Medicare and Medicaid Programs; CY 2026 Payment Policies Under the Physician Fee Schedule and Other Changes to Part B Payment and Coverage Policies; Medicare Shared Savings Program Requirements; and Medicare Prescription Drug Inflation Rebate Program of service versus another, or between similar skin substitute products, should not be one of them. Establishing a consistent framework for how these products are treated within the non- facility and hospital outpatient settings would empower providers to make the best treatment decisions for their patients, ensure equitable access to needed services, and pay appropriately for these services. We also considered bundling payment for skin substitute products in both the PFS and OPPS as part of this proposal. While supplies are generally bundled into the payment of the service in both the physician office and hospital outpatient departments, for many years skin substitute products have been paid separately in the physician office setting, where the majority of these products are currently applied. So, we have determined that bundling payment for skin substitute products with their administration procedures across both settings under this new proposal, before efforts are made to address improper utilization patterns, would be premature. Depending on whether our proposal is finalized, and the outcomes of a final policy, we may consider packaging skin substitute products with the related proper utilization patterns, would be premature. Depending on whether our proposal is finalized, and the outcomes of a final policy, we may consider packaging skin substitute products with the related application procedures in both the hospital outpatient setting and non- facility setting in future rulemaking. We seek comments on our proposal to separately pay for the provision of certain groups of skin substitute products as well as on our proposal to implement this policy in both the non- facility and hospital outpatient settings. For additional details on the OPPS proposal for skin substitutes, please see the CY 2026 OPPS/ASC proposed rule with comment period; the remainder of this policy proposal will focus on implementation under the PFS. We propose, under the PFS, to pay separately for the use of specific skin substitute products (that is, skin substitute products that are not regulated as biological products under section 351 of the PHS Act) that are eligible for Medicare coverage during a covered application procedure in the non-facility setting as incident-to supplies in accordance with section 1861(s)(2)(A) of the Act. Supplies are a large category of items that typically ge during a covered application procedure in the non-facility setting as incident-to supplies in accordance with section 1861(s)(2)(A) of the Act. Supplies are a large category of items that typically are either for single use or have a shorter use life span than equipment. Supplies can be anything that is not equipment and include not only minor, inexpensive, or commodity-type items but also include a wide range of products used in outpatient settings, including certain implantable medical devices. ‘‘Incident-to supplies’’ refers to supplies that are furnished as an integral, although incidental, part of the physician’s professional services in the course of diagnosis or treatment of an injury or illness (42 CFR 410.26). Because a skin substitute must be used to perform any of the procedures described by a CPT code in the range 15271 through 15278, and the procedure of treating the wound and applying a covering to the wound is the independent service, skin substitute products serve as a necessary supply for these surgical repair procedures. We seek comments on our proposal to separately pay for provision of skin substitutes as incident-to supplies under the PFS in the non-facility a necessary supply for these surgical repair procedures. We seek comments on our proposal to separately pay for provision of skin substitutes as incident-to supplies under the PFS in the non-facility setting. Skin substitutes have historically been paid separately in the non-facility setting as biologicals instead of supplies when used during a covered application procedure. Products CMS considers to be skin substitutes may also meet FDA’s VerDate Sep 2014 23:26 Jul 15, 2025 Jkt 265001 PO 00000 Frm 00166 Fmt 4701 Sfmt 4702 E:\FR\FM\16JYP3.SGM 16JYP3 3 S L A S O P O R P 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 23:26 Jul 15, 2025 Jkt 265001 PO 00000 Frm 00167 Fmt 4701 Sfmt 4702 E:\FR\FM\16JYP3.SGM 16JYP3 3 S L A S O P O R P 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 32518 Federal Register / Vol. 90, No. 134 / Wednesday, July 16, 2025 / Proposed Rules provides for predictability and efficiency for purposes of Medicare payment. Payment for new products, as discussed below, could be achieved quickly and consistently by CMS’s capacity to immediately recognize the FDA regulatory categories. a. 361 HCT/Ps As described previously, 361 HCT/Ps are a oducts, as discussed below, could be achieved quickly and consistently by CMS’s capacity to immediately recognize the FDA regulatory categories. a. 361 HCT/Ps As described previously, 361 HCT/Ps are a subset of HCT/Ps that are regulated solely under section 361 of the PHS Act and the regulations in 21 CFR 1271 and listed in the FDA’s eHCTERS. Currently, registered 361 HCT/Ps generally are dressings intended only to cover and protect a wound. They are not intended to act on the wound to mediate, facilitate, or accelerate wound healing. Their activity is typically limited to that of a physical covering or wrap. A structural tissue intended for wound care is generally limited to the homologous use of cover and protect in order to be a 361 HCT/P.83 Intended uses such as wound treatment, promotion or acceleration of wound healing, or serving as a skin substitute would generally be non-homologous uses of structural tissues. Instead, products for such intended uses (for example, the treatment of wounds) generally are subject to PMA or BLA requirements. b. Devices Requiring 510(k) Clearance A 510(k) is a premarket submission made to the FDA generally by the manufacturer of a device to demo of wounds) generally are subject to PMA or BLA requirements. b. Devices Requiring 510(k) Clearance A 510(k) is a premarket submission made to the FDA generally by the manufacturer of a device to demonstrate that the device to be marketed is substantially equivalent to a legally marketed device that is not subject to premarket approval. (FD&C Act sections 510(k), 513(i)). Currently, 510(k)-cleared devices that we are considering for purposes of this proposal generally are dressings intended only to cover and protect a wound, to absorb exudate, and to maintain appropriate moisture balance within the wound. They are not intended to act on the wound to mediate, facilitate, or accelerate wound healing. Their activity is typically limited to that of a physical covering or wrap. When intended only to cover and protect a wound, to absorb exudate, and to maintain appropriate moisture balance within the wound and otherwise meeting the device definition, generally the FDA’s Center for Devices and Radiological Health (CDRH) regulates wound dressings composed of natural biomaterials, including animal and human derived tissue as devices, and they are currently subject to 510(k) 83 See Regulator d Radiological Health (CDRH) regulates wound dressings composed of natural biomaterials, including animal and human derived tissue as devices, and they are currently subject to 510(k) 83 See Regulatory Considerations for HCT/Ps: Minimal Manipulation and Homologous Use, July 2020 (pg. 19). requirements. At this time, wound dressings have not been 510(k) cleared by FDA for indications such as wound treatment, promotion or acceleration of wound healing, or serving as a skin substitute.84 Instead, products for such intended uses generally are subject to PMA or BLA requirements. For the purposes of this policy, we propose to group any skin substitutes authorized through the De Novo pathway with those cleared under 510(k)s. De Novo classification is a marketing pathway for medical devices for which general controls alone (class I), or general and special controls (class II), provide reasonable assurance of safety and effectiveness. While products authorized through the De Novo pathway have no legally marketed predicate device, devices that are classified into class I or class II through a De Novo authorization may be marketed and used as predicates for future premarket notification (that o legally marketed predicate device, devices that are classified into class I or class II through a De Novo authorization may be marketed and used as predicates for future premarket notification (that is, 510(k)) submissions, when applicable. Because of this, we would expect skin substitutes authorized through the De Novo pathway and those cleared under 510(k)s to be similar for purposes of this proposal. c. Products Subject to PMAs Premarket approval is the most rigorous type of review and generally is required for class III medical devices. Similar to BLA-approved wound care products, PMA-approved wound care products generally are intended to go beyond a simple wound cover to provide some type of direct treatment effect. The FDA has not defined the term ‘‘skin substitute.’’ However, the term has been used as a descriptor for certain wound care constructs that are currently approved under a BLA or PMA for treatment of burns or skin ulcers, including ulcers that appear to have failed to heal after standard of care. The intended uses of these products may include scaffold claims, reference to matrix attributes that promote endogenous cell binding, migration, differentiation, or prol o heal after standard of care. The intended uses of these products may include scaffold claims, reference to matrix attributes that promote endogenous cell binding, migration, differentiation, or proliferation, and/or activities mediated by matrix-associated regulatory factors that facilitate wound healing. Currently, wound care products intended to interact with the wound to facilitate, promote, or accelerate wound healing generally require approval of a BLA or, in some instances, a PMA. Approval of these products requires demonstration of safety and efficacy for 84 FDA Executive Summary Prepared for the October 26 & 27, 2022 Meeting of the General and Plastic Surgery Devices Panel of the Medical Devices Advisory Panel Classification of Wound Dressings with Animal-derived Materials (Section 3). Available at download the intended use, which generally requires the performance of clinical studies. So PMA-approved devices can be readily distinguished from 510(k)- cleared devices and 361 HCT/P products, which are intended mainly to cover and protect the wound. They are clinically different, provide different benefits, and would theoretically be used for patients presenting with differe CT/P products, which are intended mainly to cover and protect the wound. They are clinically different, provide different benefits, and would theoretically be used for patients presenting with different clinical scenarios. As discussed, PMA-approved devices also go through a much more rigorous review process before marketing as compared to the substantial equivalence requirements for 510(k)s and lack of premarket review for registered 361 HCT/Ps. This more rigorous review for PMAs, as well as differences in clinical utility, and the associated costs to manufacturers, suggests that the resources involved in furnishing these products could be distinct from 361 HCT/Ps and 510(k)s. We seek comment on our proposal to group skin substitutes into three FDA categories, PMA, 510(k), and 361 HCT/P, to set payment rates. d. Innovative Products We note that recognizing innovation for supplies through payment policy is complex. It may be difficult to differentiate a truly innovative product from another that offers no true clinical advance. We seek comments on how to properly recognize innovative products through payment policy under the PFS as we continue to assess how best to identify and val other that offers no true clinical advance. We seek comments on how to properly recognize innovative products through payment policy under the PFS as we continue to assess how best to identify and value innovative products under the PFS. For example, we seek comments on whether skin substitutes with active pass-through payment status under the OPPS and/or those receiving new technology add-on payments (NTAP) under the IPPS should be paid separately from their FDA category under the PFS. We seek comments on whether these products should meet a substantial clinical improvement standard or whether, consistent with current pass-through policy, a device that has received marketing authorization for an indication covered by FDA’s Breakthrough Devices Program would generally represent clinically- relevant innovation sufficient to qualify for a product-specific payment rate. Finally, we seek comments on using either a product’s ASP or invoice pricing, similar to how devices with pass-through status are paid in ambulatory surgical centers, or adding a set percentage, similar to the NTAP add- on, to the applicable FDA category’s base rate to set payment limits during the period of time that tatus are paid in ambulatory surgical centers, or adding a set percentage, similar to the NTAP add- on, to the applicable FDA category’s base rate to set payment limits during the period of time that the product is covered by the pass-through and/or NTAP programs. VerDate Sep 2014 23:26 Jul 15, 2025 Jkt 265001 PO 00000 Frm 00168 Fmt 4701 Sfmt 4702 E:\FR\FM\16JYP3.SGM 16JYP3 3 S L A S O P O R P 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. 134 / Wednesday, July 16, 2025 / Proposed Rules 32519 3. Alternative Payment Categories As a conceptually possible alternative to our proposal to group skin substitutes based on FDA regulatory categories for purposes of payment, we considered aligning these products based on their composition, for example, whether they are non-synthetic or synthetic. Two examples provided by interested parties include grouping the products as allografts (for example, amniotic products, cellular products), xenografts (for example, collagen products derived from animals), synthetics (for example, artificial products made from various biomaterials) and grouping the products as human living/cryopreserved tissue, dehydrated hum le, collagen products derived from animals), synthetics (for example, artificial products made from various biomaterials) and grouping the products as human living/cryopreserved tissue, dehydrated human/amniotic tissue, animal xenografts, and synthetics/ polymers. However, as noted previously, skin substitutes are a heterogenous group with an increasing intersection between tissue, bioengineered, and synthetic components. With many products now including both non-synthetic and synthetic components, clear categorization of skin substitutes by composition is no longer feasible. This makes this alternative extremely complex to implement because it would be necessary to determine which category would be most appropriate for each individual product based on the components of its composition and an assessment of the importance of each. In addition, it is unclear if grouping products based solely on their composition would provide accurate differentiation with respect to resource or clinical similarity for the purposes of setting an appropriate payment rate. Other alternatives we considered include grouping all products together to set a single payment rate or creating two or more categor similarity for the purposes of setting an appropriate payment rate. Other alternatives we considered include grouping all products together to set a single payment rate or creating two or more categories reflecting product cost, similar to the grouping used currently to set payment rates for skin substitutes in hospital outpatient departments. While these options may offer certain operational advantages for their simplicity, neither recognizes the clinical differences among skin substitutes as reflected by their different intended uses. Paying for similar items and services at a comparable rate is a foundational aspect of our payment systems, but hospital outpatient departments and physicians and other practitioners paid under the PFS would instead have a financial incentive to use the least expensive skin substitute or the product offering the greatest discount, which could negatively affect patient outcomes and disincentivize innovation in this space if clinical differences are not recognized and differential payments rates are not set. In addition, dividing products by cost relies on pricing set by manufacturers. Especially in light of the dramatic growth of skin substitutes’ AS ecognized and differential payments rates are not set. In addition, dividing products by cost relies on pricing set by manufacturers. Especially in light of the dramatic growth of skin substitutes’ ASP-based payment limits, this method is unlikely to accurately reflect skin substitute resource costs or clinical similarity. We seek comments on whether adding certain subcategories to the three proposed FDA categories would improve clinical or resource similarity. One potential example is creating certain subcategories for payment based on one or more FDA device product codes, which is a categorization process that FDA uses to group similar products together. Other examples that have come to our attention include setting unique payment rates for 361 HCT/Ps based on the number of tissue layers (for example, one layer, two layers, and three or more tissue layers) or entirely synthetic products versus non-synthetic products for 510(k)s. If significant clinical or resource differences were identified between products in one or more of these categories, CMS could create a separate payment grouping for these products for payment purposes. We also seek comments on whether products that are n entified between products in one or more of these categories, CMS could create a separate payment grouping for these products for payment purposes. We also seek comments on whether products that are not in sheet form are appropriately considered skin substitutes for the purposes of providing separate payment under this policy. Examples include gel, powder, ointment, foam, liquid, or injected products listed in the nontraditional units of cc, mL, mg, and cm3. We request feedback on whether these products could be appropriately used as part of the CPT administration codes in the range 15271 through 15278, despite existing CPT coding guidelines limiting their use, and how these units could be paid using the FDA regulatory category groups. For example, assuming these products were appropriate to administer using the noted CPT administration codes or other administration codes, CMS could include products listed in units of cc, mL, or cm3 in the applicable FDA categories and equate a single cm2 unit to each cc, mL, or cm3 for payment purposes. We seek comments on whether other administration codes could be used to appropriately describe services performed using products with units other cm2 unit to each cc, mL, or cm3 for payment purposes. We seek comments on whether other administration codes could be used to appropriately describe services performed using products with units other than cm2. 4. Establishing RVUs and Initial Payment Rates Section 1848(c)(2)(N) of the Act provides authority to establish or adjust practice expense RVUs using cost, charge, or other data from suppliers or providers of services, including information collected or obtained under section 1848(c)(2)(M) of the Act. Section 1848(c)(2)(M) of the Act authorizes the Secretary to collect or obtain information on the resources directly or indirectly related to furnishing services for which payment is made under the PFS fee schedule, and such information may be collected or obtained from any eligible professional or any other source. In addition, it allows the Secretary, as he determines appropriate, to use such information in the determination of RVUs. We are relying on these authorities to propose to establish practice expense RVUs and initial payment rates for skin substitute products in each of the three FDA regulatory categories discussed above based on the volume-weighted average ASP, with to establish practice expense RVUs and initial payment rates for skin substitute products in each of the three FDA regulatory categories discussed above based on the volume-weighted average ASP, with no additional markup, as submitted by manufacturers, when available. We have developed initial payment rates for each group based on the weighted, per-unit average of ASPs for the fourth quarter of calendar year 2024. These initial payment rates are listed in the file titled ‘‘Skin Substitute Products by FDA Regulatory Category’’ on the CMS website under downloads for the CY 2026 PFS proposed rule at https://www.cms.gov/Medicare/ Medicare-Fee-for-Service-Payment/ PhysicianFeeSched/PFS-Federal- Regulation-Notices.html. When ASP was not available, we used the MUC, which we currently use to determine the high-cost/low-cost status for each skin substitute product in the hospital outpatient setting, to calculate the proposed initial rates. While use of hospital cost data departs from the hierarchy of data sources contained in section 1847A of the Act to calculate prices for drugs and biologicals, we note that section 1848(c)(2)(N) of the Act provides authority for us to use this data to est chy of data sources contained in section 1847A of the Act to calculate prices for drugs and biologicals, we note that section 1848(c)(2)(N) of the Act provides authority for us to use this data to establish or adjust practice expense RVUs. In addition, as proposed, skin substitutes in the three FDA regulatory categories would no longer be considered biologicals for the purposes of payment under section 1847A of the Act. We considered using only the MUC data to calculate payment rates for these products. However, when ASP is reported, it may serve as a better estimate of cost across both settings as the ASP reflects sales to physicians as well as hospitals. We seek comments on our proposal to establish PE RVUs and initial payment rates for skin substitute products in each of the three FDA regulatory categories using ASP, or MUC when ASP is not available, using per-unit averaged pricing data from the fourth quarter of 2024. We also seek comments on whether these calculations, if finalized, should be updated with the most recently VerDate Sep 2014 23:26 Jul 15, 2025 Jkt 265001 PO 00000 Frm 00169 Fmt 4701 Sfmt 4702 E:\FR\FM\16JYP3.SGM 16JYP3 3 S L A S O P O R P h t i w D O R P 4 4 1 S d, should be updated with the most recently VerDate Sep 2014 23:26 Jul 15, 2025 Jkt 265001 PO 00000 Frm 00169 Fmt 4701 Sfmt 4702 E:\FR\FM\16JYP3.SGM 16JYP3 3 S L A S O P O R P 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 32520 Federal Register / Vol. 90, No. 134 / Wednesday, July 16, 2025 / Proposed Rules available data at the time the final rule is drafted. As we are proposing to implement this policy for CY 2026 in a site-neutral manner across both the non-facility setting under the PFS and hospital outpatient setting under the OPPS, we are including all products used in either setting to calculate the rates. However, when product-specific utilization across both settings is used to calculate volume-weighted average payments, the result is an apparent rank order anomaly; despite having a more rigorous regulatory review process and receiving indications to treat and heal wounds, the PMA category has the lowest average payment. We are concerned that use of the novel pricing practices noted above has resulted in a decoupling of actual resource costs from the ASP. To address this, as a short-term measure, we propose to weight the product- specific utilization in calculatin practices noted above has resulted in a decoupling of actual resource costs from the ASP. To address this, as a short-term measure, we propose to weight the product- specific utilization in calculating the proposed rates using the proportions from only the hospital OPPS data and establish for CY 2026 a single payment rate that would apply to all skin substitute products in the three FDA regulatory categories. We believe the OPPS utilization data may better predict utilization patterns under our proposed policies for non-facility settings because, similar to our proposals, these products are already grouped together for payment purposes under the OPPS. By grouping