTCH PPS standard Federal rate in FY 2024 (based on the claim payment amount). Second, we proposed to also use LTCH PPS cases in the FY 2024 MedPAR file with an admission date on or before May 11, 2023, that would have met the criteria for exclusion from the site neutral payment rate if the CARES Act waiver had not been in effect. For these cases we relied on our historical process for identifying cases that would have met the criteria for exclusion from the site neutral payment rate rather than how those cases were paid in FY 2024. This process is explained in full detail in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69425). We did not receive any specific comments on the proposed methodology to identify FY 2024 cases that meet the statutory patient criteria, depending on the date of admission. Therefore, we are finalizing this methodology without modification. VerDate Sep 2014 00:36 Aug 02, 2025 Jkt 265001 PO 00000 Frm 00445 Fmt 4701 Sfmt 4700 E:\FR\FM\04AUR2.SGM 04AUR he date of admission. Therefore, we are finalizing this methodology without modification. VerDate Sep 2014 00:36 Aug 02, 2025 Jkt 265001 PO 00000 Frm 00445 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 36980 Federal Register / Vol. 90, No. 147 / Monday, August 4, 2025 / Rules and Regulations Furthermore, consistent with our historical methodology, we excluded any claims in the resulting data set that were submitted by LTCHs that were all- inclusive rate providers and LTCHs that are paid in accordance with demonstration projects authorized under section 402(a) of Public Law 90– 248 or section 222(a) of Public Law 92– 603. In addition, consistent with our historical practice and our policies, we excluded any Medicare Advantage (Part C) claims in the resulting data. Such claims were identified based on the presence of a GHO Paid indicator value of ‘‘1’’ in the MedPAR files. In summary, in general, we identified the claims data used in the development of the FY 2026 MS–LTC–DRG relative weights in this final rule by trimming claims data that were paid the site neutral payment rate or would have been paid the site neutra data used in the development of the FY 2026 MS–LTC–DRG relative weights in this final rule by trimming claims data that were paid the site neutral payment rate or would have been paid the site neutral payment rate had the provisions of the CARES Act not been in effect. We trimmed the claims data of all-inclusive rate providers reported in the March 2025 update of the FY 2024 MedPAR file and any Medicare Advantage claims data. There were no data from any LTCHs that are paid in accordance with a demonstration project reported in the March 2025 update of the FY 2024 MedPAR file, but had there been any, we would have trimmed the claims data from those LTCHs as well, in accordance with our established policy. We used the remaining data (that is, the applicable LTCH data) in the subsequent steps to calculate the MS– LTC–DRG relative weights for FY 2026. Step 2—Remove cases with a length of stay of 7 days or less. The next step in our calculation of the FY 2026 MS–LTC–DRG relative weights is to remove cases with a length of stay of 7 days or less. The MS–LTC–DRG relative weights reflect the average of resources used on representative cases of a specific type. Generally, cases with a leng to remove cases with a length of stay of 7 days or less. The MS–LTC–DRG relative weights reflect the average of resources used on representative cases of a specific type. Generally, cases with a length of stay of 7 days or less do not belong in an LTCH because these stays do not fully receive or benefit from treatment that is typical in an LTCH stay, and full resources are often not used in the earlier stages of admission to an LTCH. If we were to include stays of 7 days or less in the computation of the FY 2026 MS–LTC–DRG relative weights, the value of many relative weights would decrease and, therefore, payments would decrease to a level that may no longer be appropriate. We do not believe that it would be appropriate to compromise the integrity of the payment determination for those LTCH cases that actually benefit from and receive a full course of treatment at an LTCH by including data from these very short stays. Therefore, as we proposed, consistent with our existing relative weight methodology, in determining the FY 2026 MS–LTC–DRG relative weights, we removed LTCH cases with a length of stay of 7 days or less from applicable LTCH cases. (For additional information on what ight methodology, in determining the FY 2026 MS–LTC–DRG relative weights, we removed LTCH cases with a length of stay of 7 days or less from applicable LTCH cases. (For additional information on what is removed in this step of the relative weight methodology, we refer readers to 67 FR 55989 and 74 FR 43959.) Step 3—Establish low-volume MS– LTC–DRG quintiles. To account for MS–LTC–DRGs with low-volume (that is, with fewer than 25 applicable LTCH cases), consistent with our existing methodology, as we proposed, we are continuing to employ the quintile methodology for low- volume MS–LTC–DRGs, such that we grouped the ‘‘low-volume MS–LTC– DRGs’’ (that is, MS–LTC–DRGs that contain between 1 and 24 applicable LTCH cases into one of five categories (quintiles) based on average charges (67 FR 55984 through 55995; 72 FR 47283 through 47288; and 81 FR 25148)). In this final rule, based on the best available data (that is, the March 2025 update of the FY 2024 MedPAR file), we identified 242 MS–LTC–DRGs that contained between 1 and 24 applicable LTCH cases. This list of MS–LTC–DRGs was then divided into 1 of the 5 low- volume quintiles. We assigned the low- volume MS–LTC–DRGs to specific low- C–DRGs that contained between 1 and 24 applicable LTCH cases. This list of MS–LTC–DRGs was then divided into 1 of the 5 low- volume quintiles. We assigned the low- volume MS–LTC–DRGs to specific low- volume quintiles by sorting the low- volume MS–LTC–DRGs in ascending order by average charge in accordance with our established methodology. Based on the data available for this final rule, the number of MS–LTC–DRGs with less than 25 applicable LTCH cases was not evenly divisible by 5. The quintiles each contained at least 48 MS–LTC– DRGs (242/5 = 48 with a remainder of 2). As we proposed, we employed our historical methodology of assigning each remainder low-volume MS–LTC– DRG to the low-volume quintile that contains an MS–LTC–DRG with an average charge closest to that of the remainder low-volume MS–LTC–DRG. In cases where these initial assignments of low-volume MS–LTC–DRGs to quintiles results in nonmonotonicity within a base-DRG, as we proposed, we adjusted the resulting low-volume MS– LTC–DRGs to preserve monotonicity, as discussed in Step 7 of our methodology. To determine the FY 2026 relative weights for the low-volume MS–LTC– DRGs, consistent with our historical practice, we use LTC–DRGs to preserve monotonicity, as discussed in Step 7 of our methodology. To determine the FY 2026 relative weights for the low-volume MS–LTC– DRGs, consistent with our historical practice, we used the five low-volume quintiles described previously. We determined a relative weight and (geometric) average length of stay for each of the five low-volume quintiles using the methodology described in Step 6 of our methodology. We assigned the same relative weight and average length of stay to each of the low-volume MS–LTC–DRGs that make up an individual low-volume quintile. We note that, as this system is dynamic, it is possible that the number and specific type of MS–LTC–DRGs with a low volume of applicable LTCH cases would vary in the future. Furthermore, we note that we continue to monitor the volume (that is, the number of applicable LTCH cases) in the low-volume quintiles to ensure that our quintile assignments used in determining the MS–LTC–DRG relative weights result in appropriate payment for LTCH cases grouped to low-volume MS–LTC–DRGs and do not result in an unintended financial incentive for LTCHs to inappropriately admit these types of cases. For this final rule, we are p e payment for LTCH cases grouped to low-volume MS–LTC–DRGs and do not result in an unintended financial incentive for LTCHs to inappropriately admit these types of cases. For this final rule, we are providing the list of the composition of the low- volume quintiles for low-volume MS– LTC–DRGs in a supplemental data file for public use posted via the internet on the CMS website for this final rule at https://www.cms.gov/Medicare/ Medicare-Fee-for-Service-Payment/ AcuteInpatientPPS/index.html to streamline the information made available to the public that is used in the annual development of Table 11. Step 4—Remove statistical outliers. The next step in our calculation of the FY 2026 MS–LTC–DRG relative weights is to remove statistical outlier cases from the LTCH cases with a length of stay of at least 8 days. Consistent with our existing relative weight methodology, as we proposed, we are continuing to define statistical outliers as cases that are outside of 3.0 standard deviations from the mean of the log distribution of both charges per case and the charges per day for each MS–LTC– DRG. These statistical outliers are removed prior to calculating the relative weights because we bel the mean of the log distribution of both charges per case and the charges per day for each MS–LTC– DRG. These statistical outliers are removed prior to calculating the relative weights because we believe that they may represent aberrations in the data that distort the measure of average resource use. Including those LTCH cases in the calculation of the relative weights could result in an inaccurate relative weight that does not truly reflect relative resource use among those MS–LTC–DRGs. (For additional information on what is removed in this step of the relative weight methodology, we refer readers to 67 FR 55989 and 74 FR 43959.) After removing cases with a length of stay of 7 days or less and statistical outliers, in each set of claims, we were left with applicable LTCH cases that have a length of stay greater than or equal to 8 days. In this final rule, we refer to these cases as ‘‘trimmed applicable LTCH cases.’’ VerDate Sep 2014 00:36 Aug 02, 2025 Jkt 265001 PO 00000 Frm 00446 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 369 t 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 36981 Step 5—Adjust charges for the effects of Short Stay Outliers (SSOs). As the next step in the calculation of the FY 2026 MS–LTC–DRG relative weights, consistent with our historical approach, as we proposed, we adjusted each LTCH’s charges per discharge for those remaining cases (that is, trimmed applicable LTCH cases) for the effects of SSOs (as defined in § 412.529(a) in conjunction with § 412.503). Specifically, as we proposed, we made this adjustment by counting an SSO case as a fraction of a discharge based on the ratio of the length of stay of the case to the average length of stay of all cases grouped to the MS–LTC–DRG. This has the effect of proportionately reducing the impact of the lower charges for the SSO cases in calculating the average charge for the MS–LTC– DRG. This process produces the same result as if the actual charges per discharge of an SSO case were adjusted to what they would have been had the patient’s length of stay been equal to the average length of stay of s produces the same result as if the actual charges per discharge of an SSO case were adjusted to what they would have been had the patient’s length of stay been equal to the average length of stay of the MS–LTC– DRG. Counting SSO cases as full LTCH cases with no adjustment in determining the FY 2026 MS–LTC–DRG relative weights would lower the relative weight for affected MS–LTC– DRGs because the relatively lower charges of the SSO cases would bring down the average charge for all cases within a MS–LTC–DRG. This would result in an ‘‘underpayment’’ for non- SSO cases and an ‘‘overpayment’’ for SSO cases. Therefore, we are continuing to adjust for SSO cases under § 412.529 in this manner because it would result in more appropriate payments for all LTCH PPS standard Federal payment rate cases. (For additional information on this step of the relative weight methodology, we refer readers to 67 FR 55989 and 74 FR 43959.) Step 6—Calculate the relative weights on an iterative basis using the hospital- specific relative value methodology. By nature, LTCHs often specialize in certain areas, such as ventilator- dependent patients. Some case types (MS–LTC–DRGs) may be treated, to a large exten ospital- specific relative value methodology. By nature, LTCHs often specialize in certain areas, such as ventilator- dependent patients. Some case types (MS–LTC–DRGs) may be treated, to a large extent, in hospitals that have, from a perspective of charges, relatively high (or low) charges. This nonrandom distribution of cases with relatively high (or low) charges in specific MS–LTC– DRGs has the potential to inappropriately distort the measure of average charges. To account for the fact that cases may not be randomly distributed across LTCHs, consistent with the methodology we have used since the implementation of the LTCH PPS, in this FY 2026 IPPS/LTCH PPS final rule, as we proposed, we are continuing to use a hospital-specific relative value (HSRV) methodology to calculate the MS–LTC–DRG relative weights for FY 2026. We believe that this method removes this hospital- specific source of bias in measuring LTCH average charges (67 FR 55985). Specifically, under this methodology, we reduced the impact of the variation in charges across providers on any particular MS–LTC–DRG relative weight by converting each LTCH’s charge for an applicable LTCH case to a relative value based on that uced the impact of the variation in charges across providers on any particular MS–LTC–DRG relative weight by converting each LTCH’s charge for an applicable LTCH case to a relative value based on that LTCH’s average charge for such cases. Under the HSRV methodology, we standardize charges for each LTCH by converting its charges for each applicable LTCH case to hospital- specific relative charge values and then adjusting those values for the LTCH’s case-mix. The adjustment for case-mix is needed to rescale the hospital-specific relative charge values (which, by definition, average 1.0 for each LTCH). The average relative weight for an LTCH is its case-mix; therefore, it is reasonable to scale each LTCH’s average relative charge value by its case-mix. In this way, each LTCH’s relative charge value is adjusted by its case-mix to an average that reflects the complexity of the applicable LTCH cases it treats relative to the complexity of the applicable LTCH cases treated by all other LTCHs (the average LTCH PPS case-mix of all applicable LTCH cases across all LTCHs). In other words, by multiplying an LTCH’s relative charge values by the LTCH’s case-mix index, we account for the fact tha (the average LTCH PPS case-mix of all applicable LTCH cases across all LTCHs). In other words, by multiplying an LTCH’s relative charge values by the LTCH’s case-mix index, we account for the fact that the same relative charges are given greater weight at an LTCH with higher average costs than they would at an LTCH with low average costs, which is needed to adjust each LTCH’s relative charge value to reflect its case-mix relative to the average case- mix for all LTCHs. By standardizing charges in this manner, we count charges for a Medicare patient at an LTCH with high average charges as less resource-intensive than they would be at an LTCH with low average charges. For example, a $10,000 charge for a case at an LTCH with an average adjusted charge of $17,500 reflects a higher level of relative resource use than a $10,000 charge for a case at an LTCH with the same case-mix, but an average adjusted charge of $35,000. We believe that the adjusted charge of an individual case more accurately reflects actual resource use for an individual LTCH because the variation in charges due to systematic differences in the markup of charges among LTCHs is taken into account. Consistent with our h ely reflects actual resource use for an individual LTCH because the variation in charges due to