Medicare and Medicaid Programs and the Children's Health Insurance Program; Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals and the Long-Term Care Hospital Prospective Payment System and Policy Changes and Fiscal Year 2025 Rates; Quality Programs Requirements; and Other Policy Changes

AGENCY:

Centers for Medicare & Medicaid Services (CMS), Department of Health and Human Services (HHS).

ACTION:

Proposed rule.

SUMMARY:

This proposed rule would revise the Medicare hospital inpatient prospective payment systems (IPPS) for operating and capital-related costs of acute care hospitals; make changes relating to Medicare graduate medical education (GME) for teaching hospitals; update the payment policies and the annual payment rates for the Medicare prospective payment system (PPS) for inpatient hospital services provided by long-term care hospitals (LTCHs); and make other policy-related changes.

DATES:

To be assured consideration, comments must be received at one of the addresses provided in the ADDRESSES section, no later than 5 p.m. EDT on June 10, 2024.

ADDRESSES:

In commenting, please refer to file code CMS-1808-P. Because of staff and resource limitations, we cannot accept comments by facsimile (FAX) transmission. Comments, including mass comment submissions, must be submitted in one of the following three ways (please choose only one of the ways listed):

1. Electronically. You may (and we encourage you to) submit electronic comments on this regulation to https://www.regulations.gov. Follow the instructions under the “submit a comment” tab.

2. By regular mail. You may mail written comments to the following address ONLY: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-1808-P, P.O. Box 8013, Baltimore, MD 21244-8013.

Please allow sufficient time for mailed comments to be received before the close of the comment period.

3. By express or overnight mail. You may send written comments via express or overnight mail to the following address ONLY: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-1808-P, Mail Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.

For information on viewing public comments, we refer readers to the beginning of the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT:

Donald Thompson, and Michele Hudson, (410) 786-4487 or DAC@cms.hhs.gov, Operating Prospective Payment, MS-DRG Relative Weights, Wage Index, Hospital Geographic Reclassifications, Graduate Medical Education, Capital Prospective Payment, Excluded Hospitals, Medicare Disproportionate Share Hospital (DSH) Payment Adjustment, Sole Community Hospitals (SCHs), Medicare-Dependent Small Rural Hospital (MDH) Program, Low-Volume Hospital Payment Adjustment, and Inpatient Critical Access Hospital (CAH) Issues.

Emily Lipkin, and Jim Mildenberger, DAC@cms.hhs.gov, Long-Term Care Hospital Prospective Payment System and MS-LTC-DRG Relative Weights Issues.

Lily Yuan, NewTech@cms.hhs.gov, New Technology Add-On Payments Issues.

Mady Hue, marilu.hue@cms.hhs.gov, and Andrea Hazeley, andrea.hazeley@cms.hhs.gov, MS-DRG Classifications Issues.

Siddhartha Mazumdar, siddhartha.mazumdar @cms.hhs.gov, Rural Community Hospital Demonstration Program Issues.

Jeris Smith, jeris.smith@cms.hhs.gov, Frontier Community Health Integration Project (FCHIP) Demonstration Issues.

Lang Le, lang.le@cms.hhs.gov, Hospital Readmissions Reduction Program—Administration Issues.

Ngozi Uzokwe, ngozi.uzokwe@cms.hhs.gov, Hospital Readmissions Reduction Program—Measures Issues.

Jennifer Tate, jennifer.tate@cms.hhs.gov, Hospital-Acquired Condition Reduction Program—Administration Issues.

Ngozi Uzokwe, ngozi.uzokwe@cms.hhs.gov, Hospital-Acquired Condition Reduction Program—Measures Issues.

Julia Venanzi, julia.venanzi@cms.hhs.gov, Hospital Inpatient Quality Reporting Program and Hospital Value-Based Purchasing Program—Administration Issues.

Melissa Hager, melissa.hager@cms.hhs.gov, and Ngozi Uzokwe, ngozi.uzokwe@cms.hhs.gov —Hospital Inpatient Quality Reporting Program and Hospital Value-Based Purchasing Program—Measures Issues Except Hospital Consumer Assessment of Healthcare Providers and Systems Issues.

Elizabeth Goldstein, elizabeth.goldstein@cms.hhs.gov, Hospital Inpatient Quality Reporting and Hospital Value-Based Purchasing—Hospital Consumer Assessment of Healthcare Providers and Systems Measures Issues.

Ora Dawedeit, ora.dawedeit@cms.hhs.gov, PPS-Exempt Cancer Hospital Quality Reporting—Administration Issues.

Leah Domino, leah.domino@cms.hhs.gov, PPS-Exempt Cancer Hospital Quality Reporting Program—Measure Issues.

Lorraine Wickiser, lorraine.wickiser@cms.hhs.gov, Long-Term Care Hospital Quality Reporting Program—Administration Issues.

Jessica Warren, jessica.warren@cms.hhs.gov, and Elizabeth Holland, elizabeth.holland@cms.hhs.gov, Medicare Promoting Interoperability Program.

Bridget Dickensheets, bridget.dickensheets@cms.hhs.gov and Mollie Knight, mollie.knight@cms.hhs.gov, LTCH Market Basket Rebasing.

Benjamin Cohen, benjamin.cohen@cms.hhs.gov, Provider Reimbursement Review Board.

Nicholas.Bonomo@cms.hhs.gov and tracy.smithtaylor@cms.hhs.gov, Payment Error Rate Measurement Program.

CMMI_TEAM@cms.hhs.gov, Transforming Episode Accountability Model (TEAM).

The Clinical Standards Group, HealthandSafetyInquiries@cms.hhs.gov, Obstetrical Services Request for Information (RFI).

SUPPLEMENTARY INFORMATION:

Inspection of Public Comments: All comments received before the close of the comment period are available for viewing by the public, including any personally identifiable or confidential business information that is included in a comment. We post all comments received before the close of the comment period on the following website as soon as possible after they have been received: http://www.regulations.gov. Follow the search instructions on that website to view public comments. CMS will not post on Regulations.gov public comments that make threats to individuals or institutions or suggest that the commenter will take actions to harm an individual. CMS continues to encourage individuals not to submit duplicative comments. We will post acceptable comments from multiple unique commenters even if the content is identical or nearly identical to other comments.

Plain Language Summary: In accordance with 5 U.S.C. 553(b)(4), a plain language summary of this rule may be found at https://www.regulations.gov/.

Tables Available on the CMS Website

The IPPS tables for this fiscal year (FY) 2025 proposed rule are available on the CMS website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html. Click on the link on the left side of the screen titled “FY 2025 IPPS Proposed rule Home Page” or “Acute Inpatient—Files for Download.” The LTCH PPS tables for this FY 2025 proposed rule are available on the CMS website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/LongTermCareHospitalPPS/index.html under the list item for Regulation Number CMS-1808-P. For further details on the contents of the tables referenced in this proposed rule, we refer readers to section VI. of the Addendum to this FY 2025 IPPS/LTCH PPS proposed rule.

Readers who experience any problems accessing any of the tables that are posted on the CMS websites, as previously identified, should contact Michael Treitel, DAC@cms.hhs.gov.

I. Executive Summary and Background

A. Executive Summary

1. Purpose and Legal Authority

This FY 2025 IPPS/LTCH PPS proposed rule would make payment and policy changes under the Medicare inpatient prospective payment system (IPPS) for operating and capital-related costs of acute care hospitals as well as for certain hospitals and hospital units excluded from the IPPS. In addition, it would make payment and policy changes for inpatient hospital services provided by long-term care hospitals (LTCHs) under the long-term care hospital prospective payment system (LTCH PPS). This proposed rule also would make policy changes to programs associated with Medicare IPPS hospitals, IPPS-excluded hospitals, and LTCHs. In this FY 2025 proposed rule, we are proposing to continue policies to address wage index disparities impacting low wage index hospitals. We are also proposing changes relating to Medicare graduate medical education (GME) for teaching hospitals and new technology add-on payments.

We are proposing a separate IPPS payment for establishing and maintaining access to essential medicines.

In the Hospital Value-Based Purchasing (VBP) Program, we are proposing to modify scoring of the Person and Community Engagement Domain for the FY 2027 through FY 2029 program years to only score six unchanged dimensions of the Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) Survey, and we are proposing to adopt the updated HCAHPS Survey in the Hospital VBP Program beginning with the FY 2030 program year after the updated survey would have been publicly reported under the Hospital Inpatient Quality Reporting (IQR) Program for 1 year. We are also proposing to modify scoring on the HCAHPS Survey beginning with the FY 2030 program year to incorporate the updated HCAHPS Survey measure into nine survey dimensions. Lastly, we are providing previously and newly established performance standards for the FY 2027 through FY 2030 program years for the Hospital VBP Program.

In the Hospital IQR Program, we are proposing to add seven new measures, modify two existing measures including the HCAHPS Survey measure, and remove five measures. We are also proposing changes to the reporting and submission requirements for electronic clinical quality measures (eCQMs) and the validation process for the Hospital IQR Program data.

In the PPS-Exempt Cancer Hospital Quality Reporting Program (PCHQR), we are proposing to adopt the Patient Safety Structural measure beginning with the CY 2025 reporting period/FY 2027 program year. We are also proposing to modify the HCAHPS Survey measure and to move up the start date for publicly displaying hospital performance on the Hospital Commitment to Health Equity measure.

In the LTCH QRP, we are proposing to add four items to the LTCH Continuity Assessment Record and Evaluation (CARE) Data Set (LCDS) and modify one item on the LCDS beginning with the FY 2028 LTCH QRP. Additionally, we are proposing to extend the admission assessment window for the LCDS beginning with the FY 2028 LTCH QRP. Finally, we are seeking information on future measure concepts for the LTCH QRP and a future LTCH Star Rating system.

In the Medicare Promoting Interoperability Program, we are proposing to separate the Antimicrobial Use and Resistance (AUR) Surveillance measure into two measures, an Antimicrobial Use (AU) Surveillance measure and an Antimicrobial Resistance (AR) Surveillance measure, beginning with the electronic health record (EHR) reporting period in CY 2025. We are proposing to increase the performance-based scoring threshold from 60 to 80 points beginning with the EHR reporting period in CY 2025. We are proposing to adopt two new eCQMs and modify one eCQM, in alignment with the Hospital IQR Program. Finally, we are proposing changes to the reporting and submission requirements for eCQMs, in alignment with the Hospital IQR Program.

The Transforming Episode Accountability Model (TEAM) proposes the creation and testing of a new mandatory alternative payment model. The intent of TEAM is to improve beneficiary care through financial accountability for episodes categories that begin with one of the following procedures: coronary artery bypass graft (CABG), lower extremity joint replacement (LEJR), major bowel procedure, surgical hip/femur fracture treatment (SHFFT), and spinal fusion. TEAM would test whether financial accountability for these episode categories reduces Medicare expenditures while preserving or enhancing the quality of care for Medicare beneficiaries. We anticipate that TEAM would benefit Medicare beneficiaries through improving the coordination of items and services paid for through Medicare fee-for-service (FFS) payments, encouraging provider investment in health care infrastructure and redesigned care processes, and incentivizing higher value care across the inpatient and post-acute care settings for the episode. We propose to test TEAM for a 5-year model performance period, beginning January 1, 2026, and ending December 31, 2030. Under the Quality Payment Program (QPP), we anticipate that TEAM would be an Advanced Alternative Payment Model (APM)for Track 2 and Track 3 and a Merit-based Incentive Payment System (MIPS) APM for all participation tracks.

Under various statutory authorities, we either discuss continued program implementation or propose to make changes to the Medicare IPPS, the LTCH PPS, other related payment methodologies and programs for FY 2025 and subsequent fiscal years, and other policies and provisions included in this rule. These statutory authorities include, but are not limited to, the following:

• Section 1886(d) of the Social Security Act (the Act), which sets forth a system of payment for the operating costs of acute care hospital inpatient stays under Medicare Part A (Hospital Insurance) based on prospectively set rates. Section 1886(g) of the Act requires that, instead of paying for capital-related costs of inpatient hospital services on a reasonable cost basis, the Secretary use a prospective payment system (PPS).
• Section 1886(d)(1)(B) of the Act, which specifies that certain hospitals and hospital units are excluded from the IPPS. These hospitals and units are: rehabilitation hospitals and units; LTCHs; psychiatric hospitals and units; children's hospitals; cancer hospitals; extended neoplastic disease care hospitals; and hospitals located outside the 50 States, the District of Columbia, and Puerto Rico (that is, hospitals located in the U.S. Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa). Religious nonmedical health care institutions (RNHCIs) are also excluded from the IPPS.
• Sections 123(a) and (c) of the Balanced Budget Refinement Act of 1999 (BBRA) (Public Law (Pub. L.) 106-113) and section 307(b)(1) of the Benefits Improvement and Protection Act of 2000 (BIPA) (Pub. L. 106-554) (as codified under section 1886(m)(1) of the Act), which provide for the development and implementation of a prospective payment system for payment for inpatient hospital services of LTCHs described in section 1886(d)(1)(B)(iv) of the Act.
• Section 1814(l)(4) of the Act requires downward adjustments to the applicable percentage increase, beginning with FY 2015, for CAHs that do not successfully demonstrate meaningful use of certified electronic health record technology (CEHRT) for an EHR reporting period for a payment adjustment year.
• Section 1886(a)(4) of the Act, which specifies that costs of approved educational activities are excluded from the operating costs of inpatient hospital services. Hospitals with approved graduate medical education (GME) programs are paid for the direct costs of GME in accordance with section 1886(h) of the Act. Hospitals paid under the IPPS with approved GME programs are paid for the indirect costs of training residents in accordance with section 1886(d)(5)(B) of the Act.
• Section 1886(d)(5)(F) of the Act provides for additional Medicare IPPS payments to subsection (d) hospitals that serve a significantly disproportionate number of low-income patients. These payments are known as the Medicare disproportionate share hospital (DSH) adjustment. Section 1886(d)(5)(F) of the Act specifies the methods under which a hospital may qualify for the DSH payment adjustment.
• Section 1886(b)(3)(B)(viii) of the Act, which requires the Secretary to reduce the applicable percentage increase that would otherwise apply to the standardized amount applicable to a subsection (d) hospital for discharges occurring in a fiscal year if the hospital does not submit data on measures in a form and manner, and at a time, specified by the Secretary.
• Section 1886(b)(3)(B)(ix) of the Act, which requires downward adjustments to the applicable percentage increase, beginning with FY 2015 (and beginning with FY 2022 for subsection (d) Puerto Rico hospitals), for eligible hospitals that do not successfully demonstrate meaningful use of CEHRT for an EHR reporting period for a payment adjustment year.
• Section 1866(k) of the Act, which provides for the establishment of a quality reporting program for hospitals described in section 1886(d)(1)(B)(v) of the Act, referred to as “PPS-exempt cancer hospitals.”
• Section 1886(n) of the Act, which establishes the requirements for an eligible hospital to be treated as a meaningful EHR user of CEHRT for an EHR reporting period for a payment adjustment year or, for purposes of subsection (b)(3)(B)(ix) of the Act, for a fiscal year.
• Section 1886(o) of the Act, which requires the Secretary to establish a Hospital Value-Based Purchasing (VBP) Program, under which value-based incentive payments are made in a fiscal year to hospitals based on their performance on measures established for a performance period for such fiscal year.
• Section 1886(p) of the Act, which establishes a Hospital-Acquired Condition (HAC) Reduction Program, under which payments to applicable hospitals are adjusted to provide an incentive to reduce hospital-acquired conditions.
• Section 1886(q) of the Act, as amended by section 15002 of the 21st Century Cures Act, which establishes the Hospital Readmissions Reduction Program. Under the program, payments for discharges from an applicable hospital as defined under section 1886(d) of the Act will be reduced to account for certain excess readmissions. Section 15002 of the 21st Century Cures Act directs the Secretary to compare hospitals with respect to the number of their Medicare-Medicaid dual-eligible beneficiaries in determining the extent of excess readmissions.
• Section 1886(r) of the Act, as added by section 3133 of the Affordable Care Act, which provides for a reduction to disproportionate share hospital (DSH) payments under section 1886(d)(5)(F) of the Act and for an additional uncompensated care payment to eligible hospitals. Specifically, section 1886(r) of the Act requires that, for fiscal year 2014 and each subsequent fiscal year, subsection (d) hospitals that would otherwise receive a DSH payment made under section 1886(d)(5)(F) of the Act will receive two separate payments: (1) 25 percent of the amount they previously would have received under the statutory formula for Medicare DSH payments in section 1886(d)(5)(F) of the Act if subsection (r) did not apply (“the empirically justified amount”), and (2) an additional payment for the DSH hospital's proportion of uncompensated care, determined as the product of three factors. These three factors are: (1) 75 percent of the payments that would otherwise be made under section 1886(d)(5)(F) of the Act, in the absence of section 1886(r) of the Act; (2) 1 minus the percent change in the percent of individuals who are uninsured; and (3) the hospital's uncompensated care amount relative to the uncompensated care amount of all DSH hospitals expressed as a percentage.
• Section 1886(m)(5) of the Act, which requires the Secretary to reduce by 2 percentage points the annual update to the standard Federal rate for discharges for a long-term care hospital (LTCH) during the rate year for LTCHs that do not submit data on quality measures in the form, manner, and at a time, specified by the Secretary.
• Section 1886(m)(6) of the Act, as added by section 1206(a)(1) of the Pathway for Sustainable Growth Rate (SGR) Reform Act of 2013 (Pub. L. 113-67) and amended by section 51005(a) of the Bipartisan Budget Act of 2018 (Pub. L. 115-123), which provided for the establishment of site neutral payment rate criteria under the LTCH PPS, with implementation beginning in FY 2016. Section 51005(b) of the Bipartisan Budget Act of 2018 amended section 1886(m)(6)(B) by adding new clause (iv), which specifies that the IPPS comparable amount defined in clause (ii)(I) shall be reduced by 4.6 percent for FYs 2018 through 2026.

• Section 1899B of the Act, which provides for the establishment of standardized data reporting for certain post-acute care providers, including LTCHs.

• Section 1115A of the Act authorizes the testing of innovative payment and service delivery models that preserve or enhance the quality of care furnished to Medicare, Medicaid, and Children's Health Insurance Program (CHIP) beneficiaries while reducing program expenditures.

2. Summary of the Major Provisions

The following is a summary of the major provisions in this proposed rule. In general, these major provisions are being proposed as part of the annual update to the payment policies and payment rates, consistent with the applicable statutory provisions. A general summary of the changes in this proposed rule is presented in section I.D. of the preamble of this proposed rule.

a. Proposed Continuation of the Low Wage Index Hospital Policy

To help mitigate growing wage index disparities between high wage and low wage hospitals, in the FY 2020 IPPS/LTCH PPS rule (84 FR 42326 through 42332), we adopted a policy to increase the wage index values for certain hospitals with low wage index values (the low wage index hospital policy). This policy was adopted in a budget neutral manner through an adjustment applied to the standardized amounts for all hospitals. We indicated our intention that this policy would be effective for at least 4 years, beginning in FY 2020, in order to allow employee compensation increases implemented by these hospitals sufficient time to be reflected in the wage index calculation. As discussed in section III.G.5. of the preamble of this proposed rule, while we are using the FY 2021 cost report data for the FY 2025 wage index, we are unable to comprehensively evaluate the effect, if any, the low wage index hospital policy had on hospitals' wage increases during the years the COVID-19 public health emergency (PHE) was in effect. We believe it is necessary to wait until we have useable data from fiscal years after the PHE before reaching any conclusions about the efficacy of the policy. Therefore, we are proposing that the low wage index hospital policy and the related budget neutrality adjustment would be effective for at least three more years, beginning in FY 2025.

b. Proposed Separate IPPS Payment for Establishing and Maintaining Access to Essential Medicines

As discussed in section V.J. of the preamble of this proposed rule, the Biden-Harris administration has made it a priority to strengthen the resilience of medical supply chains and support reliable access to products for public health, including through prevention and mitigation of medical product shortages. As a first step in this initiative, we are proposing to establish a separate payment for small, independent hospitals for the IPPS shares of the additional resource costs to voluntarily establish and maintain a 6-month buffer stock of one or more of 86 essential medicines, either directly or through contractual arrangements with a pharmaceutical manufacturer, distributor, or intermediary. For the purposes of this policy, we define small, independent hospitals as hospitals with 100 beds or fewer that are not part of a chain organization. We are proposing to make this separate payment in a non-budget neutral manner under section 1886(d)(5)(I) of the Act. We are proposing that the payment adjustments would commence for cost reporting periods beginning on or after October 1, 2024.

c. DSH Payment Adjustment, Additional Payment for Uncompensated Care, and Supplemental Payment

Under section 1886(r) of the Act, which was added by section 3133 of the Affordable Care Act, starting in FY 2014, Medicare disproportionate share hospitals (DSHs) receive 25 percent of the amount they previously would have received under the statutory formula for Medicare DSH payments in section 1886(d)(5)(F) of the Act. The remaining amount, equal to 75 percent of the amount that would have been paid as Medicare DSH payments under section 1886(d)(5)(F) of the Act if subsection (r) did not apply, is paid as additional payments after the amount is reduced for changes in the percentage of individuals that are uninsured. Each Medicare DSH that has uncompensated care will receive an additional payment based on its share of the total amount of uncompensated care for all Medicare DSHs for a given time period. This additional payment is known as the uncompensated care payment.

In this proposed rule, we are proposing to update our estimates of the three factors used to determine uncompensated care payments for FY 2025. We are also proposing to continue to use uninsured estimates produced by CMS' Office of the Actuary (OACT) as part of the development of the National Health Expenditure Accounts (NHEA) in conjunction with more recently available data in the calculation of Factor 2. Consistent with the regulation at § 412.106(g)(1)(iii)(C)( 11), which was adopted in the FY 2023 IPPS/LTCH PPS final rule, for FY 2025, we will use the 3 most recent years of audited data on uncompensated care costs from Worksheet S-10 of the FY 2019, FY 2020, and FY 2021 cost reports to calculate Factor 3 in the uncompensated care payment methodology for all eligible hospitals.

Beginning with FY 2023 (87 FR 49047 through 49051), we also established a supplemental payment for IHS and Tribal hospitals and hospitals located in Puerto Rico. In section IV.D of the preamble of this proposed rule, we summarize the ongoing methodology for supplemental payments.

In this proposed rule, we are also proposing, for FY 2025 and subsequent fiscal years, to calculate the per-discharge amount for interim uncompensated care payments using the average of the most recent 3 years of discharge data. Accordingly, for FY 2025, we propose to use an average of discharge data from FY 2021, FY 2022, and FY 2023. We believe that our proposed approach will likely result in a better estimate of the number of discharges during FY 2025 and subsequent years for purposes of the interim uncompensated care payment calculation. We propose to codify this proposed approach in new § 412.106(i)(1).

d. Proposed Adoption of the Patient Safety Structural Measure in the Hospital IQR Program and PCHQR Program

The proposed Patient Safety Structural measure is an attestation-based measure that assesses whether hospitals have a structure and culture that prioritizes safety as demonstrated by the following five domains: (1) leadership commitment to eliminating preventable harm; (2) strategic planning and organizational policy; (3) culture of safety and learning health system; (4) accountability and transparency; and (5) patient and family engagement. Hospitals would attest to whether they engage in specific evidence-based best practices within each of these domains to achieve a score from zero to five out of five points. We are proposing that hospitals would be required to report this measure beginning with the CY 2025 reporting period/FY 2027 program year for the PCHQR Program and for the CY 2025 reporting period/FY 2027 payment determination for the Hospital IQR Program.

e. Proposed Updated Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) Survey Measure in the Hospital IQR Program, Hospital VBP Program, and PCHQR Program

The proposal to use the updated version of the HCAHPS Survey measure aligns with the National Quality Strategy goal to bring patient voices to the forefront by incorporating feedback from patients and caregivers. The proposed updated HCAHPS Survey measure would be adopted for the Hospital IQR and PCHQR Programs beginning with the CY 2025 reporting period/FY 2027 payment determination and the CY 2025 reporting period/FY 2027 program year, respectively. For the Hospital VBP Program, we are proposing to modify scoring on the Person and Community Engagement Domain for the FY 2027 through FY 2029 program years to only score six unchanged dimensions of the HCAHPS Survey. We are proposing to adopt the updated HCAHPS Survey measure beginning with the FY 2030 program year, which would result in nine HCAHPS Survey dimensions for the Person and Community Engagement Domain. We are also proposing to modify scoring of the Person and Community Engagement Domain beginning with the FY 2030 program year to account for the proposed updates to the HCAHPS Survey.

f. Hospital Value-Based Purchasing (VBP) Program

Section 1886(o) of the Act requires the Secretary to establish a Hospital VBP Program under which value-based incentive payments are made in a fiscal year to hospitals based on their performance on measures established for a performance period for such fiscal year. In this proposed rule, we are proposing to modify scoring on the Person and Community Engagement Domain for the FY 2027 through FY 2029 program years while the updated HCAHPS Survey measure would be publicly reported under the Hospital IQR Program. In addition, we are proposing to adopt the updated HCAHPS Survey measure beginning with the FY 2030 program year and modify scoring beginning with the FY 2030 program year to account for the updated HCAHPS Survey.

g. Hospital Inpatient Quality Reporting (IQR) Program

Under section 1886(b)(3)(B)(viii) of the Act, subsection (d) hospitals are required to report data on measures selected by the Secretary for a fiscal year in order to receive the full annual percentage increase. In the FY 2025 IPPS/LTCH PPS proposed rule, we are proposing several changes to the Hospital IQR Program. We are proposing the adoption of seven new measures: (1) Patient Safety Structural measure beginning with the CY 2025 reporting period/FY 2027 payment determination; (2) Age Friendly Hospital measure beginning with the CY 2025 reporting period/FY 2027 payment determination; (3) Catheter-Associated Urinary Tract Infection (CAUTI) Standardized Infection Ratio Stratified for Oncology Locations beginning with the CY 2026 reporting period/FY 2028 payment determination; (4) Central Line-Associated Bloodstream Infection (CLABSI) Standardized Infection Ratio Stratified for Oncology Locations beginning with the CY 2026 reporting period/FY 2028 reporting period; (5) Hospital Harm—Falls with Injury eCQM beginning with the CY 2026 reporting period/FY 2028 payment determination; (6) Hospital Harm—Postoperative Respiratory Failure eCQM beginning with the CY 2026 reporting period/FY 2028 payment determination; and (7) Thirty-day Risk-Standardized Death Rate among Surgical Inpatients with Complications (Failure-to-Rescue) measure beginning with the July 1, 2023-June 30, 2025 reporting period/FY 2027 payment determination. We are also proposing refinements to two measures currently in the Hospital IQR Program measure set: (1) Global Malnutrition Composite Score (GMCS) eCQM, beginning with the CY 2026 reporting period/FY 2028 payment determination; and (2) the HCAHPS Survey beginning with the CY 2025 reporting period/FY 2027 payment determination. We are also proposing the removal of five measures: (1) Death Among Surgical Inpatients with Serious Treatable Complications (CMS PSI 04) measure beginning with the July 1, 2023-June 30, 2025 reporting period/FY 27 payment determination ; (2) Hospital-level, Risk-Standardized Payment Associated with a 30-Day Episode-of-Care for Acute Myocardial Infarction (AMI) measure beginning with the July 1, 2021-June 30, 2024 reporting period/FY 2026 payment determination; (3) Hospital-level, Risk-Standardized Payment Associated with a 30-Day Episode-of-Care for Heart Failure (HF) measure beginning with the July 1, 2021-June 30, 2024 reporting period/FY 2026 payment determination; (4) Hospital-level, Risk-Standardized Payment Associated with a 30-Day Episode-of-Care for Pneumonia (PN) measure beginning with July 1, 2021-June 30, 2024 reporting period/FY 2026 payment determination and (5) Hospital-level, Risk-Standardized Payment Associated with a 30-Day Episode-of-Care for Elective Primary Total Hip Arthroplasty (THA) and/or Total Knee Arthroplasty (TKA) measure beginning with the April 1, 2021-March 31, 2024 reporting period/FY 2026 payment determination.

We are proposing to modify eCQM data reporting and submission requirements by proposing a progressive increase in the number of mandatory eCQMs a hospital would be required to report on beginning with the CY 2026 reporting period/FY 2028 payment determination. We are also proposing two changes to current policies related to validation of hospital data: (1) to implement eCQM validation scoring based on the accuracy of eCQM data beginning with the validation of CY 2025 eCQM data affecting the FY 2028 payment determination; and (2) modification of the data validation reconsideration request requirements to make medical records submission optional for reconsideration requests beginning with CY 2023 discharges/FY 2026 payment determination.

h. PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) Program

Section 1866(k)(1) of the Act requires, for purposes of FY 2014 and each subsequent fiscal year, that a hospital described in section 1886(d)(1)(B)(v) of the Act (a PPS-exempt cancer hospital, or a PCH) submit data in accordance with section 1866(k)(2) of the Act with respect to such fiscal year. In the FY 2025 IPPS/LTCH PPS proposed rule, we are proposing to adopt the Patient Safety Structural measure beginning with the CY 2025 reporting period/FY 2027 program year. We are also proposing to modify the HCAHPS Survey measure beginning with the CY 2025 reporting period/FY 2027 program year. We are also proposing to move up the start date for publicly displaying hospital performance on the Hospital Commitment to Health Equity measure from July 2026 to January 2026 or as soon as feasible thereafter.

i. Long-Term Care Hospital Quality Reporting Program (LTCH QRP)

We are proposing the following changes to the LTCH QRP: (1) add four items to the LCDS beginning with the FY 2028 LTCH QRP; (2) modify one item on the LCDS beginning with the FY 2028 LTCH QRP; and (3) extend the admission assessment window for the LCDS beginning with the FY 2028 LTCH QRP. We are also seeking information on future measure concepts for the LTCH QRP and a future LTCH Star Rating system.

j. Medicare Promoting Interoperability Program

In section X.F. of the preamble of this proposed rule, we are proposing several changes to the Medicare Promoting Interoperability Program. Specifically, we are proposing: (1) to separate the Antimicrobial Use and Resistance (AUR) Surveillance measure into two measures, an Antimicrobial Use (AU) Surveillance measure and an Antimicrobial Resistance (AR) Surveillance measure, beginning with the EHR reporting period in CY 2025; to add a new exclusion for eligible hospitals or critical access hospitals (CAHs) that do not have a data source containing the minimal discrete data elements that are required for AU or AR Surveillance reporting; to modify the applicability of the existing exclusions to either the AU or AR Surveillance measures, respectively; and to treat the AU and AR Surveillance measures as new measures with respect to active engagement beginning with the EHR reporting period in CY 2025; (2) to increase the performance-based scoring threshold for eligible hospitals and CAHs reporting under the Medicare Promoting Interoperability Program from 60 points to 80 points beginning with the EHR reporting period in CY 2025; (3) to adopt two new eCQMs that hospitals can select as one of their three self-selected eCQMs beginning with the CY 2026 reporting period: the Hospital Harm—Falls with Injury eCQM and the Hospital Harm—Postoperative Respiratory Failure eCQM; (4) beginning with the CY 2026 reporting period, to modify one eCQM, the Global Malnutrition Composite Score eCQM; and (5) to modify eCQM data reporting and submission requirements by proposing a progressive increase in the number of mandatory eCQMs eligible hospitals and CAHs would be required to report on beginning with the CY 2026 reporting period.

k. Proposed Distribution of Additional Residency Positions Under the Provisions of Section 4122 of Subtitle C of the Consolidated Appropriations Act, 2023 (CAA, 2023)

In this proposed rule, we are including a proposal to implement section 4122 of the CAA, 2023. Section 4122(a) of the CAA, 2023, amended section 1886(h) of the Act by adding a new section 1886(h)(10) of the Act requiring the distribution of additional residency positions (also referred to as slots) to hospitals. We refer readers to section V.F.2. of the preamble of this proposed rule for a summary of the provisions of section 4122 of the CAA, 2023 that we are proposing to implement in this proposed rule.

l. Extension of the Medicare-Dependent, Small Rural Hospital (MDH) Program and the Temporary Changes to the Low-Volume Hospital Payment Adjustment

The Consolidated Appropriations Act, 2024 (CAA, 2024) (Pub. L. 118-42), enacted on March 9, 2024, extended the MDH program and the temporary changes to the low-volume hospital qualifying criteria and payment adjustment under the IPPS for a portion of FY 2025. Specifically, section 306 of the CAA, 2024 further extended the modified definition of low-volume hospital and the methodology for calculating the payment adjustment for low-volume hospitals under section 1886(d)(12) of the Act through December 31, 2024. Section 307 of the CAA, 2024 extended the MDH program under section 1886(d)(5)(G) of the Act through December 31, 2024. Prior to enactment of the CAA, 2024, the low-volume hospital qualifying criteria and payment adjustment were set revert to the statutory requirements that were in effect prior to FY 2011 at the end of FY 2024 and beginning October 1, 2024, the MDH program would have no longer been in effect.

We recognize the importance of these extensions with respect to the goal of advancing health equity by addressing the health disparities that underlie the health system is one of CMS' strategic pillars and a Biden-Harris Administration priority. These provisions are projected to increase payments to IPPS hospitals by approximately $137 million in FY 2025.

m. Transforming Episode Accountability Model (TEAM)

In section X.A. of the preamble of this proposed rule, we propose the Transforming Episode Accountability Model (TEAM). TEAM would be a 5-year mandatory model tested under the authority of section 1115A of the Act, beginning on January 1, 2026, and ending on December 31, 2030. The intent of TEAM is to improve beneficiary care through financial accountability for episodes categories that begin with one of the following procedures: coronary artery bypass (CABG), lower extremity joint replacement (LEJR), major bowel procedure, surgical hip/femur fracture treatment (SHFFT), and spinal fusion. TEAM would test whether financial accountability for these episode categories reduces Medicare expenditures while preserving or enhancing the quality of care for Medicare beneficiaries.

Under Traditional Medicare, Medicare makes separate payments to providers and suppliers for the items and services furnished to a beneficiary over the course of an episode of care. Because providers and suppliers are paid for each individual item or service delivered, providers may not be incentivized to invest in quality improvement and care coordination activities. As a result, care may be fragmented, unnecessary, or duplicative. By holding hospitals accountable for all items and services provided during an episode, providers would be better incentivized to coordinate patient care, avoid duplicative or unnecessary services, and improve the beneficiary care experience during care transitions.

Under the TEAM proposals, all acute care hospitals, with limited exceptions, located within the Core-Based Statistical Areas that CMS selects for model implementation would be required to participate in TEAM. As proposed, TEAM would have a 1-year glide path opportunity that would allow TEAM participants to ease into full financial risk as well as different participation tracks to accommodate different levels of financial risk and reward. Episodes would include non-excluded Medicare Parts A and B items and services and would begin with an anchor hospitalization or anchor procedure and would end 30 days after hospital discharge. We are proposing that the following episode categories, when furnished by a TEAM participant, would initiate a TEAM Episode: lower extremity joint replacement, surgical hip femur fracture treatment, spinal fusion, coronary artery bypass graft, and major bowel procedure.

TEAM participants would continue to bill Medicare FFS as usual but would receive target prices for episodes prior to each performance year. Target prices would be based on 3 years of baseline data, prospectively trended forward to the relevant performance year, and calculated at the level of MS-DRG/HCPCS episode type and region. Target prices would also include a discount factor, normalization factor, and a risk-adjustment. Performance in the model would be assessed by comparing TEAM participants' actual Medicare FFS spending during a performance year to their reconciliation target price as well as by assessing performance on three quality measures. TEAM participants would earn a payment from CMS, subject to a quality performance adjustment, if their spending is below the reconciliation target price. TEAM participants would owe CMS a repayment amount, subject to a quality performance adjustment, if their spending was above the reconciliation target price.

n. Maternity Care Request for Information (RFI)

In alignment with our commitment to addressing the maternal health crisis, this RFI seeks to gather information on differences between hospital resources required to provide inpatient pregnancy and childbirth services to Medicare patients as compared to non-Medicare patients. To the extent that the resources required differ between patient populations, we also wish to gather information on the extent to which non-Medicare payers, or other commercial insurers may be using the IPPS as a basis for determining their payment rates for inpatient pregnancy and childbirth services and the effect, if any, that the use of the IPPS as a basis for determining payment by those payers may have on maternal health outcomes.

o. Obstetrical Services RFI

As a result of ongoing concerns about the provision of maternity care in Medicare and Medicaid certified hospitals, CAHS, and REHs, this proposed rule includes a request for information regarding our intent to propose baseline health and safety standards for obstetrical services in future rulemaking. Public comments on the FY 2023 IPPS/LTCH PPS proposed rule maternal health request for information recommended that CMS explore options to establish an Obstetrical Services condition of participation (CoP) for participating hospitals in collaboration with relevant stakeholders. With this RFI, we hope to further explore such options as we develop a proposal for a targeted Obstetrical Services CoP. We are seeking public comment on multiple detailed questions, ultimately seeking potential solutions that can be implemented through the hospital CoPs to address well-documented concerns regarding maternal morbidity, mortality, and access in the United States. The goal is to ensure that any policy changes improve maternal health care outcomes, addresses unjust disparities in care, and do not exacerbate access to care issues.

p. Conditions of Participation Requirements for Hospitals and Critical Access Hospitals To Report Acute Respiratory Illnesses

In section X.F. of the preamble of this proposed rule, we are proposing to update the hospital and CAH infection prevention and control and antibiotic stewardship programs conditions of participation (CoPs) to extend a limited subset of the current COVID-19 and influenza data reporting requirements. These proposed reporting requirements ensure that hospitals and CAHs have appropriate insight related to evolving infection control needs. Specifically, CMS is proposing to replace the COVID-19 and Seasonal Influenza reporting standards for hospitals and CAHs with a new standard addressing acute respiratory illnesses to require that, beginning on October 1, 2024, hospitals and CAHs would have to electronically report information about COVID-19, influenza, and RSV. CMS is proposing that outside of a public health emergency (PHE), hospitals and CAHs would have to report these data on a weekly basis.

q. Proposed Changes to the Severity Level Designation for Z Codes Describing Inadequate Housing and Housing Instability

As discussed in section II.C. of the preamble of this proposed rule, we are proposing to change the severity level designation for the social determinants of health (SDOH) diagnosis codes describing inadequate housing and housing instability from non-complication or comorbidity (NonCC) to complication or comorbidity (CC) for FY 2025. Consistent with our annual updates to account for changes in resource consumption, treatment patterns, and the clinical characteristics of patients, CMS is recognizing inadequate housing and housing instability as indicators of increased resource utilization in the acute inpatient hospital setting.

Consistent with the Administration's goal of advancing health equity for all, including members of historically underserved and under-resourced communities, as described in the President's January 20, 2021 Executive Order 13985 on “Advancing Racial Equity and Support for Underserved Communities Through the Federal Government,” we also continue to be interested in receiving feedback on how we might further foster the documentation and reporting of the diagnosis codes describing social and economic circumstances to more accurately reflect each health care encounter and improve the reliability and validity of the coded data including in support of efforts to advance health equity.

3. Summary of Costs and Benefits

The following table provides a summary of the costs, savings, and benefits associated with the major provisions described in section I.A.2. of the preamble of this proposed rule.

B. Background Summary

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

Section 1886(d) of the Act sets forth a system of payment for the operating costs of acute care hospital inpatient stays under Medicare Part A (Hospital Insurance) based on prospectively set rates. Section 1886(g) of the Act requires the Secretary to use a prospective payment system (PPS) to pay for the capital-related costs of inpatient hospital services for these “subsection (d) hospitals.” Under these PPSs, Medicare payment for hospital inpatient operating and capital-related costs is made at predetermined, specific rates for each hospital discharge. Discharges are classified according to a list of diagnosis-related groups (DRGs).

The base payment rate is comprised of a standardized amount that is divided into a labor-related share and a nonlabor-related share. The labor-related share is adjusted by the wage index applicable to the area where the hospital is located. If the hospital is located in Alaska or Hawaii, the nonlabor-related share is adjusted by a cost-of-living adjustment factor. This base payment rate is multiplied by the DRG relative weight.

If the hospital treats a high percentage of certain low-income patients, it receives a percentage add-on payment applied to the DRG-adjusted base payment rate. This add-on payment, known as the disproportionate share hospital (DSH) adjustment, provides for a percentage increase in Medicare payments to hospitals that qualify under either of two statutory formulas designed to identify hospitals that serve a disproportionate share of low-income patients. For qualifying hospitals, the amount of this adjustment varies based on the outcome of the statutory calculations. The Affordable Care Act revised the Medicare DSH payment methodology and provides for an additional Medicare payment beginning on October 1, 2013, that considers the amount of uncompensated care furnished by the hospital relative to all other qualifying hospitals.

If the hospital is training residents in an approved residency program(s), it receives a percentage add-on payment for each case paid under the IPPS, known as the indirect medical education (IME) adjustment. This percentage varies, depending on the ratio of residents to beds.

Additional payments may be made for cases that involve new technologies or medical services that have been approved for special add-on payments. In general, to qualify, a new technology or medical service must demonstrate that it is a substantial clinical improvement over technologies or services otherwise available, and that, absent an add-on payment, it would be inadequately paid under the regular DRG payment. In addition, certain transformative new devices and certain antimicrobial products may qualify under an alternative inpatient new technology add-on payment pathway by demonstrating that, absent an add-on payment, they would be inadequately paid under the regular DRG payment.

The costs incurred by the hospital for a case are evaluated to determine whether the hospital is eligible for an additional payment as an outlier case. This additional payment is designed to protect the hospital from large financial losses due to unusually expensive cases. Any eligible outlier payment is added to the DRG-adjusted base payment rate, plus any DSH, IME, and new technology or medical service add-on adjustments and, beginning in FY 2023 for IHS and Tribal hospitals and hospitals located in Puerto Rico, the new supplemental payment.

Although payments to most hospitals under the IPPS are made on the basis of the standardized amounts, some categories of hospitals are paid in whole or in part based on their hospital-specific rate, which is determined from their costs in a base year. For example, sole community hospitals (SCHs) receive the higher of a hospital-specific rate based on their costs in a base year (the highest of FY 1982, FY 1987, FY 1996, or FY 2006) or the IPPS Federal rate based on the standardized amount. SCHs are the sole source of care in their areas. Specifically, section 1886(d)(5)(D)(iii) of the Act defines an SCH as a hospital that is located more than 35 road miles from another hospital or that, by reason of factors such as an isolated location, weather conditions, travel conditions, or absence of other like hospitals (as determined by the Secretary), is the sole source of hospital inpatient services reasonably available to Medicare beneficiaries. In addition, certain rural hospitals previously designated by the Secretary as essential access community hospitals are considered SCHs.

With the recent enactment of section 307 of the CAA, 2024, under current law, the Medicare-dependent, small rural hospital (MDH) program is effective through December 31, 2024. For discharges occurring on or after October 1, 2007, but before January 1, 2025, an MDH receives the higher of the Federal rate or the Federal rate plus 75 percent of the amount by which the Federal rate is exceeded by the highest of its FY 1982, FY 1987, or FY 2002 hospital-specific rate. MDHs are a major source of care for Medicare beneficiaries in their areas. Section 1886(d)(5)(G)(iv) of the Act defines an MDH as a hospital that is located in a rural area (or, as amended by the Bipartisan Budget Act of 2018, a hospital located in a State with no rural area that meets certain statutory criteria), has not more than 100 beds, is not an SCH, and has a high percentage of Medicare discharges (not less than 60 percent of its inpatient days or discharges in its cost reporting year beginning in FY 1987 or in two of its three most recently settled Medicare cost reporting years). As section 307 of the CAA, 2024 extended the MDH program through the first quarter of FY 2025 only, beginning on January 1, 2025, the MDH program will no longer be in effect absent a change in law. Because the MDH program is not authorized by statute beyond December 31, 2024, beginning January 1, 2025, all hospitals that previously qualified for MDH status under section 1886(d)(5)(G) of the Act will no longer have MDH status and will be paid based on the IPPS Federal rate.

Section 1886(g) of the Act requires the Secretary to pay for the capital-related costs of inpatient hospital services in accordance with a prospective payment system established by the Secretary. The basic methodology for determining capital prospective payments is set forth in our regulations at 42 CFR 412.308 and 412.312. Under the capital IPPS, payments are adjusted by the same DRG for the case as they are under the operating IPPS. Capital IPPS payments are also adjusted for IME and DSH, similar to the adjustments made under the operating IPPS. In addition, hospitals may receive outlier payments for those cases that have unusually high costs.

The existing regulations governing payments to hospitals under the IPPS are located in 42 CFR part 412, subparts A through M.

2. Hospitals and Hospital Units Excluded From the IPPS

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

The existing regulations governing payments to excluded hospitals and hospital units are located in 42 CFR parts 412 and 413.

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

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

4. Critical Access Hospitals (CAHs)

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

5. Payments for Graduate Medical Education (GME)

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

C. Summary of Provisions of Recent Legislation That Would Be Implemented in This Proposed Rule

1. The Consolidated Appropriations Act, 2023 (CAA 2023; Pub. L. 117-328)

Section 4122 of the CAA, 2023, amended section 1886(h) of the Act by adding a new section 1886(h)(10) of the Act requiring the distribution of additional residency positions (also referred to as slots) to hospitals. Section 1886(h)(10)(A) of the Act requires that for FY 2026, the Secretary shall initiate an application round to distribute 200 residency positions. At least 100 of the positions made available under section 1886(h)(10)(A) of the Act shall be distributed for psychiatry or psychiatry subspecialty residency training programs. The Secretary is required, subject to certain provisions in the law, to increase the otherwise applicable resident limit for each qualifying hospital that submits a timely application by the number of positions that may be approved by the Secretary for that hospital. The Secretary is required to notify hospitals of the number of positions distributed to them by January 31, 2026, and the increase is effective beginning July 1, 2026.

In determining the qualifying hospitals for which an increase is provided, section 1886(h)(10)(B)(i) of the Act requires the Secretary to take into account the “demonstrated likelihood” of the hospital filling the positions made available within the first 5 training years beginning after the date the increase would be effective, as determined by the Secretary.

Section 1886(h)(10)(B)(ii) of the Act requires a minimum distribution for certain categories of hospitals. Specifically, the Secretary is required to distribute at least 10 percent of the aggregate number of total residency positions available to each of four categories of hospitals. Stated briefly, and discussed in greater detail later in this proposed rule, the categories are as follows: (1) hospitals located in rural areas or that are treated as being located in a rural area (pursuant to sections 1886(d)(2)(D) and 1886(d)(8)(E) of the Act); (2) hospitals in which the reference resident level of the hospital is greater than the otherwise applicable resident limit; (3) hospitals in States with new medical schools or additional locations and branches of existing medical schools; and (4) hospitals that serve areas designated as Health Professional Shortage Areas (HPSAs). Section 1886(h)(10)(F)(iii) of the Act defines a qualifying hospital as a hospital in one of these four categories.

Section 1886(h)(10)(B)(iii) of the Act further requires that each qualifying hospital that submits a timely application receive at least 1 (or a fraction of 1) of the residency positions made available under section 1886(h)(10) of the Act before any qualifying hospital receives more than 1 residency position.

Section 1886(h)(10)(C) of the Act places certain limitations on the distribution of the residency positions. First, a hospital may not receive more than 10 additional full-time equivalent (FTE) residency positions. Second, no increase in the otherwise applicable resident limit of a hospital may be made unless the hospital agrees to increase the total number of FTE residency positions under the approved medical residency training program of the hospital by the number of positions made available to that hospital. Third, if a hospital that receives an increase to its otherwise applicable resident limit under section 1886(h)(10) of the Act is eligible for an increase to its otherwise applicable resident limit under 42 CFR 413.79(e)(3) (or any successor regulation), that hospital must ensure that residency positions received under section 1886(h)(10) of the Act are used to expand an existing residency training program and not for participation in a new residency training program.

2. The Consolidated Appropriations Act, 2024 (CAA, 2024; Pub. L. 118-42)

Section 306 of the CAA, 2024 extended through the first 3 months of FY 2025 the modified definition of a low-volume hospital and the methodology for calculating the payment adjustment for low-volume hospitals in effect for FYs 2019 through 2024. Specifically, under section 1886(d)(12)(C)(i) of the Act, as amended, for FYs 2019 through 2024 and the portion of FY 2025 occurring before January 1, 2025, a subsection (d) hospital qualifies as a low-volume hospital if it is more than 15 road miles from another subsection (d) hospital and has less than 3,800 total discharges during the fiscal year. Under section 1886(d)(12)(D) of the Act, as amended, for discharges occurring in FYs 2019 through December 31, 2024, the Secretary determines the applicable percentage increase using a continuous, linear sliding scale ranging from an additional 25 percent payment adjustment for low-volume hospitals with 500 or fewer discharges to a zero percent additional payment for low-volume hospitals with more than 3,800 discharges in the fiscal year.

Section 307 of the CAA, 2024 amended sections 1886(d)(5)(G)(i) and 1886(d)(5)(G)(ii)(II) of the Act to provide for an extension of the MDH program through the first 3 months of FY 2025 (that is, through December 31, 2024).

D. Summary of the Proposed Provisions

In this proposed rule, we set forth proposed payment and policy changes to the Medicare IPPS for FY 2025 operating costs and capital-related costs of acute care hospitals and certain hospitals and hospital units that are excluded from IPPS. In addition, we set forth proposed changes to the payment rates, factors, and other payment and policy-related changes to programs associated with payment rate policies under the LTCH PPS for FY 2025.

The following is a general summary of the changes that we are proposing to make in this proposed rule.

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

In section II. of the preamble of this proposed rule, we include the following:

• Proposed changes to MS-DRG classifications based on our yearly review for FY 2025.
• Proposed recalibration of the MS-DRG relative weights.
• A discussion of the proposed FY 2025 status of new technologies approved for add-on payments for FY 2024, a presentation of our evaluation and analysis of the FY 2025 applicants for add-on payments for high-cost new medical services and technologies (including public input, as directed by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) Pub. L. 108-173, obtained in a town hall meeting for applications not submitted under an alternative pathway), and a discussion of the proposed status of FY 2025 new technology applicants under the alternative pathways for certain medical devices and certain antimicrobial products.
• A proposal to change the April 1 cutoff to October 1 for determining whether a technology would be within its 2- to 3-year newness period when considering eligibility for new technology add-on payments, beginning in FY 2026, effective for those technologies that are approved for new technology add-on payments starting in FY 2025 or a subsequent years (as discussed in II.E.7. of the preamble of this proposed rule).
• A proposal that, beginning with new technology add-on payment applications for FY 2026, we will no longer consider a hold status to be an inactive status for the purposes of eligibility for the new technology add-on payment (as discussed in section II.E.8. of the preamble of this proposed rule).
• A proposal that, subject to our review of the new technology add-on payment eligibility criteria, for certain gene therapies approved for new technology add-on payments in the FY 2025 IPPS/LTCH final rule for the treatment of sickle cell disease (SCD), effective with discharges on or after October 1, 2024, and concluding at the end of the 2- to 3-year newness period for such therapy, we will temporarily increase the new technology add-on payment percentage to 75 percent (as discussed in section II.E.9. of the preamble of this proposed rule).

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

In section III. of the preamble of this proposed rule, we propose revisions to the wage index for acute care hospitals and the annual update of the wage data. Specific issues addressed include, but are not limited to, the following:

• Proposed changes in CBSAs as a result of new OMB labor market area delineations and proposed policies related to the proposed changes in CBSAs.
• The proposed FY 2025 wage index update using wage data from cost reporting periods beginning in FY 2019.
• Calculation, analysis, and implementation of the proposed occupational mix adjustment to the wage index for acute care hospitals for FY 2025 based on the 2022 Occupational Mix Survey.
• Proposed application of the rural, imputed and frontier State floors, and continuation of the low wage index hospital policy.
• Proposed revisions to the wage index for acute care hospitals, based on hospital redesignations and reclassifications under sections 1886(d)(8)(B), (d)(8)(E), and (d)(10) of the Act.
• Proposed adjustment to the wage index for acute care hospitals for FY 2025 based on commuting patterns of hospital employees who reside in a county and work in a different area with a higher wage index.
• Proposed labor-related share for the FY 2025 wage index.

3. Payment Adjustment for Medicare Disproportionate Share Hospitals (DSHs) for FY 2025

In section IV. of the preamble of this proposed rule, we discuss the following:

• Proposed calculation of Factor 1 and Factor 2 of the uncompensated care payment methodology.
• Proposed methodological approach for determining Factor 3 of the uncompensated care payment for FY 2025, which is the same methodology that was used for FY 2024.

• Proposed methodological approach for determining the amount of interim uncompensated care payments using the average of the most recent 3 years of discharge data.

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

In section V. of the preamble of this proposed rule, we discuss proposed changes or clarifications of a number of the provisions of the regulations in 42 CFR parts 412 and 413, including the following:

• Proposed inpatient hospital update for FY 2025.
• Proposed updated national and regional case-mix values and discharges for purposes of determining RRC status and clarification of the qualification under the discharge criterion for osteopathic hospitals.
• Proposed implementation of the statutory extension of the temporary changes to the low-volume hospital payment adjustment through December 31, 2024, the statutory expiration beginning January 1, 2025, and the proposed payment adjustments for low-volume hospitals for FY 2025.
• Proposed implementation of the statutory extension of the MDH program through December 31, 2024, and the statutory expiration beginning January 1, 2025.
• A proposal to implement a provision of the Consolidated Appropriations Act relating to payments to hospitals for GME and IME costs, proposed direct graduate medical education (GME) and indirect medical education (IME) policy modifications to the criteria for new residency programs; technical fixes to the DGME regulations; a notice of closure of two teaching hospitals and opportunities to apply for available slots and a reminder of core-based statistical area (CBSA) changes and application to GME policies;.
• Proposed nursing and allied health education program Medicare Advantage (MA) add-on rates and direct GME MA percent reductions for CY 2023.
• Proposed update to the payment adjustment for certain clinical trial and expanded access use immunotherapy cases.

Proposed separate IPPS payment for establishing and maintaining access to essential medicines.

• Updating the proposed estimate of the financial impacts for the FY 2025 Hospital Readmissions Reduction Program.
• Proposed modifications to the scoring of the Person and Community Engagement Domain in the Hospital VBP Program.

++ For the FY 2027 through FY 2029 program years to only score on six unchanged dimensions of the HCAHPS Survey.

++ Beginning with the FY 2030 program year to account for the proposed updated HCAHPS Survey.

• Updating the proposed estimate of the financial impacts for the FY 2025 Hospital-Acquired Conditions Reduction Program.
• Discussion of and proposed changes relating to the implementation of the Rural Community Hospital Demonstration Program in FY 2025.

5. Proposed FY 2025 Policy Governing the IPPS for Capital-Related Costs

In section VI. of the preamble of the proposed rule, we discuss the proposed payment policy requirements for capital-related costs and capital payments to hospitals for FY 2025.

6. Proposed Changes to the Payment Rates for Certain Excluded Hospitals: Rate-of-Increase Percentages

In section VII. of the preamble of the proposed rule, we discuss the following:

• Proposed changes to payments to certain excluded hospitals for FY 2025.
• Proposed continued implementation of the Frontier Community Health Integration Project (FCHIP) Demonstration.

7. Proposed Changes to the LTCH PPS

In section VIII. of the preamble of the proposed rule, we propose to rebase and revise the LTCH market basket to reflect a 2022 base year, which includes a proposed update to the LTCH PPS labor-related share. In section VIII. of the preamble of the proposed rule, we set forth proposed changes to the LTCH PPS Federal payment rates, factors, and other payment rate policies under the LTCH PPS for FY 2025. We are also proposing a technical clarification to the regulations for hospitals seeking to be classified as an LTCH.

8. Proposed Changes Relating to Quality Data Reporting for Specific Providers and Suppliers

In section IX. of the preamble of the proposed rule, we addressed the following:

• Solicitation of comment on adopting measures across the hospital quality reporting and value-based purchasing programs which capture more forms of unplanned post-acute care and encourage hospitals to improve discharge processes.
• Proposed changes to the requirements for the Hospital IQR Program.
• Proposed changes to the requirements for the PCHQR Program.
• Proposed adoption of the Patient Safety Structural measure in the Hospital IQR Program and the PCHQR Program.
• Proposed updated HCAHPS Survey measure in the Hospital IQR Program, PCHQR Program, and Hospital VBP Program.
• Proposed changes to the requirements for the Long-Term Care Hospital Quality Reporting Program (LTCH QRP), and request for information on future measure concepts for the LTCH QRP and a star rating system for the LTCH QRP.
• Proposed changes to requirements pertaining to eligible hospitals and CAHs participating in the Medicare Promoting Interoperability Program.

9. Other Proposals and Comment Solicitations Included in the Proposed Rule

Section X. of the preamble of the proposed rule includes the following:

• Proposed implementation of TEAM that would test whether an episode-based pricing methodology linked with accountability for quality measure performance for select acute care hospitals reduces Medicare program expenditures while preserving or improving the quality of care for Medicare beneficiaries.
• Proposed changes to permit a Provider Reimbursement Review Board (PRRB) member to serve up to 3 consecutive terms (9 consecutive years total), and up to 4 consecutive terms (12 consecutive years total) in cases where a PRRB Member who, in their second or third consecutive term, is designated as Chairperson, to continue serving as Chairperson in the fourth consecutive term.
• Solicitation of comments to gather information on differences between hospital resources required to provide inpatient pregnancy and childbirth services to Medicare patients as compared to non-Medicare patients.
• Solicitation of comments to gather information on potential solutions that can be implemented through the hospital CoPs to address well-documented concerns regarding maternal morbidity, mortality, disparities, and maternity care access in the United States.
• Proposal to remove the exclusion of Puerto Rico from the Payment Error Rate Measurement (PERM) program found at 42 CFR 431.954(b)(3).
• Proposal for a new hospital CoP to replace the COVID-19 and Seasonal Influenza reporting standards for hospitals and CAHs that were created during PHE.

10. Other Provisions of the Proposed Rule

Section XI.A. of the preamble of the proposed rule includes our discussion of the MedPAC Recommendations.

Section XI.B. of the preamble of the proposed rule includes a descriptive listing of the public use files associated with this proposed rule.

Section XII. of the preamble of the proposed rule includes the collection of information requirements for entities based on our proposals.

Section XIII. of the preamble of the proposed rule includes information regarding our responses to public comments.

11. Determining Prospective Payment Operating and Capital Rates and Rate-of-Increase Limits for Acute Care Hospitals

In sections II. and III. of the Addendum of the proposed rule, we set forth proposed changes to the amounts and factors for determining the proposed FY 2025 prospective payment rates for operating costs and capital-related costs for acute care hospitals. We are proposing to establish the threshold amounts for outlier cases. In addition, in section IV. of the Addendum of the proposed rule, we address the proposed update factors for determining the rate-of-increase limits for cost reporting periods beginning in FY 2025 for certain hospitals excluded from the IPPS.

12. Determining Prospective Payment Rates for LTCHs

In section V. of the Addendum of the proposed rule, we set forth proposed changes to the amounts and factors for determining the proposed FY 2025 LTCH PPS standard Federal payment rate and other factors used to determine LTCH PPS payments under both the LTCH PPS standard Federal payment rate and the site neutral payment rate in FY 2025. We are proposing to establish the adjustments for the wage index (including proposed changes to the LTCH PPS labor market area delineations based on the new OMB delineations), labor-related share, the cost-of-living adjustment, and high-cost outliers, including the applicable fixed-loss amounts and the LTCH cost-to-charge ratios (CCRs) for both payment rates.

13. Impact Analysis

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

14. Recommendation of Update Factors for Operating Cost Rates of Payment for Hospital Inpatient Services

In Appendix B of the proposed rule, as required by sections 1886(e)(4) and (e)(5) of the Act, we provide our recommendations of the appropriate percentage changes for FY 2025 for the following:

• A single average standardized amount for all areas for hospital inpatient services paid under the IPPS for operating costs of acute care hospitals (and hospital-specific rates applicable to SCHs and MDHs).
• Target rate-of-increase limits to the allowable operating costs of hospital inpatient services furnished by certain hospitals excluded from the IPPS.
• The LTCH PPS standard Federal payment rate and the site neutral payment rate for hospital inpatient services provided for LTCH PPS discharges.

15. Discussion of Medicare Payment Advisory Commission Recommendations

Under section 1805(b) of the Act, MedPAC is required to submit a report to Congress, no later than March 15 of each year, in which MedPAC reviews and makes recommendations on Medicare payment policies. MedPAC's March 2024 recommendations concerning hospital inpatient payment policies address the update factor for hospital inpatient operating costs and capital-related costs for hospitals under the IPPS. We address these recommendations in Appendix B of the proposed rule. For further information relating specifically to the MedPAC March 2024 report or to obtain a copy of the report, contact MedPAC at (202) 220-3700 or visit MedPAC's website at https://www.medpac.gov.

II. Proposed Changes to Medicare Severity Diagnosis-Related Group (MS-DRG) Classifications and Relative Weights

A. Background

Section 1886(d) of the Act specifies that the Secretary shall establish a classification system (referred to as diagnosis-related groups (DRGs)) for inpatient discharges and adjust payments under the IPPS based on appropriate weighting factors assigned to each DRG. Therefore, under the IPPS, Medicare pays for inpatient hospital services on a rate per discharge basis that varies according to the DRG to which a beneficiary's stay is assigned. The formula used to calculate payment for a specific case multiplies an individual hospital's payment rate per case by the weight of the DRG to which the case is assigned. Each DRG weight represents the average resources required to care for cases in that particular DRG, relative to the average resources used to treat cases in all DRGs.

Section 1886(d)(4)(C) of the Act requires that the Secretary adjust the DRG classifications and relative weights at least annually to account for changes in resource consumption. These adjustments are made to reflect changes in treatment patterns, technology, and any other factors that may change the relative use of hospital resources.

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

For information on the adoption of the MS-DRGs in FY 2008, we refer readers to the FY 2008 IPPS final rule with comment period (72 FR 47140 through 47189).

For general information about the MS-DRG system, including yearly reviews and changes to the MS-DRGs, we refer readers to the previous discussions in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43764 through 43766) and the FYs 2011 through 2024 IPPS/LTCH PPS final rules (75 FR 50053 through 50055; 76 FR 51485 through 51487; 77 FR 53273; 78 FR 50512; 79 FR 49871; 80 FR 49342; 81 FR 56787 through 56872; 82 FR 38010 through 38085; 83 FR 41158 through 41258; 84 FR 42058 through 42165; 85 FR 58445 through 58596; 86 FR 44795 through 44961; 87 FR 48800 through 48891; and 88 FR 58654 through 58787, respectively).

For discussion regarding our previously finalized policies (including our historical adjustments to the payment rates) relating to the effect of changes in documentation and coding that do not reflect real changes in case mix, we refer readers to the FY 2023 IPPS/LTCH PPS final rule (87 FR 48799 through 48800).

C. Proposed Changes to Specific MS-DRG Classifications

1. Discussion of Changes to Coding System and Basis for Proposed FY 2025 MS-DRG Updates

a. Conversion of MS-DRGs to the International Classification of Diseases, 10th Revision (ICD-10)

As of October 1, 2015, providers use the International Classification of Diseases, 10th Revision (ICD-10) coding system to report diagnoses and procedures for Medicare hospital inpatient services under the MS-DRG system instead of the ICD-9-CM coding system, which was used through September 30, 2015. The ICD-10 coding system includes the International Classification of Diseases, 10th Revision, Clinical Modification (ICD-10-CM) for diagnosis coding and the International Classification of Diseases, 10th Revision, Procedure Coding System (ICD-10-PCS) for inpatient hospital procedure coding, as well as the ICD-10-CM and ICD-10-PCS Official Guidelines for Coding and Reporting. For a detailed discussion of the conversion of the MS-DRGs to ICD-10, we refer readers to the FY 2017 IPPS/LTCH PPS final rule (81 FR 56787 through 56789).

b. Basis for Proposed FY 2025 MS-DRG Updates

As discussed in the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28127) and final rule (87 FR 48800 through 48801), beginning with FY 2024 MS-DRG classification change requests, we changed the deadline to request changes to the MS-DRGs to October 20 of each year to allow for additional time for the review and consideration of any proposed updates. We also described the new process for submitting requested changes to the MS-DRGs via a new electronic application intake system, Medicare Electronic Application Request Information System^TM (MEARIS^TM), accessed at https://mearis.cms.gov. We stated that effective with FY 2024 MS-DRG classification change requests, CMS will only accept requests submitted via MEARIS^TM and will no longer consider requests sent via email. Additionally, we noted that within MEARIS^TM, we have built in several resources to support users, including a “Resources” section available at https://mearis.cms.gov/public/resources with technical support available under “Useful Links” at the bottom of the MEARIS^TM site. Questions regarding the MEARIS^TM system can be submitted to CMS using the form available under “Contact”, also at the bottom of the MEARIS^TM site. Accordingly, interested parties had to submit MS-DRG classification change requests for FY 2025 by October 20, 2023.

We note that the burden associated with this information collection requirement is the time and effort required to collect and submit the data in the request for MS-DRG classification changes to CMS. The aforementioned burden is subject to the Paperwork Reduction Act (PRA) of 1995 and approved under OMB control number 0938-1431 and has an expiration date of 09/30/2025.

Interested parties should submit any MS-DRG classification change requests, including any comments and suggestions for FY 2026 consideration by October 20, 2024 via MEARIS^TM at: https://mearis.cms.gov/public/home.

As we have discussed in prior rulemaking, we may not be able to fully consider all of the requests that we receive for the upcoming fiscal year. We have found that, with the implementation of ICD-10, some types of requested changes to the MS-DRG classifications require more extensive research to identify and analyze all of the data that are relevant to evaluating the potential change. We note in the discussion that follows those topics for which further research and analysis are required, and which we will continue to consider in connection with future rulemaking.

We received four requests to modify the GROUPER logic in a number of cardiac MS-DRGs under Major Diagnostic Category (MDC) 05 (Diseases and Disorders of the Circulatory System). Specifically, we received requests to—

• Modify the GROUPER logic of new MS-DRG 212 (Concomitant Aortic and Mitral Valve Procedures) to be defined by cases reporting procedure codes describing a single open mitral or aortic valve replacement/repair (MVR or AVR) procedure, plus an open coronary artery bypass graft procedure (CABG) or open surgical ablation or cardiac catheterization procedure plus a second concomitant procedure.
• Modify the GROUPER logic of new MS-DRG 212 by redefining the procedure code list that describes the performance of a cardiac catheterization by either removing the ICD-10-PCS codes that describe plain radiography of coronary artery codes from the logic list or adding ICD-10-PCS procedure codes that involve computed tomography (CT) or magnetic resonance imaging (MRI) scanning using contrast to the list. This requestor also suggested that CMS add ICD-10-PCS procedures codes that describe endovascular valve replacement or repair procedures into the GROUPER logic of MS-DRG 212.
• Modify the GROUPER logic of new MS-DRGs 323, 324 and 325 (Coronary Intravascular Lithotripsy with Intraluminal Device with MCC, without MCC, and without Intraluminal Device, respectively). In two separate but related requests, the requestors suggested that we add procedure codes that describe additional percutaneous coronary intervention (PCI) procedures such as percutaneous coronary rotational, laser, and orbital atherectomy to the GROUPER logic of new MS-DRGs 323, 324, and 325.

We appreciate the submissions and related analyses provided by the requestors for our consideration as we review MS-DRG classification change requests for FY 2025; however, we note the complexity of the GROUPER logic for these MS-DRGs in connection with these requests requires more extensive analyses to identify and evaluate all of the data relevant to assessing these potential modifications. Specifically, we note the list of procedure codes that describe the performance of a cardiac catheterization is in the definition of multiple MS-DRGs in MDC 05. Analyzing the impact of revising this list necessitates evaluating the impact across numerous other MS-DRGs in MDC 05 that also include this list in their definition, in addition to new MS-DRG 212. Secondly, as discussed further in section II.C.4.c of this proposed rule, our analysis continues to indicate that, when performed, open cardiac valve replacement and supplement procedures are clinically different from endovascular cardiac valve replacement and supplement procedures in terms of technical complexity and hospital resource use. Lastly, as we have stated in prior rule making (88 FR 58708), atherectomy is distinct from coronary lithotripsy in that each of these procedures are defined by clinically distinct definitions and objectives. Additional analysis to assess for unintended consequences across the classification is needed as we have made a distinction between the root operations used to describe atherectomy (Extirpation) and the root operation used to describe lithotripsy (Fragmentation) in evaluating other requests in rulemaking. We will need to consider the application of these two root operations in other scenarios where we have also specifically stated that Extirpation is not the same as Fragmentation and do not warrant similar MS-DRG assignment (85 FR 58572 through 58573). Furthermore, as MS-DRG 212 and MS-DRGs 323, 324 and 325 recently became effective on October 1, 2023 (FY 2024), we believe additional time is needed to review and evaluate extensive modifications to the structure of these MS-DRGs.

We will continue to monitor the data as we consider these issues in connection with future rulemaking. As we continue the analysis of the claims data with respect to MS-DRGs in MDC 05, we welcome public comments and feedback on other factors that should be considered in the potential restructuring of these MS-DRGs. Feedback and other suggestions may be directed to MEARIS^TM at: https://mearis.cms.gov/public/home. As noted, interested parties should submit any MS-DRG classification change requests, including any comments and suggestions for FY 2026 consideration by October 20, 2024 via MEARIS^TM at: https://mearis.cms.gov/public/home.

As we did for the FY 2024 IPPS/LTCH PPS proposed rule, for this FY 2025 IPPS/LTCH PPS proposed rule we are providing a test version of the ICD-10 MS-DRG GROUPER Software, Version 42, so that the public can better analyze and understand the impact of the proposals included in this proposed rule. We note that this test software reflects the proposed GROUPER logic for FY 2025. Therefore, it includes the new diagnosis and procedure codes that are effective for FY 2025 as reflected in Table 6A.—New Diagnosis Codes—FY 2025 and Table 6B.—New Procedure Codes—FY 2025 associated with this proposed rule and does not include the diagnosis codes that are invalid beginning in FY 2025 as reflected in Table 6C.—Invalid Diagnosis Codes—FY 2025, and Table 6D.—Invalid Procedure Codes—FY 2025 associated with this proposed rule. These tables are not published in the Addendum to this proposed rule, but are available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html as described in section VI. of the Addendum to this proposed rule. Because the diagnosis codes no longer valid for FY 2025 are not reflected in the test software, we are making available a supplemental file in Table 6P.1a and 6P.1b that includes the mapped Version 42 FY 2025 ICD-10-CM and ICD-10-PCS codes and the deleted Version 41 FY 2024 ICD-10-CM codes and V41.1 ICD-10-PCS codes that should be used for testing purposes with users' available claims data. Therefore, users will have access to the test software allowing them to build case examples that reflect the proposals included in this proposed rule. In addition, users will be able to view the draft version of the ICD-10 MS-DRG Definitions Manual, Version 42.

We also note that in the FY 2024 IPPS/LTCH PPS final rule (88 FR 58764), we stated that, as discussed in the CY 2024 Outpatient Prospective Payment System and Ambulatory Surgical Center (OPPS/ASC) proposed rule (CY 2024 OPPS/ASC proposed rule) (88 FR 49552, July 31, 2023), consistent with the process that is used for updates to the “Integrated” Outpatient Code Editor (I/OCE) and other Medicare claims editing systems, we proposed to address any future revisions to the IPPS Medicare Code Editor (MCE), including any additions or deletions of claims edits, as well as the addition or deletion of ICD-10 diagnosis and procedure codes to the applicable MCE edit code lists, outside of the annual IPPS rulemakings. As discussed in the CY 2024 OPPS/ASC proposed rule, we proposed to remove discussion of the IPPS MCE from the annual IPPS rulemakings, beginning with the FY 2025 rulemaking, and to generally address future changes or updates to the MCE through instruction to the Medicare administrative contractors (MACs). We encouraged readers to review the discussion in the CY 2024 OPPS/ASC proposed rule and submit comments in response to the proposal by the applicable deadline by following the instructions provided in that proposed rule.

In the CY 2024 OPPS/ASC final rule (88 FR 82121 through 82124), after consideration of the public comments we received, we finalized the proposal to remove discussion of the MCE from the annual IPPS rulemakings, beginning with FY 2025 rulemaking, and to generally address future changes or updates to the MCE through instruction to the MACs. Beginning with FY 2025, in association with the annual proposed rule, we are making available a draft version of the Definitions of Medicare Code Edits (MCE) Manual to provide the public with an opportunity to review any changes that will become effective October 1 for the upcoming fiscal year. In addition, as a result of new and modified code updates approved after the annual spring ICD-10 Coordination and Maintenance Committee meeting, any further changes to the MCE will be reflected in the finalized Definitions of Medicare Code Edits (MCE) Manual, made available in association with the annual final rule. We are making available the draft FY 2025 ICD-10 MCE Version 42 Manual file on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software.

The MCE manual is comprised of two chapters: Chapter 1: Edit code lists provides a listing of each edit, an explanation of each edit, and as applicable, the diagnosis and/or procedure codes for each edit, and Chapter 2: Code list changes summarizes the changes in the edit code lists (for example, additions and deletions) from the prior release of the MCE software. The public may submit any questions, comments, concerns, or recommendations regarding the MCE to the CMS mailbox at MSDRGClassificationChange@cms.hhs.gov for our review and consideration.

The test version of the ICD-10 MS-DRG GROUPER Software, Version 42, the draft version of the ICD-10 MS-DRG Definitions Manual, Version 42, the draft version of the Definitions of Medicare Code Edits Manual, Version 42, and the supplemental mapping files in Table 6P.1a and 6P.1b of the FY 2024 and FY 2025 ICD-10-CM diagnosis and ICD-10-PCS procedure codes are available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software.

Following are the changes that we are proposing to the MS-DRGs for FY 2025. We are inviting public comments on each of the MS-DRG classification proposed changes, as well as our proposals to maintain certain existing MS-DRG classifications discussed in this proposed rule. In some cases, we are proposing changes to the MS-DRG classifications based on our analysis of claims data and clinical appropriateness. In other cases, we are proposing to maintain the existing MS-DRG classifications based on our analysis of claims data and clinical appropriateness. For this FY 2025 IPPS/LTCH PPS proposed rule, our MS-DRG analysis was based on ICD-10 claims data from the September 2023 update of the FY 2023 MedPAR file, which contains hospital bills received from October 1, 2022 through September 30, 2023. In our discussion of the proposed MS-DRG reclassification changes, we refer to these claims data as the “September 2023 update of the FY 2023 MedPAR file.”

In deciding whether to propose to make further modifications to the MS-DRGs for particular circumstances brought to our attention, we consider whether the resource consumption and clinical characteristics of the patients with a given set of conditions are significantly different than the remaining patients represented in the MS-DRG. We evaluate patient care costs using average costs and lengths of stay and rely on clinical factors to determine whether patients are clinically distinct or similar to other patients represented in the MS-DRG. In evaluating resource costs, we consider both the absolute and percentage differences in average costs between the cases we select for review and the remainder of cases in the MS-DRG. We also consider variation in costs within these groups; that is, whether observed average differences are consistent across patients or attributable to cases that are extreme in terms of costs or length of stay, or both. Further, we consider the number of patients who will have a given set of characteristics and generally prefer not to create a new MS-DRG unless it would include a substantial number of cases.

In the FY 2021 IPPS/LTCH PPS final rule (85 FR 58448), we finalized our proposal to expand our existing criteria to create a new complication or comorbidity (CC) or major complication or comorbidity (MCC) subgroup within a base MS-DRG. Specifically, we finalized the expansion of the criteria to include the NonCC subgroup for a three-way severity level split. We stated we believed that applying these criteria to the NonCC subgroup would better reflect resource stratification as well as promote stability in the relative weights by avoiding low volume counts for the NonCC level MS-DRGs. We noted that in our analysis of MS-DRG classification requests for FY 2021 that were received by November 1, 2019, as well as any additional analyses that were conducted in connection with those requests, we applied these criteria to each of the MCC, CC, and NonCC subgroups. We also noted that the application of the NonCC subgroup criteria going forward may result in modifications to certain MS-DRGs that are currently split into three severity levels and result in MS-DRGs that are split into two severity levels. We stated that any proposed modifications to the MS-DRGs would be addressed in future rulemaking consistent with our annual process and reflected in Table 5—Proposed List of Medicare Severity Diagnosis Related Groups (MS-DRGs), Relative Weighting Factors, and Geometric and Arithmetic Mean Length of Stay for the applicable fiscal year.

In the FY 2022 IPPS/LTCH PPS final rule (86 FR 44798), we finalized a delay in applying this technical criterion to existing MS-DRGs until FY 2023 or future rulemaking, in light of the public health emergency (PHE). Interested parties recommended that a complete analysis of the MS-DRG changes to be proposed for future rulemaking in connection with the expanded three-way severity split criteria be conducted and made available to enable the public an opportunity to review and consider the redistribution of cases, the impact to the relative weights, payment rates, and hospital case mix to allow meaningful comment prior to implementation.

In the FY 2023 IPPS/LTCH PPS final rule (87 FR 48803), we also finalized a delay in application of the NonCC subgroup criteria to existing MS-DRGs with a three-way severity level split in light of the ongoing PHE and until such time additional analyses can be performed to assess impacts, as discussed in response to public comments in the FY 2022 and FY 2023 IPPS/LTCH PPS final rules.

In association with our discussion of application of the NonCC subgroup criteria in the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26673 through 26676), we provided an alternate test version of the ICD-10 MS-DRG GROUPER Software, Version 41.A, reflecting the proposed GROUPER logic for FY 2024 as modified by the application of the NonCC subgroup criteria to existing MS-DRGs with a three-way severity level split, available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software. Therefore, users had access to the alternate test software allowing them to build case examples that reflect the proposals included in the proposed rule with application of the NonCC subgroup criteria. We also provided additional files including an alternate Table 5—Alternate List of Medicare Severity Diagnosis Related Groups (MS-DRGs), Relative Weighting Factors, and Geometric and Arithmetic Mean Length of Stay, an alternate Length of Stay (LOS) Statistics file, an alternate Case Mix Index (CMI) file, and an alternate After Outliers Removed and Before Outliers Removed (AOR_BOR) file. The files are available in association with the FY 2024 IPPS/LTCH PPS proposed rule on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps.

We stated that the alternate test software and additional files were made available so that the public could better analyze and understand the impact on the proposals included in the proposed rule if the NonCC subgroup criteria were to be applied to existing MS-DRGs with a three-way severity level split. We refer readers to the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26673 through 26676) for further discussion of the alternate test software and additional files that were made available.

In the FY 2024 IPPS/LTCH PPS final rule (88 FR 58655 through 58661), we finalized to delay the application of the NonCC subgroup criteria to existing MS-DRGs with a three-way severity level split for FY 2024. We stated that we would continue to review and consider the feedback we had received in response to the additional information we made available in association with the FY 2024 IPPS/LTCH PPS proposed rule for our development of the FY 2025 proposed rule.

We note that the IPPS Payment Impact File made available in connection with our annual IPPS rulemakings includes information used to categorize hospitals by various geographic and special payment consideration groups, including geographic location (urban or rural), teaching hospital status (that is, whether or not a hospital has GME residency programs and receives an IME adjustment), DSH hospital status (that is, whether or not a hospital receives Medicare DSH payments), special payment groups (that is, SCHs, MDHs, and RRCs) and other categories reflected in the impact analysis generally shown in Appendix A of the annual IPPS rulemakings. The IPPS Payment Impact File associated with the FY 2024 IPPS/LTCH PPS final rule can be found on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/fy-2024-ipps-final-rule-home-page#Data.

We are proposing to continue to delay application of the NonCC subgroup criteria to existing MS-DRGs with a three-way severity level split for FY 2025, as we continue to consider the public comments received in response to the FY 2024 rulemaking. We encourage interested parties to review the impacts and other information made available with the alternate test software (V41.A) and other additional files provided in connection with the FY 2024 IPPS/LTCH PPS proposed rule, as previously discussed, and we continue to welcome feedback for consideration for future rulemaking.

As discussed in the FY 2024 IPPS/LTCH PPS final rule (88 FR 58661), we continue to apply the criteria to create subgroups, including application of the NonCC subgroup criteria, in our annual analysis of MS-DRG classification requests, consistent with our approach since FY 2021 when we finalized the expansion of the criteria to include the NonCC subgroup for a three-way severity level split. Accordingly, in our analysis of the MS-DRG classification requests for FY 2025 that we received by October 20, 2023, as well as any additional analyses that were conducted in connection with those requests, we applied these criteria to each of the MCC, CC, and NonCC subgroups, as described in the following table.

In general, once the decision has been made to propose to make further modifications to the MS-DRGs as described previously, such as creating a new base MS-DRG, or in our evaluation of a specific MS-DRG classification request to split (or subdivide) an existing base MS-DRG into severity levels, all five criteria must be met for the base MS-DRG to be split (or subdivided) by a CC subgroup. We note that in our analysis of requests to create a new MS-DRG, we typically evaluate the most recent year of MedPAR claims data available. For example, we stated earlier that for this FY 2025 IPPS/LTCH PPS proposed rule, our MS-DRG analysis was based on ICD-10 claims data from the September 2023 update of the FY 2023 MedPAR file. However, in our evaluation of requests to split an existing base MS-DRG into severity levels, as noted in prior rulemaking (80 FR 49368), we typically analyze the most recent 2 years of data. This analysis includes 2 years of MedPAR claims data to compare the data results from one year to the next to avoid making determinations about whether additional severity levels are warranted based on an isolated year's data fluctuation and also, to validate that the established severity levels within a base MS-DRG are supported. The first step in our process of evaluating if the creation of a new CC subgroup within a base MS-DRG is warranted is to determine if all the criteria is satisfied for a three-way split. In applying the criteria for a three-way split, a base MS-DRG is initially subdivided into the three subgroups: MCC, CC, and NonCC. Each subgroup is then analyzed in relation to the other two subgroups using the volume (Criteria 1 and 2), average cost (Criteria 3 and 4), and reduction in variance (Criteria 5). If the criteria fail, the next step is to determine if the criteria are satisfied for a two-way split. In applying the criteria for a two-way split, a base MS-DRG is initially subdivided into two subgroups: “with MCC” and “without MCC” (1_23) or “with CC/MCC” and “without CC/MCC” (12_3). Each subgroup is then analyzed in relation to the other using the volume (Criteria 1 and 2), average cost (Criteria 3 and 4), and reduction in variance (Criteria 5). If the criteria for both of the two-way splits fail, then a split (or CC subgroup) would generally not be warranted for that base MS-DRG. If the three-way split fails on any one of the five criteria and all five criteria for both two-way splits (1_23 and 12_3) are met, we would apply the two-way split with the highest R2 value. We note that if the request to split (or subdivide) an existing base MS-DRG into severity levels specifies the request is for either one of the two-way splits (1_23 or 12_3), in response to the specific request, we will evaluate the criteria for both of the two-way splits; however, we do not also evaluate the criteria for a three-way split.

2. Pre-MDC MS-DRG 018 Chimeric Antigen Receptor (CAR) T-cell and Other Immunotherapies

We received a request to revise the title of Pre-MDC MS-DRG 018 (Chimeric Antigen Receptor (CAR) T-cell and Other Immunotherapies) in connection with an ICD-10-PCS procedure code request that was submitted via MEARIS^TM by the December 1, 2023 deadline for consideration as an agenda topic to be discussed at the March 19-20, 2024 ICD-10 Coordination and Maintenance Committee meeting. The procedure code request involves the application of an autologous genetically engineered cell-based gene therapy, prademagene zamikeracel (PZ), that is indicated in the treatment of recessive dystrophic epidermolysis bullosa (RDEB), an extremely rare genetic disease of the skin that leads to large chronic wounds. The proposal was presented and discussed at the March 19-20, 2024 ICD-10 Coordination and Maintenance Committee meeting. We refer the reader to the CMS website at https://www.cms.gov/medicare/coding-billing/icd-10-codes/icd-10-coordination-maintenance-committee-materials for additional detailed information regarding the request, including a recording of the discussion and the related meeting materials. Public comments in response to the code proposal are due by April 19, 2024. The requestor suggested that if finalized, a new procedure code to identify the application of PZ should be assigned to Pre-MDC MS-DRG 018 and that the title for Pre-MDC MS-DRG 018 be revised to reflect “Chimeric Antigen Receptor (CAR) T and Other Autologous Gene and Cell Therapies”.

Because the diagnosis and procedure code proposals that are presented at the March ICD-10-CM Coordination and Maintenance Committee meeting for an October 1 implementation (upcoming FY) are not finalized in time to include in Table 6A.—New Diagnosis Codes and Table 6B.—New Procedure Codes in association with the proposed rule, as we have noted in prior rulemaking, we use our established process to examine the MS-DRG assignment for the predecessor codes to determine the most appropriate MS-DRG assignment. Specifically, we review the predecessor code and MS-DRG assignment most closely associated with the new procedure code, and in the absence of claims data, we consider other factors that may be relevant to the MS-DRG assignment, including the severity of illness, treatment difficulty, complexity of service and the resources utilized in the diagnosis and/or treatment of the condition. We have noted in prior rulemaking that this process does not automatically result in the new procedure code being assigned to the same MS-DRG or to have the same designation (O.R. versus Non-O.R.) as the predecessor code. Under this established process, the MS-DRG assignment for the upcoming fiscal year for any new diagnosis or procedure codes finalized after the March meeting would be reflected in Table 6A.—New Diagnosis Codes and Table 6B.—New Procedure Codes associated with the final rule for that fiscal year. Accordingly, the MS-DRG assignment for any new procedure codes describing PZ, if finalized following the March meeting, would be reflected in Table 6B.—New Procedure Codes associated with the final rule for FY 2025. As noted in prior rulemaking (87 FR 28135), the codes that are finalized after the March meeting are specifically identified with a footnote in Table 6A.—New Diagnosis Codes and Table 6B.—New Procedure Codes that are made publicly available in association with the final rule on the CMS website at https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps. The public may provide feedback on these finalized assignments, which is then taken into consideration for the following fiscal year.

We do not agree with the request to revise the title for Pre-MDC MS-DRG 018 for FY 2025 as requested because the logic for Pre-MDC MS-DRG 018 is intended to include other immunotherapies and is not restricted to CAR T-cell and autologous gene and cell therapies. As discussed in the FY 2022 IPPS/LTCH PPS final rule (86 FR 44798 through 44806), we finalized our proposal to revise the title of Pre-MDC MS-DRG 018 to include “Other Immunotherapies” to better reflect the cases reporting the administration of non-CAR T-cell therapies and other immunotherapies that would also be assigned to this MS-DRG, in addition to CAR T-cell therapies. We noted that the term “Other Immunotherapies” is intended to encompass the group of therapies that are currently available and being utilized today (for which codes have been created for reporting in response to industry requests or are being considered for implementation), and to enable appropriate MS-DRG assignment for any future therapies that may also fit into this category and are not specifically identified as a CAR T-cell product, that may become available (for example receive marketing authorization or a newly established procedure code in the ICD-10-PCS classification).

We also note, as discussed in prior rulemaking, that this category of therapies continues to evolve, and we are in the process of carefully considering the feedback we have previously received about ways in which we can continue to appropriately reflect resource utilization while maintaining clinical coherence and stability in the relative weights under the IPPS MS-DRGs. We appreciate the recommendations and suggestions for consideration we have received and will continue to examine these complex issues in connection with future rulemaking. We acknowledge that there may be distinctions to account for as we continue to gain more experience in the use of these therapies and have additional claims data to analyze. Therefore, we are not proposing to revise the title for Pre-MDC MS-DRG 018 to reflect “Chimeric Antigen Receptor (CAR) T and Other Autologous Gene and Cell Therapies” at this time and are proposing to maintain the existing title to Pre-MDC MS-DRG 018, “Chimeric Antigen Receptor (CAR) T-cell and Other Immunotherapies” for FY 2025.

3. MDC 01 (Diseases and Disorders of the Nervous System)

a. Logic for MS-DRGs 023 Through 027

In the FY 2024 IPPS/LTCH PPS final rule (88 FR 58661 through 58667), we discussed a request to reassign cases describing the insertion of a neurostimulator generator into the skull in combination with the insertion of a neurostimulator lead into the brain from MS-DRG 023 (Craniotomy with Major Device Implant or Acute Complex CNS Principal Diagnosis with MCC or Chemotherapy Implant or Epilepsy with Neurostimulator) to MS-DRG 021 (Intracranial Vascular Procedures with Principal Diagnosis Hemorrhage with CC) or reassign all cases currently assigned to MS-DRG 023 that involve a craniectomy or a craniotomy with the insertion of device implant and create a new MS-DRG for these cases.

We stated the requestor acknowledged that the relatively low volume of cases that only involve the insertion of a neurostimulator generator into the skull in combination with the insertion of a neurostimulator lead into the brain in the claims data was likely not sufficient to warrant the creation of a new MS-DRG. The requestor further stated given the limited options within the existing MS-DRG structure that fit from both a cost and clinical cohesiveness perspective, they believed that MS-DRG 021 was the most logical fit in terms of average costs and clinical coherence for reassignment even though, according to the requestor, the insertion of a neurostimulator generator into the skull in combination with the insertion of a neurostimulator lead into the brain is technically more complex and involves a higher level of training, extreme precision and sophisticated technology than performing a craniectomy for hemorrhage.

We noted that while our data findings demonstrated the average costs are higher for the cases with a principal diagnosis of epilepsy with a neurostimulator generator inserted into the skull and insertion of a neurostimulator lead into brain when compared to all cases in MS-DRG 023, these cases represented a small percentage of the total number of cases reported in this MS-DRG. We stated that while we appreciated the requestor's concerns regarding the differential in average costs for cases describing the insertion of a neurostimulator generator into the skull in combination with the insertion of a neurostimulator lead into the brain when compared to all cases in their assigned MS-DRG, we believed additional time was needed to evaluate these cases as part of our ongoing examination of the case logic to the MS-DRGs for craniotomy and endovascular procedures, which are MS-DRG 023, MS-DRG 024 (Craniotomy with Major Device Implant or Acute Complex CNS Principal Diagnosis without MCC), and MS-DRGs 025, 026, and 027 (Craniotomy and Endovascular Intracranial Procedures with MCC, with CC, and without CC/MCC, respectively).

As discussed in the FY 2023 IPPS/LTCH PPS final rule (87 FR 48808 through 48820), in connection with our analysis of cases reporting laser interstitial thermal therapy (LITT) procedures performed on the brain or brain stem in MDC 01, we stated we have started to examine the logic for case assignment to MS-DRGs 023 through 027 to determine where further refinements could potentially be made to better account for differences in the technical complexity and resource utilization among the procedures that are currently assigned to those MS-DRGs. We stated that specifically, we were in the process of evaluating procedures that are performed using an open craniotomy (where it is necessary to surgically remove a portion of the skull) versus a percutaneous burr hole (where a hole approximately the size of a pencil is drilled) to obtain access to the brain in the performance of a procedure. We stated we were also reviewing the indications for these procedures, for example, malignant neoplasms versus epilepsy to consider if there may be merit in considering restructuring the current MS-DRGs to better recognize the clinical distinctions of these patient populations in the MS-DRGs.

As part of this evaluation, as discussed in the FY 2024 IPPS/LTCH PPS final rule, we have begun to analyze the ICD-10 coded claims data to determine if the patients' diagnoses, the objective of the procedure performed, the specific anatomical site where the procedure is performed or the surgical approach used (for example, open, percutaneous, percutaneous endoscopic, among others) demonstrates a greater severity of illness and/or increased treatment difficulty as we consider restructuring MS-DRGs 023 through 027, including how to better align the clinical indications with the performance of specific intracranial procedures. We referred the reader to Tables 6P.2b through 6P.2f associated with the FY 2024 IPPS/LTCH PPS proposed rule (available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps) for data analysis findings of cases assigned to MS-DRGs 023 through 027 from the September 2022 update of the FY 2022 MedPAR file as we continue to look for patterns of complexity and resource intensity.

In summary, we stated that while we agreed that neurostimulator cases can have average costs that are higher than the average costs of all cases in their respective MS-DRGs, in our analysis of this issue, it was difficult to detect patterns of complexity and resource intensity. Therefore, for the reasons discussed, we finalized our proposal to maintain the current assignment of cases describing a neurostimulator generator inserted into the skull with the insertion of a neurostimulator lead into the brain for FY 2024.

In the FY 2024 IPPS/LTCH PPS final rule, we stated we continue to believe that additional time is needed to evaluate these cases as part of our ongoing examination of the case logic for MS-DRGs 023 through 027. As part of our ongoing, comprehensive analysis of the MS-DRGs under ICD-10, we stated we would continue to explore mechanisms to ensure clinical coherence between these cases and the other cases with which they may potentially be grouped. We stated that the data analysis as displayed in Tables 6P.2b through 6P.2f associated with the FY 2024 IPPS/LTCH PPS proposed rule was displayed to provide the public an opportunity to review our examination of the procedures by their approach (open versus percutaneous), clinical indications, and procedures that involve the insertion or implantation of a device and to reflect on what factors should be considered in the potential restructuring of these MS-DRGs. We welcomed further feedback on how CMS should define technical complexity, what factors should be considered in the analysis, and whether there are other data not included in Tables 6P.2b through 6P.2f that CMS should analyze. We also stated we are interested in receiving feedback on where further refinements could potentially be made to better account for differences in the technical complexity and resource utilization among the procedures that are currently assigned to these MS-DRGs.

In response to this discussion in the FY 2024 IPPS/LTCH PPS final rule, we received two comments by the October 20, 2023 deadline. A commenter recommended that CMS not use surgical approach (for example, open versus percutaneous) as a factor to reclassify MS-DRGs 023 through 027. The commenter stated whether the opening is created via a drill into the skull percutaneously or through a larger incision in the skull for a craniotomy, both approaches involve the risk of intracranial bleeding, infection, and brain swelling. The commenter further stated they do not support a consideration of the reassignment of the ICD-10-PCS procedure codes describing LITT, currently assigned to MS-DRGs 025 through 027, based on the diagnosis being treated. The commenter stated that the LITT procedure requires the same steps, time, and clinical resources when performed for brain cancer or epilepsy. In the requestor's view, differences in the disease causing the tumors or lesions do not affect the resources used for performing the procedure or the post-operative care for the patient. Lastly, the commenter stated they support the current structure of MS-DRGs 023 and 024 based on an acute complicated principal diagnosis, or chemotherapy implant, or epilepsy with neurostimulator. The commenter stated these diagnoses represent severe complex conditions that require immediate and urgent intervention.

Another commenter stated that the current logic for MS-DRGs 023 through 027 is sufficient and supports the clinical and resource similarities of the procedures reflected in these MS-DRGs. The commenter performed its own analysis and stated they found that realignment based on surgical approach or root operation could create significant new inequities. The commenter recommended that CMS maintain the current logic for MS-DRGs 025 through 027, as making changes could be disruptive to hospitals and create challenges for Medicare beneficiary access to life-saving technologies. The commenter stated they strongly believe that maintaining the current structure provides payment stability and integrity of these procedures over time.

CMS appreciates the comments submitted in response to the request for feedback in the FY 2024 IPPS/LTCH PPS final rule. As we continue analysis of the claims data with respect to MS-DRGs 023 through 027, we continue to seek public comments and feedback on other factors that should be considered in the potential restructuring of these MS-DRGs. As stated in prior rulemaking, we recognize the logic for MS-DRGs 023 through 027 has grown more complex over the years and believe there is opportunity for further refinement. We refer the reader to the ICD-10 MS-DRG Definitions Manual, Version 41.1 (available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software ) for complete documentation of the GROUPER logic for MS-DRGs 023 through 027. Feedback and other suggestions may continue to be directed to MEARIS^TM, discussed in section II.C.1.b. of the preamble of this proposed rule at: https://mearis.cms.gov/public/home.

b. Intraoperative Radiation Therapy (IORT)

We received a request to add ICD-10-PCS procedure codes D0Y0CZZ (Intraoperative radiation therapy (IORT) of brain) and D0Y1CZZ (Intraoperative radiation therapy (IORT) of brain stem), to the Chemotherapy Implant logic list in MS-DRG 023 (Craniotomy with Major Device Implant or Acute Complex CNS Principal Diagnosis with MCC or Chemotherapy Implant or Epilepsy with Neurostimulator). According to the requestor, intraoperative radiation therapy (IORT) for the brain is always performed as part of the surgery to remove a brain tumor during the same operative episode. The requestor stated that once maximal safe tumor resection is achieved, the tumor cavity is examined for active egress of cerebrospinal fluid or bleeding. Next, intraoperative measurements are made using neuro-navigation or intraoperative imaging such as magnetic resonance imaging (MRI) or computed tomography (CT) to ensure safe distance to organs or tissues at risk, aid in appropriate dose calculation, and selection of proper applicator size. The applicator is then implanted into the tumor cavity and the radiation dose is delivered. The requestor stated that delivery time can be up to 40 minutes and upon completion of the treatment, the source is removed, and the cavity is re-inspected for active egress of cerebrospinal fluid and bleeding.

The requestor stated that currently the ICD-10-PCS procedure codes for excision of a brain tumor, 00B00ZZ (Excision of brain, open approach) and 00B70ZZ (Excision of cerebral hemisphere, open approach) map to both sets of craniotomy MS-DRGs. Specifically, MS-DRG 023 (Craniotomy with Major Device Implant or Acute Complex CNS Principal Diagnosis with MCC or Chemotherapy Implant or Epilepsy with Neurostimulator) and MS-DRG 024 (Craniotomy with Major Device Implant or Acute Complex CNS Principal Diagnosis without MCC), and MS-DRGs 025, 026, and 027 (Craniotomy and Endovascular Intracranial Procedures with MCC, with CC, and without CC/MCC, respectively). However, the requestor also stated that the procedure codes describing IORT (D0Y0CZZ or D0Y1CZZ) are not listed in the GROUPER logic and do not affect MS-DRG assignment. Therefore, cases reporting a procedure code describing excision of a brain tumor (00B00ZZ or 00B70ZZ) with IORT currently map to MS-DRGs 025, 026, and 027. The requestor suggested that cases reporting a procedure code describing excision of a brain tumor (00B00ZZ or 00B70ZZ) with IORT (D0Y0CZZ or D0Y1CZZ) should map to MS-DRG 023 because of the higher costs associated with the addition of IORT to the excision of brain tumor surgery. According to the requestor, MS-DRG 023 includes complicated craniotomy cases involving the placement of radiological sources and chemotherapy implants. The requestor stated that because IORT involves a full course of radiation therapy delivered directly to the tumor bed via an applicator that is implanted into the tumor cavity during the same surgical session and is clinically similar to two other procedures listed in the Chemotherapy Implant logic list, it should also be included in the Chemotherapy Implant logic list. Specifically, the requestor stated procedure code 00H004Z (Insertion of radioactive element, cesium-131 collagen implant into brain, open approach) and procedure code 3E0Q305 (Introduction of other antineoplastic into cranial cavity and brain, percutaneous approach) also involve the delivery of either radiation or chemotherapy directly after tumor resection. According to the requestor, the resources involved in placing the delivery device are similar for all three procedures and the distinction is that the procedures described by codes 00H004Z and 3E0Q305 involve the insertion of devices that deliver radiation or chemotherapy over a period of time, whereas IORT delivers the entire dose of radiation during the operative session. As such, the requestor asserted that IORT is clinically aligned with the other procedures from a therapeutic and resource utilization perspective.

The requestor performed its own analysis using the FY 2022 MedPAR file that was made available in association with the FY 2024 IPPS/LTCH PPS final rule and stated it found fewer than 11 cases reporting IORT in MS-DRGs 025, 026, and 027, with the majority of those cases mapping to MS-DRG 025. According to the requestor, the volume of claims reporting IORT is anticipated to increase as appropriate use of the technology is adopted.

The requestor is correct that currently, the logic for case assignment to MS-DRG 023 includes a Chemotherapy Implant logic list and the procedure codes that identify IORT (D0Y0CZZ and D0Y1CZZ) are not listed in the GROUPER logic and do not affect MS-DRG assignment as the procedures are designated as non-O.R. procedures. The requestor is also correct that cases reporting a procedure code describing excision of a brain tumor (00B00ZZ or 00B70ZZ) with IORT currently map to MS-DRGs 025, 026, and 027. We refer the reader to the ICD-10 MS-DRG Definitions Manual Version 41.1 (available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software) for complete documentation of the GROUPER logic.

In review of this request, we analyzed claims data from the September 2023 update of the FY 2023 MedPAR file for MS-DRGs 023, 024, 025, 026, and 027 and for cases reporting excision of brain tumor and IORT. We identified claims reporting excision of brain tumor with procedure code 00B00ZZ or 00B70ZZ and identified claims reporting IORT with procedure code D0Y0CZZ or D0Y1CZZ. The findings from our analysis are shown in the following table. We note that there were no cases found to report IORT of brain (D0Y0CZZ) or brain stem (D0Y1CZZ) with excision of brain (00B00ZZ) or excision of cerebral hemisphere (00B70ZZ).

As the data show, there were no cases found to report the use of IORT in the performance of a brain tumor excision; therefore, we are unable to evaluate whether the use of IORT directly impacts resource utilization. For this reason, we are proposing to maintain the current structure of MS-DRGs 023, 024, 025, 026, and 027 for FY 2025. We will continue to monitor the claims data in consideration of any future modifications to the MS-DRGs for which IORT may be reported.

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

a. Concomitant Left Atrial Appendage Closure and Cardiac Ablation

We received a request to create a new MS-DRG to better accommodate the costs of concomitant left atrial appendage closure and cardiac ablation for atrial fibrillation in MDC 05 (Diseases and Disorders of the Circulatory System). Atrial fibrillation (AF) is an irregular and often rapid heart rate that occurs when the two upper chambers of the heart experience chaotic electrical signals. AF presents as either paroxysmal (lasting <7 days), persistent (lasting >7 day, but less than 1 year), or long standing persistent (chronic) (lasting >1 year) based on time duration and can increase the risk for stroke, heart failure, and mortality. Management of AF has two primary goals: optimizing cardiac output through rhythm or rate control and decreasing the risk of cerebral and systemic thromboembolism. Among patients with AF, thrombus in the left atrial appendage (LAA) is a primary source for thromboembolism. Left Atrial Appendage Closure (LAAC) is a surgical or minimally invasive procedure to seal off the LAA to reduce the risk of embolic stroke.

According to the requestor, the manufacturer of the WATCHMAN^TM Left Atrial Appendage Closure (LAAC) device, patients who are indicated for a LAAC device can also have symptomatic AF. For these patients, performing a cardiac ablation and LAAC procedure at the same time is ideal. Cardiac ablation is a procedure that works by burning or freezing tissue on the inside of the heart to disrupt faulty electrical signals causing the arrhythmia, which can help the heart maintain a normal heart rhythm. The requestor highlighted a recent study (Piccini et al. Left atrial appendage occlusion with the WATCHMAN^TM FLX and concomitant catheter ablation procedures. Heart Rhythm Society Meeting 2023, May 19, 2023; New Orleans, LA.). According to the requestor, the results of this study indicate that when LAAC is performed concomitantly with cardiac ablation, the outcomes are comparable to patients who have undergone these procedures separately.

The requestor identified the following potential procedure code combination that would comprise a concomitant left atrial appendage closure and cardiac ablation procedure: ICD-10-PCS procedure code 02L73DK (Occlusion of left atrial appendage with intraluminal device, percutaneous approach), that identifies the WATCHMAN^TM device, in combination with 02583ZZ (Destruction of conduction mechanism, percutaneous approach). The requestor performed its own analysis of this procedure code combination and stated that it found the average costs of cases reporting concomitant left atrial appendage closure and cardiac ablation procedures were consistently higher compared to the average costs of other cases within their respective MS-DRG, which it asserted could limit beneficiary access to these procedures. The requestor asserted that improved Medicare payment for providers who perform these procedures concomitantly would help Medicare patients to gain better access to these lifesaving and quality-improving services and decrease the risk of future readmissions and the need for future procedures.

We reviewed this request and noted concerns regarding making proposed MS-DRG changes based on a specific, single technology (the WATCHMAN^TM Left Atrial Appendage Closure (LAAC) device) identified by only one unique procedure code versus considering proposed changes based on a group of related procedure codes that can be reported to describe the same type or class of technology, which is more consistent with the intent of the MS-DRGs. Therefore, in reviewing this request, we identified eight additional ICD-10-PCS procedure codes that describe LAAC procedures and included these codes in our analysis. The nine codes we identified are listed in the following table.

Similarly, as noted previously, the requestor identified code 02583ZZ (Destruction of conduction mechanism, percutaneous approach) to describe cardiac ablation. In our review of the ICD-10-PCS classification, we identified 26 additional ICD-10-PCS codes that describe cardiac ablation that we also examined. The 27 codes we included in our analysis are listed in the following table.

In the ICD-10 MS-DRGs Definitions Manual Version 41.1, for concomitant left atrial appendage closure and cardiac ablation procedures, the GROUPER logic assigns MS-DRGs 273 and 274 (Percutaneous and Other Intracardiac Procedures with and without MCC, respectively) depending on the presence of any additional MCC secondary diagnoses. We examined claims data from the September 2023 update of the FY 2023 MedPAR file for all cases in MS-DRGs 273 and 274 and compared the results to cases reporting procedure codes describing concomitant left atrial appendage closure and cardiac ablation. Our findings are shown in the following table.

As shown in the table, in MS-DRG 273, we identified a total of 7,250 cases with an average length of stay of 5.4 days and average costs of $35,197. Of those 7,250 cases, there were 80 cases reporting procedure codes describing concomitant left atrial appendage closure and cardiac ablation with average costs higher than the average costs in the FY 2023 MedPAR file for MS-DRG 273 ($70,447 compared to $35,197) and a slightly longer average length of stay (5.8 days compared to 5.4 days). In MS-DRG 274, we identified a total of 47,801 cases with an average length of stay of 1.4 days and average costs of $29,209. Of those 47,801 cases, there were 781 cases reporting procedure codes describing concomitant left atrial appendage closure and cardiac ablation, with average costs higher than the average costs in the FY 2023 MedPAR file for MS-DRG 274 ($66,277 compared to $29,209) and a slightly longer average length of stay (1.5 days compared to 1.4 days).

We reviewed these data and note, clinically, the management of AF by performing concomitant left atrial appendage closure and cardiac ablation can improve symptoms, prevent stroke, and reduce the risk of bleeding compared with oral anticoagulants. The data analysis clearly shows that cases reporting concomitant left atrial appendage closure and cardiac ablation procedures have higher average costs and slightly longer lengths of stay compared to all the cases in their assigned MS-DRG. For these reasons, we are proposing to create a new MS-DRG for cases reporting a LAAC procedure and a cardiac ablation procedure.

To compare and analyze the impact of our suggested modifications, we ran a simulation using the claims data from the September 2023 update of the FY 2023 MedPAR file. The following table illustrates our findings for all 1,723 cases reporting procedure codes describing concomitant left atrial appendage closure and cardiac ablation. We believe the resulting proposed MS-DRG assignment is more clinically homogeneous, coherent and better reflects hospital resource use.

We applied the criteria to create subgroups in a base MS-DRG as discussed in section II.C.1.b. of this FY 2025 IPPS/LTCH PPS proposed rule. As shown in the table that follows, a three-way split of the proposed new MS-DRGs failed the criterion that there be at least 500 cases for each subgroup due to low volume. Specifically, for the “with MCC” split, there were only 268 cases in the subgroup.

We then applied the criteria for a two-way split for the “with CC/MCC” and “without CC/MCC” subgroups and found that the criterion that there be at least a 20% difference in average cost between subgroups could not be met. The following table illustrates our findings.

We also applied the criteria for a two-way split for the “with MCC” and “without MCC” subgroups and found that the criterion that there be at least 500 or more cases in each subgroup similarly could not be met. The criterion that there be at least a 20% difference in average costs between the subgroups also was not met. The following table illustrates our findings.

Therefore, for FY 2025, we are not proposing to subdivide the proposed new MS-DRG for cases reporting procedure codes describing concomitant left atrial appendage closure and cardiac ablation into severity levels.

In summary, for FY 2025, taking into consideration that it clinically requires greater resources to perform concomitant left atrial appendage closure and cardiac ablation procedures, we are proposing to create a new base MS-DRG for cases reporting a LAAC procedure and a cardiac ablation procedure in MDC 05. The proposed new MS-DRG is proposed new MS-DRG 317 (Concomitant Left Atrial Appendage Closure and Cardiac Ablation). We are also proposing to include the nine ICD-10-PCS procedure codes that describe LAAC procedures and 27 ICD-10-PCS procedure codes that describe cardiac ablation listed previously in the logic for assignment of cases reporting a LAAC procedure and a cardiac ablation procedure for the proposed new MS-DRG. We note that discussion of the surgical hierarchy for the proposed modification is discussed in section II.C.15. of this proposed rule.

b. Neuromodulation Device Implant for Heart Failure (Barostim^TM Baroreflex Activation Therapy)

The BAROSTIM^TM system is the first neuromodulation device system designed to trigger the body's main cardiovascular reflex to target symptoms of heart failure. The system consists of an implantable pulse generator (IPG) that is implanted subcutaneously in the upper chest below the clavicle, a stimulation lead that is sutured to either the right or left carotid sinus to activate the baroreceptors in the wall of the carotid artery, and a wireless programmer system that is used to non-invasively program and adjust BAROSTIM^TM therapy via telemetry. The BAROSTIM^TM system is indicated for the improvement of symptoms of heart failure in a subset of patients with symptomatic New York Heart Association (NYHA) Class III or Class II (who had a recent history of Class III) heart failure, with a low left ventricular ejection fraction, who also do not benefit from guideline directed pharmacologic therapy or qualify for Cardiac Resynchronization Therapy (CRT). The BAROSTIM^TM system was approved for new technology add-on payments for FY 2021 (85 FR 58716 through 58717) and FY 2022 (86 FR 44974). The new technology add-on payment was subsequently discontinued effective FY 2023 (87 FR 48916).

In the FY 2023 IPPS/LTCH PPS final rule (87 FR 48837 through 48843), we discussed a request we received to reassign the ICD-10-PCS procedure codes that describe the implantation of the BAROSTIM^TM system from MS-DRGs 252, 253, and 254 (Other Vascular Procedures with MCC, with CC, and without MCC respectively) to MS-DRGs 222, 223, 224, 225, 226, and 227 (Cardiac Defibrillator Implant with and without Cardiac Catheterization with and without AMI/HF/Shock with and without MCC, respectively). The requestor stated that the subset of patients that have an indication for the implantation of a BAROSTIM^TM system also have indications for the implantation of Implantable Cardioverter Defibrillators (ICD), Cardiac Resynchronization Therapy Defibrillators (CRT-D) and/or Cardiac Contractility Modulation (CCM) devices, all of which also require the permanent implantation of a programmable, electrical pulse generator and at least one electrical lead. The requestor further stated that the average resource utilization required to implant the BAROSTIM^TM system demonstrates a significant disparity compared to all procedures within MS-DRGs 252, 253, and 254.

In the FY 2023 IPPS/LTCH PPS final rule, we stated that the results of the claims analysis demonstrated we did not have sufficient claims data on which to base and evaluate any proposed changes to the current MS-DRG assignment. We also expressed concern in equating the implantation of a BAROSTIM^TM system to the placement of ICD, CRT-D, and CCM devices as these devices all differ in terms of technical complexity and anatomical placement of the electrical lead(s). We noted there is no intravascular component or vascular puncture involved when implanting a BAROSTIM^TM system. In contrast, the placement of ICD, CRT-D, and CCM devices generally involve a lead being affixed to the myocardium, being threaded through the coronary sinus or crossing a heart valve and are procedures that involve a greater level of complexity than affixing the stimulator lead to either the right or left carotid sinus when implanting a BAROSTIM^TM system. We stated that we believed that as the number of cases reporting procedure codes describing the implantation of neuromodulation devices for heart failure increases, a better view of the associated costs and lengths of stay on average will be reflected in the data for purposes of assessing any reassignment of these cases. Therefore, after consideration of the public comments we received, and for the reasons stated earlier, we finalized our proposal to maintain the assignment of cases reporting procedure codes that describe the implantation of a neuromodulation device in MS-DRGs 252, 253, and 254 for FY 2023.

In the FY 2024 IPPS/LTCH PPS final rule (88 FR 58712 through 58720), we discussed a request we received to add ICD-10-CM diagnosis code R57.0 (Cardiogenic shock) to the list of “secondary diagnoses” that grouped to MS-DRGs 222 and 223 (Cardiac Defibrillator Implant with Cardiac Catheterization with Acute Myocardial Infarction (AMI), Heart Failure (HF), or Shock with and without MCC, respectively). During our review of the issue, we noted that the results of our claims analysis showed that in procedures involving a cardiac defibrillator implant, the average costs and length of stay were generally similar without regard to the presence of diagnosis codes describing AMI, HF, or shock. We stated we believed that it may no longer be necessary to subdivide MS-DRGs 222, 223, 224, 225, 226, and 227 based on the diagnosis codes reported. After consideration of the public comments we received, and for the reasons stated in the rule, we finalized our proposal to delete MS- DRGs 222, 223, 224, 225, 226, and 227. We also finalized our proposal to create new MS-DRG 275 (Cardiac Defibrillator Implant with Cardiac Catheterization and MCC), new MS-DRG 276 (Cardiac Defibrillator Implant with MCC) and new MS-DRG 277 (Cardiac Defibrillator Implant without MCC) in MDC 05 for FY 2024.

For this FY 2025 IPPS/LTCH PPS proposed rule, we received a similar request to again review the MS-DRG assignment of the ICD-10-PCS procedure codes that describe the implantation of the BAROSTIM^TM system. Specifically, the requestor recommended that CMS consider reassigning the ICD-10-PCS procedure codes that describe the implantation of the BAROSTIM^TM system from MS-DRGs 252, 253, and 254 (Other Vascular Procedures with MCC, with CC, and without MCC respectively) to MS-DRGs 275 (Cardiac Defibrillator Implant with Cardiac Catheterization and MCC), MS-DRG 276, and 277 (Cardiac Defibrillator Implant with MCC and without MCC respectively); or to other more clinically coherent MS-DRGs for implantable device procedures indicated for Class III heart failure patients. The requestor stated in their analysis the number of claims reporting procedure codes that describe the implantation of the BAROSTIM^TM system has been consistently growing over the past few years. The requestor acknowledged that the implantation of the BAROSTIM^TM system is predominantly performed in the outpatient setting but noted that a significant number of severely sick patients with multiple comorbidities (such as chronic kidney disease, end stage renal disease (ESRD), chronic obstructive pulmonary disease (COPD), and AF) are treated in an inpatient setting. The requestor stated in their experience, hospitals that have performed BAROSTIM^TM procedures have stopped allowing patients to receive the device in the inpatient setting due to the high losses for each Medicare claim. The requestor asserted it is critically important to allow very sick and fragile patients access to the BAROSTIM^TM procedure in an inpatient setting and stated these patients should not be denied access by hospitals due to the perceived gross underpayment of the current MS-DRG.

The requestor stated the BAROSTIM^TM procedure is not clinically coherent with other procedures assigned to MS-DRGs 252, 253, and 254 (Other Vascular Procedures) as the majority of the ICD-10-PCS codes assigned to MS-DRGs 252, 253, and 254 describe procedures to identify, diagnose, clear and restructure veins and arteries, excluding those that require implantable devices. Furthermore, the requestor stated the costs of the implantable medical devices used for the BAROSTIM^TM system (that is, the electrical pulse generator and electrical lead) alone far exceed the average costs of other cases assigned to MS-DRGs 252, 253, and 254.

The following ICD-10-PCS procedure codes uniquely identify the implantation of the BAROSTIM^TM system: 0JH60MZ (Insertion of stimulator generator into chest subcutaneous tissue and fascia, open approach) in combination with 03HK3MZ (Insertion of stimulator lead into right internal carotid artery, percutaneous approach) or 03HL3MZ (Insertion of stimulator lead into left internal carotid artery, percutaneous approach).

To analyze this request, we first examined claims data from the September 2023 update of the FY 2023 MedPAR file for MS-DRGs 252, 253, and 254 to identify cases reporting procedure codes describing the implantation of the BAROSTIM^TM system with or without a procedure code describing the performance of a cardiac catheterization as MS-DRG 275 is defined by the performance of cardiac catheterization and a secondary diagnosis of MCC. Our findings are shown in the following table.

As shown in the table, in MS-DRG 252, we identified a total of 18,964 cases with an average length of stay of 8 days and average costs of $30,456. Of those 18,964 cases, there was one case reporting procedure codes describing the implantation of the BAROSTIM^TM system with a procedure code describing the performance of a cardiac catheterization with costs higher than the average costs in the FY 2023 MedPAR file for MS-DRG 252 ($110,928 compared to $30,456) and a longer length of stay (9 days compared to 8 days). There were 12 cases reporting procedure codes describing the implantation of the BAROSTIM^TM system without a procedure code describing the performance of a cardiac catheterization, with average costs higher than the average costs in the FY 2023 MedPAR file for MS-DRG 252 ($66,291 compared to $30,456) and a slighter shorter average length of stay (7.8 days compared to 8 days). In MS-DRG 253, we identified a total of 15,551 cases with an average length of stay of 5.2 days and average costs of $22,870. Of those 15,551 cases, there were seven cases reporting procedure codes describing the implantation of the BAROSTIM^TM system without a procedure code describing the performance of a cardiac catheterization, with average costs higher than the average costs in the FY 2023 MedPAR file for MS-DRG 253 ($52,788 compared to $22,870) and a shorter average length of stay (4 days compared to 5.2 days). We found zero cases in MS-DRG 253 reporting procedure codes describing the implantation of a BAROSTIM^TM system with a procedure code describing the performance of a cardiac catheterization. In MS-DRG 254, we identified a total of 5,973 cases with an average length of stay of 2.3 days and average costs of $15,778. Of those 5,973 cases, there were three cases reporting procedure codes describing the implantation of the BAROSTIM^TM system without a procedure code describing the performance of a cardiac catheterization, with average costs higher than the average costs in the FY 2023 MedPAR file for MS-DRG 254 ($29,740 compared to $15,778) and a shorter average length of stay (1.3 days compared to 2.3 days). We found zero cases in MS-DRG 254 reporting procedure codes describing the implantation of a BAROSTIM^TM system with a procedure code describing the performance of a cardiac catheterization.

We then examined claims data from the September 2023 update of the FY 2023 MedPAR file for MS-DRGs 275, 276, and 277. Our findings are shown in the following table.

As the table shows, for MS-DRG 275, there were a total of 3,358 cases with an average length of stay of 10.3 days and average costs of $63,181. For MS-DRG 276, there were a total of 3,264 cases with an average length of stay of 8.2 days and average costs of $54,993. For MS-DRG 277, there were a total of 3,840 cases with an average length of stay of 4.2 days and average costs of $42,111.

In exploring mechanisms to address this request, we noted in total, there were only 23 cases reporting procedure codes describing the implantation of a BAROSTIM^TM system in MS-DRGs 252, 253, and 254 (13, 7, and 3, respectively). We reviewed these data, and while we recognize that the average costs of the 23 cases reporting procedure codes describing the implantation of a BAROSTIM^TM are greater when compared to the average costs of all cases in MS-DRGs 252, 253, and 254, the number of cases continues to be too small to warrant the creation of a new MS-DRG for these cases.

We further note, that of the 23 cases reporting procedure codes describing the implantation of a BAROSTIM^TM system identified in MS-DRGs 252, 253, and 254, only one case reported the performance of cardiac catheterization. As discussed in the FY 2024 IPPS/LTCH PPS final rule, when reviewing the consumption of hospital resources for the cases reporting a cardiac defibrillator implant with cardiac catheterization during a hospital stay, the claims data clearly showed that the cases reporting secondary diagnoses designated as MCCs were more resource intensive as compared to other cases reporting cardiac defibrillator implant. Therefore, we finalized the creation of MS-DRG 275 for cases reporting a cardiac defibrillator implant with cardiac catheterization and a secondary diagnosis designated as an MCC. Of the 23 cases reporting procedure codes describing the implantation of a BAROSTIM^TM system, there was only one case reporting a procedure code describing the performance of cardiac catheterization and a secondary diagnosis designated as an MCC, and we note that there may have been other factors contributing to the higher costs of this one case. The results of the claims analysis demonstrate we do not have sufficient claims data on which to base and propose a change to the current MS-DRG assignment of cases reporting procedure codes describing the implantation of a BAROSTIM^TM system from MS-DRGs 252, 253, and 254 to MS-DRG 275.

Further analysis of the claims data demonstrates that the 23 cases reporting procedure codes describing the implantation of a BAROSTIM^TM system had an average length of stay of 5.8 days and average costs of $59,355, as compared to the 3,264 cases in MS-DRG 276 that had an average length of stay of 8.2 days and average costs of $54,993. While the cases reporting procedure codes describing the implantation of a BAROSTIM^TM system had average costs that were $4,362 higher than the average costs of all cases in MS-DRG 276, as noted, there were only a total of 23 cases, and there may have been other factors contributing to the higher costs. We noted, however, reassigning all cases reporting procedure codes describing the implantation of a BAROSTIM^TM system to MS-DRG 276, even if there is not a MCC present, the cases would receive higher payment and better account for the differences in resource utilization of these cases than in their respective MS-DRG.

We reviewed the clinical issues and the claims data, and while we continue to note that there is no intravascular component or vascular puncture involved when implanting a BAROSTIM^TM system, and that the implantation of a BAROSTIM^TM system is distinguishable from the placement of ICD, CRT-D, and CCM devices, as these devices all differ in terms of technical complexity and anatomical placement of the electrical lead(s), as discussed in the FY 2023 IPPS/LTCH PPS final rule (87 FR 48837 through 48843), we agree that ICD, CRT-D, and CCM devices and the BAROSTIM^TM system are clinically coherent in that they share an indication of heart failure, a major cause of morbidity and mortality in the United States, and that these cases demonstrate comparable resource utilization. Based on our review of the clinical issues and the claims data, and to better account for the resources required, we are proposing to reassign the cases reporting procedure codes describing the implantation of a BAROSTIM^TM system to MS-DRG 276, even if there is no MCC reported, to better reflect the clinical severity and resource use involved in these cases.

Therefore, for FY 2025, we are proposing to reassign all cases with one of the following ICD-10-PCS code combinations capturing cases reporting procedure codes describing the implantation of a BAROSTIM^TM system, to MS-DRG 276, even if there is no MCC reported:

• 0JH60MZ (Insertion of stimulator generator into chest subcutaneous tissue and fascia, open approach) in combination with 03HK3MZ (Insertion of stimulator lead into right internal carotid artery, percutaneous approach); and
• 0JH60MZ (Insertion of stimulator generator into chest subcutaneous tissue and fascia, open approach) in combination with 03HL3MZ (Insertion of stimulator lead into left internal carotid artery, percutaneous approach).

We also are proposing to change the title of MS-DRG 276 from “Cardiac Defibrillator Implant with MCC” to “Cardiac Defibrillator Implant with MCC or Carotid Sinus Neurostimulator” to reflect the proposed modifications to MS-DRG assignments. We note that discussion of the surgical hierarchy for this proposed modification is discussed in section II.C.15. of this proposed rule.

c. Endovascular Cardiac Valve Procedures

The human heart contains four major valves—the aortic, mitral, pulmonary, and tricuspid valves. These valves function to keep blood flowing through the heart. When conditions such as stenosis or insufficiency/regurgitation occur in one or more of these valves, valvular heart disease may result. Intervention options, including surgical aortic valve replacement or transcatheter aortic valve replacement can be performed to treat diseased or damaged aortic heart valves. Surgical aortic valve replacement (SAVR) is a traditional, open-chest surgery where an incision is made to access the heart. The damaged valve is replaced, and the chest is surgically closed. Since SAVR is a major surgery that involves an incision, recovery time tends to be longer. Transcatheter aortic valve replacement (TAVR) is a minimally invasive procedure that involves a catheter being inserted into an artery, without an incision for most cases, and then guided to the heart. The catheter delivers the new valve without the need for the chest or heart to be surgically opened. Since TAVR is a non-surgical procedure, it is generally associated with a much shorter recovery time.

In the FY 2015 IPPS/LTCH PPS final rule (79 FR 49892 through 49893), we discussed a request we received to create a new MS-DRG that would only include the various types of cardiac valve replacements performed by an endovascular or transcatheter technique. We reviewed the claims data and stated the data analysis showed that cardiac valve replacements performed by an endovascular or transcatheter technique had a shorter average length of stay and higher average costs in comparison to all of the cases in their assigned MS-DRGs, which were MS-DRGs 216, 217, 218, 219, 220, and 221 (Cardiac Valve & Other Major Cardiothoracic Procedure with and without Cardiac Catheterization, with MCC, with CC, and without CC/MCC, respectively). In the FY 2015 IPPS/LTCH PPS final rule we stated that patients receiving endovascular cardiac valve replacements were significantly different from those patients who undergo an open chest cardiac valve replacement and noted that patients receiving endovascular cardiac valve replacements are not eligible for open chest cardiac valve procedures because of a variety of health constraints, which we said highlights the fact that peri-operative complications and post-operative morbidity have significantly different profiles for open chest procedures compared with endovascular interventions. We further noted that separately grouping these endovascular valve replacement procedures provides greater clinical cohesion for this subset of high-risk patients. Therefore, we finalized our proposal to create MS-DRGs 266 and 267 (Endovascular Cardiac Valve Replacement, with MCC and without MCC, respectively) for FY 2015.

In the FY 2020 IPPS/LTCH PPS final rule (84 FR 42080 through 42089), we discussed a request we received to modify the MS-DRG assignment for transcatheter mitral valve repair (TMVR) with implant procedures. We reviewed the claims data and stated based on our data analysis, transcatheter cardiac valve repair procedures and transcatheter (endovascular) cardiac valve replacement procedures are more clinically coherent in that they describe endovascular cardiac valve interventions with implants, and were similar in terms of average length of stay and average costs to cases in MS-DRGs 266 and 267 when compared to other procedures in their current MS-DRG assignment. For the reasons described in the rule and after consideration of the public comments we received, we finalized our proposal to modify the structure of MS-DRGs 266 and 267 by reassigning the procedure codes that describe transcatheter cardiac valve repair (supplement) procedures, to revise the title of MS-DRG 266 from “Endovascular Cardiac Valve Replacement with MCC” to “Endovascular Cardiac Valve Replacement and Supplement Procedures with MCC” and to revise the title of MS-DRG 267 from “Endovascular Cardiac Valve Replacement without MCC” to “Endovascular Cardiac Valve Replacement and Supplement Procedures without MCC”, to reflect the finalized restructuring.

For this FY 2025 IPPS/LTCH PPS proposed rule, we received a request to delete MS-DRGs 266 and 267 and to move the cases reporting transcatheter aortic valve replacement or repair (supplement) procedures currently assigned to those MS-DRGs into MS-DRGs 216, 217, 218, 219, 220, and 221. The requestor asserted that under the current IPPS payment methodology, TAVR procedures are not profitable to hospitals and when patients are clinically eligible for both a TAVR and SAVR procedures, factors beyond clinical appropriateness can drive treatment decisions. According to the requestor (the manufacturer of the SAPIEN^TM family of transcatheter heart valves) sharing a single set of MS-DRGs would eliminate the current disincentives hospitals face and create financial neutrality between the two lifesaving treatment options. The requestor stated the current disincentives are increasingly problematic because they contribute to treatment disparities among certain racial, socioeconomic, and geographic groups.

The requestor noted that currently surgical cardiac valve replacement and supplement procedures, such as SAVR, are assigned to MS-DRGs 216, 217, 218, 219, 220, and 221, and endovascular cardiac valve replacement and supplement procedures, such as TAVR, are assigned to MS-DRGs 266 and 267. The requestor stated that both sets of MS-DRGs address valve disease and include valve repair or replacement procedures for any of the four heart valves. According to the requestor, while the sets of MS-DRGs involve clinically similar cases their payment rates differ which may be unintentionally influencing clinical decision-making by incentivizing hospitals to choose more invasive SAVR procedures over less-invasive TAVR procedures.

As mentioned earlier, the requestor recommended that CMS delete MS-DRGs 266 and 267 and move the cases reporting transcatheter aortic valve replacement or repair (supplement) procedures currently assigned to those MS-DRGs into MS-DRGs 216, 217, 218, 219, 220, and 221. The requestor performed their own analysis and stated that their models of this suggested solution indicated the change would result in moderate differences in per case payments by case type and would not increase overall Medicare spending. The requestor noted that while their requested solution would potentially decrease payment to cases currently assigned to MS-DRGs 216, 217, 218, 219, 220, and 221, while at the same time increasing the payment to cases reporting endovascular cardiac valve replacement and supplement procedures, the results of their claim analysis demonstrated that the net difference in total payments across all cases would increase by approximately $6.5 million. The requestor stated that they anticipate that their proposed solution could increase Medicare patients' access to innovative endovascular cardiac valve procedures by establishing payment neutrality between SAVR and TAVR procedures.

We reviewed this request and note the requestor is correct that in Version 41.1 cases reporting procedure codes that describe endovascular cardiac valve replacement and supplement procedures, including TAVR, group to MS-DRGs 266 and 267. The requestor is also correct that cases reporting procedure codes that describe surgical cardiac valve replacement and supplement procedures, including SAVR, group to MS-DRGs 216, 217, 218, 219, 220, and 221. We refer the reader to the ICD-10 MS-DRG Definitions Manual Version 41.1 (available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software) for complete documentation of the GROUPER logic for MS-DRGs 216, 217, 218, 219, 220, 221, 266 and 267.

To begin our analysis, we identified the ICD-10-PCS procedure codes that describe endovascular (transcatheter) cardiac valve replacement and supplement procedures and the ICD-10-PCS procedure codes that describe surgical cardiac valve replacement and supplement procedures. We also identified the ICD-10-PCS codes that describe cardiac catheterization, as MS-DRGs 216, 217, and 218 (Cardiac Valve and Other Major Cardiothoracic Procedures with Cardiac Catheterization with MCC, with CC, and without CC/MCC, respectively) are defined by the performance of cardiac catheterization. We refer the reader to Table 6P.2a, Table 6P.2b, and Table 6P.2c, respectively, associated with this proposed rule (and available at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps) for the lists of the ICD-10-PCS procedure codes that we identified that describe endovascular cardiac valve replacement and supplement procedures, surgical cardiac valve replacement and supplement procedures, and cardiac catheterization procedures.

We then examined the claims data from the September 2023 update of the FY 2023 MedPAR file for all cases in MS-DRGs 216, 217, 218, 219, 220, and 221 and compared the results to cases reporting surgical cardiac valve replacement and supplement procedures in MS-DRG 216, 217, 218, 219, 220, and 221. The following table shows our findings:

As shown in the table, in MS-DRG 216, we identified a total of 5,033 cases with an average length of stay of 13.9 days and average costs of $84,176. Of those 5,033 cases, there were 2,973 cases reporting surgical cardiac valve replacement and supplement procedures, with average costs higher than the average costs in the FY 2023 MedPAR file for MS-DRG 216 ($87,497 compared to $84,176) and a longer average length of stay (16.8 days compared to 13.9 days). In MS-DRG 217, we identified a total of 1,635 cases with an average length of stay of 7.2 days and average costs of $58,381. Of those 1,635 cases, there were 867 cases reporting surgical cardiac valve replacement and supplement procedures, with average costs lower than the average costs in the FY 2023 MedPAR file for MS-DRG 217 ($56,829 compared to $58,381) and a longer average length of stay (9.5 days compared to 7.2 days). In MS-DRG 218, we identified a total of 275 cases with an average length of stay of 3.4 days and average costs of $54,624. Of those 275 cases, there were 60 cases reporting surgical cardiac valve replacement and supplement procedures, with average costs lower than the average costs in the FY 2023 MedPAR file for MS-DRG 218 ($45,096 compared to $54,624) and a longer average length of stay (6.7 days compared to 3.4 days). In MS-DRG 219, we identified a total of 12,458 cases with an average length of stay of 10.5 days and average costs of $67,228. Of those 12,458 cases, there were 9,780 cases reporting surgical cardiac valve replacement and supplement procedures, with average costs lower than the average costs in the FY 2023 MedPAR file for MS-DRG 219 ($64,954 compared to $67,228), and a slightly shorter average length of stay (10.3 days compared to 10.5 days). In MS-DRG 220, we identified a total of 9,829 cases with an average length of stay of 6.3 days and average costs of $47,242. Of those 9,829 cases, there were 7,841 cases reporting surgical cardiac valve replacement and supplement procedures, with average costs lower than the average costs in the FY 2023 MedPAR file for MS-DRG 220 ($46,245 compared to $47,242) and a slightly longer average length of stay (6.4 days compared to 6.3 days). In MS-DRG 221, we identified a total of 1,242 cases with an average length of stay of 3.8 days and average costs of $41,539. Of those 1,242 cases, there were 627 cases reporting surgical cardiac valve replacement and supplement procedures, with average costs lower than the average costs in the FY 2023 MedPAR file for MS-DRG 221 ($39,081 compared to $41,539) and a longer average length of stay (4.9 days compared to 3.8 days).

Next, we examined claims data from the September 2023 update of the FY 2023 MedPAR file for MS-DRGs 266 and 267. Our findings are shown in the following table.

Because there is a two-way split within MS-DRGs 266 and 267 and there is a three-way split within MS-DRGs 216, 217, and 218, and MS-DRGs 219, 220, and 221 (Cardiac Valve and Other Major Cardiothoracic Procedures without Cardiac Catheterization with MCC, with CC, and without CC/MCC, respectively), we also analyzed the cases reporting a code describing an endovascular cardiac valve replacement and supplement procedure with a procedure code describing the performance of a cardiac catheterization for the presence or absence of a secondary diagnosis designated as a complication or comorbidity (CC) or a major complication or comorbidity (MCC). We also analyzed the cases reporting a code describing an endovascular cardiac valve replacement and supplement procedure without a procedure code describing the performance of a cardiac catheterization for the presence or absence of a secondary diagnosis designated as a CC or an MCC.

As shown in the table, the data analysis performed indicates that the 5,443 cases in MS-DRG 266 reporting endovascular cardiac valve replacement and supplement procedures with a procedure code describing the performance of a cardiac catheterization, and with a secondary diagnosis code designated as an MCC have an average length of stay that is shorter than the average length of stay (7.9 days versus 16.8 days) and lower average costs ($63,128 versus $87,497) when compared to the cases in MS-DRG 216 reporting surgical cardiac valve replacement and supplement procedures with a procedure code describing the performance of a cardiac catheterization, and with a secondary diagnosis code designated as an MCC. The 4,761 cases in MS-DRG 267 reporting endovascular cardiac valve replacement and supplement procedures with a procedure code describing the performance of a cardiac catheterization, and with a secondary diagnosis code designated as a CC have an average length of stay that is shorter than the average length of stay (2 days versus 9.5 days) and lower average costs ($42,163 versus $56,829) when compared to the cases in MS-DRG 217 reporting surgical cardiac valve replacement and supplement procedures with a procedure code describing the performance of a cardiac catheterization, and with a secondary diagnosis code designated as an CC. The 1,386 cases in MS-DRG 267 reporting endovascular cardiac valve replacement and supplement procedures with a procedure code describing the performance of a cardiac catheterization, and without a secondary diagnosis code designated as a CC or MCC have an average length of stay that is shorter than the average length of stay (1.3 days versus 6.7 days) and lower average costs ($39,709 versus $45,096) when compared to the cases in MS-DRG 218 reporting surgical cardiac valve replacement and supplement procedures with a procedure code describing the performance of a cardiac catheterization, without a secondary diagnosis code designated as a CC or MCC.

The 14,493 cases in MS-DRG 266 reporting endovascular cardiac valve replacement and supplement procedures without a procedure code describing the performance of a cardiac catheterization, and with a secondary diagnosis code designated as an MCC have an average length of stay that is shorter than the average length of stay (3.5 days versus 10.3 days) and lower average costs ($50,831 versus $64,954) when compared to the cases in MS-DRG 219 reporting surgical cardiac valve replacement and supplement procedures without a procedure code describing the performance of a cardiac catheterization, and with a secondary diagnosis code designated as an MCC. The 22,996 cases in MS-DRG 267 reporting endovascular cardiac valve replacement and supplement procedures without a procedure code describing the performance of a cardiac catheterization, and with a secondary diagnosis code designated as a CC have an average length of stay that is shorter than the average length of stay (1.5 days versus 6.4 days) and lower average costs ($43,637 versus $46,245) when compared to the cases in MS-DRG 220 reporting surgical cardiac valve replacement and supplement procedures without a procedure code describing the performance of a cardiac catheterization, and with a secondary diagnosis code designated as an CC. The 7,522 cases in MS-DRG 267 reporting endovascular cardiac valve replacement and supplement procedures without a procedure code describing the performance of a cardiac catheterization, and without a secondary diagnosis code designated as a CC or MCC have an average length of stay that is shorter than the average length of stay (1.2 days versus 4.9 days) and higher average costs ($42,472 versus $39,081) when compared to the cases in MS-DRG 221 reporting surgical cardiac valve replacement and supplement procedures without a procedure code describing the performance of a cardiac catheterization, without a secondary diagnosis code designated as a CC or MCC.

This data analysis shows the cases in MS-DRG 266 and 267 reporting endovascular cardiac valve replacement and supplement procedures with a procedure code describing the performance of a cardiac catheterization when distributed based on the presence or absence of a secondary diagnosis designated as a CC or a MCC have average costs lower than the average costs of cases reporting surgical cardiac valve replacement and supplement procedures with a procedure code describing the performance of a cardiac catheterization in the FY 2023 MedPAR file for MS-DRGs 216, 217, and 218 respectively, and the average lengths of stay are shorter. Similarly, the cases in MS-DRG 266 and 267 reporting endovascular cardiac valve replacement and supplement procedures without a procedure code describing the performance of a cardiac catheterization when distributed based on the presence or absence of a secondary diagnosis designated as a CC or a MCC generally have average costs lower than the average costs of cases reporting surgical cardiac valve replacement and supplement procedures without a procedure code describing the performance of a cardiac catheterization in the FY 2023 MedPAR file for MS-DRGs 219, 220, and 221 respectively, and the average lengths of stay are shorter.

For patients with an indication for cardiac valve replacement, clinical and anatomic factors must be considered when decision-making between procedures such as TAVR and SAVR. We note that SAVR is not a treatment option for patients with extreme surgical risk (that is, high probability of death or serious irreversible complication), severe atheromatous plaques of the ascending aorta such that aortic cross-clamping is not feasible, or with other conditions that would make operation through sternotomy or thoracotomy prohibitively hazardous. We agree that the endovascular or transcatheter technique presents a viable option for high-risk patients who are not candidates for the traditional open surgical approach, however we also note that TAVR is not indicated for every patient. TAVR is contraindicated in patients who cannot tolerate an anticoagulation/antiplatelet regimen, or who have active bacterial endocarditis or other active infections, or who have significant annuloplasty ring dehiscence.

We have concern with the assertion that clinicians perform more invasive surgical procedures, such as SAVR procedures, only to increase payment to their facility where minimally invasive TAVR procedures are also viable option. The choice of SAVR versus TAVR should not be based on potential facility payment. Instead, the decision on the procedural approach to be utilized should be based upon an individualized risk-benefit assessment that includes reviewing factors such as the patient's age, surgical risk, frailty, valve morphology, and presence of concomitant valve disease or coronary artery disease. As we have stated in prior rulemaking (83 FR 41201), it is not appropriate for facilities to deny treatment to beneficiaries needing a specific type of therapy or treatment that involves increased costs. Conversely, it is not appropriate for facilities to recommend a specific type of therapy or treatment strictly because it may involve higher payment to the facility.

Also, we have concern with the requestor's assertion that sharing a single set of MS-DRGs could eliminate any perceived disincentives hospitals may face and create financial neutrality between the two lifesaving treatment options. Data analysis shows that cases reporting surgical cardiac valve replacement and supplement procedures have higher costs and longer lengths of stay. If clinical decision-making is being driven by financial motivations, as suggested by the requestor, in circumstances where the decision on which approach is best (for example, TAVR or SAVR) is left to the providers' discretion, it is unclear how reducing payment for surgical cardiac valve replacement and supplement procedures would eliminate possible disincentives, or not have the opposite effect, and instead incentivize endovascular cardiac valve replacement and supplement procedures.

The MS-DRGs are a classification system intended to group together diagnoses and procedures with similar clinical characteristics and utilization of resources and are not intended to be utilized as a tool to incentivize the performance of certain procedures. When performed, surgical cardiac valve replacement and supplement procedures are clinically different from endovascular cardiac valve replacement and supplement procedures in terms of technical complexity and hospital resource use. In the FY 2015 IPPS/LTCH PPS final rule, we stated that separately grouping endovascular valve replacement procedures provides greater clinical cohesion for this subset of high-risk patients. Our claims analysis for this FY 2025 IPPS/LTCH PPS proposed rule demonstrates that this continues to be substantiated by the difference in average costs and average lengths of stay demonstrated by the two cohorts. We continue to believe that endovascular cardiac valve replacement and supplement procedures are clinically coherent in their currently assigned MS-DRGs. Therefore, we are proposing to maintain the structure of MS-DRGs 266 and 267 for FY 2025.

d. MS-DRG Logic for MS-DRG 215

We received a request to review the GROUPER logic for MS-DRG 215 (Other Heart Assist System Implant) in MDC 05 (Diseases and Disorders of the Circulatory System). The requestor stated that when the procedure code describing the revision of malfunctioning devices within the heart via an open approach is assigned, the encounter groups to MS-DRG 215. The requestor stated that, in their observation, ICD-10-PCS code 02WA0JZ (Revision of synthetic substitute in heart, open approach) can only be assigned if a more specific anatomical site is not documented in the operative note. The requestor further stated they interpreted this to mean that an ICD-10-PCS procedure code describing the open revision of a synthetic substitute in the heart can only apply to the ventricular wall or left atrial appendage and excludes the atrial or ventricular septum or any valve to qualify for MS-DRG 215 and recommended that CMS consider the expansion of the open revision of heart structures to include the atrial or ventricular septum and heart valves.

To begin our analysis, we reviewed the GROUPER logic. The requestor is correct that ICD-10-PCS procedure code 02WA0JZ is currently one of the listed procedure codes in the GROUPER logic for MS-DRG 215. While the requestor stated that when procedures codes describing the revisions of malfunctioning devices within the heart via an open approach are assigned, the encounter groups to MS-DRG 215, we wish to clarify that the revision codes listed in the GROUPER logic for MS-DRG 215 specifically describe procedures to correct, to the extent possible, a portion of a malfunctioning heart assist device or the position of a displaced heart assist device. Further, it is unclear what is meant by the requestor's statement that ICD-10-PCS code 02WA0JZ can only be assigned if more specific anatomical site is not documented in the operative note, as ICD-10-PCS code 02WA0JZ is used to describe the open revision of artificial heart systems. Total artificial hearts are pulsating bi-ventricular devices that are implanted into the chest to replace a patient's left and right ventricles and can provide a bridge to heart transplantation for patients who have no other reasonable medical or surgical treatment options. We refer the reader to the ICD-10 MS-DRG Definitions Manual Version 41.1 (available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software) for complete documentation of the GROUPER logic for MS-DRG 215. We encourage the requestor and any providers that have cases involving heart assist devices for which they need ICD-10 coding assistance and clarification on the usage of the codes, to submit their questions to the American Hospital Association's Central Office on ICD-10 at https://www.codingclinicadvisor.com/.

As previously noted, the requestor recommended that we consider expansion of the open revision of heart structures to include the atrial or ventricular septum and heart valves. The requestor did not provide a specific list of procedure codes involving the open revision of heart structures. While not explicitly stated, we understood this request to be for our consideration of the reassignment of the procedure codes describing the open revision of devices in the heart valves, atrial septum, or ventricular septum to MS-DRG 215, therefore, we reviewed the ICD-10-PCS classification and identified the following 18 procedure codes. These 18 codes are all assigned to MS-DRGs 228 and 229 (Other Cardiothoracic Procedures with and without MCC, respectively) in MDC 05 in Version 41.1.

Next, we examined claims data from the September 2023 update of the FY 2023 MedPAR file for MS-DRG 228 and 229 to identify cases reporting one of the 18 codes listed previously that describe the open revision of devices in the heart valves, atrial septum, or ventricular septum. Our findings are shown in the following table:

As shown in the table, in MS-DRG 228, we identified a total of 4,391 cases with an average length of stay of 8.7 days and average costs of $44,565. Of those 4,391 cases, there were 12 cases reporting a procedure code describing the open revision of devices in the heart valves, atrial septum, or ventricular septum, with average costs higher than the average costs in the FY 2023 MedPAR file for MS-DRG 228 ($51,549 compared to $44,565) and a longer average length of stay (15.7 days compared to 8.7 days). In MS-DRG 229, we identified a total of 5,712 cases with an average length of stay of 3.3 days and average costs of $28,987. Of those 5,712 cases, there was one case reporting a procedure code describing the open revision of devices in the heart valves, atrial septum, or ventricular septum with costs lower than the average costs in the FY 2023 MedPAR file for MS-DRG 229 ($11,322 compared to $28,987) and a shorter length of stay (1 day compared to 3.3 days).

We then examined claims data from the September 2023 update of the FY 2023 MedPAR for MS-DRG 215. Our findings are shown in the following table.

Our analysis indicates that the cases assigned to MS-DRG 215 have much higher average costs than the cases reporting a procedure code describing the open revision of devices in the heart valves, atrial septum, or ventricular septum currently assigned to MS-DRGs 228 and 229. Instead, the average costs and average length of stay for case reporting a procedure code describing the open revision of devices in the heart valves, atrial septum, or ventricular septum appear to be generally more aligned with the average costs and average length of stay for all cases in MS-DRGs 228 and 229, where they are currently assigned.

In addition, based on our review of the clinical considerations, we do not believe the procedure codes describing the open revision of devices in the heart valves, atrial septum, or ventricular septum are clinically coherent with the procedure codes currently assigned to MS-DRG 215. Heart assist devices, such as ventricular assist devices and artificial heart systems, provide circulatory support by taking over most of the workload of the left ventricle. Blood enters the pump through an inflow conduit connected to the left ventricle and is ejected through an outflow conduit into the body's arterial system. Heart assist devices can provide temporary left, right, or biventricular support for patients whose hearts have failed and can also be used as a bridge for patients who are awaiting a heart transplant. Devices placed in the heart valves, atrial septum, or ventricular septum do not serve the same purpose as heart assist devices and we do not believe the procedure codes describing the revision of these devices should be assigned to MS-DRG 215. Further, the various indications for devices placed in the heart valves, atrial septum or ventricular septum are not aligned with the indications for heart assist devices. We believe that patients with indications for heart assist devices tend to be more severely ill and these inpatient admissions are associated with greater resource utilization. Therefore, for the reasons stated previously, we are proposing to maintain the GROUPER logic for MS-DRG 215 for FY 2025.

5. MDC 06 (Diseases and Disorders of the Digestive System): Excision of Intestinal Body Parts

We identified a replication issue from the ICD-9 based MS-DRGs to the ICD-10 based MS-DRGs regarding the assignment of eight ICD-10-PCS codes that describe the excision of intestinal body parts by open, percutaneous, or percutaneous endoscopic approach. Under the Version 32 ICD-9 based MS-DRGs, ICD-9-CM procedure code 45.33 (Local excision of lesion or tissue of small intestine, except duodenum) was designated as an O.R. procedure and was assigned to MDC 06 (Diseases and Disorders of the Digestive System) in MS-DRGs 347, 348, and 349 (Anal and Stomal Procedures with MCC, with CC, and without CC/MCC, respectively).

There are eight ICD-10-PCS code translations that provide more detailed and specific information for ICD-9-CM code 45.33 that also currently group to MS-DRGs 347, 348, and 349 in the ICD-10 MS-DRGs Version 41.1. These eight procedure codes are shown in the following table:

We noted during our review of this issue that under ICD-9-CM, procedure code 45.33 did not differentiate the specific type of approach used to perform the procedure. This is in contrast to the eight comparable ICD-10-PCS code translations listed in the previous table that do differentiate among various approaches (open, percutaneous, and percutaneous endoscopic). We also noted that there are four additional ICD-10-PCS code translations that provide more detailed and specific information for ICD-9-CM code 45.33, however these four codes currently group to MS-DRGs 329, 330, and 331 (Major Small and Large Bowel Procedures with MCC, with CC, and without CC/MCC, respectively), and not MS-DRGs 347, 348, and 349, in the ICD-10 MS-DRGs Version 41.1. These four procedure codes are shown in the following table:

We refer the reader to the ICD-10 MS-DRG Definitions Manual Version 41.1 (available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software) for complete documentation of the GROUPER logic for MS-DRGs 329, 330, 331, 347, 348, and 349.

Next, we examined claims data from the September 2023 update of the FY 2023 MedPAR file for MS-DRG 347, 348, and 349 to identify cases reporting one of the eight codes listed previously that describe excision of intestinal body parts by an open, percutaneous, or percutaneous endoscopic approach. Our findings are shown in the following table:

As shown in the table, in MS-DRG 347, we identified a total of 752 cases with an average length of stay of 7.6 days and average costs of $21,462. Of those 752 cases, there were 66 cases reporting one of eight procedure codes describing the excision of intestinal body parts by an open, percutaneous, or percutaneous endoscopic approach, with average costs higher than the average costs in the FY 2023 MedPAR file for MS-DRG 347 ($27,081 compared to $21,462) and a longer average length of stay (8.5 days compared to 7.6 days). In MS-DRG 348, we identified a total of 1,580 cases with an average length of stay of 4.2 days and average costs of $12,020. Of those 1,580 cases, there were 192 cases reporting one of eight procedure codes describing the excision of intestinal body parts by an open, percutaneous, or percutaneous endoscopic approach, with average costs higher than the average costs in the FY 2023 MedPAR file for MS-DRG 348 ($17,063 compared to $12,020) and a longer average length of stay (4.9 days compared to 4.2 days). In MS-DRG 349, we identified a total of 644 cases with an average length of stay of 2.2 days and average costs of $9,095. Of those 644 cases, there were 117 cases reporting one of eight procedure codes describing the excision of intestinal body parts by an open, percutaneous, or percutaneous endoscopic approach, with average costs higher than the average costs in the FY 2023 MedPAR file for MS-DRG 349 ($14,612 compared to $9,095), and a longer average length of stay (3 days compared to 2.2 days).

We then examined claims data from the September 2023 update of the FY 2023 MedPAR for MS-DRGs 329, 330, and 331. Our findings are shown in the following table.

While the average costs for all cases in MS-DRGs 329, 330, and 331 are higher than the average costs of the cases reporting one of eight procedure codes describing the excision of intestinal body parts by an open, percutaneous, or percutaneous endoscopic approach, the data suggest that overall, cases reporting one of eight procedure codes describing the excision of intestinal body parts by an open, percutaneous, or percutaneous endoscopic approach may be more appropriately aligned with the average costs of the cases in MS-DRGs 329, 330, and 331 in comparison to MS-DRGs 347, 348, and 349, even though the average lengths of stay are shorter.

We reviewed this grouping issue, and our analysis indicates that the eight procedure codes describing the excision of intestinal body parts by an open, percutaneous, or percutaneous endoscopic approach were initially assigned to the list of procedures in the GROUPER logic for MS-DRGs 347, 348, and 349 as a result of replication in the transition from ICD-9 to ICD-10 based MS-DRGs. We also note that procedure codes 0DB83ZZ, 0DBA3ZZ, 0DBA4ZZ, 0DBB3ZZ, 0DBB4ZZ, 0DBC0ZZ, 0DBC3ZZ, and 0DBC4ZZ do not describe procedures on a stoma, which is an artificial opening on the abdomen that can be connected to either the digestive or urinary system to allow waste to be diverted out of the body, or the anus. We support the reassignment of codes 0DB83ZZ, 0DBA3ZZ, 0DBA4ZZ, 0DBB3ZZ, 0DBB4ZZ, 0DBC0ZZ, 0DBC3ZZ, and 0DBC4ZZ for clinical coherence and believe these eight procedure codes should be appropriately grouped along with the four other procedure codes that describe excision of intestinal body parts by an open, or percutaneous endoscopic approach currently assigned to MS-DRGs 329, 330, and 331.

Accordingly, because the procedures described by the eight procedure codes that describe excision of intestinal body parts by an open, percutaneous, or percutaneous endoscopic approach are not clinically consistent with procedures on the anus or stoma, and it is clinically appropriate to reassign these procedures to be consistent with the four other procedure codes that describe excision of intestinal body parts by an open, or percutaneous endoscopic approach in MS-DRGs 329, 330, and 331, we are proposing the reassignment of procedure codes 0DB83ZZ, 0DBA3ZZ, 0DBA4ZZ, 0DBB3ZZ, 0DBB4ZZ, 0DBC0ZZ, 0DBC3ZZ, and 0DBC4ZZ from MS-DRGs 347, 348, and 349 (Anal and Stomal Procedures with MCC, with CC, and without CC/MCC, respectively) to MS-DRGs 329, 330, and 331 (Major Small and Large Bowel Procedures with MCC, with CC, and without CC/MCC, respectively) in MDC 06, effective FY 2025.

6. MDC 08 (Diseases and Disorders of the Musculoskeletal System and Connective Tissue)

a. MS-DRG Logic for MS-DRGs 456, 457, and 458

We identified an inconsistency in the GROUPER logic for MS-DRGs 456, 457, and 458 (Spinal Fusion Except Cervical with Spinal Curvature, Malignancy, Infection or Extensive Fusions with MCC, with CC, and without CC/MCC, respectively) related to ICD-10-CM diagnosis codes describing deforming dorsopathies. The logic for case assignment to MS-DRGs 456, 457, and 458 as displayed in the ICD-10 MS-DRG Definitions Manual Version 41.1 (which is available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software) is comprised of four logic lists. The first logic list is entitled “Spinal Fusion Except Cervical” and is defined by a list of procedure codes designated as O.R. procedures that describe spinal fusion procedures of the thoracic, thoracolumbar, lumbar, lumbosacral, sacrococcygeal, coccygeal, and sacroiliac joint. The second logic list is entitled “Spinal Curvature/Malignancy/Infection” and is defined by a list of diagnosis codes describing spinal curvature, spinal malignancy, and spinal infection that are used to define the logic for case assignment when any one of the listed diagnosis codes is reported as the principal diagnosis. The third logic list is entitled “OR Secondary Diagnosis” and is defined by a list of diagnosis codes describing curvature of the spine that are used to define the logic for case assignment when any one of the listed codes is reported as a secondary diagnosis. The fourth logic list is entitled “Extensive Fusions” and is defined by a list of procedure codes designated as O.R. procedures that describe extensive spinal fusion procedures. We refer the reader to the ICD-10 MS-DRG Definitions Manual Version 41.1, (available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software) for complete documentation of the GROUPER logic for MS-DRGs 456, 457, and 458.

In the second logic list entitled “Spinal Curvature/Malignancy/Infection” there are a subset of six diagnosis codes describing other specified deforming dorsopathies as shown in the following table.

In the third logic list entitled “OR Secondary Diagnosis” there are currently 14 diagnosis codes listed, one of which is diagnosis code M43.8X9 (Other specified deforming dorsopathies, site unspecified) as shown in the following table.

We recognized that the five diagnosis codes describing deforming dorsopathies of specific anatomic sites that are listed in the second logic list entitled “Spinal Curvature/Malignancy/Infection” are not listed in the third logic list entitled “OR Secondary Diagnosis”, rather, only diagnosis code M43.8X9 (Other specified deforming dorsopathies, site unspecified) appears in both logic lists. Therefore, we considered if it was clinically appropriate to add the five diagnosis codes describing deforming dorsopathies of specific anatomic sites that are listed in the second logic list entitled “Spinal Curvature/Malignancy/Infection” to the third logic list entitled “OR Secondary Diagnosis”.

A deforming dorsopathy is characterized by abnormal bending or flexion in the vertebral column. All spinal deformities involve problems with curve or rotation of the spine, regardless of site specificity. We believe the five diagnosis codes describing deforming dorsopathies of specific anatomic sites to be clinically aligned with the diagnosis codes currently included in the “OR Secondary Diagnosis” logic list. Therefore, for clinical consistency we are proposing to add diagnosis codes M43.8X4, M43.8X5, M43.8X6, M43.8X7, and M43.8X8 to the “OR Secondary Diagnosis” logic list for MS-DRGs 456, 457, and 458, effective October 1, 2024 for FY 2025.

b. Interbody Spinal Fusion Procedures

In the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26726 through 26729) and final rule (88 FR 58731 through 58735, as corrected in the FY 2024 final rule correction notice at 88 FR 77211), we discussed a request we received to reassign cases reporting spinal fusion procedures using an aprevo^TM customized interbody fusion device from the lower severity MS-DRG 455 (Combined Anterior and Posterior Spinal Fusion without CC/MCC) to the higher severity MS-DRG 453 (Combined Anterior and Posterior Spinal Fusion with MCC), from the lower severity MS-DRG 458 (Spinal Fusion Except Cervical with Spinal Curvature, Malignancy, Infection or Extensive Fusions without CC/MCC) to the higher severity level MS-DRG 456 (Spinal Fusion Except Cervical with Spinal Curvature, Malignancy, Infection or Extensive Fusions with MCC) when a diagnosis of malalignment is reported, and from MS-DRGs 459 and 460 (Spinal Fusion Except Cervical with MCC and without MCC, respectively) to MS-DRG 456. We refer the reader to the ICD-10 MS-DRG Definitions Manual Version 41.1 (available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software) for complete documentation of the GROUPER logic.

We also noted that the aprevo^TM Intervertebral Body Fusion Device technology was approved for new technology add-on payments for FY 2022 (86 FR 45127 through 45133). We further noted that, as discussed in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49468 through 49469), CMS finalized the continuation of the new technology add-on payments for this technology for FY 2023. In the FY 2024 IPPS/LTCH PPS final rule (88 FR 58802), we finalized the continuation of new technology add-on payments for the transforaminal lumbar interbody fusion (TLIF) indication for aprevo^TM for FY 2024, and the discontinuation of the new technology add-on payments for the anterior lumbar interbody fusion (ALIF) and lateral lumbar interbody fusion (LLIF) indications for FY 2024. We refer the reader to section II.E. for discussion of the FY 2025 status of technologies receiving new technology add-on payments for FY 2024, including the status for the aprevo^TM technology.

As also discussed in the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26726 through 26729) and final rule (88 FR 58731 through 58735), effective October 1, 2021 (FY 2022), we implemented 12 new ICD-10-PCS procedure codes to identify and describe spinal fusion procedures using the aprevo^TM customized interbody fusion device. In the proposed rule we noted that the manufacturer expressed concerns that there may be unintentional miscoded claims from providers with whom they do not have an explicit relationship and that following the submission of the request for the FY 2024 MS-DRG classification change for cases reporting the performance of a spinal fusion procedure utilizing an aprevo^TM customized interbody spinal fusion device, it submitted a code proposal requesting a revision to the title of the procedure codes that were finalized effective FY 2022. As discussed in the FY 2024 IPPS/LTCH PPS final rule, a proposal to revise the code title for the procedure codes that identify and describe spinal fusion procedures using the aprevo^TM customized interbody fusion device was presented and discussed as an Addenda item at the March 7-8, 2023 ICD-10 Coordination and Maintenance Committee meeting and subsequently finalized.

The code title changes for the 12 ICD-10-PCS procedure codes to identify and describe spinal fusion procedures using the aprevo^TM customized interbody fusion device were reflected in the FY 2024 ICD-10-PCS Code Update files available via the CMS website at: https://www.cms.gov/medicare/coding-billing/icd-10-codes/2024-icd-10-pcs, as well as in Table 6F.—Revised Procedure Code Titles—FY 2024 associated with the FY 2024 IPPS/LTCH PPS final rule and available via the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps. We note that only the code titles were revised and the code numbers themselves did not change.

Accordingly, effective with discharges on and after October 1, 2023 (FY 2024), the 12 ICD-10-PCS procedure codes to identify and describe spinal fusion procedures using the aprevo^TM customized interbody fusion device with their revised code titles are as follows:

As discussed in the FY 2024 proposed and final rules, as part of our analysis of the manufacturer's request to reassign cases involving the aprevo^TM device, we presented findings from our analysis of claims data from the September 2022 update of the FY 2022 MedPAR file for MS-DRGs 453, 454, 455, 456, 457, 458, 459, and 460 and cases reporting any one of the 12 original procedure codes describing utilization of an aprevo customized interbody spinal fusion device. We stated that while we agreed that the findings from our analysis appeared to indicate that cases reporting the performance of a procedure using an aprevo^TM customized interbody spinal fusion device reflected a higher consumption of resources, due to the concerns expressed with respect to suspected inaccuracies of the coding and therefore, reliability of the claims data, we would continue to monitor the claims data for resolution of the potential coding issues identified by the requestor (the manufacturer). We stated that we continued to believe additional review of claims data was warranted and would be informative as we continued to consider cases involving this technology for future rulemaking. Specifically, we stated we believed it would be premature to propose any MS-DRG modifications for spinal fusion procedures using an aprevo^TM customized interbody spinal fusion device for FY 2024 and finalized our proposal to maintain the structure of MS-DRGs 453, 454, 455, 456, 457, 458, 459, and 460, without modification, for FY 2024 (88 FR 58734 through 58735). As discussed further in the FY 2024 final rule correction, in response to the manufacturer's comment expressing concern about the reliability of the Medicare claims data in the MedPAR file used for purposes of CMS's claims data analysis, as compared to the manufacturer's analysis of its own customer claims data, we stated that in order for us to consider using non-MedPAR data, the non-MedPAR data must be independently validated, meaning when an entity submits non-MedPAR data, we must be able to independently review the medical records and verify that a particular procedure was performed for each of the cases that purportedly involved the procedure. We noted that, in this particular circumstance, where external data for cases reporting the use of an aprevo^TM spinal fusion device was provided, we did not have access to the medical records to conduct an independent review; therefore, we were not able to validate or confirm the non-MedPAR data submitted by the commenter for consideration in FY 2024. However, we also noted that our work in this area was ongoing, and we would continue to examine the data and consider these issues as we develop potential future rulemaking proposals. We refer readers to the FY 2024 IPPS/LTCH PPS correction notice (88 FR 77211) for further discussion.

In advance of this FY 2025 IPPS/LTCH PPS proposed rule, the manufacturer provided us with a list of the providers with which it indicated it has an explicit relationship to assist in our ongoing review of its request for reassignment of cases reporting spinal fusion procedures using an aprevo^TM interbody fusion device from the lower severity spinal fusion MS-DRGs to the higher severity level spinal fusion MS-DRGs.

To continue our analysis of cases reporting spinal fusion procedures using an aprevo^TM customized interbody fusion device, we first analyzed claims data from the September 2023 update of the FY 2023 MedPAR file for MS-DRGs 453, 454, 455, 456, 457, 458, 459, and 460, and cases reporting any one of the previously listed procedure codes describing the performance of a spinal fusion procedure using an aprevo^TM custom-made anatomically designed interbody fusion device.³ Our findings are shown in the following tables.

We identified the majority of cases reporting the performance of a spinal fusion procedure using an aprevo^TM custom-made anatomically designed interbody fusion device in MS-DRGs 453, 454, and 455 with a total of 242 cases (26 + 129 + 87 = 242) with an average length of stay of 4.6 days and average costs of $68,526. The 26 cases found in MS-DRG 453 appear to have a comparable average length of stay (9.8 days versus 9.5 days) and higher average costs ($99,162 versus $80,420) compared to all the cases in MS-DRG 453, with a difference in average costs of $18,742 for the cases reporting the performance of a spinal fusion procedure using an aprevo^TM custom-made anatomically designed interbody fusion device. The 129 cases found in MS-DRG 454 appear to have a comparable average length of stay (4.9 days versus 4.3 days) and higher average costs ($71,527 versus $54,983) compared to all the cases in MS-DRG 454, with a difference in average costs of $16,544 for the cases reporting the performance of a spinal fusion procedure using an aprevo^TM custom-made anatomically designed interbody fusion device. The 87 cases found in MS-DRG 455 have an identical average length of stay of 2.6 days in comparison to all the cases in MS-DRG 455, however, the difference in average costs is $13,907 ($54,922−$41,015 = $13,907) for the cases reporting the performance of a spinal fusion procedure using an aprevo^TM custom-made anatomically designed interbody fusion device.

For MS-DRGs 456, 457, and 458, we found a total of 19 cases (2 + 11 + 6 = 19) reporting the performance of a spinal fusion procedure using an aprevo^TM custom-made anatomically designed interbody fusion device with an average length of stay of 4.7 days and average costs of $51,384. The 2 cases found in MS-DRG 456 have a shorter average length of stay (8.5 days versus 12.6 days) and lower average costs ($69,009 versus $76,060) compared to all the cases in MS-DRG 456. The 11 cases found in MS-DRG 457 also have a shorter average length of stay (5.0 days versus 6.1 days) and lower average costs ($47,221 versus $52,179). For MS-DRG 458, we found 6 cases reporting the performance of a spinal fusion procedure using an aprevo^TM custom-made anatomically designed interbody fusion device with a comparable average length of stay (3.0 days versus 3.1 days) and higher average costs ($53,140 versus $39,260) compared to the average costs of all the cases in MS-DRG 458, with a difference in average costs of $13,880 ($53,140−$39,260 = $13,880) for the cases reporting the performance of a spinal fusion procedure using an aprevo^TM custom-made anatomically designed interbody fusion device.

For MS-DRGs 459 and 460, we found a total of 65 cases reporting the performance of a spinal fusion procedure using an aprevo^TM custom-made anatomically designed interbody fusion device with an average length of stay of 2.7 days and average costs of $57,128. The single case found in MS-DRG 459 had a longer average length of stay (22 days versus 9.6 days) and higher average costs ($288,499 versus $53,192) compared to the average costs of all the cases in MS-DRG 459. For MS-DRG 460, the 64 cases reporting the performance of a spinal fusion procedure using an aprevo^TM custom-made anatomically designed interbody fusion device had a shorter average length of stay (2.4 days versus 3.4 days) and higher average cost ($53,513 versus $32,586), compared to all the cases in MS-DRG 460, with a difference in average costs of $20,927 ($53,513−$32,586 = $20,927) for the cases reporting the performance of a spinal fusion procedure using an aprevo^TM custom-made anatomically designed interbody fusion device.

As discussed in the FY 2024 final rule, the manufacturer expressed concern that there may be unintentional miscoded claims from providers with whom they do not have an explicit relationship and, as previously discussed, subsequently provided the list of providers with which it indicated it has an explicit relationship to assist in our ongoing review. In connection with the list of providers submitted, the manufacturer also resubmitted claims data from the Standard Analytical File (SAF) that included FY 2022 claims and the first two quarters (discharges beginning October 1, 2022 through March 31, 2023) of FY 2023 from these providers. We note that the list of providers the manufacturer submitted to us was considered applicable for the dates of service in connection with the resubmitted claims data. The manufacturer stated that the list of providers with which it has an explicit relationship is subject to change on a weekly basis as additional providers begin to use the technology. The manufacturer also clarified that the external customer data it had previously referenced in connection with the FY 2024 rulemaking that was received directly from the providers with which it has an explicit relationship is Medicare data. We reviewed the September update of the FY 2022 MedPAR file and compared it against the claims data file with the list of providers submitted by the manufacturer for FY 2022. In this updated analysis of the September update of the FY 2022 MedPAR claims data, we were able to confirm that the majority of the cases for the providers with which the manufacturer indicated it has an explicit relationship matched the claims data in our FY 2022 MedPAR file. However, we identified 3 claims that appeared in the manufacturer's file that were not found in our FY 2022 MedPAR file and could not be validated. Next, we reviewed the September update of the FY 2023 MedPAR file and compared it against the claims data file with the list of providers submitted by the manufacturer for the first two quarters of FY 2023. We were able to confirm that the majority of the cases for the providers with which the manufacturer indicated it has an explicit relationship matched the claims data in our FY 2023 MedPAR file. However, we identified 2 claims that appeared in the manufacturer's file that were not found in our FY 2023 MedPAR file and also could not be validated.

In our analysis of the cases reporting the performance of a spinal fusion procedure using an aprevo^TM custom-made anatomically designed interbody fusion device in MS-DRGs 453, 454, 455, 456, 457, 458, 459, and 460 from the September update of the FY 2023 MedPAR file, we also reviewed the findings for cases identified based on the list of providers with which the manufacturer indicated it has an explicit relationship and cases based on other providers, (that is, those providers not included on the manufacturer's list), and compared those to the findings from all the cases we identified in the September update of the FY 2023 MedPAR file reporting the performance of a spinal fusion procedure using an aprevo^TM custom-made anatomically designed interbody fusion device in MS-DRGs 453, 454, 455, 456, 457, 458, 459, and 460. The findings from our analysis are shown in the following table. We note that there were no cases found to report the performance of a spinal fusion procedure using an aprevo^TM custom-made anatomically designed interbody fusion device based on the list of providers submitted by the manufacturer in MS-DRG 456.

For MS-DRG 453, the data show that of the 26 cases found to report the performance of a spinal fusion procedure using an aprevo^TM custom-made anatomically designed interbody fusion device from the FY 2023 MedPAR file, 10 cases were reported based on the manufacturer's provider list, and 16 cases were reported based on other providers. The average length of stay is longer (10.5 days versus 9.4 days), and the average costs are higher ($118,863 versus $86,849) for the 10 cases reported based on the manufacturer's provider list compared to the 16 cases that were reported based on other providers. For MS-DRG 454, the data show that of the 129 cases found to report the performance of a spinal fusion procedure using an aprevo^TM custom-made anatomically designed interbody fusion device from the FY 2023 MedPAR file, 48 cases were reported based on the manufacturer's provider list, and 81 cases were reported based on other providers. The average length of stay is longer (6.3 days versus 4.1 days), and the average costs are higher ($81,680 versus $65,510) for the 48 cases reported based on the manufacturer's provider list compared to the 81 cases that were reported based on other providers. For MS-DRG 455, the data show that of the 87 cases found to report the performance of a spinal fusion procedure using an aprevo^TM custom-made anatomically designed interbody fusion device from the FY 2023 MedPAR file, 14 cases were reported based on the manufacturer's provider list, and 73 cases were reported based on other providers. The average length of stay is shorter (2.5 days versus 2.6 days), and the average costs are higher ($61,637 versus $53,634) for the 14 cases reported based on the manufacturer's provider list compared to the 73 cases that were reported based on other providers.

For MS-DRG 456, the data show that of the 2 cases found to report the performance of a spinal fusion procedure using an aprevo^TM custom-made anatomically designed interbody fusion device from the FY 2023 MedPAR file, there were no cases reported based on the manufacturer's provider list and the 2 cases reported were based on other providers. For MS-DRG 457, the data show that of the 11 cases found to report the performance of a spinal fusion procedure using an aprevo^TM custom-made anatomically designed interbody fusion device from the FY 2023 MedPAR file, 2 cases were reported based on the manufacturer's provider list, and 9 cases were reported based on other providers. The average length of stay is shorter (4.5 days versus 5.1 days), and the average costs are higher ($53,113 versus $45,912) for the 2 cases reported based on the manufacturer's provider list compared to the 9 cases that were reported based on other providers. For MS-DRG 458, the data show that of the 6 cases found to report the performance of a spinal fusion procedure using an aprevo^TM custom-made anatomically designed interbody fusion device from the FY 2023 MedPAR file, 3 cases were reported based on the manufacturer's provider list, and 3 cases were reported based on other providers. The average length of stay is longer (3.3 days versus 2.7 days), and the average costs are lower ($52,760 versus $53,520) for the 3 cases reported based on the manufacturer's provider list compared to the 3 cases that were reported for other providers.

For MS-DRG 459, the data show that the single case found to report the performance of a spinal fusion procedure using an aprevo^TM custom-made anatomically designed interbody fusion device from the FY 2023 MedPAR file was based on the manufacturer's provider list. There were no cases reported based on other providers. For MS-DRG 460, the data show that of the 64 cases found to report the performance of a spinal fusion procedure using an aprevo^TM custom-made anatomically designed interbody fusion device from the FY 2023 MedPAR file, 13 cases were reported based on the manufacturer's provider list, and 51 cases were reported based on other providers. The average length of stay is comparable (2.6 days versus 2.3 days), and the average costs are higher ($62,829 versus $51,138) for the 13 cases reported based on the manufacturer's provider list compared to the 51 cases that were reported from other providers.

We considered these data findings with regard to the concerns expressed by the manufacturer that there may be unintentional miscoded claims reporting the performance of a spinal fusion procedure using an aprevo^TM custom-made anatomically designed interbody fusion device from providers with whom the manufacturer does not have an explicit relationship. Based on our review and analysis of the claims data, we are unable to confirm that the claims from these providers with whom the manufacturer indicated that it does not have an explicit relationship are miscoded.

We note that, while a newly established ICD-10 code may be associated with an application for new technology add-on payment, such codes are not generally established to be product specific. If, after consulting the official coding guidelines, a provider determines that an ICD-10 code associated with a new technology add-on payment describes the technology that they are billing, the hospital may report the code and be eligible to receive the associated add-on payment. Providers are responsible for ensuring that they are billing correctly for the services they render. In addition, as we noted in the FY 2018 IPPS/LTCH PPS final rule (82 FR 38012), coding advice is issued independently from payment policy. We also note that, historically, we have not provided coding advice in rulemaking with respect to policy (82 FR 38045). As one of the Cooperating Parties for ICD-10, we collaborate with the American Hospital Association (AHA) through the Coding Clinic for ICD-10-CM and ICD-10-PCS to promote proper coding. We recommend that an entity seeking coding guidance submit any questions pertaining to correct coding to the AHA.

Accordingly, after review of the list of providers and associated claims data submitted by the manufacturer, and our analysis of the MedPAR data, we believe these MedPAR data are appropriate for our FY 2025 analysis. Therefore, in assessing the request for reassignment of cases reporting the performance of a spinal fusion procedure using an aprevo^TM custom-made anatomically designed interbody fusion device from the lower severity MS-DRG 455 to the higher severity MS-DRG 453, from the lower severity MS-DRG 458 to the higher severity level MS-DRG 456 when a diagnosis of malalignment is reported, and cases from MS-DRGs 459 and 460 to MS-DRG 456 for FY 2025, we considered all the claims data reporting the performance of a spinal fusion procedure, including those spinal fusion procedures using an aprevo^TM custom-made anatomically designed interbody fusion device as identified in the September update of the FY 2023 MedPAR file for these MS-DRGs. Consequently, our analysis also included claims based on the list of providers submitted by the manufacturer as well as other providers.

Based on the findings from our analysis and clinical review, we do not believe the requested reassignments are supported. Specifically, it would not be appropriate to propose to reassign the 87 cases reporting the performance of a spinal fusion procedure using an aprevo^TM custom-made anatomically designed interbody fusion device from the lower severity level MS-DRG 455 (without CC/MCC) with an average length of stay of 2.6 days and average costs of $54,922 to the higher severity level MS-DRG 453 (with MCC) with an average length of stay of 9.5 days and average costs of $80,420. If we were to propose to reassign the 87 cases from the lower severity MS-DRG 455 to the higher severity MS-DRG 453, the MS-DRGs would no longer be clinically coherent with regard to severity of illness of the patients, and the cases would reflect a difference in resource utilization, as demonstrated by the difference in average costs of approximately $25,498 ($80,420−$54,922 = $25,498), as well as a difference in average length of stay (2.6 days versus 9.5 days) compared to all the cases in MS-DRG 453. Similarly, it would not be appropriate to propose to reassign the 6 cases reporting the performance of a spinal fusion procedure using an aprevo^TM custom-made anatomically designed interbody fusion device from the lower severity level MS-DRG 458 (without CC/MCC) with an average length of stay of 3.0 days and average costs of $53,140 to the higher severity level MS-DRG 456 (with MCC) with an average length of stay of 12.6 days and average costs of $76,060. If we were to propose to reassign the 6 cases from the lower severity MS-DRG 458 to the higher severity MS-DRG 456, the MS-DRGs would no longer be clinically coherent with regard to severity of illness of the patients and the cases would reflect a difference in resource utilization, as demonstrated by the difference in average costs of approximately $22,920 ($76,060−$53,140 = $22,920) as well as a difference in average length of stay (3.0 days versus 12.6 days) compared to all the cases in MS-DRG 456. Finally, it would not be appropriate nor consistent with the definition of the MS-DRGs to propose to reassign the 65 cases reporting the performance of a spinal fusion procedure using an aprevo^TM custom-made anatomically designed interbody fusion device from MS-DRGs 459 and 460 with an average length of stay of 2.7 days and average costs of $57,128 to MS-DRG 456. In addition to the cases reflecting a difference in resource utilization as demonstrated by the difference in average costs of approximately $18,932 ($76,060−$57,128 = $18,932) as well as having a shorter average length of stay (2.7 days versus 12.6 days), we note that the logic for case assignment to MS-DRGs 456, 457, and 458 is specifically defined by principal diagnosis logic. As such, cases grouping to this set of MS-DRGs require a principal diagnosis of spinal curvature, malignancy, or infection, or an extensive fusion procedure. Therefore, it would not be clinically appropriate to propose to reassign cases from MS-DRGs 459 and 460 that do not have a principal diagnosis of spinal curvature, malignancy, or infection, or an extensive fusion procedure, and are not consistent with the logic for case assignment to MS-DRG 456.

In light of the higher average costs of the cases reporting the performance of a spinal fusion procedure using an aprevo^TM custom-made anatomically designed interbody fusion device in MS-DRGs 453, 454, 455, 458, and 460, we further reviewed the claims data for cases reporting the performance of a spinal fusion procedure using an aprevo^TM custom-made anatomically designed interbody fusion device in these MS-DRGs and identified a wide range in the average length of stay and average costs. For example, in MS-DRG 453, the average length of stay for the 26 cases reporting the performance of a spinal fusion procedure using an aprevo^TM custom-made anatomically designed interbody fusion device ranged from 3.0 days to 27 days and the average costs ranged from $28,054 to $177,919. In MS-DRG 454, the average length of stay for the 129 cases reporting the performance of a spinal fusion procedure using an aprevo^TM custom-made anatomically designed interbody fusion device ranged from 1.0 day to 16 days and the average costs ranged from $10,242 to $316,780. In MS-DRG 455, the average length of stay for the 87 cases reporting the performance of a spinal fusion procedure using an aprevo^TM custom-made anatomically designed interbody fusion device ranged from 1.0 day to 9.0 days and the average costs ranged from $7,961 to $216,200. In MS-DRG 456, the average length of stay for the 2 cases reporting the performance of a spinal fusion procedure using an aprevo^TM custom-made anatomically designed interbody fusion device were 8.0 days and 9.0 days, respectively, with average costs of $107,457 and $30,560, respectively. In MS-DRG 457, the average length of stay for the 11 cases reporting the performance of a spinal fusion procedure using an aprevo^TM custom-made anatomically designed interbody fusion device ranged from 1.0 day to 17 days and the average costs ranged from $25,955 to $89,176. In MS-DRG 458, the average length of stay for the 6 cases reporting the performance of a spinal fusion procedure using an aprevo^TM custom-made anatomically designed interbody fusion device ranged from 1.0 day to 5.0 days and the average costs ranged from $33,165 to $78,720. In MS-DRG 459, the length of stay for the single case reporting the performance of a spinal fusion procedure using an aprevo^TM custom-made anatomically designed interbody fusion device was 22 days with a cost of $288,499, indicating it is an outlier. In MS-DRG 460, the average length of stay for the 64 cases reporting the performance of a spinal fusion procedure using an aprevo^TM custom-made anatomically designed interbody fusion device ranged from 1.0 day to 8.0 days and the average costs ranged from $8,981 to $325,104.

In our analysis of the claims data for MS-DRGs 453, 454, and 455, we also identified a number of cases for which additional spinal fusion procedures were performed, beyond the logic for case assignment to the respective MS-DRG. For example, the logic for case assignment to MS-DRGs 453, 454, and 455 requires at least one anterior column fusion and one posterior column fusion (that is, combined anterior and posterior fusion). We note that the aprevo^TM custom-made anatomically designed interbody fusion device is used in the performance of an anterior column fusion. Findings from our analysis of MS-DRG 453 show that of the 26 cases reporting a combined anterior and posterior fusion (including an aprevo^TM custom-made anatomically designed interbody fusion device), 24 cases also reported another spinal fusion procedure. We categorized these cases as “multiple level fusions” where another procedure code describing a spinal fusion procedure was reported in addition to the combined anterior and posterior fusion procedure codes. Findings from our analysis of MS-DRG 454 show that of the 129 cases reporting a combined anterior and posterior fusion (including an aprevo^TM custom-made anatomically designed interbody fusion device), 100 cases also reported another spinal fusion procedure. Lastly, findings from our analysis of MS-DRG 455 show that of the 87 cases reporting a combined anterior and posterior fusion (including an aprevo^TM custom-made anatomically designed interbody fusion device), 51 cases also reported another spinal fusion procedure.

While the findings from our analysis indicate a wide range in the average length of stay and average costs for cases reporting the performance of a spinal fusion procedure using an aprevo^TM custom-made anatomically designed interbody fusion device, we believe the increase in resource utilization for certain cases may be partially attributable to the performance of multiple level fusion procedures and, specifically for MS-DRGs 453 and 454, the reporting of secondary diagnosis MCC and CC conditions. Our analysis of the data for MS-DRGs 453 and 454 show that the cases reporting the performance of a spinal fusion procedure using an aprevo^TM custom-made anatomically designed interbody fusion device also reported multiple MCC and CC conditions, which we believe may be an additional contributing factor to the increase in resource utilization for these cases, combined with the reported performance of multiple level fusions.

In our analysis of the data for MS-DRGs 453, 454, and 455 and cases reporting the performance of a spinal fusion procedure using an aprevo^TM custom-made anatomically designed interbody fusion device, we also identified other procedures that were reported, some of which are designated as operating room (O.R.) procedures, that we believe may be another contributing factor to the increase in resource utilization and complexity for these cases. (We note that because a discectomy is frequently performed in connection with a spinal fusion procedure, we did not consider these procedures as contributing factors to consumption of resources in these spinal fusion cases). In the tables that follow we provide a list of the top 5 MCC and CC conditions, as well as the top 5 O.R. procedures (excluding discectomy) reported in MS-DRGs 453, 454, and 455 that we believe may be contributing factors to the increase in resource utilization and complexity for these cases. We note that the logic for case assignment to MS-DRG 453 includes the reporting of at least one secondary diagnosis MCC condition (“with MCC”) and cases that group to this MS-DRG may also report secondary diagnosis CC conditions. We are providing the frequency data for both the top 5 secondary diagnosis MCC conditions and the top 5 secondary diagnosis CC conditions, in addition to the top 5 O.R. procedures (excluding discectomy) that were reported for spinal fusion cases with an aprevo^TM custom-made anatomically designed interbody fusion device in MS-DRG 453. Because the logic for case assignment to MS-DRG 454 includes the reporting of at least one secondary diagnosis CC condition (“with CC”) we are providing the top 5 secondary diagnosis CC conditions and the top 5 O.R. procedures (excluding discectomy) that were reported for spinal fusion cases with an aprevo^TM custom-made anatomically designed interbody fusion device in MS-DRG 454. We note that the logic for case assignment to MS-DRG 455 is “without CC/MCC” and does not include any secondary diagnosis MCC or CC conditions, therefore, we are only providing a table with the top 5 O.R. procedures (excluding discectomy) reported for that MS-DRG in addition to a spinal fusion procedure.

As previously summarized, our analysis of the claims data for cases reporting the performance of a spinal fusion procedure using an aprevo^TM custom-made anatomically designed interbody fusion device demonstrated a low volume of cases and higher average costs in comparison to all the cases in their respective MS-DRGs (that is, in MS-DRGs 453, 454, 455, 458, 459, and 460). Therefore, we expanded our analysis to include all spinal fusion cases in MS-DRGs 453, 454, 455, 456, 457, 458, 459, and 460 to identify and further examine the cases reporting multiple level fusions versus single level fusions, multiple MCCs or CCs, and other O.R. procedures as we believed that clinically, all of these factors may contribute to increases in resource utilization, severity of illness and technical complexity.

We began our expanded analysis with MS-DRGs 453, 454, and 455. Based on the findings for a subset of the cases (that is, the subset of cases reporting the performance of a spinal fusion procedure using an aprevo^TM custom-made anatomically designed interbody fusion device) in these MS-DRGs as previously discussed, and our review of the logic for case assignment to these MS-DRGs, we developed three categories of spinal fusion procedures to further examine. The first category was for the single level combined anterior and posterior fusions except cervical, the second category was for the multiple level combined anterior and posterior fusions except cervical and the third category was for the combined anterior and posterior cervical spinal fusions. We refer the reader to Table 6P.2d for the list of procedure codes we identified to categorize the single level combined anterior and posterior fusions except cervical, Table 6P.2e for the list of procedure codes we identified to categorize the multiple level combined anterior and posterior fusions except cervical, and Table 6P.2f for the list of procedure codes we identified to categorize the combined anterior and posterior cervical spinal fusions. Findings from our analysis are shown in the following table.