skin substitutes into high- and low-cost groups in the OPPS, hospitals are incentivized to choose either the lowest-cost, clinically appropriate product in the low-cost group or the lowest-cost, clinically appropriate product in the high-cost group. No similar incentive currently exists in the non-facility setting for physicians and other suppliers billing under the PFS. As the proposed policies are intended to mitigate the problematic incentives associated with current patterns of use in the non-facility setting by establ ns and other suppliers billing under the PFS. As the proposed policies are intended to mitigate the problematic incentives associated with current patterns of use in the non-facility setting by establishing payment rates for the products in groups instead of individually, we do not believe it would reflect the expected resource costs involved in providing care if we were to base the initial rates on utilization data from the non-facility setting that may be skewed by incentives that would no longer exist under our proposals. For these reasons, we are proposing to initially use hospital outpatient utilization to weight how much each product’s price contributes to the proposed payment rates for skin substitutes cleared through the 510(k) pathway, self-determined to be 361 HCT/Ps, or approved under a PMA. We seek comments on the use of the hospital outpatient product utilization patterns to set payment rates for these products under the PFS. We are also proposing for CY 2026 to establish the same initial rate for each group of skin substitutes, including 510(k)-cleared products, registered 361 HCT/Ps, and approved PMAs. To ensure we are not underestimating the resources involved in us the same initial rate for each group of skin substitutes, including 510(k)-cleared products, registered 361 HCT/Ps, and approved PMAs. To ensure we are not underestimating the resources involved in using these products in furnishing care, we are proposing to use the highest of the calculated volume-weighted average payment amounts for 510(k)s, 361 HCT/Ps, and PMAs to set initial payment valuations. As the 361 HCT/Ps have the highest volume-weighted average payment amount, this average payment rate is reflected in the proposed initial payment rate below. However, we note that, in future notice and comment rulemaking, we intend to propose using claims data to set payment rates for products in these three categories, which would likely result in payment valuations that diverge based on the updated data. Another alternative is to set the payment rate for products in these categories at the volume-weighted average for all three categories, resulting in a lower initial payment rate for all three groups of products. We seek comment on our proposal to use the 361 HCT/P volume-weighted average payment amount to set the initial payment rates for products in all three categories as well as th hree groups of products. We seek comment on our proposal to use the 361 HCT/P volume-weighted average payment amount to set the initial payment rates for products in all three categories as well as the alternative of using a pooled average of the three categories to set the initial payment rates. Alternatively, while the ASP pricing files show that skin substitutes across all three of the FDA regulatory categories have increased in cost substantially since 2019, unlike the self- determined 361 HCT/Ps and 510(k)- cleared devices, there has not been a substantial increase in the number of skin substitutes with approved PMAs. Consequently, it is possible that the non-facility utilization of the skin substitutes with approved PMAs is not as distorted as the utilization of the other kinds of skin substitutes. Setting a separate payment rate for this category using combined product utilization patterns (from both OPPS and non- facility settings), would result in a higher initial payment rate for the PMA category. This would rationally order the FDA regulatory categories, based on clinical considerations and some indicators of resource cost, until pricing data removed from these aberrant for the PMA category. This would rationally order the FDA regulatory categories, based on clinical considerations and some indicators of resource cost, until pricing data removed from these aberrant financial incentives can be incorporated. We seek comments on this alternative policy option. Under the PFS, payment rates are determined based on work RVUs, PE RVUs, and MP RVUs multiplied by their respective GPCI adjusters and then converted into dollars through multiplication by the conversion factor. For skin substitutes that would be valued and paid as incident-to supplies under our proposal, the practitioner work associated with the application of the skin substitute is already accounted for in the valuation of the application codes themselves (CPT codes 15271– 15278), so we are not proposing work RVUs for the codes that describe the products involved in furnishing the application service. Rather than using the established PE methodology to derive PE RVUs from work, direct PE inputs, and the PE/HR data (as described in section II.E of this proposed rule), we are instead proposing to use our authority under sections 1848(c)(2)(M) and (N) of the Act to establish PE RVUs for these s and the PE/HR data (as described in section II.E of this proposed rule), we are instead proposing to use our authority under sections 1848(c)(2)(M) and (N) of the Act to establish PE RVUs for these supplies using rates calculated from a combination of OPPS cost data and ASP data weighted by OPPS volume. For the specific PE RVUs, please see Addendum B of this proposed rule available on the CMS website under downloads for the CY 2026 PFS proposed rule at https:// www.cms.gov/Medicare/Medicare-Fee- for-Service-Payment/ PhysicianFeeSched/PFS-Federal- Regulation-Notices.html. For malpractice RVUs, we generally believe that the malpractice resources are already reflected in the MP RVUs associated with the application codes, but because the standard PFS methodologies assign a minimum of .01 MP RVUs to all codes except add-on codes (75 FR 73276.), we are proposing an MP RVU of 0.01 for these supplies consistent with the rounding convention We also seek comments on whether we should consider treating the codes describing skin substitute products as add-on codes to the current CPT application codes. This would more clearly indicate that the only skin substitute products to be paid for and t reating the codes describing skin substitute products as add-on codes to the current CPT application codes. This would more clearly indicate that the only skin substitute products to be paid for and treated as supplies by Medicare are those used in conjunction with the already existing CPT administration codes. If we were to treat these codes as add-on codes to the application codes, we would effectuate this by assigning a global indicator of ZZZ to the skin substitute codes under the PFS. If we were to finalize these codes as add-on codes, we would assign 0 MP RVUs to them, consistent with existing policy regarding add-on codes. The proposed PE and MP RVUs would result in an initial payment rate of approximately $125.38/cm2 for skin substitute products in all three FDA regulatory categories (including PMA- VerDate Sep 2014 23:26 Jul 15, 2025 Jkt 265001 PO 00000 Frm 00170 Fmt 4701 Sfmt 4702 E:\FR\FM\16JYP3.SGM 16JYP3 3 S L A S O P O R P 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. 134 / Wednesday, July 16, 2025 / Proposed Rules 32521 approved devices, 361 HCT/Ps, and 510(k) cleared devices) prior to the application of the geographic adjust a h k Federal Register / Vol. 90, No. 134 / Wednesday, July 16, 2025 / Proposed Rules 32521 approved devices, 361 HCT/Ps, and 510(k) cleared devices) prior to the application of the geographic adjustments. Again, the proposed PE and MP RVUs are available in Addendum B of this proposed rule. We seek comments on these proposed initial values. We determined these proposed values using product pricing and volume for skin substitutes from paid claims with dates of service in the fourth quarter of 2024 because it is the most recent, substantially complete quarter of data. For professional claims, we excluded claims without a positive line-level allowed amount, so that we did not inadvertently include volume without presumed costs in the calculation. In addition, in reviewing the ASP pricing files from the first quarter of 2017 through the first quarter of 2025, the most complete ASP reporting is in the fourth quarter of each year. To determine the payment rates, we first used a product’s ASP if it was available. If the ASP rate was missing, we used the 2024 MUC for the HCPCS code. We then calculated a single rate for each FDA category by taking the volume-weighted average of the rates f P if it was available. If the ASP rate was missing, we used the 2024 MUC for the HCPCS code. We then calculated a single rate for each FDA category by taking the volume-weighted average of the rates for the applicable codes using the hospital outpatient utilization to weight each category. We note that if rather than using the final quarter of CY 2024, we alternatively, were to use pricing and volume from all four quarters of 2024 to determine proposed rates, the rate for all categories would be approximately $114.87/cm2. Using a pooled payment rate across all three categories would result in a rate of approximately $65.85/cm2, while splitting the categories to pay the PMA category using the combined product utilization patterns and the 510(k) and 361 HCT/P categories using the OPPS utilization patterns would result in rates of approximately $259.47/cm2 and $125.38/cm2 respectively. We seek comments on our proposed process to calculate initial payment rates as well as these alternatives. We propose to maintain the current structure of HCPCS codes for skin substitutes, including a process to introduce new product-specific codes and propose initial valuation based on the typical reso s. We propose to maintain the current structure of HCPCS codes for skin substitutes, including a process to introduce new product-specific codes and propose initial valuation based on the typical resource costs (that is, those reflected in ASP and MUC data) of the groups associated with each skin substitute’s HCPCS code. For a complete list of codes and FDA categories, please see file titled ‘‘Skin Substitute Products by FDA Regulatory Category’’ available on the CMS website under downloads for the CY 2026 PFS proposed rule at https://www.cms.gov/Medicare/ Medicare-Fee-for-Service-Payment/ PhysicianFeeSched/PFS-Federal- Regulation-Notices.html. Individual HCPCS coding remains necessary to provide identification on claims and track each product’s cost. This will also allow effectuation of any applicable coverage policies and improve our ability to determine if any refinements in payment categories would be appropriate in future rulemaking. For the most part, the resources for incident- to supplies are included in the total RVUs of a procedural code or are packaged under the OPPS. However, this proposed approach is not entirely novel, since Medicare pays for various components of ser to supplies are included in the total RVUs of a procedural code or are packaged under the OPPS. However, this proposed approach is not entirely novel, since Medicare pays for various components of services through the use of separate HCPCS codes and/or payment modifiers. The most obvious examples of these kinds of payment and coding splits occur in diagnostic tests and radiation treatment services, but there are also many examples in the PFS of add-on codes with RVUs primarily driven by the costs of particular items, including disposable supplies. In this case, the full range of resource costs for the services would not be included in the RVUs or payment amount for a single code but rather spread across several codes, namely a base code and one or more add-on codes. In this case, the application base codes would be reported with an add-on or multiple add-on HCPCS codes associated with skin substitutes. For example, CPT code 15271 (application of skin substitute graft, leg or ankle) would be reported with a PE-only add-on code that includes the resources involved in using the skin substitute product. (Such PE- only codes are designated with a PC/TC indicator of 3 and are only paid u ld be reported with a PE-only add-on code that includes the resources involved in using the skin substitute product. (Such PE- only codes are designated with a PC/TC indicator of 3 and are only paid under the PFS in the non-facility setting. The same HCPCS code would be separately reportable in the hospital outpatient setting but not paid under the PFS.) We propose that new HCPCS codes describing skin substitutes would be categorized based on whether they are PMA-approved, 510(k)-cleared, or self- determined 361 HCT/Ps and the RVUs that apply to that category would be applied to the new code at the next quarterly update. Any change to the RVUs associated with each group would be subject to annual notice and comment rulemaking. Currently, HCPCS Level II coding applications are submitted and reviewed during the quarterly and biannual coding cycles. We post our coding determinations for drugs and biologicals on a quarterly basis, and do not routinely review those applications at a HCPCS public meeting. For non-drugs and non-biologicals, we post our coding decisions on a biannual basis. For our biannual cycles for non- drugs and non-biologicals, we post preliminary coding determination ublic meeting. For non-drugs and non-biologicals, we post our coding decisions on a biannual basis. For our biannual cycles for non- drugs and non-biologicals, we post preliminary coding determinations then invite feedback on those preliminary coding determinations at a biannual HCPCS public meeting; final coding determinations are posted following the HCPCS public meeting. CMS has been reviewing skin substitutes marketed as 361 HCT/Ps in the quarterly drugs and biologicals coding cycle and 510(k)- cleared skin substitutes in the biannual, non-drugs and non-biologicals coding cycle. Beginning January 1, 2026, we propose to review HCPCS Level II coding applications for all skin substitutes marketed as 361 HCT/Ps through our biannual coding cycle for non-drugs and non-biological products, rather than on a quarterly basis. Skin substitutes that received a 510(k) clearance, PMA approval, or a granted De Novo request would continue to be evaluated in the biannual HCPCS Level II coding cycles. Therefore, under this proposal, CMS would evaluate all complete HCPCS Level II applications for skin substitutes in our biannual cycles. Should any products come to market under the BLA, NDA, or AN s. Therefore, under this proposal, CMS would evaluate all complete HCPCS Level II applications for skin substitutes in our biannual cycles. Should any products come to market under the BLA, NDA, or ANDA pathways that could potentially be considered skin substitutes, CMS would instead review them in a quarterly HCPCS Level II drugs and biologicals coding cycle. Before a code is assigned, not otherwise classified (NOC) codes would be used and the CMS MACs would assign the appropriate payment based on the product’s FDA regulatory category. If skin substitutes that are not licensed under section 351 of the PHS Act are no longer paid as biologicals using the methodology under section 1847A of the Act, as proposed, then the manufacturers of these products would no longer be required to report ASP data to CMS under section 1847A(f)(2) of the Act. However, as noted above, when ASP data is reported, it may serve as a better estimate of resources across the hospital outpatient and non-facility settings than hospital outpatient MUC data. We propose to update the rates for the skin substitute categories annually through rulemaking using the most recently available calendar quarter of ASP data, ettings than hospital outpatient MUC data. We propose to update the rates for the skin substitute categories annually through rulemaking using the most recently available calendar quarter of ASP data, when available, to set the rates. However, we have concerns that using a single, scheduled quarter of ASP data to set payment rates could encourage gaming. We seek comments on the use of a longer timeframe, such as the most recently available four calendar quarters, to set payment rates in future years. In the event ASP is not available for a particular product, we propose to use the MUC data. If MUC is not available, we propose to use the product’s WAC or 89.6 percent of AWP VerDate Sep 2014 23:26 Jul 15, 2025 Jkt 265001 PO 00000 Frm 00171 Fmt 4701 Sfmt 4702 E:\FR\FM\16JYP3.SGM 16JYP3 3 S L A S O P O R P 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 32522 Federal Register / Vol. 90, No. 134 / Wednesday, July 16, 2025 / Proposed Rules if WAC is also unavailable, similar to other products for which ASP is used to calculate a payment rate.85 Once updated use patterns reflecting this policy are available to calculate rates, we propose using all relevant products and the combine products for which ASP is used to calculate a payment rate.85 Once updated use patterns reflecting this policy are available to calculate rates, we propose using all relevant products and the combined product utilization patterns (OPPS and non-facility) to determine a weighted average per-unit cost by category to set separate payment rates for each of the three categories. We seek comments on our proposed methodology to set and update the payment rates for skin substitutes as well as the rates themselves. 5. Summary To implement this policy, we propose, starting January 1, 2026, to separately pay for skin substitute products as incident-to supplies in both the non-facility and hospital outpatient settings. We propose to create three groups to pay for skin substitutes based on their FDA regulatory categories: PMA, 510(k), and 361 HCT/P, and would include each skin substitute in the applicable category based on its FDA approval, clearance, or self- determination, unless a skin substitute is licensed under section 351 of the PHS Act, as described earlier in this section, in which case the payment methodology under section 1847A would continue to apply. We propose calculate initial pa e is licensed under section 351 of the PHS Act, as described earlier in this section, in which case the payment methodology under section 1847A would continue to apply. We propose calculate initial payment rates for skin substitute products in each of the three FDA regulatory categories using the volume- weighted average ASP for skin substitute products in each group as submitted by manufacturers, when available, and the MUC when ASP is not available. We propose to use the hospital outpatient utilization patterns to set the payment rates for all three categories of skin substitutes, which we propose to pay at a single rate for CY 2026. For CY 2026, the proposed PE and MP RVUs would result in an initial payment rate of approximately $125.38/ cm2 (prior to the application of the geographic adjustments) for PMA approvals, 510(k)s, and self-determined 361 HCT/Ps. We propose to accomplish this by maintaining the current HCPCS codes for skin substitutes and then applying this rate to each code. We propose to update the rates for the skin substitute categories annually through rulemaking using the most recently available calendar quarter of ASP data, when available, to set the rates, thou de. We propose to update the rates for the skin substitute categories annually through rulemaking using the most recently available calendar quarter of ASP data, when available, to set the rates, though we are seeking comments on whether a single quarter is most advisable. In the 85 89.6 percent of AWP was calculated by first reducing the usual 95 percent of AWP price by 6 percent to generate a value that is similar to WAC with no percentage markup. event ASP is not available for a particular product, we propose to use the hospital outpatient MUC data. If MUC is not available, we propose to use the product’s WAC or 89.6 percent of AWP if WAC is also unavailable. We propose to include all skin substitute products used across both settings as well as the combined product utilization patterns, as soon as data is available that reflects the results of this policy, to determine a weighted average per-unit cost by group to set the payment rates for each of the three categories. We are also seeking comments on how to best integrate this data into updated PE RVUs for years subsequent to CY 2026. Specifically, we are seeking comment on whether we should apply PE scaling factors to the data eeking comments on how to best integrate this data into updated PE RVUs for years subsequent to CY 2026. Specifically, we are seeking comment on whether we should apply PE scaling factors to the data (that is, volume-weighted ASP or MUC) in order to optimize relativity with other PFS services and supplies once these products are incorporated into PFS data used for rate setting. We propose to evaluate all complete HCPCS Level II applications for skin substitutes in our biannual cycles. Finally, we propose to codify the definition of ‘‘biological’’ as ‘‘a product licensed under section 351 of the Public Health Service Act’’ at §§414.802 and 414.902. L. Strategies for Improving Global Surgery Payment Accuracy 1. Background CMS establishes valuation and payment for approximately several thousand physician services as ‘‘global surgical packages’’ (herein ‘globals’) under the PFS. Each package includes a surgical procedure defined by the HCPCS code as well as related services, for example, pre and immediate post- operative care on the day of the procedure, care related to complications, and discharge services, and post-operative evaluation and management (E/M) services typically provided re and immediate post- operative care on the day of the procedure, care related to complications, and discharge services, and post-operative evaluation and management (E/M) services typically provided during postoperative periods of specified lengths called ‘‘global periods.’’ Currently, CMS pays for approximately 5,500 globals covering 0-, 10- and 90-day postoperative periods. Of the 5,500 total global surgical procedures, approximately 4,200 have either a 10- or 90-day global periods and nearly all of these 4,200 globals have at least one post-operative E/M visit included as part of their respective global surgical packages. Global surgical packages apply to the practitioner performing the procedure and, in the case of group practices, to the entire practice. Practitioners outside of those performing the procedure (or in the same group practice) can separately bill for post-operative and other care related to a global surgical procedure. Taking into consideration findings from OIG reports that practitioners were performing fewer post-operative visits than Medicare assumed when valuing globals as well as our internal analysis, we finalized a policy in the CY 2015 PFS final rule to ports that practitioners were performing fewer post-operative visits than Medicare assumed when valuing globals as well as our internal analysis, we finalized a policy in the CY 2015 PFS final rule to transition all globals with 10-day and 90-day global periods to have 0-day global periods. This change would allow practitioners to bill separately for any post-operative visits (or other care related to the procedure, for example, care for complications) furnished after the day of the procedure to be billed as standalone services. However, the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) (Pub. L. 114–10), prohibited CMS from implementing this finalized policy and required that we collect data on the number and level of post- operative visits provided to enrollees as part of global periods and use this information to improve the valuation of globals. In response to the MACRA requirements, CMS developed a claims- based reporting system and required practitioners in nine states and in practices of 10 or more National Provider Identifiers (NPIs) to report post-operative visits falling with global periods using no-pay HCPCS code 99024. We also initiated a research contract tes and in practices of 10 or more National Provider Identifiers (NPIs) to report post-operative visits falling with global periods using no-pay HCPCS code 99024. We also initiated a research contract with RAND to analyze the collected data, to conduct a survey- based study on the level of post- operative visits, and to model different approaches to use the collected data and other information to improve the accuracy of valuation for global surgical services (see 81 FR 80212 through 80222 for more detailed discussion). We recognize that, in some cases, a practitioner may only furnish the procedure component of a global surgical package, while in others, a practitioner may only provide post- operative care. In these cases, we rely on a set of transfer of care modifiers to split the fixed overall valuation of global surgical packages between providers. CMS broadened the scope for required reporting of transfer of care modifier -54 (Surgical care only) in the CY 2025 PFS Final Rule as part of an iterative process to improve global package valuation and therefore payment. Previously, this modifier could only be attached to global procedures with a 10 or 90-day global period when a pati t of an iterative process to improve global package valuation and therefore payment. Previously, this modifier could only be attached to global procedures with a 10 or 90-day global period when a patient’s transfer of care was formally documented by both the surgeon and one or more post- operative care practitioners. In internal analyses, CMS found modifier -54 was used only rarely in aggregate and was concentrated in a small number of VerDate Sep 2014 23:26 Jul 15, 2025 Jkt 265001 PO 00000 Frm 00172 Fmt 4701 Sfmt 4702 E:\FR\FM\16JYP3.SGM 16JYP3 3 S L A S O P O R P 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. 