systematic differences in the markup of charges among LTCHs is taken into account. Consistent with our historical relative weight methodology, as we proposed, we calculated the FY 2026 MS–LTC– DRG relative weights using the HSRV methodology, which is an iterative process. Therefore, in accordance with our established methodology, for FY 2026, we continued to standardize charges for each applicable LTCH case by first dividing the adjusted charge for the case (adjusted for SSOs under § 412.529 as described in Step 5 of our methodology) by the average adjusted charge for all applicable LTCH cases at the LTCH in which the case was treated. The average adjusted charge reflects the average intensity of the health care services delivered by a particular LTCH and the average cost level of that LTCH. The average adjusted charge is then multiplied by the LTCH’s case-mix index to produce an adjusted hospital- specific relative charge value for the case. We used an initial case-mix index value of 1.0 for each LTCH. For each MS–LTC–DRG, we calculated the FY 2026 relative weight by dividing the SSO-ad spital- specific relative charge value for the case. We used an initial case-mix index value of 1.0 for each LTCH. For each MS–LTC–DRG, we calculated the FY 2026 relative weight by dividing the SSO-adjusted average of the hospital-specific relative charge values for applicable LTCH cases for the MS–LTC–DRG (that is, the sum of the hospital-specific relative charge value, as previously stated, divided by the sum of equivalent cases from Step 5 for each MS–LTC–DRG) by the overall SSO- adjusted average hospital-specific relative charge value across all applicable LTCH cases for all LTCHs (that is, the sum of the hospital-specific relative charge value, as previously stated, divided by the sum of equivalent applicable LTCH cases from Step 5 for each MS–LTC–DRG). Using these recalculated MS–LTC–DRG relative weights, each LTCH’s average relative weight for all of its SSO-adjusted trimmed applicable LTCH cases (that is, it’s case-mix) was calculated by dividing the sum of all the LTCH’s MS–LTC– DRG relative weights by its total number of SSO-adjusted trimmed applicable LTCH cases. The LTCHs’ hospital- specific relative charge values (from previous) are then multiplied by the hospital-spec C– DRG relative weights by its total number of SSO-adjusted trimmed applicable LTCH cases. The LTCHs’ hospital- specific relative charge values (from previous) are then multiplied by the hospital-specific case-mix indexes. The hospital-specific case-mix adjusted relative charge values are then used to calculate a new set of MS–LTC–DRG relative weights across all LTCHs. This iterative process continued until there was convergence between the relative weights produced at adjacent steps, for example, when the maximum difference was less than 0.0001. Step 7—Adjust the relative weights to account for nonmonotonically increasing relative weights. The MS–DRGs contain base DRGs that have been subdivided into one, two, or three severity of illness levels. Where there are three severity levels, the most severe level has at least one secondary VerDate Sep 2014 00:36 Aug 02, 2025 Jkt 265001 PO 00000 Frm 00447 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 36982 Federal Register / Vol. 90, No. 147 / Monday, August 4, 2025 / Rules and Regulations diagnosis code that is referred to as an MCC (that is, major complication or comorbi S D n o d n o m m a h k 36982 Federal Register / Vol. 90, No. 147 / Monday, August 4, 2025 / Rules and Regulations diagnosis code that is referred to as an MCC (that is, major complication or comorbidity). The next lower severity level contains cases with at least one secondary diagnosis code that is a CC (that is, complication or comorbidity). Those cases without an MCC or a CC are referred to as ‘‘without CC/MCC.’’ When data do not support the creation of three severity levels, the base MS–DRG is subdivided into either two levels or the base MS–DRG is not subdivided. The two-level subdivisions may consist of the MS–DRG with CC/MCC and the MS–DRG without CC/MCC. Alternatively, the other type of two- level subdivision may consist of the MS–DRG with MCC and the MS–DRG without MCC. In those base MS–LTC–DRGs that are split into either two or three severity levels, cases classified into the ‘‘without CC/MCC’’ MS–LTC–DRG are expected to have a lower resource use (and lower costs) than the ‘‘with CC/MCC’’ MS– LTC–DRG (in the case of a two-level split) or both the ‘‘with CC’’ and the ‘‘with MCC’’ MS–LTC–DRGs (in the case of a three-level split). That is, theoretically, cases that are mor ‘‘with CC/MCC’’ MS– LTC–DRG (in the case of a two-level split) or both the ‘‘with CC’’ and the ‘‘with MCC’’ MS–LTC–DRGs (in the case of a three-level split). That is, theoretically, cases that are more severe typically require greater expenditure of medical care resources and would result in higher average charges. Therefore, in the three severity levels, relative weights should increase by severity, from lowest to highest. If the relative weights decrease as severity increases (that is, if within a base MS–LTC–DRG, an MS–LTC–DRG with CC has a higher relative weight than one with MCC, or the MS–LTC–DRG ‘‘without CC/MCC’’ has a higher relative weight than either of the others), they are nonmonotonic. We continue to believe that utilizing nonmonotonic relative weights to adjust Medicare payments