The data show that across MS-DRGs 453, 454, and 455, cases reporting multiple level combined anterior and posterior fusion procedures have a comparable average length of stay (9.6 days versus 9.5 days, 4.8 days versus 4.3 days, and 3.0 days versus 2.6 days, respectively) and higher average costs ($91,358 versus $80,420, $64,065 versus $54,983, and $50,097 versus $41,015) compared to all the cases in MS-DRGs 453, 454, and 455, respectively. The data also show that across MS-DRGs 453, 454, and 455, cases reporting multiple level combined anterior and posterior fusion procedures have a longer average length of stay (9.6 days versus 6.4 days, 4.8 days versus 3.4 days, and 3.0 days versus 2.3 days, respectively) and higher average costs ($91,358 versus $47,031, $64,065 versus $38,107, and $50,097 versus $33,010, respectively) compared to cases reporting a single level combined anterior and posterior fusion. For cases reporting a combined anterior and posterior cervical fusion across MS-DRGs 453 and 454, the data show a longer average length of stay (12.5 days versus 9.5 days, and 5.1 days versus 4.3 days, respectively) compared to all the cases in MS-DRGs 453 and 454 and a comparable average length of stay (2.9 days versus 2.6 days) for cases reporting a combined anterior and posterior cervical fusion in MS-DRG 455. The data also show that across MS-DRGs 453, 454, and 455, cases reporting a combined anterior and posterior cervical fusion have higher average costs ($75,077 versus $47,031, $52,274 versus $38,107, and $37,515 versus $33,010, respectively) compared to the single level combined anterior and posterior fusion cases.

The data also reflect that in applying the logic that was developed for the three categories of spinal fusion in MS-DRGs 453, 454, and 455 (single level combined anterior and posterior fusion except cervical, multiple level combined anterior and posterior fusion except cervical, and combined anterior and posterior cervical fusion), there is a small redistribution of cases from the current MS-DRGs 453, 454, and 455 to other spinal fusion MS-DRGs because the logic for case assignment to MS-DRGs 453, 454, and 455 is currently satisfied with any one procedure code from the anterior spinal fusion logic list and any one procedure code from the posterior spinal fusion logic list, however, the logic lists that were developed for our analysis using the three categories of spinal fusion are comprised of specific procedure code combinations to satisfy the criteria for case assignment to any one of the three categories developed. For example, based on our analysis of MS-DRG 453 using the September update of the FY 2023 MedPAR file, the total number of cases found in MS-DRG 453 is 4,066 and with application of the logic for each of the three categories, the total number of cases in MS-DRG 453 is 4,042 (791 + 2,664 + 587 = 4,042), a difference of 24 cases. Using the September update of the FY 2023 MedPAR file, the total number of cases found in MS-DRG 454 is 20,425 and with application of the logic for each of the three categories, the total number of cases in MS-DRG 454 is 20,370 (6,481 + 12,498 + 1,391 = 20,370), a difference of 55 cases. Lastly, using the September update of the FY 2023 MedPAR file, the total number of cases found in MS-DRG 455 is 17,000 and with application of the logic for each of the three categories, the total number of cases in MS-DRG 455 is 16,987 (9,763 + 6,879 + 345 = 16,987), a difference of 13 cases. Overall, a total of 92 cases are redistributed from MS-DRGs 453, 454, and 455 to other spinal fusion MS-DRGs.

The findings from our analysis of MS-DRGs 453, 454, and 455 are consistent with the expectation that clinically, the greater the number of spinal fusion procedures performed during a single procedure (for example, intervertebral levels fused), the greater the consumption of resources expended. We believe the use of interbody fusion cages, other types of spinal instrumentation, operating room time, comorbidities, pharmaceuticals, and length of stay may all be contributing factors to resource utilization for spinal fusion procedures. In addition, it is expected that as a result of potential changes to the logic for case assignment to a MS-DRG, there will be a redistribution of cases among the MS-DRGs.

Based on our review and analysis of the spinal fusion cases in MS-DRGs 453, 454, and 455, we believe new MS-DRGs are warranted to differentiate between multiple level combined anterior and posterior spinal fusions except cervical, single level combined anterior and posterior spinal fusions except cervical, and combined anterior and posterior cervical spinal fusions, to more appropriately reflect utilization of resources for these procedures, including those performed with an aprevo^TM custom-made anatomically designed interbody fusion device. We note that the performance of a spinal fusion procedure using an aprevo^TM custom-made anatomically designed interbody fusion device as identified by any one of the 12 previously listed procedure codes would not be reported for a cervical spinal fusion procedure as reflected in Table 6P.2f associated with this proposed rule and available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps.

To compare and analyze the impact of our suggested modifications, we ran simulations using claims data from the September 2023 update of the FY 2023 MedPAR file. The following table illustrates our findings for all 23,017 cases reporting procedure codes describing multiple level combined anterior and posterior spinal fusions.

Consistent with our established process as discussed in section II.C.1.b. of the preamble of this proposed rule, once the decision has been made to propose to make further modifications to the MS-DRGs, such as creating a new base MS-DRG, all five criteria to create subgroups must be met for the base MS-DRG to be split (or subdivided) by a CC subgroup. Therefore, we applied the criteria to create subgroups in a base MS-DRG. We note that, as shown in the table that follows, a three-way split of this proposed new base MS-DRG was met. The following table illustrates our findings.

For the proposed new MS-DRGs, there is (1) at least 500 or more cases in the MCC group, the CC subgroup, and in the without CC/MCC subgroup; (2) at least 5 percent of the cases are in the MCC subgroup, the CC subgroup, and in the without CC/MCC subgroup; (3) at least a 20 percent difference in average costs between the MCC subgroup and the CC subgroup and between the CC group and NonCC subgroup; (4) at least a $2,000 difference in average costs between the MCC subgroup and the with CC subgroup and between the CC subgroup and NonCC subgroup; and (5) at least a 3-percent reduction in cost variance, indicating that the proposed severity level splits increase the explanatory power of the base MS-DRG in capturing differences in expected cost between the proposed MS-DRG severity level splits by at least 3 percent and thus improve the overall accuracy of the IPPS payment system.

As a result, for FY 2025, we are proposing to create new MS-DRG 426 (Multiple Level Combined Anterior and Posterior Spinal Fusion Except Cervical with MCC), new MS-DRG 427 (Multiple Level Combined Anterior and Posterior Spinal Fusion Except Cervical with CC), and new MS-DRG 428 (Multiple Level Combined Anterior and Posterior Spinal Fusion Except Cervical without CC/MCC). The following table reflects a simulation of the proposed new MS-DRGs.

The next step in our analysis of the impact of our suggested modifications to MS-DRGs 453, 454, and 455 was to review the cases reporting single combined anterior and posterior cervical fusions. The following table illustrates our findings for all 16,059 cases reporting procedure codes describing single level combined anterior and posterior spinal fusions.

Consistent with our established process as discussed in section II.C.1.b. of the preamble of this proposed rule, once the decision has been made to propose to make further modifications to the MS-DRGs, such as creating a new base MS-DRG, all five criteria to create subgroups must be met for the base MS-DRG to be split (or subdivided) by a CC subgroup. Therefore, we applied the criteria to create subgroups in a base MS-DRG. We note that, as shown in the table that follows, a three-way split of this proposed new base MS-DRG failed to meet the criterion that at least 5% or more of the cases are in the MCC subgroup. It also failed to meet the criterion that there be at least a 20% difference in average costs between the CC and NonCC (without CC/MCC) subgroup. The following table illustrates our findings.

As discussed in section II.C.1.b. of the preamble of this proposed rule, if the criteria for a three-way split fail, the next step is to determine if the criteria are satisfied for a two-way split. We therefore applied the criteria for a two-way split for the “with MCC and without MCC” subgroups. We note that, as shown in the table that follows, a two-way split of this base MS-DRG failed to meet the criterion that there be at least 5% or more of the cases in the with MCC subgroup.

We then applied the criteria for a two-way split for the “with CC/MCC and without CC/MCC” subgroups. As shown in the table that follows, a two-way split of this base MS-DRG failed to meet the criterion that there be at least a 20% difference in average costs between the “with CC/MCC and without CC/MCC” subgroup.

We note that because the criteria for both of the two-way splits failed, a split (or CC subgroup) is not warranted for the proposed new base MS-DRG. As a result, for FY 2025, we are proposing to create new base MS-DRG 402 (Single Level Combined Anterior and Posterior Spinal Fusion Except Cervical). The following table reflects a simulation of the proposed new base MS-DRG.

For the final step in our analysis of the impact of our suggested modifications to MS-DRGs 453, 454, and 455 we reviewed the cases reporting combined anterior and posterior cervical fusions. The following table illustrates our findings for all 2,323 cases reporting procedure codes describing combined anterior and posterior cervical spinal fusions.

Consistent with our established process as discussed in section II.C.1.b. of the preamble of this proposed rule, once the decision has been made to propose to make further modifications to the MS-DRGs, such as creating a new base MS-DRG, all five criteria to create subgroups must be met for the base MS-DRG to be split (or subdivided) by a CC subgroup. Therefore, we applied the criteria to create subgroups in a base MS-DRG. We note that, as shown in the table that follows, a three-way split of this proposed new base MS-DRG failed to meet the criterion that that there be at least 500 cases in the NonCC subgroup.

As discussed in section II.C.1.b. of the preamble of this proposed rule, if the criteria for a three-way split fail, the next step is to determine if the criteria are satisfied for a two-way split. We therefore applied the criteria for a two-way split for the “with MCC and without MCC” subgroups. We note that, as shown in the table that follows, a two-way split of this proposed new base MS-DRG was met. For the proposed MS-DRGs, there is at least (1) 500 or more cases in the MCC group and in the without MCC subgroup; (2) 5 percent or more of the cases in the MCC group and in the without MCC subgroup; (3) a 20 percent difference in average costs between the MCC group and the without MCC group; (4) a $2,000 difference in average costs between the MCC group and the without MCC group; and (5) a 3-percent reduction in cost variance, indicating that the proposed severity level splits increase the explanatory power of the base MS-DRG in capturing differences in expected cost between the proposed MS-DRG severity level splits by at least 3 percent and thus improve the overall accuracy of the IPPS payment system. The following table illustrates our findings for the suggested MS-DRGs with a two-way severity level split.

Accordingly, because the criteria for the two-way split were met, we believe a split (or CC subgroup) is warranted for the proposed new base MS-DRG. As a result, for FY 2025, we are proposing to create new MS-DRG 429 (Combined Anterior and Posterior Cervical Spinal Fusion with MCC) and new MS-DRG 430 (Combined Anterior and Posterior Cervical Spinal Fusion without MCC). The following table reflects a simulation of the proposed new MS-DRGs.

We then analyzed the cases reporting spinal fusion procedures in MS-DRGs 456, 457, and 458. As previously described, the logic for case assignment to MS-DRGs 456, 457, and 458 is defined by principal diagnosis logic and extensive fusion procedures. Cases reporting a principal diagnosis of spinal curvature, malignancy, or infection or an extensive fusion procedure will group to these MS-DRGs. We refer the reader to the ICD-10 MS-DRG Definitions Manual Version 41.1 available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software for complete documentation of the GROUPER logic for MS-DRGs 456, 457, and 458.

As also previously described, in our initial analysis of cases reporting the performance of a spinal fusion procedure using an aprevo^TM custom-made anatomically designed interbody fusion device, the 13 cases we found in MS-DRGs 456 and 457 (2 + 11 = 13, respectively) appeared to be grouping appropriately, however, the average costs for the 6 cases found in MS-DRG 458 showed a difference of approximately $13,880. Because of the low volume of cases reporting the performance of a spinal fusion procedure using an aprevo^TM custom-made anatomically designed interbody fusion device in the “without CC/MCC” MS-DRG 458, and the low volume of cases reporting the performance of a spinal fusion procedure using an aprevo^TM custom-made anatomically designed interbody fusion device in MS-DRGs 456, 457, and 458 overall (2 + 11 + 6 = 19), for this expanded review of the claims data, we are sharing the results of our analysis in association with cases reporting extensive fusion procedures in MS-DRGs 456, 457, and 458. Our findings are shown in the following table.

The data show that the 332 cases reporting an extensive fusion procedure in MS-DRG 456 have a shorter average length of stay (11.5 days versus 12.6 days) and higher average costs ($89,773 versus $76,060) compared to all the cases in MS-DRG 456. For MS-DRG 457, the data show that the 171 cases reporting an extensive fusion have a comparable average length of stay (6.6 days versus 6.1 days) and higher average costs ($75,588 versus $52,179) compared to all the cases in MS-DRG 457. Lastly, for MS-DRG 458, the data show that the 146 cases reporting an extensive fusion procedure have a comparable average length of stay (3.8 days versus 3.1 days) and higher average costs ($48,035 versus $39,260) compared to all the cases in MS-DRG 458.

We believe that over time, the volume of cases reporting the performance of a spinal fusion procedure using an aprevo^TM custom-made anatomically designed interbody fusion device in MS-DRGs 456, 457, and 458 may increase and we could consider further in the context of the cases reporting an extensive fusion procedure. However, due to the logic for case assignment to these MS-DRGs also being defined by diagnosis code logic, additional analysis would be needed prior to considering any modification to the current structure of these MS-DRGs. As we continue to evaluate how we may refine these spinal fusion MS-DRGs, we are also seeking public comments and feedback on other factors that should be considered in the potential restructuring of MS-DRGs 456, 457, and 458. Thus, for FY 2025, we are proposing to maintain the current structure of MS-DRGs 456, 457, and 458, without modification. Feedback and other suggestions for future rulemaking may be submitted by October 20, 2024 and directed to MEARIS^TM at https://mearis.cms.gov/public/home.

Next, we performed an expanded analysis for spinal fusion cases reported in MS-DRGs 459 and 460. We note that cases grouping to MS-DRG 459 have at least one secondary diagnosis MCC condition reported (“with MCC”) and because MS-DRG 460 is “without MCC”, cases grouping to this MS-DRG may include the reporting of at least one secondary diagnosis CC condition (in addition to cases that may not report a CC (for example, NonCC)). Based on the findings for a subset of the cases (that is, the subset of cases reporting the performance of a spinal fusion procedure using an aprevo^TM custom-made anatomically designed interbody fusion device) in these MS-DRGs as previously discussed, and our review of the logic for case assignment to these MS-DRGs, we developed two categories of spinal fusion procedures to further examine. The first category was for the single level spinal fusions except cervical, and the second category was for the multiple level spinal fusions except cervical. We refer the reader to Table 6P.2g for the list of procedure codes we identified to categorize the single level spinal fusions except cervical and Table 6P.2h for the list of procedure codes we identified to categorize the multiple level spinal fusions except cervical. Findings from our analysis are shown in the following table.

The data show that the 2,069 cases reporting a multiple level spinal fusion except cervical in MS-DRG 459 have a longer average length of stay (10.1 days versus 9.6 days) and higher average costs ($57,209 versus $53,192) when compared to all the cases in MS-DRG 459. The data also show that the 2,069 cases reporting a multiple level spinal fusion except cervical in MS-DRG 459 have a longer average length of stay (10.1 days versus 8.9 days) and higher average costs ($57,209 versus $46,031) when compared to the 1,098 cases reporting a single level spinal fusion except cervical in MS-DRG 459. For MS-DRG 460, the data show that the 14,677 cases reporting a multiple level spinal fusion except cervical have a comparable average length of stay (3.9 days versus 3.4 days) and higher average costs ($36,932 versus $32,586) when compared to all the cases in MS-DRG 460. The data also show that the 14,677 cases reporting a multiple level spinal fusion except cervical have a comparable average length of stay (3.9 days versus 3.0 days) and higher average costs ($36,932 versus $28,110) when compared to the 14,058 cases reporting a single level spinal fusion except cervical in MS-DRG 460.

Based on our review and analysis of the spinal fusion cases in MS-DRGs 459 and 460, we believe new MS-DRGs are warranted to differentiate between multiple level spinal fusions except cervical and single level spinal fusions except cervical to more appropriately reflect utilization of resources for these procedures, including those performed with an aprevo^TM custom-made anatomically designed interbody fusion device.

To compare and analyze the impact of our suggested modifications, we ran simulations using claims data from the September 2023 update of the FY 2023 MedPAR file. The following table illustrates our findings for all 16,746 cases reporting procedure codes describing multiple level spinal fusions except cervical.

Consistent with our established process as discussed in section II.C.1.b. of the preamble of this proposed rule, once the decision has been made to propose to make further modifications to the MS-DRGs, such as creating a new base MS-DRG, all five criteria to create subgroups must be met for the proposed new base MS-DRG to be split (or subdivided) by a CC subgroup. Therefore, we applied the criteria to create subgroups in a base MS-DRG. We note that, as shown in the table that follows, a three-way split of this proposed new base MS-DRG failed to meet the criterion that there be at least a 20% difference in average costs between the CC and NonCC (without CC/MCC) subgroup. The following table illustrates our findings.

As discussed in section II.C.1.b. of the preamble of this proposed rule, if the criteria for a three-way split fail, the next step is to determine if the criteria are satisfied for a two-way split. We therefore applied the criteria for a two-way split for the “with MCC and without MCC” subgroups. We note that, as shown in the table that follows, a two-way split of this proposed new base MS-DRG was met. For the proposed MS-DRGs, there is at least (1) 500 or more cases in the MCC group and in the without MCC subgroup; (2) 5 percent or more of the cases in the MCC group and in the without MCC subgroup; (3) a 20 percent difference in average costs between the MCC group and the without MCC group; (4) a $2,000 difference in average costs between the MCC group and the without MCC group; and (5) a 3-percent reduction in cost variance, indicating that the proposed severity level splits increase the explanatory power of the base MS-DRG in capturing differences in expected cost between the proposed MS-DRG severity level splits by at least 3 percent and thus improve the overall accuracy of the IPPS payment system. The following table illustrates our findings for the suggested MS-DRGs with a two-way severity level split.

As a result, for FY 2025, we are proposing to create new MS-DRGs 447 (Multiple Level Spinal Fusion Except Cervical with MCC) and new MS-DRG 448 (Multiple Level Spinal Fusion Except Cervical without MCC). We are also proposing to revise the title for existing MS-DRGs 459 and 460 to “Single Level Spinal Fusion Except Cervical with MCC and without MCC”, respectively. This proposal would better differentiate the resource utilization, severity of illness and technical complexity between single level and multiple level spinal fusions that do not include cervical spinal fusions in the logic for case assignment. The following table reflects a simulation of the proposed new MS-DRGs.

In conclusion, we are proposing to delete MS-DRGs 453, 454, and 455 and proposing to create 8 new MS-DRGs. We are proposing to create new MS-DRG 426 (Multiple Level Combined Anterior and Posterior Spinal Fusion Except Cervical with MCC), MS-DRG 427 (Multiple Level Combined Anterior and Posterior Spinal Fusion Except Cervical with CC), MS-DRG 428 (Multiple Level Combined Anterior and Posterior Spinal Fusion Except Cervical without CC/MCC), MS-DRG 402 (Single Level Combined Anterior and Posterior Spinal Fusion Except Cervical), MS-DRG 429 (Combined Anterior and Posterior Cervical Spinal Fusion with MCC), MS-DRG 430 (Combined Anterior and Posterior Cervical Spinal Fusion without MCC), MS-DRG 447 (Multiple Level Spinal Fusion Except Cervical with MCC) and MS-DRG 448 (Multiple Level Spinal Fusion Except Cervical without MCC) for FY 2025. We are proposing the logic for case assignment to these proposed new MS-DRGs as displayed in Table 6P.2d, Table 6P.2e, Table 6P.2f, Table 6P.2g, and Table 6P.2h. We are also proposing to revise the title for MS-DRGs 459 and 460 to “Single Level Spinal Fusion Except Cervical with MCC and without MCC”, respectively. Lastly, as discussed in section II.C.14 of the preamble of this proposed rule, we are proposing conforming changes to the surgical hierarchy for MDC 08.

7. MDC 10 (Endocrine, Nutritional and Metabolic Diseases and Disorders): Resection of Right Large Intestine

We identified an inconsistency in the MDC and MS-DRG assignment of procedure codes describing resection of the right large intestine and resection of the left large intestine with an open and percutaneous endoscopic approach. ICD-10-PCS procedure codes 0DTG0ZZ (Resection of left large intestine, open approach) and 0DTG4ZZ (Resection of left large intestine, percutaneous endoscopic approach) are currently assigned to MDC 10 in MS-DRGs 628, 629, and 630 (Other Endocrine, Nutritional and Metabolic O.R. Procedures with MCC, with CC, and without CC/MCC, respectively). However, the procedure codes that describe resection of the right large intestine with an open or percutaneous endoscopic approach, 0DTF0ZZ (Resection of right large intestine, open approach) and 0DTF4ZZ (Resection of right large intestine, percutaneous endoscopic approach) are not assigned to MDC 10 in MS-DRGs 628, 629, and 630. To ensure clinical alignment and consistency, as well as appropriate MS-DRG assignment, we are proposing to add procedure codes 0DTF0ZZ and 0DTF4ZZ to MDC 10 in MS-DRGs 628, 629, and 630 effective October 1, 2024 for FY 2025.

8. MDC 15 (Newborns and Other Neonates With Conditions Originating in Perinatal Period): MS-DRG 795 Normal Newborn

We received a request to review the GROUPER logic that would determine the assignment of cases to MS-DRG 794 (Neonate with Other Significant Problems). The requestor stated that it appears that MS-DRG 794 is the default MS-DRG in MDC 15 (Newborns and Other Neonates with Conditions Originating in Perinatal Period), as the GROUPER logic for MS-DRG 794 displayed in the ICD-10 MS-DRG Version 41.1 Definitions Manual is defined by a “principal or secondary diagnosis of newborn or neonate, with other significant problems, not assigned to DRG 789 through 793 or 795”. The requestor expressed concern that defaulting to MS-DRG 794, instead of MS-DRG 795 (Normal Newborn), for assignment of cases in MDC 15 could contribute to overpayments in healthcare by not aligning the payment amount to the appropriate level of care in newborn cases. The requestor recommended that CMS update the GROUPER logic that would determine the assignment of cases to MS-DRGs in MDC 15 to direct all cases that do not have the diagnoses and procedures as specified in the Definitions Manual to instead be grouped to MS-DRG 795.

Specifically, the requestor expressed concern that a newborn encounter coded with a principal diagnosis code from ICD-10-CM category Z38 (Liveborn infants according to place of birth and type of delivery), followed by code P05.19 (Newborn small for gestational age, other), P59.9 (Neonatal jaundice, unspecified), Q38.1 (Ankyloglossia), Q82.5 (Congenital non-neoplastic nevus), or Z23 (Encounter for immunization) is assigned to MS-DRG 794. The requestor stated that they performed a detailed claim level study, and in their clinical assessment, newborn encounters coded with a principal diagnosis code from ICD-10-CM category Z38, followed by diagnosis code P05.19, P59.9, Q38.1, Q82.5, or Z23 in fact clinically describe normal newborn encounters and the case assignment should instead be to MS-DRG 795.

Our analysis of this grouping issue confirmed that when a principal diagnosis code from MDC 15, such as a diagnosis code from category Z38 (Liveborn infants according to place of birth and type of delivery), is reported followed by ICD-10-CM code P05.19 (Newborn small for gestational age, other), Q38.1 (Ankyloglossia) or Q82.5 (Congenital non-neoplastic nevus), the case is assigned to MS-DRG 794.

However, as we examined the GROUPER logic that would determine an assignment of cases to MS-DRG 795, we noted the “only secondary diagnosis” list under MS-DRG 795 already includes ICD-10-CM codes P59.9 (Neonatal jaundice, unspecified) and Z23 (Encounter for immunization). Therefore, when a principal diagnosis code from MDC 15, such as a diagnosis code from category Z38 (Liveborn infants according to place of birth and type of delivery) is reported, followed by ICD-10-CM code P59.9 or Z23, the case is currently assigned to MS-DRG 795, not MS-DRG 794, as suggested by the requestor. We refer the reader to the ICD-10 MS-DRG Version 41.1 Definitions Manual (available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software) for complete documentation of the GROUPER logic for MS-DRGs 794 and 795.

Next, we reviewed the claims data from the September 2023 update of the FY 2023 MedPAR file; however, we found zero cases across MS-DRGs 794 and 795. We then examined the clinical factors. The description for ICD-10-CM diagnosis code P05.19 is “Newborn small for gestational age, other” and the inclusion term in the ICD-10-CM Tabular List of Diseases for this diagnosis code is “Newborn small for gestational age, 2500 grams and over.” We note that “small-for-gestational age” is diagnosed by assessing the gestational age and the weight of the baby after birth. There is no specific treatment for small-for-gestational-age newborns. Most newborns who are moderately small for gestational age are healthy babies who just happen to be on the smaller side. Unless the newborn is born with an infection or has a genetic disorder, most small-for-gestational-age newborns have no symptoms and catch up in their growth during the first year of life and have a normal adult height. Next, ICD-10-CM diagnosis code Q38.1 describes ankyloglossia, also known as tongue-tie, which is a condition that impairs tongue movement due to a restrictive lingual frenulum. In infants, tongue-tie is treated by making a small cut to the lingual frenulum to allow the tongue to move more freely. This procedure, called a frenotomy, can be done in a healthcare provider's office without anesthesia. Newborns generally recover within about a minute of the procedure, and pain relief is usually not indicated. Lastly, ICD-10-CM diagnosis code Q82.5 describes a congenital non-neoplastic nevus. A congenital nevus is a type of pigmented birthmark that appears at birth or during a baby's first year. Most congenital nevi do not cause health problems and may only require future monitoring.

In reviewing these three ICD-10-CM codes and the conditions they describe; we believe these diagnoses generally do not prolong the inpatient admission of the newborn and newborns with these diagnoses generally receive standard follow-up care after birth. Clinically, we agree with the requestor that newborn encounters coded with a principal diagnosis code from ICD-10-CM category Z38 (Liveborn infants according to place of birth and type of delivery), followed by code P05.19 (Newborn small for gestational age, other), Q38.1 (Ankyloglossia), or Q82.5 (Congenital non-neoplastic nevus) should not map to MS-DRG 794 (Neonate with Other Significant Problems) and should instead be assigned to MS-DRG 795 (Normal Newborn). Therefore, for the reasons discussed, we are proposing to reassign diagnosis code P05.19 from the “principal or secondary diagnosis” list under MS-DRG 794 to the “principal diagnosis” list under MS-DRG 795 (Normal Newborn). We are also proposing to add diagnosis codes Q38.1 and Q82.5 to the “only secondary diagnosis” list under MS-DRG 795 (Normal Newborn). Under this proposal, cases with a principal diagnosis described by an ICD-10-CM code from category Z38 (Liveborn infants according to place of birth and type of delivery), followed by codes P05.19, Q38.1, or Q82.5 will be assigned to MS-DRG 795.

In response to the recommendation that CMS update the GROUPER logic that would determine an assignment of cases to MS-DRGs in MDC 15, we agree with the requestor that the GROUPER logic for MS-DRG 794 is defined by a “principal or secondary diagnosis of newborn or neonate, with other significant problems, not assigned to DRG 789 through 793 or 795”. We acknowledge that MS-DRG 794 utilizes “fall-through” logic, meaning if a diagnosis code is not assigned to any of the other MS-DRGs, then assignment “falls-through” to MS-DRG 794. We have started to examine the GROUPER logic that would determine the assignment of cases to the MS-DRGs in MDC 15, including MS-DRGs 794 and 795, to determine where further refinements could potentially be made to better account for differences in clinical complexity and resource utilization. However, as we have noted in prior rulemaking (72 FR 47152), we cannot adopt the same approach to refine the newborn MS-DRGs because of the extremely low volume of Medicare patients there are in these MS-DRGs. Additional time is needed to fully and accurately evaluate cases currently grouping to the MS-DRGs in MDC 15 to consider if restructuring the current MS-DRGs would better recognize the clinical distinctions of these patient populations. Any proposed modifications to these MS-DRGs will be addressed in future rulemaking consistent with our annual process.

As noted earlier, we have started our examination of the GROUPER logic that would determine an assignment of cases to MS-DRGs in MDC 15. During this review we noted the logic for MS-DRG 795 (Normal Newborn) includes five diagnosis codes from ICD-10-CM category Q81 (Epidermolysis bullosa). We refer the reader to the ICD-10 MS-DRG Version 41.1 Definitions Manual (available via on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software) for complete documentation of the GROUPER logic for MS-DRG 795. The five diagnosis codes and their current MDC and MS-DRG assignments are listed in the following table.

We reviewed this grouping issue and noted that epidermolysis bullosa (EB) is a group of genetic (inherited) disorders that causes skin to be fragile, blister, and tear easily in response to minimal friction or trauma. In some cases, blisters form inside the body in places such as the mouth, esophagus, other internal organs, or eyes. When the blisters heal, they can cause painful scarring. In severe cases, the blisters and scars can harm internal organs and tissue enough to be fatal. Patients diagnosed with severe cases of EB have a life expectancy that ranges from infancy to 30 years of age.

EB has four primary types: simplex, junctional, dystrophic, and Kindler syndrome, and within each type there are various subtypes, ranging from mild to severe. A skin biopsy can confirm a diagnosis of EB and identify which layers of the skin are affected and determine the type of epidermolysis bullosa. Genetic testing may also be ordered to diagnose the specific type and subtype of the disease. In caring for patients with EB, adaptions may be necessary in the form of handling, feeding, dressing, managing pain, and treating wounds caused by the blisters and tears. If there is a known diagnosis of EB, but the neonate has no physical signs at birth, there will still need to be specialty consultation in the inpatient setting or referral for outpatient follow-up. We believe the five diagnosis codes from ICD-10-CM category Q81 (Epidermolysis bullosa) describe conditions that require advanced care and resources similar to other conditions already assigned to the logic of MS-DRG 794 and MS-DRGs 595 and 596 (Major Skin Disorders with MCC and without MCC, respectively), even in cases where the type of EB is unspecified.

Therefore, for clinical consistency, we are proposing to reassign ICD-10-CM diagnosis codes Q81.0, Q81.1, Q81.2, Q81.8, and Q81.9 from MS-DRGs 606 and 607 in MDC 09 (Diseases and Disorders of the Skin, Subcutaneous Tissue and Breast) and MS-DRG 795 (Normal Newborn) in MDC 15 to MS-DRGs 595 and 596 in MDC 09 and MS-DRG 794 in MDC 15, effective October 1, 2024 for FY 2025.

9. MDC 17 (Myeloproliferative Diseases and Disorders, Poorly Differentiated Neoplasms): Acute Leukemia

We identified a replication issue from the ICD-9 based MS-DRGs to the ICD-10 based MS-DRGs regarding the assignment of six ICD-10-CM diagnosis codes that describe a type of acute leukemia. Under the Version 32 ICD-9-CM based MS-DRGs, the ICD-9-CM diagnosis codes as shown in the following table were assigned to surgical MS-DRGs 820, 821, and 822 (Lymphoma and Leukemia with Major O.R. Procedures with MCC, with CC, and without CC/MCC, respectively), surgical MS-DRGs 823, 824, and 825 (Lymphoma and Non-Acute Leukemia with Other Procedures with MCC, with CC, and without CC/MCC, respectively), and medical MS-DRGs 840, 841, and 842 (Lymphoma and Non-Acute Leukemia with MCC, with CC, and without CC/MCC, respectively) in MDC 17 (Myeloproliferative Diseases and Disorders, Poorly Differentiated Neoplasms). The six ICD-10-PCS code translations also shown in the following table, that provide more detailed and specific information for the ICD-9-CM codes reflected, also currently group to MS-DRGs 820, 821, 822, 823, 824, 825, 840, 841 and 842 in the ICD-10 MS-DRGs Version 41.1. We refer the reader to the ICD-10 MS-DRG Definitions Manual Version 41.1 (available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software) for complete documentation of the GROUPER logic for MS-DRGs 820, 821, 822, 823, 824, 825, 840, 841, and 842.

During our review of this issue, we noted that under ICD-9-CM, the diagnosis codes as reflected in the table did not describe the acuity of the diagnosis (for example, acute versus chronic). This is in contrast to their six comparable ICD-10-CM code translations listed in the previous table that provide more detailed and specific information for the ICD-9-CM diagnosis codes and do specify the acuity of the diagnoses.

We note that ICD-10-CM codes C94.20, C94.21, and C94.22 describe acute megakaryoblastic leukemia (AMKL), a rare subtype of acute myeloid leukemia (AML) that affects megakaryocytes, platelet-producing cells that reside in the bone marrow. Similarly, ICD-10-CM codes C94.40, C94.41, and C94.42 describe acute panmyelosis with myelofibrosis (APMF), a rare form of acute myeloid leukemia characterized by acute panmyeloid proliferation with increased blasts and accompanying fibrosis of the bone marrow that does not meet the criteria for AML with myelodysplasia related changes. As previously mentioned, these six diagnosis codes are assigned to MS-DRGs 820, 821, 822, 823, 824, 825, 840, 841, and 842. The GROUPER logic lists for MS-DRGs 820, 821, and 822 includes diagnosis codes describing lymphoma and both acute and non-acute leukemias, however the logic lists for MS-DRGs 823, 824, 825, 840, 841, and 842 contain diagnosis codes describing lymphoma and non-acute leukemias. In our analysis of this grouping issue, we also noted that cases reporting a chemotherapy principal diagnosis with a secondary diagnosis describing acute megakaryoblastic leukemia or acute panmyelosis with myelofibrosis are assigned to MS-DRGs 846, 847, and 848 (Chemotherapy without Acute Leukemia as Secondary Diagnosis, with MCC, with CC, and without CC/MCC, respectively) in Version 41.1.

Next, we examined claims data from the September 2023 update of the FY 2023 MedPAR file for MS-DRG 823, 824, 825, 840, 841, and 842 to identify cases reporting one of the six diagnosis codes listed previously that describe acute megakaryoblastic leukemia or acute panmyelosis with myelofibrosis. We also examined MS-DRGs 846, 847, and 848 (Chemotherapy without Acute Leukemia as Secondary Diagnosis, with MCC, with CC, and without CC/MCC, respectively). Our findings are shown in the following tables:

As shown in the table, in MS-DRG 823, we identified a total of 2,235 cases with an average length of stay of 14 days and average costs of $40,587. Of those 2,235 cases, there were two cases reporting a diagnosis code that describes acute megakaryoblastic leukemia or acute panmyelosis with myelofibrosis, with average costs higher than the average costs in the FY 2023 MedPAR file for MS-DRG 823 ($49,600 compared to $40,587) and a longer average length of stay (31.5 days compared to 14 days). We found zero cases in MS-DRG 824 reporting a diagnosis code that describes acute megakaryoblastic leukemia or acute panmyelosis with myelofibrosis. In MS-DRG 825, we identified a total of 427 cases with an average length of stay of 2.9 days and average costs of $10,959. Of those 427 cases, there was one case reporting a diagnosis code that describes acute megakaryoblastic leukemia or acute panmyelosis with myelofibrosis, with costs higher than the average costs in the FY 2023 MedPAR file for MS-DRG 825 ($17,293 compared to $10,959) and a longer length of stay (6 days compared to 2.9 days).

As shown in the table, in MS-DRG 840, we identified a total of 7,747 cases with an average length of stay of 9.6 days and average costs of $26,215. Of those 7,747 cases, there were 12 cases reporting a diagnosis code that describes acute megakaryoblastic leukemia or acute panmyelosis with myelofibrosis, with average costs lower than the average costs in the FY 2023 MedPAR file for MS-DRG 840 ($21,357 compared to $26,215) and a shorter average length of stay (8.7 days compared to 9.6 days). In MS-DRG 841, we identified a total of 5,019 cases with an average length of stay of 5.3 days and average costs of $13,502. Of those 5,019 cases, there were six cases reporting a diagnosis code that describes acute megakaryoblastic leukemia or acute panmyelosis with myelofibrosis, with average costs lower than the average costs in the FY 2023 MedPAR file for MS-DRG 841 ($6,976 compared to $13,502) and a shorter average length of stay (2.8 days compared to 5.3 days). We found zero cases in MS-DRG 842 reporting a diagnosis code that describes acute megakaryoblastic leukemia or acute panmyelosis with myelofibrosis.

As shown in the table, in MS-DRG 847, we identified a total of 7,329 cases with an average length of stay of 4.4 days and average costs of $11,250. Of those 7,329 cases, there were two cases reporting a chemotherapy principal diagnosis code with a secondary diagnosis code that describes acute megakaryoblastic leukemia or acute panmyelosis with myelofibrosis, with average costs lower than the average costs in the FY 2023 MedPAR file for MS-DRG 840 ($7,569 compared to $11,250) and a longer average length of stay (5 days compared to 4.4 days). We found zero cases in MS-DRGs 846 and 848 reporting a diagnosis code that describes acute megakaryoblastic leukemia or acute panmyelosis with myelofibrosis.

Next, we examined the MS-DRGs within MDC 17. Given that the six diagnoses codes describe subtypes of acute myeloid leukemia, we determined that the cases reporting a principal diagnosis of acute megakaryoblastic leukemia or acute panmyelosis with myelofibrosis would more suitably group to medical MS-DRGs 834, 835, and 836 (Acute Leukemia without Major O.R. Procedures with MCC, with CC, and without CC/MCC, respectively). Similarly, cases reporting a chemotherapy principal diagnosis with a secondary diagnosis describing acute megakaryoblastic leukemia or acute panmyelosis with myelofibrosis would more suitably group to medical MS-DRGs 837, 838, and 839 (Chemotherapy with Acute Leukemia as Secondary Diagnosis, or with High Dose Chemotherapy Agent with MCC, with CC or High Dose Chemotherapy Agent, and without CC/MCC, respectively).

We then examined claims data from the September 2023 update of the FY 2023 MedPAR for MS-DRGs 834, 835, 836, 837, 838, and 839. Our findings are shown in the following table.

While the average costs for all cases in MS-DRGs 834, 835, 836, 837, 838, and 839 are higher than the average costs of the small number of cases reporting a diagnosis code that describes acute megakaryoblastic leukemia or acute panmyelosis with myelofibrosis, or reporting a chemotherapy principal diagnosis with a secondary diagnosis describing acute megakaryoblastic leukemia or acute panmyelosis with myelofibrosis, and the average lengths of stay are longer, we note that diagnosis codes C94.20, C94.21, C94.22, C94.40, C94.41, and C94.42 describe types of acute leukemia. For clinical coherence, we believe these six diagnosis codes would be more appropriately grouped along with other ICD-10-CM diagnosis codes that describe types of acute leukemia.

We reviewed this grouping issue, and our analysis indicates that the six diagnosis codes describing the acute megakaryoblastic leukemia or acute panmyelosis with myelofibrosis were initially assigned to the list of diagnoses in the GROUPER logic for MS-DRGs 823, 824, 825, 840, 841, and 842 as a result of replication in the transition from ICD-9 to ICD-10 based MS-DRGs. We also note that diagnosis codes C94.20, C94.21, C94.22, C94.40, C94.41, and C94.42 do not describe non-acute leukemia diagnoses.

Accordingly, because the six diagnosis codes that describe acute megakaryoblastic leukemia or acute panmyelosis with myelofibrosis are not clinically consistent with non-acute leukemia diagnoses, and it is clinically appropriate to reassign these diagnosis codes to be consistent with the other diagnosis codes that describe acute leukemias in MS-DRGs 834, 835, 836, 837, 838, and 839, we are proposing the reassignment of diagnosis codes C94.20, C94.21, C94.22, C94.40, C94.41, and C94.42 from MS-DRGs 823, 824 and 825 (Lymphoma and Non-Acute Leukemia with Other Procedures with MCC, with CC, and without CC/MCC, respectively), and MS-DRGs 840, 841, and 842 (Lymphoma and Non-Acute Leukemia with MCC, with CC, and without CC/MCC, respectively) to MS-DRGs 834, 835, and 836 (Acute Leukemia without Major O.R. Procedures with MCC, with CC, and without CC/MCC, respectively) and MS-DRGs 837, 838, and 839 (Chemotherapy with Acute Leukemia as Secondary Diagnosis, or with High Dose Chemotherapy Agent with MCC, with CC or High Dose Chemotherapy Agent, and without CC/MCC, respectively) in MDC 17, effective FY 2025. Under this proposal, diagnosis codes C94.20, C94.21, C94.22, C94.40, C94.41, and C94.42 will continue to be assigned to surgical MS-DRGs 820, 821, and 822 (Lymphoma and Leukemia with Major O.R. Procedures with MCC, with CC, and without CC/MCC, respectively).

In our review of the MS-DRGs in MDC 17 for further refinement, we next examined the procedures currently assigned to MS-DRGs 820, 821, and 822 (Lymphoma and Leukemia with Major O.R. Procedures with MCC, with CC, and without CC/MCC, respectively) and MS-DRGs 826, 827, and 828 (Myeloproliferative Disorders or Poorly Differentiated Neoplasms with Major O.R. Procedures with MCC, with CC, and without CC/MCC, respectively). We note that the logic for case assignment to MS-DRGs 820, 821, 822, 826, 827, and 828 is comprised of a logic list entitled “Operating Room Procedures” which is defined by a list of 4,320 ICD-10-PCS procedure codes, including 90 ICD-10-PCS codes describing bypass procedures from the cerebral ventricle to various body parts. We refer the reader to the ICD-10 MS-DRG Definitions Manual Version 41.1 (available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps) for complete documentation of the GROUPER logic for MS-DRGs 820, 821, 822, 826, 827, and 828.

In our review of the procedures currently assigned to MS-DRGs 820, 821, 822, 826, 827, and 828, we noted 12 ICD-10-PCS procedure codes that describe bypass procedures from the cerebral ventricle to the subgaleal space or cerebral cisterns, such as subgaleal or cisternal shunt placement, that are not included in the logic for MS-DRGs 820, 821, 822, 826, 827, and 828. The 12 procedure codes are listed in the following table.

A subgaleal shunt consists of a shunt tube with one end in the lateral ventricles while the other end is inserted into the subgaleal space of the scalp, while a ventriculo-cisternal shunt diverts the cerebrospinal fluid flow from one of the lateral ventricles, via a ventricular catheter, to the cisterna magna of the posterior fossa. Both procedures allow for the drainage of excess cerebrospinal fluid. Indications for ventriculosubgaleal or ventriculo-cisternal shunting include acute head trauma, subdural hematoma, hydrocephalus, and leptomeningeal disease (LMD) in malignancies such as breast cancer, lung cancer, melanoma, acute lymphocytic leukemia (ALL) and non-hodgkin's lymphoma (NHL).

Recognizing that acute lymphocytic leukemia (ALL) and non-hodgkin's lymphoma (NHL) are indications for ventriculosubgaleal or ventriculo-cisternal shunting, we support adding the 12 ICD-10-PCS codes identified in the table to MS-DRGs 820, 821, 822, 826, 827, and 828 in MDC 17 for consistency to align with the procedure codes listed in the definition of MS-DRGs 820, 821, 822, 826, 827, and 828 and also to permit proper case assignment when a principal diagnosis from MDC 17 is reported with one of the procedure codes in the table that describes bypass procedures from the cerebral ventricle to the subgaleal space or cerebral cisterns. Therefore, we are proposing to add the 12 procedure codes that describe bypass procedures from the cerebral ventricle to the subgaleal space or cerebral cisterns listed previously to MS-DRGs 820, 821, 822, 826, 827, and 828 in MDC 17 for FY 2025.

Lastly, in our analysis of the MS-DRGs in MDC 17 for further refinement, we noted that the logic for case assignment to medical MS-DRGs 834, 835, and 836 (Acute Leukemia without Major O.R. Procedures with MCC, with CC, and without CC/MCC, respectively) as displayed in the ICD-10 MS-DRG Version 41.1 Definitions Manual (available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps) is comprised of a logic list entitled “Principal Diagnosis” and is defined by a list of 27 ICD-10-CM diagnosis codes describing various types of acute leukemias. When any one of the 27 listed diagnosis codes from the “Principal Diagnosis” logic list is reported as a principal diagnosis, without a procedure code designated as an O.R. procedure or without a procedure code designated as a non-O.R. procedure that affects the MS-DRG, the case results in assignment to MS-DRG 834, 835, or 836 depending on the presence of any additional MCC or CC secondary diagnoses. We note however, that while not displayed in the ICD-10 MS-DRG Version 41.1 Definitions Manual, when any one of the 27 listed diagnosis codes from the “Principal Diagnosis” logic list is reported as a principal diagnosis, along with a procedure code designated as an O.R. procedure that is not listed in the logic list of MS-DRGs 820, 821, and 822 (Lymphoma and Leukemia with Major O.R. Procedures with MCC, with CC, and without CC/MCC, respectively), the case also results in assignment to medical MS-DRG 834, 835, or 836 depending on the presence of any additional MCC or CC secondary diagnoses.

As medical MS-DRG 834, 835, and 836 contains GROUPER logic that includes ICD-10-PCS procedure codes designated as O.R. procedures, we examined claims data from the September 2023 update of the FY 2023 MedPAR file for MS-DRG 834, 835, and 836 to identify cases reporting an O.R. procedure. Our findings are shown in the following table:

As shown by the table, in MS-DRG 834, we identified a total of 4,094 cases, with an average length of stay of 16.3 days and average costs of $49,986. Of those 4,094 cases, there were 277 cases reporting an O.R. procedure, with higher average costs as compared to all cases in MS-DRG 834 ($92,246 compared to $49,986), and a longer average length of stay (28.2 days compared to 16.3 days). In MS-DRG 835, we identified a total of 1,682 cases with an average length of stay of 7.2 days and average costs of $19,023. Of those 1,682 cases, there were 79 cases reporting an O.R. procedure, with higher average costs as compared to all cases in MS-DRG 835 ($30,771 compared to $19,023), and a longer average length of stay (10.4 days compared to 7.2 days). In MS-DRG 836, we identified a total of 230 cases with an average length of stay of 4 days and average costs of $11,225. Of those 230 cases, there were 7 cases reporting an O.R. procedure, with higher average costs as compared to all cases in MS-DRG 836 ($17,950 compared to $11,225), and a longer average length of stay (5.9 days compared to 4 days). The data analysis shows that the average costs of cases reporting an O.R. procedure are higher than for all cases in their respective MS-DRG.

The data analysis clearly shows that cases reporting a principal diagnosis code describing a type of acute leukemia with an ICD-10-PCS procedure code designated as O.R. procedure that is not listed in the logic list of MS-DRGs 820, 821, and 822 have higher average costs and longer lengths of stay compared to all the cases in their assigned MS-DRG. For these reasons, we are proposing to create a new surgical MS-DRG for cases reporting a principal diagnosis code describing a type of acute leukemia with an O.R. procedure.

To compare and analyze the impact of our suggested modifications, we ran a simulation using the claims data from the September 2023 update of the FY 2023 MedPAR file. The following table illustrates our findings for all 367 cases reporting a principal diagnosis code describing a type of acute leukemia with an ICD-10-PCS procedure code designated as O.R. procedure that is not listed in the logic list of MS-DRGs 820, 821, and 822. We believe the resulting proposed MS-DRG assignment, reflecting these modifications, is more clinically homogeneous, coherent and better reflects hospital resource use.

We applied the criteria to create subgroups in a base MS-DRG as discussed in section II.C.1.b. of this FY 2025 IPPS/LTCH PPS proposed rule. As shown in the table, we identified a total of 367 cases using the claims data from the September 2023 update of the FY 2023 MedPAR file, so the criterion that there are at least 500 or more cases in each subgroup could not be met. Therefore, for FY 2025, we are not proposing to subdivide the proposed new MS DRG for acute leukemia with other procedures into severity levels.

In summary, for FY 2025, we are proposing to create a new base surgical MS-DRG for cases reporting a principal diagnosis describing a type of acute leukemia with an ICD-10-PCS procedure code designated as O.R. procedure that is not listed in the logic list of MS-DRGs 820, 821, and 822 in MDC 17. The proposed new MS-DRG is proposed new MS-DRG 850 (Acute Leukemia with Other Procedures). We are proposing to add the 27 ICD-10-CM diagnosis codes describing various types of acute leukemias currently listed in the logic list entitled “Principal Diagnosis” in MS-DRGs 834, 835, and 836 as well as ICD-10-CM codes C94.20, C94.21, C94.22, C94.40, C94.41, and C94.42 discussed earlier in this section to the proposed new MS-DRG 850. We are also proposing to add the procedure codes from current MS-DRGs 823, 824, and 825 (Lymphoma and Non-Acute Leukemia with Other Procedures with MCC, with CC, and without CC/MCC, respectively) to the proposed new MS-DRG 850. We note that in the current logic list of MS-DRGs 823, 824, and 825 there are 189 procedure codes describing stereotactic radiosurgery of various body parts that are designated as non-O.R. procedures affecting the MS-DRG, therefore, as part of the logic for new MS-DRG 850, we are also proposing to designate these 189 codes as non-O.R. procedures affecting the MS-DRG.

In addition, we are proposing to revise the titles for MS-DRGs 834, 835, and 836 by deleting the reference to “Major O.R. Procedures” in the title. Specifically, we are proposing to revise the titles of medical MS-DRGs 834, 835, and 836 from “Acute Leukemia without Major O.R. Procedures with MCC, with CC, and without CC/MCC”, respectively to “Acute Leukemia with MCC, with CC, and without CC/MCC”, respectively to better reflect the GROUPER logic that will no longer include ICD-10-PCS procedure codes designated as O.R. procedures. We note that discussion of the surgical hierarchy for the proposed modifications is discussed in section II.C.15. of this proposed rule.

10. Review of Procedure Codes in MS-DRGs 981 Through 983 and 987 Through 989

We annually conduct a review of procedures producing assignment to MS-DRGs 981 through 983 (Extensive O.R. Procedure Unrelated to Principal Diagnosis with MCC, with CC, and without CC/MCC, respectively) or MS-DRGs 987 through 989 (Non-Extensive O.R. Procedure Unrelated to Principal Diagnosis with MCC, with CC, and without CC/MCC, respectively) on the basis of volume, by procedure, to see if it would be appropriate to move cases reporting these procedure codes out of these MS-DRGs into one of the surgical MS-DRGs for the MDC into which the principal diagnosis falls. The data are arrayed in two ways for comparison purposes. We look at a frequency count of each major operative procedure code. We also compare procedures across MDCs by volume of procedure codes within each MDC. We use this information to determine which procedure codes and diagnosis codes to examine.

We identify those procedures occurring in conjunction with certain principal diagnoses with sufficient frequency to justify adding them to one of the surgical MS-DRGs for the MDC in which the diagnosis falls. We also consider whether it would be more appropriate to move the principal diagnosis codes into the MDC to which the procedure is currently assigned.

Based on the results of our review of the claims data from the September 2023 update of the FY 2023 MedPAR file of cases found to group to MS-DRGs 981 through 983 or MS-DRGs 987 through 989, we did not identify any cases for reassignment and are not proposing to move any cases from MS-DRGs 981 through 983 or MS-DRGs 987 through 989 into a surgical MS-DRGs for the MDC into which the principal diagnosis or procedure is assigned.

In addition to the internal review of procedures producing assignment to MS-DRGs 981 through 983 or MS-DRGs 987 through 989, we also consider requests that we receive to examine cases found to group to MS-DRGs 981 through 983 or MS-DRGs 987 through 989 to determine if it would be appropriate to add procedure codes to one of the surgical MS-DRGs for the MDC into which the principal diagnosis falls or to move the principal diagnosis to the surgical MS-DRGs to which the procedure codes are assigned. We did not receive any requests suggesting reassignment.

We also review the list of ICD-10-PCS procedures that, when in combination with their principal diagnosis code, result in assignment to MS DRGs 981 through 983, or 987 through 989, to ascertain whether any of those procedures should be reassigned from one of those two groups of MS DRGs to the other group of MS DRGs based on average costs and the length of stay. We look at the data for trends such as shifts in treatment practice or reporting practice that would make the resulting MS DRG assignment illogical. If we find these shifts, we would propose to move cases to keep the MS DRGs clinically similar or to provide payment for the cases in a similar manner. Generally, we move only those procedures for which we have an adequate number of discharges to analyze the data.

Additionally, we also consider requests that we receive to examine cases found to group to MS-DRGs 981 through 983 or MS-DRGs 987 through 989 to determine if it would be appropriate for the cases to be reassigned from one of the MS-DRG groups to the other. Based on the results of our review of the claims data from the September 2023 update of the FY 2023 MedPAR file we did not identify any cases for reassignment. We also did not receive any requests suggesting reassignment. Therefore, for FY 2025 we are not proposing to move any cases reporting procedure codes from MS- DRGs 981 through 983 to MS-DRGs 987 through 989 or vice versa.

11. Operating Room (O.R.) and Non-O.R. Procedures

a. Background

Under the IPPS MS-DRGs (and former CMS MS-DRGs), we have a list of procedure codes that are considered operating room (O.R.) procedures. Historically, we developed this list using physician panels that classified each procedure code based on the procedure and its effect on consumption of hospital resources. For example, generally the presence of a surgical procedure which required the use of the operating room would be expected to have a significant effect on the type of hospital resources (for example, operating room, recovery room, and anesthesia) used by a patient, and therefore, these patients were considered surgical. Because the claims data generally available do not precisely indicate whether a patient was taken to the operating room, surgical patients were identified based on the procedures that were performed.

Generally, if the procedure was not expected to require the use of the operating room, the patient would be considered medical (non-O.R.).

Currently, each ICD-10-PCS procedure code has designations that determine whether and in what way the presence of that procedure on a claim impacts the MS-DRG assignment. First, each ICD-10-PCS procedure code is either designated as an O.R. procedure for purposes of MS-DRG assignment (“O.R. procedures”) or is not designated as an O.R. procedure for purposes of MS-DRG assignment (“non-O.R. procedures”). Second, for each procedure that is designated as an O.R. procedure, that O.R. procedure is further classified as either extensive or non-extensive. Third, for each procedure that is designated as a non-O.R. procedure, that non-O.R. procedure is further classified as either affecting the MS-DRG assignment or not affecting the MS-DRG assignment. We refer to these designations that do affect MS-DRG assignment as “non O.R. affecting the MS-DRG.” For new procedure codes that have been finalized through the ICD-10 Coordination and Maintenance Committee meeting process and are proposed to be classified as

O.R. procedures or non-O.R. procedures affecting the MS-DRG, we recommend the MS-DRG assignment which is then made available in association with the proposed rule (Table 6B.—New Procedure Codes) and subject to public comment. These proposed assignments are generally based on the assignment of predecessor codes or the assignment of similar codes. For example, we generally examine the MS-DRG assignment for similar procedures, such as the other approaches for that procedure, to determine the most appropriate MS-DRG assignment for procedures proposed to be newly designated as O.R. procedures. As discussed in section II.C.13 of the preamble of this proposed rule, we are making Table 6B.—New Procedure Codes—FY 2025 available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps.html. We also refer readers to the ICD-10 MS-DRG Version 41.1 Definitions Manual at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software.html for detailed information regarding the designation of procedures as O.R. or non-O.R. (affecting the MS-DRG) in Appendix E—Operating Room Procedures and Procedure Code/MS-DRG Index.

In the FY 2020 IPPS/LTCH PPS proposed rule, we stated that, given the long period of time that has elapsed since the original O.R. (extensive and non-extensive) and non-O.R. designations were established, the incremental changes that have occurred to these O.R. and non-O.R. procedure code lists, and changes in the way inpatient care is delivered, we plan to conduct a comprehensive, systematic review of the ICD-10-PCS procedure codes. This will be a multiyear project during which we will also review the process for determining when a procedure is considered an operating room procedure. For example, we may restructure the current O.R. and non-O.R. designations for procedures by leveraging the detail that is now available in the ICD-10 claims data. We refer readers to the discussion regarding the designation of procedure codes in the FY 2018 IPPS/LTCH PPS final rule (82 FR 38066) where we stated that the determination of when a procedure code should be designated as an O.R. procedure has become a much more complex task. This is, in part, due to the number of various approaches available in the ICD-10-PCS classification, as well as changes in medical practice. While we have typically evaluated procedures on the basis of whether or not they would be performed in an operating room, we believe that there may be other factors to consider with regard to resource utilization, particularly with the implementation of ICD-10.

We discussed in the FY 2020 IPPS/LTCH PPS proposed rule that as a result of this planned review and potential restructuring, procedures that are currently designated as O.R. procedures may no longer warrant that designation, and conversely, procedures that are currently designated as non-O.R. procedures may warrant an O.R. type of designation. We intend to consider the resources used and how a procedure should affect the MS-DRG assignment. We may also consider the effect of specific surgical approaches to evaluate whether to subdivide specific MS-DRGs based on a specific surgical approach. We stated we plan to utilize our available MedPAR claims data as a basis for this review and the input of our clinical advisors. As part of this comprehensive review of the procedure codes, we also intend to evaluate the MS-DRG assignment of the procedures and the current surgical hierarchy because both of these factor into the process of refining the ICD-10 MS-DRGs to better recognize complexity of service and resource utilization.

In the FY 2021 IPPS/LTCH PPS final rule (85 FR 58540 through 58541), we provided a summary of the comments we had received in response to our request for feedback on what factors or criteria to consider in determining whether a procedure is designated as an O.R. procedure in the ICD-10-PCS classification system for future consideration. We also stated that in consideration of the PHE, we believed it may be appropriate to allow additional time for the claims data to stabilize prior to selecting the timeframe to analyze for this review.

We stated in the FY 2024 IPPS/LTCH PPS final rule (88 FR 58749) that we continue to believe additional time is necessary as we continue to develop our process and methodology. Therefore, we stated we will provide more detail on this analysis and the methodology for conducting this review in future rulemaking. In response to this discussion in the FY 2024 IPPS/LTCH PPS final rule, we received a comment by the October 20, 2023 deadline. The commenter acknowledged that there is no easy rule that would allow CMS to designate certain surgeries as “non-O.R.” procedures. The commenter stated that they believed that open procedures should always be designated O.R. procedures and approaches other than open should not be a sole factor in designating a procedure as non-O.R. as some minimally-invasive procedures using a percutaneous endoscopic approach require more training, specialized equipment, time, and resources than traditional open procedures. In addition, the commenter stated that whether a procedure is frequently or generally performed in the outpatient setting should not be used for determination of O.R. vs non-O.R. designation and noted that a surgery that can be performed in the outpatient setting for a clinically stable patient may not be able to be safely performed on a patient who is clinically unstable. The commenter also asserted that for procedures that can be performed in various locations within the hospital, that is, bedside vs operating room, there should be a mechanism to differentiate the setting of the procedure to determine the MS-DRG assignment as in the commenter's assessment, the ICD-10 classification does not provide a way to indicate the severity of certain conditions, or the complexity of procedures performed.

CMS appreciates the commenter's feedback and recommendations as to factors to consider in evaluating O.R. designations. We agree with the commenter and believe that there may be other factors to consider with regard to resource utilization. As discussed in the FY 2024 IPPS/LTCH PPS final rule, we have signaled in prior rulemaking that the designation of an O.R. procedure encompasses more than the physical location of the hospital room in which the procedure may be performed; in other words, the performance of a procedure in an operating room is not the sole determining factor we will consider as we examine the designation of a procedure in the ICD-10-PCS classification system. We are exploring alternatives on how we may restructure the current O.R. and non-O.R. designations for procedures by leveraging the detail that is available in the ICD-10 claims data. We are considering the feedback received on what factors and/or criteria to consider in determining whether a procedure is designated as an O.R. procedure in the ICD-10-PCS classification system as continue to develop our process and methodology, and will provide more detail on this analysis and the methodology for conducting this comprehensive review in future rulemaking. We encourage the public to continue to submit comments on any other factors to consider in our refinement efforts to recognize and differentiate consumption of resources for the ICD-10 MS-DRGs for consideration.

For this FY 2025 IPPS/LTCH PPS proposed rule, we did not receive any requests regarding changing the designation of specific ICD-10-PCS procedure codes from non-O.R. to O.R. procedures, or to change the designation from O.R. procedures to non-O.R. procedures by the October 20, 2023 deadline. In this section of the proposed rule, we discuss the proposals we are making based on our internal review and analysis and we discuss the process that was utilized for evaluating each procedure code. For each procedure, we considered—

• Whether the procedure would typically require the resources of an operating room;
• Whether it is an extensive or a non-extensive procedure; and
• To which MS-DRGs the procedure should be assigned.

We note that many MS-DRGs require the presence of any O.R. procedure. As a result, cases with a principal diagnosis associated with a particular MS-DRG would, by default, be grouped to that MS-DRG. Therefore, we do not list these MS-DRGs in our discussion in this section of this proposed rule. Instead, we only discuss MS-DRGs that require explicitly adding the relevant procedure codes to the GROUPER logic in order for those procedure codes to affect the MS-DRG assignment as intended.

For procedures that would not typically require the resources of an operating room, we determined if the procedure should affect the MS-DRG assignment. In cases where we are proposing to change the designation of procedure codes from non-O.R. procedures to O.R. procedures, we also are proposing one or more MS-DRGs with which these procedures are clinically aligned and to which the procedure code would be assigned.

In addition, cases that contain O.R. procedures will map to MS-DRGs 981, 982, or 983 (Extensive O.R. Procedure Unrelated to Principal Diagnosis with MCC, with CC, and without CC/MCC, respectively) or MS-DRGs 987, 988, or 989 (Non-Extensive O.R. Procedure Unrelated to Principal Diagnosis with MCC, with CC, and without CC/MCC, respectively) when they do not contain a principal diagnosis that corresponds to one of the MDCs to which that procedure is assigned. These procedures need not be assigned to MS-DRGs 981 through 989 in order for this to occur. Therefore, we did not specifically address that aspect in summarizing the proposals we are making based on our internal review and analysis in this section of this proposed rule.

b. Non-O.R. Procedures to O.R. Procedures

(1) Laparoscopic Biopsy of Intestinal Body Parts

During our review, we noted inconsistencies in how procedures involving laparoscopic excisions of intestinal body parts are designated. Procedure codes describing the laparoscopic excision of intestinal body parts differ by qualifier. ICD-10-PCS procedure codes describing excisions of intestinal body parts with the diagnostic qualifier “X”, are used to report these procedures when performed for diagnostic purposes. We identified the following five related codes:

We noted the ICD-10-PCS procedure codes describing the laparoscopic excision of intestinal body parts for diagnostic purposes listed previously have been assigned different attributes in terms of designation as an O.R. or Non-O.R. procedure when compared to similar procedures describing the laparoscopic excisions of intestinal body parts for nondiagnostic purposes. In the ICD-10 MS-DRGs Version 41, these ICD-10-PCS codes are currently recognized as non-O.R. procedures for purposes of MS-DRG assignment, while similar excision of intestinal body part procedure codes with the same approach but different qualifiers are recognized as O.R. procedures.

Upon further review and consideration, we believe that procedure codes 0DBF4ZX, 0DBG4ZX, 0DBL4ZX, 0DBM4ZX and 0DBN4ZX describing a laparoscopic excision of an intestinal body parts for diagnostic purposes warrant designation as an O.R. procedures consistent with other laparoscopic excision procedures performed on the same intestinal body parts for nondiagnostic purposes. We also believe it is clinically appropriate for these procedures to group to the same MS-DRGs as the procedures describing excision procedures performed on the intestinal body parts for nondiagnostic purposes. Therefore, we are proposing to add procedure codes 0DBF4ZX, 0DBG4ZX, 0DBL4ZX, 0DBM4ZX and 0DBN4ZX to the FY 2025 ICD-10 MS-DRG Version 42 Definitions Manual in Appendix E—Operating Room Procedures and Procedure Code/MS-DRG Index as O.R. procedures assigned to MS-DRG 264 (Other Circulatory System O.R. Procedures) in MDC 05 (Diseases and Disorders of the Circulatory System); MS-DRGs 329, 330, and 331 (Major Small and Large Bowel Procedures, with MCC, with CC, and without CC/MCC, respectively) in MDC 06 (Diseases and Disorders of the Digestive System); MS-DRGs 820, 821, and 822 (Lymphoma and Leukemia with Major O.R. Procedures with MCC, CC, without CC/MCC, respectively) and MS-DRGS 826, 827, and 828 (Myeloproliferative Disorders or Poorly Differentiated Neoplasms with Major O.R. Procedures with MCC, with CC, and without CC/MCC, respectively) in MDC 17 (Myeloproliferative Diseases and Disorders, Poorly Differentiated Neoplasms); MS-DRGs 907, 908, and 909 (Other O.R. Procedures for Injuries with MCC, with CC, and without CC/MCC, respectively) in MDC 21 (Injuries, Poisonings and Toxic Effects of Drugs); and MS-DRGs 957, 958, and 959 (Other O.R. Procedures for Multiple Significant Trauma with MCC, with CC, and without CC/MCC, respectively) in MDC 24 (Multiple Significant Trauma).

(2) Laparoscopic Biopsy of Gallbladder and Pancreas

During our review, we noted inconsistencies in how procedures involving laparoscopic excisions of gallbladder or pancreas are designated. Procedure codes describing the laparoscopic excision of the gallbladder or pancreas differ by qualifier. The ICD-10-PCS procedure code describing an excision of the gallbladder and the procedure code describing an excision of the pancreas with the diagnostic qualifier “X”, are used to report these procedures when performed for diagnostic purposes. We identified the following two related codes:

We noted the ICD-10-PCS procedure codes describing the laparoscopic excision of the gallbladder or the pancreas for diagnostic purposes listed previously have been assigned different attributes in terms of designation as an O.R. or a Non-O.R. procedure when compared to similar procedures describing the laparoscopic excisions of the gallbladder or the pancreas for nondiagnostic purposes. In the ICD-10 MS-DRGs Version 41, these ICD-10-PCS codes are currently recognized as non-O.R. procedures for purposes of MS-DRG assignment, while similar excision of the gallbladder or the pancreas procedure codes with the same approach but different qualifiers are recognized as O.R. procedures.

Upon further review and consideration, we believe that procedure code 0FB44ZX describing a laparoscopic excision of the gallbladder for diagnostic purposes and procedure code 0FBG4ZX describing a laparoscopic excision of the pancreas for diagnostic purposes both warrant designation as an O.R. procedure consistent with other laparoscopic excision procedures performed on the same body parts for nondiagnostic purposes. We also believe it is clinically appropriate for these procedures to group to the same MS-DRGs as the procedures describing excision procedures performed on the gallbladder or pancreas for nondiagnostic purposes. Therefore, we are proposing to add procedure code 0FB44ZX to the FY 2025 ICD-10 MS-DRG Version 42 Definitions Manual in Appendix E—Operating Room Procedures and Procedure Code/MS-DRG Index as an O.R. procedure assigned to MS-DRGs 411, 412, and 413 (Cholecystectomy with C.D.E., with MCC, with CC, and without CC/MCC, respectively) and MS-DRGs 417, 418, and 419 (Laparoscopic Cholecystectomy without C.D.E., with MCC, with CC, and without CC/MCC, respectively) in MDC 07 (Diseases and Disorders of the Hepatobiliary System and Pancreas); MS-DRGs 820, 821, and 822 (Lymphoma and Leukemia with Major O.R. Procedures with MCC, with CC, and without CC/MCC, respectively) and MS-DRGS 826, 827, and 828 (Myeloproliferative Disorders or Poorly Differentiated Neoplasms with Major O.R. Procedures with MCC, with CC, and without CC/MCC, respectively) in MDC 17 (Myeloproliferative Diseases and Disorders, Poorly Differentiated Neoplasms); MS-DRGs 907, 908, and 909 (Other O.R. Procedures for Injuries with MCC, with CC, and without CC/MCC, respectively) in MDC 21 (Injuries, Poisonings and Toxic Effects of Drugs); and MS-DRGs 957, 958, and 959 (Other O.R. Procedures for Multiple Significant Trauma with MCC, with CC, and without CC/MCC, respectively) in MDC 24 (Multiple Significant Trauma).

We are also proposing to add procedure code 0FBG4ZX to the FY 2025 ICD-10 MS-DRG Version 42 Definitions Manual in Appendix E—Operating Room Procedures and Procedure Code/MS-DRG Index as an O.R. procedure assigned to MS-DRGs 405, 406, and 407 (Pancreas, Liver and Shunt Procedures, with MCC, with CC, and without CC/MCC, respectively) in MDC 06 (Diseases and Disorders of the Digestive System); MS-DRGs 628, 629 and 630 (Other Endocrine, Nutritional and Metabolic O.R. Procedures with MCC, with CC, and without CC/MCC, respectively) in MDC 10 (Endocrine, Nutritional and Metabolic Diseases and Disorders); MS-DRGs 907, 908, and 909 (Other O.R. Procedures for Injuries with MCC, with CC, and without CC/MCC, respectively) in MDC 21 (Injuries, Poisonings and Toxic Effects of Drugs); and MS-DRGs 957, 958, and 959 (Other O.R. Procedures for Multiple Significant Trauma with MCC, with CC, and without CC/MCC, respectively) in MDC 24 (Multiple Significant Trauma).

12. Proposed Changes to the MS-DRG Diagnosis Codes for FY 2025

a. Background of the CC List and the CC Exclusions List

Under the IPPS MS-DRG classification system, we have developed a standard list of diagnoses that are considered CCs. Historically, we developed this list using physician panels that classified each diagnosis code based on whether the diagnosis, when present as a secondary condition, would be considered a substantial complication or comorbidity. A substantial complication or comorbidity was defined as a condition that, because of its presence with a specific principal diagnosis, would cause an increase in the length-of-stay by at least 1 day in at least 75 percent of the patients. However, depending on the principal diagnosis of the patient, some diagnoses on the basic list of complications and comorbidities may be excluded if they are closely related to the principal diagnosis. In FY 2008, we evaluated each diagnosis code to determine its impact on resource use and to determine the most appropriate CC subclassification (NonCC, CC, or MCC) assignment. We refer readers to sections II.D.2. and 3. of the preamble of the FY 2008 IPPS final rule with comment period for a discussion of the refinement of CCs in relation to the MS DRGs we adopted for FY 2008 (72 FR 47152 through 47171).

b. Overview of Comprehensive CC/MCC Analysis

In the FY 2008 IPPS/LTCH PPS final rule (72 FR 47159), we described our process for establishing three different levels of CC severity into which we would subdivide the diagnosis codes. The categorization of diagnoses as a MCC, a CC, or a NonCC was accomplished using an iterative approach in which each diagnosis was evaluated to determine the extent to which its presence as a secondary diagnosis resulted in increased hospital resource use. We refer readers to the FY 2008 IPPS/LTCH PPS final rule (72 FR 47159) for a complete discussion of our approach. Since the comprehensive analysis was completed for FY 2008, we have evaluated diagnosis codes individually when assigning severity levels to new codes and when receiving requests to change the severity level of specific diagnosis codes.

We noted in the FY 2020 IPPS/LTCH PPS proposed rule (84 FR 19235 through 19246) that with the transition to ICD-10-CM and the significant changes that have occurred to diagnosis codes since the FY 2008 review, we believed it was necessary to conduct a comprehensive analysis once again. Based on this analysis, we proposed changes to the severity level designations for 1,492 ICD-10-CM diagnosis codes and invited public comments on those proposals. As summarized in the FY 2020 IPPS/LTCH PPS final rule, many commenters expressed concern with the proposed severity level designation changes overall and recommended that CMS conduct further analysis prior to finalizing any proposals. After careful consideration of the public comments we received, as discussed further in the FY 2020 IPPS/LTCH PPS final rule, we generally did not finalize our proposed changes to the severity designations for the ICD-10-CM diagnosis codes, other than the changes to the severity level designations for the diagnosis codes in category Z16 (Resistance to antimicrobial drugs) from a NonCC to a CC. We stated that postponing adoption of the proposed comprehensive changes in the severity level designations would allow further opportunity to provide additional background to the public on the methodology utilized and clinical rationale applied across diagnostic categories to assist the public in its review. We refer readers to the FY 2020 IPPS/LTCH PPS final rule (84 FR 42150 through 42152) for a complete discussion of our response to public comments regarding the proposed severity level designation changes for FY 2020.

As discussed in the FY 2021 IPPS/LTCH PPS proposed rule (85 FR 32550), to provide the public with more information on the CC/MCC comprehensive analysis discussed in the FY 2020 IPPS/LTCH PPS proposed and final rules, CMS hosted a listening session on October 8, 2019. The listening session included a review of this methodology utilized to mathematically measure the impact on resource use. We refer readers to https://www.cms.gov/Outreach-and-Education/Outreach/OpenDoorForums/Downloads/10082019ListingSessionTrasncriptandQandAsandAudioFile.zip for the transcript and audio file of the listening session. We also refer readers to https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software for the supplementary file containing the mathematical data generated using claims from the FY 2018 MedPAR file describing the impact on resource use of specific ICD-10-CM diagnosis codes when reported as a secondary diagnosis that was made available for the listening session.

In the FY 2021 IPPS/LTCH PPS final rule (85 FR 58550 through 58554), we discussed our plan to continue a comprehensive CC/MCC analysis, using a combination of mathematical analysis of claims data as discussed in the FY 2020 IPPS/LTCH PPS proposed rule (84 FR 19235) and the application of nine guiding principles and plan to present the findings and proposals in future rulemaking. The nine guiding principles are as follows:

• Represents end of life/near death or has reached an advanced stage associated with systemic physiologic decompensation and debility.
• Denotes organ system instability or failure.
• Involves a chronic illness with susceptibility to exacerbations or abrupt decline.
• Serves as a marker for advanced disease states across multiple different comorbid conditions.
• Reflects systemic impact.
• Post-operative/post-procedure condition/complication impacting recovery.
• Typically requires higher level of care (that is, intensive monitoring, greater

number of caregivers, additional testing, intensive care unit care, extended length of stay).

• Impedes patient cooperation or management of care or both.
• Recent (last 10 years) change in best practice, or in practice guidelines and review of the extent to which these changes have led to concomitant changes in expected resource use.

We refer readers to the FY 2021 IPPS/LTCH PPS final rule for a complete summation of the comments we received for each of the nine guiding principles and our responses to those comments. We note that since the FY 2021 IPPS/LTCH PPS final rule we have continued to solicit feedback regarding the nine guiding principles, as well as other possible ways we can incorporate meaningful indicators of clinical severity. We have encouraged the public to provide a detailed explanation of how applying a suggested concept or principle would ensure that the severity designation appropriately reflects resource use for any diagnosis code when providing feedback or comments. In the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26748 through 26750) we illustrated how the nine guiding principles might be applied in evaluating changes to the severity designations of diagnosis codes in our discussion of our proposed changes to the severity level designation for certain diagnosis codes that describe homelessness. Since the FY 2021 IPPS/LTCH PPS final rule, we have not received any additional feedback or comments on the nine guiding principles; therefore, we are proposing to finalize the nine guiding principles as listed previously in this FY 2025 IPPS/LTCH PPS proposed rule. Under this proposal, our evaluations to determine the extent to which the presence of a diagnosis code as a secondary diagnosis results in increased hospital resource use will include a combination of mathematical analysis of claims data as discussed in the FY 2020 IPPS/LTCH PPS proposed rule (84 FR 19235) and the application of the nine guiding principles.

In the FY 2022 IPPS/LTCH PPS proposed rule (86 FR 25175 through 25180), as another interval step in our comprehensive review of the severity designations of ICD-10-CM diagnosis codes, we requested public comments on a potential change to the severity level designations for “unspecified” ICD-10-CM diagnosis codes that we were considering adopting for FY 2022. Specifically, we noted we were considering changing the severity level designation of “unspecified” diagnosis codes to a NonCC where there are other codes available in that code subcategory that further specify the anatomic site. As summarized in the FY 2022 IPPS/LTCH PPS final rule, many commenters expressed concern with the potential severity level designation changes overall and recommended that CMS delay any possible change to the designation of these codes to give hospitals and their physicians time to prepare. After careful consideration of the public comments we received, we maintained the severity level designation of the “unspecified” diagnosis codes currently designated as a CC or MCC where there are other codes available in that code subcategory that further specify the anatomic site for FY 2022. We refer readers to the FY 2022 IPPS/LTCH PPS final rule (86 FR 44916 through 44926) for a complete discussion of our response to public comments regarding the potential severity level designation changes. Instead, for FY 2022, we finalized a new Medicare Code Editor (MCE) code edit for “unspecified” codes, effective with discharges on and after April 1, 2022. We stated we believe finalizing this new edit would provide additional time for providers to be educated while not affecting the payment the provider is eligible to receive. We refer the reader to section II.D.14.e. of the FY 2022 IPPS/LTCH PPS final rule (86 FR 44940 through 44943) for the complete discussion.

As discussed in the FY 2023 IPPS/LTCH PPS final rule (87 FR 48866), we stated that as the new unspecified edit became effective beginning with discharges on and after April 1, 2022, we believed it was appropriate to not propose to change the designation of any ICD-10-CM diagnosis codes, including the unspecified codes that are subject to the “Unspecified Code” edit, as we continue our comprehensive CC/MCC analysis to allow interested parties the time needed to become acclimated to the new edit.

In the FY 2023 IPPS/LTCH proposed rule (87 FR 28177 through 28181), we also requested public comments on how the reporting of diagnosis codes in categories Z55-Z65 might improve our ability to recognize severity of illness, complexity of illness, and/or utilization of resources under the MS-DRGs. Consistent with the Administration's goal of advancing health equity for all, including members of historically underserved and under-resourced communities, as described in the President's January 20, 2021 Executive Order 13985 on “Advancing Racial Equity and Support for Underserved Communities Through the Federal Government,” we stated we were also interested in receiving feedback on how we might otherwise foster the documentation and reporting of the diagnosis codes describing social and economic circumstances to more accurately reflect each health care encounter and improve the reliability and validity of the coded data including in support of efforts to advance health equity.

We noted that social determinants of health (SDOH) are the conditions in the environments where people are born, live, learn, work, play, worship, and age that affect a wide range of health, functioning, and quality-of-life outcomes and risks. The subset of Z codes that describe the social determinants of health are found in categories Z55-Z65 (Persons with potential health hazards related to socioeconomic and psychosocial circumstances). These codes describe a range of issues related—but not limited—to education and literacy, employment, housing, ability to obtain adequate amounts of food or safe drinking water, and occupational exposure to toxic agents, dust, or radiation.

We received numerous public comments that expressed a variety of views on our comment solicitation, including many comments that were supportive, and others that offered specific suggestions for our consideration in future rulemaking. Many commenters applauded CMS' efforts to encourage documentation and reporting of SDOH diagnosis codes given the impact that social risks can have on health outcomes. These commenters stated that it is critical that physicians, other health care professionals, and facilities recognize the impact SDOH have on the health of their patients. Many commenters also stated that the most immediate and important action CMS could take to increase the use of SDOH Z codes is to finalize the evidence-based “Screening for Social Drivers of Health” and “Screen Positive Rate for Social Drivers of Health” measures proposed to be adopted in the Hospital Inpatient Quality Reporting (IQR) Program. In the FY 2023 IPPS/LTCH PPS final rule (87 FR 49202 through 49220), CMS finalized the “Screening for Social Drivers of Health” and “Screen Positive Rate for Social Drivers of Health” measures in the Hospital Inpatient Quality Reporting (IQR) Program. We refer readers to the FY 2023 IPPS/LTCH PPS final rule (87 FR 48867 through 48872) for the complete discussion of the public comments received regarding the request for information on SDOH diagnosis codes.

As discussed in the FY 2024 IPPS/LTCH PPS final rule (88 FR 58755 through 58759), based on our analysis of the impact on resource use for the ICD-10-CM Z codes that describe homelessness and after consideration of public comments, we finalized changes to the severity levels for diagnosis codes Z59.00 (Homelessness, unspecified), Z59.01 (Sheltered homelessness), and Z59.02 (Unsheltered homelessness), from NonCC to CC. We stated our expectation that finalizing the changes would encourage the increased documentation and reporting of the diagnosis codes describing social and economic circumstances and serve as an example for providers that, when they document and report SDOH codes, CMS can further examine the claims data and consider future changes to the designation of these codes when reported as a secondary diagnosis. We further stated CMS would continue to monitor and evaluate the reporting of the diagnosis codes describing social and economic circumstances.

We refer the reader to the following section of this proposed rule for our proposed changes to the severity level designation for the diagnosis codes that describe inadequate housing and housing instability for FY 2025.

We have updated the Impact on Resource Use Files on the CMS website so that the public can review the mathematical data for the impact on resource use generated using claims from the FY 2019 through the FY 2023 MedPAR files. These files are posted on the CMS website at https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software. As discussed in prior rulemaking, we also continue to be interested in receiving feedback on how we might further foster the documentation and reporting of the most specific diagnosis codes supported by the available medical record documentation and clinical knowledge of the patient's health condition to more accurately reflect each health care encounter and improve the reliability and validity of the coded data.

For new diagnosis codes approved for FY 2025, consistent with our annual process for designating a severity level (MCC, CC, or NonCC) for new diagnosis codes, we first review the predecessor code designation, followed by review and consideration of other factors that may be relevant to the severity level designation, including the severity of illness, treatment difficulty, complexity of service and the resources utilized in the diagnosis or treatment of the condition. We note that this process does not automatically result in the new diagnosis code having the same designation as the predecessor code. We refer the reader to section II.C.13 of this proposed rule for the discussion of the proposed changes to the ICD-10-CM and ICD-10-PCS coding systems for FY 2025.

c. Proposed Changes to Severity Levels

1. SDOH—Inadequate Housing/Housing Instability

As discussed earlier in this section, in continuation of our examination of the SDOH Z codes, for this proposed rule, we reviewed the mathematical data on the impact on resource use for the subset of ICD-10-CM Z codes that describe the social determinants of health found in categories Z55-Z65 (Persons with potential health hazards related to socioeconomic and psychosocial circumstances).

The ICD-10-CM SDOH Z codes that describe inadequate housing and housing instability are currently designated as NonCCs when reported as secondary diagnoses. The following table reflects the impact on resource use data generated using claims from the September 2023 update of the FY 2023 MedPAR file. We refer readers to the FY 2008 IPPS/LTCH PPS final rule (72 FR 47159) for a complete discussion of our historical approach to mathematically evaluate the extent to which the presence of an ICD-10-CM code as a secondary diagnosis resulted in increased hospital resource use, and a more detailed explanation of the columns in the table.

The table shows that the C1 value is 2.63 for ICD-10-CM diagnosis code Z59.10 and 1.85 for ICD-10-CM diagnosis code Z59.19. A value close to 2.0 in column C1 suggests that the secondary diagnosis is more aligned with a CC than a NonCC. Because the C1 values in the table are generally close to 2, the data suggest that when these two SDOH Z codes are reported as a secondary diagnosis, the resources involved in caring for a patient experiencing inadequate housing support increasing the severity level from a NonCC to a CC. In contrast, the C1 value for ICD-10-CM diagnosis code Z59.11 is 0.51 and is 0.99 for ICD-10-CM diagnosis code Z59.12. A C1 value generally closer to 1 suggests the resources involved in caring for patients experiencing inadequate housing in terms of environmental temperature and utilities are more aligned with a NonCC severity level than a CC or an MCC severity level.

The underlying cause of the inconsistency between the C1 values for inadequate housing, unspecified and other inadequate housing and the two more specific codes that describe the necessities unavailable in the housing environment is unclear. We note that diagnosis codes Z59.10 (Inadequate housing, unspecified), Z59.11 (Inadequate housing environmental temperature), Z59.12 (Inadequate housing utilities), and Z59.19 (Other inadequate housing) became effective on April 1, 2023 (FY 2023). In reviewing the historical C1 values for code Z59.1 (Inadequate housing), the predecessor code before the code was expanded to further describe inadequate housing and the basic necessities unavailable in the housing environment, we note the mathematical data for the impact on resource use generated using claims from the FY 2019, FY 2020, FY 2021, and FY 2022 MedPAR files reflects C1 values for code Z59.1 of 2.09, 1.73, 2.04, and 2.69, respectively. We refer the reader to the Impact on Resource Use Files generated using claims from the FY 2019 through the FY 2022 MedPAR files posted on the CMS website at https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software. We believe the lower C1 values for ICD-10-CM codes Z59.11 (Inadequate housing environmental temperature) and Z59.12 (Inadequate housing utilities) reflected in the mathematical data for the impact on resource use generated using claims from the FY 2023 MedPAR file may be attributed to lack of use or knowledge about the newly expanded codes, such that the data may not yet reflect the full impact on resource use for patients experiencing these circumstances.

Similarly, the table shows that the C1 value is 1.97 for ICD-10-CM diagnosis code Z59.811. A value close to 2.0 in column C1 suggests that the secondary diagnosis is more aligned with a CC than a NonCC. Because the C1 value in the table is generally close to 2, the data suggest that when this SDOH Z code is reported as a secondary diagnosis, the resources involved in caring for a patient experiencing an imminent risk of homelessness support increasing the severity level from a NonCC to a CC. In contrast, the C1 value for ICD-10-CM diagnosis code Z59.812 (Housing instability, housed, homelessness in past 12 months) and (Housing instability, housed unspecified) is 0.76 and is 0.92 for ICD-10-CM diagnosis code Z59.819. A C1 value generally closer to 1 suggests the resources involved in caring for patients experiencing housing instability, with history of homelessness in the past 12 months or housing instability, unspecified are more aligned with a NonCC severity level than a CC or an MCC severity level. The underlying cause of the inconsistency between the C1 values for codes describing housing instability is unclear.

We note that diagnosis codes Z59.811, Z59.812, and Z59.819 became effective on October 1, 2021 (FY 2022). In reviewing the historical C1 values for code Z59.8 (Other problems related to housing and economic circumstances), the predecessor code before the code was expanded to further describe the problems related to housing and economic circumstances, we note the mathematical data for the impact on resource use generated using claims from the FY 2019 and FY 2020 MedPAR files reflects C1 values for code Z59.8 of 1.92 and 1.63, respectively. There were no data reflected for this code in the Impact on Resource Use File generated using claims from the FY 2021 MedPAR files. The mathematical data for the impact on resource use generated using claims from the FY 2022 MedPAR file reflects C1 values for codes Z59.811, Z59.812, and Z59.819 of 2.44, 3.12, and 2.09, respectively. We are uncertain if the fluctuations in the C1 values from year to year, or FY 2021, in particular, may reflect fluctuations that may be a result of the COVID-19 public health emergency or even reduced hospitalizations of certain conditions. We are also uncertain if the fluctuations may be attributed to lack of use or knowledge about the expanded codes, such that the data on the reporting of codes Z59.812 and Z59.819 may not yet reflect the full impact on resource use for patients experiencing these circumstances.

As discussed in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58550 through 58554), following the listening session on October 8, 2019, we reconvened an internal workgroup comprised of clinicians, consultants, coding specialists and other policy analysts to identify guiding principles to apply in evaluating whether changes to the severity level designations of diagnoses are needed and to ensure the severity designations appropriately reflect resource use based on review of the claims data, as well as consideration of relevant clinical factors (for example, the clinical nature of each of the secondary diagnoses and the severity level of clinically similar diagnoses) and improve the overall accuracy of the IPPS payments.

In considering the nine guiding principles identified by the workgroup, as summarized previously, we note that, similar to homelessness, inadequate housing and housing instability are circumstances that can impede patient cooperation or management of care, or both. In addition, patients experiencing inadequate housing and housing instability can require a higher level of care by needing an extended length of stay.

Inadequate housing is defined as an occupied housing unit that has moderate or severe physical problems (for example, deficiencies in plumbing, heating, electricity, hallways, and upkeep). Features of substandard housing have long been identified as contributing to the spread of infectious diseases. Patients living in inadequate housing may be exposed to health and safety risks, such as vermin, mold, water leaks, and inadequate heating or cooling systems. An increasing body of evidence has associated poor housing conditions with morbidity from infectious diseases, chronic illnesses, exposure to toxins, injuries, poor nutrition, and mental disorders.

Housing instability encompasses a number of challenges, such as having trouble paying rent, overcrowding, moving frequently, or spending the bulk of household income on housing. These experiences may negatively affect physical health and make it harder to access health care. Studies have found moderate evidence to suggest that housing instability is associated with higher prevalence of overweight/obesity, hypertension, diabetes, and cardiovascular disease, worse hypertension and diabetes control, and higher acute health care utilization among those with diabetes and cardiovascular disease.

In reviewing the mathematical data for the impact on resource use generated using claims from the FY 2023 MedPAR file for the seven ICD-10-CM codes describing inadequate housing and housing instability comprehensively and reviewing the potential impact these circumstances could have on patients' clinical course, we note that whether the patient is experiencing inadequate housing or housing instability, the patient may have limited or no access to prescription medicines or over-the-counter medicines, including adequate locations to store medications away from the heat or cold, and have difficulties adhering to medication regimens. Experiencing inadequate housing or housing instability may negatively affect a patient's physical health and make it harder to access timely health care. Delays in medical care may increase morbidity and mortality risk among those with underlying, preventable, and treatable medical conditions. In addition, findings also suggest that patients experiencing inadequate housing or housing instability are associated with higher rates of inpatient admissions for mental, behavioral, and neurodevelopmental disorders, longer hospital stays, and substantial health care costs.

Therefore, after considering the impact on resource use data generated using claims from the September 2023 update of the FY 2023 MedPAR file for the seven ICD-10-CM diagnosis codes that describe inadequate housing and housing instability and consideration of the nine guiding principles, we are proposing to change the severity level designation for diagnosis codes Z59.10 (Inadequate housing, unspecified), Z59.11 (Inadequate housing environmental temperature), Z59.12 (Inadequate housing utilities), Z59.19 (Other inadequate housing), Z59.811 (Housing instability, housed, with risk of homelessness), Z59.812 (Housing instability, housed, homelessness in past 12 months) and Z59.819 (Housing instability, housed unspecified) from NonCC to CC for FY 2025.

As discussed in the FY 2023 IPPS/LTCH PPS final rule (87 FR 48868), if SDOH Z codes are not consistently reported in inpatient claims data, our methodology utilized to mathematically measure the impact on resource use, as described previously, may not adequately reflect what additional resources were expended by the hospital to address these SDOH circumstances in terms of requiring clinical evaluation, extended length of hospital stay, increased nursing care or monitoring or both, and comprehensive discharge planning. We will continue to monitor SDOH Z code reporting, including reporting based on SDOH screening performed as a result of new quality measures in the Hospital Inpatient Quality Reporting program. We may consider proposing changes for other SDOH codes in the future based on our analysis of the impact on resource use, per our methodology, as previously described, and consideration of the guiding principles. We also continue to be interested in receiving feedback on how we might otherwise foster the documentation and reporting of the diagnosis codes describing social and economic circumstances to more accurately reflect each health care encounter and improve the reliability and validity of the coded data including in support of efforts to advance health equity.

To inform future rulemaking, feedback and other suggestions may be submitted by October 20, 2024 and directed to MEARIS^TM at: https://mearis.cms.gov/public/home.

2. Causally Specified Delirium

Additionally, for this FY 2025 IPPS/LTCH PPS proposed rule, we received a request to change the severity level designations of the ICD-10-CM diagnosis codes that describe causally specified delirium from CC to MCC when reported as secondary diagnoses. Causally specified delirium is delirium caused by the physiological effects of a medical condition, by the direct physiological effects of a substance or medication, including withdrawal, or by multiple or unknown etiological factors. The requestor noted that ICD-10-CM diagnosis codes G92.8 (Other toxic encephalopathy), G92.9 (Unspecified toxic encephalopathy) and G93.41 (Metabolic encephalopathy) are currently all designated as MCCs. According to the requestor, a diagnosis of delirium implies an underlying acute encephalopathy, and as such, the severity designation of the diagnosis codes that describe causally specified delirium should be on par with the severity designation of the diagnosis codes that describe toxic encephalopathy and metabolic encephalopathy. The requestor stated that toxic encephalopathy, metabolic encephalopathy, and causally specified delirium all describe core symptoms of impairment of level of consciousness and cognitive change caused by a medical condition or substance.

The requestor further stated that there is robust literature detailing the impact delirium can have on cognitive decline, rates of functional decline, subsequent dementia diagnosis, institutionalization, care complexity and costs, readmission rates, and mortality. The requestor considered each of the nine guiding principles discussed earlier in this section and noted how each of the principles could be applied in evaluating changes to the severity designations of the diagnosis codes that describe causally specified delirium in their request. Specifically, the requestor stated that delirium is a textbook example that maps to the nine guiding principles for evaluating a potential change in severity designation in that delirium (1) has a bidirectional link with dementia, (2) indexes physiological vulnerability across populations, (3) impacts healthcare systems across levels of care, (4) complicates postoperative recovery, (5) consigns patients to higher levels of care, and for longer, (6)impedes patient engagement in care, (7) has several recent treatment guidelines, (8) indicates neuronal/brain injury, and (9) represents a common expression of terminal illness.

The requestor identified 37 ICD-10-CM diagnosis codes that describe causally specified delirium. We agree that these 37 diagnosis codes are all currently designated as CCs. We refer the reader to Appendix G of the ICD-10 MS-DRG Version 41.1 Definitions Manual (available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software) for the complete list of diagnoses designated as CCs when reported as secondary diagnoses, except when used in conjunction with the principal diagnosis in the corresponding CC Exclusion List in Appendix C. To evaluate this request, we analyzed the claims data in the September 2023 update of the FY 2023 MedPAR file. The following table shows the analysis for each of the diagnosis codes identified by the requestor that describe causally specified delirium.

We analyzed these data as described in FY 2008 IPPS final rule (72 FR 47158 through 47161). The table shows that the C1 values of the diagnosis codes that describe causally specified delirium range from a low of 0.35 to a high of 4.00. As stated earlier, a C1 value close to 2.0 suggests the condition is more like a CC than a non-CC but not as significant in resource usage as an MCC. On average, the C1 values of the diagnoses that describe causally specified delirium suggest that these codes are more like a NonCC than a CC. We note diagnosis code F11.221 (Opioid dependence with intoxication delirium) had a C1 value of 4.00, however our analysis reflects that this diagnosis code was reported as a secondary diagnosis in only 42 claims, and only one claim reported F11.221 as a secondary diagnosis with no other secondary diagnosis or with all other secondary diagnoses that are NonCCs.

The C2 findings of the diagnosis codes that describe causally specified delirium range from a low of 0.28 to a high of 3.22 and the C3 findings range from a low of 1.25 to a high of 3.85. The data are clearly mixed between the C2 and C3 findings, and do not consistently support a change in the severity level. On average, the C2 and C3 findings again suggest that these codes that describe causally specified delirium are more similar to a NonCC.

In considering the nine guiding principles, as summarized previously, we note that delirium is a diagnosis that can impede patient cooperation or management of care or both. Delirium is a confusional state that can manifest as agitation, tremulousness, and hallucinations or even somnolence and decreased arousal. In addition, patients diagnosed with delirium can require a higher level of care by needing intensive monitoring, and a greater number of caregivers. Managing disruptive behavior, particularly agitation and combative behavior, is a challenging aspect in caring for patients diagnosed with delirium. Prevention and treatment of delirium can include avoiding factors known to cause or aggravate delirium; identifying and treating the underlying acute illness; and where appropriate using low-dose, short-acting pharmacologic agents.

After considering the C1, C2, and C3 values of the 37 ICD-10-CM diagnosis codes that describe causally specified delirium and consideration of the nine guiding principles, we believe these 37 codes should not be designated as MCCs. While there is a lack of consistent claims data to support a severity level change from CCs to MCCs, we recognize patients with delirium can utilize increased hospital resources and can be at a higher severity level. Therefore, we are proposing to retain the severity designation of the 37 codes listed previously as CCs for FY 2025.

d. Proposed Additions and Deletions to the Diagnosis Code Severity Levels for FY 2025

The following tables identify the proposed additions and deletions to the diagnosis code MCC severity levels list and the proposed additions and deletions to the diagnosis code CC severity levels list for FY 2025 and are available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html.

Table 6I.1—Proposed Additions to the MCC List-FY 2025;

Table 6J.1—Proposed Additions to the CC List-FY 2025; and

Table 6J.2—Proposed Deletions to the CC List-FY 2025

e. Proposed CC Exclusions List for FY 2025

In the September 1, 1987 final notice (52 FR 33143) concerning changes to the DRG classification system, we modified the GROUPER logic so that certain diagnoses included on the standard list of CCs would not be considered valid CCs in combination with a particular principal diagnosis. We created the CC Exclusions List for the following reasons: (1) to preclude coding of CCs for closely related conditions; (2) to preclude duplicative or inconsistent coding from being treated as CCs; and (3) to ensure that cases are appropriately classified between the complicated and uncomplicated DRGs in a pair.

In the May 19, 1987 proposed notice (52 FR 18877) and the September 1, 1987 final notice (52 FR 33154), we explained that the excluded secondary diagnoses were established using the following five principles:

• Chronic and acute manifestations of the same condition should not be considered CCs for one another;
• Specific and nonspecific (that is, not otherwise specified (NOS)) diagnosis codes for the same condition should not be considered CCs for one another;
• Codes for the same condition that cannot coexist, such as partial/total, unilateral/bilateral, obstructed/unobstructed, and benign/malignant, should not be considered CCs for one another;
• Codes for the same condition in anatomically proximal sites should not be considered CCs for one another; and
• Closely related conditions should not be considered CCs for one another.

The creation of the CC Exclusions List was a major project involving hundreds of codes. We have continued to review the remaining CCs to identify additional exclusions and to remove diagnoses from the master list that have been shown not to meet the definition of a CC. We refer readers to the FY 2014 IPPS/LTCH PPS final rule (78 FR 50541 through 50544) for detailed information regarding revisions that were made to the CC and CC Exclusion Lists under the ICD-9-CM MS-DRGs.

The ICD-10 MS-DRGs Version 41.1 CC Exclusion List is included as Appendix C in the ICD-10 MS-DRG Definitions Manual (available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html) and includes two lists identified as Part 1 and Part 2. Part 1 is the list of all diagnosis codes that are defined as a CC or MCC when reported as a secondary diagnosis. For all diagnosis codes on the list, a link is provided to a collection of diagnosis codes which, when reported as the principal diagnosis, would cause the CC or MCC diagnosis to be considered as a NonCC. Part 2 is the list of diagnosis codes designated as an MCC only for patients discharged alive; otherwise, they are assigned as a NonCC.

Effective for the April 1, 2024 release of the ICD-10 MS-DRG Definitions Manual, Version 41.1, a new section has been added to Appendix C as follows:

Part 3: Secondary Diagnosis CC/MCC Severity Exclusions in Select MS-DRGs

Part 3 lists diagnosis codes that are designated as a complication or comorbidity (CC) or major complication or comorbidity (MCC) and included in the definition of the logic for the listed MS-DRGs. When reported as a secondary diagnosis and grouped to one of the listed MS-DRGs, the diagnosis is excluded from acting as a CC/MCC for severity in DRG assignment.

The purpose of this new section is to include the list of MS-DRGs subject to what is referred to as suppression logic. In addition to the suppression logic excluding secondary diagnosis CC or MCC conditions that may be included in the definition of the logic for a DRG, it is also based on the presence of other secondary diagnosis logic defined within certain base DRGs. Therefore, if a MS-DRG has secondary diagnosis logic, the suppression is activated regardless of the severity of the secondary diagnosis code(s) for appropriate grouping and MS-DRG assignment.

Each MS-DRG is defined by a particular set of patient attributes including principal diagnosis, specific secondary diagnoses, procedures, sex, and discharge status. The patient attributes which define each MS-DRG are displayed in a series of headings which indicate the patient characteristics used to define the MS-DRG. These headings indicate how the patient's diagnoses and procedures are used in determining MS-DRG assignment. Following each heading is a complete list of all the ICD-10-CM diagnosis or ICD-10-PCS procedure codes included in the MS-DRG. One of these headings is secondary diagnosis.

• Secondary diagnosis. Indicates that a specific set of secondary diagnoses are used in the definition of the MS-DRG. For example, a secondary diagnosis of acute leukemia with chemotherapy is used to define MS-DRG 839.

The full list of MS-DRGs where suppression occurs is shown in the following table.

We believe this additional information about the suppression logic may further assist users of the ICD-10 MS-DRG GROUPER software and related materials.

In our review of the MS-DRGs containing secondary diagnosis logic in association with the suppression logic previously discussed, we identified another set of MS-DRGs containing secondary diagnosis logic in the definition of the MS-DRG. Specifically, we identified MS-DRGs 673, 674, and 675 (Other Kidney and Urinary Tract Procedures with MCC, with CC, and without CC/MCC, respectively) in MDC 11 (Diseases and Disorders of the Kidney and Urinary Tract), as displayed in the ICD-10 MS-DRG Version 41.1 Definitions Manual (which is available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software) which contains secondary diagnosis logic.

Of the seven logic lists included in the definition of MS-DRGs 673, 674, and 675, there are three “Or Principal Diagnosis” logic lists and one “With Secondary Diagnosis” logic list. The first “Or Principal Diagnosis” logic list is comprised of 21 diagnosis codes describing conditions such as chronic kidney disease, kidney failure, and complications related to a vascular dialysis catheter or kidney transplant. The second “Or Principal Diagnosis” logic list is comprised of four diagnosis codes describing diabetes with diabetic chronic kidney disease followed by a “With Secondary Diagnosis” logic list that includes diagnosis codes N18.5 (Chronic kidney disease, stage 5) and N18.6 (End stage renal disease). These logic lists are components of the special logic in MS-DRGs 673, 674, and 675 for certain MDC 11 diagnoses reported with procedure codes for the insertion of tunneled or totally implantable vascular access devices. The third “Or Principal Diagnosis” logic list is comprised of three diagnosis codes describing Type 1 diabetes with different kidney complications as part of the special logic in MS-DRGs 673, 674, and 675 for pancreatic islet cell transplantation performed in the absence of any other surgical procedure.

Under the Version 41.1 ICD-10 MS-DRGs, diagnosis code N18.5 (Chronic kidney disease, stage 5) is currently designated as a CC and diagnosis code N18.6 (End stage renal disease) is designated as an MCC. In our review of the MS-DRGs containing secondary diagnosis logic in association with the suppression logic, we noted that currently, when some diagnosis codes from the “Or Principal Diagnosis” logic lists in MS-DRGs 673, 674, and 675 are reported as the principal diagnosis and either diagnosis code N18.5 or N18.6 from the “With Secondary Diagnosis” logic list is reported as a secondary diagnosis, some cases are grouping to MS-DRG 673 (Other Kidney and Urinary Tract Procedures with MCC) or to MS-DRG 674 (Other Kidney and Urinary Tract Procedures with CC) in the absence of any other MCC or CC secondary diagnoses being reported.

In our analysis of this issue, we noted that diagnosis codes N18.5 and N18.6 are excluded from acting as a CC or MCC, when reported with principal diagnoses from Principal Diagnosis Collection Lists 1379 and 1380, respectively, as reflected in Part 1 of Appendix C in the CC Exclusion List. We refer the reader to Part 1 of Appendix C in the CC Exclusion List as displayed in the ICD-10 MS-DRG Version 41.1 Definitions Manual (which is available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software) for the complete list of principal diagnoses in Principal Diagnosis Collection Lists 1379 and 1380. Specifically, when codes N18.5 or N18.6 are reported as secondary diagnoses, they are considered as NonCCs when the diagnosis codes from the “Or Principal Diagnosis” logic lists in MS-DRGs 673, 674, and 675 reflected in the following table are reported as the principal diagnosis under the CC Exclusion logic.

We also noted that currently, a subset of diagnosis codes from the first “Or Principal Diagnosis” logic list in MS-DRGs 673, 674, and 675 are not listed in Principal Diagnosis Collection Lists 1379 or 1380 for diagnosis codes N18.5 and N18.6, respectively. As a result, when one of the 13 diagnosis codes listed in the following table are reported as the principal diagnosis, and either diagnosis code N18.5 or N18.6 from the “With Secondary Diagnosis” logic list are reported as a secondary diagnosis, the cases are grouping to MS-DRG 673 (Other Kidney and Urinary Tract Procedures with MCC) or to MS-DRG 674 (Other Kidney and Urinary Tract Procedures with CC) when also reported with a procedure code describing the insertion of a tunneled or totally implantable vascular access device.

Consistent with how other similar logic lists function in the ICD-10 GROUPER software for case assignment to the “with MCC” or “with CC” MS-DRGs, the logic for case assignment to MS-DRG 673 is intended to require any other diagnosis designated as an MCC and reported as a secondary diagnosis for appropriate assignment, and not the diagnoses currently listed in the logic for the definition of the MS-DRG. Likewise, the logic for case assignment to MS-DRG 674 is intended to require any other diagnosis designated as a CC and reported as a secondary diagnosis for appropriate assignment.

Therefore, for FY 2025, we are proposing to correct the logic for case assignment to MS-DRGs 673, 674, and 675 by adding suppression logic to exclude diagnosis codes N18.5 (Chronic kidney disease, stage 5) and N18.6 (End stage renal disease) from the logic list entitled “With Secondary Diagnosis” from acting as a CC or an MCC, respectively, when reported as a secondary diagnosis with one of the 13 previously listed principal diagnosis codes from the “Or Principal Diagnosis” logic lists in MS-DRGs 673, 674, and 675 for appropriate grouping and MS-DRG assignment. Under this proposal, when diagnosis codes N18.5 or N18.6 are reported as a secondary diagnosis with one of the 13 previously listed principal diagnosis codes, the GROUPER will assign MS-DRG 675 (Other Kidney and Urinary Tract Procedures without CC/MCC) in the absence of any other MCC or CC secondary diagnoses being reported. We also note that the current list of MS-DRGs subject to suppression logic as previously discussed and listed under Version 41.1 includes MS-DRGs that are not subdivided by a two-way severity level split (“with MCC and without MCC” or “with CC/MCC and without CC/MCC”) or a three-way severity level split (with MCC, with CC, and without CC/MCC, respectively), or the listed MS-DRG includes diagnoses that are not currently designated as a CC or MCC. To avoid potential confusion, we are proposing to refine how the suppression logic is displayed under Appendix C—Part 3 to not display the MS-DRGs where the suppression logic has no impact on the grouping (meaning the logic list for the affected MS-DRG contains diagnoses that are all designated as NonCCs, or the MS-DRG is not subdivided by a severity level split) as reflected in the draft Version 42 ICD-10 MS-DRG Definitions Manual, which is available in association with this proposed rule at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps.

In addition, we are proposing changes to the ICD-10 MS-DRGs Version 42 CC Exclusion List based on the diagnosis code updates as discussed in section II.C.13. of this FY 2025 IPPS/LTCH PPS proposed rule. Therefore, we have developed Table 6G.1.—Proposed Secondary Diagnosis Order Additions to the CC Exclusions List—FY 2025; Table 6G.2.—Proposed Principal Diagnosis Order Additions to the CC Exclusions List—FY 2025; Table 6H.1.—Proposed Secondary Diagnosis Order Deletions to the CC Exclusions List—FY 2025; and Table 6H.2.—Proposed Principal Diagnosis Order Deletions to the CC Exclusions List—FY 2025. For Table 6G.1, each secondary diagnosis code proposed for addition to the CC Exclusion List is shown with an asterisk and the principal diagnoses proposed to exclude the secondary diagnosis code are provided in the indented column immediately following it. For Table 6G.2, each of the principal diagnosis codes for which there is a CC exclusion is shown with an asterisk and the conditions proposed for addition to the CC Exclusion List that will not count as a CC are provided in an indented column immediately following the affected principal diagnosis. For Table 6H.1, each secondary diagnosis code proposed for deletion from the CC Exclusion List is shown with an asterisk followed by the principal diagnosis codes that currently exclude it. For Table 6H.2, each of the principal diagnosis codes is shown with an asterisk and the proposed deletions to the CC Exclusions List are provided in an indented column immediately following the affected principal diagnosis. Tables 6G.1., 6G.2., 6H.1., and 6H.2. associated with this proposed rule are available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html.

13. Proposed Changes to the ICD-10-CM and ICD-10-PCS Coding Systems

To identify new, revised and deleted diagnosis and procedure codes, for FY 2025, we have developed Table 6A.—New Diagnosis Codes, Table 6B.—New Procedure Codes, Table 6C.—Invalid Diagnosis Codes, Table 6D.—Invalid Procedure Codes, Table 6E.—Revised Diagnosis Code Titles, and Table 6F.—Revised Procedure Code Titles for this proposed rule. These tables are not published in the Addendum to this proposed rule, but are available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html as described in section VI. of the Addendum to this proposed rule. As discussed in section II.C.15. of the preamble of this proposed rule, the code titles are adopted as part of the ICD-10 (previously ICD-9-CM) Coordination and Maintenance Committee meeting process. Therefore, although we publish the code titles in the IPPS proposed and final rules, they are not subject to comment in the proposed or final rules.

We are proposing the MDC and MS-DRG assignments for the new diagnosis codes and procedure codes as set forth in Table 6A.—New Diagnosis Codes and Table 6B.—New Procedure Codes. In addition, the proposed severity level designations for the new diagnosis codes are set forth in Table 6A. and the proposed O.R. status for the new procedure codes are set forth in Table 6B. Consistent with our established process, we examined the MS-DRG assignment and the attributes (severity level and O.R. status) of the predecessor diagnosis or procedure code, as applicable, to inform our proposed assignments and designations. Specifically, we review the predecessor code and MS-DRG assignment most closely associated with the new diagnosis or procedure code, and in the absence of claims data, we consider other factors that may be relevant to the MS-DRG assignment, including the severity of illness, treatment difficulty, complexity of service and the resources utilized in the diagnosis and/or treatment of the condition. We note that this process does not automatically result in the new diagnosis or procedure code being proposed for assignment to the same MS-DRG or to have the same designation as the predecessor code.

We are making available on the CMS website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html the following tables associated with this proposed rule:

• Table 6A.—New Diagnosis Codes—FY 2025;
• Table 6B.—New Procedure Codes—FY 2025;
• Table 6C.—Invalid Diagnosis Codes—FY 2025;
• Table 6D.—Invalid Procedure Codes—FY 2025;
• Table 6E.—Revised Diagnosis Code Titles—FY 2025;
• Table 6F.—Revised Procedure Code Titles—FY 2025;
• Table 6G.1.—Proposed Secondary Diagnosis Order Additions to the CC Exclusions List—FY 2025;
• Table 6G.2.—Proposed Principal Diagnosis Order Additions to the CC Exclusions List—FY 2025;
• Table 6H.1.—Proposed Secondary Diagnosis Order Deletions to the CC Exclusions List—FY 2025;
• Table 6H.2.—Proposed Principal Diagnosis Order Deletions to the CC Exclusions List—FY 2025;
• Table 6I.1.—Proposed Additions to the MCC List—FY 2025;
• Table 6J.1.—Proposed Additions to the CC List—FY 2025; and
• Table 6J.2.—Proposed Deletions to the CC List—FY 2025.

14. Proposed Changes to the Surgical Hierarchies

Some inpatient stays entail multiple surgical procedures, each one of which, occurring by itself, could result in assignment of the case to a different MS-DRG within the MDC to which the principal diagnosis is assigned. Therefore, it is necessary to have a decision rule within the GROUPER by which these cases are assigned to a single MS-DRG. The surgical hierarchy, an ordering of surgical classes from most resource-intensive to least resource-intensive, performs that function. Application of this hierarchy ensures that cases involving multiple surgical procedures are assigned to the MS-DRG associated with the most resource-intensive surgical class.

A surgical class can be composed of one or more MS-DRGs. For example, in MDC 11, the surgical class “kidney transplant” consists of a single MS-DRG (MS-DRG 652) and the class “major bladder procedures” consists of three MS-DRGs (MS-DRGs 653, 654, and 655).

Consequently, in many cases, the surgical hierarchy has an impact on more than one MS-DRG. The methodology for determining the most resource-intensive surgical class involves weighting the average resources for each MS-DRG by frequency to determine the weighted average resources for each surgical class. For example, assume surgical class A includes MS-DRGs 001 and 002 and surgical class B includes MS-DRGs 003, 004, and 005. Assume also that the average costs of MS-DRG 001 are higher than that of MS-DRG 003, but the average costs of MS-DRGs 004 and 005 are higher than the average costs of MS-DRG 002. To determine whether surgical class A should be higher or lower than surgical class B in the surgical hierarchy, we would weigh the average costs of each MS-DRG in the class by frequency (that is, by the number of cases in the MS-DRG) to determine average resource consumption for the surgical class. The surgical classes would then be ordered from the class with the highest average resource utilization to that with the lowest, with the exception of “other O.R. procedures” as discussed in this proposed rule.

This methodology may occasionally result in assignment of a case involving multiple procedures to the lower-weighted MS-DRG (in the highest, most resource-intensive surgical class) of the available alternatives. However, given that the logic underlying the surgical hierarchy provides that the GROUPER search for the procedure in the most resource-intensive surgical class, in cases involving multiple procedures, this result is sometimes unavoidable.

We note that, notwithstanding the foregoing discussion, there are a few instances when a surgical class with a lower average cost is ordered above a surgical class with a higher average cost. For example, the “other O.R. procedures” surgical class is uniformly ordered last in the surgical hierarchy of each MDC in which it occurs, regardless of the fact that the average costs for the MS-DRG or MS-DRGs in that surgical class may be higher than those for other surgical classes in the MDC. The “other O.R. procedures” class is a group of procedures that are only infrequently related to the diagnoses in the MDC but are still occasionally performed on patients with cases assigned to the MDC with these diagnoses. Therefore, assignment to these surgical classes should only occur if no other surgical class more closely related to the diagnoses in the MDC is appropriate.

A second example occurs when the difference between the average costs for two surgical classes is very small. We have found that small differences generally do not warrant reordering of the hierarchy because, as a result of reassigning cases on the basis of the hierarchy change, the average costs are likely to shift such that the higher-ordered surgical class has lower average costs than the class ordered below it.

Based on the changes that we are proposing to make for FY 2025, as discussed in section II.C. of the preamble of this proposed rule, we are proposing to modify the existing surgical hierarchy for FY 2025 as follows.

As discussed in section II.C.4.a. of the preamble of this proposed rule, we are proposing to revise the surgical hierarchy for the MDC 05 (Diseases and Disorders of the Circulatory System) MS-DRGs as follows: In the MDC 05 MS-DRGs, we are proposing to sequence proposed new MS-DRG 317 (Concomitant Left Atrial Appendage Closure and Cardiac Ablation) above MS-DRG 275 (Cardiac Defibrillator Implant with Cardiac Catheterization and MCC) and below MS-DRGs 231, 232, 233, 234, 235, and 236 (Coronary Bypass with or without PTCA, with or without Cardiac Catheterization or Open Ablation, with and without MCC, respectively). As discussed in section II.C.4.b. of the preamble of this proposed rule, we are proposing to revise the title for MS-DRG 276 from “Cardiac Defibrillator Implant with MCC” to “Cardiac Defibrillator Implant with MCC or Carotid Sinus Neurostimulator”.

As discussed in section II.C.6.b. of the preamble of this proposed rule, we are proposing to delete MS-DRGs 453, 454, and 455 (Combined Anterior and Posterior Spinal Fusion with MCC, with CC, and without CC/MCC, respectively). Based on the changes we are proposing to make for those MS-DRGs in MDC 08 (Diseases and Disorders of the Musculoskeletal System and Connective Tissue), we are proposing to revise the surgical hierarchy for MDC 08 as follows: In MDC 08, we are proposing to sequence proposed new MS-DRGs 426, 427, and 428 (Multiple Level Combined Anterior and Posterior Spinal Fusion Except Cervical with MCC, with CC, and without CC/MCC, respectively) above proposed new MS-DRG 402 (Single Level Combined Anterior and Posterior Spinal Fusion Except Cervical). We are proposing to sequence proposed new MS-DRGs 429 and 430 (Combined Anterior and Posterior Cervical Spinal Fusion with MCC and without MCC, respectively) above MS-DRGs 456, 457, and 458 (Spinal Fusion Except Cervical with Spinal Curvature, Malignancy, Infection or Extensive Fusions with MCC, with CC, and without CC/MCC, respectively) and below proposed new MS-DRG 402. We are proposing to sequence proposed new MS-DRGs 447 and 448 (Multiple Level Spinal Fusion Except Cervical with MCC and without MCC, respectively) above proposed revised MS-DRGs 459 and 460 (Single Level Spinal Fusion Except Cervical with and without MCC, respectively) and below MS-DRGs 456, 457, and 458.

Lastly, as discussed in section II.C.9. of the preamble of this proposed rule, we are proposing to revise the surgical hierarchy for the MDC 17 (Myeloproliferative Diseases and Disorders, Poorly Differentiated Neoplasms) MS-DRGs as follows: For the MDC 17 MS-DRGs, we are proposing to sequence proposed new MS-DRG 850 (Acute Leukemia with Other Procedures) above MS-DRGs 823, 824 and 825 (Lymphoma and Non-Acute Leukemia with Other Procedures with MCC, with CC, and without CC/MCC, respectively) and below MS-DRGs 820, 821, and 822 (Lymphoma and Leukemia with Major O.R. Procedures with MCC, with CC, and without CC/MCC, respectively).

Our proposal for Appendix D MS-DRG Surgical Hierarchy by MDC and MS-DRG of the ICD-10 MS-DRG Definitions Manual Version 42 is illustrated in the following tables.

15. Maintenance of the ICD-10-CM and ICD-10-PCS Coding Systems

In September 1985, the ICD-9-CM Coordination and Maintenance Committee was formed. This is a Federal interdepartmental committee, co-chaired by the Centers for Disease Control and Prevention's (CDC) National Center for Health Statistics (NCHS) and CMS, charged with maintaining and updating the ICD-9-CM system. The final update to ICD-9-CM codes was made on October 1, 2013. Thereafter, the name of the Committee was changed to the ICD-10 Coordination and Maintenance Committee, effective with the March 19-20, 2014 meeting. The ICD-10 Coordination and Maintenance Committee addresses updates to the ICD- 10-CM and ICD-10-PCS coding systems. The Committee is jointly responsible for approving coding changes, and developing errata, addenda, and other modifications to the coding systems to reflect newly developed procedures and technologies and newly identified diseases. The Committee is also responsible for promoting the use of Federal and non-Federal educational programs and other communication techniques with a view toward standardizing coding applications and upgrading the quality of the classification system.

The official list of ICD-9-CM diagnosis and procedure codes by fiscal year can be found on the CMS website at: https://www.cms.gov/medicare/coding-billing/icd-10-codes/icd-9-cm-diagnosis-procedure-codes-abbreviated-and-full-code-titles.

The official list of ICD-10-CM and ICD-10-PCS codes can be found on the CMS website at: http://www.cms.gov/Medicare/Coding/ICD10/index.html.

The NCHS has lead responsibility for the ICD-10-CM and ICD-9-CM diagnosis codes included in the Tabular List and Alphabetic Index for Diseases, while CMS has lead responsibility for the ICD-10-PCS and ICD-9-CM procedure codes included in the Tabular List and Alphabetic Index for Procedures.

The Committee encourages participation in the previously mentioned process by health- related organizations. In this regard, the Committee holds public meetings for discussion of educational issues and proposed coding changes. These meetings provide an opportunity for representatives of recognized organizations in the coding field, such as the American Health Information Management Association (AHIMA), the American Hospital Association (AHA), and various physician specialty groups, as well as individual physicians, health information management professionals, and other members of the public, to contribute ideas on coding matters. After considering the opinions expressed during the public meetings and in writing, the Committee formulates recommendations, which then must be approved by the agencies.

The Committee presented proposals for coding changes for implementation in FY 2025 at a public meeting held on September 12-13, 2023 and finalized the coding changes after consideration of comments received at the meetings and in writing by November 15, 2023.

The Committee held its Spring 2024 meeting on March 19-20, 2024. The deadline for submitting comments on these code proposals is April 19, 2024. It was announced at this meeting that any new diagnosis and procedure codes for which there was consensus of public support, and for which complete tabular and indexing changes would be made by June 2024 would be included in the October 1, 2024 update to the ICD-10-CM diagnosis and ICD-10-PCS procedure code sets. As discussed in earlier sections of the preamble of this proposed rule, there are new, revised, and deleted ICD-10-CM diagnosis codes and ICD-10-PCS procedure codes that are captured in Table 6A.—New Diagnosis Codes, Table 6B.—New Procedure Codes, Table 6C.—Invalid Diagnosis Codes, Table 6D.—Invalid Procedure Codes, Table 6E.—Revised Diagnosis Code Titles, and Table 6F.—Revised Procedure Code Titles for this proposed rule, which are available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps.

The code titles are adopted as part of the ICD-10 (previously ICD-9-CM) Coordination and Maintenance Committee process. Therefore, although we make the code titles available for the IPPS proposed rule, they are not subject to comment in the proposed rule. Because of the length of these tables, they are not published in the Addendum to the proposed rule. Rather, they are available on the CMS website as discussed in section VI. of the Addendum to the proposed rule.

Recordings for the virtual meeting discussions of the procedure codes at the Committee's September 12-13, 2023 meeting and the March 19-20, 2024 meeting can be obtained from the CMS website at: https://www.cms.gov/Medicare/Coding/ICD10/C-and-M-Meeting-Materials. The materials for the discussions relating to diagnosis codes at the September 12-13, 2023 meeting and March 19-20, 2024 meeting can be found at: http://www.cdc.gov/nchs/icd/icd10cm_maintenance.html. These websites also provide detailed information about the Committee, including information on requesting a new code, participating in a Committee meeting, timeline requirements and meeting dates.

We encourage commenters to submit questions and comments on coding issues involving diagnosis codes via Email to: nchsicd10cm@cdc.gov.

Questions and comments concerning the procedure codes should be submitted via Email to: ICDProcedureCodeRequest@cms.hhs.gov.

CMS implemented 41 new procedure codes including the insertion of a palladium-103 collagen implant into the brain, the excision or resection of intestinal body parts using a laparoscopic hand-assisted approach, the transfer of omentum for pedicled omentoplasty procedures, and the administration of talquetamab into the ICD-10-PCS classification effective with discharges on and after April 1, 2024. The procedure codes are as follows:

The 41 procedure codes are also reflected in Table 6B- New Procedure Codes, which is available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS. We are soliciting public comments on the most appropriate MDC, MS-DRG, and operating room status assignments for these codes for FY 2025, as well as any other options for the GROUPER logic.

We note that Change Request (CR) 13458, Transmittal 12384, titled “April 2024 Update to the Medicare Severity—Diagnosis Related Group (MS-DRG) Grouper and Medicare Code Editor (MCE) Version 41.1” was issued on November 30, 2023 (available on the CMS website at: https://www.cms.gov/regulations-and-guidance/guidance/transmittals/2023-transmittals/r12384cp) regarding the release of an updated version of the ICD-10 MS-DRG GROUPER and Medicare Code Editor software, Version 41.1, effective with discharges on and after April 1, 2024, reflecting the new procedure codes. The updated software, along with the updated ICD-10 MS-DRG Version 41.1 Definitions Manual and the Definitions of Medicare Code Edits Version 41.1 manual is available at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software.

In the September 7, 2001 final rule implementing the IPPS new technology add-on payments (66 FR 46906), we indicated we would attempt to include proposals for procedure codes that would describe new technology discussed and approved at the Spring meeting as part of the code revisions effective the following October.

Section 503(a) of the Medicare Modernization Act (Pub. L. 108-173) included a requirement for updating diagnosis and procedure codes twice a year instead of a single update on October 1 of each year. This requirement was included as part of the amendments to the Act relating to recognition of new technology under the IPPS. Section 503(a) of Public Law 108-173 amended section 1886(d)(5)(K) of the Act by adding a clause (vii) which states that the Secretary shall provide for the addition of new diagnosis and procedure codes on April 1 of each year, but the addition of such codes shall not require the Secretary to adjust the payment (or diagnosis-related group classification) until the fiscal year that begins after such date. This requirement improves the recognition of new technologies under the IPPS by providing information on these new technologies at an earlier date. Data will be available 6 months earlier than would be possible with updates occurring only once a year on October 1.

In the FY 2005 IPPS final rule, we implemented section 1886(d)(5)(K)(vii) of the Act, as added by section 503(a) of Public Law 108-173, by developing a mechanism for approving, in time for the April update, diagnosis and procedure code revisions needed to describe new technologies and medical services for purposes of the new technology add-on payment process. We also established the following process for making these determinations. Topics considered during the Fall ICD-10 (previously ICD-9-CM) Coordination and Maintenance Committee meeting were considered for an April 1 update if a strong and convincing case was made by the requestor during the Committee's public meeting. The request needed to identify the reason why a new code was needed in April for purposes of the new technology process. Meeting participants and those reviewing the Committee meeting materials were provided the opportunity to comment on the expedited request. We refer the reader to the FY 2022 IPPS/LTCH PPS final rule (86 FR 44950) for further discussion of the implementation of this prior April 1 update for purposes of the new technology add-on payment process.

However, as discussed in the FY 2022 IPPS/LTCH PPS final rule (86 FR 44950 through 44956), we adopted an April 1 implementation date, in addition to the annual October 1 update, beginning with April 1, 2022. We noted that the intent of this April 1 implementation date is to allow flexibility in the ICD-10 code update process. With this new April 1 update, CMS now uses the same process for consideration of all requests for an April 1 implementation date, including for purposes of the new technology add-on payment process (that is, the prior process for consideration of an April 1 implementation date only if a strong and convincing case was made by the requestor during the meeting no longer applies). We are continuing to use several aspects of our existing established process to implement new codes through the April 1 code update, which includes presenting proposals for April 1 consideration at the September ICD-10 Coordination and Maintenance Committee meeting, requesting public comments, reviewing the public comments, finalizing codes, and announcing the new codes with their assignments consistent with the new GROUPER release information. We note that under our established process, requestors indicate whether they are submitting their code request for consideration for an April 1 implementation date or an October 1 implementation date. The ICD-10 Coordination and Maintenance Committee makes efforts to accommodate the requested implementation date for each request submitted. However, the Committee determines which requests are to be presented for consideration for an April 1 implementation date or an October 1 implementation date. As discussed earlier in this section of the preamble of this proposed rule, there were code proposals presented for an April 1, 2024 implementation at the September 12-13, 2023 Committee meetings. Following the receipt of public comments, the code proposals were approved and finalized, therefore, there were new codes implemented April 1, 2024.

Consistent with the process we outlined for the April 1 implementation date, we announced the new codes in November 2023 and provided the updated code files in December 2023 and ICD-10-CM Official Guidelines for Coding and Reporting in January 2024. In the February 05, 2024 Federal Register (89 FR 7710), notice for the March 19-20, 2024 ICD-10 Coordination and Maintenance Committee Meeting was published that includes the tentative agenda and identifies which topics are related to a new technology add-on payment application. By February 1, 2024 we made available the updated Version 41.1 ICD-10 MS-DRG GROUPER software and related materials on the CMS web page at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software.

ICD-9-CM addendum and code title information is published on the CMS website at https://www.cms.gov/medicare/coding-billing/icd-10-codes/updates-revisions-icd-9-cm-procedure-codes-addendum. ICD-10-CM and ICD-10-PCS addendum and code title information is published on the CMS website at https://www.cms.gov/medicare/coding-billing/icd-10-codes. CMS also sends electronic files containing all ICD-10-CM and ICD-10-PCS coding changes to its Medicare contractors for use in updating their systems and providing education to providers. Information on ICD-10-CM diagnosis codes, along with the Official ICD-10-CM Coding Guidelines, can be found on the CDC website at https://www.cdc.gov/nchs/icd/Comprehensive-Listing-of-ICD-10-CM-Files.htm.

Additionally, information on new, revised, and deleted ICD-10-CM diagnosis and ICD-10-PCS procedure codes is provided to the AHA for publication in the Coding Clinic for ICD-10. The AHA also distributes coding update information to publishers and software vendors.

For FY 2024, there are currently 74,044 diagnosis codes and 78,638 procedure codes. As displayed in Table 6A.—New Diagnosis Codes and in Table 6B.—New Procedure Codes associated with this proposed rule (and available on the CMS website at https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps), there are 252 new diagnosis codes that have been finalized for FY 2025 at the time of the development of this proposed rule and 41 new procedure codes that were effective with discharges on and after April 1, 2024. The code titles are adopted as part of the ICD-10 Coordination and Maintenance Committee process. Thus, although we publish the code titles in the IPPS proposed and final rules, they are not subject to comment in the proposed or final rules. We will continue to provide the October updates in this manner in the IPPS proposed and final rules.

16. Replaced Devices Offered Without Cost or With a Credit

a. Background

In the FY 2008 IPPS final rule with comment period (72 FR 47246 through 47251), we discussed the topic of Medicare payment for devices that are replaced without cost or where credit for a replaced device is furnished to the hospital. We implemented a policy to reduce a hospital's IPPS payment for certain MS-DRGs where the implantation of a device that subsequently failed or was recalled determined the base MS-DRG assignment. At that time, we specified that we will reduce a hospital's IPPS payment for those MS-DRGs where the hospital received a credit for a replaced device equal to 50 percent or more of the cost of the device.

In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51556 through 51557), we clarified this policy to state that the policy applies if the hospital received a credit equal to 50 percent or more of the cost of the replacement device and issued instructions to hospitals accordingly.

b. Proposed Changes for FY 2025

As discussed in section II.C.5. of the preamble of this proposed rule, for FY 2025, we are proposing to revise the title of MS-DRG 276 from “Cardiac Defibrillator Implant with MCC” to “Cardiac Defibrillator Implant with MCC or Carotid Sinus Neurostimulator”.

As stated in the FY 2016 IPPS/LTCH PPS proposed rule (80 FR 24409), we generally map new MS-DRGs onto the list when they are formed from procedures previously assigned to MS-DRGs that are already on the list. Currently, MS-DRG 276 is on the list of MS-DRGs subject to the policy for payment under the IPPS for replaced devices offered without cost or with a credit as shown in the following table. Therefore, we are proposing that if the applicable proposed MS-DRG changes are finalized, we would make conforming changes to the title of MS-DRG 276 as reflected in the table that follows. We are also proposing to continue to include the existing MS-DRGs currently subject to the policy as displayed in the following table.

The final list of MS-DRGs subject to the IPPS policy for replaced devices offered without cost or with a credit will be included in the FY 2025 IPPS/LTCH PPS final rule and also will be issued to providers in the form of a Change Request (CR).

D. Recalibration of the FY 2025 MS-DRG Relative Weights

1. Data Sources for Developing the Relative Weights

Consistent with our established policy, in developing the MS-DRG relative weights for FY 2025, we propose to use two data sources: claims data and cost report data. The claims data source is the MedPAR file, which includes fully coded diagnostic and procedure data for all Medicare inpatient hospital bills. The FY 2023 MedPAR data used in this proposed rule include discharges occurring on October 1, 2022, through September 30, 2023, based on bills received by CMS through December 31, 2023, from all hospitals subject to the IPPS and short-term, acute care hospitals in Maryland (which at that time were under a waiver from the IPPS).

The FY 2023 MedPAR file used in calculating the relative weights includes data for approximately 6,887,902 Medicare discharges from IPPS providers. Discharges for Medicare beneficiaries enrolled in a Medicare Advantage managed care plan are excluded from this analysis. These discharges are excluded when the MedPAR “GHO Paid” indicator field on the claim record is equal to “1” or when the MedPAR DRG payment field, which represents the total payment for the claim, is equal to the MedPAR “Indirect Medical Education (IME)” payment field, indicating that the claim was an “IME only” claim submitted by a teaching hospital on behalf of a beneficiary enrolled in a Medicare Advantage managed care plan. In addition, the December 2023 update of the FY 2023 MedPAR file complies with version 5010 of the X12 HIPAA Transaction and Code Set Standards, and includes a variable called “claim type.” Claim type “60” indicates that the claim was an inpatient claim paid as fee-for-service. Claim types “61,” “62,” “63,” and “64” relate to encounter claims, Medicare Advantage IME claims, and HMO no-pay claims. Therefore, the calculation of the proposed relative weights for FY 2025 also excludes claims with claim type values not equal to “60.” The data exclude CAHs, including hospitals that subsequently became CAHs after the period from which the data were taken. In addition, the data exclude Rural Emergency Hospitals (REHs), including hospitals that subsequently became REHs after the period from which the data were taken. We note that the proposed FY 2025 relative weights are based on the ICD-10-CM diagnosis codes and ICD-10-PCS procedure codes from the FY 2023 MedPAR claims data, grouped through the ICD-10 version of the proposed FY 2025 GROUPER (Version 42).

The second data source used in the cost-based relative weighting methodology is the Medicare cost report data files from the Healthcare Cost Report Information System (HCRIS). In general, we use the HCRIS dataset that is 3 years prior to the IPPS fiscal year. Specifically, for this proposed rule, we used the December 2023 update of the FY 2022 HCRIS for calculating the FY 2025 cost-based relative weights. Consistent with our historical practice, for this FY 2025 proposed rule, we are providing the version of the HCRIS from which we calculated these 19 CCRs on the CMS website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS. Click on the link on the left side of the screen titled “FY 2025 IPPS Proposed Rule Home Page” or “Acute Inpatient Files for Download.”

2. Methodology for Calculation of the Relative Weights

a. General

We calculated the proposed FY 2025 relative weights based on 19 CCRs. The methodology we are proposing to use to calculate the FY 2025 MS-DRG cost-based relative weights based on claims data in the FY 2023 MedPAR file and data from the FY 2022 Medicare cost reports is as follows:

• To the extent possible, all the claims were regrouped using the proposed FY 2025 MS-DRG classifications discussed in sections II.B. and II.C. of the preamble of this proposed rule.
• The transplant cases that were used to establish the relative weights for heart and heart-lung, liver and/or intestinal, and lung transplants (MS-DRGs 001, 002, 005, 006, and 007, respectively) were limited to those Medicare-approved transplant centers that have cases in the FY 2023 MedPAR file. (Medicare coverage for heart, heart-lung, liver and/or intestinal, and lung transplants is limited to those facilities that have received approval from CMS as transplant centers.)
• Organ acquisition costs for kidney, heart, heart-lung, liver, lung, pancreas, and intestinal (or multivisceral organs) transplants continue to be paid on a reasonable cost basis.

Because these acquisition costs are paid separately from the prospective payment rate, it is necessary to subtract the acquisition charges from the total charges on each transplant bill that showed acquisition charges before computing the average cost for each MS-DRG and before eliminating statistical outliers.

Section 108 of the Further Consolidated Appropriations Act, 2020 provides that, for cost reporting periods beginning on or after October 1, 2020, costs related to hematopoietic stem cell acquisition for the purpose of an allogeneic hematopoietic stem cell transplant shall be paid on a reasonable cost basis. We refer the reader to the FY 2021 IPPS/LTCH PPS final rule for further discussion of the reasonable cost basis payment for cost reporting periods beginning on or after October 1, 2020 (85 FR 58835 through 58842). For FY 2022 and subsequent years, we subtract the hematopoietic stem cell acquisition charges from the total charges on each transplant bill that showed hematopoietic stem cell acquisition charges before computing the average cost for each MS-DRG and before eliminating statistical outliers.

• Claims with total charges or total lengths of stay less than or equal to zero were deleted. Claims that had an amount in the total charge field that differed by more than $30.00 from the sum of the routine day charges, intensive care charges, pharmacy charges, implantable devices charges, supplies and equipment charges, therapy services charges, operating room charges, cardiology charges, laboratory charges, radiology charges, other service charges, labor and delivery charges, inhalation therapy charges, emergency room charges, blood and blood products charges, anesthesia charges, cardiac catheterization charges, CT scan charges, and MRI charges were also deleted.
• At least 92.6 percent of the providers in the MedPAR file had charges for 14 of the 19 cost centers. All claims of providers that did not have charges greater than zero for at least 14 of the 19 cost centers were deleted. In other words, a provider must have no more than five blank cost centers. If a provider did not have charges greater than zero in more than five cost centers, the claims for the provider were deleted.
• Statistical outliers were eliminated by removing all cases that were beyond 3.0 standard deviations from the geometric mean of the log distribution of both the total charges per case and the total charges per day for each MS-DRG.
• Effective October 1, 2008, because hospital inpatient claims include a Present on Admission (POA) field for each diagnosis present on the claim, only for purposes of relative weight-setting, the POA indicator field was reset to “Y” for “Yes” for all claims that otherwise have an “N” (No) or a “U” (documentation insufficient to determine if the condition was present at the time of inpatient admission) in the POA field.

Under current payment policy, the presence of specific HAC codes, as indicated by the POA field values, can generate a lower payment for the claim. Specifically, if the particular condition is present on admission (that is, a “Y” indicator is associated with the diagnosis on the claim), it is not a HAC, and the hospital is paid for the higher severity (and, therefore, the higher weighted MS-DRG). If the particular condition is not present on admission (that is, an “N” indicator is associated with the diagnosis on the claim) and there are no other complicating conditions, the DRG GROUPER assigns the claim to a lower severity (and, therefore, the lower weighted MS-DRG) as a penalty for allowing a Medicare inpatient to contract a HAC. While the POA reporting meets policy goals of encouraging quality care and generates program savings, it presents an issue for the relative weight-setting process. Because cases identified as HACs are likely to be more complex than similar cases that are not identified as HACs, the charges associated with HAC cases are likely to be higher as well. Therefore, if the higher charges of these HAC claims are grouped into lower severity MS-DRGs prior to the relative weight-setting process, the relative weights of these particular MS-DRGs would become artificially inflated, potentially skewing the relative weights. In addition, we want to protect the integrity of the budget neutrality process by ensuring that, in estimating payments, no increase to the standardized amount occurs as a result of lower overall payments in a previous year that stem from using weights and case-mix that are based on lower severity MS-DRG assignments. If this would occur, the anticipated cost savings from the HAC policy would be lost.

To avoid these problems, we reset the POA indicator field to “Y” only for relative weight-setting purposes for all claims that otherwise have an “N” or a “U” in the POA field. This resetting “forced” the more costly HAC claims into the higher severity MS-DRGs as appropriate, and the relative weights calculated for each MS-DRG more closely reflect the true costs of those cases.

In addition, in the FY 2013 IPPS/LTCH PPS final rule, for FY 2013 and subsequent fiscal years, we finalized a policy to treat hospitals that participate in the Bundled Payments for Care Improvement (BPCI) initiative the same as prior fiscal years for the IPPS payment modeling and ratesetting process without regard to hospitals' participation within these bundled payment models (77 FR 53341 through 53343). Specifically, because acute care hospitals participating in the BPCI Initiative still receive IPPS payments under section 1886(d) of the Act, we include all applicable data from these subsection (d) hospitals in our IPPS payment modeling and ratesetting calculations as if the hospitals were not participating in those models under the BPCI initiative. We refer readers to the FY 2013 IPPS/LTCH PPS final rule for a complete discussion on our final policy for the treatment of hospitals participating in the BPCI initiative in our ratesetting process. For additional information on the BPCI initiative, we refer readers to the CMS' Center for Medicare and Medicaid Innovation's website at https://innovation.cms.gov/initiatives/Bundled-Payments/index.html and to section IV.H.4. of the preamble of the FY 2013 IPPS/LTCH PPS final rule (77 FR 53341 through 53343).

The participation of hospitals in the BPCI initiative concluded on September 30, 2018. The participation of hospitals in the BPCI Advanced model started on October 1, 2018. The BPCI Advanced model, tested under the authority of section 1115A of the Act, is comprised of a single payment and risk track, which bundles payments for multiple services that beneficiaries receive during a Clinical Episode. Acute care hospitals may participate in BPCI Advanced in one of two capacities: as a model Participant or as a downstream Episode Initiator. Regardless of the capacity in which they participate in the BPCI Advanced model, participating acute care hospitals will continue to receive IPPS payments under section 1886(d) of the Act. Acute care hospitals that are Participants also assume financial and quality performance accountability for Clinical Episodes in the form of a reconciliation payment. For additional information on the BPCI Advanced model, we refer readers to the BPCI Advanced web page on the CMS Center for Medicare and Medicaid Innovation's website at https://innovation.cms.gov/initiatives/bpci-advanced. Consistent with our policy for FY 2024, and consistent with how we have treated hospitals that participated in the BPCI Initiative, for FY 2025, we continue to believe it is appropriate to include all applicable data from the subsection (d) hospitals participating in the BPCI Advanced model in our IPPS payment modeling and ratesetting calculations because, as noted previously, these hospitals are still receiving IPPS payments under section 1886(d) of the Act. Consistent with the FY 2024 IPPS/LTCH PPS final rule, we are also proposing to include all applicable data from subsection (d) hospitals participating in the Comprehensive Care for Joint Replacement (CJR) Model in our IPPS payment modeling and ratesetting calculations.

The charges for each of the 19 cost groups for each claim were standardized to remove the effects of differences in area wage levels, IME and DSH payments, and for hospitals located in Alaska and Hawaii, the applicable cost-of-living adjustment. Because hospital charges include charges for both operating and capital costs, we standardized total charges to remove the effects of differences in geographic adjustment factors, cost-of-living adjustments, and DSH payments under the capital IPPS as well. Charges were then summed by MS-DRG for each of the 19 cost groups so that each MS-DRG had 19 standardized charge totals. Statistical outliers were then removed. These charges were then adjusted to cost by applying the proposed national average CCRs developed from the FY 2022 cost report data.

The 19 cost centers that we used in the relative weight calculation are shown in a supplemental data file, Cost Center HCRIS Lines Supplemental Data File, posted via the internet on the CMS website for this proposed rule and available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS. The supplemental data file shows the lines on the cost report and the corresponding revenue codes that we used to create the proposed 19 national cost center CCRs. If we receive comments about the groupings in this supplemental data file, we may consider these comments as we finalize our policy.

Consistent with historical practice, we account for rare situations of non-monotonicity in a base MS-DRG and its severity levels, where the mean cost in the higher severity level is less than the mean cost in the lower severity level, in determining the relative weights for the different severity levels. If there are initially non-monotonic relative weights in the same base DRG and its severity levels, then we combine the cases that group to the specific non-monotonic MS-DRGs for purposes of relative weight calculations. For example, if there are two non-monotonic MS-DRGs, combining the cases across those two MS-DRGs results in the same relative weight for both MS-DRGs. The relative weight calculated using the combined cases for those severity levels is monotonic, effectively removing any non-monotonicity with the base DRG and its severity levels. For this FY 2025 proposed rule, this calculation was applied to address non-monotonicity for cases that grouped to the following: MS-DRG 016 and MS-DRG 017, MS-DRG 095 and MS-DRG 096, MS-DRG 504 and MS-DRG 505, MS-DRG 797 and MS-DRG 798. In the supplemental file titled AOR/BOR File, we include statistics for the affected MS-DRGs both separately and with cases combined.

We are inviting public comments on our proposals related to recalibration of the proposed FY 2025 relative weights and the changes in relative weights from FY 2024.

b. Relative Weight Calculation for MS-DRG 018

In the FY 2021 IPPS/LTCH PPS final rule (85 FR 58451 through 58453), we created MS-DRG 018 for cases that include procedures describing CAR T-cell therapies. We also finalized our proposal to modify our existing relative weight methodology to ensure that the relative weight for MS-DRG 018 appropriately reflects the relative resources required for providing CAR T-cell therapy outside of a clinical trial, while still accounting for the clinical trial cases in the overall average cost for all MS-DRGs (85 FR 58599 through 58600). Specifically, we stated that clinical trial claims that group to new MS-DRG 018 would not be included when calculating the average cost for MS-DRG 018 that is used to calculate the relative weight for this MS-DRG, so that the relative weight reflects the costs of the CAR T-cell therapy drug. We stated that we identified clinical trial claims as claims that contain ICD-10-CM diagnosis code Z00.6 or contain standardized drug charges of less than $373,000, which was the average sales price of KYMRIAH and YESCARTA, the two CAR T-cell biological products licensed to treat relapsed/refractory large B-cell lymphoma as of the time of the development of the FY 2021 final rule. In addition, we stated that (a) when the CAR T-cell therapy product is purchased in the usual manner, but the case involves a clinical trial of a different product, the claim will be included when calculating the average cost for new MS-DRG 018 to the extent such cases can be identified in the historical data, and (b) when there is expanded access use of immunotherapy, these cases will not be included when calculating the average cost for new MS-DRG 018 to the extent such cases can be identified in the historical data.

We also finalized our proposal to calculate an adjustment to account for the CAR T-cell therapy cases identified as clinical trial cases in calculating the national average standardized cost per case that is used to calculate the relative weights for all MS-DRGs and for purposes of budget neutrality and outlier simulations. We calculate this adjustor by dividing the average cost for cases that we identify as clinical trial cases by the average cost for cases that we identify as non-clinical trial cases, with the additional refinements that (a) when the CAR T-cell therapy product is purchased in the usual manner, but the case involves a clinical trial of a different product, the claim will be included when calculating the average cost for cases not determined to be clinical trial cases to the extent such cases can be identified in the historical data, and (b) when there is expanded access use of immunotherapy, these cases will be included when calculating the average cost for cases determined to be clinical trial cases to the extent such cases can be identified in the historical data. We stated that to the best of our knowledge, there were no claims in the historical data used in the calculation of this adjustment for cases involving a clinical trial of a different product, and to the extent the historical data contain claims for cases involving expanded access use of immunotherapy we believe those claims would have drug charges less than $373,000.

In the FY 2021 IPPS/LTCH PPS final rule (85 FR 58842), we also finalized an adjustment to the payment amount for applicable clinical trial and expanded access use immunotherapy cases that group to MS-DRG 018, and indicated that we would provide instructions for identifying these claims in separate guidance. Following the issuance of the FY 2021 IPPS/LTCH PPS final rule, we issued guidance stating that providers may enter a Billing Note NTE02 “Expand Acc Use” on the electronic claim 837I or a remark “Expand Acc Use” on a paper claim to notify the MAC of expanded access use of CAR T-cell therapy. In this case, the MAC would add payer-only condition code “ZB” so that Pricer will apply the payment adjustment in calculating payment for the case. In cases when the CAR T-cell therapy product is purchased in the usual manner, but the case involves a clinical trial of a different product, the provider may enter a Billing Note NTE02 “Diff Prod Clin Trial” on the electronic claim 837I or a remark “Diff Prod Clin Trial” on a paper claim. In this case, the MAC would add payer-only condition code “ZC” so that the Pricer will not apply the payment adjustment in calculating payment for the case.

In the FY 2022 IPPS/LTCH PPS final rule, we revised MS-DRG 018 to include cases that report the procedure codes for CAR T-cell and non-CAR T-cell therapies and other immunotherapies (86 FR 44798 through 44806). We also finalized our proposal to continue to use the proxy of standardized drug charges of less than $373,000 (86 FR 44965) to identify clinical trial claims. We also finalized use of this same proxy for the FY 2023 IPPS/LTCH PPS final rule (87 FR 48894).

Following the issuance of the FY 2023 IPPS/LTCH PPS final rule, we issued guidance stating where there is expanded access use of immunotherapy, the provider may submit condition code “90” on the claim so that Pricer will apply the payment adjustment in calculating payment for the case. We stated that MACs would no longer append Condition Code `ZB' to inpatient claims reporting Billing Note NTE02 “Expand Acc Use” on the electronic claim 837I or a remark “Expand Acc Use” on a paper claim, effective for claims for discharges that occur on or after October 1, 2022.

In the FY 2024 IPPS/LTCH PPS final rule, we explained that the MedPAR claims data now includes a field that identifies whether or not the claim includes expanded access use of immunotherapy. We stated that for the FY 2022 MedPAR claims data, this field identifies whether or not the claim includes condition code ZB, and for the FY 2023 MedPAR data and subsequent years, this field will identify whether or not the claim includes condition code 90. We further noted that the MedPAR files now also include a variable that indicates whether the claim includes the payer-only condition code “ZC”, which identifies a case involving the clinical trial of a different product where the CAR T-cell, non-CAR T-cell, or other immunotherapy product is purchased in the usual manner.

Accordingly, and as discussed further in the FY 2024 IPPS/LTCH PPS final rule, we finalized two modifications to our methodology for identifying clinical trial claims and expanded access use claims in MS-DRG 018 (88 FR 58791). First, we finalized to exclude claims with the presence of condition code “90” (or, for FY 2024 ratesetting, which was based on the FY 2022 MedPAR data, the presence of condition code “ZB”) and claims that contain ICD-10-CM diagnosis code Z00.6 without payer-only code “ZC” that group to MS-DRG 018 when calculating the average cost for MS-DRG 018. Second, we finalized to no longer use the proxy of standardized drug charges of less than $373,000 to identify clinical trial claims and expanded access use cases when calculating the average cost for MS-DRG 018. Accordingly, we finalized that in calculating the relative weight for MS-DRG 018 for FY 2024, only those claims that group to MS-DRG 018 that (1) contain ICD-10-CM diagnosis code Z00.6 and do not include payer-only code “ZC” or (2) contain condition code “ZB” (or, for subsequent fiscal years, condition code “90”) would be excluded from the calculation of the average cost for MS-DRG 018. Consistent with this, we also finalized modifications to our calculation of the adjustment to account for the CAR T-cell therapy cases identified as clinical trial cases in calculating the national average standardized cost per case that is used to calculate the relative weights for all MS-DRGs. We refer readers to the FY 2024 IPPS/LTCH PPS final rule for further discussion of these modifications (88 FR 58791).

In this FY 2025 IPPS/LTCH PPS proposed rule, we are proposing to continue to use our methodology as modified in the FY 2024 IPPS/LTCH PPS final rule for identifying clinical trial claims and expanded access use claims in MS-DRG 018. First, we exclude claims with the presence of condition code “90” and claims that contain ICD-10-CM diagnosis code Z00.6 without payer-only code “ZC” that group to MS-DRG 018 when calculating the average cost for MS-DRG 018. Second, we no longer use the proxy of standardized drug charges of less than $373,000 to identify clinical trial claims and expanded access use cases when calculating the average cost for MS-DRG 018. Accordingly, we are proposing that in calculating the relative weight for MS-DRG 018 for FY 2025, only those claims that group to MS-DRG 018 that (1) contain ICD-10-CM diagnosis code Z00.6 and do not include payer-only code “ZC” or (2) contain condition code “90” would be excluded from the calculation of the average cost for MS-DRG 018.

We are also proposing to continue to use the methodology as modified in the FY 2024 IPPS/LTCH PPS final rule to calculate the adjustment to account for the CAR T-cell therapy cases identified as clinical trial cases in calculating the national average standardized cost per case that is used to calculate the relative weights for all MS-DRGs:

• Calculate the average cost for cases assigned to MS-DRG 018 that either (a) contain ICD-10-CM diagnosis code Z00.6 and do not contain condition code “ZC” or (b) contain condition code “90”.
• Calculate the average cost for all other cases assigned to MS-DRG 018.
• Calculate an adjustor by dividing the average cost calculated in step 1 by the average cost calculated in step 2.
• Apply the adjustor calculated in step 3 to the cases identified in step 1 as applicable clinical trial or expanded access use cases, then add this adjusted case count to the non-clinical trial case count prior to calculating the average cost across all MS-DRGs.

Under our proposal to continue to apply this methodology, based on the December 2023 update of the FY 2023 MedPAR file used for this proposed rule, we estimated that the average costs of cases assigned to MS-DRG 018 that are identified as clinical trial cases ($116,831) were 34 percent of the average costs of the cases assigned to MS-DRG 018 that are identified as non-clinical trial cases ($342,684). Accordingly, as we did for FY 2024, we are proposing to adjust the transfer-adjusted case count for MS-DRG 018 by applying the proposed adjustor of 0.34 to the applicable clinical trial and expanded access use immunotherapy cases, and to use this adjusted case count for MS-DRG 018 in calculating the national average cost per case, which is used in the calculation of the relative weights. Therefore, in calculating the national average cost per case for purposes of this proposed rule, each case identified as an applicable clinical trial or expanded access use immunotherapy case was adjusted by 0.34. As we did for FY 2024, we are applying this same adjustor for the applicable cases that group to MS-DRG 018 for purposes of budget neutrality and outlier simulations. We are also proposing to update the value of the adjustor based on more recent data for the final rule.

d. Cap for Relative Weight Reductions

In the FY 2023 IPPS/LTCH PPS final rule, we finalized a permanent 10-percent cap on the reduction in an MS-DRG's relative weight in a given fiscal year, beginning in FY 2023. We also finalized a budget neutrality adjustment to the standardized amount for all hospitals to ensure that application of the permanent 10-percent cap does not result in an increase or decrease of estimated aggregate payments. We refer the reader to the FY 2023 IPPS/LTCH PPS final rule for further discussion of this policy. In the Addendum to this IPPS/LTCH PPS proposed rule, we present the proposed budget neutrality adjustment for reclassification and recalibration of the FY 2025 MS-DRG relative weights with application of this cap. We are also making available on the CMS website a supplemental file demonstrating the application of the permanent 10 percent cap for FY 2025. For a further discussion of the proposed budget neutrality adjustment for FY 2025, we refer readers to the Addendum of this proposed rule.

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

We developed the proposed national average CCRs as follows:

Using the FY 2022 cost report data, we removed CAHs, Indian Health Service hospitals, all-inclusive rate hospitals, and cost reports that represented time periods of less than 1 year (365 days). We included hospitals located in Maryland because we include their charges in our claims database. Then we created CCRs for each provider for each cost center (see the supplemental data file for line items used in the calculations) and removed any CCRs that were greater than 10 or less than 0.01. We normalized the departmental CCRs by dividing the CCR for each department by the total CCR for the hospital for the purpose of trimming the data. Then we took the logs of the normalized cost center CCRs and removed any cost center CCRs where the log of the cost center CCR was greater or less than the mean log plus/minus 3 times the standard deviation for the log of that cost center CCR. Once the cost report data were trimmed, we calculated a Medicare-specific CCR. The Medicare-specific CCR was determined by taking the Medicare charges for each line item from Worksheet D-3 and deriving the Medicare-specific costs by applying the hospital-specific departmental CCRs to the Medicare-specific charges for each line item from Worksheet D-3. Once each hospital's Medicare-specific costs were established, we summed the total Medicare-specific costs and divided by the sum of the total Medicare-specific charges to produce national average, charge-weighted CCRs.

After we multiplied the total charges for each MS-DRG in each of the 19 cost centers by the corresponding national average CCR, we summed the 19 “costs” across each MS-DRG to produce a total standardized cost for the MS-DRG. The average standardized cost for each MS-DRG was then computed as the total standardized cost for the MS-DRG divided by the transfer-adjusted case count for the MS-DRG. The average cost for each MS-DRG was then divided by the national average standardized cost per case to determine the proposed relative weight. The proposed FY 2025 cost-based relative weights were then normalized by an adjustment factor of 1.92287 so that the average case weight after recalibration was equal to the average case weight before recalibration. The normalization adjustment is intended to ensure that recalibration by itself neither increases nor decreases total payments under the IPPS, as required by section 1886(d)(4)(C)(iii) of the Act. We then applied the permanent 10-percent cap on the reduction in a MS-DRG's relative weight in a given fiscal year; specifically for those MS-DRGs for which the relative weight otherwise would have declined by more than 10 percent from the FY 2024 relative weight, we set the proposed FY 2025 relative weight equal to 90 percent of the FY 2024 relative weight. The proposed relative weights for FY 2025 as set forth in Table 5 associated with this proposed rule and available on the CMS website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS reflect the application of this cap.

The proposed 19 national average CCRs for FY 2025 are as follows:

Since FY 2009, the relative weights have been based on 100 percent cost weights based on our MS-DRG grouping system.

When we recalibrated the DRG weights for previous years, we set a threshold of 10 cases as the minimum number of cases required to compute a reasonable weight. We are proposing to use that same case threshold in recalibrating the proposed MS-DRG relative weights for FY 2025. Using data from the FY 2023 MedPAR file, there were 8 MS-DRGs that contain fewer than 10 cases. For FY 2025, because we do not have sufficient MedPAR data to set accurate and stable cost relative weights for these low-volume MS-DRGs, we are proposing to compute relative weights for the low-volume MS-DRGs by adjusting their final FY 2024 relative weights by the percentage change in the average weight of the cases in other MS-DRGs from FY 2024 to FY 2025. The crosswalk table is as follows.

E. Add-On Payments for New Services and Technologies for FY 2025

1. Background

Effective for discharges beginning on or after October 1, 2001, section 1886(d)(5)(K)(i) of the Act requires the Secretary to establish (after notice and opportunity for public comment) a mechanism to recognize the costs of new medical services and technologies (sometimes collectively referred to in this section as “new technologies”) under the IPPS. Section 1886(d)(5)(K)(vi) of the Act specifies that a medical service or technology will be considered new if it meets criteria established by the Secretary after notice and opportunity for public comment. Section 1886(d)(5)(K)(ii)(I) of the Act specifies that a new medical service or technology may be considered for new technology add-on payment if, based on the estimated costs incurred with respect to discharges involving such service or technology, the DRG prospective payment rate otherwise applicable to such discharges under this subsection is inadequate. The regulations at 42 CFR 412.87 implement these provisions and § 412.87(b) specifies three criteria for a new medical service or technology to receive the additional payment: (1) The medical service or technology must be new; (2) the medical service or technology must be costly such that the DRG rate otherwise applicable to discharges involving the medical service or technology is determined to be inadequate; and (3) the service or technology must demonstrate a substantial clinical improvement over existing services or technologies. In addition, certain transformative new devices and antimicrobial products may qualify under an alternative inpatient new technology add-on payment pathway, as set forth in the regulations at § 412.87(c) and (d).

We note that section 1886(d)(5)(K)(i) of the Act requires that the Secretary establish a mechanism to recognize the costs of new medical services and technologies under the payment system established under that subsection, which establishes the system for paying for the operating costs of inpatient hospital services. The system of payment for capital costs is established under section 1886(g) of the Act. Therefore, as discussed in prior rulemaking (72 FR 47307 through 47308), we do not include capital costs in the add-on payments for a new medical service or technology or make new technology add-on payments under the IPPS for capital-related costs.

In this rule, we highlight some of the major statutory and regulatory provisions relevant to the new technology add-on payment criteria, as well as other information. For further discussion on the new technology add-on payment criteria, we refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51572 through 51574), the FY 2020 IPPS/LTCH PPS final rule (84 FR 42288 through 42300), and the FY 2021 IPPS/LTCH PPS final rule (85 FR 58736 through 58742).

a. New Technology Add-on Payment Criteria

(1) Newness Criterion

Under the first criterion, as reflected in § 412.87(b)(2), a specific medical service or technology will no longer be considered “new” for purposes of new medical service or technology add-on payments after CMS has recalibrated the MS-DRGs, based on available data, to reflect the cost of the technology. We note that we do not consider a service or technology to be new if it is substantially similar to one or more existing technologies. That is, even if a medical product receives a new FDA approval or clearance, it may not necessarily be considered “new” for purposes of new technology add-on payments if it is “substantially similar” to another medical product that was approved or cleared by FDA and has been on the market for more than 2 to 3 years. In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43813 through 43814), we established criteria for evaluating whether a new technology is substantially similar to an existing technology, specifically whether: (1) a product uses the same or a similar mechanism of action to achieve a therapeutic outcome; (2) a product is assigned to the same or a different MS-DRG; and (3) the new use of the technology involves the treatment of the same or similar type of disease and the same or similar patient population. If a technology meets all three of these criteria, it would be considered substantially similar to an existing technology and would not be considered “new” for purposes of new technology add-on payments. For a detailed discussion of the criteria for substantial similarity, we refer readers to the FY 2006 IPPS final rule (70 FR 47351 through 47352) and the FY 2010 IPPS/LTCH PPS final rule (74 FR 43813 through 43814).

(2) Cost Criterion

Under the second criterion, § 412.87(b)(3) further provides that, to be eligible for the add-on payment for new medical services or technologies, the MS-DRG prospective payment rate otherwise applicable to discharges involving the new medical service or technology must be assessed for adequacy. Under the cost criterion, consistent with the formula specified in section 1886(d)(5)(K)(ii)(I) of the Act, to assess the adequacy of payment for a new technology paid under the applicable MS-DRG prospective payment rate, we evaluate whether the charges of the cases involving a new medical service or technology will exceed a threshold amount that is the lesser of 75 percent of the standardized amount (increased to reflect the difference between cost and charges) or 75 percent of one standard deviation beyond the geometric mean standardized charge for all cases in the MS-DRG to which the new medical service or technology is assigned (or the case-weighted average of all relevant MS-DRGs if the new medical service or technology occurs in many different MS-DRGs). The MS-DRG threshold amounts generally used in evaluating new technology add-on payment applications for FY 2025 are presented in a data file that is available, along with the other data files associated with the FY 2024 IPPS/LTCH PPS final rule and correction notification, on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.

We note that, under the policy finalized in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58603 through 58605), beginning with FY 2022, we use the proposed threshold values associated with the proposed rule for that fiscal year to evaluate the cost criterion for all applications for new technology add-on payments and previously approved technologies that may continue to receive new technology add-on payments, if those technologies would be assigned to a proposed new MS-DRG for that same fiscal year.

As finalized in the FY 2019 IPPS/LTCH PPS final rule (83 FR 41275), beginning with FY 2020, we include the thresholds applicable to the next fiscal year (previously included in Table 10 of the annual IPPS/LTCH PPS proposed and final rules) in the data files associated with the prior fiscal year. Accordingly, the proposed thresholds for applications for new technology add-on payments for FY 2026 are presented in a data file that is available on the CMS website, along with the other data files associated with the FY 2025 proposed rule, by clicking on the FY 2025 IPPS Proposed Rule Home Page at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.

In the September 7, 2001 final rule that established the new technology add-on payment regulations (66 FR 46917), we discussed that applicants should submit a significant sample of data to demonstrate that the medical service or technology meets the high-cost threshold. Specifically, applicants should submit a sample of sufficient size to enable us to undertake an initial validation and analysis of the data. We also discussed in the September 7, 2001 final rule (66 FR 46917) the issue of whether the Health Insurance Portability and Accountability Act (HIPAA) Privacy Rule at 45 CFR parts 160 and 164 applies to claims information that providers submit with applications for new medical service or technology add-on payments. We refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51573) for further information on this issue.

(3) Substantial Clinical Improvement Criterion

Under the third criterion at § 412.87(b)(1), a medical service or technology must represent an advance that substantially improves, relative to technologies previously available, the diagnosis or treatment of Medicare beneficiaries. In the FY 2020 IPPS/LTCH PPS final rule (84 FR 42288 through 42292), we prospectively codified in our regulations at § 412.87(b) the following aspects of how we evaluate substantial clinical improvement for purposes of new technology add-on payments under the IPPS:

• The totality of the circumstances is considered when making a determination that a new medical service or technology represents an advance that substantially improves, relative to services or technologies previously available, the diagnosis or treatment of Medicare beneficiaries.
• A determination that a new medical service or technology represents an advance that substantially improves, relative to services or technologies previously available, the diagnosis or treatment of Medicare beneficiaries means—

++ The new medical service or technology offers a treatment option for a patient population unresponsive to, or ineligible for, currently available treatments;

The new medical service or technology offers a treatment option for a patient population unresponsive to, or ineligible for, currently available treatments;

The new medical service or technology offers the ability to diagnose a medical condition in a patient population where that medical condition is currently undetectable, or offers the ability to diagnose a medical condition earlier in a patient population than allowed by currently available methods, and there must also be evidence that use of the new medical service or technology to make a diagnosis affects the management of the patient. The new medical service or technology offers a treatment option for a patient population unresponsive to, or ineligible for, currently available treatments;

The use of the new medical service or technology significantly improves clinical outcomes relative to services or technologies previously available as demonstrated by one or more of the following: a reduction in at least one clinically significant adverse event, including a reduction in mortality or a clinically significant complication; a decreased rate of at least one subsequent diagnostic or therapeutic intervention; a decreased number of future hospitalizations or physician visits; a more rapid beneficial resolution of the disease process treatment including, but not limited to, a reduced length of stay or recovery time; an improvement in one or more activities of daily living; an improved quality of life; or, a demonstrated greater medication adherence or compliance; or

++ The totality of the circumstances otherwise demonstrates that the new medical service or technology substantially improves, relative to technologies previously available, the diagnosis or treatment of Medicare beneficiaries.

• Evidence from the following published or unpublished information sources from within the United States or elsewhere may be sufficient to establish that a new medical service or technology represents an advance that substantially improves, relative to services or technologies previously available, the diagnosis or treatment of Medicare beneficiaries: clinical trials, peer reviewed journal articles; study results; meta-analyses; consensus statements; white papers; patient surveys; case studies; reports; systematic literature reviews; letters from major healthcare associations; editorials and letters to the editor; and public comments. Other appropriate information sources may be considered.
• The medical condition diagnosed or treated by the new medical service or technology may have a low prevalence among Medicare beneficiaries.
• The new medical service or technology may represent an advance that substantially improves, relative to services or technologies previously available, the diagnosis or treatment of a subpopulation of patients with the medical condition diagnosed or treated by the new medical service or technology.

We refer the reader to the FY 2020 IPPS/LTCH PPS final rule (84 FR 42288 through 42292) for additional discussion of the evaluation of substantial clinical improvement for purposes of new technology add-on payments under the IPPS.

We note, consistent with the discussion in the FY 2003 IPPS final rule (67 FR 50015), that while FDA has regulatory responsibility for decisions related to marketing authorization (for example, approval, clearance, etc.), we do not rely upon FDA criteria in our evaluation of substantial clinical improvement for purposes of determining what services and technologies qualify for new technology add-on payments under Medicare. This criterion does not depend on the standard of safety and effectiveness on which FDA relies but on a demonstration of substantial clinical improvement in the Medicare population.

b. Alternative Inpatient New Technology Add-On Payment Pathway

Beginning with applications for FY 2021 new technology add-on payments, under the regulations at § 412.87(c), a medical device that is part of FDA's Breakthrough Devices Program may qualify for the new technology add-on payment under an alternative pathway. Additionally, under the regulations at § 412.87(d) for certain antimicrobial products, beginning with FY 2021, a drug that is designated by FDA as a Qualified Infectious Disease Product (QIDP), and, beginning with FY 2022, a drug that is approved by FDA under the Limited Population Pathway for Antibacterial and Antifungal Drugs (LPAD), may also qualify for the new technology add-on payment under an alternative pathway. We refer the reader to the FY 2020 IPPS/LTCH PPS final rule (84 FR 42292 through 42297) and the FY 2021 IPPS/LTCH PPS final rule (85 FR 58737 through 58739) for further discussion on this policy. We note that CMS reviews the application based on the information provided by the applicant only under the alternative pathway specified by the applicant at the time of application submission. To receive approval for the new technology add-on payment under that alternative pathway, the technology must have the applicable FDA designation and meet all other requirements in the regulations in § 412.87(c) and (d), as applicable.

(1) Alternative Pathway for Certain Transformative New Devices

For applications received for new technology add-on payments for FY 2021 and subsequent fiscal years, a medical device designated under FDA's Breakthrough Devices Program that has received FDA marketing authorization will be considered not substantially similar to an existing technology for purposes of the new technology add-on payment under the IPPS, and will not need to meet the requirement under § 412.87(b)(1) that it represent an advance that substantially improves, relative to technologies previously available, the diagnosis or treatment of Medicare beneficiaries. Under this alternative pathway, a medical device that has received FDA marketing authorization (that is, has been approved or cleared by, or had a De Novo classification request granted by, FDA) as a Breakthrough Device, for the indication covered by the Breakthrough Device designation, will need to meet the requirements of § 412.87(c). We note that in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58734 through 58736), we clarified our policy that a new medical device under this alternative pathway must receive marketing authorization for the indication covered by the Breakthrough Devices Program designation. We refer the reader to the FY 2021 IPPS/LTCH PPS final rule (85 FR 58734 through 58736) for further discussion regarding this clarification.

(2) Alternative Pathway for Certain Antimicrobial Products

For applications received for new technology add-on payments for certain antimicrobial products, beginning with FY 2021, if a technology is designated by FDA as a QIDP and received FDA marketing authorization, and, beginning with FY 2022, if a drug is approved under FDA's LPAD pathway and used for the indication approved under the LPAD pathway, it will be considered not substantially similar to an existing technology for purposes of new technology add-on payments and will not need to meet the requirement that it represent an advance that substantially improves, relative to technologies previously available, the diagnosis or treatment of Medicare beneficiaries. Under this alternative pathway for QIDPs and LPADs, a medical product that has received FDA marketing authorization and is designated by FDA as a QIDP or approved under the LPAD pathway will need to meet the requirements of § 412.87(d). We refer the reader to the FY 2020 IPPS/LTCH PPS final rule (84 FR 42292 through 42297) and FY 2021 IPPS/LTCH PPS final rule (85 FR 58737 through 58739) for further discussion on this policy.

We note that, in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58737 through 58739), we clarified that a new medical product seeking approval for the new technology add-on payment under the alternative pathway for QIDPs must receive FDA marketing authorization for the indication covered by the QIDP designation. We also finalized our policy to expand our alternative new technology add-on payment pathway for certain antimicrobial products to include products approved under the LPAD pathway and used for the indication approved under the LPAD pathway.

c. Additional Payment for New Medical Service or Technology

The new medical service or technology add-on payment policy under the IPPS provides additional payments for cases with relatively high costs involving eligible new medical services or technologies, while preserving some of the incentives inherent under an average-based prospective payment system. The payment mechanism is based on the cost to hospitals for the new medical service or technology. As noted previously, we do not include capital costs in the add-on payments for a new medical service or technology or make new technology add-on payments under the IPPS for capital-related costs (72 FR 47307 through 47308).

For discharges occurring before October 1, 2019, under § 412.88, if the costs of the discharge (determined by applying operating cost-to-charge ratios (CCRs) as described in § 412.84(h)) exceed the full DRG payment (including payments for IME and DSH, but excluding outlier payments), CMS made an add-on payment equal to the lesser of: (1) 50 percent of the costs of the new medical service or technology; or (2) 50 percent of the amount by which the costs of the case exceed the standard DRG payment.

Beginning with discharges on or after October 1, 2019, for the reasons discussed in the FY 2020 IPPS/LTCH PPS final rule (84 FR 42297 through 42300), we finalized an increase in the new technology add-on payment percentage, as reflected at § 412.88(a)(2)(ii). Specifically, for a new technology other than a medical product designated by FDA as a QIDP, beginning with discharges on or after October 1, 2019, if the costs of a discharge involving a new technology (determined by applying CCRs as described in § 412.84(h)) exceed the full DRG payment (including payments for IME and DSH, but excluding outlier payments), Medicare will make an add-on payment equal to the lesser of: (1) 65 percent of the costs of the new medical service or technology; or (2) 65 percent of the amount by which the costs of the case exceed the standard DRG payment. For a new technology that is a medical product designated by FDA as a QIDP, beginning with discharges on or after October 1, 2019, if the costs of a discharge involving a new technology (determined by applying CCRs as described in § 412.84(h)) exceed the full DRG payment (including payments for IME and DSH, but excluding outlier payments), Medicare will make an add-on payment equal to the lesser of: (1) 75 percent of the costs of the new medical service or technology; or (2) 75 percent of the amount by which the costs of the case exceed the standard DRG payment. For a new technology that is a medical product approved under FDA's LPAD pathway, beginning with discharges on or after October 1, 2020, if the costs of a discharge involving a new technology (determined by applying CCRs as described in § 412.84(h)) exceed the full DRG payment (including payments for IME and DSH, but excluding outlier payments), Medicare will make an add-on payment equal to the lesser of: (1) 75 percent of the costs of the new medical service or technology; or (2) 75 percent of the amount by which the costs of the case exceed the standard DRG payment. As set forth in § 412.88(b)(2), unless the discharge qualifies for an outlier payment, the additional Medicare payment will be limited to the full MS-DRG payment plus 65 percent (or 75 percent for certain antimicrobial products (QIDPs and LPADs)) of the estimated costs of the new technology or medical service. We refer the reader to the FY 2020 IPPS/LTCH PPS final rule (84 FR 42297 through 42300) for further discussion on the increase in the new technology add-on payment beginning with discharges on or after October 1, 2019.

We note that, consistent with the prospective nature of the IPPS, we finalize the new technology add on payment amount for technologies approved or conditionally approved for new technology add-on payments in the final rule for each fiscal year and do not make mid-year changes to new technology add-on payment amounts. Updated cost information may be submitted and included in rulemaking to be considered for the following fiscal year.

Section 503(d)(2) of the MMA (Pub. L. 108-173) provides that there shall be no reduction or adjustment in aggregate payments under the IPPS due to add-on payments for new medical services and technologies. Therefore, in accordance with section 503(d)(2) of the MMA, add-on payments for new medical services or technologies for FY 2005 and subsequent years have not been subjected to budget neutrality.

d. Evaluation of Eligibility Criteria for New Medical Service or Technology Applications

In the FY 2009 IPPS final rule (73 FR 48561 through 48563), we modified our regulation at § 412.87 to codify our longstanding practice of how CMS evaluates the eligibility criteria for new medical service or technology add-on payment applications. That is, we first determine whether a medical service or technology meets the newness criterion, and only if so, do we then make a determination as to whether the technology meets the cost threshold and represents a substantial clinical improvement over existing medical services or technologies. We specified that all applicants for new technology add-on payments must have FDA approval or clearance by July 1 of the year prior to the beginning of the fiscal year for which the application is being considered. In the FY 2021 IPPS/LTCH PPS final rule, to more precisely describe the various types of FDA approvals, clearances and classifications that we consider under our new technology add-on payment policy, we finalized a technical clarification to the regulation to indicate that new technologies must receive FDA marketing authorization (such as pre-market approval (PMA); 510(k) clearance; the granting of a De Novo classification request, or approval of a New Drug Application (NDA)) by July 1 of the year prior to the beginning of the fiscal year for which the application is being considered. Consistent with our longstanding policy, we consider FDA marketing authorization as representing that a product has received FDA approval or clearance when considering eligibility for the new technology add-on payment (85 FR 58742).

Additionally, in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58739 through 58742), we finalized our proposal to provide conditional approval for new technology add-on payment for a technology for which an application is submitted under the alternative pathway for certain antimicrobial products at § 412.87(d) that does not receive FDA marketing authorization by July 1 prior to the particular fiscal year for which the applicant applied for new technology add-on payments, provided that the technology otherwise meets the applicable add-on payment criteria. Under this policy, cases involving eligible antimicrobial products would begin receiving the new technology add-on payment sooner, effective for discharges the quarter after the date of FDA marketing authorization, provided that the technology receives FDA marketing authorization before July 1 of the fiscal year for which the applicant applied for new technology add-on payments.

In the FY 2024 IPPS/LTCH PPS final rule (88 FR 58948 through 58958), we finalized that, beginning with the new technology add-on payment applications for FY 2025, for technologies that are not already FDA market authorized for the indication that is the subject of the new technology add-on payment application, applicants must have a complete and active FDA market authorization request at the time of new technology add-on payment application submission and must provide documentation of FDA acceptance or filing to CMS at the time of application submission, consistent with the type of FDA marketing authorization application the applicant has submitted to FDA. See § 412.87(e) and further discussion in the FY 2024 IPPS/LTCH PPS final rule (88 FR 58948 through 58958). We also finalized that, beginning with FY 2025 applications, in order to be eligible for consideration for the new technology add-on payment for the upcoming fiscal year, an applicant for new technology add-on payments must have received FDA approval or clearance by May 1 (rather than July 1) of the year prior to the beginning of the fiscal year for which the application is being considered (except for an application that is submitted under the alternative pathway for certain antimicrobial products), as reflected at §§ 412.87(f)(2) and (f)(3), as amended and redesignated in the FY 2024 IPPS/LTCH PPS final rule (88 FR 58948 through 58958, 88 FR 59331).

e. New Technology Liaisons

Many interested parties (including device/biologic/drug developers or manufacturers, industry consultants, others) engage CMS for coverage, coding, and payment questions or concerns. In order to streamline engagement by centralizing the different innovation pathways within CMS including new technology add-on payments, CMS has established a team of new technology liaisons that can serve as an initial resource for interested parties. This team is available to assist with all of the following:

• Help to point interested parties to or provide information and resources where possible regarding process, requirements, and timelines.
• Coordinate and facilitate opportunities for interested parties to engage with various CMS components.
• Serve as a primary point of contact for interested parties and provide updates on developments where possible or appropriate.

We receive many questions from parties interested in pursuing new technology add-on payments who may not be entirely familiar with working with CMS. While we encourage interested parties to first review our resources available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/newtech, we know that there may be additional questions about the application process. Interested parties with further questions regarding Medicare's coverage, coding, and payment processes, and how they can navigate these processes, whether for new technology add-on payments or otherwise, should review the updated resource guide available at: https://www.cms.gov/medicare/coding-billing/guide-medical-technology-companies-other-interested-parties. Parties that would like to further discuss questions or concerns with CMS should contact the new technology liaison team at MedicareInnovation@cms.hhs.gov.

f. Application Information for New Medical Services or Technologies

Applicants for add-on payments for new medical services or technologies for FY 2026 must submit a formal request, including a full description of the clinical applications of the medical service or technology and the results of any clinical evaluations demonstrating that the new medical service or technology represents a substantial clinical improvement (unless the application is under one of the alternative pathways as previously described), along with a significant sample of data to demonstrate that the medical service or technology meets the high-cost threshold. CMS will review the application based on the information provided by the applicant under the pathway specified by the applicant at the time of application submission. Complete application information, along with final deadlines for submitting a full application, will be posted as it becomes available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/newtech.html.

To allow interested parties to identify the new medical services or technologies under review before the publication of the proposed rule for FY 2026, once the application deadline has closed, CMS will post on its website a list of the applications submitted, along with a brief description of each technology as provided by the applicant.

As discussed in the FY 2023 IPPS/LTCH PPS final rule (87 FR 48986 through 48990), we finalized our proposal to publicly post online new technology add-on payment applications, including the completed application forms, certain related materials, and any additional updated application information submitted subsequent to the initial application submission (except certain volume, cost and other information identified by the applicant as confidential), beginning with the application cycle for FY 2024, at the time the proposed rule is published. We also finalized that with the exception of information included in a confidential information section of the application, cost and volume information, and materials identified by the applicant as copyrighted and/or not otherwise releasable to the public, the contents of the application and related materials may be posted publicly, and that we will not post applications that are withdrawn prior to publication of the proposed rule. We refer the reader to the FY 2023 IPPS/LTCH PPS final rule (87 FR 48986 through 48990) for further information regarding this policy.

We note that the burden associated with this information collection requirement is the time and effort required to collect and submit the data in the formal request for add-on payments for new medical services and technologies to CMS. The aforementioned burden is subject to the PRA and approved under OMB control number 0938-1347 and has an expiration date of December 31, 2026.

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

Section 1886(d)(5)(K)(viii) of the Act, as amended by section 503(b)(2) of the MMA, provides for a mechanism for public input before publication of a notice of proposed rulemaking regarding whether a medical service or technology represents a substantial clinical improvement. The process for evaluating new medical service and technology applications requires the Secretary to do all of the following:

• Provide, before publication of a proposed rule, for public input regarding whether a new service or technology represents an advance in medical technology that substantially improves the diagnosis or treatment of Medicare beneficiaries.
• Make public and periodically update a list of the services and technologies for which applications for add-on payments are pending.
• Accept comments, recommendations, and data from the public regarding whether a service or technology represents a substantial clinical improvement.
• Provide, before publication of a proposed rule, for a meeting at which organizations representing hospitals, physicians, manufacturers, and any other interested party may present comments, recommendations, and data regarding whether a new medical service or technology represents a substantial clinical improvement to the clinical staff of CMS.

In order to provide an opportunity for public input regarding add-on payments for new medical services and technologies for FY 2025 prior to publication of the FY 2025 IPPS/LTCH PPS proposed rule, we published a notice in the Federal Register on September 28, 2023 (88 FR 66850) and held a virtual town hall meeting on December 13, 2023. In the announcement notice for the meeting, we stated that the opinions and presentations provided during the meeting would assist us in our evaluations of applications by allowing public discussion of the substantial clinical improvement criterion for the FY 2025 new medical service and technology add-on payment applications before the publication of the FY 2025 IPPS/LTCH IPPS proposed rule.

Approximately 130 individuals registered to attend the virtual town hall meeting. We posted the recordings of the virtual town hall on the CMS web page at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/newtech. We considered each applicant's presentation made at the town hall meeting, as well as written comments received by the December 18, 2023 deadline, in our evaluation of the new technology add-on payment applications for FY 2025 in the development of the FY 2025 IPPS/LTCH PPS proposed rule. In response to the published notice and the December 13, 2023 New Technology Town Hall meeting, we received written comments regarding the applications for FY 2025 new technology add-on payments. As explained earlier and in the Federal Register notice announcing the New Technology Town Hall meeting (88 FR 66850 through 66853), the purpose of the meeting was specifically to discuss the substantial clinical improvement criterion with regard to pending new technology add-on payment applications for FY 2025. Therefore, we are not summarizing any written comments in this proposed rule that are unrelated to the substantial clinical improvement criterion. In section II.E.5. of the preamble of the proposed rule, we are summarizing comments regarding individual applications, or, if applicable, indicating that there were no comments received in response to the New Technology Town Hall meeting notice or New Technology Town Hall meeting, at the end of each discussion of the individual applications.

3. ICD-10-PCS Section “X” Codes for Certain New Medical Services and Technologies

As discussed in the FY 2016 IPPS/LTCH PPS final rule (80 FR 49434), the ICD-10-PCS includes a new section containing the new Section “X” codes, which began being used with discharges occurring on or after October 1, 2015. Decisions regarding changes to ICD-10-PCS Section “X” codes will be handled in the same manner as the decisions for all of the other ICD-10-PCS code changes. That is, proposals to create, delete, or revise Section “X” codes under the ICD-10-PCS structure will be referred to the ICD-10 Coordination and Maintenance Committee. In addition, several of the new medical services and technologies that have been, or may be, approved for new technology add-on payments may now, and in the future, be assigned a Section “X” code within the structure of the ICD-10-PCS. We posted ICD-10-PCS Guidelines on the CMS website at: https://www.cms.gov/Medicare/Coding/ICD10, including guidelines for ICD-10-PCS Section “X” codes. We encourage providers to view the material provided on ICD-10-PCS Section “X” codes.

4. Proposed FY 2025 Status of Technologies Receiving New Technology Add-On Payments for FY 2024

In this section of the proposed rule, we discuss the proposed FY 2025 status of 31 technologies approved for FY 2024 new technology add-on payments, as set forth in the tables that follow. Specifically, we present our proposals to continue the new technology add-on payments for FY 2025 for those technologies that were approved for the new technology add-on payment for FY 2024, and which would still be considered “new” for purposes of new technology add-on payments for FY 2025. We also present our proposals to discontinue new technology add-on payments for FY 2025 for those technologies that were approved for the new technology add-on payment for FY 2024, and which would no longer be considered “new” for purposes of new technology add-on payments for FY 2025.

Additionally, we note that we conditionally approved DefenCath^TM (taurolidine/heparin) for FY 2024 new technology add-on payments under the alternative pathway for certain antimicrobial products (88 FR 58942 through 58944), subject to the technology receiving FDA marketing authorization by July 1, 2024. DefenCath^TM (taurolidine/heparin) received FDA marketing authorization on November 15, 2023, and was eligible to receive new technology add-on payments in FY 2024 beginning with discharges on or after January 1, 2024. As DefenCath^TM (taurolidine/heparin) received FDA marketing authorization prior to July 1, 2024, and was approved for new technology add-on payments in FY 2024, we are proposing to continue making new technology add-on payments for taurolidine/heparin for FY 2025.

Our policy is that a medical service or technology may continue to be considered “new” for purposes of new technology add-on payments within 2 or 3 years after the point at which data begin to become available reflecting the inpatient hospital code assigned to the new service or technology. Our practice has been to begin and end new technology add-on payments on the basis of a fiscal year, and we have generally followed a guideline that uses a 6-month window before and after the start of the fiscal year to determine whether to extend the new technology add-on payment for an additional fiscal year. In general, we extend new technology add-on payments for an additional year only if the 3-year anniversary date of the product's entry onto the U.S. market occurs in the latter half of the fiscal year (70 FR 47362).

Table II.E.—01 lists the technologies for which we are proposing to continue making new technology add-on payments for FY 2025 because they are still considered “new” for purposes of new technology add-on payments. This table also presents the newness start date, new technology add-on payment start date, 3-year anniversary date of the product's entry onto the U.S. market, relevant final rule citations from prior fiscal years, proposed maximum add-on payment amount, and coding assignments for each technology. We refer readers to the cited final rules in the following table for a complete discussion of the new technology add-on payment application, coding, and payment amount for these technologies, including the applicable indications and discussion of the newness start date.

We are inviting public comments on our proposals to continue new technology add-on payments for FY 2025 for the technologies listed in the following table.

Table II.E.-02 lists the technologies for which we are proposing to discontinue making new technology add-on payments for FY 2025 because they are no longer “new” for purposes of new technology add-on payments. This table also presents the newness start date, new technology add-on payment start date, the 3-year anniversary date of the product's entry onto the U.S. market, and relevant final rule citations from prior fiscal years. We refer readers to the cited final rules in the following table for a complete discussion of each new technology add-on payment application and the coding and payment amount for these technologies, including the applicable indications and discussion of the newness start date.