134 / Wednesday, July 16, 2025 / Proposed Rules 32523 ophthalmologic and cardiology procedures. Beginning January 1, 2025, and onward, modifier -54 must be reported in all cases where the surgeon does not intend to provide post- operative care, including but not limited to cases where both the surgeon and another practitioner both formally document the transfer of care as under the previous policy (see 89 FR 97961 through 97967 for that discussion). For CY 2025, we also finalized a new add-on code, HCPCS code G0559, for post-operative y document the transfer of care as under the previous policy (see 89 FR 97961 through 97967 for that discussion). For CY 2025, we also finalized a new add-on code, HCPCS code G0559, for post-operative care services furnished by a practitioner other than the one who performed the surgical procedure (or another practitioner in the same group practice). This add-on code will more appropriately reflect the time and resources involved in these post- operative follow-up visits by practitioners who were not involved in furnishing the surgical procedure however may see the patient for postoperative care (see 89 FR 97968 through 97971 for that discussion). 2. Strategies To Address Global Package Valuation We noted in the CY 2025 PFS final rule that our proposal to broaden the required use of the transfer of care modifiers was a first step in an iterative process towards improving the accuracy of global surgical service valuation and payment. We are considering next steps to improve the valuation and payment for these services. We are continuing to consider approaches to establishing the payment allocations for portions of the global package when the transfer of care modifiers are used. Furt n and payment for these services. We are continuing to consider approaches to establishing the payment allocations for portions of the global package when the transfer of care modifiers are used. Furthermore, we are considering approaches to specifically use information reported to CMS on the number and level of post operative visits to improve global surgical service valuation as required by Section 1848(c)(8)(C) of the Act. We requested comments in the CY 2025 proposed rule on how best to determine the appropriate shares used to split total global surgical package valuations into discrete portions for the purposes of determining valuation (and therefore payment) in transfer of care scenarios. We sought comment on potential approaches to revise these shares and how they could better reflect current medical practice and conventions for post-operative follow- up care. We sought to identify a procedure-specific, data-driven method for assigning shares to portions of the global package valuation to more appropriately align the resources involved in each portion to payment rates. We stated in the CY 2025 PFS proposed rule that we would appreciate and carefully consider recommendations luation to more appropriately align the resources involved in each portion to payment rates. We stated in the CY 2025 PFS proposed rule that we would appreciate and carefully consider recommendations from interested parties, including the AMA RUC, on what those shares should be and other relevant information. We also stated in the proposed rule that CMS could use data collected over nearly a decade on the observed number of post-operative visits furnished to patients as part of global surgical packages as the basis for calculating new data-driven shares. We note that we received few comments in response to our comment solicitation. Currently, Medicare pays surgeons a fixed share of a global procedure’s valuation when billed with specified modifiers, specifically, modifier -54. These ‘‘procedure shares’’ are based on long-standing assumption and are clustered at certain values, for example, 79 percent, 80 percent, or 81 percent for roughly half of procedures with 90-day global periods and 90 percent for most procedures with 10-day global periods (the remaining approximately 20 percent and 10 percent for 90-day and 10-day procedures, respectively, account for post-operative care). We nd 90 percent for most procedures with 10-day global periods (the remaining approximately 20 percent and 10 percent for 90-day and 10-day procedures, respectively, account for post-operative care). We believe that the use of these distinct portions of the global package will help us to best align valuation—and therefore payment—to the practitioner who is performing a specific portion of the global surgical service. We heard from commenters that the current component percentages published in the PFS were developed using magnitude estimation and cross- specialty scaling and that there is not any reverse engineering of work and time that can be performed to develop a better percentage of pre-, intra- and post-operative work than what is currently published in the PFS. Given the fact that both PFS global surgical procedures and relative valuations have changed since the inception of the PFS, we believe there may be better ways to provide the correct apportionments to the global surgical packages. Furthermore, clinical practice including post-operative care has changed dramatically over the decades since the inception of the current shares. We did not update procedure shares in the CY 2 ckages. Furthermore, clinical practice including post-operative care has changed dramatically over the decades since the inception of the current shares. We did not update procedure shares in the CY 2025 PFS final rule. We are again soliciting public comments on strategies to improve the accuracy of payment for global surgical packages, specifically related to the procedure shares. We are seeking public comments on what the procedure shares should be based on for the 90-day global packages. We are also seeking comments and stakeholder input as to current practice standards and division of work between surgeons and providers of post- operative care. Currently, there is no clear basis for the current procedure shares, and this will allow for stakeholder input as to what those procedure shares should be. In accordance with MACRA, we have been collecting data on post-operative visits furnished as part of global surgical packages and the extent to which these furnished post-operative visits align with the number of post-operative visits assumed by CMS when valuing global surgical services. For procedures with 90-day global periods and 2023 dates of service, our internal analysis shows t align with the number of post-operative visits assumed by CMS when valuing global surgical services. For procedures with 90-day global periods and 2023 dates of service, our internal analysis shows that only 28 percent of post-operative visits considered by CMS during global surgical service valuation were actually provided to enrollees as part of global surgical packages. Our internal findings and RAND’s published analyses have consistently shown that only a fraction of ‘‘expected’’ post-operative visits are provided. Absent evidence to the contrary, which CMS has not identified despite several solicitations for comments from the public (89 FR 97961 through 97962), our interpretation is that many post-operative visits considered during the valuation of global surgical packages are not provided as part of these packages. This presents an opportunity to use information from claims-based reporting of post-operative visits to develop procedure shares that better reflect current practice patterns. Using this data, as established through notice and comment rulemaking (81 FR 80212 through 80222), we considered several options regarding how the procedure shares could be updated, based on patterns. Using this data, as established through notice and comment rulemaking (81 FR 80212 through 80222), we considered several options regarding how the procedure shares could be updated, based on the data that was analyzed. These options are available in the file titled ‘‘Estimated Procedure Shares Under Procedure- Only Modifier -54, Surgical Services with 90-day Global Period’’ on the CMS website under downloads for the CY 2026 PFS proposed rule at https:// www.cms.gov/Medicare/Medicare-Fee- for-Service-Payment/ PhysicianFeeSched/PFS-Federal- Regulation-Notices.html. As we continue to contemplate how to pay more accurately for global surgical packages, and specifically in consideration of how the procedure shares could be updated, we identified three alternatives to the status quo assumed procedure shares (that is, the share of a global surgical package valuation assigned to the surgeon when modifier -54 is reported) for global surgical packages. Each alternative uses information available in claims data to calculate new HCPCS code-specific procedure shares. Each alternative also calculates procedure shares as the ratio of procedure work RVUs (defined as the sum of intraservi available in claims data to calculate new HCPCS code-specific procedure shares. Each alternative also calculates procedure shares as the ratio of procedure work RVUs (defined as the sum of intraservice work and other work on the day of the procedure (that is, pre- service work) as indicated on the VerDate Sep 2014 23:26 Jul 15, 2025 Jkt 265001 PO 00000 Frm 00173 Fmt 4701 Sfmt 4702 E:\FR\FM\16JYP3.SGM 16JYP3 3 S L A S O P O R P 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 32524 Federal Register / Vol. 90, No. 134 / Wednesday, July 16, 2025 / Proposed Rules Physician Time File to total global surgical package work RVUs. The Physician Time File and Addendum B are both located under the Download files for this proposed rule at: https:// www.cms.gov/medicare/payment/fee- schedules/physician/federal-regulation- notices. The approaches differ in the way we would calculate procedure work RVUs, and more specifically, intraservice work as a component of procedure work RVUs. Under the first approach, we would calculate procedure work RVUs by subtracting work RVUs assigned to each post-operative visit listed in the Physician Time File for a global procedure HCPCS code from the tota first approach, we would calculate procedure work RVUs by subtracting work RVUs assigned to each post-operative visit listed in the Physician Time File for a global procedure HCPCS code from the total valuation of the global surgical package. Under the second approach, we would calculate procedures’ work RVUs by subtracting the work RVUs for post- operative visits provided as part of global surgical packages. To do so, we would multiply the number of post- operative visits typically provided for the global procedure HCPCS code (defined as the median count of post- operative visits reported to CMS using no-pay code 99024 among procedures without overlapping global periods with other global surgical services) by the average valuation per post-operative visit calculated for the mix (that is, number and level) of post-operative visits for the global procedure HCPCS code as listed in the Physician Time File. Under the third approach, would calculate procedure RVUs as the product of total physician time (in minutes) for each global procedure HCPCS code from the Physician Time File and the ratio of physician time (in minutes) assigned to post-operative visits for the code in the Physicia hysician time (in minutes) for each global procedure HCPCS code from the Physician Time File and the ratio of physician time (in minutes) assigned to post-operative visits for the code in the Physician Time File to total physician time. In the CY 2025 PFS final rule, we expanded the scope for modifier -54 (surgical care only) to include all scenarios where the surgeon does not expect to provide post-operative care. The scope for modifier -55 (post- operative care only) was not changed. As a result, the post-operative share of total global surgical package valuation can only be billed with modifier -55 when transfers of care are formally documented by the surgeon and another practitioner. Looking at 2023 claims data, RAND’s analyses suggest the current procedure shares do not reflect the real-world division of work between surgeons and providers of post-operative care. Across all CY 2023 90-day global procedures and weighted by procedure volume, the procedure share under our current assumed procedure shares would have been 82 percent, on average, assuming all procedures were billed with modifier -54. Under the procedure shares calculated based on the actual number of visits furnishe umed procedure shares would have been 82 percent, on average, assuming all procedures were billed with modifier -54. Under the procedure shares calculated based on the actual number of visits furnished in global surgical periods (determined using information from claims-based reporting of post- operative visits), the average procedure share would have been 91 percent, with 85 percent of procedures having higher procedure shares under this approach compared to CMS’ current assumptions. We are seeking comments on the best approach to utilize going forward, specifically on the CPT code 99024- based approach. Of these approaches, the first (in terms of work RVUs) and third (in terms of physician time minutes) rely on Physician Time File counts of the number and level of post- operative visits assumed to occur as part of global surgical packages. Based on prior analyses (see 89 FR 97961), these counts are substantially inflated. Of all Physician Time File assumed visits and for 2023 global surgical procedure volumes, only 2 percent of visits following procedures with 10-day global periods and 28 percent of visits following procedures with 90-day global periods were provided to patients surgical procedure volumes, only 2 percent of visits following procedures with 10-day global periods and 28 percent of visits following procedures with 90-day global periods were provided to patients as part of global surgical packages. For this reason, we believe the resulting procedure shares under these approaches are too low and would lead to payments to surgeons that do not reflect the time and resources involved in furnishing the procedure component of global surgical services. In contrast, the second approach (using post- operative visit counts from claims-based reporting) reflects real-world, observed patterns of post-operative care. Furthermore, the second approach allows for routine, transparent updating of procedure shares over time. In contrast, shares could be updated under the first and third approaches only when global surgical services are revalued, and even then, with the limitation noted previously that the resulting visit counts by E/M service level are often substantially too high. We are seeking comments on replacing the current procedure shares using the second approach described above (that is, with procedure work RVUs calculated using counts of post- operati tially too high. We are seeking comments on replacing the current procedure shares using the second approach described above (that is, with procedure work RVUs calculated using counts of post- operative visits reported using no-pay CPT code 99024). Additionally, in our internal review of the percentages assigned for the pre- operative, surgical care, and post- operative portions of the global packages, we found that there are a small number of codes that do not have any assigned percentages in our files even though these codes are identified as global packages. We are again seeking comments on whether we should consider, first, whether these codes are appropriately categorized as 90-day global package codes, and if so, we are seeking comments on what the assigned percentages should be for each portion of the service. M. Determination of Malpractice Relative Value Units (RVUs) 1. Overview Section 1848(c) of the Act requires that each service paid under the PFS be composed of three components: work, practice expense (PE), and malpractice (MP) expense. As required by section 1848(c)(2)(C)(iii) of the Act, beginning in CY 2000, MP RVUs are resource- based. Section 1848(c)(2)(B)(i) of t nents: work, practice expense (PE), and malpractice (MP) expense. As required by section 1848(c)(2)(C)(iii) of the Act, beginning in CY 2000, MP RVUs are resource- based. Section 1848(c)(2)(B)(i) of the Act also requires that we review, and if necessary, adjust RVUs no less often than every 5 years. As explained in the CY 2011 PFS final rule with comment period (75 FR 73208), MP RVUs for new and revised codes effective before the next 5-year review of MP RVUs were determined either by a direct crosswalk from a similar source code or by a modified crosswalk to account for differences in work RVUs between the new/revised code and the source code. For the modified crosswalk approach, we adjusted (or scaled) the MP RVU for the new/revised code to reflect the difference in work RVU between the source code and the new/revised work RVU (or, if greater, the difference in the clinical labor portion of the fully implemented PE RVU) for the new code. For example, if the proposed work RVU for a revised code was 10 percent higher than the work RVU for its source code, the MP RVU for the revised code would be increased by 10 percent over the source code MP RVU. Under this approach, the same risk vised code was 10 percent higher than the work RVU for its source code, the MP RVU for the revised code would be increased by 10 percent over the source code MP RVU. Under this approach, the same risk factor (RF) was applied for the new/revised code and source code, but the work RVU for the new/revised code was used to adjust the MP RVUs for risk. We consider the following factors when we determine MP RVUs for individual PFS services: (1) specialty- level risk values derived from data on specialty-specific MP premiums incurred by practitioners; (2) service- level risk values derived from Medicare claims data of the weighted average risk values of the specialties that furnish each service; and (3) an intensity/ complexity of service adjustment to the service-level risk value based on either the higher of the work RVU or clinical labor portion of the direct PE RVU. In the CY 2016 PFS final rule with comment period (80 FR 70906 through 70910), we discussed this methodology and finalized a policy to begin conducting annual MP RVU updates to VerDate Sep 2014 23:26 Jul 15, 2025 Jkt 265001 PO 00000 Frm 00174 Fmt 4701 Sfmt 4702 E:\FR\FM\16JYP3.SGM 16JYP3 3 S L A S O P O R P h t i w D O R P policy to begin conducting annual MP RVU updates to VerDate Sep 2014 23:26 Jul 15, 2025 Jkt 265001 PO 00000 Frm 00174 Fmt 4701 Sfmt 4702 E:\FR\FM\16JYP3.SGM 16JYP3 3 S L A S O P O R P 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. 134 / Wednesday, July 16, 2025 / Proposed Rules 32525 reflect changes in the mix of practitioners providing services (using Medicare claims data), and to adjust MP RVUs for risk for intensity and complexity (using the work RVU or clinical labor RVU). We also finalized a policy to modify the specialty mix assignment methodology (for both MP and PE RVU calculations) to use an average of the three most recent years of data instead of a single year of data. Under this approach, for new and revised codes, we generally assign a specialty-level risk factor to individual codes based on the same utilization assumptions we make regarding specialty mix we use for calculating PE RVUs and for PFS budget neutrality. We continue to use the work RVU or clinical labor RVU to adjust the MP RVU for each code for intensity and complexity. In finalizing this policy, we stated that the specialty-level risk factors would continue to be use the work RVU or clinical labor RVU to adjust the MP RVU for each code for intensity and complexity. In finalizing this policy, we stated that the specialty-level risk factors would continue to be updated through notice and comment rulemaking every 5 years using updated premium data but would remain unchanged between the 5-year reviews. In the CY 2018 PFS proposed rule (82 FR 33965 through 33970), we proposed to update the specialty-level risk factors used in the calculation of MP RVUs prior to the next required 5-year update (CY 2020) using the updated MP premium data that were used in the eighth Geographic Practice Cost Index (GPCI) update for CY 2017; however, the proposal was ultimately not finalized for CY 2018. Section 1848(e)(1)(C) of the Act requires us to review, and if necessary, adjust the GPCIs at least every 3 years. In the CY 2020 PFS final rule (84 FR 62606 through 62615), we implemented the fourth review and update of MP RVUs, and we also conducted the statutorily required 3-year review of the GPCIs. The MP premium data used to update the MP GPCIs are the same data used to determine the specialty-level risk factors, which are used in the calculation of MP RVUs. T quired 3-year review of the GPCIs. The MP premium data used to update the MP GPCIs are the same data used to determine the specialty-level risk factors, which are used in the calculation of MP RVUs. Therefore, to increase efficiency, we finalized a policy to align the update of MP premium data and specialty-level risk factors with the update to the MP GPCIs. We finalized a policy to review, and if necessary, update the MP RVUs at least every 3 years, similar to our review and update of the GPCIs. In the CY 2023 PFS final rule, we conducted the statutorily required review of the MP RVUs and GPCIs (87 FR 69634 through 69641). We refer to this review and update of the MP RVUs as the ‘‘CY 2023 update.’’ As part of this review, we finalized a methodological improvement to move from MP risk factors to a MP risk index. The risk index is calculated as a ratio of the specialty’s national average premium to the volume-weighted national average premium across all specialties. We finalized this methodological improvement to increase consistency with the calculation of MP RVUs, so that changes in the MP risk index reflect changes in payment, as opposed to changes relative only to the specialty thodological improvement to increase consistency with the calculation of MP RVUs, so that changes in the MP risk index reflect changes in payment, as opposed to changes relative only to the specialty with the lowest national average premium. 