would result in inappropriate payments because the payment for the cases in the higher severity level in a base MS–LTC–DRG (which are generally expected to have higher resource use and costs) would be lower than the payment for cases in a lower severity level within the same base MS–LTC–DRG (which are generally expected to have lower resource use and costs). Therefore, in determining the FY 2 ld be lower than the payment for cases in a lower severity level within the same base MS–LTC–DRG (which are generally expected to have lower resource use and costs). Therefore, in determining the FY 2026 MS–LTC–DRG relative weights, consistent with our historical methodology, as we proposed, we continued to combine MS–LTC–DRG severity levels within a base MS–LTC– DRG for the purpose of computing a relative weight when necessary to ensure that monotonicity is maintained. For a comprehensive description of our existing methodology to adjust for nonmonotonicity, we refer readers to the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43964 through 43966). Any adjustments for nonmonotonicity that were made in determining the FY 2026 MS–LTC–DRG relative weights by applying this methodology are denoted in Table 11, which is listed in section VI. of the Addendum to this final rule and is available via the internet on the CMS website. Step 8—Determine a relative weight for MS–LTC–DRGs with no applicable LTCH cases. Using the trimmed applicable LTCH cases, consistent with our historical methodology, we identified the MS– LTC–DRGs for which there were no claims in the March 2025 update of the pplicable LTCH cases. Using the trimmed applicable LTCH cases, consistent with our historical methodology, we identified the MS– LTC–DRGs for which there were no claims in the March 2025 update of the FY 2024 MedPAR file and, therefore, for which no charge data was available for these MS–LTC–DRGs. Because patients with a number of the diagnoses under these MS–LTC–DRGs may be treated at LTCHs, consistent with our historical methodology, we generally assign a relative weight to each of the no-volume MS–LTC–DRGs based on clinical similarity and relative costliness (with the exception of ‘‘transplant’’ MS–LTC– DRGs, ‘‘error’’ MS–LTC–DRGs, and MS– LTC–DRGs that indicate a principal diagnosis related to a psychiatric diagnosis or rehabilitation (referred to as the ‘‘psychiatric or rehabilitation’’ MS– LTC–DRGs), as discussed later in this section of the preamble of this final rule). (For additional information on this step of the relative weight methodology, we refer readers to 67 FR 55991 and 74 FR 43959 through 43960.) Consistent with our existing methodology, as we proposed, we cross- walked each no-volume MS–LTC–DRG to another MS–LTC–DRG for which we calculated a relative weight (det nd 74 FR 43959 through 43960.) Consistent with our existing methodology, as we proposed, we cross- walked each no-volume MS–LTC–DRG to another MS–LTC–DRG for which we calculated a relative weight (determined in accordance with the methodology as previously described). Then, the ‘‘no- volume’’ MS–LTC–DRG is assigned the same relative weight (and average length of stay) of the MS–LTC–DRG to which it was cross-walked (as described in greater detail in this section of the preamble of this final rule). Of the 772 MS–LTC–DRGs for FY 2026, we identified 414 MS–LTC–DRGs for which there were no trimmed applicable LTCH cases. The 414 MS– LTC–DRGs for which there were no trimmed applicable LTCH cases includes the 11 ‘‘transplant’’ MS–LTC– DRGs, the 2 ‘‘error’’ MS–LTC–DRGs, and the 15 ‘‘psychiatric or rehabilitation’’ MS–LTC–DRGs, which are discussed in this section of this final rule, such that we identified 386 MS– LTC–DRGs that for which, we assigned a relative weight using our existing ‘‘no- volume’’ MS–LTC–DRG methodology (that is, 414¥11¥2¥15 = 386). As we proposed, we assigned relative weights to each of the 386 no-volume MS–LTC– DRGs based on clinical similarity and relative costliness olume’’ MS–LTC–DRG methodology (that is, 414¥11¥2¥15 = 386). As we proposed, we assigned relative weights to each of the 386 no-volume MS–LTC– DRGs based on clinical similarity and relative costliness to 1 of the remaining 358 (772¥414 = 358) MS–LTC–DRGs for which we calculated relative weights based on the trimmed applicable LTCH cases in the FY 2024 MedPAR file data using the steps described previously. (For the remainder of this discussion, we refer to the ‘‘cross-walked’’ MS– LTC–DRGs as one of the 358 MS–LTC– DRGs to which we cross-walked each of the 386 ‘‘no-volume’’ MS–LTC–DRGs.) Then, in general, we assigned the 386 no-volume MS–LTC–DRGs the relative weight of the cross-walked MS–LTC– DRG (when necessary, we made adjustments to account for nonmonotonicity). We cross-walked the no-volume MS– LTC–DRG to a MS–LTC–DRG for which we calculated relative weights based on the March 2025 update of the FY 2024 MedPAR file, and to which it is similar clinically in intensity of use of resources and relative costliness as determined by criteria such as care provided during the period of time surrounding surgery, surgical approach (if applicable), length of time of surgical procedure, pos rces and relative costliness as determined by criteria such as care provided during the period of time surrounding surgery, surgical approach (if applicable), length of time of surgical procedure, postoperative care, and length of stay. (For more