We are inviting public comments on our proposals to discontinue new technology add-on payments for FY 2025 for the technologies listed in Table II.E.-02.

6. Proposed FY 2025 Applications for New Technology Add-On Payments (Traditional Pathway)

As discussed previously, in the FY 2023 IPPS/LTCH PPS final rule, we finalized our policy to publicly post online applications for new technology add-on payment beginning with FY 2024 applications (87 FR 48986 through 48990). As noted in the FY 2023 IPPS/LTCH PPS final rule, we are continuing to summarize each application in this proposed rule. However, while we are continuing to provide discussion of the concerns or issues we identified with respect to applications submitted under the traditional pathway, we are providing more succinct information as part of the summaries in the proposed and final rules regarding the applicant's assertions as to how the medical service or technology meets the newness, cost, and substantial clinical improvement criteria. We refer readers to https://mearis.cms.gov/public/publications/ntap for the publicly posted FY 2025 new technology add-on payment applications and supporting information (with the exception of certain cost and volume information, and information or materials identified by the applicant as confidential or copyrighted), including tables listing the ICD-10-CM codes, ICD-10-PCS codes, and/or MS-DRGs related to the analyses of the cost criterion for certain technologies for the FY 2025 new technology add-on payment applications.

We received 16 applications for new technology add-on payments for FY 2025 under the new technology add-on payment traditional pathway. As discussed previously, in the FY 2024 IPPS/LTCH PPS final rule (88 FR 58948 through 58958), we finalized that beginning with the new technology add-on payment applications for FY 2025, for technologies that are not already FDA market authorized for the indication that is the subject of the new technology add-on payment application, applicants must have a complete and active FDA market authorization request at the time of new technology add-on payment application submission and must provide documentation of FDA acceptance or filing to CMS at the time of application submission, consistent with the type of FDA marketing authorization application the applicant has submitted to FDA. See § 412.87(e) and further discussion in the FY 2024 IPPS/LTCH PPS final rule (88 FR 58948 through 58958). Of the 16 applications received under the traditional pathway, one applicant was not eligible for consideration for new technology add-on payment because it did not meet these requirements, and three applicants withdrew their application prior to the issuance of this proposed rule. In accordance with the regulations under § 412.87(f), applicants for FY 2025 new technology add-on payments must have received FDA approval or clearance by May 1 of the year prior to the beginning of the fiscal year for which the application is being considered. We are addressing the remaining 12 applications. We note that the manufacturer for Casgevy^TM (exagamglogene autotemcel) submitted a single application, but for two separate indications, each of which is discussed separately in this section.

a. CASGEVY^TM (exagamglogene autotemcel) First Indication: Sickle Cell Disease (SCD)

Vertex Pharmaceuticals, Inc. submitted an application for new technology add-on payments for Casgevy^TM for FY 2025 for use in sickle cell disease. According to the applicant, Casgevy^TM is a one-time, clustered regularly interspaced short palindromic repeats (CRISPR)/CRISPR-associated protein 9 (Cas9) modified autologous cluster of differentiation (CD)34+ hematopoietic stem & progenitor cell (HSPC) cellular therapy approved for the treatment of sickle cell disease (SCD) in patients 12 years and older with recurrent vaso-occlusive crises (VOC). Per the applicant, using a CRISPR/Cas9 gene editing technique, the patient's CD34+ HSPCs are edited ex vivo via Cas9, a nuclease enzyme that uses a highly specific guide ribonucleic acid (gRNA), at the critical transcription factor binding site GATA1 in the erythroid specific enhancer region of the B-cell lymphoma/leukemia 11A (BCL11A) gene. According to the applicant, as a result of the editing, GATA1 binding is irreversibly disrupted, and BCL11A expression is reduced, resulting in an increased production of fetal hemoglobin (HbF), and recapitulating a naturally occurring, clinically benign condition called hereditary persistence of fetal hemoglobin (HPFH) that reduces or eliminates SCD symptoms. As stated by the applicant, Casgevy^TM infusion induces increased HbF production in SCD patients to ≥20 percent, which is known to be associated with fewer SCD complications via addressing the underlying cause of SCD by preventing RBC sickling. We note that the applicant is also seeking new technology add-on payments for Casgevy^TM for FY 2025 for use in treating transfusion-dependent beta thalassemia (TDT), as discussed separately later in this section.

Please refer to the online application posting for Casgevy^TM , available at https://mearis.cms.gov/public/publications/ntap/NTP2310171VPTU, for additional detail describing the technology and the disease treated by the technology.

With respect to the newness criterion, according to the applicant, Casgevy^TM was granted Biologics License Application (BLA) approval from FDA on December 8, 2023, for treatment of SCD in patients 12 years of age or older with recurrent VOCs. According to the applicant, Casgevy^TM became commercially available immediately after FDA approval. Casgevy^TM is available in 20 mL vials containing 4 to 13 × 10⁶ CD34+ cells/mL frozen in 1.5 to 20 mL of solution. The minimum dose is 3 × 10⁶ CD34+ cells per kg of body weight, which may be contained within multiple vials.

Effective April 1, 2023, the following ICD-10-PCS codes may be used to uniquely describe procedures involving the use of Casgevy^TM : XW133J8 (Transfusion of exagamglogene autotemcel into peripheral vein, percutaneous approach, new technology group 8) and XW143J8 (Transfusion of exagamglogene autotemcel into central vein, percutaneous approach, new technology group 8). The applicant provided a list of ICD-10-CM diagnosis codes that may be used to identify this indication for Casgevy^TM . Please refer to the online application posting for the complete list of ICD-10-CM codes provided by the applicant. We believe the relevant ICD-10-CM codes to identify the indication of SCD would be: D57.1 (Sickle-cell disease without crisis), D57.20 (Sickle-cell/Hb-C disease without crisis), D57.40 (Sickle-cell thalassemia without crisis), D57.42 (Sickle-cell thalassemia beta zero without crisis), D57.44 (Sickle-cell thalassemia beta plus without crisis), or D57.80 (Other sickle-cell disorders without crisis). We are inviting public comments on the use of these ICD-10-CM diagnosis codes to identify the indication of SCD for purposes of the new technology add-on payment, if approved.

As previously discussed, if a technology meets all three of the substantial similarity criteria under the newness criterion, it would be considered substantially similar to an existing technology and would not be considered “new” for the purpose of new technology add-on payments.

With respect to the substantial similarity criteria, the applicant asserted that Casgevy^TM is not substantially similar to other currently available technologies, because Casgevy^TM is the first approved therapy to use CRISPR gene editing technology and no other approved technology uses the same or a similar mechanism of action; and therefore, the technology meets the newness criterion. The following table summarizes the applicant's assertions regarding the substantial similarity criteria. Please see the online application posting for Casgevy^TM for the applicant's complete statements in support of its assertion that Casgevy^TM is not substantially similar to other currently available technologies.

We note that Casgevy^TM may have the same or similar mechanism of action to Lyfgenia^TM , for which we also received an application for new technology add-on payments for FY 2025. Casgevy^TM and Lyfgenia^TM are both gene therapies using modified autologous CD34+ hematopoietic stem and progenitor cell (HSPC) therapies administered via stem cell transplantation for the treatment of SCD. Lyfgenia^TM was approved by FDA for this indication on December 8, 2023. We note that both technologies are autologous, ex-vivo modified hematopoietic stem-cell biological products. For these technologies, patients are required to undergo CD34+ HSPC mobilization followed by apheresis to extract CD34+ HSPCs for manufacturing and then myeloablative conditioning using busulfan to deplete the patient's bone marrow in preparation for the technologies' modified stem cells to engraft to the bone marrow. Once engraftment occurs for both technologies, the patient's cells start to produce a different form of hemoglobin in order to reduce the sickling hemoglobin. Further, both technologies appear to map to the same MS-DRGs, MS-DRG 016 (Autologous Bone Marrow Transplant with CC/MCC) and 017 (Autologous Bone Marrow Transplant without CC/MCC), and to treat the same or similar disease (sickle cell disease) in the same or similar patient population (patients 12 years of age and older who have a history of vaso-occlusive events). Accordingly, as it appears that Casgevy^TM and Lyfgenia^TM may use the same or similar mechanism of action to achieve a therapeutic outcome (that is, to reduce the amount of sickling hemoglobin to reduce and prevent VOEs associated with SCD), would be assigned to the same MS-DRG, and treat the same or similar patient population and disease, we believe that these technologies may be substantially similar to each other such that they should be considered as a single application for purposes of new technology add-on payments. We note that if we determine that this technology is substantially similar to Lyfgenia^TM, we believe the newness period would begin on December 8, 2023, the date both Casgevy^TM and Lyfgenia^TM received FDA approval for SCD. We are interested in information on how these two technologies may differ from each other with respect to the substantial similarity criteria and newness criterion, to inform our analysis of whether Casgevy^TM and Lyfgenia^TM are substantially similar to each other and therefore should be considered as a single application for purposes of new technology add-on payments.

We are inviting public comments on whether Casgevy^TM meets the newness criterion, including whether Casgevy^TM is substantially similar to Lyfgenia^TM and whether these technologies should be evaluated as a single technology for purposes of new technology add-on payments.

With respect to the cost criterion, the applicant searched the FY 2022 MedPAR and provided multiple analyses to demonstrate that Casgevy^TM meets the cost criterion. The applicant included two cohorts in the analyses to identify potential cases representing patients who may be eligible for Casgevy^TM : the first cohort included all cases in MS-DRG 014 (Allogeneic Bone Marrow Transplant) to account for the low volume of SCD or transfusion-dependent beta thalassemia (TDT) cases, and the second cohort included cases in MS-DRG 014 (Allogeneic Bone Marrow Transplant) with any ICD-10-CM diagnosis code of SCD or TDT. The applicant explained that the cost analyses for SCD and TDT were combined because the volume of cases with a sickle cell disease or beta thalassemia diagnosis code was very low, and because it believed both indications would be approved in time for new technology add-on payment. In addition, the applicant noted that when searching for cases in DRG 014 with SCD or beta thalassemia diagnosis codes, there were no beta thalassemia cases. The applicant noted that cases included in the analysis may not be a completely accurate representation of cases that will be eligible for Casgevy^TM but that the analyses were provided in recognition of the low volume of cases.

The applicant performed two analyses for each cohort: one with all prior drug charges maintained, representing a scenario in which there is no change to patient drug regimen with the use of Casgevy^TM ; and the other with all prior drug charges removed, representing a scenario in which no ancillary drugs are used in the treatment of Casgevy^TM patients. Per the applicant, this was done because some patients receiving Casgevy^TM could receive fewer ancillary drugs during the inpatient stay, but it was difficult to know with certainty whether this would be the case or to identify the exact differences in drug regimens between patients receiving Casgevy^TM and those receiving allogeneic bone marrow transplants. The applicant noted the analyses with drug charges removed were likely an over-estimation of the ancillary drug charges that would be removed in cases involving the use of Casgevy^TM , but these were provided as sensitivity analyses.

According to the applicant, eligible cases for Casgevy^TM will be mapped to either Pre-MDC MS-DRG 016 (Autologous Bone Marrow Transplant with CC/MCC) or Pre-MDC MS-DRG 017 (Autologous Bone Marrow Transplant without CC/MCC), depending on whether complications or comorbidities (CCs) or major complications or comorbidities (MCCs) are present. For each analysis, the applicant used the FY 2025 new technology add-on payment threshold for Pre-MDC MS-DRG 016 for all identified cases, because it was typically higher than the threshold for Pre-MDC MS-DRG 017. Each analysis followed the order of operations described in the table later in this section.

For the first cohort, the applicant included all cases associated with MS-DRG 014 (Allogeneic Bone Marrow Transplant). The applicant used the inclusion/exclusion criteria described in the following table and identified 996 claims mapping to MS-DRG 014. With all prior drug charges maintained (Scenario 1), the applicant calculated a final inflated average case-weighted standardized charge per case of $12,325,062, which exceeded the average case-weighted threshold amount of $182,491. With all prior drug charges removed (Scenario 2), the applicant calculated a final inflated average case-weighted standardized charge per case of $12,181,526, which exceeded the average case-weighted threshold amount of $182,491.

For the second cohort, the applicant searched for cases within MS-DRG 014 (Allogeneic Bone Marrow Transplant) with any ICD-10-CM diagnosis codes representing SCD or TDT. The applicant used the inclusion/exclusion criteria described in the following table and identified 11 claims mapping to MS-DRG 014 (Allogeneic Bone Marrow Transplant). With all prior drug charges maintained (Scenario 3), the applicant calculated a final inflated average case-weighted standardized charge per case of $12,125,212, which exceeded the average case-weighted threshold amount of $182,491. With all prior drug charges removed (Scenario 4), the applicant calculated a final inflated average case-weighted standardized charge per case of $12,086,551, which exceeded the average case-weighted threshold amount of $182,491.

Because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount in all scenarios, the applicant maintained that Casgevy^TM meets the cost criterion.

We are inviting public comments on whether Casgevy meets the cost criterion.

With regard to the substantial clinical improvement criterion, the applicant asserted that Casgevy represents a substantial clinical improvement over existing technologies because it is anticipated to expand patient eligibility for potentially curative SCD therapies, have improved clinical outcomes relative to available therapies, and avoid certain serious risks or side effects associated with existing potentially curative treatment options for SCD. The applicant provided one study to support these claims, as well as eight background articles about clinical outcomes and safety risks of other SCD treatments. The following table summarizes the applicant's assertions regarding the substantial clinical improvement criterion. Please see the online posting for Casgevy^TM for the applicant's complete statements regarding the substantial clinical improvement criterion and the supporting evidence provided.

After review of the information provided by the applicant, we have the following concerns regarding whether Casgevy meets the substantial clinical improvement criterion. We note that the only assessment of the technology submitted was from conference presentations that provide data on the ongoing CLIMB-121 trial, a phase 1/2/3 single-arm trial assessing a single dose of Casgevy^TM in patients 12 to 35 years old with SCD and a history of 2 or more severe VOCs per year over 2 years. The most recent data presented at ASH in December 2023, which appears to supersede the earlier results from Locatelli et al. (2023), indicates 44 participants received Casgevy^TM for SCD, of which only 30 participants were evaluable for the primary and key secondary endpoints because they were followed for at least 16 months (up to 45.5 months) post Casgevy^TM infusion. The applicant stated 96.7% of patients achieved the primary efficacy endpoint (free of severe VOCs for at least 12 consecutive months) and 100% of patients achieved the key secondary efficacy endpoint (free from in-patient hospitalization for severe VOCs for at least 12 consecutive months). Additionally, the applicant noted a safety profile consistent with myeloablative busulfan and autologous HSCT and that there were no malignancies nor serious adverse events related to Casgevy^TM . However, we note that the provided evidence did not include peer-reviewed literature that directly assessed the use of Casgevy^TM for SCD. We also question whether the small study population may limit the generalizability of these study outcomes to a Medicare population. In addition, from the evidence submitted, we were also unable to determine where the study took place (that is, within the U.S. or in locations outside the U.S), which may also limit generalizability to the Medicare population. Additionally, we question if the short follow-up duration is sufficient to assess improvements in long-term clinical outcomes.

Furthermore, the applicant asserted that Casgevy^TM significantly improves clinical outcomes relative to services or technologies previously available. Regarding the claim that Casgevy^TM is the first gene therapy specifically approved for the treatment of SCD in patients 12 years and older with recurrent VOCs, the applicant claims it was first to submit and have their BLA accepted for a genetic therapy for treatment of SCD. The applicant states the PDUFA date for Casgevy^TM of December 8, 2023, and the PDUFA data for another gene therapy for SCD is December 20, 2023, and that Casgevy and another product were both approved on December 8, 2023, as the first gene therapies for SCD. However, while this claim was made in support of the assertion that Casgevy^TM significantly improves clinical outcomes, we note that the information submitted regarding PDUFA dates and FDA approvals does not appear to provide data regarding a significantly improved clinical outcome under § 412.87(b)(1)(ii)(C).

With regards to the claim that Casgevy^TM is expected to avoid certain serious risks or side effects associated with approved viral-based gene therapies for SCD, the applicant cites the potential risk of insertional oncogenesis after treatment with Lyfgenia^TM per the package insert for this other gene therapy for SCD. We note that because clinical trials are conducted under widely varying conditions, we question whether adverse reaction rates observed in the clinical trials of one drug can be directly compared to rates in the clinical trials of another drug. We also question if the follow-up duration for patients treated with Casgevy^TM is sufficient to assess improvement in the rate of malignancy.

With regard to the claim that Casgevy^TM is expected to avoid certain serious risks or side effects associated with existing potentially curative treatment options for SCD, the applicant states that there are significant risks associated with allo-HSCT, including graft failure (up to 9 percent frequency), acute and chronic graft-versus-host disease (GVHD) (with chronic GVHD up to 18 percent frequency), severe infection, hematologic malignancy, bleeding events, and death. In contrast, the applicant claims Casgevy^TM does not require an allogeneic donor as each patient is their own donor and therefore does not have risks of acute and chronic GVHD or immunologic risks of secondary graft failure/rejection, in addition to not requiring post-transplant immunosuppressive therapies. However, we would be interested in additional evidence regarding the frequency and clinical relevance of side effects such as severe infection, hematologic malignancy, bleeding events, and death for both therapies.

We are inviting public comments on whether Casgevy^TM meets the substantial clinical improvement criterion.

We did not receive any written comments in response to the New Technology Town Hall meeting notice published in the Federal Register regarding the substantial clinical improvement criterion for Casgevy^TM .

b. Casgevy^TM (exagamglogene autotemcel) Second Indication: Transfusion-Dependent β-Thalassemia (TDT)

Vertex Pharmaceuticals, Inc. submitted an application for new technology add-on payments for Casgevy^TM for FY 2025 for TDT. According to the applicant, Casgevy^TM is a one-time, clustered regularly interspaced short palindromic repeats (CRISPR)/CRISPR-associated protein 9 (Cas9) modified autologous cluster of differentiation (CD)34+ hematopoietic stem & progenitor cell (HSPC) cellular therapy indicated for the treatment of transfusion-dependent β-thalassemia (TDT) in patients 12 years of age or older. Per the applicant, using a CRISPR/Cas9 gene editing technique, the patient's CD34+ HSPCs are edited ex vivo via Cas9, a nuclease enzyme that uses a highly specific guide ribonucleic acid (gRNA), at the critical transcription factor binding site GATA1 in the erythroid specific enhancer region of the B-cell lymphoma/leukemia 11A (BCL11A) gene. According to the applicant, as a result of the editing, GATA1 binding is irreversibly disrupted, and BCL11A expression is reduced, resulting in an increased production of fetal hemoglobin (HbF). As stated by the applicant, this increase in HbF recapitulates a naturally occurring, clinically benign condition called hereditary persistence of fetal hemoglobin (HPFH). The applicant states that as a result, Casgevy^TM infusion induces increased HbF production in TDT patients so that circulating red blood cells (RBC) exhibit nearly 100 percent HbF, eliminating the need for RBC transfusions. As previously discussed earlier in this section, the applicant is also seeking new technology add-on payments for Casgevy^TM for FY 2025 for use in treating SCD.

Please refer to the online application posting for Casgevy^TM , available at https://mearis.cms.gov/public/publications/ntap/NTP2310171VPTU, for additional detail describing the technology and the disease treated by the technology.

With respect to the newness criterion, according to the applicant, Casgevy^TM was granted Biologics License Application (BLA) approval from FDA on January 16, 2024, for the treatment of TDT in patients 12 years of age and older. The applicant also explained that the minimum dosage of Casgevy^TM is 3x10⁶ CD34 + cells per kg of patient's weight. A single dose of Casgevy^TM is supplied in one or more vials, with each vial containing 4 to 13x10⁶ cells/mL suspended in 1.5 to 20 mL of cryo-preservative medium.

Effective April 1, 2023, the following ICD-10-PCS codes may be used to uniquely describe procedures involving the use of Casgevy^TM : XW133J8 (Transfusion of exagamglogene autotemcel into peripheral vein, percutaneous approach, new technology group 8) and XW143J8 (Transfusion of exagamglogene autotemcel into central vein, percutaneous approach, new technology group 8). The applicant provided a list of diagnosis codes that may be used to currently identify this indication for Casgevy^TM under the ICD-10-CM coding system. Please refer to the online application posting for the complete list of ICD-10-CM codes provided by the applicant. We believe the relevant ICD-10-CM codes to identify the indication of TDT would be: D56.1 (Beta thalassemia), D56.2 (Delta-beta thalassemia), or D56.5 (Hemoglobin E-beta thalassemia). We are inviting public comments on the use of these ICD-10-CM diagnosis codes to identify the indication of TDT for purposes of the new technology add-on payment, if approved.

As previously discussed, if a technology meets all three of the substantial similarity criteria under the newness criterion, it would be considered substantially similar to an existing technology and would not be considered “new” for the purpose of new technology add-on payments.

With respect to the substantial similarity criteria, the applicant asserted that Casgevy^TM is not substantially similar to other currently available technologies because Casgevy^TM is the first approved therapy to use CRISPR gene editing as its mechanism of action, and therefore, the technology meets the newness criterion. The following table summarizes the applicant's assertions regarding the substantial similarity criteria. Please see the online application posting for Casgevy^TM for the applicant's complete statements in support of its assertion that Casgevy^TM is not substantially similar to other currently available technologies.

We question whether Casgevy^TM may be the same or similar to other gene therapies used to treat TDT, specifically Zynteglo^TM , which was approved for treatment of TDT on August 17, 2022. Casgevy^TM and Zynteglo^TM are both gene therapies using modified autologous CD34+ HSPC therapies administered via stem cell transplantation for the treatment of TDT. Both technologies are autologous, ex-vivo modified hematopoietic stem-cell biological products. For these technologies, patients are required to undergo CD34+ HSPC mobilization followed by apheresis to extract CD34+ HSPCs for manufacturing and then myeloablative conditioning using busulfan to deplete the patient's bone marrow in preparation for the technologies' modified stem cells to engraft to the bone marrow. Once engraftment occurs, the patient's cells start to produce a different form of hemoglobin to increase total hemoglobin and reduce the need for RBC transfusions. Therefore, it appears as if Casgevy^TM and Zynteglo^TM would use a similar mechanism of action to achieve a therapeutic outcome for the treatment of TDT. Further, both technologies appear to map to the same MS-DRGs, MS-DRG 016 (Autologous Bone Marrow Transplant with CC/MCC) and 017 (Autologous Bone Marrow Transplant without CC/MCC), and to treat the same or similar disease (beta thalassemia) in the same or similar patient population (patients who require regular blood transfusions). Accordingly, we believe that these technologies may be substantially similar to each other. We note that if Casgevy^TM is substantially similar to Zynteglo^TM for the treatment of TDT, we believe the newness period for this technology would begin on August 17, 2022, with the Biologics License Application (BLA) approval date for Zynteglo^TM .

We are inviting public comments on whether Casgevy^TM is substantially similar to existing technologies and whether Casgevy^TM meets the newness criterion.

With respect to the cost criterion, the applicant searched the FY 2022 MedPAR and provided multiple analyses to demonstrate that Casgevy^TM meets the cost criterion. The applicant included two cohorts in the analyses to identify potential cases representing patients who may be eligible for Casgevy^TM : the first cohort included all cases in MS-DRG 014 (Allogeneic Bone Marrow Transplant) to account for the low volume of sickle cell disease (SCD) or TDT cases, and the second cohort included cases in MS-DRG 014 (Allogeneic Bone Marrow Transplant) with any ICD-10-CM diagnosis code of SCD or TDT. The applicant explained that the cost analyses for SCD and TDT were combined because the volume of cases with a sickle cell disease or beta thalassemia diagnosis code was very small, and because it believed both indications would be approved in time for new technology add-on payment. In addition, the applicant noted that when searching for cases in DRG 014 with SCD or beta thalassemia diagnosis codes, there were no beta thalassemia cases. The applicant noted that cases included in the analysis may not be a completely accurate representation of cases that will be eligible for Casgevy^TM but that the analyses were provided in recognition of the low volume of cases.

The applicant performed two analyses for each cohort: one with all prior drug charges maintained, representing a scenario in which there is no change to patient drug regimen with the use of Casgevy^TM ; and the other with all prior drug charges removed, representing a scenario in which no ancillary drugs are used in the treatment of Casgevy^TM patients. Per the applicant, this was done because some patients receiving Casgevy^TM could receive fewer ancillary drugs during the inpatient stay, but it was difficult to know with certainty whether this would be the case or to identify the exact differences in drug regimens between patients receiving Casgevy^TM and those receiving allogeneic bone marrow transplants. The applicant notes the analyses with drug charges removed were likely an over-estimation of the ancillary drug charges that would be removed in cases involving the use of Casgevy^TM , but these were provided as sensitivity analyses.

According to the applicant, eligible cases for Casgevy^TM will be mapped to either Pre-MDC MS-DRG 016 (Autologous Bone Marrow Transplant with CC/MCC) or Pre-MDC MS-DRG 017 (Autologous Bone Marrow Transplant without CC/MCC), depending on whether complications or comorbidities (CCs) or major complications or comorbidities (MCCs) are present. For each analysis, the applicant used the FY 2025 new technology add-on payment threshold for Pre-MDC MS-DRG 016 for all identified cases, because it was typically higher than the threshold for Pre-MDC MS-DRG 017. Each analysis followed the order of operations described in the table later in this section.

For the first cohort, the applicant included all cases associated with MS-DRG 014 (Allogeneic Bone Marrow Transplant). The applicant used the inclusion/exclusion criteria described in the following table and identified 996 claims mapping to MS-DRG 014. With all prior drug charges maintained (Scenario 1), the applicant calculated a final inflated average case-weighted standardized charge per case of $12,325,062, which exceeded the average case-weighted threshold amount of $182,491. With all prior drug charges removed (Scenario 2), the applicant calculated a final inflated average case-weighted standardized charge per case of $12,181,526, which exceeded the average case-weighted threshold amount of $182,491.

For the second cohort, the applicant searched for cases within MS-DRG 014 (Allogeneic Bone Marrow Transplant) with any ICD-10-CM diagnosis codes representing SCD or TDT. The applicant used the inclusion/exclusion criteria described in the following table and identified 11 claims mapping to MS-DRG 014 (Allogeneic Bone Marrow Transplant). With all prior drug charges maintained (Scenario 3), the applicant calculated a final inflated average case-weighted standardized charge per case of $12,125,212, which exceeded the average case-weighted threshold amount of $182,491. With all prior drug charges removed (Scenario 4), the applicant calculated a final inflated average case-weighted standardized charge per case of $12,086,551, which exceeded the average case-weighted threshold amount of $182,491.

Because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount in all scenarios, the applicant asserted that Casgevy meets the cost criterion.

We are inviting public comments on whether Casgevy^TM meets the cost criterion.

With regard to the substantial clinical improvement criterion, the applicant asserted that Casgevy represents a substantial clinical improvement over existing technologies because it is expected to avoid certain serious risks or side effects associated with the existing approved gene therapy for TDT, Zynteglo . The applicant provided one study to support these claims, as well as two package inserts. The following table summarizes the applicant's assertion regarding the substantial clinical improvement criterion. Please see the online posting for Casgevy^TM for the applicant's complete statements regarding the substantial clinical improvement criterion and the supporting evidence provided.

After review of the information provided by the applicant, we have the following concerns regarding whether Casgevy meets the substantial clinical improvement criterion. We note that the provided evidence did not include any peer-reviewed literature that directly assessed the use of Casgevy for TDT. We note that the only assessment of the technology submitted was from a conference presentation that provides data on the CLIMB-111 trial, an ongoing phase 1/2/3 single-arm trial assessing a single dose of Casgevy^TM in patients 12 to 35 years old with TDT. The data submitted by the applicant indicated 48 participants aged 12 to 35 years received Casgevy^TM for TDT, of which only 27 participants were evaluable for the primary and key secondary endpoints because they were followed for at least 16 months (up to 43.7 months) after Casgevy^TM infusion. Per the applicant's conference presentation, 88.9% of participants achieved both the primary efficacy endpoint (transfusion independence for 12 consecutive months while maintaining a weighted average hemoglobin of at least 9 g/dL) and the key secondary efficacy endpoint (transfusion independence for 6 consecutive months while maintaining a weighted average hemoglobin of at least 9 g/dL). The applicant noted that two patients had serious adverse events related to Casgevy^TM. Due to the small study population and the median age of participants in the study, we question if these study outcomes would be generalizable to a Medicare population. In addition, from the evidence submitted, we were also unable to determine where the study took place (that is, within the U.S. or in locations outside the U.S), which may also limit generalizability to the Medicare population. We also question if the short follow-up duration is sufficient to assess improvements in long-term clinical outcomes.

Furthermore, with regard to the claim that Casgevy^TM is expected to avoid certain serious risks or side effects associated with approved viral-based gene therapies for TDT, the applicant stated that Zynteglo^TM utilizes gene transfer to use a modified, inert lentivirus to add working exogenous copies of the β-globin gene to increase functional hemoglobin A; due to this mechanism of action and the semi-random nature of viral integration, the applicant stated that treatment with Zynteglo^TM carries the risk of lentiviral vector (LVV)-mediated insertional oncogenesis after treatment. The applicant explained that Casgevy^TM is an autologous ex-vivo modified hematopoietic stem-cell biological product which uses a non-viral mechanism of action (CRISPR/Cas9 gene editing), and therefore, this technology does not carry a risk for insertional oncogenesis. The applicant also noted that gene editing approaches, including CRISPR/Cas9, have the potential to produce off-target edits, but in trials to date, off-target gene editing has not been observed in the edited CD34+ cells from healthy donors or patients. We note that we are unclear regarding the frequency and related clinical relevance of LVV-mediated oncogenesis. We also question if the follow-up duration for patients treated with Casgevy^TM is sufficient to assess improvement in the rate of malignancy. We would be interested in more information on the overall safety profile comparison between Casgevy^TM and Zynteglo^TM , as well as any comparisons of Casgevy^TM to another potentially curative treatment, allogeneic hematopoietic stem cell transplant for patients with TDT.

We are inviting public comments on whether Casgevy^TM meets the substantial clinical improvement criterion.

We did not receive any written comments in response to the New Technology Town Hall meeting notice published in the Federal Register regarding the substantial clinical improvement criterion for Casgevy^TM .

c. DuraGraft® (Vascular Conduit Solution)

Marizyme, Inc. submitted an application for new technology add-on payments for DuraGraft® for FY 2025. According to the applicant, DuraGraft® is an intraoperative vein-graft preservation solution used during the harvesting and grafting interval during coronary artery bypass graft surgery (CABG). The applicant stated that the use of DuraGraft® does not change clinical/surgical practice; it replaces solutions currently used for flushing and storage of the saphenous vein grafts (SVG) from harvesting through grafting, including tests for graft leakage. As noted in the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26795), Somahlution, Inc., acquired by Marizyme in 2020, submitted and withdrew applications for new technology add-on payments for DuraGraft® for FY 2018 and FY 2019. The applicant also submitted an application for new technology add-on payments for FY 2020, as summarized in the FY 2020 IPPS/LTCH PPS proposed rule (84 FR 19305 through 19312), that it withdrew prior to the issuance of the FY 2020 IPPS/LTCH PPS final rule (84 FR 42180). We note that the applicant also submitted an application for new technology add-on payments for FY 2024, as summarized in the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26795 through 26803), that it withdrew prior to the issuance of the FY 2024 IPPS/LTCH PPS final rule (88 FR 58804).

Please refer to the online application posting for DuraGraft®, available at https://mearis.cms.gov/public/publications/ntap/NTP231012EE9NW, for additional detail describing the technology and intraoperative ischemic injury.

With respect to the newness criterion, according to the applicant, DuraGraft® was granted De Novo classification from FDA on October 4, 2023, for adult patients undergoing Coronary Artery Bypass Grafting surgeries and is intended for flushing and storage of SVGs from harvesting through grafting for up to 4 hours. Per the applicant, DuraGraft® is not yet commercially available due to a delay related to finalizing the label prior to manufacturing.

The applicant stated that effective October 1, 2017, the following ICD-10-PCS code may be used to uniquely describe procedures involving the use of DuraGraft®: XY0VX83 (Extracorporeal introduction of endothelial damage inhibitor to vein graft, new technology group 3). Please refer to the online application posting for the complete list of ICD-10-CM and PCS codes provided by the applicant.

As previously discussed, if a technology meets all three of the substantial similarity criteria under the newness criterion, it would be considered substantially similar to an existing technology and would not be considered “new” for the purpose of new technology add-on payments.

With respect to the substantial similarity criteria, the applicant asserted that DuraGraft® is not substantially similar to other currently available technologies because DuraGraft® is a first-in-class product as a storage and flushing solution for vascular grafts used during CABG surgery and the components of DuraGraft® directly interfere with the mechanisms of oxidative damage, and that therefore, the technology meets the newness criterion. The following table summarizes the applicant's assertions regarding the substantial similarity criteria. Please see the online application posting for DuraGraft® for the applicant's complete statements in support of its assertion that DuraGraft® is not substantially similar to other currently available technologies.

In the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26796), we expressed concern that the mechanism of action of DuraGraft® may be the same or similar to other vein graft storage solutions. Similarly, we note that according to the applicant, DuraGraft® prevents intraoperative ischemic injury to the endothelial layer of free vascular grafts, reducing the risks for post-CABG vein graft disease and graft failure, which are clinical manifestations of graft ischemia reperfusion injury (IRI), and we question whether DuraGraft® might have a similar mechanism of action as existing treatments for preventing ischemic injury of vein grafts during CABG surgery and reducing vein graft disease or its complications following CABG surgery. We are inviting public comments on whether DuraGraft® is substantially similar to existing technologies and whether DuraGraft® meets the newness criterion.

With respect to the cost criterion, to identify potential cases representing patients who may be eligible for DuraGraft®, the applicant searched the FY 2022 MedPAR file for cases reporting a combination of ICD-10-CM/PCS codes that represent patients who underwent CABG procedures. Please see the online posting for DuraGraft® for a complete list of MS-DRGs and ICD-10-CM and PCS codes provided by the applicant. Using the inclusion/exclusion criteria described in the following table, the applicant identified 33,511 cases mapping to 59 MS-DRGs, including MS-DRG 236 (Coronary Bypass Without Cardiac Catheterization Without MCC) representing 21.9 percent of the identified cases. The applicant followed the order of operations described in the following table and calculated a final inflated average case-weighted standardized charge per case of $321,620, which exceeded the average case-weighted threshold amount of $235,829. Because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount, the applicant asserted that DuraGraft® meets the cost criterion.

We note the following concerns regarding the cost criterion. Although the applicant did not remove direct or indirect charges related to the prior technology, we note that the applicant indicated that the use of DuraGraft® replaces solutions currently used for flushing and storage of the SVGs harvested through grafting, including tests for graft leakage, in its discussion of the newness criterion. Therefore, we question whether the cost criterion analysis should remove charges for related or prior technologies, such as autologous heparinized blood (AHB), Plasmalyte/Normosol, Lactated Ringers, and heparinized saline (HS).

We are inviting public comments on whether DuraGraft® meets the cost criterion.

With regard to the substantial clinical improvement criterion, the applicant asserted that DuraGraft® represents a substantial clinical improvement over existing technologies because there is no other product or technology that reduces the incidence of peri-operative myocardial infarction. The applicant provided four studies to support this assertion, as well as 47 background articles about reducing major adverse cardiac events (MACE). The following table summarizes the applicant's assertions regarding the substantial clinical improvement criterion. Please see the online posting for DuraGraft® for the applicant's complete statements regarding the substantial clinical improvement criterion and the supporting evidence provided.

After review of the information provided by the applicant, we have the following concerns regarding whether DuraGraft® meets the substantial clinical improvement criterion. As discussed in the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26800 through 26801), we expressed concern regarding the relatively small sample sizes of the Szalkiewicz et al. (2022) and Perrault et al. (2021) studies, as compared to the number of potentially eligible patients for this technology, and relatively short follow-up periods. We continue to question whether the sample was representative of the number of Medicare beneficiaries potentially eligible for DuraGraft®. We refer readers to the FY 2024 IPPS/LTCH PPS proposed rule for further discussion of these concerns. For its FY 2025 application, the applicant also cited Lopez-Menendez et al. (2021), which we note used a sample size of 180, and therefore we similarly question whether the results of this study would be replicated with a larger patient sample.

In the FY 2024 IPPS/LTCH proposed rule (88 FR 26800 through 26801), we also questioned whether the results from the Haime et al. (2018) study could be generalized to other patient groups, including nonveterans, women, or those from other racial or ethnic groups. We continue to question whether the demographic profiles in the Perrault, Szalkiewicz, and Haime studies that the applicant submitted were comparable with those of the U.S. Medicare patients who underwent CABG surgery. For its FY 2025 application, the applicant also cited the Lopez-Menendez et al. (2021) study, which was based on a European patient population that was predominantly male (82 percent to 90 percent). However, as we noted in the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26800 through 26801), among the Medicare fee-for-service beneficiaries who underwent CABG surgery, male patients accounted for two-thirds (66 percent) of this population. Therefore, we continue to question whether the findings of these studies would be replicable among the Medicare population.

We are inviting public comments on whether DuraGraft® meets the substantial clinical improvement criterion.

In this section, we summarize and respond to written public comments received in response to the New Technology Town Hall meeting notice published in the Federal Register regarding the substantial clinical improvement criterion for DuraGraft®.

Comment: The applicant submitted a public comment in response to our question as to why two propensity match models were used in the propensity match comparison of the EU DuraGraft® Registry to the STS Registry that it presented during the New Technology Town Hall meeting. The applicant explained that the goal of propensity matching was to balance patient and technical factors predictive of mortality throughout the observation period and to correct for differences that may be encountered in the U.S. and Europe. The applicant stated that a primary propensity score model (PSM) with 35 variables (2,400 patients matched), and a secondary PSM with 25 variables (2,522 patients matched, sensitivity analysis) were used. The applicant noted that the propensity variables were chosen with a goal of comparing variables descriptive of (1) U.S. and Western European populations, (2) the general practice of cardiac surgery, and (3) standards of care for surgical technique. The applicant noted that an important set of variables that needed to be balanced were the components of the EuroScore II (ESII). ESII is comprised of 18 patient variables and, per the applicant, is considered to be the best predictor of peri-operative and early mortality. ESII variables relevant for shorter term mortality were supplemented with appropriate predictors for longer term mortality.

The applicant noted that the set of variables for the primary PSM included 35 characteristics that are most strongly associated with mortality across the time periods (including 1-year post-CABG) and were consistently observed to have the highest degree of impact in the studies. The applicant stated that these variables include demographics, cardiac and pre-op surgical risk factors, coronary anatomy, and surgical/procedural key characteristics (for example, grafting strategy and conduit selection) to serve as the primary analysis. The applicant indicated that all characteristics in the ESII are included in the risk factors, with the exception of endocarditis, surgery on the thoracic aorta, weight of the intervention, and poor mobility, as they are not relevant to the subset of patients being propensity matched, or in the case of poor mobility, not collected in both databases. The applicant stressed that this list was reviewed and edited with FDA during the pre-submission process. To further allow for the selection of a cohort matched for standard of care and surgical technique between the European and U.S. populations, additional relevant variables were added including pre-op cardiac risk, coronary anatomy, and surgical technique.

The applicant further noted that the set of variables for the secondary PSM included 25 of the 35 variables from the primary PSM, excluding characteristics of pre-op cardiac risk factors, coronary anatomy, and aspects of surgical technique. The applicant asserted that the secondary PSM serves as a sensitivity analysis to estimate whether the standard of care for the treatment of patients with advanced coronary artery disease and surgical techniques differ for patients in the two cohorts which are otherwise balanced for surgical risk factors, and whether these differences could affect mortality outcomes.

Response: We thank the applicant for its comments. We also note that the applicant has provided the baseline demographic characteristics and surgical risk factors of the two cohorts before and after propensity score matching, which appears to demonstrate that the two cohorts were more similar in those characteristics and factors as a result of propensity score matching. We will take this information into consideration when deciding whether to approve new technology add-on payments for DuraGraft®.

d. ELREXFIO^TM (elranatamab-bcmm)

Pfizer, Inc. submitted an application for new technology add-on payments for ELREXFIO^TM for FY 2025. According to the applicant, ELREXFIO^TM is a B-cell maturation antigen (BCMA) directed cluster of differentiation (CD)3 T-cell engager indicated for the treatment of adult patients with relapsed or refractory multiple myeloma (RRMM) who have received at least four prior lines of therapy, including a proteasome inhibitor (PI), an immunomodulatory agent (IMiD), and an anti-CD38 monoclonal antibody (mAb). Per the applicant, ELREXFIO^TM is a bispecific, humanized immunoglobulin 2-alanine (IgG2Δa) kappa antibody derived from two mAbs, administered as a fixed-dose, subcutaneous treatment. We note that the applicant submitted an application for new technology add-on payments for ELREXFIO^TM for FY 2024 under the name elranatamab, as summarized in the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26803 through 26809), but the technology did not meet the July 1, 2023 deadline for FDA approval or clearance of the technology and, therefore, was not eligible for consideration for new technology add-on payments for FY 2024 (88 FR 58804).

Please refer to the online application posting for ELREXFIO^TM available at https://mearis.cms.gov/public/publications/ntap/NTP2310176PV9B, for additional detail describing the technology and the disease treated by the technology.

With respect to the newness criterion, according to the applicant, ELREXFIO^TM was granted Biologics License Application (BLA) approval from FDA on August 14, 2023, for the treatment of adult patients with RRMM who have received at least four prior lines of therapy, including a PI, an IMiD, and an anti-CD38 mAb. According to the applicant, ELREXFIO^TM was commercially available immediately after FDA approval. Per the applicant, the recommended doses of ELREXFIO^TM subcutaneous injection are step-up doses of 12 mg on day 1 and 32 mg on day 4, followed by a first treatment dose of 76 mg on day 8 and subsequent treatment doses as indicated in the label. The applicant noted that treatment doses may be administered in an inpatient or outpatient setting. Per the applicant, patients should be hospitalized for 48 hours after administration of the first step-up dose, and for 24 hours after administration of the second step-up dose. The applicant assumed that there would be a single inpatient stay, with one 44 mg vial used per dose, resulting in two doses (each a step-up dose) being administered.

The applicant stated that effective October 1, 2023, the following ICD-10-PCS code may be used to uniquely describe procedures involving the use of ELREXFIO^TM: XW013L9 (Introduction of elranatamab antineoplastic into subcutaneous tissue, percutaneous approach, new technology group 9). The applicant stated that C90.00 (Multiple myeloma not having achieved remission), C90.01 (Multiple myeloma in remission), C90.02 (Multiple myeloma in relapse), and Z51.12 (Encounter for antineoplastic immunotherapy) may be used to currently identify the indication for ELREXFIO^TM under the ICD-10-CM coding system.

As previously discussed, if a technology meets all three of the substantial similarity criteria under the newness criterion, it would be considered substantially similar to an existing technology and would not be considered “new” for the purpose of new technology add-on payments.

With respect to the substantial similarity criteria, the applicant asserted that ELREXFIO^TM is not substantially similar to other currently available technologies because it is the only therapy approved for the treatment of patients with RRMM who have received 4 prior lines of therapy including a PI, IMiD, and mAb that uses a humanized IgG2a antibody for the mechanism of action. Per the applicant, it is also the only BCMA-directed bispecific antibody (bsAb) therapy with clinical study data in its prescribing information supporting use in patients who have received prior BCMA-directed therapy, and that therefore, the technology meets the newness criterion. The following table summarizes the applicant's assertions regarding the substantial similarity criteria. Please see the online application posting for ELREXFIO^TM for the applicant's complete statements in support of its assertion that ELREXFIO^TM is not substantially similar to other currently available technologies.

With regard to the newness criterion, similar to our discussion in the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26804), we note that ELREXFIO^TM may have a similar mechanism of action to that of TECVAYLI®, for which we approved an application for new technology add-on payments for FY 2024 (88 FR 58891) for the treatment of adult patients with RRMM after four or more prior lines of therapy, including a PI, an IMiD, and an anti-CD38 mAb. As we previously noted, TECVAYLI®'s mechanism of action is described as a bsAb, with binding domains that simultaneously bind the BCMA target on tumor cells and the CD3 T-cell receptor (88 FR 58886). The applicant asserts that ELREXFIO^TM has a unique CDR (the region of antibody that recognizes and binds to target epitopes) that is critical to the mechanism of action because it results in different targeted regions, impacting how the drug works to target the cancer cells. However, it is unclear how these differences result in a substantially different mechanism of action from TECVAYLI®. Because of the apparent similarity with the bsAb for ELREXFIO^TM that uses binding domains that simultaneously bind the BCMA target on tumor cells and the CD3 T-cell receptor, we believe that the mechanism of action for ELREXFIO^TM may be the same or similar to that of TECVAYLI®. The applicant also asserts that ELREXFIO^TM is different from TECVAYLI® because the two are based on different immunoglobulin isotypes, and with the lower effector function of IgG2, ELREXFIO^TM should only activate T-cells in the presence of BCMA and thus should only stimulate an immune response in the tumor. Based on our understanding, however, that this may relate to the risk of adverse event from ELREXFIO^TM administration but is not critical to the way the drug treats the underlying disease, we question whether this would therefore relate to an assessment of substantial clinical improvement, rather than of substantial similarity.

We also note that ELREXFIO^TM and TECVAYLI® may treat the same or similar disease (RRMM) in the same or similar patient population (patients who have previously received a PI, IMiD, and an anti-CD38 mAb). The applicant claims ELREXFIO^TM is different from TECVAYLI® because the prescribing information includes a new subpopulation, the patient population that had received prior BCMA-directed therapy. However, we believe the lack of inclusion of this population in the prescribing information for TECVAYLI® does not necessarily exclude the use of TECVAYLI® in this patient population, nor does the FDA prescribing information for TECVAYLI® specifically exclude this patient population. As such, it is unclear whether ELREXFIO^TM would in fact treat a patient population different from TECVAYLI®. Accordingly, as it appears that ELREXFIO^TM and TECVAYLI® may use the same or similar mechanism of action to achieve a therapeutic outcome, would be assigned to the same MS-DRG, and treat the same or similar patient population and disease, we believe that these technologies may be substantially similar to each other. We note that if we determine that this technology is substantially similar to TECVAYLI®, we believe the newness period for this technology would begin on November 9, 2022, the date TECVAYLI® became commercially available.

Furthermore, we believe another applicant for FY 2025 new technology add-on payments, TALVEY^TM, may also be substantially similar to ELREXFIO^TM . Per the application for TALVEY^TM, TALVEY^TM is a bispecific antibody approved for the treatment of adults with RRMM who have received at least four prior lines of therapy, including a PI, IMiD, and an anti-CD38 monoclonal antibody. The applicant for TALVEY^TM states TALVEY^TM recruits CD3-expressing T cells to myeloma cells that express GPRC5D, resulting in activation of the T cell receptor pathway and lysis of GPRC5D-expressing MM cells. Per the applicant for TALVEY^TM, TALVEY^TM was available for sale immediately after its approval on August 9, 2023. We believe TALVEY^TM may be substantially similar to ELREXFIO^TM because it is also a bispecific antibody that treats RRMM in patients who have previously received a PI, IMiD, and an anti-CD38 mAb. Additionally, we note that similar to ELREXFIO^TM, the prescribing information for TALVEY^TM includes the population with prior exposure to BCMA T-cell redirection therapy. Accordingly, as it appears that ELREXFIO^TM and TALVEY^TM would use the same or similar mechanism of action to achieve a therapeutic outcome, would be assigned to the same MS-DRG, and would treat the same or similar disease in the same or similar patient population, we believe that these technologies may also be substantially similar to each other such that they should be considered as a single application for purposes of new technology add-on payments. We note that if ELREXFIO^TM is determined to only be substantially similar to TALVEY^TM, and not TECVAYLI®, we believe the newness period for ELREXFIO^TM would begin on August 9, 2023, the date TALVEY^TM received FDA approval.

We are interested in receiving information on how these technologies may differ from each other with respect to the substantial similarity and newness criteria, to inform our analysis of whether ELREXFIO^TM is substantially similar to TALVEY^TM and/or TECVAYLI®.

We are inviting public comments on whether ELREXFIO^TM is substantially similar to existing technologies and whether ELREXFIO^TM meets the newness criterion.

With respect to the cost criterion, to identify potential cases representing patients who may be eligible for ELREXFIO^TM, the applicant searched the FY 2022 MedPAR for cases reporting one of the following ICD-10-CM codes in any position: C90.00 (Multiple myeloma not having achieved remission), C90.01 (Multiple myeloma in remission), or C90.02 (Multiple myeloma in relapse). Using the inclusion/exclusion criteria described in the following table, the applicant identified 4,689 claims mapping to five MS-DRGs: MS-DRGs 840, 841, and 842 (Lymphoma and Non-Acute Leukemia with MCC, with CC, and without CC/MCC, respectively), and MS-DRGs 846 and 847 (Chemotherapy without Acute Leukemia as Secondary Diagnosis with MCC and with CC, respectively). The applicant followed the order of operations described in the following table and calculated a final inflated average case-weighted standardized charge per case of $170,699, which exceeded the average case-weighted threshold amount of $77,190. Because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount, the applicant asserted that ELREXFIO^TM meets the cost criterion.

We are inviting public comments on whether ELREXFIO^TM meets the cost criterion.

With regards to the substantial clinical improvement criterion, the applicant asserted that ELREXFIO^TM represents a substantial clinical improvement over existing technologies because it is a new treatment option for late-line RRMM patients who are refractory to or otherwise ineligible for existing therapy. Per the applicant, it significantly improves outcomes compared to existing therapy (Cohort A objective response rate (ORR) of 57.7 percent with a complete response (CR) or better achieved in 25.8 percent and very good partial response (VGPR) in 25.8 percent; Cohort B ORR of 33.3 percent with duration of response (DOR) of 84.3 percent at 9 months), has a manageable safety profile, and shorter hospitalization than TECVAYLI® and TALVEY^TM . The applicant provided nine studies assessing ELREXFIO^TM to support these claims, as well as 12 background articles about RRMM and comparator technologies. The following table summarizes the applicant's assertions regarding the substantial clinical improvement criterion. Please see the online posting for ELREXFIO^TM for the applicant's complete statements regarding the substantial clinical improvement criterion and the supporting evidence provided.

After review of the information provided by the applicant, we have the following concerns regarding whether ELREXFIO^TM meets the substantial clinical improvement criterion.

With respect to the claim ELREXFIO^TM is a new treatment option for late-line patients with RRMM who are refractory to existing therapies or otherwise ineligible for or unable to access them, the applicant states the nature of the disease is such that patients typically become refractory to the available treatment options or patients may be unable to access some therapies for other reasons. The applicant further notes patients need new therapies with new mechanisms of action that can provide better efficacy, extend the duration of response, and be available to a larger subset of the late-line RRMM population, particularly patients with prior BCMA-directed therapy exposure. The applicant states that ELREXFIO^TM addresses these limitations since it does not require patient-specific manufacturing and is the only BCMA-directed bispecific antibody therapy that has clinical study data on outcomes for patients exposed to prior BCMA-directed therapy in its prescribing information. We note the evidence presented does not identify a specific population that would benefit from ELREXFIO^TM that would not be eligible for or benefit from other therapies for late-line RRMM, including TECVAYLI®, TALVEY^TM, CARVYKTI®, and ABECMA®. With regard to the population with prior BCMA-directed therapy exposure, as noted previously, the prescribing information for TALVEY^TM also includes efficacy data in this population and the lack of inclusion of this population in the prescribing information for TECVAYLI® does not exclude the use of this drug for these patients.

With respect to the claim that ELREXFIO^TM is the only BCMA-directed bispecific antibody with clinical study data in the prescribing information to support use in patients who have been treated with prior BCMA-directed therapy, the applicant states that although clinical studies evaluating TECVAYLI® included prior BCMA-exposed RRMM patients, in Section 14 of the prescribing information, the FDA-approved labeling does not acknowledge outcomes or safety data for prior BCMA-exposed patients. Furthermore, the applicant contends this lack of inclusion suggests that prior-BCMA exposed patients continue to have a high unmet need despite the availability of TECVAYLI®, and that the inclusion of this clinical study data in ELREXFIO^TM 's prescribing information suggests that ELREXFIO^TM is able to fill this unmet need. However, as noted previously, the lack of inclusion of similar study data in TECVAYLI®'s prescribing information does not exclude the use of this drug in these patients. Additionally, TALVEY^TM is a bsAb that was also studied in this patient population and has an indication for patients with prior BCMA-directed therapy.

With respect to the claim that CAR T-cell therapies are largely unavailable to Medicare beneficiaries with late-line RRMM, the applicant states CAR T-cells take a significant amount of time to manufacture, and given the rapid nature of RRMM, some patients may die or become ineligible for treatment by the time the CAR T-cells are available for infusion. However, we note that TECVAYLI® and TALVEY^TM have also received FDA approval and would therefore be options for patients who are unable to access or receive CAR T-cell therapy.

The applicant states that MM is an incurable malignancy and that patients' ability to respond to therapy diminishes over time, leading to a reduced duration of response and eventually exhausting available therapy options to manage the disease. The applicant asserts that patients typically undergo several lines of therapy before exhausting therapy options and succumbing to the disease. The applicant references the low objective response rates (ORRs) of selinexor and conventional chemotherapy in RRMM patients. We note there are several treatments available to patients with RRMM who have received at least four prior lines of therapy including a PI, an IMiD, and an anti-CD38 mAb, such as TECVAYLI®, TALVEY^TM, ABECMA®, and CARVYKTI®. It is not clear from the evidence provided that there is a patient population eligible for and responsive to ELREXFIO^TM that is neither eligible for nor responsive to any of these other available therapies.

The applicant further claims that ELREXFIO^TM 's generally manageable safety profile without dysgeusia and other toxicities that severely impact quality of life, in conjunction with the improved efficacy in late-line RRMM, makes it a substantial clinical improvement treatment over existing therapies. Additionally, the applicant asserts that dysgeusia and nail-related and skin-related toxicities that reduce quality of life with TALVEY^TM are not reported with ELREXFIO^TM . However, the safety profile of ELREXFIO^TM was not compared to ABECMA®, CARVYKTI®, or TECVAYLI®. We also note we did not receive evidence related to improved efficacy that compares ELREXFIO^TM with ABECMA®, CARVYKTI®, TALVEY^TM, or TECVAYLI®, and we question if ELREXFIO^TM improves efficacy relative to these other therapies.

With respect to the claim that ELREXFIO^TM significantly improves outcomes compared to existing therapies approved for late-line RRMM, including prior BCMA-exposed patients, the applicant provides study results from MagnetisMM-3, an open-label, phase 2 study where after receiving two step-up priming doses, patients received subcutaneous ELREXFIO^TM once weekly in 28-day cycles, which after six cycles, was followed by once every 2 weeks for persistent responders. The applicant stated the ORR for ELREXFIO^TM was 61 percent and the percentage of patients that had at least a complete response was 37.4 percent after a median follow-up of 17.6 months in patients with RRMM and no prior exposure to BCMA-directed therapy. The applicant acknowledges the lack of head-to-head studies and submits indirect comparison analyses comparing ELREXFIO^TM to belantamab, selinexor-dexamethasone, real-world physician's choice of treatment, real-world external control arms, and TECVAYLI® in patients with triple-class refractory multiple myeloma. The referenced indirect comparisons by Hlavacek et al. (2023) and Costa et al. (2023) showed the ORR for ELREXFIO^TM was significantly higher compared to belantamab, selinexor-dexamethasone, real-world physician's choice of treatment based on local clinical practice, and real-world external control arms. We note, however, that no similar comparative analyses were provided by the applicant to compare ELREXFIO^TM to TALVEY^TM ABECMA®, or CARVYKTI® . In the absence of direct comparative trials between ELREXFIO^TM and TECVAYLI®, the applicant submitted the results of an unanchored matching-adjusted indirect comparison (MAIC) between the MagnetisMM-3 study, previously described, and the MajesTEC-1 study, assessing the relative efficacy of the two therapies in patients with relapsed or refractory MM naïve to prior BCMA-directed therapy (Isha Mol et al., 2023). MajesTEC-1 was an open-label, phase 1-2 study where patients with RRMM and no prior exposure to BCMA-targeted therapy received a weekly subcutaneous injection of TECVAYLI® after two step-up doses. As stated by the applicant, the results of the MAIC demonstrate ELREXFIO^TM significantly improved ORR and PFS versus TECVAYLI®. We note, however, that the mechanism used in the MAIC to reweight MagnetisMM-3 patients to match the baseline characteristics of patients from MajesTEC-1 is unclear, as is the sensitivity analysis in which missing values of the adjusted baseline characteristics for ELREXFIO^TM patients were imputed by a random sample of the observations in MagnetisMM-3 to potentially increase the effective sample size. In addition, while the ORR and PFS in the two analyses (base case adjusted and sensitivity analysis) were significantly improved with ELREXFIO^TM over TECVAYLI®, we note that the confidence intervals were wide, reducing the certainty in these conclusions. The ORR odds ratio 95 percent confidence interval was 1.01 to 3.19 for the base case adjusted analysis and 1.04 to 3.14 for the sensitivity analysis. Furthermore, other outcomes measured, such as the duration of response and overall survival, did not demonstrate significant improvement with ELREXFIO^TM . Additionally, we note that with regard to the claim that ELREXFIO^TM significantly improves outcomes specifically in RRMM patients who have had prior BMCA-directed therapy, the applicant references the ELREXFIO^TM prescribing information and additional MagnetisMM-3 Cohort B data showing an ORR of 33.3 percent in patients with prior BCMA-directed antibody drug conjugate (ADC) or CAR T-cell therapy. However, we note that TECVAYLI® and TALVEY^TM may also be treatment options for BCMA-exposed patients and we would appreciate information on comparative efficacy between ELREXFIO^TM and these treatment options in the prior BCMA-directed therapy population.

With respect to the claim that ELREXFIO^TM offers fewer hospitalization days during the step-up dosing period than other bispecific antibodies approved for patients with RRMM, thus lowering barriers to patient access, the applicant references the prescribing information for ELREXFIO^TM, TECVAYLI®, and TALVEY^TM to indicate that assuming patients are not sent home between step-up doses, based on the step-up dosing schedules, the patient would be hospitalized for 5 days with ELREXFIO^TM, 9 days with TECVAYLI®, and 9 to 12 days with TALVEY^TM. While the shorter step-up dosing may lead to a shorter hospitalization, the applicant assumes, but does not demonstrate that the shorter step-up dosing period and potentially shorter hospitalization would lower barriers to patient access. Additionally, we note that there are other variables besides duration of inpatient stay for the step-up dosing that may affect availability or access to therapies, such that a shorter step-up dosing duration may not necessarily result in better access to therapy. For instance, social, financial, age-related, prior therapy, and patient and provider dosing preferences may also affect access to therapy. Furthermore, while the shorter step-up dosing schedule should theoretically lead to a shorter hospitalization, we note that the risk and severity of adverse drug events and patient response could vary by drug, and that no clinical data was provided to support this claim.

We are inviting public comments on whether ELREXFIO^TM meets the substantial clinical improvement criterion.

We did not receive any written comments in response to the New Technology Town Hall meeting notice published in the Federal Register regarding the substantial clinical improvement criterion for ELREXFIO^TM.

e. FloPatch FP120

Flosonics Medical (R.A. 1929803 Ontario Corp.) submitted an application for new technology add-on payments for FloPatch FP120 for FY 2025. According to the applicant, FloPatch FP120 is a wireless, wearable, continuous wave (4 MHz) Doppler ultrasound device that adheres over peripheral vessels (that is, carotid & jugular) that assesses blood flow in the peripheral vessels, enabling rapid and repeatable dynamic assessments of both arterial and venous flow simultaneously. According to the applicant, the FloPatch FP120 cardiovascular blood flowmeter adheres to a patient's neck (or any other major vessel) and transmits Doppler-shifted ultrasonic waves from the transducer to the artery and vein at a fixed angle of insonation that are then reflected by moving blood cells back to the transducer. Per the applicant, the signal processing unit wirelessly outputs data to a secure iOS mobile medical application, which displays metrics from the Doppler signal, such as maximal velocity trace and corrected flow time, in a user-friendly interface. Per the applicant, FloPatch FP120 will optimize clinical workflow, is easy-to-use and hands-free, cloud-connected, and can be deployed in under one minute, providing instantaneous results.

Please refer to the online application posting for FloPatch FP120, available at https://mearis.cms.gov/public/publications/ntap/NTP231017D56F4, for additional detail describing the technology and the types of conditions that the technology might help diagnose and/or treat.

With respect to the newness criterion, according to the applicant, FloPatch FP120 received 510(k) clearance from FDA on May 3, 2023 for use for the noninvasive assessment of blood flow in the carotid artery. Per the applicant, in a more recent FDA 510(k) submission, the proposed indication is for use for the noninvasive assessment of blood flow in peripheral vasculature. However, based on the application submitted by the applicant, the new technology add-on payment application for FloPatch FP120 is not eligible for consideration for FY 2025 for the proposed indication (for use for the noninvasive assessment of blood flow in peripheral vasculature) because documentation of FDA acceptance or filing of the marketing authorization request, that indicates that FDA has determined that the application is sufficiently complete to allow for substantive review by FDA, was not provided to CMS at the time of new technology add-on payment application submission. As such, the new technology add-on payment application for FloPatch FP120 is only eligible for consideration for FY 2025 for the narrower indication for use for the noninvasive assessment of blood flow in carotid artery.

We note that prior to the May 3, 2023 clearance, there were two FDA 510(k) clearances for the FloPatch FP120; one obtained in 2022 and one in 2020. The indications in the 2020, 2022, and 2023 clearances are identical, that is, for use for the noninvasive assessment of blood flow in the carotid artery. In addition, the 2020 clearance was based on substantial equivalence to the FloPatch FP110 device, which was an earlier version of FloPatch FP120 and was also FDA-cleared. According to the applicant, FloPatch FP120 was commercially available for this use as of January 1, 2023. However, as noted earlier, the provided FDA 510(k) clearance was dated May 3, 2023. Because the market availability date as indicated by the applicant preceded the 2023 clearance date, and because the 2020 and 2022 clearances had the same indication as the 2023 clearance, we question when the technology first became commercially available for use for the noninvasive assessment of blood flow in the carotid artery and request additional information on the market availability date for this indication. Per the applicant, one FloPatch FP120 device would be used per inpatient stay.

According to the applicant, there are currently no ICD-10-PCS procedure codes to distinctly identify FloPatch FP120. We note that the applicant submitted a request for approval for a unique ICD-10-PCS procedure code for FloPatch FP120 beginning in FY 2025. The applicant provided a list of diagnosis codes that may be used to currently identify the indication for FloPatch FP120 under the ICD-10-CM coding system. Please refer to the online application posting for the complete list of ICD-10-CM codes provided by the applicant.

As previously discussed, if a technology meets all three of the substantial similarity criteria under the newness criterion, it would be considered substantially similar to an existing technology and would not be considered new for the purpose of new technology add-on payments.

With respect to the substantial similarity criteria, the applicant asserted that FloPatch FP120 is not substantially similar to other currently available technologies because FloPatch FP120 offers real-time, non-invasive monitoring of hemodynamic changes of both the arterial and venous blood flow, improving fluid management decisions. Per the applicant, FloPatch FP120 surpasses current methods by providing continuous data, enhancing patient safety, and addressing unmet clinical needs for immediate, precise assessments, and therefore, the technology meets the newness criterion. The following table summarizes the applicant's assertions regarding the substantial similarity criteria. Please see the online application posting for FloPatch FP120, for the applicant's complete statements in support of its assertion that FloPatch FP120 is not substantially similar to other currently available technologies.

We note the following concerns with regard to the newness criterion. With respect to the first substantial similarity criterion, whether FloPatch FP120 uses the same or similar mechanism of action for a therapeutic outcome when compared to existing technologies, we note we did not receive information from the applicant regarding predicate devices for FloPatch FP120 that were previously FDA-cleared in its discussion of existing technologies. As noted, there are three prior FDA 510(k) clearances for the FloPatch FP120, with the same indication for use for the noninvasive assessment of blood flow in the carotid artery. In addition, the 2020 clearance was based on substantial equivalence to the FloPatch FP110 device, which was an earlier version of FloPatch FP120 and was also FDA-cleared. We note that all of the FloPatch FP120 FDA-cleared devices, as well as the FP110 version have an identical method of attachment of the ultrasound probe to the human body, and the same intended use and indications for use. Accordingly, as the technology was already approved for use for this same indication outside of the 2- to 3-year newness period, it appears that it would no longer be considered new for purposes of new technology add-on payments.

In addition, we question whether a different placement method or the addition of a wearable functionality for the noninvasive assessment of blood flow would constitute a different mechanism of action, and also whether these differences may instead be relevant to the assessment of substantial clinical improvement, rather than of newness. For example, while the applicant described FloPatch FP120 as user-friendly, we question whether ease-of-use in itself represents a mechanism of action unique from existing technologies for a therapeutic outcome, as the primary underlying mechanism of action is still Doppler ultrasound technology.

With respect to the second substantial similarity criterion, that is, whether a product is assigned to the same or a different MS-DRG, although the applicant asserts that the device is new and has not undergone sufficient review to be recognized as a treatment within the existing MS-DRGs, we note that the applicant stated that FloPatch FP120 could be relevant to existing MS-DRGs that pertain to septicemia or severe sepsis for the assessment of volume responsiveness. We believe that, based on its indication, cases involving the use FloPatch FP120 would be assigned to the same MS-DRGs as those involving existing technologies used for invasive and non-invasive measurements of blood flow, such as for patients with septicemia or severe sepsis.

With respect to the third substantial similarity criterion, that is, whether the technology involves treatment of the same or similar type of disease or patient population when compared to an existing technology, the applicant maintained that existing technologies do not provide clinicians with the information they need, and while FloPatch LP120 serves a similar purpose as existing technology, its process has been optimized by providing a safer, more accurate, and instantaneous method of assessment. While this may be relevant to the assessment of substantial clinical improvement, it does not appear to be related to newness, and we remain unclear about how the patient population for which FloPatch FP120 is used differs from other patients for which existing non-invasive (for example, Doppler ultrasound devices) and invasive technologies are used for hemodynamic monitoring in a same or similar type of disease (such as septicemia or severe sepsis).

Accordingly, as it appears that the May 3, 2023 FDA 510(k) clearance and prior FDA 510(k) clearances for FloPatch FP120 may use the same or similar mechanism of action to achieve a therapeutic outcome, would be assigned to the same MS-DRG, and treat the same or similar patient population and disease, we believe that these technologies may be substantially similar to each other. We note that if FloPatch FP120 as described in its 2023 FDA 510(k) clearance is substantially similar to prior versions as described in the 2022 and 2020 FDA 510(k) clearances, we believe the newness period for this technology would begin on March 24, 2020 with the earliest FDA 510(k) clearance date for FloPatch FP120 (K200337) and therefore, because the 3-year anniversary date of the technology's entry onto the U.S. market (March 24, 2023) occurred in FY 2023, the technology would no longer be considered new and would not be eligible for new technology add-on payments for FY 2025.

We are inviting public comments on whether FloPatch FP120 is substantially similar to existing technologies and whether FloPatch FP120 meets the newness criterion.

With respect to the cost criterion, to identify potential cases representing patients who may be eligible for FloPatch FP120, the applicant searched the FY 2022 MedPAR for cases with ICD-10-CM diagnosis code category of E877 (Fluid overload, unspecified) and MS-DRG codes for septicemia or severe sepsis. Using the inclusion/exclusion criteria described in the following table, the applicant identified 690,320 cases mapping to septicemia or severe sepsis MS-DRGs. The applicant followed the order of operations described in the following table and calculated a final inflated average case-weighted standardized charge per case of $93,703, which exceeded the average case-weighted threshold amount of $70,142. Because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount, the applicant asserted that FloPatch FP120 meets the cost criterion.

We note the following concern regarding the cost criterion. Per the applicant, FloPatch FP120 is not indicated for use for a particular disease or diagnosis, but rather to assess changes in blood flow in response to a preload challenge and that it monitors hemodynamic change in response to a clinical intervention. We note that the applicant limited their coding determination and cost analysis to cases associated with a diagnosis of septicemia or severe sepsis with the identified MS-DRGs, 870, 871, and 872, as these are the cases for which FloPatch FP120 is best suited. However, the applicant stated that patients who are categorized under MS-DRGs other than 870, 871, and 872 can develop sepsis even though they are not initially admitted under a sepsis-related DRG, such as post-surgical patients or patients admitted for acute conditions like heart failure or chronic illnesses such as diabetes or renal disease. As these patients may also require vigilant monitoring for sepsis and fluid overload in a broader range of clinical scenarios, we are interested in additional information regarding whether such cases using the technology would map to other DRGs, and if those cases should also be included in the cost analysis.

We are inviting public comments on whether FloPatch FP120 meets the cost criterion.

With regard to the substantial clinical improvement criterion, the applicant asserted that FloPatch FP120 overcomes barriers associated with traditional flow-directed therapies, which are often invasive and require specific expertise, by offering a non-invasive, user-friendly alternative. Per the applicant, the FloPatch FP120 makes precision fluid management more accessible, enabling early detection of preload unresponsiveness, thereby minimizing complications from over-resuscitation. The applicant asserted that FloPatch FP120 offers a treatment option for a patient population unresponsive to, or ineligible for, currently available treatments; offers the ability to diagnose a medical condition in a patient population where that medical condition is currently undetectable or offers the ability to diagnose a medical condition earlier in a patient population than allowed by currently available methods; and that use of FloPatch FP120 significantly improves clinical outcomes relative to services or technologies previously available. The applicant provided five studies to support these claims. We also note that seven other articles submitted as supporting evidence should more appropriately be characterized as background articles because they do not directly assess the use of FloPatch FP120. Instead, those seven articles focus on the relationship between fluid responsiveness status during septic shock resuscitation. The following table summarizes the applicant's assertions regarding the substantial clinical improvement criterion. Please see the online posting for FloPatch FP120 for the applicant's complete statements regarding the substantial clinical improvement criterion and the supporting evidence provided.

We note the following concerns regarding whether FloPatch FP120 meets the substantial clinical improvement criterion.

In support of its assertion that FloPatch FP120 offers a treatment option for a patient population unresponsive to, or ineligible for, currently available treatments, the applicant stated that FloPatch FP120 improves patient accessibility to flow-directed therapy. The applicant referred to the Kenny et al. (2021a) study that focused on a novel, hands-free CW Doppler patch developed for easily and continuously monitoring changes in blood flow velocities in the common carotid artery. The study included in vitro experiments conducted using moving string and blood-mimicking flow phantoms; a small usability study with 22 participants, and an in vivo proof-of-concept study with one healthy volunteer and one congestive heart failure patient. While the study found that the CW Doppler patch demonstrated accuracy in identifying changes in target velocity in string and flow phantom experiments, that it was easy to use, and that the Doppler patch could continuously record and track instantaneous changes in carotid velocity time integral (VTI) during a passive leg raise, we question if the evidence demonstrates that the FloPatch FP120 substantially improves patient accessibility to flow directed therapy relative to existing technologies. We would be interested in evidence comparing the use of FloPatch FP120 and existing technologies to demonstrate improvements in patient accessibility. In addition, we note that the study had small sample sizes, which may raise concerns about the reliability of the findings.

To support its claim that FloPatch FP120 improves patient accessibility to flow-directed therapy, the applicant also included findings from the Kenny et al. (2023a) study about the time cost of physiologically ineffective intravenous fluid in the emergency department (ED). Per the applicant, this study sought to quantify the burden of fluid unresponsiveness early in ED care and calculate the time spent providing physiologically ineffective IV fluid using FloPatch FP120. It was a prospective study design, using a convenience sample of 51 adult patients presenting to a single community ED requiring IV fluid expansion for any indication, and identified 86 preload challenges, and 19,667 carotid Doppler beats. The study authors concluded that a clinically significant fraction of fluid unresponsive or refractory patients was observed early in their ED care, and a considerable amount of time was spent providing physiologically ineffective IV fluid, and that these findings may indicate an area in ED care where using wearable Doppler ultrasound technology, like FloPatch FP120, would improve clinical efficiency. We question whether these findings can be replicated in studies with a larger sample. We also question if a study using a patient sample representative of those potentially appropriate for FloPatch FP120 would yield similar results as one using a convenience sample. In addition, we are interested in whether a multi-center trial would generate the same result as a single-site study, where site-specific attributes could potentially confound study results, reducing the reliability of the findings.

The applicant also asserted that FloPatch FP120 is able to diagnose sepsis in a population where sepsis is currently undetectable, or to diagnose it earlier than currently available technologies. The applicant claimed that diagnosing preload unresponsiveness early in care is important because doing so reduces complications. However, although the applicant provided studies demonstrating that FloPatch FP120 can diagnose sepsis, these studies do not appear to demonstrate that the use of the technology to make a diagnosis affected the management of the patients, as required under § 412.87(b)(1)(ii)(B). For example, in the Kenny et al. (2023a) study on time cost of physiologically ineffective intravenous fluids in the ED, as discussed earlier, there was no evidence linking the use of FloPatch FP120 to changes in the management of patients such as initiating or discontinuing IV fluid expansion.

To further support its claim that diagnosing preload unresponsiveness early in care is important because doing so reduces complications, the applicant also used the Kenny et al. (2021c) study about correlation between carotid Doppler ultrasonography and stroke volume. The study found that compared with existing handheld Doppler devices, FloPatch FP120 was able to capture and analyze a large number of cardiac cycles, account for inherent SV variation over many cardiorespiratory cycles, and eliminate the effects of human errors. The applicant hypothesized that when measured over many cardiac cycles, monitoring SV change using FloPatch FP120 might support diagnosis and management of evolving hypovolemia. While this study and those discussed earlier demonstrated that FloPatch FP120 provided noninvasive assessment of blood flow to determine SV changes, similar to our previous concern, we remain interested in evidence showing how use of the technology to make a diagnosis affects the management of patients, such as the use of FloPatch FP120 to initiate or discontinue IV fluid expansion in response to the observed SV changes.

The applicant also referred to the findings of the Kenny et al. (2023b) study on simultaneous venous-arterial Doppler during preload augmentation to support its claim that diagnosing preload unresponsiveness early in care is important because it reduces complications. In that study, the researchers concluded that FloPatch FP120 (referenced as the wearable Doppler biosensor) can help identify patients with dynamic fluid intolerance, potentially guiding IV fluid management and preventing downstream complications and costs. We are concerned that the small clinical sample size and presence of potential confounders could call into question the reliability and validity of the findings. In addition, we note that this study does not appear to demonstrate that use of FloPatch FP120 to assess preload responsiveness affected the management of the patients, as the study states that the treating clinician was blinded to the results of the wearable ultrasound and that the choice for preload augmentation was at the discretion of the treating clinician.

To support the assertion that FloPatch FP120 significantly improves clinical outcomes relative to services or technologies previously available, the applicant claimed that current services for sepsis patients are providing IV fluids without flow guidance, and referred to three Kenny studies (2021a, 2023a, and 2023b), discussed earlier. As discussed, we are interested in additional evidence that assesses the impact of FloPatch FP120 compared to existing technologies that can be used to provide flow guidance on clinical outcomes.

We are inviting public comments on whether FloPatch FP120 meets the substantial clinical improvement criterion.

We did not receive any written comments in response to the New Technology Town Hall meeting notice published in the Federal Register regarding the substantial clinical improvement criterion for FloPatch FP120.

f. HEPZATO^TM KIT (Melphalan for Injection/Hepatic Delivery System)

Delcath System submitted an application for new technology add-on payments for HEPZATO^TM KIT for FY 2025. According to the applicant, HEPZATO^TM KIT is a drug/device combination product consisting of melphalan and the Hepatic Delivery System (HDS), indicated as a liver-directed treatment for adult patients with uveal melanoma with unresectable hepatic metastases. Per the applicant, the HDS is used to perform percutaneous hepatic perfusion (PHP), an intensive local hepatic chemotherapy procedure, in which the alkylating agent melphalan hydrochloride is delivered intra-arterially to the liver with simultaneous extracorporeal filtration of hepatic venous blood return (hemofiltration).

Please refer to the online application posting for HEPZATO^TM KIT, available at https://mearis.cms.gov/public/publications/ntap/NTP2310160RLLX, for additional detail describing the technology and the disease treated by the technology.

With respect to the newness criterion, according to the applicant, HEPZATO^TM KIT was granted approval as a New Drug Application (NDA) from FDA on August 14, 2023, for use as a liver-directed treatment for adult patients with uveal melanoma with unresectable hepatic metastases affecting less than 50 percent of the liver and no extrahepatic disease or extrahepatic disease limited to the bone, lymph nodes, subcutaneous tissues, or lung that is amenable to resection or radiation. According to the applicant, the technology became available for sale on January 8, 2024, because manufacturing did not commence until after FDA approval was granted. Melphalan hydrochloride, a component of the HEPZATO^TM KIT, is administered by intra-arterial infusion into the hepatic artery at a dose of 3 mg/kg of body weight with a maximum dose of 220 mg during a single HEPZATO treatment. The drug is infused over 30 minutes, followed by a 30-minute washout period. According to the applicant, treatments should be administered every 6 to 8 weeks, but can be delayed until recovery from toxicities, and as per clinical judgement.

The applicant stated that, effective October 1, 2023, the following ICD-10-PCS code may be used to uniquely describe procedures involving the use of HEPZATO^TM KIT: XW053T9 (Introduction of melphalan hydrochloride antineoplastic into peripheral artery, percutaneous approach, new technology group 9). The applicant provided a list of diagnosis codes that may be used to currently identify the indication for HEPZATO^TM KIT under the ICD-10-CM coding system. Please refer to the online application posting for the complete list of ICD-10-CM and ICD-10-PCS codes provided by the applicant.

As previously discussed, if a technology meets all three of the substantial similarity criteria under the newness criterion, it would be considered substantially similar to an existing technology and would not be considered “new” for the purpose of new technology add-on payments.

With respect to the substantial similarity criteria, the applicant asserted that HEPZATO^TM KIT is not substantially similar to other currently available technologies because it offers the first liver-directed treatment option to patients with liver-dominant metastatic ocular melanoma (mOM) who may be poor candidates for liver resection and/or who may have difficulty tolerating systemic chemotherapy. According to the applicant, HEPZATO^TM KIT uses a unique PHP procedure to isolate liver circulation and deliver a high concentration of melphalan to liver tumors via infusion followed by filtration of the hepatic venous flow to remove melphalan out of the blood with extracorporeal filters, and that therefore, the technology meets the newness criterion. The following table summarizes the applicant's assertions regarding the substantial similarity criteria. Please see the online application posting for HEPZATO^TM KIT for the applicant's complete statements in support of its assertion that HEPZATO^TM KIT is not substantially similar to other currently available technologies.

We are inviting public comments on whether HEPZATO^TM KIT is substantially similar to existing technologies and whether HEPZATO^TM KIT meets the newness criterion. We are also inviting public comments on drug-device combination technology considerations for new technology add-on payments. Specifically, we seek comment on whether reformatting the delivery mechanism for a drug would represent a new mechanism of action for drug-device combination technologies, and on factors that should be considered when considering new technology add-on payments for technologies that may use a drug or device component that is no longer new in combination with a new drug or device component.

With respect to the cost criterion, the applicant provided multiple analyses to demonstrate that it meets the cost criterion. For each analysis, the applicant searched the FY 2022 MedPAR file using a combination of ICD-10-CM and/or PCS codes to identify potential cases representing patients who may be eligible for HEPZATO^TM KIT. The applicant explained that it used different codes to demonstrate different cohorts that may be eligible for HEPZATO^TM KIT because it is indicated for a rare condition, hepatic-dominant mOM, which does not have a unique ICD-10-CM diagnosis code to identify potential cases with the specific diagnosis of interest, nor a unique ICD-10-PCS procedure code that would identify patients receiving this specific procedure. The applicant believed the cases identified in the analysis are the closest proxies to the cases potentially eligible for the use of HEPZATO^TM KIT. Each analysis followed the order of operations described in the table later in this section.

For the first analysis, the applicant searched for cases with ICD-10-PCS code 3E05305 (Introduction of other antineoplastic into peripheral artery, percutaneous approach) for the PHP procedure, and ICD-10-CM code Z51.11 (Encounter for antineoplastic chemotherapy) as the primary diagnosis for the administration of chemotherapy during an inpatient stay. In addition, the applicant narrowed the analysis to cases with liver-dominant mOM using at least one secondary liver metastases diagnosis plus at least one ocular melanoma diagnosis. Please see the online posting for HEPZATO^TM KIT for the complete list of codes provided by the applicant. The applicant used the inclusion/exclusion criteria described in the following table. Under this analysis, the applicant identified 11 claims mapping to one MS-DRG: 829 (Myeloproliferative Disorders or Poorly Differentiated Neoplasms with Other Procedures with CC/MCC). The applicant calculated a final inflated average case-weighted standardized charge per case of $1,068,530, which exceeded the average case-weighted threshold amount of $104,848.

For the second analysis, the applicant searched for the following combination of ICD-10-CM diagnosis codes: Z51.11 (Encounter for antineoplastic chemotherapy) as the primary diagnosis code, in combination with at least one of the following secondary liver metastases codes: C78.7 (Secondary malignant neoplasm of liver and intrahepatic bile duct), or C22.9 (Malignant neoplasm of liver, not specified as primary or secondary). The applicant used the inclusion/exclusion criteria described in the following table. Under this analysis, the applicant identified 1,134 claims mapping to nine MS-DRGs, with 94 percent of identified cases mapping to three MS-DRGs: 829 (Myeloproliferative Disorders or Poorly Differentiated Neoplasms with Other Procedures with CC/MCC), as well as 846 and 847 (Chemotherapy without Acute Leukemia as Secondary Diagnosis with MCC, and with CC, respectively). The applicant calculated a final inflated average case-weighted standardized charge per case of $1,066,207, which exceeded the average case-weighted threshold amount of $81,652.

For the third analysis, the applicant searched for cases where the ICD-10-CM code Z51.11 (Encounter for antineoplastic chemotherapy) is the primary diagnosis or the ICD-10 PCS code 3E05305 (Introduction of other antineoplastic into peripheral artery, percutaneous approach) is reported. In addition, the case also needed to include at least one of the following secondary liver metastases codes: C78.7 (Secondary malignant neoplasm of liver and intrahepatic bile duct) or C22.9 (Malignant neoplasm of liver, not specified as primary or secondary). The applicant used the inclusion/exclusion criteria described in the following table. Under this analysis, the applicant identified 1,277 claims mapping to 12 MS-DRGs with 92 percent of identified cases mapping to three MS-DRGs: 829 (Myeloproliferative Disorders or Poorly Differentiated Neoplasms with Other Procedures with CC/MCC); as well as 846 and 847 (Chemotherapy without Acute Leukemia as Secondary Diagnosis with MCC, and with CC, respectively). The applicant calculated a final inflated average case-weighted standardized charge per case of $1,067,772, which exceeded the average case-weighted threshold amount of $80,245.

For the fourth analysis, the applicant searched for cases reporting the following combination of ICD-10-CM diagnosis codes: C78.7 (Secondary malignant neoplasm of liver and intrahepatic bile duct) or C22.9 (Malignant neoplasm of liver), in combination with at least one ocular melanoma ICD-10-CM code. Please see the online posting for HEPZATO^TM KIT for the complete list of codes provided by the applicant. The applicant used the inclusion/exclusion criteria described in the following table. Under this analysis, the applicant identified 1,059 claims mapping to 91 MS-DRGs with none exceeding 4.91 percent. The applicant calculated a final inflated average case-weighted standardized charge per case of $1,062,553, which exceeded the average case-weighted threshold amount of $66,104.

Because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount in all scenarios, the applicant asserted that HEPZATO^TM KIT meets the cost criterion.

We are inviting public comments on whether HEPZATO^TM KIT meets the cost criterion.

With regard to the substantial clinical improvement criterion, the applicant asserted that HEPZATO^TM KIT represents a substantial clinical improvement over existing technologies because it offers a minimally invasive, targeted, effective, and safe treatment option to patients with liver-dominant mOM who may be poor candidates for liver resection or who may have difficulty tolerating systemic chemotherapy which results in a substantial clinical improvement in response and survival rates over best available care and quality of life compared to pre-treatment. The applicant provided 11 studies to support these claims, as well as one background article about use of chemosaturation with PHP (CS-PHP) as a palliative treatment option for patients with unresectable cholangiocarcinoma. The following table summarizes the applicant's assertions regarding the substantial clinical improvement criterion. Please see the online posting for HEPZATO^TM KIT for the applicant's complete statements regarding the substantial clinical improvement criterion and the supporting evidence provided.

After review of the information provided by the applicant, we have the following concerns regarding whether HEPZATO^TM KIT meets the substantial clinical improvement criterion. With respect to the applicant's assertion that HEPZATO^TM KIT offers a treatment option for a patient population unresponsive or ineligible for currently available treatments, while the applicant stated that HEPZATO^TM KIT offers an additional treatment option to patients with liver-dominant mOM who may be poor candidates for liver resection or who may have difficulty tolerating systemic chemotherapy, it did not provide evidence in support of this assertion. We would be interested in information regarding whether there are potential Medicare patient populations that may have difficulty tolerating (or be unresponsive to) KIMMTRAK® or other currently available treatments, but would be a good candidate for HEPZATO^TM KIT.

Regarding the claim that HEPZATO^TM KIT improves survival over other treatment options, the applicant provided seven peer-reviewed cohort studies, summary material from an unpublished study, and one randomized controlled clinical study to support the claim.

The seven peer reviewed cohort studies provide a range of results of overall survival as reported for patients treated with the HEPZATO^TM KIT (median overall survival after first Chemosaturation with Percutaneous Hepatic Perfusion [CS-PHP] ranged from 9.6 months to 27.4 months depending on the study, and median one-year overall survival rate raged from 44 percent to 77 percent depending on study). A few of the seven peer reviewed cohort studies (Karydis et al. (2018), Tong et al. (2022); Meier et al. (2021)) reported statistically significant improvement in overall survival (OS) when compared to non-responders or stable disease groups. Only one of the seven studies, Dewald et al. (2021), compared results to alternative treatments, but statistical significance was not achieved (P = 0.97) with CS-PHP resulting in a median OS of 24.1 months compared with 23.6 months for patients receiving other therapies. We believe that additional evidence supporting that HEPZATO^TM KIT offers a significant difference in OS rates compared to currently available treatments would be helpful in our evaluation of the applicant's assertion. We note that several of the studies provided as evidence include small, non-randomized studies without the use of comparators or controls, which may affect the ability to draw meaningful conclusions about treatment outcomes from the results of the studies. We also note that a majority of the studies provided (Bruning et al. (2020); Vogl et al. (2017); Dewald et al. (2021); Meijer et al. (2021); and Artzner et al. (2019)) were conducted outside the United States. We question if there may be differences in treatment guidelines between these countries that may have affected clinical outcomes.

The applicant also submitted summary presentation material evidence to support this claim in the form of a poster and slides for the FOCUS study, in which 144 patients were enrolled, with 91 patients receiving percutaneous hepatic perfusion (PHP) treatment and 32 patients receiving best available care (BAC). According to the applicant, preliminary results from the phase III FOCUS Trial show that progression free survival (PFS) was 9.03 months among PHP patients and just over 3 months among best available care (BAC) patients. OS among treated PHP patients was 19.25 months and among treated BAC patients was 14.49 months. However, this study has yet to be published and is not yet available for analysis and peer review. At this point, we are unable to verify the methods, results, and conclusions of this study as the applicant only provided evidence in the form of a poster and presentation. For example, one citation provided by the applicant in the form of a non-peer-reviewed conference presentation details preliminary results from the FOCUS Phase III Trial. We would be interested in the statistical analysis (including p value and CI data) surrounding the OS rates. In addition, the poster notes that due to slow enrollment and patient reluctance to receive BAC treatment, the trial design was amended to a single arm design with all eligible patients receiving PHP after discussion with FDA. We would be interested in detail about these specific eligibility requirements, as well as how the potential for confounding variables resulting from any differences in the resulting populations were identified and mitigated.

In the published randomized clinical trial (RCT) provided by the applicant, the median hepatic progression free survival (hPFS), the primary endpoint of the trial, was 7.0 months for patients using HEPZATO^TM KIT compared to 1.6 months for patients receiving BAC. However, the median overall survival (OS) with the treatment of HEPZATO^TM KIT was 10.6 months (95 percent CI 6.9-13.6 months) compared to 10.0 months (95 percent CI 6.0-13.1 months) for the group of patients who received BAC. The study notes that median OS was not significantly different (PHP-Mel 10.6 months vs. BAC 10.0 months), but OS was 13.1 months (95 percent CI 10.0-20.3 months) in BAC patients who crossed over and received treatment with PHP-Mel (n = 28, 57.1 percent). In the study discussion of OS, Hughes, et al. concluded that the 57 percent of patients who were allowed to crossover confounded the ability to analyze any survival advantage associated with PHP Mel. We would be interested in additional evidence in our evaluation of the applicant's assertion that HEPZATO^TM KIT substantially improves survival over other treatment options.

Regarding the claim that HEPZATO^TM KIT increases response rate over BAC, we note that across the retrospective studies, response rates ranged from an overall response rate of 42.3 percent [Dewald et al (2021)] to a partial response of 89 percent [Vogl et al. (2017)] depending on the study. However, as the applicant cited to many of the same retroactive studies that it referenced in support of the claim of improved survival [Bruning et al. (2020); Vogl et al. (2017); Dewald et al. (2021); Meijer et al. (2021); Artzner et al. (2019); Tong et al. (2022); Karydis et al. (2018)], we have the same questions as discussed previously regarding the ability to draw meaningful conclusions from the results of these studies in evaluation of this claim.

Regarding the unpublished FOCUS study (Delcath ASCO 2022 FOCUS Trial Poster), previously described, the applicant stated that in the preliminary results from the FOCUS Trial, the overall response rate (ORR) among PHP patients was 36.3 percent, nearly three times better that the 12.5 percent ORR among BAC patients. However, as previously noted, we would be interested in details about the eligibility requirements, and how the potential for confounding variables resulting from any differences in the resulting populations were identified and mitigated.

Lastly, with regard to the assertion that HEPZATO^TM KIT improves quality of life over pre-treatment, the applicant submitted the Vogl et al. (2017) study as evidentiary support. The study was a retrospective, multi-center study reporting outcome and safety after percutaneous isolated hepatic perfusion (PIHP) with Melphalan for patients with uveal melanoma and metastatic disease limited to the liver. Thirty-five PIHP treatments were performed in 18 patients (8 male, 10 female) at seven hospitals across the U.S and Germany between January 2012 and December 2016. Patients' life quality was assessed using four-point scale questionnaires to rate overall health and life quality after therapy, how much their health and quality of life had changed after therapy, and how pleased they were with PIHP. We note that the study used a subjective four-point measurement scale to determine quality-of-life used in the study. We question if a more objective assessment tool would be more helpful in evaluating a patient's quality of life. It is unclear if the survey questions were asked verbally, and by whom, or if the survey was answered in writing by the patient alone. As the study was not randomized and the patients' responses were not anonymous, we question if there may have been resulting response bias, or interviewer bias that would impact our ability to draw meaningful conclusions about a subjective measurement of improved quality of life. In addition, we note that the study utilized the Delcath Hepatic CHEMOSAT® Delivery System for Melphalan components as part of the treatment, and it is unclear if the technologies used in the study are the same as HEPZATO^TM KIT, or what differences may exist between the technologies. We would be interested in information about any differences between Delcath's HEPZATO^TM KIT and the technologies used in this study for PIHP with Melphalan.

We are inviting public comments on whether HEPZATO^TM KIT meets the substantial clinical improvement criterion.

We did not receive any written comments in response to the New Technology Town Hall meeting notice published in the Federal Register regarding the substantial clinical improvement criterion for HEPZATO^TM KIT.

g. Lantidra^TM (donislecel-jujn (Allogeneic Pancreatic Islet Cellular Suspension for Hepatic Portal Vein Infusion))

CellTrans Inc. submitted an application for new technology add-on payments for Lantidra^TM for FY 2025. According to the applicant, Lantidra^TM is an allogeneic pancreatic islet cellular therapy indicated for the treatment of adults with Type 1 diabetes who are unable to approach target hemoglobin A1c (HbA1c) because of repeated episodes of severe hypoglycemia despite intensive diabetes management and education. Per the applicant, Lantidra^TM is used in conjunction with concomitant immunosuppression. The applicant asserted that the route of administration for Lantidra^TM is infusion into the hepatic portal vein only. The applicant noted that following transplant, the patient is monitored for graft function and safety issues, including potential adverse reactions due to immunosuppression. The applicant stated that the primary mechanism of action for Lantidra^TM is the secretion of insulin by the beta cells within the infused allogeneic islet of Langerhans, which are responsible for regulating blood glucose levels in response to glucose stimulation.

Please refer to the online application posting for Lantidra^TM, available at https://mearis.cms.gov/public/publications/ntap/NTP231017H5N2T, for additional detail describing the technology and the disease treated by the technology.

With respect to the newness criterion, according to the applicant, Lantidra^TM was granted approval for a Biologics License Application (BLA) from FDA on June 28, 2023, for the treatment of adults with Type 1 diabetes who are unable to approach target HbA1c because of current repeated episodes of severe hypoglycemia despite intensive diabetes management and education. According to the applicant, the technology was commercially available on January 8, 2024. The applicant stated that the approved manufacturing site for Lantidra^TM is at the University of Illinois (UI) Health, UI in Chicago and time was needed to transfer islet cell transplant clinical protocols to the UI Health transplant division.

We note that under national coverage determination (NCD) 260.3.1 Islet Cell Transplantation in the Context of a Clinical Trial, Medicare will pay for the routine costs, as well as transplantation and appropriate related items and services, for Medicare beneficiaries participating in a National Institutes of Health (NIH)-sponsored clinical trial(s). Specifically, Medicare will cover transplantation of pancreatic islet cells, the insulin producing cells of the pancreas. Coverage may include the costs of acquisition and delivery of the pancreatic islet cells, as well as clinically necessary inpatient and outpatient medical care and immunosuppressants. Because Lantidra^TM may be covered by Medicare when it is used in the setting of a clinical trial, we will evaluate whether Lantidra^TM is eligible for new technology add-on payments for FY 2025. We note that any payment made under the Medicare program for services provided to a beneficiary would be contingent on CMS' coverage of the item, and any restrictions on the coverage would apply.

The applicant stated that the recommended minimum dose is 5,000 equivalent islet number (EIN)/kg for the initial infusion, and 4,500 EIN/kg for subsequent infusion(s) in the same recipient. The maximum dose per infusion is dictated by the estimated tissue volume, which should not exceed 10 cc per infusion, and the total EIN present in the infusion bag (up to a maximum of 1 × 10^6 EIN per bag). A second infusion may be performed if the patient does not achieve independence from exogenous insulin within 1-year post-infusion or within 1-year after losing independence from exogenous insulin after a previous infusion. A third infusion may be performed using the same criteria as for the second infusion.

According to the applicant, there are currently no ICD-10-PCS procedure codes to distinctly identify Lantidra^TM . We note that the applicant submitted a request for approval for a unique ICD-10-PCS procedure code for Lantidra^TM beginning in FY 2025.

As previously discussed, if a technology meets all three of the substantial similarity criteria under the newness criterion, it would be considered substantially similar to an existing technology and would not be considered new for the purpose of new technology add-on payments.

With respect to the substantial similarity criteria, the applicant asserted that Lantidra^TM has not been assigned to the same MS-DRG when compared to an existing technology to achieve a therapeutic outcome. The following table summarizes the applicant's assertions regarding the substantial similarity criteria. Please see the online application posting for Lantidra^TM for the applicant's complete statements in support of its assertion that Lantidra^TM is not substantially similar to other currently available technologies.

We are inviting public comments on whether Lantidra^TM is substantially similar to existing technologies and whether Lantidra^TM meets the newness criterion.

With respect to the cost criterion, the applicant included the two most recent patient cases with charges of Lantidra^TM billed by a hospital that administered the technology, based on that hospital's billing data file on the undiscounted costs. The applicant stated that it attempted to identify potential cases representing patients who may be eligible for Lantidra^TM by searching the FY 2022 MedPAR and the 100 percent sample FY 2022 Standard Analytical Files (SAF) for cases reporting ICD-10-CM/PCS codes and MS-DRGs codes that were relevant to the FDA approved indication and administration of Lantidra^TM, however, it could not confirm if cost data from the two most recent patient cases were included in the FY 2022 MedPAR or SAF. As a result, the applicant provided the charges billed by the hospital for these two cases. The applicant stated that the MS-DRG coded for the two cases was MS-DRG 639 (Diabetes without CC/MCC). The applicant followed the order of operations described in the following table and calculated a final inflated average case-weighted standardized charge per case of $374,547, which exceeded the average case-weighted threshold amount of $32,311. Because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount, the applicant asserted that Lantidra^TM meets the cost criterion.

We note the following concerns regarding the cost criterion. We note that the applicant did not remove any charges or indirect charges related to prior technology without providing further details. We are interested in additional information regarding whether Lantidra^TM would replace any prior technology. We are also interested in how the applicant estimated an inflation factor of 10.00 percent to apply to the standardized charges. With respect to the cases included in the cost analysis, we note that the applicant limited the cost analysis to the two most recent patient cases with charges of Lantidra^TM billed by the hospital, which the applicant asserted were the best available data for the FY 2022 cost analysis. We note the MS-DRG coded for these two cases was MS-DRG 639 (Diabetes without CC/MCC). We are interested in information as to whether cases in other MS-DRGs would be potentially eligible for Lantidra^TM and if these cases should also be included in the cost analysis by using appropriate inclusion/exclusion criteria based on reporting of ICD-10-CM/PCS codes.

We are inviting public comments on whether Lantidra^TM meets the cost criterion.

With regard to the substantial clinical improvement criterion, the applicant asserted that Lantidra^TM represents a substantial clinical improvement over existing technologies. The applicant asserted that patients with the indication of Type 1 diabetes characterized by hypoglycemic unawareness are at risk of severe hypoglycemia, complications, and death, if untreated. According to the applicant, when intensive insulin therapy is not sufficient for addressing symptoms of severe hypoglycemia, Lantidra^TM infusion into the hepatic portal vein offers a safe and effective minimally invasive alternative with proven clinical outcomes, less complications, and similar overall costs to that of whole pancreas transplantation. The applicant also asserted that Lantidra^TM provides a treatment option for patients unresponsive to, or ineligible for, currently available treatments because whole pancreas transplant, a currently available treatment, is associated with greater surgical and post-procedural risk than pancreatic islet transplantation. Additionally, the applicant asserted that due to procedural risks, some patients may not be appropriate surgical candidates for whole pancreas transplantation. The applicant provided two patient testimonials, one study combining results of a Phase 1/2 and a Phase 3 clinical study to support these claims, as well as one background article. The following table summarizes the applicant's assertions regarding the substantial clinical improvement criterion. Please see the online posting for Lantidra^TM for the applicant's complete statements regarding the substantial clinical improvement criterion and the supporting evidence provided.

After review of the information provided by the applicant, we have the following concerns regarding whether Lantidra^TM meets the substantial clinical improvement criterion. We are interested in evidence on clinical outcomes based on comparison of Lantidra^TM with currently available treatments, including whole pancreatic transplant or recent advances in glucose monitoring and insulin delivery systems that are FDA-approved. We also note that according to the summary of the long-term six-year follow-up of patients from the Lantidra^TM clinical trials, the number of evaluable patients was reduced from 30 at the baseline to 12 at year 6. We question whether the small number would impact the reliability of the conclusions about insulin independence and reduction in severe hypoglycemic events. Regarding the applicant's claim that Lantidra^TM patients achieved insulin independence, improved HbA1c endpoints, had fewer hypoglycemia episodes, and experienced improved quality of life, the applicant stated that the Phase 1/2 and 3 trials had over 10 years of extended follow-up, but specific results on long-term efficacy appear to be provided only up to 6 years post- the last transplant. We would be interested in learning about available results from any longer-term follow-up. In addition, we would be interested in data demonstrating that Lantidra^TM results in improved clinical outcomes like reduced mortality to support an assessment of whether Lantidra^TM represents a substantial clinical improvement.

We are inviting public comments on whether Lantidra^TM meets the substantial clinical improvement criterion.

We did not receive any written comments in response to the New Technology Town Hall meeting notice published in the Federal Register regarding the substantial clinical improvement criterion for Lantidra^TM.

h. AMTAGVI^TM (lifileucel)

Iovance Biotherapeutics, Inc. submitted an application for new technology add-on payments for AMTAGVI^TM (lifileucel) for FY 2025. According to the applicant, AMTAGVI^TM is an one-time, single-dose autologous tumor-infiltrating lymphocyte (TIL) immunotherapy for the treatment of advanced (unresectable or metastatic) melanoma comprised of a suspension of TIL for intravenous infusion. We note that Iovance Biotherapeutics submitted an application for new technology add-on payments for AMTAGVI^TM for FY 2022 under the name lifileucel, as summarized in the FY 2022 IPPS/LTCH PPS proposed rule (86 FR 25272 through 25282) but withdrew the application prior to the issuance of the FY 2022 IPPS/LTCH PPS final rule (86 FR 44979). We also note that the applicant submitted an application for AMTAGVI^TM for FY 2023 under the name lifileucel, as summarized in the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28244 through 28257), that it withdrew prior to the issuance of the FY 2023 IPPS/LTCH PPS final rule (87 FR 48920).

Please refer to the online application posting for AMTAGVI^TM, available at https://mearis.cms.gov/public/publications/ntap/NTP231012V8Y9J, for additional detail describing the technology and the treatment of unresectable or metastatic melanoma.

With respect to the newness criterion, according to the applicant, AMTAGVI^TM was granted Biologics License Application (BLA) approval from FDA on February 16, 2024 for treatment of adult patients with unresectable or metastatic melanoma previously treated with a programmed cell death protein 1 (PD-1) blocking antibody, and if B-raf proto-oncogene (BRAF) V600 mutation positive, a BRAF inhibitor with or without a mitogen-activated extracellular signal-regulated kinase (MEK) inhibitor. The applicant stated that AMTAGVI^TM has received Regenerative Medicine Advanced Therapy (RMAT), Orphan Drug, and Fast Track designations from FDA for the treatment of advanced melanoma. According to the applicant, AMTAGVI^TM is expected to be commercially available within 30-40 days post-FDA approval due to the need for the physician to prescribe AMTAGVI^TM, the treatment center to receive approval from the patient's insurer and to schedule and surgically resect the patient's tumor tissue, the 22-day TIL manufacturing process, and shipment/invoicing of AMTAGVI^TM to the treatment center for patient administration. We are interested in additional information regarding the delay in the technology's market availability, as it seems that the technology would need to be available for sale before a physician would be able to prescribe AMTAGVI^TM.

According to the applicant, AMTAGVI^TM is provided as a single dose for infusion containing a suspension of TIL in up to four patient-specific intravenous (IV) infusion bag(s), with each dose containing 7.5 × 10^9 to 72 × 10^9 viable cells. The applicant further noted that there is a lymphodepleting regimen administered before infusion of AMTAGVI^TM, and, post-AMTAGVI^TM infusion, an interleukin 2 (IL-2) infusion at 600,000 IU/kg is administered every 8 to 12 hours, for up to a maximum of 6 doses, to support cell expansion in vivo.

The applicant stated that effective October 1, 2022, the following ICD-10-PCS codes may be used to uniquely describe procedures involving the use of AMTAGVI^TM: XW033L7 (Introduction of lifileucel immunotherapy into peripheral vein, percutaneous approach, new technology group 7), and XW043L7 (Introduction of lifileucel immunotherapy into central vein, percutaneous approach, new technology group 7). The applicant stated that all diagnosis codes under the category C43 (Malignant melanoma of skin) may be used to currently identify the indication for AMTAGVI^TM under the ICD-10-CM coding system.

As previously discussed, if a technology meets all three of the substantial similarity criteria under the newness criterion, it would be considered substantially similar to an existing technology and would not be considered “new” for the purpose of new technology add-on payments.

With respect to the substantial similarity criteria, the applicant asserted that AMTAGVI^TM is not substantially similar to other currently available technologies because TIL immunotherapy with AMTAGVI^TM has a novel and unique mechanism of action which delivers a highly customized, personalized, and targeted, single-infusion treatment for advanced melanoma, and AMTAGVI^TM is the first and only TIL immunotherapy approved for the treatment of advanced (unresectable or metastatic) melanoma, and that therefore, the technology meets the newness criterion. The following table summarizes the applicant's assertions regarding the substantial similarity criteria. Please see the online application posting for AMTAGVI^TM for the applicant's complete statements in support of its assertion that AMTAGVI^TM is not substantially similar to other currently available technologies.

We are inviting public comments on whether AMTAGVI^TM is substantially similar to existing technologies and whether AMTAGVI^TM meets the newness criterion.

With respect to the cost criterion, the applicant provided multiple analyses to demonstrate that it meets the cost criterion. For each analysis, the applicant searched the FY 2022 MedPAR file using different combinations of ICD-10-CM codes, ICD-10-PCS codes, and/or inpatient length-of-stay (LOS) of 10 or more days. The applicant explained that it used different combinations to demonstrate four different cohorts that may be eligible for the technology. According to the applicant, eligible cases for AMTAGVI^TM will be mapped to Pre-MDC MS-DRG 018 (Chimeric Antigen Receptor (CAR) T-cell and Other Immunotherapies). For each analysis, the applicant used the FY 2025 new technology add-on payments threshold for Pre-MDC MS-DRG 018 for all identified cases. Each analysis followed the order of operations described in the table later in this section.

For the first analysis, the applicant searched for potential cases for the following combination of ICD-10-CM diagnosis/procedure codes: any melanoma and metastasis diagnosis codes and any cytokine interleukin-2 (IL-2) or chemotherapy procedure codes. Please see the online posting for AMTAGVI^TM for the complete list of codes provided by the applicant. The applicant used the inclusion/exclusion criteria described in the following table. Under this analysis, the applicant identified 176 claims mapping to 16 MS-DRGs, with each MS-DRG representing 6.3 percent of identified cases. The applicant calculated a final inflated average case-weighted standardized charge per case of $2,150,682, which exceeded the average case-weighted threshold amount of $1,374,450.

For the second analysis, the applicant searched for potential cases for the following ICD-10-CM diagnosis/procedure codes in combination with an inpatient LOS of 10 or more days: any melanoma and metastasis diagnosis codes and any cytokine interleukin-2 (IL-2) or chemotherapy procedure codes. Please see the online posting for AMTAGVI^TM for the complete list of codes provided by the applicant. The applicant used the inclusion/exclusion criteria described in the following table. Under this analysis, the applicant identified 77 claims mapping to seven MS-DRGs, with each MS-DRG representing 14.3 percent of identified cases. The applicant calculated a final inflated average case-weighted standardized charge per case of $2,207,367, which exceeded the average case-weighted threshold amount of $1,374,450.

For the third analysis, the applicant searched for potential cases for the following combination of ICD-10-CM diagnosis/procedure codes: a code describing primary or admitting diagnosis of melanoma and a metastasis diagnosis code. Please see the online posting for AMTAGVI^TM for the complete list of codes provided by the applicant. The applicant used the inclusion/exclusion criteria described in the following table. Under this analysis, the applicant identified 735 claims mapping to 64 MS-DRGs, with each MS-DRG representing 3.4 percent to 1.5 percent of identified cases. The applicant calculated a final inflated average case-weighted standardized charge per case of $2,017,903, which exceeded the average case-weighted threshold amount of $1,374,450.

For the fourth analysis, the applicant searched for potential cases for the following combination of ICD-10-CM diagnosis/procedure codes: a code describing any diagnosis of melanoma and a metastasis diagnosis code. Please see the online posting for AMTAGVI^TM for the complete list of codes provided by the applicant. The applicant used the inclusion/exclusion criteria described in the following table. Under this analysis, the applicant identified 6,648 claims mapping to 358 MS-DRGs, each MS-DRG representing 0.2 percent to 6.7 percent of identified cases. The applicant calculated a final inflated average case-weighted standardized charge per case of $2,018,905, which exceeded the average case-weighted threshold amount of $1,374,450.

Because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount in all scenarios, the applicant asserted that AMTAGVI^TM meets the cost criterion.

We are inviting public comments on whether AMTAGVI^TM meets the cost criterion.

With regard to the substantial clinical improvement criterion, the applicant asserted that AMTAGVI^TM represents a substantial clinical improvement over existing technologies because the efficacy and safety profile of the single infusion of AMTAGVI^TM TIL immunotherapy addresses an important unmet need in the advanced (unresectable or metastatic) melanoma population who lack effective or approved treatment options after being previously treated with ICI therapy. The applicant asserts that the clinically meaningful and durable activity of AMTAGVI^TM represents substantial clinical improvement over published outcomes for chemotherapy. The applicant provided four studies to support these claims, as well as 22 background articles about treatments for advanced melanoma.

The following table summarizes the applicant's assertions regarding the substantial clinical improvement criterion. Please see the online posting for AMTAGVI^TM for the applicant's complete statements regarding the substantial clinical improvement criterion and the supporting evidence provided.

After review of the information provided by the applicant, we have the following concerns regarding whether AMTAGVI^TM meets the substantial clinical improvement criterion.

In support of its application, the applicant provided data from the C-144-01 study, an ongoing phase two multicenter study (NCT02360579) to assess the efficacy and safety of autologous TIL in patients with stage IIIc-IV metastatic melanoma, which consisted of: Cohort 1 (n = 30 generation 1 no-cryopreserved TIL product); Cohort 2 (n = 66 generation 2 cryopreserved TIL product); Cohort 3 (a sub-sample of n = 10 from Cohorts 1, 2, and 4); and Cohort 4 (n = 75 generation 2 cryopreserved TIL product). In regard to the sample studied (Cohorts 2 & 4 combined) by Chesney et al. (2022), similar to concerns raised in the FY 2022 IPPS/LTCH PPS proposed rule (86 FR 25281), we continue to question the appropriateness of combining Cohorts 2 and 4 together. Furthermore, similar to concerns raised in the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28256 through 28257), we note that in the study of Chesney et al. (2022), 54 percent of the sample size included males with a median age of 56; data on race, ethnicity, and other demographics are not presented. Given that the average age of Medicare beneficiaries is substantially older, and that Medicare beneficiaries often have multiple comorbidities, we question whether the sample evaluated is appropriately representative of the Medicare population and whether this sample has a disease burden similar to that seen in Medicare beneficiaries. Thus, similar to concerns raised in the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28256 through 28257), we are concerned that the findings may not be generalizable to Medicare beneficiaries. Furthermore, as discussed in the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28256), we continue to question whether the patient sample evaluated in the Sarnaik et al. (2021) study is appropriately representative of the Medicare population and whether this sample has a disease burden similar to that seen in Medicare beneficiaries.

Second, similar to concerns raised in the FY 2022 IPPS/LTCH PPS proposed rule (86 FR 25279 through 25282) and the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28256 through 28257), we continue to note that while multiple background studies were provided in support of the applicant's claims for substantial clinical improvement, those that evaluate AMTAGVI^TM are based solely on the C-144-01 trial. The background studies focus primarily on describing the limitations of other therapies rather than supporting the role of AMTAGVI^TM, and no direct comparisons to other existing therapies such as targeted therapies with combination BRAF plus MEK inhibitors or nivolumab plus ipilimumab were provided. Therefore, we would be interested in additional information comparing AMTAGVI^TM to existing treatments (for example, evidence comparing AMTAGVI^TM phase two studies to the phase two studies of existing or approved treatments by using meta-analysis after systematic review, or evidence based on retrospective cohort studies of the relevant patients to assess whether AMTAGVI^TM had significantly different impact on any outcomes compared to existing or approved treatments).

Third, similar to concerns raised in the FY 2022 IPPS/LTCH PPS proposed rule (86 FR 25279 through 25282), and the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28256 through 28257), we note that the Chesney et al. (2022) study uses a surrogate endpoint, ORR, which combines the results of complete and partial responders; we question whether this correlates to improvement in clinical outcomes such as overall survival (OS).

Finally, similar to concerns raised in the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28256 through 28257), we note that according to the applicant, high-dose IL-2 has been used to treat metastatic melanoma in the past and is given as a post-treatment to AMTAGVI^TM . According to the applicant, the occurrence of grade 3 and 4 treatment-emergent adverse events (TEAEs) was early and consistent with the lymphodepletion regimen (NMA-LD) and known profile of IL-2. If AMTAGVI^TM is always given in conjunction with the pre- and post-treatments, we question how it is possible to determine the cause of the TEAEs which are categorized as severe based on the Common Terminology Criteria for Adverse Events v4.03. We continue to question whether the effect seen in C-144-01 is due to AMTAGVI^TM itself or due to other factors such as the use of IL-2, general changes in medical practice over time, and the specific sample identified for the trial at hand.

We are inviting public comments on whether AMTAGVI^TM meets the substantial clinical improvement criterion.

We did not receive any written comments in response to the New Technology Town Hall meeting notice published in the Federal Register regarding the substantial clinical improvement criterion for AMTAGVI^TM.

i. Lyfgenia^TM (lovotibeglogene autotemcel)

Bluebird bio, Inc. submitted an application for new technology add-on payments for Lyfgenia^TM (lovotibeglogene autotemcel) for FY 2025. According to the applicant, Lyfgenia^TM is an autologous hematopoietic stem cell-based gene therapy indicated for the treatment of patients 12 years of age or older with sickle cell disease (SCD) and a history of vaso-occlusive events (VOE). Lyfgenia^TM , administered as a single-dose intravenous infusion, consists of an autologous cluster of differentiation 34+ (CD34+) cell-enriched population from patients with SCD that contains hematopoietic stem cells (HSCs) transduced with BB305 lentiviral vector (LVV) encoding the β-globin gene (β^A-T87Q -globin gene), suspended in a cryopreservation solution. The applicant explained that Lyfgenia^TM is designed to add functional copies of a modified form of the β^A-T87Q -globin gene into a patient's own HSCs, which allows their red blood cells to produce an anti-sickling adult hemoglobin (HbA^T87Q ), to reduce or eliminate downstream complications of SCD.

Please refer to the online application posting for Lyfgenia^TM , available at https://mearis.cms.gov/public/publications/ntap/NTP231013X3AK8, for additional detail describing the technology and the disease treated by the technology.

With respect to the newness criterion, according to the applicant, Lyfgenia^TM was granted Biologics License Application (BLA) approval from FDA on December 8, 2023, for the treatment of patients 12 years of age or older with SCD and a history of VOEs. The applicant stated that it anticipates that Lyfgenia^TM will become available for sale on April 16, 2024 and that the first commercial claim for Lyfgenia^TM will occur within approximately 130 days post-FDA approval to allow for the one-time activity to commercially qualify the contract manufacturer organization (CMO), followed by apheresis of the first patient at the qualified treatment center (QTC), where the personalized starting material will be shipped to the CMO for drug product manufacturing, release testing, and shipment of final product to the QTC for the one-time infusion. We are interested in additional information regarding the delay in the technology's market availability, as it appears that the technology would need to be available for sale prior to the enrollment of the first patient at the QTC. According to the applicant, Lyfgenia^TM is provided in infusion bags containing 1.7 to 20×10⁶ cells/mL (1.4 to 20 × 10⁶ CD34+ cells/mL) in approximately 20 mL of solution and is supplied in one to four infusion bags. Per the applicant, the minimum dose is 3.0 × 10⁶ CD34+ cells/kg patient weight.

According to the applicant, as of October 1, 2023, there are currently two ICD-10-PCS procedure codes to distinctly identify the intravenous administration of Lyfgenia^TM : XW133H9 (Transfusion of lovotibeglogene autotemcel into central vein, percutaneous approach, new technology group 9) and XW143H9 (Transfusion of lovotibeglogene autotemcel into peripheral vein, percutaneous approach, new technology group 9). The applicant provided a list of diagnosis codes that may be used to currently identify the indication for Lyfgenia^TM under the ICD-10-CM coding system. Please refer to the online application posting for the complete list of ICD-10-CM codes provided by the applicant.

As previously discussed, if a technology meets all three of the substantial similarity criteria under the newness criterion, it would be considered substantially similar to an existing technology and would not be considered “new” for the purpose of new technology add-on payments.

With respect to the substantial similarity criteria, the applicant asserted that Lyfgenia^TM is not substantially similar to other currently available technologies, because Lyfgenia^TM has a distinct mechanism of action, which converts SCD at the genetic, cellular, and physiologic level to a non-sickling phenotype through the expression of the gene therapy-derived antisickling β^A-T87Q -globin gene, and that therefore, the technology meets the newness criterion. Additionally, the applicant stated Lyfgenia^TM is not substantially similar to other currently available therapeutic approaches indicated for SCD or to any drug therapy assigned to any MS-DRG in the 2022 MedPAR data.

The following table summarizes the applicant's assertions regarding the substantial similarity criteria. Please see the online application posting for Lyfgenia^TM for the applicant's complete statements in support of its assertion that Lyfgenia^TM is not substantially similar to other currently available technologies.

We note that Lyfgenia^TM may have the same or similar mechanism of action to Casgevy^TM , for which we also received an application for new technology add- on payments for FY 2025. Lyfgenia^TM and Casgevy^TM are both gene therapies using modified autologous CD34+ hematopoietic stem and progenitor cell (HSPC) therapies administered via stem cell transplantation for the treatment of SCD. Both technologies are autologous, ex-vivo modified hematopoietic stem-cell biological products. As previously discussed, Casgevy^TM was approved by FDA for this indication on December 8, 2023. For these technologies, patients are required to undergo CD34+ HSPC mobilization followed by apheresis to extract CD34+ HSPCs for manufacturing and then myeloablative conditioning using busulfan to deplete the patient's bone marrow in preparation for the technologies' modified stem cells to engraft to the bone marrow. Once engraftment occurs for both technologies, the patient's cells start to produce a different form of hemoglobin to reduce the amount of sickling hemoglobin. Further, both technologies appear to map to the same MS-DRGs, MS-DRG 016 (Autologous Bone Marrow Transplant with CC/MCC) and 017 (Autologous Bone Marrow Transplant without CC/MCC), and to treat the same or similar disease (sickle cell disease) in the same or similar patient population (patients 12 years of age and older who have a history of vaso-occlusive events). Accordingly, as it appears that Lyfgenia^TM and Casgevy^TM may use the same or similar mechanism of action to achieve a therapeutic outcome (that is, to reduce the amount of sickling hemoglobin to reduce and prevent VOEs associated with SCD), would be assigned to the same MS-DRG, and treat the same or similar patient population and disease, we believe that these technologies may be substantially similar to each other such that they should be considered as a single application for purposes of new technology add-on payments. We note that if we determine that this technology is substantially similar to Casgevy^TM, we believe the newness period would begin on December 8, 2023, the date both Lyfgenia^TM and Casgevy^TM received FDA approval for SCD. We are interested in information on how these two technologies may differ from each other with respect to the substantial similarity criteria and newness criterion, to inform our analysis of whether Lyfgenia^TM and Casgevy^TM are substantially similar to each other and therefore should be considered as a single application for purposes of new technology add-on payments.

We are inviting public comment on whether Lyfgenia^TM meets the newness criterion, including whether Lyfgenia^TM is substantially similar to Casgevy^TM and whether these technologies should be evaluated as a single technology for purposes of new technology add-on payments.

With respect to the cost criterion, the applicant provided multiple analyses to demonstrate that it meets the cost criterion. For each analysis, the applicant searched the FY 2022 MedPAR using different ICD-10-CM codes to identify potential cases representing patients who may be eligible for Lyfgenia^TM . Per the applicant, Lyfgenia^TM is intended for patients who have not already undergone Allogeneic Bone Marrow Transplant or Autologous Bone Marrow Transplant. The applicant explained that it used different ICD-10-CM codes to demonstrate different cohorts of SCD patients that may be eligible for the technology.

According to the applicant, eligible cases for Lyfgenia^TM will be mapped to either Pre-MDC MS-DRG 016 (Autologous Bone Marrow Transplant with CC/MCC) or 017 (Autologous Bone Marrow Transplant without CC/MCC). For each cohort, the applicant performed two sets of analyses using either the FY 2025 new technology add-on payments threshold for Pre-MDC MS-DRG 016 or Pre-MDC MS-DRG 017 for all identified cases. We note that the FY 2025 new technology add-on payments thresholds for both Pre-MDC MS-DRG 016 and Pre-MDC MS-DRG 017 are $182,491. Each analysis followed the order of operations described in the table later in this section.

For the primary cohort, the applicant searched for an appropriate group of patients with any ICD-10-CM diagnosis code for SCD with crisis. Please see the online posting for Lyfgenia^TM for the complete list of ICD-10-CM codes provided by the applicant. The applicant used the inclusion/exclusion criteria described in the following table. Under this analysis, the applicant identified 12,357 claims mapping to 167 MS-DRGs, including MS-DRGs 811 and 812 (Red Blood Cell Disorders with MCC and without MCC, respectively) representing 76.0 percent of total identified cases. The applicant calculated a final inflated average case-weighted standardized charge per case of $11,677,887, which exceeded the average case-weighted threshold amount of $182,491.

For the sensitivity 1 cohort, the applicant searched for a narrower cohort of patients with the admitting or primary ICD-10-CM diagnosis codes of Hemoglobin-SS (Hb-SS) SCD with crisis for the most common genotype of SCD. Please see the online posting for Lyfgenia^TM for a complete list of ICD-10-CM codes provided by the applicant. The applicant used the inclusion/exclusion criteria described in the following table. Under this analysis, the applicant identified 10,987 claims mapping to 160 MS-DRGs, including MS-DRGs 811 and 812 (Red Blood Cell Disorders with and without MCC, respectively) representing 75.1 percent of total identified cases. The applicant calculated a final inflated average case-weighted standardized charge per case of $11,680,025, which exceeded the average case-weighted threshold amount of $182,491.

For the sensitivity 2 cohort, the applicant searched for a broader cohort of patients with the primary or secondary ICD-10-CM diagnosis codes for SCD with or without crisis. Please see the online posting for Lyfgenia^TM for a complete list of ICD-10-CM codes provided by the applicant. The applicant used the inclusion/exclusion criteria described in the following table. Under this analysis, the applicant identified 17,120 claims mapping to 453 MS-DRGs, including MS-DRGs 811 and 812 (Red Blood Cell Disorders with and without MCC, respectively) representing 56.3 percent of total identified cases. The applicant calculated a final inflated average case-weighted standardized charge per case of $11,681,718, which exceeded the average case-weighted threshold amount of $182,491.

Because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount in all scenarios, the applicant maintained that Lyfgenia^TM meets the cost criterion.

We are inviting public comments on whether Lyfgenia meets the cost criterion. With regard to the substantial clinical improvement criterion, the applicant asserted that Lyfgenia represents a substantial clinical improvement over existing technologies, because Lyfgenia is a one-time administration gene therapy that uniquely impacts the pathophysiology of SCD at the genetic level and offers the potential for stable, durable production of anti-sickling hemoglobin HbA , with approximately 85 percent of RBCs producing HbA , leading to complete resolution of severe VOEs in patients with SCD through 5.5 years of follow-up. The applicant asserted that for these reasons Lyfgenia is a much-needed treatment option for a patient population ineligible for allo-HSCT or without a matched related donor and significantly improves health-related quality of life. The applicant provided seven studies on Lyfgenia^TM to support these claims, as well as 22 background articles about SCD and its current treatments. The following table summarizes the applicant's assertions regarding the substantial clinical improvement criterion. Please see the online posting for Lyfgenia for the applicant's complete statements regarding the substantial clinical improvement criterion and the supporting evidence provided.

After review of the information provided by the applicant, we have the following concerns regarding whether Lyfgenia meets the substantial clinical improvement criterion. With respect to the claim that Lyfgenia presents an acceptable risk-benefit profile in terms of efficacy and safety for patients with SCD while allowing clinically meaningful improvements in HRQoL, the applicant stated the safety profile remains generally consistent with risk of autologous stem cell transplant, myeloablative conditioning, and underlying SCD. Additionally, the applicant mentions that serious treatment-emergent adverse events (TEAEs) of grade 3 or higher TEAEs were reported, but no cases of veno-occlusive liver disease, graft failure, or vector-mediated replication competent lentivirus were reported. Per the applicant, three patients had adverse events attributed to Lyfgenia , including 2 events deemed possibly related and 1 event deemed definitely related, with all 3 resolving within 1 week of onset. We note that the applicant submitted one published article about Group C results, an interim analysis by Kanter et al. (2022) in which Lyfgenia^TM 's safety and efficacy were evaluated in a nonrandomized, open-label, single-dose phase 1-2 clinical trial (HGB-206) where 35 Group C patients had received Lyfgenia^TM infusion. Group C was established after optimizing the treatment process in the initial cohorts, Groups A (7 patients) and B (2 patients). There was also a more stringent inclusion criterion for severe vaso-occlusive events before enrollment for Group C. The median follow-up was 17.3 months (range, 3.7-37.6) and 25 patients met both the inclusion criteria for vaso-occlusive events before enrollment and a minimum 6-month follow-up required for assessment of vaso-occlusive events. After receiving Lyfgenia^TM , 12 patients (34 percent) had at least one serious adverse event; the most frequently reported were abdominal pain, drug withdrawal syndrome (opiate), nausea, and vomiting (6 percent each). The two events that were deemed to be possibly related to Lyfgenia^TM were grade 2 leukopenia and grade 1 decreased diastolic blood pressure and the one event that was deemed to be definitely related was grade 2 febrile neutropenia. Although this evidence was provided to assert Lyfgenia^TM improves clinical outcomes relative to previously available therapies, we note that the risk-benefit profile and HRQoL for Lyfgenia^TM is not compared to existing therapies. We would be interested in additional information regarding the risk-benefit profile of Lyfgenia^TM compared to existing therapies, including clarification regarding an acceptable risk-benefit profile for patients with SCD and whether Lyfgenia^TM fits this profile. We also question if the length of patient follow-up (median: 17.3 months, range: 3.7 to 37.6) would be sufficient to assess long-term safety outcomes.

Finally, with respect to the applicant's assertion that Lyfgenia^TM improves clinical outcomes by halting SCD progression, presenting an acceptable risk-benefit profile with clinically meaningful improvement in HRQoL, and results in complete resolution of sVOEs, we note that the applicant provided multiple sources of evidence that analyze the same phase 1-2 clinical study for Lyfgenia^TM , HGB-206. We received an additional unpublished source that provided some data on the phase 3 HGB-210 trial and combined this with data from HGB-206 with a total of 34 patients being evaluable for efficacy and 47 for safety. The median age of these 47 patients was 23 years. Due to the small study population and the median age of participants in the studies, we question if the safety and efficacy data from these studies would be generalizable to the Medicare population.

We are inviting public comments on whether Lyfgenia^TM meets the substantial clinical improvement criterion.

We did not receive any written comments in response to the New Technology Town Hall meeting notice published in the Federal Register regarding the substantial clinical improvement criterion for Lyfgenia^TM .

j. Quicktome Software Suite (Quicktome Neurological Visualization and Planning Tool)

Omniscient Neurotechnology submitted an application for new technology add-on payments for Quicktome Software Suite for FY 2025. According to the applicant, Quicktome Software Suite is a cloud-based software that uses artificial intelligence (AI) tools and the scientific field of connectomics to analyze millions of data points derived from a patient's magnetic resonance imaging (MRI). Per the applicant, Quicktome Software Suite's proprietary Structural Connectivity Atlas (SCA) uses machine learning and tractographic techniques to create highly specific and personalized maps of a patient's brain or connectome from a standard MRI scan, regardless of brain shape, size, or physical distortion. The applicant asserted that the SCA is combined with a key refinement algorithm which identifies the location of parcels based on the specific structural characteristics of an individual's brain. The applicant asserted that Quicktome Software Suite uses resting-state functional MRI (rs-fMRI) to unveil the brain's network architecture or functional connectome by mapping blood oxygen level dependent (BOLD) signal correlations across brain parcels. Per the applicant, using data from a structural or a functional MRI (fMRI) scan, Quicktome Software Suite's proprietary AI allows clinicians to quickly and accurately assess the structural layout (that is, the locations and integrity) or the functional connectivity (that is, how different brain regions are working together) of a patient's brain.

Please refer to the online application posting for Quicktome Software Suite, available at https://mearis.cms.gov/public/publications/ntap/NTP23101722NQE, for additional detail describing the technology and the disease for which the technology is used.

With respect to the newness criterion, according to the applicant, the Quicktome Software Suite received FDA 510(k) clearance on May 30, 2023. Per the FDA-cleared indication, the Quicktome Software Suite is composed of a set of modules intended for the display of medical images and other healthcare data. It includes functions for image review, image manipulation, basic measurements, planning, 3D visualization (MPR reconstructions and 3D volume rendering), and the display of BOLD rs-MRI scan studies. The FDA clearance for Quicktome Software Suite was based on substantial equivalence to the legally marketed predicate device, StealthViz Advanced Planning Application with Stealth Diffusion Tensor Imaging (DTI)^TM Package (hereafter referred to as StealthViz^TM ), as both of these devices allow the import and export of DICOM images to a hospital picture archiving and communication system (PACS); contain a graphical user interface to conduct planning and visualization; display MRI anatomical images, as well as tractography constructed from Diffusion Weighted Images, in 2D and 3D views; register tractography and an atlas to the underlying anatomical images; allow adding, removing, and editing of objects (including automatically segmented and manually defined regions of interest); and are delivered as software on an off-the-shelf hardware platform. Prior to the FDA 510(k) clearance of Quicktome Software Suite^TM in 2023, the technology, under the trade name Quicktome, received FDA 510(k) clearance on March 9, 2021, based on substantial equivalence to StealthViz^TM . StealthViz^TM received FDA 510(k) clearance on May 16, 2008 for use in two- and three-dimensional (2D and 3D) surgical planning and image review and analysis. According to the FDA 510(k) summary for StealthViz^TM, it enables digital diagnostic and functional imaging datasets, reviewing and analyzing the data in various 2D and 3D presentation formats, performing image fusion of datasets, segmenting structures in the images with manual and automatic tools and converting them into 3D objects for display, and exporting results to other Medtronic Navigation planning applications, to a PACS or to Medtronic Navigation surgical navigation systems such as StealthStation System. According to the applicant, the Quicktome Software Suite was commercially available immediately after FDA clearance.

According to the applicant, there are currently no ICD-10-PCS procedure codes to distinctly identify the Quicktome Software Suite. We note that the applicant submitted a request for approval for a unique ICD-10-PCS procedure code for the Quicktome Software Suite beginning in FY 2025. The applicant provided a list of diagnosis codes that may currently be used to identify the indication for Quicktome Software Suite under the ICD-10-CM coding system. Please refer to the online application posting for the complete list of ICD-10-CM codes provided by the applicant.

As previously discussed, if a technology meets all three of the substantial similarity criteria under the newness criterion, it would be considered substantially similar to an existing technology and would not be considered new for the purpose of new technology add-on payments.

With respect to the substantial similarity criteria, the applicant asserted that Quicktome Software Suite is not substantially similar to other currently available technologies because it is the first and only FDA-cleared platform to enable connectomic analysis at an individual level using machine learning and tractographic techniques to create personalized maps of the human brain. In addition, the applicant asserted that Quicktome Software Suite is the first cleared neurological planning tool to offer rs-fMRI capabilities. Per the applicant, Quicktome Software Suite eliminates the need for highly trained personnel, who may not be available at most institutions, and therefore, the technology meets the newness criterion. The applicant further asserted that current technologies that rely on task-based fMRI (tb-fMRI) can be problematic in brain tumor patients who may be cognitively impaired because they may be unable to perform required tasks. The following table summarizes the applicant's assertions regarding the substantial similarity criteria. Please see the online application posting for Quicktome Software Suite for the applicant's complete statements in support of its assertion that the Quicktome Software Suite is not substantially similar to other currently available technologies.

We note the following concerns regarding whether Quicktome Software Suite meets the newness criterion. With respect to the applicant's claim that Quicktome Software Suite does not use the same or similar mechanism of action as existing technologies to achieve a therapeutic outcome, we note that, according to the 510(k) application, it appears that the Quicktome Software Suite is equivalent to StealthViz^TM, its predicate device. We are unclear how the Quicktome Software Suite's mechanism of action, which enables patient-specific connectomic analysis for neurological planning, is different from that of StealthViz^TM . We note that StealthViz^TM received FDA 510(k) clearance on May 16, 2008 for use in 2D/3D surgical planning and image review and analysis, and therefore is no longer considered new for purposes of new technology add-on payments. According to the applicant, Quicktome Software Suite is the first and only FDA-cleared platform to enable brain network mapping and analysis at an individual level and provides clinicians with information that was previously only available in a research setting. We would be interested in further information to support that the Quicktome Software Suite does not use the same or similar mechanism of action as StealthViz^TM to achieve a therapeutic outcome, including information regarding capabilities of Quicktome Software Suite not found in StealthViz^TM, and whether and how those capabilities are the result of a new mechanism of action.

In addition, we note that there are several existing FDA-approved or cleared technologies (for example, StealthViz^TM, Brainlab's Elements and iPlan products) that analyze fMRI and other medical imaging data to create 3-D maps of a patient's brain, including white matter tracts. Furthermore, while the applicant asserted that Quicktome Software Suite is the only FDA-cleared device that uses a rs-fMRI, we question whether other FDA-cleared neurosurgical planning and visualization technologies integrate rs-fMRI, or if the analysis of rs-fMRI for neurosurgical planning is a mechanism of action unique to Quicktome Software Suite. We would be interested in more information on the relevant current standard of care and technologies utilized for neurosurgical planning and how the mechanism of action of the Quicktome Software Suite compares to the mechanism of action of existing technologies and connectomics software.

With respect to the third criterion, whether Quicktome Software Suite involves the treatment of the same or similar disease and patient population compared to existing technologies, we note that the applicant stated that the Quicktome Software Suite does not treat a new disease type or patient population, but does provide new information for the treatment of existing patient populations. However, the provision of new information for the treatment of existing patient populations does not mean that the technology treats a new disease type or patient population, and therefore, it is unclear what the basis is for the applicant's statement that the third criterion is not met. We would be interested in additional information to support whether and how Quicktome Software Suite may involve the treatment of a different type of disease or patient population.

As discussed in the FY 2022 IPPS/LTCH PPS final rule (86 FR 44981), we also continue to be interested in public comments regarding issues related to determining newness for technologies that use AI, an algorithm, or software. Specifically, we are interested in public comment on how these technologies may be considered for the purpose of identifying a unique mechanism of action; how updates to AI, an algorithm, or software would affect an already approved technology or a competing technology; whether software changes for an already approved technology could be considered a new mechanism of action, and whether an improved algorithm by competing technologies would represent a unique mechanism of action if the outcome is the same as an already approved AI new technology.

We are inviting public comments on whether Quicktome Software Suite is substantially similar to existing technologies and whether Quicktome Software Suite meets the newness criterion.

With respect to the cost criterion, to identify potential cases representing patients who may be eligible for Quicktome Software Suite, the applicant searched 2020 Medicare Inpatient Hospitals—by Provider and Service data. The applicant included all cases from the following MS-DRGs: 025 (Craniotomy and Endovascular Intracranial Procedures with MCC), 026 (Craniotomy and Endovascular Intracranial Procedures with CC), and 027 (Craniotomy and Endovascular Intracranial Procedures without CC/MCC). Using the inclusion/exclusion criteria described in the following table, the applicant identified 28,401 cases mapping to these three craniotomy MS-DRGs, with 64 percent of the identified cases mapping to MS-DRG 025. The applicant followed the order of operations described in the following table and calculated a final inflated average case-weighted standardized charge per case of $179,317, which exceeded the average case-weighted threshold amount of $134,802. Because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount, the applicant asserted that Quicktome Software Suite meets the cost criterion.

We note the following concerns regarding the cost criterion. We note that the applicant limited its cost analysis to MS-DRGs 025, 026, and 027 because those three MS-DRGs represent brain tumor resection procedures, which are the first and most clearly established procedures for which the technology offers clinical utility. We are interested in information as to whether the technology would map to other MS-DRGs, such as 023 and 024 (Craniotomy with Major Device Implant or Acute Complex CNS PDX with MCC or Chemotherapy, or without MCC, respectively), or 054 and 055 (Nervous System Neoplasms with and without MCC, respectively), and if these MS-DRGs should also be included in the cost analysis. In addition, we question whether every case within MS-DRGs 025, 026, 027 would be eligible for the technology and whether there would be any appropriate inclusion/exclusion criteria by ICD-10-CM/PCS codes within these MS-DRGs to identify potential cases representing patients who may be eligible for Quicktome Software Suite.

We are inviting public comments on whether Quicktome Software Suite meets the cost criterion.

With regard to the substantial clinical improvement criterion, the applicant asserted that Quicktome Software Suite represents a substantial clinical improvement over existing technologies because Quicktome supports the visualization and brain mapping that improve clinical outcomes such as reducing the risk of an extended length of stay (LOS) and unplanned readmissions for craniotomy patients by reducing new postoperative neurological deficits that are caused by damage to brain networks or a patient's connectome. The applicant further asserted that Quicktome Software Suite is the first and only FDA-cleared platform to enable connectomic analysis at an individual level, enabling surgeons to visualize and avoid damaging these brain networks during surgery, thereby significantly improving clinical outcomes relative to services or technologies previously available. The applicant submitted three published studies and one unpublished study evaluating the Quicktome Software Suite to support these claims, as well as four background articles about complications leading to unplanned readmissions after cranial surgery, factors associated with extended LOS in patients undergoing craniotomy for tumor resection, the association of incorporating fMRI in presurgical planning with mortality and morbidity in brain tumor patients, and the clinical importance of non-traditional, large-scale brain networks with respect to the potential adverse effects on patients when these networks are disrupted during surgery. We note that one of the articles submitted as a study using the technology, the Dadario and Sughrue (2022) study, should more appropriately be characterized as a background article because it does not directly assess the use of Quicktome Software Suite.

The following table summarizes the applicant's assertions regarding the substantial clinical improvement criterion. Please see the online posting for Quicktome Software Suite for the applicant's complete statements regarding the substantial clinical improvement criterion and the supporting evidence provided.

After our review of the information provided by the applicant, we have the following concerns regarding whether Quicktome Software Suite meets the substantial clinical improvement criterion.

With respect to the applicant's claim that Quicktome Software Suite supports the visualization of brain networks and surgical planning to avoid damaging them during surgery, we are concerned that the evidence does not appear to demonstrate that the Quicktome Software Suite's visualization and brain mapping techniques improve clinical outcomes relative to services or technologies already available by avoiding or reducing damage to the brain networks during surgery. For example, the Shah et al. (2023) study describes the use of connectomics in planning and guiding an awake craniotomy for a tumor impinging on the language area in a 31-year-old bilingual woman. The authors stated that Quicktome Software Suite was used to generate preoperative connectome imaging for the patient, which helped in assessing the risk of functional deficits, guiding surgical planning, directing intraoperative mapping stimulation, and providing insights into postoperative function. The authors further described how preoperative imaging demonstrated proximity of the tumor to parcellations of the language area, and how intraoperative awake language mapping was performed, revealing speech arrest and paraphasic errors at areas of the tumor boundary correlating to functional regions that explained these findings. However, we are concerned that the report is based on a single case, and we question whether these findings would be generalizable to the broader Medicare population. In addition, we note that the applicant did not provide evidence based on comparison of the use of Quicktome Software Suite technology with currently available cranial mapping software or tractography tools, and we would be interested in comparisons that assess the use of Quicktome Software Suite technology to improve these clinical outcomes relative to currently available technologies, such as StealthViz^TM or Brainlab's Elements and iPlan products.

In addition, we question whether the findings related to Quicktome's efficacy are generalizable to the Medicare population. Specifically, the Wu et al. (2023) study aimed to investigate the involvement of non-traditional brain networks in insulo-Sylvian gliomas and evaluate the potential of Quicktome Software Suite in optimizing surgical approaches to preserve cognitive function. The study included three parts. The first part involved a retrospective analysis of the location of insulo-Sylvian gliomas in 45 adult patients who underwent glioma surgery centered in the insular lobe. According to the research team, Quicktome showed that 98 percent of the tumors involved a non-traditional eloquent brain network, which is associated with cognitive or neurological function. In part two, the research team prospectively collected neuropsychological data on seven patients to assess tumor-network involvement with change in cognition. Using Quicktome, the research team found that all seven patients had a tumor involving a non-traditional eloquent brain network. Part three described how the research team used Quicktome Software Suite's network mapping capabilities to inform surgical decision-making and predict the preservation of cognitive function post-surgery for two prospective patients. We note that while Quicktome Software Suite was used to assist surgical decision-making in two patients, as previously discussed, we question whether these limited findings would be generalizable to the broader Medicare population, and we would be interested in comparisons between Quicktome Software Suite and other currently available technologies to improve these clinical outcomes.

We also question whether the use of Quicktome Software Suite has a direct impact on significantly reducing neurological or cognitive deficits post-surgery. The applicant cited Morell et al. (2022), a retrospective, single-center study of 100 patients who underwent surgery for brain tumor resection. The research team used Quicktome Software Suite to map and evaluate the integrity of nine large-scale brain networks in these patients. According to the research team, Quicktome's analysis showed that for more than half of these patients, at least one of their brain networks were either affected during brain surgery or at risk of postsurgical deficits. Among those at risk of postsurgical deficits, their cortical regions or white matter fibers were either displaced by the mass effect of the tumor or damaged during surgery due to proximity to the tumor and/or planned transcortical trajectory. We note that the primary focus of the study was to retrospectively map large-scale brain networks in brain tumor patients using Quicktome Software Suite platform, and therefore does not appear to demonstrate that use of Quicktome Software Suite avoided damaging these networks during surgery.

Similarly, we note that the applicant cited Hendricks et al. (n.d.), which retrospectively analyzed the outcomes of 346 adult patients who underwent resection of superficial cerebral cavernous malformations (CMs) from November 2008 through June 2021. We note that the focus of the study was the use of Quicktome Software Suite to support the identification of areas of eloquent noneloquence, or cortex injured or transgressed that causes unexpected deficits. Therefore, we remain interested in evidence that incorporating Quicktome Software Suite's analytics into surgical strategies and navigational tools during craniotomy surgery is associated with improved post-surgical outcomes.

With respect to the applicant's claim that damaging brain networks during surgery leads to neurologic complications, which are a leading contributor to increased length of stay (LOS), ICU admission, and readmissions, the applicant asserted that Quicktome Software Suite enables surgeons to visualize these brain networks and change their surgical approach as needed to avoid damaging these networks. We note that the applicant submitted two documents in support of this claim, both of which are background documents rather than studies that evaluate clinical outcomes associated with the use of Quicktome Software Suite. In particular, the Elsamadicy et al. (2018) study showed that altered mental status and sensory or motor deficits were the primary complications of craniotomies. The Philips et al. (2023) study demonstrated that post-operative neurological deficits, caused by damage to brain networks or a patient's connectome were responsible for extended length of stay. Although these studies supported the applicant's claim that damage to brain networks resulted in neurological complications, increasing LOS and inpatient service use, we note that the evidence provided for this claim does not assess the use of Quicktome Software Suite to improve these clinical outcomes, nor does the evidence appear to demonstrate that use of the technology substantially improves these clinical outcomes relative to existing technologies, such as StealthViz^TM or Brainlab's Elements and iPlan products. We would be interested in evidence demonstrating that utilization of the Quicktome Software Suite improves clinical outcomes related to LOS, ICU admissions, and readmissions relative to existing technologies.

With respect to the applicant's claim that damaging brain networks during surgery has adverse effects for patients, including decreased quality of life and loss of function, the applicant asserted that Quicktome Software Suite enables surgeons to visualize brain networks and change their surgical approach as needed to avoid damaging these networks. The applicant further asserted that while other techniques have enabled the visualization of tractography or of parts of eloquent networks, this is not an adequate substitute for the ability to review the entirety of a patient's connectome (networks such as motor, language, and vision). Per the applicant, Quicktome Software Suite is the first of its kind to show the location and function of these networks and that damage to these networks is associated with poor outcomes. The applicant cited Vysotski et al. (2019), who demonstrated that brain tumor patients who underwent a preoperative fMRI experienced significantly lower risks for mortality than those who did not. The applicant also cited Dadario and Sughrue (2022), who discussed the clinical importance of preserving non-traditional brain networks for neurosurgical patients. Similar to our previous concern, we note that the evidence provided for this claim does not assess the use of Quicktome Software Suite to improve quality of life and loss of function, nor does the evidence appear to demonstrate that use of the technology substantially improves these clinical outcomes relative to existing technologies. Therefore, we continue to question whether there is evidence to assess the effectiveness of Quicktome Software Suite to reduce damage to brain networks during surgery.

We are also interested in public comments related to how we should evaluate issues related to determining substantial clinical improvement for technologies that use AI, an algorithm or software, including issues related to algorithm transparency, and how CMS should consider these issues in our assessment of substantial clinical improvement, as we continue to gain experience in this area. Algorithm transparency refers to whether, and the extent to which, clinical users are able to access a consistent, baseline set of information about the algorithms they use to support their decision making and to assess such algorithms for fairness, appropriateness, validity, effectiveness, and safety.

We are inviting public comments on whether Quicktome Software Suite Software Suite meets the substantial clinical improvement criterion.

We did not receive any written comments in response to the New Technology Town Hall meeting notice published in the Federal Register regarding the substantial clinical improvement criterion for Quicktome Software Suite.

k. TALVEY^TM (talquetamab-tgvs)

Johnson & Johnson Health Care Systems, Inc. submitted an application for new technology add-on payments for TALVEY^TM for FY 2025. According to the applicant, TALVEY^TM is the first and only approved G protein-coupled receptor, class C, group 5, member D (GPRC5D) targeting therapy, a bispecific antibody (bsAb) approved for the treatment of adults with Relapsed or Refractory Multiple Myeloma (RRMM) who have received at least four prior lines of therapy (also referred to herein as 4L+RRMM), including a proteasome inhibitor (PI), an immunomodulatory agent (IMiD), and an anti-cluster of differentiation (CD)38 monoclonal antibody (mAb). GPRC5D is an orphan receptor expressed at a significantly higher level on malignant Multiple Myeloma (MM) cells than on normal plasma cells.

Please refer to the online application posting for TALVEY^TM available at https://mearis.cms.gov/public/publications/ntap/NTP2310163HW2V, for additional detail describing the technology and the disease treated by the technology.

With respect to the newness criterion, according to the applicant, TALVEY^TM was granted a Biologic License from FDA on August 9, 2023 for the treatment of adult patients with 4L+RRMM who have received at least four prior lines of therapy, including a PI, an ImiD, and an anti-CD38 mAb. According to the applicant, TALVEY^TM was commercially available immediately after FDA approval. Per the applicant, patients may be dosed on a weekly or bi-weekly dosing schedule. The applicant noted that patients on a weekly dosing schedule receive three weight-based doses—a 0.01 mg/kg loading dose, a 0.06 mg/kg loading dose, and the first 0.40 mg/kg treatment dose—during the hospital stay; patients on a bi-weekly dosing schedule receive an additional 0.80 mg/kg treatment dose during the hospital stay.

The applicant submitted a request for approval for a unique ICD-10-PCS procedure code for TALVEY^TM and was granted approval for the following procedure code effective April 1, 2024: XW01329 (Introduction of talquetamab antineoplastic into subcutaneous tissue, percutaneous approach, new technology group 9). The applicant stated that ICD-10-CM codes C90.00 (Multiple myeloma not having achieved remission) and C90.02 (Multiple myeloma in relapse) may be used to currently identify the indication for TALVEY^TM.

As previously discussed, if a technology meets all three of the substantial similarity criteria under the newness criterion, it would be considered substantially similar to an existing technology and would not be considered “new” for the purpose of new technology add-on payments.

With respect to the substantial similarity criteria, the applicant asserted that TALVEY^TM is not substantially similar to other currently available technologies because it has a unique mechanism of action as a CD3 T-cell engaging bsAb targeting GPRC5D, and therefore, the technology meets the newness criterion. The following table summarizes the applicant's assertions regarding the substantial similarity criteria. Please see the online application posting for TALVEY^TM for the applicant's complete statements in support of its assertion that TALVEY^TM is not substantially similar to other currently available technologies.

With regard to the newness criterion, we note that TALVEY^TM may have a similar mechanism of action to that of TECVAYLI®, for which we approved an application for new technology add-on payments for FY 2024 for the treatment of adult patients with RRMM after four or more prior lines of therapy, including a PI, an IMiD, and an anti-CD38 mAb (88 FR 58891). We also note that TALVEY^TM may have a similar mechanism of action to that of ELREXFIO^TM, another applicant for FY 2025 new technology add-on payments. As previously discussed, ELREXFIO^TM was approved on August 14, 2023 for the treatment of adult patients with RRMM who have received at least four prior lines of therapy, including a PI, an IMiD, and an anti-CD38 mAb.

Per the applicant, TALVEY^TM has a different mechanism of action from TECVAYLI® or ELREXFIO^TM because it binds to different receptors. The applicant noted that TALVEY^TM is the only medicine that targets GPRC5D on myeloma cells. As we previously noted, TECVAYLI®'s mechanism of action is described as a bsAb, with binding domains that simultaneously bind the BCMA target on tumor cells and the CD3 T-cell receptor (88 FR 58886). As previously discussed, the mechanism of action for ELREXFIO^TM is as a bsAb that uses binding domains that simultaneously bind the BCMA target on tumor cells and the CD3 T-cell receptor. However, while the applicant asserts that TALVEY^TM has a unique mechanism of action as compared to TECVAYLI® and ELREXFIO^TM by binding to different receptors, we question how binding to a different protein (GPRC5D) on the tumor cell would result in a different mechanism of action compared to BCMA targeting bispecific antibodies. Furthermore, we note that the applicant claimed that the target of TALVEY^TM, GPRC5D, has a unique tissue expression profile, which results in an adverse event profile distinct from those of the currently approved bispecific antibodies in RRMM targeting BCMA. However, as this relates to the risk of adverse event from TALVEY^TM administration but is not critical to the way the drug treats the underlying disease, we question whether this would therefore relate to an assessment of substantial clinical improvement rather than of substantial similarity. We would welcome additional information on how molecular differences, such as the regulation of expression of GPRC5D and BCMA on MM cells during treatment, should be considered in determining whether a technology utilizes a different mechanism of action to achieve a therapeutic outcome.

Accordingly, as it appears that TALVEY^TM and TECVAYLI® may use the same or similar mechanism of action to achieve a therapeutic outcome, would be assigned to the same MS-DRG, and treat the same or similar patient population and disease, we believe that these technologies may be substantially similar to each other. We note that if we determine that this technology is substantially similar to TECVAYLI®, we believe the newness period would begin on November 9, 2022, the date TECVAYLI^TM became commercially available (88 FR 58887).

Furthermore, as noted, we believe another applicant for FY 2025 new technology add-on payments, ELREXFIO^TM, may also be substantially similar to TALVEY^TM . Per the application for ELREXFIO^TM, ELREXFIO^TM is a bispecific antibody approved for the treatment of adults with RRMM who have received at least four prior lines of therapy, including a PI, an IMiD, and an anti-CD38 mAb. We believe ELREXFIO^TM may be substantially similar to TALVEY^TM because it is also a bispecific antibody that treats RRMM in patients who have previously received a PI, IMiD, and an anti-CD38 mAb. Additionally, we note that similar to TALVEY^TM, the prescribing information for ELREXFIO^TM includes the population with prior exposure to BCMA T-cell redirection therapy. Accordingly, as it appears that TALVEY^TM and ELREXFIO^TM would use the same or similar mechanism of action to achieve a therapeutic outcome, would be assigned to the same MS-DRG, and would treat the same or similar patient population and disease, we believe that these technologies may also be substantially similar to each other such that they should be considered as a single application for purposes of new technology add-on payments. We note that if TALVEY^TM is determined to only be substantially similar to ELREXFIO^TM, and not TECVAYLI®, we believe the newness period for TALVEY^TM would begin on August 9, 2023, the date TALVEY^TM received FDA approval.

We are interested in receiving information on how these technologies may differ from each other with respect to the substantial similarity and newness criteria, to inform our analysis of whether TALVEY^TM is substantially similar to ELREXFIO^TM and/or TECVAYLI®.

We are inviting public comments on whether TALVEY^TM is substantially similar to existing technologies and whether TALVEY^TM meets the newness criterion.

With respect to the cost criterion, to identify potential cases representing patients who may be eligible for TALVEY^TM, the applicant searched the FY 2022 MedPAR for cases reporting one of the following ICD-10-CM codes in the first five diagnosis positions on the claim: C90.00 (Multiple myeloma not having achieved remission), C90.01 (Multiple myeloma in remission), and C90.02 (Multiple myeloma in relapse). Using the inclusion/exclusion criteria described in the following table, the applicant identified 4,468 claims mapping to five MS-DRGs with 82 percent of identified cases mapping to MS-DRGs 840 and 841 (Lymphoma and Non-acute Leukemia with MCC, with CC, respectively). The applicant followed the order of operations described in the following table and calculated a final inflated average case-weighted standardized charge per case of $210,677, which exceeded the average case-weighted threshold amount of $77,360. Because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount, the applicant asserted that TALVEY^TM meets the cost criterion.

We are inviting public comments on whether TALVEY^TM meets the cost criterion.

With regard to the substantial clinical improvement criterion, the applicant asserted that TALVEY^TM represents a substantial clinical improvement over existing technologies because TALVEY^TM meets two of three criteria for substantial clinical improvement due to its off-the-shelf availability without the need for complex manufacturing. Additionally, according to the applicant, TALVEY demonstrates clinically meaningful outcomes in heavily pre-treated patients who are exposed or naive to prior T-cell redirection therapy and provides a therapeutic option with a lower severe infection rate. The applicant provided four studies to support these claims. We also note that four other articles submitted as supporting evidence should more appropriately be characterized as background articles because they do not directly assess the use of TALVEY^TM . Instead, those four articles focus on existing treatment options (ELREXFIO^TM or TECVAYLI®) or the high mortality rate of MM patients who died while waiting for CAR-T cell therapies.

The following table summarizes the applicant's assertions regarding the substantial clinical improvement criterion. Please see the online posting for TALVEY^TM for the applicant's complete statements regarding the substantial clinical improvement criterion and the supporting evidence provided.

After review of the information provided by the applicant, we have the following concerns regarding whether TALVEY^TM meets the substantial clinical improvement criterion. With respect to the applicant's claim that TALVEY^TM offers an efficacious treatment option for patients who are unable to receive CAR T-cell therapy, we note that TECVAYLI® and ELREXFIO^TM are recently FDA-approved alternatives to CAR T-cell therapy with the same indication as treatments for RRMM for patients ineligible or unresponsive to four prior lines of therapy, including a PI, an IMiD, and an anti-CD38 mAb. In addition, although the applicant claimed that TALVEY^TM is more accessible than CAR T-cell therapies because it is readily available and can be delivered at any acute care hospitals, we would be interested in evidence comparing the effects of TALVEY^TM and CAR T-cell therapies on mortality and other clinical outcomes, as we did not receive results from clinical trials comparing the efficacy of TALVEY^TM with CAR T-cell therapies.

With respect to the applicant's claim that TALVEY^TM has a low incidence of serious and higher-grade infections and preserves B-cell function, we note that the clinical data from the Hammons et al. (2023) study did not appear to support this claim. Specifically, the difference in the proportion of grade 3+ infections among patients treated with BCMA bsAb (58 percent), GPRC5D bsAb combination therapy with daratumumab and/or pomalidomide (33 percent), and GPRC5D bsAb monotherapy (50 percent) was not statistically significant (p = 0.06). While the total infection rate per 100 days was lower for the GPRC5D monotherapy group, the difference was not statistically significant (BCMA: 0.57 percent, GPRC5D combination: 0.62 percent, GPRC5D monotherapy: 0.13 percent; p = 0.06). Moreover, the differences among the three groups in bacterial, viral, and fungal infection rates per 100 days did not reach statistical significance (p = 0.07, 0.4, and 0.14 respectively). In addition, the difference among the three groups regarding the need for hospitalization was not statistically significant (p = 0.07). Similarly, we note that according to the Rodriguez-Otero et al. (2023) poster presentation, of the 339 patients treated with TALVEY^TM, 64 percent (n = 217) experienced infections, of which 29 percent (n = 63) experienced grade 3-4 infections. The applicant highlighted a conclusion in the Rodriguez-Otero poster that infection rates, particularly rates of higher grade and fatal infections, occurred less frequently with TALVEY^TM compared with those observed in BCMA-targeted T-cell based therapies. We note that because clinical trials are conducted under widely varying conditions, we question whether adverse reaction rates observed in the clinical trials of one drug can be directly compared to rates in the clinical trials of another drug without an effort to adjust for such conditions.

With respect to the applicant's claim that TALVEY^TM offers clinically meaningful outcomes in heavily pre-treated patients naïve to prior bsAb and CAR T-cell therapy, we note that the applicant compared the results from MonumenTAL-1, the ongoing TALVEY^TM clinical study, with clinical study results of TECVAYLI® and ELREXFIO^TM . The applicant noted that the overall response rates (ORRs) for TALVEY^TM 's 0.4 mg/kg weekly and 0.8 mg/kg biweekly cohorts of 74.1 percent and 71.7 percent respectively seem higher than the response rates reported for TECVAYLI® (63 percent) and ELREXFIO^TM (61 percent). The applicant also noted the duration of response (DOR), progression free survival (PFS), and overall survival (OS) for TALVEY^TM were comparable to that of the BCMA bispecific antibodies. However, we note that this was based on a comparison of three separate clinical trials, which can involve numerous confounding variables, and the applicant did not provide supporting data related to clinical trial design or statistical analysis to explain why the potential effects of confounding variables should not be a concern for purposes of this comparison. Therefore, we are interested in additional evidence demonstrating that TALVEY^TM significantly improves clinical outcomes compared to BCMA bispecific antibodies in heavily pre-treated patients naïve to prior bispecific antibody and CAR T-cell therapy that adjusts for the effects of confounding factors.

With respect to the applicant's claim that TALVEY^TM offers clinically meaningful outcomes in patients exposed to prior bispecific antibody and CAR T-cell therapy, the applicant referenced past results from MonumenTAL-1 that included a cohort of 51 patients with prior T-cell redirection therapies (TCR) including BCMA-directed CAR-T therapies and/or bispecific antibodies, citing an ORR of 64.7 percent in these heavily pre-treated patients. The applicant also provided updated results that included an additional 19 patients with prior TCR that demonstrated similar efficacy, noting slightly higher ORRs and improved PFS and DOR rates in patients with prior BCMA CAR T-cell versus prior bispecific antibody therapies. We welcome additional information demonstrating the efficacy of TALVEY^TM in patients previously treated with BCMA-directed TCRs.

We are inviting public comments on whether TALVEY^TM meets the substantial clinical improvement criterion.

We did not receive any written comments in response to the New Technology Town Hall meeting notice published in the Federal Register regarding the substantial clinical improvement criterion for TALVEY^TM.

l. Odronextamab, First Indication: Relapsed or Refractory Diffuse Large B-Cell Lymphoma (R/R DLBCL)

Regeneron Pharmaceuticals, Inc. submitted an application for new technology add-on payments for odronextamab for use in relapsed or refractory diffuse large B-cell lymphoma (R/R DLBCL) for FY 2025. According to the applicant, odronextamab is the first and only novel, fully-human Cluster of Differentiation (CD) 20 × CD 3 bispecific antibody (bsAb) with an immunoglobulin G4 (IgG4)-based structure in B-Cell non-Hodgkin lymphoma (B-NHL) created using Regeneron's proprietary Veloci-Bi® technology that is designed to simultaneously bind to two types of antigens, CD20 found on both healthy and cancerous B cells, and CD3 found on T-cells. Per the applicant, simultaneous engagement of both arms of odronextamab results in the activation of immune system T-cells, causing it to generate cytotoxic T-cells that can destroy the targeted cells, including cancerous B-cells. We note that Regeneron Pharmaceuticals, Inc. also submitted an application for new technology add-on payments for odronextamab for use in relapsed or refractory follicular lymphoma (R/R FL) for FY 2025, as discussed separately later in this section.

Please refer to the online application posting for odronextamab, available at https://mearis.cms.gov/public/publications/ntap/NTP231017LHBUG, for additional detail describing the technology and the disease treated by the technology.

With respect to the newness criterion, the applicant stated that its marketing authorization request for odronextamab has been filed by FDA and that it anticipates a Biologic License Application (BLA) decision from FDA for adults with R/R DLBCL after at least two prior systemic therapies, including patients with or without prior CAR T-cell therapy, before May 1, 2024. According to the applicant, odronextamab will be commercially available immediately after FDA approval. According to the applicant, it anticipates that inpatient usage of odronextamab might occur due to a physician's order or as a result of an adverse event, such as cytokine release syndrome (CRS) Grade 2 or higher, that results in an inpatient admission. The applicant noted that in the pivotal Phase 2 clinical trial (ELM-2), when CRS Grade 2 or 3 events developed among DLBCL patients (there were no CRS Grade 4 or higher reported on the recommended dosing regimen), 31 percent of the time it occurred after the initial dose (0.7 mg), 46 percent after the first intermediate dose (4 mg), 15 percent after the second intermediate dose (20 mg), 0 percent after the first full dose (160 mg), and 8 percent after the second full dose & beyond (160 mg). Using this information, the applicant developed a weighted average inpatient dose of 17.4 mg.

According to the applicant, there are currently no ICD-10-PCS procedure codes to distinctly identify odronextamab. We note that the applicant submitted a request for approval for a unique ICD-10-PCS procedure code for odronextamab beginning in FY 2025. The applicant provided a list of diagnosis codes that may be used to currently identify this indication for odronextamab under the ICD-10-CM coding system. Please refer to the online application posting for the complete list of ICD-10-CM codes provided by the applicant. We believe the relevant ICD-10-CM codes to identify the indication of R/R DLBCL would be the codes included in category C83 (Non-follicular lymphoma) under the ICD-10-CM classification in subcategory: C83.3- (Diffuse large B-cell lymphoma). We are inviting public comments on the use of these ICD-10-CM diagnosis codes to identify the indication of R/R DLBCL for purposes of the new technology add-on payment, if approved.

As previously discussed, if a technology meets all three of the substantial similarity criteria under the newness criterion, it would be considered substantially similar to an existing technology and would not be considered “new” for the purpose of new technology add-on payments.

With respect to the substantial similarity criteria, the applicant asserted that odronextamab is not substantially similar to other currently available technologies. According to the applicant, the mechanism of action for odronextamab presents noteworthy distinctions, such as reduced potential for immunogenicity and anti-drug antibodies through its novel fully human design and reduced ability to elicit an immune response through the blocking effect of the IgG4-based structure. The applicant also asserted that odronextamab is the only bispecific antibody (bsAb) with a dedicated prospective cohort that shows efficacy in patients with R/R DLBCL with prior CAR T-cell therapy while also showing comparable efficacy in patients without prior CAR T-cell therapy, and that therefore, the technology meets the newness criterion. The following table summarizes the applicant's assertions regarding the substantial similarity criteria. Please see the online application posting for odronextamab for the applicant's complete statements in support of its assertions that odronextamab is not substantially similar to other currently available technologies.

We note that according to the applicant, odronextamab may have a similar mechanism of action to that of EPKINLY^TM (epcoritamab) and COLUMVI^TM (glofitamab), for which we approved an application for new technology add-on payments for FY 2024 (88 FR 58835) for the treatment of adult patients with R/R DLBCL after two or more prior lines of systemic therapy. Specifically, a similar IgG bsAb engaging CD3 × CD20 mechanism is utilized in the treatment of the same population of R/R DLBCL adult patients with two or more prior therapies. Although the applicant asserts that odronextamab is the first and only fully human, IgG4-based bsAb in B-NHL, which may help reduce potential for immunogenicity and anti-drug antibodies, we believe that this would relate to the risk of adverse event from odronextamab administration but is not critical to the way the drug treats the underlying disease, and therefore would relate to an assessment of substantial clinical improvement, rather than of substantial similarity.

The applicant asserts that it treats a new patient population because it is indicated for a sub-population of patients within R/R DLBCL: adult patients with two or more prior therapies after transplant or CAR T-cell therapy. However, as noted by the applicant, both EPKINLY^TM and COLUMVI^TM may also be used for patients with R/R DLBCL with disease progression after transplant or CAR T-cell therapy, also after two or more lines of systemic therapies. Therefore, we believe that odronextamab may treat the same or similar disease in the same or similar patient population as EPKINLY^TM and COLUMVI^TM . Accordingly, as it appears that odronextamab, and EPKINLY^TM and COLUMVI^TM may use the same or similar mechanism of action to achieve a therapeutic outcome, would be assigned to the same MS-DRG, and treat the same or similar patient population and disease, we believe that these technologies may be substantially similar to each other. We note that if we determine that this technology is substantially similar to EPKINLY^TM and COLUMVI^TM, we believe the newness period for this technology would begin on May 19, 2023, the date on which EPKINLY^TM received FDA approval, which is the earliest market availability date submitted for EPKINLY^TM and COLUMVI^TM. We are interested in information on how these technologies may differ from each other with respect to the substantial similarity criteria and newness criterion.

We are inviting public comments on whether odronextamab meets the newness criterion, including whether odronextamab is substantially similar to EPKINLY^TM and COLUMVI^TM or other existing technologies.

With respect to the cost criterion, the applicant provided multiple analyses to demonstrate that it meets the cost criterion. For each analysis, the applicant searched the FY 2022 MedPAR using a combination of ICD-10-CM and/or PCS codes to identify potential cases representing patients who may be eligible for odronextamab. The applicant explained that it used different codes to demonstrate different cohorts that may be eligible for the technology. Each analysis followed the order of operations described in the tables later in this section.

For the first analysis, the applicant used a list of ICD-10-CM diagnosis codes to identify cases with primary diagnosis of DLBCL. The applicant excluded cases with a corresponding ICD-10-CM or ICD-10-PCS code indicating active treatment. Per the applicant, active treatment was defined as allogeneic stem cell transplant, bone marrow transplant, transplant complications, chemotherapy administration, immunotherapy, or radiation. Please see the online posting for odronextamab for the complete list of codes provided by the applicant. The applicant used the inclusion/exclusion criteria described in the following table. Under this analysis, the applicant identified 3,066 claims mapping to 10 MS-DRGs, including MS-DRG 840 (Lymphoma and Non-Acute Leukemia with MCC) representing 34.9 percent of the identified cases. The applicant calculated a final inflated average case-weighted standardized charge per case of $141,787, which exceeded the average case-weighted threshold amount of $106,031.

For the second analysis, the applicant identified cases using a list of ICD-10-CM diagnosis codes: T80.89XA (Other complications following infusion, transfusion, and therapeutic injection) or D89.832-D89.839 (Cytokine release syndrome (CRS) Grades 2-5 or unspecified) in any position. The applicant used the inclusion/exclusion criteria described in the following table. Under this analysis, the applicant identified 80 claims mapping to two MS-DRGs: 018 (Chimeric Antigen Receptor (CAR) T-Cell and Other Immunotherapies) and 811 (Red Blood Cell Disorders with MCC). The applicant calculated a final inflated average case-weighted standardized charge per case of $1,095,920, which exceeded the average case-weighted threshold amount of $936,675.

Because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount in all scenarios, the applicant maintained that odronextamab meets the cost criterion.

We are inviting public comments on whether odronextamab meets the cost criterion.

With regard to the substantial clinical improvement criterion, the applicant asserted that odronextamab represents a substantial clinical improvement over existing technologies because odronextamab offers a new treatment for patients who are ineligible for CAR T-cell therapy and represents a substantial clinical improvement over existing technologies in patients with R/R DLBCL, including those with or without prior CAR T-cell therapy. According to the applicant, odronextamab will expand access to heavily pretreated, highly refractory patients and will offer patients with R/R DLBCL a new monotherapy that demonstrates substantial clinical benefits, including a generally manageable safety profile and favorable Health Related Quality of Life (HRQoL). The applicant also asserted that odronextamab significantly improves clinical outcomes relative to services or technologies previously available (such as EPKINLY and COLUMVI ). The applicant provided three studies to support these claims, as well as nine background articles about other therapies. The following table summarizes the applicant's assertions regarding the substantial clinical improvement criterion. Please see the online posting for odronextamab for the applicant's complete statements regarding the substantial clinical improvement criterion and the supporting evidence provided.

After review of the information provided by the applicant, we have the following concerns regarding whether odronextamab meets the substantial clinical improvement criterion. We note that with respect to the claim that odronextamab will increase treatment options for patients with relapsed or refractory diffuse large B-cell lymphoma (R/R DLBCL) who have a high risk of cytokine release syndrome (CRS), the applicant submitted the oral presentation slides of the results from a pre-specified analysis by Kim et al. (2022), presenting the interim results for the Phase II trial for odronextamab, ELM-2. In this trial, 140 patients (median age: 66 years) with R/R DLBCL after 2 or more lines of therapy, Eastern Cooperative Oncology Group (ECOG) 0 or 1, were assigned to receive either a 1/20 mg step-up regimen (n = 67) or 0.7/4/20 mg step-up regimen (n = 73) after the study initiated with a first cycle of step-up regimen of 1/20 mg. The regimen was modified to 0.7/4/20 mg during Cycle 1 to further mitigate the risk of CRS. The rates of CRS grades 2 and 3 for patients grouped to the 1/20 regimen were 17.9 percent and 7.5 percent respectively, while rates of CRS grades 2 and 3 for patients grouped to the 0.7/4/20 regimen were 13.7 percent and 1.4 percent. We note that although the incidence of grade 3 CRS was lower in the 0.7/4/20 regimen arm, the applicant indirectly compared these incidence rates with the rates of trials as found in the prescribing information for other existing technologies, including EPKINLY^TM and COLUMVI^TM , and it is unclear if these differences are statistically significant. We also question whether there are differences between these clinical trials, such as patient characteristics or other confounding variables, which would limit such comparability between CRS incidence rates. We are concerned as to whether the differences identified by the applicant translate to clinically meaningful improvements for patients treated with odronextamab as compared to rates for existing treatments.

With respect to the claim that odronextamab monotherapy is an effective treatment option for patients with R/R DLBCL including those with or without prior CAR T-cell therapy, the applicant submitted the oral presentation slides of the results from a pre-specified analysis by Kim et al. (2022), previously described. The oral presentation slides refer to the Phase 1 trial for odronextamab (ELM-1) and indicate consistency of results across trials. The applicant noted that patients with prior CAR-T therapy demonstrated an objective response rate (ORR) of 48.4 percent (95 percent CI: 30.2, 66.9), and a Complete Response (CR) rate of 32.3 percent (n = 44 patients). The applicant cited other information about CD20×CD3 bsAbs in patients with R/R DLBCL including the United States Prescribing Information (USPI) for EPKINLY^TM and COLUMVI^TM for which 29 percent and 30 percent of patients respectively were refractory to CAR T-cell therapy. We note that the provided evidence did not compare the efficacy of odronextamab to EPKINLY^TM or COLUMVI^TM . Similar to our earlier concern, we question whether there are confounding factors between studies that would limit indirect comparisons of ORR and CR. We would be interested in additional evidence to assess the use of odronextamab in improving these clinical outcomes relative to existing treatments.

With respect to the claim that the odronextamab clinical program enrolled heavily pre-treated and highly refractory patients with high-grade non-Hodgkins Lymphoma (NHL) and sicker patients based on a worse ECOG performance status, the applicant submitted the oral slides of the results from a pre-specified analysis by Kim et al. (2022), previously described, and the peer-reviewed publication of the EPKINLY^TM dose expansion cohort of the phase I/II clinical trial. ECOG performance status is based on a five-point scale, with higher numbers indicating greater disability. Both trials included patients with ECOG performance status of 0 or 1 and the EPKINLY^TM trial also included ECOG performance status scores of 2; the odronextamab trial (n = 140) had rates of 32.1 percent and 67.9 percent for ECOG 0 and 1 respectively, whereas the EPKINLY^TM trial has ECOG performance status scores of 47.1 percent, 49.7 percent, and 3.2 percent for ECOG 0, 1, and 2 respectively. However, we note that these incidence rates of patient characteristics are indirectly compared across unrelated clinical trials and patient outcomes are not stratified in either trial based on these characteristics. For example, we note that the classification of “worse ECOG status” in the odronextamab trial had a higher incidence rate of patients with ECOG 1 performance status, but this trial did not include patients with ECOG 2 performance status, as did the EPKINLY^TM trial.

With regards to the applicant's assertions that odronextamab significantly improves clinical outcomes relative to existing technologies because it is the first CD20×CD3 bsAb to report long-term patient outcomes at longest follow-up of 4.5 years, and that treatment until disease progression may have benefits on HRQoL for heavily pretreated patients with R/R DLBCL and potentially addresses unmet needs in a challenging treatment setting, we are concerned that the evidence presented does not compare these outcomes to existing technologies, such as EPKINLY^TM or COLUMVI^TM . For example, although the applicant stated that odronextamab is the first to report on long-term patient outcomes with the longest follow-up, there does not appear to be evidence demonstrating comparisons of long-term patient outcomes of odronextamab to existing technologies to support its claim that the technology improves clinical outcomes. In addition, there does not appear to be evidence of a direct HRQoL comparison to existing technologies to assess improvements to HRQoL for heavily pretreated patients with R/R DLBCL. Therefore, we welcome additional evidence demonstrating comparisons of odronextamab to existing technologies to support the applicant's claims.

We are inviting public comments on whether odronextamab meets the substantial clinical improvement criterion.

We did not receive any written comments in response to the New Technology Town Hall meeting notice published in the Federal Register regarding the substantial clinical improvement criterion for odronextamab.

m. Odronextamab, Second Indication: Relapsed or Refractory Follicular Lymphoma (R/R FL)

Regeneron Pharmaceuticals, Inc. submitted an application for new technology add-on payments for odronextamab for use in relapsed or refractory follicular lymphoma (R/R FL) for FY 2025. According to the applicant odronextamab is the first and only novel, fully-human Cluster of Differentiation (CD) 20 × CD 3 bispecific antibody (bsAb) with an immunoglobulin G4 (IgG4)-based structure in B-Cell non-Hodgkin lymphoma (B-NHL) created using Regeneron's proprietary Veloci-Bi® technology that is designed to simultaneously bind to two types of antigens, CD20, found on both healthy and cancerous B cells, and CD3, found on T-cells. Per the applicant, simultaneous engagement of both arms of odronextamab results in the activation of immune system T-cells, causing it to generate cytotoxic T-cells that can destroy the targeted cells, including cancerous B cells. As previously discussed earlier in this section, Regeneron Pharmaceuticals, Inc. also submitted an application for new technology add-on payments for odronextamab for use in relapsed or refractory diffuse large B-cell lymphoma (R/R DLBCL) for FY 2025.

Please refer to the online application posting for odronextamab, available at https://mearis.cms.gov/public/ ,publications/ntap/NTP231017YATW9, for additional detail describing the technology and B-NHL R/R FL.

With respect to the newness criterion, the applicant stated that its marketing authorization request for odronextamab has been filed by FDA and that it anticipates a Biologic License Application (BLA) decision from FDA for adults with R/R FL after at least two prior systemic therapies, before May 1, 2024. According to the applicant, odronextamab will be commercially available immediately after FDA approval. According to the applicant, it anticipates that inpatient usage of odronextamab might occur due to a physician's order or as a result of an adverse event, such as cytokine release syndrome (CRS) Grade 2 or higher, that results in an inpatient admission. The applicant noted that in the pivotal Phase 2 clinical trial (ELM-2), when CRS Grade 2 or 3 events developed among FL patients (there were no CRS Grade 4 or higher reported on the recommended dosing regimen), 20 percent of the time they occurred after the initial dose (0.7 mg), 50 percent of the time after the first intermediate dose (4 mg), 20 percent of the time after the second intermediate dose (20 mg), 0 percent of the time after the first full dose (80 mg), and 10 percent of the time after the second full dose and beyond (80 mg). Using this information, the applicant developed a weighted average inpatient dose of 14.1 mg.

According to the applicant, there are currently no ICD-10-PCS procedure codes to distinctly identify odronextamab. We note that the applicant submitted a request for approval for a unique ICD-10-PCS procedure code for odronextamab beginning in FY 2025. The applicant provided a list of diagnosis codes that may be used to currently identify this indication for odronextamab under the ICD-10-CM coding system. Please refer to the online application posting for the complete list of ICD-10-CM codes provided by the applicant. We believe the relevant ICD-10-CM codes to identify the indication of R/R FL would be the codes included in category C82 (Follicular lymphoma) under the ICD-10-CM classification in subcategories: C82.0—(Follicular lymphoma grade I), C82.1—(Follicular lymphoma grade II), C82.2—(Follicular lymphoma grade III, unspecified), C82.3—(Follicular lymphoma grade IIIa), C82.4—(Follicular lymphoma grade IIIb), C82.5—(Diffuse follicle center lymphoma), C82.6—(Cutaneous follicle center lymphoma), C82.8—(Other types of follicular lymphoma), or C82.9—(Follicular lymphoma, unspecified). We are inviting public comments on the use of these ICD-10-CM diagnosis codes to identify the indication of R/R FL for purposes of the new technology add-on payment, if approved.

As previously discussed, if a technology meets all three of the substantial similarity criteria under the newness criterion, it would be considered substantially similar to an existing technology and would not be considered “new” for the purpose of new technology add-on payments.

With respect to the substantial similarity criteria, the applicant asserted that odronextamab is not substantially similar to other currently available technologies because its mechanism of action presents notable distinctions, such as reduced potential for immunogenicity and anti-drug antibodies through its novel, fully human design and reduced ability to elicit an immune response through the blocking effect of the IgG4-based structure. The applicant further asserted that odronextamab also has demonstrated efficacy in patients with FL Grade 3b, which were excluded from the GO29781 study of mosunetuzumab, and offers consistent efficacy in other high-risk subgroups of patients with R/R FL, and that therefore, the technology meets the newness criterion. The following table summarizes the applicant's assertions regarding the substantial similarity criteria. Please see the online application posting for odronextamab for the applicant's complete statements in support of its assertion that odronextamab is not substantially similar to other currently available technologies.

With regard to the newness criterion, we note that according to the applicant odronextamab may have a similar mechanism of action to that of Lunsumio^TM (mosunetuzumab), another IgG bsAb engaging CD3×CD20, for which we approved an application for new technology add-on payments for FY 2024 (88 FR 58844), which treats the same population of R/R FL adult patients with two or more prior therapies. Although the applicant states that there are key distinctions between the mechanism of action of odronextamab and Lunsumio^TM because odronextamab is the first and only fully human, IgG4-based bsAb, which provides additional binding sites and reduces its ability to elicit an inflammatory immune response, we do not believe that the number of binding sites results in a different mechanism of action. We also believe that a reduction in inflammatory immune response would relate to the risk of an adverse event from odronextamab administration but is not critical to the way the drug treats the underlying disease, and therefore would relate to an assessment of substantial clinical improvement, rather than of substantial similarity.

The applicant asserted that odronextamab treats a sub-population of patients within the R/R FL adult patients with two or more prior therapies in its summary, specifically, that of R/R FL Grade 3b—a rare subgroup of patients who are generally excluded from clinical trials. However, we note that the FDA-approved labeling for Lunsumio^TM does not appear to exclude this patient population. As such, it is unclear whether odronextamab would treat a patient population different from other CD20 × CD3 IgG bsAbs that treat patients with R/R FL, such as Lunsumio^TM . Accordingly, as it appears that odronextamab and Lunsumio^TM may use the same or similar mechanism of action to achieve a therapeutic outcome, would be assigned to the same MS-DRG, and treat the same or similar patient population and disease, we believe that these technologies may be substantially similar to each other. We note that if we determine that this technology is substantially similar to Lunsumio^TM, we believe the newness period for this technology would begin on December 22, 2022, the date Lunsumio^TM received FDA approval.

We are inviting public comments whether odronextamab meets the newness criterion, including whether odronextamab is substantially similar to Lunsumio^TM or other existing technologies.

With respect to the cost criterion, the applicant provided multiple analyses to demonstrate that it meets the cost criterion. For each analysis, the applicant searched the FY 2022 MedPAR using a combination of ICD-10-CM and/or PCS codes to identify potential cases representing patients who may be eligible for odronextamab. The applicant explained that it used different codes to demonstrate different cohorts that may be eligible for the technology. Each analysis followed the order of operations described in the tables later in this section.

For the first analysis the applicant used a list of ICD-10-CM diagnosis codes to identify cases with primary diagnoses of follicular lymphoma. The applicant excluded cases with a corresponding ICD-10-CM or ICD-10-PCS code indicating active treatment. Per the applicant, active treatment was defined as allogeneic stem cell transplant, bone marrow transplant, transplant complications, chemotherapy administration, immunotherapy, or radiation. Please see the online posting for odronextamab for the complete list of codes provided by the applicant. The applicant used the inclusion/exclusion criteria described in the following table. Under this analysis, the applicant identified 482 claims mapping to nine MS-DRGs, including MS-DRG 840 (Lymphoma and Non-Acute Leukemia with MCC) representing 29.3 percent of the identified cases. The applicant followed the order of operations described in the following table and calculated a final inflated average case-weighted standardized charge per case of $101,177 which exceeded the average case-weighted threshold amount of $95,779.

For the second analysis the applicant identified cases using a list of ICD-10-CM diagnosis codes: T80.89XA (Other complications following infusion, transfusion, and therapeutic injection) or D89.832-D89.839 (Cytokine release syndrome (CRS) Grades 2-5 or unspecified) in any position. The applicant used the inclusion/exclusion criteria described in the table later in this section. Under this analysis, the applicant identified 80 claims mapping to two MS-DRGs, including 018 (Chimeric Antigen Receptor (CAR) T-Cell and Other Immunotherapies) and 811 (Red Blood Cell Disorders with MCC). The applicant calculated a final inflated average case-weighted standardized charge per case of $1,095,920, which exceeded the average case-weighted threshold amount of $963,675.

Because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount in all scenarios, the applicant asserted that odronextamab meets the cost criterion.

We are inviting public comments on whether odronextamab meets the cost criterion.

With regard to the substantial clinical improvement criterion, the applicant asserted that odronextamab represents a substantial clinical improvement over existing technologies because it will expand access to heavily pretreated, highly refractory patients for whom existing therapies are not adequate. According to the applicant, treatment with odronextamab offers patients with R/R FL a new, readily available monotherapy that demonstrates multiple substantial clinical benefits, including a generally manageable safety profile, and establishes a new benchmark for efficacy. The applicant also asserted that odronextamab significantly improves clinical outcomes relative to services or technologies previously available (such as Lunsumio^TM ). The applicant provided three studies to support these claims, as well as eight background articles about other therapies for the R/R FL patient population. The following table summarizes the applicant's assertions regarding the substantial clinical improvement criterion. Please see the online posting for odronextamab for the applicant's complete statements regarding the substantial clinical improvement criterion and the supporting evidence provided.

After review of the information provided by the applicant, we have the following concerns regarding whether odronextamab meets the substantial clinical improvement criterion. We note that with respect to the claim that odronextamab will increase treatment options for patients with R/R FL who have a high risk of CRS, the applicant submitted the oral presentation slides of the results from a pre-specified analysis by Kim et al. (2022), presenting the interim results for the Phase II trial for odronextamab on the FL cohort, ELM-2. In this Phase II trial, 131 patients (median age: 61 years) with R/R FL after two or more lines of therapy were grouped to receive a 1/20 mg step-up regimen (n = 68) or 0.7/4/20 mg step-up regimen (n = 53) after the study initiated with a first cycle of step-up regimen of 1/20 mg. The regimen was modified to 0.7/4/20 mg during Cycle 1 to further mitigate the risk of CRS. The rates of CRS grades 2 and 3 for the 1/20 regimen are 17.6 percent and 5.9 percent, respectively, compared to the CRS grades 2 and 3 for the 0.7/4/20 regimen of 11.1 percent and 1.6 percent. We note that although the incidence of grade 3 CRS was lower in the 0.7/4/20 regimen arm, the applicant submitted the United States Prescribing Information (USPI) for other therapies (including Lunsumio^TM and tisagenlecleucel) used to treat R/R FL patients to provide the CRS rates following treatment with existing therapies. As the applicant indirectly compared these incidence rates with those rates of trials as found in the prescribing information for other existing technologies, it is unclear if these differences are statistically significant. We note that because clinical trials are conducted under widely varying conditions, we question whether adverse reaction rates observed in the clinical trials of one drug can be directly compared to rates in the clinical trials of another drug. We question whether such comparisons across clinical trial cohorts adequately provide evidence of reduced adverse events in patients treated with odronextamab.

Similarly, we note that with respect to the claim that odronextamab offers patients with heavily pretreated, highly refractory FL a new, readily available, monotherapy that establishes a new benchmark for efficacy, the applicant submitted the objective response rates (ORR) and complete response rates (CR) of its Phase II study, ELM-2 and compared them to the ORR and CR rates of the Lunsumio^TM GO29781 study. We note the same concerns as with the previous claim about comparing outcomes across studies given the variability in clinical trial design.