2. Methodology for the Proposed Revision of Resource-Based Malpractice (MP) RVUs a. General Discussion We calculated the MP RVUs that we are proposing for CY 2026 using updated MP premium data obtained from state insurance rate filings. The methodology used to calculate the CY 2026 resource-based MP RVUs largely parallels the process used in the CY 2023 update with continued improvements to our data collection process. To calculate the MP RVUs, we obtain information on specialty-specific MP premiums that are linked to specific services, and using this information, we derive relative risk values for the various specialties that furnish a particular service. Because MP premiums vary by state and specialty, we weigh the MP premium data geographically and by specialty. We calculated the MP RVUs we are proposing using four data sources: data on MP insurance premium rates presumed to be in effect as of December 31, 2023; CY 2023 Medicare payment and and by specialty. We calculated the MP RVUs we are proposing using four data sources: data on MP insurance premium rates presumed to be in effect as of December 31, 2023; CY 2023 Medicare payment and utilization data; higher of the CY 2025 final work RVUs or the clinical labor portion of the direct PE RVUs; and CY 2025 GPCIs. We used the higher of the CY 2025 final work RVUs or clinical labor portion of the direct PE RVUs in our calculation to develop the CY 2026 proposed MP RVUs while maintaining overall PFS budget neutrality. Similar to the CY 2023 update, we calculated the proposed MP RVUs using specialty-specific MP premium data because they represent the expense incurred by practitioners to obtain MP insurance as reported by insurers. For CY 2026, we obtained the most current MP insurance premium data available, reflecting rates with a presumed effective date of no later than December 31, 2023, from insurers with the largest market share in each state. We identified insurers with the largest market share using the National Association of Insurance Commissioners (NAIC) 2023 market share report. This annual report provides state-level market share for entities that provide premi the largest market share using the National Association of Insurance Commissioners (NAIC) 2023 market share report. This annual report provides state-level market share for entities that provide premium liability insurance (PLI) in a state. Premium data was downloaded from the System for Electronic Rates & Forms Filing Access Interface (SERFF) (accessed from the NAIC website) for participating states. For non-SERFF states, data was downloaded from the state-specific website (if available online) or obtained directly from the state’s alternate access to filings. For SERFF states and non-SERFF states with online access to filings, we used the 2023 market share report to select insurance companies. These market share filings were the most current data available during the data collection and acquisition process. MP insurance premium data was collected from all 50 States and the District of Columbia. We made efforts to collect filings from Puerto Rico; however, no recent filings were submitted at the time of data collection, and therefore, we used filings from the previous update. Consistent with the CY 2023 MP RVU update, we did not collect filings for the other U.S. territories: Amer tted at the time of data collection, and therefore, we used filings from the previous update. Consistent with the CY 2023 MP RVU update, we did not collect filings for the other U.S. territories: American Samoa, Guam, Virgin Islands, or Northern Mariana Islands. We collected MP insurance premium data for coverage limits of $1 million/$3 million, mature, claims- made policies (policies covering claims made, rather than those covering losses occurring, during the policy term). A $1 million/$3 million liability limit policy means that the most that would be paid on any claim is $1 million and the most that the policy would pay for claims over the timeframe of the policy is $3 million. We made adjustments to the premium data to reflect mandatory surcharges for patient compensation funds (PCF, funds used to pay for any claim beyond the state’s statutory amount, thereby limiting an individual physician’s liability in cases of a large suit) in states where participation in such funds is mandatory. In the CY 2020 PFS final rule (84 FR 62607 through 62610), we finalized methodological improvements that expanded the specialties and amount of filings data used to develop the proposed risk fac tory. In the CY 2020 PFS final rule (84 FR 62607 through 62610), we finalized methodological improvements that expanded the specialties and amount of filings data used to develop the proposed risk factors, which are used to develop the proposed MP RVUs. Premium data were included for all physician and nonphysician practitioner (NPP) specialties, and all risk classifications available in the collected rate filings. Although premium data were collected from all States, the District of Columbia, and previous filings for Puerto Rico were utilized, not all specialties had distinct premium data in the rate filings from all States. VerDate Sep 2014 23:26 Jul 15, 2025 Jkt 265001 PO 00000 Frm 00175 Fmt 4701 Sfmt 4702 E:\FR\FM\16JYP3.SGM 16JYP3 3 S L A S O P O R P 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 32526 Federal Register / Vol. 90, No. 134 / Wednesday, July 16, 2025 / Proposed Rules b. Proposed Methodological Refinements For the CY 2026 update, we are not proposing any major methodological refinements to the development of MP premium data. However, we have continued to refine the universe of specialties subject to imputation and sources of imputation for each specialty. methodological refinements to the development of MP premium data. However, we have continued to refine the universe of specialties subject to imputation and sources of imputation for each specialty. For the CY 2023 update, premium data for the specialties of Geriatric Medicine, Hospitalist, Internal Medicine, Medical Oncology, Pain Management, and Preventive Medicine were augmented with some imputed data, but sufficient data was collected for these specialties during this CY 2026 update such that imputation was unnecessary. Additionally, Allergy/Immunology was previously used as the imputation source for both Osteopathic Manipulative Medicine and Addiction Medicine. For this CY 2026 update, more clinically similar specialties were used as the imputation source for these specialties. c. Steps for Calculating Proposed Malpractice RVUs Calculation of the proposed MP RVUs conceptually follows the specialty- weighted approach used in the CY 2015 PFS final rule with comment period (79 FR 67591), along with the methodological improvements established in the CY 2023 PFS final rule (87 FR 69634 through 69641). The specialty-weighted approach bases the MP RVUs for a given service on a weigh 591), along with the methodological improvements established in the CY 2023 PFS final rule (87 FR 69634 through 69641). The specialty-weighted approach bases the MP RVUs for a given service on a weighted average of the risk index of all specialties furnishing the service. This approach ensures that all specialties furnishing a given service are reflected in the calculation of the MP RVUs. The steps for calculating the proposed MP RVUs are described below. Step (1): Compute a preliminary national average premium for each specialty. Insurance rating area MP premiums for each specialty are mapped to the county level. The specialty premium for each county is then multiplied by its share of the total U.S. population (from the U.S. Census Bureau’s 2018 to 2022 American Community Survey (ACS) 5- year estimates). This contrasts with the method used for creating national average premiums for each specialty in the 2015 update; in that update, specialty premiums were weighted by the total RVU per county, rather than by the county share of the total U.S. population. We refer readers to the CY 2016 PFS final rule with comment period (80 FR 70909) for a discussion of why we have adopted a weight county, rather than by the county share of the total U.S. population. We refer readers to the CY 2016 PFS final rule with comment period (80 FR 70909) for a discussion of why we have adopted a weighting method based on share of total U.S. population. This calculation is then divided by the average MP GPCI across all counties for each specialty to yield a normalized national average premium for each specialty. The specialty premiums are normalized for geographic variation so that the locality cost differences (as reflected by the 2025 GPCIs) would not be counted twice. Without the geographic variation adjustment, the cost differences among fee schedule areas would be reflected once under the methodology used to calculate the MP RVUs and again when computing the service specific payment amount for a given fee schedule area. Step (2): Determine which premium service risk groups to use within each specialty. Some specialties had premium rates that differed for surgery, surgery with obstetrics, and non-surgery. These premium classes are designed to reflect differences in risk of professional liability and the cost of MP claims if they occur. To account for the presence of different cla rics, and non-surgery. These premium classes are designed to reflect differences in risk of professional liability and the cost of MP claims if they occur. To account for the presence of different classes in the MP premium data and the task of mapping these premiums to procedures, we calculated a distinct risk index for surgical, surgical with obstetrics, and nonsurgical procedures where applicable. However, the availability of data by surgery and non-surgery varied across specialties. Historically, no single approach accurately addressed the variability in premium class among specialties, and we previously employed several methods for calculating average premiums by specialty. Developing Distinct Service Risk Groups: We determined that there was sufficient data for surgery and non- surgery premiums, as well as sufficient differences in rates between classes for 17 specialties. These specialties are listed in Table 29. The CY 2026 update uses the same structure of specialty/ service risk group as the CY 2023 update. For all other specialties (those that are not listed in Table 29) that typically do not distinguish premiums as described above, a single risk index value was calculate sk group as the CY 2023 update. For all other specialties (those that are not listed in Table 29) that typically do not distinguish premiums as described above, a single risk index value was calculated, and that specialty risk index value was applied to all services performed by those specialties. Step (3): Calculate a risk index for each specialty. The relative differences in national average premiums between specialties are expressed in our methodology as a specialty-level risk index. These risk index values are calculated by dividing the national average premium for each specialty by the volume-weighted national average premium across all specialties. Risk index values less than one correspond to specialties with relatively lower malpractice risk than average, and values greater than one correspond to specialties with relatively higher malpractice risk. The volume- weighted national average premium was calculated as the sum of the product of the national average premium and total CY 2023 PE and work RVUs for each specialty/service risk group, then dividing by total CY 2023 PE and work RVUs across all specialties. (a) Technical Component (TC) Only Services For the CY 2020 update 2023 PE and work RVUs for each specialty/service risk group, then dividing by total CY 2023 PE and work RVUs across all specialties. (a) Technical Component (TC) Only Services For the CY 2020 update of the MP RVUs (84 FR 62606 through 62615), we finalized that we would assign a risk factor of 1.00, which was the lowest physician specialty risk factor (allergy/ immunology), to TC-only services due to a lack of sufficient professional liability premium data. For the proposed CY 2023 update of the MP RVUs (87 FR 46016), our expanded data VerDate Sep 2014 23:26 Jul 15, 2025 Jkt 265001 PO 00000 Frm 00176 Fmt 4701 Sfmt 4702 E:\FR\FM\16JYP3.SGM 16JYP3 3 S L A S O P O R P 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 23:26 Jul 15, 2025 Jkt 265001 PO 00000 Frm 00177 Fmt 4701 Sfmt 4702 E:\FR\FM\16JYP3.SGM 16JYP3 32528 Federal Register / Vol. 90, No. 134 / Wednesday, July 16, 2025 / Proposed Rules 3 S L A S O P O R P 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 VerDate Sep 2014 23:26 Jul 15, 2025 Jkt 265001 PO 00000 Frm 00178 Fmt 4701 Sfmt 4725 E:\FR\FM\16JYP3.SGM 16JYP3 / > H P G 2014 23:26 Jul 15, 2025 Jkt 265001 PO 00000 Frm 00179 Fmt 4701 Sfmt 4725 E:\ k VerDate Sep 2014 23:26 Jul 15, 2025 Jkt 265001 PO 00000 Frm 00178 Fmt 4701 Sfmt 4725 E:\FR\FM\16JYP3.SGM 16JYP3 / > H P G 2014 23:26 Jul 15, 2025 Jkt 265001 PO 00000 Frm 00179 Fmt 4701 Sfmt 4725 E:\FR\FM\16JYP3.SGM 16JYP3 / > H P G 2014 23:26 Jul 15, 2025 Jkt 265001 PO 00000 Frm 00180 Fmt 4701 Sfmt 4702 E:\FR\FM\16JYP3.SGM 16JYP3 3 S L A S O P O R P 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 23:26 Jul 15, 2025 Jkt 265001 PO 00000 Frm 00181 Fmt 4701 Sfmt 4702 E:\FR\FM\16JYP3.SGM 16JYP3 3 S L A S O P O R P 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 32532 Federal Register / Vol. 90, No. 134 / Wednesday, July 16, 2025 / Proposed Rules the statutory floors and limitations on variation discussed above that may advantage some rural localities. We describe the data sources and methodologies we use to calculate each of the three GPCIs below in this section. Additional information on the CY 2026 GPCI update is available in an interim report, ‘‘Interim Report for the CY 2026 Update of GPCIs and MP RVUs for the Medicare PFS,’’ on our website located under the supporting documents section for the CY 2026 PFS proposed rule at https://www.cms.gov/Medicar eport for the CY 2026 Update of GPCIs and MP RVUs for the Medicare PFS,’’ on our website located under the supporting documents section for the CY 2026 PFS proposed rule at https://www.cms.gov/Medicare/ Medicare-Fee-for-Service-Payment/ PhysicianFeeSched/index.html. a. Work GPCIs The work GPCIs are designed to reflect the relative cost of physician labor by Medicare PFS locality. As required by statute, the work GPCI reflects one quarter of the relative wage differences for each locality compared to the national average. To calculate the work GPCIs, we use wage data for nine professional specialty occupation categories, adjusted to reflect one-quarter of the relative cost differences for each locality compared to the national average, as a proxy for physicians’ wages. Physicians’ wages are not included in the occupation categories used in calculating the work GPCI because Medicare payments are a key determinant of physicians’ earnings. Including physician wage data in calculating the work GPCIs would potentially introduce some circularity to the adjustment since Medicare payments typically contribute to or influence physician wages. That is, including physicians’ wages in the physi ork GPCIs would potentially introduce some circularity to the adjustment since Medicare payments typically contribute to or influence physician wages. That is, including physicians’ wages in the physician work GPCIs would, in effect, make the indices, to some extent, dependent upon Medicare payments. The work GPCI updates in CYs 2001, 2003, 2005, and 2008 were based on professional earnings data from the 2000 Census. However, for the CY 2011 GPCI update (75 FR 73252), the 2000 data were outdated and wage and earnings data were not available from the more recent Census because the ‘‘long form’’ was discontinued. Therefore, we used the median hourly earnings from the 2006 through 2008 Bureau of Labor Statistics (BLS) Occupational Employment and Wage Statistics (OEWS), formerly known as Occupational Employee Statistics (OES), wage data as a replacement for the 2000 Census data. The BLS OEWS data meet several criteria that we consider to be important for selecting a data source for purposes of calculating the GPCIs. For example, the BLS OEWS wage and employment data are derived from a large sample size of approximately 200,000 establishments of varying sizes nationwide from every metro s of calculating the GPCIs. For example, the BLS OEWS wage and employment data are derived from a large sample size of approximately 200,000 establishments of varying sizes nationwide from every metropolitan area and can be easily accessible to the public at no cost. Additionally, the BLS OEWS is updated regularly, and includes a comprehensive set of occupations and industries (for example, 800 occupations in 450 industries). For the CY 2014 GPCI update, we used updated BLS OEWS data (2009 through 2011) as a replacement for the 2006 through 2008 data to compute the work GPCIs; for the CY 2017 GPCI update, we used updated BLS OEWS data (2011 through 2014) as a replacement for the 2009 through 2011 data to compute the work GPCIs; for the CY 2020 GPCI update, we used updated BLS OEWS data (2014 through 2017) as a replacement for the 2011 through 2014 data to compute the work GPCIs; and for the CY 2023 GPCI update, we used updated BLS OEWS data (2017 through 2020) as a replacement for the 2014 through 2017 data to compute the work GPCIs. Because of its reliability, public availability, level of detail, and national scope, we believe the BLS OEWS data continue to be the most appropriate 2014 through 2017 data to compute the work GPCIs. Because of its reliability, public availability, level of detail, and national scope, we believe the BLS OEWS data continue to be the most appropriate source of wage and employment data for use in calculating the work GPCIs (and as discussed below, the employee wage component and purchased services component of the PE GPCI). Therefore, for the CY 2026 GPCI update, we used updated BLS OEWS data (2020 through 2023) as a replacement for the 2017 through 2020 data to compute the proposed work GPCIs. b. Practice Expense (PE) GPCIs The PE GPCIs are designed to measure the relative cost difference in the mix of goods and services comprising PEs (not including MP expenses) among the PFS localities as compared to the national average of these costs. Whereas the physician work GPCIs (and as discussed later in this section, the MP GPCIs) are comprised of a single index, the PE GPCIs are comprised of four component indices (employee wages; purchased services; office rent; and equipment, supplies and other miscellaneous expenses). The employee wage index component measures geographic variation in the cost of the kinds of skilled and unskilled la d services; office rent; and equipment, supplies and other miscellaneous expenses). The employee wage index component measures geographic variation in the cost of the kinds of skilled and unskilled labor that would be directly employed by a physician practice. Although the employee wage index adjusts for geographic variation in the cost of labor employed directly by physician practices, it does not account for geographic variation in the cost of services that typically would be purchased from other entities, such as law firms, accounting firms, information technology consultants, building service managers, or any other third-party vendor. The purchased services index component of the PE GPCI (which is a separate index from employee wages) measures geographic variation in the cost of contracted services that physician practices would typically buy. For more information on the development of the purchased service index, we refer readers to the CY 2012 PFS final rule with comment period (76 FR 73084 through 73085). The office rent index component of the PE GPCI measures relative geographic variation in the cost of typical physician office rents. For the medical equipment, supplies, an 76 FR 73084 through 73085). The office rent index component of the PE GPCI measures relative geographic variation in the cost of typical physician office rents. For the medical equipment, supplies, and miscellaneous expenses component, we believe there is a national market for these items such that there is not significant geographic variation in costs. Therefore, the equipment, supplies and other miscellaneous expense cost index component of the PE GPCI is given a value of 1.000 for each PFS locality. For the previous update to the GPCIs (implemented in CY 2023), we used 2017 through 2020 BLS OEWS data to calculate the employee wage and purchased services indices for the PE GPCI. As discussed previously in this section, because of its reliability, public availability, level of detail, and national scope, we continue to believe the BLS OEWS is the most appropriate data source for collecting wage and employment data. Therefore, in calculating the CY 2026 GPCI update, we used updated BLS OEWS data (2020 through 2023) as a replacement for the 2017 through 2020 data for purposes of calculating the employee wage component and purchased service index component of the PE GPCI. In calculat OEWS data (2020 through 2023) as a replacement for the 2017 through 2020 data for purposes of calculating the employee wage component and purchased service index component of the PE GPCI. In calculating the CY 2026 GPCI update for the office rent index component of the PE GPCI, we used the 2018 through 2022 American Community Survey (ACS) 5-year estimates as a replacement for the 2015 through 2019 ACS data. c. Malpractice Expense (MP) GPCIs The MP GPCIs measure the relative cost differences among PFS localities for the purchase of professional liability insurance (PLI). To ensure that premium data are homogenous and comparable across geographic areas, data were collected for policies with uniform coverage limits of $1 million per occurrence and $3 million aggregate ($1 million/$3 million). The MP GPCIs are calculated based on insurer rate filings of premium data for $1 million/$3 million mature claims-made policies (policies for claims made rather than losses occurring during the policy term). For the CY 2023 GPCI update, we used VerDate Sep 2014 23:26 Jul 15, 2025 Jkt 265001 PO 00000 Frm 00182 Fmt 4701 Sfmt 4702 E:\FR\FM\16JYP3.SGM 16JYP3 3 S L A S O P O R P h t i w D O R P 4 4 1 cy term). For the CY 2023 GPCI update, we used VerDate Sep 2014 23:26 Jul 15, 2025 Jkt 265001 PO 00000 Frm 00182 Fmt 4701 Sfmt 4702 E:\FR\FM\16JYP3.SGM 16JYP3 3 S L A S O P O R P 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. 