details on our process for evaluating relative costliness, we refer readers to the FY 2010 IPPS/RY 2010 LTCH PPS final rule (73 FR 48543).) We believe in the rare event that there would be a few LTCH cases grouped to one of the no-volume MS–LTC–DRGs in FY 2026, the relative weights assigned based on the cross-walked MS–LTC– DRGs would result in an appropriate LTCH PPS payment because the crosswalks, which are based on clinical similarity and relative costliness, would be expected to generally require equivalent relative resource use. Then we assigned the relative weight of the cross-walked MS–LTC–DRG as the relative weight for the no-volume MS–LTC–DRG such that both of these MS–LTC–DRGs (that is, the no-volume MS–LTC–DRG and the cross-walked MS–LTC–DRG) have the same relative weight (and average length of stay) for FY 2026. We note that, if the cross- walked MS–LTC–DRG had 25 applicable LTCH cases or more, its relative weight (calculated u S–LTC–DRG) have the same relative weight (and average length of stay) for FY 2026. We note that, if the cross- walked MS–LTC–DRG had 25 applicable LTCH cases or more, its relative weight (calculated using the methodology as previously described in Steps 1 through 4) is assigned to the no- volume MS–LTC–DRG as well. Similarly, if the MS–LTC–DRG to which the no-volume MS–LTC–DRG was cross- walked had 24 or less cases and, therefore, was designated to 1 of the low-volume quintiles for purposes of determining the relative weights, we assigned the relative weight of the applicable low-volume quintile to the VerDate Sep 2014 00:36 Aug 02, 2025 Jkt 265001 PO 00000 Frm 00448 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 36983 no-volume MS–LTC–DRG such that both of these MS–LTC–DRGs (that is, the no-volume MS–LTC–DRG and the cross-walked MS–LTC–DRG) have the same relative weight for FY 2026. (As we noted previously, in the infrequent case where nonmonotonicity involving a no-volume MS–LTC–DRG resulted, additional adjustments are required to –DRG) have the same relative weight for FY 2026. (As we noted previously, in the infrequent case where nonmonotonicity involving a no-volume MS–LTC–DRG resulted, additional adjustments are required to maintain monotonically increasing relative weights.) For this final rule, we are providing the list of the no-volume MS–LTC– DRGs and the MS–LTC–DRGs to which each was cross-walked (that is, the cross-walked MS–LTC–DRGs) for FY 2026 in a supplemental data file for public use posted via the internet on the CMS website for this final rule at https://www.cms.gov/Medicare/ Medicare-Fee-for-Service-Payment/ AcuteInpatientPPS/index.html to streamline the information made available to the public that is used in the annual development of Table 11. To illustrate this methodology for determining the relative weights for the FY 2026 MS–LTC–DRGs with no applicable LTCH cases, we are providing the following example. Example: There were no trimmed applicable LTCH cases in the FY 2024 MedPAR file that we are using for this final rule for MS–LTC–DRG 061 (Ischemic stroke, precerebral occlusion or transient ischemia with thrombolytic agent with MCC). We determined that MS–LTC–DRG 064 (Intracranial hemo e are using for this final rule for MS–LTC–DRG 061 (Ischemic stroke, precerebral occlusion or transient ischemia with thrombolytic agent with MCC). We determined that MS–LTC–DRG 064 (Intracranial hemorrhage or cerebral infarction with MCC) is similar clinically and based on resource use to MS–LTC–DRG 061. Therefore, we assigned the same relative weight (and average length of stay) of MS–LTC–DRG 064 of 1.1687 for FY 2026 to MS–LTC–DRG 061 (we refer readers to Table 11, which is listed in section VI. of the Addendum to this final rule and is available via the internet on the CMS website). Again, we note that, as this system is dynamic, it is entirely possible that the number of MS–LTC–DRGs with no volume would vary in the future. Consistent with our historical practice, as we proposed, we used the best available claims data to identify the trimmed applicable LTCH cases from which we determined the relative weights in the final rule. For FY 2026, consistent with our historical relative weight methodology, as we proposed, we are establishing a relative weight of 0.0000 for the following transplant MS–LTC–DRGs: Heart Transplant or Implant of Heart Assist System with MCC (MS–LTC–DRG 001) ight methodology, as we proposed, we are establishing a relative weight of 0.0000 for the following transplant MS–LTC–DRGs: Heart Transplant or Implant of Heart Assist System with MCC (MS–LTC–DRG 001); Heart Transplant or Implant of Heart Assist System without MCC (MS– LTC–DRG 002); Liver Transplant with MCC or Intestinal Transplant (MS–LTC– DRG 005); Liver Transplant without MCC (MS–LTC–DRG 006); Lung Transplant (MS–LTC–DRG 007); Simultaneous Pancreas and Kidney Transplant (MS–LTC–DRG 008); Simultaneous Pancreas and Kidney Transplant with Hemodialysis (MS– LTC–DRG 019); Pancreas Transplant (MS–LTC–DRG 010); Kidney Transplant (MS–LTC–DRG 652); Kidney Transplant with Hemodialysis with MCC (MS– LTC–DRG 650), and Kidney Transplant with Hemodialysis without MCC (MS LTC DRG 651). This is because Medicare only covers these procedures if they are performed at a hospital that has been certified for the specific procedures by Medicare and presently no LTCH has been so certified. At the present time, we include these 11 transplant