With respect to the claim that odronextamab demonstrated efficacy in patients with FL Grade 3b disease in the ELM-2 study, although the applicant provided additional analysis from the ELM-2 study where odronextamab demonstrated efficacy across six patients enrolled in the study with FL Grade 3B, we note that it is unclear whether the additional analysis that was provided in addition to the ELM-2 study represents an ad-hoc analysis, therefore, we are concerned about drawing conclusions from this ad-hoc analysis to appropriately demonstrate efficacy in the FL Grade 3B subgroup. Furthermore, we are concerned that the applicant did not compare the results of the study to the efficacy of existing therapies for patients with FL Grade 3B. We would be interested in additional evidence comparing outcomes between odronextamab and existing therapies such as Breyanzi®, which is also approved for patients with FL Grade 3B with relapsed or refractory disease after two or more lines of systemic therapy.

With respect to the claim that patients in the FL cohort of the ELM-2 study exhibited more unfavorable select baseline characteristics compared to those in the Lunsumio^TM study, the applicant presented the analysis for odronextamab by Kim et al. (2022), described previously, and the Lunsumio^TM phase 2 study on R/R patients with FL. The applicant stated that patients treated with odronextamab in the ELM-2 cohort had received prior autologous stem cell transplants at a higher rate (30.5 percent) than those treated in the Lunsumio^TM study (21%). The applicant also noted additional unfavorable select baseline characteristics for patients in the ELM-2 study compared to patients in the Lunsumio^TM study, including: more patients with a worse Eastern Cooperative Oncology Group (ECOG) performance status, as 48.1 percent of patients in ELM-2 had an ECOG performance status of 1, compared to 41 percent of patients in the Lunsumio^TM study; more patients with an Ann Arbor stage III-IV (84.7 percent of patients, compared to 77 percent of patients in the Lunsumio^TM study); more patients with a FLIPI score of 3-5 (58.8 percent of patients, compared to 44 percent of patients in the Lunsumio^TM study); and more older patients, with 38.9 percent of patients ≥65 years old (median age of 61), compared to a median age of 60 for Lunsumio^TM. We note these are indirect rate comparisons across clinical trials without statistical adjustments performed across the patient populations and clinical outcomes. We also note that differences in patient characteristics across any two clinical trials, even with the same selection criteria, are likely to occur. As such, we question whether the comparison of baseline characteristics across cohorts in independent clinical trials can be taken as indicative of differences in clinical outcomes or efficacy between treatments.

We are inviting public comments on whether odronextamab meets the substantial clinical improvement criterion.

We did not receive any written comments in response to the New Technology Town Hall meeting notice published in the Federal Register regarding the substantial clinical improvement criterion for odronextamab.

6. Proposed FY 2025 Applications for New Technology Add-On Payments (Alternative Pathways)

As discussed previously, beginning with applications for FY 2021, a medical device designated under FDA's Breakthrough Devices Program that has received marketing authorization as a Breakthrough Device, for the indication covered by the Breakthrough Device designation, may qualify for the new technology add-on payment under an alternative pathway. Additionally, beginning with FY 2021, a medical product that is designated by the FDA as a Qualified Infectious Disease Product (QIDP) and has received marketing authorization for the indication covered by the QIDP designation, and, beginning with FY 2022, a medical product that is a new medical product approved under FDA's Limited Population Pathway for Antibacterial and Antifungal Drugs (LPAD) and used for the indication approved under the LPAD pathway, may also qualify for the new technology add-on payment under an alternative pathway. Under an alternative pathway, a technology will be considered not substantially similar to an existing technology for purposes of the new technology add-on payment under the IPPS and will not need to meet the requirement that it represents an advance that substantially improves, relative to technologies previously available, the diagnosis or treatment of Medicare beneficiaries. These technologies must still be within the 2-to-3-year newness period to be considered “new,” and must also still meet the cost criterion.

As discussed previously, in the FY 2023 IPPS/LTCH PPS final rule, we finalized our proposal to publicly post online applications for new technology add-on payment beginning with FY 2024 applications (87 FR 48986 through 48990). As noted in the FY 2023 IPPS/LTCH PPS final rule, we are continuing to summarize each application in this proposed rule. However, while we are continuing to provide discussion of the concerns or issues, we identified with respect to applications submitted under the alternative pathway, we are providing more succinct information as part of the summaries in the proposed and final rules regarding the applicant's assertions as to how the medical service or technology meets the applicable new technology add-on payment criteria. We refer readers to https://mearis.cms.gov/public/publications/ntap for the publicly posted FY 2025 new technology add-on payment applications and supporting information (with the exception of certain cost and volume information, and information or materials identified by the applicant as confidential or copyrighted), including tables listing the ICD-10-CM codes, ICD-10-PCS codes, and/or MS-DRGs related to the analyses of the cost criterion for certain technologies for the FY 2025 new technology add-on payment applications.

We received 23 applications for new technology add-on payments for FY 2025 under the new technology add-on payment alternative pathway. As discussed previously, in the FY 2024 IPPS/LTCH PPS final rule (88 FR 58948 through 58958), we finalized that beginning with the new technology add-on payment applications for FY 2025, for technologies that are not already FDA market authorized for the indication that is the subject of the new technology add-on payment application, applicants must have a complete and active FDA market authorization request at the time of new technology add-on payment application submission and must provide documentation of FDA acceptance or filing to CMS at the time of application submission, consistent with the type of FDA marketing authorization application the applicant has submitted to FDA. See § 412.87(e) and further discussion in the FY 2024 IPPS/LTCH PPS final rule (88 FR 58948 through 58958). Of the 23 applications received under the alternative pathway, seven applications were not eligible for consideration for new technology add-on payment because they did not meet these requirements; and two applicants withdrew their applications prior to the issuance of this proposed rule, including the withdrawal of the application for DefenCath^TM (taurolidine/heparin), which received conditional approval for new technology add-on payments for FY 2024, subsequently received FDA approval in November 2023, and therefore was eligible to receive new technology add-on payments beginning with discharges on or after January 1, 2024. As discussed in section II.E.4. of this proposed rule, we are proposing to continue making new technology add-on payments for DefenCath^TM (taurolidine/heparin) for FY 2025. Of the remaining 14 applications, 12 of the technologies received a Breakthrough Device designation from FDA. The remaining two applications were designated as a QIDP by FDA. We did not receive any applications for technologies approved through the LPAD pathway.

In accordance with the regulations under § 412.87(f)(2), applicants for new technology add-on payments for FY 2025 for Breakthrough Devices must have FDA marketing authorization by May 1 of the year prior to the beginning of the fiscal year for which the application is being considered. Under § 412.87(f)(3), applicants for new technology add-on payments for FY 2025 for QIDPs and technologies approved under the LPAD pathway must have FDA marketing authorization by July 1 of the year prior to the beginning of the fiscal year for which the application is being considered. The policy finalized in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58742) provides for conditional approval for a technology for which an application is submitted under the alternative pathway for certain antimicrobial products (QIDPs and LPADs) at § 412.87(d) that does not receive FDA marketing authorization by July 1 prior to the particular fiscal year for which the applicant applied for new technology add-on payments, provided that the technology receives FDA marketing authorization before July 1 of the fiscal year for which the applicant applied for new technology add-on payments. We refer the reader to the FY 2021 IPPS/LTCH final rule for a complete discussion of this policy (85 FR 58737 through 58742).

As we did in the FY 2024 IPPS/LTCH PPS proposed rule, for applications under the alternative new technology add-on payment pathway, in this proposed rule we are making a proposal to approve or disapprove each of these 14 applications for FY 2025 new technology add-on payments. Therefore, in this section of the preamble of this proposed rule, we provide background information on each alternative pathway application and propose whether or not each technology would be eligible for the new technology add-on payment for FY 2025. We refer readers to section II.H.8. of the preamble of the FY 2020 IPPS/LTCH PPS final rule (84 FR 42292 through 42297) and FY 2021 IPPS/LTCH PPS final rule (85 FR 58715 through 58733) for further discussion of the alternative new technology add-on payment pathways for these technologies.

a. Annalise Enterprise Computed Tomography Brain (CTB) Triage—Obstructive Hydrocephalus (OH)

Annalise-Ai Pty Ltd submitted an application for new technology add-on payments for the Annalise Enterprise CTB Triage—OH for FY 2025. According to the applicant, the Annalise Enterprise CTB Triage—OH is a medical device software application used to aid in the triage and prioritization of studies with features suggestive of obstructive hydrocephalus (OH). Per the applicant, the device analyzes studies using an artificial intelligence (AI) algorithm to identify suspected OH findings in non-contrast computed tomography (NCCT) brain scans and makes study-level output available to an order and imaging management system for worklist prioritization or triage.

Please refer to the online application posting for the Annalise Enterprise CTB Triage—OH available at https://mearis.cms.gov/public/publications/ntap/NTP231017D5AA7, for additional detail describing the technology and how it is used.

According to the applicant, the Annalise Enterprise CTB Triage—OH received Breakthrough Device designation from FDA on February 17, 2023, for use in the medical care environment to aid in triage and prioritization of studies with features suggestive of OH. The device analyzes studies using an AI algorithm to identify findings. It makes study-level output available to an order and imaging management system for worklist prioritization or triage. The applicant stated that the technology received 510(k) clearance from FDA on August 15, 2023, for the same indication consistent with the Breakthrough Device designation. Per the applicant, the Annalise Enterprise CTB Triage—OH was not immediately available for sale because there were additional steps to be completed following 510(k) clearance prior to the product becoming commercially available. According to the applicant, these additional steps involved generating a new unique device identifier (UDI) to incorporate the recently cleared finding for OH, integrating this UDI into the device, and releasing it. Per the applicant, the Annalise Enterprise CTB Triage—OH became commercially available on October 10, 2023.

According to the applicant, there are currently no ICD-10-PCS procedure codes to distinctly identify the Annalise Enterprise CTB Triage—OH. The applicant submitted a request for approval for a unique ICD-10-PCS procedure code for the Annalise Enterprise CTB Triage—OH beginning in FY 2025. The applicant provided a list of diagnosis codes that may be used to currently identify the indication for the Annalise Enterprise CTB Triage—OH under the ICD-10-CM coding system. Please refer to the online application posting for the complete list of ICD-10-CM codes provided by the applicant.

With respect to the cost criterion, the applicant provided three analyses to demonstrate that the technology meets the cost criterion. The applicant stated that for all three analyses, it used the 2021 Standard Analytic Files (SAF) Limited Data Set (LDS) to identify the top admitting diagnosis codes for inpatient stays that were admitted from the emergency room (ER) and included a non-contrast CT head scan. Next, it searched the FY 2022 MedPAR data to identify applicable inpatient stays based on different sets of admitting diagnosis codes for each of the three analyses. The applicant explained that it used admitting diagnosis codes from the inpatient stays, rather than discharge diagnosis codes, because the Annalise Enterprise CTB Triage—OH is an AI-based technology used to identify and prioritize patients suspected of OH. As a result, it will commonly be used in the ER before the doctor and/or the hospital has assigned the primary or secondary diagnosis for the inpatient stay. The applicant stated that admitting diagnosis codes may be better predictors for whether the Annalise Enterprise CTB Triage—OH service will be used, rather than primary or secondary diagnosis at discharge, which will likely represent information known after the procedure is performed. Per the applicant, for identifying the top admitting diagnosis codes, the inpatient stays were further narrowed down to only those where the patient had a physician claim during the inpatient stay or 1 day before for a non-contrast CT head scan (defined as CPT codes 70450, 70480, 70486), or had an outpatient claim for a non-contrast CT head scan the day of admission or 1 day before. Each analysis followed the order of operations described in the table that follows later in this section.

For the primary analysis, the applicant stated that it searched the FY 2022 MedPAR file for cases with emergency room charges (that is, emergency room charge amount greater than $0) and/or an inpatient admission type code (IP_ADMSN_TYPE_CD) equal to 1 for emergency, and reporting one of the top 25 diagnosis codes associated with 50% of all identified inpatient stays in the 2021 SAF. According to the applicant, it identified 2,206,036 claims mapping to 714 MS-DRGs, including MS-DRG 871 (Septicemia or Severe Sepsis without MV >96 Hours with MCC), which represented 16% of identified cases. The applicant stated that it calculated a final inflated average case-weighted standardized charge per case of $80,407, which exceeded the average case-weighted threshold amount of $69,892.

For the second analysis, the applicant stated that it conducted a sensitivity analysis using cases with emergency room charges (that is, emergency room charge amount greater than $0) and/or an inpatient admission type code (IP_ADMSN_TYPE_CD) equal to 1 for emergency, and reporting one of the top 186 admitting diagnosis codes associated with 80% of all identified inpatient stays in the 2021 SAF LDS. The applicant noted that it identified 3,991,354 claims mapping to 739 MS-DRGs, including MS-DRG 871 (Septicemia or Severe Sepsis without MV >96 Hours with MCC), which represented 11% of identified cases. The applicant noted that it calculated a final inflated average case-weighted standardized charge per case of $78,356, which exceeded the average case-weighted threshold amount of $68,660.

For the third analysis, the applicant stated that it conducted a sensitivity analysis that identified cases using the same criteria as the primary analysis, and further limited it to cases that also incurred CT charges. Per the applicant, it performed this sensitivity analysis because although doctors are likely to order the Annalise AI technology when a NCCT head scan is performed and the patient is admitted through the emergency room, the MedPAR file variable for CT charges does not differentiate between contrast and NCCTs, or the area of the body where the CT is performed, and does not capture CT charges billed by physicians during the inpatient stay. As a result, it further limited the cases to those with charges for CT to assess if this would impact whether the technology would meet the cost criterion. Per the applicant, it identified 1,546,504 claims mapping to 702 MS-DRGs, including MS-DRG 871 (Septicemia or Severe Sepsis without MV >96 Hours with MCC), which represented 17% of identified cases. The applicant stated that it calculated a final inflated average case-weighted standardized charge per case of $89,176, which exceeded the average case-weighted threshold amount of $71,344.

The applicant asserted that because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount in all scenarios, the Annalise Enterprise CTB Triage—OH meets the cost criterion.

According to the applicant, the technology is used to aid in the triage and prioritization of studies with features suggestive of OH. However, the diagnosis codes that the applicant used to identify eligible cases included non-neurologic diagnosis codes (for example, U071, R0602, J189). We question whether these diagnosis codes are applicable, and whether using neurologic diagnosis codes for diagnoses that exhibit symptoms similar to OH would more accurately identify eligible cases.

Subject to the applicant adequately addressing this concern, we would agree that the technology meets the cost criterion and are proposing to approve the Annalise Enterprise CTB Triage—OH for new technology add-on payments for FY 2025.

Based on preliminary information from the applicant at the time of this proposed rule, the applicant anticipated the total cost of the Annalise Enterprise CTB Triage—OH to the hospital to be $371.37 per patient. According to the applicant, hospitals acquire the Annalise Enterprise CTB Triage—OH system on a subscription-based model, with an annual cost of $180,000 per hospital. The applicant stated that the average cost per patient per hospital will vary by the volume of the NCCT cases for which the software is used. To determine the cost per case, the applicant used the following methodology:

First, the applicant conducted market research to estimate the percent of NCCT cases where this software would likely be ordered, which was estimated at 50% of NCCT head scans for older patients (>65 years of age) and 30% of NCCT head scans for younger patients (<65 years of age).

Second, the applicant used the 2021 SAF LDS to identify total NCCT scans by hospital. To represent the full Medicare fee-for-service population, the applicant multiplied total NCCT head scans at each hospital from the data by 20.

Third, to calculate the total number of NCCT head scans for each hospital, the applicant assumed that 56.5% of all NCCT scans are for Medicare beneficiaries, based on literature on trends in the utilization of head CT scans in the United States.

Fourth, to calculate the cost per case for each hospital, the applicant divided $180,000 by the estimated number of NCCT head scans analyzed by the technology for each hospital. Per the applicant, the average cost per case across all IPPS hospitals was then calculated at $371.37.

The applicant asserted that calculating the cost per case across all IPPS hospitals was reasonable. The applicant noted that given its limited time on the market and low number of subscribers, it used all IPPS hospitals to calculate cost per case rather than limiting the analysis to current subscribers. The applicant mentioned that for technologies that are commercially available for a longer period of time and with more subscribers, it may make sense to limit the cost per case analysis to hospitals that are current subscribers rather than using all IPPS hospitals in the calculation.

As we noted in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58630) and in the FY 2022 IPPS/LTCH PPS final rule (86 FR 44983), we understand that there are unique circumstances with respect to determining a cost per case for a technology that utilizes a subscription for its cost and we will continue to consider the issues relating to calculation of the cost per unit of technologies sold on a subscription basis as we gain more experience in this area. We continue to welcome comments from the public as to the appropriate method to determine a cost per case for such technologies, including comments on whether the cost analysis should be updated based on the most recent subscriber data for each year for which the technology may be eligible for add-on payment.

We note that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. Under § 412.88(a)(2), we limit new technology add-on payments to the lesser of 65% of the average cost of the technology, or 65% of the costs in excess of the MS-DRG payment for the case. As a result, we are proposing that the maximum new technology add-on payment for a case involving the use of the Annalise Enterprise CTB Triage—OH would be $241.39 for FY 2025 (that is, 65% of the average cost of the technology).

We invite public comments on whether the Annalise Enterprise CTB Triage—OH meets the cost criterion and our proposal to approve new technology add-on payments for the Annalise Enterprise CTB Triage—OH for FY 2025 for use in the medical care environment to aid in triage and prioritization of studies with features suggestive of OH.

b. ASTar® System

Q-linea submitted an application for new technology add-on payments for the ASTar® System for FY 2025. According to the applicant, the ASTar® System is a fully automated system for rapid antimicrobial susceptibility testing (AST). The applicant stated that the proprietary AST technology is based on broth microdilution (BMD), optimized for high sensitivity and short time-to-result, delivering phenotypic AST with true minimum inhibitory concentration (MIC) results in approximately six hours.

Please refer to the online application posting for the ASTar® System, available at https://mearis.cms.gov/public/publications/ntap/NTP231013T7Y5F, for additional detail describing the technology and how it is used.

According to the applicant, the ASTar® System consists of the ASTar® Instrument and the ASTar® BC G-Kit. According to the applicant, the ASTar® Instrument and ASTar® BC G-Kit, which includes the ASTar® BC G-Consumable Kit and the ASTar BC G-Frozen Insert, received Breakthrough Device designation from FDA on April 7, 2022. The ASTar® BC G-Kit is a multiplexed, in vitro, diagnostic test utilizing AST methods and is intended for use with the ASTar® Instrument. The ASTar® BC G-Kit is performed directly on positive blood cultures confirmed positive for Gram-negative bacilli only by Gram stain, and tests antimicrobial agents with nonfastidious and fastidious bacterial species. According to the applicant, its marketing authorization request for the ASTar® BC G-Kit has been accepted by FDA, and it anticipates a 510(k) decision from FDA for the same indication consistent with the Breakthrough Device designation before May 1, 2024. The applicant stated that it anticipates the technology will be available on the market immediately after 510(k) clearance from FDA.

According to the applicant, there are currently no ICD-10-PCS procedure codes to distinctly identify the ASTar® System. The applicant submitted a request for approval for a unique ICD-10-PCS procedure code for the ASTar® System beginning in FY 2025. The applicant provided a list of diagnosis codes that may be used to currently identify the indication for the ASTar® System under the ICD-10-CM coding system. Please refer to the online application posting for the complete list of ICD-10-CM codes provided by the applicant.

With respect to the cost criterion, the applicant provided multiple analyses to demonstrate that it meets the cost criterion. Each analysis used different ICD-10-CM codes to identify potential cases in the FY 2022 MedPAR file representing patients who may be eligible for the ASTar® System. According to the applicant, Cohort 1 comprised patients with non-sepsis infections and Cohort 2 consisted of patients with sepsis resulting from bacteria identifiable by the ASTar® System. The applicant explained that these scenarios were separated as the applicant believed that charges and MS-DRG assignments may differ due to the resources required to treat sepsis patients compared to those required for less severe infections. Finally, Cohort 3 included all ICD-10-CM codes from Cohorts 1 and 2 because the applicant stated that the ASTar® System may be used to identify any infection caused by the bacteria listed in Cohorts 1 and 2. The applicant stated that in all three cohorts, the patients mapped to a large number of MS-DRGs based on the listed ICD-10-CM codes. Therefore, in the analyses, the applicant only included the most common MS-DRGs, that is, the MS-DRGs containing at least 1 percent of the potential case volume within each of the three cohorts, as these are the MS-DRGs to which potential ASTar® System cases would most closely map. The applicant used the inclusion/exclusion criteria described in the table that follows later in this section to identify claims for each cohort. Each analysis followed the order of operations described in the table that follows later in this section.

For Cohort 1, the applicant identified 440,838 claims mapping to 14 MS-DRGs, including MS-DRG 871 (Septicemia or Severe Sepsis with MV >96 Hours with MCC) representing 25% of identified cases, and calculated a final inflated average case-weighted standardized charge per case of $85,525, which exceeded the average case-weighted threshold amount of $70,398.

For Cohort2, the applicant identified 224,825 claims mapping to 7 MS-DRGs, including MS-DRG 871 (Septicemia or Severe Sepsis with MV >96 Hours with MCC) representing 54% of identified cases, and calculated a final inflated average case-weighted standardized charge per case of $99,508, which exceeded the average case-weighted threshold amount of $82,171.

For Cohort3, the applicant identified 603,877 claims mapping to 13 MS-DRGs, including MS-DRG 871 (Septicemia or Severe Sepsis with MV >96 Hours with MCC) representing 34% of identified cases, and calculated a final inflated average case-weighted standardized charge per case of $88,395 which exceeded the average case-weighted threshold amount of $73,727.

Because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount in all the three cohorts, the applicant asserted that the ASTar® System meets the cost criterion.

We agree with the applicant that the ASTar® System meets the cost criterion and are therefore proposing to approve the ASTar® System for new technology add-on payments for FY 2025, subject to the technology receiving FDA marketing authorization as a Breakthrough Device for the indication corresponding to the Breakthrough Device designation by May 1, 2024.

Based on preliminary information from the applicant at the time of this proposed rule, the applicant anticipated the operating cost of the ASTar® System to the hospital to be $150 per patient, based on the operating component ASTar® BC G-Kit (composed of the ASTar® BC G-Consumable Kit ($141) and ASTar BC G-Frozen Insert ($9)). The applicant also noted a capital cost of $200,000 for the ASTar® Instrument. Because section 1886(d)(5)(K)(i) of the Act requires that the Secretary establish a mechanism to recognize the costs of new medical services or technologies under the payment system established under that subsection, which establishes the system for payment of the operating costs of inpatient hospital services, we do not include capital costs in the add-on payments for a new medical service or technology or make new technology add-on payments under the IPPS for capital-related costs (86 FR 45145). As noted, the applicant stated that the cost of the ASTar® Instrument is a capital cost. Therefore, it appears that this component is not eligible for new technology add-on payment because, as discussed in prior rulemaking and as noted, we only make new technology add-on payments for operating costs (72 FR 47307 through 47308). We note that any new technology add-on payment for the ASTar® System would include only the cost of ASTar® BC G-Kit ($150). We note that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. Under § 412.88(a)(2), we limit new technology add-on payments to the lesser of 65% of the average cost of the technology, or 65% of the costs in excess of the MS-DRG payment for the case. As a result, we are proposing that the maximum new technology add-on payment for a case involving the use of the ASTar® System would be $97.50 for FY 2025 (that is, 65% of the average cost of the technology).

We invite public comments on whether the ASTar® System meets the cost criterion and our proposal to approve new technology add-on payments for the ASTar® System for FY 2025, subject to the technology receiving FDA marketing authorization as a Breakthrough Device for the indication corresponding to the Breakthrough Device designation by May 1, 2024.

c. Cefepime-Taniborbactam

Venatorx Pharmaceuticals, Inc. submitted an application for new technology add-on payments for cefepime-taniborbactam for FY 2025. According to the applicant, cefepime-taniborbactam is an investigational β-lactam antibiotic/β-lactamase inhibitor combination under development for the treatment of complicated urinary tract infections (cUTI), including pyelonephritis, melioidosis, and hospital-acquired bacterial pneumonia (HABP)/ventilator-associated bacterial pneumonia (VABP).

Please refer to the online application posting for cefepime-taniborbactam, available at https://mearis.cms.gov/public/publications/ntap/NTP2310168RYEB, for additional detail describing the technology and the disease treated by the technology.

According to the applicant, cefepime-taniborbactam received QIDP designation from FDA on February 4, 2022, for cUTI, complicated intra-abdominal infections (cIAI), HABP, VABP, and melioidosis. The applicant stated that it is seeking approval from FDA for the treatment of patients 18 years of age and older with cUTI, including pyelonephritis caused by designated susceptible gram-negative bacteria, including cases with concurrent bacteremia. According to the applicant, its marketing request for cefepime-taniborbactam has been filed by FDA, and it anticipates an NDA decision before July 1, 2024. According to the applicant, cefepime-taniborbactam is not expected to be commercially available immediately after FDA approval due to manufacturing readiness activities and the expected commercial availability date is October 1, 2024. We note that, as an application submitted under the alternative pathway for certain antimicrobial products at § 412.87(d), cefepime-taniborbactam is eligible for conditional approval for new technology add-on payments if it does not receive FDA marketing authorization by July 1, 2024, provided that the technology receives FDA marketing authorization before July 1 of the fiscal year for which the applicant applied for new technology add-on payments (that is, July 1, 2025), as provided in § 412.87(f)(3). To estimate the average dosage per patient, the applicant calculated a weighted average duration of treatment. Per the applicant, based on the dosing schedule, a patient receives approximately 3 doses per 24 hours. The applicant noted for 48 patients with bacteremia, the average length of stay was 10.9 days, and for 392 patients without bacteremia, the average length of stay was 7.2 days, which led to a weighted average treatment duration of 7.5 days and 23 doses per average inpatient stay.

According to the applicant, there are currently no ICD-10-PCS procedure codes to distinctly identify cefepime-taniborbactam. The applicant submitted a request for approval for a unique ICD-10-PCS procedure code for cefepime-taniborbactam beginning in FY 2025. The applicant stated that ICD-10-CM diagnosis codes for the treatment of cUTI may be used to currently identify the indication for cefepime-taniborbactam under the ICD-10-CM coding system. Please refer to the online application posting for the complete list of ICD-10-CM codes provided by the applicant.

With respect to the cost criterion, to identify potential cases representing patients who may be eligible for cefepime-taniborbactam, the applicant searched the FY 2022 MedPAR file for claims that had one of the ICD-10-CM codes reflecting conditions that would be considered an indication for cefepime-taniborbactam for the treatment of cUTI. Using the inclusion/exclusion criteria described in the following table, the applicant identified 833,530 claims mapping to 526 MS-DRGs, including MS-DRG 871 (Septicemia or Severe Sepsis without MV >96 Hours with MCC), 690 (Kidney and Urinary Tract Infections without MCC), and 689 (Kidney and Urinary Tract Infections with MCC). The applicant followed the order of operations described in the following table and calculated a final inflated average case-weighted standardized charge per case of $91,218, which exceeded the average case-weighted threshold amount of $71,256. Because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount, the applicant asserted that cefepime-taniborbactam meets the cost criterion.

We agree with the applicant that cefepime-taniborbactam meets the cost criterion and are therefore proposing to approve cefepime-taniborbactam for new technology add-on payments for FY 2025, subject to the technology receiving FDA marketing authorization as a QIDP for the indication corresponding to the QIDP designation by July 1, 2024. As an application submitted under the alternative pathway for certain antimicrobial products at § 412.87(d), cefepime-taniborbactam is eligible for conditional approval for new technology add-on payments if it does not receive FDA marketing authorization by July 1, 2024, provided that the technology receives FDA marketing authorization before July 1 of the fiscal year for which the applicant applied for new technology add-on payments (that is, July 1, 2025), as provided in § 412.87(f)(3). If cefepime-taniborbactam receives FDA marketing authorization before July 1, 2025, the new technology add-on payment for cases involving the use of this technology would be made effective for discharges beginning in the first quarter after FDA marketing authorization is granted. If FDA marketing authorization is received on or after July 1, 2025, no new technology add-on payments would be made for cases involving the use of cefepime-taniborbactam for FY 2025.

The applicant has not provided an estimate for the cost of cefepime-taniborbactam at the time of this proposed rule. Per the applicant, based on the dosing schedule, a patient receives approximately 3 doses per 24 hours. The applicant noted for 48 patients with bacteremia, the average length of stay was 10.9 days, and for 392 patients without bacteremia, the average length of stay was 7.2 days, which led to a weighted average treatment duration of 7.5 days and 23 doses per average inpatient stay. We expect the applicant to submit cost information prior to the final rule, and we will provide an update regarding the new technology add-on payment amount for the technology, if approved, in the final rule. Any new technology add-on payment for cefepime-taniborbactam would be subject to our policy under § 412.88(a)(2)(ii)(B) where we limit new technology add-on payment for QIDPs to the lesser of 75% of the average cost of the technology, or 75% of the costs in excess of the MS-DRG payment for the case.

We invite public comments on whether cefepime-taniborbactam meets the cost criterion and our proposal to approve new technology add-on payments for cefepime-taniborbactam for FY 2025, subject to the technology receiving FDA marketing authorization consistent with its QIDP designation by July 1, 2024.

d. Edwards EVOQUE^TM Tricuspid Valve Replacement System (Transcatheter Tricuspid Valve Replacement System)

Edwards Lifesciences LLC submitted an application for new technology add-on payments for the Edwards EVOQUE^TM Tricuspid Valve Replacement System (“EVOQUE^TM System”) for FY 2025. According to the applicant, the EVOQUE^TM System is a new, transcatheter treatment option for patients with at least severe tricuspid regurgitation. Per the applicant, the EVOQUE^TM System is designed to replace the native tricuspid valve and consists of a transcatheter bioprosthetic valve, a catheter-based delivery system, and supporting accessories.

Please refer to the online application posting for the Edwards EVOQUE^TM Tricuspid Valve Replacement System, available at https://mearis.cms.gov/public/publications/ntap/NTP231013MRRBG, for additional detail describing the technology and the condition treated by the technology.

According to the applicant, the EVOQUE^TM System received Breakthrough Device designation from FDA on December 18, 2019, for the treatment of patients with symptomatic moderate or above tricuspid regurgitation. The applicant stated that the technology received premarket approval from FDA on February 1, 2024 for a narrower indication for use, for the improvement of health status in patients with symptomatic severe tricuspid regurgitation despite optimal medical therapy, for whom tricuspid valve replacement is deemed appropriate by a heart team. Since the indication for which the applicant received premarket approval is included within the scope of the Breakthrough Device designation, it appears that the PMA indication is appropriate for consideration for new technology add-on payment under the alternative pathway criteria. According to the applicant, the EVOQUE^TM System was commercially available immediately after FDA approval.

According to the applicant, there are currently no ICD-10-PCS procedure codes to distinctly identify the EVOQUE^TM System. The applicant submitted a request for approval for a unique ICD-10-PCS procedure code for the EVOQUE^TM System beginning in FY 2025. The applicant stated that ICD-10-CM diagnosis codes I07.1 (Rheumatic tricuspid insufficiency), I07.2 (Rheumatic tricuspid stenosis and insufficiency), I36.1 (Nonrheumatic tricuspid (valve) insufficiency), and I36.2 (Nonrheumatic tricuspid (valve) stenosis with insufficiency) may be used to currently identify the indication for the EVOQUE^TM System under the ICD-10-CM coding system.

With respect to the cost criterion, the applicant provided two analyses to demonstrate that the technology meets the cost criterion. To identify potential cases representing patients who may be eligible for the EVOQUE^TM System, each analysis used the same ICD-10-CM diagnosis codes in different positions, with and without selected ICD-10-PCS procedure codes, to identify relevant cases in the FY 2022 MedPAR file. Each analysis followed the order of operations described in the table that follows later in this section.

For the first analysis, the applicant searched for cases assigned to MS-DRGs 266 (Endovascular Cardiac Valve Replacement and Supplement Procedures with MCC) and 267 (Endovascular Cardiac Valve Replacement and Supplement Procedures without MCC) that included one of the four ICD-10-CM diagnosis codes in any position, as listed in the table that follows later in this section. The applicant used the inclusion/exclusion criteria described in the table that follows later in this section. Under this analysis, the applicant identified 2,728 claims mapping to the two MS-DRGs and calculated a final inflated average case-weighted standardized charge per case of $267,720, which exceeded the average case-weighted threshold amount of $194,848.

For the second analysis, the applicant searched for the cases that included any of the ICD-10-PCS codes for percutaneous repair or replacement of the tricuspid valve in any position, in combination with one of the four ICD-10-CM codes for tricuspid valve insufficiency as the primary diagnosis, as listed in the table that follows later in this section. The applicant used the inclusion/exclusion criteria described in the table that follows later in this section. Under this analysis, the applicant identified 198 claims mapping to 6 MS-DRGs and calculated a final inflated average case-weighted standardized charge per case of $327,236, which exceeded the average case-weighted threshold amount of $219,225.

Because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount in all scenarios, the applicant asserted that the EVOQUE^TM System meets the cost criterion.

We agree with the applicant that the EVOQUE^TM System meets the cost criterion and are therefore proposing to approve the EVOQUE^TM System for new technology add-on payments for FY 2025.

Based on preliminary information from the applicant at the time of this proposed rule, the applicant anticipated the total cost of the EVOQUE^TM System to the hospital to be $49,000 per patient, which includes the following components: the EVOQUE^TM Tricuspid Delivery System, the EVOQUE^TM Dilator Kit, the EVOQUE^TM Loading System, the Stabilizer, Base, and Plate, and the EVOQUE^TM Valve. The applicant noted that the listed components of the EVOQUE^TM System are sold together as one unit because they are all needed to perform the procedure, are all single patient use, and are not sold separately. We note that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. Under § 412.88(a)(2), we limit new technology add-on payments to the lesser of 65% of the average cost of the technology, or 65% of the costs in excess of the MS-DRG payment for the case. As a result, we are proposing that the maximum new technology add-on payment for a case involving the use of the EVOQUE^TM System would be $31,850 for FY 2025 (that is, 65% of the average cost of the technology).

We invite public comments on whether the EVOQUE^TM System meets the cost criterion and our proposal to approve new technology add-on payments for the EVOQUE^TM System for FY 2025 for the improvement of health status in patients with symptomatic severe tricuspid regurgitation despite optimal medical therapy, for whom tricuspid valve replacement is deemed appropriate by a heart team.

e. GORE® EXCLUDER® Thoracoabdominal Branch Endoprosthesis (TAMBE Device)

W.L. Gore & Associates, Inc. submitted an application for new technology add-on payments for the TAMBE Device for FY 2025. According to the applicant, the TAMBE Device is used for endovascular repair in patients with thoracoabdominal aortic aneurysms (TAAA) and high-surgical risk patients with pararenal abdominal aortic aneurysms (PAAA) who have appropriate anatomy. Per the applicant, the TAMBE Device is comprised of multiple required components, including: (1) an Aortic Component, (2) Branch Components, (3) a Distal Bifurcated Component, and (4) Contralateral Leg Component. According to the applicant, these components together comprise the TAMBE Device.

Please refer to the online application posting for the GORE® EXCLUDER® Thoracoabdominal Branch Endoprosthesis (TAMBE Device), available at https://mearis.cms.gov/public/publications/ntap/NTP231016DYQQX, for additional detail describing the technology and the condition treated by the technology.

According to the applicant, the TAMBE Device received Breakthrough Device designation from FDA on October 1, 2021, for endovascular repair of thoracoabdominal and pararenal aneurysms in the aorta in patients who have appropriate anatomy. According to the applicant, the TAMBE Device received premarket approval (PMA) from FDA on January 12, 2024, for a slightly narrower indication for use, namely, TAAA and high-surgical risk patients with PAAA who have appropriate anatomy. Since the indication for which the applicant received premarket approval is included within the scope of the Breakthrough Device designation, it appears that the PMA indication is appropriate for consideration for new technology add-on payment under the alternative pathway criteria. According to the applicant, the TAMBE Device is not yet available for sale due to the required lead time to train physicians on the TAMBE Device, and the first commercial device will only be implanted May 1, 2024 or later. We are interested in additional information regarding the delay in the technology's market availability, as we question whether the date the device first became available for sale would be the same as the date the first commercial device is implanted.

According to the applicant, there are currently no ICD-10-PCS procedure codes to distinctly identify the TAMBE Device. The applicant submitted a request for approval for a unique ICD-10-PCS procedure code for the TAMBE Device beginning in FY 2025. The applicant provided a list of diagnosis codes that may be used to currently identify the proposed indication for the TAMBE Device under the ICD-10-CM coding system. Please refer to the online application posting for the complete list of ICD-10-CM codes provided by the applicant.

With respect to the cost criterion, to identify potential cases representing patients who may be eligible for the TAMBE Device, the applicant searched the FY 2022 MedPAR file for claims that had at least one of the ICD-10-CM codes and at least one of the ICD-10-PCS codes as listed in the following table. Using the inclusion/exclusion criteria described in the following table, the applicant identified 1,005 claims mapping to 19 MS-DRGs, including MS-DRG 269 (Aortic and Heart Assist Procedures except Pulsation Balloon without MCC), which represented 54.5% of the identified cases. The applicant followed the order of operations described in the following table and calculated a final inflated average case-weighted standardized charge per case of $448,347, which exceeded the average case-weighted threshold amount of $185,799. Because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount, the applicant asserted that the TAMBE Device meets the cost criterion.

We agree with the applicant that the TAMBE Device meets the cost criterion and are therefore proposing to approve the TAMBE Device for new technology add-on payments for FY 2025.

Based on preliminary information from the applicant at the time of this proposed rule, the applicant anticipated the total cost of the TAMBE Device to the hospital to be $72,675 per patient. Per the applicant, the TAMBE Device has a number of required components, including the aortic component ($29,000), branch components ($3,355), distal bifurcated component (DBC) ($10,758), DBC extender component ($3,037), contralateral leg endoprosthesis ($4,390), and iliac extender endoprosthesis ($3,037). The applicant stated that the actual type and number of components used varies by patient depending on their anatomy and the extent of the patient's aneurysm. The applicant determined the number and types of components that were used in an average patient based on a multicenter pivotal clinical trial conducted predominantly in the U.S. and calculated the case cost per component. We note that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. Under § 412.88(a)(2), we limit new technology add-on payments to the lesser of 65% of the average cost of the technology, or 65% of the costs in excess of the MS-DRG payment for the case. As a result, we are proposing that the maximum new technology add-on payment for a case involving the use of the TAMBE Device would be $47,238.75 for FY 2025 (that is, 65% of the average cost of the technology).

We invite public comments on whether the TAMBE Device meets the cost criterion and our proposal to approve new technology add-on payments for the TAMBE Device for FY 2025, for endovascular repair in patients with thoracoabdominal aortic aneurysms and high-surgical risk patients with pararenal aortic aneurysms who have appropriate anatomy.

f. LimFlow^TM System

LimFlow Inc. submitted an application for new technology add-on payments for the LimFlow^TM System for FY 2025. According to the applicant, the LimFlow^TM System is a single-use, medical device system designed to treat patients who have chronic limb-threatening ischemia with no suitable endovascular or surgical revascularization options and are at risk of major amputation. Per the applicant, the LimFlow^TM System consists of LimFlow's Cylindrical and Conical Stent Grafts that are used in conjunction with a LimFlow^TM Arterial Catheter, a LimFlow^TM Venous Catheter, and a LimFlow^TM Valvulotome. According to the applicant, the LimFlow^TM System is used for transcatheter arterialization of the deep veins, a minimally invasive procedure that aims to restore blood flow to the ischemic foot by diverting a stream of oxygenated blood through tibial veins in order to permanently bypass heavily calcified and severely stenotic arteries defined as unreconstructable. We note that LimFlow Inc. submitted an application for new technology add-on payments for the LimFlow^TM System for FY 2024 as summarized in the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26938 through 26940), but the technology did not meet the applicable deadline of July 1, 2023 for FDA approval or clearance of the technology and, therefore, was not eligible for consideration for new technology add-on payments for FY 2024 (88 FR 58919).

Please refer to the online application posting for the LimFlow^TM System, available at https://mearis.cms.gov/public/publications/ntap/NTP23101627LXC, for additional detail describing the technology and the condition treated by the technology.

According to the applicant, the LimFlow^TM System received Breakthrough Device designation from FDA on October 3, 2017, for the treatment of critical limb ischemia by minimally invasively creating an arterio-venous bypass graft to produce the venous arterialization procedure in the below-the-knee vasculature. The applicant stated that the technology was granted premarket approval from FDA on September 11, 2023, for patients who have chronic limb-threatening ischemia with no suitable endovascular or surgical revascularization options and are at risk of major amputation. Since the indication for which the applicant received premarket approval is considered equivalent to the Breakthrough Device designation, it appears that the premarket approval indication is appropriate for consideration for new technology add-on payment under the alternative pathway criteria. Per the applicant, the LimFlow^TM System was not immediately available for sale because inventory build and ramp for commercial sales was set to commence following FDA approval to allow time for the conduct of surgeon training and medical education on patient selection, indications, and surgical technique. The applicant stated that the technology became commercially available on November 1, 2023.

The applicant provided a list of ICD-10-PCS codes that, effective October 1, 2018, can be used to uniquely describe procedures involving the use of the LimFlow^TM System under the ICD-10-PCS coding system. Please see the online posting for the LimFlow^TM System for the complete list of ICD-10-PCS codes provided by the applicant. The applicant provided a list of diagnosis codes that may be used to currently identify the indication for the LimFlow^TM System under the ICD-10-CM coding system. Please refer to the online application posting for the complete list of ICD-10-CM codes provided by the applicant.

With respect to the cost criterion, the applicant provided three analyses to demonstrate that it meets the cost criterion. Each analysis used the same ICD-10-PCS codes to identify potential cases representing patients who may be eligible for the LimFlow^TM System. The applicant stated that the selected claims represent the exact situations in which the LimFlow^TM System would be used and represent the cost of care associated with the use of the LimFlow^TM System. The applicant utilized a different year of MedPAR data in each analysis. According to the applicant, it used multiple years of data because the case count in each individual year was low. The applicant imputed a value of 11 cases for MS-DRGs with less than 11 cases. Each analysis followed the order of operations described in the table that follows later in this section.

For the first analysis, the applicant searched FY 2022 MedPAR data for claims reporting at least one of the ICD-10-PCS codes listed in the table that follows later in this section to identify cases that may be eligible for the LimFlow^TM System. The applicant used the inclusion/exclusion criteria described in the table that follows later in this section. Under this analysis, the applicant identified 88 claims mapping to 8 MS-DRGs, with none exceeding more than 13% of the total identified cases. The applicant calculated a final inflated average case-weighted standardized charge per case of $307,461 which exceeded the average case-weighted threshold amount of $124,971.

For the second analysis, the applicant searched FY 2021 MedPAR data for claims reporting at least one of the ICD-10-PCS codes listed in the table that follows later in this section to identify cases that may be eligible for the LimFlow^TM System. The applicant used the inclusion/exclusion criteria described in the table that follows later in this section. Under this analysis, the applicant identified 111 claims mapping to 10 MS-DRGs, with none exceeding more than 11% of the total identified cases. The applicant calculated a final inflated average case-weighted standardized charge per case of $277,454, which exceeded the average case-weighted threshold amount of $116,278.

For the third analysis, the applicant searched FY 2020 MedPAR data for claims reporting at least one of the ICD-10-PCS codes listed in the table that follows later in this section to identify cases that may be eligible for the LimFlow^TM System. The applicant used the inclusion/exclusion criteria described in the table that follows later in this section. Under this analysis, the applicant identified 99 claims mapping to 9 MS-DRGs, with none exceeding more than 12% of the total identified cases. The applicant calculated a final inflated average case-weighted standardized charge per case of $273,638 which exceeded the average case-weighted threshold amount of $125,153.

Because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount in all scenarios, the applicant asserted that the LimFlow System meets the cost criterion.

We agree with the applicant that the LimFlow^TM System meets the cost criterion and are therefore proposing to approve the LimFlow^TM System for new technology add-on payments for FY 2025.

Based on preliminary information from the applicant at the time of this proposed rule, the applicant anticipated the total cost of the LimFlow^TM System to the hospital to be $25,000 per patient. According to the applicant, the LimFlow^TM System is sold as a system, as such, the components of the LimFlow^TM System are not priced or sold to hospitals independently. The applicant stated that all components of the LimFlow^TM System are single-use and the entire system is an operating cost. We note that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. Under § 412.88(a)(2), we limit new technology add-on payments to the lesser of 65% of the average cost of the technology, or 65% of the costs in excess of the MS-DRG payment for the case. As a result, we are proposing that the maximum new technology add-on payment for a case involving the use of the LimFlow^TM System would be $16,250 for FY 2025 (that is, 65% of the average cost of the technology).

We invite public comments on whether the LimFlow^TM System meets the cost criterion and our proposal to approve new technology add-on payments for the LimFlow^TM System for FY 2025 for patients who have chronic limb-threatening ischemia with no suitable endovascular or surgical revascularization options and are at risk of major amputation.

g. Paradise^TM Ultrasound Renal Denervation System

ReCor Medical submitted an application for new technology add-on payments for the Paradise^TM Ultrasound Renal Denervation System for FY 2025. According to the applicant, the Paradise^TM Ultrasound Renal Denervation System is an endovascular catheter-based system that delivers SonoWave360^TM ultrasound energy circumferentially, thermally ablating and disrupting overactive renal sympathetic nerves to lower blood pressure in adult (≥22 years of age) patients with uncontrolled hypertension who may be inadequately responsive to or who are intolerant to anti-hypertensive medications.

Please refer to the online application posting for the Paradise^TM Ultrasound Renal Denervation System, available at https://mearis.cms.gov/public/publications/ntap/NTP23101772HBQ, for additional detail describing the technology and the condition treated by the technology.

According to the applicant, the Paradise^TM Ultrasound Renal Denervation System received Breakthrough Device designation from FDA on December 4, 2020, for reducing blood pressure in adult (≥22 years of age) patients with uncontrolled hypertension, who may be inadequately responsive to, or who are intolerant to anti-hypertensive medications. The applicant received FDA premarket approval for the technology on November 7, 2023, for reducing blood pressure as an adjunctive treatment in hypertension patients in whom lifestyle modifications and antihypertensive medications do not adequately control blood pressure. Because we consider the indication for which the applicant received premarket approval to be within the scope of the Breakthrough Device designation, and FDA considers this marketing authorization to be for the Breakthrough Device designation, it appears that the premarket approval indication is appropriate for consideration for new technology add-on payment under the alternative pathway criteria. According to the applicant, the technology was commercially available immediately after FDA approval.

The applicant stated that effective October 1, 2023, the following ICD-10-PCS code may be used to uniquely describe procedures involving the use of the Paradise^TM Ultrasound Renal Denervation System: X051329 (Destruction of renal sympathetic nerve(s) using ultrasound ablation, percutaneous approach, new technology group 9). The applicant stated that ICD-10-CM codes I10 (Essential (primary) hypertension), I15.1 (Hypertension secondary to other renal disorders), I15.8 (Other secondary hypertension), I15.9 (Secondary hypertension, unspecified), and I1A.0 (Resistant hypertension) may be used to currently identify the indication for the Paradise^TM Ultrasound Renal Denervation System under the ICD-10-CM coding system.

With respect to the cost criterion, the applicant provided multiple analyses to demonstrate that it meets the cost criterion. Each analysis used different MS-DRGs and/or ICD-10-CM codes to identify potential cases representing patients who may be eligible for the Paradise^TM Ultrasound Renal Denervation System. The applicant explained that it used different codes to demonstrate different cohorts that may be eligible for the technology. Each analysis followed the order of operations described in the table that follows later in this section.

For the first analysis, the applicant searched the FY 2022 MedPAR file for all cases that map to MS-DRG 264 (Other Circulatory System O.R. Procedures). The applicant stated that medical MS-DRGs 304 and 305 (Hypertension with MCC and without MCC) are specific to hypertension. However, given the nature of the procedure, the applicant's expectation is that the DRG Grouper logic would assign potential cases representing patients who may be eligible for the Paradise^TM Ultrasound Renal Denervation System to a surgical MS-DRG. To identify the surgical MS-DRG, the applicant identified ICD-10-PCS code 015M3ZZ (Destruction of abdominal sympathetic nerve, percutaneous approach) as the procedure most similar to the procedure performed using the Paradise^TM Ultrasound Renal Denervation System, and determined the specific MS-DRG to which that ICD-10-PCS code maps. The applicant used the inclusion/exclusion criteria described in the table that follows later in this section. Under this analysis, the applicant identified 7,064 claims mapping to MS-DRG 264 (Other Circulatory System O.R. Procedures) and calculated a final inflated average case-weighted standardized charge per case of $357,807, which exceeded the average case-weighted threshold amount of $98,708.

For the second analysis, as a sensitivity analysis the applicant searched the FY 2022 MedPAR file for all cases that map to MS-DRGs 304 or 305 (Hypertension with MCC and without MCC), which are specific to hypertension. The applicant used the inclusion/exclusion criteria described in the table that follows later in this section. Under this analysis, the applicant identified 32,433 claims mapping to MS-DRG 304 (Hypertension with MCC) or 305 (Hypertension without MCC) and calculated a final inflated average case-weighted standardized charge per case of $268,298, which exceeded the average case-weighted threshold amount of $46,986.

For the third analysis, the applicant provided a sensitivity analysis that combined the first and second scenario together for a broader list of MS-DRGs. The applicant used the inclusion/exclusion criteria described in the table that follows later in this section. Under this analysis, the applicant identified 39,497 claims mapping to MS-DRGs 264 (Other Circulatory System O.R. Procedures), 304 (Hypertension with MCC), or 305 (Hypertension without MCC) and calculated a final inflated average case-weighted standardized charge per case of $284,306, which exceeded the average case-weighted threshold amount of $56,237.

For the fourth analysis, the applicant performed a sensitivity analysis to subset the cases assigned to MS-DRG 264 (Other Circulatory System O.R. Procedures) to those reporting the following ICD-10-CM codes: I10 (Essential (primary) hypertension), I15.1 (Hypertension secondary to other renal disorders), I15.8 (Other secondary hypertension), or I15.9 (Secondary hypertension, unspecified) in any position. The applicant used the inclusion/exclusion criteria described in the table that follows later in this section. Under this analysis, the applicant identified 1,477 claims mapping to MS-DRG 264 (Other Circulatory System O.R. Procedures) and calculated a final inflated average case-weighted standardized charge per case of $325,810, which exceeded the average case-weighted threshold amount of $98,708.

For the fifth analysis, the applicant performed a sensitivity analysis to subset the cases assigned to MS-DRGs 264 (Other Circulatory System O.R. Procedures), 304 (Hypertension with MCC), or 305 (Hypertension without MCC) to those reporting the following ICD-10-CM codes: I10 (Essential (primary) hypertension), I15.1 (Hypertension secondary to other renal disorders), I15.8 (Other secondary hypertension), or I15.9 (Secondary hypertension, unspecified) in any position. The applicant used the inclusion/exclusion criteria described in the table that follows later in this section. Under this analysis, the applicant identified 14,415 claims mapping to MS-DRGs 264 (Other Circulatory System O.R. Procedures), 304 (Hypertension with MCC), or 305 (Hypertension without MCC) and calculated a final inflated average case-weighted standardized charge per case of $272,701, which exceeded the average case-weighted threshold amount of $50,817.

Because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount in all analyses, the applicant asserted that the Paradise Ultrasound Renal Denervation System meets the cost criterion.

We agree with the applicant that the Paradise^TM Ultrasound Renal Denervation System meets the cost criterion and are therefore proposing to approve the Paradise^TM Ultrasound Renal Denervation System for new technology add-on payments for FY 2025.

Based on preliminary information from the applicant at the time of this proposed rule, the applicant anticipated the total cost of the Paradise^TM Ultrasound Renal Denervation System to the hospital to be $23,000 per patient, based on single-use components including the operating costs of the catheter kit ($22,000), cable ($250), and cartridge ($750). We note that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. Under § 412.88(a)(2), we limit new technology add-on payments to the lesser of 65% of the average cost of the technology, or 65% of the costs in excess of the MS-DRG payment for the case. As a result, we are proposing that the maximum new technology add-on payment for a case involving the use of the Paradise^TM Ultrasound Renal Denervation System would be $14,950 for FY 2025 (that is, 65% of the average cost of the technology).

We invite public comments on whether the Paradise^TM Ultrasound Renal Denervation System meets the cost criterion and our proposal to approve new technology add-on payments for the Paradise^TM Ultrasound Renal Denervation System for FY 2025 for reducing blood pressure as an adjunctive treatment in hypertension patients in whom lifestyle modifications and antihypertensive medications do not adequately control blood pressure, which corresponds to the Breakthrough Device designation.

h. PulseSelect^TM Pulsed Field Ablation (PFA) Loop Catheter

Medtronic, Inc. submitted an application for new technology add-on payments for the PulseSelect^TM PFA Loop Catheter for FY 2025. According to the applicant, the PulseSelect^TM PFA Loop Catheter is used to perform pulmonary vein isolation in cardiac catheter ablation to treat atrial fibrillation. Per the applicant, unlike existing methods that rely on thermal energy (either radiofrequency or cryoablation), PulseSelect^TM employs non-thermal irreversible electroporation to induce cell death in cardiac tissue at the target site. According to the applicant, PulseSelect^TM technology's non-thermal approach can avoid risks associated with existing thermal cardiac catheter ablation technologies.

Please refer to the online application posting for the PulseSelect^TM PFA Loop Catheter, available at https://mearis.cms.gov/public/publications/ntap/NTP231017BMQKQ, for additional detail describing the technology and the disease treated by the technology.

According to the applicant, the PulseSelect^TM PFA System, which includes a compatible Medtronic multi-electrode cardiac ablation catheter (the PulseSelect^TM PFA Loop Catheter), received Breakthrough Device designation from FDA on September 27, 2018, for the treatment of drug refractory recurrent symptomatic atrial fibrillation. The Medtronic multi-electrode cardiac ablation catheter is also intended to be used for cardiac electrophysiological (EP) mapping and measuring of intracardiac electrograms, delivery of diagnostic pacing stimuli and verifying electrical isolation post-treatment. According to the applicant, the PulseSelect^TM PFA System received premarket approval on December 13, 2023 for the following indication that reflects a slightly narrower patient population compared to the Breakthrough Device designation: for cardiac electrophysiological mapping (stimulation and recording) and for treatment of drug refractory, recurrent, symptomatic paroxysmal atrial fibrillation or persistent atrial fibrillation (episode duration less than 1 year). The applicant noted that the PulseSelect^TM PFA System consists of two primary elements: the PulseSelect^TM PFA Loop Catheter and the PulseSelect^TM PFA Generator system, but that as capital equipment, the PulseSelect^TM PFA Generator system is not the subject of this new technology add-on payment application. According to the applicant, the technology was commercially available immediately after FDA approval.

The applicant submitted a request for approval for a unique ICD-10-PCS procedure code for the PulseSelect^TM PFA System and was granted approval for the following procedure code effective April 1, 2024: 02583ZF (Destruction of conduction mechanism using irreversible electroporation, percutaneous approach). The applicant provided a list of diagnosis codes that may be used to currently identify the indication for the PulseSelect^TM PFA Loop Catheter under the ICD-10-CM coding system. Please refer to the online application posting for the complete list of ICD-10-CM codes provided by the applicant.

With respect to the cost criterion, the applicant provided multiple analyses to demonstrate that it meets the cost criterion. The applicant stated that there is an expectation the PulseSelect^TM PFA Loop Catheter will predominantly be used when both indicated uses are employed in a single patient case. Each analysis used different ICD-10-CM codes to identify potential cases representing patients who may be eligible for the PulseSelect^TM PFA Loop Catheter. The applicant explained that it used different codes to demonstrate different cohorts that may be eligible for the technology. Each analysis followed the order of operations described in the table that follows later in this section.

For the first analysis, the applicant searched the FY 2022 MedPAR file for claims that had the ICD-10-PCS code 02583ZZ (Destruction of conduction mechanism, percutaneous approach) in any procedure code position on the claim and identified 98 MS-DRGs. The applicant limited the cost analysis to the top six MS-DRGs that had over 2% of cases in each MS-DRG (see the table that follows later in this section for a complete list of MS-DRGs provided by the applicant). According to the applicant, these six MS-DRGs represented 86% of all cardiac catheter ablation cases. Using the inclusion/exclusion criteria described in the table that follows later in this section, the applicant identified 14,695 claims mapping to these 6 MS-DRGs. The applicant followed the order of operations described in the table that follows later in this section and calculated a final inflated average case-weighted standardized charge per case of $176,942, which exceeded the average case-weighted threshold amount of $136,813.

For the second analysis, the applicant searched the FY 2022 MedPAR file for claims that had the ICD-10-PCS code 02583ZZ (Destruction of conduction mechanism, percutaneous approach) in any procedure code position on the claim, and had one of the ICD-10-CM codes for atrial fibrillation listed in the table that follows later in this section. The applicant used the inclusion/exclusion criteria described in the table that follows later in this section. Under this analysis, the applicant identified 12,088 claims mapping to the top six MS-DRGs (representing 82.3% of all cases) and calculated a final inflated average case-weighted standardized charge per case of $179,931, which exceeded the average case-weighted threshold amount of $136,782.

For the third analysis, the applicant searched the FY 2022 MedPAR file for claims that had the ICD-10-PCS code 02583ZZ (Destruction of conduction mechanism, percutaneous approach) in any procedure code position on the claim and had one of the ICD-10-CM codes for paroxysmal or persistent atrial fibrillation listed in the table that follows later in this section. The applicant used the inclusion/exclusion criteria described in the table that follows later in this section. Under this analysis, the applicant identified 9,446 claims mapping to the top six MS-DRGs (representing 64.3% of all cases) and calculated a final inflated average case-weighted standardized charge per case of $180,114, which exceeded the average case-weighted threshold amount of $136,193.

Because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount in all scenarios, the applicant asserted that the PulseSelect PFA Loop Catheter meets the cost criterion.

We agree with the applicant that the PulseSelect^TM PFA Loop Catheter meets the cost criterion and are therefore proposing to approve the PulseSelect^TM PFA Loop Catheter for new technology add-on payments for FY 2025.

Based on preliminary information from the applicant at the time of this proposed rule, the applicant anticipated the cost of the PulseSelect^TM PFA Loop Catheter to the hospital to be $9,750 per patient, and for the PulseSelect^TM PFA Catheter Interface Cable to be $800 per patient, totaling $10,550 per inpatient stay. We note that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. We note that the applicant stated that the PulseSelect^TM Pulsed Field Ablation (PFA) Interface Cable is listed as a component of the PulseSelect^TM Pulsed Field Ablation (PFA) Generator Reusable Accessories. However, we note the submitted new technology add-on payment application is for the PulseSelect^TM PFA Loop Catheter, and that the applicant had specified in its application that the PulseSelect^TM PFA Generator System is not the subject of this new technology add-on payment application. Therefore, we believe the total cost per inpatient stay should be based only on the cost of the PulseSelect^TM PFA Loop Catheter, which is $9,750 per the applicant. Under § 412.88(a)(2), we limit new technology add-on payments to the lesser of 65% of the average cost of the technology, or 65% of the costs in excess of the MS-DRG payment for the case. As a result, we are proposing that the maximum new technology add-on payment for a case involving the use of the PulseSelect^TM PFA Loop Catheter would be $6,337.50 for FY 2025 (that is, 65% of the average cost of the technology).

We invite public comments on whether the PulseSelect^TM PFA Loop Catheter meets the cost criterion and our proposal to approve new technology add-on payments for the PulseSelect^TM PFA Loop Catheter for FY 2025 for cardiac electrophysiological mapping (stimulation and recording) and for treatment of drug refractory, recurrent, symptomatic paroxysmal atrial fibrillation or persistent atrial fibrillation (episode duration less than 1 year).

i. Restor3d TIDAL^TM Fusion Cage

Restor3d submitted an application for new technology add-on payments for the restor3d TIDAL^TM Fusion Cage for FY 2025. According to the applicant, the TIDAL^TM Fusion Cages are porous cages that vary in shape and size to accommodate individual patient anatomy. Per the applicant, the TIDAL^TM Fusion Cage is comprised of a single, continuous piece of titanium alloy fabricated by laser powder bed fusion, an additive manufacturing technology. According to the applicant, the TIDAL^TM Fusion Cage is an accessory to the intramedullary nail for TTC Fusion and has a central clearance hole to contain the intramedullary nail. Per the applicant, the restor3d TIDAL^TM Fusion Cage can be used to aid in healing for fractures, bone voids, absent bone, or surgical resections in conjunction with an intramedullary nail for TTC fusion. The applicant noted that the restor3d TIDAL^TM Fusion Cages also serve to support and contain bone graft materials that aid in arthrodesis.

Please refer to the online application posting for the restor3d TIDAL^TM Fusion Cage, available at https://mearis.cms.gov/public/publications/ntap/NTP2310167MCW9, for additional detail describing the technology and the disease treated by the technology.

According to the applicant, the restor3d TIDAL^TM Fusion Cage System received Breakthrough Device designation from FDA on June 26, 2023 for the indication of tibiotalocalcaneal arthrodesis (fusion) to provide stabilization of the hindfoot and ankle with critical size bone defect, in lieu of bulk allograft in procedures such as: post-traumatic and degenerative arthritis; post-traumatic or primary arthrosis involving both ankle and subtalar joints; revision after failed ankle arthrodesis with subtalar involvement; failed total ankle arthroplasty; non-union ankle arthrodesis; rheumatoid hindfoot; talectomy; avascular necrosis of the talus; neuroarthropathy; neuromuscular disease and severe deformity; osteoarthritis; Charcot foot; and previously infected arthrosis, second degree. The restor3d Fusion Cage System is intended to provide stabilization in long bones of skeletally mature patients, including tibia, femur and humerus, in the presence of critical sized bone defects in lieu of bulk allograft, bone transport or other treatment for segmental defects in procedures such as: stabilization of fractures of the diaphyseal or metaphyseal regions of long bones; malunions and nonunion; osteomyelitis; periprosthetic fractures. According to the applicant, its marketing authorization request for the restor3d TIDAL^TM Fusion Cage System has been accepted by FDA, and it anticipates a 510(k) decision from FDA for the same indication consistent with the Breakthrough Device designation before May 1, 2024. The applicant anticipates that the technology will be commercially available immediately after 510(k) clearance from FDA.

According to the applicant, there are currently no ICD-10-PCS procedure codes to distinctly identify the restor3d TIDAL^TM Fusion Cage. The applicant submitted a request for approval for a unique ICD-10-PCS procedure code for the restor3d TIDAL^TM Fusion Cage beginning in FY 2025. The applicant provided a list of diagnosis codes that may be used to currently identify the indication for the restor3d TIDAL^TM Fusion Cage under the ICD-10-CM coding system. Please refer to the online application posting for the complete list of ICD-10-CM codes provided by the applicant.

With respect to the cost criterion, to identify potential cases representing patients who may be eligible for the restor3d TIDAL^TM Fusion Cage, the applicant searched the FY 2022 MedPAR file for claims that had one of the ICD-10-PCS codes corresponding to fusion procedures or claims that had one of the other ICD-10-PCS codes in combination with one of the selected admitting diagnosis ICD-10-CM codes. According to the applicant, the selected claims represented potential candidates for the technology, who have undergone tibiotalocalcaneal arthrodesis (fusion) and require stabilization of the hindfoot and ankle due to a critical size bone defect. Using the inclusion/exclusion criteria described in the following table, the applicant identified 14,247 claims mapping to 24 MS-DRGs, including MS-DRG 617 (Amputation of Lower Limb for Endocrine, Nutritional and Metabolic Disorders with CC) and MS-DRG 853 (Infectious and Parasitic Diseases with O.R. Procedures with MCC), each representing 16% of the identified cases. The applicant followed the order of operations described in the following table and calculated a final inflated average case-weighted standardized charge per case of $303,575, which exceeded the average case-weighted threshold amount of $109,972.

Because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount, the applicant asserted that the restor3d TIDAL Fusion Cage meets the cost criterion.

We agree with the applicant that the restor3d TIDAL^TM Fusion Cage meets the cost criterion and are therefore proposing to approve the restor3d TIDAL^TM Fusion Cage for new technology add-on payments for FY 2025, subject to the technology receiving FDA marketing authorization as a Breakthrough Device for the indication corresponding to the Breakthrough Device designation by May 1, 2024.

Based on preliminary information from the applicant at the time of this proposed rule, the applicant anticipated the cost of the restor3d TIDAL^TM Fusion Cage for each patient to be $27,995. In addition, the applicant noted the costs related to the technology for required supporting instruments and materials consist of one unit each of the Instrument Kit ($6,995), TTC Fusion Nail ($7,500), and Bone Graft ($1,500). The applicant estimated the total cost to the hospital to be $43,990 for each procedure per patient, including the related cost of the technology. As we have discussed in prior rulemaking, when determining a new technology add-on payment, we provide payment based on the cost of the actual technology (such as the drug or device itself) and not for additional costs related to the use of the device (86 FR 45146). Based on the information provided by the applicant, the cost of the Instrument Kit is included in the costs of the supporting instruments and materials for each procedure related to the use of the technology, rather than a cost of the technology itself. In addition, the TTC Fusion Nail and Bone Graft are not new and unique components for this technology, and can be purchased separately in support of other technologies. Furthermore, we note that the Instrument Kit is not included in the Breakthrough Device designation, and it therefore appears that only the restor3d TIDAL^TM Fusion Cage would be designated as the Breakthrough Device once market authorized and would be eligible for new technology add-on payments under the alternative pathway. Therefore, it appears any add-on payment for the restor3d TIDAL^TM Fusion Cage would include only the cost of the restor3d TIDAL^TM Fusion Cage ($27,995).

We note that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. Under § 412.88(a)(2), we limit new technology add-on payments to the lesser of 65% of the average cost of the technology, or 65% of the costs in excess of the MS-DRG payment for the case. As a result, we are proposing that the maximum new technology add-on payment for a case involving the use of the restor3d TIDAL^TM Fusion Cage would be $18,196.75 for FY 2025 (that is, 65% of the average cost of the technology).

We invite public comments on whether the restor3d TIDAL^TM Fusion Cage meets the cost criterion and our proposal to approve new technology add-on payments for the restor3d TIDAL^TM Fusion Cage for FY 2025, subject to the technology receiving FDA marketing authorization as a Breakthrough Device for the indication corresponding to the Breakthrough Device designation by May 1, 2024.

j. Symplicity Spyral^TM Multi-Electrode Renal Denervation Catheter

Medtronic submitted an application for new technology add-on payments for the Symplicity Spyral^TM Multi-Electrode Renal Denervation Catheter for FY 2025. According to the applicant, the Symplicity Spyral^TM Multi-Electrode Renal Denervation Catheter provides a treatment option for patients with uncontrolled hypertension, when used with the Symplicity G3^TM Generator, by delivering targeted radiofrequency energy to the renal nerves, safely disrupting overactive sympathetic signaling between the kidneys and brain, as a treatment for uncontrolled hypertension.

Please refer to the online application posting for the Symplicity Spyral^TM Multi-Electrode Renal Denervation Catheter, available at https://mearis.cms.gov/public/publications/ntap/NTP2310161U617, for additional detail describing the technology and the condition treated by the technology.

According to the applicant, the Symplicity Spyral Multi-Electrode Renal Denervation System received Breakthrough Device designation from FDA on March 27, 2020, for the reduction of blood pressure in patients with uncontrolled hypertension despite the use of anti-hypertensive medications or in patients who may have documented intolerance to anti-hypertensive medications. The applicant received premarket approval for the technology on November 17, 2023, for reducing blood pressure as an adjunctive treatment in patients with hypertension in whom lifestyle modifications and antihypertensive medications do not adequately control blood pressure. Because we consider the indication for which the applicant received premarket approval to be within the scope of the Breakthrough Device designation, and FDA considers this marketing authorization to be for the Breakthrough Device, it appears that the premarket approval indication is appropriate for consideration for new technology add-on payment under the alternative pathway criteria. According to the applicant, the technology was commercially available immediately after FDA approval.

According to the applicant, there are currently no ICD-10-PCS procedure codes to distinctly identify the Symplicity Spyral^TM Multi-Electrode Renal Denervation Catheter. The applicant submitted a request for approval for a unique ICD-10-PCS procedure code for the Symplicity Spyral^TM Multi-Electrode Renal Denervation Catheter beginning in FY 2025. The applicant provided a list of diagnosis codes that may be used to currently identify the indication for the Symplicity Spyral^TM Multi-Electrode Renal Denervation Catheter under the ICD-10-CM coding system. Please refer to the online application posting for the complete list of ICD-10-CM codes provided by the applicant.

With respect to the cost criterion, the applicant provided two analyses and two sensitivity analyses to demonstrate that it meets the cost criterion. Each analysis used a common set of ICD-10-CM codes but different criteria for the inclusion/exclusion of MS-DRGs and outlier cases to identify potential cases representing patients who may be eligible for the Symplicity Spyral^TM Multi-Electrode Renal Denervation Catheter. The applicant explained that it used different codes to demonstrate different cohorts that may be eligible for the technology. Each analysis followed the order of operations described in the table that follows later in this section.

For the first scenario (Cost Analysis #1), the applicant searched the FY 2022 MedPAR file for cases where essential (primary) hypertension was the reason for the admission, using at least one of the ICD-10-CM diagnosis codes in the table that follows later in this section. The applicant used the inclusion/exclusion criteria described in the table that follows later in this section. Under this analysis, the applicant identified 490,387 claims mapping to 99 MS-DRGs, including MS-DRG 291 (Heart Failure and Shock With MCC) representing 67% of identified cases. The applicant calculated a final inflated average case-weighted standardized charge per case of $136,450, which exceeded the average case-weighted threshold amount of $62,312.

The second scenario (Cost Analysis #1 with Outliers) was a sensitivity analysis that mirrored the first scenario, except that cases with outlier payments were included. The applicant used the inclusion/exclusion criteria described in the table that follows later in this section. Under this analysis, the applicant identified 501,760 claims mapping to 101 MS-DRGs, including MS-DRG 291 (Heart Failure and Shock With MCC) representing 66.7% of identified cases. The applicant calculated a final inflated average case-weighted standardized charge per case of $145,001, which exceeded the average case-weighted threshold amount of $63,789.

For the third scenario (Cost Analysis #2), the applicant searched the FY 2022 MedPAR file for claims reporting any of the ICD-10-CM diagnosis codes listed in the table that follows later in this section but limited the case selection to MS-DRGs where the principal diagnosis was essential hypertension, and no procedures were performed. Per the applicant, this list represents a subset of cases that were most likely to benefit from the new procedural treatment option for primary hypertension. The applicant used the inclusion/exclusion criteria described in the table that follows later in this section. Under this analysis, the applicant identified 390,384 claims mapping to 8 MS-DRGs, including MS-DRG 291 (Heart Failure and Shock With MCC) representing 84.4% of identified cases. The applicant calculated a final inflated average case-weighted standardized charge per case of $124,525, which exceeded the average case-weighted threshold amount of $52,861.

The fourth scenario (Cost Analysis #2 with Outliers) mirrored the third scenario, except that cases with outlier payments were included. The applicant used the inclusion/exclusion criteria described in the table that follows later in this section. Under this analysis, the applicant identified 395,634 claims mapping to 8 MS-DRGs, including MS-DRG 291 (Heart Failure and Shock With MCC) representing 84.5% of identified cases. The applicant calculated a final inflated average case-weighted standardized charge per case of $128,356, which exceeded the average case-weighted threshold amount of $52,873.

Because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount in all scenarios, the applicant asserted that the Symplicity Spyral Multi-Electrode Renal Denervation Catheter meets the cost criterion.

We agree with the applicant that the Symplicity Spyral^TM Multi-Electrode Renal Denervation Catheter meets the cost criterion and are therefore proposing to approve the Symplicity Spyral^TM Multi-Electrode Renal Denervation Catheter for new technology add-on payments for FY 2025.

An estimate for the cost of the Symplicity Spyral^TM Multi-Electrode Renal Denervation Catheter is not available for publication at the time of this proposed rule. We expect the applicant to release cost information prior to the final rule, and we will provide an update regarding the new technology add-on payment amount for the technology, if approved, in the final rule. The applicant stated that there would be two components for the cost of the technology, including operating costs for the Symplicity Spyral^TM Multi-Electrode Renal Denervation Catheter and capital costs for the Symplicity G3^TM Generator. Because section 1886(d)(5)(K)(i) of the Act requires that the Secretary establish a mechanism to recognize the costs of new medical services or technologies under the payment system established under that subsection, which establishes the system for payment of the operating costs of inpatient hospital services, we do not include capital costs in the add-on payments for a new medical service or technology or make new technology add-on payments under the IPPS for capital-related costs ( 86 FR 45145 ). Based on the information from the applicant, it appears that the Symplicity G3^TM Generator is a capital cost. Therefore, it appears that this component is not eligible for new technology add-on payment because, as discussed in prior rulemaking and as noted, we only make new technology add-on payments for operating costs ( 72 FR 47307 through 47308 ). Any new technology add-on payment for the Symplicity Spyral^TM Multi-Electrode Renal Denervation Catheter would be subject to our policy under § 412.88(a)(2) where we limit new technology add-on payment to the lesser of 65% of the average cost of the technology, or 65% of the costs in excess of the MS-DRG payment for the case.

We invite public comments on whether the Symplicity Spyral^TM Multi-Electrode Renal Denervation Catheter meets the cost criterion and our proposal to approve new technology add-on payments for the Symplicity Spyral^TM Multi-Electrode Renal Denervation Catheter for FY 2025 for reducing blood pressure as an adjunctive treatment in patients with hypertension in whom lifestyle modifications and antihypertensive medications do not adequately control blood pressure, which corresponds to the Breakthrough Device designation

k. Transdermal Glomerular Filtration Rate (GFR) Measurement System Utilizing Lumitrace

MediBeacon, Inc. submitted an application for new technology add-on payments for the Transdermal GFR Measurement System utilizing Lumitrace for FY 2025. According to the applicant, the Transdermal GFR Measurement System utilizing Lumitrace is a three-component system: (1) an optical skin sensor, (2) a monitor, and (3) Lumitrace (relmapirazin), which is a proprietary fluorescent tracer agent that glows in the presence of light and is removed from the blood exclusively by the GFR mechanism of the kidney. The technology is intended to measure GFR in patients with impaired or normal renal function during clinical conditions where the real time measurement of GFR (versus estimated measures) is clinically useful in the understanding of kidney function. We note that MediBeacon, Inc. submitted an application for new technology add-on payments for the Transdermal GFR Measurement System utilizing Lumitrace for FY 2024, as summarized in the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26954 through 26955), that it withdrew prior to the issuance of the FY 2024 IPPS/LTCH PPS final rule (88 FR 58919).

Please refer to the online application posting for the Transdermal GFR Measurement System utilizing Lumitrace, available at https://mearis.cms.gov/public/publications/ntap/NTP23101671HAA, for additional detail describing the technology.

According to the applicant, the Transdermal GFR Measurement System utilizing Lumitrace received Breakthrough Device designation from FDA on October 16, 2018, for measuring GFR in patients with impaired or normal renal function. According to the applicant, its marketing authorization request for the Transdermal GFR Measurement System utilizing Lumitrace has been filed by FDA, and it anticipates a premarket approval decision from FDA for the same indication consistent with the Breakthrough Device designation before May 1, 2024. According to the applicant, the Transdermal GFR Measurement System will not be immediately available for sale because it is waiting for premarket approval from FDA before producing large volumes of the agent, sensor, and monitor, and anticipates a limited launch prior to widespread availability.

The applicant stated that effective October 1, 2019, the following ICD-10-PCS code may be used to uniquely describe procedures involving the use of the Transdermal GFR Measurement System utilizing Lumitrace: XT25XE5 (Monitoring of kidney using fluorescent pyrazine, external approach, new technology group 5).

With respect to the cost criterion, to identify potential cases representing patients who may be eligible for the Transdermal GFR Measurement System utilizing Lumitrace, the applicant searched the FY 2022 MedPAR file for claims that had one of the ICD-10-CM codes or the ICD-10-PCS codes representing patients who are likely to require and/or benefit from real-time kidney function monitoring during the inpatient hospital stay. Using the inclusion/exclusion criteria described in the following table, the applicant identified 470,171 claims mapping to 697 MS-DRGs, including MS-DRG 871 (Septicemia or Severe Sepsis without MV >96 Hours with MCC) representing 15% of the identified cases. The applicant followed the order of operations described in the following table and calculated a final inflated average case-weighted standardized charge per case of $231,117, which exceeded the average case-weighted threshold amount of $134,438.

Because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount, the applicant asserted that the Transdermal GFR Measurement System utilizing Lumitrace meets the cost criterion.

We agree with the applicant that the Transdermal GFR Measurement System utilizing Lumitrace meets the cost criterion and are therefore proposing to approve the Transdermal GFR Measurement System utilizing Lumitrace for new technology add-on payments for FY 2025, subject to the technology receiving FDA marketing authorization as a Breakthrough Device for the indication corresponding to the Breakthrough Device designation by May 1, 2024.

The applicant has not provided an estimate for the cost of the Transdermal GFR Measurement System utilizing Lumitrace at the time of this proposed rule. The applicant stated that there would be three components for the cost of the technology: the operating cost of the Transdermal GFR Measurement System Sensor, the operating cost of Lumitrace (relmapirazin) that glows in the presence of light and is removed from the blood exclusively by the GFR mechanism of the kidney, and the capital cost of the Transdermal GFR Measurement System Monitor that displays fluorescence collected by the Transdermal GFR Measurement System Sensor to provide an indication of changes in transdermal GFR over time. Because section 1886(d)(5)(K)(i) of the Act requires that the Secretary establish a mechanism to recognize the costs of new medical services or technologies under the payment system established under that subsection, which establishes the system for payment of the operating costs of inpatient hospital services, we do not include capital costs in the add-on payments for a new medical service or technology or make new technology add-on payments under the IPPS for capital-related costs (86 FR 45145). As noted, the applicant stated that the cost of the Transdermal GFR Measurement System Monitor is a capital cost. Therefore, it appears that this component is not eligible for new technology add-on payment because, as discussed in prior rulemaking and as noted, we only make new technology add-on payments for operating costs (72 FR 47307 through 47308). We expect the applicant to submit cost information prior to the final rule, and we will provide an update regarding the new technology add-on payment amount for the technology, if approved, in the final rule. Any new technology add-on payment for the Transdermal GFR Measurement System utilizing Lumitrace would be subject to our policy under § 412.88(a)(2) where we limit new technology add-on payments to the lesser of 65% of the average cost of the technology, or 65% of the costs in excess of the MS-DRG payment for the case.

We invite public comments on whether the Transdermal GFR Measurement System utilizing Lumitrace meets the cost criterion and our proposal to approve new technology add-on payments for the Transdermal GFR Measurement System utilizing Lumitrace for FY 2025, subject to the technology receiving FDA marketing authorization as a Breakthrough Device for the indication corresponding to the Breakthrough Device designation by May 1, 2024.

l. TriClip^TM G4

Abbott submitted an application for new technology add-on payments for TriClip^TM G4 for FY 2025. According to the applicant, TriClip^TM G4 is intended for reconstruction of the insufficient tricuspid valve through tissue approximation via a transcatheter approach. The TriClip^TM G4 System consists of the TriClip^TM G4 Implant, Clip Delivery System and Steerable Guide. The applicant explained that the TriClip^TM G4 Implant is a percutaneously delivered mechanical implant that helps close the tricuspid valve leaflets resulting in fixed tricuspid leaflet approximation throughout the cardiac cycle. According to the applicant, TriClip^TM G4 is intended for the treatment of patients with symptomatic, severe tricuspid valve regurgitation, whose symptoms and tricuspid regurgitation (TR) severity persist despite being treated optimally with medical therapy.

Please refer to the online application posting for TriClip^TM G4, available at https://mearis.cms.gov/public/publications/ntap/NTP231016N52MH, for additional detail describing the technology and the disease treated by the technology.

According to the applicant, the TriClip^TM G4 System received Breakthrough Device designation from FDA on November 19, 2020, for the treatment of patients with symptomatic, severe tricuspid valve regurgitation, whose symptoms and TR severity persist despite being treated optimally with medical therapy. According to the applicant, its marketing authorization request has been filed by FDA, and it anticipates a premarket approval (PMA) decision from FDA for the same indication consistent with the Breakthrough Device designation before May 1, 2024. According to the applicant, the technology is expected to be commercially available immediately after FDA approval.

According to the applicant, the following ICD-10-PCS code may be used to describe procedures involving the use of TriClip^TM G4: 02UJ3JZ (Supplement tricuspid valve with synthetic substitute, percutaneous approach). The applicant noted that there are no FDA-approved technologies using this procedure code. The applicant stated that ICD-10-CM diagnosis codes I07.1 (Rheumatic tricuspid insufficiency) and I36.1 (Nonrheumatic tricuspid (valve) insufficiency) may be used to currently identify the indication for TriClip^TM G4 under the ICD-10-CM coding system.

With respect to the cost criterion, to identify potential cases representing patients who may be eligible for TriClip^TM G4, the applicant searched the 2022 Medicare Inpatient Hospital Standard Analytical File (100%) for claims that had one of the following ICD-10-CM codes, I07.1 (Rheumatic tricuspid insufficiency) or I36.1 (Nonrheumatic tricuspid (valve) insufficiency) in the primary position, in combination with ICD-10-PCS code 02UJ3JZ (Supplement tricuspid valve with synthetic substitute, percutaneous approach). Using the inclusion/exclusion criteria described in the following table, the applicant identified 235 claims mapping to two MS-DRGs, MS-DRG 266 (Endovascular Cardiac Valve Replacement and Supplement Procedures, with MCC), and 267 (Endovascular Cardiac Valve Replacement and Supplement Procedures, without MCC). The applicant followed the order of operations described in the following table and calculated a final inflated average case-weighted standardized charge per case of $313,389 which exceeded the average case-weighted threshold amount of $192,861.

Because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount, the applicant asserted that TriClip^TM G4 meets the cost criterion.

We agree with the applicant that TriClip^TM G4 meets the cost criterion and are therefore proposing to approve TriClip^TM G4 for new technology add-on payments for FY 2025, subject to the technology receiving FDA marketing authorization as a Breakthrough Device for the indication corresponding to the Breakthrough Device designation by May 1, 2024.

Based on preliminary information from the applicant at the time of this proposed rule, the applicant anticipated the total cost of TriClip^TM G4 to the hospital to be $40,000 per procedure. According to the applicant, the TriClip^TM System is composed of multiple components: the TriClip^TM G4 Implant, Clip Delivery System, and Steerable Guide Catheter. The applicant stated that all the components typically required for a single procedure are sold together for a single operating cost (for example, it is the same cost per procedure whether the patient requires one or two implants). We note that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. Under § 412.88(a)(2), we limit new technology add-on payments to the lesser of 65% of the average cost of the technology, or 65% of the costs in excess of the MS-DRG payment for the case. As a result, we are proposing that the maximum new technology add-on payment for a case involving the use of TriClip^TM G4 would be $26,000 for FY 2025 (that is, 65% of the average cost of the technology).

We invite public comments on whether TriClip^TM G4 meets the cost criterion and our proposal to approve new technology add-on payments for TriClip^TM G4 for FY 2025, subject to the technology receiving FDA marketing authorization as a Breakthrough Device for the indication corresponding to the Breakthrough Device designation by May 1, 2024.

m. VADER® Pedicle System

Icotec Medical, Inc. submitted an application for new technology add-on payments for the VADER® Pedicle System for FY 2025. According to the applicant, the VADER® Pedicle System is a pedicle screw system for standard posterior fixation of the spinal column used to provide stabilization of infected spinal segments after debridement of infectious tissues. According to the applicant, the VADER® Pedicle System is made from high strength carbon fiber reinforced polyether ether ketone, which provides low artifact imaging to allow for post-operative surveillance of the healing of the infected spinal segment.

Please refer to the online application posting for the VADER® Pedicle System, available at https://mearis.cms.gov/public/publications/ntap/NTP231016CMGH3, for additional detail describing the technology and the condition treated by the technology.

According to the applicant, the VADER® Pedicle System received Breakthrough Device designation from FDA on July 31, 2023 for stabilizing the thoracic and/or lumbar spinal column as an adjunct to fusion in patients diagnosed with an active spinal infection (for example, spondylodiscitis, osteomyelitis) who are at risk of spinal instability, progressive spinal deformity, or neurologic compromise, following surgical debridement. The applicant stated that the technology received 510(k) clearance from FDA on February 26, 2024, for the following indication, which is the subject of the new technology add-on payment application, and is consistent with the Breakthrough Device designation: to stabilize the thoracic and/or lumbar spinal column in patients who are or will be receiving concurrent medical treatment for an active spinal infection (for example, spondylodiscitis, osteomyelitis) that, without stabilization, could lead to deterioration of bony structures and misalignment with neurological compromise. We note that the VADER® Pedicle System has received FDA 510(k) clearance for multiple indications since 2019. We also note that, under the eligibility criteria for approval under the alternative pathway for certain transformative new devices, only the use of the VADER® Pedicle System to stabilize the thoracic and/or lumbar spine as an adjunct to fusion in patients with spinal infection, and the FDA Breakthrough Device designation it received for that use, are relevant for purposes of the new technology add-on payment application for FY 2025. According to the applicant, the technology was commercially available immediately after 510(k) clearance from FDA.

According to the applicant, there are currently no ICD-10-PCS procedure codes to distinctly identify the VADER® Pedicle System. The applicant submitted a request for approval for a unique ICD-10-PCS procedure code for the VADER® Pedicle System beginning in FY 2025. The applicant provided a list of diagnosis codes that may be used to currently identify the indication for the VADER® Pedicle System under the ICD-10-CM coding system, describing spinal infections including osteomyelitis, discitis, and spondylopathies of various vertebral spine body parts including the cervical, thoracic, and lumbar regions. Please refer to the online application posting for the complete list of ICD-10-CM codes provided by the applicant. As previously noted, only use of the technology for the indications corresponding to the Breakthrough Device designation would be relevant for new technology add-on payment purposes. We believe the relevant ICD-10-CM codes to identify the Breakthrough Device-designated indication would be the codes included in category M46 (Other inflammatory spondylopathies) under the ICD-10-CM classification in subcategories: M46.2- (Osteomyelitis of vertebra), M46.3- (Infection of intervertebral disc (pyogenic)), M46.4- (Discitis, unspecified), M46.5- (Other infective spondylopathies), M46.8- (Other specified inflammatory spondylopathies), and M46.9- (Unspecified inflammatory spondylopathy). We are inviting public comment on the use of these ICD-10-CM diagnosis codes to identify the Breakthrough Device-designated indication for purposes of the new technology add-on payment, if approved.

With respect to the cost criterion, to identify potential cases representing patients who may be eligible for the VADER® Pedicle System, the applicant searched the FY 2022 MedPAR file for claims reporting a combination of ICD-10-CM/PCS codes as listed in the online posting for the VADER® Pedicle System. The applicant believes these cases represent patients who have undergone fusion procedures and have been diagnosed with an active spinal infection (such as spondylodiscitis or osteomyelitis), and these patients are at risk of spinal instability, progressive spinal deformity, or neurologic compromise following surgical debridement, making them suitable candidates for the use of the technology. Using the inclusion/exclusion criteria described in the following table, the applicant identified 2,116 claims mapping to 22 MS-DRGs, with none exceeding more than 15% of the total identified cases. The applicant followed the order of operations described in the following table and calculated a final inflated average case-weighted standardized charge per case of $473,636, which exceeded the average case-weighted threshold amount of $197,922. Because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount, the applicant asserted that the VADER® Pedicle System meets the cost criterion.

We agree with the applicant that the VADER® Pedicle System meets the cost criterion and are therefore proposing to approve the VADER® Pedicle System for new technology add-on payments for FY 2025.

Based on preliminary information from the applicant at the time of this proposed rule, the applicant anticipated the total cost of the VADER® Pedicle System to the hospital to be $43,450 per patient. According to the applicant, the unit prices are $6,500 for a pedicle screw, $4,600 for a rod, and $350 for a set screw. The applicant stated that an average of five pedicle screws, two rods, and five set screws would be used for a spinal fusion procedure. The applicant calculated the total cost of the technology by multiplying the unit price of each component by the average number of that component used in the procedure. We note that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. Under § 412.88(a)(2), we limit new technology add-on payments to the lesser of 65% of the average cost of the technology, or 65% of the costs in excess of the MS-DRG payment for the case. As a result, we are proposing that the maximum new technology add-on payment for a case involving the use of the VADER® Pedicle System would be $28,242.50 for FY 2025 (that is, 65% of the average cost of the technology).

We invite public comments on whether the VADER® Pedicle System meets the cost criterion and our proposal to approve new technology add-on payments for the VADER® Pedicle System for FY 2025, when used to stabilize the thoracic and/or lumbar spinal column in patients who are or will be receiving concurrent medical treatment for an active spinal infection (for example, spondylodiscitis, osteomyelitis) that, without stabilization, could lead to deterioration of bony structures and misalignment with neurological compromise.

n. ZEVTERA^TM (Ceftobiprole Medocaril)

Basilea Pharmaceutica International Ltd, Allschwil submitted an application for new technology add-on payments for ZEVTERA^TM (ceftobiprole medocaril) for FY 2025. According to the applicant, ZEVTERA^TM is an advanced intravenous cephalosporin antibiotic designed to combat infections caused by antibiotic resistant pathogens. The applicant stated that ZEVTERA^TM targets a wide range of Gram-positive and Gram-negative bacteria, including methicillin-resistant Staphylococcus aureus (MRSA), Streptococcus pneumoniae, including penicillin-non-susceptible pneumococci (PNSP) and Enterococcus faecalis, as well as non-Extended Spectrum Beta-Lactamase (non-ESBL) producing Enterobacterales. The applicant noted that ZEVTERA^TM 's bactericidal activity is achieved by binding to essential penicillin-binding proteins, disrupting the synthesis of the bacterial cell wall's peptidoglycan layer and leading to bacterial cell death, which differentiates it from other beta-lactams by effectively addressing MRSA. Per the applicant, ZEVTERA^TM is stable against certain beta-lactamases in both gram-positive and gram-negative bacteria. The applicant stated that Phase 3 studies submitted to the FDA demonstrate its non-inferiority compared to standard treatments in various infections, including Staphylococcus aureus bacteremia (SAB), acute bacterial skin and skin structure infections (ABSSSI), and community-acquired bacterial pneumonia (CABP).

Please refer to the online application posting for ZEVTERA^TM , available at https://mearis.cms.gov/public/publications/ntap/NTP2310161DBB8, for additional detail describing the technology and the disease treated by the technology.

According to the applicant, ZEVTERA^TM received QIDP designations for CABP on July 20, 2015, for ABSSI on August 7, 2015, and for SAB on December 8, 2017. According to the applicant, its marketing authorization request for ZEVTERA^TM has been filed by FDA, and it anticipates an NDA decision from FDA for the same indications consistent with the QIDP designations by July 1, 2024. According to the applicant, ZEVTERA^TM will be commercially available immediately after FDA approval. We note that, as an application submitted under the alternative pathway for certain antimicrobial products at § 412.87(d), ZEVTERA^TM is eligible for conditional approval for new technology add-on payments if it does not receive FDA marketing authorization by July 1, 2024, provided that the technology receives FDA marketing authorization before July 1 of the fiscal year for which the applicant applied for new technology add-on payments (that is, July 1, 2025), as provided in § 412.87(f)(3). According to the applicant, for CABP and ABSSSI, ZEVTERA^TM is dosed at 500mg and administered three times daily (Q8h) as a 2-hour intravenous infusion for 5-14 days. For SAB, it is administered four times daily (Q6h) for the first 8 days, followed by Q8h daily infusion for the subsequent days, up to a total of 42 days.

According to the applicant, there are currently no ICD-10-PCS procedure codes to distinctly identify ZEVTERA^TM . We note that the applicant submitted a request for approval for a unique ICD-10-PCS procedure code for ZEVTERA^TM beginning in FY 2025. The applicant provided a list of diagnosis codes that may be used to currently identify the indication for ZEVTERA^TM under the ICD-10-CM coding system, describing SAB, ABSSSI, and CABP. Please refer to the online application posting for the complete list of ICD-10-CM (and PCS) codes provided by the applicant. We believe the relevant combination of ICD-10-CM codes to identify the indication of SAB would be: R78.81 (Bacteremia) in combination with B95.61 (Methicillin susceptible Staphylococcus aureus infection as the cause of diseases classified elsewhere) or B95.62 (Methicillin resistant Staphylococcus aureus infection as the cause of diseases classified elsewhere). We are inviting public comments on the use of these ICD-10-CM diagnosis codes to identify the indication of SAB for purposes of the new technology add-on payment, if approved.

With respect to the cost criterion, the applicant provided multiple analyses to demonstrate that it meets the cost criterion. For each analysis, the applicant searched the FY 2022 MedPAR file using different sets of ICD-10-CM codes in the first five diagnosis positions to identify potential cases representing different cohorts of patients who may be eligible for ZEVTERA^TM . The applicant performed the same analysis on ABSSSI, CABP, and SAB cases individually and for all indications combined.

For the first analysis, the applicant searched for claims with a diagnosis code for ABSSSI using the ICD-10-CM codes listed in the online posting for ZEVTERA^TM . The applicant used the inclusion/exclusion criteria described in the table that follows later in this section. Under this analysis, the applicant identified 261,397 claims mapping to 663 MS-DRGs and calculated a final inflated average case-weighted standardized charge per case of $114,279, which exceeded the average case-weighted threshold amount of $63,767.

For the second analysis, the applicant searched for claims with a diagnosis code for CABP using the ICD-10-CM codes listed in the online posting for ZEVTERA^TM . The applicant used the inclusion/exclusion criteria described in the table that follows later in this section. Under this analysis, the applicant identified 635,628 claims mapping to 611 MS-DRGs and calculated a final inflated average case-weighted standardized charge per case of $143,456, which exceeded the average case-weighted threshold amount of $78,778.

For the third analysis, the applicant searched for claims with a diagnosis code for SAB using the ICD-10-CM codes listed in the online posting for ZEVTERA^TM . The applicant used the inclusion/exclusion criteria described in the table that follows later in this section. Under this analysis, the applicant identified 105,068 claims mapping to 626 MS-DRGs and calculated a final inflated average case-weighted standardized charge per case of $165,809, which exceeded the average case-weighted threshold amount of $82,238.

For the fourth analysis, the applicant searched for claims with diagnosis codes for ABSSSI, CABP, or SAB in the first five positions on a claim, using the ICD-10-CM codes listed in the online posting for ZEVTERA^TM . The applicant used the inclusion/exclusion criteria described in the table that follows later in this section. Under this analysis, the applicant identified 958,104 claims mapping to 680 MS-DRGs and calculated a final inflated average case-weighted standardized charge per case of $137,861, which exceeded the average case-weighted threshold amount of $75,097.

Because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount in all scenarios, the applicant asserted that ZEVTERA meets the cost criterion.

We agree with the applicant that ZEVTERA^TM meets the cost criterion and are therefore proposing to approve ZEVTERA^TM for new technology add-on payments for FY 2025, subject to the technology receiving FDA marketing authorization for the indication corresponding to the QIDP designation by July 1, 2024. As an application submitted under the alternative pathway for certain antimicrobial products at § 412.87(d), ZEVTERA^TM is eligible for conditional approval for new technology add-on payments if it does not receive FDA marketing authorization by July 1, 2024, provided that the technology receives FDA marketing authorization before July 1 of the fiscal year for which the applicant applied for new technology add-on payments (that is, July 1, 2025), as provided in § 412.87(f)(3). If ZEVTERA^TM receives FDA marketing authorization before July 1, 2025, the new technology add-on payment for cases involving the use of this technology would be made effective for discharges beginning in the first quarter after FDA marketing authorization is granted. If FDA marketing authorization is received on or after July 1, 2025, no new technology add-on payments would be made for cases involving the use of ZEVTERA^TM for FY 2025.

Based on preliminary information from the applicant at the time of this proposed rule, the pricing for this treatment is set at $125 per vial, and the recommended dosage varies depending on the condition being treated. The applicant stated that for ABSSSI and CABP, the suggested daily dose is 3 vials per day for a duration of 5-14 days, resulting in an estimated average cost of $3,750 for a 10-day therapy. The applicant noted that for SAB, the recommended dose is every 6 hours for the first 8 days, followed by every 8 hours for up to 42 days. The applicant made the assumption that patients would be inpatient for 28 days and then continue the therapy as an outpatient for up to 42 days, which resulted in an average inpatient cost of $11,500. We note that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. Under § 412.88(a)(2), we limit new technology add-on payments for technologies designated as QIDPs to the lesser of 75% of the average cost of the technology, or 75% of the costs in excess of the MS-DRG payment for the case. As a result, we are proposing that the maximum new technology add-on payment for a case involving the use of ZEVTERA^TM for FY 2025 would be $8,625.00 for the indication of SAB and $2,812.50 for the indications of ABSSSI and CABP (that is, 75% of the average cost of the technology).

We invite public comments on whether ZEVTERA^TM meets the cost criterion and our proposal to approve new technology add-on payments for ZEVTERA^TM for FY 2025 for SAB, ABSSSI, and CABP, subject to the technology receiving FDA marketing authorization consistent with its QIDP designations by July 1, 2024.

7. Proposed Change to the Method for Determining Whether a Technology Would Be Within Its 2- to 3-Year Newness Period When Considering Eligibility for New Technology Add-On Payments

As discussed previously in this rule, section 1886(d)(5)(K)(i) of the Act requires the Secretary to establish (after notice and opportunity for public comment) a mechanism to recognize the costs of new medical services and technologies under the IPPS. Section 1886(d)(5)(K)(vi) of the Act specifies that a medical service or technology will be considered new if it meets criteria established by the Secretary after notice and opportunity for public comment. The regulations at 42 CFR 412.87 implement these provisions. As further discussed in FY 2005 IPPS final rule (69 FR 49002), the intent of section 1886(d)(5)(K) of the Act and regulations under § 412.87(b)(2) is to pay for new medical services and technologies for the first 2 to 3 years that a product comes on the market, during the period when the costs of the new technology are not yet fully reflected in the DRG weights. Generally, we use the FDA marketing authorization date as the indicator of the time when a technology begins to become available on the market and data reflecting the costs of the technology begin to become available for recalibration of the DRG weights. In specific circumstances, we have recognized a date later than the FDA marketing authorization date as the appropriate starting point for the 2- to 3-year newness period. For example, we have recognized a later date where an applicant could prove a delay in actual availability of a product after FDA approval or clearance. The costs of the new medical service or technology, once paid for by Medicare for this 2- to 3-year period, are accounted for in the MedPAR data that are used to recalibrate the DRG weights on an annual basis. Therefore, we stated it is appropriate to limit the add-on payment window for technologies that have passed this 2- to 3-year timeframe.

As discussed previously in this rule, our policy is that a medical service or technology may continue to be considered “new” for purposes of new technology add-on payments within 2 or 3 years after the point at which data begin to become available reflecting the inpatient hospital code assigned to the new service or technology. Our practice has been to begin and end new technology add-on payments on the basis of a fiscal year, and we have generally followed a guideline that uses a 6-month window before and after the start of the fiscal year to determine whether to extend the new technology add-on payment for an additional fiscal year. In general, we extend new technology add-on payments for an additional year only if the three-year anniversary date of the product's entry onto the U.S. market occurs in the latter half of the fiscal year, that is, after April 1 (70 FR 47362).

We have not implemented a policy to stop new technology add-on payment in the middle of the fiscal year (for example, during the month that a technology reaches its three-year anniversary date of entry onto the U.S. market) because, as we discussed in the FY 2005 IPPS final rule, we believe that predictability is an important aspect of the prospective payment system methodology. Accordingly, we believe that it is appropriate to apply a consistent payment methodology for new technologies throughout the fiscal year (69 FR 49016).

As previously discussed, in the FY 2024 IPPS/LTCH PPS final rule (88 FR 58948 through 58958), we finalized that beginning with the new technology add-on payment applications for FY 2025, for technologies that are not already FDA market authorized for the indication that is the subject of the new technology add-on payment application, applicants must have a complete and active FDA marketing authorization request at the time of new technology add-on payment application submission and must provide documentation of FDA acceptance or filing to CMS at the time of application submission, consistent with the type of FDA marketing authorization application the applicant has submitted to FDA. We also finalized that, beginning with FY 2025 applications, in order to be eligible for consideration for new technology add-on payment for the upcoming fiscal year, an applicant for new technology add-on payments must have received FDA approval or clearance by May 1 (rather than July 1) of the year prior to the beginning of the fiscal year for which the application is being considered (except for an application that is submitted under the alternative pathway for certain antimicrobial products).

As we summarized in the FY 2024 IPPS/LTCH PPS final rule, commenters raised concerns that this policy would adversely impact their ability to receive maximum flexibility with respect to when to apply to FDA and when they apply for new technology add-on payment (88 FR 58953). Many commenters expressed specific concerns regarding moving the FDA marketing authorization deadline to May 1 and the impact it would have on how long technologies may be eligible for new technology add-on payment. Several of the commenters asserted that this policy change would prevent a 3-year new technology add-on payment duration for almost all applicants, as only those technologies that receive FDA marketing authorization in April would be eligible for 3 years of new technology add-on payments, shortening the window from 3 months under the former policy (April 1 until July 1) to just 1 month (April 1 until May 1) (88 FR 58954). In response, we noted in that even under the former policy, not all applicants receive the full 3 years of new technology add on payments, and that there are many factors (including timing of interactions with the FDA and manufacturing readiness) that can delay a technology's approval by the FDA that would disrupt a technology's ability to receive the full 3 years of payment. However, we also noted the commenters' concerns regarding the shortened time period between April 1 and May 1 under the new policy and stated that we would consider for future rulemaking how we assess new technology add-on payment eligibility in the third year of newness, such as consideration of adjusting the April 1 cutoff to allow for a longer window of eligibility (88 FR 58955).

After further consideration of commenters' concerns that the policy we finalized in the FY 2024 IPPS/LTCH PPS final rule may limit the ability of new technology add-on payment applicants to be eligible for a third year of new technology add-on payments due to the shortened timeframe between April 1 and May 1, we agree that there may be merit to modifying our current 6-month guideline to provide additional flexibility for applications submitted in accordance with this new policy. While technologies that are FDA approved or cleared in April, and technologies with a documented delay in availability on the U.S. market such that the product's entry onto the U.S. market falls within the second half of the fiscal year, would still be eligible for a third year of new technology add-on payments under current policy, we agree that the change in the FDA marketing authorization deadline from July 1 to May 1 may limit the ability of new technology add-on payment applicants to be eligible for 3 years of new technology add-on payments. Therefore, we are proposing to change the April 1 cutoff for determining whether a technology would be within its 2- to 3-year newness period when considering eligibility for new technology add-on payments. We believe this proposed change would continue the flexibility applicants had with respect to when they apply to FDA and when they apply for new technology add-on payment, while preserving a predictable and consistent payment methodology for new technologies throughout the fiscal year.

Specifically, we are proposing that beginning with new technology add-on payments for FY 2026, in assessing whether to continue the new technology add-on payments for those technologies that are first approved for new technology add-on payments in FY 2025 or a subsequent year, we would extend new technology add-on payments for an additional fiscal year when the three-year anniversary date of the product's entry onto the U.S. market occurs on or after October 1 of that fiscal year. We are proposing that this policy change would become effective beginning with those technologies that are initially approved for new technology add-on payments in FY 2025 or a subsequent year to allow additional flexibility for those applications for new technologies which were first subject to the change in the deadline for FDA marketing authorization from July 1 to May 1. Therefore, for technologies that were first approved for new technology add-on payments prior to FY 2025, including for technologies we determine to be substantially similar to those technologies, we would continue to use the midpoint of the upcoming fiscal year (April 1) when determining whether a technology would still be considered “new” for purposes of new technology add-on payments. Similarly, we are also proposing that beginning with applications for new technology add-on payments for FY 2026, we would use the start of the fiscal year (October 1) instead of April 1 to determine whether to approve new technology add-on payment for that fiscal year.

We are seeking public comment on our proposal to change the April 1 cutoff to October 1 for determining whether a technology would be within its 2- to 3-year newness period when considering eligibility for new technology add-on payments, beginning in FY 2026, effective for those technologies that are approved for new technology add-on payments starting in FY 2025 or a subsequent year.

8. Proposed Change to the Requirements Defining an Active FDA Marketing Application for the Purpose of New Technology Add-On Payment Application Eligibility

As previously discussed, in the FY 2024 IPPS/LTCH PPS final rule (88 FR 58948 through 58958), we finalized that beginning with the new technology add-on payment applications for FY 2025, for technologies that are not already FDA market authorized for the indication that is the subject of the new technology add-on payment application, applicants must have a complete and active FDA market authorization request at the time of new technology add-on payment application submission, and must provide documentation of FDA acceptance or filing to CMS at the time of application submission, consistent with the type of FDA marketing authorization application the applicant has submitted to FDA. See § 412.87(e) and further discussion in the FY 2024 IPPS/LTCH PPS final rule (88 FR 58948 through 58958).

As we discussed further in the FY 2024 IPPS/LTCH PPS final rule, the documentation of FDA acceptance or filing of a marketing authorization request must be provided at the time of new technology add-on payment application, and be consistent with the type of FDA marketing authorization the applicant has submitted to FDA. We stated that we only accept new technology add-on payment applications once FDA has received all of the information necessary to determine whether it will accept (such as in the case of a 510(k) premarket submission or De Novo Classification request) or file (such as in the case of a PMA, NDA, or BLA) the application as demonstrated by documentation of the acceptance/filing that is provided by FDA. The applicant is required to submit documentation with its new technology add-on payment application to demonstrate that FDA has determined that the application is sufficiently complete to allow for substantive review by the FDA (88 FR 58955).

We also explained that, for the purposes of new technology add-on payment applications, we consider an FDA marketing authorization application to be in an active status when it has not been withdrawn, is not the subject of a Complete Response Letter or final decision from FDA to refuse to approve the application, and is not on hold (88 FR 58955 through 58956).

As noted in the FY 2024 final rule, we collaborated with FDA in developing the terminology used for purposes of this policy, and the intent behind using the terms we did was to ensure that the requirement could apply to and be inclusive of the various FDA applications and approval pathways for different types of drugs and devices. As such, we did not use terms defined in statute or existing regulations or terms defined by FDA (88 FR 58955). While FDA may consider an application for an FDA marketing authorization to be under active review despite a hold status, under our current policy we do not consider marketing authorization applications in a hold status with FDA to be in an active status for the purposes of new technology add-on payment application eligibility. As discussed in the FY 2024 IPPS/LTCH PPS final rule (88 FR 58956) our intent with respect to considering applications that are on hold at the time of new-technology add-on payment application submission to be inactive was to ensure that applicants are far enough along in the FDA review process that applicants would be able to reasonably provide sufficient information at the time of new technology add on payment application for CMS to identify critical questions regarding the technology's eligibility for add-on payments and to allow the public to assess the relevant new technology evaluation criteria in the proposed rule. As noted in the FY 2024 final rule (88 FR 58956), we have received applications over the years for technologies that are in a hold status with up to 360 days allowed for submission of additional information.

We also recognize that applications for FDA marketing authorization may go in and out of a hold status at various stages during the FDA application process and for various reasons. The maximum length of a hold status can vary based on the FDA approval pathway, such that the time remaining for an applicant to resolve the hold may vary from days to several months after the start of the new technology add-on payment application cycle, depending on the FDA pathway, reason(s) for the hold status, and how the timing of the hold coincides with the annual new technology add-on payment application submission date. Additionally, FDA may need to issue secondary letters of request for additional information, often depending on the quality of initial response from the applicant. Accordingly, while we continue to believe that an application that is in a hold status with FDA pending additional information may lack critical information that is needed to evaluate whether the technology meets the eligibility criteria, we also recognize the variability in the reasons for a hold status and the varying lengths of time for which an application can be on hold with FDA, such that some applicants may be farther along in the process to obtain FDA marketing authorization at the time of the hold.

After further consideration, based on the variability in the timing of and reasons underlying hold statuses with FDA, we believe it is appropriate to propose to update our policy. Specifically, we are proposing, beginning with new technology add-on payment applications for FY 2026, to no longer consider a hold status to be an inactive status for the purposes of eligibility for the new technology add-on payment. We would continue to consider an application to be in an inactive status where it is withdrawn, the subject of a Complete Response Letter, or the subject of a final decision from FDA to refuse to approve the application. Because of the variety of circumstances for which a technology may be in a hold status, as previously discussed, we note that we may reassess this policy for future years, if finalized, based on ongoing experience.

We invite public comments on our proposal to no longer consider a hold status to be an inactive status for the purposes of eligibility for new technology add-on payment, beginning with new technology add-on payment applications for FY 2026.

9. Proposed Change to the Calculation of the Inpatient New Technology Add-On Payment for Gene Therapies Indicated for Sickle Cell Disease

As discussed previously in this section, section 1886(d)(5)(K)(ii)(I) of the Act specifies that a new medical service or technology may be considered for a new technology add-on payment if, based on the estimated costs incurred with respect to discharges involving such service or technology, the DRG prospective payment rate otherwise applicable to such discharges under this subsection is inadequate. Under our current policy, as set forth in § 412.88(b)(2), unless the discharge qualifies for an outlier payment, the additional Medicare payment will be limited to the full MS-DRG payment plus 65 percent (or 75 percent for a medical product designated by the FDA as a Qualified Infectious Disease Product [QIDP] or approved under FDA's Limited Population Pathway for Antibacterial and Antifungal Drugs [LPAD]) of the estimated costs of the new technology or medical service.

Since establishing the new technology add-on payment, we have been cautious about increasing the new technology add-on payment percentage. As stated in the May 4, 2001 proposed rule (66 FR 22695), we believe limiting the new technology add-on payment percentage would provide hospitals an incentive for continued cost-effective behavior in relation to the overall costs of the case. In the FY 2020 IPPS/LTCH PPS final rule, in adopting the general increase in the new technology add-on payment percentage from 50 percent to 65 percent, we stated that we believed that 65 percent would be an incremental increase that would reasonably balance the need to maintain the incentives inherent to the prospective payment system while also encouraging the development and use of new technologies. We continue to believe that it is important to balance these incentives in assessing any potential change to the new technology add-on payment calculation.

In the FY 2020 IPPS/LTCH PPS final rule, we also finalized an increase in the new technology add-on payment percentage for QIDPs from 65 percent to 75 percent. We stated that we shared commenters' concerns related to antimicrobial resistance and its serious impact on Medicare beneficiaries and public health overall. We noted that the Centers for Disease Control and Prevention (CDC) described antimicrobial resistance as “one of the biggest public health challenges of our time.” We stated that we believe that Medicare beneficiaries may be disproportionately impacted by antimicrobial resistance due in large part to the unique vulnerability to drug-resistant infections (for example, due to age-related and/or disease-related immunosuppression, greater pathogen exposure from via catheter use) among individuals aged 65 or older. We further stated that antimicrobial resistance results in a substantial number of additional hospital days for Medicare beneficiaries, resulting in significant unnecessary health care expenditures.

To address the continued issues related to antimicrobial resistance resulting in a substantial number of increased hospital days and significant unnecessary health care expenditures for Medicare beneficiaries, in the FY 2021 IPPS/LTCH PPS final rule, we finalized a proposal to expand the alternative new technology add-on payment pathway for QIDPs to include products approved under the LPAD pathway and to increase the maximum new technology add-on payment percentage for a product approved under FDA's LPAD pathway, from 65 percent to 75 percent, consistent with the new technology add-on payment percentage for a product that is designated by FDA as a QIDP, beginning with discharges occurring on or after October 1, 2020 (85 FR 58739).

Since finalizing our current policy for QIDPs and LPADs, we continue to receive feedback from interested parties regarding the adequacy of new technology add-on payments for certain categories of technologies, including cell and gene therapies to treat sickle cell disease (SCD). Although we still believe it is prudent to proceed cautiously with increasing the new technology add-on payment percentage, we recognize that SCD, the most common inherited blood disorder, has historically had limited treatment options. In addition, hospitalizations and other health episodes related to SCD cost the health system $3 billion per year. We further note that the administration has identified a need to address SCD and has made a commitment to improving outcomes for patients with SCD by facilitating access to cell and gene therapies that treat SCD.

Accordingly, we believe that further facilitating access to these gene therapies for Medicare beneficiaries with SCD may have the potential to simultaneously improve the health of impacted Medicare beneficiaries and potentially lead to long-term savings in the Medicare program. We also note that some gene therapies that treat SCD are among the costliest treatments to date, and we are concerned about a hospital's ability to sustain a potential financial loss to provide access to such treatments. As we discussed when we increased the new technology add-on payment for QIDPs in the FY 2020 IPPS/LTCH PPS final rule and products approved under FDA's LPAD in the FY 2021 IPPS/LTCH PPS final rule from 65 percent to 75 percent, we believe that it may be appropriate to increase the maximum add-on amount in limited cases where the current new technology add-on payment does not provide a sufficient incentive for the use of a new technology, which we believe may be the case for gene therapies that treat SCD. Accordingly, and consistent with our new technology add-on payment policy for products designated by the FDA as a QIDP or LPAD, we believe there would be merit in also increasing the new technology add-on payment percentage for gene therapies that are indicated and used for the treatment of SCD to 75 percent.

Therefore, we are proposing that, subject to our review of the new technology add-on payment eligibility criteria, for certain gene therapies approved for new technology add-on payments in the FY 2025 IPPS/LTCH PPS final rule for the treatment of SCD, effective with discharges on or after October 1, 2024 and concluding at the end of the 2- to 3-year newness period for such therapy, if the costs of a discharge (determined by applying CCRs as described in § 412.84(h)) involving the use of such therapy for the treatment of SCD exceed the full DRG payment (including payments for IME and DSH, but excluding outlier payments), Medicare would make an add-on payment equal to the lesser of: (1) 75 percent of the costs of the new medical service or technology; or (2) 75 percent of the amount by which the costs of the case exceed the standard DRG payment. We note that, if finalized, these payment amounts would only apply to any gene therapy indicated and used specifically for the treatment of SCD that CMS determines in the FY 2025 IPPS/LTCH PPS final rule meets the criteria for approval for new technology add-on payment. We are also proposing to add new § 412.88(a)(2)(ii)(C) and § 412.88(b)(2)(iv) to reflect this proposed change to the calculation of the new technology add-on payment amount, beginning in FY 2025 and concluding at the end of the 2- to 3-year newness period for each such therapy. With this incremental increase, we believe hospitals would continue to have an incentive to balance the desirability of using the new technology for patients as medically appropriate while also maintaining an incentive for continued cost-effective behavior in relation to the overall costs of the case.

We invite public comments on this proposal to temporarily increase the new technology add-on payment percentage to 75 percent for a gene therapy that is indicated and used for the treatment of SCD as described previously. We also seek comment on whether we should make this proposed 75 percent add-on payment percentage available only to applicants that meet certain additional criteria, such as attesting to offering and/or participating in outcome-based pricing arrangements with purchasers (without regard to whether the specific purchaser availed itself of the outcome-based arrangements), or otherwise engaging in behaviors that promote access to these therapies at lower cost.

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

A. Background

1. Legislative Authority

Section 1886(d)(3)(E) of the Act requires that, as part of the methodology for determining prospective payments to hospitals, the Secretary adjust the standardized amounts for area differences in hospital wage levels by a factor (established by the Secretary) reflecting the relative hospital wage level in the geographic area of the hospital compared to the national average hospital wage level. We currently define hospital labor market areas based on the delineations of statistical areas established by the Office of Management and Budget (OMB). A discussion of the proposed FY 2025 hospital wage index based on the statistical areas appears under section III.B. of the preamble of this proposed rule.

Section 1886(d)(3)(E) of the Act requires the Secretary to update the wage index annually and to base the update on a survey of wages and wage-related costs of short-term, acute care hospitals. CMS collects these data on the Medicare cost report, CMS Form 2552-10, Worksheet S-3, Parts II, III, IV. The OMB control number for this information collection request is 0938-0050, which expires on September 30, 2025. Section 1886(d)(3)(E) of the Act also requires that any updates or adjustments to the wage index be made in a manner that ensures that aggregate payments to hospitals are not affected by the change in the wage index. The proposed adjustment for FY 2025 is discussed in section II.B. of the Addendum to this proposed rule.

As discussed in section III.I. of the preamble of this proposed rule, we also take into account the geographic reclassification of hospitals in accordance with sections 1886(d)(8)(B) and 1886(d)(10) of the Act when calculating IPPS payment amounts. Under section 1886(d)(8)(D) of the Act, the Secretary is required to adjust the standardized amounts so as to ensure that aggregate payments under the IPPS after implementation of the provisions of sections 1886(d)(8)(B), 1886(d)(8)(C), and 1886(d)(10) of the Act are equal to the aggregate prospective payments that would have been made absent these provisions. The proposed budget neutrality adjustment for FY 2025 is discussed in section II.A.4.b. of the Addendum to this proposed rule.

Section 1886(d)(3)(E) of the Act also provides for the collection of data every 3 years on the occupational mix of employees for short-term, acute care hospitals participating in the Medicare program, in order to construct an occupational mix adjustment to the wage index. (The OMB control number for approved collection of this information is 0938-0907, which expires on January 31, 2026.) A discussion of the occupational mix adjustment that we are proposing to apply to the FY 2025 wage index appears under section III.E. of the preamble of this proposed rule.

2. Proposed Core-Based Statistical Areas (CBSAs) for the FY 2025 Hospital Wage Index

The wage index is calculated and assigned to hospitals on the basis of the labor market area in which the hospital is located. Under section 1886(d)(3)(E) of the Act, beginning with FY 2005 (69 FR 49026 through 49032), we delineate hospital labor market areas based on OMB-established Core-Based Statistical Areas (CBSAs). The current statistical areas (which were implemented beginning with FY 2021) are based on revised OMB delineations issued on Sept 14, 2018, in OMB Bulletin No. 18-04. OMB Bulletin No. 18-04 established revised delineations for Metropolitan Statistical Areas, Micropolitan Statistical Areas, and Combined Statistical Areas in the United States and Puerto Rico based on the 2010 Census and the American Community Survey (ACS) and Census Bureau population estimates for 2015.

Historically, OMB issued major revisions to statistical areas every 10 years, based on the results of the decennial census and occasionally issues minor updates and revisions to statistical areas in the years between the decennial censuses through OMB Bulletins. On February 28, 2013, OMB issued Bulletin No. 13-01. CMS adopted these delineations, based on the results of the 2010 census, effective beginning with the FY 2015 IPPS wage index (79 FR 49951 through 49957). OMB subsequently issued Bulletin No. 15-01 on July 15, 2015, followed by OMB Bulletin No. 17-01 on August 15, 2017, which provided updates to and superseded OMB Bulletin No. 15-01. The attachments to OMB Bulletin No. 17-01 provided detailed information on the update to statistical areas since July 15, 2015 and were based on the application of the 2010 Standards for Delineating Metropolitan and Micropolitan Statistical Areas to Census Bureau population estimates for July 1, 2014 and July 1, 2015. In the FY 2019 IPPS/LTCH PPS final rule (83 FR 41362 through 41363), we adopted the updates set forth in OMB Bulletin No. 17-01 effective October 1, 2018, beginning with the FY 2019 wage index. OMB Bulletin No. 17-01 was superseded by the April 10, 2018 OMB Bulletin No. 18-03, and then by the September 14, 2018 OMB Bulletin No. 18-04. These bulletins established revised delineations for Metropolitan Statistical Areas, Micropolitan Statistical Areas, and Combined Statistical Areas, and provided guidance on the use of the delineations of these statistical areas. In FY 2021, we adopted the updates set forth in OMB Bulletin No. 18-04 (85 FR 58743 through 58753). Thus, most recently in the FY 2024 IPPS/LTCH PPS final rule, we continued to use the OMB delineations that were adopted beginning with FY 2015 (based on the revised delineations issued in OMB Bulletin No. 13-01) to calculate the area wage indexes, with updates as reflected in OMB Bulletin Nos. 15-01, 17-01, and 18-04.

In the July 16, 2021 Federal Register (86 FR 37777), OMB finalized a schedule for future updates based on results of the decennial Census updates to commuting patterns from the ACS. In accordance with that schedule, on July 21, 2023, OMB released Bulletin No. 23-01. A copy of OMB Bulletin No. 23-01 may be obtained at https://www.whitehouse.gov/wp-content/uploads/2023/07/OMB-Bulletin-23-01.pdf. According to OMB, the delineations reflect the 2020 Standards for Delineating Core Based Statistical Areas (“the 2020 Standards”), which appeared in the Federal Register on July 16, 2021 (86 FR 37770 through 37778), and the application of those standards to Census Bureau population and journey-to-work data (that is, 2020 Decennial Census, American Community Survey, and Census Population Estimates Program data).

B. Proposed Implementation of Revised Labor Market Area Delineations

We believe that using the revised delineations based on OMB Bulletin No. 23-01 will increase the integrity of the IPPS wage index system by creating a more accurate representation of current geographic variations in wage levels. Therefore, we are proposing to implement the revised OMB delineations as described in the July 21, 2023 OMB Bulletin No. 23-01, beginning with the FY 2025 IPPS wage index. We are proposing to use these revised delineations to calculate area wage indexes in a manner that is generally consistent with the CMS' implementation of CBSA-based wage index methodologies.

CMS has recognized that hospitals in certain areas may experience a negative impact on their IPPS payment due to the proposed adoption of the revised OMB delineations and has finalized transition policies to mitigate negative financial impacts and provide stability to year-to-year wage index variations. We refer readers to the FY 2015 IPPS final rule (79 FR 49956 through 49962) for discussion of the transition period finalized the last time CMS adopted revised OMB delineations after a decennial census. In the FY 2020 final rule (84 FR 42336-42337), CMS finalized a wage index transition policy to apply a 5 percent cap on any decrease that hospitals may experience in their final wage index from the prior fiscal year. In FY 2023, the 5 percent cap policy was made permanent for all acute care hospitals. This 5 percent cap on reductions policy is discussed in further detail in section III.G.6 of the preamble of this proposed rule. We believe it is important for the IPPS to use the updated labor market area delineations in order to maintain a more accurate and up-to date payment system that reflects the reality of current labor market conditions. We believe the 5 percent cap policy will sufficiently mitigate significant disruptive financial impacts on hospitals that are negatively affected by the proposed adoption of the revised OMB delineations and thus, we are not proposing a transition period for these hospitals.

1. Micropolitan Statistical Areas

The OMB “2020 Standards” define a “Micropolitan Statistical Area” as being associated with at least one urban area that has a population of at least 10,000, but less than 50,000. A Micropolitan Statistical Area comprises the central county or counties containing the core, plus adjacent outlying counties having a high degree of social and economic integration with the central county or counties as measured through commuting (86 FR 37778). We refer to these areas as Micropolitan Areas. Since FY 2005, we have treated Micropolitan Areas as rural and included hospitals located in Micropolitan Areas in each State's rural wage index. We refer readers to the FY 2005 IPPS final rule (69 FR 49029 through 49032) and the FY 2015 IPPS/LTCH PPS final rule (79 FR 49952) for a complete discussion regarding this policy and our rationale for treating Micropolitan Areas as rural. Based upon the new 2020 Decennial Census data, a number of urban counties have switched status and have joined or became Micropolitan Areas, and some counties that once were part of a Micropolitan Area, under current OMB delineations, have become urban. Overall, there are a similar number of Micropolitan Areas (542) under the new OMB delineations based on the 2020 Census as existed under the latest data from the 2010 Census (541). We believe that the best course of action would be to continue the policy established in the FY 2005 IPPS final rule and include hospitals located in Micropolitan Areas in each State's rural wage index. These areas continue to be defined as having relatively small urban cores (populations of 10,000-49,999). We do not believe it would be appropriate to calculate a separate wage index for areas that typically may include only a few hospitals for the reasons set forth in the FY 2005 IPPS/LTCH PPS final rule (69 FR 49029 through 49032) and the FY 2015 IPPS final rule (79 FR 49952). Therefore, in conjunction with our proposal to implement the new OMB statistical area delineations beginning in FY 2025, we are proposing to continue to treat Micropolitan Areas as “rural” and to include Micropolitan Areas in the calculation of each state's rural wage index.

2. Metropolitan Divisions

According to OMB's “2020 Standards” (86 FR 37776), a metropolitan division is a county or group of counties within a metropolitan statistical area (MSA) with a population of at least 2.5 million. Thus, MSAs may be subdivided into metropolitan divisions. A county qualifies as a “main county” of a metropolitan division if 65 percent or more of workers living in the county also work within the county and the ratio of the number of workers working in the county to the number of workers living in the county is at least 0.75. A county qualifies as a “secondary county” if 50 percent or more, but less than 65 percent, of workers living in the county also work within the county and the ratio of the number of workers working in the county to the number of workers living in the county is at least 0.75. After all the main and secondary counties are identified and grouped, each additional county that already has qualified for inclusion in the MSA falls within the metropolitan division associated with the main/secondary county or counties with which the county at issue has the highest employment interchange measure. Counties in a metropolitan division must be contiguous. In the FY 2005 IPPS final rule (69 FR 49029), CMS finalized our policy to use the metropolitan divisions where applicable under the CBSA definitions. CMS concluded that including the metropolitan divisions in the CBSA definitions most closely approximated the labor market delineation from the “Primary Metropolitan Statistical Areas” delineations in place prior to FY 2005.

Under the current delineations, 11 MSAs are subdivided into a total of 31 metropolitan divisions. The revised OMB delineations have subdivided two additional existing MSAs into metropolitan divisions relative to the previous delineations. Under the proposed delineations, 13 MSAs (the 11 currently subdivided MSAs plus two additional MSAs) are subdivided into 37 metropolitan divisions. Since the configurations of most subdivided MSAs remain substantially similar in the revised delineations compared to those used in FY 2024, in order to maintain continuity and predictability in labor market delineations, we are proposing to continue our policy to include metropolitan divisions as separate CBSAs for wage index purposes.

3. Change to County-Equivalents in the State of Connecticut

In a June 6, 2022 Notice (87 FR 34235 through 34240), the Census Bureau announced that it was implementing the State of Connecticut's request to replace the 8 counties in the State with 9 new “Planning Regions.” Planning regions now serve as county-equivalents within the CBSA system. OMB Bulletin No. 23-01 is the first set of revised delineations that referenced the new county-equivalents for Connecticut. We have evaluated the change in hospital assignments for Connecticut hospitals and are proposing to adopt the planning regions as county equivalents for wage index purposes. As all forthcoming county-based delineation data will utilize these new county-equivalent definitions for the Connecticut, we believe it is necessary to adopt this migration from counties to planning region county-equivalents in order to maintain consistency with OMB Bulletin No. 23-01 and future OMB updates. We are providing the following crosswalk for each hospital in Connecticut with the current and proposed FIPS county and county-equivalent codes and CBSA assignments.

We note that we are proposing that the remote location currently indicated with 07B033 will be located in the same CBSA as the main provider 070033. Therefore, consistent with the policy for remote locations of multicampus hospitals discussed in FY 2019 IPPS/LTCH PPS final rule (83 FR 41369 through 41374), it will no longer be necessary to identify this remote location separately from the main provider for wage index purposes.

We also note, as discussed in Section III.B.3 of the preamble of this proposed rule, we propose to add both of the newly proposed rural planning areas in Connecticut to the list of “Lugar” counties.

4. Urban Counties That Would Become Rural Under the Revised OMB Delineations

As previously discussed, we are proposing to implement the revised OMB statistical area delineations (based upon OMB Bulletin No. 23-01) beginning in FY 2025. Our analysis shows that a total of 53 counties (and county equivalents) and 33 hospitals that were once considered part of an urban CBSA would be considered to be located in a rural area, beginning in FY 2025, under these revised OMB delineations. The following chart lists the 53 urban counties that would be rural if we finalize our proposal to implement the revised OMB delineations. We note that there are four cases (CBSA 14100 [Bloomsburg-Berwick, PA], CBSA 19180 [Danville, IL], CBSA 20700 [East Stroudsburg, PA], and CBSA 35100 [New Bern, NC]) where all constituent counties in an urban CBSA would become rural under the revised OMB delineations.

We are proposing that the wage data for all hospitals located in the counties listed here would now be considered when calculating their respective State's rural wage index. We further refer readers to section III.G.6 of the preamble of this proposed rule for a discussion of the 5 percent cap policy. We believe that this policy, which caps any reduction in wage index values at 5 percent of the hospital's prior year wage index value, provides an adequate transition to mitigate sudden negative financial impacts due to the adoption of wage index policies, including the adoption of revised OMB labor market delineations.

We are also proposing revisions to the list of counties deemed urban under section 1886(d)(8)(B) of the Act, which will affect a number the hospitals located in these proposed rural counties. We note that we are proposing to add 17 of the 53 counties listed here to the list of “Lugar” counties whose hospitals, pursuant to 1886(d)(8)(B), are deemed to be in an urban area. We refer readers to section III.F.4.b for further discussion.

In addition, we note the provisions of § 412.102 of our regulations would continue to apply with respect to determining DSH payments. Specifically, in the first year after a hospital loses urban status, the hospital will receive an adjustment to its DSH payment that equals two-thirds of the difference between the urban DSH payments applicable to the hospital before its redesignation from urban to rural and the rural DSH payments applicable to the hospital subsequent to its redesignation from urban to rural. In the second year after a hospital loses urban status, the hospital will receive an adjustment to its DSH payment that equals one third of the difference between the urban DSH payments applicable to the hospital before its redesignation from urban to rural and the rural DSH payments applicable to the hospital subsequent to its redesignation from urban to rural.

5. Rural Counties That Would Become Urban Under the Revised OMB Delineations

As previously discussed, we are proposing to implement the revised OMB statistical area delineations (based upon OMB Bulletin No. 23-01) beginning in FY 2025. Analysis of these OMB statistical area delineations shows that a total of 54 counties (and county equivalents) and 24 hospitals that were located in rural areas would be located in urban areas under the revised OMB delineations. The following chart lists the 54 rural counties that would be urban if we finalize our proposal to implement the revised OMB delineations.

We are proposing that when calculating the area wage index, the wage data for hospitals located in these counties would be included in their new respective urban CBSAs. We also note that due to the proposed adoption of the revised OMB delineations, some CAHs that were previously located in rural areas may be located in urban areas. The regulations at §§ 412.103(a)(6) and 485.610(b)(5) provide affected CAHs with a two-year transition period that begins from the date the redesignation becomes effective. The affected CAHs must reclassify as rural during this transition period in order to retain their CAH status after the two-year transition period ends. We refer readers to the FY 2015 IPPS/LTCH final rule (79 FR 50162 through 50163) for further discussion of the two-year transition period for CAHs. We also note that special statuses limited to hospitals located in rural areas (such as MDH or SCH status) may be terminated if hospitals are located in proposed urban counties. In these cases, affected hospitals should apply for rural reclassification status under § 412.103 prior to October 1, 2024 to ensure no disruption in status.

6. Urban Counties That Would Move to a Different Urban CBSA Under the Revised OMB Delineations

In addition to rural counties becoming urban and urban counties becoming rural, some urban counties would shift from one urban CBSA to a new or existing urban CBSA under our proposal to adopt the new OMB delineations.

In some cases, the change in CBSA would extend only to a change in name. Revised CBSA names can be found in Table 3 of the addendum of the proposed rule. In other cases, the CBSA number also would change. For these CBSAs, the list of constituent urban counties in FY 2024 and FY 2025 would be the same (except in instances where an urban county became rural, or a rural county became urban; as discussed in the previous section). The following table lists the CBSAs where, under the proposed delineations, the CBSA name and number would change but the constituent counties would not change (not including instances where an urban county became rural, or a rural county became urban).

In some cases, all of the urban counties from a FY 2024 CBSA would be moved and subsumed by another CBSA in FY 2025. The following table lists the CBSAs that, under the proposed delineations, would be subsumed by an another CBSA.

In other cases, if we adopt the revised OMB delineations, some counties would shift between existing and new CBSAs, changing the constituent makeup of the CBSAs. For example, Calvert County, MD would move from the current CBSA 12580 (Washington-Arlington-Alexandria, DC-VA-MD-WV) into proposed CBSA 30500 (Lexington Park, MD). The other constituent counties of CBSA 12580 would be split into urban CBSAs 47664 (Washington, DC-MD) and 11694 (Arlington-Alexandria-Reston, VA-WV). The following chart lists the urban counties that would split off from one urban CBSA and move to a newly proposed or modified urban CBSA if we adopt the revised OMB delineations.

If hospitals located in these counties move from one CBSA to another under the revised OMB delineations, there may be impacts, both negative and positive, upon their specific wage index values. We refer readers to section III.F.3. of the preamble of this proposed rule for discussion of our proposals to address the reassignment of MGCRB wage index reclassifications for hospitals currently assigned to these modified CBSAs.

7. Transition

Overall, we believe implementing the new OMB labor market area delineations would result in wage index values being more representative of the actual current costs of labor in a given area. However, we recognize that some hospitals would experience decreases in wage index values as a result of our proposed implementation of the new labor market area delineations. We also realize that some hospitals would have higher wage index values due to our proposed implementation of the new labor market area delineations.

In the past, we have provided for transition periods when adopting changes that have significant payment implications, particularly large negative impacts. When adopting new OMB delineations based on the decennial census for the 2005 and 2015 wage indexes, we applied a 3-year transition for urban hospitals that became rural under the new delineations and a 50/50 blended wage index adjustment for all hospitals that would experience any decrease in their actual payment wage index (69 FR 49032 through 49034 and 79 FR 28060 through 28062).

In connection with our adoption in FY 2021 of the updates in OMB Bulletin 18-04, which included more modifications to the CBSAs than are typical for OMB bulletins issued between decennial censuses, we adopted a policy to place a 5-percent cap on any decrease in a hospital's wage index from the hospital's final wage index in FY 2020 so that a hospital's final wage index for FY 2021 would not be less than 95 percent of its final wage index for FY 2020 (85 FR 58753 through 58755). Given the unprecedented nature of the COVID-19 public health emergency (PHE), we adopted a policy in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45164 through 45165) to apply an extended transition to the FY 2022 wage index for hospitals affected by the transition in FY 2021 to mitigate significant negative impacts of, and provide additional time for hospitals to adapt to, the CMS decision to adopt the revised OMB delineations. In the FY 2023 IPPS/LTCH PPS final rule (87 FR 49018 through 49021), under the authority at sections 1886(d)(3)(E) and 1886(d)(5)(I)(i) of the Act, we finalized a policy for FY 2023 and subsequent years to apply a 5 percent cap on any decrease to a hospital's wage index from its wage index in the prior FY, regardless of the circumstances causing the decline.

We believe that this permanent cap policy, reflected at 42 CFR 412.64(h)(7) and discussed in section in III.G.6. of the preamble of this proposed rule, sufficiently mitigates any large negative impacts of adopting the new delineations. As we stated when finalizing the permanent 5-percent cap policy in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49018 through 49021), we further considered the comments we received during the FY 2022 rulemaking recommending a permanent 5 percent cap policy to prevent large year-to-year variations in wage index values as a means to reduce overall volatility for hospitals. We do not believe any additional transition period is necessary considering that the current cap on wage index decreases, which was not in place when we implemented the decennial census updates in FY 2005 and FY 2015, ensures that a hospital's wage index would not be less than 95 percent of its final wage index for the prior year.

C. Worksheet S-3 Wage Data for the Proposed FY 2025 Wage Index

1. Cost Reporting Periods Beginning in FY 2021 for FY 2025 Wage Index

The proposed FY 2025 wage index values are based on the data collected from the Medicare cost reports submitted by hospitals for cost reporting periods beginning in FY 2021 (the FY 2024 wage indexes were based on data from cost reporting periods beginning during FY 2020).

The FY 2025 wage index includes all of the following categories of data associated with costs paid under the IPPS (as well as outpatient costs):

• Salaries and hours from short-term, acute care hospitals (including paid lunch hours and hours associated with military leave and jury duty).
• Home office costs and hours.
• Certain contract labor costs and hours, which include direct patient care, certain top management, pharmacy, laboratory, and nonteaching physician Part A services, and certain contract indirect patient care services (as discussed in the FY 2008 final rule with comment period (72 FR 47315 through 47317)).
• Wage-related costs, including pension costs (based on policies adopted in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51586 through 51590) and modified in the FY 2016 IPPS/LTCH PPS final rule (80 FR 49505 through 49508)) and other deferred compensation costs.

Consistent with the wage index methodology for FY 2024, the proposed wage index for FY 2025 excludes the direct and overhead salaries and hours for services not subject to IPPS payment, such as skilled nursing facility (SNF) services, home health services, costs related to GME (teaching physicians and residents) and certified registered nurse anesthetists (CRNAs), and other subprovider components that are not paid under the IPPS. The proposed FY 2025 wage index also excludes the salaries, hours, and wage-related costs of hospital-based rural health clinics (RHCs), and Federally Qualified Health Centers (FQHCs), because Medicare pays for these costs outside of the IPPS (68 FR 45395). In addition, salaries, hours, and wage-related costs of CAHs are excluded from the wage index for the reasons explained in the FY 2004 IPPS final rule (68 FR 45397 through 45398). Similar to our treatment of CAHs, as discussed below, we are proposing to exclude Rural Emergency Hospitals (REHs) from the wage index.

For FY 2020 and subsequent years, other wage-related costs are also excluded from the calculation of the wage index. As discussed in the FY 2019 IPPS/LTCH final rule (83 FR 41365 through 41369), other wage-related costs reported on Worksheet S-3, Part II, Line 18 and Worksheet S-3, Part IV, Line 25 and subscripts, as well as all other wage-related costs, such as contract labor costs, are excluded from the calculation of the wage index.

2. Use of Wage Index Data by Suppliers and Providers Other Than Acute Care Hospitals Under the IPPS

Data collected for the IPPS wage index also are currently used to calculate wage indexes applicable to suppliers and other providers, such as SNFs, home health agencies (HHAs), ambulatory surgical centers (ASCs), and hospices. In addition, they are used for prospective payments to IRFs, IPFs, and LTCHs, and for hospital outpatient services. We note that, in the IPPS rules, we do not address comments pertaining to the wage indexes of any supplier or provider except IPPS providers and LTCHs. Such comments should be made in response to separate proposed rules for those suppliers and providers.

3. Verification of Worksheet S-3 Wage Data

The wage data for the FY 2025 wage index were obtained from Worksheet S-3, Parts II, III and IV of the Medicare cost report, CMS Form 2552-10 (OMB Control Number 0938-0050 with an expiration date September 30, 2025) for cost reporting periods beginning on or after October 1, 2020, and before October 1, 2021. For wage index purposes, we refer to cost reports beginning on or after October 1, 2020, and before October 1, 2021, as the “FY 2021 cost report,” the “FY 2021 wage data,” or the “FY 2021 data.” Instructions for completing the wage index sections of Worksheet S-3 are included in the Provider Reimbursement Manual (PRM), Part 2 (Pub. 15-2), Chapter 40, Sections 4005.2 through 4005.4. The data file used to construct the proposed FY 2025 wage index includes FY 2021 data submitted to us as of January 26, 2024. As in past years, we performed an extensive review of the wage data, mostly through the use of edits designed to identify aberrant data.

Consistent with the IPPS and LTCH PPS ratesettings, our policy principles with regard to the wage index include generally using the most current data and information available, which is usually data on a 4-year lag (for example, for the FY 2023 wage index we used cost report data from FY 2019). We stated in the FY 2023 IPPS/LTCH final rule (87 FR 48994) that we will be looking at the differential effects of the COVID-19 PHE on the audited wage data in future fiscal years. We also stated we plan to review the audited wage data, and the impacts of the COVID-19 PHE on such data and evaluate these data for future rulemaking. For the FY 2025 wage index, the best available data typically would be from the FY 2021 wage data.

In considering the impacts of the COVID-19 PHE on the FY 2021 wage data, we compared that data with recent historical data. Based on pre reclassified wage data, the changes in the wage data from FY 2020 to FY 2021 show the following compared to the annual changes for the most recent 3 fiscal year periods (that is, FY 2017 to FY 2018, FY 2018 to FY 2019 and FY 2019 to FY 2020):

• Approximately 91 percent of hospitals have an increase in their average hourly wage (AHW) from FY 2020 to FY 2021 compared to a range of 76-86 percent of hospitals for the most recent 3 fiscal year periods.
• Approximately 97 percent of all CBSA AHWs are increasing from FY 2020 to FY 2021 compared to a range of 84-91 percent of all CBSAs for the most recent 3 fiscal year periods.
• Approximately 51 percent of all urban areas have an increase in their area wage index from FY 2020 to FY 2021 compared to a range of 36-43 percent of all urban areas for the most recent 3 fiscal year periods.
• Approximately 55 percent of all rural areas have an increase in their area wage index from FY 2020 to FY 2021 compared to a range of 31-46 percent of all rural areas for the most recent 3 fiscal year periods.
• The unadjusted national average hourly wage increased by a range of 2.4-5.4 percent per year from FY 2017-FY 2020. For FY 2021, the unadjusted national average hourly increased by 8.7 percent from FY 2020.

Similar to the FY 2024 wage index, it is not readily apparent even if the comparison with the historical trends had indicated greater differences at a national level in this context, how any changes due to the COVID-19 PHE differentially impacted the wages paid by individual hospitals. Furthermore, even if changes due to the COVID-19 PHE did differentially impact the wages paid by individual hospitals over time, it is not clear how those changes could be isolated from changes due to other reasons and what an appropriate potential methodology might be to adjust the data to account for the effects of the COVID-19 PHE.

Lastly, we also note that we have not identified any significant issues with the FY 2021 wage data itself in terms of our audits of this data. As usual, the data was audited by the Medicare Administrative Contractors (MACs), and there were no significant issues reported across the data for all hospitals.

Taking all of these factors into account, we believe the FY 2021 wage data is the best available wage data to use for FY 2025 and are proposing to use the FY 2021 wage data for FY 2025.

We welcome comment from the public with regard to the FY 2021 wage data. We note, AHW data by provider and CBSA, including the data upon which the comparisons provided above are based, is available in our Public Use Files released with each proposed and final rule each fiscal year. The Public Use Files for the respective FY Wage Index Home Page can be found on the Wage Index Files web page at https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/wage-index-files.

We requested that our MACs revise or verify data elements that resulted in specific edit failures. For the proposed FY 2025 wage index, we identified and excluded 69 providers with aberrant data that should not be included in the wage index. If data elements for some of these providers are corrected, we intend to include data from those providers in the final FY 2025 wage index. We also adjusted certain aberrant data and included these data in the wage index. For example, in situations where a hospital did not have documentable salaries, wages, and hours for housekeeping and dietary services, we imputed estimates, in accordance with policies established in the FY 2015 IPPS/LTCH PPS final rule (79 FR 49965 through 49967). We instructed MACs to complete their verification of questionable data elements and to transmit any changes to the wage data no later than March 20, 2024.

In constructing the proposed FY 2025 wage index, we included the wage data for facilities that were IPPS hospitals in FY 2021, inclusive of those facilities that have since terminated their participation in the program as hospitals, as long as those data did not fail any of our edits for reasonableness. We believe that including the wage data for these hospitals is, in general, appropriate to reflect the economic conditions in the various labor market areas during the relevant past period and to ensure that the current wage index represents the labor market area's current wages as compared to the national average of wages. However, we excluded the wage data for CAHs as discussed in the FY 2004 IPPS final rule (68 FR 45397 through 45398); that is, any hospital that is designated as a CAH by 7 days prior to the publication of the preliminary wage index public use file (PUF) is excluded from the calculation of the wage index. For the proposed rule, we removed 8 hospitals that converted to CAH status on or after January 23, 2023, the cut-off date for CAH exclusion from the FY 2024 wage index, and through and including January 24, 2024, the cut-off date for CAH exclusion from the FY 2025 wage index. We note, we also removed 2 hospitals that converted to CAH status prior to January 23, 2023.

The Consolidated Appropriations Act (CAA), 2021, was signed into law on December 27, 2020. Section 125 of Division CC (section 125) established a new rural Medicare provider type: Rural Emergency Hospitals (REHs). (We refer the reader to the CMS website at https://www.cms.gov/medicare/health-safety-standards/guidance-for-laws-regulations/hospitals/rural-emergency-hospitals for additional information on REHs.) In doing so, section 125 amended section 1861(e) of the Act, which provides the definition of a hospital and states that the term “hospital” does not include, unless the context otherwise requires, a critical access hospital (as defined in subsection (mm)(1)) or a rural emergency hospital (as defined in subsection (kkk)(2)). Section 125 also added section 1861(kkk) to the Act, which sets forth the requirements for REHs. Per section 1861(kkk)(2) of the Act, one of the requirements for an REH is that it does not provide any acute care inpatient services (other than post-hospital extended care services furnished in a distinct part unit licensed as a skilled nursing facility (SNF)). Similar to CAHs, we believe hospitals that have subsequently converted to REH status should be removed from the wage index calculation, because they are a separately certified Medicare provider type and are not comparable to other short-term, acute care hospitals as they do not provide inpatient hospital services. For FY 2025, we are proposing to treat REHs the same as CAHs and exclude 15 REHs from the wage index. Accordingly, similar to our policy on CAHs, any hospital that is designated as a REH by 7 days prior to the publication of the preliminary wage index public use file (PUF) is excluded from the calculation of the wage index. In summary, we calculated the FY 2025 wage index using the Worksheet S-3, Parts II and III wage data of 3,075 hospitals.

For the proposed FY 2025 wage index, we allotted the wages and hours data for a multicampus hospital among the different labor market areas where its campuses are located using campus full-time equivalent (FTE) percentages as originally finalized in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51591). Table 2, which contains the FY 2025 wage index associated with this proposed rule (available via the internet on the CMS website), includes separate wage data for the campuses of 27 multicampus hospitals. The following chart lists the multicampus hospitals by CMS certification number (CCN) and the FTE percentages on which the wages and hours of each campus were allotted to their respective labor market areas:

We note that, in past years, in Table 2, we have placed a “B” to designate the subordinate campus in the fourth position of the hospital CCN. However, for the FY 2019 IPPS/LTCH PPS proposed and final rules and subsequent rules, we have moved the “B” to the third position of the CCN. Because all IPPS hospitals have a “0” in the third position of the CCN, we believe that placement of the “B” in this third position, instead of the “0” for the subordinate campus, is the most efficient method of identification and interferes the least with the other variable digits in the CCN.

4. Process for Requests for Wage Index Data Corrections

a. Process for Hospitals To Request Wage Index Data Corrections

The preliminary, unaudited Worksheet S-3 wage data files for the proposed FY 2025 wage index were made available on May 23, 2023, through the internet on the CMS website at https://www.cms.gov/medicare/medicare-fee-service-payment/acuteinpatientpps/wage-index-files/fy-2025-wage-index-home-page. We subsequently identified some providers that were inadvertently omitted from the FY 2025 preliminary Worksheet S-3 wage data file originally posted on May 23, 2023. Therefore, on July 12, 2023, we posted an updated FY 2025 preliminary Worksheet S-3 wage data file to include these missing providers. In addition, the Calendar Year (CY) 2022 occupational mix survey data was made available on July 12, 2023, through the internet on the CMS website at https://www.cms.gov/medicare/medicare-fee-service-payment/acuteinpatientpps/wage-index-files/fy-2025-wage-index-home-page. On August 14, 2023, we posted an updated CY 2022 Occupational Mix survey data file that includes survey data for providers that were inadvertently omitted from the file posted on July 12, 2023.

On January 31, 2024, we posted a public use file (PUF) at https://www.cms.gov/medicare/medicare-fee-service-payment/acuteinpatientpps/wage-index-files/fy-2025-wage-index-home-page containing FY 2025 wage index data available as of January 31, 2024. This PUF contains a tab with the Worksheet S-3 wage data (which includes Worksheet S-3, Parts II and III wage data from cost reporting periods beginning on or after October 1, 2020, through September 30, 2021; that is, FY 2021 wage data), a tab with the occupational mix data (which includes data from the CY 2022 occupational mix survey, Form CMS-10079), a tab containing the Worksheet S-3 wage data of hospitals deleted from the January 31, 2024 wage data PUF, and a tab containing the CY 2022 occupational mix data of the hospitals deleted from the January 31, 2024 occupational mix PUF. In a memorandum dated January 31, 2024, we instructed all MACs to inform the IPPS hospitals that they service of the availability of the January 31, 2024, wage index data PUFs, and the process and timeframe for requesting revisions in accordance with the FY 2025 Hospital Wage Index Development Time Table available at https://www.cms.gov/files/document/fy2025-hospital-wage-index-development-timetable.pdf.

In the interest of meeting the data needs of the public, beginning with the proposed FY 2009 wage index, we post an additional PUF on the CMS website that reflects the actual data that are used in computing the proposed wage index. The release of this file does not alter the current wage index process or schedule. We notify the hospital community of the availability of these data as we do with the current public use wage data files through our Hospital Open Door Forum. We encourage hospitals to sign up for automatic notifications of information about hospital issues and about the dates of the Hospital Open Door Forums at the CMS website at https://www.cms.gov/Outreach-and-Education/Outreach/OpenDoorForums.

In a memorandum dated May 4, 2023, we instructed all MACs to inform the IPPS hospitals that they service of the availability of the preliminary wage index data files and the CY 2022 occupational mix survey data files posted on May 23, 2023, and the process and timeframe for requesting revisions.

If a hospital wished to request a change to its data as shown in the May 23, 2023, preliminary wage data files and occupational mix data files, the hospital had to submit corrections along with complete, detailed supporting documentation to its MAC so that the MAC received them by September 1, 2023. Hospitals were notified of these deadlines and of all other deadlines and requirements, including the requirement to review and verify their data as posted in the preliminary wage index data files on the internet, through the letters sent to them by their MACs.

November 3, 2023 was the date by when MACs notified State hospital associations regarding hospitals that failed to respond to issues raised during the desk reviews. Additional revisions made by the MACs were transmitted to CMS throughout January 2024. CMS published the wage index PUFs that included hospitals' revised wage index data on January 31, 2024. Hospitals had until February 16, 2024, to submit requests to the MACs to correct errors in the January 31, 2024, PUF due to CMS or MAC mishandling of the wage index data, or to revise desk review adjustments to their wage index data as included in the January 31, 2024, PUF. Hospitals also were required to submit sufficient documentation to support their requests. Hospitals' requests and supporting documentation must have been received by the MAC by the February deadline (that is, by February 16, 2024, for the FY 2025 wage index).

After reviewing requested changes submitted by hospitals, MACs were required to transmit to CMS any additional revisions resulting from the hospitals' reconsideration requests by March 20, 2024. Under our current policy as adopted in the FY 2018 IPPS/LTCH PPS final rule (82 FR 38153), the deadline for a hospital to request CMS intervention in cases where a hospital disagreed with a MAC's handling of wage data on any basis (including a policy, factual, or other dispute) is April 3, 2024. Data that were incorrect in the preliminary or January 31, 2024, wage index data PUFs, but for which no correction request was received by the February 16, 2024, deadline, are not considered for correction at this stage. In addition, April 3, 2024, is the deadline for hospitals to dispute data corrections made by CMS of which the hospital was notified after the January 31, 2024, PUF and at least 14 calendar days prior to April 3, 2024 (that is, March 20, 2024), that do not arise from a hospital's request for revisions. The hospital's request and supporting documentation must be received by CMS (and a copy received by the MAC) by the April deadline (that is, by April 3, 2024, for the FY 2025 wage index). We refer readers to the FY 2025 Hospital Wage Index Development Time Table for complete details. Hospitals are given the opportunity to examine Table 2 associated with this proposed rule, which is listed in section VI. of the Addendum to the proposed rule and available via the internet on the CMS website at https://www.cms.gov/medicare/medicare-fee-service-payment/acuteinpatientpps/wage-index-files/fy-2025-wage-index-home-page. Table 2 associated with the proposed rule contains each hospital's proposed adjusted average hourly wage used to construct the wage index values for the past 3 years, including the proposed FY 2025 wage index, which was constructed from FY 2021 data. We note that the proposed hospital average hourly wages shown in Table 2 only reflect changes made to a hospital's data that were transmitted to CMS by early February 2024.

We plan to post the final wage index data PUFs on April 29, 2024, on the CMS website at https://www.cms.gov/medicaremedicare-fee-service-paymentacuteinpatientppswage-index-files/fy-2024-wage-index-home-page. The April 2024 PUFs are made available solely for the limited purpose of identifying any potential errors made by CMS or the MAC in the entry of the final wage index data that resulted from the correction process (the process for disputing revisions submitted to CMS by the MACs by March 20, 2024, and the process for disputing data corrections made by CMS that did not arise from a hospital's request for wage data revisions as discussed earlier), as previously described.

After the release of the April 2024 wage index data PUFs, changes to the wage and occupational mix data can only be made in those very limited situations involving an error by the MAC or CMS that the hospital could not have known about before its review of the final wage index data files. Specifically, neither the MAC nor CMS will approve the following types of requests:

• Requests for wage index data corrections that were submitted too late to be included in the data transmitted to CMS by the MACs on or before March 20, 2024.
• Requests for correction of errors that were not, but could have been, identified during the hospital's review of the January 31, 2024, wage index PUFs.
• Requests to revisit factual determinations or policy interpretations made by the MAC or CMS during the wage index data correction process.

If, after reviewing the April 2024 final wage index data PUFs, a hospital believes that its wage or occupational mix data are incorrect due to a MAC or CMS error in the entry or tabulation of the final data, the hospital is given the opportunity to notify both its MAC and CMS regarding why the hospital believes an error exists and provide all supporting information, including relevant dates (for example, when it first became aware of the error). The hospital is required to send its request to CMS and to the MAC so that it is received no later than May 29, 2024. May 29, 2024, is also the deadline for hospitals to dispute data corrections made by CMS of which the hospital is notified on or after 13 calendar days prior to April 3, 2024 (that is, March 21, 2024), and at least 14 calendar days prior to May 29, 2024 (that is, May 15, 2024), that did not arise from a hospital's request for revisions. (Data corrections made by CMS of which a hospital is notified on or after 13 calendar days prior to May 29, 2024 (that is, May 16, 2024), may be appealed to the Provider Reimbursement Review Board (PRRB)). In accordance with the FY 2025 Hospital Wage Index Development Time Table posted on the CMS website at https://www.cms.gov/files/document/fy2025-hospital-wage-index-development-timetable.pdf, the May appeals are required to be submitted to CMS through an online submission process or through email. We refer readers to the FY 2025 Hospital Wage Index Development Time Table for complete details.

Verified corrections to the wage index data received timely (that is, by May 29, 2024) by CMS and the MACs will be incorporated into the final FY 2025 wage index, which will be effective October 1, 2024.

We created the processes previously described to resolve all substantive wage index data correction disputes before we finalize the wage and occupational mix data for the FY 2025 payment rates. Accordingly, hospitals that do not meet the procedural deadlines set forth earlier will not be afforded a later opportunity to submit wage index data corrections or to dispute the MAC's decision with respect to requested changes. Specifically, our policy is that hospitals that do not meet the procedural deadlines as previously set forth (requiring requests to MACs by the specified date in February and, where such requests are unsuccessful, requests for intervention by CMS by the specified date in April) will not be permitted to challenge later, before the PRRB, the failure of CMS to make a requested data revision. We refer readers also to the FY 2000 IPPS final rule (64 FR 41513) for a discussion of the parameters for appeals to the PRRB for wage index data corrections. As finalized in the FY 2018 IPPS/LTCH PPS final rule (82 FR 38154 through 38156), this policy also applies to a hospital disputing corrections made by CMS that do not arise from a hospital's request for a wage index data revision. That is, a hospital disputing an adjustment made by CMS that did not arise from a hospital's request for a wage index data revision is required to request a correction by the first applicable deadline. Hospitals that do not meet the procedural deadlines set forth earlier will not be afforded a later opportunity to submit wage index data corrections or to dispute CMS' decision with respect to changes.

Again, we believe the wage index data correction process described earlier provides hospitals with sufficient opportunity to bring errors in their wage and occupational mix data to the MAC's attention. Moreover, because hospitals had access to the final wage index data PUFs by late April 2024, they have an opportunity to detect any data entry or tabulation errors made by the MAC or CMS before the development and publication of the final FY 2025 wage index by August 2024, and the implementation of the FY 2025 wage index on October 1, 2024. Given these processes, the wage index implemented on October 1 should be accurate. Nevertheless, in the event that errors are identified by hospitals and brought to our attention after May 29, 2024, we retain the right to make midyear changes to the wage index under very limited circumstances.

Specifically, in accordance with § 412.64(k)(1) of our regulations, we make midyear corrections to the wage index for an area only if a hospital can show that: (1) The MAC or CMS made an error in tabulating its data; and (2) the requesting hospital could not have known about the error or did not have an opportunity to correct the error, before the beginning of the fiscal year. For purposes of this provision, “before the beginning of the fiscal year” means by the May deadline for making corrections to the wage data for the following fiscal year's wage index (for example, May 29, 2024, for the FY 2025 wage index). This provision is not available to a hospital seeking to revise another hospital's data that may be affecting the requesting hospital's wage index for the labor market area. As indicated earlier, because CMS makes the wage index data available to hospitals on the CMS website prior to publishing both the proposed and final IPPS rules, and the MACs notify hospitals directly of any wage index data changes after completing their desk reviews, we do not expect that midyear corrections will be necessary. However, under our current policy, if the correction of a data error changes the wage index value for an area, the revised wage index value will be effective prospectively from the date the correction is made.

In the FY 2006 IPPS final rule (70 FR 47385 through 47387 and 47485), we revised § 412.64(k)(2) to specify that, effective on October 1, 2005, that is, beginning with the FY 2006 wage index, a change to the wage index can be made retroactive to the beginning of the Federal fiscal year only when CMS determines all of the following: (1) The MAC or CMS made an error in tabulating data used for the wage index calculation; (2) the hospital knew about the error and requested that the MAC and CMS correct the error using the established process and within the established schedule for requesting corrections to the wage index data, before the beginning of the fiscal year for the applicable IPPS update (that is, by the May 29, 2024, deadline for the FY 2025 wage index); and (3) CMS agreed before October 1 that the MAC or CMS made an error in tabulating the hospital's wage index data and the wage index should be corrected.

In those circumstances where a hospital requested a correction to its wage index data before CMS calculated the final wage index (that is, by the May 29, 2024 deadline for the FY 2025 wage index), and CMS acknowledges that the error in the hospital's wage index data was caused by CMS' or the MAC's mishandling of the data, we believe that the hospital should not be penalized by our delay in publishing or implementing the correction. As with our current policy, we indicated that the provision is not available to a hospital seeking to revise another hospital's data. In addition, the provision cannot be used to correct prior years' wage index data; it can only be used for the current Federal fiscal year. In situations where our policies would allow midyear corrections other than those specified in § 412.64(k)(2)(ii), we continue to believe that it is appropriate to make prospective-only corrections to the wage index.

We note that, as with prospective changes to the wage index, the final retroactive correction will be made irrespective of whether the change increases or decreases a hospital's payment rate. In addition, we note that the policy of retroactive adjustment will still apply in those instances where a final judicial decision reverses a CMS denial of a hospital's wage index data revision request.

b. Process for Data Corrections by CMS After the January 31 Public Use File (PUF)

The process set forth with the wage index timetable discussed in section III.C.4. of the preamble of this proposed rule allows hospitals to request corrections to their wage index data within prescribed timeframes. In addition to hospitals' opportunity to request corrections of wage index data errors or MACs' mishandling of data, CMS has the authority under section 1886(d)(3)(E) of the Act to make corrections to hospital wage index and occupational mix data in order to ensure the accuracy of the wage index. As we explained in the FY 2016 IPPS/LTCH PPS final rule (80 FR 49490 through 49491) and the FY 2017 IPPS/LTCH PPS final rule (81 FR 56914), section 1886(d)(3)(E) of the Act requires the Secretary to adjust the proportion of hospitals' costs attributable to wages and wage-related costs for area differences reflecting the relative hospital wage level in the geographic areas of the hospital compared to the national average hospital wage level. We believe that, under section 1886(d)(3)(E) of the Act, we have discretion to make corrections to hospitals' data to help ensure that the costs attributable to wages and wage-related costs in fact accurately reflect the relative hospital wage level in the hospitals' geographic areas.

We have an established multistep, 15-month process for the review and correction of the hospital wage data that is used to create the IPPS wage index for the upcoming fiscal year. Since the origin of the IPPS, the wage index has been subject to its own annual review process, first by the MACs, and then by CMS. As a standard practice, after each annual desk review, CMS reviews the results of the MACs' desk reviews and focuses on items flagged during the desk review, requiring that, if necessary, hospitals provide additional documentation, adjustments, or corrections to the data. This ongoing communication with hospitals about their wage data may result in the discovery by CMS of additional items that were reported incorrectly or other data errors, even after the posting of the January 31 PUF, and throughout the remainder of the wage index development process. In addition, the fact that CMS analyzes the data from a regional and even national level, unlike the review performed by the MACs that review a limited subset of hospitals, can facilitate additional editing of the data the need for which may not be readily apparent to the MACs. In these occasional instances, an error may be of sufficient magnitude that the wage index of an entire CBSA is affected. Accordingly, CMS uses its authority to ensure that the wage index accurately reflects the relative hospital wage level in the geographic area of the hospital compared to the national average hospital wage level, by continuing to make corrections to hospital wage data upon discovering incorrect wage data, distinct from instances in which hospitals request data revisions.

We note that CMS corrects errors to hospital wage data as appropriate, regardless of whether that correction will raise or lower a hospital's average hourly wage. For example, as discussed in section III.C. of the preamble of the FY 2019 IPPS/LTCH PPS final rule (83 FR 41364), in situations where a hospital did not have documentable salaries, wages, and hours for housekeeping and dietary services, we imputed estimates, in accordance with policies established in the FY 2015 IPPS/LTCH PPS final rule (79 FR 49965 through 49967). Furthermore, if CMS discovers after conclusion of the desk review, for example, that a MAC inadvertently failed to incorporate positive adjustments resulting from a prior year's wage index appeal of a hospital's wage-related costs such as pension, CMS would correct that data error, and the hospital's average hourly wage would likely increase as a result.

While we maintain CMS' authority to conduct additional review and make resulting corrections at any time during the wage index development process, in accordance with the policy finalized in the FY 2018 IPPS/LTCH PPS final rule (82 FR 38154 through 38156) and as first implemented with the FY 2019 wage index (83 FR 41389), hospitals are able to request further review of a correction made by CMS that did not arise from a hospital's request for a wage index data correction. Instances where CMS makes a correction to a hospital's data after the January 31 PUF based on a different understanding than the hospital about certain reported costs, for example, could potentially be resolved using this process before the final wage index is calculated. We believe this process and the timeline for requesting review of such corrections (as described earlier and in the FY 2018 IPPS/LTCH PPS final rule) promote additional transparency in instances where CMS makes data corrections after the January 31 PUF and provide opportunities for hospitals to request further review of CMS changes in time for the most accurate data to be reflected in the final wage index calculations. These additional appeals opportunities are described earlier and in the FY 2025 Hospital Wage Index Development Time Table, as well as in the FY 2018 IPPS/LTCH PPS final rule (82 FR 38154 through 38156).

D. Method for Computing the Proposed FY 2025 Unadjusted Wage Index

The method used to compute the proposed FY 2025 wage index without an occupational mix adjustment follows the same methodology that we used to compute the wage indexes without an occupational mix adjustment in the FY 2021 IPPS/LTCH PPS final rule (see 85 FR 58758-58761), and we are not proposing any changes to this methodology. We have restated our methodology in this section of this rule.

Step 1.—We gathered data from each of the non-Federal, short-term, acute care hospitals for which data were reported on the Worksheet S-3, Parts II and III of the Medicare cost report for the hospital's cost reporting period relevant to the wage index (in this case, for FY 2025, these were data from cost reports for cost reporting periods beginning on or after October 1, 2020, and before October 1, 2021). In addition, we included data from hospitals that had cost reporting periods beginning prior to the October 1, 2020 begin date and extending into FY 2021 but that did not have any cost report with a begin date on or after October 1, 2020 and before October 1, 2021. We include this data because no other data from these hospitals would be available for the cost reporting period as previously described, and because particular labor market areas might be affected due to the omission of these hospitals. However, we generally describe these wage data as data applicable to the fiscal year wage data being used to compute the wage index for those hospitals. We note that, if a hospital had more than one cost reporting period beginning during FY 2021 (for example, a hospital had two short cost reporting periods beginning on or after October 1, 2020, and before October 1, 2021), we include wage data from only one of the cost reporting periods, the longer, in the wage index calculation. If there was more than one cost reporting period and the periods were equal in length, we included the wage data from the later period in the wage index calculation.

Step 2.—Salaries.—The method used to compute a hospital's average hourly wage excludes certain costs that are not paid under the IPPS. (We note that, beginning with FY 2008 (72 FR 47315), we included what were then Lines 22.01, 26.01, and 27.01 of Worksheet S-3, Part II of CMS Form 2552-96 for overhead services in the wage index. Currently, these lines are lines 28, 33, and 35 on CMS Form 2552-10. However, we note that the wages and hours on these lines are not incorporated into Line 101, Column 1 of Worksheet A, which, through the electronic cost reporting software, flows directly to Line 1 of Worksheet S-3, Part II. Therefore, the first step in the wage index calculation is to compute a “revised” Line 1, by adding to the Line 1 on Worksheet S-3, Part II (for wages and hours respectively) the amounts on Lines 28, 33, and 35.) In calculating a hospital's Net Salaries (we note that we previously used the term “average” salaries in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51592), but we now use the term “net” salaries) plus wage-related costs, we first compute the following: Subtract from Line 1 (total salaries) the GME and CRNA costs reported on CMS Form 2552-10, Lines 2, 4.01, 7, and 7.01, the Part B salaries reported on Lines 3, 5 and 6, home office salaries reported on Line 8, and exclude salaries reported on Lines 9 and 10 (that is, direct salaries attributable to SNF services, home health services, and other subprovider components not subject to the IPPS). We also subtract from Line 1 the salaries for which no hours were reported. Therefore, the formula for Net Salaries (from Worksheet S-3, Part II) is the following:

((Line 1 + Line 28 + Line 33 + Line 35)−(Line 2 + Line 3 + Line 4.01 + Line 5 + Line 6 + Line 7 + Line 7.01 + Line 8 + Line 9 + Line 10)).

To determine Total Salaries plus Wage-Related Costs, we add to the Net Salaries the costs of contract labor for direct patient care, certain top management, pharmacy, laboratory, and nonteaching physician Part A services (Lines 11, 12 and 13), home office salaries and wage-related costs reported by the hospital on Lines 14.01, 14.02, and 15, and nonexcluded area wage-related costs (Lines 17, 22, 25.50, 25.51, and 25.52). We note that contract labor and home office salaries for which no corresponding hours are reported are not included. In addition, wage-related costs for nonteaching physician Part A employees (Line 22) are excluded if no corresponding salaries are reported for those employees on Line 4. The formula for Total Salaries plus Wage-Related Costs (from Worksheet S-3, Part II) is the following:

((Line 1 + Line 28 + Line 33 + Line 35)−(Line 2 + Line 3 + Line 4.01 + Line 5 + Line 6 + Line 7 + Line 7.01 + Line 8 + Line 9 + Line 10)) + (Line 11 + Line 12 + Line 13 + Line 14.01 + 14.02 + Line 15) + (Line 17 + Line 22 + 25.50 + 25.51 + 25.52).

Step 3.—Hours.—With the exception of wage-related costs, for which there are no associated hours, we compute total hours using the same methods as described for salaries in Step 2. The formula for Total Hours (from Worksheet S-3, Part II) is the following:

((Line 1 + Line 28 + Line 33 + Line 35)−(Line 2 + Line 3 + Line 4.01 + Line 5 + Line 6 + Line 7 + Line 7.01 + Line 8 + Line 9 + Line 10)) + (Line 11 + Line 12 + Line 13 + Line 14.01 + 14.02 + Line 15).

Step 4.—For each hospital reporting both total overhead salaries and total overhead hours greater than zero, we then allocate overhead costs to areas of the hospital excluded from the wage index calculation. First, we determine the “excluded rate”, which is the ratio of excluded area hours to Revised Total Hours (from Worksheet S-3, Part II) with the following formula:

(Line 9 + Line 10)/(Line 1 + Line 28 + Line 33 + Line 35)−(Lines 2, 3, 4.01, 5, 6, 7, 7.01, and 8 and Lines 26 through 43).

We then compute the amounts of overhead salaries and hours to be allocated to the excluded areas by multiplying the previously discussed ratio by the total overhead salaries and hours reported on Lines 26 through 43 of Worksheet S-3, Part II. Next, we compute the amounts of overhead wage-related costs to be allocated to the excluded areas using three steps:

• We determine the “overhead rate” (from Worksheet S-3, Part II), which is the ratio of overhead hours (Lines 26 through 43 minus the sum of Lines 28, 33, and 35) to revised hours excluding the sum of lines 28, 33, and 35 (Line 1 minus the sum of Lines 2, 3, 4.01, 5, 6, 7, 7.01, 8, 9, 10, 28, 33, and 35). We note that, for the FY 2008 and subsequent wage index calculations, we have been excluding the overhead contract labor (Lines 28, 33, and 35) from the determination of the ratio of overhead hours to revised hours because hospitals typically do not provide fringe benefits (wage-related costs) to contract personnel. Therefore, it is not necessary for the wage index calculation to exclude overhead wage-related costs for contract personnel. Further, if a hospital does contribute to wage-related costs for contracted personnel, the instructions for Lines 28, 33, and 35 require that associated wage-related costs be combined with wages on the respective contract labor lines. The formula for the Overhead Rate (from Worksheet S-3, Part II) is the following:

(Lines 26 through 43−Lines 28, 33 and 35)/((((Line 1 + Lines 28, 33, 35)−(Lines 2, 3, 4.01, 5, 6, 7, 7.01, 8, and 26 through 43))−;(Lines 9 and 10)) + (Lines 26 through 43−Lines 28, 33, and 35)).

• We compute overhead wage-related costs by multiplying the overhead hours ratio by wage-related costs reported on Part II, Lines 17, 22, 25.50, 25.51, and 25.52.
• We multiply the computed overhead wage-related costs by the previously described excluded area hours ratio.

Finally, we subtract the computed overhead salaries, wage-related costs, and hours associated with excluded areas from the total salaries (plus wage-related costs) and hours derived in Steps 2 and 3.

Step 5.—For each hospital, we adjust the total salaries plus wage-related costs to a common period to determine total adjusted salaries plus wage-related costs. To make the wage adjustment, we estimate the percentage change in the employment cost index (ECI) for compensation for each 30-day increment from October 14, 2020, through April 15, 2022, for private industry hospital workers from data obtained from the Bureau of Labor Statistics' (BLS') Office of Compensation and Working Conditions. We use the ECI because it reflects the price increase associated with total compensation (salaries plus fringes) rather than just the increase in salaries. In addition, the ECI includes managers as well as other hospital workers. This methodology to compute the monthly update factors uses actual quarterly ECI data and assures that the update factors match the actual quarterly and annual percent changes. We also note that, since April 2006 with the publication of March 2006 data, the BLS' ECI uses a different classification system, the North American Industrial Classification System (NAICS), instead of the Standard Industrial Codes (SICs), which no longer exist. We have consistently used the ECI as the data source for our wages and salaries and other price proxies in the IPPS market basket, and we are not proposing to make any changes to the usage of the ECI for FY 2025. The factors used to adjust the hospital's data are based on the midpoint of the cost reporting period, as indicated in this rule.

Step 6.—Each hospital is assigned to its appropriate urban or rural labor market area before any reclassifications under section 1886(d)(8)(B), 1886(d)(8)(E), or 1886(d)(10) of the Act. Within each urban or rural labor market area, we add the total adjusted salaries plus wage-related costs obtained in Step 5 for all hospitals in that area to determine the total adjusted salaries plus wage-related costs for the labor market area.

Step 7.—We divide the total adjusted salaries plus wage-related costs obtained under Step 6 by the sum of the corresponding total hours (from Step 4) for all hospitals in each labor market area to determine an average hourly wage for the area.

Step 8.—We add the total adjusted salaries plus wage-related costs obtained in Step 5 for all hospitals in the Nation and then divide the sum by the national sum of total hours from Step 4 to arrive at a national average hourly wage.

Step 9.—For each urban or rural labor market area, we calculate the hospital wage index value, unadjusted for occupational mix, by dividing the area average hourly wage obtained in Step 7 by the national average hourly wage computed in Step 8.

Step 10.—For each urban labor market area for which we do not have any hospital wage data (either because there are no IPPS hospitals in that labor market area, or there are IPPS hospitals in that area but their data are either too new to be reflected in the current year's wage index calculation, or their data are aberrant and are deleted from the wage index), we finalized in the FY 2020 IPPS/LTCH PPS final rule (84 FR 42305) that, for FY 2020 and subsequent years' wage index calculations, such CBSAs' wage index would be equal to total urban salaries plus wage-related costs (from Step 5) in the State, divided by the total urban hours (from Step 4) in the State, divided by the national average hourly wage from Step 8 (see 84 FR 42305 and 42306,). We stated that we believe that, in the absence of wage data for an urban labor market area, it is reasonable to use a statewide urban average, which is based on actual, acceptable wage data of hospitals in that State, rather than impute some other type of value using a different methodology. For calculation of the proposed FY 2025 wage index, we note there is one urban CBSA for which we do not have IPPS hospital wage data. In Table 3 (which is available via the internet on the CMS website), which contains the area wage indexes, we include a footnote to indicate to which CBSA this policy applies. This CBSA's wage index would be calculated as described, based on the FY 2020 IPPS/LTCH PPS final rule methodology (84 FR 42305). Under this step, we also apply our policy with regard to how dollar amounts, hours, and other numerical values in the wage index calculations are rounded, as discussed in this section of this proposed rule.

We refer readers to section II. of the Appendix of the proposed rule for the policy regarding rural areas that do not have IPPS hospitals.

Step 11.—Section 4410 of Public Law 105-33 provides that, for discharges on or after October 1, 1997, the area wage index applicable to any hospital that is located in an urban area of a State may not be less than the area wage index applicable to hospitals located in rural areas in that State. The areas affected by this provision are identified in Table 2 listed in section VI. of the Addendum to the proposed rule and available via the internet on the CMS website.

Following is our policy with regard to rounding of the wage data (dollar amounts, hours, and other numerical values) in the calculation of the unadjusted and adjusted wage index, as finalized in the FY 2020 IPPS/LTCH final rule (84 FR 42306). For data that we consider to be “raw data,” such as the cost report data on Worksheets S-3, Parts II and III, and the occupational mix survey data, we use such data “as is,” and do not round any of the individual line items or fields. However, for any dollar amounts within the wage index calculations, including any type of summed wage amount, average hourly wages, and the national average hourly wage (both the unadjusted and adjusted for occupational mix), we round the dollar amounts to 2 decimals. For any hour amounts within the wage index calculations, we round such hour amounts to the nearest whole number. For any numbers not expressed as dollars or hours within the wage index calculations, which could include ratios, percentages, or inflation factors, we round such numbers to 5 decimals. However, we continue rounding the actual unadjusted and adjusted wage indexes to 4 decimals, as we have done historically.

As discussed in the FY 2012 IPPS/LTCH PPS final rule, in “Step 5,” for each hospital, we adjust the total salaries plus wage-related costs to a common period to determine total adjusted salaries plus wage-related costs. To make the wage adjustment, we estimate the percentage change in the ECI for compensation for each 30-day increment from October 14, 2020, through April 15, 2022, for private industry hospital workers from the BLS' Office of Compensation and Working Conditions data. We have consistently used the ECI as the data source for our wages and salaries and other price proxies in the IPPS market basket, and we are not proposing any changes to the usage of the ECI for FY 2025. The factors used to adjust the hospital's data were based on the midpoint of the cost reporting period, as indicated in the following table.

For example, the midpoint of a cost reporting period beginning January 1, 2021, and ending December 31, 2021, is June 30, 2021. An adjustment factor of 1.03606 was applied to the wages of a hospital with such a cost reporting period.

Previously, we also would provide a Puerto Rico overall average hourly wage. As discussed in the FY 2017 IPPS/LTCH PPS final rule (81 FR 56915), prior to January 1, 2016, Puerto Rico hospitals were paid based on 75 percent of the national standardized amount and 25 percent of the Puerto Rico-specific standardized amount. As a result, we calculated a Puerto Rico specific wage index that was applied to the labor-related share of the Puerto Rico-specific standardized amount. Section 601 of Division O, Title VI (section 601) of the Consolidated Appropriations Act, 2016 (Pub. L. 114-113) amended section 1886(d)(9)(E) of the Act to specify that the payment calculation with respect to operating costs of inpatient hospital services of a subsection (d) Puerto Rico hospital for inpatient hospital discharges on or after January 1, 2016, shall use 100 percent of the national standardized amount. As we stated in the FY 2017 IPPS/LTCH PPS final rule (81 FR 56915 through 56916), because Puerto Rico hospitals are no longer paid with a Puerto Rico specific standardized amount as of January 1, 2016, under section 1886(d)(9)(E) of the Act, as amended by section 601 of the Consolidated Appropriations Act, 2016, there is no longer a need to calculate a Puerto Rico specific average hourly wage and wage index. Hospitals in Puerto Rico are now paid 100 percent of the national standardized amount and, therefore, are subject to the national average hourly wage (unadjusted for occupational mix) and the national wage index, which is applied to the national labor-related share of the national standardized amount. Therefore, for FY 2025, there is no Puerto Rico-specific overall average hourly wage or wage index.

Based on the previously discussed methodology, the proposed FY 2025 unadjusted national average hourly wage is the following:

E. Proposed Occupational Mix Adjustment to the FY 2025 Wage Index

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

1. Use of New 2022 Medicare Wage Index Occupational Mix Survey for the FY 2025 Wage Index

Section 304(c) of Appendix F, Title III of the Consolidated Appropriations Act, 2001 (Pub. L. 106-554) amended section 1886(d)(3)(E) of the Act to require CMS to collect data every 3 years on the occupational mix of employees for each short-term, acute care hospital participating in the Medicare program and to measure the earnings and paid hours of employment for such hospitals by occupational category. As discussed in the FY 2022 IPPS/LTCH PPS proposed rule (86 FR 25402 through 25403) and final rule (86 FR 45173), we collected data in 2019 to compute the occupational mix adjustment for the FY 2022, FY 2023, and FY 2024 wage indexes. A new measurement of occupational mix is required for FY 2025.

The FY 2025 occupational mix adjustment is based on a new calendar year (CY) 2022 survey. Hospitals were required to submit their completed 2022 surveys (Form CMS-10079, OMB Number 0938-0907, expiration date January 31, 2026) to their MACs by July 1, 2023. The preliminary, unaudited CY 2022 survey data were posted on the CMS website on July 12, 2023. As with the Worksheet S-3, Parts II and III cost report wage data, as part of the FY 2025 desk review process, the MACs revised or verified data elements in hospitals' occupational mix surveys that resulted in certain edit failures.

Consistent with the IPPS and LTCH PPS ratesettings, our policy principles with regard to the occupational mix adjustment include generally using the most current data and information available, which is usually occupational mix data on a 3-year lag in the first year of the use of the occupational mix survey (for example, for the FY 2022 wage index we used occupational mix data from 2019; we also used this data for the FY 2023 and FY 2024 wage indexes). In the FY 2024 IPPS/LTCH final rule (88 FR 58969-58970), one commenter had concerns that the 2025 occupational mix data may be skewed due to the COVID-19 PHE, and we stated that we plan to assess the CY 2022 Occupational Mix Survey data in the FY 2025 IPPS proposed rule.

Based on pre-reclassified wage data, we computed the unadjusted and adjusted wage indexes for FY 2025 using the 2022 occupational mix survey data. We then measured the increases and decreases by CBSA as a result of the 2022 occupational mix survey data. We compared this table to the same table for the FY 2024 wage indexes, which used the 2019 occupational mix data, as well as the FY 2021 wage indexes, which used the 2016 occupational mix data. This table demonstrates the impact of the occupational mix adjusted wage data compared to unadjusted wage data for the most recent three occupational mix surveys using the 2022 survey data compared to the 2019 survey data and the 2016 survey data. That is, it shows whether hospitals' wage indexes will increase or decrease under the 2022 survey data as compared to the most recent years using the prior 2019 survey data and 2016 survey data respectively.

Based on the table, increases and decreases by CBSA are alike across each year of occupational mix data. For example, 60.19 percent of urban areas' wage indexes are increasing in FY 2025 due to the CY 2022 occupational mix data compared to 56.07 percent in FY 2024 using CY 2019 occupational mix data. Similarly, 59.57 percent of rural areas' wage indexes are increasing in FY 2025 due to the CY 2022 occupational mix data compared to 57.45 percent in FY 2024 using CY 2019 occupational mix data. We also note that similar to the wage data, it is not readily apparent, even if the comparison with the historical trends had indicated greater differences by CBSA in this context, how any changes due to the COVID-19 PHE differentially impacted the occupational mix adjusted wages paid in each CBSA. Furthermore, even if hypothetically changes due to the COVID-19 PHE did differentially impact the occupational mix adjusted wage index over time, it is not clear how those changes could be isolated from changes due to other reasons and what an appropriate potential methodology might be to adjust the data accordingly.

Lastly, we also note that we have not identified any significant issues with the 2022 occupational mix data itself in terms of our audits of this data. As usual, the data was audited by the MACs, and there were no significant issues reported across the data for all hospitals.

Taking all these factors into account, we believe the CY 2022 occupational mix data is the best available data to use for FY 2025 and are proposing to use the CY 2022 occupational mix data for FY 2025.

2. Calculation of the Occupational Mix Adjustment for FY 2025

For FY 2025, we are proposing to calculate the occupational mix adjustment factor using the same methodology that we have used since the FY 2012 wage index (76 FR 51582 through 51586) and to apply the occupational mix adjustment to 100 percent of the FY 2025 wage index. In the FY 2020 IPPS/LTCH PPS final rule (84 FR 42308), we modified our methodology with regard to how dollar amounts, hours, and other numerical values in the unadjusted and adjusted wage index calculation are rounded, in order to ensure consistency in the calculation. According to the policy finalized in the FY 2020 IPPS/LTCH PPS final rule (84 FR 42308 and 42309), for data that we consider to be “raw data,” such as the cost report data on Worksheets S-3, Parts II and III, and the occupational mix survey data, we continue to use these data “as is”, and not round any of the individual line items or fields. However, for any dollar amounts within the wage index calculations, including any type of summed wage amount, average hourly wages, and the national average hourly wage (both the unadjusted and adjusted for occupational mix), we round such dollar amounts to 2 decimals. We round any hour amounts within the wage index calculations to the nearest whole number. We round any numbers not expressed as dollars or hours in the wage index calculations, which could include ratios, percentages, or inflation factors, to 5 decimals. However, we continue rounding the actual unadjusted and adjusted wage indexes to 4 decimals, as we have done historically.

Similar to the method we use for the calculation of the wage index without occupational mix, salaries and hours for a multicampus hospital are allotted among the different labor market areas where its campuses are located. Table 2 associated with this proposed rule (which is available via the internet on the CMS website), which contains the proposed FY 2025 occupational mix adjusted wage index, includes separate wage data for the campuses of multicampus hospitals. We refer readers to section III.C. of the preamble of this proposed rule for a chart listing the multicampus hospitals and the FTE percentages used to allot their occupational mix data.

Because the statute requires that the Secretary measure the earnings and paid hours of employment by occupational category not less than once every 3 years, all hospitals that are subject to payments under the IPPS, or any hospital that would be subject to the IPPS if not granted a waiver, must complete the occupational mix survey, unless the hospital has no associated cost report wage data that are included in the proposed FY 2025 wage index. For the proposed FY 2025 wage index, we are using the Worksheet S-3, Parts II and III wage data of 3,075 hospitals, and we used the occupational mix surveys of 2,950 hospitals for which we also had Worksheet S-3 wage data, which represented a “response” rate of 96 percent (2,950/3,075). For the proposed FY 2025 wage index, we are applying proxy data for noncompliant hospitals, new hospitals, or hospitals that submitted erroneous or aberrant data in the same manner that we applied proxy data for such hospitals in the FY 2012 wage index occupational mix adjustment (76 FR 51586). As a result of applying this methodology, the proposed FY 2025 occupational mix adjusted national average hourly wage is the following:

3. Implementation of the Proposed Occupational Mix Adjustment and the Proposed FY 2025 Occupational Mix Adjusted Wage Index

As discussed in section III.E. of the preamble of this proposed rule, for FY 2025, we are applying the occupational mix adjustment to 100 percent of the FY 2025 wage index. We calculated the occupational mix adjustment using data from the 2022 occupational mix survey, using the methodology described in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51582-51586).