134 / Wednesday, July 16, 2025 / Proposed Rules 32533 premium data presumed in effect as of December 31, 2020. The CY 2026 MP GPCI update reflects premium data presumed in effect no later than December 31, 2023. We note that we finalized a few technical refinements to the MP GPCI methodology in CY 2017 and refer readers to the CY 2017 (81 FR 80270) PFS final rule for additional discussion of those. d. GPCI Cost Share Weights For the CY 2026 GPCIs, we are proposing to continue to use the current 2006-based MEI cost share weights for determining the proposed PE GPCI values. Specifically, we use the cost share weights to weight the four components of the PE GPCI: employee compensation, office rent, purchased services, and medical equipment, supplies, and other miscellaneous expenses, as shown in Table 31. We refer readers to the CY 2014 PFS final rule with comment period (78 FR 74382 through 74383), for further discussion cal equipment, supplies, and other miscellaneous expenses, as shown in Table 31. We refer readers to the CY 2014 PFS final rule with comment period (78 FR 74382 through 74383), for further discussion regarding the 2006-based MEI cost share weights revised in CY 2014 that we also finalized for use in the CY 2017, CY 2020, and CY 2023 GPCI updates. We note that we proposed and finalized to rebase and revise the MEI cost share weights for CY 2023, and we refer readers to the detailed discussion in section II.M. of the CY 2023 PFS final rule (87 FR 69688 through 69710). Due to the concurrent rebasing and revision of the MEI cost share weights during the CY 2023 GPCI update, we proposed and finalized to maintain the use of the 2006-based MEI cost share weights for the CY 2023 GPCIs, thus delaying the implementation of the rebased and revised 2017-based MEI cost share weights for this purpose. We refer readers to our discussion about using the rebased and revised MEI cost share weights for purposes of proportioning the work, PE, and MP RVU pools in PFS ratesetting and for the purposes of updating the GPCIs in the CY 2023 PFS final rule (87 FR 69414 through 69415, 69619 through 69620, and urposes of proportioning the work, PE, and MP RVU pools in PFS ratesetting and for the purposes of updating the GPCIs in the CY 2023 PFS final rule (87 FR 69414 through 69415, 69619 through 69620, and 70212 through 70218). In those sections, we discussed our considerations for updating the MEI cost share weights for the RVUs and the GPCIs and the potential redistributive impact that making such a change would have had on PFS payments. We have historically updated the GPCI cost share weights to make them consistent with the most recent update to the MEI, which was most recently done for CY 2023; however, in light of the overall impacts of making this change and in the interest of maintaining stability in payments, we proposed and finalized to maintain the use of the currently used 2006-based MEI cost share weights for the CY 2023 final PE GPCIs. For the CY 2026 GPCI update, we have the same concerns about the potential redistributive effects that implementing the 2017-based MEI would have on PFS payments. Additionally, we have received data from the American Medical Association’s (AMA) Physician Practice Information 86 (PPI) and Clinician Practice Information 87 (CPI) Surveys, howev ve on PFS payments. Additionally, we have received data from the American Medical Association’s (AMA) Physician Practice Information 86 (PPI) and Clinician Practice Information 87 (CPI) Surveys, however, these data lack the specific breakdown of practice expense that we would need to consider its use to weight the four components of the PE GPCI for CY 2026, including Office Rent and Purchased Services, which are reported in an aggregate buckets of general overhead costs and other expenses in the survey data. We refer readers to section VII. of this proposed rule for more discussion regarding a possible derivation of cost share weights for use in the PE GPCI from the PPI and CPI Survey. We also note that maintaining the 2006-based MEI cost share weights for the CY 2026 GPCI update preserves consistency in the data used to update both the GPCI and PFS ratesetting inputs for CY 2026. We refer readers to section VII. of this proposed rule for additional discussion on this issue and the estimated impacts as it relates to PFS ratesetting and the GPCI update for CY 2026. We also refer readers to the discussion regarding the PPI and CPI survey data in section II.B. of this proposed rule. I imated impacts as it relates to PFS ratesetting and the GPCI update for CY 2026. We also refer readers to the discussion regarding the PPI and CPI survey data in section II.B. of this proposed rule. In addition, we direct readers to the CY 2011 PFS final rule (75 FR 73256) where we similarly delayed implementation of updated MEI cost share weights in response to commenters’ concerns about our separate, ongoing analysis that would inform future GPCI changes and the reallocation of labor-related costs from the medical equipment and supplies and miscellaneous component to the employee compensation component of the PE GPCI. In the CY 2011 PFS final rule (75 FR 73256), we acknowledged that we typically update the GPCI cost share weights concurrently with the most recent MEI rebasing and revision, but in consideration of the commenters’ concerns in response to the proposed rule, we did not use the revised cost share weights for the CY 2011 GPCIs and instead finalized the implementation of the rebased and revised MEI cost share weights through subsequent rulemaking. We invite 86 https://www.ama-assn.org/system/files/table-1- results-from-ppi.pdf. 87 https://www.ama-assn.org/system/files/t e rebased and revised MEI cost share weights through subsequent rulemaking. We invite 86 https://www.ama-assn.org/system/files/table-1- results-from-ppi.pdf. 87 https://www.ama-assn.org/system/files/table-1- results-from-cpi-final.pdf. comments on the 2017-based MEI cost share weights and the weights based on PPI and CPI Survey data for purposes of alternatives considered for the CY 2026 GPCIs and PFS ratesetting, given the estimated impacts discussed in section VII. of this proposed rule. We are also soliciting comments on how best to proceed with implementation of the 2017-based MEI cost share weights or PPI and CPI Survey weights in the future. More specifically, we are seeking comment on how best to incorporate updated cost share weights into the PE GPCI if we were to implement them outside the statutorily required triennial update in which we phase in all aspects of the GPCI update through the previously discussed 2-year (1⁄2 in each year) phase-in required by section 1848(e)(1)(C) of the Act. Section 1848(e)(1)(C) of the Act requires that, if more than one year has elapsed since the date of the last GPCI adjustment, the adjustment to be applied in the first year of the next a ) of the Act. Section 1848(e)(1)(C) of the Act requires that, if more than one year has elapsed since the date of the last GPCI adjustment, the adjustment to be applied in the first year of the next adjustment shall be 1⁄2 of the adjustment that otherwise would be made. Therefore, specifically, we are seeking comment on potentially incorporating the updated cost share weights into the CY 2027 GPCIs. We note that we would not be required by statute to phase in the adjustment over 2 years as specified in section 1848(e)(1)(C) of the Act because, in CY 2027, no more than one year would have elapsed since this CY 2026 GPCI adjustment. Therefore, we are also seeking comment on whether it would be appropriate to use a multi-year transition to incorporate updated cost share weights for purposes of the PE GPCI and PFS ratesetting as we have done in the past when incorporating other new data into the PFS payment methodology (for example, the clinical labor update), or if, because updated cost share weights only impact the composition of the PE GPCI, such a transition would not be warranted. If we were to instead apply updated cost share weights for purposes of the PE GPCI and PFS ratesettin hare weights only impact the composition of the PE GPCI, such a transition would not be warranted. If we were to instead apply updated cost share weights for purposes of the PE GPCI and PFS ratesetting for CY 2028 or later, we would be required under section 1848(e)(1)(C) of the Act to phase in the GPCI adjustments over 2 years. We are seeking comments on whether, in that case, it would be appropriate to similarly apply a transition to implement updated cost share weights for purposes of PFS ratesetting as well, and refer readers to section II.B and VII. of this proposed rule for more discussion regarding the alternatives considered and impacts of a phase-in of updated cost share weights in PFS ratesetting. The proposed CY 2026 GPCI cost share weights are displayed in VerDate Sep 2014 23:26 Jul 15, 2025 Jkt 265001 PO 00000 Frm 00183 Fmt 4701 Sfmt 4702 E:\FR\FM\16JYP3.SGM 16JYP3 3 S L A S O P O R P 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 32534 Federal Register / Vol. 90, No. 134 / Wednesday, July 16, 2025 / Proposed Rules Table 31. We note that the 2017-based MEI cost share weights as finalized in section II.M. of the CY 2023 PFS (87 FR 69688 through 69708) final rul No. 134 / Wednesday, July 16, 2025 / Proposed Rules Table 31. We note that the 2017-based MEI cost share weights as finalized in section II.M. of the CY 2023 PFS (87 FR 69688 through 69708) final rule are also displayed in Table 31 for awareness regarding potential future rulemaking and GPCI updates. As previously discussed, the PPI and CPI Survey data lack the specific breakdown of practice expense that we would need to consider its use to weight the four components of the PE GPCI for CY 2026, therefore, we refer readers to section VII. of this proposed rule for more discussion regarding a possible derivation of cost share weights for use in the PE GPCI from the PPI and CPI Survey for awareness regarding potential future rulemaking and GPCI updates. e. PE GPCI Floor for Frontier States Section 10324(c) of the Affordable Care Act added a new subparagraph (I) under section 1848(e)(1) of the Act to establish a 1.0 PE GPCI floor for physicians’ services furnished in Frontier States effective January 1, 2011. In accordance with section 1848(e)(1)(I) of the Act, beginning in CY 2011, we applied a 1.0 PE GPCI floor for physicians’ services furnished in States determined to be Frontier S tive January 1, 2011. In accordance with section 1848(e)(1)(I) of the Act, beginning in CY 2011, we applied a 1.0 PE GPCI floor for physicians’ services furnished in States determined to be Frontier States. In general, a Frontier State is one in which at least 50 percent of the counties are ‘‘frontier counties,’’ which are those that have a population per square mile of less than 6. For more information on the criteria used to define a Frontier State, we refer readers to the FY 2011 Inpatient Prospective Payment System (IPPS) final rule (75 FR 50160 through 50161). There are no changes in the states identified as Frontier States for the CY 2026 PFS proposed rule. The qualifying states are: Montana; Wyoming; North Dakota; South Dakota; and Nevada. In accordance with statute, we will apply a 1.0 PE GPCI floor for these states in CY 2026. f. Methodology for Calculating GPCIs in the U.S. Territories Prior to CY 2017, for all the island territories other than Puerto Rico, the lack of comprehensive data about unique costs for island territories had minimal impact on GPCIs because we used either the Hawaii GPCIs (for the Pacific territories: Guam; American Samoa; and Northern Mariana Isla hensive data about unique costs for island territories had minimal impact on GPCIs because we used either the Hawaii GPCIs (for the Pacific territories: Guam; American Samoa; and Northern Mariana Islands) or used the unadjusted national averages (for the Virgin Islands). In an effort to provide greater consistency in the calculation of GPCIs given the lack of comprehensive data regarding the validity of applying the proxy data used in the States in accurately accounting for variability of costs for these island territories, in the CY 2017 PFS final rule (81 FR 80268 through 80270), we finalized a policy to treat the Caribbean Island territories (the Virgin Islands and Puerto Rico) in a consistent manner. We do so by assigning the national average of 1.0 to each GPCI index for both Puerto Rico and the Virgin Islands. We refer readers to the CY 2017 PFS final rule for a comprehensive discussion of this policy. g. California Update to the Fee Schedule Areas Used for Payment Under Section 220(h) of the Protecting Access to Medicare Act Section 220(h) of the PAMA added a new section 1848(e)(6) to the Act that modified the fee schedule areas used for payment purposes in California beginn 220(h) of the Protecting Access to Medicare Act Section 220(h) of the PAMA added a new section 1848(e)(6) to the Act that modified the fee schedule areas used for payment purposes in California beginning in CY 2017. Prior to CY 2017, the fee schedule areas used for payment in California were based on the revised locality structure that was implemented in 1997 as previously discussed. Beginning in CY 2017, section 1848(e)(6)(A)(i) of the Act required that the fee schedule areas used for payment in California must be Metropolitan Statistical Areas (MSAs) as defined by the Office of Management and Budget (OMB) as of December 31 of the previous year; and section 1848(e)(6)(A)(ii) of the Act required that all areas not located in an MSA must be treated as a single rest-of-state fee schedule area. The resulting modifications to California’s locality structure increased its number of fee schedule areas from 9 under the current locality structure to 27 under the MSA- based locality structure; although for the purposes of payment, the actual number of fee schedule areas under the MSA- based locality structure is 32. We refer readers to the CY 2017 PFS final rule (81 FR 80267) for a detailed although for the purposes of payment, the actual number of fee schedule areas under the MSA- based locality structure is 32. We refer readers to the CY 2017 PFS final rule (81 FR 80267) for a detailed discussion of this operational decision. Section 1848(e)(6)(D) of the Act defined transition areas as the counties in fee schedule areas for 2013 that were in the rest-of-state locality, and locality 3, which was comprised of Marin County, Napa County, and Solano County. Section 1848(e)(6)(B) of the Act specified that the GPCI values used for payment in a transition area are to be phased in over 6 years, from 2017 through 2022, using a weighted sum of the GPCIs calculated under the new MSA-based locality structure and the GPCIs calculated under the PFS locality structure that was in place prior to CY 2017. That is, the GPCI values applicable for these areas during this transition period were a blend of what the GPCI values would have been for California under the locality structure that was in place prior to CY 2017, and what the GPCI values would be for California under the MSA-based locality structure. For example, in CY 2020, which represented the fourth year of the transition peri as in place prior to CY 2017, and what the GPCI values would be for California under the MSA-based locality structure. For example, in CY 2020, which represented the fourth year of the transition period, the applicable GPCI values for counties that were previously VerDate Sep 2014 23:26 Jul 15, 2025 Jkt 265001 PO 00000 Frm 00184 Fmt 4701 Sfmt 4702 E:\FR\FM\16JYP3.SGM 16JYP3 3 S L A S O P O R P 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 23:26 Jul 15, 2025 Jkt 265001 PO 00000 Frm 00185 Fmt 4701 Sfmt 4702 E:\FR\FM\16JYP3.SGM 16JYP3 3 S L A S O P O R P 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 32536 Federal Register / Vol. 90, No. 134 / Wednesday, July 16, 2025 / Proposed Rules Community and Social Service, and Legal group in the CY 2023 PFS final rule (87 FR 69621 through 69625). The practical effect of the addition of these occupation groups and codes on the work GPCI was minimal because the statute at section 1848(e)(1)(A)(iii) of the Act requires that the work GPCI reflect only one quarter of cost differences, but their inclusion added meaningful data regarding the geographic variation in professional wages for CY 2023. In the CY 2023 PFS f es that the work GPCI reflect only one quarter of cost differences, but their inclusion added meaningful data regarding the geographic variation in professional wages for CY 2023. In the CY 2023 PFS final rule (87 FR 69631), some commenters stated that our methodologic changes to the work GPCI occupation groups and codes create unnecessary complexity and limited transparency. The commenters stated that CMS did not provide an impact analysis or criteria for inclusion (that is, how well it correlated as a proxy) other than significant consideration to the extent to which the data exist in the file (data existence) and how well the occupation codes are represented in the data (data sufficiency). The commenters stated that, without further explanation, two additional occupation groups were added to the previous seven occupation groups, which increased the greater than 100 current occupation codes by 60. One commenter believed that it is unlikely that the cumulation of so many professions will accurately reflect the relative difference in work of a single profession such as a physician; the commenter stated that, if one were to compare the BLS OEWS data file used for the work GPCI with ill accurately reflect the relative difference in work of a single profession such as a physician; the commenter stated that, if one were to compare the BLS OEWS data file used for the work GPCI with that of the healthcare provider dataset, there is a discordance. The commenters agreed that the healthcare provider dataset should not be used for developing the work GPCI due to circularity, but believe it could be used to validate the proposed work GPCIs and to identify a much smaller subset of professions that would act as more reliable proxies than what was proposed. The commenters urged CMS to apply a smaller number of professions to the work GPCI, as they thought that doing so would result in a more reliable and accurate proxy for physician work, and provide more information about the correlation between physician work and the proxy professions to allow the public to verify its accuracy. In response to commenters, we noted that we do not claim the proxy professions themselves, or the absolute wages of the proxy professionals are correlated to physician wages, but rather, that the geographic variation in proxy professional wages is similar to the geographic variation in physician absolute wages of the proxy professionals are correlated to physician wages, but rather, that the geographic variation in proxy professional wages is similar to the geographic variation in physician wages. We believed that there would be similar geographic variation if one were to compare the BLS OEWS data used for the work GPCI with data from a healthcare provider dataset. We continue to believe in the majority of instances, the earnings of physicians will vary among areas to the same degree that the earnings of other professionals across an array of industries vary. Further, we welcomed opportunities to discuss data sources that can be used to validate the work GPCI, similar to the analysis that we performed for residential and commercial rent data used for the office rent index for CY 2023. For CY 2026, we analyzed the potential effect of using a consolidated set of occupation codes on the work GPCI and compared that effect to changes in work GPCI values that would occur utilizing the standard set of occupation codes, as finalized for CY 2023. We acknowledge that the use of a more parsimonious set of occupations could be an improvement if it results in essentially the same work the standard set of occupation codes, as finalized for CY 2023. We acknowledge that the use of a more parsimonious set of occupations could be an improvement if it results in essentially the same work GPCI values with increased simplicity and clarity for interested parties. We explored approaches to condense the list of occupation codes used in a more systematic manner, with the establishment of inclusion criteria for an occupation code such as level of education attainment and data completeness. For our analysis, we identified 274, 157 and 90 occupation codes with at least 50 percent, 75 percent, and 90 percent having a Bachelor’s Degree or higher, excluding occupation codes in Group 29 that are paid on the Fee Schedule, respectively from the May 2023 OEWS data. We then applied various data completeness criteria thresholds to these occupation codes with wage data for at least 50 percent, 75 percent, and 90 percent of U.S. counties, resulting in the number of occupation codes displayed below in Table 32. 3 S L A S O P O R P 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 Of these scenarios with various thresholds of the education attainment and data completeness inclusion c below in Table 32. 3 S L A S O P O R P 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 Of these scenarios with various thresholds of the education attainment and data completeness inclusion criterion, we investigated two scenarios compared to the standard CY 2026 GPCI: (1) occupation codes with at least 75 percent of Bachelor’s Degree or Higher excluding Group 29 and wage data for at least 50 percent of U.S. counties, resulting in a list of 57 occupation codes and (2) occupation codes with at least 75 percent of Bachelor’s Degree or Higher excluding Group 29 and wage data for at least 75 percent of U.S. counties, resulting in a VerDate Sep 2014 23:26 Jul 15, 2025 Jkt 265001 PO 00000 Frm 00186 Fmt 4701 Sfmt 4702 E:\FR\FM\16JYP3.SGM 16JYP3 / > H P G 2014 23:26 Jul 15, 2025 Jkt 265001 PO 00000 Frm 00187 Fmt 4701 Sfmt 4702 E:\FR\FM\16JYP3.SGM 16JYP3 3 S L A S O P O R P 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 23:26 Jul 15, 2025 Jkt 265001 PO 00000 Frm 00188 Fmt 4701 Sfmt 4702 E:\FR\FM\16JYP3.SGM 16JYP3 3 S L A S O P O R P 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. 134 / Wednesday, July 16, 2025 / Propos 00188 Fmt 4701 Sfmt 4702 E:\FR\FM\16JYP3.SGM 16JYP3 3 S L A S O P O R P 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. 134 / Wednesday, July 16, 2025 / Proposed Rules 32539 percentage, and justification for the requested applicable percentage. The first application for increased applicable percentage for CY 2026 is from the manufacturer of Leukine® (sargramostim),91 who has resubmitted a request for a 72 percent applicable percentage after applying in the previous year. Leukine® is a leukocyte growth factor with five FDA-approved indications in hematological malignancies and one indication for post-radiation exposure to increase white blood cell counts. The applicant’s submitted FDA-approved labeling for the drug did not include the adjuvant uses described in the application (further described below in this paragraph) due to ongoing cancer vaccine adjuvant trials. The applicant reemphasizes that multiple sponsors are in late-stage development, with a total of 22 Phase II and Phase III clinical trials, an increase from 16 reported in the previous year, investigating Leukine® as a vaccine adjuvant for oncology indications, specifically to sti with a total of 22 Phase II and Phase III clinical trials, an increase from 16 reported in the previous year, investigating Leukine® as a vaccine adjuvant for oncology indications, specifically to stimulate the immune response of dendritic cells when used alongside these vaccines. Cancer treatment vaccines differ from the vaccines that protect against viruses, such as the influenza virus. Instead of preventing disease, cancer treatment vaccines aim to stimulate the immune system to attack existing cancer cells in the body.92 The applicant states that it has no ownership stake in the development of these cancer treatment vaccines and does not possess control or influence over the design and execution of the clinical trials. The estimated completion dates for Phase III clinical trials vary, with the earliest expected in late 2025 93 and the latest in March 2029.94 The adjuvant use of Leukine® predetermined dosage is distinct from its six FDA-approved indications, all of which have dosages that are based on body weight or body surface area (BSA). The adjuvant use dosages of Leukine® in clinical trials are generally much smaller than dosages for indications in the FDA-approved labeling s that are based on body weight or body surface area (BSA). The adjuvant use dosages of Leukine® in clinical trials are generally much smaller than dosages for indications in the FDA-approved labeling. The smallest dose of Leukine® used for vaccine adjuvant purposes of which the applicant is aware (that is, 70 mcg) would lead to as much as 72 percent of the drug being discarded from a single- dose 250 mcg lyophilized vial, which is the only size available commercially. The applicant suggests that if use of in 91 https:/www.accessdata.fda.gov/ drugsatfdaldocs/label/2022/103362s5249lb1.pdf. 92 https://www.cancer.org/cancer/managing- cancer/treatment-types/immunotherapy/cancer- vaccines.html. 93 https://clinicaltrials.gov/study/NCT04229979. 