MS–LTC–DRGs in the GROUPER program for administrative purposes only. Because we use the same GROUPER program for LTCHs as is used under the IPPS, removing these MS time, we include these 11 transplant MS–LTC–DRGs in the GROUPER program for administrative purposes only. Because we use the same GROUPER program for LTCHs as is used under the IPPS, removing these MS– LTC–DRGs would be administratively burdensome. (For additional information regarding our treatment of transplant MS–LTC–DRGs, we refer readers to the RY 2010 LTCH PPS final rule (74 FR 43964).) In addition, consistent with our historical policy, we are establishing a relative weight of 0.0000 for the 2 ‘‘error’’ MS–LTC–DRGs (that is, MS–LTC–DRG 998 (Principal Diagnosis Invalid as Discharge Diagnosis) and MS–LTC–DRG 999 (Ungroupable)) because applicable LTCH cases grouped to these MS–LTC– DRGs cannot be properly assigned to an MS–LTC–DRG according to the grouping logic. Additionally, we are establishing a relative weight of 0.0000 for the following ‘‘psychiatric or rehabilitation’’ MS–LTC–DRGs: MS–LTC–DRG 876 (O.R. Procedures with Principal Diagnosis of Mental Illness); MS–LTC– DRG 880 (Acute Adjustment Reaction & Psychosocial Dysfunction); MS–LTC– DRG 881 (Depressive Neuroses); MS– LTC–DRG 882 (Neuroses Except Depressive); MS–LTC–DRG 883 (Disorders of Personality & Impulse Control); cute Adjustment Reaction & Psychosocial Dysfunction); MS–LTC– DRG 881 (Depressive Neuroses); MS– LTC–DRG 882 (Neuroses Except Depressive); MS–LTC–DRG 883 (Disorders of Personality & Impulse Control); MS–LTC–DRG 884 (Organic Disturbances & Intellectual Disability); MS–LTC–DRG 885 (Psychoses); MS– LTC–DRG 886 (Behavioral & Developmental Disorders); MS–LTC– DRG 887 (Other Mental Disorder Diagnoses); MS–LTC–DRG 894 (Alcohol, Drug Abuse or Dependence, Left AMA); MS–LTC–DRG 895 (Alcohol, Drug Abuse or Dependence with Rehabilitation Therapy); MS–LTC–DRG 896 (Alcohol, Drug Abuse or Dependence without Rehabilitation Therapy with MCC); MS–LTC–DRG 897 (Alcohol, Drug Abuse or Dependence without Rehabilitation Therapy without MCC); MS–LTC–DRG 945 (Rehabilitation with CC/MCC); and MS– LTC–DRG 946 (Rehabilitation without CC/MCC). We are establishing a relative weight of 0.0000 for these 15 ‘‘psychiatric or rehabilitation’’ MS– LTC–DRGs because the blended payment rate and temporary exceptions to the site neutral payment rate would not be applicable for any LTCH discharges occurring in FY 2026, and as such payment under the LTCH PPS would be no longer be made in part based on the LTCH PPS standard site neutral payment rate would not be applicable for any LTCH discharges occurring in FY 2026, and as such payment under the LTCH PPS would be no longer be made in part based on the LTCH PPS standard Federal payment rate for any discharges assigned to those MS–LTC–DRGs. Step 9—Budget neutralize the uncapped relative weights. In accordance with the regulations at § 412.517(b) (in conjunction with § 412.503), the annual update to the MS–LTC–DRG classifications and relative weights is done in a budget neutral manner such that estimated aggregate LTCH PPS payments would be unaffected, that is, would be neither greater than nor less than the estimated aggregate LTCH PPS payments that would have been made without the MS– LTC–DRG classification and relative weight changes. (For a detailed discussion on the establishment of the budget neutrality requirement for the annual update of the MS–LTC–DRG classifications and relative weights, we refer readers to the RY 2008 LTCH PPS final rule (72 FR 26881 and 26882)). To achieve budget neutrality under the requirement at § 412.517(b), under our established methodology, for each annual update the MS–LTC–DRG relative weights are uniformly adjusted 26881 and 26882)). To achieve budget neutrality under the requirement at § 412.517(b), under our established methodology, for each annual update the MS–LTC–DRG relative weights are uniformly adjusted to ensure that estimated aggregate payments under the LTCH PPS would not be affected (that is, decreased or increased). Consistent with that provision, as we proposed, we continued to apply budget neutrality adjustments in determining the FY 2026 MS–LTC–DRG relative weights so that our update of the MS–LTC–DRG classifications and relative weights for FY 2026 are made in a budget neutral manner. For FY 2026, as we proposed, we applied two budget neutrality factors to determine the MS–LTC–DRG relative weights. In this step, we describe the determination of the budget neutrality adjustment that accounts for the update of the MS–LTC–DRG classifications and relative weights prior to the application of the ten-percent cap. In steps 10 and 11, we describe the application of the 10-percent cap policy (step 10) and the determination of the budget neutrality VerDate Sep 2014 00:36 Aug 02, 2025 Jkt 265001 PO 00000 Frm 00449 Fmt 4701 Sfmt 4700 E:\FR\FM\04AUR2.SGM 04AUR2 2 S E L U R h t i w D O R P icy (step 10) and the determination of the budget neutrality VerDate Sep 2014 00:36 Aug 02, 2025 Jkt 265001 PO 00000 Frm 00449 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 36984 Federal Register / Vol. 90, No. 147 / Monday, August 4, 2025 / Rules and Regulations factor that accounts for the application of the 10-percent cap policy (step 11). In this final rule, to ensure budget neutrality for the update to the MS– LTC–DRG classifications and relative weights prior to the application