Based on the 2022 occupational mix survey data, the proposed FY 2025 national average hourly wages for each occupational mix nursing subcategory as calculated in Step 2 of the occupational mix calculation are as follows:

The proposed national average hourly wage for the entire nurse category is computed in Step 5 of the occupational mix calculation. Hospitals with a nurse category average hourly wage (as calculated in Step 4) of greater than the national nurse category average hourly wage receive an occupational mix adjustment factor (as calculated in Step 6) of less than 1.0. Hospitals with a nurse category average hourly wage (as calculated in Step 4) of less than the national nurse category average hourly wage receive an occupational mix adjustment factor (as calculated in Step 6) of greater than 1.0.

Based on the 2022 occupational mix survey data, we determined (in Step 7 of the occupational mix calculation) the following:

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

F. Hospital Redesignations and Reclassifications

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

1. Urban to Rural Reclassification Under Section 1886(d)(8)(E) of the Act, Implemented at § 412.103

Under section 1886(d)(8)(E) of the Act, a qualifying prospective payment hospital located in an urban area may apply for rural status for payment purposes separate from reclassification through the MGCRB. Specifically, section 1886(d)(8)(E) of the Act provides that, not later than 60 days after the receipt of an application (in a form and manner determined by the Secretary) from a subsection (d) hospital that satisfies certain criteria, the Secretary shall treat the hospital as being located in the rural area (as defined in paragraph (2)(D)) of the State in which the hospital is located. We refer readers to the regulations at § 412.103 for the general criteria and application requirements for a subsection (d) hospital to reclassify from urban to rural status in accordance with section 1886(d)(8)(E) of the Act (such hospitals are referred to herein as “§ 412.103 hospitals”). The FY 2012 IPPS/LTCH PPS final rule (76 FR 51595 through 51596) includes our policies regarding the effect of wage data from reclassified or redesignated hospitals. We refer readers to the FY 2024 IPPS/LTCH final rule (88 FR 58971 through 58977) for a review of our policy finalized in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49004) to calculate the rural floor with the wage data of urban hospitals reclassifying to rural areas under § 412.103, and discussion of our modification to the calculation of the rural wage index and its implications for the rural floor.

In the FY 2019 IPPS/LTCH PPS final rule (83 FR 41369 through 41374), we codified certain policies regarding multicampus hospitals in the regulations at §§ 412.92, 412.96, 412.103, and 412.108. We stated that reclassifications from urban to rural under § 412.103 apply to the entire hospital (that is, the main campus and its remote location(s)). We also stated that a main campus of a hospital cannot obtain Sole Community Hospital (SCH), Rural Referral Center (RRC), or Medicare Dependent Hospital (MDH) status, or rural reclassification under § 412.103, independently or separately from its remote location(s), and vice versa. In the FY 2023 IPPS/LTCH PPS final rule (87 FR 49012 and 49013), we added § 412.103(a)(8) to clarify that for a multicampus hospital, approved rural reclassification status applies to the main campus and any remote location located in an urban area, including a main campus or any remote location deemed urban under section 1886(d)(8)(B) of the Act. If a remote location of a hospital is located in a different CBSA than the main campus of the hospital, it is CMS' longstanding policy to assign that remote location a wage index based on its own geographic area in order to comply with the statutory requirement to adjust for geographic differences in hospital wage levels (section 1886(d)(3)(E) of the Act). Hospitals are required to identify and allocate wages and hours based on FTEs for remote locations located in different CBSAs on Worksheet S-2, Part I, Lines 165 and 166 of form CMS-2552-10. In calculating wage index values, CMS identifies the allocated wage data for these remote locations in Table 2 with a “B” in the 3rd position of the CCN. These remote locations of hospitals with § 412.103 rural reclassification status in a different CBSA are identified in Table 2, and hospitals should evaluate potential wage index outcomes for their remote location(s) when withdrawing or terminating MGCRB reclassification, or canceling § 412.103 rural reclassification status.

We also note that in the FY 2024 IPPS/LTCH PPS final rule (88 FR 59038 through 59039), we changed the effective date of rural reclassification for a hospital qualifying for rural reclassification under § 412.103(a)(3) by meeting the criteria for SCH status (other than being located in a rural area), and also applying to obtain SCH status under § 412.92, where eligibility for SCH classification depends on a hospital merger. Specifically, we finalized that in these circumstances, and subject to the hospital meeting the requirements set forth at § 412.92(b)(2)(vi), the effective date for rural reclassification will be the effective date set forth in § 412.92(b)(2)(vi).

Finally, we remind hospitals currently located in rural areas becoming urban under the proposed adoption of the revised OMB delineations in this proposed rule that if they have SCH, MDH, or RRC status, they may choose to apply for a § 412.103 urban to rural reclassification if qualifying criteria are met in order to maintain the SCH, MDH, or RRC status. We advise hospitals to evaluate their options and if desired, apply for § 412.103 urban to rural reclassification before the beginning of FY 2025, to avoid a lapse in SCH, MDH, or RRC status at the beginning of FY 2025 should we finalize our proposal to adopt the revised OMB delineations.

a. Proposed Update to Rural Criteria at § 412.103(a)(1)

Section 1886(d)(8)(E) of the Act describes criteria for hospitals located in urban areas to be treated as being located in a rural area of their state. The criterion at section 1886(d)(8)(E)(ii)(I) of the Act requires that the hospital be located in a rural census tract of a metropolitan statistical area (as determined under the most recent modification of the Goldsmith Modification, originally published in the Federal Register on February 27, 1992 (57 FR 6725)).

This condition is implemented in the regulation at § 412.103(a)(1), which currently states: “the hospital is located in a rural census tract of a Metropolitan Statistical Area (MSA) as determined under the most recent version of the Goldsmith Modification, the Rural-Urban Commuting Area codes, as determined by the Office of Rural Health Policy (ORHP) of the Health Resources and Services Administration (HRSA), which is available via the ORHP website at: http://www.ruralhealth.hrsa.gov or from the U.S. Department of Health and Human Services, Health Resources and Services Administration, Office of Rural Health Policy, 5600 Fishers Lane, Room 9A-55, Rockville, MD 20857.”

The Goldsmith Modification was originally designed to identify rural census tracts located in Metropolitan counties for purposes of grant eligibility unrelated to the hospital IPPS but were incorporated by section 1886(d)(8)(E)(ii)(I) of the Act for purposes related to the hospital wage index.

The Federal Office of Rural Health Policy (FORHP) (known as ORHP in § 412.103) later funded development of Rural-Urban Commuting Area (RUCA) codes via the U.S. Department of Agriculture's (USDA) Economic Research Service as the latest version of the Goldsmith Modification, described in a May 3, 2007 Federal Register notice (72 FR 24589), to address limitations of the original Goldsmith Modification. RUCAs, like the Goldsmith Modification, are based on a sub-county unit, the census tract, permitting a finer delineation of what constitutes rural areas inside Metropolitan areas (72 FR 24590). In that notice, HRSA stated it believes that the use of RUCAs allows more accurate targeting of resources intended for the rural population to determine programmatic eligibility for rural areas inside of Metropolitan counties. Using data from the Census Bureau, every census tract in the United States is assigned a RUCA code. In the May 3, 2007 Federal Register , HRSA stated that ORHP considers all census tracts with RUCA codes 4-10 to be rural, plus an additional 132 large area census tracts with RUCA codes 2 or 3 (72 FR 24591). They also stated that ORHP will continue to seek refinements in the use of RUCAs.

FORHP has since published a revised definition of eligibility for rural health grants for FY 2022 in a January, 12, 2021 Federal Register Notice (86 FR 2418 through 2420). Specifically, FORHP added Metropolitan Statistical Area (MSA) counties that contain no Urbanized Area (UA) to the areas eligible for the rural health grant programs. FORHP did not remove any areas from the rural definition in the FY 2022 Federal Register Notice.

It has come to our attention that our current regulation text at § 412.103(a)(1) does not describe FORHP's expanded definition of a “rural area” from the FY 2022 Federal Register Notice. In addition, § 412.103(a)(1) contains a web link that is no longer active and requires updating. We believe the current rural definition used by FORHP for purposes of the rural health grant program constitutes “the most recent modification of the Goldsmith Modification” referred to in the statute, since the expanded definition of rural constitutes a refinement to the use of RUCA codes, which were developed as the latest version of the Goldsmith Modification. As stated in the FY 2022 Federal Register Notice (86 FR 2420), the expanded criteria reflect FORHP's desire to accurately identify areas that are rural in character using a data-driven methodology that relies on existing geographic identifiers and utilizes standard, national level data sources. We are therefore proposing to amend our regulation text at § 412.103(a)(1) to provide a reference to the most recent Federal Register notice issued by HRSA defining “rural areas.” In this way, there will be no need to update the Medicare regulations if FORHP develops a further modification of the Goldsmith Modification or if the weblink changes. FORHP has published the current link in the Federal Register notice (86 FR 2418-2420) along with the most recent revisions to the current complete rural definition, and it is available via the Rural Health Grants Eligibility Analyzer at https://data.hrsa.gov/tools/rural-health.

We are proposing to amend the regulation text at 412.103(a)(1) to read: the hospital is located in a rural census tract of a Metropolitan Statistical Area (MSA) as determined under the most recent version of the Goldsmith Modification, using the Rural-Urban Commuting Area codes and additional criteria, as determined by the Federal Office of Rural Health Policy (FORHP) of the Health Resources and Services Administration (HRSA), which is available at the web link provided in the most recent Federal Register notice issued by HRSA defining rural areas.

b. Proposed Policy for Canceling § 412.103 Reclassifications of Terminated Providers

In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49499 through 49500), CMS discussed its longstanding policy to terminate the § 1886(d)(10) MGCRB wage index reclassification status for hospitals with terminated CMS certification numbers (CCN). We determined that it would be appropriate to terminate the MGCRB reclassification status for these hospitals (with a limited exception for certain locations acquired by another hospital in a different CBSA), as the hospital may no longer be able to make timely and informed decisions regarding reclassification statuses.

At the time, we did not articulate a similar policy for hospitals reclassified as rural under § 412.103. While policies regarding MGCRB reclassification were adopted for purposes related to the hospital wage index, § 412.103 reclassifications may have broader implications. At the time the policy to terminate MGCRB reclassifications for hospitals with terminated CCNs was implemented, § 412.103 reclassifications were less common, and generally had negligible effects on State rural wage index values. Prior to FY 2024, as a result of various wage index value hold-harmless policies, discussed in detail in the FY 2024 IPPS/LTCH PPS final rule (88 FR 58973-58974), § 412.103 hospital data rarely affected a state's final rural wage index value. Under the current policy first implemented in FY 2024, however, § 412.103 hospital data is only excluded from the rural wage index when indicated by the hold harmless provision at section 1886(d)(8)(C)(ii) of the Act. Hospitals reclassified under § 412.103 now impact the rural wage index value of most states. We refer readers to the FY 2024 IPPS/LTCH final rule (88 FR 58973 through 58977) for discussion on how CMS finalized the current policy to include the wage index data for § 412.103 hospitals in more iterations of the rural wage index calculation. Furthermore, following the policy implemented in the April 21, 2016 interim final rule with comment period (IFC) (81 FR 23428 through 23438), which allowed hospitals to maintain dual § 412.103 and MGCRB reclassification status, the number of rural reclassifications has grown significantly. We now believe it is appropriate to propose a policy regarding terminated or “tied-out” hospitals, effective for FY 2025, to address our concerns regarding the impacts these hospitals would have on rural wage index values. Therefore, we are proposing that § 412.103 reclassifications will be considered cancelled for the purposes of calculating area wage index for any hospital with a CCN listed as terminated or “tied-out” as of the date that the hospital ceased to operate with an active CCN. We propose to obtain and review the best available CCN termination status lists as of the § 412.103(b)(6) “lock-in” date (60 days after the proposed rule for the FY is displayed in the Federal Register ). The lock-in date is used to determine whether a hospital has been approved for § 412.103 reclassification in time for that status to be included in the upcoming year's wage index development. We believe using this date for evaluating CCN terminations would be consistent with the wage index development timeline.

As stated previously, § 412.103 reclassification may have other implications for hospital status and payment. Hospitals may obtain rural reclassification for several reasons, such as in order to convert to a Critical Access Hospital (CAH), or to obtain Sole-Community Hospital (SCH) status. Eligibility requirements for Rural Emergency Hospital (REH) qualification under section 1861(kkk)(3) of the Act included a reference to reclassification under section 1886(d)(8)(E) (implemented by § 412.103). We note that our proposal to consider § 412.103 reclassifications cancelled for the purposes of calculating area wage index for any hospital with a CCN listed as terminated or “tied-out” is not intended to alter or affect the qualification for such statuses or to have other effects unrelated to hospital wage index calculations. The rural reclassification status would remain in effect for any period that the original PPS hospital remains in operation with an active CCN. For REH qualification requirement purposes, this would include the date of enactment of the Consolidated Appropriations Act, 2021 (Pub. L. 116-260), which was December 27, 2020. We believe this policy provides consistency and predictability in wage index values.

2. General Policies and Effects of MGCRB Reclassification and Treatment of Dual Reclassified Hospitals

Under section 1886(d)(10) of the Act, the MGCRB considers applications by hospitals for geographic reclassification for purposes of payment under the IPPS. Hospitals must apply to the MGCRB to reclassify not later than 13 months prior to the start of the fiscal year for which reclassification is sought (usually by September 1). Generally, hospitals must be proximate to the labor market area to which they are seeking reclassification and must demonstrate characteristics similar to hospitals located in that area. The MGCRB issues its decisions by the end of February for reclassifications that become effective for the following fiscal year (beginning October 1). The regulations applicable to reclassifications by the MGCRB are located in §§ 412.230 through 412.280. (We refer readers to a discussion in the FY 2002 IPPS final rule (66 FR 39874 and 39875) regarding how the MGCRB defines mileage for purposes of the proximity requirements.) The general policies for reclassifications and redesignations and the policies for the effects of hospitals' reclassifications and redesignations on the wage index are discussed in the FY 2012 IPPS/LTCH PPS final rule for the FY 2012 final wage index (76 FR 51595 and 51596).

In addition, in the FY 2012 IPPS/LTCH PPS final rule, we discussed the effects on the wage index of urban hospitals reclassifying to rural areas under § 412.103. In the FY 2020 IPPS/LTCH PPS final rule (84 FR 42332 through 42336), we finalized a policy to exclude the wage data of urban hospitals reclassifying to rural areas under § 412.103 from the calculation of the rural floor, but we reverted to the pre-FY 2020 policy in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49002 through 49004). Hospitals that are geographically located in States without any rural areas are ineligible to apply for rural reclassification in accordance with the provisions of § 412.103.

On April 21, 2016, we published an interim final rule with comment period (IFC) in the Federal Register (81 FR 23428 through 23438) that included provisions amending our regulations to allow hospitals nationwide to have simultaneous § 412.103 and MGCRB reclassifications. For reclassifications effective beginning FY 2018, a hospital may acquire rural status under § 412.103 and subsequently apply for a reclassification under the MGCRB using distance and average hourly wage criteria designated for rural hospitals. In addition, we provided that a hospital that has an active MGCRB reclassification and is then approved for redesignation under § 412.103 will not lose its MGCRB reclassification; such a hospital receives a reclassified urban wage index during the years of its active MGCRB reclassification and is still considered rural under section 1886(d) of the Act for other purposes.

We discussed that when there is both a § 412.103 redesignation and an MGCRB reclassification, the MGCRB reclassification controls for wage index calculation and payment purposes. Prior to FY 2024, we excluded hospitals with § 412.103 redesignations from the calculation of the reclassified rural wage index if they also have an active MGCRB reclassification to another area. That is, if an application for urban reclassification through the MGCRB is approved and is not withdrawn or terminated by the hospital within the established timelines, we consider the hospital's geographic CBSA and the urban CBSA to which the hospital is reclassified under the MGCRB for the wage index calculation. We refer readers to the April 21, 2016 IFC (81 FR 23428 through 23438) and the FY 2017 IPPS/LTCH PPS final rule (81 FR 56922 through 56930), in which we finalized the April 21, 2016 IFC, for a full discussion of the effect of simultaneous reclassifications under both the § 412.103 and the MGCRB processes on wage index calculations. For FY 2024 and subsequent years, we refer readers to section III.G.1 of the preamble of the FY 2024 IPPS/LTCH PPS final rule for discussion of our proposal to include hospitals with a § 412.103 redesignation that also have an active MGCRB reclassification to another area in the calculation of the reclassified rural wage index (88 FR 58971 through 58977).

a. Proposed Revision To Allow § 412.103 Hospitals To Use Geographic Area or Rural Area for Reclassification

On May 10, 2021, we published an interim final rule with comment period (IFC) in the Federal Register (86 FR 24735 through 24739) that included provisions amending our regulations to allow hospitals with a rural redesignation to reclassify through the MGCRB using the rural reclassified area as the geographic area in which the hospital is located. We revised our regulation so that the redesignated rural area, and not the hospital's geographic urban area, is considered the area a § 412.103 hospital is located in for purposes of meeting MGCRB reclassification criteria, including the average hourly wage comparisons required by § 412.230(a)(5)(i) and (d)(1)(iii)(C). Similarly, we revised the regulations to consider the redesignated rural area, and not the geographic urban area, as the area a § 412.103 hospital is located in for purposes of applying the prohibition at § 412.230(a)(5)(i) on reclassifying to an area with a pre-reclassified average hourly wage lower than the pre-reclassified average hourly wage for the area in which the hospital is located. Effective for reclassification applications due to the MGCRB for reclassification beginning in FY 2023, a § 412.103 hospital could apply for a reclassification under the MGCRB using the State's rural area as the area in which the hospital is located. We refer readers to the May 10, 2021 IFC (86 FR 24735 through 24739) and the FY 2022 IPPS/LTCH PPS final rule (86 FR 45187 through 45190), in which we finalized the May 10, 2021 IFC, for a full discussion of these policies.

In a comment on the May 10, 2021 IFC (86 FR 24735 through 24739), a commenter noted that the IFC states that a hospital reclassified under § 412.103 could potentially reclassify to any area with a pre-reclassified average hourly wage that is higher than the pre-reclassified average hourly wage for the rural area of the State for purposes of the regulation at § 412.230(a)(5)(i). The commenter asserted that CMS' use of the word “could” in this context seems to suggest that CMS would allow the hospital to use either its home average hourly wage or the rural average hourly wage for purposes of the regulation at § 412.230(a)(5)(i). The commenter suggested that CMS allow both comparison options, because the rural average hourly wage may occasionally be higher than the hospital's home urban area's average hourly wage.

In response, we clarified that the commenter's interpretation of our policy is correct. We stated that while the court's decision in Bates County Memorial Hospital v. Azar requires CMS to permit hospitals to reclassify to any area with a pre-reclassified average hourly wage that is higher than the pre-reclassified average hourly wage for the rural area of the state, we do not believe that we are required to limit hospitals from using their geographic home area for purposes of the regulation at § 412.230(a)(5)(i). Therefore, we clarified that we would allow hospitals to reclassify to an area with an average hourly wage that is higher than the average hourly wage of either the hospital's geographic home area or the rural area (86 FR 45189).

While we clarified our policy in response to the aforementioned comment, the regulation text was not similarly clarified to reflect this policy inadvertently. We are therefore proposing to revise the regulation text at § 412.230(a)(5)(i) to reflect our policy clarified in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45189). While it has been CMS' policy to allow a § 412.103 hospital to use either its geographic area or the rural area of the State for purposes of § 412.230(a)(5)(i), we believe that synchronizing the regulation text with our policy clarified in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45189) is necessary for consistency and to reduce unnecessary Administrative appeals.

Specifically, we are proposing to replace the phrase in the regulation at § 412.230(a)(5)(i) that reads “in the rural area of the state” with the phrase “either in its geographic area or in the rural area of the state.” Section 412.230(a)(5)(i) with this proposed revision would read: An individual hospital may not be redesignated to another area for purposes of the wage index if the pre-reclassified average hourly wage for that area is lower than the pre-reclassified average hourly wage for the area in which the hospital is located. An urban hospital that has been granted redesignation as rural under § 412.103 is considered to be located either in its geographic area or in the rural area of the State for the purposes of this paragraph (a)(5)(i).

3. MGCRB Reclassification Issues for FY 2025

a. FY 2025 Reclassification Application Requirements and Approvals

As previously stated, under section 1886(d)(10) of the Act, the MGCRB considers applications by hospitals for geographic reclassification for purposes of payment under the IPPS. The specific procedures and rules that apply to the geographic reclassification process are outlined in regulations under 42 CFR 412.230 through 412.280. There are 610 hospitals approved for wage index reclassifications by the MGCRB starting in FY 2025. Because MGCRB wage index reclassifications are effective for 3 years, for FY 2025, hospitals reclassified beginning in FY 2023 or FY 2024 are eligible to continue to be reclassified to a particular labor market area based on such prior reclassifications for the remainder of their 3-year period. There were 237 hospitals approved for wage index reclassifications in FY 2023 that will continue for FY 2025, and 316 hospitals approved for wage index reclassifications in FY 2024 that will continue for FY 2025. Of all the hospitals approved for reclassification for FY 2023, FY 2024, and FY 2025, 1,163 (approximately 32.5 percent) hospitals are in a MGCRB reclassification status for FY 2025 (with 248 of these hospitals reclassified back to their geographic location). We refer readers to Section III.F.3.b of this proposed rule for information on the effects of implementation of new OMB labor market area delineations on reclassified hospitals.

Under the regulations at § 412.273, hospitals that have been reclassified by the MGCRB are permitted to withdraw their applications if the request for withdrawal is received by the MGCRB any time before the MGCRB issues a decision on the application, or after the MGCRB issues a decision, provided the request for withdrawal is received by the MGCRB within 45 days of the date that CMS' annual notice of proposed rulemaking is issued in the Federal Register concerning changes to the inpatient hospital prospective payment system and proposed payment rates for the fiscal year for which the application has been filed. Please note that Section III.F.3.c. of this proposed rule contains a proposal to change the deadline for the withdrawal requests to 45 days from the date of filing for public inspection of the proposed rule at the website of the Office of the Federal Register.

For information about the current process for withdrawing, terminating, or canceling a previous withdrawal or termination of a 3-year reclassification for wage index purposes, we refer readers to § 412.273, as well as the FY 2002 IPPS final rule (66 FR 39887 through 39888) and the FY 2003 IPPS final rule (67 FR 50065 through 50066). Additional discussion on withdrawals and terminations, and clarifications regarding reinstating reclassifications and “fallback” reclassifications were included in the FY 2008 IPPS final rule (72 FR 47333) and the FY 2018 IPPS/LTCH PPS final rule (82 FR 38148 through 38150).

Applications for FY 2026 reclassifications are due to the MGCRB by September 1, 2024. This is also the current deadline for canceling a previous wage index reclassification withdrawal or termination under § 412.273(d) for the FY 2025 cycle.

Applications and other information about MGCRB reclassifications may be obtained beginning in mid-July 2024 via the internet on the CMS website at https://www.cms.gov/medicare/regulations-guidance/geographic-classification-review-board. This collection of information was previously approved under OMB Control Number 0938-0573, which expired on January 31, 2021. A reinstatement of this PRA package is currently being developed. The public will have an opportunity to review and submit comments regarding the reinstatement of this PRA package through a public notice and comment period separate from this rulemaking.

b. Effects of Implementation of Proposal To Adopt Revised OMB Labor Market Area Delineations on Reclassified Hospitals

(1) Background

Reclassifications granted under section 1886(d)(10) of the Act are effective for 3 fiscal years, so that a hospital or county group of hospitals would be assigned a wage index based upon the wage data of hospitals in the labor market area to which it reclassified for a 3-year period. Because hospitals that have been reclassified beginning in FY 2023, 2024, or 2025 were reclassified based on the current labor market delineations, if we adopt the revised OMB delineations based on the OMB Bulletin No. 23-01 beginning in FY 2025 the CBSAs to which they have been reclassified, or the CBSAs where they are located, may change. Hospitals with current reclassifications are encouraged to verify area wage indexes in Table 2 in the appendix of the proposed rule, and to confirm that the CBSAs to which they have been reclassified for FY 2025 would continue to provide a higher wage index than their geographic area wage index. Hospitals may withdraw or terminate their FY 2025 reclassifications by contacting the MGCRB within 45 days from the date this proposed rule is issued in the Federal Register (§ 412.273(c)).¹³⁸

(2) Proposed Assignment Policy for Hospitals Reclassified to a CBSA Where One or More Counties Move to the Rural Area or One or More Rural Counties Move Into the CBSA

In the case where a CBSA would add a current rural county, or lose a current constituent rural county, the current reclassification to the resulting proposed CBSA would be maintained. In some cases, a hospital may be located in a rural county that is proposed to join the CBSA to which the hospital is reclassified. We note that in the FY 2015 IPPS/LTCH PPS final rule (79 FR 49977), CMS terminated reclassifications when, as a result of adopting the revised OMB delineations, a hospital's geographic county was located in the CBSA for which it was approved for MGCRB reclassification. At that time, there was no means for a hospital to obtain an MGCRB reclassification to its own geographic area (which we refer to as “home area” reclassifications). However, as discussed in the FY 2017 IPPS/LTCH PPS final rule (81 FR 56925), “home area” reclassifications have since become possible as a result of the change in policy in the 2016 IFC (81 FR 23428 through 23438) discussed earlier allowing for dual reclassifications. We therefore do not believe it is necessary to terminate these reclassifications as we did in FY 2015. In general, once the MGCRB has approved a reclassification in accordance with subpart L of 42 CFR part 412, that reclassification remains in place for 3 years (see § 412.274(b)(2)) unless terminated by the hospital pursuant to § 412.273, and CMS does not reevaluate whether the hospital continues to meet the criteria for reclassification during the three-year period. As such, we propose to maintain these as “home area” reclassifications instead of terminating them.

If a county is proposed to be removed from a CBSA and becomes rural, a hospital in that county with a current “home area” reclassification would no longer be geographically located in the CBSA to which they are reclassified. We propose that these reclassifications would no longer be considered “home area” reclassifications, and the hospital would be assigned the wage index applicable to other hospitals that reclassify into the CBSA (which may be lower than the wage index calculated for hospitals geographically located in the CBSA due to the hold harmless provision at section 1886(d)(8)(C)(i) of the Act).

Finally, as discussed in section III.B.4, all the constituent counties of CBSA 14100 (Bloomsberg-Berwick, PA), CBSA 19180 (Danville, IL), CBSA 20700 (East Stroudsburg, PA) and CBSA 35100 (New Bern, NC) become rural if we adopt the revised OMB delineations. There are currently 6 hospitals with reclassifications to these areas.

As there is no sufficiently similar CBSA in the proposed delineations, we are proposing that hospital reclassifications to these CBSAs would be terminated for FY 2025. While we prefer to maintain the remaining years of a MGCRB reclassification and transition the reclassified hospitals to the most appropriate proposed CBSA, in an instance when there is no urban county remaining, there is no equivalent urban area that can be assigned to the reclassified hospital. We note that Case No. 24C0548 is a “home area” reclassification, and the termination would have no direct effect on wage index calculations.

(3) Proposed Assignment Policy for Hospitals Reclassified to a CBSA Where the CBSA Number Changes, or the CBSA Is Subsumed by Another CBSA

We propose that in the case of a CBSA that experiences a change in CBSA number, or where all urban counties in the CBSA are subsumed by another CBSA, MGCRB reclassifications approved to the FY 2024 CBSA would be assigned the proposed revised FY 2025 CBSA (as described in the section III.B.6). In some cases, this reconfiguration of CBSAs would result in an MGCRB reclassification approved to a different area becoming a “home area” reclassification, if a hospital's current geographic urban CBSA is subsumed by its reclassified CBSA. Otherwise, the current reclassification would continue to the proposed revised CBSA number.

(4) Proposed Assignment Policy for Hospitals Reclassified to CBSAs Where One or More Counties Move to a New or Different Urban CBSA

In some cases, adopting the revised OMB delineations would result in one or more counties splitting apart from their current CBSAs to form new CBSAs, or counties shifting from one CBSA designation to another CBSA. If CBSAs are split apart, or if counties shift from one CBSA to another under the revised OMB delineations, for hospitals that have reclassified to these CBSAs we must determine which reclassified area to assign to the hospital for the remainder of a hospital's 3-year reclassification period.

Consistent with the policy implemented in FY 2021 (85 FR 58743 through 58753), we are proposing to assign current “home area” reclassifications to these CBSAs to the hospital's proposed geographic CBSA. That is, hospitals that were approved for MGCRB reclassification to the geographic area they are located in effective for FYs 2023, 2024, or 2025 would continue to be assigned a reclassification to their geographic “home area.” The assigned “home area” reclassification CBSA may be different from previous years if the hospital is located in a county that was relocated to a new or different urban CBSA.

The following is a table of hospitals with current active “home area” reclassification to CBSAs where one or more counties are proposed to move to a new or different urban CBSA. The table also lists reclassifications (noted by an asterisk on the “MGCRB Case Number”) that were approved in FY 2023 or FY 2024 and would be superseded by a new FY 2025 reclassification. Per § 412.273(d)(4), these prior year reclassifications are terminated once a new reclassification becomes effective. However, if the new reclassification is withdrawn, the prior year reclassification (often referred to as a “fallback” reclassification) would become active.

Consistent with the policy CMS implemented in the FY 2005 IPPS final rule (69 FR 49054 through 49056), the FY 2015 IPPS final rule (79 FR 49973 through 49977), and in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58743 through 58753), for FY 2025, if a CBSA would be reconfigured due to adoption of the revised OMB delineations and it would not be possible for the reclassification to continue seamlessly to the reconfigured CBSA (not including “home area” reclassifications, which were discussed previously), we believe it would be appropriate for us to determine the best alternative location to assign current reclassifications for the remaining 3 years. Therefore, to maintain the integrity of a hospital's 3-year reclassification period, we are proposing that current geographic reclassifications (applications approved effective for FY 2023, FY 2024, or FY 2025) that would be affected by CBSAs that are split apart or counties that shift to another CBSA under the revised OMB delineations, would ultimately be assigned to a CBSA under the revised OMB delineations that contains at least one county (or county equivalent) from the reclassified CBSA under the current FY 2024 delineations, and that would be generally consistent with rules that govern geographic reclassification. That is, consistent with the policy finalized in FY 2015 (79 FR 49973) we are proposing a policy that other affected reclassified hospitals be assigned to a CBSA that would contain the most proximate county that (1) is located outside of the hospital's proposed FY 2025 geographic labor market area, and (2) is part of the original FY 2024 CBSA to which the hospital is reclassified. We believe that assigning reclassifications to the CBSA that contains the nearest county that meets the aforementioned criteria satisfies the statutory requirement at section 1886(d)(10)(v) of the Act by maintaining reclassification status for a period of 3 fiscal years, while generally respecting the longstanding principle of geographic proximity in the labor market reclassification process. For county group reclassifications, we would follow our proposed policy, as previously discussed, except that we are proposing to reassign hospitals in a county group reclassification to the CBSA under the revised OMB delineations that contains the county to which the majority of hospitals in the group reclassification are geographically closest. We are also proposing to allow such hospitals, or county groups of hospitals, to submit a request to the wageindex@cms.hhs.gov mailbox for reassignment to another proposed CBSA that would contain a county that is part of the current CBSA to which it was approved to be reclassified (based on FY 2024 delineations) if the hospital or county group of hospitals can demonstrate compliance with applicable reclassification proximity rules, as described later in this section.

The following Table X provides a list of current FY 2024 CBSAs (column 1) where one or more counties would be relocated to a new or different urban CBSA. Hospitals with active MGCRB reclassifications into the current FY 2024 CBSAs in column 1 would be subject to the proposed reclassification assignment policy described in this subsection. The third column of “eligible” CBSAs lists all proposed revised CBSAs that contain at least one county that is part of the current FY 2024 CBSA (in column 1).

Table Y lists all hospitals subject to our proposed reclassification assignment policy and where their reclassifications would be assigned for FY 2025 under this proposed policy. The table lists reclassifications that would be in effect for FY 2025 under our proposed policy and that are included in Table 2 in the addendum of this proposed rule. The table also includes reclassifications (noted by an asterisk on the “MGCRB Case Number”) that were approved in FY 2023 or FY 2024 and that would be superseded by a new FY 2025 reclassification. As discussed previously, these prior year “fallback” reclassifications would become active if the subsequent FY 2025 reclassification is withdrawn. Please note, the following table does not include hospitals currently reclassified to their “home” geographic area, which are discussed previously in this section.

(5) Proposed Assignment Policy for Hospitals Reclassified to CBSAs Reconfigured Due to the Migration to Connecticut Planning Regions

As discussed in section III.B., CMS is proposing to adopt the revised OMB Bulletin No. 23-01 delineations, which use planning regions instead of counties as the basis for CBSA construction in the State of Connecticut. There are five current urban CBSAs that include at least one county in Connecticut. These are 14860 (Bridgeport-Stamford-Norwalk, CT), 25540 (Hartford-East Hartford-Middletown, CT), 35300 (New Have-Milford, CT), 35980 (Norwich-New London, CT), and 49340 (Worcester, MA-CT). In the proposed FY 2025 CBSAs, based on the OMB Bulletin No. 23-01 delineations, there are five CBSAs that will contain at least one county-equivalent “planning region.” The five CBSAs are 14860 (Bridgeport-Stamford-Danbury, CT), 25540 (Hartford-West Hartford-East Hartford, CT), 35300 (New Haven, CT), 35980 (Norwich-New London-Willimantic, CT), and 47930 (Waterbury-Shelton, CT).

As there was significant reconfiguration of the CBSAs due to the transition from counties to planning regions, we are proposing to adopt a similar assignment policy for hospitals reclassified to CBSAs that currently include Connecticut counties as we do for hospitals reclassified to CBSAs where one or more counties move to a new or different urban CBSA (described in the previous subsection).

The following table lists all current “home area” reclassifications to one of the CBSAs that currently contain at least one county in Connecticut.

The following table provides a list of current FY 2024 CBSAs (column 1) that contain at least one county in Connecticut. Hospitals with active MGCRB reclassifications into the CBSAs in column 1 would be subject to the proposed reclassification assignment policy. The third column of “eligible” CBSAs lists all proposed revised CBSAs that contain at least one planning region that is part of the current FY 2025 CBSA (in column 1). Consistent with the policy proposed in the previous section, we are proposing a policy that affected reclassified hospitals be assigned to a CBSA that would contain the most proximate planning region that (1) is located outside of the hospital's proposed FY 2025 geographic labor market area, and (2) contains a portion of a county included in the original FY 2024 CBSA to which the hospital is reclassified.

The following table lists all hospitals subject to our proposed reclassification assignment policy and their reclassifications to a CBSA reconfigured due to the adoption of Connecticut planning regions in FY 2025 under this proposed policy. The table lists reclassifications that would be in effect for FY 2025 under our proposed policy, and that are included in Table 2 in the addendum of this proposed rule. The table also includes reclassifications (noted by an asterisk on the “MGCRB Case Number”) that were approved in FY 2023 or FY 2024 and would be superseded by a new FY 2025 reclassification. These prior year reclassifications, frequently referred to as “fallback” reclassifications, may become active if the subsequent FY 2025 reclassification is withdrawn. (Please note, the following table does not include hospitals currently reclassified to their “home” geographic area, which are discussed previously in this section.)

We note that the remote location currently indicated with 07B033 would, as proposed, be located in the same CBSA as the main provider 070033. Therefore, it would no longer be necessary to identify this remote location separately from the main provider for wage index purposes, and its MGCRB reclassification would no longer be listed in Table 2 of the addendum of this proposed rule.

We believe that assigning reclassifications to the CBSA that contains the nearest county-equivalent planning region that meets the aforementioned criteria satisfies the statutory requirement at section 1886(d)(10)(v) of the Act by maintaining reclassification status for a period of 3 fiscal years, while generally respecting the longstanding principle of geographic proximity in the labor market reclassification process. For county group reclassifications, we would follow our proposed policy, as previously discussed, except that we are proposing to reassign hospitals in a county group reclassification to the CBSA under the revised OMB delineations that contains the county-equivalent to which the majority of hospitals in the group reclassification are geographically closest. We are also proposing to allow such hospitals, or county groups of hospitals, to submit a request to the wageindex@cms.hhs.gov mailbox for reassignment to another proposed CBSA that would contain a county that is part of the current CBSA to which it was approved to be reclassified (based on FY 2024 delineations) if the hospital or county group of hospitals can demonstrate compliance with applicable reclassification proximity rules.

(6) Instructions To Request Reassignment of Reclassified CBSA

Hospitals that wish to be reassigned to an eligible CBSA (other than the CBSA to which their reclassification would be assigned in this proposed rule) for which they meet the applicable proximity criteria under subpart L of 42 CFR part 412 may request reassignment within 45 days from the date the proposed rule is placed on display at the Federal Register . Hospitals must send a request to wageindex@cms.hhs.gov and provide documentation establishing that they meet the requisite proximity criteria for reassignment to an alternate CBSA that contains one or more counties (or county-equivalents) from the CBSA to which they are currently reclassified. We believe this option of allowing hospitals to submit a request to CMS would provide hospitals with greater flexibility with respect to their reclassification reassignment, while ensuring that the proximity requirements are met. We believe that where the proximity requirements are met, the reclassified wage index would be consistent with the labor market area to which the hospitals were originally approved for reclassification. A hospital may request to reassign an individual reclassification to any CBSA that in FY 2025 would contain a county or county-equivalent (or in the case of Connecticut CBSAs, a portion of a county) from the CBSA to which it was approved to be reclassified (based on FY 2024 delineations). However, to be reassigned to an area that is not the most proximate to the hospital, we believe it is necessary that the hospital demonstrates that it complies with the applicable proximity criteria under subpart L of 42 CFR part 412. If a hospital cannot demonstrate proximity to a different eligible CBSA, the hospital would not be considered for reclassification to that labor market area, and the reclassification would remain with the CBSA assigned under the general policy proposed earlier in this section. In the case of a county group reclassification, all requests for reassignment must include all actively reclassified hospitals (that is, excluding any hospital that has since closed or converted to a different provider type, or has terminated the reclassification). County groups must also demonstrate that they meet the appropriate proximity requirements, including, for rural county groups, being adjacent to the MSA to which they seek redesignation (412.232(a)(1)(ii)), and for urban county groups, being in the same Combined Statistical Area or CBSA as the urban area to which they seek redesignation (412.234(a)(3)(iv)).

All hospital requests for reassignment should contain the hospital's name, address, CCN, and point of contact information. All requests must be sent to wageindex@cms.hhs.gov. Changes to a hospital's CBSA assignment on the basis of a hospital's disagreement with our determination of closest county, or on the basis of being granted a reassignment due to meeting applicable proximity criteria under subpart L of 42 CFR part 412 to an eligible CBSA will be announced in the FY 2025 IPPS/LTCH PPS final rule. In any cases where a hospital requested the Administrator review a reclassification dismissal or denial by the MGCRB, the assignment and reassignment policies discussed in this proposed rule would apply if the Board's decision is overturned; that is, if the Administrator decides that the hospital's reclassification request should be granted but the CBSA to which the hospital would reclassify based on that decision would potentially be assigned to a different CBSA as a result of adoption of the new OMB delineations, the policies discussed in this proposed rule would apply to that assignment. At the time of writing, CMS does not have a list of cases for which the Administrator's review has been requested, nor the disposition of any such cases. If a hospital is requesting review of a reclassification to one of the CBSAs discussed in this section, they may contact wageindex@cms.hhs.gov to confirm to what CBSA the reclassification would be assigned.

We recognize that the proposed reclassification assignment policies may result in the assignment of the hospital for the remainder of its 3-year reclassification period to a CBSA that has a lower wage index than the wage index that would have been assigned for the reclassified hospital in the absence of the proposed adoption of the revised OMB delineations. We believe that the 5 percent cap on negative wage index changes discussed in section III.G.6 would mitigate significant negative payment impacts for FY 2025, and hospitals would have adequate time to fully assess any additional reclassification options available to them.

d. Proposed Change to Timing of Withdrawals at 412.273(c)

As mentioned in section III.F.3.a of this proposed rule, under the regulations at § 412.273, hospitals that have been reclassified by the MGCRB are permitted to withdraw or terminate an approved reclassification. The current regulations at § 412.273(c)(1)(ii) and (c)(2) for withdrawals and terminations require the request to be received by the MGCRB within 45 days of the date that CMS' annual notice of proposed rulemaking is issued in the Federal Register concerning changes to the IPPS and proposed payment rates.

In the 2018 IPPS/LTCH PPS Final Rule (82 FR 38148 through 38150), we finalized changes to the 45-day notification rules so that hospitals have 45 days from the public display of the annual proposed rule for the IPPS instead of 45 days from publication to inform CMS of certain requested changes relating to the development of the hospital wage index. We stated that we believe that the public has access to the necessary information from the date of public display of the proposed rule at the Office of the Federal Register and on its website in order to make the decisions at issue. While we finalized changes to the 45-day notification rules for decisions about the outmigration adjustment and waiving Lugar status, we did not finalize a change to the timing for withdrawing or terminating MGCRB decisions.

Instead, in response to comments expressing concern that some hospitals may be disadvantaged if the Administrator's decision on a hospital's request for review of an MGCRB decision has not been issued prior to the proposed deadline for submitting withdrawal or termination requests to the MGCRB, we maintained our existing policy of requiring hospitals to request from the MGCRB withdrawal or termination of an MGCRB reclassification within 45 days of issuance in the Federal Register . We stated in the FY 2018 IPPS/LTCH PPS final rule (82 FR 38149) that considering the usual dates of the MGCRB's decisions (generally early February) and of the public display of the IPPS proposed rule, the maximum amount of time for an Administrator's decision to be issued may potentially extend beyond the proposed deadline of 45 days from the date of public display.

However, the MGCRB currently issues decisions earlier, in January, which mitigates this concern. For example, the MGCRB has sent decision letters to hospitals via email on January 23, 2024 for the FY 2025 cycle and on January 31, 2023 for the FY 2024 cycle. We believe that the MGCRB will continue to issue its decisions in January, due to their upgrade to an electronic system that expedites processing applications and issuing decision letters efficiently. The regulations at §§ 412.278(a) and (b)(1) provide that a hospital may request the Administrator to review the MGCRB decision within 15 days after the date the MGCRB issues its decision. Under § 412.278(f)(2)(i), the Administrator issues a decision not later than 90 days following receipt of the party's request for review. Consequently, MGCRB decisions could be issued as late as the end of January, and the 15 days the hospital has to request the Administrator's review, plus the 90 days the Administrator has to issue a decision, would result in hospitals receiving the results of the review prior to 45 days after display (which would be May 16th if the proposed rule is displayed on the target date of April 1, but later if there is a delay).

While the current timing of MGCRB decisions in January allows for hospitals to receive the results of any review prior to 45 days after display of the proposed rule for the relevant FY, and we expect this timing to continue, we acknowledge that section 1886(d)(10)(C)(iii)(I) of the Act grants the MGCRB 180 days after the application deadline to render a decision. If the MGCRB were to delay issuing decisions until the last day possible according to the Statute, which is February 28th, a hospital requesting the Administrator's review may not receive the results of the review prior to 45 days after display.

Therefore, we are proposing to change the deadline for hospitals to withdraw or terminate MGCRB classifications from within 45 days of the date that the annual notice of proposed rulemaking is issued in the Federal Register to within 45 days of the public display of the annual notice of proposed rulemaking on the website of the Office of the Federal Register, or within 7 calendar days of receiving a decision of the Administrator in accordance with § 412.278 of this part, whichever is later. This proposed change will synchronize this deadline with other wage index deadlines, such as the deadlines for accepting the outmigration adjustment and waiving or reinstating Lugar status. As hospitals typically know the results of the Administrator's decisions on reviews within 45 days of the public display of the proposed rule for the upcoming fiscal year, we believe hospitals have access to the information they need to make reclassification decisions. In the rare circumstance that a hospital would not receive the results of the review prior to 45 days of the public display date, or receives the results of the review less than 7 days before the deadline, the hospital would have 7 calendar days after receiving the Administrator's decision to request to withdraw or terminate MGCRB classification. While we do not anticipate frequent use of this extension, we believe this fully addresses the concern that some hospitals may be disadvantaged if the Administrator's decision on a hospital's request for review of an MGCRB decision has not been issued prior to the proposed deadline for submitting withdrawal or termination requests to the MGCRB. We believe that 7 days after receiving the Administrator's decision affords hospitals adequate time to make calculated reclassification decisions.

Specifically, we are proposing to change the words “within 45 days of the date that CMS' annual notice of proposed rulemaking is issued in the Federal Register ” in the regulation text at 412.273(c)(1)(ii) and 412.273(c)(2) for withdrawals and terminations to “within 45 days of the date of filing for public inspection of the proposed rule at the website of the Office of the Federal Register, or within 7 calendar days of receiving a decision of the Administrator in accordance with § 412.278 of this part, whichever is later”.

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

a. Lugar Status Determinations

In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51599 through 51600), we adopted the policy that, beginning with FY 2012, an eligible hospital that waives its Lugar status in order to receive the out-migration adjustment has effectively waived its deemed urban status and, thus, is rural for all purposes under the IPPS effective for the fiscal year in which the hospital receives the outmigration adjustment. In addition, in that rule, we adopted a minor procedural change that would allow a Lugar hospital that qualifies for and accepts the out-migration adjustment (through written notification to CMS within 45 days from the issuance of the proposed rule in the Federal Register ) to waive its urban status for the full 3-year period for which its out-migration adjustment is effective. By doing so, such a Lugar hospital would no longer be required during the second and third years of eligibility for the out-migration adjustment to advise us annually that it prefers to continue being treated as rural and receive the out-migration adjustment. In the FY 2017 IPPS/LTCH PPS final rule (81 FR 56930), we further clarified that if a hospital wishes to reinstate its urban status for any fiscal year within this 3-year period, it must send a request to CMS within 45 days of the issuance of the proposed rule in the Federal Register for that particular fiscal year. We indicated that such reinstatement requests may be sent electronically to wageindex@cms.hhs.gov. In the FY 2018 IPPS/LTCH PPS final rule (82 FR 38147 through 38148), we finalized a policy revision to require a Lugar hospital that qualifies for and accepts the out-migration adjustment, or that no longer wishes to accept the out-migration adjustment and instead elects to return to its deemed urban status, to notify CMS within 45 days from the date of public display of the proposed rule at the Office of the Federal Register. These revised notification timeframes were effective beginning October 1, 2017. In addition, in the FY 2018 IPPS/LTCH PPS final rule (82 FR 38148), we clarified that both requests to waive and to reinstate “Lugar” status may be sent to wageindex@cms.hhs.gov. To ensure proper accounting, we request hospitals to include their CCN, and either “waive Lugar” or “reinstate Lugar”, in the subject line of these requests.

In the FY 2020 IPPS/LTCH PPS final rule (84 FR 42314 and 42315), we clarified that in circumstances where an eligible hospital elects to receive the outmigration adjustment within 45 days of the public display date of the proposed rule at the Office of the Federal Register in lieu of its Lugar wage index reclassification, and the county in which the hospital is located would no longer qualify for an outmigration adjustment when the final rule (or a subsequent correction notice) wage index calculations are completed, the hospital's request to accept the outmigration adjustment would be denied, and the hospital would be automatically assigned to its deemed urban status under section 1886(d)(8)(B) of the Act. We stated that final rule wage index values would be recalculated to reflect this reclassification, and in some instances, after taking into account this reclassification, the out-migration adjustment for the county in question could be restored in the final rule. However, as the hospital is assigned a Lugar reclassification under section 1886(d)(8)(B) of the Act, it would be ineligible to receive the county outmigration adjustment under section 1886(d)(13)(G) of the Act.

b. Effects of Proposed Implementation of Revised OMB Labor Market Area Delineations on Redesignations Under Section 1886(d)(8)(B) of the Act

As discussed in section III.A.2. of the preamble of this proposed rule, CMS is proposing to update the CBSA labor market delineations to reflect the changes made in the July 15, 2023, OMB Bulletin 23-01. In that section, we proposed that 54 currently rural counties be added to new or existing urban CBSAs. Of those 54 counties, 22 are currently deemed urban under section 1886(d)(8)(B) of the Act. Hospitals located in such a “Lugar” county, barring another form of wage index reclassification, are assigned the reclassified wage index of a designated urban CBSA. Section 1886(d)(8)(B) of the Act defines a deemed urban county as a “rural county adjacent to one or more urban areas” that meets certain commuting thresholds. Since we are proposing to modify the status of these 22 counties from rural to urban, they would no longer qualify as “Lugar” counties. Hospitals located within these counties would be considered geographically urban under the revised OMB delineations. The table in this section of this rule lists the counties that would no longer be deemed urban under section 1886(d)(8)(B) of the Act if we adopt the revised OMB delineations. We note that in almost all instances, the “Lugar” county is joining the same (or a substantially similar) urban CBSA as it was deemed to in FY 2024.

We note that in the FY 2015 IPPS/LTCH PPS final rule (79 FR 49973 through 49977), when we adopted large scale changes to the CBSA labor market delineations based on the new 2010 decennial census, we also re-evaluated the commuting data thresholds for all eligible rural counties in accordance with the requirement set forth in section 1886(d)(8)(B)(ii)(II) of the Act to base the list of qualifying hospitals on the most recently available decennial population data. We are therefore proposing to reevaluate the “Lugar” status for all counties in FY 2025 using the same commuting data table used to develop the OMB Bulletin No. 23-01 revised delineations. The data table is the “2016-2020 5-Year American Community Survey Commuting Flows” (available on OMB's website: https://www.census.gov/data/tables/2020/demo/metro-micro/commuting-flows-2020.html). We are also proposing to use the same methodology discussed in the FY 2020 IPPS/LTCH final rule (84 FR 42315 through 42318) to assign the appropriate reclassified CBSA for hospitals in “Lugar” counties. That is, when assessing which CBSA to assign, we will sum the total number of workers that commute from the “Lugar” county to both “central” and “outlying” urban counties (rather than just “central” county commuters).

By applying the 2020 American Community Survey (ACS) commuting data to the updated OMB labor market delineations, we are proposing the following changes to the current “Lugar” county list: 17 of the 53 urban counties that are proposed to become rural under the revised OMB delineations, and both newly created rural Connecticut planning region county-equivalents would qualify as “Lugar” counties. We also have determined that, as proposed, 33 rural counties (an approximately 11 hospitals) would lose “Lugar” status, as the county no longer meets the commuting thresholds or adjacency criteria specified in section 1886(d)(8)(B) of the Act.

The following table lists all proposed “Lugar” counties for FY 2025. We indicated additions to the list with “New” in column 5.

We note that Litchfield County, CT is no longer listed as a “Lugar” county as it is not included in the revised CBSA delineations. The majority of Litchfield County is now within the proposed Northwest Hills Planning Region county-equivalent, with some of the county's current constituent townships assigned to other urban county-equivalents. We also note that in prior fiscal years, Merrimack County, NH was included as a “Lugar” redesignated county pursuant to the provision at § 412.62(f)(1)(ii)(B), which deems certain rural counties in the New England region to be part of urban areas. Merrimack County now meets the commuting standards to be considered deemed urban under the “Lugar” statute at section 1886(d)(8)(B) of the Act.

We recognize that the changes to the “Lugar” list may have negative financial impacts for hospitals that lose deemed urban status. We believe that the 5 percent cap on negative wage index changes discussed in section III.G.6, would mitigate significant negative payment impacts for FY 2025, and would afford hospitals adequate time to fully assess any additional reclassification options available to them. We also note that special statuses limited to hospitals located in rural areas (such as MDH or SCH status) may be terminated if hospitals are deemed urban under section 1886(d)(8)(B) of the Act. In these cases, hospitals should apply for rural reclassification status under § 413.103 prior to October 1, 2024, if they wish to ensure no disruption in status.

G. Wage Index Adjustments: Rural Floor, Imputed Floor, State Frontier Floor, Out-Migration Adjustment, Low Wage Index, and Cap on Wage Index Decrease Policies

The following adjustments to the wage index are listed in the order that they are generally applied. First, the rural floor, imputed floor, and State frontier floor provide a minimum wage index. The rural floor at section 4410(a) of the Balanced Budget Act of 1997 (Pub. L. 105-33) provides that the wage index for hospitals in urban areas of a State may not be less than the wage index applicable to hospitals located in rural areas in that State. The imputed floor at section 1886(d)(3)(E)(iv) of the Act provides a wage index minimum for all-urban states. The state frontier floor at section 1886(d)(3)(E)(iii) of the Act requires that hospitals in frontier states cannot be assigned a wage index of less than 1.0000. Next, the out-migration adjustment at section 1886(d)(13)(A) of the Act is applied, potentially increasing the wage index for hospitals located in certain counties that have a relatively high percentage of hospital employees who reside in the county but work in a different county or counties with a higher wage index. The low-wage index hospital adjustment finalized in the FY 2020 IPPS/LTCH PPS final rule (84 FR 42325 through 42339) is then applied, which increases the wage index values for hospitals with wage indexes at or below the 25th percentile. Finally, all hospital wage index decreases are capped at 95 percent of the hospital's final wage index in the prior fiscal year, according to the policy finalized in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49018 through 49021).

1. Rural Floor

Section 4410(a) of the Balanced Budget Act of 1997 (Pub. L. 105-33) provides that, for discharges on or after October 1, 1997, the area wage index applicable to any hospital that is located in an urban area of a State may not be less than the area wage index applicable to hospitals located in rural areas in that State. This provision is referred to as the rural floor. Section 3141 of the Patient Protection and Affordable Care Act (Pub. L. 111-148) also requires that a national budget neutrality adjustment be applied in implementing the rural floor. Based on the FY 2025 wage index associated with this proposed rule (which is available via the internet on the CMS website), and based on the calculation of the rural floor including the wage data of hospitals that have reclassified as rural under § 412.103, we estimate that 494 hospitals would receive the rural floor in FY 2025. The budget neutrality impact of the proposed application of the rural floor is discussed in section II.A.4.e. of Addendum A of this proposed rule.

In the FY 2023 IPPS/LTCH PPS final rule (87 FR 48784), CMS finalized a policy change to calculate the rural floor in the same manner as we did prior to the FY 2020 IPPS/LTCH PPS final rule, in which the rural wage index sets the rural floor. We stated that for FY 2023 and subsequent years, we would include the wage data of § 412.103 hospitals that have no MGCRB reclassification in the calculation of the rural floor, and include the wage data of such hospitals in the calculation of “the wage index for rural areas in the State in which the county is located” as referred to in section 1886(d)(8)(C)(iii) of the Act.

In the FY 2024 IPPS/LTCH final rule (88 FR 58971-77), we finalized a policy change beginning that year to include the data of all § 412.103 hospitals, even those that have an MGCRB reclassification, in the calculation of the rural floor and the calculation of “the wage index for rural areas in the State in which the county is located” as referred to in section 1886(d)(8)(C)(iii) of the Act. We explained that after revisiting the case law, prior public comments, and the relevant statutory language, we agreed that the best reading of section 1886(d)(8)(E)'s text that CMS “shall treat the [§ 412.103] hospital as being located in the rural area” is that it instructs CMS to treat § 412.103 hospitals the same as geographically rural hospitals for the wage index calculation.

Accordingly, in the FY 2024 IPPS/LTCH PPS final rule, we finalized a policy to include hospitals with § 412.103 reclassification along with geographically rural hospitals in all rural wage index calculations, and to exclude “dual reclass” hospitals (hospitals with simultaneous § 412.103 and MGCRB reclassifications) that are implicated by the hold harmless provision at section 1886(d)(8)(C)(ii) of the Act. (For additional information on these changes, we refer readers to the FY 2024 IPPS/LTCH PPS final rule (88 FR 58971 and 58977).)

2. Imputed Floor

In the FY 2005 IPPS final rule (69 FR 49109 through 49111), we adopted the imputed floor policy as a temporary 3-year regulatory measure to address concerns from hospitals in all-urban States that have stated that they are disadvantaged by the absence of rural hospitals to set a wage index floor for those States. We extended the imputed floor policy eight times since its initial implementation, the last of which was adopted in the FY 2018 IPPS/LTCH PPS final rule and expired on September 30, 2018. We refer readers to further discussions of the imputed floor in the IPPS/LTCH PPS final rules from FYs 2014 through 2019 (78 FR 50589 through 50590, 79 FR 49969 through 49971, 80 FR 49497 through 49498, 81 FR 56921 through 56922, 82 FR 38138 through 38142, and 83 FR 41376 through 41380, respectively) and to the regulations at § 412.64(h)(4). For FYs 2019, 2020, and 2021, hospitals in all-urban states received a wage index that was calculated without applying an imputed floor, and we no longer included the imputed floor as a factor in the national budget neutrality adjustment.

Section 9831 of the American Rescue Plan Act of 2021 (Pub. L. 117-2), enacted on March 11, 2021, amended section 1886(d)(3)(E)(i) of the Act and added section 1886(d)(3)(E)(iv) of the Act to establish a minimum area wage index for hospitals in all-urban States for discharges occurring on or after October 1, 2021. Specifically, section 1886(d)(3)(E)(iv)(I) and (II) of the Act provides that for discharges occurring on or after October 1, 2021, the area wage index applicable to any hospital in an all-urban State may not be less than the minimum area wage index for the fiscal year for hospitals in that State established using the methodology described in § 412.64(h)(4)(vi) as in effect for FY 2018. Unlike the imputed floor that was in effect from FYs 2005 through 2018, section 1886(d)(3)(E)(iv)(III) of the Act provides that the imputed floor wage index shall not be applied in a budget neutral manner. Section 1886(d)(3)(E)(iv)(IV) of the Act provides that, for purposes of the imputed floor wage index under clause (iv), the term all-urban State means a State in which there are no rural areas (as defined in section 1886(d)(2)(D) of the Act) or a State in which there are no hospitals classified as rural under section 1886 of the Act. Under this definition, given that it applies for purposes of the imputed floor wage index, we consider a hospital to be classified as rural under section 1886 of the Act if it is assigned the State's rural area wage index value.

Effective beginning October 1, 2021 (FY 2022), section 1886(d)(3)(E)(iv) of the Act reinstates the imputed floor wage index policy for all-urban States, with no expiration date, using the methodology described in § 412.64(h)(4)(vi) as in effect for FY 2018. We refer readers to the FY 2022 IPPS/LTCH PPS final rule (86 FR 45176 through 45178) for further discussion of the original imputed floor calculation methodology implemented in FY 2005 and the alternative methodology implemented in FY 2013.

Based on data available for this proposed rule, States that would be all-urban States as defined in section 1886(d)(3)(E)(iv)(IV) of the Act, and thus hospitals in such States that would be eligible to receive an increase in their wage index due to application of the imputed floor for FY 2025, are identified in Table 3 associated with this proposed rule. States with a value in the column titled “State Imputed Floor” would be eligible for the imputed floor.

The regulations at § 412.64(e)(1) and (4) and (h)(4) and (5) implement the imputed floor required by section 1886(d)(3)(E)(iv) of the Act for discharges occurring on or after October 1, 2021. The imputed floor would continue to be applied for FY 2025 in accordance with the policies adopted in the FY 2022 IPPS/LTCH PPS final rule. For more information regarding our implementation of the imputed floor required by section 1886(d)(3)(E)(iv) of the Act, we refer readers to the discussion in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45176 through 45178).

3. State Frontier Floor for FY 2025

Section 10324 of Public Law 111-148 requires that hospitals in frontier States cannot be assigned a wage index of less than 1.0000. (We refer readers to the regulations at § 412.64(m) and to a discussion of the implementation of this provision in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50160 through 50161).) In this FY 2025 IPPS/LTCH PPS proposed rule, we are not proposing any changes to the frontier floor policy for FY 2025. In this proposed rule, 41 hospitals would receive the frontier floor value of 1.0000 for their FY 2025 proposed wage index. These hospitals are located in Montana, North Dakota, South Dakota, and Wyoming.

We note that while Nevada meets the criteria of a frontier State, all hospitals within the State are projected to receive a wage index value greater than 1.0000 prior to the application of the frontier floor policy for FY 2025.

The areas affected by the rural and frontier floor policies for the proposed FY 2025 wage index are identified in Table 3 associated with this proposed rule, which is available via the internet on the CMS website.

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

In accordance with section 1886(d)(13) of the Act, as added by section 505 of Public Law 108-173, beginning with FY 2005, we established a process to make adjustments to the hospital wage index based on commuting patterns of hospital employees (the “out-migration” adjustment). The process, outlined in the FY 2005 IPPS final rule (69 FR 49061), provides for an increase in the wage index for hospitals located in certain counties that have a relatively high percentage of hospital employees who reside in the county but work in a different county (or counties) with a higher wage index.

Section 1886(d)(13)(B) of the Act requires the Secretary to use data the Secretary determines to be appropriate to establish the qualifying counties. When the provision of section 1886(d)(13) of the Act was implemented for the FY 2005 wage index, we analyzed commuting data compiled by the U.S. Census Bureau that were derived from a special tabulation of the 2000 Census journey-to-work data for all industries (CMS extracted data applicable to hospitals). These data were compiled from responses to the “long-form” survey, which the Census Bureau used at that time, and which contained questions on where residents in each county worked (69 FR 49062). However, the 2010 Census was “short form” only; information on where residents in each county worked was not collected as part of the 2010 Census. The Census Bureau worked with CMS to provide an alternative dataset based on the latest available data on where residents in each county worked in 2010, for use in developing a new out-migration adjustment based on new commuting patterns developed from the 2010 Census data beginning with FY 2016.

To determine the out-migration adjustments and applicable counties for FY 2016, we analyzed commuting data compiled by the Census Bureau that were derived from a custom tabulation of the American Community Survey (ACS), an official Census Bureau survey, utilizing 2008 through 2012 (5-year) Microdata. The data were compiled from responses to the ACS questions regarding the county where workers reside and the county to which workers commute. As we discussed in prior IPPS/LTCH PPS final rules, most recently in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49012), we have applied the same policies, procedures, and computations since FY 2012. We refer readers to the FY 2016 IPPS/LTCH PPS final rule (80 FR 49500 through 49502) for a full explanation of the revised data source. We also stated that we would consider determining out-migration adjustments based on data from the next Census or other available data, as appropriate.

As discussed earlier in section III.B., CMS is proposing to adopt revised delineations from the OMB Bulletin 23-01, published July 21, 2023. The revised delineations incorporate population estimates based on the 2020 decennial census, as well as updated journey-to-work commuting data. The Census Bureau once again worked with CMS to provide an alternative dataset based on the latest available data on where residents in each county worked, for use in developing a new out-migration adjustment based on new commuting patterns. We analyzed commuting data compiled by the Census Bureau that were derived from a custom tabulation of the ACS, utilizing 2016 through 2020 data. The Census Bureau produces county level commuting flow tables every 5 years using non-overlapping 5-year ACS estimates. The data include demographic characteristics, home and work locations, and journey-to-work travel flows. The custom tabulation requested by CMS was specific to general medical and surgical hospital and specialty (except psychiatric and substance use disorder treatment) hospital employees (hospital sector Census code 8191/NAICS code 6221 and 6223) who worked in the 50 States, Washington, DC, and Puerto Rico and, therefore, provided information about commuting patterns of workers at the county level for residents of the 50 States, Washington, DC, and Puerto Rico.

For the ACS, the Census Bureau selects a random sample of addresses where workers reside to be included in the survey, and the sample is designed to ensure good geographic coverage. The ACS samples approximately 3.5 million resident addresses per year. The results of the ACS are used to formulate descriptive population estimates, and, as such, the sample on which the dataset is based represents the actual figures that would be obtained from a complete count.

For FY 2025, and subsequent years, we are proposing that the out-migration adjustment will be based on the data derived from the previously discussed custom tabulation of the ACS utilizing 2016 through 2020 (5-year) Microdata. As discussed earlier, we believe that these data are the most appropriate to establish qualifying counties, because they are the most accurate and up-to-date data that are available to us. Furthermore, with the proposed transition of several counties in Connecticut to “planning region” county equivalents (discussed in section III.B.3. of the preamble this proposed rule), the continued use of a commuting dataset developed with expiring county definitions would be less accurate in approximating commuting flows. We are proposing that the FY 2025 out-migration adjustments continue to be based on the same policies, procedures, and computation that were used for the FY 2012 out-migration adjustment. We have applied these same policies, procedures, and computations since FY 2012, and we believe they continue to be appropriate for FY 2025. (We refer readers to a full discussion of the out-migration adjustment, including rules on deeming hospitals reclassified under section 1886(d)(8) or section 1886(d)(10) of the Act to have waived the out-migration adjustment, in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51601 through 51602).) Table 2 of this proposed rule (which is available via the internet on the CMS website) lists the proposed out-migration adjustments for the FY 2025 wage index.

5. Proposed Continuation of the Low Wage Index Hospital Policy and Budget Neutrality Adjustment

In the FY 2020 IPPS/LTCH PPS final rule (84 FR 42325 through 42339), we finalized a policy to address the artificial magnification of wage index disparities, based in part on comments we received in response to our request for information included in our FY 2019 IPPS/LTCH PPS proposed rule (83 FR 20372 through 20377). In the FY 2020 IPPS/LTCH final rule, based on those public comments and the growing disparities between wage index values for high- and low-wage-index hospitals, we explained that those growing disparities are likely caused, at least in part, by the use of historical wage data to prospectively set hospitals' wage indexes. That lag creates barriers to hospitals with low wage index values being able to increase employee compensation, because those hospitals will not receive corresponding increases in their Medicare payment for several years (84 FR 42327). Accordingly, we finalized a policy that provided certain low wage index hospitals with an opportunity to increase employee compensation without the usual lag in those increases being reflected in the calculation of the wage index (as they would expect to do if not for the lag). We accomplished this by temporarily increasing the wage index values for certain hospitals with low wage index values and doing so in a budget neutral manner through an adjustment applied to the standardized amounts for all hospitals, as well as by changing the calculation of the rural floor. As explained in the FY 2020 IPPS/LTCH proposed rule (84 FR 19396) and final rule (84 FR 42329), we indicated that the Secretary has authority to implement the lowest quartile wage index proposal under both section 1886(d)(3)(E) of the Act and under his exceptions and adjustments authority under section 1886(d)(5)(I) of the Act.

We increased the wage index for hospitals with a wage index value below the 25th percentile wage index value for a fiscal year by half the difference between the otherwise applicable final wage index value for a year for that hospital and the 25th percentile wage index value for that year across all hospitals (the low wage index hospital policy). We stated in the FY 2020 IPPS/LTCH PPS final rule (84 FR 42326 through 42328) our intention that this policy would be effective for at least 4 years, beginning in FY 2020, to allow employee compensation increases implemented by these hospitals sufficient time to be reflected in the wage index calculation.

We note that the FY 2020 low wage index hospital policy and the related budget neutrality adjustment are the subject of pending litigation, including in Bridgeport Hospital, et al., v. Becerra, No. 1:20-cv-01574 (D.D.C.), No. 22-5249 (D.C. Cir.) (hereafter referred to as Bridgeport). The district court in Bridgeport held that the Secretary did not have authority under section 1886(d)(3)(E) or 1886(d)(5)(I)(i) of the Act to adopt the low wage index hospital policy for FY 2020 and remanded the policy to the agency without vacatur. We have appealed the court's decision.

As noted earlier, we finalized this policy in the FY 2020 IPPS/LTCH final rule to provide low wage index hospitals with an opportunity to increase employee compensation without the usual lag in those increases being reflected in the calculation of the wage index (as they would expect to do if not for the lag). This continues to be the purpose of the policy. We stated in the FY 2020 IPPS/LTCH PPS final rule our intention that it would be in effect for at least 4 years beginning October 1, 2019 (84 FR 42326). We also stated we intended to revisit the issue of the duration of this policy in future rulemaking as we gained experience under the policy. What could not have been anticipated at the time the policy was promulgated was that implementation of the policy would occur during the COVID-19 PHE, which was declared starting in January of 2020 and continued until May of 2023. The effects of the COVID-19 PHE complicate our ability to evaluate the low wage policy and our ability to determine whether low wage hospitals have been provided a sufficient opportunity to increase employee compensation under the policy without the usual lag.

In order to help gauge the impact of the COVID-19 PHE relative to the impact of the low wage index hospital policy, we examined the aggregate revenue each hospital reported on their FY 2020 cost reports from the COVID-19 PHE Provider Relief Fund, the Small Business Association Loan Forgiveness program, and other sources of COVID-19 related funding such as payroll retention credits and State emergency relief funds. Specifically, we examined Worksheet G-3, lines 24.50 through 24.60 for each IPPS hospital's 2020 cost report. We found that hospitals in the aggregate reported $31.1 billion in COVID-19 related funding, and of that amount low wage hospitals reported $3.6 billion. These amounts are much larger than, and likely had a much greater impact on hospital operations, the approximately $230 million impact of the low wage index hospital policy. For example, COVID-19 related funding impacted the ability of hospitals, both low wage hospitals and non-low wage hospitals, to change employee compensation in ways that overshadowed any differential impact of the low wage index hospital policy between the two groups that may have occurred in the absence of the COVID-19 PHE.

In addition to examining the COVID-19 related funding data, we also examined the wage index data itself. For the FY 2025 wage index the best available data typically would be from the FY 2021 wage data from hospital cost reports. As discussed earlier in more detail in section III.C, in considering the impacts of the COVID-19 PHE on the FY 2021 hospital wage data, we compared that data with recent historical data. While there are some differences, it is not readily apparent how any changes due to the COVID-19 PHE differentially impacted the wages paid by individual hospitals. Furthermore, even if changes due to the COVID-19 PHE did differentially impact the wages paid by individual hospitals over time, it is not clear how those changes could be isolated from changes due to other reasons and what an appropriate potential methodology might be to adjust the data to account for the effects of the COVID-19 PHE. Our inability to isolate the wage data changes due to the COVID-19 PHE and disentangle them from changes due to the low wage index hospital policy makes isolating and evaluating the impact of the low wage index hospital policy challenging. We reached similar conclusions with respect to the FY 2020 hospital wage data.

To help further inform our FY 2025 rulemaking with respect to the low wage index hospital policy, we also conducted an analysis of hospitals that received an increase to their wage index due to the policy in FY 2020 (referred to as the low wage index hospitals for brevity in the following discussion). Specifically, for each low wage index hospital we calculated the percent increase in its average hourly wages (AHWs) from FY 2019 to FY 2021 based on dividing its FY 2021 average hourly wage (using the wage data one year after the low wage index hospital policy was implemented in FY 2020, available on the FY 2025 IPPS Proposed Rule web page) by its average hourly wage from the FY 2019 wage data (the wage data one year before the low wage index hospital policy was implemented in FY 2020, available on the FY 2023 IPPS final rule web page). We performed the same calculation for the hospitals that were not low wage index hospitals. We then compared the distributions of the average hourly wage increases between the two groups. The results are shown in the following chart (Chart 1).

In general, the chart shows that the distribution of the changes in the average hourly wages of the low wage index hospitals (mean = 15.1%, standard deviation = 11.0%) is similar to the distribution of the changes in the average hourly wages of the non-low wage index hospitals (mean = 14.7%, standard deviation 8.9%). Although some low wage hospitals have indicated to us that they did use the increased payments they received under the low wage index hospital policy to increase wages more than they otherwise would have, the similarity in the two distributions indicates that, based on the audited wage data available to us, the policy has generally not yet had the effect of substantially reducing the wage index disparities that existed at the time the policy was promulgated. Also, to the extent that wage index disparities for a subset of low wage index hospitals has diminished, it is unclear to what extent that is attributable to the low wage index hospital policy given the effects of the COVID-19 PHE (as discussed below).

The COVID-19 PHE ended in May of 2023. With regard to the wage index,4 years is the minimum time before increases in employee compensation included in the Medicare cost report could be reflected in the wage index data. The first full fiscal year of wage data after the COVID-19 PHE is the FY 2024 wage data, which would be available for the FY 2028 IPPS/LTCH PPS rulemaking. As we explained earlier in this section, at the time the low wage index hospital policy was finalized, our intention was that it would be in effect for at least 4 fiscal years beginning October 1, 2019 and to revisit the issue of the duration of this policy as we gained experience under the policy. Because the effects of the COVID-19 PHE complicate our ability to evaluate the low wage index hospital policy and our ability to determine whether low wage hospitals have been provided a sufficient opportunity to increase employee compensation under the policy without the usual lag, we are proposing that the low wage index hospital policy and the related budget neutrality adjustment would be effective for at least three more years, beginning in FY 2025. This would result in the policy being in effect for at least 4 full fiscal years in total after the end of the COVID-19 PHE in May of 2023. This will allow us to gain experience under the policy for the same duration and in an environment more similar to the one we expected at the time the policy was first promulgated.

In order to offset the estimated increase in IPPS payments to hospitals with wage index values below the 25th percentile wage index value, for FY 2025 and for subsequent fiscal years during which the low wage index hospital policy is in effect, we are proposing to apply a budget neutrality adjustment in the same manner as we have applied it since FY 2020, as a uniform budget neutrality factor applied to the standardized amount. We refer readers to section II.A.4.f. of the Addendum to this proposed rule for further discussion of the budget neutrality adjustment for FY 2025. For purposes of the low wage index hospital policy, based on the data for this proposed rule, the table displays the 25th percentile wage index value across all hospitals for FY 2025.

6. Cap on Wage Index Decreases and Budget Neutrality Adjustment

In the FY 2023 IPPS/LTCH PPS final rule (87 FR 49018 through 49021), we finalized a wage index cap policy and associated budget neutrality adjustment for FY 2023 and subsequent fiscal years. Under this policy, we apply a 5-percent cap on any decrease to a hospital's wage index from its wage index in the prior FY, regardless of the circumstances causing the decline. A hospital's wage index will not be less than 95 percent of its final wage index for the prior FY. If a hospital's prior FY wage index is calculated with the application of the 5-percent cap, the following year's wage index will not be less than 95 percent of the hospital's capped wage index in the prior FY. Except for newly opened hospitals, we apply the cap for a FY using the final wage index applicable to the hospital on the last day of the prior FY. A newly opened hospital will be paid the wage index for the area in which it is geographically located for its first full or partial fiscal year, and it will not receive a cap for that first year, because it will not have been assigned a wage index in the prior year. The wage index cap policy is reflected at § 412.64(h)(7). We apply the cap in a budget neutral manner through a national adjustment to the standardized amount each fiscal year. For more information about the wage index cap policy and associated budget neutrality adjustment, we refer readers to the discussion in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49018 through 49021).

For FY 2025, we would apply the wage index cap and associated budget neutrality adjustment in accordance with the policies adopted in the FY 2023 IPPS/LTCH PPS final rule. We note that the budget neutrality adjustment will be updated, as appropriate, based on the final rule data. We refer readers to the Addendum of this proposed rule for further information regarding the budget neutrality calculations.

H. FY 2025 Wage Index Tables

In this FY 2025 IPPS/LTCH PPS proposed rule, we have included the following wage index tables: Table 2 titled “Case-Mix Index and Wage Index Table by CCN”; Table 3 titled “Wage Index Table by CBSA”; Table 4A titled “List of Counties Eligible for the Out-Migration Adjustment under Section 1886(d)(13) of the Act”; and Table 4B titled “Counties redesignated under section 1886(d)(8)(B) of the Act (Lugar Counties).” We refer readers to section VI. of the Addendum to this proposed rule for a discussion of the wage index tables for FY 2025.

I. Proposed Labor-Related Share for the FY 2025 Wage Index

Section 1886(d)(3)(E) of the Act directs the Secretary to adjust the proportion of the national prospective payment system base payment rates that are attributable to wages and wage-related costs by a factor that reflects the relative differences in labor costs among geographic areas. It also directs the Secretary to estimate from time to time the proportion of hospital costs that are labor-related and to adjust the proportion (as estimated by the Secretary from time to time) of hospitals' costs that are attributable to wages and wage-related costs of the DRG prospective payment rates. We refer to the portion of hospital costs attributable to wages and wage-related costs as the labor-related share. The labor-related share of the prospective payment rate is adjusted by an index of relative labor costs, which is referred to as the wage index.

Section 403 of Public Law 108-173 amended section 1886(d)(3)(E) of the Act to provide that the Secretary must employ 62 percent as the labor-related share unless this would result in lower payments to a hospital than would otherwise be made. However, this provision of Public Law 108-173 did not change the legal requirement that the Secretary estimate from time to time the proportion of hospitals' costs that are attributable to wages and wage-related costs. Thus, hospitals receive payment based on either a 62-percent labor-related share, or the labor-related share estimated from time to time by the Secretary, depending on which labor-related share results in a higher payment.

In the FY 2022 IPPS/LTCH PPS final rule (86 FR 45194 through 45208), we rebased and revised the hospital market basket to a 2018-based IPPS hospital market basket which replaced the 2014-based IPPS hospital market basket, effective beginning October 1, 2021. Using the 2018-based IPPS market basket, we finalized a labor-related share of 67.6 percent for discharges occurring on or after October 1, 2021. In addition, in FY 2022, we implemented this revised and rebased labor-related share in a budget neutral manner (86 FR 45193, 86 FR 45529 through 45530). However, consistent with section 1886(d)(3)(E) of the Act, we did not take into account the additional payments that would be made as a result of hospitals with a wage index less than or equal to 1.0000 being paid using a labor-related share lower than the labor-related share of hospitals with a wage index greater than 1.0000.

The labor-related share is used to determine the proportion of the national IPPS base payment rate to which the area wage index is applied. We include a cost category in the labor-related share if the costs are labor intensive and vary with the local labor market. In the FY 2022 IPPS/LTCH PPS final rule (86 FR 45204 through 45207), we included in the labor-related share the national average proportion of operating costs that are attributable to the following cost categories in the 2018-based IPPS market basket: Wages and Salaries; Employee Benefits; Professional Fees: Labor-Related; Administrative and Facilities Support Services; Installation, Maintenance, and Repair Services; and All Other: Labor-Related Services. In this proposed rule, for FY 2025, we are not proposing to make any further changes to the labor-related share. For FY 2025, we are proposing to continue to use a labor-related share of 67.6 percent for discharges occurring on or after October 1, 2024. We note that, consistent with our established frequency of rebasing the IPPS market basket every 4 years, we anticipate proposing to rebase and revise the IPPS market basket in the FY 2026 IPPS/LTCH PPS proposed rule. Our preliminary evaluation of more recent Medicare cost report data for IPPS hospitals for 2022 indicates that the major IPPS market basket cost weights (particularly the compensation and drug cost weights) are similar to those finalized in the 2018-based IPPS market basket.

As discussed in section V.B. of the preamble of this proposed rule, prior to January 1, 2016, Puerto Rico hospitals were paid based on 75 percent of the national standardized amount and 25 percent of the Puerto Rico-specific standardized amount. As a result, we applied the Puerto Rico-specific labor-related share percentage and nonlabor-related share percentage to the Puerto Rico-specific standardized amount. Section 601 of the Consolidated Appropriations Act, 2016 (Pub. L. 114-113) amended section 1886(d)(9)(E) of the Act to specify that the payment calculation with respect to operating costs of inpatient hospital services of a subsection (d) Puerto Rico hospital for inpatient hospital discharges on or after January 1, 2016, shall use 100 percent of the national standardized amount. Because Puerto Rico hospitals are no longer paid with a Puerto Rico-specific standardized amount as of January 1, 2016, under section 1886(d)(9)(E) of the Act as amended by section 601 of the Consolidated Appropriations Act, 2016, there is no longer a need for us to calculate a Puerto Rico-specific labor-related share percentage and nonlabor-related share percentage for application to the Puerto Rico-specific standardized amount. Hospitals in Puerto Rico are now paid 100 percent of the national standardized amount and, therefore, are subject to the national labor-related share and nonlabor-related share percentages that are applied to the national standardized amount. Accordingly, for FY 2025, we are not proposing a Puerto Rico-specific labor-related share percentage or a nonlabor-related share percentage.

Tables 1A and 1B, which are published in section VI. of the Addendum to this FY 2025 IPPS/LTCH PPS proposed rule and available via the internet on the CMS website, reflect the proposed national labor-related share. Table 1C, in section VI. of the Addendum to this FY 2025 IPPS/LTCH PPS proposed rule and available via the internet on the CMS website, reflects the national labor-related share for hospitals located in Puerto Rico. For FY 2025, for all IPPS hospitals (including Puerto Rico hospitals) whose wage indexes are less than or equal to 1.0000, we are proposing to apply the wage index to a labor-related share of 62 percent of the national standardized amount. For all IPPS hospitals (including Puerto Rico hospitals) whose wage indexes are greater than 1.000, for FY 2025, we are proposing to apply the wage index to a labor-related share of 67.6 percent of the national standardized amount.

IV. Proposed Payment Adjustment for Medicare Disproportionate Share Hospitals (DSHs) for FY 2025 (§ 412.106)

A. General Discussion

Section 1886(d)(5)(F) of the Act provides for additional Medicare payments to subsection (d) hospitals that serve a significantly disproportionate number of low-income patients. The Act specifies two methods by which a hospital may qualify for the Medicare disproportionate share hospital (DSH) adjustment. Under the first method, hospitals that are located in an urban area and have 100 or more beds may receive a Medicare DSH payment adjustment if the hospital can demonstrate that, during its cost reporting period, more than 30 percent of its net inpatient care revenues are derived from State and local government payments for care furnished to patients with low incomes. This method is commonly referred to as the “Pickle method.” The second method for qualifying for the DSH payment adjustment, which is the more commonly used method, is based on a complex statutory formula under which the DSH payment adjustment is based on the hospital's geographic designation, the number of beds in the hospital, and the level of the hospital's disproportionate patient percentage (DPP).

A hospital's DPP is the sum of two fractions: the “Medicare fraction” and the “Medicaid fraction.” The Medicare fraction (also known as the “SSI fraction” or “SSI ratio”) is computed by dividing the number of the hospital's inpatient days that are furnished to patients who were entitled to both Medicare Part A and Supplemental Security Income (SSI) benefits by the hospital's total number of patient days furnished to patients entitled to benefits under Medicare Part A. The Medicaid fraction is computed by dividing the hospital's number of inpatient days furnished to patients who, for such days, were eligible for Medicaid, but were not entitled to benefits under Medicare Part A, by the hospital's total number of inpatient days in the same period.

Because the DSH payment adjustment is part of the IPPS, the statutory references to “days” in section 1886(d)(5)(F) of the Act have been interpreted to apply only to hospital acute care inpatient days. Regulations located at 42 CFR 412.106 govern the Medicare DSH payment adjustment and specify how the DPP is calculated as well as how beds and patient days are counted in determining the Medicare DSH payment adjustment. Under § 412.106(a)(1)(i), the number of beds for the Medicare DSH payment adjustment is determined in accordance with bed counting rules for the IME adjustment under § 412.105(b).

Section 3133 of the Patient Protection and Affordable Care Act (Pub. L. 111-148), as amended by section 10316 of the same Act and section 1104 of the Health Care and Education Reconciliation Act (Pub. L. 111-152), added a section 1886(r) to the Act that modifies the methodology for computing the Medicare DSH payment adjustment. We refer to these provisions collectively as section 3133 of the Affordable Care Act. Beginning with discharges in FY 2014, hospitals that qualify for Medicare DSH payments under section 1886(d)(5)(F) of the Act receive 25 percent of the amount they previously would have received under the statutory formula for Medicare DSH payments. This provision applies equally to hospitals that qualify for DSH payments under section 1886(d)(5)(F)(i)(I) of the Act and those hospitals that qualify under the Pickle method under section 1886(d)(5)(F)(i)(II) of the Act.

The remaining amount, equal to an estimate of 75 percent of what otherwise would have been paid as Medicare DSH payments, reduced to reflect changes in the percentage of individuals who are uninsured, is available to make additional payments to each hospital that qualifies for Medicare DSH payments and that has uncompensated care. The payments to each hospital for a fiscal year are based on the hospital's amount of uncompensated care for a given time period relative to the total amount of uncompensated care for that same time period reported by all hospitals that receive Medicare DSH payments for that fiscal year.

Since FY 2014, section 1886(r) of the Act has required that hospitals that are eligible for DSH payments under section 1886(d)(5)(F) of the Act receive 2 separately calculated payments:

Specifically, section 1886(r)(1) of the Act provides that the Secretary shall pay to such subsection (d) hospital 25 percent of the amount the hospital would have received under section 1886(d)(5)(F) of the Act for DSH payments, which represents the empirically justified amount for such payment, as determined by the MedPAC in its March 2007 Report to Congress. We refer to this payment as the “empirically justified Medicare DSH payment.”

In addition to this empirically justified Medicare DSH payment, section 1886(r)(2) of the Act provides that, for FY 2014 and each subsequent fiscal year, the Secretary shall pay to such subsection (d) hospital an additional amount equal to the product of three factors. The first factor is the difference between the aggregate amount of payments that would be made to subsection (d) hospitals under section 1886(d)(5)(F) of the Act if subsection (r) did not apply and the aggregate amount of payments that are made to subsection (d) hospitals under section 1886(r)(1) of the Act for such fiscal year. Therefore, this factor amounts to 75 percent of the payments that would otherwise be made under section 1886(d)(5)(F) of the Act.

The second factor is, for FY 2018 and subsequent fiscal years, 1 minus the percent change in the percent of individuals who are uninsured, as determined by comparing the percent of individuals who were uninsured in 2013 (as estimated by the Secretary, based on data from the Census Bureau or other sources the Secretary determines appropriate, and certified by the Chief Actuary of CMS) and the percent of individuals who were uninsured in the most recent period for which data are available (as so estimated and certified).

The third factor is a percent that, for each subsection (d) hospital, represents the quotient of the amount of uncompensated care for such hospital for a period selected by the Secretary (as estimated by the Secretary, based on appropriate data), including the use of alternative data where the Secretary determines that alternative data are available which are a better proxy for the costs of subsection (d) hospitals for treating the uninsured, and the aggregate amount of uncompensated care for all subsection (d) hospitals that receive a payment under section 1886(r) of the Act. Therefore, this third factor represents a hospital's uncompensated care amount for a given time period relative to the uncompensated care amount for that same time period for all hospitals that receive Medicare DSH payments in the applicable fiscal year, expressed as a percent.

For each hospital, the product of these three factors represents its additional payment for uncompensated care for the applicable fiscal year. We refer to the additional payment determined by these factors as the “uncompensated care payment.” In brief, the uncompensated care payment for an individual hospital is determined as the product of the following 3 factors:

Section 1886(r) of the Act applies to FY 2014 and each subsequent fiscal year. In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50620 through 50647) and the FY 2014 IPPS interim final rule with comment period (78 FR 61191 through 61197), we set forth our policies for implementing the required changes to the Medicare DSH payment methodology made by section 3133 of the Affordable Care Act for FY 2014. In those rules, we noted that, because section 1886(r) of the Act modifies the payment required under section 1886(d)(5)(F) of the Act, it affects only the DSH payment under the operating IPPS. It does not revise or replace the capital IPPS DSH payment provided under the regulations at 42 CFR part 412, subpart M, which was established through the exercise of the Secretary's discretion in implementing the capital IPPS under section 1886(g)(1)(A) of the Act.

Finally, section 1886(r)(3) of the Act provides that there shall be no administrative or judicial review under section 1869, section 1878, or otherwise of any estimate of the Secretary for purposes of determining the factors described in section 1886(r)(2) of the Act or of any period selected by the Secretary for the purpose of determining those factors. Therefore, there is no administrative or judicial review of the estimates developed for purposes of applying the three factors used to determine uncompensated care payments, or of the periods selected to develop such estimates.

B. Eligibility for Empirically Justified Medicare DSH Payments and Uncompensated Care Payments

The payment methodology under section 3133 of the Affordable Care Act applies to “subsection (d) hospitals” that would otherwise receive a DSH payment made under section 1886(d)(5)(F) of the Act. Therefore, hospitals must receive empirically justified Medicare DSH payments in a fiscal year to receive an additional Medicare uncompensated care payment for that year. Specifically, section 1886(r)(2) of the Act states that, in addition to the empirically justified Medicare DSH payment made to a subsection (d) hospital under section 1886(r)(1) of the Act, the Secretary shall pay to “such subsection (d) hospitals” the uncompensated care payment. Section 1886(r)(2)'s reference to “such subsection (d) hospitals” refers to hospitals that receive empirically justified Medicare DSH payments under section 1886(r)(1) for the applicable fiscal year.

In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50622) and the FY 2014 IPPS interim final rule with comment period (78 FR 61193), we explained that hospitals that are not eligible to receive empirically justified Medicare DSH payments in a fiscal year will not receive uncompensated care payments for that year. We also specified that we would make a determination concerning eligibility for interim uncompensated care payments based on each hospital's estimated DSH status (that is, eligibility to receive empirically justified Medicare DSH payments) for the applicable fiscal year (using the most recent data that are available). For this proposed rule, we estimated DSH status for all hospitals using the most recent available SSI ratios and information from the most recent available Provider Specific File. We note that FY 2020 SSI ratios available on the CMS website were the most recent available SSI ratios at the time of developing this proposed rule. If more recent data on DSH eligibility becomes available before the final rule, we would use such data in the final rule.

Our final determinations of a hospital's eligibility for uncompensated care and empirically justified Medicare DSH payments will be based on the hospital's actual DSH status at cost report settlement for FY 2025.

In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50622) and in the rulemakings for subsequent fiscal years, we have specified our policies for several specific classes of hospitals within the scope of section 1886(r) of the Act. Eligible hospitals include the following:

• Subsection (d) Puerto Rico hospitals that are eligible for DSH payments also are eligible to receive empirically justified Medicare DSH payments and uncompensated care payments under section 1886(r) of the Act (78 FR 50623 and 79 FR 50006).
• Sole community hospitals (SCHs) that are paid under the IPPS Federal rate receive interim payments based on what we estimate and project their DSH status to be prior to the beginning of the fiscal year (based on the best available data at that time) subject to settlement through the cost report. If they receive interim empirically justified Medicare DSH payments in a fiscal year, they will also be eligible to receive interim uncompensated care payments for that fiscal year on a per discharge basis. Final eligibility determinations will be made at the end of the cost reporting period at settlement, and both interim empirically justified Medicare DSH payments and uncompensated care payments will be adjusted accordingly (78 FR 50624 and 79 FR 50007).
• Medicare-dependent, small rural hospitals (MDHs) are paid based on the IPPS Federal rate or, if higher, the IPPS Federal rate plus 75 percent of the amount by which the Federal rate is exceeded by the updated hospital-specific rate from certain specified base years (76 FR 51684). The IPPS Federal rate that is used in the MDH payment methodology is the same IPPS Federal rate that is used in the SCH payment methodology. Because MDHs are paid based on the IPPS Federal rate, they continue to be eligible to receive empirically justified Medicare DSH payments and uncompensated care payments if their DPP is at least 15 percent, and we apply the same process to determine MDHs' eligibility for interim empirically justified Medicare DSH and interim uncompensated care payments as we do for all other IPPS hospitals. Legislation has extended the MDH program into FY 2024. We refer readers to section V.F. of the preamble of this proposed rule for further discussion of the MDH program.

Section 307 of the Consolidated Appropriations Act, 2024 extended the MDH program through December 31, 2024. We will continue to make a determination concerning an MDH's eligibility for interim empirically justified Medicare DSH and uncompensated care payments based on the hospital's estimated DSH status for the applicable fiscal year.

• IPPS hospitals that elect to participate in the Bundled Payments for Care Improvement Advanced (BPCI Advanced) model, will continue to be paid under the IPPS and, therefore, are eligible to receive empirically justified Medicare DSH payments and uncompensated care payments until the Model's final performance year, which ends on December 31, 2025. For further information regarding the BPCI Advanced model, we refer readers to the CMS website at https://innovation.cms.gov/innovation-models/bpci-advanced.

• IPPS hospitals that participate in the Comprehensive Care for Joint Replacement (CJR) Model's (80 FR 73300) continue to be paid under the IPPS and, therefore, are eligible to receive empirically justified Medicare DSH payments and uncompensated care payments We refer the reader to the final rule that appeared in the May 3, 2021, Federal Register (86 FR 23496), which extended the CJR Model for an additional three performance years. The Model's final performance year ends on December 31, 2024. For additional information on the CJR Model, we refer readers to the CMS website at https://www.cms.gov/priorities/innovation/innovation-models/CJR.

• Transforming Episode Accountability Model (TEAM) is a new proposed episode-based model, which is discussed in section X.A. of the preamble of this proposed rule. Hospitals participating in TEAM would continue to be paid under the IPPS and, therefore, are eligible to receive empirically justified Medicare DSH payments and uncompensated care payments. The proposed model's start date is January 2026.

Ineligible hospitals include the following:

• Maryland hospitals are not eligible to receive empirically justified Medicare DSH payments and uncompensated care payments under the payment methodology of section 1866(r) of the Act because they are not paid under the IPPS. As discussed in the FY 2019 IPPS/LTCH PPS final rule (83 FR 41402 through 41403), CMS and the State have entered into an agreement to govern payments to Maryland hospitals under a new payment model, the Maryland Total Cost of Care (TCOC) Model, which began on January 1, 2019. Under the Maryland TCOC Model, which concludes on December 31, 2026, Maryland hospitals are not paid under the IPPS and are ineligible to receive empirically justified Medicare DSH payments and uncompensated care payments under section 1886(r) of the Act.
• SCHs that are paid under their hospital-specific rate are not eligible for Medicare DSH and uncompensated care payments (78 FR 50623 and 50624).

• Hospitals participating in the Rural Community Hospital Demonstration Program are not eligible to receive empirically justified Medicare DSH payments and uncompensated care payments under section 1886(r) of the Act because they are not paid under the IPPS (78 FR 50625 and 79 FR 50008). The Rural Community Hospital Demonstration Program was originally authorized for a 5-year period by section 410A of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) (Pub. L. 108-173). The period of participation for the last hospital in the demonstration under this most recent legislative authorization will end on June 30, 2028. Under the payment methodology that applies during this most recent extension of the demonstration program, participating hospitals do not receive empirically justified Medicare DSH payments, and they are excluded from receiving interim and final uncompensated care payments. At the time of development of this proposed rule, we believe 23 hospitals may participate in the demonstration program at the start of FY 2025.

C. Empirically Justified Medicare DSH Payments

As we have discussed earlier, section 1886(r)(1) of the Act requires the Secretary to pay 25 percent of the amount of the Medicare DSH payment that would otherwise be made under section 1886(d)(5)(F) of the Act to a subsection (d) hospital. Because section 1886(r)(1) of the Act merely requires the Secretary to pay a designated percentage of these payments, without revising the criteria governing eligibility for DSH payments or the underlying payment methodology, we stated in the FY 2014 IPPS/LTCH PPS final rule that we did not believe that it was necessary to develop any new operational mechanisms for making such payments.

Therefore, in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50626), we implemented this provision by advising Medicare Administrative Contractors (MACs) to simply adjust subsection (d) hospitals' interim claim payments to an amount equal to 25 percent of what would have been paid if section 1886(r) of the Act did not apply. We also made corresponding changes to the hospital cost report so that these empirically justified Medicare DSH payments could be settled at the appropriate level at the time of cost report settlement. We provided more detailed operational instructions and cost report instructions following issuance of the FY 2014 IPPS/LTCH PPS final rule that are available on the CMS website at https://www.cms.gov/Regulations-and-Guidance/Guidance/Transmittals/2014-Transmittals-Items/R5P240.html.

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

In the FY 2023 IPPS/LTCH PPS final rule (87 FR 49047 through 49051), we established a new supplemental payment for IHS/Tribal hospitals and hospitals located in Puerto Rico for FY 2023 and subsequent fiscal years. This payment was established to help to mitigate the impact of the decision to discontinue the use of low-income insured days as a proxy for uncompensated care costs for these hospitals and to prevent undue long-term financial disruption for these providers. The regulations located at 42 CFR 412.106(h) govern the supplemental payment. In brief, the supplemental payment for a fiscal year is determined as the difference between the hospital's base year amount and its uncompensated care payment for the applicable fiscal year as determined under § 412.106(g)(1). The base year amount is the hospital's FY 2022 uncompensated care payment adjusted by one plus the percent change in the total uncompensated care amount between the applicable fiscal year (that is, FY 2025 for purposes of this rulemaking) and FY 2022, where the total uncompensated care amount for a fiscal year is determined as the product of Factor 1 and Factor 2 for that year. If the base year amount is equal to or lower than the hospital's uncompensated care payment for the current fiscal year, then the hospital would not receive a supplemental payment because the hospital would not be experiencing financial disruption in that year as a result of the use of uncompensated care data from the Worksheet S-10 in determining Factor 3 of the uncompensated care payment methodology.

We are not proposing any changes to the methodology for determining supplemental payments, and we will calculate the supplemental payments to eligible IHS/Tribal and Puerto Rico hospitals consistent with the methodology described in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49047 through 49051) and § 412.106(h).

As discussed in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49048 and 49049), the eligibility and payment processes for the supplemental payment are consistent with the processes for determining eligibility to receive interim and final uncompensated care payments adopted in FY 2014 IPPS/LTCH PPS final rule. We note that the MAC will make a final determination with respect to a hospital's eligibility to receive the supplemental payment for a fiscal year, in conjunction with its final determination of the hospital's eligibility for DSH payments and uncompensated care payments for that fiscal year.

E. Uncompensated Care Payments

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

1. Proposed Calculation of Factor 1 for FY 2025

Section 1886(r)(2)(A) of the Act establishes Factor 1 in the calculation of the uncompensated care payment. The regulations located at 42 CFR 412.106(g)(1)(i) govern the Factor 1 calculation. Under a prospective payment system, we would not know the precise aggregate Medicare DSH payment amounts that would be paid for a fiscal year until cost report settlement for all IPPS hospitals is completed, which occurs several years after the end of the fiscal year. Therefore, section 1886(r)(2)(A)(i) of the Act provides authority to estimate this amount by specifying that, for each fiscal year to which the provision applies, such amount is to be estimated by the Secretary. Similarly, we would not know the precise aggregate empirically justified Medicare DSH payment amounts that would be paid for a fiscal year until cost report settlement for all IPPS hospitals is completed. Thus, section 1886(r)(2)(A)(ii) of the Act provides authority to estimate this amount. In brief, Factor 1 is the difference between the Secretary's estimates of: (1) the amount that would have been paid in Medicare DSH payments for the fiscal year, in the absence of section 1886(r) of the Act; and (2) the amount of empirically justified Medicare DSH payments that are made for the fiscal year, which takes into account the requirement to pay 25 percent of what would have otherwise been paid under section 1886(d)(5)(F) of the Act.

In this FY 2025 IPPS/LTCH PPS proposed rule, consistent with the policy that has applied since the FY 2014 final rule (78 FR 50627 through 50631), we are determining Factor 1 from the most recently available estimates of the aggregate amount of Medicare DSH payments that would be made for FY 2025 in the absence of section 1886(r)(1) of the Act and the aggregate amount of empirically justified Medicare DSH payments that would be made for FY 2025, both as calculated by CMS' Office of the Actuary (OACT). Consistent with the policy that has applied in previous years, these estimates will not be revised or updated subsequent to the publication of our final projections in the FY 2025 IPPS/LTCH PPS final rule.

For this proposed rule, to calculate both estimates, we used the most recently available projections of Medicare DSH payments for the fiscal year, as calculated by OACT using the most recently filed Medicare hospital cost reports with Medicare DSH payment information and the most recent DPPs and Medicare DSH payment adjustments provided in the IPPS Impact File. The projection of Medicare DSH payments for the fiscal year is also partially based on OACT's Part A benefits projection model, which projects, among other things, inpatient hospital spending. Projections of DSH payments additionally require projections of expected increases in utilization and case-mix. The assumptions that were used in making these inpatient hospital spending, utilization, and case-mix projections and the resulting estimates of DSH payments for FY 2022 through FY 2025 are discussed later in this section and in the table titled “Factors Applied for FY 2022 through FY 2025 to Estimate Medicare DSH Expenditures Using FY 2021 Baseline.”

For purposes of calculating Factor 1 and modeling the impact of this FY 2025 IPPS/LTCH PPS proposed rule, we used OACT's January 2024 Medicare DSH estimates, which were based on data from the December 2023 update of the Medicare Hospital Cost Report Information System (HCRIS) and the FY 2024 IPPS/LTCH PPS final rule IPPS Impact File, published in conjunction with the publication of the FY 2024 IPPS/LTCH PPS final rule. Because SCHs that are projected to be paid under their hospital-specific rate are ineligible for empirically justified Medicare DSH payments and uncompensated care payments, they were excluded from the January 2024 Medicare DSH estimates. Because Maryland hospitals are not paid under the IPPS, they are also ineligible for empirically justified Medicare DSH payments and uncompensated care payments and were also excluded from OACT's January 2024 Medicare DSH estimates.

The 23 hospitals that CMS expects will participate in the Rural Community Hospital Demonstration Program in FY 2025 were also excluded from OACT's January 2024 Medicare DSH estimates because under the payment methodology that applies during the demonstration, these hospitals are not eligible to receive empirically justified Medicare DSH payments or uncompensated care payments.

For this proposed rule, using the data sources as previously discussed, OACT's January 2024 estimates of Medicare DSH payments for FY 2025 without regard to the application of section 1886(r)(1) of the Act is approximately $13.943 billion. Therefore, also based on OACT's January 2024 Medicare DSH estimates, the estimate of empirically justified Medicare DSH payments for FY 2025, with the application of section 1886(r)(1) of the Act, is approximately $3.486 billion (or 25 percent of the total amount of estimated Medicare DSH payments for FY 2025). Under § 412.106(g)(1)(i), Factor 1 is the difference between these two OACT estimates. Therefore, in this proposed rule, we are determining that Factor 1 for FY 2025 would be $10,457,250,000, which is equal to 75 percent of the total amount of estimated Medicare DSH payments for FY 2025 ($13.943 billion minus $3.486 billion). We note that consistent with our approach in previous rulemakings, OACT intends to use more recent data that may become available for purposes of projecting the final Factor 1 estimates for the FY 2025 IPPS/LTCH PPS final rule.

We note that the Factor 1 estimates for proposed rules are generally consistent with the economic assumptions and actuarial analysis used to develop the President's Budget estimates under current law, and the Factor 1 estimates for the final rules are generally consistent with those used for the Midsession Review of the President's Budget. Consistent with historical practice, we expect that the Midsession Review will have updated economic assumptions and actuarial analysis, which will be used for the development of Factor 1 estimates in the FY 2025 IPPS/LTCH PPS final rule.

For a general overview of the principal steps involved in projecting future inpatient costs and utilization, we refer readers to the “2023 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds,” available on the CMS website at https://www.cms.gov/oact/tr/2023 under “Downloads.” The actuarial projections contained in these reports are based on numerous assumptions regarding future trends in program enrollment, utilization and costs of health care services covered by Medicare, as well as other factors affecting program expenditures. In addition, although the methods used to estimate future costs based on these assumptions are complex, they are subject to periodic review by independent experts to ensure their validity and reasonableness. We also refer readers to the 2018 Actuarial Report on the Financial Outlook for Medicaid for a discussion of general issues regarding Medicaid projections (available at https://www.cms.gov/data-research/research/actuarial-studies/actuarial-report-financial-outlook-medicaid).

In this proposed rule, we include information regarding the data sources, methods, and assumptions employed by OACT's actuaries in determining our estimate of Factor 1. In summary, we indicate the historical HCRIS data update OACT used to estimate Medicare DSH payments, we explain that the most recent Medicare DSH payment adjustments provided in the IPPS Impact File were used, and we provide the components of all the update factors that were applied to the historical data to estimate the Medicare DSH payments for the upcoming fiscal year, along with the associated rationale and assumptions. This discussion also includes descriptions of the “Other” and “Discharges” assumptions and provides additional information regarding how we address the Medicaid and CHIP expansion.

OACT's estimates for FY 2025 for this proposed rule began with a baseline of $13.400 billion in Medicare DSH expenditures for FY 2021. The following table shows the factors applied to update this baseline through the current estimate for FY 2025:

In this table, the discharges column shows the changes in the number of Medicare fee-for-service (FFS) inpatient hospital discharges. The discharge figures for FY 2022 and FY 2023 are based on Medicare claims data that have been adjusted by a completion factor to account for incomplete claims data. We note that these claims data reflect the impact of the COVID-19 pandemic. The discharge figure for FY 2024 is based on preliminary data. The discharge figure for FY 2025 is an assumption based on recent historical experience, an assumed partial return to pre-COVID 19 trends, and assumptions related to how many beneficiaries will be enrolled in Medicare Advantage (MA) plans. The discharge figures for FY 2022 to FY 2025 incorporate the actual impact and estimated future impact of the COVID-19 pandemic.

The case-mix column shows the estimated change in case-mix for IPPS hospitals. The case-mix figures for FY 2022 and FY 2023 are based on actual claims data adjusted by a completion factor to account for incomplete claims data. We note that these claims data reflect the impact of the COVID-19 pandemic. The case-mix figures for FY 2024 and for FY 2025 are assumptions based on the 2012 “Review of Assumptions and Methods of the Medicare Trustees' Financial Projections” report by the 2010-2011 Medicare Technical Review Panel.

The “Other” column reflects the change in other factors that contribute to the Medicare DSH estimates. These factors include the difference between the total inpatient hospital discharges and IPPS discharges and various adjustments to the payment rates that have been included over the years but are not reflected in the other columns (such as the 20 percent add-on for COVID-19 discharges). In addition, the “Other” column includes a factor for the estimated changes in Medicaid enrollment. Based on the most recent available data, Medicaid enrollment is estimated to be as follows: +8.3 percent in FY 2022, +5.1 percent in FY 2023, −13.9 percent in FY 2024, and −4.3 percent in FY 2025. In future IPPS rulemakings, our assumptions regarding Medicaid enrollment may change based on actual enrollment in the States.

We note that, in developing their estimates of the effect of Medicaid expansion on Medicare DSH expenditures, our actuaries have assumed that the new Medicaid enrollees are healthier than the average Medicaid enrollee and, therefore, receive fewer hospital services. Specifically, based on the most recent available data at the time of developing this proposed rule, OACT assumed per capita spending for Medicaid beneficiaries who enrolled due to the expansion to be approximately 80 percent of the average per capita expenditures for a pre-expansion Medicaid beneficiary, due to the better health of these beneficiaries. The same assumption was used for the new Medicaid beneficiaries who enrolled in 2020 and thereafter due to the COVID-19 pandemic. This assumption is consistent with recent internal estimates of Medicaid per capita spending pre-expansion and post-expansion. In future IPPS rulemakings, the assumption about the average per-capita expenditures of Medicaid beneficiaries who enrolled due to the COVID-19 pandemic may change.

The following table shows the factors that are included in the “Update” column of the previous table:

We are inviting public comments on our proposed Factor 1 for FY 2025.

IV. Proposed Payment Adjustment for Medicare Disproportionate Share Hospitals (DSHs) for FY 2025 (§ 412.106)

2. Calculation of Proposed Factor 2 for FY 2025

a. Background

Section 1886(r)(2)(B) of the Act establishes Factor 2 in the calculation of the uncompensated care payment. Section 1886(r)(2)(B)(ii) of the Act provides that, for FY 2018 and subsequent fiscal years, the second factor is 1 minus the percent change in the percent of individuals who are uninsured, as determined by comparing the percent of individuals who were uninsured in 2013 (as estimated by the Secretary, based on data from the Census Bureau or other sources the Secretary determines appropriate, and certified by the Chief Actuary of CMS) and the percent of individuals who were uninsured in the most recent period for which data are available (as so estimated and certified).

We are continuing to use the methodology that was used in FY 2018 through FY 2024 to determine Factor 2 for FY 2025—to use the National Health Expenditure Accounts (NHEA) data to determine the percent change in the percent of individuals who are uninsured. We refer readers to the FY 2018 IPPS/LTCH PPS final rule (82 FR 38197 and 38198) for a complete discussion of the NHEA and why we determined, and continue to believe, that it is the data source for the rate of uninsurance that, on balance, best meets all our considerations and is consistent with the statutory requirement that the estimate of the rate of uninsurance be based on data from the Census Bureau or other sources the Secretary determines appropriate.

In brief, the NHEA represents the government's official estimates of economic activity (spending) within the health sector. The NHEA includes comprehensive enrollment estimates for total private health insurance (PHI) (including direct and employer-sponsored plans), Medicare, Medicaid, the Children's Health Insurance Program (CHIP), and other public programs, and estimates of the number of individuals who are uninsured. The NHEA data are publicly available on the CMS website at https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/index.html.

To compute Factor 2 for FY 2025, the first metric that is needed is the proportion of the total U.S. population that was uninsured in 2013. For a complete discussion of the approach OACT used to prepare the NHEA's estimate of the rate of uninsurance in 2013, including the data sources used, we refer readers to the FY 2024 IPPS/LTCH PPS final rule (88 FR 58998 and 58999).

The next metrics needed to compute Factor 2 for FY 2025 are projections of the rate of uninsurance in both CY 2024 and CY 2025. On an annual basis, OACT projects enrollment and spending trends for the coming 10-year period. The most recent projections are for 2022 through 2031 and were published on June 14, 2023. Those projections used the latest NHEA historical data that were available at the time of their construction (that is, historical data through 2021). The NHEA projection methodology accounts for expected changes in enrollment across all of the categories of insurance coverage previously listed. For a complete discussion of how the NHEA data account for expected changes in enrollment across all the categories of insurance coverage previously listed, we refer readers to the FY 2024 IPPS/LTCH PPS final rule (88 FR 58999).

b. Proposed Factor 2 for FY 2025

Using these data sources and the previously described methodologies, at the time of developing this proposed rule, OACT has estimated that the uninsured rate for the historical, baseline year of 2013 was 14 percent, and that the uninsured rates for CYs 2024 and 2025 were 8.5 percent and 8.8 percent, respectively. As required by section 1886(r)(2)(B)(ii) of the Act, the Chief Actuary of CMS has certified these estimates. We refer readers to OACT's Memorandum on Certification of Rates of Uninsured prepared for this FY 2025 IPPS/LTCH PPS proposed rule for further details on the methodology and assumptions that were used in the projection of these rates of uninsurance.

As with the CBO estimates on which we based Factor 2 for fiscal years before FY 2018, the NHEA estimates are for a calendar year. Under the approach originally adopted in the FY 2014 IPPS/LTCH PPS final rule, we use a weighted average approach to project the rate of uninsurance for each fiscal year. We continue to believe that, in order to estimate the rate of uninsurance during a fiscal year accurately, Factor 2 should reflect the estimated rate of uninsurance that hospitals will experience during the fiscal year, rather than the rate of uninsurance during only one of the calendar years that the fiscal year spans. Accordingly, we are continuing to apply the weighted average approach used in past fiscal years to estimate this proposed rule's rate of uninsurance for FY 2025.

OACT certified the estimate of the rate of uninsurance for FY 2025 determined using this weighted average approach to be reasonable and appropriate for purposes of section 1886(r)(2)(B)(ii) of the Act. We note that we may also consider the use of more recent data that may become available for purposes of estimating the rates of uninsurance used in the calculation of the final Factor 2 for FY 2025. The calculation of the proposed Factor 2 for FY 2025 is as follows:

• Percent of individuals without insurance for CY 2013: 14 percent.
• Percent of individuals without insurance for CY 2024: 8.5 percent.
• Percent of individuals without insurance for CY 2025: 8.8 percent.
• Percent of individuals without insurance for FY 2025 (0.25 times 0.085) + (0.75 times 0.088): 8.7 percent. 1−|((0.14−0.087)/0.14)| = 1−0.3786 = 0.6214 (62.14 percent).

We are proposing that Factor 2 for FY 2025 would be 62.14 percent.

The proposed FY 2025 uncompensated care amount is equivalent to proposed Factor 1 multiplied by proposed Factor 2, which is $6,498,135,150.00.

We are inviting public comments on our proposed Factor 2 for FY 2025.

3. Calculation of Proposed Factor 3 for FY 2025

a. General Background

Section 1886(r)(2)(C) of the Act defines Factor 3 in the calculation of the uncompensated care payment. As we have discussed earlier, section 1886(r)(2)(C) of the Act states that Factor 3 is equal to the percent, for each subsection (d) hospital, that represents the quotient of: (1) the amount of uncompensated care for such hospital for a period selected by the Secretary (as estimated by the Secretary, based on appropriate data (including, in the case where the Secretary determines alternative data are available that are a better proxy for the costs of subsection (d) hospitals for treating the uninsured, the use of such alternative data)); and (2) the aggregate amount of uncompensated care for all subsection (d) hospitals that receive a payment under section 1886(r) of the Act for such period (as so estimated, based on such data).

Therefore, Factor 3 is a hospital-specific value that expresses the proportion of the estimated uncompensated care amount for each subsection (d) hospital and each subsection (d) Puerto Rico hospital with the potential to receive Medicare DSH payments relative to the estimated uncompensated care amount for all hospitals estimated to receive Medicare DSH payments in the fiscal year for which the uncompensated care payment is to be made. Factor 3 is applied to the product of Factor 1 and Factor 2 to determine the amount of the uncompensated care payment that each eligible hospital will receive for FY 2014 and subsequent fiscal years. In order to implement the statutory requirements for this factor of the uncompensated care payment formula, it was necessary for us to determine: (1) the definition of uncompensated care or, in other words, the specific items that are to be included in the numerator (that is, the estimated uncompensated care amount for an individual hospital) and the denominator (that is, the estimated uncompensated care amount for all hospitals estimated to receive Medicare DSH payments in the applicable fiscal year); (2) the data source(s) for the estimated uncompensated care amount; and (3) the timing and manner of computing the quotient for each hospital estimated to receive Medicare DSH payments. The statute instructs the Secretary to estimate the amounts of uncompensated care for a period based on appropriate data. In addition, we note that the statute permits the Secretary to use alternative data in the case where the Secretary determines that such alternative data are available that are a better proxy for the costs of subsection (d) hospitals for treating individuals who are uninsured. For a discussion of the methodology, we used to calculate Factor 3 for fiscal years 2014 through 2022, we refer readers to the FY 2024 IPPS/LTCH final rule (88 FR 59001 and 59002).

b. Background on the Methodology Used To Calculate Factor 3 for FY 2023 and Subsequent Years

Section 1886(r)(2)(C) of the Act governs the selection of the data to be used in calculating Factor 3 and allows the Secretary the discretion to determine the time periods from which we will derive the data to estimate the numerator and the denominator of the Factor 3 quotient. Specifically, section 1886(r)(2)(C)(i) of the Act defines the numerator of the quotient as the amount of uncompensated care for a subsection (d) hospital for a period selected by the Secretary. Section 1886(r)(2)(C)(ii) of the Act defines the denominator as the aggregate amount of uncompensated care for all subsection (d) hospitals that receive a payment under section 1886(r) of the Act for such period. In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50634 through 50647), we adopted a process of making interim payments with final cost report settlement for both the empirically justified Medicare DSH payments and the uncompensated care payments required by section 3133 of the Affordable Care Act. Consistent with that process, we also determined the time period from which to calculate the numerator and denominator of the Factor 3 quotient in a way that would be consistent with making interim and final payments. Specifically, we must have Factor 3 values available for hospitals that we estimate will qualify for Medicare DSH payments for a fiscal year and for those hospitals that we do not estimate will qualify for Medicare DSH payments for that fiscal year but that may ultimately qualify for Medicare DSH payments for that fiscal year at the time of cost report settlement.

As described in the FY 2022 IPPS/LTCH PPS final rule, commenters expressed concerns that the use of only 1 year of data to determine Factor 3 would lead to significant variations in year-to-year uncompensated care payments. Some stakeholders recommended the use of 2 years of historical data from Worksheet S-10 data of the Medicare cost report (86 FR 45237). In the FY 2022 IPPS/LTCH PPS final rule, we stated that we would consider using multiple years of data when the vast majority of providers had been audited for more than 1 fiscal year under the revised reporting instructions. Audited FY 2019 cost reports were available for the development of the FY 2023 IPPS/LTCH PPS proposed and final rules. Feedback from previous audits and lessons learned were incorporated into the audit process for the FY 2019 reports.

In consideration of the comments discussed in the FY 2022 IPPS/LTCH PPS final rule, in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49036 through 49047), we finalized a policy of using a multi-year average of audited Worksheet S-10 data to determine Factor 3 for FY 2023 and subsequent fiscal years. We explained our belief that this approach would be generally consistent with our past practice of using the most recent single year of audited data from the Worksheet S-10, while also addressing commenters' concerns regarding year-to-year fluctuations in uncompensated care payments. Under this policy, we used a 2-year average of audited FY 2018 and FY 2019 Worksheet S-10 data to calculate Factor 3 for FY 2023. We also indicated that we expected FY 2024 would be the first year that 3 years of audited data would be available at the time of rulemaking. For FY 2024 and subsequent fiscal years, we finalized a policy of using a 3-year average of the uncompensated care data from the 3 most recent fiscal years for which audited data are available to determine Factor 3. Consistent with the approach that we followed when multiple years of data were previously used in the Factor 3 methodology, if a hospital does not have data for all 3 years used in the Factor 3 calculation, we will determine Factor 3 based on an average of the hospital's available data. For IHS and Tribal hospitals and Puerto Rico hospitals, we use the same multi-year average of Worksheet S-10 data to determine Factor 3 for FY 2024 and subsequent fiscal years as is used to determine Factor 3 for all other DSH-eligible hospitals (in other words, hospitals eligible to receive empirically justified Medicare DSH payments for a fiscal year) to determine Factor 3.

In the FY 2023 IPPS/LTCH PPS final rule (87 FR 49033 through 49047), we also modified our policy regarding cost reports that start in one fiscal year and span the entirety of the following fiscal year. Specifically, in the rare cases when we use a cost report that starts in one fiscal year and spans the entirety of the subsequent fiscal year to determine uncompensated care costs for the subsequent fiscal year, we would not use the same cost report to determine the hospital's uncompensated care costs for the earlier fiscal year. We explained that using the same cost report to determine uncompensated care costs for both fiscal years would not be consistent with our intent to smooth year-to-year variation in uncompensated care costs. As an alternative, we finalized our proposal to use the hospital's most recent prior cost report, if that cost report spans the applicable period.

(1) Scaling Factor

In the FY 2024 IPPS/LTCH PPS final rule (88 FR 59003), we continued the policy finalized in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49042) to address the effects of calculating Factor 3 using data from multiple fiscal years, in which we apply a scaling factor to the Factor 3 values calculated for all DSH-eligible hospitals so that total uncompensated care payments to hospitals that are projected to be DSH-eligible for a fiscal year will be consistent with the estimated amount available to make uncompensated care payments for that fiscal year. Pursuant to that policy, we divide 1 (the expected sum of all DSH-eligible hospitals' Factor 3 values) by the actual sum of all DSH-eligible hospitals' Factor 3 values and then multiply the quotient by the uncompensated care payment determined for each DSH-eligible hospital to obtain a scaled uncompensated care payment amount for each hospital. This process is designed to ensure that the sum of the scaled uncompensated care payments for all hospitals that are projected to be DSH-eligible is consistent with the estimate of the total amount available to make uncompensated care payments for the applicable fiscal year.

(2) New Hospital Policy for Purposes of Factor 3

In the FY 2024 IPPS/LTCH PPS final rule (88 FR 59003), we continued our new hospital policy that was modified in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49042) and initially adopted in the FY 2020 IPPS/LTCH PPS final rule (84 FR 42370 through 42371) to determine Factor 3 for new hospitals. Consistent with our policy of using multiple years of cost reports to determine Factor 3, we defined new hospitals as hospitals that do not have cost report data for the most recent year of data being used in the Factor 3 calculation. Under this definition, the cut-off date for the new hospital policy is the beginning of the fiscal year after the most recent year for which audits of the Worksheet S-10 data have been conducted. For FY 2024, the FY 2020 cost reports were the most recent year of cost reports for which audits of Worksheet S-10 data had been conducted. Thus, hospitals with CMS Certification Numbers (CCNs) established on or after October 1, 2020, were subject to the new hospital policy for FY 2024.

Under our modified new hospital policy, if a new hospital has a preliminary projection of being DSH-eligible based on its most recent available disproportionate patient percentage, it may receive interim empirically justified DSH payments. However, new hospitals will not receive interim uncompensated care payments because we would have no uncompensated care data on which to determine what those interim payments should be. The MAC will make a final determination concerning whether the hospital is eligible to receive Medicare DSH payments at cost report settlement. In FY 2024, while we continued to determine the numerator of the Factor 3 calculation using the new hospital's uncompensated care costs reported on Worksheet S-10 of the hospital's cost report for the current fiscal year, we determined Factor 3 for new hospitals using a denominator based solely on uncompensated care costs from cost reports for the most recent fiscal year for which audits have been conducted. In addition, we applied a scaling factor to the Factor 3 calculation for a new hospital.

(3) Newly Merged Hospital Policy

In the FY 2024 IPPS/LTCH PPS final rule (88 FR 59004), we continued our policy of treating hospitals that merge after the development of the final rule for the applicable fiscal year similar to new hospitals. As explained in the FY 2015 IPPS/LTCH PPS final rule (79 FR 50021), for these newly merged hospitals, we do not have data currently available to calculate a Factor 3 amount that accounts for the merged hospital's uncompensated care burden. In the FY 2015 IPPS/LTCH PPS final rule (79 FR 50021 and 50022), we finalized a policy under which Factor 3 for hospitals that we do not identify as undergoing a merger until after the public comment period and additional review period following the publication of the final rule or that undergo a merger during the fiscal year will be recalculated similar to new hospitals.

Consistent with the policy adopted in the FY 2015 IPPS/LTCH PPS final rule, in the FY 2024 IPPS/LTCH PPS final rule (88 FR 59004), we stated that we would continue to treat newly merged hospitals in a similar manner to new hospitals, such that the newly merged hospital's final uncompensated care payment will be determined at cost report settlement where the numerator of the newly merged hospital's Factor 3 will be based on the cost report of only the surviving hospital (that is, the newly merged hospital's cost report) for the current fiscal year. However, if the hospital's cost reporting period includes less than 12 months of data, the data from the newly merged hospital's cost report will be annualized for purposes of the Factor 3 calculation. Consistent with the methodology used to determine Factor 3 for new hospitals described in section IV.E.3. of the preamble of this proposed rule, we continued our policy for determining Factor 3 for newly merged hospitals using a denominator that is the sum of the uncompensated care costs for all DSH-eligible hospitals, as reported on Worksheet S-10 of their cost reports for the most recent fiscal year for which audits have been conducted. In addition, we apply a scaling factor, as discussed in section IV.E.3. of the preamble of this proposed rule, to the Factor 3 calculation for a newly merged hospital. In the FY 2024 IPPS/LTCH PPS final rule, we explained that consistent with past policy, interim uncompensated care payments for the newly merged hospital would be based only on the data for the surviving hospital's CCN available at the time of the development of the final rule.

(4) CCR Trim Methodology

The calculation of a hospital's total uncompensated care costs on Worksheet S-10 requires the use of the hospital's cost to charge ratio (CCR). In the FY 2024 IPPS/LTCH PPS final rule (88 FR 59004 through 59005), we continued the policy of trimming CCRs, which we adopted in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49043), for FY 2024. Under this policy, we apply the following steps to determine the applicable CCR separately for each fiscal year that is included as part of the multi-year average used to determine Factor 3:

Step 1: Remove Maryland hospitals. In addition, we will remove all-inclusive rate providers because their CCRs are not comparable to the CCRs calculated for other IPPS hospitals.

Step 2: Calculate a CCR “ceiling” for the applicable fiscal year with the following data: for each IPPS hospital that was not removed in Step 1 (including hospitals that are not DSH-eligible), we use cost report data to calculate a CCR by dividing the total costs on Worksheet C, Part I, Line 202, Column 3 by the charges reported on Worksheet C, Part I, Line 202, Column 8. (Combining data from multiple cost reports from the same fiscal year is not necessary, as the longer cost report will be selected.) The ceiling is calculated as 3 standard deviations above the national geometric mean CCR for the applicable fiscal year. This approach is consistent with the methodology for calculating the CCR ceiling used for high-cost outliers. Remove all hospitals that exceed the ceiling so that these aberrant CCRs do not skew the calculation of the statewide average CCR.

Step 3: Using the CCRs for the remaining hospitals in Step 2, determine the urban and rural statewide average CCRs for the applicable fiscal year for hospitals within each State (including hospitals that are not DSH-eligible), weighted by the sum of total hospital discharges from Worksheet S-3, Part I, Line 14, Column 15.

Step 4: Assign the appropriate statewide average CCR (urban or rural) calculated in Step 3 to all hospitals, excluding all-inclusive rate providers, with a CCR for the applicable fiscal year greater than 3 standard deviations above the national geometric mean for that fiscal year (that is, the CCR “ceiling”).

Step 5: For hospitals that did not report a CCR on Worksheet S-10, Line 1, we assign them the statewide average CCR for the applicable fiscal year as determined in step 3.

After completing these steps, we re-calculate the hospital's uncompensated care costs (Line 30) for the applicable fiscal year using the trimmed CCR (the statewide average CCR (urban or rural, as applicable)).

(5) Uncompensated Care Data Trim Methodology

After applying the CCR trim methodology, there are rare situations where a hospital has potentially aberrant uncompensated care data for a fiscal year that are unrelated to its CCR. Therefore, under the trim methodology for potentially aberrant uncompensated care costs (UCC) that was included as part of the methodology for purposes of determining Factor 3 in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58832), if the hospital's uncompensated care costs for any fiscal year that is included as a part of the multi-year average are an extremely high ratio (greater than 50 percent) of its total operating costs in the applicable fiscal year, we will determine the ratio of uncompensated care costs to the hospital's total operating costs from another available cost report, and apply that ratio to the total operating expenses for the potentially aberrant fiscal year to determine an adjusted amount of uncompensated care costs for the applicable fiscal year.

However, we note that we have audited the Worksheet S-10 data that will be used in the Factor 3 calculation for a number of hospitals. Because the UCC data for these hospitals have been subject to audit, we believe that there is increased confidence that if high uncompensated care costs are reported by these audited hospitals, the information is accurate. Therefore, as we explained in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58832), we determined it is unnecessary to apply the UCC trim methodology for a fiscal year for which a hospital's UCC data have been audited.

In rare cases, hospitals that are not currently projected to be DSH-eligible and that do not have audited Worksheet S-10 data may have a potentially aberrant amount of insured patients' charity care costs (line 23 column 2). In the FY 2024 IPPS/LTCH PPS final rule (88 FR 59004), we stated that in addition to the UCC trim methodology, we will continue to apply an alternative trim specific to certain hospitals that do not have audited Worksheet S-10 data for one or more of the fiscal years that are used in the Factor 3 calculation. For FY 2023 and subsequent fiscal years, in the rare case that a hospital's insured patients' charity care costs for a fiscal year are greater than $7 million and the ratio of the hospital's cost of insured patient charity care (line 23 column 2) to total uncompensated care costs (line 30) is greater than 60 percent, we will not calculate a Factor 3 for the hospital at the time of proposed or final rulemaking. This trim will only impact hospitals that are not currently projected to be DSH-eligible; and therefore, are not part of the calculation of the denominator of Factor 3, which includes only uncompensated care costs for hospitals projected to be DSH-eligible. Consistent with the approach adopted in the FY 2022 IPPS/LTCH PPS final rule, if a hospital would be trimmed under both the UCC trim methodology and this alternative trim, we will apply this trim in place of the existing UCC trim methodology. We continue to believe this alternative trim more appropriately addresses potentially aberrant insured patient charity care costs compared to the UCC trim methodology, because the UCC trim is based solely on the ratio of total uncompensated care costs to total operating costs and does not consider the level of insured patients' charity care costs.

Similar to the approach initially adopted in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45245 and 45246), in the FY 2024 IPPS/LTCH PPS final rule (88 FR 59005), we also stated that we would continue to use a threshold of 3 standard deviations from the mean ratio of insured patients' charity care costs to total uncompensated care costs (line 23 column 2 divided by line 30) and a dollar threshold that is the median total uncompensated care cost reported on most recent audited cost reports for hospitals that are projected to be DSH-eligible. We stated that we continued to believe these thresholds are appropriate to address potentially aberrant data. We also continued to include Worksheet S-10 data from IHS/Tribal hospitals and Puerto Rico hospitals consistent with our policy finalized in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49047 through 49051). In addition, we continued our policy adopted in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49044) of applying the same threshold amounts originally calculated for the FY 2018 reports to identify potentially aberrant data for FY 2024 and subsequent fiscal years to facilitate transparency and predictability. If a hospital subject to this trim is determined to be DSH-eligible at cost report settlement, the MAC will calculate the hospital's Factor 3 using the same methodology used to calculate Factor 3 for new hospitals.

c. Methodology for Calculating Factor 3 for FY 2025

For FY 2025, consistent with § 412.106(g)(1)(iii)(C)( 11), we are following the same methodology as applied in FY 2024 and described in the previous section of this proposed rule: to determine Factor 3 using the most recent 3 years of audited cost reports, from FY 2019, FY 2020, and FY 2021. Consistent with our approach for FY 2024, for FY 2025, we are also applying the scaling factor, new hospital, newly merged hospital, CCR trim methodology, UCC trim, and alternative trim methodology policies discussed in the previous section of this proposed rule. For purposes of this FY 2025 IPPS/LTCH PPS proposed rule, we are using reports from the December 2023 HCRIS extract to calculate Factor 3. We intend to use the March 2024 update of HCRIS to calculate the final Factor 3 for the FY 2025 IPPS/LTCH PPS final rule.

Thus, for FY 2025, we will use 3 years of audited Worksheet S-10 data to calculate Factor 3 for all eligible hospitals, including IHS and Tribal hospitals and Puerto Rico hospitals that have a cost report for 2013, following these steps:

Step 1: Select the hospital's longest cost report for each of the most recent 3 years of fiscal year (FY) audited cost reports (FY 2019, FY 2020, and FY 2021). Alternatively, in the rare case when the hospital has no cost report for a particular year because the cost report for the previous fiscal year spanned the more recent fiscal year, the previous fiscal year cost report will be used in this step. In the rare case that using a previous fiscal year cost report results in a period without a report, we would use the prior year report, if that cost report spanned the applicable period. In general, we note that, for purposes of the Factor 3 methodology, references to a fiscal year cost report are to the cost report that spans the relevant fiscal year.

Step 2: Annualize the UCC from Worksheet S-10 Line 30, if a cost report is more than or less than 12 months. (If applicable, use the statewide average CCR (urban or rural) to calculate uncompensated care costs.)

Step 3: Combine adjusted and/or annualized uncompensated care costs for hospitals that merged using the merger policy.

Step 4: Calculate Factor 3 for all DSH-eligible hospitals using annualized uncompensated care costs (Worksheet S-10 Line 30) based on cost report data from the most recent 3 years of audited cost reports (from Step 1, 2 or 3). New hospitals and other hospitals that are treated as if they are new hospitals for purposes of Factor 3 are excluded from this calculation.

Step 5: Average the Factor 3 values from Step 4; that is, add the Factor 3 values, and divide that amount by the number of cost reporting periods with data to compute an average Factor 3 for the hospital. Multiply by a scaling factor, as discussed in the previous section of this proposed rule.

For purposes of identifying new hospitals, for FY 2025, the FY 2021 cost reports are the most recent year of cost reports for which audits of Worksheet S-10 data have been conducted. Thus, hospitals with CCNs established on or after October 1, 2021, will be subject to the new hospital policy in FY 2025. If a new hospital is ultimately determined to be eligible for Medicare DSH payments for FY 2025, the hospital will receive an uncompensated care payment calculated using a Factor 3 where the numerator is the uncompensated care costs reported on Worksheet S-10 of the hospital's FY 2025 cost report, and the denominator is the sum of the uncompensated care costs reported on Worksheet S-10 of the FY 2021 cost reports for all DSH-eligible hospitals. In addition, we will apply a scaling factor, as discussed previously, to the Factor 3 calculation for a new hospital. As we explained in the FY 2024 IPPS/LTCH PPS final rule (88 FR 59004), we believe applying the scaling factor is appropriate for purposes of calculating Factor 3 for all hospitals, including new hospitals and hospitals that are treated as new hospitals, to improve consistency and predictability across all hospitals.

For FY 2025, the eligibility of a newly merged hospital to receive interim uncompensated care payments will be based on whether the surviving CCN has a preliminary projection of being DSH-eligible, and the amount of any interim uncompensated care payments will be based on the uncompensated care costs from the FY 2019, FY 2020, and FY 2021 cost reports available for the surviving CCN at the time the final rule is developed. However, at cost report settlement, we will determine the newly merged hospital's final uncompensated care payment based on the uncompensated care costs reported on its FY 2025 cost report. That is, we will revise the numerator of Factor 3 for the newly merged hospital to reflect the uncompensated care costs reported on the newly merged hospital's FY 2025 cost report. The denominator will be the sum of the uncompensated care costs reported on Worksheet S-10 of the FY 2021 cost reports for all DSH-eligible hospitals, which is the most recent fiscal year for which audits have been conducted. We will also apply a scaling factor, as described previously.

Under the CCR trim methodology, for purposes of this FY 2025 proposed rule, the statewide average CCR was applied to 10 hospitals' FY 2019 reports, of which 4 hospitals had FY 2019 Worksheet S-10 data. The statewide average CCR was applied to 8 hospitals' FY 2020 reports, of which 3 hospitals had FY 2020 Worksheet S-10 data. The statewide average CCR was applied to 8 hospitals' FY 2021 reports, of which 3 hospitals had FY 2021 Worksheet S-10 data.

For a hospital that is subject to either of the trims for potentially aberrant data (the UCC trim and alternative trim methodology explained in the previous section of this proposed rule) and is ultimately determined to be DSH-eligible at cost report settlement, its uncompensated care payment will be calculated only after the hospital's reporting of insured charity care costs on its FY 2025 Worksheet S-10 has been reviewed. Accordingly, the MAC will calculate a Factor 3 for the hospital only after reviewing the uncompensated care information reported on Worksheet S-10 of the hospital's FY 2025 cost report. Then we will calculate Factor 3 for the hospital using the same methodology used to determine Factor 3 for new hospitals. Specifically, the numerator will reflect the uncompensated care costs reported on the hospital's FY 2025 cost report, while the denominator will reflect the sum of the uncompensated care costs reported on Worksheet S-10 of the FY 2021 cost reports of all DSH-eligible hospitals. In addition, we will apply a scaling factor, as discussed previously, to the Factor 3 calculation for the hospital.

For purposes of the FY 2025 IPPS/LTCH PPS final rule, consistent with our Factor 3 methodology since the FY 2014 IPPS/LTCH PPS final rule (78 FR 50642), we intend to use data from the March 2024 HCRIS extract for this calculation, which will be the latest quarterly HCRIS extract that is publicly available at the time of the development of the FY 2025 IPPS/LTCH PPS final rule.

Regarding requests from providers to amend and/or reopen previously audited Worksheet S-10 data for the most recent 3 cost reporting years that are used in the methodology for calculating Factor 3, we note that MACs follow normal timelines and procedures. For purposes of the Factor 3 calculation for the FY 2025 IPPS/LTCH PPS final rule, any amended reports and/or reopened reports would need to have completed the amended report and/or reopened report submission processes by the end of March 2024. In other words, if the amended report and/or reopened report is not available for the March HCRIS extract, then that amended and/or reopened report data will not be part of the FY 2025 IPPS/LTCH PPS final rule's Factor 3 calculation. We note that the March HCRIS data extract will be available during the comment period for this proposed rule if providers want to verify that their amended and/or reopened data is reflected in the March HCRIS extract.

d. Per-Discharge Amount of Interim Uncompensated Care Payments for FY 2025 and Subsequent Fiscal Years

Since FY 2014, we have made interim uncompensated care payments during the fiscal year on a per-discharge basis. Typically, we use a 3-year average of the number of discharges for a hospital to produce an estimate of the amount of the hospital's uncompensated care payment per discharge. Specifically, the hospital's total uncompensated care payment amount for the applicable fiscal year is divided by the hospital's historical 3-year average of discharges computed using the most recent available data to determine the uncompensated care payment per discharge for that fiscal year.

In the FY 2022 IPPS/LTCH PPS final rule (86 FR 45247 and 45248), we modified this calculation for FY 2022 to be based on an average of FY 2018 and FY 2019 historical discharge data, rather than a 3-year average using the most recent 3 years of discharge data, which would have included data from FY 2018, FY 2019, and FY 2020. We explained our belief that computing a 3-year average with FY 2020 discharge data would underestimate discharges, due to the decrease in discharges during the COVID-19 pandemic. For the same reason, in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49045), we calculated interim uncompensated care payments based on the 3-year average of discharges from FY 2018, FY 2019, and FY 2021 rather than a 3-year average using the most recent 3 years of discharge data.

We explained in the FY 2024 IPPS/LTCH PPS final rule (88 FR 59010) that believed that computing a 3-year average using the most recent 3 years of discharge data would potentially underestimate the number of discharges for FY 2024 due to the effects of the COVID-19 pandemic during FY 2020, which was the first year of the COVID-19 pandemic. We considered using an average of FY 2019, FY 2021, and FY 2022 discharge data to calculate the per-discharge amount for interim uncompensated care payments for FY 2024. However, we agreed with commenters that using FY 2019 data may overestimate discharge volume because updated claims data used to estimate the FY 2024 discharges in the Factor 1 calculation indicated that discharge volumes were not expected to return to pre-pandemic levels during FY 2024. Therefore, for FY 2024, we finalized a policy of calculating the per-discharge amount for interim uncompensated care payments using an average of FY 2021 and FY 2022 discharge data.

For FY 2025 and subsequent fiscal years, we are proposing to calculate the per-discharge amount for interim uncompensated care payments using the average of the most recent 3 years of discharge data. Accordingly, for FY 2025, we propose to use an average of discharge data from FY 2021, FY 2022, and FY 2023. We believe that our proposed approach will likely result in a better estimate of the number of discharges during FY 2025 and subsequent years for purposes of the interim uncompensated care payment calculation.

As we explained in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50645), we believe that it is appropriate to use a 3-year average of discharge data to reduce the degree to which we would over- or under-pay the uncompensated care payment on an interim basis. In any given year, a hospital could have low or high Medicare utilization that differs from other years. For example, if a hospital had two Medicare discharges in its most recent year of claims data but experienced four discharges in FY 2025, during the fiscal year, we would pay two times the amount the hospital should receive and need to adjust for that at cost report settlement. Similarly, if a hospital had four Medicare discharges in its most recent year of claims data, but experienced two discharges in FY 2025, during the fiscal year, we would only pay half the amount the hospital should receive and need to adjust for that at cost report settlement.

We also believe that, generally, use of the most recent 3 years of discharge data, rather than older data, is more likely to reflect current trends in discharge volume and provide an approximate estimate of the number of discharges in the applicable fiscal year. In addition, we note that including discharge data from FY 2023 to compute this 3-year average is consistent with the proposed use of FY 2023 Medicare claims in the IPPS ratesetting, as discussed in section I.E. of the preamble of this FY 2025 IPPS/LTCH PPS proposed rule.

Under this proposal, the resulting 3-year average of the most recent years of available historical discharge data would be used to calculate a per-discharge payment amount that will be used to make interim uncompensated care payments to each projected DSH-eligible hospital during FY 2025 and subsequent fiscal years. The interim uncompensated care payments made to a hospital during the fiscal year will be reconciled following the end of the year to ensure that the final payment amount is consistent with the hospital's prospectively determined uncompensated care payment for the fiscal year.

We are proposing to make conforming changes to the regulations under 42 CFR 412.106. Specifically, we are proposing to modify paragraph (1) of § 412.106(i) to state that for FY 2025 and subsequent fiscal years, interim uncompensated care payments will be calculated based on an average of the most recent 3 years of available historical discharge data. We are requesting comments on this proposal.

In the FY 2021 IPPS/LTCH PPS final rule (85 FR 58833 and 58834), we finalized a voluntary process through which a hospital may submit a request to its MAC for a lower per-discharge interim uncompensated care payment amount, including a reduction to zero, once before the beginning of the fiscal year and/or once during the fiscal year. In conjunction with this request, the hospital must provide supporting documentation demonstrating that there would likely be a significant recoupment at cost report settlement if the per-discharge amount is not lowered (for example, recoupment of 10 percent or more of the hospital's total uncompensated care payment, or at least $100,000). For example, a hospital might submit documentation showing a large projected increase in discharges during the fiscal year to support reduction of its per-discharge uncompensated care payment amount. As another example, a hospital might request that its per-discharge uncompensated care payment amount be reduced to zero midyear if the hospital's interim uncompensated care payments during the year have already surpassed the total uncompensated care payment calculated for the hospital.

Under the policy we finalized in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58833 through 58834), the hospital's MAC will evaluate these requests and the supporting documentation before the beginning of the fiscal year and/or with midyear requests when the historical average number of discharges is lower than the hospital's projected discharges for the current fiscal year. If following review of the request and the supporting documentation, the MAC agrees that there likely would be significant recoupment of the hospital's interim Medicare uncompensated care payments at cost report settlement, the only change that will be made is to lower the per-discharge amount either to the amount requested by the hospital or another amount determined by the MAC to be appropriate to reduce the likelihood of a substantial recoupment at cost report settlement. If the MAC determines it would be appropriate to reduce the interim Medicare uncompensated care payment per-discharge amount, that updated amount will be used for purposes of the outlier payment calculation for the remainder of the fiscal year. We are continuing to apply this policy for FY 2025.

We refer readers to the Addendum in the FY 2023 IPPS/LTCH final rule for a more detailed discussion of the steps for determining the operating and capital Federal payment rate and the outlier payment calculation (87 FR 49431 through 49432). No change would be made to the total uncompensated care payment amount determined for the hospital on the basis of its Factor 3. In other words, any change to the per- discharge uncompensated care payment amount will not change how the total uncompensated care payment amount will be reconciled at cost report settlement.

e. Process for Notifying CMS of Merger Updates and To Report Upload Issues

As we have done for every proposed and final rule beginning in FY 2014, in conjunction with this proposed rule, we will publish on the CMS website a table listing Factor 3 for hospitals that we estimate will receive empirically justified Medicare DSH payments in FY 2025 (that is, those hospitals that will receive interim uncompensated care payments during the fiscal year), and for the remaining subsection (d) hospitals and subsection (d) Puerto Rico hospitals that have the potential of receiving an uncompensated care payment in the event that they receive an empirically justified Medicare DSH payment for the fiscal year as determined at cost report settlement. However, we note that a Factor 3 will not be published for new hospitals and hospitals that are subject to the alternative trim for hospitals with potentially aberrant data that are not projected to be DSH-eligible.

We also will publish a supplemental data file containing a list of the mergers that we are aware of and the computed uncompensated care payment for each merged hospital. In the DSH uncompensated care supplemental data file, we list new hospitals and the 10 hospitals that would be subject to the alternative trim for hospitals with potentially aberrant data that are not projected to be DSH-eligible, with a N/A in the Factor 3 column.

Hospitals have 60 days from the date of public display of this FY 2025 IPPS/LTCH PPS proposed rule in the Federal Register to review the table and supplemental data file published on the CMS website in conjunction with this proposed rule and to notify CMS in writing of issues related to mergers and/or to report potential upload discrepancies due to MAC mishandling of Worksheet S-10 data during the report submission process. Comments raising issues or concerns that are specific to the information included in the table and supplemental data file should be submitted by email to the CMS inbox at Section3133DSH@cms.hhs.gov. We will address comments related to mergers and/or reporting upload discrepancies submitted to the CMS DSH inbox as appropriate in the table and the supplemental data file that we publish on the CMS website in conjunction with the publication of the FY 2025 IPPS/LTCH PPS final rule. All other comments submitted in response to our proposals for FY 2025 must be submitted in one of the three ways found in the ADDRESSES section of the proposed rule before the close of the comment period in order to be assured consideration. In addition, we note that the CMS DSH inbox is not intended for Worksheet S-10 audit process related emails, which should be directed to the MACs.

IV. Proposed Payment Adjustment for Medicare Disproportionate Share Hospitals (DSHs) for FY 2025 (§ 412.106)

F. Impact on Medicare DSH Payment Adjustment of Proposed Implementation of New OMB Labor Market Delineations

As discussed in section III.B. of the preamble of this proposed rule, we are proposing to implement the new OMB labor market area delineations (which are based on 2020 Decennial Census data) for the FY 2025 wage index. This proposal also would have an impact on the calculation of Medicare DSH payment adjustments to certain hospitals. Hospitals that are designated as rural with less than 500 beds and are not rural referral centers (RRCs) or Medicare-dependent, small rural hospitals (MDHs) are subject to a maximum DSH payment adjustment of 12 percent. Accordingly, hospitals with less than 500 beds that are currently in urban counties that would become rural if we finalize our proposal to adopt the new OMB delineations, and that do not become RRCs or MDHs, would be subject to a maximum DSH payment adjustment of 12 percent. (We note, as discussed in section V.F.2. of the preamble of this proposed rule, under current law the MDH program will expire on December 31, 2024). We also note that urban hospitals are only subject to a maximum DSH payment adjustment of 12 percent if they have less than 100 beds.

Our existing regulations at 42 CFR 412.102 will apply in FY 2025 with respect to the calculation of the DSH payments to hospitals that are currently located in urban counties that would become rural if we finalize our proposal to adopt the new OMB delineations. The provisions of 42 CFR 412.102 specify that a hospital located in an area that is reclassified from urban to rural (as defined in the regulations), as a result of the most recent OMB standards for delineating statistical areas adopted by CMS, may receive an adjustment to its rural Federal payment amount for operating costs for two successive fiscal years. Specifically, the regulations state that, in the first year after a hospital loses urban status, the hospital will receive an additional payment that equals two thirds of the difference between the disproportionate share payments as applicable to the hospital before its redesignation from urban to rural and disproportionate share payments otherwise, applicable to the hospital subsequent to its redesignation from urban to rural. In the second year after a hospital loses urban status, the hospital will receive an additional payment that equals one-third of the difference between the disproportionate share payments applicable to the hospital before its redesignation from urban to rural and disproportionate share payments otherwise applicable to the hospital subsequent to its redesignation from urban to rural.

G. Withdrawal of 42 CFR 412.106 (FY 2004 and Prior Fiscal Years) to the Extent It Included Only “Covered Days” in the SSI Ratio

In Becerra v. Empire Health Foundation, for Valley Hospital Medical Center, 597 U.S. 424 (2022) ( Empire Health), the Supreme Court addressed the question of whether Medicare patients remain “entitled to benefits under part A” when Medicare does not pay for their care, such as when they have exhausted their Medicare benefits for a spell of illness. Prior to fiscal year (FY) 2005, when we calculated a hospital's DSH adjustment we included in the Medicare fraction (also referred to as the Medicare-SSI fraction, SSI fraction, or SSI ratio) only “covered” Medicare patient days, that is, days paid by Medicare. 42. CFR 412.106(b)(2)(i) (2003). The “covered” days rule originated in the FY 1986 IPPS interim final rule (51 FR 16,772 and 16,788) and originally appeared in § 412.106(a)(1)(i) but was later re-numbered. The approach of excluding from the Medicare fraction patient days for which Medicare did not pay was based on an interpretation of the statute's parenthetical phrase “(for such days).”

Section 1886(d)(5)(F)(vi)(I) of the Act. Following a series of judicial decisions rejecting a parallel interpretation of the same language in the numerator of the Medicaid fraction as counting only patient days actually paid by the Medicaid program, the Secretary revisited that approach in a 2004 rulemaking. Thus, the “covered days” rule was the relevant Medicare payment policy until it was revised and replaced by the FY 2005 IPPS final rule (69 FR 48,916, 49,099, and 49,246).

The FY 2005 regulation at issue in Empire Health —codified in the FY 2005 IPPS final rule—interpreted the statute to mean that the Medicare fraction includes non-covered days in the SSI ratio. (For more information see 69 FR 48916, 49099, and 49246 (amending 42 CFR 412.106(b)(2)(i) to include in the Medicare fraction all days associated with patients who were entitled to Medicare Part A during their hospital stays, regardless of whether Medicare paid for those days).) In Empire Health, the Supreme Court upheld the FY 2005 regulation and held that the statute “disclose[s] a surprisingly clear meaning,” 597 U.S. at 434, namely that beneficiaries remain “entitled to benefits under part A” on days for which Medicare does not pay and thus the Medicare fraction includes total days, not only covered days. The Supreme Court also definitively resolved the meaning of the parenthetical phrase “(for such days)” in the Medicare fraction, rejecting the provider's contention that the phrase changed the consistent meaning of “entitled to benefits under Part A” from “meeting Medicare's statutory (age or disability) criteria on the days in question,” to “actually receiving Medicare payments.” Id. at 440. The Court determined that the “for such days” parenthetical “instead works as HHS says: hand in hand with the ordinary statutory meaning of `entitled to [Part A] benefits.' ” Id.

The Supreme Court has concluded that the interpretation set forth in the FY 2005 IPPS final rule “correctly construes the statutory language at issue.” Empire Health, 597 U.S. at 434. Because the pre-FY 2005 rule conflicts with the plain meaning of the statute, as confirmed by the Supreme Court, it cannot govern the calculation of DSH payments for hospitals with properly pending claims in DSH appeals or open cost reports that include discharges that need to be determined pursuant to the statute, regardless of whether such discharges would otherwise pre-date the change in the regulation finalized by the FY 2005 IPPS final rule. For that reason, we are proposing to formally withdraw 42 CFR 412.106 as it existed prior to the effective date of the FY 2005 IPPS final rule to the extent it included only covered days in the SSI ratio. We will apply the statute as understood by the Supreme Court in Empire Health, instead of the pre-FY 2005 regulation, to any properly pending claim in a DSH appeal or open cost report to which that regulation would otherwise have applied. We do not believe this change constitutes an exercise of our “retroactive” rulemaking authority under section 1871(e)(1)(A) of the Act. Rather, we will apply the plain meaning of the statute (as it has existed unchanged, in relevant part, since its enactment on April 7, 1986). Moreover, because we are applying the substantive legal standard established by the statute itself, and not filling any gap therein, notice-and-comment rulemaking is not required by section 1871(e)(1)(A) of the Act, as construed in Azar v. Allina Health Services, 139 S. Ct. 1804 (June 3, 2019).

The withdrawal of this regulation will not serve as a basis to reopen a CMS or contractor determination, a contractor hearing decision, a CMS reviewing official decision, or a decision by the Provider Reimbursement Review Board or the Administrator. We recognize that hospitals may have anticipated receiving greater Medicare reimbursement for still-open pre-FY 2005 cost reporting periods in circumstances where the “covered” days limitation would have resulted in a larger DSH adjustment. However, we are obliged to apply the statute as the Supreme Court determined Congress wrote it.

V. Other Decisions and Changes to the IPPS for Operating System

A. Changes to MS-DRGs Subject to Postacute Care Transfer Policy and MS-DRG Special Payments Policies (§ 412.4)

1. Background

Existing regulations at 42 CFR 412.4(a) define discharges under the IPPS as situations in which a patient is formally released from an acute care hospital or dies in the hospital. Section 412.4(b) defines acute care transfers, and § 412.4(c) defines postacute care transfers. Our policy set forth in § 412.4(f) provides that when a patient is transferred and his or her length of stay is less than the geometric mean length of stay for the MS-DRG to which the case is assigned, the transferring hospital is generally paid based on a graduated per diem rate for each day of stay, not to exceed the full MS-DRG payment that would have been made if the patient had been discharged without being transferred.

The per diem rate paid to a transferring hospital is calculated by dividing the full MS-DRG payment by the geometric mean length of stay for the MS-DRG. Based on an analysis that showed that the first day of hospitalization is the most expensive (60 FR 45804), our policy generally provides for payment that is twice the per diem amount for the first day, with each subsequent day paid at the per diem amount up to the full MS-DRG payment (§ 412.4(f)(1)). Transfer cases also are eligible for outlier payments. In general, the outlier threshold for transfer cases, as described in § 412.80(b), is equal to (Fixed-Loss Outlier threshold for Nontransfer Cases adjusted for geographic variations in costs/Geometric Mean Length of Stay for the MS-DRG) * (Length of Stay for the Case plus 1 day).

We established the criteria set forth in § 412.4(d) for determining which DRGs qualify for postacute care transfer payments in the FY 2006 IPPS final rule (70 FR 47419 through 47420). The determination of whether a DRG is subject to the postacute care transfer policy was initially based on the Medicare Version 23.0 GROUPER (FY 2006) and data from the FY 2004 MedPAR file. However, if a DRG did not exist in Version 23.0 or a DRG included in Version 23.0 is revised, we use the current version of the Medicare GROUPER and the most recent complete year of MedPAR data to determine if the DRG is subject to the postacute care transfer policy. Specifically, if the MS-DRG's total number of discharges to postacute care equals or exceeds the 55th percentile for all MS-DRGs and the proportion of short-stay discharges to postacute care to total discharges in the MS-DRG exceeds the 55th percentile for all MS-DRGs, CMS will apply the postacute care transfer policy to that MS-DRG and to any other MS-DRG that shares the same base MS-DRG. The statute at subparagraph 1886(d)(5)(J) of the Act directs CMS to identify MS-DRGs based on a high volume of discharges to postacute care facilities and a disproportionate use of postacute care services. As discussed in the FY 2006 IPPS final rule (70 FR 47416), we determined that the 55th percentile is an appropriate level at which to establish these thresholds. In that same final rule (70 FR 47419), we stated that we will not revise the list of DRGs subject to the postacute care transfer policy annually unless we are making a change to a specific MS-DRG.

To account for MS-DRGs subject to the postacute care policy that exhibit exceptionally higher shares of costs very early in the hospital stay, § 412.4(f) also includes a special payment methodology. For these MS-DRGs, hospitals receive 50 percent of the full MS-DRG payment, plus the single per diem payment, for the first day of the stay, as well as a per diem payment for subsequent days (up to the full MS-DRG payment (§ 412.4(f)(6))). For an MS-DRG to qualify for the special payment methodology, the geometric mean length of stay must be greater than 4 days, and the average charges of 1-day discharge cases in the MS-DRG must be at least 50 percent of the average charges for all cases within the MS-DRG. MS-DRGs that are part of an MS-DRG severity level group will qualify under the MS-DRG special payment methodology policy if any one of the MS-DRGs that share that same base MS-DRG qualifies (§ 412.4(f)(6)).

Prior to the enactment of the Bipartisan Budget Act of 2018 (Pub. L. 115-123), under section 1886(d)(5)(J) of the Act, a discharge was deemed a “qualified discharge” if the individual was discharged to one of the following postacute care settings:

• A hospital or hospital unit that is not a subsection (d) hospital.
• A skilled nursing facility.
• Related home health services provided by a home health agency provided within a timeframe established by the Secretary (beginning within 3 days after the date of discharge).

Section 53109 of the Bipartisan Budget Act of 2018 amended section 1886(d)(5)(J)(ii) of the Act to also include discharges to hospice care provided by a hospice program as a qualified discharge, effective for discharges occurring on or after October 1, 2018. In the FY 2019 IPPS/LTCH PPS final rule (83 FR 41394), we made conforming amendments to § 412.4(c) of the regulation to include discharges to hospice care occurring on or after October 1, 2018, as qualified discharges. We specified that hospital bills with a Patient Discharge Status code of 50 (Discharged/Transferred to Hospice—Routine or Continuous Home Care) or 51 (Discharged/Transferred to Hospice, General Inpatient Care or Inpatient Respite) are subject to the postacute care transfer policy in accordance with this statutory amendment.

2. Proposed Changes for FY 2025

As discussed in section II.D. of the preamble of this proposed rule, based on our analysis of FY 2023 MedPAR claims data, we are proposing to make changes to a number of MS-DRGs, effective for FY 2025. Specifically, we are proposing to do the following:

• Adding ICD-10-PCS codes describing left atrial appendage closure (LAAC) procedures and cardiac ablation procedures to proposed new MS-DRG 317 (Concomitant Left Atrial Appendage Closure and Cardiac Ablation).
• Delete existing MS-DRGs 453, 454, and 455 (Combined Anterior and Posterior Spinal Fusion with MCC, with CC, and without CC/MCC, respectively) and to reassign procedures from the existing MS-DRGs, 453, 454, and 455 and MS-DRGs 459 and 460 (Spinal Fusion except Cervical with MCC and without MCC, respectively) to proposed new MS-DRG 402 (Single Level Combined Anterior and Posterior Spinal Fusion Except Cervical), proposed new MS-DRGs 426, 427, and 428 (Multiple Level Combined Anterior and Posterior Spinal Fusion Except Cervical with MCC, with CC, without MCC/CC, respectively), proposed new MS-DRGs 429 and 430 (Combined Anterior and Posterior Cervical Spinal Fusion with MCC and without MCC, respectively), and proposed new MS-DRGs 447 and 448 (Multiple Level Spinal Fusion Except Cervical with MCC, and without MCC, respectively). We note that we are also proposing to revise the title of MS-DRGs 459 and 460 to “Single Level Spinal Fusion Except Cervical with MCC and without MCC, respectively”.
• Reassign cases that report a principal diagnosis of acute leukemia with an “other” O.R. procedure from MS-DRGs 834, 835, and 836 (Acute Leukemia without Major O.R. Procedures with MCC, with CC, and without CC/MCC, respectively) to proposed new MS-DRG 850 (Acute Leukemia with Other O.R. Procedures). We note that we are also proposing to revise the title of MS-DRGs 834, 835, and 836 from “Acute Leukemia without Major O.R. Procedures with MCC, with CC, and without CC/MCC”, respectively to “Acute Leukemia with MCC, with CC, and without CC/MCC”.

The proposed revised MS-DRGs 459 and 460 are currently subject to the postacute care transfer policy. We believe it is appropriate to reevaluate the postacute care transfer policy status for MS-DRGs 459 and 460. When proposing changes to MS-DRGs that involve adding, deleting, and reassigning procedures between proposed new and revised MS-DRGs, we continue to believe it is necessary to evaluate all of the affected MS-DRGs to determine whether they should be subject to the postacute care transfer policy.

MS-DRGs 834, 835, and 836 are currently not subject to the postacute care transfer policy. While we are proposing to reassign certain cases from these MS-DRGs to newly proposed MS-DRGs, we have estimated that less than 5 percent of the current cases would shift from the current assigned MS-DRGs to the proposed new MS-DRGs. We do not consider these proposed revisions to constitute a material change that would warrant reevaluation of the postacute care status of MS-DRGs 834, 835, and 836. CMS may further evaluate what degree of shifts in cases for existing MS-DRGs warrant consideration for the review of postacute care transfer and special payment policy status in future rulemaking.

In light of the proposed changes to the MS-DRGs for FY 2025, according to the regulations under § 412.4(d), we have evaluated the MS-DRGs using the general postacute care transfer policy criteria and data from the FY 2023 MedPAR file. If an MS-DRG qualified for the postacute care transfer policy, we also evaluated that MS-DRG under the special payment methodology criteria according to regulations at § 412.4(f)(6). We continue to believe it is appropriate to assess new MS-DRGs and reassess revised MS-DRGs when proposing reassignment of procedure codes or diagnosis codes that would result in material changes to an MS-DRG.

Proposed new MS-DRGs 426, 427, 447, and 448 would qualify to be included on the list of MS-DRGs that are subject to the postacute care transfer policy. As described in the regulations at § 412.4(d)(3)(ii)(D), MS-DRGs that share the same base MS DRG will all qualify under the postacute care transfer policy if any one of the MS-DRGs that share that same base MS-DRG qualifies. We therefore propose to add proposed new MS-DRGs 426, 427, 428, 447, and 448 to the list of MS-DRGs that are subject to the postacute care transfer policy.

MS-DRGs 459 and 460 are currently subject to the postacute care transfer policy. As a result of our review, these MS-DRGs, as proposed to be revised, would not qualify to be included on the list of MS-DRGs that are subject to the postacute care transfer policy. We therefore propose to remove proposed revised MS-DRGs 459 and 460 from the list of MS-DRGs that are subject to the postacute care transfer policy if the proposed changes to these MS-DRGs are finalized.

Using the December 2023 update of the FY 2023 MedPAR file, we have developed the following chart which sets forth the most recent analysis of the postacute care transfer policy criteria completed for this proposed rule with respect to each of these proposed new or revised MS-DRGs. For the FY 2025 final rule, we intend to update this analysis using the most recent available data at that time.

During our annual review of proposed new or revised MS-DRGs and analysis of the December 2023 update of the FY 2023 MedPAR file, we reviewed the list of proposed revised or new MS-DRGs that qualify to be included on the list of MS-DRGs subject to the postacute care transfer policy for FY 2025 to determine if any of these MS-DRGs would also be subject to the special payment methodology policy for FY 2025. We note that MS-DRGs 459 and 460 are not currently subject to the special payment policy, and as we are proposing to remove them from the list of MS-DRGs subject to the postacute care transfer policy if the proposed changes to those MS-DRGs are finalized, no further evaluation of special payment policy is necessary.

Based on our analysis of proposed changes to MS-DRGs included in this proposed rule, we determined that proposed new MS-DRGs 426, 427, and 447 meet the criteria for the MS-DRG special payment methodology. As described in the regulations at § 412.4(f)(6)(iv), MS-DRGs that share the same base MS-DRG will all qualify under the MS-DRG special payment policy if any one of the MS-DRGs that share that same base MS-DRG qualifies. Therefore, we are proposing that MS-DRGs 426, 427, 428, 447, 448, would be subject to the MS-DRG special payment methodology, effective for FY 2025. For the FY 2025 final rule, we intend to update this analysis using the most recent available data at that time.

B. Proposed Changes in the Inpatient Hospital Update for FY 2025 (§ 412.64(d))

1. Proposed FY 2025 Inpatient Hospital Update

In accordance with section 1886(b)(3)(B)(i) of the Act, each year we update the national standardized amount for inpatient hospital operating costs by a factor called the “applicable percentage increase.” For FY 2025, we are setting the applicable percentage increase by applying the adjustments listed in this section in the same sequence as we did for FY 2024. (We note that section 1886(b)(3)(B)(xii) of the Act required an additional reduction each year only for FYs 2010 through 2019.) Specifically, consistent with section 1886(b)(3)(B) of the Act, as amended by sections 3401(a) and 10319(a) of the Affordable Care Act, we are setting the applicable percentage increase by applying the following adjustments in the following sequence. The applicable percentage increase under the IPPS for FY 2025 is equal to the rate-of-increase in the hospital market basket for IPPS hospitals in all areas, subject to all of the following:

• A reduction of one-quarter of the applicable percentage increase (prior to the application of other statutory adjustments; also referred to as the market basket update or rate-of-increase (with no adjustments)) for hospitals that fail to submit quality information under rules established by the Secretary in accordance with section 1886(b)(3)(B)(viii) of the Act.
• A reduction of three-quarters of the applicable percentage increase (prior to the application of other statutory adjustments; also referred to as the market basket update or rate-of-increase (with no adjustments)) for hospitals not considered to be meaningful EHR users in accordance with section 1886(b)(3)(B)(ix) of the Act.

• An adjustment based on changes in economy-wide multifactor productivity (MFP) (the productivity adjustment).

Section 1886(b)(3)(B)(xi) of the Act, as added by section 3401(a) of the Affordable Care Act, states that application of the productivity adjustment may result in the applicable percentage increase being less than zero.

As published in the FY 2006 IPPS final rule (70 FR 47403), in accordance with section 404 of Public Law 108-173, CMS determined a new frequency for rebasing the hospital market basket of every 3 years. In compliance with section 404 of the of Public Law 108-173, in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45194 through 45204), we replaced the 2014-based IPPS operating and capital market baskets with the rebased and revised 2018-based IPPS operating and capital market baskets beginning in FY 2022. Consistent with our established frequency of rebasing the IPPS market basket every 4 years, we plan on proposing to rebase and revise the IPPS market basket in the FY 2026 IPPS/LTCH PPS proposed rule. We note that our preliminary evaluation of more recent Medicare cost report data for IPPS hospitals for 2022 indicates that the major IPPS market basket cost weights (particularly the compensation and drug cost weights) are similar to those finalized in the 2018-based IPPS market basket.

We are proposing to base the FY 2025 market basket update used to determine the applicable percentage increase for the IPPS on IHS Global Inc.'s (IGI's) fourth quarter 2023 forecast of the 2018-based IPPS market basket rate-of-increase with historical data through third quarter 2023, which is estimated to be 3.0 percent. We also are proposing that if more recent data subsequently become available (for example, a more recent estimate of the market basket update), we would use such data, if appropriate, to determine the FY 2025 market basket update in the final rule.

In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51689 through 51692), we finalized our methodology for calculating and applying the productivity adjustment. As we explained in that rule, section 1886(b)(3)(B)(xi)(II) of the Act, as added by section 3401(a) of the Affordable Care Act, defines this productivity adjustment as equal to the 10-year moving average of changes in annual economy-wide, private nonfarm business MFP (as projected by the Secretary for the 10-year period ending with the applicable fiscal year, year, cost reporting period, or other annual period). The U.S. Department of Labor's Bureau of Labor Statistics (BLS) publishes the official measures of private nonfarm business productivity for the U.S. economy. We note that previously the productivity measure referenced in section 1886(b)(3)(B)(xi)(II) was published by BLS as private nonfarm business multifactor productivity. Beginning with the November 18, 2021 release of productivity data, BLS replaced the term MFP with total factor productivity (TFP). BLS noted that this is a change in terminology only and will not affect the data or methodology. As a result of the BLS name change, the productivity measure referenced in section 1886(b)(3)(B)(xi)(II) is now published by BLS as private nonfarm business total factor productivity. However, as mentioned, the data and methods are unchanged. Please see www.bls.gov for the BLS historical published TFP data. A complete description of IGI's TFP projection methodology is available on the CMS website at https://www.cms.gov/data-research/statistics-trends-and-reports/medicare-program-rates-statistics/market-basket-research-and-information. In addition, we note that beginning with the FY 2022 IPPS/LTCH PPS final rule, we refer to this adjustment as the productivity adjustment rather than the MFP adjustment, to more closely track the statutory language in section 1886(b)(3)(B)(xi)(II) of the Act. We note that the adjustment continues to rely on the same underlying data and methodology.

For FY 2025, we are proposing a productivity adjustment of 0.4 percent. Similar to the proposed market basket rate-of-increase, for this proposed rule, the estimate of the proposed FY 2025 productivity adjustment is based on IGI's fourth quarter 2023 forecast. As noted previously, we are proposing that if more recent data subsequently become available, we would use such data, if appropriate, to determine the FY 2025 productivity adjustment for the final rule.

Based on these data, we have determined four proposed applicable percentage increases to the standardized amount for FY 2025, as specified in the following table:

In the FY 2020 IPPS/LTCH PPS final rule (84 FR 42344), we revised our regulations at 42 CFR 412.64(d) to reflect the current law for the update for FY 2020 and subsequent fiscal years. Specifically, in accordance with section 1886(b)(3)(B) of the Act, we added paragraph (d)(1)(viii) to § 412.64 to set forth the applicable percentage increase to the operating standardized amount for FY 2020 and subsequent fiscal years as the percentage increase in the market basket index, subject to the reductions specified under § 412.64(d)(2) for a hospital that does not submit quality data and § 412.64(d)(3) for a hospital that is not a meaningful EHR user, less a productivity adjustment.

As discussed in section V.F. of the preamble of this proposed rule, section 4102 of the Consolidated Appropriations Act (CAA), 2023 (Pub. L. 117-328), enacted on December 29, 2022, extended the MDH program through FY 2024 (that is, for discharges occurring on or before September 30, 2024). Subsequently, section 307 of the Consolidated Appropriations Act, 2024 (CAA, 2024) (Pub. L. 118-42), enacted on March 9, 2024, further extended the MDH program for FY 2025 discharges occurring before January 1, 2025. Prior to enactment of the CAA, 2024, the MDH program was only to be in effect through the end of FY 2024. Under current law, the MDH program will expire for discharges on or after January 1, 2025. We refer readers to section V.F. of the preamble of this proposed rule for further discussion of the MDH program.

Section 1886(b)(3)(B)(iv) of the Act provides that the applicable percentage increase to the hospital-specific rates for SCHs and MDHs equals the applicable percentage increase set forth in section 1886(b)(3)(B)(i) of the Act (that is, the same update factor as for all other hospitals subject to the IPPS). Therefore, the update to the hospital-specific rates for SCHs and MDHs also is subject to section 1886(b)(3)(B)(i) of the Act, as amended by sections 3401(a) and 10319(a) of the Affordable Care Act.

For FY 2025, we are proposing the following updates to the hospital-specific rates applicable to SCHs and MDHs: A proposed update of 2.6 percent for a hospital that submits quality data and is a meaningful EHR user; a proposed update of 0.35 percent for a hospital that submits quality data and is not a meaningful EHR user; a proposed update of 1.85 percent for a hospital that fails to submit quality data and is a meaningful EHR user; and a proposed update of −0.4 percent for a hospital that fails to submit quality data and is not an meaningful EHR user. As previously discussed, we are proposing that if more recent data subsequently become available (for example, a more recent estimate of the market basket update and the productivity adjustment), we would use such data, if appropriate, to determine the market basket update and the productivity adjustment in the final rule.

2. Proposed FY 2025 Puerto Rico Hospital Update

Section 602 of Public Law 114-113 amended section 1886(n)(6)(B) of the Act to specify that subsection (d) Puerto Rico hospitals are eligible for incentive payments for the meaningful use of certified EHR technology, effective beginning FY 2016. In addition, section 1886(n)(6)(B) of the Act was amended to specify that the adjustments to the applicable percentage increase under section 1886(b)(3)(B)(ix) of the Act apply to subsection (d) Puerto Rico hospitals that are not meaningful EHR users, effective beginning FY 2022. Accordingly, for FY 2022, section 1886(b)(3)(B)(ix) of the Act in conjunction with section 602(d) of Public Law 114-113 requires that any subsection (d) Puerto Rico hospital that is not a meaningful EHR user as defined in section 1886(n)(3) of the Act and not subject to an exception under section 1886(b)(3)(B)(ix) of the Act will have “three-quarters” of the applicable percentage increase (prior to the application of other statutory adjustments), or three-quarters of the applicable market basket rate-of-increase, reduced by 33^1/3 percent. The reduction to three-quarters of the applicable percentage increase for subsection (d) Puerto Rico hospitals that are not meaningful EHR users increases to 66 2/3 percent for FY 2023, and, for FY 2024 and subsequent fiscal years, to 100 percent. (We note that section 1886(b)(3)(B)(viii) of the Act, which specifies the adjustment to the applicable percentage increase for “subsection (d)” hospitals that do not submit quality data under the rules established by the Secretary, is not applicable to hospitals located in Puerto Rico.) The regulations at 42 CFR 412.64(d)(3)(ii) reflect the current law for the update for subsection (d) Puerto Rico hospitals for FY 2022 and subsequent fiscal years. In the FY 2019 IPPS/LTCH PPS final rule, we finalized the payment reductions (83 FR 41674).

For FY 2025, consistent with section 1886(b)(3)(B) of the Act, as amended by section 602 of Public Law 114-113, we are setting the applicable percentage increase for Puerto Rico hospitals by applying the following adjustments in the following sequence. Specifically, the applicable percentage increase under the IPPS for Puerto Rico hospitals will be equal to the rate of-increase in the hospital market basket for IPPS hospitals in all areas, subject to a reduction of three-quarters of the applicable percentage increase (prior to the application of other statutory adjustments; also referred to as the market basket update or rate-of-increase (with no adjustments)) for Puerto Rico hospitals not considered to be meaningful EHR users in accordance with section 1886(b)(3)(B)(ix) of the Act, and then subject to the productivity adjustment at section 1886(b)(3)(B)(xi) of the Act. As noted previously, section 1886(b)(3)(B)(xi) of the Act states that application of the productivity adjustment may result in the applicable percentage increase being less than zero.

Based on IGI's fourth quarter 2023 forecast of the 2018-based IPPS market basket update with historical data through third quarter 2023, for this FY 2025 IPPS/LTCH PPS proposed rule, in accordance with section 1886(b)(3)(B) of the Act, as discussed previously, for Puerto Rico hospitals we are proposing a market basket update of 3.0 percent less a productivity adjustment of 0.4 percentage point. Therefore, for FY 2025, depending on whether a Puerto Rico hospital is a meaningful EHR user, there are two possible applicable percentage increases that could be applied to the standardized amount. Based on these data, we determined the following proposed applicable percentage increases to the standardized amount for FY 2025 for Puerto Rico hospitals:

• For a Puerto Rico hospital that is a meaningful EHR user, we are proposing a FY 2025 applicable percentage increase to the operating standardized amount of 2.6 percent (that is, the FY 2025 estimate of the proposed market basket rate-of-increase of 3.0 percent less 0.4 percentage point for the proposed productivity adjustment).
• For a Puerto Rico hospital that is not a meaningful EHR user, we are proposing a FY 2025 applicable percentage increase to the operating standardized amount of 0.35 percent (that is, the FY 2025 estimate of the proposed market basket rate-of-increase of 3.0 percent, less an adjustment of 2.25 percentage points (the proposed market basket rate-of-increase of 3.0 percent × 0.75 for failure to be a meaningful EHR user), and less 0.4 percentage point for the proposed productivity adjustment).

As noted previously, we are proposing that if more recent data subsequently become available, we would use such data, if appropriate, to determine the FY 2025 market basket update and the productivity adjustment for the FY 2025 IPPS/LTCH PPS final rule.

C. Rural Referral Centers (RRCs) Annual Updates to Case-Mix Index (CMI) and Discharge Criteria (§ 412.96)

Under the authority of section 1886(d)(5)(C)(i) of the Act, the regulations at § 412.96 set forth the criteria that a hospital must meet in order to qualify under the IPPS as a rural referral center (RRC). RRCs receive special treatment under both the DSH payment adjustment and the criteria for geographic reclassification.

Section 402 of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (Pub. L. 108-173) raised the DSH payment adjustment for RRCs such that they are not subject to the 12-percent cap on DSH payments that is applicable to other rural hospitals. RRCs also are not subject to the proximity criteria when applying for geographic reclassification. In addition, they do not have to meet the requirement that a hospital's average hourly wage must exceed, by a certain percentage, the average hourly wage of the labor market area in which the hospital is located.

Section 4202(b) of the Balanced Budget Act of 1997 (Pub. L. 105-33) states, in part, that any hospital classified as an RRC by the Secretary for FY 1991 shall be classified as such an RRC for FY 1998 and each subsequent fiscal year. In the August 29, 1997, IPPS final rule with comment period (62 FR 45999 through 46000), we reinstated RRC status for all hospitals that lost that status due to triennial review or MGCRB reclassification. However, we did not reinstate the status of hospitals that lost RRC status because they were now urban for all purposes because of the OMB designation of their geographic area as urban. Subsequently, in the August 1, 2000 IPPS final rule (65 FR 47087), we indicated that we were revisiting that decision. Specifically, we stated that we would permit hospitals that previously qualified as an RRC and lost their status due to OMB redesignation of the county in which they are located from rural to urban, to be reinstated as an RRC. Otherwise, a hospital seeking RRC status must satisfy all of the other applicable criteria. We use the definitions of “urban” and “rural” specified in subpart D of 42 CFR part 412. One of the criteria under which a hospital may qualify as an RRC is to have 275 or more beds available for use (§ 412.96(b)(1)(ii)). A rural hospital that does not meet the bed size requirement can qualify as an RRC if the hospital meets two mandatory prerequisites (a minimum case-mix index (CMI) and a minimum number of discharges), and at least one of three optional criteria (relating to specialty composition of medical staff, source of inpatients, or referral volume). (We refer readers to § 412.96(c)(1) through (5) and the September 30, 1988, Federal Register (53 FR 38513) for additional discussion.) With respect to the two mandatory prerequisites, a hospital may be classified as an RRC if the hospital's—

• CMI is at least equal to the lower of the median CMI for urban hospitals in its census region, excluding hospitals with approved teaching programs, or the median CMI for all urban hospitals nationally; and
• Number of discharges is at least 5,000 per year, or, if fewer, the median number of discharges for urban hospitals in the census region in which the hospital is located. The number of discharges criterion for an osteopathic hospital is at least 3,000 discharges per year, as specified in section 1886(d)(5)(C)(i) of the Act.

In the FY 2022 IPPS/LTCH PPS final rule (86 FR 45217), in light of the COVID-19 PHE, we amended the regulations at § 412.96(h)(1) to provide for the use of the best available data rather than the latest available data in calculating the national and regional CMI criteria. We also amended the regulations at § 412.96(c)(1) to indicate that the individual hospital's CMI value for discharges during the same Federal fiscal year used to compute the national and regional CMI values is used for purposes of determining whether a hospital qualifies for RRC classification. We also amended the regulations § 412.96(i)(1) and (2), which describe the methodology for calculating the number of discharges criteria, to provide for the use of the best available data rather than the latest available or most recent data when calculating the regional discharges for RRC classification.

1. Case-Mix Index (CMI)

Section 412.96(c)(1) provides that CMS establish updated national and regional CMI values in each year's annual notice of prospective payment rates for purposes of determining RRC status. The methodology we used to determine the national and regional CMI values is set forth in the regulations at § 412.96(c)(1)(ii). The proposed national median CMI value for FY 2025 is based on the CMI values of all urban hospitals nationwide, and the proposed regional median CMI values for FY 2025 are based on the CMI values of all urban hospitals within each census region, excluding those hospitals with approved teaching programs (that is, those hospitals that train residents in an approved GME program as provided in § 413.75). These proposed values are based on discharges occurring during FY 2023 (October 1, 2022 through September 30, 2023), and include bills posted to CMS' records through December 2023. We believe that this is the best available data for use in calculating the proposed national and regional median CMI values and is consistent with our proposal to use the FY 2023 MedPAR claims data for FY 2025 ratesetting.

In this FY 2025 IPPS/LTCH PPS proposed rule, we are proposing that, in addition to meeting other criteria, if rural hospitals with fewer than 275 beds are to qualify for initial RRC status for cost reporting periods beginning on or after October 1, 2024, they must have a CMI value for FY 2023 that is at least—

• 1.7764 (national—all urban); or

• The median CMI value (not transfer-adjusted) for urban hospitals (excluding hospitals with approved teaching programs as identified in § 413.75) calculated by CMS for the census region in which the hospital is located.

The proposed median CMI values by region are set forth in the following table. We intend to update the proposed CMI values in the FY 2025 IPPS/LTCH PPS final rule to reflect the updated FY 2023 MedPAR file, which will contain data from additional bills received through March 2024.

A hospital seeking to qualify as an RRC should obtain its hospital-specific CMI value (not transfer-adjusted) from its MAC. Data are available on the Provider Statistical and Reimbursement (PS&R) System. In keeping with our policy on discharges, the CMI values are computed based on all Medicare patient discharges subject to the IPPS MS-DRG-based payment.

2. Discharges

Section 412.96(c)(2)(i) provides that CMS set forth the national and regional numbers of discharges criteria in each year's annual notice of prospective payment rates for purposes of determining RRC status. As specified in section 1886(d)(5)(C)(ii) of the Act, the national standard is set at 5,000 discharges. For FY 2025, we are proposing to update the regional standards based on discharges for urban hospitals' cost reporting periods that began during FY 2022 (that is, October 1, 2021 through September 30, 2022), which are the latest cost report data available at the time this proposed rule was developed. We believe that this is the best available data for use in calculating the proposed median number of discharges by region and is consistent with our data proposal to use cost report data from cost reporting periods beginning during FY 2022 for FY 2025 ratesetting. Therefore, we are proposing that, in addition to meeting other criteria, a hospital, if it is to qualify for initial RRC status for cost reporting periods beginning on or after October 1, 2024, must have, as the number of discharges for its cost reporting period that began during FY 2022, at least—

• 5,000 (3,000 for an osteopathic hospital); or
• If less, the median number of discharges for urban hospitals in the census region in which the hospital is located. We refer readers to the proposed number of discharges as set forth in the following table. We intend to update these numbers in the FY 2025 final rule based on the latest available cost report data.

We note that because the median number of discharges for hospitals in each census region is greater than the national standard of 5,000 discharges, under this proposed rule, 5,000 discharges is the minimum criterion for all hospitals, except for osteopathic hospitals for which the minimum criterion is 3,000 discharges.

3. Qualification Under the Discharge Criterion for Osteopathic Hospitals

Section 1886(d)(5)(C) of the Act sets forth certain criteria that must be met for a hospital to be classified as a rural referral center, including a discharge criterion specifying the hospital has at least 5,000 discharges a year or, if less, the median number of discharges in urban hospitals in the region in which the hospital is located. Section 9106 of the Consolidated Omnibus Budget Reconciliation Act of 1985 (Pub. L. 99-272) amended section 1886(d)(5)(C) of the Act to provide for a separate discharge criterion for an osteopathic hospital to qualify for classification as a rural referral center, effective for cost reporting periods beginning on or after January 1, 1986. To implement this statutory provision, in the FY 1987 IPPS final rule, we revised 42 CFR 412.96(c)(2) to specify that for cost reporting periods beginning on or after January 1, 1986 an osteopathic hospital, recognized by the American Osteopathic Hospital Association, that is located in a rural area must have at least 3,000 discharges during its most recently completed cost reporting period to meet the number of discharges criterion (51 FR 31471). In the FY 1996 IPPS final rule, in light of a name change of the American Osteopathic Hospital Association to the American Osteopathic Healthcare Association, we subsequently revised 42 CFR 412.96(c)(2) to specify that the osteopathic hospital must be recognized by the American Osteopathic Healthcare Association “(or any successor organization)” (60 FR 45810).

As we discussed in implementing the number of discharges criterion for osteopathic hospitals in the FY 1987 IPPS final rule, “[b]ecause section 1886(d)(5)(C)(i) of the Act specifically limits this qualification to osteopathic hospitals, we do not believe that this standard should apply to all hospitals” (51 FR 31473). Accordingly, to qualify under this lower number of discharges criterion, a hospital must be an osteopathic hospital. It has come to the attention of CMS that the successor organization to the American Osteopathic Healthcare Association, namely the Accreditation Commission for Health Care, accredits acute care hospitals, including hospitals that are not osteopathic. Thus, a hospital receiving an accreditation letter or certificate from the successor organization is not necessarily an osteopathic hospital. We are therefore proposing to revise the regulations at 42 CFR 412.96(c)(2) to clarify that, to qualify for RRC classification based on the lower discharge criterion for osteopathic hospitals, a hospital must be an osteopathic hospital and by itself recognition (such as an accreditation letter) by a successor organization to the American Osteopathic Healthcare Association is not necessarily sufficient to demonstrate that a hospital is an osteopathic hospital.

We propose to amend our regulations at 42 CFR 412.96 by revising paragraph (c)(2)(ii) as follows: “(ii) For cost reporting periods beginning on or after January 1, 1986, an osteopathic hospital, recognized by the American Osteopathic Healthcare Association (or any successor organization), that is located in a rural area must have at least 3,000 discharges during its cost reporting period that began during the same fiscal year as the cost reporting periods used to compute the regional median discharges under paragraph (i) of this section to meet the number of discharges criterion. A hospital applying for rural referral center status under the number of discharges criterion in this paragraph must demonstrate its status as an osteopathic hospital.”

Consistent with section 1886(d)(5)(C)(i) of the Act, evidence of osteopathic status may include, but is not limited to, the hospital's scope of services and its mix of medical specialties. CMS will consider the totality of the information demonstrating whether an applicant hospital is an osteopathic hospital. We seek comment on additional types of evidence we should consider in the determination of a hospital's osteopathic status.

D. Proposed Payment Adjustment for Low-Volume Hospitals (§ 412.101)

1. Background

Section 1886(d)(12) of the Act provides for an additional payment to each qualifying low-volume hospital under the IPPS beginning in FY 2005. The low-volume hospital payment adjustment is implemented in the regulations at 42 CFR 412.101. The additional payment adjustment to a low-volume hospital provided for under section 1886(d)(12) of the Act is in addition to any payment calculated under section 1886 of the Act, and is based on the per discharge amount paid to the qualifying hospital. In other words, the low-volume hospital payment adjustment is based on total per discharge payments made under section 1886 of the Act, including capital, DSH, IME, and outlier payments. For SCHs and MDHs, the low-volume hospital payment adjustment is based in part on either the Federal rate or the hospital-specific rate, whichever results in a greater operating IPPS payment. The payment adjustment for low-volume hospitals is not budget neutral.