94 https://clinicaltrials.gov/study/NCT05100641. these small doses were to become more common for an approved indication, the percentage of discarded units could increase the discarded drug refund amount that could be owed by the applicant, even though the applicant lacks control or knowledge of the potential variability of the discarded amounts that may occur if Leukine® were used for such purposes. If another manufacturer were to seek FDA approva the applicant lacks control or knowledge of the potential variability of the discarded amounts that may occur if Leukine® were used for such purposes. If another manufacturer were to seek FDA approval for adjuvant use of sargramostim but was not involved in its production, the available single-dose 250-mcg vial presentation of Leukine® would likely not be optimized for the small doses being studied in these trials. As part of CMS’s review of the application, we analyzed existing claims data from the first quarter of 2018 through the last quarter of 2024 and found the percentage of units discarded for the HCPCS code for Leukine® (J2820) ranged from 1.2 percent to 3.8 percent, which is below the applicable percentage of 10 percent. In addition to the low overall discard rate, the percentage of units discarded showed a standard deviation of less than 1 percent across quarters. This is notably lower than the 6.21 percent average standard deviation observed for rarely utilized orphan drugs, as reported in the CY 2024 PFS final rule (88 FR 52393). The low standard deviation indicates minimal quarter-to-quarter variation, with the percentage of units discarded tightly clustered around a , as reported in the CY 2024 PFS final rule (88 FR 52393). The low standard deviation indicates minimal quarter-to-quarter variation, with the percentage of units discarded tightly clustered around a 2.2 percent mean. For context, approximately two- thirds of the quarterly percentage values for units discarded fall within one percentage point above or below the mean, highlighting the consistency and stability of the trend over the 7-year period. Therefore, although the applicant suggests otherwise, this data does not follow a statistical distribution similar to that considered for rarely- utilized orphan drugs meeting the criteria in § 414.940(d)(5), which may not have a normal statistical distribution from quarter to quarter, potentially resulting in highly variable refund amounts as compared with the variability of drugs administered to a higher number of beneficiaries. Since we did not yet know the impact of a new adjuvant indication with a type of immunotherapy commonly referred to as cancer vaccines 95 on the current percentage of units discarded, we did not propose an increased applicable percentage in the CY 2025 PFS proposed rule. Additionally, because it was not yet known as cancer vaccines 95 on the current percentage of units discarded, we did not propose an increased applicable percentage in the CY 2025 PFS proposed rule. Additionally, because it was not yet known whether sargramostim would be approved for additional indications and dosages, as indicated in the information provided by the applicant, and the available data did not provide enough information for CMS to determine whether Leukine® had unique circumstances that would prompt an increase in the applicable percentage, we did not propose an increase in the applicable percentage for the drug in the CY 2025 PFS proposed rule. The applicant agreed with CMS’ rationale for this decision. Because we are maintaining our determination from the CY 2025 PFS proposed rule, we are not proposing an increase in the applicable percentage for Leukine® at this time. The applicant may reapply in a future application cycle when more information, such as FDA-approved labeling reflecting new indications or dosages, becomes available. The second application is from the (mitomycin manufacturer of Jelmyto® for pyelocalyceal solution) 96 who is requesting an additional 10 percent increase to the 35 percent appli es, becomes available. The second application is from the (mitomycin manufacturer of Jelmyto® for pyelocalyceal solution) 96 who is requesting an additional 10 percent increase to the 35 percent applicable percentage finalized in the CY 2023 PFS final rule (87 FR 69727 through 69731), bringing the total applicable percentage to 45 percent. Jelmyto® is indicated for the treatment of adult patients with low- grade Upper Tract Urothelial Cancer (LG–UTUC), a rare cancer with approximately 7,000 new annual cases 97 in the United States. According to the applicant, Jelmyto® dosing ranges from 20 mg to 60 mg per single treatment, with the specific dose determined by kidney volume measurements obtained through pyelography.9 In the CY 2023 PFS final rule, we stated that Jelmyto® reconstituted with a hydrogel and administered via ureteral catheter or nephrostomy tube into the kidneys, may leave a substantial amount adhering to the vial wall due to its viscosity, and making it non-extractable. This viscosity results from proprietary reverse-thermal technology (RTGel® ), which enables the drug to transition from a chilled liquid at instillation into a gel at body temperature. We determined tha is viscosity results from proprietary reverse-thermal technology (RTGel® ), which enables the drug to transition from a chilled liquid at instillation into a gel at body temperature. We determined that a 35 percent applicable percentage was appropriate—accounting for 25 percent lost to adhesion (that is, an 80 mg package with maximum extractable dose of 60 mg results in at least 25 percent being discarded) and an additional 10 percent to align with drugs without unique circumstances for patients requiring less than the maximum dose of 60 mg. We disagreed that an , a drug 96 https://www.accessdata.fda.gov/drugsatfda_ docs/label/2024/211728s010lbl.pdf. 95 https://www.cancerresearch.org/treatment- 97 https://www.urologyhealth.org/urology-a-z/u/ types/cancer-vaccines. upper-tract-urothelial-carcinoma-(utuc). VerDate Sep 2014 23:26 Jul 15, 2025 Jkt 265001 PO 00000 Frm 00189 Fmt 4701 Sfmt 4702 E:\FR\FM\16JYP3.SGM 16JYP3 3 S L A S O P O R P 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 32540 Federal Register / Vol. 90, No. 134 / Wednesday, July 16, 2025 / Proposed Rules applicable percentage greater than 35 percent should be applied to such hydrogel products, because we believe h k 32540 Federal Register / Vol. 90, No. 134 / Wednesday, July 16, 2025 / Proposed Rules applicable percentage greater than 35 percent should be applied to such hydrogel products, because we believe that 25 percent accounts for the hydrogel that adheres to the vial, and because we have allowed for an additional 10 percent of drug to be discarded before any refund would be owed. This 35 percent applicable percentage was codified at § 414.940(d)(2), with broad support from commenters, for drugs that are both reconstituted with a hydrogel and subject to variable dosing based on patient-specific characteristics. The applicant contends that the current 35 percent applicable percentage does not account for drug loss due to kidney volume variations and different administration routes, both of which the applicant claims meet the patient-specific characteristics outlined in § 414.940(d)(2). Since kidney volume cannot be determined until the pharmacy has prepared the drug and the patient is ready for administration of the initial treatment, the applicant states that patients with smaller-than-average kidney volumes may lead to a higher amount of drug being discarded. Additionally, the amoun dy for administration of the initial treatment, the applicant states that patients with smaller-than-average kidney volumes may lead to a higher amount of drug being discarded. Additionally, the amount of Jelmyto® discarded may increase when providers choose antegrade (via nephrostomy tube) administration over the more common retrograde (via ureteral catheter) administration, as the greater drug delivery efficiency of the antegrade route may result in a lower dose required, leading to more of the drug being discarded. The choice of administration route must be determined on an individual basis, considering multiple factors, including but not limited to the risks and benefits of each route, previous history of failed administration attempts, tolerance to anesthesia, anatomical variations in the urinary tract, patient preference, and the patient’s clinical presentation at the time of drug administration.98 99 100 These patient-specific characteristics, combined with the requirement for hydrogel reconstitution, were considered when establishing the current 35 percent applicable percentage. In the CY 2024 PFS final rule (88 FR 79057), we stated that we do not consider the following to ydrogel reconstitution, were considered when establishing the current 35 percent applicable percentage. In the CY 2024 PFS final rule (88 FR 79057), we stated that we do not consider the following to be unique circumstances warranting an increased applicable percentage at this time: weight-based doses, BSA-based doses, 98 https://bjui-journals.onlinelibrary.wiley.com/ doi/full/10.1111/bju.15925. 99 https://www.sciencedirect.com/science/article/ pii/S2405456923001232. 100 https://www.jelmyto.com/hcp/pdf/jelmyto- antegrade-instillation-overview.pdf. varying surface area of a wound, loading doses, escalation or titration doses, tapering doses, and dose adjustments for toxicity because we believe manufacturers can optimize the availability of products for these circumstances to limit the percentage of discarded units for a drug, unlike the circumstances of manufacturers of drugs that require filtration during the preparation process, as described in section 1847A(h)(8)(B)(ii) of the Act. Consistent with that statement, we generally do not consider dose variations due to patient- or condition- specific characteristics to be unique circumstances for the same reason. That is, manufacturer onsistent with that statement, we generally do not consider dose variations due to patient- or condition- specific characteristics to be unique circumstances for the same reason. That is, manufacturers can optimize the availability of products for these circumstances to minimize discarded amounts. Therefore, we do not consider the drug loss due to patient-specific characteristics, such as variation in kidney volume and factors leading to antegrade administration, to be unique circumstances, and we are not proposing an increase in the applicable percentage of 45 percent for the drug. Consistent with the CY 2023 PFS final rule, we propose that the applicable percentage for Jelmyto® continue to be 35 percent. We welcome comments on these applications for increased applicable percentage. 2. Average Sales Price: Price Concessions and Bona Fide Service Fees (§ 414.804 and 414.802) a. Background Drugs payable under Medicare Part B fall into three general categories: those furnished incident to a physician’s service (hereinafter referred to as ‘‘incident to’’) (section 1861(s)(2) of the Act), those furnished via a covered item of durable medical equipment (DME) (section 1861(s)(6) of the A o a physician’s service (hereinafter referred to as ‘‘incident to’’) (section 1861(s)(2) of the Act), those furnished via a covered item of durable medical equipment (DME) (section 1861(s)(6) of the Act), and other drugs for which coverage is specified by statute (for example, certain vaccines described in sections 1861(s)(10)(A) and (B) of the Act). Payment limits for most drugs separately payable under Medicare Part B are determined using the methodology in section 1847A of the Act, and in many cases, payment is based on the average sales price (ASP) plus a statutorily mandated 6 percent add-on. If CMS determines a payment limit for a drug, it is published in the ASP pricing file or Not Otherwise Classified (NOC) pricing file, which are both updated quarterly. The calculation of payment limits for such drugs payable under Part B is done on a quarterly basis using the manufacturer’s ASP (as defined in § 414.902), as applicable, using methodology in section 1847A of the Act. Manufacturers are required to report ASP data to CMS under sections 1847A(f)(2) and 1927(b)(3) of the Act and are instructed to calculate the manufacturer’s ASP in accordance with section 1847A(c) of the Act an ers are required to report ASP data to CMS under sections 1847A(f)(2) and 1927(b)(3) of the Act and are instructed to calculate the manufacturer’s ASP in accordance with section 1847A(c) of the Act and § 414.804(a). As part of that calculation of the manufacturer’s ASP, required under section 1847A(c)(3) of the Act and § 414.804(a)(2), manufacturers must deduct price concessions such as volume discounts, prompt pay discounts, cash discounts, free goods that are contingent on any purchase requirement, chargebacks, and rebates (other than rebates under the Medicaid Drug Rebate Program and the Medicare Prescription Drug Inflation Rebate Program). Section 1847A(c)(3) of the Act also provides that, ‘‘[f]or years after 2004, the Secretary may include in such price other price concessions, which may be based on recommendations of the Inspector General, that would result in a reduction of the cost to the purchaser.’’ The Secretary implemented an interim rule adopting those statutory categories of price concessions in 2004 (69 FR 47488). In 2006 the Secretary finalized policies for how the manufacturer’s ASP is calculated, which required manufacturers to deduct all price concessions from AS of price concessions in 2004 (69 FR 47488). In 2006 the Secretary finalized policies for how the manufacturer’s ASP is calculated, which required manufacturers to deduct all price concessions from ASP at § 414.804(a)(2). While price concessions are deducted from the manufacturer’s ASP (that is, price concessions will lower the resulting manufacturer’s ASP), bona fide service fees (BFSFs) are not considered price concessions and, therefore, are not deducted when calculating the manufacturer’s ASP (see § 414.804(a)(2)(ii)). In other words, BFSFs do not lower the manufacturer’s ASP because they are not part of the calculation. In the Calendar Year (CY) 2007 Physician Fee Schedule (PFS) final rule (71 FR 69665 through 69678) Medicare finalized a definition of BFSF for the purposes of calculating the manufacturer’s ASP at § 414.802. The definition finalized in that final rule states that the term ‘‘BFSFs’’ means fees paid by a manufacturer to an entity, that represent fair market value for a bona fide, itemized service actually performed on behalf of the manufacturer that the manufacturer would otherwise perform (or contract for) in the absence of the service arrangement, and that are a bona fide, itemized service actually performed on behalf of the manufacturer that the manufacturer would otherwise perform (or contract for) in the absence of the service arrangement, and that are not passed on in whole or in part to a client or customer of an entity, whether or not the entity takes title to the drug. In the CY 2007 PFS final rule, we stated that the BFSF definition provides an appropriate safeguard against the potential risk for inappropriately VerDate Sep 2014 23:26 Jul 15, 2025 Jkt 265001 PO 00000 Frm 00190 Fmt 4701 Sfmt 4702 E:\FR\FM\16JYP3.SGM 16JYP3 3 S L A S O P O R P 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. 134 / Wednesday, July 16, 2025 / Proposed Rules 32541 inflated ASPs. We stated that if a manufacturer has determined that a fee paid meets the other elements of the definition of ‘‘bona fide service fee,’’ then the manufacturer may presume, in the absence of any evidence or notice to the contrary, that the fee paid is not passed on to a client or customer of any entity. Further, we stated (71 FR 69669) that in the absence of specific guidance in the Act or Federal regulations, the manufacturer may make re e paid is not passed on to a client or customer of any entity. Further, we stated (71 FR 69669) that in the absence of specific guidance in the Act or Federal regulations, the manufacturer may make reasonable assumptions in its calculations of the manufacturer’s ASP, consistent with the general requirements and intent of the Act, Federal regulations, and its customary business practices. We stated that these assumptions may be submitted along with the ASP data. Accurate assessment and reporting of price concessions and BFSFs are essential to correctly calculating the manufacturer’s ASP. Improperly classifying price concessions as BFSFs would artificially increase the manufacturer’s ASP resulting in Medicare overpayments and higher coinsurance amounts paid by beneficiaries. In December of 2022, the Office of Inspector General (OIG) published a report entitled ‘‘Manufacturers May Need Additional Guidance to Ensure Consistent Calculations of Average Sales Prices’’ (hereinafter referred to as the December 2022 OIG report).101 That report recommended CMS actively review current guidance related to areas identified in the report and determine whether additional guidance would ensure more as the December 2022 OIG report).101 That report recommended CMS actively review current guidance related to areas identified in the report and determine whether additional guidance would ensure more accurate and consistent ASP calculations. One area identified was how bundled sales price concessions should be incorporated into the manufacturer’s ASP calculation. Manufacturers noted they would like additional guidance regarding whether unbundling a bundled arrangement should include just the discounts contingent on purchase or performance or all discounts that are part of the arrangement, how to treat bundled sales that include covered and noncovered products, and how manufacturers should identify and reallocate discounts with sales that may be considered bundled across time periods. This report also recommended CMS give particular consideration to guidance regarding BFSFs. Manufacturers surveyed in the report expressed that there could be inconsistencies and differences in how 101 Manufacturers May Need Additional Guidance To Ensure Consistent Calculations of Average Sales Price, Office of Inspector General, U.S. Department of Health and Human Services. December 2022. https://oig nufacturers May Need Additional Guidance To Ensure Consistent Calculations of Average Sales Price, Office of Inspector General, U.S. Department of Health and Human Services. December 2022. https://oig.hhs.gov/documents/evaluation/3215/ OEI-BL-21-00330-Complete%20Report.pdf. manufacturers interpret the BFSF definition. For example, manufacturers noted that CMS has not defined the term fair market value (FMV) for the purposes of the BFSF. The report states that CMS should provide additional guidance on the methodology that manufacturers should use to assess FMV and clarify a timeframe after which manufacturers should reassess the FMV of BFSFs. In addition to the recommendations from the December 2022 OIG report, we have concern that certain costs could be classified as BFSFs when they should instead be classified as a price concession in some instances. Further, we are concerned that certain costs that are classified as BFSFs may not represent the FMV for the service. Lastly, the current policy that manufacturers may presume none of the fees are passed on in whole or in part may allow for certain costs to be misclassified when reasonable inquiry would demonstrate that fees are indeed policy that manufacturers may presume none of the fees are passed on in whole or in part may allow for certain costs to be misclassified when reasonable inquiry would demonstrate that fees are indeed passed on. Such occurrences would likely impact the accuracy of ASP data that is reported to CMS each quarter. For these reasons, in this proposed rule, we are proposing policies to provide additional guidance on two aspects of the calculation of manufacturer’s ASP. First, we are proposing regulatory text to specify when certain fees are considered price concessions and on how manufacturers should allocate pricing for drugs sold under a bundled arrangement. Second, we are proposing to revise the definition of BFSFs by (1) specifying the methodology that should be used to determine FMV and the time period after which manufacturers should reassess the FMV; and (2) further explaining what CMS considers to be sufficient evidence of whether or not a fee is passed on in whole or in part to an affiliate,102 client, or customer of an entity. We are also proposing that in the absence of specific guidance, manufacturers be required to submit any reasonable assumptions they utilize for manufactu ffiliate,102 client, or customer of an entity. We are also proposing that in the absence of specific guidance, manufacturers be required to submit any reasonable assumptions they utilize for manufacturer’s ASP calculations (which is currently voluntary), including documentation of the methodology used to determine fair market value and periodic reviews of fair market value. We propose that manufacturers must also submit a warranty or certification from the recipient of the fee that it is not passed on in whole or in part to an affiliate, client, or customer of an entity. Finally, in this proposed rule, we will provide certain non-exhaustive 102 Affiliate meaning the affiliate of an entity that is receiving the fee that is providing the service. examples of fees that CMS considers to be price concessions and not BFSFs. The goal of these proposed policies is to avoid inaccurate calculation of the manufacturer’s ASP that is used to determine Part B drug payment limits. These proposed policies also will clarify how certain costs should be considered under newer pharmaceutical business practices that may not have been considered when Medicare last finalized the definition of BFSFs in 20 cies also will clarify how certain costs should be considered under newer pharmaceutical business practices that may not have been considered when Medicare last finalized the definition of BFSFs in 2007. b. Price Concessions As discussed in the background section, the statute requires that the manufacturer’s ASP include volume discounts, prompt pay discounts, cash discounts, free goods that are contingent on any purchase requirement, chargebacks, and rebates (other than rebates under the Medicaid Drug Rebate Program and the Medicare Prescription Drug Inflation Rebate Program). Manufacturers can offer certain price concessions as part of bundled arrangements in which price concessions are treated as discounts that are tied to the purchase of the same drug or item or multiple drugs or items. They can also be discounts contingent on certain performance requirements, such as achievement of market share. In addition, price concessions as part of a bundled arrangement may include only Part B drugs or may include both Part B drugs and other products or services. These price concessions within bundled arrangements are accounted for in the calculation of the manufacturer’s ASP. We discussed drugs or may include both Part B drugs and other products or services. These price concessions within bundled arrangements are accounted for in the calculation of the manufacturer’s ASP. We discussed bundled price concessions and considered how manufacturers could apportion such discounts to calculate the manufacturer’s ASP in the CY 2007 PFS final rule (71 FR 69673 through 69676). We stated that given the potentially wide range of bundling arrangements that might exist, based on the information we had about such arrangements, we could not determine at that time whether there is a universal approach for treating bundled price concessions in the manufacturer’s ASP calculation that would address all potential structures of bundling arrangements in a manner that would achieve our goal of ensuring the accuracy of the ASP payment methodology and preventing inappropriate financial incentives. Then, in the Medicare Payment Advisory Commission’s (MedPAC) January 2007 Report to Congress, ‘‘Impact of Changes in Medicare VerDate Sep 2014 23:26 Jul 15, 2025 Jkt 265001 PO 00000 Frm 00191 Fmt 4701 Sfmt 4702 E:\FR\FM\16JYP3.SGM 16JYP3 3 S L A S O P O R P h t i w D O R P 4 4 1 S 7 W 9 K S D n o d act of Changes in Medicare VerDate Sep 2014 23:26 Jul 15, 2025 Jkt 265001 PO 00000 Frm 00191 Fmt 4701 Sfmt 4702 E:\FR\FM\16JYP3.SGM 16JYP3 3 S L A S O P O R P 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 32542 Federal Register / Vol. 90, No. 134 / Wednesday, July 16, 2025 / Proposed Rules Payments for Part B Drugs,’’ 103 they discussed the issue of allocation of bundled price concessions for purposes of calculating the manufacturer’s ASP, noting that ‘‘some manufacturers offer provider discounts for one of their products contingent on purchases of one or more other products.’’ In light of MedPAC’s recommendation that CMS address the ASP reporting requirements for bundled products and our discussion of bundled price concessions in the CY 2007 PFS rulemaking, we stated in the CY 2008 PFS proposed rule (72 FR 38150 through 38151) that we believe specific guidance in the ASP context is warranted to ensure consistency in ASP reporting across manufacturers and to enhance the accuracy of the ASP payment system. We stated at that time that we found MedPAC’s suggestion not to defer further guidance in this area compelling with respect to the potential that manufacturers may make acy of the ASP payment system. We stated at that time that we found MedPAC’s suggestion not to defer further guidance in this area compelling with respect to the potential that manufacturers may make differing assumptions in the absence of specific guidance on how to allocate bundled price concessions in the context of ASP. However, in the CY 2008 PFS final rule (72 FR 66256 through 66258), based on comments recommending a delay and to better understand the concerns stated by the commenters, we did not finalize the regulatory language changes we proposed in the CY 2008 PFS proposed rule at that time. However, we explained that in the absence of specific guidance, manufacturers may make reasonable assumptions in their calculation of ASP, consistent with the general requirements and the intent of the Act, Federal regulations, and their customary business practices. In the 2007 Prescription Drugs final rule (72 FR 39144 through 39145), Medicaid finalized a definition of the term ‘‘bundled sale’’ for the purpose of calculating the average manufacturer price (AMP) and best price, which is codified at § 447.502. The definition was revised in the CY 2016 Covered Outpatient Drugs final rul sale’’ for the purpose of calculating the average manufacturer price (AMP) and best price, which is codified at § 447.502. The definition was revised in the CY 2016 Covered Outpatient Drugs final rule (81 FR 5181 through 5183) and the 2020 Establishing Minimum Standards in Medicaid State Drug Utilization Review and Supporting Value-Based Purchasing for Drugs Covered in Medicaid, Revising Medicaid Drug Rebate and Third Party Liability Requirements final rule (85 FR 87022 through 87024). The current definition states that a bundled sale means any arrangement regardless of physical packaging under which the 103 Impact of Changes in Medicare Payments for Part B Drugs, Medicare Payment Advisory Commission. January 2007. https:// www.govinfo.gov/content/pkg/GOVPUB-Y3_M46_3- PURL-LPS78409/pdf/GOVPUB-Y3_M46_3-PURL- LPS78409.pdf. rebate, discount, or other price concession is conditioned upon the purchase of the same drug, drugs of different types (that is, at the nine-digit National Drug Code (NDC) level) or another product or some other performance requirement (for example, the achievement of market share, inclusion or tier placement on a formulary), or where the resulting discounts or o (NDC) level) or another product or some other performance requirement (for example, the achievement of market share, inclusion or tier placement on a formulary), or where the resulting discounts or other price concessions are greater than those which would have been available had the bundled drugs been purchased separately or outside the bundled arrangement. The definition further states: (1) The discounts in a bundled sale, including those discounts resulting from a contingent arrangement, are allocated proportionally to the total dollar value of the units of all drugs or products sold under the bundled arrangement; (2) For bundled sales where multiple drugs are discounted, the aggregate value of all the discounts in the bundled arrangement must be proportionally allocated across all the drugs or products in the bundle; and (3) Value- based purchasing (VBP) arrangements may qualify as a bundled sale. We are aware that many manufacturers currently utilize portions of the Medicaid definition of bundled sales to identify any bundled arrangements for the purposes of their ASP calculations. In addition, we noted in the CY 2008 PFS final rule (72 FR 66257 through 66258), that most comm nition of bundled sales to identify any bundled arrangements for the purposes of their ASP calculations. In addition, we noted in the CY 2008 PFS final rule (72 FR 66257 through 66258), that most commenters supported an appropriately consistent approach for the treatment of bundled price concessions with both AMP and ASP calculations. We also stated our intention at that time to remain consistent, as appropriate, with the final policy adopted in the 2007 Prescription Drugs final rule (72 FR 39144 through 39145). As discussed in the background section, the December 2022 OIG report recommended that CMS consider providing additional guidance with regard to how bundled sales price concessions should be incorporated into the manufacturer’s ASP calculation. The report stated specifically that one manufacturer requested additional guidance pertaining to bundled sales discounts for the following: • Whether unbundling a bundled arrangement should include just the discounts contingent on purchase or performance requirements or all discounts that may be part of the underlying arrangement. • How to treat bundled sales that include both covered products and noncovered products (that is, product e or performance requirements or all discounts that may be part of the underlying arrangement. • How to treat bundled sales that include both covered products and noncovered products (that is, products for which there is no government price reporting obligation). • How manufacturers should identify and reallocate discounts associated with sales that may be considered bundled across time periods. The manufacturer stated that CMS guidance on these types of temporal bundling will be critical because they will play an important role in the implementation and evaluation of value- and outcomes-based arrangements, which may require assessing the efficacy of a drug over multiple reporting periods. Therefore, in this proposed rule, we propose to add a definition of the term bundled arrangement to § 414.802, similar to that which was proposed in the CY 2008 PFS proposed rule. Specifically, we are proposing the definition to state ‘‘Bundled Arrangement means an arrangement regardless of physical packaging under which the rebate, discount, or other price concession is conditioned upon the purchase of the same drug or biological or other drugs or biologicals or another product or some other per packaging under which the rebate, discount, or other price concession is conditioned upon the purchase of the same drug or biological or other drugs or biologicals or another product or some other performance requirement (for example, the achievement of market share, inclusion or tier placement on a formulary, purchasing patterns, prior purchases), or where the resulting discounts or other price concessions are greater than those which would have been available had the bundled drugs or biologicals been purchased separately or outside the bundled arrangement.’’ We also propose adding subparagraphs (iii) and (iv) at § 414.804(a)(2) to provide manufacturers with additional guidance on how to allocate discounts under bundled arrangements, which aligns with Medicaid’s definition of bundled sale further described later in this section. This proposal aligns with our previously stated intent to remain consistent, as appropriate, with Medicaid’s policy for calculating AMP and aligns with supportive comments discussed in the CY 2007 and 2008 PFS final rule discussions on this topic. Second, to address the suggestion that the agency determine whether additional guidance would be appropriate f tive comments discussed in the CY 2007 and 2008 PFS final rule discussions on this topic. Second, to address the suggestion that the agency determine whether additional guidance would be appropriate for the areas described in the December 2022 OIG report for how to account for unbundling a bundled arrangement, we note that Medicaid’s definition of ‘‘bundled sale’’ at § 447.502 directs that discounts in a bundled sale, including those discounts resulting from a contingent arrangement, are allocated proportionally to the total dollar value of the units of all drugs or products sold under the bundled arrangement. In other words, as noted in 81 FR 5181 through 5183, the ‘‘unbundling’’ of both contingent and non-contingent discounts is appropriate because ‘‘all VerDate Sep 2014 23:26 Jul 15, 2025 Jkt 265001 PO 00000 Frm 00192 Fmt 4701 Sfmt 4702 E:\FR\FM\16JYP3.SGM 16JYP3 3 S L A S O P O R P 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. 134 / Wednesday, July 16, 2025 / Proposed Rules 32543 the discounts’’ in the bundled arrangement should be proportionally allocated. We propose to adopt this approach for the calculation of the manufacturer’s ASP ay, July 16, 2025 / Proposed Rules 32543 the discounts’’ in the bundled arrangement should be proportionally allocated. We propose to adopt this approach for the calculation of the manufacturer’s ASP because of our stated intent for consistency with policies for AMP. Consistent application of this policy by all manufacturers reduces the opportunity for improper manipulation of the ASP calculation, providing greater certainty to CMS of the integrity of the submitted ASP. We are, therefore, proposing the same regulatory language be added to § 414.804(a)(2) under paragraphs (iii) and (iv). Third, to address the suggestion that the agency determine whether additional guidance would be appropriate for the areas described in the December 2022 OIG report for how to allocate discounts for bundled sales, we propose that for bundled sales containing both Medicare Part B- covered and non-covered products, manufacturers allocate discounts proportionally as described in the previous paragraph. However, we have heard from interested parties that this method may not be sufficient to cover all cases and could potentially result in inaccurate ASPs. Bundled arrangements may vary depending upon the n ver, we have heard from interested parties that this method may not be sufficient to cover all cases and could potentially result in inaccurate ASPs. Bundled arrangements may vary depending upon the number and type of products included in a bundling arrangement, whether the price concessions are contingent on the purchase of only one product, the purchase of multiple products, or the inclusion of one or more products on a formulary, and the timing of the price concessions. For example, a different allocation method may be needed to account for variable costs per product in the bundled arrangement. We solicit comment on if there are other methods of allocating discounts in these circumstances that would more accurately represent ASP. Finally, to address the suggestion that the agency determine whether additional guidance would be appropriate for the areas described in the December 2022 OIG report as it relates to how to reallocate discounts associated with sales that may be considered bundled across time periods (for example, outcomes-based arrangements or value-based purchasing arrangements), we are not proposing to adopt the portion of the Medicaid definition of bundled sale stati undled across time periods (for example, outcomes-based arrangements or value-based purchasing arrangements), we are not proposing to adopt the portion of the Medicaid definition of bundled sale stating that value-based purchasing arrangements may qualify as a bundled sale because we are continuing to evaluate how value-based purchasing arrangements should be considered for drugs payable under Medicare Part B. We solicit comments on how discounts associated with sales that may be considered bundled across time periods could be accounted for in the manufacturer’s ASP calculation. We solicit comments on this proposal. c. Bona Fide Service Fees As described in the background section above, currently, the term ‘‘BFSFs’’ means fees paid by a manufacturer to an entity, that (1) represent FMV (2) for a bona fide, itemized service actually performed on behalf of the manufacturer (3) that the manufacturer would otherwise perform (or contract for) in the absence of the service arrangement, and (4) that are not passed on in whole or in part to a client or customer of an entity, whether or not the entity takes title to the drug.104 A fee must meet all four conditions of the definition to be co 4) that are not passed on in whole or in part to a client or customer of an entity, whether or not the entity takes title to the drug.104 A fee must meet all four conditions of the definition to be considered a BFSF rather than a price concession to be deducted from ASP. We are proposing two changes to the BFSFs regarding (1) what is considered FMV and (2) proposing what evidence is required to be provided by a manufacturer to show that a fee is not passed on in whole or in part to an affiliate, client, or customer of an entity, whether or not the entity takes title to the drug. In addition, we are proposing an addition to the list of price concessions to include when certain fees paid by a manufacturer are presumed to be price concessions. (1) Fair Market Value One element of the definition of BFSFs specifies that the fees must represent FMV for the service. To date, we have not issued guidance on a specific method that manufacturers must use to determine whether a fee represents FMV. In the CY 2007 PFS final rule (71 FR 69666 through 69670), we stated that the appropriate method or methods for determining whether a fee represents FMV may depend upon the specifics of the contracti In the CY 2007 PFS final rule (71 FR 69666 through 69670), we stated that the appropriate method or methods for determining whether a fee represents FMV may depend upon the specifics of the contracting terms, such as the activities the entity will perform and the agreed-upon mechanism for establishing the payment (for example, percentage of goods purchased). We stated in that final rule that we believe manufacturers are well- equipped to determine the most appropriate, industry-accepted method for determining FMV of drug distribution services for which they contract. Therefore, we did not mandate the specific method manufacturers must use to determine whether a fee represents FMV for purposes of excluding BFSFs from the calculation of ASP. As discussed in the background section above, the December 2022 OIG 104 42 CFR 414.802. report identified BFSFs as an area where CMS could provide additional guidance to manufacturers and further stated that manufacturers expressed that competitors may be taking disparate approaches when applying CMS’s four- part test to make these determinations. In some cases, BFSFs that are very high could mask price concessions that are passed on by the enti may be taking disparate approaches when applying CMS’s four- part test to make these determinations. In some cases, BFSFs that are very high could mask price concessions that are passed on by the entity performing the bona fide service so that the product’s ASP can remain high. Conversely, certain fees that are BFSFs could be incorrectly classified as a price concession to reduce the manufacturer’s ASP and mask price increases that could be faster than the rate of inflation for purposes of the Medicare Prescription Drug Inflation Rebate Program. Consequently, we recommend additional guardrails to ensure that BFSFs are correctly identified, and that the manufacturer’s ASP is not manipulated to be artificially increased or decreased. Accordingly, in this proposed rule, we are (1) proposing revisions to the definition of BFSFs at § 414.802 that retains the existing four prong test (as described in the background section) and adds proposed requirements for the standards and the methodology that should be used to determine the FMV for such fees; (2) the time period after which manufacturers should reassess the FMV; and (3) any FMV analysis of fees that vary directly with the amount of d that should be used to determine the FMV for such fees; (2) the time period after which manufacturers should reassess the FMV; and (3) any FMV analysis of fees that vary directly with the amount of drug sold or price of a manufacturer’s drug must be conducted by an independent third party that does not have a conflict of interest. Based on the structure or arrangement of certain fees that meet the definition of BFSF, we propose additional requirements for the standards and methodology that should be used to determine FMV. Specifically, we propose that for fees paid by a manufacturer to an entity that do not vary directly with the amount of drug sold or price of a manufacturer’s drug, that the FME must be determined either based on comparable market transactions that generally reflect current market conditions or the cost of the service plus a reasonable markup to the total cost. We propose that, for fees paid by a manufacturer to an entity that vary directly with the amount of drug sold or price of a manufacturer’s drug, the FMV must be determined by using the cost of the service and adding a reasonable markup to the total cost. If any material portion of cost data is not availabl ld or price of a manufacturer’s drug, the FMV must be determined by using the cost of the service and adding a reasonable markup to the total cost. If any material portion of cost data is not available, manufacturers should follow a market- based approach based on verifiable market data until such time as sufficient cost data becomes available. In addition, VerDate Sep 2014 23:26 Jul 15, 2025 Jkt 265001 PO 00000 Frm 00193 Fmt 4701 Sfmt 4702 E:\FR\FM\16JYP3.SGM 16JYP3 3 S L A S O P O R P 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 32544 Federal Register / Vol. 90, No. 134 / Wednesday, July 16, 2025 / Proposed Rules we propose that under such circumstances that the FMV assessment must be conducted by an independent third-party valuator. This means that the valuator must not have any financial relationship (other than the arrangement to conduct FMV analyses) with either party to the arrangement and no stake in the outcome of the valuation. The FMV analysis must be documented with a clear explanation, including a description of the methodology used. Regarding FMV assessments, we propose manufacturers conduct periodic updates of any FMV analyses for service arrangements that ith a clear explanation, including a description of the methodology used. Regarding FMV assessments, we propose manufacturers conduct periodic updates of any FMV analyses for service arrangements that are ongoing, at a frequency no less than the renewal frequency of the agreement (that is, annually for annual renewals). Documentation of this update should be included in the reasonable assumption documentation that corresponds with the quarter when the update is conducted. Implementing standards and defining the methodology manufacturers must use to determine FMV will better establish uniform industry practices and provide the desired clarity requested by manufacturers in the December 2022 OIG report. We solicit comments on this proposal. (2) Fees Presumed To Be Price Concessions We are proposing revisions to § 414.804(a)(2) to specify when certain fees should be presumed to be price concessions. Specifically, we propose that if fees paid by a manufacturer to an entity vary directly with the amount or price of a manufacturer’s drugs (that is, the fees paid are (i) percentage-based fees or (ii) flat fees or fixed fees that are designed in such a way as to approximate percentage-based h the amount or price of a manufacturer’s drugs (that is, the fees paid are (i) percentage-based fees or (ii) flat fees or fixed fees that are designed in such a way as to approximate percentage-based fees), such fees are presumed to be price concessions to be deducted from the calculation of the manufacturer’s ASP unless such manufacturer determines such fees to be FMV using a cost-based approach which may be further validated with market-based data. (3) Evidence Another element of the BFSF definition specifies that the BFSF must not be passed on, in whole or in part, to a client or customer of an entity. When finalizing the CY 2007 PFS final rule (71 FR 69669 through 69670), we stated that there may be significant barriers that limit a manufacturer’s ability to determine whether a fee that otherwise meets the definition of BFSF is passed on, in whole or in part, to a client or customer of any entity. We noted in the preamble section of that rule that we believe that it is essential to retain the ‘‘not passed on’’ element in the definition of BFSFs given that the ‘‘not passed on’’ element is a key factor in distinguishing a price concession from a BFSF because, if a fee that is pa o retain the ‘‘not passed on’’ element in the definition of BFSFs given that the ‘‘not passed on’’ element is a key factor in distinguishing a price concession from a BFSF because, if a fee that is passed on is excluded from the ASP calculation, then there is a greater risk of the ASP being inappropriately inflated. We stated that if a manufacturer has determined that a fee paid meets the other elements of the definition of ‘‘bona fide service fees,’’ then the manufacturer may presume, in the absence of any evidence or notice to the contrary, that the fee paid is not passed on to a client or customer of any entity. There may be certain fees that a manufacturer classifies as BFSFs for the purposes of calculating the manufacturer’s ASP that should actually be considered price concessions and, therefore, deducted from the manufacturer’s ASP. In the December 2022 OIG report, manufacturers reported inconsistent practices in the treatment of BFSFs. As such, we propose that it is no longer appropriate that a manufacturer may presume, in absence of any evidence or notice to the contrary, that a fee paid is not passed on to an affiliate, client, or customer of any entity. This proposed revi propriate that a manufacturer may presume, in absence of any evidence or notice to the contrary, that a fee paid is not passed on to an affiliate, client, or customer of any entity. This proposed revision to the definition specifies that, in addition to a client or customer of any entity, that the fee also shall not be passed on to an affiliate, which means an affiliate of an entity that is receiving the fee the tis providing the service. We propose the addition of the word affiliate to more comprehensively address the type of arrangements that may exist between certain entities. In addition, we propose that the manufacturer be responsible for obtaining a certification or warranty from the entity receiving the fee stating that such fee will not be passed on to an affiliate, client, or customer of any entity. We are proposing to add new subparagraph § 414.804(a)(5)(iii) requiring manufacturers to provide certification letters from any recipient of a BFSF that the fee is not passed on in whole or in part to an affiliate, client or customer of an entity, whether or not the entity takes title to the drug. We also propose to revise § 414.804(a)(5) to add additional data submission requi whole or in part to an affiliate, client or customer of an entity, whether or not the entity takes title to the drug. We also propose to revise § 414.804(a)(5) to add additional data submission requirements. This paragraph currently states that the manufacturer’s average sales price must be calculated by the manufacturer every calendar quarter and submitted to CMS within 30 days of the close of the quarter. The first quarter submission must be submitted by April 30, 2004. Subsequent reports are due not later than 30 days after the last day of each calendar quarter. We are proposing to add a header to this section titled ‘‘Submission Requirements’’ and remove ‘‘The first quarter submission must be submitted by April 30, 2004. Subsequent reports are due not later than 30 days after the last day of each calendar quarter.’’ We are also proposing to add three paragraphs (i, ii, and iii). The proposed text would be revised to state that manufacturers must submit the following to CMS within 30 days of the close of the quarter: • The manufacturer’s average sales price, which must be calculated by the manufacturer every calendar quarter. The first quarter submission must be submitted by Ap 30 days of the close of the quarter: • The manufacturer’s average sales price, which must be calculated by the manufacturer every calendar quarter. The first quarter submission must be submitted by April 30, 2004. • Effective January 1, 2026, reasonable assumptions for calculation of the manufacturer’s ASP including the fair market value analysis for bona fide service fees, consistent with the general requirements and intent of the Act, Federal regulations, and its customary business practices, including documentation of the methodology used to determine fair market value and periodic reviews of fair market value. • Effective January 1, 2026, certification letter from the recipient of a bona fide service fee (as defined under § 414.802) as evidence that the fee is not passed on in whole or in part to an affiliate, client, or customer of an entity, whether or not the entity takes title to the drug. These data submission requirements, if finalized, would be effective for sales occurring January 1, 2026, and after and that data would be due to CMS by April 30, 2026, and used in the July 2026 pricing file. The newly proposed certification letter should be submitted in the current porta January 1, 2026, and after and that data would be due to CMS by April 30, 2026, and used in the July 2026 pricing file. The newly proposed certification letter should be submitted in the current portal and uploaded under reasonable assumptions. Lastly, manufacturers must maintain and submit to CMS a copy of the FMV analysis, confirming it was conducted in a timely manner, documentation (such as a certification letter from the recipient of the fee) that the fee is not passed on in whole or in part to an affiliate, client or customer of an entity, whether or not the entity takes title to the drug, and documentation (such as a mutual representation in the relevant services agreement) that both parties have agreed to represent the payment as a BFSF in a consistent manner to all third parties, including any affiliates, clients, and governmental agencies. We solicit comment on this proposal. (3) Further Guidance on the BFSF Definition In the CY 2007 PFS final rule (71 FR 69667 through 69668), we discussed the option of providing a list of bona fide VerDate Sep 2014 23:26 Jul 15, 2025 Jkt 265001 PO 00000 Frm 00194 Fmt 4701 Sfmt 4702 E:\FR\FM\16JYP3.SGM 16JYP3 3 S L A S O P O R P h t i w D , we discussed the option of providing a list of bona fide VerDate Sep 2014 23:26 Jul 15, 2025 Jkt 265001 PO 00000 Frm 00194 Fmt 4701 Sfmt 4702 E:\FR\FM\16JYP3.SGM 16JYP3 3 S L A S O P O R P 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. 