of the 10-percent cap (that is, uncapped relative weights), under § 412.517(b), we continued to use our established two- step budget neutrality methodology. Therefore, in the first step of our MS– LTC–DRG update budget neutrality methodology, for FY 2026, we calculated and applied a normalization factor to the recalibrated relative weights (the result of Steps 1 through 8 discussed previously) to ensure that estimated payments are not affected by changes in the composition of case types or the changes to the classification system. That is, the normalization adjustment is intended to ensure that the recalibration of the MS–LTC–DRG relat cted by changes in the composition of case types or the changes to the classification system. That is, the normalization adjustment is intended to ensure that the recalibration of the MS–LTC–DRG relative weights (that is, the process itself) neither increases nor decreases the average case-mix index. To calculate the normalization factor for FY 2026, we used the following three steps: (1.a.) use the applicable LTCH cases from the best available data (that is, LTCH discharges from the FY 2024 MedPAR file) and group them using the FY 2026 GROUPER (that is, Version 43 for FY 2026) and the recalibrated FY 2026 MS–LTC–DRG uncapped relative weights (determined in Steps 1 through 8 discussed previously) to calculate the average case-mix index; (1.b.) group the same applicable LTCH cases (as are used in Step 1.a.) using the FY 2025 GROUPER (Version 42) and FY 2025 MS–LTC– DRG relative weights in Table 11 of the FY 2025 IPPS/LTCH PPS final rule and calculate the average case-mix index; and (1.c.) compute the ratio of these average case-mix indexes by dividing the average case-mix index for FY 2025 (determined in Step 1.b.) by the average case-mix index for FY 2026 (determined in Step 1.a.). .) compute the ratio of these average case-mix indexes by dividing the average case-mix index for FY 2025 (determined in Step 1.b.) by the average case-mix index for FY 2026 (determined in Step 1.a.). As a result, in determining the MS–LTC–DRG relative weights for FY 2026, each recalibrated MS–LTC– DRG uncapped relative weight is multiplied by the normalization factor of 1.24155 (determined in Step 1.c.) in the first step of the budget neutrality methodology, which produces ‘‘normalized relative weights.’’ In the second step of our MS–LTC– DRG update budget neutrality methodology, we calculated a budget neutrality adjustment factor consisting of the ratio of estimated aggregate FY 2026 LTCH PPS standard Federal payment rate payments for applicable LTCH cases before reclassification and recalibration to estimated aggregate payments for FY 2026 LTCH PPS standard Federal payment rate payments for applicable LTCH cases after reclassification and recalibration. That is, for this final rule, for FY 2026, we determined the budget neutrality adjustment factor using the following three steps: (2.a.) simulate estimated total FY 2026 LTCH PPS standard Federal payment rate payments for applica for FY 2026, we determined the budget neutrality adjustment factor using the following three steps: (2.a.) simulate estimated total FY 2026 LTCH PPS standard Federal payment rate payments for applicable LTCH cases using the uncapped normalized relative weights for FY 2026 and GROUPER Version 43; (2.b.) simulate estimated total FY 2026 LTCH PPS standard Federal payment rate payments for applicable LTCH cases using the FY 2025 GROUPER (Version 42) and the FY 2025 MS–LTC– DRG relative weights in Table 11 of the FY 2025 IPPS/LTCH PPS final rule; and (2.c.) calculate the ratio of these estimated total payments by dividing the value determined in Step 2.b. by the value determined in Step 2.a. In determining the FY 2026 MS–LTC–DRG relative weights, each uncapped normalized relative weight is then multiplied by a budget neutrality factor of 1.0142528 (the value determined in Step 2.c.) in the second step of the budget neutrality methodology. Step 10—Apply the 10-percent cap to decreases in MS–LTC–DRG relative weights. To mitigate the financial impacts of significant year-to-year reductions in MS–LTC–DRGs relative weights, beginning in FY 2023, we adopted a policy that applies a budget neu –LTC–DRG relative weights. To mitigate the financial impacts of significant year-to-year reductions in MS–LTC–DRGs relative weights, beginning in FY 2023, we adopted a policy that applies a budget neutral 10- percent cap on annual relative weight decreases for MS–LTC–DRGs with at least 25 applicable LTCH cases (§ 412.515(b)). Under this policy, in cases where CMS creates new MS–LTC– DRGs or modifies the MS–LTC–DRGs as part of its annual reclassifications resulting in renumbering of one or more MS–LTC–DRGs, the 10-percent cap does not apply to the relative weight for any new or renumbered MS–LTC–DRGs for the fiscal year. We refer readers to section VIII.B.3.b. of the preamble of the FY 2023 IPPS/LTCH PPS final rule with comment period for a detailed discussion on the adoption of the 10- percent cap policy (87 FR 49152 through 49154). Applying the 10-percent cap to MS– LTC–DRGs with 25 or more cases results in more predictable and stable MS– LTC–DRG relative weights from year to year, especially for high-volume MS– LTC–DRGs that generally have the largest financial impact on an LTCH’s operations. For this final rule, in cases where the relative weight for a MS– LTC–DRG with 25 or mor