As discussed in the FY 2024 IPPS/LTCH PPS final rule (88 FR 59041 through 59045), section 4101 of the CAA, 2023 (Pub. L. 117-328) extended through FY 2024 the modified definition of a low-volume hospital and the methodology for calculating the payment adjustment for low-volume hospitals in effect for FYs 2019 through 2022. The Consolidated Appropriations Act, 2024 (CAA, 2024) (Pub. L. 118-42), enacted on March 9, 2024, extended the temporary changes to the low-volume hospital qualifying criteria and payment adjustment under the IPPS for a portion of FY 2025. Specifically, section 306 of the CAA, 2024 further extended the modified definition of low-volume hospital and the methodology for calculating the payment adjustment for low-volume hospitals under section 1886(d)(12) through December 31, 2024. Beginning January 1, 2025, the low-volume hospital qualifying criteria and payment adjustment will revert to the statutory requirements that were in effect prior to FY 2011, and the preexisting low-volume hospital payment adjustment methodology and qualifying criteria, as implemented in FY 2005 and discussed later in this section, will resume. We discuss the proposed payment policies for FY 2025 in section V.E.2. in the preamble of this proposed rule.

2. Extension of Temporary Changes to Low-Volume Hospital Payment Definition and Payment Adjustment Methodology and Conforming Changes to Regulations

As discussed previously, section 4101 of the CAA, 2023 modified the definition of low-volume hospital and the methodology for calculating the payment adjustment for low-volume hospitals under section 1886(d)(12) of the Act through September 30, 2024. Prior to the enactment of the CAA, 2024 (Pub. L. 118-42), the temporary changes to the low-volume hospital qualifying criteria and payment adjustment provided by section 4101 of CAA, 2023 were set to expire on October 1, 2024. Section 306 of the CAA, 2024 extends the temporary changes to the low-volume hospital qualifying criteria and payment adjustment under the IPPS for the portion of FY 2025 beginning on October 1, 2024, and ending on December 31, 2024 (that is, for discharges occurring before January 1, 2025).

Under section 1886(d)(12)(C)(i) of the Act, as amended by Public Law 118-42, for FYs 2019 through 2024 and the portion of FY 2025 occurring before January 1, 2025, a subsection (d) hospital qualifies as a low-volume hospital if it is more than 15 road miles from another subsection (d) hospital and has less than 3,800 total discharges during the fiscal year. In accordance with the existing regulations at § 412.101(a), we define the term “road miles” to mean “miles” as defined at § 412.92(c)(1). Under section 1886(d)(12)(D) of the Act, as amended, for discharges occurring in FY 2019 through December 31, 2024, the Secretary determines the applicable percentage increase using a continuous, linear sliding scale ranging from an additional 25 percent payment adjustment for low-volume hospitals with 500 or fewer discharges to a zero percent additional payment for low volume hospitals with more than 3,800 discharges in the fiscal year. Consistent with the requirements of section 1886(d)(12)(C)(ii) of the Act, the term “discharge” for purposes of these provisions refers to total discharges, regardless of payer (that is, Medicare and non-Medicare discharges).

In the FY 2019 IPPS/LTCH PPS final rule (83 FR 41399), we specified a continuous, linear sliding scale formula to determine the low volume payment adjustment, as reflected in the regulations at § 412.101(c)(3)(ii). Consistent with the statute, we provided that qualifying hospitals with 500 or fewer total discharges will receive a low-volume hospital payment adjustment of 25 percent. For qualifying hospitals with fewer than 3,800 discharges but more than 500 discharges, the low-volume payment adjustment is calculated by subtracting from 25 percent the proportion of payments associated with the discharges in excess of 500. For qualifying hospitals with fewer than 3,800 total discharges but more than 500 total discharges, the low-volume hospital payment adjustment is calculated using the formula at § 412.101(c)(3)(ii) (which is shown in the Table V.E.-01). For this purpose, the term “discharge” refers to total discharges, regardless of payer (that is, Medicare and non-Medicare discharges). The hospital's most recently submitted cost report is used to determine if the hospital meets the discharge criterion to receive the low volume payment adjustment in the current year (§ 412.101(b)(2)(iii)). The low-volume hospital payment adjustment for FYs 2019 through 2024 is set forth in the regulations at § 412.101(c)(3).

Consistent with the extension of the methodology for calculating the payment adjustment for low-volume hospitals through FY 2024, we are proposing to continue using the previously specified continuous, linear sliding scale formula to determine the low-volume hospital payment adjustment for the portion of FY 2025 occurring before January 1, 2025. We are also proposing to make conforming changes to the regulation text in § 412.101 to reflect the extensions of the changes to the qualifying criteria and the payment adjustment methodology for low-volume hospitals in accordance with provisions of the CAA, 2024. Specifically, we are proposing to make conforming changes to paragraphs (b)(2)(iii) and (c)(3) introductory text of § 412.101 to reflect that the low-volume hospital payment adjustment policy in effect for the portion of FY 2025 through December 31, 2024, is the same low-volume hospital payment adjustment policy in effect for FYs 2019 through 2024 (as described in the FY 2019 IPPS/LTCH PPS final rule (83 FR 41398 through 41399) and in the FY 2024 IPPS/LTCH final rule (88 FR 59041 through 59045)). In addition, in accordance with the provisions of the CAA, 2024, we are proposing to make conforming changes to paragraphs (b)(2)(i) and (c)(1) of § 412.101 to reflect that for the portion of FY 2025 beginning on January 1, 2025 and for subsequent fiscal years, the low-volume hospital payment adjustment policy will revert back to the low-volume hospital payment adjustment policy in effect for FYs 2005 through 2010, as described in section V.E.3. of this preamble. We further propose that if the temporary changes to the low-volume payment adjustment are extended through legislation beyond December 31, 2024, we would make the conforming changes to the regulations at § 412.101 (b)(2)(i), (b)(2)(iii), (c)(1), and (c)(3) to reflect any further extension.

3. Proposed Payment Adjustment for the Portion of FY 2025 Beginning on January 1, 2025, and Subsequent Fiscal Years

In accordance with section 1886(d)(12) of the Act, as amended by section 306 of the CAA, 2024, beginning with FY 2025 discharges occurring on or after January 1, 2025, the low-volume hospital definition and payment adjustment methodology will revert to the statutory requirements that were in effect prior to the amendments made by the Affordable Care Act and subsequent legislation. Specifically, section 1886(d)(12)(B) of the Act requires, for discharges occurring in FYs 2005 through 2010, FY 2025 discharges occurring on or after January 1, 2025 and subsequent years, that the Secretary determine an applicable percentage increase for these low-volume hospitals based on the “empirical relationship” between the standardized cost-per-case for such hospitals and the total number of discharges of such hospitals and the amount of the additional incremental costs (if any) that are associated with such number of discharges. The statute thus mandates that the Secretary develop an empirically justifiable adjustment based on the relationship between costs and discharges for these low-volume hospitals.

Therefore, effective for the portion of FY 2025 beginning on January 1, 2025 and subsequent years, under current policy at § 412.101(b), to qualify as a low-volume hospital, a subsection (d) hospital must be more than 25 road miles from another subsection (d) hospital and have less than 200 discharges (that is, less than 200 discharges total, including both Medicare and non-Medicare discharges) during the fiscal year. For the portion of FY 2025 beginning on January 1, 2025, and subsequent years, the statute specifies that a low-volume hospital must have less than 800 discharges during the fiscal year. However, as required by section 1886(d)(12)(B)(i) of the Act, the Secretary has developed an empirically justifiable payment adjustment based on the relationship, for IPPS hospitals with less than 800 discharges, between the additional incremental costs (if any) that are associated with a particular number of discharges. Based on an analysis we conducted for the FY 2005 IPPS final rule (69 FR 49099 through 49102), a 25-percent low-volume adjustment to all qualifying hospitals with less than 200 discharges was found to be most consistent with the statutory requirement to provide relief for low-volume hospitals where there is empirical evidence that higher incremental costs are associated with low numbers of total discharges. (Under the policy we established in that same final rule, hospitals with between 200 and 799 discharges do not receive a low-volume hospital adjustment.)

As discussed previously, for FYs 2005 through 2010 and FY 2019 and subsequent years, the discharge determination is made based on the hospital's number of total discharges, that is, Medicare and non-Medicare discharges. The hospital's most recently submitted cost report is used to determine if the hospital meets the discharge criterion to receive the low-volume payment adjustment in the current year (§ 412.101(b)(2)(i)). We use cost report data to determine if a hospital meets the discharge criterion because this is the best available data source that includes information on both Medicare and non-Medicare discharges. We note that, for FYs 2011 through 2018, we used the most recently available MedPAR data to determine the hospital's Medicare discharges because only Medicare discharges were used to determine if a hospital met the discharge criterion for those years.

In addition to the discharge criterion, a hospital must also meet the mileage criterion to qualify for the low-volume payment adjustment. As specified by section 1886(d)(12)(C)(i) of the Act, a low-volume hospital must be more than 25 road miles (or 15 road miles for FYs 2011 through 2024) from another subsection (d) hospital. Accordingly, for FY 2025 and subsequent fiscal years, in addition to the discharge criterion, the eligibility for the low-volume payment adjustment is also dependent upon the hospital meeting the mileage criterion at § 412.101(b)(2)(i), which specifies that a hospital must be located more than 25 road miles from the nearest subsection (d) hospital, consistent with section 1886(d)(12)(C)(i) of the Act. We define, at § 412.101(a), the term “road miles” to mean “miles” as defined at § 412.92(c)(1) (75 FR 50238 through 50275 and 50414). As previously noted, we are proposing to make conforming changes to paragraphs (b)(2)(i) and (c)(1) of § 412.101 to reflect that for the portion of FY 2025 beginning on January 1, 2025, and subsequent fiscal years, the low-volume hospital payment adjustment policy is the same as that in effect for FYs 2005 through 2010.

On average, approximately 600 hospitals per year were eligible for the low-volume hospital payment adjustment for FYs 2019 through 2024 under the temporary changes in the low-volume hospital payment policy as amended by section 50204 of the Bipartisan Budget Act of 2018 (Pub. L. 115-123), and section 4101 of the Consolidated Appropriations Act, 2023 (CAA, 2023) (Pub. L. 117-328). As discussed previously, the CAA, 2024 further extended the modified definition of low-volume hospital and the methodology for calculating the payment adjustment for low-volume hospitals under section 1886(d)(12) through December 31, 2024. Therefore, for the portion of FY 2025 beginning on January 1, 2025 and for subsequent years the low-volume hospital qualifying criteria and payment adjustment will revert to the statutory requirements that were in effect prior to FY 2011. Based on historical data for hospitals that qualified during FYs 2005—2010, we estimate that fewer than 10 hospitals would qualify for the low-volume hospital payment adjustment for the portion of FY 2025 beginning on January 1, 2025 under current law.

5. Process for Requesting and Obtaining the Low-Volume Hospital Payment Adjustment FY 2025

In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50238 through 50275 and 50414) and subsequent rulemaking, most recently in the FY 2024 IPPS/LTCH PPS final rule (88 FR 59044 through 59045), we discussed the process for requesting and obtaining the low-volume hospital payment adjustment. Under this previously established process, a hospital makes a written request for the low-volume payment adjustment under § 412.101 to its MAC. This request must contain sufficient documentation to establish that the hospital meets the applicable mileage and discharge criteria. The MAC will determine if the hospital qualifies as a low-volume hospital by reviewing the data the hospital submits with its request for low-volume hospital status in addition to other available data. Under this approach, a hospital will know in advance whether or not it will receive a payment adjustment under the low-volume hospital policy. The MAC and CMS may review available data such as the number of discharges, in addition to the data the hospital submits with its request for low-volume hospital status, to determine whether or not the hospital meets the qualifying criteria. (For additional information on our existing process for requesting the low-volume hospital payment adjustment, we refer readers to the FY 2019 IPPS/LTCH PPS final rule (83 FR 41399 through 41401).)

As explained earlier, for FY 2019 and subsequent fiscal years, the discharge determination is made based on the hospital's number of total discharges, that is, Medicare and non-Medicare discharges, as was the case for FYs 2005 through 2010. Under § 412.101(b)(2)(i) and (iii), a hospital's most recently submitted cost report is used to determine if the hospital meets the discharge criterion to receive the low volume payment adjustment in the current year. As discussed in the FY 2019 IPPS/LTCH PPS final rule (83 FR 41399 and 41400), we use cost report data to determine if a hospital meets the discharge criterion because this is the best available data source that includes information on both Medicare and non-Medicare discharges. (For FYs 2011 through 2018, the most recently available MedPAR data were used to determine the hospital's Medicare discharges because non-Medicare discharges were not used to determine if a hospital met the discharge criterion for those years.) Therefore, a hospital must refer to its most recently submitted cost report for total discharges (Medicare and non-Medicare) to decide whether or not to apply for low-volume hospital status for a particular fiscal year.

In addition to the discharge criterion, eligibility for the low-volume hospital payment adjustment is also dependent upon the hospital meeting the applicable mileage criterion specified in section 1886(d)(12)(C)(i) of the Act, which is codified at § 412.101(b)(2), for the fiscal year. Specifically, to meet the mileage criterion to qualify for the low-volume hospital payment adjustment for the portion of FY 2025 beginning October 1, 2024 through December 31, 2024, a hospital must be located more than 15 road miles from the nearest subsection (d) hospital, as reflected in proposed revised § 412.101(b)(2). Additionally, to meet the mileage criterion to qualify for the low-volume hospital payment adjustment for the portion of FY 2025 beginning January 1, 2025 through September 30, 2025, a hospital must be located more than 25 road miles from the nearest subsection (d) hospital. (We define in § 412.101(a) the term “road miles” to mean “miles” as defined in § 412.92(c)(1) (75 FR 50238 through 50275 and 50414).) For establishing that the hospital meets the mileage criterion, the use of a web-based mapping tool as part of the documentation is acceptable. The MAC will determine if the information submitted by the hospital, such as the name and street address of the nearest hospital(s), location on a map, and distance from the hospital requesting low-volume hospital status, is sufficient to document that it meets the mileage criterion. If not, the MAC will follow up with the hospital to obtain additional necessary information to determine whether or not the hospital meets the applicable mileage criterion.

In accordance with our previously established process, a hospital must make a written request for low-volume hospital status that is received by its MAC by September 1 immediately preceding the start of the Federal fiscal year for which the hospital is applying for low-volume hospital status in order for the applicable low-volume hospital payment adjustment to be applied to payments for its discharges for the fiscal year beginning on or after October 1 immediately following the request (that is, the start of the Federal fiscal year). For a hospital whose request for low-volume hospital status is received after September 1, if the MAC determines the hospital meets the criteria to qualify as a low-volume hospital, the MAC will apply the applicable low-volume hospital payment adjustment to determine payment for the hospital's discharges for the fiscal year, effective prospectively within 30 days of the date of the MAC's low-volume status determination.

Consistent with this previously established process, for FY 2025, we are proposing that a hospital must submit a written request for low-volume hospital status to its MAC that includes sufficient documentation to establish that the hospital meets the applicable mileage and discharge criteria (as described earlier). Specifically, for the portion of FY 2025 beginning October 1, 2024 through December 31, 2024, a hospital must make a written request for low-volume hospital status that is received by its MAC no later than September 1, 2024, in order for the low-volume, add-on payment adjustment to be applied to payments for its discharges beginning on or after October 1, 2024. If a hospital's written request for low-volume hospital status for the portion of FY 2025 beginning October 1, 2024 through December 31, 2024 is received after September 1, 2024, and if the MAC determines the hospital meets the criteria to qualify as a low-volume hospital, the MAC would apply the low-volume hospital payment adjustment to determine the payment for the hospital's FY 2025 discharges beginning October 1, 2024 through December 31, 2024, effective prospectively within 30 days of the date of the MAC's low-volume hospital status determination.

Additionally, we are proposing that a hospital must also submit a written request for low-volume hospital status to its MAC that includes sufficient documentation to establish that the hospital continues to meet the applicable mileage and discharge criteria for the portion of FY 2025 beginning on January 1, 2025 through September 30, 2025 (as described earlier). Specifically, for the portion of FY 2025 beginning on January 1, 2025, a hospital must make a written request for low-volume hospital status that is received by its MAC no later than December 1, 2024, in order for the 25-percent, low-volume, add-on payment adjustment to be applied to payments for its discharges beginning on or after January 1, 2025. If a hospital's written request for low-volume hospital status for the portion of FY 2025 beginning on January 1, 2025 is received after December 1, 2024, and if the MAC determines the hospital meets the criteria to qualify as a low-volume hospital, the MAC would apply the low-volume hospital payment adjustment to determine the payment for the hospital's FY 2025 discharges on or after January 1, 2025, effective prospectively within 30 days of the date of the MAC's low-volume hospital status determination.

A hospital may choose to make a single written request for low-volume hospital status to its MAC for both the portion of FY 2025 beginning on October 1, 2024 and ending December 31, 2024 and the portion of FY 2025 beginning on January 1, 2025 through September 30, 2024 by the September 1, 2024 deadline discussed previously. Alternatively, a hospital may choose to submit separate written requests, one for the portion of FY 2025 beginning on October 1, 2024 and ending on December 31, 2024 (by the September 1, 2024 deadline discussed previously), and another for the portion of FY 2025 beginning on January 1, 2025 through September 30, 2025 (by the December 1, 2024 deadline discussed previously).

Under this process, a hospital that qualified for the low-volume hospital payment adjustment for FY 2024 may continue to receive a low-volume hospital payment adjustment for FY 2025 without reapplying if it meets both the discharge criterion and the mileage criterion applicable for FY 2025 (that is, the discharge criterion and mileage criterion for the period beginning October 1, 2024 through December 31, 2024, as well as the discharge criterion and mileage criterion for the period beginning on January 1, 2025 through September 30, 2025, respectively). As discussed previously, for the portion of FY 2025 beginning on January 1, 2025, the discharge and the mileage criteria are reverting to the statutory requirements that were in effect prior to FY 2011, and to the preexisting low- volume hospital qualifying criteria, as implemented in FY 2005 and specified in the existing regulations at § 412.101(b)(2)(i). As in previous years, we are proposing that such a hospital must send written verification that is received by its MAC no later than September 1, 2024 or December 1, 2024, respectively, stating that it meets the mileage criterion for the applicable portion(s) of FY 2025, as described previously. For example, for the portion of FY 2025 beginning October 1, 2024 through December 31, 2024, the hospital must state it is located more than 15 road miles from the nearest “subsection (d)” hospital. Similarly, for the portion of FY 2025 beginning on January 1, 2025, the hospital must state it is located more than 25 road miles from the nearest “subsection (d)” hospital. For FY 2025, we are further proposing that this written verification must also state, based upon the most recently submitted cost report, that the hospital meets the discharge criterion for the applicable portion(s) of FY 2025, as described previously. For example, for the portion of FY 2025 beginning October 1, 2024 through December 31, 2024, the hospital must have less than 3,800 discharges total, including both Medicare and non-Medicare discharges. Similarly, for the portion of FY 2025 beginning on January 1, 2025, the hospital must have less than 200 discharges total, including both Medicare and non-Medicare discharges. If a hospital's request for low-volume hospital status for FY 2025 is received after September 1, 2024, (or after December 1, 2024 for the portion of FY 2025 beginning on January 1, 2025) and if the MAC determines the hospital meets the criteria to qualify as a low-volume hospital, the MAC will apply the applicable low-volume add-on payment adjustment to determine the payment for the hospital's discharges for the applicable portion(s) FY 2025, effective prospectively within 30 days of the date of the MAC's low-volume hospital status determination.

E. Proposed Changes in the Medicare-Dependent, Small Rural Hospital (MDH) Program (§ 412.108)

1. Background for the MDH Program

Section 1886(d)(5)(G) of the Act provides special payment protections, under the IPPS, to a Medicare-dependent, small rural hospital (MDH). (For additional information on the MDH program and the payment methodology, we refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51683 through 51684).) As discussed in section V.B. of the preamble of this proposed rule, section 307 of the Consolidated Appropriations Act, 2024 (CAA, 2024) (Pub. L. 118-42), enacted on March 9, 2024, extended the MDH program for FY 2025 discharges occurring before January 1, 2025. Prior to enactment of the CAA, 2024, the MDH program was only to be in effect through the end of FY 2024. Under current law, the MDH program provisions at section 1886(d)(5)(G) of the Act will expire for discharges on or after January 1, 2025. Beginning with discharges occurring on or after January 1, 2025, all hospitals that previously qualified for MDH status will be paid based on the Federal rate.

Since the extension of the MDH program through FY 2012 provided by section 3124 of the Affordable Care Act, the MDH program had been extended by subsequent legislation as follows: section 606 of the American Taxpayer Relief Act (Pub. L. 112-240) extended the MDH program through FY 2013 (that is, for discharges occurring before October 1, 2013). Section 1106 of the Pathway for SGR Reform Act of 2013 (Pub. L. 113-67) extended the MDH program through the first half of FY 2014 (that is, for discharges occurring before April 1, 2014). Section 106 of the Protecting Access to Medicare Act (Pub. L. 113-93) extended the MDH program through the first half of FY 2015 (that is, for discharges occurring before April 1, 2015). Section 205 of the MACRA (Pub. L. 114-10) extended the MDH program through FY 2017 (that is, for discharges occurring before October 1, 2017). Section 50205 of the Bipartisan Budget Act (Pub. L. 115-123) extended the MDH program through FY 2022 (that is for discharges occurring before October 1, 2022). Section 102 of the Continuing Appropriations and Ukraine Supplemental Appropriations Act, 2023 (Pub. L. 117-180) extended the MDH program through December 16, 2022. Section 102 of the Further Continuing Appropriations and Extensions Act, 2023 (Pub. L. 117-229) extended the MDH program through December 23, 2022. Section 4102 of the Consolidated Appropriations Act, 2023 (Pub. L. 117-328) extended the MDH program through FY 2024 (that is for discharges occurring before October 1, 2024). Lastly, under current law, section 307 of the CAA, 2024 (Pub. L. 118-42) extended the MDH program through December 31, 2024 (that is, for discharges occurring before January 1, 2025).

For additional information on the extensions of the MDH program after FY 2012, we refer readers to the following Federal Register documents: The FY 2013 IPPS/LTCH PPS final rule (77 FR 53404 through 53405 and 53413 through 53414); the FY 2013 IPPS notice (78 FR 14689); the FY 2014 IPPS/LTCH PPS final rule (78 FR 50647 through 50649); the FY 2014 interim final rule with comment period (79 FR 15025 through 15027); the FY 2014 notice (79 FR 34446 through 34449); the FY 2015 IPPS/LTCH PPS final rule (79 FR 50022 through 50024); the August 2015 interim final rule with comment period (80 FR 49596); the FY 2017 IPPS/LTCH PPS final rule (81 FR 57054 through 57057); the FY 2018 notice (83 FR 18303 through 18305); the FY 2019 IPPS/LTCH PPS final rule (83 FR 41429); and the FY 2024 IPPS/LTCH PPS final rule (88 FR 59045).

2. Implementation of Legislative Extension of MDH Program

Prior to the enactment of Public Law 118-42, under section 4102 of Public Law 117-328, the MDH program authorized by section 1886(d)(5)(G) of the Act was set to expire at the end of FY 2024. Section 307 of Public Law 118-42 amended sections 1886(d)(5)(G)(i) and 1886(d)(5)(G)(ii)(II) of the Act by striking “October 1, 2024” and inserting “January 1, 2025”. Section 307 of Public Law 118-42 also made conforming amendments to sections 1886(b)(3)(D)(i) and 1886(b)(3)(D)(iv) of the Act.

Therefore, we are proposing to make conforming changes to the regulations governing the MDH program at § 412.108(a)(1) and (c)(2)(iii) and the general payment rules at § 412.90(j) to reflect the extension of the MDH program through December 31, 2024.

As a result of the extension of the MDH program through December 31, 2024 as provided by section 307 of Public Law 118-42, a provider that is classified as an MDH as of September 30, 2024, will continue to be classified as an MDH as of October 1, 2024, with no need to reapply for MDH classification.

3. Expiration of the MDH Program

Because section 307 of the CAA, 2024 extended the MDH program through December 31, 2024 only, beginning January 1, 2025, the MDH program will no longer be in effect. Since the MDH program is not authorized by statute beyond December 31, 2024, beginning January 1, 2025, all hospitals that previously qualified for MDH status under section 1886(d)(5)(G) of the Act will no longer have MDH status and will be paid based on the IPPS Federal rate. There are currently 173 MDHs, of which we estimate 114 would have been paid under the blended payment of the Federal rate and hospital-specific rate while the remaining 59 would have been paid based on the IPPS Federal rate. With the expiration of the MDH program, all these providers will all be paid based on the IPPS Federal rate beginning with discharges occurring on or after January 1, 2025.

When the MDH program was set to expire at the end of FY 2012, in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53404 through 53405), we revised our sole community hospital (SCH) policies to allow MDHs to apply for SCH status in advance of the expiration of the MDH program and be paid as such under certain conditions. We codified these changes in the regulations at § 412.92(b)(2)(i) and (b)(2)(v). Specifically, the existing regulations at § 412.92(b)(2)(i) and (b)(2)(v) allow for an effective date of an approval of SCH status that is the day following the expiration date of the MDH program. We note that these same conditions apply to MDHs that intend to apply for SCH status with the expiration of the MDH program on December 31, 2024. Therefore, in order for an MDH to receive SCH status effective January 1, 2025, the MDH must apply for SCH status at least 30 days before the expiration of the MDH program; that is, the MDH must apply for SCH status by December 2, 2024. The MDH also must request that, if approved as an SCH, the SCH status be effective with the expiration of the MDH program; that is, the MDH must request that the SCH status, if approved, be effective January 1, 2025, immediately after its MDH status expires with the expiration of the MDH program on December 31, 2024. We emphasize that an MDH that applies for SCH status in anticipation of the expiration of the MDH program would not qualify for the January 1, 2025 effective date for SCH status if it does not apply by the December 2, 2024 deadline. If the MDH does not apply by the December 2, 2024 deadline, the hospital would instead be subject to the usual effective date for SCH classification as specified at § 412.92(b)(2)(i); that is, as of the date the MAC receives the complete application from the provider.

As noted, we are proposing to make conforming changes to the regulations governing the MDH program at § 412.108(a)(1) and (c)(2)(iii) and the general payment rules at § 412.90(j) to reflect the extension of the MDH program through December 31, 2024. We are further proposing that if the MDH program were to be extended by law beyond December 31, 2024, similar to how it was extended by prior legislation as described previously, we would, depending on timing of such legislation in relation to the final rule, modify our proposed conforming changes to the regulations governing the MDH program at § 412.108(a)(1) and (c)(2)(iii) and the general payment rules at § 412.90(j) to reflect any such further extension of the MDH program. These modifications to our proposed conforming changes would only be made if the MDH program were to be extended by statute beyond December 31, 2024.

F. Payment for Indirect and Direct Graduate Medical Education Costs (§§ 412.105 and 413.75 Through 413.83)

1. Background

Section 1886(h) of the Act, as added by section 9202 of the Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985 (Pub. L. 99-272) and as currently implemented in the regulations at 42 CFR 413.75 through 413.83, establishes a methodology for determining payments to hospitals for the direct costs of approved graduate medical education (GME) programs. Section 1886(h)(2) of the Act sets forth a methodology for the determination of a hospital-specific base-period per resident amount (PRA) that is calculated by dividing a hospital's allowable direct costs of GME in a base period by its number of full-time equivalent (FTE) residents in the base period. The base period is, for most hospitals, the hospital's cost reporting period beginning in FY 1984 (that is, October 1, 1983 through September 30, 1984). The base year PRA is updated annually for inflation. In general, Medicare direct GME payments are calculated by multiplying the hospital's updated PRA by the weighted number of FTE residents working in all areas of the hospital complex (and at nonprovider sites, when applicable), and the hospital's Medicare share of total inpatient days.

Section 1886(d)(5)(B) of the Act provides for a payment adjustment known as the indirect medical education (IME) adjustment under the IPPS for hospitals that have residents in an approved GME program, in order to account for the higher indirect patient care costs of teaching hospitals relative to nonteaching hospitals. The regulations regarding the calculation of this additional payment are located at 42 CFR 412.105. The hospital's IME adjustment applied to the DRG payments is calculated based on the ratio of the hospital's number of FTE residents training in either the inpatient or outpatient departments of the IPPS hospital (and, for discharges occurring on or after October 1, 1997, at non-provider sites, when applicable) to the number of inpatient hospital beds.

The calculation of both direct GME payments and the IME payment adjustment is affected by the number of FTE residents that a hospital is allowed to count. Generally, the greater the number of FTE residents a hospital counts, the greater the amount of Medicare direct GME and IME payments the hospital will receive. In an attempt to end the implicit incentive for hospitals to increase the number of FTE residents, Congress established a limit on the number of allopathic and osteopathic residents that a hospital could include in its FTE resident count for direct GME and IME payment purposes in the Balanced Budget Act of 1997 (Pub. L. 105-33). Under section 1886(h)(4)(F) of the Act, for cost reporting periods beginning on or after October 1, 1997, a hospital's unweighted FTE count of residents for purposes of direct GME cannot exceed the hospital's unweighted FTE count for direct GME in its most recent cost reporting period ending on or before December 31, 1996. Under section 1886(d)(5)(B)(v) of the Act, a similar limit based on the FTE count for IME during that cost reporting period is applied, effective for discharges occurring on or after October 1, 1997. Dental and podiatric residents are not included in this statutorily mandated cap.

2. Distribution of Additional Residency Positions Under the Provisions of Section 4122 of Subtitle C of the Consolidated Appropriations Act, 2023 (CAA, 2023)

a. Overview

CMS has increased the overall number of slots available to teaching hospitals on several previous occasions. Notably, Congress authorized Medicare payment for one thousand additional FTE GME resident slots in section 126(a) of the Consolidated Appropriations Act, 2021, adding paragraph 1886(h)(9) to the Act. Most recently, section 4122(a) of the CAA, 2023 amended section 1886(h) of the Act by adding a new section 1886(h)(10) of the Act requiring the distribution of additional residency positions (also referred to as slots) to hospitals. Section 1886(h)(10)(A) of the Act requires that for FY 2026, the Secretary shall initiate an application round to distribute 200 residency positions. At least 100 of the positions made available under section 1886(h)(10)(A) shall be distributed for psychiatry or psychiatry subspecialty residency training programs. The Secretary is required, subject to certain provisions in the law, to increase the otherwise applicable resident limit for each qualifying hospital that submits a timely application by the number of positions that may be approved by the Secretary for that hospital. The Secretary is required to notify hospitals of the number of positions distributed to them by January 31, 2026, and the increase is effective beginning July 1, 2026.

In determining the qualifying hospitals for which an increase is provided, section 1886(h)(10)(B)(i) of the Act requires the Secretary to take into account the “demonstrated likelihood” of the hospital filling the positions made available within the first 5 training years beginning after the date the increase would be effective, as determined by the Secretary.

Section 1886(h)(10)(B)(ii) of the Act requires a minimum distribution for certain categories of hospitals. Specifically, the Secretary is required to distribute at least 10 percent of the aggregate number of total residency positions available to each of four categories of hospitals. Stated briefly, and discussed in greater detail later in this proposed rule, the categories are as follows: (1) hospitals located in rural areas or that are treated as being located in a rural area (pursuant to sections 1886(d)(2)(D) and 1886(d)(8)(E) of the Act); (2) hospitals in which the reference resident level of the hospital is greater than the otherwise applicable resident limit; (3) hospitals in states with new medical schools or additional locations and branches of existing medical schools; and (4) hospitals that serve areas designated as Health Professional Shortage Areas (HPSAs). Section 1886(h)(10)(F)(iii) of the Act defines a qualifying hospital as a hospital in one of these four categories.

Section 1886(h)(10)(B)(iii) of the Act further requires that each qualifying hospital that submits a timely application receive at least 1 (or a fraction of 1) of the residency positions made available under section 1886(h)(10) of the Act before any qualifying hospital receives more than 1 residency position.

Section 1886(h)(10)(C) of the Act places certain limitations on the distribution of the residency positions. First, a hospital may not receive more than 10 additional full-time equivalent (FTE) residency positions. Second, no increase in the otherwise applicable resident limit of a hospital may be made unless the hospital agrees to increase the total number of FTE residency positions under the approved medical residency training program of the hospital by the number of positions made available to that hospital. Third, if a hospital that receives an increase to its otherwise applicable resident limit under section 1886(h)(10) of the Act is eligible for an increase to its otherwise applicable resident limit under 42 CFR 413.79(e)(3) (or any successor regulation), that hospital must ensure that residency positions received under section 1886(h)(10) of the Act are used to expand an existing residency training program and not for participation in a new residency training program.

b. Determinations Required for the Distribution of Residency Positions

(1) Determination That a Hospital Has a “Demonstrated Likelihood” of Filling the Positions

Section 1886(h)(10)(B)(i) of the Act directs the Secretary to take into account the “demonstrated likelihood” of the hospital filling the positions made available within the first 5 training years beginning after the date the increase would be effective, as determined by the Secretary. In accordance with section 1886(h)(10)(A)(iv) of the Act, the increase would be effective beginning July 1 of the fiscal year of the increase; therefore, additional residency positions under section 1886(h)(10) of the Act would be effective July 1, 2026.

Consistent with the application cycle established for section 126 of the CAA, 2021 (86 FR 73419 through 73445) we are proposing that the application deadline for the additional positions made available for a fiscal year be March 31 of the prior fiscal year; that is, for FY 2026, the application deadline would be March 31, 2025. Accordingly, all references in this section to the application deadline are references to the application deadline of March 31, 2025.

We are proposing that a hospital show a “demonstrated likelihood” of filling the additional positions (sometimes equivalently referred to as slots) for which it applies by demonstrating that it does not have sufficient room under its current FTE resident cap(s) to accommodate a planned new program or expansion of an existing program. In order to be eligible for additional positions, the new program or expansion of an existing program could not begin prior to July 1, 2026, the effective date of the section 4122 residency positions.

In order to demonstrate that a hospital does not have sufficient room under its current FTE resident cap(s) for purposes of the prioritization discussed at section c.3. of this preamble, if applicable, we are proposing that a hospital would be required to submit copies of its most recently submitted Worksheet E, Part A and Worksheet E-4 from the Medicare cost report (CMS-Form- 2552-10) as part of its application for an increase to its FTE resident cap(s). The hospital would demonstrate and attest to a planned new program or expansion of an existing program by meeting at least one of the following two “Demonstrated Likelihood” criteria:

• “Demonstrated Likelihood” Criterion 1 (New Residency Program). The hospital does not have sufficient room under its FTE resident cap, is not a rural hospital eligible for an increase to its cap under 42 CFR 413.79(e)(3) (or any successor regulation), and intends to use the additional FTEs as part of a new residency program that it intends to establish on or after the date the increase would be effective (that is, a new program that begins training residents at any point within the hospital's first 5 training years beginning on or after the effective date of the increase). Under “Demonstrated Likelihood” Criterion 1, the hospital will be required to meet at least one of the following conditions as part of its application:

++ Application for accreditation of the new residency program has been submitted to the Accreditation Council for Graduate Medical Education (ACGME) (or application for approval of the new residency program has been submitted to the American Board of Medical Specialties (ABMS)) by the application deadline.

++ The hospital has received written correspondence from the ACGME (or ABMS) acknowledging receipt of the application for the new residency program, or other types of communication concerning the new program accreditation or approval process (such as notification of site visit) by the application deadline.

• “Demonstrated Likelihood” Criterion 2 (Expansion of an Existing Residency Program). The hospital does not have sufficient room under its FTE resident cap, and the hospital intends to use the additional FTEs to expand an existing residency training program within the hospital's first 5 training years beginning on or after the date the increase would be effective. Under “Demonstrated Likelihood” criterion 2, the hospital will be required to meet at least one of the following conditions as part of its application:

++ The hospital has received approval by the application deadline from an appropriate accrediting body (the ACGME or ABMS) to expand the number of FTE residents in the program.

++ The hospital has submitted a request by the application deadline for a permanent complement increase of the existing residency program.

++ The hospital currently has unfilled positions in its residency program that have previously been approved by the ACGME and is now seeking to fill those positions.

Under “Demonstrated Likelihood” Criterion 2, the hospital is applying for an increase in its FTE resident cap because it is expanding an existing residency program. We are proposing this means that as of the application deadline the hospital is either already training residents in this program, or, if the program exists at another hospital as of that date, the residents will begin to rotate to the applying hospital on or after the effective date of the increase. In addition, we note that section 1886(h)(10)(C)(ii) of the Act requires that if a hospital is awarded positions, that hospital must increase the number of its residency positions by the amount the hospital's FTE resident cap increases, based on the newly awarded positions under section 4122 of CAA, 2023. Therefore, we are proposing that a hospital must, as part of its application, attest to increasing the number of its residency positions by the amount of the hospital's FTE resident cap increase based on any newly awarded positions, in accordance with the provisions of section 1886(h)(10)(B)(i) of the Act.

(2) Determination That a Hospital Is Located or Treated as Being Located in a Rural Area (Category One)

Section 1886(h)(10)(B)(ii) of the Act requires the Secretary to distribute not less than 10 percent of resident positions available for distribution to each of four categories of hospitals. Under section 1886(h)(10)(B)(ii)(I) of the Act, the first of these categories consists of hospitals that are located in a rural area (as defined in section 1886(d)(2)(D) of the Act) or are treated as being located in a rural area (pursuant to section 1886(d)(8)(E) of the Act). We refer to this category as Category One. We note that the definition of Category One for purposes of section 4122 of the CAA, 2023 mirrors the definition of Category One included under section 1886(h)(9)(B)(ii)(I) for purposes of section 126 of the CAA, 2021. Therefore, we are proposing to determine Category One eligibility as discussed in the final rule implementing section 126 of the CAA, 2021 (86 FR 73422 through 73424).

For purposes of determining whether a hospital is considered rural, we are proposing to use the County to CBSA Crosswalk and Urban CBSAs and Constituent Counties for Acute Care Hospitals File, or successor files containing similar information, from the most recent FY IPPS final rule (or correction notice if applicable). This file will be available on the CMS website in approximately August 2024, the year prior to the year of the application deadline, March 31, 2025. Under the file's current format, blank cells in Columns D and E indicate an area outside of a CBSA.

Under section 1886(d)(8)(E) of the Act, a subsection (d) hospital (that is, generally, an IPPS hospital) that is physically located in an urban area is treated as being located in a rural area for purposes of payment under the IPPS if it meets criteria specified in section 1886(d)(8)(E)(ii) of the Act, as implemented in the regulations at § 412.103. Under these regulations, a hospital may apply to CMS to be treated as located in a rural area for purposes of payment under the IPPS. Given the fixed number of available residency positions, it is necessary to establish a deadline by which a hospital must be treated as being located in a rural area for purposes of Category One. We are proposing to use Table 2, or a successor table containing similar information, posted with the most recent IPPS final rule, available on the CMS website in approximately August 2024, (or correction notice if applicable), to determine whether a hospital is reclassified to rural under § 412.103. If a hospital is not listed as reclassified to rural on Table 2, but has been subsequently approved by the CMS Regional Office to be treated as being located in a rural area for purposes of payment under the IPPS as of the March 31, 2025 application deadline, the hospital would submit its approval letter with its application in order to be treated as being located in a rural area for purposes of Category One.

(3) Determination of Hospitals for Which the Reference Resident Level of the Hospital Is Greater Than the Otherwise Applicable Resident Limit (Category Two)

Under section 1886(h)(10)(B)(ii)(II) of the Act, the second category consists of hospitals in which the reference resident level of the hospital (as specified in section 1886(h)(10)(F)(iv) of the Act) is greater than the otherwise applicable resident limit. We refer to this category as Category Two. We note the definition of Category Two under section 1886(h)(10)(B)(ii)(II) of the Act mirrors the definition of Category Two under section 1886(h)(9)(B)(ii)(II), section 126 of the CAA, 2021. Therefore, we are proposing to determine Category Two eligibility as discussed in the final rule implementing section 126 of the CAA, 2021 (86 FR 73424 through 73425) with adjustments to consider the provisions of sections 126, 127, and 131 of the CAA, 2021, as discussed later.

Under section 1886(h)(10)(F)(iv) of the Act, the term `reference resident level' means, with respect to a hospital, the resident level for the most recent cost reporting period of the hospital ending on or before the date of enactment of section 1886(h)(10) of the Act, December 29, 2022, for which a cost report has been settled (or, if not, submitted (subject to audit)), as discussed in this proposed rule.

Under section 1886(h)(10)(F)(v) of the Act, the term `resident level' has the meaning given such term in paragraph (7)(C)(i). That section defines “resident level” as with respect to a hospital, the total number of full-time equivalent residents, before the application of weighting factors (as determined under paragraph (4)), in the fields of allopathic and osteopathic medicine for the hospital.

Under section 1886(h)(10)(F)(i) of the Act, the term `otherwise applicable resident limit' means, “with respect to a hospital, the limit otherwise applicable under subparagraphs (F)(i) and (H) of paragraph (4) on the resident level for the hospital determined without regard to the changes made by this provision of the CAA, 2023, but taking into account section 1886(h)(7)(A), (7)(B), (8)(A), (8)(B), and (9)(A)” of the Act. These cross-referenced sub-paragraphs all address the distribution of positions and redistribution of unused positions.

As finalized for purposes of section 126 of the CAA, 2023, the “reference resident level” refers to a hospital's allopathic and osteopathic FTE resident count for a specific period. The definition can vary based on what calculation is being performed to determine the correct allopathic and osteopathic FTE resident count (see, for example, 42 CFR 413.79(c)(1)(ii)) (86 FR 73424)). As noted previously, section 4122 of the CAA, 2023, under new section 1886(h)(10)(F)(iv) of the Act defines the “reference resident level” as coming from the most recent cost reporting period of the hospital ending on or before the date of enactment of the CAA, 2023 (that is, December 29, 2022).

Under new section 1886(h)(10)(F)(i) of the Act, the term “otherwise applicable resident limit” is defined as “the limit otherwise applicable under subparagraphs (F)(i) and (H) of paragraph (4) on the resident level for the hospital determined without regard to this paragraph [that is, section 1886(h)(10) of the Act], but taking into account paragraphs (7)(A), (7)(B), (8)(A), (8)(B), and (9)(A).” In the FY 2022 IPPS/LTCH PPS final rule (86 FR 25505), we finalized for purposes of section 126 of the CAA, 2021, the definition of “otherwise applicable resident limit” as the hospital's 1996 cap during its reference year, adjusted for the following: “new medical residency training programs” as defined at § 413.79(l); participation in a Medicare GME affiliation agreement as defined at §§ 413.75(b) and referenced at 413.79(f); participation in an Emergency Medicare GME affiliation agreement as defined at § 413.79(f); participation in a hospital merger; whether an urban hospital has a separately accredited rural training track program as defined at § 413.79(k); applicable decreases or increases under section 422 of the MMA, applicable decreases or increases under section 5503 of the Affordable Care Act, and applicable increases under section 5506 of the Affordable Care Act. For purposes of section 4122 of the CAA, 2023, we are proposing to use this same definition of “otherwise applicable resident limit” and adding to this definition the following: applicable increases or adjustments under sections 126, 127, and 131 of the CAA, 2021.

Regarding the term “resident level”, in the CY 2011 OPPS final rule (75 FR 46391) we indicated that we generally refer to a hospital's number of unweighted allopathic and osteopathic FTE residents in a particular period as the hospital's resident level, which we are proposing to define consistently with the definition in section 4122 of the CAA, 2023; that is, the “resident level” under section 1886(h)(7)(c)(i) of the Act, which is defined as the total number of full-time equivalent residents, before the application of weighting factors (as determined under paragraph 1886(h)(4) of the Act), in the fields of allopathic and osteopathic medicine for the hospital.

For the purposes of section 4122 of the CAA, 2023 we are proposing that the definitions of the terms “otherwise applicable resident limit,” “reference resident level,” and “resident level” should be as similar as possible to the definitions those terms have in the regulations at § 413.79(c), as initially set out in the CY 2011 OPPS rulemaking, as revised for purposes of section 126 of the CAA, 2021 (86 FR 73424) with adjustments made to the definition of “otherwise applicable resident limit” for sections 126, 127, and 131 of the CAA, 2021.

(4) Determination of Hospitals Located in States With New Medical Schools, or Additional Locations and Branch Campuses (Category Three)

The third category specified in section 1886(h)(10)(B)(ii)(III) of the Act, as added by section 4122 of CAA, 2023, consists of hospitals located in States with new medical schools that received `Candidate School' status from the Liaison Committee on Medical Education (LCME) or that received `Pre-Accreditation' status from the American Osteopathic Association (AOA) Commission on Osteopathic College Accreditation (the COCA) on or after January 1, 2000, and that have achieved or continue to progress toward `Full Accreditation' status (as such term is defined by the LCME) or toward `Accreditation' status (as such term is defined by the COCA); or additional locations and branch campuses established on or after January 1, 2000, by medical schools with `Full Accreditation' status (as such term is defined by LCME) or `Accreditation' status (as such term is defined by the COCA). We note that the statutory language is specific with respect to these definitions. We refer to this category as Category Three. We note that the definition of Category Three for purposes of section 4122 of the CAA, 2023, mirrors the definition of Category Three included under section 1886(h)(9)(B)(ii)(III) of the Act for purposes of section 126 of the CAA, 2021. Therefore, we are proposing to determine Category Three eligibility as discussed in the final rule implementing section 126 of the CAA, 2021 (86 FR 73425 through 73426).

We are proposing that the hospitals located in the following 35 States and one territory, referred to as Category Three States, would be considered Category Three hospitals: Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Idaho, Illinois, Indiana, Kansas, Kentucky, Louisiana, Massachusetts, Michigan, Mississippi, Missouri, Nevada, New Jersey, New Mexico, New York, North Carolina, Ohio, Oklahoma, Pennsylvania, Puerto Rico, South Carolina, Tennessee, Texas, Utah, Virginia, Washington, West Virginia, and Wisconsin. If a hospital is located in a State not listed here, but it believes the State in which it is located should be on this list, the hospital may submit a formal comment on this proposed rule to make a change to this list, or must provide documentation with submission of its application to CMS that the State in which it is located has a medical school or additional location or branch campus of a medical school established on or after January 1, 2000. Pursuant to the statutory language, all hospitals in such states are eligible for consideration; the hospitals, themselves, do not need to meet the conditions of section 1886(h)(10)(B)(ii)(III)(aa) or (bb) of the Act in order to be considered.

(5) Determination of Hospitals That Serve Areas Designated as Health Professional Shortage Areas Under Section 332(a)(1)(A) of the Public Health Service Act (Category Four)

The fourth category specified in the law consists of hospitals that serve areas designated as HPSAs under section 332(a)(1)(A) of the Public Health Service Act (PHSA), as determined by the Secretary. Category Four for section 4122 of the CAA, 2023 mirrors the definition of Category Four included under section 1886(h)(9)(B)(ii)(IV) for purposes of implementing section 126 of the CAA, 2021. Therefore, we are proposing to determine Category Four eligibility as discussed in the final rule implementing section 126 of the CAA, 2021 (86 FR 73426 through 73430).

We are proposing that an applicant hospital qualifies under Category Four if it participates in training residents in a program in which the residents rotate for at least 50 percent of their training time to a training site(s) physically located in a primary care or mental-health-only geographic HPSA. Specific to mental-health-only geographic HPSAs, we are proposing that the program must be a psychiatry program or a subspecialty of psychiatry. In addition, a Category Four hospital must submit an attestation, signed and dated by an officer or administrator of the hospital who signs the hospital's Medicare cost report, that it meets the requirement that residents rotate for at least 50 percent of their training time to a training site(s) physically located in a primary care or mental-health-only geographic HPSA.

(6) Determination of a Qualifying Hospital

Section 1886(h)(10)(F)(iii) of the Act defines a “qualifying hospital” as “a hospital described in any of the subclauses (I) through (IV) of subparagraph (B)(ii).” As such, and consistent with the definition of “qualifying hospital” used for purposes of section 126 of the CAA, 2021 (86 FR 73430 through 73431), we are proposing to define a qualifying hospital as a Category One, Category Two, Category Three, or Category Four hospital, or one that meets the definitions of more than one of these categories.

c. Number of Residency Positions Made Available to Hospitals and Limitation on Individual Hospitals

(1) Number of Residency Positions Made Available and Distribution for Psychiatry or Psychiatry Subspecialty Residencies

Section 1886(h)(10)(A)(ii) of the Act limits the aggregate number of total new residency positions made available in FY 2026 across all hospitals to no more than 200. Section 1886(h)(10)(A)(iii) of the Act further specifies that at least 100 of the positions made available under section 1886(h)(10) must be distributed for a psychiatry or psychiatry subspecialty residency. The phrase “psychiatry or psychiatry subspecialty residency” is defined at section 1886(h)(10)(F)(ii) of the Act to mean “a residency in psychiatry as accredited by the Accreditation Council for Graduate Medical Education (ACGME) for the purpose of preventing, diagnosing, and treating mental health disorders.”

We are proposing that of the total residency slots distributed under section 4122 of the CAA, 2023, at least 100 but not more than 200 slots would be distributed to hospitals applying for residency programs in psychiatry and psychiatry subspecialties. For purposes of determining which programs are considered psychiatry subspecialties, we are proposing to refer to the list included on ACGME website at https://www.acgme.org/ under the “Specialties” tab, currently: Addiction Medicine, Addiction Psychiatry, Brain Injury Medicine, Child and Adolescent Psychiatry, Consultation-Liaison Psychiatry, Forensic Psychiatry, Geriatric Psychiatry, Hospice and Palliative Medicine, and Sleep Medicine. We note that the ACGME list of psychiatry subspecialties may change, and we are proposing that the list of psychiatry subspecialties included on the ACGME website at the time of application submission would guide determination of which programs CMS would consider psychiatry subspecialties. In accordance with statute, the subspecialty would have to be accredited with psychiatry as a core specialty. We are also proposing that the remaining non-psychiatric slots would be awarded to other approved medical residency programs under 42 CFR 413.75(b).

(2) Pro Rata Distribution and Limitation on Individual Hospitals

As noted earlier in this preamble, section 1886(h)(10)(B)(iii) of the Act requires that each qualifying hospital that submits a timely application under subparagraph 1886(h)(10)(A) of the Act would receive at least 1 (or a fraction of 1) of the positions made available under section 1886(h)(10) of the Act before any qualifying hospital receives more than 1 of such positions. Section 1886(h)(10)(C)(i) of the Act limits a qualifying hospital to receiving no more than 10 additional FTEs from those authorized under section 1886(h)(10) of the Act. As stated earlier in this preamble, we are proposing that a qualifying hospital is a Category One, Category Two, Category Three, or Category Four hospital, or one that meets the definitions of more than one of these categories. For purposes of distributing residency slots under section 4122 of the CAA, 2023, we are proposing to first distribute slots by prorating the available 200 positions among all qualifying hospitals such that each qualifying hospital receives up to 1.00 FTE, that is, 1.00 FTE or a fraction of 1.00 FTE. We are proposing that if residency positions are awarded based on a fraction of 1.00 FTE, each qualifying hospital would receive the same FTE amount. Consistent with the number of decimal places used for the FTE slots awards in other distributions such as section 126 of the CAA, 2021, we are proposing to prorate the slot awards under section 4122 of the CAA, 2023, rounded to two decimal places. The table later in this section provides examples of how the 200 slots would be prorated based on the number of qualifying applicants. Given the limited number of residency positions available and the number of hospitals we expect to apply, we are proposing that a hospital may not submit more than one application under section 4122 of the CAA, 2023.

We refer readers to section I.O.6. of Appendix A of this proposed rule where we discuss an alternative we considered for the distribution of slots under section 4122 of the CAA, 2023.

(3) Prioritization of Applications by HPSA Score

If any residency slots remain after distributing up to 1.00 FTE to each qualifying hospital, we will prioritize the distribution of the remaining slots based on the HPSA score associated with the program for which each hospital is applying. Taking an example from the table in the previous section, if 180 qualifying hospitals apply under section 4122 of the CAA, 2023, each qualifying hospital would receive 1.00 FTE and the 20 remaining residency positions would be prioritized for distribution based on the HPSA score associated with the program for which each hospital is applying. We are proposing the HPSA prioritization methodology will be the methodology we finalized for purposes of section 126 of the CAA, 2021 (86 FR 73434 through 73440). We believe including such a prioritization will further support the training of residents in underserved and rural areas thereby helping to address physician shortages and the larger issue of health inequities in these areas. Using this HPSA prioritization method, we are proposing to limit a qualifying hospital's total award under section 4122 of the CAA, 2023, to 10.00 additional FTEs, consistent with section 1886(h)(10)(C)(i) of the Act. Consistent with the methodology we use for implementing section 126 of the CAA, 2021, as part of determining eligibility for additional slots, we would compare the hospital's FTE resident count to its adjusted FTE resident cap on the cost report worksheets submitted with its application. If the hospital's FTE count is below its adjusted FTE cap, the hospital would be ineligible for its full FTE request, because the facility had not yet fully utilized the already-allotted slots. We note that in calculating the adjusted FTE cap we do not consider adjustments for Medicare GME Affiliation Agreements since these adjustments are temporary.

As finalized under section 126 of the CAA, 2021 (86 FR 73435), for purposes of prioritization under section 4122 of the CAA, 2023, primary care and mental-health-only population and geographic HPSAs apply. As discussed in the final rule implementing section 126 of the CAA, 2021, each year in November, prior to the beginning of the application period, CMS will request HPSA ID and score information from HRSA so that recent HPSA information is available for use for the application period. CMS will only use this HPSA information, HPSA ID's and their corresponding HPSA scores, in order to review and prioritize applications. To assist hospitals in preparing for their applications, the HPSA information received from HRSA will also be posted when the online application system becomes available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/DGME. The information will also be posted on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/IPPS-Regulations-and-Notices. Click on the link on the left side of the screen associated with the appropriate final rule home page or “Acute Inpatient—Files for Download” (86 FR 73445).

Given that residency slots under section 4122 of the CAA, 2023 are to be distributed in FY 2026, we are proposing that the HPSA IDs and scores used for the prioritization of slots, if applicable, would be the same HPSA IDs and scores used for the prioritization of slots under round 4 of section 126 of the CAA, 2021. This group would include HPSAs that are in designated or proposed for withdrawal status at the time the HPSA information is received from HRSA. As noted in section j. of this preamble, CMS will request HPSA data from HRSA in November 2024 to be used for purposes of section 4122 of the CAA, 2023.

(4) Requirement for Rural Hospitals To Expand Programs

Section 1886(h)(10)(C)(iii) of the Act requires that if a hospital that receives an increase in the otherwise applicable resident limit under section 1886(h)(10) of the Act would be eligible for an adjustment to the otherwise applicable resident limit for participation in a new medical residency training program under 42 CFR 413.79(e)(3) (or any successor regulation), the hospital shall ensure that any positions made available under this paragraph are used to expand an existing program of the hospital, and not be utilized for new medical residency training programs. Under the regulations at 42 CFR 413.79(e)(3), a rural hospital may receive an increase to its cap for participating in training residents in a new program, which is effective after a 5-year cap-building period for that new program. We note that if a rural hospital were to receive a cap increase for a new program under the 5-year cap-building period as well as a cap increase for the new program under section 4122 of the CAA, 2023, there may be duplicative awarding of cap slots for the same program. Therefore, we are proposing to implement section 1886(h)(10)(C)(iii) of the Act by allowing rural hospitals to apply for slots to expand an existing program, but not for slots to begin a new program. We are proposing that this policy apply to both geographically rural hospitals and hospitals that have reclassified as rural under 42 CFR 412.103, since both groups of hospitals are considered rural under section 1886(h)(10)(B)(ii)(I), which we refer to as Category One hospitals. Only geographically urban hospitals that have not reclassified as rural under 42 CFR 412.103 would be permitted to apply for slots to begin a new program.

d. Distributing at Least 10 Percent of Positions to Each of the Four Categories

Section 1886(h)(10)(B)(ii) of the Act requires the Secretary to distribute at least 10 percent of the aggregate number of total residency positions available to each of the following categories of hospitals discussed earlier. Given our experience with distributing slots under section 126 of the CAA, 2021, we expect many hospitals will meet the qualifications of more than one category. We are proposing to collect information regarding qualification for all four categories in the distribution of slots under section 4122 of the CAA, 2023, to allow us to confirm that we have met this statutory requirement. Like the CAA, 2023 provision, section 1886(h)(9)(B)(ii) of the Act from 2021 also requires the Secretary to distribute at least 10 percent of the aggregate number of total residency positions available to the same four categories of hospitals. Section 126 of the CAA, 2021, makes available 1,000 residency positions and therefore, at least 100 residency positions must be distributed to hospitals qualifying in each of the four categories. In the final rule implementing section 126 of the CAA, 2021, we stated we would track progress in meeting all statutory requirements and evaluate the need to modify the distribution methodology in future rulemaking (86 FR 73441).

To date, we have completed the distribution of residency slots under rounds 1 and 2 of the section 126 distributions (refer to CMS' DGME web page for links to the round 1 and 2 awards: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/direct-graduate-medical-education-dgme). In tracking the statutory requirement that at least 10 percent of the aggregate number of total residency positions (100 out 1,000 slots) be distributed to hospitals qualifying in each of the four categories, we have determined that in rounds 1 and 2, only 12.76 DGME slots and 18.06 IME slots were distributed to hospitals qualifying under Category Four. For each of the other 3 categories based on the slots awarded in rounds 1 and 2, we anticipate meeting the 10 percent requirement. For example, we have determined that in rounds 1 and 2, 374.59 DGME and 375.11 IME slots were distributed to hospitals qualifying under Category Three.

As discussed in the final rule implementing section 126 of the CAA, 2021, an applicant hospital qualifies under Category Four if it participates in training residents in a program in which the residents rotate for at least 50 percent of their training time to a training site(s) physically located in a primary care or mental-health-only geographic HPSA. Specific to mental-health-only geographic HPSAs, the program must be a psychiatric or a psychiatric subspecialty program (86 FR 73430). Given that only 12.76 DGME slots and 18.06 IME slots have been distributed to hospitals qualifying under Category Four, we are proposing an amendment to our prioritization methodology for rounds 4 and 5 of section 126 of the CAA, 2021, to ensure that at least 100 residency slots are distributed to these hospitals. We are not proposing an amendment to our prioritization methodology for round 3 because the application period for round 3 runs from January 9, 2024 to March 31, 2024, prior to the date any proposals in this rule might be finalized.

Our current methodology for distributing residency slots under section 126 prioritizes slot awards based on the HPSA score associated with the program for which the hospital is applying, with higher scores receiving priority (86 FR 73434 through 73440). We are proposing that in rounds 4 and 5 of section 126 of the CAA, 2021, we will prioritize the distribution of slots to hospitals that qualify under Category Four, regardless of HPSA score. The remaining slots awarded under rounds 4 and 5 will be distributed using the existing methodology based on HPSA score (86 FR 73434 through 73440). That is, the remaining slots will be distributed to hospitals qualifying under Category One, Category Two, or Category Three, or hospitals that meet the definitions of more than one of these categories, based on the HPSA score associated with the program for which each hospital is applying.

e. Hospital Attestation to National CLAS Standards

For section 126 of the CAA, 2021, we finalized a policy that all applicant hospitals be required to attest that they meet the National Standards for Culturally and Linguistically Appropriate Services in Health and Health Care (the National CLAS Standards) (86 FR 73441). This was to ensure that the section 126 distribution broadened the availability of quality care and services to all individuals, regardless of preferred language, cultures, and health beliefs. We stated in the final rule that the National CLAS standards are aligned with the Administration's commitment to addressing healthcare barriers, which include that residents are educated and trained in culturally and linguistically appropriate policies and practices. This continues to be the case today. Therefore, we are proposing the same requirement for section 4122 of the CAA, 2023, that we adopted for section 126 of the CAA, 2021, for the same reason. Specifically, we are proposing that in order to ensure that residents are educated and trained in culturally and linguistically appropriate policies and practices, all applicant hospitals for slots allocated under section 4122 of the CAA, 2023, would be required to attest that they meet the National CLAS Standards to ensure that the section 4122 distribution broadens the availability of quality care and services to all individuals, regardless of preferred language, cultures, and health beliefs. (For more information on the CLAS standards, please refer to https://thinkculturalhealth.hhs.gov/)

f. Payment of Additional FTE Residency Positions Awarded Under Section 4122 of the CAA, 2023

Section 1886(h)(10)(D) requires that CMS pay a hospital for additional positions awarded under this paragraph using the hospital's existing direct GME nonprimary care PRAs consistent with the regulations at § 413.77. We note that as specified in section 1886(h)(2)(D)(ii) of the Act, for cost reporting periods beginning on or after October 1, 1993, through September 30, 1995, each hospital's PRA for the previous cost reporting period was not updated for inflation for any FTE residents who were not either a primary care or an obstetrics and gynecology resident. As a result, hospitals with both primary care and obstetrics and gynecology residents and nonprimary care residents in FY 1994 or FY 1995 have two separate PRAs: one for primary care and obstetrics and gynecology and one for nonprimary care. Those hospitals that only trained primary care and/or obstetrics and gynecology residents and those that did not become teaching hospitals until after this 2-year period, have a single PRA for direct GME payment purposes. Therefore, we are proposing that for purposes of direct GME payments for section 4122 of the CAA, 2023, if a hospital has both a primary care and obstetrics and gynecology PRA and a nonprimary care PRA, the nonprimary care PRA will be used, and if a hospital has a single PRA, that PRA will be used. Furthermore, similar to the policy finalized for purposes of direct GME payments under section 126 of the CAA, 2021 (86 FR 73441), we are proposing that a hospital that receives additional positions under section 4122 of the CAA, 2023, would be paid for the FTE residents counted under those positions using the PRAs for which payment is made for FTE residents subject to the 1996 FTE cap. We expect to revise Worksheet E-4 to add a line on which hospitals will report the number of FTEs by which the hospital's FTE caps were increased for direct GME positions received under section 4122 of the CAA, 2023.

g. Aggregation of Additional FTE Residency Positions Awarded Under Section 4122 of the CAA, 2023

Section 1886(h)(10)(E) of the Act states that the Secretary shall permit hospitals receiving additional residency positions attributable to the increase provided under 1886(h)(10) to, beginning in the fifth year after the effective date of such increase, apply such positions to the limitation amount under paragraph (4)(F) that may be aggregated pursuant to paragraph (4)(H) among members of the same affiliated group. Therefore, we are proposing that FTE resident cap positions added under section 4122 of the CAA, 2023, may be used in a Medicare GME affiliation agreement beginning in the 5th year after the effective date of the FTE resident cap positions consistent with the regulations at 42 CFR 413.75(b) and 413.79(f). We are proposing to amend paragraph (8) at 42 CFR 413.79(f) to state that FTE resident cap slots added under section 4122 of Public Law 117-328 may be used in a Medicare GME affiliation agreement beginning in the fifth year after the effective date of those FTE resident cap slots.

h. Conforming Regulation Amendments for 42 CFR 412.105 and 42 CFR 413.79

Section 4122 of the CAA, 2023, under subsection (b), amends section 1886(d)(5)(B) of the Act to provide for increases in FTE resident positions for IME payment purposes. Specifically, subsection (b) adds a new section 1886(d)(5)(B)(xiii) of the Act, which states that for discharges occurring on or after July 1, 2026, if additional payment is made for FTE resident positions distributed to a hospital for direct GME purposes under section 1886(h)(10) of the Act, the hospital will receive IME payments based on the additional residency positions awarded using the same IME adjustment factor used for the hospital's other FTE residents. We are proposing conforming amendments to the IME regulations at 42 CFR 412.105(f)(1)(iv)(C)(4) to specify that effective for portions of cost reporting periods beginning on or after July 1, 2026, a hospital may qualify to receive an increase in its otherwise applicable FTE resident cap if the criteria specified in 42 CFR 413.79(q) are met. We expect to revise Worksheet E Part A to add a line on which hospitals will report the number of FTEs by which the hospital's FTE caps were increased for IME positions received under section 4122 of the CAA, 2023.

We are also proposing to amend our regulations at 42 CFR 413.79 by adding a paragraph (q) to specify that for portions of cost reporting periods beginning on or after July 1, 2026, a hospital may receive an increase in its otherwise applicable FTE resident cap (as determined by CMS) if the hospital meets the requirements and qualifying criteria under section 1886(h)(10) of the Act and if the hospital submits an application to CMS within the timeframe specified by CMS.

i. Prohibition on Administrative and Judicial Review

Section 4122 of the CAA, 2023, under subsection (c), prohibits administrative and judicial review of actions taken under section 1886(h)(10) of the Act. Specifically, subsection (c) amends section 1886(h)(7)(E) of the Act by inserting “paragraph (10),” after “paragraph (8),” adding to the that paragraph to the list of residency distributions not subject to review. Therefore, we are proposing that the determinations and distribution of residency positions under sections 1886(d)(5)(B)(xiii) and 1886(h)(10) of the Act would be final and could not be subject to administrative or judicial review.

j. Application Process for Receiving Increases in FTE Resident Caps

All qualifying hospitals seeking increases in their FTE resident caps must submit timely applications for this distribution by March 31, 2025. The completed application must be submitted to CMS using an online application system, the Medicare Electronic Application Request Information System^TM (MEARIS^TM ). The burden associated with this information collection requirement is the time and effort necessary to review instructions and register for MEARIS^TM as well as the time and effort to gather, develop and submit various documents associated with a formal request of resident position increases from teaching hospitals to CMS. The aforementioned burden is subject to the Paperwork Reduction Act (PRA); and as discussed in section XII.B. of this proposed rule, the burden associated with these requests will be captured under OMB control number 0938-1417 (expiration date March 31, 2025). We will submit a revised information collection estimate to OMB for approval under OMB control number 0938-1417 (expiration date March 31, 2025).

We are proposing that the following information be submitted as part of an application for the application to be considered complete:

• The name and Medicare provider number (CCN) of the hospital.
• The name of the Medicare Administrative Contractor to which the hospital submits its Medicare cost report.
• The residency program for which the hospital is applying to receive an additional position(s).
• FTE resident counts for direct GME and IME and FTE resident caps for direct GME and IME reported by the hospital in the most recent as-filed cost report. (Including copies of Worksheet E, Part A, and Worksheet E-4).
• If the hospital qualifies under “Demonstrated Likelihood” Criterion 1 (New Residency Program), which of the following applies:

++ Application for accreditation of the new residency program has been submitted to the Accreditation Council for Graduate Medical Education (ACGME) (or application for approval of the new residency program has been submitted to the American Board of Medical Specialties (ABMS)) by March 31, 2025.

++ The hospital has received written correspondence from the ACGME (or ABMS) acknowledging receipt of the application for the new residency program, or other types of communication concerning the new program accreditation or approval process (such as notification of a site visit) by March 31, 2025.

• If the hospital qualifies under “Demonstrated Likelihood” Criterion 2 (Expansion of an Existing Residency Program), which of the following applies:

++ The hospital has received approval by March 31, 2025 from an appropriate accrediting body (the ACGME or ABMS) to expand the number of FTE residents in the program.

++ The hospital has submitted a request by March 31, 2025 for a permanent complement increase of the existing residency training program.

++ The hospital currently has unfilled positions in its residency program that have previously been approved by the ACGME and is now seeking to fill those positions.

• Indication of the categories under section 1886(h)(10)(F)(iii) of the Act under which the hospital believes itself to qualify:

++ (I) The hospital is located in a rural area (as defined in section 1886(d)(2)(D) of the Act) or is treated as being located in a rural area pursuant to section 1886(d)(8)(E) of the Act.

++ (II) The reference resident level of the hospital (as specified in section 1886(h)(10)(F)(iv) of the Act) is greater than the otherwise applicable resident limit.

++ (III) The hospital is located in a State with a new medical school (as specified in section 1886(h)(10)(B)(ii)(III)(aa) of the Act), or with additional locations and branch campuses established by medical schools (as specified in section 1886(h)(10)(B)(ii)(III)(bb) of the Act) on or after January 1, 2000.

++ (IV) The hospital serves an area designated as a HPSA under section 332(a)(1)(A) of the Public Health Service Act, as determined by the Secretary.

• The HPSA (if any) served by the residency program for which the hospital is applying and the HPSA ID for that HPSA.
• An attestation, signed and dated by an officer or administrator of the hospital who signs the hospital's Medicare cost report, stating the following:

“I hereby certify that the hospital is a Qualifying Hospital under section 1886(h)(10)(F)(iii) of the Social Security Act, and that there is a “demonstrated likelihood” that the hospital will fill the position(s) made available under section 1886(h)(10) of the Act within the first 5 training years beginning after the date the increase would be effective.”

“I hereby certify that (choose if applicable):

__ If my application is for a currently accredited residency program, the number of full-time equivalent (FTE) positions requested by the hospital does not exceed the number of positions for which the program is accredited.

__ If my hospital currently has unfilled positions in its residency program that have previously been approved by the ACGME, the number of FTE positions requested by the hospital does not exceed the number of previously approved unfilled residency positions.

__ If my application is for a residency training program with more than one participating site, I am only requesting the FTE amount that corresponds with the training occurring at my hospital, and any FTE training occurring at nonprovider settings consistent with 42 CFR 412.105(f)(1)(ii)(E) and 413.78(g).”

“I hereby certify that the hospital agrees to increase the number of its residency positions by the amount the hospital's FTE resident caps are increased under section 4122 of Subtitle C of the Consolidated Appropriations Act, 2023, if awarded positions under section 1886(h)(10)(C)(ii) of the Act.”

“I hereby certify that (choose one):

__ In the geographic HPSA the hospital is requesting that CMS use for prioritization of its application, at least 50 percent of the program's training time based on resident rotation schedules (or similar documentation) occurs at training sites that treat the population of the HPSA and are physically located in the HPSA.

__ In the population HPSA the hospital is requesting that CMS use for prioritization of its application, at least 50 percent of the program's training time based on resident rotation schedules (or similar documentation) occurs at training sites that treat the designated underserved population of the HPSA and are physically located in the HPSA.

__ In the geographic HPSA the hospital is requesting that CMS use for prioritization of its application, at least 5 percent of the program's training time based on resident rotation schedules (or similar documentation) occurs at training sites that treat the population of the HPSA and are physically located in the HPSA, and the program's training time at those sites plus the program's training time at Indian or Tribal facilities located outside of the HPSA is at least 50 percent of the program's training time.

__ In the population HPSA the hospital is requesting that CMS use for prioritization of its application, at least 5 percent of the program's training time based on resident rotation schedules (or similar documentation) occurs at training sites that treat the designated underserved population of the HPSA and are physically located in the HPSA, and the program's training time at those sites plus the program's training time at Indian or Tribal facilities located outside of that HPSA is at least 50 percent of the program's training time.

__ None of the above apply.”

“I hereby certify that the hospital meets the National Standards for Culturally and Linguistically Appropriate Services in Health and Health Care (the National CLAS Standards).”

“I hereby certify that I understand that misrepresentation or falsification of any information contained in this application may be punishable by criminal, civil, and administrative action, fine and/or imprisonment under Federal law. Furthermore, I understand that if services identified in this application were provided or procured through payment directly or indirectly of a kickback or where otherwise illegal, criminal, civil, and administrative action, fines and/or imprisonment may result. I also certify that, to the best of my knowledge and belief, it is a true, correct, and complete application prepared from the books and records of the hospital in accordance with applicable instructions, except as noted. I further certify that I am familiar with the laws and regulations regarding Medicare payment to hospitals for the training of interns and residents.”

The completed application must be submitted to CMS using the online application system MEARIS^TM . A link to the online application system as well as instructions for accessing the system and completing the online application process will be made available on the CMS Direct GME website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/DGME.

We note that if the hospital is applying using a HPSA ID, the HPSA score associated with that ID will automatically populate in the application module. In preparing their applications for additional residency positions, hospitals should refer to HRSA's Find Shortage Areas by Address ( https://data.hrsa.gov/tools/shortage-area/by-address ) to obtain the HPSA ID of the HPSA served by the program and include this ID in its application. Using this HPSA Find Shortage Areas by Address, applicants may enter the address of a training location (included on the hospital's rotation schedule or similar documentation), provided the location chosen participates in training residents in a program where at least 50 percent (5 percent if an Indian and Tribal facility is included) of the training time occurs in the HPSA. In November 2024, prior to the beginning of the application period, CMS will request HPSA ID and score information from HRSA so that recent HPSA information is available for use for the application period. CMS will only use this HPSA information, HPSA IDs and their corresponding HPSA scores, in order to review and prioritize applications. To assist hospitals in preparing for their applications, the HPSA information received from HRSA will also be posted when the MEARIS^TM application module becomes available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/DGME.

The information will also be posted on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/IPPS-Regulations-and-Notices. Click on the link on the left side of the screen associated with the appropriate final rule home page or “Acute Inpatient—Files for Download.”

3. Proposed Modifications to the Criteria for New Residency Programs and Requests for Information

Section 1886(h)(4)(H)(i) of the Act requires CMS to establish rules for applying the direct GME cap in the case of medical residency training programs established on or after January 1, 1995. Under section 1886(d)(5)(B)(viii) of the Act, this provision also applies for purposes of the IME adjustment. Accordingly, we issued regulations at §§ 413.79(e)(1) through (3) discussing the direct GME cap calculation for a hospital that begins training residents in a new medical residency training program(s) on or after January 1, 1995. The same regulations apply for purposes of the IME cap calculation at § 412.105(f)(1)(vii). CMS implemented these statutory requirements in the August 29, 1997 Federal Register (62 FR 46005) and in the May 12, 1998 Federal Register (63 FR 26333). The calculation of both the DGME cap and IME cap for new programs is discussed in the August 31, 2012 Federal Register (77 FR 53416).

Section 413.79(l) defines a new medical residency training program as “a medical residency that receives initial accreditation by the appropriate accrediting body or begins training residents on or after January 1, 1995.” In the August 27, 2009 Federal Register (74 FR 43908 through 43917), CMS clarified the definition of a “new” residency program and adopted supporting criteria regarding whether or not a residency program can be considered “new” for the purpose of determining if a hospital can receive additional direct GME and/or IME cap slots for that program. CMS adopted these criteria in part to prevent situations where a program at an existing teaching hospital would be transferred to a new teaching hospital, resulting in cap slots created for the same program at two different hospitals. To be considered a “new” program for which new cap slots would be created, a previously non-teaching hospital would have to ensure that the program meets three primary criteria (74 FR 43912):

• The residents are new, and
• The program director is new, and
• The teaching staff are new.

Over the years, we have received questions regarding the application of these criteria, such as whether CMS would still consider a program to be new for cap adjustment purposes if the three criteria were partially, but not fully, met. We have answered such questions by stating that, generally, a residency program's newness would not be compromised as long as the “overwhelming majority” of the residents or staff are not coming from previously existing programs in that same specialty.

The question of what constitutes a “new” program for purposes of receiving additional Medicare-funded GME slots has taken on increasing significance in light of the ability of urban hospitals to reclassify as rural under 42 CFR 412.103 for IME purposes, and thus receive additional IME cap slots for any new program started. To continue to ensure that newly funded cap slots are created appropriately, we ultimately would like to establish in rulemaking additional criteria for determining program newness. However, we are not yet certain about some of the criteria that should be proposed, and so we are soliciting comments to gain additional clarity on best practices in these areas. Accordingly, we discuss the items we are proposing and the items on which we are soliciting public input through a Request for Information (RFI).

a. Newness of Residents

Generally, when a hospital is creating a new residency program, it recruits individuals that have recently graduated from medical school, have no previous residency training experience, and would be entering the program as first year (PGY1) residents. However, new programs sometimes receive inquiries from applicants that have training experience already, but for a variety of reasons need to transfer to another program. If the program that such a resident wishes to join is still within the 5-year cap building period, then, consistent with the criteria adopted in the August 27, 2009 final rule, the program director of this “new” program should be judicious with regard to accepting residents who have received previous training in the same specialty. In order to maintain the classification as a “new” residency program, the “overwhelming majority” of residents in the program must be new. We believe it would be useful for the provider community to have a concrete standard to refer to in determining whether the “overwhelming majority” of residents in a program are in fact new. Therefore, we propose that, in order for a residency program to be considered new, at least 90 percent of the individual resident trainees (not FTEs) must not have previous training in the same specialty as the new program. For example, if there were 50 trainees (not FTEs) entering the program over the course of the 5-year cap building period, then at least 45 of the trainees (90 percent of 50) must enter the program as brand new first year residents in that particular specialty. If more than 10 percent of the trainees (not FTEs) transferred from another program at a different hospital/sponsor in the same specialty, even during their first year of training, we propose that this would render the program ineligible for new cap slots. (Note—we would apply standard rounding when 90 percent of a number does not equal a whole number, rounding down to the nearest whole number when the remainder is less than 0.5, and rounding up to the nearest whole number when the remainder is 0.5 or above. For example, if there were 48 trainees (not FTEs) entering the program over the course of the 5-year cap building period, then at least 43 of the trainees (90 percent of 48 = 43.2, which rounds down to 43) must enter the program as brand new first year residents in that particular specialty. If there were 45 trainees (not FTEs) entering the program, then at least 41 of the trainees (90 percent of 45 = 40.5, which rounds up to 41) must enter the program as brand new first year residents in that particular specialty.)

For example, if a new program is in internal medicine, then at least 90 percent of the entering residents must not have previously enrolled and trained in an internal medicine program. If a resident was formally enrolled in an internal medicine program (either preliminary or categorical), even if that resident switched programs during their first year of training, then we would consider that resident to have had previous training in that same specialty. Conversely, if an individual was a resident in a specialty other than internal medicine, and that resident switched into the new internal medicine program and began training in the new internal medicine program as a PGY1, then that resident would not be considered to have had previous training in the same specialty, and would be counted as a brand new resident. (Note, we are distinguishing between a resident that is not enrolled in an internal medicine program but may have done a rotation in internal medicine as part of the requirements for a different specialty, from a resident that actually was enrolled and participated in an internal medicine program, consistent with the definition of “ resident ” at 42 CFR 413.75(b). In this example, we are generally focusing on individuals who were accepted, enrolled, and participated in internal medicine; we are generally not concerned with an individual that was enrolled, accepted, and participated in a program other than internal medicine but did a rotation in internal medicine.) We propose that the proportion of brand new residents in a residency program would be determined by the MAC based on all the individuals (not FTEs) that enter the program as a whole at any point during the 5-year cap building period, after the end of the 5 years.

We are proposing a threshold of 90 percent for new residents as that is generally consistent with the concept of an “overwhelming majority,” and because we have precedent for such a threshold in the regulations for section 5506 of the Affordable Care Act, which State that a hospital is considered to have taken over an “entire” program from a closed hospital if it can demonstrate that it took in 90 percent or more of the FTE residents in that program. Accordingly, for a program to be considered “new” for the purpose of determining if a hospital can receive additional direct GME and/or IME cap slots for that program, we propose that at least 90 percent of the individual resident trainees (not FTEs) in the program as a whole must not have had previous training in the same specialty as the new program. If more than 10 percent of the trainees (not FTEs) transferred from another program at a different hospital/sponsor in the same specialty, even during their first year of training, we propose that this would render the program as a whole (but not the entire hospital or its other new programs, if applicable) ineligible for new cap slots.

In addition, we understand that there may be certain challenges that are unique to small or rural-based programs in developing new residencies, and that meeting a proposed threshold of 90 percent of resident trainees with no previous training experience in the specialty may be more difficult for those programs. Accordingly, we are soliciting comments on what should be considered a “small” program and what percentage threshold or other approach regarding new resident trainees should be applied to these programs. We solicit comment on defining a small residency program as a program accredited for 16 or fewer resident positions, because 16 positions would encompass the minimum number of resident positions required for accredited programs in certain specialties, such as primary care and general surgery, that have historically experienced physician shortages, and therefore have been prioritized by Congress and CMS for receipt of slots under sections 5503 and 5506 of the Affordable Care Act.

b. Newness of Faculty and Program Director—RFI (Request for Information)

Regarding the selection of teaching staff and a program director, we understand that it would be reasonable for a new program to wish to hire some staff that already have experience teaching residents and operating a program. Therefore, to accommodate the hiring of some experienced staff, we believe that the percentage of faculty with no previous experience teaching in a program in the same specialty should probably be less than 90 percent, but we are uncertain what the appropriate threshold should be. At one extreme, we can envision a scenario where recruitment of most or all of the experienced staff from a particular existing program may even result in the disintegration of and possible closure of that existing program. Such a situation could be chaotic to that hospital and leave residents scrambling for alternative sites to complete their training. Consequently, we do believe there should be some threshold for the relative proportion of non-experienced and experienced staff at a new residency program, and we are requesting information from commenters regarding what a reasonable threshold might be. We also are seeking comment on the variables involved in examining the newness of teaching staff. We note that the ACGME defines “Core Faculty” in its Glossary of Terms as physician teachers that devote at least 15 hours per week to a residency program, or 10 hours per week to a fellowship. However, in addition to other minimum hours for staff, there may be other types of faculty or staff that CMS should consider to be involved in a program. We are therefore soliciting information from commenters regarding whether any threshold for determining the newness of teaching staff for a new program should consider only the ACGME's definition of “Core Faculty”, or count non-core faculty as well.

While we are uncertain what percentage the threshold for experienced faculty should be, we are suggesting a threshold for commenters to consider. We suggest that up to 50 percent of the teaching staff in a new program may come from a previously existing program in the same specialty, but if so, each of those staff members should come from different previously existing programs. For example, if there are 6 teaching staff total, then at least 3 must have no previous experience teaching in the same specialty, while up to 3 may come from previously existing programs in the same specialty; however, each of the 3 experienced faculty would have to come from a different previously existing program. That is, one may come from Hospital A's existing program, another could come from Hospital B's existing program, and a third could come from Hospital C's existing program; but no more than one could come from any of Hospital A, Hospital B, or Hospital C. If two were to come from Hospital A, we suggest that would not be permissible.

We have also been asked whether it would make a difference if a faculty member had previous teaching experience, but a certain amount of time has passed since they taught in a program in the same specialty (for example, because they accepted a non-teaching job in a different hospital, or the program where they previously taught has ceased to operate). As mentioned previously, we would want to avoid loss of most or all of an existing program's experienced faculty. However, we believe this concern might be mitigated if a faculty member has not been associated with an existing program for a certain amount of time, or if the program in question has closed.

In the August 27, 2009 Federal Register , we discussed the specific scenario in which a hospital discontinued one of its previously existing residency programs, and then established a program in the same specialty at some time in the future:

“[I]f a hospital wishes to begin training residents in a particular program in which it trained residents in the past, but the program has not trained residents for the past 10 years, the program could be subsequently considered a new program. We believe that a program that is closed for several years and then reopens is separate and distinct from the previous program, and would likely not involve any residents that had trained in the previous program, even though, as the commenter indicated, the directors and teaching staff may be the same. (However, we note that it may be necessary to determine whether the program director and the teaching staff have been training [dental] residents during the past 10 years at another training site in order to determine whether the program at the hospital that is beginning to train residents after a 10-year hiatus is truly a new program)” (74 FR 43916, emphasis added).

We continue to believe that if a hospital wishes to begin training residents in a particular program in which it trained residents in the past, but the program has not trained residents for the past 10 years, the program could be subsequently considered a new program. More generally, we believe that, in determining whether the presence of a faculty member might jeopardize the newness of a new residency program, it may make sense to consider whether a certain amount of time has passed since that faculty member last taught in another program in the same specialty. We are therefore soliciting comments on whether 10 years, or some other amount of time, would be an appropriate period during which a faculty member should not have had experience teaching in a program in the same specialty. For example, it might make sense to consider whether a staff member taught in another program in the same specialty at any point during the 5 years prior to their employment in the “new” program, as 5 years is the time associated with building a new FTE cap, but not to consider teaching experience from more than 5 years ago.

In addition, since we understand that a new teaching hospital may also want to recruit an experienced program director, we are soliciting comments on whether it would make sense to define a similar period of time (for example, 10 years or 5 years) during which an individual must not have been employed as the program director in a program in the same specialty. In formulating suggestions, commenters may want to consider whether the suggested period of time (for example, 10 years or 5 years) aligns or conflicts with the ACGME common program requirements, which State that program director qualifications “must include specialty expertise and at least three years of documented educational and/or administrative experience, or qualifications acceptable to the Review Committee” ( https://www.acgme.org/globalassets/pfassets/programrequirements/cprresidency_2023.pdf).

Finally, we understand that there may be unique issues that small or rural residencies face in recruiting qualified program directors and faculty to ensure success during the early years of the residency. In small programs, when there may only be 2 or 3 core faculty members, flexibility may be necessary in the proportions of new and experienced teaching staff. As stated previously, we are soliciting comments on what should be considered a “small” program (for example, programs accredited for 16 or fewer positions), and what staff threshold or other approach should be applied to small, which may include rural, programs.

To summarize, we are soliciting comments on the following points regarding the determination of whether the faculty and program director are new:

• What is a reasonable threshold for the relative proportions of experienced and new teaching staff? Should there be different thresholds for small, which may include rural, residency programs?
• Should a threshold for determining newness of teaching staff for a new program consider only Core Faculty, or non-core faculty (or key non-faculty staff) as well?

• We seek feedback on our suggestion that 50 percent of the teaching staff may come from a previously existing program in the same specialty, but if so, the 50 percent should comprise staff that each came from different previously existing programs in the specialty.

• In considering whether the presence of a faculty member might jeopardize the newness of a new program, would it be reasonable to consider whether 10 years or 5 years, or some other amount of time, has passed during which that faculty member has not had experience teaching in a program in the same specialty?

• Would it make sense to define a similar period of time (for example, 10 years or 5 years) during which an individual must not have been employed as the program director in a program in the same specialty? Should there be a different criterion for small, which may include rural, residency programs?

c. Commingling of Residents in a New and an Existing Program—RFI

We have learned that it is not uncommon for residents in separately accredited programs, but in the same specialty, to meet and share some clinical and didactic training experiences, which for the purpose of this discussion we refer to as “commingling.” For example, residents in two separately accredited anesthesiology programs may receive training simultaneously in a certain niche surgical competency, and may collaborate in certain shared scholarly activities required for completion of the anesthesiology residency. This is an issue different from the newness of residents, as the residents in this case are separately matched into distinct programs, yet have certain current training experiences in common. We believe this cooperative approach may be reasonable from an educational perspective, yet when taken to an extreme, may result in the inappropriate creation of new cap slots for a program that looks more like an expansion of an existing program rather than the formation of a truly new program. As an extreme example, we consider a hypothetical case in which a “new” program and an existing program share 100% of resident rotations, using the same faculty, and rotating simultaneously to the same locations. In this case, the “new” program would be just a “carbon copy” of the existing one. On the other hand, even a small percentage of shared rotations can be concerning, as shown under the following scenario:

Assume New Teaching Hospital (NTH) A starts a new Family Medicine residency program. Residents in the new program spend 90 percent of their time at NTH Hospital A, and 10 percent at Existing Teaching Hospital (ETH) B. ETH B has reclassified as rural under 42 CFR 412.103, and is eligible for an IME cap adjustment for any portion of participation in the new program. NTH A hires a brand new program director and brand new faculty, and all the residents are new, so the newness criteria we adopted in the August 27, 2009 Federal Register are satisfied. However, during the 10 percent of total time they spend at ETH B, residents in the program share their rotations with residents in ETH B's existing Family Medicine program.

In this case, commingling accounts for only 10 percent of total program time, but for 100 percent of the time at ETH B's existing Family Medicine program. Under current regulations at 42 CFR 413.79(e)(1)(vi), ETH B would receive a one-tenth share of the overall IME cap increase, even though that 10 percent of resident time is functionally an expansion of its existing Family Medicine program. We are soliciting comments on whether and what amount, if any, of commingling is appropriate among residents in an existing program and residents in a program where training is occurring at a hospital that may be eligible for an FTE cap increase for training residents in a new program.

d. One Hospital Sponsoring Two Programs in the Same Specialty—RFI

We have been asked whether it is permissible for one hospital to operate two programs in the same specialty. We have heard this commonly occurs in states with more sparsely populated areas, where there is often one dominant academic medical center/sponsor of residency programs in the state, and that sponsor creates more than one program in a specialty to provide access to care in different areas of the state. We have answered this question by saying that if each program in fact has separate program directors, and separate staff, and separately matched residents, then it is permissible for one hospital to sponsor two programs in the same specialty.

However, we are taking the opportunity to solicit comments on why hospitals might want to train residents in separately accredited programs, but in the same specialty, and the degree to which this happens in general, in both sparsely populated and more densely populated areas. In conjunction with our solicitation of previous comments regarding commingling of residents in different programs in the same specialty, and our concerns regarding new FTE caps created for programs that may not truly be new at hospitals with an urban-to-rural reclassification, we are interested in hearing from commenters regarding the reasons why hospitals may sponsor more than one program in the same specialty, including but not limited to Rural Track Programs, and the degree to which commingling may occur in these programs.

4. Technical Fixes to the DGME Regulations

In the course of our ongoing implementation of policies concerning payment for graduate medical education, we have become aware of the existence of several technical errors in the direct GME regulations at 42 CFR 413.75 through 413.83. We therefore propose to correct these technical errors, as discussed later.

a. Correction of Cross-References to § 413.79(f)(7)

In the FY 2010 IPPS final rule (74 FR 43918 and 44001, August 27, 2009), we amended 42 CFR 413.79(f) by adding a new paragraph (f)(6) and redesignating existing paragraph (f)(6) as paragraph (f)(7). The new § 413.79(f)(6) sets forth requirements for participation in a Medicare GME affiliated group by a hospital that is new after July 1 and begins training residents for the first time after the July 1 start date of an academic year, while the redesignated § 413.79(f)(7) contains the regulations pertaining to emergency Medicare GME affiliated groups.

We have discovered that, after redesignating the former § 413.79(f)(6) as § 413.79(f)(7), we inadvertently did not update the cross-references to this paragraph at §§ 413.75(b) and 413.78. Accordingly, in this proposed rule, we are proposing to revise the language of the definition of “Emergency Medicare GME affiliated group” under § 413.75(b), as well as the language at §§ 413.78(e)(3)(iii) and (f)(3)(iii), by correcting the cross-references to read “§ 413.79(f)(7).”

b. Removal of Obsolete Regulations Under § 413.79(d)(6)

Under 42 CFR 413.79(h), a hospital may receive a temporary adjustment to its FTE cap to reflect displaced residents added as a result of the closure of another hospital or residency training program. Furthermore, under § 413.79(d)(6)(i) (previously § 413.79(d)(6)), displaced residents counted under a temporary cap adjustment are added to the receiving hospital's FTE count after application of the three-year rolling average for the duration of the time that the displaced residents are training at the receiving hospital.

In the November 24, 2010 final rule (75 FR 72212 through 72238), we implemented the provisions of section 5506 of the Affordable Care Act, which directs the Secretary to redistribute Medicare GME residency slots from teaching hospitals that close after March 23, 2008. A hospital that had previously accepted residents displaced by a teaching hospital closure and received a temporary cap adjustment for training those residents under § 413.79(h) may subsequently apply for a permanent cap increase under section 5506.

As part of the implementation of section 5506, we finalized several ranking criteria to prioritize applications, and specified the dates on which awards would become effective for hospitals that apply under each of those criteria. In particular, we finalized Ranking Criteria One and Three, which describe applicant hospitals that take over, respectively, an entire residency program(s) or part of a residency program(s) from the closed hospital. Consistent with the policy finalized in the November 24, 2010 final rule, a permanent cap increase awarded under Ranking Criterion One or Three would generally override any temporary cap adjustment that the applying hospital may have received under § 413.79(h), with the result that those resident slots would immediately become subject to the three-year rolling average calculation (75 FR 72224).

We also stated, however, that we believed it would still be appropriate to allow a hospital that ultimately would qualify to receive slots permanently under any of the ranking criteria and that took in displaced residents to receive temporary cap adjustments and, in a limited manner, an exemption from the three-year rolling average. Therefore, we finalized a policy that, in the first cost reporting period in which the applying hospital takes in displaced residents and the hospital closure occurs, the applying hospital could receive a temporary cap adjustment and an exemption from the rolling average for the displaced residents. Then, effective beginning with the cost reporting period following the one in which the hospital closure occurred, the applying hospital's permanent cap increase would take effect, and there would be no exemption from the rolling average (75 FR 72225 and 72263).

Therefore, we amended § 413.79(d) by redesignating the existing paragraph (d)(6) as (d)(6)(i) and by adding new (d)(6)(ii), which states stated that if a hospital received a permanent increase in its FTE resident cap under § 413.79(o)(1) due to redistribution of slots from a closed hospital, the displaced FTE residents that the hospital received would be added to the FTE count after applying the averaging rules only in the first cost reporting period in which the receiving hospital trained the displaced FTE residents. In subsequent cost reporting periods, the displaced FTE residents would be included in the receiving hospital's rolling average calculation.

Subsequently, in the FY 2013 IPPS final rule (77 FR 53437 through 53443, August 31, 2012), we finalized revisions to our policy concerning the effective dates of section 5506 cap increases awarded under the various ranking criteria. In particular, we finalized a policy that slots awarded under Ranking Criteria One and Three become effective seamlessly with the expiration of temporary cap adjustments under § 413.79(h) (that is, on the day after the graduation date(s) of the displaced residents). As stated in that final rule, under this revised policy, permanent cap increases under section 5506 would no longer “replace” temporary cap adjustments under § 413.79(h), and exemptions from the three-year rolling average would no longer be suspended as a consequence of the receipt of permanent slots (77 FR 53441).

Under the policy finalized in the FY 2013 IPPS final rule, there is no longer any need for the regulation at § 413.79(d)(6)(ii), which would apply in the situation where a permanent cap increase under section 5506 would otherwise have overridden a temporary cap adjustment for displaced residents under § 413.79(h). Instead, our policy is that displaced residents are excluded from the receiving hospital's rolling average calculation for the duration of the time that they are training at the receiving hospital, as specified at § 413.79(6)(i). However, we have discovered that we neglected to make the appropriate revisions to the regulations text to reflect our current policy.

Accordingly, we are proposing to amend § 413.79(d)(6) by removing the no longer applicable paragraph (d)(6)(ii), and by redesignating existing (d)(6)(i) as (d)(6).

c. Correction of Typographical Errors at § 413.79(k)(2)(i)

In the final rule published on December 27, 2021, as part of the implementation of section 127 of the CAA, 2021 (Pub. L. 116-260), we finalized various changes throughout the regulations text at 42 CFR 413.79(k), “Residents training in rural track programs” (86 FR 73445 through 73457 and 73514 through 73515). We have discovered that the final sentence of § 413.79(k)(2)(i), as amended in that rule, incorrectly states, “For Rural Track Programs prior to the start of the urban or rural hospital's cost reporting period that coincides with or follows the start of the sixth program year of the rural track's existence . . .”

The beginning of the quoted sentence should instead refer to “cost reporting periods beginning on or after October 1, 2022,” and should otherwise be analogous to the similar text that appears at § 413.79(k)(1)(i). Accordingly, we are proposing to revise § 413.79(k)(2)(i) to read as follows: “For cost reporting periods beginning on or after October 1, 2022, before the start of the urban or rural hospital's cost reporting period that coincides with or follows the start of the sixth program year of the Rural Track Program's existence, the rural track FTE limitation for each hospital will be the actual number of FTE residents training in the Rural Track Program at the urban or rural hospital and, subject to the requirements under § 413.78(g), at the rural nonprovider site(s).”

5. Notice of Closure of Teaching Hospital and Opportunity To Apply for Available Slots

a. Background

Section 5506 of the Patient Protection and Affordable Care Act (Pub. L. 111-148), as amended by the Health Care and Education Reconciliation Act of 2010 (Pub. L. 111-152) (collectively, “Affordable Care Act”), authorizes the Secretary to redistribute residency slots after a hospital that trained residents in an approved medical residency program closes. Specifically, section 5506 of the Affordable Care Act amended the Act by adding subsection (vi) to section 1886(h)(4)(H) of the Act and modifying language at section 1886(d)(5)(B)(v) of the Act, to instruct the Secretary to establish a process to increase the FTE resident caps for other hospitals based upon the full-time equivalent (FTE) resident caps in teaching hospitals that closed on or after a date that is 2 years before the date of enactment (that is, March 23, 2008). In the CY 2011 Outpatient Prospective Payment System (OPPS) final rule with comment period (75 FR 72264), we established regulations at 42 CFR 413.79(o) and an application process for qualifying hospitals to apply to CMS to receive direct GME and IME FTE resident cap slots from the hospital that closed. We made certain additional modifications to § 413.79 in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53434), and we made changes to the section 5506 application process in the FY 2015 IPPS/LTCH PPS final rule (79 FR 50122 through 50134). The procedures we established apply both to teaching hospitals that closed on or after March 23, 2008, and on or before August 3, 2010, and to teaching hospitals that close after August 3, 2010 (75 FR 72215).

b. Notice of Closure of McLaren St. Luke's Hospital Located in Maumee, OH, and the Application Process—Round 21

CMS has learned of the closure of McLaren St. Luke's Hospital Located in Maumee, OH (CCN 360090). Accordingly, this notice serves to notify the public of the closure of this teaching hospital and initiate another round of the section 5506 application and selection process. This round will be the 21st round (“Round 21”) of the application and selection process. The table in this section of this rule contains the identifying information and IME and direct GME FTE resident caps for the closed teaching hospital, which are part of the Round 21 application process under section 5506 of the Affordable Care Act.

c. Notice of Closure of South City Hospital Located in St. Louis, MO, and the Application Process—Round 22

CMS has learned of the closure of South City Hospital, located in St. Louis, MO (CCN 260210). Accordingly, this notice serves to notify the public of the closure of this teaching hospital and initiate another round (“Round 22”) of the application and selection process. This round will be the 22nd round (“Round 22”) of the application and selection process. The table in this section of this rule contains the identifying information and IME and direct GME FTE resident caps for the closed teaching hospital, which are part of the Round 22 application process under section 5506 of the Affordable Care Act.

d. Application Process for Available Resident Slots

The application period for hospitals to apply for slots under section 5506 of the Affordable Care Act is 90 days following notice to the public of a hospital closure (77 FR 53436). Therefore, hospitals that wish to apply for and receive slots from the previously noted hospitals' FTE resident caps must submit applications using the electronic application intake system, Medicare Electronic Application Request Information System^TM (MEARIS^TM), with application submissions for Round 21 and Round 22 due no later than July 9, 2024. The Section 5506 application can be accessed at: https://mearis.cms.gov/public/home.

CMS will only accept Round 21 and Round 22 applications submitted via MEARIS^TM . Applications submitted through any other method will not be considered. Within MEARIS^TM, we have built in several resources to support applicants:

• Please refer to the “Resources” section for guidance regarding the application submission process at: https://mearis.cms.gov/public/resources.

• Technical support is available under “Useful Links” at the bottom of the MEARIS^TM web page.

• Application related questions can be submitted to CMS using the form available under “Contact” at: https://mearis.cms.gov/public/resources.

Application submission through MEARIS^TM will not only help CMS track applications and streamline the review process, but it will also create efficiencies for applicants when compared to a paper submission process.

We have not established a deadline by when CMS will issue the final determinations to hospitals that receive slots under section 5506 of the Affordable Care Act. However, we review all applications received by the deadline and notify applicants of our determinations as soon as possible.

We refer readers to the CMS Direct Graduate Medical Education (DGME) website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/direct-graduate-medical-education-dgme. Hospitals should access this website for a list of additional section 5506 guidelines for the policy and procedures for applying for slots, and the redistribution of the slots under sections 1886(h)(4)(H)(vi) and 1886(d)(5)(B)(v) of the Act.

6. Reminder of Core-Based Statistical Area (CBSA) Changes and Application to GME Policies

In section III.B. of the preamble of this proposed rule, we discuss the proposed changes to the most recent OMB standards for delineating statistical areas announced in the July 21, 2023 OMB Bulletin No. 23-01. We refer to these statistical areas as Core-Based Statistical Areas (CBSAs). As a result of the new OMB delineations, some teaching hospitals may be redesignated from being located in a rural CBSA to an urban CBSA, or from being located in an urban CBSA to a rural CBSA. In the FY 2015 IPPS/LTCH PPS final rule (79 FR 50111, August 22, 2014), we last discussed the effects of the CBSA changes on IME and DGME payment policy, as at that time, we implemented the changes to the statistical areas resulting from the February 28, 2013, OMB Bulletin No. 13-01. We refer readers to the FY 2015 IPPS/LTCH PPS final rule to learn more about CMS' policies regarding changes to the CBSAs and how IME and DGME payments are impacted. We emphasize that we are not currently proposing any additional policies as a result of the latest CBSA changes; we are merely providing a reference for readers that may have questions about our existing policies. As a general overview, the FY 2015 IPPS/LTCH PPS final rule discusses the effect on the FTE caps of a hospital that was located in a rural CBSA, either at the time that it started training residents in a new residency program, or was located in a rural area when it received accreditation for a new program, but either prior to actually starting the program or during the 5-year cap building period, the CBSA in which the hospital was located became an urban CBSA (79 FR 50111 through 50113). We also discussed what happens to a rural training track when a rural hospital that is participating as the rural site is redesignated as urban, either during the period when the rural track is being established, or after it has been established (79 FR 50113). (Note that under 42 CFR 413.75(b) and 413.79(k), we now refer to rural training tracks as Rural Training Programs (RTPs)). We provided for a transition period, wherein either the redesignated urban hospital must reclassify as rural under § 412.103 for purposes of IME payment only (in addition, this reclassification option only applies to IPPS hospitals (or CAHs under 42 CFR 412.103(a)(6)), not other nonprovider sites), or the “original” urban hospital must have found a new site in a geographically rural area that will serve as the rural site for purposes of the rural track in order for the “original” urban hospital to receive payment under § 413.79(k)(1) or (k)(2). Also see DGME regulations at 42 CFR 413.79(c)(6), 42 CFR 413.79(k)(7), and for IME, at 42 CFR 412.105(f)(1)(iv)(D).

G. Reasonable Cost Payment for Nursing and Allied Health Education Programs (§§ 413.85 and 413.87)

a. General

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

b. Medicare Advantage Nursing and Allied Health Education Payments

Section 541 of the Balanced Budget Refinement Act (BBRA) of 1999 provides for additional payments to hospitals for costs of nursing and allied health education associated with services to Medicare+Choice (now called Medicare Advantage (MA)) enrollees. Hospitals that operate approved nursing or allied health education programs and receive Medicare reasonable cost reimbursement for these programs may receive additional payments to account for MA enrollees. Section 541 of the BBRA limits total spending under the provision to no more than $60 million in any calendar year (CY). (In this document, we refer to the total amount of $60 million or less as the payment “pool”.) Section 541 of the BBRA also provides that direct graduate medical education (GME) payments for Medicare+Choice utilization are reduced to the extent that these additional payments are made for nursing and allied health education programs. This provision was effective for portions of cost reporting periods occurring in a CY, on or after January 1, 2000.

Section 512 of the Benefits Improvement and Protection Act (BIPA) of 2000 changed the formula for determining the additional amounts to be paid to hospitals for MA nursing and allied health costs. Under section 541 of the BBRA, the additional payment amount was determined based on the proportion of each individual hospital's nursing and allied health education payment to total nursing and allied health education payments made to all hospitals. However, this formula did not account for a hospital's specific MA utilization. Section 512 of the BIPA revised this payment formula to specifically account for each hospital's MA utilization. This provision was effective for portions of cost reporting periods occurring in a calendar year, beginning with CY 2001.

The regulations at 42 CFR 413.87 codified both statutory provisions. We first implemented the BBRA NAH MA provision in the August 1, 2000 IPPS interim final rule with comment period (IFC) (65 FR 47036 through 47039), and subsequently implemented the BIPA provision in the August 1, 2001 IPPS final rule (66 FR 39909 and 39910). In those rules, we outlined the qualifying conditions for a hospital to receive the NAH MA payment, how we would calculate the NAH MA payment pool, and how a qualifying hospital would calculate its “share” of payment from that pool. Determining a hospital's NAH MA payment essentially involves applying a ratio of the hospital-specific NAH Part A payments, total inpatient days, and MA inpatient days, to national totals of those same variables, from cost reporting periods ending in the fiscal year that is 2 years prior to the current calendar year. The formula is as follows:

(((Hospital NAH pass-through payment/Hospital Part A Inpatient Days) * Hospital MA Inpatient Days)/((National NAH pass-through payment/National Part A Inpatient Days) * National MA Inpatient Days)) * Current Year Payment Pool.

With regard to determining the total national amounts for NAH pass-through payment, Part A inpatient days, and MA inpatient days, we note that section 1886(l) of the Act, as added by section 541 of the BBRA, gives the Secretary the discretion to “estimate” the national components of the formula noted previously. For example, section 1886(l)(2)(A) of the Act states that the Secretary would estimate the ratio of payments for all hospitals for portions of cost reporting periods occurring in the year under subsection 1886(h)(3)(D) of the Act to total direct GME payments estimated for the same portions of periods under section 1886(h)(3) of the Act.

Accordingly, we stated in the August 1, 2000 IFC (65 FR 47038) that each year, we would determine and publish in a final rule the total amount of nursing and allied health education payments made across all hospitals during the fiscal year 2 years prior to the current calendar year. We would use the best available cost reporting data for the applicable hospitals from the Hospital Cost Report Information System (HCRIS) for cost reporting periods in the fiscal year that is 2 years prior to the current calendar year (65 FR 47038).

To calculate the pool, in accordance with section 1886(l) of the Act, we stated that we would “estimate” a total amount for each calendar year, not to exceed $60 million (65 FR 47038). To calculate the proportional reduction to Medicare+Choice (now MA) direct GME payments, we stated that the percentage is estimated by calculating the ratio of the Medicare+Choice nursing and allied health payment “pool” for the current calendar year to the projected total Medicare+Choice direct GME payments made across all hospitals for the current calendar year. We stated that the projections of Medicare+Choice direct GME and Part A direct GME payments are based on the best available cost report data from the HCRIS (for example, for calendar year 2000, the projections are based on the best available cost report data from HCRIS 1998), and these payment amounts are increased using the increases allowed by section 1886(h) of the Act for these services (using the percentage applicable for the current calendar year for Medicare+Choice direct GME and the Consumer Price Index (CPI-U) increases for Part A direct GME). We also stated that we would publish the applicable percentage reduction each year in the IPPS proposed and final rules (65 FR 47038).

Thus, in the August 1, 2000 IFC, we described our policy regarding the timing and source of the national data components for the NAH MA add-on payment and the percent reduction to the direct GME MA payments, and we stated that we would publish the rates for each calendar year in the IPPS proposed and final rules. While the rates for CY 2000 were published in the August 1, 2000 IFC (see 65 FR 47038 and 47039), the rates for subsequent CYs were only issued through Change Requests (CRs) (CR 2692, CR 11642, CR 12407). After recent issuance of the CY 2019 rates in CR 12407 on August 19, 2021, we reviewed our update procedures, and were reminded that the August 1, 2000 IFC states that we would publish the NAH MA rates and direct GME percent reduction every year in the IPPS rules. Accordingly, for CY 2020 and CY 2021, we proposed and finalized the NAH MA add-on rates in the FY 2023 IPPS/LTCH PPS proposed and final rules. We stated that for CYs 2022 and after, we would similarly propose and finalize their respective NAH MA rates and direct GME percent reductions in subsequent IPPS/LTCH PPS rulemakings (see 87 FR 49073, August 10, 2022).

In this FY 2025 IPPS/LTCH PPS proposed rule, we are proposing the rates for CY 2023. Consistent with the use of HCRIS data for past calendar years, we are proposing to use data from cost reports ending in FY 2021 HCRIS (the fiscal year that is 2 years prior to CY 2023) to compile these national amounts: NAH pass-through payment, Part A Inpatient Days, MA Inpatient Days.

For this proposed rule, we accessed the FY 2021 HCRIS data from the fourth quarterly HCRIS update of 2023. However, to calculate the “pool'” and the direct GME MA percent reduction, we “project” Part A direct GME payments and MA direct GME payments for the current calendar year, which in this proposed rule is CY 2023, based on the “best available cost report data from the HCRIS” (65 FR 47038). Next, consistent with the method we described previously from the August 1, 2000 IFC, we increased these payment amounts from midpoint to midpoint of the appropriate calendar year using the increases allowed by section 1886(h) of the Act for these services (using the percentage applicable for the current calendar year for MA direct GME, and the Consumer Price Index (CPI-U) increases for Part A direct GME). For CY 2023, the direct GME projections are based on the fourth quarterly update of CY 2021 HCRIS, adjusted for the CPI-U and for increasing MA enrollment.

For CY 2023, the proposed national rates and percentages, and their data sources, are set forth in this table. We intend to update these numbers in the FY 2025 final rule based on the latest available cost report data.

H. Proposed Payment Adjustment for Certain Clinical Trial and Expanded Access Use Immunotherapy Cases (§§ 412.85 and 412.312)

Effective for FY 2021, we created MS-DRG 018 for cases that include procedures describing CAR T-cell therapies, which were reported using ICD-10-PCS procedure codes XW033C3 or XW043C3 (85 FR 58599 through 58600). Effective for FY 2022, we revised MS-DRG 018 to include cases that report the procedure codes for CAR T-cell and non-CAR T-cell therapies and other immunotherapies (86 FR 44798 through 448106).

Effective for FY 2021, we modified our relative weight methodology for MS-DRG 018 in order to develop a relative weight that is reflective of the typical costs of providing CAR T-cell therapies relative to other IPPS services. Specifically, under our finalized policy we do not include claims determined to be clinical trial claims that group to MS-DRG 018 when calculating the average cost for MS-DRG 018 that is used to calculate the relative weight for this MS-DRG, with the additional refinements that: (a) when the CAR T-cell therapy product is purchased in the usual manner, but the case involves a clinical trial of a different product, the claim will be included when calculating the average cost for MS DRG 018 to the extent such claims can be identified in the historical data; and (b) when there is expanded access use of immunotherapy, these cases will not be included when calculating the average cost for MS-DRG 018 to the extent such claims can be identified in the historical data (85 FR 58600). The term “expanded access” (sometimes called “compassionate use”) is a potential pathway for a patient with a serious or immediately life-threatening disease or condition to gain access to an investigational medical product (drug, biologic, or medical device) for treatment outside of clinical trials when, among other criteria, there is no comparable or satisfactory alternative therapy to diagnose, monitor, or treat the disease or condition (21 CFR 312.305).

Effective FY 2021, we also finalized an adjustment to the payment amount for applicable clinical trial and expanded access immunotherapy cases that group to MS-DRG 018 using the same methodology that we used to adjust the case count for purposes of the relative weight calculations (85 FR 58842 through 58844). (As previously noted, effective beginning FY 2022, we revised MS-DRG 018 to include cases that report the procedure codes for CAR T-cell and non-CAR T-cell therapies and other immunotherapies (86 FR 44798 through 448106).) Specifically, under our finalized policy we apply a payment adjustment to claims that group to MS-DRG 018 and include ICD-10-CM diagnosis code Z00.6, with the modification that when the CAR T-cell, non-CAR T-cell, or other immunotherapy product is purchased in the usual manner, but the case involves a clinical trial of a different product, the payment adjustment will not be applied in calculating the payment for the case. We also finalized that when there is expanded access use of immunotherapy, the payment adjustment will be applied in calculating the payment for the case. This payment adjustment is codified at 42 CFR 412.85 (for operating IPPS payments) and 42 CFR 412.312 (for capital IPPS payments), for claims appropriately containing Z00.6, as described previously, and reflects that the adjustment is also applied for cases involving expanded access use immunotherapy, and that the payment adjustment only applies to applicable clinical trial cases; that is, the adjustment is not applicable to cases where the CAR T-cell, non-CAR T-cell, or other immunotherapy product is purchased in the usual manner, but the case involves a clinical trial of a different product. The regulations at 42 CFR 412.85(c) also specify that the adjustment factor will reflect the average cost for cases to be assigned to MS-DRG 018 that involve expanded access use of immunotherapy or are part of an applicable clinical trial to the average cost for cases to be assigned to MS-DRG 018 that do not involve expanded access use of immunotherapy and are not part of a clinical trial (85 FR 58844).

For FY 2025, we are proposing to continue to apply an adjustment to the payment amount for expanded access use of immunotherapy and applicable clinical trial cases that would group to MS-DRG 018, as calculated using the same methodology, as modified in the FY 2024 IPPS/LTCH PPS final rule (88 FR 59062), that we are proposing to use to adjust the case count for purposes of the relative weight calculations, as described in section II.D. of the preamble of this proposed rule.

As discussed in the FY 2024 IPPS/LTCH PPS final rule, the MedPAR claims data now includes a field that identifies whether or not the claim includes expanded access use of immunotherapy. For the FY 2023 MedPAR data and for subsequent years, this field identifies whether or not the claim includes condition code 90. The MedPAR files now also include information for claims with the payer-only condition code “ZC”, which is used by the IPPS Pricer to identify a case where the CAR T-cell, non-CAR T-cell, or other immunotherapy product is purchased in the usual manner, but the case involves a clinical trial of a different product so that the payment adjustment is not applied in calculating the payment for the case (for example, see Change Request 11879, available at https://www.cms.gov/files/document/r10571cp.pdf). We refer the readers to section II.D. of the preamble of this proposed rule for further discussion of our methodology for identifying clinical trial claims and expanded access use claims in MS-DRG 018 and our methodology used to adjust the case count for purposes of the relative weight calculations, as modified in the FY 2024 IPPS/LTCH PPS final rule.

Using the same methodology that we are proposing to use to adjust the case count for purposes of the relative weight calculations, we are proposing to calculate the adjustment to the payment amount for expanded access use of immunotherapy and applicable clinical trial cases as follows:

• Calculate the average cost for cases assigned to MS-DRG 018 that either (a) contain ICD-10-CM diagnosis code Z00.6 and do not contain condition code “ZC” or (b) contain condition code “90”.
• Calculate the average cost for all other cases assigned to MS-DRG 018.
• Calculate an adjustor by dividing the average cost calculated in step 1 by the average cost calculated in step 2.
• Apply this adjustor when calculating payments for expanded access use of immunotherapy and applicable clinical trial cases that group to MS-DRG 018 by multiplying the relative weight for MS-DRG 018 by the adjustor.

We refer the readers to section II.D. of the preamble of this proposed rule for further discussion of our methodology.

Consistent with our calculation of the proposed adjustor for the relative weight calculations, for this proposed rule we propose to calculate this adjustor based on the December 2023 update of the FY 2023 MedPAR file for purposes of establishing the FY 2025 payment amount. Specifically, in accordance with 42 CFR 412.85 (for operating IPPS payments) and 42 CFR 412.312 (for capital IPPS payments), we propose to multiply the FY 2025 relative weight for MS-DRG 018 by a proposed adjustor of 0.34 as part of the calculation of the payment for claims determined to be applicable clinical trial or expanded use access immunotherapy claims that group to MS-DRG 018, which includes CAR T-cell and non-CAR T-cell therapies and other immunotherapies. We also propose to update the value of the adjustor based on more recent data for the final rule.

I. Proposed Changes to the Calculation of the IPPS Add-On Payment for Certain End-Stage Renal Disease (ESRD) Discharges (§ 412.104)

Under existing regulations at § 412.104, we provide an additional payment to a hospital for inpatient services provided to certain Medicare beneficiaries with ESRD who receive a dialysis treatment during a hospital stay, if the hospital's ESRD Medicare beneficiary discharges, excluding discharges classified into the MS-DRGs listed at § 412.104(a), where the beneficiary received dialysis services during the inpatient stay, are 10 percent or more of its total Medicare discharges. The additional payment (referred to as the ESRD add-on payment) is intended to lessen the impact of the added costs for hospitals that deliver inpatient dialysis services to a high concentration of ESRD Medicare beneficiaries (76 FR 51692). The additional payment is based on the average length of stay for ESRD beneficiaries in the facility times a factor based on the average direct cost of furnishing dialysis services during a usual beneficiary stay (49 FR 34747). The payment to a hospital equals the average length of stay of ESRD beneficiaries in the hospital, expressed as a ratio to 1 week, times the estimated weekly cost of dialysis multiplied by the number of ESRD beneficiary discharges not excluded under § 412.104(a). The average direct cost of dialysis was determined from data obtained in connection with establishing the composite rate reimbursement for outpatient maintenance dialysis (49 FR 34747).

On January 1, 2011, we implemented the ESRD PPS, a case-mix adjusted, bundled PPS for renal dialysis services furnished by ESRD facilities as required by section 1881(b)(14) of the Act, as added by section 153(b) of the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA) (Pub. L. 110-275). Section 1881(b)(14)(F) of the Act, as added by section 153(b) of MIPPA, and amended by section 3401(h) of the Patient Protection and Affordable Care Act (the Affordable Care Act) (Pub. L. 111-148), established that beginning CY 2012, and each subsequent year, the Secretary of the Department of Health and Human Services (the Secretary) shall annually increase payment amounts by an ESRD market basket percentage increase, reduced by the productivity adjustment described in section 1886(b)(3)(B)(xi)(II) of the Act (74 FR 49927). The ESRD PPS replaced the basic case-mix adjusted composite rate payment system and the payment methodologies for separately billable outpatient renal dialysis items and services. Payment under Medicare Part B for outpatient renal dialysis services has been based entirely on the ESRD PPS since January 1, 2014 (78 FR 72160). The ESRD PPS pays ESRD facilities a case-mix-adjusted, bundled payment, which includes former composite rate services and ESRD-related drugs, laboratory services, and medical equipment and supplies (80 FR 68973). The ESRD PPS base rate is designed to reflect the average cost per-treatment of providing renal dialysis services. The per treatment payment amount (that is, the ESRD PPS base rate, subject to applicable adjustments) is typically applied to a regimen of three hemodialysis treatments per week. CMS updates the ESRD PPS base rate annually. We refer readers to the August 12, 2010, ESRD PPS final rule (75 FR 49030 through 49214) for additional details on the establishment of the ESRD PPS, including a discussion of the transition from the basic case-mix adjusted composite rate payment system to the ESRD PPS.

As described previously, under current regulations the ESRD add-on payment is based on the average direct cost of furnishing dialysis services determined from data obtained in connection with establishing the composite rate. Under the current regulations, the average cost of dialysis is reviewed and adjusted, if appropriate, at the time the composite rate reimbursement for outpatient dialysis is reviewed. The last time CMS updated the composite rate was in the CY 2013 ESRD PPS final rule (77 FR 67454), as this was the final year in which payments to ESRD facilities were based on a blend of the composite rate and the ESRD PPS. In light of the time that has passed since the last update to the composite rate, we are proposing to change the methodology used to calculate the ESRD add-on payment under current regulations to the ESRD PPS base rate used under the ESRD PPS. In addition, since the renal dialysis services reflected in the ESRD PPS base rate do not include those services that are not essential for the delivery of maintenance dialysis (see § 413.171), using the ESRD PPS base rate to calculate the ESRD add-on payment would maintain consistency with the current calculation, which is based on the average costs determined to be directly related to the renal dialysis service, as determined from the composite rate.

As described previously, under § 412.104(b)(1), the ESRD add-on payment is based on the estimated weekly cost of dialysis and the average length of stay of ESRD beneficiaries for the hospital. We are proposing that effective for cost reporting periods beginning on or after October 1, 2024, the estimated weekly cost of dialysis would be calculated as the applicable ESRD PPS base rate (as defined in 42 CFR 413.171) multiplied by three, which represents the typical number of dialysis sessions per week. The ESRD PPS base rate is applicable for renal dialysis services furnished during the calendar year (CY) (that is, effective January 1 through December 31 each year) and updated annually (see § 413.196). Under this proposal, the annual CY ESRD PPS base rate (as published in the applicable CY ESRD PPS final rule or subsequent corrections, as applicable) multiplied by three would be used to calculate the ESRD add-on payment for hospital cost reporting periods that begin during the Federal FY for the same year. For example, the CY 2025 ESRD PPS base rate would be used for all cost reports beginning during Federal FY 2025 (that is, for cost reporting periods starting on or after October 1, 2024, through September 30, 2025). The table that follows illustrates the applicable CY ESRD PPS base rate that would be used to determine the add-on amount for eligible discharges during the hospital's cost reporting periods beginning on or after October 1, 2024 (FY 2025) and on or after October 1, 2025 (FY 2026) under this proposed methodology.

We note that use of the applicable CY ESRD PPS base rate to determine the add-on payment amount for the hospital's discharges occurring during the entire cost reporting period based on the cost report's begin date would be consistent with the determination of eligibility for the ESRD add-on payment, which occurs at cost report settlement and is based on the discharges that occur during that cost reporting period.

Under this proposal, the payment to a hospital would continue to be calculated as the average length of stay of ESRD beneficiaries in the hospital, expressed as a ratio to 1 week, multiplied by the estimated weekly cost of dialysis multiplied by the number of applicable ESRD beneficiary discharges. Specifically, for cost reporting periods beginning on or after October 1, 2024, the proposed payment to a hospital would equal the average length of stay of ESRD beneficiaries in the hospital, expressed as a ratio to 1 week, multiplied by the estimated weekly cost of dialysis (calculated as the applicable ESRD PPS base rate (as defined in 42 CFR 413.171), multiplied by 3) multiplied by the number of ESRD beneficiary discharges except for those excluded under § 412.104(a).

We are proposing to revise the regulations under 42 CFR 412.104(b) to reflect this proposed change to the calculation of the payment amount for cost reporting periods beginning on or after October 1, 2024. We are proposing to revise § 412.104(b)(2) to specify that, effective for cost reporting periods beginning on or after October 1, 2024, the estimated weekly cost of dialysis is calculated as 3 dialysis sessions per week multiplied by the applicable ESRD PPS base rate (as defined in 42 CFR 413.171) that corresponds with the fiscal year in which the cost reporting period begins. For example, the CY 2025 ESRD PPS base rate (multiplied by 3 to determine the estimated weekly cost of dialysis, as described previously) would apply for all hospital cost reporting periods beginning during FY 2025 (that is, for cost reporting periods beginning on or after October 1, 2024, through September 30, 2025). We are also proposing to make conforming changes to § 412.104(b)(3) and § 412.104(b)(4) to reflect the proposed change in methodology for calculating the ESRD add-on payment amount for cost reporting periods beginning on or after October 1, 2024.

J. Separate IPPS Payment for Establishing and Maintaining Access to Essential Medicines

1. Overview

As discussed in the CY 2024 OPPS/ASC proposed rule (88 FR 49867), on January 26, 2021, President Biden issued Executive Order 14001, “A Sustainable Public Health Supply Chain” (86 FR 7219), which launched a whole-of-government effort to strengthen the resilience of medical supply chains, especially for pharmaceuticals and simple medical devices. This effort was bolstered subsequently by Executive Orders 14005, 14017, and 14081 (86 FR 7475, 11849, and 25711, respectively). In June 2021, as tasked in Executive Order 14017 on “America's Supply Chains,” the Department of Health and Human Services released a review of pharmaceuticals and active pharmaceutical ingredients, analyzing risks in these supply chains and recommending solutions to increase their reliability. In July 2021, as tasked in Executive Order 14001, the Biden-Harris Administration also released the National Strategy for a Resilient Public Health Supply Chain, which laid out a roadmap to support reliable access to products for public health in the future, including through prevention and mitigation of medical product shortages.

Over the last several years, shortages for critical medical products have persisted, with the average drug shortage lasting about 1.5 years. For pharmaceuticals, even before the COVID-19 pandemic, nearly two-thirds of hospitals reported more than 20 drug shortages at any one time—from antibiotics used to treat severe bacterial infections to crash cart drugs necessary to stabilize and resuscitate critically ill adults. The frequency and severity of these supply disruptions has only been exacerbated over the last few years.

Recent data suggests that hospitals are estimated to spend more than 8.6 million personnel hours and $360 million per year to address drug shortages, which will likely further result in treatment delays and denials, changes in treatment regimens, medication errors, as well as higher rates of hospital-acquired infections and in-hospital mortality. The additional time, labor, and resources required to navigate drug shortages and supply chain disruptions also increase health care costs.

Hospitals' procurement preferences can be leveraged to help foster a more resilient supply of lifesaving drugs and biologicals. With respect to shortages, supply chain resiliency includes having sufficient inventory that can be leveraged in the event of a supply disruption or demand increase—as opposed to relying on “just-in-time” inventory-management efficiency at the manufacturer level that can leave supply chains vulnerable to shortage. This concept is especially true for essential medicines, which generally comprise products that are medically necessary to have available at all times in an amount adequate to serve patient needs and in the appropriate dosage forms. A hospital's resilient supply can also include essential medicines from multiple manufacturers, including the availability of domestic pharmaceutical manufacturing capacity, to diversify the sourcing of essential medicines. We believe it is necessary to support practices that can mitigate the impact of pharmaceutical shortages of essential medicines and promote resiliency to safeguard and improve the care hospitals are able to provide to beneficiaries. Additionally, sustaining sources of domestically sourced medical supplies can help support continued availability in the event of public health emergencies and other disruptions. This concept is consistent with our current policy for domestic National Institute for Occupational Safety and Health (NIOSH) approved surgical N95 respirators (87 FR 72037). Hospitals, as major purchasers and users in the U.S. of essential medicines, can support the existence of domestic sources by sourcing domestically made essential medicines.

When hospitals have insufficient supply of essential medicines, such as during a shortage, care for Medicare beneficiaries can be negatively impacted. To mitigate negative care outcomes in the event of insufficient supply, hospitals can adopt procurement strategies that foster a consistent, safe, stable, and resilient supply of these essential medicines. Such procurement strategies can include provisions to maintain or otherwise provide for extra stock of product (for example, either to maintain or to hold directly at the hospital, arrange contractually for a distributor to hold off-site, or arrange contractually with a wholesaler for a manufacturer to hold product) which can act as a buffer in the event of an unexpected increase in product use or disruption to supply. In the event an essential medicine goes into shortage without existing procurement or substitution strategies for affected drugs, negative patient care outcomes can result in reduced quality of care and, in some instances, increased costs by the Medicare program to provide payment for unnecessary services that could have been avoided had the drug been available to the hospital.

In the CY 2024 OPPS/ASC proposed rule (88 FR 49867), CMS requested public comments on a potential Medicare payment policy that would provide separate payment to hospitals under the IPPS for Medicare's share of the inpatient costs of establishing and maintaining access to a 3-month buffer stock of one or more of 86 essential medicines (referred to herein as the “CY 2024 Request for Comment”). Under this potential policy, the allowable costs would have included the hospital's reasonable costs of establishing and maintaining buffer stock(s) of the essential medicines but not the cost of the medicines themselves. We stated that we expected that the resources required to establish and maintain access to a buffer stock of essential medicines would generally be greater than the resources required to establish and maintain access to these medicines without such a buffer stock. While CMS did not finalize any policy regarding payment under the IPPS and OPPS for establishing and maintaining access to essential medicines, we stated we intended to propose new Conditions of Participation in forthcoming notice and comment rulemaking addressing hospital processes for pharmaceutical supply and that we would continue to consider policies related to buffer stock.

As discussed in the CY 2024 OPPS/ASC final rule, many commenters on the CY 2024 Request for Comment supported CMS's efforts to promote resiliency but expressed concerns regarding the potential for such a payment policy to induce or exacerbate drug shortages through demand shocks to the supply chain. Some commenters stated that a 3-month buffer stock may be inadequate to insulate hospitals from drug shortages, and that the policy may encourage hoarding behaviors and further fragment the existing supply of essential medicines, which would primarily disadvantage smaller, less resourced hospitals (88 FR 82129 through 82130). While commenters stated that a 3-month buffer stock may be inadequate to insulate hospitals from shortages given the duration of many drug shortages, some commenters further stated that even a 6-month buffer stock may not fully protect hospitals in the event of a shortage. Commenters cautioned that drug shortages are difficult to predict and often due to problems at the manufacturer level, which can be compounded by panic buying and hoarding behaviors. Some commenters stated that any buffer stock would need to be sufficiently large to account for the ramp up time that manufacturers need to reestablish supply of a given drug in shortage.

As a first step in this initiative, and based on consideration of the comments we received on the CY 2024 Request for Comment, for cost reporting periods beginning on or after October 1, 2024, we are proposing to establish a separate payment under the IPPS to small (100 beds or fewer), independent hospitals for the estimated additional resource costs of voluntarily establishing and maintaining access to 6-month buffer stocks of essential medicines to foster a more reliable, resilient supply of these medicines for these hospitals. This proposed separate payment could be provided biweekly or as a lump sum at cost report settlement. As discussed further in section V.J.3. of the preamble of this proposed rule, we are focusing this proposal on small, independent hospitals, many of which are rural, that may lack the resources available to larger hospitals and hospital chains to establish and maintain buffer stocks of essential medicines for use in the event of drug shortages. We believe by limiting separate payment to smaller, independent hospitals, we can also mitigate concerns raised by commenters regarding large demand driven shocks to the supply chain.

The appropriate time to establish a buffer stock for a drug is before it goes into shortage or after a shortage period has ended. In order to further mitigate any potential for the proposed policy to exacerbate existing shortages or contribute to commenters' concerns of hoarding, if an essential medicine is listed as “Currently in Shortage” on the FDA Drug Shortages Database, we are proposing that a hospital that newly establishes a buffer stock of that medicine while it is in shortage would not be eligible for separate buffer stock payment for that medicine for the duration of the shortage. However, if a hospital had already established and was maintaining a buffer stock of that medicine prior to the shortage, we are proposing that the hospital would continue to be eligible for separate buffer stock payment for that medicine for the duration of the shortage. We are proposing that hospital would continue to be eligible even if the number of months of supply of that medicine in the buffer stock were to drop to less than 6 months as the hospital draws down that buffer stock. Once an essential medicine is no longer listed as “Currently in Shortage” in the FDA Drug Shortages Database, our proposed policy does not differentiate that essential medicine from other essential medicines and hospitals would be eligible to establish and maintain buffer stocks for the medicine as they would have before the shortage. CMS will conduct provider education regarding additions and deletions to the publicly available FDA Drug Shortages Database to assist hospitals with this proposed policy.

As described in sections V.J.2. and .4. of the preamble of this proposed rule, we are proposing that if the number of months of supply of medicine in the buffer stock were to drop to less than 6 months for a reason other than the essential medicine(s) actively being listed as “Currently in Shortage,” any separate payment to a hospital under this policy would be adjusted based on the proportion of the cost reporting period for which the hospital did maintain the 6-month buffer stock of that essential medicine.

We are proposing to make this separate payment under the IPPS for the additional resource costs of establishing and maintaining access to buffer stocks of essential medicines under section 1886(d)(5)(I) of the Act, which authorizes the Secretary to provide by regulation for such other exceptions and adjustments to the payment amounts under section 1886(d) of the Act as the Secretary deems appropriate. We are not proposing to make this payment adjustment budget neutral under the IPPS.

2. Proposed List of Essential Medicines

The report Essential Medicines Supply Chain and Manufacturing Resilience Assessment, as developed by the U.S. Department of Health and Human Services (HHS) Office of the Assistant Secretary for Preparedness and Response (ASPR) with the Advanced Regenerative Manufacturing Institute's (ARMI's) Next Foundry for American Biotechnology, prioritized 86 essential medicines (hereinafter referred to as the “ARMI List” or “ARMI's List”) from the Executive Order 13944 List of Essential Medicines, Medical Countermeasures, and Critical Inputs (hereinafter referred to as the “E.O. 13944 List”), as developed under the E.O. by the U.S. Food and Drug Administration (FDA).

The ARMI List is a prioritized list of 86 medicines that are either critical for minimum patient care in acute settings or important for acute care with no comparable alternatives available. The medicines included in the ARMI List were considered, by consensus, to be most critically needed for typical acute patient care. In this context, acute patient care was defined as: rescue and/or lifesaving use (that is, Intensive Care Units, Cardiac/Coronary Care Units, and Emergency Departments), stabilizing patients in hospital continued care to enable discharge, and urgent or emergency surgery.

Development of the ARMI List focused on assessing the clinical criticality and supply chains of small molecules and therapeutic biologics. The development of the ARMI List was informed by meetings with multiple key pharmaceutical supply chain stakeholders (for example, manufacturers, group purchasing organizations, wholesale distributors, providers, pharmacies), surveys and workshops with groups of clinicians and industry stakeholders, public feedback on the E.O. 13944 List (provided during a public comment period starting in October 2020), and other research.

We are proposing that for purposes of the proposed separate payment under the IPPS, the costs of buffer stocks that would be eligible for separate payment are the additional resource costs of establishing and maintaining access to a 6-month buffer stock for any eligible medicines on ARMI's List of 86 essential medicines, including any subsequent revisions to that list of medicines. As previously discussed, the ARMI List represents a prioritized list of 86 medicines that were considered, by consensus, to be most critically needed for typical acute patient care. At this time, we believe that the ARMI List constitutes an appropriate set of medicines to initially prioritize under this proposed payment policy in order to help insulate small, independent hospitals, and the inpatient care they provide, from the negative effects of drug shortages.

As noted earlier, the appropriate time to establish a buffer stock for a drug is before it goes into shortage or after a shortage period has ended. If an essential medicine is listed as “Currently in Shortage” on the FDA Drug Shortages Database, we are proposing that a hospital that newly establishes a buffer stock of that medicine while it is in shortage would not be eligible for separate buffer stock payment for that medicine for the duration of the shortage. However, if a hospital had already established and was maintaining a buffer stock of that medicine prior to the shortage, we are proposing that the hospital would continue to be eligible for separate buffer stock payment for that medicine for the duration of the shortage as the hospital draws down that buffer stock even if the number of months of supply of that medicine in the buffer stock were to drop to less than 6 months. By limiting eligibility in this way, we believe that we can both insulate smaller hospitals from short-term drug shortages and mitigate the potential for the proposed policy to exacerbate existing shortages or contribute to concerns of hoarding.

As an illustrative example, suppose a hospital established and maintained 6-month buffer stocks for five essential medicines. However, one of those essential medicines was subsequently listed as “Currently in Shortage” on the FDA Drug Shortages Database. The hospital would no longer be required to maintain a 6-month buffer stock of the essential medicine that is in shortage to receive separate payment for maintaining the buffer stock of that essential medicine during the period of shortage. The hospital would continue to be eligible for the separate payment from CMS for the buffer stock for that medicine during the period of shortage as it draws down its established buffer stock of the medicine in shortage as needed. However, the hospital would be required to maintain buffer stocks of no less than 6 months for the other four essential medicines that are not in shortage to be eligible to receive separate payment for those four medicines.

Because medicine can remain on the FDA Drug Shortage Database for years, we request comments on the duration that CMS should continue to pay hospitals for the maintenance of a less than 6-month buffer stock of the essential medicine if it is “Currently in Shortage.” We also request comments on if there is a quantity or dosage minimum floor where CMS should no longer pay to maintain a 6-month buffer stock of the essential medicine if it is “Currently in Shortage.” For example, if a hospital has one remaining dose of a drug “Currently in Shortage” and that drug remains in shortage on the FDA Drug Shortage Database for 5 years, should there be limits on how much and for how long CMS would pay a hospital for a 6-month buffer stock?

We are proposing that if the ARMI List is updated to add or remove any essential medicines, all medicines on the updated list would be eligible for separate payment under this policy for the IPPS shares of the costs of establishing and maintaining access to 6-month buffer stocks as of the date the updated ARMI List is published. To the extent that in the future other medicines or lists are identified for eligibility in future iterations of this policy, we seek comment on the potential mechanism and timing for incorporating those updates. Comments may consider, among other factors, medicines that were excluded from the ARMI List, the E.O. 13944 List, or both. For example, some categories from the E.O. 13944 List—including Blood and Blood Products, Fractionated Plasma Products, Vaccines, and Volume Expanders—were excluded from the ARMI List due to differences in their supply chains. Additionally, other categories were identified as not needed for routine/typical acute patient care (that is, Biological Threat Medical Countermeasures, Burn and Blast Injuries, Chemical Threat Medical Countermeasures, Pandemic Influenza Medical Countermeasures, Radiologic-Nuclear Threat Medical Countermeasures). The ARMI List does not include certain medicines that have recently been in shortage and that may be considered essential and are more prevalent in specific care settings other than an inpatient hospital, such as drugs used in oncology care on an outpatient basis. Further, there are medicines that are not included on the ARMI List nor the E.O. 13944 List, such as buprenorphine-based medications for treatment of substance use disorder. We seek comment on whether eligibility for separate payment for the IPPS share of the costs of establishing and maintaining access to 6-month buffer stocks of essential medicines should include oncology drugs or other types of drugs not currently on the ARMI List.

As noted earlier, CMS will conduct provider education regarding additions and deletions to the publicly available FDA Drug Shortages Database to assist hospitals with this proposed policy.

3. Hospital Eligibility

Commenters on the CY 2024 Request for Comment (88 FR 82129 through 82130) raised a number of concerns relating to access to essential medicines for small hospitals and potential hoarding behaviors among better resourced hospitals. Commenters also cautioned against the potential for the policy to cause demand-driven shocks to the pharmaceutical supply chain, exacerbating pharmaceutical access issues for hospitals, which they claimed would disproportionately impact smaller hospitals due to their smaller purchasing power. As hospitals and hospital systems increase in size through expansion of bed count and/or consolidation and vertical integration with other hospitals and health systems, they accrue bargaining leverage for payment negotiations and thereby increase their purchasing power. Those smaller (and often rural) hospitals that lack this increased purchasing power are faced with potentially lower payments from payers and less operating capital. To address this concern, and attempt to better insulate these smaller, independent hospitals against future supply disruptions of essential medicines, we are proposing to limit eligibility for separate payment for the resource costs of establishing and maintaining access to buffer stocks of essential medicines to small, independent hospitals that are paid under the IPPS, as defined later in this section. As many of these small, independent hospitals are located in rural areas, we also expect this policy to support rural hospitals, in line with the rural health strategy of the Biden-Harris Administration.

We believe that by focusing eligibility on small, independent hospitals, we can both support these types of hospitals in their efforts to provide patient care during drug shortages and lessen any potential demand shocks to the pharmaceutical supply chain because the buffer stocks these hospitals would require are likely smaller compared to larger hospitals and hospital chains. As discussed further in the regulatory impact analysis associated with this proposed policy in section I.G.6. of Appendix A of this proposed rule, we identified 493 potentially eligible hospitals based on FY 2021 hospital cost report data. Of these hospitals, 249 were identified as geographically rural, 6 were identified as geographically urban but reclassified as rural (under our reclassification regulations at § 412.103), and 238 were identified as geographically urban without a reclassification as rural. These hospitals had 216,557 Medicare discharges in total and an average of 442 Medicare discharges per hospital for the FY 2021 cost reporting year.

Small Hospital: For the purposes of this policy, we propose to define a small hospital as one with not more than 100 beds. This definition is consistent with the definition of a small hospital used for Medicare-dependent, small rural hospitals (MDH) in section 1886(d)(5)(G)(iv)(II) of the Act. Consistent with the MDH regulations at § 412.108(a)(1)(ii), we propose that a hospital would need to have 100 or fewer beds as defined in § 412.105(b) during the cost reporting period for which it is seeking the payment adjustment to be considered a small hospital for purposes of this payment adjustment. We request comment on using criteria other than the MDH bed size criterion to identify small hospitals for the purposes of this proposed payment policy.

Independent Hospital: For the purposes of this policy, we propose to define an independent hospital as one that is not part of a chain organization, as defined for purposes of hospital cost reporting. A chain organization is defined as a group of two or more health care facilities which are owned, leased, or through any other device, controlled by one organization. This proposed definition is the definition of chain organization in CMS Pub 15-1, Provider Reimbursement Manual, Chapter 21, Cost Related to Patient Care § 2150: “Home Office Costs—Chain Operations” and used by a hospital when completing its cost report.

Because this proposed definition is the definition of chain organization used by a hospital when filling out its cost report, to operationalize our proposed separate payment policy, we propose that any hospital that appropriately answers “yes” (denoted “Y”) to line 140 column 1 or fills out any part of lines 141 through line 143 on Worksheet S-2, Part I, on Form CMS-2552-10 is considered to be part of a chain organization and not independent, and therefore not eligible for separate payment under this proposal. Please see Table V.J.-01 for a partial example of this section of Form CMS-2552-10.

Thus, we propose that in order to be eligible for this separate payment, under this policy, a hospital would need to be a small hospital with 100 or fewer beds and meet the definition of independent described previously. We seek comment on our proposed eligibility criteria and proposed definition of a small, independent hospital.

We note that critical access hospitals (CAHs) are paid for inpatient and outpatient services at 101 percent of Medicare's share of reasonable costs, including Medicare's share of the reasonable costs of establishing and maintaining access to buffer stocks of medicines. We seek comment on the use of buffer stocks by CAHs, including the medicines in the buffer stocks, the costs of establishing and maintaining the buffer stocks, whether CAHs tend to contract out this activity, and any barriers that CAHs may face in establishing and maintaining access to buffer stocks.

4. Size of the Buffer Stock

As summarized in the CY 2024 OPPS/ASC final rule and section V.J.1. of the preamble of this proposed rule, some commenters on the CY 2024 Request for Comment expressed concerns that a 3-month supply of essential medicines may not be sufficient to adequately insulate hospitals from the detrimental effects of future drug shortages. Commenters stated that drug shortages often persist for durations of time in excess of 3 months, such that a 3-month buffer stock may be inadequate to insulate hospitals from the longer-term effects of drug shortages. As noted in section V.J.1. of the preamble of this proposed rule, drug shortages generally persist for many months, and some research suggests that these shortages last for an average of 1.5 years. Accordingly, we believe a buffer stock of at least 6 months would better support small, independent hospitals in contending with future shortages. To better address commenters' concerns and hospital needs during drug shortages, we are proposing separate payment for the costs of establishing and maintaining access to a buffer stock that is sufficient for no less than a 6-month period of time for each of one or more essential medicines. As discussed in section V.J.5 of the preamble of this proposed rule, we are also seeking comments on whether a phase-in approach that, for example, would provide separate payment for establishing and maintaining access to a 3-month supply for the first year in which the policy is implemented and a 6-month supply for all subsequent years would be appropriate.

In estimating the amount of a buffer stock needed for each essential medicine, the hospital should consider that the amount needed to maintain a buffer stock could vary month to month and throughout the applicable months of the cost reporting period; that is, a hospital's historical use of a medicine may indicate that it is typically needed more often in January than June, for example. Accordingly, the size of the buffer stock should reflect this anticipated variation and be based on a reasonable estimate of the hospital's need for that essential medicine in the upcoming 6-month period. This estimate would be determined by the hospital and could be based on the historical usage of the essential medicine by the hospital for that 6-month period in a prior year, or another reasonable method to estimate its need for that upcoming period. If a hospital did not maintain a 6-month buffer stock of an essential medicine for an entire cost reporting period, any separate payment to the hospital under this policy would be adjusted based on the proportion of the cost reporting period for which the hospital did maintain the 6-month buffer stock of that essential medicine. As described in section V.J.2 of the preamble of this proposed rule, in the event that a hospital is not able to maintain a buffer stock of at least 6 months due to one or more of their chosen medicine(s) being listed as “Currently in Shortage” on the FDA's Drug Shortage Database after establishment of the buffer stock under this policy, the hospital would continue to be eligible for the buffer stock payment for the medicine(s) in shortage as the hospital draws down the buffer stock even if the number of months of supply of that medicine in the buffer stock were to drop to less than 6 months. Hospitals would be permitted to use multiple contracts to establish and maintain at least a 6-month buffer stock for any given essential medicine.

5. Proposed Separate Payment Under IPPS for Establishing and Maintaining Access to Buffer Stocks of Essential Medicines

As discussed in the CY 2024 Request for Comment, CMS requested public comments on a potential separate payment under the IPPS for the additional, reasonable costs of establishing and maintaining a 3-month buffer stock of one or more essential medicine(s). We stated that participating hospitals could establish and maintain their buffer stocks directly, or through contractual arrangements with pharmaceutical distributors, intermediaries, or manufacturers.

We received comments in response to the CY 2024 Request for Comment stating that hospitals that maintain buffer stocks of essential medicines typically do so through upstream entities, such as pharmaceutical group purchasing organizations and manufacturers. Furthermore, these commenters stated that hospitals typically lack the capacity to stockpile large quantities of essential medicines directly. Some of these commenters stated that any buffer stocks established under the potential policy should be maintained by upstream intermediaries or a neutral third party instead of directly maintained by hospitals, as they stated that these upstream intermediaries are generally better positioned and equipped to maintain these buffer stocks. While other commenters were receptive to directly maintaining their buffer stock(s) or indicated that they already maintained substantial buffer stocks of medicines, these commenters were generally larger, better resourced hospitals or hospital systems.

We agree with commenters that pharmaceutical intermediaries and manufacturers are generally better positioned to establish and maintain larger (for example, 6-month or greater) buffer stocks of essential medicines, as small, independent hospitals may generally lack the space, staff, and specific equipment (like large-scale refrigeration and large, onsite storage) to directly maintain 6-month buffer stock(s) of essential medicine(s). While we anticipate that most hospitals that elect to establish and maintain buffer stocks under this policy will do so through contractual arrangements with pharmaceutical intermediaries, manufacturers, and distributors, we are proposing that the additional resource costs associated with directly maintaining 6-month buffer stock(s) of essential medicine(s) would also be eligible for separate payment under this policy. Accordingly, we are proposing that for purposes of the proposed separate payment under the IPPS to small, independent hospitals for the estimated additional resource costs of voluntarily establishing and maintaining access to 6-month buffer stocks of essential medicines, those costs associated with establishing and maintaining access to 6-month buffer stocks either directly or through contractual arrangements with pharmaceutical manufacturers, intermediaries, or distributors would be eligible for additional payment under this policy. These costs do not include the cost of the medicines themselves which would continue to be paid in the current manner. We also note that the proposed payment is only for the IPPS share of the costs of establishing and maintaining access to buffer stock(s) of one or more essential medicine(s).

The costs associated with directly establishing and maintaining a buffer stock may include utilities like cold chain storage and heating, ventilation, and air conditioning, warehouse space, refrigeration, management of stock including stock rotation, managing expiration dates, and managing recalls, administrative costs related to contracting and record-keeping, and dedicated staff for maintaining the buffer stock(s). We request comments on other types of costs intrinsic to directly establishing buffer stocks of essential medicines that should be considered eligible for purposes of separate payment under this policy. We also request comment regarding whether staff costs would increase with the number of essential medicines in buffer stock, and whether there would be efficiencies if multiple hospitals elect to establish buffer stocks of essential medicines with the same pharmaceutical manufacturer, intermediary, or distributor.

We also request comment on whether this proposed policy should be phased in by the size of the buffer stock to address concerns about infrastructure investments that may be needed to store and maintain the supply. For example, under a phased approach, separate payment could be made available for establishing and maintaining access to a 3-month supply for the first year in which the policy is implemented and a 6-month supply for all subsequent years. We also refer readers to the Collection of Information Requirements in section XII.B.2. of the preamble of this proposed rule regarding the estimated burden associated with this policy proposal and seek comment on whether there are any other potential methods for hospitals to report costs included under this policy besides the forthcoming supplemental cost reporting worksheet.

Currently, payment for the resources required to establish and maintain access to medically reasonable and necessary drugs and biologicals is generally part of the IPPS payment. As noted in section V.J.2. of the preamble of this proposed rule, we expect that the resources required to establish and maintain access to buffer stocks of essential medicines will generally be greater than the resources required to establish and maintain access to these medicines without such buffer stocks. Given these additional resource costs and our concern that small, independent hospitals may lack the resources available to larger hospitals and hospital chains to establish buffer stocks of essential medicines, we believe it is appropriate to propose to pay these hospitals separately for the additional resource costs associated with voluntarily establishing and maintaining access, either directly or through contractual arrangements, to buffer stocks of essential medicines. As also noted in section V.J.2 of the preamble of this proposed rule, we are proposing that if the ARMI List is updated to add or remove any essential medicines, all medicines on the updated list would be eligible for separate payment under this policy for the IPPS shares of the costs of establishing and maintaining access to 6-month buffer stocks as of the date the updated ARMI List is published. Any medicine(s) that are removed from the ARMI List in any future updates to the list would no longer be eligible for separate payment under this policy for the IPPS shares of the costs of establishing and maintaining access to 6-month buffer stocks as of the date the updated ARMI List is published.

CMS is proposing to base the IPPS payment under this policy on the IPPS shares of the additional reasonable costs of a hospital to establish and maintain access to its buffer stock. The use of IPPS shares in this payment adjustment would be consistent with the use of these shares for the payment adjustment for domestic NIOSH approved surgical N95 respirators, which is based on the IPPS and OPPS shares of the difference in cost between domestic and non-domestic NIOSH approved surgical N95 respirators for the cost reporting period in which costs are claimed (87 FR 72037). The hospital would report these costs to CMS on the forthcoming supplemental cost reporting worksheet associated with this proposed policy. The hospital's costs may include costs associated with contractual arrangements between the hospital and a manufacturer, distributor, or intermediary or costs associated with directly establishing and maintaining buffer stock(s). These costs would not include the costs of the essential medicine itself, which would continue to be paid in the current manner.

If a hospital establishes and maintains access to buffer stock(s) of essential medicine(s) through contractual arrangements with pharmaceutical manufacturers, intermediaries, or distributors, the hospital would be required to disaggregate the costs specific to establishing and maintaining the buffer stock(s) from the remainder of the costs present on the contract for purposes of reporting these disaggregated costs under this proposed policy. This disaggregated information, reported by the hospital on the new supplemental cost reporting worksheet, along with existing information already collected on the cost report, would be used to calculate a Medicare payment for the IPPS share of the hospital's costs of establishing and maintaining access to the buffer stock(s) of essential medicine(s).

If a hospital contracts with one or more manufacturers or wholesalers or other intermediaries to establish and maintain 6-month buffer stocks of one or more essential medicines, the hospital must clearly identify those costs separately from the costs of other provisions of the contract(s). As a simplified example for purposes of illustration, suppose a hospital has a $500,000 contract with a pharmaceutical wholesaler. The contract is for pharmaceutical products, 50 of which are qualifying essential medicines. Additionally, the contract contains a provision for the wholesaler to establish and maintain 6-month buffer stocks of those 50 essential medicines on the hospital's behalf. The contract further specifies that $10,000 of the $500,000 is for the provision of the contract that establishes and maintains the 6-month buffer stocks of those 50 essential medicines. This $10,000 amount does not include any costs to the hospital for the drugs themselves which, as previously noted, would continue to be paid in the current manner. Under this proposal, the hospital would report the $10,000 cost for establishing and maintaining the 6-month buffer stocks of the 50 essential medicines on the supplemental cost reporting worksheet. That $10,000 cost, in addition to other information already existing on the cost report, would be used to calculate the additional payment under this policy including the hospital-specific Medicare IPPS share percentage of this cost, expressed as the percentage of inpatient Medicare costs to total hospital costs. On average for the small, independent hospitals that are eligible for this policy, the Medicare IPPS share percentage is approximately 11 percent.

If a hospital chooses to directly establish and maintain buffer stock(s) of one or more essential medicines, the hospital would be required to report the additional costs associated with establishing and maintaining its buffer stock(s) on the supplemental cost reporting form. The hospital should clearly specify the total additional resource costs to establish and maintain its 6-month buffer stock(s) of essential medicine(s). As in the previous example, this amount should not include the cost of the essential medicine(s) themselves and would be used, along with other information already existing on the cost report, to calculate the additional payment under this policy.

Additionally, we would anticipate that when a hospital contracts with one or more manufacturers or wholesalers or other intermediaries to establish and maintain 6-month buffer stocks of one or more essential medicines, it would ensure that a discrete buffer stock is maintained for that hospital. For example, if two hospitals held contracts with a manufacturer arranging for 6-month buffer stocks of certain essential medicines, the hospitals would verify that the manufacturer is maintaining sufficient total buffer stock to account for the 6-month demand of both hospitals in aggregate.

We seek to support the establishment of buffer stocks when drugs are not currently in shortage in order to promote the overall resiliency of drug supply chains. As previously discussed, we are proposing that buffer stocks for any of the essential medicines on the ARMI List that are listed as “Currently in Shortage” on the FDA Drug Shortages Database would not be eligible for additional payment under this policy for a hospital's cost reporting period unless the hospital had already established and was maintaining a buffer stock of that medicine prior to the shortage.

Additionally, we are proposing that any essential medicine(s) for which a hospital has successfully established and maintained a buffer stock(s) of at least 6 months that is subsequently listed as “Currently in Shortage” on the FDA Drug Shortages Database would be exempt from the requirement to maintain a 6-month supply of such essential medicine(s) for the duration of the period in which the medicine is in shortage. We are interested in public comments on the burden associated with hospitals' monitoring of the FDA Drug Shortage Database, and excluding from the cost report any resource costs associated with maintaining a buffer stock of an essential medicine that was listed as “Currently in Shortage,” except where the hospital had already established and was maintaining a 6-month buffer stock of that medicine prior to the shortage. As of the date that medicine is no longer listed as “Currently in Shortage,” eligibility for separate payment to the hospital for the drug in shortage would be prospectively adjusted based on the proportion of the cost reporting period for which the hospital does maintain the 6-month buffer stock of that essential medicine. Once an essential medicine is no longer listed as “Currently in Shortage” in the FDA Drug Shortages Database, our proposed policy does not differentiate that essential medicine from other essential medicines. However, we also seek comment on whether some minimum period, such as 6 months, should elapse after a shortage of a given essential medicine is resolved before that medicine can become eligible for separate payment under this proposed policy.

We are proposing to make separate payments for the IPPS shares of these additional resource costs of establishing and maintaining access to buffer stocks of essential medicines. Payment could be provided as a lump sum at cost report settlement or biweekly as interim lump-sum payments to the hospital, which would be reconciled at cost report settlement. In accordance with the principles of reasonable cost as set forth in section 1861(v)(1)(A) of the Act and in 42 CFR 413.1 and 413.9, Medicare could make a lump-sum payment for Medicare's share of these additional inpatient costs at cost report settlement. Alternatively, a provider may make a request for biweekly interim lump sum payments for an applicable cost reporting period, as provided under 42 CFR 413.64 (Payments to providers: Specific rules) and 42 CFR 412.116(c) (Special interim payments for certain costs). These payment amounts would be determined by the Medicare Administrative Contractor (MAC) consistent with existing policies and procedures. In general, interim payments are determined by estimating the reimbursable amount for the year using Medicare principles of cost reimbursement and dividing it into 26 equal biweekly payments. The estimated amount would be based on the most current cost data available, which will be reviewed and, if necessary, adjusted at least twice during the reporting period. (See CMS Pub 15-1 § 2405.2 for additional information). The MACs would determine the interim lump-sum payments based on the data the hospital may provide that reflects the information that would be included on the new supplemental cost reporting form. CMS will separately seek comment through the Paperwork Reduction Act (PRA) process on a supplemental cost reporting form that would be used for this purpose. In future years, the MACs could determine the interim biweekly lump-sum payments utilizing information from the prior year's cost report, which may be adjusted based on the most current data available. This is consistent with the current policies for medical education costs, and bad debts for uncollectible deductibles and coinsurance paid on interim biweekly basis as noted in CMS Pub 15-1 § 2405.2. It is also consistent with the payment adjustment for domestically sourced NIOSH approved surgical N95 respirators (87 FR 72037).

We are proposing to codify this payment adjustment in the regulations by adding new paragraph (g) to 42 CFR 412.113 to state the following:

• Essential medicines are the 86 medicines prioritized in the report Essential Medicines Supply Chain and Manufacturing Resilience Assessment developed by the U.S. Department of Health and Human Services Office of the Assistant Secretary for Preparedness and Response and published in May of 2022, and any subsequent revisions to that list of medicines. A buffer stock of essential medicines for a hospital is a supply, for no less than a 6-month period, of one or more essential medicines.

• The additional resource costs of establishing and maintaining access to a buffer stock of essential medicines for a hospital are the additional resource costs incurred by the hospital to directly hold a buffer stock of essential medicines for its patients or arrange contractually for such a buffer stock to be held by another entity for use by the hospital for its patients. The additional resource costs of establishing and maintaining access to a buffer stock of essential medicines does not include the resource costs of the essential medicines themselves.

• For cost reporting periods beginning on or after October 1, 2024, a payment adjustment to a small, independent hospital for the additional resource costs of establishing and maintaining access to buffer stocks of essential medicines is made as described in paragraph (g)(4) of this section. For purposes of this section, a small, independent hospital is a hospital with 100 or fewer beds as defined in § 412.105(b) during the cost reporting period that is not part of a chain organization, defined as a group of two or more health care facilities which are owned, leased, or through any other device, controlled by one organization.

• The payment adjustment is based on the estimated reasonable cost incurred by the hospital for establishing and maintaining access to buffer stocks of essential medicines during the cost reporting period.

We are also proposing to make conforming changes to 42 CFR 412.1(a) and 412.2(f) to reflect this proposed payment adjustment for small, independent hospitals for the additional resource costs of establishing and maintaining access to buffer stocks of essential medicines.

In summary, for cost reporting periods beginning on or after October 1, 2024, we are proposing to establish a separate payment under the IPPS to small, independent hospitals for the additional resource costs involved in voluntarily establishing and maintaining access to 6-month buffer stocks of essential medicines, either directly or through contractual arrangements with a manufacturer, distributor, or intermediary. We are proposing that the costs of buffer stocks that are eligible for separate payment are the costs of buffer stocks for one or more of the medicines on ARMI's List of 86 essential medicines. The separate payment would be for the IPPS share of the additional costs and could be issued in a lump sum, or as biweekly payments to be reconciled at cost report settlement. The separate payment would not apply to buffer stocks of any of the essential medicines on the ARMI List that are currently listed as “Currently in Shortage” on the FDA Drug Shortages Database unless a hospital had already established and was maintaining a 6-month buffer stock of that medicine prior to the shortage. Once an essential medicine is no longer listed as “Currently in Shortage” in the FDA Drug Shortages Database, our proposed policy does not differentiate that essential medicine from other essential medicines and hospitals would be eligible to establish and maintain buffer stocks for the medicine as they would have before the shortage. CMS will separately seek comment through the PRA process on a supplemental cost reporting form for this proposed payment.

K. Hospital Readmissions Reduction Program

1. Regulatory Background

Section 3025 of the Patient Protection and Affordable Care Act, as amended by section 10309 of the Patient Protection and Affordable Care Act, added section 1886(q) to the Act, which establishes the Hospital Readmissions Reduction Program effective for discharges from applicable hospitals beginning on or after October 1, 2012. Under the Hospital Readmissions Reduction Program, payments to applicable hospitals may be reduced to account for certain excess readmissions. We refer readers to the FY 2016 IPPS/LTCH PPS final rule (80 FR 49530 through 49543) and the FY 2018 IPPS/LTCH PPS final rule (82 FR 38221 through 38240) for a general overview of the Hospital Readmissions Reduction Program. We also refer readers to 42 CFR 412.152 through 412.154 for codified Hospital Readmissions Reduction Program requirements.

2. Notice of No Program Proposals or Updates

There are no proposals or updates in this proposed rule for the Hospital Readmissions Reduction Program. We refer readers to section I.G.7. of Appendix A of the proposed rule for an updated estimate of the financial impact of using the proportion of dually eligible beneficiaries, ERRs, and aggregate payments for each condition/procedure and all discharges for applicable hospitals from the FY 2025 Hospital Readmissions Reduction Program applicable period (that is, July 1, 2020, through June 30, 2023).

L. Hospital Value-Based Purchasing (VBP) Program

1. Background

a. Overview

For background on the Hospital VBP Program, we refer readers to the CMS website at: https://www.cms.gov/medicare/quality/initiatives/hospital-quality-initiative/hospital-value-based-purchasing. We also refer readers to our codified requirements for the Hospital VBP Program at 42 CFR 412.160 through 412.168.

b. FY 2025 Program Year Payment Details

Under section 1886(o)(7)(C)(v) of the Act, the applicable percent for the FY 2025 program year is 2.00 percent. Using the methodology we adopted in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53571 through 53573), we estimate that the total amount available for value-based incentive payments for FY 2025 is approximately $1.7 billion, based on the December 2023 update of the FY 2023 MedPAR file.

As finalized in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53573 through 53576), we will utilize a linear exchange function to translate this estimated amount available into a value-based incentive payment percentage for each hospital, based on its Total Performance Score (TPS). We are publishing proxy value-based incentive payment adjustment factors in Table 16 associated with this proposed rule (which is available via the internet on the CMS website). We note that these proxy adjustment factors will not be used to adjust hospital payments. These proxy value-based incentive payment adjustment factors were calculated using the historical baseline and performance periods for the FY 2024 Hospital VBP Program. These proxy factors were calculated using the December 2023 update to the FY 2023 MedPAR file. The slope of the linear exchange function used to calculate these proxy factors was 4.7270521828, and the estimated amount available for value-based incentive payments to hospitals for FY 2025 is approximately $1.7 billion. We intend to include an update to this table, as Table 16A, with the FY 2025 IPPS/LTCH PPS final rule, to reflect changes based on the March 2024 update to the FY 2023 MedPAR file. We will add Table 16B to display the actual value-based incentive payment adjustment factors, exchange function slope, and estimated amount available for the FY 2025 Hospital VBP Program. We expect that Table 16B will be posted on the CMS website in Fall 2024.

2. Previously Adopted Quality Measures for the Hospital VBP Program

We refer readers to the FY 2023 IPPS/LTCH PPS final rule (87 FR 49110 through 49111) for summaries of previously adopted measures for the FY 2025 and FY 2026 program years and to the FY 2024 IPPS/LTCH PPS final rule for summaries of newly adopted measures beginning with the FY 2026 program year (88 FR 59081 through 59083). We are not proposing any changes to the measure set. Table V.L.-01 summarizes the previously adopted Hospital VBP Program measure set for the FY2025 program year.

As discussed in section IX.B.2.g(2) of the preamble of this proposed rule, we are proposing to adopt updates to the HCAHPS Survey measure beginning with the FY 2030 program year. We are also proposing to adopt updates to the HCAHPS Survey measure in the Hospital Inpatient Quality Reporting (IQR) Program, beginning with the FY 2027 program year, as described in section IX.B.2.e of the preamble of this proposed rule. We are also proposing to modify Hospital VBP Program scoring of the HCAHPS Survey for the FY 2027 through FY 2029 program years to score hospitals on only those dimensions of the survey that would remain unchanged from the current version, as described in section IX.B.2.f of the preamble of this proposed rule. Lastly, we are also proposing to modify the scoring in FY 2030 to account for the adoption of the proposed modifications to the HCAHPS Survey measure that would result in a total of nine survey dimensions for the updated HCAHPS Survey measure in the Hospital VBP Program, which is described in section IX.B.2.g(3) of the preamble of this proposed rule. Table V.L.-02 summarizes the previously adopted Hospital VBP Program measures for the FY 2026 through FY 2030 program years.

3. Baseline and Performance Periods for the FY 2026 Through FY 2030 Program Years

a. Background

We refer readers to the FY 2024 IPPS/LTCH PPS final rule (88 FR 59084 through 59087) for previously adopted baseline and performance periods for the FY 2025 through FY 2029 program years. We also refer readers to the FY 2017 IPPS/LTCH PPS final rule (81 FR 56998) in which we finalized a schedule for all future baseline and performance periods for all measures.

b. Summary of Baseline and Performance Periods for the FY 2026 Through FY 2030 Program Years

Tables V.L.-03, V.L.-04, V.L.-05, V.L.-06, and V.L.-07 summarize the baseline and performance periods that we have previously adopted.

4. Performance Standards for the Hospital VBP Program

a. Background

We refer readers to the FY 2023 IPPS/LTCH PPS final rule (87 FR 49115 through 49118) for previously established performance standards for the FY 2025 program year. We also refer readers to the FY 2024 IPPS/LTCH PPS final rule (88 FR 59089 through 59090) for the previously established performance standards for the FY 2026 program year. We refer readers to the FY 2021 IPPS/LTCH PPS final rule for further discussion on performance standards for which the measures are calculated with lower values representing better performance (85 FR 58855).

b. Previously and Newly Estimated Performance Standards for the FY 2027 Program Year

We have adopted certain measures for the Safety domain, Clinical Outcomes domain, and the Efficiency and Cost Reduction domain for future program years to ensure that we can adopt baseline and performance periods of sufficient length for performance scoring purposes. In the FY 2022 IPPS/LTCH PPS final rule (86 FR 45294 through 45295), we established performance standards for the FY 2027 program year for the Clinical Outcomes domain measures (MORT-30-AMI, MORT-30-HF, MORT-30-PN (updated cohort), MORT-30-COPD, MORT-30-CABG, and COMP-HIP-KNEE) and the Efficiency and Cost Reduction domain measure (MSPB). We note that the performance standards for the MSPB Hospital measure are based on performance period data. Therefore, we are unable to provide numerical equivalents for the standards at this time. The previously established and newly estimated performance standards for the FY 2027 program year are set out in Tables V.L.-08 and V.L.-09.

As discussed in section IX.B.2.f of the preamble of this proposed rule, we are proposing to modify the scoring of the HCAHPS Survey for the FY 2027 through FY 2029 program years while the proposed updates to the survey would be publicly reported under the Hospital IQR Program. Scoring would be modified to only score hospitals on the six Hospital VBP Program dimensions of the HCAHPS Survey that would remain unchanged from the current version. These six dimensions of the HCAHPS Survey for the Hospital VBP Program would be:

• “Communication with Nurses,”
• “Communication with Doctors,”
• “Communication about Medicines,”
• “Discharge Information,”
• “Cleanliness and Quietness,” and
• “Overall Rating.”

We are proposing to exclude the “Responsiveness of Hospital Staff” and “Care Transition” dimensions from scoring in the Hospital VBP Program's HCAHPS Survey measure in the Person and Community Engagement domain for the FY 2027 through FY 2029 program years. This would allow hospitals to be scored on only those dimensions of the survey in the Hospital VBP Program that would remain unchanged from the current version of the survey while the updated HCAHPS Survey is publicly reported on under the Hospital IQR Program for one year as required by statute. We are also proposing to adopt the updated version of the HCAHPS Survey measure for use in the Hospital VBP Program beginning in FY 2030 as outlined in section IX.B.2.g of this proposed rule.

Scoring would be modified such that for each of the six dimensions listed previously, Achievement Points (0-10 points) and Improvement Points (0-9 points) would be calculated, the larger of which would be summed across these six dimensions to create a pre-normalized HCAHPS Base Score of 0-60 points (as compared to 0-80 points with the current eight dimensions). The pre-normalized HCAHPS Base Score would then be multiplied by 8/6 (1.3333333) and rounded according to standard rules (values of 0.5 and higher are rounded up, values below 0.5 are rounded down) to create the normalized HCAHPS Base Score. Each of the six dimensions would be of equal weight, so that, as currently scored, the normalized HCAHPS Base Score would range from 0 to 80 points. HCAHPS Consistency Points would be calculated in the same manner as the current method and would continue to range from 0 to 20 points. Like the Base Score, the Consistency Points Score would consider scores across the six unchanged dimensions of the Person and Community Engagement domain. The final element of the scoring formula, which would remain unchanged from the current formula, would be the sum of the HCAHPS Base Score and the HCAHPS Consistency Points Score for a total score that ranges from 0 to 100 points. The method for calculating the performance standards for the six dimensions would remain unchanged. We refer readers to the Hospital Inpatient VBP Program final rule (76 FR 26511 through 26513) for our methodology for calculating performance standards. The estimated performance standards for the six dimensions that are proposed to be scored on for the FY 2027 program year are set out in Table V.L.-09.

c. Previously Established Performance Standards for Certain Measures for the FY 2028 Program Year

We have adopted certain measures for the Safety domain, Clinical Outcomes domain, and the Efficiency and Cost Reduction domain for future program years to ensure that we can adopt baseline and performance periods of sufficient length for performance scoring purposes. In the FY 2023 IPPS/LTCH PPS final rule (86 FR 49118), we established performance standards for the FY 2028 program year for the Clinical Outcomes domain measures (MORT-30-AMI, MORT-30-HF, MORT-30-PN (updated cohort), MORT-30-COPD, MORT-30-CABG, and COMP-HIP-KNEE) and the Efficiency and Cost Reduction domain measure (MSPB Hospital). We note that the performance standards for the MSPB Hospital measure are based on performance period data. Therefore, we are unable to provide numerical equivalents for the standards at this time. The previously established performance standards for these measures are set out in Table V.L.-10.

d. Previously Established Performance Standards for Certain Measures for the FY 2029 Program Year

We have adopted certain measures for the Safety domain, Clinical Outcomes domain, and the Efficiency and Cost Reduction domain for future program years to ensure that we can adopt baseline and performance periods of sufficient length for performance scoring purposes. In the FY 2024 IPPS/LTCH PPS final rule (88 FR 59091 through 59092), we established performance standards for the FY 2029 program year for the Clinical Outcomes domain measures (MORT-30-AMI, MORT-30-HF, MORT-30-PN (updated cohort), MORT-30-COPD, MORT-30-CABG, and COMP-HIP-KNEE) and the Efficiency and Cost Reduction domain measure (MSPB Hospital). We note that the performance standards for the MSPB Hospital measure are based on performance period data. Therefore, we are unable to provide numerical equivalents for the standards at this time. The previously established performance standards for these measures are set out in Table V.L.-11.

e. Newly Established Performance Standards for Certain Measures for the FY 2030 Program Year

As discussed previously, we have adopted certain measures for the Clinical Outcomes domain (MORT-30-AMI, MORT-30-HF, MORT-30-PN (updated cohort), MORT-30-COPD, MORT-30-CABG, and COMP-HIP-KNEE) and the Efficiency and Cost Reduction domain (MSPB Hospital) for future program years to ensure that we can adopt baseline and performance periods of sufficient length for performance scoring purposes. In accordance with our methodology for calculating performance standards discussed more fully in the Hospital Inpatient VBP Program final rule (76 FR 26511 through 26513), which is codified at 42 CFR 412.160, we are establishing the following performance standards for the FY 2030 program year for the Clinical Outcomes domain and the Efficiency and Cost Reduction domain. We note that the performance standards for the MSPB Hospital measure are based on performance period data. Therefore, we are unable to provide numerical equivalents for the standards at this time. The newly established performance standards for these measures are set out in Table V.L.-12.

M. Hospital-Acquired Condition (HAC) Reduction Program

1. Regulatory Background

We refer readers to the FY 2014 IPPS/LTCH PPS final rule (78 FR 50707 through 50709) for a general overview of the HAC Reduction Program and a detailed discussion of the statutory basis for the Program. We also refer readers to 42 CFR 412.170 through 412.172 for codified HAC Reduction Program requirements.

2. Measures for FY 2025 and Subsequent Years in the HAC Reduction Program

The previously finalized measures for the HAC Reduction Program are shown in table V.M.-01. Technical specifications for the CMS PSI 90 measure can be found on the QualityNet website available at: https://qualitynet.cms.gov/inpatient/measures/psi/resources. Technical specifications for the CDC National Healthcare Safety Network (NHSN) HAI measures can be found at the CDC's NHSN website at http://www.cdc.gov/nhsn/acute-care-hospital/index.html and on the QualityNet website available at: https://qualitynet.cms.gov/inpatient/measures/hai/resources. These web pages provide measure updates and other information necessary to guide hospitals participating in the collection of HAC Reduction Program data.

We are not making any proposals or updates for the HAC Reduction Program in this proposed rule. We refer readers to section I.G.9. of Appendix A of this proposed rule for an updated estimate of the impact of the Program policies on the proportion of hospitals in the worst performing quartile of the Total HAC Scores for the FY 2025 HAC Reduction Program.

N. Rural Community Hospital Demonstration Program

1. Introduction

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

We are also proposing the amount to be applied to the national IPPS payment rates to account for the costs of the demonstration in FY 2025, and, in addition, we are proposing to include the reconciled amount of demonstration costs for FY 2019 in the FY 2025 IPPS/LTCH final rule. We expect all finalized cost reports for this earlier year to be available by that time.

2. Background

Section 410A(a) of the MMA (Pub. L. 108-173) required the Secretary to establish a demonstration program to test the feasibility and advisability of establishing rural community hospitals to furnish covered inpatient hospital services to Medicare beneficiaries. The demonstration pays rural community hospitals under a reasonable cost-based methodology for Medicare payment purposes for covered inpatient hospital services furnished to Medicare beneficiaries. A rural community hospital, as defined in section 410A(f)(1), is a hospital that—

• Is located in a rural area (as defined in section 1886(d)(2)(D) of the Act) or is treated as being located in a rural area under section 1886(d)(8)(E) of the Act;
• Has fewer than 51 beds (excluding beds in a distinct part psychiatric or rehabilitation unit) as reported in its most recent cost report;
• Provides 24-hour emergency care services; and
• Is not designated or eligible for designation as a CAH under section 1820 of the Act.

Our policy for implementing the 5-year extension period authorized by the CAA, 2021 (Pub. L. 116-260) follows upon the previous extensions under the Affordable Care Act (Pub. L. 111-148) and the Cures Act (Pub. L. 114-255). Section 410A of the MMA (Pub. L. 108-173) initially required a 5-year period of performance. Subsequently, sections 3123 and 10313 of the Affordable Care Act (Pub. L. 111-148) required the Secretary to conduct the demonstration program for an additional 5-year period, to begin on the date immediately following the last day of the initial 5-year period. In addition, the Affordable Care Act (Pub. L. 111-148) limited the number of hospitals participating to no more than 30. Section 15003 of the Cures Act (Pub. L. 114-255) required a 10-year extension period in place of the 5-year extension period under the Affordable Care Act (Pub. L. 111-148), thereby extending the demonstration for another 5 years. Section 128 of CAA, 2021 (Pub. L. 116-260), in turn, revised the statute to indicate a 15-year extension period, instead of the 10-year extension period mandated by the Cures Act (Pub. L. 114-255).

Please refer to the FY 2023 IPPS proposed and final rules (87 FR 28454 through 28458 and 87 FR 49138 through 49142, respectively) for an account of hospitals entering into and withdrawing from the demonstration with these re-authorizations. There are currently 23 hospitals participating in the demonstration.

2. Budget Neutrality

a. Statutory Budget Neutrality Requirement

Section 410A(c)(2) of the MMA (Pub. L. 108-173) requires that, in conducting the demonstration program under this section, the Secretary shall ensure that the aggregate payments made by the Secretary do not exceed the amount that the Secretary would have paid if the demonstration program under this section was not implemented. This requirement is commonly referred to as “budget neutrality.” Generally, when we implement a demonstration program on a budget neutral basis, the demonstration program is budget neutral on its own terms; in other words, the aggregate payments to the participating hospitals do not exceed the amount that would be paid to those same hospitals in the absence of the demonstration program. We note that the payment methodology for this demonstration, that is, cost-based payments to participating small rural hospitals, makes it unlikely that increased Medicare outlays will produce an offsetting reduction to Medicare expenditures elsewhere. Therefore, in the IPPS final rules spanning the period from FY 2005 through FY 2016, we adjusted the national IPPS rates by an amount sufficient to account for the added costs of this demonstration program, thus applying budget neutrality across the payment system as a whole rather than merely across the participants in the demonstration program. (We applied a different methodology for FY 2017, with the demonstration expected to end prior to the Cures Act extension.) As we discussed in the FYs 2005 through 2017 IPPS/LTCH PPS final rules (69 FR 49183; 70 FR 47462; 71 FR 48100; 72 FR 47392; 73 FR 48670; 74 FR 43922, 75 FR 50343, 76 FR 51698, 77 FR 53449, 78 FR 50740, 77 FR 50145; 80 FR 49585; and 81 FR 57034, respectively), we believe that the statutory language of the budget neutrality requirements permits the agency to implement the budget neutrality provision in this manner.

We resumed this methodology of offsetting demonstration costs against the national payment rates in the IPPS final rules from FY 2018 through FY 2024. Please see the FY 2024 IPPS final rule for an account of how we applied the budget neutrality requirement for these fiscal years (88 FR 59114 through 59116).

b. General Budget Neutrality Methodology

We have generally incorporated two components into the budget neutrality offset amounts identified in the final IPPS rules in previous years. First, we have estimated the costs of the demonstration for the upcoming fiscal year, generally determined from historical, “as submitted” cost reports for the hospitals participating in that year. Update factors representing nationwide trends in cost and volume increases have been incorporated into these estimates, as specified in the methodology described in the final rule for each fiscal year. Second, as finalized cost reports became available, we determined the amount by which the actual costs of the demonstration for an earlier, given year differed from the estimated costs for the demonstration set forth in the final IPPS rule for the corresponding fiscal year, and incorporated that amount into the budget neutrality offset amount for the upcoming fiscal year. If the actual costs for the demonstration for the earlier fiscal year exceeded the estimated costs of the demonstration identified in the final rule for that year, this difference was added to the estimated costs of the demonstration for the upcoming fiscal year when determining the budget neutrality adjustment for the upcoming fiscal year. Conversely, if the estimated costs of the demonstration set forth in the final rule for a prior fiscal year exceeded the actual costs of the demonstration for that year, this difference was subtracted from the estimated cost of the demonstration for the upcoming fiscal year when determining the budget neutrality adjustment for the upcoming fiscal year.

We note that we have calculated this difference for FYs 2005 through 2018 between the actual costs of the demonstration as determined from finalized cost reports once available, and estimated costs of the demonstration as identified in the applicable IPPS final rules for these years.

c. Budget Neutrality Methodology for the Extension Period Authorized by CAA, 2021

For the most-recently enacted extension period, under the CAA, 2021, we have continued upon the general budget neutrality methodology used in previous years, as described above in the citations to earlier IPPS final rules. In this proposed rule, we outline the methodology to be used for determining the offset to the national IPPS payment rates for FY 2025.

(1) Methodology for Estimating Demonstration Costs for FY 2025

Consistent with the general methodology from previous years, we are estimating the costs of the demonstration for the upcoming fiscal year, and proposing to incorporate this estimate into the budget neutrality offset amount to be applied to the national IPPS rates for the upcoming fiscal year, that is, FY 2025. We are conducting this estimate for FY 2025 based on the 23 currently participating hospitals. The methodology for calculating this amount for FY 2025 proceeds according to the following steps:

Step 1: For each of these 23 hospitals, we identify the reasonable cost amount calculated under the reasonable cost-based methodology for covered inpatient hospital services, including swing beds, as indicated on the “as submitted” cost report for the most recent cost reporting period available. For each of these hospitals, the “as submitted” cost report is that with cost report period end date in CY 2022. We sum these hospital-specific amounts to arrive at a total general amount representing the costs for covered inpatient hospital services, including swing beds, across the total 23 hospitals eligible to participate during FY 2025.

Then, we multiply this amount by the FYs 2023, 2024, and 2025 IPPS market basket percentage increases, which are calculated by the CMS Office of the Actuary. (We are using the proposed market basket percentage increase for FY 2025, which can be found at section V.B.1. of the preamble to this proposed rule). The result for the 23 hospitals is the general estimated reasonable cost amount for covered inpatient hospital services for FY 2025.

Consistent with our methods in previous years for formulating this estimate, we are applying the IPPS market basket percentage increases for FYs 2023 through 2025 to the applicable estimated reasonable cost amount (previously described) to model the estimated FY 2025 reasonable cost amount under the demonstration. We believe that the IPPS market basket percentage increases appropriately indicate the trend of increase in inpatient hospital operating costs under the reasonable cost methodology for the years involved.

Step 2: For each of the participating hospitals, we identify the estimated amount that would otherwise be paid in FY 2025 under applicable Medicare payment methodologies for covered inpatient hospital services, including swing beds (as indicated on the same set of “as submitted” cost reports as in Step 1), if the demonstration were not implemented. We sum these hospital-specific amounts, and, in turn, multiply this sum by the FYs 2023, 2024, and 2025 IPPS applicable percentage increases. (For FY 2025, we are using the proposed applicable percentage increase, per section V.B.1. of the preamble of this proposed rule). This methodology differs from Step 1, in which we apply the market basket percentage increases to the hospitals' applicable estimated reasonable cost amount for covered inpatient hospital services. We believe that the IPPS applicable percentage increases are appropriate factors to update the estimated amounts that generally would otherwise be paid without the demonstration. This is because IPPS payments constitute the majority of payments that would otherwise be made without the demonstration and the applicable percentage increase is the factor used under the IPPS to update the inpatient hospital payment rates.

Step 3: We subtract the amount derived in Step 2 from the amount derived in Step 1. According to our methodology, the resulting amount indicates the total difference for the 23 hospitals (for covered inpatient hospital services, including swing beds), which will be the general estimated amount of the costs of the demonstration for FY 2025.

For this proposed rule, the resulting amount is $49,522,206, to be incorporated into the budget neutrality offset adjustment for FY 2025. This estimated amount is based on the specific assumptions regarding the data sources used, that is, recently available “as submitted” cost reports and historical update factors for cost and payment. If updated data become available prior to the final rule, we will use them as appropriate to estimate the costs for the demonstration program for FY 2025 in accordance with our methodology for determining the budget neutrality estimate. We will also incorporate any statutory change that might affect the methodology for determining hospital costs either with or without the demonstration.

(2) Reconciling Actual and Estimated Costs of the Demonstration for Previous Years

As described earlier, we have calculated the difference for FYs 2005 through 2018 between the actual costs of the demonstration, as determined from finalized cost reports once available, and estimated costs of the demonstration as identified in the applicable IPPS final rules for these years.

At this time, for the FY 2025 proposed rule, not all of the finalized cost reports are available for the 26 hospitals that completed cost report periods beginning in FY 2019 under the demonstration payment methodology. We expect all of these finalized cost reports to be available by the time of the final rule, and thus we are proposing to include the difference between the actual cost of the demonstration for FY 2019 as determined from finalized cost reports within the budget neutrality offset amount in the FY 2025 final rule.

(3) Total Proposed Budget Neutrality Offset Amount for FY 2025

Therefore, for this FY 2025 IPPS/LTCH PPS proposed rule, the proposed budget neutrality offset amount for FY 2025 is the amount determined under section X.2.c.(2) of the preamble of this proposed rule, representing the difference applicable to FY 2025 between the sum of the estimated reasonable cost amounts that would be paid under the demonstration for covered inpatient services to the 23 hospitals eligible to participate in the fiscal year and the sum of the estimated amounts that would generally be paid if the demonstration had not been implemented. This estimated amount is $49,522,206.

However, we note, that the overall amount might change if there are any revisions prior to the final rule to the data used to formulate this estimate. We also expect to revise the budget neutrality offset amount upon calculating the actual costs of the demonstration for FY 2019, after receiving all of the finalized cost reports for that fiscal year.

VI. Proposed Changes to the IPPS for Capital Related Costs

A. Overview

Section 1886(g) of the Act requires the Secretary to pay for the capital-related costs of inpatient acute hospital services in accordance with a prospective payment system established by the Secretary. Under the statute, the Secretary has broad authority in establishing and implementing the IPPS for acute care hospital inpatient capital-related costs. We initially implemented the IPPS for capital-related costs in the FY 1992 IPPS final rule (56 FR 43358). In that final rule, we established a 10-year transition period to change the payment methodology for Medicare hospital inpatient capital-related costs from a reasonable cost-based payment methodology to a prospective payment methodology (based fully on the Federal rate).

FY 2001 was the last year of the 10-year transition period that was established to phase in the IPPS for hospital inpatient capital-related costs. For cost reporting periods beginning in FY 2002, capital IPPS payments are based solely on the Federal rate for almost all acute care hospitals (other than hospitals receiving certain exception payments and certain new hospitals). (We refer readers to the FY 2002 IPPS final rule (66 FR 39910 through 39914) for additional information on the methodology used to determine capital IPPS payments to hospitals both during and after the transition period.)

The basic methodology for determining capital prospective payments using the Federal rate is set forth in the regulations at 42 CFR 412.312. For the purpose of calculating capital payments for each discharge, the standard Federal rate is adjusted as follows:

(Standard Federal Rate) × (DRG Weight) × (Geographic Adjustment Factor (GAF) × (COLA for hospitals located in Alaska and Hawaii) × (1 + Capital DSH Adjustment Factor + Capital IME Adjustment Factor, if applicable).

In addition, under § 412.312(c), hospitals also may receive outlier payments under the capital IPPS for extraordinarily high-cost cases that qualify under the thresholds established for each fiscal year.

B. Additional Provisions

1. Exception Payments

The regulations at 42 CFR 412.348 provide for certain exception payments under the capital IPPS. The regular exception payments provided under § 412.348(b) through (e) were available only during the 10-year transition period. For a certain period after the transition period, eligible hospitals may have received additional payments under the special exceptions provisions at § 412.348(g). However, FY 2012 was the final year hospitals could receive special exceptions payments. For additional details regarding these exceptions policies, we refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51725).

Under § 412.348(f), a hospital may request an additional payment if the hospital incurs unanticipated capital expenditures in excess of $5 million due to extraordinary circumstances beyond the hospital's control. Additional information on the exception payment for extraordinary circumstances in § 412.348(f) can be found in the FY 2005 IPPS final rule (69 FR 49185 and 49186).

2. New Hospitals

Under the capital IPPS, the regulations at 42 CFR 412.300(b) define a new hospital as a hospital that has operated (under previous or current ownership) for less than 2 years and lists examples of hospitals that are not considered new hospitals. In accordance with § 412.304(c)(2), under the capital IPPS, a new hospital is paid 85 percent of its allowable Medicare inpatient hospital capital related costs through its first 2 years of operation, unless the new hospital elects to receive full prospective payment based on 100 percent of the Federal rate. We refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51725) for additional information on payments to new hospitals under the capital IPPS.