134 / Wednesday, July 16, 2025 / Proposed Rules 32545 services. However, many commenters at that time were opposed to establishing a list of bona fide services because it would require ongoing refinement for manufacturers to accurately calculate ASP. In that final rule, we did not establish a list of bona fide services because we wanted to avoid inadvertently limiting the scope of what could constitute a bona fide service. We continue to believe that constructing an exhaustive list could be prohibitive over time. However, in this proposed rule, we are proposing some specific, non- exhaustive examples of fees and how they should be considered in the calculation of manufacturer’s ASP. First, we note that certain payments by drug manufacturers to drug distributors, which lower the price that distributors and purchasing physicians pay, appear to be price concessions. In 2024, the Department of Justice filed a co ayments by drug manufacturers to drug distributors, which lower the price that distributors and purchasing physicians pay, appear to be price concessions. In 2024, the Department of Justice filed a complaint against a manufacturer alleging the company engaged in fraudulent drug price reporting practices by classifying payments to distributors to cover credit card processing fees as BFSFs instead of price concessions.105 The manufacturers’ payment allegedly enabled the purchasers of the product to use credit cards to purchase drugs from the distributor without incurring an additional fee that would otherwise be charged, while also taking advantage of the benefits of using credit cards, such as ‘‘cash back’’ and other credit card rewards. This type of arrangement would lower the price of the drug to both the distributor and the distributors’ customers and the manufacturers’ payments should be classified as price concessions, which are deducted from ASP, not BFSFs. Second, as discussed in our Autologous Cell-based Immunotherapy and Gene Therapy Payment proposal, we also propose that any payment by the manufacturer to an entity for tissue procurement is not considered a BFSF for the pu our Autologous Cell-based Immunotherapy and Gene Therapy Payment proposal, we also propose that any payment by the manufacturer to an entity for tissue procurement is not considered a BFSF for the purposes of calculating the manufacturer’s ASP since this is an integral part of the manufacturing process for autologous cell-based immunotherapy or gene therapy and should be included in the price of the product. Third, certain fees for data sharing services about the product appear to exceed the FMV for the service or are not for bona fide services because the 105 United States Files Complaint Against Regeneron Pharmaceuticals Alleging Fraudulent Drug Price Reporting, District of Massachusetts, United States Attorney’s Office. April 2024. https:// www.justice.gov/usao-ma/pr/united-states-files- complaint-against-regeneron-pharmaceuticals- alleging-fraudulent-drug. data is required for legal compliance and audit purposes under the services agreement (such as complete and timely data to validate that a rebate or discount has been earned or is not duplicative prior to its payment by the manufacturer). If a manufacturer pays an entity for providing data back to the manufacturer about the idate that a rebate or discount has been earned or is not duplicative prior to its payment by the manufacturer). If a manufacturer pays an entity for providing data back to the manufacturer about the product being sold, that fee should be assessed for FMV as discussed previously in this section and we propose a certification or warranty from the entity providing the service that the fee is not passed on in whole or in part to an affiliate, client, or customer of an entity. As proposed previously in this section, we propose that such certification or warranty should be submitted by the manufacturer to CMS as part of the quarterly ASP data submission. Lastly, certain fees paid for distribution services appear to exceed the FMV for the service. Similar to data sharing services, if a manufacturer pays an entity for distributing their product, the fee should be assessed for FMV, and we propose a certification or warranty should be provided by the entity providing the service that the fee is not passed on in whole or in part to an affiliate, client, or customer of an entity. As proposed previously in this section, we propose that such certification or warranty should be submitted by the not passed on in whole or in part to an affiliate, client, or customer of an entity. As proposed previously in this section, we propose that such certification or warranty should be submitted by the manufacturer to CMS as part of the quarterly ASP data submission. We solicit comment on these proposals. d. Summary In summary, we are proposing to add a definition of bundled arrangement at § 414.802 and to update § 414.804(a)(2) to provide guidance to manufacturers regarding pricing of bundled price concessions. We are also proposing new regulatory text at § 414.804(a)(2)(i) to specify when certain fees are considered price concessions. We propose revisions to the definition of BFSFs at § 414.802 to specify: (1) standards and the methodology that should be used to determine FMV for such fees; (2) the time period after which manufacturers should reassess the FMV; and (3) that any FMV analysis regarding BFSFs that vary directly with the amount of drug sold or price of a manufacturer’s drug must be conducted by an independent third party that does not have a conflict of interest. Further, we propose revising § 414.804(a)(5) to update requirements for ASP data submissions as they relate must be conducted by an independent third party that does not have a conflict of interest. Further, we propose revising § 414.804(a)(5) to update requirements for ASP data submissions as they relate to reasonable assumptions and evidence that BFSFs are not passed on. Finally, we are proposing a non-exhaustive list of certain fees that we either do not consider BFSFs or may not be in line with FMV. 3. Average Sales Price: Units Sold at Maximum Fair Price The Act establishes the Medicare Drug Price Negotiation Program (the ‘‘Negotiation Program’’) to negotiate a maximum fair price (MFP)106 for certain high expenditure, single source drugs payable under Medicare Part B and covered under Part D (each, a ‘‘selected drug’’). For the initial price applicability year 2026, CMS reached agreement on a negotiated price for all 10 selected drugs covered under Part D. Then, for initial price applicability year 2027, CMS selected an additional 15 drugs covered under Part D. For the third year of the Negotiation Program, initial price applicability year 2028, CMS will select for negotiation up to 15 high expenditure, single source drugs payable under Part B and/or covered under Part D. Beginning e Negotiation Program, initial price applicability year 2028, CMS will select for negotiation up to 15 high expenditure, single source drugs payable under Part B and/or covered under Part D. Beginning in initial price applicability year 2028, for selected drugs payable under Part B, section 1847A(b)(1)(B) of the Act sets the Medicare Part B payment limit during the price applicability period as 106 percent of MFP. Payment limits are published on the ASP drug pricing file, which is updated quarterly. For selected drugs with a negotiated price for initial price applicability year 2026 and 2027 that have utilization under Medicare Part B, we clarify that the Part B payment limit will not be based on the MFP unless it is selected for renegotiation, pursuant to section 1194(f)(3) of the Act and as discussed in section 130.2 of the Medicare Drug Price Negotiation Program: Draft Guidance, Implementation of sections 1191 through 1198 of the Act for Initial Price Applicability Year 2028 and Manufacturer Effectuation of the Maximum Fair Price in 2026, 2027, and 2028; 107 and there is an agreed-upon renegotiated MFP. Manufacturers of drugs payable under Part B are required to report the manuf ufacturer Effectuation of the Maximum Fair Price in 2026, 2027, and 2028; 107 and there is an agreed-upon renegotiated MFP. Manufacturers of drugs payable under Part B are required to report the manufacturer’s ASP to CMS each quarter as described in sections 1927(b)(3) and 1847A(f) of the Act, even when a drug is a selected drug with an MFP, including a renegotiated MFP. The statute directs that the manufacturer’s ASP include sales to all purchasers in the United States (section 1847A(c)(1) of the Act) with two exempted categories of sales: (1) sales exempt from best price under section 1927(c)(1)(C)(i) of the Act; and (2) sales that are merely nominal in 106 Defined at section 1191(c)(3) of the Act. 107 See: https://www.cms.gov/files/document/ ipay-2028-draft-guidance.pdf. VerDate Sep 2014 23:26 Jul 15, 2025 Jkt 265001 PO 00000 Frm 00195 Fmt 4701 Sfmt 4702 E:\FR\FM\16JYP3.SGM 16JYP3 3 S L A S O P O R P 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 32546 Federal Register / Vol. 90, No. 134 / Wednesday, July 16, 2025 / Proposed Rules amount as applied for purposes of section 1927(c)(1)(C)(ii)(III) of the Act, as limited by section 1927(c)(1)(D) of the Act. Units of drugs s l. 90, No. 134 / Wednesday, July 16, 2025 / Proposed Rules amount as applied for purposes of section 1927(c)(1)(C)(ii)(III) of the Act, as limited by section 1927(c)(1)(D) of the Act. Units of drugs sold at MFP do not fall in either of those categories. In addition, units sold at MFP are expressly included in the determination of best price, as stated in section 1927(c)(1)(C)(ii)(V) of the Act. Therefore, since the statutory language does not expressly or implicitly exempt units of Medicare Part B or Part D MFP sales from the calculation of the manufacturer’s ASP, we clarify in this proposed rule that units of selected drugs sold at MFP are included in the calculation of the manufacturer’s ASP described in section 1847A(c) of the Act effective January 1, 2026. The file used for publishing payment limits for drugs covered under Part B is usually referred to as the ‘‘ASP drug pricing file’’ likely because most drugs listed on the file have a payment limit based on the ASP (usually 106 percent of ASP). However, the file also contains the payment limits based on other pricing metrics. For example, several provisions in section 1847A of the Act require that the payment limit be based on rcent of ASP). However, the file also contains the payment limits based on other pricing metrics. For example, several provisions in section 1847A of the Act require that the payment limit be based on a pricing metric other than ASP under specific circumstances, including the following: • When the Wholesale acquisition cost (WAC) is less than ASP for a single source drug or biological (section 1847A(b)(4) of the Act); • When ASP exceeds the widely available market price (WAMP) or average manufacturer price (AMP) (section 1847A(d) of the Act); and • For a selected drug, 106 percent of MFP (section 1847A(b)(1) of the Act). In such circumstances, only the actual payment limit is published on the pricing file (and no ASP information is displayed). 4. Autologous Cell-Based Immunotherapy and Gene Therapy Payment a. Background Medicare Part B covers many cellular immunotherapies and gene therapies that are FDA-approved under a biologics license application (BLA) as incident to drugs and biologicals under section 1861(s)(2) of the Act, which are paid under section 1847A of the Act (typically, at ASP plus 6 percent). Cell- based autologous therapies are a particular subset, which require ce gicals under section 1861(s)(2) of the Act, which are paid under section 1847A of the Act (typically, at ASP plus 6 percent). Cell- based autologous therapies are a particular subset, which require cells to be collected from the patient, altered to create the intended therapy, and then administered to the same patient for treatment of a condition. These steps generally include cell collection from the patient via apheresis (including leukapheresis), surgical removal, biopsies or other means, the cells are immediately transported at very low temperatures to a manufacturing site for genetic engineering and/or other steps (for example, activation, cell expansion, and/or quality testing). After the manufacturing steps are complete, the final product is transported back to the healthcare provider or treatment facility to be administered to the patient. For example, for Chimeric Antigen Receptor (CAR) T-cell therapy, T-cells are collected from the patient via leukapheresis and genetically engineered to express a chimeric antigen receptor that will bind to a certain protein on a patient’s cancerous cells. The CAR T-cells are then administered to the same patient to attack certain cancerou gineered to express a chimeric antigen receptor that will bind to a certain protein on a patient’s cancerous cells. The CAR T-cells are then administered to the same patient to attack certain cancerous cells. For other autologous cell-based therapy, the preparatory and manufacturing steps follow a similar general process. Many studies show that the manufacturing steps for these therapies have a very high cost of goods sold (COGS), including very high proportion of labor costs in manufacturing, which ultimately leads to a high final cost of the therapy.108 109 Some also note that the acquisition of raw materials, including tissue procurement, and quality-related activities are other top contributors to the COGS for autologous cell-based therapies. As technologies advance, there has been continued research to scale cell-based therapies, including a possible shift to allogeneic cell therapy, in which cell collection would be from healthy donors or stem cells. Manufacturing allogenic cell- based therapy would allow the therapy to be ready ahead of time instead of the multiple-week wait time between cell collection and administration of the treatment for allogeneic therapies.110 111 112 based therapy would allow the therapy to be ready ahead of time instead of the multiple-week wait time between cell collection and administration of the treatment for allogeneic therapies.110 111 112 Throughout research 108 Yonatan Y. Lipsitz, William D. Milligan, Ian Fitzpatrick, et al, A roadmap for cost-of-goods planning to guide economic production of cell therapy products, Cytotherapy,Volume 19, Issue 12, 2017, Pages 1383–1391. 109 Brian Canter, Sabine Sussman, Stephen Colvill, Nitzan Arad, Elizabeth Staton, Arti Rai, Introducing biosimilar competition for cell and gene therapy products, Journal of Law and the Biosciences, Volume 11, Issue 2, July–December 2024, lsae015, https://doi.org/10.1093/jlb/lsae015. 110 Caldwell KJ, Gottschalk S, Talleur AC. Allogeneic CAR Cell Therapy-More Than a Pipe Dream. Front Immunol. 2021 Jan 8;11:618427. doi: 10.3389/fimmu.2020.618427. PMID: 33488631; PMCID: PMC7821739. 111 Abbasalizadeh, S., Pakzad, M., Cabral, J.M.S., & Baharvand, H. (2017). Allogeneic cell therapy manufacturing: process development technologies and facility design options. Expert Opinion on Biological Therapy, 17(10), 1201–1219. https:// doi.org/10.1080/14712598.2017.135498 ogeneic cell therapy manufacturing: process development technologies and facility design options. Expert Opinion on Biological Therapy, 17(10), 1201–1219. https:// doi.org/10.1080/14712598.2017.1354982. 112 Pigeau GM, Csaszar E, Dulgar-Tulloch A. Commercial Scale Manufacturing of Allogeneic Cell and discussions of cell-based therapies, tissue procurement is a key consideration in the discussion of the COGS. This further distinguishes all types of tissue procurement, whether it be for allogenic or autologous therapies, are part of the COGS and part of the manufacturing process for the products. As technologies for autologous cell- based immunotherapies and gene therapies continue to advance, we aim for payment policies amongst these therapies to be consistent. Therefore, in this proposed rule, we are proposing policies for how Medicare pays for the manufacturing steps across all types of autologous cell-based immunotherapies and gene therapies and proposing how these steps should be considered by manufacturers when submitting ASP data to CMS. b. Payment Medicare payment for the manufacturing steps to CAR T-cell therapies have previously been discussed in rulemaking, specifically in sidered by manufacturers when submitting ASP data to CMS. b. Payment Medicare payment for the manufacturing steps to CAR T-cell therapies have previously been discussed in rulemaking, specifically in the CY 2019, 2020, and 2021 Medicare hospital Outpatient Prospective Payment System (OPPS) and Ambulatory Surgical Center (ASC) payment system final rules and the CY 2025 Physician Fee Schedule (PFS) final rule. In the 2019 OPPS/ASC final rule (83 FR 58904 through 58908), we finalized policies for payment of four Level III CPT codes (0537T through 0540T). We finalized that CPT codes describing (1) harvesting of blood- derived T lymphocytes, (2) preparation of T lymphocytes for transportation, cryopreservation, and storage, and (3) preparation of the CAR T-cell therapy for administration are not payable under OPPS. We stated that these codes describe various steps required to collect and prepare the genetically modified T-cells, and Medicare does not generally pay separately for each step used to manufacture a drug or biological. We noted that the billing and payment codes for the CAR T-cell therapies include leukapheresis and dose preparation procedures because these services are inclu sed to manufacture a drug or biological. We noted that the billing and payment codes for the CAR T-cell therapies include leukapheresis and dose preparation procedures because these services are included in the manufacturing of these biologicals. In that final rule, we also finalized to pay separately for the Level III CPT code describing the administration service for CAR T-cell therapy. This policy was reiterated in the CY 2020 and 2021 OPPS/ASC final rules (84 FR 61231 through 61234 and 85 FR 85949 through 85951, respectively). Therapy. Front Med (Lausanne). 2018 Aug 22;5:233. doi: 10.3389/fmed.2018.00233. PMID: 30186836; PMCID: PMC6113399. VerDate Sep 2014 23:26 Jul 15, 2025 Jkt 265001 PO 00000 Frm 00196 Fmt 4701 Sfmt 4702 E:\FR\FM\16JYP3.SGM 16JYP3 3 S L A S O P O R P 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. 134 / Wednesday, July 16, 2025 / Proposed Rules 32547 In September 2023, the CPT Editorial Panel deleted four Level III codes (0537T through 0540T) and created four new Level I codes (38225 through 38228) that describe only the steps of the complex CAR–T Therapy process performed and supervised by physicians: CPT code 38225 (C 537T through 0540T) and created four new Level I codes (38225 through 38228) that describe only the steps of the complex CAR–T Therapy process performed and supervised by physicians: CPT code 38225 (Chimeric antigen receptor T-cell (CAR–T) therapy; harvesting of blood-derived T lymphocytes for development of genetically modified autologous CAR–T cells, per day); 38226 (Chimeric antigen receptor T-cell (CAR–T) therapy; preparation of blood-derived T lymphocytes for transportation (e.g., cryopreservation, storage)); 38227 (Chimeric antigen receptor T-cell (CAR– T) therapy; receipt and preparation of CAR–T cells for administration); 38228 (Chimeric antigen receptor T-cell (CAR– T) therapy; CAR–T cell administration, autologous). In the CY 2025 PFS final rule (89 FR 97779 through 97780), we finalized the policy to continue to bundle payment under the PFS for CAR–T services described under CPT codes 38225, 38226, and 38227. We stated that bundling payment is appropriate for these codes to align with OPPS policies to not pay separately for each step used to manufacture a drug or biological. In that final rule we also finalized to pay separately for CPT code 38228 (the service of CAR T-ce lign with OPPS policies to not pay separately for each step used to manufacture a drug or biological. In that final rule we also finalized to pay separately for CPT code 38228 (the service of CAR T-cell therapy administration), which aligns with OPPS policy. To date, payment for procedures that are required for manufacturing other autologous cell-based immunotherapies and gene therapies (that are not CAR T- cell therapies) have not been explicitly addressed. As discussed in the background section above, the tissue procurement step for all autologous cell- based therapies is a pivotal part of the manufacturing process and a key component of the overall cost of the product, that is, COGS. In addition, if certain therapies could be scaled in a way that they could be allogenic in nature, we see that the tissue procurement step would even more clearly be considered a manufacturing step. Therefore, in this proposed rule, we propose that preparatory procedures for tissue procurement required for manufacturing an autologous cell-based immunotherapy or gene therapy be included in the payment of the product itself. This proposal continues the current payment policies for CAR T-cell therapies for manufacturing an autologous cell-based immunotherapy or gene therapy be included in the payment of the product itself. This proposal continues the current payment policies for CAR T-cell therapies as discussed earlier in this section and extends the same payment policy to other autologous cell-based therapies. In our evaluation of each therapy, there are similar sequences of steps as we described in the background section. Consistent with previous rulemaking, we propose that Medicare not pay separately for each step used to manufacture an autologous cell-based immunotherapy or gene therapy. In other words, Medicare does not pay separately for the collection of raw materials or labor associated with the collection of raw materials for a drug or biological that are essentially part of the COGS. Payment for the raw materials and any labor associated with collection of the raw materials is included in the payment of the drug or biological itself, using the billing and payment code for the product. We solicit comments on the proposal to continue this policy for CAR T-cell therapies and extension of the policy to other autologous cell-based immunotherapy or gene therapies. c. Average the product. We solicit comments on the proposal to continue this policy for CAR T-cell therapies and extension of the policy to other autologous cell-based immunotherapy or gene therapies. c. Average Sales Price Payment limit calculations for drugs payable under Part B are done on a quarterly basis using the manufacturer’s ASP (as defined in § 414.902) using methodology in section 1847A of the Act. Manufacturers are required to report ASP data to CMS under sections 1847A(f)(2) and 1927(b)(3) of the Act. Manufacturers are instructed to calculate the manufacturer’s ASP in accordance with section 1847A(c) of the Act and § 414.804(a). To date, we have not addressed how manufacturers of autologous cell-based immunotherapy or gene therapy should account for the procedures for the collection of cells used to manufacture the product into the calculation of the manufacturer’s ASP. As discussed in section III.A.3.a. of this proposed rule, the COGS and manufacturing process for an autologous cell-based immunotherapy or gene therapy include tissue procurement (that is, the collection of cells from the patient). Consistent with the proposal in the previous section that preparatory procedures r l-based immunotherapy or gene therapy include tissue procurement (that is, the collection of cells from the patient). Consistent with the proposal in the previous section that preparatory procedures required for manufacturing an autologous cell-based immunotherapy or gene therapy be included in the payment of the product itself, we also propose that, beginning January 1, 2026 (that is, data reflecting sales beginning on that date), any preparatory procedures for tissue procurement required for manufacturing an autologous cell-based immunotherapy or gene therapy that are paid by the manufacturer be included in the calculation of the manufacturer’s ASP. We also propose that any payment by the manufacturer to an entity for tissue procurement is not considered a bona fide service fee for the purposes of calculating the manufacturer’s ASP since this is an integral part of the manufacturing process for autologous cell-based immunotherapy or gene therapy and should be included in the price of the product. We solicit comment on this proposal. d. Summary In summary, we propose that preparatory procedures for tissue procurement required for manufacturing an autologous cell-based immunotherap