3. Payments for Hospitals Located in Puerto Rico

In the FY 2017 IPPS/LTCH PPS final rule (81 FR 57061), we revised the regulations at 42 CFR 412.374 relating to the calculation of capital IPPS payments to hospitals located in Puerto Rico beginning in FY 2017 to parallel the change in the statutory calculation of operating IPPS payments to hospitals located in Puerto Rico, for discharges occurring on or after January 1, 2016, made by section 601 of the Consolidated Appropriations Act, 2016 (Pub. L. 114-113). Section 601 of Public Law 114-113 increased the applicable Federal percentage of the operating IPPS payment for hospitals located in Puerto Rico from 75 percent to 100 percent and decreased the applicable Puerto Rico percentage of the operating IPPS payments for hospitals located in Puerto Rico from 25 percent to zero percent, applicable to discharges occurring on or after January 1, 2016. As such, under revised § 412.374, for discharges occurring on or after October 1, 2016, capital IPPS payments to hospitals located in Puerto Rico are based on 100 percent of the capital Federal rate.

C. Proposed Annual Update for FY 2025

The proposed annual update to the national capital Federal rate, as provided for in 42 CFR 412.308(c), for FY 2025 is discussed in section III. of the Addendum to this FY 2025 IPPS/LTCH PPS proposed rule.

VII. Changes for Hospitals Excluded From the IPPS

A. Proposed Rate-of-Increase in Payments to Excluded Hospitals for FY 2025

Certain hospitals excluded from a prospective payment system, including children's hospitals, 11 cancer hospitals, and hospitals located outside the 50 States, the District of Columbia, and Puerto Rico (that is, hospitals located in the U.S. Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa) receive payment for inpatient hospital services they furnish on the basis of reasonable costs, subject to a rate-of-increase ceiling. A per discharge limit (the target amount, as defined in § 413.40(a) of the regulations) is set for each hospital based on the hospital's own cost experience in its base year, and updated annually by a rate-of-increase percentage. For each cost reporting period, the updated target amount is multiplied by total Medicare discharges during that period and applied as an aggregate upper limit (the ceiling as defined in § 413.40(a)) of Medicare reimbursement for total inpatient operating costs for a hospital's cost reporting period. In accordance with § 403.752(a) of the regulations, religious nonmedical health care institutions (RNHCIs) also are subject to the rate-of-increase limits established under § 413.40 of the regulations discussed previously. Furthermore, in accordance with § 412.526(c)(3) of the regulations, extended neoplastic disease care hospitals also are subject to the rate-of-increase limits established under § 413.40 of the regulations discussed previously.

As explained in the FY 2006 IPPS final rule (70 FR 47396 through 47398), beginning with FY 2006, we have used the percentage increase in the IPPS operating market basket to update the target amounts for children's hospitals, the 11 cancer hospitals, and RNHCIs.

Consistent with the regulations at §§ 412.23(g) and 413.40(a)(2)(ii)(A) and (c)(3)(viii), we also have used the percentage increase in the IPPS operating market basket to update target amounts for short-term acute care hospitals located in the U.S. Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa. In the FY 2018 IPPS/LTCH PPS final rule, we rebased and revised the IPPS operating market basket to a 2014 base year, effective for FY 2018 and subsequent fiscal years (82 FR 38158 through 38175), and finalized the use of the percentage increase in the 2014-based IPPS operating market basket to update the target amounts for children's hospitals, the 11 cancer hospitals, RNHCIs, and short-term acute care hospitals located in the U.S. Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa for FY 2018 and subsequent fiscal years. As discussed in section IV. of the preamble of the FY 2022 IPPS/LTCH PPS final rule (86 FR 45194 through 45207), we rebased and revised the IPPS operating market basket to a 2018 base year. Therefore, we used the percentage increase in the 2018-based IPPS operating market basket to update the target amounts for children's hospitals, the 11 cancer hospitals, RNHCIs, and short-term acute care hospitals located in the U.S. Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa for FY 2022 and subsequent fiscal years.

For this FY 2025 IPPS/LTCH PPS proposed rule, based on IGI's 2023 fourth quarter forecast, we estimate that the 2018-based IPPS operating market basket percentage increase for FY 2025 is 3.0 percent (that is, the estimate of the market basket rate-of-increase). Based on this estimate, the FY 2025 rate-of-increase percentage that will be applied to the FY 2024 target amounts in order to calculate the FY 2025 target amounts for children's hospitals, the 11 cancer hospitals, RNCHIs, and short-term acute care hospitals located in the U.S. Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa is 3.0 percent, in accordance with the applicable regulations at 42 CFR 413.40. However, we are proposing that if more recent data become available for the FY 2025 IPPS/LTCH PPS final rule, we would use such data, if appropriate, to calculate the final IPPS operating market basket update for FY 2025.

In addition, payment for inpatient operating costs for hospitals classified under section 1886(d)(1)(B)(vi) of the Act (which we refer to as “extended neoplastic disease care hospitals”) for cost reporting periods beginning on or after January 1, 2015, is to be made as described in 42 CFR 412.526(c)(3), and payment for capital costs for these hospitals is to be made as described in 42 CFR 412.526(c)(4). (For additional information on these payment regulations, we refer readers to the FY 2018 IPPS/LTCH PPS final rule (82 FR 38321 through 38322).) Section 412.526(c)(3) provides that the hospital's Medicare allowable net inpatient operating costs for that period are paid on a reasonable cost basis, subject to that hospital's ceiling, as determined under § 412.526(c)(1), for that period. Under § 412.526(c)(1), for each cost reporting period, the ceiling was determined by multiplying the updated target amount, as defined in § 412.526(c)(2), for that period by the number of Medicare discharges paid during that period. Section 412.526(c)(2)(i) describes the method for determining the target amount for cost reporting periods beginning during FY 2015. Section 412.526(c)(2)(ii) specifies that, for cost reporting periods beginning during fiscal years after FY 2015, the target amount will equal the hospital's target amount for the previous cost reporting period updated by the applicable annual rate-of-increase percentage specified in § 413.40(c)(3) for the subject cost reporting period (79 FR 50197).

For FY 2025, in accordance with §§ 412.22(i) and 412.526(c)(2)(ii) of the regulations, for cost reporting periods beginning during FY 2025, the proposed update to the target amount for extended neoplastic disease care hospitals (that is, hospitals described under § 412.22(i)) is the applicable annual rate-of-increase percentage specified in § 413.40(c)(3), which is estimated to be the percentage increase in the 2018-based IPPS operating market basket (that is, the estimate of the market basket rate-of-increase). Accordingly, the proposed update to an extended neoplastic disease care hospital's target amount for FY 2025 is 3.0 percent, which is based on IGI's fourth quarter 2023 forecast. Furthermore, we are proposing that if more recent data become available for the FY 2025 IPPS/LTCH PPS final rule, we would use such data, if appropriate, to calculate the IPPS operating market basket rate of increase for FY 2025.

B. Critical Access Hospitals (CAHs)

1. Background

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

2. Frontier Community Health Integration Project Demonstration

a. Introduction

The Frontier Community Health Integration Project Demonstration was originally authorized by section 123 of the Medicare Improvements for Patients and Providers Act of 2008 (Pub. L. 110-275). The demonstration has been extended by section 129 of the Consolidated Appropriations Act, 2021 (Pub. L. 116-260) for an additional 5 years. In this proposed rule, we are summarizing the status of the demonstration program, and the ongoing methodologies for implementation and budget neutrality for the demonstration extension period.

b. Background and Overview

As discussed in the FY 2024 IPPS/LTCH PPS final rule (88 FR 59119 through 591222), section 123 of the Medicare Improvements for Patients and Providers Act of 2008, as amended by section 3126 of the Affordable Care Act, authorized a demonstration project to allow eligible entities to develop and test new models for the delivery of health care services in eligible counties in order to improve access to and better integrate the delivery of acute care, extended care and other health care services to Medicare beneficiaries. The demonstration was titled “Demonstration Project on Community Health Integration Models in Certain Rural Counties,” and commonly known as the Frontier Community Health Integration Project (FCHIP) Demonstration.

The authorizing statute stated the eligibility criteria for entities to be able to participate in the demonstration. An eligible entity, as defined in section 123(d)(1)(B) of Public Law 110-275, as amended, is a Medicare Rural Hospital Flexibility Program (MRHFP) grantee under section 1820(g) of the Act (that is, a CAH); and is located in a State in which at least 65 percent of the counties in the state are counties that have 6 or less residents per square mile.

The authorizing statute stipulated several other requirements for the demonstration. In addition, section 123(g)(1)(B) of Public Law 110-275 required that the demonstration be budget neutral. Specifically, this provision stated that, in conducting the demonstration project, the Secretary shall ensure that the aggregate payments made by the Secretary do not exceed the amount which the Secretary estimates would have been paid if the demonstration project under the section were not implemented. Furthermore, section 123(i) of Public Law 110-275 stated that the Secretary may waive such requirements of titles XVIII and XIX of the Act as may be necessary and appropriate for the purpose of carrying out the demonstration project, thus allowing the waiver of Medicare payment rules encompassed in the demonstration. CMS selected CAHs to participate in four interventions, under which specific waivers of Medicare payment rules would allow for enhanced payment for telehealth, skilled nursing facility/nursing facility beds, ambulance services, and home health services. These waivers were formulated with the goal of increasing access to care with no net increase in costs.

Section 123 of Public Law 110-275 initially required a 3-year period of performance. The FCHIP Demonstration began on August 1, 2016, and concluded on July 31, 2019 (referred to in this section of the proposed rule as the “initial period”). Subsequently, section 129 of the Consolidated Appropriations Act, 2021 (Pub. L. 116-260) extended the demonstration by 5 years (referred to in this section of the proposed rule as the “extension period”). The Secretary is required to conduct the demonstration for an additional 5-year period. CAHs participating in the demonstration project during the extension period began such participation in their cost reporting year that began on or after January 1, 2022.

As described in the FY 2024 IPPS/LTCH PPS final rule (88 FR 59119 through 59122), 10 CAHs were selected for participation in the demonstration initial period. The selected CAHs were located in three states—Montana, Nevada, and North Dakota—and participated in three of the four interventions identified in the FY 2024 IPPS/LTCH PPS final rule. Each CAH was allowed to participate in more than one of the interventions. None of the selected CAHs were participants in the home health intervention, which was the fourth intervention.

In the FY 2022 IPPS/LTCH PPS final rule (86 FR 45323 through 45328), CMS concluded that the initial period of the FCHIP Demonstration (covering the performance period of August 1, 2016, to July 31, 2019) had satisfied the budget neutrality requirement described in section 123(g)(1)(B) of Public Law 110-275. Therefore, CMS did not apply a budget neutrality payment offset policy for the initial period of the demonstration.

Section 129 of Public Law 116-260, stipulates that only the 10 CAHs that participated in the initial period of the FCHIP Demonstration are eligible to participate during the extension period. Among the eligible CAHs, five have elected to participate in the extension period. The selected CAHs are located in two states—Montana and North Dakota—and are implementing three of the four interventions. The eligible CAH participants elected to change the number of interventions and payment waivers they would participate in during the extension period. CMS accepted and approved the CAHs intervention and payment waiver updates. For the extension period, five CAHs are participants in the telehealth intervention, three CAHs are participants in the skilled nursing facility/nursing facility bed intervention, and three CAHs are participants in the ambulance services intervention. As with the initial period, each CAH was allowed to participate in more than one of the interventions during the extension period. None of the selected CAHs are participants in the home health intervention, which was the fourth intervention.

c. Intervention Payment and Payment Waivers

As described in the FY 2024 IPPS/LTCH PPS final rule (88 FR 59119 through 59122), CMS waived certain Medicare rules for CAHs participating in the demonstration initial period to allow for alternative reasonable cost-based payment methods in the three distinct intervention service areas: telehealth services, ambulance services, and skilled nursing facility/nursing facility (SNF/NF) beds expansion. The payments and payment waiver provisions only apply if the CAH is a participant in the associated intervention. CMS Intervention Payment and Payment Waivers for the demonstration extension period consist of the following:

(1) Telehealth Services Intervention Payments

CMS waives section 1834(m)(2)(B) of the Act, which specifies the facility fee to the originating site for Medicare telehealth services. CMS modifies the facility fee payment specified under section 1834(m)(2)(B) of the Act to make reasonable cost-based reimbursement to the participating CAH where the participating CAH serves as the originating site for a telehealth service furnished to an eligible telehealth individual, as defined in section 1834(m)(4)(B) of the Act. CMS reimburses the participating CAH serving as the originating site at 101 percent of its reasonable costs for overhead, salaries and fringe benefits associated with telehealth services at the participating CAH. CMS does not fund or provide reimbursement to the participating CAH for the purchase of new telehealth equipment.

CMS waives section 1834(m)(2)(A) of the Act, which specifies that the payment for a telehealth service furnished by a distant site practitioner is the same as it would be if the service had been furnished in-person. CMS modifies the payment amount specified for telehealth services under section 1834(m)(2)(A) of the Act to make reasonable cost-based reimbursement to the participating CAH for telehealth services furnished by a physician or practitioner located at distant site that is a participating CAH that is billing for the physician or practitioner professional services. Whether the participating CAH has or has not elected Optional Payment Method II for outpatient services, CMS would pay the participating CAH 101 percent of reasonable costs for telehealth services when a physician or practitioner has reassigned their billing rights to the participating CAH and furnishes telehealth services from the participating CAH as a distant site practitioner. This means that participating CAHs that are billing under the Standard Method on behalf of employees who are physicians or practitioners (as defined in section 1834(m)(4)(D) and (E) of the Act, respectively) would be eligible to bill for distant site telehealth services furnished by these physicians and practitioners. Additionally, CAHs billing under the Optional Method would be reimbursed based on 101 percent of reasonable costs, rather than paid based on the Medicare physician fee schedule, for the distant site telehealth services furnished by physicians and practitioners who have reassigned their billing rights to the CAH. For distant site telehealth services furnished by physicians or practitioners who have not reassigned billing rights to a participating CAH, payment to the distant site physician or practitioner would continue to be made as usual under the Medicare physician fee schedule. Except as described herein, CMS does not waive any other provisions of section 1834(m) of the Act for purposes of the telehealth services intervention payments, including the scope of Medicare telehealth services as established under section 1834(m)(4)(F) of the Act.

(2) Ambulance Services Intervention Payments

CMS waives 42 CFR 413.70(b)(5)(i)(D) and section 1834(l)(8) of the Act, which provides that payment for ambulance services furnished by a CAH, or an entity owned and operated by a CAH, is 101 percent of the reasonable costs of the CAH or the entity in furnishing the ambulance services, but only if the CAH or the entity is the only provider or supplier of ambulance services located within a 35-mile drive of the CAH, excluding ambulance providers or suppliers that are not legally authorized to furnish ambulance services to transport individuals to or from the CAH. The participating CAH would be paid 101 percent of reasonable costs for its ambulance services regardless of whether there is any provider or supplier of ambulance services located within a 35-mile drive of the participating CAH or participating CAH-owned and operated entity. CMS would not make cost-based payment to the participating CAH for any new capital (for example, vehicles) associated with ambulance services. This waiver does not modify any other Medicare rules regarding or affecting the provision of ambulance services.

(3) SNF/NF Beds Expansion Intervention Payments

CMS waives 42 CFR 485.620(a), 42 CFR 485.645(a)(2), and section 1820(c)(2)(B)(iii) of the Act which limit CAHs to maintaining no more than 25 inpatient beds, including beds available for acute inpatient or swing bed services. CMS waives 1820(f) of the Act permitting designating or certifying a facility as a critical access hospital for which the facility at any time is furnishing inpatient beds which exceed more than 25 beds. Under this waiver, if the participating CAH has received swing bed approval from CMS, the participating CAH may maintain up to ten additional beds (for a total of 35 beds) available for acute inpatient or swing bed services; however, the participating CAH may only use these 10 additional beds for nursing facility or skilled nursing facility level of care. CMS would pay the participating CAH 101 percent of reasonable costs for its SNF/NF services furnished in the 10 additional beds.

d. Budget Neutrality

(1) Budget Neutrality Requirement

In the FY 2022 IPPS/LTCH PPS final rule (86 FR 45323 through 45328), we finalized a policy to address the budget neutrality requirement for the demonstration initial period. As explained in the FY 2022 IPPS/LTCH PPS final rule, we based our selection of CAHs for participation in the demonstration with the goal of maintaining the budget neutrality of the demonstration on its own terms meaning that the demonstration would produce savings from reduced transfers and admissions to other health care providers, offsetting any increase in Medicare payments as a result of the demonstration. However, because of the small size of the demonstration and uncertainty associated with the projected Medicare utilization and costs, the policy we finalized for the demonstration initial period of performance in the FY 2022 IPPS/LTCH PPS final rule provides a contingency plan to ensure that the budget neutrality requirement in section 123 of Public Law 110-275 is met.

In the FY 2023 IPPS/LTCH PPS final rule (87 FR 49144 through 49147), we adopted the same budget neutrality policy contingency plan used during the demonstration initial period to ensure that the budget neutrality requirement in section 123 of Public Law 110 275 is met during the demonstration extension period. If analysis of claims data for Medicare beneficiaries receiving services at each of the participating CAHs, as well as from other data sources, including cost reports for the participating CAHs, shows that increases in Medicare payments under the demonstration during the 5-year extension period are not sufficiently offset by reductions elsewhere, we would recoup the additional expenditures attributable to the demonstration through a reduction in payments to all CAHs nationwide.

As explained in the FY 2023 IPPS/LTCH PPS final rule, because of the small scale of the demonstration, we indicated that we did not believe it would be feasible to implement budget neutrality for the demonstration extension period by reducing payments to only the participating CAHs. Therefore, in the event that this demonstration extension period is found to result in aggregate payments in excess of the amount that would have been paid if this demonstration extension period were not implemented, CMS policy is to comply with the budget neutrality requirement finalized in the FY 2023 IPPS/LTCH PPS final rule, by reducing payments to all CAHs, not just those participating in the demonstration extension period.

In the FY 2023 IPPS/LTCH PPS final rule (87 FR 49144 through 49147), we stated that we believe it is appropriate to make any payment reductions across all CAHs because the FCHIP Demonstration was specifically designed to test innovations that affect delivery of services by the CAH provider category. We explained our belief that the language of the statutory budget neutrality requirement at section 123(g)(1)(B) of Public Law 110-275 permits the agency to implement the budget neutrality provision in this manner. The statutory language merely refers to ensuring that aggregate payments made by the Secretary do not exceed the amount which the Secretary estimates would have been paid if the demonstration project was not implemented and does not identify the range across which aggregate payments must be held equal.

In the FY 2023 IPPS/LTCH PPS final rule, we finalized a policy that in the event the demonstration extension period is found not to have been budget neutral, any excess costs would be recouped within one fiscal year. We explained our belief that this policy is a more efficient timeframe for the government to conclude the demonstration operational requirements (such as analyzing claims data, cost report data or other data sources) to adjudicate the budget neutrality payment recoupment process due to any excess cost that occurred as result of the demonstration extension period.

(2) FCHIP Budget Neutrality Methodology and Analytical Approach

As explained in the FY 2022 IPPS/LTCH PPS final rule, we finalized a policy to address the demonstration budget neutrality methodology and analytical approach for the initial period of the demonstration. In the FY 2023 IPPS/LTCH PPS final rule, we finalized a policy to adopt the budget neutrality methodology and analytical approach used during the demonstration initial period to ensure budget neutrality for the extension period. The analysis of budget neutrality during the initial period of the demonstration identified both the costs related to providing the intervention services under the FCHIP Demonstration and any potential downstream effects of the intervention-related services, including any savings that may have accrued.

The budget neutrality analytical approach for the demonstration initial period incorporated two major data components: (1) Medicare cost reports; and (2) Medicare administrative claims. As described in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45323 through 45328), CMS computed the cost of the demonstration for each fiscal year of the demonstration initial period using Medicare cost reports for the participating CAHs, and Medicare administrative claims and enrollment data for beneficiaries who received demonstration intervention services.

In addition, in order to capture the full impact of the interventions, CMS developed a statistical modeling, Difference-in-Difference (DiD) regression analysis to estimate demonstration expenditures and compute the impact of expenditures on the intervention services by comparing cost data for the demonstration and non-demonstration groups using Medicare administrative claims across the demonstration period of performance under the initial period of the demonstration. The DiD regression analysis would compare the direct cost and potential downstream effects of intervention services, including any savings that may have accrued, during the baseline and performance period for both the demonstration and comparison groups.

Second, the Medicare administrative claims analysis would be reconciled using data obtained from auditing the participating CAHs' Medicare cost reports. We would estimate the costs of the demonstration using “as submitted” cost reports for each hospital's financial fiscal year participation within each of the demonstration extension period performance years. Each CAH has its own Medicare cost report end date applicable to the 5-year period of performance for the demonstration extension period. The cost report is structured to gather costs, revenues and statistical data on the provider's financial fiscal period. As a result, we finalized a policy in the FY 2023 IPPS/LTCH PPS final rule that we would determine the final budget neutrality results for the demonstration extension once complete data is available for each CAH for the demonstration extension period.

e. Policies for Implementing the 5-Year Extension and Provisions Authorized by Section 129 of the Consolidated Appropriations Act, 2021 (Pub. L. 116-260)

As stated in the FY 2024 IPPS/LTCH PPS final rule (88 FR 59119 through 59122), our policy for implementing the 5-year extension period for section 129 of Public Law 116-260 follows same budget neutrality methodology and analytical approach as the demonstration initial period methodology. While we expect to use the same methodology that was used to assess the budget neutrality of the FCHIP Demonstration during initial period of the demonstration to assess the financial impact of the demonstration during this extension period, upon receiving data for the extension period, we may update and/or modify the FCHIP budget neutrality methodology and analytical approach to ensure that the full impact of the demonstration is appropriately captured.

f. Total Budget Neutrality Offset Amount for FY 2025

At this time, for the FY 2025 IPPS/LTCH PPS proposed rule, while this discussion represents our anticipated approach to assessing the financial impact of the demonstration extension period based on upon receiving data for the full demonstration extension period, we may update and/or modify the FCHIP Demonstration budget neutrality methodology and analytical approach to ensure that the full impact of the demonstration is appropriately captured.

Therefore, we do not propose to apply a budget neutrality payment offset to payments to CAHs in FY 2025. This policy would have no impact for any national payment system for FY 2025.

VIII. Proposed Changes to the Long-Term Care Hospital Prospective Payment System (LTCH PPS) for FY 2025

A. Background of the LTCH PPS

1. Legislative and Regulatory Authority

Section 123 of the Medicare, Medicaid, and SCHIP (State Children's Health Insurance Program) Balanced Budget Refinement Act of 1999 (BBRA) (Pub. L. 106-113), as amended by section 307(b) of the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (BIPA) (Pub. L. 106-554), provides for payment for both the operating and capital-related costs of hospital inpatient stays in long-term care hospitals (LTCHs) under Medicare Part A based on prospectively set rates. The Medicare prospective payment system (PPS) for LTCHs applies to hospitals that are described in section 1886(d)(1)(B)(iv) of the Act, effective for cost reporting periods beginning on or after October 1, 2002.

Section 1886(d)(1)(B)(iv)(I) of the Act originally defined an LTCH as a hospital that has an average inpatient length of stay (as determined by the Secretary) of greater than 25 days.

Section 1886(d)(1)(B)(iv)(II) of the Act also provided an alternative definition of LTCHs (“subclause II” LTCHs). However, section 15008 of the 21st Century Cures Act (Pub. L. 114-255) amended section 1886 of the Act to exclude former “subclause II” LTCHs from being paid under the LTCH PPS and created a new category of IPPS-excluded hospitals, which we refer to as “extended neoplastic disease care hospitals,” to be paid as hospitals that were formally classified as “subclause (II)” LTCHs (82 FR 38298).

Section 123 of the BBRA requires the PPS for LTCHs to be a “per discharge” system with a diagnosis-related group (DRG) based patient classification system that reflects the differences in patient resource use and costs in LTCHs.

Section 307(b)(1) of the BIPA, among other things, mandates that the Secretary shall examine, and may provide for, adjustments to payments under the LTCH PPS, including adjustments to DRG weights, area wage adjustments, geographic reclassification, outliers, updates, and a disproportionate share adjustment.

In the August 30, 2002 Federal Register (67 FR 55954), we issued a final rule that implemented the LTCH PPS authorized under the BBRA and BIPA. For the initial implementation of the LTCH PPS (FYs 2003 through 2007), the system used information from LTCH patient records to classify patients into distinct long-term care-diagnosis-related groups (LTCDRGs) based on clinical characteristics and expected resource needs. Beginning in FY 2008, we adopted the Medicare severity-long-term care-diagnosis related groups (MS-LTC-DRGs) as the patient classification system used under the LTCH PPS. Payments are calculated for each MS-LTC-DRG and provisions are made for appropriate payment adjustments. Payment rates under the LTCH PPS are updated annually and published in the Federal Register .

The LTCH PPS replaced the reasonable cost-based payment system under the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) (Pub. L. 97248) for payments for inpatient services provided by an LTCH with a cost reporting period beginning on or after October 1, 2002. (The regulations implementing the TEFRA reasonable-cost-based payment provisions are located at 42 CFR part 413.) With the implementation of the PPS for acute care hospitals authorized by the Social Security Amendments of 1983 (Pub. L. 98-21), which added section 1886(d) to the Act, certain hospitals, including LTCHs, were excluded from the PPS for acute care hospitals and paid their reasonable costs for inpatient services subject to a per discharge limitation or target amount under the TEFRA system. For each cost reporting period, a hospital specific ceiling on payments was determined by multiplying the hospital's updated target amount by the number of total current year Medicare discharges. (Generally, in this section of the preamble of this proposed rule, when we refer to discharges, we describe Medicare discharges.) The August 30, 2002 final rule further details the payment policy under the TEFRA system (67 FR 55954).

In the August 30, 2002 final rule, we provided for a 5-year transition period from payments under the TEFRA system to payments under the LTCH PPS. During this 5-year transition period, an LTCH's total payment under the PPS was based on an increasing percentage of the Federal rate with a corresponding decrease in the percentage of the LTCH PPS payment that is based on reasonable cost concepts, unless an LTCH made a one-time election to be paid based on 100 percent of the Federal rate. Beginning with LTCHs' cost reporting periods beginning on or after October 1, 2006, total LTCH PPS payments are based on 100 percent of the Federal rate.

In addition, in the August 30, 2002 final rule, we presented an in-depth discussion of the LTCH PPS, including the patient classification system, relative weights, payment rates, additional payments, and the budget neutrality requirements mandated by section 123 of the BBRA. The same final rule that established regulations for the LTCH PPS under 42 CFR part 412, subpart O, also contained LTCH provisions related to covered inpatient services, limitation on charges to beneficiaries, medical review requirements, furnishing of inpatient hospital services directly or under arrangement, and reporting and recordkeeping requirements. We refer readers to the August 30, 2002 final rule for a comprehensive discussion of the research and data that supported the establishment of the LTCH PPS (67 FR 55954).

In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49601 through 49623), we implemented the provisions of the Pathway for Sustainable Growth Rate (SGR) Reform Act of 2013 (Pub. L. 113-67), which mandated the application of the “site neutral” payment rate under the LTCH PPS for discharges that do not meet the statutory criteria for exclusion beginning in FY 2016. For cost reporting periods beginning on or after October 1, 2015, discharges that do not meet certain statutory criteria for exclusion are paid based on the site neutral payment rate. Discharges that do meet the statutory criteria continue to receive payment based on the LTCH PPS standard Federal payment rate. For more information on the statutory requirements of the Pathway for SGR Reform Act of 2013, we refer readers to the FY 2016 IPPS/LTCH PPS final rule (80 FR 49601 through 49623) and the FY 2017 IPPS/LTCH PPS final rule (81 FR 57068 through 57075).

In the FY 2018 IPPS/LTCH PPS final rule, we implemented several provisions of the 21st Century Cures Act (“the Cures Act”) (Pub. L. 114-255) that affected the LTCH PPS. (For more information on these provisions, we refer readers to (82 FR 38299).)

In the FY 2019 IPPS/LTCH PPS final rule (83 FR 41529), we made conforming changes to our regulations to implement the provisions of section 51005 of the Bipartisan Budget Act of 2018 (Pub. L. 115-123), which extends the transitional blended payment rate for site neutral payment rate cases for an additional 2 years. We refer readers to section VII.C. of the preamble of the FY 2019 IPPS/LTCH PPS final rule for a discussion of our final policy. In addition, in the FY 2019 IPPS/LTCH PPS final rule, we removed the 25- percent threshold policy under 42 CFR 412.538, which was a payment adjustment that was applied to payments for Medicare patient LTCH discharges when the number of such patients originating from any single referring hospital was in excess of the applicable threshold for given cost reporting period.

In the FY 2020 IPPS/LTCH PPS final rule (84 FR 42439), we further revised our regulations to implement the provisions of the Pathway for SGR Reform Act of 2013 (Pub. L. 113-67) that relate to the payment adjustment for discharges from LTCHs that do not maintain the requisite discharge payment percentage and the process by which such LTCHs may have the payment adjustment discontinued.

2. Criteria for Classification as an LTCH

a. Classification as an LTCH

i. General

Under the regulations at § 412.23(e)(1), to qualify to be paid under the LTCH PPS, a hospital must have a provider agreement with Medicare. Furthermore, § 412.23(e)(2)(i), which implements section 1886(d)(1)(B)(iv) of the Act, requires that a hospital have an average Medicare inpatient length of stay of greater than 25 days to be paid under the LTCH PPS. In accordance with section 1206(a)(3) of the Pathway for SGR Reform Act of 2013 (Pub. L. 113-67), as amended by section 15007 of Public Law 114-255, we amended our regulations to specify that Medicare Advantage plans' and site neutral payment rate discharges are excluded from the calculation of the average length of stay for all LTCHs, for discharges occurring in cost reporting period beginning on or after October 1, 2015.

ii. Proposed Technical Clarification

As explained more fully previously, LTCHs are required to have an average length of stay (ALOS) of greater than 25 days. Prior to a hospital being classified as an LTCH, the hospital must first participate in Medicare as a hospital (typically a hospital paid under the IPPS) during which time ALOS data is gathered. This data is used to determine whether the hospital has an ALOS of greater than 25 days, which is required to be classified as an LTCH. We generally refer to the period during which a hospital seeks to establish the required ALOS as a “qualifying period.” The qualifying period is the 6-month period immediately preceding the hospital's conversion to an LTCH, and it has been our policy that the requisite ALOS must be demonstrated based on patient data from at least 5 consecutive months of this period. For example, for a hospital seeking to become an LTCH effective January 1, 2025, the qualifying period would be July 1, 2024 through December 31, 2024 (that is, the 6 months immediately preceding the conversion to an LTCH). In order for the hospital to convert to an LTCH, the ALOS must be demonstrated for a period of at least 5 consecutive months (for example, July 1, 2024 through November 30, 2024 or July 15, 2024 to December 14, 2024) of the 6 month qualifying period.

It has been our general policy to allow a hospital to be classified as an LTCH after only the 6-month qualifying period (as opposed to requiring the completion of the more typical 12-month cost reporting period). We have also referred to the ability of a hospital to be classified as an LTCH after a 6-month qualifying period in preamble previously (73 FR 29705), and the Provider Reimbursement Manual at 3001.4 refers to using data from a 6-month period for hospitals which have not yet filed a cost report. However, our regulations have never explicitly articulated how the qualifying period policy applies to a hospital seeking classification as an LTCH. Therefore, we are proposing to revise our regulations at 42 CFR 412.23(e)(4) to explicitly state that a hospital that seeks to be classified as an LTCH may do so after completion of a 6-month qualifying period, provided that the hospital demonstrates an average length of stay (calculated under our existing regulations) of greater than 25 days during at least five consecutive months of the 6-month qualifying period (which is the same timeframe as the “cure period” for existing LTCHs). Specifically, we are proposing to add new paragraph § 412.23(e)(4)(iv) to explain the qualifying period for hospitals seeking LTCH classification.

Further, we are proposing to revise certain paragraphs and reorder certain paragraphs in § 412.23(e) to improve the clarity of the regulation by clarifying how provisions apply to existing LTCHs and which provisions apply to hospitals seeking classification as an LTCH. First, we are proposing to revise paragraph § 412.23(e)(3)(i) to incorporate a reference that includes new subparagraphs § 412.23(e)(4)(iv) and (e)(4)(v). Second, we are proposing to revise paragraph § 412.23(e)(3)(iii) to clarify that it applies in cases of hospitals that have already obtained LTCH classification when the LTCH would not otherwise maintain an average Medicare inpatient length of stay of greater than 25 days. Third, we are proposing to reserve § 412.23(e)(3)(iv) and move that text to new (e)(4)(v) in order to clarify that this regulation applies to hospitals seeking new LTCH classification. Fourth, we are proposing to revise § 412.23(e)(4) to clarify that the provisions of paragraph (e)(3), with the exception of subparagraphs (e)(3)(iii) and (v) apply to hospitals seeking new LTCH classification. Fifth, we are proposing to revise paragraph § 412.23(e)(4)(i) to reflect the addition of new § 412.23(e)(4)(iv) and (e)(4)(v) and clarify existing regulatory language.

We note that none of these proposed revisions reflect a change to our existing policy; instead, we believe these revisions will improve the clarity of the regulatory text and better reflect our existing policy.

b. Hospitals Excluded From the LTCH PPS

The following hospitals are paid under special payment provisions, as described in § 412.22(c) and, therefore, are not subject to the LTCH PPS rules:

• Veterans Administration hospitals.
• Hospitals that are reimbursed under State cost control systems approved under 42 CFR part 403.
• Hospitals that are reimbursed in accordance with demonstration projects authorized under section 402(a) of the Social Security Amendments of 1967 (Pub. L. 90-248) (42 U.S.C. 1395b-1), section 222(a) of the Social Security Amendments of 1972 (Pub. L. 92-603) (42 U.S.C. 1395b1 (note)) (Statewide-all payer systems, subject to the rate-of increase test at section 1814(b) of the Act), or section 3021 of the Patient Protection and Affordable Care Act (Pub. L. 111-148) (42 U.S.C. 1315a).
• Nonparticipating hospitals furnishing emergency services to Medicare beneficiaries.

3. Limitation on Charges to Beneficiaries

In the August 30, 2002 final rule, we presented an in-depth discussion of beneficiary liability under the LTCH PPS (67 FR 55974 through 55975). This discussion was further clarified in the RY 2005 LTCH PPS final rule (69 FR 25676). In keeping with those discussions, if the Medicare payment to the LTCH is the full LTC-DRG payment amount, consistent with other established hospital prospective payment systems, § 412.507 currently provides that an LTCH may not bill a Medicare beneficiary for more than the deductible and coinsurance amounts as specified under §§ 409.82, 409.83, and 409.87, and for items and services specified under § 489.30(a). However, under the LTCH PPS, Medicare will only pay for services. furnished during the days for which the beneficiary has coverage until the short-stay outlier (SSO) threshold is exceeded. If the Medicare payment was for a SSO case (in accordance with § 412.529), and that payment was less than the full LTC-DRG payment amount because the beneficiary had insufficient coverage as a result of the remaining Medicare days, the LTCH also is currently permitted to charge the beneficiary for services delivered on those uncovered days (in accordance with § 412.507). In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49623), we amended our regulations to expressly limit the charges that may be imposed upon beneficiaries whose LTCHs' discharges are paid at the site neutral payment rate under the LTCH PPS. In the FY 2017 IPPS/LTCH PPS final rule (81 FR 57102), we amended the regulations under § 412.507 to clarify our existing policy that blended payments made to an LTCH during its transitional period (that is, an LTCH's payment for discharges occurring in cost reporting periods beginning in FYs 2016 through 2019) are considered to be site neutral payment rate payments.

B. Medicare Severity Long-Term Care Diagnosis-Related Group (MS-LTC-DRG) Classifications and Relative Weights for FY 2025

1. Background

Section 123 of the BBRA required that the Secretary implement a PPS for LTCHs to replace the cost-based payment system under TEFRA. Section 307(b)(1) of the BIPA modified the requirements of section 123 of the BBRA by requiring that the Secretary examine the feasibility and the impact of basing payment under the LTCH PPS on the use of existing (or refined) hospital DRGs that have been modified to account for different resource use of LTCH patients.

Under both the IPPS and the LTCH PPS, the DRG-based classification system uses information on the claims for inpatient discharges to classify patients into distinct groups (for example, DRGs) based on clinical characteristics and expected resource needs. When the LTCH PPS was implemented for cost reporting periods beginning on or after October 1, 2002, we adopted the same DRG patient classification system utilized at that time under the IPPS. We referred to this patient classification system as the “long-term care diagnosis-related groups (LTC-DRGs).” As part of our efforts to better recognize severity of illness among patients, in the FY 2008 IPPS final rule with comment period (72 FR 47130), we adopted the MS-DRGs and the Medicare severity long-term care diagnosis-related groups (MS-LTC-DRGs) under the IPPS and the LTCH PPS, respectively, effective beginning October 1, 2007 (FY 2008). For a full description of the development, implementation, and rationale for the use of the MS-DRGs and MS-LTC-DRGs, we refer readers to the FY 2008 IPPS final rule with comment period (72 FR 47141 through 47175 and 47277 through 47299). (We note that, in that same final rule, we revised the regulations at § 412.503 to specify that for LTCH discharges occurring on or after October 1, 2007, when applying the provisions of 42 CFR part 412, subpart O, applicable to LTCHs for policy descriptions and payment calculations, all references to LTC-DRGs would be considered a reference to MS-LTC-DRGs. For the remainder of this section, we present the discussion in terms of the current MS-LTC-DRG patient classification system unless specifically referring to the previous LTC-DRG patient classification system that was in effect before October 1, 2007.)

Consistent with section 123 of the BBRA, as amended by section 307(b)(1) of the BIPA, and § 412.515 of the regulations, we use information derived from LTCH PPS patient records to classify LTCH discharges into distinct MS-LTC-DRGs based on clinical characteristics and estimated resource needs. As noted previously, we adopted the same DRG patient classification system utilized at that time under the IPPS. The MS-DRG classifications are updated annually, which has resulted in the number of MS-DRGs changing over time. For FY 2025, there would be 773 MS-DRG, and by extension, MS-LTC-DRG, groupings based on the proposed changes, as discussed in section II.E. of the preamble of this proposed rule.

Although the patient classification system used under both the LTCH PPS and the IPPS are the same, the relative weights are different. The established relative weight methodology and data used under the LTCH PPS result in relative weights under the LTCH PPS that reflect the differences in patient resource use of LTCH patients, consistent with section 123(a)(1) of the BBRA. That is, we assign an appropriate weight to the MS-LTC-DRGs to account for the differences in resource use by patients exhibiting the case complexity and multiple medical problems characteristic of LTCH patients.

2. Patient Classifications Into MS-LTC-DRGs

a. Background

The MS-DRGs (used under the IPPS) and the MS-LTC-DRGs (used under the LTCH PPS) are based on the CMS DRG structure. As noted previously in this section, we refer to the DRGs under the LTCH PPS as MS-LTC-DRGs although they are structurally identical to the MS-DRGs used under the IPPS.

The MS-DRGs are organized into 25 major diagnostic categories (MDCs), most of which are based on a particular organ system of the body; the remainder involve multiple organ systems (such as MDC 22, Burns). Within most MDCs, cases are then divided into surgical DRGs and medical DRGs. Surgical DRGs are assigned based on a surgical hierarchy that orders operating room (O.R.) procedures or groups of O.R. procedures by resource intensity. The GROUPER software program does not recognize all ICD-10-PCS procedure codes as procedures affecting DRG assignment. That is, procedures that are not surgical (for example, EKGs) or are minor surgical procedures (for example, a biopsy of skin and subcutaneous tissue (procedure code 0JBH3ZX)) do not affect the MS-LTC-DRG assignment based on their presence on the claim.

Generally, under the LTCH PPS, a Medicare payment is made at a predetermined specific rate for each discharge that varies based on the MS-LTC-DRG to which a beneficiary's discharge is assigned. Cases are classified into MS-LTC-DRGs for payment based on the following six data elements:

• Principal diagnosis.
• Additional or secondary diagnoses.
• Surgical procedures.
• Age.
• Sex.
• Discharge status of the patient.

Currently, for claims submitted using the version ASC X12 5010 standard, up to 25 diagnosis codes and 25 procedure codes are considered for an MS-DRG assignment. This includes one principal diagnosis and up to 24 secondary diagnoses for severity of illness determinations. (For additional information on the processing of up to 25 diagnosis codes and 25 procedure codes on hospital inpatient claims, we refer readers to section II.G.11.c. of the preamble of the FY 2011 IPPS/LTCH PPS final rule (75 FR 50127).)

Under the HIPAA transactions and code sets regulations at 45 CFR parts 160 and 162, covered entities must comply with the adopted transaction standards and operating rules specified in subparts I through S of part 162. Among other requirements, on or after January 1, 2012, covered entities are required to use the ASC X12 Standards for Electronic Data Interchange Technical Report Type 3—Health Care Claim: Institutional (837), May 2006, ASC X12N/005010X223, and Type 1 Errata to Health Care Claim: Institutional (837) ASC X12 Standards for Electronic Data Interchange Technical Report Type 3, October 2007, ASC X12N/005010X233A1 for the health care claims or equivalent encounter information transaction (45 CFR 162.1102(c)).

HIPAA requires covered entities to use the applicable medical data code sets when conducting HIPAA transactions (45 CFR 162.1000). Currently, upon the discharge of the patient, the LTCH must assign appropriate diagnosis and procedure codes from the International Classification of Diseases, 10th Revision, Clinical Modification (ICD-10-CM) for diagnosis coding and the International Classification of Diseases, 10th Revision, Procedure Coding System (ICD-10-PCS) for inpatient hospital procedure coding, both of which were required to be implemented October 1, 2015 (45 CFR 162.1002(c)(2) and (3)). For additional information on the implementation of the ICD-10 coding system, we refer readers to section II.F.1. of the preamble of the FY 2017 IPPS/LTCH PPS final rule (81 FR 56787 through 56790) and section II.E.1. of the preamble of this proposed rule. Additional coding instructions and examples are published in the AHA's Coding Clinic for ICD-10-CM/PCS.

To create the MS-DRGs (and by extension, the MS-LTC-DRGs), base DRGs were subdivided according to the presence of specific secondary diagnoses designated as complications or comorbidities (CCs) into one, two, or three levels of severity, depending on the impact of the CCs on resources used for those cases. Specifically, there are sets of MS-DRGs that are split into 2 or 3 subgroups based on the presence or absence of a CC or a major complication or comorbidity (MCC). We refer readers to section II.D. of the preamble of the FY 2008 IPPS final rule with comment period for a detailed discussion about the creation of MS-DRGs based on severity of illness levels (72 FR 47141 through 47175).

Medicare Administrative Contractors (MACs) enter the clinical and demographic information submitted by LTCHs into their claims processing systems and subject this information to a series of automated screening processes called the Medicare Code Editor (MCE). These screens are designed to identify cases that require further review before assignment into a MS-LTC-DRG can be made. During this process, certain types of cases are selected for further explanation (74 FR 43949).

After screening through the MCE, each claim is classified into the appropriate MS-LTC-DRG by the Medicare LTCH GROUPER software on the basis of diagnosis and procedure codes and other demographic information (age, sex, and discharge status). The GROUPER software used under the LTCH PPS is the same GROUPER software program used under the IPPS. Following the MS-LTC-DRG assignment, the MAC determines the prospective payment amount by using the Medicare PRICER program, which accounts for hospital-specific adjustments. Under the LTCH PPS, we provide an opportunity for LTCHs to review the MS-LTC-DRG assignments made by the MAC and to submit additional information within a specified timeframe as provided in § 412.513(c).

The GROUPER software is used both to classify past cases to measure relative hospital resource consumption to establish the MS-LTC-DRG relative weights and to classify current cases for purposes of determining payment. The records for all Medicare hospital inpatient discharges are maintained in the MedPAR file. The data in this file are used to evaluate possible MS-DRG and MS-LTC-DRG classification changes and to recalibrate the MS-DRG and MS-LTC-DRG relative weights during our annual update under both the IPPS (§ 412.60(e)) and the LTCH PPS (§ 412.517), respectively.

b. Proposed Changes to the MS-LTC-DRGs for FY 2025

As specified by our regulations at § 412.517(a), which require that the MS-LTC-DRG classifications and relative weights be updated annually, and consistent with our historical practice of using the same patient classification system under the LTCH PPS as is used under the IPPS, in this proposed rule, we are proposing to update the MS-LTC-DRG classifications effective October 1, 2024 through September 30, 2025 (FY 2025) consistent with the proposed changes to specific MS-DRG classifications presented in section II.F. of the preamble of this proposed rule. Accordingly, the proposed MS-LTC-DRGs for FY 2025 are the same as the MS-DRGs being proposed for use under the IPPS for FY 2025. In addition, because the proposed MS-LTC-DRGs for FY 2025 are the same as the proposed MS-DRGs for FY 2025, the other proposed changes that affect MS-DRG (and by extension MS-LTC-DRG) assignments under proposed GROUPER Version 42, as discussed in section II.E. of the preamble of this proposed rule, including the proposed changes to the MCE software and the ICD-10-CM/PCS coding system, are also applicable under the LTCH PPS for FY 2025.

3. Proposed Development of the FY 2025 MS-LTC-DRG Relative Weights

a. General Overview of the MS-LTC-DRG Relative Weights

One of the primary goals for the implementation of the LTCH PPS is to pay each LTCH an appropriate amount for the efficient delivery of medical care to Medicare patients. The system must be able to account adequately for each LTCH's case-mix to ensure both fair distribution of Medicare payments and access to adequate care for those Medicare patients whose care is costlier (67 FR 55984). To accomplish these goals, we have annually adjusted the LTCH PPS standard Federal prospective payment rate by the applicable relative weight in determining payment to LTCHs for each case. Under the LTCH PPS, relative weights for each MS-LTC-DRG are a primary element used to account for the variations in cost per discharge and resource utilization among the payment groups (§ 412.515). To ensure that Medicare patients classified to each MS-LTC-DRG have access to an appropriate level of services and to encourage efficiency, we calculate a relative weight for each MS-LTC-DRG that represents the resources needed by an average inpatient LTCH case in that MS-LTC-DRG. For example, cases in an MS-LTC-DRG with a relative weight of 2 would, on average, cost twice as much to treat as cases in an MS-LTC-DRG with a relative weight of 1.

The established methodology to develop the MS-LTC-DRG relative weights is generally consistent with the methodology established when the LTCH PPS was implemented in the August 30, 2002 LTCH PPS final rule (67 FR 55989 through 55991). However, there have been some modifications of our historical procedures for assigning relative weights in cases of zero volume or nonmonotonicity or both resulting from the adoption of the MS-LTC-DRGs. We also made a modification in conjunction with the implementation of the dual rate LTCH PPS payment structure beginning in FY 2016 to use LTCH claims data from only LTCH PPS standard Federal payment rate cases (or LTCH PPS cases that would have qualified for payment under the LTCH PPS standard Federal payment rate if the dual rate LTCH PPS payment structure had been in effect at the time of the discharge). We also adopted, beginning in FY 2023, a 10-percent cap policy on the reduction in a MS-LTC-DRG's relative weight in a given year. (For details on the modifications to our historical procedures for assigning relative weights in cases of zero volume and nonmonotonicity or both, we refer readers to the FY 2008 IPPS final rule with comment period (72 FR 47289 through 47295) and the FY 2009 IPPS final rule (73 FR 48542 through 48550). For details on the change in our historical methodology to use LTCH claims data only from LTCH PPS standard Federal payment rate cases (or cases that would have qualified for such payment had the LTCH PPS dual payment rate structure been in effect at the time) to determine the MS-LTC-DRG relative weights, we refer readers to the FY 2016 IPPS/LTCH PPS final rule (80 FR 49614 through 49617). For details on our adoption of the 10-percent cap policy, we refer readers to the FY 2023 IPPS/LTCH PPS final rule (87 FR 49152 through 49154).)

For purposes of determining the MS-LTC-DRG relative weights, under our historical methodology, there are three different categories of MS-LTC-DRGs based on volume of cases within specific MS-LTC-DRGs: (1) MS-LTC-DRGs with at least 25 applicable LTCH cases in the data used to calculate the relative weight, which are each assigned a unique relative weight; (2) low-volume MS-LTC-DRGs (that is, MS-LTC-DRGs that contain between 1 and 24 applicable LTCH cases that are grouped into quintiles (as described later in this section in Step 3 of our proposed methodology) and assigned the relative weight of the quintile); and (3) no-volume MS-LTC-DRGs that are cross-walked to other MS-LTC-DRGs based on the clinical similarities and assigned the relative weight of the cross-walked MS-LTC-DRG (as described later in this section in Step 8 of our proposed methodology). For FY 2025, we are proposing to continue to use applicable LTCH cases to establish the same volume-based categories to calculate the FY 2025 MS-LTC-DRG relative weights.

b. Development of the MS-LTC-DRG Relative Weights for FY 2025

In this section, we present our proposed methodology for determining the MS-LTC-DRG relative weights for FY 2025. We first list and provide a brief description of our proposed steps for determining the FY 2025 MS-LTC-DRG relative weights. We then, later in this section, discuss in greater detail each step. We note that, as we did in FY 2024, we are proposing to use our historical relative weight methodology as described in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58898 through 58907), subject to a ten percent cap as described in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49162).

• Step 1—Prepare data for MS-LTC-DRG relative weight calculation. In this step, we select and group the applicable claims data used in the development of the proposed MS-LTC-DRG relative weights.
• Step 2—Remove cases with a length of stay of 7 days or less. In this step, we trim the applicable claims data to remove cases with a length of stay of 7 days or less.
• Step 3—Establish low-volume MS-LTC-DRG quintiles. In this step, we employ our established quintile methodology for low-volume MS-LTC-DRGs (that is, MS-LTC-DRGs with fewer than 25 cases).
• Step 4—Remove statistical outliers. In this step, we trim the applicable claims data to remove statistical outlier cases.
• Step 5—Adjust charges for the effects of Short Stay Outliers (SSOs). In this step, we adjust the number of applicable cases in each MS-LTC-DRG (or low-volume quintile) for the effect of SSO cases.
• Step 6—Calculate the relative weights on an iterative basis using the hospital-specific relative weights methodology. In this step, we use our established hospital-specific relative value (HSRV) methodology, which is an iterative process, to calculate the relative weights.
• Step 7—Adjust the relative weights to account for nonmonotonically increasing relative weights. In this step, we make adjustments that ensure that within each base MS-LTC-DRG, the relative weights increase by MS-LTC-DRG severity.
• Step 8—Determine a relative weight for MS-LTC-DRGs with no applicable LTCH cases. In this step, we cross-walk each no-volume MS-LTC-DRG to another MS-LTC-DRG for which we calculated a relative weight.
• Step 9—Budget neutralize the uncapped relative weights. In this step, to ensure budget neutrality in the annual update to the MS-LTC-DRG classifications and relative weights, we adjust the relative weights by a normalization factor and a budget neutrality factor that ensures estimated aggregate LTCH PPS payments will be unaffected by the updates to the MS-LTC-DRG classifications and relative weights.
• Step 10—Apply the 10-percent cap to decreases in MS-LTC-DRG relative weights. In this step we limit the reduction of the relative weight for a MS-LTC-DRG to 10 percent of its prior year value. This 10-percent cap does not apply to zero-volume MS-LTC-DRGs or low-volume MS-LTC-DRGs.
• Step 11—Budget neutralize the application of the 10-percent cap policy. In this step, to ensure budget neutrality in the application of the MS-LTC-DRG cap policy, we adjust the relative weights by a budget neutrality factor that ensures estimated aggregate LTCH PPS payments will be unaffected by our application of the cap to the MS-LTC-DRG relative weights.

We next describe each of the 11 proposed steps for calculating the proposed FY 2025 MS-LTC-DRG relative weights in greater detail.

Step 1—Prepare data for MS-LTC-DRG relative weight calculation.

For this FY 2025 IPPS/LTCH PPS proposed rule, we obtained total charges from FY 2023 Medicare LTCH claims data from the December 2023 update of the FY 2023 MedPAR file and used proposed Version 42 of the GROUPER to classify LTCH cases. Consistent with our historical practice, we are proposing that if better data become available, we would use those data and the finalized Version 42 of the GROUPER in establishing the FY 2025 MS-LTC-DRG relative weights in the final rule.

To calculate the FY 2025 MS-LTC-DRG relative weights under the dual rate LTCH PPS payment structure, we are proposing to continue to use applicable LTCH data, which includes our policy of only using cases that meet the criteria for exclusion from the site neutral payment rate (or would have met the criteria had they been in effect at the time of the discharge) (80 FR 49624). Specifically, we began by first evaluating the LTCH claims data in the December 2023 update of the FY 2023 MedPAR file to determine which LTCH cases would meet the criteria for exclusion from the site neutral payment rate under § 412.522(b) or had the dual rate LTCH PPS payment structure applied to those cases at the time of discharge. We identified the FY 2023 LTCH cases that were not assigned to MS-LTC-DRGs 876, 880, 881, 882, 883, 884, 885, 886, 887, 894, 895, 896, 897, 945, and 946, which identify LTCH cases that do not have a principal diagnosis relating to a psychiatric diagnosis or to rehabilitation; and that either—

• The admission to the LTCH was “immediately preceded” by discharge from a subsection (d) hospital and the immediately preceding stay in that subsection (d) hospital included at least 3 days in an ICU, as we define under the ICU criterion; or

• The admission to the LTCH was “immediately preceded” by discharge from a subsection (d) hospital and the claim for the LTCH discharge includes the applicable procedure code that indicates at least 96 hours of ventilator services were provided during the LTCH stay, as we define under the ventilator criterion. Claims data from the FY 2023 MedPAR file that reported ICD-10-PCS procedure code 5A1955Z were used to identify cases involving at least 96 hours of ventilator services in accordance with the ventilator criterion. (We note that section 3711(b)(2) of the CARES Act provided a waiver of the application of the site neutral payment rate for LTCH cases admitted during the COVID-19 PHE period. The COVID-19 PHE expired on May 11, 2023. Therefore, all LTCH PPS cases in FY 2023 with admission dates on or before the PHE expiration date were paid the LTCH PPS standard Federal rate regardless of whether the discharge met the statutory patient criteria. However, for purposes of setting rates for LTCH PPS standard Federal rate cases for FY 2025 (including MS-LTC-DRG relative weights), we used FY 2023 cases that meet the statutory patient criteria without consideration to how those cases were paid in FY 2023.)

Furthermore, consistent with our historical methodology, we excluded any claims in the resulting data set that were submitted by LTCHs that were all-inclusive rate providers and LTCHs that are paid in accordance with demonstration projects authorized under section 402(a) of Public Law 90-248 or section 222(a) of Public Law 92-603. In addition, consistent with our historical practice and our policies, we excluded any Medicare Advantage (Part C) claims in the resulting data. Such claims were identified based on the presence of a GHO Paid indicator value of “1” in the MedPAR files.

In the FY 2023 IPPS/LTCH PPS final rule (87 FR 49448), we discussed the abnormal charging practices of an LTCH (CCN 312024) in FY 2021 that led to the LTCH receiving an excessive amount of high cost outlier payments. In that rule, we stated our belief, based on information we received from the provider, that these abnormal charging practices would not persist into FY 2023. Therefore, we did not include their cases in our model for determining the FY 2023 outlier fixed-loss amount. In the FY 2024 IPPS/LTCH PPS final rule (88 FR 59127 through 59128), we stated that the FY 2022 MedPAR claims also reflect the abnormal charging practices of this LTCH. Therefore, we removed claims from CCN 312024 when determining the FY 2024 MS-LTC-DRG relative weights and from all other FY 2024 ratesetting calculations, including the calculation of the area wage level adjustment budget neutrality factor and the fixed-loss amount for LTCH PPS standard Federal payment rate cases. Given recent actions by the Department of Justice regarding CCN 312024 (see https://www.justice.gov/opa/pr/new-jersey-hospital-and-investors-pay-united-states-306-million-alleged-false-claims-related), we are proposing to again remove claims from CCN 312024 when determining the FY 2025 MS-LTC-DRG relative weights and all other FY 2025 ratesetting calculations, including the calculation of the area wage level adjustment budget neutrality factor and the fixed-loss amount for LTCH PPS standard Federal payment rate cases.

In summary, in general, we identified the claims data used in the development of the FY 2025 MS-LTC-DRG relative weights in this proposed rule by trimming claims data that were paid the site neutral payment rate or would have been paid the site neutral payment rate had the provisions of the CARES Act not been in effect. We trimmed the claims data of all-inclusive rate providers reported in the December 2023 update of the FY 2023 MedPAR file and any Medicare Advantage claims data. There were no data from any LTCHs that are paid in accordance with a demonstration project reported in the December 2023 update of the FY 2023 MedPAR file, but had there been any, we would have trimmed the claims data from those LTCHs as well, in accordance with our established policy. We also removed all claims from CCN 312024.

We used the remaining data (that is, the applicable LTCH data) in the subsequent proposed steps to calculate the proposed MS-LTC-DRG relative weights for FY 2025.

Step 2—Remove cases with a length of stay of 7 days or less.

The next step in our proposed calculation of the proposed FY 2025 MS-LTC-DRG relative weights is to remove cases with a length of stay of 7 days or less. The MS-LTC-DRG relative weights reflect the average of resources used on representative cases of a specific type. Generally, cases with a length of stay of 7 days or less do not belong in an LTCH because these stays do not fully receive or benefit from treatment that is typical in an LTCH stay, and full resources are often not used in the earlier stages of admission to an LTCH. If we were to include stays of 7 days or less in the computation of the proposed FY 2025 MS-LTC-DRG relative weights, the value of many relative weights would decrease and, therefore, payments would decrease to a level that may no longer be appropriate. We do not believe that it would be appropriate to compromise the integrity of the payment determination for those LTCH cases that actually benefit from and receive a full course of treatment at an LTCH by including data from these very short stays. Therefore, consistent with our existing relative weight methodology, in determining the proposed FY 2025 MS-LTC-DRG relative weights, we are proposing to remove LTCH cases with a length of stay of 7 days or less from applicable LTCH cases. (For additional information on what is removed in this step of the relative weight methodology, we refer readers to 67 FR 55989 and 74 FR 43959.)

Step 3—Establish low-volume MS-LTC-DRG quintiles.

To account for MS-LTC-DRGs with low-volume (that is, with fewer than 25 applicable LTCH cases), consistent with our existing methodology, we are proposing to continue to employ the quintile methodology for low-volume MS-LTC-DRGs, such that we grouped the “low-volume MS-LTC-DRGs” (that is, MS-LTC-DRGs that contain between 1 and 24 applicable LTCH cases into one of five categories (quintiles) based on average charges (67 FR 55984 through 55995; 72 FR 47283 through 47288; and 81 FR 25148)).

In this proposed rule, based on the best available data (that is, the December 2023 update of the FY 2023 MedPAR file), we identified 236 MS-LTC-DRGs that contained between 1 and 24 applicable LTCH cases. This list of MS-LTC-DRGs was then divided into 1 of the 5 low-volume quintiles. We assigned the low-volume MS-LTC-DRGs to specific low-volume quintiles by sorting the low-volume MS-LTC-DRGs in ascending order by average charge in accordance with our established methodology. Based on the data available for this proposed rule, the number of MS-LTC-DRGs with less than 25 applicable LTCH cases was not evenly divisible by 5. The quintiles each contained at least 47 MS-LTC-DRGs (236/5 = 47 with a remainder of 1). We are proposing to employ our historical methodology of assigning each remainder low-volume MS-LTC-DRG to the low-volume quintile that contains an MS-LTC-DRG with an average charge closest to that of the remainder low-volume MS-LTC-DRG. In cases where these initial assignments of low-volume MS-LTC-DRGs to quintiles results in nonmonotonicity within a base-DRG, we are proposing to make adjustments to the resulting low-volume MS-LTC-DRGs to preserve monotonicity, as discussed in Step 7 of our proposed methodology.

To determine the FY 2025 relative weights for the low-volume MS-LTC-DRGs, consistent with our historical practice, we are proposing to use the five low-volume quintiles described previously. We determined a relative weight and (geometric) average length of stay for each of the five low-volume quintiles using the methodology described in Step 6 of our proposed methodology. We assigned the same relative weight and average length of stay to each of the low-volume MS-LTC-DRGs that make up an individual low-volume quintile. We note that, as this system is dynamic, it is possible that the number and specific type of MS-LTC-DRGs with a low-volume of applicable LTCH cases would vary in the future. Furthermore, we note that we continue to monitor the volume (that is, the number of applicable LTCH cases) in the low-volume quintiles to ensure that our quintile assignments used in determining the MS-LTC-DRG relative weights result in appropriate payment for LTCH cases grouped to low-volume MS-LTC-DRGs and do not result in an unintended financial incentive for LTCHs to inappropriately admit these types of cases.

For this proposed rule, we are providing the list of the composition of the proposed low-volume quintiles for low-volume MS-LTC-DRGs in a supplemental data file for public use posted via the internet on the CMS website for this proposed rule at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html to streamline the information made available to the public that is used in the annual development of Table 11.

Step 4—Remove statistical outliers.

The next step in our proposed calculation of the proposed FY 2025 MS-LTC-DRG relative weights is to remove statistical outlier cases from the LTCH cases with a length of stay of at least 8 days. Consistent with our existing relative weight methodology, we are proposing to continue to define statistical outliers as cases that are outside of 3.0 standard deviations from the mean of the log distribution of both charges per case and the charges per day for each MS-LTC-DRG. These statistical outliers are removed prior to calculating the relative weights because we believe that they may represent aberrations in the data that distort the measure of average resource use. Including those LTCH cases in the calculation of the relative weights could result in an inaccurate relative weight that does not truly reflect relative resource use among those MS-LTC-DRGs. (For additional information on what is removed in this step of the relative weight methodology, we refer readers to 67 FR 55989 and 74 FR 43959.) After removing cases with a length of stay of 7 days or less and statistical outliers, in each set of claims, we were left with applicable LTCH cases that have a length of stay greater than or equal to 8 days. In this proposed rule, we refer to these cases as “trimmed applicable LTCH cases.”

Step 5—Adjust charges for the effects of Short Stay Outliers (SSOs).

As the next step in the proposed calculation of the proposed FY 2025 MS-LTC-DRG relative weights, consistent with our historical approach, we are proposing to adjust each LTCH's charges per discharge for those remaining cases (that is, trimmed applicable LTCH cases) for the effects of SSOs (as defined in § 412.529(a) in conjunction with § 412.503). Specifically, we are proposing to make this adjustment by counting an SSO case as a fraction of a discharge based on the ratio of the length of stay of the case to the average length of stay of all cases grouped to the MS-LTC-DRG. This has the effect of proportionately reducing the impact of the lower charges for the SSO cases in calculating the average charge for the MS-LTC-DRG. This process produces the same result as if the actual charges per discharge of an SSO case were adjusted to what they would have been had the patient's length of stay been equal to the average length of stay of the MS-LTC-DRG.

Counting SSO cases as full LTCH cases with no adjustment in determining the proposed FY 2025 MS-LTC-DRG relative weights would lower the relative weight for affected MS-LTC-DRGs because the relatively lower charges of the SSO cases would bring down the average charge for all cases within a MS-LTC-DRG. This would result in an “underpayment” for non-SSO cases and an “overpayment” for SSO cases. Therefore, we propose to continue to adjust for SSO cases under § 412.529 in this manner because it would result in more appropriate payments for all LTCH PPS standard Federal payment rate cases. (For additional information on this step of the relative weight methodology, we refer readers to 67 FR 55989 and 74 FR 43959.)

Step 6—Calculate the relative weights on an iterative basis using the hospital-specific relative value methodology.

By nature, LTCHs often specialize in certain areas, such as ventilator-dependent patients. Some case types (MS-LTC-DRGs) may be treated, to a large extent, in hospitals that have, from a perspective of charges, relatively high (or low) charges. This nonrandom distribution of cases with relatively high (or low) charges in specific MS-LTC-DRGs has the potential to inappropriately distort the measure of average charges. To account for the fact that cases may not be randomly distributed across LTCHs, consistent with the methodology we have used since the implementation of the LTCH PPS, in this FY 2025 IPPS/LTCH PPS proposed rule, we are proposing to continue to use a hospital-specific relative value (HSRV) methodology to calculate the MS-LTC-DRG relative weights for FY 2025. We believe that this method removes this hospital-specific source of bias in measuring LTCH average charges (67 FR 55985). Specifically, under this methodology, we reduced the impact of the variation in charges across providers on any particular MS-LTC-DRG relative weight by converting each LTCH's charge for an applicable LTCH case to a relative value based on that LTCH's average charge for such cases.

Under the HSRV methodology, we standardize charges for each LTCH by converting its charges for each applicable LTCH case to hospital-specific relative charge values and then adjusting those values for the LTCH's case-mix. The adjustment for case-mix is needed to rescale the hospital-specific relative charge values (which, by definition, average 1.0 for each LTCH). The average relative weight for an LTCH is its case-mix; therefore, it is reasonable to scale each LTCH's average relative charge value by its case-mix. In this way, each LTCH's relative charge value is adjusted by its case-mix to an average that reflects the complexity of the applicable LTCH cases it treats relative to the complexity of the applicable LTCH cases treated by all other LTCHs (the average LTCH PPS case-mix of all applicable LTCH cases across all LTCHs). In other words, by multiplying an LTCH's relative charge values by the LTCH's case-mix index, we account for the fact that the same relative charges are given greater weight at an LTCH with higher average costs than they would at an LTCH with low average costs, which is needed to adjust each LTCH's relative charge value to reflect its case-mix relative to the average case-mix for all LTCHs. By standardizing charges in this manner, we count charges for a Medicare patient at an LTCH with high average charges as less resource-intensive than they would be at an LTCH with low average charges. For example, a $10,000 charge for a case at an LTCH with an average adjusted charge of $17,500 reflects a higher level of relative resource use than a $10,000 charge for a case at an LTCH with the same case-mix, but an average adjusted charge of $35,000. We believe that the adjusted charge of an individual case more accurately reflects actual resource use for an individual LTCH because the variation in charges due to systematic differences in the markup of charges among LTCHs is taken into account.

Consistent with our historical relative weight methodology, we propose to calculate the proposed FY 2025 MS-LTC-DRG relative weights using the HSRV methodology, which is an iterative process. Therefore, in accordance with our established methodology, for FY 2025, we are proposing to continue to standardize charges for each applicable LTCH case by first dividing the adjusted charge for the case (adjusted for SSOs under § 412.529 as described in Step 5 of our proposed methodology) by the average adjusted charge for all applicable LTCH cases at the LTCH in which the case was treated. The average adjusted charge reflects the average intensity of the health care services delivered by a particular LTCH and the average cost level of that LTCH. The average adjusted charge is then multiplied by the LTCH's case-mix index to produce an adjusted hospital-specific relative charge value for the case. We used an initial case-mix index value of 1.0 for each LTCH.

For each proposed MS-LTC-DRG, we calculated the FY 2025 relative weight by dividing the SSO-adjusted average of the hospital-specific relative charge values for applicable LTCH cases for the MS-LTC-DRG (that is, the sum of the hospital-specific relative charge value, as previously stated, divided by the sum of equivalent cases from Step 5 for each MS-LTC-DRG) by the overall SSO-adjusted average hospital-specific relative charge value across all applicable LTCH cases for all LTCHs (that is, the sum of the hospital-specific relative charge value, as previously stated, divided by the sum of equivalent applicable LTCH cases from Step 5 for each MS-LTC-DRG). Using these recalculated MS-LTC-DRG relative weights, each LTCH's average relative weight for all of its SSO-adjusted trimmed applicable LTCH cases (that is, it's case-mix) was calculated by dividing the sum of all the LTCH's MS-LTC-DRG relative weights by its total number of SSO-adjusted trimmed applicable LTCH cases. The LTCHs' hospital-specific relative charge values (from previous) are then multiplied by the hospital-specific case-mix indexes. The hospital-specific case-mix adjusted relative charge values are then used to calculate a new set of MS-LTC-DRG relative weights across all LTCHs. This iterative process continued until there was convergence between the relative weights produced at adjacent steps, for example, when the maximum difference was less than 0.0001.

Step 7—Adjust the relative weights to account for nonmonotonically increasing relative weights.

The MS-DRGs contain base DRGs that have been subdivided into one, two, or three severity of illness levels. Where there are three severity levels, the most severe level has at least one secondary diagnosis code that is referred to as an MCC (that is, major complication or comorbidity). The next lower severity level contains cases with at least one secondary diagnosis code that is a CC (that is, complication or comorbidity). Those cases without an MCC or a CC are referred to as “without CC/MCC.” When data do not support the creation of three severity levels, the base MS-DRG is subdivided into either two levels or the base MS-DRG is not subdivided. The two-level subdivisions may consist of the MS-DRG with CC/MCC and the MS-DRG without CC/MCC. Alternatively, the other type of two-level subdivision may consist of the MS-DRG with MCC and the MS-DRG without MCC.

In those base MS-LTC-DRGs that are split into either two or three severity levels, cases classified into the “without CC/MCC” MS-LTC-DRG are expected to have a lower resource use (and lower costs) than the “with CC/MCC” MS-LTC-DRG (in the case of a two-level split) or both the “with CC” and the “with MCC” MS-LTC-DRGs (in the case of a three-level split). That is, theoretically, cases that are more severe typically require greater expenditure of medical care resources and would result in higher average charges. Therefore, in the three severity levels, relative weights should increase by severity, from lowest to highest. If the relative weights decrease as severity increases (that is, if within a base MS-LTC-DRG, an MS-LTC-DRG with CC has a higher relative weight than one with MCC, or the MS-LTC-DRG “without CC/MCC” has a higher relative weight than either of the others), they are nonmonotonic. We continue to believe that utilizing nonmonotonic relative weights to adjust Medicare payments would result in inappropriate payments because the payment for the cases in the higher severity level in a base MS-LTC-DRG (which are generally expected to have higher resource use and costs) would be lower than the payment for cases in a lower severity level within the same base MS-LTC-DRG (which are generally expected to have lower resource use and costs). Therefore, in determining the proposed FY 2025 MS-LTC-DRG relative weights, consistent with our historical methodology, we are proposing to continue to combine MS-LTC-DRG severity levels within a base MS-LTC-DRG for the purpose of computing a relative weight when necessary to ensure that monotonicity is maintained. For a comprehensive description of our existing methodology to adjust for nonmonotonicity, we refer readers to the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43964 through 43966). Any adjustments for nonmonotonicity that were made in determining the proposed FY 2025 MS-LTC-DRG relative weights by applying this methodology are denoted in Table 11, which is listed in section VI. of the Addendum to this proposed rule and is available via the internet on the CMS website.

Step 8—Determine a relative weight for MS-LTC-DRGs with no applicable LTCH cases.

Using the trimmed applicable LTCH cases, consistent with our historical methodology, we identified the MS-LTC-DRGs for which there were no claims in the December 2023 update of the FY 2023 MedPAR file and, therefore, for which no charge data was available for these MS-LTC-DRGs. Because patients with a number of the diagnoses under these MS-LTC-DRGs may be treated at LTCHs, consistent with our historical methodology, we generally assign a relative weight to each of the no-volume MS-LTC-DRGs based on clinical similarity and relative costliness (with the exception of “transplant” MS-LTC-DRGs, “error” MS-LTC-DRGs, and MS-LTC-DRGs that indicate a principal diagnosis related to a psychiatric diagnosis or rehabilitation (referred to as the “psychiatric or rehabilitation” MS-LTC-DRGs), as discussed later in this section of this proposed rule). (For additional information on this step of the relative weight methodology, we refer readers to 67 FR 55991 and 74 FR 43959 through 43960.)

Consistent with our existing methodology, we are proposing to cross-walk each no-volume proposed MS-LTC-DRG to another proposed MS-LTC-DRG for which we calculated a relative weight (determined in accordance with the methodology as previously described). Then, the “no-volume” proposed MS-LTC-DRG is assigned the same relative weight (and average length of stay) of the proposed MS-LTC-DRG to which it was cross-walked (as described in greater detail in this section of this proposed rule).

Of the 773 proposed MS-LTC-DRGs for FY 2025, we identified 425 MS-LTC-DRGs for which there were no trimmed applicable LTCH cases. The 425 MS-LTC-DRGs for which there were no trimmed applicable LTCH cases includes the 11 “transplant” MS-LTC-DRGs, the 2 “error” MS-LTC-DRGs, and the 15 “psychiatric or rehabilitation” MS-LTC-DRGs, which are discussed in this section of this rule, such that we identified 397 MS-LTC-DRGs that for which, we are proposing to assign a relative weight using our existing “no-volume” MS-LTC-DRG methodology (that is, 425−11−2−15 = 397). We are proposing to assign relative weights to each of the 397 no-volume MS-LTC-DRGs based on clinical similarity and relative costliness to 1 of the remaining 348 (773−425 = 348) MS-LTC-DRGs for which we calculated relative weights based on the trimmed applicable LTCH cases in the FY 2023 MedPAR file data using the steps described previously. (For the remainder of this discussion, we refer to the “cross-walked” MS-LTC-DRGs as one of the 348 MS-LTC-DRGs to which we cross-walked each of the 397 “no-volume” MS-LTC-DRGs.) Then, in general, we are proposing to assign the 397 no-volume MS-LTC-DRGs the relative weight of the cross-walked MS-LTC-DRG (when necessary, we made adjustments to account for nonmonotonicity).

We cross-walked the no-volume MS-LTC-DRG to a MS-LTC-DRG for which we calculated relative weights based on the December 2023 update of the FY 2023 MedPAR file, and to which it is similar clinically in intensity of use of resources and relative costliness as determined by criteria such as care provided during the period of time surrounding surgery, surgical approach (if applicable), length of time of surgical procedure, postoperative care, and length of stay. (For more details on our process for evaluating relative costliness, we refer readers to the FY 2010 IPPS/RY 2010 LTCH PPS final rule (73 FR 48543).) We believe in the rare event that there would be a few LTCH cases grouped to one of the no-volume MS-LTC-DRGs in FY 2025, the relative weights assigned based on the cross-walked MS-LTC-DRGs would result in an appropriate LTCH PPS payment because the crosswalks, which are based on clinical similarity and relative costliness, would be expected to generally require equivalent relative resource use.

Then we assigned the proposed relative weight of the cross-walked MS-LTC-DRG as the relative weight for the no-volume MS-LTC-DRG such that both of these MS-LTC-DRGs (that is, the no-volume MS-LTC-DRG and the cross-walked MS-LTC-DRG) have the same relative weight (and average length of stay) for FY 2025. We note that, if the cross-walked MS-LTC-DRG had 25 applicable LTCH cases or more, its relative weight (calculated using the methodology as previously described in Steps 1 through 4) is assigned to the no-volume MS-LTC-DRG as well. Similarly, if the MS-LTC-DRG to which the no-volume MS-LTC-DRG was cross-walked had 24 or less cases and, therefore, was designated to 1 of the low-volume quintiles for purposes of determining the relative weights, we assigned the relative weight of the applicable low-volume quintile to the no-volume MS-LTC-DRG such that both of these MS-LTC-DRGs (that is, the no-volume MS-LTC-DRG and the cross-walked MS-LTC-DRG) have the same relative weight for FY 2025. (As we noted previously, in the infrequent case where nonmonotonicity involving a no-volume MS-LTC-DRG resulted, additional adjustments are required to maintain monotonically increasing relative weights.)

For this proposed rule, we are providing the list of the no-volume MS-LTC-DRGs and the MS-LTC-DRGs to which each was cross-walked (that is, the cross-walked MS-LTC-DRGs) for FY 2025 in a supplemental data file for public use posted via the internet on the CMS website for this proposed rule at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html to streamline the information made available to the public that is used in the annual development of Table 11.

To illustrate this methodology for determining the proposed relative weights for the FY 2025 MS-LTC-DRGs with no applicable LTCH cases, we are providing the following example.

Example: There were no trimmed applicable LTCH cases in the FY 2023 MedPAR file that we are using for this proposed rule for proposed MS-LTC-DRG 061 (Ischemic stroke, precerebral occlusion or transient ischemia with thrombolytic agent with MCC). We determined that proposed MS-LTC-DRG 064 (Intracranial hemorrhage or cerebral infarction with MCC) is similar clinically and based on resource use to proposed MS-LTC-DRG 061. Therefore, we are proposing to assign the same relative weight (and average length of stay) of proposed MS-LTC-DRG 064 of 1.3009 for FY 2025 to proposed MS-LTC-DRG 061 (we refer readers to Table 11, which is listed in section VI. of the Addendum to this proposed rule and is available via the internet on the CMS website).

Again, we note that, as this system is dynamic, it is entirely possible that the number of MS-LTC-DRGs with no volume would vary in the future. Consistent with our historical practice, we are proposing to use the best available claims data to identify the trimmed applicable LTCH cases from which we determine the relative weights in the final rule.

For FY 2025, consistent with our historical relative weight methodology, we are proposing to establish a relative weight of 0.0000 for the following transplant MS-LTC-DRGs: Heart Transplant or Implant of Heart Assist System with MCC (MS-LTC-DRG 001); Heart Transplant or Implant of Heart Assist System without MCC (MS-LTC-DRG 002); Liver Transplant with MCC or Intestinal Transplant (MS-LTC-DRG 005); Liver Transplant without MCC (MS-LTC-DRG 006); Lung Transplant (MS-LTC-DRG 007); Simultaneous Pancreas and Kidney Transplant (MS-LTC-DRG 008); Simultaneous Pancreas and Kidney Transplant with Hemodialysis (MS-LTC-DRG 019); Pancreas Transplant (MS-LTC-DRG 010); Kidney Transplant (MS-LTC-DRG 652); Kidney Transplant with Hemodialysis with MCC (MS-LTC-DRG 650), and Kidney Transplant with Hemodialysis without MCC (MS LTC DRG 651). This is because Medicare only covers these procedures if they are performed at a hospital that has been certified for the specific procedures by Medicare and presently no LTCH has been so certified. At the present time, we include these 11 transplant MS-LTC-DRGs in the GROUPER program for administrative purposes only. Because we use the same GROUPER program for LTCHs as is used under the IPPS, removing these MS-LTC-DRGs would be administratively burdensome. (For additional information regarding our treatment of transplant MS-LTC-DRGs, we refer readers to the RY 2010 LTCH PPS final rule (74 FR 43964).) In addition, consistent with our historical policy, we are proposing to establish a relative weight of 0.0000 for the 2 “error” MS-LTC-DRGs (that is, MS-LTC-DRG 998 (Principal Diagnosis Invalid as Discharge Diagnosis) and MS-LTC-DRG 999 (Ungroupable)) because applicable LTCH cases grouped to these MS-LTC-DRGs cannot be properly assigned to an MS-LTC-DRG according to the grouping logic.

Additionally, we are proposing to establish a relative weight of 0.0000 for the following “psychiatric or rehabilitation” MS-LTC-DRGs: MS-LTC-DRG 876 (O.R. Procedures with Principal Diagnosis of Mental Illness); MS-LTC-DRG 880 (Acute Adjustment Reaction & Psychosocial Dysfunction); MS-LTC-DRG 881 (Depressive Neuroses); MS-LTC-DRG 882 (Neuroses Except Depressive); MS-LTC-DRG 883 (Disorders of Personality & Impulse Control); MS-LTC-DRG 884 (Organic Disturbances & Intellectual Disability); MS-LTC-DRG 885 (Psychoses); MS-LTC-DRG 886 (Behavioral & Developmental Disorders); MS-LTC-DRG 887 (Other Mental Disorder Diagnoses); MS-LTC-DRG 894 (Alcohol, Drug Abuse or Dependence, Left AMA); MS-LTC-DRG 895 (Alcohol, Drug Abuse or Dependence with Rehabilitation Therapy); MS-LTC-DRG 896 (Alcohol, Drug Abuse or Dependence without Rehabilitation Therapy with MCC); MS-LTC-DRG 897 (Alcohol, Drug Abuse or Dependence without Rehabilitation Therapy without MCC); MS-LTC-DRG 945 (Rehabilitation with CC/MCC); and MS-LTC-DRG 946 (Rehabilitation without CC/MCC). We are proposing to establish a relative weight of 0.0000 for these 15 “psychiatric or rehabilitation” MS-LTC-DRGs because the blended payment rate and temporary exceptions to the site neutral payment rate would not be applicable for any LTCH discharges occurring in FY 2025, and as such payment under the LTCH PPS would be no longer be made in part based on the LTCH PPS standard Federal payment rate for any discharges assigned to those MS-LTC-DRGs.

Step 9—Budget neutralize the uncapped relative weights.

In accordance with the regulations at § 412.517(b) (in conjunction with § 412.503), the annual update to the MS-LTC-DRG classifications and relative weights is done in a budget neutral manner such that estimated aggregate LTCH PPS payments would be unaffected, that is, would be neither greater than nor less than the estimated aggregate LTCH PPS payments that would have been made without the MS-LTC-DRG classification and relative weight changes. (For a detailed discussion on the establishment of the budget neutrality requirement for the annual update of the MS-LTC-DRG classifications and relative weights, we refer readers to the RY 2008 LTCH PPS final rule (72 FR 26881 and 26882).

To achieve budget neutrality under the requirement at § 412.517(b), under our established methodology, for each annual update the MS-LTC-DRG relative weights are uniformly adjusted to ensure that estimated aggregate payments under the LTCH PPS would not be affected (that is, decreased or increased). Consistent with that provision, we are proposing to continue to apply budget neutrality adjustments in determining the proposed FY 2025 MS-LTC-DRG relative weights so that our proposed update of the MS-LTC-DRG classifications and relative weights for FY 2025 are made in a budget neutral manner. For FY 2025, we are proposing to apply two budget neutrality factors to determine the MS-LTC-DRG relative weights. In this step, we describe the determination of the budget neutrality adjustment that accounts for the proposed update of the MS-LTC-DRG classifications and relative weights prior to the application of the ten-percent cap. In steps 10 and 11, we describe the application of the 10-percent cap policy (step 10) and the determination of the proposed budget neutrality factor that accounts for the application of the 10-percent cap policy (step 11).

In this proposed rule, to ensure budget neutrality for the proposed update to the MS-LTC-DRG classifications and relative weights prior to the application of the 10-percent cap (that is, uncapped relative weights), under § 412.517(b), we are proposing to continue to use our established two-step budget neutrality methodology. Therefore, in the first step of our MS-LTC-DRG update budget neutrality methodology, for FY 2025, we calculated and applied a proposed normalization factor to the recalibrated relative weights (the result of Steps 1 through 8 discussed previously) to ensure that estimated payments are not affected by changes in the composition of case types or the changes to the classification system. That is, the normalization adjustment is intended to ensure that the recalibration of the MS-LTC-DRG relative weights (that is, the process itself) neither increases nor decreases the average case-mix index.

To calculate the proposed normalization factor for FY 2025, we propose to use the following three steps: (1.a.) use the applicable LTCH cases from the best available data (that is, LTCH discharges from the FY 2023 MedPAR file) and group them using the proposed FY 2025 GROUPER (that is, Version 42 for FY 2025) and the proposed recalibrated FY 2025 MS-LTC-DRG uncapped relative weights (determined in Steps 1 through 8 discussed previously) to calculate the average case-mix index; (1.b.) group the same applicable LTCH cases (as are used in Step 1.a.) using the FY 2024 GROUPER (Version 41) and FY 2024 MS-LTC-DRG relative weights in Table 11 of the FY 2024 IPPS/LTCH PPS final rule and calculate the average case-mix index; and (1.c.) compute the ratio of these average case-mix indexes by dividing the average case-mix index for FY 2024 (determined in Step 1.b.) by the average case-mix index for FY 2025 (determined in Step 1.a.). As a result, in determining the proposed MS-LTC-DRG relative weights for FY 2025, each recalibrated MS-LTC-DRG uncapped relative weight is multiplied by the proposed normalization factor of 1.27356 (determined in Step 1.c.) in the first step of the budget neutrality methodology, which produces “normalized relative weights.”

In the second step of our MS-LTC-DRG update budget neutrality methodology, we calculated a proposed budget neutrality adjustment factor consisting of the ratio of estimated aggregate FY 2025 LTCH PPS standard Federal payment rate payments for applicable LTCH cases before reclassification and recalibration to estimated aggregate payments for FY 2025 LTCH PPS standard Federal payment rate payments for applicable LTCH cases after reclassification and recalibration. That is, for this proposed rule, for FY 2025, we propose to determine the budget neutrality adjustment factor using the following three steps: (2.a.) simulate estimated total FY 2025 LTCH PPS standard Federal payment rate payments for applicable LTCH cases using the uncapped normalized relative weights for FY 2025 and proposed GROUPER Version 42; (2.b.) simulate estimated total FY 2025 LTCH PPS standard Federal payment rate payments for applicable LTCH cases using the FY 2024 GROUPER (Version 41) and the FY 2024 MS-LTC-DRG relative weights in Table 11 of the FY 2024 IPPS/LTCH PPS final rule; and (2.c.) calculate the ratio of these estimated total payments by dividing the value determined in Step 2.b. by the value determined in Step 2.a. In determining the proposed FY 2025 MS-LTC-DRG relative weights, each uncapped normalized relative weight is then multiplied by a proposed budget neutrality factor of 0.988292 (the value determined in Step 2.c.) in the second step of the budget neutrality methodology.

Step 10—Apply the 10-percent cap to decreases in MS-LTC-DRG relative weights.

To mitigate the financial impacts of significant year-to-year reductions in MS-LTC-DRGs relative weights, beginning in FY 2023, we adopted a policy that applies, in a budget neutral manner, a 10-percent cap on annual relative weight decreases for MS-LTC- DRGs with at least 25 applicable LTCH cases (§ 412.515(b)). Under this policy, in cases where CMS creates new MS-LTC-DRGs or modifies the MS-LTC-DRGs as part of its annual reclassifications resulting in renumbering of one or more MS-LTC-DRGs, the 10-percent cap does not apply to the relative weight for any new or renumbered MS-LTC-DRGs for the fiscal year. We refer readers to section VIII.B.3.b. of the preamble of the FY 2023 IPPS/LTCH PPS final rule with comment period for a detailed discussion on the adoption of the 10-percent cap policy (87 FR 49152 through 49154).

Applying the 10-percent cap to MS-LTC-DRGs with 25 or more cases results in more predictable and stable MS-LTC-DRG relative weights from year to year, especially for high-volume MS-LTC-DRGs that generally have the largest financial impact on an LTCH's operations. For this proposed rule, in cases where the relative weight for a MS-LTC-DRG with 25 or more applicable LTCH cases would decrease by more than 10-percent in FY 2025 relative to FY 2024, we are proposing to limit the reduction to 10-percent. Under this policy, we do not apply the 10 percent cap to the proposed low-volume MS-LTC-DRGs identified in Step 3 or the proposed no-volume MS-LTC-DRGs identified in Step 8.

Therefore, in this step, for each proposed FY 2025 MS-LTC-DRG with 25 or more applicable LTCH cases (excludes low-volume and zero-volume MS-LTC-DRGs) we compared its FY 2025 relative weight (after application of the proposed normalization and proposed budget neutrality factors determined in Step 9), to its FY 2024 MS-LTC-DRG relative weight. For any MS-LTC-DRG where the FY 2025 relative weight would otherwise have declined more than 10 percent, we established a proposed capped FY 2025 MS-LTC-DRG relative weight that would be equal to 90 percent of that MS-LTC-DRG's FY 2024 relative weight (that is, we set the proposed FY 2025 relative weight equal to the FY 2024 weight × 0.90).

In section II.E. of the preamble of this proposed rule, we discuss our proposed changes to the MS-DRGs, and by extension the MS-LTC-DRGs, for FY 2025. As discussed previously, under our current policy, the 10-percent cap does not apply to the relative weight for any new or renumbered MS-LTC-DRGs. We are not proposing any changes to this policy for FY 2025, and as such any proposed new or renumbered MS-LTC-DRGs for FY 2025 would not be eligible for the 10-percent cap.

Step 11—Budget neutralize application of the 10-percent cap policy.

Under the requirement at existing § 412.517(b) that aggregate LTCH PPS payments will be unaffected by annual changes to the MS-LTC-DRG classifications and relative weights, consistent with our established methodology, we are proposing to continue to apply a budget neutrality adjustment to the MS-LTC-DRG relative weights so that the 10-percent cap on relative weight reductions (step 10) is implemented in a budget neutral manner. Therefore, we are proposing to determine the proposed budget neutrality adjustment factor for the 10-percent cap on relative weight reductions using the following three steps: (a) simulate estimated total FY 2025 LTCH PPS standard Federal payment rate payments for applicable LTCH cases using the proposed capped relative weights for FY 2025 (determined in Step 10) and proposed GROUPER Version 42; (b) simulate estimated total FY 2025 LTCH PPS standard Federal payment rate payments for applicable LTCH cases using the proposed uncapped relative weights for FY 2025 (determined in Step 9) and proposed GROUPER Version 42; and (c) calculate the ratio of these estimated total payments by dividing the value determined in step (b) by the value determined in step (a). In determining the proposed FY 2025 MS-LTC-DRG relative weights, each capped relative weight is then multiplied by a proposed budget neutrality factor of 0.9946599 (the value determined in step (c)) to achieve the budget neutrality requirement.

Table 11, which is listed in section VI. of the Addendum to this proposed rule and is available via the internet on the CMS website, lists the proposed MS-LTC-DRGs and their respective proposed relative weights, proposed geometric mean length of stay, and proposed five-sixths of the geometric mean length of stay (used to identify SSO cases under § 412.529(a)) for FY 2025. We also are making available on the website the proposed MS-LTC-DRG relative weights prior to the application of the 10 percent cap on MS-LTC-DRG relative weight reductions and corresponding proposed cap budget neutrality factor.

C. Proposed Changes to the LTCH PPS Payment Rates and Other Proposed Changes to the LTCH PPS for FY 2025

1. Overview of Development of the Proposed LTCH PPS Standard Federal Payment Rates

The basic methodology for determining LTCH PPS standard Federal payment rates is currently set forth at 42 CFR 412.515 through 412.533 and 412.535. In this section, we discuss the factors that we are proposing to use to update the LTCH PPS standard Federal payment rate for FY 2025, that is, effective for LTCH discharges occurring on or after October 1, 2024, through September 30, 2025. Under the dual rate LTCH PPS payment structure required by statute, beginning with discharges in cost reporting periods beginning in FY 2016, only LTCH discharges that meet the criteria for exclusion from the site neutral payment rate are paid based on the LTCH PPS standard Federal payment rate specified at 42 CFR 412.523. (For additional details on our finalized policies related to the dual rate LTCH PPS payment structure required by statute, we refer readers to the FY 2016 IPPS/LTCH PPS final rule (80 FR 49601 through 49623).)

Prior to the implementation of the dual payment rate system in FY 2016, all LTCH discharges were paid similarly to those now exempt from the site neutral payment rate. That legacy payment rate was called the standard Federal rate. For details on the development of the initial standard Federal rate for FY 2003, we refer readers to the August 30, 2002 LTCH PPS final rule (67 FR 56027 through 56037). For subsequent updates to the standard Federal rate from FYs 2003 through 2015, and LTCH PPS standard Federal payment rate from FY 2016 through present, as implemented under 42 CFR 412.523(c)(3), we refer readers to the FY 2020 IPPS/LTCH PPS final rule (84 FR 42445 through 42446).

In this FY 2025 IPPS/LTCH PPS proposed rule, we present our proposed policies related to the annual update to the LTCH PPS standard Federal payment rate for FY 2025.

The proposed update to the LTCH PPS standard Federal payment rate for FY 2025 is presented in section V.A. of the Addendum to this proposed rule. The components of the proposed annual update to the LTCH PPS standard Federal payment rate for FY 2025 are discussed in this section, including the statutory reduction to the annual update for LTCHs that fail to submit quality reporting data for FY 2025 as required by the statute (as discussed in section VIII.C.2.c. of the preamble of this proposed rule). We are proposing to make an adjustment to the LTCH PPS standard Federal payment rate to account for the estimated effect of the changes to the area wage level for FY 2025 on estimated aggregate LTCH PPS payments, in accordance with 42 CFR 412.523(d)(4) (as discussed in section V.B. of the Addendum to this proposed rule).

2. Proposed FY 2025 LTCH PPS Standard Federal Payment Rate Annual Market Basket Update

a. Overview

Historically, the Medicare program has used a market basket to account for input price increases in the services furnished by providers. The market basket used for the LTCH PPS includes both operating and capital-related costs of LTCHs because the LTCH PPS uses a single payment rate for both operating and capital-related costs. We adopted the 2017-based LTCH market basket for use under the LTCH PPS beginning in FY 2021 (85 FR 58907 through 58909). As discussed in section VIII.D. of the preamble of this proposed rule, we are proposing to rebase and revise the 2017-based LTCH market basket to reflect a 2022 base year. For additional details on the historical development of the market basket used under the LTCH PPS, we refer readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 53467 through 53476), and for a complete discussion of the LTCH market basket and a description of the methodologies used to determine the operating and capital-related portions of the 2017-based LTCH market basket, we refer readers to the FY 2021 IPPS/LTCH PPS final rule (85 FR 58909 through 58926).

Section 3401(c) of the Affordable Care Act provides for certain adjustments to any annual update to the LTCH PPS standard Federal payment rate and refers to the timeframes associated with such adjustments as a “rate year.” We note that, because the annual update to the LTCH PPS policies, rates, and factors now occurs on October 1, we adopted the term “fiscal year” (FY) rather than “rate year” (RY) under the LTCH PPS beginning October 1, 2010, to conform with the standard definition of the Federal fiscal year (October 1 through September 30) used by other PPSs, such as the IPPS (75 FR 50396 through 50397). Although the language of sections 3004(a), 3401(c), 10319, and 1105(b) of the Affordable Care Act refers to years 2010 and thereafter under the LTCH PPS as “rate year,” consistent with our change in the terminology used under the LTCH PPS from “rate year” to “fiscal year,” for purposes of clarity, when discussing the annual update for the LTCH PPS standard Federal payment rate, including the provisions of the Affordable Care Act, we use “fiscal year” rather than “rate year” for 2011 and subsequent years.

b. Proposed Annual Update to the LTCH PPS Standard Federal Payment Rate for FY 2025

As previously noted, for FY 2025, we are proposing to rebase and revise the 2017-based LTCH market basket to reflect a 2022 base year. The proposed 2022-based LTCH market basket is primarily based on the Medicare cost report data submitted by LTCHs and, therefore, specifically reflects the cost structures of LTCHs. As described in more detail in section VIII.D.1 of the preamble of this proposed rule, we are proposing to use data from cost reporting periods beginning on and after April 1, 2021, and prior to April 1, 2022 because these data reflect the most recent information that are most representative of FY 2022. We believe that the proposed 2022-based LTCH market basket appropriately reflects the cost structure of LTCHs, as discussed in greater detail in section VIII.D. of the preamble of this proposed rule. In this proposed rule, we are proposing to use the proposed 2022-based LTCH market basket to update the LTCH PPS standard Federal payment rate for FY 2025.

Section 1886(m)(3)(A) of the Act provides that, beginning in FY 2010, any annual update to the LTCH PPS standard Federal payment rate is reduced by the adjustments specified in clauses (i) and (ii) of subparagraph (A), as applicable. Clause (i) of section 1886(m)(3)(A) of the Act provides for a reduction, for FY 2012 and each subsequent rate year, by “the productivity adjustment” described in section 1886(b)(3)(B)(xi)(II) of the Act. Section 1886(b)(3)(B)(xi)(II) of the Act, as added by section 3401(a) of the Affordable Care Act, defines this productivity adjustment as equal to the 10-year moving average of changes in annual economy-wide, private nonfarm business multifactor productivity (as projected by the Secretary for the 10-year period ending with the applicable fiscal year, year, cost reporting period, or other annual period). The U.S. Department of Labor's Bureau of Labor Statistics (BLS) publishes the official measures of private nonfarm business productivity for the U.S. economy. We note that previously the productivity measure referenced in section 1886(b)(3)(B)(xi)(II) was published by BLS as private nonfarm business multifactor productivity. Beginning with the November 18, 2021 release of productivity data, BLS replaced the term multifactor productivity with total factor productivity (TFP). BLS noted that this is a change in terminology only and will not affect the data or methodology. As a result of the BLS name change, the productivity measure referenced in section 1886(b)(3)(B)(xi)(II) is now published by BLS as private nonfarm business total factor productivity. However, as mentioned, the data and methods are unchanged. Please see www.bls.gov for the BLS historical published TFP data. A complete description of IGI's TFP projection methodology is available on the CMS website at https://www.cms.gov/data-research/statistics-trends-and-reports/medicare-program-rates-statistics/market-basket-research-and-information. Clause (ii) of section 1886(m)(3)(A) of the Act provided for a reduction, for each of FYs 2010 through 2019, by the “other adjustment” described in section 1886(m)(4)(F) of the Act; therefore, it is not applicable for FY 2025.

Section 1886(m)(3)(B) of the Act provides that the application of paragraph (3) of section 1886(m) of the Act may result in the annual update being less than zero for a rate year, and may result in payment rates for a rate year being less than such payment rates for the preceding rate year.

c. Proposed Adjustment to the LTCH PPS Standard Federal Payment Rate Under the Long-Term Care Hospital Quality Reporting Program (LTCH QRP)

In accordance with section 1886(m)(5) of the Act, the Secretary established the Long-Term Care Hospital Quality Reporting Program (LTCH QRP). The reduction in the annual update to the LTCH PPS standard Federal payment rate for failure to report quality data under the LTCH QRP for FY 2014 and subsequent fiscal years is codified under 42 CFR 412.523(c)(4). The LTCH QRP, as required for FY 2014 and subsequent fiscal years by section 1886(m)(5)(A)(i) of the Act, requires that a 2.0 percentage points reduction be applied to any update under 42 CFR 412.523(c)(3) for an LTCH that does not submit quality reporting data to the Secretary in accordance with section 1886(m)(5)(C) of the Act with respect to such a year (that is, in the form and manner and at the time specified by the Secretary under the LTCH QRP) (42 CFR 412.523(c)(4)(i)). Section 1886(m)(5)(A)(ii) of the Act provides that the application of the 2.0 percentage points reduction may result in an annual update that is less than 0.0 for a year, and may result in LTCH PPS payment rates for a year being less than such LTCH PPS payment rates for the preceding year. Furthermore, section 1886(m)(5)(B) of the Act specifies that the 2.0 percentage points reduction is applied in a noncumulative manner, such that any reduction made under section 1886(m)(5)(A) of the Act shall apply only with respect to the year involved, and shall not be taken into account in computing the LTCH PPS payment amount for a subsequent year. These requirements are codified in the regulations at 42 CFR 412.523(c)(4). (For additional information on the history of the LTCH QRP, including the statutory authority and the selected measures, we refer readers to section IX. of the preamble of this proposed rule.)

d. Proposed Annual Market Basket Update Under the LTCH PPS for FY 2025

Consistent with our historical practice, we estimate the market basket percentage increase and the productivity adjustment based on IHS Global Inc.'s (IGI's) forecast using the most recent available data. Based on IGI's fourth quarter 2023 forecast, the proposed FY 2025 market basket percentage increase for the LTCH PPS using the proposed 2022-based LTCH market basket is 3.2 percent. The proposed productivity adjustment for FY 2025 based on IGI's fourth quarter 2023 forecast is 0.4 percentage point.

For FY 2025, section 1886(m)(3)(A)(i) of the Act requires that any annual update to the LTCH PPS standard Federal payment rate be reduced by the productivity adjustment, described in section 1886(b)(3)(B)(xi)(II) of the Act. Consistent with the statute, we are proposing to reduce the FY 2025 market basket percentage increase by the FY 2025 productivity adjustment. To determine the proposed market basket update for LTCHs for FY 2025 we subtracted the proposed FY 2025 productivity adjustment from the proposed FY 2025 market basket percentage increase. (For additional details on our established methodology for adjusting the market basket percentage increase by the productivity adjustment, we refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51771).) In addition, for FY 2025, section 1886(m)(5) of the Act requires that, for LTCHs that do not submit quality reporting data as required under the LTCH QRP, any annual update to an LTCH PPS standard Federal payment rate, after application of the adjustments required by section 1886(m)(3) of the Act, shall be further reduced by 2.0 percentage points.

In this FY 2025 IPPS/LTCH PPS proposed rule, in accordance with the statute, we are proposing to reduce the proposed FY 2025 market basket percentage increase of 3.2 percent (based on IGI's fourth quarter 2023 forecast of the proposed 2022-based LTCH market basket) by the proposed FY 2025 productivity adjustment of 0.4 percentage point (based on IGI's fourth quarter 2023 forecast). Therefore, under the authority of section 123 of the BBRA as amended by section 307(b) of the BIPA, consistent with 42 CFR 412.523(c)(3)(xvii), we are proposing to establish an annual market basket update to the LTCH PPS standard Federal payment rate for FY 2025 of 2.8 percent (that is, the LTCH PPS market basket increase of 3.2 percent less the productivity adjustment of 0.4 percentage point). For LTCHs that fail to submit quality reporting data under the LTCH QRP, under 42 CFR 412.523(c)(3)(xvii) in conjunction with 42 CFR 412.523(c)(4), we are proposing to further reduce the annual update to the LTCH PPS standard Federal payment rate by 2.0 percentage points, in accordance with section 1886(m)(5) of the Act. Accordingly, we are proposing to establish an annual update to the LTCH PPS standard Federal payment rate of 0.8 percent (that is, the proposed 2.8 percent LTCH market basket update minus 2.0 percentage points) for FY 2025 for LTCHs that fail to submit quality reporting data as required under the LTCH QRP. Consistent with our historical practice, we are proposing to use a more recent estimate of the market basket percentage increase and the productivity adjustment, if appropriate, to establish an annual update to the LTCH PPS standard Federal payment rate for FY 2025 in the final rule. We note that, consistent with historical practice, we are also proposing to adjust the FY 2025 LTCH PPS standard Federal payment rate by an area wage level budget neutrality factor in accordance with 42 CFR 412.523(d)(4) (as discussed in section V.B.5. of the Addendum to this proposed rule).

D. Proposed Rebasing of the LTCH Market Basket

1. Background

The input price index (that is, the market basket) that was used to develop the LTCH PPS for FY 2003 was the “excluded hospital with capital” market basket. That market basket was based on 1997 Medicare cost report data and included data for Medicare-participating IRFs, IPFs, LTCHs, cancer hospitals, and children's hospitals. Although the term “market basket” technically describes the mix of goods and services used in providing hospital care, this term is also commonly used to denote the input price index (that is, cost category weights and price proxies combined) derived from that mix. Accordingly, the term “market basket,” as used in this section, refers to an input price index.

Since the LTCH PPS inception, the market basket used to update LTCH PPS payments has been rebased and revised to reflect more recent data. We last rebased and revised the market basket applicable to the LTCH PPS in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58909 through 58926), where we adopted a 2017-based LTCH market basket. References to the historical market baskets used to update LTCH PPS payments are listed in the FY 2021 LTCH PPS final rule (85 FR 58909 through 58910).

For this FY 2025 IPPS/LTCH proposed rule, we propose to rebase and revise the 2017-based LTCH market basket to reflect a 2022 base year, which would maintain our historical frequency of rebasing the market basket every 4 years. The proposed 2022-based LTCH market basket is primarily based on Medicare cost report data for LTCHs for FY 2022, specifically for cost reporting periods beginning on and after April 1, 2021, and prior to April 1, 2022. For the 2017-based LTCH market, we used Medicare cost report data for LTCHs from cost reporting periods beginning on and after October 1, 2016, and before October 1, 2017, or reports that began in FY 2017. The majority of LTCHs have a cost report begin date of September 1 and so those LTCHs with a cost report begin date of September 1, 2021 have the majority of their expenses occurring in the FY 2022 time period. We are proposing to use data from cost reporting periods beginning on and after April 1, 2021, and prior to April 1, 2022 because these data reflect the most recent Medicare cost report data for LTCHs at the time of rulemaking where the majority of their costs are occurring in FY 2022 while still maintaining our historical frequency of rebasing the market basket every 4 years.

We are unable to use data from the FY 2022 HCRIS file, which reflects cost reporting periods beginning on and after October 1, 2021 and prior to September 30, 2022, as most reporters have a begin date of September 1, so the dataset in the file is not yet complete. In the interest of utilizing the most recent, complete data available, we are proposing to combine data from multiple HCRIS files to obtain a 2022 base year. We are proposing to use a composite timeframe of cost reporting periods beginning on and after April 1, 2021 and prior to April 1, 2022, because April 1 reflects the middle of the fiscal year and this timeframe would allow data from 2022 to be included in this rebasing. Using this proposed method, the weighted average of costs occurring in FY 2022 (accounting for the distribution of providers by Medicare cost report begin date) is 82 percent. Therefore, we believe our proposed methodology of using Medicare cost report data based on cost reporting periods beginning on or after April 1, 2021 and prior to April 1, 2022 reflects the most recent information that is most representative of FY 2022.

As described in the FY 2023 IPPS/LTCH final rule (87 FR 49164 through 49165), we received comments on the FY 2023 IPPS/LTCH PPS proposed rule where stakeholders expressed concern that the proposed market basket update was inadequate relative to input price inflation experienced by LTCHs, particularly as a result of the COVID-19 PHE. These commenters stated that the PHE, along with inflation, has significantly driven up operating costs. Specifically, some commenters noted changes to the labor markets that led to the use of more contract labor. As described in more detail later in this section, we verified this trend when analyzing the Medicare cost reports submitted by LTCHs through 2022. Therefore, we believe it is appropriate to incorporate more recent data to reflect updated cost structures for LTCHs, and so we propose to use 2022 as the base year because we believe that the Medicare cost reports for this year represent the most recent, complete set of Medicare cost report data available for developing the proposed LTCH market basket at the time of this rulemaking. Given the recent trends in the major cost weights derived from the Medicare cost report data as discussed later in this section, we will continue to monitor these data going forward and any additional changes to the LTCH market basket will be proposed in future rulemaking.

In the following discussion, we provide an overview of the proposed LTCH market basket, describe the proposed methodologies for developing the operating and capital portions of the proposed 2022-based LTCH market basket, and provide information on the proposed price proxies. Then, we present the proposed FY 2025 market basket update and labor-related share based on the proposed 2022-based LTCH market basket.

2. Overview of the Proposed 2022-Based LTCH Market Basket

Similar to the 2017-based LTCH market basket, the proposed 2022-based LTCH market basket is a fixed-weight, Laspeyres-type price index. A Laspeyres price index measures the change in price, over time, of the same mix of goods and services purchased in the base period. Any changes in the quantity or mix (that is, intensity) of goods and services purchased over time relative to the base period are not measured. The index itself is constructed using three steps. First, a base period is selected (in this proposed rule, we propose to use 2022 as the base period) and total base period costs are estimated for a set of mutually exclusive and exhaustive spending categories, with the proportion of total costs that each category represents being calculated. These proportions are called cost weights. Second, each cost category is matched to an appropriate price or wage variable, referred to as a “price proxy.” In almost every instance, these price proxies are derived from publicly available statistical series that are published on a consistent schedule (preferably at least on a quarterly basis). Finally, the cost weight for each cost category is multiplied by the level of its respective price proxy. The sum of these products (that is, the cost weights multiplied by their price index levels) for all cost categories yields the composite index level of the market basket in a given period. Repeating this step for other periods produces a series of market basket levels over time. Dividing an index level for a given period by an index level for an earlier period produces a rate of growth in the input price index over that timeframe. As previously noted, the market basket is described as a fixed-weight index because it represents the change in price over time of a constant mix (quantity and intensity) of goods and services needed to furnish hospital services. The effects on total costs resulting from changes in the mix of goods and services purchased subsequent to the base period are not measured. For example, a hospital hiring more nurses to accommodate the needs of patients would increase the volume of goods and services purchased by the hospital but would not be factored into the price change measured by a fixed-weight hospital market basket. Only when the index is rebased would changes in the quantity and intensity be captured, with those changes being reflected in the cost weights. Therefore, we rebase the market basket periodically so that the cost weights reflect recent changes in the mix of goods and services that hospitals purchase to furnish inpatient care between base periods.

3. Development of the Proposed 2022-Based LTCH Market Basket Cost Categories and Weights

We are inviting public comments on our proposed methodology, discussed in this section of this rule, for deriving the proposed 2022-based LTCH market basket.

a. Use of Medicare Cost Report Data

The major types of costs underlying the proposed 2022-based LTCH market basket are derived from the Medicare cost reports (CMS Form 2552-10, OMB Control Number 0938-0050) for LTCHs. Specifically, we use the Medicare cost reports for seven specific costs: Wages and Salaries, Employee Benefits, Contract Labor, Pharmaceuticals, Professional Liability Insurance (PLI), Home Office/Related Organization Contract Labor, and Capital. A residual category is then estimated and reflects all remaining costs not captured in the seven types of costs identified previously. The 2017-based LTCH market basket similarly used the Medicare cost reports.

Medicare cost report data include costs for all patients (including but not limited to those covered by Medicare, Medicaid, and private insurance). Because our goal is to measure cost shares for facilities that serve Medicare beneficiaries and are reflective of case mix and practice patterns associated with providing services to Medicare beneficiaries in LTCHs, we propose to limit our selection of Medicare cost reports to those from LTCHs that have a Medicare average length of stay (LOS) that is within a comparable range of their total facility average LOS. We define the Medicare average LOS based on data reported on the Medicare cost report (CMS Form 2552-10, OMB Control Number 0938-0050) Worksheet S-3, Part I, line 14. We believe that applying the LOS edit results in a more accurate reflection of the structure of costs associated with Medicare covered days as our proposed edit excludes those LTCHs that had an average total facility LOS that were notably different than the average Medicare LOS. For the 2017-based LTCH market basket, we used the cost reports submitted by LTCHs with Medicare average LOS within 25 percent (that is, 25 percent higher or lower) of the total facility average LOS for the hospital. Based on our analysis of the 2022 Medicare cost reports, for the proposed 2022-based LTCH market basket, we propose to again use the cost reports submitted by LTCHs with Medicare average LOS within 25 percent (that is, 25 percent higher or lower) of the total facility average LOS for the hospital. The universe of LTCHs had an average Medicare LOS of 26 days, an average total facility LOS of 35 days, and aggregate Medicare utilization (as measured by Medicare inpatient LTCH days as a percentage of total facility inpatient LTCH days) of 34 percent in 2022. Applying the proposed trim excludes 11 percent of LTCH providers and results in a subset of LTCH Medicare cost reports with an average Medicare LOS of 26 days, average facility LOS of 30 days, and aggregate Medicare utilization (based on days) of 40 percent. The 11 percent of providers that are excluded had an average Medicare LOS of 29 days, average facility LOS of 71 days, and aggregate Medicare utilization of 14 percent.

We are proposing to use the cost reports for LTCHs that meet this requirement to calculate the costs for the seven major cost categories (Wages and Salaries, Employee Benefits, Contract Labor, Professional Liability Insurance, Pharmaceuticals, Home Office/Related Organization Contract Labor, and Capital) for the market basket. Also, as described in section VIII.D.3.d. of the preamble of this proposed rule, and as done for the 2017-based LTCH market basket, we are also proposing to use the Medicare cost report data to calculate the detailed capital cost weights for the Depreciation, Interest, Lease, and Other Capital-Related cost categories.

(1) Wages and Salaries Costs

We propose to derive Wages and Salaries costs as the sum of routine inpatient salaries, ancillary salaries, and a proportion of overhead (or general service cost center) salaries as reported on Worksheet A, column 1. Because overhead salary costs are attributable to the entire LTCH, we propose to only include the proportion attributable to the Medicare allowable cost centers. For the 2022-based LTCH market basket, we propose that routine and ancillary Wages and Salaries costs would be equal to salary costs as reported on Worksheet A, column 1, lines 30 through 35, 50 through 76 (excluding 52 and 75), 90 through 91, and 93. Then, we are proposing to estimate the proportion of overhead salaries that are attributed to Medicare allowable costs centers. We propose to first calculate overhead salaries as the sum of Worksheet A, column 1, lines 4 through 18. We then calculate the “Medicare allowable ratio” equal to routine and ancillary Wages and Salaries divided by total non-overhead salaries (Worksheet A, column 1, line 200 less overhead salaries). We propose to multiply this Medicare allowable ratio by overhead salaries to determine the overhead salaries attributed to Medicare allowable cost centers. The sum of routine salaries, ancillary salaries, and the estimated Medicare allowable portion of overhead salaries represent Wages and Salaries costs. A similar methodology was used to derive Wages and Salaries costs in the 2017-based LTCH market basket.

(2) Employee Benefits Costs

Similar to the 2017-based LTCH market basket, we propose to calculate Employee Benefits costs using data from Worksheet S-3, part II, column 4, lines 17, 18, 20, and 22. The completion of Worksheet S-3, part II is only required for IPPS hospitals. For 2022, we found that approximately 42 percent of LTCHs voluntarily reported the Employee Benefits data, which has increased from the approximately 20 percent of LTCHs that reported these data that were used for the 2017-based LTCH market basket. Our analysis of the Worksheet S-3, part II data submitted by these LTCHs indicates that we continue to have a large enough sample to enable us to produce a reasonable Employee Benefits cost weight. Specifically, we found that when we recalculated the cost weight after weighting to reflect the characteristics of the universe of LTCHs (such as by type of ownership—nonprofit, for-profit, and government—and by region), the recalculation did not have a material effect on the resulting cost weight. Therefore, we propose to use Worksheet S-3, part II data (as was done for the 2017-based LTCH market basket) to calculate the Employee Benefits cost weight in the proposed 2022-based LTCH market basket.

We note that, effective with the implementation of CMS Form 2552-10, OMB Control Number 0938-0050, we began collecting Employee Benefits and Contract Labor data on Worksheet S-3, part V, which is applicable to LTCHs. However, approximately 12 percent of LTCHs reported data on Worksheet S-3, part V for 2022, which has fallen since 2017 when roughly 17 percent of LTCHs reported these data. Because a greater percentage of LTCHs continue to report data on Worksheet S-3, part II than Worksheet S-3, part V, we are not proposing to use the Employee Benefits and Contract Labor data reported on Worksheet S-3, part V to calculate the Employee Benefits and Contract Labor cost weights in the proposed 2022-based LTCH market basket. We continue to encourage all providers to report Employee Benefits and Contract Labor data on Worksheet S-3, part V.

(3) Contract Labor Costs

Contract Labor costs reported on the Medicare cost reports are primarily associated with direct patient care services. Contract Labor costs for services such as accounting, billing, and legal are estimated using other government data sources as described in this section of this proposed rule. Approximately 40 percent of LTCHs voluntarily reported Contract Labor costs on Worksheet S-3, part II, which was similar to the percentage obtained from 2017 Medicare cost reports.

As was done for the 2017-based LTCH market basket, we propose to derive the Contract Labor costs for the proposed 2022-based LTCH market basket using voluntarily reported data from Worksheet S-3, part II. Our analysis of these data indicates that we have a large enough sample to enable us to produce a representative Contract Labor cost weight. Specifically, we found that when we recalculated the cost weight after weighting to reflect the characteristics of the universe of LTCHs by region, the recalculation did not have a material effect on the resulting cost weight. Therefore, we propose to use data from Worksheet S-3, part II, column 4, lines 11 and 13 to calculate the Contract Labor cost weight in the proposed 2022-based LTCH market basket.

(4) Pharmaceuticals Costs

We propose to calculate Pharmaceuticals costs using non-salary costs reported for the pharmacy cost center (line 15) and drugs charged to patients cost center (line 73). We propose to calculate these costs as Worksheet A, column 7, less Worksheet A, column 1 for each of these lines. A similar methodology was used for the 2017-based LTCH market basket.

(5) Professional Liability Insurance Costs

We propose that Professional Liability Insurance (PLI) costs (often referred to as malpractice costs) be equal to premiums, paid losses and self-insurance costs reported on Worksheet S-2, part I, columns 1 through 3, line 118. A similar methodology was used for the 2017-based LTCH market basket.

(6) Home Office/Related Organization Contract Labor Costs

We propose to calculate the Home Office/Related Organization Contract Labor costs using data reported on Worksheet S-3, part II, column 4, lines 1401, 1402, 2550, and 2551 for those LTCH providers reporting total salaries on Worksheet S-3, part II, line 1. A similar methodology was used for the 2017-based LTCH market basket.

(7) Capital Costs

We propose that Capital costs be equal to Medicare allowable capital costs as reported on Worksheet B, part II, column 26, lines 30 through 35, 50 through 76 (excluding 52 and 75), 90 through 91 and 93. A similar methodology was used for the 2017-based LTCH market basket.

b. Final Major Cost Category Computation

After we derive costs for the major cost categories for each provider using the Medicare cost report data as previously described, we propose to trim the data for outliers. For each of the seven major cost categories, we are first proposing to divide the calculated costs for the category by total Medicare allowable costs calculated for the provider to obtain cost weights for the universe of LTCH providers. For the 2022-based LTCH market basket (similar to the approach used for the 2017-based LTCH market basket), we propose that total Medicare allowable costs would be equal to the total costs as reported on Worksheet B, part I, column 26, lines 30 through 35, 50 through 76 (excluding 52 and 75), 90 through 91, and 93.

For the Wages and Salaries, Employee Benefits, Contract Labor, Pharmaceuticals, Professional Liability Insurance, and Capital cost weights, after excluding cost weights that are less than or equal to zero, we propose to then remove those providers whose derived cost weights fall in the top and bottom 5 percent of provider specific derived cost weights to ensure the exclusion of outliers. We note that missing values are assumed to be zero consistent with the methodology for how missing values were treated in the 2017-based LTCH market basket. After the outliers have been excluded, we sum the costs for each category across all remaining providers. We are proposing to divide this by the sum of total Medicare allowable costs across all remaining providers to obtain a cost weight for the 2022-based LTCH market basket for the given category. This trimming process is done for each cost weight separately.

For the Home Office/Related Organization Contract Labor cost weight, we propose to apply a 1-percent top only trimming methodology. We believe, as the Medicare cost report data (Worksheet S-2, part I, line 140) indicate, that not all LTCHs have a home office. LTCHs without a home office can incur these expenses directly by having their own staff, for which the costs would be included in the Wages and Salaries and Employee Benefits cost weights. Alternatively, LTCHs without a home office could also purchase related services from external contractors for which these expenses would be captured in the residual “All Other” cost weight. We believe this 1-percent top-only trimming methodology is appropriate as it addresses outliers while allowing providers with zero Home Office/Related Organization Contract Labor costs to be included in the Home Office/Related Organization Contract Labor cost weight calculation. If we applied both the top and bottom 5 percent trimming methodology, we would exclude providers who have zero Home Office/Related Organization Contract Labor costs.

Finally, we propose to calculate the residual “All Other” cost weight that reflects all remaining costs that are not captured in the seven cost categories listed. We refer readers to Table EEEE 1 for the resulting proposed cost weights for these major cost categories.

The Wages and Salaries and Employee Benefits cost weights calculated from the Medicare cost reports for the proposed 2022-based LTCH market basket are similar to the Wages and Salaries and Employee Benefits cost weights for the 2017-based LTCH market basket. The proposed Contract Labor cost weight, however, is approximately 8 percentage points higher than the Contract Labor cost weight in the 2017-based LTCH market basket. The proposed 2022-based Pharmaceuticals and Capital cost weights are lower than the 2017-based LTCH market basket by 1.7 percentage points and 1.4 percentage points, respectively. The proposed 2022-based Home Office/Related Organization Contract Labor cost weight has increased by 1.8 percentage points compared to the 2017-based LTCH market basket.

As we did for the 2017-based LTCH market basket, we propose to allocate the Contract Labor cost weight to the Wages and Salaries and Employee Benefits cost weights based on their relative proportions under the assumption that Contract Labor costs are comprised of both Wages and Salaries and Employee Benefits. The Contract Labor allocation proportion for Wages and Salaries is equal to the Wages and Salaries cost weight as a percent of the sum of the Wages and Salaries cost weight and the Employee Benefits cost weight. This rounded percentage is 87 percent. Therefore, we propose to allocate 87 percent of the Contract Labor cost weight to the Wages and Salaries cost weight and 13 percent to the Employee Benefits cost weight. We refer readers to Table EEEE 2 that shows the proposed Wages and Salaries and Employee Benefits cost weights after Contract Labor cost weight allocation for both the proposed 2022-based LTCH market basket and the 2017-based LTCH market basket.

After the allocation of the Contract Labor cost weight, the proposed 2022-based Wages and Salaries cost weight is 7.2 percentage points higher and the Employee Benefits cost weight is 1.4 percentage points higher, relative to the respective cost weights for the 2017-based LTCH market basket. As a result, in the proposed 2022-based LTCH market basket, the compensation cost weight is 8.6 percentage points higher than the Compensation cost weight for the 2017-based LTCH market basket.

c. Derivation of the Detailed Operating Cost Weights

To further divide the residual “All Other” cost weight estimated from the 2022 Medicare cost report data into more detailed cost categories, we propose to use the 2017 Benchmark I-O “The Use Table (Supply-Use Framework)” data for NAICS 622000, Hospitals, published by the Bureau of Economic Analysis (BEA). These data are publicly available at the following website: https://www.bea.gov/industry/input-output-accounts-data. For the 2017-based LTCH market basket, we used the 2012 Benchmark I-O data, the most recent data available at the time (85 FR 58913).

The BEA Benchmark I-O data are scheduled for publication every 5 years with the most recent data available for 2017. The 2017 Benchmark I-O data are derived from the 2017 Economic Census and are the building blocks for BEA's economic accounts. Therefore, they represent the most comprehensive and complete set of data on the economic processes or mechanisms by which output is produced and distributed. BEA also produces Annual I-O estimates. However, while based on a similar methodology, these estimates reflect less comprehensive and less detailed data sources and are subject to revision when benchmark data becomes available. Instead of using the less detailed Annual I-O data, we propose to inflate the 2017 Benchmark I-O data forward to 2022 by applying the annual price changes from the respective price proxies to the appropriate market basket cost categories that are obtained from the 2017 Benchmark I-O data, and calculated the cost shares that each cost category represents using the inflated data. These resulting 2022 cost shares were applied to the residual “All Other” cost weight to obtain the detailed cost weights for the proposed 2022-based LTCH market basket. For example, the cost for Food: Direct Purchases represents 4.3 percent of the sum of the residual “All Other” 2017 Benchmark I-O Hospital Expenditures inflated to 2022. Therefore, the Food: Direct Purchases cost weight represents 4.3 percent of the proposed 2022-based LTCH market basket's residual “All Other” cost category (20.8 percent), yielding a “final” Food: Direct Purchases proposed cost weight of 0.9 percent in the proposed 2022-based LTCH market basket (0.043 × 20.8 percent = 0.9 percent).

Using this methodology, we propose to derive seventeen detailed LTCH market basket cost category weights within the proposed 2022-based LTCH market basket residual “All Other” cost weight (20.8 percent). These categories are: (1) Electricity and Other Non-Fuel Utilities; (2) Fuel: Oil and Gas; (3) Food: Direct Purchases; (4) Food: Contract Services; (5) Chemicals; (6) Medical Instruments; (7) Rubber and Plastics; (8) Paper and Printing Products; (9) Miscellaneous Products; (10) Professional Fees: Labor-Related; (11) Administrative and Facilities Support Services; (12) Installation, Maintenance, and Repair Services; (13) All Other Labor-Related Services; (14) Professional Fees: Nonlabor-Related; (15) Financial Services; (16) Telephone Services; and (17) All Other Nonlabor-Related Services. We note that these are the same categories as were used in the 2017-based LTCH market basket (with several cost categories being renamed for clarification purposes).

d. Derivation of the Detailed Capital Cost Weights

As described in section VIII.D.3.b. of the preamble of this proposed rule, we are proposing a Capital-Related cost weight of 8.5 percent in the proposed 2022-based LTCH market basket as calculated from the 2022 Medicare cost reports for LTCHs after applying the proposed trims as previously described. We propose to then separate this total Capital-Related cost weight into more detailed cost categories. Using Worksheet A-7 in the 2022 Medicare cost reports, we are able to group capital-related costs into the following categories: Depreciation, Interest, Lease, and Other Capital-Related costs, as shown in Table VIII.D-03, which is the same methodology used for the 2017-based LTCH market basket.

We also are proposing to allocate lease costs, which are 65 percent of total capital costs in the proposed 2022-based LTCH market basket, across each of the remaining detailed capital-related cost categories as was done in the 2017-based LTCH market basket. This would result in three primary capital-related cost categories in the proposed 2022 based LTCH market basket: Depreciation, Interest, and Other Capital-Related costs. Lease costs are unique in that they are not broken out as a separate cost category in the proposed 2022-based LTCH market basket. Rather, we propose to proportionally distribute these costs among the cost categories of Depreciation, Interest, and Other Capital-Related, reflecting the assumption that the underlying cost structure of leases is similar to that of capital-related costs in general. As was done for the 2017-based LTCH market basket, we propose to assume that 10 percent of the lease costs represents overhead and to assign those costs to the Other Capital-Related cost category accordingly. Therefore, we are assuming that approximately 6.5 percent (65.0 percent × 0.1) of total capital-related costs represent lease costs attributable to overhead, and we propose to add this 6.5 percentage points to the 7.3 percent Other Capital-Related cost category weight. We are also proposing to distribute the remaining lease costs (58.5 percent, or 65.0 percent less 6.5 percentage points) proportionally across the three cost categories (Depreciation, Interest, and Other Capital-Related) based on the proportion that these categories comprise of the sum of the Depreciation, Interest, and Other Capital-Related cost categories (excluding lease expenses). For example, the Other Capital-Related cost category represented 21.0 percent of all three cost categories (Depreciation, Interest, and Other Capital-Related) prior to any lease expenses being allocated. This 21.0 percent is applied to the 58.5 percent of remaining lease expenses so that another 12.3 percentage points of lease expenses as a percent of total capital-related costs is allocated to the Other Capital-Related cost category. Therefore, the resulting proposed Other Capital-Related cost weight is 26.1 percent (7.3 percent + 6.5 percent + 12.3 percent). This is the same methodology used for the 2017-based LTCH market basket. The proposed allocation of these lease expenses are shown in Table VIII.D-03.

Finally, we propose to further divide the Depreciation and Interest cost categories. We propose to separate Depreciation cost category into the following two categories: (1) Building and Fixed Equipment and (2) Movable Equipment. We also propose to separate the Interest cost category into the following two categories: (1) Government/Nonprofit; and (2) For profit.

To disaggregate the Depreciation cost weight, we needed to determine the percent of total depreciation costs for LTCHs (after the allocation of lease costs) that are attributable to Building and Fixed equipment, which we hereafter refer to as the “fixed percentage.” We propose to use depreciation and lease data from Worksheet A-7 of the 2022 Medicare cost reports, which is the same methodology used for the 2017-based LTCH market basket. Based on the 2022 LTCH Medicare cost report data, we have determined that depreciation costs for building and fixed equipment account for 39 percent of total depreciation costs, while depreciation costs for movable equipment account for 61 percent of total depreciation costs. As previously mentioned, we propose to allocate lease expenses among the Depreciation, Interest, and Other Capital-Related cost categories. We determined that leasing building and fixed equipment expenses account for 94 percent of total leasing expenses, while leasing movable equipment expenses account for 6 percent of total leasing expenses. We propose to sum the depreciation and leasing expenses for building and fixed equipment, as well as sum the depreciation and leasing expenses for movable equipment. This results in the proposed Building and Fixed Equipment Depreciation cost weight (after leasing costs are included) representing 78 percent of total depreciation costs and the Movable Equipment Depreciation cost weight (after leasing costs are included) representing 22 percent of total depreciation costs.

To disaggregate the Interest cost weight, we determine the percent of total interest costs for LTCHs that are attributable to government and nonprofit facilities, which we hereafter refer to as the “nonprofit percentage,” because price pressures associated with these types of interest costs tend to differ from those for for-profit facilities. We propose to use interest costs data from Worksheet A-7 of the 2022 Medicare cost reports for LTCHs, which is the same methodology used for the 2017-based LTCH market basket. The nonprofit percentage determined using this method is 48 percent.

Table VIII.D-03 provides the proposed detailed capital cost shares obtained from the Medicare cost reports. Ultimately, if finalized, these detailed capital cost shares would be applied to the total Capital-Related cost weight determined in section VIII.D.3.b. of the preamble of this proposed rule to separate the total Capital-Related cost weight of 8.5 percent into more detailed cost categories and weights.

e. Proposed 2022-Based LTCH Market Basket Cost Categories and Weights

Table VIII.D-04 shows the proposed cost categories and weights for the proposed 2022-based LTCH market basket compared to the 2017-based LTCH market basket.

4. Selection of Proposed Price Proxies

After developing the proposed cost weights for the 2022-based LTCH market basket, we selected the most appropriate wage and price proxies currently available to represent the rate of price change for each cost category. For the majority of the cost weights, we base the price proxies on U.S. Bureau of Labor Statistics (BLS) data and group them into one of the following BLS categories:

• Employment Cost Indexes. Employment Cost Indexes (ECIs) measure the rate of change in employment wage rates and employer costs for employee benefits per hour worked. These indexes are fixed-weight indexes and strictly measure the change in wage rates and employee benefits per hour. ECIs are superior to Average Hourly Earnings (AHE) as price proxies for input price indexes because they are not affected by shifts in occupation or industry mix, and because they measure pure price change and are available by both occupational group and by industry. The industry ECIs are based on the NAICS and the occupational ECIs are based on the Standard Occupational Classification System (SOC).

• Producer Price Indexes. Producer Price Indexes (PPIs) measure the average change over time in the selling prices received by domestic producers for their output. The prices included in the PPI are from the first commercial transaction for many products and some services ( https://www.bls.gov/ppi/).

• Consumer Price Indexes. Consumer Price Indexes (CPIs) measure the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services ( https://www.bls.gov/cpi/). CPIs are only used when the purchases are similar to those of retail consumers rather than purchases at the producer level, or if no appropriate PPIs are available.

We evaluate the price proxies using the criteria of reliability, timeliness, availability, and relevance:

• Reliability. Reliability indicates that the index is based on valid statistical methods and has low sampling variability. Widely accepted statistical methods ensure that the data were collected and aggregated in a way that can be replicated. Low sampling variability is desirable because it indicates that the sample reflects the typical members of the population. (Sampling variability is variation that occurs by chance because only a sample was surveyed rather than the entire population.)

• Timeliness. Timeliness implies that the proxy is published regularly, preferably at least once a quarter. The market baskets are updated quarterly, and therefore, it is important for the underlying price proxies to be up-to-date, reflecting the most recent data available. We believe that using proxies that are published regularly (at least quarterly, whenever possible) helps to ensure that we are using the most recent data available to update the market basket. We strive to use publications that are disseminated frequently, because we believe that this is an optimal way to stay abreast of the most current data available.

• Availability. Availability means that the proxy is publicly available. We prefer that our proxies are publicly available because this will help ensure that our market basket updates are as transparent to the public as possible. In addition, this enables the public to be able to obtain the price proxy data on a regular basis.

• Relevance. Relevance means that the proxy is applicable and representative of the cost category weight to which it is applied.

We believe that the CPIs, PPIs, and ECIs that we have selected meet these criteria. Therefore, we believe that they continue to be the best measure of price changes for the cost categories to which they would be applied.

Table VIII.D-07 lists all price proxies that we propose to use for the 2022-based LTCH market basket. The next section of the rule contains a detailed explanation of the price proxies we are proposing for each cost category weight.

a. Price Proxies for the Operating Portion of the Proposed 2022-Based LTCH Market Basket

(1) Wages and Salaries

We propose to continue to use the ECI for Wages and Salaries for All Civilian workers in Hospitals (BLS series code CIU1026220000000I) to measure the wage rate growth of this cost category. This is the same price proxy used in the 2017-based LTCH market basket (85 FR 58917).

(2) Employee Benefits

We propose to continue to use the ECI for Total Benefits for All Civilian workers in Hospitals to measure price growth of this category. This ECI is calculated using the ECI for Total Compensation for All Civilian workers in Hospitals (BLS series code CIU1016220000000I) and the relative importance of wages and salaries within total compensation. This is the same price proxy used in the 2017-based LTCH market basket (85 FR 58917).

(3) Electricity and Other Non-Fuel Utilities

We propose to continue to use the PPI Commodity Index for Commercial Electric Power (BLS series code WPU0542) to measure the price growth of this cost category. This is the same price proxy used in the 2017-based LTCH market basket (85 FR 58917).

(4) Fuel: Oil and Gas

For the 2022-based LTCH market basket, we propose to use a blend of the PPI Industry for Petroleum Refineries (NAICS 3241), PPI for Other Petroleum and Coal Products (NAICS 32419) and the PPI Commodity for Natural Gas. Our analysis of the Bureau of Economic Analysis' 2017 Benchmark I-O data for NAICS 622000 Hospitals shows that Petroleum Refineries expenses account for approximately 86 percent, Other Petroleum and Coal Products expenses account for about 7 percent and Natural Gas expenses account for approximately 7 percent of Hospitals' (NAICS 622000) total Fuel: Oil and Gas expenses. Therefore, we propose to use a blend of 86 percent of the PPI Industry for Petroleum Refineries (BLS series code PCU324110324110), 7 percent of the PPI for Other Petroleum and Coal Products (BLS series code PCU32419) and 7 percent of the PPI Commodity Index for Natural Gas (BLS series code WPU0531) as the price proxy for this cost category. The 2017-based LTCH market basket used a 90/10 blend of the PPI Industry for Petroleum Refineries and PPI Commodity for Natural Gas, reflecting the 2012 I-O data (85 FR 58917). We believe that the three proposed price proxies are the most technically appropriate indices available to measure the price growth of the Fuel: Oil and Gas cost category in the 2022-based LTCH market basket.

(5) Professional Liability Insurance

We propose to continue to use the CMS Hospital Professional Liability Index as the price proxy for PLI costs in the proposed 2022-based LTCH market basket. To generate this index, we collect commercial insurance medical liability premiums for a fixed level of coverage while holding non-price factors constant (such as a change in the level of coverage). This is the same proxy used in the 2017-based LTCH market basket (85 FR 58917).

(6) Pharmaceuticals

We propose to continue to use the PPI Commodity for Pharmaceuticals for Human Use, Prescription (BLS series code WPUSI07003) to measure the price growth of this cost category. This is the same proxy used in the 2017-based LTCH market basket (85 FR 58917).

(7) Food: Direct Purchases

We propose to continue to use the PPI Commodity for Processed Foods and Feeds (BLS series code WPU02) to measure the price growth of this cost category. This is the same price proxy used in the 2017-based LTCH market basket (85 FR 58917).

(8) Food: Contract Purchases

We propose to continue to use the CPI for Food Away From Home (BLS series code CUUR0000SEFV) to measure the price growth of this cost category. This is the same proxy used in the 2017-based LTCH market basket (85 FR 58917).

(9) Chemicals

Similar to the 2017-based LTCH market basket, we propose to use a four-part blended PPI as the proxy for the chemical cost category in the 2022-based LTCH market basket. The proposed blend is composed of the PPI Industry for Industrial Gas Manufacturing, Primary Products (BLS series code PCU325120325120P), the PPI Industry for Other Basic Inorganic Chemical Manufacturing (BLS series code PCU32518-32518), the PPI Industry for Other Basic Organic Chemical Manufacturing (BLS series code PCU32519-32519), and the PPI Industry for Other Miscellaneous Chemical Product Manufacturing (BLS series code PCU325998325998). For the 2022-based LTCH market basket, we propose to derive the weights for the PPIs using the 2017 Benchmark I-O data. The 2017-based LTCH market basket used the 2012 Benchmark I-O data to derive the weights for the four PPIs (85 FR 58917 through 58918).

(10) Medical Instruments

We propose to use a blended price proxy for the Medical Instruments category. The 2017 Benchmark I-O data shows the majority of medical instruments and supply costs are for NAICS 339112—Surgical and medical instrument manufacturing costs (approximately 64 percent) and NAICS 339113—Surgical appliance and supplies manufacturing costs (approximately 36 percent). To proxy the price changes associated with NAICS 339112, we propose to use the PPI for Surgical and medical instruments (BLS series code WPU1562). This is the same price proxy we used in the 2017-based LTCH market basket. To proxy the price changes associated with NAICS 339113, we propose to use a 50/50 blend of the PPI for Medical and surgical appliances and supplies (BLS series code WPU1563) and the PPI for Miscellaneous products, Personal safety equipment and clothing (BLS series code WPU1571). We propose to include the latter price proxy as it would reflect personal protective equipment including but not limited to face shields and protective clothing. The 2017 Benchmark I-O data does not provide specific expenses for these products; however, we recognize that this category reflects costs faced by LTCHs. For the 2017-based LTCH market basket, we used a blend composed of 57 percent of the commodity-based PPI Commodity for Surgical and Medical Instruments (BLS series code WPU1562) and 43 percent of the PPI Commodity for Medical and Surgical Appliances and Supplies (BLS series code WPU1563) reflecting the 2012 Benchmark I-O data (85 FR 58918).

(11) Rubber and Plastics

We propose to continue to use the PPI Commodity for Rubber and Plastic Products (BLS series code WPU07) to measure price growth of this cost category. This is the same proxy used in the 2017-based LTCH market basket (85 FR 58918).

(12) Paper and Printing Products

We are proposing to use a 61/39 blend of the PPI Commodity for Publications Printed Matter and Printing Material (BLS Series Code WPU094) and the PPI Commodity for Converted Paper and Paperboard Products (BLS series code WPU0915) to measure the price growth of this cost category. The 2017 Benchmark I-O data shows that 61 percent of paper and printing expenses are for Printing (NAICS 323110) and the remaining expenses are for Paper manufacturing (NAICS 322). The 2017-based LTCH market basket (85 FR 58918) used the PPI Commodity for Converted Paper and Paperboard Products (BLS series code WPU0915) as this comprised the majority of expenses as reported in the 2012 Benchmark I-O data.

(13) Miscellaneous Products

We propose to continue to use the PPI Commodity for Finished Goods Less Food and Energy (BLS series code WPUFD4131) to measure the price growth of this cost category. This is the same proxy used in the 2017-based LTCH market basket (85 FR 58918).

(14) Professional Fees: Labor-Related

We propose to continue to use the ECI for Total Compensation for Private Industry workers in Professional and Related (BLS series code CIU2010000120000I) to measure the price growth of this category. This is the same proxy used in the 2017-based LTCH market basket (85 FR 58918).

(15) Administrative and Facilities Support Services

We propose to continue to use the ECI for Total Compensation for Private Industry workers in Office and Administrative Support (BLS series code CIU2010000220000I) to measure the price growth of this category. This is the same proxy used in the 2017-based LTCH market basket (85 FR 58918).

(16) Installation, Maintenance, and Repair Services

We propose to continue to use the ECI for Total Compensation for All Civilian workers in Installation, Maintenance, and Repair (BLS series code CIU1010000430000I) to measure the price growth of this cost category. This is the same proxy used in the 2017-based LTCH market basket (85 FR 58918).

(17) All Other: Labor-Related Services

We propose to continue to use the ECI for Total Compensation for Private Industry workers in Service Occupations (BLS series code CIU2010000300000I) to measure the price growth of this cost category. This is the same proxy used in the 2017-based LTCH market basket (85 FR 58918).

(18) Professional Fees: Nonlabor-Related

We propose to continue to use the ECI for Total Compensation for Private Industry workers in Professional and Related (BLS series code CIU2010000120000I) to measure the price growth of this category. This is the same proxy used in the 2017-based LTCH market basket (85 FR 58919).

(19) Financial Services

We propose to continue to use the ECI for Total Compensation for Private Industry workers in Financial Activities (BLS series code CIU201520A000000I) to measure the price growth of this cost category. This is the same proxy used in the 2017-based LTCH market basket (85 FR 58919).

(20) Telephone Services

We propose to continue to use the CPI for Telephone Services (BLS series code CUUR0000SEED) to measure the price growth of this cost category. This is the same proxy used in the 2017-based LTCH market basket (85 FR 58919).

(21) All Other: Nonlabor-Related Services

We propose to continue to use the CPI for All Items Less Food and Energy (BLS series code CUUR0000SA0L1E) to measure the price growth of this cost category. This is the same proxy used in the 2017-based LTCH market basket (85 FR 58919).

b. Price Proxies for the Capital Portion of the Proposed 2022-Based LTCH Market Basket

(1) Capital Price Proxies Prior to Vintage Weighting

We propose to continue to use the same price proxies for the capital-related cost categories as were applied in the 2017-based LTCH market basket, which are provided in Table VIII.D-07 and described in this section of this rule. Specifically, we propose to proxy:

• Depreciation: Building and Fixed Equipment cost category by BEA's Chained Price Index for Nonresidential Construction for Hospitals and Special Care Facilities (BEA Table 5.4.4. Price Indexes for Private Fixed Investment in Structures by Type).
• Depreciation: Movable Equipment cost category by the PPI Commodity for Machinery and Equipment (BLS series code WPU11).
• Nonprofit Interest cost category by the average yield on domestic municipal bonds (Bond Buyer 20-bond index).
• For-profit Interest cost category by the average yield of the iBoxx AAA Corporate Bond Yield index.
• Other Capital-Related cost category by the CPI-U for Rent of Primary Residence (BLS series code CUUS0000SEHA).

We believe these are the most appropriate proxies for LTCH capital-related costs that meet our selection criteria of relevance, timeliness, availability, and reliability. We are also proposing to continue to vintage weight the capital price proxies for Depreciation and Interest in order to capture the long-term consumption of capital. This vintage weighting method is similar to the method used for the 2017-based LTCH market basket and is described in section VIII.D.4.b.(2). of the preamble of this proposed rule.

(2) Vintage Weights for Price Proxies

Because capital is acquired and paid for over time, capital-related expenses in any given year are determined by both past and present purchases of physical and financial capital. The vintage-weighted capital-related portion of the proposed 2022-based LTCH market basket is intended to capture the long-term consumption of capital, using vintage weights for depreciation (physical capital) and interest (financial capital). These vintage weights reflect the proportion of capital-related purchases attributable to each year of the expected life of building and fixed equipment, movable equipment, and interest. We propose to use vintage weights to compute vintage-weighted price changes associated with depreciation and interest expenses.

Capital-related costs are inherently complicated and are determined by complex capital-related purchasing decisions, over time, based on such factors as interest rates and debt financing. In addition, capital is depreciated over time instead of being consumed in the same period it is purchased. By accounting for the vintage nature of capital, we are able to provide an accurate and stable annual measure of price changes. Annual nonvintage price changes for capital are unstable due to the volatility of interest rate changes and, therefore, do not reflect the actual annual price changes for LTCH capital-related costs. The capital-related component of the proposed 2022-based LTCH market basket reflects the underlying stability of the capital-related acquisition process.

The methodology used to calculate the vintage weights for the proposed 2022-based LTCH market basket is the same as that used for the 2017-based LTCH market basket with the only difference being the inclusion of more recent data. To calculate the vintage weights for depreciation and interest expenses, we first need a time series of capital-related purchases for building and fixed equipment and movable equipment. We found no single source that provides an appropriate time series of capital-related purchases by hospitals for all of the previously mentioned components of capital purchases. The early Medicare cost reports did not have sufficient capital-related data to meet this need. Data we obtained from the American Hospital Association (AHA) do not include annual capital-related purchases. However, the AHA does provide a consistent database of total expenses from 1963 to 2020—the latest available data. Consequently, we propose to use data from the AHA Panel Survey and the AHA Annual Survey to obtain a time series of total expenses for hospitals. We are also proposing to use data from the AHA Panel Survey supplemented with the ratio of depreciation to total hospital expenses obtained from the Medicare cost reports to derive a trend of annual depreciation expenses for 1963 through 2020. We propose to separate these depreciation expenses into annual amounts of building and fixed equipment depreciation and movable equipment depreciation as previously determined. From these annual depreciation amounts we derive annual end-of-year book values for building and fixed equipment and movable equipment using the expected life for each type of asset category. While data are not available that are specific to LTCHs, we believe this information for all hospitals serves as a reasonable proxy for the pattern of depreciation for LTCHs.

To continue to calculate the vintage weights for depreciation and interest expenses, we also needed to account for the expected lives for building and fixed equipment, movable equipment, and interest for the proposed 2022-based LTCH market basket. We propose to calculate the expected lives using Medicare cost report data for LTCHs. The expected life of any asset can be determined by dividing the value of the asset (excluding fully depreciated assets) by its current year depreciation amount. This calculation yields the estimated expected life of an asset if the rates of depreciation were to continue at current year levels, assuming straight-line depreciation. Using this proposed method, we determined the average expected life of building and fixed equipment to be equal to 16 years, and the average expected life of movable equipment to be equal to 9 years. For the expected life of interest, we believe that vintage weights for interest should represent the average expected life of building and fixed equipment because, based on previous research described in the FY 1997 IPPS final rule (61 FR 46198), the expected life of hospital debt instruments and the expected life of buildings and fixed equipment are similar. We note that for the 2017-based LTCH-specific market basket, we derived an expected average life of building and fixed equipment of 18 years and an expected average life of movable equipment of 9 years (85 FR 58920).

Multiplying these expected lives by the annual depreciation amounts results in annual year-end asset costs for building and fixed equipment and movable equipment. Then we calculated a time series, beginning in 1964, of annual capital purchases by subtracting the previous year's asset costs from the current year's asset costs.

For the building and fixed equipment and movable equipment vintage weights, we propose to use the real annual capital-related purchase amounts for each asset type to capture the actual amount of the physical acquisition, net of the effect of price inflation. These real annual capital-related purchase amounts are produced by deflating the nominal annual purchase amount by the associated price proxy as previously provided. For the interest vintage weights, we propose to use the total nominal annual capital-related purchase amounts to capture the value of the debt instrument (including, but not limited to, mortgages and bonds). Using these capital-related purchase time series specific to each asset type, we propose to calculate the vintage weights for building and fixed equipment, for movable equipment, and for interest.

The vintage weights for each asset type are deemed to represent the average purchase pattern of the asset over its expected life (in the case of building and fixed equipment and interest, 16 years, and in the case of movable equipment, 9 years). For each asset type, we used the time series of annual capital-related purchase amounts available from 2020 back to 1964. These data allow us to derive forty-two 16-year periods of capital-related purchases for building and fixed equipment and interest, and forty-nine 9-year periods of capital-related purchases for movable equipment. For each 16-year period for building and fixed equipment and interest, or 9-year period for movable equipment, we propose to calculate annual vintage weights by dividing the capital-related purchase amount in any given year by the total amount of purchases over the entire 16-year or 9-year period. This calculation is done for each year in the 16-year or 9-year period and for each of the periods for which we have data. Then we are proposing to calculate the average vintage weight for a given year of the expected life by taking the average of these vintage weights across the multiple periods of data.

The vintage weights for the capital-related portion of the proposed 2022-based LTCH market basket and the 2017-based LTCH market basket are presented in Table EEEE 6.

The process of creating vintage-weighted price proxies requires applying the vintage weights to the price proxy index where the last applied vintage weight in Table VIII.D-06 is applied to the most recent data point. We have provided on the CMS website an example of how the vintage weighting price proxies are calculated, using example vintage weights and example price indices. The example can be found at the following link: http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/MedicareProgramRatesStats/MarketBasketResearch.html in the zip file titled “Weight Calculations as described in the IPPS FY 2010 Proposed Rule.”

c. Summary of Price Proxies of the Proposed 2022-Based LTCH Market Basket

Table VIII.D-07 shows both the operating and capital price proxies for the proposed 2022-based LTCH market basket.

5. Proposed FY 2025 Market Basket Update for LTCHs

For FY 2025 (that is, October 1, 2024 through September 30, 2025), we propose to use an estimate of the proposed 2022-based LTCH market basket to update payments to LTCHs based on the best available data. Consistent with historical practice, we estimate the LTCH market basket update for the LTCH PPS based on IHS Global, Inc.'s (IGI) forecast using the most recent available data. IGI is a nationally recognized economic and financial forecasting firm with which CMS contracts to forecast the components of the market baskets and total factor productivity (TFP).

Based on IGI's fourth quarter 2023 forecast with history through the third quarter of 2023, the projected market basket update for FY 2025 is 3.2 percent. This projected 2022-based LTCH market basket update reflects an increase in compensation prices (proxied by the ECIs for All Civilian workers in Hospitals) of 3.7 percent. IGI's forecast of the ECIs considers overall labor market conditions (including rise in contract labor employment due to tight labor market conditions) as well as trends in contract labor wages, which both have an impact on wage pressures for workers employed directly by the hospital.

We would note that the 10-year historical average (FY 2014 through FY 2023) growth rate of the proposed 2022-based LTCH market basket is 2.7 percent with a 10-year historical average growth rate of compensation prices equal to 2.9 percent over this same time period. Consistent with our historical practice of estimating market basket increases based on the best available data, we are proposing a market basket update of 3.2 percent for FY 2025. Furthermore, because the proposed FY 2025 annual update is based on the most recent market basket estimate for the 12-month period (currently 3.2 percent), we also are proposing that if more recent data become subsequently available (for example, a more recent estimate of the market basket), we would use such data, if appropriate, to determine the FY 2025 annual update in the final rule. (The proposed annual update to the LTCH PPS standard payment rate for FY 2025 is discussed in greater detail in section V.A.2. of the Addendum to this proposed rule.)

Using the current 2017-based LTCH market basket and IGI's fourth quarter 2023 forecast for the market basket components, the FY 2025 market basket update would be 3.1 percent (before taking into account any statutory adjustment). Therefore, the update based on the proposed 2022-based LTCH market basket is currently projected to be 0.1 percentage point higher for FY 2025 compared to the current 2017-based LTCH market basket. This higher update is primarily due to the higher Compensation cost weight in the proposed 2022-based market basket (61.8 percent) compared to the 2017-based LTCH market basket (53.2 percent). This is partially offset by the lower cost weight associated with All Other Services (such as Professional Fees and Installation, Maintenance, and Repair Services) for the proposed 2022-based LTCH market basket relative to the 2017-based LTCH market basket. Table VIII.D-08 compares the proposed 2022-based LTCH market basket and the 2017-based LTCH market basket percent changes.

Over the historical time period covering FY 2020 through FY 2023, the average growth rate of the proposed 2022-based LTCH market basket is the same as the average growth rate of the 2017-based LTCH market basket. Over the forecasted time period covering FY 2024 through FY 2027, the average growth rate of the proposed 2022-based LTCH market basket is 0.1 percentage point higher than the average growth rate of the 2017-based LTCH market basket. This is driven by higher projected growth for FY 2024 and FY 2025 for the proposed 2022-based LTCH market basket, which is primarily a result of the higher proposed Compensation cost weight combined with faster projected growth in Compensation prices for FY 2024 and FY 2025 relative to projected prices for All Other Services. In FY 2026 and FY 2027 prices for these two aggregate cost categories are projected to grow at similar rates.

6. Proposed FY 2025 Labor-Related Share

As discussed in section V.B. of the Addendum to this proposed rule, under the authority of section 123 of the BBRA as amended by section 307(b) of the BIPA, we established an adjustment to the LTCH PPS payments to account for differences in LTCH area wage levels (§ 412.525(c)). The labor-related portion of the LTCH PPS standard Federal payment rate, hereafter referred to as the labor-related share, is adjusted to account for geographic differences in area wage levels by applying the applicable LTCH PPS wage index. The labor-related share is determined by identifying the national average proportion of total costs that are related to, influenced by, or vary with the local labor market. As discussed in more detail in this section of this rule and similar to the 2017-based LTCH market basket, we classify a cost category as labor-related and include it in the labor-related share if the cost category is defined as being labor-intensive and its cost varies with the local labor market. As stated in the FY 2024 IPPS/LTCH PPS final rule (88 FR 58988), the labor-related share for FY 2024 was defined as the sum of the FY 2024 relative importance of Wages and Salaries; Employee Benefits; Professional Fees: Labor-Related Services; Administrative and Facilities Support Services; Installation, Maintenance, and Repair Services; All Other: Labor-related Services; and a portion of the Capital-Related Costs from the 2017-based LTCH market basket.

We propose to continue to classify a cost category as labor-related if the costs are labor-intensive and vary with the local labor market. Given this, based on our definition of the labor-related share and the cost categories in the proposed 2022-based LTCH market basket, we propose to include in the labor-related share for FY 2025 the sum of the FY 2025 relative importance of Wages and Salaries; Employee Benefits; Professional Fees: Labor-Related; Administrative and Facilities Support Services; Installation, Maintenance, and Repair Services; All Other: Labor-Related Services; and a portion of the Capital-Related cost weight from the proposed 2022-based LTCH market basket.

Similar to the 2017-based LTCH market basket, the proposed 2022-based LTCH market basket includes two cost categories for nonmedical Professional fees (including but not limited to, expenses for legal, accounting, and engineering services). These are Professional Fees: Labor-Related and Professional Fees: Nonlabor-Related. For the proposed 2022-based LTCH market basket, we propose to estimate the labor-related percentage of non-medical professional fees (and assign these expenses to the Professional Fees: Labor-Related services cost category) based on the same method that was used to determine the labor-related percentage of professional fees in the 2017-based LTCH market basket.

As was done for the 2017-based LTCH market basket, we propose to determine the proportion of legal, accounting and auditing, engineering, and management consulting services that meet our definition of labor-related services based on a survey of hospitals conducted by CMS in 2008. We notified the public of our intent to conduct this survey on December 9, 2005 (70 FR 73250) and did not receive any public comments in response to the notice (71 FR 8588). A discussion of the composition of the survey and post-stratification can be found in the FY 2010 IPPS/LTCH PPS final rule (74 FR 43850 through 43856). Based on the weighted results of the survey, we determined that hospitals purchase, on average, the following portions of contracted professional services outside of their local labor market:

• 34 percent of accounting and auditing services.
• 30 percent of engineering services.
• 33 percent of legal services.
• 42 percent of management consulting services.

For the proposed 2022-based LTCH market basket, we propose to apply each of these percentages to the respective 2017 Benchmark I-O cost category underlying the professional fees cost category to determine the Professional Fees: Nonlabor-Related costs. The Professional Fees: Labor-Related costs were determined to be the difference between the total costs for each Benchmark I-O category and the Professional Fees: Nonlabor-Related costs. This is the same methodology that we used to separate the 2017-based LTCH market basket professional fees category into Professional Fees: Labor-Related and Professional Fees: Nonlabor-Related cost categories.

Effective for transmittal 18 ( https://www.cms.gov/Regulations-and-Guidance/Guidance/Transmittals/Transmittals/r18p240i), the hospital Medicare Cost Report (CMS Form 2552-10, OMB No. 0938-0050) is collecting information on whether a hospital purchased professional services (for example, legal, accounting, tax preparation, bookkeeping, payroll, advertising, and/or management/consulting services) from an unrelated organization and if the majority of these expenses were purchased from unrelated organizations located outside of the main hospital's local area labor market. We encourage all providers to provide this information so we can potentially use these more recent data in future rulemaking to determine the labor-related share.

In the proposed 2022-based LTCH market basket, nonmedical professional fees that were subject to allocation based on these survey results represent approximately 3.6 percent of total costs (and are limited to those fees related to Accounting and Auditing, Legal, Engineering, and Management Consulting services). Based on our survey results, we propose to apportion approximately 2.3 percentage points of the 3.6 percentage point figure into the Professional Fees: Labor-Related cost category and designate the remaining approximately 1.3 percentage points into the Professional Fees: Nonlabor-Related cost category.

In addition to the professional services as previously listed, for the 2022-based LTCH market basket, we propose to allocate a proportion of the Home Office/Related Organization Contract Labor cost weight, calculated using the Medicare cost reports as previously stated, into the labor-related and nonlabor-related cost categories. We propose to classify these expenses as labor-related and nonlabor-related as many facilities are not located in the same geographic area as their home office and, therefore, do not meet our definition for the labor-related share that requires the services to be purchased in the local labor market.

Similar to the 2017-based LTCH market basket, we propose for the 2022-based LTCH market basket to use the Medicare cost reports for LTCHs to determine the home office labor-related percentages. The Medicare cost report requires a hospital to report information regarding their home office provider. Using information on the Medicare cost report, we compare the location of the LTCH with the location of the LTCH's home office. We propose to classify a LTCH with a home office located in their respective labor market if the LTCH and its home office are located in the same Metropolitan Statistical Area (MSA). Then we determine the proportion of the Home Office/Related Organization Contract Labor cost weight that should be allocated to the labor-related share based on the percent of total Home Office/Related Organization Contract Labor costs for those LTCHs that had home offices located in their respective MSA of total Home Office/Related Organization Contract Labor costs for LTCHs with a home office. We determined a LTCH's and its home office's MSA using their zip code information from the Medicare cost report. Using this methodology with the 2022 Medicare cost reports, we determined that 4 percent of LTCHs' Home Office/Related Organization Contract Labor costs were for home offices located in their respective MSA, or local labor markets. Therefore, we are allocating 4 percent of the Home Office/Related Organization Contract Labor cost weight (0.1 percentage point = 3.7 percent × 4 percent) to the Professional Fees: Labor-Related cost weight and 96 percent of the Home Office/Related Organization Contract Labor cost weight to the Professional Fees: Nonlabor-Related cost weight (3.6 percentage points = 3.7 percent × 96 percent). For comparison, for the 2017-based LTCH market basket we also allocated 4 percent of the Home Office/Related Organization Contract Labor cost weight to the Professional Fees: Labor-Related cost weight (85 FR 58924).

In summary, based on the two allocations mentioned earlier, we apportioned 2.4 percentage points (2.3 percentage points + 0.1 percentage point) of the Professional Fees and Home Office/Related Organization Contract Labor cost weights into the Professional Fees: Labor-Related cost category. This amount was added to the portion of professional fees that we already identified as labor-related using the I-O data such as contracted advertising and marketing costs (approximately 0.6 percentage point of total costs) resulting in a total Professional Fees: Labor-Related cost weight of 3.0 percent.

As previously stated, we propose to include in the labor-related share the sum of the relative importance of Wages and Salaries; Employee Benefits; Professional Fees: Labor-Related; Administrative and Facilities Support Services; Installation, Maintenance, and Repair Services; All Other: Labor-Related Services; and a portion of the Capital-Related cost weight from the proposed 2022-based LTCH market basket. The relative importance reflects the different rates of price change for these cost categories between the base year (2022) and FY 2025. Based on IGI's fourth quarter 2023 forecast of the proposed 2022-based LTCH market basket, the sum of the FY 2025 relative importance for operating costs (Wages and Salaries, Employee Benefits, Professional Fees: Labor-Related, Administrative and Facilities Support Services, Installation Maintenance and Repair Services, and All Other: Labor-Related Services) is 68.9 percent. The portion of Capital costs that is estimated to be influenced by the local labor market is 46 percent, which is the same percentage applied to the 2017-based LTCH market basket. Since the relative importance for Capital is 8.4 percent of the proposed 2022-based LTCH market basket in FY 2025, we took 46 percent of 8.4 percent to determine the proposed labor-related share of Capital for FY 2025 of 3.9 percent. Therefore, we are proposing a total labor-related share for FY 2025 of 72.8 percent (the sum of 68.9 percent for the operating cost and 3.9 percent for the labor-related share of Capital). Table VIII.D-09 shows the FY 2025 labor-related share using the proposed 2022-based LTCH market basket relative importance and the FY 2024 labor-related share using the 2017-based LTCH market basket.

The total difference between the FY 2025 labor-related share using the proposed 2022-based LTCH market basket (72.8 percent) and the FY 2024 labor-related share using the 2017-based LTCH market basket (68.5 percent) is 4.3 percentage points and this difference is primarily attributable to the revision to the base year cost weights for those categories included in the labor-related share. The 4.3 percentage points revision to the base year cost weights is a result of: (1) an 8.6 percentage points upward revision to the base year Compensation cost weight, which is derived using the LTCH Medicare cost report data; (2) a 3.6 percentage points downward revision in the base year labor-related categories associated with incorporating the 2017 Benchmark I-O data; and (3) a 0.7 percentage point downward revision in the base year labor-related portion of capital costs, which is derived using the LTCH Medicare cost report data.

IX. Proposed Quality Data Reporting Requirements for Specific Providers

A. Overview

In section IX. of the preamble of this proposed rule, we are seeking comment on and proposing changes to the following Medicare quality reporting programs:

• In section IX.B. of the preamble of this proposed rule, we have the following crosscutting quality program proposals or request for comment:

++ Proposed Adoption of the Patient Safety Structural Measure in the Hospital IQR Program and PCHQR Program.

++ Proposed Modification to the Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) Survey in the Hospital IQR Program, Hospital VBP Program, and PCHQR Program.

++ Advancing Patient Safety and Outcomes Across the Hospital Quality Programs—Request for Comment.

• In section IX.C. of the preamble of this proposed rule, the Hospital IQR Program.
• In section IX.D. of the preamble of this proposed rule, the PCHQR Program.
• In section IX.E. of the preamble of this proposed rule, the LTCH QRP.
• In section IX.F. of the preamble of this proposed rule, the Medicare Promoting Interoperability Program for Eligible Hospitals and Critical Access Hospitals (CAHs) (previously known as the Medicare EHR Incentive Program).

B. Crosscutting Quality Program Proposals and Request for Comment

1. Proposed Adoption of the Patient Safety Structural Measure Beginning With the CY 2025 Reporting Period/FY 2027 Payment Determination for the Hospital Inpatient Quality Reporting (IQR) Program and the CY 2025 Reporting Period/FY 2027 Program Year for the PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) Program

a. Background

A foundational commitment of providing healthcare services is to ensure safety, as embedded in the centuries-old Hippocratic Oath, “First, do no harm.” Yet, the landmark reports To Err is Human and Crossing the Quality Chasm surfaced major deficits in healthcare quality and safety. These reports resulted in widespread awareness of the alarming prevalence of patient harm and, over the past two decades, healthcare facilities implemented various interventions and strategies to improve patient safety, with some documented successes. However, progress has been slow, and preventable harm to patients in the clinical setting resulting in significant morbidity and mortality remains common. A recent systematic analysis of literature concluded that preventable mortality among inpatients results in approximately 22,165 preventable deaths annually. In another recent study, researchers identified adverse events in almost one-quarter of admissions and showed that more than one-fifth were deemed preventable and almost one-third were considered serious (that is, caused harm that required intervention or prolonged recovery).

Despite established patient safety protocols and quality measures, the COVID-19 public health emergency (PHE) strained the healthcare system substantially, introducing new safety risks and negatively impacting patient safety in the normal delivery of care. Since the onset of the COVID-19 PHE, the U.S. has seen marked declines in patient safety metrics, as evidenced by considerable increases in healthcare-associated infections (HAIs). Studies found that central line-associated blood stream infections (CLABSIs) in hospitals were 60 percent higher than predicted in the absence of COVID-19, catheter-associated urinary tract infections (CAUTIs) were 43 percent higher, and methicillin-resistant Staphylococcus aureus (MRSA) bacteremia infections were 44 percent higher. Studies have shown that these results were likely due at least in part to disrupted routine infection control practices during the COVID-19 pandemic. Notably, recent reports demonstrate that some HAI rates have begun to decrease towards pre-pandemic levels as the U.S. saw a 9 percent overall decrease in CLABSI, a 12 percent overall decrease in CAUTI and a 16 percent overall decrease in hospital onset MRSA bacteremia between 2021 and 2022 in acute care hospital settings.

As healthcare facilities struggled to address the challenges posed by the COVID-19 PHE, safety gaps and risks in healthcare delivery were illuminated, revealing a lack of resiliency in the healthcare system. Beyond HAIs, other preventable types of patient harm that were brought to the forefront by the COVID-19 PHE include occurrences of pressure injuries and patient falls among hospitalized patients.

In addition to safety issues illuminated during the COVID-19 PHE, two other key patient safety indicators that are worth noting for their prevalence are postoperative respiratory failure and acute kidney injuries (AKI).

While the COVID-19 PHE may have disrupted routine infection control practices, these key patient safety indicators nevertheless show the importance of addressing gaps in safety in order to save lives, provide equitable medical care, and ensure that the U.S. healthcare system is resilient enough to withstand future challenges. Now is the time to recommit to better safety practices for both patients and healthcare workers, establish new protocols, and implement early interventions that will save many lives from preventable harms.

To accomplish these goals, the federal government is taking a multi-pronged approach to improve safety and reduce preventable harm to patients. The Agency for Healthcare Research and Quality (AHRQ), on behalf of HHS, has established the National Action Alliance to Advance Patient and Workforce Safety as a public-private collaboration to improve both patient and workforce safety. As described by AHRQ, the National Action Alliance is a partnership between HHS and its Federal agencies and private stakeholders, including healthcare systems, clinicians, allied health professionals, patients, families, caregivers, professional societies, patient and workforce safety advocates, the digital healthcare sector, health services researchers, employers, and payors interested in recommitting the U.S. to advancing patient and workforce safety to move toward zero harm in healthcare.

In September 2023, the President's Council of Advisors on Science and Technology (PCAST) published the “Report to the President: A Transformational Effort on Patient Safety,” with a call to action to renew “our nation's commitment to improving patient safety.” The PCAST report put forth the following recommendations as a part of the call to action: (1) Establish and maintain Federal leadership for the improvement of patient safety as a national priority; (2) Ensure that patients receive evidence-based practices for preventing harm and addressing risks; (3) Partner with patients and reduce disparities in medical errors and adverse outcomes; and (4) Accelerate research and deployment of practices, technologies, and exemplar systems of safe care.

As part of this national recommitment to safety in healthcare, we are promoting the use of safety measures throughout our quality programs to identify and measure quality gaps and processes, and to make that information transparent and available to the public. Effective measurement is paramount to monitoring harm events, identifying key gaps, and tracking progress toward safer, more reliable care. Within CMS' hospital quality measurement programs, there are a number of outcome and process measures in use that capture specific conditions or procedures such as the Severe Sepsis and Septic Shock: Management Bundle measure, Patient Safety and Adverse Events Composite measure, Severe Obstetric Complications electronic clinical quality measure (eCQM), and the Safe Use of Opioids—Concurrent Prescribing eCQM. While these metrics are important, they are not sufficient by themselves to measure and incentivize investment in a resilient safety culture or the infrastructure necessary for sustainable high performance within the broad and complex domain of patient safety. The systems-level approach to patient safety maintains that errors and accidents in medical care are a reflection of system-level failures, rather than failings on the part of individuals. There is a strong alignment among patient safety experts to shift to a more holistic, proactive, systems-based approach to patient safety. While each of our existing measures address processes and outcomes that encourage providers to improve patient safety for specific conditions or related to specific treatments, these measures do not address the overall culture in which the care is provided. Including a systems-level measure would contribute to a culture that improves performance on these individual metrics as well as improves safety for all care provided within the hospital.

To drive action and improvements in safety and address this gap in systems-level measurement for safety within the Hospital IQR and PCHQR Programs, we are proposing the adoption of the Patient Safety Structural measure, a new attestation-based measure that assesses whether hospitals demonstrate a structure, culture, and leadership commitment that prioritize safety. The Patient Safety Structural measure includes five complementary domains, each containing a related set of statements that aim to capture the most salient, evidenced-based, structural and cultural elements of safety. This measure is intended to be a foundational measure and designed to assess hospital implementation of a systems-based approach to safety best practices, as demonstrated by: leaders who prioritize and champion safety; organizational policies, protocols, goals, and metrics reflecting safety as a core value; a diverse group of patients and families meaningfully engaged with healthcare providers as partners in safety; practices indicative of a culture of safety; accountability and transparency in addressing adverse events; and continuous learning and improvement. This Patient Safety Structural measure is informed by the PCAST recommendations, Safer Together: The National Action Plan to Advance Patient Safety , developed by the National Steering Committee for Patient Safety convened by the Institute for Healthcare Improvement (IHI), as well as scientific evidence from existing patient safety literature, and detailed input from patient safety experts, advocates, and patients. Combining this leadership level structural measure with other high priority safety outcome measures would result in a robust and complementary patient safety measure set.

We note that other safety measure adoption proposals in this FY 2025 IPPS/LTCH PPS proposed rule complement the goals we have outlined for the Patient Safety Structural measure. Interested parties are encouraged to review our proposals to adopt measures for Hospital Harm—Falls with Injury (section IX.C.5.c of the preamble of this proposed rule), Hospital Harm—Postoperative Respiratory Failure (section IX.C.5.b of the preamble of this proposed rule), and the adoption of two healthcare-associated infection measures (section IX.C.5.d of the preamble of this proposed rule).

b. Measure Alignment to Strategy

In addition to the other Federal safety initiatives noted previously, this measure also aligns with the CMS National Quality Strategy. Specifically, the CMS National Quality Strategy identifies four priority areas and eight goals, each with an identified objective, success target, and initial action steps for advancing a “high-quality, safe, equitable, and resilient health care system for all individuals.” The Patient Safety Structural measure addresses the priority area Safety and Resiliency, and aligns with the goals to enable a responsive and resilient healthcare system to improve quality and to achieve zero preventable harm. For example, attestation statements within the measure require hospitals to confirm if their strategic plan includes publicly sharing their commitment to patient safety as a core value and outlines specific safety goals and associated metrics, including the goal of “zero preventable harm.”

This measure aligns with our efforts under the CMS National Quality Strategy's goal of advancing equity and whole-person care. As stated in the measure attestation under Domain 2: Strategic Planning & Organizational Policy (see Table VIII.B.1-01 of this proposed rule), “Patient safety and equity in care are inextricable, and therefore equity, with the goal of safety for all individuals, must be embedded in safety planning, goal-setting, policy and processes.” This measure furthers a patient-centered approach by promoting conversations on equity among hospital staff, leadership, and patients and caregivers that take into account the diverse communities served by participants in CMS programs and the particular needs of each hospital's own community.

The measure also aligns with our Meaningful Measures Framework, which identifies high-priority areas for quality measurement and improvement to assess core issues most critical to high-quality healthcare and improving patient outcomes. In 2021, we launched Meaningful Measures 2.0 to promote innovation and modernization of all aspects of quality, and to address a wide variety of settings, interested parties, and measure requirements. The Patient Safety Structural measure supports these efforts and is aligned with the Meaningful Measures Area of “Safety” and the Meaningful Measures 2.0 goal to “Ensure Safe and Resilient Health Care Systems.” This measure also supports the Meaningful Measures 2.0 priority to “promote a safety culture within a health care organization.” This attestation measure focused on patient safety policies, processes, and activities aims to help hospitals better understand priorities for improving safety and serve as a prompt for action to invest in the infrastructure and safety culture necessary to reduce preventable harm to patients. When measure results are made public, patients and families would be able to make informed decisions on what facilities are best for them.

c. Pre-Rulemaking Process and Measure Endorsement

As required under section 1890A of the Act, the Consensus-Based Entity (CBE), currently Battelle, established the Partnership for Quality Measurement (PQM) to convene members comprised of clinicians, patients, measure experts, and health information technology specialists, to participate in the pre-rulemaking process and the measure endorsement process. The pre-rulemaking process, which we refer to as the Pre-Rulemaking Measure Review (PRMR), includes a review of measures published on the publicly available list of Measures Under Consideration (MUC List), by one of several committees convened by the PQM, for the purpose of providing multi-stakeholder input to the Secretary on the selection of quality and efficiency measures under consideration for use in certain Medicare quality programs, including the PCHQR and Hospital IQR Programs. The PRMR process includes opportunities for public comment through a 21-day public comment period, as well as public listening sessions. The PQM posts the compiled comments and listening session inputs received during the public comment period and the listening sessions within 5 days of the close of the public comment period. More details regarding the PRMR process may be found in the PQM Guidebook of Policies and Procedures for Pre-Rulemaking Measure Review and Measure Set Review, including details of the measure review processes in Chapter 3.

The CBE-established PQM also conducts the measure endorsement and maintenance (E&M) process to ensure a measure submitted for endorsement is evidence-based, reliable, valid, verifiable, relevant to enhanced health outcomes, actionable at the caregiver level, feasible to collect and report, and responsive to variations in patient characteristics—such as health status, language capabilities, race or ethnicity, and income level—and is consistent across types of health care providers, including hospitals and physicians (see section 1890(b)(2) of the Act). The PQM convenes several E&M project groups twice yearly, formally called the E&M Committees, each comprised of an E&M Advisory Group and an E&M Recommendations Group, to vote on whether a measure meets certain quality measure criteria. More details regarding the E&M process may be found in the PQM Endorsement and Maintenance (E&M) Guidebook, including details of the measure endorsement process in the section titled, “Endorsement and Review Process.”

For the voting procedures of the PRMR and E&M processes, the PQM utilizes the Novel Hybrid Delphi and Nominal Group (NHDNG) multi-step process, which is an iterative consensus-building approach aimed at a minimum of 75 percent agreement among voting members, rather than a simple majority vote, and supports maximizing the time spent to build consensus by focusing discussion on measures where there is disagreement. For example, the PRMR Hospital Recommendation Group can reach consensus and have the following voting results: (A) Recommend, (B) Recommend with conditions (with 75 percent of the votes casted as recommend with conditions or 75 percent between recommend and recommend with conditions), and (C) Do not recommend. If no voting category reaches 75 percent or greater (including the combined [A] recommend and [B] recommend with conditions), the PRMR Hospital Recommendation Group did not come to consensus and the voting result is `Consensus not reached.' Consensus not reached signals continued disagreement amongst the committee despite being presented with perspectives from public comment, committee member feedback and discussion, and highlights the multi-faceted assessments of quality measures. More details regarding the PRMR voting procedures may be found in Chapter 4 of the PQM Guidebook of Policies and Procedures for Pre-Rulemaking Measure Review and Measure Set Review. More details regarding the E&M voting procedures may be found in the PQM Endorsement and Maintenance (E&M) Guidebook.

(1) Recommendation From the Pre-Rulemaking and Measure Review Process

As part of the PRMR process, the PRMR Hospital Recommendation Group reviewed the Patient Safety Structural measure (MUC2023-188) during a meeting on January 18 and 19, 2024. The Patient Safety Structural measure was included for consideration in the Hospital IQR and PCHQR Programs on the publicly available “2023 Measures Under Consideration List” (MUC List).

The voting results of the PRMR Hospital Recommendation Group for the Patient Safety Structural measure for the Hospital IQR Program were: eight members of the group recommended adopting the measure into the Hospital IQR Program without conditions; five members recommended adoption with conditions; three committee members voted not to recommend the measure for adoption. Additionally, nine members of the group recommended adopting the measure into the PCHQR Program without conditions; four members recommended adoption with conditions; three committee members voted not to recommend the measure for adoption. Taken together, 81.3 percent of the votes were recommended with conditions for each program. Thus, the committee reached consensus and recommended the Patient Safety Structural measure for the Hospital IQR Program and the PCHQR Program with conditions.

As mentioned previously, five members of the voting committee recommended the adoption of this measure into the Hospital IQR Program with conditions and four members of the voting committee recommended the adoption of this measure into the PCHQR Program with conditions. Those conditions were: the publication of an implementation guide that clearly documents how safety is to be measured; and using data to narrow the scope before approving the measure for programs. An attestation guide will be available at the time of the publication of this proposal. Data obtained from the measure's national use would allow us to evaluate the effectiveness of, and the potential to narrow the future scope of, the proposed attestations. Therefore, we are proposing this measure for adoption because we have adequately addressed the conditions raised by the PRMR Hospital Recommendations Group.

In addition to the formal voting results on the adoption of the Patient Safety Structural measure, we note that the majority of public comments received on this measure during the PRMR process were supportive, with 91 out of 97 public comments (94%) either supporting (81) adoption or supporting adoption with conditions (10). Comments in support of this proposal included the need for a zero preventable harm goal, robust hospital leadership, developing trust through transparency, and the involvement of patients and their families in safety work. We thank the large number of patients, family members, and other interested parties who publicly participated in the PRMR process.

(2) Endorsement and Measure Review

We are proposing to adopt this measure into the Hospital IQR Program and the PCHQR Program despite the measure not being endorsed by the CBE. Section 1886(b)(3)(B)(viii)(IX)(aa) of the Act requires that each measure specified by the Secretary for use in the Hospital IQR Program be endorsed by the entity with a contract under section 1890(a) of the Act, and section 1866(k)(3)(A) of the Act imposes the same requirement for measures specified for use in the PCHQR Program. Sections 1886(b)(3)(B)(viii)(IX)(bb) and 1866(k)(3)(B) of the Act state, however, that in the case of a specified area or medical topic determined appropriate by the Secretary for which a feasible and practical measure has not been endorsed by the entity with a contract under section 1890(a) of the Act, the Secretary may specify a measure that is not so endorsed as long as due consideration is given to a measure that has been endorsed or adopted by a consensus organization identified by the Secretary.

We reviewed measures endorsed by both the CBE which currently holds the contract under section 1890(a) of the Act and measures endorsed by the entity which formerly held that contract and were unable to identify any other CBE-endorsed measures on strategies and practices to strengthen hospitals' systems and culture for safety. In light of the lack of endorsed measures on this specified area or medical topic, we have determined that it would be appropriate to use a measure that is not endorsed by the CBE. This measure is relevant to enhanced health outcomes. As described in the background section for this measure (section IX.B.1.a. of this proposed rule), medical errors and adverse events occur frequently and lead to adverse patient outcomes. This measure is designed to identify hospitals that practice a system-based approach to safety and embrace the importance of a safety culture. Demonstrating a structure, culture, and leadership commitment that prioritizes safety can improve care and outcomes for all patients. The validity, feasibility and relevance of the measure have been thoroughly vetted by a Technical Expert Panel (TEP) convened by a CMS contractor and comprised of thought leaders in the field. In response to the question of whether the domains capture the most important elements for advancing patient safety, most TEP members agreed that they do. Furthermore, the measure developers engaged the members of the TEP for their operational and clinical expertise to assure that each domain was actionable and measurable. As noted, the PRMR Hospital Committee received a total of 91 public comments expressing support for the Patient Safety Structural measure. Most commenters were patients and family members who described their individual experiences with the medical system and preventable harms to which they were exposed. These commenters then emphasized the importance of the Patient Safety Structural measure's intent and domains for improving patient safety related to these experiences. Due to the rigorous alignment with patient safety guidelines and literature as noted within the Background section of this proposal, as well as strong support from expert stakeholders, patients, and caregivers as noted above, we are confident that the foundational principles are sound, and the specifications are attainable, measurable, and actionable. We intend to submit the measure for future CBE endorsement.

d. Measure Overview

The Patient Safety Structural measure is a structural measure developed to assess how well hospitals have implemented strategies and practices to strengthen their systems and culture for safety. The Patient Safety Structural measure comprises a set of complementary statements (or, attestations) that aim to capture the most salient, systems-oriented actions to advance safety. These statements should exemplify a culture of safety and leadership commitment to transparency, accountability, patient and family engagement, and continuous learning and improvement. Table IX.B.1-01 includes the five attestation domains and the corresponding attestation statements.

e. Measure Calculation

The Patient Safety Structural measure consists of five domains, each representing a complementary but separate safety commitment. Each of the five domains include five related attestation statements. Hospitals would need to evaluate and determine whether they can affirmatively attest to each domain. For a hospital to affirmatively attest to a domain, and receive a point for that domain, a hospital would evaluate and determine whether it engaged in each of the statements that comprise the domain (see Table IX.B.1-01), for a total of five possible points (one point per domain). A hospital would not be able to receive partial points for a domain.

For example, for Domain 2 (“Strategic Planning & Organizational Policy”), a hospital would evaluate and determine whether it meets the statements related to its strategic plan (Statement A), its safety goals (Statement B), policies and protocols for a just culture (Statement C), a patient safety curriculum and competencies for all hospital staff (Statement D), and an action plan for workforce safety (Statement E) (see Table IX.B.1-01). If its plan meets all five of these statements, the hospital would attest “yes” to each of the 5 attestation statements and would receive one point for Domain 2. If, for example, its plan only meets Statement A and Statement B, but does not meet Statement C, Statement D, and Statement E, the hospital would attest “yes” to Statement A and Statement B, attest “no” to Statement C, Statement D, and Statement E, and receive zero points for Domain 2. The hospital's overall score for the Patient Safety Structural measure can range from a total of zero to five points. If a hospital is comprised of more than one acute care hospital facility under one CCN, all such facilities reporting under the same CCN would need to satisfy these criteria in order for the hospital to affirmatively attest and receive points.

For more details on the measure specifications and the attestation guide for the Hospital IQR Program, we refer readers to the Proposed Measures tab under the IQR Measures page on QualityNet at: https://qualitynet.com.gov/inpatient/iqr/proposedmeasures. For more details on the measure specifications for the PCHQR Program, we refer readers to the CMS Measures Inventory Tool (CMIT) with the file name “Patient Safety Structural Measure” at: https://cmit.cms.gov/cmit/#/.

f. Data Submission and Reporting

We are proposing that hospitals would be required to submit information for the Patient Safety Structural measure once annually using the data submission and reporting standard procedures set forth by the CDC for the National Healthcare Safety Network (NHSN). Presently, hospitals report measure data to the CDC NHSN on a monthly or quarterly basis, depending on the measure. Under the data submission and reporting process for the Patient Safety Structural measure, hospitals would be required to submit data once annually. We refer readers to the CDC's NHSN website ( https://www.cdc.gov/nhsn/index.html) for data submission and reporting procedures; information more specific to the Patient Safety Structural measure will be available through NHSN should this proposal be finalized. We refer readers to sections IX.C.9. and IX.D.4 of the preamble of this proposed rule for more details on our previously finalized data submission and deadline requirements for structural measures in the Hospital IQR Program and PCHQR Program, respectively. We further refer readers to sections IX.C.9. and IX.D.4 of the preamble of this proposed rule for more details on our previously finalized data submission requirements for measures submitted via the CDC NHSN in the Hospital IQR Program and PCHQR Program, respectively. We propose to adopt the Patient Safety Structural measure in the Hospital IQR Program beginning with the CY 2025 reporting period/FY 2027 payment determination and the PCHQR Program beginning with the CY 2025 reporting period/FY 2027 program year. Hospitals participating in the Hospital IQR Program and the PCHQR Program would satisfy their reporting requirement for the measure as long as they attest “yes” or “no” to each attestation statement in all five domains.

We are proposing to publicly report the hospital's measure performance score, which would range from 0 to 5 points, on an annual basis on Care Compare beginning in fall 2026 and on the Provider Data Catalog available at data.cms.gov for the PCHQR Program beginning in fall 2026.

We invite public comment on this proposal.

2. Proposal To Modify the Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) Survey Measure Beginning With the CY 2025 Reporting Period/FY 2027 Payment Determination for the Hospital IQR Program, the CY 2025 Reporting Period/FY 2027 Program Year for the PCHQR Program, and the FY 2030 Program Year for the Hospital VBP Program

a. Background

We refer readers to the FY 2024 IPPS/LTCH PPS final rule for our most recent updates to HCAHPS survey administration requirements and additional background information for the Hospital VBP Program, the Hospital IQR Program, and the PCHQR Program (88 FR 59083 through 59089, 88 FR 59196 through 59201, and 88 FR 59229 through 59232, respectively). For more details including information about patient eligibility for the HCAHPS Survey, please refer to the current HCAHPS Quality Assurance Guidelines, which can be found on the official HCAHPS website at: https://hcahpsonline.org/en/quality-assurance/.

The HCAHPS Survey measure (CBE #0166) asks recently discharged patients questions about aspects of their hospital inpatient experience that they are uniquely suited to respond to. The HCAHPS Survey as a whole is termed as a single “measure” for purposes of the Hospital IQR, PCHQR, and Hospital VBP Programs. We refer to the elements of the HCAHPS Survey that are publicly reported as “sub-measures” and to the questions within each sub-measure as survey “questions,” for the Hospital IQR and PCHQR Programs. Sub-measures are comprised of one, two, or three survey questions. For example, the sub-measure, “Overall Hospital Rating,” consists of one survey question and the sub-measure “Communication with Nurses” consists of three survey questions. In the Hospital VBP Program, the sub-measures of the HCAHPS Survey are referred to as “dimensions.” We refer readers to the HCAHPS On-Line website, www.HCAHPSonline.org, for a map of each question on the HCAHPS Survey and its sub-measures.

The current HCAHPS Survey measure consists of 29 survey questions that are organized into ten sub-measures in the Hospital IQR and PCHQR Programs, including 19 questions that ask “how often” or whether patients experienced a critical aspect of hospital care, rather than whether they were “satisfied” with their care. The current survey also includes three screener questions that direct patients to relevant questions, five questions to adjust for the mix of patients across hospitals, and two questions (race and ethnicity) that support Congressionally mandated reports outlined in the Healthcare Research and Quality Act of 1999. These components of the survey are used to construct the ten publicly reported HCAHPS Survey sub-measures in the Hospital IQR and PCHQR Programs. The survey questions are organized into eight dimensions in the Person and Community Engagement Domain for the Hospital VBP Program. We note that the Hospital VBP Program uses 8 dimensions while the Hospital IQR and PCHQR Programs use 10 sub-measures because “Cleanliness” and “Quietness” have been combined as a single dimension in the Hospital VBP Program for scoring purposes and the “Recommend Hospital” sub-measure is not included in the Hospital VBP Program. The rationale for combining these elements of the survey is described further in section IX.B.2.g(3) of the preamble of this proposed rule and can be found in the Hospital Inpatient VBP Program final rule (76 FR 26497 through 26526). The current HCAHPS Survey can be found at https://hcahpsonline.org/en/survey-instruments/.

b. Overview of Proposal To Modify the HCAHPS Survey Measure

The proposed updated HCAHPS Survey would result in a survey with 32 questions that make up a total of 11 sub-measures, with seven of those sub-measures being multi-question sub-measures and the other four sub-measures being single-question sub-measures. Four of the multi-question sub-measures and three of the single-question sub-measures in the updated version of the HCAHPS Survey would remain unchanged from those that are in the current version of the HCAHPS Survey. We outline the specific updates below. We are proposing to adopt the updated HCAHPS Survey for the Hospital IQR and PCHQR Programs in section IX.B.2.e of the preamble of this proposed rule. The updates would result in the ability to use nine dimensions for the Hospital VBP Program, and we are proposing to adopt those updates in the Hospital VBP Program in section IX.B.2.g of the preamble of this proposed rule.

We identified the need for the updates to the HCAHPS Survey through focus groups and cognitive interviews with patients and caregivers, discussions with technical experts, and literature reviews that were conducted by a CMS contractor who made recommendations to CMS. A literature scan was used to compile and review items from existing surveys, focusing on topics not covered in the current HCAHPS Survey. CMS, patient, and provider stakeholders reviewed the questions identified through the scan. Four patient focus groups were conducted to assign importance to and inform the further development of potential new questions, while also refining existing questions. This replicates the approach taken during the original development of the HCAHPS Survey. The focus groups included people with both planned and unplanned hospital stays, a variety of racial and ethnic groups, and both older and younger adults. The focus groups used both an exploratory and confirmatory approach to explore new topics and confirm the topics we had identified through the survey literature. The group discussion explored what it means to have a quality patient experience and what participants thought of their hospital stay—what went well and what went poorly. Group discussions were conducted in English and Spanish.

The findings from the focus group informed the development of the updates to the HCAHPS Survey questions, including the newly developed questions that were tested in cognitive interviews. Cognitive interviews were also conducted in English and in Spanish. Lastly, a CMS contractor also conducted a technical expert panel that provided feedback on the current survey content and the new content areas.

We have determined that adopting the proposed updated version of the HCAHPS Survey measure would amount to a minimal change in burden because the combination of removals and additions of survey questions would result in only an additional 45 seconds to complete the survey. The time required to complete the 32-question survey is estimated to average eight minutes. Additionally, prior to the removal of the “Communication About Pain” questions in the CY 2019 OPPS/ASC final rule (83 FR 59140 through 59149), the HCAHPS Survey previously included 32 questions. We refer readers to sections XII.B.4, XII.B.6, and XII.B.7 of the preamble of this proposed rule for more information on our estimated changes to the information collection burden.

The proposed adoption of the updated version of the HCAHPS Survey measure would not result in any changes to the survey administration, the data submission and reporting requirements, or the data collection protocols. The proposed updated version of the HCAHPS Survey measure includes three new sub-measures: the multi-item “Care Coordination” sub-measure, the multi-item “Restfulness of Hospital Environment” sub-measure, and the “Information About Symptoms” single-item sub-measure. The updated HCAHPS Survey measure also removes the existing “Care Transition” sub-measure and modifies the existing “Responsiveness of Hospital Staff” sub-measure. The seven new questions are as follows:

• During this hospital stay, how often were doctors, nurses and other hospital staff informed and up-to-date about your care?
• During this hospital stay, how often did doctors, nurses and other hospital staff work well together to care for you?
• Did doctors, nurses or other hospital staff work with you and your family or caregiver in making plans for your care after you left the hospital?
• During this hospital stay, how often were you able to get the rest you needed?
• During this hospital stay, did doctors, nurses and other hospital staff help you to rest and recover?
• During this hospital stay, when you asked for help right away, how often did you get help as soon as you needed?
• During this hospital stay, did doctors, nurses or other hospital staff give your family or caregiver enough information about what symptoms or health problems to watch for after you left the hospital?

As discussed more fully below, these new questions address aspects of hospital care identified by patients and then tested in the 2021 HCAHPS Survey large-scale mode experiment described in the FY 2024 IPPS/LTCH PPS final rule (88 FR 59196 through 59197) as important to measuring the quality of hospital care.

The proposed updated HCAHPS Survey measure would no longer include the following four questions:

• During this hospital stay, after you pressed the call button, how often did you get help as soon as you wanted it?
• During this hospital stay, staff took my preferences and those of my family or caregiver into account in deciding what my health care needs would be when I left.
• When I left the hospital, I had a good understanding of the things I was responsible for in managing my health.
• When I left the hospital, I clearly understood the purpose for taking each of my medications.

In the updated HCAHPS Survey measure, the question on the use of the call button is removed in response to hospital input indicating that call buttons have been replaced by other mechanisms (such as a direct phone line). The other questions are removed because they do not follow standard Consumer Assessment of Healthcare Providers & Systems (CAHPS) question wording and were perceived as duplicative of existing and new survey questions by the patients who participated in our content testing.

We refer hospitals and HCAHPS Survey vendors to the official HCAHPS website at https://www.hcahpsonline.org for information regarding the HCAHPS Survey, its administration, oversight, and data adjustments. Detailed information on current HCAHPS Survey data collection protocols can be found in the HCAHPS Quality Assurance Guidelines, located at: https://www.hcahpsonline.org/en/quality-assurance/. The Quality Assurance Guidelines for the proposed updated HCAHPS Survey measure will be available in May 2024 at the official HCAHPS website.

c. Measure Alignment to Strategy

The HCAHPS Survey produces systematic, standardized, and comparable information about patients' experience of hospital care and promotes person-centered care. We have identified that patient experience measures, including the HCAHPS Survey, are foundational metrics, known as the Universal Foundation of quality measures. The Universal Foundation is intended to focus provider attention, reduce burden, identify disparities in care, prioritize development of interoperable, digital quality measures, allow for cross-comparisons across programs, and help identify measurement gaps. One of the goals of the National Quality Strategy is to foster engagement and to bring the voices of patients to the forefront. As part of fostering engagement, we believe it is critical to hear the voices of individuals by obtaining feedback directly from patients on hospital performance and to incorporate their feedback as part of our comprehensive approach to quality.

d. Pre-Rulemaking Process and Measure Endorsement

(1) Recommendation From Pre-Rulemaking and Measure Review Process

We refer readers to section IX.B.1.c of the preamble of this proposed rule for details on the Pre-Rulemaking Measure Review (PRMR) process including the voting procedures the PRMR process uses to reach consensus on measure recommendations. The PRMR Hospital Committee, comprised of the PRMR Hospital Advisory Group and PRMR Hospital Recommendation Group, reviewed the proposed updated version of the HCAHPS Survey measure. The PRMR Hospital Recommendation Group reviewed the proposed updated HCAHPS Survey measure (MUC2023-146, 147, 148, 149) during a meeting on January 18-19, 2024, to vote on a recommendation with regard to use of this measure for the PCHQR, Hospital IQR, and Hospital VBP Programs.

The PRMR Hospital Recommendation Group reached consensus for each of the three programs. For each program, they recommended the updates to the HCAHPS Survey measure with conditions. The voting results of the PRMR Hospital Recommendation Group for the proposed updates to the HCAHPS Survey within the Hospital IQR Program were: nine members of the group recommended adopting the updates without conditions; eight members recommended adoption with conditions; and two committee members voted not to recommend the updates for adoption. Taken together, 89.5 percent of the votes were between “recommend” and “recommend with conditions.” Thus, the committee reached consensus and recommended the updates to the HCAHPS Survey measure within the Hospital IQR Program with conditions.

The voting results of the PRMR Hospital Recommendation Group for the proposed updates to the HCAHPS Survey within the Hospital VBP Program were: ten members of the group recommended adopting the updates without conditions; seven members recommended adoption with conditions; and two committee members voted not to recommend the updates for adoption. Taken together, 89.5 percent of the votes were between “recommend” and “recommend with conditions.” Thus, the committee reached consensus and recommended the updates to the HCAHPS Survey measure within the Hospital VBP Program with conditions.

The voting results of the PRMR Hospital Recommendation Group for the proposed updates to the HCAHPS Survey within the PCHQR Program were: eleven members of the group recommended adopting the updates without conditions; six members recommended adoption with conditions; and two committee members voted not to recommend the updates for adoption. Taken together, 89.5 percent of the votes were between “recommend” and “recommend with conditions.” Thus, the committee reached consensus and recommended the updates to the HCAHPS Survey measure within the PCHQR Program with conditions.

The conditions that the committee recommended for all three programs were: CBE endorsement; consideration should be given to not extending the survey length and removal of overlapping items; use of adaptive questions in computerized administration to minimize items; and use of a mechanism to monitor trends in performance data over time.

We have taken these conditions into account and are proposing to adopt the updated HCAHPS Survey measure in all three programs in a manner that addresses the conditions raised by the committee. As noted in section IX.B.2.b of the preamble of this proposed rule and in response to the committee's condition that consideration be given to not extending the survey length, we note that the updated HCAHPS Survey measure would result in only an additional 45 seconds to complete the survey. We have estimated that the total time required to complete the 32-question survey is, on average, eight minutes. Additionally, in response to the committee's condition that consideration be given to removing overlapping items, we note that similar or overlapping questions were identified and considered for removal during the development and testing of the updated HCAHPS Survey measure, as described further in section IX.B.2.b of the preamble of this proposed rule. By developing items with patients' and caregivers' input and then empirically testing the new questions, we have ensured that the questions proposed in the updated HCAHPS Survey add unique, non-redundant information about key aspects of patient experience of care. The committee also raised the condition that the survey use adaptive questions in computerized administration to minimize items. However, we note that adaptive questions in computerized administration would be infeasible in the mail mode of the HCAHPS Survey. Since all modes of survey administration that are available for the updated HCAHPS Survey (Mail Only, Phone Only, Mail-Phone, Web-Mail, Web-Phone, and Web-Mail-Phone) must be parallel, adaptive questions in computerized modes would not be appropriate for this measure at this time. We will take this feedback into consideration for any future potential changes to survey administration. In response to the committee's condition that a mechanism to monitor trends in performance data over time be used, we note that as part of administering each of these quality programs, we regularly monitor and evaluate hospitals' performance data trends. We would continually monitor these trends in performance with the updated HCAHPS Survey. We address the committee's condition of CBE endorsement in the following section.

(2) Measure Endorsement

We refer readers to section IX.B.1.c of the preamble of this proposed rule for details on the endorsement and maintenance (E&M) process including the measure evaluation procedures the CBE's E&M Committees use to evaluate measures and whether they meet endorsement criteria. The HCAHPS Survey was first endorsed in 2005 by the former CBE, the National Quality Forum. The former CBE renewed its endorsement of the current HCAHPS Survey in 2009, 2015, and 2019. The current HCAHPS Survey measure was most recently submitted to the CBE for maintenance endorsement review in the Spring 2019 cycle (CBE #0166) and was endorsed on October 25, 2019. We note that the HCAHPS Survey measure remains an endorsed measure, and we intend to submit the updated HCAHPS Survey to the current CBE for endorsement in Fall 2025. Section 1886(b)(3)(B)(viii)(IX)(bb) of the Act states that in the case of a specified area or medical topic determined appropriate by the Secretary for which a feasible and practical measure has not been endorsed by the entity with a contract under section 1890(a) of the Act, the Secretary may specify a measure that is not endorsed as long as due consideration is given to measures that have been endorsed or adopted by a consensus organization identified by the Secretary. We have determined that the updates to the HCAHPS Survey measure are appropriately specified. The HCAHPS Survey measure remains endorsed, and the updated survey only modifies some of the questions and sub-measures within the survey. The HCAHPS Survey is designed to produce standardized information about patients' perspectives of care that allow objective and meaningful comparisons of hospitals on topics that are important to consumers, and these updates will improve the feedback we receive directly from patients on hospital performance. Therefore, we have determined it would be appropriate to propose to adopt these updates to the measure before the updates receive CBE endorsement.

e. Proposal To Modify the HCAHPS Survey Measure for the Hospital IQR Program Beginning With the CY 2025 Reporting Period/FY 2027 Payment Determination and the PCHQR Program Beginning With the CY 2025 Reporting Period/FY 2027 Program Year

We are proposing to update the current HCAHPS Survey measure in the Hospital IQR and PCHQR Programs by adding three new sub-measures:

• “Care Coordination” sub-measure
• “Restfulness of Hospital Environment” sub-measure
• “Information About Symptoms” sub-measure

The updates also remove the existing “Care Transition” sub-measure and modify the existing “Responsiveness of Hospital Staff” sub-measure. The new “Care Coordination” sub-measure encompasses and broadens the current “Care Transition” sub-measure and the new questions in the “Care Coordination” sub-measure are more congruent with the other survey questions. The updated measure replaces one of the two survey questions in the current “Responsiveness of Hospital Staff” sub-measure with a new survey question that strengthens this sub-measure. The proposed updates to the HCAHPS Survey measure are detailed in section IX.B.2.b of the preamble of this proposed rule and we refer readers to the HCAHPS website at https://www.hcahpsonline.org for further details.

We propose that the updated HCAHPS Survey measure would be implemented in the Hospital IQR and PCHQR Programs beginning with patients discharged on January 1, 2025. Reporting of responses from the updated HCAHPS Survey measure for patients discharged between January 1, 2025 and December 31, 2025 would be used for the CY 2025 reporting period/FY 2027 payment determination for the Hospital IQR Program and for the CY 2025 reporting period/FY 2027 program year for the PCHQR Program. HCAHPS Survey sub-measures are publicly reported on a CMS website quarterly on a rolling basis, with the oldest quarter of data rolled off, and the most recent quarter rolled on with each refresh. As such, there would be a period during which some quarters of reporting data come from the current version of the HCAHPS Survey measure, and others come from the updated HCAHPS Survey measure. Through this time period, publicly reported HCAHPS Survey data for the Hospital IQR and PCHQR Programs would consist only of data from the eight unchanged sub-measures in the current HCAHPS Survey. When four quarters of the updated HCAHPS Survey data have been submitted, public reporting would reflect all of the modifications in the updated HCAHPS Survey measure. The proposed public reporting timeline of the updates to the HCAHPS Survey for the Hospital IQR and PCHQR Programs can be found in Table IX.B.2-02.

(1) Addition of the Care Coordination Sub-Measure in the Proposed Updated HCAHPS Survey Measure

The “Care Coordination” sub-measure is a newly developed multi-question sub-measure and is composed of three new survey questions that ask patients how often hospital staff were informed and up-to-date about the patient's care, how often hospital staff worked well together to care for the patient, and whether hospital staff worked with the patient and family or caregiver in making plans for the patient's care post-hospitalization. The new questions address aspects of hospital care identified by patients participating in focus groups as important to measuring the quality of hospital care. Cognitive testing demonstrated the new questions were accurately and consistently interpreted. The “Care Coordination” sub-measure was shown to have good measurement properties (hospital-level reliability is 0.792 and Cronbach's alpha is 0.765) and construct validity in the 2021 mode experiment. This sub-measure would fill a gap of furthering coordination efforts within the hospital setting and support our goals of including measures related to seamless care coordination and person-centered care. Across multiple focus groups, patients indicated that how well doctors, nurses, and other staff work together or as a team in caring for a patient was the most important information to have to understand what their care would be like in one hospital versus another.

(2) Addition of the Restfulness of Hospital Environment Sub-Measure in the Proposed Updated HCAHPS Survey Measure

The Restfulness of Hospital Environment—Hospital Patient sub-measure would fill a gap related to providing a restful and healing environment within the hospital setting and support our goal of including measures related to person-centered care. The “Restfulness” sub-measure is a newly developed multi-question sub-measure comprised of three survey questions: two new questions that ask how often patients were able to get the rest they needed, and whether hospital staff helped the patient to rest and recover, and one current survey question that asks how often the area around the patient's room was quiet at night (“Quietness”). Cognitive testing demonstrated the new questions were accurately and consistently interpreted. The 2021 mode experiment established that the “Restfulness” sub-measure has good measurement properties (hospital-level reliability is 0.870 and Cronbach's alpha is 0.735) and construct validity. The existing “Quietness” sub-measure is currently a stand-alone question in the HCAHPS Survey. The updates to the HCAHPS Survey would move the stand-alone “Quietness” sub-measure into the new Restfulness of Hospital Environment sub-measure. In the proposed updated version of the HCAHPS Survey measure, the “Quietness” question itself would not change and would continue to be publicly reported.

(3) Addition of the Information About Symptoms Sub-Measure in the Proposed Updated HCAHPS Survey Measure

The “Information About Symptoms” sub-measure is a newly developed single-question sub-measure that would fill a gap of providing instructions and information for family and caregivers to take care of patients after discharge and supports our goal of including measures related to person-centered care. The new question captures an aspect of hospital care identified by patients participating in focus groups as important, and cognitive testing demonstrated the question was accurately and consistently interpreted. The sub-measure is a stand-alone question that asks the patient whether doctors, nurses, or other hospital staff gave the patient's family or caregiver enough information about symptoms or health problems to watch out for after the patient left the hospital. The sub-measure has good hospital level-reliability (0.729) at the expected average number of completed surveys per hospital.

(4) Modification of the Responsiveness of Hospital Staff Sub-Measure in the Proposed Updated HCAHPS Survey Measure

The revisions to the “Responsiveness of Hospital Staff” sub-measure would entail adding one new survey question to this sub-measure and removing one current survey question from this sub-measure. The current survey question that would be removed from the “Responsiveness of Hospital Staff” sub-measure is the “Call Button” question. Input from hospitals indicated that call buttons have largely been replaced by other mechanisms (such as a direct phone line), and qualitative testing demonstrated that the new question captures all modes of requesting help. The 2021 mode experiment established that the modified “Responsiveness of Hospital Staff” sub-measure has good measurement properties (hospital-level reliability is 0.786 and Cronbach's alpha is 0.749) and construct validity. Having patients report their experience of the responsiveness of hospital staff highlights an important aspect of hospital care from the patient's perspective about getting help for one's needs during a hospital stay, which is a component of person-centered care. These modifications to the “Responsiveness of Hospital Staff” sub-measure would fill a gap related to the care by nursing and other staff within the hospital setting and support our goals of including measures assessing person-centered care and the quality of hospital staff. The revised “Responsiveness of Hospital Staff” sub-measure would be comprised of two survey questions: one current survey question that asks how often patients received help in getting to the bathroom or in using a bedpan as soon as they wanted, and one new survey question that asks how often patients got help as soon as they needed it when they asked for help right away.

(5) Removal of the Care Transition Sub-Measure in the Proposed Updated HCAHPS Survey Measure

In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53513 through 53516), we added the three-question “Care Transition” sub-measure (CTM-3) to the HCAHPS Survey in the Hospital IQR Program. We finalized the addition of the HCAHPS Survey, including the CTM-3 sub-measure, for the PCHQR Program in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50844 through 50845). The updates to the HCAHPS Survey measure would remove this three-question sub-measure from the HCAHPS Survey measure and replace it with a new “Care Coordination” sub-measure, which would encompass and broaden the current “Care Transition” sub- measure and is more congruent with the other questions in the HCAHPS Survey in terms of question form and response options. For these reasons, the updated version of the HCAHPS Survey measure removes the “Care Transition” sub-measure.

We invite public comment on the proposed adoption of the updated HCAHPS Survey measure for the Hospital IQR Program beginning with the CY 2025 reporting period/FY 2027 payment determination and the PCHQR Program beginning with the CY 2025 reporting period/FY 2027 program year.

(6) Modification to the “About You” Section for the Hospital IQR, PCHQR, and Hospital VBP Programs

The “About You” questions are used either for patient-mix adjustment or for Congressionally-mandated reports.

The proposed changes to the “About You” section of the updated HCAHPS Survey would be:

• replacing the existing `Emergency Room Admission' question with a new, `Hospital Stay Planned in Advance' question;
• reducing the number of response options for the existing `Language Spoken at Home' question;
• alphabetizing the response options for the existing ethnicity question; and
• alphabetizing the response options for the existing race question.

We note that to achieve the goal of fair comparisons across all hospitals that participate in HCAHPS Survey, it is necessary to adjust for factors that are not directly related to hospital performance but do affect how patients answer HCAHPS Survey questions. To ensure that differences in HCAHPS Survey results reflect differences in hospital quality only, HCAHPS Survey results are adjusted for patient-mix and mode of survey administration. Only the adjusted results are publicly reported and considered the official results. Information about the HCAHPS Survey patient-mix adjustment can be found at: https://hcahpsonline.org/en/mode--patient-mix-adj. We do not collect or adjust for patients' socioeconomic status, however, the HCAHPS Survey patient-mix adjustment does include patients' highest level of education, which can be related to socioeconomic status. Several questions on the HCAHPS Survey, as well as information drawn from hospital administrative data, are used for the patient-mix adjustment. The questions in the “About You” section of the survey that are used in patient-mix adjustment are:

• In general, how would you rate your overall health?

• In general, how would you rate your overall mental or emotional health ?

• What is the highest grade or level of school that you have completed ?

• What language do you mainly speak at home?

Administrative data provided by hospitals are also used in patient-mix adjustment, including patient's age, sex, and service line. Lag time, which is the number of days between a patient's discharge from the hospital and the return of the mail survey, or the final disposition of the telephone or interactive voice recognition (IVR) survey, is also used in patient-mix adjustment.

Neither patient race nor ethnicity is used to adjust HCAHPS Survey results; these questions are included on the survey to support Congressionally-mandated reports. The adjustment model also addresses the effects of non-response bias. More information about the patient-mix adjustment coefficients for publicly reported HCAHPS Survey measure results can be found under “Mode and Patient-Mix Adjustment” at: https://www.hcahpsonline.org.

The current “About You” survey question that asks whether the patient was admitted to the hospital through the Emergency Room would be replaced with a new question that asks whether this hospital stay was planned in advance. “Hospital stay planned in advance” is being proposed for possible use as a patient-mix adjuster to distinguish between planned and unplanned stays. Cognitive testing indicated that “Hospital stay planned in advance” is better understood as intended than the current admission through the emergency room question. Unplanned stays are not within the hospital's control but can result in worse patient experiences than hospital stays that had been planned. Accounting for these differences in this preadmission characteristic allows for fairer comparisons of hospital performance.

To make survey administration more efficient and reduce respondent burden, especially in the telephone mode of survey administration, we are proposing that the response options for the `Language Spoken at Home' question would be changed to: “English,” “Spanish,” “Chinese,” or “Some other language.” English, Spanish, and Chinese account for 98.2% of all HCAHPS Survey responses. The response options for the two race/ethnicity questions would be alphabetized to correspond to current best survey practices.

These proposed modifications would not be included in public reporting of the HCAHPS Survey and would not affect scoring under the Hospital VBP Program, but the `Hospital Stay Planned in Advance' question would be employed in the patient-mix adjustment of survey responses.

We are proposing to implement these changes along with the proposed updated version of the HCAHPS Survey measure for the Hospital IQR, PCHQR, and Hospital VBP Programs described in the sections above.

f. Proposed Modifications to Scoring of the HCAHPS Survey for the Hospital VBP Program for the FY 2027 Through FY 2029 Program Years

(1) Background

As discussed above, we are proposing to adopt an updated version of the HCAHPS Survey measure so that IPPS hospitals and PCHs can report patient responses to the updated survey for purposes of the Hospital IQR Program and PCHQR Program, respectively, beginning with January 1, 2025 discharges. Although we are also proposing to adopt the updated version of the HCAHPS Survey measure for purposes of the Hospital VBP Program in section IX.B.2.g of the preamble of this proposed rule, section 1886(o)(2)(C)(i) precludes us from doing so until we have specified the updates under the Hospital IQR Program and included them on Care Compare for at least one year prior to the beginning of the performance period for such fiscal year. For this reason, we are proposing to adopt the updated version of the HCAHPS Survey measure beginning with the FY 2030 program year in the Hospital VBP Program. However, in order to relieve hospitals of the burden of having to use two different versions of the survey between FY 2027 and FY 2029, we are proposing that hospitals would be able to administer the updated version of the survey starting with January 1, 2025 discharges, and for the purposes of the Hospital VBP Program, we would only score hospitals on the six dimensions of the HCAHPS Survey that would remain unchanged from the current version of the survey.

(2) Proposed Scoring Modification of the HCAHPS Survey for the Hospital VBP Program for the FY 2027 Through FY 2029 Program Years

We are proposing to modify scoring to not include the “Responsiveness of Hospital Staff” and “Care Transition” dimensions from scoring in the Hospital VBP Program's HCAHPS Survey measure in the Person and Community Engagement domain for the FY 2027 through FY 2029 program years. As noted above, we must collect and publicly report four quarters of data on the updated HCAHPS Survey measure before the updates could be adopted into the Hospital VBP Program. As described in section IX.B.2.g(2) of the preamble of this proposed rule, the updates to the “Responsiveness of Hospital Staff” dimension would be adopted in the Hospital VBP Program beginning with the FY 2030 program year along with the rest of the updates to the survey after the statutory requirements of section 1886(o)(2)(C)(i) of the Act have been met. As described in section IX.B.2.g(3), scoring on the updated “Responsiveness of Hospital Staff” dimension would begin with the FY 2030 program year. In addition, the “Care Transition” dimension in the current version of the survey would be removed permanently in the proposed updated HCAHPS Survey measure beginning with the FY 2030 program year. Until these updates can be adopted in the Hospital VBP Program beginning in FY 2030, we are proposing to exclude these dimensions from scoring for the FY 2027 through FY 2029 program years.

With the proposal to not score the “Care Transition” and “Responsiveness of Hospital Staff” dimensions in the Person and Community Engagement domain for the FY 2027 through FY 2029 program years, only six dimensions would continue to be used in the Hospital VBP Program for FY 2027, FY 2028, and FY 2029. By excluding these two dimensions from scoring within the Hospital VBP Program for the FY 2027 through FY 2029 program years, hospitals can continue to be scored on the remaining unchanged dimensions of the current HCAHPS Survey measure until the proposed updated HCAHPS Survey measure could be adopted for use in the Hospital VBP Program beginning in FY 2030.

We are proposing to score hospitals only on these six dimensions because we cannot score hospitals on any of the new or updated dimensions associated with the updated HCAHPS Survey measure until they have been adopted and reported in the Hospital IQR Program for one year prior to the beginning of the first performance period of their use in the Hospital VBP Program. These six unchanged dimensions of the HCAHPS Survey would be:

• “Communication with Nurses,”
• “Communication with Doctors,”
• “Communication about Medicines,”
• “Discharge Information,”
• “Cleanliness and Quietness,” and
• “Overall Rating.”

We are proposing to modify the scoring such that for each of these six dimensions, Achievement Points (0-10 points) and Improvement Points (0-9 points) would be calculated, the larger of which would be summed across these six dimensions to create a pre-normalized HCAHPS Base Score of 0-60 points (as compared to 0-80 points with the current eight dimensions). The pre-normalized HCAHPS Base Score would then be multiplied by 8/6 (1.3333333) and then rounded according to standard rules (values of 0.5 and higher are rounded up, values below 0.5 are rounded down) to create the normalized HCAHPS Base Score. Each of the six unchanged dimensions would be of equal weight, so that, as currently scored, the normalized HCAHPS Base Score would range from 0 to 80 points. HCAHPS Consistency Points would be calculated using our current methodology and would continue to range from 0 to 20 points. Like the Base Score, the Consistency Points Score would only consider scores across the remaining six unchanged dimensions of the Person and Community Engagement domain. The final element of the scoring formula, which would remain unchanged from the current formula, would be the sum of the HCAHPS Base Score and the HCAHPS Consistency Points Score for a total score that ranges from 0 to 100 points. In the FY 2015 IPPS/LTCH PPS final rule (79 FR 50065) and the FY 2016 IPPS/LTCH PPS final rule (80 FR 49565), we adopted a similar modified scoring methodology when the Care Transition sub-measure was added to the current HCAHPS Survey in the Hospital VBP Program.

This proposed scoring modification would ensure that hospitals could continue to receive scores on the dimensions of the HCAHPS Survey that would remain unchanged in the current survey and would provide a period of transition until the Hospital VBP Program could adopt the updates to the survey. The updated version of the HCAHPS Survey measure would be adopted in the Hospital IQR and PCHQR Programs beginning with January 1, 2025 discharges, however, those updated sub-measures would not be scored as dimensions for the Hospital VBP Program until the FY 2030 program year. We reiterate that hospitals will only have to circulate one version of the HCAHPS Survey at a time.

We invite public comment on this proposal to modify scoring on the HCAHPS Survey measure in the Hospital VBP Program for the FY 2027 through FY 2029 program years to only score on the six dimensions discussed above.

g. Proposed Adoption of the Updated HCAHPS Survey Measure and Associated Scoring Modifications in the Hospital VBP Program Beginning With the FY 2030 Program Year

(1) Background

As described in section IX.B.2.e of the proposed rule, the modifications to the proposed updated version of the HCAHPS Survey measure include adding three new sub-measures, “Care Coordination,” “Restfulness of Hospital Environment,” and “Information About Symptoms” to the survey. As noted above, the updates also include removing the existing “Care Transition” sub-measure and modifying the existing “Responsiveness of Hospital Staff” sub-measure. In the Hospital VBP Program beginning with the FY 2030 program year, we are proposing to adopt the updated HCAHPS Survey measure, and we are therefore also proposing additional scoring modifications. This timeline would allow for the updated HCAHPS Survey measure to be adopted and publicly reported under the Hospital IQR Program for one year, as statutorily mandated. We describe the proposed adoption of these updates and scoring modifications in the following sections.

(2) Proposed Adoption of the Updated HCAHPS Survey Measure in the Hospital VBP Program Beginning With the FY 2030 Program Year

We are proposing to adopt the updated HCAHPS Survey measure in the Hospital VBP Program beginning with the FY 2030 program year to align with the adoption of the updated HCAHPS Survey measure that we are proposing to adopt in the Hospital IQR Program, as described in section IX.B.2.e of the preamble of this proposed rule. Under this proposal, the updated HCAHPS Survey measure will have been publicly reported for one year in the Hospital IQR Program prior to the beginning of the performance period for the HCAHPS Survey measure in the Hospital VBP Program for the FY 2030 program year, which consists of a performance period of CY 2028 and a baseline period of CY 2026.

We note that the number and content of dimensions from the proposed updated HCAHPS Survey in the Person and Community Engagement Domain in the Hospital VBP Program in FY 2030 differs slightly from the number and content of the sub-measures in the Hospital IQR and PCHQR Programs. Namely, the “Cleanliness” and “Information about Symptoms” sub-measures are single-item sub-measures in the proposed updated HCAHPS Survey measure in the Hospital IQR and PCHQR Programs but they would be combined into one dimension in the proposed adoption of the updated HCAHPS Survey measure beginning with the FY 2030 Hospital VBP program year.

The proposed dimensions in the Person and Community Engagement Domain in the Hospital VBP Program beginning with the FY 2030 program year are:

• “Communication with Nurses,”
• “Communication with Doctors,”
• “Responsiveness of Hospital Staff,”
• “Communication about Medicines,”
• “Cleanliness and Information About Symptoms,”
• “Discharge Information,”
• “Overall Rating of Hospital,”
• “Care Coordination,” and
• “Restfulness of Hospital Environment.”

We refer readers to Table IX.B.2-03 for the timelines for the current and newly proposed HCAHPS Survey dimensions for the Hospital VBP Program.

In the proposed updated HCAHPS Survey measure, the “Care Transition” dimension is removed. The new “Care Coordination” dimension and the new “Information about Symptoms” question, which is included in the proposed new “Cleanliness and Information about Symptoms” dimension, encompass a broader depiction of person-centered care than does the “Care Transition” dimension. The proposed updated HCAHPS Survey measure includes the new “Care Coordination” dimension, the new “Restfulness of the Hospital Environment” dimension, and the new “Cleanliness and Information about Symptoms” dimension. We propose to begin using these three new dimensions in the Hospital VBP Program beginning with the FY 2030 program year. As noted in section IX.B.2.e(1) of the preamble of this proposed rule, the “Care Coordination” dimension would further coordination efforts within the hospital setting and support our goals of including measures related to seamless care coordination and person-centered care. Additionally, the new “Restfulness of the Hospital Environment” dimension is comprised of three survey questions: two new questions that ask how often patients were able to get the rest they needed, and whether hospital staff helped the patient to rest and recover, and one current survey question that asks how often the area around the patient's room was quiet at night (“Quietness”).

The proposed updated version of the HCAHPS Survey measure further modifies the current “Cleanliness and Quietness” dimension in two ways. In the FY 2030 program, the “Quietness” question would be removed from the “Cleanliness and Quietness” dimension and would instead be included in the new “Restfulness of Hospital Environment” dimension; however, the “Quietness” question itself would remain unchanged on the updated HCAHPS Survey. Additionally, in the FY 2030 program year, we propose to modify the “Cleanliness and Quietness” dimension to be called the “Cleanliness and Information About Symptoms” dimension, which would include the existing “Cleanliness” question and the new “Information About Symptoms” question from the updated HCAHPS Survey. The newly developed “Information About Symptoms” question asks the patient whether doctors, nurses, or other hospital staff gave the patient's family or caregiver enough information about symptoms or health problems to watch out for after the patient left the hospital.

We refer readers to section IX.B.2.b of the preamble of this proposed rule where we further describe the updates included in the updated HCAHPS Survey measure and to Table IX.B.2-03 for the timelines for the current and newly proposed HCAHPS Survey dimensions for the Hospital VBP Program.

We invite public comment on the proposal to adopt the updated HCAHPS Survey measure in the Hospital VBP Program beginning With the FY 2030 program year.

(3) Proposal To Modify Scoring of the HCAHPS Survey in the Hospital VBP Program Beginning With the FY 2030 Program Year

We are also proposing to adopt a new scoring methodology beginning with the FY 2030 program year. For each of the nine dimensions, Achievement Points (0-10 points) and Improvement Points (0-9 points) would be calculated, the larger of which would be summed across the nine dimensions to create a pre-normalized HCAHPS Base Score of 0-90 points (as compared to 0-80 points with the current eight dimensions). The pre-normalized HCAHPS Base Score would then be multiplied by 8/9 (0.88888889) and rounded according to standard rules (values of 0.5 and higher are rounded up, values below 0.5 are rounded down) to create the normalized HCAHPS Base Score. Each of the nine dimensions would be of equal weight, so that, as currently scored, the normalized HCAHPS Base Score would range from 0 to 80 points. HCAHPS Consistency Points would then be calculated in the same manner as with the original HCAHPS Survey in the Hospital VBP Program and would continue to range from 0 to 20 points. Like the Base Score, the Consistency Points Score would consider scores across all nine of the Person and Community Engagement domain dimensions. The final element of the scoring formula, which would remain unchanged from the current formula in the Hospital VBP Program, would be the sum of the HCAHPS Base Score and the HCAHPS Consistency Points Score for a total score that ranges from 0 to 100 points, as before. In the FY 2015 IPPS/LTCH PPS final rule (79 FR 50065) and the FY 2016 IPPS/LTCH PPS final rule (80 FR 49565), we adopted a similar scoring methodology when the Care Transition dimension was added to the Person and Community Engagement domain in the Hospital VBP Program.

Additionally, we note that in the scoring of the current HCAHPS Survey measure in the Hospital VBP Program, the “Cleanliness and Quietness” dimension is the average of the publicly reported stand-alone “Cleanliness” and “Quietness” questions. As previously noted, the proposed adoption of the updated HCAHPS Survey measure would result in “Quietness” being removed from this dimension and included as a question in the new “Restfulness of the Hospital Environment” dimension, and “Cleanliness” would be combined with the new “Information about Symptoms.” Therefore, “Quietness” would be scored as part of the “Restfulness of the Hospital Environment” dimension in conjunction with the other questions under that dimension. For the proposed “Cleanliness and Information about Symptoms” dimension, we would take the average of the stand-alone “Cleanliness” and “Information about Symptoms” questions to obtain a score for the “Cleanliness and Information about Symptoms” dimension. For the purposes of the Hospital VBP Program, we are proposing these two questions be combined so as not to put more weight on these single-question dimensions compared to the rest of the HCAHPS Survey dimensions, which are multi-question dimensions (with the exception of Overall Rating). If these dimensions, “Cleanliness” and “Information About Symptoms,” were separated, “Cleanliness,” for example, as a single-question dimension, would receive as much weight as the “Communication with Nurses” dimension, which includes three questions. Therefore, the combined “Cleanliness and Information about Symptoms” dimension would be a two-question dimension that is more comparable to the other HCAHPS Survey dimensions in the Person and Community Engagement domain.

We invite public comment on this proposal to modify scoring of the HCAHPS Survey in the Hospital VBP Program beginning with the FY 2030 program year to account for the adoption of the updated HCAHPS Survey measure.

3. Advancing Patient Safety and Outcomes Across the Hospital Quality Programs—Request for Comment

The Hospital Readmissions Reduction Program was implemented to reduce excess readmissions effective for discharges from applicable hospitals beginning on or after October 1, 2012. The program uses six claims-based measures to track unplanned inpatient admissions within 30 days following discharge. Using the data collected from these measures, we have observed that since the inception of the program, inpatient readmission rates for the conditions and procedures included in the program have gone down.

However, studies have found a concurrent increase in patients who, after being discharged from an inpatient stay, visit the emergency department (ED) or receive observation services as an outpatient. As a result, we are concerned that our hospital quality reporting and value-based purchasing programs may not be adequately incentivizing hospitals to improve quality of care by accounting for more types of post-discharge events, such as a return to the ED or the receipt of observation services.

From a patient perspective, unexpectedly returning to any acute care setting, including the ED, or receiving observation services after being discharged from an inpatient hospital stay, is an undesirable outcome of care. Patients who are discharged from an inpatient stay but then make an unplanned return to the hospital may incur higher healthcare costs than those that do not return to the hospital setting due to potential out-of-pocket charges for the unplanned follow-up care. Research has found that the median out-of-pocket cost of observation services received by Medicare beneficiaries as outpatients was $448.94, with low-income beneficiaries being more likely to report being concerned about costs of follow-up care, as compared to higher income beneficiaries, and limiting health care utilization that could otherwise be deemed essential in response to higher out-of-pocket costs.

While these unplanned returns to the hospital impose significant burden on patients, such visits can often be avoided with greater attention to care coordination. This coordination can include addressing barriers such as poor health literacy or social determinants of health that complicate a patient's ability to follow post-discharge instructions, fill prescriptions, or alert hospital staff to new symptoms. For example, in one study, nurses implemented evidence-based practices for transition care, including engaging in patient education, providing clear post-discharge instructions, and following up with patients via phone calls. The study found that 9.4 percent of patients who received such intervention were readmitted 30 days after discharge, compared to an 18.8 percent readmission rate among patients not receiving such interventions. Similarly, 19.8 percent of patients receiving evidence-based transitional care were readmitted within 90 days after discharge, compared to 31.5 percent among patients in the usual care group. These findings indicate that supporting patients' discharges by proactively addressing potential barriers is effective in reducing unplanned readmissions.

Therefore, we are seeking ways to build on current measures in several quality reporting programs that account for unplanned patient hospital visits to encourage hospitals to improve discharge processes. Current measures include three Excess Days in Acute Care (EDAC) measures currently in the Hospital Inpatient Quality Reporting (IQR) Program, which estimate days spent in acute care within 30 days post discharge from an inpatient hospitalization for a principal diagnosis of the measure's specified condition. The acute care outcomes include ED visits, receipt of observation services, and unplanned readmissions. The measures are:

• Excess Days in Acute Care (EDAC) after Hospitalization for Acute Myocardial Infarction (AMI), adopted in the FY 2016 IPPS/LTCH PPS final rule beginning with the FY 2018 payment determination (80 FR 49680 through 49682);
• Excess Days in Acute Care (EDAC) after Hospitalization for Heart Failure (HF), adopted in the FY 2016 IPPS/LTCH PPS final rule beginning with the FY 2018 payment determination (80 FR 49682 through 49690); and
• Excess Days in Acute Care (EDAC) after Hospitalization for Pneumonia, adopted in the FY 2017 IPPS/LTCH PPS final rule beginning with the FY 2019 payment determination (81 FR 57142 through 57148).

Another existing measure that CMS uses to assess unplanned hospital returns is the Hospital Visits After Hospital Outpatient Surgery measure. We adopted this measure into the Hospital Outpatient Quality Reporting (OQR) Program in the CY 2017 OPPS/ASC final rule beginning with the CY 2020 reporting period (81 FR 79764 through 79771) and the Rural Emergency Hospital Quality Reporting (REHQR) Program in the CY 2024 OPPS/ASC final rule beginning with the CY 2024 reporting period (88 FR 82064 through 82066). This measure's outcome includes any unplanned hospital visits (ED visits, receipt of observation services, or unplanned inpatient admissions) within seven days of outpatient surgery. The measure calculates facility-level measure scores based on the ratio of predicted to expected number of post-surgical hospital visits. By publicly reporting these scores, the measure encourages providers to engage in quality improvement activities to reduce unplanned follow-up visits (81 FR 79765).

While our hospital quality reporting and value-based purchasing programs currently encourage hospitals to address concerns about unplanned returns through several existing measures, we recognize that these measures, taken together, do not comprehensively capture unplanned patient returns to inpatient or outpatient care after discharge. The EDAC measures currently in the Hospital IQR Program only cover patients with a primary discharge of AMI, HF, or Pneumonia. Meanwhile, the Hospital Visits After Hospital Outpatient Surgery measure only covers patients discharged from outpatient surgeries. Furthermore, since both the Hospital IQR and Hospital OQR Programs are quality reporting programs, a hospital's performance on these measures is not tied to payment incentives.

Therefore, we invite public comment on how these programs could further encourage hospitals to improve discharge processes, such as by introducing measures currently in quality reporting programs into value-based purchasing to link outcomes to payment incentives. We are specifically interested in input on adopting measures which better represent the range of outcomes of interest to patients, including unplanned returns to the ED and receipt of observation services within 30 days of a patient's discharge from an inpatient stay.

We invite public comment on this topic.

C. Requirements for and Changes to the Hospital Inpatient Quality Reporting (IQR) Program

1. Background and History of the Hospital IQR Program

Through the Hospital IQR Program, we strive to ensure that patients, along with their clinicians, can use information from meaningful quality measures to make better decisions about their healthcare. We support technology that reduces burden and allows clinicians to focus on providing high-quality healthcare for their patients. We also support innovative approaches to improve quality, accessibility, affordability, and equity of care while paying particular attention to improving clinicians' and beneficiaries' experiences when interacting with the Centers for Medicare & Medicaid Services (CMS) programs. In combination with other efforts across the Department of Health and Human Services (HHS), the Hospital IQR Program incentivizes hospitals to improve healthcare quality and value, while giving patients the tools and information needed to make the best decisions for themselves.

We seek to promote higher quality, equitable, and more efficient healthcare for Medicare beneficiaries. The adoption of widely agreed upon quality and cost measures supports this effort. We work with relevant interested parties to define measures in almost every care setting and currently measure some aspects of care for almost all Medicare beneficiaries. These measures assess clinical processes and outcomes, patient safety and adverse events, patient experiences with care, care coordination, and cost of care. We have implemented quality measure reporting programs for multiple settings of care. To measure the quality of hospital inpatient services, we implemented the Hospital IQR Program. We refer readers to the following final rules for detailed discussions of the history of the Hospital IQR Program, including statutory history, and for the measures we have previously adopted for the Hospital IQR Program measure set:

• The FY 2010 IPPS/LTCH PPS final rule (74 FR 43860 through 43861);
• The FY 2011 IPPS/LTCH PPS final rule (75 FR 50180 through 50181);
• The FY 2012 IPPS/LTCH PPS final rule (76 FR 51605 through 61653);
• The FY 2013 IPPS/LTCH PPS final rule (77 FR 53503 through 53555);
• The FY 2014 IPPS/LTCH PPS final rule (78 FR 50775 through 50837);
• The FY 2015 IPPS/LTCH PPS final rule (79 FR 50217 through 50249);
• The FY 2016 IPPS/LTCH PPS final rule (80 FR 49660 through 49692);
• The FY 2017 IPPS/LTCH PPS final rule (81 FR 57148 through 57150);
• The FY 2018 IPPS/LTCH PPS final rule (82 FR 38326 through 38328 and 82 FR 38348);
• The FY 2019 IPPS/LTCH PPS final rule (83 FR 41538 through 41609);
• The FY 2020 IPPS/LTCH PPS final rule (84 FR 42448 through 42509);
• The FY 2021 IPPS/LTCH PPS final rule (85 FR 58926 through 58959);
• The FY 2022 IPPS/LTCH PPS final rule (86 FR 45360 through 45426);
• The FY 2023 IPPS/LTCH PPS final rule (87 FR 49190 through 49310); and
• The FY 2024 IPPS/LTCH PPS final rule (88 FR 59144 through 59203).

We also refer readers to 42 CFR 412.140 for Hospital IQR Program regulations.

2. Retention of Previously Adopted Hospital IQR Program Measures for Subsequent Payment Determinations

We refer readers to 42 CFR 412.140(g)(1) for our finalized measure retention policy. We first adopted these policies in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53512 through 53513) and codified them in the FY 2024 IPPS/LTCH PPS final rule (88 FR 59174 through 59175). Pursuant to this policy, when we adopt measures for the Hospital IQR Program beginning with a particular payment determination, we automatically readopt these measures for all subsequent payment determinations unless a different or more limited period is proposed and finalized. Measures are also retained unless we propose to remove, suspend, or replace the measures.

We are not proposing any changes to these policies in this proposed rule.

3. Removal of and Removal Factors for Hospital IQR Program Measures

We refer readers to 42 CFR 412.140(g)(2) and (3) for the Hospital IQR Program's policy regarding the factors CMS considers when removing measures from the program. We first adopted these factors in the FY 2019 IPPS/LTCH PPS final rule (83 FR 41540 through 41544) and codified them in the FY 2024 IPPS/LTCH PPS final rule (88 FR 59174 through 59175). We are not proposing any changes to these policies in this proposed rule.

4. Considerations in Expanding and Updating Quality Measures

We refer readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 53510 through 53512) for a discussion of the previous considerations we have used to expand and update quality measures under the Hospital IQR Program. We are not proposing any changes to these policies in this proposed rule. We also refer readers to the CMS National Quality Strategy that we launched in 2022, with the aims of promoting the highest quality outcomes and safest care for all individuals.

To comply with statutory requirements that the Secretary of HHS make publicly available certain quality and efficiency measures that the Secretary is considering for adoption through rulemaking under Medicare, the Consensus-Based Entity (CBE), currently Battelle, convenes the Partnership for Quality Measurement (PQM), which is comprised of clinicians, patients, measure experts, and health information technology specialists, to participate in the pre-rulemaking process and the measure endorsement process. We refer readers to the proposed Patient Safety Structural measure in section IX.B.1.c. of this proposed rule for more details on the updated pre-rulemaking measure reviews (PRMR) process, including measure endorsement and maintenance (E&M) process, for the purpose of providing multi-interested party input to the Secretary on the selection of quality and efficiency measures under consideration for use in certain Medicare quality programs, including the Hospital IQR Program.

5. Proposed New Measures for the Hospital IQR Program Measure Set

We are proposing to adopt seven new measures: (1) Patient Safety Structural measure beginning with the CY 2025 reporting period/FY 2027 payment determination; (2) Age Friendly Hospital measure beginning with the CY 2025 reporting period/FY 2027 payment; (3) Catheter-Associated Urinary Tract Infection (CAUTI) Standardized Infection Ratio Stratified for Oncology Locations measure beginning with the CY 2026 reporting period/FY 2028 payment determination; (4) Central Line-Associated Bloodstream Infection (CLABSI) Standardized Infection Ratio Stratified for Oncology Locations measure beginning with the CY 2026 reporting period/FY 2028 payment determination; (5) Hospital Harm—Falls with Injury eCQM beginning with the CY 2026 reporting period/FY 2028 payment determination; (6) Hospital Harm—Postoperative Respiratory Failure eCQM beginning with the CY 2026 reporting period/FY 2028 payment determination; and (7) Thirty-day Risk-Standardized Death Rate among Surgical Inpatients with Complications (Failure-to-Rescue) measure beginning with the July 1, 2023-June 30, 2025 reporting period/FY 2027 payment determination. We provide more details on these proposals in the subsequent sections of the preamble, and details on the proposal for the Patient Safety Structural measure are in section IX.B.1.

a. Proposal To Adopt the Age Friendly Hospital Measure Beginning With the CY 2025 Reporting Period/FY 2027 Payment Determination

(1) Background

The U.S. population is aging rapidly, with nearly one in seven Americans at age 65 years or older in 2019. In the next 10 years, one in five Americans is estimated to be over 65 years old, reaching 80.8 million by 2040. As the population ages, care can become more complex, with patients often developing multiple chronic conditions such as dementia, heart disease, arthritis, type 2 diabetes, and cancer. These chronic conditions are among the nation's leading drivers of illness, disability, and healthcare costs.

Hospitals are increasingly faced with treating older patients who have complex medical, behavioral, and psychosocial needs that are often inadequately addressed by the current healthcare infrastructure. The Centers for Disease Control and Prevention (CDC), and other interested parties, have estimated that over 60 percent of Medicare beneficiaries have two or more chronic conditions. To address the challenges of delivering care to older adults with multiple chronic conditions from a hospital and health system perspective, multiple organizations, including American College of Surgeons (ACS), the Institute for Healthcare Improvement (IHI), and the American College of Emergency Physicians, collaborated to identify and establish age-friendly initiatives based on evidence-based best practices that provide goal centered, clinically effective care for older patients. These organizations define age-friendly care as: (1) following an essential set of evidence-based practices; (2) causing no harm; and (3) aligning with “What Matters” to the older adult and their family or other caregivers. Based on these age-friendly initiatives and definition, these organizations have developed a framework comprised of a set of four evidence-based elements of high-quality care to older adults, called the “4 Ms”: What Matters, Medication, Mentation, and Mobility. The elements of the “4 Ms” help organize care for older adults wellness regardless of the number of chronic conditions, a person's culture, or their racial, ethnic, or religious background.

The collective evidence from these age-friendly efforts demonstrates that hospitals should prioritize patient-centered care for aging patient populations with multiple chronic conditions. With CMS being the largest provider of healthcare coverage for the 65 years and older population, proposing a quality measure aimed at optimizing care for older patients, using a holistic approach to better serve the needs of this unique population, is timely. Although existing quality metrics have improved both the rate and reporting of clinical outcomes that are important to older individuals, these measures can be narrow in scope and may have limited long term effectiveness due to ceiling effects. We are therefore proposing to adopt an attestation-based structural measure, the Age Friendly Hospital measure, for the Hospital IQR Program, beginning with the CY 2025 reporting period/FY 2027 payment determination. This structural measure seeks to ensure that hospitals are reliably implementing the “4 M's”, and thus providing evidence-based elements of high-quality care for all older adults. The elements in the Age Friendly Hospital measure align with IHI's and Hartford Foundation national initiative for Age Friendly Systems in which many hospitals already participate.

In the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 27103 through 27109) we solicited public comments about the potential inclusion of two geriatric care measures in the Hospital IQR Program measure set. These two potential geriatric care measures focused on ensuring hospitals were committed to implementing surgical, and general hospital best practices, for geriatric populations. Public commenters were largely in support of both geriatric care measures (88 FR 59185 through 59193) and stated that measures focused on geriatric care would help a rapidly aging population with unique characteristics find the care they need. The two potential measures, Geriatric Hospital (MUC2022-112) and Geriatric Surgical (MUC2022-032), were included in the “2022 Measures Under Consideration List” (MUC List) and received significant support from the CBE, and it was recommended that the two measures be combined into one. In response to CBE and public feedback, we are proposing this streamlined and combined version of the former two measures (88 FR 59185 through 59193). This structural measure applies a broad scope of evidence-based best practices, focused on goal centered, clinically effective care for older patients in the hospital inpatient setting.

We note that past comments have reflected concerns regarding structural measures because they do not explicitly link to improved outcomes. This is because there is no existing validation process confirming the accuracy of hospitals' responses to these types of measures. Despite this, structural measures, over time and in select circumstances, have certain advantages over other types of measures. Structural measures provide a way to address a new topic for which no outcome measure exists, such as the Age Friendly Hospital measure, the Hospital Commitment to Health Equity measure (87 FR 49191 through 49201), and the Maternal Morbidity structural measure (86 FR 45361 through 45365). In these examples, structural measures set a new expectation for the development of evidence-based programs and processes that will support improvements in these high impact areas. In the future, these structural measures can also be linked to new outcome measures or included in the Hospital Star Ratings Program.

(2) Overview of Measure

The Age Friendly Hospital measure assesses hospital commitment to improving care for patients 65 years or older receiving services in the hospital, operating room, or emergency department. This measure consists of five domains that address essential aspects of clinical care for older patients. Table IX.C.1 includes the five attestation domains and corresponding attestation statements.

(3) Measure Alignment to Strategy

This measure aligns with our efforts under the CMS National Quality Strategy priority area of “Equity and Engagement” that seeks to advance equity and whole-person care as well as to engage individuals and communities to become partners in their care. This measure additionally aligns with the CMS National Quality Strategy priority area of “Outcomes and Alignment” that aims to improve quality and health outcomes across the care journey including the objective to improve quality in high-priority clinical areas and supportive services.

The domains and attestation statements in this measure span the breadth of the clinical care pathway and, together, provide a framework for optimal care of the older adult patient. More specifically, the domains focus on patient goals, medication management, frailty, social vulnerability, and leadership/governance commitment. This structural measure identifies the best evidence-based practices for hospital leadership, operations, and high reliability across each domain, particularly with the unavailability of more direct metrics related to each of the domains. In addition, this measure complements current patient safety reporting, supports hospitals in improving the quality of care for a complex patient population, and furthers our commitment to advancing health equity among the diverse older communities served by participants in CMS programs.

(4) Pre-Rulemaking Process and Measure Endorsement

(a) Recommendation From the PRMR Process

We refer readers to the proposed Patient Safety Structural measure in section IX.B.1.c. of the preamble of this proposed rule for details on the PRMR process including the voting procedures used to reach consensus on measure recommendations. The PRMR Hospital Committee met on January 18-19, 2024, to review measures included by the Secretary on a publicly available “2023 Measures Under Consideration List” (MUC List), including the Age Friendly Hospital measure (MUC2023-219), and to vote on a recommendation with regard to use of this measure.

The PRMR Hospital Recommendation Group for the Age Friendly Hospital measure did not reach consensus and did not recommend including this measure in the Hospital IQR Program either with or without conditions. Eleven of the sixteen members of the group recommended adopting the measure into the Hospital IQR Program without conditions; zero members recommended adoption with conditions; five committee members voted not to recommend the measure for adoption. No voting category reached 75 percent or greater, including the combination of the recommend and the recommend with conditions categories. Thus, the committee did not reach consensus and did not recommend including this measure in the Hospital IQR Program either with or without conditions.

Several PRMR Hospital Committee members applauded the intent of this measure and the push toward transparency and consistency in reporting, noting these types of measures signal to hospital leadership and governance the importance of prioritizing initiatives and implementing frameworks outlined in the measure, highlighting how important this specific measure is for prioritizing improving care for older patients. PRMR Hospital Committee members also commented on the measure's flexibility regarding screening tools noting it was not overly prescriptive. Several PRMR Hospital Committee members noted concerns about structural measures in general and whether they drive action. Specifically, PRMR Hospital Committee members expressed concerns that the measure domains were not tightly scoped enough to drive discrete action. We acknowledge the concerns identified by the PRMR Hospital Committee members. Nevertheless, we have concluded that this measure does support reliable practices that drive change, transparent reporting, and prioritization of resources to implement these best practices. The measure was developed from a large collaborative that has evaluated the elements incorporated into these domains across many different geographic locations, hospital sizes, and patient demographics. We also refer readers to the FY 2024 IPPS/LTCH PPS final rule (88 FR 59186) where we discussed previous CBE review of the Geriatric Hospital and Geriatric Surgical measures, which were combined by the measure developer based on previous CBE recommendations to create the Age Friendly Hospital measure. As previously discussed, this structural measure plays a role in establishing the foundation for health outcome quality measures and that this particular measure would support improvements in quality of care in hospitals participating in the Hospital IQR Program by filling gaps in care management for older adults.

(b) Measure Endorsement

The measure has not been submitted for CBE endorsement at this time. We are proposing in this preamble of this proposed rule to adopt this measure into the Hospital IQR Program despite the measure not yet being endorsed by the CBE. Although section 1886(b)(3)(B)(viii)(IX)(aa) of the Act requires that measures specified by the Secretary for use in the Hospital IQR Program be endorsed by the entity with a contract under section 1890(a) of the Act, section 1886(b)(3)(B)(viii)(IX)(bb) of the Act states that in the case of a specified area or medical topic determined appropriate by the Secretary for which a feasible and practical measure has not been endorsed by the entity with a contract under section 1890(a) of the Act, the Secretary may specify a measure that is not so endorsed as long as due consideration is given to measures that have been endorsed or adopted by a consensus organization identified by the Secretary. During measure endorsement, the CBE considers whether a measure “is evidence-based, reliable, valid, verifiable, relevant to enhanced health outcomes, actionable at the caregiver level, feasible to collect and report, and responsive to variations in patient characteristics, such as health status, language capabilities, race or ethnicity, and income level; and is consistent across types of health care providers, including hospitals and physicians (section 1890(b)(2)(A) and (B) of the Act).

We reviewed CBE-endorsed measures and were unable to identify any other CBE-endorsed measures on this topic. We are adopting this measure pursuant to section 1886(b)(3)(B)(viii)(IX)(bb) of the Act. As previously discussed, we have determined this an appropriate topic for a measure to be adopted absent endorsement because this measure is important for establishing a foundation for future health outcome measures and that this measure provides a framework of best practices for delivering care to older adults with multiple chronic conditions from a hospital and health system perspective.

(5) Measure Calculation

The Age Friendly Hospital measure consists of five domains, each representing a separate domain commitment. Hospitals or health systems would need to evaluate and determine whether they can affirmatively attest to each domain, some of which have multiple attestation statements, for each hospital reported under their CMS certification number (CCN). For a hospital or a health system to affirmatively attest to a domain, and receive a point for that domain, a hospital or health systems would evaluate and determine whether it engaged in each of the elements that comprise the domain (see Table IX.C.1), for a total of five possible points (one point per domain).

A hospital or health system would not be able to receive partial points for a domain. For example, for Domain 3 (“Frailty Screening and Intervention”), a hospital or health system would evaluate and determine whether their hospital or health system's processes meet each of the corresponding attestation statements described in (A), (B), (C), and (D) (see Table IX.C.1). If the hospital or health system's processes meet all four attestation statements in Domain 3, the hospital or health system would receive a point for that domain. However, if the hospital could only affirmatively attest to (B) and (C), for example, then no points could be earned for Domain 3. We note that because the Hospital IQR Program is a pay-for-reporting program, hospitals would receive credit for the reporting of their measure results regardless of their responses to the attestation questions.

For more details on the measure specifications for the Hospital IQR Program, we refer readers to the Web-Based Data Collection tab under the Hospital IQR Program measures page on QualityNet at: https://qualitynet.cms.gov/inpatient/iqr/measures#tab1 (or other successor CMS designated websites).

(6) Data Submission and Reporting

Hospitals and/or health systems are required to submit information for structural measures once annually using a CMS-approved web-based data collection tool available within the Hospital Quality Reporting (HQR) System. We are proposing the mandatory reporting of this measure beginning with the CY 2025 reporting period/FY 2027 payment determination. We refer readers to section IX.C.9. of the preamble of this proposed rule for more details on our data submission and deadline requirements for structural measures. Specifications for the measure will also be posted on the QualityNet web page at: https://qualitynet.cms.gov/inpatient/iqr/measures#tab1 (or other successor CMS designated websites).

We refer readers to section IX.C.9. of this proposed rule for our previously finalized structural measure reporting and submission requirements. We invite public comment on our proposal to adopt the Age Friendly Hospital measure beginning with CY 2025 reporting period/FY 2027 payment determination.

b. Proposal To Adopt Two Healthcare-Associated Infection (HAI) Measures Beginning With the CY 2026 Reporting Period/FY 2028 Payment Determination

Healthcare-associated infections (HAIs) are a major cause of illness and death in hospitals, posing a significant threat to patient safety. One in 31 hospital patients in the U.S. have a HAI at any given time, totaling about 687,000 cases per year. The CDC estimated that about 72,000 patients die from HAIs per year. HAIs not only put patients at risk, but also increase the hospitalization days required for patients and add considerably to healthcare costs. The CDC estimates that HAIs cost the U.S. healthcare system $28.4 billion per year. Statistics on preventability vary but suggest that 55-70 percent of HAIs could be prevented through practices including hand hygiene, cleaning surfaces with an appropriate antiseptic, and wearing gowns and gloves.

Given the high risk to patient safety, we previously adopted the National Healthcare Safety Network (NHSN) Catheter-Associated Urinary Tract Infection (CAUTI) and NHSN Central Line-Associated Bloodstream Infection (CLABSI) measures in various quality reporting programs that measure the annual risk-adjusted standardized infection ratio (SIR) among adult inpatients. The measures were originally introduced in the Hospital IQR Program in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51617 through 51618) and the FY 2011 IPPS/LTCH PPS final rule (75 FR 50200 through 50202). In the FY 2014 IPPS/LTCH PPS final rule, the CAUTI and CLABSI measures were then moved into the Hospital-Acquired Condition (HAC) Reduction Program (78 FR 50717) and the Hospital Value-Based Purchasing (VBP) Program (78 FR 50681 through 50687). The CAUTI and CLABSI measures used in these programs include most major inpatient care wards at acute care hospitals, including inpatient psychiatric facilities, hospice, inpatient acute care facilities, and inpatient rehabilitation facilities. However, locations mapped as oncology wards have not been included.

Patients with cancer are especially vulnerable to developing HAIs. Chemotherapy, a common treatment for patients with cancer, can weaken patients' immune systems and leave them vulnerable to opportunistic infections. Cancer treatment may also require major surgeries or invasive devices, which can act as another vector for infections. It is estimated that 10.5 percent of patients undergoing major cancer surgery contract a HAI, compared to only three percent of patients undergoing elective surgeries. Researchers from the same study also found that patients undergoing major cancer surgery who contracted a HAI were significantly more likely to die in the hospital than patients who did not contract a HAI. In another study, researchers found that developing a HAI was linked to higher costs of care and longer lengths of stay for patients with cancers of the lip, oral cavity, and pharynx. Therefore in the FY 2013 IPPS/LTCH PPS final rule, beginning with the FY 2014 program year, we adopted the CAUTI and CLABSI measures in the PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) Program (77 FR 53557 through 53559).

While many oncology services have transitioned to outpatient settings, acute care hospitals continue to specialize in the treatment of certain types of patients with cancer, for example, patients who have received a hematopoietic stem cell transplant and patients who have febrile neutropenia. Based on an internal CMS analysis, in 2019 there were 321,961 Medicare beneficiaries with a primary diagnosis of cancer who received some portion of their care in an inpatient hospital setting. Within these inpatient settings, the majority of Medicare beneficiaries with a primary diagnosis of cancer received their care at National Cancer Institute (NCI)-designated hospitals or other acute care hospitals, while only about four percent of Medicare beneficiaries received care at PPS-exempt cancer hospitals (PCHs). Additionally, based on internal CMS analysis, a portion of these Medicare beneficiaries who received care at a PCH also received at least some of their inpatient care at non-PCHs (NCI-affiliated or other hospitals).

The Biden-Harris administration's Cancer Moonshot Program has put a renewed focus on improving outcomes for patients with cancer. Under this initiative, we seek to ensure that patients with cancer treated at hospitals reporting to the Hospital IQR Program are able to benefit from public reporting of hospital safety data and choose the best provider for their needs. We are proposing to adopt the Catheter-Associated Urinary Tract Infection (CAUTI) Standardized Infection Ratio Stratified for Oncology Locations and the Central Line-Associated Bloodstream Infection (CLABSI) Standardized Infection Ratio Stratified for Oncology Locations (hereinafter referred to as the CAUTI-Onc measure and CLABSI-Onc measure, respectively), beginning with the CY 2026 reporting period/FY 2028 payment determination. These measures would supplement, not duplicate, the existing hospital CAUTI and CLABSI measures, as the original hospital CAUTI and CLABSI measures look at hospital inpatients except for those in oncology wards, and the CAUTI-Onc and CLABSI-Onc measures look only at patients in oncology wards. Our proposals to adopt the CAUTI-Onc and CLABSI-Onc measures are part of our renewed effort to improve patient safety. We refer readers to the proposal to adopt the Patient Safety Structural measure in section IX.B.1. for more information.

(1) Proposal To Adopt the CAUTI-Onc Measure Beginning With the CY 2026 Reporting Period/FY 2028 Payment Determination

(a) Background

Urinary tract infections (UTIs) are a common type of HAI and come with many risks to patients. About 12-16 percent of adult patients in inpatient hospitals will have a urinary catheter at some point during their hospital stay, and almost all healthcare associated UTIs are introduced through instrumentation in the urinary tract. Furthermore, each day the indwelling urinary catheter remains, a patient has between a three and seven percent increased risk of acquiring a catheter-associated urinary tract infection. Based on data from the NHSN, the CDC reported that among the 3,780 general acute care hospitals that reported data in 2022, there were 20,237 CAUTIs in that year.

CAUTIs can lead to many negative consequences for patients including cystitis, pyelonephritis, gram-negative bacteremia, endocarditis, vertebral osteomyelitis, septic arthritis, endophthalmitis, and meningitis. Other consequences of CAUTIs include prolonged hospital stays, higher healthcare costs, and an increased likelihood of mortality.

However, CAUTIs can often be prevented by following guidelines for urinary catheter use, insertion, and maintenance. At a large academic hospital system, a study investigated the effects of implementing a CAUTI prevention bundle in the intensive care unit (ICU). Prevention practices in this bundle included reducing unnecessary catheter use, following proper catheter maintenance, and ordering a urine culture only when warranted by a clear indication. The research team also updated the electronic health record (EHR) system to support compliance with these prevention guidelines. Researchers found that the CAUTI rates in the ICU decreased from 6.0 CAUTIs per 1,000 urinary catheter days to 0.0. The rest of the hospital then implemented the CAUTI prevention bundle, leading to a decrease in CAUTI rates from 2.0 cases per 1,000 catheter days to 0.6 cases per 1,000 catheter days.

In another study, nurses at a large urban teaching hospital implemented CAUTI prevention protocols, including removing catheters from patients no longer needing them and finding alternatives to indwelling urinary catheters. As a result of this initiative, catheter days decreased by 11.8 percent and CAUTI rates declined by 38 percent. More information on the prevention of CAUTIs is available in the CDC's Guideline for Prevention of Catheter-associated Urinary Tract Infections, including recommendations regarding who should receive a catheter, catheter insertion, proper insertion techniques, maintenance, quality improvement, and surveillance.

To encourage the use of best practices for urinary catheters and reduce the incidence of CAUTIs, we previously adopted the CAUTI measure (CBE #0138) to several quality reporting and value-based payment programs, including the Hospital IQR, Hospital VBP, and HAC Reduction Programs (76 FR 51617 through 51618, 78 FR 50681 through 50687, and 78 FR 50717, respectively) as discussed earlier. We adopted the measure as part of the HHS Action Plan to Prevent HAIs, as this measure was included among the prevention metrics established in the plan which is available at: https://www.hhs.gov/oidp/topics/health-care-associated-infections/hai-action-plan/index.html. Eventually, in the FY 2019 IPPS/LTCH PPS final rule (83 FR 41547 through 41553), we removed the CAUTI measure from the Hospital IQR Program beginning with the CY 2019 reporting period/FY 2021 payment determination to streamline reporting through the HAC Reduction Program.

As noted earlier, the CAUTI measure used in the HAC Reduction and Hospital VBP Programs does not include inpatients in cancer wards. Because patients with cancer are especially vulnerable to developing HAIs like CAUTIs, it is important to implement quality reporting for patients with cancer, as we have done in adopting the CAUTI measure in the PCHQR Program. Significant associations have been found between UTIs and post-surgery complications, longer hospitalizations, and higher hospital costs among patients with cancer and post-surgery CAUTI incidence has been found to be as high as 12.5 percent in specific cancer populations. Therefore, it is important to address the needs of this high-risk population and adopt the CAUTI-Onc measure to the Hospital IQR Program. The adoption of this measure would also provide more data to compare CAUTI rates between PCHs and non-PCHs.

(b) Overview of Measure

We are proposing to adopt the CAUTI-Onc measure for the Hospital IQR Program beginning with the CY 2026 reporting period/FY 2028 payment determination. The purpose of this measure is to encourage the use of best practices for urinary catheters as set by the CDC and to reduce the incidence of CAUTIs for patients with cancer. To report this measure, hospitals will need to verify that all locations, including those housing oncology patients, are correctly mapped in NHSN.

Reducing CAUTI incidence through the adoption of this measure could lead to improved cancer patient outcomes, including reduced morbidity and mortality, less need for antimicrobials, and reduced patient length of stays and medical costs.

(c) Measure Alignment to Strategy

The proposal to adopt the CAUTI-Onc measure supports the CMS National Quality Strategy priority area of “Safety and Resiliency.” Specifically, this supports our safety goal to “achieve zero preventable harm,” and to expand the collection and use of safety indicator data across programs for key areas to improve tracking and show progress toward reducing harm. The adoption of this measure additionally supports the “Outcomes and Alignment” priority area in the CMS National Quality Strategy by collaborating with other federal agencies, namely the CDC, to promote alignment in quality measurement and close the existing reporting gap among vulnerable patients with cancer in inpatient settings. This proposal to adopt the CAUTI-Onc measure not only supports two of the CMS National Quality Strategy priority areas, it also supports the Biden-Harris Administration's Cancer Moonshot program that aims to improve outcomes for patients with cancer.

(d) Pre-Rulemaking Process and Measure Endorsement

(i) Recommendation From the PRMR Process

We refer readers to the proposed Patient Safety Structural measure in section IX.B.1.c. of the preamble of this proposed rule for details on the PRMR process, including the voting procedures used to reach consensus on measure recommendations. The PRMR Hospital Committee met on January 18-19, 2024, to review measures included by the Secretary on a publicly available “2023 Measures Under Consideration List” (MUC List), including the CAUTI-Onc measure (MUC2023-220), and to vote on a recommendation with regard to use of this measure recommendation with regard to use of this measure.

The PRMR Hospital Committee reached consensus and recommended including this measure in the Hospital IQR Program with conditions. Fourteen members of the group recommended adopting the measure into the Hospital IQR Program without conditions; four members recommended adoption with conditions; and one committee member voted not to recommend the measure for adoption. Taken together, 94.7 percent of the votes recommended this measure in the Hospital IQR Program with conditions.

Four members of the voting committee recommended the adoption of this measure into the Hospital IQR Program with the first condition being that CMS consider expanding the reporting period. This would increase the patient volume included in the denominator and increase precision. We have reviewed this recommendation and concluded that expanding the reporting period would result in a critical loss in the ability to observe changes in the SIR over time. Obscuring any observable changes in the SIR would degrade the measure's ability to assess prevention efforts and further drive quality improvement. Therefore, we are proposing this measure for adoption without the modification suggested by four committee members in order to preserve the measure's ability to observe changes in the SIR more quickly.

The second condition the PRMR Hospital Committee recommended for the Hospital IQR Program was that the measure should evaluate data by oncology unit type, such as hematology-oncology versus solid organ. We acknowledge this condition and may consider it for future rulemaking. We are proposing to adopt the CAUTI-Onc measure in the Hospital IQR Program having taken into consideration the conditions raised by the PRMR Hospital Committee.

The measure received strong support from the committee as it addresses an important patient safety concern. During the PRMR Hospital Committee's discussion, some expressed concern about the burden of manual abstraction. Others asked about the measure's validity, and whether the measure should include risk adjustments when HAIs are an issue across the board.

(ii) Measure Endorsement

We refer readers to the proposed Patient Safety Structural measure in section IX.B.1.c. of this proposed rule for details on the E&M process including the measure evaluation procedures the E&M Committees use to evaluate measures and whether they meet endorsement criteria. The CAUTI measure was most recently submitted to the CBE for endorsement review in the Spring 2019 cycle (CBE #0138) and was endorsed on October 23, 2019. In the submission of the CAUTI-Onc measures to the 2023 MUC list, the CDC provided additional oncology-only reliability testing based on existing data submitted to the CDC's NHSN. Because the CAUTI-Onc measure has the same specifications as the CAUTI measure, with the only difference being that it is stratified for oncology locations, additional endorsement of the oncology specific locations is not necessary. The calculations pertinent to those locations are inherently part of the endorsement performed for the CAUTI measure, and the measure ( i.e. numerator/denominator) is endorsed across all inpatient hospital settings, including oncology locations. The calculation of the SIR includes and accounts for the location of the patient within the facility. The CDC will incorporate information on the stratification by oncology patients during the regularly scheduled measure maintenance re-endorsement process.

(e) Measure Specifications

For this measure, the NHSN calculates the quarterly risk-adjusted SIR of CAUTIs among inpatients at acute care hospitals who are in oncology wards. The CDC then calculates the SIR using all four quarters of data from the reporting period year, which CMS uses for performance calculation and public reporting purposes. The CDC defines an oncology ward as an area for the evaluation and treatment of patients with cancer. For more details, we refer readers to the CDC Locations and Descriptions and Instructions for Mapping Patient Care Locations document.

The numerator is the number of annually observed CAUTIs among acute care hospital inpatients in oncology wards. The denominator is the number of annually predicted CAUTIs among acute care hospital inpatients in oncology wards. By dividing the number of observed CAUTIs by the number of predicted CAUTIs, the SIR compares the actual number of cases to the expected number of cases. However, this does not preclude SIRs from being ranked. The SIR is calculated when there is at least one predicted CAUTI, to achieve a minimum level of precision.

The measure requires a facility to have at least one predicted CAUTI before calculating the SIR because the precision of a facility's CAUTI rate can vary, especially in low volume hospitals. For this reason, the NHSN calculates the SIR instead of reporting the CAUTI rate directly. A facility's SIR is not meant to be compared directly to that of another facility. Rather, the primary role of the SIR is to compare a facility's CAUTI rate to the national rate after adjusting for facility- and patient-level risk factors.

The numerator and denominator exclude the following because they are not considered indwelling catheters by NHSN definitions: suprapubic catheters, condom catheters, “in and out” catheters, and nephrostomy tubes. If a patient has either a nephrostomy tube or a suprapubic catheter and also has an indwelling urinary catheter, the indwelling urinary catheter will be included in the CAUTI surveillance.

The SIR also adjusts for various facility and patient-level factors that contribute to HAI risk within each facility. For more information on the risk adjustment methodology please reference the CDC website at: https://www.cdc.gov/nhsn/2022rebaseline/index.html.

(f) Data Submission and Reporting

We are proposing to collect data for the CAUTI-Onc measure via the NHSN, consistent with the current approach for HAI reporting for the HAC Reduction and Hospital VBP Programs. The NHSN is a secure, internet-based surveillance system maintained and managed by the CDC and provided free of charge to providers. To report to the NHSN, hospitals must first agree to the NHSN Agreement to Participate and Consent form, which specifies how NHSN data will be used, including fulfilling CMS's quality measurement reporting requirements for NHSN data.

Beginning in 2012, hospitals participating in the Hospital IQR Program began reporting CAUTIs in all adult, pediatric, and neonatal intensive care locations followed by reporting all adult and pediatric medical, surgical, and medical/surgical wards in 2015 using NHSN. According to a 2022 CDC report, 3,780 hospitals are reporting CAUTI data to NHSN; of these, 478 hospitals reported CAUTI data from at least one oncology location. We anticipate that because most of the hospitals which would begin to report the CAUTI-Onc measure for the Hospital IQR Program are already reporting via NHSN for CAUTI in other locations as well as other measures, they have already set up an account. Hospitals currently reporting CAUTI must verify that locations housing oncology patients are correctly mapped as an oncology location based on NHSN's location mapping guidance for accurate event location attribution.

Hospitals would report their data for the CAUTI-Onc measure on a quarterly basis for the purposes of Hospital IQR Program requirements. Presently, hospitals report CAUTI data to the NHSN monthly and the SIR is calculated on a quarterly basis. Under the data submission and reporting process, hospitals would collect the numerator and denominator for the CAUTI-Onc measure each month and submit the data to the NHSN. The data from all 12 months would be calculated into quarterly reporting periods which would then be used to determine the SIR for CMS performance calculation and public reporting purposes. We refer readers to the NHSN website for further information about NHSN reporting requirements. We refer readers to the FY 2024 IPPS/LTCH PPS final rule (88 FR 59141) for information on data submission and reporting requirements for our most recent updates to data submission and reporting requirements for measures submitted via the CDC NHSN.

We invite public comment on our proposal to adopt the CAUTI-Onc measure beginning with the CY 2026 reporting period/FY 2028 payment determination.

(2) Proposal To Adopt the CLABSI-Onc Measure Beginning With the CY 2026 Reporting Period/FY 2028 Payment Determination

(a) Background

Central venous catheters (CVCs) are a crucial aspect of hospital care for administering medications, fluids, and nutrients to patients, as well as running medical tests. However, they also carry the risk of introducing infections, referred to as central line-associated bloodstream infections (CLABSIs). CLABSIs are a leading cause of HAIs and are associated with increased morbidity and mortality, prolonged hospitalization, and increased costs.

According to one study, the development of bloodstream infections (BSIs) after CVC insertion was associated with longer hospital stays of on average seven additional days and a three times higher risk of death during the patient's hospital stay. Additionally, a single CLABSI episode costs hospitals an estimated $48,108 on average. While the CLABSI SIR has declined by 16 percent since 2015, CLABSIs still remain prevalent. Based on data from the NHSN, the CDC reported that among the 3,728 general acute care hospitals that reported data in 2022, there were 23,389 CLABSIs in that year.

In one study conducted on a group of academic medical centers across a three-year period, the overall CLABSI rate was 1.73 cases per 1,000 central-line days. Another study, retrospectively conducted on patients with a CVC in four U.S. hospitals within the same health system, found that patients with a CVC who developed a CLABSI had a 36.6 percent higher likelihood of mortality, and 37 percent higher chance of being readmitted compared to patients who did not develop a CLABSI. The study also found that the average hospital length of stay in patients who developed a CLABSI increased by two days when compared to patients without a CLABSI.

Following evidence-based guidelines when inserting and maintaining central lines can help prevent the occurrence of CLABSIs. Proper central line insertion practices include applying skin antiseptic, ensuring proper hand hygiene, using sterile barrier precautions, and ensuring the skin preparation agent has dried completely before insertion. One study of 30 long-term acute care hospitals found that adoption of a catheter maintenance bundle led to the CLABSI rate decreasing by 29 percent. In another study, researchers implemented the standard CDC bundle along with additional measures in a large acute care hospital. As a result, the CLABSI rate decreased by 68 percent from 2013 to 2017. Despite a large body of evidence indicating that adopting a central line bundle decreases CLABSI rates, adoption of these best practices remains inconsistent. A systematic review of the available literature on hospital adherence to the CDC's central line bundle checklist found that none of the medical facilities in the studies followed all elements of the bundle, and compliance rates remained low in follow-up studies. For more information on the standard CDC bundle, we refer readers to the Guidelines for the Prevention of Intravascular Catheter-Related Infections.

To encourage adherence to best practices for central line use and to reduce the incidence of CLABSIs, we previously adopted the CLABSI measure (CBE #0139) to several quality reporting and value-based payment programs, including the Hospital IQR, Hospital VBP, and HAC Reduction Programs (75 FR 50200 through 50202, 78 FR 50681 through 50687, and 78 FR 50717, respectively) as discussed earlier. We adopted the measure as part of the HHS Action Plan to Prevent HAIs, as this measure was included among the prevention metrics established in the plan which is available at: https://www.hhs.gov/oidp/topics/health-care-associated-infections/hai-action-plan/index.html. In the FY 2019 IPPS/LTCH PPS final rule (83 FR 41547 through 41553), we removed the CLABSI measure from the Hospital IQR Program beginning with the CY 2019 reporting period/FY 2021 payment determination to streamline reporting through the HAC Reduction Program.

Currently, the CLABSI measure used in the HAC Reduction and Hospital VBP Programs does not include inpatients in cancer wards. Because patients with cancer are especially vulnerable to developing HAIs like CLABSIs, it is important to implement quality reporting for patients with cancer, as we have done in adopting the CLABSI measure in the PCHQR Program. While central lines are a crucial component of cancer treatment, they are also associated with at least 400,000 bloodstream infections in oncology patients every year in the U.S. CLABSIs in patients with cancer may lead to sepsis, require interruptions in chemotherapy, and increase the hospital length of stay. CLABSIs among patients with cancer also incur a high economic burden, costing the U.S. healthcare system over $18 billion annually. Therefore, it is important to address the needs of this high-risk population and adopt the CLABSI-Onc measure to the Hospital IQR Program. The adoption of this measure would also provide more data to compare CLABSI rates between PCHs and non-PCHs.

(b) Overview of Measure

We are proposing to adopt the CLABSI-Onc measure to the Hospital IQR Program beginning with the CY 2026 reporting period/FY 2028 payment determination. The purpose of this measure is to promote CLABSI prevention activities and reduce the incidence of CLABSIs for patients with cancer. Unlike the version of the measure previously in the Hospital IQR Program and that is currently in the HAC Reduction and Hospital VBP Programs, this version we are proposing to adopt is limited to inpatients at acute care hospitals in oncology wards. To report this measure, hospitals would need to verify that all locations, including those housing oncology patients, are correctly in NHSN.

Reducing the CLABSI incidence through the adoption of this measure could lead to improved cancer patient outcomes, including reduced morbidity and mortality, less need for antimicrobials, and reduced patient length of stays and medical costs.

(c) Measure Alignment to Strategy

The proposal to adopt the CLABSI-Onc measure supports the CMS National Quality Strategy priority area of “Safety and Resiliency.” Specifically, this supports our safety goal to “achieve zero preventable harm,” and to expand the collection and use of safety indicator data across programs for key areas to improve tracking and show progress toward reducing harm. The adoption of this measure additionally supports the “Outcomes and Alignment” priority area in the CMS National Quality Strategy by collaborating with other federal agencies, namely the CDC, to promote alignment in quality measurement and close the existing reporting gap among vulnerable patients with cancer in inpatient settings. This proposal to adopt CLABSI-Onc not only supports two of the CMS National Quality Strategy priority areas, it also supports the Biden-Harris Administration's Cancer Moonshot program that aims to improve outcomes for patients with cancer.

(d) Pre-Rulemaking Process and Measure Endorsement

(i) Recommendation From the PRMR Process

We refer readers to the proposed Patient Safety Structural measure in section IX.B.1.c. of this proposed rule for details on the PRMR process including the voting procedures the PRMR process uses to reach consensus on measure recommendations. The PRMR Hospital Committee met on January 18-19, 2024, to review measures included by the Secretary on a publicly available “2023 Measures Under Consideration List” (MUC List), including the CLABSI-Onc measure (MUC2023-219), and to vote on a recommendation with regard to use of this measure.

The committee reached consensus and recommended including this measure in the Hospital IQR Program with conditions. Fourteen members of the group recommended adopting the measure into the Hospital IQR Program without conditions; four members recommended adoption with conditions; and one committee member voted not to recommend the measure for adoption. Taken together, 94.7 percent of the votes recommended the measure.

Four members of the voting committee recommended the adoption of this measure into the Hospital IQR Program, with the first condition being that CMS consider expanding the reporting period. This would increase the patient volume included in the denominator and increase precision. We have reviewed this recommendation and concluded that expanding the reporting period would result in a critical loss in the ability to observe changes in the SIR over time. Obscuring any observable changes in the SIR would degrade the measure's ability to assess prevention efforts and further drive quality improvement. Therefore, we are proposing this measure for adoption without the modification suggested by four committee members in order to preserve the measure's ability to observe changes in the SIR more quickly.

The second condition the committee recommended for the Hospital IQR Program was that the measure should evaluate data by oncology unit type, such as hematology-oncology versus solid organ. We acknowledge this condition and may consider it for future rulemaking. We are proposing to adopt the CLABSI-Onc measure in the Hospital IQR Program having taken into consideration the conditions raised by the PRMR Hospital Recommendation Committee.

The measure received strong support from the committee as it addresses an important patient safety concern. During the committee's discussion, some expressed concern about the burden of manual abstraction. Others asked about the measure's validity, and whether the measure should include risk adjustments when HAIs are an issue across the board.

(ii) Measure Endorsement

We refer readers to the proposed Patient Safety Structural measure in section IX.B.1.c. of this proposed rule for details on the E&M process including the measure evaluation procedures the E&M Committees use to evaluate measures and whether they meet endorsement criteria. The CLABSI measure was most recently submitted to the CBE for endorsement review in the Spring 2019 cycle (CBE #0139) and was endorsed on October 23, 2019. In the submission of the CLABSI-Onc measure to the 2023 MUC list, the CDC provided additional oncology-only reliability testing based on existing data submitted to the CDC's NHSN. Because the CLABSI-Onc measure has the same specifications as the CLABSI measure, with the only difference being that it is stratified for oncology locations, additional endorsement of CLABSI-Onc is not necessary. The calculations pertinent to those locations are inherently part of the endorsement performed for the CLABSI measure, and the measure ( i.e., numerator/denominator) is endorsed across all inpatient hospital settings, including oncology locations. The calculation of the SIR includes and accounts for the location of the patient within the facility. The CDC will incorporate information on the stratification by oncology patients during the regularly scheduled measure maintenance re-endorsement process.

(e) Measure Specifications

For this measure, the NHSN calculates the quarterly risk-adjusted SIR of CLABSIs among inpatients at acute care hospitals who are in oncology wards. The CDC then calculates the SIR using all four quarters of data from the reporting period year, which CMS uses for performance calculation and public reporting purposes. The CDC defines an oncology ward as an area for the evaluation and treatment of patients with cancer. For more details, we refer readers to the CDC Locations and Descriptions and Instructions for Mapping Patient Care Locations document.

The numerator is the number of annually observed CLABSIs among acute care hospital inpatients in oncology wards. The denominator is the number of annually predicted CLABSIs among acute care hospital inpatients in oncology wards. By dividing the number of observed CLABSIs by the number of predicted CLABSIs, the SIR compares the actual number of cases to the expected number of cases. However, this does not preclude SIRs from being ranked. The SIR is calculated when there is at least one predicted CLABSI, to achieve a minimum level of precision.

The measure requires a facility to have at least one predicted CLABSI before calculating the SIR because the precision of a facility's CLABSI rate can vary, especially in low volume hospitals. For this reason, the NHSN calculates the SIR instead of reporting the CLABSI rate directly. A facility's SIR is not meant to be compared directly to that of another facility. Rather, the primary role of the SIR is to compare a facility's CLABSI rate to the national rate after adjusting for facility- and patient-level risk factors.

The numerator and denominator exclude the following devices because they are not considered central lines: arterial catheters unless in the pulmonary artery, aorta or umbilical artery, arteriovenous fistula, arteriovenous graft, atrial catheters (also known as transthoracic intra-cardiac catheters, those catheters inserted directly into the right or left atrium via the heart wall), extracorporeal membrane oxygenation (ECMO), hemodialysis reliable outflow (HERO) dialysis catheter, intra-aortic balloon pump (IABP) devices, peripheral IV or midlines, or ventricular assist devices (VAD). Additionally, CLABSI events reported to the NHSN as mucosal barrier injury laboratory-confirmed bloodstream infections (MBI-LCBIs) are excluded.

The SIR also adjusts for various facility and patient-level factors that contribute to HAI risk within each facility. For more information on the risk adjustment methodology please reference the CDC website at: https://www.cdc.gov/nhsn/2022rebaseline/index.html.

(f) Data Submission and Reporting

We are proposing to collect data for the CLABSI-Onc measure via the NHSN, consistent with the current approach for HAI reporting for the HAC Reduction and Hospital VBP Programs. The NHSN is a secure, internet-based surveillance system maintained and managed by the CDC and provided free of charge to providers. To report to the NHSN, hospitals must first agree to the NHSN Agreement to Participate and Consent form, which specifies how NHSN data will be used, including fulfilling CMS's quality measurement reporting requirements for NHSN data.

Starting in 2011, facilities operating under the Hospital IQR Program began reporting CLABSIs in all adult, pediatric, and neonatal intensive care locations followed by reporting all adult and pediatric medical, surgical, and medical/surgical wards in 2015 using NHSN. According to a 2022 CDC report, 3,728 hospitals are reporting CLABSI data to NHSN; of these, 488 hospitals reported data from at least one oncology location. We anticipate that because most of the hospitals which would begin to report the CLABSI-Onc measure for the Hospital IQR Program are already reporting via NHSN for other measures, they have already set up an account. Hospitals currently reporting CLABSI must verify that locations housing oncology patients are correctly mapped as an oncology location based on NHSN's location mapping guidance for accurate event location attribution.

Hospitals would report their data for the CLABSI-Onc measure on a quarterly basis for the purposes of Hospital IQR Program requirements. Presently, hospitals report CLABSI data to the NHSN monthly and the SIR is calculated on a quarterly basis. Under the data submission and reporting process, hospitals would collect the numerator and denominator for the CLABSI-ONC measure each month and submit the data to the NHSN. The data from all 12 months would be calculated into quarterly reporting periods which would then be used to determine the SIR for CMS performance calculation and public reporting purposes. We refer readers to the NHSN website for further information about NHSN reporting requirements. We refer readers to the FY 2024 IPPS/LTCH PPS final rule (88 FR 59141) for information on data submission and reporting requirements for our most recent updates to data submission and reporting requirements for measures submitted via the CDC NHSN.

We invite public comment on our proposal to adopt the CLABSI-Onc measure beginning with the CY 2026 reporting period/FY 2028 payment determination.

c. Proposal To Adopt the Hospital Harm—Falls With Injury eCQM Beginning With the CY 2026 Reporting Period/FY 2028 Payment Determination

(1) Background

Patient falls are among the most common hospital harms reported and can increase length of stay and patient costs. It has been estimated that there are 700,000-1,000,000 inpatient falls in the U.S. annually, with more than one-third resulting in injury and up to 11,000 resulting in patient death. Protocols and prevention measures to reduce patient falls with injury include using fall risk assessment tools to gauge individual patient risk, implementing fall prevention protocols directed at individual patient risk factors, and implementing environmental rounds to assess and correct environmental fall hazards. There is wide variation in fall rates between hospitals which suggests that this is an area where quality measurement and further improvement is still needed.

Currently there are no electronic clinical quality measures (eCQMs) that focus specifically on acute care inpatient falls with major or moderate injury in any of the hospital quality reporting or value-based purchasing programs. The Patient Safety Indicator (PSI) 90 composite measure, which is currently included in the HAC Reduction Program, does include a fall related component, (PSI 08): In Hospital Fall-Associated Fracture Rate; however, it is a claims-based measure that uses a two-year performance period, it is focused on the Medicare Fee For Service (FFS) population, and the numerator is limited to fractures and does not include other fall-associated major and moderate injuries. In the FY 2022 IPPS/LTCH PPS final rule, we highlighted our commitment to developing new digital quality measures that assess various aspects of patient safety in the inpatient setting (87 FR 49181 through 49190). As discussed later in this section of the preamble, the Hospital Harm—Falls with Injury eCQM provides the opportunity to assess the rate of falls that result in a wider range of injuries, in a much larger patient population, and using more timely information from patients' electronic medical records instead of administrative claims data.

(2) Overview of Measure

The Hospital Harm—Falls with Injury measure is a risk-adjusted outcome eCQM. The denominator is inpatient hospitalizations for patients aged 18 and older with a length of stay less than or equal to 120 days that ends during the measurement period. The numerator is inpatient hospitalizations where the patient has a fall that results in moderate injury (such as lacerations, open wounds, dislocations, sprains, and strains) or major injury (such as fractures, closed head injuries, internal bleeding). The diagnosis of a fall and of a moderate or major injury that was present on admission would be excluded from the measure.

The baseline risk-adjustment model accounts for age and several risk factors present on admission (weight loss or malnutrition, delirium, dementia, and other neurological disorders). The risk-adjustment model has been developed to ensure that hospitals that care for sicker and more complex patients are evaluated fairly. We refer readers to the eCQI Resource Center ( https://ecqi.healthit.gov/eh-cah) for more details on the measure specifications and risk methodology.

(3) Measure Alignment to Strategy

This measure aligns with several goals under the CMS National Quality Strategy in addition to supporting our re-commitment to better patient and healthcare worker safety. The COVID-19 public health emergency (PHE) put significant strain on hospitals and health systems which negatively impacted patient safety in routine care delivery, highlighting the need to address gaps in safety. Proposing the Hospital Harm—Falls with Injury measure is one of several initial actions we are taking in response to the President's Council of Advisors on Science and Technology (PCAST) call to action to renew “our nation's commitment to improving patient safety.” By establishing additional safety indicators, such as this measure, we are building a stronger, more resilient U.S. healthcare system. We refer readers to section IX.B.1. for more details on other efforts toward better patient and healthcare workers safety practices and the proposal to adopt the Patient Safety Structural measure into the Hospital IQR Program and the PCHQR Program.

This measure aligns with the “Safety and Resiliency” goal of our CMS National Quality Strategy to achieve zero preventable harm, the “Equity and Engagement” goal to ensure that all individuals have the information needed to make the best choices and complements the HHS National Action Alliance to Advance Patient Safety. By providing hospitals with the opportunity to assess the rate of falls with injury in a much larger patient population (all-payer) compared to current measures such as PSI 08 (limited to Medicare FFS), this measure expands the available safety indicator data within CMS programs and promotes equitable care for all. This measure additionally supports the “Outcomes and Alignment” goals to improve quality and health outcomes by providing hospitals a mechanism to track falls with injury event rates and improve falls intervention efforts over time, a key patient safety metric across the care journey. Third, this measure supports CMS' Interoperability goal to improve quality measure efficiency by transitioning to digital measures in CMS quality reporting programs. As an eCQM, this measure increases the digital measure footprint and can also serve as a potential replacement for the claims-based PSI 08 measure (reported within the PSI 90 composite) in the future.

(4) Pre-Rulemaking Process and Measure Endorsement

(a) Recommendation From the PRMR Process

We refer readers to the proposed Patient Safety Structural measure in section IX.B.1.c. of the preamble of this is proposed rule for details on the PRMR process including the voting procedures used to reach consensus on measure recommendations. The PRMR Hospital Committee met on January 18-19, 2024, to review measures included by the Secretary on a publicly available “2023 Measures Under Consideration List” (MUC List), including the Hospital Harm—Falls with Injury measure (MUC2023-048), and to vote on a recommendation with regard to use of this measure.

The committee reached consensus and recommended including this measure in the Hospital IQR Program with conditions. Twelve members of the group voted to adopt the measure into the Hospital IQR Program without conditions; six members voted to adopt with conditions; one committee member voted not to recommend the measure for adoption. Taken together, 94.7 percent of the votes were recommended or recommended with conditions. The six members who voted to adopt with conditions, specified the condition as monitoring unintended for consequences, such as use of patient restraints. We agree that the potential for unintended consequences exists and note that we consistently monitor all of the measures in the Hospital IQR Program for unintended consequences. Furthermore, we note that under our previously finalized measure removal Factor 6, collection or public reporting of a measure leads to negative unintended consequences other than patient harm, if we were to identify unintended consequences related to this measure we would consider it for removal. Furthermore, we note that various programs have been instituted that reduce hospital falls without decreasing mobility (such as the Hospital Elder Life Program) and that the benefits of promoting mobility outweigh any increase in fall risk.

(b) Measure Endorsement

We refer readers to the proposed Patient Safety Structural measure in section IX.B.1.c. of this proposed rule for details on the E&M process including the measure evaluation procedures the E&M Committees uses to evaluate measures and whether they meet endorsement criteria. The E&M Management of Acute Events, Chronic Disease, Surgery, and Behavioral Health Committee convened in the Fall 2023 cycle to review the Hospital Harm—Falls with Injury measure (CBE #4120e) submitted to the CBE for endorsement. The E&M Management of Acute Events, Chronic Disease, Surgery, and Behavioral Health Committee ultimately voted to endorse the measure on January 29, 2024.

(5) Measure Specifications

This ratio measure is reported as the number of inpatient hospitalizations with falls with moderate or major injury per 1,000 patient days. The measure is calculated using the following: (Total number of encounters with falls with moderate or major injury/total number of eligible hospital days) × 1,000. To calculate the numerator (that is, the total number of encounters with falls with moderate or major injury): (1) identify the initial population (inpatient hospitalizations for patients aged 18 and older with a length of stay less than or equal to 120 days that ends during the measurement period), (2) remove exclusions (patients who had a fall diagnosis present at the time the order for inpatient admission occurs), and (3) determine if the patient meets numerator criteria (patient has both a fall diagnosis and major or moderate injury diagnosis not present on admission). Hospital days are measured in 24-hour periods starting from the time of arrival at the hospital (including time in the emergency department and or observation). The number of hospital days is rounded down to whole numbers; any fractional periods are dropped. All data elements necessary to calculate the numerator and denominator are defined within value sets available in the Value Set Authority Center (VSAC).

The measure was tested in 12 hospital test sites with two different EHR vendors (Epic and Allscripts) with varying bed size, geographic location, and teaching status. Risk-adjusted rates showed substantial variation in performance scores across the 12 test hospitals indicating ample room for quality improvement. Test results using one year of data indicated strong measure reliability and validity (including agreement between data exported from the EHR and data in the patient chart). As PSI 08 uses a two-year performance period, this eCQM would allow hospitals to receive more timely information about measure performance.

We recognize there may be stakeholder concern regarding measure duplication with PSI 08 (a component of PSI 90 that is currently measured and publicly reported in the HAC Reduction Program). However, as described earlier, the Hospital Harm—Falls with Injury eCQM provides the opportunity to assess the rate of falls with a wider range of injuries in a larger population compared to PSI 08. We envision the potential future use of patient safety eCQMs not only in the Hospital IQR Program, but also pay-for-performance programs such as the HAC Reduction Program, including as a potential replacement for the claims-based PSI 90 measure. However, until that time we intend to retain PSI 08 (within the PSI 90 composite) in the HAC Reduction Program as well as include the Hospital Harm—Falls with Injury eCQM in the Hospital IQR Program.

(6) Data Submission and Reporting

This eCQM uses data collected through hospitals' EHRs. The measure is designed to be calculated by the hospitals' certified electronic health record technology (CEHRT) using patient-level data and then submitted by hospitals to CMS. As with all quality measures we develop, testing was performed to confirm the feasibility of the measure, data elements, and validity of the numerator, using clinical adjudicators who validated the EHR data compared with medical chart-abstracted data. Testing demonstrated that all critical data elements were reliably and consistently captured in hospital EHRs and measure implementation is feasible.

We are proposing the adoption of the Hospital Harm—Falls with Injury eCQM as part of the eCQM measure set beginning with the CY 2026 reporting period/FY 2028 payment determination. The eCQM measure set is the measure set from which hospitals can self-select measures to report to meet the eCQM reporting requirement. We refer readers to section IX.C.9.c. of this proposed rule for a discussion of our previously finalized eCQM reporting and submission requirements, as well as proposed modifications for these requirements. Additionally, we refer readers to section IX.F.6.a.(2). of the preamble of this proposed rule for a discussion of a similar proposal to adopt this measure in the Medicare Promoting Interoperability Program.

We invite public comment on our proposal to adopt the Hospital Harm—Falls with Injury eCQM beginning with the CY 2026 reporting period/FY 2028 payment determination.

d. Proposal To Adopt the Hospital Harm—Postoperative Respiratory Failure eCQM Beginning With the CY 2026 Reporting Period/FY 2028 Payment Determination

(1) Background

Postoperative respiratory failure is defined as unplanned intubation or prolonged mechanical ventilation (MV) after an operation. It is considered to be the most serious of the postoperative respiratory complications because it represents the “end stage” of several types of pulmonary complications (for example, pneumonia, aspiration, pulmonary edema, and acute respiratory distress syndrome) and non-pulmonary problems (for example, sepsis, oversedation, seizures, stroke, heart failure, pulmonary embolism, and fluid overload), and it often results in negative outcomes, including prolonged morbidity, longer hospital stays, increased readmissions, higher costs, or death. Postoperative respiratory failure is potentially preventable with optimal care, such as carefully managing intraoperative ventilator use and fluids, reducing surgical duration, using regional anesthesia, and preventing wound infection and pain. Published data suggest room for improvement; a Nationwide Inpatient Sample (NIS) database study of over 500,000 hospitalizations involving a brain tumor between 2002 and 2010 found the incidence of postoperative respiratory failure varied by hospital characteristics, with higher reported rates of postoperative respiratory failure in nonteaching hospitals than teaching hospitals, and incidence increased with hospital bed size.

Currently there are no eCQMs that focus specifically on postoperative respiratory failure in the inpatient setting in any of the hospital quality reporting or value-based purchasing programs. The PSI 90 composite measure, which is currently included in the HAC Reduction Program, does include a postoperative respiratory failure related component, (PSI 11): Postoperative Respiratory Failure Rate; however, it is a claims-based measure that uses a two-year performance period, it is focused on the Medicare FFS population, and is dependent upon ICD-10-CM codes. In the FY 2022 IPPS/LTCH PPS final rule, we highlighted our commitment to developing new digital quality measures that assess various aspects of patient safety in the inpatient setting (87 FR 49181 through 49190). The Hospital Harm—Postoperative Respiratory Failure eCQM provides the opportunity to assess the rate of postoperative respiratory failure in a much larger patient population and use more timely information from patients' electronic medical records instead of administrative claims data.

(2) Overview of Measure

The Hospital Harm—Postoperative Respiratory Failure measure is a risk-adjusted outcome eCQM. The denominator is elective inpatient hospitalizations that end during the measurement period for patients 18 years old and older without an obstetrical condition and at least one surgical procedure was performed within the first three days of the encounter.³⁸⁸ The numerator is elective inpatient hospitalizations for patients with postoperative respiratory failure: For more detail on how postoperative respiratory failure is determined we refer readers to the measure specifications at the eCQI Resource Center ( https://ecqi.healthit.gov/eh-cah).

The baseline risk-adjustment model accounts for ten comorbidities present on admission (weight loss, deficiency anemias, heart failure, diabetes with chronic complications, moderate to severe liver disease, peripheral vascular disease, pulmonary circulation disease, valvular disease, ASA categories 3 through 5) and lab values for oxygen (partial pressure), leukocytes, albumin, BUN, bilirubin, and pH of arterial blood. The risk-adjustment ensures that hospitals that care for sicker and more complex patients are evaluated fairly. We refer readers to the eCQI Resource Center ( https://ecqi.healthit.gov/eh-cah) for more details on the measure specifications and risk-adjustment methodology.

(3) Measure Alignment to Strategy

This measure aligns with several goals under the CMS National Quality Strategy in addition to supporting our re-commitment to better patient and healthcare worker safety. The COVID-19 public health emergency (PHE) highlighted the need to address gaps in safety by putting significant strain on hospitals and health systems which, in turn, negatively impacted patient safety. Proposing the Hospital Harm—Postoperative Respiratory Failure measure is one of several initial actions we are taking in response to the President's Council of Advisors on Science and Technology (PCAST), call to action to renew “our nation's commitment to improving patient safety.” By establishing additional safety indicators, such as this measure, we are building a stronger, more resilient U.S. healthcare system. We refer readers to section IX.B.1. for more details on other efforts toward better patient and healthcare workers safety practices and the proposal to adopt the Patient Safety Structural measure into the Hospital IQR Program and the PCHQR Program.

In alignment with the CMS National Quality Strategy this measure supports the “Safety and Resiliency” goal to achieve zero preventable harm, the “Equity and Engagement” goal to ensure that all individuals have the information needed to make the best choices and complements the HHS National Action Alliance to Advance Patient Safety. By providing hospitals the opportunity to assess postoperative respiratory failure rates in a much larger patient population (all-payer) compared to current measures such as PSI 11 (limited to Medicare FFS), this measure expands the available safety indicator data within CMS programs and promotes equitable care for all. Second, this measure supports the “Outcomes and Alignment” goals to improve quality and health outcomes by providing hospitals a mechanism to track their postoperative respiratory failure incidents and improve harm reduction efforts over time, a key patient safety metric across the care journey. Third, this measure supports CMS' Interoperability goal to improve quality measure efficiency by transitioning to digital measures in CMS quality reporting programs. As an eCQM, this measure increases the digital measure footprint and can also serve as a potential replacement for the claims-based PSI 11 measure (reported within the PSI-90 composite) in the future.

(4) Pre-Rulemaking Process and Measure Endorsement

(a) Recommendation From the PRMR Process

We refer readers to the proposed Patient Safety Structural measure in section IX.B.1.c. of this proposed rule for details on the PRMR process including the voting used to reach consensus on measure recommendations. The PRMR Hospital Committee met on January 18-19, 2024, to review measures included by the Secretary on a publicly available “2023 Measures Under Consideration List” (MUC List), including the Hospital Harm—Postoperative Respiratory Failure measure (MUC2023-050), and to vote on a recommendation for rulemaking for the Hospital IQR Program.

The committee reached consensus and recommended including this measure in the Hospital IQR Program with conditions. Twelve members of the group voted to adopt the measure into the Hospital IQR Program without conditions; five members voted to adopt with conditions; two committee members voted not to recommend the measure for adoption. Taken together, 89.5 percent of the votes were between recommend and recommend with conditions. The five members who voted to adopt with conditions specified the condition as monitoring unintended consequences, such as avoidance of life-saving procedures with higher risk for respiratory failure. We agree that the potential for unintended consequences exists and note that we consistently monitor all of the measures in the Hospital IQR Program for unintended consequences. Furthermore, we note that under our previously finalized measure removal Factor 6, collection or public reporting of a measure leads to negative unintended consequences other than patient harm, if we were to identify unintended consequences related to this measure, we would consider it for removal. Furthermore, the measure logic allows for the use of mechanical ventilation or intubation or extubation documentation outside of a procedural area to trigger a postoperative respiratory event, thus expanding opportunities for electronic capture of information and accommodating varying clinical documentation workflows.

(b) Measure Endorsement

We refer readers to the proposed Patient Safety Structural measure in section IX.B.1.c. of this proposed rule for details on the E&M process including the measure evaluation procedures the E&M Committees uses to evaluate measures and whether they meet endorsement criteria. The E&M Management of Acute and Chronic Events Committee convened in the Fall 2023 cycle to review the Hospital Harm—Postoperative Respiratory Failure measure (CBE #4130e) submitted to the CBE for endorsement. The E&M Management of Acute and Chronic Events Committee ultimately voted to endorse the measure on January 29, 2024.

(5) Measure Calculation

Postoperative respiratory failure is evaluated using MV documentation, intubation or extubation documentation to determine if an unplanned initiation of MV occurred or if MV was continued without interruption after a procedure.

The following calculation is applied to report the overall performance rate: [Number of encounters in numerator/(Number of encounters in denominator—Number of encounters in denominator exclusions)] × 1,000. All data elements necessary to calculate the numerator and denominator are defined within value sets available in the VSAC.

The measure was tested in 12 hospitals (test sites) with two different EHR vendors (Epic and Cerner) with varying bed size, geographic location, and teaching status. Risk-adjusted rates showed substantial variation in performance scores across the 12 test hospitals. Test results indicated high measure reliability and validity (including agreement between data exported from the EHR and data in the patient chart).

(6) Data Submission and Reporting

This eCQM uses data collected through hospitals' EHRs. The measure is designed to be calculated by the hospitals' CEHRT using patient-level data and then submitted by hospitals to CMS. As with all quality measures we develop, testing was performed to confirm the feasibility of the measure, data elements, and validity of the numerator, using clinical adjudicators who validated the EHR data compared with medical chart-abstracted data. Testing demonstrated that all critical data elements were reliably and consistently captured in patient EHRs and measure implementation is feasible.

We are proposing the adoption of the Hospital Harm—Postoperative Respiratory Failure eCQM as part of the eCQM measure set beginning with the CY 2026 reporting period/FY 2028 payment determination. The eCQM measure set is the measure set from which hospitals can self-select measures to report to meet the eCQM reporting requirement. We refer readers to section IX.C.9.c. of this proposed rule for a discussion of our previously finalized eCQM reporting and submission policies, as well as proposed modifications for these requirements. Additionally, we refer readers to section IX.F.6.a.(2). of the preamble of this proposed rule for a discussion of a similar proposal to adopt this measure in the Medicare Promoting Interoperability Program.

We invite public comment on our proposal to adopt the Hospital Harm—Postoperative Respiratory Failure eCQM beginning with the CY 2026 reporting period/FY 2028 payment determination.

e. Proposal To Adopt the Thirty-Day Risk-Standardized Death Rate Among Surgical Inpatients With Complications (Failure-To-Rescue) Measure Beginning With the FY 2027 Payment Determination

(1) Background

Failure-to-rescue is defined as the probability of death given a postoperative complication. Hospitals can implement evidence-supported interventions to improve timely identification of clinical deterioration and treatment of potentially preventable complications, including improved nurse staffing, simulation training, standardized communication tools, electronic monitoring and/or warning systems, and rapid response systems. Studies also show that other processes of care can influence failure-to-rescue rates, including a hospital's aggressiveness of care (defined as the level of resources or inpatient spending), with hospitals that treat patients more aggressively (such as providing more inpatient days or ICU days in the last 2 years of life) having lower surgical mortality and failure-to-rescue rates than otherwise similar hospitals that treat patients less aggressively. Hospitals and healthcare providers benefit from knowing not only their institution's mortality rate, but also their institution's ability to rescue patients after an adverse occurrence. Using a failure-to-rescue measure is especially important if hospital resources needed for preventing complications are different from those needed for rescue.

This Failure-to-Rescue measure was designed to improve upon the CMS Patient Safety Indicator 04 Death Rate Among Surgical Inpatients with Serious Treatable Complications (CMS PSI 04) measure in the Hospital IQR Program. We refer readers to section IX.C.6.a. for our proposal to remove the CMS PSI 04 measure contingent upon the adoption of the Failure-to-Rescue measure. Both the Failure-to-Rescue measure and the CMS PSI 04 measure focus on hospitals' ability to rescue patients who experience clinically significant complications after inpatient operations, so that these complications do not result in death. Both measures are sensitive to factors such as appropriate nurse staffing and nursing skill-mix, which enable hospitals to identify complications earlier and intervene effectively to prevent death.

The proposed Failure-to-Rescue measure directly addresses stakeholder concerns about the CMS PSI 04 measure, including:

• Complications sometimes develop before the index operation in CMS PSI 04, even before transferring to the index hospital. For example, the operation is part of an effort to “rescue” the patient.
• The heterogeneous cohort includes patients with very high-risk surgery (for example, trauma surgery, burn surgery, organ transplants, intracranial hemorrhage) and very low-risk surgery (for example, eye, ear, urolithiasis).
• Mean length of stay and prevalence of early discharge to post-acute facilities vary across hospitals, causing bias in comparing performance.
• CMS PSI 04 may slightly disadvantage teaching hospitals, even after risk-adjustment, due to residual confounding from unmeasured case-mix differences.

The proposed Failure-to-Rescue measure has four major differences compared to CMS PSI 04:

1. Captures all deaths of denominator-eligible patients within 30 days of the first qualifying operating room procedure, regardless of site.

2. Limits the denominator to patients in general surgical, vascular, and orthopedic Medicare Severity Diagnosis Related Groups (MS-DRGs).

3. Excludes patients whose relevant complications preceded (rather than followed) their first inpatient operating room procedure, while broadening the definition of denominator-triggering complications to include other complications that may predispose to death (for example, pyelonephritis, osteomyelitis, acute myocardial infarction, stroke, acute renal failure, heart failure/volume overload).

4. Measure cohort includes Medicare Advantage patients.

We are proposing to adopt the Failure-to-Rescue measure beginning with the performance period of July 1, 2023-June 30, 2025 affecting the FY 2027 payment determination.

(2) Overview of Measure

The Failure-to-Rescue measure is a risk-standardized measure of death after hospital-acquired complication. The measure denominator includes patients 18 years old and older admitted for certain procedures in the General Surgery, Orthopedic, or Cardiovascular Medicare Severity Diagnosis Related Groups (MS-DRGs) who were enrolled in the Medicare program and had a documented complication that was not present on admission. The measure numerator includes patients who died within 30 days from the date of their first “operating room” procedure, regardless of site of death.

We refer readers to CMS' QualityNet website: https://qualitynet.cms.gov/inpatient/measures/psi (or other successor CMS designated websites) for more details on the measure specifications.

(3) Measure Alignment to Strategy

The Failure-to-Rescue measure aligns with several goals under the CMS National Quality Strategy. In alignment with the goal to “Promote Alignment” and “Improved Health Outcomes,” this outcome-based measure would allow hospitals to track their institution's ability to rescue patients after an adverse occurrence and encourage hospitals to focus on early identification and rapid treatment of complications, thereby improving the overall quality of care and health outcomes of patients in the inpatient setting. In alignment with the goal to “Ensure Safe and Resilient Health Care Systems,” the Failure-to-Rescue measure includes a larger patient population than the CMS PSI 04 measure. The Failure-to-Rescue measure includes Medicare Advantage data and the denominator includes a much broader range of hospital-acquired complications (for example, kidney dysfunction, seizures, stroke, heart failure, and wound infection) than the CMS PSI 04 measure.

(4) Pre-Rulemaking Process and Measure Endorsement

(a) Recommendation From the PRMR Process

We refer readers to section IX.B.1.c. of the preamble of this proposed rule for details on the PRMR process including the voting procedures the PRMR process uses to reach consensus on measure recommendations. The PRMR Hospital Committee, comprised of the PRMR Hospital Advisory Group and PRMR Hospital Recommendation Group, reviewed measures included by the Secretary on a publicly available “2023 Measures Under Consideration List” (MUC List), including the Failure-to-Rescue measure (MUC2023-049). The PRMR Hospital Recommendation Group reviewed the proposed updates to the Failure-to-Rescue measure (MUC2023-049) during a meeting on January 18-19, 2024.

The committee reached consensus and recommended including this measure in the Hospital IQR Program with conditions. Twelve members of the group voted to adopt the measure into the Hospital IQR Program without conditions; five members voted to adopt with conditions; two committee members voted not to recommend the measure for adoption. Taken together, 89.5 percent of the votes were recommend or recommended with conditions. The five members of the voting committee who voted to adopt with conditions specified the condition as collecting data to evaluate possible unintended consequences, such as hospitals encouraging patients to sign a DNR order or enter hospice. We agree with the potential for unintended consequences and note that we consistently monitor all of the measures in the Hospital IQR Program for unintended consequences. Furthermore, we note that under our previously finalized measure removal Factor 6, collection or reporting of a measure leads to negative unintended consequences other than patient harm, if we were to identify unintended consequences related to this measure we would consider it for removal.

Feedback was generally positive with some discussion around whether the measure was enough of an improvement on CMS PSI 04. The measure developer highlighted several areas of improvement compared to CMS PSI 04, including increased reliability and validity largely due to the application of this measure to both Medicare Advantage and fee-for-service enrollees, as well as the inclusion of deaths after hospital discharge but within 30 days of the index operative procedure.

(b) Measure Endorsement

We refer readers to the proposed Patient Safety Structural measure in section IX.B.1.c. of this proposed rule for details on the E&M process including the measure evaluation procedures the E&M Committees uses to evaluate measures and whether they meet endorsement criteria. The E&M Management of Acute Events, Chronic Disease, Surgery, and Behavioral Health Committee convened in the Fall Cycle 2023 to review the Failure-to-Rescue measure (CBE #4125) which was submitted to the CBE for endorsement. The E&M Management of Acute Events, Chronic Disease, Surgery, and Behavioral Health Committee ultimately voted to endorse with conditions on January 29th, 2024. The condition was: perform additional reliability testing for endorsement review, namely conducting additional simulation analyses of minimum case volume adjustments. We would monitor the data as part of the standard measure maintenance.

(5) Measure Calculation

The measure is calculated using Medicare fee-for-service (FFS) Part A inpatient claims data and Medicare Inpatient Encounter data for Medicare Advantage enrollees, in combination with validated death data from the Medicare Beneficiary Summary File or equivalent resources. CMS receives death information from a number of sources: Medicare claims data from the Medicare Common Working File (CWF); online date of death edits submitted by family members; and benefit information used to administer the Medicare program collected from the Railroad Retirement Board (RRB) and the Social Security Administration (SSA). Similar to the CMS 30-day mortality measures, the “Valid Date of Death Switch” is used to confirm that the exact day of death has been validated.

This measure was tested using Medicare inpatient hospital discharge data from 2,055 IPPS hospitals with at least 25 eligible discharges from January 1, 2021 through June 30, 2022. Hospital-level performance rates are depicted in Table IX.C-2. Because lower scores are better the lower performance percentiles are better performing hospitals than those in the higher percentiles (for example, the hospitals in the fifth percentile are the best performing hospitals).

If hospitals currently in the worst quartile (that is, those at the 75th percentile) were to improve performance to the performance of hospitals in the best quartile (that is, those at the 25th percentile) it would represent a 50 percent decrease in the frequency of deaths after postoperative complications at those hospitals.

Test results indicated moderate measure reliability and strong validity.

(6) Data Submission and Reporting

This measure uses readily available administrative claims data routinely generated and submitted to CMS for all Medicare beneficiaries, which includes Medicare Advantage and Medicare fee-for-service patients. Hospitals would not be required to report any additional data. We have used a similarly designed claims-based measure (CMS PSI 04) for over a decade. The Failure-to-Rescue measure would be calculated and publicly reported on annual basis using a rolling 24 months of prior data for the measurement period, consistent with the approach currently used for CMS PSI 04 and PSI 90, the Patient Safety and Adverse Events Composite.

We invite public comment on our proposal to adopt the Thirty-day Risk-Standardized Death Rate Among Surgical Inpatients with Complications (Failure-to-Rescue) measure beginning with the CY 2025 reporting period/FY 2027 payment determination.

6. Proposed Measure Removals for the Hospital IQR Program Measure Set

We are proposing to remove five measures: (1) Death Among Surgical Inpatients with Serious Treatable Complications (CMS PSI 04) measure beginning with the July 1, 2023-June 30, 2025 reporting period/FY 2027 payment determination; (2) Hospital-level, Risk-Standardized Payment Associated with a 30-Day Episode-of-Care for Acute Myocardial Infarction (AMI) measure beginning with the July 1, 2021-June 30, 2024 reporting period/FY 2026 payment determination; (3) Hospital-level, Risk-Standardized Payment Associated with a 30-Day Episode-of-Care for Heart Failure (HF) measure beginning with the July 1, 2021-June 30, 2024 reporting period/FY 2026 payment determination; (4) Hospital-level, Risk-Standardized Payment Associated with a 30-Day Episode-of-Care for Pneumonia (PN) measure beginning with the July 1, 2021-June 30, 2024 reporting period/FY 2026 payment determination; and (5) Hospital-level, Risk-Standardized Payment Associated with a 30-Day Episode-of-Care for Elective Primary Total Hip Arthroplasty (THA) and/or Total Knee Arthroplasty (TKA) measure beginning with the April 1, 2021-March 31, 2024 reporting period/FY 2026 payment determination. We provide more details on each of these proposals in the subsequent sections.

a. Proposal To Remove the Death Among Surgical Inpatients With Serious Treatable Complications (CMS PSI 04) Measure Beginning With the CY 2025 Reporting Period/FY 2027 Payment Determination

We are proposing to remove the Death Among Surgical Inpatients with Serious Treatable Complications (CMS PSI 04) measure, beginning with the FY 2027 payment determination associated with the performance period of July 1, 2023-June 30, 2025, based on removal Factor 3, the availability of a more broadly applicable measure (across settings, populations), or the availability of a measure that is more proximal in time to desired patient outcomes for the particular topic. The CMS PSI 04 measure was adopted into the Hospital IQR Program in the FY 2009 IPPS/LTCH PPS final rule (73 FR 48607). The CMS PSI 04 measure records in-hospital deaths per 1,000 elective surgical discharges, among patients ages 18 through 89 years old or obstetric patients with serious treatable complications (shock/cardiac arrest, sepsis, pneumonia, deep vein thrombosis/pulmonary embolism, or gastrointestinal hemorrhage/acute ulcer). It is a claims-based measure which uses claims and administrative data to calculate the measure without any additional data collection from hospitals. The measure was previously endorsed (CBE #0351), but given the measurement's limitations, endorsement was not maintained by the measure steward, and the measure has not been updated since 2017.

In the FY 2022 IPPS/LTCH PPS proposed rule (86 FR 25579 through 25580), we proposed to remove this measure under removal Factor 3, noting at that time that the Hybrid Hospital-Wide Mortality measure (Hybrid HWM) (CBE #3502) was more broadly applicable. Some public commenters, however, expressed concerns about replacing CMS PSI 04 with the Hybrid HWM measure since the Hybrid HWM measure would report on the mortality rate of the entire hospital, instead of specifically measuring the deaths of surgical inpatients in an effort to assess postoperative mortality distinct from hospital-wide mortality (86 FR 45391). Other commenters elaborated on this concern stating that by removing a postoperative-specific mortality measure, hospitals may lose the ability to account for what resources they need to better care for surgical inpatients since that population's needs often differs from the needs of non-surgical IPPS hospital patients (86 FR 45391 through 45392). Some commenters suggested modifications to the existing CMS PSI 04 measure such as changing its methodology to refine the types of surgical patients and complications included in the measure and to expand the measure beyond surgical inpatients (86 FR 45390 through 45391). Other commenters suggested keeping CMS PSI 04 unchanged because of the importance of evaluating patient deaths when assessing patient safety and suggested adding more patient safety measures to the Hospital IQR Program measure set, expressing their belief that there were too few patient safety measures in the program (86 FR 45391). After consideration of the public comments on our proposal to remove CMS PSI 04 in the FY 2022 IPPS/LTCH PPS proposed rule (86 FR 25579 through 25580) we decided not to finalize removal of the measure at that time.

Since then, we have developed the Thirty-Day Risk-Standardized Death Rate Among Surgical Inpatients with Complications (Failure-to-Rescue) (CBE #4125) measure, as proposed for adoption in section IX.C.5.e. of this proposed rule beginning with the FY 2027 payment determination. The Failure-to-Rescue measure is a more broadly applicable measure that would be more appropriate for inclusion in the Hospital IQR Program. Recent studies have indicated that the CMS PSI 04 measure does not consistently recognize preventable in-hospital deaths (failure to rescue cases). A 2023 study indicated that CMS PSI 04 is being used to an unknown extent outside of postoperative cases, and there is often erroneous categorization of patients as having a CMS PSI 04 complication. This same study found significant variation in the identification of CMS PSI 04 complications at different procedure locations (For example: bedside versus operating room procedures). Therefore, both the temporal and causal relationship attributing a CMS PSI 04 complication to patient mortality has been found to be poorly understood, particularly because CMS PSI 04 relates to a complication being deemed treatable.

We are proposing to adopt the Failure-to-Rescue measure to replace CMS PSI 04 as a more broadly applicable patient safety indicator and one which can better address concerns previously raised by interested parties. The Failure-to-Rescue measure assesses the percentage of surgical inpatients who experienced a complication and then died within 30-days from the date of their first “operating room” procedure. We refer readers to section IX.C.5.e. of this proposed rule for more detail on the Failure-to-Rescue measure including the timeline for its initial performance, reporting, and payment determination periods.

While CMS PSI 04 only measures the rate of in-hospital deaths among surgical inpatients within a set of serious treatable conditions, the Failure-to-Rescue measure assesses the probability of death given a postoperative complication and is inclusive of a broader range of conditions commonly experienced by surgical inpatients. To best address the needs of a broader scope of surgical inpatients and conditions, it allows for more context-specific approaches to measure preventable deaths due to the highly variable nature of surgical procedures between specialties. This highly variable and context-specific nature of postoperative cases has been considered a challenge of using CMS PSI 04 as an effective universal patient safety metric. There would be minimal burden for hospitals associated with replacing CMS PSI 04 with the Failure-to-Rescue measure due to the Failure-to Rescue measure's data sources, including its use of Medicare Advantage encounter data. Thus, the Failure-to-Rescue measure would include a wider range of patients and better reflect the true nature of postoperative patient safety at institutions. In addition, multiple failure-to-rescue measures have been repeatedly validated by their consistent association with nurse staffing, nursing skill mix, technological resources, rapid response systems, and other activities that improve early identification and prompt intervention when complications arise after surgery.

By using the Failure-to-Rescue measure, hospitals can identify opportunities to improve their quality of care and patient safety. Hospitals and healthcare providers can benefit from knowing not only their institution's mortality rate, but also their institution's ability to provide each patient with the appropriate and necessary standard of care after an adverse occurrence. Using the Failure-to-Rescue measure as opposed to the current CMS PSI 04 measure is especially important if the hospital resources needed for preventing and treating 30-day postoperative complications among surgical inpatients are different from those needed for targeted care after an adverse event, such as more skilled care personnel or equipment specific to postoperative care. From a quality improvement perspective, the Failure-to-Rescue measure rate would complement the mortality rate to improve our understanding of mortality statistics and identify opportunities for improvement. Therefore, the quality-of-care measurement may be improved if both mortality and Failure-to-Rescue measure rates are reported instead of relying on the Hybrid HWM measure alone. Using the Failure-to-Rescue measure instead of the CMS PSI 04 measure would allow us to assess an expanded population and encourage safe practices for the widest range of surgical inpatients.

We are proposing to remove the CMS PSI 04 measure from the Hospital IQR Program beginning with the FY 2027 payment determination associated with the performance period of July 1, 2023-June 30, 2025, contingent upon finalizing our proposal to adopt the Failure-to-Rescue measure beginning with the FY 2027 payment determination so that there is no gap in measuring this important topic area.

We invite public comment on our proposal to remove the CMS PSI 04 measure from the Hospital IQR Program beginning with the FY 2027 payment determination associated with the performance period of July 1, 2023-June 30, 2025, contingent upon finalizing our proposal to adopt the Failure-to-Rescue measure beginning with the FY 2027 payment determination.

b. Proposal To Remove Four Clinical Episode-Based Payment Measures Beginning With the FY 2026 Payment Determination

We are proposing to remove four clinical episode-based payment measures from the Hospital IQR Program beginning with the FY 2026 payment determination:

• Hospital-level, Risk-Standardized Payment Associated with a 30-Day Episode of Care for Acute Myocardial Infarction (AMI) (CBE #2431) (AMI Payment) (adopted at 78 FR 50802 through 50805). This measure assesses hospital risk-standardized payment associated with a 30-day episode-of-care for acute myocardial infarction for Medicare FFS patients aged 65 or older for any hospital participating in the Hospital IQR Program;
• Hospital-level, Risk-Standardized Payment Associated with a 30-Day Episode of Care for Heart Failure (HF) (CBE #2436) (HF Payment) (adopted at 79 FR 50231 through 50235). This measure assesses hospital risk-standardized payment associated with a 30-day episode-of-care for heart failure for Medicare FFS patients aged 65 or older for any hospital participating in the Hospital IQR Program;
• Hospital-level, Risk-Standardized Payment Associated with a 30-Day Episode of Care for Pneumonia (PN) (CBE #2579) (PN Payment) (adopted at 79 FR 50227 through 50231). This measure assesses hospital risk-standardized payment associated with a 30-day episode-of-care for pneumonia for any hospital participating in the Hospital IQR Program and includes Medicare FFS patients aged 65 or older; and
• Hospital-level, Risk-Standardized Payment Associated with a 30-Day Episode of Care for Elective Primary Total Hip Arthroplasty (THA) and/or Total Knee Arthroplasty (TKA) (CBE #3474) (THA/TKA Payment) (adopted at 80 FR 49674 through 49680; revised at 87 FR 49267 through 49269). This measure assesses hospital risk-standardized payment (including payments made by CMS, patients, and other insurers) associated with a 90-day episode-of-care for elective primary THA/TKA for any hospital participating in the Hospital IQR Program and includes Medicare FFS patients aged 65 or older.

The proposed final performance periods for these four payment measures are indicated in the following table:

We are proposing to remove the AMI Payment, HF Payment, PN Payment, and THA/TKA Payment measures under measure removal Factor 3, the availability of a more broadly applicable measure (across settings, populations, or the availability of a measure that is more proximal in time to desired patient outcomes for the particular topic)—specifically, the Medicare Spending Per Beneficiary Hospital measure (CBE #2158) (MSPB Hospital measure) in the Hospital VBP Program. The MSPB Hospital measure has been intermittently included in the Hospital IQR Program's measure set, most recently to update the measure specifications in the Hospital VBP Program. The Hospital VBP Program's statute requires that measures be publicly reported for one year in the Hospital IQR Program prior to the beginning of the performance period in the Hospital VBP Program (section 1886(o)(2)(B)(ii) of the Act and 42 CFR 412.164(b)). In the FY 2023 IPPS/LTCH PPS final rule, we re-adopted the previously removed MSPB Hospital measure into the Hospital IQR Program with refinements (87 FR 28529 through 28532) to update the measure specifications for purposes of the Hospital VBP Program. We subsequently removed it again from the Hospital IQR Program and concurrently adopted the refined version into the Hospital VBP Program (88 FR 59064 through 59067, 59170 through 59171, respectively). We refer readers to the FY 2023 IPPS/LTCH PPS final rule (87 FR 49257 through 49263) for more details on this measure's history in the Hospital IQR and Hospital VBP Programs.

The MSPB Hospital measure evaluates hospitals' efficiency and resource use relative to the efficiency of the national median hospital. The MSPB Hospital measure is a more broadly applicable measure because it captures the same data as the four clinical episode-based payment measures being proposed for removal but incorporates a much larger set of conditions and procedures. We note that we recently adopted refinements to the MSPB Hospital measure to ensure a more comprehensive and consistent assessment of hospital performance (87 FR 49257 through 49263, 88 FR 59064 through 59067). Those refinements allow the measure to capture more episodes and adjusted the measure calculation.

The four clinical episode-based payment measures being proposed for removal are condition-specific whereas the MSPB Hospital measure is not. Although the MSPB Hospital measure does not provide the same level of granularity as the four condition-specific measures, the important data elements would be captured more broadly under the Hospital VBP Program by evaluating and publicly reporting the hospitals' efficiency relative to the efficiency of the median national hospital. Specifically, the MSPB Hospital measure assesses the cost to Medicare for services performed by hospitals and other healthcare providers during an episode of care, which includes the three days prior to, during, and 30 days following an inpatient's hospital stay. Additionally, providers will continue to receive confidential feedback reports containing details on the MSPB Hospital measure.

We note that performance on these four clinical episode-based payment measures has either remained stable or decreased since FY 2019. Based on an internal CMS analysis, the mean performance for the PN Payment, HF Payment, and AMI Payment measures has decreased, while the mean performance for the THA/TKA Payment measure has remained stable. Considering these performance trends, we highlight that these four clinical episode-based payment measures have not been as beneficial in recent years to the Hospital IQR Program.

We invite public comment on our proposal to remove these four clinical episode-based payment measures from the Hospital IQR Program beginning with the FY 2026 payment determination.

7. Proposed Refinements to Current Measures in the Hospital IQR Program Measure Set

We are proposing refinements to two measures currently in the Hospital IQR Program measure set: (1) Global Malnutrition Composite Score (GMCS) eCQM, beginning with the CY 2026 reporting period/FY 2028 payment determination and for subsequent year, and (2) the Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) Survey measure beginning with the CY 2025 reporting period/FY 2027 payment determination. We provide more details on the GMCS eCQM proposal in the subsequent sections and details on the proposed modification to HCAHPS Survey measure are in section IX.B.2.e. of this proposed rule.

a. Proposal To Modify the Global Malnutrition Composite Score Measure Beginning With the CY 2026 Reporting Period/FY 2028 Payment Determination

(1) Background

The previously finalized GMCS eCQM (CBE #3592e) assesses the percentage of hospitalizations for adults 65 years old and older prior to the start of the measurement period with a length of stay equal to or greater than 24 hours who received optimal malnutrition care during the current inpatient hospitalizations where care performed was appropriate to the patient's level of malnutrition risk and severity. We adopted the GMCS eCQM in the FY 2023 IPPS/LTCH PPS final rule beginning with the CY 2024 reporting period/FY 2026 payment determination (87 FR 49239 through 49246). We refer readers to the FY 2023 IPPS/LTCH PPS final rule (87 FR 49241 through 49242) for more detailed discussion of the CBE review and endorsement of the current GMCS eCQM, which received CBE endorsement in July 2021 (CBE #3592e).

While we understand the unique challenges malnutrition creates for older adults, we also recognize that hospital and disease-related malnutrition is not limited to that population (87 FR 49239). Data from the Agency for Healthcare Research and Quality (AHRQ) indicate that approximately eight percent of all hospitalized adults have a diagnosis of malnutrition, and additional research finds that malnutrition and malnutrition risk can be found in 20 to 50 percent of hospitalized adults 18 years old and older. Failure to diagnose and insufficient treatment of malnutrition in hospitals is also associated with poor institutional coordination between nurses, physicians, and other hospital staff regarding screening, diagnosis, and treatment, further emphasizing the need to address malnutrition in all hospitalized adults. Because malnutrition impacts adults of all ages, preventive screening and intervention among all hospitalized adults 18 years old and older would greatly reduce the risk and improve the treatment of malnutrition. A 2020 study estimated that every dollar spent on nutrition interventions in a hospital setting can result in up to $99 in savings on subsequent medical care. Screening all patients over age 18 for malnutrition instead of only those over age 65 could result in both improved clinical outcomes for patients and substantial financial savings for the healthcare system.

Therefore, in this proposed rule, we are proposing to modify the GMCS eCQM to expand the applicable population from hospitalized adults 65 or older to hospitalized adults 18 or older. The modified GMCS eCQM would broaden the measure to assess hospitalized adults 18 years old and older who received care appropriate to their level of malnutrition risk and malnutrition diagnosis, if properly identified.

(2) Measure Alignment to Strategy

In the FY 2023 IPPS/LTCH PPS final rule (87 FR 49239), we noted that the adoption of a malnutrition measure may help address several priority areas identified in the CMS Framework for Health Equity (87 FR 49240 through 49241) and expanding the current measure's population to include all adults over 18 years old would further address these priorities. Malnutrition in the U.S., whether caused by challenges from disease and functional limitations, food insecurity, other factors, or a combination of causes, is more frequently experienced by underserved populations and can thus be a contributing factor to health inequities. Adopting the updated measure as proposed would lead to a more diverse population being assessed for malnutrition, and by identifying instances of malnutrition among younger populations, the benefits of proper nutrition could be felt over a lifetime. As part of the CMS National Quality Strategy, the modified GMCS eCQM would also address the priority area of “Promote Aligned and Improved Health Outcomes.” Under the CMS Meaningful Measures 2.0 Initiative, which is a key component of the CMS National Quality Strategy, the modified GMCS eCQM addresses the quality priorities of “Seamless Care Coordination,” “Person-Centered Care,” and “Equity.” It would address these priorities by connecting providers at different levels of care to ensure the largest possible population of adult patients with in-hospital malnutrition are identified and treated using a patient-centered approach.

(3) Overview of Measure Update

The modified GMCS eCQM still includes the four component measures corresponding to documented best practices as described in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49241) and in the first column of Table IX.C.4. The only change we are proposing is to expand the applicable population for this measure. The measure specifications for the modified GMCS eCQM can be found on the eCQI Resource Center website, available at: https://ecqi.healthit.gov/ecqm/eh/2024/cms0986v2.

(4) Pre-Rulemaking Process and Measure Endorsement

(a) Recommendation From the PRMR Process

We refer readers to the proposed Patient Safety Structural measure in section IX.B.1.c. of this proposed rule for details on the PRMR process including the voting procedures used to reach consensus on measure recommendations. The PRMR Hospital Committee met on January 18-19, 2024, to review measures included by the Secretary on a publicly available “2023 Measures Under Consideration List” (MUC List), including the modified GMCS eCQM (MUC2023-114), to vote on a recommendation with regard to use of this measure.

The PRMR Hospital Committee reached consensus and recommended including this measure (MUC2023-114) in the Hospital IQR Program with conditions. Fourteen members of the group recommended adopting the measure into the Hospital IQR Program without conditions; three members recommended adoption with conditions; two committee members voted not to recommend the measure for adoption. Taken together, 84.2 percent of the votes were recommended with conditions. The three members who voted to adopt with conditions specified the condition as screening and assessment includes hospital-acquired malnutrition and high-risk nutritional practices in hospitals, such as prolonged fasting for rescheduled procedures, and to obtain more feedback from patient groups. We agree that the potential for unintended consequences exists and note that we consistently monitor all of the measures in the Hospital IQR Program for unintended consequences. Furthermore, we note that under our previously finalized measure removal Factor 6, collection or public reporting of a measure leads to negative unintended consequences other than patient harm, if we were to identify unintended consequences related to this measure, we would consider it for removal.

(b) Measure Endorsement

We refer readers to section IX.B.1.c. of the preamble of this proposed rule for details on the E&M process including the measure evaluation procedures the E&M Committees, comprised of the E&M Advisory Group and E&M Recommendation Group, uses to evaluate measures and whether they meet endorsement criteria. The GMCS eCQM was initially endorsed in the Fall 2020 cycle by the CBE (CBE #3592e) and is scheduled for endorsement review with the proposed modification in 2024. Section 1886(b)(3)(B)(viii)(IX)(aa) of the Act requires that measures specified by the Secretary for use in the Hospital IQR Program be endorsed by the entity with a contract under section 1890(a) of the Act. Section 1886(b)(3)(B)(viii)(IX)(bb) of the Act states that in the case of a specified area or medical topic determined appropriate by the Secretary for which a feasible and practical measure has not been endorsed by the entity with a contract under section 1890(a) of the Act, the Secretary may specify a measure that is not so endorsed as long as due consideration is given to measures that have been endorsed or adopted by a consensus organization identified by the Secretary. Here, after reviewing the current measure, we found no measures, other than the current GMCS measure, on this topic. We have determined this is an appropriate medical topic for us to propose the adoption of an unendorsed measure because of its general consistency with the current, endorsed measure, and the usefulness of the measure would be substantially improved by the proposed modification.

(5) Measure Calculation

The modified GMCS eCQM would still use data collected through hospitals' EHRs. The measure is designed to be calculated by the hospitals' CEHRT using the patient-level data and then submitted by hospitals to CMS.

The modified GMCS eCQM continues to consist of four component measures, which are first scored separately. The overall composite score is derived from averaging the individual performance scores of the four component measures. The malnutrition component measures are all fully specified for use in EHRs. Table IX.C.4 describes each of the four measure components with the proposed expanded population.

The modified GMCS eCQM numerator is comprised of the four component measures, that are individually scored for patients 18 years old and older who are admitted to an acute inpatient hospital. The measure denominator is the composite, or total, of the four component measures for patients 18 years old and older who are admitted to an acute inpatient hospital. The only exclusion for this measure population remains as patients whose length of stay is less than 24 hours, the same as previously adopted in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49244).

Each measure component is a proportion with a possible performance score of 0 to 100 percent (higher percent reflects better performance). After each component score is calculated individually, an unweighted average of all four scores is computed to determine the final composite score for the individual with a total score ranging from 0 to 100 percent (higher percent reflects better performance).

(6) Data Submission and Reporting

We are proposing the adoption of the modified GMCS eCQM as part of the Hospital IQR Program measure set from which hospitals can self-select beginning with the CY 2026 reporting period/FY 2028 payment determination. Since this modification uses the same data sources and collection methods as the current version of the GMCS eCQM, there is not expected to be any major impact to workflows or other aspects of data collection. The only anticipated change to data collection processes is that the data would be collected from a larger patient population. We refer readers to section XI.C.9.c. of this proposed rule for our previously finalized eCQM reporting and submission requirements, as well as proposed modifications for these requirements.

We also refer readers to section IX.F.6.a.(2). of the preamble of this proposed rule for discussion of a similar proposal to adopt this measure in the Medicare Promoting Interoperability Program for Eligible Hospitals and CAHs.

We invite public comment on our proposal to modify the GMCS eCQM to expand the applicable population from hospitalized adults 65 years old or older to hospitalized adults 18 years old or older beginning with the CY 2026 reporting period/FY 2028 payment determination.

8. Summary of Previously Finalized and Proposed Hospital IQR Program Measures

a. Summary of Previously Finalized Hospital IQR Program Measures for the FY 2026 Payment Determination

This table summarizes the previously finalized Hospital IQR Program measure set for the FY 2026 payment determination including the proposed removals of four claims-based payment measures:

b. Summary of Previously Finalized Hospital IQR Program Measures for the FY 2027 Payment Determination

This table summarizes the previously finalized Hospital IQR Program measure set for the FY 2027 payment determination including the proposed adoption of two new structural measures, one new claims-based patient safety measure, and the proposed removal of the CMS PSI 04 measure:

c. Summary of Previously Finalized and Proposed Hospital IQR Program Measures for the FY 2028 Payment Determination

This table summarizes the previously finalized and proposed Hospital IQR Program measure set for the FY 2028 payment determination including the proposed adoption of two new Hospital Harm measures, two new NHSN measures, proposed modification of the GMCS eCQM, and the proposed Updated Hospital Consumer Assessment of Healthcare Providers and Systems Survey (including Care Transition Measure):

d. Summary of Previously Finalized and Proposed Hospital IQR Program Measures for the FY 2029 Payment Determination and for Subsequent Years

This table summarizes the previously finalized and proposed Hospital IQR Program measure set for the FY 2029 payment determination and for subsequent years:

9. Form, Manner, and Timing of Quality Data Submission

We are proposing changes to our reporting and submission requirements for eCQMs. There are no proposed changes to the following requirements, and thus have been omitted from the Form, Manner, and Timing of Quality Data Submission section: procedural requirements; data submission requirements for chart-abstracted measures; data submission and reporting requirements for hybrid measures; sampling and case thresholds for chart-abstracted measures; HCAHPS Survey administration and submission requirements; data submission requirements for structural measures; data submission and reporting requirements for CDC NHSN measures; and data submission and reporting requirements for Patient-Reported Outcome-Based Performance Measures (PRO-PMs). We refer readers to the QualityNet website at: https://qualitynet.cms.gov/inpatient/iqr (or other successor CMS designated websites) for more details on the Hospital IQR Program data submission and procedural requirements.

a. Background

Section 1886(b)(3)(B)(viii)(I) and (b)(3)(B)(viii)(II) of the Act state that the applicable percentage increase for FY 2015 and each subsequent year shall be reduced by one-quarter of such applicable percentage increase (determined without regard to sections 1886(b)(3)(B)(ix), (xi), or (xii) of the Act) for any subsection (d) hospital that does not submit data required to be submitted on measures specified by the Secretary in a form and manner and at a time specified by the Secretary. To successfully participate in the Hospital IQR Program, hospitals must meet specific procedural, data collection, submission, and validation requirements.

b. Maintenance of Technical Specifications for Quality Measures

Section 412.140(c)(1) of title 42 of the Code of Federal Regulations generally requires that a subsection (d) hospital participating in the Hospital IQR Program must submit to CMS data on measures selected under section 1886(b)(3)(B)(viii) of the Act in a form and manner, and at a time, specified by CMS. The data submission requirements, specifications manual, measure methodology reports, and submission deadlines are posted on the QualityNet website at: https://qualitynet.cms.gov (or other successor CMS designated websites). The CMS Annual Update for the Hospital Quality Reporting Programs (Annual Update) contains the technical specifications for eCQMs. The Annual Update contains updated measure specifications for the year prior to the reporting period. For example, for the CY 2024 reporting period/FY 2026 payment determination, hospitals are collecting and will submit eCQM data using the May 2023 Annual Update and any applicable addenda. The Annual Update and implementation guidance documents are available on the Electronic Clinical Quality Improvement (eCQI) Resource Center website at: https://ecqi.healthit.gov/.

Hospitals must register and submit quality data through the Hospital Quality Reporting (HQR) System (previously referred to as the QualityNet Secure Portal) (42 CFR 412.140(a)). The HQR System is safeguarded in accordance with the HIPAA Privacy and Security Rules to protect submitted patient information. See 45 CFR parts 160 and 164, subparts A, C, and E.

c. Reporting and Submission Requirements for eCQMs

We are proposing a progressive increase in the number of mandatory eCQMs a hospital must report beginning with the CY 2026 reporting period/FY 2028 payment determination. We are not proposing any changes to the current eCQM reporting or submission requirements for the CY 2024 reporting period/FY 2026 payment determination or the CY 2025 reporting period/FY 2027 payment determination. We provide additional detail in our proposal later in this section of the preamble.

(1) Background

We began requiring hospitals to report on eCQMs in the CY 2016 reporting period, with a goal of progressively increasing the number of eCQMs hospitals are required to report in the Hospital IQR Program while also being responsive to hospitals' concerns about timing, readiness, and burden associated with the increased number of measures (80 FR 49693 through 49698, and 81 FR 57150 through 57157). To allow hospitals and their vendors time to gain experience with reporting eCQMs we gradually increased the number of eCQMs on which hospitals were required to report over the course of several years. We required hospitals to report on certain specific eCQMs that we prioritized while retaining an element of choice by allowing hospitals to self-select some eCQMs. We also gradually increased the number of reporting quarters to improve measure reliability for public reporting of performance information (84 FR 42503 through 42505, 85 FR 58932 through 58939, 86 FR 45418, and 87 FR 49299 through 49302).

Under our current eCQM reporting policies, hospitals must report four calendar quarters of data for each required eCQM: (1) the Safe Use of Opioids—Concurrent Prescribing eCQM; (2) the Cesarean Birth eCQM; (3) the Severe Obstetric Complications eCQM; and (4) three self-selected eCQMs; for a total of six eCQMs for the CY 2024 reporting period/FY 2026 payment determination and subsequent years (85 FR 58932 through 58939, 86 FR 45418, and 87 FR 49298 through 49302). We refer readers to the QualityNet website for additional information on current and previous reporting and submission requirements policies for eCQMs at: https://qualitynet.cms.gov/inpatient/measures/ecqm (or other successor CMS designated websites).

In the CY 2024 Medicare Physician Fee Schedule (PFS) final rule (88 FR 79307 through 79312), we finalized the revisions to the definition of CEHRT for the Medicare Promoting Interoperability Program at 42 CFR 495.4. Specifically, we finalized the addition of a reference to the revised name of “Base EHR definition,” proposed in the Health Data, Technology, and Interoperability: Certification Program Updates, Algorithm Transparency, and Information Sharing (HTI-1) proposed rule (88 FR 23759, 23905), to ensure, if the HTI-1 proposals were finalized, the revised name of “Base EHR definition” would be applicable for the CEHRT definitions going forward (88 FR 79309 through 79312). We also finalized the replacement of our references to the “2015 Edition health IT certification criteria” with “ONC health IT certification criteria,” and the addition of the regulatory citation for ONC health IT certification criteria in 45 CFR 170.315. We finalized the proposal to specify that technology meeting the CEHRT definition must meet ONC's health IT certification criteria “as adopted and updated in 45 CFR 170.315” (88 FR 79553). This approach is consistent with the definitions subsequently finalized in ONC's HTI-1 final rule, which appeared in the Federal Register on January 9, 2024 (89 FR 1205 through 1210). For additional background and information on this update, we refer readers to the discussion in the CY 2024 PFS final rule on this topic (88 FR 79307 through 79312).

(2) Proposal To Progressively Increase Mandatory eCQM Reporting Beginning With CY 2026 Reporting Period/FY2028 Payment Determination

Increasing the number of mandatory eCQMs, specifically to include the five previously adopted Hospital Harm eCQMs, would support our re-commitment to better safety practices for both patients and healthcare workers to save lives from preventable harms. Proposing mandatory reporting of these Hospital Harms eCQMs are a part of our initial actions in responding and joining the President's Council of Advisors on Science and Technology (PCAST) call to action to renew “our nation's commitment to improving patient safety.” We refer readers to section IX.B.1. for more details on other efforts toward better patient and healthcare workers safety practices and the proposal to adopt the Patient Safety Structural measure into the Hospital IQR Program and the PCHQR Program.

This proposal also aligns with CMS' National Quality Strategy priority area of “Patient Safety and Resiliency,” that seeks to “improve performance on key patient safety metrics through the applications of CMS levers such as quality measurement, payment, health and safety standards, and quality improvement support.” It is important to more comprehensively collect data on these measures from all hospitals participating in the Hospital IQR Program instead of limiting data collection to just those hospitals that chose to report it. Capturing this important quality information is crucial to improve surveillance on safety metrics in the Hospital IQR Program and support the CMS National Quality Strategy target success goal of reducing preventable harm. Additionally, this proposal aligns with the “Interoperability” goal outlined in the National Quality Strategy that eCQMs use standard and interoperable data requirements that are less burdensome than other types of measures. By increasing the number of required eCQMs, and prioritizing the measures focused on preventable hospital harms, we are progressing towards our goal of using all digital measures. Thus, we are proposing to increase the number of mandatory eCQMs over a two-year period to ultimately require reporting on five additional eCQMs. We provide additional details on the proposals later in this section of the preamble.

(a) Proposal To Change the Reporting and Submission Requirements for eCQMs for the CY 2026 Reporting Period/FY 2028 Payment Determination

Beginning with the CY 2026 reporting period/FY 2028 payment determination, we are proposing to modify the eCQM reporting and submission requirements to require hospitals to report on the following three eCQMs in addition to the existing eCQMs: (1) Hospital Harm—Severe Hypoglycemia eCQM; (2) Hospital Harm—Severe Hyperglycemia eCQM; and (3) Hospital Harm—Opioid-Related Adverse Events eCQM. If this proposal is finalized, beginning with the CY 2026 reporting period/FY 2028 payment determination, hospitals would be required to report four calendar quarters of data for a total of nine eCQMs (six specified eCQMs and three self-selected eCQMs).

(b) Proposal To Change the Reporting and Submission Requirements for eCQMs for the CY 2027 Reporting Period/FY 2029 Payment Determination and for Subsequent Years

Beginning with the CY 2027 reporting period/FY 2029 payment determination, we are proposing to modify the eCQM reporting and submission requirements to require hospitals to report on the following two eCQMs in addition to the eCQMs proposed for the CY 2026 reporting period/FY 2028 payment determination: (1) Hospital Harm—Pressure Injury eCQM; and (2) Hospital Harm—Acute Kidney Injury eCQM. If this proposal is finalized, beginning with the CY 2027 reporting period/FY 2029 payment determination, hospitals would be required to report four calendar quarters of data for a total of eleven eCQMs (eight specified eCQMs and three self-selected eCQMs).

This stepwise approach to increasing the number of required eCQMs is in response to public comments noting the burden and resources necessary to implement new eCQMs (88 FR 59145 through 59149, and 88 FR 59149 through 59154), while also balancing the need to prioritize more comprehensive reporting on important safety and preventable harm metrics. Waiting until the CY 2027 reporting period/FY 2029 payment determination to require that hospitals report on these two Hospital Harm eCQMs would allow hospitals to experience2 years of self-selecting to report on these relatively new eCQMs and build the infrastructure necessary to report these measures (88 FR 59145 through 59149, and 88 FR 59149 through 59154). Therefore, we are proposing to require these two measures in the CY 2027 reporting period instead of the CY 2026 reporting period to provide hospitals with additional time to gain experience with these newer measures.

(c) Summary of Proposed Changes to the eCQM Reporting and Submission Requirements

We refer readers to section IIX.C.8. for the full list of eCQMs by payment determination in the Hospital IQR Program. If a hospital does not have patients that meet the denominator criteria for any of the eCQMs included in this proposal, the hospital would submit a zero denominator declaration for the measure that allows a hospital to meet the reporting requirements for a particular eCQM. We refer readers to the FY 2015 IPPS/LTCH PPS final rule (79 FR 50258), the FY 2016 IPPS/LTCH PPS final rule (80 FR 49705 through 49708), and the FY 2017 IPPS/LTCH PPS final rule (81 FR 57170) for our previously adopted eCQM file format requirements. A QRDA Category I file with patients meeting the initial patient population of the applicable measures, a zero denominator declaration, and/or a case threshold exemption all count toward a successful submission for eCQMs for the Hospital IQR Program (82 FR 38387). The following Table IX.C.9 summarizes our proposed policies:

We invite public comment on our proposal to increase the number of mandatory eCQMs over a two-year period to ultimately require reporting on five additional eCQMs beginning with CY 2026 Reporting Period/FY 2028 Payment Determination. We refer readers to section IX.F.6.b. of this proposed rule, in which we propose the same reporting and submission requirements under the Medicare Promoting Interoperability Program for Eligible Hospitals and Critical Access Hospitals.

10. Validation of Hospital IQR Program Data

We are proposing changes to our policies for eCQM validation scoring processes beginning with validation of eCQMs affecting the FY 2028 payment determinations.

a. Background

In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53539 through 53553), we finalized the processes and procedures for validation of chart-abstracted measures in the Hospital IQR Program for the FY 2015 payment determination and subsequent years. In the FY 2018 IPPS/LTCH PPS final rule (82 FR 38398 through 38403), we finalized several requirements for the validation of eCQM data, including a policy requiring submission of at least 75 percent of sampled eCQM medical records in a timely and complete manner for validation (81 FR 57181). In the FY 2021 IPPS/LTCH PPS final rule (85 FR 58950 through 58952), we finalized the existing Hospital IQR Program validation scoring processes such that a combined score is calculated based on a weighted combination of a hospital's validation performance for chart-abstracted measures and eCQMs. Under the aligned validation policies, each hospital selected for validation is expected to submit medical record data for both chart-abstracted measures and eCQMs (85 FR 58942 through 58953). Beginning with validation procedures affecting the FY 2024 payment determination, we finalized a policy to annually identify one pool of up to 200 hospitals selected through random selection and one pool of up to 200 hospitals selected using targeting criteria to participate in both chart-abstracted measure and eCQM validation (85 FR 58942 through 58953).

We refer readers to 42 CFR 412.140(d) for our codification of validation policies and to the FY 2023 IPPS/LTCH PPS final rule (87 FR 49308 through 49310) for a discussion of the most recent changes to chart-abstracted and eCQM data validation requirements for the Hospital IQR Program wherein we finalized the requirement that hospitals selected for validation must submit timely and complete data for 100 percent of requested records for eCQM validation. We refer readers to the FY 2017 IPPS/LTCH PPS final rule (81 FR 57178 through 57180) for details on the Hospital IQR Program data submission requirements for chart-abstracted measures.

b. Proposal To Modify eCQM Data Validation Beginning With the CY 2025 Reporting Period/FY 2028 Payment Determination

(1) Proposal To Modify eCQM Validation Scoring Beginning With CY 2025 eCQM Data Affecting the FY 2028 Payment Determination

Under the existing eCQM data validation policy, as described in the FY 2017 IPPS/LTCH PPS final rule (81 FR 57180 through 57181), the accuracy of eCQM data (the extent to which data abstracted for validation matches the data submitted in the QRDA I file) has not affected a hospital's validation score. Instead, hospitals have been scored on the completeness of eCQM medical record data that were submitted for the validation process. In the FY 2018 IPPS/LTCH PPS final rule (82 FR 38401), we noted our intention for the accuracy of eCQM data validation to affect validation scores in the future.

We have assessed agreement rates, or the rates by which hospitals' reported eCQM data agree with the data resulting from the review process that we conduct as part of validation. The agreement rates for validation accuracy, which have been confidentially reported to hospitals selected for eCQM validation in recent years, are consistently robust overall. For example, around 90 percent (national average agreement rate) for current eCQMs that would be validated in FY 2028 (ranging from a low average of about 84 percent for the Anticoagulation Therapy for Atrial Fibrillation/Flutter eCQM) to a high of average of about 94 percent for the Antithrombotic Therapy by the End of Hospital Day Two eCQM), based on FY 2024 validation results. With the low end of the average accuracy range being well above a passing threshold of 75 percent, it is now appropriate to move forward with scoring hospitals' eCQM data based on the accuracy of the data submitted for purposes of determining whether a hospital has met the validation requirements under the Hospital IQR Program. Therefore, in this proposed rule, we are proposing to implement eCQM validation scoring based on the accuracy of eCQM data beginning with CY 2025 eCQM data affecting the FY 2028 payment determination. By the time our proposed eCQM validation scoring methodology would go into effect, we will have been validating eCQM data for completeness for 8 years, which is ample time for hospitals to have prepared for data to be validated based on its accuracy. We would also note that because hospitals are already required to submit 100 percent of requested eCQM medical records to pass the eCQM validation requirement, there is no additional burden to hospitals associated with this proposal to begin scoring the submitted records.

Separately, we are proposing to remove the requirement at § 412.140(d)(2)(ii) that hospitals submit 100 percent of the requested eCQM medical records to pass the eCQM validation requirement and proposing that missing eCQM medical records would be treated as mismatches, beginning with the validation of CY 2025 eCQM data affecting the FY 2028 payment determination. This is the same methodology that is applied for missing medical records in chart-abstracted measure validation to incentivize the timely submission of requested medical records. Because mismatches count against the agreement rate, by treating missing eCQM medical records as mismatches, we can ensure our validation scoring methodology clearly requires that hospitals submit all necessary eCQM data for our review without also requiring medical records submissions.

We are proposing that eCQM validation scores be determined using the same methodology that is currently used to score chart-abstracted measure validation. Hospitals' eCQM data would be used to compute an agreement rate and its associated confidence interval. The upper bound of the two-tailed 90 percent confidence interval would be used as the final eCQM validation score for the selected hospital. A minimum score of 75 percent accuracy would be required for the hospital to pass the eCQM validation requirement. Based on the FY 2024 results, most measures had national agreement rates well above the proposed 75 percent threshold, however these FY 2024 results are based on only two quarters of data and included data only from eCQMs that have been in the Hospital IQR Program for several years. We anticipate that the average agreement rates may decrease with a full year of data and the introduction of newer eCQMs that hospitals may have less experience reporting. As such, while we may consider raising the minimum passing threshold from 75 percent in future years, at this time we have determined that the 75 percent threshold is appropriate for initial scoring of eCQMs in Hospital IQR Program validation.

We invite public comment on our proposal to Modify eCQM Validation Scoring beginning with CY 2025 eCQM data affecting the FY 2028 payment determination.

(2) Proposal To Modify the Combined Validation Scoring Process Beginning With CY 2025 Data Affecting the FY 2028 Payment Determination

We are proposing to remove the existing combined validation score based on a weighted combination of a hospital's validation performance for chart-abstracted measures and eCQMs and replace it with two separate validation scores, one for chart-abstracted measures, and one for eCQMs. Based on our current policies, the eCQM portion of the combined agreement rate is multiplied by zero percent, and the chart-abstracted measure agreement rate is weighted at 100 percent. A minimum passing score for this combined score is set at 75 percent.

Reporting requirements and procedures for eCQMs are different than those for chart-abstracted measures. For instance, hospitals implement electronic algorithms to query eCQM data and submit eCQM measure results using a custom file layout for quality data reporting to CMS. In contrast, validation of chart-abstracted measures is conducted using measure specifications written to support manual abstraction processes. As such, separate validation scores are consistent with the distinct requirements and procedures for the reporting of quality measure data. Moreover, CMS intends to retain an emphasis on data accuracy through the validation efforts across both measure types (that is, chart-abstracted measures and eCQMs). It is important to ensure necessary analysis and resources are placed on chart-abstracted measures that are still currently being validated, especially because of their use within the Hospital Value-Based Purchasing (VBP) Program. Therefore, we are proposing to implement two separate scoring processes, one for chart-abstracted measures and one for eCQMs, for the FY 2028 payment determination and subsequent years. Hospitals would be required to receive passing validation scores for both chart-abstracted measure data and eCQM data to pass validation.

Under our proposal, beginning with the validation of CY 2025 data affecting the FY 2028 payment determination, hospitals would receive separate validation scores for both chart-abstracted measure data and eCQM data, which would be used to determine a hospital's overall annual payment update. As established in the FY 2006 IPPS final rule (70 FR 47420 through 47428), a hospital that fails to meet validation requirements may not receive the full annual payment update. Under our proposal, if a hospital fails either chart-abstracted validation requirements or eCQM validation requirements, it may not receive the full annual payment update. To be eligible for a full annual payment update, provided all other Hospital IQR Program requirements are met, a hospital would have to attain at least a 75 percent validation score for chart-abstracted measure validation and at least a 75 percent validation score for eCQM data validation.

Our existing and newly proposed validation scoring changes are summarized in Table IX.C.10.

We invite public comment on our proposal to Modify the Combined Validation Scoring Process beginning with CY 2025 Data affecting the FY 2028 payment determination.

11. Data Accuracy and Completeness Acknowledgement (DACA) Requirements

We refer readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 53554) for previously adopted details on DACA requirements. We are not proposing any changes to this policy in this proposed rule. We refer readers to the QualityNet website at: https://qualitynet.cms.gov (or other successor CMS designated websites) for more details on DACA requirements.

12. Public Display Requirements

Section 1886(b)(3)(B)(viii)(VII) of the Act requires the Secretary to report quality measures of process, structure, outcome, patients' perspectives on care, efficiency, and costs of care that relate to services furnished in inpatient settings in hospitals on the internet website of CMS. Section 1886(b)(3)(B)(viii)(VII) of the Act also requires that the Secretary establish procedures for making information regarding measures available to the public after ensuring that a hospital has the opportunity to review its data before they are made public. Our current policy is to report data from the Hospital IQR Program as soon as it is feasible on CMS websites such as the Compare tool hosted by HHS, currently available at: https://www.medicare.gov/care-compare, or its successor website, after a 30-day preview period (78 FR 50776 through 50778).

We are not proposing any changes to these policies or the public reporting of eCQM data or overall hospital star ratings in this proposed rule. We also refer readers to the QualityNet website at: https://qualitynet.cms.gov/inpatient/public-reporting (or other successor CMS designated websites) for details on public display requirements.

13. Reconsideration and Appeal Procedures

In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51650 through 51651), the FY 2014 IPPS/LTCH PPS final rule (78 FR 50836), and 42 CFR 412.140(e), we established an approach for reconsideration and appeal procedures for the Hospital IQR Program. As part of this reconsideration process, hospitals can request reconsideration if CMS determines that the hospital did not meet the Hospital IQR Program's validation requirements. Under these requirements as established in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50225 through 50229), for purposes of validation, hospitals are required to resubmit copies of all medical records that were originally submitted to the Clinical Data Abstraction Center (CDAC) each relevant quarter. With the transition to all electronic submission of copies of medical records for Hospital IQR Program validation as established in they FY 2021 IPPS/LTCH final rule (85 FR 58949 through 58950), both through eCQMs and digitized charts, the current reconsideration requirement to resubmit records used for validation results is no longer necessary and creates duplicative files and work.

Therefore, we are proposing to revise § 412.140(e)(2)(vii)(A) to no longer require hospitals to resubmit medical records as part of their request for reconsideration of validation, beginning with CY 2023 discharges affecting the FY 2026 payment determination.

Under our proposal, hospitals that need to submit a revised medical record may still do so, but those hospitals that would otherwise be resubmitting copies of the previously submitted records would no longer be required to submit them. Removing record submission as a requirement for validation reconsideration would reduce hospital administrative burden for the majority of hospitals that do not have revised records to submit. Making this step optional would also reduce the burden for CMS to collect and track medical records that are already available.

We invite public comment on our proposal to remove the requirement for hospitals to resubmit medical records as part of their request for reconsideration of validation, beginning with CY 2023 discharges affecting the FY 2026 payment determination.

14. Hospital IQR Program Extraordinary Circumstances Exceptions (ECE) Policy

We are not proposing any changes to this policy in this proposed rule. We refer readers to § 412.140(c)(2) and the QualityNet website at: https://qualitynet.cms.gov (or other successor CMS designated websites) for our current requirements for submission of a request for an exception.

D. Proposed Changes to the PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) Program

1. Background

The PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) Program, authorized by section 1866(k) of the Act, applies to hospitals described in section 1886(d)(1)(B)(v) of the Act (referred to as “PPS-Exempt Cancer Hospitals” or “PCHs”). In this proposed rule, we are proposing to adopt the Patient Safety Structural measure beginning with the CY 2025 reporting period/FY 2027 program year. We are also proposing to modify the Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) Survey measure and to move up the start date for publicly displaying hospital performance on the Hospital Commitment to Health Equity measure.

2. Proposal To Adopt the Patient Safety Structural Measure Beginning With the CY 2025 Reporting Period/FY 2027 Program Year

We refer readers to section IX.B.1. of the preamble of this proposed rule where we are proposing adoption of the Patient Safety Structural measure beginning with the CY 2025 reporting period/FY 2027 program year for the PCHQR Program. We are also proposing to adopt this measure for the Hospital Inpatient Quality Reporting (IQR) Program, as discussed in that section.

3. Proposal To Modify the Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) Survey Measure Beginning With the CY 2025 Reporting Period/FY 2027 Program Year

We refer readers to section IX.B.2. of the preamble of this proposed rule where we are proposing to modify the HCAHPS Survey measure (CBE #0166) beginning with the CY 2025 reporting period/FY 2027 program year. We are also proposing to adopt the same modifications to this measure for purposes of the Hospital IQR Program and the Hospital VBP Program, as discussed in the same section.

4. Summary of Previously Adopted and Newly Proposed PCHQR Program Measures for the CY 2025 Reporting Period/FY 2027 Program Year and Subsequent Years

Table IX.D.-01 summarizes the previously adopted and the newly proposed measures for the PCHQR Program measure set beginning with the CY 2025 reporting period/FY 2027 program year.

5. Proposal To Move Up the Start Date for Public Display of the Hospital Commitment to Health Equity Measure

In the FY 2024 IPPS/LTCH PPS final rule, we adopted the Hospital Commitment to Health Equity measure for the PCHQR measure set beginning with the CY 2024 reporting period/FY 2026 program year (88 FR 59204 through 59210). We also finalized that we would publicly report PCH performance on this measure beginning with CY 2024 data beginning July 2026 or as soon as feasible thereafter (88 FR 59209; 59228).

In this proposed rule, we are proposing to accelerate the timeline for beginning to publicly report PCH performance on this measure. Specifically, we are proposing to start public reporting of PCH performance on this measure using CY 2024 data beginning January 2026 or as soon as feasible thereafter. We believe that the public could benefit from having access to the information sooner because the data provide an opportunity to recognize PCHs that have attested to their commitment to health equity at an earlier date. We also believe the modification of the date for public reporting would promote efficiencies through alignment of the performance periods, data submission periods, and the anticipated public reporting release with the Inpatient Psychiatric Facility Quality Reporting (IPFQR) Program that adopted the Facility Commitment to Health Equity measure (which requires the same attestations as the Hospital Commitment to Health Equity measure) beginning with reporting of CY 2024 data for the FY 2026 payment determination and would provide this information for providers participating in the PCHQR Program and the IPFQR Program types simultaneously. We are seeking comment on this proposal to move up the start of public reporting of the Hospital Commitment to Health Equity measure to January 2026 or as soon as feasible thereafter.

6. Summary of Previously Finalized Public Display Policies and Proposed Public Display Start Date Change for the PCHQR Program

Our previously finalized public display policies and newly proposed public display start date change for the Hospital Commitment to Health Equity measure for the PCHQR Program are described in Table IX.D.-02:

E. Long-Term Care Hospital Quality Reporting Program (LTCH QRP)

1. Background and Statutory Authority

The Long-Term Care Hospital Quality Reporting Program (LTCH QRP) is authorized by section 1886(m)(5) of the Act, and it applies to all hospitals certified by Medicare as Long-Term Care Hospitals (LTCHs). Section 1886(m)(5)(C) of the Act requires LTCHs to submit to the Secretary quality measure data specified under section 1886(m)(5)(D) in a form and manner, and at a time, specified by the Secretary. In addition, section 1886(m)(5)(F) of the Act requires LTCHs to submit data on quality measures under section 1899B(c)(1) of the Act, resource use or other measures under section 1899B(d)(1) of the Act, and standardized patient assessment data required under section 1899B(b)(1) of the Act. LTCHs must submit the data required under section 1886(m)(5)(F) of the Act in the form and manner, and at the time, specified by the Secretary. Under the LTCH QRP, the Secretary must reduce by 2 percentage points the annual update to the LTCH PPS standard federal rate for discharges for an LTCH during a fiscal year (FY) if the LTCH has not complied with the LTCH QRP requirements specified for that FY. Section 1890A of the Act requires that the Secretary establish and follow a pre-rulemaking process, in coordination with the consensus-based entity (CBE) with a contract under section 1890(a) of the Act, to solicit input from certain groups regarding the selection of quality and efficiency measures for the LTCH QRP. We have codified our program requirements in our regulations at 42 CFR 412.560.

We are proposing to require LTCHs to report four new items to the LTCH Continuity Assessment and Record of Evaluation (CARE) Data Set (LCDS) and modify one item on the LCDS as described in section IX.E.4. of the preamble of this proposed rule. Second, we are proposing to extend the Admission assessment window for the LCDS. Third, we are seeking information on future measure concepts for the LTCH QRP. Finally, we are seeking information on a future LTCH Star Rating system.

2. General Considerations Used for the Selection of Quality Measures for the LTCH QRP

For a detailed discussion of the considerations, we historically use for the selection of LTCH QRP quality, resource use, and other measures, we refer readers to the FY 2016 Inpatient Prospective Payment System (IPPS)/LTCH PPS final rule (80 FR 49728).

3. Quality Measures Currently Adopted for the FY 2025 LTCH QRP

The LTCH QRP currently has 18 adopted measures, which are set out in Table IX.E.-01. For a discussion of the factors used to evaluate whether a measure should be removed from the LTCH QRP, we refer readers to the FY 2019 IPPS/LTCH PPS final rule (83 FR 41624 through 41634) and to the regulations at 42 CFR 412.560(b)(3).

We are not proposing to adopt any new measures for the LTCH QRP.

4. Proposal To Collect Four New Items as Standardized Patient Assessment Data Elements and Modify One Item Collected as a Standardized Patient Assessment Data Element Beginning With the FY 2028 LTCH QRP

In this proposed rule, we are proposing to add four new items to be collected as standardized patient assessment data elements under the social determinants of health (SDOH) category under the LTCH QRP: Living Situation (one item); Food (two items); and Utilities (one item). We are also proposing to modify one of the current items collected as standardized patient assessment data under the SDOH category (the Transportation item), as described in section X.E.4.e. of the preamble of this proposed rule.

a. Definition of Standardized Patient Assessment Data

Section 1886(m)(5)(F)(ii) of the Act requires LTCHs to submit standardized patient assessment data required under section 1899B(b)(1) of the Act. Section 1899B(b)(1)(A) of the Act requires post-acute care (PAC) providers to submit standardized patient assessment data under applicable reporting provisions (which, for LTCHs, is the LTCH QRP) with respect to the admission and discharge of an individual (and more frequently as the Secretary deems appropriate). Section 1899B(a)(1)(C) of the Act requires, in part, the Secretary to modify the PAC assessment instruments in order for PAC providers, including LTCHs, to submit standardized patient assessment data under the Medicare program. LTCHs are currently required to report patient assessment data through the LCDS. Section 1899B(b)(1)(B) of the Act describes standardized patient assessment data as data required for at least the quality measures described in section 1899B(c)(1) of the Act and that is with respect to the following categories: (1) functional status, such as mobility and self-care at admission to a PAC provider and before discharge from a PAC provider; (2) cognitive function, such as ability to express ideas and to understand, and mental status, such as depression and dementia; (3) special services, treatments, and interventions, such as need for ventilator use, dialysis, chemotherapy, central line placement, and total parenteral nutrition; (4) medical conditions and comorbidities, such as diabetes, congestive heart failure, and pressure ulcers; (5) impairments, such as incontinence and an impaired ability to hear, see, or swallow, and (6) other categories deemed necessary and appropriate by the Secretary.

b. Social Determinants of Health Collected as Standardized Patient Assessment Data Elements

Section 1899B(b)(1)(B)(vi) of the Act authorizes the Secretary to collect standardized patient assessment data elements with respect to other categories deemed necessary and appropriate. Accordingly, we finalized the creation of the SDOH category of standardized patient assessment data elements in the FY 2020 LTCH PPS final rule (84 FR 42578 through 42581), and defined SDOH as the socioeconomic, cultural, and environmental circumstances in which individuals live that impact their health. According to the World Health Organization, research shows that the SDOH can be more important than health care or lifestyle choices in influencing health, accounting for between 30-55% of health outcomes. This is a part of a growing body of research that highlights the importance of SDOH on health outcomes. Subsequent to the FY 2020 LTCH PPS final rule, we expanded our definition of SDOH: SDOH are the conditions in the environments where people are born, live, learn, work, play, worship and age that affect a wide range of health, functioning, and quality-of-life outcomes and risks. This expanded definition aligns our definition of SDOH with the definition used by HHS agencies, including OASH, the Centers for Disease Control and Prevention (CDC) and the White House Office of Science and Technology Policy. We currently collect seven items in this SDOH category of standardized patient assessment data elements: ethnicity, race, preferred language, interpreter services, health literacy, transportation, and social isolation (84 FR 42578 through 42581).

We currently collect seven SDOH items in the category of standardized patient assessment data elements: ethnicity, race, preferred language, interpreter services, health literacy, transportation, and social isolation (84 FR 42577 through 42579). In accordance with our authority under section 1899B(b)(1)(B)(vi) of the Act, we similarly finalized the creation of the SDOH category of standardized patient assessment data elements for Skilled Nursing Facilities (SNFs) in the FY 2020 SNF PPS final rule (84 FR 38805 through 38817), for Inpatient Rehabilitation Facilities (IRFs) in the FY 2020 IRF PPS final rule (84 FR 39149 through 39161), and for Home Health Agencies (HHAs) in the Calendar Year (CY) 2020 HH PPS final rule (84 60597 through 60608). We also collect the same seven SDOH items in these PAC providers' respective patient/resident assessment instruments (84 FR 38817, 39161, and 60610, respectively).

Access to standardized data relating to SDOH on a national level permits us to conduct periodic analyses, and to assess their appropriateness as risk adjustors or in future quality measures. Our ability to perform these analyses and to make adjustments relies on existing data collection of SDOH items from PAC settings. We adopted these SDOH items using common standards and definitions across the four PAC providers to promote interoperable exchange of longitudinal information among these PAC providers, including LTCHs, and other providers. We believe this information may facilitate coordinated care, improve patient focused care planning, and allow for continuity of the discharge planning process from PAC settings.

We noted in our FY 2020 LTCH PPS final rule that each of the items was identified in the 2016 National Academies of Sciences, Engineering, and Medicine (NASEM) report as impacting care use, cost, and outcomes for Medicare beneficiaries (84 FR 39150). At that time, we acknowledged that other items may also be useful to understand. The SDOH items we are proposing to collect as standardized patient assessment data elements under the SDOH category in this proposed rule were also identified in the 2016 NASEM report or the 2020 NASEM report as impacting care use, cost, and outcomes for Medicare beneficiaries. These items have the potential to affect treatment preferences and goals of patients and their caregivers. Identification of these SDOH items may also help LTCHs be in a position to offer assistance, by connecting patients and their caregivers with these associated needs to social support programs, as well as inform our understanding of patient complexity.

Health-related social needs (HRSNs) are the resulting effects of SDOH, which are individual-level, adverse social conditions that negatively impact a person's health or health care. Examples of HRSNs include lack of access to food, housing, or transportation, and have been associated with poorer health outcomes, greater use of emergency departments and hospitals, and higher health care costs. Certain HRSNs can lead to unmet social needs that directly influence an individual's physical, psychosocial, and functional status. This is particularly true for food security, housing stability, utilities security, and access to transportation.

We are proposing to require LTCHs collect and submit four new items in the LCDS as standardized patient assessment data elements under the SDOH category because these items would collect information not already captured by the current SDOH items. Specifically, we believe the ongoing identification of SDOH would have three significant benefits. First, promoting screening for SDOH could serve as evidence-based building blocks for supporting healthcare providers in actualizing their commitment to address disparities that disproportionately impact underserved communities. Second, screening for SDOH improves health equity through identifying potential social needs so the LTCH may address those with the patient, their caregivers, and community partners during the discharge planning process, if indicated. Third, these SDOH items could support our ongoing LTCH QRP initiatives by providing data with which to stratify LTCHs' performance on measures or in future quality measures.

Additional collection of SDOH items would permit us to continue developing the statistical tools necessary to maximize the value of Medicare data and improve the quality of care for all beneficiaries. For example, we recently developed and released the Health Equity Confidential Feedback Reports, which provided data to LTCHs on whether differences in quality measure outcomes are present for their patients by dual-enrollment status and race and ethnicity. We note that advancing health equity by addressing the health disparities that underlie the country's health system is one of our strategic pillars and a Biden-Harris Administration priority.

c. Proposal To Collect Four New Items as Standardized Patient Assessment Data Elements Beginning With the FY 2028 LTCH QRP

We are proposing to require LTCHs collect four new items as standardized patient assessment data elements under the SDOH category using the LCDS: one item for Living Situation, as described in section IX.4.c.(1) of this proposed rule; two items for Food, as described in section IX.4.c.(2) of this proposed rule; and one item for Utilities, as described in section IX.4.c.(3) of this proposed rule.

We selected the proposed SDOH items from the AHC HRSN Screening Tool developed for the AHC Model. The AHC HRSN Screening Tool is a universal, comprehensive screening for HRSNs that addresses five core domains as follows: (i) housing instability (for example, homelessness, poor housing quality), (ii) food insecurity, (iii) transportation difficulties, (iv) utility assistance needs, and (v) interpersonal safety concerns (for example, intimate-partner violence, elder abuse, child maltreatment).

We believe that requiring LTCHs to report new items that are currently included in the AHC HRSN Screening Tool would further standardize the screening of SDOH across quality programs. For example, our proposal would align, in part, with the requirements of the Hospital Inpatient Quality Reporting (IQR) Program and the Inpatient Psychiatric Facility Quality Reporting (IPFQR) Program. As of January 2024, hospitals are required to report whether they have screened patients for the standardized SDOH categories of housing stability, food security, utility difficulties, transportation needs, and interpersonal safety to meet the Hospital IQR Program requirements. Beginning January 2025, IPFs will also be required to report whether they have screened patients for the same set of SDOH categories. As we continue to standardize data collection across PAC settings, we believe using common standards and definitions for new items is important to promote interoperable exchange of longitudinal information between LTCHs and other providers to facilitate coordinated care, continuity in care planning, and the discharge planning process.

Below we describe each of the four proposed items in more detail.

(1) Living Situation

Healthy People 2030 prioritizes economic stability as a key SDOH, of which housing stability is a component. Lack of housing stability encompasses several challenges, such as having trouble paying rent, overcrowding, moving frequently, or spending the bulk of household income on housing. These experiences may negatively affect one's physical health and access to health care. Housing instability can also lead to homelessness, which is housing deprivation in its most severe form. On a single night in 2023, roughly 653,100 people, or 20 out of every 10,000 people in the United States, were experiencing homelessness. Studies also found that people who are homeless have an increased risk of premature death and experience chronic disease more often than among the general population.

We believe that LTCHs can use information obtained from the Living Situation item during a patient's discharge planning. For example, LTCHs could work in partnership with community care hubs and community-based organizations to establish new care transition workflows, including referral pathways, contracting mechanisms, data sharing strategies, and implementation training that can track HRSNs to ensure unmet needs, such as housing, are successfully addressed through closed loop referrals and follow-up. LTCHs could also take action to help alleviate a patient's other related costs of living, like food, by referring the patient to community-based organizations that would allow the patient's additional resources to be allocated towards housing without sacrificing other needs. Finally, LTCHs could use the information obtained from the Living Situation item to better coordinate with other healthcare providers, facilities, and agencies during transitions of care, so that referrals to address a patient's housing stability are not lost during vulnerable transition periods.

Due to the potential negative impacts housing instability can have on a patient's health, we are proposing to adopt the Living Situation item as a new standardized patient assessment data element under the SDOH category. This proposed Living Situation item is based on the Living Situation item currently collected in the AHC HRSN Screening Tool, and was adapted from the Protocol for Responding to and Assessing Patients' Assets, Risks, and Experiences (PRAPARE) tool. The proposed Living Situation item asks, “What is your living situation today?” The proposed response options are: (1) I have a steady place to live; (2) I have a place to live today, but I am worried about losing it in the future; (3) I do not have a steady place to live; (7) Patient declines to respond; and (8) Patient unable to respond. A draft of the proposed Living Situation item to be adopted as a standardized patient assessment data element under the SDOH category can be found in the Downloads section of the LCDS and LTCH Manual web page at https://www.cms.gov/medicare/quality/long-term-care-hospital/ltch-care-data-set-ltch-qrp-manual.

(2) Food

The U.S. Department of Agriculture, Economic Research Service defines a lack of food security as a household-level economic and social condition of limited or uncertain access to adequate food. Adults who are food insecure may be at an increased risk for a variety of negative health outcomes and health disparities. For example, a study found that food-insecure adults may be at an increased risk for obesity. Another study found that food-insecure adults have a significantly higher probability of death from any cause or cardiovascular disease in long-term follow-up care, in comparison to adults that are food secure.

While having enough food is one of many predictors for health outcomes, a diet low in nutritious foods is also a factor. The United States Department of Agriculture (USDA) defines nutrition security as “consistent and equitable access to healthy, safe, affordable foods essential to optimal health and well-being.” Nutrition security builds on and complements long standing efforts to advance food security. Studies have shown that older adults struggling with food security consume fewer calories and nutrients and have lower overall dietary quality than those who are food secure, which can put them at nutritional risk. Older adults are also at a higher risk of developing malnutrition, which is considered a state of deficit, excess, or imbalance in protein, energy, or other nutrients that adversely impacts an individual's own body form, function, and clinical outcomes. About 50% of older adults are affected by malnutrition, which is further aggravated by a lack of food security and poverty. These facts highlight why the Biden-Harris Administration launched the White House Challenge to End Hunger and Build Health Communities.

We believe that adopting items to collect and analyze information about a patient's food security at home could provide additional insight to their health complexity and help facilitate coordination with other healthcare providers, facilities, and agencies during transitions of care, so that referrals to address a patient's food security are not lost during vulnerable transition periods. For example, an LTCH's dietitian or other clinically qualified nutrition professional could work with the patient and their caregiver to plan healthy, affordable food choices prior to discharge. LTCHs could also refer a patient that indicates lack of food security to government initiatives such as the Supplemental Nutrition Assistance Program (SNAP) and food pharmacies (programs to increase access to healthful foods by making them affordable), two initiatives that have been associated with lower health care costs and reduced hospitalization and emergency department visits.

We are proposing to adopt two Food items as new standardized patient assessment data elements under the SDOH category. These proposed items are based on the Food items currently collected in the AHC HRSN Screening Tool, and were adapted from the USDA 18-item Household Food Security Survey (HFSS). The first proposed Food item states, “Within the past 12 months, you worried that your food would run out before you got money to buy more.” The second proposed Food item states, “Within the past 12 months, the food you bought just didn't last and you didn't have money to get more. We propose the same response options for both items: (1) Often true; (2) Sometimes true; (3) Never True; (7) Patient declines to respond; and (8) Patient unable to respond. A draft of the proposed Food items to be adopted as a standardized patient assessment data element under the SDOH category can be found in the Downloads section of the LCDS and LTCH Manual web page at https://www.cms.gov/medicare/quality/long-term-care-hospital/ltch-care-data-set-ltch-qrp-manual.

(3) Utilities

A lack of energy (utility) security can be defined as an inability to adequately meet basic household energy needs. According to the Department of Energy, one in three households in the U.S. are unable to adequately meet basic household energy needs. The consequences associated with a lack of utility security are represented by three primary dimensions: economic, physical, and behavioral. Patients with low incomes are disproportionately affected by high energy costs, and they may be forced to prioritize paying for housing and food over utilities. Some patients may face limited housing options and therefore are at increased risk of living in lower-quality physical conditions with malfunctioning heating and cooling systems, poor lighting, and outdated plumbing and electrical systems. Patients with a lack of utility security may use negative behavioral approaches to cope, such as using stoves and space heaters for heat. In addition, data from the Department of Energy's U.S. Energy Information Administration confirm that a lack of energy security disproportionately affects certain populations, such as low-income and African American households. The effects of a lack of utility security include vulnerability to environmental exposures such as dampness, mold, and thermal discomfort in the home, which have a direct impact on a person's health. For example, research has shown associations between a lack of energy security and respiratory conditions as well as mental health-related disparities and poor sleep quality in vulnerable populations such as the elderly, children, the socioeconomically disadvantaged, and the medically vulnerable.